As filed with the Securities and Exchange Commission on October 22, 2019.

File No. 001-            

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

FORM 10

 

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

PURSUANT TO SECTION 12(B) OR 12(G) OF

THE SECURITIES EXCHANGE ACT OF 1934

BAUDAX BIO, INC.

(Exact name of Registrant as specified in its charter)

 

 

 

Pennsylvania   47-4639500

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

490 Lapp Road   19355
Malvern, PA   (Zip Code)
(Address of principal executive offices)    

(484) 395-2470

(Registrant’s telephone number, including area code)

 

 

Securities to be registered pursuant to Section 12(b) of the Act:

 

 

 

    Title of Each Class

    to be so Registered

 

 

 

            Name of Each Exchange on which

            each class is to be registered

 

 

    Common Stock, par value

    $0.01 per share

 

 

 

            The Nasdaq Stock Market LLC

 

 

Securities to be registered pursuant to Section 12(g) of the Act:

None

 

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer  ☐

Non-accelerated filer  ☐

   

Accelerated filer  ☐

Smaller reporting company  ☑

Emerging growth company  ☑

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☑

 

 


BAUDAX BIO, INC.

INFORMATION REQUIRED IN REGISTRATION STATEMENT

CROSS-REFERENCE SHEET BETWEEN INFORMATION STATEMENT

AND ITEMS OF FORM 10

Certain information required to be included in this Form 10 is incorporated by reference to specifically identified portions of the body of the information statement filed with this Form 10 as Exhibit 99.1. None of the information contained in the information statement shall be incorporated by reference in this Form 10 or deemed to be a part of this Form 10 unless such information is specifically incorporated by reference.

Item 1. Business.

The information required by this item is contained under the sections of the information statement entitled “Information Statement Summary,” “Risk Factors,” “Cautionary Statement Concerning Forward-Looking Statements,” “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Business,” “Certain Relationships and Related Person Transactions,” “Where You Can Find More Information” and “Index to Financial Statements” and the financial statements referenced in the information statement. Those sections are incorporated herein by reference.

Item 1A. Risk Factors.

The information required by this item is contained under the section of the information statement entitled “Risk Factors.” That section is incorporated herein by reference.

Item 2. Financial Information.

The information required by this item is contained under the sections of the information statement entitled “Summary Historical and Unaudited Pro Forma Combined Financial Information,” “Unaudited Pro Forma Combined Financial Statements,” “Capitalization” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Those sections are incorporated herein by reference.

Item 3. Properties.

The information required by this item is contained under the section of the information statement entitled “Business—Facilities.” That section is incorporated herein by reference.

Item 4. Security Ownership of Certain Beneficial Owners and Management.

The information required by this item is contained under the section of the information statement entitled “Security Ownership by Certain Beneficial Owners and Management.” That section is incorporated herein by reference.

Item 5. Directors and Executive Officers.

The information required by this item is contained under the section of the information statement entitled “Management.” That section is incorporated herein by reference.

Item 6. Executive Compensation.

The information required by this item is contained under the section of the information statement entitled “Executive Compensation.” That section is incorporated herein by reference.

 

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Item 7. Certain Relationships and Related Transactions, and Director Independence.

The information required by this item is contained under the sections of the information statement entitled “Management,” “Executive Compensation” and “Certain Relationships and Related Person Transactions.” Those sections are incorporated herein by reference.

Item 8. Legal Proceedings.

The information required by this item is contained under the section of the information statement entitled “Business—Legal Proceedings.” That section is incorporated herein by reference.

Item 9. Market Price of, and Dividends on, the Registrant’s Common Equity and Related Stockholder Matters.

The information required by this item is contained under the sections of the information statement entitled “Risk Factors,” “Dividend Policy,” “Capitalization,” “The Separation and Distribution” and “Description of Baudax Bio’s Capital Stock.” Those sections are incorporated herein by reference.

Item 10. Recent Sales of Unregistered Securities.

The information required by this item is contained under the section of the information statement entitled “Description of Baudax Bio’s Capital Stock —Sale of Unregistered Securities.” That section is incorporated herein by reference.

Item 11. Description of Registrant’s Securities to be Registered.

The information required by this item is contained under the sections of the information statement entitled “Risk Factors,” “Dividend Policy,” “Capitalization,” “The Separation and Distribution” and “Description of Baudax Bio’s Capital Stock.” Those sections are incorporated herein by reference.

Item 12. Indemnification of Directors and Officers.

The information required by this item is contained under the section of the information statement entitled “Description of Baudax Bio’s Capital Stock —Indemnification of Directors and Officers.” That section is incorporated herein by reference.

Item 13. Financial Statements and Supplementary Data.

The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” and the financial statements referenced therein. That section is incorporated herein by reference.

Item 14. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

None.

Item 15. Financial Statements and Exhibits.

 

(a)

Financial Statements

The information required by this item is contained under the section of the information statement entitled “Index to Financial Statements” and the financial statements referenced therein. That section is incorporated herein by reference.

 

(b)

Exhibits

 

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The following documents are filed as exhibits hereto:

 

  Exhibit
  Number

 

  

Exhibit Description

 

  2.1

   Form of Separation Agreement by and between Recro Pharma, Inc. and Baudax Bio, Inc.

  3.1*

   Form of Amended and Restated Articles of Organization of Baudax Bio, Inc.

  3.2*

   Form of Amended and Restated Bylaws of Baudax Bio, Inc.

  10.1

   Form of Transition Services Agreement by and between Recro Pharma, Inc. and Baudax Bio, Inc.

  10.2

   Form of Tax Matters Agreement by and between Recro Pharma, Inc. and Baudax Bio, Inc.

  10.3

   Form of Employee Matters Agreement by and between Recro Pharma, Inc. and Baudax Bio, Inc.

  10.4*+

   Form of Indemnification Agreement between Baudax Bio, Inc. and individual directors and officers.

  10.5●

   Purchase and Sale Agreement, dated March 7, 2015, by and among Recro Pharma, Inc., Recro Pharma LLC, Daravita Limited, Alkermes Pharma Ireland Limited and Eagle Holdings USA, Inc.

  10.6

   First Amendment, dated December 8, 2016 to Purchase and Sale Agreement, dated March 7, 2015, by and among Recro Pharma, Inc., Recro Pharma LLC, Daravita Limited, Alkermes Pharma Ireland Limited and Eagle Holdings USA, Inc.

  10.7

   Second Amendment, dated December 20, 2018 to Purchase and Sale Agreement, dated March 7, 2015, by and among Recro Pharma, Inc., Recro Pharma LLC, Daravita Limited, Alkermes Pharma Ireland Limited and Eagle Holdings USA, Inc.

  10.8●

   Dexmedetomidine License Agreement, dated August 22, 2008, by and between Recro Pharma, Inc. and Orion Corporation

  10.9●

   First Amendment to Dexmedetomidine License Agreement, dated January 17, 2009, by and between Recro Pharma, Inc., and Orion Corporation

  10.10●

   Dexmedetomidine API Supply Agreement, dated August 22, 2008, by and between Recro Pharma, Inc., and Orion Corporation

  10.11*+

   Baudax Bio, Inc. 2019 Equity Incentive Plan

  10.12●

   Asset Transfer and License Agreement, dated as of April 10, 2015, by and between Alkermes Pharma Ireland Limited and DV Technology LLC

  10.13

   Amendment to Asset Transfer and License Agreement, dated December 23, 2015, by and between Alkermes Pharma Ireland Limited and Recro Gainesville LLC

  10.14

   Second Amendment to Asset Transfer and License Agreement, dated December 20, 2018, by and between Alkermes Pharma Ireland Limited and Recro Gainesville LLC

  10.15●

   Development, Manufacturing and Supply Agreement, dated July 10, 2015, by and between Alkermes Pharma Ireland Limited and Recro Pharma, Inc.

  10.16●

   First Amendment to the Development, Manufacturing and Supply Agreement, dated October 19, 2016, by and between Alkermes Pharma Ireland Limited and Recro Pharma, Inc.

  10.17●

   Second Amendment to the Development, Manufacturing and Supply Agreement, dated February 1, 2017, by and between Alkermes Pharma Ireland Limited and Recro Pharma, Inc.

  10.18●

   Third Amendment to the Development, Manufacturing and Supply Agreement, dated June 15, 2017, by and between Alkermes Pharma Ireland Limited and Recro Pharma, Inc.

  10.19●

   License Agreement, dated June 30, 2017, by and between Cornell University and Recro Pharma, Inc.

  10.20●

   Amendment to License Agreement, dated October 31, 2018, by and between Cornell University and Recro Pharma, Inc.

  10.21●

   Master Manufacturing Services Agreement, dated July 14, 2017, by and between Patheon UK Limited and Recro Ireland Limited

  10.22●

   Product Agreement, dated July 14, 2017, by and between Patheon UK Limited and Recro Ireland Limited

  21.1

   Subsidiaries of Baudax Bio, Inc.

 

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  Exhibit
  Number

 

  

Exhibit Description

 

  99.1

   Information Statement of Baudax Bio, Inc., preliminary and subject to completion, dated October 22, 2019.

  99.2*

   Form of Notice of Internet Availability of Information Statement Materials.

 

*

To be filed by amendment.

+

Management contract or compensatory plan or arrangement.

 

Certain identified information in the exhibit has been omitted because it is both (i) not material and (ii) would likely cause competitive harm to the Company if publicly disclosed.

 

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SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

Baudax Bio, Inc.

By: /s/ Gerri A. Henwood    

Name: Gerri A. Henwood

Title: President and CEO

Date: October 22, 2019

 

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Exhibit 2.1

SEPARATION AGREEMENT

by and between

RECRO PHARMA, INC.

and

BAUDAX BIO, INC.

Dated as of                , 2019

 


SEPARATION AGREEMENT

This SEPARATION AGREEMENT (this “Agreement”), dated as of                , 2019, is entered into by and between Recro Pharma, Inc. (“Recro”), a Pennsylvania corporation, and Baudax Bio, Inc. (“Baudax”), a Pennsylvania corporation and a wholly owned Subsidiary of Recro. “Party” or “Parties” means Recro or Baudax, individually or collectively, as the case may be. Each capitalized term used and not elsewhere defined herein has the meaning set forth in Article I.

BACKGROUND

WHEREAS, as of the date of this Agreement, Baudax is a direct, wholly owned Subsidiary of Recro;

WHEREAS, Recro, acting together with its Subsidiaries, currently conducts the CDMO Business and the Acute Care Business;

WHEREAS, the Board of Directors of Recro (the “Board”) has determined that it is appropriate, desirable and in the best interests of Recro to separate Recro into two separate, publicly traded companies (i) the CDMO Business, which shall be owned and conducted, directly or indirectly, by Recro and (ii) the Acute Care Business, which shall be owned and conducted, directly or indirectly, by Baudax (the “Separation”);

WHEREAS, as part of and to implement the Separation, Recro shall cause the Distribution Agent to issue pro rata to the Record Holders pursuant to the Distribution Ratio, all of the issued and outstanding shares of Baudax Common Stock (such issuance, the “Distribution”) on the terms and conditions set forth in this Agreement;

WHEREAS, it is appropriate and desirable to set forth the principal corporate transactions required to effect the Separation and certain other agreements relating to the relationship of Recro and Baudax and their respective Subsidiaries following the Distribution;

WHEREAS, (i) the Board has (a) determined that the Separation and the other transactions contemplated by this Agreement and the Ancillary Agreements (as defined below) have a valid business purpose, are in furtherance of and consistent with its business strategy and are in the best interests of Recro and (b) approved this Agreement and each of the Ancillary Agreements, and (ii) the board of directors of Baudax has approved this Agreement and each of the Ancillary Agreements to which Baudax is a party; and

WHEREAS, the Parties acknowledge that this Agreement and the Ancillary Agreements represent the agreement of Recro and Baudax relating to the Separation and the Distribution, are being entered into together and would not have been entered into independently.

NOW, THEREFORE, in consideration of the foregoing and the mutual agreements, provisions and covenants contained in this Agreement, the Parties hereby agree as follows:


ARTICLE I

DEFINITIONS AND INTERPRETATION

As used in this Agreement, the following terms shall have the following meanings:

1.1.    “Action” means any demand, action, claim, suit, countersuit, arbitration, inquiry, subpoena, case, litigation, proceeding or investigation (whether civil, criminal, administrative or investigative) by or before any court or grand jury, any Governmental Entity or any arbitration or mediation tribunal.

1.2.    “Acute Care Business” means the business, operations and activities conducted at any time prior to the Distribution Effective Time by either Party or any of its Subsidiaries to the extent relating to, arising out of or resulting from the discovery, research, development, manufacturing and commercialization the Baudax Product Candidates, including the discovery, research, manufacturing and development of such products worldwide and services similar to those provided for under the terms of the Transition Services Agreement.

1.3.    “Affiliate” means, when used with respect to a specified Person and at a point in, or with respect to a period of, time, a Person that directly or indirectly, through one or more intermediaries, controls, is controlled by, or is under common control with, such specified Person at such point in or during such period of time. For the purposes of this definition, “control”, when used with respect to any specified Person means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities or other interests, by Contract or otherwise. It is expressly agreed that no Party or member of its Group shall be deemed to be an Affiliate of the other Party or a member of such other Party’s Group solely by reason of having common stockholders or one or more directors in common or by reason of having been under common control of Recro prior to the Distribution Effective Time.

1.4.    “Ancillary Agreements” means the Transaction Agreements other than this Agreement, all Conveyancing and Assumption Instruments and any and all other agreements entered into by the Parties or members of their respective Groups (but as to which no Third Party is a party) in connection with the Separation or the other transactions contemplated by the Transaction Agreements.

1.5.    “Arbitrators” has the meaning set forth in Section 8.2(a).

1.6.    “Assets” means all rights, title and ownership interests in and to all rights, properties, claims, Contracts, businesses, or assets (including goodwill), wherever located (including in the possession of vendors or other third parties or elsewhere), of every kind, character and description, whether real, personal or mixed, tangible or intangible, whether accrued, contingent or otherwise, in each case, whether or not recorded or reflected on the books and records or financial statements of any Person. Except as otherwise specifically set forth herein or in the Tax Matters Agreement, the rights and obligations of the Parties with respect to Taxes shall be governed by the Tax Matters Agreement and, therefore, Taxes (including any Tax items, attributes or rights to receive any Tax Refunds (as defined in the Tax Matters Agreement)) shall not be treated as Assets governed by this Agreement.

 

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1.7.    “Baudax Assets” means the following, but in each case excluding the Excluded Assets:

(a)    all interests in the capital stock of, or any other equity interests in, the members of the Baudax Group held, directly or indirectly, by Recro immediately prior to the Distribution Effective Time (other than the capital stock of Baudax);

(b)    all Intellectual Property owned or controlled by either Party immediately prior to the Distribution Effective Time that is exclusively related to the Acute Care Business, including the Intellectual Property identified on Schedule 1.7(b);

(c)    any and all Assets that are expressly assigned by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets which have been or are to be retained by, or Transferred to, any member of the Baudax Group, including any and all cash and cash equivalents expressly assigned to Baudax pursuant to Section 2.4 and Section 2.12;

(d)    any and all Assets reflected on the Baudax Balance Sheet (including accounts receivable outstanding as of the Distribution Date but excluding cash and cash equivalents, the allocation of which shall be governed by Section 2.12) or the accounting records supporting such balance sheet, subject to any dispositions of any of such Assets subsequent to the date of the Baudax Balance Sheet;

(e)    any and all Assets acquired by or for any member of the Baudax Group subsequent to the date of the Baudax Balance Sheet which, had they been so acquired on or before such date and owned as of such date, would have been reflected on the Baudax Balance Sheet if prepared on a consistent basis, subject to any dispositions of any of such Assets subsequent to the date of the Baudax Balance Sheet;

(f)    all rights, interests and claims of either Party or any of its Subsidiaries as of the Distribution Effective Time to the Baudax Product Candidates, including all rights and claims of either Party or any of its Subsidiaries as of the Distribution Effective Time to all compound, discovery, development and preclinical data; all clinical study data; reports and analyses; product registrations and applications; and marketing registrations and applications (which shall include all United States Food and Drug Administration and other similar regulatory approvals and licenses related to, and all related applications and other information submitted for the purposes of or prepared in connection with obtaining the approval for, a Baudax Product Candidate), to the extent related to the Baudax Product Candidates;

(g)    all Contracts to which either Party or any member of its Group is a party or by which it or any member of its Group or any of their respective Assets is bound, in each case, as of immediately prior to the Distribution Effective Time exclusively related to the Acute Care Business and any rights or claims arising thereunder, including the Contracts listed on Schedule 1.7(g);

(h)    all transferable licenses, permits, registrations, approvals,

 

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designations and authorizations of either Party or any of the members of its Group as of immediately prior to the Distribution Effective Time which have been issued by any Governmental Entity and which relate exclusively to, or are used exclusively in, the Acute Care Business or the Baudax Assets, and any rights or claims arising thereunder;

(i)    all rights, claims, credits, causes of action or rights of set-off against Persons other than members of the Recro Group relating exclusively to the Acute Care Business or the Baudax Assets, including unliquidated rights under Third Party manufacturers’ and vendors’ warranties;

(j)    all Baudax Records to the extent in the possession of any member of the Recro Group or the Baudax Group immediately prior to the Distribution Effective Time (and other than Intellectual Property); provided, however, that: (A) Recro shall be entitled to retain a copy of any and all Baudax Records; (B) Recro shall be entitled to retain any materials in clauses (1) and (3) of the definition of Baudax Records that are not reasonably practicable to identify and extract subject to the right of access pursuant to Section 7.3, as determined in Recro’s commercially reasonable discretion; and (C) Recro shall be entitled to redact any portion of the Baudax Records to the extent related to any matter other than the Acute Care Business; provided, however, that such retained materials shall be deemed Confidential Information of Baudax and subject to the provisions of Section 7.6;

(k)    the Assets listed or described on Schedule 1.7(k) (which for the avoidance of doubt is not a comprehensive listing of all Baudax Assets and is not intended to limit other clauses of this definition of “Baudax Assets”);

(l)    the Malvern Lease;

(m)    all tangible equipment (including information technology, equipment and machinery), infrastructure, wires, supplies and other tangible property that is owned by, leased to or licensed to Recro or any of its Subsidiaries immediately prior to the Distribution Effective Time and exclusively related to the Acute Care Business, including the tangible Assets listed or described on Schedule 1.7(m);

(n)    any and all other Assets that relate exclusively to or are used exclusively in the Acute Care Business or exclusively related to a Baudax Asset that are held by the Baudax Group or the Recro Group immediately prior to the Distribution Effective Time; and

(o)    any and all other Assets that were inadvertently omitted or assigned that, had the Parties given specific consideration to such Assets as of the date of this Agreement, would have otherwise been classified as Baudax Assets based on the principles set forth in this Section 1.7; provided, that no Asset shall be a Baudax Asset solely as a result of this clause (o) unless a claim with respect thereto is made by Baudax on or prior to the date that is six (6) months after the Distribution Date.

1.8.    “Baudax Balance Sheet” means the pro forma balance sheet of the Baudax Group, including the notes thereto, as of June 30, 2019, as prepared in accordance with generally accepted accounting principles in the United States and Rule 11-02 of Regulation S-X, and included in the Information Statement.

 

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1.9.    “Baudax Claim” has the meaning set forth in Section 6.2.

1.10.    “Baudax Common Stock” means the common stock of Baudax, $0.01 par value.

1.11.    “Baudax Designees” means any and all entities (including corporations, general or limited partnerships, trusts, joint ventures, unincorporated organizations, limited liability entities or other entities) designated by Baudax and that will be members of the Baudax Group as of immediately prior to the Distribution Effective Time.

1.12.    “Baudax Group” means (a) Baudax, and any entity that is a Subsidiary of Baudax or will be a Subsidiary of Baudax immediately following the Distribution Effective Time, and (b) on and after the Distribution Effective Time, Baudax and any entity that is a Subsidiary of Baudax. Any member of the Baudax Group party to any Conveyancing and Assumption Instrument shall be a Baudax Designee for purposes of this Agreement.

1.13.    “Baudax Indemnitees” means the members of the Baudax Group and their respective past, present and future directors, officers, employees and agents, in each case in their respective capacities as such, each of the heirs, executors, administrators, successors and assigns of any of the foregoing.

1.14.    “Baudax Liabilities” means the following, but in each case excluding the Excluded Liabilities:

(a)    any and all Liabilities to the extent relating to, arising out of or resulting from the conduct of the Acute Care Business, as conducted at any time, including prior to, at or after the Distribution Effective Time (including any Liability to the extent relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person’s authority) of the Baudax Group or the Recro Group);

(b)    any and all Liabilities to the extent relating to, arising out of or resulting from the conduct of any business by any member of the Baudax Group at any time after the Distribution Effective Time (including any Liability to the extent relating to, arising out of or resulting from any act or failure to act by any director, officer, employee, agent or representative (whether or not such act or failure to act is or was within such Person’s authority) of the Baudax Group);

(c)    any and all Liabilities to the extent relating to, arising out of or resulting from any Baudax Asset, whether arising before, on or after the Distribution Effective Time;

(d)    any and all Liabilities that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed or retired or satisfied by any member of the Baudax Group;

(e)    any and all Liabilities to the extent relating to, arising out of or resulting from the Securities Litigation;

 

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(f)    any and all Liabilities reflected on the Baudax Balance Sheet or the accounting records supporting such balance sheet and any and all Liabilities incurred by or for Baudax or any member of the Baudax Group or Recro Group subsequent to the date of the Baudax Balance Sheet which, had they been so incurred on or before such date, would have been reflected on the Baudax Balance Sheet if prepared on a consistent basis, subject to any discharge of any of such Liabilities subsequent to the date of the Baudax Balance Sheet; it being understood that (1) the Baudax Balance Sheet shall be used to determine the types of, and methodologies used to determine, those Liabilities that are included in the definition of Baudax Liabilities pursuant to this clause (f); and (2) the amounts set forth on the Baudax Balance Sheet with respect to any Liabilities shall not be treated as minimum amounts or limitations on the amount of such Liabilities that are included in the definition of Baudax Liabilities pursuant to this clause (f);

(g)    any and all Liabilities to the extent relating to, arising out of or resulting from the development of Baudax Product Candidates prior to the Distribution Effective Time by any member of the Baudax Group or the Recro Group;

(h)    any and all Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading, with respect to all information contained in the Distribution Disclosure Documents, except to the extent specifically enumerated in clause (b) of the definition of “Excluded Liabilities”;

(i)    any and all Liabilities arising directly or indirectly from Actions to the extent relating to the Baudax Assets, the Acute Care Business or any Baudax Liability, including in respect of any alleged tort, breach of Contract, violation or noncompliance with Law or any licenses, permits, registrations, approvals and authorizations, whether arising prior to, on or after the Distribution Date; and

(j)    any and all other Liabilities that are held by the Baudax Group or the Recro Group immediately prior to the Distribution Effective Time that were inadvertently omitted or assigned that, had the Parties given specific consideration to such Liabilities as of the date of this Agreement, would have otherwise been classified as a Baudax Liability based on the principles set forth in this Section 1.14; provided that no Liability shall be a Baudax Liability solely as a result of this clause (j) unless a claim with respect thereto is made by Recro or Baudax on or prior to the date that is six (6) months after the Distribution Date.

1.15.    “Baudax Product Candidates” means innovative products for hospital and related acute care settings, including, without limitation, those development, pre-clinical and clinical stage product candidates set forth on Schedule 1.15.

1.16.    “Baudax Records” means, whether in paper, microfilm, microfiche, computer tape or disc, magnetic tape, digitally or any other form, or stored on remote servers accessed from the internet, (1) all business records to the extent exclusively related to the Baudax Assets or Baudax Liabilities; (2) all of the separate financial and property Tax records of the members of the Baudax Group that do not form part of the general ledger of any member of the

 

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Recro Group; (3) all other books, records, ledgers, files, documents, correspondence, lists, drawings, photographs, product literature, equipment test records, advertising and promotional materials, distribution lists, customer lists, supplier lists, studies, reports, operating, production and other manuals, manufacturing and quality control records and procedures, research and development files, accounting and business books (including the accounting records prepared in connection with the preparation of Baudax’s financial information included in the Information Statement or any subsequent filings or financial periods through the Distribution Date), records, files, documentation and materials, in all cases to the extent exclusively related to the Acute Care Business; and (4) copies of any Recro templates and form documents used in the operation of the Acute Care Business.

1.17.    “Baudax Released Liabilities” has the meaning set forth in Section 6.1(a)(ii).

1.18.    “Baudax Trademarks” means all Trademarks that are exclusively related to Baudax and the Acute Care Business, including but not limited to, the Trademarks identified on Schedule 1.18.

1.19.    “Business Day” means any day other than Saturday or Sunday and any other day on which commercial banking institutions located in New York, New York are required, or authorized by Law, to remain closed.

1.20.    “Cap” has the meaning set forth in Section 6.9(a).

1.21.    “CDMO Business” means the contract development and manufacturing business, operations, and activities of Recro or any of its Subsidiaries (whether or not such businesses, operations or activities are or have been terminated, divested or discontinued) and such other activities incidental thereto, other than the Acute Care Business and, after the Distribution Effective Time, those entities or businesses acquired or established by or for any member of the Recro Group.

1.22.    “Claiming Party” has the meaning set forth in Section 6.5(b).

1.23.    “Code” has the meaning set forth in the Tax Matters Agreement.

1.24.    “Commission” means the U.S. Securities and Exchange Commission.

1.25.    “Confidential Information” means, with respect to a Party, all confidential or proprietary information to the extent concerning: (i) such Party or any of its Subsidiaries, (ii) the Acute Care Business, any Baudax Assets or any Baudax Liabilities, and (iii) the CDMO Business, any Recro Retained Assets or any Recro Retained Liabilities, in each case (clauses (i)-(iii)) including any such information furnished pursuant to Article II or otherwise pursuant to this Agreement or any Ancillary Agreement; provided, however, that Confidential Information shall not include any information that is (1) in the public domain or known to the public through no fault of the receiving Party or any of its Subsidiaries, (2) lawfully acquired after the Distribution Effective Time by the receiving Party or any of its Subsidiaries from Third Parties not known to be subject to confidentiality obligations with respect to such information or (3) independently developed by the receiving Party or any of its Subsidiaries after the Distribution Effective Time

 

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without reference to any Confidential Information of the disclosing Party or any of its Subsidiaries. For the avoidance of doubt, subject to the foregoing proviso, any information that Baudax receives from any Third Party to a Third Party Agreement retained by any member of the Recro Group regarding Recro’s technology, business or objectives shall be deemed to be Confidential Information of Recro. All confidential or proprietary information to the extent concerning the Acute Care Business, any Baudax Assets or any Baudax Liabilities is hereby deemed to be part of Baudax’s, but not Recro’s, Confidential Information. All confidential or proprietary information to the extent concerning the CDMO Business, any Recro Retained Assets or any Recro Retained Liabilities is hereby deemed to be part of Recro’s, but not Baudax’s, Confidential Information.

1.26.    “Consents” means any consents, waivers, notices, reports or other filings to be obtained from or made, including with respect to any Contract, or any registrations, licenses, permits, authorizations to be obtained from, or approvals from, or notification requirements to, any Third Parties, including any Governmental Entity.

1.27.    “Contract” means any agreement, contract, subcontract, obligation, binding understanding, note, indenture, instrument, option, lease, promise, arrangement, release, warranty, license, sublicense, insurance policy, benefit plan, purchase order or legally binding commitment or undertaking of any nature (whether written or oral and whether express or implied).

1.28.    “Conveyancing and Assumption Instruments” means, collectively, the various Contracts (other than any Transaction Agreement) by and between or among any member(s) of the Recro Group, on the one hand, and any member(s) of the Baudax Group, on the other hand, including related asset transfer agreements or Intellectual Property assignment agreements and other documents entered into prior to the Distribution Effective Time and to be entered into, in each case to effect the Transfer of Assets and the Assumption of Liabilities in the manner contemplated by the Transaction Agreements, in such form or forms as the applicable parties thereto agree.

1.29.    “Copyrights” copyrights and copyrightable subject matter, excluding Know-How, Patents and Trademarks.

1.30.    “Deal Communications” has the meaning set forth in Section 10.23(d).

1.31.    “Direct Claim” has the meaning set forth in Section 6.5(a).

1.32.    “Dispute Notice” has the meaning set forth in Section 8.1.

1.33.    “Disputes” has the meaning set forth in Section 8.1.

1.34.    “Distribution Agent” means Broadridge Corporate Issuer Solutions, Inc.

1.35.    “Distribution Date” means the date, as shall be determined by the Board, on which the Distribution occurs.

1.36.    “Distribution Disclosure Documents” means the Form 10 and all exhibits

 

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thereto (including the Information Statement), any current reports on Form 8-K and the registration statement on Form S-8 related to securities to be offered under Baudax’s employee benefit plans, in each case as filed or furnished by Baudax with or to the Commission in connection with the Distribution and including any amendments or supplements thereto.

1.37.    “Distribution Effective Time” means 12:01 a.m. on                , 2019, Eastern time, on the Distribution Date.

1.38.    “Distribution Ratio” means                share of Baudax Common Stock for every                shares of Recro Common Stock.

1.39.    “Employee Matters Agreement” means the Employee Matters Agreement by and between Recro and Baudax, in the form attached hereto as Exhibit A.

1.40.    “Exchange Act” means the Securities Exchange Act of 1934, as amended.

1.41.    “Excluded Assets” means: (a) the Assets listed or described on Schedule 1.41; (b) all cash and cash equivalents, except to the extent expressly assigned to the Baudax Group pursuant to Section 2.4 and Section 2.12; (c) subject to the rights of the Baudax Group pursuant to Article IX, all Policies binders and claims and rights thereunder and all prepaid insurance premiums (other than any insurance policies acquired prior to the Distribution Effective Time directly by and in the name of Baudax or a member of the Baudax Group); (d) any and all work papers of Recro’s auditors, excluding the accounting records prepared in connection with the preparation of Baudax’s financial information included in the Information Statement or any subsequent filings or financial periods through the Distribution Date, and any other Tax records (including accounting records, other than the accounting records prepared in connection with the preparation of the financial information included in the Information Statement or any subsequent filings or financial periods through the Distribution Date) of any Recro Group member (which will be addressed in the Tax Matters Agreement), excluding all Recro templates and form documents used in the operation of the Acute Care Business; and (e) any and all Assets that are expressly contemplated by this Agreement or any Ancillary Agreement (or the Schedules hereto or thereto) as Assets which have been or are to be retained by, or Transferred to, any member of the Recro Group.

1.42.    “Excluded Liabilities” means (a) the Liabilities listed or described on Schedule 1.42; (b) with respect to all information contained in the Distribution Disclosure Documents, any and all Liabilities relating to, arising out of or resulting from any untrue statement or alleged untrue statement of a material fact or omission or alleged omission to state a material fact required to be stated therein or necessary to make the statement therein not misleading described in the sections of the Distribution Disclosure Documents referenced on Schedule 1.42 that is expressly related to the Recro Group and not related to the Baudax Group or the Baudax Business; and (c) any and all Liabilities to the extent expressly contemplated by this Agreement or by any Ancillary Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed or discharged by any member of the Recro Group.

1.43.    “Existing Counsel” means Pepper Hamilton LLP.

1.44.    “Form 10” means the registration statement on Form 10 (Registration No.    ) filed by Baudax with the Commission under the Exchange Act in connection with the Distribution, including any amendment or supplement thereto.

 

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1.45.    “Governmental Authority” means any supranational, international, national, federal, state, provincial or local court, government, department, commission, board, bureau, agency, official or other regulatory, administrative or governmental authority, including Nasdaq, the NYSE and any similar self-regulatory body under applicable securities Laws.

1.46.    “Governmental Entity” means any nation or government, any state, municipality or other political subdivision thereof and any entity, body, agency, commission, department, board, bureau or court, whether domestic, foreign, multinational, or supranational exercising executive, legislative, judicial, regulatory, self-regulatory or administrative functions of or pertaining to government and any executive official thereof.

1.47.    “Group” means (i) with respect to Recro, the Recro Group and (ii) with respect to Baudax, the Baudax Group, as the context requires.

1.48.    “Indemnifiable Losses” means any and all Liabilities, including damages, losses, obligations, penalties, judgments, settlements, claims, payments, fines and other costs and expenses (but excluding consequential, punitive, incidental and similar damages except to the extent paid to a Third Party) of any and all Actions and demands, assessments, judgments, settlements and compromises relating thereto and the reasonable fees and expenses of attorneys, accountants, consultants and other professionals incurred in the investigation or defense thereof or the enforcement of rights hereunder.

1.49.    “Indemnifying Party” means, with respect to any Direct Claim or Third Party Claim, the Party which is or may be required pursuant to Article VI to provide indemnification pursuant to such claim.

1.50.    “Indemnitee” means, with respect to any Direct Claim or Third Party Claim, the Recro Indemnitee or Baudax Indemnitee, as the case may be, that may be entitled to indemnification hereunder with respect to such claim.

1.51.    “Indemnity Payment” has the meaning set forth in Section 6.6(a).

1.52.    “Information Statement” means the Information Statement attached as Exhibit 99.1 to the Form 10, to be distributed or made available to the holders of shares of Recro Common Stock in connection with the Distribution, including any amendment or supplement thereto.

1.53.    “Insurance Proceeds” means those monies (a) received by an insured from a Third Party insurance carrier, or (b) paid by a Third Party insurance carrier on behalf of an insured, in either case net of any applicable deductible or retention.

1.54.    “Intellectual Property” means all intellectual property, whether registered or unregistered and whether granted, pending or expired, of every kind and description throughout the world, including all U.S. and non-U.S.: (a) Trademarks; (b) Patents; (c) Copyrights; (d) rights in software; (e) all applications and registrations for the foregoing; (f) Know-How; and (g) all rights and remedies against past, present, and future infringement, misappropriation, or other violation thereof.

 

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1.55.    “Intercompany Account” means any receivable, payable or loan between any member of the Recro Group, on the one hand, and any member of the Baudax Group, on the other hand, except for any such receivable, payable or loan that arises pursuant to this Agreement or any Ancillary Agreement.

1.56.    “Internal Reorganization” means the allocation and transfer or assignment of Assets and Liabilities, including by means of the Conveyance and Assumption Instruments, resulting in (a) the Baudax Group owning and operating the Acute Care Business, and (b) the Recro Group continuing to own and operate the Recro Retained Business, as described in the steps plan provided to Baudax by Recro prior to the date hereof, as updated from time to time by Recro at its sole discretion prior to the Distribution.

1.57.    “Know-How” means, all trade secrets, and all other confidential or proprietary information, know-how, trade secrets, clinical data, non-clinical data, pre-clinical data, inventions, processes, formulae and methodologies, excluding Patents.

1.58.    “Law” means any applicable U.S. or non-U.S. federal, national, supranational, state, provincial, local or similar statute, law, ordinance, regulation, rule, code, income tax treaty, order, requirement or rule of law (including common law) or other binding directives promulgated, issued, entered into or taken by any Governmental Entity.

1.59.    “Liabilities” means any and all indebtedness, liabilities, costs, expenses, interest and obligations, whether accrued or fixed, absolute or contingent, matured or unmatured, known or unknown, reserved or unreserved, or determined or determinable, including those arising under any Law, Action, or in connection with any dispute, whether asserted or unasserted, or order, writ, judgment, injunction, decree, stipulation, determination or award entered by or with any Governmental Entity and those arising under any Contract or any fines, damages or equitable relief which may be imposed and including all costs and expenses related thereto. Except as otherwise specifically set forth herein or in the Tax Matters Agreement, the rights and obligations of the Parties with respect to Taxes shall be governed by the Tax Matters Agreement and, therefore, Taxes shall not be treated as Liabilities governed by this Agreement.

1.60.    “Malvern Lease” means that certain Lease Agreement, dated as of August 24, 2016, between WPT LAND 2 LP and Recro with respect to 420-500 Lapp Road, Malvern, PA 19355.

1.61.    “Monetary Penalty” means any monetary payment ordered or imposed by a court and/or agreed with, or ordered or imposed by, any other entity, whether through a judgment, order, settlement agreement, deferred prosecution agreement, non-prosecution agreement, declination or otherwise, including, without limitation, fines, penalties, restitution, forfeiture and/or disgorgement.

1.62.    “Nasdaq” means the Nasdaq Stock Market LLC.

 

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1.63.    “Negotiation Period” has the meaning set forth in Section 8.1.

1.64.    “Patents” means all patents and patent applications, and any and all related national or international counterparts thereto and utility models, design patents and certificates of invention, including any provisionals, divisionals, continuations, continuations-in-part, reissues, reexaminations, supplemental examinations, substitutions, converted provisionals, continued prosecution applications and extensions thereof (including supplementary protection certificates).

1.65.    “Person” mean an individual, a general or limited partnership, a corporation, a trust, a joint venture, an unincorporated organization, a limited liability entity, any other entity and any Governmental Entity.

1.66.    “Policies” means insurance policies and insurance contracts of any kind (other than life and benefits policies or contracts), including primary, excess and umbrella policies, commercial general liability policies, fiduciary liability, directors and officers liability, product liability, automobile, property and casualty, workers’ compensation and employee dishonesty insurance policies and bonds, together with the rights, benefits and privileges thereunder.

1.67.    “Prime Rate” means the “prime rate” as published in The Wall Street Journal, Eastern Edition.

1.68.    “Privilege” means all privileges, immunities or other protections from disclosure which may be asserted under applicable Law, including, but not limited to, attorney-client privilege, self-evaluative privilege, joint defense privilege, common interest privilege and protection under the work product doctrine.

1.69.    “Privileged Deal Communications” has the meaning set forth in Section 10.23(d).

1.70.    “Privileged Information” means information subject to Privilege.

1.71.    “Record Date” means                , 2019, as determined by the Board as the record date for determining the holders of record of Recro Common Stock entitled to receive Baudax Common Stock in the Distribution.

1.72.    “Record Holders” means the holders of record of Recro Common Stock as of the Record Date.

1.73.    “Recro Claim” has the meaning set forth in Section 6.3.

1.74.    “Recro Common Stock” means the common stock of Recro, par value $0.01 per share.

1.75.    “Recro Designees” shall mean any and all entities (including corporations, general or limited partnerships, trusts, joint ventures, unincorporated organizations, limited liability entities or other entities) designated by Recro and that will be members of the Recro

 

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Group as of immediately prior to the Distribution Effective Time. For clarity, members of the Recro Group party to any Conveyancing and Assumption Instrument shall be a Recro Designee for purposes of this Agreement.

1.76.    “Recro Group” means (a) prior to the Distribution Effective Time, Recro and each entity that will be a Subsidiary of Recro immediately following the Distribution Effective Time, and (b) from and after the Distribution Effective Time, Recro and each entity that is a Subsidiary of Recro. Any member of the Recro Group party to any Conveyancing and Assumption Instrument shall be a Recro Designee for purposes of this Agreement.

1.77.    “Recro Indemnitees” means the members of the Recro Group and their respective past, present and future directors, officers, employees and agents, in each case in their respective capacities as such, and each of the heirs, executors, administrators, successors and assigns of any of the foregoing.

1.78.    “Recro Released Liabilities” has the meaning set forth in Section 6.1(a)(i).

1.79.    “Recro Retained Assets” means (a) any and all Assets of Recro or any of its Subsidiaries that are not Baudax Assets and, after the Distribution Effective Time, any and all Assets that are acquired or otherwise become Assets of any member of the Recro Group and (b) any Assets that are held by the Baudax Group or the Recro Group immediately prior to the Distribution Effective Time not exclusively related to the Acute Care Business that were inadvertently omitted or assigned that, had the Parties given specific consideration to such Assets as of the date of this Agreement, would have otherwise been classified as a Recro Retained Asset based on the principles set forth in this Section 1.79; provided that no Asset shall be a Recro Retained Asset solely as a result of this clause (b) unless a claim with respect thereto is made by Recro on or prior to the date that is six (6) months after the Distribution Date. For clarity, Recro Retained Assets shall include all Excluded Assets.

1.80.    “Recro Retained Liabilities” means (a) all Liabilities of Recro or any of its Subsidiaries that are not Baudax Liabilities, and, after the Distribution Effective Time, all Liabilities of each member of the Recro Group, and (b) any and all other Liabilities of Recro or any of its Subsidiaries immediately prior to the Distribution Effective Time that were inadvertently omitted or assigned that, had the Parties given specific consideration to such Liabilities as of the date of this Agreement, would have otherwise been classified as a Recro Retained Liability based on the principles set forth in this Section 1.80; provided, that no Liability shall be a Recro Retained Liability solely as a result of this clause (b) unless a claim with respect thereto is made by Recro or Baudax on or prior to the date that is six (6) months after the Distribution Date. For clarity, Recro Retained Liabilities shall include all Excluded Liabilities.

1.81.    “Recro Third Party Credit Support Instruments” means that certain Credit Agreement, dated as of November 17, 2017, as amended, among Recro and certain domestic Subsidiaries of Recro (collectively, the “Loan Parties”), Athyrium Opportunities III Acquisition LP, as administrative agent, and the lenders from time to time party thereto, and any ancillary agreements executed and delivered by the Loan Parties in connection therewith.

 

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1.82.    “Registered” means issued by, registered or filed with, renewed by or the subject of a pending application before any Governmental Authority or internet domain name registrar.

1.83.    “Representatives” means with respect to any Person, any of such Person’s directors, officers, employees, agents, consultants, advisors, accountants, attorneys or other representatives.

1.84.    “Retained Names and Marks” has the meaning set forth in Section 5.1.

1.85.    “Securities Act” means the Securities Act of 1933, as amended.

1.86.    “Securities Litigation” means the securities class action filed against Recro and certain of Recro’s officers and directors on May 31, 2018 (U.S. District Court for the Eastern District of Pennsylvania (Case No. 2:18-cv-02279-MMB)), for alleged violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10(b)(5) promulgated thereunder.

1.87.    “Securities Litigation Costs” means any legal fees, disbursements, costs and expenses incurred by either Party or its Affiliates in the course of the investigation, defense, management or settlement of the Securities Litigation, including, without limitation, court costs, external advisers’ costs and in-house legal costs and management time.

1.88.    “Security Interest” means any mortgage, security interest, pledge, lien, charge, claim, option, right to acquire, voting or other restriction, right-of-entry, covenant, condition, easement, encroachment, restriction on transfer, or other encumbrance of any nature whatsoever, excluding restrictions on transfer under securities Laws.

1.89.    “Shared Privileged Information” has the meaning set forth in Section 7.7(b)(i).

1.90.    “Subsidiary” means with respect to any Person (i) a corporation, fifty percent (50%) or more of the voting or capital stock of which is, as of the time in question, directly or indirectly owned by such Person and (ii) any other Person in which such Person, directly or indirectly, owns fifty percent (50%) or more of the equity or economic interest thereof or has the power to elect or direct the election of fifty percent (50%) or more of the members of the governing body of such Person.

1.91.    “Tax” or “Taxes” has the meaning set forth in the Tax Matters Agreement.

1.92.    “Tax Matters Agreement” means the Tax Matters Agreement by and between Recro and Baudax, in the form attached hereto as Exhibit B.

1.93.    “Tax Returns” has the meaning set forth in the Tax Matters Agreement.

1.94.    “Third Party” means any Person other than the Parties or any of their respective Subsidiaries.

 

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1.95.    “Third Party Agreements” means any Contract between or among a Party (or any member of its Group) and any Third Party (it being understood that to the extent that the rights and obligations of the Parties and the members of their respective Groups under any such Contracts constitute Baudax Assets or Baudax Liabilities, or Recro Retained Assets or Recro Retained Liabilities, such Contracts shall be assigned or retained pursuant to Article II).

1.96.    “Third Party Claim” has the meaning set forth in Section 6.5(b).

1.97.    “Third Party Proceeds” has the meaning set forth in Section 6.6(a).

1.98.    “Trademarks” means all trademarks, trade dress, service marks, certification marks, logos, slogans, design rights, names, corporate names, trade names, internet domain names, social media accounts and addresses and other similar designations of source or origin, together with the goodwill of the business symbolized by any of the foregoing.

1.99.    “Transaction Agreement” means any of this Agreement, the Employee Matters Agreement, the Tax Matters Agreement and the Transition Services Agreement.

1.100.    “Transfer” has the meaning set forth in Section 2.2(b)(i).

1.101.    “Transition Services Agreement” means the Transition Services Agreement by and between Recro and Baudax, under which Baudax and Recro will temporarily provide certain services to each other, in the form attached hereto as Exhibit C.

ARTICLE II

THE SEPARATION

2.1.    General. Subject to the terms and conditions of this Agreement, the Parties shall use, and shall cause their respective Subsidiaries to use, commercially reasonable efforts to consummate the transactions contemplated hereby, a portion of which may have already been implemented prior to the date hereof, including the completion of the Internal Reorganization.

2.2.    Restructuring; Transfer of Assets; Assumption of Liabilities.

(a)    Internal Reorganization. Prior to the Distribution Effective Time, the Parties shall complete the Internal Reorganization, except for such steps (if any) as Recro in its sole discretion shall have determined need not be completed or may be completed after the Distribution Effective Time; provided, however, that any such determination shall not limit the Parties’ respective obligations under Section 2.2(b).

(b)    Transfer of Assets and Assumption of Liabilities. Unless otherwise provided in this Agreement or in any Ancillary Agreement, on or prior to the Distribution Effective Time and to the extent not previously effected pursuant to the Internal Reorganization:

(i)    Recro shall, and shall cause the applicable member of the Recro Group to, contribute, assign, transfer, convey and deliver (“Transfer”) to Baudax, or the applicable Baudax Designees, and Baudax or such Baudax Designees shall accept from Recro

 

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and the applicable members of the Recro Group, all of Recro’s and such Recro Group member’s respective direct or indirect right, title and interest in and to all Baudax Assets held by Recro or a member of the Recro Group (it being understood that if any Baudax Asset shall be held by a Person all of the outstanding equity of which is included in the Baudax Assets to be Transferred pursuant to this Section 2.2(b)(i), such Baudax Asset may be considered to be so Transferred to Baudax or the applicable Baudax Designee as a result of the Transfer of all of the equity interests in such Person from Recro or the applicable member(s) of the Recro Group to Baudax or the applicable Baudax Designee); and

(ii)    Baudax shall, and shall cause the applicable members of the Baudax Group to, Transfer to Recro or the applicable Recro Designees, and Recro or such Recro Designees shall accept from Baudax and the applicable members of the Baudax Group, all of Baudax and such Baudax Group member’s respective direct or indirect right, title and interest in and to all Recro Retained Assets held by Baudax or a member of the Baudax Group (it being understood that if any Recro Retained Asset shall be held by a Person all of the outstanding equity of which is included in the Recro Retained Assets to be Transferred pursuant to this Section 2.2(b)(ii), such Recro Retained Asset may be considered to be so Transferred to Recro or the applicable Recro Designee as a result of the Transfer of all of the equity interests in such Person from Baudax or the applicable member(s) of the Baudax Group to Recro or the applicable Recro Designee).

(iii)    Assumption of Liabilities. (1) Recro shall, or shall cause another member of the Recro Group to, accept, assume (or, as applicable, retain) and perform, discharge and fulfill, in accordance with their respective terms, all of the Recro Retained Liabilities and (2) Baudax shall, or shall cause another member of the Baudax Group to assume all of the Baudax Liabilities, in each case regardless of (A) when or where such Liabilities arose or arise, (B) where or against whom such Liabilities are asserted or determined, (C) whether such Liabilities arise from or are alleged to arise from negligence, gross negligence, recklessness, violation of law, willful misconduct, bad faith, fraud or misrepresentation by any member of the Recro Group or the Baudax Group, as the case may be, or any of their past or present respective directors, officers, employees, or agents, (D) which entity is named in any action associated with any Liability and (E) whether the facts on which such Liabilities are based occurred prior to, on or after the date hereof.

(c)    The Parties shall use their respective commercially reasonable efforts to obtain the Consents required to Transfer any Contracts, licenses, permits, authorizations and other Assets as contemplated by this Agreement. Notwithstanding anything herein to the contrary, no Contract or other Asset shall be Transferred if it would violate applicable Law or, in the case of a Contract, the rights of any Third Party to such Contract; provided that Section 2.7, to the extent provided therein, shall apply to such Asset or Contract.

(d)    It is understood and agreed by the Parties that certain of the Transfers or assumptions referenced in Section 2.2(a) have heretofore occurred and, as a result, no additional Transfers or assumptions by any member of the Recro Group or Baudax Group, as applicable, shall be deemed to occur upon the execution of this Agreement with respect thereto. Moreover, to the extent that any member of the Recro Group or Baudax Group, as applicable, is liable for any Recro Retained Liability or Baudax Liability, respectively, by operation of Law

 

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immediately following any Transfer in accordance with this Agreement or any Conveyancing and Assumption Instruments, there shall be no need for any other member of the Recro Group or Baudax Group, as applicable, to assume such Liability in connection with the operation of Section 2.2(a) and, accordingly, no other member of such Group shall assume such Liability in connection with Section 2.2(a).

(e)    In connection with, and in furtherance of, the Transfers of Assets and the assumptions of Liabilities contemplated by this Agreement, the Parties shall execute or cause to be executed, on or after the date hereof by the appropriate entities to the extent not executed prior to the date hereof, any Conveyancing and Assumption Instruments necessary to evidence the valid Transfer to the applicable Party or member of such Party’s Group of all right, title and interest in and to its accepted Assets and the valid and effective assumption by the applicable Party or member of such Party’s Group of its respective Liabilities for Transfers and assumptions to be effected pursuant to Pennsylvania Law or the Laws of one of the other states of the United States or, if not appropriate for a given Transfer or assumption, and for Transfers or assumptions to be effected pursuant to non-U.S. Laws, in such form as the Parties shall reasonably agree.

(f)    Recro hereby waives compliance by itself and each and every member of the Recro Group with the requirements and provisions of any “bulk-sale” or “bulk transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the Recro Retained Assets to Recro or any member of the Recro Group.

(g)    Baudax hereby waives compliance by itself and each and every member of the Baudax Group with the requirements and provisions of any “bulk-sale” or “bulk transfer” Laws of any jurisdiction that may otherwise be applicable with respect to the transfer or sale of any or all of the Baudax Assets to Baudax or any member of the Baudax Group.

2.3.    Intercompany Accounts. Each Intercompany Account which exists and is reflected immediately prior to the Distribution Effective Time in any general ledger account or other records of Recro, Baudax or any of their respective Affiliates, shall terminate effective as of immediately prior to the Distribution Effective Time.

2.4.    Cash Contribution. At or prior to the Distribution Effective Time, Recro shall have made a cash contribution of $19,000,000 to Baudax.

2.5.    Limitation of Liability. Except as provided in this Section 2.5 and in Article VI, neither Recro nor Baudax nor any member of their respective Groups shall have any Liability to the other or any member of the other Party’s Group based upon, arising out of or resulting from any agreement, arrangement, course of dealing or understanding existing on or prior to the Distribution Effective Time other than pursuant to (a) this Agreement or any Ancillary Agreement, (b) any Third Party Agreement; or (c) any other Contract or agreement entered into in connection with the consummation of the transactions contemplated by the Transaction Agreements, and any such Liability, whether or not in writing, that is not reflected in any of the foregoing, is hereby irrevocably cancelled, released and waived effective as of the Distribution Effective Time. No such terminated agreement, arrangement, course of dealing or understanding (including any provision thereof that purports to survive termination) shall be of any further force or effect after the Distribution Effective Time.

 

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2.6.    Credit Support.

(a)    Third Party Credit Support. Each Party shall, and shall procure that each member of its respective Group shall, use commercially reasonable efforts to procure that, unless otherwise agreed in writing between the Parties, effective on or prior to, the Distribution Effective Time:

(i)    each member of the Baudax Group is released from all Recro Third Party Credit Support Instruments; and

(ii)    the beneficiaries of such Recro Third Party Credit Support Instruments provide written releases to Baudax indicating that Baudax or the relevant member of the Baudax Group shall, effective upon the consummation of the Separation, have no liability with respect to such Recro Third Party Credit Support Instruments, in a form reasonably satisfactory to Baudax.

(b)    Credit Support Indemnitees. With effect as of the Distribution Effective Time, Recro shall indemnify on demand and hold harmless Baudax and each member of the Baudax Group and their respective directors, officers, managers, members, agents and employees against and in respect of all Liabilities actually suffered or incurred by any of them after the Distribution Effective Time under or by reason of any Recro Third Party Credit Support Instrument that is not released on or prior to the Distribution Effective Time.

2.7.    Transfers Not Effected at or Prior to the Distribution Effective Time; Transfers Deemed Effective as of the Distribution Effective Time.

(a)    If and to the extent that the valid, complete and perfected Transfer to the Baudax Group of any Baudax Asset or assumption by the Baudax Group of any Baudax Liability, in each case contemplated hereby, would be a violation of applicable Law or require any Consent in connection with the Separation that has not been obtained or made by the Distribution Effective Time then, unless the Parties mutually shall otherwise agree, the Transfer to the Baudax Group of such Baudax Assets or the assumption by the Baudax Group of such Baudax Liabilities, as the case may be, shall be automatically deemed deferred and any such purported Transfer or assumption shall be null and void until such time as all legal impediments are removed or such Consent has been obtained or made. Notwithstanding the foregoing, any such Baudax Asset or Baudax Liability shall continue to constitute a Baudax Asset or Baudax Liability, as applicable, for all other purposes of this Agreement.

(b)    If and to the extent that the valid, complete and perfected Transfer to the Recro Group of any Recro Retained Asset or assumption by the Recro Group of any Recro Retained Liability, in each case contemplated hereby, would be a violation of applicable Law or require any Consent in connection with the Separation that has not been obtained or made by the Distribution Effective Time then, unless the Parties mutually shall otherwise agree, the Transfer to the Recro Group of such Recro Retained Assets or the assumption by the Recro Group of such Recro Retained Liabilities, as the case may be, shall be automatically deemed deferred and any such purported Transfer or assumption shall be null and void until such time as all legal

 

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impediments are removed or such Consent has been obtained or made. Notwithstanding the foregoing, any such Recro Retained Assets or Recro Retained Liabilities shall continue to constitute Recro Retained Assets and Recro Retained Liabilities for all other purposes of this Agreement.

(c)    With respect to Assets and Liabilities described in Section 2.7(a) and Section 2.7(b), each of Recro and Baudax shall, and shall cause the members of its respective Group to, (i) treat for all Tax purposes (1) the deferred Assets as assets having been Transferred to and owned by the Person entitled to such Assets not later than immediately prior to the Distribution Effective Time and (2) the deferred Liabilities as having been assumed by the Person intended to be subject to such Liabilities not later than immediately prior to the Distribution Effective Time and (ii) neither report nor take any Tax position (on a Tax Return or otherwise) inconsistent with such treatment (unless required by a change in applicable Tax Law or good faith resolution of a Tax dispute, as provided in the Tax Matters Agreement).

(d)    In the event that any Transfer of Assets or assumption of Liabilities intended to be effected hereunder has not been consummated at or prior to the Distribution Effective Time, whether as a result of the provisions of Section 2.7(a) or Section 2.7(b) or for any other reason:

(i)    unless the Parties shall otherwise agree, the Parties and their respective Group members shall cooperate and use commercially reasonable efforts to seek to obtain, in accordance with applicable Law, any necessary Consents for the Transfer of all Assets and the assumption of all Liabilities contemplated to be Transferred or assumed, as applicable, pursuant to this Article II to the fullest extent permitted by applicable Law; provided, however, that, except to the extent expressly provided in this Agreement or any of the Ancillary Agreements or as otherwise agreed between Recro and Baudax, neither Recro nor Baudax shall be obligated to make any payment, incur any Liability or offer or grant any accommodation (financial or otherwise, regardless of any provision to the contrary in any underlying Contract, including any requirements for the securing or posting of any bonds, letters of credit or similar instruments, or the furnishing of any guarantees) to any Third Party to obtain or make such Consent; and

(ii)    (1) the Party (or the applicable member of its Group) retaining such Asset shall thereafter hold (or shall cause such member in its Group to hold) such Asset in trust for the use and benefit of the Party entitled thereto (at the expense of the Party entitled thereto) and (2) the Party intended to assume such Liability shall, or shall cause the applicable member of its Group to, pay or reimburse the Party retaining such Liability for all amounts paid or incurred in connection with the retention of such Liability. To the extent the foregoing applies to any Contracts to be assigned for which any necessary Consents are not received prior to the Distribution Effective Time, the treatment of such Contracts shall, for the avoidance of doubt, be subject to Section 2.9 and Section 2.10, to the extent applicable. In addition, the Party (or the applicable member of its Group) retaining such Asset or Liability shall (or shall cause such member in its Group to) treat, insofar as reasonably possible and to the extent permitted by applicable Law, such Asset or Liability in the ordinary course of business in accordance with past practice and take such other actions as may be reasonably requested by the Party to which such Asset is to be Transferred or by the Party assuming such Liability in order to

 

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place such Party, insofar as reasonably possible and to the extent permitted by applicable Law, in the same position as if such Asset or Liability had been Transferred or assumed as contemplated hereby, and so that all the benefits and burdens relating to such Asset or Liability, including possession, use, risk of loss, potential for income and gain, and dominion, control and command over such Asset or Liability, are to inure from and after the Distribution Effective Time to the applicable member or members of the Recro Group or the Baudax Group entitled to the receipt of such Asset or required to assume such Liability. In furtherance of the foregoing, the Parties agree that, as of the Distribution Effective Time, each Party shall be deemed to have acquired complete and sole beneficial ownership over all such Assets, together with all rights, powers and privileges incident thereto, and shall be deemed to have assumed in accordance with the terms of this Agreement all such Liabilities, and all duties, obligations and responsibilities incident thereto, which such Party is entitled to acquire or required to assume pursuant to the terms of the Transaction Agreements.

(e)    If and when the Consents or conditions, the absence or non-satisfaction of which caused the deferral of Transfer of any Asset or deferral of the assumption of any Liability pursuant to Section 2.7(a) or Section 2.7(b), are obtained or satisfied, the Transfer or assumption of the applicable Asset or Liability shall be effected without further consideration in accordance with and subject to the terms of this Agreement (including Section 2.2) or the applicable Ancillary Agreement, and shall, to the extent possible without the imposition of any undue cost on any Party, be deemed to have become effective as of the Distribution Effective Time.

(f)    The Party (or the applicable member of its Group) retaining any Asset or Liability due to the deferral of the Transfer of such Asset or the deferral of the assumption of such Liability pursuant to Section 2.7(a) or Section 2.7(b) or otherwise shall (i) not be obligated, in connection with the foregoing, to expend any money unless the necessary funds are advanced, assumed, or agreed in advance to be reimbursed by the Party (or the applicable member of its Group) entitled to such Asset or the Person intended to be subject to such Liability, other than reasonable attorneys’ fees and recording or similar or other incidental fees, all of which shall be promptly reimbursed by the Party (or the applicable member of its Group) entitled to such Asset or the Person intended to be subject to such Liability and (ii) be indemnified for all Indemnifiable Losses or other Liabilities arising out of any actions (or omissions to act) of such retaining Party taken (or not taken) at the written direction of the other Party (or the applicable member of its Group) in connection with and relating to such retained Asset or Liability, as the case may be.

2.8.    Further Assurances.

(a)    In addition to and without limiting the actions specifically provided for elsewhere in this Agreement and subject to the limitations expressly set forth in this Agreement, including Section 2.7, each of the Parties shall cooperate with each other and shall use (and shall cause its respective Subsidiaries to use) commercially reasonable efforts, from and after the Distribution Effective Time, to take, or to cause to be taken, all actions, and to do, or to cause to be done, all things reasonably necessary on its part under applicable Law or contractual obligations to consummate and make effective the transactions contemplated by this Agreement and the Ancillary Agreements as promptly as reasonably practicable.

 

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(b)    Without limiting the foregoing, from and after the Distribution Effective Time:

(i)    each Party shall cooperate with the other Party to execute and deliver, and use commercially reasonable efforts to cause to be executed and delivered, all instruments, including instruments of Transfer or title, and to make all filings with, and to obtain all Consents, and to take or cause to be taken all such other actions as such Party may reasonably be requested to take by any other Party from time to time, as promptly as reasonably practicable, consistent with the terms of this Agreement and the Ancillary Agreements, in order to effectuate the provisions and purposes of this Agreement and the Ancillary Agreements and the Transfers of the applicable Assets and the assignment and assumption of the applicable Liabilities and the other transactions contemplated hereby and thereby; and

(ii)    in the event that any Party (or member of such Party’s Group) receives any Assets (including the receipt of payments made pursuant to Contracts and proceeds from accounts receivable with respect to such Asset) or is liable for any Liability that is otherwise assigned to any Person that is a member of the other Group pursuant to this Agreement or the Ancillary Agreements, such Party agrees to promptly Transfer, or cause to be Transferred, without further consideration such Asset or Liability to the other Party so entitled thereto (or to a member of such other Party’s Group as designated by such other Party) and, prior to any such Transfer, such Asset or Liability, as the case may be, shall be held in accordance with the provisions of Section 2.7; provided that the provisions of this Section 2.8(b)(ii) are not intended to, and shall not, be deemed to constitute an authorization by any Party to permit the other to accept service of process on its behalf and no Party is or shall be deemed to be the agent of any other Party for service of process purposes.

(c)    From and after the Distribution Effective Time, except with respect to the Securities Litigation, with respect to any Action where any Party hereto is a defendant, when and if requested by such Party, the other Party shall use commercially reasonable efforts to petition the applicable court to remove the requesting Party as a defendant to the extent that such Action relates solely to Assets or Liabilities that the other Party (or any member of such other Party’s Group) has been assigned pursuant to this Article II, and the other Party shall cooperate and assist in any required communication with any plaintiff or other related Third Party.

2.9.    Novation of Recro Retained Liabilities; Indemnification.

(a)    Each of Recro and Baudax, at the request of the other Party, shall use its commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any Consent, substitution or amendment required to novate or assign all obligations and other Liabilities for which a member of the Recro Group and a member of the Baudax Group are jointly or severally liable and that constitute Recro Retained Liabilities, so that, in any such case, the members of the Recro Group will be solely responsible for such Liabilities; provided, however, that except as expressly provided in any of the Ancillary Agreements, any Third Party Agreement, or as otherwise agreed between Recro and Baudax, neither Recro nor Baudax shall be obligated to make any payment, incur any Liability or offer or grant any accommodation (financial or otherwise, regardless of any provision to the contrary in any underlying Contract, including any requirements for the securing or posting of any bonds, letters of credit or similar instruments, or the furnishing of any guarantees) to any Third Party from whom any such Consent, substitution or amendment is requested.

 

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(b)    If Recro or Baudax, as applicable, is unable to obtain, or to cause to be obtained, any such required Consent, substitution or amendment with respect to any such Liability, the applicable member of the Baudax Group shall from and after the Distribution Effective Time continue to be bound by such obligation or other Liability and, unless not permitted by the terms thereof or by Law, from and after the Distribution Effective Time, Recro shall or shall cause a member of the Recro Group to, as agent or subcontractor for such member of the Baudax Group pay, perform and discharge fully such Liability to the extent that it does not constitute a Baudax Liability. Baudax shall cause each member of the Baudax Group without further consideration to promptly pay and remit, or cause to be paid or remitted, to Recro or to another member of the Recro Group specified by Recro, all money, rights and other consideration received by Baudax or any member of the Baudax Group in respect of such performance (unless any such consideration is a Baudax Asset). If and when any such Consent, substitution or amendment shall be obtained or the Liability shall otherwise become assignable or able to be novated, without payment of further consideration, Baudax shall promptly assign, or cause to be assigned, such Liability to Recro or to another member of the Recro Group specified by Recro, and Recro shall, or shall cause such other member of the Recro Group to, assume such Liability.

2.10.    Novation of Baudax Liabilities; Indemnification.

(a)    Each of Recro and Baudax, at the request of the other Party, shall use its commercially reasonable efforts to obtain, or to cause to be obtained, as soon as reasonably practicable, any Consent, substitution or amendment required to novate or assign all obligations or other Liabilities for which a member of the Recro Group and a member of the Baudax Group are jointly or severally liable and that constitute Baudax Liabilities, so that, in any such case, the members of the Baudax Group will be solely responsible for such Liabilities; provided, however, that except as expressly provided in any of the Ancillary Agreements, any Third Party Agreement, or as otherwise agreed between Recro and Baudax, neither Recro nor Baudax shall be obligated to make any payment, incur any Liability or offer or grant any accommodation (financial or otherwise, regardless of any provision to the contrary in any underlying Contract, including any requirements for the securing or posting of any bonds, letters of credit or similar instruments, or the furnishing of any guarantees) to any Third Party from whom any such Consent, substitution or amendment is requested.

(b)    If Recro or Baudax, as applicable, is unable to obtain, or to cause to be obtained, any such required Consent, substitution or amendment with respect to any such Liability, the applicable member of the Recro Group shall from and after the Distribution Effective Time continue to be bound by such obligation or other Liability and, unless not permitted by the terms thereof or by Law, from and after the Distribution Effective Time, Baudax shall or shall cause a member of the Baudax Group to, as agent or subcontractor for such member of the Recro Group pay, perform and discharge fully such Liability to the extent that it does not constitute a Recro Retained Liability. Recro shall cause each member of the Recro Group without further consideration to promptly pay and remit, or cause to be paid or remitted, to Baudax or to another member of the Baudax Group specified by Baudax, all money, rights and

 

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other consideration received by Recro or any member of the Recro Group in respect of such performance (unless any such consideration is a Recro Retained Asset). If and when any such Consent, substitution or amendment shall be obtained or the Liability shall otherwise become assignable or able to be novated, without payment of further consideration, Recro shall promptly assign, or cause to be assigned, such Liability to Baudax or to another member of the Baudax Group specified by Baudax, and Baudax shall, or shall cause such other member of the Baudax Group to, assume such Liability.

2.11.    Disclaimer of Representations and Warranties.

(a)    EACH OF RECRO (ON BEHALF OF ITSELF AND EACH MEMBER OF THE RECRO GROUP) AND BAUDAX (ON BEHALF OF ITSELF AND EACH MEMBER OF THE BAUDAX GROUP) UNDERSTANDS AND AGREES THAT, EXCEPT AS EXPRESSLY SET FORTH HEREIN, OR IN ANY ANCILLARY AGREEMENT, NO PARTY TO THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR ANY OTHER AGREEMENT OR DOCUMENT CONTEMPLATED BY THIS AGREEMENT, ANY ANCILLARY AGREEMENT OR OTHERWISE, IS REPRESENTING OR WARRANTING IN ANY WAY, AND HEREBY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES, AS TO THE ASSETS, BUSINESSES OR LIABILITIES CONTRIBUTED, TRANSFERRED OR ASSUMED AS CONTEMPLATED HEREBY OR THEREBY, AS TO ANY CONSENTS REQUIRED IN CONNECTION HEREWITH OR THEREWITH, AS TO THE VALUE OR FREEDOM FROM ANY SECURITY INTERESTS OF, AS TO NON-INFRINGEMENT, VALIDITY OR ENFORCEABILITY OR ANY OTHER MATTER CONCERNING, ANY ASSETS OR BUSINESS OF SUCH PARTY, OR AS TO THE ABSENCE OF ANY DEFENSES OR RIGHT OF SETOFF OR FREEDOM FROM COUNTERCLAIM WITH RESPECT TO ANY ACTION OR OTHER ASSET, INCLUDING ACCOUNTS RECEIVABLE, OF ANY PARTY, OR AS TO THE LEGAL SUFFICIENCY OF ANY CONTRIBUTION, ASSIGNMENT, DOCUMENT, CERTIFICATE OR INSTRUMENT DELIVERED HEREUNDER TO CONVEY TITLE TO ANY ASSET OR THING OF VALUE UPON THE EXECUTION, DELIVERY AND FILING HEREOF OR THEREOF. EXCEPT AS MAY EXPRESSLY BE SET FORTH HEREIN OR IN ANY ANCILLARY AGREEMENT, ALL SUCH ASSETS ARE BEING TRANSFERRED ON AN “AS IS, WHERE IS” BASIS (AND, IN THE CASE OF ANY REAL PROPERTY, BY MEANS OF A QUITCLAIM OR SIMILAR FORM DEED OR CONVEYANCE) AND THE RESPECTIVE TRANSFEREES SHALL BEAR THE ECONOMIC AND LEGAL RISKS THAT (i) ANY CONVEYANCE SHALL PROVE TO BE INSUFFICIENT TO VEST IN THE TRANSFEREE GOOD TITLE, FREE AND CLEAR OF ANY SECURITY INTEREST AND (ii) ANY NECESSARY CONSENTS OR GOVERNMENTAL APPROVALS ARE NOT OBTAINED OR THAT ANY REQUIREMENTS OF LAWS OR JUDGMENTS ARE NOT COMPLIED WITH.

(b)    Each of Recro (on behalf of itself and each member of the Recro Group) and Baudax (on behalf of itself and each member of the Baudax Group) further understands and agrees that if the disclaimer of express or implied representations and warranties contained in Section 2.11(a) is held unenforceable or is unavailable for any reason under the Laws of any jurisdiction outside the United States or if, under the Laws of a jurisdiction outside the United States, both Recro or any member of the Recro Group, on the one hand, and Baudax or any member of the Baudax Group, on the other hand, are jointly or severally liable for any

 

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Recro Retained Liability or any Baudax Liability, then the Parties intend that, notwithstanding any provision to the contrary under the Laws of such non-U.S. jurisdictions, the provisions of this Agreement and the Ancillary Agreements (including the disclaimer of all representations and warranties, allocation of Liabilities among the Parties and their respective Subsidiaries, releases, indemnification and contribution of Liabilities) shall prevail for any and all purposes among the Parties and their respective Subsidiaries.

2.12.    Cash Management. From the date of this Agreement until the Distribution Effective Time, Recro and its Subsidiaries shall be entitled to use, retain or otherwise dispose of all cash generated by the Acute Care Business and the Baudax Assets in accordance with the ordinary course operation of Recro’s cash management systems. Prior to the Distribution Effective Time, in connection with the intended capitalization of the Baudax Group, Recro shall cause to be contributed to Baudax an amount in cash set forth in Section 2.4. All cash and cash equivalents held by any member of the Baudax Group as of the Distribution Effective Time shall be a Baudax Asset and all cash and cash equivalents held by any member of the Recro Group as of the Distribution Effective Time shall be a Recro Retained Asset.

ARTICLE III

CERTAIN ACTIONS AT OR PRIOR TO THE DISTRIBUTION

3.1.    Transaction Agreements. At or prior to the Distribution Effective Time, Recro and Baudax shall enter into, or (where applicable) shall cause a member or members of their respective Groups to enter into each Transaction Agreement (other than this Agreement).

ARTICLE IV

THE DISTRIBUTION

4.1.    Stock Dividend; Distribution. Immediately prior to the Distribution Effective Time, in furtherance of the Separation, Baudax shall issue to Recro as a stock dividend such number of shares of Baudax Common Stock as may be requested by Recro after consultation with Baudax in order to effect the Distribution (or Recro and Baudax shall take or cause to be taken such other appropriate actions to ensure that Recro has the requisite number of shares of Baudax Common Stock), which shares as of the date of issuance shall represent (together with such shares previously held by Recro) all of the issued and outstanding shares of Baudax Common Stock. Subject to the conditions and other terms set forth in this Article IV, Recro shall cause the Distribution Agent on the Distribution Date to make the Distribution, including by crediting the appropriate number of shares of Baudax Common Stock to book entry accounts for each Record Holder or designated transferee or transferees of such Record Holder. For shareholders who own Recro Common Stock through a broker or other nominee, their shares of Baudax Common Stock will be credited to their respective accounts by such broker or nominee. No action by any shareholder (or such shareholder’s designated transferee or transferees) shall be necessary to receive the applicable number of shares of Baudax Common Stock (and, if applicable, cash in lieu of any fractional shares) to which such shareholder is entitled in the Distribution. All stock distributions of the Baudax Common Stock to a Recro shareholder will be subject to the withholding of any Tax that Recro determines is to be withheld. If an amount is withheld, the shareholder from whom the withholding occurred will be deemed to have received the Baudax Common Stock for all purposes of this Agreement.

 

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4.2.    Fractional Shares. Recro registered shareholders who, after aggregating the number of shares of Baudax Common Stock (or fractions thereof) to which such shareholder would be entitled on the Record Date, would be entitled to receive a fraction of a share of Baudax Common Stock in the Distribution, will be entitled to receive cash in lieu of fractional shares. Fractional shares of Baudax Common Stock will not be distributed by Recro in the Distribution. The Distribution Agent shall, as soon as practicable after the Distribution Date, (a) determine the number of whole shares and fractional shares of Baudax Common Stock allocable to each such Recro shareholder, (b) aggregate all such fractional shares into whole shares and sell the whole shares obtained thereby in open market transactions at then prevailing trading prices on behalf of holders who would otherwise be entitled to fractional share interests, and (c) distribute to each such holder, or for the benefit of each such beneficial owner, such holder’s or owner’s pro rata share of the aggregate net cash proceeds of these sales, after making appropriate deductions for any amount required to be withheld for U.S. federal income tax purposes. Recro shall bear the cost of brokerage fees and transfer Taxes incurred in connection with these sales of fractional shares, which such sales shall occur as soon after the Distribution Date as practicable and as determined by the Distribution Agent. None of Recro, Baudax or the Distribution Agent will guarantee any minimum sale price for the fractional shares of Baudax Common Stock. Neither Recro nor Baudax will pay any interest on the proceeds from the sale of fractional shares. The Distribution Agent will have the sole and absolute discretion to select the broker-dealers through which to sell the aggregated fractional shares and to determine when, how and at what price to sell such shares. Neither the Distribution Agent nor the selected broker-dealers will be Affiliates of Recro or Baudax.

4.3.    Actions in Connection with the Distribution.

(a)    Prior to the Distribution Date, Baudax shall file such amendments and supplements to its Form 10 as Recro may reasonably request, and such amendments as may be necessary in order to cause the same to become and remain effective as required by Law, including filing such amendments and supplements to its Form 10 as may be required by the Commission or federal, state or non-U.S. securities Laws. Recro shall, or at Recro’s election, Baudax shall, mail (or deliver by electronic means where not prohibited by Law) to the holders of Recro Common Stock, at such time on or prior to the Distribution Date as Recro shall determine, the Information Statement included in its Form 10 (or a Notice of Internet Availability of the Information Statement), as well as any other information concerning Baudax, its business, operations and management, the transactions contemplated herein and such other matters as Recro shall reasonably determine are necessary and as may be required by Law. Promptly after receiving a request from Recro, Baudax shall prepare and, in accordance with applicable Law, file with the Commission any such documentation that Recro reasonably determines is necessary or desirable to effectuate the Distribution, and Recro and Baudax shall each use commercially reasonable efforts to obtain all necessary approvals from the Commission with respect thereto as soon as practicable.

(b)    Baudax shall use commercially reasonable efforts in preparing, filing with the Commission and causing to become effective, as soon as reasonably practicable (but in any case prior to the Distribution Effective Time), an effective registration statement or amendments thereof which are required in connection with the establishment of, or amendments to, any employee benefit plans of Baudax.

 

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(c)    To the extent not already approved and effective, Baudax shall use commercially reasonable efforts to have approved and made effective, the application for the original listing on Nasdaq of the Baudax Common Stock to be distributed in the Distribution, subject to official notice of distribution.

(d)    Nothing in this Section 4.3 shall be deemed to shift or otherwise impose Liability for any portion of the Form 10 or Information Statement to Recro.

4.4.    Sole and Absolute Discretion of Recro. Recro, in its sole and absolute discretion, shall determine the Distribution Date, the Distribution Effective Time and all other terms of the Distribution, including the form, structure and terms of any transactions and/or offerings to effect the Distribution and the timing of and conditions to the consummation thereof. In addition, Recro may, in accordance with Section 10.10, at any time and from time to time until the completion of the Distribution decide to abandon the Distribution or modify or change the terms of the Distribution, including by accelerating or delaying the timing of the consummation of all or part of the Distribution. Without limiting the foregoing, Recro shall have the right not to complete the Distribution if, at any time prior to the Distribution Effective Time, the Board shall have determined, in its sole and absolute discretion, that the Distribution is not in the best interests of Recro or its shareholders, that a sale or other alternative is in the best interests of Recro or its shareholders or that it is not advisable at that time for the Acute Care Business to separate from Recro.

4.5.    Conditions to Distribution. Subject to Section 4.4, the obligation of Recro to consummate the Distribution is subject to the prior or simultaneous satisfaction, or, to the extent permitted by applicable Law, waiver by Recro, in its sole and absolute discretion, of the following conditions. None of Baudax, any other member of the Baudax Group, or any Third Party shall have any right or claim to require the consummation of the Distribution, which shall be effected at the sole and absolute discretion of the Board. Any determination by Recro, and any subsequent amendment, revision, withdrawal or change thereto made by Recro prior to the Distribution and concerning the satisfaction or waiver of any or all of the conditions set forth in this Section 4.5 shall be conclusive and binding on the Parties. The conditions are for the sole benefit of Recro and shall not give rise to or create any duty on the part of Recro or the Board to waive or not waive any such condition. Each Party shall use its commercially reasonable efforts to keep the other Party apprised of its efforts with respect to, and the status of, each of the following conditions:

(a)    the Commission shall have declared effective the Form 10, no stop order relating thereto will be in effect, no proceedings seeking any such stop order shall be pending before or threatened by the Commission, and the Information Statement (or the Notice of Internet Availability of the Information Statement) shall have been distributed to holders of Recro Common Stock;

(b)    the shares of Baudax Common Stock to be distributed shall have been approved and accepted for listing by Nasdaq, subject to official notice of distribution;

(c)    the receipt and continuing validity of an opinion from an independent appraisal firm to the Board, that is in form and substance acceptable to Recro in its sole and absolute discretion, confirming the solvency of Baudax after the Distribution;

 

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(d)    all permits, registrations and Consents required under the securities or blue sky laws of states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the Distribution shall have been received;

(e)    no order, injunction, or decree issued by any Governmental Entity of competent jurisdiction, or other legal restraint or prohibition preventing the consummation of the Distribution or any of the related transactions shall be pending, threatened, issued or in effect, and no other event outside the control of Recro shall have occurred or failed to occur that prevents the consummation of all or any portion of the Distribution;

(f)    the Internal Reorganization shall have been effectuated prior to the Distribution, except for such steps (if any) as Recro in its sole discretion shall have determined need not be completed or may be completed after the Distribution Effective Time;

(g)    the Board shall have declared the Distribution and approved all related transactions (and such declaration or approval shall not have been withdrawn);

(h)    Baudax shall have executed and delivered each of the other Transaction Agreements; and

(i)    no events or developments shall have occurred or shall exist that, in the sole and absolute judgment of the Board, make it inadvisable to effect the Distribution or would result in the Distribution and related transactions not being in the best interest of Recro.

ARTICLE V

CERTAIN COVENANTS

5.1.    Use of Retained Names and Marks. Baudax hereby acknowledges that Recro or its Affiliates or its or their licensors own all right, title and interest in and to Trademarks and all other identifiers of source or goodwill containing, incorporating or associated with Trademarks, excluding, on and after the Distribution Date, the Baudax Trademarks (collectively, the “Retained Names and Marks”), and that any and all right of Baudax to use the Retained Names and Marks shall terminate as of the Distribution Date and shall immediately revert to Recro or its Affiliates, along with any and all goodwill associated therewith. Baudax further acknowledges that it has no rights in any of the Retained Names and Marks, and that it is not acquiring any rights, directly or indirectly, to use the Retained Names and Marks, except as expressly provided herein. Recro hereby acknowledges that, on and after the Distribution Date, Baudax or its Affiliates or its or their licensors own all right, title and interest in and to the Baudax Trademarks, and that any and all right of Recro to use the Baudax Trademarks shall terminate as of the Distribution Date. Recro further acknowledges that, on and after the Distribution Date, it will have no rights in any of the Baudax Trademarks.

 

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ARTICLE VI

INDEMNIFICATION

6.1.    Release of Pre-Distribution Claims.

(a)    Except (i) as provided in Section 6.1(b), (ii) as may be otherwise expressly provided in this Agreement, or in any Ancillary Agreement, and (iii) for any matter for which either Party is entitled to indemnification pursuant to this Article VI:

(i)    Recro, for itself and each member of the Recro Group and, to the extent permitted by Law, all Persons who at any time prior to the Distribution Effective Time were directors, officers, agents or employees of any member of the Recro Group (in their respective capacities as such), in each case, together with their respective heirs, executors, administrators, successors and assigns, does hereby remise, release and forever discharge Baudax and the other members of the Baudax Group and all Persons who at any time prior to the Distribution Effective Time were shareholders, directors, officers, agents or employees of any member of the Baudax Group (in their respective capacities as such), in each case, together with their respective heirs, executors, administrators, successors and assigns, from any and all (1) Recro Retained Liabilities and (2) Liabilities existing or arising: (A) in connection with the implementation of the Separation (including the Distribution); or (B) from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Distribution Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Distribution Effective Time), in each case to the extent relating to, arising out of or resulting from the CDMO Business, the Recro Retained Assets or the Recro Retained Liabilities, whether at Law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, in each case, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Distribution Effective Time, including in connection with the Separation and any of the other transactions contemplated hereunder and under the Ancillary Agreements (such liabilities, the “Recro Released Liabilities”) and in any event shall not, and shall cause its respective Subsidiaries not to, bring any Action against any member of the Baudax Group in respect of any Recro Released Liabilities; provided, however, that nothing in this Section 6.1(a)(i) shall relieve any Person released in this Section 6.1(a)(i) who, after the Distribution Effective Time, is a director, officer or employee of any member of the Baudax Group and is no longer a director, officer or employee of any member of the Recro Group from Liabilities arising out of, relating to or resulting from his or her service as a director, officer or employee of any member of the Baudax Group after the Distribution Effective Time. Notwithstanding the foregoing, nothing in this Agreement shall be deemed to limit Recro, any member of the Recro Group, or their respective Affiliates from commencing any Actions against any Baudax officer, director, agent or employee, or their respective heirs, executors, administrators, successors and assigns with regard to matters arising from, or relating to willful misconduct or recklessness by any such officers, directors, agents or employees.

(ii)    Baudax, for itself and each member of the Baudax Group and, to the extent permitted by Law, all Persons who at any time prior to the Distribution Effective Time were directors, officers, agents or employees of any member of the Baudax Group (in their respective capacities as such), in each case, together with their respective heirs, executors, administrators, successors and assigns, does hereby remise, release and forever discharge Recro and the other members of the Recro Group and all Persons who at any time prior to the Distribution Effective Time were shareholders, directors, officers, agents or employees of any member of the Recro Group (in their respective capacities as such), in each

 

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case, together with their respective heirs, executors, administrators, successors and assigns, from any and all (1) Baudax Liabilities and (2) Liabilities existing or arising: (A) in connection with the implementation of the Separation (including the Distribution); or (B) from actions, inactions, events, omissions, conditions, facts or circumstances occurring or existing prior to the Distribution Effective Time (whether or not such Liabilities cease being contingent, mature, become known, are asserted or foreseen, or accrue, in each case before, at or after the Distribution Effective Time), in each case to the extent relating to, arising out of or resulting from the Acute Care Business, the Baudax Assets or the Baudax Liabilities, whether at Law or in equity (including any right of contribution), whether arising under any Contract, by operation of Law or otherwise, in each case, existing or arising from any acts or events occurring or failing to occur or alleged to have occurred or to have failed to occur or any conditions existing or alleged to have existed on or before the Distribution Effective Time, including in connection with the Separation and any of the other transactions contemplated hereunder and under the Ancillary Agreements (such liabilities, the “Baudax Released Liabilities”) and in any event shall not, and shall cause its respective Subsidiaries not to, bring any Action against any member of the Recro Group in respect of any Baudax Released Liabilities; provided, however, that for purposes of this Section 6.1(a)(ii), the members of the Baudax Group shall also release and discharge any officers or other employees of any member of the Recro Group, to the extent any such officers or employees served as directors or officers of any member of the Baudax Group prior to the Distribution, from any and all Liabilities or responsibilities for any and all past actions or failures to take action, in each case in their respective capacities as directors or officers, as the case may be, of any such member of the Baudax Group, prior to the date of the Distribution. Notwithstanding the foregoing, nothing in this Agreement shall be deemed to limit Baudax, any member of the Baudax Group, or their respective Affiliates from commencing any Actions against any Recro officer, director, agent or employee, or their respective heirs, executors, administrators, successors and assigns with regard to matters arising from, or relating to willful misconduct or recklessness by any such officers, directors, agents or employees.

(b)    Nothing contained in this Agreement, including Section 6.1(a) or Section 2.5, shall impair or otherwise affect any right of any Party and, as applicable, a member of such Party’s Group, as well as their respective heirs, executors, administrators, successors and assigns, to enforce this Agreement, any Ancillary Agreement or any agreements, arrangements, commitments or understandings contemplated in this Agreement or in any Ancillary Agreement to continue in effect after the Distribution Effective Time. In addition, nothing contained in Section 6.1(a) shall:

(i)    release any Person from any Liability assumed, Transferred or expressly assigned to a Party or a member of such Party’s Group pursuant to or as contemplated by, or any other Liability of any member of such Group under, this Agreement or any Ancillary Agreement including (1) with respect to Recro, any Recro Retained Liability, (2) with respect to Baudax, any Baudax Liability, (3) any Liability expressly preserved pursuant to Section 2.5, and (4) any Liability that the Parties may have with respect to indemnification or contribution pursuant to this Agreement or otherwise for Actions brought against the Parties by Third Parties, which Liability shall be governed by the provisions of this Agreement and, in particular, this Article VI and, if applicable, the appropriate provisions of the Ancillary Agreements;

 

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(ii)    release any Person from any Liability provided for in or resulting from any other Contract or understanding that is entered into after the Distribution Effective Time between any Party (and/or a member of such Party’s Group), on the one hand, and the other Party (and/or a member of such Party’s Group), on the other hand;

(iii)    release any Person other than the Persons released in Section 6.1(a); provided that the Parties agree not to bring any Action or permit any other member of their respective Group to bring any Action against a Person released in Section 6.1(a) with respect to such Liability; and

(iv)    release any employee of Baudax from any Contract with any member of the Recro Group to the extent related to the Recro Retained Assets, Recro Retained Liabilities or CDMO Business.

In addition, nothing contained in Section 6.1(a) shall release Recro from indemnifying or providing advancement payments to, any director, officer or employee of Baudax who was a director, officer or employee of Recro or any of its Affiliates prior to the Distribution Effective Time, as the case may be, with respect to which he or she was entitled to such indemnification or advancement pursuant to an obligation existing immediately prior to the Distribution Effective Time; it being understood that if the underlying obligation giving rise to such Action is established by a court of competent jurisdiction to be a Baudax Liability, Baudax shall indemnify Recro for such Liability (including Recro’s costs to indemnify and/or provide advancement to the director, officer or employee) in accordance with the provisions set forth in this Article VI.

(c)    Each Party shall not, and shall not permit any member of its Group to, make any claim for offset, or commence any Action, including any claim of contribution or any indemnification, against any other Party or any member of any other Party’s Group, or any other Person released pursuant to Section 6.1(a), with respect to any Liabilities released pursuant to Section 6.1(a).

(d)    If any Person associated with a Party (including any director, officer or employee of a Party) initiates any Action with respect to claims released by this Section 6.1, the Party with which such Person is associated shall be responsible for the reasonable fees and expenses of counsel of the other Party and/or the members of such Party’s Group, as applicable, and such other Party shall be indemnified for all Liabilities incurred in connection with such Action in accordance with the provisions set forth in this Article VI.

6.2.    Indemnification by Recro. In addition to any other provisions of this Agreement requiring indemnification and except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, following the Distribution Effective Time, Recro shall and shall cause the other members of the Recro Group to indemnify, hold harmless and defend the Baudax Indemnitees from and against any and all Indemnifiable Losses of the Baudax Indemnitees to the extent relating to, arising out of, by reason of or otherwise in connection with (a) the Recro Retained Liabilities, including the failure of any member of the Recro Group or any other Person to pay, perform or otherwise discharge any Recro Retained Liability in accordance with its respective terms, whether arising prior to, on or after the

 

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Distribution Effective Time, or (b) any breach by Recro of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder (each, a “Baudax Claim”).

6.3.    Indemnification by Baudax. In addition to any other provisions of this Agreement requiring indemnification and except as otherwise specifically set forth in any provision of this Agreement or of any Ancillary Agreement, following the Distribution Effective Time, Baudax shall and shall cause the other members of the Baudax Group to indemnify, hold harmless and defend the Recro Indemnitees from and against any and all Indemnifiable Losses of the Recro Indemnitees to the extent relating to, arising out of, by reason of or otherwise in connection with (a) the Baudax Liabilities, including the failure of any member of the Baudax Group or any other Person to pay, perform or otherwise discharge any Baudax Liability in accordance with its respective terms, whether prior to, on or after the Distribution Effective Time, or (b) any breach by Baudax of any provision of this Agreement or any Ancillary Agreement unless such Ancillary Agreement expressly provides for separate indemnification therein, in which case any such indemnification claims shall be made thereunder (each, an “Recro Claim”).

6.4.    Baudax Securities Litigation Indemnity. Baudax shall advance Securities Litigation Costs and indemnify on demand and hold harmless Recro and each member of the Recro Group against any Monetary Penalty agreed with, imposed by, or ordered in connection with the Securities Litigation, to the extent that such Monetary Penalty results from or arises out of the Securities Litigation. Any amount paid or advanced by Baudax pursuant to this Section 6.4 shall be subject to reimbursement by Recro to the extent that Recro receives Insurance Proceeds in respect of such amounts.

6.5.    Procedures for Indemnification.

(a)    Direct Claims. Other than with respect to Third Party Claims, which shall be governed by Section 6.5(b):

(i)    if a Baudax Indemnitee has made a determination that it is or may be entitled to indemnification in respect of any Baudax Claim, the Baudax Indemnitee shall so notify Recro as promptly as reasonably possible after becoming aware of the existence of such Baudax Claim; and

(ii)    if a Recro Indemnitee has made a determination that it is or may be entitled to indemnification in respect of any Recro Claim, the Recro Indemnitee shall so notify Baudax as promptly as reasonably possible after becoming aware of the existence of such Recro Claim (any such claim made pursuant to Section 6.5(a)(i) or this Section 6.5(a)(ii), a “Direct Claim”). Each such notice shall be in writing and shall describe in reasonable detail the basis for the claim for indemnification hereunder and set forth, to the extent known, the estimated amount of Indemnifiable Losses for which indemnification may be sought hereunder relating to such claim (including, to the extent practicable, the method of computation thereof); provided, however, that the failure to provide such written notice shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying

 

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Party shall have been actually materially prejudiced as a result of such failure. The Indemnifying Party will have a period of forty-five (45) days after receipt of any such notice under this Section 6.5(a) to respond to the claimant thereto. If the Indemnifying Party fails to respond within such period, the claim specified in such notice from the Indemnitee shall be conclusively determined to be an indemnifiable claim for which the Indemnifying Party shall be liable to the applicable Indemnitee(s) hereunder.

(b)    Third Party Claims. If a claim or demand is made against an Indemnitee by any Third Party (a “Third Party Claim”) as to which such Indemnitee is or may be entitled to indemnification pursuant to this Agreement, Recro (on behalf of the Recro Indemnitees) or Baudax (on behalf of the Baudax Indemnitees), as applicable (such claimant, the “Claiming Party”), shall notify the Indemnifying Party of the Third Party Claim in writing and in reasonable detail describing the basis for any claim for indemnification hereunder, referring to the provisions of this Agreement or any Ancillary Agreement in respect of which such right of indemnification is claimed by such Indemnitee or arises and including copies of all Third Party written notices and documents received by the Claiming Party (and any or all of its Indemnitees) relating to the Third Party Claim promptly (and in any event within twenty (20) days) after receipt by such Indemnitee of written notice of the Third Party Claim; provided, however, that the failure to provide notice of any such Third Party Claim pursuant to this sentence shall not release the Indemnifying Party from any of its obligations except and solely to the extent the Indemnifying Party shall have been actually materially prejudiced as a result of such failure. Thereafter, the Claiming Party shall deliver to the Indemnifying Party, promptly (and in any event within five (5) Business Days) after the receipt thereof by the Claiming Party (or any of its Indemnitees), copies of any and all additional Third Party written notices and documents (including court papers) received by the Claiming Party (or any of its Indemnitees) relating to the Third Party Claim.

(c)    Subject to the provisions of this Section 6.5(c), the Indemnifying Party has the right, exercisable by written notice to the Claiming Party within thirty (30) days after receipt of notice from the Claiming Party pursuant to Section 6.5(b), to assume and conduct the defense (including, subject to the conditions of this Section 6.5(c), settlement) of such Third Party Claim in accordance with the limits set forth in this Agreement with counsel selected by the Indemnifying Party and reasonably acceptable to the applicable Indemnitees. If the Indemnifying Party does not assume the defense of a Third Party Claim in accordance with this Section 6.5(c), the Indemnitee may defend the Third Party Claim. If the Indemnifying Party has assumed the defense of a Third Party Claim as provided in this Section 6.5(c), the Indemnifying Party shall not be liable for any legal expenses subsequently incurred by the Indemnitee in connection with the defense of the Third Party Claim; provided, however, that if (i) in the reasonable judgment of the Indemnitee, after consultation with outside counsel, there exists a conflict of interest between the Indemnifying Party and the applicable Indemnitee(s) in the defense of such Third Party Claim by the Indemnifying Party, (ii) the party making such Third Party Claim is a Governmental Authority with regulatory or other authority over the Indemnitee or any of its material assets, (iii) the Third Party Claim seeks injunctive or other nonmonetary relief that, if granted, would reasonably be expected to have a material and adverse effect on the Indemnitee’s business, or (iv) the Indemnifying Party fails to take reasonable steps necessary to defend diligently such Third Party Claim, the Indemnitee may assume its own defense, and the Indemnifying Party shall be liable for all reasonable costs or expenses paid or incurred in

 

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connection with such defense. The Indemnifying Party or the Indemnitee, as the case may be, has the right to participate in (but, subject to the prior sentence, not control), at its own expense, the defense of any Third Party Claim that the other Person is defending as provided in this Agreement. The Indemnifying Party, if it has assumed the defense of any Third Party Claim as provided in this Agreement, may not, without the prior written consent of the Indemnitee (not to be unreasonably withheld, conditioned or delayed), consent to a settlement or compromise of, or the entry of any judgment arising from, any such Third Party Claim. The Indemnitee may consent to a settlement or compromise of, or the entry of any judgment arising from, any Third Party Claim, the defense of which has not been assumed by the Indemnifying Party, only with the prior written consent of the Indemnifying Party, not to be unreasonably withheld, conditioned or delayed.

(d)    The Claiming Party and the Indemnifying Party shall (and the Claiming Party shall cause the applicable Indemnitee(s) to) make reasonably available to each other and their respective agents and representatives all relevant records available to them that are necessary or appropriate for the defense of any Third Party Claim, subject to any bona fide claims of attorney-client privilege, and each of the Indemnifying Party and the Claiming Party shall use its reasonable efforts to assist, and to cause the employees and counsel of such party to assist. in the defense of such Third Party Claim. If a Party asserts its right to participate in the defense and investigation of any Third Party Claim, the Party controlling the defense and investigation of such Third Party Claim shall act in good faith and reasonably consult and cooperate with the Indemnitee or the Indemnifying Party, as the case may be, in connection with any appearances, briefs, arguments and proposals made or submitted by or on behalf of any party in connection with the Third Party Claim (including considering in good faith all reasonable additions, deletions or changes suggested by the Indemnitee or the Indemnifying Party, as the case may be, in connection any filings made with any Governmental Entity or proposals to the Third Party claimant in connection therewith). With respect to any Third Party Claim that implicates both Parties in any material respect due to the allocation of Liabilities, responsibilities for management of defense and related indemnities pursuant to this Agreement or any of the Ancillary Agreements, the Parties agree to use commercially reasonable efforts to cooperate fully and maintain a joint defense (in a manner that, to the extent reasonably practicable, will preserve for all Parties any Privilege with respect thereto). The Party that is not responsible for managing the defense of any such Third Party Claim shall, upon reasonable request, be consulted with respect to significant matters relating thereto and may, if necessary or helpful, retain counsel to assist in the defense of such claims. Notwithstanding the foregoing, nothing in this Section 6.5(d) shall derogate from a Party’s right to control the defense of any Action in accordance with Section 6.5.

(e)    Each of the Parties agrees that at all times from and after the Distribution Effective Time, if an Action is commenced by a Third Party naming two (2) or more Parties (or any member of such Parties’ respective Groups) as defendants and with respect to which one or more named Parties (or any member of such Party’s Group) is a nominal defendant and/or such Action is related solely to an Asset or Liability that the other Party has been assigned under this Agreement, any Ancillary Agreement or any Third Party Agreement, then the other Party or Parties shall use commercially reasonable efforts to cause such nominal defendant to be removed from such Action, as soon as reasonably practicable.

 

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(f)    The provisions of this Section 6.5 (other than this Section 6.5(f)) and Section 6.8 (other than Section 6.8(g)) shall not apply to Taxes (Taxes being governed by the Tax Matters Agreement).

6.6.    Indemnification Obligations Net of Insurance Proceeds and Other Amounts.

(a)    Any recovery by any Party (including any of its Indemnitees) for any Indemnifiable Loss subject to indemnification pursuant to this Article VI shall be calculated (i) net of Insurance Proceeds actually received by such Party (or any of its Indemnitees) with respect to any Indemnifiable Loss and (ii) net of any proceeds actually received by such Party (or any of its Indemnitees) from any Third Party with respect to any such Liability corresponding to the Indemnifiable Loss (“Third Party Proceeds”), in the case of (i) and (ii) net of the costs of collection thereof and any specifically identifiable increase in premium attributable thereto under applicable Third Party Policies. Accordingly, the amount which any Indemnifying Party is required to pay pursuant to this Article VI to any Indemnitee pursuant to this Article VI shall be reduced by any Insurance Proceeds or Third Party Proceeds actually recovered by or on behalf of the Indemnitee corresponding to the related Indemnifiable Loss. If an Indemnitee receives a payment required by this Agreement from an Indemnifying Party corresponding to any Indemnifiable Loss (an “Indemnity Payment”) and subsequently receives Insurance Proceeds or Third Party Proceeds, then the Indemnitee shall pay to the Indemnifying Party an amount equal to the excess of the Indemnity Payment received over the amount of the Indemnity Payment that would have been due if the Insurance Proceeds or Third Party Proceeds had been received, realized or recovered before the Indemnity Payment was made.

(b)    Insurers and Other Third Parties Not Relieved. The Parties hereby agree that an insurer or other Third Party that would otherwise be obligated to pay any amount shall not be relieved of the responsibility with respect thereto or have any subrogation rights with respect thereto by virtue of any provision contained in this Agreement or any Ancillary Agreement, and that no insurer or any other Third Party shall be entitled to a “windfall” (e.g., a benefit they would not otherwise be entitled to receive, or the reduction or elimination of an insurance coverage obligation that they would otherwise have, in the absence of the indemnification or release provisions) by virtue of any provision contained in this Agreement or any Ancillary Agreement. Each Party shall, and shall cause its Subsidiaries to, use commercially reasonable efforts to collect or recover, or allow the Indemnifying Party to collect or recover, or cooperate with each other in collecting or recovering, any Insurance Proceeds that may be collectible or recoverable respecting the Liabilities for which indemnification may be available under this Article VI. Notwithstanding the foregoing, an Indemnifying Party may not delay making any indemnification payment required under the terms of this Agreement, or otherwise satisfying any indemnification obligation, pending the outcome of any Actions to collect or recover Insurance Proceeds, and an Indemnitee need not attempt to collect any Insurance Proceeds prior to making a claim for indemnification or receiving any Indemnity Payment otherwise owed to it under this Agreement or any Ancillary Agreement.

6.7.    Contribution. If the indemnification provided for in this Article VI is unavailable for any reason to an Indemnitee (other than failure to provide notice with respect to any Third Party Claims in accordance with Section 6.5(b)) in respect of any Indemnifiable Loss,

 

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then the Indemnifying Party shall, in accordance with this Section 6.7, contribute to the Indemnifiable Losses incurred, paid or payable by such Indemnitee as a result of such Indemnifiable Loss in such proportion as is appropriate to reflect the relative fault of Baudax and each other member of the Baudax Group, on the one hand, and Recro and each other member of the Recro Group, on the other hand, in connection with the circumstances which resulted in such Indemnifiable Loss. Solely for purposes of determining relative fault pursuant to this Section 6.7: (i) any fault associated with information contained in the Distribution Disclosure Documents shall be deemed to be allocated to Baudax and the other members of the Baudax Group; (ii) any fault associated with the conduct of the CDMO Business prior to the Distribution Effective Time shall be deemed to be allocated to Recro and the other members of the Recro Group, and no such fault shall be deemed to be the fault of Baudax or any other member of the Baudax Group; and (iii) any fault associated with the conduct of the Acute Care Business prior to the Distribution Effective Time shall be deemed to be the fault of Baudax and the other members of the Baudax Group, and no such fault shall be deemed to be the fault of Recro or any other member of the Recro Group.

6.8.    Additional Matters; Survival of Indemnities.

(a)    The agreements contained in this Article VI shall remain operative and in full force and effect, regardless of (i) any investigation made by or on behalf of any Indemnitee; and (ii) the knowledge by the Indemnitee of Indemnifiable Losses for which it might be entitled hereunder. The agreements contained in this Article VI shall survive the Distribution.

(b)    The rights and obligations of each Party and their respective Indemnitees under this Article VI shall survive (i) the sale or other Transfer by any Party or its respective Subsidiaries of any Assets or businesses or the assignment by it of any Liabilities and (ii) any merger, consolidation, business combination, sale of all or substantially all of the Assets, restructuring, recapitalization, reorganization or similar transaction involving either Party or any of its Subsidiaries.

(c)    Except to the extent set forth in any Ancillary Agreement, absent fraud or willful misconduct by an Indemnifying Party, the provisions of this Article VI shall be the sole and exclusive remedy of an Indemnitee for any monetary or compensatory damages or losses resulting from any breach of this Agreement or any Ancillary Agreement and each Indemnitee expressly waives and relinquishes any and all rights, claims or remedies such Person may have with respect to the foregoing other than under this Article VI against any Indemnifying Party.

(d)    Notwithstanding the foregoing, to the extent any Ancillary Agreement provides procedures for indemnification or contribution that differ from the provisions set forth in this Article VI, the terms of the Ancillary Agreement will govern.

(e)    Any amounts payable pursuant to this Article VI shall be paid without duplication, and in no event shall any Party receive any payment in respect of an Indemnifiable Loss or receive contribution under different provisions of any Ancillary Agreement in respect of the same Liabilities.

 

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(f)    Any amount to be paid or reimbursed by an Indemnifying Party (or a member of such Party’s Group) to an Indemnitee pursuant to this Article VI shall be paid in accordance with the procedures set forth in Section 10.11.

(g)    The Parties shall report for all Tax purposes any amounts payable pursuant to this Article VI in accordance with Section 2.7 of the Tax Matters Agreement.

6.9.    Limitations on Indemnity. Notwithstanding anything to the contrary contained herein, Recro and Baudax agree, for themselves and on behalf of the Baudax Indemnitees and the Recro Indemnitees that:

(a)    The aggregate amount of Indemnifiable Losses for which Baudax shall be liable pursuant to Section 6.3 and Section 6.4 shall not exceed $19,000,000 (the “Cap”).

(b)    The aggregate amount of Indemnifiable Losses for which Recro shall be liable pursuant to Section 6.2 shall not exceed the Cap.

ARTICLE VII

PRESERVATION OF RECORDS; ACCESS TO INFORMATION;

CONFIDENTIALITY; PRIVILEGE

7.1.    Preservation of Information.

(a)    Except as otherwise required or agreed in writing, or as otherwise provided in any Ancillary Agreement, with regard to any information referenced in Section 7.3, each Party shall use its commercially reasonable efforts, at its sole cost and expense, to retain, until the latest of, as applicable, (i) the date on which such information is no longer required to be retained pursuant to Recro’s applicable record retention policy as in effect immediately prior to the Distribution, including pursuant to any “Litigation Hold” issued by Recro or any of its Subsidiaries prior to the Distribution, (ii) the concluding date of any period as may be required by any applicable Law, (iii) the concluding date of any period during which such information relates to a pending or threatened Action which is known to the members of the Recro Group or Baudax Group, as applicable, in possession of such information at the time any retention obligation with regard to such information would otherwise expire, and (iv) the concluding date of any period during which the destruction of such information could interfere with a pending or threatened investigation by a Governmental Entity which is known to the members of the Recro Group or Baudax Group, as applicable, in possession of such information at the time any retention obligation with regard to such information would otherwise expire; provided, that with respect to any pending or threatened Action arising after the Distribution, clause (iii) of this sentence applies only to the extent that whichever member of the Recro Group or Baudax Group, as applicable, is in possession of such information has been notified in writing pursuant to a “Litigation Hold” by the other Party of the relevant pending or threatened Action. The Parties agree that upon written request from either Party that certain information relating to the Acute Care Business, the CDMO Business or the transactions contemplated hereby be retained in connection with an Action, the other Party shall use reasonable efforts to preserve and not to destroy or dispose of such information without the consent of the requesting Party.

 

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(b)    Recro and Baudax intend that any transfer of information that would otherwise be within the attorney-client or attorney work product privileges not operate as a waiver of any potentially applicable privilege.

7.2.    Financial Statements and Accounting.

(a)    From the Distribution Effective Time until the completion of each Party’s audit for the fiscal year ending December 31, 2019, each Party agrees to provide reasonable assistance and, subject to Section 7.6, reasonable access to its properties, books and records, other information in its possession and control and personnel, and to use its commercially reasonable efforts to cooperate with the other Party’s requests, in each case to enable (i) such other Party to meet its timetable for dissemination of its earnings releases, financial statements and management’s assessment of the effectiveness of its disclosure controls and procedures and its internal control over financial reporting in accordance with Items 307 and 308, respectively, of Regulation S-K, (ii) such other Party’s accountants to timely complete their review of the quarterly financial statements and audit of the annual financial statements of such other Party, including, to the extent applicable to such Party, its auditor’s audit, if applicable, of its internal control over financial reporting and management’s assessment thereof in accordance with Section 404 of the Sarbanes-Oxley Act of 2002 and the Commission’s and Public Company Accounting Oversight Board’s rules and auditing standards thereunder and (iii) such other Party to respond to any written request or official comment from a Governmental Entity, including in connection with responding to a comment letter from the Commission; provided, that in connection with this clause (iii), each Party shall provide reasonable access on the terms set forth in this Section 7.2 for a period of three (3) years following the Distribution Date. For the avoidance of doubt, this Section 7.2(a) shall not limit in any manner the obligations of the Parties under any Ancillary Agreement.

(b)    Nothing in this Article VII shall require any Party to violate any agreement with any Third Party regarding the confidentiality of information relating to that Third Party or its business; provided, however, that in the event that a Party is required under this Section 7.2 to disclose any such information, such Party shall use commercially reasonable efforts to seek to obtain such Third Party’s written consent to the disclosure of such information.

7.3.    Provision of Information. Other than in circumstances in which indemnification is sought pursuant to Article VI (in which event the provisions of such Article VI shall govern) or for matters related to provision of Tax records (in which event the provisions of the Tax Matters Agreement shall govern), and subject to appropriate restrictions for Privileged Information or Confidential Information:

(a)    From and after the Distribution Effective Time, and subject to compliance with the terms of the Ancillary Agreements, upon the prior written reasonable request by, and at the expense of, Baudax for specific and identified: (i) information that primarily relates to Baudax or the Acute Care Business, as the case may be, prior to the Distribution Effective Time; (ii) information that is necessary for Baudax to comply with the terms of, or otherwise perform under, any Ancillary Agreement to which Recro and/or Baudax are parties; (iii) copies of Recro templates and form documents used in the operation of the Acute Care Business; (iv) information that is otherwise required by Baudax with regard to

 

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reasonable compliance with reporting, disclosure, filing or other requirements imposed on Baudax (including under applicable securities laws) by a Governmental Entity having jurisdiction over Baudax; or (v) information that is otherwise for use in any other judicial, regulatory, administrative or other proceeding or in order to satisfy audit, accounting, claims, regulatory, Action or other similar requirements, as applicable, Recro shall provide, as soon as reasonably practicable following the receipt of such request, appropriate access or, to the extent such information is reasonably practicable to identify and extract, copies of such information, templates or forms (or the originals thereof if Baudax has a reasonable need for such originals) in the possession or control of Recro or any of its Subsidiaries, but only to the extent such items so relate and are not already in the possession or control of Baudax or any of its Subsidiaries; provided that, to the extent any originals are delivered to Baudax pursuant to this Agreement or the Ancillary Agreements, Baudax shall, at its own expense, return them to Recro within a reasonable time after the need to retain such originals has ceased; provided, further, that, in the event that Recro, in its sole and absolute discretion, determines that any such access or the provision of any such information, templates or forms (including information requested under Section 7.2) would violate any Law or Contract with a Third Party or waive any attorney-client privilege, rights under the work product doctrine or other applicable privilege, Recro shall not be obligated to provide such information requested by Baudax. Notwithstanding the foregoing, Recro shall not be obligated to provide any requested information pursuant to clause (iv) or (v) above following the date that is eighteen (18) months from the date of this Agreement (or such later time or times as the Parties may agree).

(b)    From and after the Distribution Effective Time, and subject to compliance with the terms of the Ancillary Agreements, upon the prior written reasonable request by, and at the expense of, Recro for specific and identified information that: (i) primarily relates to Recro or the CDMO Business, as the case may be, prior to the Distribution Effective Time; (ii) is necessary for Recro to comply with the terms of, or otherwise perform under, any Ancillary Agreement to which Recro and/or Baudax are parties; (iii) is otherwise required by Recro with regard to reasonable compliance with reporting, disclosure, filing or other requirements imposed on Recro (including under applicable securities laws) by a Governmental Entity having jurisdiction over Recro; or (iv) is otherwise for use in any other judicial, regulatory, administrative or other proceeding or in order to satisfy audit, accounting, claims, regulatory, Action or other similar requirements, as applicable, Baudax shall provide, as soon as reasonably practicable following the receipt of such request, appropriate access or, to the extent such information is reasonably practicable to identify and extract, copies of such information (or the originals thereof if Recro has a reasonable need for such originals) in the possession or control of Baudax or any of its Subsidiaries, but only to the extent such items so relate and are not already in the possession or control of Recro or any of its Subsidiaries; provided that, to the extent any originals are delivered to Recro pursuant to this Agreement or the Ancillary Agreements, Recro shall, at its own expense, return them to Baudax within a reasonable time after the need to retain such originals has ceased; provided, further, that, in the event that Baudax, in its sole and absolute discretion, determines that any such access or the provision of any such information (including information requested under Section 7.2) would violate any Law or Contract with a Third Party or waive any attorney-client privilege, the work product doctrine or other applicable privilege, Baudax shall not be obligated to provide such information requested by Recro. Notwithstanding the foregoing, Baudax shall not be obligated to provide any requested information pursuant to clause (iii) or (iv) above following the date that is eighteen (18) months from the date of this Agreement (or such later time or times as the Parties may agree).

 

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(c)    In connection with the provision of information under this Section 7.3, the providing Party shall be entitled to redact any portion of the information to the extent related to any matter other than the receiving Party’s business. Each of Recro and Baudax agree to make their respective personnel available during regular business hours to discuss the information exchanged pursuant to this Section 7.3.

7.4.    Witness Services; Cooperation. At all times from and after the Distribution Effective Time, each of Recro and Baudax shall use its commercially reasonable efforts to make available to the other Party, upon reasonable written request, its and its Subsidiaries’ officers, directors, employees and agents (taking into account the business demands of such individuals) as witnesses to the extent that (a) such Persons may reasonably be required to testify in connection with the prosecution or defense of any Action in which the requesting Party may from time to time be involved (except for claims, demands or Actions in which one or more members of one Group is adverse to one or more members of the other Group) and (b) there is no conflict in the Action between the requesting Party and the other Party. Notwithstanding any provisions of Article VII to the contrary, after the Distribution Effective Time, each Party shall use commercially reasonable efforts to assist (or cause the other members of its Group to assist) the other with respect to any Action or potential Action upon the request of such other Party, provided that any such expenses incurred in connection therewith shall be at such other Party’s sole expense.

7.5.    Reimbursement; Other Matters. Except to the extent otherwise contemplated by this Agreement or any Ancillary Agreement, a Party providing information, access to information or services to the other Party pursuant to this Article VII shall be entitled to receive from the recipient, upon the presentation of invoices therefor, payments for such amounts, relating to supplies, disbursements and other out-of-pocket expenses (which shall not include the costs of salaries and benefits of employees of such Party or any pro rata portion of overhead or other costs of employing such employees which would have been incurred by such employees’ employer regardless of the employees’ service with respect to the foregoing), as may be reasonably incurred and properly paid under applicable Law in providing such information, access to such information or services.

7.6.    Confidentiality.

(a)    Except as otherwise provided herein, in any Ancillary Agreement, or in any Contract between a Party or its Subsidiaries, on the one hand, and their respective employees, on the other hand, each of Recro and Baudax shall hold, and shall cause the other members of their respective Groups and their respective Representatives to hold, in strict confidence, with at least the same degree of care that applies to Recro’s Confidential Information pursuant to policies and procedures in effect as of the Distribution Effective Time, and not disclose or release, or permit to be disclosed or released, all Confidential Information of the other Party that is either in the first Party’s possession (including Confidential Information in its possession prior to the Distribution Effective Time) or furnished by the other Party or any member of its Group or their respective Representatives at any time pursuant to this Agreement

 

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or any Ancillary Agreement, and shall not use any such Confidential Information other than for such purposes as may be expressly permitted hereunder or under any Ancillary Agreement. If any Confidential Information is disclosed to any member of the other Party’s Group in connection with providing services to any member of such first Party’s Group under this Agreement or any Ancillary Agreement, then such disclosed Confidential Information shall be used by the applicable member of such other Party’s Group only as required to provide such services.

(b)    Notwithstanding anything the contrary in this Section 7.6, each Party may disclose, or may permit disclosure of, the other Party’s Confidential Information: (i) to its Representatives who have a need to know such information for non-commercial purposes and are informed of the obligation to hold such information confidential and in respect of whose failure to comply with such obligations, the first Party will be responsible or (ii) if any Party or any other member of its Group is required or requested to disclose any such Confidential Information by judicial or administrative process or by other requirements of Law or stock exchange rule or is advised by outside counsel in connection with an Action brought by a Governmental Entity that it is advisable to do so. Notwithstanding the foregoing, in the event that any demand or request for disclosure of Confidential Information is made by a Third Party pursuant to clause (ii) above, each Party, as applicable, shall promptly notify (to the extent permissible by Law) the Party to whom the Confidential Information relates of the existence of such requirement or request and shall provide such affected Party a reasonable opportunity to seek an appropriate protective order or other remedy, which such Party will cooperate in obtaining to the extent reasonably practicable. In the event that such appropriate protective order or other remedy is not obtained, the Party which faces the disclosure requirement shall furnish only that portion of the Confidential Information that is required to be disclosed and shall take commercially reasonable steps to ensure that confidential treatment is accorded such Confidential Information.

(c)    Each of Recro and Baudax shall inform their respective Representatives who have or have access to the other Party’s Confidential Information of their obligation to hold such information confidential in accordance with the provisions of this Agreement.

(d)    Without limiting the foregoing, when any Confidential Information is no longer needed for the purposes contemplated by this Agreement or any Ancillary Agreement, each Party shall, at its option and as promptly as practicable after receiving a written request from the other Party, either (i) return to such other Party all such information in a tangible form (including all copies thereof and all notes, extracts or summaries based thereon) or (ii) certify to such other Party that the first Party has destroyed such information (and such copies thereof and such notes, extracts or summaries based thereon); provided, that such first Party’s Representatives may retain one (1) copy of such information to the extent required by applicable Law or professional standards, and shall not be required to destroy any such information located in back-up, archival electronic storage; provided, further, that any such information so retained shall remain subject to the confidentiality provisions of this Agreement or any Ancillary Agreement.

(e)    Each Party acknowledges that it and its respective Subsidiaries

 

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may presently have and, following the Distribution Effective Time, may gain access to or possession of confidential or proprietary information of, or personal information relating to, Third Parties (i) that was received under confidentiality or non-disclosure agreements entered into between such Third Parties, on the one hand, and the other Party (or another member of its Group), on the other hand, prior to the Distribution Effective Time; or (ii) that, as between the two Parties, was originally collected by the other Party (or another member of its Group) and that may be subject to and protected by privacy, data protection or other applicable Laws. Each Party agrees that it shall hold, protect and use, and shall cause the other members of its Group and its and their respective Representatives to hold, protect and use, in strict confidence the confidential and proprietary information of, or personal information relating to, Third Parties in accordance with privacy, data protection or other applicable Laws and the terms of any agreements that were either entered into before the Distribution Effective Time or affirmative commitments or representations that were made before the Distribution Effective Time by, between or among the other Party (or other member(s) of its Group), on the one hand, and such Third Parties, on the other hand.

(f)    The Parties agree that irreparable damage may occur in the event that the provisions of this Section 7.6 were not performed in accordance with their specific terms. Accordingly, it is hereby agreed that the Parties shall have the right to seek specific performance and injunctive or other equitable relief, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative.

(g)    For the avoidance of doubt and notwithstanding any other provision of this Section 7.6, (i) the sharing of Privileged Information shall be governed solely by Section 7.7, and (ii) information that is subject to any confidentiality provision or other disclosure restriction in any Ancillary Agreement shall be governed by the terms of such Ancillary Agreement.

7.7.    Privilege Matters.

(a)    Pre-Distribution Services. The Parties recognize that legal and other professional services that have been and will be provided prior to the Distribution Effective Time have been and will be rendered for the benefit of Recro and its Subsidiaries, including, the members of the Baudax Group. Accordingly, with respect to such pre-Distribution services, the Parties agree as follows:

(i)    Recro shall be entitled, in perpetuity, to control the assertion or waiver of all privilege and immunities in connection with any Privileged Information that relates solely to the CDMO Business, whether or not the Privileged Information is in the possession or under the control of a member of the Recro Group or the Baudax Group and (B) Recro shall also be entitled, in perpetuity, to control the assertion or waiver of all privilege and immunities in connection with any Privileged Information that relates solely to any Recro Retained Liabilities resulting from any Actions that are now pending or may be asserted in the future whether or not the Privileged Information is in the possession or under the control of a member of the Recro Group or the Baudax Group;

(ii)    (1) Baudax shall be entitled, in perpetuity, to control the

 

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assertion or waiver of all privilege and immunities in connection with any Privileged Information that relates solely to the Acute Care Business, whether or not the Privileged Information is in the possession or under the control of a member of the Baudax Group or the Recro Group and (2) Baudax shall also be entitled, in perpetuity, to control the assertion or waiver of all privilege and immunities in connection with any Privileged Information that relates solely to any Baudax Liabilities, whether or not the Privileged Information is in the possession or under the control of a member of the Baudax Group or the Recro Group;

(iii)    If Recro and Baudax do not agree as to whether certain information is Privileged Information, then the information shall be treated as Privileged Information and the Party who believes such information is Privileged Information shall be entitled to control the assertion or waiver of all privileges and immunities in connection with any such information unless the Parties otherwise agree;

(iv)    Baudax agrees that it shall not (and shall cause the members of its Group not to) waive, or allege or purport to waive, any Privilege which could be asserted under any applicable Law, and in which Recro (or any member of its Group) has a Privilege, without the written consent of Recro; and

(v)    Recro agrees that it shall not (and shall cause the members of its Group not to) waive, or allege or purport to waive, any Privilege which could be asserted under any applicable Law, and in which Baudax (or any member of its Group) has a Privilege, without the written consent of Baudax.

(b)    Post-Distribution Services. The Parties recognize that legal and other professional services will be provided following the Distribution Effective Time to each of Recro (or any member of its Group) and Baudax (or any member of its Group). The Parties further recognize that certain of such post-Distribution services will be rendered solely for the benefit of Recro (or any member of its Group) or Baudax (or any member of its Group), as the case may be, while other such post-Distribution services may be rendered jointly to both Recro (or any member of its Group) and Baudax (or any member of its Group) with respect to claims, proceedings, litigation, disputes, or other matters which involve one or more members of both the Recro Group and the Baudax Group. With respect to such post-Distribution services and related Privileged Information, the Parties agree as follows:

(i)    All Privileged Information based on post-Distribution services rendered jointly to both one or more members of the Recro Group and Baudax Group relating to any claims, proceedings, litigation, disputes or other matters which involve both the Recro Group and the Baudax Group (“Shared Privileged Information”) shall be subject to a shared Privilege among such parties involved in the claims, proceedings, litigation, disputes or other matters at issue;

(ii)    Privileged Information relating to post-Distribution services provided solely to one of Recro (or any member of its Group) or Baudax (or any member of its Group) shall not be shared between the Parties (or among the members of their respective Groups);

 

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(iii)    No Party may (or cause or permit any member of its Group to) waive, or allege or purport to waive, any Privilege which could be asserted under any applicable Law with respect to Shared Privileged Information, without the written consent of the other Party, which shall not be unreasonably withheld or delayed;

(iv)    If a dispute arises between or among the Parties or their respective Group members regarding whether a Privilege should be waived to protect or advance the interest of any Party (or members of its Group) with respect to Shared Privileged Information, each Party agrees that it shall negotiate in good faith, shall endeavor to minimize any prejudice to the rights of the other Party and members of its Group, and shall not unreasonably withhold consent to any request for waiver by the other Party, and each Party specifically agrees that it shall not withhold consent to waive for any purpose except in good faith to protect the legitimate interests of its Group; and

(v)    If, within fifteen (15) days of receipt by the requesting Party of written objection, the Parties have not succeeded in negotiating a resolution to any dispute regarding whether a Privilege should be waived with respect to Shared Privileged Information, and the requesting Party determines that a Privilege should nonetheless be waived to protect or advance the legitimate interests of its Group, the requesting Party shall provide the objecting Party fifteen (15) days’ written notice prior to effecting such waiver. Each Party specifically agrees that failure within fifteen (15) days of receipt of such notice to commence proceedings to enjoin such waiver under applicable Law, shall be deemed full and effective consent to such waiver. In the event proceedings are commenced as described above, the Parties agree that any such Privilege shall not be waived by either Party until the final determination of such dispute.

(c)    The Parties agree that Shared Privileged Information shall continue to be held subject to Privilege even if adversity of interest may subsequently be discerned or arise between Parties or their respective Group members. Further, in the event a Party or any member of its Group becomes adverse to the other Party or any member of its Group, each Party agrees that it shall not (and shall not cause or permit any member of its Group to) seek to disqualify any law firms who have or have had access to Shared Privileged Information from continuing to represent members of the other Party’s Group, as applicable, solely by having, or having had access to such Shared Privileged Information.

(d)    Nothing in this Section 7.7 shall be construed or interpreted to restrict the right or authority of the Parties to enter into any further agreement not otherwise inconsistent with the terms of this Agreement concerning the sharing of Privileged Information.

(e)    The transfer of all information pursuant to this Agreement is made in reliance on the agreement of Recro or Baudax as set forth in Section 7.6 and this Section 7.7, to maintain the confidentiality of Privileged Information, and to assert and maintain any applicable Privilege. The access to information being granted pursuant to Section 7.2 and Section 7.3, the agreement to provide witnesses and individuals pursuant to Section 7.4, the furnishing of notices and documents and other cooperative efforts contemplated by Section 6.5 and the transfer of Privileged Information between the Parties and the members of their respective Groups pursuant to this Agreement shall not be deemed a waiver of any Privilege that has been or may be asserted under this Agreement or otherwise.

 

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7.8.    Ownership of Information. Any information owned by one Party or any of its Subsidiaries that is provided to a requesting Party pursuant to this Article VII shall be deemed to remain the property of the providing Party. Unless expressly set forth herein, nothing contained in this Agreement shall be construed as granting a license or other rights to any Party with respect to any such information, whether by implication, estoppel or otherwise.

7.9.    Other Agreements. The rights and obligations granted under this Article VII are subject to any specific limitations, qualifications or additional provisions on the sharing, exchange or confidential treatment of information set forth in any Ancillary Agreement.

ARTICLE VIII

DISPUTE RESOLUTION

8.1.    Negotiation. In the event of (a) a controversy, dispute or Action arising out of, in connection with, or in relation to the interpretation, performance, nonperformance, validity or breach of this Agreement or the Ancillary Agreements or otherwise arising out of, or in any way related to, this Agreement or the Ancillary Agreements or the transactions contemplated hereby or thereby, including any Action based on contract, tort, statute or constitution, or (b) a claim with respect to the inadvertent transfer or omission of an Asset or Liability as contemplated by the definition of “Recro Retained Asset”, “Recro Retained Liability”, “Baudax Asset” or “Baudax Liability”, respectively (collectively, “Disputes”), the appropriate executives of the Parties who have authority to settle the Dispute (or such other individuals designated by the respective executives) shall negotiate for a reasonable period of time to settle such Dispute; provided, that such reasonable period shall not, unless otherwise agreed by the Parties in writing, exceed fifteen (15) Business Days from the time of receipt by a Party of written notice of such Dispute (“Dispute Notice”). If the Dispute has not been resolved within fifteen (15) Business Days after receipt of the Dispute Notice, the respective Chief Executive Officers or their respective designees (with full settlement authority) of Recro and Baudax shall meet in person (or where necessary, by phone) at a mutually acceptable time and, if applicable, place, and thereafter as often as they reasonably deem necessary, to attempt in good faith to resolve the Dispute. Any contractual time period or deadline under this Agreement or any Ancillary Agreement to which such Dispute relates occurring after the Dispute Notice is received shall not be deemed to have passed until such Dispute has been resolved pursuant to this Article VIII.

8.2.    Binding Arbitration.

(a)    Claims. Any Dispute that is not resolved pursuant to Section 8.1 within forty-five (45) days after receipt of the Dispute Notice (the “Negotiation Period”) shall be resolved by final and binding arbitration conducted in accordance with the Commercial Arbitration Rules and Supplementary Procedures of the American Arbitration Association (“AAA”) and as otherwise described in this Section 8.2. The arbitration shall be conducted by a panel of three (3) experts with relevant industry experience (the “Arbitrators”). One (1) Arbitrator shall be chosen by Baudax and one (1) Arbitrator shall be chosen by Recro within the Negotiation Period. The third Arbitrator shall be chosen by mutual agreement of the Arbitrator

 

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chosen by Baudax and the Arbitrator chosen by Recro within fifteen (15) days of the date that the last of such Arbitrators was appointed. If the Arbitrators selected by the Parties are unable or fail to agree upon the third Arbitrator, the third Arbitrator shall be appointed by the AAA of Philadelphia, Pennsylvania. The place of arbitration shall be Philadelphia, Pennsylvania, and all proceedings and communications shall be in English. The Arbitrators shall be instructed by the Parties to complete the arbitration within sixty (60) days after the selection of the third Arbitrator, subject to extension by mutual agreement executed by both Parties.

(b)    Arbitrators’ Award. The Arbitrators shall make a final decision with respect to the Dispute within thirty (30) days following the arbitration proceeding; provided that the Arbitrators shall have no authority to award punitive or any other type of damages not measured by a Party’s compensatory damages. The decision of the Arbitrators shall be the sole, exclusive and binding remedy between the Parties regarding determination of each Dispute presented.

(c)    Injunctive Relief. Either Party may apply to the Arbitrators for interim injunctive relief until the arbitration decision is rendered or the Dispute is otherwise resolved. Either Party also may, without waiving any right or remedy under this Agreement, seek from any court having jurisdiction any injunctive or provisional relief necessary to protect the rights or property of that Party pending resolution of the Dispute pursuant to this Section 8.2. The Parties further agree that irreparable harm would occur, and thus need not be established, in an Action to enforce the confidentiality obligations of Section 7.6 or to resolve a privilege dispute under Section 7.7, and that such Action may be brought pursuant to this Section 8.2(c). The Parties further agree that any Action brought under this Section 8.2(c) shall be brought exclusively in the state or federal courts within the Commonwealth of Pennsylvania and that such courts shall have personal jurisdiction over the Parties in such Action.

(d)    Costs. Each Party shall bear its own costs and expenses and attorneys’ fees, and the Party that does not prevail in the arbitration proceeding shall pay the Arbitrators’ fees and any administrative fees of arbitration.

(e)    Confidentiality of Arbitration. Except to the extent necessary to confirm an award or decision or as may be required by applicable Law, neither Party may, and the Parties shall instruct the Arbitrators not to, disclose the existence, content, or results of an arbitration without the prior written consent of both Parties. In no event shall an arbitration be initiated after the date when commencement of a legal or equitable proceeding based on the Dispute would be barred by the applicable Pennsylvania statute of limitations.

(f)    Payment. The Parties hereby agree that any payment made by a Party pursuant to a decision of the Arbitrators shall be made in U.S. dollars.

8.3.    Baseball Arbitration. Either Party may elect to have a Dispute resolved by expedited arbitration by an Arbitrator. The arbitration proceeding shall be conducted in accordance with the Commercial Arbitration Rules of the AAA and as otherwise described in this Section 8.3. Upon written request by either Party to the other Party, the Parties shall promptly negotiate in good faith to appoint an appropriate Arbitrator. If the Parties are not able to agree within ten (10) days after the receipt by a Party of the written request in the immediately

 

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preceding sentence, the AAA of Philadelphia, Pennsylvania, or such other similar entity as the Parties may agree, shall be responsible for selecting an Arbitrator with relevant industry experience within fifteen (15) days of being approached by a Party. The fees and costs of the Arbitrator and the AAA shall be shared equally (50%/50%) by the Parties. Within twenty (20) days after the designation of the Arbitrator, the Parties shall each simultaneously submit to the Arbitrator and one another a written statement of their respective positions on such Dispute. Each Party shall have fifteen (15) days from receipt of the other Party’s submission to submit a written response thereto. The Arbitrator shall have the right to meet with the Parties, either alone or together, as necessary to make a determination. Further, the Arbitrator shall have the right to request information and materials and to require and facilitate discovery as it shall determine is appropriate in the circumstances, taking into account the needs of the Parties and the desirability of making discovery expeditious and cost-effective determinations. No later than thirty (30) days after the Parties each submit their written statements to the Arbitrator, or as otherwise agreed by the Parties, the Arbitrator shall make a determination by selecting the resolution proposed by one of the Parties that as a whole is the most consistent with this Agreement and the most fair and reasonable to the Parties in light of the totality of the circumstances. The Arbitrator shall provide the Parties with a written statement setting forth the basis of the determination in connection therewith. The decision of the Arbitrator shall be final, binding and conclusive, absent manifest error.

8.4.    Continuity of Service and Performance. Unless otherwise agreed in writing, the Parties shall continue to provide service and honor all other commitments under this Agreement and each Ancillary Agreement during the course of a Dispute with respect to all matters not subject to such Dispute.

ARTICLE IX

INSURANCE MATTERS

9.1.    Rights to Recro Policies.

(a)    Baudax acknowledges and agrees that, from and after the Distribution Effective Time, except as expressly provided in this Agreement or any Ancillary Agreement, neither Baudax nor any member of the Baudax Group shall have any rights to or under any Policies of Recro, other than any insurance Policies acquired prior to the Distribution Effective Time, including any tail coverage and any renewal thereof, directly by and in the name of Baudax or a member of the Baudax Group or as expressly provided in Section 6.6 or this Article IX. For the avoidance of doubt, Baudax acknowledges and agrees that the Baudax Group and not any member of the Recro Group shall be responsible for establishing any and all insurance programs covering the Baudax Group for its activities after the Distribution Effective Time as may be required to comply with the Baudax Group’s contractual obligations and such other insurance Policies required by Law or as necessary or appropriate to operate the Acute Care Business, including with respect to general liability, product liability, workers’ compensation, directors’ and officers’ liability and fiduciary liability.

(b)    The Parties acknowledge that, as of the Distribution Date, Recro’s director and officer liability insurance policies will continue to provide insurance coverage for directors and officers of Baudax who served as directors or officers of Recro or any of its

 

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Subsidiaries prior to the Distribution Effective Time, but such coverage shall only extend to acts occurring prior to the Distribution Effective Time that would have been covered by Recro’s director and officer liability insurance policy if such individual was or remained a director or officer of Recro. Such coverage shall also extend to employees with respect to securities law claims only. Recro agrees not to terminate or amend this coverage in a manner materially adverse to these individuals.

(c)    This Agreement shall not be considered as an attempted assignment of any insurance Policy or as a contract of insurance and shall not be construed to waive any right or remedy of any member of the Recro Group in respect of any of the Recro insurance Policies and programs or any other contract or policy of insurance. Except as set forth in Section 9.1(b), the Recro Group may, at any time, without liability or obligation to any member of the Baudax Group, amend, commute, terminate, buy-out, extinguish liability under or otherwise modify any insurance Policies (and claims of the Baudax Group pursuant to this Article IX shall be subject to any such amendments, commutations, terminations, buy-outs, extinguishments and modifications).

(d)    No member of the Recro Group shall have any obligation to secure extended reporting for any claims under any of the Recro Group’s claims-made or occurrence-reported liability policies for any acts or omissions by any member of the Baudax Group occurring prior to the Distribution Effective Time.

9.2.    Claims. Nothing in this Article IX will be construed to limit or otherwise alter in any way the indemnity obligations of the Parties, including (a) with respect to the Baudax Group, Baudax Liabilities, (b) with respect to the Recro Group, Recro Retained Liabilities, and (c) those created by this Agreement, by operation of law or otherwise. The Parties acknowledge that Recro has used its commercially reasonable efforts to structure its director and officer insurance Policies consistent with such indemnity obligations.

ARTICLE X

MISCELLANEOUS

10.1.    Complete Agreement; Construction. This Agreement, including the Exhibits and Schedules, and the Ancillary Agreements shall constitute the entire agreement between the Parties with respect to the subject matter hereof and shall supersede all previous negotiations, commitments, course of dealings and writings with respect to such subject matter. In the event of any inconsistency between this Agreement and any Schedule hereto, the Schedule shall prevail. In the event and to the extent that there shall be a conflict between the provisions of this Agreement and the provisions of any Ancillary Agreement, this Agreement shall control (except with respect to the Tax Matters Agreement and the Employee Matters Agreement, in which case such Ancillary Agreement shall control). Except as expressly set forth in this Agreement or any Ancillary Agreement: (a) all matters to the extent relating to Taxes and Tax Returns of the Parties and their respective Subsidiaries shall be governed exclusively by the Tax Matters Agreement and (b) for the avoidance of doubt, in the event of any conflict between this Agreement or any Ancillary Agreement, on the one hand, and the Tax Matters Agreement, on the other hand, with respect to such matters, the terms and conditions of the Tax Matters Agreement shall govern, except to the extent expressly provided herein or therein.

 

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10.2.    Transaction Agreements. Except as expressly set forth herein, this Agreement is not intended to address, and should not be interpreted to address, the matters specifically and expressly covered by the other Transaction Agreements.

10.3.    Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more such counterparts have been signed by each of the Parties and delivered to each of the Parties.

10.4.    Survival of Agreements. Except as otherwise contemplated by this Agreement or any Ancillary Agreement, all covenants and agreements of the Parties contained in this Agreement and each Ancillary Agreement shall survive the Distribution Effective Time and remain in full force and effect in accordance with their applicable terms.

10.5.    Fees, Costs and Expenses.

(a)    Except as otherwise agreed to in writing by the Parties, all out-of-pocket fees, costs and expenses incurred at or prior to the Distribution Effective Time in connection with, and as required by, the preparation, execution, delivery and implementation of this Agreement and any Ancillary Agreement, the Distribution Disclosure Documents and the consummation of the transactions contemplated hereby and thereby, including the Separation, shall be borne and paid by Recro; provided, however, that Recro shall bear the expense of all recordation of Intellectual Property Transferred at or prior to the Distribution Effective Time pursuant to this Agreement, whether such recordation occurs prior to or after the Distribution Effective Time.

(b)    Except as otherwise expressly provided in this Agreement (including this Section 10.5) or any Ancillary Agreement or as otherwise agreed to in writing by the Parties, each Party shall bear its own out-of-pocket fees, costs and expenses incurred or accrued after the Distribution Effective Time; provided, however, that except as otherwise expressly provided in this Agreement, any fees, costs and expenses incurred in obtaining any Consents or novation from a Third Party in connection with the Transfer to or assumption by a Party or its Subsidiary of any Assets or Liabilities in connection with the Separation shall be borne by the Party or its Subsidiary to which such Assets are being Transferred or which is assuming such Liabilities.

(c)    With respect to any post-Distribution expenses incurred pursuant to a request for further assurances granted under Section 2.8, the Parties agree that any and all fees, costs and expenses incurred by either Party shall be borne and paid by the requesting Party; it being understood that no Party shall be obligated to incur any Third Party accounting, consulting, advisor, banking or legal fees, costs or expenses, and the requesting Party shall not be obligated to pay such fees, costs or expenses, unless such fee, cost or expense shall have had the prior written approval of the requesting Party.

(d)    Notwithstanding the foregoing, each Party shall be responsible for paying its own internal fees, costs and expenses (e.g., salaries of personnel and except as otherwise set forth in the Transition Services Agreement, which shall be allocated as stated therein) from and after the Distribution Effective Time.

 

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10.6.    Notices. All notices, requests, claims, demands and other communications under this Agreement and, to the extent applicable and unless otherwise provided therein, under each of the Ancillary Agreements shall be in English, shall be in writing and shall be given or made (and shall be deemed to have been duly given or made upon receipt) by delivery in person, by overnight courier service, by facsimile with receipt confirmed (followed by delivery of an original via overnight courier service) or by registered or certified mail (postage prepaid. return receipt requested) to the respective Parties at the following addresses (or at such other address for a Party as shall be specified in a notice given in accordance with this Section 10.6):

To Recro:

Recro Pharma, Inc.

1300 Gould Drive

Gainesville, GA 30504

Attn:

Phone:

Fax:

To Baudax:

Baudax Bio, Inc.

490 Lapp Road

Malvern, PA 19355

Attn: Chief Financial Officer

Phone:

Fax:

10.7.    Waivers. The delay or failure of either Party to exercise or enforce any of its rights under this Agreement will not constitute, or be deemed to be, a waiver of those rights, nor will any single or partial exercise of any such rights preclude any other or further exercise thereof or the exercise of any other right. No waiver of any provision of this Agreement will be effective unless it is in writing and signed by the Party against which it is being enforced.

10.8.    Assignment. No Party may assign any rights or delegate any obligations arising under this Agreement, in whole or in part, directly or indirectly, without the prior written consent of the other Party (such consent not to be unreasonably withheld, conditioned or delayed), and any attempt to so assign any rights or delegate any obligations arising under this Agreement without such consent shall be void. Notwithstanding the foregoing, no such consent shall be required for any such assignment or delegation (a) with respect to Recro, to a Subsidiary of Recro (so long as such Subsidiary remains a Subsidiary of Recro), (b) with respect to Baudax, to a Subsidiary of Baudax (so long as such Subsidiary remains a Subsidiary of Baudax) or (c) to a bona fide Third Party in connection with a merger, reorganization, consolidation or the sale of all or substantially all the assets of a Party so long as the resulting, surviving or transferee entity assumes all the obligations of the assigning Party by operation of Law or pursuant to an agreement in form and substance reasonably satisfactory to the non-assigning Party; provided,

 

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however, that in the case of each of the preceding clauses (a) and (b), no assignment permitted by this Section 10.8 shall release the assigning Party from liability for the full performance of its obligations under this Agreement.

10.9.    Successors and Assigns. The provisions of this Agreement and the obligations and rights hereunder shall be binding upon, inure to the benefit of and be enforceable by (and against) the Parties and their respective successors (whether by merger, acquisition of assets or otherwise) and permitted assigns.

10.10.    Termination and Amendment. This Agreement (including Article VI hereof) may be terminated, modified or amended, and the Distribution may be amended, modified or abandoned, at any time prior to the Distribution Effective Time by and in the sole and absolute discretion of Recro without the approval of Baudax or the shareholders of Recro. In the event of such termination, no Party shall have any liability of any kind to the other Party or any other Person by reason of such termination. After the Distribution Effective Time, this Agreement may not be terminated, modified or amended except by an agreement in writing signed by Recro and Baudax.

10.11.    Payment Terms.

(a)    Except as set forth in Article VI or as otherwise expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount to be paid or reimbursed by a Party (and/or a member of such Party’s Group) to the other Party (and/or a member of such other Party’s Group) under this Agreement shall be paid or reimbursed hereunder within sixty (60) days after presentation of an invoice or a written demand therefor, in either case setting forth, or accompanied by, reasonable documentation or other reasonable explanation supporting such amount.

(b)    Except as set forth in Article VI or as expressly provided to the contrary in this Agreement or in any Ancillary Agreement, any amount not paid when due pursuant to this Agreement (and any amount billed or otherwise invoiced or demanded and properly payable that is not paid within sixty (60) days of such bill, invoice or other demand) shall bear interest at a rate per annum equal to the Prime Rate, from time to time in effect, plus two percent (2%), calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment.

(c)    Without the consent of the Party receiving any payment under this Agreement specifying otherwise, all payments to be made by either Recro or Baudax under this Agreement shall be made in U.S. dollars. Except as expressly provided herein, any amount which is not expressed in U.S. dollars shall be converted into U.S. dollars by using the exchange rate published on Bloomberg at 5:00 p.m., Eastern time, on the day before the relevant date, or in The Wall Street Journal, Eastern Edition, on such date if not so published on Bloomberg. Except as expressly provided herein, in the event that any indemnification payment required to be made hereunder or under any Ancillary Agreement may be denominated in a currency other than U.S. dollars, the amount of such payment shall be converted into U.S. dollars on the date notice of the claim is given to the Indemnifying Party.

 

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10.12.    Subsidiaries. Each of the Parties shall cause to be performed, and hereby guarantees the performance of, all actions, agreements and obligations set forth herein to be performed by any Subsidiary of such Party or by any entity that becomes a Subsidiary of such Party at or after the Distribution Effective Time, in each case to the extent such Subsidiary remains a Subsidiary of the applicable Party.

10.13.    Third Party Beneficiaries. Except (a) as provided in Article VI relating to Indemnitees and for the releases under Section 6.1 of any Person as provided therein and (b) as specifically provided in any Ancillary Agreement, this Agreement is solely for the benefit of the Parties and shall not be deemed to confer upon any Person other than the Parties any remedy, claim, liability, reimbursement, cause of Action or other right beyond any that exist without reference to this Agreement.

10.14.    Titles and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

10.15.    Exhibits and Schedules.

(a)    The Exhibits and Schedules shall be construed with and as an integral part of this Agreement to the same extent as if the same had been set forth verbatim herein.

(b)    Subject to the prior written consent of the other Party (not to be unreasonably withheld or delayed), each Party shall be entitled to update the Schedules from and after the date hereof until the Distribution Effective Time.

10.16.    Governing Law. This Agreement and any Dispute shall be governed by and construed in accordance with the Laws of the Commonwealth of Pennsylvania, U.S.A., without giving effect to the conflicts of laws principles thereof that might lead to the application of laws other than the Laws of the Commonwealth of Pennsylvania.

10.17.    Severability. In the event any one or more of the provisions contained in this Agreement should be held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein and therein shall not in any way be affected or impaired thereby. The Parties shall endeavor in good-faith negotiations to replace the invalid, illegal or unenforceable provisions with valid provisions, the economic effect of which comes as close as possible to that of the invalid, illegal or unenforceable provisions.

10.18.    Public Announcements. From and after the Distribution Effective Time, Recro and Baudax shall consult with each other before issuing, and each shall give the other the opportunity to review and comment upon, that portion of any press release or other public statement, including a statement made to its investors, that relates to the transactions contemplated by this Agreement or the Ancillary Agreements, and shall not issue any such press release or make any such public statement prior to such consultation, except (a) as may be required by applicable Law, court process or obligations pursuant to any listing agreement with any national securities exchange or national securities quotation system; (b) for disclosures made

 

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that are substantially identical to disclosure contained in any Distribution Disclosure Document or any prior written public statement not made in violation of this Section 10.18; or (c) with respect to a Party, for disclosure concerning the ordinary course operation of such Party’s business (other than any Dispute), notwithstanding that the disclosure may relate to arrangements under the Transition Services Agreement (including any exhibits and schedules thereto).

10.19.    References; Interpretation. References in this Agreement to any gender include references to all genders, and references to the singular include references to the plural and vice versa. Unless the context otherwise requires, the words “include”, “includes” and “including” when used in this Agreement shall be deemed to be followed by the phrase “without limitation”. Unless the context otherwise requires, references in this Agreement to Articles, Sections, Exhibits and Schedules shall be deemed references to Articles and Sections of, and Exhibits and Schedules to, this Agreement. Unless the context otherwise requires, the words “hereof”, “hereby” and “herein” and words of similar meaning when used in this Agreement refer to this Agreement in its entirety and not to any particular Article, Section or provision of this Agreement. The words “written request” when used in this Agreement shall include email. Reference in this Agreement to any time shall be to Eastern time unless otherwise expressly provided herein. Unless the context requires otherwise, references in this Agreement to “Recro” shall also be deemed to refer to the applicable member of the Recro Group, references to “Baudax” shall also be deemed to refer to the applicable member of the Baudax Group and, in connection therewith, any references to actions or omissions to be taken, or refrained from being taken, as the case may be, by Recro or Baudax shall be deemed to require Recro or Baudax, as the case may be, to cause the applicable members of the Recro Group or the Baudax Group, respectively, to take, or refrain from taking, any such action. The word “or” shall not be exclusive. References to any “statute” or “regulation” are to such statute or regulation as amended, modified, supplemented or replaced from time to time (and, in the case of any statute, include any rules and regulations promulgated under such statute) and to any “section of any statute or regulation” include any successor to such section. References to any Governmental Entity include any successor to such Governmental Entity, and references to any Affiliate include any successor to such Affiliate. Whenever the last day for the exercise of any right or the discharge of any duty under this Agreement falls on other than a Business Day, the Party having such right or duty shall have until the next Business Day to exercise such right or discharge such duty. Unless otherwise indicated, the word “day” shall be interpreted as a calendar day. The Parties have participated jointly in the negotiation and drafting of this Agreement. This Agreement shall be construed without regard to any presumption or rule requiring construction or interpretation against the Party drafting or causing any instrument to be drafted.

10.20.    No Duplication; No Double Recovery. Nothing in this Agreement or any Ancillary Agreement is intended to confer to or impose upon any Party a duplicative right, entitlement, obligation or recovery with respect to any matter arising out of the same facts and circumstances (including with respect to the rights, entitlements, obligations and recoveries that may arise out of one or more of Section 6.2, Section 6.3, Section 6.5, Section 6.6 and Section 6.7).

10.21.    No Waiver. No failure to exercise and no delay in exercising, on the part of any Party, any right, remedy, power or privilege hereunder or under the other Ancillary

 

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Agreements shall operate as a waiver hereof or thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder or thereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

10.22.    No Admission of Liability. The allocation of Assets and Liabilities herein (including on the Schedules hereto) is solely for the purpose of allocating such Assets and Liabilities between Recro and Baudax and is not intended as an admission of liability or responsibility for any alleged Liabilities vis-a-vis any Third Party.

10.23.    Waiver of Conflicts.

(a)    Each of the parties acknowledges and agrees that Existing Counsel has acted as counsel to Recro and Baudax in connection with the negotiation of this Agreement and consummation of the transactions contemplated hereby.

(b)    Recro hereby consents and agrees to, and agrees to cause the other members of the Recro Group to consent and agree to, Existing Counsel representing Baudax and the other members of the Baudax Group, including with respect to disputes in which the interests of the Recro Group may be directly adverse to the Baudax Group, and even though Existing Counsel may have represented Recro or another member of the Recro Group in a matter substantially related to any such dispute, or may be handling ongoing matters for the Recro Group.

(c)    Baudax hereby consents and agrees to, and agrees to cause the other members of the Baudax Group to consent and agree to, Existing Counsel representing Recro and the other members of the Recro Group, including with respect to disputes in which the interests of the Baudax Group may be directly adverse to the Recro Group, and even though Existing Counsel may have represented Baudax or another member of the Baudax Group in a matter substantially related to any such dispute, or may be handling ongoing matters for the Baudax Group.

(d)    Recro further agrees, on behalf of itself and, after the Distribution Effective Time, on behalf of the Recro Group, that all communications in any form or format whatsoever between or among any of Existing Counsel, the Recro Group, the Baudax Group, or any of their respective directors, officers, employees or other Representatives that relate in any way to the negotiation, documentation and consummation of the transactions contemplated by this Agreement or any dispute arising under this Agreement (collectively, the “Deal Communications”) shall be deemed to be retained and owned collectively by the Baudax Group, shall be controlled by Baudax on behalf of the Baudax Group and shall not pass to or be claimed by the Recro Group. All Deal Communications that are attorney- client privileged (the “Privileged Deal Communications”) shall remain privileged after the Distribution Effective Time and the Privilege and the expectation of client confidence relating thereto shall belong solely to the Baudax Group, shall be controlled by Baudax on behalf of the Baudax Group and shall not remain with or be claimed by the Recro Group.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

 

RECRO PHARMA, INC.
By:  

 

Name:  
Title:  
BAUDAX BIO, INC.
By:  

 

Name:  
Title:  

[Signature Page to Separation Agreement]

Exhibit 10.1

TRANSITION SERVICES AGREEMENT

by and between

RECRO PHARMA, INC.

and

BAUDAX BIO, INC.

Dated as of                     , 2019


TABLE OF CONTENTS

 

ARTICLE I DEFINITIONS; INTERPRETATION      1  

Section 1.1.

     General      1  

Section 1.2.

     Interpretation      2  
ARTICLE II SERVICES      2  

Section 2.1.

     General      2  

Section 2.2.

     Standard for Services      2  

Section 2.3.

     [Protection of Information Systems      3  

Section 2.4.

     Transitional Nature of the Services      3  

Section 2.5.

     Omitted Services      3  

Section 2.6.

     Additional Services      4  

Section 2.7.

     Use of Third Parties      4  

Section 2.8.

     Cooperation      5  

Section 2.9.

     Access      5  

Section 2.10.

     Intellectual Property      5  
ARTICLE III FEES AND PAYMENT      5  

Section 3.1.

     Fees      5  

Section 3.2.

     Expense      6  

Section 3.3.

     Invoice; Payment      6  

Section 3.4.

     Late Payments      6  

Section 3.5.

     Taxes      6  

Section 3.6.

     No Right to Set-Off      6  
ARTICLE IV SERVICE MANAGEMENT      7  

Section 4.1.

     Service Managers      7  

Section 4.2.

     Service Coordinators      7  
ARTICLE V SUB-CONTRACTING; THIRD PARTY AGREEMENTS      7  

Section 5.1.

     Sub-Contractors      7  

Section 5.2.

     Third Party Agreements      7  

Section 5.3.

     Consents      7  
ARTICLE VI TERM AND TERMINATION AND EFFECTS OF TERMINATION      8  

Section 6.1.

     Term      8  

Section 6.2.

     Termination for Breach      8  

Section 6.3.

     Early Termination of a Service      8  

Section 6.4.

     Termination Upon Insolvency      9  

Section 6.5.

     Accrued Rights      9  

Section 6.6.

     Effect of Termination      9  
ARTICLE VII LIMITATION OF LIABILITY; INDEMNIFICATION      9  

Section 7.1.

     Limited Liability      9  

Section 7.2.

     Services Provided “As-Is”      10  

Section 7.3.

     Indemnification      10  

 

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ARTICLE VIII INSURANCE MATTERS      11  

Section 8.1.

     Insurance      11  
ARTICLE IX CONFIDENTIALITY      11  

Section 9.1.

     Confidentiality      11  
ARTICLE X MISCELLANEOUS      11  

Section 10.1.

     General      12  

Section 10.2.

     Inconsistencies      12  

Section 10.3.

     Dispute Resolution      12  

Section 10.4.

     Force Majeure      12  

Section 10.5.

     Titles and Headings      13  

Section 10.6.

     Independent Contractor Status      13  

 

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TRANSITION SERVICES AGREEMENT

This TRANSITION SERVICES AGREEMENT (this “Agreement”), dated as of                     , 2019, is entered into by and between Recro Pharma, Inc., a Pennsylvania corporation (“Recro”), and Baudax Bio, Inc., a Pennsylvania corporation (“Baudax”). “Party” or “Parties” means Recro or Baudax, individually or collectively, as the case may be.

RECITALS

WHEREAS, in conjunction with a Separation Agreement executed by and between Recro and Baudax of even date hereof (the “Separation Agreement”) each of Baudax and Recro desires to provide to the other certain transition services, as more particularly described herein and upon the terms and subject to the conditions hereinafter set forth; and

WHEREAS, the Parties agree and acknowledge that the efficient and effective transition of the Services (as defined below), in a manner that permits the successful operations of each Party following consummation of the transactions contemplated by the Separation Agreement, is a priority to the shareholders of each Party.

NOW, THEREFORE, in consideration of the foregoing and the respective warranties, covenants and agreements hereinafter set forth, and intending to be legally bound hereby, the Parties agree as follows:

ARTICLE I

DEFINITIONS; INTERPRETATION

Section 1.1.    General. Capitalized terms used but not otherwise defined in this Agreement shall have the meanings assigned to them in the Separation Agreement. As used herein, the following terms shall have the following meanings:

(a)    “Service Provider” means, as the context may require, any member of the Recro Group or the Baudax Group, as applicable, in its capacity as the provider of any Services to any member of the Baudax Group or the Recro Group, respectively, or, any other Person providing the Services on behalf of the Recro Group or the Baudax Group, as applicable.

(b)    “Service Recipient” means, as the context may require, any member of the Recro Group or the Baudax Group, as applicable, in its capacity as the recipient of any Services from any member of the Baudax Group or the Recro Group, respectively,

(c)    “Services” means all of the services to be provided by or on behalf of Service Provider under this Agreement and described on Schedule I-A, with respect to the Services provided by or on behalf of the Recro Group, or Schedule I-B, with respect to the Services provided by or on behalf of the Baudax Group, respectively, as such Schedules may be updated and supplemented from time to time in accordance with the provisions of this Agreement, along with any Omitted Services and any Additional Services. “Service” means each such service.

 

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(d)    “Term” means the period commencing on the date hereof and ending, subject to Section 6.1, on the date of the last to expire Service as set forth on Schedule I-A or Schedule I-B, as applicable.

(e)    “Third Party” means any person or entity other than a member of the Recro Group, the Baudax Group, or their respective Affiliates.

Section 1.2.    Interpretation. Except where the context otherwise requires, the singular will include the plural, the plural will include the singular, the use of any gender will be applicable to all genders, and the word “or” means “and/or.” References to a number of days, unless otherwise specified, means calendar days. The captions of this Agreement are for convenience of reference only and do not define, describe, extend or limit the scope or intent of any provision contained in this Agreement. The terms “including,” “include,” or “includes” are not intended to limit generality of any description preceding such term. The Parties have participated jointly in the negotiation and drafting of this Agreement. The language of this Agreement will be deemed to be the language mutually chosen by the Parties, and no rule of strict construction will be applied against either Party.

ARTICLE II

SERVICES

Section 2.1.    General. During the Term, subject to Section 2.2, Service Provider shall provide to Service Recipient and, to the extent directed by Service Recipient, its Affiliates, the Services, in each case subject to the terms and conditions set forth herein. Notwithstanding anything to the contrary herein, Service Provider shall not be required to perform or cause to be performed any of the Services for the benefit of any Person other than Service Recipient and its Affiliates. The Parties agree to negotiate in good faith any proposed changes to the Services, including pricing related thereto, during the Term. Such proposed changes shall become effective only upon mutual agreement of the Parties as reflected in an addendum to Schedule I-A or Schedule I-B, as applicable. The Parties acknowledge and agree that the Services are generally intended to facilitate the transactions contemplated by the Separation Agreement, and, to the extent the Services described in the applicable Schedule I are general in nature, are intended to support the continued respective operations of the Parties following consummation of the transactions contemplated by the Separation Agreement.

Section 2.2.    Standard for Services. The Services shall be provided hereunder (i) in accordance with the terms and conditions of this Agreement and in a manner generally consistent with the provision of such Services during the twelve (12) months immediately prior to the date hereof (the “Prior Period”), (ii) in a manner at least as complete in all material respects as the manner in which such Services have been provided during the Prior Period, (iii) with the same degree of skill, care and diligence as provided during the Prior Period, and (iv) giving substantially equal priority and substantially equal treatment that such Services received during the Prior Period; provided that if Service Provider has not previously provided any such Service to another Person, Service Provider will provide such Service in a manner substantially similar to similar services provided to its Affiliates or businesses. To the extent a more specific standard of care is specified in the respective Schedule I with respect to any Service, the Service Provider shall use its commercially reasonable efforts to comply with such more specific standard. It is the Parties’

 

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shared objective to transition responsibility for the performance of Services from Service Provider to Service Recipient and its Affiliates in a manner that minimizes, to the extent reasonably possible, disruption to the business operations of Service Provider and its Affiliates and the business operations of Service Recipient and its Affiliates. Notwithstanding any provision of this Agreement or the Separation Agreement to the contrary, Service Provider shall not be required to (i) perform any Service in any manner that violates or contravenes any restrictions imposed on Service Provider by applicable Law or (ii) perform any Service in any manner that breaches or contravenes any contractual obligations owed by Service Provider to any Third Party(ies), or (iii) perform any Service to the extent that the conduct of such would, in the good faith belief of Service Provider, infringe, violate or misappropriate intellectual property rights of any Third Party.

Section 2.3.    Protection of Information Systems

(a)    In providing any information technology Services hereunder, Service Provider shall have the right to implement reasonable processes from time to time under which there will be no greater threat to Service Provider’s information technology operating environment than would exist in the absence of the provision of such Services. Without limiting the foregoing, Service Recipient shall, and shall cause each of its employees with access to Service Provider’s information technology operating environment to, comply with the terms and conditions of Service Provider’s information technology use policies in place at the time of provision of such Services.

(b)    If, in connection with the provision of any Services under this Agreement, it is reasonably necessary for Service Provider to implement any information technology connections, firewalls or the like (“Information System Additions”) specifically in connection with the provision of such Services and that would not have otherwise been implemented in the absence of the provision of the Services, the costs of implementing such Information System Additions shall be borne by Service Recipient, unless specifically provided otherwise in the respective Schedule I hereto or otherwise agreed to in writing by Service Recipient.

Section 2.4.    Transitional Nature of the Services. Service Recipient understands that the Services provided hereunder are transitional in nature and are furnished by Service Provider as an accommodation and for the purpose of facilitating the transactions contemplated by the Separation Agreement. Service Recipient agrees to use, and shall cause its Affiliates to use, commercially reasonable efforts to transition from the Services as provided by Service Provider to services performed by Service Recipient or furnished by another party as soon as practically possible, but in no case later than the expiration of the Term. Service Recipient further understands that Service Provider is not in the business of providing Services to Third Parties and will not provide the Services beyond the Term.

Section 2.5.    Omitted Services. If, during the sixty (60) day period immediately following the date of this Agreement, Service Recipient identifies a service that was provided in connection with Service Recipient’s business (other than those services expressly excluded hereunder) during the Prior Period, or which are reasonably anticipated as of the date hereof to be necessary to continue to support Service Recipient’s business during the Term, but such services were inadvertently omitted from the list of Services in the applicable Schedule I hereto (each, to

 

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the extent included in the Services pursuant to this Section 2.5, an “Omitted Service”), then Service Provider shall use commercially reasonable efforts to cooperate with Service Recipient to amend the applicable Schedule I to add such Omitted Service as a Service; provided that Service Provider shall not be obligated to provide any Omitted Service if it does not, in its reasonable judgment, have adequate resources to provide such Omitted Service or if the provision of such Omitted Service would significantly disrupt the operation of its business. In the event that the Parties agree that Service Provider should provide any such Omitted Service, the Parties shall execute amendments for such Omitted Service to the applicable Schedule I for such Omitted Service that shall set forth, among other things, (i) the time period during which such Omitted Service shall be provided, (ii) a description of such Omitted Service in reasonable detail, (iii) primary points of contact for each of the Parties with respect to the Service, (iv) any additional Fees, as applicable, related to such Omitted Service and agreed upon by the Parties, and (v) any additional terms and conditions specific to such Omitted Service. Service Provider’s obligations with respect to providing any such Omitted Service shall become effective only upon mutual agreement of the Parties as reflected in an amendment to the applicable Schedule I being duly executed and delivered by each Party. Notwithstanding the foregoing, the time period for any such Omitted Service shall expire not later than the expiration of the Term as calculated prior to the addition of such Omitted Service unless the Parties agree otherwise.

Section 2.6.    Additional Services. The Parties acknowledge that Schedule I might not identify all of the Services that may be necessary or appropriate to affect the understanding set forth in this Agreement. Service Recipient may request such additional Services from Service Provider (each, to the extent included in the Services pursuant to this Section 2.6, an “Additional Service”) in writing during the Term. Service Provider will consider any such request for Additional Services promptly and in good faith, except to the extent such request is for Omitted Services (in which case Section 2.5 shall govern). In the event that the Parties agree that Service Provider should provide any such Additional Service, the Parties shall execute amendments for such Additional Service to the applicable Schedule I that shall set forth, among other things, (i) the time period during which such Additional Service shall be provided, (ii) a description of such Additional Service in reasonable detail, (iii) primary points of contact for each of the Parties with respect to the Service, (iv) any additional Fees, as applicable, related to such Additional Service and agreed upon by the Parties, and (iv) any additional terms and conditions specific to such Additional Service. Service Provider’s obligations with respect to providing any such Additional Service shall become effective only upon mutual agreement of the Parties as reflected in an amendment to the applicable Schedule I being duly executed and delivered by each Party. Notwithstanding the foregoing, the time period for any such Additional Service shall expire not later than the expiration of the Term as calculated prior to addition of such Additional Service unless the Parties agree otherwise.

Section 2.7.    Use of Third Parties. Service Recipient understands that certain Services may be provided to it by Service Provider in accordance with this Section 2.7 and pursuant to agreements between Service Provider and various Third Parties. To the extent not prohibited by a Third Party and with Service Recipient’s consent not to be unreasonably withheld, conditioned, or delayed, Service Provider will coordinate the provision of Services by the Third Party to Service Recipient and Service Recipient will reasonably cooperate with any Third Party providing Services on behalf of Service Provider in order to facilitate the provision and receipt of such Services.

 

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Section 2.8.    Cooperation. Service Recipient and its Affiliates who are recipients of the Services will reasonably cooperate with Service Provider in order to facilitate the provision and receipt of the Services. Service Recipient acknowledges that such Services are dependent on such reasonable cooperation, and that its or its Affiliates’ failure to so cooperate, if not reasonable, shall relieve Service Provider of its obligation to provide the related Services to the extent such failure renders such provision impractical or impossible. Service Recipient and its Affiliates who are recipients of the Services will comply in all material respects with all applicable policies and procedures of Service Provider.

Section 2.9.    Access. Each Party shall allow the other Party and its Affiliates and Representatives reasonable access to the facilities of such Party and its Affiliates that is necessary for Service Provider to provide the Services or for Service Recipient and its Affiliates to receive the Services. Each Party agrees that all of its and its Affiliates’ employees shall, and that it shall use commercially reasonable efforts to cause its Representatives’ employees to, when on the property of the other Party or any of its Affiliates, or when given access to any facilities, information, systems, infrastructure or personnel of the other Party or any of its Affiliates, conform to the policies and procedures of such other Party and any of its Subsidiaries, as applicable, concerning health, safety, conduct and security which are made known to the Party receiving such access from time to time.

Section 2.10.    Intellectual Property. Neither Party will gain, by virtue of this Agreement, any rights of ownership or use of copyrights, patents, trade secrets, trademarks or any other intellectual property rights (“Intellectual Property Rights”) owned by the other Party or its Affiliates. To the extent any Intellectual Property Rights are developed by Service Provider or its Affiliates solely, specifically and exclusively for Service Recipient in the course of the performance of the Services, all right, title and interest in and to any such Intellectual Property Rights shall be the sole and exclusive property of Service Recipient, and Service Provider shall (and shall cause its Affiliates to) assign, and does hereby assign, to Service Recipient all right, title and interest in and to any such Intellectual Property Rights. Except as expressly specified in the foregoing, as between the Parties, all right, title and interest in any Intellectual Property Rights developed by or on behalf of Service Provider in the course of providing the Services shall be owned by Service Provider. To the extent that Service Provider performs any Services through any Affiliate or subcontractor, Service Provider shall obligate such Affiliate or such subcontractor to assign to Service Recipient all Service Recipient’s Intellectual Property Rights, and Service Provider shall not utilize any such Affiliate or subcontractor in the performance of such Services unless such Affiliate or subcontractor is so obligated.

ARTICLE III

FEES AND PAYMENT

Section 3.1.    Fees. The fees payable hereunder for the Services (the “Fees”) shall be equal to: (i) with respect to the Services provided by or on behalf of the Recro Group as the Service Provider, the amount specified for each such Service as set forth Schedule I-A; and (ii) with respect to the Services provided by or on behalf of the Baudax Group as the Service Provider, a fee of $100,000 per month for twelve (12) months during the Term (the “Baudax Monthly Fee”).

 

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Section 3.2.    Expense. The Fees are exclusive of expenses related to travel (including long-distance and local transportation, accommodation and meal expenses and other incidental expenses) by Service Provider’s personnel or any subcontractor in connection with performing the Services. All of the costs and expenses described in this Section 3.2 (“Expenses”) shall be charged by Service Provider to the recipient of such Service on a pass-through basis. For the avoidance of doubt, the Expenses described in this Section 3.2 shall be consistent with Service Provider’s general approach with respect to such types of costs and expenses; provided that with respect to any Service, the recipient of such Service’s prior written approval shall be required to the extent that Expenses exceed $        . For clarity, there shall be no mark-up added to Expenses under this Agreement, unless such mark-up was actually paid by Service Provider’s personnel or subcontractor.

Section 3.3.    Invoice; Payment. Not later than fifteen (15) days after the last day of each calendar month (or, if such date is not a Business Day, then on the immediately succeeding Business Day), Service Provider shall provide to Service Recipient an invoice for the preceding calendar month’s Services, which shall list (i) the Services provided by Service Provider to Service Recipient for such month, (ii) the Fees payable for such Services (and reasonable documentation supporting such Fees, to the extent requested by Service Recipient), and (iii) any Expenses for the preceding calendar month (and reasonable documentation verifying such Expenses). The amount stated in such invoices shall be paid by Service Recipient in full within thirty (30) calendar days of the issuance of the invoices (or, if such date is not a Business Day, then on the immediately succeeding Business Day) to an account designated by Service Provider, except to the extent such amount is the subject of a good faith dispute by Service Recipient as notified in writing to Service Provider.

Section 3.4.    Late Payments. Without prejudice to Service Provider’s other rights and remedies, where any sum remains unpaid ten (10) Business Days after the applicable due date, it shall carry interest, which shall accrue daily, from the due date until the date of actual payment, at a rate based on the prime rate listed in the Wall Street Journal (Bond Yields and Rates) on the date such sum is due and payable.

Section 3.5.    Taxes. All payments due to Service Provider under this Agreement shall be exclusive of any sales, use, value added, transfer, service, service use or other similar or analogous Tax (“Service Taxes”). Service Recipient will pay, and hold Service Provider harmless against, any Service Taxes applicable to the provision of the Services. Each Party agrees to provide to the other Party such information and data as reasonably requested from time to time, and to fully cooperate with the other Party, in connection with (a) the reporting of any Service Taxes payable pursuant to this Agreement, (b) any audit relating to any such Service Taxes, or (c) any assessment, refund, claim or proceeding relating to any such Service Taxes. To the extent any such reporting, audit, assessment, refund, claim, or proceeding is in relation to Service Taxes owed or claimed to be owed by Service Provider or any of its Affiliates by a Governmental Entity, Service Provider shall direct and control such reporting, audit, assessment, refund, claim, or proceeding.

Section 3.6.    No Right to Set-Off. Each Party hereto acknowledges and agrees that it shall not be permitted to set-off any amount owed by such Party pursuant to this Agreement against any amount or obligation owed to such Party or an Affiliate hereunder or pursuant to the Separation Agreement or any other Ancillary Agreement.

 

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ARTICLE IV

SERVICE MANAGEMENT

Section 4.1.    Service Managers. Each Party shall each appoint an employee to have overall responsibility for managing and coordinating the delivery of Services in accordance with this Agreement (such employee, a “Service Manager”). The initial Service Managers shall be identified on Exhibit A hereto and may thereafter be replaced from time to time upon written notice to the other Party. Service Managers shall consult and coordinate with one another regarding the provision of Services hereunder.

Section 4.2.    Service Coordinators. Each Party has designated an employee or title as the principal point of contact for the day-to-day implementation or monitoring of each Service as specified in the applicable Schedule I (each, a “Service Coordinator”). Communications relating to specific Services shall be directed to the applicable Service Coordinators. The Service Coordinators will report to the applicable Service Manager from time to time, as directed by the Service Manager.

ARTICLE V

SUB-CONTRACTING; THIRD PARTY AGREEMENTS

Section 5.1.    Sub-Contractors. Upon Service Recipient’s consent, not to be unreasonably withheld, conditioned, or delayed, Service Provider may delegate or sub-contract its duties under this Agreement to a qualified Third Party; provided that, notwithstanding such delegation or sub-contracting, Service Provider shall remain liable for the performance of its duties hereunder and shall ensure and guaranty that any Services provided by a subcontractor shall meet Service Provider’s obligations set forth in Sections 2.2(i), (ii), (iii) and (iv). For the avoidance of doubt, Service Provider will not be liable with respect to any agreement entered into directly by Service Recipient (or its Affiliates) and a subcontractor, other than as mutually agreed in writing by the Parties.

Section 5.2.    Third Party Agreements. Service Recipient acknowledges that the Services that were provided through Third Parties prior to the date hereof are subject to the terms and conditions of any applicable agreements between Service Provider and such Third Parties, and Service Recipient agrees to comply with such terms and conditions to the extent applicable to Service Recipient and necessary for purposes of receiving such Services by Service Recipient. For any Service to be delegated to a Third Party after the date hereof, and so long as any such Service is provided solely to Service Recipient and not to Service Provider or any Affiliates of Service Provider, Service Provider shall provide Service Recipient with a copy of any agreement contemplated to be entered into with such Third Party in relation to such Service and seek Service Recipient’s consent to such delegation, which consent may not be unreasonably withheld, delayed, or conditioned. In the event any such consent is not granted, Service Provider shall not have any liability resulting from any delay in providing any such Service.

Section 5.3.    Consents. Notwithstanding anything to the contrary contained herein, Service Provider shall use commercially reasonable efforts to obtain all consents from vendors that are necessary in order to provide any of the Services to Service Recipient under this Agreement; provided, however, that Service Provider shall not be required to pay any out-of-

 

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pocket fees to any vendor in order to obtain such consent, but shall, instead, request that Service Recipient pay such out-of-pocket fees. In the event that Service Provider is unable to obtain any such consent, the Parties will work together to agree upon a commercially reasonable alternative arrangement, which may include identification of alternate resources and equivalent services from such alternative resources on commercially reasonable terms. Any actual out-of-pocket fees levied on Service Provider (i) in connection with its efforts to obtain and implement such consents and (ii) in connection with the implementation of any such commercially reasonable alternative arrangement, shall be borne by Service Recipient.

ARTICLE VI

TERM AND TERMINATION AND EFFECTS OF TERMINATION

Section 6.1.    Term. Except as otherwise provided herein or unless otherwise agreed in writing by the Parties, Service Provider’s obligation to provide or procure, and Service Recipient’s obligation to purchase, each Service shall cease as of the end of the term specified for such Service in the applicable Schedule I hereto, and the Agreement shall terminate in its entirety at the end of the Term; provided that (i) this Agreement may be extended, with respect to one or more Services, by mutual written agreement of the Parties, consent to which extension shall be in each Party’s absolute discretion, and (ii) in the event that a Service shall not have been transitioned to Service Recipient solely as a result of a material breach by Service Provider of its obligations under this Agreement, the term for such Service will be extended solely for such period as shall be necessary for Service Provider to cure such material breach; provided that the breach is curable with the use of commercially reasonable efforts and is not related to a Service that could reasonably be obtained or performed by Service Recipient itself.

Section 6.2.    Termination for Breach. In the event that a Party hereto commits a material breach with respect to any of the Services, the other Party may terminate this Agreement with respect to such Service only, unless such breach is cured not later than thirty (30) days after receipt by the breaching Party of written notice of such breach.

Section 6.3.    Early Termination of a Service. Subject to the restrictions set forth herein, if Service Recipient should wish to terminate a Service (in whole, but not in part), Service Recipient shall provide written notice to Service Provider not later than forty-five (45) days prior to the requested termination date for such Service; provided, however, that no such notice of termination may be delivered to Service Provider during the forty-five (45) day period immediately following the date hereof. Notwithstanding the foregoing provisions, the Parties acknowledge and agree that, in certain instances, terminating certain Services may require time periods longer than the forty-five (45) day period specified in this Section 6.3. In any such event, the Parties agree to negotiate in good faith a longer period of time for any and all such transfers following the termination notice. Service Recipient shall remain liable for any Fees or other amounts payable hereunder in connection with the terminated Service(s) incurred prior to the effective date of termination of such Service(s), including in the event that such terminated Services contemplated a deliverable that was not provided due to such early termination (for the avoidance of doubt, and notwithstanding anything to the contrary contained herein, in the event that any Services are terminated prior to the expiration of the Term by Recro, Recro shall remain liable for the Baudax Monthly Fee through the remainder of the Term). Service Recipient acknowledges and agrees that (i) Services provided by Third Parties may be subject to term-limited licenses and contracts

 

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between Service Provider and applicable Third Parties (collectively, “Provider Third Party Contracts”), (ii) the renewal periods under the Provider Third Party Contracts may be for fixed periods, and (iii) Service Provider may not have the right to renew certain Provider Third Party Contracts. As a result, Service Recipient agrees that (i) if Service Provider is required to extend any Provider Third Party Contract in order to continue to provide any Service during the Term, then Service Provider shall notify Service Recipient and, if Service Recipient informs Service Provider within fifteen (15) days of such notice that it wishes to continue to receive such Service, then Service Recipient shall be required to pay Service Provider the amount of any renewal fees or purchase commitments applicable to the relevant Service for the full renewal period specified in the applicable Provider Third Party Contract, regardless of whether the Term or Service Provider’s provision of the relevant Service ends prior to the end of the relevant renewal period, and (ii) Service Provider will not be required to provide any Service to the extent it is unable to renew any applicable Provider Third Party Contract or Service Recipient either informs Service Provider that it does not wish to continue to receive such Service under this Section 6.3 or does not respond to Service Provider’s notice in the applicable fifteen (15) day period.

Section 6.4.    Termination Upon Insolvency. Either Party may terminate this Agreement immediately in the event the other Party (i) becomes insolvent, (ii) is generally unable to pay, or fails to pay, its debts as they become due, (iii) files, or has filed against it, a petition for voluntary or involuntary bankruptcy or pursuant to any other insolvency Law, (iv) makes or seeks to make a general assignment for the benefit of its creditors, or (v) applies for, or consents to, the appointment of a trustee, receiver or custodian for a substantial part of its property or business.

Section 6.5.    Accrued Rights. Termination or expiration of this Agreement for any reason will be without prejudice to any rights that have accrued to the benefit of a Party prior to such termination or expiration. Such termination or expiration will not relieve a Party from obligations that are expressly indicated to survive the termination or expiration of this Agreement.

Section 6.6.    Effect of Termination. Not later than thirty (30) days following the date it receives a final invoice from Service Provider following termination or expiration of any Services or this Agreement, Service Recipient shall pay to Service Provider all remaining monies due to Service Provider hereunder in respect of Services provided prior to such termination or expiration except for any amounts then the subject of a good faith dispute. In addition, at the end of the Term, each Party hereto shall, at the disclosing Party’s option, return or destroy the Confidential Information of the disclosing Party. In the event that the disclosing Party elects destruction, the other Party shall furnish to the disclosing Party a written certificate of destruction signed by an officer of the certifying Party. Any provision which by its nature should survive, including the provisions of this Section 6.6 (Effect of Termination), and Section 2.10 (Intellectual Property), Article III (Fees and Payment), Article VII (Limitation of Liability; Indemnification), Article IX (Confidentiality), and Article X (Miscellaneous), shall survive the termination of this Agreement.

ARTICLE VII

LIMITATION OF LIABILITY; INDEMNIFICATION

Section 7.1.    Limited Liability.

 

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(a)    The aggregate Liabilities of Service Provider and its Affiliates and Representatives, collectively, under this Agreement for any act or failure to act in connection herewith (including the performance or breach of this Agreement), or from the sale, delivery, provision or use of any Services provided under or contemplated by this Agreement, whether in contract, tort (including negligence and strict liability) or otherwise, at law or equity, shall not exceed the aggregate amount of the Fees and Expenses paid (and not previously paid back as a Liability hereunder) to Service Provider (or its Affiliates) under this Agreement prior to the date on which Service Provider’s action or inaction giving rise to the Liability arises or occurs.

(b)    Notwithstanding anything to the contrary contained in the Separation Agreement or this Agreement, Service Provider shall not be liable to Service Recipient or any of its Affiliates or Representatives, whether in contract, tort (including negligence and strict liability) or otherwise, at law or equity, for any special, indirect, incidental, punitive or consequential damages whatsoever (including lost profits or damages calculated on multiples of earnings approaches), which in any way arise out of, relate to or are a consequence of, the performance or nonperformance by Service Provider (including any Affiliates and Representatives of Service Provider and any unaffiliated third party providers, in each case, providing the applicable Services) under this Agreement or the provision of, or failure to provide, any Services under this Agreement, including with respect to loss of profits, business interruptions or claims of customers.

(c)    The limitations in this Section 7.1 shall not apply with respect to any Liability arising out of, relating to, or in connection with (i) any Third Party claim to the extent a Party has an indemnification obligation to the other Party for such Liability under Section 7.3(a) or Section 7.3(b) (ii) any breach of Article IX or (iii) the gross negligence, willful misconduct, or fraud of or by the Party to be charged.

Section 7.2.    Services Provided As-Is. SERVICE PROVIDER PROVIDES ANY AND ALL SERVICES ON AN “AS-IS” BASIS AND, EXCEPT AS SET FORTH IN SECTION 2.2, MAKES NO REPRESENTATIONS OR WARRANTIES AS TO THE SERVICES PROVIDED. SERVICE PROVIDER DISCLAIMS ALL IMPLIED WARRANTIES, INCLUDING ALL IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, IN CONNECTION WITH THIS AGREEMENT.

Section 7.3.    Indemnification.

(a)    Subject to Section 7.1, Service Recipient hereby agrees to indemnify, defend and hold harmless Service Provider and its Affiliates and Representatives from and against any and all Liabilities arising from, relating to or in connection with (i) the use of any Services by Service Recipient or any of its Affiliates, Representatives or other Persons using such Services or (ii) a material breach by Service Recipient of any covenant or agreement contained in this Agreement, except in each case to the extent that such Liabilities arise out of, relate to or are a consequence of Service Provider’s or its Affiliates’ or Representatives’ gross negligence, willful misconduct or fraud.

(b)    Subject to Section 7.1, Service Provider hereby agrees to indemnify, defend and hold harmless Service Recipient and its Affiliates and Representatives from

 

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and against any and all Liabilities arising from, relating to or in connection with (i) the gross negligence or willful misconduct of Service Provider in connection with the provision of the Services or (ii) a material breach by Service Provider of any covenant or agreement contained in this Agreement, except in each case to the extent that such Liabilities arise out of, relate to or are a consequence of Service Recipient’s or its Affiliates’ or Representatives’ gross negligence, willful misconduct or fraud.

(c)    The Party seeking to be indemnified (the “Indemnified Party”) shall provide prompt written notice of a Liability or events likely to give rise to a Liability to the Party with the obligation to indemnify (the “Indemnifying Party”) (in any event within sufficient time so as not to prejudice the defense of such claim). The Indemnifying Party shall be given the opportunity at all times to control the defense of the claim, with the cooperation and assistance of the Indemnified Party; provided, however, that the Indemnifying Party shall not settle any claim for which it has an indemnification obligation under this Section 7.3 with an admission of liability or wrongdoing by the Indemnified Party without such Party’s prior written consent.

(d)    Indemnification pursuant to this Section 7.3 represents the Parties’ sole and exclusive remedy under this Agreement; provided that, if Service Provider commits an error with respect to, incorrectly performs or fails to perform any Service, at Service Recipient’s request, without prejudice to any other rights or remedies Service Recipient may have, Service Provider shall use commercially reasonable efforts to correct such error, re-perform such Service or perform such Service, as applicable, at no additional cost to Service Recipient. To the extent Service Provider is unable to provide in its entirety a Service because of a partial delay which excuses performance pursuant to Section 10.4, Service Provider shall allocate such resources and/or products as are then currently available to it and necessary for the performance of such Service ratably between Service Provider for its own account and Service Recipient for the performance of such Services hereunder.

ARTICLE VIII

INSURANCE MATTERS

Section 8.1.    Insurance. Each Party hereto shall, throughout the term of this Agreement, carry appropriate insurance with a reputable insurance company covering property damage, business interruptions, automobile and general liability insurance (including contractual liability) to protect its own business and property interests; provided, that each Party shall be permitted to reasonably self-insure against the liabilities specified in Article VII.

ARTICLE IX

CONFIDENTIALITY

Section 9.1.    Confidentiality. The provisions of Section 7.6 of the Separation Agreement shall apply to disclosures of information made pursuant to this Agreement mutatis mutandis.

 

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ARTICLE X

MISCELLANEOUS

Section 10.1.    General. The provisions in Sections 10.1, 10.3, 10.6, 10.7, 10.8, 10.9, 10.13, 10.15, 10.16, 10.17 and 10.21 of the Separation Agreement shall apply, mutatis mutandis, as if fully set forth in this Agreement.

Section 10.2.    Inconsistencies. Nothing contained in this Agreement (or any Schedule or Exhibit) shall be deemed to supersede or change any of the agreements, obligations, representations or warranties of the Parties to the Separation Agreement or any other Ancillary Agreement. To the extent that any provision in this Agreement (or any Schedule or Exhibit) is inconsistent or conflicts with any provision of the Separation Agreement or any other Ancillary Agreement, the provisions of the Separation Agreement or such other Ancillary Agreement, as the case may be, shall control. To the extent that any provision of any Schedule or Exhibit is inconsistent or conflicts with any other provision of this Agreement, such other provision of this Agreement shall control.

Section 10.3.    Dispute Resolution. The provisions in Article VIII of the Separation Agreement shall apply to any Dispute related to this Agreement, mutatis mutandis.

Section 10.4.    Force Majeure.

(a)    Neither Party hereto shall be liable for delay in performance (other than the payment of money) of its obligations to the extent caused by events which could not have been reasonably foreseen and are beyond the reasonable control of the Party affected (an event of “Force Majeure”), including, but not limited to (i) acts of God, the elements, epidemics, explosions, accidents, landslides, lightning, earthquakes, fires, storms (including but not limited to tornadoes and hurricanes or tornado and hurricane warnings), sinkholes, floods, or washouts; (ii) labor shortage or trouble including strikes or injunctions (whether or not within the reasonable control of such Party and provided that the settlement of strikes and other labor disputes shall be entirely within the discretion of the Party experiencing the difficulty); (iii) inability to obtain material, equipment or transportation; (iv) national defense requirements, war, blockades, insurrections, sabotage, terrorism, riots, arrests and restraints of the government, either federal or state, civil or military (including any governmental taking by eminent domain or otherwise); or (v) any changes in applicable Law, regulation or rule or the enforcement thereof by any governmental or regulatory agency having jurisdiction, that limits or prevents a Party from performing its obligations hereunder or any notice from any such agency of its intention to fine or penalize such Party or otherwise impede or limit such Party’s ability to perform its obligations hereunder.

(b)    Service Provider will endeavor to provide to Service Recipient uninterrupted Services through the Term. In the event, however, that (i) Service Provider is wholly or partially prevented from providing a Service or Services either temporarily or permanently by reason of any Force Majeure event, or (ii) Service Provider, in the exercise of its reasonable good faith judgment, deems it necessary to suspend delivery of a Service hereunder for purposes of inspection, maintenance, repair, replacement of equipment parts or structures, or similar activities consistent with past practices, Service Provider shall not be obligated to deliver such Service during such periods, and, in the case of the immediately preceding clause (ii), Service Provider shall cooperate with Service Recipient with respect to the timing of such interruption. Notices provided under this Section 10.4 shall be provided to Service Recipient’s Service Manager (or other executive designated in writing by Service Recipient) in accordance with Section 10.6 of the Separation Agreement.

 

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Section 10.5.    Titles and Headings. Titles and headings to sections herein are inserted for the convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

Section 10.6.    Independent Contractor Status. Each Party shall be deemed to be an independent contractor to the other Party. Nothing contained in this Agreement shall create or be deemed to create the relationship of employer and employee between the Parties. The relationship created between the Parties pursuant to or by this Agreement is not and shall not be one of partnership or joint venture. No Party to this Agreement shall, by reason hereof, be deemed to be a partner or a joint venture of the other Party hereto in the conduct of their respective businesses and/or the conduct of the activities contemplated by this Agreement. No Party to this Agreement is now, shall become, or shall be deemed to be an agent or representative of the other Party. Except as herein explicitly and specifically provided, neither Party shall have any authority or authorization, of any nature whatsoever, to speak for or bind the other Party to this Agreement.

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IN WITNESS WHEREOF, the Parties have caused this Transition Services Agreement to be duly executed as of the day and year first above written.

 

RECRO PHARMA, INC.
By:    
Name:
Title:

 

BAUDAX BIO, INC.
By:    
Name:
Title:


Schedule I-A

Recro Group Services


Schedule I-B

Baudax Group Services and Fees


Exhibit A

Initial Service Managers

Exhibit 10.2

TAX MATTERS AGREEMENT

by and between

RECRO PHARMA, INC.

and

BAUDAX BIO, INC.

Dated as of                , 2019


TAX MATTERS AGREEMENT

THIS TAX MATTERS AGREEMENT (this “Agreement”), dated as of                , 2019 by and between Recro Pharma, Inc., a Pennsylvania corporation (“Recro”), and Baudax Bio, Inc., a Pennsylvania corporation (“Baudax”). Each of Recro and Baudax is sometimes referred to herein as a “Party” and, collectively, as the “Parties”. Capitalized terms used and not defined herein shall have the meaning set forth in the Separation Agreement entered into between the Parties as of the date hereof (the “Separation Agreement”).

WHEREAS, Recro, acting through itself and its direct and indirect Subsidiaries, currently conducts the CDMO Business and the Acute Care Business;

WHEREAS, the Board has determined that it is appropriate, desirable and in the best interests of Recro to separate the CDMO Business from the Acute Care Business, and to divest the Acute Care Business in the manner contemplated by the Separation Agreement;

WHEREAS, pursuant to the Separation Agreement (a) to the extent not previously effected pursuant to the Internal Reorganization, Recro will, and will cause its Subsidiaries to transfer certain assets and liabilities of the Acute Care Business to Baudax, as a result of which Baudax will own, directly and indirectly through its Subsidiaries, the Acute Care Business (collectively, the “Restructuring”), and (b) Recro will distribute, on a pro rata basis, all of the issued and outstanding shares of Baudax Common Stock owned by Recro to the holders of Recro Common Stock (the “Distribution”) as described therein; and

WHEREAS, the Parties wish to provide for the payment of Tax liabilities and entitlement to Refunds thereof, allocate responsibility for, and cooperation in, the filing of Tax Returns, and provide for certain other matters relating to Taxes.

NOW, THEREFORE, in consideration of the foregoing and the representations, warranties, covenants and agreements contained herein, and intending to be legally bound hereby, the Parties agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1.    General. As used in this Agreement, the following terms shall have the following meanings:

Accounting Firm” has the meaning set forth in Section 7.1.

Adjustment” means an adjustment of any item of income, gain, loss, deduction, credit or any other item affecting Taxes of a taxpayer pursuant to a Final Determination.

Baudax Entity” means any Subsidiary of Baudax immediately after the Distribution.

Baudax Group” means, individually or collectively, as the case may be, Baudax and any Baudax Entity.

 

 

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Baudax Ireland” means Baudax Ireland Limited, an Irish limited company.

Code” means the Internal Revenue Code of 1986, as amended.

Common Parent” means the common parent corporation of an affiliated group (in each case, within the meaning of Section 1504 of the Code) filing a U.S. federal consolidated Income Tax Return.

Contribution” means the contribution, directly or indirectly, by Recro of all of the assets of the Acute Care Business to Baudax in exchange for all of the Baudax Common Stock and the assumption by Baudax of liabilities related thereto.

Distribution Date” means the date on which the Distribution is effective.

Due Date” means (a) with respect to a Tax Return, the date (taking into account all valid extensions) on which such Tax Return is required to be filed under applicable Law and (b) with respect to a payment of Taxes, the date on which such payment is required to be made to the applicable Taxing Authority to avoid the incurrence of interest penalties and/or additions to Tax.

Extraordinary Transaction” means any action that is not in the Ordinary Course of Business, but shall not include (a) any action described in or contemplated by the Separation Agreement or any Ancillary Agreement, or (b) any action that is undertaken pursuant to the Restructuring or the Distribution.

Final Determination” means the final resolution of liability for any Tax for any taxable period, by or as a result of (a) a final decision, judgment, decree or other order by any court of competent jurisdiction that can no longer be appealed to a court other than the Supreme Court of the United States, (b) a final settlement with the IRS, a closing agreement or accepted offer in compromise under Sections 7121 or 7122 of the Code, or a comparable agreement under the Laws of other jurisdictions, which resolves the entire Tax liability for any taxable period, (c) any allowance of a Refund or credit in respect of an overpayment of Tax, but only after the expiration of all periods during which such Refund or credit may be recovered by the jurisdiction imposing the Tax, or (d) any other final resolution, including by reason of the expiration of the applicable statute of limitations or the execution of a pre-filing agreement with the IRS or other Taxing Authority.

Income Tax Return” means any Tax Return on which Income Taxes are reflected or reported.

Income Taxes” means any net income, net receipts, net profits, excess net profits or similar Taxes based upon, measured by, or calculated with respect to net income.

Indemnified Party” means the Party which is entitled to seek indemnification from the other Party pursuant to the provisions of Article III.

Indemnifying Party” means the Party from which the other Party is entitled to seek indemnification pursuant to the provisions of Article III.

 

 

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Information” has the meaning set forth in Section 5.1(a).

Ireland Loan” has the meaning set forth in Section 4.2(a)(i).

IRS” means the United States Internal Revenue Service.

Ordinary Course of Business” means an action taken by a Person only if such action is taken in the ordinary course of the normal operations of such Person.

Past Practice” means past practices, accounting methods, elections and conventions.

Post-Closing Period” means any taxable period (or portion thereof) beginning after the Distribution Date, including the portion of any Straddle Period beginning on the day after the Distribution Date.

Pre-Closing Period” means any taxable period (or portion thereof) ending on or before the Distribution Date, including the portion of any Straddle Period through the end of the Distribution Date.

Recro Consolidated Return” means the U.S. federal Income Tax Return required to be filed by Recro as the Common Parent.

Recro Consolidated Taxes” means any U.S. federal Income Taxes attributable to any Recro Consolidated Return.

Recro Entity” means any Subsidiary of Recro immediately after the Distribution.

Recro Group” means, individually or collectively, as the case may be, Recro and any Recro Entity, excluding any member of the Baudax Group.

Recro Taxes” means, without duplication, (a) any Recro Consolidated Taxes, (b) any Taxes imposed on Baudax or any member of the Baudax Group under Treasury Regulations Section 1.1502-6 (or any similar provision of other Law) as a result of Baudax or any such member being or having been included as part of a Recro Consolidated Return or a Recro Unified Tax Return, (c) any Taxes of the Recro Group and any former Subsidiary of Recro (excluding any member of the Baudax Group) for any Pre-Closing Period, (d) any Recro Transaction Taxes, and (e) any Recro Unified Taxes.

Recro Transaction Taxes” means any Taxes imposed on or by reason of the Restructuring or the Distribution (including Transfer Taxes and Taxes payable by reason of deferred intercompany transactions or excess loss accounts triggered by the Contribution or the Distribution).

Recro Unified Tax Return” means any unified, combined, consolidated or similar Tax Returns (other than the Recro Consolidated Tax Return) which includes or included Recro and Baudax.

 

 

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Recro Unified Taxes” means any state or local Taxes attributable to a Recro Unified Tax Return.

Refund” means any refund (or credit in lieu thereof) of Taxes (including any overpayment of Taxes that can be refunded or, alternatively, applied to other Taxes payable) including any interest paid on or with respect to such refund of Taxes.

Retention Period” has the meaning set forth in Section 6.2.

Straddle Period” means any taxable period that begins on or before and ends after the Distribution Date.

Tax” or “Taxes” means all taxes, charges, fees, duties, levies imposts, or other similar assessments, imposed by any U.S. federal, state or local or foreign governmental authority, including net income, gross income, gross receipts, excise, real property, personal property, sales, use, service, service use, license, lease, capital stock, transfer, recording, franchise, business organization, occupation, premium, environmental, windfall profits, profits, customs, duties, payroll, wage, withholding, social security, employment unemployment, insurance, severance, workers compensation, excise, stamp, alternative minimum, estimated, value added, ad valorem, hospitality, accommodations, transient accommodations unclaimed property, escheat and other taxes, charges, fees, duties, levies, imposts, or other similar assessments, and any interest penalties or additions attributable thereto.

Tax Attributes” means net operating losses, capital losses, tax credit carryovers earnings and profits, foreign tax credit carryovers, overall foreign losses, previously taxed income, tax bases, separate limitation losses and any other losses, deductions, credits or other comparable items that could affect a Tax liability for a past or future taxable period.

Tax Benefit” means any Refund, credit, or other reduction in Tax payments otherwise required to be made to a Taxing Authority, including for the avoidance of doubt, any actual Tax savings if, as and when realized arising from a step-up in Tax basis or an increase in a Tax Attribute.

Tax Cost” means any increase in Tax payments otherwise required to be made to a Taxing Authority (or any reduction in any Refund otherwise receivable from any Taxing Authority).

Tax Group” means the members of a consolidated combined, unitary or other tax group (determined under applicable U.S., State or foreign Income Tax law) which includes Recro or Baudax, as the context requires recognizing that (i) Recro’s Tax Group does not include any members of the Baudax Group and (ii) Baudax’s Tax Group does not include any members of the Recro Group.

Tax Item” means any item of income, gain, loss, deduction, credit, recapture of credit or any other item which increases or decreases Taxes paid or payable.

Tax Matter” has the meaning set forth in Section 6.1(a).

 

 

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Tax Proceeding” means any audit, assessment of Taxes, pre-filing agreement, other examination by any Taxing Authority, proceeding, appeal of a proceeding or litigation relating to Taxes, whether administrative or judicial including proceedings relating to competent authority determinations.

Tax Return” means any return, report, certificate, form or similar statement or document (including any related or supporting information or schedule attached thereto and any information return, or declaration of estimated Tax) required to be supplied to, or filed with, a Taxing Authority in connection with the payment, determination, assessment or collection of any Tax or the administration of any Laws relating to any Tax and any amended Tax Return or claim for Refund.

Taxing Authority” means any governmental authority or any subdivision agency commission or entity thereof or any quasi-governmental or private body having jurisdiction over the assessment determination collection or imposition of any Tax (including the IRS).

Transfer Taxes” means all sales, use, transfer, real property transfer intangible, recordation, registration, documentary, stamp or similar Taxes imposed on the Restructuring or the Distribution.

Treasury Regulations” means the final and temporary (but not proposed) Income Tax regulations promulgated under the Code; as such regulations may be amended from time to time (including corresponding provisions of succeeding regulations).

U.S.” means the United States of America.

ARTICLE II

PREPARATION, FILING AND PAYMENT OF TAXES SHOWN DUE ON TAX RETURNS

Section 2.1.    Recro Consolidated Returns.

(a)    Recro Consolidated Returns. Recro shall prepare, or cause to be prepared, and file all Recro Consolidated Returns for any Pre-Closing Period and a Straddle Period and shall pay all Taxes shown to be due and payable on such Tax Returns.

(b)    Extraordinary Transactions. For all Tax purposes, the Parties shall report any Extraordinary Transactions that are caused or permitted by Baudax or any Baudax Entity on the Distribution Date after the Distribution as occurring on the day after the Distribution Date pursuant to Treasury Regulation Section 1.1502-76(b) (1)(ii)(B) or any similar or analogous provision of state, local or foreign Law.

Section 2.2.    Recro Unified Tax Returns. Recro shall prepare and file any Recro Unified Tax Returns for a Pre-Closing Period and shall pay all Taxes shown to be due and payable on such Tax Returns.

Section 2.3.    Tax Return Procedures.

 

 

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(a)    Recro Consolidated Returns. To the extent that the positions taken on any Recro Consolidated Tax Return would reasonably be expected to materially and adversely affect the Tax position of Baudax or a Baudax Entity for any period after the Distribution Date, Recro shall prepare the portions of such Tax Return that relates to the Acute Care Business in a manner that is consistent with Past Practice unless otherwise required by applicable Law or agreed to in writing by the Parties, and shall provide a draft of such portion of such Tax Return to Baudax for its review and comment at least forty five (45) days prior to the Due Date for such Tax Return. In the event that Past Practice is not applicable to a particular item or matter, Recro shall determine the reporting of such item or matter in good faith. The Parties shall negotiate in good faith to resolve all disputed issues. Any disputes that the Parties are unable to resolve shall be resolved by the Accounting Firm pursuant to Section 7.1. In the event that any dispute is not resolved (whether pursuant to good faith negotiations among the Parties or by the Accounting Firm) prior to the Due Date for the filing of any such Tax Return, such Tax Return shall be timely filed by Recro and Recro agrees to amend such Tax Return as necessary to reflect the resolution of such dispute in a manner consistent with such resolution. All Recro Consolidated Returns will be prepared in accordance with Section 4.2, below.

(b)    Recro Unified Tax Returns. Recro shall prepare and file the Recro Unified Tax Returns for the taxable year that includes the Distribution Date. To the extent that the positions taken on any Recro Unified Tax Return would reasonably be expected to materially and adversely affect the Tax position of Baudax, Recro shall prepare the portions of such Tax Return that relates to the Acute Care Business in a manner that is consistent with Past Practice unless otherwise required by applicable Law or agreed to in writing by the Parties, and shall provide a draft of such portion of such Tax Return to Baudax for its review and comment at least forty five (45) days prior to the Due Date for such Tax Return, provided, however, that nothing herein shall prevent Recro from timely filing any such Tax Return. In the event that Past Practice is not applicable to a particular item or matter, Recro shall determine the reporting of such item or matter in good faith. The Parties shall negotiate in good faith to resolve all disputed issues. Any disputes that the Parties are unable to resolve shall be resolved by the Accounting Firm pursuant to Section 7.1. In the event that any dispute is not resolved (whether pursuant to good faith negotiations among the Parties or by the Accounting Firm) prior to the Due Date for the filing of any such Tax Return, such Tax Return shall be timely filed by Recro, and Recro agrees to amend such Tax Return as necessary to reflect the resolution of such dispute in a manner consistent with such resolution. All Recro Unifies Tax Returns will be prepared in accordance with Section 4.2, below.

Section 2.4.    Amended Returns. Except as provided in Section 2.3 to reflect the resolution of any dispute by the Accounting Firm pursuant to Section 7.1, except with the prior written consent of Baudax (such consent not to be unreasonably withheld, delayed or conditioned), Recro shall not, and shall not permit any Recro Entity to, amend any Tax Return for any Pre-Closing Period to the extent such amendment could reasonably be expected to increase the Taxes of any member of the Baudax Group.

Section 2.5.    Timing of Payments. All Taxes required to be paid or caused to be paid pursuant to this Article II by either Recro or a Recro Entity or Baudax or a Baudax Entity, as the case may be, to an applicable Taxing Authority, shall be paid on or before the Due Date for the payment of such Taxes.

 

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Section 2.6.    Expenses. Except as provided in Section 7.1 in respect of the expenses relating to the Accounting Firm, each Party shall bear its own expenses incurred in connection with this Article II.

Section 2.7.    Distribution Tax Reporting. The Parties shall cause the Distribution to be reported to holders of Recro Common Stock on IRS Form 1099-Div, or 1042-S, as appropriate. The Parties shall not take any position on any U.S. federal or state Income Tax Return or take any other U.S. tax reporting position that is inconsistent with the treatment of the Distribution as a distribution to which Section 301 of the Code applies, except as otherwise required by applicable Law. Recro will cause the Distribution Agent to comply with Section 1441 and Section 1442 of the Code, on the basis that the Distribution is a dividend as defined in Section 316 of the Code.

ARTICLE III

INDEMNIFICATION

Section 3.1.    Indemnification by Recro. Subject to Section 3.3, Recro shall pay, and shall indemnify and hold the Baudax Group harmless from and against, without duplication, (a) Recro Taxes, (b) all Taxes incurred by Baudax or any Baudax Entity arising out of, attributable to, or resulting from the breach by Recro of any of its covenants hereunder, and (c) any out-of-pocket costs and expenses related to the foregoing (including reasonable attorneys’ fees and expenses).

Section 3.2.    Indemnification by Baudax. Subject to Section 3.3, Baudax shall pay, and shall indemnify and hold the Recro Group harmless from and against, without duplication, (a) all Taxes incurred by Recro or any Recro Entity arising out of, attributable to, or resulting from the breach by Baudax of any of its covenants hereunder, and (b) any out-of-pocket costs and expenses related to the foregoing (including reasonable attorneys’ fees and expenses).

Section 3.3.    Characterization of and Adjustments to Payments.

(a)    For all Tax purposes, Recro and Baudax shall treat any payment by Recro to a member of the Baudax Group or by Baudax to a member of the Recro Group required by this Agreement (other than payments with respect to interest accruing after the Distribution Date) as either a contribution by Recro to Baudax or a distribution by Baudax to Recro, as the case may be, and, in each case, as occurring immediately prior to the Distribution.

(b)    Notwithstanding the foregoing, the amount that any Indemnifying Party is or may be required to provide indemnification to or on behalf of any Indemnified Party pursuant to this Article III shall be (i) decreased to take into account any Tax Benefit to the Indemnified Party (or any of its Affiliates) arising from the incurrence or payment of the relevant indemnified item and actually realized in or prior to the taxable year succeeding the taxable year in which the indemnified item is incurred (which Tax Benefit would not have arisen or been allowable but for such indemnified item), and (ii) increased to take into account any actual Tax Cost of the Indemnified Party (or any of its Affiliates) arising from the receipt of the relevant indemnity payment.

 

 

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Section 3.4.    Timing of Indemnification Payments. Indemnification payments in respect of any liabilities for which an Indemnified Party is entitled to indemnification pursuant to this Article III shall be paid by the Indemnifying Party to the Indemnified Party within ten (10) days after written notification thereof by the Indemnified Party, including reasonably satisfactory documentation setting forth the basis for, and calculation of, the amount of such indemnification payment, or within ten (10) days after resolution pursuant to Section 7.1.

ARTICLE IV

REFUNDS AND TAX ATTRIBUTES

Section 4.1.    Refunds and Credits. Recro shall be entitled to all Refunds of Taxes for which Recro is responsible pursuant to Article II, and Baudax shall be entitled to all Refunds of Taxes for which Baudax is responsible pursuant to Article II.

Section 4.2.    Attributes.

(a)    As soon as reasonably practicable after the Distribution Date, Recro shall reasonably determine in good faith the allocation of Tax Attributes, arising in a Pre-Closing Period, between the Recro Group and the Baudax Group in accordance with the Code and Treasury Regulations, including any applicable state, local and foreign Tax Laws. Subject to the preceding sentence, Recro shall be entitled to make any determination as to (i) basis, and (ii) valuation, and shall make such determinations reasonably and in good faith and consistent with Past Practice. Recro shall consult in good faith with Baudax regarding such allocation of Tax Attributes and determinations as to basis and valuation, and shall consider in good faith any comments received in writing from Baudax regarding such allocation and determinations. Recro and Baudax hereby agree to compute all Taxes for Post-Closing Periods consistently with the determination of the allocation of Tax Attributes pursuant to this Section 4.2(a) unless otherwise required by a Final Determination. Notwithstanding anything to the contrary in this Agreement, it is agreed that:

(i)    For all Pre-Closing Tax Periods, the Recro Group will treat the historical advances (the “Ireland Loan”) provided by Recro to Baudax Ireland as indebtedness of Baudax Ireland for U.S. federal Income Tax purposes, and

(ii)    The Recro Group will treat the cancellation of the Ireland Loan, effective on July 12, 2019, prior to the close of business, as giving rise to (a) a partial bad debt deduction to Recro under Section 166(a) of the Code equal to Recro’s unrecovered basis in the Ireland Loan and (b) a capital contribution from Recro to Baudax, equal to the fair market value of Baudax Ireland’s assets.

(b)    To the extent that the amount of any Tax Attribute is later reduced or increased by a Taxing Authority or Tax Proceeding, such reduction or increase shall be allocated to the Party to which such Tax Attribute was allocated pursuant to Section 4.2(a).

ARTICLE V

TAX PROCEEDINGS

Section 5.1.    Notification of Tax Proceedings. Within ten (10) days after an Indemnifying Party becomes aware of the commencement of a Tax Proceeding that may give rise

 

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to Taxes for which the Indemnifying Party is responsible pursuant to Article II, the Indemnifying Party shall notify the Indemnified Party of such Tax Proceeding, and thereafter shall promptly forward or make available to the Indemnifying Party copies of notices and communications relating to such Tax Proceeding. The failure of the Indemnified Party to notify the Indemnifying Party of the commencement of any such Tax Proceeding within such ten (10) day period or promptly forward any further notices or communications shall not relieve the Indemnifying Party of any obligation which it may have to the Indemnified Party under this Agreement except to the extent that the Indemnifying Party is prejudiced by such failure.

Section 5.2.    Tax Proceeding Procedures Generally. Recro shall be entitled to contest, compromise, control and settle any Adjustment or deficiency proposed, asserted or assessed pursuant to any Tax Proceeding with respect to any Recro Consolidated Return or Recro Unified Tax Return, provided that to the extent such Tax Proceeding could reasonably be expected to adversely affect the amount of Taxes for which Baudax is responsible, Recro shall (a) defend such Tax Proceeding diligently and in good faith (b) keep Baudax informed in a timely manner of all actions proposed to be taken by Recro with respect to such Tax Proceeding, and (c) in good faith consider any input from Baudax with respect to such Tax Proceeding.

ARTICLE VI

COOPERATION

Section 6.1.    General Cooperation.

(a)    The Parties shall each cooperate fully (and each shall cause its respective Subsidiaries to cooperate fully) with all reasonable requests in writing from another Party hereto, or from an agent, representative or advisor to such Party, in connection with the preparation and filing of Tax Returns, claims for Refunds, Tax Proceedings, and calculations of amounts required to be paid pursuant to this Agreement, in each case, related or attributable to or arising in connection with Taxes of either of the Parties or their respective Subsidiaries covered by this Agreement and in connection with any financial reporting matter relating to Taxes (a “Tax Matter”). Such cooperation shall include the provision of any information reasonably necessary or helpful in connection with a Tax Matter (“Information”) and shall include, without limitation:

(i)    the provision of any Tax Returns, other than any Recro Consolidated Return or Recro Unified Tax Return that does not include Baudax , of the Parties and their respective Subsidiaries, books, records (including information regarding ownership and Tax basis of property), documentation and other information relating to such Tax Returns, including accompanying schedules, related work papers, and documents relating to rulings or other determinations by Taxing Authorities;

(ii)    the use of the Party’s reasonable best efforts to obtain any documentation in connection with a Tax Matter;

(iii)    the use of the Party’s reasonable best efforts to obtain any Tax Returns (including accompanying schedules, related work papers, and documents) (other than any Recro Consolidated Return), documents, books, records or other information in connection with the filing of any Tax Returns of either of the Parties or their Subsidiaries; and

 

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(iv)    the making of each Party’s employees, advisors, and facilities available on a reasonable and mutually convenient basis in connection with the foregoing matters.

(b)    Notwithstanding anything in this Agreement to the contrary, neither Party shall be required to provide the other Party or any of such other Party’s Subsidiaries access to or copies of information, documents or personnel if such action could reasonably be expected to result in the waiver of any Privilege. In the event that either Party determines that the Provision of any information or documents to the other Party or any of such other Party’s Subsidiaries could be commercially detrimental, violate any Law or agreement or waive any privilege, the Parties shall use commercially reasonable efforts to permit compliance with its obligations hereunder in a manner that avoids any such harm or consequence.

(c)    The Parties shall perform all actions required or permitted under this Agreement in good faith. If one Party requests the cooperation of the other Party pursuant to this Section 6.1 or any other provision of this Agreement, except as otherwise expressly provided in this Agreement, the requesting Party shall reimburse such other Party for all reasonable out-of-pocket costs and expenses incurred by such other Party in complying with the requesting Party’s request.

Section 6.2.    Retention of Records. Recro and Baudax shall retain or cause to be retained all Tax Returns, schedules and work papers and all material records or other documents relating thereto in their possession, in each case that relate to a Pre-Closing Period until the later of the six-year anniversary of the filing of the relevant Tax Return or, upon the written request of the other Party, for a reasonable time thereafter (the “Retention Period”). Upon the expiration of the Retention Period, the foregoing information may be destroyed or disposed of by the Party retaining such documentation or other information unless the other Party otherwise requests in writing before the expiration of the Retention Period. In such case, the Party retaining such documentation or other information shall deliver such materials to the other Party or continue to retain such materials, in either case at the expense of such other Party.

ARTICLE VII

MISCELLANEOUS

Section 7.1.    Dispute Resolution. For purposes of Article II of this Agreement, the Parties shall appoint a nationally recognized public accounting firm reasonably acceptable to both of the Parties (the “Accounting Firm”) to resolve solely the identified disputes. In this regard, the Accounting Firm shall make determinations with respect to the disputed items based solely on representations made by Recro and Baudax and their respective Representatives, and not by independent review, and shall function only as an expert and not as an arbitrator and shall be required to make a determination within the ranges submitted by the Parties. The Parties shall require the Accounting Firm to resolve all disputes no later than thirty (30) days after the submission of such dispute to the Accounting Firm, and agree that all decisions by the Accounting Firm with respect thereto shall be final and conclusive and binding on the Parties. The Accounting Firm shall resolve all disputes in a manner consistent with this Agreement and, to the extent not inconsistent with this Agreement, in a manner consistent with the Past Practices of Recro, except as otherwise required by applicable Law. The Parties shall require the Accounting Firm to render

 

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all determinations in writing and to set forth, in reasonable detail, the basis for such determination. The total costs and expenses of the Accounting Firm will be allocated and borne between Recro and Baudax based upon that percentage or such fees and expenses equal to the percentage of the dollar value of the proposed determinations submitted to the Accounting Firm determined in favor of the other Party; provided, that if in light of the nature of the dispute the foregoing is not feasible, such costs and expenses shall be borne equally by the Parties. Any initial retainer required by the Accounting Firm shall be funded equally by the Parties (and, following the Accounting Firm’s determination, the Parties shall make appropriate payments between themselves as are necessary to give effect to the preceding sentence).

Section 7.2.    Interest on Late Payments. With respect to any payment between the Parties pursuant to this Agreement not made by the due date set forth in this Agreement for such payment (and any amount billed or otherwise invoiced or demanded and properly payable that is not paid within sixty (60) days of such bill, invoice or other demand) shall bear interest at a rate per annum equal to the Prime Rate, from time to time in effect, plus two percent (2%), calculated for the actual number of days elapsed, accrued from the date on which such payment was due up to the date of the actual receipt of payment.

Section 7.3.    Survival of Covenants. Except as otherwise contemplated by this Agreement, all covenants and agreements of the Parties contained in this Agreement shall survive the Distribution and remain in full force and effect in accordance with their applicable terms.

Section 7.4.    Successors. This Agreement shall be binding on and inure to the benefit of any successor by merger, acquisition of assets, or otherwise, to either of the Parties hereto (including without limitation any successor of Recro or Baudax succeeding to the Tax Attributes of either under Section 381 of the Code), to the same extent as if such successor had been an original party to this Agreement.

Section 7.5.    Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced under any Law or as a matter of public policy, all other conditions and provisions of this Agreement shall remain in full force and effect. Upon such determination that any term or other provision is invalid illegal or incapable of being enforced, the Parties to this Agreement shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner.

Section 7.6.    Entire Agreement. Except as otherwise expressly provided in this Agreement, the Separation Agreement, this Agreement and the other Ancillary Agreements constitute the entire agreement of the Parties hereto with respect to the subject matter of this Agreement and supersede all prior agreements and undertakings, both written and oral, between or on behalf of the Parties hereto with respect to the subject matter of this Agreement.

Section 7.7.    Assignment; No Third-Party Beneficiaries. This Agreement shall not be assigned by any Party without the prior written consent of the other Party hereto, except that each Party may assign (a) any or all of its rights and obligations under this Agreement to any of its Subsidiaries and (b) any or all of its rights and obligations under this Agreement in connection with a sale or disposition of any of its assets or entities or lines of business, provided, however, that, in each case, no such assignment shall release such Party from any liability or

 

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obligation under this Agreement. This Agreement is for the sole benefit of the Parties to this Agreement and their respective Subsidiaries and their permitted successors and assigns. Nothing in this Agreement, express or implied, is intended to or shall confer upon any other Person any legal or equitable right, benefit or remedy of any nature whatsoever under or by reason of this Agreement.

Section 7.8.    Specific Performance. From and after the Distribution, in the event of any actual or threatened default in, or breach of, any of the terms, conditions and provisions of this Agreement, the Party who is or is to be thereby aggrieved shall have the right of specific performance and injunctive or other equitable relief of its rights under this Agreement, in addition to any and all other rights and remedies at law or in equity, and all such rights and remedies shall be cumulative. The Parties agree that the remedies at law for any breach or threatened breach, including monetary damages, may be inadequate compensation for any loss and that any defense in any action for specific performance that a remedy at law would be adequate is waived. Any requirements for the securing or posting of any bond with such remedy are waived by the Parties to this Agreement.

Section 7.9.    Amendment. No provision of this Agreement may be amended or modified except by a written instrument signed by the Parties to this Agreement. No waiver by any Party of any provision of this Agreement shall be effective unless explicitly set forth in writing and executed by the Party so waiving. The waiver by any Party of a breach of any provision of this Agreement shall not operate or be construed as a waiver of any other subsequent breach.

Section 7.10.    Rules of Construction. Interpretation of this Agreement shall be governed by the following rules of construction (a) words in the singular shall be held to include the plural and vice versa and words of one gender shall be held to include the other gender as the context requires; (b) references to the terms Article, Section, paragraph, clause, Exhibit and Schedule are references to the Articles, Sections, paragraphs, clauses, Exhibits and schedules of this Agreement, unless otherwise specified; (c) the terms “hereof,” “herein,” “hereby,” “hereto,” and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto; (d) references to $ shall mean U.S. dollars; (e) the word “including” and words of similar import when used in this Agreement shall mean “including, without limitation,” unless otherwise specified; (f) the word “or” shall not be exclusive; (g) references to “written” or “in writing” include in electronic form; (h) provisions shall apply, when appropriate, to successive events and transactions; (i) the headings contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement; (j) Recro and Baudax have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties hereto and no presumption or burden of proof shall arise favoring or burdening either Party by virtue of the authorship of any of the provisions in this Agreement or any interim drafts of this Agreement; and (k) a reference to any Person includes such Person’s successors and permitted assigns.

Section 7.11.    Counterparts. This Agreement may be executed in one or more counterparts each of which when executed shall be deemed to be an original but all of which taken together shall constitute one and the same agreement. Delivery of an executed counterpart of a signature page to this Agreement by facsimile or portable document format (PDF) shall be as effective as delivery of a manually executed counterpart of any such Agreement.

 

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Section 7.12.    Expenses. Except as otherwise provided in this Agreement, whether or not the Distribution or the other transactions contemplated by this Agreement or the Separation Agreement are consummated, all costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the Party incurring such costs or expenses.

Section 7.13.    Governing Law. This Agreement shall be governed by and construed in accordance with the Laws of the Commonwealth of Pennsylvania, without giving effect to the conflicts of laws principles thereof that might lead to the application of laws other than the Laws of the Commonwealth of Pennsylvania.

Section 7.14.    Notices. Any notice, demand, claim or other communication under this Agreement will be in writing and will be deemed to have been given (a) on delivery if delivered personally, (b) on the date on which delivery thereof is guaranteed by the carrier if delivered by a national courier guaranteeing delivery within a fixed number of days of sending, or (c) on the date of facsimile or email transmission thereof if delivery is confirmed, but, in each case, only if addressed to the Parties in the following manner at the following addresses or facsimile numbers (or at the other address or other number as a Party may specify by notice to the others).

To Recro:

Recro Pharma, Inc.

1300 Gould Drive

Gainesville, GA 30504

Attn:

Phone:

Fax:

To Baudax:

Baudax Bio, Inc.

490 Lapp Road

Malvern, PA 19355

Attn: Chief Financial Officer

Phone:

Fax:

Section 7.15.    Coordination with Ancillary Agreements. Except as explicitly set forth in the Separation Agreement or any other Ancillary Agreement, this Agreement shall be the exclusive agreement among the Parties with respect to all Tax Matters, including indemnification in respect of Tax Matters. The Parties agree that this Agreement shall take precedence over any and all agreements among the Parties with respect to Tax Matters.

 

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Section 7.16.    Effective Date. This Agreement shall become effective only upon the occurrence of the Distribution.

[Signature page follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

 

RECRO PHARMA, INC.
By:  

 

Name:  
Title:  
BAUDAX BIO, INC.
By:  

 

Name:  
Title:  

[Signature page to Tax Matters Agreement]

Exhibit 10.3

EMPLOYEE MATTERS AGREEMENT

by and between

RECRO PHARMA, INC.

and

BAUDAX BIO, INC.

Dated as of                , 2019


TABLE OF CONTENTS

 

         PAGE  

ARTICLE I DEFINITIONS

     1  

Section 1.1.

  General      1  

ARTICLE II TRANSFER OF BAUDAX EMPLOYEES; GENERAL PRINCIPLES

     3  

Section 2.1.

  Transfer of Employment to Baudax of Additional Employees; Post-Effective Time Transfers; Independent Contractors      3  

Section 2.2.

  Assumption and Retention of Liabilities      4  

Section 2.3.

  Plan Participation      5  

Section 2.4.

  No Duplication of Benefits; Service and Other Credit      5  

Section 2.5.

  Reimbursements      6  

Section 2.6.

  Approval of Plans   

ARTICLE III DEFINED CONTRIBUTION AND NON-QUALIFIED DEFERRED COMPENSATION PLANS

     6  

Section 3.1.

  401(k) Plan.      6  

ARTICLE IV HEALTH AND WELFARE PLANS; PAYROLL; COBRA AND VACATION

     6  

Section 4.1.

  Cessation of Participation in Recro H&W Plans      6  

Section 4.2.

  Allocation of Health and Welfare Plan Liabilities      7  

Section 4.3.

  Flexible Spending Plan Treatment      7  

Section 4.4.

  Workers’ Compensation Liabilities      8  

Section 4.5.

  Payroll Taxes and Reporting      8  

Section 4.6.

  COBRA and HIPAA Compliance      9  

Section 4.7.

  Vacation and Paid Time Off      9  

ARTICLE V INCENTIVE COMPENSATION, EQUITY COMPENSATION AND OTHER BENEFITS

     9  

Section 5.1.

  Annual Cash-Based Incentive Plans      9  

Section 5.2.

  Treatment of Equity Incentives      9  

ARTICLE VI GENERAL AND ADMINISTRATIVE

     10  

Section 6.1.

  Sharing of Participant Information      10  

Section 6.2.

  No Third Party Beneficiaries      10  

Section 6.3.

  Audit Rights with Respect to Information Provided      10  

Section 6.4.

  Fiduciary Matters      11  

Section 6.5.

  Consent of Third Parties      11  

Section 6.6.

  Proprietary Information and Inventions Agreements      11  

ARTICLE VII MISCELLANEOUS

     11  

Section 7.1.

  General      11  

 

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EMPLOYEE MATTERS AGREEMENT

This EMPLOYEE MATTERS AGREEMENT (this “Agreement”), dated as of [●], 2019, is entered into by and between Recro Pharma, Inc. (“Recro”), a Pennsylvania corporation, and Baudax Bio, Inc. (“Baudax”), a Pennsylvania corporation and a wholly owned subsidiary of Recro. Capitalized terms used and not defined herein shall have the meaning set forth in the Separation Agreement between the Parties, dated as of                     , 2019 (the “Separation Agreement”).

WHEREAS, as contemplated by the Separation Agreement, Recro and Baudax desire to enter into this Agreement to provide for the allocation of assets, Liabilities, and responsibilities with respect to certain matters relating to employees and other individual service providers (including employee compensation and benefit plans and programs) between them.

NOW, THEREFORE, the Parties, intending to be legally bound, agree as follows:

ARTICLE I

DEFINITIONS

Section 1.1.    General. For purposes of this Agreement the following terms shall have the meaning ascribed to them in this Article I.

1.1.    “Baudax 401(k) Plan” means the tax-qualified defined contribution savings plan with a cash or deferred arrangement under Section 401(k) of the Code adopted by Baudax or a Baudax Group member and effective as of the Benefits Commencement Date.

1.2.    “Baudax Employee” means any individual who, as of the Transfer Effective Time, is either actively employed by or then on a short-term leave of absence from Baudax or a Baudax Group member (including maternity, paternity, family, sick, short-term disability leave, qualified military service under the Uniformed Services Employment and Reemployment Rights Act of 1994, and leave under the Family Medical Leave Act and other approved leaves) or who is employed by Recro or a Recro Group member and who becomes a Baudax Employee pursuant to the operation of this Agreement.

1.3.     “Baudax FSAs” has the meaning set forth in Section 4.3.

1.4.    “Baudax H&W Plans” means the health and welfare plans sponsored and maintained by Baudax or any Baudax Group member immediately prior to the Transfer Effective Time which provide group health, life, dental, accidental death and dismemberment, health care reimbursements, dependent care assistance and disability benefits.

1.5.    “Baudax Participant” means any individual who is a Baudax Employee or a Former Baudax Employee, and any beneficiary, dependent, or alternate payee of such individual, as the context requires.

1.6.     “Benefits Commencement Date” means                .

1.7.    “Change of Control” has the meaning given to it under the applicable Recro Equity-Based Plan.


1.8.    “COBRA” means the continuation coverage requirements for “group health plans” under Title X of the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended, and as codified in Code Section 4980B and ERISA Sections 601 through 608.

1.9.    “Code” means the Internal Revenue Code of 1986, as amended, or any successor federal income tax law. Reference to a specific Code provision also includes any proposed, temporary, or final regulation in force under that provision.

1.10.    “ERISA” means the Employee Retirement Income Security Act of 1974, as amended. Reference to a specific provision of ERISA also includes any proposed, temporary, or final regulation in force under that provision.

1.11.    “Former Baudax Employee” means any individual whose employment with either Party or any of its respective Subsidiaries and Affiliates terminated for any reason before the Transfer Effective Time, and who was primarily engaged in providing services to the Acute Care Business as of the date of his or her termination of employment.

1.12.    “Former Recro Employee” means any individual whose employment with a Recro Group member terminated for any reason before the Transfer Effective Time, other than a Former Baudax Employee.

1.13.    “HIPAA” means the health insurance portability and accountability requirements for “group health plans” under the Health Insurance Portability and Accountability Act of 1996, as amended.

1.14.    “Plan” when immediately preceded by “Recro,” means any plan, policy, program, payroll practice, on-going arrangement, contract, trust, insurance policy or other agreement or funding vehicle (including a Recro H&W Plan) for which the eligible classes of participants include employees or former employees of Recro or a Recro Group member (which may include employees of Baudax Group members prior to the Transfer Effective Time), and when immediately preceded by “Baudax,” means any plan, policy, program, payroll practice, on-going arrangement, contract, trust, insurance policy or other agreement or funding vehicle (including a Baudax H&W Plan) for which the eligible classes of participants are limited to employees or former employees (and their eligible dependents) of Baudax or a Baudax Group member, but no other Recro Group member.

1.15.    “Recro Defined Contribution Plan” means the Recro Pharma 401(k) Plan.

1.16.    “Recro Employee” means any individual who, as of the Transfer Effective Time, is either receiving compensation from a member of the Recro Group which is to be reported on IRS Form W-2 (in the case of individuals employed in the United States) or who is on the payroll of a Recro Group member (in the case of individuals outside the United States), but does not include any Baudax Employee.

1.17.    “Recro Equity-Based Plan” means the Recro 2018 Amended and Restated Equity Incentive Plan and the Recro 2008 Stock Option Plan.

 

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1.18.    “Recro FSAs” means flexible spending accounts for health and dependent care expenses established or designated by Recro.

1.19.    “Recro H&W Plans” means the health and welfare plans sponsored and maintained by Recro or any Recro Group member immediately prior to the Transfer Effective Time which provide group health, life, dental, accidental death and dismemberment, health care reimbursements, dependent care assistance and disability benefits.

1.20.    “Recro Option” means each option to acquire Recro Common Stock granted under a Recro Equity-Based Plan.

1.21.    “Recro Participant” means any individual who is a Recro Employee or a Former Recro Employee, and any beneficiary, dependent, or alternate payee of such individual, as the context requires.

1.22.    “Recro PRSU” means each award of restricted share units with respect to Recro Common Stock granted under a Recro Equity-Based Plan subject to performance-based vesting conditions.

1.23.    “Recro RSU” means each award of restricted share units with respect to Recro Common Stock granted under a Recro Equity-Based Plan (other than Recro PRSUs).

1.24.    “Specified Employees” means the Recro Employees as of the Distribution Effective Time that are intended to become Baudax Employees as of the Transfer Effective Time. The Specified Employees are set forth on Exhibit A to this Agreement, which may be amended after the date hereof by mutual agreement of Recro and Baudax.

1.25.    “Specified Employee Employment Agreement” means each employment agreement with each Specified Employee as set forth on Exhibit A.

1.26.    “Time-Based Award” means a Recro RSU or Recro Option that solely vests based on the continued employment or service of the recipient.

1.27.    “Transfer Effective Time” means a date, to be mutually agreed by Recro and Baudax after the Distribution Effective Time, on which the employment of Specified Employees will be transferred to Baudax.

ARTICLE II

TRANSFER OF BAUDAX EMPLOYEES; GENERAL PRINCIPLES

Section 2.1.    Transfer of Employment to Baudax of Specified Employees; Independent Contractors.

(a)    Following the Distribution Effective Time, the Specified Employees will remain employees of Recro and Baudax shall compensate Recro for the services of such Specified Employees provided to Baudax pursuant to the terms of the Transition Services Agreement by and between Baudax and Recro dated as of the date hereof. At the Transfer Effective

 

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Time, Recro and Baudax will cause the employment of the Specified Employees who are not employed by a Baudax Group member as of the Transfer Effective Time to be transferred to a Baudax Group member.

(b)    In the event that the Parties determine following the Transfer Effective Time that any individual employed outside the United States (other than an individual who the Parties intend to be a Recro Employee) has inadvertently become employed by a member of the Recro Group (due to the operation of transfer of undertakings or similar law or regulation), the Parties shall cooperate and take such actions as may be reasonably necessary in order to cause the employment of such individuals to be promptly transferred to a member of the Baudax Group.

(c)    The Parties shall cooperate and take such actions as may be reasonably necessary in order to minimize potential statutory, contractual, plan-based or other severance or similar obligations to the Parties or their Affiliates in connection with any transfers of employment described in this Section 2.1.

(d)    Baudax will determine which, if any, temporary workers, individual consultants or independent contractors who are performing service primarily related to the Acute Care Business, it wishes to transfer to Baudax and, the Parties shall use reasonable efforts to transfer the individual or to assign the applicable Contract to a member of the Baudax Group and Baudax shall, or shall cause a member of the Baudax Group to, assume and perform such Contract. In the event that a transfer fee is required to be paid in order to effect such transfer, Baudax shall be responsible for and pay the full amount of such fee.

(e)    In connection with the transfer of the Specified Employees, as of the Transfer Effective Time and subject to the consent of such Specified Employee, the Specified Employee Employment Agreements shall be assigned by Recro to Baudax and all rights and obligations thereunder will be assumed by Baudax. In connection therewith, Recro and Baudax will use reasonable efforts to cause each Specified Employees to deliver to Recro a release from all liabilities and obligations under the applicable Specified Employee Employment Agreement.

Section 2.2.    Assumption and Retention of Liabilities. Recro and Baudax intend that employment-related Liabilities associated with Recro Participants are to be retained or assumed by Recro or a Recro Group member, and employment-related Liabilities associated with Baudax Participants are to be assumed by Baudax or a Baudax Group member, in each case, except as specifically set forth herein. Accordingly, as of the Transfer Effective Time:

(a)    Recro or the applicable member of the Recro Group hereby retains or assumes and agrees to pay, perform, fulfill, and discharge, except as expressly provided in this Agreement, (i) all Liabilities arising under or related to Recro Plans, (ii) all employment or service-related Liabilities with respect to (A) all Recro Participants and (B) any individual who is, or was, an independent contractor, temporary employee, temporary service worker, consultant, freelancer, agency employee, leased employee, on-call worker, incidental worker, or non-payroll worker or in any other employment or similar relationship primarily connected to Recro or a Recro Group member and (iii) any Liabilities expressly transferred or allocated to Recro or a Recro Group member under this Agreement (it being understood and agreed that the provisions of this Agreement do not create or constitute a source of any such Liability); and

 

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(b)    Baudax hereby retains or assumes and agrees to pay, perform, fulfill, and discharge, except as expressly provided in this Agreement, (i) all Liabilities arising under or related to Baudax Plans, (ii) all employment or service-related Liabilities with respect to (A) all Baudax Participants and (B) any individual who is, or was, an independent contractor, temporary employee, temporary service worker, consultant, freelancer, agency employee, leased employee, on-call worker, incidental worker, or non-payroll worker or in any other employment or similar relationship primarily connected to Baudax or a Baudax Group member and (iii) any Liabilities expressly transferred or allocated to Baudax or a Baudax Group member under this Agreement.

Section 2.3.    Plan Participation. Except as otherwise expressly provided in this Agreement, effective as of immediately prior to the applicable Benefits Commencement Date, (a) (i) all Baudax Participants shall cease any participation in, and benefit accrual under, Recro Plans and (ii) all members of the Baudax Group shall cease to be participating employers under the Recro Plans and, (b) to the extent applicable, (i) all Recro Participants shall cease any participation in, and benefit accrual under, Baudax Plans and (ii) all members of the Recro Group shall cease to be participating employers under the Baudax Plans. Prior to the Transfer Effective Time, Recro and Baudax shall take all actions necessary to effectuate the actions contemplated by this Section 2.3 and to cause (A) the applicable Baudax Group member to assume or retain all Liabilities with respect to each Baudax Plan and the applicable Recro Group member to assume or retain all Liabilities with respect to each Recro Plan, in each case, effective as of the Transfer Effective Time and (B) all assets of any Baudax Plan to be transferred to or retained by the applicable Baudax Group member in the applicable jurisdiction and all assets of any Recro Plan to be transferred to or retained by the applicable Recro Group member in the applicable jurisdiction, in each case, effective as of the Transfer Effective Time.

Section 2.4.    No Duplication of Benefits; Service and Other Credit. Recro and Baudax shall adopt, or cause to be adopted, all reasonable and necessary amendments and procedures to prevent Baudax Participants from receiving duplicative benefits from the Recro Plans and the Baudax Plans. With respect to Baudax Employees, each Baudax Plan shall provide that for purposes of determining eligibility to participate, vesting, and entitlement to benefits, service prior to the Transfer Effective Time with Recro or a Recro Group member shall be treated as service with Baudax or the applicable Baudax Group member. Such service also shall apply for purposes of satisfying any waiting periods, evidence of insurability requirements, or the application of any preexisting condition limitations under any Baudax Plan. Each Baudax Plan shall, to the extent practicable, waive pre-existing condition limitations with respect to Baudax Employees. Baudax shall honor any deductible, co-payment and out-of-pocket maximums incurred by the Baudax Employees and their eligible dependents under the Recro Plans in which they participated immediately prior to the Benefits Commencement Date during the then-elapsed portion of the calendar year prior to the Benefits Commencement Date in satisfying any deductibles, co-payments or out-of-pocket maximums under the Baudax Plans in which they are eligible to participate after the Benefits Commencement Date in the same plan year in which such deductibles, co-payments or out-of-pocket maximums were incurred.

 

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Section 2.5.    Reimbursements. From time to time after the Distribution Effective Time, the Parties shall promptly reimburse one another, upon reasonable request of the Party requesting reimbursement and the presentation by such Party of such substantiating documentation as the other Party shall reasonably request, for the cost of any Liabilities satisfied or assumed by the Party requesting reimbursement or its Affiliates that are made pursuant to this Agreement, the responsibility of the other Party or any of its Affiliates.

ARTICLE III

DEFINED CONTRIBUTION AND NON-QUALIFIED DEFERRED

COMPENSATION PLANS

Section 3.1.    401(k) Plan.

(a)    Each Baudax Participant who participates in the Recro Defined Contribution Plan will cease active participation in the Recro Defined Contribution Plan as of immediately prior to the Transfer Effective Time. For the avoidance of doubt, all employee pre-tax deferrals and employer contributions with respect to the Baudax Participants will be made to the Baudax 401(k) Plan on and following the effective date of the Baudax 401(k) Plan.

(b)    In accordance with applicable Law, Recro and Baudax shall cause, in the manner described herein, the accounts under the Recro Defined Contribution Plan of each Baudax Employee to be transferred to the Baudax 401(k) Plan, as soon as practicable after the effective date of the Baudax 401(k) Plan (which, for the avoidance of doubt, will be no earlier than the Transfer Effective Time). On, or as soon as practicable after, the effective date of the Baudax 401(k) Plan: (i) Recro shall cause the accounts (including any outstanding loan balances and employer contributions described in Section 3.1(c)) of each Baudax Employee in the Recro Defined Contribution Plan to be transferred from the trust established under the Recro Defined Contribution Plan to the trust established under the Baudax 401(k) Plan; and (ii) Baudax shall cause such transferred accounts to be accepted by the Baudax 401(k) Plan and its related trust.

(c)    If any Baudax Employees are eligible to receive true-up matching contributions under the Recro Defined Contribution Plan with respect to the plan year in which the Transfer Effective Time occurs, and such contributions have not yet been deposited into the Baudax Employees’ accounts under the Recro Defined Contribution Plan as of the date such accounts are transferred from the trust established under the Recro Defined Contribution Plan to the trust established under the Baudax 401(k) Plan as set forth in Section 3.1(b), then Recro shall contribute the amount of such true-up matching contributions (and other employer contributions, if any) into the applicable Baudax Employees’ accounts under the Recro Defined Contribution Plan prior to such transfer based on all service performed and compensation accrued through the Transfer Effective Time.

ARTICLE IV

HEALTH AND WELFARE PLANS; PAYROLL; COBRA AND VACATION

Section 4.1.    Cessation of Participation in Recro H&W Plans.

(a)    Without limiting the generality of Section 2.3, effective as

 

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of the Benefits Commencement Date, Baudax Participants shall cease to participate in the Recro H&W Plans; provided that any participation in, and benefit accrual under, Recro H&W Plans by Baudax Participants during the period, if any, between the Distribution Effective Time and the Benefits Commencement Date (the “Benefits Transition Period”) shall be in accordance with, and pursuant to, the terms and conditions of the Transition Services Agreement.

(b)    Effective as of the Benefits Commencement Date, Baudax shall cause Baudax Participants who participate in a Recro H&W Plan immediately prior to the Benefits Commencement Date to be automatically enrolled or offered participation in a corresponding Baudax H&W Plan.

(c)    To the extent applicable, Baudax shall cause Baudax H&W Plans to recognize and maintain all coverage and contribution elections made by Baudax Participants under the corresponding Recro H&W Plans as of the Benefits Commencement Date and apply such elections under the applicable Baudax H&W Plan for the remainder of the period or periods for which such elections are by their terms applicable.

(d)    Neither the transfer or other movement of employment or service from any member of the Recro Group to any member of the Baudax Group at any time before the Benefits Commencement Date nor the Transfer Effective Time shall constitute or be treated as a “status change” under the Recro H&W Plans or the Baudax H&W Plans.

(e)    Subject to the terms of the applicable Baudax H&W Plan and applicable Law, Baudax shall use its reasonable best efforts to waive all limitations as to preexisting conditions, exclusions and waiting periods with respect to participation and coverage requirements applicable to Baudax Participants under any Baudax H&W Plan in which such Baudax Participants may be eligible to participate on or after the applicable Benefits Commencement Date.

Section 4.2.    Allocation of Health and Welfare Plan Liabilities. Effective as of the Transfer Effective Time, all Liabilities relating to, arising out of, or resulting from health and welfare coverage or claims incurred prior to, on or after the Transfer Effective Time by each Baudax Participant under the Recro H&W Plans shall cease to be Liabilities of the Recro Group and shall be assumed by the Baudax Group and deemed to be Baudax Liabilities. Without limiting the generality of the foregoing, any and all costs, expenses or Liabilities relating to participation by Baudax Participants in the Recro H&W Plans during the Benefits Transition Period shall be reimbursed by Baudax to the Recro Group in accordance with the terms of the Transition Services Agreement. For the avoidance of doubt, (a) all Liabilities arising under (i) any Recro H&W Plan with respect to Baudax Participants or (ii) any Baudax H&W Plan and (b) all Liabilities arising out of, relating to or resulting from the cessation of a Baudax Participant’s participation in any Recro H&W Plan and transfer to a Baudax H&W Plan as set forth herein (including any Actions or claims by any Baudax Participants related thereto) shall, in each case, be Baudax Liabilities.

Section 4.3.    Flexible Spending Plan Treatment. Effective as of the Benefits Commencement Date, Baudax shall establish or designate flexible spending accounts for health and dependent care expenses (the “Baudax FSAs”). To the extent applicable, the Parties shall take all actions reasonably necessary or appropriate so that the account balances (positive or negative)

 

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under the Recro FSAs of each Baudax Participant who has elected to participate therein in the year in which the Benefits Commencement Date occurs shall be transferred, effective as of the Benefits Commencement Date, from the Recro FSAs to the corresponding Baudax FSAs. The Baudax FSAs shall assume responsibility as of the Benefits Commencement Date for all outstanding dependent care and health care claims under the Recro FSAs of each Baudax Participant for the year in which the Benefits Commencement Date occurs and shall assume the rights of and agree to perform the obligations of the analogous Recro FSA from and after the Benefits Commencement Date. The Parties shall cooperate in good faith to provide that the contribution elections of each such Baudax Participant as in effect immediately before the Benefits Commencement Date remain in effect under the Baudax FSAs from and after the Benefits Commencement Date.

Section 4.4.    Workers Compensation Liabilities. All workers’ compensation Liabilities relating to, arising out of, or resulting from any claim by Baudax Employees or Former Baudax Employees that result from an accident that occurs, or from an occupational disease which is incurred or becomes manifest, as the case may be, on or before the Transfer Effective Time and while such individual was employed by Recro or a Recro Group member shall be assumed by Baudax as of the Transfer Effective Time; provided, however, that to the extent that either (1) such a Liability is covered under a workers compensation insurance policy of Recro or a Recro Group member or (2) Recro has received an invoice for a covered expense prior to the Transfer Effective Time, Baudax shall not assume such Liability. Notwithstanding the foregoing, Baudax shall assume worker’s compensation Liabilities to the extent they are imposed on Baudax under applicable Law or where the injury or illness related to the Liability is aggravated or subject to further injury after the Transfer Effective Time. A Liability which must be paid due to the existence of a deductible shall not be deemed to be covered by a workers compensation insurance policy for purposes of this Section 4.4. Subject to the foregoing, Baudax and each Baudax Group member shall also be solely responsible for all workers’ compensation Liabilities relating to, arising out of, or resulting from any claim incurred for a compensable injury sustained by a Baudax Employee that results from an accident or from an occupational disease which is incurred or becomes manifest, as the case may be, after the Transfer Effective Time. Recro, each Recro Group member, Baudax and each Baudax Group member shall cooperate with respect to processing of claims, any notification to appropriate governmental agencies of the disposition and the issuance of new, or the transfer of existing, workers’ compensation insurance policies and claims handling contracts.

Section 4.5.    Payroll Taxes and Reporting. Recro and Baudax (i) shall, to the extent practicable, treat Baudax (or a Baudax Group member designated by Baudax) as a “successor employer” and Recro (or the appropriate Recro Group member) as a “predecessor,” within the meaning of Sections 3121(a)(l) and 3306(b)(l) of the Code, with respect to Baudax Employees for purposes of taxes imposed under the United States Federal Unemployment Tax Act or the United States Federal Insurance Contributions Act (“FICA”), and (ii) hereby agree to use commercially reasonable efforts to implement the alternate procedure described in Section 5 of Revenue Procedure 2004-53. Without limiting in any manner the obligations and Liabilities of the Parties under the Tax Matters Agreement, including all withholding obligations otherwise set forth therein, Recro, each Recro Group member, Baudax and each Baudax Group member shall each bear its responsibility for payroll tax obligations and for the proper reporting to the appropriate governmental authorities of compensation earned by their respective employees after the Transfer Effective Time.

 

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Section 4.6.    COBRA and HIPAA Compliance. The Recro Group shall administer the Recro Group’s compliance with the health care continuation coverage requirements of COBRA, the certificate of creditable coverage requirements of HIPAA and the corresponding provisions of the Recro H&W Plans with respect to Baudax Participants who incur a COBRA “qualifying event” occurring on or before the applicable Benefits Commencement Date entitling them to benefits under a Recro H&W Plan; provided that, for the avoidance of doubt, any Liabilities related thereto shall constitute Baudax Liabilities. Baudax shall be solely responsible for all Liabilities incurred pursuant to COBRA and for administering, at Baudax’s expense, compliance with the health care continuation coverage requirements of COBRA, the certificate of creditable coverage requirements of HIPAA, and the corresponding provisions of the Baudax H&W Plans with respect to Baudax Participants who incur a COBRA “qualifying event” that occurs at any time after the applicable Benefits Commencement Date entitling them to benefits under a Baudax Plan. The Parties agree that neither the Separation, the Distribution nor any assignment or transfer of the employment or services of any employee or individual independent contractor as contemplated under this Agreement shall constitute a COBRA “qualifying event” for any purpose of COBRA.

Section 4.7.    Vacation and Paid Time Off. As of the Transfer Effective Time, the applicable Baudax Group member shall credit each Baudax Employee with the vacation and earned sick time that such individual has accrued immediately prior to the Transfer Effective Time in accordance with the vacation and personnel policies applicable to such employee immediately prior to the Transfer Effective Time.

ARTICLE V

INCENTIVE COMPENSATION, EQUITY COMPENSATION AND OTHER BENEFITS

Section 5.1.    Annual Cash-Based Incentive Plans. As of the Transfer Effective Time, Baudax shall assume the obligation, if any, to pay each Baudax Employee who is participating in a Recro annual cash incentive bonus program, including a sales incentive compensation plan, of Recro or a Recro Group member such Baudax Employee’s incentive or sales bonus under such plan, based upon the amount accrued by Recro in respect of such obligations. Baudax shall cause such payments to be made to the applicable Baudax Employees at the time any corresponding payments would be made under the corresponding Recro incentive bonus program.

Section 5.2.    Treatment of Equity Incentives. Recro and, where applicable, Baudax, shall take all necessary or appropriate actions so that each outstanding Recro RSU, Recro PRSU or Recro Option outstanding immediately prior to the Transfer Effective Time shall be treated as set forth in this Section 5.2.

(a)    No Adjustments in Connection with Distribution. No adjustments to the number of shares or exercise price, as applicable, shall be made to any Recro RSU, Recro PRSU or Recro Option in connection with the execution of this Agreement or the consummation of the transactions contemplated by the Separation Agreement. Recro RSUs, Recro PRSUs and Recro Options that are outstanding and held by a Baudax Employee will remain outstanding and shall be subject to the same terms and conditions as of immediately prior to the Distribution Effective Time.

 

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(b)    Withholding and Reporting. Recro shall be solely responsible for all income, payroll and other tax remittance and reporting related to the compensation of Recro Participants in respect of Recro RSUs, Recro PRSUs, and Recro Options. The Parties will cooperate and communicate with each other and with third-party providers to effectuate the withholding and remittance of any such taxes, as well as any required tax reporting, in a timely, efficient and appropriate manner. To the maximum extent permitted under applicable Law, Recro and Baudax shall share, and shall cause each member of its respective Group to share, with each other and their respective agents and vendors all information reasonably necessary for the efficient and accurate administration of their payroll processes.

ARTICLE VI

GENERAL AND ADMINISTRATIVE

Section 6.1.    Sharing of Participant Information. To the maximum extent permitted under applicable Law, Recro and Baudax shall share, and shall cause each member of its respective Group to share, with each other and their respective agents and vendors all participant information reasonably necessary for the efficient and accurate administration of each of the Recro Plans and the Baudax Plans. Recro and Baudax and their respective authorized agents shall, subject to applicable laws on confidentiality, be given reasonable and timely access to, and may make copies of, all information relating to the subjects of this Agreement in the custody of the other Party, to the extent necessary for such administration.

Section 6.2.    No Third Party Beneficiaries. No provision of this Agreement or the Separation Agreement shall be construed to create any right, or accelerate entitlement, to any compensation or benefit whatsoever on the part of any future, present, or former employee of Recro, a Recro Group member, Baudax, or a Baudax Group member under this Agreement, the Separation Agreement, any Recro Plan or Baudax Plan or otherwise. Except as expressly provided in this Agreement, nothing in this Agreement shall preclude Baudax or any Baudax Group member, at any time after the Transfer Effective Time, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Baudax Plan, any benefit under any Baudax Plan or any trust, insurance policy or funding vehicle related to any Baudax Plan; and (iii) except as expressly provided in this Agreement, nothing in this Agreement shall preclude Recro or any Recro Group member, at any time after the Distribution Effective Time, from amending, merging, modifying, terminating, eliminating, reducing, or otherwise altering in any respect any Recro Plan, any benefit under any Recro Plan or any trust, insurance policy or funding vehicle related to any Recro Plan.

Section 6.3.    Audit Rights with Respect to Information Provided. Each of Recro and Baudax, and their duly authorized representatives, shall have the right to conduct reasonable audits with respect to all information provided to it by the other Party pursuant to this Agreement. The Parties shall cooperate to determine the procedures and guidelines for conducting audits under this Section 6.3, which shall require reasonable advance notice by the auditing Party. The auditing Party shall have the right to make copies of any records at its expense, subject to applicable Law. Failure of a third party service provider to provide information shall not constitute a breach of this Section 6.3; provided, that the applicable Party has timely requested the information from such service provider.

 

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Section 6.4.    Fiduciary Matters. Recro and Baudax each acknowledge that actions required to be taken pursuant to this Agreement may be subject to fiduciary duties or standards of conduct under ERISA or other applicable Law, and no Party shall be deemed to be in violation of this Agreement if it fails to comply with any provisions hereof based upon its good faith determination (as supported by advice from counsel experienced in such matters) that to do so would violate such a fiduciary duty or standard. Each Party shall be responsible for taking such actions as are deemed necessary and appropriate to comply with its own fiduciary responsibilities and shall fully release and indemnify the other Party for any Liabilities caused by the failure to satisfy any such responsibility.

Section 6.5.    Consent of Third Parties. If any provision of this Agreement is dependent on the consent of any third party (such as a vendor or Governmental Authority), Recro and Baudax shall use commercially reasonable efforts to obtain such consent, and if such consent is not obtained, to implement the applicable provisions of this Agreement to the full extent practicable. If any provision of this Agreement cannot be implemented due to the failure of such third party to consent, Recro and Baudax shall negotiate in good faith to implement the provision in a mutually satisfactory manner. The phrase “commercially reasonable efforts” as used herein shall not be construed to require the incurrence of any non-routine or unreasonable expense or liability or the waiver of any right.

Section 6.6.    Proprietary Information and Inventions Agreements. Effective as of the Transfer Effective Time, Recro shall, or shall cause the appropriate member of the Recro Group to, waive such rights under any proprietary information, confidentiality, inventions, restrictive covenant or similar agreement between any Baudax Employee and any Recro Group member as Recro determines in its discretion to be necessary or appropriate to permit such Baudax Employee to perform his or her services to Baudax or a Baudax Group member from and after the Transfer Effective Time.

ARTICLE VII

MISCELLANEOUS

Section 7.1.    General. The provisions of Article X of the Separation Agreement, are hereby incorporated by reference into and deemed part of this Agreement and shall apply, mutatis mutandis, as if fully set forth in this Agreement.

[The remainder of this page is intentionally left blank.]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed as of the day and year first above written.

 

RECRO PHARMA, INC.
By:  

 

  Name:
  Title:
BAUDAX BIO, INC.
By:  

 

  Name:
  Title:

[Signature page to Employee Matters Agreement]


EXHIBIT A

Specified Employees and Specified Employee Employment Agreements

[Signature page to Employee Matters Agreement]

Exhibit 10.5

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

PURCHASE AND SALE AGREEMENT

by and among

ALKERMES PHARMA IRELAND LIMITED,

DARAVITA LIMITED,

EAGLE HOLDINGS USA, INC.,

RECRO PHARMA, INC.

and

RECRO PHARMA LLC

 

 

Dated as of March 7, 2015


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

TABLE OF CONTENTS

 

              Page  

ARTICLE I DEFINITIONS

     2  
 

1.1

  

Defined Terms

     2  

ARTICLE II THE SALE

     17  
 

2.1

  

The Sale

     17  
 

2.2

  

Purchase Price; Allocation

     17  

        

 

2.3

  

Closing

     19  
 

2.4

  

Closing Adjustment

     20  
 

2.5

  

Post-Closing Statement

     21  
 

2.6

  

Post-Closing Adjustment

     23  
 

2.7

  

Calculations

     23  
 

2.8

  

Earn-Out Consideration

     23  

ARTICLE III REPRESENTATIONS AND WARRANTIES OF SELLERS

     23  
 

3.1

  

Organization; Authorization

     24  
 

3.2

  

Title to Shares; Capitalization; Structure

     25  
 

3.3

  

No Consents

     26  
 

3.4

  

Financial Statements

     26  
 

3.5

  

No Undisclosed Liabilities

     26  
 

3.6

  

Properties; Sufficiency

     26  
 

3.7

  

Absence of Certain Changes

     27  
 

3.8

  

Litigation; Orders

     28  
 

3.9

  

Intellectual Property

     28  
 

3.10

  

Licenses; Authorizations; Reports

     29  
 

3.11

  

Labor Matters

     30  
 

3.12

  

Taxes

     31  
 

3.13

  

Compliance with Laws

     32  
 

3.14

  

Insurance

     33  
 

3.15

  

Material Contracts

     34  
 

3.16

  

Brokers, Finders

     35  
 

3.17

  

Board Approval

     35  
 

3.18

  

Environmental Health and Safety Matters

     36  
 

3.19

  

Employee Benefit Plans

     36  

 

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COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

  3.20   

Products; Recalls

     37  
  3.21   

Transactions with Affiliates

     38  
  3.22   

Customers and Suppliers

     38  
  3.23   

Accounts Receivable

     38  
  3.24   

Regulatory Matters

     39  
  3.25   

Investor Representations

     39  

ARTICLE IV REPRESENTATIONS AND WARRANTIES OF PURCHASERS

     40  
  4.1   

Organization; Authorization; Ownership

     40  
  4.2   

No Consents

     41  
  4.3   

Compliance with Laws

     41  
  4.4   

Brokers; Finders

     41  
  4.5   

Acquisition of Transferred Interests for Investment

     41  
  4.6   

Debt Financing

     42  
  4.7   

Regulatory Matters

     43  
  4.8   

No Other Representations or Warranties

     43  

ARTICLE V COVENANTS

     43  
  5.1   

Access to Books and Records

     43  
  5.2   

Efforts

     44  
  5.3   

Further Assurances

     46  
  5.4   

Conduct of Business

     47  
  5.5   

Consents

     49  
  5.6   

Public Announcements

     49  
  5.7   

Intercompany Accounts

     49  
  5.8   

Termination of Intercompany Agreements

     49  
  5.9   

Insurance

     49  
  5.10   

Litigation Support

     50  
  5.11   

Payments

     50  
  5.12   

Debt Financing

     50  
  5.13   

Directors and Officers Indemnification

     52  
  5.14   

Non-Competition; Non-Solicitation

     52  
  5.15   

Indebtedness/Lien Release

     53  
  5.16   

Additional Financial Statements

     53  
  5.17   

Change of Name of Transferred Entities

     53  
  5.18   

Transition Services Agreement and Supply Agreements

     54  

 

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  5.19   

Exclusivity

     54  
  5.20   

Solvency

     54  
  5.21   

Data Room

     54  

ARTICLE VI EMPLOYEE MATTERS COVENANTS

     54  
  6.1   

Benefit Continuation

     54  
  6.2   

Service Credit

     55  
  6.3   

Employment Continuation

     55  
  6.4   

Retention Bonuses

     55  
  6.5   

Accrued Vacation Payment

     56  

ARTICLE VII TAX MATTERS

     56  
  7.1   

Generally

     56  
  7.2   

Tax Indemnification

     56  
  7.3   

Straddle Period

     57  
  7.4   

Tax Proceedings

     57  
  7.5   

Cooperation on Tax Matters

     58  
  7.6   

Certain Taxes and Fees

     58  
  7.7   

Survival

     58  

ARTICLE VIII CONDITIONS TO OBLIGATIONS TO CLOSE

     59  
  8.1   

Conditions to Obligation of Each Party to Close

     59  
  8.2   

Conditions to Purchasers’ Obligation to Close

     59  
  8.3   

Conditions to Sellers’ Obligation to Close

     60  

ARTICLE IX TERMINATION

     60  
  9.1   

Termination

     60  
  9.2   

Notice of Termination

     61  
  9.3   

Effect of Termination

     61  
  9.4   

Reverse Termination Fee

     61  

ARTICLE X SURVIVAL; INDEMNIFICATION; LIQUIDATED DAMAGES

     62  
  10.1   

Survival Periods

     62  
  10.2   

Indemnification by Sellers

     63  
  10.3   

Indemnification by Purchasers

     63  
  10.4   

Indemnification Procedures

     63  
  10.5   

Limitations

     65  
  10.6   

Mitigation; Additional Indemnification Provisions

     66  
  10.7   

Liquidated Damages

     66  

 

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  10.8   

Exclusive Remedies

     67  
  10.9   

Subrogation

     67  
  10.10   

Tax Indemnification Matters

     67  
  10.11   

No Duplication

     67  

ARTICLE XI MISCELLANEOUS

     67  
  11.1   

Counterparts

     67  
  11.2   

Governing Law; Jurisdiction and Forum; Waiver of Jury Trial

     68  
  11.3   

Confidentiality

     68  
  11.4   

Entire Agreement

     70  
  11.5   

Expenses

     70  
  11.6   

Notices

     70  
  11.7   

Assignment

     71  
  11.8   

Third-Party Beneficiaries

     72  
  11.9   

Amendments and Waivers

     72  
  11.10   

Specific Performance

     72  
  11.11   

Interpretation; Absence of Presumption

     73  
  11.12   

Headings; Definitions

     74  
  11.13   

Severability

     74  
  11.14   

No Recourse to Debt Financing Sources

     74  

Exhibits

 

Exhibit A:    Transition Services Agreement
Exhibit B:    Supply Agreements
Exhibit C:    Sample Adjustment Amount Statement
Exhibit D:    Excluded Assets
Exhibit E:    Earn-Out Consideration
Exhibit F:    Warrant
Exhibit G:    Reorganization

 

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PURCHASE AND SALE AGREEMENT

This PURCHASE AND SALE AGREEMENT (this “Agreement”), dated as of March 7, 2015, is by and among Alkermes Pharma Ireland Limited, a private limited company incorporated in Ireland (“APIL”), Daravita Limited, a private limited company incorporated in Ireland (“Daravita”), Eagle Holdings USA, Inc., a Delaware corporation (“Eagle Holdings”, and together with APIL, “Sellers”), Recro Pharma, Inc., a Pennsylvania corporation (“Recro”) and Recro Pharma LLC, a Delaware limited liability company and wholly-owned subsidiary of Recro (“Acquisition Sub,” and together with Recro, “Purchasers”).

RECITALS

WHEREAS, Alkermes Ireland Holdings Limited, a private limited company incorporated in Ireland (“Alkermes Ireland Holdings”), holds all of the issued and outstanding ordinary shares in Daravita, and Eagle Holdings holds all of the issued and outstanding membership units in Alkermes Gainesville LLC, a Massachusetts limited liability company (“Alkermes Gainesville”);

WHEREAS, APIL intends to newly form a Delaware limited liability company (“Newco”);

WHEREAS, prior to the Closing, Newco will, directly or indirectly, acquire substantially all of the assets and liabilities of Daravita from Daravita through effectuation of a reorganization described in Exhibit G (such steps, collectively, the “Reorganization”);

WHEREAS, Sellers desire to sell and transfer, and Purchasers desire to purchase, the Transferred Interests for the consideration set forth below, subject to the terms and conditions of this Agreement;

WHEREAS, Sellers, or their designated Affiliate, and Purchasers shall enter into (i) concurrently with the Closing, the Transition Services Agreement and, (ii) within sixty (60) days following Closing, the Supply Agreements (the agreements specified in clauses (i) and (ii), and the Warrant (as defined herein), collectively, the “Ancillary Agreements”);

WHEREAS, simultaneously with the execution of this Agreement, Purchasers shall enter into the Debt Financing Agreements; and

WHEREAS, the Parties desire to make certain representations, warranties, covenants and agreements as set forth in this Agreement.

NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth and other good and valuable consideration, the receipt and adequacy of which are hereby acknowledged, and intending to be legally bound, the Parties hereby agree as follows:


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ARTICLE I

DEFINITIONS

1.1 Defined Terms. For the purposes of this Agreement, the following terms shall have the following meanings:

Accounting Methodology” shall have the meaning set forth in the definition of Working Capital.

Action” shall mean any action, claim, suit, arbitration, litigation, proceeding, or governmental investigation.

Acquisition Sub” shall have the meaning set forth in the preamble.

Acquisition Proposal” with respect to the Transferred Entities, means any offer or proposal relating to any transaction or series of related transactions involving: (a) any purchase from such party or acquisition by any Person or “group” (as defined under Section 13(d) of the Exchange Act) of fifteen percent (15%) or more of the total outstanding voting securities of the Transferred Entities, (b) any merger, consolidation, business combination or similar transaction involving the Transferred Entities, (c) any joint venture, sale, lease (other than in the ordinary course of business), exchange, transfer, exclusive license (other than in the ordinary course of business), acquisition or disposition of fifteen percent (15%) or more of the assets of the Transferred Entities or (d) any liquidation or dissolution of the Transferred Entities (provided, however, that the transactions between Purchasers and Sellers contemplated by this Agreement shall not be deemed an Acquisition Proposal).

Additional Retention Bonus” has the meaning set forth in Section 6.4(b).

Additional Retention Bonus Date” has the meaning set forth in Section 6.4(b).

Adjustment Amount” shall equal (i) the Closing Working Capital, plus (ii) the Closing Cash Amount, less (iii) the Target Working Capital, less (iv) the Closing Date Indebtedness, and (v) less the Closing Date Transaction Fees.

Affiliate” shall mean, with respect to any Person, any other Person that directly, or through one or more intermediaries, controls or is controlled by or is under common control with such Person; provided that, after the Closing, (a) none of the Transferred Entities shall be considered an Affiliate of Parent, Sellers or their respective Affiliates and (b) none of Parent, Sellers or their respective Affiliates shall be considered an Affiliate of any Transferred Entity. For purposes of this Agreement, “control” shall mean, as to any Person, the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise (and the terms “controlled by” and “under common control with” shall have correlative meanings).

Agreement” shall have the meaning set forth in the preamble.

Alkermes Gainesville” shall have the meaning set forth in the recitals.

 

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Alkermes Ireland Holdings” shall have the meaning set forth in the recitals.

Allocation Schedule” shall have the meaning set forth in Section 2.2(d).

Alternative Financing” shall have the meaning set forth in Section 5.12(a).

Ancillary Agreements” shall have the meaning set forth in the recitals.

Anti-Bribery Laws” shall have the meaning set forth in Section 3.13(d)(i).

APIL” shall have the meaning set forth in the preamble.

Appraised Value” shall have the meaning set forth in Section 2.2(d).

Balance Sheet Date” shall have the meaning set forth in Section 3.4(a).

Benefit Plan” shall mean any “employee benefit plan,” as defined in Section 3(3) of ERISA, and any other written or unwritten profit-sharing, bonus, stock option, stock purchase, stock ownership, pension, retirement, severance, deferred compensation, excess benefit, supplemental unemployment, post-retirement medical or life insurance, welfare, incentive, sick leave, long-term disability, medical, hospitalization, life insurance, other insurance or employee benefit plan, policy, agreement or arrangement maintained or contributed to by Parent or its Subsidiaries for the benefit of any Transferred Entity Employees with respect to service as an employee of any Transferred Entity or with respect to which Parent or its Subsidiaries have any current or contingent Liability pertaining to any Transferred Entity Employee for service as an employee of any Transferred Entity.

BiDil Products” shall mean the Transferred Entities’ BiDil XR™, a fixed dose combination of hydralazine hydrochloride and isosorbide dinitrate, existing as of the date of this Agreement.

Books and Records” shall mean all of the books, records (including Tax records), information and data of a Person, including (a) corporate minute books, (b) books and records relating to employees, research and development, manufacture and sale of products and services, advertising, packaging, promotional materials and dealings with customers, (c) books of account, ledgers, general, financial, accounting and personnel records, files, customer and counterparty lists, documents, agreements, sales data and information, billing records, manuals, material client, counterparty and supplier correspondence and (d) all other registers or books required to be maintained under applicable Law.

Business” shall mean the (a) operations of Alkermes Gainesville related to the Products and (b) development, license, manufacture, testing, packaging, storage, sale and shipment of the Products, in each case of (a) and (b) as conducted by the Transferred Entities as of the date of this Agreement; provided, however, that “Business” shall not include any operations, business, assets, rights or obligations solely related to the Excluded Assets.

Business Balance Sheet” shall have the meaning set forth in Section 3.4(a).

 

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Business Confidential Information” shall have the meaning set forth in Section 11.3(b).

Business Day” shall mean any day that is not a Saturday, a Sunday or other day on which commercial banks in the City of New York, New York or Dublin, Ireland are required or authorized by Law to be closed.

Business Intellectual Property” shall mean all Intellectual Property Rights owned by the Transferred Entities and used or held for use in the Business.

Business IP Agreements” means any (a) Contract under which any of the Transferred Entities grants a license under or other right to use any Intellectual Property Rights to another Person that are material to the Transferred Entities, (b) Contract under which any of the Transferred Entities is granted a license or other right to use any Intellectual Property Rights of another Person that are material to the Transferred Entities (other than commercially available “off the shelf” software licenses each with annual fees of less than Fifty Thousand Dollars ($50,000)), and (c) consent-to-use agreement, co-existence agreement, settlements agreement or other similar Contract limiting the use, validity or enforceability of the Business Intellectual Property.

Business Material Contracts” shall have the meaning set forth in Section 3.15.

Business Real Property” shall have the meaning set forth in Section 3.6(b).

Business Registered Intellectual Property” shall have the meaning set forth in Section 3.9(a).

Cap” shall mean an amount equal to (a) Five Million Dollars ($5,000,000) plus (b) ten percent (10.00%) of any Development Milestone Earn-Out Consideration and Commercial Milestone Earn-Out Consideration, if any, that is actually paid to APIL pursuant to Exhibit E.

Cash” shall mean the amount of cash and cash equivalents (including marketable securities and marketable short term investments) that would be recorded on a consolidated balance sheet for the Transferred Entities which is prepared in accordance with the Accounting Methodology.

CERCLA” shall mean the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended from time to time, and any rules or regulations promulgated thereunder.

Certificate of Analysis and Conformity” shall mean the certificate for each batch of Product delivered with such Product listing the tests performed, the specifications for the manufacture of such Product, and the test results and certifying that such batch of Product was manufactured in accordance with applicable Law, including cGMPs, and production standard operating procedures.

cGMPs” shall mean current good manufacturing practices as defined in the U.S. Code of Federal Regulations, 21 CFR Part 210 et seq., the European Union Guidelines to Good Manufacturing Practices for Medicinal Products for Human and Veterinary Use (Vol. IV Rules Governing Medicinal Products in the European Union 2004), and any successor regulatory schemes, as well as any corresponding requirements in other regulatory jurisdictions.

 

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Closing” shall have the meaning set forth in Section 2.1.

Closing Adjustment” shall have the meaning set forth in Section 2.4.

Closing Cash Amount” means all Cash held in the accounts of the Transferred Entities as of 11:59 p.m. Eastern Time on the Closing Date. The Closing Cash Amount shall be (x) reduced by the amount of any checks issued by a Transferred Entity on or before the Closing whether or not any such checks remain in the possession of a Transferred Entity on or before the Closing (with a corresponding adjustment to current liabilities, if any); (y) increased by the amount of any checks or wire transfers received by a Transferred Entity on or before the Closing whether or not they have been deposited or have cleared any bank holding procedures (with a corresponding adjustment to current assets, if any), provided such amounts have not already been reflected in the accounts of the Transferred Entities; and (z) adjusted to reflect the settlement of all intercompany accounts pursuant to Section 5.7.

Closing Date” shall have the meaning set forth in Section 2.3(a).

Closing Date Indebtedness” means the amount of Indebtedness outstanding as of the Closing (without giving effect to the transactions contemplated herein), excluding (i) any Indebtedness that is included in the Working Capital calculations in accordance with Section 2.7 and (ii) any Indebtedness (including guarantees thereof) that will be released upon or immediately following the Closing.

Closing Date Transaction Fees” means the amount of Transaction Fees on the Closing Date, excluding any Transaction Fees that are included in the Working Capital calculations in accordance with Section 2.7.

Closing Estimates” shall have the meaning set forth in Section 2.4.

Closing Working Capital” shall mean the Working Capital of the Transferred Entities as of the Closing.

Code” shall mean the U.S. Internal Revenue Code of 1986, as amended.

Commercial Milestone Earn-Out Consideration” shall have the meaning set forth in Exhibit E.

Confidentiality Agreement” shall mean the confidentiality agreement, dated as of June 6, 2014, as amended as of February 3, 2015, by and between Daravita (f/k/a Alkermes Science One Limited) and Recro Pharma, Inc.

Confidential Disclosure Agreement” shall mean the confidentiality agreement, dated as of December 19, 2014, by and among Daravita, Recro Pharma, Inc. and Pepper Hamilton LLP (the “Confidential Disclosure Agreement”).

 

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Consents” shall have the meaning set forth in Section 3.3.

Contract” shall mean, with respect to any Person, any agreement, contract, obligation or undertaking (whether written or oral and whether express or implied) to which such Person is bound.

Credit Agreement” shall have the meaning set forth in Section 2.3(b)(i)(F).

Daravita” shall have the meaning set forth in the preamble.

Debt Financing” shall have the meaning set forth in Section 4.6(a).

Debt Financing Agreements” shall have the meaning set forth in Section 4.6(a).

Deductible” shall have the meaning set forth in Section 10.5(a).

De Minimis Damages” shall mean any single claim (or series of claims arising from the same or similar facts, events, or circumstances) for Losses in an amount that is less than Twenty-Five Thousand dollars ($25,000).

Development Milestone Earn-Out Consideration” shall have the meaning set forth in Exhibit E.

Disputed Items” shall have the meaning set forth in Section 2.5(b).

Divestiture” shall have the meaning set forth in Exhibit E.

DOJ” shall have the meaning set forth in Section 5.2(a).

Eagle Holdings” shall have the meaning set forth in the preamble.

Earn-Out Consideration” shall have the meaning set forth in Exhibit E.

Enforceability Exceptions” shall have the meaning set forth in Section 3.1(d).

Environmental Laws” shall mean any Law relating to pollution of the environment, including those relating to the use, production, generation, handling, transport, treatment, storage, disposal, distribution, labeling, testing, processing, discharge, Release or threatened Release of any Hazardous Material.

ERISA” shall mean the Employee Retirement Income Security Act of 1974, as amended.

ERISA Affiliate” shall mean, with respect to any entity, trade or business, any other entity, trade or business that is, or was at the relevant time, a member of a group described in Section 414(b), (c), (m) or (o) of the Code or Section 4001(b)(1) of ERISA that includes or included the first entity, trade or business, or that is, or was at the relevant time, a member of the same “controlled group” as the first entity, trade or business pursuant to Section 4001(a)(14) of ERISA.

 

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Estimated Closing Cash Amount” shall have the meaning set forth in Section 2.4.

Estimated Closing Working Capital” shall have the meaning set forth in Section 2.4.

Estimated Closing Date Indebtedness” shall have the meaning set forth in Section 2.4.

Estimated Closing Date Transaction Fees” shall have the meaning set forth in Section 2.4.

Exchange Act” shall mean shall mean the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.

Excluded Assets” shall mean (a) the assets disclosed on Exhibit D and (b) Books and Records and regulatory filings located at the Alkermes Gainesville facility only to the extent related to any pharmaceutical products, including pharmaceutical product candidates, other than the Products.

FATCA” means Sections 1471 through 1474 of the Code, any current or future regulations or official interpretations thereof, and any intergovernmental agreements entered into pursuant thereto.

External Demand” shall have the meaning set forth in Section 11.3(d).

FCPA” shall mean the Foreign Corrupt Practices Act of 1977.

FDA” shall have the meaning set forth in Section 3.10.

FDCA” shall have the meaning set forth in Section 3.10.

Final Adjustment Amount” shall have the meaning set forth in Section 2.5(e).

Final Post-Closing Adjustment Statement” shall have the meaning set forth in Section 2.5(e).

FTC” shall have the meaning set forth in Section 5.2(a).

Focalin Products” shall mean the Transferred Entities’ Focalin XR®, an extended-release oral formulation of dexmethylphenidate, existing as of the date of this Agreement.

Fundamental Representations” means the representations and warranties contained in Section 3.1 (Organization; Authorization), Section 3.2 (Title to Shares; Capitalization; Structure), Section 3.3 (No Consents), and Section 3.16 (Brokers, Finders).

GAAP” shall mean generally accepted accounting principles in the United States.

Governing Documents” shall mean with respect to any Person, (a) if a corporation, the memorandum and articles of association, articles or certificate of incorporation, the bylaws or similar documents (as applicable); (b) if a general partnership or limited liability partnership, the partnership agreement and any statement of partnership; (c) if a limited partnership, the limited

 

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partnership agreement and the certificate of limited partnership; (d) if a limited liability company, the certificate of formation and limited liability company agreement; (c) if another type of Person, any charter or similar document adopted or filed in connection with the creation, formation or organization of the Person; (f) all equity holders’ agreements, voting agreements, voting trust agreements or other similar agreements or documents relating to the organization, management or operation of such entity; and (g) any amendment or supplement to any of the foregoing.

Governmental Approvals” shall have the meaning set forth in Section 5.2(a).

Government Official” shall mean any officer, employee, official advisor or agent of a (a) Governmental Entity; (b) public international organization (e.g., the World Bank); (c) political party or official thereof; or (d) candidate for any political office.

Governmental Entity” shall mean any court, administrative agency, commission or other governmental authority, body or instrumentality, federal, state, local, domestic or foreign governmental or regulatory authority.

Hazardous Materials” shall mean any pollutant, contaminant, hazardous waste, hazardous substance or hazardous material regulated under any Environmental Law, and includes asbestos-containing materials, polychlorinated biphenyls and petroleum and its derivatives.

Highly Paid Employees” shall have the meaning set forth in Section 3.11(b).

Historical Financial Statements” shall have the meaning set forth in Section 3.4(a).

HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

Income Tax” shall mean any federal, state, local, or foreign Tax based upon or measured by net income of the relevant Transferred Entity.

Indebtedness” shall mean with respect to the Transferred Entities, at the time of any determination, without duplication: all obligations, contingent or otherwise that, in accordance with GAAP, would be included on the balance sheet of the Transferred Entities as indebtedness, but in any event includes the outstanding principal amount of, all accrued and unpaid interest on and other payment obligations (including any premiums, termination fees, expenses, breakage costs or penalties due upon prepayment of or payable in connection with this Agreement or the consummation of the transactions contemplated by this Agreement) in respect of, (A) all indebtedness of the Transferred Entities for borrowed money, which shall include borrowing agreements such as notes, bonds, indentures, mortgages, loans and lines of credit or similar instruments, (B) all obligations (including breakage costs) payable by the Transferred Entities under interest rate or currency protection agreements, (C) any reimbursement obligation with respect to letters of credit (including standby letters of credit to the extent drawn upon), bankers’ acceptances or similar facilities issued for the account of the Transferred Entities and for which the Transferred Entities shall be liable, (D) all obligations under capital leases (as determined in accordance with GAAP), and (E) any obligation of the type referred to in clauses (A) through

 

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(D) of this definition of another Person, the payment of which either of the Transferred Entities has guaranteed, or which is secured by any property or assets of either of the Transferred Entities; with respect to clauses (A) through (E) above, for which either of the Transferred Entities is responsible or liable from and after the Closing.

Indemnified Party” shall have the meaning set forth in Section 10.4(a).

Indemnifying Party” shall have the meaning set forth in Section 10.4(a).

Independent Accounting Firm” shall have the meaning set forth in Section 2.5(d)(i).

Initial Post-Closing Adjustment Statement” shall have the meaning set forth in Section 2.5(a).

Initial Purchase Price” shall have the meaning set forth in Section 2.2(a).

Initial Retention Bonuses” shall have the meaning set forth in Section 6.4(b).

Intellectual Property Right” shall mean any of the following intellectual property rights arising anywhere in the world: (i) all Registered Intellectual Property; (ii) all inventions (whether or not patentable), invention disclosures, improvements, trade secrets, proprietary or confidential information, know how, technology, business methods, technical data and customer lists, tangible or intangible proprietary information, and all documentation relating to any of the foregoing; (iii) computer software programs, including source code, object code, systems, tools, data, databases, firmware, APIs, interfaces, menus, libraries and related documentation; (iv) original works of authorship and copyrights; (v) all industrial designs; (vi) trademarks, service marks, trade dress, trade names, logos, or other source identifiers, including common law trademarks and service marks, and any goodwill associated with any of the foregoing; (vii) all databases and data collections and all rights therein throughout the world; (viii) all Web addresses, sites and domain names and numbers; and (ix) any similar or equivalent rights to any of the foregoing anywhere in the world.

IP License Agreement” shall have the meaning set forth in Section 5.3(b).

Intellectual Property Transfer and License Agreement” shall mean that certain Intellectual Property Transfer and License Agreement by and between APIL and Daravita, dated May 8, 2014, as amended.

IRS” shall mean the Internal Revenue Service.

Knowledge of Sellers” shall mean the actual knowledge of Kathryn Biberstein, Shane Cooke and Gordon Pugh.

Law” shall mean any United States federal, state or local, or any non-United States law, statute, ordinance, rule, regulation, judgment, order, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity.

Lender” shall have the meaning set forth in Section 4.6(a).

 

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Licenses” shall have the meaning set forth in Section 3.10.

Liability” shall mean with respect to any Person, any indebtedness, liability or obligation of such Person of any kind, character or description, whether known or unknown, absolute or contingent, accrued or unaccrued, disputed or undisputed, liquidated or unliquidated, secured or unsecured, joint or several, due or to become due, vested or unvested, executory, determined, determinable or otherwise, and whether or not the same is required by GAAP to be accrued on the financial statements of such Person.

Liens” shall mean all liens, pledges, mortgages, charges, claims, security interests, restrictions on transfer, encroachments or encumbrance, but not including any license(s) of Business Intellectual Property.

Liquidated Damages Event” shall have the meaning set forth in Section 10.7.

Losses” shall mean all losses, costs, charges, expenses (including reasonable attorneys’ fees and professional fees), obligations, liabilities, settlement payments, awards, judgments, fines, penalties, damages, demands, claims, assessments or deficiencies.

Material Adverse Effect” shall mean any circumstance, condition, effect, event, change or occurrence that, individually or in the aggregate, has or would reasonably be expected to have a material adverse impact or effect on: (a) the ability of Sellers to perform their obligations hereunder or to consummate the transactions contemplated by this Agreement or (b) the business, financial condition, properties, assets or results of operations of the Transferred Entities taken as a whole; provided, however, that no change or effect shall constitute a Material Adverse Effect to the extent (and only to the extent) it results from:

(i) changes in conditions generally affecting any or all of the industries in which the Transferred Entities operate;

(ii) general political, economic or business conditions or changes therein (including the commencement, continuation or escalation of a war, armed hostilities or other international or national calamity or acts of terrorism);

(iii) general financial or capital market conditions, including interest rates, the availability of debt financing or currency exchange rates; or changes to any of the foregoing;

(iv) any earthquake, hurricane or other natural disaster, weather-related event or act of god;

(v) any changes in applicable Law, rules, regulations, or GAAP, or other accounting standards applicable to the Business, or authoritative interpretations thereof, from and after the date of this Agreement;

(vi) the announcement of the potential sale of the Business or any portion thereof; the negotiation, execution, announcement, existence or performance of this Agreement or the transactions contemplated by this Agreement; the consummation of the

 

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transactions contemplated by this Agreement; or changes or actions resulting from any of the foregoing, including impacts on relationships with customers, suppliers, employees, labor organizations, or governmental entities;

(vii) any action or omission required pursuant to the terms of this Agreement, or pursuant to the written request of Purchasers, or any action otherwise taken by Purchasers or any of their Affiliates; and

(viii) any failure of Sellers, the Transferred Entities or the Business to meet financial projections or any estimates of revenues or earnings; provided, that the underlying causes of such failures shall not be excluded under this clause (viii);

provided, further, that, in the cases of clauses (i)-(iv), in each case to the extent that such change or effect does not disproportionately affect the Transferred Entities, taken as a whole, in relation to others in the same business as the Transferred Entities.

Meloxicam” shall mean the Transferred Entities’ Meloxicam IV/IM, an aqueous extended-release formulation of the selective COX-2 inhibitor non-steroidal anti-inflammatory drug meloxicam developed by APIL using nanocrystal technology, in intravenous or intramuscular form existing as of the date of this Agreement.

Net Sales Earn-Out Consideration” shall have the meaning set forth in Exhibit E.

Net Sales Report” shall have the meaning set forth in Exhibit E.

Newco” shall have the meaning set forth in the recitals.

Non-Competition Period” shall have the meaning set forth in Section 5.14.

Notice of Disagreement” shall have the meaning set forth in Section 2.5(b).

OCR IP” shall have the meaning ascribed to such term in the Intellectual Property Transfer and License Agreement.

Outside Date” shall have the meaning set forth in Section 9.1(b)(i).

Owned Real Property” shall have the meaning set forth in Section 3.6(b).

Paladin Products” shall mean the Transferred Entities’ pharmaceutical products licensed to Paladin Labs, Inc. by Daravita as of the date of this Agreement.

Parent” shall mean Alkermes plc, a public limited company incorporated in Ireland (registered number 498284) whose registered address is Connaught House, One Burlington Road, Dublin 4, Ireland.

Parties” shall mean Purchasers, Daravita and Sellers.

PBGC” shall mean the Pension Benefit Guaranty Corporation.

 

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Permitted Liens” shall mean the following Liens: (a) Liens for Taxes, assessments or other governmental charges or levies that are not yet due or payable or that are being contested in good faith by appropriate proceedings or that may thereafter be paid without penalty; (b) statutory Liens of landlords and Liens of carriers, warehousemen, mechanics, materialmen, workmen, repairmen and other Liens imposed by Law and on a basis consistent with past practice; (c) Liens incurred or deposits made in the ordinary course of business and on a basis consistent with past practice in connection with workers’ compensation, unemployment insurance or other types of social security; (d) defects or imperfections of title, easements, covenants, rights-of-way, restrictions and other similar charges or encumbrances not materially interfering with the ordinary conduct of the Business; (e) in the case of the Business Real Property, zoning, building, subdivision, or other similar requirements or restrictions; (f) Liens incurred in the ordinary course of business and on a basis consistent with past practice securing obligations or liabilities that are not material to the Transferred Entities or the Transferred Interests; (g) such other imperfections of title as do not materially detract from the value or otherwise interfere with the present use of the Business Real Property or otherwise impair the operation of the Business as presently conducted; and (h) Liens set forth on Section 1.1 of the Sellers Disclosure Letter.

Person” shall mean a person, corporation, partnership, limited liability company, joint venture, trust or other entity or organization.

Post-Closing Adjustment” shall have the meaning set forth in Section 2.6.

Pre-Closing Tax Period” shall mean all taxable periods ending on or before the Closing Date and the portion through the end of the Closing Date for any Straddle Period.

Products” shall mean the BiDil Products, the Focalin Products, the Paladin Products, the Ritalin Products, the Verapamil Products, the Zogenix Products and Meloxicam, each of these Products individually, a “Product.”

Prohibitive Order” shall have the meaning set forth in Section 8.1(b).

Purchase Price” shall have the meaning set forth in Section 2.2(a).

Purchasers” shall have the meaning set forth in the preamble.

Purchasers Disclosure Letter” shall have the meaning set forth in Article IV.

Purchasers Fundamental Representations” means the representations and warranties contained in Section 4.1 (Organization; Authorization), Section 4.2 (No Consents), Section 4.4 (Brokers; Finders) and Section 4.6(e) (Solvency).

Purchasers Indemnified Parties” shall have the meaning set forth in Section 10.2.

Purchaser Plan” shall have the meaning set forth in Section 6.2(a).

Purchaser Related Parties” shall have the meaning set forth in Section 9.4(c)

 

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Recro” shall have the meaning set forth in the preamble.

Registered Intellectual Property” means all United States, international and foreign: (i) patents and patent applications (including, but not limited to, reissues, continuations, divisionals, renewals, extensions, continuations-in-part, and all patents and applications claiming priority thereto or serving as a basis for priority thereof, provisional applications and design patents and applications); (ii) registered trademarks and service marks, applications to register trademarks, applications to register service marks, including in either case intent-to-use applications, or other registrations or applications related to trademarks, service marks or other source identifiers; (iii) registered copyrights and applications for copyright registration; (iv) domain name registrations and Internet number assignments; and (v) any other Intellectual Property Right that is the subject of an application, certificate, filing, registration or other document issued, filed with, or recorded by any Governmental Entity.

Related Persons” shall have the meaning set forth in Section 11.14.

Release” shall have the meaning set forth in CERCLA.

Reorganization” shall have the meaning set forth the recitals.

Reorganization Transfer Agreements” shall have the meaning set forth in Section 5.3(a).

Representatives” shall mean a Person’s officers, directors, consultants, advisors, employees, stockholders, agents or other advisors or representatives.

Resolution Period” shall have the meaning set forth in Section 2.5(c).

Retention Bonuses” shall have the meaning set forth in Section 6.4(b).

Review Period” shall have the meaning set forth in Section 2.5(b).

Reverse Termination Fee” shall have the meaning set forth in Section 9.4(a).

Ritalin Products” shall mean the Transferred Entities’ Ritalin SR®, a sustained-release oral formulation of methylphenidate, existing as of the date of this Agreement.

Sale” shall have the meaning set forth in Section 2.1.

Sample Adjustment Amount Statement” shall have the meaning set forth in the definition of Working Capital.

SEC” shall mean the United States Securities and Exchange Commission.

Securities Act” shall mean the U.S. Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.

Securitization” shall have the meaning set forth in Section 11.7(b).

Seller Financial Advisor” shall mean Lazard Frères & Co. LLC.

 

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Sellers” shall have the meaning set forth in the preamble.

Seller Confidential Information” shall have the meaning set forth in Section 11.3(c).

Sellers Disclosure Letter” shall have the meaning set forth in Article III.

Significant Customers” shall have the meaning set forth in Section 3.15(n).

Significant Suppliers” shall have the meaning set forth in Section 3.15(n).

Similar Law” shall mean any law of a jurisdiction outside the United States that is similar to the applicable U.S. federal, state or local Law.

Solvent” means, with respect to any Person on a particular date, that on such date (i) the fair value of the property of such Person is greater than the total amount of liabilities, including contingent liabilities, of such Person, (ii) the present fair saleable value of the assets of such Person is not less than the amount that will be required to pay the probable liability of such Person on its debts as they become absolute and matured, (iii) such Person does not intend to, and does not believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities as they mature, (iv) such Person is not engaged in a business or a transaction, and is not about to engage in a business or a transaction, for which the assets of such Person would constitute an unreasonably small capital; (v) such Person has the ability to pay their debts and obligations as they come due in the ordinary course of business; (vi) such Person has sufficient capital to operate the Business in the ordinary course of business (including, without limitation, manufacturing and developing the Products and performing its obligations under the Supply Agreements); and (vii) such Person has not made any transfer or incurred any obligations, with actual intent to hinder, delay or defraud either present or future creditors. The amount of contingent liabilities at any time shall be computed as the amount that, in light of all the facts and circumstances existing at such time, can reasonably be expected to become an actual or matured liability.

Straddle Period” any taxable period that includes (but does not end on) the Closing Date.

Subject Assets” shall have the meaning set forth in Section 5.2(c).

Subsidiary” shall mean, with respect to any Person, any other entity (a) whose securities or other ownership interests, having by their terms the power to elect a majority of the board of directors or other Persons performing similar functions, are beneficially owned or controlled, directly or indirectly, by such Person, (b) whose business and policies such Person has the power, directly or indirectly, to direct, or (c) of which 50% or more of the securities, partnership or other ownership interests are owned, directly or indirectly, by such Person.

Supply Agreements” shall mean the agreements between Sellers, or their designated Affiliate, and Acquisition Sub to be executed within sixty (60) days following the Closing in forms mutually acceptable to Sellers and Purchasers and to include the terms and conditions specified in Exhibit B.

 

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Target Working Capital Amount” shall mean Nineteen Million Dollars ($19,000,000).

Tax” shall mean any tax of any kind, including any federal, state, local and foreign income, profits, license, severance, occupation, windfall profits, capital gains, capital stock, transfer, registration, social security (or similar), production, franchise, gross receipts, payroll, sales, employment, use, property, excise, value added, estimated, stamp, alternative or add-on minimum, environmental, withholding or any other tax, governmental duty or assessment, together with all interest, penalties and additions imposed with respect to such amounts.

Tax Proceeding” means any audit, examination, investigation, assessment, claim or litigation by a Governmental Entity relating to Taxes of the Transferred Entities for Pre-Closing Tax Periods or Straddle Periods or for which Sellers may have Liability for Taxes under this Agreement or otherwise.

Tax Returns” means any return, report, information return or other statement (including schedules or any related or supporting information) required to be filed or prepared with respect to any Tax.

Third Party Claim” shall have the meaning set forth in Section 10.4(a).

Transaction Fees” means all unpaid fees, expenses and other similar amounts that have been or are expected to be incurred on or prior to the Closing Date on behalf of either of the Transferred Entities in connection with the preparation, negotiation and execution of this Agreement and the consummation of the transactions contemplated hereby, including: (i) the fees and expenses of, or other similar amounts charged by, any external counsel, accountants, financial advisors, consultants and experts engaged by either of the Transferred Entities; and (ii) the amount of the Retention Bonuses and any other sale bonuses, change in control bonuses, retention bonuses or similar bonuses that become payable in connection with the consummation of the transactions contemplated by this Agreement (plus the employer portion of any payroll and employment taxes relating thereto) except, in the case of (i) and (ii) above, (a) to the extent otherwise included in the determination of Working Capital or (b) to the extent such fees have not been paid as of the Closing and will become the liability of the Transferred Entities from and after the Closing.

Transferred Entities” shall mean (a) prior to consummation and completion of the Reorganization, Daravita and Alkermes Gainesville, or (b) from and after consummation and completion of the Reorganization, Newco and Alkermes Gainesville.

Transferred Entity Benefit Plan” shall mean any Benefit Plan solely sponsored or maintained by any Transferred Entity.

Transferred Entity Employee” shall mean any employee employed by any Transferred Entity.

Transferred Interests” shall mean (a) all of the issued and outstanding membership units of Newco and (b) all of the issued and outstanding membership units of Alkermes Gainesville.

 

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Transition Services Agreement” shall mean the transition services agreement to be executed and delivered on or prior to the Closing Date in a form mutually acceptable to Sellers and Purchasers, which services and other terms and conditions are specified in Exhibit A.

U.S.-Ireland Treaty” means the Convention Between the Government of the United States of America and the Government of Ireland for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income and Capital Gains signed on July 28, 1997, and any existing protocols with respect thereto.

VAT” means value added tax.

Verapamil Products” shall mean the Transferred Entities’ sustained release oral formulations of verapamil hydrochloride existing as of the date of this Agreement.

WARN Act” shall have the meaning set forth in Section 3.11(d).

Warrant” shall mean the warrant to purchase stock to be executed and delivered at the Closing in the form of Exhibit F. The warrant to purchase stock grants to APIL the right to purchase 350,000 shares (subject to adjustment as provided therein) of common stock of Recro at a price equal to two times the closing price of the common stock of Recro on the day prior to the Closing Date for a period of seven (7) years from the Closing Date.

Working Capital” shall mean current assets of the Transferred Entities minus current liabilities of the Transferred Entities and excluding (a) Cash, (b) any intercompany accounts and other intercompany obligations required to be settled or eliminated at or prior to the Closing pursuant to Section 5.7, or (c) any assets or liabilities in respect of Income Taxes. For purposes of this Agreement, Working Capital shall be calculated in accordance with this Agreement (including the sample calculation of the Adjustment Amount as of December 31, 2014 set forth on Exhibit C (the “Sample Adjustment Amount Statement”)) and with GAAP applied using the same data sources, policies, procedures and method of calculation, with consistent classifications, judgments and estimation methodology, as were used in preparation of the Business Balance Sheet; provided, however, Working Capital shall not be calculated to include any changes in assets or liabilities as a result of purchase accounting adjustments or other changes arising from or resulting as a consequence of this Agreement or the transactions contemplated hereby other than as expressly set forth in the Sample Adjustment Amount Statement; provided, further, however, that if there is any conflict between the accounting methods, practices, principles, policies and procedures used in preparing the Business Balance Sheet and GAAP, GAAP shall control and no reversal of any reserves reflected in the balance sheet of the Transferred Entities shall be taken into account except that reserved for a litigation matter may be reversed only in connection with the final resolution of such litigation and reserves against an account receivable may be reversed only upon actual collection of such reserved receivable (the methods set forth in this definition of Working Capital, the “Accounting Methodology”).

Zogenix Products” shall mean the Transferred Entities’ Zohydro™ ER, an extended-release oral formulation of hydrocodone bitartrate, including the modified Zohydro™ ER product containing an abuse deterrent component comprising polyethylene oxide and povidone (and further including the FDA-approved form thereof) existing as of the date of this Agreement.

 

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ARTICLE II

THE SALE

2.1 The Sale. Upon the terms and subject to the conditions set forth in this Agreement, at the closing of the transactions contemplated by this Agreement (the “Closing”), Sellers shall transfer, convey, assign and deliver to Acquisition Sub, and Acquisition Sub shall purchase and acquire from Sellers, all of Sellers’ right, title and interest in and to the Transferred Interests (the “Sale”).

2.2 Purchase Price; Allocation.

(a) In consideration for the Transferred Interests, Purchasers shall pay to Sellers an aggregate of (a) Fifty Million Dollars ($50,000,000) in cash (the “Initial Purchase Price”) plus (b) the Warrant (collectively, the “Purchase Price”) at the Closing. The Initial Purchase Price shall be subject to adjustment as provided in Section 2.4 through Section 2.7.

(b) The Parties agree that:

(i) For U.S. federal Income Tax purposes, the sale of (A) the Transferred Interests in Alkermes Gainesville (which is a disregarded entity with respect to Eagle Holdings) shall be treated as a sale of the assets of Alkermes Gainesville and (B) the Transferred Interests in Newco (which is a disregarded entity with respect to APIL) shall be treated as a sale of the assets of Newco;

(ii) An amount of the Initial Purchase Price equal to the lesser of (A) the Appraised Value of Alkermes Gainesville (as determined pursuant to Section 2.2(d)) less any liabilities of Alkermes Gainesville that are required to be treated as part of the purchase price of the assets of Alkermes Gainesville for U.S. federal Income Tax purposes and (B) the Initial Purchase Price shall be allocated to, and paid to Eagle Holdings in full payment for the Transferred Interests in Alkermes Gainesville; and

(iii) The balance of the Initial Purchase Price plus the Warrant shall be allocated to and paid to APIL in full payment for the Transferred Interests in Newco and the Earn-Out Consideration shall be allocated to and paid to APIL in full payment of the amounts due under the terms of the IP License Agreement.

(c) The right of APIL to receive the Earn-Out Consideration: (i) is solely a contractual right and is not a security for purposes of any federal or state securities Laws; (ii) will not be represented by any form of certificate or instrument; and (iii) does not give APIL any dividend rights, voting rights, liquidation rights, preemptive rights or other rights common to holders of the equity securities of Acquisition Sub or any of its Affiliates. The transactions contemplated by this Agreement are intended to be, and shall be treated solely as, a sale of the Transferred Interests by Sellers to Acquisition Sub, and nothing hereunder shall be deemed to create a joint venture or partnership between or among any of the Parties, the Transferred Entities and/or any of their Affiliates.

 

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(d) Eagle Holdings shall retain Duff & Phelps Corporation which shall conduct an appraisal and determine the gross fair market value of the assets of Alkermes Gainesville (the “Appraised Value”). Within sixty (60) days after the Closing Date, Eagle Holdings shall deliver to Purchasers a schedule setting forth the Appraised Value and the allocation of the Initial Purchase Price allocable to the Transferred Interests in Alkermes Gainesville (as determined pursuant to Section 2.2(b)(ii)) (plus any liabilities of Alkermes Gainesville that are required to be treated as part of the purchase price of the assets of Alkermes Gainesville for U.S. federal Income Tax purposes) among the asset classes of Alkermes Gainesville (the “Allocation Schedule”), with the asset classes being those set forth in Treas. Reg. Sec. 1.338-6. The Allocation Schedule will not allocate to various assets within the asset class. The Appraised Value and Allocation Schedule shall be subject to such appropriate adjustments, if any, by the appraisers and Eagle Holdings upon the determination of the Post-Closing Adjustment. The Allocation Schedule shall be prepared in accordance with Section 1060 of the Code. The Appraised Value and Allocation Schedule shall be deemed final unless Purchasers notify Eagle Holdings in writing that Purchasers object to the Appraised Value and/or one or more items reflected in the Allocation Schedule within thirty (30) days after delivery of the Allocation Schedule to Purchasers. In the event of any such objection, Sellers and Purchasers shall negotiate in good faith to resolve such dispute; provided, however, that if Sellers and Purchasers are unable to resolve any such dispute within thirty (30) days after the delivery of the Allocation Schedule to Sellers, such dispute shall be resolved by an impartial nationally recognized firm of independent certified public accountants mutually appointed by Sellers and Purchasers whose determination shall be final and binding upon the Parties. The fees and expenses of such accounting firm shall be borne equally by Sellers, on the one hand, and Purchasers, on the other hand; provided, however, that if one such side substantially prevails in such dispute, then the non-prevailing Party(ies) shall bear all such fees and expenses. For the avoidance of doubt a Party shall be deemed to have “substantially prevailed” if the final determination by the accounting firm, in the case of Purchasers, is at least twenty percent (20%) greater than the Appraised Value, and, in the case of Sellers, is not more than twenty percent (20%) greater than the Appraised Value. Sellers and Purchasers agree to file their respective IRS Forms 8594 and all Tax Returns in accordance with the Allocation Schedule. Neither Purchasers nor Sellers shall take any position in a filed Income Tax Return or statement that is inconsistent with such allocations and Purchasers and Sellers will use reasonable efforts to sustain such position in any Tax Proceeding.

(e) Purchasers shall have the right to withhold all Taxes it is required by Law to withhold from all payments made hereunder, and will provide Sellers with proof of deposit or payment of any such Taxes withheld. For the avoidance of doubt, however, in connection with the sale of the Transferred Interests in Newco, APIL shall provide to Purchasers a valid and properly completed W-8BEN-E establishing its status as the beneficial owner for purposes of the U.S.-Ireland Treaty of those payments to APIL of the Purchase Price (including, for the avoidance of doubt, portions of the Initial Purchase Price, the Warrant and the Earn-Out Consideration) made under Section 2.2(b)(ii) and so long as APIL has provided Purchasers with such a W-8BEN-E that has not expired, Purchasers shall treat all such payments to APIL as exempt from U.S. federal Income Tax pursuant to the Code and/or Article 12 or Article 13 of

 

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the U.S.-Ireland Income Tax Treaty. In addition, provided that APIL provides a form W-8BEN-E upon which Purchasers may rely to show that the payments made to APIL are not subject to FATCA withholding, Purchasers shall not withhold any amounts under FATCA from payments to be made to APIL

2.3 Closing.

(a) The Closing shall take place at the offices of Goodwin Procter LLP, Exchange Place, Boston, MA 02109, at 10:00 a.m., prevailing Eastern time, on the third (3rd) Business Day following the satisfaction or waiver of the conditions set forth in Article VIII (other than those conditions that by their nature are to be satisfied or waived at the Closing, but subject to the satisfaction or waiver of those conditions) or at such other place, time or date as may be mutually agreed upon in writing by Sellers and Purchasers (the “Closing Date”).

(b) At the Closing:

(i) Sellers shall:

(A) deliver to Purchasers certificates evidencing the Transferred Interests to the extent that such Transferred Interests are in certificate form, duly endorsed in blank or with stock powers duly executed in proper form for transfer, and with any required stock transfer stamps affixed thereto;

(B) deliver to Purchasers the Transition Services Agreement, duly executed by Sellers;

(C) deliver to Purchasers the certificate required to be delivered pursuant to Section 8.2(c);

(D) deliver to Purchasers the resignations, effective as of the Closing Date, of those directors or officers of the Transferred Entities as Purchasers may reasonably request in writing no less than ten (10) days prior to the Closing Date;

(E) deliver to Purchasers the common seal, if applicable, and all registers, minute books, and other statutory books, required to be kept by Law, and, to the extent applicable, all certificates of incorporation and certificates of incorporation on change of name for each Transferred Entity;

(F) deliver to Purchasers (1) copies of all UCC-3 discharge statements to be filed with respect to Alkermes Gainesville and copies of releases or other relevant filings, in each case to be filed after the Closing, and any other security release documentation reasonably requested by Purchasers, including releases under Irish law, for any Lien, including the Liens granted to Morgan Stanley Senior Funding, Inc., as collateral agent, under the Credit Agreement, dated as of September 25, 2012, as amended on February 14, 2013 and May 22, 2013 (as amended, restated, amended and restated, supplemented, replaced or otherwise modified from time to time, the “Credit Agreement”), among Alkermes plc, Alkermes Pharma Ireland Limited, Alkermes, Inc., Alkermes US Holdings, Inc., the several banks and other financial institutions or entities

 

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from time to time parties to the Credit Agreement as lenders, Morgan Stanley Senior Funding, Inc., as administrative agent, Morgan Stanley Senior Funding, Inc., Citigroup Global Markets, Inc. and JPMorgan Chase Bank, N.A. as co-syndication agents, and Morgan Stanley Senior Funding, Inc., as collateral agent in favor of the lenders thereunder, on (i) any assets owned by the Transferred Entities, other than the Excluded Assets or (ii) the Transferred Interests; and (2) a release of Alkermes Gainesville from its obligations as a guarantor under the Credit Agreement;

(G) deliver to Purchasers a copy of the resolutions or written consent of the boards of directors of the Transferred Entities evidencing that the boards of directors of the Transferred Entities have, prior to Closing, (i) voted in favor of the transfer of the Transferred Interests to Acquisition Sub (or its nominee(s)) and voted in favor of the registration of the Acquisition Sub (or its nominee(s)) as stockholder(s) or member(s), as applicable, of the Transferred Entities in respect of the Transferred Interests (subject to the production of duly stamped transfers) and (ii) appointed such persons as the Purchasers have nominated as directors and secretary of the Transferred Entities, effective at the Closing; and

(H) deliver to Purchasers certificates dated as of the Closing Date in form and substance reasonably satisfactory to Purchasers, sworn under penalty of perjury and in form and substance required under the Treasury Regulations issued pursuant to Section 1445 of the Code stating, as applicable, that Eagle Holdings is not a “foreign person” as defined in Section 1445 of the Code and the interests in Newco do not constitute U.S. real property interests as defined in Section 897(c) of the Code; and

(I) the Forms W-8BEN-E required to be furnished pursuant to Section 2.2(e).

(ii) Purchasers shall:

(A) pay, by wire transfer, to an account or accounts designated by Sellers, immediately available funds in an amount equal to either: (i) the Initial Purchase Price plus the Closing Adjustment (if the Closing Adjustment is a positive amount) or (ii) the Initial Purchase Price minus the Closing Adjustment (if the Closing Adjustment is a negative amount), in each case as determined pursuant to Section 2.4, to Eagle Holdings in the amount set forth in Section 2.2(b)(ii) and the remaining amount, if any, to APIL;

(B) deliver to APIL the Warrant, duly executed by Recro;

(C) deliver to Seller the Transition Services Agreement, duly executed by Purchasers; and

(D) deliver to Sellers the certificate required to be delivered pursuant to Section 8.3(c).

2.4 Closing Adjustment. Not less than three (3) Business Days prior to the anticipated Closing Date, Sellers shall provide Purchasers with a certificate signed by an officer

 

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of each of the Sellers attaching reasonable and good faith estimates (the “Closing Estimates”) of each of (i) the Closing Working Capital (the “Estimated Closing Working Capital”), (ii) the Closing Cash Amount (the “Estimated Closing Cash Amount”); (iii) the Closing Date Indebtedness (the “Estimated Closing Date Indebtedness”); (iv) the Closing Date Transaction Fees (the “Estimated Closing Date Transaction Fees”); and (v) the Closing Adjustment (as defined below). Each of the Closing Estimates shall be determined in accordance with the Accounting Methodology. Purchasers shall be entitled to review, and propose reasonable changes to the Closing Estimates and Sellers shall provide Purchasers and their Representatives with reasonable access, at reasonable times following prior notice, to the officers, employees, agreements and books and records of the Transferred Entities to verify the accuracy of such amounts. The Sellers shall consider the Purchasers’ proposed changes in good faith. If the Parties are unable to reach agreement on any proposed changes, the Closing Estimates (and the components thereof) as proposed by the Sellers shall control solely for purposes of payments to be made at Closing and shall not limit or otherwise effect the Purchasers’ remedies under this Agreement or otherwise constitute an acknowledgment by Purchasers of the accuracy of the Closing Estimates. The “Closing Adjustment” shall equal (i) the Estimated Closing Working Capital, plus (ii) the Estimated Closing Cash Amount, less (iii) the Target Working Capital, less (iv) the Estimated Closing Date Indebtedness, and (v) less the Estimated Closing Date Transaction Fees.

2.5 Post-Closing Statement.

(a) After the Closing Date, Sellers and Purchasers shall cooperate with each other and provide each other with such access to their respective books, records, accountants, audit work papers and relevant employees as they may reasonably request in connection with the matters addressed in this Section 2.5; provided, however, that nothing contained in this Section 2.5 shall require Sellers, Purchasers or any of their respective Affiliates to disclose any attorney-client privileged information to the extent that disclosure thereof might result in the loss of attorney-client privilege. As promptly as practicable but no later than sixty (60) days after the Closing Date, Purchasers shall prepare and deliver to Sellers a statement (the “Initial Post-Closing Adjustment Statement”) of (i) the Closing Working Capital, (ii) the Closing Cash Amount, (iii) the Closing Date Indebtedness, (iv) the Closing Date Transaction Fees; and (v) the Adjustment Amount, setting forth Purchasers’ calculation of the Adjustment Amount as of the Closing together with reasonable supporting calculations and detail. The Initial Post-Closing Adjustment Statement shall be determined in accordance with the Accounting Methodology.

(b) If Sellers disagree in whole or in part with the Initial Post-Closing Adjustment Statement, Seller shall notify Purchasers in writing of such disagreement (the “Notice of Disagreement”) within thirty (30) days following Sellers’ receipt of the Initial Post-Closing Adjustment Statement (the “Review Period”), indicating the specific line items that are in dispute (the “Disputed Items”), describing the basis for such objection and providing Seller’s estimate of such Disputed Items; provided that Sellers and Purchasers shall be deemed to have agreed upon all items and amounts that are not Disputed Items, unless the resolution of a Disputed Item affects an undisputed item, in which case such undisputed item shall remain open and be considered a Disputed Item. If no Notice of Disagreement is received by Purchasers prior to the expiration of the Review Period, then the Initial Post-Closing Adjustment Statement shall be deemed to have been accepted by Sellers and shall become final and binding upon the Parties in accordance with Section 2.5(e).

 

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(c) During the thirty (30) days (or such longer period as the Parties may mutually agree) immediately following the delivery of a Notice of Disagreement (the “Resolution Period”), Sellers and Purchasers shall seek in good faith to resolve any differences that they may have with respect to Disputed Items. The Parties shall cooperate during such Resolution Period and Sellers and their Representatives shall have access to the books and records, working papers, schedules and calculations of the Purchasers and the Transferred Entities used in the preparation of the Initial Post-Closing Adjustment Statement, the Notice of Disagreement and the determination of the Disputed Items, and to the personnel involved in the preparation and calculation thereof, during normal business hours, upon reasonable notice.

(d) Dispute Resolution.

(i) If, at the end of the Resolution Period, Sellers and Purchasers have been unable to resolve all Disputed Items, Sellers and Purchasers shall submit the remaining Disputed Items with respect to the Notice of Disagreement (along with a copy of the Initial Post-Closing Adjustment Statement marked to indicate those line items that are not in dispute) to PricewaterhouseCoopers LLP or, if that firm declines to act as provided in this Section 2.5(d) or it is determined that PricewaterhouseCoopers LLP would not be considered “independent” under applicable professional standards, another firm of independent public accountants, selected promptly by and mutually reasonably acceptable to Purchasers and Sellers (the “Independent Accounting Firm”). The Independent Accounting Firm shall be instructed to make, within thirty (30) days after the expiration of the Resolution Period or, if applicable, the date of selection of the Independent Accounting Firm pursuant to the preceding sentence, a final determination in accordance with this Agreement, binding on the Parties, of the appropriate amount of each of the Disputed Items which Sellers and Purchasers have submitted to the Independent Accounting Firm, calculated in accordance with the standards set forth in this Agreement, and to promptly notify the Parties in writing of its determination. With respect to each amount in dispute, the Independent Accounting Firm’s determination, if not in accordance with the position of either Sellers or Purchasers, shall not be in excess of the higher, nor less than the lower, of the amounts advocated by Sellers in the Notice of Disagreement or by Purchasers in the Initial Post-Closing Adjustment Statement with respect to such disputed amount.

(ii) During the review by the Independent Accounting Firm, Purchasers and Sellers will each provide the Independent Accounting Firm with such access to their respective books, records, accountants, audit work papers and relevant employees as may be reasonably required by the Independent Accounting Firm to fulfill its obligations under this Section 2.5; provided, however, that nothing contained in this Section 2.5 shall require Sellers, Purchasers or any of their respective Affiliates to disclose any attorney-client privileged information to the extent that disclosure thereof might result in the loss of attorney-client privilege.

(iii) All fees and expenses relating to the work, if any, to be performed by the Independent Accounting Firm shall be split equally between Sellers, on the one hand, and Purchasers on the other hand.

 

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(e) The version of the Initial Post-Closing Adjustment Statement that is final and binding on the Parties, as determined either through agreement of the Parties pursuant to Section 2.5(b) or Section 2.5(c) or through the action of the Independent Accounting Firm pursuant to Section 2.5(d), is referred to as the “Final Post-Closing Adjustment Statement”, and the Adjustment Amount set forth therein as the “Final Adjustment Amount.”

2.6 Post-Closing Adjustment. The “Post-Closing Adjustment” shall be equal to (i) the Final Adjustment Amount set forth in the Final Post-Closing Adjustment Statement less (ii) the Closing Adjustment. If the Post-Closing Adjustment is a positive amount, then Purchasers shall pay or cause Acquisition Sub to pay in cash to Sellers (or one or more Affiliates designated by Sellers) the amount of the Post-Closing Adjustment via wire transfer of immediately available funds to the account(s) designed in writing by the Sellers. If the Post-Closing Adjustment is a negative amount, then Sellers (or an Affiliate designated by Sellers) shall pay in cash to Acquisition Sub the amount of the Post-Closing Adjustment via wire transfer of immediately available funds to the account(s) designed in writing by the Acquisition Sub. Any such payment shall be made within five (5) Business Days after the Final Post-Closing Adjustment Statement is determined.

2.7 Calculations. Except as otherwise expressly provided in this Agreement, the Parties hereto covenant and agree that no amount shall be (or is intended to be) included, in whole or in part (either as an increase or a reduction), more than once in the calculation of (including any component of) the Closing Estimates, the Initial Post-Closing Adjustment Statement, the Final Post-Closing Adjustment Statement, the Adjustment Amount or any other calculated amount pursuant to this Agreement if the effect of such additional inclusion (either as an increase or a reduction) would be to cause such amount to be over- or under-counted for purposes of such calculation.

2.8 Earn-Out Consideration. Following the Closing, Purchasers shall pay or cause Newco to pay to APIL the Earn-Out Consideration, in accordance with the terms of Exhibit E.

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF SELLERS

Except as set forth in the corresponding sections or subsections of the disclosure letter delivered to Purchasers by the Sellers prior to the date hereof (the “Sellers Disclosure Letter”), Sellers hereby make to Purchasers, as of the date hereof and as of the Closing, each of the representations and warranties contained in this Article III; it being understood that disclosure of any item in any section or subsection of the Sellers Disclosure Letter shall also be deemed disclosure with respect to any other section or subsection to which the relevance of such item is readily apparent on its face. The representations and warranties contained in this Article III and in any other provision of this Agreement and certificate delivered pursuant to this Agreement constitute all of the representations and warranties of Sellers with respect to the transactions contemplated hereby.

 

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3.1 Organization; Authorization.

(a) Each Seller is duly organized, validly existing and, to the extent applicable, in good standing under the Laws of its jurisdiction of organization.

(b) Each Transferred Entity is duly organized and validly existing and, to the extent applicable, in good standing under the Laws of the jurisdiction of its organization and has the requisite corporate or similar power and authority to own its properties and assets and to carry on its business as it is now being conducted. Each Transferred Entity is duly qualified to transact business in each jurisdiction in which the nature of property owned or leased by it or the conduct of its business requires it to be so qualified, except where the failure to be so duly qualified to transact business, or to have such power and authority, would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect. Section 3.1(b) of the Sellers Disclosure Letter sets forth a complete and accurate list of the jurisdiction of incorporation or organization of each Transferred Entity and all jurisdictions in which each Transferred Entity is duly qualified to transact business.

(c) Except as set forth in Section 3.1(c) of the Sellers Disclosure Letter, each Seller (i) has the requisite corporate or similar right, authority and power to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby, including the sale, assignment and transfer of the Transferred Interests and (ii) will have, on or before the date of signing each Ancillary Agreement to which it will be a party, the requisite corporate or similar right, authority and power to execute and deliver the Ancillary Agreements to which it will be a party and to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein have been duly and validly authorized by all corporate or similar action in respect thereof on the part of each Seller. The execution, delivery and performance of each Ancillary Agreement to which it is a party and the consummation of the transactions contemplated therein will, at the time of signing of such Ancillary Agreement, have been duly and validly authorized by all corporate or similar action in respect thereof on the part of each Seller.

(d) This Agreement has been, and each of the Ancillary Agreements to which each Seller is a party will be, on or prior to the date of signing such Ancillary Agreement, duly and validly executed and delivered by each Seller, and, assuming the due authorization and execution of this Agreement by Purchasers, this Agreement constitutes, and, assuming the due authorization and execution of the other parties to each Ancillary Agreement, each Ancillary Agreement will constitute, the legal and binding obligation of each Seller, enforceable against each Seller in accordance with its terms: (i) except as enforcement may be limited by applicable bankruptcy, insolvency, reorganization, moratorium or other laws affecting creditors’ rights generally and (ii) except insofar as the availability of equitable remedies may be limited by applicable Law (the preceding clauses (i) and (ii) are referred to herein collectively as the “Enforceability Exceptions”).

 

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(e) Except as set forth in Section 3.1(e) of the Sellers Disclosure Letter, neither the execution, delivery and performance of this Agreement and the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby, including the Reorganization, will (i) conflict with or violate any provision of any Governing Documents of Sellers or the Transferred Entities, (ii) constitute or result in a default under, violate any provision of, or be an event that is (or with the passage of time will result in) a violation of, or result in the acceleration of or entitle any party to accelerate or exercise (whether after the giving of notice or lapse of time or both) any obligation or right under, or result in the imposition of any Lien upon or the creation of a security interest in any of the Transferred Interests, or any Lien on any asset of the Transferred Entities, any material Contract, instrument, order, arbitration award, judgment or decree to which any Transferred Entity or Seller is a party or by which any of them is bound, or (iii) violate or conflict with any Law or other restriction of any kind or character to which any Seller or Transferred Entity is subject, that, in the case of clauses (ii) or (iii) would, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect.

3.2 Title to Shares; Capitalization; Structure.

(a) (i) The authorized capital stock of Alkermes Gainesville consists of 393,075 Membership Units, of which 393,075 Membership Units are outstanding, all of which are owned, beneficially and of record, by Eagle Holdings free and clear of all Liens except Permitted Liens and Liens set forth on Section 3.2 of the Sellers Disclosure Letter; and (ii) the authorized capital stock of Daravita consists of 150,000,000 Ordinary Shares, of which 102,000,001 Ordinary Shares are in issue, which are owned, beneficially and of record, by Alkermes Ireland Holdings free and clear of all Liens except for Permitted Liens and Liens set forth on Section 3.2 of the Sellers Disclosure Letter. At the Closing, all of the authorized capital interests in Newco will be owned, beneficially and of record, by APIL free and clear of all Liens except Permitted Liens and Liens set forth on Section 3.2 of the Sellers Disclosure Letter. All of the outstanding Membership Units of Alkermes Gainesville have been duly authorized and validly issued, are fully paid and nonassessable, and have not been issued in violation of any preemptive or third-party rights. At the Closing, all of the issued and outstanding capital stock of Newco will be validly issued, fully paid and nonassessable, and will not have been issued in violation of any preemptive or third-party rights. At the Closing, Sellers will deliver to Purchasers good and valid title to all of the Transferred Interests free and clear of any Lien, except for Permitted Liens.

(b) Except as set forth in Section 3.2 of the Sellers Disclosure Letter, the Transferred Entities have no other equity interests issued or outstanding and there are no outstanding options, warrants or other rights of any kind to acquire, or obligations to issue, shares of capital stock of any class of, or other equity interests in, the Transferred Entities. No Transferred Entity owns any equity interest, directly or indirectly, in any Person other than a Transferred Entity. There are no outstanding obligations of any Transferred Entity (i) to repurchase, redeem or otherwise acquire any shares of capital stock or other equity interests in any Transferred Entity or (ii) to grant preemptive or anti-dilutive rights with respect to any such shares or interests.

 

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3.3 No Consents. Section 3.3 of the Sellers Disclosure Letter contains a list of all registrations, filings, applications, notices, consents, approvals, orders, qualifications and waivers required to be made, filed, given or obtained by Sellers or the Transferred Entities with, to or from any Persons or Governmental Entities in connection with the consummation of this Agreement or the Ancillary Agreements or the other transactions contemplated hereby or thereby, including the Reorganization, except for those with respect to which the failure to make, file, give or obtain would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect (the “Consents”).

3.4 Financial Statements.

(a) Section 3.4 of the Sellers Disclosure Letter sets forth true and complete copies of the unaudited consolidated statements of income, balance sheets and statements of cash flows of the Business (i) as of December 31, 2013 and for the nine-month period then ended and (ii) as of December 31, 2014 and for the twelve-month period then ended (collectively, the “Historical Financial Statements”). The Historical Financial Statements, present fairly in all material respects the consolidated financial position and results of operations and cash flows of the Business for the respective periods or as of the respective dates set forth therein, in each case in accordance with GAAP applied on a consistent basis throughout the periods involved. The Historical Financial Statements have been prepared from and in all material respects in accordance with the Books and Records of the Transferred Entities and the Business, which Books and Records fairly reflect in reasonable detail all assets, liabilities and transactions relating to the Transferred Entities and the Business. The balance sheet as of December 31, 2014 (the “Balance Sheet Date”) included in the Historical Financial Statements is referred to herein as the “Business Balance Sheet.”

3.5 No Undisclosed Liabilities. Except for Liabilities (a) which are reflected or reserved against in the Business Balance Sheet, (b) set forth in Section 3.5 of the Sellers Disclosure Letter or (c) incurred in the ordinary course of business since the Balance Sheet Date which are of a category reflected or reserved against and in amounts consistent with those reflected on the Business Balance Sheet the Business has no Liabilities that would be required to be reflected on a balance sheet prepared in accordance with GAAP.

3.6 Properties; Sufficiency.

(a) With the exception of (i) properties disposed of since the Balance Sheet Date in the ordinary course of business, (ii) the Excluded Assets, and (iii) the Liens set forth in Section 3.6(a) of the Sellers Disclosure Letter, which (other than Permitted Liens) will be released prior to or at Closing, the Transferred Entities have good and marketable title to, or a valid and existing lease or license to, free and clear of all Liens other than Permitted Liens, each piece of real and material personal property capitalized on or included in the Business Balance Sheet (or for real and personal property acquired by the Business since the date of the Business Balance Sheet, that would have been, had it been acquired prior to such date, capitalized on or included in the Business Balance Sheet) and each other piece of real and material personal property used or held for use in the Business. All documents necessary to prove such title are in the possession or under the control of the Transferred Entities, copies of which have been made available to Purchasers.

 

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(b) Section 3.6(b) of the Sellers Disclosure Letter sets forth a list of all the real property owned or leased by the Transferred Entities in connection with the Business (the “Business Real Property”). Sellers have made available correct and complete copies of all material leases and subleases (including all material amendments, modifications and side letters thereto, and all notices of default and other material notices thereunder) relating to the Business Real Property to which the Transferred Entities are a party, all of which are identified in Section 3.6(b) of the Sellers Disclosure Letter and each of which is valid and in full force and effect. With respect to the Business Real Property owned by the Transferred Entities (the “Owned Real Property”), except as set forth in Section 3.6(a) of the Sellers Disclosure Letter, the applicable Transferred Entity has good and marketable title in fee simple to such property subject only to Permitted Liens. There are no pending or, to the Knowledge of Sellers, threatened condemnation proceedings relating to any Business Real Property for which written notice has been received by the Transferred Entities. To the Knowledge of Sellers, except as set forth in Section 3.6(a) of the Sellers Disclosure Letter and except pursuant to this Agreement, no Person has any right, option, lease, license, right of first refusal or any other Contract with respect to the purchase, assignment, possession, use or transfer of all or a portion of the Owned Real Property. To the Knowledge of Sellers, no Owned Real Property encroaches upon adjoining real estate. The ownership, occupancy, use and operation of the Business Real Property has complied and complies in all material respects with all applicable Laws, including but not limited to planning, zoning or use Laws, and Sellers have received no written, or to the Knowledge of Sellers, oral, notice of any material defaults by the Transferred Entities in respect of the Business Real Property in complying with the requirements of any notice received from a Governmental Entity under any such Laws. Except as disclosed in Section 3.6(b) of the Sellers Disclosure Letter, none of the properties owned or leased by the Transferred Entities or otherwise used in the Business is shared by the Business, on the one hand, and the other businesses, divisions or Subsidiaries of Parent, on the other hand.

(c) The buildings, structures and improvements on each Business Real Property are in all material respects in reasonable operating condition and repair, are structurally sound and free of material defects, with no material alterations or repairs required under applicable Law and are suitable in all material respects for their current use, operation and occupancy.

(d) All fixtures and mechanical systems located at the Business Real Property are currently in good working order except for ordinary wear and tear and for fixtures and mechanical systems under repair or out of service in the ordinary course of business.

(e) The assets, properties and rights of the Transferred Entities constitute all of the assets (other than (i) the Excluded Assets, (ii) services to be provided pursuant to the applicable Ancillary Agreements, and (iii) the services excluded under Part I(b) (Excluded IT Services) of Schedule 2 of Exhibit A) necessary to own and operate the Business in the manner being conducted as of the date hereof. The Transferred Entities collectively own or lease, or otherwise have good and valid rights to, all material assets, properties and other rights related to the Business.

3.7 Absence of Certain Changes. Except as set forth in Section 3.7 of the Sellers Disclosure Letter, since the Balance Sheet Date, there has been no (a) change or development in

 

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or effect on the Business that has had, or would reasonably be expected to have, a Material Adverse Effect, (b) other than in connection with the transactions contemplated by this Agreement, action or omission by the Transferred Entities that was not in the ordinary course of business or (c) action or omission that, if taken from the date hereof through the Closing, would violate any of the provisions of Sections 5.4(a) or 5.4(b).

3.8 Litigation; Orders. Except as set forth in Section 3.8 of the Sellers Disclosure Letter, there are no Actions pending or, to the Knowledge of Sellers, threatened (i) against any Seller that challenges or would reasonably be expected to have the effect of preventing or making illegal any of the transactions contemplated by this Agreement or (ii) against the Business or the Transferred Entities. There are no judgments or outstanding orders, injunctions, decrees, stipulations or awards (whether rendered by a court or administrative agency, or by arbitration) against or applicable to the Business or the Transferred Entities, or any of their respective properties or businesses.

3.9 Intellectual Property.

(a) The Transferred Entities own, or have a license or right to use, the Intellectual Property Rights necessary for the conduct of the Business; provided, however, that the foregoing is not a representation of non-infringement of the Intellectual Property Rights of another Person, which representation is solely set forth in the first sentence of Section 3.9(c) below. Section 3.9(a)(i) of the Sellers Disclosure Letter sets forth a true and complete list of all Registered Intellectual Property included in the Business Intellectual Property (the “Business Registered Intellectual Property”), setting forth as to each item, if applicable: the owner of record, jurisdiction of application and/or registration, and the date of application and/or registration. The Business Registered Intellectual Property is subsisting, and to the Knowledge of Sellers, valid and enforceable. Except as set forth in Section 3.9(a)(ii) of the Sellers Disclosure Letter, there are no oppositions, cancellations, invalidity proceedings, interference or re-examinations, or any other proceedings challenging the scope, validity, registrability or ownership of any Business Registered Intellectual Property currently pending, or, to the Knowledge of Sellers, threatened in writing, against the Transferred Entities (other than office actions or similar communications issued by any Governmental Entity in the ordinary course of prosecution of any pending applications for registration of any such Business Registered Intellectual Property). Except as set forth in Section 3.9(a)(iii) of the Sellers Disclosure Letter, the Transferred Entities exclusively own the entire right, title and interest in and to the Business Registered Intellectual Property free and clear of all Liens except Permitted Liens.

(b) Except as set forth in Section 3.9(b) of the Sellers Disclosure Letter, no Business Intellectual Property is subject to any outstanding judgment, injunction, order, decree or agreement that restricts the use thereof by the Transferred Entities or that would be reasonably be expected to restrict the use thereof by the Transferred Entities following the Closing.

(c) Except as set forth in Section 3.9(c) of the Sellers Disclosure Letter, to the Knowledge of Sellers, the conduct of the Business as currently conducted has not and does not infringe, misappropriate or violate any Intellectual Property Rights of any other Person. Except as set forth in Section 3.9(c) of the Sellers Disclosure Letter, neither of the Transferred Entities has received, since January 1, 2012, any written claim or demand, nor are there any pending

 

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Actions: (i) alleging infringement or misappropriation of any Intellectual Property Rights of any other Person or (ii) challenging the use, ownership, enforceability or validity of any of the Business Intellectual Property.

(d) Except as set forth in Section 3.9(d) of the Sellers Disclosure Letter, to the Knowledge of Sellers, no Person is currently infringing, misappropriating or violating any Business Intellectual Property.

(e) The Transferred Entities currently take commercially reasonable security measures to protect the confidentiality of all material Business Intellectual Property, including the secrecy and confidentiality of their trade secrets. Each current employee and consultant of, and any former employee or consultant employed by, a Transferred Entity since January 1, 2014 has executed a confidentiality agreement and invention assignment or an employment or consulting agreement maintaining confidentiality in any material trade secret or material confidential information of the Transferred Entities and assigning to the applicable Transferred Entity any rights in the Business Intellectual Property invented by such employee or consultant and embodied in one of the Products as it exists as of the date of this Agreement.

(f) To the Knowledge of Sellers, there were no material defects of form in the preparation or filing of the patent applications that are part of the Business Registered Intellectual Property. To the Knowledge of Sellers, Sellers and Transferred Entities have complied in all material respects with the United States Patent Office (“USPTO”) duty of candor and disclosure as required under 37 C.F.R. § 1.56 for the each of the U.S. patents and patent applications that are part of the Business Registered Intellectual Property.

3.10 Licenses; Authorizations; Reports. Section 3.10(a) of the Sellers Disclosure Letter contains a complete and accurate list of all material governmental licenses, consents, qualifications, registrations, clearances, permits, franchises, variances, exemptions and other authorizations, including all authorizations under the Federal Food, Drug and Cosmetic Act of 1938, as amended (the “FDCA”), the Public Health Service Act of 1944 and the regulations of the United States Food and Drug Administration and any successor agency thereto (the “FDA”) promulgated under any of the foregoing or any Similar Law or authorization of any other Governmental Entity, and any other Governmental Entity that is concerned with the quality, identity, strength, purity, safety, efficacy, developing or manufacturing of the Products (“Licenses”) necessary for the lawful operating of the Business, issued, granted, given or otherwise made available by or under the authority of, or any required notification to, any Governmental Entity or pursuant to any Law necessary for the conduct of the Business as conducted on the date hereof. Except as set forth on Section 3.10(b) of the Sellers Disclosure Letter, each material License (i) is in the name of a Transferred Entity and is in full force and effect and (ii) is not subject to any pending or, to the Knowledge of Sellers, threatened Action for the purposes of revoking, limiting or amending such License. As of the date hereof, neither of the Transferred Entities has received written notice or, to the Knowledge of Sellers, any other notice from any Governmental Entity that (A) any existing material License will be revoked or (B) any pending application for any material new License or renewal of any existing material License will be denied.

 

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3.11 Labor Matters.

(a) With respect to employees of the Business, the Transferred Entities are not bound by any agreements with labor unions or associations representing any employees, or purporting to represent or attempting to represent any employees, of the Business. Except as set forth in Section 3.11(a) of the Sellers Disclosure Letter, neither of the Transferred Entities is involved in, or, to the Knowledge of Sellers, threatened with any material work stoppage, strike, shutdown, lockout, demand for recognition or other material labor dispute, arbitration, lawsuit or administrative proceeding relating to labor matters involving Transferred Entity Employees, and there have been no such actions or disputes in the past three (3) years. To the Knowledge of Sellers, during the past three (3) years there has not been any attempt by any Transferred Entity Employees or any labor organization or other employee representative to organize or certify a collective bargaining unit or to engage in any other union organization activity with respect to the workforce of any Transferred Entity.

(b) Section 3.11(b) of the Sellers Disclosure Letter sets forth a true and complete list of the employees currently employed by each Transferred Entity, in each case whose annualized aggregate compensation as salary, wages and bonuses during 2014 exceeded One Hundred Thousand Dollars ($100,000) (the “Highly Paid Employees”). The Sellers have delivered to Purchasers a true and correct listing of the compensation amounts paid to each Highly Paid Employee in 2014 and the base salary and target bonus for such personnel in 2015. Except as set forth on Section 3.11(b) of the Sellers Disclosure Letter, to the Knowledge of Sellers, no Highly Paid Employee has plans to terminate employment with the Transferred Entities.

(c) Except as set forth on Section 3.11(c) of the Sellers Disclosure Letter, no Transferred Entity is the subject of any pending Action asserting that it has committed an unfair labor practice (within the meaning of the National Labor Relations Act or comparable state or foreign Law) or other violation of state or federal labor Law or seeking to compel it to bargain with any labor organization as to wages, terms or conditions of employment. Each Transferred Entity is in material compliance with all applicable Laws relating to the employment of labor, including those related to wages, hours, collective bargaining, immigration, equal employment opportunities and retaliation. There is no claim with respect to payment of wages, salary or overtime pay that has been asserted in writing to a Transferred Entity or is pending or, to the Knowledge of Seller, threatened before any Governmental Entity with respect to any Persons currently or formerly employed by a Transferred Entity.

(d) Section 3.11(d) of the Sellers Disclosure Letter lists each employee of a Transferred Entity who was terminated or laid off for any reason other than for cause, or whose hours were reduced by more than 50%, during the ninety (90) days preceding the date of this Agreement, and for each such employee, sets forth: (i) the date of such termination, layoff or reduction in hours; and (ii) the location to which the employee was assigned. Each of the Transferred Entities is in material compliance with its obligations pursuant to the Worker Adjustment and Retraining Notification Act of 1988 (the “WARN Act”) and any similar Law and neither Transferred Entity has ordered or implemented a plant closing or mass layoff within the meaning of the WARN Act or any similar Law in the past three (3) years.

 

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3.12 Taxes. Except as set forth in Section 3.12 of the Sellers Disclosure Letter:

(a) Since September 16, 2011, Alkermes Gainesville has been a disregarded entity within the meaning of Treasury Regulation Section 301.7701-3 for U.S. Federal income tax purposes.

(b) Since the formation of Newco by APIL, Newco has been a disregarded entity within the meaning of Treasury Regulation Section 301.7701-3 for U.S. Federal income tax purposes.

(c) Each of the Transferred Entities has filed all material Tax Returns that they were required to file under applicable Laws and regulations. All such Tax Returns were correct and complete in all material respects and were prepared in substantial compliance with all applicable Laws and regulations. All material Taxes due and owing by the Transferred Entities (whether or not shown on any Tax Return) have been paid. Neither of the Transferred Entities currently is the beneficiary of any extension of time within which to file any such Tax Return. No written claim has ever been made by an authority in a jurisdiction where the Transferred Entities do not file Tax Returns that the Transferred Entities are or may be subject to taxation by that jurisdiction.

(d) There are no material Liens for Taxes (other than Taxes not yet due and payable) upon any of the assets of the Transferred Entities, except for Permitted Liens.

(e) Each of the Transferred Entities have withheld and paid all material Taxes required to have been withheld and paid in connection with any amounts paid or owing to any employee, independent contractor, creditor, stockholder, or other third party, and all IRS Forms W-2 and 1099 with respect thereto have been properly completed and timely filed.

(f) To the Knowledge of Sellers, no federal, state, local, or non-U.S. tax audits, investigations or administrative or judicial Tax proceedings are pending or being conducted with respect to the Transferred Entities. Neither of the Transferred Entities has received from any Governmental Entity (including those in jurisdictions where the Transferred Entities have not filed Tax Returns) any (i) written notice indicating an intent to open an audit or other review, (ii) request for information related to Tax matters, or (iii) notice of deficiency or proposed adjustment for any amount of Tax proposed, asserted, or assessed by any Governmental Entity against the Transferred Entities.

(g) The Transferred Entities have not waived any statute of limitations in respect of Taxes or agreed to any extension of time with respect to a Tax assessment or deficiency. No Transferred Entity has issued any power of attorney (or any such equivalent) with respect to any material Taxes that is still in effect.

(h) No Transferred Entity has any equity interest in any entity taxed as a “partnership” or a “controlled foreign corporation” for U.S. federal income tax purposes.

(i) The Transferred Entities have and, to the extent requested, have provided Purchasers with access to, true, correct and complete copies of all material Tax Returns filed by them for all pre-Closing Tax periods beginning on or after September 16, 2011 and true, correct

 

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and complete copies of any examination reports received by the Transferred Entities and statements of deficiencies assessed against or agreed to by the Transferred Entities for all Pre-Closing Tax periods beginning on or after September 16, 2011 with respect to any Tax.

(j) None of Newco or Alkermes Gainesville has a liability for the Taxes of any other Person, including as a result of being a part of a VAT grouping. Neither Transferred Entity is a party to or bound by any Tax allocation or sharing agreement.

(k) The laws of Ireland do not require any withholding tax to be deducted or withheld from any payment of Earn-Out Consideration.

3.13 Compliance with Laws.

(a) The Transferred Entities operate, and since January 1, 2012 have operated, the Business in compliance in all material respects with all Laws applicable thereto. Except as set forth in Section 3.13(a) of the Sellers Disclosure Letter, since January 1, 2012, none of the Transferred Entities has received any communication from a Governmental Entity that (i) alleges that the Business or such Person (in respect of the Business) is in material violation of any applicable Law, (ii) any investigation or review by any Governmental Entity with respect to the Business or such Person is pending or contemplated and, to the Knowledge of Sellers, no such investigation or review is threatened.

(b) All imports, exports, reexports/retransfers, “deemed exports” and “deemed reexports/retransfers” of the Business have been made in all material respects in accordance with all statutory and regulatory requirements under the Export Administration Regulations and associated executive orders, and the Laws implemented by the Office of Foreign Assets Controls, the United States Department of the Treasury and any other applicable import, export control and sanctions Laws.

(c) Since January 1, 2012, all applications, submissions, information and data utilized by the Transferred Entities in respect of the Business as the basis for, or submitted by or, to the Knowledge of Sellers, on behalf of the Transferred Entities in connection with, any and all requests for a License relating to the Business or any Products, when submitted to the FDA or other Governmental Entity, were true and correct in all material respects as of the date of submission, and any updates, changes, corrections or modification to such applications, submissions, information and data required under applicable Laws have been submitted to the FDA or other Governmental Entity.

(d) Since January 1, 2012:

(i) the Transferred Entities have been in compliance with all legal requirements under (A) the FCPA, and (B) the Irish Prevention of Corruption Acts, 1889 to 2010 and the Irish Ethics in Public Office Acts 1995 and 2001 (collectively, the “Anti-Bribery Laws”); and

(ii) none of the Transferred Entities has, in relationship to the Business, taken any act in furtherance of an offer, payment, promise to pay, authorization, or ratification of the payment, directly or indirectly, of any gift, money or

 

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anything of value to a Government Official to secure any improper advantage (e.g., to obtain a tax rate lower than allowed by Law) or to obtain or retain business for any Person.

(e) None of the Transferred Entities is aware of (A) any investigation of or request for information from the Transferred Entities relating to the Business by law enforcement officials regarding the Anti-Bribery Laws, or (B) any other allegation, investigation or inquiry regarding any of their or the Business’ actual or possible violation of the Anti-Bribery Laws.

(f) The Transferred Entities and, in relation to the Business, the Sellers have maintained their Books and Records in a manner that, in reasonable detail, accurately and fairly reflects the transactions and disposition of their assets, and maintain a system of internal accounting controls sufficient to provide reasonable assurances that:

(i) transactions are executed and access to assets is given only in accordance with management’s authorization;

(ii) transactions are recorded as necessary to permit preparation of periodic financial statements in accordance with GAAP and to maintain accountability of corporate assets; and

(iii) recorded assets are compared with existing assets at reasonable intervals and appropriate action is taken with respect to any differences between recorded and actual assets.

(g) No director or officer of any of the Transferred Entities has, directly or indirectly, made false or misleading statements to, or attempted to coerce or fraudulently influence, an accountant in connection with any audit, review, or examination of the financial statements of the Business.

3.14 Insurance. All of the assets and properties of the Business are covered by valid and currently effective insurance policies held by Parent or its Affiliates, other than the Transferred Entities. Such insurance policies provide insurance coverage that, in the Sellers’ judgment, insures against such losses and risks and in such amounts as are customary in the businesses in which the Transferred Entities are engaged. All of such insurance policies are valid, enforceable and in full force and effect and all premiums due and payable thereon have been paid. None of the Transferred Entities, Parent or Affiliates of Parent are in breach or default thereunder or has taken an action or failed to take any action which, with notice or the lapse of time, would constitute a material breach or material default or permit termination or modification of any such policy in a manner that would have a material and adverse effect on the Transferred Entities. Except as set forth on Section 3.14 of the Sellers Disclosure Letter, there are no claims, by or with respect to any Transferred Entity, pending under any of such insurance policies, or material disputes with insurers with respect thereto. None of Sellers, Parent, Affiliates of Parent or any Transferred Entity has received any written notice regarding any cancellation or termination of or refusal of any coverage or rejection of any material claim related to the Transferred Entities under any such insurance policy.

 

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3.15 Material Contracts. Section 3.15 of the Sellers Disclosure Letter sets forth all of the following contracts to which any Transferred Entity is a party or bound, or by which any of the assets or properties of any of them, with the exception of the Excluded Assets, or Business is bound:

(a) any employment or consulting agreement with an individual (i) requiring payments of base compensation in excess of One Hundred Thousand Dollars ($100,000) per year or (ii) related to a Retention Bonus;

(b) any note, mortgage, indenture and other obligation and agreement and other instrument for or relating to any lending or borrowing (including assumed or guaranteed debt) effected by any Transferred Entity or to which any properties or assets of any of them, with the exception of the Excluded Assets, or the Business, is subject;

(c) any agreement or commitment for any capital expenditure in excess of One Hundred Thousand Dollars ($100,000) outside the ordinary course of business;

(d) customer sale and purchase agreements with indicated or estimated future payment obligations in excess of One Hundred Thousand Dollars ($100,000) in any 12-month period or Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate;

(e) drug delivery agreements or contract manufacturing agreements;

(f) any joint venture, partnership, technical assistance, research and development and other similar collaborative agreements;

(g) any contract which is terminable by the other party or parties thereto upon an assignment or change of control of any Transferred Entity, other than such contracts the termination of which would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect;

(h) any contract, agreement or arrangement, entered into other than in the ordinary course of business, with indicated or estimated future payment obligations in excess of One Hundred Thousand Dollars ($100,000) in any 12-month period or Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate;

(i) any service and supply agreements with indicated or estimated future payment obligations in excess of One Hundred Thousand Dollars ($100,000) in any 12-month period or Two Hundred Fifty Thousand Dollars ($250,000) in the aggregate;

(j) any Business IP Agreement;

(k) any agreement or commitment for the disposition of assets or any interest in any business enterprise outside the ordinary course of business;

(l) any agreement or commitment limiting or restraining it from engaging or competing in any lines of business, with any Person or in any geographic area or from soliciting any Person for business, and any agreement or commitment limiting or restraining it from soliciting any individual for employment;

 

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(m) any agreement or commitment that would become payable upon a change of control of a Transferred Entity;

(n) (i) any agreement with the five (5) largest customers of the Transferred Entities, taken as a whole (determined based on monthly recurring revenue as of the end of the last fiscal year) (such customers, the “Significant Customers”); and (ii) any agreement with the ten (10) largest suppliers (excluding service providers) of the Transferred Entities, taken as a whole (determined based on payments from the Transferred Entities for the last fiscal year) (such suppliers, the “Significant Suppliers”);

(o) any lease or agreement under which a Transferred Entity is lessee of any personal property owned by another party, for which annual rent exceeds Two Hundred and Fifty Thousand Dollars ($250,000);

(p) any stock purchase agreement, asset purchase agreement or other acquisition or divestiture Contract entered into by any Transferred Entity during the past five (5) years; and

(q) any material amendments, modifications, extensions or renewals of any of the foregoing or any exercise of any option in respect of any of the foregoing.

The contracts listed on Section 3.15 of the Sellers Disclosure Letter are referred to herein as “Business Material Contracts.” With respect to all Business Material Contracts, except as set forth in Section 3.15 of the Sellers Disclosure Letter, (i) none of the Transferred Entities, nor, to the Knowledge of Sellers, any other party to any such Business Material Contract is in material breach thereof or default thereunder, and (ii) there does not exist under any provision thereof, any event that, with the giving of notice or the lapse of time or both, would constitute such a material breach or default. Sellers have made available to Purchasers true, correct and complete copies of all Business Material Contracts. Each Business Material Contract is in full force and effect in accordance with the terms thereof and constitutes a legal, valid, and binding agreement of the parties thereto, and is enforceable in accordance with its terms by the applicable Transferred Entity who is a party thereto against each counterparty thereto, except as such enforceability may be limited by the Enforceability Exceptions.

3.16 Brokers, Finders. Except for the services of the Seller Financial Advisor, whose fees with respect to the transactions contemplated by this Agreement will be borne by Sellers, neither the Transferred Entities nor the Sellers has employed, or is subject to any valid claim of, any broker, finder, consultant or other intermediary in connection with the transactions contemplated by this Agreement who might be entitled to a fee or commission in connection with such transactions.

3.17 Board Approval. The board of directors of each Seller, by resolutions duly adopted, has approved this Agreement.

 

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3.18 Environmental Health and Safety Matters. Except as set forth in Section 3.18 of the Sellers Disclosure Letter:

(a) The Transferred Entities are in compliance in all material respects with all applicable Environmental Laws, including holding and complying in all material respects with all permits, certificates, licenses, approvals, registrations and authorizations required under Environmental Laws for their operations.

(b) The Transferred Entities are not subject to any pending Action or written notice from a Governmental Entity alleging that the Transferred Entities are in violation of, or have liability under, any Environmental Law.

(c) To the Knowledge of Sellers, there has been no Release of Hazardous Materials at any Business Real Property in an amount, manner or condition that would reasonably be expected to result in material liability to the Transferred Entities under applicable Environmental Laws.

(d) Sellers have made available to Purchasers copies of all material written environmental assessments, audits, and reports in their possession and relating to the Business or any Business Real Property.

(e) Without limiting the generality of the foregoing, none of the Transferred Entities have any outstanding material indemnification obligation, or any unresolved material enforcement action or liability, pursuant to any Environmental Law, including but not limited to, any investigation, cleanup, removal action, response action, remediation, or corrective action obligation, relating to the Business Real Property or, to the Knowledge of Sellers, to any (i) formerly owned or operated property, or (ii) offsite disposal location.

(f) None of the Transferred Entities has treated, stored, disposed of, arranged for or permitted the disposal of, transported, handled, or released any Hazardous Material in material violation of any Environmental Laws, or in a manner that would reasonably be expected to result in material liability (including, but not limited to, any material obligation to conduct an investigation, cleanup, removal action, response action, remediation or corrective action) to any of the Transferred Entities under applicable Environmental Laws.

(g) To the Knowledge of Sellers, neither this Agreement nor the consummation of the transactions contemplated hereby will result in any obligations for site investigation or cleanup, or notification to or consent of any Governmental Entity or third parties, pursuant to any of the so-called “transaction-triggered” or “responsible property transfer” Environmental Laws.

3.19 Employee Benefit Plans.

(a) Sellers have made available to Purchasers true and complete copies of each Transferred Entity Benefit Plan and all amendments thereto together with the most recent annual report, if required by Law, summary plan description and any material modifications thereto, actuarial valuation report prepared in connection with any such Benefit Plan and all trust agreements, insurance contracts and other funding vehicles relating thereto. Section 3.19(a) of the Sellers Disclosure Letter lists all material Benefit Plans, specifically identifying each Transferred Entity Benefit Plan.

 

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(b) Each Benefit Plan that is intended to be qualified under Section 401(a) of the Code and each trust created under any such Benefit Plan that is intended to be exempt from tax under Section 501(a) of the Code has received a favorable determination or opinion letter from the IRS. Sellers have made available to Purchasers the most recent determination or opinion letter of the Internal Revenue Service relating to each such Benefit Plan. Any such IRS determination or opinion letter remains in effect and has not been revoked by the IRS. Each Benefit Plan has been maintained in material compliance with its terms and with the requirements prescribed by any and all applicable statutes, orders, rules and regulations, including ERISA and the Code.

(c) There are no pending or, to the Knowledge of Sellers, threatened claims (other than claims for benefits in the ordinary course), investigations, lawsuits or arbitrations which have been asserted or instituted against any Benefit Plan, any fiduciaries thereof with respect to their duties to any Benefit Plan or the assets of any of the trusts under any of such Benefit Plans which would reasonably be expected to result in any liability of Purchasers or any of its Affiliates to the PBGC, the Department of Treasury, the Department of Labor, or any other Governmental Entity, to any of such Benefit Plan or to any participant or beneficiary of any such Benefit Plan.

(d) No Transferred Entity Benefit Plan is (i) a plan subject to Title IV of ERISA, (ii) an arrangement providing post-employment welfare benefits or (iii) a self-insured welfare benefit plan. No Transferred Entity Benefit Plan is a “multiemployer plan” within the meaning of Section 4001(a)(3) of ERISA.

(e) Except as set forth in Section 3.19(e) of the Sellers Disclosure Letter, the execution of and performance of the transactions contemplated by this Agreement will not (either alone or upon the occurrence of any additional or subsequent events) result in any payment to or acceleration, vesting or increase in the rights of any Transferred Entity Employee under any Benefit Plan. No payment or benefit which is or may be made or provided by, from or with respect to any Benefit Plan in connection with the transactions contemplated by this Agreement to any Transferred Entity Employee constitutes an “excess parachute payment” under Section 280G of the Code.

(f) No Transferred Entity Benefit Plan, or Transferred Entity Employee or other service provider of the Transferred Entities is, or would reasonably in the future expect to be, subject to additional Tax or interest imposed under Section 409A or 457(A)(c) of the Code by virtue of the form or operation of any Benefit Plan.

3.20 Products; Recalls. Since January 1, 2012:

(a) except as would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect, all Products manufactured and supplied by the Transferred Entities in respect of the Business: (i) were manufactured in compliance with applicable Law, including applicable cGMPs or Similar Laws; (ii) conformed to the

 

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specifications for the manufacture, storage, and handling of such Product in effect at the time of delivery thereof; (iii) at the time of delivery thereof, were not adulterated or misbranded within the meaning of the FDCA or Similar Laws; and (iv) conformed to the Certificate of Analysis and Conformity supplied with the shipment of such Product; and

(b) to the Knowledge of Sellers, except as set forth in Section 3.20(b) of the Sellers Disclosure Letter, there have been no product recalls, safety alerts, withdrawals, clinical holds, marketing suspensions, removals or the like conducted, undertaken or issued by any Person, whether or not at the request, demand or order of any Governmental Entity or otherwise, related to the manufacture of the Products by the Transferred Entities.

3.21 Transactions with Affiliates. Other than pursuant to any Benefit Plan or other compensatory arrangement, and excluding this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby, no executive officer or director of any Seller, Transferred Entity, Parent or their respective Affiliates (i) is party to any Contract with or binding upon a Transferred Entity, (ii) has any interest in property owned by a Transferred Entity or (iii) has engaged in any transaction with any Transferred Entity within the twelve (12) months preceding the date of this Agreement. Since January 1, 2014, except as disclosed in Section 3.21 of the Sellers Disclosure Letter, and excluding this Agreement, the Ancillary Agreements and the transactions contemplated hereby and thereby, there have been no Contracts between either Seller and/or any of its Affiliates (other than any Transferred Entity), on the one hand, and any Transferred Entity, on the other hand (each a “Related Party Agreement”).

3.22 Customers and Suppliers. Except as set forth on Section 3.22 of the Sellers Disclosure Letter, since January 1, 2014, no Significant Customer or Significant Supplier has amended, or proposed in writing, or to the Knowledge of Sellers, proposed orally, to amend, any material terms of, or terminated any Contract with a Transferred Entity in accordance with the terms thereof or has otherwise indicated in writing or, to the Knowledge of Sellers, orally, that they will cease to use or sell to the Transferred Entities, or will substantially reduce the use of services of or sale to the Transferred Entities. Except as set forth on the Section 3.22 of the Sellers Disclosure Letter, the execution, delivery and performance of this Agreement by the Sellers does not, and the consummation of the transactions contemplated hereby, including the Reorganization, by the Sellers will not, constitute or result in a breach or violation of or a default under, or require consent under, any Contract with a Significant Customer or Significant Supplier.

3.23 Accounts Receivable. The accounts receivable reflected on the Business Balance Sheet and the accounts receivable arising after the date thereof (a) have arisen from bona fide transactions entered into by the Transferred Entities involving the sale of goods or the rendering of services in the ordinary course of business consistent with past practice and (b) constitute, to the Knowledge of Sellers, only undisputed claims of the Transferred Entities not subject to claims of set-off or other defenses or counterclaims other than normal cash discounts accrued in the ordinary course of business consistent with past practice. The reserve for bad debts shown on the Business Balance Sheet or, with respect to accounts receivable arising after the Balance Sheet Date, on the accounting records of the Transferred Entities have been determined in accordance with GAAP, consistently applied.

 

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3.24 Regulatory Matters.

(a) As set forth in Section 3.10(a) of the Sellers Disclosure Letter, and as limited by Section 3.10(b), Sellers have provided a complete and accurate list of all material Licenses necessary for the lawful operation of the Business as issued, granted, given or otherwise made available by any Governmental Entity, specifically including, but not limited to, those Licenses issued under the FDCA, Public Health Service Act of 1944, and regulations promulgated by the FDA. Subject to Section 3.10(b) of the Sellers Disclosure Letter, each material License (i) is in the name of the Transferred Entity and is in full force and effect and (ii) is not subject to any pending or, to the Knowledge of Sellers, threatened Action or other proceeding for the purposes of revoking, limiting, amending or withdrawing such License.

(b) To the Knowledge of Sellers, since January 1, 2012, the Transferred Entities have complied in all material respects with all Laws as set forth by the FDA or applicable Governmental Entity relating to the Business. To the Knowledge of Sellers, the Transferred Entities have not made any material misrepresentations or fraudulent statements to the FDA or applicable Governmental Entity relating to the Business.

(c) To the Knowledge of Sellers, since January 1, 2012, except as would not, individually or in the aggregate, have or reasonably be expected to have a Material Adverse Effect, Products manufactured by the Transferred Entities in respect of the Business have complied in all material respects with current Good Manufacturing Practices (“cGMPs”) and, at the time of delivery thereof, were not adulterated or misbranded within the meaning of the FDCA. To the Knowledge of Sellers, neither the FDA nor any Governmental Entity is currently alleging non-compliance with cGMPs and no pending clinical trial is subject to termination or suspension relating to the Products.

(d) Except as set forth in Section 3.8 of the Sellers Disclosure Letter, the Transferred Entities are not currently subject to any Action brought by the FDA or other Governmental Entity in respect of the Business.

(e) To the Knowledge of Sellers, since January 1, 2012, neither the Transferred Entities, nor any individual who is an officer, director, employee, stockholder, agent or managing agent of any Transferred Entity, have been subject to an Action that has resulted in exclusion from a governmental or private health care program under which the Products have been reimbursed or have been subject to a debarment proceeding under 21 U.S.C. § 335a; nor is any such proceeding relating to debarment currently pending.

3.25 Investor Representations

(a) Sellers are acquiring the Warrant and the shares issuable upon its exercise for their own account, for investment and not for, with a view to, or in connection with, any sale or distribution thereof within the meaning of the Securities Act, and Sellers will not offer, sell or otherwise dispose of the Warrant and the shares issuable upon its exercise except as permitted by the Securities Act and any applicable state securities law.

(b) Sellers are “accredited investors” as the term is used in Regulation D promulgated under the Securities Act and for the purposes of acquiring the Warrant and the

 

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shares issuable upon its exercise. Sellers have sufficient knowledge and experience in business and financial matters and with respect to investments so as to enable Sellers to analyze and evaluate the merits and risks of the investment contemplated hereby with respect to the Warrant.

ARTICLE IV

REPRESENTATIONS AND WARRANTIES OF PURCHASERS

Except as set forth in the corresponding sections or subsections of the disclosure letter delivered to Sellers prior to the date hereof (the “Purchasers Disclosure Letter”), Purchasers hereby make to Sellers, as of the date hereof and as of the Closing, each of the representations and warranties contained in this Article IV; it being understood that disclosure of any item in any section or subsection of the Purchasers Disclosure Letter shall also be deemed disclosure with respect to any other section or subsection to which the relevance of such item is readily apparent on its face. The representations and warranties contained in this Article IV and in any other provision of this Agreement and certificate delivered pursuant to this Agreement constitute all of the representations and warranties of Purchasers with respect to the transactions contemplated hereby:

4.1 Organization; Authorization; Ownership.

(a) Each Purchaser is duly organized and validly existing and in good standing under the Laws of the jurisdiction of its organization and has the requisite corporate or similar power and authority to own its properties and assets and to carry on its business as it is now being conducted. Each Purchaser is duly qualified to transact business in each jurisdiction in which the nature of property owned or leased by it or the conduct of its business requires it to be so qualified, except where the failure to be so duly qualified to transact business would not, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on the ability of Purchasers to consummate the transactions contemplated by this Agreement, the Ancillary Agreements, the Debt Financing Agreements and the Debt Financing.

(b) Each Purchaser (i) has the requisite corporate or similar right, authority and power to execute and deliver this Agreement and to perform its obligations hereunder and to consummate the transactions contemplated hereby and (ii) will have, on or before the date of signing each Ancillary Agreement and the Debt Financing Agreements to which it will be a party, the requisite corporate or similar right, authority and power to execute and deliver the Ancillary Agreements and Debt Financing Agreements to which it will be a party and to perform its obligations thereunder and to consummate the transactions contemplated thereby. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein have been duly and validly authorized by all corporate or similar action in respect thereof on the part of each Purchaser. The execution, delivery and performance of each Ancillary Agreement and Debt Financing Agreement to which each Purchaser is a party and the consummation of the transactions contemplated therein will, at the time of signing of such Ancillary Agreement or Debt Financing Agreement, have been duly and validly authorized by all corporate or similar action in respect thereof on the part of each Purchaser.

 

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(c) This Agreement has been, and each of the Ancillary Agreements to which each Purchaser is a party will be, on or prior to the date of signing such Ancillary Agreement, duly and validly executed and delivered by each Purchaser, and, assuming the due authorization and execution of this Agreement by Sellers, this Agreement constitutes, and, assuming the due authorization and execution of the other parties to each Ancillary Agreement, each Ancillary Agreement will constitute, the legal and binding obligation of Purchasers, enforceable against each Purchaser in accordance with its terms, except as limited by the Enforceability Exceptions.

(d) Neither the execution, delivery and performance of this Agreement and the Ancillary Agreements, nor the consummation of the transactions contemplated hereby and thereby, will (i) conflict with or violate any provision of any Governing Documents of Purchasers, (ii) constitute or result in a default under, violate any provision of, or be an event that is (or with the passage of time will result in) a violation of, or result in the acceleration of or entitle any party to accelerate or exercise (whether after the giving of notice or lapse of time or both) any obligation or right under, or result in the imposition of any Lien, any material Contract, instrument, order, arbitration award, judgment or decree to which any Purchaser is a party or by it is bound, or (iii) violate or conflict with any Law or other restriction of any kind or character to which any Purchaser is subject, that, in the case of clauses (ii) or (iii) would, individually or in the aggregate, have or reasonably be expected to have a material adverse effect on the ability of Purchasers to consummate the transactions contemplated by this Agreement, the Ancillary Agreements, and the Debt Financing Agreements.

(e) Recro is the sole beneficial and record owner of all of the outstanding membership interests of Acquisition Sub.

4.2 No Consents. Section 4.2 of the Purchasers Disclosure Letter contains a list of all registrations, filings, applications, notices, consents, approvals, orders, qualifications and waivers required to be made, filed, given or obtained by Purchasers or any of their Subsidiaries with, to or from any Persons or Governmental Entities in connection with the consummation of this Agreement or the Ancillary Agreements or the other transactions contemplated hereby or thereby, except for those with respect to which the failure to make, file, give or obtain would not, individually or in the aggregate, have a material adverse effect on the ability of Purchasers to consummate the transactions contemplated by this Agreement, the Ancillary Agreements and the Debt Financing Agreements.

4.3 Compliance with Laws. The conduct of the business of Purchasers and their Subsidiaries complies in all material respects with all Laws which would affect their ability to perform their obligations hereunder and under the Ancillary Agreements and the Debt Financing Agreements.

4.4 Brokers; Finders. No broker, finder or investment banker is entitled to any brokerage, finder’s or other fee or commission in connection with the transactions contemplated by this Agreement based upon arrangements made by or on behalf of Purchasers.

4.5 Acquisition of Transferred Interests for Investment. Purchasers have such knowledge and experience in financial and business matters, and are capable of evaluating the merits and risks of its purchase of the Transferred Interests. Purchasers confirms that Sellers

 

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have made available to Purchasers and Purchasers’ agents the opportunity to ask questions of the officers and management employees of Sellers and of the Transferred Entities as well as access to the documents, information and records of Sellers and the Transferred Entities and to acquire additional information about the business and financial condition of Sellers and the Transferred Entities, and each Purchaser confirms that it has made an independent investigation, analysis and evaluation of the Transferred Entities and their properties, assets, business, financial condition, prospects, documents, information and records. Purchasers are acquiring the Transferred Interests for investment and not with a view toward or for sale in connection with any distribution thereof, or with any present intention of distributing or selling the Transferred Interests. Purchasers acknowledge that the Transferred Interests have not been registered under the Securities Act or any state securities Laws, and agrees that the Transferred Interests may not be sold, transferred, offered for sale, pledged, hypothecated or otherwise disposed of without registration under the Securities Act, except pursuant to an exemption from such registration available under the Securities Act, and without compliance with foreign securities Laws, in each case, to the extent applicable.

4.6 Debt Financing.

(a) Purchasers have delivered to Sellers true and complete copies of the executed definitive agreements dated as of the date hereof (as they may be amended, restated or modified from time to time in accordance with the terms hereof, collectively, the “Debt Financing Agreements”) entered into with the lender party to the Debt Financing Agreements (the “Lender”) relating to the commitment of the Lender to provide the full amount of the Initial Purchase Price and all related fees and expenses, collectively referred to in this Agreement as the “Debt Financing”. At Closing, Purchasers will fully pay or cause to be fully paid any and all commitment fees and other fees required to be paid pursuant to the terms of the Debt Financing Agreements.

(b) Except as set forth in the Debt Financing Agreements, there are no conditions precedent or other contingencies to the obligations of the Lender to provide the Debt Financing or any contingencies that would permit the Lender to reduce the total amount of the Debt Financing.

(c) The Debt Financing, when funded in accordance with the terms of the Debt Financing Agreements, shall provide Purchasers with acquisition financing on the Closing Date sufficient to pay the Initial Purchase Price and to pay related fees and expenses.

(d) The Debt Financing Agreements are valid, binding and in full force and effect and no event has occurred that, with or without notice, lapse of time, or both, would reasonably be expected to constitute a default or breach or a failure to satisfy a condition precedent on the part of Purchasers under the terms and conditions of the Debt Financing Agreements, other than any such default, breach or failure that has been waived by the Lender or otherwise cured in a timely manner by Purchasers to the satisfaction of the Lender and Purchasers do not have any reason to believe that they will be unable to satisfy on a timely basis any term or condition to closing to be satisfied by it in the Debt Financing Agreements on or prior to the Closing Date.

(e) As of the Closing, and after giving effect to all of the transactions contemplated by this Agreement, Purchasers will be Solvent.

 

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4.7 Regulatory Matters. Purchasers have not, nor has any Affiliate or representative of Purchasers, been convicted of any crime or engaged in any conduct for which debarment is mandated by 21 U.S.C. §335a(a) or any similar applicable Laws or authorized by 21 U.S.C. §335a(b) or any similar applicable Laws. The Purchasers have not, nor has any Affiliate or representative of Purchasers, been convicted of any crime or engaged in any conduct for which such Person could be excluded from participating in any U.S. federal health care programs and each of the Purchasers has appropriate policies and restrictions in its agreements with third parties precluding the use of any individuals convicted of any crimes or engaged in any conduct for which such Person could be excluded from participating in any U.S. federal health care programs.

4.8 No Other Representations or Warranties. Except for the representations and warranties contained in Article III (including the Schedules and Exhibits to this Agreement), Purchasers acknowledge that (i) none of Sellers, any Transferred Entity nor any of their respective Affiliates and Representatives, nor any other Person, made or shall be deemed to have made any representation or warranty to Purchasers, express or implied, at law or in equity, on behalf of Sellers or any Transferred Entity or any Affiliate of Sellers or any Transferred Entity and (ii) Purchasers have not relied on any information, representations, warranties or financial projections contained in any document, confidential memorandum or agreement delivered to it or made available by the Sellers or their Representatives, including any information, document or materials made available or provided to Purchasers in the data room.

ARTICLE V

COVENANTS

5.1 Access to Books and Records.

(a) After the date of this Agreement until the earlier of the Closing or termination of this Agreement, Sellers shall afford to Representatives of Purchasers reasonable access to the Books and Records of the Transferred Entities’ Businesses during normal business hours consistent with applicable Law and in accordance with the procedures established by Sellers; provided, however, that (i) no Seller or Transferred Entity shall be required to violate any obligation of confidentiality to which a Seller or a Transferred Entity or any of their respective Affiliates may be subject in discharging their obligations pursuant to this Section 5.1(a), and (ii) Sellers shall make available, or cause the Transferred Entities to make available, Transferred Entity Employee personnel files only after the Closing Date. Any information provided to Purchasers or their Representatives in accordance with this Section 5.1 or otherwise pursuant to this Agreement shall be held by Purchasers and their Representatives in accordance with, shall be considered under, and shall be subject to the terms of, the Confidentiality Agreement.

(b) Purchasers agree that any permitted investigation undertaken by Purchasers pursuant to the access granted under Section 5.1(a) shall be conducted in such a

 

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manner as not to interfere unreasonably with the operation of the Business by Sellers or the Transferred Entities, and Purchasers and their representatives shall not communicate with any of the employees of Sellers or the Transferred Entities without the prior written consent of Sellers. Notwithstanding anything to the contrary in this Agreement, neither Sellers nor the Transferred Entities shall be required to provide access to or disclose information where, upon the advice of counsel, such access or disclosure would jeopardize the attorney-client privilege of such Party or any of its Affiliates or contravene any Laws.

(c) At and after the Closing Date, Purchasers shall, and shall cause their Affiliates to, afford Sellers and their representatives, during normal business hours, upon reasonable notice, full access to the books, records, properties and employees of each Transferred Entity to the extent that such access may be reasonably requested by Sellers, including in connection with financial statements or a proceeding before the Independent Accounting Firm under Section 2.5(d).

(d) Purchasers agree to hold all the Books and Records of each Transferred Entity’s Business existing on the Closing Date and not to destroy or dispose of any thereof for a period of seven (7) years from the Closing Date or such longer time as may be required by Law, and thereafter, if they desire to destroy or dispose of such Books and Records, to offer first in writing at least sixty (60) days prior to such destruction or disposition to surrender them to Sellers.

5.2 Efforts.

(a) Subject to the terms and conditions herein provided, each of Purchasers and Sellers shall use reasonable best efforts to promptly take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable under this Agreement and applicable Laws to consummate and make effective as promptly as practicable after the date hereof the transactions contemplated by this Agreement, including (i) preparing as promptly as practicable all necessary applications, notices, petitions, filings, ruling requests, and other documents and to obtain as promptly as practicable all consents, waivers, licenses, orders, registrations, approvals, permits, rulings, authorizations and clearances necessary or advisable to be obtained from any Governmental Entity in order to consummate the transactions contemplated by this Agreement (collectively, the “Governmental Approvals”) and (ii) as promptly as practicable taking all steps as may be necessary to obtain all such Governmental Approvals. In furtherance and not in limitation of the foregoing, each Party agrees to (A) within ten (10) Business Days of the date of this Agreement, make all necessary filings and submissions under the HSR Act, (B) make all other required filings pursuant to other antitrust or competition Laws with respect to the transactions contemplated hereby as promptly as practicable, and (C) not extend any waiting period under the HSR Act or any other antitrust Law, nor enter into any agreement with the United States Federal Trade Commission (the “FTC”) or the United States Department of Justice (the “DOJ”) or any other Governmental Entity not to consummate the transactions contemplated by this Agreement, except with the prior written consent of the other Parties (which shall not be unreasonably withheld, conditioned or delayed). Each Party shall supply as promptly as practicable any additional information or documentation that may be requested pursuant to the HSR Act or any other antitrust or competition Law and use its reasonable best efforts to take all other actions necessary, proper or advisable to cause the

 

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expiration or termination of the applicable waiting periods under the HSR Act and any other antitrust Law as soon as possible. The Parties agree to request early termination with respect to the waiting period prescribed by the HSR Act together with the initial filings and submissions under the HSR Act.

(b) Each of Purchasers and Sellers shall, in connection with the actions referenced in Section 5.2(a) to obtain all Governmental Approvals for the transactions contemplated by this Agreement under the HSR Act or any other antitrust or competition Law, (i) cooperate in all respects with each other in connection with any communication, filing or submission and in connection with any investigation or other inquiry, including any proceeding initiated by a private party; (ii) keep the other Party and/or its counsel informed of any communication received by such Party from, or given by such Party to, the FTC, the DOJ or any other U.S. or other Governmental Entity and of any communication received or given in connection with any proceeding by a private party, in each case regarding any of the transactions contemplated hereby; (iii) consult with each other in advance of any meeting or conference with the FTC, the DOJ or any other Governmental Entity or, in connection with any proceeding by a private party, with any other Person, and to the extent permitted by the FTC, the DOJ or such other Governmental Entity or other Person, give the other Parties and/or their counsel the opportunity to attend and participate in such meetings and conferences; and (iv) permit the other Parties and/or their counsel to review in advance any submission, filing or communication (and documents submitted therewith) intended to be given by it to the FTC, the DOJ or any other Governmental Entity; provided, that materials may be redacted to remove references concerning the valuation of the businesses of Sellers, to the extent permitted by Law. Purchasers and Sellers, as each deems advisable and necessary, may reasonably designate any competitively sensitive material to be provided to the other under this Section 5.2(b) as “Antitrust Counsel Only Material.” Such materials and the information contained therein shall be given only to the outside antitrust counsel of the recipient and will not be disclosed by such outside counsel to employees, officers or directors of the recipient unless express permission is obtained in advance from the source of the materials (Purchasers or Sellers, as the case may be) or its legal counsel.

(c) In furtherance and not in limitation of the covenants of the Parties contained in Section 5.2(a) and Section 5.2(b), each of Purchasers and Sellers shall use their reasonable best efforts to avoid the entry of, or to have vacated, lifted, reversed or overturned, any decree, judgment, injunction or other order, whether temporary, preliminary or permanent, that would restrain, prevent or delay the Closing on or before the Outside Date. It shall not be deemed a failure to satisfy the conditions specified in Section 8.1(a) if, as a result of any suit brought by any Person or Governmental Entity challenging the transactions contemplated by this Agreement as violating any antitrust Law, a court enters or the applicable Governmental Entity makes an order or decree permitting the transactions contemplated by this Agreement, but requiring that any of the businesses, product lines or assets of Purchasers or their Affiliates (collectively, the “Subject Assets”) be divested or held separate by Purchasers, or that would otherwise limit Purchasers’ freedom of action with respect to, or their ability to operate and retain, the Subject Assets.

(d) Without limiting any other obligation under this Agreement, during the period from the date of this Agreement until the Closing Date, each of Purchasers and Sellers shall not, and shall cause its Subsidiaries not to, take or agree to take any action that would

 

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reasonably be expected to prevent or delay the Parties from obtaining any Governmental Approval in connection with the transactions contemplated by this Agreement, or to prevent or materially delay or impede the consummation of the transactions contemplated herein.

(e) Purchasers agree to provide such security and assurances as to financial capability, resources and creditworthiness as may be reasonably requested by any Governmental Entity or other third party whose consent or approval is sought in connection with the transactions contemplated hereby. Whether or not the Sale is consummated, Purchasers and Sellers shall each be responsible for 50% of all filing fees and payments to any Governmental Entity in order to obtain any consents, approvals or waivers pursuant to this Section 5.2.

5.3 Further Assurances. Sellers and Purchasers agree that, from time to time, whether before, at or after the Closing Date, each of them will execute and deliver such further instruments of conveyance and transfer and take such other action as may be necessary to carry out the purposes and intents of this Agreement. Without limiting the generality of the foregoing:

(a) Between the date hereof and the Closing, Sellers shall, and shall cause their Affiliates to, (A) effect the Reorganization as described in Exhibit G, including transferring all of the assets and liabilities of Daravita, other than those listed on Section 5.3 of the Sellers Disclosure Letter, to Newco, or as otherwise mutually and reasonably agreed upon by Sellers and Purchasers, and (B) use commercially reasonable efforts to ensure that, as of the Closing, Newco and Alkermes Gainesville hold no other assets or liabilities (including assets or liabilities relating to Excluded Assets) other than those of the Business. Sellers shall make available to Purchasers in a timely manner for review and comment all drafts of the agreements relating to the Reorganization (collectively, the “Reorganization Transfer Agreements”) or other instruments or documentation relating to the Reorganization, and Sellers shall not, and shall cause its Affiliates not to, execute any such Reorganization Transfer Agreements or other instruments or documentation, or to take any actions or consummate any steps or transactions contemplated thereby, in each case, that is not reasonably satisfactory to Purchasers.

(b) In connection with the Reorganization, APIL and Newco will enter into a license agreement (the “IP License Agreement”), in form reasonably acceptable to the Parties, granting to Newco licenses in substantially similar form and scope as those granted to Daravita pursuant to the Intellectual Property Transfer and License Agreement. The Parties hereto agree to amend the provisions regarding Earn-Out Consideration set forth on Exhibit E hereto as may be reasonably necessary in order to effect the intent of the Parties upon entry into the IP License Agreement.

(c) After the consummation of the Reorganization, to the extent that Daravita receives any payments for accounts receivable owned by Newco, Daravita will transfer such payments to an account designated by Newco.

(d) After the Closing, Purchasers will, and will cause their Affiliates to, upon the discovery of any Excluded Assets in the Transferred Entities’ properties, offices, plants, storage spaces or similar locations, use reasonable efforts to return such Excluded Assets to Sellers at Sellers’ expense.

 

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5.4 Conduct of Business.

(a) From the date of this Agreement through the earlier of the Closing or the termination of this Agreement, except as otherwise contemplated by this Agreement (including transactions required by the Reorganization), as required by Law, as disclosed in Section 5.4 of the Sellers Disclosure Letter, or with Purchasers’ written consent (which shall not be unreasonably withheld, conditioned or delayed; provided that Purchasers shall be deemed to have consented in writing to any written request by Sellers to which Purchasers fail to respond within five (5) Business Days following receipt), Sellers shall cause each Transferred Entity to:

(i) conduct the Business in the ordinary course of business; and

(ii) use reasonable best efforts to preserve intact their respective business organizations and goodwill, keep available the services of their respective present senior officers and key employees, and preserve the goodwill and business relationships with customers and others having business relationships with them.

(b) Without limiting the generality of Section 5.4(a), from the date of this Agreement through the earlier of the Closing or the termination of this Agreement, except as otherwise contemplated by this Agreement (including transactions required by the Reorganization, including without limitation the accession of Newco to the Credit Agreement), as required by Law, as disclosed in Section 5.4 of the Sellers Disclosure Letter or with Purchasers’ consent (which shall not be unreasonably withheld, conditioned or delayed (provided that Purchasers shall be deemed to have consented in writing to any written request by Sellers to which Purchasers fail to respond within five (5) Business Days following receipt)), Sellers shall cause the Transferred Entities not to take any of the following actions with respect to the Business:

(i) (A) amend or propose to amend their respective certificates of incorporation or by-laws or equivalent organizational documents, (B) adjust, split, combine or reclassify their outstanding capital stock, or (C) declare, set aside or pay any non-cash dividend or non-cash distribution;

(ii) merge or consolidate itself with any other Person, or restructure, reorganize or completely or partially liquidate itself;

(iii) issue, sell, pledge, encumber or dispose of, or agree to issue, sell, pledge, encumber or dispose of, any additional shares of, or any options, warrants or rights of any kind to acquire any shares of their capital stock of any class or any debt or equity securities which are convertible into or exchangeable for such capital stock;

(iv) except for transactions among the Transferred Entities in the ordinary course, (A) make any acquisition of any assets other than acquisitions made in response to a force majeure event or emergency or (B) sell, pledge, dispose of or encumber any material assets or businesses other than sales or dispositions of assets in the ordinary course of business;

 

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(v) enter into or amend any employment, severance, special pay arrangement or other similar arrangements or agreements with any directors, officers or other employees of the Transferred Entities, so as to increase or accelerate benefits, except (A) pursuant to applicable Law, (B) pursuant to contractual arrangements or policies in effect as of the date of this Agreement, (C) 401(k) plan loans in the ordinary course of business, or (D) the Retention Bonuses;

(vi) increase the cash compensation of any senior officer or key employee of the Transferred Entities, except for increases in the ordinary course of business or except pursuant to contractual or incentive compensation arrangements in effect as of the date of this Agreement;

(vii) enter into, modify, amend or terminate any Business Material Contract, or waive, release, compromise or assign any material rights or claims under any Business Material Contract or any material lease (other than (A) in the ordinary course of business and (B) terminations of contracts and leases as a result of the expiration of the term of such contracts or leases);

(viii) purchase all or substantially all of the assets of, any securities of or make any investment in, either by purchase of stock or other securities or by contributions to capital, any Person, or acquire direct or indirect control over any Person;

(ix) make any new Tax election or modify or revoke any existing Tax election, change any Tax or accounting methods or systems of internal accounting controls of Newco or Alkermes Gainesville (except as may be required to conform to Laws relating to Taxes or regulatory accounting requirements or GAAP), file any amended Tax Return, enter into any Tax indemnity, sharing or allocation agreement, surrender any right to claim a refund, offset or other reduction of Taxes, consent to any extension or waiver of the limitations period applicable to any Tax claim or assessment relating to Newco or Alkermes Gainesville, or settle or compromise any Tax claim;

(x) commence any Action other than in accordance with past practice;

(xi) settle any Action involving any Liability of any Transferred Entity for money damages where the settlement amount exceeds Two Hundred Fifty Thousand Dollars ($250,000) or where the settlement would include any restriction upon the operations of any Transferred Entity;

(xii) enter into any line of business in which the Transferred Entities do not participate or engage as of the date hereof;

(xiii) divest, sell, lease, license, transfer or otherwise dispose or permit the cancellation, abandonment, or dedication to the public domain of any Business Intellectual Property, other than: (i) in the ordinary course of business and, in the case of patents included in the Business Intellectual Property, pursuant to the expiration of their statutory term; and (ii) transfers of Intellectual Property Rights from one Transferred Entity to another Transferred Entity;

 

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(xiv) sell, assign, transfer, convey, pledge or otherwise dispose of or encumber any accounts receivable, except in the ordinary course of business;

(xv) fail to pay its accounts payable and similar debts in the ordinary course of business;

(xvi) fail to maintain the assets of the Transferred Entities in substantially their current state of repair, excepting normal wear and tear; or

(xvii) authorize or enter into any agreement or otherwise make any commitment to do any of the foregoing.

Notwithstanding anything to the contrary in this Agreement, including this Section 5.4, the Sellers and the Transferred Entities may divest any and all Excluded Assets prior to Closing.

5.5 Consents. Seller shall use commercially reasonably efforts to obtain any consents required from third parties in connection with the consummation of the transactions contemplated by this Agreement pursuant to the Business Material Contracts.

5.6 Public Announcements. Except as otherwise required by Law, each of Sellers and Purchasers will consult with the other and obtain the consent of the other (which consent shall not be unreasonably withheld, conditioned or delayed) before issuing any press releases or any public statements with respect to this Agreement and the transactions contemplated by this Agreement, except as may be required by Law or stock exchange rules, in which case the Party required to publish such press release or public announcement or make such other communication shall use reasonable efforts to provide the other Parties a reasonable opportunity to comment on such press release or public announcement in advance of the time of disclosure of such publication or such other communication.

5.7 Intercompany Accounts. At or prior to the Closing, all intercompany accounts between each Seller and/or any of its Affiliates (other than any Transferred Entity), on the one hand, and each Transferred Entity, on the other hand, shall be settled or otherwise eliminated. This provision shall not apply to intercompany accounts between and among the Transferred Entities.

5.8 Termination of Intercompany Agreements. Effective at the Closing, all Related Party Agreements shall be terminated, except for (i) this Agreement, (ii) the Transition Services Agreement, (iii) the Supply Agreements and (iv) the Contracts listed in Section 5.8 of the Sellers Disclosure Letter.

5.9 Insurance. From and after the Closing Date, the Transferred Entities shall cease to be insured by Parent or its respective Affiliates’ (other than the Transferred Entities’) insurance policies or by any of their self-insured programs, and shall have no access to any such insurance policies other than as set forth in this Agreement and the Transition Services Agreement. Each Seller or any of its respective Affiliates may, to be effective as of the Closing, amend any insurance policies in the manner it deems appropriate to give effect to this Section 5.9. From and after the Closing, Purchasers shall be responsible for securing all insurance it considers appropriate for its operation of the Transferred Entities and the Business.

 

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At the Closing Date, Sellers agree to take over and assume all the known and incurred claims of the Transferred Entities and the Business set forth on Section 5.9 of the Sellers Disclosure Letter, which have been incurred as of the Closing Date, and Sellers agrees to be responsible to pay such claims until they are finally settled. Purchasers further covenant and agree not to seek to assert or to exercise any rights or claims of the Transferred Entities or the Business under or in respect of any past or current insurance policy under which any member of the Transferred Entities or any Affiliate thereof or the Business is a named insured.

5.10 Litigation Support. In the event and for so long as Sellers actively are prosecuting, contesting or defending any Action by a Person in connection with (a) any transactions contemplated under this Agreement or (b) any fact, situation, circumstance, status, condition, activity, practice, plan, occurrence, event, incident, action, failure to act, or transaction involving the Business or the Transferred Entities, Purchasers shall, and shall cause their Affiliates to, cooperate with Sellers and their respective counsel in the prosecution, contest or defense, make available its personnel, and provide such testimony and access to its Books and Records and such other files, documents and records as shall be reasonably necessary in connection with the prosecution, contest or defense; provided that, such access and cooperation shall not unreasonably interfere with the ongoing operations of Purchasers, the Transferred Entities and their Affiliates; and provided, further, that Seller shall promptly, upon request by Purchasers, the Transferred Entities or their Affiliates, reimburse Purchasers, the Transferred Entities or their Affiliates for all reasonable and documented out-of-pocket costs incurred by them in connection with such cooperation and access.

5.11 Payments.

(a) Sellers shall promptly pay or deliver to Purchasers any monies or checks which have been sent to Sellers or their respective Affiliates after the Closing Date by customers, suppliers or other contracting parties of the Transferred Entities and the Business and which should have been sent to Purchasers.

(b) Purchasers shall promptly pay or deliver to Sellers any monies or checks which have been sent after the Closing Date to Purchasers to the extent they are not due to the Business or the Transferred Entities or should have otherwise been sent to any Seller or any of their respective Affiliates, other than the Transferred Entities (including promptly forwarding invoices or similar documentation to Sellers).

5.12 Debt Financing.

(a) Without limiting the generality of Section 5.2, Purchasers shall use their reasonable best efforts to take, or cause to be taken, all actions and to do, or cause to be done, all things necessary, proper or advisable to obtain the proceeds of the Debt Financing on the terms and conditions described in the Debt Financing Agreements. Purchasers shall use their reasonable best efforts to comply with its obligations under the Debt Financing Agreements, and shall use its reasonable best efforts to cause the Debt Financing to be fully funded on the Closing Date, including by enforcing its rights under the Debt Financing Agreements and drawing on any interim or bridge financing in the event that other elements of the Debt Financing are not available. Purchasers shall give Sellers prompt notice of any material breach by any party to the

 

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Debt Financing Agreements of which Purchasers have become aware or any termination of the Debt Financing Agreements. In the event that any portion of the Debt Financing becomes unavailable, regardless of the reason therefor, Purchasers will (x) use their reasonable best efforts to obtain alternative debt financing (in an amount sufficient to pay the Initial Purchase Price and Closing Adjustment) on terms not materially less favorable, taken as a whole, to Purchasers from other sources and which do not include any conditions to the consummation of such alternative debt financing that are materially more onerous than the conditions set forth in the Debt Financing (such financing, “Alternative Financing”), and (y) promptly notify Sellers of such unavailability and the reason therefor.

(b) Notwithstanding anything to the contrary in this Agreement, Purchasers shall not, without the prior written consent of Sellers, (i) amend, modify, supplement or waive any of the conditions to funding contained in the Debt Financing Agreements or any other provision thereof or remedies thereunder, in each case to the extent such amendment, modification, supplement or waiver would reasonably be expected to adversely affect the ability of Purchasers to timely consummate the transactions contemplated by this Agreement (including by making the conditions herein less likely to be satisfied or unreasonably delaying the Closing); (ii) undertake any merger, acquisition, joint venture, disposition, lease, contract or debt or equity financing that would reasonably be expected to impair, delay or prevent consummation of the Debt Financing contemplated by the Debt Financing Agreements or any Alternative Financing contemplated by any new debt commitment letter; or (iii) amend or alter, or agree to amend or alter, the Debt Financing Agreements in any manner that would reasonably be expected to prevent, impair or delay the consummation of the Debt Financing or the transactions contemplated by this Agreement.

(c) Prior to the Closing, Sellers shall use commercially reasonable efforts to, and to cause the Transferred Entities and their respective officers, employees and advisors, including legal, financial and accounting advisors, of Sellers and the Transferred Entities to, provide to Purchasers such cooperation as is reasonably requested by Purchasers and the Lenders in connection with the Debt Financing (provided that such requested cooperation does not unreasonably interfere with the ongoing operations of Sellers and their Affiliates), including (i) furnishing Purchasers and the Lender with financial and other pertinent information; (ii) in each case, upon reasonable notice, making management of the Transferred Entities (including some members of the financial staff) available to participate in a reasonable number of meetings (including customary one-on-one meetings with parties acting as lead arrangers or agents for, and prospective lenders and purchasers of, any such financing), presentations and due diligence sessions in connection with such financing; (iii) assisting Purchasers and the Lender in the preparation of (A) a customary offering document, private placement memorandum and/or bank information memorandum and similar marketing documents for any of the Debt Financing; and (B) materials for rating agency presentations; (iv) using commercially reasonable efforts to cause its independent auditors to cooperate with the Debt Financing; (v) taking all actions reasonably necessary that are consistent with the terms of this Agreement or otherwise facilitating the pledging of collateral of the Transferred Entities in respect of the Business from and after the Closing as may be reasonably requested by Purchasers; (vi) promptly furnishing all documentation and other information about the Transferred Entities required by Governmental Entities with respect to the financing under applicable “know your customer” and anti-money laundering rules and regulations including without limitation the USA Patriot Act; and (vii)

 

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taking all corporate or limited liability company actions, subject to the occurrence of the Closing, reasonably requested to permit the consummation of any such financing and to permit the proceeds thereof to be made available to the Transferred Entities, including entering into one or more credit agreements, indentures or other instruments on terms reasonably satisfactory to Purchasers in connection therewith; provided that neither Sellers nor any of their Affiliates shall be required to pay any commitment or other similar fee, provide any security or incur any other liability in connection with the Debt Financing; provided, further, that the effectiveness of any documentation executed by any Seller with respect thereto shall be subject to the consummation of the Closing; and provided, further, that Purchasers shall promptly, upon request by Sellers, reimburse Sellers for all reasonable and documented out-of-pocket costs incurred by Sellers or any of their Affiliates in connection with such cooperation. Any information provided to Purchasers, or on behalf of or at the request of Purchasers, pursuant to this Section 5.12(c) shall be subject to the Confidentiality Agreement and Section 5.2.

5.13 Directors and Officers Indemnification. The Parties agree that all rights to exculpation, indemnification and advancement of expenses for acts or omissions occurring at or prior to the Closing, whether asserted or claimed prior to, at or after the Closing, now existing in favor of the current or former directors, officers or employees, as the case may be, of the Transferred Entities (whether provided in the respective Governing Documents of such entity or in any agreement as in effect on the date of this Agreement) shall survive the Closing and remain in full force and effect.

5.14 Non-Competition; Non-Solicitation.

(a) Until the second (2nd) anniversary of the Closing, Sellers shall not, directly or indirectly, (i) solicit for employment or any similar arrangement any Transferred Entity Employee or (ii) hire any Transferred Entity Employee; provided, that this Section 5.14(a) shall (a) not apply to Transferred Entity Employees whose employment has been terminated by Purchasers, (b) not prohibit general solicitations for employment through advertisements or other means not targeted specifically to Transferred Entity Employees; and (c) shall not prevent the hiring of Transferred Entity Employees that respond to general solicitations such as those specified in (b) above.

(b) During the period beginning on the Closing Date and ending on the third (3rd) anniversary of the Closing Date (the “Non-Compete Period”), except for ownership of the equity in Recro issued pursuant to the Warrant, Sellers and their Affiliates agree not to directly or indirectly engage in, or have an ownership interest in, any business or enterprise (or subsidiary or division thereof) that engages in the development, license, manufacture, testing, packaging, storage, sale and shipment of the Products (other than Meloxicam) or the underlying molecules or salts thereof in combination with the OCR IP covering such Products (a “Competing Business”). If Sellers and/or their Affiliates are directly or indirectly acquired by (whether by merger, acquisition of assets or equity, or otherwise), or directly or indirectly acquire (whether by merger, acquisition of assets or equity, or otherwise), a third party which engages in a Competing Business, such third party and its Affiliates (other than Sellers and/or their Affiliates existing prior to the date of such acquisition) shall not be restricted from continuing to engage in such Competing Business pursuant to this Section 5.14(b), provided that the rights of such third party and its Affiliates to utilize the OCR IP in such Competing Business existed prior to the date of such acquisition.

 

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(c) Each Party acknowledges and agrees that the provisions of this Section 5.14 are reasonable and necessary to protect the legitimate business interests of the other Party, including without limitation such Party’s confidential information and goodwill. Each Party agrees, and shall not contest, that the other Party’s remedies at law for any breach or threat of breach by such Party or its Affiliates of the provisions of this Section 5.14 will be inadequate, and that the other Party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Section 5.14 and to enforce specifically such terms and provisions, in addition to any other remedy to which the other Party may be entitled at law or in equity. The restrictive covenants contained in this Section 5.14 are covenants independent of any other provision of this Agreement or other agreement between the Parties and the existence of any claim which a Party may allege against another Party under any provision of this Agreement, any other Agreement, or otherwise will not prevent the enforcement of the covenants in this Section 5.14. If any of the provisions contained in this Section 5.14 shall for any reason be held to be excessively broad as to duration, scope, activity or subject, then such provision shall be construed by limited and reducing it, so as to be valid and enforceable to the extent compatible with applicable Law or the determination by a court of competent jurisdiction. The Parties agree and intent that a Party’s obligations under this Section 5.14 will be tolled during any period that such party is found to be in breach of any of the obligations under this Section 5.14, so that the other Party is provided with the full benefit of the restrictive periods set forth herein.

5.15 Indebtedness/Lien Release. Sellers shall cause the Transferred Entities to have no Indebtedness. Simultaneously with Closing, Sellers shall cause any lender or representative thereof and any lienholder to release any and all Liens on the assets and properties of either of the Transferred Entities, other than Permitted Liens, it being understood that filings (including mortgage filings and UCC terminations) to terminate Liens as a matter of record will be filed after Closing.

5.16 Additional Financial Statements. Sellers shall use commercially reasonable efforts to, within 60 days of Closing, provide to Purchasers audited consolidated statements of income, balance sheets and statements of cash flows of the Business (i) as of December 31, 2013 and for the nine-month period then ended and (ii) as of December 31, 2014 and for the twelve-month period then ended. If the Closing Date is after March 31, 2015, Sellers shall use commercially reasonable efforts to also provide to Purchasers unaudited consolidated statements of income, balance sheets and statements of cash flows of the Business (i) as of March 31, 2015 and for the three-month period then ended and (ii) as of March 31, 2014 and for the three-month period then ended.

5.17 Change of Name of Transferred Entities. As soon as possible following the Closing Date, Purchasers shall eliminate the use of all of the trademarks, tradenames, service marks and service names related to “ALKERMES”, in any of their forms or spellings, in the names of the Transferred Entities and on all advertising, purchase orders and acknowledgements, customer agreements and other Contracts retained by Purchasers following the Closing.

 

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5.18 Transition Services Agreement and Supply Agreements. The Parties shall, and shall cause their Affiliates to, negotiate in good faith to finalize (i) the Transition Services Agreement, on terms and conditions consistent with Exhibit A and (ii) the Supply Agreements, on terms and conditions consistent with Exhibit B.

5.19 Exclusivity. The Sellers agree that between the date of this Agreement and the earlier of the Closing and the termination of this Agreement pursuant to its terms, the Sellers shall not, and shall take all action necessary to ensure that none of the Sellers’ Affiliates or any of their respective Representatives shall, (a) directly or indirectly, solicit, initiate, encourage or accept any proposal or offer that constitutes an Acquisition Proposal, (b) participate in any discussions, conversations, negotiations or other communications regarding, or otherwise cooperate in any way, assist or participate in, or facilitate or knowingly encourage the submission of, any proposal that constitutes, or would reasonably be expected to lead to, an Acquisition Proposal or (c) furnish to any Person other than Purchasers any information regarding the Transferred Entities in response to an Acquisition Proposal or an inquiry or indication of interest for the purpose of making or pursuing an Acquisition Proposal. The Sellers immediately shall cease and cause to be terminated all existing discussions, conversations, negotiations and other communications with any Persons conducted heretofore with respect to any Acquisition Proposal.

5.20 Solvency. For a period of two years following the Closing Date, Recro and its Subsidiaries, taken as a whole, will maintain sufficient capital to operate the Business in the ordinary course of business and to pay its debts and perform obligations (including under the Agreement and Ancillary Agreements) as they come due.

5.21 Data Room. Within ten (10) days of the date hereof, Sellers shall deliver to Purchasers a disk containing copies of all documents contained in the virtual data room maintained by Sellers as of the date hereof in connection with the sale of the Business.

ARTICLE VI

EMPLOYEE MATTERS COVENANTS

6.1 Benefit Continuation. For a period of one (1) year from the Closing Date (or for such longer period as and to the extent required by applicable Law), Purchasers shall, or shall cause its Affiliates to, provide to each Transferred Entity Employee, (a) base salary or wages and target bonus opportunities (excluding, without limitation, any retention, change in control or equity incentive compensation) that are, in each case, no less favorable than those provided to such Transferred Entity Employee immediately prior to the Closing Date, (b) equity or long-term incentive compensation opportunities that are substantially similar to those provided to similarly-situated employees of entities similarly-situated to Purchasers, and (c) other employee benefits and terms and conditions of employment that are no less favorable than those provided to similarly situated employees of Purchasers or their applicable Affiliate. No later than the Closing Date, Purchasers and/or their applicable Affiliates shall establish Purchaser Plans (as defined below) to the extent necessary to comply with their obligations under this Article VI.

 

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6.2 Service Credit. From and after the Closing Date, Purchasers and their Affiliates shall (a) recognize, for all purposes under all plans, programs and arrangements established or maintained by Purchasers or any of their Affiliates for the benefit of each Transferred Entity Employee (each, a “Purchaser Plan”) service with Sellers and their Affiliates and predecessors prior to the Closing Date to the extent such service was recognized under the corresponding Benefit Plan of Sellers or their Affiliates covering such Transferred Entity Employee as of immediately prior to the Closing Date, including, for purposes of eligibility, vesting and benefit levels and accruals, including, without limitation, for purposes of vacation accruals, (b) waive any pre-existing condition exclusion, actively-at-work requirement or waiting period under all applicable Purchaser Plans except to the extent such pre-existing condition, exclusion, requirement or waiting period would have applied to such Transferred Entity Employee under the corresponding Benefit Plan of Sellers or their Affiliates covering such Transferred Entity Employee as of immediately prior to the Closing Date, and (c) provide full credit for any co-payments, deductibles or similar payments made or incurred with respect to each Transferred Entity Employee prior to the date of this Agreement for the plan year in which the Closing Date occurs.

6.3 Employment Continuation. Notwithstanding the covenants of Purchasers and their Affiliates set forth in Sections 6.1 and 6.2, nothing contained in this Article VI: (i) shall limit or condition the ability of Purchasers, the Transferred Entities, or any of their respective Affiliates to terminate, either with or without “cause,” the employment of any Transferred Entity Employees at any time; (ii) shall alter or limit the ability of Purchasers, the Transferred Entities, or any of their respective Affiliates to amend, modify or terminate any benefit plan, program, agreement or arrangement at any time assumed, established, sponsored or maintained by any of them; or (iii) is intended to confer upon any current or former employee or any Person any right to employment or continued employment for any period of time by reason of this Agreement, or any right to a particular term or condition of employment.

6.4 Retention Bonuses.

(a) On or prior to the Closing Date, Sellers shall pay to each Transferred Entity Employee listed on Schedule 6.4(a) of the Sellers Disclosure Letter the bonus amounts listed opposite such Transferred Entity Employee’s name (collectively, the “Initial Retention Bonuses”). The Retention Bonuses, once paid, will not be included in the calculation of Working Capital.

(b) Sellers shall pay directly to each Transferred Entity Employee listed on Schedule 6.4(b) of the Sellers Disclosure Letter, and be responsible for the employer portion of any payroll and employment taxes relating thereto and all related withholding (and Purchasers shall provide to Sellers such information and documentation as Sellers shall reasonably request related thereto), so long as such Transferred Entity Employee (i) is employed by a Transferred Entity or an Affiliate of Purchasers as of the Additional Retention Bonus Date (as defined below) and (ii) waives and releases any and all claims against Sellers and their Affiliates (not including Newco and Alkermes Gainesville), the bonus amounts listed opposite such Transferred Entity Employee’s name (collectively, the “Additional Retention Bonuses” and together with the Initial Retention Bonuses, the “Retention Bonuses”), which Additional Retention Bonuses shall be paid on December 15, 2015 or such other date prior to December 25, 2015 as Sellers may determine

 

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(the “Additional Retention Bonus Date”). Purchasers shall provide Sellers a list of Transferred Entity Employees employed by either a Transferred Entity or an Affiliate of Purchasers as of December 1, 2015 and shall be obligated to notify Sellers of any resignation or expected resignation of a Transferred Entity Employee prior to December 15, 2015. The Additional Retention Bonuses will not be included in the calculation of Working Capital.

6.5 Accrued Vacation Payment. Upon and subject to the Closing, Seller shall pay to each Transferred Entity Employee a cash amount in respect of any unused vacation accrued through December 31, 2014 under the applicable plan of Seller. Such amount, once paid, will not be included in the calculation of Working Capital.

ARTICLE VII

TAX MATTERS

7.1 Generally. The following provisions shall govern the allocation of responsibility as between Purchasers and Sellers for certain Tax matters following the Closing Date.

7.2 Tax Indemnification.

(a) Each Seller shall jointly and severally indemnify the Transferred Entities, Purchasers and each of Purchasers’ Affiliates and hold them harmless from and against any loss, claim, liability, expense or other damage attributable to: (i) all Taxes (or the non-payment thereof) of the Transferred Entities that relate to all Pre-Closing Tax Periods; (ii) all Taxes of any member of an affiliated, consolidated, combined, VAT or unitary group of which the Transferred Entities (or any predecessor of any of the foregoing) is or was a member on or prior to the Closing Date, including pursuant to Treasury Regulation §1.1502-6 or any analogous or similar state, local, or non-U.S. Law or regulation; (iii) any and all Taxes of any person (other than the Transferred Entities) imposed on the Transferred Entities as a transferee or successor, by contract or pursuant to any law, rule, or regulation, which Taxes relate to an event or transaction occurring before the Closing (including any Transferred Entity being a member of a VAT grouping); (iv) any Taxes of another party that a Transferred Entity was required to withhold in any Pre-Closing Tax Period, (v) a breach of Section 3.12(k) of this Agreement, and (vi) any Irish stamp duty arising under Section 79(7)(b) of the Stamp Duties Consolidation Act 1999 or Irish corporation tax on chargeable gains arising under Section 623(4) of the Taxes Consolidation Act 1997 arising or imposed on a Transferred Entity as a direct consequence of the Transferred Entity ceasing on Closing to be associated for stamp duty purposes or a member of a group for Irish corporation tax on chargeable gains; provided, however, that Sellers shall (x) have no obligation to indemnify Purchasers against any Taxes or other expenses incurred by the Transferred Entities resulting from, consisting of, or related to any transaction entered into or action taken by Purchasers occurring on or after the Closing Date after the Closing (including, without limitation, any Divestiture by Purchasers) and (y) be liable only to the extent that such Taxes exceed the amount, if any, reserved specifically for such Taxes in Working Capital and taken into account in Sections 2.4 and 2.5 of this Agreement.

(b) Purchasers and their Affiliates shall pay or cause to be paid and shall indemnify Sellers and their Affiliates and protect, save and hold them harmless from and against

 

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any loss, claim, liability, expense or other damage attributable to any Taxes imposed on Sellers and their Affiliates (including, prior to Closing, the Transferred Entities) caused by, resulting from, consisting of, or related to (i) Purchasers’ failure to comply with their obligations under Section 2.2(b) with respect to the allocation and reporting of the Purchase Price for the Transferred Interests or failure to treat any portion of the Initial Purchase Price, the Warrant or the Earn-Out Consideration paid to APIL (other than by reason of APIL failing to meet its obligations under Section 2.2(e) to provide Purchasers with valid withholding certificates as set forth therein) as exempt from United States federal Income Tax under the Code and/or Article 12 or Article 13 of the U.S.-Ireland Tax Treaty or for exemption from FATCA Taxes, and (ii) any transaction entered into or action taken by Purchasers occurring on or after the Closing Date after the Closing (including, without limitation, any Divestiture by Purchasers).

(c) The provisions of Section 10.6(c) shall apply with respect to Tax indemnity payments required to be made pursuant to this Section 7.2. Payment of any Tax indemnity payment required to be made under this Section 7.2 shall be made to the party entitled to indemnification at least two (2) Business Days before the date payment of the Taxes to which such payment relates is due by such indemnitee and, if payment has not been made at such time, within two (2) Business Days after receipt of a written demand from the indemnitee.

7.3 Straddle Period. In the case of a Straddle Period, the amount of any Taxes based on or measured by income, receipts, or payroll of the Transferred Entities for the Pre-Closing Tax Period shall be determined based on a deemed interim closing of the books as of the close of business on the Closing Date, and the amount of other Taxes of the Transferred Entities for a Straddle Period that relates to the Pre-Closing Tax Period shall be deemed to be the amount of such Tax for the entire taxable period multiplied by a fraction the numerator of which is the number of days in the taxable period ending on the Closing Date and the denominator of which is the number of days in such Straddle Period.

7.4 Tax Proceedings.

(a) Notices. Purchasers shall promptly notify Sellers in writing upon receipt by Purchasers, the Transferred Entities or any of their Affiliates of notice of any Tax Proceeding in respect of the Transferred Entities relating to any Pre-Closing Tax Period or Straddle Period for which Sellers could be liable for Taxes under Law or this Agreement. Such notification shall specify in reasonable detail the basis for such Tax Proceeding and shall include a copy of the relevant portion of any correspondence received from the Governmental Entity.

(b) Pre-Closing Tax Periods. Sellers shall have the right, at their expense, to control any Tax Proceeding in respect of the Transferred Entities for any Pre-Closing Tax Period; provided, however, that Sellers shall provide Purchasers with a timely and reasonably detailed account of each stage of such Tax Proceeding and shall permit Purchasers to participate in the Tax Proceeding at its expense, through counsel or accountants reasonably acceptable to Sellers, and Sellers shall not settle, compromise, or conclude any such Tax Proceeding without the prior written consent of the applicable Purchaser, which consent shall not be unreasonably withheld or conditioned. Purchasers, at Sellers’ expense, may control and contest any Tax Proceeding which Sellers would otherwise have the right to control under this Section 7.4(b) if Sellers (i) decline or fail to contest such Tax Proceeding or (ii) do not substantially comply with

 

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the provisions of the preceding sentence; provided, however, that if the applicable Purchaser exercises its right to control and contest any Tax Proceeding under the preceding clause, such Purchaser shall (i) provide Sellers with a timely and reasonably detailed account of each stage of such Tax Proceeding, (ii) not settle, compromise or abandon any such Tax Proceeding without obtaining the prior written consent of Sellers, which consent shall not be unreasonably withheld or delayed, and (iii) consult with Sellers concerning the appropriate strategy for contesting such Tax Proceeding.

(c) Straddle Periods. Purchasers shall control, at their own expense, any Tax Proceeding in respect of the Transferred Entities for any Straddle Period; provided, however, that Purchasers shall provide Sellers with a timely and reasonably detailed account of each stage of such Tax Proceeding.

7.5 Cooperation on Tax Matters.

(a) Purchasers, the Transferred Entities, and Sellers shall cooperate fully, as and to the extent reasonably requested by the other Party, in connection with the filing of Tax Returns pursuant to this Section 7.5 and any Tax Proceeding. Such cooperation shall include the retention and (upon the other Party’s request) the provision of records and information that are reasonably relevant to any such Tax Proceeding and making employees available on a mutually convenient basis to provide additional information and explanation of any material provided hereunder. The Transferred Entities and Sellers agree (A) to retain all books and records with respect to Tax matters pertinent to the Transferred Entities relating to any taxable period beginning before the Closing Date until the expiration of the statute of limitations (and, to the extent notified by Purchasers or Sellers, any extensions thereof) of the respective taxable periods, and to abide by all record retention agreements entered into with any taxing authority, and (B) to give the other Party reasonable written notice prior to transferring, destroying or discarding any such books and records and, if the other Party so requests, the Transferred Entities or Sellers, as the case may be, shall allow the other Party to take possession of such books and records.

(b) Purchasers and Sellers further agree, upon request, to use their best efforts to obtain any certificate or other document from any Governmental Entity or any other Person as may be necessary to mitigate, reduce or eliminate any Tax that could be imposed (including, but not limited to, with respect to the transactions contemplated hereby).

7.6 Certain Taxes and Fees. Except as otherwise provided in this Agreement, and in particular Section 7.2(a) of this Agreement, all transfer, documentary, sales, use, stamp, registration and other such Taxes (including any penalties and interest) incurred in connection with the purchase of the Transferred Interests shall be borne by the Party that bears liability therefor under applicable Law.

7.7 Survival. The representations and warranties in Section 3.12 shall survive the Closing Date until sixty (60) days following the expiration of the applicable statute of limitations.

 

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ARTICLE VIII

CONDITIONS TO OBLIGATIONS TO CLOSE

8.1 Conditions to Obligation of Each Party to Close. The respective obligations of each Party to effect the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver at or prior to the Closing of the following conditions:

(a) HSR Act. Any waiting period (and any extension thereof) applicable to the consummation of the Sale under the HSR Act shall have expired or been terminated.

(b) No Injunctions or Illegality. No court or other Governmental Entity of competent jurisdiction shall have enacted, issued, promulgated, enforced or entered any Law (whether temporary, preliminary or permanent) that is in effect and prevents, restrains, enjoins or otherwise prohibits the consummation of the Sale (a “Prohibitive Order”).

(c) Governmental and Regulatory Approvals. Other than the filings pursuant to the HSR Act and any other required antitrust Laws identified after the date hereof, all consents, approvals and actions of, filings with and notices to any Governmental Entity that are material to the Business and required of Purchasers or Sellers to consummate the transactions contemplated hereby shall have been obtained or made.

(d) Consents. All Consents listed on Section 3.3(a) of the Sellers Disclosure Letter except for those Consents listed on Section 8.1(d) of the Sellers Disclosure Letter shall have been obtained.

8.2 Conditions to Purchasers’ Obligation to Close. Purchasers’ obligation to effect the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver on or prior to the Closing of all of the following conditions:

(a) Representations and Warranties. (i) The representations and warranties made by Sellers in this Agreement that are qualified by Material Adverse Effect shall be true and correct, and (ii) the representations and warranties made by the Sellers in this Agreement that are not so qualified shall be true and correct in all material respects (determined without regard to any “materiality” qualifications); in the case of each of clauses (i) and (ii) above, as of the Closing Date as if made on and as of the Closing Date (except to the extent that any such representation or warranty, by its terms, is expressly limited to a specific date, in which case, as of such specific date).

(b) Covenants and Agreements. The covenants and agreements of Sellers to be performed on or before the Closing Date in accordance with this Agreement shall have been duly performed in all material respects.

(c) Officer’s Certificate. Purchasers shall have received a certificate, dated as of the Closing Date and signed on behalf of each Seller by an executive officer of each Seller, stating that the conditions specified in Section 8.2(a) and Section 8.2(b) have been satisfied.

 

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(d) Closing Deliverables. Purchasers shall have received from Sellers the deliverables listed in Sections 2.3(b)(i)(A)-(I).

(e) Financing. The Debt Financing (or Alternative Financing in accordance with Section 2) has been funded or will be available to be funded at Closing.

8.3 Conditions to Sellers’ Obligation to Close. The obligations of Sellers to effect the transactions contemplated by this Agreement shall be subject to the satisfaction or waiver on or prior to the Closing of all of the following conditions:

(a) Representations and Warranties. The representations and warranties made by Purchasers in this Agreement and the Warrant shall be true and correct in all material respects (determined without regard to any “materiality” or “material adverse effect” qualifications), as of the Closing Date as if made on and as of the Closing Date (except to the extent that any such representation or warranty, by its terms, is expressly limited to a specific date, in which case, as of such specific date).

(b) Covenants and Agreements. The covenants and agreements of Purchasers to be performed on or before the Closing Date in accordance with this Agreement shall have been duly performed in all material respects.

(c) Officer’s Certificate. Sellers shall have received a certificate, dated as of the Closing Date and signed on behalf of Purchasers by an executive officer of each Purchaser, stating that the conditions specified in Section 8.3(a) and Section 8.3(b) have been satisfied.

(d) Closing Deliverables. Sellers shall have received from Purchasers the deliverables listed in Sections 2.3(b)(ii)(A)-(D).

ARTICLE IX

TERMINATION

9.1 Termination. This Agreement may be terminated at any time prior to the Closing:

(a) by mutual written consent of Sellers and Purchasers;

(b) by either Sellers or Purchasers, if:

(i) the Closing shall not have occurred on or before May 8, 2015 (the “Outside Date”); provided, however, that the right to terminate this Agreement under this Section 9.1(b)(i) shall not be available to any Party to this Agreement whose failure or whose Affiliate’s failure to perform any material covenant or obligation under this Agreement has been the primary cause of the failure of the transactions contemplated by this Agreement to occur on or before such date;

(ii) if the other Party shall have breached or failed to perform in any material respect any of its respective representations, warranties, covenants or other agreements contained in this Agreement, and such breach or failure to perform (A) would

 

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give rise to the failure of a condition set forth in Section 8.2(a) or Section 8.2(b) (in the case of a breach by Sellers) or Section 8.3(a) or Section 8.3(b) (in the case of a breach by Purchasers), and (B) cannot be or has not been cured prior to the earlier of (1) the Business Day prior to the Outside Date or (2) the date that is thirty (30) days from the date that Purchasers or Sellers, as applicable, is notified by the other in writing of such breach or failure to perform; or

(iii) if any Prohibitive Order permanently prevents, restrains, enjoins or otherwise prohibits the consummation of the Sale, and such Prohibitive Order becomes effective (and final and nonappealable);

(c) by Sellers if Closing has not occurred by the third (3rd) Business Day following the satisfaction or waiver of the conditions set forth in Article VIII excluding the conditions set forth in Section 8.2(e) (other than those conditions that by their nature are to be satisfied or waived at the Closing, but subject to the satisfaction or waiver of those conditions) or by such other time and date as mutually agreed by the Parties pursuant to Section 2.3, provided that such failure to close is not the result of any action or inaction of Sellers; and

(d) by Purchasers if Closing has not occurred by the third (3rd) Business Day following the satisfaction or waiver of the conditions set forth in Article VIII (other than those conditions that by their nature are to be satisfied or waived at the Closing, but subject to the satisfaction or waiver of those conditions) or by such other time and date as mutually agreed by the Parties pursuant to Section 2.3, provided that such failure to close is not the result of any action or inaction of Purchasers.

9.2 Notice of Termination. In the event of termination of this Agreement by either or both of Sellers and Purchasers pursuant to Section 9.1, written notice of such termination shall be given by the terminating Party to the other Parties to this Agreement.

9.3 Effect of Termination. In the event of termination of this Agreement by either or both of Sellers and Purchasers pursuant to Section 9.1, this Agreement shall terminate and become void and have no effect, and the transactions contemplated by this Agreement shall be abandoned without further action by the Parties to this Agreement, except that the provisions of Section 5.1(a), Section 9.4, Section 11.2 and Section 11.5 shall survive the termination of this Agreement; provided, however, that such termination shall not relieve any Party to this Agreement of liability for any fraud or willful breach of this Agreement.

9.4 Reverse Termination Fee.

(a) If this Agreement is validly terminated by Sellers pursuant to Section 9.1(b)(ii) or Section 9.1(c), then Purchasers shall pay by wire transfer of immediately available funds, to an account designated by Sellers, within two (2) Business Days after the date on which this Agreement is so terminated, the amount of Five Million Dollars ($5,000,000) (the “Reverse Termination Fee”); provided, however, that Purchasers shall not be liable to Sellers for the Reverse Termination Fee solely due to a failure to satisfy the conditions of Section 8.2(e), provided that Purchasers have complied with its obligations under Section 5.12.

 

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(b) Each Party acknowledges that the agreements contained in this Section 9.4 are an integral part of the transactions contemplated by this Agreement and that, without these agreements, the other Parties would not enter into this Agreement. Accordingly, if Purchasers fail promptly to pay the amounts due pursuant to this Section 9.4, and, in order to obtain such payments, Sellers commence a suit that results in a judgment against Purchasers for the amounts set forth in this Section 9.4, Purchasers will pay to Sellers, Sellers’ costs and expenses (including reasonable attorney’s fees and disbursements) in connection with such suit. The Parties acknowledge that the Reverse Termination Fee shall not constitute a penalty but rather is liquidated damages, in a reasonable amount that will compensate Sellers in the circumstances in which the Reverse Termination Fee is payable for the efforts and resources expended and opportunities foregone while negotiating this Agreement and in reliance on this Agreement and on the expectation of the consummation of the Sale, which amount would otherwise be impossible to calculate with precision.

(c) Except as set forth in Section 9.4(b), in any circumstance in which Sellers have the right to receive the Reverse Termination Fee pursuant to Section 9.4(a), Sellers’ termination of this Agreement and receipt of the Reverse Termination Fee shall be the sole and exclusive remedy of Sellers and their Affiliates against Purchasers, the financing sources of the Debt Financing and any of their respective, direct or indirect, former, current or future general or limited partners, managers, members, stockholders, officers, directors, Affiliates, employees, representatives, agents, successors and assigns (collectively, the “Purchaser Related Parties”) for any loss suffered as a result of any breach of any representation, warranty, covenant or agreement in this Agreement, the transactions contemplated hereby, or the Debt Financing Agreements, and upon such termination by Sellers and receipt of the Reverse Termination Fee, none of the Purchasers, the financing sources of the Debt Financing, or any of their respective Purchaser Related Parties shall have any further liability or obligation relating to or arising out of this Agreement, the transactions contemplated hereby, or the Debt Financing Agreements (except that the applicable Purchaser Related Parties of the Purchasers (and not the Purchaser Related Parties of the financing sources of the Debt Financing) shall remain obligated for, and Sellers and their Subsidiaries may be entitled to remedies with respect to, any breach of the Confidentiality Agreement or the provisions of Section 11.3, whether in equity or at law, in contract, in tort or otherwise).

ARTICLE X

SURVIVAL; INDEMNIFICATION; LIQUIDATED DAMAGES

10.1 Survival Periods. All representations and warranties contained in this Agreement, and the right to commence any claim with respect thereto under Section 10.2 and Section 10.3, shall survive until the fifteen (15) month anniversary of the Closing Date; provided that (i) the Fundamental Representations and the Purchasers Fundamental Representations shall survive indefinitely; and (ii) the representations and warranties set forth in Section 3.9 (Intellectual Property), Section 3.18 (Environmental Health and Safety Matters) and Section 3.19 (Employee Benefits Plans) shall survive until the three (3) year anniversary of the Closing Date. Those covenants that contemplate or may involve actions to be taken or obligations in effect after the Closing shall survive in accordance with their terms. Written notice of a claim under this Article X must be given to the Indemnifying Party in accordance with the provisions hereof prior to the expiration of the survival period set forth in this Section 10.1.

 

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10.2 Indemnification by Sellers. Subject to the provisions of this Article X, from and after the Closing Date, Sellers shall indemnify and hold harmless Purchasers and its Affiliates, each of their respective directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing (collectively, the “Purchasers Indemnified Parties”) from and against any and all Losses to the extent resulting from or arising out of:

(a) any breach of any representation or warranty of Sellers contained in Article III of this Agreement as of the Closing Date (or with respect to representations and warranties that are made as of a specific date, as of such date);

(b) any breach of any covenant or agreement contained in this Agreement to be performed by Sellers after the Closing; and

(c) the Initial Retention Bonuses.

10.3 Indemnification by Purchasers. Subject to the provisions of this Article X, from and after the Closing Date, Purchasers shall indemnify and hold harmless Sellers and their Affiliates, each of their respective directors, officers, employees and agents, and each of the heirs, executors, successors and assigns of any of the foregoing from and against any and all Losses resulting from or arising out of:

(a) any breach of any representation or warranty of Purchasers contained in Article IV of this Agreement as of the Closing Date (or with respect to representations and warranties that are made as of a specific date, as of such date);

(b) any breach of any covenant or agreement contained in this Agreement to be performed by Purchasers after the Closing; and

(c) actions taken on behalf of, or at the request of, Purchasers in connection with the Debt Financing or any Alternative Financing.

10.4 Indemnification Procedures.

(a) A Person that may be entitled to be indemnified under this Agreement (the “Indemnified Party”), shall promptly notify the Party or Parties liable for such indemnification (the “Indemnifying Party”) in writing of any pending or threatened claim or demand other than a Tax Proceeding that the Indemnified Party has determined gives or would reasonably be expected to give rise to a right of indemnification under this Agreement (including a pending or threatened claim or demand asserted by a third party against the Indemnified Party, such claim being a “Third Party Claim”), describing in reasonable detail the facts and circumstances with respect to the subject matter of such claim or demand (including copies of any summons, complaint or other pleading which may have been served on it and any written claim, demand, invoice, billing or other document evidencing or asserting the same); provided, however, that the failure to provide such notice shall not release the Indemnifying Party from any of its obligations

 

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under this Article X except to the extent the Indemnifying Party is materially prejudiced by such failure, it being agreed that notices for claims in respect of a breach of a representation, warranty, covenant or agreement must be delivered prior to the expiration of any applicable survival period specified in Section 10.1 for such representation, warranty, covenant or agreement.

(b) Upon receipt of a notice of a Third Party Claim for indemnity from an Indemnified Party pursuant to Section 10.2 or Section 10.3, other than a Tax Proceeding, the Indemnifying Party will be entitled, by notice to the Indemnified Party delivered within twenty (20) Business Days of the receipt of notice of such Third Party Claim, to undertake, conduct and control the settlement or defense of such Third Party Claim (at the expense of such Indemnifying Party); provided that the Indemnifying Party shall only be entitled to undertake, conduct and control such settlement or defense if it acknowledges, in writing, to the Indemnified Party, its obligation to indemnify the Indemnified Party pursuant to the terms and subject to the limitations of this Article X. The Indemnifying Party shall allow the Indemnified Party a reasonable opportunity to participate in the defense of such Third Party Claim with its own counsel and at its own expense. If the Indemnifying Party does not assume the defense and control of any Third Party Claim pursuant to this Section 10.4(b), the Indemnified Party shall be entitled to assume and control such defense through counsel of its own choice, and the reasonable fees and expenses incurred in connection with such defense shall be considered Losses hereunder with respect to the subject matter of such claim, indemnifiable to the extent provided in this Article X, but the Indemnifying Party may nonetheless participate in the defense of such Third Party Claim with its own counsel and at its own expense. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the settlement or defense of a Third Party Claim under this Section 10.4(b) unless: (A) the Third Party Claim involves solely monetary damages, (B) the Indemnifying Party demonstrates to the Indemnified Party’s reasonable satisfaction that the Indemnifying Party has sufficient financial resources in order to indemnify for the full amount of such potential Losses for which the Indemnifying Party is reasonably likely to be liable pursuant to this Article X, and (C) the amount of such potential Losses for which the Indemnifying Party is reasonably likely to be liable does not exceed the Cap. If either the Indemnifying Party or the Indemnified Party assumes the defense and control of a Third Party Claim, the Indemnifying Party or the Indemnified Party, as applicable, shall select counsel and shall use commercially reasonable efforts in the defense or settlement of such Third Party Claim. Purchasers or Sellers, as the case may be, shall, and shall cause each of their Affiliates and Representatives to, reasonably cooperate with the Indemnifying Party or Indemnified Party, as applicable, in the defense of any Third Party Claim, including by furnishing Books and Records, personnel and witnesses, as appropriate for any defense of such Third Party Claim. If the Indemnifying Party has assumed the defense and control of a Third Party Claim, it shall be authorized to consent to a settlement of, or the entry of any judgment arising from, any Third Party Claim, in its sole discretion and without the consent of the Indemnified Party; provided that such settlement or judgment shall consist solely of a recovery of monetary damages for which the Indemnifying Party shall be liable pursuant to this Article X, and the Indemnifying Party shall (i) pay or cause to be paid all amounts in such settlement or judgment (other than solely with respect to the Deductible would be applicable in accordance with the applicable provisions of Section 10.5) and (ii) obtain, as a condition of any settlement or other resolution, a complete and unconditional release of any Indemnified Party affected by such Third Party Claim. Except as set forth in the previous sentence, no Party shall settle or compromise any Third Party Claim without the prior written consent of the other Party, which consent shall not be unreasonably withheld,

 

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conditioned or delayed; provided, that is shall not be unreasonable for an Indemnified Party to withhold its consent to any settlement that involves any injunctive relief binding on any of the Indemnified Parties or a finding or admission of any violation of Law or admission of any wrongdoing by any Indemnified Party. No Indemnified Party will consent to the entry of any judgment or enter into any settlement or compromise with respect to a Third Party Claim without the prior written consent of the Indemnifying Party. Notwithstanding the foregoing, this Section 10.4 shall be subject to the provisions of any Contract providing for the defense or prosecution of any Action.

10.5 Limitations.

(a) Sellers shall have no liability for indemnification pursuant to Section 10.2(a) with respect to Losses for which indemnification is provided thereunder, (i) to the extent such Losses were included in the calculation of Working Capital on the Final Post-Closing Adjustment Statement, as finally determined pursuant to Sections 2.4 through 2.7, (ii) to the extent that Purchasers received a benefit from the reflection of such matter in the calculation of the adjustment of the Initial Purchase Price, if any, as finally determined pursuant to Sections 2.4 through 2.7, (iii) that are De Minimis Damages or (iv) unless the aggregate of all Losses (other than De Minimis Damages) exceeds Five Hundred Thousand Dollars ($500,000) (the “Deductible”) in which case Sellers shall be liable for all such Losses (other than De Minimis Damages) in excess of the amount of the Deductible. Notwithstanding the foregoing, Sellers shall have no liability for indemnification pursuant to Section 10.2(a) with respect to Losses of any aggregate amount that exceeds the Cap, it being understood that in the event any Purchasers Indemnified Party seeks indemnification for Losses in excess of the Cap and the Cap subsequently increases to a greater value as a result of the payment of Development Milestone Earn-Out Consideration and/or Commercial Milestone Earn-Out Consideration to APIL, such Purchasers Indemnified Party shall be entitled to seek indemnification in accordance with such increased Cap and the terms of this Agreement.

(b) The Deductible and the Cap shall not apply to any Losses arising out of or resulting from (1) the breach of any Fundamental Representation, (2) the breach of any representation or warranty set forth in Section 3.12 (Taxes); (3) the breach of any Purchasers Fundamental Representation; (4) the breach of any covenant set forth in this Agreement; or (5) fraud.

(c) Purchasers shall have no liability for indemnification pursuant to Section 10.3(a) with respect to Losses for which indemnification is provided thereunder, (i) that are De Minimis Damages or (ii) unless the aggregate of all Losses (other than De Minimis Damages) exceeds the Deductible, in which case Purchasers shall be liable for all such Losses (other than De Minimis Damages) in excess of the amount of the Deductible.

(d) For purposes of calculating the amount of any Losses arising out of or resulting from any breach of any representation or warranty of set forth in this Agreement, any reference to “Material Adverse Effect” or “materiality” or other correlative terms in such representations or warranties shall be disregarded.

 

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(e) Sellers shall not be liable under this Article X for any Losses based upon or arising out of any inaccuracy in or breach of any of the representations or warranties of Sellers contained in this Agreement if Purchasers had knowledge, based solely upon written documentation included in the data room, of such inaccuracy or breach prior to the Closing. For purposes of this Section 10.5(e), Purchasers shall be deemed to have knowledge of all written documentation included in the data room as of the date hereof and included on the disk delivered pursuant to Section 5.21.

10.6 Mitigation; Additional Indemnification Provisions.

(a) Each Indemnified Party shall use, and cause its Affiliates to use, commercially reasonable efforts to mitigate any claim or liability that an Indemnified Party asserts under this Article X (including by taking reasonable best efforts to seek full recovery under all insurance and indemnity provisions covering any Losses for which it is seeking indemnification hereunder, to the same extent as it would if such Loss were not subject to indemnification hereunder).

(b) For purposes of this Agreement, Losses shall be calculated after giving effect to amounts actually received under any insurance policy, (net of any costs to recover such amounts and increases in premiums resulting from such claim).

(c) The amount of any Losses for which indemnification is provided shall be adjusted to take into account the amount of any net Tax benefit actually realized by the Indemnified Party as a result of the incurrence or payment of any such Losses in the form of a refund or reduction in Taxes otherwise payable within the tax year in which the Losses were incurred or paid, or the next two immediately succeeding tax years, in each case, calculated by comparing Taxes that would have been payable without taking into account any deduction or credit resulting from such Losses and Taxes actually payable by taking into account such deductions or credits (but only after all other items of income, gain, loss and deduction have been taken into account). If the Indemnified Party actually realizes a Tax benefit after an indemnification payment is made to it that was not taken into account at the time the indemnification payment was made, the Indemnified Party shall pay to the Indemnifying Party the amount that the indemnification payment would have been reduced by if such Tax benefit had been actually realized prior to the time such indemnification payment was made.

(d) No Indemnified Party will, in any event, be entitled to any incidental, indirect, consequential, special, exemplary or punitive damages, including actual or potential lost profits, diminution in value or measures of damages based on a multiple.

10.7 Liquidated Damages. In the event of the occurrence of an event described on Section 10.7 of the Sellers Disclosure Letter (a “Liquidated Damages Event”), monetary damages would be difficult, if not impossible, to measure. The Parties therefore agree that liquidated damages shall be payable by Sellers to Purchasers in the manner and amount described on Schedule 10.7 of the Sellers Disclosure Letter. Such payments shall begin to be made to Purchasers within sixty (60) days of receipt by Sellers from Purchasers of written notice of the existence of a Liquidated Damages Event, and thereafter shall be made within thirty (30) days of the end of any month in which a Liquidated Damages Event exists. The Parties

 

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acknowledge and agree that this liquidated damages provision is reasonable and does not constitute a penalty. Notwithstanding anything contained in this Agreement, the Parties further agree that this is the sole and exclusive remedy for any Losses arising from or in connection with the events or circumstances set forth on Section 10.7 of the Sellers Disclosure Letter.

10.8 Exclusive Remedies. Except with respect to the matters covered by Section 2.5, Section 2.6, Section 5.14, Section 10.7, Section 11.10, and, with respect to indemnification for Tax matters, Article VII, Sellers and Purchasers acknowledge and agree that, following the Closing, the indemnification provisions of Section 10.2 and Section 10.3 shall be the sole and exclusive remedies of Sellers and Purchasers, respectively, for any Losses (whether predicated on common law, statute, strict liability, Environmental Law (including CERCLA or any similar state law) or otherwise) that each Party may at any time suffer or incur, or become subject to, as a result of, or in connection with, any breach of any representation or warranty in this Agreement by the other Parties or any failure by the other Parties to perform or comply with any covenant or agreement that, by its terms, was to have been performed, or complied with, by such other Parties prior to the Closing.

10.9 Subrogation. In the event of payment by or on behalf of any Indemnifying Party to any Indemnified Party (including pursuant to this Agreement) in connection with any claim or demand by any Person other than the Parties hereto or their respective Affiliates, such Indemnifying Party shall be subrogated to and shall stand in the place of such Indemnified Party as to any events or circumstances in respect of which such Indemnified Party may have any right, defense or claim relating to such claim or demand against any claimant or plaintiff asserting such claim or demand. Such Indemnified Party shall cooperate with such Indemnifying Party in a reasonable manner, and at the cost of such Indemnifying Party, in presenting any subrogated right, defense or claim.

10.10 Tax Indemnification Matters. Notwithstanding anything to the contrary in this Article X, the above provisions of this Article X shall not apply to Tax indemnification matters, which shall instead be governed by Article VII.

10.11 No Duplication. Any liability for indemnification under this Agreement shall be determined without duplication of recovery due to the facts giving rise to such liability constituting a breach of more than one representation, warranty, covenant or agreement.

ARTICLE XI

MISCELLANEOUS

11.1 Counterparts. This Agreement may be executed in two (2) or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties. This Agreement may be executed and delivered by facsimile or as an attachment to an e-mail and upon such delivery the signature will be deemed to have the same effect as if the original signature had been delivered to the other Parties.

 

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11.2 Governing Law; Jurisdiction and Forum; Waiver of Jury Trial.

(a) This Agreement, and all claims or causes of action (whether based on contract, tort or any other theory) that may be based upon, arise out of or related to this Agreement or the negotiation, execution or performance of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts negotiated, made and performed in such State without giving effect to the choice of law principles of such State or other jurisdiction that would require or permit the application of the laws of another jurisdiction.

(b) Each of the Parties hereto irrevocably consents to the exclusive jurisdiction and venue of any court within the State of Delaware in connection with any matter based upon or arising out of this Agreement or the matters contemplated herein, agrees that process may be served upon them in any manner authorized by the laws of the State of Delaware for such Persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction, venue and such process.

(c) Each Party to this Agreement knowingly, intentionally and voluntarily waives to the fullest extent permitted by applicable Law trial by jury in any Action brought by any of them against any other arising out of or in any way connected with this Agreement, or any other agreements executed in connection herewith or the administration thereof or any of the transactions contemplated herein or therein. No Party to this Agreement shall seek a jury trial in any Action based upon, or arising out of, this Agreement or any related instruments or the relationship between the Parties. No Party will seek to consolidate any such Action in which a jury trial has been waived with any other Action in which a jury trial cannot be or has not been waived. Each Party to this Agreement certifies that it has been induced to enter into this Agreement or instrument by, among other things, the mutual waivers and certifications set forth above in this Section 11.2. No Party has in any way agreed with or represented to any other Party that the provisions of this Section 11.2 will not be fully enforced in all instances.

11.3 Confidentiality.

(a) The Confidentiality Agreement and the Confidential Disclosure Agreement shall continue in full force and effect until the Closing Date, at which time such Confidentiality Agreement and Confidential Disclosure Agreement shall terminate, except for the provisions which expressly survive the termination thereof.

(b) Except as expressly permitted pursuant to this Agreement, the Ancillary Agreements, the Intellectual Property Transfer and License Agreement and the IP License Agreement, from and after the Closing Date, Sellers will refrain from, either alone or in conjunction with any other Person, or directly or indirectly through their Affiliates or Representatives, disclosing to any other Person, or using in any manner, any confidential, proprietary or secret information to the extent relating solely to the Transferred Entities or the Business (“Business Confidential Information”); provided that the foregoing obligations of confidentiality and non-use will not apply to any portion of the Business Confidential Information that (A) is or becomes generally available to the public or otherwise part of the public domain after the Closing Date and other than through any act or omission of the foregoing Persons or their Affiliates in breach of this Agreement, the Ancillary Agreements, the Intellectual Property Transfer and License Agreement or the IP License Agreement, (B) is

 

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disclosed after the Closing Date to the foregoing Persons on a non-confidential basis by a third party that is not subject to an obligation of confidentiality with respect to such Business Confidential Information, and (C) is independently discovered or developed by the foregoing Persons or their Affiliates after the Closing Date without the aid, application, or use of such Business Confidential Information.

(c) Except as expressly permitted pursuant to this Agreement, the Ancillary Agreements, the Intellectual Property Transfer and License Agreement and the IP License Agreement, from and after the Closing Date, Purchasers will refrain from, either alone or in conjunction with any other Person, or directly or indirectly through its Affiliates or Representatives, disclosing to any other Person, or using in any manner, any confidential, proprietary or secret information relating to the Sellers and their businesses other than the Transferred Entities and the Business (“Seller Confidential Information”); provided that the foregoing obligations of confidentiality and non-use will not apply to any portion of the Seller Confidential Information that (A) is or becomes generally available to the public or otherwise part of the public domain after the Closing Date and other than through any act or omission of the foregoing Persons or their Affiliates in breach of this Agreement, the Ancillary Agreements, the Intellectual Property Transfer and License Agreement or the IP License Agreement, (B) is disclosed after the Closing Date to the foregoing Persons on a non-confidential basis by a third party that is not subject to an obligation of confidentiality with respect to such Seller Confidential Information, and (C) is independently discovered or developed by the foregoing Persons or their Affiliates after the Closing Date without the aid, application, or use of such Seller Confidential Information.

(d) Notwithstanding Section 11.3(b) and Section 11.3(c), Sellers may disclose the Business Confidential Information and Purchasers may disclose the Seller Confidential Information in order to comply with (i) applicable non-patent Law (including any securities law or regulation or the rules of a securities exchange) and (ii) a request or requirement by deposition, interrogatory, request for documents, subpoena, civil investigation demand or similar process or a formal request from a regulatory examiner, if in the reasonable opinion of counsel, such disclosure is necessary for such compliance (an “External Demand”); and (iii) to its Affiliates, and potential and actual acquirers, merger partners, investors, investment bankers or lenders and their respective counsels and advisors; and; provided that, (A) with regard to disclosure under clause (ii), prior to making such disclosure, the Party subject to such demand or request shall (x) immediately notify the other Party of the existence, terms and circumstances surrounding such External Demand, (y) consult with the other Party on the availability of taking legally available steps to resist or narrow such request or disclosure, and (z) assist the other Party, at the other Party’s expense, in seeking a protective order or other appropriate remedy to the extent available under the circumstances and (B) with regard to disclosure under clause (iii), prior to making such disclosure, such entities are bound by commercially reasonable obligations of confidentiality with respect to the use and disclosure of such Business Confidential Information or Seller Confidential Information, as applicable.

(e) The Parties acknowledge that either or both Parties may be obligated to make filings (including, but not limited to, the filing of a copy of this Agreement or the Ancillary Agreements) with the SEC or other Governmental Entity. Each Party shall be entitled to make such required filings, provided that it requests confidential treatment of at least the financial

 

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terms and sensitive technical terms of this Agreement or the Ancillary Agreements to the extent such confidential treatment is reasonably available to such Party. In the event of any such filing of this Agreement or the Ancillary Agreements, the Party making such filing shall provide notice to the other Party with a copy of such disclosure and, if applicable, a copy of this Agreement or the Ancillary Agreements marked to show provisions for which such Party intends to seek confidential treatment not less than five (5) Business Days prior to such filing (and any revisions to such portions of the proposed filing a reasonable time prior to the filing thereof), and shall give good faith consideration to the other Party’s comments thereon to the extent consistent with the legal requirements. No such notice shall be required under this Section 11.3(e) if the substance of the description of or reference to this Agreement contained in the proposed filing has been included in any previous filing made by either Party hereunder or otherwise approved by the other Party.

11.4 Entire Agreement. This Agreement (including the Schedules and Exhibits to this Agreement) together with the Confidentiality Agreement, the Confidential Disclosure Agreement and the Ancillary Agreements contain the entire agreement and understanding among the Parties with respect to the subject matter hereof and thereof and supersede any prior discussion, correspondence, negotiation, proposed term sheet, agreement, understanding or arrangement, and there are no agreements, understandings, representations or warranties among the Parties other than those set forth or referred to in these documents. None of the Parties shall be liable or bound to any other Party in any manner by any representations, warranties or covenants relating to such subject matter except as specifically set forth in this Agreement (including the Schedules and Exhibits to this Agreement), the Ancillary Agreements or the Confidentiality Agreement.

11.5 Expenses. Except as otherwise set forth in this Agreement, whether the transactions contemplated by this Agreement are consummated or not, all legal and other costs and expenses incurred in connection with this Agreement and the transactions contemplated by this Agreement shall be paid by the Party incurring such costs and expenses and any such costs of Sellers shall be the obligation of Parent; provided, however, that all filing fees paid in connection with the antitrust filings made pursuant to Section 5.2(a) shall be borne equally by Purchasers and Sellers.

11.6 Notices. All notices and other communications to be given to any Party hereunder shall be sufficiently given for all purposes hereunder if in writing and delivered by hand, courier or overnight delivery service or three (3) days after being mailed by certified or registered mail, return receipt requested, with appropriate postage prepaid, or when received in the form of telegram or facsimile and shall be directed to the address set forth below (or at such other address or facsimile number as such Party shall designate by like notice):

 

(a)    If to Sellers or Daravita Limited:
   Alkermes plc
   Connaught House
   One Burlington Road
   Dublin 4, Ireland
   Attn.: Company Secretary
   Fax No.: +(353) 1 772 8001

 

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   with a copy (which shall not constitute notice) to:
   Goodwin Procter LLP
   53 State Street
   Boston, MA 02109
   Attn.: Mitchell S. Bloom, Esq.
  

  Robert E. Puopolo, Esq.

   Fax No.: (617) 523-1231
   And with a copy (which shall not constitute notice) to:
   Arthur Cox
   Earlsfort Centre
   Earlsfort Terrace
   Dublin 2, Ireland
   Attn.: Christopher P.J. McLaughlin
   Fax No.: + 353 1 616 3901
(b)    If to Purchasers:
   Recro Pharma, Inc.
   490 Lapp Road
   Malvern, PA 19355
   Attention: Gerri A. Henwood
   Email: ghenwood@recropharma.com
   with a copy (which shall not constitute notice) to:
   Pepper Hamilton LLP
   Two Logan Square
   Eighteenth and Arch Streets
   Philadelphia, PA 19103
   Attention: Rachael M. Bushey, Esq.
   Fax No.: (800) 860-1682

11.7 Assignment.

(a) This Agreement shall be binding upon and inure to the benefit of the Parties to this Agreement and their respective successors and assigns; provided, however, that no Party to this Agreement will assign its rights or delegate any or all of its obligations under this Agreement without the express prior written consent of each other Party to this Agreement, except that either Party may assign its benefits under this Agreement to an Affiliate of that Party. Any attempted assignment in violation of this Section 11.7 shall be void.

(b) Notwithstanding anything to the contrary in Section 11.7(a) or elsewhere in this Agreement, APIL may assign its rights to any third party to (a) receive the Net Sales Earn-Out Consideration, (b) receive the Net Sales Report, (c) audit the records of Purchasers,

 

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their Affiliates, licensees and sublicensees as described in Section 3.3 of Exhibit E, and (d) make indemnification claims against Purchasers, in connection with any securitization or monetization of the Net Sales Earn-Out Consideration (a “Securitization”), and APIL may disclose Business Confidential Information to a third party in connection with a Securitization to the extent reasonably necessary to enable the third party to evaluate the Securitization opportunity and to allow APIL to exercise its rights under this Section 11.7(b).

11.8 Third-Party Beneficiaries. This Agreement is not intended to confer upon any Person not a party to this Agreement (and their successors and assigns) any rights or remedies hereunder; provided, that the rights of the financing sources of the Debt Financing provided in this Section 11.8 and Section 9.4(c), Section 11.9 and Section 11.14 shall be enforceable by the financing sources of the Debt Financing, their Affiliates and their respective successors and assigns.

11.9 Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the Party against whom enforcement of any such modification or amendment is sought. Each Party to this Agreement may, only by an instrument in writing, waive compliance by the other Parties to this Agreement with any term or provision of this Agreement on the part of such other Parties to this Agreement to be performed or complied with. The waiver by any Party to this Agreement of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach. Notwithstanding the foregoing, any amendment or waiver of this sentence of Section 11.9 or Section 9.4(c), Section 11.8 or Section 11.14 shall require the prior written consent of Orbimed Royalty Opportunities II, LP, but only to the extent that such Sections relate to the financing sources of the Debt Financing, their Affiliates or their respective successors or assigns.

11.10 Specific Performance. The Parties agree that irreparable damage, for which monetary damages (even if available) would not be an adequate remedy, would occur in the event that the Parties do not perform any provision of this Agreement in accordance with its specified terms or otherwise breach such provisions. Accordingly, the Parties acknowledge and agree that, to prevent breaches or threatened breaches by the Parties of any of their respective covenants or obligations set forth in this Agreement and to enforce specifically the terms and provisions of this Agreement, the Parties shall be entitled to an injunction, specific performance and other equitable relief to prevent breaches of this Agreement and to enforce specifically the terms and provisions hereof, in addition to any other remedy to which they are entitled in law or in equity. Each of the Parties agrees that it will not oppose the granting of an injunction, specific performance and other equitable relief on the basis that any of the other Parties has an adequate remedy at law or that any award of specific performance is not an appropriate remedy for any reason at law or in equity. Any Party against whom an injunction or injunctions to prevent breaches of this Agreement and to enforce specifically the terms and provisions of this Agreement is sought hereby waives any requirement for the Party seeking an injunction or injunctions to provide any bond or other security in connection with such order or injunction. The foregoing is in addition to any other remedy to which any Party is entitled at law, in equity or otherwise. The Parties further agree that nothing set forth in this Section 11.10 shall require any Party hereto to institute any Action for (or limit any Party’s right to institute any Action for) specific performance under this Section 11.10 prior or as a condition to exercising any termination right under Article IX (and pursuing damages after such termination). The Parties

 

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hereto agree that, notwithstanding anything herein to the contrary, Sellers shall be entitled to specific performance (or any other equitable relief) to cause Purchasers to consummate the transactions contemplated hereby, including to draw down the Debt Financing under the Debt Financing Agreements (including any bridge financing or “flex” provisions thereunder) or Alternative Financing commitments obtained under Section 5.12, and to effect the Closing on the terms and subject to the conditions in this Agreement, if, and only if: (i) all conditions in Section 8.1, Section 8.2 and Section 8.3 have been satisfied as of the date on which the Closing would otherwise be required to occur (other than those conditions that, by their nature, are to be satisfied at the Closing (provided such conditions would reasonably be expected to have been satisfied as of such date)), (ii) Purchasers fail to complete the Closing by the date the Closing would otherwise be required to have occurred pursuant to Section 2.3, (iii) the Debt Financing (or Alternative Financing in accordance with Section 5.12) has been funded or will be available to be funded to Purchasers at the Closing, and (iv) the Closing would reasonably be expected to occur substantially simultaneously with the draw down of Debt Financing (or Alternative Financing in accordance with Section 5.12)).

11.11 Interpretation; Absence of Presumption.

(a) It is understood and agreed that the specification of any dollar amount in the representations and warranties contained in this Agreement or the inclusion of any specific item in the Sellers Disclosure Letter is not intended to imply that such amounts or higher or lower amounts, or such items so included or other items, are or are not material, and no Party shall use the fact of the setting of any amount or the fact of the inclusion of any item in the Sellers Disclosure Letter in any dispute or controversy between the Parties as to whether any obligation, item or matter not described in this Agreement or included in the Sellers Disclosure Letter is or is not material for purposes of this Agreement.

(b) For the purposes of this Agreement, (i) words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires; (ii) references to the terms Article, Section, paragraph, Exhibit and Schedule are references to the Articles, Sections, paragraphs, Exhibits and Schedules to this Agreement unless otherwise specified; (iii) the terms “hereof,” “herein,” “hereby,” “hereto,” and derivative or similar words refer to this entire Agreement, including the Schedules and Exhibits hereto; (iv) references to “$” or cash shall mean U.S. dollars; (v) the word “including” and words of similar import when used in this Agreement shall mean “including without limitation,” unless otherwise specified; (vi) the word “or” shall not be exclusive; (vii) references to “written” or “in writing” include in electronic form; (viii) provisions shall apply, when appropriate, to successive events and transactions; (ix) Sellers and Purchasers have each participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties hereto and no presumption or burden of proof shall arise favoring or burdening any Party by virtue of the authorship of any of the provisions in this Agreement; (x) a reference to any Person includes such Person’s successors and permitted assigns; (xi) any reference to “days” shall mean calendar days unless Business Days are expressly specified; and (xii) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and if the last day of such period is not a Business Day, the period shall end at the close of business on the next succeeding Business Day.

(c) If the Closing shall occur, notwithstanding anything in this Agreement to the contrary, any payment obligation of Purchasers hereunder shall be a joint and several obligation of Purchasers and the Transferred Entities.

 

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11.12 Headings; Definitions. The Section and Article headings contained in this Agreement are inserted for convenience of reference only and will not affect the meaning or interpretation of this Agreement.

11.13 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement (or portions thereof) shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any Party hereto. If any provision of this Agreement (or any portion thereof) shall be held to be so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. Upon a determination that any term, provision, covenant or restriction of this Agreement is invalid, void or unenforceable, the Parties shall negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

11.14 No Recourse to Debt Financing Sources. Subject to the rights of the parties to the Debt Financing Agreements under the terms thereof, none of the Parties hereto, nor any of their respective, direct or indirect, former, current or future general or limited partners, managers, members, stockholders, officers, directors, Affiliates, employees, representatives, agents, successors or assigns (collectively, the “Related Persons”), shall have any rights or claims against the financing sources of the Debt Financing or any of their Affiliates in connection with this Agreement, the Debt Financing, or the transactions contemplated hereby or thereby, whether at law or equity, in contract, in tort or otherwise, nor shall any of the financing sources of the Debt Financing or any of their Affiliates have any obligations or liabilities to the Parties hereto or their respective Related Persons, all of which are hereby waived (provided that nothing in this Section 11.14 shall in any way limit or modify any of the obligations owed under the Debt Financing Agreements by the financing sources of the Debt Financing to the Purchasers and their Affiliates), and the financing sources of the Debt Financing and their Affiliates and their respective Related Persons shall not have any rights or claims against any Party hereto or any Related Person thereof, in connection with this Agreement or the Debt Financing, whether at law or equity, in contract, in tort or otherwise

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IN WITNESS WHEREOF, this Agreement has been signed by or on behalf of each of the parties set forth below as of the day first above written.

 

ALKERMES PHARMA IRELAND LIMITED
By:  

/s/ Shane Cooke

  Name:   Shane Cooke
  Title:   Director
DARAVITA LIMITED
By:  

/s/ Tom Riordan

  Name:   Tom Riordan
  Title:   Director
EAGLE HOLDINGS USA, INC.
By:  

/s/ James Frutes

  Name:   James Frutes
  Title:   VP, CFO and Treasurer
RECRO PHARMA, INC.
By:  

/s/ Gerri Henwood

  Name:   Gerri Henwood
  Title:   President and Chief Executive Officer
RECRO PHARMA LLC
By:  

/s/ Randall Mack

  Name:   Randall Mack
  Title:   President

[Signature Page to Purchase and Sale Agreement]


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EXHIBIT A


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EXHIBIT A

Transitional Services Agreement Terms

 

1.  Parties

  

•   “Supplier”: Alkermes Pharma Ireland Limited

 

•   “Recipient Representative”: Recro Pharma, Inc.

 

•   “Recipients”: Recro Pharma, Inc., Recro Pharma LLC (the “Company”) and Alkermes Gainesville

2.  Defined Terms

   Capitalized terms used but not defined in this Exhibit A shall have the meanings set forth in the remainder of the Agreement.

3.  Services

  

Supplier shall provide, or cause its Subsidiaries to provide, the Services to the Recipients.

 

Services” shall mean the following:

 

•   The services listed on Schedule 1 of this Exhibit A (“Migration Services”)

 

•   The services listed on Schedule 2 of this Exhibit A (“Transition Services”)

 

•   Consulting Services (defined below in Section 8 hereof)

 

Alkermes Gainesville shall provide the Reverse Transition Services to Supplier or to one or more of its Subsidiaries designated by Supplier.

 

Reverse Transition Services” shall mean the provision of (i) the packaging services for Ampyra, Zanaflex and Tizanidine, (ii) stability testing to support the last commercial batch of Avinza manufactured at Alkermes Gainesville’s facility and (iii) the clinical supply of ALKS 5461, in each case by Alkermes Gainesville to Supplier or its Subsidiaries from the Closing Date until June 30, 2016 or such earlier date on which Supplier notifies the Recipient Representative in writing that such packaging services and such clinical supply are no longer required, provided, however, that Supplier shall provide at least 90 days’ written notice of such termination. Supplier and Recipient Representative shall negotiate in good faith between the date of the Agreement and Closing terms and conditions for the provision of such packaging services and such clinical supply that are satisfactory in form and substance to the parties and their legal advisors and that are customarily found in agreements of this nature.

4.  Cost

  

•   Migration Services: Actual out-of-pocket costs (including third party consent costs) incurred by Supplier and its Subsidiaries to provide the Services, as evidenced by Supplier’s or its Subsidiaries’ records.

 

•   Transition Services: Supplier and its Subsidiaries’ standard full time equivalent (FTE) rates plus actual out-of-pocket costs (including third party consent costs) incurred by Supplier and its Subsidiaries to provide the Services, as evidenced by Supplier’s or its Subsidiaries’ records.

 

•   Consulting Services: Supplier and its Subsidiaries’ standard fully burdened cost plus actual out-of-pocket costs incurred by Supplier and its Subsidiaries to provide the Services, as evidenced by Supplier’s or its Subsidiaries’ records.

 

•   Reverse Transition Services:

 

•  Fully burdened costs of Recipients

 

•  Supplier to purchase all raw materials and finished goods upon termination of the Reverse Transition Services.

5.  Payment Procedures

  

•   Invoices to be provided by the applicable of Supplier and Recipient Representative to the other monthly in arrears and to be paid by the applicable of Supplier and Recipient Representative within 45 days after receipt. Invoices shall be itemized and contain reasonable detail on the underlying cost constituents of the invoiced amount.

 

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If Supplier (in the case of the Reverse Transition Services) or Recipient Representative (in the case of the Services) reasonably requests, such party shall have the right to access the books, records and employees of the other to the extent reasonably necessary to complete such audit of an invoice as is reasonably necessary to (i) determine whether costs have been stated correctly in the invoice or (ii) assist in the determination of any payment dispute.

 

•   In the event of a payment dispute, the party with the payment obligation shall pay to the other of Supplier and Recipient Representative the undisputed portion and the disputed portion shall be subject to 15 days discussion between the parties, followed (to the extent necessary) by 15 days’ discussion between the CFOs of Supplier and Recipient Representative, or their designees, before any party may initiate any formal proceeding with respect to such dispute.

6.  IT Compliance

  

•   Customary provisions regarding compliance with Supplier’s and Recipient’s IT policies, practices and procedures.

7.  Third Party Consents

  

•   Supplier shall use commercially reasonable efforts to procure all third party consents and licenses/sub-licenses required in connection with the provision and receipt of the Services. Costs incurred in connection therewith will be borne by the Recipient Representative.

 

•   Supplier shall be responsible for and procure all third party consents and licenses/sub-licenses required in connection with the provision and receipt of the Reverse Transition Services. Costs incurred in connection therewith will be borne by Supplier.

8.  Consulting Services

  

•   Until the three month anniversary of the Closing Date, [***] shall serve as acting General Manager of the Gainesville facility and an advisor to the management of Recipient Representative.

 

•   Following such three month anniversary of the Closing Date, [***] will be reasonably available to act as an advisor to the management of Recipient Representative until the earlier of (i) October 1, 2015 or (ii) the Recipient Representative’s notice to Supplier that [***] Consulting Services are not required.

 

•   In the performance of the Consulting Services, [***] shall remain employed by Supplier, and all Consulting Services shall be performed subject to the terms of his employment with Supplier.

9.  Indemnification

  

•   To parallel the indemnity in the Agreement, except with no Deductible or De Minimis Damages. To cover, among other things, breach of representations and breach of covenants.

 

•   In addition, Recipient Representative shall indemnify, defend and hold harmless Supplier and its Affiliates and [***], in his personal capacity, for all Losses to the extent resulting from or arising out of the Consulting Services.

10.  Records

  

•   Records related to the Services and the Reverse Transition Services to be retained in accordance with the record retention provisions of the Agreement or in accordance with EU, US and International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (ICH) records retention requirements, whichever is longer.

11.  Term

  

•   Migration Services shall be completed by and terminate within 45 calendar days following Closing; provided, that Recipient shall have the right to reasonably request additional information or documents up to an additional 45 days and Supplier shall make a good faith effort to cooperate with such requests.

 

•   Transition Services shall be completed by and terminate by June 30, 2016.

 

•   Reverse Transition Services shall have the duration described in this Exhibit A.

12.  Termination

  

•   By Recipients at any time (solely with respect to the Services) upon 5 business days prior written notice (or with respect to such Services the cessation of which requires the cooperation of a third party, as promptly as practicable).

 

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•   By Supplier upon 90 days’ written notice (solely with respect to Reverse Transition Services).

 

•   By Recipients with respect to Reverse Transition Services upon 30 days’ written notice due to failure by Supplier to pay material amounts not in dispute that are greater than 90 days past due.

 

•   By Supplier with respect to any of the Services upon 30 days’ written notice due to failure by Recipient Representative to pay material amounts not in dispute that are greater than 90 days past due.

 

•   By mutual consent of the parties.

 

•   Changes to Services or Reverse Transition Services shall require the written consent of Recipient Representative and Supplier.

13.  Governing  Law/Jurisdiction

  

As per Agreement.

14.   Other

  

Other customary terms and conditions satisfactory in form and substance to the parties and their legal advisors to be negotiated in good faith by the parties between the date of the Agreement and Closing.

15.   Contact Information

  

•   Supplier Contact:

 

Noeleen Kenny

Vice President Alliance Management

Alkermes Pharma Ireland Limited

Connaught House

1 Burlington Road

Dublin 4, Ireland

T: +353 1 7728050

F: +353 1 7728001

E: noeleen.kenny@alkermes.com

 

•   Recipients Contact:

 

Chris Sharr

Head of Clinical Manufacturing

Recro Pharma, Inc.

490 Lapp Road

Malvern, PA 19355

csharr@recropharma.com

O: 484-395-2408

 

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Schedule 1

Migration Services

In each case, subject to the terms of the Agreement:

 

   

Transfer of emails and other electronic data (including electronic documents and employee data) related primarily to the Business to the extent not fully transferred to Recipients at Closing;

 

   

Transfer of any hard copy records related primarily to the Business to the extent not fully transferred to Recipients at Closing;

 

   

Transfer of the existing safety database for Verelan/Verapamil (Argus/Quintiles) to Recipients or their nominated third party provider to the extent not fully transferred to Recipients at Closing;

 

   

Transfer of ownership for any applications/INDs currently owned by Supplier or its Subsidiaries (other than the Company or Alkermes Gainesville) (e.g. DMF, IND, NDA’s, etc.) that relate solely to the Products to the extent not fully transferred to Recipients at Closing, provided that Supplier and Recipient shall collaborate with respect to the letters/correspondence to be provided to Governmental Entities regarding transfer of regulatory responsibilities before such applications/INDs are transferred;

 

   

Transfer of information with respect to the Business and in the possession and control of Supplier or its Subsidiaries (other than the Company or Alkermes Gainesville) relating to: IP/patent litigation and employee litigation, provided that Supplier shall provide any necessary consents or letters reasonably requested by the Recipient Representative’s legal counsel to transfer such information relating to such litigation; R&D related primarily to the Products, manufacturing and facilities; CMC files (only to the extent not included in the Meloxicam DMF), Clinical Trial Masterfiles and case report forms and nonclinical data relating to the Products; in each case, to the extent not fully transferred to Recipients at Closing;

 

   

Assistance with the support and transfer to Recipients of (i) business relationships, (ii) audit, tax, accounting, financial, insurance, claims handling and treasury functions, (iii) employee files and (iv) ongoing regulatory activities (CMC, documentation, facilities), in each case of (i) through (iv) primarily related to the Business, to the extent not fully transferred to Recipients at Closing, provided that Supplier will collaborate with Recipient to transfer such items as soon as reasonably practicable after Closing; and

 

   

Assistance to Alkermes Gainesville employees who hold stock or stock options in Alkermes plc from Supplier and its Subsidiaries’ captive broker in exercising options, determining tax basis of equity grants, retrieving tax/transaction reports, and transferring shares to their personal accounts.

 

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Schedule 2

Transition Services

Part I(a): IT SERVICES

 

Services:   

The services described below are those that are currently in use by Supplier and its Subsidiaries with respect to the Business. Supplier and Recipient Representative will agree upon which of these Services should be put in place as part of the Transition Services:

 

•   SAP Services (including maintenance; GL account creation, cost center creation, reporting hierarchies)

 

•   Maximo (Plant Maintenance)

 

•   ComplianceWire Learning Management System

 

•   LIMS (Thermo Scientific Laboratory Information Management System)

 

•   SDMS/ELN (Waters)

 

•   SLIM (H&A Scientific Stability Laboratory Information System)

 

•   Veeva Vault (QA Doc Mgt)

 

•   Octagon and SafeBio Pharma (Regulatory Submissions and eSignature)

 

•   External Collaboration (SharePoint, Extranets)

 

•   Intranet Support Services

 

•   E-mail (SmartPhone, Tablet, Exchange, External gateways, Mobile Device Management, Spam Filtering, PGP)

 

•   IT Help Desk Application (ServiceNow)

 

•   Data separation / parsing for each application above

 

•   Modifications to existing system configuration, reports and interfaces to support application and source data changes

 

•   Development of new reports and interfaces necessary to support Alkermes Gainesville

 

•   End-user Computing Infrastructure (Internet, SEP/PGP Wireless, Remote PC Desktop Control, Self-Service P/W Management, PC Helps/Vitalyst desktop support)

 

•   Wide Area Network

 

•   Active Directory Domain Services Support

 

•   Network Infrastructure Services and Support (Backup/Replication, Monitoring, Anti-virus, VMware, Web Filtering, Firewalls, etc.)

 

•   Remote Access System Support / VPN

 

•   IT Contracts Management and Support

 

•   IT Security Services and Support

 

•   Pharmacovigilance / Adverse Event Reporting Services

 

5


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Part I(b): EXCLUDED IT SERVICES

 

Services:   

The services described below are those that are currently in use by Supplier and its Subsidiaries with respect to the Business. Supplier and Recipient Representative have agreed that the Services listed below will not be put in place as part of the Transition Services:

 

•   Oracle eBusiness Suite HRIS Services

 

•   Oracle Fusion (Employee Performance and Comp Planning)

 

•   Concur Travel & Expense System

 

•   ADP Payroll/ADP Connect

 

•   NextDocs (Change Control)

 

•   Taleo (HR Recruiting and Applicant Tracking)

 

•   Okta (Single-Signon)

 

•   Third-Party Personnel Benefit Providers

 

•   Backup Support Services (NetBackup, Data Domain)

 

•   IT Quality Management Services and Support

 

•   IT Management System (ITMS) Framework, Audit and Control Testing Support

 

Supplier shall provide, as part of the Migration Services, to Recipient flat files, data and/or an alternate solution (where appropriate) from the services described above in this Part I(b) of Schedule 2 as of the Closing Date, along with a file description.

Part II: OTHER

 

Services:   

Supplier will provide the following agreed Services to Recipients:

 

•   Transition Services with respect to ongoing prosecution of the patent applications owned by the Company

 

•   Transition Services with respect to SOX controls for Alkermes Gainesville, i.e., documentation that identifies key processes and key controls within those processes

 

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Exhibit B


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EXHIBIT B

Terms for a Development, Manufacturing and Supply Agreement for BC Parenteral Meloxicam

 

Concept:    This Exhibit B sets forth certain terms agreed upon by the Parties relating to (A) the clinical supply of Finished Meloxicam and BC Parenteral Meloxicam; (B) the provision of development services with respect to the Chemistry, Manufacturing and Controls (CMC) section for bulk nanocrystals (in support of clinical trials related to BC Parenteral Meloxicam) of a New Drug Application (“NDA”) for BC Parenteral Meloxicam; and (C) the commercial supply of BC Parenteral Meloxicam (the “Commercial Supply”). The full terms and conditions for each of the foregoing, described in more detail below, will be set forth in a definitive Development, Manufacturing and Supply Agreement (the “Development and Supply Agreement”) by and between Alkermes Pharma Ireland Limited (“APIL”) and Recro Pharma LLC (“Recro Sub”) to be executed in accordance with the terms of the Agreement. Capitalized terms used but not defined in this Exhibit B shall have the meanings set forth in the remainder of the Agreement.
Defined Terms:   
  

Allocable Overhead” means costs incurred by APIL or for its account which are attributable to APIL’s costs of supervisory services, general and administrative activities, occupancy (including utilities and property taxes), registrations, permits and licenses, insurance, depreciation, payroll, non-cash compensation, information systems, human resources and purchasing, as allocated to company departments based on space occupied, headcount or activity-based methods, in all cases as applied by APIL in accordance with GAAP and APIL’s accounting standards on a consistent basis.

 

BC Meloxicam SC” means BC Parenteral Meloxicam that may not be designed for IV or IM administration.

 

BC Parenteral Meloxicam” means any parenteral Meloxicam in bulk crystal/formulated nanocrystal form.

 

Finished Meloxicam” means BC Parenteral Meloxicam in appropriate sealed injectable filled vials.

 

Finished Meloxicam SC” means Finished Meloxicam that may not be designed for IV or IM administration.

 

Fully Burdened Manufacturing Cost” means 100% of APIL’s manufacturing cost of BC Parenteral Meloxicam, Finished Meloxicam, and subject to additional agreement between the parties, BC Meloxicam SC and Finished


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   Meloxicam SC, which shall include APIL’s costs of materials, labor, warehousing, quality assurance/control, delivery, storage, and Allocable Overhead. The Fully Burdened Manufacturing Cost will be calculated in a manner consistent with GAAP and APIL’s accounting standards on a consistent basis.
Commercial Supply:    Prior to the initiation of the first Phase III Clinical Trial for Finished Meloxicam, Recro Sub shall notify APIL as to whether APIL shall be required to supply Recro Sub (and such affiliates, licensees or distributors as Recro Sub may nominate) with 100% of their worldwide commercial requirements for BC Parenteral Meloxicam including BC Meloxicam SC (subject to additional agreement between the parties). If APIL shall be nominated as Recro Sub’s supplier, then in exchange for this supply, Recro Sub shall pay APIL on a cost-plus basis as set forth below.
Clinical Supply:    APIL shall supply Recro Sub (and its affiliates) with 100% of their clinical supply requirements for Finished Meloxicam, Finished Meloxicam SC (subject to additional agreement between the parties), BC Parenteral Meloxicam, and BC Meloxicam SC (subject to additional agreement between the parties), and Recro Sub shall pay APIL for such clinical supply requirements in accordance with the terms set forth below.
Pricing:    Commercial Supply. For APIL’s supply to Recro Sub (and such affiliates, licensees and distributors as Recro Sub may nominate) of BC Parenteral Meloxicam for commercial sale, Recro Sub shall pay APIL the Fully Burdened Manufacturing Cost plus [***].
   Clinical Supply. Recro Sub shall pay APIL [***] for (i) Finished Meloxicam supplied by APIL for clinical use prior to FDA approval and (ii) BC Parenteral Meloxicam supplied by APIL for clinical use prior to FDA approval. The maximum amount of Finished Meloxicam and BC Parenteral Meloxicam that will be supplied by APIL to Recro Sub (or its affiliates) for clinical use shall be agreed by the parties in the Development and Supply Agreement but shall be no less than Recro Sub (or its affiliates) reasonably require to complete any clinical work relating to Finished Meloxicam, provided that, such maximum amount is subject to change as agreed between such parties and based on periodic updates of the development plan, clinical trial results and implications of such results, as well as feedback from regulatory authorities. Notwithstanding the foregoing, currently produced batches and stability work completed prior to the Closing Date shall be provided to Recro Sub at no cost.
   APIL shall be responsible for procuring all components and materials, including active pharmaceutical ingredient (API), required to prepare,

 

2


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   manufacture, test, store and supply BC Parenteral Meloxicam and Finished Meloxicam, prior to final clinical or commercial labeling and packaging, for commercial and clinical use; provided, that, in the case of clinical use of Finished Meloxicam only, APIL shall supply finished product prior to labeling.
   Recro Sub shall be responsible for product labeling and distribution to clinical sites or commercial distribution for BC Parenteral Meloxicam and Finished Meloxicam.
Expenses:    APIL shall pay all capital expenses required for the commercial manufacture of BC Parenteral Meloxicam at a 5-kilogram scale.
   If a NanoMill is required for the scale up of commercial manufacture of BC Parenteral Meloxicam to a 10-kilogram scale, Recro Sub shall be required to pay all capital expenses required for such scale up.
   Upon tech transfer of the commercial manufacture of BC Parenteral Meloxicam to Recro Sub or its designated third party manufacturer, in accordance with the terms of the Development and Supply Agreement, (i) if Recro Sub has paid all capital expenses for such scale up, then APIL shall ship such NanoMill to Recro Sub or its designated third party manufacturer and (ii) Recro Sub shall pay APIL, pursuant to such tech transfer, any of APIL’s capital expenditures that were required for the commercial manufacture of BC Parenteral Meloxicam and have not been recouped through the Fully Burdened Manufacturing Cost for the cost of goods sold.
Exclusivity:    APIL shall supply BC Parenteral Meloxicam exclusively to Recro Sub (and its affiliates, licensees and/or distributors) and shall not supply BC Parenteral Meloxicam to any other person.
Development:    Recro Sub and APIL shall establish a joint committee to coordinate, review and approve the CMC Development Services (defined below).
   Subject to such approval by such joint committee, APIL shall provide to Recro Sub (or such affiliate(s) as Recro Sub shall designate in writing) (i) reasonable support with respect to the CMC section of the NDA(s) for BC Parenteral Meloxicam sufficient to allow Recro Sub to complete and file such CMC sections to the same standard as APIL would apply in submission of an NDA for its own similar products, (ii) information and expertise, including advisory, related to BC Parenteral Meloxicam and (iii) CMC regulatory assistance during the clinical work for BC Parenteral Meloxicam (the services described in clauses (i) through (iii), the “CMC Development Services”). APIL shall provide such CMC Development Services at [***]. The maximum number of full time equivalent (FTE) hours that will be provided by APIL to Recro Sub (or its affiliates) in connection with such CMC Development Services shall be agreed by the parties in the Development and Supply Agreement.

 

3


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Term:    The term of the Development and Supply Agreement will commence when executed in accordance with the terms of the Agreement and extend until (i) ten (10) years from the date of the first commercial sale of Finished Meloxicam to a third party (the “First-Sale Term”), if the first commercial sale of Finished Meloxicam to a third party occurs on or before December 31, 2020 or (ii) December 31, 2020, if the first commercial sale of Finished Meloxicam to a third party does not occur on or before December 31, 2020 (the foregoing (i) and (ii), collectively, (the “Initial Period”)).
   During the Initial Period, Recro Sub can terminate the Development and Supply Agreement on 180 days’ prior written notice at any time subsequent to the first day on which a product is marketed by a third party pursuant to an abbreviated new drug application referencing Finished Meloxicam (i.e. the date of first generic entry).
   After the First-Sale Term, the Development and Supply Agreement will automatically renew for successive one (1) year periods (the “Extension Periods”). Either party shall have the right to terminate the Development and Supply Agreement on 180 days’ prior written notice during an Extension Period; provided, that if APIL provides notice of its intent to terminate the Development and Supply Agreement, APIL will cooperate with Recro Sub for technology transfer of the process to another supplier, and Recro Sub will reimburse APIL for reasonable expenses incurred in the process.
   At any time following the two year anniversary of the NDA approval for Finished Meloxicam, either party shall have the right to terminate the commercial supply agreement upon 12 months’ written notice; in such event APIL will cooperate with Recro Sub for technology transfer of the process to another supplier, and Recro Sub will reimburse APIL for reasonable expenses incurred in the process.
   In the event that the reversion rights under Exhibit E of the Agreement are exercised, the Development and Supply Agreement shall automatically terminate as of the Reversion Date.
License:    Recro Sub and its affiliates shall grant a non-exclusive license to APIL of such intellectual property as is required solely for the purposes of APIL’s development, manufacture and supply of BC Parenteral Meloxicam and Finished Meloxicam pursuant to the Development and Supply Agreement.
Other Terms:    The Development and Supply Agreement will also contain such other terms and conditions as may be agreed upon by the parties, including provisions relating to (i) forecasting, purchase orders, quality of the product, shelf life,

 

4


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   rejection of the product, storage, delivery, recalls and seizures, product complaints, facility audits, regulatory compliance, rights to improvements, changes in specifications, representations and warranties, insurance and indemnification and (ii) with respect to the CMC Development Services, the scope of the development services, responsibilities for the conduct of development and the schedule for the conduct of the development. In connection with the Development and Supply Agreement, the parties shall enter into a quality agreement pursuant to which, among other things, Recro Sub will be responsible for reviewing and releasing batches and APIL will be responsible for testing. In addition to the foregoing, the Development and Supply Agreement will contain other terms and conditions satisfactory in form and substance to the parties and their legal advisors as are customarily found in agreements of that nature. APIL shall hold the DMF for BC Parenteral Meloxicam. APIL shall permit a qualified third party on behalf of Recro Sub to review and comment on the DMF and its adequacy to support IND or NDA filings.

 

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EXHIBIT C


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Exhibit C

Sample Adjustment Amount Statement ($‘000s)*

 

     $‘000      

Estimated Working Capital:

    

Accounts receivable

     9,464    

Inventory

     11,014    

Prepaid expenses and other current assets

     744    

Accounts payable and accrued expenses

     (3,700  

Retention bonus accrual

     380    

Vacation pay accrual

     181    
  

 

 

   

Estimated working capital

     18,083    

(A)

  

 

 

   

Estimated Closing Cash Amount

     1,500    

(B)

  

 

 

   

Estimated Closing Indebtedness

     —      

(C)

  

 

 

   

Estimated Closing Transaction Fees

     —      

(D)

  

 

 

   

Target Working Capital

     19,000    

(E)

  

 

 

   

Adjustment Amount

     583    

A + B - C - D - E

  

 

 

   

 

*

Not included in the Adjustment Statement are amounts in respect of the Retention Bonuses, vacation accruals through December 31, 2014, and the [***] claim, all of which will be paid directly by Sellers.


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EXHIBIT D


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EXHIBIT D

Excluded Assets

The following equipment:

 

   

NM60 Media Mill

 

   

NM60 Chamber

 

   

NM60 Agitator

 

   

NM60 Chamber Removal Cart

 

   

NM60 Agitator Removal Cart

 

   

NM-60 WM 840 Pump

 

   

NM60 Chamber w/extra cooling

 

   

NM-60 Mill

 

   

NM-60 Cart

 

   

NM-60 Chamber

 

   

NM Agitator


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Exhibit E


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Exhibit E to Agreement

Earn-Out Consideration

 

  ARTICLE 1

Definitions.

The following terms shall have the following meaning for this Exhibit E; and terms used, but not defined in this Exhibit E, shall have the meanings set forth in the remainder of the Agreement.

(a) “Commercially Reasonable Efforts” shall mean, with respect to the efforts to be expended by Purchaser and its Affiliates, licensees and sublicensees with respect to the Development Milestones and Commercial Milestones, reasonable, diligent, good faith efforts to accomplish any such Development Milestones and Commercial Milestones as is commonly used in the pharmaceutical industry generally to accomplish a similar objective under similar circumstances, it being understood and agreed that with respect to the research, development and commercialization of any Earn-Out Product, such efforts shall be substantially equivalent to those efforts and resources commonly used in the pharmaceutical industry generally by a pharmaceutical company for a product owned by it or to which it has rights, which product is at a similar stage in its development and is of similar market potential taking into account efficacy, safety, approved labeling, the competitiveness of alternative products in the marketplace, the patent and other proprietary position of the product, the likelihood of regulatory approval, the profitability and commercial potential of the product, but without regard to any Earn-Out Consideration payable under this Exhibit E.

(b) “Divestiture” (and other correlative terms) shall mean any transaction in which any Earn-Out Product or any intellectual property assets related to the same are divested or transferred by any means, including by way of merger, consolidation, asset acquisition or sale, license, sublicense, purchase, sale, assignment or other similar transfer.

(c) “Earn-Out Consideration” shall mean, collectively, (i) Development Milestone Earn-Out Consideration, (ii) Commercial Milestone Earn-Out Consideration, and (iii) Net Sales Earn-Out Consideration.

(d) “Earn-Out Product Patents” shall mean (i) the Nanotechnology Patents, (ii) the Meloxicam Transferred Patents, (iii) the OCR Patents and (iv) all Patents of Purchaser and its Affiliates, licensors, licensees or sublicensees that claim an Earn-Out Product or manufacture or use thereof, together with all Patents that claim priority (in whole or in part, directly or indirectly) with any of the foregoing of clauses (i), (ii), (iii) or (iv).

(e) “Earn-Out Products” shall mean (i) Meloxicam, and (ii) any other product discovered or identified using the Nanotechnology IP, the OCR IP or the Meloxicam Transferred Patents, and that contains the same active pharmaceutical ingredient as Meloxicam (including any salts or other versions of such active pharmaceutical ingredient).

(f) “First Commercial Sale” shall mean, on an Earn-Out Product-by-Earn-Out Product and country-by-country basis, the first commercial sale in an arms’ length transaction of an Earn-Out Product to a Third Party by Purchaser or any of its Affiliates, licensees or sublicensees in such country following Regulatory Approval of such Earn-Out Product in such country.

(g) “IND” shall mean an investigational new drug application filed with the FDA, the competent authorities of a European Union member state, or equivalents in other countries or regulatory jurisdictions for authorization to commence clinical studies of a pharmaceutical product.


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(h) “Know-How” shall mean all proprietary data, information, knowledge, know-how, inventions, discoveries, trade secrets, processes, techniques, strategies, methods, practices, skills, experience, documents, apparatus, devices, assays, screens, databases (including safety databases), database structures and data analysis methods, compositions, materials, methods, formulas, improvements, clinical and non-clinical study reports, test data including pharmacological, biological, chemical, biochemical, toxicological, and clinical test data, analytical and quality control data, stability data, studies and procedures.

(i) “MAA” shall mean a Marketing Authorization Application as defined in EU Directive 2001/83/EC and EU Regulation (EC) No. 726/2004.

(j) “Meloxicam Transferred Patents” shall have the meaning set forth in Section E of the Sellers Disclosure Letter.

(k) “Nanotechnology IP” shall have the meaning set forth in the Intellectual Property Transfer and License Agreement and, subsequently, in the IP License Agreement.

(l) “Nanotechnology Patents” shall have the meaning set forth in the Intellectual Property Transfer and License Agreement and, subsequently, in the IP License Agreement.

(m) “NDA” shall mean a New Drug Application or Supplemental New Drug Application filed with the FDA.

(n) “Net Sales” shall mean, consistent with GAAP:

(i) Subject to clause (ii) of this definition, the aggregate gross amount invoiced to unrelated Third Parties by Purchaser, its Affiliates, its licensees and its sublicensees for the sale of Earn-Out Products, less to the extent applicable to such sale: (A) trade, cash and quantity discounts, if any, actually accrued or paid; (B) credits, allowances and adjustments actually accrued or paid to customers, including credits for rejected or returned Earn-Out Products previously sold; (C) freight, insurance and other transportation costs actually accrued or paid, to the extent separately identified on the invoice; (D) rebates or reimbursements actually accrued or paid to managed health care organizations, national, federal, state, or local governments (or their agencies), and managed health organizations (including Medicaid rebates), and (E) taxes, including value added taxes (VAT) (other than taxes on Purchaser’s, its Affiliates’, its licensees’ or its sublicensees’ income), customs duties or other governmental charges on sales or use actually paid by Purchaser, its Affiliates, its licensees or its sublicensees with respect to the sale of such Earn-Out Products. No fines, penalties or comparable payments to national, federal, state, or local governments (or their agencies) or to other third parties shall be deductible from Net Sales.

(ii) Sales between Purchaser, its Affiliates, its licensees or its sublicensees shall be disregarded for the purposes of calculating Net Sales as long as the Earn-Out Products are (A) resold to an unrelated Third Party in which case the final sale to such unrelated Third Party shall be included in Net Sales or (B) transferred or disposed of by Purchaser, its Affiliates, its licensees or its sublicensees for a purpose specified in clause (i) of this definition. Transfers or dispositions of Earn-Out Products, where on a non-profit basis and in line with normal industry practice, (1) for charitable purposes; (2) for preclinical, clinical trial, or non-commercial manufacturing purposes; or (3) for regulatory or governmental purposes shall not in each case be deemed “sales” for the purposes of calculating Net Sales. In addition, transfers or dispositions of free promotional samples of Earn-Out Products in line with normal industry practice shall not be deemed “sales” for the purposes of calculating Net Sales. Otherwise, for the purposes of calculating Net Sales, a “sale” shall include any transfer or other disposition of any Earn-Out Product for consideration.


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With respect to sales of Earn-Out Products invoiced in U.S. dollars, Net Sales shall be determined in U.S. dollars. With respect to sales of Earn-Out Products invoiced in a currency other than U.S. dollars, Net Sales shall be determined by converting the currencies in which the sales are made into U.S. dollars, at rates of exchange determined in a manner consistent with Purchaser’s, its Affiliates’, its licensees’ or its sublicensees’, as applicable, method for calculating rates of exchange in the preparation of such entity’s annual financial statements in accordance with GAAP consistently applied. No amount for which deduction is permitted pursuant to this definition shall be deducted more than once.

(o) “Net Sales Earn-Out Consideration Term” shall mean, on an Earn-Out Product-by-Earn-Out Product and country-by-country basis, the period of time commencing upon the First Commercial Sale of an Earn-Out Product and ending upon the later of (i) the fifteenth (15th) anniversary of the First Commercial Sale of such Earn-Out Product in such country, and (ii) the date of the last to expire Valid Claim of an Earn-Out Product Patent covering such Earn-Out Product in such country.

(p) “OCR IP” shall have the meaning set forth in the Intellectual Property Transfer and License Agreement and, subsequently, in the IP License Agreement.

(q) “OCR Patents” shall have the meaning set forth in the Intellectual Property Transfer and License Agreement and, subsequently, in the IP License Agreement.

(r) “Patents” shall mean any and all patents and patent applications (which for purposes of this Agreement shall include certificates of invention and applications for such certificates), including any divisionals, continuations, continuations-in-part, substitutions, reissues, re-examinations, revalidations, extensions (including pediatric exclusivity patent extensions), registrations, supplementary protection certificates, renewals, and foreign equivalents of any such patents or patent applications.

(s) “Regulatory Approval” shall mean, with respect to a country or extra-national territory, all approvals, licenses, registrations or authorizations of any Regulatory Authority necessary in order to commercially distribute, sell or market a drug product in such country or some or all of such extra-national territory.

(t) “Regulatory Authority” shall mean any supra-national, federal, national, regional, state, provincial or local governmental regulatory agencies, departments, bureaus, commissions, councils or other government entities regulating or otherwise exercising authority with respect to the development, manufacture and commercialization of drug products, including the FDA.

(u) “Regulatory Materials” shall mean regulatory applications, submissions, notifications, registrations, or other filings made to or with a Regulatory Authority that are necessary or reasonably desirable in order to develop, manufacture, market, sell or otherwise commercialize a product in a particular country or regulatory jurisdiction. Regulatory Materials include INDs, MAAs and NDAs (as applications, but not the approvals with respect thereto).

(v) “Third Party” shall mean, as of any relevant time, any Person who is not an Affiliate of Purchaser.

(w) “United States” or “U.S.” shall mean the United States of America, including its territories and possessions, the District of Columbia and Puerto Rico.


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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

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(x) “Valid Claim” shall mean a claim of an issued or pending Patent which claim (i) in the case of an issued Patent, has not been found to be unpatentable, invalid or unenforceable by a court or other authority of competent jurisdiction, from which decision no appeal is taken or can be taken and which otherwise has not been dedicated to the public or finally disclaimed, and (ii) in the case of a pending Patent, a Valid Claim shall not include a claim in a pending Patent that has a filing date or an earliest claimed priority date that is more than five (5) years prior to the date upon which pendency of the pending Patent is determined.

Definitions for each of the following terms are found in this Exhibit E as indicated below:

 

Defined Term

  

Location

Assigned Reversion IP Assets    Section 4.2(c)
Assigned Reversion Know-How    Section 4.2(c)
Assigned Reversion Patents    Section 4.2(c)
Challenge Period    Section 4.1(b)
Commercial Milestone Earn-Out Consideration    Section 2.1(b)(i)
Commercial Milestones    Section 2.1(b)(i)
Cure Period    Section 4.1(c)
Development Milestone Earn-Out Consideration    Section 2.1(a)(i)
Development Milestones    Section 2.1(a)(i)
Disagreement Notice    Section 4.1(b)
Divested Assets    Section 2.4
NDA Requirement    Section 3.1
Net Sales Earn-Out Consideration    Section 2.1(c)(i)
Net Sales Report    Section 2.2
Reversion Date    Section 4.1(d)
Reversion Event    Section 4.1(a)
Reversion Material    Section 4.2(j)
Reversion Notice    Section 4.1(b)
Transferee    Section 2.4

 

  ARTICLE 2

Earn-Out Consideration.

2.1 Earn-Out Consideration.

(a) Development Milestone Earn-Out Consideration.

(i) The following amounts (“Development Milestone Earn-Out Consideration”) shall be payable in accordance with Section 2.7 of the Agreement and this Exhibit E upon achievement of the following events (“Development Milestones”) by Purchaser and its Affiliates, licensees and sublicensees, and shall be non-refundable and non-creditable and not subject to deduction or set-off:

 

Development Milestone

   Amount of Development Milestone Earn-Out
Consideration (U.S. Dollars)
 

Submission of an NDA for the first Earn-Out Product

   $ 10,000,000.00  

Approval of an NDA for the first Earn-Out Product

   $ 30,000,000.00  

(ii) Purchaser shall notify and pay to APIL each Development Milestone Earn-Out Consideration within thirty (30) calendar days after the occurrence of the corresponding Development Milestone. Each such payment shall be made by wire transfer of immediately available funds to such account or accounts as are designated in writing by APIL.


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

(b) Commercial Milestone Earn-Out Consideration.

(i) The following amounts (“Commercial Milestone Earn-Out Consideration”) shall be payable in accordance with Section 2.7 of the Agreement and this Exhibit E following the first calendar year during which the aggregate annual Net Sales of Earn-Out Products by Purchaser and its Affiliates, licensees and sublicensees first exceed the threshold amounts set forth in the table below (“Commercial Milestones”), and shall be non-refundable and non-creditable and not subject to deduction or set-off:

 

Commercial Milestones

   Amount of Commercial Milestone Earn-Out
Consideration (U.S. Dollars)
 

$[***] in annual Net Sales

   $ [ ***] 

$[***] in annual Net Sales

   $ [ ***] 

$[***] in annual Net Sales

   $ [ ***] 

(ii) Purchaser shall notify and pay to APIL each Commercial Milestone Earn-Out Consideration within thirty (30) calendar days after the end of the calendar quarter in which the corresponding Commercial Milestone is achieved. Each such payment shall be made by wire transfer of immediately available funds to such account or accounts as are designated in writing by APIL.

(c) Net Sales Earn-Out Consideration.

(i) During the Net Sales Earn-Out Consideration Term, Purchaser shall pay in accordance with Section 2.7 of the Agreement and this Exhibit E an amount of [***] percent ([***]%) of the aggregate Net Sales of Earn-Out Products (“Net Sales Earn-Out Consideration”), which amount shall be non-refundable and non-creditable and not subject to deduction or set-off.

(ii) If, pursuant to Section 2.1(c)(i) of this Exhibit E, any Net Sales Earn-Out Consideration is payable on Net Sales of an Earn-Out Product in the U.S. and there is no Valid Claim of an Earn-Out Product Patent in the U.S. covering such Earn-Out Product at the time of such sale, the percentage applicable to calculate such Net Sales Earn-Out Consideration shall be reduced by thirty percent (30%) from the percentage set forth in Section 2.1(c)(i) of this Exhibit E.

2.2 Net Sales Reports. During the Net Sales Earn-Out Consideration Term, (a) within five (5) Business Days after the end of each calendar quarter, Purchaser shall provide an estimate of the Net Sales, on a Earn-Out Product-by-Earn-Out Product and country-by-country basis, to APIL for the preceding calendar quarter and (b) within forty-five (45) calendar days after the end of each calendar quarter, Purchaser shall provide a sales report (“Net Sales Report”), on a Earn-Out Product-by-Earn-Out Product and country-by-country basis, to APIL showing a reconciliation of gross sales to Net Sales of each Earn-Out Product during such calendar quarter reporting period (including the related permitted deductions) and the Net Sales Earn-Out Consideration payable with respect thereto. Purchaser shall pay to APIL the Net Sales Earn-Out Consideration for each calendar quarter at the time of submission of the corresponding Net Sales Report. If no Net Sales Earn-Out Consideration is due for any period hereunder following commencement of the reporting obligation, Purchaser shall so report.

2.3 Late Payments. If APIL does not receive payment of any sum due to them on or before the due date, simple interest shall thereafter accrue on the sum due to APIL until the date of payment at the per annum rate of two percent (2%) over the then-current prime rate quoted by Citibank in New York City or the maximum rate allowable by applicable Law, whichever is lower.


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

2.4 Divestitures. If at any time after the Closing, Purchaser Divests to a Third Party or an Affiliate any Earn-Out Product, Earn-Out Product Patent or any other intellectual property asset related to an Earn-Out Product (collectively, “Divested Assets” and the party receiving any Divested Assets the “Transferee”), Purchaser shall: (a) make provision for the Transferee to assume and succeed to the obligations of Purchaser set forth in this Exhibit E; and (b) prior to or simultaneously with the consummation of any such Divestiture, cause such Transferee to provide to APIL an instrument of assumption in a reasonable form for the benefit of APIL effecting the assumption and succession described in the foregoing Clause (a), and proof satisfactory to APIL of such Transferee’s financial capacity to assume Purchaser’s obligations set forth in this Exhibit E. Purchaser shall remain liable to APIL for all obligations set forth in this Exhibit E following any such Divestiture.

 

  ARTICLE 3

Diligence; Reporting; Audit.

3.1 Diligence. Purchaser, itself or through one or more of its Affiliates, licensees and sublicensees, shall use Commercially Reasonable Efforts to achieve each of the Development Milestones and Commercial Milestones. Without limiting the foregoing, Purchaser, itself or through one or more of its Affiliates, licensees and sublicensees, shall file an NDA for an Earn-Out Product with the FDA on or before [***] (the “NDA Requirement”).

3.2 Reporting.

(a) For so long as any Earn-Out Product is in development, on each anniversary of the Closing Date, Purchaser shall provide a written report to APIL detailing the development activities with respect to the Earn-Out Products completed for the past annual reporting period and anticipated to be undertaken for the next twelve (12) months period. At a minimum, such report shall include a list and general status (i.e., what stage in discovery/development using Purchaser’s internal measures) of each Earn-Out Product then in development, and any ongoing pre-clinical or clinical activities (including initiations and cessations) and results, and submission and approvals to or from Regulatory Authorities (including anticipated date of achievement of the Development Milestones), and any other similar information relating to development activities for the Earn-Out Products. Purchaser shall cause its senior officers from its research and clinical development operations to be reasonably available to APIL to answer questions related to the matters required to be discussed in each report.

(b) For so long as any Earn-Out Product is being marketed, sold, or otherwise commercialized, within sixty (60) days of the end of each calendar quarter, Purchaser shall provide a written report to APIL detailing the commercialization efforts with respect to the Earn-Out Products completed for the past quarterly reporting period and anticipated to be undertaken for the next calendar quarter and for the three (3) calendar quarters thereafter. At a minimum, such report shall include with respect to the commercialized Earn Out Products marketing and sales efforts, forecasted sales, pricing changes, anticipated date of achievement of the Commercial Milestones, and any other similar information relating to commercialization activities for the Earn-Out Products. Purchaser shall cause its senior officers from business operations to be reasonably available to APIL to answer questions related to the matters required to be discussed in each report.

3.3 Audit. Purchaser shall maintain, and shall cause its Affiliates, licensees and sublicensees to maintain, complete and accurate books and records in sufficient detail to permit APIL, at its expense, to confirm the achievement of Development Milestones and Commercial Milestones, and the calculation of Earn-Out Consideration payable under this Agreement and this Exhibit E. Upon reasonable prior notice,


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such books and records shall be open during regular business hours for a period of three (3) years from the creation of individual books and records for examination, by an independent certified public accountant selected by APIL and reasonably acceptable to Purchaser for the sole purpose of verifying for APIL the accuracy of the financial statements, reports and notices furnished by Purchaser pursuant to this Agreement and this Exhibit E, and of any payments made, or required to be made, by Purchaser to APIL pursuant to this Agreement and this Exhibit E. Any amounts shown to be owed to APIL but unpaid shall be paid by Purchaser within thirty (30) days after the accountant’s report, plus interest (as set forth in Section 2.3 of this Exhibit E) from the original due date. If Purchaser is found to have underpaid amounts owed to APIL by five percent (5%) or more, then Purchaser shall also pay for the conduct of the audit. In the event that Purchaser has overpaid APIL, at APIL’s option, Purchaser shall either credit the amount of any such overpayment to amounts subsequently due by Purchaser to APIL under this Exhibit E or APIL shall reimburse Purchaser the amount of any such overpayment.

 

  ARTICLE 4

Reversion.

4.1 Determination of Reversion Event.

(a) A “Reversion Event” shall exist in the event that Purchaser, itself or through one or more of its Affiliates, licensees and sublicensees, (i) fails to satisfy the NDA Requirement, or (ii) in the reasonable judgment of APIL, fails to comply with its Commercially Reasonable Efforts requirements under Section 3.1 of this Exhibit E; provided that, any such failure is not attributable to the material breach by APIL or any of its Affiliates of any of the Ancillary Agreements, which material breach was noticed by Purchaser prior to its receipt of a Reversion Notice from APIL under this Section 4.1.

(A) In the event the failure to satisfy the NDA Requirement is the result of a change in the FDA’s policies or procedures regarding the approval of the Earn-Out Product or drugs in the same class as the Earn-Out Product, and Purchaser, its Affiliates, licensees or sublicensees have used Commercially Reasonable Efforts to accommodate such change and were still unable to satisfy the NDA Requirement, then the deadline shall be extended for a reasonable period of time, but not more than three-hundred sixty-five (365) calendar days or such longer period of time as determined by APIL in good faith based on the impact of such change in the FDA’s policies or procedures on their ability to accommodate such change in policies or procedures. (B) In the event the failure to satisfy the NDA Requirement is the result of other delays or circumstances that are outside of the reasonable control of Purchaser or its Affiliates, licensees and sublicensees, and Purchaser, its Affiliates, licensees or sublicensees have used Commercially Reasonable Efforts consistent with Section 3.1 of this Exhibit E to overcome such delay or circumstance, then APIL will reasonably consider extending the deadline for a reasonable period of time, but not more than three-hundred sixty-five (365) days, to overcome such failure. In each case of (A) or (B), the compliance with such new deadline shall remain an obligation of Purchaser, its Affiliates, licensees or sublicensees subject to their diligence efforts under Section 3.1 of this Exhibit E and APIL’s rights under this Section 4.1(a).

(b) Upon a Reversion Event, APIL shall provide Purchaser with written notice of such Reversion Event (a “Reversion Notice”). If Purchaser disagrees with APIL regarding the existence of a Reversion Event, it shall notify APIL within ten (10) Business Days of receipt of a Reversion Notice of its disagreement (such period, the “Challenge Period,” and such notice, a “Disagreement Notice”). For a period of thirty (30) Business Days following the delivery of such Disagreement Notice, Purchaser and APIL shall seek in good faith to come to an agreement on the existence of the Reversion Event. If at the end of such thirty (30) Business Day period the Purchaser and APIL have not reached an agreement, they shall jointly select an independent mediator, free of any conflict with either Party, having the requisite licensing and pharmaceutical industry experience to render a decision regarding the existence of a Reversion Event, and selected from a panel of persons experienced in the pharmaceutical and life sciences


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industries provided by Judicial Administration and Arbitration Services or its successor (“JAMS”). If the Parties do not agree on an independent mediator within five (5) Business Days of initiating mediation under this Section 4.1(b), the independent mediator shall be selected by JAMS in accordance with its rules. Each Party shall prepare and submit a written summary of such Party’s position, which shall not exceed twenty-five (25) pages, and any relevant evidence in support thereof to the independent mediator within ten (10) Business Days of the selection of the independent mediator. Upon receipt of such summaries from both Parties, the independent mediator shall provide copies of the same to the other Party. The independent mediator shall be authorized to solicit briefing or other submissions on particular questions and to set specific page limits for such additional briefing and submissions. Within five (5) Business Days of the delivery of such summaries by the independent mediator, each Party shall submit a written rebuttal of the other Party’s summary and may also amend and re-submit its original summary, with each Party’s response to include a supporting explanation of why its proposed terms are more appropriate than the other Party’s proposed terms and any documentary evidence in support thereof. Oral presentations shall not be permitted unless otherwise requested by the independent mediator. Only if so permitted, a neutral location of any such oral presentations shall be selected by the independent mediator. The independent mediator shall make a final decision with respect to the arbitration matter within ten (10) Business Days following receipt of the last of such rebuttal statements submitted by the Parties, and shall make a determination by selecting the resolution proposed by one of the Parties that as a whole is the most fair and reasonable to the Parties in light of the totality of the circumstances, and shall provide the Parties with a written statement setting forth the basis of the determination in connection therewith. For clarity, the independent mediator shall only have the right to select a resolution proposed by one of the Parties in its entirety and without modification. The decision of the independent mediator shall be controlling regarding the existence of a Reversion Event. The Purchaser and APIL shall bear the costs of the independent mediator equally.

(c) If the existence of a Reversion Event, other than one that involves a failure to satisfy the NDA Requirement, is confirmed, through (i) Purchaser’s non-delivery of a Notice of Disagreement or (ii) through the determination of an independent mediator, Purchaser, itself or through one or more of its Affiliates, licensees or sublicensees shall have the right to cure such Reversion Event for a period of four (4) months from the determination of such Reversion Event (such period, the “Cure Period”) and, if it elects to exercise such right, shall notify APIL in writing of the same. In the case that such Reversion Event is cured in APIL’s reasonable judgment during or by the end of the Cure Period, such Reversion Event shall no longer exist and APIL shall not have the right to invoke any other rights under this Article 4 in connection with such event that would have remained a Reversion Event but for such cure.

(d) For purposes of this Article 4, the “Reversion Date” shall be (i) the date on which the Challenge Period expires without Purchaser having sent a Disagreement Notice to APIL, unless the Reversion Event at issue qualifies for a right to cure pursuant to Section 4.1(c) of this Exhibit E and Purchaser has elected to exercise such right to cure in which case clause (d)(iii) below shall apply, (ii) where the Reversion Event involves a failure to satisfy the NDA Requirement and Purchaser has sent a Disagreement Notice in connection therewith, the date on which the Parties agree, or the independent mediator issues its determination, that such Reversion Event has occurred, or (iii) where the Reversion Event does not involve a failure to satisfy the NDA Requirement, and Purchaser has elected its right to cure pursuant to Section 4.1(c) of this Exhibit E, the date on which the Cure Period expires without Purchaser having cured such Reversion Event to APIL’s reasonable satisfaction.

4.2 Events Upon Determination of a Reversion Event.

(a) On the Reversion Date, all licenses and other rights of Purchaser and its Affiliates, licensees and sublicensees under the Intellectual Property Transfer and License Agreement


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and, subsequently, the IP License Agreement (i) with respect to the Nanotechnology IP shall automatically terminate in their entirety, and (ii) with respect to the OCR IP shall automatically terminate solely in regards to the Earn-Out Products.

(b) As of the Reversion Date, but subject to Sections 4.2(h), 4.2(i) and 4.2(j), Purchaser, and its Affiliates, licensees and sublicensees shall cease all research, development, manufacture, sales, offers to sell, use, importation and commercialization of the Earn-Out Products.

(c) Promptly following the Reversion Date, Purchaser shall (i) assign to APIL the Meloxicam Transferred Patents and any other Patents owned or controlled by it and its Affiliates, licensees or sublicensees solely relating to the Earn-Out Products (collectively, the “Assigned Reversion Patents”), and (ii) transfer to APIL all Know-How owned or controlled by it and its Affiliates, licensees or sublicensees solely relating to the Earn-Out Products (the “Assigned Reversion Know-How” and together with the Assigned Reversion Patents, the “Assigned Reversion IP Assets”).

(d) As of the Reversion Date, Purchaser grants to APIL a non-exclusive, worldwide license (sublicenseable through multiple tiers) under all Patents and Know-How owned or controlled by Purchaser and its Affiliates, licensees or sublicensees (other than Assigned Reversion Patents and Assigned Reversion Know-How) that are practiced by or on behalf of Purchaser and its Affiliates, licensees and sublicensees as of the Reversion Date that are necessary or useful to research, develop, manufacture, sell, offer to sell, use, import or otherwise commercialize any of the Earn-Out Products.

(e) Promptly following the Reversion Date, Purchaser shall assign to APIL all right, title and interest in and to those trademarks used exclusively with the Earn-Out Products, excluding any such trademarks that include, in whole or part, any corporate name or logo of Purchaser or its Affiliate.

(f) Promptly following the Reversion Date, Purchaser shall (i) transfer and assign to APIL all Regulatory Materials and Regulatory Approvals relating to the Earn-Out Products, or, if not possible, grant to APIL an exclusive right of reference thereunder.

(g) To the extent that any payments would be owed by Purchaser to any Third Party under any agreement with such Third Party that is applicable to the exercise by APIL of any (sub)license, right of reference or other right provided in this Section 4.1, Purchaser shall notify APIL of the existence and anticipated amounts of such payments and APIL shall have the right either to decline such (sub)license, right of reference or other right provided in this Section 4.1 or to take the same, in which case APIL agrees to comply with any obligations under such agreement of Purchaser that apply to APIL and of which APIL was informed by Purchaser and to make such payments.

(h) Promptly following the Reversion Date and as requested by APIL, Purchaser shall, and shall cause its Affiliates, licensees and sublicensees to, (i) wind up the performance of any clinical trials for Earn-Out Products ongoing as of the Reversion Date, or (ii) transfer and assign to APIL, to the extent assignable by Purchaser in accordance with applicable Law, the management and continued performance of any clinical trials for Earn-Out Products ongoing as of the Reversion Date (provided that if the management and continued performance thereof is not assignable, then at the request of APIL, Purchaser shall, and shall cause its Affiliates, licensees and sublicensees to, continue to manage and perform such clinical trial(s) for a limited time period at the direction of APIL) the reasonable and documented out-of-pocket cost of which that is incurred after the Reversion Date shall be borne by APIL.

(i) Promptly following the Reversion Date and as requested by APIL, Purchaser shall assign to APIL any agreements with third party suppliers covering the supply or sale of the Earn-Out Products, or, if such agreements cover other products or do not permit assignment under their terms, then,


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to enable APIL to qualify an alternate, validated source of supply, Purchaser shall supply finished Earn-Out Products for a reasonable period (not to exceed six (6) months) and at a cost equal to the cost of goods for any such Earn-Out Product calculated in accordance with industry standards (including overhead) plus [***].

(j) As of the Reversion Date, if Purchaser or any of its and its Affiliates, licensees or sublicensees have any inventory of Earn-Out Product, or any components thereof, suitable for use in clinical trials or for commercialization (“Reversion Material”), Purchaser and its Affiliates, licensees and sublicensees shall offer in writing to sell the Reversion Material to APIL at Purchaser’s or the applicable Affiliate’s, licensee’s or sublicensee’s fully-allocated cost of manufacturing, and APIL shall have the option (but no obligation) to purchase the same by responding in writing to such offer within thirty (30) days. If APIL does not exercise such option, Purchaser and its Affiliates, licensees or sublicensees shall be entitled to sell any such Reversion Material, subject to any Earn-Out Consideration applicable to such sale pursuant to the terms and conditions of this Exhibit E.

4.3 Without limiting the generality of this Article 4, any assignment, transfer, license or other right made or granted to APIL pursuant to this Article 4 shall be effected without any consideration payable by APIL.

4.4 Without limiting the generality of this Article 4, following the assignment and transfer under Section 4.2(c), (a) Purchaser shall have no right to use any of the Assigned Reversion IP Assets; (b) APIL shall have at its expense the sole and exclusive right to prosecute, maintain, defend and enforce all Assigned Reversion Patents assigned to APIL pursuant to such Section 4.2(c), and for purposes of all those activities, (i) APIL shall be treated as the owner of such Assigned Reversion Patents, and shall be solely responsible for the costs associated with such activities and shall have the sole right to retain any and all recoveries resulting from such activities, and (ii) to the extent required by applicable Law, at the cost of APIL, Purchaser shall, and shall cause each of its Affiliates, licensees and sublicensees to, join any suit or proceeding regarding any such Assigned Reversion Patents, or designate APIL (or an Affiliate thereof) as such party’s authorized agent for such Assigned Reversion Patents.

4.5 Purchaser shall ensure that Purchaser receives from any of its licensees and sublicensees all rights necessary for Purchaser to effectuate the assignments and transfers to APIL and to grant to APIL the rights and licenses set forth in this Article 4.

4.6 Purchaser shall not, and shall ensure that its Affiliates shall not, grant any Lien in or to any Assigned Reversion IP Assets, or take any action or commit any omission that may adversely affect or in any way impair, interfere with or prevent APIL’s right to receive the benefit of the assignments, transfers and licenses granted under this Article 4.

4.7 The right of reversion hereunder shall be APIL’s sole and exclusive remedy for Purchaser’s failure to satisfy the NDA Requirement or failure to comply with its Commercially Reasonable Efforts requirements under Section 3.1 of this Exhibit E, provided the foregoing shall in no way limit APIL’s right to collect and be paid any Earn-Out Consideration based on Development Milestones or Commercial Milestones achieved as of the Reversion Date, or on sales of the Earn-Out Products prior to the Reversion Date or permitted thereafter pursuant to Section 4.2(j).


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EXHIBIT F


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THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 (THE “SECURITIES ACT”) OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE LAWFULLY EFFECTED WITHOUT AN EFFECTIVE REGISTRATION, UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.

WARRANT TO PURCHASE STOCK

 

Company:    Recro Pharma, Inc., a Pennsylvania corporation
Number of Shares:    350,000, subject to adjustment
Class of Stock:    Common Stock, $0.01 par value per share
Warrant Price:    $[        ]1, subject to adjustment
Issue Date:    [            ], 20152
Expiration Date:    The seven (7) year anniversary of the Issue Date.

THIS WARRANT CERTIFIES THAT, for good and valuable consideration, Alkermes Pharma Ireland Limited, a private limited company incorporated in Ireland (together with any successor or permitted assignee or transferee of this Warrant, “Holder”) is entitled to purchase the number of fully paid and non-assessable shares (the “Shares”) of the above-stated Class of Stock (the “Class”) of the above-named company (the “Company”) at the above-stated Warrant Price per Share, all as set forth above and as adjusted pursuant to Article 2 of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.

ARTICLE 1

EXERCISE

1.1 Method of Exercise. Holder may exercise this Warrant, in whole or in part, at any time or from time to time on any day on or prior to the Expiration Date, by delivering the original of this Warrant together with a duly executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company. Unless Holder is exercising the net exercise right set forth in Article 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

1.2 Net Exercise. In lieu of exercising this Warrant as specified in Article 1.1, Holder may from time to time convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate fair market value of the Shares or other securities otherwise issuable upon exercise of this Warrant minus the aggregate Warrant Price of such Shares by (b) the fair market value of one Share. The fair market value of the Shares shall be determined pursuant to Article 1.3. The Company acknowledges that the provisions of this

 

1 

NTD: to equal two times the closing price of Recro stock on the trading day immediately prior to the Closing Date.

2 

NTD: to insert Closing Date.


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Article 1.2 are intended, in part, to ensure that a full or partial exchange of this Warrant pursuant to this Article 1.2 will qualify as a conversion, within the meaning of paragraph (d)(3)(ii) of Rule 144 under the Securities Act. At the request of Holder, the Company will accept reasonable modifications to the exchange procedures provided for in this Article in order to accomplish such intent. For all purposes of this Warrant (other than this Article 1.2), any reference herein to the exercise of this Warrant shall be deemed to include a reference to the exchange of this Warrant into Shares in accordance with the terms of this Article 1.2.

1.3 Fair Market Value. If the Company’s common stock is traded in a public market, the fair market value of a Share shall be the closing price of a share of common stock reported for the business day immediately before Holder delivers this Warrant together with its Notice of Exercise to the Company. If the Company’s common stock is not traded in a public market, the Board of Directors of the Company shall determine fair market value of a Share (the “Appraised Value”) in its reasonable good faith judgment. If Holder (as defined below) shall, for any reason whatsoever, disagree with such Appraised Value, then such Holder shall, by giving written notice to the Company (an “Appraisal Notice”) within ten (10) days after the Company notifies the Holder of such determination, elect to dispute such determination, and such dispute shall be resolved as set forth in Article 1.3.1 below.

1.3.1 Appraisal Resolution. The Company shall within ten (10) days after an Appraisal Notice shall have been given, engage an independent investment bank of national repute (the “Appraiser”) that is mutually agreeable to the Company and Holder and retained pursuant to an engagement letter between the Company and the Appraiser with respect to such valuation in form and substance reasonably acceptable to Holder, to make an independent determination of the Appraised Value of a Share. The costs of engagement of such investment bank for any such determination of Appraised Value shall be shared equally between the Company and Holder and Holder shall promptly reimburse the Company for fifty percent (50%) of such costs.

1.4 Delivery of Certificate and New Warrant. Promptly after Holder exercises or converts this Warrant and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new warrant of like tenor representing the Shares not so acquired.

1.5 Replacement of Warrants. On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation, on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

 

2


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1.6 Treatment of Warrant upon Corporate Reorganization.

1.6.1 Corporate Reorganization.

(a) Without limiting any of the provisions hereof, if any: (i) capital reorganization; (ii) reclassification of the capital stock of the Company; (iii) merger, consolidation or reorganization or other similar transaction or series of related transactions which results in the voting securities of the Company outstanding immediately prior thereto representing immediately thereafter (either by remaining outstanding or by being converted into voting securities of the surviving or acquiring entity) less than 50% of the combined voting power of the voting securities of or economic interests in the Company or such surviving or acquiring entity outstanding immediately after such merger, consolidation or reorganization; (iv) sale, lease, license, transfer, conveyance or other disposition of all or substantially all of the assets of the Company; (v) sale of shares of capital stock of the Company, in a single transaction or series of related transactions, representing at least 50% of the voting power of the voting securities of or economic interests in the Company; or (vi) the acquisition by any “person” (together with his, her or its Affiliates) or “group” (within the meaning of Section 13(d) or 14(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) directly or indirectly, of the beneficial ownership (as such term is defined in Rule 13d-3 promulgated under the Exchange Act) of outstanding shares of capital stock and/or other equity securities of the Company, in a single transaction or series of related transactions (including, without limitation, one or more tender offers or exchange offers), representing at least 50% of the voting power of or economic interests in the then outstanding shares of capital stock of the corporation (each of (i)-(vi) above a “Corporate Reorganization”) shall be effected, then the Company shall use its commercially reasonable best efforts to ensure that lawful and adequate provision shall be made whereby each Holder shall thereafter continue to have the right to purchase and receive upon the basis and upon the terms and conditions herein specified and in lieu of the Shares issuable upon exercise of the Warrants held by such Holder, shares of stock in the surviving or acquiring entity (“Acquirer”), as the case may be, such that the aggregate value of the Holder’s warrants to purchase such number of shares, where the value of each new warrant to purchase one share in the Acquirer is determined in accordance with the Black-Scholes Option Pricing formula set forth in Appendix 2 hereto, is at least equivalent to the aggregate value of the Warrants held by such Holder immediately prior to such Corporate Reorganization, where the value of each Warrant to purchase one share in the Company is determined in accordance with the Black-Scholes Option Pricing formula set forth Appendix 3 hereto. Furthermore, the new warrants to purchase shares in the Acquirer referred to herein shall have the same expiration date as the Warrant, and shall have a strike price, KAcq, that is calculated in accordance with Appendix 2 hereto. For the avoidance of doubt, if the surviving or acquiring entity, as the case may be, is a member of a consolidated group for financial reporting purposes, the “Acquirer” shall be deemed to be the parent of such consolidated group for purposes of this Article 1.6 and Appendix 2 hereto.

(b) Appropriate provision shall be made with respect to the rights and interests of each Holder to the end that the provisions hereof (including, without limitation, provision for adjustment of the Warrant Price) shall thereafter be applicable, as nearly equivalent as may be practicable in relation to any shares of stock thereafter deliverable upon the exercise thereof. The Company shall use its commercially reasonable best efforts to ensure that prior to

 

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or simultaneously with the consummation of a Corporate Reorganization, the successor corporation resulting from such consolidation or merger, or the corporation purchasing or otherwise acquiring such assets or other appropriate corporation or entity shall assume by written instrument, reasonably deemed by the Board of Directors of the Company and Holder to be satisfactory in form and substance, the obligation to deliver to the holder of the Warrants, at the last address of such holder appearing on the books of the Company, such shares of stock, as, in accordance with the foregoing provisions, such holder may be entitled to purchase, and the other obligations under these Warrants. The provisions of this Article 1.6 shall similarly apply to successive Corporate Reorganizations. If the Company, in spite of using its commercially reasonable best efforts, is unable to cause these Warrants to continue in full force and effect until the Expiration Date in connection with any Corporate Reorganization, then the Company shall pay or cause to be paid to Holder, prior to or contemporaneously with the consummation of any such Corporate Reorganization, an amount per Warrant to purchase one share in the Company that is calculated in accordance with the Black-Scholes Option Pricing formula set forth in Appendix 3 hereto. Such payment shall be made in cash in the event that the Corporate Reorganization results in the shareholders of the Company receiving cash from the Acquirer at the closing of the transaction, and shall be made in shares of the Company (with the value of each share in the Company is determined according to SCorp Appendix 3 hereto) in the event that the Corporate Reorganization results in the shareholders of the Company receiving shares in the Acquirer or other entity at the closing of the transaction, in the event that the shareholders of the Company receive both cash and shares at the closing of the transaction, such payment to Holder shall be also be made in both cash and shares in the same proportion as the consideration received by the shareholders.

ARTICLE 2

ADJUSTMENTS TO THE SHARES

2.1 Stock Dividends, Splits, Etc. If the Company declares or pays a dividend on the outstanding shares of the Class payable in common stock or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend occurred. If the Company subdivides the outstanding shares of the Class by reclassification or otherwise into a greater number of shares, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased. If the outstanding shares of the Class are combined or consolidated, by reclassification or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased. The Company or its successor shall promptly issue to the Holder a certificate pursuant to Article 2.6 below setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such stock dividend, subdivision, combination or consolidation by reclassification or otherwise or other event that results in a change to the number and/or class of securities issuable upon exercise or conversion of this Warrant. The provisions of this Article 2.1 shall similarly apply to successive stock dividends, subdivisions, combinations, consolidations or other events.

 

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2.2 Reclassification, Exchange, Combinations or Substitution. Upon any reclassification, exchange, substitution, or other event that results in a change of the number and/or class of the securities issuable upon exercise or conversion of this Warrant, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number and kind of securities and property that Holder would have received for the Shares if this Warrant had been exercised immediately before such reclassification, exchange, substitution, or other event. Such an event shall include, without limitation, any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company’s Articles of Incorporation. The Company or its successor shall promptly issue to Holder a certificate pursuant to Article 2.6 below setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, substitution or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant. The provisions of this Article 2.2 shall similarly apply to successive reclassifications, exchanges, substitutions, or other events.

2.3 No Impairment. The Company shall not, by amendment of its Articles of Incorporation or bylaws or through a reorganization, transfer of assets, consolidation, merger, dissolution, issue, or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed under this Warrant by the Company, but shall at all times in good faith assist in carrying out of all the provisions of this Article 2 and in taking such action as may be reasonably necessary or appropriate to protect Holder’s rights under this Article against impairment.

2.4 Fractional Shares. No fractional Shares shall be issuable upon exercise or conversion of the Warrant and the number of Shares to be issued shall be rounded down to the nearest whole Share. If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the fair market value of a full Share.

2.5 Certificate as to Adjustments. Upon each adjustment of the Warrant Price, Class and/or number of Shares, the Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Financial Officer setting forth such adjustment and the facts upon which such adjustment is based. The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price, Class and number of Shares in effect upon the date thereof and the series of adjustments leading to such Warrant Price, Class and number of Shares.

2.6 Proceedings Prior to Any Action Requiring Adjustment. As a condition precedent to the taking of any action which would require an adjustment pursuant to this Article 2, the Company shall take any action which may be necessary, including obtaining regulatory approvals or exemptions, in order that the Company may thereafter validly and legally issue as fully paid and nonassessable all Shares which the Holder is entitled to receive upon exercise of the Warrant.

 

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ARTICLE 3

REPRESENTATIONS AND COVENANTS OF THE COMPANY

3.1 Representations and Warranties. The Company represents and warrants to, and agrees with, the Holder as follows:

3.1.1 This Warrant has been duly authorized, is validly issued and constitutes the valid and binding obligation of the Company.

3.1.2 All Shares which may be issued from time to time upon the exercise of any of the purchase rights represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and non-assessable, and free of any liens and encumbrances except for restrictions on transfer provided for herein or under applicable federal and state securities laws.

3.2 Notice of Certain Events. If the Company proposes at any time (a) to declare any dividend or distribution upon the outstanding shares of the Class, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to offer for subscription or sale pro rata to the holders of the outstanding shares of the Class any additional shares of any class or series of the Company’s stock (other than pursuant to contractual pre-emptive rights); (c) to effect any reclassification, reorganization or recapitalization of the shares of the Class; or (d) to effect an Acquisition or to liquidate, dissolve or wind up, then, in connection with each such event, the Company shall give Holder: (1) at least 10 days prior written notice of the date on which a record will be taken for such dividend, distribution, or subscription rights (and specifying the date on which the holders of shares of the Class will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (c) and (d) above; and (2) in the case of the matters referred to in (c) and (d) above at least 10 days prior written notice of the date when the same will take place (and specifying the date on which the holders of shares of the Class will be entitled to exchange their shares for the securities or other property deliverable upon the occurrence of such event).

3.3 No Shareholder Rights. Except as provided in this Warrant, Holder will not have any rights as a shareholder of the Company until the exercise of this Warrant.

3.4 Certain Information. The Company agrees to provide Holder at any time and from time to time with such information as Holder may reasonably request for purposes of Holder’s compliance with regulatory, accounting and reporting requirements applicable to Holder.

ARTICLE 4

REPRESENTATIONS, WARRANTIES OF THE HOLDER

The Holder represents and warrants to the Company as follows:

4.1 Purchase for Investment. Holder is acquiring this Warrant and the Shares issuable upon exercise of this Warrant for its own account, for investment and not for, with a view to, or in connection with, any sale or distribution thereof within the meaning of the Securities Act, and Holder will not offer, sell or otherwise dispose of this Warrant and the Shares issuable upon exercise of this Warrant except as permitted by the Securities Act and any state securities law.

 

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4.2 Unregistered Securities; Legend. Holder understands that the Warrants and the Shares have not been, and will not be, registered under the Securities Act or any state securities law, by reason of their issuance in a transaction exempt from the registration requirements of the Securities Act and such laws, that the Warrants and the Shares must be held indefinitely unless they are subsequently registered under the Securities Act and such laws or a subsequent disposition thereof is exempt from registration, that the Warrants and the Shares shall bear a legend to such effect, and that appropriate stop transfer instructions may be issued. Holder further understands that such exemption depends upon, among other things, the bona fide nature of Holder’s investment intent expressed herein.

4.3 Status of the Holder. Holder has not been formed for the specific purpose of acquiring the Warrants or the Shares. Holder understands the term “accredited investor” as used in Regulation D promulgated under the Securities Act and represents and warrants to the Company that Holder is an “accredited investor” for purposes of acquiring the Warrants and the Shares. If Holder is not a United States person (as defined by Section 7701(a)(30) of the Internal Revenue Code of 1986), Holder has satisfied itself as to the full observance of the laws of its jurisdiction in connection with this Agreement, including (a) the legal requirements within its jurisdiction for issuance of this Warrant and the Shares issuable upon exercise of this Warrant, (b) any foreign exchange restrictions applicable to such purchase, (c) any governmental or other consents that may need to be obtained, and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale, or transfer of this Warrant or the Shares issuable upon exercise. Holder’s subscription and payment for and continued beneficial ownership of the Warrant and Shares issuable upon exercise will not violate any applicable securities or other laws of the Holder’s jurisdiction.

4.4 Knowledge and Experience; Economic Risk. Holder has sufficient knowledge and experience in business and financial matters and with respect to investment in securities of privately held companies so as to enable it to analyze and evaluate the merits and risks of the investment contemplated hereby and is capable of protecting its interest in connection with this transaction. Holder is able to bear the economic risk of such investment, including a complete loss of the investment.

4.5 Access to Information. Holder acknowledges that Holder and its representatives have had the opportunity to ask questions and receive answers from officers and representatives of the Company concerning the Company and its business and the transactions contemplated by this Agreement and to obtain any additional information which the Company possesses or can acquire that is necessary to verify the accuracy of the information regarding the Company herein set forth or otherwise desired in connection with its purchase of the Warrants and the Shares.

4.6 Rule 144. Holder understands that the exemption from registration afforded by Rule 144 (the provisions of which are known to such Investor) promulgated by the Securities and Exchange Commission under the Securities Act depends upon the satisfaction of various conditions, and that such exemption is not currently available.

 

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ARTICLE 5

MISCELLANEOUS

5.1 Term. This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.

5.2 Legends. This Warrant and the Shares shall be imprinted with a legend in substantially the following form:

“THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER THE SECURITIES ACT OF 1933 OR UNDER ANY APPLICABLE STATE SECURITIES LAWS, AND HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR DISTRIBUTION THEREOF. NO SUCH SALE OR DISTRIBUTION MAY BE LAWFULLY EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT, UNLESS AN EXEMPTION FROM SUCH REGISTRATION IS AVAILABLE.”

5.3 Compliance with Securities Laws on Transfer. This Warrant and the Shares may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee.

5.4 Transfer Procedure. Subject to the provisions of Article 5.3, Holder may transfer or pledge all or part of this Warrant or the Shares issuable upon exercise of this Warrant to any transferee, provided, however, in connection with any transfer, Holder will give the Company notice of the portion of the Warrant being transferred with the name, address and taxpayer identification number of the transferee and Holder will surrender this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable). The Company may refuse to transfer this Warrant or the Shares to any person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded.

5.5 Notices. All notices and other communications from the Company to the Holder, or vice versa, shall be deemed delivered and effective when given personally or mailed by first-class registered or certified mail, postage prepaid (or on the first business day after transmission by facsimile), at such address as may have been furnished to the Company or Holder, as the case may be, in writing by the Company or such holder from time to time. All notices to Holder shall be addressed as follows until the Company receives notice of a change in address:

Alkermes Pharma Ireland Limited

[c/o Alkermes plc

Attn.: Company Secretary

Connaught House

One Burlington Road

Dublin 4, Ireland

Telephone: [●]

Facsimile: +353 1.772.8001]

 

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Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

Recro Pharma Inc.

Attn: Gerri A. Henwood, President and Chief Executive Officer

490 Lapp Road

Malvern, PA 19355

Telephone: (484) 395-2470

Facsimile: (484) 395-2471

5.6 Waiver. This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by Holder and the party against which enforcement of such change, waiver, discharge or termination is sought.

5.7 Automatic Conversion upon Expiration. In the event that, upon the Expiration Date, the fair market value of one Share (or other security issuable upon the exercise hereof) as determined in accordance with Article 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed on and as of such date to be converted pursuant to Article 1.2 above as to all Shares (or such other securities) for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares (or such other securities) issued upon such conversion to Holder.

5.8 Counterparts. This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

5.9 Governing Law. This Warrant shall be governed by and construed in accordance with the laws of the Commonwealth or Pennsylvania, without giving effect to its principles regarding conflicts of law.

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“COMPANY”
RECRO PHARMA, INC.
By:  

 

Name:  
Title:  
“HOLDER”
ALKERMES PHARMA IRELAND LIMITED, INC.
By:  

 

Name:  

 

  (Print)
Title:  


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APPENDIX 1

NOTICE OF EXERCISE

1. Holder elects to purchase                  shares of the Common Stock of                      pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.

[or]

1. Holder elects to convert the attached Warrant into Shares in the manner specified in the Warrant. This conversion is exercised for                  of the Shares covered by the Warrant.

[Strike paragraph that does not apply.]

2. Please issue a certificate or certificates representing the Shares in the name specified below:

 

 

Holder Name

 

    

(Address)

3. By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as of the date hereof.

 

HOLDER

 

By:  

 

Name:  

 

Title:  

 

Date:  

 

 

Appendix 1 - 1


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APPENDIX 2

Black Scholes Option Pricing formula to be used when calculating the value of each new warrant to purchase one share in the Acquirer shall be:

 

LOGO

CAcq = value of each warrant to purchase one share in the Acquirer.

SAcq = price of Acquirer’s stock as determined by reference to the average of the closing prices on the securities exchange over the 20-day period ending three trading days prior to the closing of the Corporate Reorganization described in Article 1.6.1 if the Acquirer’s stock is then traded on such exchange or system, or the average of the closing bid or sale prices (whichever is applicable) in the over-the-counter market over the 20-day period ending three trading days prior to the closing of the Corporate Reorganization if the Acquirer’s stock is then actively traded in the over-the-counter market, or the then most recently completed financing if the Acquirer’s stock is not then traded on a securities exchange or system or in the over-the-counter market.

TAcq = expiration date of new warrants to purchase shares in the Acquirer = TCorp.

tAcq = date of issue of new warrants to purchase shares in the Acquirer.

TAcq-tAcq = time until warrant expiration, expressed in years.

s = volatility = annualized standard deviation of daily log-returns (using a 262-day annualization factor) of the Acquirer’s stock price on the securities exchange over a 20-day trading period, determined by Holder, that is within the 100-day trading period ending on the trading day immediately after the public announcement of the Corporate Reorganization described in Article 1.6.1 if the Acquirer’s stock is then traded on such exchange or system, or the annualized standard deviation of daily-log returns (using a 262-day annualization factor) of the closing bid or sale prices (whichever is applicable) in the over-the-counter market over a 20-day trading period, determined by the Holder, that is within the 100-day trading period ending on the trading day immediately after the public announcement of the Corporate Reorganization if the Acquirer’s stock is then actively traded in the over-the-counter market, or 0.6 (or 60%) if the Acquirer’s stock is not then traded on a securities exchange or system or in the over-the-counter market.

N = cumulative normal distribution function.

d1 = (ln(SAcq/KAcq) + (r- + l +s2/2)(TAcq-tAcq )) ÷ (sÖ(TAcq-tAcq)).

In = natural logarithm.

l - dividend rate of the Acquirer for the most recent 12-month period at the time of closing of the Corporate Reorganization.

KAcq = strike price of new warrants to purchase shares in the Acquirer = KCorp* (SAcq/ SCorp).

 

Appendix 2 - 1


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r = annual yield, as reported by Bloomberg at time tAcq, of the United States Treasury security measuring the nearest time TAcq.

d2= d1- s Ö(TAcq-tAcq).

 

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APPENDIX 3

Black Scholes Option Pricing formula to be used when calculating the value of each Warrant to purchase one share in the Company shall be:

 

LOGO

CCorp = value of each Warrant to purchase one share in the Company.

SCorp = price of Company stock as determined by reference to the average of the closing prices on the securities exchange over the 20-day period ending three trading days prior to the closing of the Corporate Reorganization described in Article 1.6.1 if the Company’s stock is then traded on such exchange or system, or the average of the closing bid or sale prices (whichever is applicable) in the over-the-counter market over the 20-day period ending three trading days prior to the closing of the Corporate Reorganization if the Company’s stock is then actively traded in the over-the-counter market, or the then most recently completed financing if the Company’s stock is not then traded on a securities exchange or system or in the over-the-counter market.

TCorp = expiration date of Warrants to purchase shares in the Company.

tCorp - date of public announcement of transaction.

TCorp-tCorp - time until Warrant expiration, expressed in years.

s = volatility ~ the annualized standard deviation of daily log-returns (using a 262-day annualization factor) of the Company’s stock price on the securities exchange over a 20-day trading period, determined by Holder, that is within the 100-day trading period ending on the trading day immediately after the public announcement of the Corporate Reorganization described in Article 5(d) if the Company’s stock is then traded on such exchange or system, or the annualized standard deviation of daily-log returns (using a 262-day annualization factor) of the closing bid or sale prices (whichever is applicable) in the over-the-counter market over a 20-day trading period, determined by the Holder, that is within the 100-day trading period ending on the trading day immediately after the public announcement of the Corporate Reorganization if the Company’s stock is then actively traded in the over-the-counter market, or 0.6 (or 60%) if the Company’s stock is not then traded on a securities exchange or system or in the over-the-counter market.

N = cumulative normal distribution function.

d1 = (ln(SCorp/KCorp) + (r- + l +s2/2)(TCorp-tCorp)) ÷ (sÖ(TCorp-tCorp)).

In = natural logarithm.

l = dividend rate of the Company for the most recent 12-month period at the time of closing of the Corporate Reorganization.

KCorp = strike price of warrant.

 

Appendix 3 - 1


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r = annual yield, as reported by Bloomberg at time tCorp, of the United States Treasury security measuring the nearest time TCorp.

d2= d1- s Ö(TCorp-tCorp).

 

Appendix 3 - 2


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EXHIBIT G


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EXHIBIT G: Reorganisation

[***]

Exhibit 10.6

FIRST AMENDMENT TO PURCHASE AND SALE AGREEMENT

This First Amendment (this “Amendment”) to the Purchase and Sale Agreement (the “Agreement”), dated as of March 7, 2015, by and among Alkermes Pharma Ireland Limited, a private limited company incorporated in Ireland (“APIL”), Daravita Limited, a private limited company incorporated in Ireland (“Daravita”), Eagle Holdings USA, Inc., a Delaware corporation (“Eagle Holdings”, and together with APIL, “Sellers”), Recro Pharma, Inc., a Pennsylvania corporation (“Recro”) and Recro Gainesville LLC, a Massachusetts limited liability company and wholly-owned subsidiary of Recro (as successor to Recro Pharma LLC, together with Recro, “Purchasers”), is dated December 8, 2016.

RECITALS

WHEREAS, Sellers and Purchasers entered into the Agreement as of March 7, 2015; and

WHEREAS, pursuant to Section 11.9 of the Agreement, Sellers and Purchasers desire to amend the Agreement as set forth herein.

NOW, THEREFORE, in consideration of the mutual promises hereinafter set forth, and intending to be legally bound, the Parties hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1 Defined Terms. Capitalized terms used but not defined in this Amendment shall have the meanings ascribed to them in the Agreement.

ARTICLE II

AMENDMENT

2.1 Exhibit E. Section 2.1(a) of Exhibit E is hereby amended and restated as follows:

“(a) Development Milestone Earn-Out Consideration.

(i) The following amounts (“Development Milestone Earn-Out Consideration”) shall be payable in accordance with Section 2.8 of the Agreement and this Exhibit E upon achievement of the following events (“Development Milestones”) by Purchaser and its Affiliates, licensees and sublicensees, and shall be non-refundable and non-creditable and not subject to deduction or set-off:


Development Milestone

   Amount of Development
Milestone Earn-Out
Consideration (U.S. Dollars
)
 

Submission of an NDA for the first Earn-Out Product (the “Submission Milestone”)

   $ 10,000,000.00  

Approval of an NDA for the first Earn-Out Product (the “Approval Milestone”)

   $ 30,000,000.00  

(ii) Subject to Section 2.1(a)(iii) below, Purchaser shall notify and pay to APIL each Development Milestone Earn-Out Consideration payment within thirty (30) calendar days after the occurrence of the corresponding Development Milestone.

(iii) Purchaser may, at Purchaser’s option, elect to defer payment of the Ten Million U.S. Dollars ($10,000,000.00) otherwise due upon achievement of the Submission Milestone by providing written notice of such election to APIL within thirty (30) calendar days after achievement of the Submission Milestone (“Deferral Option”). If Purchaser chooses the Deferral Option, Purchaser shall pay Forty Five Million U.S. Dollars ($45,000,000.00) within thirty (30) calendar days of the occurrence of the Approval Milestone in satisfaction of all Development Milestone Earn-Out Consideration obligations. Each payment made pursuant to Section 2.1(a) of this Exhibit E shall be made by wire transfer of immediately available funds to such account or accounts as are designated in writing by APIL.”

ARTICLE III

GENERAL

3.1 Effect of Amendment. The Agreement is amended as set forth in this Amendment. Except as specifically provided for in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. Each reference in the Agreement to “hereof,” “hereunder” and “this Agreement” shall, from and after the date of this Amendment, refer to the Agreement, as amended by this Amendment. Each reference in the Agreement to the “date of the Agreement” or similar references (such as “to the date hereof”) shall refer to March 7, 2015.

3.2 Miscellaneous Provisions. The provisions of Article XI of the Agreement shall apply mutatis mutandis to this Amendment and to the Agreement as modified by this Amendment.

[Remainder of page left intentionally blank]

 

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IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the parties set forth below as of the day first above written.

 

ALKERMES PHARMA IRELAND LIMITED
By:  

/s/ Shane Cooke

  Name: Shane Cooke
  Title:  Director
DARAVITA LIMITED
By:  

/s/ Shane Cooke

  Name: Shane Cooke
  Title:  Director
EAGLE HOLDINGS USA, INC.
By:  

/s/ Michael Landine

  Name: Michael Landine
  Title:  Director
RECRO PHARMA, INC.
By:  

/s/ Gerri Henwood

  Name: Gerri Henwood
  Title:  President and Chief Executive Officer
RECRO GAINESVILLE LLC
By:  

/s/ Scott Rizzo

  Name: Scott Rizzo
  Title:  President

[Signature Page to First Amendment to Purchase and Sale Agreement]

Exhibit 10.7

SECOND AMENDMENT TO PURCHASE AND SALE AGREEMENT

This Second Amendment to Purchase and Sale Agreement (this “Amendment”), dated December 20, 2018 (the “Amendment Effective Date”) by and among Alkermes Pharma Ireland Limited, a private company limited by shares and incorporated in Ireland (“APIL”), Daravita Limited, a private company limited by shares and incorporated in Ireland (“Daravita”), Alkermes US Holdings, Inc. (as successor in interest to Eagle Holdings USA, Inc.), a Delaware corporation (together with APIL, “Sellers”), Recro Pharma, Inc., a Pennsylvania corporation (“Recro”) and Recro Gainesville LLC (as successor to Recro Pharma LLC), a Massachusetts limited liability company and wholly-owned subsidiary of Recro (“Recro Gainesville” and, together with Recro, “Purchasers”), amends that certain Purchase and Sale Agreement, dated as of March 7, 2015 and amended on December 8, 2016, by and among Sellers, Daravita and Purchasers (as amended, the “Agreement”).

ARTICLE I

AMENDMENT

1.1    Exhibit E. Section 2.1(a) of Exhibit E is hereby deleted in its entirety and replaced with the following:

“(a)    Development Milestone Earn-Out Consideration.

(i)    The following amounts (“Development Milestone Earn-Out Consideration”) shall be payable in accordance with Section 2.8 of the Agreement and this Exhibit E upon achievement of the following events (“Development Milestones”) by Purchaser and its Affiliates, licensees and sublicensees, and shall be non-refundable and non-creditable and not subject to deduction or set-off:

        (A)     Within thirty (30) calendar days following December 20, 2018, Purchaser shall pay to APIL Five Million U.S. Dollars (US$5,000,000.00) and within thirty (30) calendar days following March 24, 2019, Purchaser shall pay to APIL Five Million U.S. Dollars (US$5,000,000.00); and (B) the following amounts:

 

Development Milestone

   Amount of Development
Milestone Earn-Out
Consideration

(U.S. Dollars)
 

Approval of an NDA for the first Earn-Out Product (the “First Approval”)

   $ 5,000,000.00  

First anniversary of the First Approval

   $ 6,429,000.00  

Second anniversary of the First Approval

   $ 6,429,000.00  

Third anniversary of the First Approval

   $ 6,429,000.00  

Fourth anniversary of the First Approval

   $ 6,429,000.00  

Fifth anniversary of the First Approval

   $ 6,429,000.00  

Sixth anniversary of the First Approval

   $ 6,429,000.00  

Seventh anniversary of the First Approval

   $ 6,429,000.00  


(ii)    Purchaser shall notify and pay to APIL (A) the Development Milestone Earn-Out Consideration payable upon the First Approval within one hundred eighty (180) calendar days following the occurrence of the First Approval and (B) each Development Milestone Earn-Out Consideration payment other than the First Approval payment within thirty (30) calendar days after the occurrence of the corresponding Development Milestone. Each payment made pursuant to Section 2.1(a) of this Exhibit E shall be made by wire transfer of immediately available funds to such account or accounts as are designated in writing by APIL.”

ARTICLE II

WARRANT AMENDMENT

2.1    Warrant Amendment. In connection with, and concurrently with the execution of, this Amendment, Recro shall amend that certain Warrant to Purchase Stock, issued by Recro to APIL pursuant to the Agreement on April 10, 2015 (the “Warrant”), so as to modify the Warrant Price (as defined in the Warrant) set forth therein from the current Warrant Price to a warrant price that is equal to 1.2 times the closing price of the common stock of Recro on the trading day immediately prior to the Amendment Effective Date (the Warrant as so amended and re-issued, the “Amended Warrant”) and deliver such Amended Warrant to APIL. Recro and APIL hereby acknowledge and agree that the Amended Warrant, and any shares of common stock of Recro issued upon cashless exercise of the Amended Warrant (together, the “Exchanged Securities”), will be issued to APIL in reliance on the exemption provided by Section 3(a)(9) of the Securities Act of 1933, as amended, and as such, the Exchanged Securities shall assume the characteristics of the Warrant, including without limitation that any holding period applicable to any such Exchanged Securities will be deemed to have started on the original issuance date of the Warrant.

ARTICLE III

GENERAL

3.1    Effect of Amendment. The Agreement is hereby amended as set forth in this Amendment. Except as specifically provided for in this Amendment, all of the terms and conditions of the Agreement shall remain in full force and effect. Each reference in the Agreement to “hereof,” “hereunder” and “this Agreement” shall, from and after the date of this Amendment, refer to the Agreement, as amended by this Amendment. Each reference in the Agreement to the “date of the Agreement” or similar references (such as “to the date hereof”) shall refer to March 7, 2015.

3.2    Related Agreement. The Parties acknowledge and agree that (i) Recro Gainesville and APIL are parties to a certain Asset Transfer and License Agreement, dated as of April 10, 2015, as amended (the “Related Agreement”), pursuant to which Recro Gainesville is obligated to pay APIL the Earn-Out Consideration set forth in Exhibit E to the Agreement, as

 

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amended by this Amendment, which payment obligation is replicated in Exhibit D to the Related Agreement, (ii) on or about the Amendment Effective Date, Recro Gainesville and APIL shall amend Exhibit D to the Related Agreement such that the amendments to the Earn-Out Consideration set forth in this Amendment are mirrored in Exhibit D to the Related Agreement and (iii) the Earn-Out Consideration (set forth in Exhibit E to the Agreement, as amended by this Amendment, and Exhibit D to the Related Agreement, as amended) is to be paid by the Purchasers to APIL only once.

3.3    Miscellaneous Provisions. The provisions of Article XI of the Agreement shall apply mutatis mutandis to this Amendment and to the Agreement as modified by this Amendment.

[Signature Page Follows]

 

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IN WITNESS WHEREOF, this Amendment has been signed by or on behalf of each of the parties set forth below as of the day first above written.

 

ALKERMES PHARMA IRELAND LIMITED
By:   /s/ Richie Paul
  Name:   Richie Paul
  Title:   Director
DARAVITA LIMITED
By:   /s/ Richie Paul
  Name:   Richie Paul
  Title:   Director
ALKERMES US HOLDINGS, INC.
By:   /s/ James Frates
  Name:   James Frates
  Title:   Director
RECRO PHARMA, INC.
By:   /s/ Ryan D. Lake
  Name:   Ryan D. Lake
  Title:   Chief Financial Officer
RECRO GAINESVILLE LLC
By:   /s/ Ryan D. Lake
  Name:   Ryan D. Lake
  Title:   Treasurer

 

[Signature Page to Second Amendment to Purchase and Sale Agreement]

 

Exhibit 10.8

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

Execution Copy

NON-INJECTABLE DEXMEDETOMIDINE

LICENSE AGREEMENT

between

RECRO PHARMA, INC.

and

ORION CORPORATION

DATED AS OF AUGUST 22, 2008


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

DEXMEDETOMIDINE

LICENSE AGREEMENT

This License Agreement (the “Agreement”) is entered into this 22nd day of August, 2008 (the “Effective Date”), by and among Recro Pharma, Inc., a Pennsylvania corporation (“Licensee” or “Recro”), and Orion Corporation, a company incorporated under the laws of Finland (“Orion”). Licensee and Orion may each be referred to in this Agreement individually as a “Party” and collectively as the “Parties.

BACKGROUND

A. Orion owns or controls certain proprietary study data, know-how and other intellectual property rights (including patents) with respect to Dexmedetomidine.

B. Orion has licensed rights to another partner for certain injectable dosage forms of Dexmedetomidine Product, and Orion is developing Dexmedetomidine Product itself for the Orion Territory.

C. Orion desires to license certain rights to Licensee for the continued development and commercialization of certain non-injectable dosage forms of Dexmedetomidine Product in the Recro Territory.

D. Licensee desires to grant Orion the right, under certain of Licensee’s intellectual property rights and know how, to develop and commercialize certain Dexmedetomidine Products in the Orion Territory, all as more particularly described in, and subject to, the terms and conditions set forth in this Agreement.

E. Licensee desires to obtain an exclusive license under Orion’s patent rights and intellectual property with respect to the development and commercialization of certain non-injectable dosage forms of Dexmedetomidine, and Orion is willing to grant an exclusive license to Licensee under such patent rights and other intellectual property all as more particularly described in, and subject to, the terms and conditions set forth in this Agreement.

AGREEMENT

NOW THEREFORE, in consideration of the mutual promises and covenants set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1. DEFINITIONS

1.1 “Affiliate(s)” means, with respect to a Person, another Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. For the purposes of this definition only, “control” means, with respect to a Person, the ownership by another Person of greater than 50% of the income or voting interests of such Person or such other arrangement as constitutes the direct or indirect ability to direct the management, affairs or actions of such Person.

 


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

1.2 “Authorization” means any consent, authorization, approval, order, license, certificate or permit of or from, or declaration or filing with, any Third Party (by reason of contract or otherwise) or Governmental Entity.

1.3 “Commercialization” or “Commercialize” means activities directed to commercial-scale manufacturing, obtaining pricing and reimbursement approvals, carrying out post-marketing studies, marketing, promoting, distributing, importing, exporting, offering for sale or selling a human pharmaceutical product.

1.4 “Commonwealth of Independent States” or “CIS” means the countries of the former Soviet Union and as of the Effective Date comprising the confederation known as the Commonwealth of Independent States as it may be constituted from time to time, and any successors to, or new countries created from, any of the foregoing. As of the Effective Date, the CIS includes the following countries without limitation: Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan.

1.5 “Competitive Product” means a pharmaceutical product intended for human use in a Licensed Dosage Form containing Dexmedetomidine, medetomidine or detomidine as a therapeutically active ingredient, which product is licensed, sold and/or marketed for use in the Field, including any generic form of the Recro Product.

1.6 “Confidential Information” means all trade secrets, processes, formulae, data, know-how, improvements, inventions, chemical or biological materials, chemical structures, techniques, marketing plans, strategies, or other information that has been created, discovered, or developed by a Party, or has otherwise become known to a Party, or to which rights have been assigned to a Party, as well as any other information and materials that are deemed confidential or proprietary to or by a Party (including, without limitation, all information and materials of a Party’s customers and any other Third Party and their consultants), in each case that are disclosed by such Party to the other Party, regardless of whether any of the foregoing are marked “confidential” or “proprietary” or communicated to the other by the disclosing Party in oral, written, graphic, or electronic form.

1.7 “Cygnus” means Cygnus Therapeutic Systems and/or its affiliate Cygnus, Inc., based in Redwood City, California, USA.

1.8 “Cygnus Patents” means those patents and patent applications set forth on Exhibit B, along with any and all Patent Rights arising therefrom.

1.9 “Cygnus/Farmos Patents” means those patents and patent applications set forth on Exhibit C. along with any and all Patent Rights arising therefrom.

 

2


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

1.10 “Development” means pre-clinical, pharmaceutical and/or clinical drug development activities and pharmaceutical dosage form development activities reasonably related to the development of pharmaceutical products and/or compounds and submission of information to a Regulatory Authority, including, without limitation, toxicology, pharmacology and other discovery and pre-clinical efforts, test method development and stability testing, manufacturing process development, formulation development, delivery system development, quality assurance and quality control development, statistical analysis, clinical studies (including, without limitation, pre- and post-approval studies) and activities relating to obtaining Regulatory Approval but excluding other Commercialization activities. When used as a verb, “Develop” means to engage in Development.

1.11 “Dexmedetomidine” means the compound known as “dexmedetomidine” or 4-((1S-1-(2,3-Dimethylphenyl)ethyl)-1H-imidazole including hydrates, stereoisomers, salts, and mixtures thereof.

1.12 “Dexmedetomidine API” means Dexmedetomidine active pharmaceutical ingredient. Dexmedetomidine API manufactured by or on behalf of Orion or its Affiliates shall be referred to herein as “Orion Dexmedetomidine API”.

1.13 “Dexmedetomidine Product” means a pharmaceutical product containing Dexmedetomidine as a therapeutically active ingredient, and intended for human use.

1.14 “DMF” means a drug master file for an active pharmaceutical ingredient.

1.15 “Dosage Form Technology” means dosage form technology or drug delivery vehicles for the Recro Products.

1.16 “” shall mean Euros.

1.17 “EU” means the countries comprising the European Union as it may be constituted from time to time, and “Europe” means, in addition to the EU countries, also those additional countries included in the European Economic Area as it may be constituted from time to time during the Term, and any successors to, or new countries created from, any of the foregoing. As of the Effective Date, the EU includes without limitation, Austria, Belgium, Bulgaria, Cyprus, Czech Republic, Denmark, Estonia, Finland, France, Germany, Greece, Hungary, Ireland, Italy, Latvia, Lithuania, Luxembourg, Malta, Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, Sweden, and United Kingdom of Great Britain and Northern Ireland, and those additional countries included in the European Economic Area include without limitation Iceland, Norway and Switzerland.

1.18 “FDA” means the United States Food and Drug Administration or any successor agency thereto.

 

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CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

1.19 “Field” means the treatment of pain in humans, including mild, moderate, or severe acute and chronic pain, alone or as an adjunct.

1.20 “First Commercial Sale” of a Recro Product means the date of the first arm’s length transaction, offering for sale, transfer or disposition for value to a Third Party of a Recro Product by or on behalf of Licensee or its Affiliates in any country of the Recro Territory. For purposes of clarity, the use of a Recro Product in clinical trials, pre-clinical studies or other research, development, manufacturing, or promotion activities or the disposal or transfer of a Recro Product for a bona fide charitable purpose or for purposes of a commercially reasonable sampling program shall not be deemed to be an arm’s length transaction, transfer or disposition for value for purposes of this definition.

1.21 “GAAP” shall mean the generally accepted accounting principles and accepted practices of the accounting profession in the relevant country, including, with respect to the United States, without limitation the definitive pronouncements of accounting issued by the Financial Accounting Standards Board.

1.22 “Generic Competition” means, with respect to a particular Recro Product, on a country-by-country and product-by-product basis, that one or more independent third parties (other than, for the avoidance of doubt, any Recro Sublicensee) or Orion or its Affiliates or Sublicensees deriving its rights from Orion actually sells a Generic Product in a country in which such Recro Product is then being sold.

1.23 “Generic Product” means a pharmaceutical product that is a “pharmaceutical equivalent” or “pharmaceutical alternative” (as those terms are used in the Approved Drug Products with Therapeutic Equivalence Evaluations (a.k.a. the Orange Book) published by the FDA Center for Drug Evaluation and Research or any successor publication) with respect to the Recro Product, or any corresponding concept in other countries.

1.24 “Governmental Entity” means any arbitrator, court, judicial, legislative, administrative or regulatory agency, commission, department, board or bureau or body or other governmental authority or instrumentality or any person or entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, whether foreign, federal, state, provincial, local or other (including without limitation any domestic of foreign governmental regulatory authority involved in the granting of approvals for the manufacture, sale, reimbursement and/or pricing of a pharmaceutical product such as the FDA).

1.25 “Hospira” means Hospira, Inc., its Affiliates and any successors or assigns to the license agreement between Hospira and Orion with respect to Dexmedetomidine.

1.26 “IND” means any Investigational New Drug Application, as defined in the United States Food, Drug and Cosmetic Act, filed with the FDA pursuant to Part 312 of Title 21 of the U.S. Code of Federal Regulations, including any amendments thereto. References herein to IND shall include, to the extent applicable, any comparable filing(s) outside the U.S.

 

4


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

1.27 “Know-How” means all relevant non-patented inventions, discoveries, data (including data from scientific and clinical studies and other research), ideas, information, formulation data, specifications, processes, methods, models, techniques, materials, technology, vendor and supplier information, whether or not patentable or protected as a trade secret, including without limitation, biological, chemical, biochemical, toxicological, pharmacological, metabolic, formulation, clinical, analytical and stability information, manufacturing processes, production batch records, and protocols relating to the research scale, pilot scale and commercial scale synthesis of a compound or product (other than such information and data which is or becomes the subject of a patent or patent application), and Regulatory Filings and related data.

1.28 “Knowledge”, as it applies to Orion, shall mean actual knowledge of the following persons within Orion’s organization:

[* * *]

1.29 “Licensed Dosage Form” means a delivery vehicle for administration of a drug by a transdermal, transmucosal (including sublingual), topical, enteral or pulmonary (inhalational), routes, but specifically excluding delivery vehicles for administration of a drug by an injection or infusion route. Licensed Dosage Forms include, without limitation, patches, creams, ointments, gels, powders, sprays, aerosols, and gases.

1.30 “Lien” means any mortgage, pledge, lien, security interest, charge, claim, encumbrance, or restriction on transfer.

1.31 “NDA” means a New Drug Application filed with the FDA for approval to market and sell a drug product in the United States.

1.32 “Net Sales” means with respect to the Recro Products, the gross amount invoiced for sales of the Recro Products in the Recro Territory by Licensee, its Affiliate or Sublicensee to Third Parties after deduction of the following and in each case in accordance with U.S. GAAP:

(a) normal and customary trade, quantity or cash discounts actually allowed or paid;

(b) refunds, rebates, chargebacks, retroactive price adjustments and service allowances actually allowed or paid;

(c) rebates and similar payments made to managed care entities and any governmental or regulatory authority such as, by way of illustration and not in limitation of the Parties’ rights hereunder, federal or state Medicaid, Medicare or similar state programs in the United States or equivalent governmental programs in any other country;

 

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CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

(d) amounts repaid or credited by reason of rejection, returns or recalls of goods, rebates or bona fide price reductions determined by Licensee or its Affiliates in good faith;

(e) commercially reasonable write-offs and reserves (without duplication) for doubtful accounts;

(f) excise taxes, sales taxes, consumption taxes and other similar taxes, customs duties, customs levies and import fees imposed on the sale, importation, use or distribution of such products; and

(g) charges for transportation costs of included in the invoiced amount, including shipping, freight, special packaging and related insurance charges, distribution expenses, and other costs directly related to the distribution of such products.

Sales of a product or sublicenses by and between a Party and its Affiliates are not sales to Third Parties and shall be excluded from Net Sales calculations for all purposes. In addition, Recro Product provided free of charge to patients as samples or for compassionate use or clinical trials will not be included in Net Sales.

1.33 “Orion Know-How” means all Know-How used by Orion in connection with or related to Dexmedetomidine or Dexmedetomidine Products and (a) that is disclosable by Orion without breach of any obligation towards a Third Party, (b) that concerns the Development and/or Commercialization of Recro Products for the Recro Territory, and (c) that Orion or any of its Affiliates owns, controls, has access to, or is in possession of as of the Effective Date, or at any time during the Term, including, subject to the qualifications above, such information in the possession of vendors, service providers, collaboration partners, licensees and third parties. Orion Know-How may, as applicable and subject to the qualifications above, include Regulatory Filings and safety data related to Precedex and other Know-How used in connection with or related to Dexmedetomidine or Dexmedetomidine Products in the possession of vendors, service providers, collaboration partners, licensees and third parties, subject further to confidentiality or contractual obligations to such third parties. A non-exhaustive list of Orion Know-How as of the Effective Date is attached hereto as Schedule 1.33.

1.34 “Orion Patent Rights” means those patents and patent applications set forth on Exhibit A along with any and all Patent Rights arising therefrom.

1.35 “Orion Territory” means Europe, the CIS, and Turkey, and their respective territories, commonwealths and possessions.

 

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CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

1.36 “Other Orion Patent Rights” means such patents and patent applications (other than those within the definition of “Orion Patent Rights”, “Cygnus/Farmos Patent” or “Cygnus Patent”) claiming Dexmedetomidine that Orion or any of its Affiliates owns or controls as of the Effective Date or may at any time during the Term control, acquire or otherwise become the owner of, with any and all Patent Rights arising therefrom.

1.37 “Patent Rights” means:

(a) All patent applications (including provisional patent applications and PCT patent applications) and patents in any country or supranational jurisdiction and all divisions, continuations of these applications, all patents issuing from these applications, divisions, and continuations, and any reissues, reexaminations, substitutions, renewals, confirmations, supplementation protection certificates, registrations, revalidations, additions of or to and extensions of all such patents and any other form of government-issued right substantially equivalent to any of the foregoing;

(b) To the extent that the following contain one or more claims directed to the invention(s) disclosed in Section 1.37(a):

(i) continuations-in-part of Section 1.37(a);

(ii) all divisions and continuations-in-part;

(iii) all patents issuing from these continuations in part, divisions and continuations;

(iv) priority patent application(s) of Section 1.37(a); and

(v) any reissues, reexaminations, substitutions, renewals, confirmations, supplementation protection certificates, registrations, revalidations, additions of or to and extensions of these patents;

(c) to the extent that the following contain one or more claims directed to the invention(s) disclosed in Section 1.37(a): all counterpart foreign and U.S. patent applications and patents to Section 1.37(a) and Section 1.37(b).

1.38 “Person” means (as the context requires) an individual, a corporation, a partnership, an association, a trust, a limited liability company, or other entity or organization, including a Governmental Entity.

1.39 “Recro Know-How” means all Know-How used by Licensee or its Sublicensee in connection with or related to Recro Products and (a) that is disclosable by Licensee without breach of any obligation towards a Third Party, (b) that is reasonably relevant for the Commercialization of Recro Products in the Orion Territory (it being expressly understood that, without limitation, any and all Know-How that specifically relates to

 

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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Commercialization of Recro Products in the Recro Territory shall prima facie be considered not to be relevant in this respect) and (c) that Licensee or any of its Affiliates owns, controls, has access to, or is in possession of as of the Effective Date, or at any time during the Term, including, subject to the qualifications above, such information in the possession of vendors, service providers, collaboration partners, licensees and third parties. Notwithstanding the above, it is expressly acknowledged that Know-How owned by providers of Dosage Form Technology and strictly relating to such Dosage Form Technology shall not, unless same is either co-owned or in-licensed with the right to sublicense by Licensee, constitute Recro Know-How for the purpose of this Agreement.

1.40 “Recro Patent Invalidity Litigation” means any bona fide action, lawsuit or claim by a Third Party in which it is claimed or alleged that any Recro Patent Rights are invalid or otherwise unenforceable, or that infringement will not arise from the manufacture, use, import or sale of a product by a Third Party.

1.41 “Recro Product” means a pharmaceutical product in a Licensed Dosage Form developed by or on behalf of Licensee, containing Dexmedetomidine as a therapeutically active ingredient, which product is licensed, sold and/or marketed for use in the Field.

1.42 “Recro Territory” means the United States, Canada, and all other countries and territories worldwide, and their respective territories, commonwealths and possessions, other than (a) Japan and (b) the countries of the Orion Territory.

1.43 “Regulatory Approval” means, in relation to the Recro Product, the registrations, authorizations and approvals of any Governmental Authority that are required to be obtained prior to the marketing or sale of product in a jurisdiction in the Recro Territory. For the avoidance of doubt, neither an “approvable letter” nor a “tentative approval letter” shall constitute Regulatory Approval for purposes of FDA Regulatory Approval in the United States.

1.44 “Regulatory Authority” means, with respect to any particular country, the governmental authority, body, commission, agency or other instrumentality of such country, with the primary responsibility over the Development and/or Commercialization of Dexmedetomidine or the Recro Product, including such governmental bodies that have jurisdiction over the pricing of such pharmaceutical product.

1.45 “Regulatory Filing” means any filing with a Regulatory Authority relating to or to permit or request, as applicable, the clinical evaluation or Regulatory Approval of a pharmaceutical product. Regulatory Filings include without limitation DMFs, INDs and NDAs.

1.46 “Sublicensee” means a Third Party to which Licensee has granted a sublicense in accordance with Section 2.3.

 

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CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

1.47 “Tax” or “Taxes” means all taxes, fees, levies, duties, tariffs, imposts, and governmental impositions or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local or foreign taxing authority, whether disputed or not, including (without limitation): (a) income, franchise, profits, gross receipts, ad valorem, net worth, value added, sales, use, service, real or personal property, special assessments, capital stock, license, payroll, withholding, employment, social security (or similar), workers’ compensation, unemployment compensation, disability, utility, severance, production, excise, stamp, occupation, premiums, windfall profits, environmental, customs duties, registration, alternative and add on minimum, estimated, transfer and gains taxes, or other tax of any kind whatsoever; and (b) in all cases, including interest, penalties, additional taxes and additions to tax imposed with respect thereto.

1.48 “Third Part(y/ies)” means any person(s) or entit(y/ies) other than Licensee, Orion, or their respective Affiliates.

1.49 “(the) United States” means the United States of America.

1.50 “Valid Claim” means, any claim from (a) an issued and unexpired U.S. or foreign patent that has not lapsed, been revoked or cancelled, or held unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction against which appeal is not, or is no longer, possible or that has not been disclaimed, denied or admitted to be invalid or unenforceable through reissue, or disclaimer or otherwise; or (b) a pending patent application being prosecuted in good faith that has not been cancelled, withdrawn, abandoned, finally rejected and that has not been pending for more than five (5) years from the date of its first priority filing anywhere in the world. If a claim of a patent application that ceased to be a Valid Claim under item (b) because of the passage of time that later issues as part of a patent within item (a), then it shall again be considered a Valid Claim effective as of the earlier of the grant, allowance or issuance of such patent.

2. LICENSES

2.1 License Grants.

2.1.1 Orion Know-How. Orion hereby grants to Licensee an exclusive (including with regard to Orion and its Affiliates, but subject to Orion’s rights under Section 8.6) license, with the right to grant sublicenses pursuant to Section 2.3 (Sublicensing), under the Orion Know-How to:

(a) Commercialize Recro Products in the Recro Territory; and

(b) use, research, Develop, and make and have made Recro Products worldwide solely for purposes of clause (a) above.

 

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2.1.2 Orion Patent Rights; Cygnus/Farmos Patent. Orion hereby grants to Licensee an exclusive (including with regard to Orion and its Affiliates, but subject to Orion’s rights under Section 8.6) license, with the right to grant sublicenses pursuant to Section 2.3 (Sublicensing), under the Orion Patent Rights as well as under Orion’s right and interest in the Cygnus/Farmos Patent to:

(a) Commercialize Recro Products in the Recro Territory; and

(b) use, research, Develop, and make and have made Recro Products worldwide solely for purposes of clause (a) above.

2.1.3 Freedom to Operate Under the Other Orion Patent Rights. Further, Orion agrees not to, and shall cause its Affiliates and licensees not to, enforce the Other Orion Patent Rights against Licensee, its Affiliates or their Sublicensees in relation to:

(a) Commercialization Recro Products in the Recro Territory, and

(b) use, research, Development, and making and having made Recro Products worldwide solely for purposes of clause (a) above.

2.2 Retention of Rights. Orion grants no and Licensee shall have no rights in and to the Orion Patent Rights or Orion Know-How except to the extent set forth in this Agreement, but any and all rights not expressly granted herein by Licensor are expressly reserved and, accordingly, no rights or licenses other than those specified herein shall be deemed granted by this Agreement by implication, inference, estoppel or otherwise. Without limitation to the foregoing but subject to Section 8.4 below, Orion expressly retains for itself as well as its Third Party Licensee(s) the exclusive rights under the Orion Patent Rights and Orion Know-How (a) to research, Develop, make, have made and Commercialize Dexmedetomidine and/or any Dexmedetomidine Products in any dosage form(s) in the Orion Territory, and (b) to research, Develop, make, have made and Commercialize Dexmedetomidine and/or Dexmedetomidine Products other than in Licensed Dosage Form anywhere in the world.

2.3 Sublicensing.

2.3.1 Licensee may sublicense the rights granted to it under Section 2.1 (License Grants) through one or more tiers to one or more of its Affiliates or Third Parties at any time (each Third Party to which sublicense is granted is hereinafter referred to as a “Sublicensee”). Any such sublicense must be in writing, and shall be consistent with the terms of this Agreement. In particular but without limitation, Licensee hereby covenants that any sublicense agreement(s) shall contain (a) covenants by the sublicensee for the benefit of Orion and Licensee for such sublicense to observe and perform materially the same terms and conditions as those set out for Licensee in this Agreement to the extent applicable; (b) license-back provisions consistent with those in Section 8.6 of this Agreement, under which any Sublicensee shall license all intellectual property rights, information and data in the scope of Section 8.6 directly to Orion; and (c) mechanisms for the reporting of Net Sales consistent with the terms of this Agreement, as well as grant Orion the right to audit the Net Sales of any Sublicensee.

 

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2.3.2 Further, prior to and as a prerequisite for disclosing any of Orion’s Confidential Information to any potential Sublicensee, Licensee shall have such potential Sublicensee to execute and deliver to Orion a confidentiality agreement in the form attached hereto as Schedule 2.3.2 between such potential Sublicensee and Orion.

2.3.3 In the event that Licensee becomes aware of a material breach of any such sublicense by the Sublicensee, Licensee shall promptly notify Orion of the particulars of same and use its commercially reasonable efforts to enforce the terms of such sublicense and to cooperate with Orion if it chooses to take action to enforce such terms.

2.3.4 If Licensee does not initiate a suit or take other appropriate action that it has the initial right to initiate or take pursuant to Section 2.3.3 above, then Orion may, in its discretion and in its own name, after having notified the Licensee thereof in writing, initiate a suit or take other appropriate action. If required by the law of the forum, Licensee shall execute such authorizations under this Agreement or any sublicense agreements concluded hereunder as well as other legal papers that may be necessary or useful to establish legal standing for Orion to pursue a suit or other action against a Sublicensee, and to cooperate in the prosecution of such suit as may be reasonably requested by Orion; provided that Orion shall promptly reimburse all out-of-pocket expenses (including reasonable counsel fees and expenses) actually incurred by Licensee in connection with such cooperation.

2.3.5 If this Agreement terminates for any reason, any Sublicensee shall, from the effective date of such termination, automatically become a direct licensee of Orion with respect to the rights originally sublicensed to the Sublicensee by Licensee; provided, however, that in no event shall Orion as a consequence of such termination incur any obligation(s) towards a Third Party other than the grant of a license consistent with the terms of Section 2.1 to the relevant Sublicensee, and provided further that such Sublicensee is not in breach of its sublicense agreement and such Sublicensee agrees in writing to comply with all of the terms of this Agreement and assumes the responsibilities of Licensee hereunder to the extent applicable from the rights originally sublicensed to it from Licensee.

2.3.6 Should Licensee enter into a sublicense after Orion has given notice of breach of this Agreement under Section 14.4, either in its entirety or on a country-by-country and/or product-by-product basis, then such notice of breach shall be effective also against the relevant sublicensee and any cure period for such breach shall continue with respect to such sublicensee to the extent the sublicense relates to products and countries affected by the notice of breach. For purposes of clarity, such sublicensee shall not be entitled to restart the cure period.

 

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2.4 Japan. Within sixty (60) days after the Effective Date, the parties shall meet to discuss a license or other agreement for the Development and Commercialization of Recro Products for Japan, which would provide for the equal sharing of profits from such activities. The parties shall use all reasonable efforts to execute a definitive agreement with respect to this matter no later than December 31, 2008. Notwithstanding the above, any such agreement shall be subject to each party’s senior management and, if applicable, its Board of Directors. Neither party shall, without the prior written consent of the other party, (a) negotiate with, or enter into any agreements with, any Third Party with respect to the Recro Products for Japan; or (b) take any action to Develop or Commercialize the Recro Products for Japan.

3. MILESTONE PAYMENTS

3.1 Upfront Payment. Upon the Effective Date, Licensee shall pay Orion a non-refundable upfront license fee in the amount of [* * *] at signing of the Agreement.

3.2 Development Milestone Payments. Licensee shall pay to Orion non-refundable milestone payments specified below with respect to the development by Licensee of the Recro Product no later than forty-five days (45) after the following events have occurred. Licensee will only pay each of the development milestones listed below once.

 

Milestone Event

   Milestone Payment  

Filing of first NDA for a Recro Product with the FDA

     [* * *]  

Receipt of Regulatory Approval by FDA with respect to an NDA for a Recro Product

     [* * *]  

3.3 Commercialization Milestone Payments. Licensee shall pay to Orion non-refundable milestone payments specified below no later than forty-five days (45) after the following events have occurred (it being understood that for the purpose of the table below, “annual” Net Sales shall refer to Net Sales during a calendar year). Licensee will only pay each of the commercialization milestones listed below once.

 

Milestone Event

   Milestone Payment  

Upon aggregate annual Net Sales of Recro Products in the Recro Territory totaling [* * *]

     [* * *]  

Upon aggregate annual Net Sales of Recro Products in the Recro Territory totaling [* * *]

     [* * *]  

Upon aggregate annual Net Sales of Recro Products in the Recro Territory totaling [* * *]

     [* * *]  

Upon aggregate annual Net Sales of Recro Products in the Recro Territory totaling [* * *]

     [* * *]  

Upon aggregate annual Net Sales of Recro Products in the Recro Territory totaling [* * *]

     [* * *]  

 

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4. ROYALTIES

4.1 Royalty Payments on Net Sales in Recro Territory. Licensee shall pay to Orion a royalty on Net Sales of the Recro Product in the Recro Territory made by Licensee, its Affiliates and/or its Sublicensees. The applicable rate shall be determined on a country-by-country and product-by-product basis as follows:

 

    

During the Term

  

After the Term

 

Aggregate Net Sales of Recro Products in the Recro Territory during the relevant calendar year:

  

 

(a) A Valid Claim of an Orion Patent Right covers the manufacture, use or sale of the Recro Product in the relevant country*

  

 

(a) No Valid Claim of an Orion Patent Right covers the manufacture, use or sale of the Recro Product in the relevant country; and

 

(b) There is no Generic Competition

  

 

All other circumstances (i.e. Generic Competition)

  

 

All circumstances except if there is Orion competition**

less than [* * *]

  

[* * *]

  

[* * *]

  

[* * *]

  

[* * *]

equal to or greater than [* * *]   

[* * *]

  

[* * *]

  

[* * *]

  

[* * *]

 

  (*)

In the event of Generic Competition while Orion and Licensee believe a Valid Claim of an Orion Patent Right covers the manufacture, use or sale of such Generic Product (e.g., a Third Party files a Paragraph IV certification with respect to an Orion Patent Right and markets a Generic Product at risk prior to the court decision on such Paragraph IV certification) and if Orion or Licensee files a patent infringement lawsuit in response to such certification, Licensee shall pay Orion the [* * *] generic competition royalty rate but shall pay the difference between the lower royalty rate and the regular royalty rate into escrow until a final court decision on such Paragraph IV certification. If such court such court rules (or, in the event the ruling can be appealed against, upon the final ruling of the relevant appellate court(s)) in favor of Orion, the funds in escrow (including, for the avoidance of doubt, any interest accrued thereon) shall be paid to Orion; if

 

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  such court rules (or, in the event the ruling can be appealed against, upon the final ruling of the relevant appellate court(s)) that the Orion Patent at issue is invalid, unenforceable, or will not be infringed by the Generic Product or other finding permitting the Generic Product to be marketed and sold, the funds in escrow shall be returned to Licensee.
  (**)

The royalty rate shall be reduced to [* * *] in the event Orion, its Affiliates or Sublicensees, directly or indirectly, engage in a Competing Business (as defined in Section 8.13 below) in the Recro Territory.

The parties acknowledge that the division of royalties paid hereunder between the license of Orion Know-How and the license of Orion Patent Rights, correctly reflects the value of each such license, as mutually perceived by the Parties.

Upon the commencement of Generic Competition (if any), the lower royalty rate shall apply as of the beginning of the calendar month in which Generic Competition so commenced. Correspondingly, should Generic Competition cease, the higher royalty rate shall apply as of the beginning of the calendar month in which Generic Competition so ceased.

4.2 Accrual of Royalties. No royalty shall be due or owing from the use or distribution of the Recro Product in transactions where no consideration is received by the Licensee, such as when Recro Product is made or used for tests or development purposes or is distributed as samples. No royalties shall be payable on sales between Licensee, its Affiliates and Sublicensees, but royalties shall be payable on subsequent sales by any such entities. No multiple royalties shall be payable under this Agreement because a Recro Product is covered by more than one Valid Claim.

4.3 Compulsory Licenses. If Licensee is required to grant a compulsory license to a Third Party as required by the applicable laws of any country in Recro Territory under the Orion Patent Rights, and the royalty rate payable to Licensee for sales of Recro Product by such Third Party is lower than the royalty rate payable by Licensee to Orion for such sales, then the royalty rate payable hereunder by Licensee for sales of Recro Products by such Third Party in such country shall be no greater than the rate payable by such Third Party to Licensee for such country.

4.4 Third Party Royalty Obligations.

4.4.1 If in connection with the Development or Commercialization of a Recro Product in a country (i) Licensee determines that it is necessary to pay a royalty, settlement amount, or other consideration in order to avoid infringement of any Third Party patent rights claiming the use or Commercialization of Dexmedetomidine in a country of the Recro Territory and not licensed hereunder (“Third Party IP”), or (ii) Licensee shall be subject to a court or other similar binding order or ruling requiring payment of royalties or other consideration to the holder of any Third Party IP, then Licensee may deduct such amounts (“Third Party IP Payments”) from the amount of royalties due to Orion, prior to the application of any credits, as follows:

 

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(a) United States. With respect to Third Party IP Payments related to the United States:

(i) Licensee shall give Orion written notice of its intent to make Third Party IP Payments. Within sixty (60) business days of the date of such notice or, should a Third Party provide a shorter response time, within such time (provided however that in no event shall Orion be given a shorter time than five (5) business days to begin discussions and ten (10) business days to provide full comments), Orion shall discuss with Licensee, in good faith, the Third Party IP and the proposed Third Party IP Payments specified in such notice.

(ii) In the event (A) Orion agrees that the proposed Third Party IP Payments are necessary or appropriate (which agreement Orion shall not unreasonably withhold or delay), or (B) the Third Party IP Payments are ordered by a final order of a court of competent jurisdiction, Licensee may deduct the Third Party IP Payments from the royalties due to Orion.

(iii) In the event conditions in Section 4.4.1 (a)(ii) are not met, then Licensee may still license or otherwise acquire such Third Party IP, but Licensee may only deduct fifty percent (50%) of such Third Party IP Payments from the royalties due to Orion.

(iv) Orion shall be deemed to have agreed that a license to Third Party IP is necessary for the United States if Orion obtains a corresponding license for the Orion Territory.

(v) In the event Orion fails to respond within the sixty (60) day period (or such shorter period, if applicable) described in Section 4.4.1(a)(i) above after written notice required by Section 4.4.1(a)(i) above, or affirmatively notifies Licensee that it agrees that such Third Party IP is necessary or appropriate, then Orion shall irrevocably be deemed to have approved the Third Party IP Payments that are the subject of the notice.

(b) Outside U.S. With respect to Third Party IP Payments related to the any country in the Recro Territory other than the United States:

(i) Licensee shall give Orion written notice of its intent to make Third Party IP Payments.

(ii) Licensee may deduct fifty percent (50%) of such Third Party IP Payments from the royalties due to Orion.

 

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4.4.2 Licensee shall have the right to carry forward and apply any unused offset or deduction to which Licensee is entitled against future royalties due to Orion, until the full amount of the offset or deduction to which Licensee is entitled is satisfied with the express understanding that at all times shall Orion be entitled to receive, without offset or deduction, a minimum royalty at the rate of two (2) per cent.

4.4.3 This Section 4.4 shall not apply to royalties paid by Licensee for or in relation to proprietary Dosage Form Technology, for other chemical entities or substances than Dexmedetomidine, or for compensation, damages or license fees paid with respect to the Cygnus Patents, which are addressed in Section 9.4.

4.5 Patent Expenses. In the event Licensee elects:

(a) to prosecute and/or maintain any Orion Patent Rights in the United States, Australia and/or South America in accordance with Section 9.1.2 below,

(b) to enforce any Orion Patent Right in accordance with Section 10.3.1(b), to defend against an invalidity claim relating to an Orion Patent Right in accordance with Section 10.3.4(a) below, or

(c) to defend against any Recro Patent Invalidity Litigation,

then the amount of Licensee’s royalty payments due to Orion in respect of affected Recro Product(s) in respect of the affected country of the Recro Territory shall be reduced by the amount of out-of-pocket costs and expenses actually incurred and paid by Licensee, its Affiliates or Sublicensees in respect of the affected Recro Product and/or country of the Recro Territory, provided that at all times shall Orion be entitled to receive a minimum royalty at the rate of [* * *] on the aggregate Net Sales of all Recro Products in a country of the Recro Territory (with the express understanding that should Licensee Commercialize more than one Recro Product in a country of the Recro Territory, the royalty payable in respect of a specific Recro Product may be less than [* * *]). Licensee shall have the right to carry forward and apply any unused offset or deduction to which Licensee is entitled against future royalties due to Orion, until the full amount of the offset or deduction to which Licensee is entitled is satisfied. In the event Licensee is later reimbursed or compensated for any such costs, Licensee shall first use such amounts towards any costs not already deducted from royalties payable to Orion under this Section 4.5, and shall then apply any excess to compensate Orion for the reduction in royalties.

 

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5. MILESTONE AND ROYALTY REPORTS AND ACCOUNTING

5.1 Reports and Payments.

5.1.1 Royalty Payments and Statements. Within forty-five (45) days after the end of the first calendar year in which Licensee makes the First Commercial Sale, Licensee shall deliver to Orion a written royalty report (the “Royalty Report”) covering sales of Recro Products for such calendar year. Thereafter, within forty-five (45) days after the end of each calendar quarter, Licensee shall deliver to Orion a Royalty Report for such quarter. Each Royalty Report shall contain the following information for the relevant period:

(a) the gross sales and Net Sales of the Recro Product in the Recro Territory in local currency and in US Dollars;

(b) gross and net units of the Recro Product sold (excluding samples) on a country-by-country basis in the Recro Territory;

(c) information regarding any compulsory licenses, third party licenses or other deductions or set-offs described in Section 4;

(d) the calculation of the net royalty due from Licensee for the Recro Territory payable in US Dollars;

(e) withholding taxes, if any, required by law to be deducted by Licensee.

Royalty payments for each period shall be due at the same time as the Royalty Report for such period.

For each calendar year during the Initial Royalty Term, Licensee shall initially pay the quarterly royalty payments for the Recro Territory using the lower royalty rate set forth in Section 4.1. If Net Sales during such calendar year reach the higher tier set forth in Section 4.1, Licensee will (i) immediately apply the higher royalty rate set forth in Section 4.1 for the remainder of such calendar year, and (ii) with the next Royalty Report, pay Orion any additional royalties due for prior quarters during such calendar year.

5.1.2 Milestone Payments and Statements. Licensee shall notify Orion of the occurrence of each milestone event and shall make milestone payments to Orion as described in Section 3 above.

5.1.3 Taxes and Withholding. All amounts payable by Licensee to Orion or its designee pursuant to this Agreement (“Payments”) are inclusive of, and shall be made subject to any deduction or withholding for or on account of, any Tax required by applicable laws or regulations determined in good faith solely by Licensee. Licensee shall not be required to gross up any Payments or to pay any additional amounts to account for such deduction or withholding, but the Parties shall use their best efforts to do all such acts and things and to sign all such documents as will enable them to take advantage of any applicable double taxation agreement or treaty. In the event there is no applicable double taxation

 

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agreement or treaty, or if an applicable double taxation agreement or treaty reduces but does not eliminate such withholding or similar Tax, Orion (or its respective Affiliates) alone shall be responsible for paying any and all Taxes levied on account of, or measured in whole or in part by reference to, any Payments they receive. If Licensee does deduct or withhold as set forth above, Licensee shall: (a) promptly notify Orion of such deduction or withholding; (b) pay to the relevant authorities the full amount deducted or withheld; and (c) promptly forward to Orion an official receipt (or certified copy) or other documentation evidencing such payment to such authorities. Orion retains the right to respond to and challenge any such Tax, and Licensee agrees to cooperate with Orion at Orion’s expense.

5.1.4 Currency. All Payments required under this Agreement shall be made in U.S. Dollars, except for milestone payments, which shall be paid in euros. For the purpose of computing the Net Sales of the Recro Product, in a currency other than U.S. Dollars, such currency shall be converted from local currency to U.S. Dollars by Licensee by using the average exchange rates for such currency reported in The Wall Street Journal for each of the last ten (10) business days of the quarter to which such payment pertains.

5.1.5 GAAP. Net Sales and all calculations and Payments shall be determined, and all records to be maintained by Licensee or any Sublicensee shall be maintained, in accordance with U.S. GAAP. Orion shall maintain its records in accordance with Finnish GAAP or, as applicable, International Financial Reporting Standards (“IFRS”).

5.2 Maintenance of Records; Audits.

5.2.1 Record Keeping and Audits. Licensee shall keep and shall cause its Affiliates and Sublicensees to keep books and accounts of record in connection with the sale of the Recro Product and in sufficient detail to permit accurate determination of all figures necessary for verification of milestone payments and royalties to be paid hereunder. Such books and records (including, for the purpose of clarity, also the relevant books and records of any Licensee Affiliate or Third Party Sublicensee) shall be made available upon Orion’s reasonable request for inspection by Orion’s independent auditors that are reasonably acceptable to Licensee. Such auditors must have agreed in writing to maintain all information learned in confidence, except as necessary to disclose to Orion such compliance or noncompliance by the Licensee. Licensee and its Affiliates shall maintain such records for a period of at least five (5) years after the end of the period for which they were generated, or longer if required by law or regulation.

5.2.2 Underpayments/Overpayments. If any audit by Orion’s auditors concludes that additional milestone payments or royalties were due by Licensee to Orion, Licensee shall pay to Orion the additional royalties within thirty (30) days

 

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of the date Licensee receives notice from Orion of such conclusion. If such audit concludes that Licensee overpaid milestone payments or royalties to Orion, Orion shall refund such overpayments to Licensee, within thirty (30) days of the date of the conclusion of such audit. The fees and expenses associated with any such audit shall be borne by Orion, provided that Licensee shall reimburse Orion for same in the event the audit reveals an underpayment by Licensee of more than three (3) percent as a result of Licensee’s (or, as the case may be, its Affiliates’ or Sublicensees’) calculations.

5.3 Disputes. In the event that Licensee disputes in good faith any milestone payment or royalty amount that Orion claims to be due pursuant to this Agreement, Licensee may withhold payment of such disputed amount, provided; however, that if any such disputed amount is ultimately paid, Licensee shall pay such amount to Orion plus interest, which shall accrue at a rate of 1% per month compounded monthly (12.68% per annum) until such unpaid portion is paid to Orion in full, and Licensee shall be responsible for reasonable legal and other fees and expenses incurred by Orion in connection with the collection thereof. Any dispute over the amount due as a milestone payment or royalty under this Agreement shall be resolved in accordance with Section 15.15 below.

5.4 Interest on Overdue Amounts. Each Party reserves the right to charge, and the other Party hereby agrees to pay, interest on any overdue amounts owed to a Party in connection with this Agreement at the rate of 1% per month compounded monthly (12.68% per annum).

6. REGULATORY MATTERS

6.1 Right to Reference Regulatory Filings. Within thirty (30) days from the Effective Date or such other period agreed to the parties in writing, and thereafter upon the request of Licensee, Orion or its Affiliates shall, to the extent they are entitled and authorized under applicable agreements with Third Parties, use its reasonable efforts to file with the FDA, and any other relevant Regulatory Authority all of the authorization letters, documents and information required by such Regulatory Authority to enable Licensee, its Affiliates and Sublicensees to reference to all Regulatory Filings related to Dexmedetomidine, Dexmedetomidine Products or Dexmedetomidine API, including without limitation the closed part of the DMF for Dexmedetomidine API, all as strictly necessary for the purpose of the research, Development, manufacturing and/or Commercialization of Recro Products in or for the Recro Territory in accordance with this Agreement or for the consummation of the transactions as contemplated by this Agreement.

6.2 Responsibility for the Products. Licensee shall have all regulatory responsibilities under applicable laws and regulations, reporting and otherwise, in connection with the Recro Product in the Recro Territory.

 

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6.3 Communications with Regulatory Agencies. Licensee shall have sole responsibility for all communication with the FDA and other applicable Regulatory Authorities in Recro Territory with respect to all matters relating to the Recro Product. From and after the Effective Date, each Party shall, or shall cause its Affiliates to, promptly make available to the other Party copies of all relevant correspondence with any Regulatory Authority regarding regulatory warning letters, withdrawal of the Recro Product, and correspondence bearing on the safety and/or efficacy of the Recro Product, as well as all minutes from meetings with Regulatory Authorities regarding Recro Product.

6.4 Additional Information. From and after the Effective Date and at Licensee’s expense and subject to Section 7.2, Orion shall, and shall cause their respective Affiliates to, use commercially reasonable efforts to provide to Licensee in a commercially reasonable format all Orion Know-How not listed on Schedule 1.33 and which is readily available to Orion in electronic form which Licensee reasonably requests regarding the development, testing, use and manufacture of the Recro Product which is reasonably needed and strictly for the purpose to comply with applicable reporting requirements of the FDA and other Regulatory Authorities. Orion undertakes to convert, on a commercially reasonable schedule and at Licensee’s expense, into electronic form any such information referred to above that is readily available only as hard copy.

6.5 Government Approvals. At Licensee’s expense, Orion and its respective Affiliates shall cooperate with Licensee to the extent reasonable in Licensee’s activities related to registrations, filings and applications, and other activities necessary or desirable for the consummation of the transactions as contemplated by this Agreement.

6.6 No Further Studies. For the avoidance of doubt, is expressly agreed that, except as otherwise agreed by the parties in writing, Orion shall have no obligation whatsoever to carry out or have carried out any further clinical or other trials or studies relating to Dexmedetomidine, Dexmedetomidine Product, or any Recro Product, requested by Licensee, its Affiliate or Sublicensee, or by any Regulatory Authority.

7. TRANSITION

7.1 Know-How Transfer.

7.1.1 Within thirty (30) days after the Effective Date, Orion shall deliver to Licensee electronic or paper copies of the following Orion Know-How:

(a) the NDA for Hospira’s Precedex product;

(b) the “open part” of the DMF(s) related to Orion Dexmedetomidine API;

(c) Orion’s most recent safety updates related to its Dexmedetomidine Products; and

 

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(d) to the extent not encompassed by subsection (b) above, information on the characterization of the reference standard and its history, API solubility profile in normal solvents, container/closure interaction with API (extractables), and characterization/qualification of any API impurities associated with manufacturing or stability testing that would require this under ICH guidelines, and updates to the DMF open section, including items listed above.

7.1.2 Subject to Section 7.2, and on a commercially reasonable schedule and in a commercially reasonable format to be agreed on by the Parties, Orion shall, or shall cause one or more of its Affiliates to, deliver to Licensee copies of reasonable documentation and/or embodiments of all Orion Know-How not listed in Section 7.1.1, which documents and embodiments of the Orion Know-How are readily available to Orion in electronic form and that shall document or embody the Orion Know-How in all material respects, including, to the extent relevant to the research, Development, manufacture and Commercialization of Recro Products and to the extent possible without breaching any obligation towards Hospira or any other Third Party, Orion’s and Hospira’s Regulatory Filings and clinical data related to Dexmedetomidine Products. Orion undertakes to convert, on a commercially reasonable schedule and at Licensee’s expense, into electronic form any such information referred to above that is readily available only as hard copy.

7.2 Assistance. During the term of this Agreement, Orion shall at its own cost make its personnel reasonably available as requested by Licensee for consultation regarding Dexmedetomidine or the Recro Products and provide such reasonable further assistance as requested by Licensee, to ensure the effective access to the Orion Know-How by Licensee and to assist in Licensee’s efforts to understand and implement the same. Notwithstanding the above, if Licensee requires further services from Orion or requires that Orion prepares any documents that are not readily available to Orion in electronic form, Orion shall comply with such reasonable requests on a commercially reasonable schedule and against compensation mutually agreed upon. If deemed necessary by either Party, the parties shall negotiate in good faith the terms of a services agreement under which such possible further services shall be rendered.

8. DEVELOPMENT AND COMMERCIALIZATION

8.1 Development and Commercialization.

8.1.1 General. Subject to the provisions of this Section 8.1, Licensee shall have the sole responsibility, authority and discretion to decide upon the manner in which it will Develop, seek Regulatory Approvals for and Commercialize the Recro Products in the Recro Territory and to make all decisions relating to such matters, including discontinuation of a project or product, all at Licensee’s sole expense. Such responsibilities include, without limitation, developing or in-licensing Dosage Form Technology from Third Parties.

 

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8.1.2 Major Market Countries. Licensee shall use its commercially reasonable efforts to Develop, seek Regulatory Approval for and Commercialize the Recro Products for the United States, Australia and South Africa provided they remain part of the Recro Territory. Notwithstanding the above, Licensee agrees to performing the Development and Commercialization activities described on Schedule 8.1.2 within the timelines set out therein.

8.1.3 Japan. The parties will determine the manner in which they will Develop, seek Regulatory Approvals for and Commercialize the Recro Products in Japan as described in Section 2.4.

8.1.4 Other Countries. Licensee’s obligations to Develop, seek Regulatory Approval for and Commercialize the Recro Products for the other countries in the Recro Territory are set forth on Schedule 8.1.2.

8.2 Clinical Development Plan. Licensee’s initial plan for the clinical development of Recro Products is enclosed hereto as Schedule 8.2. Within one hundred twenty (120) days after the Effective Date, Licensee shall provide Orion with an updated clinical development plan for the Recro Products in the Recro Territory, which plan shall replace the aforementioned initial plan and describe in further detail the clinical study program for the Recro Products and projected timetable (such initial plan, as well as the updated plan furnished to Orion in accordance with this Section 8.2, the “Clinical Development Plan”).

8.3 Progress Updates; Right to Review and Comment; Collaboration Committee. During the Development of Recro Products, Licensee shall keep Orion reasonably informed on the progress of the Development work, including, in particular, on the status on any and all studies relating to Dexmedetomidine carried out by or on behalf of Licensee or its Sublicensees, it being expressly understood and agreed that each party shall have the right to disclose such information further to its Third Party licensees provided such Third Party has agreed to confidentiality obligations at least as restrictive as those in this Agreement. Prior to commencement of any such study related to Recro Products, and at any time upon revising its study plans relevant to Dexmedetomidine, Licensee shall provide, and shall cause its Affiliates and Sublicensees to provide, Orion a reasonable opportunity to review and comment as to such studies (it being expressly understood that Orion may be required under Orion’s agreement with Hospira, and shall have the right, to the extent reasonably necessary to fulfill such requirements, to forward reasonably comprehensive summaries of such plans to Hospira for review and comments). Each Party shall meet in person or by videoconference at least quarterly to discuss Recro’s clinical Development program relating to Dexmedetomidine and available safety updates.

8.4 Development of Additional Indications. Orion may continue to Develop Dexmedetomidine in Licensed Dosage Forms (a) for uses and indications other than the Field, and (b) for use in Licensed Dosage Form combination products in the Field

 

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(“Additional Products”), at Orion’s sole expense and anywhere in the world. Notwithstanding the above, Orion shall not undertake Development activities in the United States, Australia or South Africa (provided such countries remain part of the Recro Territory) with respect to products for use in Licensed Dosage Form in the Field until four (4) years have lapsed since the grant of Regulatory Approval in the United States for the first Recro Product. Licensee shall have a right of first refusal to Commercialize each Additional Product in the Recro Territory in accordance with and subject to the terms of this Section 8.4. Licensee shall have ninety (90) days to consider any proposal of commercial terms by Orion. Licensee shall notify Orion in writing if it is interested in pursuing such proposal for any or all of the Additional Products described in such proposal. In such event, the Parties shall negotiate in good faith with a view to reaching a mutually acceptable agreement (if any) for such Additional Products, which negotiations shall include without limitation, meetings by phone at least twice monthly and in person at least monthly and meeting of senior management in person at least twice during the negotiation period. If the Parties, despite conducting good faith negotiations, do not finalize and execute a mutually acceptable binding agreement for such Additional Products within one hundred eighty (180) days after the date of Licensee’s notification of interest, Orion shall be free to enter into an agreement with a Third Party with respect to such Additional Products provided such agreement does not conflict with the rights granted to Licensee under this Agreement. For the avoidance of doubt it is expressly stated that nothing herein shall be deemed as to grant Licensee any negotiation or other rights in respect of any Dexmedetomidine Product in formulation(s) other than Licensed Dosage Forms, or to any Dexmedetomidine Product in a Licensed Dosage Form outside Recro Territory.

8.5 Abandoned Products and Countries. Without prejudice to Orion’s termination rights under Section 14.4.2, In the event Licensee determines, for whatever reason, to cease or discontinue all Development or Commercialization activities with respect to Recro Products in a particular country in the Recro Territory, Licensee shall promptly notify Orion thereof. If Licensee so abandons the Development or Commercialization of Recro Products in such country or if either party terminates this Agreement with respect to a particular country of the Recro Territory in accordance with Section 14, all rights and licenses granted by Orion to Licensee under this Agreement in respect of that particular country will automatically be terminated, and consequently that particular country will thereupon automatically be excluded from the Recro Territory and become part of the Orion Territory. In the event of such return of rights, Licensee shall return to Orion all documentation and embodiments of Orion Know-How solely related to such Recro Product(s) in such country.

8.6 License Back of Licensee’s IPR. The parties acknowledge that as a result of this Agreement, Licensee may (a) generate or have generated clinical trial data relating to the Recro Products “Recro Clinical Data”). which shall be owned by Licensee as well as other Recro Know-How, all of which shall be, as applicable, considered Licensee’s Confidential Information, and (b) be issued medical use or other Recro Patents in the Orion Territory related to the Recro Products (“Recro Grant-Back Patents”), which shall

 

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be owned by Licensee. Licensee hereby grants to Orion a perpetual, non-exclusive, royalty-free, fully paid up right and license with right to grant sublicense under the Recro Grant-Back Patents, the Recro Clinical Data and the Recro Know-How for purposes of using, Developing, making and having made or Commercializing the Recro Products and other Dexmedetomidine Products in the Orion Territory or for Developing or Commercializing Dexmedetomidine Products (other than Recro Products or Competitive Products) anywhere in the world. Licensee agrees to promptly notify Orion of any Recro Clinical Data and/or Recro Know-How generated and Recro Grant-Back Patents issued, and shall, or shall cause one or more of its Affiliates to, make available to Orion the Recro Clinical Data and/or Recro Know-How and upon Orion’s request, provide a copy of the Common Technical Document, updates thereto and other unique studies and data that supplement the Common Technical Document.

8.7 Recro Trademarks. Orion shall not Commercialize Recro Products in the Orion Territory under the trademark(s) used by Licensee in any part of the Recro Territory (a “Recro Trademark”) without Licensee’s prior written consent, which Licensee may withhold in its sole discretion. Should Licensee agree to allow Orion to so Commercialize Recro Products in the Orion Territory under a Recro Trademark, the parties shall negotiate a royalty-free trademark license agreement in good faith. For the avoidance of doubt it is expressly stated that Orion, its Affiliates and/or licensee(s) and shall at all times have the right to Commercialize the Recro Products in the Orion Territory under a trademark of its own choice, which shall be the exclusive property of Orion (or, as the case may be, its Affiliate or licensee).

8.8 Third Party Dosage Form Technology Licenses. In the event Licensee enters into a license agreement with a Third Party with respect to Dosage Form Technology related to the Recro Products, Licensee shall prior to and as a prerequisite for entering into any such license agreement, ensure that such Dosage Form Technology will be available for the Recro Products for Orion in respect of the Orion Territory (including inquiring whether such licensor has already entered into arrangements for all or a material part of the Orion Territory and whether such licensor is aware of any third party patents blocking Orion’s use of such Dosage Form Technology in the Orion Territory), and that such Third Party offers Orion the option to obtain rights to the Dosage Form Technology for use in a Recro Products in the Orion Territory on terms at least as favorable as those offered to Licensee. Upon Orion’s request and at Orion’s expense, Licensee shall arrange for patent counsel to conduct a freedom to operate review with respect to the Dosage Form Technology at issue in the Orion Territory. If any such freedom to operate review reveals third party patents potentially blocking Orion’s use of such Dosage Form Technology in a material part of the Orion Territory, the Parties shall work with each other in good faith to develop a mutually satisfactory strategy to address such issues before entering into a license agreement for such Dosage Form Technology. Licensee is making no representation and providing no opinions with respect to any Dosage Form Technology or Orion’s continued freedom to operate or Orion’s or any Third Party’s ability to Develop or Commercialize any product in any country.

 

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8.9 Orion Dexmedetomidine Development and Improvements.

8.9.1 Orion Activities. The parties acknowledge that Orion may develop know-how, improvements and data related to Dexmedetomidine or Dexmedetomidine Products, including improvements to formulations, which may be included in the scope of Orion Know-How and Other Orion Patent Rights, as the case may be. Such Know-How includes, without limitation, Orion’s safety data from its EU Phase III program for injectable Dexmedetomidine Products.

8.9.2 Reports. Orion shall keep Licensee reasonably informed on Orion’s Development activity and improvements with respect to Dexmedetomidine and Dexmedetomidine Products. Upon Licensee’s request and subject to Section 7.2, Orion shall, or shall cause one or more of its Affiliates to, deliver to Licensee copies of or reasonable documentation and embodiments of such additional Orion Know-How.

8.9.3 Third Party Agreements. In the event a Third Party licenses to Orion know-how and/or patents relating to Dexmedetomidine, Dexmedetomidine Products, or improvements thereto, after the Effective Date and such Third Party’s know-how and patents are not already included in Orion Know-How or Orion Patent Rights, then Orion shall, to the extent such know-how and/or patents are relevant to Recro Products, use reasonable efforts to introduce Licensee to such Third Party and encourage such Third Party to offer Licensee terms at least as favorable as those offered to Orion.

8.10 Supply of Dexmedetomidine Active Ingredient. Concurrently with the execution of this Agreement, the Parties are entering into a separate API Supply Agreement for the Orion Dexmedetomidine API.

8.11 Manufacture of Finished Dosage Product. Licensee shall have the sole responsibility, authority and discretion to manufacture or have manufactured the Recro Products for sale in the Recro Territory. Except for any obligations under Licensee’s or Orion’s contractual arrangements with Third Parties with respect to Dosage Form Technology to purchase Recro Products from a Third Party, Orion shall have the sole responsibility, authority and discretion to manufacture or have manufactured the Recro Products for sale in the Orion Territory.

8.12 Ownership of Inventions. Title to all inventions and other intellectual property made solely by or on behalf of Orion in connection with this Agreement, such as work performed by Orion related to the Additional Indications, shall be owned by Orion. Title to all inventions and other intellectual property made solely by or on behalf of Licensee in connection with this Agreement, such as work performed by Licensee related to formulation development, shall be owned by Licensee. Title to all inventions and other intellectual property made jointly by personnel of Orion and Licensee in connection with this Agreement shall be jointly owned by Orion and Licensee. Prosecution of any patent applications and patents with respect to jointly owned inventions and intellectual property described in this Section 8.12 shall be jointly conducted as mutually agreed.

 

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8.13 Non-Competition. During the Term, except as permitted by this Agreement, Orion covenants that it shall not, and shall cause its respective Affiliates not to engage in a Competing Business (as defined below), directly or indirectly, including the sublicensing of rights to engage in a Competing Business, in the Recro Territory. For the purpose of this paragraph, a “Competing Business” means the use, manufacturing, and/or Commercialization of a Competitive Product in the Recro Territory and includes the supply of Orion Dexmedetomidine API intended for use, manufacturing, and/or Commercialization of a Competitive Product in the Recro Territory.

8.14 No Minimum Obligation. Orion acknowledges and agrees that except as expressly set forth herein, nothing in this Agreement shall be construed as Licensee making any representation or warranty with respect to the possibilities of obtaining Regulatory Approval(s) for or with respect to the Commercialization potential of any Recro Product.

8.15 Adverse Event Reporting. To ensure that all relevant safety information for Dexmedetomidine Products is exchanged between the Parties, the Parties will prepare a Pharmacovigilance Data Exchange Agreement governing the collection, reporting, and exchange of information concerning adverse drug reactions and other relevant drug safety related matters with respect to Recro Products during the Development sufficient to permit each party to comply with its legal and regulatory obligations. Such Pharmacovigilance Agreement will be promptly updated if required by changes in legal or regulatory requirements. Each Party shall ensure that its Affiliates, licensees, sublicensees, and collaboration partners comply with the foregoing obligations as if a Party. Prior to the Commercialization of the first Recro Product, the Parties shall negotiate in good faith with a view to agreeing on such updates to the Pharmacovigilance Agreement as may be required due to such Commercialization. Within ninety (90) days after the Effective Date, the parties shall enter into a mutually agreeable Pharmacovigilance Data Exchange Agreement with respect to the Recro Products.

9. PATENT RIGHTS.

9.1 Orion Patent Rights.

9.1.1 Ownership, Prosecution and Maintenance of Orion Patent Rights. Orion, or, as the case may be, its Third Party Licensee(s), shall have the first right, but not the obligation, at its sole expense, to prosecute any and all patent applications within the Orion Patent Rights, including but not limited to, the right to conduct interferences, oppositions, reissue proceedings and reexaminations, to obtain patents thereon, and to maintain all patents included therein. Such prosecution and maintenance may be performed by outside counsel of Orion’s choosing. Orion shall keep Licensee reasonably informed, as is reasonably practicable, of

 

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the progress regarding the prosecution of each patent application included within the Orion Patent Rights, including providing Licensee with a power to inspect filings made with the respective patent offices, and file such power to inspect with such patent offices. Licensee shall have the right to review all pending patent applications, and to make recommendations to Orion regarding the prosecution of such patent applications; provided that all final decisions regarding the prosecution and maintenance of such patent applications shall be made by Orion.

9.1.2 Discontinuation; Abandonment of Orion Patent Rights. Orion shall have the right to discontinue the prosecution of any patent application, or to abandon any patent, on a country-by-country basis, encompassed within the Orion Patent Rights. If Orion decides to discontinue the prosecution of any patent application or to abandon any patent within the Orion Patent Rights in any country of the Recro Territory, and provided further that Orion’s Third Party Licensee(s) have not opted to continue such prosecution, as applicable, Orion shall inform Licensee at least sixty (60) days prior to such discontinuance and Licensee shall be given the opportunity to prosecute such patent application and/or maintain such patent at its expense prior to the date that such discontinuance would otherwise take effect. Licensee shall advise Orion in writing of its decision regarding the opportunity to prosecute and/or maintain such application or patent within thirty (30) days of the date of discontinuance. In the event Licensee timely elects to prosecute and maintain such patent or patent application, Orion shall execute an assignment transferring ownership, at Licensee’s cost and expense, of the patent or patent application to Licensee in each such country of the Recro Territory. Licensee hereby grants to Orion a perpetual, non-exclusive, royalty-free, fully paid up right and license with right to grant sublicense under the patents and/or patent applications so transferred to or assumed by Licensee for any purpose not in conflict with the rights granted to Licensee under this Agreement.

9.2 Other Orion Patent Rights.

9.2.1 Ownership, Prosecution and Maintenance of Other Orion Patent Rights. Orion, or, as the case may be, its Third Party licensee(s), shall, subject to the provisions of Section 9.2.2, have the exclusive right, but not the obligation, at its sole expense, to prosecute any and all patent applications within the Other Orion Patent Rights, including but not limited to, the right to conduct interferences, oppositions, reissue proceedings and reexaminations, to obtain patents thereon, and to maintain all patents included therein. Such prosecution and maintenance may be performed by outside counsel of Orion’s choosing. Orion shall keep Licensee reasonably informed, at quarterly update meetings of the parties and to the extent reasonably relevant to the Recro Products in the Recro Territory, of the progress regarding the prosecution of each patent application in the Recro Territory included within the Other Orion Patent Rights. In addition, Orion shall provide Licensee with a power to inspect, and file such power to inspect with the respective patent offices in the Recro Territory. Licensee shall, upon its

 

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reasonable request, have the right to review all pending patent applications after same have been published, and to make recommendations to Orion regarding the prosecution of such patent applications; provided that all final decisions regarding the prosecution and maintenance of such patent applications shall be made by Orion.

9.2.2 Discontinuation; Abandonment of Other Orion Patent Rights. Orion shall have the right to discontinue the prosecution of any patent application, or to abandon any patent, on a country-by-country basis, encompassed within the Other Orion Patent Rights. Orion shall provide Licensee, against reimbursement from Licensee for reasonable costs and expenses incurred by Orion in connection with such updates and related monitoring, with an update once every calendar quarter with respect to whether Orion at the time of such update holds any Other Orion Patent Rights (for the avoidance of doubt not including patent applications that have not been published) that claim a Recro Product that Licensee intends to Develop, and whether Orion intends to discontinue the prosecution of any patent application or to abandon any patent within the Other Orion Patent Rights in any country. If Orion decides, during the Term, to discontinue the prosecution of any patent application or to abandon any patent within the Other Orion Patent Rights in any country of the Recro Territory, and provided further that Orion’s Third Party licensee(s) have not opted to continue such prosecution, as applicable, Orion shall inform Licensee at least sixty (60) days prior to such discontinuance. If and to the extent the Other Orion Patent Right(s) in the Recro Territory that Orion so intends to abandon claims the use of Dexmedetomidine in a Recro Product that Licensee has actually commenced the Development of during the term of this Agreement, Licensee shall be given the opportunity to prosecute such patent application and/or maintain such patent at its expense prior to the date that such discontinuance would otherwise take effect. Licensee shall advise Orion in writing of its decision regarding the opportunity to so prosecute and/or maintain such application or patent within thirty (30) days of the date of discontinuance. In the event Licensee timely elects to so prosecute and maintain such patent or patent application, Orion shall execute an assignment transferring ownership, at Licensee’s cost and expense, of the patent or patent application to Licensee in each such country of the Recro Territory. Licensee hereby grants to Orion a perpetual, non-exclusive, royalty-free, fully paid up right and license with right to grant sublicense under the patents and/or patent applications so transferred to or assumed by Licensee for any purpose not in conflict with the rights granted to Licensee under this Agreement.

9.3 Recro Patent Rights.

9.3.1 Ownership, Prosecution and Maintenance of Recro Patent Rights. Licensee shall subject to the provisions of Section 9.3.2, have the exclusive right, but not the obligation, at its sole expense, to prosecute any and all patent applications (expressly excluding Orion Patent Rights and Other Orion Patent

 

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Rights) for the Recro Products (“Recro Patent Rights”), including but not limited to, the right to conduct interferences, oppositions, reissue proceedings and reexaminations, to obtain patents thereon, and to maintain all patents included therein. Such prosecution and maintenance may be performed by outside counsel of Licensee’s choosing. Orion will not file any patents in the Recro Territory based on Recro Know-How which has been disclosed to Orion by Licensee claiming the Development, manufacture, use or Commercialization of any Recro Product without Licensee’s prior written consent. Licensee shall keep Orion reasonably informed, as is reasonably practicable, of the progress regarding the prosecution of each patent application included within the Recro Patent Rights. Orion shall have the right to review all pending patent applications related to the Recro Products and other proceedings, and to make recommendations to Licensee regarding the prosecution of such patent applications; provided that all final decisions regarding the prosecution and maintenance of such patent applications shall be made by Licensee. Licensee shall, if so requested by Orion and at Orion’s expense, file for any Recro Patent Rights in the Orion Territory, which shall be filed in the name of Licensee. Any such patents in the Orion Territory filed by Orion shall be included in the scope of “Other Orion Patent Rights” for the purpose of this Agreement.

9.3.2 Discontinuation; Abandonment of Recro Patent Rights. Licensee shall have the exclusive right to discontinue the prosecution of any patent application, or to abandon any patent, on a country-by-country basis, encompassed within the Recro Patent Rights, provided, however, that:

(a) Orion Territory. If Licensee decides to discontinue the prosecution of any patent application or to abandon any patent within the Recro Patent Rights in any country in the Orion Territory, and provided further that Licensee’s Third Party licensee(s) have not opted to continue such prosecution, as applicable, Licensee shall inform Orion at least sixty (60) days prior to such discontinuance and Orion shall be given the opportunity to prosecute such patent application and/or maintain such patent at its expense prior to the date that such discontinuance would otherwise take effect. Orion shall advise Licensee in writing of its decision regarding the opportunity to prosecute and/or maintain such application or patent within thirty (30) days of the date of discontinuance. In the event Orion timely elects to prosecute and maintain such patent or patent application, Licensee shall execute an assignment transferring ownership, at Orion’s cost and expense, of the patent or patent application to Licensee in each such country of the Orion Territory.

(b) Recro Territory. If Licensee decides to discontinue the prosecution of any patent application or to abandon any patent within the Recro Patent Rights in any country of the Recro Territory and (a) such discontinuation or abandonment is due to Licensee’s decision to abandon Developing or Commercializing one or more Recro Products in a particular country in the Recro Territory or (b) Orion has

 

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provided Licensee with notice of material breach pursuant to Section 14.4.2 one or more Recro Products in a particular country in the Recro Territory and Recro has been unable to cure, or develop a plan for curing, such breach (for the avoidance of doubt regardless of whether or not Orion has terminated the Agreement in respect of such country) in accordance with Section 14.4.2, Orion shall be given the opportunity to prosecute such patent application and/or maintain such patent at its expense prior to the date that such discontinuance would otherwise take effect. In such event, Orion shall advise Licensee in writing of its decision regarding the opportunity to prosecute and/or maintain such application or patent within thirty (30) days of the date of discontinuance. In the event Orion timely elects to prosecute and maintain such patent or patent application, Licensee shall execute an assignment transferring ownership, at Orion’s cost and expense, of the patent or patent application to Orion in each such country. Orion hereby grants to Licensee a perpetual, non-exclusive, royalty-free, fully paid up right and license with right to grant sublicenses under the patents and/or patent applications so transferred to or assumed by Orion for purposes of using, Developing, making and having made or Commercializing Recro Products in the relevant country in the Recro Territory.

9.4 Cygnus/Farmos Patent.

9.4.1 Orion represents that it is registered as a joint owner of the Cygnus/Farmos Patents, which have been filed pursuant to that certain Study and Development Agreement dated 31 July 1988 by and between Cygnus Research Corporation and Farmos Group Limited (thereafter merged into Orion Corporation) (such agreement hereinafter the “Cygnus Agreement”). Orion has provided Licensee with, on a confidential basis, and Licensee has received and reviewed, a copy of the Cygnus Agreement.

9.4.2 Should Cygnus or any third party deriving its rights from Cygnus claim that the Development, manufacture, use or Commercialization of a Recro Product infringes a Cygnus/Farmos Patent and/or dispute the validity of the license of Orion’s rights under a Cygnus/Farmos Patent to Licensee under Section 2.1.2 of this Agreement, Orion shall offer Licensee its reasonable assistance in defending against such claim. Licensee may deduct from the royalties due to Orion for the Recro Product affected by such claim the following amounts: fifty percent (50%) of (i) reasonable expenses incurred by Licensee in connection with such claim, including attorneys’ fees, (ii) royalties or other consideration paid to Cygnus or a third party to settle such claim, provided, however, that Licensee shall not enter into any such settlement without Orion’s prior written approval, not to be unreasonably withheld or delayed; and (iii) compensation, royalties, fees or damages that a court orders Licensee, its Affiliates or Sublicensees to pay to Cygnus or a third party based on such claim.

 

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9.4.3 For the avoidance of doubt it is expressly stated that (i) a deduction referred to in Section 9.4.2 above can be made irrespective of the [* * *] minimum royalty referred to in Section 4.1, (ii) that Licensee shall have the right to carry forward and apply any unused deduction to which Licensee is entitled under Section 9.4.2 above against future royalties due to Orion until the full amount of the offset or deduction to which Licensee is entitled is satisfied, and (iii) that in no event shall Orion be under any obligation to pay out-of-pocket any sum claimed under this Section 9.4, other than through a deduction referred to in Section 9.4.2 above.

9.5 Cygnus Patents. The Parties further acknowledge that Cygnus has filed in its own name the Cygnus Patents, that such patents are expressly outside the scope of this Agreement, and that Orion makes no representation or warranty, express or implied, regarding non-infringement or freedom to operate in relation to such patents. Licensee shall have the right to initiate a suit or take other appropriate action that it believes is reasonably required to invalidate or otherwise challenge a Cygnus Patent. If required by the law of the forum, Licensee may file a suit in the name of Orion or its Affiliate provided that Licensee shall obtain Orion’s prior written consent (not to be unreasonably withheld) before initiating any suit in the name of Orion or its Affiliate. For this purpose, Orion shall execute such legal papers and cooperate in the prosecution of such suit as may be reasonably requested by Licensee; provided that Licensee shall promptly reimburse all out-of-pocket expenses (including reasonable counsel fees and expenses) actually incurred by Orion in connection with such cooperation.

9.6 Status of Patents; Other Actions.

9.6.1 Initial. Prior to the Effective Date, Orion advised Licensee as to the current status of any patent applications and patents included within the Orion Patent Rights, and, as of the Effective Date, to Orion’s Knowledge there has been no change. To the extent it has not previously done so, Orion shall promptly make available for review at Orion’s premises to Licensee documentation relating to such patent applications and patents, including, but not limited to, copies of all patent applications, relevant prior art, search reports, official actions and examination reports and correspondence with the relevant patent offices, but expressly excluding correspondence and documents subject to attorney-client privilege.

9.6.2 Annual. Within thirty (30) days after the end of each calendar year, each Party shall: (i) advise the other Party as to the then-current status of any patent applications or patents within the Orion Patent Rights or the Recro Patent Rights; and (ii) to the extent the other Party reasonably requests, make available to the other Party materially relevant documentation relating to such patent applications and patents, including, but not limited to, copies thereof.

 

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9.6.3 Notices. Orion will reasonably cooperate with Licensee, at Licensee’s expense, to effect the further prosecution and maintenance of the Recro Patent Rights and the other rights granted to Licensee under this Agreement.

9.7 Patent Term Extension. Subject to rights granted by Orion to Third Party licensee(s) and to the extent relevant, Licensee shall have the exclusive right to seek, at Licensee’s expense, patent term extensions or supplemental patent protection, including supplementary protection certificates, in any country in the Recro Territory in relation to the Recro Products. Orion and Licensee shall cooperate in connection with all such activities, and Licensee, its agents and attorneys will give due consideration to all timely suggestions and comments of Orion regarding any such activities; provided that all final decisions shall be made by Licensee.

9.8 Orange Book Listings. With respect to filings in the FDA Orange Book (and foreign equivalents) for issued patents for a Recro Product in the Recro Territory, Licensee shall be solely responsible at its expense for fulfilling its obligations under applicable law to list any applicable Recro Patent Rights and/or Orion Patent Rights in a timely manner and make all applicable filings regarding the Recro Patent Rights and/or Orion Patent Rights required to be filed by it under applicable law. Licensee will be solely responsible for any such filings and listings, and for any and all decisions with respect to such filings and listings.

9.9 Limitation on Patent Actions. Neither Party shall be required to take any action pursuant to Sections 9.7 or 9.8 hereof that such Party reasonably determines in its sole judgment and discretion conflicts with or violates any court or government order or decree that such Party is then subject to or otherwise may create legal liability on the part of such Party.

9.10 Registration of License. Orion hereby authorizes Licensee to record a brief, mutually acceptable memorandum disclosing the existence of this Agreement and the license granted herein in the title records of the relevant patent offices and Regulatory Authorities in the Recro Territory (or such other mutually acceptable documentation as is required) to the extent required for the licenses granted herein to be effective against third parties under applicable law. Any such recordation shall disclose as little regarding the terms and conditions of this Agreement as necessary to properly register or record this Agreement under applicable law.

10. INFRINGEMENT.

10.1 Applicability. The provisions of this Article 10 shall govern the Parties’ rights and obligations, as between themselves, with respect to actions against Third Parties for infringement of the Orion Patent Rights, the Recro Patent Rights, or misappropriation of the Orion Know-How or the Recro Know-How licensed under this Agreement.

 

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10.2 Notice. Each Party shall promptly report in writing to the other Party any known or suspected (i) infringement of any of the Orion Patent Rights or the Recro Patent Rights, as the case may be or (ii) unauthorized use or misappropriation of any of the Recro Know-How or Orion Know-How of which such Party becomes aware, and shall provide the other Party with all available evidence supporting such known or suspected infringement or unauthorized use.

10.3 Third Party Infringement.

10.3.1 Orion Patent Rights.

(a) Orion First Right of Enforcement. Orion and/or its Third Party licensee(s), as applicable, shall, subject to Section 10.3.1(b) below, have the exclusive right, but not the obligation, to initiate a suit or take other appropriate action that it believes is reasonably required to protect (i.e., prevent or abate actual or threatened infringement or misappropriation of) or otherwise enforce the Orion Patent Rights and Orion Know-How at its expense. For this purpose, Licensee shall execute such legal papers and cooperate in the prosecution of such suit as may be reasonably requested by Orion; provided that Orion shall promptly reimburse all out-of-pocket expenses (including reasonable counsel fees and expenses) actually incurred by Licensee in connection with such cooperation.

(b) Recro Step-in Rights. If Orion and/or its Third Party licensee(s), as applicable, does not initiate a suit or take other appropriate action that it has the initial right to initiate or take pursuant to Section 10.3.1(a) above, then Licensee may, in its discretion, provide Orion with notice of Licensee’s intent to initiate a suit or take other appropriate action. If Licensee provides such notice and Orion does not initiate a suit or take such other appropriate action within thirty (30) days after receipt of such notice from Licensee, then Licensee shall have the right to initiate a suit or take other appropriate action that it believes is reasonably required to protect the Orion Patent Rights and Orion Know-How in the Recro Territory. Any suit by Licensee shall be either in the name of Orion or its Affiliate, the name of Licensee or its Affiliate, or jointly by Licensee, Orion and their respective Affiliates, as may be required by the law of the forum, provided that Licensee shall obtain Orion’s prior written consent (not to be unreasonably withheld) before initiating any suit in the name of Orion or its Affiliate. For this purpose, Orion shall execute such legal papers and cooperate in the prosecution of such suit as may be reasonably requested by Licensee; provided that Licensee shall promptly reimburse all out-of-pocket expenses (including reasonable counsel fees and expenses) actually incurred by Orion in connection with such cooperation.

10.3.2 Recro Patent Rights.

(a) Recro First Right of Enforcement. Licensee shall have the exclusive right, but not the obligation, to initiate a suit or take other appropriate action that it believes is reasonably required to protect (i.e., prevent or abate actual or

 

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threatened infringement or misappropriation of) or otherwise enforce the Recro Patent Rights at its expense. For this purpose, Orion shall execute such legal papers and cooperate in the prosecution of such suit as may be reasonably requested by Licensee; provided that Licensee shall promptly reimburse all out-of-pocket expenses (including reasonable counsel fees and expenses) actually incurred by Orion in connection with such cooperation.

(b) Orion Step-in Rights. If Licensee does not initiate a suit or take other appropriate action that it has the initial right to initiate or take pursuant to Section 10.3.2(a), then Orion may, in its discretion and in its own name, initiate a suit or take other appropriate action. If Orion provides such notice and Licensee does not initiate a suit or take such other appropriate action within thirty (30) days after receipt of such notice from Orion, then Orion shall have the right to initiate a suit or take other appropriate action that it believes is reasonably required to protect the Recro Patent Rights in the Orion Territory. Any suit by Orion shall be either in the name of Licensee or its Affiliate, the name of Orion or its Affiliate, or jointly by Orion, Licensee and their respective Affiliates, as may be required by the law of the forum, provided that Orion shall obtain Licensee’s prior written consent (not to be unreasonably withheld) before initiating any suit in the name of Licensee or its Affiliate. For this purpose, Licensee shall execute such legal papers and cooperate in the prosecution of such suit as may be reasonably requested by Orion; provided that Orion shall promptly reimburse all out-of-pocket expenses (including reasonable counsel fees and expenses) actually incurred by Licensee in connection with such cooperation. This section shall not apply to the extent any Recro Patent Rights are owned or controlled by a Third Party except as the parties may mutually agree in writing.

10.3.3 Conduct of Certain Actions; Costs. The Party initiating suit shall have the sole and exclusive right to select counsel for any suit initiated by it pursuant to this Section 10.3. The initiating Party shall assume and pay all of its own out-of-pocket costs incurred in connection with any litigation or proceedings initiated by it pursuant to this Section 10.3, including the fees and expenses of the counsel selected by it. The other Party shall have the right to participate and be represented in any such suit by its own counsel at its own expense. The Party initiating and assuming control over such suit shall be entitled to receive the entire amount of any damages, settlements, accounts of profits, or other financial compensation recovered from a Third Party based upon any such suit.

10.3.4 Patent Invalidity Claim. Each of the Parties shall promptly notify the other in the event of any legal or administrative action by any Third Party against a Orion Patent Right or Recro Patent Right of which it becomes aware, including any nullity, revocation, reexamination or compulsory license proceeding.

 

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(a) Orion Patent Rights. Orion and/or its Third Party licensee(s), as applicable, shall, subject to this Section 10.3.4, have the first right, but not the obligation, to defend against any such action involving a Orion Patent Right in the Recro Territory in its own name, and the costs of any such defense shall be at Orion’s expense. Licensee, upon request of Orion, agrees to join in any such action and to cooperate reasonably with Orion; provided that Orion shall promptly reimburse all out-of-pocket expenses (including reasonable counsel fees and expenses) actually incurred by Licensee in connection with such cooperation. If Orion does not defend against any such action involving such Orion Patent Right in the Recro Territory, then Licensee shall have the right, but not the obligation, to defend such action and any such defense shall be at Licensee’s expense. Orion, upon request of Licensee, agrees to join in any such action and to cooperate reasonably with Licensee; provided that Licensee shall promptly reimburse all out-of-pocket expenses (including reasonable counsel fees and expenses) actually incurred by Orion in connection with such cooperation.

(b) Recro Patent Rights. Licensee shall have the exclusive right, but not the obligation, to defend against any such action involving a Recro Patent Right in its own name, and the costs of any such defense shall be at Licensee’s expense. Orion, upon request of Licensee, agrees to join in any such action and to cooperate reasonably with Licensee; provided that Licensee shall promptly reimburse all out-of-pocket expenses (including reasonable counsel fees and expenses) actually incurred by Orion in connection with such cooperation. If Licensee does not defend against any such action involving such Recro Patent Right in the Orion Territory, then Orion shall have the right, but not the obligation, to defend such action and any such defense shall be at Orion’s expense. Licensee, upon request of Orion, agrees to join in any such action and to cooperate reasonably with Orion; provided that Orion shall promptly reimburse all out-of-pocket expenses (including reasonable counsel fees and expenses) actually incurred by Licensee in connection with such cooperation.

11. REPRESENTATIONS AND WARRANTIES.

11.1 Representations and Warranties of Orion. Orion hereby represents and warrants to Licensee:

11.1.1 Orion is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, with the corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Orion. This Agreement has been duly executed and delivered by Orion and constitutes the valid, binding and enforceable obligation of Orion, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors’ rights generally from time to time in effect.

 

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11.1.2 Orion is not subject to, or bound by, any provision of:

(a) any articles or certificates of incorporation or by-laws;

(b) any license agreement, collaboration agreement, mortgage, deed of trust, lease, note, shareholders’ agreement, bond, indenture, license, permit, trust, custodianship, or other instrument, agreement or restriction, or

(c) any judgment, order, writ, injunction or decree or any court, governmental body, administrative agency or arbitrator,

that would prevent, or be violated by, or under which there would be a default as a result of, nor is the consent of any Third Party required for, the execution, delivery and performance by Orion of this Agreement and the obligations contained herein. The execution and delivery of this Agreement by Orion and the performance by Orion will not violate any laws or order of any court or government authority.

11.1.3 Intellectual Property.

(a) Except as set forth on Schedule 11.1.3(a), as of the Effective Date,

(i) Orion has legal right, title and interest in and to the Orion Patent Rights, Orion Know-How and to Orion’s Knowledge, the Cygnus/Farmos Patent, free of any liens or restrictions, and

(ii) Orion has the right to grant to Licensee all of the licenses and other rights granted to Licensee under this Agreement.

(b) Except as set forth on Schedule 11.1.3(a), Orion has not entered into, and will not enter into, any agreement nor granted any third party any rights with respect to the Orion Patent Rights, Orion Know-How, or, to Orion’s Knowledge, to Other Orion Patent Rights or Cygnus/Farmos Patents that are inconsistent with the rights granted to Licensee under this Agreement, which would limit the scope of Licensee’s rights granted under this Agreement, or which would limit Orion’s ability to perform all of the obligations undertaken by Orion hereunder.

(c) Orion is not a party to, nor otherwise bound by, any contract that will result in any person or entity obtaining any interest in, or which would give any third party any right to assert any claim in or with respect to, Licensee’s rights under this Agreement.

(d) To Orion’s Knowledge, the Cygnus Agreement is valid and enforceable.

 

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(e) Orion shall not suffer or permit any liens or restrictions to be imposed on the Orion Patent Rights and Orion Know-How without the prior written consent of Licensee (which shall not be unreasonably withheld or delayed).

(f) As of the Effective Date, no item of Orion Patent Rights or Orion Know-How, save for the Orion Patent Rights or Orion Know-How in-licensed from Hospira, is in-licensed by Orion from an Affiliate or Third Party. As of the Effective Date, neither Orion nor its Affiliate has received notice of any breach of any provision of Orion’s agreement with Hospira.

(g) To Orion’s Knowledge as of the Effective Date: (i) Orion owns or controls no patents or patent applications (including international and provisional applications) not within the Orion Patent Rights or Other Orion Patent Rights that cover or claim Dexmedetomidine or its manufacture, Development, use or Commercialization as part of any Recro Product, (ii) except for Dosage Form Technology, which Licensee intends to license from Third Parties, for the Cygnus Patents and the Cygnus/Farmos Patent, Orion is not, to Orion’s Knowledge as of the Effective Date, aware of that Licensee’s practice of the Orion Patent Rights and Orion Know-How with respect to its initial development projects as set out on Schedule 11.1.3(g)(i) would infringe the patent rights or other intellectual property rights of a Third Party, (iii) none of the Orion Patent Rights are unenforceable, have been infringed or misused, and (iv) there are no existing actions, suits or proceedings, and Orion has not received any written claim or demand from a Third Party, that challenges Orion’s rights with respect to the Orion Patent Rights, Orion Know-How, the Cygnus/Farmos Patents or Orion’s rights to enter into this Agreement or that asserts that Development, manufacture or Commercialization of Dexmedetomidine would infringe the intellectual property rights of a third party.

11.1.4 Development and Regulatory Activities.

(a) Orion and its Affiliates, and, to Orion’s Knowledge, their licensees and partners have conducted, or have caused their respective contractors or consultants to conduct, their development and manufacturing of Dexmedetomidine Products, including GLP and non-GLP preclinical studies and clinical studies for Dexmedetomidine Products, in accordance with (i) applicable laws or regulations, (ii) the standards of the relevant Regulatory Authorities, and (iii) scientific standards applicable to the conduct of such studies and activities; in each case of the country in which and at the time such studies are or were conducted. Neither Orion nor its officers, employees or subcontractors, has made an untrue statement of a material fact to any Regulatory Authority with respect to any Dexmedetomidine Product, or has knowingly failed to disclose a material fact required to be disclosed to any Regulatory Authority with respect to a Dexmedetomidine Product. During the term of this Agreement, Orion shall not, and shall cause its officers, employees and subcontractors not to, knowingly make

 

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any untrue statement of material fact to any Regulatory Authority with respect to the Dexmedetomidine Product, or knowingly fail to disclose a material fact required to be disclosed to any Regulatory Authority with respect to the Dexmedetomidine Product.

(b) In the course of its Development or manufacturing of any Dexmedetomidine Products, Orion has not conducted any activities in violation of applicable laws and regulations of the country in which and at the time such studies were conducted, including then currently applicable Good Laboratory Practices (“GLP”), current Good Clinical Practices (“GCP”), and current Good Manufacturing Practices (“cGMP”) or similar or corresponding regulations or guidelines. Specifically with respect to Abbott/Hospira’s NDA for Precedex in the United States, to which Orion has a right of reference, to Orion’s Knowledge, preclinical toxicological work was conducted in accordance with then-current GLPs, all pivotal NDA clinical studies were conducted in accordance with then-current GCPs, and all manufacturing information met GMP standards. To the Knowledge of Orion as of the Effective Date, there are no problems that would reasonably require that any previous or current Development, manufacturing or Commercialization activities by Orion or its Affiliates be materially delayed, suspended or abandoned before their completion.

(c) To Orion’s Knowledge, neither Orion nor any of its Affiliates has employed, and Orion and its Affiliates will not knowingly employ, any personnel, and has not knowingly used and will not knowingly use, in connection with the Development of Dexmedetomidine Product, a contractor or consultant, debarred by the FDA (or subject to a similar sanction of a Regulatory Authority outside the United States), or who is subject of an FDA debarment investigation or proceeding (or similar proceeding of a Regulatory Authority outside the United States).

(d) As of the Effective Date, neither Orion, nor any of its Affiliates, nor, to Orion’s Knowledge, any of their respective licensees, partners or subcontractors, has received any notice in writing or otherwise has knowledge of any facts which have led Orion to believe that any of the Regulatory Filings relating to Dexmedetomidine Product are not currently in good standing with, the FDA or any other Regulatory Authority. As of the Effective Date, there are, to Orion’s Knowledge, no inquiries, actions or other proceedings pending before or, to Orion’s Knowledge, threatened by, any Regulatory Authority or other government agency with respect to (i) Orion Dexmedetomidine API; (ii) a Dexmedetomidine Product; or (iii) any facility where Orion Dexmedetomidine API is manufactured except to the extent such proceeding with respect to a facility does not materially interfere with Orion’s ability to supply to Licensee Dexmedetomidine API that meets cGMP standards.

 

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11.1.5 Litigation and Claims. There is no, and since January 1, 2000, there has not been any, action pending or, to the Knowledge of Orion, threatened against Orion or any of its respective Affiliates involving the Orion Patent Rights or the Orion Know-How.

11.1.6 Full Disclosure. Orion has not omitted to furnish Licensee any information requested by Licensee prior to the Effective Date, and has not intentionally concealed from Licensee any material information in its possession, concerning Dexmedetomidine or Dexmedetomidine Products that, to Orion’s Knowledge, would have a material adverse impact on Licensee’s ability to Develop and Commercialize Recro Products in the Recro Territory.

11.1.7 No Implied Warranties. No other warranties, express or implied, including without limitation, merchantability or fitness for any particular purpose, are made or shall be deemed to have been made by Orion regarding Dexmedetomidine, Dexmedetomidine Products, Orion Patent Rights or Orion Know-How, except to the extent expressly stated in this Section 11.1 or elsewhere in writing.

11.1.8 Limitation of Claims. The Licensee shall have no right to present any claim under the representation or warranty of Orion if such claim is based on facts or circumstances which have been disclosed in writing to Licensee prior to the Effective Date.

11.2 Representations and Warranties of Licensee. Licensee hereby represents and warrants to Orion as of the Effective Date:

11.2.1 Licensee is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, with the corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Licensee. This Agreement has been duly executed and delivered by Licensee constitutes the valid, binding and enforceable obligation of each of them, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors’ rights generally from time to time in effect and to general principles of equity.

11.2.2 Licensee and its Affiliates, licensees and partners will conduct or cause their respective contractors or consultants to conduct their Development and manufacturing of Recro Products in accordance with (i) applicable laws or regulations, (ii) the standards of the relevant Regulatory Authorities, and (iii) scientific standards applicable to the conduct of such studies and activities; in each case of the country in which such studies are conducted, and to the extent not inconsistent therewith, such laws, regulations and standards of the United States

 

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and any ICH guidelines. During the term of this Agreement, Licensee shall not, and shall cause its officers, employees and subcontractors not to, make any untrue statement of material fact to any Regulatory Authority with respect to the Recro Products, or knowingly fail to disclose a material fact required to be disclosed to any Regulatory Authority with respect to the Recro Product.

11.2.3 Licensee is not subject to, or bound by, any provision of:

(a) any articles or certificates of incorporation or by-laws;

(b) any mortgage, deed of trust, lease, note, shareholders’ agreement, bond, indenture, license, permit, trust, custodianship, or other instrument, agreement or restriction, or

(c) any judgment, order, writ, injunction or decree or any court, governmental body, administrative agency or arbitrator,

that would prevent, or be violated by, or under which there would be a default as a result of, nor is the consent of any Third Party required for, the execution, delivery and performance by Licensee of this Agreement and the obligations contained herein.

11.2.4 To its knowledge, neither Licensee nor any of its Affiliates has employed, and Licensee and its Affiliates or Sublicensees will not knowingly employ, any personnel, and has not knowingly used and will not knowingly use in connection with a Recro Product a contractor or consultant, debarred by the FDA (or subject to a similar sanction of a Regulatory Authority outside the United States), or who is subject of an FDA debarment investigation or proceeding (or similar proceeding of a Regulatory Authority outside the United States).

11.2.5 Licensee has not entered into, and will not enter into, any agreement nor granted any third party any rights with respect to the Recro Clinical Data, Recro Grant-Back Patents, or Recro Know-How and that are inconsistent with or would limit the scope of the rights granted to Orion under Section 8.6 of this Agreement, or which would limit Licensee’s ability to perform all of the obligations undertaken by Licensee hereunder.

11.2.6 No other warranties, express or implied, including without limitation, merchantability or fitness for any particular purpose, are made or shall be deemed to have been made by Licensee regarding Dexmedetomidine, Dexmedetomidine Products, Recro Patent Rights, Recro Clinical Data or Recro Know-How, except to the extent expressly stated in this Section 11.2 or elsewhere in writing.

11.2.7 Limitation of Claims. Orion shall have no right to present any claim under the representation or warranty of the Licensee if such claim is based on facts or circumstances which have been disclosed to Orion in writing prior to the Effective Date.

 

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12. CONFIDENTIALITY.

12.1 Treatment of Confidential Information. During the term of this Agreement and for a period of twenty (20) years from the termination or expiry of this Agreement in accordance with its terms, except as otherwise provided in this Section 12, each Party (“Receiving Party”) agrees to keep confidential all of the other Party’s (“Disclosing Party”) Confidential Information that is disclosed to it or its Affiliates. Each Party agrees to preserve and protect the Confidential Information to the same extent it protects its own confidential information. Each Party will use the Confidential Information only as permitted under this Agreement, and will not disclose Confidential Information to any Third Party.

12.2 Right to Disclose. The Receiving Party may disclose Confidential Information belonging to the Disclosing Party to the extent (and only to the extent) such disclosure is strictly necessary in the following instances.

12.2.1 filing or prosecuting patents;

12.2.2 Regulatory Filings and obtaining Regulatory Approvals;

12.2.3 prosecuting or defending litigation;

12.2.4 complying with applicable Laws (including, without limitation, the rules and regulations of the Securities and Exchange Commission or any national securities exchange) and with judicial process, if in the reasonable opinion of the Receiving Party’s counsel, such disclosure is necessary for such compliance; and

12.2.5 disclosure, solely on a “need to know basis”, to Affiliates, current, potential and future collaborators (including Sublicensees and its Third Party licensee(s)), acquirers or assignees permitted under Section 15.1, research and Development collaborators, subcontractors, investment bankers, investors, lenders, and their and each of the Parties’ respective directors, employees, contractors and agents, each of whom prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Section 12; provided that information disclosed by Orion to Hospira shall be limited to the existence of this Agreement and general updates and consultations referred to in Section 8.3 on the Development program, but shall not include the terms of this Agreement, details of pharmaceuticals development, regulatory discussions, detailed study designs, detailed study results and similar details about Licensee’s Development program or its business;

 

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provided, however, that in each of the above situations, the Receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to this Section 12.2 to comply with the provisions of this Section 12.

If and whenever any Confidential Information is disclosed in accordance with this Section 12.2, such disclosure shall not cause any such information to cease to be Confidential Information except to the extent that such disclosure results in a public disclosure of such information (otherwise than by breach of this Agreement). Where reasonably possible and other than pursuant to Section 12.2.5, the Receiving Party shall notify the Disclosing Party of the Receiving Party’s intent to make such disclosure pursuant to this Section 12.2 sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action it may deem appropriate to protect the confidentiality of the information.

12.3 Release From Restrictions. The foregoing obligations in respect of disclosure and use of Confidential Information shall not apply to any part of such Confidential Information that the Receiving Party can demonstrate:

12.3.1 is or later becomes part of the public domain other than by acts of the Receiving Party in contravention of this Agreement;

12.3.2 is disclosed to the Receiving Party or its Affiliates by a Third Party who had the right to disclose such Confidential Information to the Receiving Party;

12.3.3 prior to disclosure under this Agreement, was already in the possession of the Receiving Party or its Affiliates, provided such Confidential Information was subject to any obligation to keep it confidential; or

12.3.4 is or has been independently developed by or for the Receiving Party without use of or reference to Confidential Information.

12.4 Confidentiality of Agreement. The Parties acknowledge that this Agreement, and all of the respective terms of this Agreement shall be treated as Confidential Information of both Parties.

13. INDEMNIFICATION.

13.1 Indemnification by Orion. Except at otherwise agreed herein, Orion hereby agrees to indemnify and hold harmless Licensee and its sublicensees, and their directors, officers, employees and agents (“Licensee Indemnitees”) from and against any liabilities, losses, fines, penalties, damages, expenses (including reasonable attorney’s fees and expenses and expenses incurred in connection with the enforcement of this provision), actions or claims which arise out of claims against Licensee brought by Third Parties after the Effective Date, which arise, result from, or relate to:

13.1.1 any breach of any of the representations or warranties of Orion, or other breach of this Agreement by or on behalf of Orion;

 

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13.1.2 the negligence, recklessness or willful misconduct of, or breach of a statutory duty by, Orion and its respective Affiliates or agents;

13.1.3 any activities or actions taken by or on behalf Orion or its Affiliates or sublicensees with respect to of any Recro Product, Recro Patent Rights, Recro Know-How or Recro Clinical Data;

13.1.4 any activities or actions taken by or on behalf Hospira or its Affiliates or sublicensees with respect to Orion Dexmedetomidine API or a Dexmedetomidine Product to the extent same are covered by and Orion is determined to have the right to indemnification by Hospira under the indemnity provision of Orion’s Agreement with Hospira, as referred to on Schedule 13.1.4., in which case Orion’s obligation to indemnify Licensee shall at all times be limited to the amounts actually paid to Orion by or on behalf of Hospira under such indemnity provision (less Orion’s reasonable attorney’s fees incurred in relation thereto);

13.1.5 any activities or actions taken by or on behalf Orion or its Affiliates or sublicensees with respect to any Dexmedetomidine Product other than a Recro Product or a Dexmedetomidine Product commercialized by or on behalf of Hospira; or

13.1.6 any suit by Orion in Licensee’s name referred to in Section 2.3.

The items above are hereinafter collectively referred to as a “Licensee Loss”. Notwithstanding anything stated above, Orion shall have no obligation to indemnify any Licensee Indemnitee, to the extent that any Licensee Loss arises out of the negligence or willful misconduct of any Licensee Indemnitee or Licensee’s breach of this Agreement.

13.2 Indemnification by Licensee. Except at otherwise agreed herein, Licensee hereby agrees to defend, indemnify and hold harmless Orion and its Affiliates and licensors, and their directors, officers, employees and agents (“Orion Indemnitees”) from and against any liabilities, losses, fines, penalties, damages, expenses (including reasonable attorney’s fees and expenses and expenses incurred in connection with the enforcement of this provision), actions or claims which arise out of claims against Orion brought by Third Parties after the Effective Date of this Agreement, which arise, result from, or relate to:

13.2.1 any breach of any of the representations or warranties of Licensee, or other breach of this Agreement by or on behalf of Licensee;

13.2.2 the negligence, recklessness, willful misconduct of, or breach of a statutory duty by, Licensee, its Affiliates or agents;

13.2.3 any activities or actions taken by or on behalf of Licensee or its Affiliates with respect to a Recro Product, Recro Patent Rights, Recro Know-How Recro Clinical Data, Orion Patent Rights, Cygnus/Farmos Patent or Orion Know-How;

 

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13.2.4 subject to the other provisions of this Agreement, a claim that Licensee’s Development or Commercialization of a Recro Product infringes Third Party IP, other than a Cygnus Patent or a Cygnus/Farmos Patent; or

13.2.5 any suit by Licensee in Orion’s or its Affiliate’s name referred to in Section 9.5.

The items above are hereinafter collectively referred to as a “Orion Loss”. Notwithstanding anything stated above, Licensee shall have no obligation to indemnify any Orion Indemnitee, to the extent that any Orion Loss arises out of the negligence or willful misconduct of any Orion Indemnitee or Orion’s breach of this Agreement.

13.3 Matters Involving Third Parties.

13.3.1 If any Third Party shall notify any Party (the “Indemnified Party”) with respect to any matter (a “Third Party Claim”) which may give rise to a claim for indemnification against any other Party (the “Indemnifying Party”) under this Section 13, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the Party of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced.

13.3.2 Should the Indemnifying Party contest its alleged obligation to indemnify the Indemnified Party, either Party shall have the right to submit to binding arbitration in accordance with the provisions of Section 15.15 the determination of whether or not the indemnity provisions set out in this Section 13 shall apply, and whether or not the Indemnifying Party shall be under obligation of indemnity towards the Indemnified Party. To the extent possible under applicable law and arbitration rules, such determination shall be made in an expedited manner and, if possible, within thirty (30) days from submission for arbitration.

13.3.3 Except for patent disputes and claims covered under Sections 9 or 10, any Indemnifying Party shall have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as: (a) the Indemnifying Party notified the Indemnified Party in writing within fifteen (15) days after the Indemnifying Party has given written notice of the Third Party Claim that the Indemnifying Party shall assume the defense of the Indemnified Party with respect to the Third Party Claim; (b) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party shall have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations hereunder; and (c) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently.

 

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13.3.4 So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 13.3.3 above: (a) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim; (b) no compromise or settlement of the Third Party Claim may be effected by the Indemnified Party without the consent of the Indemnifying Party; and (c) the Indemnifying Party may compromise or settle the Third Party Claim without the consent of the Indemnified Party provided that (i) there is no finding or admission of any violation of law or any violation of the rights of any Third Party; (ii) the sole relief provided is money in nature and is paid in full by the Indemnifying Party; and (iii) written agreement is obtained releasing the Indemnified Party from all liability thereunder.

14. TERM AND TERMINATION.

14.1 Term. This Agreement shall become binding upon the Effective Date and shall continue thereafter in full force and effect, unless terminated sooner pursuant to this Section 14, for fifteen (15) years from the First Commercial Sale of a Recro Product in any country of the Recro Territory (the “Initial Term”, it being expressly understood that the Initial Term shall end simultaneously in all countries of the Recro Territory). After the Initial Term, the Agreement shall be automatically extended upon the same terms and conditions for one or more successive periods of two (2) years (each a “Renewal Term”) unless either Party shall have provided written notice of termination of this Agreement at least six (6) months prior to expiration of the Initial Term or any Renewal Term then in effect. For purposes of this Agreement, “Term” shall refer collectively to the Initial Term and the Renewal Terms.

14.2 Bilateral Termination Rights. Either Party may terminate this Agreement upon: (a) the bankruptcy, liquidation or dissolution (other than in the course of a merger, demerger or other solvent reorganization) of the other Party (without further action by the Party); or (b) the filing of any voluntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of the other Party which is not dismissed within one hundred twenty (120) days after the date on which it is filed or commenced.

14.3 Licensee’s Right to Terminate.

14.3.1 For Material Breach at any Time. Licensee may terminate this Agreement, at its option, either in its entirety or, if the breach affected only one or more countries of the Recro Territory, with respect to affected countries, at any time if: Orion materially breaches the Agreement and such material breach is not cured by Orion within ninety (90) days after Licensee provides Orion with written notice of such breach. Notwithstanding the foregoing, if Orion is unable to remedy such breach for causes beyond its reasonable control within such 90 day

 

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period, then this Agreement may not be terminated so long as Orion has presented prior to the end of the aforementioned 90 day period a plan reasonably acceptable to Licensee for curing such breach, and thereafter is pursuing in accordance with such plan a cure of such breach in a timely manner and can demonstrate that it is taking all diligent actions possible to cure such breach.

14.3.2 For Abandonment. Licensee may terminate this Agreement in accordance with Section 8.5, with respect to abandoned countries or products, upon ninety (90) days prior written notice to Orion. Upon giving such notice, Licensee shall have no further obligations, save for the obligations set out in Section 14.5.2 with respect to such products or countries under Section 8.1.

14.4 Orion’s Right to Terminate.

14.4.1 For Material Breach at any Time. Orion may terminate this Agreement, at its option either in its entirety or, if the breach affected only one or more countries of the Recro Territory, with respect to affected countries, at any time if: (a) Licensee materially breaches the Agreement (other than with respect to Section 8.1, which is addressed below); and (b) such material breach is not cured by Licensee within ninety (90) days after Orion provides Licensee with written notice of such breach. Notwithstanding the foregoing, if Licensee is unable to remedy such breach for causes beyond its reasonable control within such 90 day period, then this Agreement may not be terminated so long as Licensee has presented prior to the end of the aforementioned 90 day period a reasonable plan for curing such breach, and thereafter is pursuing in accordance with such plan a cure of such breach in a timely manner and can demonstrate that it is taking all diligent actions possible to cure such breach.

14.4.2 For Failure to Develop and Commercialize.

(a) Orion may terminate this Agreement with respect to the affected Recro Products in affected countries if Licensee has materially breached an obligation to Develop or Commercialize such Recro Products as set forth in Section 8.1. Notwithstanding the above, if Licensee has materially breached an obligation to Develop or Commercialize the first Recro Product in the United States as set forth on Schedule 8.1.2, Orion shall have the right, at its option, to terminate this Agreement either in its entirety or only in respect of the affected Recro Products in the United States.

(b) If Orion believes that Licensee has breached its obligations to so Develop and Commercialize Recro Products, it shall provide Licensee with written notice of such suspected breach. Unless otherwise agreed to in writing by the parties, if such material breach is not cured by Licensee within ninety (90) days after Orion provides Licensee with written notice of such breach, Orion may terminate this Agreement with respect to the affected countries (or, in the event of failure to

 

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Commercialize a Recro Product that has received Regulatory Approval, in respect of such Recro Product only). Notwithstanding the foregoing, if Licensee is unable to remedy such breach for causes beyond its reasonable control within such ninety (90) day period, then this Agreement may not be terminated so long as Licensee has presented prior to the end of the aforementioned 90 day period a reasonable plan for curing such breach, and thereafter is pursuing in accordance with such plan a cure of such breach in a timely manner and can demonstrate that it is taking all diligent actions possible to cure such breach, provided, however, that in the event Licensee has already presented such a cure plan and has failed to perform in accordance with same, Orion shall have the right to terminate under this Section 14.4.2 upon written notice to Licensee.

14.4.3 For Contesting of Orion Patent Rights. Orion may terminate this Agreement in its entirety in the event that the Licensee or any of its Affiliates or Sublicensees directly or indirectly contest the validity or enforceability of any of the Orion Patent Rights.

14.5 Rights Upon Expiration and Termination.

14.5.1 Upon expiration or termination of this Agreement under Section 14.1 or upon Termination of this Agreement by Licensee under Sections 14.2 (Orion bankruptcy) or 14.3.1 (Orion uncured breach) with respect to the Recro Product in a country, Licensee’s license under this Agreement under the Orion Patent Rights and Orion Know-How for such Recro Product in such country (on a country-by-country basis) shall be immediately converted into a perpetual, fully paid (subject to the royalty payable after the Initial Royalty Term pursuant to Section 4.1) and irrevocable license, which license shall remain an exclusive license until the later of: (a) fifteen (15) years from the Effective Date; (b) fifteen (15) years from the First Commercial Sale of a Recro Product in the Recro Territory; or (c) the expiration of the Term. Thereafter, such license shall become non-exclusive.

14.5.2 In the event of termination of this Agreement by Licensee under Section 14.3.2. (For Abandonment) or termination by Orion under Section under Sections 14.2 (Licensee bankruptcy), 14.4.1 (Licensor’s uncured breach) or 14.4.2 (failure to develop and commercialize):

(a) If such termination affects Recro Products in one or more particular countries, all rights and licenses granted by Orion to Licensee under this Agreement in respect of those particular countries will automatically be terminated, and consequently those particular countries will thereupon automatically be excluded from the Recro Territory and become part of the Orion Territory;

(b) Licensee shall return to Orion all documentation and embodiments of Orion Know-How related to such countries;

 

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(c) With respect to countries affected by termination other than the United States, upon Orion’s written request within twelve (12) months from the effective date of termination, Licensee shall, subject to Orion assuming responsibility for royalty payments and other obligations to Third Parties in connection therewith:

(i) within thirty (30) days effect assignment and transfer to Orion or its designee of Licensee’s rights in relevant Regulatory Approvals to Orion, or any designee of Orion, subject to Orion or its designee granting back to Licensee, solely for the purpose of Licensee Commercializing and Developing Recro Products that have not been affected by termination, a right to reference and/or use such items; and

(ii) grant to Orion, with effect as of the effective date of termination, a non-exclusive, perpetual, fully paid and irrevocable license (with the right to grant sublicense) to use the affected Recro Patent Rights, Recro Clinical Data, and Recro Know-How for purposes of Developing and Commercializing the affected Recro Products in the affected country(ies).

(d) With respect to a termination of a particular Recro Product in the United States, if within twelve (12) months from the effective date of termination Orion notifies Licensee in writing of its intent to Develop and Commercialize the affected Recro Product in the United States (it being expressly acknowledged that whether or not Orion has notified Licensee of such intent, Orion shall in no event be under any Development or Commercialization obligations whatsoever), Licensee shall, upon Orion’s written request, subject to Orion assuming responsibility for royalty payments and other obligations to Third Parties in connection therewith, if any:

(i) within thirty (30) days effect assignment and transfer to Orion or its designee of Licensee’s rights in relevant Regulatory Approvals solely related to the affected Recro Product, subject to Orion or its designee granting back to Licensee, solely for the purpose of Licensee Commercializing and Developing Recro Products that have not been affected by termination, a right to reference and/or use such items; and

(ii) grant to Orion, with effect as of the effective date of termination, a non-exclusive, perpetual, fully paid and irrevocable license (with the right to grant sublicense) to use the affected Recro Patent Rights, Recro Clinical Data, and Recro Know-How for purposes of Developing and Commercializing the affected Recro Products in the affected country(ies).

(e) With respect to a termination affecting all Recro Products in the United States, if within twelve (12) months from the effective date of termination Orion notifies Licensee in writing of its intent to Develop and Commercialize the affected Recro Products in the United States (it being expressly acknowledged

 

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that whether or not Orion has notified Licensee of such intent, Orion shall in no event be under any Development or Commercialization obligations whatsoever), Licensee shall, upon Orion’s written request, subject to Orion assuming responsibility for royalty payments and other obligations to Third Parties in connection thereto:

(i) within thirty (30) days effect assignment and transfer to Orion or its designee of Licensee’s rights in relevant Regulatory Approvals, Recro Patent Rights, Recro Clinical Data, and Recro Know-How solely related to the affected Recro Products in the United States, subject to Orion or its designee granting back to Licensee, a right to reference and/or use such items solely in connection with the following: (A) Commercializing and Developing Recro Products that have not been affected by termination in countries of the Recro Territory other than the United States; and (B) Commercializing and Developing any products that do not contain Dexmedetomidine; and

(ii) grant to Orion, with effect as of the effective date of termination, a non-exclusive, perpetual, fully paid and irrevocable license (with the right to grant sublicense) to use the affected Recro Patent Rights, Recro Clinical Data, and Recro Know-How for purposes of Developing and Commercializing the affected Recro Products in the affected country(ies), to the extent not transferred to Orion in (i) above.

(f) Orion shall further have the right, at its discretion, but, subject to such Third Party approvals and/or consents (if any) that may be required to assume, and Licensee agrees to assign (or, with respect to agreements in the name of Licensee’s Affiliate(s), have such Affiliate(s) assign) into Orion’s or its Affiliate’s or designee’s name, all of Licensee’s and its Affiliate’s rights and interest under Licensee’s or its Affiliates’ agreements with Third Parties that are relevant solely to the affected Recro Product, provided, however, that Orion simultaneously assumes, as of the effective date of such assignment, all of Licensee’s and/or its Affiliates’ rights and obligations under such agreement(s).

(g) No representation or warranties are made or shall be deemed to have been made by Licensee with respect to items or rights transferred or granted under this Section 14.5.2. Orion agrees that such items are provided “as is”. Orion shall indemnify Licensee Indemnitees with respect its, its Affiliates, licensee or any Third Party’s use of such items or rights in accordance with Section 13.1 above.

14.5.3 Upon Expiration or termination of this Agreement, the following Sections and Articles shall survive such expiration or termination, subject to any later termination dates provided for therein: Sections 1 (Definitions to the extent applicable), 8.6 (License Back of Licensee’s IPR) 11.2.7 (Confidentiality), 13 (Indemnification), 14 (Term and Termination), and 15 (Miscellaneous). In addition, Section 4 (Royalties) shall survive expiry of the Agreement to the extent necessary for the continued payment of royalties during the Initial Royalty Term and thereafter.

 

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14.5.4 Expiration or termination of the Agreement shall not relieve the Parties of any obligation accruing before such expiration or termination. Any Expiration or early termination of this Agreement shall be without prejudice to the rights of either Party against the other accrued or accruing under this Agreement before termination.

14.6 Provisions for Insolvency. The Parties agree that the Orion Patent Rights and Orion Know-How are “intellectual property” as defined in 11 U.S.C. 101(35A). The Parties intend that the licenses granted to Licensee pursuant to Section 2.1 of this Agreement (Licenses) be entitled to benefits of Section 365(n) of Title 11 of the U.S. Code. Any supply arrangements contained in or contemplated by this Agreement are “supplemental” to this Agreement for the purpose of Section 365(n). For the purposes of Section 365(n) the “embodiments” of the intellectual property licensed under this Agreement include the Recro Products, works of authorship used in connection with the marketing and promotion of the Recro Products, and the methods and technology used to develop and manufacture the Recro Products. The Parties agree that the royalties payable by Licensee to Orion under this Agreement are “royalty payments” in exchange for the licenses granted in this Agreement, and also agree that all other payments payable by Licensee to Orion or its Affiliates for any supply agreement relating to the Recro Products or Dexmedetomidine API, are not royalties and are not paid in exchange for the licenses granted in this Agreement.

15. MISCELLANEOUS.

15.1 Assignment. This Agreement may not be assigned or otherwise transferred by either Party without the written consent of the other Party; provided, however, that either Party may, without such consent, assign this Agreement: (a) to a successor corporation in connection with the transfer or sale of all or substantially all of its business to which this Agreement pertains or in the event of the merger or consolidation with another corporation; (b) to an Affiliate; and (c) with respect to Licensee, to a Third Party if Licensee is required to divest any of the Recro Product in order to comply with applicable antitrust law or government order. Any purported assignment in violation of the preceding sentence shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement.

15.2 Performance by Affiliates. Each of Orion and Licensee acknowledge that their obligations and rights under this Agreement may be performed and exercised by Affiliates of Orion and Licensee, respectively. Obligations of the Party for which one of its Affiliates is performing hereunder shall be deemed to extend to such performing Affiliate. Each of Orion and Licensee guarantee performance of this Agreement by its Affiliates. Wherever in this Agreement the Parties delegate responsibility to Affiliates or

 

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local operating entities, the Parties agree that such entities shall not make decisions inconsistent with this Agreement, amend the terms of this Agreement or act contrary to its terms in any way. Further, if a Party’s Affiliate breaches any aspect of this Agreement performance of which has been delegated to such Affiliate or acts in any way inconsistently with the foregoing sentence, then the Party whose Affiliate so breached shall be liable for such breach as for its own, and the other Party shall be entitled to proceed against the Party whose Affiliate so breached, and shall not first be required to proceed against the Affiliate that so breached.

15.3 Further Actions. Each Party hereto agrees to perform such acts, execute such further instruments, documents or certificates, and provide such cooperation in proceedings and actions as may be reasonably requested by the other Party in order to carry out the intent and purpose of this Agreement, including without limitation the registration or recordation of the rights granted hereunder.

15.4 Force Majeure. Neither Party shall be liable to the other for delay or failure in the performance of the obligations on its part contained in this Agreement if and to the extent that such failure or delay is due to circumstances beyond its control that it could not have avoided by the exercise of reasonable diligence (a “Force Majeure Event”). It shall notify the other Party promptly in the event such circumstances arise, giving an indication of the likely extent and duration thereof, and shall use all commercially reasonable efforts to resume performance of its obligations as soon as practicable; provided, however, that neither Party shall be required to settle any labor dispute or disturbance.

15.5 Representation by Legal Counsel. Each Party hereto has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting of this Agreement. In interpreting and applying the terms and provisions of this Agreement, the Parties agree that no presumption shall exist or be implied against the Party which drafted such terms and provisions.

15.6 Language of the Agreement. The language of this Agreement shall be English and the parties hereby waive, and agree that this Agreement shall be valid and enforceable notwithstanding any requirement that it be written in or translated into any language other than English. If, for any reason, this Agreement is translated into a language other than English, the English language version shall be controlling for all purposes.

15.7 Correspondence and Notices.

15.7.1 Ordinary Notices. Correspondence, reports, documentation, and any other communication in writing between the Parties in the course of ordinary implementation of this Agreement shall be delivered by hand, sent by facsimile transmission (receipt verified), or by overnight delivery service to the employee or representative of the other Party who is designated by such other Party to receive such written communication.

 

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15.7.2 Extraordinary Notices. Extraordinary notices and communications (including, without limitation, notices of termination, force majeure, material breach, change of address) shall be in writing and delivered by hand or sent by nationally recognized overnight delivery service, prepaid registered or certified air mail, or by facsimile confirmed by prepaid first class, registered or certified mail letter, and shall be deemed to have been properly served to the addressee upon receipt of such written communication.

All correspondence to Licensee shall be addressed as follows:

Recro Pharma, Inc.

55 Valley Stream Parkway, Suite 100

Malvern, PA 19355, USA

Attn: Gerri Henwood

President

Tel: +1-610-644-1004

Fax: +1-610-644-1290

with a copy to:

Saul Ewing LLP

Lockwood Place

500 East Pratt Street, Suite 900

Baltimore, MD 21202-3171, USA

Attn: Tanya D. Berlage, Esq.

Tel: +1-410-332-8719

Fax: +1-410-332-8114

All correspondence to Orion shall be addressed as follows:

Orion Corporation

Orionintie 1A, FI-02200 Espoo, Finland

P.O. Box 65, FI-02I01 Espoo, Finland

Attn: President

Tel: +358-10-4261

Fax: +358-10-426-3815

with a copy to:

Orion Corporation

Orionintie 1A, FI-02200 Espoo, Finland

P.O. Box 65, FI-02101 Espoo, Finland

Attn: Head of Legal Affairs

Tel: +358-10-4261

Fax: +358-10-426-4088

 

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Any Party from time to time may change its contact information herein by giving notice hereunder.

15.8 Amendment. No amendment, modification or supplement of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party.

15.9 Waiver of Compliance. Except as otherwise provided in this Agreement, the failure by any Party to comply with any obligation, covenant, agreement or condition under such agreements may be waived by the Party entitled to the benefit thereof only by a written instrument signed by the Party on granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. The failure of any Party to enforce at any time any of the provisions of such agreements shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of such agreements or any part thereof or the right of any Party thereafter to enforce each and every such provision. No waiver of any breach of such provisions shall be held to be waiver of any other or subsequent breach.

15.10 Exhibits and Schedules; Incorporation by Reference; Independent Significance. The exhibits and schedules attached to this Agreement, each when executed and/or delivered, are incorporated by reference into and made a part of this Agreement. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. The word “including” shall mean including without limitation.

15.11 Severability. The illegality or partial illegality of any or all of this Agreement, or any provision thereof, shall not affect the validity of the remainder of the Agreements, or any provision thereof, and the illegality or partial illegality of the Agreement shall not affect the validity of the Agreement in any jurisdiction in which such determination of illegality or partial illegality has not been made, except in either case to the extent such illegality or partial illegality causes the Agreements to no longer contain all of the material provisions reasonably expected by the parties to be contained therein.

15.12 Descriptive Headings. The descriptive headings of this Agreement are for convenience only and shall be of no force or effect in construing or interpreting any of the provisions of this Agreement.

15.13 Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE, THROUGH INDEMNIFICATION OR OTHERWISE, TO THE OTHER PARTY FOR ANY LOSS OF PROFITS, LOSS OF BUSINESS OR INTERRUPTION OF BUSINESS, OR FOR ANY OTHER INDIRECT, SPECIAL, INCIDENTAL,

 

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CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGES. IN NO CASE SHALL EITHER PARTY BE LIABLE FOR ANY REPRESENTATION OR WARRANTY MADE BY THE OTHER PARTY TO ANY THIRD PARTY. Notwithstanding the foregoing, each Party shall be liable to the other for special, indirect or consequential damages arising out a breach of the non-disclosure and non-use obligations under Section 12.

15.14 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of Sweden, without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.

15.15 Jurisdiction; Venue. Dispute Resolution. Any and all disputes, controversies or claims of any sort arising from this Agreement shall first be discussed by the Parties hereto, who shall try to settle the dispute among themselves. Should they fail to agree within ninety (90) days, either Party may bring the matter in dispute to be finally and exclusively settled by arbitration under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce by three (3) arbitrators appointed in accordance with said Rules. The arbitration proceedings shall be held in English and shall be venued in Stockholm, Sweden. The award rendered at the arbitration shall be final and binding upon the Parties hereto.

15.16 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter thereof and shall supersede all previous negotiations, commitments, and writings with respect to such subject matter.

15.17 Specific Performance. Each of the Parties acknowledges and agrees that the other Party may be damaged irreparably in the event any of the provisions of the Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Party shall be entitled to seek an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court having competent jurisdiction over the Parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity.

15.18 Independent Contractors. Both Parties are independent contractors under this Agreement. Nothing contained in this Agreement shall be deemed to create an employment, agency, joint venture or partnership relationship between the Parties hereto or any of their agents or employees, or any other legal arrangement that would impose liability upon one Party for the act or failure to act of the other Party. Neither Party shall have any express or implied power to enter into any contracts or commitments or to incur any liabilities in the name of, or on behalf of, the other Party, or to bind the other Party in any respect whatsoever.

 

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15.19 No Third Party Beneficiaries. All rights, benefits and remedies under this Agreement are solely intended for the benefit of Orion and Licensee, and no Third Party shall have any rights whatsoever to: (i) enforce any obligation contained in this Agreement; (ii) seek a benefit or remedy for any breach of this Agreement; or (iii) take any other action relating to this Agreement under any legal theory, including but not limited to, actions in contract, tort (including but not limited to negligence, gross negligence and strict liability), or as a defense, setoff or counterclaim to any action or claim brought or made by the Parties.

15.20 Press Release.

15.20.1 The parties have agreed that Orion may issue the press release regarding execution of this Agreement in the form previously agreed to by Licensee. Neither Party shall make any press release or similar public announcement regarding the transaction contemplated by this Agreement or the terms of this Agreement without the prior written approval of the other Party, which shall not be unreasonably withheld or delayed, unless such disclosure is required by law or stock exchange rule, is required to be contained in financial statements prepared in accordance with generally accepted accounting principles or has been announced previously in accordance with this Section. If disclosure is required by law or stock exchange rule, the disclosing Party shall use commercially reasonable efforts to give the other Party sufficient advance notice to allow the other Party to comment thereupon, and thereafter limit the scope of the disclosure to what is required to comply with law or stock exchange rule.

15.20.2 For the avoidance of doubt it is expressly understood that nothing in this Section 15.20 or elsewhere in this Agreement shall restrict the right of either party or its Third Party Licensee(s) or any Third Party acting on such party’s behalf to make scientific publications or present the results of any research or development relating to Dexmedetomidine or Dexmedetomidine Product provided that the other party has received prior written notice of such publication or presentation.

15.21 Counterparts. This Agreement may be executed in any number of counterparts, each of which need not contain the signature of more than one Party but all such counterparts taken together shall constitute one and the same agreement.

[signature page follows]

 

55


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IN WITNESS WHEREOF, duly authorized representatives of the Parties have duly executed this Agreement to be effective as of the date first set forth above.

 

RECRO PHARMA, INC.

 

     

ORION CORPORATION

 

By:  

 /s/ Gerri Henwood

      By:  

 /s/ Reijo Salonen

Name:

Title:

 

 Gerri Henwood

 CEO + President

     

Name:

Title:

 

 Reijo Salonen

 Senior Vice President

 Research and Development

         
        By:  

 /s/ Liisa Hurme

       

Name:

Title:

 

 Liisa Hurme

 Senior Vice President

 

56


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EXHIBIT A

ORION PATENT RIGHTS

 

DEX    PRODUCT PATENT FOR DEXMEDETOMIDINE (PURE ENANTIOMER)
Subject:    Optical isomer of an imidazole derivative
Priority:    1987-07-16     GB 8716803

 

Country

   Filing date      Application No.    Date of grant      Patent No.    Date of expiry  

Australia

     1988-07-11      18941/88      1990-12-11      600839      2008-07-11  

Brazil

     1997-04-14      1100269-7      1999-08-03      1100269-7      2007-07-16  

Canada

     1988-07-14      572086      1995-11-28      1337659      2012-11-28  

China

     1988-07-16      88104440.7      1993-07-24      88104440      2008-07-16  

Hong Kong

     1988-07-08      560/94      1994-05-24      560/94      2008-07-08  

Israel

     1988-07-12      87076      1993-12-23      87076      2008-07-12  

Japan

     1988-07-16      177959/88      1995-01-23      1899058      2008-07-16 *

Korea, Republic of

     1988-07-15      8937/88      1994-12-22      80675      2009-08-12  

New Zealand

     1988-07-11      225362      1990-11-15      225362      2008-07-11  

Singapore

     1988-07-08      641/94      1994-06-25      641/94      2008-07-08  

South Africa

     1988-07-15      88/5134      1989-04-26      88/5134      2008-07-15  

United States

     1988-07-15      67/219637      1990-03-20      4910214      2013-07-15 **

 

*

Patent term extension applied for

**

Patent term extension granted

 

TRANS-3    LIPOPHILIC SALTS OF MEDETOMIDINE OR DEXMEDETOMIDINE AND TRANSDERMAL PREPARATIONS
Subject:    Medetomidine preparations for transdermal administration
Priority:    1991-05-31     GB 9111732.5

International filing date:                 1992-05-27

 

Country

   Filing date      Application No.    Date of grant      Patent No.    Date of expiry  

Canada

     1993-11-26      2110161      2004-08-03      2110161      2012-05-27  

New Zealand

     1992-05-13      242717      1994-08-10      242717      2012-05-13  

South Africa

     1992-05-11      92/3395      1993-03-31      92/3395      2012-05-11  

United States

     1993-11-12      146201      1995-08-01      5438067      2012-08-01  

EXHIBIT A continues on the next page

 

A-1


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EXHIBIT A (continued)

 

ORION PATENT RIGHTS

 

DEX-CD    CONTROLLED RELEASE TRANSDERMAL DELIVERY SYSTEM SUITABLE FOR DEXMEDETOMIDINE COMPRISING CYCLODEXTRIN
Subject:    Transdermal drug delivery system
Priority:    1994-07-08     GB 9413866

International filing date:                 1995-06-20

 

Country

   Filing date    Application No.    Date of grant    Patent No.    Date of expiry

Canada

   1996-12-16    2193129    2007-11-06    2193129    2015-06-20

Japan

   1997-01-07    504133/1996    2005-10-28    3734267    2015-06-20

United States

   1997-01-07    765766    1998-10-06    5817332    2015-06-20

 

A-2


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EXHIBIT B

CYGNUS PATENTS

DEVICE FOR ADMINISTERING DRUG TRANSDERMALLY WHICH PROVIDES AN INITIAL PULSE OF DRUG

 

Subject:   
Priority:    1991-10-10 US

International filing date:                 1992-10-09

 

Country

   Filing date    Application No.    Date of grant    Patent No.    Date of expiry

Australia

   1992-10-09    27961/92    1995-03-16    657582    2012-10-09

Canada

   1992-10-09    2120508    N/A    N/A    N/A

Japan

   1992-10-09    19920507214       3011459    2012-10-09

United States

   1991-10-10    07/775,638    1994-10-04    5352456    2011-10-10

United States

   1992-10-09    08/211,029    1998-10-13    5820875    2011-10-10

 

B-1


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EXHIBIT C

CYGNUS/FARMOS PATENTS

 

DEX-TRANS    TRANSDERMAL ADMINISTRATION OF DEXMEDETOMIDINE
Subject:    Method and device for administering dexmedetomidine transdermally
Priority:    1989-08-18     US 395717

International filing date:                 1990-08-14

 

Country

   Filing date    Application No.    Date of grant    Patent No.    Date of expiry

Australia

   1990-08-14    6183490    1993-11-09    639015    2010-08-14

Canada

   1990-08-14    2064687    1998-04-21    2064687    2010-08-14

China

   1990-08-17    901070998    1997-07-25    37589    2010-08-17

Japan

   1990-08-14    2-511906         

PCT

   1990-08-14    PCT/US90/04575    N/A    N/A    N/A

United States

   1991-09-17    07/761408    1993-06-08    5217718    2009-08-18

United States

   1989-08-18    07/395717    1992-06-23    5124157    2009-08-18

 

C-1


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Schedule 1.33

Orion Know-How

(a) the NDA for Hospira’s Precedex product;

(b) the “open part” of the DMF(s) related to Orion Dexmedetomidine API;

(c) Orion’s most recent safety updates related to its Dexmedetomidine Products; and

(d) to the extent not encompassed by subsection (b) above, information on the characterization of the reference standard and its history, API solubility profile in normal solvents, container/closure interaction with API (extractables), and characterization/qualification of any API impurities associated with manufacturing or stability testing that would require this under ICH guidelines, and updates to the DMF open section, including items listed above.

(e) Investigator’s Brochure (most recent version available as of Effective Date)


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Schedule 2.3.2

Form of Confidentiality Agreement

CONFIDENTIALITY AGREEMENT

This Confidentiality Agreement

made and executed as of this [                ]th day of [                ], [                ]

(hereinafter referred to as “Effective Date”),

by and between

Orion Corporation

a corporation organised under the laws of Finland,

(Business Identity Code FI 19992126),

with its principal offices at Orionintie 1, FIN-02200 Espoo, Finland,

(hereinafter referred to as “ORION”)

and

[                ]

a corporation organised under the laws of [                ],

[(Business Identity Code                 )],

with its principal offices at [                ],

(hereinafter referred to as “RECIPIENT”

collectively referred to as the “Parties”.

WITNESSETH

 

WHEREAS,

ORION and Recro Pharma, Inc. (hereinafter referred to as “Recro”) are parties to that certain License Agreement dated [                ] regarding non-injectable dosage forms of ORION’s proprietary pharmaceutical compound Dexmedetomidine for certain indications (such product and/or the active pharmaceutical ingredient Dexmedetomidine hereinafter singly or collectively referred to as “Product”);

 

WHEREAS;

RECIPIENT is an actual or potential sublicensee of Recro’s rights under the License Agreement, and for the purpose of such sublicense arrangement ORION may provide access to and/or disclose to RECIPIENT and/or RECIPIENT may gain access from Recro or its affiliates certain confidential information of ORION pertaining to the Product, which may include, but may not be limited to, ideas, know-how, formulas, technology, practices, processes, methods of production, documentation, pre-clinical or clinical data, whether technical or non-technical, verbal or written, product samples and specifications or other information on ORION’s business (hereinafter in whole or in any portion thereof referred to as


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  “Confidential Information”) for the sole purpose of RECIPIENT evaluating, potentially entering into, as exercising its right under a sublicense arrangement with Recro with respect to the Product (hereinafter referred to as the “Purpose”);

 

WHEREAS;

the Parties hereto acknowledge and agree that the execution of this Confidentiality Agreement is a prerequisite for any disclosure of Confidential Information;

NOW, THEREFORE, the Parties agree as follows:

 

1

This Confidentiality Agreement shall become effective on the Effective Date, and shall remain in effect for twenty (20) years subject to the terms of this Agreement.

 

2

RECIPIENT shall hold and treat, and cause its employees, personnel and representatives (hereinafter referred to as “Employees”) to hold and treat, all Confidential Information in the strictest confidence and not publish it or disclose it to any third party, including its possible affiliates, agents and advisers (other than legal advisers) nor use the Confidential Information for any purposes other than the Purpose without the express prior written consent of ORION.

In case permitted by ORION, RECIPIENT shall make the Confidential Information available to such permitted third parties only on the condition that said third party first executes and delivers an agreement in favour of ORION incorporating the provisions of this Agreement.

RECIPIENT shall make Confidential Information available only to those of its Employees who strictly need to know the Confidential Information for the Purpose. RECIPIENT shall upon ORION’s request identify in writing each Employee to whom it intends to disclose or has disclosed Confidential Information.

RECIPIENT guarantees that its Employees are bound by confidentiality and non-use obligations no less stringent than those included herein. RECIPIENT shall be liable for any and all breaches of confidentiality and/or non-use by its Employees or by any third party to whom it has disclosed confidential information under and in accordance with the terms and conditions of this Agreement.

 

3

The foregoing obligations shall not apply with respect to Confidential Information to the extent that the same, as evidenced in writing:

 

  a)

is or later falls within the public domain through no act or omission of, or breach of this Confidentiality Agreement by RECIPIENT, its Employees or third parties to whom RECIPIENT has in accordance with this Agreement disclosed Confidential Information;


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

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  b)

is or becomes available to RECIPIENT from third parties who have the right to make such disclosure and in making such disclosure breach no confidentiality obligation;

 

  c)

was in the possession of RECIPIENT in written or other documentary form already at the time of disclosure;

 

  d)

is or has been independently developed by or for the RECIPIENT without use of or reference to Confidential Information; or

 

  e)

is required to be disclosed under law or by order of a court or tribunal of competent jurisdiction, provided, however, that where reasonably possible, ORION is granted due advance notice of such a requirement and then only to the minimum extent of disclosure so required.

RECIPIENT shall have the burden of proof as to any claimed exception to the obligations of confidentiality and non-use stipulated for herein.

 

4

Except as otherwise provided in the License Agreement between Orion and Recro, all Confidential Information supplied by ORION to RECIPIENT pursuant to this Agreement and any rights related thereto, including but not limited to rights of patent trademark and copyright, are and remain the exclusive and absolute property of ORION and ORION is free to disclose the Confidential Information whenever and to whomever it, at its sole discretion, deems appropriate.

 

5

RECIPIENT shall not, except as and to the extent required to enable RECIPIENT to carry out the Purpose, make any copies or reproduce the Confidential Information. Such copies or reproductions shall be subject to the terms and conditions of this Agreement. RECIPIENT shall take such steps as are necessary to restrict access to and protect the confidentiality of such copies or reproductions of the Confidential Information. Any such copies or reproductions made shall become the exclusive and absolute property of ORION.

 

6

It is understood and agreed that the mere signing of this Confidentiality Agreement shall not oblige either of the Parties to enter into any further agreement(s) nor any other activities relating to the Confidential Information, nor shall this Agreement be construed as granting RECIPIENT any right, title or interest in or to the Confidential Information. Furthermore, nothing in this Agreement shall be construed as establishing any joint venture, partnership, employment, agency or other business relationship between the Parties and neither Party shall have any authority to incur any obligations or commitments or make any representations, warranties or guarantees or to act for or on behalf of the other Party.

 

7

This Agreement is not assignable by RECIPIENT without the prior written consent of ORION. No modifications and amendments to this Agreement shall be valid unless made in writing and signed by duly authorised representatives of both Parties.


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

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8

RECIPIENT represents and warrants that it may lawfully enter into this Agreement and that it has no obligations or commitments inconsistent with this Agreement.

 

9

Failure by either Party at any time or times to require performance of any provisions of this Agreement shall in no manner affect its right to enforce the same, and the waiver by any Party of any breach of any provision of this Agreement shall not be construed to be a waiver by such Party of any succeeding breach of such provision or waiver by such Party of any breach of any other provision hereof.

 

10

If any part of this Agreement is held to be invalid or unenforceable such determination shall not invalidate any other provision of this Agreement and the Parties hereto shall attempt, through negotiations in good faith, to replace any part of this Agreement so held to be invalid or unenforceable. The failure of the Parties to reach agreement on the replacement provision shall not affect the validity of the remaining part of this Agreement.

 

11

In case of breach of any of the terms or conditions of this Agreement by RECIPIENT, ORION shall, without prejudice to any other rights or remedies available to ORION under law or this Agreement, be entitled to equitable relief by way of injunction.

 

12

This Agreement sets forth the entire agreement and understanding between the Parties relating to the subject matter contained herein and merges all prior discussions between them. Neither Party shall be bound by any definition, condition, representation, warranty or covenant other than expressly stated in this Agreement or as subsequently set forth in writing as an agreed amendment hereto and duly executed by the Parties.

 

13

Notwithstanding the foregoing or anything to the contrary herein, the Parties acknowledge that nothing in this Agreement shall alter, amend or supercede any confidentiality agreement between Recro and RECIPIENT or other obligation by RECIPIENT to Recro regarding the Confidential Information and/or other information disclosed by Recro.

 

14

It is expressly understood and agreed that ORION gives no warranty, whatsoever, express or implied, as to the accuracy or completeness of the Confidential Information and that any use and/or evaluation of any Confidential Information hereunder shall be at the sole risk of RECIPIENT.

 

15

Upon the expiration of the Purpose or upon request therefor by ORION, RECIPIENT shall return to ORION or destroy in such manner as ORION directs all Confidential Information disclosed under this Agreement as well as all summaries, analogies, compilations and the like made by RECIPIENT or its Employees, relating thereto as well as all copies and/or reproductions thereof as well as certify to ORION in writing having so either returned or destroyed same, provided, however that the foregoing notwithstanding RECIPIENT may retain one (1) copy of the Confidential Information in its confidential legal files solely for the purposes of monitoring compliance with the terms and conditions hereof.


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16

This Agreement shall be governed by and construed both as to validity and performance in accordance with the laws of the Republic of Finland without regard to its conflict of laws rules. All disputes arising therefrom shall be finally and exclusively settled by binding arbitration under the Rules of Arbitration of the Finnish Central Chamber of Commerce by three (3) arbitrators appointed in accordance with said Rules. The arbitration proceedings shall be held in the English language in Helsinki, Finland. However, the Parties agree first to attempt for a period of sixty (60) days to amicably negotiate in order to settle all such disputes between themselves.

IN WITNESS WHEREOF,

the Parties hereto have caused this Agreement to be executed by their duly authorised representatives on the date first above written.

 

Orion Corporation       [                                             ]   

 

By:   

 

   By:   

 

Name:   

 

   Name:   

 

Title:   

 

   Title:   

 

By:   

 

     

Name:

  

 

     

Title:

  

 

     


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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

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Schedule 8.1.2

Development and Commercialization

Provided to Orion on a confidential basis under separate cover


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Schedule 8.1.2

Development and Commercialization

[* * *]

This Schedule shall be attached as Schedule 8.1.2 to that certain License Agreement between Orion Corporation and Recro Pharma, Inc. dated as of August 22, 2008 and is incorporated by reference into and made a part of such Agreement

 

RECRO PHARMA, INC.     ORION CORPORATION
By:    

/s/ Gerri Henwood

    By:  

/s/ Reijo Salonen

Name: Gerri Henwood

Title: CEO + President

   

Name: Reijo Salonen

Title: Senior Vice President

          Research and Development

      By:    

 

/s/ Liisa Hurme

     

Name: Liisa Hurme

Title: Senior Vice President


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Schedule 8.2

Recro Initial Clinical Development Plan

Provided to Orion on a confidential basis under separate cover


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Schedule 8.2

Recro Initial Clinical Development Plan

[* * *]

This Schedule shall be attached as Schedule 8.2 to that certain License Agreement between Orion Corporation and Recro Pharma, Inc. dated as of August 22, 2008 and is incorporated by reference into and made a part of such Agreement

 

RECRO PHARMA, INC.     ORION CORPORATION
By:    

/s/ Gerri Henwood

    By:    

/s/ Reijo Salonen

Name: Gerri Henwood

Title: CEO + President

   

Name: Reijo Salonen

Title: Senior Vice President

          Research and Development

      By:  

/s/ Liisa Hurme

     

Name: Liisa Hurme

Title: Senior Vice President


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Schedule 11.1.3(a)

Intellectual Property

A portion of the data forming part of the Orion Know-How that is licensed to Licensee under this Agreement is generated, owned and controlled by Hospira (and Orion does consequently not have title to such Know-How). Under Orion’s agreement with Hospira, Orion has the right to access such data as well as a right and license (with the right to grant sublicenses) to use, refer and cross-refer to same in connection with non-injectable Dexmedetomidine products worldwide. Such right and license is subject to customary confidentiality obligations, as well as due fulfillment of Orion’s reporting requirements towards Hospira as contemplated under Section 8.3 of this Agreement.

Hospira is, as of the Date of Agreement, listed as “Sponsor and Collaborator” on the website CIinicalTrials.gov (a registry of federally and privately supported clinical trials maintained on the Internet by the US National Institutes of Health with respect to clinical trials) with respect to the following two clinical trials, in which non-injectable Dexmedetomidine may be administered:

 

   

Dexmedetomidine for Peri-Operative Sedation and Analgesia in Children Undergoing Bilateral Myringotomy With Tube Placement (BMT), performed at Children’s Research Institute; and

 

   

Dexmedetomidine Versus Chloral Hydrate for Pediatric Sedation During EEG, performed at Wesley Medical Center.

Although Orion has not, as for the Date of Agreement, given its consent for the conduct of said trials, Orion may , at a later date, enter in to a settlement or other agreement with Hospira approving such conduct. Such approval (if any) shall not, however, be deemed as a violation of Orion’s obligations or breach of any representation or warranty, or an infringement of any rights granted to Licensee under this Agreement.


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

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Schedule 11.1.3(g)(i)

Intellectual Property

Licensee’s Initial Development Projects

[* * *]


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Schedule 13.1.4

Hospira Indemnity Provisions

Provided to Licensee on confidential basis under separate cover.


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

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Schedule 13.1.4

Hospira Indemnity Provisions

[attached]

This Schedule shall be attached as Schedule 13.1.4 to that certain License Agreement between Orion Corporation and Recro Pharma, Inc. dated as of August 22, 2008 and is incorporated by reference into and made a part of such Agreement

 

RECRO PHARMA, INC.     ORION CORPORATION
By:    

/s/ Gerri Henwood

    By:  

/s/ Reijo Salonen

Name: Gerri Henwood

Title: CEO + President

   

Name: Reijo Salonen

Title: Senior Vice President

          Research and Development

      By:    

/s/ Liisa Hurme

     

Name: Liisa Hurme

Title: Senior Vice President


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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

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17.6 Reciprocal Indemnification Provisions

(A) Orion Indemnification

[* * *]

17.7 Conditions of Indemnification

With respect to any indemnification obligations of either Party to the other Party under this Agreement, including but not limited to the indemnification obligations of the Parties under Sections 14.4 and 17.6, the following conditions must be met for such indemnification obligations to become applicable: (A) the indemnified Party shall notify the indemnifying Party promptly in writing of any claim which may give rise to an obligation on the part of the indemnifying Party hereunder; (B) the indemnifying Party shall be allowed to timely undertake the sole control of the defense of any such action and claim, including all negotiations for the settlement, or compromise of such claim or action at its sole expense; and (C) the indemnified Party shall render reasonable assistance, information, co-operation and authority to permit the indemnifying Party to defend such action, it being agreed that any out-of-pocket expenses or other expenses incurred by the indemnified Party in rendering the same shall be borne or reimbursed promptly by the indemnifying Party.

Exhibit 10.9

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EXECUTION COPY

FIRST AMENDMENT TO NON-INJECTABLE

DEXMEDETOMIDINE LICENSE AGREEMENT OF AUGUST 22, 2008

This amendment agreement (hereinafter referred to as the “Amendment”) is made and executed as of this 17th day of January, 2009 by and between:

Recro Pharma, Inc., a Pennsylvania corporation (“Licensee” or “Recro”); and

Orion Corporation, a company incorporated under the laws of Finland (“Orion”).

Recro and Orion may each be referred to in this Amendment individually as a “Party” and collectively as the “Parties”.

Unless otherwise agreed herein or evident from the applicable context, all capitalized terms used herein shall be given the same meaning and interpretation as given to them in the Agreement.

BACKGROUND

 

  A.

The Parties have on August 22, 2008 entered into an agreement titled Non-injectable Dexmedetomidine License Agreement (the “Agreement”), whereunder the Parties have agreed, inter alia, upon arrangements pertaining to the continued development and commercialization of the Dexmedetomidine Product.

 

  B.

In accordance with Section 2.4 of the Agreement, the Parties have met and discussed about an agreement for the Development and Commercialization of Recro Products for Japan.

 

  C.

As an outcome of the discussions referred to above, the Parties are now willing to amend the Agreement in order to cover the Development and Commercialization of Recro Products for Japan in a manner set forth and agreed upon by and between the Parties herein.

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1. AMENDMENTS TO THE AGREEMENT

The Parties hereby agree on the following amendments to the Agreement:

 

1.1

Section 1.42. of the Agreement is amended to read in its entirety as follows:

Recro Territory” means the United States, Canada, Japan and all other countries and territories worldwide, and their respective territories, commonwealths and possessions, other than the countries of the Orion Territory.


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1.2

When calculating the Commercialization Milestone Payments in accordance with Section 3.3 of the Agreement, the Net Sales of Recro Products in Japan shall not be taken into account. Instead, the following provisions shall apply to the Commercialization of Recro Products for Japan:

Licensee shall pay to Orion non-refundable milestone payments specified below no later than forty-five days (45) after the following events have occurred (it being understood that for the purpose of the table below, “annual” Net Sales shall refer to Net Sales in Japan during a calendar year). Licensee will only pay each of the commercialization milestones listed below once.

 

Milestone Event

   Milestone Payment  

Upon the signing of this Amendment

     [* * *]  

Upon the filing of the first NDA in Japan

     [* * *]  

Upon the approval of the first NDA in Japan

     [* * *]  

Upon aggregate annual Net Sales of Recro Products in Japan totaling [* * *]

     [* * *]  

Upon aggregate annual Net Sales of Recro Products in Japan totaling [* * *]

     [* * *]  

Upon aggregate annual Net Sales of Recro Products in Japan totaling [* * *]

     [* * *]  

 

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1.3

The table in Section 4.1. of the Agreement (describing and defining Royalty Payments on Net Sales in Recro Territory) shall not be applied with respect to Japan. Instead, the following table is inserted to Section 4.1. to be applied solely to Japan:

 

    

During the Term

  

After the

Term

Aggregate Net Sales of Recro Products in Japan during the relevant calendar year:    (a) A Valid Claim of an Orion Patent Right covers the manufacture, use or sale of the Recro Product in Japan*   

(a) No Valid Claim of an Orion Patent Right covers the manufacture, use or sale of the Recro Product Japan; and

 

(b) There is no Generic Competition

   All other circumstances (i.e. Generic Competition)    All circumstances except if there is Orion competition**

less than [* * *]

  

[* * *]

  

[* * *]

  

[* * *]

  

[* * *]

equal to or greater than [* * *]

  

[* * *]

  

[* * *]

  

[* * *]

  

[* * *]

For the avoidance of doubt it is expressly stated that the remaining part of Section 4.1. (including the references marked with asterisks (*) and (**)) shall apply also to Japan.

 

1.4

Section 6.1. (Right to Reference Regulatory Filings) of the Agreement shall not be applicable with respect to Japan. Instead, the following provision shall apply solely with respect to Japan:

Upon Licensee’s written request thereof, Orion or its Affiliates shall, to the extent they are entitled and authorized under applicable agreements with Third Parties, use its reasonable efforts to file with the relevant Japanese Regulatory Authority all of the authorization letters, documents and information required by such Regulatory Authority to enable Licensee, its Affiliates and Sublicensees to reference to all Regulatory Filings related to Dexmedetomidine, Dexmedetomidine Products or Dexmedetomidine API, including without limitation the closed part of the DMF for Dexmedetomidine API, all as strictly necessary for the purpose of the research, Development, manufacturing and/or Commercialization of Recro Products in or for Japan in accordance with the Agreement or for the consummation of the transactions as contemplated by the Agreement.

 

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1.5

Section 8.1.3. of the Agreement will be amended to read in its entirety as follows:

Japan. Licensee shall use commercially reasonable efforts to timely Develop, seek Regulatory Approval for and Commercialize the Recro Products for Japan, all at Licensee’s sole expense, provided it remains part of the Recro Territory. Without limiting the generality of the foregoing, Licensee agrees to perform activities related to the Development and Commercialization as described in Appendix 1 to the Amendment.

2. APPENDIX

 

2.1

The following Appendix is attached to this Amendment:

Appendix 1: Development and Commercialization Activities for Japan

The Appendix 1 is incorporated by reference into and made a part of this Amendment and, consequently, the Agreement.

3. EFFECTIVE DATE OF THE AMENDMENTS

 

3.1

The effective date of the amendments set forth herein will be December 17, 2008.

 

3.2

For the avoidance of doubt it is stated that except for what has been stipulated herein above, all other terms and conditions of the Agreement will remain unchanged.

4. OTHER PROVISIONS

 

4.1

The term of this Amendment shall be congruent with the term of the Agreement, and, accordingly, this Amendment cannot be terminated independently of the Agreement by either Party.

 

4.2

Sections 15.14. (Governing Law) and 15.15. (Jurisdiction; Venue, Dispute Resolution) shall apply also to this Amendment.

 

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IN WITNESS WHEREOF, the Parties, through their authorized representatives, have executed two (2) identical counterparts of this Amendment.

 

RECRO PHARMA, INC.
By:  

/s/ Gerri Henwood

Name:   Gerri Henwood
Title:   CEO

 

ORION CORPORATION      
By:  

/s/ Pekka Kanola

    By:  

/s/ Liisa Hurme

Name:   Pekka Kanola     Name:   Liisa Hurme
Title:   SVP/Sales     Title:   Senior Vice President


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EXECUTION COPY

Appendix 1

Development and Commercialization

[* * *]


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This Schedule shall be attached as Appendix 1 to that certain Amendment 1 to the License Agreement between Orion Corporation and Recro Pharma, Inc. dated as of August 22, 2008 and is incorporated by reference into and made a part of such Agreement.

 

RECRO PHARMA, INC.     ORION CORPORATION
By:  

/s/ Gerri Henwood

    By:  

/s/ Pekka Kanola

Name:   Gerri Henwood     Name:   Pekka Kanola
Title:   CEO     Title:   SVP/Sales
      By:  

/s/ Liisa Hurme

      Name:   Liisa Hurme
      Title:   Senior Vice President

Exhibit 10.10

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Execution Copy

DEXMEDETOMIDINE

API SUPPLY AGREEMENT

This API Supply Agreement (the “Agreement”) is entered into this 22nd day of August, 2008 (the “Effective Date”), by and among Recro Pharma, Inc., a company incorporated under the laws of the Commonwealth of Pennsylvania (“Customer” or “Recro”), and Orion Corporation, a company incorporated under the laws of Finland (“Supplier” or “Orion”). Customer and Supplier may each be referred to in this Agreement individually as a “Party” and collectively as the “Parties.”

BACKGROUND

A. Orion and its Affiliates are in the business of, among other things, developing and producing the bulk active ingredient Dexmedetomidine.

B. Recro and its Affiliates are engaged in the research, development, production and sale of various pharmaceutical products.

C. Recro and Orion are separately entering into a license agreement relating to non-injectable Dexmedetomidine.

D. Orion wishes to provide API to Recro at no expense for the sole purpose of enabling Recro to Develop the Recro Products under and in accordance with the terms of the License Agreement (as defined below).

E. Upon approval of the Recro Products by the applicable regulatory authorities, Orion wishes to supply to Recro commercial quantities of the API for Recro’s Commercialization of the Recro Products in the Recro Territory, all as more particularly described in, and subject to, the terms and conditions set forth in this Agreement.

AGREEMENT

NOW THEREFORE, in consideration of the mutual promises and covenants set forth below and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows:

1. DEFINITIONS

1.1 “Affiliate(s)” means, with respect to a Person, another Person that directly, or indirectly through one or more intermediaries, controls, or is controlled by, or is under common control with, such Person. For the purposes of this definition only, “control” means, with respect to a Person, the ownership by another Person of greater than 50% of the income or voting interests of such Person or such other arrangement as constitutes the direct or indirect ability to direct the management, affairs or actions of such Person.

 


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1.2 “API” means the bulk active pharmaceutical ingredient Dexmedetomidine conforming to the Specifications.

1.3 “Authorization” means any consent, authorization, approval, order, license, certificate or permit of or from, or declaration or filing with, any Third Party (by reason of contract or otherwise) or Governmental Entity.

1.4 “Commercialization” or “Commercialize” means activities directed to commercial-scale manufacturing, obtaining pricing and reimbursement approvals, carrying out post-marketing studies, marketing, promoting, distributing, importing, exporting, offering for sale or selling a human pharmaceutical product.

1.5 “Confidential Information” means all trade secrets, processes, formulae, data, know-how, improvements, inventions, chemical or biological materials, chemical structures, techniques, marketing plans, strategies, or other information that has been created, discovered, or developed by a Party, or has otherwise become known to a Party, or to which rights have been assigned to a Party, as well as any other information and materials that are deemed confidential or proprietary to or by a Party (including, without limitation, all information and materials of a Party’s customers and any other Third Party and their consultants), in each case that are disclosed by such Party to the other Party, regardless of whether any of the foregoing are marked “confidential” or “proprietary” or communicated to the other by the disclosing Party in oral, written, graphic, or electronic form.

1.6 “Development” means pre-clinical, pharmaceutical and/or clinical drug development activities and pharmaceutical dosage form development activities reasonably related to the development of pharmaceutical products and submission of information to a Regulatory Authority, including, without limitation, toxicology, pharmacology and other discovery and pre-clinical efforts, test method development and stability testing, manufacturing process development, formulation development, delivery system development, quality assurance and quality control development, statistical analysis, clinical studies (including, without limitation, pre- and post-approval studies) and activities relating to obtaining Regulatory Approval but excluding other Commercialization activities. When used as a verb, “Develop” means to engage in Development.

1.7 “Developmental Quantity” means the quantity of API reasonably needed for Development of the Recro Products by Customer and its Affiliates under and in accordance with the provision of the License Agreement including, without limitation, stability testing, stability studies, manufacturing process development, methods development, preclinical and clinical development, and, if applicable, manufacturing qualification of Recro Product.

1.8 “Dexmedetomidine Product” means a pharmaceutical product containing Dexmedetomidine as a therapeutically active ingredient, and intended for human use.

1.9 “Dexmedetomidine” means the hydrochloride salt of a compound known as “dexmedetomidine” or 4-((1S)-1-(2,3-Dimethylphenyl)ethyl)-1H-imidazole.

1.10 “DMF” means a drug master file for an active pharmaceutical ingredient.

 

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1.11 “EIR” means an establishment inspection report issued by the FDA.

1.12 “FDA” means the United States Food and Drug Administration or any successor agency thereto.

1.13 “Governmental Entity” means any arbitrator, court, judicial, legislative, administrative or regulatory agency, commission, department, board or bureau or body or other governmental authority or instrumentality or any person or entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government, whether foreign, federal, state, provincial, local or other (including without limitation any domestic of foreign governmental regulatory authority involved in the granting of approvals for the manufacture, sale, reimbursement and/or pricing of a pharmaceutical product such as the FDA).

1.14 “Knowledge”, as it applies to Orion, shall mean actual knowledge of the following persons within Orion’s and its Affiliates’ organizations: [* * *].

1.15 “License Agreement” means that certain License Agreement between the Parties with respect to non-injectable Dexmedetomidine dated as of August 22, 2008.

1.16 “Lien” means any mortgage, pledge, lien, security interest, charge, claim, encumbrance, or restriction on transfer.

1.17 “Manufacture” and “Manufacturing” and other forms of such words, when used in connection with the API, shall refer to the manufacturing, processing, handling, packaging, storage, disposal and quality control testing (including in-process, release and stability testing) of the API and the raw materials and components used in connection therewith.

1.18 “NDA” means a New Drug Application filed with the FDA for approval to market and sell a drug product in the United States.

1.19 “Orion Know-How” means all Know-How used by Orion in connection with and which concerns the Manufacture of the API and (a) that is disclosable by Orion without breach of any obligation towards a Third Party, and (b) that Orion or any of its Affiliates owns, controls, has access to, or is in possession of as of the Effective Date, or at any time during the Term, including, subject to the qualifications above, such information in the possession of vendors, service providers, collaboration partners, licensees and third parties.

1.20 “Orion Patent Rights” has the meaning attributed to it in the License Agreement.

1.21 “Person” means (as the context requires) an individual, a corporation, a partnership, an association, a trust, a limited liability company, or other entity or organization, including a Governmental Entity.

1.22 “Record(s)” means all such documents, reports, data, data listings, charts, process control/monitoring commands and data summaries, logs, notes, standard operating procedures, master batch records, lot batch records, analyses, correspondence, notes, memorandum,

 

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(including, without limitation, production and quality assurance and quality control documentation) and other items containing information or data related to API Manufacturing, whether in paper or electronic form, including originals and copies, that Supplier is required to prepare, collect and/or retain under any Regulatory Requirement.

1.23 “Recro Product” has the meaning attributed to it in the License Agreement.

1.24 “Recro Territory” has the meaning attributed to it in the License Agreement.

1.25 “Regulatory Approval” means, in relation to the Recro Product, the registrations, authorizations and approvals of any Governmental Authority that are required to be obtained prior to the marketing or sale of product in a jurisdiction in the Recro Territory.

1.26 “Regulatory Authority” means, with respect to any particular country, the governmental authority, body, commission, agency or other instrumentality of such country, with the primary responsibility over the Development and/or Commercialization of Dexmedetomidine or the Recro Product.

1.27 “Regulatory Filing” means any filing with a Regulatory Authority relating to or to permit or request, as applicable, the clinical evaluation or Regulatory Approval of a pharmaceutical product. Regulatory Filings include without limitation DMFs, INDs and NDAs and corresponding filings in other countries.

1.28 “Regulatory Requirements” means (a) applicable current good manufacturing practices (cGMP), in effect at the particular time, issued or required by the FDA for the methods to be used in, and the facilities and controls to be used for, the Manufacture of active pharmaceutical ingredients, (b) any laws, rules, guidelines, regulations and standards of Regulatory Authorities that apply in the country where any Manufacturing or activities or facilities at which any of the Manufacturing activities hereunder are performed; and (c) to the extent applicable to Supplier or its affiliates or subcontractors, any standard operating procedures (SOPs) of Supplier or such affiliate or subcontractor.

1.29 “Specifications” means the specifications and the quality control testing procedures for API. The Specifications in force at the time of the Effective Date are attached as Exhibit A, as amended from time to time in accordance with this Agreement.

1.30 “Tax” or “Taxes” means all taxes, fees, levies, duties, tariffs, imposts, and governmental impositions or charges of any kind in the nature of (or similar to) taxes, payable to any federal, state, local or foreign taxing authority, whether disputed or not, including (without limitation): (a) income, franchise, profits, gross receipts, ad valorem, net worth, value added, sales, use, service, real or personal property, special assessments, capital stock, license, payroll, withholding, employment, social security (or similar), workers’ compensation, unemployment compensation, disability, utility, severance, production, excise, stamp, occupation, premiums, windfall profits, environmental, customs duties, registration, alternative and add on minimum, estimated, transfer and gains taxes, or other tax of any kind whatsoever; and (b) in all cases, including interest, penalties, additional taxes and additions to tax imposed with respect thereto.

 

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1.31 “Third Part(y/ies)” means any person(s) or entit(y/ies) other than Customer, Supplier, or their respective Affiliates.

1.32 Any terms not defined herein shall have the meaning attributed to them in the License Agreement.

2. DEVELOPMENTAL QUANTITIES

2.1 Supply. Supplier shall Manufacture and supply to Customer and any of its Affiliates (who shall have the right to supply same to the Customer’s possible Sublicensees strictly for purposes set out in this Section 2) the Developmental Quantities of API as needed from time to time as provided in this Section 2. From time to time, Customer will notify Supplier in writing of the API quantities needed, the destination, shipment instructions and requested delivery date (“Purchase Order”). All Developmental Quantities of API supplied hereunder shall be by a carrier selected by Customer FCA (ICC Incoterms 2000) Supplier’s manufacturing facility in Oulu or Espoo, Finland. The requested delivery date shall be no less than ninety (90) days after the date of the Purchase Order, except for the delivery date of the initial order of two hundred (200) grams, which shall be no less than thirty (30) days after the first business day after the date of the Purchase Order. Supplier shall use its reasonable commercial efforts to deliver such quantities by the requested delivery date. The estimated aggregate Developmental Quantities of API needed by Customer for each Recro Product are outlined in Schedule 2.1. The Supplier will use its reasonable commercial efforts, but has no obligation, to supply quantities higher than outlined in the Schedule 2.1. The Customer shall keep and maintain accurate and reliable records regarding the use of the Developmental Quantities of API and represents and warrants that no part of same will be used other than strictly in accordance with the terms of this Section 2. The Customer shall have the burden of proof to establish such use Should the Development of a Recro Product be terminated, the Customer shall not without the Supplier’s written consent have the right to utilize the Developmental Quantities of API supplied for such Recro Product for the Development of any other Recro Product(s) but shall, upon the Supplier’s request, return such Developmental Quantities to the Supplier.

2.2 Charge. In consideration of Customer’s undertakings with respect to the Development of the Recro Product under and in accordance with the terms of the License Agreement, Supplier shall supply the Developmental Quantities required a) for purposes identified under the headers “Part—I” and “Part—II” of Schedule 2.1, and b) for production of the first (1st) production scale batch (referred to on Schedule 2.1 as “NDA Batch”) of each Recro Product at no charge. The Developmental Quantities required for purposes identified under the header “Additional Clinical Development Estimates” (save for the first (1st) production scale batch referred to above), as well as any Developmental Quantities required for purposes not identified on Schedule 2.1, shall be supplied at a charge of fifty per cent (50%) of the Supply Price set out in Section 3.6. Should the Customer be able to sell or otherwise utilize for Commercialization any quantity of Recro Product manufactured using Developmental Quantities of API, the Customer shall promptly notify the Supplier thereof. Within sixty (60) days from such notification, Customer shall credit to the Supplier the unpaid part of the difference between the Supply Price and the price (if any) actually paid to the Supplier in respect of such Developmental Quantities.

 

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2.3 Shipping Terms. All shipments and deliveries of Developmental Quantities of API by Supplier shall be accompanied by the following documentation:(a) the reference number of the relevant Purchase Order; (b) the API delivered, including their reference numbers, lot numbers (if applicable), batch numbers, if applicable; (c) dates of manufacture and release; (d) the quantity of API delivered; (e) the date of dispatch from Supplier; and (f) any material safety data sheets and labeling required by applicable laws and regulations or required by Customer.

2.4 Certificate of Analysis. Supplier shall include, with each shipment of API, a certificate of analysis certifying that such shipment meets the Specifications and was Manufactured in compliance with the Regulatory Requirements. Customer and its Affiliates shall have the opportunity to review, at Supplier’s premises, all batch records, in-process batch data, investigation information and reports, including without limitation out-of-specification (OOS) information and resolution, including corrective actions and preventive actions (CAPA) taken, if warranted, and other appropriate documents associated with the Manufacture of such API.

2.5 Stability Testing. Supplier shall perform stability testing of API according to the ICH Guidelines and as required by the Regulatory Requirements.

2.6 Storage, Packaging and Handling of API. Supplier shall assure that the API is stored, packaged, and handled (including transportation from one Supplier Facility to another) by Supplier in a manner as required for the API and adequate to prevent damage during normal storage, handling and shipping.

2.7 Agreed Quality. All quantities of API (whether Developmental Quantities or quantities of API supplied for commercial purposes) supplied under this Agreement shall a) conform to the Specifications; and b) conform to the warranties set out in Sections 7.1.3, 7.1.4, and/or 7.1.5 (collectively “Agreed Quality”).

2.8 Rejection. In the event that Customer or its Affiliates determine that any lot of Developmental Quantities does not conform to Agreed Quality, Customer shall give Supplier notice of its rejection thereof (including a sample from the lot analyzed) within thirty (30) days after receipt of such lot. Supplier shall conduct an analysis of the sample within thirty (30) days after receipt of such notice. If Supplier confirms such non-conformity, Supplier shall so notify Customer, supply Customer with a conforming shipment in the quantity specified for the non-conforming shipment, at Supplier’s expense, within ninety (90) days after receipt of the notice of rejection from Customer, and Customer shall dispose of or deliver such non-conforming quantity at Supplier’s expense in such a way and to such a destination, as Supplier shall direct in writing. If Supplier does not confirm such non-conformity, Supplier shall promptly notify Customer of its determination, and the Parties shall submit the disputed batch to an independent testing laboratory to be mutually agreed upon by the Parties, or, lacking such agreement within a time period of 15 days, appointed by the Stockholm Chamber of Commerce (the “Testing Laboratory”) for testing. The findings of the Testing Laboratory shall be binding on the Parties. The expenses of the Testing Laboratory shall be borne by Supplier if the testing confirms the non-conformity, and otherwise by Customer. If the Testing Laboratory confirms the non-conformity, then Supplier shall supply Customer with a conforming shipment in the quantity specified for the non-conforming shipment, at Supplier’s expense, and shall reimburse Customer

 

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for any charges incurred by Customer for shipping and/or storage, if applicable, of the non-conforming shipment, all within ninety (90) days after receipt of notice of the test results of the Testing Laboratory, and Customer shall dispose of or deliver such non-conforming quantity at Supplier’s expense in such a way and to such a destination, as Supplier shall direct in writing. Customer shall return all non-conforming API from lots to Supplier at Supplier’s expense, upon the written request of Supplier.

3. COMMERCIAL SUPPLY

3.1 Commercial Supply.

3.1.1 Supplier shall supply to Customer and its Affiliates and designees quantities of API as they may order from time to time for the sole purpose of Customer manufacturing or having manufactured (including manufacture by one or more Sublicensee(s) in accordance with the terms of the License Agreement) Recro Products under and in accordance with the terms of the License Agreement.

3.1.2 Except as otherwise permitted under this Agreement, during the Term, Customer shall purchase from Supplier its requirements for API related to Commercialization of the Recro Products in the Recro Territory.

3.1.3 Customer shall be under no obligation to purchase API under this Agreement to the extent that Customer does not receive, for any reason, Regulatory Approval of a Recro Product.

3.2 Forecasts and Purchase Orders.

3.2.1 Customer shall, prior to the first filing for Regulatory Approval in any country of the Recro Territory deliver to Supplier a non-binding estimate of its initial requirements for API (“Initial Quantities”). Customer may deliver to Supplier a binding Purchase Order for such Initial Quantities, which quantities Supplier shall, subject to Section 3.2.6, deliver to Customer within ninety (90) days of the Purchase Order date; and

3.2.2 Customer shall deliver to Supplier a non-binding estimate of its quarterly requirements of API for the first year following receipt of Regulatory Approval of a Recro Product (the “First Annual Forecast”).

3.2.3 On the first day of each calendar quarter following Customer’s receipt of such Regulatory Approval, Customer shall provide its rolling estimated quarterly forecast of API for each of the eight (8) quarters following the end of such quarter (each, a “Forecast”). The forecasted quantities shown in the Forecast for the first quarter shall be considered binding upon Customer and Customer shall be under obligation to place binding Purchase Order(s) for same. The forecasted quantities of API for any period after the first quarter shall be for the sole purpose of assisting Supplier in its planning and will not constitute an obligation of Customer to purchase the quantities of API indicated.

 

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3.2.4 Simultaneously with the furnishing of each Forecast, Customer shall deliver Purchase Orders to Supplier covering the first quarter of the Forecast. The requested delivery date shall be no less than ninety (90) days after the date of the Purchase Order. Supplier shall acknowledge receipt of each Purchase Order within five (5) business days of Supplier’s receipt thereof. Supplier shall use its reasonable commercial efforts to deliver such quantities of API by the requested delivery date. In the event that a term or condition contained in any Purchase Order or confirmation is inconsistent with this Agreement, then the term or condition set forth in the Purchase Order or acknowledgement shall not be binding unless the Party against whom enforcement is sought expressly agrees thereto in writing.

3.2.5 Supplier covenants and agrees that Supplier’s Manufacturing capacity is and shall be adequate to meet at least 130% of Customer’s needs for Developmental Quantities and the Forecasts.

3.2.6 In the event that Customer requires quantities in excess of 130% of those set forth in any Forecast or Purchase Order, Supplier shall use its commercially reasonable efforts to fulfill such request as soon as possible after receipt of a Purchase Order covering such additional quantities.

3.3 Timely Delivery. All dates for delivery of API are firm and time is of the essence. Customer shall not be obligated to accept any untimely, incomplete or excessive shipments. Supplier shall promptly notify Customer in writing of any anticipated delay or of any circumstance(s) rendering it unable to supply API in accordance with the terms of a Purchase Order and the estimated duration of such delay/circumstance(s). Any order delivered within five (5) calendar days of the requested delivery date will be considered delivered on time. In the event the Supplier fails to fulfill its API supply obligations as set out under this Agreement, it shall, as Customer’s sole and exclusive remedy for such failure (save for Customer’s rights under Section 11 below), compensate Customer, against Customer’s invoice supported by relevant documentation, for the direct and verifiable out-of-pocket costs and/or expenses incurred by Customer as a direct consequence of such failure, provided further that such costs could not have been avoided or mitigated by Customer, including but not limited to through the use of the Customer’s safety stock referred to in Section 4.3. In no event shall Supplier be under any obligation to compensate or otherwise be liable for any loss of profits, loss of business or interruption of business of Customer or any Third Party, or for any other indirect, special, incidental, consequential or punitive losses or damages of any kind.

3.4 Shipping Terms. All shipments and deliveries of API (other than Developmental Quantities thereof) by Supplier shall be accompanied by the following documentation: (a) the reference number of the relevant Purchase Order; (b) the API delivered, including their reference numbers, lot numbers (if applicable), retest date and batch numbers; (c) dates of manufacture and release; (d) the quantity of API delivered; (e) the date of dispatch from Supplier; and (f) any material safety data sheets and labeling required by applicable laws and regulations or required by Customer.

 

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3.5 Certificate of Analysis. Supplier shall include, with each shipment of API, a certificate of analysis certifying that such shipment meets the Specifications and was Manufactured in compliance with the Regulatory Requirements. Customer and its Affiliates shall have the opportunity to review, at Supplier’s premises, all batch records, in process batch data, investigation information and reports, including without limitation out-of-specification (OOS) information and resolution, including corrective actions and preventive actions (CAPA) taken, if warranted, and other appropriate documents associated with the Manufacture of such API.

3.6 Purchase Price for Commercial Supply. Except as provided in Section 2.2 with respect to Developmental Quantities, the purchase price for API (the “Purchase Price”) shall be [* * *] per gram. All dollar amounts refer to U.S. currency. Supplier shall invoice Customer upon shipment of API to Customer or its Affiliates. Invoices shall be due and payable within thirty (30) days of the invoice date.

3.7 Stability Testing. Supplier shall perform stability testing of API according to the ICH Guidelines and as required by the Regulatory Requirements.

3.8 Storage, Packaging and Handling of API. Supplier shall assure that the API is stored, packaged, and handled (including transportation from one Supplier Facility to another) by Supplier in a manner as required for the API and adequate to prevent damage during normal storage, handling and shipping.

3.9 Rejection. In the event that Customer or its Affiliates determine that any shipment of API does not conform to the Agreed Quality, Customer shall give Supplier notice of its rejection thereof (including a sample from the lot analyzed) within thirty (30) days after receipt of such shipment of API. Supplier shall conduct an analysis of the sample within thirty (30) days after receipt of such notice. If Supplier confirms such non-conformity, Supplier shall, as Customer’s sole and exclusive remedies for such non-conformity, so notify Customer, supply Customer with a conforming shipment in the quantity specified for the non-conforming shipment, at Supplier’s expense, and reimburse Customer for (i) any charges incurred by Customer for shipping and/or storage, if applicable, of the non-conforming shipment; and (ii) in accordance with and subject to the terms set out in Section 3.3, the direct and verifiable out-of-pocket costs and/or expenses incurred by Customer as a direct consequence of any resulting delay in the delivery of conforming Recro Products to its customers or licensees, all within ninety (90) days after receipt of the notice of rejection and, as applicable, a claim for compensation from Customer. If Supplier does not confirm such non-conformity, Supplier shall promptly notify Customer of its determination, and the Parties shall submit the disputed batch to the Testing Laboratory for testing. The findings of the Testing Laboratory shall be binding on the Parties. The expenses of the Testing Laboratory shall be borne by Supplier if the testing confirms the non-conformity, and otherwise by Customer. If the Testing Laboratory confirms the non-conformity, then Supplier shall as Customer’s sole and exclusive remedies for such non-conformity, supply Customer with a conforming shipment in the quantity specified for the non-conforming shipment, at Supplier’s expense, and shall reimburse Customer for (i) any charges incurred by Customer for shipping and/or storage, if applicable, of the non-conforming shipment; and (ii) in accordance with and subject to the terms set out in Section 3.3, the direct and verifiable out-of-pocket costs and/or expenses incurred by Customer as a direct consequence of any resulting delay in the delivery of conforming Recro Products to its customers or licensees, all within ninety (90) days after receipt of notice of the test results of the Testing Laboratory and, as applicable, a claim for compensation. Customer shall return all non-conforming shipments of API to Supplier, at Supplier’s expense, upon the written request of Supplier.

 

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3.10 Delivery and Risk of Loss. All shipments of API supplied hereunder shall be by a carrier selected by Customer FCA (ICC Incoterms 2000) Supplier’s Manufacturing Facility in Oulu or Espoo, Finland.

4. BACKUP MANUFACTURE; SAFETY STOCK

4.1 Back-Up Manufacture Site. In the event that Supplier is unable to, or anticipates that it will become unable to, Manufacture API at Supplier’s primary Manufacturing site (“Primary Site”) the Parties may co-operate to identify and qualify a back-up Manufacturing site which shall, at Supplier’s discretion, be either a Supplier manufacturing site or a manufacturing site owned and maintained by a third party (“Back-Up Site”) (the Primary Site and the Back-Up Site are together referred to as the “Facilities”). Supplier shall at all times have the right to decide whether or not to qualify a Back-Up Site and any Manufacture of API at such Back-Up Site shall (save for events referred to in Section 11.1) at all times be at Supplier’s sole and exclusive discretion. If at any time, Supplier has not yet elected to qualify a Back-Up Site, upon Customer’s request, Supplier shall either (a) promptly qualify a Back-Up Site in a timely manner and Customer shall reimburse reasonable and customary expenses actually incurred by Supplier in doing so; or (b) allow Customer to qualify a Back-Up Site at Customer’s sole expense.

4.2 Supplier’s Safety Stock.

4.2.1 Supplier agrees to maintain throughout the Term a safety stock of API. The volume of such safety stock shall correspond Customer’s estimated requirements for API for the following fifteen (15) months (or, if less, such number of months that remains of the Term at any given time) as set out on Customer’s most recent Forecast from time to time (“Supplier Safety Stock”).

4.2.2 Prior to and upon expiration or termination of this Agreement, Supplier shall use commercially reasonable efforts to reduce Supplier Safety Stock to correspond to Customer’s requirements for API through the date of termination. To the extent Supplier is unable to use, sell or otherwise exhaust the Supplier Safety Stock despite such efforts, Customer shall have the following purchase obligations with respect to Supplier’s Safety Stock:

 

  (a)

In the event Customer gives notice of non-renewal of this Agreement in its entirety under Section 10.1, Customer shall, upon the effective date of such expiry, purchase at least fifty per cent (50%) of Supplier Safety Stock then maintained by Supplier at the Purchase Price;

 

  (b)

In the event of termination of this Agreement in its entirety by Supplier under Sections 10.2 (Customer’s Bankruptcy) or 10.4 (Customer’s Breach), or in the event of termination of this Agreement by Supplier pursuant to Section 10.3 where the termination of the License Agreement was due to Customer’s breach, bankruptcy or abandonment, Customer shall, on the effective date of such termination, purchase one hundred per cent (100%) of Supplier Safety Stock then maintained by Supplier at the Purchase Price; and

 

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  (c)

In the event of expiration or termination of this Agreement in any other circumstances, Customer may, but shall have no obligation to, purchase any amount of Supplier Safety Stock then maintained by Supplier.

4.2.3 All representations, warranties and obligations of Supplier with respect to the API, including without limitation, delivery and quality requirements, shall apply to any API purchased by Customer pursuant to Section 4.2.2. Any and all so purchased API shall be used only for the purpose set out in Section 3.1.1.

4.3 Customer’s Safety Stock. After receipt of Regulatory Approval of a Recro Product, Customer agrees to maintain throughout the Term a safety stock of API. The volume of such safety stock shall correspond Customer’s estimated requirements for API for the following three (3) months as set out on Customer’s most recent Forecast from time to time.

5. REGULATORY MATTERS

5.1 DMFs.

5.1.1 To the extent Supplier has not already done so, Supplier shall file all appropriate DMFs with the applicable Regulatory Authorities in the Recro Territory as soon as reasonably necessary and as agreed mutually between the Parties.

5.1.2 All DMFs shall be filed and maintained by Supplier throughout the Term at its sole cost and expense and in accordance with the requirements of the FDA and reasonable requirements any other applicable Regulatory Authorities.

5.1.3 Supplier shall provide Customer with a copy of the access letters referencing the DMFs in order to allow Customer to prepare, submit and obtain Regulatory Approvals and otherwise Develop and Commercialize the Recro Products.

5.2 Ownership of Regulatory Filings and Regulatory Approvals. Customer and its Affiliates shall, subject to the provisions of the License Agreement, be the sole owners of all Regulatory Filings and Regulatory Approvals for Recro Products. For the avoidance of doubt it is expressly agreed that Supplier shall at all times be the sole owner of all DMFs for API manufactured by or on behalf of Supplier or its Affiliates.

6. QUALITY CONTROL

6.1 Facility Compliance and Related Matters. Supplier shall maintain the Facilities in compliance with all applicable Regulatory Requirements, and with the provisions of this Agreement, at all times during the term hereof. Supplier shall be responsible under this Agreement for all costs and expenses related to the compliance of the Facilities with such Regulatory Requirements.

 

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6.2 Quality Control Program. Supplier shall maintain a quality control program consistent with the Regulatory Requirements, as required by the relevant Regulatory Authorities.

6.3 Quality Agreement. Within one hundred twenty (120) days following the Effective Date, the Parties shall mutually agree upon a Quality Agreement, which may be amended by mutual agreement from time to time by the Parties. To the extent that the terms or conditions of the Quality Agreement, or any procedure, specification or requirement referenced by it, conflicts or is materially inconsistent with the terms of this Agreement (excluding the Quality Agreement), the terms of this Agreement shall prevail.

6.4 Manufacturing Changes. Supplier shall have the right to make changes to the materials, equipment or methods of production or testing used in the Manufacture of API to be supplied to Customer from time to time, and shall notify Customer thereof in advance no less than three (3) months prior to the first delivery to Customer of API implementing such change(s). Supplier shall first obtain Customer’s prior written consent to any such change (other than a change required by a Regulatory Authority) that would affect Customer’s then pending Regulatory Filing(s) or in-process pre-marketing clinical trial for a Recro Product. Following grant of Regulatory Approval, Supplier shall first obtain Customer’s prior written consent to any such changes (other than a change required by a Regulatory Authority) that would affect Customer’s Regulatory Approval(s), such consent not to be unreasonably withheld. Customer recognizes that change may be necessary to enable Supplier to remain efficient and cost-effective and thus shall be fully supportive of the implementation of such changes where justified.

6.5 Specification Changes. Supplier shall have the right to make changes to the Specifications from time to time, and shall notify Customer thereof in advance no less than three (3) months prior to the first delivery to Customer of API implementing such change(s). Supplier shall first obtain Customer’s prior written consent to any such change (other than a change required by a Regulatory Authority) that would affect Customer’s then pending Regulatory Filing(s) or in-process pre-marketing clinical trial for a Recro Product. Following grant of Regulatory Approval, Supplier shall first obtain Customer’s prior written consent to any such changes (other than a change required by a Regulatory Authority) that would affect Customer’s Regulatory Approval(s), such consent not to be unreasonably withheld. Customer recognizes that change may be necessary to enable Supplier to remain efficient and cost-effective and thus shall be fully supportive of the implementation of such changes where justified.

6.6 Production Samples and Sample Retention. Supplier shall properly store and retain appropriate and adequate samples (identified by batch number) of all API and all critical raw materials in conditions and for times consistent with all applicable Regulatory Requirements. Supplier shall provide Customer’s Quality Control Department with such reasonable quantities of production samples of API manufactured by Supplier, as are required for the purposes of Developing and Commercializing the Recro Products and ensuring compliance with Regulatory Requirements.

 

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6.7 Records.

6.7.1 Supplier shall prepare and maintain all Records relating to this Agreement as set out in this Section 6.7. Records shall be prepared, maintained and retained in compliance with Regulatory Requirements and other requirements under this Agreement. All Records shall be materially complete, accurate, legible, valid, verifiable and contemporaneous with the events or activities described.

6.7.2 All Records (save for Records containing trade secrets, as provided for below) shall be available for Customer’s inspection upon advance notice during business hours, such inspection (save for a) inspections under extraordinary circumstances referred to below and for b) reasonable follow-up inspections in respect of correction of issues identified in an annual audit) not to be carried out more frequently than once per calendar year, during the Term and for the retention period for the Records as determined by the applicable Regulatory Requirements. Notwithstanding the foregoing, Customer and its representative may at any time have access to the Records during business hours in connection with any of the following: investigation of any Third Party complaint or injury related to the API; non-compliance of API with Agreed Quality that is either alleged by a Regulatory Authority or has been established; or an inspection by a Regulatory Authority results in findings that are adverse or negative with respect to the API.

6.7.3 If any Records contain trade secrets of Supplier or any Third Party, only Customer’s independent auditors shall inspect such confidential portions of the Records. Such auditors must have agreed with Supplier in writing to maintain all trade secret and/or confidential information learned in confidence and not use same for any purpose except as expressly permitted herein. With respect to any such trade secret information, such auditors shall report to Customer only whether the Supplier was in compliance or noncompliance with Regulatory Requirements and, in the event of noncompliance, to what phase in the Manufacture process the noncompliance issue relates.

6.7.4 Customer’s right to make copies of Records shall be discussed on a case-by-case basis with the understanding that Supplier shall not unreasonably refuse to allow Customer to make such copies that Customer can establish will reasonably be needed for the purpose of complying with legal or regulatory requirements applicable to Customer and further provided that the documents requested to be copied do not contain trade secrets of Supplier or any Third Party.

6.8 Batch Failure. Supplier agrees to notify Customer as soon as reasonably possible, but in any event within five (5) business days of discovery of any batch failure that could result in Supplier’s inability to meet Customer’s requested delivery dates, or of learning of any failure of any batch of API manufactured for delivery to Customer to meet standards set forth in the Specifications or warranties herein.

6.9 Inspection by Customer. Customer and its Affiliates shall have the right to visit and inspect any facilities at which Supplier Manufactures API (including facilities at which Supplier tests and stores API) during normal business hours and with reasonable advance notice. Such inspections shall not be conducted more than once per calendar year except in connection

 

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with (a) inspections under extraordinary circumstances referred to below and (b) reasonable follow-up inspections in respect of correction of issues identified in an annual inspection. Notwithstanding the foregoing, Customer, its Affiliates and their representative may at any time conduct such an inspection during business hours in connection with any of the following: investigation of any Third Party complaint or injury related to the API; non-compliance of API with Agreed Quality that is either alleged by a Regulatory Authority or has been established; or an inspection by a Regulatory Authority results in findings that are adverse or negative with respect to the API.

6.10 FDA Inspections and Communications. Without prejudice to the notification obligations (if any) imposed under any notice, information or other action required by any Regulatory Requirements:

6.10.1 Supplier shall immediately, but no later than five (5) business days, notify Customer of any plant shutdown or other emergency that affects the Manufacture of the API;

6.10.2 Supplier shall promptly notify Customer of all communications from the FDA or other Regulatory Authorities that directly affect the Manufacturing activities performed by Supplier related to API, or that, in Supplier’s reasonable opinion may directly affect the ability of Supplier to comply with its obligations hereunder.

6.10.3 Without limiting the foregoing, Supplier shall notify Customer of any written or oral inquiries, notifications, or inspection activities by any Regulatory Authority that directly affect the API or a Recro Product within ten (10) business days of Supplier obtaining knowledge of such inquiry, notification or inspection activity.

6.10.4 Supplier shall furnish to Customer all inspection reports and related correspondence of a Regulatory Authority that directly affect the API, a Recro Product or, in Supplier’s reasonable opinion, the ability of Supplier to comply with its obligations hereunder (including, without limitation, any FDA Form 483 or its foreign equivalent, warning letters, citations, or any revocation of any license or permit issued to Supplier) within ten (10) business days after such reports or correspondence become available to Supplier. If such report or correspondence affects a Facility generally, but not the API specifically, Supplier may provide a brief summary of the issue and its expected impact, in Supplier’s reasonable opinion, on Supplier’s ability to Manufacture or supply the API.

6.10.5 In all cases of FDA inspections and/or communications not referred to above that directly affect the API, Supplier shall deliver within thirty (30) business days from receipt the EIR issued by FDA for an inspection concerning the API. If any report, correspondence or other documentation described in this Section 6.10.5 contains confidential information of any other customer, licensee of Supplier or any other Third Party, or contains information that Supplier is not under obligation under this Agreement, the License Agreement or Regulatory Requirements to furnish to Customer, Suppler may redact such information from the documents provided to Customer.

 

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6.11 Notice of Adverse Discovery; Stability Testing Obligations. Supplier shall notify Customer in the manner and to the extent required under Regulatory Requirements in the event Supplier discovers or has reason to believe that there may be defects or deviations of any kind whatsoever in such API lot, including any non-conformance with Specifications or any Regulatory Requirements. Supplier shall conduct stability testing in accordance with Regulatory Requirements.

6.12 Recalls. This Section 6.12 shall apply to API and Recro Products containing the API supplied by Supplier:

6.12.1 Recall Procedures. If Customer should elect or be required to initiate a recall, withdrawal, stock recovery or field correction (each, or collectively, a “Recall”) of Recro Product containing API because of supply by Supplier of API that does not conform to the Specifications and warranties set forth in this Agreement, subject in any case to Section 9.1 hereunder, Customer will notify Supplier as required by Regulatory Requirements and provide Supplier a copy of its recall letter prior to initiation of the recall. Correspondingly, Supplier will notify Customer as required by Regulatory Requirements in case Supplier should elect or be required to initiate a Recall of any quantity of API supplied to Customer. Supplier will assist Customer (and its designee) in an investigation to determine the cause and extent of the problem, including identifying the locations to which API was shipped, providing access to applicable Records and retention samples, conducting testing, and the like and, if applicable, in identifying and correcting any deficiency in API Manufacturing. All regulatory authority contacts and coordination of any Recall activities relating to Recro Product will be initiated by, and will be the sole responsibility of, Customer, and all regulatory authority contacts and coordination of any Recall activities relating to API will be initiated by, and will be the sole responsibility of, Supplier.

6.12.2 Responsibility for Recall Costs.

 

  (a)

If Supplier conducts a Recall of any API, Supplier shall bear the costs of the Recall.

 

  (b)

If Customer conducts a Recall of any Recro Product containing API, or if a Regulatory Authority requests or conducts a recall of API or any Recro Product containing API, Customer shall each bear the costs of the Recall except to the extent that the Recall is due to or caused by any of the following:

 

  (i)

any breach of any of the representations or warranties of Supplier, or other breach of this Agreement by or on behalf of Supplier, including, without limitation, failure of the API or Recro Product incorporating such quantity of API to meet Agreed Quality; or

 

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  (ii)

the negligence, recklessness or willful misconduct of, or a breach of a statutory duty by, Supplier and its respective Affiliates or agents.

 

  (c)

For purposes of this Agreement, such costs shall include the expenses of notification and destruction or return of the recalled or withdrawn API or Recro Product and all other documented out-of-pocket costs incurred in connection with such Recall but shall not include lost profits or opportunity costs of either Party. If Supplier is responsible for the Recall as set out above, Supplier shall also provide replacement API and/or reimburse Customer for costs as provided in Section 3.9. Any disputes between the Parties regarding responsibility for Recall costs shall be resolved in accordance with Section 12.15.

7. REPRESENTATIONS AND WARRANTIES

7.1 Representations and Warranties of Supplier. Supplier hereby represents and warrants to Customer:

7.1.1 Supplier is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, with the corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Supplier. This Agreement has been duly executed and delivered by Supplier and constitutes the valid, binding and enforceable obligation of Supplier, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors’ rights generally from time to time in effect.

7.1.2 Supplier is not subject to, or bound by, any provision of:

 

  (a)

any articles or certificates of incorporation or by-laws;

 

  (b)

any license agreement, collaboration agreement, mortgage, deed of trust, lease, note, shareholders’ agreement, bond, indenture, license, permit, trust, custodianship, or other instrument, agreement or restriction; or

 

  (c)

any judgment, order, writ, injunction or decree or any court, governmental body, administrative agency or arbitrator, that would prevent, or be violated by, or under which there would be a default as a result of, nor is the consent of any Third Party required for, the execution, delivery and performance by Supplier of this Agreement and the obligations contained herein. The execution and delivery of this Agreement by Supplier and the performance by Supplier will not violate any laws or order of any court or government authority.

 

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7.1.3 At the time of delivery, the API Manufactured by Supplier or its Affiliates and supplied to Customer under this Agreement (a) will conform to the Specifications for the API; (b) will have been Manufactured in accordance with all Regulatory Requirements and cGMP and in material compliance with other applicable laws, rules, regulations and requirements applicable in the Country of Manufacture; and (c) will not be adulterated or misbranded within the meaning of the U.S. Federal Food, Drug, and Cosmetic Act, as amended.

7.1.4 Supplier has good title to all API provided to Customer pursuant to this Agreement and passes such title to Customer free of any Liens.

7.1.5 All API shall be manufactured at Supplier’s Facilities or any other facility approved in writing by Customer, and such facility shall at all times comply with all Regulatory Requirements and maintain all licenses and approvals required by the FDA and applicable Regulatory Authorities in the country of Manufacture.

7.1.6 To its Knowledge, neither Supplier nor any of its Affiliates has employed, and Supplier and its Affiliates will not knowingly employ, any personnel, and has not knowingly used and will not knowingly use in connection with the Development or Manufacture of the API, a contractor or consultant, debarred by the FDA (or subject to a similar sanction of a Regulatory Authority outside the United States), or who is subject of an FDA debarment investigation or proceeding (or similar proceeding of a Regulatory Authority outside the United States).

7.1.7 As of the Effective Date, neither Supplier, nor any of its Affiliates, nor, to Supplier’s Knowledge, any of their respective licensees, partners or subcontractors, has received any notice in writing or otherwise has knowledge of any facts which have led Supplier to believe that any of the Regulatory Filings relating to the API are not currently in good standing with, the FDA or any other Regulatory Authority. As of the Effective Date, there are no inquiries, actions or other proceedings pending before or, to Supplier’s Knowledge, threatened by, any Regulatory Authority or other government agency with respect to API or that would, in Supplier’s reasonable determination as of the Effective Date, affect the ability of Supplier to comply with its obligations hereunder.

7.1.8 Full Disclosure. Supplier has not omitted to furnish Customer any information requested by Customer prior to the Effective Date, and has not intentionally concealed from Customer, any material information in its possession concerning the API or the transactions contemplated by this Agreement. Nor has Supplier failed to disclose to Customer any information which makes the information disclosed misleading.

7.1.9 No Implied Warranties. No other warranties, express or implied, including without limitation, merchantability or fitness for any particular purpose, are made or shall be deemed to have been made by Supplier regarding the API, except to the extent expressly stated in this Section 7.1 or in Sections 2, 3, 5.1 or 6 above.

 

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7.2 Representations and Warranties of Customer. Customer hereby represents and warrants to Supplier:

7.2.1 Customer is a corporation duly incorporated, validly existing and in good standing under the laws of the jurisdiction of its organization, with the corporate power and authority to enter into this Agreement and to perform its obligations hereunder. The execution and delivery of this Agreement and the consummation of the transactions contemplated hereby have been duly authorized by all requisite corporate action on the part of Customer. This Agreement has been duly executed and delivered by Customer constitutes the valid, binding and enforceable obligation of each of them, subject to applicable bankruptcy, reorganization, insolvency, moratorium and other laws affecting creditors’ rights generally from time to time in effect and to general principles of equity.

7.2.2 Customer is not subject to, or bound by, any provision of:

 

  (a)

any articles or certificates of incorporation or by-laws;

 

  (b)

any mortgage, deed of trust, lease, note, shareholders’ agreement, bond, indenture, license, permit, trust, custodianship, or other instrument, agreement or restriction, or

 

  (c)

any judgment, order, writ, injunction or decree or any court, governmental body, administrative agency or arbitrator, that would prevent, or be violated by, or under which there would be a default as a result of, nor is the consent of any Third Party required for, the execution, delivery and performance by Customer of this Agreement and the obligations contained herein.

7.2.3 To its knowledge, neither Customer nor any of its Affiliates has employed, and Customer and its Affiliates will not knowingly employ, any personnel, and has not knowingly used and will not knowingly use, in connection with the use of the API, a contractor or consultant, debarred by the FDA (or subject to a similar sanction of a Regulatory Authority outside the United States), or who is subject of an FDA debarment investigation or proceeding (or similar proceeding of a Regulatory Authority outside the United States).

7.2.4 No other warranties, express or implied, including without limitation, merchantability or fitness for any particular purpose, are made or shall be deemed to have been made by Customer, except to the extent expressly stated in this Section 7.2.

8. CONFIDENTIALITY

8.1 Treatment of Confidential Information. Except as otherwise provided in this Section 8, during the term of this Agreement and, for a period of twenty (20) years from the termination or expiry of this Agreement in accordance with its terms, each Party (“Receiving Party”) agrees to keep confidential all of the other Party’s (“Disclosing Party”) Confidential Information that is disclosed to it or its Affiliates. Each Party agrees to preserve and protect the Confidential Information to the same extent it protects its own confidential information. Each Party will use the Confidential Information only as permitted under this Agreement, and will not disclose Confidential Information to any Third Party.

 

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8.2 Right to Disclose. The Receiving Party may disclose Confidential Information belonging to the Disclosing Party to the extent (and only to the extent) such disclosure is reasonably necessary in the following instances.

8.2.1 filing or prosecuting patents;

8.2.2 Regulatory Filings and obtaining Regulatory Approvals;

8.2.3 prosecuting or defending litigation;

8.2.4 complying with applicable Laws (including, without limitation, the rules and regulations of the Securities and Exchange Commission or any national securities exchange) and with judicial process, if in the reasonable opinion of the Receiving Party’s counsel, such disclosure is necessary for such compliance; and

8.2.5 disclosure, solely on a “need to know basis”, to Affiliates, current, potential and future collaborators (including Sublicensees), acquirers or assignees permitted under Section 12.1, research and Development collaborators, subcontractors, investment bankers, investors, lenders, and their and each of the Parties’ respective directors, employees, contractors and agents, each of whom prior to disclosure must be bound by written obligations of confidentiality and non-use no less restrictive than the obligations set forth in this Section 8;

provided, however, that in each of the above situations, the Receiving Party shall remain responsible for any failure by any Person who receives Confidential Information pursuant to this Section 8.2.5 to comply with the provisions of this Section 8.

If and whenever any Confidential Information is disclosed in accordance with this Section 8.2, such disclosure shall not cause any such information to cease to be Confidential Information except to the extent that such disclosure results in a public disclosure of such information (otherwise than by breach of this Agreement). Where reasonably possible, and other than pursuant to Section 8.2.5, the Receiving Party shall notify the Disclosing Party of the Receiving Party’s intent to make such disclosure pursuant to this Section 8.2 sufficiently prior to making such disclosure so as to allow the Disclosing Party adequate time to take whatever action it may deem appropriate to protect the confidentiality of the information.

8.3 Release From Restrictions. The foregoing obligations in respect of disclosure and use of Confidential Information shall not apply to any part of such Confidential Information that the Receiving Party can demonstrate:

8.3.1 is or becomes part of the public domain, other than by acts of the Receiving Party in contravention of this Agreement;

8.3.2 is disclosed to the Receiving Party or its Affiliates by a Third Party who had the right to disclose such Confidential Information to the Receiving Party;

 

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8.3.3 prior to disclosure under this Agreement, was already in the possession of the Receiving Party or its Affiliates, provided such Confidential Information was subject to any obligation to keep it confidential; or

8.3.4 is or has been independently developed by or for the Receiving Party without use of or reference to Confidential Information.

8.4 Confidentiality of Agreement. The Parties acknowledge that this Agreement, and all of the respective terms of this Agreement shall be treated as Confidential Information of both Parties.

9. INDEMNIFICATION

9.1 Indemnification by Supplier. Supplier hereby agrees to indemnify and hold harmless Customer and its sublicensees, and their directors, officers, employees and agents (“Customer Indemnitees”) from and against any liabilities, losses, fines, penalties, damages, expenses (including reasonable attorney’s fees and expenses, and expenses incurred in connection with the enforcement of this provision), actions or claims which arise out of claims against Customer brought by Third Parties after the Effective Date, which arise, result from, or relate to:

9.1.1 any breach of any of the representations or warranties of Supplier, or other breach of this Agreement by or on behalf of Supplier, including, without limitation, failure of the API to meet the Specifications;

9.1.2 the negligence, recklessness or willful misconduct of, or a breach of a statutory duty by, Supplier and its respective Affiliates or agents;

9.1.3 any activities or actions taken by or on behalf of Supplier or its Affiliates with respect to API used by Supplier or its Affiliates for their own products or API supplied to Third Parties; or

9.1.4 any claim that Supplier’s Manufacture of the API infringes or violates any patent or other intellectual property right of any Third Party in the country of Manufacture.

The items above are hereinafter collectively referred to as a “Customer Loss”. Notwithstanding the above, Supplier shall have no obligation to indemnify any Customer Indemnitee, to the extent that any Customer Loss arises out of the negligence or willful misconduct of any Customer Indemnitee, or Customer’s breach of this Agreement.

9.2 Indemnification by Customer. Customer hereby agrees to defend, indemnify and hold harmless Supplier and its Affiliates and licensors, and their directors, officers, employees and agents (“Supplier Indemnitees”) from and against any liabilities, losses, fines, penalties, damages, expenses (including reasonable attorney’s fees and expenses and expenses incurred in connection with the enforcement of this provision), actions or claims which arise out of claims against Supplier brought by Third Parties after the Effective Date which arise, result from, or relate to:

9.2.1 any breach of any of the representations or warranties of Customer, or other breach of this Agreement by or on behalf of Customer;

 

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9.2.2 the negligence, recklessness or willful misconduct of, or a breach of a statutory duty by, Customer and its respective Affiliates or agents;

9.2.3 any activities or actions taken by or on behalf of Customer or its Affiliates with respect to the API; or

9.2.4 any claim that Customer’s import of the API into the Recro Territory or incorporation of the API into a Recro Product infringes or violates any patent or other intellectual property right of any Third Party in the Recro Territory.

The items above are hereinafter collectively referred to as a “Supplier Loss”. Notwithstanding the above, Customer shall have no obligation to indemnify any Supplier Indemnitee, to the extent that any Supplier Loss arises out of the negligence or willful misconduct of any Supplier Indemnitee or Supplier’s breach of this Agreement.

9.3 Matters Involving Third Parties.

9.3.1 If any Third Party shall notify any Party (the “Indemnified Party”) with respect to any matter (a “Third Party Claim”) which may give rise to a claim for indemnification against any other Party (the “Indemnifying Party”) under this Section 9, then the Indemnified Party shall promptly notify each Indemnifying Party thereof in writing; provided, however, that no delay on the Party of the Indemnified Party in notifying any Indemnifying Party shall relieve the Indemnifying Party from any obligation hereunder unless (and then solely to the extent) the Indemnifying Party thereby is prejudiced.

9.3.2 Should the Indemnifying Party contest its alleged obligation to indemnify the Indemnified Party, either Party shall have the right to submit to binding arbitration in accordance with the provisions of Section 12.15 the determination of whether or not the indemnity provisions set out in this Section 9 shall apply, and whether or not the Indemnifying Party shall be under obligation of indemnity towards the Indemnified Party. To the extent possible under applicable law and arbitration rules, such determination shall be made in an expedited manner and, if possible, within thirty (30) days from submission for arbitration.

9.3.3 Any Indemnifying Party shall have the right to defend the Indemnified Party against the Third Party Claim with counsel of its choice reasonably satisfactory to the Indemnified Party so long as: (a) the Indemnifying Party notified the Indemnified Party in writing within fifteen (15) days after the Indemnifying Party has given written notice of the Third Party Claim that the Indemnifying Party shall assume the defense of the Indemnified Party with respect to the Third Party Claim; (b) the Indemnifying Party provides the Indemnified Party with evidence reasonably acceptable to the Indemnified Party that the Indemnifying Party shall have the financial resources to defend against the Third Party Claim and fulfill its indemnification obligations hereunder; and (c) the Indemnifying Party conducts the defense of the Third Party Claim actively and diligently.

 

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9.3.4 So long as the Indemnifying Party is conducting the defense of the Third Party Claim in accordance with Section 9.3.3 above: (a) the Indemnified Party may retain separate co-counsel at its sole cost and expense and participate in the defense of the Third Party Claim; (b) no compromise or settlement of the Third Party Claim may be effected by the Indemnified Party without the consent of the Indemnifying Party; and (c) the Indemnifying Party may compromise or settle the Third Party Claim without the consent of the Indemnified Party provided that (i) there is no finding or admission of any violation of law or any violation of the rights of any Third Party; (ii) the sole relief provided is money in nature and is paid in full by the Indemnifying Party; and (iii) written agreement is obtained releasing the Indemnified Party from all liability thereunder.

9.3.5 In the event of a claim to the effect that API infringes or violates any patent or other intellectual property right of any Third Party or in the event of other material litigation, threatened or actual, involving the API:

 

  (a)

either Party shall have the right to (i) suspend further supply and/or purchase of the API, and/or (ii) require the other Party, and the other Party agrees to comply with such requirement, to suspend the Manufacturing, supply and/or purchase of, and/or other activities involving, the API to the extent this is deemed necessary or advisable by a Party (upon having consulted its legal advisors) or required by a court ordered injunction, or an arbitrator(s) award or order (whether interim or final) to prevent or limit actual or possible damages, liability or injury to Customer and/or Supplier. In the event a Party does not abide with such request, then all Manufacture, supply, purchase of, and/or other activities involving the affected API by such Party shall be at the sole risk and responsibility of such Party, and such Party shall indemnity and hold the other Party harmless, subject to the terms and limitations set out in this Section 9.3 from and against any liabilities, losses, fines, penalties, damages and expenses (including reasonable attorney’s fees) incurred in connection with or as a consequence of such activities.

 

  (b)

the Parties shall use commercially reasonable efforts to cooperate to address and resolve such dispute or litigation in a mutually acceptable way, including, with respect to infringement or violation of any patent or other intellectual property right of any Third Party, without limitation, obtaining a license if practical and/or endeavoring to Manufacture the API in a non-infringing manner or have Orion relocate the Manufacture (if necessary through outsourcing to a Third Party) to a jurisdiction where the Manufacture of API does not infringe third party rights; and

 

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  (c)

Failing a solution referred to in b) above with respect to infringement or violation of any patent or other intellectual property right of any Third Party within twelve (12) months from the initiation of measures referred to in a) above, Customer shall have the right to purchase API from an alternative supplier as set out and further described in Section 11 below until the infringement issue has been resolved.

10. TERM AND TERMINATION

10.1 Term. The initial term of this Agreement (“Initial Term”) shall begin on the Effective Date and, unless earlier terminated in accordance with this Section 10, shall expire, with respect to each country in the Recro Territory, upon the later of: fifteen (15) years from the First Commercial Sale of the Recro Product in such Recro Territory; or (b) fifteen (15) years after the Effective Date. The Agreement shall be automatically extended upon the same terms and conditions for successive periods of two years (each a “Renewal Term”) unless either Party shall have provided written notice of termination of this Agreement at least six (6) months prior to expiration of the Initial Term or any Renewal Term then in effect. For purposes of this Agreement, “Term” shall refer collectively to the Initial Term and the Renewal Terms.

10.2 Termination upon Bankruptcy. Either Party may terminate this Agreement upon: (a) the bankruptcy, liquidation or dissolution (other than in the course of a merger, demerger or other solvent reorganization) of the other Party (without further action by the Party); or (b) the filing of any voluntary petition for bankruptcy, dissolution, liquidation or winding-up of the affairs of the other Party which is not dismissed within one hundred twenty (120) days after the date on which it is filed or commenced.

10.3 Termination upon Termination of License Agreement. Either Party may terminate this Agreement, in its entirety or on a product-by-product or country-by-country basis in respect of the products and/or countries affected by termination of the License Agreement, upon the termination or expiration of the License Agreement by giving ninety (90) days prior written notice to the other Party.

10.4 Customer’s Right to Terminate. Customer may terminate this Agreement, at its option, either in its entirety or, if the breach affected only one or more countries of the Recro Territory, with respect to affected countries, at any time if Supplier materially breaches the Agreement, and such material breach is not cured by Supplier within ninety (90) days after Customer provides Supplier with written notice of such breach. Notwithstanding the foregoing, if Supplier is unable to remedy such breach for causes beyond its reasonable control within such 90 day period, then this Agreement may not be terminated so long as Supplier has presented prior to the end of the aforementioned 90 day period a reasonable plan for curing such breach, and thereafter is pursuing in accordance with such plan a cure of such breach in a timely manner and can demonstrate that it is taking all diligent actions possible to cure such breach.

10.5 Supplier’s Right to Terminate. Supplier may terminate this Agreement, at its option either in its entirety or, if the breach affected only one or more countries of the Recro Territory, with respect to affected countries, at any time if: Customer materially breaches the Agreement, and such material breach is not cured by Customer within ninety (90) days after

 

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Supplier provides Customer with written notice of such breach. Notwithstanding the foregoing, if Customer is unable to remedy such breach for causes beyond its reasonable control within such 90 day period, then this Agreement may not be terminated so long as Customer has presented prior to the end of the aforementioned 90 day period a reasonable plan for curing such breach, and thereafter is pursuing in accordance with such plan a cure of such breach in a timely manner and can demonstrate that it is taking all diligent actions possible to cure such breach

10.6 Rights Upon Expiration and Termination.

10.6.1 Upon Expiration or termination of this Agreement, the following Sections and Articles shall survive such expiration or termination, subject to any later termination dates provided for therein: Sections 1 (Definitions to the extent applicable), 6.7 (Records), 6.11 (Notice of Adverse Discovery; Stability Testing), 6.12 (Recalls), 8 (Confidentiality), 9 (Indemnification), 10 (Term and Termination), 11 (Alternative Suppliers) and 12 (Miscellaneous).

10.6.2 Expiration or termination of the Agreement shall not relieve the Parties of any obligation accruing before such expiration or termination. Any Expiration or early termination of this Agreement shall be without prejudice to the rights of either Party against the other accrued or accruing under this Agreement before termination.

11. ALTERNATIVE SUPPLIERS.

11.1 Alternative Suppliers. Section 3.1.2 shall no longer apply, and Customer may, at its option and subject to the terms of this Section II, purchase API from other suppliers or manufacture API itself, in the following circumstances:

11.1.1 On more than one occasion Supplier fails to supply Customer’s duly forecasted and ordered requirements for conforming API in a timely manner for more than sixty (60) days during any eighteen (18) month period;

11.1.2 Supplier’s bankruptcy as described in Section 10.2;

11.1.3 Supplier’s uncured breach as described in Section 10.4; or

11.1.4 any of the events described in Section 9.3.5 occur, but only during the period such issues remain unresolved.

11.2 Minimum Purchase. Subject to Supplier’s notification to Customer of its immediate ability to supply conforming API in a timely manner and in accordance with Customer’s most recent forecast, and further subject to Customer’s exhausting the inventory of API ordered from or manufactured by the Back-Up Supplier prior to Supplier’s notification, Customer shall continue to purchase from Supplier one hundred percent (100%) of Customer’s requirements for the API, or the amount Supplier is able to supply, whichever is less.

 

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11.3 Tech Transfer. If any of the events described in Section 11.1 above occur during the first five (5) years after First Commercial Sale of the affected Recro Product, then:

11.3.1 Within thirty (30) days of Customer’s request, Supplier shall transfer to Customer or its designee (the “Tech Transferee”), subject, if the Tech Transferee is a Third Party, to such Tech Transferee executing and delivering to Orion a confidentiality agreement in the form attached to the License Agreement as Schedule 2.3 thereto, all Orion Know-How reasonably necessary for Customer or such designee to Manufacture the API, provided that Customer shall reimburse Supplier for reasonable and customary expenses actually incurred by Supplier in doing so; and

11.3.2 Supplier hereby grants to Customer and the Tech Transferee a worldwide, royalty-free, right and license, for the remainder of the Term (or, if longer, the remainder of the Term of the License Agreement), under the Orion Know-How and the Orion Patent Rights, for the sole purpose of using, making or having made quantities of API for incorporation in the Recro Products for Commercialization in the Recro Territory in accordance with and subject to the License Agreement and qualification of such alternative manufacturing sites, including a right to reference the Regulatory Filings.

12. MISCELLANEOUS

12.1 Assignment. This Agreement may not be assigned or otherwise transferred by either Party without the written consent of the other Party; provided, however, that either Party may, without such consent, assign this Agreement: (a) to a successor corporation in connection with the transfer or sale of all or substantially all of its business to which this Agreement pertains or in the event of the merger or consolidation with another corporation; (b) to an Affiliate; and (c) with respect to Customer, to a Third Party if Customer is required to divest any of the Recro Product in order to comply with applicable antitrust law or government order. Any purported assignment in violation of the preceding sentence shall be void. Any permitted assignee shall assume all obligations of its assignor under this Agreement.

12.2 Performance by Affiliates. Each of Supplier and Customer acknowledge that their obligations and rights under this Agreement may be performed and exercised by Affiliates of Supplier and Customer, respectively. Obligations of the Party for which one of its Affiliates is performing hereunder shall be deemed to extend to such performing Affiliate. Each of Supplier and Customer guarantee performance of this Agreement by its Affiliates. Wherever in this Agreement the Parties delegate responsibility to Affiliates or local operating entities, the Parties agree that such entities shall not make decisions inconsistent with this Agreement, amend the terms of this Agreement or act contrary to its terms in any way. Further, if a Party’s Affiliate breaches any aspect of this Agreement performance of which has been delegated to such Affiliate or acts in any way inconsistently with the foregoing sentence, then the Party whose Affiliate so breached shall be liable for such breach as for its own, and the other Party shall be entitled to proceed against the Party whose Affiliate so breached, and shall not first be required to proceed against the Affiliate that so breached.

12.3 Further Actions. Each Party hereto agrees to perform such acts, execute such further instruments, documents or certificates, and provide such cooperation in proceedings and actions as may be reasonably requested by the other Party in order to carry out the intent and purpose of this Agreement.

 

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12.4 Force Majeure. Neither Party shall be liable to the other for delay or failure in the performance of the obligations on its part contained in this Agreement if and to the extent that such failure or delay is due to circumstances beyond its control that it could not have avoided by the exercise of reasonable diligence (a “Force Majeure Event”). It shall notify the other Party promptly in the event such circumstances arise, giving an indication of the likely extent and duration thereof, and shall use all commercially reasonable efforts to resume performance of its obligations as soon as practicable; provided, however, that neither Party shall be required to settle any labor dispute or disturbance.

12.5 Representation by Legal Counsel. Each Party hereto has been represented by legal counsel in connection with this Agreement and acknowledges that it has participated in the drafting of this Agreement. In interpreting and applying the terms and provisions of this Agreement, the Parties agree that no presumption shall exist or be implied against the Party which drafted such terms and provisions.

12.6 Language of the Agreement. The language of this Agreement shall be English and the parties hereby waive, and agree that this Agreement shall be valid and enforceable notwithstanding any requirement that it be written in or translated into any language other than English. If, for any reason, this Agreement is translated into a language other than English, the English language version shall be controlling for all purposes.

12.7 Correspondence and Notices.

12.7.1 Ordinary Notices. Correspondence, reports, documentation, and any other communication in writing between the Parties in the course of ordinary implementation of this Agreement shall be delivered by hand, sent by facsimile transmission (receipt verified), or by overnight delivery service to the employee or representative of the other Party who is designated by such other Party to receive such written communication.

12.7.2 Extraordinary Notices. Extraordinary notices and communications (including, without limitation, notices of termination, force majeure, material breach, change of address) shall be in writing and delivered by hand or sent by nationally recognized overnight delivery service, prepaid registered or certified air mail, or by facsimile confirmed by prepaid first class, registered or certified mail letter, and shall be deemed to have been properly served to the addressee upon receipt of such written communication.

All correspondence to Customer shall be addressed as follows:

Recro Pharma, Inc.

55 Valley Stream Parkway, Suite 100

Malvern, PA 19355, USA

Attn: Gerri Henwood

President

Tel: +1-610-644-1004

Fax: +l-610-644-1290

 

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with a copy to:

Saul Ewing LLP

Lockwood Place

500 East Pratt Street, Suite 900

Baltimore, MD 21202-3171

Attn: Tanya D. Berlage, Esq.

Tel: +1-410-332-8719

Fax: +1-410-332-8114

All correspondence to Supplier shall be addressed as follows:

Orion Corporation

Orionintie I A, FI-02200 Espoo, Finland

P.O. Box 65, Fl-02101 Espoo, Finland

Attn: President

Tel: +358-10-4261

Fax: +358-10-426-3815

with a copy to:

Orion Corporation

Orionintie 1A, FI-02200 Espoo, Finland

P.O. Box 65, Fl-02101 Espoo, Finland

Attn: Head of Legal Affairs

Tel: +358-10-4261

Fax: +358-10-426-4088

Any Party from time to time may change its contact information herein by giving notice hereunder.

12.8 Amendment. No amendment, modification or supplement of any provision of this Agreement shall be valid or effective unless made in writing and signed by a duly authorized officer of each Party.

12.9 Waiver of Compliance. Except as otherwise provided in this Agreement, the failure by any Party to comply with any obligation, covenant, agreement or condition under such agreements may be waived by the Party entitled to the benefit thereof only by a written instrument signed by the Party on granting such waiver, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. The failure of any Party to enforce, at any time, any of the provisions of such agreements shall in no way be construed to be a waiver of any such provision, nor in any way to affect the validity of such agreements or any part thereof or the right of any Party thereafter to enforce each and every such provision. No waiver of any breach of such provisions shall be held to be waiver of any other or subsequent breach.

 

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12.10 Exhibits and Schedules; Incorporation by Reference; Independent Significance. The exhibits and schedules attached to this Agreement, each when executed and/or delivered, are incorporated by reference into and made a part of this Agreement. The Parties have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the Parties and no presumption or burden of proof shall arise favoring or disfavoring any Party by virtue of the authorship of any of the provisions of this Agreement. The word “including” shall mean including without limitation.

12.11 Severability. The illegality or partial illegality of any or all of this Agreement, or any provision thereof, shall not affect the validity of the remainder of the Agreements, or any provision thereof, and the illegality or partial illegality of the Agreement shall not affect the validity of the Agreement in any jurisdiction in which such determination of illegality or partial illegality has not been made, except in either case to the extent such illegality or partial illegality causes the Agreements to no longer contain all of the material provisions reasonably expected by the parties to be contained therein.

12.12 Descriptive Headings. The descriptive headings of this Agreement are for convenience only and shall be of no force or effect in construing or interpreting any of the provisions of this Agreement.

12.13 Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE, THROUGH INDEMNIFICATION OR OTHERWISE, TO THE OTHER PARTY FOR ANY LOSS OF PROFITS, LOSS OF BUSINESS OR INTERRUPTION OF BUSINESS, OR FOR ANY OTHER INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OF ANY KIND, EVEN IF SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH LOSS OR DAMAGES. IN NO CASE SHALL EITHER PARTY BE LIABLE FOR ANY REPRESENTATION OR WARRANTY MADE BY THE OTHER PARTY TO ANY THIRD PARTY. Notwithstanding the foregoing, each Party shall be liable to the other for special, indirect or consequential damages arising out a breach of the non-disclosure and non-use obligations under Section 8.

12.14 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of Sweden, without giving effect to any choice or conflict of laws provision or rule that would cause the application of the domestic substantive laws of any other jurisdiction.

12.15 Jurisdiction; Venue; Service of Process. Any and all disputes, controversies or claims of any sort arising from this Agreement shall first be discussed by the Parties hereto, who shall try to settle the dispute among themselves. Should they fail to agree within ninety (90) days, either Party may bring the matter in dispute to be finally and exclusively settled by arbitration under the Arbitration Rules of the Arbitration Institute of the Stockholm Chamber of Commerce by three (3) arbitrators appointed in accordance with said Rules. The arbitration proceedings shall be held in English and shall be venued in Stockholm, Sweden. The award rendered at the arbitration shall be final and binding upon the Parties hereto.

 

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12.16 Entire Agreement. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter thereof and shall supersede all previous negotiations, commitments, and writings with respect to such subject matter.

12.17 Specific Performance. Each of the Parties acknowledges and agrees that the other Party may be damaged irreparably in the event any of the provisions of the Agreement are not performed in accordance with their specific terms or otherwise are breached. Accordingly, each of the Parties agrees that the other Party shall be entitled to seek an injunction or injunctions to prevent breaches of the provisions of this Agreement and to enforce specifically this Agreement and the terms and provisions hereof in any action instituted in any court having competent jurisdiction over the Parties and the matter in addition to any other remedy to which it may be entitled, at law or in equity.

12.18 Independent Contractors. Both Parties are independent contractors under this Agreement. Nothing contained in this Agreement shall be deemed to create an employment, agency, joint venture or partnership relationship between the Parties hereto or any of their agents or employees, or any other legal arrangement that would impose liability upon one Party for the act or failure to act of the other Party. Neither Party shall have any express or implied power to enter into any contracts or commitments or to incur any liabilities in the name of, or on behalf of, the other Party, or to bind the other Party in any respect whatsoever.

12.19 No Third Party Beneficiaries. All rights, benefits and remedies under this Agreement are solely intended for the benefit of Supplier and Customer, and no Third Party shall have any rights whatsoever to: (i) enforce any obligation contained in this Agreement; (ii) seek a benefit or remedy for any breach of this Agreement; or (iii) take any other action relating to this Agreement under any legal theory, including but not limited to, actions in contract, tort (including but not limited to negligence, gross negligence and strict liability), or as a defense, setoff or counterclaim to any action or claim brought or made by the Parties.

12.20 Press Release.

12.20.1 The parties have agreed that Orion may issue the press release regarding execution of this Agreement in the form previously agreed to by Licensee. Neither Party shall make any press release or similar public announcement regarding the transaction contemplated by this Agreement or the terms of this Agreement without the prior written approval of the other Party, which shall not be unreasonably withheld or delayed, unless such disclosure is required by law or stock exchange rule, is required to be contained in financial statements prepared in accordance with generally accepted accounting principles or has been announced previously in accordance with this Section. If disclosure is required by law or stock exchange rule, the disclosing Party shall use commercially reasonable efforts to give the other Party sufficient advance notice to allow the other Party to comment thereupon, and thereafter limit the scope of the disclosure to what is required to comply with law or stock exchange rule.

12.20.2 For the avoidance of doubt it is expressly understood that nothing in this Section 12.20 or elsewhere in this Agreement shall restrict the right of either party or its Third Party Licensee(s) or any Third Party acting on such party’s behalf to make scientific publications or present the results of any research or development relating to Dexmedetomidine or Dexmedetomidine Product provided that the other party has received prior written notice of such publication or presentation.

 

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12.21 Counterparts. This Agreement may be executed in any number of counterparts, each of which need not contain the signature of more than one Party but all such counterparts taken together shall constitute one and the same agreement.

[signature page follows]

 

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IN WITNESS WHEREOF, duly authorized representatives of the Parties have duly executed this Agreement to be effective as of the date first set forth above.

 

RECRO PHARMA, INC.     ORION CORPORATION
By:  

/s/ Gerri Henwood

    By:  

/s/ Reijo Salonen

Name:  

Gerri Henwood

    Name:  

Reijo Salonen

Title:

  CEO + President    

Title:

 

Senior Vice President

Research and Development

 

     

By:

 

/s/ Liisa Hurme

     

Name:

 

Liisa Hurme

     

Title:

 

Vice President

 

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Schedule 2.1

Estimated Developmental Quantities of API

[see attached]

 


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[* * *]

 


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EXHIBIT A

API SPECIFICATIONS

[see attached]

 


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LOGO   

 

3.2.5.4.1 Specification                                                     2

(Dexmedetomidine HCI, Fermion Oy)

Update September 20, 2007

 

 

pH

 

  

 

4.7 - 5.7

 

Color of solution

 

  

Colourless

 

Clarity of solution            

 

  

Clear

 

Optical purity

 

  

Amount of Levomedetomidine hydrochloride not more than 1.0 %

 

Organic impurities   

Total amount of unspecified impurities not more than 0.3 %

Any unspecified not more than 0.10 %

 

Assay

 

  

98.0 - 102.0 % of C13H16N2 HCL calculated on the dried basis

 

Amount of chloride

 

  

14.7 - 15.3 % calculated on the dried basis

 

Residual solvents   

Amount of ethyl acetate not more than 0.3 %

Amount of isopropanol not more than 0.1 %.

 

Microbiological purity    Bacterial endotoxins less than 20 EU/mg

 


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LOGO             

 

3.2.S.4.1 Specification                        

(Dexmedetomidine HCI, Fermion Oy)

Update September 20, 2007

 

3.2.S.4.1 SPECIFICATION (DEXMEDETOMIDINE HYDROCHLORIDE, FERMION OY)

 

LOGO

C13H16N2    HCl                        Mw = 236.73

(S)-4- [1-(2,3-dimethylphenyl)ethyl]- 1H- imidazole hydrochloride

Characteristics- Freely soluble in water, chloroform, ethanol and methanol. Slightly soluble in acetonitrile.

Description - Almost white or white, crystalline powder.

CAS-145108-58-3 (hydrochloride salt)

CAS-113775-47-6 (base)

Tests and acceptance criteria:

 

Color of powder        

 

  

Almost white or white

 

Identification

 

  

A.    Infrared absorption spectroscopy

B.    Test for chloride

C.    High-performance liquid chromatography

 

Loss on drying

 

  

Not more than 1.0 %

 

Sulphated ash

 

  

Not more than 0.1 %

 

Heavy metals

 

  

Not more than 20 ppm

 

 

Exhibit 10.12

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ASSET TRANSFER AND LICENSE AGREEMENT

This ASSET TRANSFER AND LICENSE AGREEMENT (the “Agreement”) is dated as of April 10, 2015 (the “Effective Date”) between Alkermes Pharma Ireland Limited, a private limited company incorporated in Ireland (registered number 448848) whose registered address is Connaught House, 1 Burlington Road, Dublin 4, Ireland (“APIL”), and DV Technology LLC, a Delaware limited liability company whose registered address is c/o Corporation Trust Center, 1209 Orange Street, Wilmington, Delaware 19801, USA (“Purchaser,” and Purchaser shall include, after the Effective Date, any entity possessing the obligations of Purchaser set forth in this Agreement).

RECITALS:

WHEREAS, APIL desires to sell and assign to Purchaser, and Purchaser desires to purchase and acquire from APIL, part of APIL’s controlled release drug development business (the “Business”), comprising the Transferred IP and the Transferred Agreements, and a license of the Nanotechnology IP, the OCR IP, the Abuse Resistant Patents and the Licensed Trademarks, subject to the terms and conditions set forth in this Agreement; and

NOW, THEREFORE, in consideration of the respective premises, mutual covenants and agreements of the parties hereto, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows:

1. Definitions.

Abuse Resistant Patents shall mean any patent application owned by APIL as of the Effective Date and listed in Exhibit A-6 hereto (which for purposes of this Agreement shall include certificates of invention and applications for such certificates), together with any patents resulting therefrom, including any divisionals, continuations, continuations-in-part, substitutions, reissues, re-examinations, revalidations, extensions (including pediatric exclusivity patent extensions), registrations, supplementary protection certificates, renewals, and foreign equivalents of any such patents or patent applications.

Acorda Agreements shall mean (i) Amended and Restated License Agreement between APIL and Acorda Therapeutics, Inc. dated September 26, 2003, as amended; (ii) Supply Agreement between APIL and Acorda Therapeutics, Inc. dated September 26, 2003, as amended; (iii) Development and Supplemental Agreement dated January 14, 2011 to Amended and Restated License Agreement dated September 26, 2003 between APIL and Acorda Therapeutics, Inc., as amended, and Supply Agreement dated September 26, 2003 between APIL and Acorda Therapeutics, Inc., as amended; and (iv) any related ancillary agreements between APIL and Acorda Therapeutics, Inc. or its affiliates.

Affiliate shall mean, with respect to any Person, any other Person that directly, or through one or more intermediaries, controls or is controlled by or is under common control with such Person. For purposes of this Agreement, “control” shall mean, as to any Person, the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise (and the terms “controlled by” and “under common control with” shall have correlative meanings). For purposes of Section 7 of this Agreement, APIL shall not be treated as an Affiliate of Purchaser, and Purchaser shall not be treated as an Affiliate of APIL.


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BiDil Products shall mean BiDil XR™, a fixed dose combination of hydralazine hydrochloride and isosorbide dinitrate, and any other pharmaceutical products that may be licensed by APIL pursuant to the NitroMed Agreements.

Controlled shall mean with respect to any intellectual property, that APIL, in whole or in part, owns or has a license to such intellectual property and has the ability to grant a license or a sublicense, as applicable, or to otherwise disclose proprietary or trade secret information, to Purchaser or its sublicensees, without paying any consideration to any third party and without either misappropriating the proprietary or trade secret information of a third party or violating the terms of any agreement or other arrangement with any third party existing and in effect at the time APIL would be required to grant Purchaser or its sublicensees such license or sublicense.

Focalin Agreements shall mean: (i) Preliminary Development Agreement between APIL and Novartis Pharma AG dated September 21, 2001; (ii) License and Supply Agreement between APIL and Novartis Pharma AG dated December 17, 2004, as amended; and (iii) any related ancillary agreements between APIL and Novartis Pharma AG or its affiliates.

Focalin Products shall mean Focalin XR®, an extended-release oral formulation of dexmethylphenidate, and any other pharmaceutical products that may be licensed by APIL pursuant to the Focalin Agreements.

Know-How shall mean all proprietary data, information, knowledge, know-how, inventions, discoveries, trade secrets, processes, techniques, strategies, methods, practices, skills, experience, documents, apparatus, devices, assays, screens, databases (including safety databases), database structures and data analysis methods, compositions, materials, methods, formulas, improvements, clinical and non-clinical study reports, test data including pharmacological, biological, chemical, biochemical, toxicological, and clinical test data, analytical and quality control data, stability data, studies and procedures.

Licensed Trademarks shall mean APIL’s trademarks (i) NanoCrystal®, (ii) SODAS®, (iii) CODAS® and (iv) BeadTek™, application and registration details for which, as of the Effective Date, are set out in Exhibit B-2 hereto.

Meloxicam IV/IM shall mean an aqueous extended-release formulation of the selective COX-2 inhibitor non-steroidal anti-inflammatory drug meloxicam that has been developed by APIL using NanoCrystal Technology, including an intravenous or intramuscular form existing as of the Effective Date.

Meloxicam Parenteral Formulation shall mean a parenteral formulation of the selective COX-2 inhibitor non-steroidal anti-inflammatory drug meloxicam developed at any time on or after the Effective Date by or on behalf of Purchaser using NanoCrystal Technology. For the avoidance of doubt, the Meloxicam Parenteral Formulation shall not be deemed to include Meloxicam IV/IM.

Merck Agreement shall mean the Technology Transfer and License Agreement between APIL and Merck & Co, Inc. dated July 26, 1999, as amended.

 

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NanoCrystal Technology shall mean APIL’s proprietary technology comprising:

a. nanoparticulate dispersions of compounds stabilized against particle growth or agglomeration, and materials, methods and equipment used for making such dispersions; and

b. formulations, including finished formulations incorporating or derived from such dispersions, and materials, methods and equipment used for making such dispersions, provided such formulations, materials, methods and equipment are for the maintenance and control of (i) nanoparticulate size of the nanoparticulate component; (ii) redispersability of the nanoparticle nanoparticulate component in biological fluids; (iii) the rate of release or delivery of the nanoparticle nanoparticulate component in vivo; or (iv) the anatomical site of release of the nanoparticle nanoparticulate component from the finished dosage form of a pharmaceutical product.

Nanotechnology IP shall mean the Nanotechnology Know-How and the Nanotechnology Patents.

Nanotechnology Know-How shall mean any Know-How Controlled by APIL as of the Effective Date relating to Meloxicam IV/IM.

Nanotechnology Patents shall mean all patents and patent applications owned by APIL as of the Effective Date and listed in Exhibit A-2 hereto (which for purposes of this Agreement shall include certificates of invention and applications for such certificates), together with any patents resulting therefrom, including any divisionals, continuations, continuations-in-part, substitutions, reissues, re-examinations, revalidations, extensions (including pediatric exclusivity patent extensions), registrations, supplementary protection certificates, renewals, and foreign equivalents of any such patents or patent applications.

NitroMed Agreements shall mean (i) License Agreement between APIL and NitroMed, Inc. dated February 9, 2007; and (ii) any related ancillary agreements between APIL and NitroMed, Inc. or its affiliates.

OCR IP shall mean the OCR Know-How and the OCR Patents.

OCR Know-How shall mean any Know-How Controlled by APIL as of the Effective Date relating to OCR Technology.

OCR Patents shall mean all patents and patent applications owned by APIL as of the Effective Date and listed in Exhibit A-3 hereto, (which for purposes of this Agreement shall include certificates of invention and applications for such certificates), together with any patents resulting therefrom, including any divisionals, continuations, continuations-in-part, substitutions, reissues, re-examinations, revalidations, extensions (including pediatric exclusivity patent extensions), registrations, supplementary protection certificates, renewals, and foreign equivalents of any such patents or patent applications.

OCR Technology shall mean (i) APIL’s proprietary oral controlled release SODAS® (Spheroidal Oral Drug Absorption System) technology comprising a multiparticulate drug delivery system based on the production of controlled-release beads typically of approximately 1 to 2 mm in diameter containing drug plus excipients coated with product-specific modified-release polymers to achieve varying degrees of modified release depending upon the required release profile for any particular product; control of drug release may be a result of the use of pH-dependent or independent coatings and a single polymer system or a combination of polymers. Once produced, the coated beads are formulated into the final dosage form;

 

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and (ii) APIL’s formulation technology based on the production of a population of coated beads containing a gelling agent plus excipients. These gelling agent-containing beads are designed for abuse deterrent formulations and do not contain any drug. OCR Technology excludes APIL Know-How relating to alcohol dose dumping.

Paladin Agreements shall mean (i) License and Distribution Agreement between APIL and Paladin Labs Inc. dated May 12, 2011; and (ii) any related ancillary agreements between APIL and Paladin Labs Inc. or its affiliates.

Paladin Patents shall mean all patents and patent applications licensed by APIL to Paladin as of the Effective Date pursuant to the Paladin Agreements, including those listed in Exhibit A-5 hereto.

Paladin Products shall mean any pharmaceutical products that may be licensed by APIL pursuant to the Paladin Agreements.

Person shall mean a person, corporation, partnership, limited liability company, joint venture, trust or other entity or organization.

Ritalin Agreements shall mean (i) Development, License and Supply Agreement between APIL and Novartis Pharmaceuticals Corporation dated December 17, 1997, as amended; and (ii) any related ancillary agreements between APIL and Novartis Pharmaceuticals Corporation or its affiliates.

Ritalin Products shall mean Ritalin SR®, a sustained-release oral formulation of methylphenidate, and any other pharmaceutical products that may be licensed by APIL pursuant to the Ritalin Agreements.

Transferred Agreements shall mean: (i) the Focalin Agreements; (ii) the Ritalin Agreements; (iii) the Paladin Agreements; (iv) the Verapamil Agreements; (v) the Zogenix Agreements; (vi) the NitroMed Agreements; and (vii) the Transferred License and Settlement Agreements.

Transferred IP shall mean (i) the Transferred Patents and (ii) the Transferred Trademarks, in each case, together with: (a) the right to claim priority under the Paris Convention and any other similar provision of national or international law, (b) the right to sue and recover damages or other compensation or equitable relief for past, present or future infringement, misappropriation or violation thereof, and (c) the right to fully and entirely stand in the place of APIL in all matters related thereto.

Transferred License and Settlement Agreements shall mean those License Agreements and Settlement Agreements as listed in Exhibit C hereto.

Transferred Patents shall mean (i) the Paladin Patents, (ii) the Zogenix Patents; and (iii) all patents and patent applications owned by APIL as of the Effective Date and listed in Exhibit A-1 hereto (the patents and patent applications listed in subsections A-1.5, A-1.6 and A-1.7 of Exhibit A-1 being described as the “Grant-Back Patents”) (which for purposes of this Agreement shall include for the patents and patent applications described in each of clauses (i), (ii), and (iii), the certificates of invention and applications for such certificates), together with (for the patents and patent applications described in each of clauses (i), (ii) and (iii)) any patents resulting therefrom, including any divisionals, continuations, continuations-in-part, substitutions, reissues, re-examinations, revalidations, extensions (including pediatric exclusivity patent extensions), registrations, supplementary protection certificates, renewals, and foreign equivalents of any such patents or patent applications.

 

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Transferred Trademarks shall mean the Verelan trademark owned by APIL used with respect to Verapamil Products as of the Effective Date, related registrations as listed in Exhibit B-1 hereto, and the goodwill associated therewith.

Verapamil Agreements shall mean (i) License and Supply Agreement between APIL and Kremers Urban Pharmaceuticals, Inc. dated January 1, 2014; (ii) Amended and Restated License and Supply Agreement between APIL and Watson Laboratories, Inc. dated June 26, 2003, as amended; and (iii) any related ancillary agreements between APIL and either Kremers Urban Pharmaceuticals, Inc. or its affiliates or Watson Laboratories, Inc. or its affiliates.

Verapamil Products shall mean any sustained-release oral formulations of verapamil hydrochloride and any other pharmaceutical products that may be licensed by APIL pursuant to the Verapamil Agreements.

Zanaflex Agreements shall mean (i) Asset Purchase Agreement between APIL and Acorda Therapeutics, Inc. dated July 21, 2004; (ii) Supply Agreement between APIL and Acorda Therapeutics, Inc. dated July 21, 2004; and (iii) any related ancillary agreements between APIL and Zogenix, Inc. or its affiliates.

Zogenix Agreements shall mean: (i) License Agreement between APIL and Zogenix, Inc. dated November 27, 2007, as amended; (ii) Development and Clinical Supply Agreement between APIL and Zogenix, Inc. dated December 20, 2007; (iii) Commercial Manufacturing and Supply Agreement between APIL and Zogenix, Inc. dated November 2, 2012; and (iv) Second Generation (ZX004) Commercial Manufacturing and Supply Agreement between Daravita Limited and Zogenix, Inc. dated March 5, 2015 (v) any related ancillary agreements between APIL and Zogenix, Inc. or its affiliates.

Zogenix Patents shall mean all patents and patent applications licensed by APIL to Zogenix as of the Effective Date pursuant to the Zogenix Agreements, including those listed in Exhibit A-4 hereto.

Zogenix Products shall mean Zohydro™ ER, an extended-release oral formulation of hydrocodone bitartrate, and any other pharmaceutical products that may be licensed by APIL pursuant to the Zogenix Agreements.

2. Transfer of Transferred IP.

a. Transferred IP. Subject to the terms and conditions of this Agreement, effective the Effective Date, APIL hereby sells, assigns, transfers, conveys and delivers to Purchaser, and Purchaser hereby purchases, acquires and accepts from APIL, all of APIL’s right, title and interest on the Effective Date throughout the world in and to the Transferred IP.

b. Licenses Back of Paladin Patents and Zogenix Patents. Subject to the terms and conditions of this Agreement, effective the Effective Date, Purchaser hereby grants APIL a non-exclusive, worldwide license under the Grant-Back Patents, the Paladin Patents and the Zogenix Patents, with the right to sublicense, to develop, make, have made, use, sell, offer to sell and import pharmaceutical products for the treatment of any human disease, disorder or condition, subject to the Paladin Agreements, the Zogenix Agreements, the Focalin Agreements and the Ritalin Agreements. Subject to the terms and conditions of this Agreement, Purchaser hereby also grants APIL an exclusive, worldwide license under the Grant-Back Patents, the Paladin Patents and the Zogenix Patents, with the right to sublicense, to develop, make, have made, use, sell, offer to sell and import any pharmaceutical products licensed, supplied or developed under

 

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the Acorda Agreements. Notwithstanding anything to the contrary contained in this Agreement, the parties hereby agree that all of the licenses granted by Purchaser to APIL under this Section 2(b) shall extend until the expiration or invalidation of all Grant-Back Patents, Paladin Patents and Zogenix Patents.

c. Transfer of Transferred Patents. After the Effective Date, APIL shall execute, or procure the execution of, such formal documents of sale and/or assignment as are required consistent with the terms and conditions of this Agreement to formally record the change of title to the Transferred Patents to Purchaser in a timely manner.

d. Transfer of Transferred Trademarks. After the Effective Date, APIL shall execute, or procure the execution of, such formal documents of sale and/or assignment as are required consistent with the terms and conditions of this Agreement to formally record the change of title to the Transferred Trademarks to Purchaser in a timely manner.

e. Prosecution and Enforcement. Purchaser shall have the right to file, prosecute (including any oppositions, appeals, prosecution before the U.S. Patent Office and Patent Trial and Appeal Board, as well as post-grant procedures such as, for example, interference proceedings, Inter Partes Review, Post Grant Review, re-examination, reissue, and derivation procedures) and maintain (“Prosecute”) and defend and enforce (“Enforce,” and collectively, “Prosecute and Enforce”) the Transferred Patents at its sole discretion and cost and expense. Purchaser shall keep APIL reasonably informed of activities undertaken to Prosecute and Enforce the Transferred Patents and provide APIL with copies of material correspondence and filings relating to activities undertaken to Prosecute and Enforce the Transferred Patents.

3. License.

a. Nanotechnology License. Subject to the terms and conditions of this Agreement, effective the Effective Date, APIL hereby grants Purchaser an exclusive, worldwide license under the Nanotechnology IP, with the right to sublicense, to develop, make, have made, use, sell, offer to sell and import Meloxicam IV/IM and Meloxicam Parenteral Formulation for the treatment of any human disease, disorder or condition, subject to the Merck Agreement. Notwithstanding anything to the contrary contained in this Agreement, the parties hereby agree that all of the licenses and rights granted by APIL to Purchaser under this Section 3(a) shall be perpetual, unless terminated pursuant to the provisions of Exhibit D hereto.

b. OCR Licenses. Subject to the terms and conditions of this Agreement, the Acorda Agreements and the Zanaflex Agreements, effective the Effective Date, APIL hereby grants Purchaser a non-exclusive, worldwide license under the OCR IP, with the right to sublicense, to develop, make, have made, use, sell, offer to sell and import pharmaceutical products for the treatment of any human disease, disorder or condition. Subject to the terms and conditions of this Agreement, effective the Effective Date, APIL hereby also grants Purchaser an exclusive, worldwide license under the OCR IP, with the right to sublicense, to develop, make, have made, use, sell, offer to sell and import the BiDil Products, the Focalin Products, the Ritalin Products, the Paladin Products, the Verapamil Products and the Zogenix Products. Notwithstanding anything to the contrary contained in this Agreement, the parties hereby agree that all of the licenses and rights granted by APIL to Purchaser under this Section 3(b) shall be perpetual, unless terminated pursuant to the provisions of Exhibit D hereto.

c. Abuse Resistant Patents License. Subject to the terms and conditions of this Agreement, effective the Effective Date, APIL hereby grants Purchaser an exclusive, worldwide license under the

 

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Abuse Resistant Patents, with the right to sublicense, to develop, make, have made, use, sell, offer to sell and import the Paladin Products and the Zogenix Products. Notwithstanding anything to the contrary contained in this Agreement, the parties hereby agree that all of the licenses granted by APIL to Purchaser under this Section 3(c) shall extend until the expiration or invalidation of all Abuse Resistant Patents.

d. Delivery of Licensed Know-How. Promptly following the Effective Date, APIL shall make available to Purchaser the Nanotechnology Know-How and the OCR Know-How in an orderly fashion and in a manner such that the value of such Know-How is preserved in all material respects.

e. Trademark License. Subject to the terms and conditions of this Agreement, effective the Effective Date, APIL hereby grants Purchaser a non-exclusive, worldwide license to use the Licensed Trademarks for the advertising, promotion, marketing, distribution and sale of pharmaceutical products covered by the licenses granted in Sections 3(a), (b) and (c) hereof. Purchaser shall have the right to grant sublicenses under the foregoing non-exclusive license to its sublicensees under Sections 3(a), (b) and (c) hereof, subject to the provisions of this Section 3(e). Purchaser hereby acknowledges APIL’s exclusive right, title and interest in and to the Licensed Trademarks and agrees that Purchaser and its sublicensees will not at any time do, or cause to be done, any act or thing contesting or in any way intending to impair the validity of and/or APIL’s exclusive right, title and interest in and to the Licensed Trademarks. Purchaser and its sublicensees will not in any manner represent that they own the Licensed Trademarks, and Purchaser hereby acknowledges that use of the Licensed Trademarks as set forth in this Section 3(e) shall not create any rights, title or interest in or to the Licensed Trademarks in favor of Purchaser or its sublicensees, but that all use of the Licensed Trademarks by Purchaser and its sublicensees shall inure to the benefit of APIL. Purchaser shall submit to APIL for its review and approval samples of any proposed use of the Licensed Trademarks at least fifteen (15) days prior to such use by Purchaser. APIL shall review any proposed use of the Licensed Trademarks within fifteen (15) days of Purchaser’s written request, and if APIL does not either approve or decline to approve such use within such 15-day period, such use shall be automatically deemed approved. Any such approval shall be deemed to be approval of the same or similar uses of the Licensed Trademarks thereafter. APIL shall not unreasonably withhold, delay or condition any such approval request by Purchaser.

f. Prosecution. APIL shall have the right to Prosecute any issued patent or pending patent application within the Nanotechnology Patents, the OCR Patents, and the Abuse Resistant Patents at its sole discretion and cost and expense. APIL shall keep Purchaser reasonably informed of all activities during the course of such prosecution and provide Purchaser with copies of material correspondence and filings relating to such activities. At APIL’s request and expense, Purchaser will cooperate to Prosecute the Nanotechnology Patents, the OCR Patents and the Abuse Resistant Patents. Without prejudice to the generality of the foregoing sentence, Purchaser shall keep APIL reasonably informed from time-to-time of activities relating to Zogenix Products that are encompassed by the Abuse Resistant Patents and shall reasonably allow APIL to use data and information generated by Purchaser relating to such Zogenix Products to Prosecute the Abuse Resistant Patents.

If in addition to APIL’s activities to Prosecute the Abuse Resistant Patents and the Nanotechnology Patents, Purchaser wishes with respect to any Abuse Resistant Patent or any Nanotechnology Patent listed in subsection A-2.6 of Exhibit A-1 to have a divisional, continuation or continuation-in-part application filed that solely claims a compound, composition, method of making or method of using compounds or compositions within the scope of Purchaser’s exclusive license hereunder, then Purchaser shall notify APIL and, subject to APIL’s approval, which shall not unreasonably withheld, delayed or conditioned, APIL will use commercially reasonable efforts to Prosecute such patent application, at Purchaser’s cost

 

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and expense. Promptly upon receipt, APIL will provide Purchaser with all patent office documents relating to such prosecution, and will also provide drafts of responses to office actions and other substantive filings with any patent office regarding such patent application sufficiently in advance of their submission to enable review and comment by Purchaser. APIL will consider in good faith all comments timely made by Purchaser.

g. Enforcement. APIL shall have the first right to Enforce any issued patent within the Nanotechnology Patents, the OCR Patents, or the Abuse Resistant Patents. To the extent necessary, Purchaser will cooperate with APIL, at APIL’s cost and expense, to carry out such enforcement, including joining as a party. All costs and expenses of such enforcement action will be borne by APIL, and APIL shall retain any recovery from such an enforcement action. Notwithstanding the foregoing, Purchaser may voluntarily join such enforcement action if the action pertains to an Infringing Activity (as defined below), subject to APIL’s right to control such action. Where Purchaser so joins such an enforcement action, Purchaser and APIL will share all costs and expenses thereof equally and will also share any recovery from such action equally. APIL shall not enter into any settlement agreement that would materially harm Purchaser’s rights pursuant to this Agreement without Purchaser’s prior written consent, which shall not be unreasonably withheld, delayed or conditioned. Both APIL and Purchaser shall promptly notify the other party, as applicable, of any infringing activity of which they are aware with respect to any of the Nanotechnology Patents, OCR Patents, and/or Abuse Resistant Patents within the scope of an exclusive license granted to Purchaser pursuant to this Agreement to the Meloxicam Parenteral Formulation, Meloxicam IV/IM, the BiDil Products, the Focalin Products, the Ritalin Products, the Paladin Products, the Verapamil Products or the Zogenix Products (an “Infringing Activity”).

To the extent that APIL declines to Enforce any such issued patent within the Nanotechnology Patents, the OCR Patents, or the Abuse Resistant Patents with respect to an Infringing Activity, Purchaser shall have the option to Enforce such patent, at its own cost and expense, provided that Purchaser can demonstrate to APIL’s reasonable satisfaction that (i) Purchaser is contractually obligated under a Transferred Agreement to Enforce, or to allow the counterparty to such Transferred Agreement to Enforce, such patent with respect to such Infringing Activity or (ii) (A) permitting the Infringing Activity would have a materially adverse effect on Purchaser’s and its sublicensees’ sales of the product exclusively licensed under such patent, and (B) based on a due care determination, including obtaining competent legal advice, the Infringing Activity exists. In such cases, Purchaser will have sole control of such enforcement at its cost and expense. To the extent necessary, APIL will cooperate with Purchaser, at Purchaser’s cost and expense, to carry out such enforcement, including joining as a party. APIL shall also have the right, at its option and its cost and expense, to join in any such enforcement action taken by Purchaser, subject to Purchaser’s right to control such action. Any recovery from an enforcement action involving a patent within the Abuse Resistant Patents shall belong solely to Purchaser. For any recovery from an enforcement action involving a patent within the Nanotechnology Patents or OCR Patents, APIL shall be entitled to fifty percent (50%) of such recovery, provided however, that fifty percent (50%) of the legal fees, costs and expenses of such enforcement action incurred by Purchaser shall be deducted from APIL’s portion of the recovery. Purchaser shall not enter into any settlement agreement regarding the Nanotechnology Patents, OCR Patents, or Abuse Resistant Patents without APIL’s prior written consent which shall not be unreasonably withheld, delayed or conditioned.

The Parties agree that with respect to Purchaser’s obligations to Zogenix, Inc. under the Zogenix Agreements the Abuse Resistant Patents shall be deemed to be “Elan Patents” (pursuant to clause (d) of the definition of Elan Patents under the License Agreement between APIL and Zogenix, Inc. dated November 27, 2007, as amended).

 

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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

4. Transferred Agreements. Subject to the terms and conditions of this Agreement, effective the Effective Date, APIL hereby assigns to Purchaser APIL’s rights, and Purchaser hereby assumes APIL’s obligations, under the Transferred Agreements, if such Transferred Agreements are assignable at such time, except to the extent such rights and obligations relate to performance or non-performance under the Transferred Agreements on or prior to the Effective Date. On the Effective Date and thereafter from time to time until all Transferred Agreements are assigned, APIL shall transfer to Purchaser copies of the Transferred Agreements and such information in APIL’s possession as is reasonably necessary to continue conducting business under such Transferred Agreements. If any Transferred Agreement is not assignable as of the Effective Date, APIL shall use commercially reasonable efforts to seek the consent of the applicable third party(ies) to assign such Transferred Agreement to Purchaser and, if and when such consent(s) are obtained, Purchaser shall be assigned APIL’s rights and shall assume APIL’s obligations under such Transferred Agreement, except to the extent such rights and obligations relate to performance or non-performance under the Transferred Agreement on or prior to the Effective Date. To the extent permitted by applicable law and by the terms of the applicable Transferred Agreement, any Transferred Agreement that is not assignable to Purchaser as of the Effective Date shall be held, as of and from the Effective Date, by APIL for the benefit and burden of Purchaser and the covenants and obligations thereunder shall be fully performed by Purchaser on APIL’s behalf and all rights, liabilities and obligations existing thereunder, as of and from the Effective Date, shall be for Purchaser’s account. To the extent permitted by applicable law and by the terms of the applicable Transferred Agreement, APIL shall take or cause to be taken, at Purchaser’s expense, such actions as Purchaser may reasonably request which are required to be taken in order to provide Purchaser with the benefits and burdens of the Transferred Agreements that are not assignable as of the Effective Date. From and after the Effective Date, without Purchaser’s prior consent, and subject to Purchaser’s compliance with APIL’s obligations under the applicable Transferred Agreement that are not assignable as of the Effective Date, APIL shall not take, permit to be taken or omit to take any action, in each case, within APIL’s reasonable control, which would give the counterparty to such Transferred Agreement the right to terminate such Transferred Agreement or which would alter any of APIL’s rights or obligations under such Transferred Agreement in a manner that would materially adversely affect Purchaser’s rights and benefits under this Agreement. In the event Purchaser fails to substantially comply with APIL’s obligations under a Transferred Agreement that is not assignable as of the Effective Date or the counterparty to such Transferred Agreement gives notice of a breach or default under such Transferred Agreement in connection with Purchaser’s failure to comply with APIL’s obligations under such Transferred Agreement, then APIL shall have the right to take action to terminate such Agreement. APIL shall promptly pay over to Purchaser the amount of all payments received by it in respect of all such Transferred Agreements not assigned as of the Effective Date, to the extent such payments relate to performance after the Effective Date, net of any costs and expenses of APIL related to providing Purchaser with the benefits and burdens of such Transferred Agreements and net of any taxes incurred by APIL related to the provision of such benefits and burdens to Purchaser and the receipt of payments under such Transferred Agreements.

5. Consideration. In consideration of APIL’s transfer of the Transferred IP and Transferred Agreements to Purchaser in accordance with Sections 2 and 4 hereof and the grant by APIL of the licenses to Purchaser in accordance with Section 3 hereof, Purchaser shall upon execution of this Agreement pay to APIL (a) [* * *] US Dollars (US$[* * *]) in cash plus (b) the Earn-Out Consideration as described in Exhibit D hereto. The cash consideration allocable to any Irish patents forming part of the Transferred IP will amount to €[* * *]. All consideration will be paid subject to any withholding or deduction required by law. No portion of the Earn-Out Consideration as described in Exhibit D hereto will be paid in respect of the user of an Irish patent. To the extent that any of the Transferred Agreements constitute Irish situated property which is not exempt from stamp duty under section 101 of the Stamp Duties Consolidation Act, 1999, no consideration is allocated to such Transferred Agreement.

 

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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

6. Warranties. APIL hereby represents and warrants to Purchaser as of the Effective Date as follows:

(a) Corporate Existence and Power. APIL is a corporation duly organized and validly existing under the laws of Ireland, and has all requisite power and authority to own and operate its properties and to carry on its business as now conducted.

(b) Authority and Binding Agreement. APIL has the corporate power and authority to enter into this Agreement and perform its obligations hereunder. APIL has taken all necessary corporate action on its part required to authorize the execution and delivery of the Agreement and the performance of its obligations hereunder. The Agreement has been duly executed and delivered by APIL and constitutes a legal, valid and binding obligation of APIL that is enforceable against it in accordance with its terms; except as enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other laws relating to or affecting creditors’ rights generally and by general equitable principles and public policy constraints (including those pertaining to limitations and/or exclusions of liability, competition law, penalties and jurisdictional issues including conflicts of law).

(c) No Conflict. The execution, delivery and performance of this Agreement by APIL does not conflict with, and would not result in a breach or violation of or constitute a default under (i) any material agreement, instrument or understanding, oral or written, to which it is a party or by which it may be bound; (ii) the provisions of its charter or operative documents or bylaws; or (iii) any material applicable law, or any judgment, decree or order of any court, governmental body or administrative or other agency having jurisdiction over it.

7. Non-Compete. During the period beginning on the Effective Date and ending [* * *] (the “Non-Compete Period”), except for ownership of the equity in Recro Pharma, Inc. issued pursuant to the warrant described in the Purchase and Sale Agreement dated March 7, 2015 by and among, APIL, Daravita Limited, Eagle Holdings USA, Inc., Recro Pharma LLC, and Recro Pharma, Inc. (the “Purchase Agreement”), APIL and its Affiliates agree not to directly or indirectly engage in, or have an ownership interest in, any business or enterprise (or subsidiary or division thereof) that engages in the development, license, manufacture, testing, packaging, storage, sale and shipment of Meloxicam IV/IM or Meloxicam Parenteral Formulation, or the underlying molecules or salts thereof in combination with the Nanotechnology IP covering such products (a “Competing Business”). If APIL and/or its Affiliates are directly or indirectly acquired by (whether by merger, acquisition of assets or equity, or otherwise), or directly or indirectly acquire (whether by merger, acquisition of assets or equity, or otherwise), a third party which engages in a Competing Business, such third party and its Affiliates (other than APIL and/or its Affiliates existing prior to the date of such acquisition) shall not be restricted from continuing to engage in such Competing Business pursuant to this Section 7, provided that the rights of such third party and its Affiliates to utilize the Nanotechnology IP in such Competing Business existed prior to the date of such acquisition.

(b) Each party acknowledges and agrees that the provisions of this Section 7 are reasonable and necessary to protect the legitimate business interests of the other party, including without limitation such party’s confidential information and goodwill. Each party agrees, and shall not contest, that the other party’s remedies at law for any breach or threat of breach by such party or its Affiliates of the provisions of this Section 7 will be inadequate, and that the other party shall be entitled to an injunction or injunctions to prevent breaches of the provisions of this Section 7

 

10


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

and to enforce specifically such terms and provisions, in addition to any other remedy to which the other party may be entitled at law or in equity. The restrictive covenants contained in this Section 7 are covenants independent of any other provision of this Agreement or other agreement between the parties and the existence of any claim which a party may allege against another party under any provision of this Agreement, any other agreement, or otherwise will not prevent the enforcement of the covenants in this Section 7. If any of the provisions contained in this Section 7 shall for any reason be held to be excessively broad as to duration, scope, activity or subject, then such provision shall be construed by limited and reducing it, so as to be valid and enforceable to the extent compatible with applicable law or the determination by a court of competent jurisdiction. The parties agree and intend that a party’s obligations under this Section 7 will be tolled during any period that such party is found to be in breach of any of the obligations under this Section 7, so that the other party is provided with the full benefit of the restrictive periods set forth herein.

8. Disclaimer. EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES IN SECTION 6 OF THIS AGREEMENT, NO PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES IN THIS AGREEMENT, EXPRESS OR IMPLIED, REGARDING THE SUBJECT MATTER OF THIS AGREEMENT. WITHOUT LIMITING THE FOREGOING, EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES IN SECTION 6 OF THIS AGREEMENT, APIL MAKES NO REPRESENTATION, GUARANTY OR WARRANTY IN THIS AGREEMENT REGARDING THE TRANSFERRED IP, TRANSFERRED AGREEMENTS, NANOTECHNOLOGY IP, OCR IP, ABUSE RESISTANT PATENTS AND LICENSED TRADEMARKS, INCLUDING, WITHOUT LIMITATION, AS TO THE CONDITION OF TITLE, ENFORCEABILITY, SUITABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE, MERCHANTABILITY, VALIDITY, REGISTRABILITY, NON-INFRINGEMENT OR ANY OTHER WARRANTY, WHETHER EXPRESS OR IMPLIED OR BY OPERATION OF LAW.

9. Further Assurances. APIL shall use reasonable efforts to take actions and execute and deliver documents that Purchaser may reasonably request to effect the terms of this Agreement, to perfect Purchaser’s title in and to the Transferred IP and to assign the Transferred Agreements.

10. Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any principles, statutory provisions or other rules of choice of law that would require the application of the laws of a different state or country.

11. Entire Agreement; Modification. This Agreement sets forth the entire agreement and understanding between the parties as to the subject matter hereof and thereof and supersedes all prior and contemporaneous negotiations, agreements, representations, understandings and commitments between the parties with respect thereto. There shall be no amendments or modifications to this Agreement, except by a written document referencing this Agreement which is signed by both parties.

12. Counterparts. This Agreement may be executed in one or more counterparts, all of which shall be considered one and the same agreement.

[SIGNATURE PAGE FOLLOWS]

 

11


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

IN WITNESS WHEREOF, each of the parties hereto has caused its duly authorized representative to execute this Agreement as of the date first set forth above.

 

ALKERMES PHARMA IRELAND LIMITED
By  

/s/

Name:  
Title:  
DV TECHNOLOGY LLC
By  

/s/

Name:  
Title:  

 

12


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Exhibit A-1

Transferred Patents

A-1.1 “Reduction of Intravenously Administered Nanoparticulate-Formulation-Induced Adverse Physiological Reactions”

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent /

Publication No.

 

Normal Expiry

Date

01.0056.US   ORD   United States   08/696,754   14 Aug 1996   Granted   5,834,025   14 Aug 2016
01.0056.US   REI   United States   12/027,100   06-Feb-2008   Granted   RE41,884 E   14-Aug-2016
03.0056.CA   PCT   Canada   2232879   25-Sep-1996   Granted   2232879   25-Sep-2016
03.0056.EP   DIV *   European Patent Convention   2010181619.7   29-Sep-2010   Pending   2 275 094 A   25-Sep-2016

 

*

Divisional from EP 96932321.1 (EP 0 859 604)

A-1.2 “Nanoparticulate Compositions Having Lysozyme as a Surface Stabilizer”

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent No.

 

Normal Expiry

Date

01.0083.US   ORD   United States   10/357,514   04-Feb-2003   Granted   7459283   10-Jul-2026
01.0083.US   CON   United States   12/292,091   12-Nov-2008   Granted   8323641   04-Feb-2023
01.0083.US   CON   United States   13/693,858   04-Dec-2012   Granted   8652464   12-Nov-2028
  CON   United States   14/182,097   17-Feb-2014   Pending    
03.0083.AT   PCT   Austria   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.BE   PCT   Belgium   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.BG   PCT   Bulgaria   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.CA   PCT   Canada   2475092   04-Feb-2003   Granted   2475092   04-Feb-2023
03.0083.CZ   PCT   Czech Republic   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.DK   PCT   Denmark   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent No.

 

Normal Expiry

Date

03.0083.EP   EPC   European Patent Convention   03737537.5   04-Feb-2003   Granted   1 471 887  
03.0083.FI   PCT   Finland   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.FR   PCT   France   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.DE   PCT   Germany   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.GR   PCT   Greece   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.HU   PCT   Hungary   EP Validation   04-Feb-2003   Granted   E008527   04-Feb-2023
03.0083.IE   PCT   Ireland   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.IT   PCT   Italy   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.JP   PCT   Japan   2003-565446   04-Feb-2003   Granted   4598399   04-Feb-2023
03.0083.NL   PCT   Netherlands   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.PT   PCT   Portugal   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.SK   PCT   Slovakia   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.ES   PCT   Spain   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.SE   PCT   Sweden   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.CH/LI   PCT   Switzerland / Liechtenstein   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023
03.0083.GB   PCT   United Kingdom   EP Validation   04-Feb-2003   Granted   1 471 887   04-Feb-2023

A-1.3 “Nanoparticulate Meloxicam Formulations”

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent /

Publication No.

 

Normal Expiry

Date

01.0099.US   ORD   US   10/784,900   24-Feb-2004   Granted   8512727   25-Dec-2022
01.0099.US   CON   US   13/941,076   12-Jul-2013   Pending    
03.0099.BE   PCT   Belgium   EP Validation   24-Feb-2004   Granted   1 617 816   24-Feb-2024
03.0099.CA   PCT   Canada   2517679   24-Feb-2004   Allowed   2517679   24-Feb-2024
03.0099.EP   PCT   European Patent Convention   04785761.0   24-Feb-2004   Granted   1 617 816   24-Feb-2024
03.0099.EP   DIV   European Patent Convention   08006465.2     Pending   1 938 803 A   24-Feb-2024

 

14


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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent /

Publication No.

 

Normal Expiry

Date

03.0099.FR   PCT   France   EP Validation   24-Feb-2004   Granted   1 617 816   24-Feb-2024
03.0099.DE   PCT   Germany   EP Validation   24-Feb-2004   Granted   1 617 816   24-Feb-2024
03.0099.HU   PCT   Hungary   EP Validation   24-Feb-2004   Granted   E005977   24-Feb-2024
03.0099.IE   PCT   Ireland   EP Validation   24-Feb-2004   Granted   1 617 816   24-Feb-2024
03.0099.IT   PCT   Italy   EP Validation   24-Feb-2004   Granted   1 617 816   24-Feb-2024
03.0099.JP   PCT   Japan   2006-532300   27-Feb-2004   Granted   4891774   27-Feb-2024
03.0099.JP   DIV   Japan   2010-233858   27-Feb-2004   Granted   5548092   27-Feb-2024
03.0099.ES   PCT   Spain   EP Validation   24-Feb-2004   Granted   1 617 816   24-Feb-2024
03.0099.CH/LI   PCT   Switzerland / Liechtenstein   EP Validation   24-Feb-2004   Granted   1 617 816   24-Feb-2024
03.0099.GB   PCT   United Kingdom   EP Validation   24-Feb-2004   Granted   1 617 816   24-Feb-2024

A-1.4 “Controlled Release Compositions Comprising a Combination of Isosorbide Dinitrate and Hydralazine Hydrochloride”

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent /
Publication No.

 

Normal Expiry

Date

02.1007.US   CON   United States   13/606,915   7-Sep-2012   Granted   8,992,973  
02.1007.US   CON2   United States   14/638,984   04-Mar-2015   Pending   —    
04.1007.CA   ORD   Canada   2627951   26-Oct-2006   Pending   2627951 A   26-Oct-2026
04.1007.EP   ORD   European Patent Convention   20060826638   26-Oct-2006   Pending   1 951 210 A   26-Oct-2026

 

15


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

A-1.5 “Multiparticulate Modified Release Composition”

 

APIL Ref.

  

Case Type

  

Country

  

Application No.

  

Filing Date

  

Status

  

Patent /
Publication No.

  

Normal Expiry
Date

02.1816E.US

   CON2    United States    09/850,425    07-May-2001    Granted    6730325    1-Nov-2019

02.1816E.US

   CON4    United States    10/354,483    30-Jan-2003    Granted    6793936    1-Nov-2019

02.1816E.US

   CON5    United States    10/827,689    19-Apr-2004    Pending    2004-0197405    1-Nov-2019

A-1.6 Case Number: 05.0082.US

Invention Title: COMPOSITIONS HAVING A COMBINATION OF IMMEDIATE RELEASE AND CONTROLLED RELEASE CHARACTERISTICS

 

Country

 

Sub Case

 

Case Type

 

Status

 

Application Number

 

Filing Date

 

Patent Number

 

Issue Date

 

Expiration Date

United States of America   2   ORD   Granted   10/268,928   11-Oct-2002   6,908,626   21-Jun-2005   25-Dec-2022

A-1.7 Case Number: 06.0082.

Invention Title: COMPOSITIONS HAVING A COMBINATION OF IMMEDIATE RELEASE AND CONTROLLED RELEASE CHARACTERISTICS

 

Country   Sub Case   Case Type   Status   Application Number   Filing Date   Patent Number   Issue Date   Expiration Date
Austria     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912   29-Aug-2007   11-Oct-2022
Belgium     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912   29-Aug-2007   11-Oct-2022
Bulgaria     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Canada     PCT   Granted   2,463,495   11-Oct-2002   2,463,495   24-May-2011   11-Oct-2022
Cyprus, Republic of     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912   07-May-2010   11-Oct-2022
Czech Republic     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Denmark     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Estonia     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
European Patent Convention     PCT   Granted   02800993.4   11-Oct-2002   EP 1 443 912   29-Aug-2007   11-Oct-2022
Finland     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
France     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Germany     EPC   Granted   02800993.4   11-Oct-2002   60222160.9     11-Oct-2022

 

16


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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Greece     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Ireland     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Italy     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Japan   3   DIV   Published   2013-126534   11-Oct-2002      
Luxembourg     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Monaco     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Netherlands     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Portugal     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Slovakia     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Spain     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Sweden     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Switzerland     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
Turkey     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022
United Kingdom     EPC   Granted   02800993.4   11-Oct-2002   EP 1 443 912     11-Oct-2022

 

17


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Exhibit A-2

Nanotechnology Patents

[* * *]

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent No.

 

Normal Expiry
Date

[* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]

 

18


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

[* * *]

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent No.

 

Normal Expiry

Date

[* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]

[* * *]

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent No.

 

Normal Expiry

Date

[* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]

[* * *]

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent No.

 

Normal Expiry

Date

[* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]

 

19


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

[* * *]

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent /

Publication No.

 

Normal Expiry

Date

[* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]

 

20


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Exhibit A-3

OCR Patents

[* * *]

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent /

Publication No.

 

Normal Expiry
Date

[* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]

[* * *]

[* * *]

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent /

Publication No.

 

Normal Expiry
Date

[* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]

 

21


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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Exhibit A-4

Zogenix Patents

A-4.1 “Multiparticulate Modified Release Composition” (hydrocodone ER) - US

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent /

Publication No.

 

Normal Expiry
Date

02.1816E.US   CON   United States   09/566,636   08-May-2000   Granted   6228398   1-Nov-2019
02.1816E.US   CON3   United States   10/331,754   30-Dec-2002   Granted   6902742   1-Nov-2019
02.1816E.US   CIP   United States   11/372,857   10-Mar-2006   Pending   2006-0240105   1-Nov-2019

 

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Exhibit A-5

Palladin Patents

A-5.1 “Multiparticulate Modified Release Composition” (hydrocodone ER) - Canada

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent /

Publication No.

 

Normal Expiry
Date

04.1816E.CA   PCT   Canada   2348871   01-Nov-1999   Granted   2348871   1-Nov-2019

 

23


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Exhibit A-6

Abuse Resistant Patents

[* * *]

 

APIL Ref.

 

Case Type

 

Country

 

Application No.

 

Filing Date

 

Status

 

Patent /

Publication No.

 

Normal Expiry
Date

[* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]   [* * *]

 

24


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Exhibit B-1

Transferred Trademarks

B-1.1 “VERELAN”

 

APIL Ref.

 

Trademark

 

Country /

Territory

 

Application No.

 

Filing Date

 

Registration No.

 

Registration

Date

TM.0039.US   VERELAN   United States   73/760,372   28-Oct-1988   1551582   15-Aug-1989
TM.0039.CA   VERELAN   Canada   670059   07-Nov-1990   TMA 443175   26-May-1995
TM.0039.KR   VERELAN   South Korea   185382   14-Dec-1989   40-0185382   14-Dec-1989
TM.0039.TW-2   VERELAN   Taiwan   97047657   15-Oct-2008   01367514   01-Jul-2009

 

25


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Exhibit B-2

Licensed Trademarks

B-2.1 “NANOCRYSTAL”

 

APIL Ref.

 

Trademark

 

Country /

Territory

 

Application No.

 

Filing Date

 

Registration No.

 

Registration

Date

TM.0001.US-1   NANOCRYSTAL   United States   75/425,869   29-Jan-1998   2492925   25-Sep-2001
TM.0001.US-2   NANOCRYSTAL   United States   75/425,872   29-Jan-1998   2386089   12-Sep-2000
TM.0001.CA   NANOCRYSTAL   Canada   732238   30-Jun-1993   TMA 504715   27-Nov-1998
TM.0001.CTM   NANOCRYSTAL   European Union   000885079   22-Jul-1998   000885079   12-May-2000
TM.0001.JP-1   NANOCRYSTAL   Japan   63822/98   29-Jul-1998   4398178   07-Jul-2000
TM.0001.JP-2   NANOCRYSTAL   Japan   H10-071844   25-Aug-1998   4374459   07-Apr-2000
TM.001.JP-3   NANOCRYSTAL   Japan   105670199   19-Nov-1999   4428472   27-Oct-2000

B-2.2 “SODAS”

 

APIL Ref.

 

Trademark

 

Country /

Territory

 

Application No.

 

Application

Date

 

Registration No.

 

Registration

Date

TM.0015.US   SODAS   United States   78/127,040   08-May-2002   2794607   16-Dec-2003
TM.0015.AR   SODAS   Argentina   2058068   29-Mar-1999   1724388 [2365412]   30-Oct-1999
TM.0015.CA   SODAS   Canada   1006507   24-Feb-1999   TMA 531496   21-Aug-2000
TM.0015.CTM   SODAS   European Union   0002012953   21-Dec-2000   0002012953   02-Apr-2002
TM.0015.IE   SODAS   Ireland   3290/87   25-Sep-1987   125699   25-Sep-1987

 

26


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B-2.3 “CODAS”

 

Country /

Territory

 

Trademark

 

ALKS Ref

 

Application No

 

Registration

No.

 

Status

 

Filing Date

 

Registration

Date

United States
of America
  CODAS   TM.0013.US   78538974   3591236   Registered   28-Dec-2004   17-Mar-2009

B-2.4 “BeadTek”

 

Trademark

 

ALKS Ref

 

Application

No

 

Registration No.

 

Status

 

Country /

Territory

 

Filing Date

 

Registration

Date

BEADTEK   TM.0202.US   86452063   —     Pending   United States   12-Nov-2014   —  
BEADTEK
(design)
      86530165   —     Pending   United States   10 Feb 2015   —  

 

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Exhibit C

Transferred License and Settlement Agreements

[* * *]

 

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Exhibit D to Agreement

Earn-Out Consideration

 

  ARTICLE 1

Definitions.

The following terms shall have the following meaning for this Exhibit D; and terms used, but not defined in this Exhibit D, shall have the meanings set forth in the remainder of the Agreement.

(a) “Ancillary Agreements” shall have the meaning set forth in the Purchase Agreement.

(b) “Business Day” shall mean any day that is not a Saturday, a Sunday or other day on which commercial banks in the City of New York, New York or Dublin, Ireland are required or authorized by Law to be closed.

(c) “Closing” shall have the meaning set forth in the Purchase Agreement.

(d) “Commercially Reasonable Efforts” shall mean, with respect to the efforts to be expended by Purchaser and its Affiliates, licensees and sublicensees with respect to the Development Milestones and Commercial Milestones, reasonable, diligent, good faith efforts to accomplish any such Development Milestones and Commercial Milestones as is commonly used in the pharmaceutical industry generally to accomplish a similar objective under similar circumstances, it being understood and agreed that with respect to the research, development and commercialization of any Earn-Out Product, such efforts shall be substantially equivalent to those efforts and resources commonly used in the pharmaceutical industry generally by a pharmaceutical company for a product owned by it or to which it has rights, which product is at a similar stage in its development and is of similar market potential taking into account efficacy, safety, approved labeling, the competitiveness of alternative products in the marketplace, the patent and other proprietary position of the product, the likelihood of regulatory approval, the profitability and commercial potential of the product, but without regard to any Earn-Out Consideration payable under this Exhibit D.

(e) “Divestiture” (and other correlative terms) shall mean any transaction in which any Earn-Out Product or any intellectual property assets related to the same are divested or transferred by any means, including by way of merger, consolidation, asset acquisition or sale, license, sublicense, purchase, sale, assignment or other similar transfer.

(f) “Earn-Out Consideration” shall mean, collectively, (i) Development Milestone Earn-Out Consideration, (ii) Commercial Milestone Earn-Out Consideration, and (iii) Net Sales Earn-Out Consideration.

(g) “Earn-Out Product Patents” shall mean (i) the Nanotechnology Patents, (ii) the Meloxicam Transferred Patents, (iii) the OCR Patents and (iv) all Patents of Purchaser and its Affiliates, licensors, licensees or sublicensees that claim an Earn-Out Product or manufacture or use thereof, together with all Patents that claim priority (in whole or in part, directly or indirectly) with any of the foregoing of clauses (i), (ii), (iii) or (iv).

(h) “Earn-Out Products” shall mean (i) Meloxicam IV/IM, (ii) Meloxicam Parenteral Formulation and (ii) any other product discovered or identified using the Nanotechnology IP, the OCR IP or the Meloxicam Transferred Patents, and that contains the same active pharmaceutical ingredient as Meloxicam IV/IM (including any salts or other versions of such active pharmaceutical ingredient).

(i) “FDA” shall mean the United States Food and Drug Administration and any successor agency thereto.


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(j) “First Commercial Sale” shall mean, on an Earn-Out Product-by-Earn-Out Product and country-by-country basis, the first commercial sale in an arms’ length transaction of an Earn-Out Product to a Third Party by Purchaser or any of its Affiliates, licensees or sublicensees in such country following Regulatory Approval of such Earn-Out Product in such country.

(k) “GAAP” shall mean generally accepted accounting principles in the United States.

(l) “Governmental Entity” shall mean any court, administrative agency, commission or other governmental authority, body or instrumentality, federal, state, local, domestic or foreign governmental or regulatory authority.

(m) “IND” shall mean an investigational new drug application filed with the FDA, the competent authorities of a European Union member state, or equivalents in other countries or regulatory jurisdictions for authorization to commence clinical studies of a pharmaceutical product.

(n) “Know-How” shall mean all proprietary data, information, knowledge, know-how, inventions, discoveries, trade secrets, processes, techniques, strategies, methods, practices, skills, experience, documents, apparatus, devices, assays, screens, databases (including safety databases), database structures and data analysis methods, compositions, materials, methods, formulas, improvements, clinical and non-clinical study reports, test data including pharmacological, biological, chemical, biochemical, toxicological, and clinical test data, analytical and quality control data, stability data, studies and procedures.

(o) “Law” shall mean any United States federal, state or local, or any non-United States law, statute, ordinance, rule, regulation, judgment, order, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity.

(p) “Liens” shall mean all liens, pledges, mortgages, charges, claims, security interests, restrictions on transfer, encroachments or encumbrance, but not including any license(s) of Transferred IP.

(q) “MAA” shall mean a Marketing Authorization Application as defined in EU Directive 2001/83/EC and EU Regulation (EC) No. 726/2004.

(r) “Meloxicam Transferred Patents” shall mean the Transferred Patents with respect to the patents and patent applications listed in subsections A-1.1, A-1.2 and A-1.3 of Exhibit A-1.

(s) “NDA” shall mean a New Drug Application or Supplemental New Drug Application filed with the FDA.

(t) “Net Sales” shall mean, consistent with GAAP:

(i) Subject to clause (ii) of this definition, the aggregate gross amount invoiced to unrelated Third Parties by Purchaser, its Affiliates, its licensees and its sublicensees for the sale of Earn-Out Products, less to the extent applicable to such sale: (A) trade, cash and quantity discounts, if any, actually accrued or paid; (B) credits, allowances and adjustments actually accrued or paid to customers, including credits for rejected or returned Earn-Out Products previously sold; (C) freight, insurance and other transportation costs actually accrued or paid, to the extent separately identified on the invoice; (D) rebates or reimbursements actually accrued or paid to managed health care organizations, national, federal, state, or local governments (or their agencies), and managed health organizations (including Medicaid rebates), and (E) taxes, including value added taxes (VAT) (other than taxes on Purchaser’s, its Affiliates’, its licensees’ or its sublicensees’ income), customs duties or other governmental charges on sales or use actually paid by Purchaser, its Affiliates, its licensees or its sublicensees with respect to the sale of such Earn-Out Products. No fines, penalties or comparable payments to national, federal, state, or local governments (or their agencies) or to other third parties shall be deductible from Net Sales.

 

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(ii) Sales between Purchaser, its Affiliates, its licensees or its sublicensees shall be disregarded for the purposes of calculating Net Sales as long as the Earn-Out Products are (A) resold to an unrelated Third Party in which case the final sale to such unrelated Third Party shall be included in Net Sales or (B) transferred or disposed of by Purchaser, its Affiliates, its licensees or its sublicensees for a purpose specified in clause (i) of this definition. Transfers or dispositions of Earn-Out Products, where on a non-profit basis and in line with normal industry practice, (1) for charitable purposes; (2) for preclinical, clinical trial, or non-commercial manufacturing purposes; or (3) for regulatory or governmental purposes shall not in each case be deemed “sales” for the purposes of calculating Net Sales. In addition, transfers or dispositions of free promotional samples of Earn-Out Products in line with normal industry practice shall not be deemed “sales” for the purposes of calculating Net Sales. Otherwise, for the purposes of calculating Net Sales, a “sale” shall include any transfer or other disposition of any Earn-Out Product for consideration.

With respect to sales of Earn-Out Products invoiced in U.S. dollars, Net Sales shall be determined in U.S. dollars. With respect to sales of Earn-Out Products invoiced in a currency other than U.S. dollars, Net Sales shall be determined by converting the currencies in which the sales are made into U.S. dollars, at rates of exchange determined in a manner consistent with Purchaser’s, its Affiliates’, its licensees’ or its sublicensees’, as applicable, method for calculating rates of exchange in the preparation of such entity’s annual financial statements in accordance with GAAP consistently applied. No amount for which deduction is permitted pursuant to this definition shall be deducted more than once.

(u) “Net Sales Earn-Out Consideration Term” shall mean, on an Earn-Out Product-by-Earn-Out Product and country-by-country basis, the period of time commencing upon the First Commercial Sale of an Earn-Out Product and ending upon the later of (i) the fifteenth (15th) anniversary of the First Commercial Sale of such Earn-Out Product in such country, and (ii) the date of the last to expire Valid Claim of an Earn-Out Product Patent covering such Earn-Out Product in such country.

(v) “Patents” shall mean any and all patents and patent applications (which for purposes of this Agreement shall include certificates of invention and applications for such certificates), including any divisionals, continuations, continuations-in-part, substitutions, reissues, re-examinations, revalidations, extensions (including pediatric exclusivity patent extensions), registrations, supplementary protection certificates, renewals, and foreign equivalents of any such patents or patent applications.

(w) “Person” shall mean a person, corporation, partnership, limited liability company, joint venture, trust or other entity or organization.

(x) “Regulatory Approval” shall mean, with respect to a country or extra-national territory, all approvals, licenses, registrations or authorizations of any Regulatory Authority necessary in order to commercially distribute, sell or market a drug product in such country or some or all of such extra-national territory.

(y) “Regulatory Authority” shall mean any supra-national, federal, national, regional, state, provincial or local governmental regulatory agencies, departments, bureaus, commissions, councils or other government entities regulating or otherwise exercising authority with respect to the development, manufacture and commercialization of drug products, including the FDA.

(z) “Regulatory Materials” shall mean regulatory applications, submissions, notifications, registrations, or other filings made to or with a Regulatory Authority that are necessary or reasonably desirable in order to develop, manufacture, market, sell or otherwise commercialize a product in a particular country or regulatory jurisdiction. Regulatory Materials include INDs, MAAs and NDAs (as applications, but not the approvals with respect thereto).

(aa) “Third Party” shall mean, as of any relevant time, any Person who is not an Affiliate of Purchaser.

 

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(bb) “United States” or “U.S.” shall mean the United States of America, including its territories and possessions, the District of Columbia and Puerto Rico.

(cc) “Valid Claim” shall mean a claim of an issued or pending Patent which claim (i) in the case of an issued Patent, has not been found to be unpatentable, invalid or unenforceable by a court or other authority of competent jurisdiction, from which decision no appeal is taken or can be taken and which otherwise has not been dedicated to the public or finally disclaimed, and (ii) in the case of a pending Patent, a Valid Claim shall not include a claim in a pending Patent that has a filing date or an earliest claimed priority date that is more than five (5) years prior to the date upon which pendency of the pending Patent is determined.

Definitions for each of the following terms are found in this Exhibit D as indicated below:

 

Defined Term

  

Location

Assigned Reversion IP Assets    Section 4.2(c)
Assigned Reversion Know-How    Section 4.2(c)
Assigned Reversion Patents    Section 4.2(c)
Challenge Period    Section 4.1(b)
Commercial Milestone Earn-Out Consideration    Section 2.1(b)(i)
Commercial Milestones    Section 2.1(b)(i)
Cure Period    Section 4.1(c)
Development Milestone Earn-Out Consideration    Section 2.1(a)(i)
Development Milestones    Section 2.1(a)(i)
Disagreement Notice    Section 4.1(b)
Divested Assets    Section 2.4
NDA Requirement    Section 3.1
Net Sales Earn-Out Consideration    Section 2.1(c)(i)
Net Sales Report    Section 2.2
Reversion Date    Section 4.1(d)
Reversion Event    Section 4.1(a)
Reversion Material    Section 4.2(j)
Reversion Notice    Section 4.1(b)
Transferee    Section 2.4

 

  ARTICLE 2

Earn-Out Consideration.

2.1 Earn-Out Consideration.

(a) Development Milestone Earn-Out Consideration.

(i) The following amounts (“Development Milestone Earn-Out Consideration”) shall be payable in accordance with Section 5 of the Agreement and this Exhibit D upon achievement of the following events (“Development Milestones”) by Purchaser and its Affiliates, licensees and sublicensees, and shall be non-refundable and non-creditable and not subject to deduction or set-off:

 

Development Milestone

  

Amount of Development Milestone Earn-Out
Consideration (U.S. Dollars)

[* * *]

   $[* * *]

[* * *]

   $[* * *]

(ii) Purchaser shall notify and pay to APIL each Development Milestone Earn-Out Consideration within thirty (30) calendar days after the occurrence of the corresponding Development Milestone. Each such payment shall be made by wire transfer of immediately available funds to such account or accounts as are designated in writing by APIL.

 

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(b) Commercial Milestone Earn-Out Consideration.

(i) The following amounts (“Commercial Milestone Earn-Out Consideration”) shall be payable in accordance with Section 5 of the Agreement and this Exhibit D following the first calendar year during which the aggregate annual Net Sales of Earn-Out Products by Purchaser and its Affiliates, licensees and sublicensees first exceed the threshold amounts set forth in the table below (“Commercial Milestones”), and shall be non-refundable and non-creditable and not subject to deduction or set-off:

 

Commercial Milestones

  

Amount of Commercial Milestone Earn-Out
Consideration (U.S. Dollars)

$[* * *] in annual Net Sales

   $[* * *]

$[* * *] in annual Net Sales

   $[* * *]

$[* * *] in annual Net Sales

   $[* * *]

(ii) Purchaser shall notify and pay to APIL each Commercial Milestone Earn-Out Consideration within thirty (30) calendar days after the end of the calendar quarter in which the corresponding Commercial Milestone is achieved. Each such payment shall be made by wire transfer of immediately available funds to such account or accounts as are designated in writing by APIL.

(c) Net Sales Earn-Out Consideration.

(i) During the Net Sales Earn-Out Consideration Term, Purchaser shall pay in accordance with Section 5 of the Agreement and this Exhibit D an amount of [* * *] percent ([* * *]%) of the aggregate Net Sales of Earn-Out Products (“Net Sales Earn-Out Consideration”), which amount shall be non-refundable and non-creditable and not subject to deduction or set-off.

(ii) If, pursuant to Section 2.1(c)(i) of this Exhibit D, any Net Sales Earn-Out Consideration is payable on Net Sales of an Earn-Out Product in the U.S. and there is no Valid Claim of an Earn-Out Product Patent in the U.S. covering such Earn-Out Product at the time of such sale, the percentage applicable to calculate such Net Sales Earn-Out Consideration shall be reduced by thirty percent (30%) from the percentage set forth in Section 2.1(c)(i) of this Exhibit D.

2.2 Net Sales Reports. During the Net Sales Earn-Out Consideration Term, (a) within five (5) Business Days after the end of each calendar quarter, Purchaser shall provide an estimate of the Net Sales, on a Earn-Out Product-by-Earn-Out Product and country-by-country basis, to APIL for the preceding calendar quarter and (b) within forty-five (45) calendar days after the end of each calendar quarter, Purchaser shall provide a sales report (“Net Sales Report”), on a Earn-Out Product-by-Earn-Out Product and country-by-country basis, to APIL showing a reconciliation of gross sales to Net Sales of each Earn-Out Product during such calendar quarter reporting period (including the related permitted deductions) and the Net Sales Earn-Out Consideration payable with respect thereto. Purchaser shall pay to APIL the Net Sales Earn-Out Consideration for each calendar quarter at the time of submission of the corresponding Net Sales Report. If no Net Sales Earn-Out Consideration is due for any period hereunder following commencement of the reporting obligation, Purchaser shall so report.

2.3 Late Payments. If APIL does not receive payment of any sum due to them on or before the due date, simple interest shall thereafter accrue on the sum due to APIL until the date of payment at the per annum rate of two percent (2%) over the then-current prime rate quoted by Citibank in New York City or the maximum rate allowable by applicable Law, whichever is lower.

 

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2.4 Divestitures. If at any time after the Effective Date, Purchaser Divests to a Third Party or an Affiliate any Earn-Out Product, Earn-Out Product Patent or any other intellectual property asset related to an Earn-Out Product (collectively, “Divested Assets” and the party receiving any Divested Assets the “Transferee”), Purchaser shall: (a) make provision for the Transferee to assume and succeed to the obligations of Purchaser set forth in this Exhibit D; and (b) prior to or simultaneously with the consummation of any such Divestiture, cause such Transferee to provide to APIL an instrument of assumption in a reasonable form for the benefit of APIL effecting the assumption and succession described in the foregoing Clause (a), and proof satisfactory to APIL of such Transferee’s financial capacity to assume Purchaser’s obligations set forth in this Exhibit D. Purchaser shall remain liable to APIL for all obligations set forth in this Exhibit D following any such Divestiture.

 

  ARTICLE 3

Diligence; Reporting; Audit.

3.1 Diligence. Purchaser, itself or through one or more of its Affiliates, licensees and sublicensees, shall use Commercially Reasonable Efforts to achieve each of the Development Milestones and Commercial Milestones. Without limiting the foregoing, Purchaser, itself or through one or more of its Affiliates, licensees and sublicensees, shall file an NDA for an Earn-Out Product with the FDA on or before [* * *] (the “NDA Requirement”).

3.2 Reporting.

(a) For so long as any Earn-Out Product is in development, on each anniversary of the Effective Date, Purchaser shall provide a written report to APIL detailing the development activities with respect to the Earn-Out Products completed for the past annual reporting period and anticipated to be undertaken for the next twelve (12) months period. At a minimum, such report shall include a list and general status (i.e., what stage in discovery/development using Purchaser’s internal measures) of each Earn-Out Product then in development, and any ongoing pre-clinical or clinical activities (including initiations and cessations) and results, and submission and approvals to or from Regulatory Authorities (including anticipated date of achievement of the Development Milestones), and any other similar information relating to development activities for the Earn-Out Products. Purchaser shall cause its senior officers from its research and clinical development operations to be reasonably available to APIL to answer questions related to the matters required to be discussed in each report.

(b) For so long as any Earn-Out Product is being marketed, sold, or otherwise commercialized, within sixty (60) days of the end of each calendar quarter, Purchaser shall provide a written report to APIL detailing the commercialization efforts with respect to the Earn-Out Products completed for the past quarterly reporting period and anticipated to be undertaken for the next calendar quarter and for the three (3) calendar quarters thereafter. At a minimum, such report shall include with respect to the commercialized Earn Out Products marketing and sales efforts, forecasted sales, pricing changes, anticipated date of achievement of the Commercial Milestones, and any other similar information relating to commercialization activities for the Earn-Out Products. Purchaser shall cause its senior officers from business operations to be reasonably available to APIL to answer questions related to the matters required to be discussed in each report.

3.3 Audit. Purchaser shall maintain, and shall cause its Affiliates, licensees and sublicensees to maintain, complete and accurate books and records in sufficient detail to permit APIL, at its expense, to confirm the achievement of Development Milestones and Commercial Milestones, and the calculation of Earn-Out Consideration payable under this Agreement and this Exhibit D. Upon reasonable prior notice, such books and records shall be open during regular business hours for a period of three (3) years from the creation of individual books and records for examination, by an independent certified public accountant selected by APIL and reasonably acceptable to Purchaser for the sole purpose of verifying for APIL the accuracy of the financial statements, reports and notices furnished by Purchaser pursuant to this Agreement and this Exhibit D, and of any payments made, or required to be made, by Purchaser to APIL pursuant to this Agreement and this Exhibit D. Any amounts shown to be owed to APIL but unpaid shall be paid by Purchaser within thirty (30) days after the accountant’s report, plus interest (as set forth in Section 2.3 of this Exhibit D) from the original due date. If Purchaser is found to have

 

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underpaid amounts owed to APIL by five percent (5%) or more, then Purchaser shall also pay for the conduct of the audit. In the event that Purchaser has overpaid APIL, at APIL’s option, Purchaser shall either credit the amount of any such overpayment to amounts subsequently due by Purchaser to APIL under this Exhibit D or APIL shall reimburse Purchaser the amount of any such overpayment.

 

  ARTICLE 4

Reversion.

4.1 Determination of Reversion Event.

(a) A “Reversion Event” shall exist in the event that Purchaser, itself or through one or more of its Affiliates, licensees and sublicensees, (i) fails to satisfy the NDA Requirement, or (ii) in the reasonable judgment of APIL, fails to comply with its Commercially Reasonable Efforts requirements under Section 3.1 of this Exhibit D; provided that, any such failure is not attributable to the material breach by APIL or any of its Affiliates of any of the Ancillary Agreements, which material breach was noticed by Purchaser prior to its receipt of a Reversion Notice from APIL under this Section 4.1.

(A) In the event the failure to satisfy the NDA Requirement is the result of a change in the FDA’s policies or procedures regarding the approval of the Earn-Out Product or drugs in the same class as the Earn-Out Product, and Purchaser, its Affiliates, licensees or sublicensees have used Commercially Reasonable Efforts to accommodate such change and were still unable to satisfy the NDA Requirement, then the deadline shall be extended for a reasonable period of time, but not more than three-hundred sixty-five (365) calendar days or such longer period of time as determined by APIL in good faith based on the impact of such change in the FDA’s policies or procedures on their ability to accommodate such change in policies or procedures. (B) In the event the failure to satisfy the NDA Requirement is the result of other delays or circumstances that are outside of the reasonable control of Purchaser or its Affiliates, licensees and sublicensees, and Purchaser, its Affiliates, licensees or sublicensees have used Commercially Reasonable Efforts consistent with Section 3.1 of this Exhibit D to overcome such delay or circumstance, then APIL will reasonably consider extending the deadline for a reasonable period of time, but not more than three-hundred sixty-five (365) days, to overcome such failure. In each case of (A) or (B), the compliance with such new deadline shall remain an obligation of Purchaser, its Affiliates, licensees or sublicensees subject to their diligence efforts under Section 3.1 of this Exhibit D and APIL’s rights under this Section 4.1(a).

(b) Upon a Reversion Event, APIL shall provide Purchaser with written notice of such Reversion Event (a “Reversion Notice”). If Purchaser disagrees with APIL regarding the existence of a Reversion Event, it shall notify APIL within ten (10) Business Days of receipt of a Reversion Notice of its disagreement (such period, the “Challenge Period,” and such notice, a “Disagreement Notice”). For a period of thirty (30) Business Days following the delivery of such Disagreement Notice, Purchaser and APIL shall seek in good faith to come to an agreement on the existence of the Reversion Event. If at the end of such thirty (30) Business Day period Purchaser and APIL have not reached an agreement, they shall jointly select an independent mediator, free of any conflict with either party, having the requisite licensing and pharmaceutical industry experience to render a decision regarding the existence of a Reversion Event, and selected from a panel of persons experienced in the pharmaceutical and life sciences industries provided by Judicial Administration and Arbitration Services or its successor (“JAMS”). If the parties do not agree on an independent mediator within five (5) Business Days of initiating mediation under this Section 4.1(b), the independent mediator shall be selected by JAMS in accordance with its rules. Each party shall prepare and submit a written summary of such party’s position, which shall not exceed twenty-five (25) pages, and any relevant evidence in support thereof to the independent mediator within ten (10) Business Days of the selection of the independent mediator. Upon receipt of such summaries from both parties, the independent mediator shall provide copies of the same to the other party. The independent mediator shall be authorized to solicit briefing or other submissions on particular questions and to set specific page limits for such additional briefing and submissions. Within five (5) Business Days of the delivery of such summaries by the independent mediator, each party shall submit a written rebuttal of the other party’s summary and may also amend and re-submit its original summary, with each party’s response to include a supporting explanation of why its

 

35


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

proposed terms are more appropriate than the other party’s proposed terms and any documentary evidence in support thereof. Oral presentations shall not be permitted unless otherwise requested by the independent mediator. Only if so permitted, a neutral location of any such oral presentations shall be selected by the independent mediator. The independent mediator shall make a final decision with respect to the arbitration matter within ten (10) Business Days following receipt of the last of such rebuttal statements submitted by the parties, and shall make a determination by selecting the resolution proposed by one of the parties that as a whole is the most fair and reasonable to the parties in light of the totality of the circumstances, and shall provide the parties with a written statement setting forth the basis of the determination in connection therewith. For clarity, the independent mediator shall only have the right to select a resolution proposed by one of the parties in its entirety and without modification. The decision of the independent mediator shall be controlling regarding the existence of a Reversion Event. Purchaser and APIL shall bear the costs of the independent mediator equally.

(c) If the existence of a Reversion Event, other than one that involves a failure to satisfy the NDA Requirement, is confirmed, through (i) Purchaser’s non-delivery of a Notice of Disagreement or (ii) through the determination of an independent mediator, Purchaser, itself or through one or more of its Affiliates, licensees or sublicensees shall have the right to cure such Reversion Event for a period of four (4) months from the determination of such Reversion Event (such period, the “Cure Period”) and, if it elects to exercise such right, shall notify APIL in writing of the same. In the case that such Reversion Event is cured in APIL’s reasonable judgment during or by the end of the Cure Period, such Reversion Event shall no longer exist and APIL shall not have the right to invoke any other rights under this Article 4 in connection with such event that would have remained a Reversion Event but for such cure.

(d) For purposes of this Article 4, the “Reversion Date” shall be (i) the date on which the Challenge Period expires without Purchaser having sent a Disagreement Notice to APIL, unless the Reversion Event at issue qualifies for a right to cure pursuant to Section 4.1(c) of this Exhibit E and Purchaser has elected to exercise such right to cure in which case clause (d)(iii) below shall apply, (ii) where the Reversion Event involves a failure to satisfy the NDA Requirement and Purchaser has sent a Disagreement Notice in connection therewith, the date on which the parties agree, or the independent mediator issues its determination, that such Reversion Event has occurred, or (iii) where the Reversion Event does not involve a failure to satisfy the NDA Requirement, and Purchaser has elected its right to cure pursuant to Section 4.1(c) of this Exhibit D, the date on which the Cure Period expires without Purchaser having cured such Reversion Event to APIL’s reasonable satisfaction.

4.2 Events Upon Determination of a Reversion Event.

(a) On the Reversion Date, all licenses and other rights of Purchaser and its Affiliates, licensees and sublicensees under this Agreement (i) with respect to the Nanotechnology IP shall automatically terminate in their entirety, and (ii) with respect to the OCR IP shall automatically terminate solely in regards to the Earn-Out Products.

(b) As of the Reversion Date, but subject to Sections 4.2(h), 4.2(i) and 4.2(j), Purchaser, and its Affiliates, licensees and sublicensees shall cease all research, development, manufacture, sales, offers to sell, use, importation and commercialization of the Earn-Out Products.

(c) Promptly following the Reversion Date, Purchaser shall (i) assign to APIL the Meloxicam Transferred Patents and any other Patents owned or controlled by it and its Affiliates, licensees or sublicensees solely relating to the Earn-Out Products (collectively, the “Assigned Reversion Patents”), and (ii) transfer to APIL all Know-How owned or controlled by it and its Affiliates, licensees or sublicensees solely relating to the Earn-Out Products (the “Assigned Reversion Know-How” and together with the Assigned Reversion Patents, the “Assigned Reversion IP Assets”).

(d) As of the Reversion Date, Purchaser grants to APIL a non-exclusive, worldwide license (sublicenseable through multiple tiers) under all Patents and Know-How owned or controlled by Purchaser and its

 

36


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Affiliates, licensees or sublicensees (other than Assigned Reversion Patents and Assigned Reversion Know-How) that are practiced by or on behalf of Purchaser and its Affiliates, licensees and sublicensees as of the Reversion Date that are necessary or useful to research, develop, manufacture, sell, offer to sell, use, import or otherwise commercialize any of the Earn-Out Products.

(e) Promptly following the Reversion Date, Purchaser shall assign to APIL all right, title and interest in and to those trademarks used exclusively with the Earn-Out Products, excluding any such trademarks that include, in whole or part, any corporate name or logo of Purchaser or its Affiliates.

(f) Promptly following the Reversion Date, Purchaser shall (i) transfer and assign to APIL all Regulatory Materials and Regulatory Approvals relating to the Earn-Out Products, or, if not possible, grant to APIL an exclusive right of reference thereunder.

(g) To the extent that any payments would be owed by Purchaser to any Third Party under any agreement with such Third Party that is applicable to the exercise by APIL of any (sub)license, right of reference or other right provided in this Section 4.1, Purchaser shall notify APIL of the existence and anticipated amounts of such payments and APIL shall have the right either to decline such (sub)license, right of reference or other right provided in this Section 4.1 or to take the same, in which case APIL agrees to comply with any obligations under such agreement of Purchaser that apply to APIL and of which APIL was informed by Purchaser and to make such payments.

(h) Promptly following the Reversion Date and as requested by APIL, Purchaser shall, and shall cause its Affiliates, licensees and sublicensees to, (i) wind up the performance of any clinical trials for Earn-Out Products ongoing as of the Reversion Date, or (ii) transfer and assign to APIL, to the extent assignable by Purchaser in accordance with applicable Law, the management and continued performance of any clinical trials for Earn-Out Products ongoing as of the Reversion Date (provided that if the management and continued performance thereof is not assignable, then at the request of APIL, Purchaser shall, and shall cause its Affiliates, licensees and sublicensees to, continue to manage and perform such clinical trial(s) for a limited time period at the direction of APIL) the reasonable and documented out-of-pocket cost of which that is incurred after the Reversion Date shall be borne by APIL.

(i) Promptly following the Reversion Date and as requested by APIL, Purchaser shall assign to APIL any agreements with third party suppliers covering the supply or sale of the Earn-Out Products, or, if such agreements cover other products or do not permit assignment under their terms, then, to enable APIL to qualify an alternate, validated source of supply, Purchaser shall supply finished Earn-Out Products for a reasonable period (not to exceed six (6) months) and at a cost equal to the cost of goods for any such Earn-Out Product calculated in accordance with industry standards (including overhead) plus [* * *].

(j) As of the Reversion Date, if Purchaser or any of its and its Affiliates, licensees or sublicensees have any inventory of Earn-Out Product, or any components thereof, suitable for use in clinical trials or for commercialization (“Reversion Material”), Purchaser and its Affiliates, licensees and sublicensees shall offer in writing to sell the Reversion Material to APIL at Purchaser’s or the applicable Affiliate’s, licensee’s or sublicensee’s fully-allocated cost of manufacturing, and APIL shall have the option (but no obligation) to purchase the same by responding in writing to such offer within thirty (30) days. If APIL does not exercise such option, Purchaser and its Affiliates, licensees or sublicensees shall be entitled to sell any such Reversion Material, subject to any Earn-Out Consideration applicable to such sale pursuant to the terms and conditions of this Exhibit D.

4.3 Without limiting the generality of this Article 4, any assignment, transfer, license or other right made or granted to APIL pursuant to this Article 4 shall be effected without any consideration payable by APIL.

 

37


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

4.4 Without limiting the generality of this Article 4, following the assignment and transfer under Section 4.2(c), (a) Purchaser shall have no right to use any of the Assigned Reversion IP Assets; (b) APIL shall have at its expense the sole and exclusive right to prosecute, maintain, defend and enforce all Assigned Reversion Patents assigned to APIL pursuant to such Section 4.2(c), and for purposes of all those activities, (i) APIL shall be treated as the owner of such Assigned Reversion Patents, and shall be solely responsible for the costs associated with such activities and shall have the sole right to retain any and all recoveries resulting from such activities, and (ii) to the extent required by applicable Law, at the cost of APIL, Purchaser shall, and shall cause each of its Affiliates, licensees and sublicensees to, join any suit or proceeding regarding any such Assigned Reversion Patents, or designate APIL (or an Affiliate thereof) as such party’s authorized agent for such Assigned Reversion Patents.

4.5 Purchaser shall ensure that Purchaser receives from any of its licensees and sublicensees all rights necessary for Purchaser to effectuate the assignments and transfers to APIL and to grant to APIL the rights and licenses set forth in this Article 4.

4.6 Purchaser shall not, and shall ensure that its Affiliates shall not, grant any Lien in or to any Assigned Reversion IP Assets, or take any action or commit any omission that may adversely affect or in any way impair, interfere with or prevent APIL’s right to receive the benefit of the assignments, transfers and licenses granted under this Article 4.

4.7 The right of reversion hereunder shall be APIL’s sole and exclusive remedy for Purchaser’s failure to satisfy the NDA Requirement or failure to comply with its Commercially Reasonable Efforts requirements under Section 3.1 of this Exhibit D, provided the foregoing shall in no way limit APIL’s right to collect and be paid any Earn-Out Consideration based on Development Milestones or Commercial Milestones achieved as of the Reversion Date, or on sales of the Earn-Out Products prior to the Reversion Date or permitted thereafter pursuant to Section 4.2(j).

 

38

Exhibit 10.13

AMENDMENT TO ASSET TRANSFER AND LICENSE AGREEMENT

This AMENDMENT (the “Amendment”) is dated as of December 23, 2015 (the “Amendment Effective Date”) to the Asset Transfer and License Agreement (the “Agreement”) dated as of April 10, 2015 between Alkermes Pharma Ireland Limited, a private limited company incorporated in Ireland (registered number 448848) whose registered address is Connaught House, 1 Burlington Road, Dublin 4, Ireland (“APIL”), and Recro Gainesville LLC, a Massachusetts limited liability company (successor to DV Technology LLC, “Purchaser,” and Purchaser shall include, after the Amendment Effective Date, any entity possessing the obligations of Purchaser set forth in the Agreement). Defined terms used but not defined herein shall have the meaning ascribed to such terms in the Agreement.

RECITALS:

WHEREAS, APIL and DV Technology LLC entered into the Agreement pursuant to which APIL sold and assigned and Purchaser purchased and acquired certain assets of APIL, and DV Technology was granted a license to certain intellectual property of APIL;

WHEREAS, DV Technology was merged with and into Purchaser, and Purchaser succeeded the obligations of DV Technology under the Agreement; and

WHEREAS, pursuant to this Amendment, APIL and Purchaser desire that APIL transfer and assign to Purchaser certain of the intellectual property of APIL that was previously licensed to Purchaser;

NOW, THEREFORE, in consideration of the respective premises, mutual covenants and agreements of the parties hereto, and other good and valuable consideration, the receipt and sufficiency of which are acknowledged, the parties hereto agree as follows:

 

  1.

Definition of Zogenix Patents. As of the Amendment Effective Date, the definition of Zogenix Patents shall be replaced with the following:

Zogenix Patents shall mean Abuse Resistant Patents and all patents and patent applications licensed by APIL to Zogenix as of the Effective Date pursuant to the Zogenix Agreements, including those listed in Exhibit A-4 hereto.

 

  2.

Deletion of Section 3(c) and Addition of Section 2(f). As of the Amendment Effective Date, Section 3(c) shall be deleted in its entirety and a new Section 2(f) shall be added to the Agreement which shall read as follows:

Abuse Resistant Patents License. Notwithstanding the foregoing and subject to the terms and conditions of the Agreement, effective the Amendment Effective Date, Purchaser hereby grants back to APIL an exclusive, worldwide, fully-paid-up, perpetual license under the Abuse Resistant Patents, with the right to sublicense (through multiple tiers), to develop, make, have made, use, sell, offer to sell and import pharmaceutical products for the treatment of any human disease, disorder or condition, subject to the Zogenix Agreements and the Paladin Agreements. Notwithstanding anything to the contrary contained in this Amendment or the Agreement, the parties hereby agree that this license shall extend until the expiration or invalidation of all Abuse Resistant Patents.


  3.

Addition to Section 2(e). The following paragraph shall be added to Section 2(e) of the Agreement:

Notwithstanding the foregoing, to the extent that Purchaser declines to Enforce any issued patent within the Abuse Resistant Patents with respect to an infringing activity within the scope of the exclusive license granted to APIL pursuant to Section 2(f), APIL shall have the option to Enforce such patent, at its own cost and expense, provided that APIL can demonstrate to Purchaser’s reasonable satisfaction that (i) permitting such infringing activity would have a materially adverse effect on APIL’s and its sublicensees’ sales of the product exclusively licensed under such patent, and (ii) based on a due care determination, including obtaining competent legal advice, the infringing activity exists. In such cases, APIL will have sole control of such enforcement at its cost and expense. To the extent necessary, Purchaser will cooperate with APIL, at APIL’s cost and expense, to carry out such enforcement, including joining as a party. Purchaser shall also have the right, at its option and its cost and expense, to join in any such enforcement action taken by APIL, subject to APIL’s right to control such action. For any recovery from an enforcement action involving a patent within the Abuse Resistant Patents, Purchaser shall be entitled to fifty percent (50%) of such recovery, provided however, that fifty percent (50%) of the legal fees, costs and expenses of such enforcement action incurred by APIL shall be deducted from Purchaser’s portion of the recovery. APIL shall not enter into any settlement agreement regarding the Abuse Resistant Patents without Purchaser’s prior written consent which shall not be unreasonably withheld, delayed or conditioned.

 

  4.

Replacement of Section 3(f). As of the Amendment Effective Date, Section 3(f) shall be replaced with the following:

Prosecution. APIL shall have the right to Prosecute any issued patent or pending patent application within the Nanotechnology Patents and the OCR Patents at its sole discretion and cost and expense. APIL shall keep Purchaser reasonably informed of all activities during the course of such prosecution and provide Purchaser with copies of material correspondence and filings relating to such activities. At APIL’s request and expense, Purchaser will cooperate to Prosecute the Nanotechnology Patents and the OCR Patents.

If in addition to APIL’s activities to Prosecute the Nanotechnology Patents, Purchaser wishes with respect to any Nanotechnology Patent listed in subsection A-2.6 of Exhibit A-1 to have a divisional, continuation or continuation-in-part application filed that solely claims a compound, composition, method of making or method of using compounds or compositions within the scope of Purchaser’s exclusive license hereunder, then Purchaser shall notify APIL and, subject to APIL’s approval, which shall not unreasonably withheld, delayed or conditioned, APIL will use commercially reasonable efforts to Prosecute such patent

 

-2-


application, at Purchaser’s cost and expense. Promptly upon receipt, APIL will provide Purchaser with all patent office documents relating to such prosecution, and will also provide drafts of responses to office actions and other substantive filings with any patent office regarding such patent application sufficiently in advance of their submission to enable review and comment by Purchaser. APIL will consider in good faith all comments timely made by Purchaser.

 

  5.

Replacement of Section 3(g). As of the Amendment Effective Date, Section 3(g) shall be replaced with the following:

Enforcement. APIL shall have the first right to Enforce any issued patent within the Nanotechnology Patents and the OCR Patents. To the extent necessary, Purchaser will cooperate with APIL, at APIL’s cost and expense, to carry out such enforcement, including joining as a party. All costs and expenses of such enforcement action will be borne by APIL, and APIL shall retain any recovery from such an enforcement action. Notwithstanding the foregoing, Purchaser may voluntarily join such enforcement action if the action pertains to an Infringing Activity (as defined below), subject to APIL’s right to control such action. Where Purchaser so joins such an enforcement action, Purchaser and APIL will share all costs and expenses thereof equally and will also share any recovery from such action equally. APIL shall not enter into any settlement agreement that would materially harm Purchaser’s rights pursuant to this Agreement without Purchaser’s prior written consent, which shall not be unreasonably withheld, delayed or conditioned. Both APIL and Purchaser shall promptly notify the other party, as applicable, of any infringing activity of which they are aware with respect to any of the Nanotechnology Patents and OCR Patents within the scope of an exclusive license granted to Purchaser pursuant to this Agreement to the Meloxicam Parenteral Formulation, Meloxicam IV/IM, the BiDil Products, the Focalin Products, the Ritalin Products, the Paladin Products, the Verapamil Products or the Zogenix Products (an “Infringing Activity”).

To the extent that APIL declines to Enforce any such issued patent within the Nanotechnology Patents and the OCR Patents with respect to an Infringing Activity, Purchaser shall have the option to Enforce such patent, at its own cost and expense, provided that Purchaser can demonstrate to APIL’s reasonable satisfaction that (i) Purchaser is contractually obligated under a Transferred Agreement to Enforce, or to allow the counterparty to such Transferred Agreement to Enforce, such patent with respect to such Infringing Activity or (ii) (A) permitting the Infringing Activity would have a materially adverse effect on Purchaser’s and its sublicensees’ sales of the product exclusively licensed under such patent, and (B) based on a due care determination, including obtaining competent legal advice, the Infringing Activity exists. In such cases, Purchaser will have sole control of such enforcement at its cost and expense. To the extent necessary, APIL will cooperate with Purchaser, at Purchaser’s cost and expense, to carry out such enforcement, including joining as a party. APIL shall also have the right, at its option and its cost and expense, to join in any such enforcement action taken by Purchaser, subject to Purchaser’s right to control such action. For

 

-3-


any recovery from an enforcement action involving a patent within the Nanotechnology Patents or OCR Patents, APIL shall be entitled to fifty percent (50%) of such recovery, provided however, that fifty percent (50%) of the legal fees, costs and expenses of such enforcement action incurred by Purchaser shall be deducted from APIL’s portion of the recovery. Purchaser shall not enter into any settlement agreement regarding the Nanotechnology Patents and OCR Patents without APIL’s prior written consent which shall not be unreasonably withheld, delayed or conditioned.

The Parties agree that with respect to Purchaser’s obligations to Zogenix, Inc. under the Zogenix Agreements the Abuse Resistant Patents shall be deemed to be “Elan Patents” (pursuant to clause (d) of the definition of Elan Patents under the License Agreement between APIL and Zogenix, Inc. dated November 27, 2007, as amended).

 

  6.

Assignment of Abuse Resistant Patents. After the Amendment Effective Date, APIL shall execute, or procure the execution of, such formal documents of sale and/or assignment as are required consistent with the terms and conditions of the Agreement to formally record the change of title to the Abuse Resistant Patents to Purchaser in a timely manner.

 

  7.

BeadTek™ Trademark. As of the Amendment Effective Date, the BeadTek™ application shall be deemed to be included within the Transferred Trademarks and shall no longer be deemed to be a Licensed Trademark. After the Amendment Effective Date, APIL shall execute, or procure the execution of, such formal documents of sale and/or assignment as are required consistent with the terms and conditions of the Agreement to formally record the change of title to the BeadTek™ application to Purchaser in a timely manner.

 

  8.

Integration. Except as amended herein, the Agreement shall remain in full force and effect in accordance with its terms. In the event of a conflict between the provisions of the Agreement and those of this Amendment, this Amendment shall control. This Amendment, together with the Agreement, represents the entire agreement between the parties regarding the subject matter hereof. 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 representative of the party to be bound.

 

  9.

Governing Law. This Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any principles, statutory provisions or other rules of choice of law that would require the application of the laws of a different state or country.

 

  10.

Counterparts. For the convenience of the parties, this Amendment may be executed by facsimile and in counterparts, each of which shall be deemed to be an original, and both of which taken together shall constitute one agreement binding on both parties.

 

-4-


IN WITNESS WHEREOF, each of the parties hereto has caused its duly authorized representative to execute this Amendment as of the date first set forth above.

 

ALKERMES PHARMA IRELAND LIMITED
By:  

/s/ Richard Paul

Name:   Richard Paul
Title:   Director
RECRO GAINESVILLE LLC
By:  

/s/ Randall J. Mack

Name:   Randall J. Mack
Title:   SVP, Development

Exhibit 10.14

SECOND AMENDMENT TO ASSET TRANSFER AND LICENSE AGREEMENT

This Second Amendment to Asset Transfer and License Agreement (this “Second Amendment”), dated December 20, 2018, entered into by and between Alkermes Pharma Ireland Limited, a private company limited by shares and incorporated in Ireland (“APIL”), and Recro Gainesville LLC (as successor to DV Technology LLC), a Massachusetts limited liability company (“Recro” or “Purchaser”), amends that certain Asset Transfer and License Agreement, dated as of April 10, 2015 and amended on December 23, 2015, by and among the parties hereto (as so amended, the “Agreement”).

RECITALS:

WHEREAS, the Agreement was originally entered into between APIL and DV Technology LLC;

WHEREAS, DV Technology LLC was subsequently merged with and into Recro, and Recro assumed the rights and obligations of DV Technology LLC as “Purchaser” under the Agreement;

WHEREAS, pursuant to the Agreement, Purchaser is obligated to pay to APIL the Earn-Out Consideration set forth in Exhibit D to the Agreement, which Earn-Out Consideration was initially set forth in Exhibit E to that certain Purchase and Sale Agreement, dated as of March 7, 2015, and amended on December 8, 2016, by and among Purchaser (as successor to Recro Pharma LLC), Recro Pharma, Inc., APIL, Alkermes US Holdings, Inc. (as successor in interest to Eagle Holdings USA, Inc.) and Daravita Limited (the “P&S Agreement”);

WHEREAS, on or prior to the date hereof, the P&S Agreement was amended to modify certain terms of the Earn-Out Consideration set forth in Exhibit E thereto (such amendment, the “P&S Amendment”); and

WHEREAS, pursuant to Section 4.2(ii) of the P&S Amendment and Section 11 of the Agreement, APIL and Recro now desire to amend the Agreement as set forth herein.

NOW, THEREFORE, in consideration of the respective premises, mutual covenants and agreements of the parties hereto, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

ARTICLE I

DEFINITIONS

1.1    Defined Terms. Capitalized terms used but not defined in this Second Amendment shall have the meanings ascribed to them in the Agreement.

ARTICLE II

AMENDMENT

2.1    Exhibit D. Section 2.1(a) of Exhibit D is hereby deleted in its entirety and replaced with the following:


“(a)    Development Milestone Earn-Out Consideration.

(i)    The following amounts (“Development Milestone Earn-Out Consideration”) shall be payable in accordance with Section 5 of the Agreement and this Exhibit D upon achievement of the following events (“Development Milestones”) by Purchaser and its Affiliates, licensees and sublicensees, and shall be non-refundable and non-creditable and not subject to deduction or set-off:

        (A)    Within thirty (30) calendar days following December 20, 2018, Purchaser shall pay to APIL Five Million U.S. Dollars (US$5,000,000.00) and within thirty (30) calendar days following March 24, 2019, Purchaser shall pay to APIL Five Million U.S. Dollars (US$5,000,000.00); and (B) the following amounts:

 

Development Milestone

   Amount of
Development
Milestone
Earn-Out
Consideration
(U.S. Dollars)
 

Approval of an NDA for the first Earn-Out Product (the “First Approval”)

   $ 5,000,000.00  

First anniversary of the First Approval

   $ 6,429,000.00  

Second anniversary of the First Approval

   $ 6,429,000.00  

Third anniversary of the First Approval

   $ 6,429,000.00  

Fourth anniversary of the First Approval

   $ 6,429,000.00  

Fifth anniversary of the First Approval

   $ 6,429,000.00  

Sixth anniversary of the First Approval

   $ 6,429,000.00  

Seventh anniversary of the First Approval

   $ 6,429,000.00  

(ii)    Purchaser shall notify and pay to APIL (A) the Development Milestone Earn-Out Consideration payable upon the First Approval within one hundred eighty (180) calendar days following the occurrence of the First Approval and (B) each Development Milestone Earn-Out Consideration payment other than the First Approval payment within thirty (30) calendar days after the occurrence of the corresponding Development Milestone. Each payment made pursuant to Section 2.1(a) of this Exhibit D shall be made by wire transfer of immediately available funds to such account or accounts as are designated in writing by APIL.”

ARTICLE III

GENERAL

3.1    Integration; Modification. Except as amended by this Second Amendment, the Agreement shall remain in full force and effect in accordance with its terms. In the event of a conflict between the provisions of the Agreement and those of this Second Amendment, this Second Amendment shall control. This Second Amendment, together with the Agreement,

 

2


represent the entire agreement between the parties regarding the subject matter hereof. No amendment or modification of the terms and conditions of this Second Amendment shall be binding on either party hereto unless reduced to a writing referencing this Second Amendment and signed by an authorized representative of the party(ies) to be bound.

3.2    Governing Law. This Second Amendment shall be governed by and construed in accordance with the laws of the State of Delaware, without giving effect to any principles, statutory provisions or other rules of choice of law that would require the application of the laws of a different state or country.

3.3    Counterparts. This Second Amendment may be executed in counterparts, each of which shall be deemed to be an original, and both of which taken together shall constitute one agreement binding on both parties. Signatures provided by facsimile transmission or in PDF or similar digital image format sent by electronic mail shall be deemed to be original signatures.

[SIGNATURE PAGE FOLLOWS]

 

3


IN WITNESS WHEREOF, each of the parties hereto has caused its duly authorized representative to execute this Second Amendment as of the date first set forth above.

 

ALKERMES PHARMA IRELAND LIMITED
By   /s/ Richie Paul
Name: Richie Paul
Title: Director

 

RECRO GAINESVILLE LLC
By   /s/ Ryan D. Lake
Name: Ryan D. Lake
Title: Treasurer

[Signature Page to Second Amendment to Asset Transfer and License Agreement]

Exhibit 10.15

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DEVELOPMENT, MANUFACTURING AND SUPPLY AGREEMENT

BETWEEN

ALKERMES PHARMA IRELAND LIMITED

AND

RECRO PHARMA, INC.


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DEVELOPMENT, MANUFACTURING AND SUPPLY AGREEMENT

THIS DEVELOPMENT, MANUFACTURING AND SUPPLY AGREEMENT (this “Agreement”) is made and entered into as of July 10, 2015 (the “Effective Date”) by and between Alkermes Pharma Ireland Limited, a private limited company organized and existing under the laws of the Republic of Ireland (“Alkermes”), and Recro Pharma, Inc., a corporation organized and existing under the laws of Pennsylvania (“Recro”). Recro and Alkermes are sometimes hereinafter referred to each as a “Party” and collectively as the “Parties.”

RECITALS:

WHEREAS, Alkermes, Eagle Holdings USA, Inc. (“Eagle”), Daravita Limited (“Daravita”), Recro and Recro Pharma LLC (“Recro Pharma,” together with Recro, the “Purchasers”) entered into a Purchase and Sale Agreement, dated as of March 7, 2015 (the “Purchase and Sale Agreement”), pursuant to which, among other things, Eagle agreed to sell, and Purchasers agreed to buy, all of the issued and outstanding membership interests of Alkermes Gainesville LLC (now known as Recro Gainesville LLC);

WHEREAS, Exhibit B to the Purchase and Sale Agreement among Alkermes, Daravita, Eagle, DV Technology LLC and the Purchasers provided, among other things, that, after the Closing Date, Alkermes would provide the clinical supply of BC Parenteral Meloxicam and Finished Meloxicam (each as defined below), and the provision of development services with respect to the Chemistry, Manufacturing and Controls (“CMC”) section for bulk nanocrystals (in support of clinical trials related to BC Parenteral Meloxicam) of a new drug application (“NDA”) for BC Parenteral Meloxicam and, if elected by Recro, the commercial supply of BC Parenteral Meloxicam, each as more specifically set forth herein, to Recro or its Affiliates;

WHEREAS, pursuant to the Intellectual Property Transfer and License Agreement (as defined below), Alkermes granted DV Technology LLC (now known as Recro Technology LLC) certain rights with respect to meloxicam products;

WHEREAS, prior to the Closing Date, Recro, Alkermes and Alkermes, Inc. entered into a letter agreement, dated March 26, 2015 (the “Meloxicam Letter”), pursuant to which Alkermes was to provide certain services prior to the Closing Date and the Parties desire to make such services subject to the terms of this Agreement;

WHEREAS, Alkermes hereby agrees to perform certain services related to the foregoing, and Recro hereby agrees to receive such services, on the terms and conditions set forth herein.

AGREEMENT:

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Alkermes and Recro agree as follows:


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Article 1

Definitions

For the purpose of this Agreement, the following words and phrases shall have the meanings set forth below. In the event of a conflict between the definition of a term contained herein and the definition of such term in the Purchase and Sale Agreement, this Agreement shall control. In addition, the terms “includes,” “including,” “include” and derivative forms of them shall be deemed followed by the phrase “without limitation” (regardless of whether it is actually written there (and drawing no implication from the actual inclusion of such phrase in some instances after such terms but not others)); and the term “or” has the inclusive meaning represented by the phrase “and/or” (regardless of whether it is actually written (and drawing no implication from the actual use of the phrase “and/or” in some instances but not in others)). The word “will” shall be construed to have the same meaning and effect as the word “shall.”

1.1 “5kg Capital Equipment” is defined in Section 5.4.

1.2 “Action” shall mean any action, claim, suit, arbitration, litigation, proceeding, or governmental investigation.

1.3 Additional Regulatory Services means any reasonable regulatory assistance that Recro may require from Alkermes, and Alkermes has agreed in writing to provide, other than the CMC Development Services.

1.4 “Affiliate” of a Person means any other Person that directly, or through one or more intermediaries, controls or is controlled by or is under common control with such Person. For purposes of this Agreement, “control” shall mean, as to any Person, the power to direct or cause the direction of the management and policies of such Person, whether through the ownership of voting securities, by contract or otherwise (and the terms “controlled by” and “under common control with” shall have correlative meanings).

1.5 “Agreement” has the meaning set forth in the preamble.

1.6 “Alkermes” has the meaning set forth in the preamble.

1.7 “Alkermes Facility” means that portion of the Alkermes manufacturing facility located in Athlone, Ireland in which Alkermes intends to Manufacture product as required by this Agreement, including areas such as warehouse space, quality control laboratories, or office space that may be used for BC Parenteral Meloxicam, Finished Meloxicam and other products.

1.8 “Alkermes Indemnitees” is defined in Section 11.1(a).

1.9 “Allocable Overhead” means costs incurred by Alkermes or for its account which are attributable to Alkermes’ costs of supervisory services, general and administrative activities, occupancy (including utilities and property taxes), registrations, permits and licenses, insurance, depreciation, payroll, non-cash compensation, information systems, human resources and purchasing, as allocated to company departments based on space occupied, headcount or activity-based methods, in all cases as applied by Alkermes in accordance with GAAP and Alkermes’ accounting standards on a consistent basis.

1.10 “Ancillary Agreements” has the meaning assigned to it in the Purchase and Sale Agreement.

 

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1.11 Approved Methods is defined in Section 6.4(a).

1.12 “Assigned Technology” is defined in Section 6.8(b).

1.13 “Batch” means the amount of BC Parenteral Meloxicam or Finished Meloxicam derived therefrom, as applicable, produced during one production run.

1.14 “BC Meloxicam SC” means BC Parenteral Meloxicam that is designed for subcutaneous administration.

1.15 “BC Parenteral Meloxicam” means any parenteral Meloxicam in bulk crystal/formulated NanoCrystal form, as further described in the applicable Specification. For clarity, BC Parenteral Meloxicam provided hereunder shall be in [***] strength, as agreed by the Parties, or in such other strength as the Parties may agree.

1.16 “Business Day” shall mean any day that is not a Saturday, a Sunday or other day on which commercial banks in the City of New York, New York or Dublin, Ireland are required or authorized by Law to be closed.

1.17 “Calendar Quarter” means a three-month period ending on March 31, June 30, September 30, or December 31.

1.18 “Calendar Year” means the twelve-month period ending on December 31.

1.19 “Certificate of Analysis and Compliance” means the certificate for each Batch of BC Parenteral Meloxicam or Finished Meloxicam delivered hereunder listing the tests performed, the test specifications and the test results and certifying that such Batch was Manufactured in accordance with cGMP.

1.20 “cGMP” means current good manufacturing practice and standards as provided for (and as amended from time to time) in the Current Good Manufacturing Practice Regulations to the U.S. Code of Federal Regulations Title 21 (21 CFR 210 and 21 CFR 211) in relation to the production of pharmaceutical intermediates and active pharmaceutical ingredients, as interpreted by ICH Harmonised Tripartite Guideline, Good Manufacturing Practice Guide for Active Pharmaceutical Ingredients, Q7 and subject to any arrangements, additions or clarifications agreed from time to time between the Parties in this Agreement.

1.21 “Claim” is defined in Section 11.1(c).

1.22 “Clinical Requirements” means the amount of BC Parenteral Meloxicam or Finished Meloxicam to be provided by Alkermes to Recro and its Sublicensees in accordance with Section 3.4 of this Agreement for the conduct of clinical studies of Finished Meloxicam.

1.23 “Closing Date” has the meaning assigned to it in the Purchase and Sale Agreement.

1.24 CMC means Chemistry, Manufacturing and Controls.

 

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1.25 CMC Development Services means (i) reasonable support with respect to the CMC section for bulk nanocrystals (in support of clinical trials related to BC Parenteral Meloxicam) of the NDA(s) for BC Parenteral Meloxicam sufficient to allow Recro to complete and file such CMC sections to the same standard as Alkermes would apply in submission of an NDA for its own similar products, (ii) information and expertise, including advisory, related to BC Parenteral Meloxicam and (iii) CMC regulatory assistance during the clinical work for BC Parenteral Meloxicam.

1.26 “Confidential Information” has the meaning set forth in Section 12.1.

1.27 “Daravita” has the meaning set forth in the Recitals.

1.28 “DMF” means the drug master file for BC Parenteral Meloxicam, and any amendments and supplements thereto, submitted to the FDA by or on behalf of Alkermes, which will contain all necessary information concerning BC Parenteral Meloxicam, the composition of the foregoing, and the Manufacture of the foregoing. All information in the DMF will be deemed to be the Confidential Information of Alkermes; provided that, the foregoing shall not limit Recro’s right under Section 10.4(b) to use any information in the DMF which is included in the Technology Transfer Information.

1.29 “Documentary Evidence” has the meaning set forth in Section 4.5(c).

1.30 “Eagle” has the meaning set forth in the Recitals.

1.31 “Effective Date” has the meaning set forth in the preamble.

1.32 “Extension Periods” is defined in Section 10.1(b).

1.33 “External Demand” is defined in Section 12.1(b).

1.34 Ex-Works shall have the meaning accorded to that term in the ICC Incoterms 2010, International Rules for the Interpretation of Trade Terms, ICC Publication No. 715.

1.35 Existing Batches means batches of Finished Meloxicam in existence prior to the Closing Date in which batches all right, title and ownership passed to Recro as a result of the Purchase and Sale Agreement.

1.36 “FDA” means the United States Food and Drug Administration or any successor agency thereto.

1.37 “Finished Meloxicam” means BC Parenteral Meloxicam in appropriate sealed injectable filled vials without labels.

1.38 “Finished Meloxicam SC” means Finished Meloxicam that is designed for subcutaneous administration.

1.39 “Firm PO” is defined in Section 4.3(a).

 

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1.40 “Firm Zone is defined in Section 4.2(d).

1.41 First Approval means receipt of the first Regulatory Approval for marketing and sale of Finished Meloxicam.

1.42 “First-Sale Term” is defined in Section 10.1(a).

1.43 “Flexible Zone” is defined in Section 4.2(d).

1.44 [***]

1.45 “Force Majeure Event” is defined in Section 13.12(a).

1.46 “Fully Burdened Costs” means 100% of Alkermes’ costs for performing the Services, which shall include Alkermes’ costs of materials, direct labor, warehousing, quality assurance/control, delivery and storage costs, and Allocable Overhead, in each case, to the extent allocable to such activities. The Fully Burdened Cost shall in all cases be applied by Alkermes in accordance with GAAP.

1.47 “GAAP” means United States generally accepted accounting principles.

1.48 “Governmental Entity” shall mean any court, administrative agency, commission or other governmental authority, body or instrumentality, federal, state, local, domestic or foreign governmental or Regulatory Authority.

1.49 “Indemnitee” is defined in Section 11.1(c).

1.50 “Indemnitor” is defined in Section 11.1(c).

1.51 “Initial Period” is defined in Section 10.1(a).

1.52 “Intellectual Property Transfer and License Agreement” has the meaning assigned to it in the Purchase and Sale Agreement.

1.53 “Interest Rate” means an interest rate of [***] per month or the maximum applicable legal rate, if less.

1.54 “IP License Agreement” has the meaning assigned to it in the Purchase and Sale Agreement.

1.55 “Latent Defect” means a defect that causes a Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, to fail to conform to the Specifications, which defect is not discoverable upon testing performed pursuant to Section 6.4(a) but is discovered at a later time.

1.56 “Launch Stock” means any supply of BC Parenteral Meloxicam that is ultimately intended, in Finished Meloxicam form, for commercial marketing and sale which is Manufactured by Alkermes prior to First Approval.

 

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1.57 “Law” shall mean any United States federal, state or local, or any non-United States law, statute, ordinance, rule, regulation, judgment, order, injunction, decree, arbitration award, agency requirement, license or permit of any Governmental Entity.

1.58 “Lookback Period” is defined in Section 11.3(b).

1.59 “Losses” is defined in Section 11.1(a).

1.60 “Manufacture” (including variations such as “Manufacturing”) means the performance of all operations involved in the manufacture, quality control testing (including in process, release and stability testing, if applicable), release, shipment and storage (if applicable) of BC Parenteral Meloxicam or Finished Meloxicam, as applicable.

1.61 “Meloxicam” means an aqueous extended-release formulation of the selective COX-2 inhibitor non-steroidal anti-inflammatory drug meloxicam that has been developed by Alkermes using NanoCrystal Technology, including an intravenous or intramuscular form existing as of the Closing Date.

1.62 “Meloxicam Letter” has the meaning set forth in the Recitals.

1.63 “NanoCrystal Technology” means Alkermes’ proprietary technology, known as “NanoCrystal® Technology”, and comprising: (a) nanoparticulate dispersions of compounds stabilized against particle growth or agglomeration, and materials, methods and equipment used for making such dispersions; and (b) formulations, including finished formulations incorporating or derived from such dispersions, and materials, methods and equipment used for making such dispersions, provided such formulations, materials, methods and equipment are for the maintenance and control of (i) nanoparticulate size of the nanoparticulate component; (ii) redispersability of the nanoparticle nanoparticulate component in biological fluids; (iii) the rate of release or delivery of the nanoparticle nanoparticulate component in vivo; or (iv) the anatomical site of release of the nanoparticle nanoparticulate component from the finished dosage form of a pharmaceutical product.

1.64 “NanoMill System” means the milling systems known as “NanoMill® System” that are part of, or embody, Alkermes intellectual property and which were designed and developed by or on behalf of Alkermes, its Affiliates and predecessers in title, for preparing nanoparticulate dispersions for pharmaceutical formulations, including the milling equipment, related vessels, components, parts, associated manuals, and protocols.

1.65 “NDA” has the meaning set forth in the Recitals.

1.66 “Party” and “Parties” has the meaning set forth in the preamble.

1.67 “Patent” means patents and patent applications (which for purposes of this Agreement shall include certificates of invention and applications for such certificates), including any divisionals, continuations, continuations-in-part, substitutions, reissues, re-examinations, revalidations, patent term extensions, pediatric exclusivity extensions, registrations, supplementary protection certificates and renewals of any such patents or patent applications, together with foreign equivalents of any of the foregoing.

 

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1.68 “Person” means an individual, a corporation, a partnership, an association, a trust or other entity or organization, including a government or political subdivision or an agency thereof.

1.69 “Phase III Clinical Trial” means a human clinical trial that is prospectively designed to (a) demonstrate statistically whether a product is safe and effective for use in humans in the indication being studied in a manner sufficient to obtain Regulatory Approval to market such product in patients having the disease or condition being studied as described in 21 CFR 312.21(c), (b) be or becomes a registration trial sufficient for filing an application for a Regulatory Approval for such product in the United States or (c) an equivalent clinical trial in a country other than the United States.

1.70 “Project Team” defined in Section 2.1(a).

1.71 “Purchase and Sale Agreement” has the meaning set forth in the Recitals.

1.72 Purchasers” has the meaning set forth in the Recitals.

1.73 “Quality Agreement” means each of the documents entered into by the Parties specifying certain quality assurance and quality control requirements relating to the Manufacture of BC Parenteral Meloxicam and Finished Meloxicam, which will be developed, agreed upon and updated by the Parties in accordance with Section 6.4(a).

1.74 “Quality Signature” is defined in Section 6.1.

1.75 “Recall/Recovery” means any action by Recro or any of its Sublicensees to detain or destroy product or recover title to or possession of, or to prevent the distribution, prescription, consumption or release of BC Parenteral Meloxicam or Finished Meloxicam sold or shipped to Third Parties. The term “Recall/Recovery” also includes the failure by Recro or any of its Sublicensees to ship BC Parenteral Meloxicam or Finished Meloxicam to Third Parties that would have been subject to recall or recovery if it had been sold or shipped.

1.76 “Recro” has the meaning set forth in the preamble.

1.77 “Recro Indemnitees” is defined in Section 11.1(b).

1.78 “Regulatory Approval” means, with respect to a country or region, approvals, licenses, registrations or authorizations from the relevant Regulatory Authority necessary in order to import, distribute, market and sell a pharmaceutical product in such country or region, but not including any pricing or reimbursement approvals.

1.79 “Regulatory Authority” means the FDA and any other analogous government regulatory authority or agency involved in granting approvals (including any required pricing or reimbursement approvals) for the development, manufacture or commercialization of pharmaceutical products in the applicable country or region.

1.80 Representatives means a Person’s officers, directors. consultants, advisors, employees, stockholders, agents and other advisors or representatives.

 

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1.81 “Requirements” means the amount of BC Parenteral Meloxicam needed by Recro and its Sublicensees for marketing and sale of Finished Meloxicam.

1.82 “Rolling Forecast” means a forecast including (i) a rolling [***] Calendar Quarter forecast specifying the Requirements for each of the next [***] Calendar Quarters of such forecast, and each month within such Calendar Quarter, starting with the Calendar Quarter following the due date of such forecast, and (ii) for each of the [***] Calendar Years following the Calendar Year which includes the [***] Calendar Quarter covered by the Calendar Quarter forecasts provided pursuant to clause (i), an annual forecast of the Requirements for such Calendar Year, which annual forecast shall only be updated upon the inclusion of a new Calendar Year in the period covered by the annual forecasts.

1.83 “SEC” means the United States Securities and Exchange Commission.

1.84 “Services” means all services provided by Alkermes pursuant to this Agreement, including (a) all services related to clinical supply of BC Parenteral Meloxicam and Finished Meloxicam; (b) all services related to the commercial supply of BC Parenteral Meloxicam; (c) CMC Development Services; and (d) Additional Regulatory Services.

1.85 “Shortage is defined in Section 5.7.

1.86 “Specifications” means the specifications for the Manufacture of BC Parenteral Meloxicam and Finished Meloxicam, as such specifications may be amended from time to time by agreement of the Parties. The initial Specifications are attached hereto as Exhibit A.

1.87 “Sublicensee” means an Affiliate of Recro, or a Third Party, to which Recro Technology LLC or Recro has granted rights to BC Parenteral Meloxicam or Finished Meloxicam within the scope of the licenses thereto granted to Recro Technology LLC pursuant to the IP Asset Transfer and License Agreement.

1.88 “Technology” means know-how, trade secrets, chemical materials, formulations, compounds, compositions, information, documents, studies, results, data, processes, methods, procedures, protocols, designs, regulatory authorizations and approvals (including investigational new drug applications), filings and correspondence, including chemical, pharmacological, toxicological, pre-clinical, clinical and assay data, manufacturing processes and data, specifications, sourcing information, assays, and quality control and testing procedures, apparatuses, devices, screens, databases, database structures and data analysis methods, whether or not patentable. For the avoidance of doubt Technology does not include Patents.

1.89 “Technology Transfer Information” is defined in Section 10.4(b).

1.90 “Term” means the Initial Period plus any and all Extension Periods.

1.91 “Third Party(ies)” means any Person other than Alkermes or Recro and their respective Affiliates.

1.92 “Third Party Reviewer” is defined in Section6.3.

 

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1.93 “Work Plans” is defined in Section 3.1.

1.94 “Yield Band” is defined in Section 4.3(a)(b).

Article 2

Oversight/Governance/Scope

2.1 Project Team.

(a) Formation. Promptly after the Effective Date, the Parties shall appoint a team, consisting of Alkermes representatives and Recro representatives, who are appropriately skilled and knowledgeable in relation to, and who are deemed necessary to accomplish, the CMC Development Services and the supply of the Clinical Requirements, and, if elected by Recro pursuant to Section 4.1(a), the Requirements (the “Project Team”). Unless otherwise agreed, the Project Team shall consist of six (6) representatives, with three (3) represent appointed by each of Alkermes and Recro. Either Party may replace any of its representatives on the Project Team by written notice of such change to the other Party. Alkermes and Recro shall each appoint a Project Team leader, and the initial Project Team leaders, as of the Effective Date, shall be for Recro, Randy Mack and for Alkermes, Damon Warnock. All members of the Project Team shall be subject to written confidentiality obligations, or professional obligations of confidentiality, at least as restrictive as those set forth herein.

(b) Role. The Parties shall agree upon a work-scope for the Project Team which shall include the following: (i) developing a strategy for delivery of the CMC Development Services and the Clinical Requirements, (ii) monitoring of CMC Development Services performance and supply of the Clinical Requirements and Requirements, and (iii) tracking the expenditure of funds related to the CMC Development Services and the supply of the Clinical Requirements and Requirements.

(c) Meetings. The Project Team leader shall call meetings as reasonably requested during the Term by one of the Parties; provided, however, that the Project Team shall meet as frequently as necessary to fulfill its responsibilities. Unless otherwise agreed, meetings will be held at least twice per month, or at such intervals as may be agreed between the Parties at various stages of development. The Project Team leader shall establish the timing and agenda of all Project Team meetings and shall transmit notice of such meetings, including the agenda therefor, to all Project Team members; provided, however, either Party may request that specific items be included on the applicable agenda and may request that additional meetings be scheduled as needed. Meetings may be held in person, by telephone or by video conference call and the location of each meeting shall be mutually agreed upon by the Parties. A quorum of at least one Project Team representative appointed by each Party shall be present at or shall otherwise participate in each Project Team meeting. On advance written notice to the other Party, each Party may invite additional participants to attend meetings where appropriate and all such additional participants shall be subject to written confidentiality obligations or professional obligations of confidentiality, at least as restrictive as those set forth herein. Each Party shall be responsible for all travel and related costs and expenses for its representatives to participate in or attend meetings of the Project Team.

 

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(d) Minutes. Minutes of the meeting of the Project Team shall be transcribed and issued by Alkermes within five (5) Business Days after each meeting (or in any event at least five (5) days prior to the date of the next scheduled meeting of the Project Team). Such minutes shall include only key discussion points and decisions made and provide a list of any identified issues yet to be resolved, either within the Project Team or through the relevant resolution process. The Parties shall agree on the minutes of each meeting promptly, but in no event later than five (5) Business Days after receipt of such minutes from the Project Team leader.

(e) Decisions/Dispute Resolution. The Project Team may make decisions with respect to any subject matter that is subject to the Project Team’s decision-making authority and responsibilities as set forth in this Section 2.1. Regardless of the number of individuals attending any Project Team meeting, Alkermes and Recro will have a single vote each. The Project Team shall attempt in good faith to reach unanimity with respect to matters that come before it for decision and shall give consideration to the views, positions and recommendations of each Party on such matters. If, despite such good faith efforts, the Project Team is unable to reach unanimity upon any issue or matter that is brought before it for decision, the item shall be referred for discussion to the following officers, their successors or appropriate designees (i) for Recro, its General Manager or Head of Manufacturing and (ii) for Alkermes, Declan O’Connor, VP Manufacturing, who shall work together to reach an agreement within [***] of the Project Team referring such unresolved item to them. If such representatives are unable to reach a decision during such period, the item shall be referred to the following officers, their successors or appropriate designees (i) for Recro, Gerri Henwood, Chief Executive Officer and (ii) for Alkermes, Shane Cooke, President, who shall work together to reach an agreement as soon as is practicable, but within [***] of the item being referred to them. If such representatives are unable to reach a decision during such period, Recro shall have final decision making authority with respect to any issue or matter with respect to which the Project Team is unable to reach unanimity; provided, that Alkermes shall have final decision making authority with respect to any issue that relates to the Alkermes Facility, including as it relates to the Manufacture, acknowledging that Recro shall have the final decision making authority in respect of the Existing Batches and final release of BC Parenteral Meloxicam, or any Finished Meloxicam derived therefrom, to the extent applicable, in each case, for clinical trial purposes and for commercial sale.

(f) Authority. The Project Team shall have only the powers assigned to it in this Section 2.1. All activities conducted by and decisions taken by the Project Team shall be consistent with and subject to the provisions of this Agreement, and the Project Team shall not have any power to (i) take any action that conflicts with the terms of this Agreement, (ii) amend, modify or waive compliance with any of the terms of this Agreement, or (iii) create any new obligations on either of the Parties. For clarity, any disputes regarding the interpretation, breach, termination or invalidity of this Agreement will be resolved in accordance with Section 13.2

(g) Participation. The Parties shall have the right to disband the Project Team upon mutual agreement. If the Project Team is not disbanded pursuant to the preceding sentence, the Project Team shall be automatically disbanded effective upon the expiration or termination of this Agreement

 

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2.2 Operations During Dispute Resolution. Unless Recro directs otherwise, the provision of the CMC Development Services, and the supply of the Clinical Requirements and the Requirements will continue until such time as the Parties reach agreement on any issue subject to resolution pursuant to Section 2.1(e); provided, however, that neither Party will have any obligation to incur any costs, or to perform any related activities, if such costs would be in dispute if incurred. In addition, the Parties agree that neither Party will be liable to the other, nor be deemed to be in breach of this Agreement, either if that Party is acting in accordance with the express direction of the other Party or if that Party’s ability to perform its obligations hereunder could reasonably be deemed to be impaired by a decision of the other Party.

2.3 Additional Information Sharing. Notwithstanding anything to the contrary in the Purchase and Sale Agreement or this Article 2, on a semi-annual basis, a discussion shall occur between senior representatives of Recro and Alkermes relating to development activities as set forth in Section 3.2(a) of Exhibit E of the Purchase and Sale Agreement. Further, and without prejudice to the Purchase and Sale Agreement, at least [***] months prior to the launch of any Meloxicam product and continuing thereafter for [***] months after the launch, on a Calendar Quarter basis, a senior representative of Recro shall provide a presentation to Alkermes (either in person or via agreed means of electronic communication) in respect of ongoing and projected performance of the Meloxicam product. After the [***] month period referenced above has elapsed, such a presentation shall be provided to Alkermes on a semi-annual basis for so long as any Meloxicam product is being sold or otherwise commercialized.

2.4 Scope of Agreement. This Agreement shall apply only to the supply of BC Parenteral Meloxicam and Finished Meloxicam. Alkermes shall not provide any services hereunder related to the supply or development of BC Meloxicam SC or Finished Meloxicam SC. Services related to supply or development of BC Meloxicam SC or Finished Meloxicam SC, if any, will be governed by an amendment to this Agreement or a separate Agreement. In addition, as set forth in the Quality Agreements and unless otherwise elected by Recro, Alkermes will only provide Finished Meloxicam for the first Batch that is part of the Clinical Requirements.

Article 3

CMC Development and Clinical Supply

3.1 Subject to approval by the Project Team, and as part of the Services to be performed hereunder, Alkermes shall provide CMC Development Services and all other services necessary to deliver the Clinical Requirements to Recro (or such Sublicensees as Recro shall designate in writing). All such services shall be set forth in work plans, as mutually agreed to in writing by the Parties, and subsequently attached hereto as Exhibit B (“Work Plans”). For clarity, the Work Plans attached hereto as of the Effective Date were previously agreed upon by the Parties and governed by the Meloxicam Letter. As of the Effective Date, all Work Plans, including the Work Plans previously governed by the Meloxicam Letter, shall be governed by this Agreement.

 

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3.2 Subject to the remainder of this Article 3, each Party shall use reasonable efforts, as would be deemed commensurate with the achievement of its own business aims for a similar product of its own to conduct such activities under the Work Plans as the Parties mutually agree. Further, Alkermes and Recro each undertake that they shall carry out their respective activities set forth in each Work Plan in good faith, diligently, as a collaborative effort, in a commercially reasonable and workmanlike manner, and in accordance with this Agreement, the applicable Quality Agreement, and all applicable Laws, regulations and professional standards. Each Party shall co-operate with the other in good faith particularly with respect to unknown problems or contingencies. Each Party will update the other Party on the progress of the Work Plans at meetings of the Project Team. Alkermes will use reasonable efforts to start and complete all CMC Development Services and all other services necessary to deliver the Clinical Requirements in a timely fashion in accordance with the timelines set forth in the applicable Work Plans and will promptly notify Recro in the event of any changes to such timelines. Any reports and updates shall be provided to Recro as described in the relevant Work Plan and the applicable Quality Agreement.

3.3 Alkermes shall have no liability to Recro as a result of any failure or delay of either BC Parenteral Meloxicam, or any Finished Meloxicam derived therefrom, to obtain Regulatory Approval, except to the extent that such failure or delay is the result of Alkermes’ material breach of this Agreement. Recro shall have no liability to Alkermes as a result of any failure or delay of BC Parenteral Meloxicam, or any Finished Meloxicam derived therefrom, to obtain Regulatory Approval or the approval of the appropriate Regulatory Authorities in any country, except to the extent that such failure or delay is the result of Recro’s material breach of this Agreement.

3.4 During the Term, and subject to the terms and conditions hereof, Alkermes agrees to supply to Recro, and Recro agrees to purchase exclusively from Alkermes, the Clinical Requirements. Alkermes and Recro shall discuss in good faith forecasting and ordering requirements for supply of the Clinical Requirements. Pursuant to mutually agreeable Work Plans, Alkermes and Recro shall agree upon the quantities, dates for supply of the Clinical Requirements (to be delivered Ex Works the Alkermes Facility) and other details related to the Clinical Requirements. For clarity, the Clinical Requirements shall be (a) no less than Recro or its Sublicensees reasonably require for the completion of clinical work related to BC Parenteral Meloxicam, and the Finished Meloxicam derived therefrom, and (b) subject to Section 3.2, shall not exceed eight (8) released Batches of BC Parenteral Meloxicam and the Finished Meloxicam derived therefrom for each twelve (12) month period beginning on the Effective Date without the prior written agreement of the Parties. Prior to increasing the maximum amount of Clinical Requirements, the Parties shall consider updates to Recro’s development plan for Finished Meloxicam, clinical trial results related to Finished Meloxicam, the implications of such results, and feedback from Regulatory Authorities.

 

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Article 4

Commercial Supply

4.1 Requirements.

(a) Requirements. Prior to the initiation of the first Phase III Clinical Trial for Finished Meloxicam, Recro shall notify Alkermes in writing as to whether Alkermes shall be required to supply Recro (and such Sublicensees or distributors as Recro may nominate) with the Requirements. Contingent upon Recro so nominating Alkermes to supply the Requirements, during the Term and subject to the terms and conditions hereof, Alkermes agrees to supply to Recro (and such Sublicensees or distributors as Recro may nominate), and Recro agrees to purchase, and shall cause (such Sublicensees or distributors as Recro may nominate) to purchase, exclusively from Alkermes, the Requirements; provided, that Recro may purchase the Requirements from another source in the event of a Shortage pursuant to Section 5.7.

(b) Launch Stock Quantities. Not less than [***] months in advance of the anticipated launch date for Finished Meloxicam, the Parties shall discuss and agree upon the Manufacture and purchase of specific quantities of Launch Stocks for launch of Finished Meloxicam. For the avoidance of doubt, any Launch Stock order shall be Manufactured in accordance with the Specifications and Recro shall be required to purchase the same even if said Specifications are subsequently not approved by the applicable Regulatory Authority.

4.2 Forecasts.

(a) Initial Forecast. Within [***] days of the delivery of the written notification required by Section 4.1(a), Recro will provide to Alkermes a Rolling Forecast of expected Requirements.

(b) Forecasts Due Periodically. Thereafter during the Term, Recro will provide to Alkermes a Rolling Forecast, no later than the [***]. Recro agrees to use commercially reasonable efforts in preparing all forecasts provided hereunder to minimize variances between forecasts. All forecasts provided by Recro will be good faith estimates of the Requirements. In the event of significant variances between forecasts the matter will be referred to the Project Team for discussion.

(c) Forecast Breakdowns. All of the forecasts provided under this Agreement will break down the amount of BC Parenteral Meloxicam by weight and strength.

(d) Firm Zone and Flexible Zone; Volume Limitations. Recro will be obligated to purchase the amount of BC Parenteral Meloxicam specified for the [***] (each such [***] will be referred to as the “Firm Zone”), and Recro will be obligated to purchase the amount of BC Parenteral Meloxicam specified for the [***] of each Rolling Forecast (each such [***] will be referred to as the “Flexible Zone”), but may, subject to Section 4.3 (b), increase or decrease the Flexible Zone forecast by [***] of the number of Batches of BC Parenteral Meloxicam. In the event that Recro wishes to increase the Flexible

 

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Zone forecast by more than said [***], Alkermes shall not be obliged to supply such additional amounts but shall use commercially reasonable efforts to do so. For clarity and the avoidance of doubt, the Firm Zone shall constitute the [***] day period prior to Manufacture, and the Flexible Zone shall constitute the period of [***] days prior to Manufacture. The Parties agree that except with respect to the Firm Zone and the Flexible Zone thereof no Rolling Forecast provided by Recro will be binding upon Recro.

4.3 Firm Purchase Orders.

(a) Delivery of POs. Recro will submit purchase orders (each, a “Firm PO”) for the Requirements to Alkermes at least [***] days prior to the requested delivery date. The details of a Firm PO will be consistent with the amount of BC Parenteral Meloxicam forecast for the Firm Zone . Alkermes shall have no obligation to supply BC Parenteral Meloxicam to Recro to the extent that the Firm PO does not conform to the provisions of this Section 4.3.

(b) Batch Amounts. Notwithstanding Recro’s delivery of Firm POs for BC Parenteral Meloxicam, Alkermes will be obligated to Manufacture and ship BC Parenteral Meloxicam only in full Batch amounts; provided, however, that Alkermes may Manufacture BC Parenteral Meloxicam within [***] (the “Yield Band”) of the quantity specified in a Firm PO as a result of the Manufacture and shipment of such full Batch quantities. For the avoidance of doubt, in the event that any Batch yield is outside the Yield Band, but the relevant Batch is nonetheless conforming to the applicable Specifications, Alkermes shall be entitled to ship such Batch.

(c) Terms. Each Firm PO shall specify (i) the amount of BC Parenteral Meloxicam by weight and strength ordered to meet the Requirements; (ii) the month of delivery Ex Works the Alkermes Facility; (iii) the carrier; and (iv) the destination, subject to the limitations set forth in Section 4.5. The only terms of a Firm PO that shall be binding on the Parties shall be those identified in this Section 4.3(c) that are set forth on the face of such Firm PO. The terms of this Agreement are hereby incorporated by reference into each Firm PO submitted by Recro to Alkermes. No modification or amendment to this Agreement shall be effected by or result from the receipt, acceptance, signing or acknowledgment of a Party’s purchase orders, quotations, invoices, shipping documents or other business forms containing terms or conditions in addition to or different from the terms and conditions set forth in this Agreement, and the terms of this Agreement shall supersede any provision in any purchase order, specification or other document that is in addition to or inconsistent with the terms of this Agreement. No other terms and conditions shall apply to the supply of the Requirements hereunder, except pursuant to the applicable Quality Agreement or pursuant to a modification of this Agreement by written agreement of the Parties.

(d) Acknowledgement. Within [***] Business Days of receiving a Firm PO, Alkermes shall give written notice to Recro specifying the acceptance of such Firm PO unless the terms of such Firm PO are not in accordance with the provisions of this Agreement. In the event that Alkermes does not accept a Firm PO, the Parties shall promptly consult with each other to resolve the underlying issues as promptly as possible, and such Firm PO shall be modified accordingly. Firm POs may neither be canceled nor modified by either Party, except as expressly provided in this Agreement.

 

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4.4 Delivery Dates. Alkermes shall ship BC Parenteral Meloxicam in accordance with Firm POs, as such Firm POs may have been modified, solely in accordance with the provisions of this Agreement. If Alkermes reasonably expects any delay in shipment to Recro or its designee, Alkermes shall promptly inform Recro of such expected delay, shall promptly update the delivery schedule and shall use its commercially reasonable efforts to minimize the delay, except in the case of a delay resulting solely from the action or inaction of Recro or its Affiliates, in which case Alkermes shall use reasonable efforts to minimize the delay.

4.5 Shipment.

(a) Terms. Alkermes shall make BC Parenteral Meloxicam available for collection by the carrier specified by Recro in the applicable Firm PO, Ex Works the Alkermes Facility. To the extent that Alkermes is required to supply Finished Meloxicam to Recro hereunder, said Finished Meloxicam shall be made available for collection by the carrier specified by Recro in the applicable Firm PO, Ex Works the facility of [***]. Notwithstanding anything to the contrary, Recro will be the importer of record of each shipment of BC Parenteral Meloxicam and Finished Meloxicam. Alkermes will pack and address the BC Parenteral Meloxicam in accordance with the Firm POs, and in the case of Finished Meloxicam will require it to be packed and addressed in accordance with the instructions provided in the Firm POs. For clarity, title to each shipment of BC Parenteral Meloxicam and Finished Meloxicam shall not pass until full payment has been made by Recro for said shipments.

(b) Shipping Documents. Alkermes shall send with each shipment of BC Parenteral Meloxicam, or cause to be sent with each shipment of Finished Meloxicam, a packing list containing the Recro material description/code, purchase order number, Batch number, Manufacturing date, and total amount delivered by weight and strength.

(c) Export. It is the intention of Recro to export BC Parenteral Meloxicam, from Ireland without unreasonable delay after such product has been made available for collection in accordance with Sections 3.4 and 4.5(a) (the consequence of which, it is understood by the Parties, is that the sale of such BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, shall be [***]), and Recro will provide the following documentary evidence of dispatch and such other documents as Alkermes reasonably requests (“Documentary Evidence”) to Alkermes before the 15th day of the month following the month in which each relevant sale of the BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, occurs (or fifteen (15) days following Alkermes’ request). Where Recro uses a carrier to export the BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, by sea on behalf of Recro, Recro should ensure that it obtains from the shipping company a copy bill of lading or certificate of shipment or shipping advice, as Documentary Evidence. Where Recro uses a carrier to export the BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, by air on behalf of Recro, Recro should ensure that it obtains from the airline concerned a signed copy of the waybill, with flight details added, as Documentary Evidence. Recro shall promptly notify Alkermes (not

 

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later than the due delivery date in respect of the BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom) if it does not intend to export the BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, from Ireland.

Article 5

Supplies; Capital Equipment; Manufacturing Process Changes

5.1 Subject to the other provision of this Article 5, Alkermes shall be responsible for procuring all components and materials, including active pharmaceutical product, required to Manufacture BC Parenteral Meloxicam and Finished Meloxicam (to the extent requested by Recro), prior to final clinical or commercial labeling and packaging.

5.2 No Supply to Third Parties. During the Term, Alkermes shall supply BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, solely to Recro and Recro’s designated Sublicensees; Alkermes shall not supply BC Parenteral Meloxicam or Finished Meloxicam to any other Third Party.

5.3 Labeling, Packaging and Distribution. Recro shall be responsible for all labeling, packaging, and clinical and commercial distribution of BC Parenteral Meloxicam and any Finished Meloxicam derived therefrom.

5.4 Alkermes will be responsible for purchasing and installing at the Alkermes Facility any capital equipment required to support the commercial supply of BC Parenteral Meloxicam at a 5-kilogram scale (“5kg Capital Equipment”). Subject to Section 10.4(c)(ii), the 5kg Capital Equipment will be the property of Alkermes. The costs of purchasing 5kg Capital Equipment and the installation labor for the 5kg Capital Equipment and the maintenance and repair costs for the 5kg Capital Equipment will be borne by Alkermes. For clarity, and subject to Section 10.4(c)(ii), Alkermes will have the right to utilize the 5kg Capital Equipment to produce products other than BC Parenteral Meloxicam.

5.5 Alkermes shall not be required to purchase any capital equipment, other than the 5kg Capital Equipment, to support the commercial supply of BC Parenteral Meloxicam, unless and until Alkermes and Recro have entered into a written agreement setting forth the financial obligations with respect thereto, the ownership thereof and the disposition thereof upon the termination or expiration of this Agreement.

5.6 Notwithstanding Section 5.5,

(a) In the event that Recro or any applicable Regulatory Authority desires or requires any change to be made to the Manufacturing process or DMF, including the Specifications, Recro shall pay [***] for all work performed by Alkermes personnel in implementing such changes. Recro shall also reimburse Alkermes for [***]. At the end of each [***] during the period such work is being performed by Alkermes or any Third Party, Alkermes shall invoice Recro in U.S. dollars for any such work that has been performed during such [***] and [***], and Recro shall pay all such invoices within [***] days of the invoice date. Invoices shall set forth the number of hours worked by Alkermes personnel

 

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during such [***] and the [***], and shall contain an appropriate description of such [***]. Invoices shall be emailed to dnichols@recropharma.com.

(b) In the event that Alkermes’ efforts to scale up commercial supply of BC Parenteral Meloxicam to a 10-kilogram scale requires capital expenditures, which may include the purchase of a Nanomill System or components thereof, Alkermes shall obtain Recro’s prior written consent prior to incurring such costs and Recro shall reimburse Alkermes’ Fully Burdened Costs and Third Party expenses with respect thereto within [***] days of receipt of the relevant Alkermes invoice(s). Upon payment of Alkermes’ Fully Burdened Costs and Third Party expenses in accordance with this Section 5.6(b), title to capital equipment purchased pursuant to this Section 5.6(b) shall automatically vest in Recro.

5.7 Shortages. Alkermes agrees that it will use commercially reasonable efforts to prevent an interruption of supply hereunder and shall immediately notify Recro of any problems or unusual production situations which may adversely affect the supply of the Clinical Requirements or the Requirements, or quality or timely delivery of BC Parenteral Meloxicam or Finished Meloxicam. If, at any time during the Term, with respect to the supply of the Requirements, Alkermes either fails to deliver at least [***] of the Requirements ordered in a given Firm PO (which quantity is in compliance with the terms of this Agreement and the applicable Quality Agreement) for more than either (a) [***] consecutive months after the delivery date therefor, or (b) in the event of a Force Majeure Event, [***] consecutive months after the delivery date therefor (a “Shortage”), then Alkermes shall: (i) give Recro prompt notice thereof, (ii) take commercially reasonable steps to enable Recro to procure adequate quantities of BC Parenteral Meloxicam or Finished Meloxicam with respect to the Requirements, as applicable, only for so long as such Shortage exists from a Third Party source in accordance with the applicable provisions of Section 10.4(b) and (iii) if such inability is partial, Alkermes shall fulfill Firm POs with such quantities of BC Parenteral Meloxicam or Finished Meloxicam, as applicable, as are available, and shall continue to use its commercially reasonable efforts to fulfill orders on a timely basis. At such time as Alkermes is able to supply Recro its Requirements and the Shortage no longer exists, Alkermes shall fulfill Firm POs and Recro shall no longer procure quantities of BC Parenteral Meloxicam or Finished Meloxicam, as applicable, from any Third Party source; provided, that once a Third Party source is qualified to supply BC Parenteral Meloxicam, Recro may continue to procure from such Third Party source the minimum amount of BC Parenteral Meloxicam required to allow such Third Party source to continue to be qualified to supply BC Parenteral Meloxicam.

Article 6

Quality

6.1 Certificate of Analysis and Compliance. Alkermes shall obtain representative samples from each Batch of BC Parenteral Meloxicam and Finished Meloxicam, as applicable, supplied by Alkermes. Alkermes shall assay and analyze such samples in accordance with the Specifications and shall prepare a Certificate of Analysis and Compliance that shall be delivered to Recro prior to the release of the corresponding Batch. The Certificate of Analysis and Compliance provided by Alkermes shall include the following: Batch number, Quality Signature (name, title, signature, and date signature applied, the “Quality Signature”), test, test specification and test result. Each Batch will be released in compliance with the release procedures set forth in the Quality Agreement.

 

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6.2 Quality Control and Quality Assurance; Regulatory.

(a) Quality Agreements. Each Party shall comply with the provisions of the Quality Agreements. The Quality Agreements shall be reviewed annually by the quality department of each Party and, upon mutual agreement, revised and updated in writing as necessary. In the event of a conflict between a Quality Agreement and this Agreement, this Agreement shall govern and control.

(b) Audits by Recro. With respect to BC Parenteral Meloxicam and Finished Meloxicam Manufactured and supplied to Recro hereunder, Recro shall have the right, [***] prior written request at a mutually agreeable time and at its own expense, to review and audit Alkermes’ quality control and assurance procedures and records, and to visit those sections of the Alkermes Facility used in such Manufacture and supply in order to assure compliance with this Agreement, the Specifications, cGMP and other applicable Laws and the Quality Agreements. All such audits shall be conducted in accordance with the provisions of this Agreement. Recro agrees that Confidential Information of Alkermes will include any documents (including any made available in electronic form) and data provided to Recro or its Sublicensees for the purpose of any such audits and any other information received by Recro or its Sublicensees, whether in writing, orally or by observation, while on-site at the Alkermes Facility to perform such audits or during the course of discussions related thereto. In addition during such audit, Alkermes may withhold certain Confidential Information contained in the DMF which Alkermes reasonably believes is highly sensitive information, provided that, Alkermes shall permit a Third Party Reviewer to access the entire DMF pursuant to Section 6.7(b). While on-site at the Alkermes Facility, Recro and its Sublicensees agree to follow all of Alkermes’ rules, regulations and procedures made available to them with respect to conduct at the Alkermes Facility. Further, Recro shall not have access during such audits to Alkermes’ Confidential Information related to other customers. Recro and its Sublicensees will cooperate with Alkermes in taking reasonable precautions to avoid exposure of the Recro and Sublicensees representatives to information regarding activities of Alkermes unrelated to BC Parenteral Meloxicam and Finished Meloxicam.

(c) Regulatory Cooperation and Support.

(i) The Parties’ rights and obligations with respect to any inspections of the Alkermes Facility by the FDA or other Regulatory Authorities shall be defined by the provisions of the Quality Agreements and this Section 6.2(c). All notices or other communications (whether in written, electronic or oral form) related to such inspections will be deemed to be the Confidential Information of Alkermes.

(ii) Alkermes agrees to cooperate with any inspection by any Regulatory Authority, and notwithstanding the expiration or termination of this Agreement, Alkermes shall retain all relevant documentation in relation to the

 

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Services and facilitate, including, without limitation, making its personnel reasonably available for, necessary regulatory inspections (e.g., pre-approval inspections supporting the regulatory filings of BC Parenteral Meloxicam in various jurisdictions) and filing of regulatory letters of authorization (e.g., cGMP statements, material statements) for the manufacture of BC Parenteral Meloxicam until the approval of BC Parenteral Meloxicam by Regulatory Authorities, subject to Recro reimbursing Alkermes for [***] with respect thereto.

6.3 cGMP Records. Alkermes shall retain original cGMP records, including any Batch records, related to the BC Parenteral Meloxicam and Finished Meloxicam, to the extent applicable, shipped to Recro. Alkermes shall retain such originals as long as required by applicable Law. From time to time, upon Recro’s request, Alkermes shall disclose to Recro such cGMP records that do not include any Confidential Information which Alkermes reasonably believes is highly sensitive. In addition, Alkermes shall permit a qualified Third Party, reasonably acceptable to both Parties (such reviewer, the “Third Party Reviewer”), selected by Recro and reasonably acceptable to Alkermes, to enter the Alkermes Facility during normal business hours to review and inspect all cGMP records, including any portions of the cGMP records that contain Confidential Information which Alkermes reasonably believes is highly sensitive. Alkermes may require the Third Party Reviewer to sign a standard non-disclosure agreement with terms that are not inconsistent with the terms of this Agreement before providing the Third Party Reviewer access to the Alkermes Facility or cGMP records. Any reports generated by such Third Party Reviewer with respect to his/her review of the cGMP records shall be deemed the Confidential Information of Alkermes.

6.4 Quality.

(a) Analysis of BC Parenteral Meloxicam and Finished Meloxicam. Within [***] days from the date of shipment of a Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, in connection with the Clinical Requirements and/or the Requirements, by Alkermes, Recro may analyze said BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, to determine whether it meets the applicable Specifications and shall report any adverse findings to Alkermes within such [***] period, except for Latent Defects, which shall be reported to Alkermes pursuant to Section 6.4(c). In testing such BC Parenteral Meloxicam or the Finished Meloxicam derived therefrom, Recro shall use (i) the analytical testing methods agreed upon by the Parties, and (ii) technology transferred from Alkermes to Recro or a Third Party agreed upon by the Parties (and such Third Party subject to obligations of confidentiality reasonably acceptable to Alkermes), in each case of (i) and (ii), approved by Regulatory Authorities for batch release (the “Approved Methods”). To reject such a Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, Recro must give written notice to Alkermes within this [***] period specifying the deviation of such BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, from the applicable Specifications; if no such notice of rejection is given, Recro shall be deemed to have accepted such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom. Recro agrees to keep, true, accurate and complete records of all such sampling and analyses in accordance with its record retention policies; copies of such records shall be promptly provided to Alkermes and its representatives upon request.

 

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(b) Investigation of Non-Conforming BC Parenteral Meloxicam and Finished Meloxicam. Alkermes shall cooperate with Recro, in accordance with the Quality Agreement, in investigating any potential non-conforming Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, provided to Recro in connection with the Clinical Requirements and/or the Requirements. If Alkermes and Recro disagree as to whether any such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, meets the applicable Specifications, the matter shall be submitted to an independent testing laboratory, acceptable to both Parties, to determine whether the Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, conformed or did not conform to the applicable Specifications and the test results obtained from such laboratory shall be final and binding upon both Parties. Alkermes shall promptly send a portion of its retained sample of any alleged non-conforming Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, to both (i) Recro for its internal testing and review purposes; and (ii) the independent testing laboratory solely for use in accordance with this Section 6.4(b). In all events, Alkermes may reduce the portions of the retained samples to be sent to Recro and the independent testing laboratory in accordance with the previous sentence as necessary for Alkermes to retain a sufficient amount of each such retained sample for Alkermes to conduct its own testing. In testing the quality control sample, the independent testing laboratory shall use the Approved Methods , which methods shall have been transferred from Alkermes to such independent testing laboratory at Recro’s cost in accordance with a transfer protocol agreed upon by the Parties. The fees and expenses of such testing shall be borne by the Party whose judgment of whether the Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, met the applicable Specifications differs from that of the independent testing laboratory. Alkermes agrees to keep, true, accurate and complete records of all retained samples of BC Parenteral Meloxicam, and the Finished Meloxicam derived therefrom, in accordance with its record retention policies; copies of such records shall be promptly provided to Recro and its representatives upon request.

(c) Latent Defects. If, within [***] after Recro’s acceptance of a Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, for the Clinical Requirements and/or the Requirements, Recro discovers a Latent Defect that existed in such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, on or before Recro’s acceptance of such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, Recro shall notify Alkermes immediately of such discovery, and Recro shall have the right to reject such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, by giving written notice to Alkermes specifying the deviation of such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, from the applicable Specifications; provided, however, that if Alkermes disagrees with Recro’s determination that a Latent Defect exists or that the Latent Defect existed in such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, on or before Recro’s acceptance of the same, then Alkermes shall so notify Recro within [***] after receiving Recro’s notification about the Latent Defect, and in such case, a portion of Alkermes’ retained samples of such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, will be submitted for

 

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testing to an independent testing laboratory, acceptable to both Parties, whose determination of compliance or non-compliance of the Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, with the applicable Specifications, and the cause thereof, if non-compliant, shall be binding upon the Parties. In all events, Alkermes may reduce the portions of the retained samples to be sent to the independent testing laboratory in accordance with the previous sentence as necessary for Alkermes to retain a sufficient amount of each such retained sample for Alkermes to conduct its own testing. In testing the samples of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, the independent testing laboratory shall use the Approved Methods, which methods shall have been transferred from Recro, at Recro’s cost, to such independent testing laboratory in accordance with a transfer protocol agreed upon by the Parties. Recro shall bear the fees and expenses of such testing, unless the independent testing laboratory determines that the non-compliance is due solely to the negligence or willful misconduct of Alkermes in which case Alkermes shall bear such fees and expenses. Alkermes agrees to keep, true, accurate and complete records of all retained samples of BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, in accordance with its record retention policies; copies of such records shall be promptly provided to Recro and its representatives upon request.

(d) Replacement of BC Parenteral Meloxicam and Finished Meloxicam. Regardless of whether Alkermes agrees or disagrees with Recro’s determination that any Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, does not meet the applicable Specifications, Alkermes shall, at Recro’s request, use commercially reasonable efforts to Manufacture replacement BC Parenteral Meloxicam, or Finished Meloxicam, as applicable, in substitution for the potentially non-conforming BC Parenteral Meloxicam, or Finished Meloxicam. Such replacement of BC Parenteral Meloxicam, or Finished Meloxicam, shall be sold by Alkermes and purchased by Recro in accordance with the terms of this Agreement, as Recro may direct, as soon as reasonably possible. In the event that any Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, does not meet the applicable Specifications, including in the case of a Latent Defect determined by the Parties and in the case of the independent testing laboratory determines that the original Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, did not comply with the applicable Specifications, then Alkermes shall render a credit to Recro for such original Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, [***] (but only if Recro has already paid for the original Batch). In the case of a Latent Defect, if the Parties determine or the independent testing laboratory determines that the original Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, did comply with the applicable Specifications at the time of shipment or that any non-compliance was discoverable upon testing permitted by Section 6.4(a), then Recro will pay [***], if it has not done so already. Notwithstanding anything in this Agreement in the contrary, (i) this Section 6.4(d) sets forth Recro’s sole remedies in the event that any Batch of BC Parenteral Meloxicam, or Finished Meloxicam, as applicable, does not meet the applicable Specifications and (ii) failure of BC Parenteral Meloxicam or Finished Meloxicam to meet the applicable Specifications shall not be grounds for termination pursuant to Section 10.3(a).

 

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(e) Rejected BC Parenteral Meloxicam or Finished Meloxicam. Recro may not destroy any Batch of potentially non-conforming BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, until it receives written notification from Alkermes that Alkermes does not dispute that the Batch, or Finished Meloxicam derived therefrom, fails to meet the applicable Specifications and that Alkermes does not request return of such BC Parenteral Meloxicam, or Finished Meloxicam. Alkermes shall be deemed to have accepted Recro’s determination that the Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, failed to meet the applicable Specifications if Alkermes does not inform Recro in writing of a dispute with respect to such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, within [***] of receipt of notice from Recro that such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, failed to meet the applicable Specifications. Upon authorization from Alkermes to do so, Recro shall destroy or have destroyed such non-conforming Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, promptly at Alkermes’ reasonable expense and provide Alkermes with certification of such destruction. Recro shall, upon receipt of Alkermes’ request for return, promptly return such non-conforming BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, to Alkermes, at Alkermes’ reasonable expense, for destruction by or on behalf of Alkermes and provide Recro with certification of such destruction. If Alkermes does not instruct Recro as to the return or destruction of such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, within [***] following the determination that such Batch of BC Parenteral Meloxicam, or the Finished Meloxicam derived therefrom, failed to meet the applicable Specifications, or acceptance of Recro’s determination with respect thereto, Recro may choose whether to return or destroy such Batch and Alkermes shall reimburse Recro for all expenses with respect thereto.

6.5 Recalls/Recoveries of BC Parenteral Meloxicam and Finished Meloxicam.

(a) Procedure. Each Party shall comply with this Section 6.5 and the applicable Quality Agreement with respect to Recall/Recoveries of BC Parenteral Meloxicam and Finished Meloxicam.

(b) Replacement of BC Parenteral Meloxicam and Finished Meloxicam and Related Costs. If a Recall/Recovery of BC Parenteral Meloxicam or Finished Meloxicam results solely from Alkermes’ bad faith, gross negligence, willful misconduct, material breach of its obligations under this Agreement, or its failure to comply with applicable Law, Alkermes shall either, at Recro’s discretion, [***].

6.6 Complaints and Adverse Event Reporting Regarding BC Parenteral Meloxicam and Finished Meloxicam. Each Party shall comply with the procedures for handling product complaints and reporting adverse events set forth in the applicable Quality Agreement.

 

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6.7 DMF.

(a) Notwithstanding anything in this Agreement to the contrary, Alkermes will maintain, [***], the DMF and hereby grants Recro and its Sublicensees (i) the right to reference the DMF in the NDA for Finished Meloxicam and (ii) the right to access Confidential Information referenced in the DMF that Alkermes reasonably believes is not highly sensitive, until the time of the technology transfer pursuant to Section 10.4(b), after which the Technology Transfer Information will be transferred to Recro in accordance with Section 10.4(b). During the course of the FDA’s review of the NDA for BC Parenteral Meloxicam, Recro and its Sublicensees will inform Alkermes of any comments it receives from the FDA (including indication of deficiencies) regarding the Manufacture of BC Parenteral Meloxicam, and Alkermes will consult with Recro in drafting responses to any such comments, subject to Alkermes’ right to maintain confidential any proprietary information set forth in the confidential portions of the DMF.

(b) Upon Recro’s written request, Alkermes shall permit a Third Party Reviewer to review and comment on the entire DMF and its adequacy to support investigational new drug or NDA filings to be made to the FDA. In no event shall such any such review be conducted hereunder more frequently than once every [***] and all such reviews shall cease upon First Approval. Such Third Party Reviewer must have executed and delivered to Alkermes a confidentiality agreement as reasonably requested by Alkermes, which shall include provisions limiting such reviewer’s disclosure to Recro to only the results of such review. Recro shall pay for all such reviews. The Third Party Reviewer shall submit its findings to Alkermes for review and redaction of Confidential Information prior to submitting its findings to Recro. The Third Party Reviewer may submit the redacted findings to Recro. Any information received by Recro pursuant to this Section 6.7, that is not Confidential Information of Recro, shall be deemed to be Confidential Information of Alkermes.

6.8 Intellectual Property.

(a) Recro hereby grants to Alkermes and its Affiliates a non-transferable, non-exclusive, fully paid-up and royalty-free license, without the right to sublicense, under Patents and know-how controlled by Recro and/or Recro’s Affiliates solely to the extent necessary to provide the Services hereunder. Alkermes shall exercise such license solely at the Alkermes Facility and solely during the Term.

(b) All Technology, and all Patents and other intellectual property rights arising therefrom, created or conceived (whether solely by one Party or jointly by the Parties, in each case with their Affiliates or any licensees or sublicensees, or any other Third Parties, or any employees, contractors, consultants, representatives or agents of any of the foregoing) in connection with the Services shall be owned by Alkermes (the “Assigned Technology”), except that all Technology, and all Patents and other intellectual property rights arising therefrom, created or conceived (whether solely by one Party or jointly by the Parties, in each

 

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case with their Affiliates or any licensees or sublicensees, or any other Third Parties, or any employees, contractors, consultants, representatives or agents of any of the foregoing) solely related to BC Parenteral Meloxicam, Finished Meloxicam or Recro’s Confidential Information shall be owned by Recro (the “Meloxicam Technology”). Alkermes agrees to assign and hereby assigns to Recro, without further consideration, all right, title and interest Alkermes may have in any Meloxicam Technology. Recro agrees to assign and hereby assigns to Alkermes, without further consideration, all right, title and interest Recro may have in any Assigned Technology. Alkermes hereby grants Recro a license to any Assigned Technology on the terms and conditions of the Nanotechnology License set forth in the Asset Transfer and License Agreement dated April 10, 2015.

6.9 Manufacturing Process Changes. Without limiting Section 5.6(a), each Party shall comply with the applicable Quality Agreement with respect to the change control process to be followed if either Alkermes or Recro desires to change the Manufacturing process or DMF, including the Specifications, or if any applicable Regulatory Authority requires that the Manufacturing process, DMF or the Specifications be changed.

6.10 Licenses and Permits. Alkermes shall secure and maintain in good order such current registrations, permits and licenses as are required by Regulatory Authorities to permit Alkermes to provide the Services, for so long as is necessary to permit Alkermes to perform its obligations under this Agreement.

6.11 Manufacturing Records. Alkermes shall, to the extent such records are available to Alkermes, with respect to each Batch of BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, as applicable, Manufactured by it hereunder, for a period equal to the longer of (i) two (2) years after the expiry of the expiration dating of such Batch of BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, as applicable; (ii) five (5) years after Manufacture of such Batch of BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, as applicable; or (iii) such other period as is required by applicable Laws, rules or regulations of the European Union, United States and the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use, keep accurate records of the Manufacture of such Batch of BC Parenteral Meloxicam, and Finished Meloxicam derived therefrom, as applicable, including all such records which are required to be maintained under applicable Laws, rules and regulations.

Article 7

Payments

7.1 Payment.

(a) Recro shall pay Alkermes (i) [***] plus (ii) all Third Party expenses incurred by Alkermes with respect to such Services.

(b) For all Services performed with respect to the Clinical Requirements, including such Services performed pursuant to a Work Plan, Recro shall pay Alkermes an

 

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amount equal to (i) [***].

(c) For all Services performed with respect to the Requirements, including such Services performed pursuant to a Work Plan, Recro shall pay Alkermes an amount equal to (i) Alkermes’ Fully Burdened Costs with respect thereto plus (ii) [***].

(d) [***].

(e) For clarity, the Existing Batches, together with stability work completed prior to the Closing Date shall be made available by Alkermes to Recro, Ex Works the Alkermes Facility or the relevant Third Party facility, as appropriate, [***].

(f) All invoices under this Agreement shall be delivered in arrears and, subject to Section 7.1(g), Recro will pay such invoices within [***] of receipt of the applicable invoice. Invoices shall be emailed to dnichols@recropharma.com. Invoices shall be itemized and contain information on units of Fully Burdened Costs, relevant Third Party expenses to be reimbursed, time dedicated to performing Services under the Work Plans, time dedicated to performing CMC Development Services, labeling and packaging components, and batch and lot numbers for BC Parenteral Meloxicam produced and Finished Meloxicam derived therefrom.

(g) In the event of a payment dispute, Recro shall notify Alkermes of the same and pay the undisputed portion of the relevant invoice. For the [***] period following receipt of notice from Recro of the payment dispute, the Parties shall seek to resolve such dispute informally. If the Parties are unable to resolve the dispute during such [***] period, Alkermes’ representative, Noeleen Kenny, Vice President Alliance Management, and Recro’s representative, its Chief Financial Officer, shall work together to resolve such dispute. If the aforementioned representatives are unable to resolve the dispute during a further [***] period, then the dispute shall be referred to (i) for Recro, Gerri Henwood, Chief Executive Officer and (ii) for Alkermes, Shane Cooke, President, who shall work together to reach an agreement.

 

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7.2 Method of Payment. Recro will make all payments when due. Recro shall make all payments hereunder in U.S. dollars by bank wire transfer in immediately available funds to such account as Alkermes may designate before such payment is due, free and clear of any taxes, duties, levies, fees or charges. Any invoice payable pursuant to Section 7.1 or Article 5 that is not paid on or before the date such payment is due under this Agreement shall bear interest, to the extent permitted by applicable Law, at the Interest Rate calculated on the number of days such payment is delinquent.

7.3 Taxes. Payments made by Recro for Services provided by Alkermes, or procured by Alkermes from a Third Party, in connection with this Agreement are exclusive of any federal, state, county or municipal sales or use tax, value added tax, excise or similar charge, or other Tax (as defined in the Purchase and Sale Agreement) assessment (other than Income Tax (as defined in the Purchase and Sale Agreement)), which will be additionally payable by Recro in the event that such Tax applies to any of these payments, provided that Alkermes will issue an appropriate invoice to support any such charge. If Recro is required by applicable Law to pay or withhold any Income Tax on behalf of Alkermes with respect to any amounts payable to Alkermes under this Agreement, then (a) Recro shall notify Alkermes of its intention to withhold no later than fifteen (15) days before the payment is due (and such notice shall be sent to the persons designated in Section 13.4); (b) Recro shall deduct the Income Taxes from the amount of such monies due; (c) any such Income Tax required to be paid or withheld shall be an expense of and borne solely by Alkermes; and (d) Recro shall promptly provide Alkermes with a certificate or other documentary evidence to enable Alkermes to support a claim for a refund or a foreign tax credit. Alkermes and Recro agree to cooperate in all respects to take advantage of any double taxation agreements or similar agreements as may, from time to time, be available in order to enable Recro to make such payments to Alkermes without any deduction or withholding of Income Tax. It is understood and agreed that, so long as Alkermes has provided Recro with (i) a properly completed Form W-8BEN-E establishing itself as beneficial owner for purposes of the U.S.-Ireland Treaty of the payments made to Alkermes hereunder and its claim to treaty benefits under Article 7 of the U.S.-Ireland Treaty (relating to Business Profits), and such W-8BEN-E has not expired, Recro shall treat all payments to Alkermes for Services as exempt from withholding of U.S. federal Income Taxes, and (ii) a Form W-8BEN-E upon which Recro may rely to show that the payments made to Alkermes are not subject to FATCA withholding, Recro shall not withhold any amounts under FATCA from payments made to Alkermes hereunder.

Article 8

Financial Record Keeping and Audits

8.1 Record Retention. Alkermes shall keep accurate and complete books and records of accounting pertaining to the Services performed, in sufficient detail to permit Recro to confirm the accuracy of the invoices submitted hereunder. Such records shall be maintained at Alkermes’ principal place of business for a seven (7) year period following the year in which any such invoices were submitted.

8.2 Audit Request. For the [***] period following the close of each Calendar Year of the Term, Alkermes will, in the event that Recro reasonably requests such access, provide Recro with access once during said period and during regular business hours to audit the records described in Section 8.1 through an independent certified

 

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accountant selected by Recro, and which is reasonably acceptable to Alkermes, for the sole purposes of confirming the accuracy of the invoices submitted under this Agreement, and assisting in the determination of any payment dispute, in respect of Services provided in the Calendar Year then ended. Such accountant must have executed and delivered to Alkermes a confidentiality agreement as reasonably requested by Alkermes, which shall include provisions limiting such accountant’s disclosure to Recro to only the results of such inspection. The results of such inspection, if any, shall be binding on both Parties. Recro shall pay for such inspections, except that in the event that an error in favor of Alkermes of more than [***] of the amounts invoiced for the period covered by the audit is discovered, then Alkermes shall reimburse Recro for any reasonable out-of-pocket costs of such accountant. Further, Alkermes shall make its employees reasonably available to Recro and its accountant for assistance in confirming the accuracy of the invoices submitted under this Agreement and assisting in the determination of any payment dispute. Any information received by Recro pursuant to this Section 8.2, that is not Confidential Information of Recro, shall be deemed to be Confidential Information of Alkermes.

8.3 Survival. This Article 8 shall survive any termination of this Agreement for a period of two (2) years.

Article 9

Representations, Warranties and Covenants

9.1 Mutual Representations and Warranties. Each Party represents, warrants and covenants to the other as follows:

(a) this Agreement has been duly executed and delivered by such Party and constitutes the valid and binding obligation of such Party, enforceable against that Party in accordance with its terms, except as enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency, reorganization, moratorium and other applicable Laws relating to or affecting creditors’ rights generally and by general equitable principles;

(b) such Party has the right, power and authority to execute, deliver and perform this Agreement;

(c) the execution, delivery and performance of this Agreement does not breach, violate, contravene or constitute a default under any contracts, arrangements or commitments to which such Party is a party or by which it is bound nor do the execution, delivery and performance of this Agreement by such Party violate any applicable Laws or any order or regulation of any court, governmental body or administrative or other agency having authority over it; and

(d) such Party will not enter into any contract, arrangement or commitment in the future which conflicts with or violates any term or provision of this Agreement.

 

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9.2 Alkermes Representations, Warranties and Covenants. Alkermes represents, warrants and covenants to Recro as follows:

(a) all Services shall (i) to the extent applicable, be in compliance with applicable cGMP; (ii) conform in all material respects to the requirements set forth in this Agreement; and (iii) be performed in a good, professional and workmanlike manner;

(b) Alkermes shall ensure that its personnel adhere to the provisions of this Agreement and have the requisite knowledge, training and ability to perform Services competently and in accordance with the terms of this Agreement;

(c) all BC Parenteral Meloxicam and all Finished Meloxicam shall: (i) not, at the time of shipment hereunder, to the extent applicable, be adulterated or misbranded within the meaning of the U.S. Food, Drug and Cosmetic Act of 1938, as amended from time to time; (ii) conform to the Certificate of Analysis and Compliance supplied with such shipment; (iii) meet the applicable Specifications; (iv) be free of materials that have not been used or stored in accordance with the applicable specifications and/or Law; and (v) be free from liens, claims and encumbrances which affect title;

(d) Alkermes shall comply in all material respects with all (i) Laws and regulations applicable to its activities hereunder; and (ii) requirements of Regulatory Authorities applicable to its activities hereunder; and

(e) (i) none of Alkermes’ employees performing any Services have been debarred under 21 USC 335(a) (as amended) or 21 USC 335(b) (as amended); and (ii) Alkermes shall promptly notify Recro if Alkermes learns that any person or entity providing Services hereunder has become debarred under 21 USC 335(a) (as amended) or 21 USC 335(b) (as amended) and shall immediately replace such person or entity.

9.3 Recro Representations, Warranties and Covenants. Recro represents, warrants and covenants to Alkermes as follows: Recro shall comply in all material respects with all (a) Laws and regulations applicable to its activities hereunder and (b) requirements of Regulatory Authorities applicable to its activities hereunder.

9.4 No Implied Representations, Warranties, Covenants or Conditions. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED HEREIN, NEITHER PARTY MAKES ANY REPRESENTATIONS, WARRANTIES OR COVENANTS AND THERE ARE NO CONDITIONS, EXPRESS OR IMPLIED, STATUTORY OR OTHERWISE, WITH RESPECT TO THE SERVICES, BC PARENTERAL MELOXICAM OR FINISHED MELOXICAM SUPPLIED HEREUNDER, INCLUDING ANY SUCH REPRESENTATIONS, WARRANTIES, COVENANTS OR CONDITIONS WITH RESPECT TO THE NON-INFRINGEMENT OF THIRD PARTY RIGHTS, MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF SUCH SERVICES, BC PARENTERAL MELOXICAM OR FINISHED MELOXICAM.

 

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Article 10

Term; Termination

10.1 Term.

(a) Unless sooner terminated as provided in this Article 10, the term of this Agreement shall begin on the Effective Date and continue until: (a) ten (10) years from the date of the first commercial sale of Finished Meloxicam to a Third Party (the “First-Sale Term”), if the first commercial sale of Finished Meloxicam to a Third Party occurs on or before December 31, 2020 or (b) December 31, 2020, if the first commercial sale of Finished Meloxicam to a Third Party does not occur on or before December 31, 2020 (the foregoing (i) and (ii), collectively, (the “Initial Period”)).

(b) After the First-Sale Term, this Agreement shall automatically renew for successive one (1) year periods (the “Extension Periods”).

10.2 Early Termination not for Material Breach.

(a) During the Initial Period, Recro may terminate this Agreement on one hundred eighty (180) days’ prior written notice to Alkermes at any time subsequent to the first day on which a product is marketed by a Third Party pursuant to an abbreviated NDA referencing Finished Meloxicam (i.e. the date of first generic entry).

(b) Either Party may terminate this Agreement on one hundred (180) days’ prior written notice during an Extension Period.

(c) At any time following the one (1) year anniversary of the NDA approval for Finished Meloxicam, either Party may terminate this Agreement upon twelve (12) months’ written notice.

(d) This Agreement shall automatically terminate as of the Reversion Date (as defined in the IP License Agreement).

10.3 Termination upon Material Breach.

(a) Except as otherwise provided herein, if either Party commits a breach of any material provision of this Agreement and the other Party has given the breaching Party written notice of such breach, then the breaching Party shall have thirty (30) days to cure such breach. If such breach is not cured in all material respects within such thirty (30) day period, then the non-breaching Party shall have the right, upon written notice to the breaching Party and without prejudice to any other rights the non-breaching Party may have, to terminate this Agreement, unless the breaching Party is in the process of attempting in good faith to cure such breach, in which case the thirty (30) day cure period shall be extended by an additional thirty (30) days.

(b) Notwithstanding Section 10.3(a), in the event that Recro has failed to pay a material amount to Alkermes for more than sixty (60) days following the date on which such payment was due, and Alkermes provides Recro with written notice of such failure, Recro shall have thirty (30) days to pay such amount, or the undisputed portion thereof. If Recro does not pay such amount within thirty (30) days following written notice from Alkermes, Alkermes may terminate this Agreement upon written notice to Recro.

 

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10.4 Effects of Termination or Expiration.

(a) BC Parenteral Meloxicam and Finished Meloxicam. Upon expiration or termination of this Agreement, Alkermes will Manufacture and ship to Recro, and Recro will purchase in accordance with the provisions hereof, all BC Parenteral Meloxicam and Finished Meloxicam ordered pursuant to Firm POs issued hereunder prior to the date on which notice of such termination was given, or prior to the expiration date of the Agreement, as applicable.

(b) Technology Transfer. [***].

(c) Capital Equipment.

(i) In the event that during the Term, Alkermes obtained capital equipment pursuant to Section 5.6(b), then upon a technology transfer pursuant to Section 10.4(b), if and only if Recro has paid all expenses with respect to such capital equipment in accordance with Section 5.6(b), then, if Recro so elects by written notice, Alkermes shall ship such capital equipment to Recro or its designated Third Party manufacturer at Recro’s expense, including reimbursing Alkermes’ Fully Burdened Costs and Third Party expenses with respect thereto.

(ii) In the event that during the Term, Alkermes obtained 5kg Capital Equipment pursuant to Section 5.4, then upon Alkermes’ election by written notice to Recro following a technology transfer pursuant to Section 10.4(b), Recro shall reimburse Alkermes’ Fully Burdened Costs and Third Party expenses with respect to such 5kg Capital Equipment to the extent such costs have not already

 

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been recouped through Recro’s payment of Fully Burdened Costs for the BC Parenteral Meloxicam hereunder, and Alkermes shall ship such capital equipment to Recro or its designated Third Party manufacturer, at Recro’s expense.

(iii) The disposition of all other capital equipment purchased in connection with providing Services hereunder shall be determined in accordance with the applicable written agreement contemplated by Section 5.5.

(d) Additional Costs. In the event that Recro terminates this Agreement pursuant to Section 10.2 or Alkermes terminates this Agreement pursuant to Section 10.3, Recro shall promptly reimburse Alkermes for any Third Party cancellation fees and other expenses payable by Alkermes that are related to such early termination of this Agreement and are not otherwise recoverable under this Section 10.4.

(e) Accrued Rights and Obligations. Except as otherwise expressly provided in this Agreement, any expiration or termination of this Agreement shall be without prejudice to any rights accrued to the benefit of either Party, and shall not relieve either Party of any obligations accrued, prior to such expiration or termination.

(f) Surviving Provisions. The rights and obligations under Sections 6.2, 6.3, 6.4, 6.5, 6.7, 6.8, 6.11, 9.4, 10.4 and Articles 7, 8, 11, 12 and 13 shall survive any expiration or termination of this Agreement, in each case only in the event and to the extent applicable and subject to the terms and conditions stated therein. In addition, any other provision required to interpret or to enforce the Parties’ rights and obligations under this Agreement shall also survive, but only to the extent required for the full performance of this Agreement. Any right to terminate this Agreement, and any rights a Party has under this Article 10, as applicable, shall be in addition to and not in lieu of all other rights or remedies that the Party giving notice of termination may have at law or in equity or otherwise.

Article 11

Indemnification / Limitation of Liability

11.1 Indemnification.

(a) Recro Indemnification. Recro hereby agrees to indemnify and hold Alkermes and its Affiliates and their respective employees, directors, agents and contractors, and their respective successors, heirs and assigns and representatives (the “Alkermes Indemnitees”) harmless from and against any and all liabilities, damages, costs, expenses (including reasonable attorneys’ fees and other expenses of litigation), losses and judgments relating to a Third Party claim, suit, action or demand (collectively, “Losses”) to the extent arising out of or resulting from (i) any material breach of this Agreement by Recro, or (ii) use, manufacture, sale, offer for sale, import or development or commercialization of BC Parenteral Meloxicam or Finished Meloxicam (in each case, Manufactured in accordance with the applicable Specifications) by or for Recro or any of its Sublicensees, including Losses relating to death, personal injury, illness, product liability or property damage or the failure to comply with applicable Law. Third Party claims, suits, actions and demands subject to this Section 11.1(a) shall not include any claims, suits, actions or demands asserted by any Affiliate of Alkermes.

 

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(b) Alkermes Indemnification. Alkermes hereby agrees to indemnify and hold Recro, its Sublicensees, and their respective employees, directors, agents and contractors, and their respective successors, heirs and assigns and representatives (the “Recro Indemnitees”) harmless from and against all Losses to the extent arising out of or resulting from any material breach of this Agreement by Alkermes. Third Party claims, suits, actions and demands subject to this Section 11.1(b) shall not include any claims, suits, actions or demands asserted by any Affiliate or Sublicensee of Recro.

(c) Procedure. If any Person (each, an “Indemnitee”) intends to claim indemnification under this Section 11.1, the Indemnitee shall notify the other Party (the “Indemnitor”) in writing promptly upon becoming aware of any demand, claim, action or proceeding that may result in Losses (each, a “Claim”) (it being understood and agreed, however, that the failure by an Indemnitee to give such notice shall not relieve the Indemnitor of its indemnification obligation under this Agreement except and only to the extent that the Indemnitor is actually prejudiced as a result of such failure to give notice). The Indemnitor shall be entitled, by delivery of written notice to the Indemnitee within twenty (20) Business Days of the receipt of notice of a Claim, to assume and control the defense of such Claim at its own expense with counsel selected by the Indemnitor and reasonably acceptable to the Indemnitee; provided that the Indemnitor shall only be entitled to undertake, conduct and control such settlement or defense if it acknowledges, in writing, to the Indemnitee, its obligation to indemnify the Indemnitee pursuant to the terms and subject to the limitations of this Article 11. An Indemnitee may participate in the defense of such Claim through counsel of its choice, but the cost of such counsel shall be borne solely by the Indemnitee. If the Indemnitor does not assume the defense and control of any Claim pursuant to this Section 11.1(c), the Indemnitee shall be entitled to assume and control such defense through counsel of its own choice, and the reasonable fees and expenses incurred in connection with such defense shall be considered Losses hereunder with respect to the subject matter of such claim, indemnifiable to the extent provided in this Article 11. Notwithstanding any other provision of this Section 11.1(c) to the contrary, no Indemnitee shall be required to waive a conflict of interest under any applicable rules of professional ethics or responsibility if such waiver would be required for a single law firm to defend both the Indemnitor and one or more Indemnitees. In such case, the Indemnitor shall provide a defense of the affected Indemnitees through a separate law firm reasonably acceptable to the affected Indemnitees at the Indemnitor’s expense. The Indemnitee shall not settle or compromise any Claim without the prior written consent of the Indemnitor, and the Indemnitor shall not settle or compromise any Claim in any manner which would have an adverse effect on the Indemnitee’s interests, without the prior written consent of the Indemnitee, which consent, in each case, shall not be unreasonably withheld. The Indemnitee shall reasonably cooperate with the Indemnitor at the Indemnitor’s expense and shall make available to the Indemnitor all pertinent information under the control of the Indemnitee, which information shall be the Confidential Information of the Indemnitee.

 

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11.2 Insurance.

(a) Coverage. Each Party shall procure and maintain insurance policies for the following coverages with respect to personal injury, bodily injury and property damage arising out of its performance under this Agreement: (i) during the Term, comprehensive general liability, including broad form and contractual liability, in a minimum amount of [***] combined single limit per occurrence and in the aggregate; (ii) during the conduct of clinical trials of BC Parenteral Meloxicam, clinical trials coverage in a minimum amount of [***] combined single limit per occurrence and in the aggregate; and (iii) prior to the first commercial sale of Finished Meloxicam, product liability coverage, in a minimum amount of [***] combined single limit per occurrence and in the aggregate, with the coverage provided for in clause (ii) and clause (iii) to remain in force during the Term and for at least [***] thereafter. Upon request, each Party shall provide the other Party with insurance certificates evidencing the required coverage within thirty (30) days after the Effective Date and the commencement of each policy period and any renewal periods. In the event that any of these policies are written on a claims made basis, then such policies shall be maintained during the Term and for a period of not less than [***] following the termination or expiration of this Agreement. It is understood and agreed that this insurance shall not be construed to limit either Party’s liability with respect to its indemnification obligations hereunder.

(b) Rating. The policies of insurance required by this Section 11.2 shall be issued by an insurance carrier with an A.M. Best rating of “A” or better.

11.3 Limitation of Liability.

(a) No Alkermes Indemnitee or Recro Indemnitee shall be entitled to indemnification pursuant to Section 11.1(a) or 11.1(b), respectively, to the extent that Losses resulted from such Alkermes Indemnitee’s or such Recro Indemnitee’s (as applicable) bad faith, gross negligence, willful misconduct or failure to comply with applicable Law.

(b) Alkermes’ liability under this Agreement howsoever arising shall not exceed the amount actually paid for the Services provided hereunder during the [***] period immediately preceding the date of the action or omission alleged to have caused such liability (“Lookback Period”). In no event shall Alkermes’ cumulative liability under this Agreement at any time exceed the amount actually paid as of such time for the Services provided hereunder. In all cases, for purposes of calculating the limit of liability for purposes of this Section 11.3(b), amounts paid for Services provided hereunder shall exclude any amounts paid by Alkermes to Third Parties in connection with such Services.

(c) Except with respect to liability arising from a breach of Article 12 or indemnification obligations pursuant to Article 11, notwithstanding anything to the contrary contained in this Agreement, neither Party shall have any liability under any provision of this Agreement for any punitive, incidental, consequential, special or indirect damages, including loss of future profits, revenue or income, diminution in value or loss of business reputation or opportunity relating to the breach or alleged breach of this Agreement, regardless of whether such damages were foreseeable.

 

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Article 12

Confidential Information

12.1 Confidentiality

(a) The Parties shall refrain from, either alone or in conjunction with any other Person, or directly or indirectly through their Affiliates or Representatives, disclosing to any other Person, or using in any manner, any confidential, proprietary or secret information (“Confidential Information”) of any other Party or such Party’s Affiliates; provided that the foregoing obligations of confidentiality and non-use will not apply to any Confidential Information that (i) is or becomes generally available to the public or otherwise part of the public domain and other than through any act or omission of the foregoing Persons or their Affiliates in breach of this Agreement, the Purchase and Sale Agreement, the Ancillary Agreements, the Intellectual Property Transfer and License Agreement or the IP License Agreement, (ii) is disclosed after the date hereof to the foregoing Persons or their Affiliates or Representatives on a non-confidential basis by a Third Party that is not subject to an obligation of confidentiality with respect to such Confidential Information, and (iii) is independently discovered or developed by the foregoing Persons or their Affiliates without the aid, application, or use of such Confidential Information. For clarity, the Parties agrees that the terms of this Agreement shall be treated as Confidential Information of both Parties, and thus may be disclosed only as permitted by Sections 12.1(b) and 12.1(c) below.

(b) Notwithstanding Section 12.1(a), a Party may disclose the Confidential Information of the other Party in order to comply with (i) applicable non-patent Law (including any securities law or regulation or the rules of a securities exchange); (ii) a request or requirement by deposition, interrogatory, request for documents, subpoena, civil investigation demand or similar process or a formal request from a regulatory examiner, if in the reasonable opinion of counsel, such disclosure is necessary for such compliance (an “External Demand”); and (iii) to its Affiliates, and potential and actual acquirers, merger partners, investors, investment bankers or lenders and their respective counsels and advisors; provided that, (A) with regard to disclosure under clause (ii), prior to making such disclosure, the Party subject to such demand or request shall (x) immediately notify the other Party of the existence, terms and circumstances surrounding such External Demand, (y) consult with the other Party on the availability of taking legally available steps to resist or narrow such request or disclosure, and (z) assist the other Party, at the other Party’s expense, in seeking a protective order or other appropriate remedy to the extent available under the circumstances and (B) with regard to disclosure under clause (iii), prior to making such disclosure, such entities are bound by commercially reasonable obligations of confidentiality with respect to the use and disclosure of such Confidential Information.

(c) The Parties acknowledge that either or both Parties may be obligated to make filings (including, but not limited to, the filing of a copy of this Agreement) with the SEC or other Governmental Entity. Each Party shall be entitled to make such required filings, provided that it requests confidential treatment of at least the financial terms and sensitive technical terms of this Agreement to the extent such confidential treatment is reasonably available to such Party. In the event of any such filing of this Agreement, the Party making such filing shall provide notice to the other Party with a copy of such disclosure and, if

 

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applicable, a copy of this Agreement marked to show provisions for which such Party intends to seek confidential treatment not less than five (5) Business Days prior to such filing (and any revisions to such portions of the proposed filing a reasonable time prior to the filing thereof), and shall give good faith consideration to the other Party’s comments thereon to the extent consistent with the legal requirements. No such notice shall be required under this Section 12.1(c) if the substance of the description of or reference to this Agreement contained in the proposed filing has been included in any previous filing made by either Party or otherwise approved by the other Party

(d) The Parties acknowledge that the obligations of confidentiality set forth in this Section 12.1 shall be in addition to, and shall not amend, modify or otherwise limit, any obligations of confidentiality or non-disclosure as set forth in the Purchase and Sale Agreement.

Article 13

Miscellaneous

13.1 Counterparts. This Agreement may be executed in two (2) or more counterparts, all of which shall be considered one and the same agreement, and shall become effective when one or more counterparts have been signed by each of the Parties and delivered to the other Parties. This Agreement may be executed and delivered by facsimile or as an attachment to an e-mail and upon such delivery the signature shall be deemed to have the same effect as if the original signature had been delivered to the other Parties.

13.2 Governing Law; Jurisdiction and Forum; Waiver of Jury Trial.

(a) This Agreement, and all claims or causes of action (whether based on contract, tort or any other theory) that may be based upon, arise out of or related to this Agreement or the negotiation, execution or performance of this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware applicable to contracts negotiated, made and performed in such State without giving effect to the choice of law principles of such State or other jurisdiction that would require or permit the application of the laws of another jurisdiction.

(b) Each of the Parties hereto irrevocably consents to the exclusive jurisdiction and venue of any court within the State of Delaware in connection with any matter based upon or arising out of this Agreement or the matters contemplated herein, agrees that process may be served upon them in any manner authorized by the laws of the State of Delaware for such Persons and waives and covenants not to assert or plead any objection which they might otherwise have to such jurisdiction, venue and such process.

(c) Each Party knowingly, intentionally and voluntarily waives to the fullest extent permitted by applicable Law trial by jury in any Action brought by any of them against any other arising out of or in any way connected with this Agreement, or any other agreements executed in connection herewith or the administration thereof or any of the transactions contemplated herein or therein. Neither Party shall seek a jury trial in any Action based upon, or arising out of, this Agreement. Neither Party shall seek to consolidate any

 

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such Action in which a jury trial has been waived with any other Action in which a jury trial cannot be or has not been waived. Each Party certifies that it has been induced to enter into this Agreement or instrument by, among other things, the mutual waivers and certifications set forth in this Section 13.2. No Party has in any way agreed with or represented to any other Party that the provisions of this Section 13.2 shall not be fully enforced in all instances.

13.3 Entire Agreement. This Agreement (including the Exhibits to this Agreement), together with the Quality Agreements, contains the entire agreement and understanding among the Parties with respect to the subject matter hereof and supersedes any prior discussion, correspondence, negotiation, proposed term sheet, agreement, understanding or arrangement, and there are no agreements, understandings, representations or warranties among the Parties other than those set forth or referred to in these documents. Neither of the Parties shall be liable or bound to the other Party in any manner by any representations, warranties or covenants relating to such subject matter except as specifically set forth in this Agreement (including the Exhibits to this Agreement).

13.4 Notices. All notices and other communications to be given to a Party shall be sufficiently given for all purposes hereunder if in writing and delivered by hand, courier or overnight delivery service or three (3) days after being mailed by certified or registered mail, return receipt requested, with appropriate postage prepaid, or when received in the form of telegram, facsimile or e-mail and shall be directed to the address set forth below (or at such other address or facsimile number as such Party shall designate by like notice):

 

  (a)

If to Alkermes:

Alkermes Pharma Ireland Limited

Connaught House

1 Burlington Road

Dublin 4, Ireland

Attn: Noeleen Kenny, Vice President Alliance Management

F: +353 1 7728001

with a copy (which shall not constitute notice) to:

Goodwin Procter LLP

53 State Street

Boston, MA 02109

Attn: Mitchell S. Bloom, Esq.

          Robert E. Puopolo, Esq.

Fax No.: (617) 523-1231

and with a copy (which shall not constitute notice) to:

Arthur Cox

Earlsfort Centre

Earlsfort Terrace

Dublin 2, Ireland

Attn: Christopher P.J. McLaughlin

Fax No.: + 353 1 616 3901

 

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  (b)

If to Recro:

Recro Pharma, Inc.

490 Lapp Road

Malvern, PA 19355

Attn:   Chris Sharr
  Gerri Henwood
Email:   csharr@recropharma.com
  ghenwood@recropharma.com

with a copy (which shall not constitute notice) to:

Pepper Hamilton LLP

Two Logan Square

Eighteenth and Arch Streets

Philadelphia, PA 19103

Attn: Rachael M. Bushey, Esq.

Email: busheyr@pepperlaw.com

13.5 Assignment. This Agreement may not be assigned by a Party, by operation of law or otherwise, without the express written consent of the other Party (which consent may not be unreasonably delayed, conditioned or withheld); provided, however, that (a) a Party may assign, mortgage, charge or dispose of any of its rights or obligations under this Agreement without the prior written consent of the other Party in the event of a merger, sale or similar transaction involving all or substantially all of its assets, provided that doing so does not add any obligations hereunder and (b) either Party may assign this Agreement to an Affiliate.

13.6 Third Party Beneficiaries. This Agreement is not intended to confer upon any Person not a party to this Agreement (and their successors and assigns) any rights or remedies hereunder.

13.7 Amendments and Waivers. This Agreement may not be modified or amended except by an instrument or instruments in writing signed by the Party against whom enforcement of any such modification or amendment is sought. Each Party may, only by an instrument in writing, waive compliance by the other Party with any term or provision of this Agreement on the part of such other Party to be performed or complied with. The waiver by a Party of a breach of any term or provision of this Agreement shall not be construed as a waiver of any subsequent breach.

13.8 Specific Performance. The Parties agree that irreparable damage, for which monetary damages (even if available) would not be an adequate remedy, may occur in the event that Alkermes does not perform any provision of this Agreement with respect to supply of Clinical Requirements in accordance with its specified terms or otherwise breach such provisions. Accordingly, the Parties acknowledge and agree that, to prevent breaches or threatened breaches by Alkemres of any of its covenants or obligations set forth in this

 

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Agreement with respet to the supply of Clinical Requirements and to enforce specifically the terms and provisions of this Agreement with respect thereto, Recro shall be entitled to seek an injunction, specific performance and other equitable relief to prevent breaches of this Agreement by Alkermes with respect to the supply of Clinical Requirements and to enforce specifically the terms and provisions hereof with respect thereto, in addition to any other remedy to which Recro is entitled in law or in equity; but, in each case, only for so long as is necessary for the Parties to transfer the supply of Clinical Requirements to a Third Party that is reasonably satisfactory to Recro in accordance with Section 10.4(b). Alkermes shall not oppose the granting of an injunction, specific performance and other equitable relief sought by Recro in accordance with this Section 13.8 on the basis that Recro has an adequate remedy at law or that any award of specific performance is not an appropriate remedy for any reason at law or in equity.

13.9 Interpretation; Absence of Presumption. For the purposes of this Agreement, (i) words in the singular shall be held to include the plural and vice versa, and words of one gender shall be held to include the other gender as the context requires; (ii) references to the terms Article, Section, and Exhibit are references to the Articles, Sections and Exhibits to this Agreement unless otherwise specified; (iii) the terms “hereof,” “herein,” “hereby,” “hereto,” and derivative or similar words refer to this entire Agreement, including the Exhibits hereto; (iv) references to “$” or cash shall mean U.S. dollars; (v) the word “including” and words of similar import when used in this Agreement shall mean “including without limitation,” unless otherwise specified; (vi) the word “or” shall not be exclusive; (vii) references to “written” or “in writing” include in electronic form; (viii) provisions shall apply, when appropriate, to successive events and transactions; (ix) each Party has participated in the negotiation and drafting of this Agreement and if an ambiguity or question of interpretation should arise, this Agreement shall be construed as if drafted jointly by the Parties hereto and no presumption or burden of proof shall arise favoring or burdening a Party by virtue of the authorship of any of the provisions in this Agreement; (x) a reference to any Person includes such Person’s successors and permitted assigns; (xi) any reference to “days” shall mean calendar days unless Business Days are expressly specified; and (xii) when calculating the period of time before which, within which or following which any act is to be done or step taken pursuant to this Agreement, the date that is the reference date in calculating such period shall be excluded and if the last day of such period is not a Business Day, the period shall end at the close of business on the next succeeding Business Day.

13.10 Headings; Definitions. The Section and Article headings contained in this Agreement are inserted for convenience of reference only and shall not affect the meaning or interpretation of this Agreement.

13.11 Severability. If any term, provision, covenant or restriction of this Agreement is held by a court of competent jurisdiction or other authority to be invalid, void or unenforceable, the remainder of the terms, provisions, covenants and restrictions of this Agreement (or portions thereof) shall remain in full force and effect and shall in no way be affected, impaired or invalidated so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to a Party. If any provision of this Agreement (or any portion thereof) shall be held to be so broad as to be unenforceable, such provision shall be interpreted to be only so broad as is enforceable. Upon a determination that any term, provision, covenant or restriction of this Agreement is invalid, void or unenforceable, the Parties shall

 

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negotiate in good faith to modify this Agreement so as to effect the original intent of the Parties as closely as possible in a mutually acceptable manner in order that the transactions contemplated hereby be consummated as originally contemplated to the fullest extent possible.

13.12 Force Majeure.

(a) Alkermes shall notify Recro of any circumstances beyond the reasonable control of Alkermes including, but not limited to, war, insurrection, riot, civil commotion, acts of terrorism, act of God, market closure (which is not in the ordinary course of business), fire, water damage, explosion, mechanical breakdown, any law, decree, regulation or order of any government or governmental body (including any court or tribunal), any material interruption in telecommunications, Internet or utilities services that prevents, hinder or delays Alkermes from performing its obligations under this Agreement (a “Force Majeure Event”).

(b) In the event that Alkermes is prevented, hindered or delayed from performing its obligations under this Agreement, in whole or in part, due to a Force Majeure Event, then (i) the affected provisions and/or other requirements of this Agreement shall be suspended to the extent necessary during the period of such disability, and (ii) Alkermes shall have no liability to Recro or any other party in connection with such suspension. Alkermes shall use its commercially reasonable best efforts to resume full performance of this Agreement as soon as reasonably practicable following the conclusion of the Force Majeure Event. From the commencement and during the continuance of a Force Majeure Event, Recro may replace, at its sole expense, any affected Service by providing such Service internally or engaging a Third Party to provide such Service and Alkermes shall reasonably cooperate with such efforts.

13.13 Further Assurances. Each Party agrees to do and perform all such further acts and things and will execute and deliver such other agreements, certificates, instruments and documents necessary, or that the other Party may deem advisable, in order to carry out the intent and accomplish the purposes of this Agreement and to evidence, perfect or otherwise confirm its rights hereunder.

13.14 Relationship of the Parties. Each Party is an independent contractor under this Agreement. Nothing contained herein is intended or is to be construed so as to constitute the Parties as partners, agents or joint venturers. Neither Party will have any express or implied right or authority to assume or create any obligations on behalf of or in the name of the other Party or to bind the other Party to any contract, agreement or undertaking with any Third Party. There are no express or implied Third Party beneficiaries hereunder (except for purposes of Section 11.1, the Alkermes Indemnitees and the Recro Indemnitees).

13.15 Performance by Affiliates and Subcontractors. Each Party may discharge any obligations and exercise any right hereunder through any of its Affiliates, provided that notice is given to the other Party in advance. Each Party hereby guarantees the performance by its Affiliates of such Party’s obligations under this Agreement, and shall cause its Affiliates to comply with the provisions of this Agreement in connection with such performance. Any breach by a Party’s Affiliate of any of such Party’s obligations under this Agreement shall be deemed a breach by such Party, and the other Party may proceed directly against such Party without any

 

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obligation to first proceed against such Party’s Affiliate. In addition, Alkermes reserves the right to employ subcontractors from time-to-time to undertake certain activities related to the Services as approved by Recro, such approval not to be unreasonably withheld, delayed or conditioned. Recro hereby acknowledges and agrees that Patheon Italy is an approved subcontractor. All subcontractors will be qualified by Alkermes in a manner consistent with the Quality Agreement. All subcontractors will be held under obligations of confidentiality consistent with those set forth in Article 12. Any breach by a subcontractor of Alkermes of any of such Alkermes’ obligations under this Agreement shall be deemed a breach by Alkermes, and Recro may proceed directly against Alkermes without any obligation to first proceed against Alkermes’ subcontractor.

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be executed by their respective duly authorized representatives as of the Effective Date.

 

ALKERMES PHARMA IRELAND LIMITED
By:  

/s/ Richie Paul

  (Signature)
Name:  

Richie Paul

Title:  

Director

RECRO PHARMA, INC.
By:  

/s/ Gerri Henwood

  (Signature)
Name:  

Gerri Henwood

Title:  

President and Chief Executive Officer

[Signature Page to Development, Manufacturing and Supply Agreement]


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Exhibit A

Specifications

Meloxicam NCD Specifications - Bulk

 

TEST

  

SPECIFICATIONS

    

[***]

 

A-1


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Meloxicam IV Finished Product Specifications - Vial

 

TEST

  

SPECIFICATIONS

    

[***]

 

A-2


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Exhibit B

Work Plans

 

B-1


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Exhibit C

[***]

 

B-2

Exhibit 10.16

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FIRST AMENDMENT TO DEVELOPMENT, MANUFACTURING AND

SUPPLY AGREEMENT

THIS FIRST AMENDMENT TO DEVELOPMENT, MANUFACTURING AND SUPPLY AGREEMENT (this “Amendment”) is made and entered into as of October 19, 2016 by and between Alkermes Pharma Ireland Limited, a private limited company organized and existing under the laws of the Republic of Ireland (“Alkermes”), and Recro Pharma, Inc., a corporation organized and existing under the laws of Pennsylvania (“Recro”), Recro and Alkermes are sometimes hereinafter referred to each as a “Party” and collectively as the Parties.

RECITALS:

WHEREAS, Alkermes and Recro entered into that certain Development, Manufacturing and Supply Agreement on July 10, 2015 (the “Agreement”);

WHEREAS, in connection with Alkermes’ manufacturing and supply of BC Parenteral Meloxicam pursuant to the Agreement, the Parties are contemplating constructing a Manufacturing Suite (as defined below);

WHEREAS, the Parties desire to amend the terms of the Agreement as set forth herein to provide for the allocation of costs and expenses related to a portion of the design of the Manufacturing Suite; and WHEREAS, in the event the Parties agree to progress with further design and construction of the Manufacturing Suite the Parties shall further amend the terms of the Agreement to provide for the allocation of costs and expenses related to such further design and construction.

AGREEMENT:

Now, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Alkermes and Recro agree as follows:

Article 1

Definitions

1.1    All capitalized terms used but not otherwise defined herein shall have the meaning ascribed thereto in the Agreement.

Article 2

Amendments to Agreement

2.1    Article 5 of the Agreement is hereby amended by adding the following new Section 5.8:

5.8 Manufacturing Suite. Notwithstanding any other provision in this Agreement: The Parties are designing a manufacturing suite and related equipment at the Alkermes Facility for the manufacture

 

1


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and supply of BC Parenteral Meloxicam under the terms of this Agreement (the “Manufacturing Suite”). From the date of this Amendment until December 16, 2016, when Recro shall notify Alkermes as to whether Recro wishes to enter into an additional amendment to the Agreement in respect of further design and construction of the Manufacturing Suite and allocation of costs and expenses related to same (the “Second Amendment”), it is hereby agreed that Alkermes shall procure basis of design services in respect of the Manufacturing Suite (the “Basis of Design Services”). In the event Recro notifies Alkermes, in accordance with this Amendment, that Recro wishes to enter into the Second Amendment, Alkermes shall continue to procure the Basis of Design Services up to the Basis of Design Cost (as hereinafter defined). In the event Recro notifies Alkermes, in accordance with this Amendment, that Recro does not wish to enter into the Second Amendment Alkermes shall cease procurement of the Basis of Design Services. In either of the aforementioned events, Recro agrees to pay for [***]% of the costs of the Basis of Design Services in a total amount not to exceed $[***], unless otherwise agreed by the Parties in writing (to include e-mail) (the “Basis of Design Cost”). [***]. Alkermes shall grant Recro a credit in respect of an agreed portion of the Basis of Design Cost against Recro’s future capital obligations related to the further design and construction of the Manufacturing Suite only.

General

2.2    No Other Amendments. Except as expressly set forth in this Amendment, this Amendment shall not, by implication or otherwise, limit, impair, constitute a waiver of or otherwise affect any rights or remedies of either Party under the Agreement, or alter, modify, amend or in any way affect any of the other terms, obligations or covenants contained in the Agreement, all of which shall continue in full force and effect.

2.3    Miscellaneous Provisions. This Amendment shall be subject to the miscellaneous provisions contained in Article 13 of the Agreement, which are incorporated by reference herein, in each case, mantis mutandi.

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2


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IN WITNESS WHEREOF, the Parties have caused this Amendment to be executed by their respective duly authorized representatives as of the date set forth above.

 

ALKERMES PHARMA IRELAND LIMITED
By:  

/s/ Richie Paul

  (Signature)
Name:  

Richie Paul

Title:  

Director

RECRO PHARMA, INC.
By:  

/s/ Gerri Henwood

  (Signature)
Name:  

Gerri Henwood

Title:  

CEO

[Signature Page to First Amendment to Development, Manufacturing and Supply Agreement]

Exhibit 10.17

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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

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SECOND AMENDMENT TO DEVELOPMENT, MANUFACTURING AND

SUPPLY AGREEMENT

THIS SECOND AMENDMENT TO DEVELOPMENT, MANUFACTURING AND SUPPLY AGREEMENT (this “Second Amendment”) is made and entered into as of February 1, 2017 by and between Alkermes Pharma Ireland Limited, a private limited company organized and existing under the laws of the Republic of Ireland (“Alkermes”), and Recro Pharma, Inc., a corporation organized and existing under the laws of Pennsylvania (“Recro”). Recro and Alkermes are sometimes hereinafter referred to each as a “Party” and collectively as the “Parties.”

RECITALS:

WHEREAS, Alkermes and Recro entered into that certain Development, Manufacturing and Supply Agreement on July 10, 2015 , as amended by that certain First Amendment to the Development, Manufacturing and Supply Agreement between Alkermes and Recro dated as of October 19, 2016 (the “Agreement”);

WHEREAS, in connection with Alkermes’ manufacture and supply of BC Parenteral Meloxicam pursuant to the Agreement, the Parties are designing a Manufacturing Suite (as defined below);

WHEREAS, pursuant to that certain First Amendment to Development, Manufacturing and Supply Agreement between Alkermes and Recro dated as of October 19, 2016 (the “First Amendment”), it was agreed that Alkermes would procure Basis of Design Services (as defined below) and that Recro would notify Alkermes as to whether Recro wishes to enter into an additional amendment to the Agreement in respect of further design and construction of the Manufacturing Suite and the allocation of costs and expenses related to same; and

WHEREAS, the Parties have agreed to progress with further design of the Manufacturing Suite and desire to further amend the terms of the Agreement to provide for the allocation of costs and expenses related to such Detailed Design Services (as defined below).

AGREEMENT:

Now, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Alkermes and Recro agree as follows:

Article 1

Definitions

1.1    All capitalized terms used but not otherwise defined herein shall have the meaning ascribed thereto in the Agreement.

 

1


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Article 2

Amendments to Agreement

2.1    Article 5 of the Agreement is hereby amended by the deletion of the current Section 5.8 and its replacement by the following:

5.8    Manufacturing Suite. Notwithstanding any other provision in this Agreement:

The Parties are designing a manufacturing suite and related equipment at the Alkermes Facility for the manufacture and supply of BC Parenteral Meloxicam (the “Manufacturing Suite”). Alkermes shall procure and render concept and basis of design services in respect of the Manufacturing Suite (the “Basis of Design Services”) on the basis that Recro agrees to pay for [***]% of the costs of the Basis of Design Services in a total amount not to exceed $[***], unless otherwise agreed by the Parties in writing (to include e-mail) (the “Basis of Design Cost”).

Alkermes shall procure and render the further design of the Manufacturing Suite (the “Detailed Design Services”), provided always that Recro shall be entitled, at any time prior to the completion of the Detailed Design Services, to require the Detailed Design Services to be ceased by delivering a written notice to Alkermes (a “Detailed Design Cessation Notice”) which shall take effect on the business day following the date of receipt by Alkermes of the Detailed Design Cessation Notice (the “Detailed Design Cessation Effective Date”), on the condition that Recro shall pay [***]% of all costs and liabilities incurred by Alkermes in respect of the Detailed Design Services, whether such costs or liabilities are incurred on or prior to the Detailed Design Cessation Effective Date or, in respect of any agreement entered into by Alkermes for the purposes of procuring the Detailed Design Services, are incurred after the Detailed Design Cessation Effective Date in connection with the termination by Alkermes of such agreement in accordance with its terms (the “Detailed Design Cessation Costs”); provided, that Alkermes shall provide a notice of termination of any such agreement on the Detailed Design Cessation Effective Date; provided further, that the Detailed Design Cessation Costs shall not exceed the Detailed Design Cost (as defined below).

Where the Detailed Design Services are completed without the delivery by Recro of a Detailed Design Cessation Notice, Recro agrees to pay for [***]% of the costs of the Detailed Design Services in a total amount not to exceed $[***], unless otherwise agreed by the Parties in writing (to include e-mail) (the “Detailed Design Cost”).

 

2


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[***]. For the Basis of Design Cost and the Detailed Design Cost, together with each such invoice Alkermes will provide Recro with a breakdown of how much of the costs in such invoice relate to facility costs and how much relate to capital equipment, together with supporting documentation. Alkermes shall grant Recro, in accordance with said breakdown, a credit in respect of the portion of the Basis of Design Cost and the Detailed Design Cost allocated to facility costs against Recro’s future obligations related to the purchase of equipment for the Manufacturing Suite.

On or before February 10, 2017, Recro and Alkermes shall enter into a further amendment to the Agreement in respect of, inter alia, construction of, procurement related to, and verification of the Manufacturing Suite and allocation of costs and expenses related to same.

For the avoidance of doubt and notwithstanding anything else contained in this Agreement, it is acknowledged and agreed that neither the Basis of Design Services nor the Detailed Design Services constitute Services (as defined in Section 1.84 of this Agreement) for the purposes of this Agreement.”

Article 3

General

3.1    No Other Amendments. Except as expressly set forth in this Second Amendment, this Second Amendment shall not, by implication or otherwise, limit, impair, constitute a waiver of or otherwise affect any rights or remedies of either Party under the Agreement, or alter, modify, amend or in any way affect any of the other terms, obligations or covenants contained in the Agreement, all of which shall continue in full force and effect.

3.2    Miscellaneous Provisions. This Second Amendment shall be subject to the miscellaneous provisions contained in Article 13 of the Agreement, which are incorporated by reference herein, in each case, mutatis mutandi.

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3


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IN WITNESS WHEREOF, the Parties have caused this Second Amendment to be executed by their respective duly authorized representatives as of the date set forth above.

 

ALKERMES PHARMA IRELAND LIMITED
By:  

/s/ Shane Cooke

(Signature)
Name:  

Shane Cooke

Title:  

Director

RECRO PHARMA, INC.
By:  

/s/ Michael Celano

(Signature)
Name:  

Michael Celano

Title:  

CFO

[Signature Page to Second Amendment to Development, Manufacturing and Supply Agreement]

Exhibit 10.18

Execution Version

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THIRD AMENDMENT TO DEVELOPMENT, MANUFACTURING AND SUPPLY AGREEMENT

THIS THIRD AMENDMENT TO DEVELOPMENT, MANUFACTURING AND SUPPLY AGREEMENT (this “Third Amendment”) is made and entered into as of June 15, 2017 by and between Alkermes Pharma Ireland Limited, a private limited company organized and existing under the laws of the Republic of Ireland (“Alkermes”), and Recro Ireland Limited, a private limited company organized and existing under the laws of the Republic of Ireland (“Recro”). Recro and Alkermes are sometimes hereinafter referred to each as a “Party” and collectively as the “Parties.”

RECITALS:

WHEREAS, Alkermes and Recro Pharma, Inc. entered into that certain Development, Manufacturing and Supply Agreement on July 10, 2015, as amended by that certain First Amendment to the Development, Manufacturing and Supply Agreement between Alkermes and Recro Pharma, Inc. dated as of October 19, 2016 and by that certain Second Amendment to the Development, Manufacturing and Supply Agreement between Alkermes and Recro Pharma, Inc. dated as of February 1, 2017 (the “Agreement”);

WHEREAS, with effect from March 7, 2017, the Agreement was assigned by Recro Pharma, Inc. to Recro;

WHEREAS, the Parties desire to amend the terms of the Agreement as set forth herein to provide for certain requests by Recro, the procedure governing the calculation and payment of the amounts payable by Recro to Alkermes for all Services performed with respect to the Requirements under Section 7.1(c) of the Agreement and other miscellaneous matters.

AGREEMENT:

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Alkermes and Recro agree as follows:

Article 1

Definitions

1.1    All capitalized terms used but not otherwise defined herein (including in the Recitals hereto) shall have the meaning ascribed thereto in the Agreement.

 

1


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Article 2

Amendments to Agreement

2.1    Article 6 of the Agreement is hereby amended by adding the following new Section 6.12:

6.12    Requests by Recro. Notwithstanding any other provision of this Agreement, including without limitation, Sections 4.3, 4.4, 4.5, 6.4, 6.5 and 9.2, where Recro requests Alkermes to adopt a particular practice or approach, with which Alkermes reasonably disagrees, (a “Request”), Alkermes shall notify Recro in writing within [***] Business Days of Alkermes identifying an issue with the Request that could have a significant impact upon Alkermes’ performance of its obligations under this Agreement; provided that Alkermes’ disagreement shall not be considered reasonable where Recro has requested the relevant practice or approach in a timely manner and there is no commercial or regulatory alternative to such practice or approach. Such disagreement shall be referred to the Project Team for resolution pursuant to the dispute resolution procedures of Section 2.1(e). To the extent unresolved, or if agreed by the Parties, the Parties shall document such Request, in a Work Plan or other written agreement (a “Request Agreement”). Notwithstanding another provision in this Agreement, in circumstances where Alkermes Manufactures BC Parenteral Meloxicam or Finished Meloxicam in accordance with a Request and/or any Request Agreement and the Quality Agreement and such BC Parenteral Meloxicam or Finished Meloxicam fails to meet any applicable Specifications or there is a failure to pass any other testing or inspection procedures set out in the relevant Request Agreement, the following provisions shall apply:

 

  (a)

Alkermes will not bear, and is hereby released from, any responsibility or liability for any such BC Parenteral Meloxicam or Finished Meloxicam, for such failures or for the consequences thereof (including without limitation any obligation to supply replacement BC Parenteral Meloxicam or Finished Meloxicam) and will be deemed to have made such BC Parenteral Meloxicam or Finished Meloxicam available to Recro in compliance with the terms of this Agreement, irrespective of whether such BC Parenteral Meloxicam or Finished Meloxicam was, in fact, made available to Recro; and

 

  (b)

Recro will, on demand, indemnify Alkermes against any Liability incurred or suffered by Alkermes in connection with such BC Parenteral Meloxicam or Finished Meloxicam,

 


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  including without limitation any payments due by Recro under this Agreement for such BC Parenteral Meloxicam or Finished Meloxicam that, further to Section 6.12(a) above, are deemed to have been made available to Recro in compliance with this Agreement.

Provided that this Section 6.12 shall not relieve Alkermes from liability, or entitle Alkermes to indemnification, to the extent that any such liability resulted from the Alkermes actions and/or omissions referenced in Section 11.3 (a) of this Agreement and provided that Alkermes shall use commercially reasonable efforts to mitigate its Liability, including, when practicable, by consultation with Recro in order to seek Recro’s assistance in mitigating such Liability. Without prejudice to the foregoing, the Parties shall continue to work together in good faith to identify alternative approaches to those documented in the relevant Request Agreement and if the Parties agree in writing (other than electronic communication) upon such approaches they shall use commercially reasonable efforts to implement such approaches as soon as commercially practicable in accordance with the terms of this Agreement, and such Request Agreement shall, with effect from the date on which such alternative approaches are fully implemented and fully replace existing approaches, and without prejudice to any rights or obligations which may have arisen on or before such date, cease to be a Request Agreement governed by the terms of this Section 6.12. In the event of (i) any conflict, inconsistency, ambiguity or uncertainty between any term of a Request Agreement and any term of this Agreement (including this Section 6.12), the term of the Request Agreement shall prevail, or (ii) any conflict, inconsistency, ambiguity or uncertainty between any term of this Section 6.12 and any other term of this Agreement, the term of this Section 6.12 shall prevail.”

2.2    Section 7.1(c) of the Agreement is hereby amended by adding the following immediately after the first sentence thereof:

“All payments under this Section 7.1(c) are subject to the provisions of Section 7.4.”

2.3    Article 7 of the Agreement is hereby amended by the deletion of the current Section 7.1(f) and its replacement by the following:

(f)    In respect of Services performed with respect to the Requirements, all invoices under this Agreement shall be issued by Alkermes upon or promptly after Alkermes’ making available BC

 


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Parenteral Meloxicam, Ex Works the Alkermes Facility. All other invoices under this Agreement shall be issued by Alkermes in accordance with the relevant Work Plan. Subject to Section 7.1(g), Recro will pay such invoices within [***] days of receipt of the applicable invoice. Invoices shall be emailed to [***]. Invoices shall be itemized and contain information on units of Fully Burdened Costs, relevant Third Party expenses to be reimbursed, time dedicated to performing Services under the Work Plans, time dedicated to performing CMC Development Services, labeling and packaging components, and batch and lot numbers for BC Parenteral Meloxicam produced and Finished Meloxicam derived therefrom.”

2.4    Article 7 of the Agreement is hereby amended by adding the following new Section 7.4:

 

  7.4

Procedure for Payments under Section 7.1(c). Further to Section 7.1(c), the Parties have agreed the following procedure for the calculation and payment of the amounts payable by Recro to Alkermes for all Services performed with respect to the Requirements:

(a)    Prior to the manufacture of Launch Stock in accordance with Section 4.1(b) and at the beginning of each Calendar Year during the term of the Agreement subsequent to the Calendar Year in which the Launch Stock is manufactured, Alkermes shall estimate its Fully Burdened Costs for all Services to be performed with respect to the Requirements for the forthcoming Calendar Year (or remainder thereof), using the latest forecasted Requirements received from Recro in accordance with Section 4.2. Such estimated Fully Burdened Costs, plus [***] shall constitute the “Estimated Supply Price”. The Estimated Supply Price will be the initial price charged for shipments during the relevant Calendar Year.

(b)    Alkermes shall issue invoices to Recro in accordance with Section 7.1(f) in respect of the Services performed with respect to the Requirements.

(c)    Within [***] business days following the end of every Calendar Quarter, either Party may request a recalculation of the then applicable Estimated Supply Price, whenever there is a deviation of more than [***]% of the total number of Batches forecast to be delivered for the Calendar Year.

 


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(d)    Within [***] days of the end of the Calendar Year, Alkermes shall calculate the actual Fully Burdened Cost for all Services performed with respect to the Requirements, plus [***] (the “Actual Supply Price”).

 


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(e)    Alkermes will perform reconciliation for all units shipped during the previous Calendar Year, comparing the Estimated Supply Price invoiced with the Actual Supply Price. Alkermes will inform Recro in writing of:

(i)    Any amounts (underpayments) owed by Recro in the event that the Actual Supply Price was higher than the Estimated Supply Price. Such underpayments will be invoiced by Alkermes and be payable by Recro within [***] days of receipt of invoice.

(ii)    Any credits (overpayments) owed to Recro in the event that the Actual Supply Price was lower than the Estimated Supply Price. Such overpayments will be accounted for as a credit to Recro’s account and will be credited against future Firm POs until fully offset against such Firm POs.”

Article 3

General

3.1    No Other Amendments. Except as expressly set forth in this Third Amendment, this Third Amendment shall not, by implication or otherwise, limit, impair, constitute a waiver of or otherwise affect any rights or remedies of either Party under the Agreement, or alter, modify, amend or in any way affect any of the other terms, obligations or covenants contained in the Agreement, all of which shall continue in full force and effect.

3.2    Miscellaneous Provisions. This Third Amendment shall be subject to the miscellaneous provisions contained in Article 13 of the Agreement, which are incorporated by reference herein, in each case, mutatis mutandi.

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IN WITNESS WHEREOF, the Parties have caused this Third Amendment to be executed by their respective duly authorized representatives as of the date set forth above.

 

ALKERMES PHARMA IRELAND LIMITED
By:  

/s/ Shane Cooke

  (Signature)
Name:  

Shane Cooke

Title:  

Director

RECRO IRELAND LIMITED
By:  

/s/ Gerri Henwood

  (Signature)
Name:  

Gerri Henwood

Title:  

Director

[Signature Page to Third Amendment to Development, Manufacturing and Supply Agreement]

Exhibit 10.19

Execution Version

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LICENSE AGREEMENT

BETWEEN

RECRO PHARMA, INC.

AND

CORNELL UNIVERSITY

FOR

CTL Docket No. D-3999

CTL Docket No. D-4398

CTL Docket No. D-4708

CTL Docket No. D-5421

CTL CONTRACT NO. C2017-12-10946


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TABLE OF CONTENTS

 

RECITALS

     1  

ARTICLE 1. DEFINITIONS

     2  

ARTICLE 2. GRANTS

     5  

ARTICLE 3. CONSIDERATION

     7  

ARTICLE 4. REPORTS, RECORDS AND PAYMENTS

     12  

ARTICLE 5. PATENT MATTERS AND TECHNOLOGY OWNERSHIP

     14  

ARTICLE 6. GOVERNMENTAL MATTERS

     18  

ARTICLE 7. TERMINATION AND EXPIRATION OF THE AGREEMENT

     18  

ARTICLE 8. LIMITED WARRANTY AND INDEMNIFICATION

     19  

ARTICLE 9. USE OF NAMES AND TRADEMARKS

     23  

ARTICLE 10. MISCELLANEOUS PROVISIONS

     23  

Appendix A: Patent Rights

     2  

Appendix B1: Charles River Documents

     4  

Appendix B2: Files at IMPACT

     7  

Appendix B3: Materials at Almac under Quote #15366

     9  

Appendix C: Baseball Arbitration

     10  

Appendix D: Development Report

     11  

Appendix E: Commercialization Report

     13  


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LICENSE AGREEMENT

This agreement (“Agreement”) is made by and between Recro Pharma, Inc., a Pennsylvania corporation having an address at 490 Lapp Road, Malvern PA 19355 (“Licensee”), and Cornell University (“University”) as represented by its Center for Technology Licensing (“CTL”) at Cornell University at 395 Pine Tree Road, Ithaca, NY 14850 (University, CTL and CRF (as defined below) collectively “Cornell” and each of Licensee and Cornell a “Party” and collectively, the “Parties”).

This Agreement is effective on June 30, 2017 (“Effective Date”).

RECITALS

WHEREAS, the inventions disclosed in the following dockets:

 

Cornell

Docket

  

Title

3999

   Intermediate Duration Neuromuscular Blockers

4398

   Symmetrical and Asymmetrical Isoquinolinium Maleates: Nondepolarizing Neuromuscular Blocking Drugs of Intermediate Duration Which are Immediately Reversible by Cysteine and Glutathione

4708

   L-Cysteine Hydrochloride Injection Development (5026 Combined herein)

5421

   Mixed Isoquinolinium/Piperidinium, Pyrrolidinium or Morpholinium Maleate, Fumarate or Chlorofumarate Diester Neuromuscular Blocking Agents of Ultra-Short and Intermediate Duration, Chemically Degraded and Antagonized by D or L-Cysteine

(“Inventions”), were made in the course of research at Cornell by Dr. John Savarese and his associates (hereinafter and collectively, the “Inventors”) and are covered by Patent Rights as defined below;

WHEREAS, the Inventors are as of the Effective Date or were, at the time of their making of the Invention(s), either employees of Cornell or otherwise under contract with Cornell and in either case were and are obligated to assign all of their right, title and interest in the Inventions to Cornell or Cornell Research Foundation, Inc. (“CRF”) and have done so;

WHEREAS, CTL is the officially authorized unit at Cornell to manage Inventions and to grant rights subsisting therein for Cornell and CRF;

WHEREAS, Cornell desires that the Inventions be developed and utilized to the fullest possible extent so that their benefits can be enjoyed by the general public;

WHEREAS, Licensee desires to obtain certain rights from Cornell for commercial development, use, and sale of the Inventions, and Cornell is willing to grant such rights; and


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WHEREAS, Licensee understands that Cornell may publish or otherwise disseminate information concerning the Inventions and Technology (as defined below), in accordance with Paragraph 2.3(b).

NOW, THEREFORE, the Parties agree:

ARTICLE 1. DEFINITIONS

The terms, as defined herein, shall have the same meanings in both their singular and plural forms.

 

1.1

“Affiliate” means any corporation or other business entity in which Licensee owns or controls, directly or indirectly, at least fifty percent (50%) of the outstanding stock or other voting rights entitled to elect directors, or in which Licensee is owned or controlled directly or indirectly by at least fifty percent (50%) of the outstanding stock or other voting rights entitled to elect directors; but in any country where the local law does not permit foreign equity participation of at least fifty percent (50%), then an “Affiliate” includes any company in which Licensee owns or controls or is owned or controlled by, directly or indirectly, the maximum percentage of outstanding stock or voting rights permitted by local law. Licensee will ensure that any Affiliate agrees to be bound by the terms set forth in this Agreement.

 

1.2

“Cover” means, when used with reference to a Patent Right in relation to any Licensed Product, that the development, manufacture, import, marketing, distribution or sale of the Licensed Product would infringe a Valid Claim of a Patent Right in the absence of a license under such Patent Right. The determination of whether a product is Covered by a particular Patent Right shall be made on a country by country basis.

 

1.3

“Field” means any and all uses of Licensed Products for the diagnosis, prevention or treatment of any disease or condition in humans and animals.

 

1.4

“Force Majeure Event” shall mean an event that materially interferes with the ability of a Party to perform its obligations or duties hereunder which is not within the reasonable control of the Party affected, not due to such Party’s malfeasance, and which could not with the exercise of due diligence have been avoided, including an injunction, order or action by a governmental or regulatory authority, fire, accident, labor difficulty, strike, riot, civil commotion, act of God, delay or errors by shipping companies, change in applicable law, or unforeseen change in market conditions.

 

1.5

“Generic Equivalent” means any product with the same active ingredient and route of administration as a Licensed Product.

 

1.6

“IND” means an investigational new drug application filed with the FDA prior to beginning clinical trials in humans in the United States or any comparable application filed with the regulatory authority in any other country or group of countries.

 

2


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1.7

“IND 106,913” shall mean the Investigational New Drug Application No. 106,913 for the Intermediate-acting Licensed Product and Reversal Agent Licensed Product.

 

1.8

“Independent Company” means, with respect to Licensee, that either or both of the following are true: (a) no unaffiliated entity has acquired greater than fifty percent (50%) of the voting capital stock of Licensee, other than through normal market capitalization (e.g., selling equity in the public markets) (a “Change of Control”), or (b) if a Change of Control has occurred, the market capitalization of the combined entity is at or below $6 Billion.

 

1.9

“Know-How” shall mean information, technology, methods, knowledge, know-how, data (including clinical and regulatory data), records and documentation.

 

1.10

“Licensed Method” means any method that uses Technology or is claimed in Patent Rights or the use of which would constitute, but for the license granted to Licensee under this Agreement, an infringement, an inducement to infringe or contributory infringement, of any pending or issued claim within Patent Rights.

 

1.11

“Licensed Product” means any service, composition or product that uses Technology, or is claimed in Patent Rights, or that is produced or enabled by Licensed Method, or the manufacture, use, sale, offer for sale, or importation of which would constitute, but for the license granted to Licensee under this Agreement, an infringement, an inducement to infringe or contributory infringement of any pending or issued claim within the Patent Rights. A “Short-acting Licensed Product” means a Licensed Product based on Cornell Docket 5421 or that has a short duration of action; an “Intermediate-acting Licensed Product” means a Licensed Product based on Cornell Dockets 3999 or 4398 or that has an intermediate duration of action; and a “Reversal Agent Licensed Product” means a Licensed Product that reverses the action of a Licensed Product that is a neuromuscular blocking agent.

 

1.12

“Licensee Know-How” means any Know-How created by Licensee which exists at the Effective Date or during the Term, including but not limited to any improvements, differentiations, or derivatives of the Technology that are created or developed by Licensee at any time.

 

1.13

“Net Sales” means the total of the gross invoice prices representing sales of Licensed Products by Licensee or its Sublicensees or Affiliates to third parties, less the sum of the following actual and customary deductions where applicable and separately listed: (i) cash, trade, or quantity discounts; (ii) sales, use, tariff, import/export duties or other excise taxes imposed on particular sales, including any governmental taxes, fees, or other charges on the production, importation, use or sale of any Licensed Product (except for value-added and income taxes imposed on the sales of Licensed Product in foreign countries); (iii) rebates, chargebacks, discounts and other adjustments allowed, given or accrued (including, but not limited to, cash, governmental and managed care rebates, hospital or other buying group chargebacks, and governmental taxes in the nature of a rebate based on usage levels or sales of a Licensed Product); (iv) transportation charges; or credits to customers through coupons; (v) samples provided for use in the trade or for clinical trial supply; (vi) actual bad debt (meaning unpaid invoices for Licensed Products which remain unpaid for more than one (1) year) not exceeding ten percent (10%) of all Net Sales for a given calendar

 

3


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  year which Licensee can prove and document was not paid in spite of reasonable and diligent efforts to collect payment; and (vii) amounts repaid or credited by reasons of defects, rejections, recalls, rejections or returns. For purposes of calculating Net Sales, transfers to a Sublicensee or an Affiliate of Licensed Product under this Agreement for (x) end use (but not resale), by the Sublicensee or Affiliate shall be treated as sales by Licensee at the list price of Licensee in an arm-length transaction, or (y) resale by a Sublicensee or an Affiliate shall be treated as sales at the list price of the Sublicensee or Affiliate. Any disposal of Licensed Product at no charge for, or use of such Licensed Product without charge in, clinical or preclinical trials and studies (including for registration or reimbursement) shall not be included in Net Sales. For the avoidance of doubt, in the event that a Licensed Product that is a neuromuscular blocking agent is sold in combination with one or more other Licensed Products (for example, a Short-acting Licensed Product sold together with a Reversal Agent Licensed Product) (a “Combination Product”), the Net Sales will be calculated once and only once based on the Licensed Products that are neuromuscular blocking agents within such Combination Product, and not based upon any average sale price of each Licensed Product within the Combination Product. In the event that any Licensed Product or Combination Product is sold together with one or more other products that are not a Licensed Product, the Net Sales will be calculated based on the average sale price of the Licensed Product that is a neuromuscular blocking agent or Combination Product included therein, without reference to the price of the other product sold with the Licensed Product or the Combination Product.

 

1.14

“Patent Costs” mean all out-of-pocket expenses for the preparation, filing, prosecution, and maintenance of all United States and foreign patents included in Patent Rights. Patent Costs shall also include reasonable out-of-pocket expenses for patentability opinions, inventorship review and determination, preparation and prosecution of patent application, re-examination, re-issue, interference, opposition activities related to patents or applications in Patent Rights [***].

 

1.15

“Patent Rights” means CRF’s or Cornell’s rights in any of the following: (i) the patent applications disclosing and claiming the Inventions, filed by the Inventors and assigned to CRF or Cornell and listed in Appendix A; (ii) applications which claim priority thereto, and continuing applications thereof including divisions, substitutions, and continuations-in-part (but only to extent the claims thereof are enabled by disclosure of the parent application); (iii) any patents issuing on said applications including reissues, reexaminations and extensions; and (iv) any corresponding foreign applications or patents. Up to and terminating on the third anniversary of the Effective Date, to the extent that any new inventions, patents or technology are developed by Cornell, based on further research and development of the Inventions by Cornell, the Parties shall negotiate in good faith to provide an exclusive license to Licensee for any such intellectual property on substantially similar terms to those contained in this Agreement.

 

1.16

“Royalty Term” means the period of time beginning on the first commercial sale of a Licensed Product in a given country and, expiring on a country-by-country basis with respect to each Licensed Product, upon the later of:

 

  (i)

[***];

 

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  (ii)

[***]; or

 

  (iii)

[***].

 

1.17

“Sublicense” means an agreement into which Licensee enters with a third party that is not an Affiliate for the purpose of (i) granting certain rights; (ii) granting an option to certain rights; or (iii) forbearing the exercise of any rights, granted to Licensee under this Agreement after Effective Date, but excluding in each case any agreements between Licensee or its Affiliates and third parties under which said third parties provide outsourced contract research, regulatory, or manufacturing services directly to Licensee or its Affiliates pertaining to a Licensed Product. “Sublicensee” means a third party with whom Licensee enters into a Sublicense.

 

1.18

“Technology” means: (a) technology, related documentation, technical information and data, and Know-How created or owned by Cornell that is contained in the documents listed in Appendix B 1: Charles River Documents, the documents listed in Appendix B2: Files at IMPACT, and the materials listed in Appendix B3: Materials at Almac under Quote #15366, and relating to IND 106,913; and/or (b) the Inventions that Cornell or an Inventor provide or disclose to Licensee, in each case (of (a) and (b)) prior to the Effective Date or during the Term.

 

1.19

“Term” means the period of time beginning on the Effective Date and continuing until the earliest of (a) termination as set forth in Paragraphs 7.1 — 7.4 and (b) the last to expire Royalty Term.

 

1.20

“Territory” means worldwide, except as may be modified by Paragraph 3.3(c).

 

1.21

“Valid Claim” means either (i) a claim of an unexpired and issued patent included within Patent Rights that has not been permanently revoked or held unenforceable or invalid by a final unappealable decision or unappealed decision of a court of competent jurisdiction or (ii) a claim of a pending patent application included within Patent Rights which claim has been filed and is being prosecuted in good faith, has been pending for no longer than five (5) years, and has not been abandoned or disallowed without the possibility of appeal or refiling of the application.

ARTICLE 2. GRANTS

2.1 License Grants.

(a) Subject to Article 5.1 (“patent costs reimbursement obligations”) and to the limitations set forth in this Agreement, Cornell hereby grants to Licensee and its Affiliates (i) an exclusive (except as to Cornell to the extent set forth in Paragraph 2.3), sublicensable (solely pursuant to Paragraph 2.2), royalty-bearing license under Patent Rights, and (ii) a non-exclusive, sublicensable (pursuant to Paragraph 2.2), royalty-bearing license under the Technology, in each case to make and have made, to use and have used, to sell and have sold, to offer for sale, and to import and have imported Licensed Products, to practice Licensed Methods and to use and further develop the Technology in the Field within the Territory and during the Term. (the “Licenses”).

 

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(b) In connection with the exercise of the Licenses by Licensee’s Affiliates, Licensee agrees to provide to Cornell a written assurance from each of its Affiliates exercising rights under the Licenses to comply with all applicable terms of this Agreement.

2.2 Sublicense.

(a) Licensee may grant Sublicenses of its licensed rights hereunder to third parties in accordance with this Paragraph, through one or more tiers.

(b) With respect to any permitted Sublicense, Licensee shall:

(i) not receive, or agree to receive, anything of value in lieu of cash as consideration from a third party under a Sublicense granted pursuant to Paragraph 2.2(a) without the prior written consent of Cornell;

(ii) enter into a written agreement pursuant to which Sublicensee shall agree to comply with all applicable terms contained in this Agreement;

(iii) reasonably promptly provide Cornell with a copy of each Sublicense issued and any amendment made to any Sublicense; and

(iv) be responsible for collecting all payments due, directly or indirectly, to Cornell from Sublicensees, and summarizing and delivering all reports due, directly or indirectly, to Cornell from Sublicensees as required by this Agreement.

(c) Unless Cornell provides written consent to a Sublicense prior to its issuance by Licensee to the Sublicensee, solely upon termination of this entire Agreement for any reason, Cornell, at its sole discretion, shall determine whether Licensee shall cancel or assign to Cornell said Sublicense.

2.3 Reservation of Rights. Cornell reserves the right to:

(a) use the Inventions, Technology and Patent Rights solely for non-commercial educational and research purposes;

(b) publish or otherwise disseminate any information about the Inventions and Technology at any time provided that, to the extent that CTL has knowledge of such publication, CTL will provide Licensee 90 days’ notice of such publication; and

(c) allow other nonprofit institutions to use Inventions, Technology and Patent Rights solely for non-commercial educational and research purposes.

 

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ARTICLE 3. CONSIDERATION

3.1 Fees and Royalties. The Parties hereto understand that the fees and royalties payable by Licensee to Cornell under this Agreement are in consideration for the license granted herein to Licensee under Technology and Patent Rights. Licensee shall pay Cornell:

(a) an initial license issue fee of [***] ([***]) (“Initial License Fee”) and a materials fee of [***] ([***]) (“Materials Fee”), each within thirty (30) days after the Effective Date;

(b) annual license maintenance fees, payable on each anniversary of the Effective Date according to the following schedule; provided however, that Licensee’s obligation to pay this fee shall end upon the first commercial sale of any Licensed Product in any country in the Territory, whereupon the annual license maintenance fee shall be pro-rated for the number of months expired in that license year prior to such first commercial sale and be paid on the anniversary of the Effective Date.

 

Fee payable to Cornell

  

Date

[***]

   1st anniversary

[***]

   2nd anniversary

[***]

   3rd anniversary

[***]

   4th anniversary

[***]

   5th anniversary

[***]

   6th anniversary

[***]

   7th anniversary

[***]

   8th anniversary

[***]

   9th and each anniversary thereafter

(c) during the Royalty Term, milestone payments (“Milestone Payments”) in the amounts payable according to the following schedule of events upon the specified date or achievement of the specified event:

 

Amount

   Milestone

[***]

   [***]

[***]

   [***]

[***]

   [***]

[***]

   [***]

[***]

   [***]

For the avoidance of doubt, the maximum, aggregate Milestone Payments due for each Licensed Product shall be $8,000,000.

 

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(d) during the Royalty Term, on a per-Licensed-Product and country-by-country basis, an earned royalty on Net Sales of Licensed Products by Licensee and/or its Affiliate(s) and Sublicensees (“Earned Royalty”) as follows:

 

When Licensed Product is:

  

the earned royalty rate is:

A Short-acting Licensed Product, (including any Combination Product in which a Short-acting Licensed Product is sold with a Reversal Agent Licensed Product), in countries where a Valid Claim Covers the applicable Licensed Product    [***]% of Net Sales of the applicable Licensed Product
A Short-acting Licensed Product (including any Combination Product in which a Short-acting Licensed Product is sold with a Reversal Agent Licensed Product), in countries where no Valid Claim Covers the applicable Licensed Product    [***]% of Net Sales of the applicable Licensed Product
An Intermediate-acting Licensed Product (including any Combination Product in which an Intermediate-acting Licensed Product is sold with a Reversal Agent Licensed Product), in countries where a Valid Claim Covers the applicable Licensed Product    [***]% of Net Sales of the applicable Licensed Product
An Intermediate-acting Licensed Product (including any Combination Product in which an Intermediate-acting Licensed Product is sold with a Reversal Agent Licensed Product), in countries where no Valid Claim Covers the applicable Licensed Product    [***]% of Net Sales of the applicable Licensed Product
A Reversal Agent Licensed Product, in countries where a Valid Claim Covers the applicable Licensed Product and solely where such Reversal Agent Licensed Product is sold as a stand-alone product and not as part of a Combination Product    [***]% of Net Sales of the applicable Licensed Product
A Reversal Agent Licensed Product, in countries where no Valid Claim Covers the applicable Licensed Product and solely where such Reversal Agent Licensed Product is sold as a stand-alone product and not as part of a Combination Product    [***]% of Net Sales of the applicable Licensed Product

In the event Licensee is required to pay royalties to one or more third parties for Patent Rights necessary to sell Licensed Products, and the total royalties payable by Licensee exceed [***], then Licensee may deduct [***] from the Earned Royalties payable to Cornell for every $1.00 Licensee actually pays to said third parties of the amount Licensee pays above the [***]; provided, however, in no event shall the amount payable to Cornell be less than [***]% of the amount otherwise due.

 

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for every $1.00 Licensee actually pays to said third parties of the amount Licensee pays above the [***]; provided, however, in no event shall the amount payable to Cornell be less than [***]% of the amount otherwise due.

(e) during the Royalty Term, Sublicense fees relating to amounts received from Sublicensees in an amount equal to [***]; provided, however, that for purposes of this Paragraph 3.1(e), such fees received by Licensee from its Sublicensees shall be deemed reduced by the amount of any costs and expenses that Licensee is obligated, under the terms and conditions of the applicable Sublicense, to incur or pay with respect to the development of the applicable Licensed Product, and provided, further, that [***].

(f) during the Royalty Term, beginning the first full calendar year after the commercial sale of the first License Product by Licensee, its Sublicensee, or an Affiliate and if the total payments by Licensee under Paragraphs 3.1(d) to Cornell in any such year cumulatively are less than the amount (“Minimum Annual Royalty”) illustrated below:

 

Year of Commercial Sale

   Minimum Annual Royalty

1st

   [***]

2nd

   [***]

3rd

   [***]

4th and each year thereafter

   [***]

Licensee shall pay to Cornell on or before February 28 following the last quarter of such year the difference between the Minimum Annual Royalty for the applicable calendar year and the total Earned Royalty amount paid by Licensee for such year under Paragraph 3.1(d); provided, however, that for the year of commercial sales of the first Licensed Product, and for any year in which a Licensed Product is removed from the market temporarily or permanently due to regulatory action, the Minimum Annual Royalty payable shall be pro-rated for the number of months remaining in that calendar year.

All fees and royalty payments specified in Paragraphs 3.1(a) through 3.1(f) above shall be paid by Licensee pursuant to Paragraph 4.3 and shall be delivered by Licensee to Cornell as noted in Paragraph 10.1.

 

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3.2 Patent Costs. Licensee shall reimburse Cornell for all Past Patent Costs (incurred prior to the Effective Date and in the amounts set forth below) and all Future Patent Costs (incurred on or after the Effective Date). Past Patent Costs shall be paid on June 30th and December 31st of the applicable years set forth in the table below. Future Patent Costs shall be paid within thirty (30) days following the date an itemized invoice is received by Licensee from Cornell, which invoices shall be sent monthly. Past Patent Costs are [***] as of June 30, 2017 and shall be paid according to the following schedule:

 

Date

   Payment

December 31, 2017

   [***]

June 30, 2018

   [***]

December 31, 2018

   [***]

June 30, 2019

   [***]

3.3 Due Diligence.

(a) Licensee shall use commercially reasonable efforts to, either directly or through its Affiliate(s) or Sublicensee(s):

(i) diligently proceed with the development, manufacture and sale of such Licensed Products;

(ii) [***];

(iii) [***];

(iv) [***];

(v) [***];

(vi) [***];

(vii) [***];

(viii) [***];

 

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(ix) [***];

(x) [***];

(xi) [***];

(xii) [***];

(xiii) [***];

(xiv) reasonably fill the market demand for Licensed Products following commencement of marketing at any time during the term of this Agreement; and

(xv) obtain and maintain all necessary governmental approvals and permits for the manufacture, use and sale of Licensed Products in the Territory during the Term.

(b) If Licensee fails to perform any of its material obligations, then Cornell shall issue a Notice of Default to Licensee and the Parties shall discuss in good faith the key reasons for any such delay, and where any such delay or failure to meet the goals set forth above is due to any key scientific or technical challenges or complexities, regulatory challenges or changes, or unexpected development costs, challenges or complexities or safety issues, manufacturing challenges or hurdles, commercial factors, IP issues or any other key aspects of development and commercialization, the Parties shall discuss the matter in good faith and within sixty (60) days of such Notice of Default, Licensee shall propose a modified development plan in order to remedy or overcome any such challenges. If Cornell agrees, or the arbitrator determines pursuant to Appendix C, that there is a reasonable basis for said plan, then such modified development plan shall constitute Licensee’s new development plan, and the failure described in the Notice of Default will be deemed timely cured. In the event that after Licensee initiates such modified development plan, Cornell does not believe that Licensee (directly or through its Sublicensee) is applying its commercially reasonable efforts towards the material objectives therein, then Cornell may request that the arbitrator determine pursuant to Appendix C whether Licensee (directly or through its Sublicensee) is applying such efforts, and if the arbitrator agrees with Cornell that Licensee (directly or through its Sublicensee) is not applying such efforts, then Cornell shall have the right and option to either terminate this Agreement or change Licensee’s exclusive license to a nonexclusive license. This right, if exercised by Cornell, supersedes the rights granted in Article 2.

 

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(c) If at any time during the Term, Licensee has not begun a genuine product or business development program for a specific Licensed Product in any country within the Territory and Cornell receives one or more legitimate inquiries to license Patent Rights for the commercialization of said specific Licensed Product in said country, Cornell shall refer such offers to Licensee. If (i) Licensee is no longer an Independent Company, and (ii) Licensee fails to satisfy the market demand (within 25%) in said country of the specific Licensed Product, and Licensee is unable to cure such failure within ninety (90) days from the date of notice, or fails to grant Sublicenses to the inquirers to satisfy such market demand (after Licensee has failed to cure such failure as set forth above), Cornell may then exclude said country, and only said country, from the Territory and license such rights to one or more third parties.

ARTICLE 4. REPORTS, RECORDS AND PAYMENTS

4.1 Reports.

(a) Development Reports. Beginning six (6) months after Effective Date and ending on the date of first commercial sale of a Licensed Product in the United States, Licensee shall report to Cornell progress covering Licensee’s (and Affiliate’s and Sublicensee’s, as applicable) material activities and efforts in the development of any Licensed Products in the Field under this Agreement. Such reports shall be provided for the preceding six (6) months. The report shall include, but not be limited to, activities and efforts to develop and test all Licensed Products in the Field in the Territory and obtain governmental approvals necessary for marketing the same. Such semi-annual reports shall be due within sixty (60) days of the end of the applicable semi-annual reporting period and shall substantially conform to the form provided herein as Appendix D.

(b) Commercialization Reports. After the first commercial sale of a Licensed Product anywhere in the Territory, Licensee shall submit to Cornell semi-annual commercialization reports on or before each February 28 and August 31 of each year during the Term. Each report shall cover Licensee’s (and each Affiliate’s and Sublicensee’s, as applicable) most recently completed calendar half and shall show:

(i) the gross sales and Net Sales (as defined in Paragraph 1.11) during the most recently completed calendar quarter and the royalties, in US dollars, payable with respect thereto;

(ii) the number of each type of Licensed Product sold (in units or stock keeping units, as applicable);

(iii) sublicense fees and royalties received during the most recently completed calendar half in US dollars, payable with respect thereto;

(iv) the method used to calculate the royalties;

(v) the exchange rates used; and

 

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(vi) relevant business and corporate development efforts relating to the rights granted in this Agreement.

Licensee shall provide the above information using a form that substantially complies with the form shown in Appendix E and include information on the date of the first commercial sale of each Licensed Product in each country.

If no sales of Licensed Products have been made and no Sublicense revenue has been received by Licensee during the applicable reporting period, Licensee shall so report such information to Cornell, which such communication shall be deemed to satisfy in full Licensee’s reporting obligations hereunder.

4.2 Records & Audits.

(a) Licensee shall keep, and shall require its Affiliates and Sublicensees to keep, accurate and correct records of Net Sales and such records as are necessary to determine the amounts due to Cornell under this Agreement. Such records shall be retained by Licensee for at least five (5) years following a given reporting period.

(b) All records shall be available during normal business hours upon a mutually agreeable date and time and with at least fifteen (15) business days’ advance written notice to Licensee for inspection, at the expense of Cornell, by an independent Certified Public Accountant selected by Cornell and in compliance with the other terms of this Agreement for the sole purpose of verifying reports and payments or other compliance issues. Such inspector shall not disclose to Cornell any information other than information relating to the accuracy of reports and payments made under this Agreement or other compliance issues. In the event that any such inspection shows an undisputed under-reporting and underpayment in excess of five percent (5%) for any twelve-month (12-month) period, then Licensee shall pay the cost of the audit as well as any additional sum that would have been payable to Cornell had the Licensee reported correctly, plus an interest charge at a rate of ten percent (10%) per year. Such interest shall be calculated from the date the correct payment was due to Cornell up to the date when such payment is actually made by Licensee. For any undisputed underpayment not in excess of five percent (5%) for any twelve-month (12-month) period, Licensee shall pay the difference within thirty (30) days without inspection cost but with interest charge per the provisions of Paragraph 4.3(c).

4.3 Payments.

(a) All fees, reimbursements and royalties due Cornell shall be paid in United States dollars and all checks shall be made payable to “Cornell University”, referencing Cornell’s taxpayer identification number, [***], and sent to Cornell according to Paragraph 10.1 (Correspondence). When Licensed Products are sold in currencies other than United States dollars, Licensee shall first determine the Earned Royalty in the currency of the country in which Licensed Products were sold and then convert the amount into equivalent United States funds, using the exchange rate quoted in the Wall Street Journal on the last business day of the applicable reporting period.

 

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(b) Royalty Payments.

(i) Royalties shall accrue when payments for the applicable Licensed Products are invoiced, or if not invoiced, when delivered to a third party or Affiliate.

(ii) Licensee shall pay Earned Royalties semi-annually on or before February 28 and August 31 of each calendar year for the previous calendar half. Each such payment shall be for earned royalties accrued within Licensee’s most recently completed calendar half.

(iii) Royalties earned on sales occurring pursuant to this Agreement or under a Sublicense granted pursuant to this Agreement in any country outside the United States shall not be reduced by Licensee for any taxes, fees, or other charges imposed by the government of such country on the payment of royalty income, except that all payments made by Licensee in fulfillment of Cornell’s tax liability in any particular country may be credited against earned royalties or fees due Cornell for that country. Licensee shall pay all bank charges resulting from the transfer of such royalty payments.

(iv) If at any time legal restrictions prevent the prompt remittance of part or all royalties by Licensee with respect to any country where a Licensed Product is sold or a Sublicense is granted pursuant to this Agreement, Licensee shall convert the amount owed to Cornell into US currency and shall pay Cornell directly from its US sources of funds for as long as the legal restrictions apply.

(v) In the event that any patent or patent claim within Patent Rights expires or is held invalid in a final decision by a patent office from which no appeal or additional patent prosecution has been or can be taken, or by a court of competent jurisdiction and last resort and from which no appeal has or can be taken, all obligation to pay royalties based solely on that patent or claim or any claim patentably indistinct therefrom shall cease as of the date of such final decision in the applicable country within the Territory. Licensee shall not, however, be relieved from paying any royalties that accrued before the date of such final decision in the applicable country within the Territory, or that are based on another patent or claim within the Patent Rights not involved in such final decision, or that are based on the use of the Technology in the applicable country within the Territory.

(c) Late Payments. In the event royalty, reimbursement and/or fee payments are not received by Cornell when due, Licensee shall pay to Cornell interest charges at a rate of [***]. Such interest shall be calculated from the date payment was due until actually received by Cornell.

ARTICLE 5. PATENT MATTERS AND TECHNOLOGY OWNERSHIP

5.1 Patent Prosecution and Maintenance.

(a) Provided that Licensee has reimbursed Cornell for Patent Costs pursuant to Paragraph 3.2, Cornell shall diligently prosecute and maintain the United States and, if available, foreign patents, and applications in Patent Rights using counsel that is mutually agreed upon by the Parties. Cornell shall provide Licensee with copies of all relevant documentation relating to

 

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such prosecution and an opportunity to review and comment upon the text of the applications relating to the Patent Rights as soon as practicable (but in no event less than thirty (30) days for new patent application filings and fifteen (15) days for all other filings) before filing. The counsel shall take instructions only from Cornell, and all patents and patent applications in Patent Rights shall be assigned solely to CRF or Cornell. Further, Cornell shall (i) consider amending any patent application in Patent Rights to include claims reasonably requested by Licensee to protect the products contemplated to be sold as Licensed Products by Licensee under this Agreement; (ii) provide Licensee with a copy of each submission made to and document received from a patent authority, court or other tribunal relating to the Patent Rights reasonably promptly after making such filing or receiving such document, including a copy of each application for each item within the Patent Rights as filed together with notice of its filing date and application number; (iii) keep Licensee apprised of the status of all material communications, actual and prospective filings or submissions regarding the Patent Rights, and give Licensee copies of and an opportunity to review and comment on any such material communications, filings and submissions proposed to be sent to any patent authority or judicial body; and (iv) reasonably consider in good faith Licensee’s comments on the communications, filings and submissions for the Patent Rights. For the avoidance of doubt, Licensee shall be free to prosecute and maintain the United States and, if available elsewhere in the Territory, any and all patents and applications therefor using counsel of its choosing with respect to any inventions owned by Licensee.

(b) Licensee may elect to terminate its reimbursement obligations with respect to any patent application or patent in Patent Rights upon ninety (90) days written notice to Cornell. Cornell shall use reasonable efforts to curtail further Patent Costs for such application or patent when such notice of termination is received from Licensee. Cornell, in its sole discretion and at its sole expense, may continue prosecution and maintenance of said application or patent, and Licensee shall have no further license with respect thereto and shall not be responsible for any costs or fees associated therewith incurred by Cornell after said 90 day period has ended. Non-payment of any portion of Patent Costs with respect to any application or patent, which remains uncured for sixty (60) days following Cornell’s Notice of Default with respect to such non-payment, may be deemed by Cornell as an election by Licensee to terminate its reimbursement obligations with respect to such application or patent. Cornell is not obligated to file, prosecute, or maintain Patent Rights outside of the territory at any time or to file, prosecute, or maintain Patent Rights to which Licensee has terminated its License hereunder.

(c) From and after the Effective Date, if Cornell proposes to abandon or fail to maintain any patent or patent application within the Patent Rights, it shall give Licensee reasonable notice thereof (with sufficient time for Licensee to assume control thereof and continue the prosecution or maintenance of such patent, trademark or application) and thereafter Licensee may, upon written notice to Cornell and at Licensee’s sole cost, control the prosecution and maintenance with respect to such patent or application (such patent or patent application so assumed, a “Licensee Assumed Item”). Licensee shall control, itself or through outside counsel reasonably acceptable to Cornell and directed by Licensee, prosecution and maintenance with respect to Licensee Assumed Items in the Territory, at Licensee’s sole cost and expense, as well as preparation and filing for any patent term extensions or similar protections therefor. Licensee shall provide Cornell with a copy of each material submission made to and document received

 

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from a patent authority regarding any Licensee Assumed Items reasonably promptly after making such filing or receiving such document, including a copy of each application for each item within the Licensee Assumed Items as filed together with notice of its filing date and application number.

(d) No later than 120 days after the Effective Date, Cornell and Licensee shall discuss a prosecution strategy in respect of the Patents Rights. During the Term, if Licensee reasonably believes that Cornell’s prosecution or maintenance of any Patent Rights is inconsistent with the prosecution strategy as agreed upon by the Parties, or otherwise believes that the Patent Costs attendant to the prosecution or maintenance of any such Patent Right are unreasonable, then the CEO of Recro Pharma, Inc. and the Director of Technology/Licensing for Cornell shall meet and attempt to come to a resolution. To the extent that the parties are unable to come to a mutually agreeable resolution, the dispute shall be settled in accordance with Paragraph 10.8 (Dispute Resolution) of this Agreement.

(e) Licensee shall have the right to apply for an extension of the term of any patent in Patent Rights if appropriate under the Drug Price Competition and Patent Term Restoration Act of 1984 and/or European, Japanese and other foreign counterparts of this law. Licensee shall prepare all documents for such application, and Cornell shall execute such documents and to take any other additional action as Licensee reasonably requests in connection therewith.

5.2 Patent Infringement.

(a) If either Party learns of any substantial infringement of Patent Rights, such Party shall reasonably promptly inform the other Party and provide the other Party with any available evidence of the infringement. Neither party shall notify a third party of the infringement of Patent Rights without the consent of the other party. Both Parties shall use reasonable efforts and cooperation to terminate infringement without litigation.

(b) From and after the Effective Date, Licensee shall have the first right, but not the obligation, to enforce Patent Rights against any actual, alleged or threatened infringement or misappropriation by third parties in the Territory, at Licensee’s sole expense. In the event Licensee elects to bring and prosecute such an action, Cornell shall reasonably assist Licensee and cooperate in any such action at Licensee’s request (and Licensee shall reimburse all reasonable, documented, out-of-pocket expenses incurred by Cornell in connection therewith), and Licensee shall seek and reasonably consider Cornell’s comments before determining the strategy. Without limiting the foregoing, Licensee shall keep Cornell advised of all material communications, actual and prospective filings or submissions regarding such action, and shall provide Cornell copies of and an opportunity to review and comment on any such material communications, filings and submissions. Licensee shall not settle, or consent to any judgment in, any action under this Paragraph 5.2(b) without Cornell’s prior written consent, not to be unreasonably withheld or delayed.

(c) From and after the Effective Date, Cornell may request that Licensee take legal action against a third party for the infringement of Patent Rights in the Field and within the Territory. Such request shall be made in writing and shall include any available evidence of such

 

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infringement and damages. If the infringing activity has not abated ninety (90) days following Cornell’s request, Licensee shall elect to or not to commence suit on its own account. Licensee shall give notice of its election in writing to Cornell by the end of the one-hundredth (100th) day after receiving notice of such request from Cornell. Cornell may thereafter bring suit for patent infringement and any related claims at its own expense and Licensee will cooperate with Cornell. If Cornell elects to bring and prosecute such an action, then Cornell shall seek and reasonably consider Licensee’s comments on strategy. Without limiting the foregoing, Cornell shall keep Licensee advised of all material communications, actual and prospective filings or submissions regarding such action, and shall provide Licensee copies of and an opportunity to review. Cornell shall not settle, or consent to any judgment in, any action under this Paragraph 5.2(c), without Licensee’s prior written consent, not to be unreasonably withheld or delayed.

(d) Any recovery or settlement received in connection with any suit brought pursuant to Paragraphs 5.2(b) or 5.2(c) will [***].[***].[***]. Cornell and Licensee agree to be bound by all determinations of patent infringement, validity, and enforceability (but no other issue) resolved by any adjudicated judgment in a suit brought in compliance with this Paragraph 5.2.

(e) Notwithstanding 5.2(d), any agreement made by Licensee for purposes of settling litigation or other dispute shall comply with the requirements of Paragraph 2.2 (Sublicense) of this Agreement.

(f) Each party shall cooperate with the other in litigation proceedings at the expense of the party bringing suit. Litigation shall be controlled by the party bringing the suit. CRF and/or Cornell may be represented by counsel of its choice at its own expense in any suit brought by Licensee. For the sake of clarity, each party may be represented by counsel of its choice in any suit brought against them by the alleged infringer.

5.3 Patent Marking. Licensee shall mark all Licensed Products made, used or sold under the terms of this Agreement, or their containers, in accordance with the applicable patent marking laws.

5.4 Ownership of Technology

(a) Cornell retains ownership of the Technology, and Cornell shall be the sole owner of all right, title and interest to such Technology and all intellectual property rights therein. During the Term, Licensee shall make no use of Technology outside the scope of this Agreement and the licenses granted hereunder. Any such use shall be a material breach of this Agreement.

(b) Licensee retains ownership of the Licensee Know-How and Licensee shall be the sole owner of all right, title and interest to such Licensee Know-How and all intellectual property rights therein. Cornell shall make no use of the Licensee Know-How and any such use shall be a material breach of this Agreement.

(c) Promptly after receipt by Cornell of the Initial License Fee and the Materials Fee from Licensee pursuant to Paragraph 3.1(a), Cornell shall transfer IND 106,913 to Licensee by filing a letter with the FDA stating that all rights to IND 106,913 have been transferred to Licensee as the new owner, as of the effective date set forth therein, pursuant to 21 CFR 312.72

 

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Change in Ownership of Application and in a form reasonably acceptable to Licensee. Cornell shall execute two (2) copies of such letter, and shall deliver one (1) copy to each of FDA and Licensee. Upon termination of this Agreement, the Parties will discuss and agree upon their desired treatment and disposition of IND 106,913.

ARTICLE 6. GOVERNMENTAL MATTERS

6.1 Governmental Approval or Registration. If this Agreement or any associated transaction is required by the law of any nation to be either approved or registered with any governmental agency, Licensee shall assume all legal obligations to do so and Cornell shall cooperate with Licensee in fulfilling any such obligations. Licensee shall notify Cornell if it becomes aware that this Agreement is subject to a United States or foreign government reporting or approval requirement. Licensee shall make all necessary filings and pay all costs including fees, penalties, and all other out-of-pocket costs associated with such reporting or approval process.

6.2 Export Control Laws. Licensee shall observe all applicable United States and foreign laws with respect to the transfer of Licensed Products and related technical data to foreign countries, including, without limitation, the International Traffic in Arms Regulations and the Export Administration Regulations.

ARTICLE 7. TERMINATION AND EXPIRATION OF THE AGREEMENT

7.1 Termination by Cornell.

(a) If Licensee fails to perform or violates any term and is in material breach of this Agreement, then Cornell may give written notice of default (“Notice of Default”) to Licensee. If Licensee fails to cure the default within sixty (60) days of the Notice of Default, Cornell may terminate this Agreement and the license granted herein by a second written notice (“Notice of Termination”) to Licensee. If a Notice of Termination is sent to Licensee, this Agreement shall automatically terminate on the effective date of that notice. Termination shall not relieve Licensee of its obligation to pay any fees owed at the time of termination and shall not impair any accrued right of Cornell.

(b) This Agreement will terminate immediately, without the obligation to provide written notices as set forth in Paragraph 7.1(a), if Licensee files a claim including in any way the assertion that any portion of CRF’s or Cornell’s Patent Rights is invalid or unenforceable where the filing is by the Licensee, a third party on behalf of the Licensee, or a third party at the written urging of the Licensee.

7.2 Termination by Licensee.

(a) Licensee shall have the right at any time and for any reason to terminate this Agreement upon ninety (90) days written notice to Cornell. Said notice shall state Licensee’s reason (if any) for terminating this Agreement.

(b) Any termination under Paragraph 7.2(a) shall not relieve Licensee of any obligation or liability accrued under this Agreement or rescind any payment made to Cornell prior to the time termination becomes effective. Termination shall not affect in any manner any rights of Cornell or CRF arising under this Agreement prior to termination.

 

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7.3 Survival on Termination. The following Paragraphs and Articles shall survive the termination of this Agreement:

(a) Article 4 (REPORTS, RECORDS AND PAYMENTS);

(b) Paragraph 7.3 (Survival on Termination);

(c) Paragraph 7.4 (Disposition of Licensed Products on Hand);

(d) Paragraph 7.5 (Post-Expiration License);

(e) Paragraph 8.2 (Indemnification);

(f) Article 9 (USE OF NAMES AND TRADEMARKS);

(g) Paragraph 10.2 hereof (Confidentiality); and

(h) Paragraph 10.5 (Failure to Perform).

7.4 Disposition of Licensed Products on Hand. Upon termination of this Agreement under Paragraph 7.1 or 7.2, Licensee may dispose of all previously made or partially made Licensed Product within a period of one hundred and twenty (120) days of the effective date of such termination provided that the sale of such Licensed Product by Licensee, its Sublicensees, or Affiliates shall be subject to the terms of this Agreement, including but not limited to the rendering of reports and payment of royalties required under this Agreement.

7.5 Post-Expiration License. Effective upon the expiration of the Royalty Term for a given Licensed Product in a given country, Cornell hereby grants to Licensee and its Affiliates, and Licensee and its Affiliates will retain, a royalty-free, nonexclusive license, with the right to grant sublicenses, under the Technology, in each case to make and have made, to use and have used, to sell and have sold, to offer for sale, and to import and have imported Licensed Products, to practice Licensed Methods and to use and further develop the Technology in the Field in said country; the obligations to Cornell in Paragraph 8.2 and Article 9 remain in effect for as long as Licensee is using Technology and must be transferred with any transfer of Technology to a third party. The grant and obligations in this Paragraph 7.5 survive expiration of this Agreement. This Paragraph 7.5 does not apply if this Agreement is terminated under Paragraphs 7.1 or 7.2.

ARTICLE 8. LIMITED WARRANTY AND INDEMNIFICATION

8.1 Limited Warranty.

(a) Cornell warrants that (i) it has the lawful right to grant the licenses under this Agreement; (ii) neither it, CTL nor CRF have granted or will grant any right, license, or interest in, to, or under the Patent Rights or Technology that is inconsistent with the rights, licenses, and

 

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interests granted under the terms and conditions set forth in this Agreement including but not limited to (x) granting any rights or licenses under Patent Rights that would enable the development, manufacturing, import or commercialization of any Licensed Product in the Field or (y) granting any exclusive rights or licenses under Technology that would enable the development, manufacturing, import or commercialization of any Licensed Product in the Field; (iii) prior to the Effective Date, to the best of its knowledge, without undue investigation, neither it nor CTL or CRF have received any written notice of any opposition or challenge against any Patent Rights in the Territory; and (iv) prior to the Effective Date, to the best of its knowledge, without undue investigation, neither it nor CTL or CRF have received any written notice from any third party or alleging that the use of the Patent Rights, Technology, IND 106,913, or the Licensed Method is infringing or is likely to infringe the rights of any third party.

(b) Except as otherwise set forth herein, the Licenses are provided “AS IS” and without WARRANTY OF MERCHANTABILITY or WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE or any other warranty, express or implied. Except as otherwise set forth herein, Cornell makes no representation or warranty that the Licensed Product, Licensed Method, or the use of Patent Rights, IND 106,913, or Technology will not infringe any other patent or other proprietary rights.

(c) IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES RESULTING FROM EXERCISE OF THE LICENSE GRANTED HEREIN OR THE USE OF THE INVENTIONS, LICENSED PRODUCT, LICENSED METHOD, IND 106,913 OR TECHNOLOGY. NOTHING IN THIS PARAGRAPH 8.1(C) IS INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF LICENSEE UNDER SECTION 8.2 WITH RESPECT TO ANY DAMAGES OR SETTLEMENT PAYMENTS PAID TO A THIRD PARTY IN CONNECTION WITH A THIRD-PARTY CLAIM.

(d) Except as otherwise set forth in Paragraph 8.1(a) or otherwise set forth in this Agreement, nothing in this Agreement shall be construed as:

(i) a warranty or representation by Cornell or CRF as to the validity or scope of any Patent Rights;

(ii) a warranty or representation that anything made, used, sold or otherwise disposed of under any license granted in this Agreement is or shall be free from infringement of patents of third parties;

(iii) an obligation to bring or prosecute actions or suits against third parties for patent infringement except as provided in Paragraph 5.2 hereof;

(iv) conferring by implication, estoppel or otherwise any license or rights under any patents of CRF or Cornell other than Patent Rights as defined in this Agreement, regardless of whether those patents are dominant or subordinate to Patent Rights; or

(v) an obligation to furnish any Know-How apart from Know-How related to the Patent Rights or otherwise included in the Technology; or

 

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(vi) an obligation to update Technology.

(e) Licensee represents and warrants that:

(i) as of the Effective Date, Recro Ireland Limited is an Affiliate of Licensee; and

(ii) Licensee will provide prompt written notice to Cornell if any Affiliate of Licensee that has exercised rights under this Agreement ceases to be an Affiliate of Licensee, which written notice will describe the disposition of any Patent Rights, Technology, and Licensed Product that was in the possession or control of said former Affiliate.

8.2 Indemnification.

(a) Licensee shall indemnify, hold harmless and defend CRF, Cornell, and each of their respective trustees, directors, officers, employees, and agents; the sponsors of the research that led to the Inventions; and the Inventors of the patents and patent applications in Patent Rights and their employers (the “Cornell Indemnitee(s)”) against any and all claims, suits, losses, damage, costs, fees, and expenses (“Losses”) arising out arising out of any claim, action, lawsuit, or other proceeding (collectively, “Claims”) brought against any Cornell Indemnitee by a third party to the extent such Losses result from the development or commercialization of the Licensed Products by Licensee or its Affiliates or Sublicensees, except to the extent involving or relating to (i) a material breach by Cornell of this Agreement, including any failure of Cornell’s representations or warranties in Paragraph 8.1(a) to be true, or (ii) any gross negligence, willful misconduct or fraud of any Cornell Indemnitee.

(b) Whenever any Claim or Loss shall arise for which a Cornell Indemnitee (the “Indemnified Party”) may seek indemnification under this Paragraph 8.2, the Indemnified Party shall promptly notify the other Party (the “Indemnifying Party”) of the Claim or Loss and, when known, the facts constituting the basis for the Claim; provided, however, that the failure by an Indemnified Party to give such notice or to otherwise meet its obligations under this Paragraph 8.2 shall not relieve the Indemnifying Party of its indemnification obligation under this Agreement, except and only to the extent that the Indemnifying Party is actually prejudiced as a result of such failure. Except as set forth in this Paragraph, the Indemnifying Party shall have exclusive control of the defense and settlement of all Claims for which it is responsible for indemnification and shall promptly assume defense thereof at its own expense. The Indemnifying Party shall act diligently and in good faith with respect to all matters relating to the settlement or disposition of any Claim as the settlement or disposition relates to the Indemnified Party and shall cause such defense to be conducted by counsel reasonably acceptable to the Indemnified Party. The Indemnified Party shall not settle or compromise such Claim for which it is entitled to indemnification without the prior written consent of the Indemnifying Party, unless the Indemnifying Party is in breach of its obligation to defend hereunder. In no event shall the Indemnifying Party settle any Claim without the prior written consent of the Indemnified Party if such settlement does not include a complete release from liability on such Claim or if such settlement would involve undertaking an obligation other than the payment of money, would bind or impair the other Party, or includes any admission of wrongdoing or that any intellectual property or proprietary right of the other Party is invalid or unenforceable. The Indemnified

 

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Party shall reasonably cooperate with the Indemnifying Party at the Indemnifying Party’s expense and shall make available to the Indemnifying Party reasonably requested information under the control of the Indemnified Party, which information shall be subject to Paragraph 10.2. The Indemnified Party shall have the right (at its own expense) to be present in person or through counsel at all legal proceedings giving rise to the right of indemnification. Notwithstanding the foregoing, the Indemnified Party will have the right to employ separate counsel at the Indemnifying Party’s expense and to control its own defense of the applicable Claim if: (i) there are or may be legal defenses available to the Indemnified Party that are different from or additional to those available to the Indemnifying Party; or (ii) in the reasonable opinion of counsel to the Indemnified Party, a conflict or potential conflict exists between the Indemnified Party and Indemnifying Party that would make such separate representation advisable; provided that in no event will the Indemnifying Party be required to pay fees and expenses under this sentence for more than one (1) firm of attorneys in any jurisdiction in any one (1) legal action or group of related legal actions. In such event, the Indemnified Party shall not settle or compromise such Claim without the prior written consent of the Indemnifying Party, such consent not to be unreasonably withheld, conditioned or delayed.

(c) Licensee, at its sole cost and expense, shall insure its activities in connection with the work under this Agreement and obtain and maintain insurance or an equivalent program of self-insurance as follows:

(i) Prior to the first “in human” test of a Licensed Product: comprehensive or commercial general liability insurance (contractual liability included) with limits of at least: (A) each occurrence, [***]; (B) products/completed operations aggregate, [***]; (C) personal and advertising injury, [***]; and (D) general aggregate (commercial form only), [***]; and

(ii) Commencing upon the first “in human” test of a Licensed Product: comprehensive or commercial general liability insurance (contractual liability included) with limits of at least: (A) each occurrence, [***]; (B) products/completed operations aggregate, [***]; (C) personal and advertising injury, [***]; and (D) general aggregate (commercial form only), [***]; and

(iii) the coverage and limits referred to above shall not in any way limit the liability of Licensee.

(d) Licensee shall, upon request, furnish Cornell with certificates of insurance showing compliance with all requirements. Such certificates shall: (i) provide for thirty (30) day advance written notice to Cornell of any modification; (ii) indicate that Cornell has been endorsed as an additionally insured party under the coverage referred to above; and (iii) include a provision that the coverage shall be primary and shall not participate with nor shall be excess over any valid and collectable insurance or program of self-insurance carried or maintained by Cornell.

 

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ARTICLE 9. USE OF NAMES AND TRADEMARKS

9.1 Nothing contained in this Agreement confers any right to use in advertising, publicity, or other promotional activities any name, trade name, trademark, or other designation of either Party hereto (including contraction, abbreviation or simulation of any of the foregoing). Unless required by law, the use by Licensee of the name, “Cornell University” or “Cornell Research Foundation” is prohibited, without the express written consent of Cornell.

9.2 Cornell may acknowledge the existence of this Agreement and the extent of the grant in Article 2 to third parties, provided that the financial terms of this Agreement shall be deemed Confidential Information such that the obligations of Paragraph 10.2 shall apply to any disclosure(s) thereof.

9.3 Licensee may acknowledge or make press releases regarding the existence of this Agreement and the extent of the grant in Article 2 but Licensee shall not disclose the financial terms of this Agreement except where disclosure of Confidential Information is permitted in accordance with Paragraph 10.2(b)(iii) herein or otherwise required by law, regulation, exchange rules or legal process. To the extent Licensee makes any forward-looking statement regarding this Agreement in its press releases, Licensee shall seek the prior consent of Cornell, which shall not be unreasonably withheld or delayed.

ARTICLE 10. MISCELLANEOUS PROVISIONS

10.1 Correspondence. Any notice, invoice or payment required to be given to either Party under this Agreement shall be deemed to have been properly given and effective:

(a) on the date of delivery if delivered in person;

(b) one (1) day after the successful transmission in pdf file format if sent by electronic mail using the Internet; or

(c) five (5) days after mailing if mailed by first-class or certified mail, postage paid, to the respective addresses given below, or to such other address as is designated by written notice given to the other Party.

If sent to Licensee:

[Reports and Notices Contact]:

Recro Pharma, Inc.

Attention: Gerri Henwood

490 Lapp Road

Malvern, PA 19355

Phone: 484-395-2470

Email: [***]

 

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Accounts Payable Contact:

Recro Pharma, Inc.

Attention: Ryan Lake, Senior Vice President of Finance

490 Lapp Road

Malvern, PA 19355

Phone: 484-395-2470

Email: [***]

Intellectual Property Contacts:

Recro Pharma, Inc.

Attention: Vanessa Ragaglia

490 Lapp Road

Malvern, PA 19355

Phone: 484-395-2470

Email: [***]

and

Stradley Ronon Stevens & Young, LLP

Attention: Paul K. Legaard, Ph.D.

Great Valley Corp. Center, 30 Valley Stream Parkway

Malvern, PA 19355

Phone: 610-651-2277

Email: plegaard@stradley.com

If sent to Cornell:

For all correspondence except payments -

Center for Technology Licensing at Cornell University

Attention: Executive Director

395 Pine Tree Road, Suite 310

Ithaca, NY 14850

  TEL:    607-254-5236

EMAIL: [***]

For all payments -

If sent by mail:

Center for Technology Licensing at Cornell University

PO Box 6899

Ithaca, NY 14851-6899

 

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If remitted by electronic payments via ACH or Fed Wire:

 

Receiving bank name:    [***]         
Bank account no.:    [***]         
Bank routing (ABA) no.:    [***]         
SWIFT code:    [***]         
Bank account name:    [***]         
Bank ACH format code:    [***]         
Bank address:    [***]         
Additional information:    [***]         

An email copy of the wire transfer transaction receipt shall be sent to Director for Finance and Operations at [***]. Licensee is responsible for all bank charges of wire transfer of funds for payments. The bank charges shall not be deducted from total amount due to Cornell.

10.2 Confidentiality.

(a) “Confidential Information” shall mean any and all information and data, including all scientific, pre-clinical, clinical, regulatory, manufacturing, marketing, financial, trade secret and commercial information or data, whether communicated in writing or orally or by any other method, which is provided by one Party or its Affiliates to the other Party or its Affiliates in connection with this Agreement. Information, including Technology, relating to the Inventions and disclosed by Cornell to Licensee during the Term of this Agreement shall be deemed the Confidential Information of Cornell. The Licensee Know-How shall be deemed the Confidential Information of Licensee. All Confidential Information shall remain the property of the disclosing Party.

(b) Each Party shall:

(i) solely use the Confidential Information of the disclosing Party for the purpose of performing its obligations and exercising its rights under this Agreement;

(ii) safeguard the Confidential Information of the disclosing Party against disclosure to others with the same degree of care as it exercises with its own data of a similar nature; and

(iii) not disclose Confidential Information to others (except to its employees, agents or consultants who are bound in writing to the receiving Party by a like obligation of confidentiality) without the express written permission of the disclosing Party.

Notwithstanding the foregoing, the receiving Party shall not be prevented from using or disclosing any of the Confidential Information that:

 

  (A)

the receiving Party can demonstrate by written records was previously known to it other than through a prior disclosure by or on behalf of the disclosing Party;

 

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  (B)

is now, or becomes in the future, public knowledge other than through acts or omissions of the receiving Party or its Affiliates;

 

  (C)

(C) is lawfully obtained by the receiving Party from sources independent of the disclosing Party and not in violation of any confidentiality obligation to the disclosing Party not to disclose such Confidential Information; or

 

  (D)

is required to be disclosed by law, regulation or a court of competent jurisdiction; provided, however, that the receiving Party shall use commercially reasonable efforts to notify the disclosing Party of the receiving Party’s intent to make such disclosure of such Confidential Information sufficiently prior to making such disclosure so as to allow the disclosing Party adequate time to take whatever action the disclosing Party may deem to be appropriate to protect the confidentiality of the information.

(c) The confidentiality obligations of each Party hereunder shall continue for a period ending five (5) years from the termination or expiration date of this Agreement.

(d) Cornell may disclose to the Inventors the terms and conditions of this Agreement upon their request provided that Cornell shall first require in writing that the Inventors not disclose such terms and conditions which, for the avoidance of doubt, are Confidential Information hereunder.

10.3 Assignability. This Agreement may not be assigned by either Party, without the written consent of the other Party, such consent not to be unreasonably withheld; provided, however, that Licensee may assign without consent, but with notice of assignment, to Recro Ireland Limited, provided that such entity is financially capable (directly or through commitment of funds from Licensee) of performing the obligations of Licensee under this Agreement.

10.4 No Waiver. No waiver by either Party of any breach or default of any covenant or agreement set forth in this Agreement shall be deemed a waiver as to any subsequent and/or similar breach or default.

10.5 Failure to Perform. In the event of a failure of performance due under this Agreement and if it becomes necessary for either party to undertake legal action against the other on account thereof, then the prevailing party shall be entitled to reasonable attorney’s fees in addition to reasonable and documented costs and necessary disbursements.

10.6 Governing Laws. THIS AGREEMENT SHALL BE INTERPRETED AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, but the scope and validity of any patent or patent application shall be governed by the applicable laws of the country of the patent or patent application.

 

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10.7 Force Majeure. A Party to this Agreement shall be excused from any performance required herein if such performance is rendered impossible or unfeasible due to any Force Majeure Event. When such Force Majeure Event has abated, the non-performing Party’s obligations herein shall resume.

10.8 Dispute Resolution. Any dispute arising between Cornell and Licensee under this Agreement shall be resolved under the Baseball Arbitration procedure described in Appendix C.

10.9 Headings. The headings of the several sections are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

10.10 Entire Agreement. This Agreement embodies the entire understanding of the Parties and supersedes all previous communications, representations or understandings, either oral or written, between the Parties relating to the subject matter hereof.

10.11 Amendments. No amendment or modification of this Agreement shall be valid or binding on the Parties unless made in writing and signed on behalf of each Party.

10.12 Severability. In the event that any of the provisions contained in this Agreement is held to be invalid, illegal, or unenforceable in any respect, such invalidity, illegality or unenforceability shall not affect any other provisions of this Agreement, and this Agreement shall be construed as if the invalid, illegal, or unenforceable provisions had never been contained in it.

10.13 Counterparts. This Agreement may be executed in one or more counterparts, each of which when taken together shall constitute one and the same agreement.

 

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IN WITNESS WHEREOF, both Cornell and Licensee have executed this Agreement, in duplicate originals, by their respective and duly authorized officers on the day and year written.

 

RECRO IRELAND LIMITED:     CORNELL UNIVERSITY:
By:  

  /s/ Gerri Henwood

    By:  

  /s/ Brian. J. Kelly

  (Signature of an authorized officer)       (Signature of an authorized officer)
Name:   Gerri Henwood     Name:   Brian. J. Kelly, Ph.D.
Title:   CEO & Pres     Title:   Director, Technology Licensing
Date:   6/30/17     Date:   June 30, 2017

 

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Appendix A: Patent Rights

 

Cornell Ref

  

Country

  

App. No.

  

Status

  

Patent No

  

Title

3999-01-US

   United States    [***]    Converted       [***]

3999-02-US

   United States    [***]    Issued    [***]    [***]

3999-03-PC

   PCT    [***]    Converted       [***]

3999-04-AU

   Australia    [***]    Issued    [***]    [***]

3999-05-CA

   Canada    [***]    Issued    [***]    [***]

3999-06-CN

   China    [***]    Issued    [***]    [***]

3999-07-EP

   Europe    [***]    Issued    [***]    [***]

3999-08-IN

   India    [***]    Filed       [***]

3999-09-JP

   Japan    [***]    Issued    [***]    [***]

3999-10-DE

   Germany    [***]    Issued    [***]    [***]

3999-11-FR

   France    [***]    Issued    [***]    [***]

3999-12-GB

   United Kingdom    [***]    Issued    [***]    [***]

 

2


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Cornell Ref

  

Country

  

App. No.

  

Status

  

Patent No

  

Title

4398-01-US

   United States    [***]    Converted       [***]

4398-02-PC

   PCT    [***]    Not Converted       [***]

4398-03-US

   United States    [***]    Issued    [***]    [***]

4708-01-US

   United States    [***]    Converted       [***]

4708-02-PC

   PCT    [***]    Converted       [***]

4708-03-CN

   China    [***]    Prosecution       [***]

4708-04-US

   United States    [***]    Issued    [***]    [***]

5421-01-US

   United States    [***]    Converted       [***]

5421-02-US

   United States    [***]    Converted       [***]

5421-03-US

   United States    [***]    Converted       [***]

5421-04-PC

   PCT    [***]    Converted       [***]

5421-05-US

   United States    [***]    Issued    [***]    [***]

5421-06-EP

   Europe    [***]    Allowed       [***]

5421-07-JP

   Japan    [***]    Filed       [***]

 

3


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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Appendix B1: Charles River Documents

 

Study No. (Sponsor Ref. No.)

  

Title

   Draft/Final Report
Date
   Cubic Footage

Sponsor Representative

  

Archived Material (Room temperature, unless otherwise specified)

   End of Continued
Storage
   Number of
Samples
102222    [***]    December 10, 2010    1 ft3
John J. Savarese    Raw Data (Paper & Multimedia)    August 31, 2016    —  
102223    [***]    December 10, 2010    1 ft3
John J. Savarese    Raw Data (Paper & Multimedia)    August 31, 2016    —  
142191    [***]    May 02, 2014    1 ft3
Jeff McGilvra    Raw Data (Paper & Multimedia)    August 31, 2016    —  
142192 (PK-002)    [***]    May 02, 2014    2 ft3
Jeff McGilvra    Raw Data (Paper & Multimedia)    August 31, 2016    —  
142193 (CW002-001)    [***]    May 02, 2014    1 ft3
Erica Allen    Raw Data (Paper & Multimedia)    August 31, 2016    —  
143029    [***]    April 09, 2012    1 ft3
John J. Savarese    Raw Data (Paper)    August 31, 2016    —  
143030 (PK-AD-001)    [***]    January 17, 2012    1 ft3
John J. Savarese    Raw Data (Paper 8 Multimedia)    August 31, 2016    —  

 

4


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Study No. (Sponsor Ref. No.)

  

Title

   Draft/Final Report
Date
   Cubic Footage

Sponsor Representative

  

Archived Material (Room temperature, unless otherwise specified)

   End of Continued
Storage
   Number of
Samples
143032    [***]    February 14, 2013    1 ft3
Robert Rizzolo    Raw Data (Paper & Multimedia)    August 31. 2016    —  
183136    [***]    November 17, 2010    1 ft3
John J. Savarese    Raw Data (Paper & Multimedia)    August 31, 2016    —  
401066    [***]    October 30, 2009    1 ft3
Gilbert W. Carnathan    Raw Data (Paper & Multimedia)    August 31, 2016    —  
401067    [***]    November 03, 2009    1 ft3
Gilbert W. Carnathan    Raw Data (Paper & Multimedia)    August 31, 2016    —  
503757    [***]    October 15, 2010    5 ft3
John J. Savarese    Raw Data (Paper & Multimedia), Blacks, Hematology Slides, Pathology Slides. Wet Tissues    August 31, 2016    —  
600401    [***]    April 21, 2010    1 ft3
Gilbert W. (Chip) Carnathan    Raw Data (Paper & Multimedia)    August 31, 2016   
962374    [***]    May 19, 2009    1 ft3
John J. Savarese    Raw Data (Paper & Multimedia)    August 31. 2016    —  
962375    [***]    May 22, 2009    1 ft3
John J. Savarese    Raw Data (Paper & Multimedia), Genetic Slides    August 31, 2016    —  
1400104    [***]    February 14, 2013    1 ft3
Robert Rizzolo    Raw Data (Paper & Multimedia)    August 31, 2016    —  
1400273    [***]    July 02, 2013    1 ft3
Alexander Smith    Raw Data (Paper & Multimedia)    August 31, 2016    —  

 

5


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COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Study No. (Sponsor Ref. No.)

  

Title

   Draft/Final Report
Date
   Cubic Footage

Sponsor Representative

  

Archived Material (Room temperature, unless otherwise specified)

   End of Continued
Storage
   Number of
Samples
1400274    [***]    July 02, 2013    1 ft3
Alexander Smith    Raw Data (Paper & Multimedia)    August 31, 2016    —  
2100001    [***]    November 15, 2012    1 ft3
John J. Savarese    Raw Data (Paper & Multimedia)    August 31, 2016    —  
2100002    [***]    November 15, 2012    1 ft3
John J. Savarese    Raw Data (Paper & Multimedia)    August 31, 2016    —  
2100072    [***]    February 15, 2013    1 ft3
John J. Savarese    Raw Data (Paper & Multimedia)    August 31, 2016    —  
2100073    [***]    February 15, 2013    1 ft3
John J. Savarese    Raw Data (Paper & Multimedia)    August 31, 2016    —  

 

6


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Appendix B2: Files at IMPACT

 

   

Cornell IND (electronically) and submission #s 0000 through 0027

 

   

All FDA correspondence (from pre-IND through present) with the possible exception of a gap in 2009 (April — November) when I switched companies and did not have access to the project.

 

   

Meeting minutes from internal project meetings from April 2007 through Oct 2014 (again — with a gap in 2009).

 

   

CDs with nonclinical studies:

 

   

20034480

 

   

20030605

 

   

20038747

 

   

21000058

 

   

2100002

 

   

20033131

 

   

20027620

 

   

EQU00003

 

   

503757

 

   

183136

 

   

102223

 

   

2019549

 

   

20033130

 

   

EQU00013

 

   

20027635

 

   

Trial Master File from Study CW002-001 which includes:

 

   

Protocol and amendments

 

   

Protocol violations/deviations forms

 

   

Investigator’s Brochure

 

   

Study Reference Manual

 

   

Site Initiation Binder

 

   

Blank SAE/pregnancy forms

 

   

Blank CRFs

 

7


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COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

   

CRF completion guidelines

 

   

Final CRFs

 

   

Investigational product records

 

   

Lab accreditations and reference ranges

 

   

IRB member list and correspondence

 

   

Informed consent form

 

   

Pharmacist CV/licenses

 

   

Investigator meeting slides

 

   

Site monitoring/training documentation and reports

 

   

Screening/Enrollment logs

 

   

Drug accountability/shipping records

 

   

Protocol agreement signatures

 

   

1572s/CVs/licenses/financial agreements for investigators

 

   

Site personnel log

 

   

Copies of advertising

 

   

Safety Monitoring Board meeting records

 

   

Data management plans

 

   

Documents from Charles River regarding PK assessments/issues

 

   

Clinical study report for CW002-001 and all related tables, listings, figures, appendices.

 

8


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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

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Appendix B3: Materials at Almac under Quote #15366

 

SUB-INVENTORY

   STORAGE-OS    LOCATOR
CODE
   STORAGE
SITE
   ITEM
NUMBER
  

ITEM DESCRIPTION

   LOT
NUMBER
   QUANTITY
ON HAND
   UOM    LOT
AGING
Frzr -20    15366.00    430-014a    NC    12952    [***]    R090531    146.00    EA    1579.00
Frzr -20    15366.00    430-044b    NC    12952    [***]    R090531    146.00    EA    1579.00
Frzr -20    15366.00    430-038b    NC    12953    [***]    R090529    40.00    EA    1579.00
Frzr -20    15366.00    430-048a    NC    12953    [***]    R090529    148.00    EA    1579.00
Frzr -20    15366.00    430-018a    NC    12954    [***]    R090530    234.00    EA    1579.00
Frzr -20    15366.00    430-048b    NC    12954    [***]    R090530    146.00    EA    1579.00
Frzr -20    15366.00    430-036a    NC    10384    [***]    R090526    100.00    EA   
Frzr -20    15366.00    430-003a    NC    10383    [***]    R090528    100.00    EA   
Frzr -20    15366.00    430-049a    NC    10383    [***]    R090527    34.00    EA    1253.00
Returns    100672.00    DUR0206D    NC    R10000369    [***]    NC74512    1.00    EA    1020.00
Returns    100672.00    DUR0206D    NC    R10000369    [***]    NC105380    1.00    EA    919.00
Returns    100672.00    DUR0206D    NC    R10000369    [***]    NC105387    1.00    EA    919.00

 

9


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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Appendix C: Baseball Arbitration

(i) If a dispute arises under this Agreement which Cornell and the Licensee are not able to resolve through the mediation of their senior officers for a period of sixty (60) days, then either Cornell or the Licensee may at any time thereafter submit such matter to be finally settled by arbitration administered by the American Arbitration Association in accordance with its Commercial Arbitration Rules including the Optional Rules for Emergency Measures of Protection in effect at the time of submission, as modified by this Appendix C. The arbitration will be heard and determined by three (3) arbitrators who are retired judges or attorneys with at least ten (10) years of experience in the pharmaceutical and life sciences industries, each of whom will be neutral. Cornell and the Licensee each will appoint one arbitrator and the third arbitrator will be selected by the two appointed arbitrators, or, failing agreement by the two appointed arbitrators within thirty (30) days following the date of receipt by the respondent of the request for mediation, the third arbitrator will be selected by the American Arbitration Association, such three (3) arbitrators being the “Panel”. Such arbitration will take place in New York, New York. Fees, costs and expenses of arbitration are to be divided by Cornell and the Licensee in the following manner: Cornell will pay for the arbitrator it chooses, the Licensee will pay for the arbitrator it chooses, and Cornell and the Licensee will share payment for the third arbitrator. Except in a proceeding to enforce the results of the arbitration or as otherwise required by applicable Laws, neither Cornell nor the Licensee nor any arbitrator may disclose the existence, content or results of any arbitration hereunder without the prior written agreement of Cornell and the Licensee.

(ii) Cornell and the Licensee each will prepare and submit a written summary of its position and any relevant evidence in support thereof to the Panel within thirty (30) days of the selection of the Panel. Upon receipt of such summaries from Cornell and the Licensee, the Panel will provide copies of the same to the other. The Panel will be authorized to solicit briefing or other submissions on particular questions. Within fifteen (15) days of the delivery of such summaries by the Panel, Cornell and the Licensee each will submit a written rebuttal of the other’s summary and may also amend and re-submit its original summary. Oral presentations will not be permitted unless otherwise requested by the Panel. The Panel will make a final decision with respect to the arbitration matter within thirty (30) days following receipt of the last of such rebuttal statements submitted by Cornell and the Licensee and will make a determination by selecting the resolution proposed by one of Cornell or the Licensee that as a whole is the most fair and reasonable to Cornell and the Licensee in light of the totality of the circumstances and that complies with the terms of this Agreement and will provide Cornell and the Licensee with a written statement setting forth the basis of the determination in connection therewith. For purposes of clarity, the Panel will only have the right to select a resolution proposed by one of Cornell or the Licensee in its entirety and without modification provided such resolution complies with the terms of this Agreement.

(iii) Cornell and the Licensee further agree that the decision of the Panel will be the sole, exclusive and binding remedy between them regarding the original dispute.

 

10


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Appendix D: Development Report

 

 

Company Name

 

 

 

CTL Agreement No

 

 

Your Reference No

 

Reporting Period    (mm / dd / yyyy)

 

From               /              /             Through               /              /            

 

 

 

Expected Date of first sale of

Licensed Product(s)

(mm / dd / yyyy)              /              /             

 

 

Please Check One

 

Your Company Has:                less than 500 employees worldwide                500 or more employees worldwide

 

 

For the reporting period prescribed in the agreement, please provide detailed answers to the questions listed below. Please attach a separate report to this sheet if necessary.

 

1. Listing of milestones / performance requirements accomplished during the
reporting period

 

  

    Done      

    Completed      

    Date      

 

  

    In Progress      

    Anticipated      

    Date      

 

  

    Not Done      

    Anticipated      

    Date      

 

            
            
            
            
            
            
            
            
            
            
            
                

 

2. List of Products being developed under this agreement

 

Product    

Name

     

Brief

Description    

       Status         

Product

Name

     

Brief

Description

       Status     

Product

Name

     

Brief

Description

       Status     

Product

Name

     

Brief

Description

       Status     

 

11


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3. Total expenditure spent in the reporting period (under this agreement)
 
 
 
 
 
 
 
 

 

 

4. Sublicense Activity (if applicable)

 

 

List of Sublicenses granted during reporting period

 

    

 

List of sublicenses terminated during reporting period

 

 

    

 

      

    

      

    

      

    

      

    

      
Total Number of active sublicenses during reporting period                                 

 

Report Prepared & Approved By

Name (Please Print)

 

   Title    Email
Signature   

Date (mm / dd / yyyy)

 

             /             /             

Please submit completed report either via mail or email at address below:

Center for Technology Licensing

At Cornell University

395 Pine Tree Rd., Suite 310

Ithaca, NY 14850

[***]

 

12


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Appendix E: Commercialization Report

 

 

Company Name

 

  

 

CTL Agreement No

  

 

Your Reference No

 

Reporting Period (mm / dd / yyyy)

 

From              /              /             Through              /              /                  

 

 

  

 

Date of first sale of

Licensed Product(s)

(mm / dd / yyyy)              /              /             

 

 

 

Please list all Licensed Product(s), with the relevant trade names, whether or not you  had sales for the Licensed Product(s) during this reporting period.

 

Product Name  

 

Licensed  
Invention or  
Patent  

Rights (No.)  

used if  

known or  

Docket No.  

  Country     Number of Units  
Sold
    Gross Sales    

Net Sales  

(A)  

 

Royalty Rate1  

(B)  

 

Total Royalties  

(A * B)  

                             
                             
                             
                             
                             
                             
                             
                             
                             

 

1    Pleaserefer to the license agreement for:

☐   applicable royalty rate, please provide as decimal;

☐   how Net Sales should be calculated;

☐   applicable share of sublicense fees;

☐   application of minimum royalty rate

☐   If sales were in a currency other than United States Dollars, please specify exchange rate used

2    Subtractminimum royalty already paid from royalty subtotal for Total Royalty Owed

 

  Royalty Subtotal     
  Minimum Royalty already paid*     
  Total Royalty Owed2     
  Total Sublicense Fees* (if applicable)     
  Total Payment     
     
     
     
     
     
     

 

13


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

 

Sublicense Activity (if applicable)

 

 

List of sublicenses granted during the reporting period

 

       

 

List of sublicenses terminated or expired during the reporting period

 

           
           
           
           
           
           

 

Total Number of active sublicenses during reporting period

 

       

 

List of Products being developed under this agreement

Product Name

 

      Brief Description       Status     

Product Name

 

      Brief Description       Status     

Product Name

 

      Brief Description       Status     

Product Name

 

      Brief Description       Status     

Product Name

 

      Brief Description       Status     
          
List of Licensed Product(s) Not Manufactured in the US

Product Name

 

                    

Product Name

 

                    

Product Name

 

                    

Product Name

 

                    

 

14


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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

 

Report Prepared & Approved By

 

Name (Please Print)

 

 

Title

 

 

Email

 

Signature  

Date (mm / dd / yyyy)

 

             /             /             

 

15

Exhibit 10.20

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

LOGO

 

395 Pine Tree Road, Suite 310

Ithaca, New York 14850

p- 607-254-4698

f. 607-254-5454

www.ctl.cornell.edu

October 31, 2018

Jyrki Mattila, PhD

Executive Vice President of Business Development

Recro Pharma, Inc.

490 Lapp Road, Malvern PA 19355

Email: jmattila@recropharma.com

 

RE:

AMENDMENT

to the License Agreement by and between Recro Pharma, Inc. (hereinafter “LICENSEE”) and Cornell University (“Cornell”), as represented by its Center for Technology Licensing at Cornell University (hereinafter “CTL”) effective June 30, 2017, and amended effective October 24, 2017 (Cornell Contract #C2017-12-10946)

Effective as of the date of the last signature below (“Second Amendment Date”), the undersigned parties agree to hereby modify the License Agreement referenced above as follows:

 

1)

In Paragraph 3.3 Due Diligence, replace (a)(ii) and (a)(iii) with the following:

(ii) [***];

(iii) [***];

 

2)

These changes do not otherwise change the terms and conditions of the Agreement.


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

IN WITNESS THEREOF, the parties have caused this instrument to be executed in duplicate as of the Amendment Date written above.

 

Cornell University   Recro Pharma, Inc.
By:  

/s/ Brian J. Kelly, PhD

  By:  

/s/ G. A. Henwood

Name:   Brian J. Kelly, PhD   Name:   G. A. Henwood
Title:   Director, Technology Licensing   Title:   CEO & President
Date:  

November 29, 2018

  Date:  

November 27, 2018

Exhibit 10.21

Execution Version

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

Master Manufacturing Services Agreement

 

 

Master Manufacturing Services Agreement

14 JULY 2017


CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY [***]

HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

Table of Contents

 

ARTICLE 1

     5  

STRUCTURE OF AGREEMENT AND INTERPRETATION

     5  

1.1

   MASTER AGREEMENT.      5  

1.2

   PRODUCT AGREEMENTS.      5  

1.3

   DEFINITIONS.      6  

1.4

   CURRENCY.      11  

1.5

   SECTIONS AND HEADINGS.      11  

1.6

   SINGULAR TERMS.      11  

1.7

   APPENDIX 1, SCHEDULES AND EXHIBITS.      11  

PATHEON’S MANUFACTURING SERVICES

     12  

2.1

   MANUFACTURING SERVICES.      12  

2.2

   ACTIVE MATERIAL YIELD.      14  

2.3

   SECONDARY MANUFACTURER.      16  

ARTICLE 3

     17  

CLIENT’S OBLIGATIONS

     17  

3.1

   PAYMENT.      17  

3.2

   ACTIVE MATERIALS AND QUALIFICATION OF ADDITIONAL SOURCES OF SUPPLY.      17  

ARTICLE 4

     18  

CONVERSION FEES AND COMPONENT COSTS

     18  

4.1

   FIRST YEAR PRICING.      18  

4.2

   PRICE ADJUSTMENTS – SUBSEQUENT YEARS’ PRICING.      18  

4.3

   PRICE ADJUSTMENTS – CURRENT YEAR PRICING.      20  

4.4

   ADJUSTMENTS DUE TO TECHNICAL CHANGES OR REGULATORY AUTHORITY REQUIREMENTS.      20  

4.5

   MULTI-COUNTRY PACKAGING REQUIREMENTS.      21  

ARTICLE 5

     21  

ORDERS, SHIPMENT, INVOICING, PAYMENT

     21  

5.1

   ORDERS AND FORECASTS.      21  

5.2

   RELIANCE BY PATHEON.      23  

5.3

   MINIMUM ORDERS.      23  

5.4

   DELIVERY AND SHIPPING.      23  

5.5

   INVOICES AND PAYMENT.      24  

ARTICLE 6

     24  

PRODUCT CLAIMS AND RECALLS

     24  

 

- 2 -


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6.1

   PRODUCT CLAIMS.      24  

6.2

   PRODUCT RECALLS AND RETURNS.      25  

6.3

   PATHEONS RESPONSIBILITY FOR DEFECTIVE AND RECALLED PRODUCTS.      25  

6.4

   DISPOSITION OF DEFECTIVE OR RECALLED PRODUCTS.      26  

6.5

   HEALTHCARE PROVIDER OR PATIENT QUESTIONS AND COMPLAINTS.      27  

6.6

   SOLE REMEDY.      27  

ARTICLE 7

     27  

CO-OPERATION

     27  

7.1

   QUARTERLY REVIEW.      27  

7.2

   GOVERNMENTAL AGENCIES.      27  

7.3

   RECORDS AND ACCOUNTING BY PATHEON.      28  

7.4

   INSPECTION.      28  

7.5

   ACCESS.      28  

7.6

   NOTIFICATION OF REGULATORY INSPECTIONS.      28  

7.7

   REPORTS.      28  

7.8

   REGULATORY FILINGS.      29  

ARTICLE 8

     30  

TERM AND TERMINATION

     30  

8.1

   INITIAL TERM.      30  

8.2

   TERMINATION FOR CAUSE.      30  

8.3

   OBLIGATIONS ON TERMINATION.      31  

ARTICLE 9

     33  

REPRESENTATIONS, WARRANTIES AND COVENANTS

     33  

9.1

   AUTHORITY.      33  

9.2

   CLIENT WARRANTIES.      33  

9.3

   PATHEON WARRANTIES.      33  

9.4

   PERMITS.      34  

9.5

   NO WARRANTY.      34  

ARTICLE 10

     35  

REMEDIES AND INDEMNITIES

     35  

10.1

   CONSEQUENTIAL AND OTHER DAMAGES.      35  

10.2

   LIMITATION OF LIABILITY.      35  

10.3

   PATHEON INDEMNITY.      36  

10.4

   CLIENT INDEMNITY.      36  

ARTICLE 11

     36  

CONFIDENTIALITY

     36  

11.1

   CONFIDENTIAL INFORMATION.      36  

 

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    11.2

   USE OF CONFIDENTIAL INFORMATION.      37  

    11.3

   EXCLUSIONS.      37  

    11.4

   PHOTOGRAPHS AND RECORDINGS.      38  

    11.5

   PERMITTED DISCLOSURE.      38  

    11.6

   MARKING.      38  

    11.7

   RETURN OF CONFIDENTIAL INFORMATION.      38  

    11.8

   REMEDIES.      38  

ARTICLE 12

     39  

DISPUTE RESOLUTION

     39  

    12.1

   COMMERCIAL DISPUTES.      39  

    12.2

   TECHNICAL DISPUTE RESOLUTION.      39  

ARTICLE 13

     39  

MISCELLANEOUS

     39  

    13.1

   INVENTIONS.      39  

    13.2

   INTELLECTUAL PROPERTY.      40  

    13.3

   INSURANCE.      40  

    13.4

   INDEPENDENT CONTRACTORS.      41  

    13.5

   NO WAIVER.      41  

    13.6

   ASSIGNMENT AND SUBCONTRACTING.      41  

    13.7

   FORCE MAJEURE.      41  

    13.8

   ADDITIONAL PRODUCT.      42  

    13.9

   NOTICES.      42  

    13.10

   SEVERABILITY.      43  

    13.11

   ENTIRE AGREEMENT.      43  

    13.12

   OTHER TERMS.      43  

    13.13

   NO THIRD PARTY BENEFIT OR RIGHT.      43  

    13.14

   EXECUTION IN COUNTERPARTS.      43  

    13.15

   USE OF CLIENT NAME.      43  

    13.16

   TAXES.      44  

    13.17

   GOVERNING LAW.      45  

 

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MASTER MANUFACTURING SERVICES AGREEMENT

THIS MASTER MANUFACTURING SERVICES AGREEMENT (the “Agreement”) is made as of 14 July 2017 (the “Effective Date”)

B E T W E E N:

PATHEON UK LIMITED,

a corporation existing under the laws of England;

(“Patheon”),

- and -

RECRO IRELAND LIMITED,

a private limited company incorporated in Ireland

(“Client”).

THIS AGREEMENT WITNESSES THAT in consideration of the rights conferred and the obligations assumed herein, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), and intending to be legally bound the parties agree as follows:

ARTICLE 1

STRUCTURE OF AGREEMENT AND INTERPRETATION

 

1.1

Master Agreement.

This Agreement establishes the general terms and conditions under which Patheon or any Affiliate of Patheon may perform Manufacturing Services for Client or any Affiliate of Client, at the manufacturing site where the Affiliate of Patheon resides. This “master” form of agreement is intended to allow the parties, or any of their Affiliates, to contract for the manufacture of multiple Products through Patheon’s global network of manufacturing sites through the issuance of site specific Product Agreements without having to re-negotiate the basic terms and conditions contained herein.

 

1.2

Product Agreements.

This Agreement is structured so that a Product Agreement may be entered into by the parties for the manufacture of a particular Product or multiple Products at a Patheon manufacturing site. Each Product Agreement will be governed by the terms and conditions of this Agreement unless the parties to

 

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the Product Agreement expressly modify the terms and conditions of this Agreement in the Product Agreement. Unless otherwise agreed by the parties, each Product Agreement will be in the general form and contain the information set forth in Appendix 1 hereto.

 

1.3

Definitions.

The following terms will, unless the context otherwise requires, have the respective meanings set out below and grammatical variations of these terms will have corresponding meanings:

Active Materials”, “Active Pharmaceutical Ingredients” or “API” means the materials listed in a Product Agreement on Schedule D;

Active Materials Credit Value” means the value of the Active Materials for certain purposes of this Agreement, as set forth in a Product Agreement on Schedule D;

Actual Annual Yield” or “AAY” has the meaning specified in Section 2.2(a);

Actual Yearly Volume” or “AYV” has the meaning specified in Section 4.2.1;

Affiliate” means:

 

  (a)

a business entity which owns, directly or indirectly, a controlling interest in a party to this Agreement, by stock ownership or otherwise; or

 

  (b)

a business entity which is controlled by a party to this Agreement, either directly or indirectly, by stock ownership or otherwise; or

 

  (c)

a business entity, the controlling interest of which is directly or indirectly common to the majority ownership of a party to this Agreement;

For this definition, “control” means the ownership of shares carrying at least a majority of the votes for the election of the directors of a corporation;

“Annual Product Review Report” means the annual product review report prepared by Patheon or an Affiliate of Patheon as described in Title 21 of the United States Code of Federal Regulations, Section 211.180(e);

Annual Report” means the annual report to the FDA which is required to be prepared and filed by Client regarding the Product as described in Title 21 of the United States Code of Federal Regulations, Section 314.81(b)(2);

Annual Volume” means the minimum volume of Product to be manufactured in any Year of this Agreement as set forth in Schedule B of a Product Agreement;

Applicable Laws” means all Laws that apply to the Manufacturing Services, Manufacturing Sites, Products and other activities specified in this Agreement, respectively, including any Product Agreement entered into hereunder. Applicable Laws include, without limitation, the Federal Food, Drug and Cosmetic Act and applicable analogous Laws in any other jurisdiction;

Authority” means any governmental or regulatory authority, department, body or agency or any court, tribunal, bureau, commission or other similar body, whether federal, state, provincial, county or municipal;

Breach Notice” has the meaning specified in Section 0;

 

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Business Day” means a day other than a Saturday, Sunday or a day that is a statutory holiday in the United Kingdom, the jurisdiction where the Manufacturing Site is located or Philadelphia, Pennsylvania, United States of America;

Capital Equipment Agreement” means a separate agreement that the parties may enter into that will address responsibility for the purchase of capital equipment and facility modifications that may be required to perform the Manufacturing Services under a particular Product Agreement;

cGMP” means, as applicable, current good manufacturing practice as described in:

 

  (a)

Parts 210 and 211 of Title 21 of the United States’ Code of Federal Regulations;

 

  (b)

EC Directive 2003/94/EC; and

 

  (c)

Division 2 of Part C of the Food and Drug Regulations (Canada);

together with the latest Health Canada, FDA and EMA guidance documents pertaining to manufacturing and quality control practice, all as updated, amended and revised from time to time, and analogous applicable requirements of a Regulatory Authority in any other jurisdiction in the Territory;

Client Intellectual Property means Intellectual Property (a) controlled, generated or derived by Client before entering into or during the term of this Agreement, or (b) generated or derived by Patheon while performing any Manufacturing Services, or otherwise generated or derived by Patheon in its business, which Intellectual Property is [***];

Client Property” has the meaning specified in Section 8.3(a)(v);

Client-Supplied Components” means those Components to be supplied by Client or that have been supplied by Client as set forth in a Product Agreement;

Components” means, collectively, all packaging components, raw materials, ingredients, and other materials (including labels, product inserts and other labelling for the Products) required to manufacture the Products in accordance with the Specifications, other than the Active Materials;

Confidential Information” has the meaning specified in Section 11.1;

Conversion Fee” means the Price for performing the Manufacturing Services [***];

CTD” has the meaning specified in Section 7.8(c);

 

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“C-TPAT” has the meaning specified in Section 2.1(f);

Deficiencies” have the meaning specified in Section 7.8(d);

Deficiency Notice” has the meaning specified in Section 6.1(a);

“Delivery Date” means the date scheduled for shipment of Product under a Firm Order as set forth in Section 5.1(d);

“Disclosing Party” has the meaning specified in Section 11.1;

EMA means the European Medicines Agency;

FDA” means the United States Food and Drug Administration;

Firm Orders” has the meaning specified in Section 5.1(c);

Force Majeure Event” has the meaning specified in Section 13.7;

[***];

GST” has the meaning specified in Section 13.16(a)(iii);

Health Canada” means the section of the Canadian Government known as Health Canada and includes, among other departments, the Therapeutic Products Directorate and the Health Products and Food Branch Inspectorate;

Importer of Record” has the meaning specified in Section 3.2(a);

Initial Product Term” has the meaning specified in Section 8.1;

Initial Term” has the meaning specified in Section 8.1;

Intellectual Property” includes, without limitation, rights in patents, patent applications, formulae, trademarks, trademark applications, trade-names, Inventions, copyrights, industrial designs, trade secrets, and know-how;

Invention” means any innovation, improvement, development, discovery, computer program, device, trade secret, method, know-how, process, technique or the like, whether or not written or otherwise fixed in any form or medium, regardless of the media on which it is contained and whether or not patentable or copyrightable;

Inventory” means all inventories of Components and work-in-process produced or held by Patheon for the manufacture of the Products but, for greater certainty, does not include the Active Materials;

Laws” means all laws, statutes, ordinances, regulations, rules, by-laws, judgments, decrees or orders of any Authority;

 

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“Long Term Forecast” has the meaning specified in Section 5.1(a);

Manufacturing Services” means the services set forth in this Agreement and a Product Agreement required to manufacture Product or Products using the Active Materials and Components, including, without limitation and as applicable, manufacturing, quality control, quality assurance, stability testing, packaging, and related services;

Manufacturing Site” means the facility owned and operated by Patheon or an Affiliate of Patheon where the Manufacturing Services will be performed as identified in a Product Agreement;

“Materials” means all Components required to manufacture the Products in accordance with the Specifications, other than the Active Materials;

Maximum Credit Value” means the maximum value of Active Materials that may be credited by Patheon under this Agreement, as set forth in a Product Agreement on Schedule D;

Minimum Order Quantity” means the minimum number of batches of a Product to be produced during the same cycle of manufacturing as set forth in a Product Agreement on Schedule B;

Obsolete Stock” has the meaning specified in Section 5.2(b);

Patheon Competitor” means [***];

“Patheon Intellectual Property” means Intellectual Property generated or derived by Patheon before performing any Manufacturing Services, developed by Patheon while performing the Manufacturing Services, or otherwise generated or derived by Patheon in its business which Intellectual Property is [***];

“Price” means the fees to be charged by Patheon for performing the Manufacturing Services, [***];

Product(s)” means the product(s) listed in a Product Agreement on Schedule A;

Product Agreement” means the agreement between Patheon and Client issued under this Agreement in the form set forth in Appendix 1 (including Schedules A to D) under which Patheon will perform Manufacturing Services at a particular Manufacturing Site for a particular Territory or Territories;

Product Claims” have the meaning specified in Section 6.3(c);

 

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Quality Agreement” means the agreement between the parties entering into a Product Agreement, or between the applicable Affiliate of Patheon and Client if the Manufacturing Services are subcontracted to such Affiliate by Patheon, that sets out the quality control and quality assurance standards for the Manufacturing Services to be performed by Patheon for Client;

Recall” has the meaning specified in Section 6.2(a);

Recipient” has the meaning specified in Section 11.1;

Regulatory Approval” has the meaning specified in Section 7.8(a);

Regulatory Authority” means, as applicable, the FDA, EMA, and Health Canada and any analogous regulatory agencies competent to grant Regulatory Approvals for pharmaceutical products, including the Products in the Territory;

Remediation Period” has the meaning specified in Section 0;

Representatives” means a party’s directors, officers, employees, advisers, agents, consultants, subcontractors, service partners, professional advisors, or representatives;

“Resident Jurisdiction” has the meaning specified in Section 13.16(a)(i);

Shortfall” has the meaning specified in Section 2.2(b);

Specifications” means the file, for each Product, which is given by Client to Patheon in accordance with the procedures listed in a Product Agreement on Schedule A and which contains documents relating to each Product, including, without limitation:

 

  (a)

specifications for Active Materials and Components;

 

  (b)

manufacturing specifications, directions, and processes;

 

  (c)

storage requirements;

 

  (d)

all environmental, health and safety information for each Product including material safety data sheets; and

 

  (e)

the finished Product specifications, packaging specifications and shipping requirements for each Product;

all as updated, amended and revised from time to time by Client in accordance with the terms of this Agreement;

Supply Failure” means (a) a Force Majeure Event affecting Patheon’s ability to supply Product in accordance with this Agreement and the applicable Product Agreement for a period of [***], or (b) a material breach by Patheon of its supply obligations under this Agreement, which breach is not cured within the Remediation Period;

 

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“Surplus” has the meaning specified in Section 2.2(c);

Target Yield” has the meaning specified in Section 2.2(a);

Target Yield Determination Batches” has the meaning specified in Section 2.2(a);

Tax” or “Taxes” have the meaning specified in Section 13.16(a);

Technical Dispute” has the meaning specified in Section 12.2;

Territory” means the geographic area described in a Product Agreement where Products manufactured by Patheon will be distributed by Client;

Third Party Rights” means the Intellectual Property of any third party;

VAT” has the meaning specified in Section 13.16(d);

Year” means in the first year of this Agreement or in the first year of a Product Agreement, the period from the Effective Date up to and including December 31 of the same calendar year, and thereafter will mean a calendar year.

Yearly Forecast Volume” or “YFV” has the meaning specified in Section 4.2.1; and

Zero Forecast Period has the meaning specified in Section 5.1(f).

 

1.4

Currency.

Unless otherwise agreed in a Product Agreement, all monetary amounts expressed in this Agreement are in EUROS.

 

1.5

Sections and Headings.

The division of this Agreement into Articles, Sections, Subsections, an Appendix, Schedules and Exhibits and the insertion of headings are for convenience of reference only and will not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to a Section, Appendix, Schedule or Exhibit refers to the specified Section, Appendix, Schedule or Exhibit to this Agreement. In this Agreement, the terms “this Agreement”, “hereof”, “herein”, “hereunder” and similar expressions refer to this Agreement as a whole and not to any particular part, Section, Appendix, Schedule or Exhibit of this Agreement.

 

1.6

Singular Terms.

Except as otherwise expressly stated or unless the context otherwise requires, all references to the singular will include the plural and vice versa.

 

1.7

Appendix 1, Schedules and Exhibits.

Appendix 1 (including the Schedules thereto) and the following Exhibits are attached to, incorporated in, and form part of this Agreement:

 

Appendix 1       Form of Product Agreement (Including Schedules A to D)
Exhibit A       Technical Dispute Resolution

 

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Exhibit B       Quarterly Active Materials Inventory Report
Exhibit C       Report of Annual Active Materials Inventory Reconciliation and Calculation of Actual Annual Yield

ARTICLE 2

PATHEON’S MANUFACTURING SERVICES

 

2.1

Manufacturing Services.

Patheon will perform the Manufacturing Services for the Territory for the Price specified in a Product Agreement in Schedules B and C to manufacture Products for Client. Schedule B to a Product Agreement sets forth a list of cost items that are included in the Price for Products; all cost items that are not included in the Price are subject to additional fees to be paid by Client, provided, that all such additional fees are subject to Client’s prior written consent. Patheon may amend the fees set out in Schedules B and C to a Product Agreement as set forth in Article 4. Patheon may change the Manufacturing Site for the Products only with the prior written consent of Client, this consent not to be unreasonably withheld, and subject to any necessary approvals by Regulatory Authorities. Unless otherwise agreed in a Product Agreement and subject to Section 2.3 below, during the term of any Product Agreement, Client will purchase from Patheon [***] of its requirements for the Product in the Territory set forth in the applicable Product Agreement. In performing the Manufacturing Services, Patheon and Client agree that, unless otherwise set forth in a Product Agreement:

 

  (a)

Conversion of Active Materials and Components. Patheon will convert Active Materials and Components into Product.

 

  (b)

Quality Control and Quality Assurance. Patheon will perform the quality control and quality assurance testing specified in the Quality Agreement. Batch review and release to Client will be the responsibility of Patheon’s quality assurance group. Patheon will perform its batch review and release responsibilities in accordance with Patheon’s standard operating procedures; provided that Patheon shall provide Client notice of any material changes to Patheon’s standard operating procedures that are applicable to the batch review and release of a Product in accordance with the terms of the Quality Agreement. Each time Patheon ships Products to Client, it will give Client a certificate of analysis and certificate of compliance including a statement that the batch has been manufactured and tested in accordance with Specifications and cGMP. Client will have sole responsibility for the release of Products to the market. The form and style of batch documents, including, but not limited to, batch production records, lot packaging records, equipment set up control, operating parameters, and data printouts, raw material data, and laboratory notebooks are the exclusive property of Patheon. Specific Product related information contained in those batch documents is Client property.

 

  (c)

Components. Patheon will purchase and test all Components (with the exception of Client-Supplied Components) [***] and as required by the Specifications.

 

  (d)

Stability Testing. If applicable, Patheon will conduct stability testing on the Products in accordance with the protocols set out in the Specifications for the separate fees and during the time periods set out in Schedule C to a Product Agreement. Patheon will not make any changes to these testing protocols without prior written approval from Client. If a confirmed stability test failure occurs, Patheon will notify Client within one Business Day, after which Patheon and Client will jointly, reasonably and in good faith, determine the proceedings and methods to be undertaken to investigate the cause of the failure,

 

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  including which party will bear the cost of the investigation. Patheon will not be liable for these costs unless it has failed to perform the Manufacturing Services in accordance withthe Specifications and cGMP. Patheon will retain all stability test data and will provide such data to Client at Client’s request.

 

  (e)

Packaging and Artwork. Patheon will package the Products in accordance with the Specifications. If applicable, Client will be responsible for the cost of artwork development. Patheon will determine and imprint the batch numbers and expiration dates for each Product shipped. The batch numbers and expiration dates will be affixed to the Products on each Product’s label and on the shipping carton of each Product as outlined in the Specifications and as required by cGMP. Client may, in its sole discretion, make changes to labels, product inserts, and other packaging for the Products. Those changes will be submitted by Client to all applicable Regulatory Authorities and other third parties responsible for the approval of the Products. Client will be responsible for the cost of labelling obsolescence when changes occur, as contemplated in Section 4.4; provided, that Patheon has promptly implemented any changes to labels, product inserts and other packaging for Products requested by Client. Patheon’s name will not appear on the label or anywhere else on the Products unless: (i) required by any Applicable Laws; or (ii) Patheon consents in writing to the use of its name. At least 120 days prior to the Delivery Date of Product for which new or modified artwork is required, Client will provide at no cost to Patheon, final camera ready artwork for all packaging Components to be used in the manufacture of the Product that meet the Specifications. For the avoidance of doubt, the parties acknowledge and agree that Client will be responsible for complying with any and all regulatory requirements for the labeling of the Product.

 

  (f)

Active Materials and Client-Supplied Components. At least 45 days before the scheduled production date, Client will deliver the Active Materials and any Client-Supplied Components to the Manufacturing Site DDP (Incoterms 2010), at no cost to Patheon, with any VAT paid by Client, in sufficient quantity to enable Patheon to manufacture the desired quantities of Product and to ship Product on the Delivery Date. If the Active Materials and/or Client-Supplied Components are not received 45 days before the scheduled production date, Patheon may delay the shipment of Product by the same number of days as the delay in receipt of the Active Materials and/or Client-Supplied Components. If Patheon is unable to manufacture Product to meet this new shipment date due to prior third party production commitments, shipment may be delayed until a later date as agreed to by the parties; provided, that Patheon has used commercially reasonable efforts to reschedule the shipment date as close as possible to the original shipment date. All shipments of Active Material will be accompanied by certificate(s) of analysis from the Active Material manufacturer and Client, confirming the identity and purity of the Active Materials and its compliance with the Active Material specifications. For Active Materials or Client-Supplied Components which may be subject to import or export, Client agrees that its vendors and carriers will comply with applicable requirements of the U.S. Customs and Border Protection Service and the Customs Trade Partnership Against Terrorism (“C-TPAT”).

 

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  (g)

Validation Activities (if applicable). Patheon may assist in the development and approval of the validation protocols for analytical methods and manufacturing procedures (including packaging procedures) for the Products. The fees for this service are not included in the Price, and if Client requests such service, the parties will negotiate in good faith any applicable fees at reasonable rates, which fees will be set out separately in Schedule C to a Product Agreement.

 

  (i)

Additional Services. If Client requests services other than those expressly set forth herein or in any Product Agreement (such as qualification of a new packaging configuration or shipping studies, or validation of alternative batch sizes), Patheon will provide a good faith and reasonable written quote of the fee for the additional services and Client will advise Patheon whether it wishes to have the additional services performed by Patheon. The scope of work and fees will be set forth in a separate agreement signed by the parties. The terms and conditions of this Agreement will apply to these services.

 

2.2

Active Material Yield.

 

  (a)

Reporting. Patheon will give Client a quarterly inventory report, within twenty-four (24) hours of the end of the quarter, of the Active Materials held by Patheon using the inventory report form set out in Exhibit B, which will contain the following information for the quarter:

Quantity Received: The total quantity of Active Materials that complies with the Specifications and is received at the Manufacturing Site during the applicable period. Unless demonstrated otherwise by the results of agreed testing, and to the extent it was reasonable to identify defects using that testing, it is assumed that all Active Materials received at the Manufacturing Site during the applicable period complied with the Specifications.

Quantity Dispensed: The total quantity of Active Materials dispensed at the Manufacturing Site during the applicable period. The Quantity Dispensed is calculated by adding the Quantity Received to the inventory of Active Materials that complies with the Specifications held at the beginning of the applicable period, less the inventory of Active Materials that complies with the Specifications held at the end of the period. The Quantity Dispensed will only include Active Materials received and dispensed in commercial manufacturing of Products, including Active Materials lost in the warehouse prior to and during dispensing, and for clarity will not include any (i) Active Materials that must be retained by Patheon as samples, (ii) Active Materials contained in Product that must be retained as samples, (iii) Active Materials used in testing (if applicable), and (iv) Active Materials received or dispensed in technical transfer activities or development activities during the applicable period, including without limitation, any regulatory, stability, validation or test batches manufactured during the applicable period.

 

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Quantity Converted: The total amount of Active Materials contained in the Products manufactured with the Quantity Dispensed (including any additional Products produced in accordance with Section 0 or 6.3(b)), delivered by Patheon, and not rejected, recalled or returned in accordance with Section 6.1or 6.2 because of Patheon’s failure to perform the Manufacturing Services in accordance with Specifications, cGMP, and Applicable Laws.

Within 60 days after the end of each Year, Patheon will prepare an annual reconciliation of Active Materials on the reconciliation report form set forth in Exhibit C including the calculation of the “Actual Annual Yield” or “AAY” for the Product at the Manufacturing Site during the Year. AAY is the percentage of the Quantity Dispensed that was converted to Products and is calculated as follows:

 

Quantity Converted during the Year           x           100%
Quantity Dispensed during the Year    

After Patheon has produced [***] commercial production batches of Product and has produced commercial production batches for [***] at the Manufacturing Site (collectively, the “Target Yield Determination Batches”), the parties will reasonably and in good faith agree on the target yield for the Product at the Manufacturing Site (each, a “Target Yield”). The Target Yield will be revised annually if [***] have been manufactured during the prior year, to reflect the actual manufacturing experience as agreed to reasonably and in good faith by the parties.

 

  (b)

Shortfall Calculation. If the Actual Annual Yield falls more than [***] below the respective Target Yield in a Year, then the shortfall for the Year (the “Shortfall”) will be calculated as follows:

[***]

 

  (c)

Surplus Calculation. If the Actual Annual Yield is more than the respective Target Yield in a Year, then the surplus for that Year (the “Surplus”) will be determined based on the following calculation:

[***]

 

  (d)

Credits

 

  (i)

Shortfall Credit. If there is a Shortfall for a Product in a Year, then Patheon will credit Client’s account for the amount of the Shortfall not later than 60 days after the end of such Year.

 

  (ii)

Surplus Credit. If there is a Surplus for a Product in a Year, then Patheon will be entitled to apply the amount of the Surplus as a credit against any Shortfall for that Product which may occur in the next Year. If there is no Shortfall in the next Year the Surplus credit will expire.

 

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Each credit under this Section 2.2 will be summarized on the reconciliation report prepared in the form set forth in Exhibit C. Upon expiration or termination of a Product Agreement, any remaining Shortfall credit amount owing under this Section 2.2 will be paid to Client, it being understood that the amount of the Shortfall credit for the Year during which the Product Agreement expires or terminates shall be calculated pro-rata based on the portion of the Year occurring prior to such expiration or termination.

 

  (e)

Maximum Credit. Patheon’s liability for Active Materials calculated in accordance with this Section 2.2 for any Product in a Year will not exceed, in the aggregate, the Maximum Credit Value set forth in Schedule D to a Product Agreement.

 

  (f)

No Material Breach. It will not be a material breach of this Agreement by Patheon under Section 0 if the Actual Annual Yield is less than the Target Yield; provided, that this Section 2.2(f) shall not preclude a claim by Client for material breach of this Agreement with respect to any acts or omissions of Patheon (which are themselves material breaches) resulting in the Actual Annual Yield being less than the Target Yield.

 

2.3

Secondary Manufacturer.

Patheon recognizes that Client may wish to qualify and use an additional manufacturer to manufacture Product in order to, among other things, reduce or spread Client’s business risk. Client shall be permitted to order from such additional manufacturer [***].

2.4     Records [***]. Patheon shall keep accurate and complete books and records of accounting pertaining to the API Yield performed (including the calculation of the Active Material Yield pursuant to Section 2.2), in sufficient detail to permit Client to confirm the accuracy of the invoices and reports submitted hereunder. [***].

 

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ARTICLE 3

CLIENT’S OBLIGATIONS

 

3.1

Payment.

Client will pay Patheon for performing the Manufacturing Services according to the Prices specified in Schedules B and C in a Product Agreement. These Prices may be subject to adjustment under other parts of this Agreement.

 

3.2

Active Materials and Qualification of Additional Sources of Supply.

 

  (a)

Client will at its sole cost and expense deliver the Active Materials to Patheon in accordance with Section 0. If applicable, Patheon and Client will reasonably cooperate to permit the import of the Active Materials to the Manufacturing Site. Client’s obligation will include obtaining the proper release of the Active Materials from the applicable Customs Agency and Regulatory Authority. Client or Client’s designated broker will be the “Importer of Record” for Active Materials imported to the Manufacturing Site. The Active Materials and Client-Supplied Components will be held by Patheon on behalf of Client as set forth in this Agreement and (subject to Section 2.2) the risk of loss for the Active Materials and the Client-Supplied Components shall transfer to Patheon during any time when the Active Materials and the Client-Supplied Components are held by Patheon under this Agreement. Title to the Active Materials and Client-Supplied Components will at all times remain the property of Client. Any Active Materials and Client-Supplied Components received by Patheon will only be used by Patheon to perform the Manufacturing Services. Client will be responsible for paying for all rejected Product that arises from defects in the Active Materials which could not be reasonably discoverable by Patheon using the test methods set forth in the Specifications.

 

  (b)

If Client asks Patheon to qualify an additional source for the Active Material or any Component, Patheon may agree to evaluate the Active Material or Component to be supplied by the additional source to determine if it is suitable for use in the Product. The parties will negotiate in good faith to agree in writing on the scope of work to be performed by Patheon at Client’s cost. For an Active Material, unless otherwise agreed by the parties, this work at a minimum will include: (i) laboratory testing to confirm the Active Material meets existing specifications; (ii) manufacture of an experimental batch of Product that will be placed on three months accelerated stability; and (iii) manufacture of three full-scale validation batches that will be placed on concurrent stability (one batch may be the registration batch if manufactured at full scale). Section 6.1(d) will apply to all Products manufactured using the newly approved Active Material or Component because of the limited material characterization that is performed on additional sources of supply.

 

  (c)

Patheon will promptly advise Client if it encounters supply problems, including delays and/or delivery of non-conforming Active Material or Components from a Client designated additional source. Patheon and Client will cooperate to reduce or eliminate any supply problems from these additional sources of supply. Client will be obligated to certify all Client designated sources of supply on an annual basis at its expense and will

 

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  provide Patheon with copies of these annual certifications. If Patheon agrees to certify a Client designated additional source of supply on behalf of Client, it will do so at Client’s expense, subject to prior written agreement of the parties.

ARTICLE 4

CONVERSION FEES AND COMPONENT COSTS

 

4.1

First Year Pricing.

The Price for the first Year will be listed in Schedules B and C in a Product Agreement and will be subject to the adjustments set forth in Sections 4.2 and 4.3. If there are changes to the underlying manufacturing, packaging or testing assumptions set forth in Schedule B of the Product Agreement that result in an increase or decrease in the cost of performing the Manufacturing Services, the parties shall negotiate in good faith an amendment to the Product Agreement adjusting the Price to account for such increase or decrease.

 

4.2

Price Adjustments – Subsequent Years’ Pricing.

After the first Year of the Product Agreement, Patheon may adjust the Price effective January 1st of each Year as follows:

 

  (a)

Manufacturing and Stability Testing Costs. Patheon may adjust the Conversion Fee component of the Price and the annual stability testing costs for inflation, based upon the preliminary number for any increase in the inflation index stated in the Product Agreement in June of the preceding Year compared to the final number for the same month of the Year prior to that (based on the average of the monthly changes over the 12-month period), unless the parties otherwise agree in writing. [***]. On or before November 1 of each Year, Patheon will give Client a statement setting forth the calculation for the inflation adjustment to be applied in calculating the Price for the next Year.

 

  (b)

Component Costs. If Patheon incurs an increase in Component (other than Client-Supplied Component) costs during the Year, it may increase the Price for the next Year to pass through the additional Component costs at Patheon’s cost; provided, that such increased Component costs are still in effect during the next Year. On or before November 1 of each Year, Patheon will give Client any information reasonably requested by Client about the increase in Component costs which will be applied to the calculation of the Price for the next Year to reasonably demonstrate that the Price increase is justified.

 

  (c)

Pricing Basis. Client acknowledges that the Price in any Year is quoted based upon the Minimum Order Quantity and the Annual Volume specified in Schedule B to a Product Agreement. If Patheon and Client agree that the Minimum Order Quantity will be reduced or the Annual Volume in the lowest tier will not be ordered in a Year, [***]

 

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[***].

 

  (d)

Tier Pricing (if applicable). The pricing in Schedule B of a Product Agreement is set forth in Annual Volume tiers based upon Client’s volume forecasts under Section 5.1. Client will be invoiced during the Year for the unit price set forth in the Annual Volume tier based on the 18 month forecast provided in September of the previous Year. Within 30 days after the end of each Year or of the termination of the Agreement, Patheon will send Client a reconciliation of the actual volume of Product ordered by Client during the Year with the pricing tiers. If Client has overpaid during the Year, Patheon will issue a credit to Client for the amount of the overpayment within 60 days after the end of the Year or will issue payment to Client for the overpayment within 60 days after the termination of the Agreement. If Client has underpaid during the Year, Patheon will issue an invoice to Client under Section 5.5 for the amount of the underpayment within 60 days after the end of the Year or termination of the Agreement. If Client disagrees with the reconciliation, the parties will work in good faith to resolve the disagreement amicably. If the parties are unable to resolve the disagreement within 30 days, the matter will be handled under Section 12.1.

 

  (e)

For all Price adjustments under this Section 4.2, Patheon will deliver to Client on or about November 1 of each Year (or, if November 1 is not a Business Day, on the next Business Day following November 1) a revised Schedule B to the Product Agreement to be effective for Product delivered on or after the first day of the next Year.

 

  4.2.1

Capacity Reservation Fee due to Volume Changes from Yearly Forecast Volumes for Sterile Products.

On the execution of a Product Agreement, Client will give to Patheon a forecast of the volume of Product required from Patheon for the [***] Years of the Product Agreement (the “Yearly Forecast Volume” or “YFV”) that will become part of the Product Agreement. If at the end of the first Year the aggregate actual volume of Product ordered by Client and invoiced by Patheon under Section 5.5 (“Actual Yearly Volume” or “AYV”) during the Year is less than [***], then Client will pay Patheon the Conversion Fee for the Product during the Year in an amount to be determined as follows:

[***]

On or before June 10 of each Year, the parties will agree on the YFV [***] Years of the Product Agreement on a rolling forward basis. The forecast of the volume of

 

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Product for [***] Year may not vary by more than [***] from the original YFV for the [***] Year. Once agreed, the YFV for the next Year will become binding on the parties and any amount due to Patheon will be determined as set forth above.

 

4.3

Price Adjustments – Current Year Pricing.

During any Year, the Prices set out in Schedule B of a Product Agreement will be adjusted as follows:

Extraordinary Increases in Component Costs. If, at any time, market conditions result in Patheon’s cost of Components (other than Client-Supplied Components) being materially greater than normal forecasted increases, then the parties will negotiate in good faith an amendment to the Product Agreement to adjust the Price for any affected Product to compensate it for the increased Component costs. Changes materially greater than normal forecasted increases will have occurred if: (i) the cost of a Component increases by [***] of the cost for that Component upon which the most recent Price or fee quote was based; or (ii) the aggregate cost for all Components required to manufacture a Product increases by [***] of the total Component costs for the Product upon which the most recent fee quote was based. If Component costs have been previously adjusted to reflect an increase in the cost of one or more Components, the adjustments set out in (i) and (ii) above will operate based on the last cost adjustment for the Components.

For a Price adjustment under this Section 4.3, Patheon will deliver to Client a proposed revised Schedule B to the Product Agreement and budgetary pricing information, adjusted Component costs or other documents reasonably sufficient to demonstrate that a Price adjustment is justified. Patheon will have no obligation to deliver any supporting documents that are subject to obligations of confidentiality between Patheon and its suppliers. The revised Price will be effective for any Product delivered on or after the first day of the month following the parties’ execution of an amendment to the Product Agreement. [***].

 

4.4

Adjustments Due to Technical Changes or Regulatory Authority Requirements.

Amendments to the Specifications or the Quality Agreement requested by Client will be implemented only following a technical and cost review that Patheon will perform at Client’s cost and are subject to Client and Patheon reaching agreement on Price changes required because of the amendment. Amendments to the Specifications, the Quality Agreement, or the Manufacturing Site requested by Patheon will only be implemented following the written approval of Client, the approval not to be unreasonably withheld, conditioned or delayed, and subject to any necessary approvals by Regulatory Authorities. If Client accepts a proposed Price change, the Price change will become effective only for those orders of Product that are manufactured under the revised Specifications. In addition, Client agrees to purchase, at Patheon’s cost (including all costs incurred by Patheon for the purchase and handling of the Inventory), all Inventory held under the previous Specifications and purchased or maintained by Patheon in order to fill Firm Orders or under Section 5.2, if the Inventory can no longer be used under the revised Specifications. Open purchase orders for Components no longer required under any revised Specifications that were placed by Patheon with suppliers in order to fill Firm Orders or under

 

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Section 5.2 will be cancelled where possible and as soon as possible, but if the orders may not be cancelled without penalty, they will be assigned to and paid for by Client. Additional payments or price increases may also be required to compensate Patheon for fees and other expenses incurred by Patheon to comply with Regulatory Authority requirements which apply to portions of the Manufacturing Services that are specific to Products, with such additional payments or price increases to be implemented only upon written consent of Client, which shall not be unreasonably withheld.

 

4.5

Multi-Country Packaging Requirements.

If Client decides to have Patheon perform Manufacturing Services for the Product for countries outside the Territory, then Client will inform Patheon of the packaging requirements for each new country and Patheon will prepare a quotation for consideration by Client of any additional costs for Components (other than Client-Supplied Components) and the changeover fees for the Product destined for each new country. The agreed additional packaging requirements and related packaging costs and change over fees will be set out in a written amendment to the applicable Product Agreement.

ARTICLE 5

ORDERS, SHIPMENT, INVOICING, PAYMENT

 

5.1

Orders and Forecasts.

 

  (a)

Long Term Forecast. When each Product Agreement is executed, Client will give Patheon a non-binding [***] year forecast of Client’s volume requirements for the Product for each Year during the term of the Product Agreement (the “Long Term Forecast”). The Long Term Forecast will thereafter be updated every six months (as of June 1 and December 1) during the Initial Product Term. If Patheon becomes aware at any time that it will be unable to timely accommodate any portion of the Long Term Forecast, it will notify Client as soon as practicable, in any event within thirty (30) days of becoming aware of its inability to timely accommodate such portion of the Long Term Forecast.

 

  (b)

Rolling 18 Month Forecast. When each Product Agreement is executed, Client will give Patheon a non-binding 18 month forecast of the volume of Product that Client expects to order in the first 18 months of commercial manufacture of the Product. This forecast will then be updated by Client on or before the tenth day of each month on a rolling forward basis. Client will update the forecast forthwith if it determines that the volumes estimated in the most recent forecast have changed by more than [***]. The most recent 18 month forecast will prevail.

 

  (c)

Firm Orders. Unless otherwise agreed in the Product Agreement, the first [***] months of this updated forecast will be considered binding firm orders. Concurrent with the 18 month forecast, Client will issue a new firm written order for the binding portion of such forecast in the form of a purchase order or otherwise (“Firm Order”) by Client to purchase and, when accepted by Patheon, for Patheon to manufacture and deliver the agreed quantity of the Products. The Delivery Date will not be less than [***] days from the first day of the month following the date that the Firm Order is submitted. Firm Orders submitted to Patheon will specify Client’s purchase order number, quantities by Product type, monthly delivery schedule, and any other elements necessary to ensure the timelymanufacture and shipment of the Products. The quantities of Products ordered in those written orders will be firm and binding on Client and may not be reduced by Client.

 

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  (d)

Acceptance of Firm Order. Patheon will accept Firm Orders by sending an acknowledgement to Client within ten Business Days of its receipt of the Firm Order. The acknowledgement will include, subject to confirmation from Client, the Delivery Date for the Product ordered, which Delivery Date shall be within [***] Business Days of the delivery date requested by Client in the Firm Order, unless otherwise mutually agreed by the parties. The Delivery Date may be amended by agreement of the parties or as set forth in Section 2.1(e). If Patheon fails to acknowledge receipt of a Firm Order within the ten Business Day period, the Firm Order will be deemed to have been accepted by Patheon.

 

  (e)

Cancellation of a Firm Order. If Client cancels a Firm Order, Client will pay Patheon [***]. [***].

 

  (f)

Zero Volume Forecast. If Client forecasts zero volume for a period of nine successive months during the term of a Product Agreement (the “Zero Forecast Period”), then Patheon will have the option, at its sole discretion, to provide a 30 day notice to Client of Patheon’s intention to terminate the Product Agreement on a stated day after the expiration of such 30 day period. Client thereafter will have 30 days to withdraw the zero forecast and re-submit an updated 18 month forecast other than a zero volume forecast. In the alternative, upon request by Client, Client and Patheon shall negotiate in good faith other commercially reasonable terms and conditions on which the Product Agreement will remain in effect. If Client has not submitted an updated 18 month forecast or submitted a request for negotiations to Patheon within such 30 day period, then Patheon will have the right to terminate the Product Agreement at the end of the 30 day notice period.

 

  (g)

Controlled Substance Quota Requirements (if applicable). Client will give Patheon the information set forth below for obtaining any required DEA or equivalent agency quotas needed to perform the Manufacturing Services. Patheon will be responsible for routine management of DEA quota information in accordance with DEA regulations. Patheon and Client will cooperate to communicate the information and to assist each other in DEA information requirements related to the Product as follows: (i) as of April 1 of each Year for the applicable Product, Client will provide to Patheon the next Year’s annual quota requirements for the Product; (ii) as of August 1 of each Year, Client will provide to Patheon any changes to the next Year’s quota requirements; (iii) Client will pro-actively communicate any changes to the quota requirements for the then-current Year in sufficient time to allow Patheon to file and finalize DEA filings supporting the changes; (iv) upon Patheon receiving the necessary forecast information from Client in order to request additional quota, Patheon will submit to the DEA, on a timely basis, all filings necessary to obtain DEA or equivalent agency quotas for Active Materials and will use commercially reasonable efforts to secure sufficient quota from the DEA so as to achieve Delivery Dates for Product as set forth in applicable purchase orders and forecasts submitted to Patheon by Client or its designee; and (v) Patheon will not be responsible for DEA’srefusal or failure to grant sufficient quota for reasons beyond the reasonable control of Patheon.

 

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5.2

Reliance by Patheon.

(a)    Client understands and acknowledges that Patheon will rely on the Firm Orders and rolling forecasts submitted under Sections 5.1(a), and (b) in ordering the Components (other than Client-Supplied Components) required to meet the Firm Orders. Patheon shall purchase and maintain at its cost and expense (subject to Section 5.2(b) below) a quantity of Components sufficient to satisfy the Manufacturing Services requirements for Products for [***]. Patheon may make other purchases of Components to meet Manufacturing Services requirements for longer periods if agreed to in writing by the parties. Client will give Patheon written authorization to order Components for any launch quantities of Product requested by Client which will be considered a Firm Order when accepted by Patheon.

(b)    Client will reimburse Patheon for the cost of Components ordered by Patheon under Firm Orders or under Section 5.2(a) that are not included in finished Products manufactured for Client and that have expired or are rendered obsolete due to changes in artwork or applicable regulations during the period (collectively, “Obsolete Stock”). [***]. If any non-expired Components are used in Products subsequently manufactured for Client or in third party products manufactured by Patheon, Client will receive credit for any costs of those Components previously paid to Patheon by Client.

(c)    If Client fails to take possession or arrange for delivery of conforming finished Product not accepted by Client within [***] of batch release, Client will pay Patheon [***] for storing the Components or finished Product. Storage fees for Components or Product which contain controlled substances or require refrigeration will be charged at [***]. Patheon may ship finished Product held by it longer than one month to Client at Client’s expense on 14 days’ written notice to Client.

 

5.3

Minimum Orders.

Client may order Manufacturing Services for batches of Products only in multiples of the Minimum Order Quantities as set out in Schedule B to a Product Agreement.

 

5.4

Delivery and Shipping.

The Product will be delivered to Client after it has been manufactured by Patheon and released to Client by Patheon. Delivery of Products will be made EXW (Incoterms 2010) Patheon’s shipping point unless otherwise agreed in a Product Agreement. Risk of loss or of damage to Products will remain with Patheon until Patheon loads the Products onto the carrier’s vehicle for shipment at the shipping point at which time risk of loss or damage will transfer to Client. Patheon will, in accordance with Client’s instructions and as agent for Client, at Client’s risk, arrange for shipping to be paid by Client. Client will arrange for insurance and will select the freight carrier used by Patheon to ship Products and may monitor Patheon’s shipping and freight practices as they pertain to this Agreement. Products will be transported in accordance with the Specifications.

 

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5.5

Invoices and Payment.

Invoices will be sent by email to Accounts Payable – [***], or to such other email address given by Client to Patheon in writing from time to time. Invoices will be issued when the manufactured Product is released by Patheon. Patheon will also submit to Client, with each shipment of Products, a duplicate copy of the proposed invoice covering the shipment to be issued once the shipment is released by Patheon. Patheon will also give Client an invoice covering any Inventory or Components which are to be purchased by Client under Section 5.2 of this Agreement. Each invoice will, to the extent applicable, identify Client’s Manufacturing Services purchase order number, Product numbers, names and quantities, unit price, freight charges, and the total amount to be paid by Client. Client will pay all undisputed invoiced amounts within [***] of the date of invoice. Patheon shall transmit the invoice on the date of issue to the email address specified above. If any portion of an invoice is disputed, Client will pay Patheon for the undisputed amount and the parties will use good faith efforts to reconcile the disputed amount as soon as practicable. Interest on undisputed past due accounts will accrue [***].

ARTICLE 6

PRODUCT CLAIMS AND RECALLS

 

6.1

Product Claims.

(a)    Product Claims. Client has the right to reject any portion of any shipment of Product that was not manufactured in accordance with or deviate from (except for properly documented and approved deviations) the Specifications, cGMP, or Applicable Laws, without invalidating any remainder of the shipment. Unless otherwise agreed in the applicable Quality Agreement, Client will inspect the Product manufactured by Patheon promptly upon receipt and will give Patheon written notice (a “Deficiency Notice”) of all claims for Product that was not manufactured in accordance with or deviates from (except for properly documented and approved deviations) the Specifications, cGMP, or Applicable Laws, within [***] days after Client’s receipt thereof (or, in the case of any defects not reasonably susceptible to discovery upon receipt of the Product, within [***] days after discovery by Client, but not after the expiration date of the Product). If Client fails to give Patheon the Deficiency Notice within the applicable [***] day period, then the delivery will be deemed to have been accepted by Client on the [***] day after delivery or discovery, as applicable. Except as otherwise set forth in this Agreement, Patheon will have no liability for any deficiency for which it has not received notice within the applicable [***] day period.

(b)    Determination of Deficiency. Upon receipt of a Deficiency Notice, Patheon will have [***] days to advise Client by notice in writing that it disagrees with the contents of the Deficiency Notice. If Client and Patheon fail to agree within [***] days after Patheon’s notice to Client as to whether any Product identified in the Deficiency Notice was not manufactured in accordance with or deviates from (except for properly documented and approved deviations) the Specifications, cGMP, or Applicable Laws, then the parties will select an independent laboratory of reputable standing reasonably acceptable to each party to evaluate the Product. This evaluation will be binding on the parties in respect of this Section 6 in the absence of manifest bias or error. If the evaluation certifies that any Product was not manufactured in accordance with or deviates from (except for properly documented and approved deviations) the Specifications, cGMPs or Applicable Laws, then such Product shall be deemed to be rejected by Client and Patheon will be responsible for the cost of the evaluation. If the evaluation does not so certify, then Client will be deemed to have accepted delivery of the Product on the [***] day after delivery (or, in the case of any defects not reasonably susceptible to discovery upon receipt of the Product, on the [***] dayafter discovery thereof by Client, but not after the expiration date of the Product), and Client will be responsible for the cost of the evaluation.

 

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(c)    Shortages and Price Disputes. Claims for shortages in the amount of Product shipped by Patheon or other deviations from the applicable Firm Order, or a Price dispute, will be dealt with by reasonable and good faith agreement of the parties. Any claim for a shortage or other deviation from the applicable Firm Order or a Price dispute will be deemed waived if it has not been presented within [***] days of the date of invoice.

(d)    Product Rejection for Finished Product Specification Failure. Internal process specifications will be defined and agreed upon. If after a full investigation as set forth in Section 6.1(b), it is determined that Patheon manufactured Product in accordance with the agreed upon process specifications, the batch production record, and Patheon’s standard operating procedures for manufacturing, and a batch or portion of batch of Product does not meet a finished Product specification, Client will pay Patheon the applicable fee per unit for the non-conforming Product. The API in the non-conforming Product will be included in the “Quantity Converted” for purposes of calculating the “Actual Annual Yield” under Section 2.2(a).

 

6.2

Product Recalls and Returns.

(a)    Records and Notice. Patheon and Client will each maintain records necessary to permit a Recall of any Product delivered to Client or customers of Client. Each party will promptly notify the other by telephone (to be confirmed in writing) of any information which might affect the marketability, safety or effectiveness of the Product or which might result in the Recall or seizure of the Product. Upon receiving this notice or upon this discovery, each party will stop making any further shipments of any applicable Product in its possession or control until a decision has been made whether a Recall or some other corrective action is necessary. The decision to initiate a Recall or to take some other corrective action, if any, will be made and implemented by Client. “Recall” will mean any action (i) by Client to recover title to or possession of quantities of the Product sold or shipped to third parties (including, without limitation, the voluntary withdrawal of Product from the market); or (ii) by any Regulatory Authorities to detain or destroy any of the Product. Recall will also include any action by either party to refrain from selling or shipping quantities of the Product to third parties which would be subject to a Recall if sold or shipped.

(b)    Cooperation for Recalls. If (i) any Regulatory Authority issues a directive, order or written request that any Product be Recalled, (ii) a court of competent jurisdiction orders a Recall, or (iii) Client determines that any Product should be Recalled or that a “Dear Doctor” letter is required for any Product, Patheon will co-operate as reasonably required by Client and pursuant to all Applicable Laws.

(c)    Product Returns. Client will have the responsibility for handling customer returns of the Product. Patheon will give Client any assistance that Client may reasonably require to handle the returns.

 

6.3

Patheons Responsibility for Defective and Recalled Products.

(a)    Defective Product. If Client rejects Product under Section 6.1 and the deficiency is determined to have arisen from Patheon’s failure to provide the Manufacturing Services in accordance with the Specifications, cGMP or Applicable Laws, Patheon will credit Client’s account for Patheon’s invoice price for the defective Product. If Client previously paid for the defective Product, Patheon will promptly, at Client’s election, either: (i) refund the invoice price for the defective Product; (ii) offset the

 

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amount paid against other amounts due to Patheon hereunder; or (iii) replace the Product with conforming Product (if Patheon is able to manufacture the replacement Product at the same Manufacturing Site as that of the rejected Product), without Client being liable for payment therefor under Section 3.1, and contingent upon the receipt from Client of all Active Materials and Client-Supplied Components required for the manufacture of the replacement Product. For greater certainty, Patheon’s responsibility for any loss of Active Materials in defective Product will be captured and calculated in the Active Materials Yield under Section 2.2.

(b)    Recalled or Returned Product. To the extent that a Recall or return results from, or arises out of, a failure by Patheon to perform the Manufacturing Services in accordance with the Specifications, cGMP, or Applicable Laws, Patheon will be responsible for Client’s documented expenses of the Recall or return and Patheon will promptly, at Client’s election, either: (i) refund the invoice price for the Recalled or returned Product; (ii) offset the amount paid against other amounts due to Patheon hereunder; or (iii) replace the Product with conforming Product (if Patheon is able to manufacture the replacement Product at the same Manufacturing Site as that of the rejected Product), without Client being liable for payment therefor under Section 3.1, and contingent upon the receipt from Client of all Active Materials and Client-Supplied Components required for the manufacture of the replacement Product. For greater certainty, Patheon’s responsibility for any loss of Active Materials in Recalled Product will be captured and calculated in the Active Materials Yield under Section 2.2. In all other circumstances, Recalls, returns, or other corrective actions will be made at Client’s cost and expense. If Client and Patheon fail to agree whether Patheon failed to perform the Manufacturing Services in accordance with the Specifications, cGMP, or Applicable Laws, with respect to any Recall, such disagreement shall be considered a technical dispute subject to Section 12.2 and Exhibit A. For clarity, any appointed expert will determine questions relating only to compliance with technical aspects of Patheon’s obligations within the expert’s field of expertise.

(c)    Except as set forth in Sections 6.3(a) and (b) above, Sections 6.4 and 6.5 below or Section 10.3 below, Patheon will not be liable to Client nor have any responsibility to Client for any deficiencies in, or other liabilities associated with, any Product manufactured by it (collectively, “Product Claims”). For greater certainty but not limitation, Patheon will have no obligation for any Product Claims to the extent the Product Claim (i) is caused by deficiencies in the Specifications, the safety, efficacy, or marketability of the Product or any distribution thereof, (ii) results from a defect in a Component that is not reasonably discoverable by Patheon using the test methods set forth in the Specifications prior to use of the applicable Component in the performance of the Manufacturing Services, (iii) results from a defect in the Active Materials, Client-Supplied Components or Components supplied by a Client designated additional source that is not reasonably discoverable by Patheon using the test methods set forth in the Specifications, (iv) is caused by actions of Client or third parties occurring after the Product is shipped by Patheon under Section 5.4, (v) is due to packaging design or labelling defects or omissions for which Patheon has no responsibility, (vi) is due to any unascertainable reason despite Patheon having performed the Manufacturing Services in accordance with the Specifications, cGMP, and Applicable Laws, or (vii) is due to any other breach by Client of its obligations under this Agreement.

(d)    Notwithstanding anything to the contrary in this Agreement, Patheon will only be required to replace or refund any batch or portion of a batch of recalled Product and will only be liable for Active Material contained therein to the extent the Product is unsold, returned, destroyed or otherwise disposed of by Client in accordance with the terms of this Agreement. The quantity of API contained in this Product will be included in the Quantity Dispensed but not in the Quantity Converted for purposes of calculating the Shortfall in Section 2.2(b).

 

6.4

Disposition of Defective or Recalled Products.

Client will not dispose of any damaged, defective, returned, or Recalled Products for which it intends to assert a claim against Patheon without Patheon’s prior written authorization to do so. Alternatively, Patheon may instruct Client to return the Products to Patheon. Patheon will bear the cost of

 

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disposition for any damaged, defective, returned or Recalled Products for which it bears responsibility under Section 6.3. In all other circumstances, Client will bear the cost of disposition, including all applicable fees for Manufacturing Services, for any damaged, defective, returned, or Recalled Products.

 

6.5

Healthcare Provider or Patient Questions and Complaints.

Client will have the sole responsibility for responding to questions and complaints from its customers. Questions or complaints received by Patheon from Client’s customers, healthcare providers or patients will be promptly referred to Client. Patheon will co-operate as reasonably required to allow Client to determine the cause of and resolve any questions and complaints. This assistance will include follow-up investigations, including testing. In addition, Patheon will give Client all agreed upon information that will enable Client to respond properly to questions or complaints about the Product as set forth in the Quality Agreement. Unless it is determined that the cause of the complaint resulted from a failure by Patheon to perform the Manufacturing Services in accordance with the Specifications, cGMP, and Applicable Laws, all costs incurred under this Section 6.5 will be borne by Client.

 

6.6

Sole Remedy.

Except for the indemnity set forth in Section 10.3 and subject to the limitations set forth in Sections 10.1 and 10.2, the remedies described in this Article 6 will be Client’s sole remedy in contract, tort, equity or otherwise for any failure by Patheon to provide the Manufacturing Services in accordance with the Specifications, cGMP, Applicable Laws or the applicable Firm Order.

ARTICLE 7

CO-OPERATION

 

7.1

Quarterly Review.

The relationship manager for Recro shall be Client’s Sr. Director of Manufacturing & Supply Chain and the relationship manager for Patheon shall be Patheon’s Technical Business Manager. Either party may change its relationship manager upon written notice to the other party. The relationship managers shall be responsible for liaison between the parties. The relationship managers will meet not less than quarterly to review the current status of the business relationship and manage any issues that have arisen.

 

7.2

Governmental Agencies.

Subject to Section 7.8, each party may communicate with any governmental agency regarding the Products, including but not limited to governmental agencies responsible for granting Regulatory Approval for the Products, if, in the reasonable opinion of that party’s counsel, the communication is necessary to comply with the terms of this Agreement or Applicable Laws; provided, however, that Patheon will not communicate with governmental agencies responsible for granting Regulatory Approval of the Products without first notifying Client (where permitted by Applicable Laws).

 

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Each party shall promptly notify the other party of such communications regarding the Products, and upon request, shall provide copies to the other party of any such written communications with government agencies (to the extent related to a Product).

 

7.3

Records and Accounting by Patheon.

Patheon will keep records of the manufacture, testing, and shipping of the Products, and retain samples of the Products as are necessary to comply with cGMPs, the Specifications, the Quality Agreement and other requirements applicable to Patheon, as well as to assist with resolving Product complaints and other similar investigations. Unless otherwise agreed to in the Quality Agreement, copies of the records and samples will be retained for one year following the date of Product expiry, or longer if required by Applicable Laws, following which time Client will be contacted concerning the delivery and destruction of the documents and/or samples of Products. Patheon reserves the right to destroy or return to Client, at Client’s sole expense, any document or samples for which the retention period has expired if Client fails to arrange for destruction or return within 30 days of receipt of notice from Patheon. Client is responsible for retaining samples of the Products necessary to comply with Applicable Laws.

 

7.4

Inspection.

Client may inspect Patheon reports, records, standard operating procedures and other documentation relating to the Manufacturing Services and this Agreement during normal business hours and with reasonable advance notice, but a Patheon representative must be present during the inspection.

 

7.5

Access.

Patheon will give Client reasonable access at agreed times to the areas of the Manufacturing Site in which the Active Materials and Components are held, and in which the Products are manufactured, packaged, stored, handled, or shipped to permit Client to verify that the Manufacturing Services are being performed in accordance with the Specifications, cGMPs, and Applicable Laws. With the exception of “for-cause” audits, Client will be limited each Year to [***]. Client may request additional audits, additional audit days, or the participation of additional auditors subject to payment to Patheon of a fee of [***] for each additional audit day and [***] per audit day for each additional auditor, except that these additional fees shall not apply in the event of a for-cause audit by Client. The right of access set forth in Sections 7.4 and 7.5 will not include a right to access or inspect Patheon’s financial records. Patheon will support the first Pre- Approval Inspection (“PAI”) of the FDA or equivalent regulatory inspection for other jurisdictions (where applicable) and provide a copy of the resulting report to Client [***]. [***].

 

7.6

Notification of Regulatory Inspections.

The parties’ rights and obligations with respect to any inspections by and Authority shall be defined by the provisions of the Quality Agreement and this Article 7. Patheon will notify Client within one Business Day of any inspections by any Authority specifically involving the Products. Patheon will also notify Client of receipt of any FDA Form 483s, Establishment Inspection Reports, warning letters or any other inspectional findings that relate to the Products. Patheon shall promptly provide copies of such inspection-related documents (to the extent related to a Product, and redacted to remove third party confidential information) to Client and grant Client a reasonable opportunity to review and comment on Patheon’s proposed responses to the same.

 

7.7

Reports.

Upon request, Patheon will supply on an annual basis all Product data in its control, including release test results, complaint test results, and all investigations (in manufacturing, testing, and storage), that Client reasonably requires in order to complete any filing under any applicable regulatory

 

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regime, including any Annual Report that Client is required to file with the FDA. Any additional data or report requested by Client beyond the scope of cGMP and customary FDA and EMA requirements, including Continuous Process Verification data, will be subject to an additional fee to be agreed upon between Patheon and Client.

 

7.8

Regulatory Filings.

(a)    Regulatory Approval. Client will have the sole responsibility at Client’s expense for filing all documents with all Regulatory Authorities and taking any other actions that may be required for the receipt and/or maintenance of Regulatory Authority approval for the commercial manufacture, distribution and sale of the Products (“Regulatory Approval”). Patheon will assist Client, to the extent consistent with Patheon’s obligations under this Agreement, to obtain Regulatory Authority approval for the commercial manufacture, distribution and sale of all Products as quickly as reasonably possible.

(b)    Verification of Data. Prior to filing any documents with any Regulatory Authority that incorporate data generated by Patheon, Client will give Patheon a copy of the documents incorporating this data to give Patheon the opportunity to verify the accuracy and validity of those documents as they relate to Patheon generated data. Patheon generally requires 21 days to perform this review but the parties may agree to a shorter time for the review as needed.

(c)    Verification of CTD. Prior to filing with any Regulatory Authority any documentation which is or is equivalent to the Quality Module (Drug Product Section) of the Common Technical Document (all such documentation herein referred to as “CTD”) related to any Regulatory Approval, such as a New Drug Application, Abbreviated New Drug Application or Biologics Licence Application in the U.S., or Marketing Authorisation Application in the E.U., Client will give Patheon a copy of relevant portions of the CTD as well as all supporting documents which have been relied upon to prepare relevant portions of the CTD. This disclosure will permit Patheon to verify that the relevant portions of the CTD accurately describe the validation or scale-up work that Patheon has performed and the manufacturing processes that Patheon will perform under this Agreement. Patheon generally requires 21 days to perform this review but the parties may agree to a shorter time for the review as needed. Client will give Patheon copies at the time of submission of CTD information that is relevant to the Manufacturing Services for the Product.

(d)    Deficiencies. If Patheon reasonably determines that any of the information given by Client under clauses (b) and (c) above is inaccurate or deficient in any manner whatsoever (the “Deficiencies”), Patheon will notify Client in writing of the Deficiencies. The parties will work together to have the Deficiencies resolved prior to the date of filing of the relevant application and in any event before any pre-approval inspection or before the Product is placed on the market if a pre-approval inspection is not performed.

(e)    Client Responsibility. The parties agree that, in reviewing the documents referred to in clauses (b) and (c) above, Patheon’s role will be limited to verifying the accuracy of the description of the work undertaken or to be undertaken by Patheon. Subject to the foregoing, Patheon will not assume any

 

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responsibility for the accuracy of any application for receipt of an approval by a Regulatory Authority. Client is solely responsible for the preparation and filing of the application for approval by the Regulatory Authority and any relevant costs will be borne by Client.

(f)    Inspection by Regulatory Authorities. If Client does not give Patheon the documents requested under subsections (b) and (c) above within the time specified and if Patheon reasonably believes that Patheon’s standing with a Regulatory Authority may be jeopardized as a result, Patheon may delay or postpone any inspection by the Regulatory Authority until Patheon has reviewed the requested documents and is satisfied with their contents; provided, that Patheon shall perform such review within 21 days of receipt of the requested documents.

(g)    Pharmacovigilance. Client will be responsible, at its expense, for all pharmacovigilance obligations for the Products pursuant to Applicable Laws. To the extent Patheon receives information regarding an adverse event related to a Product, Patheon shall collect and promptly forward this adverse event information to Client. At Client’s cost, Patheon will cooperate as reasonably required to allow Client to follow up on any such adverse events in order to fulfill Client’s obligations under Applicable Laws.

(h)    No Patheon Responsibility. Patheon will not assume any responsibility for the accuracy or cost of any application for Regulatory Approval. If a Regulatory Authority, or other governmental body, requires Patheon to incur fees, costs or activities in relation to the Products which Patheon considers unexpected and extraordinary, then Patheon will notify Client in writing and the parties will discuss in good faith appropriate mutually acceptable actions, including fee/cost sharing, or termination of all or any part of this Agreement. Patheon will not be obliged to undertake these activities or to pay for the fees or costs if, in Patheon’s sole discretion, doing so is commercially inadvisable for Patheon.

ARTICLE 8

TERM AND TERMINATION

 

8.1

Initial Term.

This Agreement will become effective as of the Effective Date and will continue until December 31, 2020 (the “Initial Term”), unless terminated earlier by one of the parties in accordance herewith. This Agreement will automatically renew after the Initial Term for successive terms of two Years each if there is a Product Agreement in effect, unless either party gives written notice to the other party of its intention to terminate this Agreement at least 18 months prior to the end of the then current term. In any event, the legal terms and conditions of this Agreement will continue to govern any Product Agreement in effect as provided in Section 1.2. Each Product Agreement will have an initial term from the Effective Date of the Product Agreement until December 31 of the Year agreed to by the parties in the Product Agreement (each, an “Initial Product Term”). Product Agreements will automatically renew after the Initial Product Term for successive terms of two Years each unless either party gives written notice to the other party of its intention to terminate the Product Agreement at least 18 months prior to the end of the then current term.

 

8.2

Termination for Cause.

(a)    Either party at its sole option may terminate this Agreement or a Product Agreement upon written notice where the other party has failed to remedy a material breach of any of its

 

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representations, warranties, or other obligations under this Agreement or the Product Agreement within [***] days following receipt of a written notice (the “Remediation Period”) of the breach from the aggrieved party that expressly states that it is a notice under this Section 8.2(a) (a “Breach Notice”). The aggrieved party’s right to terminate under this Section 8.2(a) may only be exercised for a period of [***] days following the expiry of the Remediation Period (where the breach has not been remedied) and if the termination right is not exercised during this period then the aggrieved party will be deemed to have waived the breach of the representation, warranty, or obligation described in the Breach Notice. The termination of a Product Agreement under this Section 8.2(a) will not affect any other Product Agreements where there has been no material breach of the other Product Agreements.

(b)    Either party at its sole option may immediately terminate this Agreement or a Product Agreement upon written notice, but without prior advance notice, to the other party if: (i) the other party is declared insolvent or bankrupt by a court of competent jurisdiction; (ii) a voluntary petition of bankruptcy is filed in any court of competent jurisdiction by the other party; or (iii) this Agreement or a Product Agreement is assigned by the other party for the benefit of creditors.

(c)    Client may terminate a Product Agreement upon 30 days’ prior written notice if any Authority takes any action, or raises any objection, that prevents Client from importing, exporting, purchasing, or selling the Product. But if this occurs, Client must still fulfill all of its obligations under Section 8.3 below and under any Capital Equipment Agreement regarding the Product.

(d)    Client may terminate a Product Agreement upon three months’ prior written notice if it intends to no longer order Manufacturing Services for a Product due to the Product’s discontinuance in the market.

(e)    Patheon may terminate this Agreement or a Product Agreement upon six months’ prior written notice if Client assigns under Section 13.6 any of its rights under this Agreement or a Product Agreement to an assignee that, in the opinion of Patheon acting reasonably, is: (i) not a credit worthy substitute for Client; or (ii) a Patheon Competitor.

(f)    Client may terminate this Agreement or a Product Agreement in the event that Patheon fails to timely deliver batches of Product from three consecutive manufacturing campaigns.

 

8.3

Obligations on Termination.

 

  (a)

If a Product Agreement is completed, expires, is terminated by Patheon in accordance with Section 8.2(a), (b) or (e), or is terminated by Client in accordance with Section 8.2(c), 8.2(d) or 8.2(f), in whole or in part for any reason, then:

 

  (i)

Client will take delivery of and pay for all undelivered Products that are manufactured and/or packaged in accordance with this Agreement under a Firm Order, at the Price in effect at the time the Firm Order was placed;

 

  (ii)

Client will purchase, at Patheon’s cost (including all third party costs incurred by Patheon for the purchase and handling of the Inventory), the Inventory applicable to the Products which was purchased, maintained or produced by Patheon in contemplation of filling Firm Orders or in accordance with Section 5.2;

 

  (iii)

Client will satisfy the purchase price payable under Patheon’s orders with suppliers of Components, if the orders were made by Patheon in reliance on Firm Orders or in accordance with Section 5.2;

 

  (iv)

Client acknowledges that no Patheon Competitor will be permitted access to the Manufacturing Site; and

 

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  (v)

Client will make commercially reasonable efforts, at its own expense, to remove from Patheon site(s), within [***] days, all unused Active Material and Client-Supplied Components, all applicable Inventory and Materials (whether current or obsolete), supplies, undelivered Product, chattels, equipment or other moveable property owned by Client, related to the Agreement and located at a Patheon site or that is otherwise under Patheon’s care and control (“Client Property”). If Client fails to remove Client Property within [***] days following the completion, termination, or expiration of the Product Agreement, Client will pay Patheon [***] for storing Client Property and will assume any third party storage charges invoiced to Patheon regarding Client Property. Patheon will invoice Client for the storage charges as set forth in Section 5.5 of this Agreement. If Client asks Patheon to destroy any Client Property, Client will be responsible for the cost of destruction.

 

  (b)

If a Product Agreement is terminated by Client in accordance with Section 8.2(a) because Patheon has delivered Product that does not conform to the Specifications, cGMPs or Applicable Laws, then (i) Section 8.3(a)(i) shall apply but only to the extent that the Product conforms to the Specifications, cGMPs or Applicable Laws, (ii) Section 8.3(a)(iv) shall apply, and (iii) Section 8.4(a)(v) shall apply but only with respect to all Client Property other than Inventory and Materials (but including Client-Supplied Components).

 

  (c)

Any completion, termination or expiration of this Agreement or a Product Agreement will not affect any outstanding obligations or payments due prior to the completion, termination or expiration, nor will it prejudice any other remedies that the parties may have under this Agreement or a Product Agreement or any related Capital Equipment Agreement. For greater certainty, completion, termination or expiration of this Agreement or of a Product Agreement for any reason will not affect the obligations and responsibilities of the parties under Articles 6, 10, 11 and 13 and Sections 2.2, 5.4, 5.5, 7.3 and 7.7 and this Section 8.4 and any other provisions of this Agreement which by their terms are expressed to survive any completion, termination or expiration, all of which survive any completion, termination or expiration.

 

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ARTICLE 9

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

9.1

Authority.

Each party covenants, represents, and warrants that it has the full right and authority to enter into this Agreement and that it is not aware of any impediment that would inhibit its ability to perform its obligations hereunder.

 

9.2

Client Warranties.

Client represents and warrants to Patheon that, as of the date of the execution of a Product Agreement and solely with respect to the Product and the Client Intellectual Property (as applicable) relating to or covering the Product that is the subject of that Product Agreement:

 

  (a)

Non-Infringement.

 

  (i)

Client has the right to disclose the Specifications to Patheon;

 

  (ii)

(A) Client owns or controls any Client Intellectual Property used by Patheon in performing the Manufacturing Services according to the Specifications, and (B) the Client Intellectual Property may be lawfully used as directed by Client, and (C) the use of the Client Intellectual Property to perform the Manufacturing Services in accordance with this Agreement and the relevant Product Agreement does not misappropriate any Third Party Rights;

 

  (iii)

to Client’s knowledge, there are no actions or other legal proceedings involving Client that concerns the infringement of Third Party Rights related to the Active Materials, processes covered by Client Intellectual Property, or the sale, use, or other disposition of the Product made in accordance with the Specifications;

 

  (b)

Quality and Compliance.

 

  (i)

the Specifications for the Product conforms to all applicable cGMP and Applicable Laws;

 

  (ii)

the Product, if labelled and manufactured in accordance with the Specifications and in compliance with applicable cGMP and Applicable Laws (A) may be lawfully sold and distributed in the Territory, (B) will be fit for the purpose intended, and (C) will be safe for human consumption;

 

  (iii)

on the date of shipment, the API will conform to the specifications for the API that Client has given to Patheon and that the API will be adequately contained, packaged, and labelled and will conform to the affirmations of fact on the container.

 

9.3

Patheon Warranties.

Patheon covenants, represents, and warrants that:

 

  (a)

it will perform the Manufacturing Services in accordance with the Specifications, cGMP, the Quality Agreement, the applicable Firm Order and Applicable Laws;

 

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  (b)

when manufactured and released by Patheon, the released Products will have been shown to conform to the Specifications and cGMP, as agreed in the applicable release Specifications;

 

  (c)

any Patheon Intellectual Property used by Patheon to perform the Manufacturing Services (i) is Patheon’s or its Affiliate’s unencumbered property, (ii) may be lawfully used by Patheon, and (iii) does not infringe and will not infringe any Third Party Rights;

 

  (d)

it will not in the performance of its obligations under this Agreement use the services of any person who is, or who to Patheon’s knowledge is under consideration to be, debarred under 21 U.S.C. §335A, or excluded, suspended or declared ineligible under other Applicable Laws;

 

  (e)

it does not currently employ, and it will not hire, as an officer or an employee, or retain as an agent or contractor, any person who has been convicted of a felony under the laws of the United States for conduct relating to the regulation of any drug product under the United States Federal Food, Drug, and Cosmetic Act; and

 

  (f)

it has the expertise and the facilities to perform the Manufacturing Services.

 

9.4

Permits.

 

  (a)

Patheon currently has, and will maintain at all relevant times, all governmental permits, licenses, approvals and authorities required to enable it to lawfully and properly perform the Manufacturing Services.

 

9.5

No Warranty.

PATHEON MAKES NO WARRANTY OR CONDITION OF ANY KIND, EITHER EXPRESSED OR IMPLIED, BY FACT OR LAW, OTHER THAN THOSE EXPRESSLY SET FORTH IN THIS AGREEMENT. EXCEPT AS EXPRESSLY AGREED IN THIS AGREEMENT, PATHEON MAKES NO WARRANTY OR CONDITION OF FITNESS FOR A PARTICULAR PURPOSE NOR ANY WARRANTY OR CONDITION OF MERCHANTABILITY FOR THE PRODUCTS.

 

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ARTICLE 10

REMEDIES AND INDEMNITIES

 

10.1

Consequential and Other Damages.

UNDER NO CIRCUMSTANCES WHATSOEVER WILL EITHER PARTY BE LIABLE TO THE OTHER IN CONTRACT, TORT, NEGLIGENCE, BREACH OF STATUTORY DUTY, OR OTHERWISE FOR (I) ANY (DIRECT OR INDIRECT) LOSS OF PROFITS, OF PRODUCTION, OF ANTICIPATED SAVINGS, OF BUSINESS, OR GOODWILL OR (II) ANY RELIANCE DAMAGES, INCLUDING BUT NOT LIMITED TO COSTS OR EXPENDITURES INCURRED TO EVALUATE THE VIABILITY OF ENTERING INTO THIS AGREEMENT OR TO PREPARE FOR PERFORMANCE UNDER THIS AGREEMENT OR (III) FOR ANY OTHER LIABILITY, DAMAGE, COSTS, PENALTY, OR EXPENSE OF ANY KIND INCURRED BY THE OTHER PARTY OF AN INDIRECT OR CONSEQUENTIAL NATURE, REGARDLESS OF ANY NOTICE OF THE POSSIBILITY OF THESE DAMAGES.

 

10.2

Limitation of Liability.

(a)    Defective or Recalled Product. Patheon’s maximum aggregate liability to Client for any obligation to (i) refund, offset or replace any defective Product under Section 6.3(a) or (ii) replace any recalled Products under Section 6.3(b), will not exceed [***]. [***].

(b)    Active Materials. Except as expressly set forth in Section 2.2, under no circumstances will Patheon be responsible for any loss or damage to the Active Materials. Patheon’s maximum responsibility for loss or damage to the Active Materials will not exceed the Maximum Credit Value set forth in Schedule D of a Product Agreement.

(c)    Maximum Liability. Subject to Section 10.2(d) below, Patheon’s maximum aggregate liability to Client in any Year under this Agreement or any Product Agreement for any reason whatsoever (except Section 10.3, 10.2(a) and 10.2(d)), including, without limitation, any liability arising under Section 2.2 hereof or resulting from any and all breaches of its representations, warranties and other obligations under this Agreement or any Product Agreement, will not exceed [***].

(d)    Death, Personal Injury and Fraudulent Misrepresentation. Nothing contained in this Agreement (including the limitations set forth in Section 10.1 and 10.2) shall act to exclude or limit either party’s liability for personal injury or death caused by the negligence of either party, fraudulent misrepresentation [***].

 

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10.3

Patheon Indemnity.

(a)    Patheon agrees to defend and indemnify Client, its officers, employees and agents, against all losses, damages, costs, claims, demands, judgments and liability to, from and in favour of third parties (other than Affiliates) resulting from or relating to (i) any claim of infringement or alleged infringement of any Third Party Rights by Patheon Intellectual Property used in the Manufacturing Services, or (ii) any claim of personal injury or property damage to the extent that the injury or damage is the result of: (A) a failure by Patheon to perform the Manufacturing Services in accordance with this Agreement, the Specifications, cGMP, and Applicable Laws, (B) breach of this Agreement by Patheon, or (C) Patheon’s negligence or willful misconduct in the performance of its obligations under this Agreement, except to the extent that the losses, damages, costs, claims, demands, judgments, and liability are caused by the Client’s breach, negligence or wilful misconduct or subject to indemnification by Client under Section 10.4.

(b)    If a claim occurs, Client will: (a) promptly notify Patheon of the claim; (b) use commercially reasonable efforts to mitigate the effects of the claim; (c) reasonably cooperate with Patheon in the defense of the claim; and (d) permit Patheon to control the defense and settlement of the claim, all at Patheon’s cost and expense; provided, that Patheon shall not settle any such claim without Client’s prior written consent, such consent not to be unreasonably withheld, conditioned or delayed.

 

10.4

Client Indemnity.

(a)    Client agrees to defend and indemnify Patheon, its officers, employees and agents, against all losses, damages, costs, claims, demands, judgments and liability to, from and in favour of third parties (other than Affiliates) resulting from or relating to (i) any claim of infringement or alleged infringement of any Third Party Rights by the Products or in the Client Intellectual Property (or Patheon’s or its Affiliates’ use of them); or (ii) any claim of personal injury or property damage to the extent that the injury or damage is the result of: (A) the breach of this Agreement by Client, including, without limitation, any representation or warranty contained herein; or (B) Client’s negligence or willful misconduct in the performance of its obligations under this Agreement, except to the extent that the losses, damages, costs, claims, demands, judgments, and liability are caused by the Patheon’s breach, negligence or wilful misconduct, or subject to indemnification by Patheon under Section 10.3.

(b)    If a claim occurs, Patheon will: (a) promptly notify Client of the claim; (b) use commercially reasonable efforts to mitigate the effects of the claim; (c) reasonably cooperate with Client in the defense of the claim; and (d) permit Client to control the defense and settlement of the claim, all at Client’s cost and expense; provided, that Client shall not settle any such claim without Patheon’s prior written consent, such consent not to be unreasonably withheld, conditioned or delayed.

ARTICLE 11

CONFIDENTIALITY

 

11.1

Confidential Information.

Confidential Information” means any information disclosed by the Disclosing Party to the Recipient (whether disclosed in oral, written, electronic or visual form) that is non-public, confidential or proprietary including, without limitation, information relating to the Disclosing Party’s patent and trademark applications, process designs, process models, drawings, plans, designs, data, databases and extracts therefrom, formulae, methods, know-how and other intellectual property, its clients or client confidential information, finances, marketing, products and processes and all price quotations, manufacturing or professional services proposals, information relating to composition, proprietary

 

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HAS BEEN OMITTED BECAUSE IT IS NOT MATERIAL AND WOULD LIKELY CAUSE

COMPETITIVE HARM TO THE REGISTRANT IF PUBLICLY DISCLOSED.

 

technology, and all other information relating to manufacturing capabilities and operations. In addition, all analyses, compilations, studies, reports or other documents prepared by any party’s Representatives containing the Confidential Information will be considered Confidential Information. Samples or materials provided hereunder as well as any and all information derived from the approved analysis of the samples or materials will also constitute Confidential Information. For the purposes of this ARTICLE 11, a party or its Representative receiving Confidential Information under this Agreement is a “Recipient,” and a party or its Representative disclosing Confidential Information under this Agreement is the “Disclosing Party.”

 

11.2

Use of Confidential Information.

The Recipient will use the Confidential Information solely for the purpose of meeting its obligations under this Agreement. The Recipient will keep the Confidential Information strictly confidential and will not disclose the Confidential Information in any manner whatsoever, in whole or in part, other than to those of its Representatives who (i) have a need to know the Confidential Information for the purpose of this Agreement; (ii) have been advised of the confidential nature of the Confidential Information and (iii) have obligations of confidentiality and non-use to the Recipient no less restrictive than those of this Agreement. Recipient will protect the Confidential Information disclosed to it by using all reasonable precautions to prevent the unauthorized disclosure, dissemination or use of the Confidential Information, which precautions will in no event be less than those exercised by Recipient with respect to its own confidential or proprietary Confidential Information of a similar nature.

 

11.3

Exclusions.

The obligations of confidentiality will not apply to the extent that the information:

(a)    is or becomes publicly known through no breach of this Agreement or fault of the Recipient or its Representatives;

(b)    is in the Recipient’s possession at the time of disclosure by the Disclosing Party other than as a result of the Recipient’s breach of any legal obligation;

(c)    is or becomes known to the Recipient on a non-confidential basis through disclosure by sources, other than the Disclosing Party, having the legal right to disclose the Confidential Information, provided that the other source is not known by the Recipient to be bound by any obligations (contractual, legal, fiduciary, or otherwise) of confidentiality to the Disclosing Party with respect to the Confidential Information;

(d)    is independently developed by the Recipient without use of or reference to the Disclosing Party’s Confidential Information as evidenced by Recipient’s written records; or

(e)    is expressly authorized for release by the written authorization of the Disclosing Party.

Any combination of information which comprises part of the Confidential Information are not exempt from the obligations of confidentiality merely because individual parts of that Confidential Information werepublicly known, in the Recipient’s possession, or received by the Recipient, unless the combination itself was publicly known, in the Recipient’s possession, or received by the Recipient.

 

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11.4

Photographs and Recordings.

Neither party will take any photographs or videos of the other party’s facilities, equipment or processes, nor use any other audio or visual recording equipment (such as camera phones) while at the other party’s facilities, without that party’s express written consent.

 

11.5

Permitted Disclosure.

Notwithstanding any other provision of this Agreement, the Recipient may disclose Confidential Information of the Disclosing Party, including this Agreement (redacted as permitted by law and requested by the Disclosing Party), to the extent required, as advised by counsel, in response to a valid order of a court or other governmental body or as required by law, regulation or stock exchange rule. But the Recipient will advise the Disclosing Party in advance of the disclosure to the extent practicable and permissible by the order, law, regulation or stock exchange rule and any other applicable law, will reasonably cooperate with the Disclosing Party, if required, in seeking an appropriate protective order or other remedy, and will otherwise continue to perform its obligations of confidentiality set out herein. If any public disclosure is required by law, the parties will consult concerning the form of announcement prior to the public disclosure being made.

 

11.6

Marking.

The Disclosing Party will use reasonable efforts to summarize in writing the content of any oral disclosure or other non-tangible disclosure of Confidential Information within 30 days of the disclosure, but failure to provide this summary will not affect the nature of the Confidential Information disclosed if the Confidential Information was identified as confidential or proprietary when disclosed orally or in any other non-tangible form or is of a nature generally understood to be confidential or proprietary.

 

11.7

Return of Confidential Information.

Upon the written request of the Disclosing Party and upon termination of this Agreement, the Recipient will promptly return the Confidential Information to the Disclosing Party or, if the Disclosing Party directs, destroy all Confidential Information disclosed in or reduced to tangible form including any copies thereof and any summaries, compilations, analyses or other notes derived from the Confidential Information except for one copy which may be maintained by the Recipient for its records. The retained copy will remain subject to all confidentiality provisions contained in this Agreement.

 

11.8

Remedies.

The parties acknowledge that monetary damages may not be sufficient to remedy a breach by either party of this Article 11 and agree that the non-breaching party will be entitled to seek specific performance, injunctive and/or other equitable relief to prevent breaches of this Article 11 and to specifically enforce the provisions hereof in addition to any other remedies available at law or in equity. These remedies will not be the exclusive remedies for breach of this Article 11 but will be in addition to any and all other remedies available at law or in equity.

 

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ARTICLE 12

DISPUTE RESOLUTION

 

12.1

Commercial Disputes.

If any dispute arises out of this Agreement or any Product Agreement (other than a dispute under Section 6.1(b) or a Technical Dispute, as defined herein), the parties will first try to resolve it amicably. In that regard, any party may send a notice of dispute to the other, and each party’s relationship manager and one additional senior management member from each party (each of whom shall have full power and authority to resolve the dispute), will meet promptly as necessary in order to resolve the dispute. If the representatives fail to resolve the matter within one month from their appointment, or if a party fails to appoint a representative within the ten Business Day period set forth above, the dispute will immediately be referred to the Chief Operating Officer (or another officer as he/she may designate) of each party who will meet and discuss as necessary to try to resolve the dispute amicably. Should the parties fail to reach a resolution under this Section 12.1, the dispute will be referred to a court of competent jurisdiction in accordance with Section 13.17.

 

12.2

Technical Dispute Resolution.

If a dispute arises (other than disputes under Section 12.1 or Section 6.1(b)) between the parties that is exclusively related to technical aspects of the manufacturing, packaging, labelling, quality control testing, handling, storage, or other activities under this Agreement (a “Technical Dispute”), the parties will make all reasonable efforts to resolve the dispute by amicable negotiations. In that regard, senior representatives of each party will, as soon as possible and in any event no later than ten Business Days after a written request from either party to the other, meet in good faith to resolve any Technical Dispute. If, despite this meeting, the parties are unable to resolve a Technical Dispute within a reasonable time, and in any event within 30 Business Days of the written request, the Technical Dispute will, at the request of either party, be referred for determination to an expert in accordance with Exhibit A. If the parties cannot agree that a dispute is a Technical Dispute, Section 12.1 will prevail. For greater certainty, the parties agree that the release of the Products for sale or distribution under the applicable Regulatory Approval for the Products will not by itself indicate compliance by Patheon with its obligations for the Manufacturing Services and further that nothing in this Agreement (including Exhibit A) will remove or limit the authority of the relevant qualified person (as specified by the Quality Agreement) to determine whether the Products are to be released for sale or distribution.

ARTICLE 13

MISCELLANEOUS

 

13.1

Inventions.

(a)    For the term of the relevant Product Agreement, Client hereby grants to Patheon a non-exclusive, paid-up, royalty-free, non-transferable license of Client’s Intellectual Property and Client-Owned Inventions which Patheon must use in order to perform the Manufacturing Services under such Product Agreement.

(b)    All Client Intellectual Property will be the exclusive property of Client.

 

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(c)    All Patheon Intellectual Property will be the exclusive property of Patheon. Patheon hereby grants to Client a perpetual, irrevocable, non-exclusive, paid-up, royalty-free, transferable license to use the Patheon Intellectual Property and Patheon-Owned Inventions used by Patheon to perform the Manufacturing Services to enable Client to manufacture the Product(s).

(d)    Each party will be solely responsible for the costs of filing, prosecution, and maintenance of patents and patent applications on its own Inventions.

(e)    Client shall own any Inventions generated or derived by Patheon while performing any Manufacturing Services, or otherwise generated or derived by Patheon in its business, and any Intellectual Property Rights therein, which [***] (“Client-Owned Inventions”). Patheon shall own all other Inventions generated or derived by Patheon while performing any Manufacturing Services, or otherwise generated or derived by Patheon in its business, and any Intellectual Property rights therein (“Patheon-Owned Inventions”). Each party will be solely responsible for the costs of filing, prosecution and maintenance of patents and patent applications owned by such party in accordance with this Section 13.1.

(f)    Patheon will give Client written notice, as promptly as practicable, of all significant Inventions which are in Patheon’s reasonable opinion owned by Client in accordance with this Section 13.1. Patheon shall assign, and hereby assigns, to Client all ownership rights in any Client-Owned Inventions. Patheon hereby agrees to reasonably cooperate with Client, at Client’s expense, to execute all lawful papers and instruments, including obtaining and executing necessary powers of attorney and assignments by the named inventors, to make all rightful oaths and declarations, and to provide consultation and assistance as may be reasonably necessary in the assignment of Inventions in a manner consistent with this Section 13.1.

 

13.2

Intellectual Property.

Except as set forth in Section 13.1 above, neither party has, nor will it acquire, any interest in any of the other party’s Intellectual Property unless otherwise expressly agreed to in writing. Neither party will use any Intellectual Property of the other party, except as specifically authorized by the other party or as required for the performance of its obligations under this Agreement.

 

13.3

Insurance.

Each party will maintain commercial general liability insurance, including blanket contractual liability insurance covering the obligations of that party under this Agreement through the term of this Agreement and for a period of [***] years thereafter. This insurance will have policy limits of not less than (i) [***] for each occurrence for personal injury or property damage liability; and (ii) [***] in the aggregate per annum for product and completed operations liability. If requested each party will give the other a certificate of insurance evidencing the above and showing the name of the issuing company, the policy number, the effective date, the expiration date, and the limits of liability. The insurance certificate will further provide for a minimum of 30 days’ written notice to the insured of a cancellation of, or material change in, the insurance. If a party is unable to maintain the insurance policies required under this Agreement through no fault of its own, then the party will forthwith notify the other party in writing and the parties will in good

 

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faith negotiate appropriate amendments to the insurance provision of this Agreement in order to provide adequate assurances. Either Party may request that the other increase the insurance coverage set forth in this paragraph in the event that such coverage is no longer deemed to be sufficient, in which case the parties shall in good faith negotiate appropriate amendments to the insurance provision of this Agreement in order to provide adequate coverage.

 

13.4

Independent Contractors.

The parties are independent contractors and this Agreement and any Product Agreement will not be construed to create between Patheon and Client any other relationship such as, by way of example only, that of employer-employee, principal agent, joint-venturer, co-partners, or any similar relationship, the existence of which is expressly denied by the parties.

 

13.5

No Waiver.

Neither party’s failure to require the other party to comply with any provision of this Agreement or any Product Agreement will be deemed a waiver of the provision or any other provision of this Agreement or any Product Agreement, with the exception of Sections 6.1 and 8.2 of this Agreement.

 

13.6

Assignment and Subcontracting.

 

  (a)

Patheon may not assign this Agreement or any Product Agreement or any of its associated rights or obligations without the written consent of Client, this consent not to be unreasonably withheld. Any assignee consented to by Client will covenant in writing with Client to be bound by the terms of this Agreement or the Product Agreement, and Patheon will remain liable hereunder. Patheon may arrange for subcontractors to perform specific testing services arising under any Product Agreement without the consent of Client if such subcontractors are set forth in the applicable Product Agreement or Quality Agreement. Further it is specifically agreed that Patheon may subcontract any part of the Manufacturing Services under a Product Agreement to any of its Affiliates. Patheon will remain solely liable to Client for its obligations under this Agreement and each Product Agreement and Quality Agreement.

 

  (b)

Subject to Section 8.2(e), Client may assign this Agreement or any Product Agreement or any of its associated rights or obligations without approval from Patheon. But Client will give Patheon prior written notice of any assignment, any assignee will covenant in writing with Patheon to be bound by the terms of this Agreement or the Product Agreement, and Client will remain liable hereunder. Any partial assignment will be subject to Patheon’s cost review of the assigned Products and Patheon may terminate this Agreement or any Product Agreement or any assigned part thereof, on 12 months’ prior written notice to Client and the assignee if good faith discussions do not lead to agreement on amended Manufacturing Service fees within a reasonable time.

 

  (c)

Despite the foregoing provisions of this Section 13.6, either party may assign this Agreement or any Product Agreement to any of its Affiliates or to a successor to or purchaser of all or substantially all of its business to which this Agreement or a Product Agreement relates, but the assignee must execute an agreement with the non-assigning party whereby it agrees to be bound hereunder.

 

13.7

Force Majeure.

Neither party will be liable for the failure to perform its obligations under this Agreement or any Product Agreement if the failure is caused by an event beyond that party’s reasonable control, including, but not limited to, strikes or other labor disturbances, lockouts, riots, quarantines,

 

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communicable disease outbreaks, wars, acts of terrorism, fires, floods, storms, interruption of or delay in transportation, defective equipment, lack of or inability to obtain fuel, power or components, or compliance with any order or regulation of any government entity acting within colour of right (a “Force Majeure Event”). A party claiming a right to excused performance under this Section 13.7 will immediately notify the other party in writing of the extent of its inability to perform, which notice will specify the event beyond its reasonable control that prevents the performance, and shall use commercially reasonable efforts to recommence performance as soon as possible. Either party may terminate this Agreement under Section 8.2(a) for a Force Majeure Event that has not resolved within 180 days. Neither party will be entitled to rely on a Force Majeure Event to relieve it from an obligation to pay money (including any interest for delayed payment) which would otherwise be due and payable under this Agreement or any Product Agreement.

 

13.8

Additional Product.

Additional Products may be added to, or existing Products deleted from, any Product Agreement by amendments to the Product Agreement including Schedules A, B, C, and D as applicable.

 

13.9

Notices.

Unless otherwise agreed in a Product Agreement, any notice, approval, instruction or other written communication required or permitted hereunder will be sufficient if made or given to the other party by personal delivery or confirmed receipt email or by sending the same by first class mail, postage prepaid to the respective addresses or electronic mail addresses set forth below:

If to Client:

Recro Ireland Limited

Block 2, Harbour Square

Crofton Rd.

Dun Laoghaire, Co Dublin

Email address: To be confirmed in writing promptly

If to Patheon:

Patheon UK Limited

Kingfisher Drive

Covingham

Swindon

SN3 6BZ

United Kingdom

Attention: Legal Director

Email address: [***]

 

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or to any other addresses or electronic mail addresses given to the other party in accordance with the terms of this Section 13.9. Notices or written communications made or given by personal delivery, or electronic mail will be deemed to have been sufficiently made or given when sent (receipt acknowledged), or if mailed, five days after being deposited in the United States, Canada, or European Union mail, postage prepaid or upon receipt, whichever is sooner.

 

13.10

Severability.

If any provision of this Agreement or any Product Agreement or Quality Agreement is determined by a court of competent jurisdiction to be invalid, illegal, or unenforceable in any respect, that determination will not impair or affect the validity, legality, or enforceability of the remaining provisions, because each provision is separate, severable, and distinct.

 

13.11

Entire Agreement.

This Agreement, together with the applicable Product Agreement and the Quality Agreement, constitutes the full, complete, final and integrated agreement between the parties relating to the subject matter hereof and supersedes all previous written or oral negotiations, commitments, agreements, transactions, or understandings concerning the subject matter hereof. Any modification, amendment, or supplement to this Agreement or any Product Agreement must be in writing and signed by authorized representatives of both parties. In case of conflict, the prevailing order of documents will be this Agreement, the Product Agreement, and the Quality Agreement.

 

13.12

Other Terms.

No terms, provisions or conditions of any purchase order or other business form or written authorization used by Client or Patheon will have any effect on the rights, duties, or obligations of the parties under or otherwise modify this Agreement or any Product Agreement, regardless of any failure of Client or Patheon to object to the terms, provisions, or conditions unless the document specifically refers to this Agreement or the applicable Product Agreement and is signed by both parties.

 

13.13

No Third Party Benefit or Right.

For greater certainty, nothing in this Agreement or any Product Agreement will confer or be construed as conferring on any third party any benefit or the right to enforce any express or implied term of this Agreement or any Product Agreement.

 

13.14

Execution in Counterparts.

This Agreement and any Product Agreement or Quality Agreement may be executed in two or more counterparts, by original, facsimile or “pdf” signature, each of which will be deemed an original, but all of which together will constitute one and the same instrument.

 

13.15

Use of Client Name.

Patheon will not make any use of Client’s name, trademarks or logo or any variations thereof, alone or with any other word or words, without the prior written consent of Client, which consent will not be unreasonably withheld. Despite this, Client agrees that Patheon may include Client’s nameand logo in customer lists or related marketing and promotional material for the purpose of identifying users of Patheon’s Manufacturing Services.

 

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13.16

Taxes.

(a)    Client will bear all taxes, duties, levies and similar charges (and any related interest and penalties) (“Tax” or “Taxes”), however designated, imposed as a result of the provision by the Patheon of Services under this Agreement, except:

 

  (i)

any Tax based on net income or gross income that is imposed on Patheon by its jurisdiction of formation or incorporation (“Resident Jurisdiction”);

 

  (ii)

any Tax based on net income or gross income that is imposed on Patheon by jurisdictions other than its Resident Jurisdiction if this tax is based on a permanent establishment or other taxable presence of Patheon; and

 

  (iii)

any Tax that is recoverable by Patheon in the ordinary course of business for purchases made by Patheon in the course of providing its Services, such as Value Added Tax (as more fully defined in subparagraph (d) below), Goods & Services Tax (“GST”) and similar taxes.

(b)    If Client is required to bear a tax, duty, levy or similar charge under this Agreement by any state, federal, provincial or foreign government, including, but not limited to, Value Added Tax, Client will pay the tax, duty, levy or similar charge and any additional amounts to the appropriate taxing authority as are necessary to ensure that the net amounts received by Patheon hereunder after all such payments or withholdings equal the amounts to which Patheon is otherwise entitled under this Agreement as if the tax, duty, levy or similar charge did not exist.

(c)    Patheon will not collect an otherwise applicable tax if Client’s purchase is exempt from Patheon’s collection of the tax and a valid tax exemption certificate is furnished by Client to Patheon.

(d)    If Section 13.16 (a)(iii) does not apply, any payment due under this Agreement for the provision of Services to Client by Patheon is exclusive of value added taxes, turnover taxes, sales taxes or similar taxes, including any related interest and penalties (hereinafter all referred to as “VAT”). If any VAT is payable on a Service supplied by Patheon to Client under this Agreement, this VAT will be added to the invoice amount and will be for the account of (and reimbursable to Patheon by) Client. If VAT on the supplies of Patheon is payable by Client under a reverse charge procedure (i.e., shifting of liability, accounting or payment requirement to recipient of supplies), Client will ensure that Patheon will not effectively be held liable for this VAT by the relevant taxing authorities or other parties. Where applicable, Patheon will ensure that its invoices to Client are issued in such a way that these invoices meet the requirements for deduction of input VAT by Client, if Client is permitted by law to do so. Where the Manufacturing Services are cancelled or the value of the Manufacturing Services under this Agreement is adjusted Patheon shall issue to Client an adjustment note or other such document in accordance with the local tax law.

(e)    Unless consented to by Patheon, any Tax that Client pays, or is required to pay, but which Client believes should properly be paid by Patheon pursuant hereto may not be offset against sums due by Client to Patheon whether due pursuant to this Agreement or otherwise. Further, for any Taxremitted by Client but as to which Patheon is liable hereunder, if so requested by Client, Patheon shall promptly reimburse Client for such amounts paid on Patheon’s behalf.

 

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13.17

Governing Law.

This Agreement and any Product Agreement, unless otherwise agreed by the parties in the Product Agreement and then only for purposes of that Product Agreement, will be construed and enforced in accordance with the laws of England and subject to the exclusive jurisdiction of the courts thereof. The UN Convention on Contracts for the International Sale of Goods will not apply to this Agreement.

[Signature page to follow]

 

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IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Agreement as of the Effective Date.

 

PATHEON UK LIMITED
By:    

  /s/ Andrew Robinson

Name:    

    Andrew Robinson

Title:    

    Director

Date:    

    17 July 2017

RECRO IRELAND LIMITED
By:    

    /s/ Brian Harrison

Name:    

    Brian Harrison

Title:    

    Director

Date:    

    14-July 2017

 

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APPENDIX 1

FORM OF PRODUCT AGREEMENT

(Includes Schedules A to D)

PRODUCT AGREEMENT

This Product Agreement (this “Product Agreement”) is issued under the Master Manufacturing Services Agreement dated 14 July 2017 between Patheon UK Limited and Recro Ireland Limited (the “Master Agreement”), and is entered into [insert effective date] (the “Effective Date”), between Patheon UK Limited, a corporation existing under the laws of England [or applicable founding jurisdiction for Patheon Affiliate], having a principal place of business at Kingfisher Drive, Covingham, Swindon, SN3 5BZ, England (“Patheon”) and [insert Client name, legal entity, founding jurisdiction and address] (“Client”).

The terms and conditions of the Master Agreement are incorporated herein except to the extent this Product Agreement expressly references the specific provision in the Master Agreement to be modified by this Product Agreement. All capitalized terms that are used but not defined in this Product Agreement will have the respective meanings given to them in the Master Agreement.

The Schedules to this Product Agreement are incorporated into and will be construed in accordance with the terms of this Product Agreement.

 

  1.

Product List and Specifications (See Schedule A attached hereto)

 

  2.

Minimum Order Quantity, Annual Volume, and Price (See Schedule B attached hereto)

 

  3.

Annual Stability Testing and Validation Activities (if applicable) (See Schedule C attached hereto)

 

  4.

Active Materials, Active Materials Credit Value, and Maximum Credit Value (See Schedule D attached hereto)

 

  5.

Yearly Forecasted Volume: (insert for sterile products if applicable under Section 4.2.1 of the Master Agreement)

 

  6.

Territory: (insert the description of the Territory here)

 

  7.

Manufacturing Site: (insert address of Patheon Manufacturing Site where the Manufacturing Services will be performed)

 

  8.

Inflation Index: pursuant to Section 4.2(a) of the Master Agreement, the inflation index is [            ] [***]

 

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  9.

Currency: (if applicable under Section 1.4 of the Master Agreement)

 

  10.

Initial Set Exchange Rate: (if applicable if Currency included above)

 

  11.

Initial Product Term: (per Section 8.1 of the Master Agreement) from the Effective Date until December 31, 20    

 

  12.

Notices: (if applicable under Section 13.9 of the Master Agreement)

 

  13.

Other Modifications to the Master Agreement: (if applicable under Section 1.2 of the Master Agreement)

 

 

IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Product Agreement as of the Effective Date set forth above.

 

PATHEON UK LIMITED
By:    

     

Name:    

 

Title:    

     

Date:    

     

RECRO IRELAND LIMITED
By:    

     

Name:    

     

Title:    

     

Date:    

     

 

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SCHEDULE A

PRODUCT LIST AND SPECIFICATIONS

Product List

[insert product list]

Specifications

Prior to the start of commercial manufacturing of Product under this Agreement Client will give Patheon the copies of originally executed copies of the Specifications as approved by the applicable Regulatory Authority. If the Specifications received are subsequently amended, then Client will give Patheon copies of the revised executed copies of the revised Specifications. Upon acceptance of the revised Specifications, Patheon will give Client a signed and dated receipt indicating Patheon’s acceptance of the revised Specifications.

 

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SCHEDULE B

MINIMUM ORDER QUANTITY, ANNUAL VOLUME, AND PRICE

[Insert Price Table]

Manufacturing Assumptions:

Packaging Assumptions:

Testing Assumptions:

[Drafting Note: ensure that the costs included/not included are consistent with the quote]

The following cost items are included in the Price for the Products:

[***]

 

- 50 -


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[***]

The following cost items are not included in the Price for the Products:

[***]

 

- 51 -


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[***]

 

- 52 -


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SCHEDULE C

ANNUAL STABILITY TESTING [and VALIDATION ACTIVITIES (if applicable)]

Patheon and Client will agree in writing on any stability testing to be performed by Patheon on the Products. This agreement will specify the commercial and Product stability protocols applicable to the stability testing and the fees payable by Client for this testing including the Price for the Product withdrawn for the stability testing.

[NTD: Schedule C should clearly indicate when and/or under what conditions Patheon’s responsibility to perform stability testing will end]


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SCHEDULE D

ACTIVE MATERIALS

 

Active Materials

  

Supplier

  

ACTIVE MATERIALS CREDIT VALUE

The Active Materials Credit Value will be as follows:

 

PRODUCT

   ACTIVE MATERIALS   

ACTIVE MATERIALS

CREDIT VALUE

      Client’s actual cost for Active Materials not to exceed EUR          per kilogram

MAXIMUM CREDIT VALUE

Patheon’s liability for Active Materials calculated in accordance with Section 2.2 of the Master Agreement for any Product in a Year will not exceed, in the aggregate, the maximum credit value set forth below:

 

PRODUCT

  

MAXIMUM CREDIT VALUE

   [***]

[End of Product Agreement]


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EXHIBIT A

TECHNICAL DISPUTE RESOLUTION

Technical Disputes which cannot be resolved by negotiation as provided in Section 12.2 will be resolved in the following manner:

1.    Appointment of Expert. Within ten Business Days after a party requests under Section 12.2 that an expert be appointed to resolve a Technical Dispute, the parties will jointly appoint a mutually acceptable expert with experience and expertise in the subject matter of the dispute. If the parties are unable to so agree within the ten Business Day period, or if there is a disclosure of a conflict by an expert under Paragraph 2 hereof which results in the parties not confirming the appointment of the expert, then an expert (willing to act in that capacity hereunder) will be appointed by an experienced arbitrator on the roster of the American Arbitration Association.

2.    Conflicts of Interest. Any person appointed as an expert will be entitled to act and continue to act as an expert even if at the time of his appointment or at any time before he gives his determination, he has or may have some interest or duty which conflicts or may conflict with his appointment if before accepting the appointment (or as soon as practicable after he becomes aware of the conflict or potential conflict) he fully discloses the interest or duty and the parties will, after the disclosure, have confirmed his appointment.

3.    Not Arbitrator. No expert will be deemed to be an arbitrator and the provisions of the American Arbitration Act or of any other applicable statute (foreign or domestic) and the law relating to arbitration will not apply to the expert or the expert’s determination or the procedure by which the expert reaches his determination under this Exhibit A.

4.    Procedure. Where an expert is appointed:

 

  (a)

Timing. The expert will be so appointed on condition that (i) he promptly fixes a reasonable time and place for receiving representations, submissions or information from the parties and that he issues the authorizations to the parties and any relevant third party for the proper conduct of his determination and any hearing and (ii) he renders his decision (with full reasons) within 15 Business Days (or another date as the parties and the expert may agree) after receipt of all information requested by him under Paragraph 4(b) hereof.

 

  (b)

Disclosure of Evidence. The parties undertake one to the other to give to any expert all the evidence and information within their respective possession or control as the expert may reasonably consider necessary for determining the matter before him which they will disclose promptly and in any event within five Business Days of a written request from the relevant expert to do so.

 

  (c)

Advisors. Each party may appoint any counsel, consultants and advisors as it feels appropriate to assist the expert in his determination and so as to present their respective cases so that at all times the parties will co-operate and seek to narrow and limit the issues to be determined.

 

  (d)

Appointment of New Expert. If within the time specified in Paragraph 4(a) above the expert will not have rendered a decision in accordance with his appointment, a new


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  expert may (at the request of either party) be appointed and the appointment of the existing expert will thereupon cease for the purposes of determining the matter at issue between the parties except if the existing expert renders his decision with full reasons prior to the appointment of the new expert, then this decision will have effect and the proposed appointment of the new expert will be withdrawn.

 

  (e)

Final and Binding. The determination of the expert will, except for fraud or manifest error, be final and binding upon the parties.

 

  (f)

Costs. Each party will bear its own costs for any matter referred to an expert hereunder and, in the absence of express provision in the Agreement to the contrary, the costs and expenses of the expert will be shared equally by the parties.

For greater certainty, the release of the Products for sale or distribution under the applicable marketing approval for the Products will not by itself indicate compliance by Patheon with its obligations for the Manufacturing Services and further that nothing in this Agreement (including this Exhibit A) will remove or limit the authority of the relevant qualified person (as specified by the Quality Agreement) to determine whether the Products are to be released for sale or distribution.

 

- 2 -


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EXHIBIT B

QUARTERLY ACTIVE MATERIALS INVENTORY REPORT

 

TO:    [name of Client]
FROM:    PATHEON UK LIMITED [or applicable Patheon Affiliate]
RE:    Active Materials quarterly inventory report under Section 2.2(a) of the Master Manufacturing Services Agreement dated ● (the “Agreement”)

 

 

Reporting quarter:  

 

       

Active Materials on hand

at beginning of quarter:

 

 

  kg    (A)   

Active Materials on hand

at end of quarter:

 

 

  kg    (B)                    
Quantity Received during quarter:  

 

  kg    (C)   
Quantity Dispensed1 during quarter:  

 

  kg      
(A + C – B)          
Quantity Converted during quarter:  

 

  kg      

(total Active Materials in Products produced

and not rejected, recalled or returned or in work-in-process)

       
Capitalized terms used in this report have the meanings given to the terms in the Agreement.   

 

PATHEON UK LIMITED    DATE:                                                                                       
[or applicable Patheon Affiliate]   

Per:                                                   

Name:

Title:

 

1 

Excludes any (i) Active Materials that must be retained by Patheon as samples, (ii) Active Materials contained in Product that must be retained as samples, (iii) Active Materials used in testing (if applicable), and (iv) Active Materials received or consumed in technical transfer activities or development activities, including, without limitation, any regulatory, stability, validation, or test batches manufactured during the quarter.


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EXHIBIT C

REPORT OF ANNUAL ACTIVE MATERIALS INVENTORY RECONCILIATION

AND CALCULATION OF ACTUAL ANNUAL YIELD

 

TO:    [name of Client]
FROM:    PATHEON UK LIMITED [or applicable Patheon Affiliate]
RE:    Active Materials annual inventory reconciliation report and calculation of Actual Annual Yield under Section 2.2(a) of the Master Manufacturing Services Agreement dated ● (the “Agreement”)

 

 

Reporting Year ending:   

 

       

Active Materials on hand

at beginning of Year:

  

 

  kg    (A)   

Active Materials on hand

at end of Year:

  

 

  kg    (B)                
Quantity Received during Year:   

 

  kg    (C)   
Quantity Dispensed2 during Year:   

 

  kg    (D)   
(A + C – B)           
Quantity Converted during Year:   

 

  kg    (E)   
(total Active Materials in Products produced and not rejected, recalled or returned or in work-in-process)        
Active Materials Credit Value:    EUR                                                                                                     / kg    (F)   
Target Yield:   

 

  %    (G)   
Actual Annual Yield:   

 

  %    (H)   
((E/D) * 100)           
Shortfall Credit:    EUR                                                                                                        (I)   
[***]    (if a negative number, insert zero)        

 

2 

Excludes any (i) Active Materials that must be retained by Patheon as samples, (ii) Active Materials contained in Product that must be retained as samples, (iii) Active Materials used in testing (if applicable), and (iv) Active Materials received or consumed in technical transfer activities or development activities, including, without limitation, any regulatory, stability, validation, or test batches manufactured during the Year.


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Based on the foregoing reimbursement calculation Patheon will reimburse Client the amount of EUR                 .

 

Surplus

Credit:                         EUR                            (J)

[***]

Based on the foregoing reimbursement calculation Patheon may carry forward one Year a Surplus Credit in the amount of EUR                 .

Capitalized terms used in this report have the meanings given to the terms in the Agreement.

DATE:                              

PATHEON UK LIMITED

[or applicable Patheon Affiliate]

Per:                                   

Name:

Title:

Exhibit 10.22

Execution Version

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NCD Meloxicam IV (30mg/ml)

PRODUCT AGREEMENT

(Includes Schedules A to D)

PRODUCT AGREEMENT

This Product Agreement (this “Product Agreement”) is issued under the Master Manufacturing Services Agreement dated July 14th, 2017 between Patheon UK Limited and Recro Ireland Limited (the “Master Agreement”), and is entered into July 14th, 2017 (the “Effective Date”), between Patheon UK Limited, a corporation existing under the laws of England, having a principal place of business at Kingfisher Drive, Covingham, Swindon, SN3 5BZ, England (“Patheon”) and Recro Ireland Limited a private limited company incorporated in Ireland with registered number 562027, having its registered office at 25/28 North Wall, Dublin 1, (“Client”).

The terms and conditions of the Master Agreement are incorporated herein except to the extent this Product Agreement expressly references the specific provision in the Master Agreement to be modified by this Product Agreement. All capitalized terms that are used but not defined in this Product Agreement will have the respective meanings given to them in the Master Agreement.

The Schedules to this Product Agreement are incorporated into and will be construed in accordance with the terms of this Product Agreement.

 

  1.

Product List and Specifications (See Schedule A attached hereto)

 

  2.

Minimum Order Quantity, Annual Volume, and Price (See Schedule B attached hereto)

 

  3.

Annual Stability Testing and Validation Activities (if applicable) (See Schedule C attached hereto)

 

  4.

Active Materials, Active Materials Credit Value, and Maximum Credit Value (See Schedule D attached hereto)

 

  5.

Yearly Forecasted Volume: (insert for sterile products if applicable under Section 4.2.1 of the Master Agreement)

 

Product

   [***]
   [***]    [***]    [***]    [***]    [***]
NCD Meloxicam IV (30mg/ml)    [***]    [***]    [***]    [***]    [***]

 

  6.

Territory: USA and EU

 

  7.

Manufacturing Site: Patheon Italia Monza Site Viale GB Stucchi 110, I-20900 Monza Italy.

 

 

July 14, 2017

Confidential

  

 

Product Agreement

Page 1 of 13


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  8.

Inflation Index: pursuant to Section 4.2(a) of the Master Agreement, the inflation index is the [***]

 

  9.

Currency: Euros

 

  10.

Initial Set Exchange Rate: Not Applicable

 

  11.

Initial Product Term: (per Section 8.1 of the Master Agreement) from the Effective Date until December 31, 2020

 

  12.

Notices: (Section 13.9 of the Master Agreement)

 

  13.

Other Modifications to the Master Agreement:

[***]

[***]. [***]

 

 

IN WITNESS WHEREOF, the duly authorized representatives of the parties have executed this Product Agreement as of the Effective Date set forth above.

 

PATHEON UK LIMITED
By:  

/s/ Andrew Robinson

Name:  

Andrew Robinson

Title:  

Director

Date:  

17 July 2017

RECRO IRELAND LIMITED
By:  

/s/ Brian Harrison

Name:  

Brian Harrison

Title:  

Director

Date:  

14-July 2017

 

 

July 14, 2017

Confidential

  

 

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SCHEDULE A

PRODUCT LIST AND SPECIFICATIONS

Product List

NCD Meloxicam IV (30mg/ml)

Specifications

Prior to the start of commercial manufacturing of Product under this Agreement Client will give Patheon the copies of originally executed copies of the Specifications as approved by the applicable Regulatory Authority. If the Specifications received are subsequently amended, then Client will give Patheon copies of the revised executed copies of the revised Specifications. Upon acceptance of the revised Specifications, Patheon will give Client a signed and dated receipt indicating Patheon’s acceptance of the revised Specifications.

 

 

July 14, 2017

Confidential

  

 

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SCHEDULE B

MINIMUM ORDER QUANTITY (MOQ), ANNUAL VOLUME, AND PRICE

Process Validation Batches

 

Product

   [***]    [***]    [***]
   [***]
Meloxicam sterile liquid vials    [***]    [***]    [***]

 

*

Excludes the cost of the secondary packaging conversion price which will be charged at the commercial supply price as presented in the table on Page 5.

Bulk Supply

 

Product

   [***]    [***]    [***]    [***]    [***]
   [***]    [***]    [***]
NCD Meloxicam IV (30mg/ml)    [***]    [***]    [***]    [***]    [***]    [***]    [***]
NCD Meloxicam IV (30mg/ml)    [***]    [***]    [***]    [***]    [***]    [***]    [***]

Note: [***]

 

 

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Confidential

  

 

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Packaging Supply Pricing Only

 

Product

   [***]    [***]    [***]    [***]
   [***]    [***]    [***]
NCD Meloxicam IV (30mg/ml)    [***]    [***]    [***]    [***]    [***]    [***]
NCD Meloxicam IV (30mg/ml)    [***]    [***]    [***]    [***]    [***]    [***]
NCD Meloxicam IV (30mg/ml)    [***]    [***]    [***]    [***]    [***]    [***]
NCD Meloxicam IV (30mg/ml)    [***]    [***]    [***]    [***]    [***]    [***]

 

*

[***].

**

[***].[***].[***].[***]

Annual Volumes

 

Product

   [***]
   [***]    [***]    [***]    [***]    [***]
NCD Meloxicam IV (30mg/ml)    [***]    [***]    [***]    [***]    [***]

 

 

July 14, 2017

Confidential

  

 

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Manufacturing Assumptions:

API – API (NCD Meloxicam Bulk Intermediate) will be stored under refrigerated conditions (2-8°C). In the case of capacity constraints Patheon may utilize a GMP approved sub-contract storage facility. In such a case, advance notification will be given to the client if the use of such storage will be necessary. Consideration will also be made of temperature controls, and shipping validation.

Batch size – Recro has confirmed that the maximum theoretical bulk batch size will be [***].

Manufacturing campaign – PV batches may not be produced in campaign. The Parties will meet and agree the appropriate protocols in this regard before the applicable manufacturing slots are reserved.

Product sterilization, filling process, and sealing – An aseptic filtration, filling and sealing process will be performed. Sterile filtration (0.22mm) of the solution will be performed prior to filling vials. Empty vials will be washed and depyrogenated using an in line washing and tunnel machine prior to filling vials.

Hold times – The process is carried out at room temperature. Only standard light protection is employed and no special precautions are required during formulation, filling, and inspection. During storage, brite stock will be wrapped in opaque black plastic.

Cleaning – Full cleaning occurs after each batch.

Visual inspection – 100% vials visual inspection is carried out by semiautomatic means.

Finished product storage – Finished product will be stored under controlled room temperature conditions – USP (15-30°C).

 

 

July 14, 2017

Confidential

  

 

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Packaging Assumptions:

Primary packaging components:

 

Component

   Specification
Vial    [***]
Stopper    [***]
Seal    [***]

Secondary packaging – To be definitively established- see above “Packaging Supply”

 

   

Secondary packaging – A single vial will be labelled and packaged in a pre-printed single carton with a patient information leaflet. Single cartons, or bundles of 10 cartons (bundled utilising cellophane wrap), will then be packed into tertiary containers and then into a bulk shipper.

 

   

Secondary packaging campaign – [***]. Packaging orders must be placed in multiples of [***]. A whole bulk batch will be packed off into a single Stock Keeping Unit (SKU). PV batches will not be packaged in campaign.

To be definitively established- see above “Packaging Supply”

Tertiary packaging – According to Patheon’s standard shipment preparations.

Testing Assumptions:

Patheon will only perform API ID testing.

QC test methods must be fully validated and robust at the time of manufacture.

 

Testing Requirements

In-Process Controls

   Finished Product Testing
[***]    [***]
[***]   

 

 

July 14, 2017

Confidential

  

 

Product Agreement

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Supply Chain Assumptions:

Patheon will procure components (excluding the preprinted cartons and inserts which will be furnished by Client free of charge) and excipients for the manufacture of Meloxicam sterile liquid vials from Patheon qualified suppliers. Should Client require Patheon to source any materials from specified suppliers, then these suppliers will remain under the quality audit control of Client unless an agreement is reached for Patheon to take on this responsibility.

Components and excipients will be supplied by Patheon in accordance with the specifications agreed. Patheon will issue formal Patheon specifications for each material.

Each lot of incoming components and excipients will be sampled and tested according to the agreed specifications.

The API will be provided free issue/released to Patheon by Client or its qualified supplier.

The API and all excipients used for the manufacture will be GMP grade and from TSE/BSE certified sources.

Finished product will be made available at Patheon’s proposed manufacturing site (supplied EXW according to Incoterms® 2010).

 

 

July 14, 2017

Confidential

  

 

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The following cost items are included in the Price for the Products:

[***]

 

 

July 14, 2017

Confidential

  

 

Product Agreement

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The following cost items are not included in the Price for the Products:

[***]

 

 

July 14, 2017

Confidential

  

 

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SCHEDULE C

ANNUAL STABILITY TESTING [and VALIDATION ACTIVITIES (if applicable)]

If applicable Patheon and Client will agree in writing on any stability testing to be performed by Patheon on the Products. This agreement will specify the commercial and Product stability protocols applicable to the stability testing and the fees payable by Client for this testing including the Price for the Product withdrawn for the stability testing. At the time of signing it is not envisaged that any stability testing will be performed by Patheon. Patheon will ensure that the required number of samples are taken for Recro’s designated stability program. The samples will be made available at Patheon’s manufacturing site (EXW according to Incoterms® 2010).

 

 

July 14, 2017

Confidential

  

 

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SCHEDULE D

ACTIVE MATERIALS

 

Active Materials

   Supplier
NCD Meloxicam Bulk Intermediate    Alkermes

ACTIVE MATERIALS CREDIT VALUE

The Active Materials Credit Value will be as follows:

 

PRODUCT

   ACTIVE MATERIALS    ACTIVE MATERIALS
CREDIT VALUE
NCD Meloxicam IV (30mg/ml)    Meloxicam    [***]

MAXIMUM CREDIT VALUE

Patheon’s liability for Active Materials calculated in accordance with Section 2.2 of the Master Agreement for any Product in a Year will not exceed, in the aggregate, the maximum credit value set forth below:

 

PRODUCT

   MAXIMUM CREDIT VALUE
NCD Meloxicam IV (30mg/ml)    [***]

 

 

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Confidential

  

 

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SCHEDULE E

QUALITY AGREEMENT

Either a copy, or a reference to the relevant Quality Agreement between the Client and Patheon Italy will be appended to this schedule once completed. For the avoidance of doubt, no product may be released for commercial sale until the Quality Agreement is signed by both parties.

[End of Product Agreement]

 

 

July 14, 2017

Confidential

  

 

Product Agreement

Page 13 of 13

Exhibit 21.1

SUBSIDIARIES OF BAUDAX BIO, INC.

 

Subsidiary

  

State or Country of Incorporation

Baudax Bio N.A. LLC

   Delaware

Baudax Ireland Limited

   Ireland
Table of Contents

Exhibit 99.1

 

 

LOGO

                    , 2019

Dear Recro Pharma Shareholder:

On                 , 2019, we announced a transformative milestone for Recro — our intent to separate our contract development and manufacturing, or CDMO, business from our acute care business, thereby creating two independent, publicly traded companies. The strategic objectives of the separation are to unlock value by enhancing operational performance and strategic flexibility and tailoring the capital structures to best serve these distinct businesses.

 

   

Following the separation, Recro Pharma, Inc., or Recro, expects to focus on its CDMO activities.

 

   

The new company, which has been named Baudax Bio, Inc., or Baudax Bio, will focus on bringing valuable therapeutic options for patients, prescribers and payers to the hospital and related acute care markets.

We believe the best way to realize the full potential of this separation is for Recro and Baudax Bio to operate independently, with distinct business strategies. Through this separation, we have the potential to create two focused, durable businesses that are well-positioned with the resources, talent and foundation to be industry leaders in their respective fields.

Upon completion of the separation, Baudax Bio will be spun out of Recro and established as an independent company. Under the terms of the distribution, each Recro shareholder will receive one share of Baudax Bio common stock for every                  shares of Recro common stock held of record on                 , 2019, the record date for the distribution. You do not need to take any action to receive the common stock of Baudax Bio to which you are entitled as a Recro shareholder as of the record date.

Please read the attached information statement, which is being shared with all Recro shareholders as of the record date for the distribution. It describes the separation in detail and contains important information about Recro and Baudax Bio.

We thank you for your continued support of Recro.

Sincerely,

Wayne Weisman

Chairman of the Board

Recro Pharma, Inc.


Table of Contents

BAUDAX BIO, INC.

                    , 2019

Dear Future Baudax Bio Shareholder:

On behalf of the entire Baudax Bio team, I am pleased to welcome you as a future shareholder of our new company.

Baudax Bio will be a clinical-stage biopharmaceutical company focused on developing and commercializing innovative products for hospital and related acute care settings.

We believe that we can bring valuable therapeutic options for patients, prescribers and payers, such as our lead product candidate, injectable meloxicam, to the hospital and related acute care markets. We believe we can create value for our shareholders through the development, registration and commercialization of injectable meloxicam and our other pipeline product candidates. In addition to our pipeline, we continue to evaluate acquisition, out-licensing and in-licensing opportunities.

Our near-term goals include:

 

   

Completing regulatory approval of IV meloxicam. Our key goal is to obtain FDA approval of IV meloxicam for the management of moderate to severe pain on our own or with a partner.

 

   

Pursuing the license or acquisition of additional products. We are seeking in-license or acquisition opportunities to add commercial or near-commercial products to our portfolio. We previously established sales management, marketing and reimbursement functions in anticipation of the commercialization of IV meloxicam in the United States and we believe we can utilize these preparations for the successful commercialization of an acquired or licensed product.

 

   

Expanding data supporting benefits of IV meloxicam. We are currently evaluating IV meloxicam in a Phase IIIb program that includes clinical trials in colorectal surgery patients and orthopedic surgery patients. We anticipate completing the Phase IIIb program during 2019.

 

   

Entering into strategic partnerships to continue the development of IV meloxicam and other product candidates. We intend to pursue strategic collaborations with other pharmaceutical companies to continue the development and commercialization of IV meloxicam and our other product candidates. We believe that our development expertise and unique product candidates make us an attractive partner to potential strategic collaborators.

 

   

Leveraging our development experience to progress our other pipeline product candidates. Our early-stage product pipeline includes proprietary product candidates for use in anesthesia (neuromuscular blockade and reversal). Our goal is to leverage our drug development expertise to develop these product candidates for use in hospital and acute care settings.

We intend to have Baudax common stock listed on the Nasdaq Capital Market under the symbol “BXRX.”

I invite you to learn more about Baudax Bio by reviewing the enclosed information statement.

We look forward to our future as an independent company, and to your support as a Baudax Bio shareholder as we begin this new and exciting chapter.

Sincerely,

Gerri A. Henwood

Chief Executive Officer

Baudax Bio, Inc.


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Information contained herein is subject to completion or amendment. A Registration Statement on Form 10 relating to these securities has been filed with the Securities and Exchange Commission under the Securities Exchange Act of 1934, as amended.

PRELIMINARY AND SUBJECT TO COMPLETION, DATED OCTOBER 22, 2019

INFORMATION STATEMENT

Baudax Bio, Inc.

 

 

This information statement is being furnished to you as a holder of common stock of Recro Pharma, Inc., or Recro, in connection with the distribution of shares of common stock of Baudax Bio, Inc. or Baudax Bio. Baudax Bio is a wholly owned subsidiary of Recro that will hold, directly or indirectly, assets and liabilities related to Recro’s acute care business. The transfer of the acute care assets and liabilities to Baudax Bio is referred to herein as the Restructuring. To implement the distribution, Recro will distribute all of the outstanding shares of Baudax Bio common stock on a pro rata basis to holders of Recro common stock, which is referred to herein as the Distribution. We refer to the Distribution and the Restructuring together as the Separation.

You will receive one share of Baudax Bio common stock for every                  shares of Recro common stock held of record by you as of the close of business on                 , 2019, the record date for the Distribution. Registered holders of Recro common stock will receive cash in lieu of any fractional shares of Baudax Bio common stock that those holders would have received after application of the above ratio. As discussed under “The Separation and Distribution—Trading Between the Record Date and Distribution Date,” if you sell your shares of Recro common stock in the “regular way” market after the record date and before the Distribution, you also will be selling your right to receive shares of Baudax Bio common stock in connection with the Distribution. Baudax Bio expects the shares of Baudax Bio common stock to be distributed by Recro to you on                 , 2019. The date of distribution of Baudax Bio common stock is referred to in this information statement as the “distribution date.”

No vote or other action is required by you to receive shares of Baudax Bio common stock in the Distribution. We are not asking you for a proxy, and you should not send us a proxy or your share certificates. You do not need to pay any consideration, exchange or surrender your existing shares of Recro common stock or take any other action to receive your shares of Baudax Bio common stock.

There currently is no trading market for Baudax Bio common stock. Baudax Bio expects that a limited market, commonly known as a “when issued” trading market, will develop on or shortly before the record date for the Distribution, and that “regular way” trading of Baudax Bio common stock will begin on the first trading day following the completion of the Distribution. We intend to have Baudax Bio common stock listed on the Nasdaq Capital Market under the symbol “BXRX.”

We are an “emerging growth company” as that term is used in the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. As an emerging growth company, we will be subject to reduced public company reporting requirements.

 

 

In reviewing this information statement, you should carefully consider the matters described under the caption “Risk Factors” beginning on page 18.

Neither the U.S. Securities and Exchange Commission nor any state securities commission has approved or disapproved these securities or determined if this information statement is truthful or complete. Any representation to the contrary is a criminal offense.

This information statement does not constitute an offer to sell or the solicitation of an offer to buy any securities.

The date of this information statement is                 , 2019.

A Notice of Internet Availability of Information Statement Materials containing instructions for how to access this information statement is first being mailed to Recro shareholders on or about                 , 2019.

 

 


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TABLE OF CONTENTS

 

PRESENTATION OF INFORMATION

    1  

QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION

    3  

INFORMATION STATEMENT SUMMARY

    11  

SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

    16  

RISK FACTORS

    18  

CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

    58  

DIVIDEND POLICY

    60  

CAPITALIZATION

    61  

UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

    62  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

    66  

BUSINESS

    75  

MANAGEMENT

    100  

EXECUTIVE COMPENSATION

    107  

CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

    117  

SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

    120  

THE SEPARATION AND DISTRIBUTION

    122  

MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

    127  

DESCRIPTION OF BAUDAX BIO’S CAPITAL STOCK

    130  

WHERE YOU CAN FIND MORE INFORMATION

    134  

INDEX TO FINANCIAL STATEMENTS

    F-1  


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PRESENTATION OF INFORMATION

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement about Baudax Bio assumes the completion of all of the transactions referred to in this information statement in connection with the Separation and Distribution.

Unless the context otherwise requires, references in this information statement to the following terms shall have the following respective meanings:

 

   

“Recro” refers to Recro Pharma, Inc., a Pennsylvania corporation, and its consolidated subsidiaries;

 

   

“Recro Board” refers to the board of directors of Recro;

 

   

“CDMO business” refers to Recro’s contract development and manufacturing business;

 

   

“acute care business” refers to Recro’s acute care business; and

 

   

“Baudax Bio,” “we,” “us,” “our,” “our company” and “the company” refer to Baudax Bio, Inc., a Pennsylvania corporation, together with its subsidiaries, Baudax Ireland Limited and Baudax Bio N.A. LLC, as the context requires, in each case as they will exist, assuming the completion of all the transactions referred to in this information statement in connection with the Separation and the Distribution.

This information statement describes the business to be transferred to Baudax Bio by Recro in the Separation as if the transferred business was Baudax Bio’s business for all historical periods described. References in this information statement to Baudax Bio’s historical assets, liabilities, products, businesses or activities of Baudax Bio’s business are generally intended to refer to the historical assets, liabilities, products, businesses or activities of the transferred businesses as the business was conducted as part of Recro prior to the Separation.

You should not assume that the information contained in this information statement is accurate as of any date other than the date set forth on the cover. Changes to the information contained in this information statement may occur after that date, and we undertake no obligation to update the information, except in the normal course of our public disclosure obligations or as required by applicable law.

Websites described in this information statement and the content therein or connected thereto shall not be deemed incorporated into this information statement.

Trademarks, Trade Names and Service Marks

Solely for convenience, tradenames referred to in this information statement appear without the ® symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights or that the applicable owner will not assert its rights, to these tradenames. All trademarks, service marks and tradenames included in this information statement are the property of their respective owners, including, without limitation, the NanoCrystal® mark owned by Alkermes plc and/or its affiliates.

Industry and Other Data

We obtained the industry and market data in this information statement from our own internal estimates and from industry and general publications and research, surveys, studies and trials conducted by third parties. We are responsible for all of the disclosure contained in this information statement, and we believe that this third-party data is generally reliable; however, we have not independently verified industry and market data from third-party sources. In addition, while we believe our estimates are reliable, they have not been verified by any independent source.


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Estimates in this information statement of the patient populations for the diseases that we are targeting are based on published estimates of the rates of incidence of the diseases from scientific and general publications and research, surveys and studies conducted by third parties that we consider to be reliable, although such publications do not guarantee the accuracy or completeness of this information.

 

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QUESTIONS AND ANSWERS ABOUT THE SEPARATION AND DISTRIBUTION

 

What is Baudax Bio and why is Recro separating Baudax Bio’s business and distributing Baudax Bio’s common stock?  

Baudax Bio, which is currently a wholly-owned subsidiary of Recro, was formed to hold Baudax Ireland Limited, an Irish limited company. The contribution of Recro’s acute care business to Baudax Bio is occurring over a period of time prior to the Distribution. The Separation and the Distribution are intended to provide you with equity investments in two separate, independent public companies, each of which is able to focus on its respective business strategies. With regard to Baudax Bio, this will be Recro’s existing acute care business, which is primarily focused on developing and commercializing innovative products for hospital and related acute care settings. With regard to Recro, this will be Recro’s existing CDMO business, which develops and manufactures pharmaceutical products using proprietary delivery technologies and know-how for partners who plan to develop and commercialize such products. Recro and Baudax Bio believe the Separation will enable each business to pursue focused growth and investment strategies in its respective area of business resulting in the enhanced long-term performance of each business, as discussed in “The Separation and Distribution—Overview” and “The Separation and Distribution—Reasons for the Separation.”

Why am I receiving this document?  

Recro is delivering this information statement to you because you are a holder of record of shares of Recro common stock. If you remain a holder of shares of Recro common stock as of the close of business on                     , 2019, you will be entitled to receive one share of Baudax Bio common stock for every             shares of Recro common stock that you held of record at the close of business on such date. This information statement will help you understand how the Separation will affect your investment in Recro and your investment in Baudax Bio after the Distribution.

How will the separation of Baudax Bio from Recro work?  

To accomplish the Separation, Recro will distribute all of the outstanding shares of Baudax Bio common stock to Recro shareholders on a pro rata basis.

Why is the separation of Baudax Bio structured as a Distribution?  

Recro believes that a distribution of shares of Baudax Bio common stock to the Recro shareholders is an efficient way to separate its acute care business in a manner that will create long-term value for Recro, Baudax Bio and their respective shareholders. For more information, see “The Separation and Distribution—Conditions to the Distribution.”

 

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What is the record date for the Distribution?  

The record date for the Distribution will be                     , 2019.

When will the Distribution occur?  

It is expected that all of the shares of Baudax Bio common stock will be distributed by Recro on             , 2019, to holders of record of Recro common stock at the close of business on             , 2019. We refer to the date on which shares of Baudax Bio common stock are distributed as the “distribution date.”

What do shareholders need to do to participate in the Distribution?  

Nothing. Shareholders of Recro as of the record date will not be required to take any action to receive Baudax Bio common stock, but are urged to read this entire information statement carefully. No shareholder approval of the Distribution is required or sought. Therefore, you are not being asked for a proxy to vote on the Separation, and you should not send us a proxy. You will neither be required to pay anything for the shares of Baudax Bio common stock nor be required to surrender any shares of Recro common stock to participate in the Distribution. Please do not send in your Recro stock certificates.

 

The Distribution will not affect the number of outstanding shares of Recro common stock or any rights of Recro shareholders, although it will affect the market value of each outstanding share of Recro common stock. See “Questions and Answers about the Separation and Distribution—Will the Distribution affect the market price of my Recro common stock?” for more information.

How will Recro distribute shares of Baudax Bio common stock?  

Registered shareholders: If you are a registered shareholder (meaning you hold physical Recro stock certificates or you own your shares of Recro common stock directly through an account with Recro’s transfer agent, Broadridge Corporate Issuer Solutions, Inc., or Broadridge) the distribution agent will credit the number of whole shares of Baudax Bio common stock you receive in the Distribution to your book-entry account on or shortly after the distribution date, and the distribution agent will mail you a check for any cash in lieu of fractional shares you are entitled to receive.

 

“Street name” or beneficial shareholders: If you own your shares of Recro common stock beneficially through a bank, broker or other nominee, your bank, broker or other nominee will credit your account with the number of whole shares of Baudax Bio common stock you receive in the Distribution on or shortly after the distribution date, and the distribution agent will mail you a check for any cash in lieu of fractional shares you are entitled to receive. Please contact your

 

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bank, broker or other nominee for further information about your account.

 

We will not issue any physical stock certificates to any shareholders receiving shares in the Distribution, even if requested. See “The Separation and Distribution— When and How You Will Receive the Distribution” for more information.

How many shares of Baudax Bio common stock will I receive in the Distribution?  

Recro will distribute to you one share of Baudax Bio common stock for every              shares of Recro common stock you hold of record as of the close of business on                     , 2019, the record date. Based on approximately              shares of Recro common stock outstanding as of                     , 2019, a total of approximately              shares of Baudax Bio common stock will be distributed. For more information, see “The Separation and Distribution—The Number of Shares of Baudax Bio Common Stock You Will Receive.”

Will Baudax Bio issue fractional shares in the Distribution?  

Baudax Bio will not distribute fractional shares of its common stock in the Distribution. Instead, all fractional shares that Recro registered shareholders would otherwise have been entitled to receive will be aggregated into whole shares and sold in the open market by the distribution agent. We expect the distribution agent, acting on behalf of Recro, to take approximately two weeks after the distribution date to fully distribute the aggregate net cash proceeds of these sales on a pro rata basis (based on the fractional share such holder would otherwise be entitled to receive) to those shareholders who would otherwise have been entitled to receive fractional shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares. For more information, see “The Separation and Distribution—The Number of Shares of Baudax Bio Common Stock You Will Receive.”

What are the conditions to the Distribution?  

The Distribution is subject to the satisfaction (or waiver by Recro in its sole and absolute discretion) of a number of conditions to be set forth in the Separation Agreement, including, among others:

 

•            the U.S. Securities and Exchange Commission, or SEC, declaring effective Baudax Bio’s registration statement on Form 10 of which this information statement forms a part, and no stop order relating to the registration statement being in effect and no proceedings for such purpose being pending before or threatened by the SEC, and the distribution of the information statement (or the Notice of Internet

 

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Availability of the Information Statement) to all holders of record of shares of Recro common stock as of the close of business on the record date;

 

•            the receipt and continuing validity of an opinion from an independent appraisal firm to the Recro Board, that is in form and substance acceptable to Recro in its sole and absolute discretion, confirming the solvency of Baudax Bio after the Distribution;

 

•            the shares of Baudax Bio common stock to be delivered in the Distribution shall have been approved for listing on the Nasdaq Capital Market, subject to official notice of issuance.

 

•            all permits, registrations and consents required under the securities or blue sky laws of states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the Distribution shall have been received;

 

•            no order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Distribution or any of the related transactions shall be pending, threatened, issued or in effect;

 

•            the Recro Board shall have declared the Distribution and approved all related transactions (and such declaration and approval not having been withdrawn);

 

•            Baudax Bio shall have executed and delivered the transaction agreements relating to the Separation; and

 

•            no other event or development existing or having occurred that, in the sole and absolute judgment of the Recro Board, makes it inadvisable to effect the Distribution and other related transactions.

 

Recro and Baudax Bio cannot assure you that any or all of these conditions will be met, and Recro may waive any of these conditions to the Distribution. In addition, Recro can determine, at any time, not to proceed with the Distribution. For more information, see “The Separation and Distribution—Conditions to the Distribution.”

 

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What is the expected date of completion of the Distribution?  

The completion and timing of the Distribution are dependent upon a number of conditions. It is expected that the shares of Baudax Bio common stock will be distributed by Recro on                 , 2019 to the holders of record of shares of Recro common stock at the close of business on the record date. However, no assurance can be provided as to the timing of the Distribution or that all conditions to the Distribution will be met.

Can Recro decide to cancel the Distribution even if all the conditions have been met?  

Yes, until the Distribution has occurred, Recro has the right to terminate the Distribution, even if all of the conditions are satisfied. See “The Separation and Distribution—Conditions to the Distribution” for more information.

What if I want to sell my Recro common stock or my Baudax Bio common stock?  

You should consult with your advisors, such as your broker, bank or tax advisor.

What is “regular way” and “ex-distribution” trading of Recro stock?  

Beginning on or shortly before the record date and continuing up to and including the distribution date, it is expected that there will be two markets in shares of Recro common stock: a “regular-way” market and an “ex-distribution” market. Shares of Recro common stock that trade in the “regular-way” market will trade with an entitlement to shares of Baudax Bio common stock distributed pursuant to the Distribution. Shares that trade in the “ex-distribution” market will trade without an entitlement to shares of Baudax Bio common stock distributed pursuant to the Distribution.

 

If you hold shares of Recro common stock on the record date and you decide to sell any shares of Recro common stock before the distribution date, you should make sure your broker, bank or other nominee understands whether you want to sell your shares of Recro common stock with or without your entitlement to receive Baudax Bio common stock pursuant to the Distribution. See “The Separation and Distribution—Trading Between the Record Date and Distribution Date” for more information.

Where will I be able to trade shares of Baudax Bio common stock?  

Currently, there is no public market for Baudax Bio common stock. Baudax Bio has applied to have its common stock authorized for listing on the Nasdaq Capital Market under the symbol “BXRX.”

 

Baudax Bio anticipates that trading in shares of its common stock will begin on a “when issued” basis on or shortly before the record date for the Distribution and will continue up to and including the distribution date. “When issued” trading in the context of a separation refers to a sale or purchase made

 

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conditionally on or before the distribution date because the securities of the separated entity have not yet been distributed. If you own shares of Recro common stock as of the close of business on the record date, you would be entitled to receive shares of Baudax Bio common stock in the Distribution. You may trade this entitlement to receive shares of Baudax Bio common stock, without trading the shares of Recro common stock you own, in the “when-issued” market. “When issued” trades generally settle within two weeks after the distribution date. On the first trading day following the distribution date, any “when issued” trading of Baudax Bio common stock will end and “regular way” trading will begin. “Regular way” trading refers to trading after the security has been distributed and typically involves a trade that settles on the second full trading day following the date of the trade. See “The Separation and Distribution—Trading Between the Record Date and Distribution Date” for more information. We cannot predict the trading prices for Baudax Bio common stock before, on or after the distribution date.

What will happen to the listing of shares of Recro common stock?  

Shares of Recro common stock will continue to trade on the Nasdaq Capital Market after the Distribution.

Will the number of shares of Recro common stock that I own change as a result of the Distribution?  

No. The number of shares of Recro common stock that you own will not change as a result of the Distribution.

Will the Distribution affect the market price of my Recro common stock?  

Yes. As a result of the Distribution, Recro expects the trading price of shares of Recro common stock immediately following the Distribution to be lower than the “regular way” trading price of such shares immediately prior to the Distribution because the trading price will no longer reflect the value of the acute care business. Furthermore, as the market assesses Recro following the Separation, the trading price of shares of Recro common stock may fluctuate. There can be no assurance that, following the Distribution, the combined trading prices of Recro common stock and Baudax Bio common stock will equal or exceed what the trading price of Recro common stock would have been in the absence of the Separation, and it is possible the post-Distribution combined equity value of Recro and Baudax Bio will be less than Recro’s equity value prior to the Distribution.

What are the material U.S. federal income tax consequences of the Distribution?  

Each Recro shareholder’s receipt of shares of Baudax Bio common stock in the Distribution (including any fractional shares sold on each recipient’s behalf) will generally be a taxable dividend to the extent of such

 

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holder’s allocable share of Recro’s current and accumulated earnings and profits, with the excess treated first as a non-taxable return of capital to the extent such holder’s tax basis in its shares of Recro’s common stock and then as capital gain. For a more detailed discussion see “Material U.S. Income Tax Consequences,” included elsewhere in this information statement.

 

You should consult your own tax advisor as to the particular tax consequences of the Distribution to you, including the applicability of any U.S. federal, state, local and foreign tax laws

What will Baudax Bio’s relationship be with Recro following the Distribution?  

To effect an efficient separation into two companies, Baudax Bio intends to enter into a Separation Agreement and certain other agreements with Recro, including a tax matters agreement, an employee matters agreement, and a transition services agreement under which Baudax Bio will temporarily provide certain services to Recro. These agreements will provide for the separation between Recro and Baudax Bio of the assets, liabilities and obligations (including employee benefits, intellectual property and tax-related assets and liabilities) attributable to periods prior to, at and after the Distribution and will govern the relationship between Recro and Baudax Bio after the Separation. For additional information regarding the Separation Agreement and other transaction agreements, see “Risk Factors—Risks Related to the Separation” and “Certain Relationships and Related Person Transactions—Agreements with Recro.”

Following the Separation, will Baudax Bio have cash on hand to fund its operating expenses and capital expenditures?  

Prior to or upon the completion of the Distribution, Recro plans to make a cash capital contribution of $19 million to Baudax Bio to fund Baudax Bio’s operations. This cash capital contribution is in an amount that Baudax Bio estimates will, based on its current plans and expectations, meet its cash needs for at least 12 months after the completion of the Separation. Prior to or after such time, Baudax Bio expects that it will be able to access the equity or debt capital markets for additional funding.

Who will manage Baudax Bio after the Distribution?  

Baudax Bio will benefit from having in place a management team with a substantial background in the specialty pharmaceutical business. Baudax Bio’s management team possesses deep knowledge of and experience in its industry. Baudax Bio’s management team is expected to include Gerri Henwood, Recro’s President and Chief Executive Officer who is expected to be Baudax Bio’s President and Chief Executive

 

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Officer after the Distribution, Ryan Lake, Recro’s Chief Financial Officer who is expected to be Baudax Bio’s Chief Financial Officer after the Distribution, Stewart McCallum, Recro’s Chief Medical Officer who is expected to be Baudax Bio’s Chief Medical Officer after the Distribution and John Harlow, Recro’s Executive Vice President, Commercial, who is expected to be Baudax Bio’s Executive Vice President, Commercial after the Distribution. For more information regarding Recro’s management team and leadership structure, see “Management.”

Are there risks associated with owning Baudax Bio common stock?  

Yes. Ownership of Baudax Bio common stock is subject to both general and specific risks related to Baudax Bio’s business, the industry in which it operates, its ongoing relationships with Recro and its status as a separate, publicly traded company. Ownership of Baudax Bio common stock is also subject to risks related to the Separation. These risks are described in the “Risk Factors” section of this information statement beginning on page 18. You are encouraged to read that section carefully.

Does Baudax Bio plan to pay dividends?  

Baudax Bio does not expect to pay a regular cash dividend following the Distribution. The payment of any dividends in the future, and the timing and amount thereof, is within the discretion of Baudax Bio’s board of directors. See “Dividend Policy.”

Who will be the distribution agent, transfer agent and registrar for the Baudax Bio common stock?  

The distribution agent, transfer agent and registrar for Baudax Bio common stock will be Broadridge. For registered holders with questions relating to the transfer or mechanics of the stock distribution, you should contact:

Tel: (877) 830-4935

E-mail: shareholder@broadridge.com

How can I contact Recro or Baudax Bio with any questions?  

Before the Distribution, if you have any questions relating to Recro or Baudax Bio’s business performance, you should contact:

 

Investor Relations Contact:

Argot Partners

Sam Martin/Claudia Styslinger

Tel: (212) 600-1902

E-mail: sam@argotpartners.com; claudia@argotpartners.com

 

Recro Pharma, Inc.

Ryan D. Lake

Tel: (484) 395-2436

E-mail: rlake@recropharma.com

 

After the Distribution, Baudax Bio shareholders who have any questions relating to Baudax Bio’s business performance should contact Baudax Bio at:

 

Baudax Bio, Inc.

Address: 490 Lapp Road

Tel: (484) 395-2470

E-mail: info@baudaxbio.com

 

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INFORMATION STATEMENT SUMMARY

The following is a summary of material information discussed in this information statement. This summary may not contain all the details concerning the Separation or other information that may be important to you. To better understand the Separation and Baudax Bio’s business and financial position, you should carefully review this entire information statement, including the risks discussed under “Risk Factors.”

Except as otherwise indicated or unless the context otherwise requires, the information included in this information statement assumes the completion of all of the transactions referred to in this information statement in connection with the Separation. Some of the statements in this summary constitute forward-looking statements. See “Cautionary Statement Concerning Forward-Looking Statements.”

Baudax Bio

Overview

We are a specialty pharmaceutical company primarily focused on developing and commercializing innovative products for hospital and related acute care settings. We believe that we can bring valuable therapeutic options for patients, prescribers and payers, such as our lead product candidate, injectable meloxicam, to the hospital and related acute care markets. We believe we can create value for our shareholders through the development, registration and commercialization of injectable meloxicam and our other pipeline product candidates. In addition to our pipeline, we continue to evaluate acquisition, out-licensing and in-licensing opportunities.

Our Product Candidates

Our lead product candidate is a proprietary injectable form of meloxicam, a long-acting preferential COX-2 inhibitor, or IV meloxicam. IV meloxicam has successfully completed three Phase III clinical trials, including two pivotal efficacy trials, a large double-blind Phase III safety trial and other safety studies for the management of moderate to severe pain. Overall, the total new drug application, or NDA, program included over 1,400 patients. In July 2017, we submitted an NDA to the Food and Drug Administration, or FDA, for IV meloxicam for the management of moderate to severe pain. In May 2018, we received a Complete Response Letter, or CRL, from the FDA regarding our NDA for IV meloxicam. In September 2018, we resubmitted the NDA for IV meloxicam and in March 2019, we received a second CRL from the FDA regarding our NDA for IV meloxicam. The second CRL focused on the onset and duration of IV meloxicam. It cited regulatory concerns about the role of IV meloxicam as a monotherapy in acute pain and how IV meloxicam would meet patient and prescriber needs in that setting, given the FDA’s interpretation of the clinical trials data. We plan to pursue resolution of the second CRL, which we believe may involve two levels of appeal before the FDA. We anticipate that this process will continue until late 2019 or early 2020 and will require an estimated $1.3 million to $1.8 million in capital.

We believe that IV meloxicam compares favorably to competitive therapies in onset of pain relief, duration of pain relief, extent of pain relief and time to peak analgesic effect as well as that it has been well tolerated. We believe injectable meloxicam, as a non-opioid product, will overcome many of the issues associated with commonly prescribed opioid therapeutics, including respiratory depression, excessive nausea and vomiting, constipation, as well having no addiction potential, while maintaining analgesic, or pain relieving, effects. We are pursuing a Section 505(b)(2) regulatory strategy for IV meloxicam.

Our pipeline also includes other early-stage product candidates, including two novel neuromuscular blocking agents, or NMBAs, and a related proprietary chemical reversal agent and Dex-IN, a proprietary intranasal formulation of dexmedetomidine, or Dex, an alpha-2 adrenergic agonist that we are evaluating for possible partnering.



 

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Our Strategy

We believe that we can bring valuable therapeutic options for patients, prescribers and payers, such as injectable meloxicam, to the hospital and acute care markets. We believe we can create value for our shareholders through the development, registration and commercialization of injectable meloxicam and our other pipeline product candidates. In addition to our pipeline, we continue to evaluate acquisition and in-licensing opportunities, especially those that can contribute revenue and cash flow.

Our near-term goals include:

 

   

Completing regulatory approval of IV meloxicam. Our key goal is to obtain FDA approval of IV meloxicam for the management of moderate to severe pain on our own or with a partner.

 

   

Pursuing the license or acquisition of additional products. We are seeking in-license or acquisition opportunities to add commercial or near-commercial products to our portfolio. We previously established sales management, marketing and reimbursement functions in anticipation of the commercialization of IV meloxicam in the United States and we believe we can utilize these preparations for the successful commercialization of an acquired or licensed product.

 

   

Expanding data supporting benefits of IV meloxicam. We are currently evaluating IV meloxicam in a Phase IIIb program that includes clinical trials in colorectal surgery patients and orthopedic surgery patients. We anticipate completing the Phase IIIb program during 2019.

 

   

Entering into strategic partnerships to continue the development of IV meloxicam and other product candidates. We intend to pursue strategic collaborations with other pharmaceutical companies to continue the development and commercialization of IV meloxicam and our other product candidates. We believe that our development expertise and unique product candidates make us an attractive partner to potential strategic collaborators.

 

   

Leveraging our development experience to progress our other pipeline product candidates. Our early-stage product pipeline includes proprietary product candidates for use in anesthesia (neuromuscular blockade and reversal). Our goal is to leverage our drug development expertise to develop these product candidates for use in hospital and acute care settings.

Summary of Risk Factors

An investment in Baudax Bio common stock is subject to a number of risks, including risks related to our business, risks related to the Separation and risks related to our common stock. The following list of risk factors is not exhaustive. Please read the information in the section captioned “Risk Factors” for a more thorough description of these and other risks.

 

   

We may not achieve some or all of the expected benefits of the Separation, and the Separation could harm our business, prospects, financial condition and results of operations.

 

   

Our business has incurred significant losses and we anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated revenue from product sales and may never be profitable.

 

   

We depend substantially on obtaining FDA approval of our lead product candidate, IV meloxicam. If regulatory approval of IV meloxicam is not granted, our business, financial condition and results of operations may be materially adversely affected.



 

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Even if IV meloxicam is approved by the FDA, our success is dependent on our ability to commercialize IV meloxicam. We have never commercialized a product, and our ability to successfully commercialize IV meloxicam will depend on, among other things, the labeling of any such FDA approval, our ability to manufacture sufficient quantities of IV meloxicam to meet demand and the acceptance of IV meloxicam in the medical community.

 

   

We depend substantially on the successful completion of clinical trials for our product candidates. The positive results obtained for our product candidates in earlier pre-clinical and clinical studies may not be repeated and, thus, we may never receive regulatory approval of our product candidates.

 

   

We use third parties to assist with conducting, supervising and monitoring portions of our clinical studies, and if those third parties perform in an unsatisfactory manner, it may harm our business.

 

   

We have assumed Recro’s potential liabilities in connection with ongoing litigation, which could result in substantial costs and a diversion of management’s resources and attention. Any adverse determination in such litigation could expose us to significant liabilities.

 

   

We are subject to intense competition and, if we are unable to compete effectively, our product candidates may not reach their commercial potential.

The Separation and Distribution

On                     , 2019, Recro announced its plans to separate its acute care business from its CDMO business. The Distribution generally will be taxable to Recro shareholders for U.S. federal income tax purposes.

In furtherance of this plan, on                     , 2019, the Recro Board approved the distribution of all of the issued and outstanding shares of Baudax Bio common stock on the basis of one share of Baudax Bio common stock for every              shares of Recro common stock issued and outstanding on                     , 2019, the record date for the Distribution. As a result of the Distribution, Baudax Bio will become an independent company.

Immediately following the Distribution, we estimate that              shares of Baudax Bio common stock will be issued and outstanding based on the number of shares of Recro common stock outstanding as of June 30, 2019. The actual number of shares of Baudax Bio common stock issued in the Distribution will be determined on                     , 2019, the record date.

Baudax Bio’s Post-Distribution Relationship with Recro

Baudax Bio intends to enter into a Separation Agreement with Recro, which is referred to in this information statement as the “Separation Agreement,” and various other agreements with Recro, including a tax matters agreement, an employee matters agreement, and a transition services agreement under which we will temporarily provide certain services to Recro. These agreements will effectuate the Separation and govern Baudax Bio’s relationship with Recro after the Distribution. These agreements will provide for the separation between Recro and Baudax Bio of the assets, liabilities and obligations (including employee benefits, intellectual property and tax-related assets and liabilities) attributable to periods prior to, at and after the Distribution and will govern the relationship between Recro and Baudax Bio after the Separation. For additional information regarding the Separation Agreement and the other related agreements, see “Risk Factors—Risks Related to the Separation” and “Certain Relationships and Related Person Transactions—Agreements with Recro.”



 

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Reasons for the Separation

The Recro Board believes that separating the acute care business from the remainder of Recro is in the best interests of Recro and its shareholders for a number of reasons, including that:

 

   

the Separation will allow each business to pursue its own operational and strategic priorities and more quickly respond to trends, developments and opportunities in its respective markets;

 

   

the Separation will give each business the opportunity and flexibility to pursue its own investment, capital allocation and growth strategies consistent with its long-term objectives;

 

   

the Separation will create two separate and distinct management teams focused on each business’s unique strategic priorities, target markets and corporate development opportunities;

 

   

the Separation will enable the boards and management teams of each business to better align corporate performance goals with the specific vision, strategy and objectives of each business; and

 

   

the Separation will allow investors to separately value each business based on the unique merits, performance and future prospects of each business, providing investors with two distinct investment opportunities.

The Recro Board considered a number of other factors in evaluating the Separation, including risks relating to the creation of a standalone company and possible increased overall costs as well as one-time separation costs, and concluded that the potential benefits of the Separation outweighed these factors. For more information, see “The Separation and Distribution—Reasons for the Separation” and “Risk Factors” included elsewhere in this information statement.

Corporate Information

Baudax Bio was incorporated as a Delaware corporation in 2015 and converted to a Pennsylvania corporation on September 13, 2019. The contribution of Recro’s acute care business to Baudax Bio is expected to occur over a period of time prior to the Distribution. At the time of the Distribution, the address of Baudax Bio’s principal executive offices will be 490 Lapp Road, Malvern, PA 19355. Baudax Bio’s telephone number will be (484) 395-2470. Baudax Bio will also maintain a website at             .

Reason for Furnishing this Information Statement

This information statement is being furnished solely to provide information to shareholders of Recro who will receive shares of Baudax Bio common stock in the Distribution. It is not, and is not to be construed as, an inducement or encouragement to buy or sell any of Baudax Bio’s securities.

Implications of Being an Emerging Growth Company

We qualify as an “emerging growth company” as defined in the JOBS Act. As an emerging growth company, we may take advantage of specified reduced disclosure and other obligations that are otherwise applicable generally to public companies. These may include the following:

 

   

reduced disclosure obligations regarding executive compensation in our periodic reports, proxy statements and registration statements;



 

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exemption from the requirements for holding a non-binding advisory vote on executive compensation or golden parachute arrangements; and

 

   

exemption from the auditor attestation requirement in the assessment of our internal control over financial reporting.

We may take advantage of these provisions for up to five years or such earlier time that we are no longer an emerging growth company. We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total gross annual revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our sale of common equity securities pursuant to an effective registration statement under the Securities Act of 1933, as amended, or the Securities Act; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.

In addition, Section 102(b)(1) of the JOBS Act provides that an emerging growth company can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act for complying with new or revised accounting standards. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, we are subject to the same new or revised accounting standards as other public companies that are not “emerging growth companies.”



 

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SUMMARY HISTORICAL AND UNAUDITED PRO FORMA COMBINED

FINANCIAL INFORMATION

The following table presents Baudax Bio’s summary historical and unaudited pro forma combined financial information. Baudax Bio derived the summary historical combined financial data as of and for the years ended December 31, 2018 and 2017 from Baudax Bio’s audited combined financial statements included elsewhere in this information statement. Baudax Bio derived the summary historical combined financial data as of and for the six months ended June 30, 2019 and 2018 from Baudax Bio’s unaudited combined financial statements included elsewhere in this information statement. In Baudax Bio’s management’s opinion, the unaudited combined financial statements as of June 30, 2019 and for the six months ended June 30, 2019 and 2018 have been prepared on the same basis as the audited combined financial statements and include all adjustments, consisting only of normal recurring adjustments and allocations, necessary for a fair presentation of the information for the periods presented.

The summary historical combined financial data includes certain expenses of Recro that were allocated to us for certain corporate functions including information technology, research and development, finance, legal, insurance, compliance and human resources activities. These costs may not be representative of the future costs we will incur as an independent company. In addition, Baudax Bio’s historical financial information does not reflect changes that we expect to experience in the future as a result of the Separation, including changes in our cost structure, personnel needs, tax structure, capital structure, financing and business operations. The following summary unaudited pro forma combined financial information gives effect to the Separation, as if it had occurred on January 1, 2018. The unaudited pro forma adjustments are based on assumptions that Baudax Bio’s management believes are reasonable under the circumstances and given the information available at this time. Refer to the notes to the unaudited pro forma combined financial statements included elsewhere in this information statement for a discussion of adjustments reflected in the unaudited pro forma combined financial statements. Consequently, the financial information included here may not necessarily reflect Baudax Bio’s financial position, results of operations and cash flows in the future or what Baudax Bio’s financial position, results of operations and cash flows would have been had Baudax Bio been an independent company during the periods presented.

For a better understanding, this section should be read in conjunction with the discussion in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the “Unaudited Pro Forma Combined Financial Statements” and corresponding notes and the audited combined financial statements and corresponding notes included elsewhere in this information statement.

 

     Year Ended December 31,      Six Months Ended June 30,  
  (in thousands)    2017      2018      Pro Forma
2018
(unaudited)
     2018      2019      Pro Forma 2019  
(unaudited)  
 

  Statement of Operations:

 

              

  Research and

  development

   $ 28,635      $ 35,583      $ 35,583      $ 15,826      $ 16,734      $ 16,734    

  General and

  administrative

   $ 19,626      $ 29,453      $ 29,453      $ 19,062      $ 17,284      $ 17,284    

  Change in

  contingent payment

  valuation

   $ 12,839      $ 8,499      $ 8,499      $ 2,916      $       (19,150)      $             (19,150)    

  Net loss

   $       (61,084)      $       (73,667)      $             (73,667)      $       (37,894)      $ (14,917)      $ (14,917)    


 

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     As of December 31,      As of June 30,  
  (in thousands)    2017      2018      2019     

Pro Forma
2019

(unaudited)

 

  Balance Sheet:

           

  Total current assets

   $ 2,468      $ 2,514      $ 3,586      $ 22,586  

  Total assets

   $ 32,761      $ 35,023      $ 38,147      $ 57,147  

  Total current liabilities

   $ 44,750      $ 22,780      $ 4,985      $ 4,985  

  Total liabilities

   $ 95,218      $ 103,370      $ 67,334      $ 67,334  

  Parent company net

  investments

   $             (62,457)      $             (68,347)      $             (29,187)      $             (10,187)  


 

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RISK FACTORS

You should consider carefully the following risks and conditions, together with all the other information in this information statement, including our financial statements and notes thereto, when evaluating our common stock. The impact from these risks and conditions may be materially adverse to our business, prospects, financial condition and results of operations. The risks described below are not the only risks we face. Additional risks and uncertainties not currently known to us or those we currently view to be immaterial also may materially harm our business, prospects, financial condition and results of operations. As a result, the trading price of our common stock could decline, which could decrease the value of the shares you hold. All references and risks related to the launch, commercialization or sale of injectable meloxicam or any of our other product candidates are predicated on such product candidates receiving the requisite marketing and regulatory approval in the United States and applicable foreign jurisdictions.

Risks Related to Our Finances and Capital Requirements

Our business has incurred significant losses and we anticipate that we will continue to incur significant losses for the foreseeable future. We have never generated revenue from product sales and may never be profitable.

Our business has incurred operating losses due to costs incurred in connection with our research and development activities and general and administrative expenses associated with our operations. Our net losses for the years ended December 31, 2017 and 2018 were $61.1 million and $73.7 million, respectively. We expect to incur significant losses for at least the next few years, as we continue our research activities and conduct development of, and seek regulatory approval for, our lead product candidate, IV meloxicam. Our ability to generate future revenues from product sales depends heavily on our success in:

 

   

identifying and completing the acquisition or in-licensing of a new commercial or near-commercial product;

 

   

developing a sufficient commercial organization capable of sales, marketing and distribution for an acquired or in-licensed new product;

 

   

manufacturing commercial quantities of an acquired or in-licensed new product at acceptable cost levels;

 

   

adequately addressing the concerns raised by the FDA in the March 2019 CRL for IV meloxicam and obtaining regulatory approval for IV meloxicam;

 

   

obtaining the labeling we requested for IV meloxicam, if approved;

 

   

launching and commercializing IV meloxicam;

 

   

effectively managing the levels of production, distribution and delivery of IV meloxicam through our supply chain and adequately adjusting such production and delivery to correspond to market demand;

 

   

obtaining coverage and adequate reimbursement from third-parties, including government payers;

 

   

obtaining and maintaining patent protection for our product candidates; and

 

   

completing the clinical development of our other product candidates.

As a result of the most recent CRL we received in March 2019 with respect to IV meloxicam, we have incurred additional expenses, including increased legal and consulting fees associated with addressing the CRL, and we expect to continue to incur substantial and increased expenses as we continue to pursue regulatory approval of IV meloxicam, continue to prepare for the potential launch and commercialization of IV meloxicam, expand our research and development activities and advance our clinical programs for our other product candidates. Because of the numerous risks and uncertainties associated with pharmaceutical product development and commercialization, we are unable to predict the timing or amount of increased expenses, and when, or if, we will be able to achieve or maintain profitability.

 

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If our product candidates are not successfully developed or commercialized, or if revenues are insufficient following marketing approval, we will not achieve profitability and our business may fail. Even if we successfully obtain regulatory approval for IV meloxicam in the United States or acquire or in-license a commercial stage or near-commercial stage product, our revenues are also dependent upon the size of the markets outside of the United States, as well as our ability to obtain market approval for IV meloxicam and achieve commercial success outside of the United States on our own or with a collaboration partner. As a result of the foregoing, we expect to continue to incur significant and increasing losses from operations for the foreseeable future. Even if we are able to generate revenues from the sale of our products, we may not become profitable and may need to obtain additional funding to continue operations.

We will need to raise additional funding to advance our product candidates, which may not be available on acceptable terms, or at all. Failure to obtain capital when needed may force us to delay, limit or terminate our appeal of the second CRL we received with respect to IV meloxicam or our product development efforts or other operations.

Following the completion of the Separation, we expect that our cash and cash equivalents will be approximately $19 million, after the payment of certain Separation-related expenses. Our management believes that such cash and cash equivalents will be sufficient to fund our operating expenses and capital expenditure requirements for at least 12 months after the completion of the Separation.

We will require significant additional funding to advance our lead product candidate, IV meloxicam, alone or through a strategic partner, as well as to continue advancing our research and development efforts with our other product candidates. We may also require additional funding to finance the acquisition or in-license of new product candidates. Raising funds in the then current economic environment may present substantial challenges, and future financing may not be available in sufficient amounts or on acceptable terms, if at all. If we are unable to raise capital when needed or on reasonable terms, we may curtail, delay or discontinue our research or development programs, scale back or cease any commercialization efforts or wind down our business. In addition, such additional fundraising efforts may divert our management from their day-to-day activities, which may impede our ability to develop and commercialize IV meloxicam.

Our recurring losses from operations may raise doubt regarding our ability to continue as a going concern

Our continuing existence will be dependent upon the timing of rejection or approval of IV meloxicam and raising capital to sustain our business, which could raise doubt about our ability to continue as a going concern as a standalone entity. If an explanatory paragraph is included in the report of our independent registered public accounting firm on our financial statements as a standalone entity stating that there is doubt about our ability to continue as a going concern, such an opinion could materially limit our ability to raise additional funds through an issuance of debt or equity securities or otherwise. There is no assurance that sufficient financing will be available when needed to allow us to continue as a going concern as a standalone entity. The perception that we may not be able to continue as a going concern may cause others to choose not to deal with us due to concerns about our ability to meet our contractual obligations.

Raising additional capital may dilute our existing shareholders, restrict our operations or cause us to relinquish valuable rights.

We may seek to raise such capital through public or private equity or debt financings. The terms of any financing may harm existing shareholders, and the issuance of additional securities, whether equity or debt, or the possibility of such issuance, may cause the market price of our shares to decline. The sale of additional equity or convertible securities may dilute the ownership of existing shareholders. The incurrence of indebtedness would result in increased fixed payment obligations, and we may agree to restrictive covenants, such as limitations on our ability to incur additional debt or limitations on our ability to acquire, sell or license intellectual property rights that could impede our ability to conduct our business. Regardless of the terms of our debt or equity

 

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financing, our agreements and obligations under the tax matters agreement with Recro may limit our ability to issue stock. See “Risks Related to the Separation.”

We may also seek funds through collaborations, strategic alliances, or licensing arrangements with third parties, and such agreements may involve relinquishing rights to our product candidates or technologies, future revenue streams, research programs or products candidates or to grant licenses on terms that may not be favorable to us. Such arrangements will limit our participation in the success of any of our product candidates that receive regulatory approval.

Risks Related to Approval and Potential Labeling of IV Meloxicam

Considering our receipt of a second CRL from the FDA regarding our NDA for IV meloxicam, the U.S. regulatory pathway for IV meloxicam is uncertain, and we will need to successfully address deficiencies raised by the FDA in order to obtain regulatory approval.

In July 2017 we submitted an NDA for IV meloxicam for the management of moderate to severe pain to the FDA. On May 23, 2018, we received a CRL from the FDA regarding the NDA, which stated that the FDA determined it could not approve the NDA in its present form. The CRL stated that data from ad hoc analyses and selective secondary endpoints suggest that the analgesic effect did not meet the expectations of the FDA. In addition, the CRL identified certain Chemistry Manufacturing and Controls, or CMC, related questions on extractable and leachable data provided in the NDA. The CRL did not identify any issues relating to the safety of IV meloxicam. In July 2018, we participated in a Type A End-of-Review meeting with the FDA to discuss the topics covered in the CRL. Upon receipt and review of the meeting minutes, we resubmitted the NDA for IV meloxicam in September 2018. In March 2019, we received a second CRL from the FDA regarding our NDA for IV meloxicam which stated that the FDA determined it could not approve the NDA in its present form. The second CRL focused on onset and duration of IV meloxicam, noting that the delayed onset fails to meet the prescriber expectations for IV drugs. The CRL also cited regulatory concerns about the role of IV meloxicam as a monotherapy in acute pain, as well as how it would meet patient and prescriber needs in that setting, given the FDA’s interpretation of the clinical trials data.

Our anticipated commercialization of IV meloxicam has been delayed by the CRLs and we have incurred additional costs, including increased legal and consulting fees, and devoted additional resources to address the FDA’s concerns raised in the CRLs. Our receipt of the CRLs and delay in the commercialization of IV meloxicam has adversely affected our business. We intend to address the deficiencies identified by the FDA in the CRLs and achieve FDA approval, but there can be no guarantee that we will be able to do so in a timely manner, or at all. We intend to work closely with the FDA to determine the best path forward to obtain approval for IV meloxicam, but we cannot guarantee that these efforts will be successful.

In addition, either the substance of the items identified by the FDA in the CRLs, or the CRLs themselves, could have an adverse impact on future efforts to obtain marketing authorization for IV meloxicam from the EMA and other foreign regulatory authorities, or on our future efforts to commercialize IV meloxicam and gain acceptance of IV meloxicam from third-party payers.

Should we fail to obtain regulatory approval of IV meloxicam, we may be forced to rely on our other product candidates, which are at an earlier development stage and will require significant additional time and resources to obtain regulatory approval and proceed with commercialization.

We are substantially dependent on the success of our lead product candidate, IV meloxicam, which is in a later stage of development than our other product candidates. To the extent regulatory approval of IV meloxicam is not granted, our business, financial condition and results of operations may be materially adversely affected.

We currently have no product candidates approved for sale, and we may never be able to develop marketable products. We are focusing a significant portion of our activities and resources on our lead product candidate, IV

 

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meloxicam, and we believe our prospects are highly dependent on, and a significant portion of the value of our company relates to, our ability to successfully obtain regulatory approval for, and successfully commercialize, IV meloxicam. The regulatory approval of IV meloxicam is subject to many risks, including the risks discussed in other risk factors, and IV meloxicam may not receive marketing approval from any regulatory agency. If the results or timing of regulatory filings, the regulatory process, regulatory developments, clinical trials or preclinical studies, or other activities, actions or decisions related to IV meloxicam do not meet our or others’ expectations, the market price of our common stock could decline significantly.

We intend to seek a strategic partner for the continued development and commercialization of IV meloxicam. This could be a time-consuming and expensive process and does not guarantee approval from the FDA or successful commercialization. Receipt of the second CRL will likely reduce our partnership value to potential partners and delay potential commercialization of IV meloxicam.

Any further delay or setback in the development or regulatory approval of IV meloxicam could adversely affect our business. We cannot assure you that we will be able to obtain approval for IV meloxicam from the FDA. Should we fail to obtain regulatory approval of IV meloxicam, we may be forced to rely on our other product candidates, which are at an earlier development stage and will require significant additional time and resources to obtain regulatory approval and proceed with commercialization, which could have a material adverse effect on our business, financial condition and results of operations.

If we fail to obtain approval for the product labeling requested in our NDA for IV meloxicam, our ability to successfully market IV meloxicam may be adversely affected.

If we obtain approval of IV meloxicam and such approval is for a more limited indication than anticipated or different dosing interval our target markets that we are able to market to may be limited. Depending upon the product label, if approved, we may need to significantly revise our launch and commercialization strategy, which could delay our planned commercial launch and significantly limit our ability to realize the full market potential of IV meloxicam. The approved labeling could decrease the target market to a point where we would be unable to achieve profitability from IV meloxicam, in which case we may be forced to limit or discontinue the commercialization of IV meloxicam, or seek a collaboration partner for the commercialization of IV meloxicam, all of which would have an adverse impact on our business.

The labeling approved by the FDA for IV meloxicam may limit the approved indication for use, establish undesirable product labeling requirements or limit the marketing claims we may make, which could may adversely affect IV meloxicam’s ability to achieve the degree of market acceptance by physicians, patients, third-party payers and others in the medical community necessary for its commercial success.

The labeling approved by the FDA in respect to IV meloxicam could also significantly limit the approved indications for use, require that precautions, contraindications or warnings be included on the product labeling, including black box warnings, require expensive and time-consuming post-approval clinical trials, Risk Evaluation and Mitigation Strategy, or REMS, or surveillance as conditions of approval, or, through product labeling limit the claims that we may make, any of which may also impede the successful commercialization of IV meloxicam, which would have an adverse impact on our business.

Our development of IV meloxicam depends, in part, on published scientific literature and the FDA’s prior findings regarding the safety and efficacy of approved products containing meloxicam based on data not developed by us, but upon which the FDA may rely in reviewing our NDA.

Section 505(b)(2) of the Federal Food, Drug, and Cosmetic Act, or FDCA, permits the filing of an NDA where at least some of the information required for approval comes from investigations that were not conducted by or for the applicant and for which the applicant has not obtained a right of reference or use from the person by or for whom the investigations were conducted. The FDA interprets Section 505(b)(2) of the FDCA, for purposes of

 

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approving an NDA, to permit the applicant to rely, in part, upon published literature or the FDA’s previous findings of safety and efficacy for an already-approved reference product. The FDA may also require companies to perform additional clinical trials or measurements to support any deviation from the reference product. The FDA may then approve the new product candidate for all or some of the label indications for which the reference product has been approved, as well as for any new indication sought by the Section 505(b)(2) applicant. The label, however, may require all or some of the limitations, contraindications, warnings or precautions included in the reference product’s label, including a black box warning, or may require additional limitations, contraindications, warnings or precautions. Our NDA for IV meloxicam was submitted under Section 505(b)(2) and as such the NDA relies, in part, on the FDA’s previous findings of safety and efficacy from investigations for approved products containing meloxicam and published scientific literature for which we have not received a right of reference. Even though we may be able to take advantage of Section 505(b)(2) to support potential U.S. approval for IV meloxicam, the FDA may require us to perform additional clinical trials or measurements to support approval. In addition, notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), if the FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving our NDA for IV meloxicam or any other Section 505(b)(2) NDAs that we submit. Such a result could require us to conduct additional testing and costly clinical trials, which could substantially delay or prevent the approval and launch of IV meloxicam, which could have a material adverse effect on our business, financial condition and results of operations.

We will need to obtain approval for any proposed names for IV meloxicam, and any delay associated with doing so could delay commercialization of IV meloxicam, and adversely impact our business.

The proprietary name we propose to use with IV meloxicam in the United States must be reviewed and accepted by the FDA, regardless of whether we have registered it, or applied to register it, as a trademark. The FDA reviews any proposed product name, including an evaluation of the potential for confusion with other product names. The FDA may also object to a product name if it believes the name inappropriately implies medical claims or contributes to an overstatement of efficacy. Although the FDA has conditionally accepted our proposed proprietary product name for IV meloxicam, it may still object to the proposed proprietary product name at the time of any NDA approval, which would require us to expend significant additional resources in an effort to identify a suitable proprietary product name that would qualify under applicable laws, not infringe the existing rights of third parties and be acceptable to the FDA, all of which could delay commercialization of IV meloxicam, and adversely impact our business.

Risks Related to Clinical Development and Regulatory Approval of our Product Candidates

Our product candidates may cause adverse events or other safety concerns or have other properties that could delay or prevent their regulatory approval or limit the scope of any approved label or market acceptance.

Adverse effects, or AEs, caused by our product candidates could cause us, other reviewing entities, clinical study sites or regulatory authorities to interrupt, delay or halt clinical studies and could result in the denial of regulatory approval. Clinical studies conducted with IV meloxicam and our other product candidates have generated some AEs, and in some cases serious adverse effects, or SAEs, as those terms are defined by the FDA in its regulations. During the Study REC-15-015 trial, four treatment-related SAEs were observed in one IV meloxicam-treated patient and three placebo-treated patients. The IV meloxicam-treated patient experienced a post-procedural hemorrhage that was determined to be related to the surgical procedure but was not viewed by the investigator as attributable to the drug. The other SAEs occurred in placebo-treated patients and were therefore not attributable to the drug. During the Safety Study two SAEs occurred in a single placebo-treated patient and were therefore not attributable to the drug. Further AEs or SAEs could be generated during our on-going Phase Illb clinical trials for IV meloxicam. Our ability to obtain regulatory approval for our product candidates may be adversely impacted by these AEs, SAEs, or other safety concerns. Further, if our products

 

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cause serious or unexpected side effects after receiving market approval, a number of potentially significant negative consequences could result, including:

 

   

regulatory authorities may withdraw their approval of the product or impose restrictions on its distribution in a form of a modified REMS;

 

   

regulatory authorities may require the addition of labeling statements, such as warnings or contraindications;

 

   

we may be required to change the way the product is administered or conduct additional clinical studies;

 

   

we could be sued and held liable for harm caused to patients; and/or

 

   

our reputation may suffer.

Any of these events could prevent us from achieving or maintaining market acceptance of the affected product candidate and could substantially increase the costs of commercializing our product candidates, which could have a material adverse effect on our business, financial condition and results of operations.

Any of our product candidates, if approved, may require REMS, which may significantly increase our costs.

Any of our product candidates, if approved, may require REMS. The REMS may include requirements for special labeling or medication guides for patients, special communication plans to health care professionals and restrictions on distribution and use. We cannot predict the specific scope or magnitude of REMS that may be required as part of the FDA’s approval of our product candidates. Depending on the extent of the REMS requirements, our costs to commercialize our product candidates may increase significantly and distribution restrictions could limit sales, which could have a material adverse effect on our business, financial condition and results of operations. Similar obstacles may arise in countries outside of the United States.

Even if we obtain regulatory approval for our product candidates, we will still face extensive regulatory requirements and our products may face future regulatory difficulties.

Even if we obtain regulatory approval in the United States or other countries, the FDA and state regulatory authorities and the equivalent regulatory authorities in other countries may still impose significant restrictions on the indicated uses or marketing of our product candidates, or impose ongoing requirements for potentially costly post-approval studies or post-marketing surveillance. Any approved products will also be subject to ongoing FDA requirements governing the labeling, packaging, storage, distribution, safety surveillance, advertising, promotion, record-keeping and reporting of safety and other post-marketing information. The holder of an approved NDA is obligated to monitor and report AEs and any failure of a product to meet the specifications in the NDA. The holder of an approved NDA must also submit new or supplemental applications and obtain FDA approval for certain changes to the approved product, product labeling or manufacturing process. Advertising and promotional materials must comply with FDA rules and are subject to FDA review, in addition to other potentially applicable federal and state laws. The applicable regulations in countries outside the United States grant similar powers to the competent authorities and impose similar obligations on companies.

In addition, manufacturers of drug products and their facilities are subject to payment of substantial user fees and continual review and periodic inspections by the FDA and other regulatory authorities, including equivalent regulatory authorities in other countries, for compliance with current good manufacturing practice, or cGMP, regulations and adherence to commitments made in the NDA or the application for marketing authorization. If we, or a regulatory authority, discover previously unknown problems with a product, such as AEs of unanticipated severity or frequency, or problems with a facility where the product is manufactured, a regulatory authority may impose restrictions relative to that product or the manufacturing facility, including requiring recall or withdrawal of the product from the market, suspension of manufacturing, or other FDA action or other action by the equivalent regulatory authorities in other countries.

 

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If we fail to comply with applicable regulatory requirements following approval of any of our product candidates, a regulatory authority may:

 

   

issue a warning letter asserting that we are in violation of the law;

 

   

seek an injunction or impose civil or criminal penalties or monetary fines;

 

   

suspend, modify or withdraw regulatory approval;

 

   

suspend any ongoing clinical trials;

 

   

refuse to approve a pending NDA or supplements to an NDA submitted by us;

 

   

seize our product candidate; and/or

 

   

refuse to allow us to enter into supply contracts, including government contracts.

If any of the above were to occur, our ability to successfully commercialize any approved product candidates and achieve profitability could be negatively impacted, which could have a material adverse effect on our business, financial condition and results of operations.

Even if we obtain any of our product candidates in the United States, we may never obtain approval for or commercialize our products outside of the United States, which would limit our ability to realize their full market potential.

In order to market any products outside of the United States, we must establish and comply with numerous and varying regulatory requirements of other countries regarding quality, safety and efficacy. Clinical trials conducted in one country may not be accepted by regulatory authorities in other countries, and regulatory approval in one country does not mean that regulatory approval will be obtained in any other country. Approval processes vary among countries and can involve additional product testing and validation and additional administrative review periods. Seeking foreign regulatory approval could result in difficulties and costs for us and require additional non- clinical studies or clinical trials, which could be costly and time-consuming. Regulatory requirements can vary widely from country to country and could delay or prevent the introduction of our products in those countries. While our management has experience in obtaining foreign regulatory approvals, we do not have any product candidates approved for sale in any jurisdiction, including international markets, and we, as a company, do not have experience in obtaining regulatory approval in international markets. If we fail to comply with regulatory requirements in international markets or to obtain and maintain required approvals, or if regulatory approval in international markets is delayed, our target market will be reduced, and our ability to realize the full market potential of our products will be adversely affected.

For example, in the European Union, similar to the United States regulation scheme, both marketing authorization holders and manufacturers of medicinal products are subject to comprehensive regulatory oversight by the EMA and the competent authorities of the individual European Union member states both before and after grant of the manufacturing and Marketing Authorizations. This includes control of compliance with cGMP rules, which govern quality control of the manufacturing process and require documentation policies and procedures. We and our third-party manufacturers are required to ensure that all of our processes, methods, and equipment are compliant with cGMP. Failure by us or by any of our third-party partners, including suppliers, manufacturers, and distributors to comply with European Union laws and the related national laws of individual European Union member states governing the conduct of clinical trials, manufacturing approval, marketing authorization of medicinal products, both before and after grant of marketing authorization, and marketing of such products following grant of authorization may result in administrative, civil, or criminal penalties. These penalties could include delays in or refusal to authorize the conduct of clinical trials or to grant Marketing Authorization, product withdrawals and recalls, product seizures, suspension, or variation of the marketing authorization, total or partial suspension of production, distribution, manufacturing, or clinical trials, operating restrictions, injunctions, suspension of licenses, fines, and criminal penalties, which could have a material adverse effect on our business, financial condition and results of operations.

 

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The regulatory approval processes of the FDA are lengthy, time-consuming and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business will be substantially harmed.

The time required to obtain approval by the FDA is unpredictable but typically takes many years following the commencement of clinical trials and depends upon numerous factors, including the substantial discretion of the regulatory authorities. In addition, approval policies, regulations, or the type and amount of clinical data necessary to gain approval may change during a product candidate’s clinical development and may vary among jurisdictions. We have not obtained regulatory approval for any product candidate, and it is possible that none of our existing product candidates or any product candidates we may seek to develop in the future will ever obtain regulatory approval. Our product candidates could fail to receive regulatory approval for many reasons, including the following:

 

   

the FDA may not accept our NDA filings;

 

   

the FDA may disagree with the design, scope or implementation of our clinical trials;

 

   

we may be unable to demonstrate to the satisfaction of the FDA that a product candidate is safe and effective for its proposed indication;

 

   

we may be unable to demonstrate that a product candidate’s clinical and other benefits outweigh its safety risks; the FDA may disagree with our interpretation of data from preclinical studies or clinical trials;

 

   

the data collected from clinical trials of our product candidates may not be sufficient to support the submission of an NDA;

 

   

the FDA may fail to approve the manufacturing processes or facilities of third-party manufacturers with which we contract for clinical and commercial supplies; and

 

   

the approval policies or regulations of the FDA may change significantly in a manner rendering our clinical data insufficient for approval.

For example, we have received two CRLs from the FDA with regard to our NDA and resubmitted NDA for IV meloxicam. We cannot be certain that any of our product candidates will receive regulatory approval. If we do not receive regulatory approval or any of our product candidates, we may not be able to continue our operations. Even if we successfully obtain regulatory approval to market one of our product candidates, our revenue will be dependent, to a significant extent, upon the size of the markets in the territories for which we gain regulatory approval. If the markets for patients or indications that we are targeting are not as significant as we estimate, we may not generate significant revenue from sales of such products, if approved, which could have a material adverse effect on our business, financial condition and results of operations.

Clinical development is a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results. Clinical failure can occur at any stage of clinical development.

Clinical trials are expensive, can take many years to complete and have highly uncertain outcomes. Failure can occur at any time during the clinical trial process as a result of inadequate study design, inadequate performance of a drug, inadequate adherence by patients or investigators to clinical trial protocols, or other factors. New drugs in later stages of clinical trials may fail to show the desired safety and efficacy traits despite having progressed through earlier clinical trials. Some of our pipeline product candidates are in early stages of development, and positive preclinical and Phase I clinical trials for those product candidates may not necessarily be predictive of the results of later stage clinical trials. A number of companies in the biopharmaceutical industry have suffered significant setbacks in advanced clinical trials as a result of a lack of efficacy or adverse safety profiles, despite promising results in earlier trials. Our clinical trials may not be successful or may be more expensive or time-

 

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consuming than we currently expect. If clinical trials for any of our product candidates fail to demonstrate safety or efficacy to the satisfaction of the FDA or the equivalent regulatory authorities in other countries, the FDA or the equivalent regulatory authorities in other countries will not approve that drug and we would not be able to commercialize it, which could have a material adverse effect on our business, financial condition, results of operations, and prospects.

Delays in clinical trials are common and have many causes, and any delay could result in increased costs to us and jeopardize or delay our ability to obtain regulatory approval and commence product sales.

We may experience delays in clinical trials of our product candidates or the time required to complete clinical trials for our product candidates may be longer than anticipated. Our planned clinical trials may not begin on time, have an effective design, enroll a sufficient number of patients, or be completed on schedule, if at all. Our clinical trials can be delayed for a variety of reasons, including, but not limited to:

 

   

inability to raise funding necessary to initiate or continue a trial;

 

   

delays in obtaining regulatory approval to commence a trial;

 

   

delays in reaching an agreement with the FDA or the equivalent regulatory authorities in other countries on final trial design or the scope of the development program;

 

   

imposition of a clinical hold following an inspection of our clinical trial operations or trial sites by the FDA or the equivalent regulatory authorities in other countries;

 

   

delays in reaching agreement on acceptable terms with prospective contract research organizations, or CROs, and clinical trial sites;

 

   

delays in obtaining required institutional review board, or IRB, approval at each site;

 

   

delays in recruiting suitable patients to participate in a trial;

 

   

delays in having subjects complete participation in a trial or return for post-treatment follow-up;

 

   

clinical sites dropping out of a trial to the detriment of enrollment;

 

   

time required to add new clinical sites; or

 

   

delays by our contract manufacturers to produce and deliver a sufficient supply of clinical trial materials.

If clinical trials for any of our product candidates are delayed for any of the above reasons or other reasons, our development costs may increase, our approval process could be delayed and our ability to commercialize our product candidates could be materially harmed, which could have a material adverse effect on our business, financial condition or results of operations.

Risks Related to Commercialization of Our Product Candidates

We have no history of commercializing drugs, which may make it difficult to predict our future performance or evaluate our business and prospects.

We have not yet obtained regulatory approval for any of our product candidates. To date, we have not yet demonstrated our ability to successfully manufacture at commercial scale or arrange for a third party to do so on our behalf, or conduct sales, marketing and distribution activities necessary for successful product commercialization. Because our success is dependent on our ability to commercialize our product candidates, any predictions about our future success or viability may not be as accurate as they could be if we had a longer history of successfully developing and commercializing drugs.

 

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We are subject to intense competition and, if we are unable to compete effectively, our product candidates may not reach their commercial potential.

The market for our product candidates is characterized by intense competition and rapid technological advances. If our product candidates obtain FDA approval, they will compete with a number of existing and future pharmaceuticals developed, manufactured and marketed by others. We will compete against fully integrated pharmaceutical companies and smaller companies that are collaborating with larger pharmaceutical companies, academic institutions, government agencies and other public and private research organizations.

In the post-operative pain relief setting, we believe patients are prescribed injectable acetaminophen, nonsteroidal anti-inflammatory drugs, or NSAIDs, sodium channel blockers and opioids, depending on the severity of pain. Specifically, acetaminophen, NSAIDs and sodium channel blockers, we believe, are prescribed for mild to moderate pain relief, whereas we believe opioids are prescribed for moderate to severe pain relief. While we will compete with all of these compounds in the post-operative pain setting, we believe IV meloxicam will be prescribed for moderate to severe pain, competing with opioids and other non-opioid pain treatments. There are a number of pharmaceutical companies that currently market and/or manufacture therapeutics in the pain relief area, including Johnson & Johnson, Purdue Pharma, L.P., Mallinckrodt plc, Teva Pharmaceutical Industries, Inc. and Pacira Pharmaceuticals, Inc. and AcelRx Pharmaceuticals, Inc. Purdue is the primary competitor in the manufacture of opioid therapeutics. Mallinckrodt commercializes an injectable formulation of acetaminophen. Pacira commercializes an intraoperative formulation of bupivacaine, a sodium channel blocker. Additionally, companies such as Adynxx, Inc., Durect Corporation, Heron Therapeutics, Inc., Innocoll Holdings plc, Sandoz AG, Trevena, Inc., Avenue Therapeutics, Inc., Neumentum Inc. and Cara Therapeutics, Inc. are currently developing post-operative pain therapeutics that could compete with IV meloxicam in the future.

More established companies may have a competitive advantage over us due to their greater size, cash flows and institutional experience. Compared to us, many of our competitors may have significantly greater financial, technical and human resources. As a result of these factors, our competitors may have an advantage in marketing their approved products and may obtain regulatory approval of their product candidates before we are able to do so, which may limit our ability to develop or commercialize our product candidates. Our competitors may also develop drugs that are safer, more effective, more widely used and less expensive than ours, and our competitors may also be more successful than we are in manufacturing and marketing their products. These advantages could materially impact our ability to develop and commercialize IV meloxicam and our other product candidates successfully.

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of our competitors. Smaller and early-stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. These third parties compete with us in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to, or necessary for, our programs.

We anticipate that we will face intense and increasing competition as new drugs enter the market and additional technologies become available in the pain management and relief space. Finally, the development of different methods for the treatment of acute pain following surgery could render injectable meloxicam non-competitive or obsolete. These and other risks may materially adversely affect our ability to attain or sustain profitable operations.

If we are unable to identify a strategic partner with appropriate sales and marketing capabilities and enter into a strategic partnership on commercially acceptable terms with such partner, we may be unable to generate any revenue for our product candidates.

To date, we have not entered into any strategic partnerships for any of our product candidates. We face significant competition in seeking appropriate strategic partners, and these strategic partnerships can be intricate

 

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and time-consuming to negotiate and document. We may not be able to negotiate strategic partnerships on acceptable terms, or at all. We are unable to predict when, if ever, we will enter into any strategic partnerships because of the numerous risks and uncertainties associated with establishing strategic partnerships.

Our strategy for IV meloxicam has been to develop a specialty sales force and/or collaborate with third parties to promote the product to healthcare professionals and third-party payers in the United States. Our future collaboration partners, if any, may not dedicate sufficient resources to the commercialization of our product candidates or may otherwise fail in their commercialization due to factors beyond our control. If we are unable to establish effective collaborations to enable the sale of our product candidates to healthcare professionals and in geographic regions, including the United States, that will not be covered by our own marketing and sales force, or if our potential future collaboration partners do not successfully commercialize our product candidates, our ability to generate revenues from product sales will be adversely affected.

If we are unable to negotiate a strategic partnership or obtain additional financial resources for our other product candidates, we may be forced to curtail the development of them, delay potential commercialization, reduce the scope of our sales or marketing activities or undertake development or commercialization activities at our own expense. In addition, without a partnership, we will bear all the risk related to the development of these other product candidates. If we elect to increase our expenditures to fund development or commercialization activities ourselves, we will need to obtain additional capital, which may not be available to us on acceptable terms, or at all. If we do not have sufficient funds, we will not be able to bring our other product candidates to market or generate product revenue from them, which could have a material adverse effect on our business, financial condition and results of operations.

If we are unable to successfully commercialize IV meloxicam, our business, financial condition and results of operations may be materially adversely affected and the price of our common stock may decline.

Even if we receive regulatory approval from the FDA for the labeling that we request, our ability to successfully commercialize IV meloxicam will depend on many factors, including but not limited to:

 

   

our ability to create sufficient capital (through debt, equity or both) to support the product launch;

 

   

any negative perception of IV meloxicam as a result of receipt of our most recent CRL from the FDA, even if ultimately resolved;

 

   

the results of our ongoing Phase Illb clinical trials for IV meloxicam;

 

   

our ability to consistently manufacture commercial quantities of IV meloxicam at a reasonable cost and with sufficient speed to meet commercial demand, which may be higher or lower than expected demand on which our manufacturing forecasts have been based;

 

   

our ability to build a sales and marketing organization to market IV meloxicam, either alone or through a strategic partner;

 

   

our success in educating physicians, patients and caregivers about the benefits, administration and use of injectable meloxicam;

 

   

our share of promotional “voice” during launch versus other existing or new products in our market segment;

 

   

the availability, perceived advantages, relative cost, relative safety and relative efficacy of competing products;

 

   

our ability to successfully defend any challenges to our intellectual property relating to our product candidates;

 

   

our ability to set an acceptable price for IV meloxicam and to obtain adequate coverage and adequate reimbursement for IV meloxicam;

 

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our ability to contract with pharmaceutical wholesalers and specialty distributors on acceptable terms;

 

   

the effectiveness of our marketing campaigns;

 

   

our effective use of promotional resources;

 

   

our success in obtaining formulary approvals; and

 

   

a continued acceptable profile for IV meloxicam.

Many of these matters are beyond our control and are subject to other risks described elsewhere in this “Risk Factors” section. Accordingly, we cannot assure that we will be able to successfully commercialize or generate revenue from IV meloxicam, even if we receive regulatory approval for the labeling that we have requested. If we cannot do so or are significantly delayed in doing so, our business, financial condition and results of operations may be materially adversely affected and the price of our common stock may decline.

The commercial success of IV meloxicam and our other product candidates will depend upon the acceptance of these products by the medical community, including physicians, patients, health care payers and hospital formularies.

Physicians may not prescribe IV meloxicam or any of our other product candidates if approved by the FDA, in which case we would not generate the revenues we anticipate. The degree of market acceptance of any of our product candidates will depend on a number of factors, including:

 

   

demonstration of clinical safety and efficacy;

 

   

the prevalence and severity of any AEs;

 

   

the indications for which each of our product candidates is approved, including any dosing instructions and potential additional restrictions placed on each product candidate in connection with its approval;

 

   

limitations or warnings contained in the FDA-approved label for each product candidate;

 

   

the results of our ongoing Phase IIIb clinical trials for IV meloxicam;

 

   

relative convenience and ease of administration of our product candidates;

 

   

prevalence of the condition for which each product candidate is approved;

 

   

availability of alternative treatments and perceived advantages of our product candidates over such alternative treatments;

 

   

the proposed sales price and cost-effectiveness of IV meloxicam and the availability of adequate third-party coverage and reimbursement;

 

   

the effectiveness of our or any future collaborators’ sales and marketing strategies;

 

   

our ability to convince hospitals to include IV meloxicam and our other product candidates on their list of authorized products, referred to as formulary approval;

 

   

consolidation among healthcare providers, which increases the impact of the loss of any relationship;

 

   

our ability to obtain and maintain sufficient third-party coverage or reimbursement; and

 

   

the willingness of patients to pay out-of-pocket in the absence of third-party coverage.

In addition, market acceptance of IV meloxicam could be negatively impacted by any negative perception physicians may have of IV meloxicam following announcement of the most recent CRL received from the FDA

 

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for IV meloxicam, even if subsequently resolved. If IV meloxicam or any of our other product candidates are approved but do not achieve an adequate level of acceptance by physicians, patients and healthcare payers, we may not generate sufficient revenue and we may not become or remain profitable.

If we fail to supply IV meloxicam in sufficient quantities and at acceptable quality levels, we may face delays in the commercialization of IV meloxicam, if approved, or be unable to meet market demand, and may lose potential revenues.

Our ability to supply sufficient quantities of IV meloxicam is substantially dependent on the performance of third-party manufacturers. We do not own facilities with capabilities for clinical-scale or commercial manufacturing of injectable meloxicam and we rely, and expect to continue to rely, on third-party suppliers and contract manufacturers to manufacture injectable meloxicam. Alkermes plc, or Alkermes, is currently our sole supplier of bulk injectable meloxicam formulation and is the only established supplier of bulk injectable meloxicam formulation. We have committed to purchase our current requirements of injectable meloxicam formulation from Alkermes, and we have commissioned dedicated space in Alkermes’ manufacturing facility for the production of bulk injectable meloxicam. Patheon UK Limited, or Patheon, provides sterile fill and finish services for injectable meloxicam.

We and our contract manufacturers must comply with federal, state and foreign regulations, including FDA’s regulations governing current cGMP, enforced by the FDA through its facilities inspection program and by similar regulatory authorities in other jurisdictions where we do business. These requirements include, among other things, quality control, quality assurance and the maintenance of records and documentation. The FDA or similar foreign regulatory authorities at any time may implement new standards, or change their interpretation and enforcement of existing standards for manufacture, packaging or testing of our products. Our contract manufacturers are subject to ongoing periodic unannounced inspection by the FDA to ensure compliance with these regulations. Any failure to comply with applicable regulations may result in fines and civil penalties, suspension of production, product seizure or recall, imposition of a consent decree, or withdrawal of product approval, and would limit the availability of IV meloxicam. Any manufacturing defect or error discovered after IV meloxicam has been produced and distributed also could result in significant consequences, including costly recall procedures, re-stocking costs, damage to our reputation and potential for product liability claims. In addition, our contract manufacturers could default on their agreement with us to meet our requirements for commercial supplies of IV meloxicam and/or Alkermes could fail to deliver the dedicated space according to the currently agreed timeline.

While we have scaled up our commercial manufacturing of IV meloxicam in anticipation of a potential commercial launch, due to the delay in our anticipated commercial launch of IV meloxicam as a result of the two CRLs, we have launch stock of IV meloxicam that, depending on the approved expiration date, could be unable to be sold or could be sold but returned by our wholesalers if expired prior to final sale. A significant amount of expired product or returned product could impact the success of our commercial launch of IV meloxicam, if approved.

If, as a result of any of these issues, we are unable to supply the required commercial quantities of IV meloxicam to support commercial launch and meet market demand for IV meloxicam, if approved, on a timely basis or at all, we may suffer damage to our reputation and commercial prospects and we will lose potential revenues.

If our third-party manufacturer of IV meloxicam is no longer able or willing to continue producing IV meloxicam, we may not be able to locate an alternative manufacturer, enter into a commercially acceptable agreement with them or qualify and obtain FDA approval for such manufacturer in a timely manner, or at all, which could be adversely affect our business.

Although our supply agreement and manufacturing agreements for injectable meloxicam allow us to qualify and purchase from an alternative supplier or manufacturer in certain circumstances, it would be time-consuming and

 

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expensive for us to do so, and there can be no assurance that an alternative supplier could be found on terms that are acceptable to us or at all. The number of potential manufacturers that have the necessary equipment, expertise and governmental licenses to produce IV meloxicam is limited. If we encounter any issues with our contract manufacturers or choose to engage a new supplier or contract manufacturer for IV meloxicam, we would need to qualify and obtain FDA approval for another contract manufacturer or supplier as an alternative source, which could be costly and cause significant delays. Such delay could in turn delay the marketing and commercialization of IV meloxicam, which would materially and adversely affect our business.

Our reliance on a limited number of vendors to manufacture IV meloxicam exposes us to risks, any of which could delay its commercialization, result in higher costs, or deprive us of potential revenues.

Our contract manufacturers may encounter difficulties in achieving the volume of production needed to satisfy our demand for commercial launch and ongoing commercial demand (even after accounting for the increased capacity to be provided by the dedicated space at the Alkermes facility), may experience technical issues that impact quality or compliance with applicable and strictly enforced regulations governing the manufacture of pharmaceutical products, may be affected by natural disasters that interrupt or prevent manufacturing of our products, may experience shortages of qualified personnel to adequately staff production operations, may experience shortages of raw materials and may have difficulties finding replacement parts or equipment. If we experience significant delays or other obstacles in producing a sufficient supply to meet demand, our ability to market and sell IV meloxicam may be adversely affected and our business could suffer.

Legislative or regulatory programs that may influence prices of prescription drugs could have a material adverse effect on our ability to successfully commercialize our product candidates.

Current or future federal or state laws and regulations may influence the prices of drugs and, therefore, could adversely affect the prices that we receive for our product candidates, if approved. Programs in existence in certain states seek to set prices of all drugs sold within those states through the regulation and administration of the sale of prescription drugs. Expansion of these programs, in particular, state Medicaid programs, or changes required in the way in which Medicaid rebates are calculated under such programs, could adversely affect the price we receive for our product candidates, if approved, and could have a material adverse effect on our business, results of operations and financial condition.

Further, the pharmaceutical industry has in recent years been the subject of significant publicity regarding the pricing of pharmaceutical products, including publicity and pressure resulting from prices charged by pharmaceutical companies for new products as well as price increases by pharmaceutical companies on older products that the public has deemed excessive. Any downward pricing pressure on the price of our product candidates, if approved, arising from social or political pressure to lower the cost of pharmaceutical products could have a material adverse impact on our business, results of operations and financial condition. As a result, pharmaceutical product prices have been the focus of increased scrutiny by the government, including certain state attorneys general, members of Congress and the United States Department of Justice. Decreases in health care reimbursements or prices of our product candidates, if approved, could limit our ability to sell our product candidates, if approved, or decrease our revenues, which could have a material adverse effect on our business, results of operations and financial condition.

The Affordable Care Act and any changes in healthcare law may increase the difficulty and cost for us to commercialize our product candidates and affect the prices we may obtain.

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system that could prevent or delay marketing approval of our product candidates or restrict or regulate post-approval activities and affect our ability to profitably sell our product candidates for which we obtain marketing approval. The United States government, state legislatures and foreign governments also have shown significant interest in implementing cost-containment programs to limit the growth of

 

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government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs.

The Affordable Care Act was intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against fraud and abuse, add transparency requirements for the healthcare and health insurance industries, impose new taxes and fees on the health industry and impose additional health policy reforms. These intended reforms are described in greater detail in the section below under “Business - Government Regulation - United States Healthcare Reform.”

Among the provisions of the Affordable Care Act that have been implemented since enactment and are of importance to the commercialization of our product candidates are the following:

 

   

an annual, nondeductible fee on any entity that manufactures or imports specified branded prescription drugs or biologic agents;

 

   

an increase in the statutory minimum rebates a manufacturer must pay under the Medicaid Drug Rebate Program;

 

   

expansion of healthcare fraud and abuse laws, including the U.S. civil False Claims Act and the Anti-Kickback Statute, new government investigative powers, and enhanced penalties for noncompliance;

 

   

a Medicare Part D coverage gap discount program, in which manufacturers must agree to offer 50% point-of-sale discounts off negotiated prices of applicable brand drugs to eligible beneficiaries during their coverage gap period, as a condition for a manufacturer’s outpatient drugs to be covered under Medicare Part D;

 

   

extension of manufacturers’ Medicaid rebate liability to covered drugs dispensed to individuals who are enrolled in Medicaid managed care organizations;

 

   

a new methodology by which rebates owed by manufacturers under the Medicaid Drug Rebate Program are calculated for drugs that are inhaled, infused, instilled, implanted, or injected;

 

   

expansion of eligibility criteria for Medicaid programs;

 

   

expansion of the entities eligible for discounts under the Public Health Service pharmaceutical pricing program;

 

   

requirements to report certain financial arrangements with physicians and teaching hospitals;

 

   

a requirement to annually report certain information regarding drug samples that manufacturers and distributors provide to physicians; and

 

   

a new Patient-Centered Outcomes Research Institute to oversee, identify priorities in, and conduct comparative clinical effectiveness research, along with funding for such research.

There have been significant ongoing efforts to modify or eliminate the Affordable Care Act. For example, the Tax Act enacted on December 22, 2017, repealed the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code, commonly referred to as the individual mandate. Further legislative changes to and regulatory changes under the Affordable Care Act remain possible. It is unknown what form any such changes or any law proposed to replace the Affordable Care Act would take, and how or whether it may affect our business in the future.

We expect that the Affordable Care Act, as well as other healthcare reform measures that have and may be adopted in the future, may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved products and could seriously harm our future revenues. Any reduction in reimbursement from Medicare, Medicaid, or other government programs may result in a similar reduction in payments from private payers. The implementation of cost containment measures or other healthcare reforms may prevent us from being able to generate revenue, attain profitability or commercialize our products.

 

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If third-party payers do not reimburse physicians or patients for our product candidates or if reimbursement levels are, or pricing pressures cause the sales price to be, set too low for us to sell our product candidates at a profit, our ability to successfully commercialize our product candidates and our results of operations will be harmed.

Our ability to commercialize our product candidates successfully will depend in part on the extent to which coverage and adequate reimbursement for such products, once approved, will be available in a timely manner from third-party payers, including governmental healthcare programs such as Medicare and Medicaid, commercial health insurers and managed care organizations and other pricing limitations such as mandatory rebates or discounts. Reimbursement and pricing limitations may hinder our ability to recoup our investment in our product candidates, even if approved.

Government authorities and other third-party payers, such as private health insurers and health maintenance organizations, determine which medications they will cover and establish reimbursement levels. Reimbursement decisions by particular third-party payers depend upon a number of factors, including each third-party payer’s determination that use of a product is:

 

   

a covered benefit under its health plan;

 

   

appropriate and medically necessary for the specific condition or disease;

 

   

cost-effective; and

 

   

neither experimental nor investigational.

Obtaining coverage and reimbursement approval for our product candidates from government authorities or other third-party payers may be a time consuming and costly process that could require us to provide supporting scientific, clinical and cost-effectiveness data, including expensive pharmacoeconomic studies beyond the data required to obtain marketing approval, for the use of our product candidates to each government authority or other third-party payer. For example, if our ongoing Phase Illb clinical trials for IV meloxicam in colorectal surgery patients and orthopedic surgery patients do not show improved outcomes relative to the current standard of care, obtaining payer coverage could be more difficult. We may not be able to provide data sufficient to gain acceptance with respect to coverage and reimbursement. In addition, acceptance by third-party payers could be negatively impacted by any negative perception third-party payers may have of IV meloxicam following announcement of the most recent CRL received from the FDA for IV meloxicam, despite subsequent FDA approval.

Third-party payers may deny reimbursement for covered products if they determine that a medical product was used for an unapproved indication. Third-party payers may also limit coverage to specific products on an approved list, or formulary, which might not include all of the FDA-approved products for a particular indication. Failure to obtain timely hospital formulary approval will limit our commercial success, and obtaining such approval can be an expensive and time-consuming process. We cannot be certain if and when we will obtain the formulary approvals to allow us to sell our products into our target markets, nor, if formulary approval is obtained, at what price our products will be accepted for sale and reimbursement.

Increasingly, third-party payers are also requiring that drug companies provide them with predetermined discounts from list prices and are challenging the prices charged for medical products. These third-party payers could also impose price controls restricting the prices at which the products will be reimbursed and other conditions that must be met by patients prior to providing coverage for the use of IV meloxicam or our other product candidates.

Third-party payers are increasingly attempting to contain healthcare costs by limiting both coverage and the level of reimbursement for medical products and services, which can impact the demand for, or the price of, such products and services. The process for determining whether a payer will provide coverage for a product may be

 

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separate from the process for setting the price or reimbursement rate that the payer will pay for the product once coverage is approved. Levels of reimbursement may also decrease in the future, due to the availability of numerous generic pain medications available at lower costs or future legislation, regulation or reimbursement policies of third-party payers which may adversely affect the demand for and reimbursement available for our other product candidates, which in turn, could negatively impact pricing. If patients are not adequately reimbursed for our product candidates, they may reduce or discontinue purchases of it.

Moreover, eligibility for coverage and reimbursement does not imply that any drug will be paid for in all cases or at a rate that covers our costs, including research, development, manufacture, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover our costs and may only be temporary. Reimbursement rates may vary according to the use of the drug and the clinical setting in which it is used, may be based on reimbursement levels already set for lower cost drugs and may be incorporated into existing payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or private payers and by any future relaxation of laws that presently restrict imports of drugs from policy and payment limitations in setting their own reimbursement policies. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and private payers for IV meloxicam and our other product candidates, if approved, could result in a significant shortfall in achieving revenue expectations, prevent us from achieving profitability and negatively impact our business, prospects and financial condition.

If we are able to successfully commercialize our product candidates and if we participate in but fail to comply with our reporting and payment obligations under the Medicaid Drug Rebate Program, or other governmental pricing programs, we could be subject to additional pricing pressures and controls, reimbursement requirements, penalties, sanctions and fines, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

If we participate in the Medicaid Drug Rebate Program, and other governmental pricing programs, we will be obligated to pay certain specified rebates and report pricing information with respect to IV meloxicam or our other product candidates. Pricing and rebate calculations are complex and are often subject to interpretation by us, governmental or regulatory agencies and the courts. We cannot assure you that our submissions will not be found by the Centers for Medicare and Medicaid Services, or CMS, to be incomplete or incorrect. Governmental agencies may also make changes in program interpretations, requirements or conditions of participation, some of which may have implications for amounts previously estimated or paid. The Medicaid rebate amount is computed each quarter based on our submission to CMS of our current average manufacturer price, or AMP, and best price for the quarter. If we become aware that our reporting for a prior quarter was incorrect, or has changed as a result of recalculation of the pricing data, we are obligated to resubmit the corrected data for a period not to exceed twelve quarters from the quarter in which the data originally were due, and CMS may request or require restatements for earlier periods as well. Such restatements and recalculations increase our costs for complying with the laws and regulations governing the Medicaid Drug Rebate Program. Any corrections to our rebate calculations could result in an overage or underage in our rebate liability for past quarters, depending on the nature of the correction. Price recalculations also may affect the ceiling price at which we are required to offer our products to certain covered entities, such as safety-net providers, under the 340B program, and other similar government pricing programs. These programs are described in greater detail in the section titled “Business - Government Regulation - Formulary Approvals and Third-Party Payer Coverage and Reimbursement.”

We will also be liable for errors associated with our submission of pricing data. In addition to retroactive rebates and the potential for 340B program refunds, if we are found to have knowingly submitted false AMP, or best price information to the government, we may be liable for civil monetary penalties in the amount of $181,071 per item of false information. If we are found to have made a misrepresentation in the reporting of our average sales price, we may be liable for civil monetary penalties of up to $13,066 for each misrepresentation for each day in which the misrepresentation was applied. Our failure to submit monthly/quarterly AMP and best price data on a timely basis could result in a civil monetary penalty of $18,107 per day for each day the information is late

 

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beyond the due date. Such failure also could be grounds for CMS to terminate our Medicaid drug rebate agreement, pursuant to which we participate in the Medicaid program. In the event that CMS terminates our rebate agreement, federal payments may not be available under Medicaid for IV meloxicam or our other product candidates. A final regulation imposes a civil monetary penalty of up to $5,000 for each instance of knowingly and intentionally charging a 340B covered entity more than the 340B ceiling price.

Federal law requires that a company must participate in the Federal Supply Schedule, or FSS, pricing program to be eligible to have its products paid for with federal funds. As part of this program, we would be obligated to make IV meloxicam or our other product candidates available for procurement on an FSS contract, under which we must comply with standard government terms and conditions and charge a price that is no higher than the statutory Federal Ceiling Price to four federal agencies (Department of Veterans Affairs, or VA, Department of Defense, or DOD, Public Health Service, and U.S. Coast Guard). The Federal Ceiling Price is based on the Non-Federal Average Manufacturer Price, which we calculate and report to the VA on a quarterly and annual basis. If we overcharge the government in connection with our FSS contract or Section 703 Agreement, whether due to a misstated Federal Ceiling Price or otherwise, we are required to refund the difference to the government. Failure to make necessary disclosures and/or to identify contract overcharges can result in allegations against us under the U.S. civil False Claims Act and other laws and regulations. Unexpected refunds to the government, and responding to a government investigation or enforcement action, would be expensive and time-consuming and could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Our relationships with physicians, patients and payers in the U.S. are subject to applicable anti-kickback, fraud and abuse laws and regulations. Our failure to comply with these laws could expose us to criminal, civil and administrative sanctions, reputational harm, and could harm our results of operations and financial conditions.

Our current and future operations with respect to the commercialization of our product candidates are subject to various U.S. federal and state healthcare laws and regulations. These laws impact, among other things, our proposed sales, marketing, support and education programs and constrain our business and financial arrangements and relationships with third-party payers, healthcare professionals and others who may prescribe, recommend, purchase or provide our product candidates, and other parties through which we will market, sell and distribute our product candidates. Finally, our current and future operations are subject to additional healthcare-related statutory and regulatory requirements and enforcement by foreign regulatory authorities in jurisdictions in which we conduct our business. The laws are described in greater detail in the section below under “Business Government Regulation - Other Healthcare Laws and Compliance Requirements,” and include, but are not limited to:

 

   

the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration, directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order, or arranging for or recommending the purchase, lease or order of, any good or service, for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

the U.S. civil False Claims Act (which can be enforced through “qui tam,” or whistleblower actions, by private citizens on behalf of the federal government), prohibits any person from, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment of government funds or knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the U.S. federal government;

 

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the Health Insurance Portability and Accountability Act of 1996, or HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program, which includes both government and privately funded benefits programs; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

 

   

state laws and regulations, including state anti-kickback and false claims laws, that may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payer, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; and

 

   

the Physician Payments Sunshine Act, implemented as the Open Payments program, and its implementing regulations, requires certain manufacturers of drugs, devices, biologicals and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related to certain payments made in the preceding calendar year and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

The shifting commercial compliance environment and the need to build and maintain robust and expandable systems to comply with different compliance or reporting requirements in multiple jurisdictions increases the possibility that a healthcare or pharmaceutical company may fail to comply fully with one or more of these requirements. Efforts to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations may involve substantial costs. It is possible that governmental authorities will conclude that our business practices do not comply with applicable fraud and abuse or other healthcare laws and regulations or guidance. In addition, the complex framework of laws and regulations at the federal and state law are subject to change, which could lead to non-compliance or additional costs in updating our compliance mechanism to reflect these changes. For example, several states have enacted laws or regulations affecting or restricting payments that pharmaceutical manufacturers or distributors can make to physicians and other drug prescribers. If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us, we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government funded healthcare programs, such as Medicare and Medicaid, additional oversight and reporting requirements if we become subject to a corporate integrity agreement to resolve allegations of non-compliance with these laws and the curtailment or restructuring of our operations. If any of the physicians or other providers or entities with whom we expect to do business are found not to be in compliance with applicable laws, they may be subject to the same criminal, civil or administrative sanctions, including exclusions from government funded healthcare programs. Even if we are not determined to have violated these laws, government investigations into these issues typically require the expenditure of significant resources and generate negative publicity, which could harm our financial condition and divert resources and the attention of our management from operating our business.

Any government investigation of alleged violations of law could require us to expend significant time and resources in response and could generate negative publicity in addition to the aforementioned potential regulatory

 

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actions. The occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and generate revenues which would have a material adverse effect on our business, financial condition and results of operations.

If we obtain approval to commercialize our products outside of the United States, a variety of risks associated with international operations could materially adversely affect our business.

If our product candidates are approved for commercialization, we may enter into agreements with third parties to market our product candidates outside the United States. We expect that we will be subject to additional risks related to entering into international business relationships, including:

 

   

different regulatory requirements for drug approvals in foreign countries;

 

   

reduced protection for intellectual property rights;

 

   

unexpected changes in tariffs, trade barriers and regulatory requirements;

 

   

economic weakness, including inflation, or political instability in particular foreign economies and markets;

 

   

compliance with tax, employment, immigration and labor laws for employees living or traveling abroad;

 

   

foreign taxes, including withholding of payroll taxes;

 

   

foreign currency fluctuations, which could result in increased operating expenses and reduced revenues, and other obligations incident to doing business in another country;

 

   

workforce uncertainty in countries where labor unrest is more common than in the United States;

 

   

production shortages resulting from any events affecting raw material supply or manufacturing capabilities abroad;

 

   

lower pricing of products in our market segment or in general; and

 

   

business interruptions resulting from geopolitical actions, including war and terrorism, or natural disasters including earthquakes, typhoons, floods and fires.

The realization of any of these risks would negatively affect our ability to attain or sustain profitability.

Our business, financial condition, and results of operations are subject to risks arising from the international scope of our manufacturing and supply relationships.

Some of the contract manufacturers of our product candidates manufacture and source raw materials outside the United States and we may, in the future, use manufacturers outside the United States for our other product candidates. As such, we are subject to risks associated with such international manufacturing relationships, including:

 

   

unexpected changes in regulatory requirements;

 

   

problems related to markets with different cultural biases or political systems;

 

   

possible difficulties in enforcing agreements in multiple jurisdictions;

 

   

longer payment cycles and shipping lead-times;

 

   

increased risk relating to the transport of products internationally, including damage to our product, shipment delays relating to the import or export of our products or the delivery of our products by means of additional third-party vendors;

 

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difficulties obtaining export or import licenses for our products;

 

   

compliance with the U.S. Foreign Corrupt Practices Act and other laws and regulations governing international trade;

 

   

fluctuations in foreign currency exchange rates;

 

   

changes to U.S. and foreign trade policies, including the enactment of tariffs on goods imported into the United States.; and

 

   

imposition of domestic and international customs and tariffs, withholding or other taxes, including any value added taxes.

Additionally, we are subject to periodic reviews and audits by governmental authorities responsible for administering import/export regulations. To the extent that we are unable to successfully defend against an audit or review, we may be required to pay assessments, penalties, and increased duties on products imported into the United States.

Risks Related to Our Reliance on Third Parties

Relying on third-parties to manufacture our product candidates exposes us to risks that may delay testing, development, regulatory approval, commercialization and overall manufacturing of our product candidates.

We currently lack the internal resources to manufacture our product candidates and we rely on third-party suppliers and contract manufacturers to manufacture injectable meloxicam. For example, Alkermes is currently our sole supplier of bulk injectable meloxicam formulation and is the only established supplier of bulk injectable meloxicam formulation. We have committed to purchase our current requirements of injectable meloxicam formulation from Alkermes, and we have commissioned dedicated space in Alkermes’ manufacturing facility for the production of bulk injectable meloxicam. Patheon provides sterile fill and finish services, and we have committed to purchase a certain percentage of our annual requirements of sterile fill and finish services from Patheon. Our agreement with Patheon also obligates us to a minimum annual order quantity, which, if higher than the commercial demand for IV meloxicam, if approved, could expose us to increased costs. Although our supply agreement and manufacturing agreements for injectable meloxicam and our other product candidates allow us to qualify and purchase from an alternative supplier or manufacturer in certain circumstances, it would be time-consuming and expensive for us to do so, and there can be no assurance that an alternative supplier could be found. The number of potential manufacturers that have the necessary equipment, expertise and governmental licenses to produce our product candidates is limited. If we encounter any issues with our contract manufacturers or choose to engage a new supplier or contract manufacturer for any of our product candidates, we would need to qualify and obtain FDA approval for another contract manufacturer or supplier as an alternative source for these products and services, which could be costly and cause significant delays.

Our reliance on a limited number of third-party manufacturers also exposes us to the following risks:

 

   

third-party manufacturers might be unable to manufacture our products in the volume and of the quality required to meet our clinical and commercial needs, if any;

 

   

contract manufacturers may not perform as agreed, and operate their business independently from us. Contract manufacturers are directly responsible for their own FDA cGMP interactions and we may not be privy to all ongoing discussions and information concerning products or process unrelated to us. Additionally, contract manufacturers may not remain in the contract manufacturing business for the time required to successfully produce, store and distribute our products;

 

   

product manufacturers are subject to ongoing periodic unannounced inspection by the FDA, the U.S. Drug Enforcement Agency, or DEA, and corresponding state agencies to ensure strict compliance with cGMP and other government regulations and corresponding foreign standards.

 

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We do not have control over third-party manufacturers’ compliance with these regulations and standards and our manufacturers may be found to be in noncompliance with certain regulations, which may impact our ability to manufacture our drug product candidates and may impact the regulatory status of our product candidates; and

 

   

if any third-party manufacturer makes improvements in the manufacturing process for our products, we may not own, or may have to share, the intellectual property rights to the innovation.

Each of these risks could delay our preclinical studies and clinical trials, the submission of regulatory applications or the approval, if any, of our product candidates by the FDA, or the commercialization of our product candidates or could result in higher costs or deprive us of potential product revenues. If we do not successfully navigate each of these risks in a timely manner or at all, we could experience significant delays or an inability to successfully develop and commercialize our product candidates, which would materially harm our business.

If third-party service providers, including carriers, logistics providers and distributors, fail to devote sufficient time and resources to our product candidates or their performance is substandard, our product launch may be delayed and our costs may be higher than expected.

Our reliance on third-party service providers, including carriers, logistics providers and distributors, exposes us to risks which could delay or impair the commercialization of our product candidates, result in higher costs, or deprive us of potential product revenues. Our carriers may experience technical issues relating to the timing and shipment of our products, may encounter issues in connection with transporting our products internationally, or may become subject to other transit difficulties that could cause loss or damage to our products, some of which may not be adequately covered under our insurance policies. Our third-party logistic providers may experience difficulty in providing key services relating to customer service, warehousing, inventory management, distribution services, contract management, chargeback processing, accounts receivable management, cash application and financial management. Our distributors could become unable to sell and deliver our product candidates for regulatory, compliance and other reasons. Our carriers, logistics providers, distributors and other third-party service providers may not perform as agreed or may not remain in business for the time required to successfully ship, store, deliver, sell and distribute our products and we may incur additional cost. Any of our vendors could also default on or terminate their agreements with us, which could delay or impair the commercialization of our product candidates, which could have a material adverse effect on our business, financial condition, results of operations and growth prospects.

Issues with product quality could have a material adverse effect upon our business, subject us to regulatory actions and cause a loss of customer confidence in us or our products.

Our success depends upon the quality of our products. Quality management plays an essential role in meeting customer requirements, preventing defects, improving our product candidates and services and assuring the safety and efficacy of our product candidates. Our future success depends on our ability to maintain and continuously improve our quality management program. A quality or safety issue may result in adverse inspection reports, warning letters, product recalls or seizures, monetary sanctions, injunctions to halt manufacture and distribution of products, civil or criminal sanctions, costly litigation, refusal of a government to grant approvals and licenses, restrictions on operations or withdrawal of existing approvals and licenses. An inability to address a quality or safety issue in an effective and timely manner may also cause negative publicity, a loss of customer confidence in us or our future products, which may result in difficulty in successfully launching product candidates and the loss of sales, which could have a material adverse effect on our business, financial condition, and results of operations.

 

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Manufacturing issues may arise that could increase product and regulatory approval costs or delay commercialization.

As we scale up manufacturing of our product candidates and conduct required stability testing, issues may arise involving product-packaging and third-party equipment malfunctions. These issues may require refinement or resolution in order to proceed with commercial marketing of our product candidates. In addition, quality issues may arise during scale-up and validation of commercial manufacturing processes. Any issues in our product or delivery devices could result in increased scrutiny by regulatory authorities, delays in our regulatory approval process, increases in our operating expenses, or failure to obtain or maintain approval for our products, which could have a material adverse effect on our business, financial condition, and results of operations.

We use third parties to assist with conducting, supervising and monitoring portions of our nonclinical and clinical studies, and if those third parties perform in an unsatisfactory manner, it may harm our business.

We use third parties to provide certain manufacturing and operational support and for assistance with clinical trials, data management and statistical support. While we have agreements governing their activities, we have limited influence over certain of these third parties’ actual performance. We have previously relied upon such third parties and plan to continue to use third parties to assist with monitoring and managing data for our ongoing clinical programs for IV meloxicam and our other product candidates, as well as the execution of nonclinical studies. We control only certain aspects of our third parties’ activities.

We and our contractors are required to comply with Good Laboratory Practices, or GLPs, and Good Clinical Practices, or cGCPs, which are regulations and guidelines enforced by the FDA and equivalent regulatory authorities in other countries for all of our product candidates in development. The FDA and the equivalent regulatory authorities in other countries enforce these GLPs and cGCPs through periodic inspections of trial sponsors, principal investigators and clinical trial sites. If we or our contractors fail to comply with applicable GLPs and cGCPs, the data generated in our nonclinical studies and clinical trials may be deemed unreliable and the FDA may require us to perform additional studies or clinical trials before approving our marketing applications. In addition, our clinical trials for our product candidates will require a sufficiently large number of test subjects to evaluate the safety and effectiveness of each product candidate. Accordingly, if our contractors fail to comply with these regulations or fail to recruit a sufficient number of patients, we may be required to repeat the clinical trials, which would delay the regulatory approval process.

These contractors may also have relationships with other commercial entities, including our competitors, for whom they may also be conducting clinical studies or other drug development activities that could harm our competitive position. While we take steps to protect our intellectual property, we face the risk of potential unauthorized disclosure or misappropriation of our intellectual property by our contractors, which may allow our potential competitors to access our proprietary technology. If our contractors do not successfully carry out their contractual duties or obligations or fail to meet expected deadlines for items within their purview, or if the quality or accuracy of the clinical data they oversee is compromised due to the failure to adhere to our clinical protocols or regulatory requirements or for any other reasons, our clinical trials may be extended, delayed or terminated, and we may not be able to obtain regulatory approval for, or successfully commercialize IV meloxicam or our other product candidates. As a result, our financial results and the commercial prospects for IV meloxicam and any future product candidates that we develop would be harmed, our costs could increase, and our ability to generate revenues could be delayed.

Risks Related to Our Business Operations and Industry

We may be subject to litigation or government investigations for a variety of claims, which could adversely affect our operating results, harm our reputation or otherwise negatively impact our business.

We may be subject to litigation or government investigations. These may include claims, lawsuits, and proceedings involving securities laws, product liability, labor and employment, wage and hour, commercial and

 

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other matters. For example, on May 31, 2018, a securities class action lawsuit, or the Securities Litigation, was filed against Recro and certain of its officers and directors, and we have agreed to assume all of Recro’s obligations and indemnify Recro for all liabilities related to the Securities Litigation. The outcome of any litigation or government investigation, regardless of its merits, is inherently uncertain. Any lawsuits or government investigations, and the disposition of such lawsuits and government investigations, could be time-consuming and expensive to resolve and divert management attention and resources. Any adverse determination related to litigation or government investigations could adversely affect our operating results, harm our reputation or otherwise negatively impact our business. In addition, depending on the nature and timing of any such dispute, a resolution of a legal matter or government investigation could materially affect our future operating results, our cash flows or both.

Our future success depends on our ability to retain and have the full attention of our key executives as well as to attract, retain and motivate other qualified personnel.

We are highly dependent on the principal members of our executive team and, in particular, the services of Gerri A. Henwood, our President and Chief Executive Officer, and Ryan D. Lake, our Chief Financial Officer, the loss of whose services would adversely impact the achievement of our objectives. Ms. Henwood currently serves as the President and Chief Executive Officer of Recro and Mr. Lake also currently serves as the Chief Financial Officer of Recro. This may at times adversely affect their ability to devote time, attention, and effort to us. We have not yet entered into employment agreements with each of our executive officers. Recruiting and retaining qualified employees for our business, including scientific and technical personnel, will also be critical to our success. There is currently a shortage of skilled executives in our industry, which is likely to continue. As a result, competition for skilled personnel is intense and the turnover rate can be high. We may not be able to attract and retain personnel on acceptable terms given the competition among numerous pharmaceutical companies for individuals with similar skill sets. In addition, failure to succeed in clinical studies may make it more challenging to recruit and retain qualified personnel. The inability to recruit or loss of the services of any executive or key employee could impede the progress of our research, development and commercialization objectives.

We may acquire other assets or businesses, or form collaborations or make investments in other companies or technologies, that have a material adverse effect on our operating results, dilute our shareholders’ ownership, increase our debt or cause us to incur significant expense.

A key aspect of our business strategy is seeking in-license or acquisition opportunities to add commercial or near-commercial products to our portfolio. We may not identify or complete these transactions in a timely manner, on a cost-effective basis, or at all, and we may not realize the anticipated benefits of any such transaction, any of which could have a material adverse effect on our financial condition, results of operations and cash flows. We may not be able to find suitable acquisition candidates, and if we make any acquisitions, we may not be able to integrate these acquisitions successfully into our existing business and we may incur additional debt or assume unknown or contingent liabilities in connection therewith. Integration of an acquired company or assets may also disrupt ongoing operations, require the hiring of additional personnel and the implementation of additional internal systems and infrastructure, especially the acquisition of commercial assets, and require management resources that would otherwise focus on developing our existing business.

To finance any acquisitions or collaborations, we may choose to issue debt or shares of our common or preferred stock as consideration. Any such issuance of shares would dilute the ownership of our shareholders. If the price of our common stock is low or volatile, we may not be able to acquire other assets or companies or fund a transaction using our stock as consideration. Alternatively, it may be necessary for us to raise additional funds for acquisitions through public or private financings. Additional funds may not be available on terms that are favorable to us, or at all.

 

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Our employees, partners, independent contractors, principal investigators, consultants, vendors and contract research organizations may engage in misconduct or other improper activities, including noncompliance with regulatory standards and requirements.

We are exposed to the risk that our employees, partners, independent contractors, principal investigators, consultants, vendors and CROs may engage in fraudulent or other illegal activity with respect to our business. Misconduct by these employees could include intentional, reckless and/or negligent conduct or unauthorized activity that violates: (1) FDA or DEA regulations, including those laws requiring the reporting of true, complete and accurate information to the FDA; (2) manufacturing standards; (3) federal and state healthcare fraud and abuse laws and regulations; or (4) laws that require the true, complete and accurate reporting of financial information or data. Activities subject to these laws also involve the improper use of information obtained in the course of clinical trials, or illegal misappropriation of drug product, which could result in regulatory sanctions and serious harm to our reputation. Any incidents or any other conduct that leads to an employee receiving an FDA debarment could result in a loss of business from our partners and severe reputational harm. In connection with the Separation, we will adopt a Code of Business Conduct and Ethics, but it is not always possible to identify and deter employee misconduct, and the precautions we take to detect and prevent this activity may not be effective in controlling unknown or unmanaged risks or losses or in protecting us from governmental investigations or other actions or lawsuits stemming from a failure to be in compliance with such laws or regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could adversely affect our ability to operate our business, operating results and financial condition.

We face potential product liability claims, and, if successful claims are brought against us, we may incur substantial liability.

The use of our product candidates in clinical studies and the sale of any products for which we obtain marketing approval exposes us to the risk of product liability claims. Product liability claims might be brought against us by consumers, health care providers, pharmaceutical companies or others selling or otherwise coming into contact with our products. If we cannot successfully defend against product liability claims, we could incur substantial liability and costs. In addition, regardless of merit or eventual outcome, product liability claims may result in:

 

   

impairment of our business reputation and negative media attention;

 

   

withdrawal of clinical study participants;

 

   

termination of clinical trial sites;

 

   

costs due to related litigation;

 

   

distraction of management’s attention from our primary business;

 

   

decreased demand for our manufacturing services or loss of any of our commercial partners;

 

   

substantial monetary awards to patients or other claimants;

 

   

the inability to commercialize our product candidates;

 

   

decreased demand for our product candidates, if approved for commercial sale; and/or

 

   

increased scrutiny and potential investigation by, among others, the FDA, the Department of Justice, the Office of Inspector General of the U.S. Department of Health and Human Services, State Attorneys General, members of Congress and the public.

Our product liability insurance coverage may not be sufficient to reimburse us for any expenses or losses we may suffer. Moreover, insurance coverage is becoming increasingly expensive and, in the future, we may not be able

 

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to maintain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses due to liability. If and when we obtain marketing approval for our product candidates, we intend to expand our insurance coverage to include the sale of commercial products; however, we may be unable to obtain product liability insurance on commercially reasonable terms or in adequate amounts.

On occasion, large judgments have been awarded in class action lawsuits based on drugs that had unanticipated AEs. A successful product liability claim or series of claims brought against us could cause our stock price to decline and, if judgments exceed our insurance coverage, could adversely affect our results of operations and business.

We will incur increased costs as a result of operating as a public company. If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could result in sanctions or other penalties that would harm our business.

Following the Distribution, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act. Additionally, we intend to apply to list our common stock on Nasdaq and, upon listing, will be subject to the rules and regulations of the Nasdaq Capital Market. Our financial results historically were included within the consolidated results of Recro, and until the Distribution occurs, we have not been and will not be directly subject to reporting and other requirements of the Exchange Act and Section 404 of the Sarbanes-Oxley Act. After the Distribution, we will qualify as an “emerging growth company” and a “smaller reporting company.” For so long as we remain an emerging growth company, we will be exempt from Section 404(b) of the Sarbanes-Oxley Act, which requires auditor attestation to the effectiveness of internal control over financial reporting. We will cease to be an emerging growth company on the date that is the earliest of (i) the last day of the fiscal year in which we have total gross annual revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of our sale of common equity securities pursuant to an effective registration statement under the Securities Act; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC. Even after we no longer qualify as an emerging growth company, we may still qualify as a smaller reporting company, which would allow us to take advantage of many of the same exemptions from disclosure requirements, including reduced disclosure obligations regarding executive compensation in this information statement and our periodic reports and proxy statements. We cannot predict if investors will find our common stock less attractive because we may rely on the exemptions available to us as an emerging growth company and/or smaller reporting company. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile.

We will, however, be subject to Section 404(a) of the Sarbanes-Oxley Act beginning with our first Annual Report on Form 10-K following the Separation which requires, among other things, annual management assessments of the effectiveness of our internal control over financial reporting beginning in our second annual report filed after the Distribution. As of the expiration of our emerging growth company status, we will be broadly subject to enhanced reporting and other requirements under the Exchange Act and Sarbanes-Oxley Act. This will require, among other things, annual management assessments of the effectiveness of our internal control over financial reporting and a report by our independent registered public accounting firm addressing these assessments. These and other obligations could place significant demands on our management, administrative and operational resources, including accounting and information technology resources and our management and other personnel will need to devote a substantial amount of time to these compliance initiatives. Moreover, these rules and regulations will increase our legal and financial compliance costs and will make some activities more time-consuming and costly.

We may discover weaknesses in our system of internal financial and accounting controls and procedures that could result in a material misstatement of our financial statements. Our internal control over financial reporting will not prevent or detect all errors and all fraud. A control system, no matter how well designed and operated,

 

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can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that misstatements due to error or fraud will not occur or that all control issues and instances of fraud will be detected.

If we are not able to comply with the requirements of Section 404 of the Sarbanes-Oxley Act in a timely manner, or if we are unable to maintain proper and effective internal controls over financial reporting, we may not be able to produce timely and accurate financial statements. If that were to happen, our investors could lose confidence in our reported financial information, the market price of our stock could decline, and we could be subject to sanctions or investigations by the SEC or other regulatory authorities.

The security of our information technology systems may be compromised in the event of system failures, unauthorized access, cyberattacks or a deficiency in our cybersecurity, and confidential information, including non-public personal information that we maintain, could be improperly disclosed.

We rely extensively on information technology and systems including internet sites, data hosting, physical security, and software applications and platforms. Despite our security measures, our information technology systems, some of which are managed by third parties, may be susceptible to damage, disruptions or shutdowns due to computer viruses, attacks by computer hackers, failures during the process of upgrading or replacing software, power outages, user errors or catastrophic events. A significant breakdown, invasion, corruption, destruction or interruption of critical information technology systems, by our employees, others with authorized access to our systems or unauthorized persons could negatively impact or interrupt operations. For example, the loss of data from completed or ongoing clinical trials for our product candidates could result in delays in our regulatory approval efforts and significantly increase our costs to recover or reproduce the data. The use of technology, including cloud-based computing, creates opportunities for the unintentional dissemination or intentional destruction of confidential information stored in our systems or our third-party systems. We could also experience a business interruption, theft of confidential information or reputational damage from malware or other cyberattacks, which may compromise our systems or lead to data leakage, either internally or at our third-party providers.

As part of our business, we maintain large amounts of confidential information, including non-public personal information on patients and our employees. The maintenance of such information is governed by various rules and regulations in the jurisdictions in which we conduct our business, including by the General Data Privacy Regulation, or GDPR, in the European Union. Breaches in security, either internally or at our third-party providers, could result in the loss or misuse of this information, which could, in turn, result in potential regulatory actions or litigation, including material claims for damages, interruption to our operations, damage to our reputation or otherwise have a material adverse effect on our business, financial condition and operating results. Although we believe we have appropriate information security policies and systems in place in order to prevent unauthorized use or disclosure of confidential information, including non-public personal information, there can be no assurance that such use or disclosure will not occur.

Any such business interruption, theft of confidential information or reputational damage from malware or other cyberattacks, or violation of personal information laws, could have a material adverse effect on our business, financial condition, and results of operations.

If we fail to comply with data protection laws and regulations, we could be subject to government enforcement actions (which could include civil or criminal penalties), private litigation and/or adverse publicity, which could negatively affect our operating results and business.

We are subject to laws and regulations that address privacy and data security of patients who use our product candidates in the United States and in states in which we conduct our business. In the United States, numerous federal and state laws and regulations, including state data breach notification laws, state health information

 

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privacy laws, and federal and state consumer protection laws (e.g., Section 5 of the Federal Trade Commission Act) govern the collection, use, disclosure, and protection of health-related and other personal information. For instance, HIPAA imposes certain obligations, including mandatory contractual terms, with respect to safeguarding the privacy, security and transmission of individually identifiable health information and imposes notification obligations in the event of a breach of the privacy or security of individually identifiable health information on entities subject to HIPAA and their business associates that perform certain activities that involve the use or disclosure of protected health information on their behalf. Certain of these laws and regulations are described in greater detail in the section below under “Business - Government Regulation - Other Healthcare Laws and Compliance Requirements.” Failure to comply with applicable data protection laws and regulations could result in government enforcement actions and create liability for us, which could include civil and/or criminal penalties, as well as private litigation and/or adverse publicity that could negatively affect our operating results and business.

Risks Related to Our Intellectual Property

We own or license numerous pending patent applications and issued patents in the United States. If our pending patent applications fail to issue or if our issued patents expire or are successfully opposed, invalidated, or rendered unenforceable, our business will be adversely affected.

Our commercial success will depend in part on obtaining and maintaining patent protection for our product candidates, as well as successfully defending our current and future patents against third-party challenges. To protect our proprietary technology, we intend to rely on patents, and we may also rely on other intellectual property protections, including trade secrets, nondisclosure agreements and confidentiality provisions.

There can be no assurance that our pending patent applications will result in issued patents. We own patents and patent applications for injectable meloxicam that cover compositions, including compositions produced using NanoCrystal® technology, a method of making and method of treating. These issued patents expire in 2022 in the United States. We also in-license from Alkermes, on a perpetual royalty-free basis i) composition and methods of making patents, one of which we anticipate to be Orange-Book listable ii) several patents (specifically directed to methods of reducing flake-like aggregates in injectable nanoparticulate active agent compositions, and directed to injectable nanoparticulate active agent compositions produced by methods for reducing flake-like aggregates), which expire in 2030, and an application directed to injectable, nanoparticulate meloxicam compositions, which, if issued, would expire in 2030. As of October 22, 2019, we own or license a total of four issued U.S. patents and nine U.S. pending patent applications, and 59 issued foreign patents (including European validation countries) and six pending foreign applications related to meloxicam. As of October 22, 2019, we are the owner of record of one issued U.S. patent, 1 pending U.S. application and 28 issued foreign patents, including European validation countries, and ten pending foreign applications to Dex. In addition, we have licensed four patent families containing several U.S. and foreign issued patents and pending applications related to neuromuscular blocking agents from Cornell University. The patent applications that we have filed and have not yet been granted may fail to result in issued patents in the United States or foreign countries. Even if the patents do successfully issue, third parties may challenge the patents or the inventorship thereof, which can lead to an issued patent being found invalid, unenforceable or can otherwise alter the ownership of the patents.

The issuance of any patent is not a certainty. Unless and until our pending applications issue, their protective scope is impossible to determine. It is impossible to predict whether or how many of these applications will result in issued patents and patents that issue may be challenged in the courts or patent offices in the United States and abroad. Such challenges may result in loss of patent exclusivity or freedom to operate or in patent claims being narrowed, invalidated or held unenforceable, in whole or in part, which may limit our ability to prevent others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection of our technology and products. In addition, upon expiration of a patent, we may be limited in our ability to prevent others from using or commercializing subject matter covered by the expired patents. As a result, our owned and licensed patent portfolio may not provide us with sufficient rights to exclude others from commercializing products similar or identical to ours.

 

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The patent position of biotechnology and pharmaceutical companies, including us, generally is highly uncertain, involves complex legal and factual questions and has in recent years been the subject of much litigation. In addition, the laws of foreign countries may not protect our rights to the same extent as the laws of the United States. For example, European patent law restricts the patentability of methods of treatment of the human body more than United States law does. Publications of discoveries in the scientific literature often lag behind the actual discoveries, and patent applications in the United States and other jurisdictions are typically not published until 18 months after the first filing, or in some case at all. Therefore, we cannot know with certainty whether we or our licensors were the first to make the inventions claimed in our owned or licensed patents or pending patent applications, or that we or our licensors were the first to file for patent protection of such inventions. As a result, the issuance, scope, validity, enforceability and commercial value of our patent rights are highly uncertain. In addition, we may not be aware of particular prior art publications that may have an impact on patentability or enforceability. Further, the examination process may require us or our licensors to narrow the claims for our pending patent applications due to, for example, such prior art publications, which may limit the scope of patent protection that may be obtained if these applications issue. Our pending and future patent applications may not result in patents being issued which protect our technology or products, in whole or in part, or which effectively prevent others from commercializing competitive technologies and products. Furthermore, our pending applications cannot be enforced against third parties practicing the technology claimed in such applications unless and until a patent issues from such applications. Because the issuance of a patent is not conclusive as to its inventorship, scope, validity or enforceability, issued patents that we own or have licensed from third parties may be challenged in the courts or patent offices in the U.S. and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents, and/or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and products, or limit the duration of the patent protection for our technology and products. Changes in either the patent laws or interpretation of the patent laws in the United States and other countries may diminish the value of patents or narrow the scope of patent protection.

Patent reform legislation could increase the uncertainties and costs surrounding the prosecution of patent applications and the enforcement or defense of issued patents. The Leahy Smith America Invents Act, or the Leahy Smith Act, enacted in September 2011, brought significant changes to the U.S. patent system. These include provisions that affect the way patent applications are prosecuted and may also affect patent litigation. The United States Patent Office continues to develop and implement new regulations and procedures to govern administration of the Leahy Smith Act, and many of the substantive changes to patent law associated with the Leahy Smith Act became effective on March 16, 2013. The Leahy Smith Act and its implementation could increase the uncertainties and costs surrounding the prosecution of our patent applications and the enforcement or defense of our issued patent, all of which could have a material adverse effect on our business and financial condition.

Litigation involving patents, patent applications and other proprietary rights is expensive and time-consuming. If we are involved in such litigation, it could cause delays in bringing our product candidates to market and interfere with our business.

Our commercial success depends in part on not infringing patents and proprietary rights of third parties. Although we are not currently aware of litigation or other proceedings or third-party claims of intellectual property infringement related to our product candidates, the pharmaceutical industry is characterized by extensive litigation regarding patents and other intellectual property rights.

As we enter our target markets, it is possible that competitors or other third parties will claim that our products and/or processes infringe their intellectual property rights. These third parties may have obtained and may in the future obtain patents covering products or processes that are similar to, or may include compositions or methods that encompass our technology, allowing them to claim that the use of our technologies infringes these patents. If such third-party patent is listed in the Orange Book, we would be required to file a certification, known as a Paragraph IV certification, that we are not infringing the patent, or that the patent is invalid. The third-party

 

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would then have 45 days to file a patent infringement lawsuit against us, and if so brought, we could be subject to a stay of up to 30 months (unless before that time the patent expires or is judged to be invalid or not infringed), in which we would be unable to have our 505(b)(2) application approved.

In a patent infringement claim against us, we may assert, as a defense, that we do not infringe the relevant patent claims, that the patent is invalid or both. The strength of our defenses will depend on the patents asserted, the interpretation of these patents and/or our ability to invalidate the asserted patents. However, we could be unsuccessful in advancing non-infringement and/or invalidity arguments in our defense. In the United States, issued patents enjoy a presumption of validity, and the party challenging the validity of a patent claim must present clear and convincing evidence of invalidity, which is a high burden of proof. Conversely, the patent owner need only prove infringement by a preponderance of the evidence, which is a low burden of proof.

If we were found by a court to have infringed a valid patent claim, we could be prevented from using the patented technology or be required to pay the owner of the patent for the right to license the patented technology. If we decide to pursue a license to one or more of these patents, we may not be able to obtain a license on commercially reasonable terms, if at all, or the license we obtain may require us to pay substantial royalties or grant cross licenses to our patent rights. For example, if the relevant patent is owned by a competitor, that competitor may choose not to license patent rights to us. If we decide to develop alternative technology, we may not be able to do so in a timely or cost-effective manner, if at all.

In addition, because patent applications can take years to issue and are often afforded confidentiality for some period of time, there may currently be pending applications, unknown to us, that later result in issued patents that could cover one or more of our products.

It is possible that we may in the future receive, particularly as a public company, communications from competitors and other companies alleging that we may be infringing their patents, trade secrets or other intellectual property rights, offering licenses to such intellectual property or threatening litigation. In addition to patent infringement claims, third parties may assert copyright, trademark or other proprietary rights against us. We may need to expend considerable resources to counter such claims and may not be able to be successful in our defense. Our business may suffer if a finding of infringement is established.

Generic competitors can challenge the U.S. patents protecting our product candidates by filing an ANDA or an NDA for a generic or a modified version of our product candidates and negatively affect our competitive position.

Separate and apart from the protection provided under the U.S. patent laws, drug candidates may be subject to the provisions of the Hatch-Waxman Act, which may provide drug candidates with either a three- or five-year period of marketing exclusivity following receipt of FDA approval. The Hatch-Waxman Act prohibits the FDA from accepting the filing of an abbreviated new drug application, or ANDA, (for a generic product) or a 505(b)(2) NDA (for a modified version of the product) for three years for active drug ingredients previously approved by the FDA or for five years for active drug ingredients not previously approved by the FDA.

There is an exception, however, for newly approved molecules that allows competitors to challenge a patent beginning four years into the five-year exclusivity period by alleging that one or more of the patents listed in the FDA’s list of approved drug products are invalid, unenforceable and/or not infringed and submitting an ANDA for a generic version of a drug candidate. This patent challenge is commonly known as a Paragraph IV certification. Within the past several years, the generic industry has aggressively pursued approvals of generic versions of innovator drugs at the earliest possible point in time.

If a generic company is able to successfully challenge the patents covering drug candidates by obtaining FDA approval for an ANDA, the generic company may choose to launch a generic version of a drug candidate. Any launch of a generic version of our drug candidates prior to the expiration of patent protection will have a material adverse effect on our revenues and our results of operations.

 

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It is difficult and costly to protect our proprietary rights, and we may not be able to ensure their protection.

The patent positions of pharmaceutical companies can be highly uncertain and involve complex legal and factual questions for which important legal principles remain unresolved. No consistent policy regarding the breadth of claims allowed in pharmaceutical patents has emerged in the United States to date. The pharmaceutical patent situation outside of the United States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States and other countries may diminish the value of our intellectual property. Accordingly, we cannot predict the breadth of claims that may be allowed or enforced in the patents that may be issued from the applications we currently or may in the future own or license from third parties. Further, if any patent license we obtain is deemed invalid and/or unenforceable, it could impact our ability to commercialize or partner our technology.

The degree of future protection for our proprietary rights is uncertain, and we cannot ensure that:

 

   

we were the first to make the inventions covered by each of our pending patent applications;

 

   

we were the first to file patent applications for these inventions;

 

   

others will not independently develop similar or alternative technologies or duplicate any of our technologies;

 

   

an individual or party will not challenge inventorship, that if successful, could have an adverse effect on our business;

 

   

any patents issued to us or our collaborators will provide a basis for commercially viable products, will provide us with any competitive advantages or will not be challenged by third parties; or

 

   

the patents of others will not have an adverse effect on our business.

If we do not adequately protect our proprietary rights, competitors may be able to use our technologies and erode or negate any competitive advantage we may possess, which could materially harm our business, negatively affect our position in the marketplace, limit our ability to commercialize our product candidates and delay or render impossible our achievement of profitability.

We may be unable to adequately prevent disclosure of trade secrets and other proprietary information.

In the future, we may rely on trade secrets to protect our proprietary know-how and technological advances, especially where we do not believe patent protection is appropriate or obtainable. However, trade secrets are difficult to protect. We rely in part on confidentiality agreements with our employees, consultants, outside scientific collaborators, sponsored researchers and other advisors to protect our trade secrets and other proprietary information. These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information. In addition, others may independently discover our trade secrets and proprietary information. Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights. Failure to obtain or maintain trade secret protection could enable competitors to use our proprietary information to develop products that compete with our products or cause additional, material adverse effects on our competitive business position.

Periodic maintenance fees, renewal fees, annuity fees and various other governmental fees on patents and/or applications will be due to be paid to the United States Patent and Trademark Office and various foreign governmental patent agencies in several stages over the lifetime of the patents and/or applications.

We have systems in place to remind us to pay periodic maintenance fees, renewal fees, annuity fees and various other patent and application fees, and we employ an outside law firm to pay these fees. The U.S. Patent and

 

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Trademark Office and various foreign governmental patent agencies require compliance with a number of procedural, documentary, fee payment and other similar provisions during the patent application process. We employ an outside law firm and other professionals to help us comply, and in many cases, an inadvertent lapse can be cured by payment of a late fee or by other means in accordance with the applicable rules. However, there are situations in which noncompliance can result in abandonment or lapse of the patent or patent application, resulting in partial or complete loss of patent rights in the relevant jurisdiction. If this occurs, our competitors may be able to enter the market, which would have a material adverse effect on our business.

We may not be able to enforce our intellectual property rights throughout the world.

The laws of some foreign countries do not protect intellectual property rights to the same extent as the laws of the United States. Many companies have encountered significant problems in protecting and defending intellectual property rights in certain foreign jurisdictions. The legal systems of some countries, particularly developing countries, do not favor the enforcement of patents and other intellectual property protection, especially those relating to life sciences. This could make it difficult for us to stop the infringement of our patents or the misappropriation of our other intellectual property rights. For example, many foreign countries have compulsory licensing laws under which a patent owner must grant licenses to third parties. In addition, many countries limit the enforceability of patents against third parties, including government agencies or government contractors. In these countries, patents may provide limited or no benefit.

Proceedings to enforce our patent rights in foreign jurisdictions could result in substantial costs and divert our efforts and attention from other aspects of our business. Accordingly, our efforts to protect our intellectual property rights in such countries may be inadequate. In addition, changes in the law and legal decisions by courts in the United States and foreign countries may affect our ability to obtain adequate protection for our technology and the enforcement of intellectual property. If we are unable to adequately enforce our intellectual property rights throughout the world, our business, financial condition, and results of operations could be adversely impacted.

Risks Related to the Separation

We may not achieve some or all of the expected benefits of the Separation, and the Separation could harm our business, prospects, financial condition and results of operations.

We may not be able to achieve some or all of the anticipated strategic, financial, operational, marketing or other benefits expected to result from the Separation, or such benefits may be delayed or not occur at all. These actions may not provide the benefits we currently expect, and could lead to disruption of our operations, loss of or inability to recruit key personnel needed to operate and grow our businesses following the Separation, weakening of our internal standards, controls or procedures and impairment of our key collaborations and supplier relationships. In addition, completion of the Separation has required and will continue to require significant amounts of management’s time and effort, which may divert management’s attention from operating and growing our businesses.

By separating from Recro, we may become more susceptible to market fluctuations and other adverse events than we would have been if we were still a part of the current Recro organizational structure. As part of Recro, we have been able to benefit from opportunities to pursue integrated strategies with Recro’s other business activities. As a newly formed, independent company, we will not have, and may never develop, any market reputation, which may limit our ability to recruit and retain personnel, pursue and negotiate strategic transactions, and access the capital markets to finance our operations. If we fail to achieve some or all of the benefits that we expect to achieve as an independent company, or do not achieve them in the time we expect, our business, prospects, financial condition and results of operations may be materially harmed.

 

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We may be unable to make, on a timely or cost-effective basis, the changes necessary to operate as an independent company.

We have historically operated as part of Recro’s corporate organization, and Recro has assisted us by providing various corporate and other business functions. Following the Separation, Recro will have no obligation to assist our operations or growth strategy, other than providing certain services or rights pursuant to agreements described under “Certain Relationships and Related Person Transactions—Agreements with Recro.”

If we fail to develop high-quality internal capabilities, or obtain comparable services from third-party providers, in a cost-effective manner, we may be unable to operate our existing business or execute our strategic priorities successfully and efficiently, and our operating results and financial condition may be materially harmed.

We have no history of operating as an independent company and we expect to incur increased administrative and other costs following the Separation by virtue of our status as an independent public company. Our historical and pro forma financial information is not necessarily representative of the results that we would have achieved as a separate, publicly traded company and should not be relied upon as an indicator of our future results.

Our historical information provided in this information statement refers to our business as operated by and integrated with Recro. Our historical and pro forma financial information included in this information statement is derived from the consolidated financial statements and accounting records of Recro. Accordingly, the historical and pro forma financial information included in this information statement may not reflect the operating results, financial condition or cash flows that we would have achieved as a separate, publicly traded company during the periods presented, or the financial results we will achieve in the future. In particular, our future financial results may vary from the historical and pro forma financial information included in this information statement as a result of the following factors, among others:

 

   

our historical combined financial data does not reflect the Separation;

 

   

our historical financial data reflects expense allocations for certain business and support functions that are provided on a centralized basis within Recro, such as expenses for research and development and corporate administrative services, including information technology, finance, legal, insurance, compliance and human resources activities, that may be lower than the comparable expenses we would have actually incurred, or will incur in the future, as a standalone company;

 

   

our capital structure will be different from that reflected in our historical combined financial statements;

 

   

significant increases may occur in our cost structure as a result of becoming a standalone public company, including costs related to public company reporting, investor relations and compliance with the Sarbanes-Oxley Act; and

 

   

the Separation may have a material effect on our relationships with our suppliers, collaborators and other business relationships.

Our financial condition and future results of operations, after giving effect to the Separation, will be materially different from amounts reflected in our historical financial statements included elsewhere in this information statement. As a result of the Separation, it may be difficult for investors to compare our future results to historical results or to evaluate our relative performance or trends in our business.

The Separation may impede our ability to attract and retain key personnel, which could materially harm our business.

Our success depends in large part upon the leadership and performance of our management team and other key employees. Operating as an independent company will demand a significant amount of time and effort from our

 

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management and other employees and may give rise to increased employee turnover. If we lose the services of members of our management team or other key employees, we may not be able to successfully manage our business or achieve our business objectives.

Following the Separation, we will need to continue to attract and retain qualified key personnel in a highly competitive environment. Our ability to attract, recruit and retain such talent will depend on a number of factors, including the hiring practices of our competitors, the performance of our development programs, our compensation and benefits, work location and work environment and economic conditions affecting our industry generally. If we cannot effectively hire and retain qualified employees, our business, prospects, financial condition and results of operations could suffer.

The Separation may result in disruptions to, and harm our relationships with, our strategic business partners.

Uncertainty related to the Separation may lead the suppliers, licensors, research organizations, and other parties with which we currently do business or may do business in the future to terminate or attempt to negotiate changes in our existing business relationships, or cause them to delay entering into business relationships with us or consider entering into business relationships with parties other than us. These disruptions could have a material and adverse effect on our business, prospects, financial condition and results of operations. The effect of such disruptions could be exacerbated by any delays in the completion of the Separation.

The Distribution likely will not qualify for tax-free treatment and may be taxable to you as a dividend.

The Distribution likely will not qualify for tax-free treatment and may be taxable to you as a dividend. An amount equal to the fair market value of the Baudax Bio common stock received by you in the Distribution will be treated as a taxable dividend to the extent of your ratable share of current and accumulated earnings and profits of Recro for the taxable year of the Distribution. To the extent that the fair market value of such Baudax Bio common stock exceeds your ratable share of such earnings and profits, any such excess will be treated first as a nontaxable return of capital to the extent of your tax basis in Recro shares, and thereafter as capital gain recognized on a sale or exchange of such shares. See “Material U.S. Tax Consequences” later in this document.

Although Recro will be ascribing a value to the shares of Baudax Bio common stock it distributes for tax purposes, this valuation is not binding on the Internal Revenue Service, or the IRS, or any other tax authority. These taxing authorities could ascribe a higher valuation to the shares of Baudax Bio common stock, particularly if such shares trade at prices significantly above the value ascribed to them by Recro in the period following the Distribution. Such a higher valuation may cause a larger reduction in the tax basis of a shareholder’s shares of Recro common stock or may cause a shareholder to recognize additional dividend or capital gain income. You should consult your own tax advisor as to the particular tax consequences of the Distribution to you.

Until the Distribution occurs, Recro has sole discretion to change the terms of the Separation in ways that may be unfavorable to us.

Until the Distribution occurs, we will be a subsidiary of Recro. Completion of the Separation remains subject to the satisfaction or waiver of certain conditions, some of which are in the sole and absolute discretion of Recro, including final approval by the Recro Board. Additionally, Recro has the sole and absolute discretion to change certain terms of the Separation, which changes could be unfavorable to us. In addition, Recro may decide at any time prior to the completion of the Separation not to proceed with the Separation.

In connection with the Separation, we will assume and agree to indemnify Recro for certain liabilities. If we are required to make payments pursuant to these indemnities to Recro, we may need to divert cash to meet those obligations and our financial results could be harmed.

Pursuant to the Separation Agreement and certain other agreements we intend to enter into with Recro, we will assume and agree to indemnify Recro for certain liabilities for uncapped amounts, which may include, among

 

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other items, associated defense costs, settlement amounts and judgments, as discussed further in “Certain Relationships and Related Person Transactions—Agreements with Recro” and “Index to Financial Statements—Notes to Combined Financial Statements.” Payments pursuant to these indemnities may be significant and could harm our business. Third parties could also seek to hold us responsible for any of the liabilities of the Recro business. Recro will agree to indemnify us for liabilities of the Recro business, but such indemnity from Recro may not be sufficient to protect us against the full amount of such liabilities, and Recro may not fully satisfy its indemnification obligations. Moreover, even if we ultimately succeed in recovering from Recro any amounts for which we are held liable, we may be temporarily required to bear these losses ourselves. Each of these risks could harm our business, prospects, financial condition and results of operations.

We have assumed Recro’s obligations in connection with its ongoing securities class action lawsuit, which, if resolved unfavorably, could expose us to significant liabilities.

On May 31, 2018, the Securities Litigation, was filed against Recro and certain of its officers and directors in the U.S. District Court for the Eastern District of Pennsylvania (Case No. 2:18-cv-02279-MMB) and purported to state a claim for alleged violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10(b)(5) promulgated thereunder, based on statements made by Recro concerning the NDA for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and other costs. On December 10, 2018, lead plaintiff filed an amended complaint that asserted the same claims and sought the same relief but included new allegations and named additional officers and directors as defendants. On February 8, 2019, Recro filed a motion to dismiss the amended complaint in its entirety, which the lead plaintiff opposed on April 9, 2019. On May 9, 2019, Recro filed its response and briefing was completed on the motion to dismiss.

In connection with the Separation, we accepted assignment by Recro of all of Recro’s obligations in connection with the Securities Litigation and agreed to indemnify Recro for all liabilities related to the Securities Litigation. We believe that the lawsuit is without merit and we intend to vigorously defend against it. The lawsuit is in the early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to us. This litigation could result in substantial costs and a diversion of management’s resources and attention. In addition, any adverse determination could expose us to significant liabilities, which could have a material adverse effect on our business, financial condition, and results of operations.

Our agreements with Recro may not reflect terms that would have resulted from negotiations with unaffiliated third parties.

The agreements related to the Separation, including, among others, the Separation Agreement, the transition services agreement, the tax matters agreement and the employee matters agreement, will have been entered into in the context of the Separation while we are still controlled by Recro. Until the Distribution occurs, Recro will effectively have the sole and absolute discretion to determine and change the terms of the Separation, including the terms of any agreements between Recro and us and the establishment of the record date and distribution date. As a result, any changes could be unfavorable to us and may not reflect terms that would have resulted from negotiations between unaffiliated third parties. In addition, Recro may decide at any time not to proceed with all or any part of the Separation. For a more detailed description, see “Certain Relationships and Related Person Transactions—Agreements with Recro.”

Certain of our directors and officers may have actual or potential conflicts of interest because of their former or current positions with Recro.

Certain of our directors and officers may own shares of Recro common stock or other equity awards as a result of their prior or concurrent service as directors or officers of Recro. For certain of these individuals, their holdings of Recro common stock or equity awards may be significant compared to their total assets. In addition, our President and Chief Executive Officer and our Chief Financial Officer currently hold the same positions at Recro. This may at times adversely affect their ability to devote time, attention, and effort to us. The ownership of any

 

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Recro equity or equity awards, and our executive officers’ positions at Recro, creates, or may create the appearance of, conflicts of interest when these directors or officers are faced with decisions that could have different implications for Recro than for us.

The combined post-Separation value of Recro and our common stock may not equal or exceed the pre-Separation value of Recro common stock.

As a result of the Distribution, Recro expects the trading price of Recro common stock immediately following the Distribution to be lower than the trading price of such common stock immediately prior to the Distribution because the trading price will no longer reflect the value of our business held by Recro. Furthermore, following the Distribution, the trading price of our common stock may not reflect the full value of our business and assets, due to market inefficiencies in the initial trading of our shares or variations in investor views regarding our business and prospects, among other market forces. The aggregate market value of Recro common stock and our common stock following the Separation may be higher or lower than the market value of Recro common stock immediately prior to the Separation, and may fluctuate, particularly during the period immediately following the Distribution.

No vote of Recro shareholders is required in connection with this Distribution. As a result, if the Distribution occurs and you do not want to receive our common stock in the Distribution, your sole recourse will be to divest yourself of your Recro common stock prior to the record date.

No vote of the Recro shareholders is required in connection with the Distribution. Accordingly, if the Distribution occurs and you do not want to receive our common stock in the Distribution, your only recourse will be to divest yourself of your Recro common stock prior to the record date for the Distribution.

Risks Relating to Our Securities

There is no existing market for our shares of common stock and an active trading market may not develop for our shares. Once our shares of common stock begin trading, the market price of these shares may fluctuate widely.

There is currently no public market for our shares of common stock. It is anticipated that on or prior to the record date for the Distribution, trading of our shares of common stock will begin on a “when issued” basis and will continue up to and including through the distribution date. On the first trading day following the distribution date, any “when issued” trading of our common stock would end and “regular way” trading would begin. However, there can be no assurance that an active trading market for our shares of common stock will develop as a result of the Distribution or be sustained in the future.

We cannot predict the prices at which our shares of common stock may trade. The market price of our shares of common stock may fluctuate widely, depending upon many factors, some of which are beyond our control, including the following:

 

   

our ability to resolve the deficiencies identified by the FDA in the CRLs received by Recro for IV meloxicam and obtain regulatory approval of IV meloxicam;

 

   

the approved labeling for IV meloxicam, if any;

 

   

our ability to successfully commercialize IV meloxicam, either alone or through a strategic partnership, if approved;

 

   

our ability to identify a strategic partner with appropriate sales and marketing capabilities and to enter into a strategic partnership on commercially acceptable terms with such partner;

 

   

our ability to effectively manage the levels of production, distribution and delivery of IV meloxicam through our supply chain;

 

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FDA, state or international regulatory actions, including actions on regulatory applications for any of our product candidates;

 

   

our ability to leverage our development experience to progress our other pipeline product candidates;

 

   

legislative or regulatory changes;

 

   

judicial pronouncements interpreting laws and regulations;

 

   

changes in government programs;

 

   

our ability to identify and successfully acquire or in-license new product candidates on acceptable terms;

 

   

announcements of new products, services or technologies, commercial relationships, acquisitions or other events by us or our competitors;

 

   

market conditions in the pharmaceutical and biotechnology sectors;

 

   

fluctuations in stock market prices and trading volumes of similar companies;

 

   

changes in accounting principles;

 

   

litigation or public concern about the safety of our product candidates or similar product candidates;

 

   

sales of large blocks of our common stock, including sales by our executive officers, directors and significant shareholders;

 

   

our announcement of financing transactions, including debt, convertible notes, etc.; and

 

   

actions by institutional or activist shareholders.

These broad market and industry factors may decrease the market price of our common stock, regardless of our actual operating performance. When the market price of a company’s common stock drops significantly, shareholders often institute securities class action litigation against the company. A lawsuit against us could cause us to incur substantial costs and could divert the time and attention of our management and other resources.

Substantial sales of shares of our common stock may occur immediately following the Distribution which could cause the market price of shares of our common stock to decline.

It is possible that many of Recro’s shareholders will sell the shares of our common stock that they receive in the Distribution immediately in the public market because our business profile or market capitalization does not fit their investment objectives, because the shares are not included in certain indices or for other reasons. The sale of significant amounts of our shares or the perception in the market that this will occur may result in the lowering of the market price of our shares. We can offer no assurance that Recro’s shareholders will continue to hold the shares they receive in the Distribution.

If we fail to maintain proper and effective internal controls, our ability to produce accurate and timely financial statements could be impaired, which could harm our operating results, our ability to operate our business and investors’ views of us.

Ensuring that we have adequate internal financial and accounting controls and procedures in place so that we can produce accurate financial statements on a timely basis is a costly and time-consuming effort that will need to be frequently evaluated. Section 404 of the Sarbanes-Oxley Act requires public companies to conduct an annual review and evaluation of their internal controls and attestations of the effectiveness of internal controls by independent auditors (the latter requirement does not apply to smaller reporting companies-we qualify as a smaller reporting company). Our failure to maintain the effectiveness of our internal controls in accordance with

 

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the requirements of the Sarbanes-Oxley Act could have a material adverse effect on our business. We could lose investor confidence in the accuracy and completeness of our financial reports, which could have an adverse effect on the price of our common stock.

Our disclosure controls and procedures may not prevent or detect all errors or acts of fraud.

Our disclosure controls and procedures are designed to reasonably assure that information required to be disclosed by us in reports we file or submit under the Exchange Act is accumulated and communicated to management, recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC. We believe that any disclosure controls and procedures or internal controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met.

These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people or by an unauthorized override of the controls. Accordingly, because of the inherent limitations in our control system, misstatements or insufficient disclosures due to error or fraud may occur and not be detected.

If securities or industry analysts fail to initiate or maintain coverage of our stock, publish a negative report or change their recommendations regarding our stock adversely, our stock price and trading volume could decline.

The trading market for our common stock will be influenced by the research and reports that industry or securities analysts publish about us, our business, our market or our competitors. If securities or industry analysts fail to initiate coverage of our stock, the lack of exposure to the market could cause our stock price or trading volume to decline. If any of the analysts who may cover us in the future publish a negative report or change their recommendation regarding our stock adversely, or provide more favorable relative recommendations about our competitors, our stock price would likely decline. If any analyst who may cover us in the future were to cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which in turn could cause our stock price or trading volume to decline.

Your percentage ownership in the company may be diluted in the future.

In the future, your percentage ownership in the company may be diluted because of equity issuances for acquisitions, capital market transactions or otherwise, including equity awards that we plan to grant to our directors, officers and employees. Such awards will have a dilutive effect on our earnings per share, which could adversely affect the market price of our common stock. From time to time, we expect to issue stock options or other share-based awards to employees under our employee benefits plans.

In addition, our amended and restated articles of incorporation will authorize us to issue, without the approval of our shareholders, one or more classes or series of preferred stock having such designation, powers, preferences and relative, participating, optional and other special rights, including preferences over our common stock with respect to dividends and distributions, as our board of directors may determine. The terms of one or more classes or series of preferred stock could dilute the voting power or reduce the value of our common stock. For example, we could grant the holders of preferred stock the right to elect some number of directors in all events or on the happening of specified events or the right to veto specified transactions. Similarly, the repurchase or redemption rights or liquidation preferences we could assign to holders of preferred stock could affect the residual value of the common stock. See “Description of Our Capital Stock.”

We do not expect to pay any cash dividends for the foreseeable future.

We do not anticipate that we will pay any cash dividends to holders of our common stock in the foreseeable future. Instead, we plan to retain any earnings to maintain and expand our operations. In addition, any future debt

 

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financing arrangement may contain terms prohibiting or limiting the amount of dividends that may be declared or paid on our common stock. Accordingly, investors must rely on sales of their common stock after price appreciation, which may never occur, as the only way to realize any return on their investment. As a result, investors seeking cash dividends should not purchase our common stock.

Some provisions of our charter documents and Pennsylvania law may have anti-takeover effects that could discourage an acquisition of us by others, even if an acquisition would be beneficial to our shareholders, and may prevent attempts by our shareholders to replace or remove our current management.

Provisions in our amended and restated articles of incorporation and amended and restated bylaws could make it more difficult for a third-party to acquire us or increase the cost of acquiring us, even if doing so would benefit our shareholders, or remove our current management. These include provisions that:

 

   

divide our board of directors into three classes with staggered three-year terms;

 

   

provide that a special meeting of shareholders may be called only by a majority of our board of directors;

 

   

establish advance notice procedures with respect to shareholder proposals to be brought before a shareholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of director;

 

   

provide that shareholders may only act at a duly organized meeting; and

 

   

provide that members of our board of directors may be removed from office by our shareholders only for cause by the affirmative vote of 75% of the total voting power of all shares entitled to vote generally in the election of directors.

These provisions may frustrate or prevent any attempts by our shareholders to replace or remove our current management by making it more difficult for shareholders to replace members of our board of directors, who are responsible for appointing the members of our management. Because we are incorporated in Pennsylvania, we are governed by the provisions of the Pennsylvania Business Corporation Law of 1988, or PBCL, which may discourage, delay or prevent someone from acquiring us or merging with us whether or not it is desired by or beneficial to our shareholders. Under Pennsylvania law, a corporation may not, in general, engage in a business combination with any holder of 20% or more of its capital stock unless the holder has held the stock for five years or, among other things, the board of directors has approved the transaction. Any provision of our amended and restated articles of incorporation or amended and restated bylaws or Pennsylvania law that has the effect of delaying or deterring a change in control could limit the opportunity for our shareholders to receive a premium for their shares of our common stock, and could also affect the price that some investors are willing to pay for our common stock.

Our amended and restated bylaws will designate the state and federal courts located within the County of Philadelphia in the Commonwealth of Pennsylvania as the sole and exclusive forum for certain types of actions and proceedings that may be initiated by our shareholders, which could discourage lawsuits against us and our directors and officers.

Our Amended and Restated Bylaws provide that, unless we consent in writing to the selection of an alternative forum, a state or federal court located within the County of Philadelphia in the Commonwealth of Pennsylvania will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of our company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of PBCL, or (iv) any action asserting a claim peculiar to the relationships among or between our company and our officers, directors and shareholders. Any person or entity purchasing or otherwise acquiring any interest in shares of our capital stock shall be deemed to have notice of and to have consented to the provisions of our amended and

 

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restated bylaws described above. This choice of forum provision may limit a shareholder’s ability to bring a claim in a judicial forum that it finds favorable for the types of claims listed above, which may discourage lawsuits with respect to such claims. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated bylaws to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

 

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CAUTIONARY STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS

This information statement and other materials we have filed or will file with the SEC include, or will include, forward-looking statements. All statements in this information statement, in other materials we have filed or will file with the SEC and in related comments by our management, other than statements of historical facts, including statements about future events, financing plans, future financial position, business strategy, budgets, projected costs, plans and objectives of management for future operations, are forward-looking statements that involve certain risks and uncertainties. Use of the words “may,” “will,” “would,” “could,” “should,” “believes,” “estimates,” “projects,” “potential,” “expects,” “plans,” “seeks,” “intends,” “evaluates,” “pursues,” “anticipates,” “continues,” “designs,” “impacts,” “affects,” “forecasts,” “target,” “outlook,” “initiative,” “objective,” “designed,” “priorities,” “goal” or the negative of those words or other similar expressions may identify forward-looking statements that represent our current judgment about possible future events, but the absence of these words does not necessarily mean that a statement is not forward-looking.

Forward-looking statements are based on our current expectations and assumptions regarding our business, the economy and other future conditions. Because forward-looking statements relate to the future, by their nature, they are subject to inherent uncertainties, risks and changes in circumstances that are difficult to predict. As a result, our actual results may differ materially from those contemplated by the forward-looking statements. Important factors that could cause actual results to differ materially from those in the forward-looking statements include regional, national or global political, economic, business, competitive, market and regulatory conditions and the following:

 

   

the completion and timing of the Separation, the business and operations of Baudax Bio following the Separation and any benefits or costs of the Separation, including the tax treatment;

 

   

our post-Separation relationships with Recro, third parties, licensors, collaborators and our employees;

 

   

our ability to operate as a standalone company and execute our strategic priorities;

 

   

potential indemnification liabilities Baudax Bio may owe to Recro after the Separation;

 

   

the tax treatment of the Distribution and any limitations imposed on Baudax Bio under the tax matters agreements that Baudax Bio will enter into with Recro; and

 

   

our ability to resolve the deficiencies identified by the FDA in the CRLs for IV meloxicam;

 

   

whether the FDA will approve our amended NDA for IV meloxicam and, if approved, the labeling under any such approval that we may obtain;

 

   

our ability to successfully commercialize IV meloxicam or our other product candidates, upon regulatory approval;

 

   

our ability to generate sales and other revenues from IV meloxicam or any of our other product candidates, once approved, including setting an acceptable price for and obtaining adequate coverage and reimbursement of such products;

 

   

the results, timing and outcome of our clinical trials of IV meloxicam or our other product candidates, and any future clinical and preclinical studies;

 

   

our ability to raise future financing and attain profitability for continued development of our business and our product candidates, and to meet any milestone payments owing to Alkermes or our other licensing and collaboration partners;

 

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our ability to comply with the regulatory schemes applicable to our business and other regulatory developments in the United States and foreign countries;

 

   

the performance of third-parties upon which we depend, including third-party contract research organizations and third-party suppliers, manufacturers, group purchasing organizations, distributors and logistics providers;

 

   

our ability to obtain and maintain patent protection and defend our intellectual property rights against third-parties;

 

   

our ability to maintain our relationships, profitability and contracts with our key commercial partners;

 

   

our ability to defend the securities class action lawsuit filed against Recro, or any future material litigation filed against us;

 

   

our ability to recruit or retain key scientific, technical, commercial, and management personnel or to retain our executive officers; and

 

   

the effects of changes in our effective tax rate due to changes in the mix of earnings in countries with differing statutory tax rates, changes in tax strategy, changes in the valuation of deferred tax assets and liabilities and changes in the tax laws.

We may not actually achieve the plans, intentions or expectations disclosed in our forward-looking statements, and you should not place undue reliance on our forward-looking statements. Actual results or events could differ materially from the plans, intentions and expectations disclosed in the forward-looking statements we make. We have included important factors in the cautionary statements included in this information statement, particularly under “Risk Factors,” that we believe could cause actual results or events to differ materially from the forward-looking statements that we make. Our forward-looking statements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures, collaborations or investments we may make.

You should read this information statement completely and with the understanding that our actual future results may be materially different from what we expect. We do not assume any obligation to update any forward-looking statements.

 

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DIVIDEND POLICY

We currently intend to retain all available funds and any future earnings, if any, to fund the development and expansion of our business and we do not anticipate paying any cash dividends in the foreseeable future. Any future determination to pay dividends will be made at the discretion of our board of directors and will depend on various factors, including applicable laws, our results of operations, financial condition, future prospects and any other factors deemed relevant by our board of directors.

 

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CAPITALIZATION

The following table sets forth Baudax Bio’s capitalization as of June 30, 2019 on a historical basis and on a pro forma basis to give effect to the pro forma adjustments included in Baudax Bio’s unaudited pro forma combined financial information. The information below is not necessarily indicative of what Baudax Bio’s capitalization would have been had the Separation, Distribution and related financing transactions been completed as of June 30, 2019. In addition, it is not indicative of Baudax Bio’s future capitalization. This table should be read in conjunction with “Unaudited Pro Forma Combined Financial Statements,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Summary Historical and Unaudited Pro Forma Combined Financial Information” and the audited and unaudited combined financial statements and corresponding notes included elsewhere in this information statement.

 

     As of June 30, 2019
(unaudited)
 
  (In thousands)      Actual          Pro Forma    

  Cash and cash equivalents

     $ —             $ 19,000          
  

 

 

    

 

 

 

  Capitalization:

                            

  Debt:

                            

Long-term debt

 

     $

 

—     

 

 

 

     $

 

—        

 

 

 

  

 

 

    

 

 

 

Total Debt

     $ —             $ —          

  Equity:

                            

Common stock, par value $0.01 per share

     $ —             $ —          

Additional paid-in capital

     $ —             $ —          

Parent company net investment

 

     $

 

      (29,187)     

 

 

 

     $

 

      (10,187)        

 

 

 

  

 

 

    

 

 

 

  Total Capitalization

 

     $

 

      (29,187)     

 

 

 

     $

 

      (10,187)        

 

 

 

  

 

 

    

 

 

 

 

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UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS

The unaudited pro forma combined financial data of Baudax Bio consists of unaudited pro forma combined statements of operations for the year ended December 31, 2018 and six months ended June 30, 2019, and an unaudited pro forma combined balance sheet as of June 30, 2019 prepared in accordance with United States generally accepted accounting principles, or U.S. GAAP. The unaudited pro forma combined financial data reported below should be read in conjunction with “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” “Summary Historical and Unaudited Pro Forma Combined Financial Information” and the audited and unaudited combined financial statements and corresponding notes included elsewhere in this information statement.

The following unaudited pro forma combined financial data is subject to assumptions and adjustments described in the accompanying notes. Baudax Bio’s management believes these assumptions and adjustments are reasonable under the circumstances and given the information available at this time. However, these adjustments are subject to change as Recro and Baudax Bio finalize the terms of the Separation, including the Separation Agreement and related transaction agreements. The unaudited pro forma combined financial data does not purport to represent what Baudax Bio’s financial position and results of operations actually would have been had the Separation occurred on the dates indicated, or to project Baudax Bio’s financial performance for any future period following the Separation.

The unaudited pro forma combined financial data as of June 30, 2019, and for the year ended December 31, 2018 and the six months ended June 30, 2019 gives effect to the Separation as if it had occurred on January 1, 2018. The unaudited pro forma combined financial data includes adjustments to reflect the following:

 

   

the contribution by Recro to Baudax Bio, pursuant to the Separation Agreement, of all the assets and liabilities that comprise Baudax Bio’s business; and

 

   

the expected transfer to Baudax Bio, upon completion of the Separation, of $19 million of cash that was not included in Baudax Bio’s historical combined financial statements.

Baudax Bio’s historical financial information, which was the basis for the unaudited pro forma combined financial statements, was prepared on a carve-out basis as Baudax Bio was not operated as a separate, independent company for the periods presented. Accordingly, such historical financial information reflects an allocation for certain business and support functions that are provided on a centralized basis within Recro, such as expenses for research and development and corporate administrative services, including information technology, finance, legal, insurance, compliance and human resources activities. These historical allocations may not be indicative of Baudax Bio’s future cost structure; however, the pro forma results have not been adjusted to reflect any potential changes associated with Baudax Bio being an independent public company as such amounts are estimates that are not factually supportable.

Recro expects to incur approximately $            million of one-time separation costs in connection with the Separation during 2019, including costs related to consulting, legal, auditing and information technology, of which $            million is expected to be allocated to Baudax Bio. Baudax Bio is expected to incur one-time transaction costs of approximately $            million or less related to the Separation after it is completed.

 

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Baudax Bio, Inc.

Unaudited Pro Forma Combined Statement of Operations

Year Ended December 31, 2018

(in thousands)

 

             Historical              Pro forma
    Adjustments    
                 Notes                      Adjusted       

Cost and expenses:

           

Research and development

     $       35,583                             —                   $       35,583       

General and administrative

     29,453             —                   29,453       

Change in contingent consideration valuation

     8,499             —                   8,499       
  

 

 

          

 

 

 

Total operating expenses

     73,535             —                   73,535       
  

 

 

          

 

 

 

Operating loss

     (73,535)                  (73,535)      

Other income (expenses):

           

Other expense, net

     (132)            —                   (132)      
  

 

 

    

 

 

       

 

 

 

Net loss

     $ (73,667)            —                   $ (73,667)      
  

 

 

    

 

 

       

 

 

 

See Notes to Unaudited Pro forma Combined Financial Data

 

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Baudax Bio, Inc.

Unaudited Pro Forma Combined Statement of Operations

Six Months Ended June 30, 2019

(in thousands)

 

         Historical          Pro forma
    Adjustments    
                 Notes                  Adjusted      

Cost and expenses:

           

Research and development

     $        16,734                             —                   $       16,734       

General and administrative

     17,284             —                   17,284       

Change in contingent consideration valuation

     (19,150)            —                   (19,150)      
  

 

 

          

 

 

 

Total operating expenses

     14,868             —                   14,868       
  

 

 

          

 

 

 

Operating loss

     (14,868)                  (14,868)      

Other income (expenses):

           

Other expense, net

     (49)            —                   (49)      
  

 

 

    

 

 

       

 

 

 

Net loss

     $ (14,917)            —                   $ (14,917)      
  

 

 

    

 

 

       

 

 

 

See Notes to Unaudited Pro forma Combined Financial Data

 

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Baudax Bio, Inc.

Unaudited Pro Forma Combined Balance Sheet

As of June 30, 2019

(in thousands)

 

                  Historical                         Pro Forma
        Adjustments        
         Notes                       Adjusted          

Assets

                

Current assets:

                

Cash and cash equivalents

    $               $       19,000        (A)       $       19,000  

Prepaid expenses and other current

assets

      3,586                      3,586  
 

 

 

     

 

 

   

 

 

      

 

 

 

Total current assets

      3,586           19,000            22,586  

Property, plant and equipment, net

      5,091                      5,091  

Right of use asset

      943                      943  

Intangible assets

      26,400                      26,400  

Goodwill

      2,127                      2,127  
 

 

 

     

 

 

   

 

 

      

 

 

 

Total assets

    $       38,147         $       19,000          $       57,147  
 

 

 

     

 

 

   

 

 

      

 

 

 

Liabilities and Parent Company Net

Investment

                

Current liabilities:

                

Accounts payable

    $       352         $                $       352  

Accrued expenses and other current liabilities

      4,233                      4,233  

Current operating lease liability

      400                      400  

Current portion of contingent

consideration

                            
 

 

 

     

 

 

   

 

 

      

 

 

 

Total current liabilities

      4,985                      4,985  

Long-term operating lease liability

      587                      587  

Long-term portion of contingent consideration

      61,762                      61,762  
 

 

 

     

 

 

   

 

 

      

 

 

 

Total liabilities

      67,334                      67,334  
 

 

 

     

 

 

   

 

 

      

 

 

 

Parent company net investment

      (29,187)           19,000        (A)         (10,187)  
 

 

 

     

 

 

   

 

 

      

 

 

 

Total liabilities and parent company net

investment

    $       38,147         $       19,000          $       57,147  
 

 

 

     

 

 

   

 

 

      

 

 

 

See Notes to Unaudited Pro forma Combined Financial Data

Baudax Bio, Inc.

Notes to Unaudited Pro Forma Combined Financial Data

(A)        Pursuant to the Separation Agreement, Recro plans to provide Baudax Bio with a total of $19 million in cash funding upon the completion of the Separation to be used to fund our operations.

 

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION

AND RESULTS OF OPERATIONS

The following discussion of our financial condition and results of operations should be read in conjunction with “Unaudited Pro Forma Combined Financial Statements,” “Summary Historical and Unaudited Pro Forma Combined Financial Information” and the audited and unaudited combined financial statements and corresponding notes included elsewhere in this information statement. This discussion contains forward-looking statements that involve significant risks and uncertainties. As a result of many factors, including those set forth under “Risk Factors” appearing elsewhere in this information statement, our actual results may differ materially from those anticipated in these forward-looking statements.

Overview

We are a specialty pharmaceutical company primarily focused on developing and commercializing innovative products for hospital and related acute care settings. We believe that we can bring valuable therapeutic options for patients, prescribers and payers, such as our lead product candidate, IV meloxicam, to the hospital and related acute care markets. We believe we can create value for our shareholders through the development, registration and commercialization of injectable meloxicam and our other pipeline product candidates. In addition to our pipeline, we continue to evaluate acquisition, out-licensing and in-licensing opportunities. We have no revenue and our costs consist primarily of expenses incurred in conducting our manufacturing scale-up, clinical trials and preclinical studies, regulatory activities, pre-commercialization of meloxicam and personnel costs.

We expect to incur significant and increasing operating losses for at least the next few years. We expect substantially all of our operating losses to result from costs incurred in connection with our development programs, including our non-clinical and formulation development activities, manufacturing, clinical trials and pre-commercialization activities. Our expenses over the next several years are expected to relate to the acquisition or in-license of a product and successful commercialization of the acquired or in-licensed product, obtaining regulatory approval for IV meloxicam and, if approved, successfully commercializing IV meloxicam, and continuing to develop our other current and future product candidates.

Separation from Recro Pharma, Inc.

On                 , 2019, Recro announced its plans to separate its acute care business from its CDMO business through a pro rata distribution of Baudax Bio common stock to shareholders of Recro. As a part of the Separation, Recro intends to transfer the assets, liabilities and operations of its acute care business to Baudax Bio, pursuant to the terms of a Separation Agreement, to be entered into between Recro and Baudax Bio. On                 , 2019, the distribution date, each Recro shareholder will receive one share of Baudax Bio’s common stock for every                 shares of Recro common stock held of record at the close of business on                 , 2019, the record date for the Distribution. Registered shareholders will receive cash in lieu of any fractional shares of Baudax Bio’s common stock that they would have received as a result of the application of the distribution ratio. Following the Distribution, Baudax Bio will operate as a separate, independent company. The Distribution is subject to the satisfaction or waiver by Recro of certain conditions. For a more detailed description of these conditions, see “The Separation and Distribution—Conditions to the Distribution.”

Baudax Bio’s historical combined financial statements have been prepared on a stand-alone basis and are derived from Recro’s consolidated financial statements and accounting records and are presented in conformity with U.S. GAAP. Baudax Bio’s financial position, results of operations and cash flows historically operated, and will continue to operate, as part of Recro’s financial position, results of operations and cash flows prior to and until the Distribution to Recro’s shareholders. These historical combined financial statements may not be indicative of Baudax Bio’s future performance and do not necessarily reflect what Baudax Bio’s combined results of operations, financial condition and cash flows would have been had Baudax Bio operated as a separate company during the periods presented. Baudax Bio expects that changes will occur in its operating structure and its capitalization as a result of the Separation from Recro. See “The Separation and Distribution” for additional detail.

 

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Financial Overview

Research and Development Expenses

Research and development expenses currently consist primarily of costs incurred in connection with the development of injectable meloxicam and other pipeline activities. These expenses consist primarily of:

 

   

expenses incurred under agreements with contract research organizations, investigative sites and consultants that conduct our clinical trials and a substantial portion of our preclinical studies;

 

   

the cost of acquiring and manufacturing clinical trial drug supply and related manufacturing services and pre-commercial product validation and inventory manufacturing expenses;

 

   

costs related to facilities, depreciation and other allocated expenses;

 

   

acquired in-process research and development;

 

   

costs associated with non-clinical and regulatory activities; and

 

   

salaries and related costs for personnel in research and development and regulatory functions.

The majority of our external research and development costs have related to clinical trials, manufacturing of drug supply for pre-commercial products, analysis and testing of product candidates and patent costs. Costs related to facilities, depreciation and support are not charged to specific programs.

The successful development of IV meloxicam and our other product candidates is highly uncertain and subject to a number of risks, including, but not limited to:

 

   

the costs, timing and outcome of regulatory review of a product candidate, including, with respect to IV meloxicam, the nature and scope of any activities required to resolve the CRLs issued by the FDA in response to our NDA for IV meloxicam, including addressing concerns identified in our second CRL regarding the onset and duration of IV meloxicam along with regulatory concerns regarding the role of IV meloxicam as a monotherapy in acute pain, as well as how it would meet patient and prescriber needs in that setting, which may include the completion of additional studies;

 

   

the duration of clinical trials, which varies substantially according to the type, complexity and novelty of the product candidate;

 

   

substantial requirements on the introduction of pharmaceutical products imposed by the FDA and comparable agencies in foreign countries, which require lengthy and detailed laboratory and clinical testing procedures, sampling activities and other costly and time-consuming procedures;

 

   

the possibility that data obtained from pre-clinical and clinical activities at any step in the testing process may be adverse and lead to discontinuation or redirection of development activity or may be susceptible to varying interpretations, which could delay, limit or prevent regulatory approval;

 

   

risk involved with development of manufacturing processes, FDA pre-approval inspection practices and successful completion of manufacturing batches for clinical development and other regulatory purposes;

 

   

the emergence of competing technologies and products, including obtaining and maintaining patent protections, and other adverse market developments, which could impede our commercial efforts; and

 

   

the other risks disclosed in the section titled “Risk Factors” of this information statement.

Development timelines, probability of success and development costs vary widely. As a result of the uncertainties discussed above, we will assess additional information as we progress through our discussions with

 

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the FDA around the CRLs regarding our NDA for IV meloxicam, as well as assess IV meloxicam’s commercial potential and our available capital resources. Accordingly, we cannot currently estimate with any degree of certainty the amount of time or costs that we will expend in the future on IV meloxicam prior to regulatory approval, if such approval is ever granted. As a result of these uncertainties surrounding the timing and outcome of any approval, we are currently unable to estimate precisely when, if ever, any of our product candidates will generate revenues and cash flows.

We expect our research and development costs to continue to relate to IV meloxicam as we seek to obtain regulatory approval for IV meloxicam, and if successful in obtaining regulatory approval, advance IV meloxicam through the commercialization scale-up and other activities. We also expect to have expenses related to work for maintenance of our other product candidates. We may elect to seek collaborative relationships in order to provide us with a diversified revenue stream and to help facilitate the development and commercialization of our product candidate pipeline.

General and Administrative Expenses

General and administrative expenses consist principally of salaries and related costs for personnel in executive, pre-commercial, finance and information technology functions. General and administrative expenses also include professional fees for legal, including patent-related expenses, consulting, auditing and tax services.

Change in Fair Value of Contingent Consideration

Pursuant to the Purchase and Sale Agreement for the acquisition of certain assets, including the worldwide rights to IV meloxicam and the development, formulation and manufacturing business that comprises Recro’s CDMO segment from Alkermes, or the Gainesville Transaction, as amended in December 2018, we are required to pay up to an additional $140.0 million in milestone payments, including $10.0 million during the first half of 2019, another $5.0 million due within 180 days of approval of IV meloxicam and $45.0 million over seven years beginning one year after approval, as well as net sales milestones and a royalty percentage of future product net sales related to IV meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent). The estimated fair value of the initial $54.6 million payment obligation was recorded as part of the purchase price for the Gainesville Transaction. We have continued to reevaluate the fair value each subsequent period and as of June 30, 2019 recorded a $61.8 million payment obligation, representing the estimated probability adjusted fair value. Each reporting period we revalue this estimated obligation with changes in fair value recognized as a non-cash operating expense or gain. During the six months ended June 30, 2019, we have paid $10.0 million in milestone payments to Alkermes.

Income Taxation

In December 2017, the federal government enacted numerous amendments to the Internal Revenue Code of 1986 pursuant to the Tax Cuts and JOBS Act, or the Tax Act. The Tax Act will impact our income tax expense/(benefit) from operations in the current and in future periods. The Tax Act resulted in the following impacts to us:

 

   

Our federal statutory income tax rate was reduced from 34% to 21% for 2018 and tax years following.

 

   

We will be able to claim an immediate deduction for investments in qualified fixed assets acquired and placed in service from September 27, 2017 through 2022. This provision phases out through 2026.

 

   

Given our taxable losses in the U.S., we will be limited in our ability to deduct interest expense, if any, and any disallowed interest expense for 2018 and tax years following will result in an indefinite carry forward until such time as we meet the taxable income thresholds required to deduct interest expense.

 

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Results of Operations

Comparison of the Twelve Months Ended December 31, 2018 and 2017

 

     Year ended December 31,
     2018   2017
     (amounts in thousands)

Operating expenses:

    

Research and development

  

    $

                35,583

    

 

    $

                28,635

    

General and administrative

  

 

29,453

 

 

 

19,626

 

Change in contingent consideration valuation

  

 

8,499

 

 

 

12,839

 

  

 

 

 

 

 

 

 

Total operating expenses

  

 

73,535

 

 

 

61,100

 

  

 

 

 

 

 

 

 

Operating loss

  

 

(73,535)

 

 

 

(61,100)

 

Other income (expense):

    

Other income (expense), net

  

 

(132)

 

 

 

16

 

  

 

 

 

 

 

 

 

Net loss

  

    $

(73,667)

 

 

    $

(61,084)

 

  

 

 

 

 

 

 

 

Research and Development. Our research and development expenses were $35.6 million and $28.6 million for the twelve months ended December 31, 2018 and 2017, respectively. The increase of $7.0 million in 2018 was primarily due to an increase in pre-commercialization manufacturing costs for IV meloxicam of $7.8 million, an increase in development costs for other pipeline products of $4.1 million, an increase in Phase IIIb clinical trial costs of $2.0 million, and an increase in salaries and benefits expense of $0.7 million. These increases were partially offset by a decrease in Phase III clinical trial costs of $5.2 million and NDA costs due to the prior year NDA filing fee of $2.4 million.

General and Administrative. Our general and administrative expenses were $29.5 million and $19.6 million for the twelve months ended December 31, 2018 and 2017, respectively. The increase of $9.9 million was primarily due to commercial team personnel and pre-commercial consulting costs in the first half of the year in preparation of the anticipated launch of IV meloxicam of $8.8 million, and public company costs of $1.1 million, including legal fees as well as increased professional fees associated with addressing the first CRL issued by the FDA regarding our NDA for IV meloxicam.

Change in Contingent Consideration valuation. Our change in contingent consideration expenses was $8.5 million and $12.8 million for the twelve months ended December 31, 2018 and 2017, respectively. The non-cash charge for contingent consideration in each period related to the revaluation of the probability adjusted fair value of the Gainesville Transaction payment obligation. The decrease of $4.3 million was due to the adjusted timing of estimated milestone and royalty payments after the receipt of the first CRL from the FDA.

 

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Comparison of the Six Months Ended June 30, 2019 and 2018

 

     For the Six Months ended June 30,
     2019   2018
     (amounts in thousands)

Operating expenses:

    

Research and development

  

    $

                16,734

    

 

    $

                15,826

    

General and administrative

  

 

17,284

 

 

 

19,062

 

Change in contingent consideration valuation

  

 

(19,150)

 

 

 

2,916

 

  

 

 

 

 

 

 

 

Total operating expenses

  

 

14,868

 

 

 

37,804

 

  

 

 

 

 

 

 

 

Operating loss

  

 

(14,868)

 

 

 

(37,804)

 

Other expense:

    

Other expense, net

  

 

(49)

 

 

 

(90)

 

  

 

 

 

 

 

 

 

Net loss

  

    $

(14,917)

 

 

    $

(37,894)

 

  

 

 

 

 

 

 

 

Following the receipt of the second CRL, we implemented a strategic restructuring initiative, and corresponding reduction in workforce, aimed at reducing operating expenses, while maintaining key personnel needed to select a partner and obtain FDA approval of IV meloxicam. The restructuring initiative included a reduction of approximately 50 positions. During the six months ended June 30, 2019, we have incurred approximately $7.2 million of costs in connection with the strategic restructuring plan which includes severance and related termination benefits and canceled marketing and production costs.

Research and Development. Our research and development expenses were $16.7 million and $15.8 million for the six months ended June 30, 2019 and 2018, respectively. Excluding $2.8 of costs associated with the strategic restructuring initiative recorded in the six months ended June 30, 2019, the decrease of $1.9 million resulted from a decrease in pre-commercialization manufacturing costs for IV meloxicam of $1.8 million and a decrease in personnel costs of $1.1 million. These decreases were partially offset by an increase in development costs for clinical trial costs and other pipeline products of $1.0 million prior to the second CRL.

General and Administrative. Our general and administrative expenses were $17.3 million and $19.1 million for the six months ended June 30, 2019 and 2018, respectively. Excluding $4.4 million of costs associated with the strategic restructuring initiative recorded in the six months ended June 30, 2019, the decrease of $6.2 million was primarily due to decreased commercial team personnel costs of $3.7 million and pre-commercial consulting costs of $2.5 million following the receipt of the second CRL for IV meloxicam.

Change in Contingent Consideration Valuation. Our change in contingent consideration valuation was a reduction of value of $19.2 million for the six months ended June 30, 2019 and an increase in value of $2.9 million for the six months ended June 30, 2018. The non-cash charge for contingent consideration in each period related to the revaluation of the probability adjusted fair value of the Gainesville Transaction payment obligation. The decrease of $22.1 million was due to the adjusted timing of estimated milestone and royalty payments after the receipt of the second CRL from the FDA.

Liquidity and Capital Resources

Historically, the primary source of liquidity for our business was cash flow allocated to us from Recro. Prior to the Separation, transfers of cash to and from Recro have been reflected in Net Parent Investment in the historical combined balance sheets, statements of cash flows and statements of changes in Net Parent Investment. We have not reported cash or cash equivalents for the periods presented in the combined balance sheets. We expect Recro to continue to fund our cash needs through the date of the Separation.

 

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Under the terms of the Separation Agreement, prior to or upon the completion of the Distribution, Recro will make a cash capital contribution of $19 million to Baudax Bio to fund Baudax Bio’s operations. This cash capital contribution is in an amount that Baudax Bio estimates will, based on its current plans and expectations, meet its cash needs for at least 12 months after the completion of the Separation. Subsequent to the Separation, we will no longer participate in Recro’s centralized cash management or benefit from direct funding from Recro. Our ability to fund our operations and capital needs will depend on our ability to raise additional funds through debt financings, bank or other loans, licensing, including out-licensing activities, sale of assets and/or marketing arrangements or through public or private sales of equity or debt securities from time to time. Financing may not be available on acceptable terms, or at all, and our failure to raise capital when needed could materially adversely impact our growth plans and our financial condition or results of operations. Additional debt or equity financing, if available, may be dilutive to the holders of our common stock and may involve significant cash payment obligations and covenants that restrict our ability to operate our business or access to capital.

We anticipate that our principal uses of cash in the future will be primarily to fund our operations, working capital needs, capital expenditures and other general corporate purposes.

Overview of Cash Flows and Liquidity

 

     Years ended December 31,   For the Six Months ended June 30,
             2018                   2017                   2019                   2018        
    

(amounts in thousands)

Net cash used in operating activities

  

  $

(59,751)

 

 

  $

(43,272)

 

 

  $

(39,158)

 

 

  $

(31,263)

 

Net cash used in investing activities

  

  $

(3,452)

 

 

  $

(1,287)

 

 

  $

(1,717)

 

 

  $

(1,860)

 

Net cash provided by financing activities

  

  $

      63,203

    

 

  $

      44,559

    

 

  $

      40,875

    

 

  $

      33,123

    

Comparison of the Years Ended December 31, 2018 and December 31, 2017

Uses of cash flow for operations increased $16.5 million during 2018 as compared to 2017. Uses of operating cash flows were primarily driven by greater net operating losses in 2018 related to pre-commercial activities, including manufacturing costs related to the anticipated launch of IV meloxicam. Changes in accounts payable, accrued expenses, and other liabilities also contributed to the increase by $2.1 million year over year. Uses of cash for investing activities was higher by $2.2 million year over year, which primarily related to cash paid for property and equipment. Net cash provided by financing activities increased $18.6 million in 2018 as compared to 2017, as more cash was transferred from Recro to fund the operations of our business in 2018.

Comparison of the Six Months Ended June 30, 2019 and June 30, 2018

Uses of cash flow for operations increased $7.9 million during the six months ended June 30, 2019 as compared to the comparable prior year period primarily related to the decrease in accounts payable, accrued expenses (including accrued restructuring costs), and other liabilities. This was partially offset by lower net operating losses in the six months ended June 30, 2019, excluding the change in contingent consideration, related to decreased pre-commercial activities, including manufacturing costs, related to IV meloxicam. Uses of cash for investing activities were lower by $0.2 million in the six months ended June 30, 2019 as compared to the comparable prior year period due to a decrease in capital expenditures initiatives. Net cash provided by financing activities increased $7.8 million in the six months ended June 30, 2019 as compared to the comparable prior year period, as more cash was transferred from Recro to fund the operations of our business in the 2019 period.

 

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Contractual Commitments

The table below reflects our contractual commitments as of June 30, 2019:

 

     Payments Due by Period (in thousands)

  Contractual Obligations

   Total     Less than  
1 year
  1-3 years   3-5
years
  More
than
5 years

Purchase Obligations (1):

  

  $

4,609

   

 

  $

882

   

 

  $

47

   

 

  $

   

 

  $

   

Operating Leases (2)

  

 

1,404

 

 

 

483

 

 

 

735

 

 

 

187

 

 

 

 

Other Long-Term Liabilities

          

Other License Commitments and Milestone payments (3), (4)

  

 

53,765

 

 

 

40

 

 

 

130

 

 

 

170

 

 

 

225

 

Alkermes Payments (5)

  

 

130,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Employment Agreements (6)

  

 

925

 

 

 

925

 

 

 

 

 

 

 

 

 

 

          
  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Contractual Obligations

  

  $

     190,703

 

 

  $

     2,330

 

 

  $

             912

 

 

  $

     357

 

 

  $

        225

 

  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  (1)

These obligations consist of cancelable and non-cancelable purchase commitments related to capital expenditures and other goods or services, including pre-commercial/manufacturing scale-up and clinical activities. The timing of certain purchase commitments cannot be estimated as it is dependent on timing of FDA approval or the outcome of other strategic evaluations. In accordance with U.S. GAAP, these obligations are not recorded on our Combined Balance Sheets. See Note 10(e) to the Combined Financial Statements included in this information statement.

 

  (2)

We have become party to certain operating leases for the leased space in Malvern, Pennsylvania and Dublin, Ireland, as well as for office equipment, for which the minimum lease payments are presented. See Note 10(d) to the Combined Financial Statements included in this information statement.

 

  (3)

We are party to exclusive licenses with Orion for the development and commercialization of certain pipeline product candidates, under which we may be required to make certain milestone and royalty payments to Orion. See Note 10(a) to the Combined Financial Statements included in this information statement. The amount reflects only payment obligations that are fixed and determinable. We are unable to reliably estimate the timing of these payments because they are dependent on the type and complexity of the clinical studies and intended uses of the products, which have not been established. In accordance with U.S. GAAP, these obligations are not recorded on our Combined Balance Sheets.

 

  (4)

We license the NMBAs from Cornell pursuant to a license agreement under which we are obligated to make annual license maintenance fee payments, milestone payments and patent cost payments and to pay royalties on net sales of the NMBAs. The amount reflects only payment obligations that are fixed and determinable. We are unable to reliably estimate the timing of certain of these payments because they are dependent on the type and complexity of the clinical studies and intended uses of the products, which have not been established. In accordance with U.S. GAAP, certain of these obligations are not recorded on our Combined Balance Sheets. See Note 10(a) to the Combined Financial Statements included in this information statement.

 

  (5)

Pursuant to the purchase and sale agreement governing the Gainesville Transaction, we agreed to pay to Alkermes milestone and royalty payments. The amount reflects only payment obligations that are fixed and determinable. We are unable to reliably estimate the timing of these payments because they are in some instances, events that are not in

 

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our control and dependent on the commercial success of the product. In accordance with U.S. GAAP, the fair value of these obligations is recorded as contingent consideration on our Combined Balance Sheets. See Note 10(b) to the Combined Financial Statements included in this information statement.

 

  (6)

We have entered into employment agreements with certain of our named executive officers. As of June 30, 2019, these employment agreements provided for, among other things, annual base salaries, net of allocations, in an aggregate amount of not less than this amount, from that date through March 2020. In accordance with U.S. GAAP, these obligations are not recorded on our Combined Balance Sheets. See Note 10(f) to the Combined Financial Statements included in this information statement.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements as defined in Item 303(a)(4) of Regulation S-K.

Critical Accounting Policies and Estimates

This management’s discussion and analysis of our financial condition and results of operations is based on our combined financial statements, which have been prepared in accordance with U.S. GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, expenses and the disclosure of contingent assets and liabilities in our combined financial statements. On an ongoing basis, we evaluate our estimates and judgments, including those related to accrued expenses, stock-based compensation and contingent consideration. We base our estimates on historical experience, known trends and events and various other factors that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

Impairment of Goodwill and Indefinite-lived Intangible Assets – We are required to review, on an annual basis, the carrying value of goodwill and indefinite-lived intangible assets, to determine whether impairment may exist. For goodwill, the impairment model prescribes a one-step method for determining impairment. The one-step quantitative test calculates the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The impairment test for indefinite-lived intangible assets is a one-step test, which compares the fair value of the intangible asset to its carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to the excess. Based on accounting standards, it is required that these assets be assessed at least annually for impairment unless a triggering event occurs between annual assessments which would then require an assessment in the period which a triggering event occurred.

Impairment of Long-lived Assets – We are required to review the carrying value of long-lived fixed and for recoverability whenever events occur or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. The impairment test is a two-step test. Under step one we assess the recoverability of an asset (or asset group). The carrying amount of an asset (or asset group) is not recoverable if it exceeds the sum of the undiscounted cash flows expected from the use and eventual disposition of the asset (or asset group). The impairment loss is measured in step two as the difference between the carrying value of the asset (or asset group) and its fair value. Assumptions and estimates used in the evaluation of impairment are subjective and changes in these assumptions may negatively impact projected undiscounted cash flows, which could result in impairment charges in future periods. On an ongoing periodic basis, we evaluate the useful life of our long-lived assets and determine if any economic, governmental or regulatory event has modified their estimated useful lives.

Contingent Consideration – We revalue our contingent consideration on a quarterly basis using a discounted cash flow valuation model. The model uses significant unobservable inputs, including the probability and timing

 

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of FDA approval and successful product launch. We estimate IV meloxicam net revenues based on estimated market share, pricing and customary trade discounts, taking into consideration variables such as, market acceptance of the product and the expected number of product competitors in the market.

Transition from Recro and Costs to Operate as an Independent Company

The combined financial statements reflect our operating results and financial position as it was operated by Recro, rather than as an independent company. We will incur additional ongoing operating expenses to operate as an independent company. These costs will include the cost of various corporate headquarters functions, incremental insurance, audit and information technology-related costs and incremental costs to operate stand-alone accounting, legal and other administrative functions. We will also incur non-recurring expenses and non-recurring capital expenditures.

As an independent company, our operating costs may be higher than the costs allocated in the historical combined financial statements.

It is not practicable to estimate the costs that would have been incurred in each of the periods presented in the historical financial statements for the functions described above. Actual costs that would have been incurred if we operated as a stand-alone company during these periods would have depended on various factors, including organizational design, capital financing needs, status of threatened or pending lawsuits, regulatory outcomes, outsourcing and other strategic decisions related to corporate functions, information technology and back office infrastructure.

Transactions with Related and Certain Other Parties

Prior to or concurrently with the Distribution, we expect to enter into certain agreements with Recro resulting from and relating to the Separation, including the Separation Agreement, a transition services agreement, a tax matters agreement and an employee matters agreement. The terms of these agreements, including information on the business purpose of such agreements, transaction prices, related ongoing contractual commitments and any related special risks or contingencies are discussed in greater detail under “Certain Relationships and Related Party Transactions” appearing elsewhere in this information statement.

Off-Balance Sheet Arrangements

We do not have any relationships with unconsolidated entities or financial partnerships, such as entities often referred to as structured finance or special purpose entities, that would have been established for the purpose of facilitating off-balance sheet arrangements (as that term is defined in Item 303(a)(4)(ii) of Regulation S-K) or other contractually narrow or limited purposes. As such, we are not exposed to any financing, liquidity, market or credit risk that could arise if we had engaged in those types of relationships. We enter into guarantees in the ordinary course of business related to the guarantee of our own performance.

New Accounting Pronouncements

For a discussion of new accounting pronouncements see Note 3, Summary of Significant Accounting Principles, of the combined financial statements appearing elsewhere in this information statement.

 

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BUSINESS

Overview

We are a specialty pharmaceutical company primarily focused on developing and commercializing innovative products for hospital and related acute care settings. We believe that we can bring valuable therapeutic options for patients, prescribers and payers, such as our lead product candidate, injectable meloxicam, to the hospital and related acute care markets. We believe we can create value for our shareholders through the development, registration and commercialization of injectable meloxicam and our other pipeline product candidates. In addition to our pipeline, we continue to evaluate acquisition, out-licensing and in-licensing opportunities.

Our lead product candidate is a proprietary injectable form of meloxicam, a long-acting preferential COX-2 inhibitor. IV meloxicam has successfully completed three Phase III clinical trials, including two pivotal efficacy trials, a large double-blind Phase III safety trial and other safety studies for the management of moderate to severe pain. Overall, the total NDA program included over 1,400 patients. In July 2017, we submitted an NDA to the FDA for IV meloxicam for the management of moderate to severe pain. In May 2018, we received a CRL from the FDA regarding our NDA for IV meloxicam. In September 2018, we resubmitted the NDA for IV meloxicam and in March 2019, we received a second CRL from the FDA regarding our NDA for IV meloxicam. The second CRL focused on the onset and duration of IV meloxicam. It cited regulatory concerns about the role of IV meloxicam as a monotherapy in acute pain and how IV meloxicam would meet patient and prescriber needs in that setting, given the FDA’s interpretation of the clinical trials data. We plan to pursue resolution of the second CRL, which we believe may involve two levels of appeal before the FDA. We anticipate that this process will continue until late 2019 or early 2020 and will require an estimated $1.3 million to $1.8 million in capital. We plan to pursue resolution of the IV meloxicam CRL, including appeal to one or more levels, if required.

We believe that IV meloxicam compares favorably to competitive therapies in onset of pain relief, duration of pain relief, extent of pain relief and time to peak analgesic effect as well as that it has been well tolerated. We believe injectable meloxicam, as a non-opioid product, will overcome many of the issues associated with commonly prescribed opioid therapeutics, including respiratory depression, excessive nausea and vomiting, constipation, as well having no addiction potential, while maintaining analgesic, or pain relieving, effects. We are pursuing a Section 505(b)(2) regulatory strategy for IV meloxicam.

Our pipeline also includes other early-stage product candidates, including two novel NMBAs and a related proprietary chemical reversal agent and Dex-IN, a proprietary intranasal formulation of Dex an alpha-2 adrenergic agonist that we are evaluating for possible partnering.

Our Strategy

We believe that we can bring valuable therapeutic options for patients, prescribers and payers, such as injectable meloxicam, to the hospital and acute care markets. We believe we can create value for our shareholders through the development, registration and commercialization of injectable meloxicam and our other pipeline product candidates. In addition to our pipeline, we continue to evaluate acquisition and in-licensing opportunities, especially those that can contribute revenue and cash flow.

Our near-term goals include:

 

   

Completing regulatory approval of IV meloxicam. Our key goal is to obtain FDA approval of IV meloxicam for the management of moderate to severe pain on our own or with a partner.

 

   

Pursuing the license or acquisition of additional products. We are seeking in-license or acquisition opportunities to add commercial or near-commercial products to our portfolio. We previously established sales management, marketing and reimbursement functions in anticipation of the commercialization of IV meloxicam in the United States and we believe we can utilize these preparations for the successful commercialization of an acquired or licensed product.

 

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Expanding data supporting benefits of IV meloxicam. We are currently evaluating IV meloxicam in a Phase IIIb program that includes clinical trials in colorectal surgery patients and orthopedic surgery patients. We anticipate the Phase IIIb program to be completed during 2019.

 

   

Entering into strategic partnerships to continue the development of IV meloxicam and other product candidates. We intend to pursue strategic collaborations with other pharmaceutical companies to continue the development and commercialization of IV meloxicam and our other product candidates. We believe that our development expertise and unique product candidates make us an attractive partner to potential strategic collaborators.

 

   

Leveraging our development experience to progress our other pipeline product candidates. Our early-stage product pipeline includes proprietary product candidates for use in anesthesia (neuromuscular blockade and reversal). Our goal is to leverage our drug development expertise to develop these product candidates for use in hospital and acute care settings.

Our Product Candidates

Our Lead Product Candidate - IV Meloxicam

Meloxicam is a long-acting, preferential COX-2 inhibitor that possesses analgesic, anti-inflammatory, and antipyretic activities. Our proprietary injectable form of the drug, which utilizes NanoCrystal® technology, increases overall drug solubility which provides a faster onset of action of meloxicam, which lasts for approximately 24 hours.

Post-Operative Pain Market

Based upon information from the National Center for Health Statistics, it is estimated that there are over 100 million surgeries performed in the United States each year. Of these surgeries, we believe at least 50 million procedures require post-operative pain medication. Additionally, despite efforts to improve the provision of perioperative analgesia, the proportion of patients reporting moderate to severe pain after surgery has remained constant over the past decade.

While opioids provide effective analgesia for post-operative pain, their use is increasingly limited due to the known side effects of nausea, vomiting, constipation, respiratory depression, the development of tolerance and the potential for impact on addiction, misuse and abuse. Due to the potential for abuse, opioids are regulated as controlled substances and are listed on Schedule II and III by the DEA. According to a January 2016 article in the New England Journal of Medicine, overdose deaths from prescription painkillers (defined to mean opioid or narcotic pain relievers) increased significantly over the past 14 years and emergency department visits involved with misusing or abusing prescription opioid painkillers increased 153% between 2004 and 2011. In the acute care setting, and according to the Joint Commission Sentinel Event Alert on the Safe Use of Opioids in Hospitals, opioid analgesics rank among the drugs most frequently associated with adverse drug events. As a result of the addictive potential and side effects, pain sufferers tend to limit their use of opioids, resulting in as many as 40% of post-operative patients reporting inadequate pain relief. This can reduce the quality of life for individuals and, according to an August 2012 article in the Journal of Pain, creates an economic burden estimated to be at least $560 to $635 billion a year in medical costs and lost productivity.

Efforts to improve pain control with multimodal analgesia are being recommended by many medical societies as a way to decrease opioid-related morbidity and mortality. Multimodal analgesia, or MMA, refers to the use of two or more drugs or nonpharmacologic interventions with differing mechanisms. Its use has been demonstrated to limit the amount of opioids consumed and provide more effective pain control than opioids alone. Effective MMA may further lessen the cost burden and personal toll of opioid-centric regimens. According to an April 2013 article in Pharmacotherapy, opioid-related adverse events negatively impact patients and the healthcare system and cause a 55% longer length of hospital stay, 47% higher cost of care, 36% higher 30-day readmission rates and a 3.4% higher risk of inpatient mortality.

 

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We believe that IV meloxicam offers an attractive alternative for relief of moderate to severe pain without the risks associated with opioids. We also believe it can be an important part of an MMA approach for patients in the post-operative setting. Accordingly, we believe that physicians, hospitals and third-party payers, including Integrated Delivery Systems (IDNs), Medicare and Medicaid, are interested in new non-opioid pain therapies that provide effective post-operative pain relief without the adverse issues associated with opioids.

IV Meloxicam Advantages

We believe IV meloxicam has a number of advantages over existing analgesics, including the following:

Does not cause respiratory depression. Meloxicam does not cause respiratory depression. Besides the addictive nature of opioids, we believe that medical practitioners are highly concerned with respiratory depression, which is a well-documented side effect of opioid use (all opioids, including morphine, fentanyl and oxycodone). Respiratory depression, which is defined by inadequate ventilation leading to increased carbon dioxide levels and respiratory acidosis, is an established outcome of opioid use and requires significant patient monitoring in the acute care setting. One of the more concerning adverse effects of chronic opioid use, for which tolerance does not develop, is respiratory depression during sleep, which can be life threatening. IV meloxicam has demonstrated through multiple clinical trials and patient use that it does not cause respiratory depression.

Not a controlled substance. Meloxicam is not an opioid and not a controlled substance. Opioid therapeutics are currently controlled by the DEA under the Controlled Substances Act. Under this act, opioids have been scheduled based on their potential for abuse and/or addiction. For those opioids placed in Schedule II, federal law prohibits the refilling of prescriptions, thus requiring patients to request, and physicians to write, additional prescriptions for each refill. Examples of Schedule II opioids include morphine, fentanyl, sufentanil, hydrocodone and oxycodone.

Duration of pain relief. IV meloxicam has the potential to be an effective analgesic for up to 24 hours after a single dose. IV forms of ketorolac, ibuprofen and acetaminophen provide effective pain relief up to four to six hours, resulting in the need for four to six doses per day.

Administration. We believe that IV meloxicam has an administration advantage in terms of being administered by bolus injection, whereas ibuprofen and acetaminophen can take up to 15 to 30 minutes to be infused.

GI Tolerability. Unlike opioids, the mechanism of action of meloxicam provides analgesic activity with limited impact on gastrointestinal motility thus limiting the common unwanted side effects of opioids, referred to as Opioid Induced Bowel Dysfunction, or OIBD. OIBD comprises several symptoms including constipation, anorexia, nausea and vomiting, gastroesophageal reflux, delayed digestion, abdominal pain, flatulence, bloating, hard stool, straining during bowel movement and incomplete evacuation.

Reduction of Opioid Consumption. Reducing opioid use inside and outside the hospital is becoming more of a priority for physicians and hospital administrators. IV meloxicam has demonstrated the potential to relieve serious pain while reducing overall opioid consumption. IV meloxicam also demonstrated a potential greater reduction in opioid use in patients over 65 years old with mild renal impairment in clinical trials.

Commercial Strategy

If IV meloxicam is approved by the FDA, we believe that it may have a positive value proposition based on our current clinical data. Based on our market research, a new analgesic would be perceived to have a strong value proposition if it can: (1) reduce opioid consumption, (2) allow ambulatory surgical centers to perform more complex procedures and discharge patients on the same day, and (3) allow hospitals to safely speed up patient discharge, reduce inpatient admission and/or length of stay.

 

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If IV meloxicam is approved by the FDA, either by our own efforts or the efforts of a strategic partner, we are hoping to generate early commercial experience with IV meloxicam at settings that have lower barriers to new product adoption and have an appetite for use of newer therapies. To accomplish this goal, we believe it is important to educate surgeons (e.g., orthopedic, colorectal and general) and anesthesiologists that practice at multiple settings of care within the acute care market, including ambulatory surgical centers, or ASCs, hospital outpatient departments, and hospitals (often referred to as the “hospital inpatient setting”). We believe that ASCs may have lower barriers to adoption and be willing to consider newer therapies during the launch phase, based on our market research in this sector. We also believe early success in commercializing IV meloxicam with ASC’s could lead to increased adoption of IV meloxicam in hospital outpatient settings, and ultimately hospital inpatient settings.

Overall, we plan to initially target approximately 1,500 hospitals and associated hospital outpatient departments, or HOPDs, and 600 ASCs, which together represent approximately 12.6 million patients across all settings of care. If IV meloxicam is approved by the FDA, we plan to build a sales force with approximately 80 to 100 representatives or seek a strategic partner with expertise in the acute care setting who would market IV meloxicam to health care professionals at targeted institutions. In addition, we would either build medical, account-based and reimbursement teams or seek a strategic partner with these capabilities to maximize the commercial success of IV meloxicam. We believe this focused approach will help educate health care professionals, support formulary review processes and generate early adoption after launch with surgeons and anesthesiologists.

Clinical Development

Multiple clinical trials have been conducted to evaluate the safety, pharmacokinetics and analgesic effect of IV meloxicam. Based on the results of these trials, we believe IV meloxicam has the potential to be a potent analgesic used in the management of moderate to severe pain. IV meloxicam has successfully completed two pivotal Phase III clinical trials, a large double-blind Phase III safety trial as well as four Phase II trials and additional pharmacokinetics/safety studies. Overall, we enrolled a total of approximately 1,400 patients in our Phase II/III programs. In addition, we are currently evaluating IV meloxicam in Phase IIIb clinical trials in colorectal surgery patients and orthopedic surgery patients. Per the Pediatric Study Plan Agreement with FDA, two clinical trials will be conducted in the pediatric population. These trials will be initiated following NDA approval of IV meloxicam and after appropriate regulatory and IRB review.

At the end of July 2017, we submitted an NDA to the FDA for IV meloxicam 30mg for the management of moderate to severe pain. In May 2018, we received a CRL from the FDA regarding our NDA for IV meloxicam, which stated that the FDA determined it could not approve the NDA in its present form. The CRL stated that data from ad hoc analyses and selective secondary endpoints suggest that the analgesic effect did not meet the expectations of the FDA. In addition, the CRL identified certain Chemistry, Manufacturing and Controls related questions on extractable and leachable data provided in the NDA. The CRL did not identify any issues relating to the safety of IV meloxicam. In July 2018, we participated in a Type A End-of-Review meeting with the FDA to discuss the topics covered in the CRL, and we resubmitted the NDA for IV meloxicam in September 2018. In March 2019, we received a second CRL from the FDA regarding our NDA for IV meloxicam which stated that the FDA determined it could not approve the NDA in its present form. The second CRL focused on onset and duration of IV meloxicam, noting that the delayed onset fails to meet the prescriber expectations for IV drugs. The CRL also cited regulatory concerns about the role of IV meloxicam as a monotherapy in acute pain, as well as how it would meet patient and prescriber needs in that setting, given the FDA’s interpretation of the clinical trials data. We plan to pursue resolution of the IV meloxicam CRL, including appeal to one or more levels, if required.

Phase IIIb Clinical Trials

We are currently evaluating IV meloxicam in a Phase IIIb program that includes clinical trials in colorectal surgery patients and orthopedic surgery patients to assess opioid consumption, pain intensity and length of

 

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hospital stay with associated pharmacoeconomic parameters. We anticipate completion of the Phase IIIb program during the summer of 2019.

Phase III Clinical Trials

Study REC-15-016

In this pivotal clinical trial, evaluating pain relief over a 48-hour period in a hard tissue, post-operative pain model (bunionectomy), IV meloxicam achieved the primary endpoint of a statistically significant difference in Summed Pain Intensity Difference, or SPID, over the first 48 hours, or SPID48, compared to placebo. This was a Phase III, randomized, multicenter, multi-dose, double-blind, placebo-controlled study evaluating IV meloxicam in the management of post-operative pain following bunionectomy surgery. Two hundred and one patients who met the eligibility criteria were randomized to receive either IV meloxicam (30 mg) or placebo once daily for up to three days. Following the beginning of treatment, patients remained under observation for 48 hours at study centers. Patients were followed for 28 days after the initial dose of study medication. There was an oral opioid rescue treatment available to all patients, if required. The primary objective of the trial was to evaluate pain relief over a 48-hour period of IV meloxicam when administered as a bolus injection.

The primary efficacy endpoint of the trial was SPID48, utilizing a windowed 2-hour last observation carried forward, or W2LOCF, analysis method. Secondary efficacy endpoints included use of opioid rescue medication, SPIDs over various time intervals, and patient global assessment, or PGA, of pain control. The IV meloxicam treatment arm demonstrated a statistically significant reduction in SPID48 (p=0.0034) compared to the placebo arm (Figure 1).

Figure 1: SPID48

 

 

LOGO

The study also achieved the majority of secondary endpoints, including statistically significant differences in SPID6 (p=0.0153), SPID12 (p=0.0053), SPID24 (p=0.0084), SPID24-48 (p=0.0050), time to first use of rescue medication (p=0.0076), and several other rescue use and pain relief metrics during the first 48 hours, compared to placebo. Times to Perceptible and Meaningful Pain Relief, % Subjects with >50% Improvement within 6 Hours, and PGA of Pain Control at 24 hours were not significantly different between treatment groups.

The safety results demonstrated that IV meloxicam was well tolerated with no SAEs or bleeding events in the IV meloxicam-treated patients. The most common AEs occurring in at least 3% of IV meloxicam-treated patients, were nausea, headache, pruritus, constipation, vomiting, dizziness, flushing and somnolence, and the incidence of these AEs was generally comparable to the placebo group. The IV meloxicam-treated patients experienced injection site pain and injection site erythema at a rate comparable to placebo. The majority of treatment emergent AEs, or TEAEs, were mild in nature and there were no discontinuations due to AEs. There were no meaningful differences between treatment groups in vital signs, electrocardiogram, or ECGs, or clinical lab assessments.

 

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Study REC-15-015

In the second of our two Phase III pivotal clinical trials, evaluating pain relief over a 24-hour period in a soft tissue, post-operative pain model (abdominoplasty), IV meloxicam achieved the primary endpoint of a statistically significant difference in SPID over the first 24 hours, or SPID24, compared to placebo. This was a Phase III, randomized, multicenter, multi-dose, double-blind, placebo-controlled study evaluating IV meloxicam in the management of post-operative pain following abdominoplasty surgery. Two hundred nineteen patients who met the eligibility criteria were randomized to receive either IV meloxicam (30 mg) or placebo once daily for up to three days. Following the beginning of treatment, patients remained under observation for 48 hours at study centers. Patients were followed for 28 days after the initial dose of study medication. There was an oral opioid rescue treatment available to all patients, if required. The primary objective of the trial was to evaluate pain relief over a 24-hour period of IV meloxicam when administered as a bolus injection (over 15-30 seconds).

The primary efficacy endpoint of the trial was SPID24 (0-24), utilizing a W2LOCF analysis method. Secondary efficacy endpoints included use of opioid rescue medication, SPIDs over various time intervals, time to pain relief and PGA of pain control. The IV meloxicam treatment arm demonstrated a statistically significant reduction in SPID24 (p=0.0145) compared to the placebo arm (Figure 2).

Figure 2: SPID24

 

 

LOGO

The study also achieved statistical significance for 10 of the secondary endpoints, including statistically significant differences in SPID12 (p=0.0434), time to perceptible pain relief (p=0.0050), subjects with ³30% improvement at 24 hours (p=0.0178), number of times patients required rescue in the first 24 hours after randomization (p=0.0275), as well as number of times rescued from 24 to 48 hours (p=0.0009), and several other pain relief metrics, compared to placebo.

SPID6, Times to Meaningful Pain Relief and First Rescue, Number of Subjects rescued 0-24 and 0-48 hours, % Subjects with ³30 and ³50% Improvement within 6 Hours and ³50% within 24 hours, and PGA of Pain Control at 24 hours were not significantly different between treatment groups.

The safety results demonstrated that IV meloxicam was well tolerated. Four SAEs were observed during the trial. The SAEs occurred in one IV meloxicam-treated patient and three placebo-treated patients. The IV meloxicam-treated patient experienced a post-procedural hemorrhage that was not viewed by the investigator as attributable to the drug. The most common (at least 3% in the IV meloxicam group) AEs were nausea, headache, vomiting, and dizziness. The incidence of these events was lower than those observed in the placebo group. The majority of AEs were mild in nature and one patient in the placebo group discontinued treatment due to an adverse event of post-procedural bleeding. There were no meaningful differences between treatment groups in vital signs, ECGs or clinical lab assessments.

 

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Safety Study

IV meloxicam has also successfully completed a double-blind, randomized Phase III safety study evaluating IV meloxicam (30mg bolus injection) or placebo following major surgery. The primary objective of the study was to evaluate the safety and tolerability of IV meloxicam 30mg vs. placebo through Day 28 following treatment. The clinical trial demonstrated that the adverse event profile of IV meloxicam 30mg was consistent with previously completed clinical trials and was similar to placebo reported events.

This was a multicenter, randomized, double-blind, placebo-controlled Phase III clinical trial and included patients who had undergone major elective surgical procedures which were expected to result in hospitalization for at least 24-48 hours. Major surgical procedures included total hip and knee replacements, spinal, GI, hernia repair, and gynecologic surgeries, as well as a range of other surgeries. Patient demographics were balanced across treatment groups and included 40% male patients and about 23% of patients who were over age 65. Unlike the pivotal efficacy trials, minimum pain scores were not required for treatment. Sites were permitted to use opioids and other pain management modes according to their “standard of care” and meloxicam or placebo was added to this regimen in a randomized, double-blind manner. Patients were randomized in a 3:1 ratio to receive either IV meloxicam 30mg or IV placebo daily for up to 7 doses. A total of 721 patients received at least one dose of study medication.

The most common (³3%) AEs observed in the IV meloxicam 30mg treatment group (n=538) are listed in the table below:

 

     IV Meloxicam      
Preferred Term    30 mg
  N = 538    
        Placebo
  N = 183    
     

Subjects with ³1 AE

  

 

            339

 

 

(63.0)

 

 

            119

 

 

(65.0)

Nausea

  

 

123

 

 

(22.9)

 

 

51

 

 

(27.9)

Constipation

  

 

51

 

 

(9.5)

 

 

17

 

 

(9.3)

Vomiting

  

 

27

 

 

(5.0)

 

 

14

 

 

(7.7)

Pruritis

  

 

21

 

 

(3.9)

 

 

10

 

 

(5.5)

Gamma-glutamyl transferase (GGT) increased

  

 

21

 

 

(3.9)

 

 

5

 

 

(2.7)

Headache

  

 

20

 

 

(3.7)

 

 

12

 

 

(6.6)

Anemia

  

 

18

 

 

(3.3)

 

 

4

 

 

(2.2)

In patients age 65 and over, the percentage of patients reporting at least one AE was approximately 7% less in the IV meloxicam 30mg treatment arm compared to the placebo arm. The total occurrence of patients with at least one SAE was observed to be lower in the IV meloxicam 30mg group, 2.6%, than in the placebo group, 5.5%. In this safety study only two SAE events were listed as possibly related to study treatment. Both of these SAEs occurred in one placebo treated patient. No deaths were reported in either treatment group. Approximately 3% of patients in each study group discontinued.

There were no meaningful clinical differences between treatment groups in vital signs, ECGs, clinical lab assessments and surgeon satisfaction with wound healing. Overall there was low incidence of clinically significant wound healing abnormalities, as scored by the primary investigator, in both treatment groups (~2%). The meloxicam group had 4/538 patients with more than one attribute scored “clinically significant”, while in placebo, 1/183 patients were scored “clinically significant” for only one attribute.

 

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In addition, mean opioid consumption for the total population was lower in the IV meloxicam 30mg group compared with placebo at all evaluated intervals; Hour 0-24, Hour 24-48, Hour 48-72 and Hour 0-72 intervals, or the full treatment period. There was also a significant increase in time to first use of opioids in the IV meloxicam 30mg treatment arm, compared to placebo. Mean opioid consumption in the IV meloxicam group was lower than the placebo group at all evaluated intervals in the subgroups of Orthopedic Surgeries, Total Knee Replacements, and subjects >65 years with Mild Renal Impairment, as depicted in the table below.

 

    % reduction in Opioid Use     
Population   Hour 0-24   Hour 24-48   Hour 48-72   Treatment
Period
          

Total Population

 

23.2%*

 

23.0%

 

33.9%

 

23.6%

       

Orthopedic Surgeries

 

28.9%*

 

25.5%*

 

38.4%

 

26.8%*

       

Total Knee Replacement Surgeries

 

41.0%**

 

35.2%**

 

58.9%

 

40.8%**

       

>65 years & Mild Renal Impairment Population

 

42.8%*

 

41.9%*

 

56.9%

 

40.7%*

       

*reaching statistical significance (p<0.05)

**reaching statistical significance (p<0.01)

Our Other Pipeline Candidates

While our current priority is the commercialization of IV meloxicam, our pipeline also includes other earlier stage product candidates including intermediate and short-acting NMBAs, and accompanying reversal agents, DEX-IN, along with other product candidates that we may choose to develop for use in hospital or related settings.

NMBAs

Neuromuscular blocking agents are used as muscle paralyzing agents to facilitate intubation and surgery. We are developing an intermediate-acting NMBA, RP1000, an ultrashort-acting NMBA, RP2000, and a reversal agent specific to our NMBAs. The table below summarizes the predicted onset and duration of activity for each NMBA based on currently available data, as well as the development status of each NMBA:

 

     

Compound

 

Onset Time

 

Duration of Activity

 

Status

     

RP1000

 

Rapid

 

Intermediate acting

 

Phase I

     

RP2000

 

Rapid

 

Ultra-short acting

 

Pre-IND

In animal models, the proprietary reversal agent acts quickly by chemical reaction to reverse the neuromuscular blockade. We believe that the NMBAs can reduce the time required for induction of anesthesia and the reversal agent can reduce the time needed to recover from NMBA dosing post-procedure, while potentially enhancing patient safety and resulting in cost savings for the hospital or other provider.

We have a worldwide, exclusive license to the NMBAs and the related reversal agent from Cornell.

We intend to conduct a Phase I study with RP1000 to evaluate the safety profile when administered with Total Intravenous Anesthesia, as well as to evaluate the dose response of neuromuscular blockade. We plan to file an IND, or equivalent application, for RP2000 in order to conduct a First-in-Human study.

Dex-IN

Dex (dexmedetomidine) is a selective alpha-2 adrenergic agonist that has demonstrated sedative, analgesic and anxiolytic properties. Dex has an extensive commercial history of safe IV use. We have formulated Dex-IN, a

 

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proprietary intranasal formulation of Dex, at a significantly lower dose (approximately as low as 1/10th) than the currently recommended IV dosage levels used for clinical sedation. Based upon our lower dose, we have seen minimal sedation to date in our clinical trials while still demonstrating an analgesic effect.

We continue to explore possible uses of Dex-IN in other indications in the acute care space as well as pursue possible partnering opportunities. Once an indication is identified, Phase I and Phase II studies will be required to evaluate the safety of Dex-IN as well as the doses required to establish efficacy.

Intellectual Property

We own patents and patent applications for injectable meloxicam, that cover compositions, including compositions produced using NanoCrystal® technology, method of making and method of treating. These issued patents expire in 2022 in the United States. We also in-license from Alkermes, on a perpetual, royalty-free basis, composition and methods of making patents, one of which we anticipate to be Orange-Book listable, and patent applications (specifically directed to the prevention of flake like aggregates), which expire in 2030.

We license the patents and other intellectual property covering the NMBAs and the related reversal agent under a worldwide, exclusive, sublicensable, royalty-bearing license from Cornell. Under the license agreement, we are obligated to pay Cornell (i) an annual license maintenance fee payment which ranges from $15,000 to $125,000 until the first commercial sale of a licensed compound; (ii) milestone payments upon the achievement of certain milestones, up to a maximum, for each NMBA, of $5 million for U.S. regulatory approval and commercialization milestones and $3 million for European regulatory approval and commercialization milestones; and (iii) royalties on net sales of the NMBAs and the related reversal agent at rates ranging from low to mid-single digits, depending on the applicable licensed compound and whether there is a valid patent claim in the applicable country, subject to an annual minimum royalty amount of $150,000 to $250,000 that increases to between $150,000 to $500,000 after the fourth year of sales. In addition, we will reimburse Cornell for past and ongoing patent costs related to prosecution and maintenance of the patents related to the licensed compounds. The license agreement is terminable by us at any time upon 90 days’ written notice and by Cornell upon our material breach, subject to a cure period, and upon our filing any claim asserting the invalidity of any of Cornell’s licensed patent rights. The royalty term for each licensed compound expires, on a country-by-country basis, on the later of (i) the expiration date of the longest-lived licensed patent, (ii) the expiration of any granted statutory period of marketing exclusivity, or (iii) the first commercial sale of a generic equivalent of the applicable licensed compound. On the last to expire royalty term the license agreement will automatically convert to a royalty-free nonexclusive license.

We hold patent applications directed to the analgesia indication, formulations and intranasal and transmucosal methods of use of Dex, and we are progressing through the patent application process globally, including the United States. Several patent applications have issued as patents outside the United States for transmucosal methods, and the resulting patent protection will last into 2030, subject to any disclaimers or extensions. In addition, a patent related to intranasal methods has issued in the United States, and the resulting patent protection will last into 2032, subject to any disclaimers or extensions.

We are party to an exclusive license with Orion for the development and commercialization of Dex for use in the treatment of pain in humans in any dosage form for transdermal, transmucosal (including sublingual and intranasal), topical, enteral or pulmonary (inhalational) delivery, but specifically excluding delivery vehicles for administration by injection or infusion, worldwide, except for Europe, Turkey, and the CIS (currently includes Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan), referred to herein as the Territory. We have the right to sublicense the rights under such license at any time. We are required to pay Orion lump sum payments in an aggregate amount of €20.5 million on the achievement of certain developmental milestones and upon the achievement of certain commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 20% depending on annual sales levels.

 

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We intend to rely on a combination of patents and trade secrets, as well as confidentiality agreements and license agreements, to protect our product candidates. Our patent strategy is designed to facilitate commercialization of our current product candidates and future product candidates, as well as create barriers to entry for third parties. One focus of our claim strategy is on formulation claims and other related claims.

We are seeking patent protection in the United States and internationally for our product candidates. Our policy is to pursue, maintain and defend patent rights and to protect the technology, inventions and improvements that are commercially important to the development of our business. We cannot be sure that patents will be granted with respect to any of our pending patent applications or with respect to any patent applications filed by us in the future, nor can we be sure that any of our existing patents or any patents granted to us in the future will be commercially useful in protecting our technology. We also intend to rely on trade secrets to protect our product candidates. Our commercial success also depends in part on our non-infringement of the patents or proprietary rights of third parties.

Our success will depend significantly on our ability to:

 

   

obtain and maintain patent and other proprietary protection for our product candidates;

   

defend our patents;

   

develop trade secrets as needed and preserve the confidentiality of our trade secrets; and

   

operate our business without infringing the patents and proprietary rights of third parties.

We have taken steps to build and will continue to build proprietary positions for our product candidates and related technology in the United States and abroad. We note that the patent laws of foreign countries differ from those in the United States, and the degree of protection afforded by foreign patents may be different from the protection offered by United States patents.

Sales and Marketing

We intend to pursue strategic collaborations with other pharmaceutical companies to continue the development and commercialization of IV meloxicam and our other product candidates. We believe that our development expertise and unique product candidates make us an attractive partner to potential strategic collaborators. We believe the initial target audience for our product candidates will be specialty physicians, including surgeons, anesthesiologists and pain specialists. Our management team has experience building and launching therapeutics to specialty physicians, including hospital and related settings. As this target audience is only a portion of all physicians, we believe we have the capabilities to build a sales and marketing infrastructure and effectively market our product candidates, after FDA approval. We are also seeking in-license or acquisition opportunities to add commercial or near-commercial products to our portfolio. We previously established sales management, marketing and reimbursement functions in anticipation of the commercialization of IV meloxicam in the United States and we believe we can utilize these preparations for the successful commercialization of an acquired or licensed product.

Competition

The pharmaceutical and biotechnology industries are intensely competitive and subject to rapid and significant technological change. Our current and future competitors include pharmaceutical, biotechnology and specialty pharmaceutical companies. Many of our competitors have greater financial and other resources than we have, such as more commercial resources, larger research and development staffs and more extensive marketing and manufacturing organizations. As a result, these companies may obtain marketing approval more rapidly than we are able to obtain and may be more effective in selling and marketing their products. Smaller or early stage companies may also prove to be significant competitors, particularly through collaborative arrangements with large, established companies.

 

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Our competitors may succeed in developing, acquiring or licensing technologies and drug products that are more effective or less costly than our product candidates or any other products that we may develop which could render our products obsolete and noncompetitive. We expect any products that we develop and commercialize, either alone or through a strategic partnership, to compete on the basis of, among other things, efficacy, safety, convenience of administration and delivery, price and the availability of reimbursement from government and other third-party payers. We also expect to face competition in our efforts to identify appropriate collaborators or partners to help commercialize our product candidates in our target commercial markets.

In the post-operative pain relief setting, we believe patients are prescribed injectable acetaminophen, NSAIDs, sodium channel blockers and opioids, depending on the severity of pain. Specifically, acetaminophen, NSAIDs and sodium channel blockers, we believe, are prescribed for mild to moderate pain relief, whereas we believe opioids are prescribed for moderate to severe pain relief. While we will compete with all of these compounds in the post-operative pain setting, we believe injectable meloxicam will be used to manage moderate to severe pain, competing with opioids and predominantly systemic non-opioid pain treatments. There are a number of pharmaceutical companies that currently market and or manufacture therapeutics in the pain relief area, including Johnson & Johnson, Purdue Pharma, L.P., Mallinckrodt plc, Teva Pharmaceutical Industries, Inc., Pacira Pharmaceuticals, Inc. and AcelRx Pharmaceuticals, Inc. Mallinckrodt commercializes an injectable formulation of acetaminophen. Pacira commercializes an intraoperative formulation of bupivacaine, a sodium channel blocker, that is injected or instilled at the surgical site. Additionally, companies such as Adynxx, Inc., Durect Corporation, Heron Therapeutics, Inc., Innocoll Holdings plc, Sandoz AG, Trevena, Inc., Avenue Therapeutics, Inc., Neumentum Inc. and Cara Therapeutics, Inc. are currently developing post-operative pain therapeutics that could compete with IV meloxicam in the future.

Manufacturing

We currently rely on contract manufacturers to produce drug product for our clinical studies under cGMPs, with oversight by our internal managers. We plan to continue to rely on contract manufacturers to manufacture development quantities of our product candidates, as well as commercial quantities of our product candidates, if and when approved for marketing by the FDA. We currently rely on a single manufacturer for the clinical supplies of our drug product for each of our product candidates and do not currently have agreements in place for redundant supply or a second source for any of our product candidates. We have identified other potential drug product manufacturers that could satisfy our clinical and commercial requirements, but this would require significant expense and could produce a significant delay in setting up the facility and moving equipment. Additionally, should a supplier or a manufacturer on whom we rely to produce a product candidate provide us with a faulty product or a product that is later recalled, we would likely experience significant delays and additional costs.

Injectable Meloxicam

Alkermes is currently our exclusive supplier of bulk injectable meloxicam. Pursuant to a Development, Manufacturing and Supply Agreement, or Supply Agreement with our subsidiary, Baudax Ireland Limited, Alkermes (through a subsidiary), provides clinical and commercial bulk supplies of injectable meloxicam formulation. During the term of the Supply Agreement, we will purchase our clinical and commercial supplies of bulk injectable meloxicam formulation exclusively from Alkermes. If the first commercial sale of injectable meloxicam occurs on or prior to December 31, 2020, the Supply Agreement will have an initial term expiring ten years following the date of such first commercial sale. The Supply Agreement will then automatically renew for successive one-year terms unless terminated by either party upon written notice at least 180 days prior to the expiration of the applicable term. If the first commercial sale of injectable meloxicam has not occurred by December 31, 2020, the Supply Agreement will expire on that date.

Patheon provides sterile fill-finish of injectable meloxicam drug product pursuant to a Master Manufacturing Services Agreement and Product Agreement, collectively the Patheon Agreements, at its Monza, Italy manufacturing site. We have agreed to purchase a certain percentage of our annual requirements of finished

 

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injectable meloxicam from Patheon during the term of the Patheon Agreements. The Patheon Agreements expire on December 31, 2020 and will automatically renew thereafter for successive two-year periods unless terminated by either party upon prior written notice.

NMBAs

We have successfully sourced the manufacturing of the NMBAs and reversing agent at contract manufacturers for use in pre-clinical studies and early clinical trials for these product candidates.

Dex-IN

We are party to an API supply agreement with Orion, whereby Orion provides us with API for the development and, if approved, commercialization of Dex-IN. Prior to obtaining regulatory approval, subject to advance notice to Orion, Orion will provide API without charge for agreed upon amounts. Any amounts ordered by us that are greater than the planned supply will be charged at 50% of the supply price for commercial product. The single unit dose intranasal sprayer for Dex-IN is manufactured by a supplier of proprietary components and devices. Suppliers of components, subassemblies and other materials are located in Europe, Asia and the United States.

Government Regulation

Governmental authorities in the United States at the federal, state and local level, and the equivalent regulatory authorities in other countries, extensively regulate, among other things, the research, development, testing, manufacture, quality control, approval, labeling, packaging, storage, record-keeping, promotion, advertising, distribution, marketing, export and import of products such as those we are developing. Our product candidates, including our formulations of injectable meloxicam, must be approved by the FDA before they may legally be marketed in the United States. In addition, to the extent we choose to clinically evaluate or market any products in other countries or develop these products for future licensing to third parties, we are subject to a variety of regulatory requirements and to the authority of the competent regulatory authorities of those other countries.

U.S. Drug Development Process

In the United States, the FDA regulates drugs under the FDCA, and implementing regulations. The process of obtaining regulatory approvals and ensuring compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources. Failure to comply with the applicable U.S. requirements at any time during the product development process, approval process, or after approval, may subject an applicant to administrative enforcement or judicial sanctions. This enforcement could include, without limitation, the FDA’s refusal to approve pending applications, withdrawal of an approval, a clinical hold, untitled or warning letters, corrective actions, product seizures, total or partial suspension of production or distribution, injunctions, fines, refusals of government contracts, restitution, disgorgement, or civil or criminal penalties.

The process required by the FDA before a drug may be marketed in the United States generally involves the following:

 

   

completion of preclinical laboratory tests, animal studies and formulation studies, some of which must be conducted according to Good Laboratory Practices regulations;

   

submission to the FDA of an investigational new drug application, or IND, which must become effective before human clinical trials may begin;

   

performance of adequate and well-controlled human clinical trials according to the FDA’s cGCPs to establish the safety and efficacy of the proposed drug for its intended use;

   

submission to the FDA of an NDA for a new drug;

   

satisfactory completion of an FDA pre-approval inspection of the manufacturing facility or facilities identified in the NDA; and

   

FDA review and approval of the NDA.

 

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The testing and approval process requires substantial time, effort and financial resources, and we cannot be certain that any approvals for our product candidates will be granted on a timely basis, if at all.

Once a pharmaceutical product candidate is identified for development, it enters the preclinical testing stage. Preclinical tests include laboratory evaluations of product chemistry, toxicity, formulation and stability, as well as animal studies. An IND sponsor must submit the results of the preclinical tests, together with manufacturing information, analytical data and any available clinical data or literature, to the FDA as part of the IND. The sponsor must also include a protocol detailing, among other things, the objectives of the initial clinical trial, the parameters to be used in monitoring safety, and the effectiveness criteria to be evaluated if the initial clinical trial lends itself to an efficacy evaluation. Some preclinical testing may continue even after the IND is submitted. The IND automatically becomes effective 30 days after receipt by the FDA, unless the FDA places the clinical trial on a clinical hold within that 30-day time period. In such a case, the IND sponsor and the FDA must resolve any outstanding concerns before the clinical trial can begin. Clinical holds also may be imposed by the FDA at any time before or during trials due to safety concerns regarding the product candidate or non-compliance with applicable requirements.

All clinical trials of a product candidate must be conducted under the supervision of one or more qualified investigators, in accordance with cGCP regulations. These regulations include the requirement that all research subjects provide informed consent. Further, an IRB must review and approve the plan for any clinical trial before it commences at any institution. The IRB’s role is to protect the rights and welfare of human subjects involved in clinical studies by evaluating, among other things, the potential risks and benefits to subjects, processes for obtaining informed consent, monitoring of data to ensure subject safety, and provisions to protect the subjects’ privacy. The IRB approves the information regarding the clinical trial and the consent form that must be provided to each clinical trial subject or his or her legal representative and must monitor the clinical trial until completed.

Once an IND is in effect, each new clinical protocol, and any amendments to the protocol, must be submitted to the IND for FDA review and to the IRBs for approval. Protocols detail, among other things, the objectives of the clinical trial, dosing procedures, subject selection and exclusion criteria and the parameters to be used to monitor subject safety.

Human clinical trials are typically conducted in three sequential phases that may overlap or be combined:

 

   

Phase I. The product is initially introduced into healthy human subjects and tested for safety, dosage tolerance, absorption, metabolism, distribution and excretion. In the case of some products for severe or life-threatening diseases, especially when the product may be too inherently toxic to ethically administer to healthy volunteers, the initial human testing may be conducted in patients.

   

Phase II. Phase II trials involve investigations in a limited patient population to identify possible AEs and safety risks, to preliminarily evaluate the efficacy of the product for specific targeted indications and to determine dosage tolerance and optimal dosage and schedule.

   

Phase III. Clinical trials are undertaken to further evaluate dosage, clinical efficacy and safety in an expanded patient population at geographically dispersed clinical trial sites. These trials are intended to establish the overall risk/benefit ratio of the product and provide an adequate basis for regulatory approval and product labeling.

Progress reports detailing the results of the clinical trials must be submitted at least annually to the FDA, and safety reports must be submitted to the FDA and the investigators for serious and unexpected side effects. Phase I, Phase II and Phase III testing may not be completed successfully within any specified period, if at all. Results from earlier trials are not necessarily predictive of results from later trials. The FDA or the sponsor may suspend or terminate a clinical trial at any time on various grounds, including a finding that the research subjects or patients are being exposed to an unacceptable health risk. Similarly, an IRB can suspend or terminate approval of

 

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a clinical trial at its institution if the clinical trial is not being conducted in accordance with the IRB’s requirements or if the drug has been associated with unexpected serious harm to patients.

Concurrent with clinical trials, companies usually complete additional animal studies and must also develop additional information about the chemistry and physical characteristics of the product and finalize a process for manufacturing the product in commercial quantities in accordance with cGMP requirements. The manufacturing process must be capable of consistently producing quality batches of the product candidate and, among other things, the manufacturer must develop methods for testing the identity, strength, quality and purity of the final product. Additionally, appropriate packaging must be selected and tested and stability studies must be conducted to demonstrate that the product candidate does not undergo unacceptable deterioration over its shelf life.

U.S. Review and Approval Processes

The results of product development, preclinical studies and clinical trials, along with descriptions of the manufacturing process, analytical tests conducted on the drug, proposed labeling and other relevant information, are submitted to the FDA as part of an NDA for a new drug, requesting approval to market the product.

The submission of an NDA generally is subject to the payment of a substantial user fee for a human drug application. A waiver of such fee may be obtained under certain limited circumstances. For example, an applicant is eligible for waiver of the application fee if the applicant is a small business submitting its first human drug application and does not have another product approved under a human drug application and introduced and delivered for introduction into interstate commerce. However, we did not qualify due to prior NDA approvals received by Recro’s CDMO business.

In addition, under the Pediatric Research Equity Act of 2003, an NDA or supplement to an NDA for a new indication, dosage form, dosing regimen, route of administration, or active ingredient, must contain data to assess the safety and effectiveness of the drug for the claimed indications in all relevant pediatric subpopulations and to support dosing and administration for each pediatric subpopulation for which the product is safe and effective. The FDA may waive or defer pediatric studies under certain circumstances.

Section 505(b)(2) New Drug Applications. As an alternate path to FDA approval, particularly for modifications to drug products previously approved by the FDA, an applicant may submit an NDA under Section 505(b)(2) of the FDCA, or a Section 505(b)(2) NDA. Section 505(b)(2) was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, commonly referred to as the Hatch-Waxman Amendments, and it permits approval of applications other than those for duplicate products and permits reliance for such approvals on literature or on the FDA’s findings of safety and effectiveness of an approved drug product. A Section 505(b)(2) NDA is an application where at least some of the information required for approval comes from clinical trials not conducted by or for the applicant and for which the applicant has not obtained a right of reference. The FDA requires submission of information needed to support any changes relative to a previously approved drug, known as the reference product, such as published data or new studies conducted by the applicant, including bioavailability or bioequivalence studies, or clinical trials demonstrating safety and effectiveness. The FDA may then approve the Section 505(b)(2) NDA for all or some of the labeled indications for which the reference product has been approved, as well as for any new indication sought by the applicant, unless such indications or uses are protected by patent or exclusivity provisions covering the reference product. To the extent that a Section 505(b)(2) NDA relies on clinical trials conducted for a previously approved drug product or the FDA’s prior findings of safety and effectiveness for a previously approved drug product, the Section 505(b)(2) applicant must submit patent certifications in its application with respect to any patents for the reference product that are listed in the FDA’s publication, Approved Drug Products with Therapeutic Equivalence Evaluations, commonly referred to as the Orange Book. Specifically, the applicant must certify for each listed patent that, in relevant part, (1) the required patent information has not been filed; (2) the listed patent has expired; (3) the listed patent has not expired, but will expire on a particular date and approval is not sought until after patent expiration; or (4) the listed patent is invalid, unenforceable or will not be infringed by the proposed new product. A certification that the new product will not infringe the previously approved product’s listed patent or that such patent is invalid or

 

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unenforceable is known as a Paragraph IV certification. If the applicant does not challenge one or more listed patents through a Paragraph IV certification, the FDA will not approve the Section 505(b)(2) NDA until all the listed patents claiming the referenced product have expired.

Further, the FDA will also not approve a Section 505(b)(2) NDA until any non-patent exclusivity, such as, for example, five-year exclusivity for obtaining approval of a new chemical entity, three-year exclusivity for an approval based on new clinical trials, or pediatric exclusivity, listed in the Orange Book for the reference product, has expired.

If the Section 505(b)(2) NDA applicant has provided a Paragraph IV certification to the FDA, the applicant must also send notice of the Paragraph IV certification to the owner of the reference product and relevant patent holders within 20 days after the Section 505(b)(2) NDA has been accepted for filing by the FDA. The NDA and patent holders may then initiate a patent infringement suit against the Section 505(b)(2) applicant. Under the FDCA, the filing of a patent infringement lawsuit within 45 days of receipt of the notification regarding a Paragraph IV certification automatically prevents the FDA from approving the Section 505(b)(2) NDA for 30 months, beginning on the date the patent holder receives notice, or until the patent expires or a court deems the patent unenforceable, invalid or not infringed, whichever is earlier. Even if a patent infringement claim is not brought within the 45-day period, a patent infringement claim may be brought under traditional patent law, but it does not invoke the 30-month stay. Moreover, in cases where a Section 505(b)(2) application containing a Paragraph IV certification is submitted after the fourth year of a previously approved drug’s five-year exclusivity period, and the patent holder brings suit within 45 days of notice of certification, the 30-month period is automatically extended to prevent approval of the Section 505(b)(2) application until the date that is seven and one-half years after approval of the previously approved reference product. The court also has the ability to shorten or lengthen either the 30-month or the seven and one-half year period if either party is found not to be reasonably cooperating in expediting the litigation. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its product only to be subject to significant delay and patent litigation before its product may be commercialized. Alternatively, if the NDA applicant or relevant patent holder does not file a patent infringement lawsuit within the specified 45-day period, the FDA may approve the Section 505(b)(2) application at any time, assuming the application is otherwise approvable.

Notwithstanding the approval of many products by the FDA pursuant to Section 505(b)(2), over the last few years, some pharmaceutical companies and other stakeholders have objected to the FDA’s interpretation of Section 505(b)(2). If the FDA changes its interpretation of Section 505(b)(2), or if the FDA’s interpretation is successfully challenged in court, this could delay or even prevent the FDA from approving any Section 505(b)(2) NDA that we submit.

FDA Review of New Drug Applications. The FDA reviews all NDAs submitted to ensure that they are sufficiently complete for substantive review before it accepts them for filing. If the FDA does not find an NDA to be sufficiently complete for filing, it may request additional information rather than accepting the NDA for filing. In this event, the sponsor must resubmit the NDA with the additional information. The re-submitted application also is subject to review before the FDA accepts it for filing. Once the submission is accepted for filing, the FDA begins an in-depth substantive review. The FDA reviews an NDA to determine, among other things, whether clinical data demonstrates that a product is safe and effective for its intended use and whether its manufacturing process can assure the product’s identity, strength, quality and purity. Before approving an NDA, the FDA will inspect the facility or facilities where the product is manufactured. The FDA will not approve an application unless it determines that the manufacturing processes and facilities are in compliance with cGMP requirements and adequate to assure consistent production of the product within required specifications. The FDA may refer the NDA to an advisory committee for review, evaluation and recommendation as to whether the application should be approved and under what conditions. An advisory committee is a panel of independent experts who provide advice and recommendations when requested by the FDA. The FDA is not bound by the recommendation of an advisory committee.

 

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The approval process is lengthy and difficult, and the FDA may refuse to approve an NDA if the applicable regulatory criteria are not satisfied or may require additional clinical data or other data and information. Even if such data and information are submitted, the FDA may ultimately decide that the NDA does not satisfy the criteria for approval. Data obtained from clinical trials are not always conclusive and the FDA may interpret data differently than we interpret the same data. The FDA will issue a CRL if the agency decides not to approve the NDA in its present form. The CRL usually describes all the specific deficiencies that the FDA identified in the NDA. The deficiencies identified may be minor, for example, requiring labeling changes, or major, for example, requiring additional clinical trials. Additionally, the CRL may include recommended actions that the applicant might take to place the application in a condition for approval. If a CRL is issued, the applicant may either resubmit the NDA, addressing all the deficiencies identified in the letter, withdraw the application or request an opportunity for a hearing.

If a product receives regulatory approval, the approval may be significantly limited to specific diseases and dosages, or the indications for use may otherwise be limited, which could restrict the commercial value of the product. Further, the FDA may require that certain contraindications, warnings or precautions be included in the product labeling, and the agency also may require a REMS if it determines that a REMS is necessary to assure that the benefits of a drug outweigh its risks. In addition, the FDA may require Phase IV testing, which involves clinical trials designed to further assess a drug’s safety and effectiveness after NDA approval, and may require testing and surveillance programs to monitor the safety of approved products that have been commercialized.

Patent Term Restoration and Marketing Exclusivity

Depending upon the timing, duration and specific circumstances of FDA marketing approval of our product candidates, some of our U.S. patents may be eligible for limited patent term extension under the Hatch-Waxman Amendments. The Hatch-Waxman Amendments permit a patent restoration term of up to five years for patent term lost during product development and the FDA regulatory review process. However, patent term restoration cannot extend the remaining term of a patent beyond a total of 14 years from the product’s approval date. Subject to certain limitations, the patent term restoration period is generally equal to one-half of the time between the effective date of an IND and the submission date of an NDA, plus the time between the submission date of an NDA and the approval of that application. However, each phase of the regulatory review period may be reduced by any time that the FDA finds the applicant did act not act with due diligence. Only one patent applicable to an approved drug is eligible for the extension, and the application for the extension must be submitted prior to the expiration of the patent and within sixty days of approval of the drug. The U.S. Patent and Trademark Office, in consultation with the FDA, reviews and approves the application for any patent term extension or restoration. In the future, we intend to apply for restorations of patent term for patents that issue from some of our currently owned or licensed patents or patent applications to add patent life beyond their current expiration dates, depending on the expected length of the clinical trials and other factors involved in the filing of the relevant NDA.

Market exclusivity provisions under the FDCA can also delay the submission or the approval of certain applications. The FDCA provides a five-year period of non-patent marketing exclusivity within the United States to NDAs for products containing chemical entities never previously approved by the FDA alone or in combination. A new chemical entity means a drug that contains no active moiety that has been approved by the FDA in any application submitted under Section 505(b) of the FDCA. An active moiety is the molecule or ion responsible for the action of the drug substance. During the exclusivity period, the FDA may not accept for review an ANDA, or a Section 505(b)(2) NDA submitted by another company for another version of such drug where the applicant does not own or have a legal right of reference to all the data required for approval. This exclusivity provision does not prevent the submission or approval of another full Section 505(b)(1) NDA, but such an NDA applicant would be required to conduct its own preclinical and adequate, well-controlled clinical trials to demonstrate safety and effectiveness. The FDCA also provides three years of marketing exclusivity for an NDA, Section 505(b)(2) NDA or supplement to an existing NDA if new clinical investigations, other than bioavailability studies, that were conducted or sponsored by the applicant are deemed by the FDA to be essential

 

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to the approval of the application. Such clinical trials may, for example, support new indications, dosages, routes of administration or strengths of an existing drug, or for a new use. This exclusivity, which is sometimes referred to as clinical investigation exclusivity, prevents the FDA from approving an application under a Section 505(b)(2) NDA or an ANDA for the same conditions of use associated with the new clinical investigations before the expiration of three years from the date of approval. Such three-year exclusivity, however, would not prevent the approval of another application if the applicant submits a Section 505(b)(1) NDA and has conducted its own adequate, well-controlled clinical trials demonstrating safety and efficacy, nor would it prevent approval of an ANDA or a Section 505(b)(2) NDA product that did not incorporate the exclusivity-protected aspects of the approved drug product.

Pediatric exclusivity is another type of exclusivity in the United States. Pediatric exclusivity, if granted, provides an additional six months of exclusivity to any existing exclusivity (e.g., three- or five-year exclusivity) or patent protection for a drug. This six-month exclusivity, which runs from the end of other exclusivity or patent protection, may be granted based on the voluntary completion of a pediatric trial in accordance with an FDA-issued “Written Request” for such a trial.

Post-Approval Requirements

Any drugs for which we receive FDA approval will be subject to continuing regulation by the FDA, including, among other things, record-keeping requirements, reporting of adverse experiences with the product, providing the FDA with updated safety and efficacy information, product sampling and distribution requirements, and complying with FDA promotion and advertising requirements.

The FDA strictly regulates marketing, labeling, advertising, and promotion of products that are placed on the market. Drugs may be promoted only for the approved indications and in accordance with the provisions of the approved label. The FDA and other government agencies enforce the laws and regulations prohibiting the false or misleading promotion of drugs. The FDA also limits the promotion of product candidates prior to their approval. With limited exceptions, pre-approval promotion is prohibited under the FDA’s regulations.

Further, manufacturers of drugs must continue to comply with cGMP requirements, which are extensive and require considerable time, resources and ongoing investment to ensure compliance. In addition, changes to the manufacturing process may require prior FDA approval before being implemented, and other types of changes to the approved product, such as adding new indications and additional labeling claims, are subject to further FDA review and approval. Drug manufacturers and other entities involved in the manufacturing and distribution of approved drugs are required to list their products and to register their establishments with the FDA and certain state agencies and are subject to periodic unannounced inspections by the FDA and certain state agencies for compliance with cGMP and other laws. The cGMP requirements apply to all stages of the manufacturing process, including the production, processing, sterilization, packaging, labeling, storage and shipment of the drug. Manufacturers must establish validated systems to ensure that products meet specifications and regulatory standards and test each product batch or lot prior to its release. We rely, and expect to continue to rely, on third parties for the production of clinical and commercial quantities of our product candidates. FDA and state inspections may identify compliance issues at the facilities of our contract manufacturers that may disrupt production or distribution or may require substantial resources to correct.

The FDA may withdraw a product approval if compliance with regulatory standards is not maintained or if problems occur after the product reaches the market. Later discovery of previously unknown problems with a product may result in restrictions on the product or even complete withdrawal of the product from the market. Further, the failure to maintain compliance with regulatory requirements may result in administrative or judicial actions, such as fines, untitled and warning letters, holds on clinical trials, product recalls or seizures, product detention or refusal to permit the import or export of products, refusal to approve pending applications or supplements, restrictions on marketing or manufacturing, consent decrees, injunctions or the imposition of civil or criminal penalties.

 

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From time to time, legislation is drafted, introduced and passed in the U.S. Congress that could significantly change the statutory provisions governing the approval, manufacturing and marketing of products regulated by the FDA. In addition to new legislation, the FDA regulations and policies are often revised or reinterpreted by the agency in ways that may significantly affect our business and our product candidates. It is impossible to predict whether further legislative or FDA regulation or policy changes will be enacted or implemented and what the impact of such changes, if any, may be. For example, in December 2016, the 21st Century Cures Act, or the Cures Act, became law. The Cures Act contains numerous provisions, including provisions designed to speed development of innovative therapies and encourage greater use of real-world evidence to support regulatory decision making for drugs.

Foreign Regulation

In addition to regulations in the United States, we will be subject to a variety of foreign regulations governing clinical trials and commercial sales and distribution of our product candidates to the extent we choose to clinically evaluate or sell any products outside of the United States. Whether or not we obtain FDA approval for a product, we must obtain approval of a product by the comparable regulatory authorities of foreign countries before we can commence marketing of the product in those countries. The approval process varies from country to country, and the time may be longer or shorter than that required for FDA approval. The requirements governing the conduct of clinical trials, product licensing, pricing and reimbursement vary greatly from country to country. As in the United States, post-approval regulatory requirements, such as those regarding product manufacture, marketing or distribution, would apply to any product that is approved outside the United States.

For example, in the European Union, we may submit applications for marketing authorizations either under a centralized, decentralized, or mutual recognition marketing authorization procedure. The centralized procedure provides for the grant of a single marketing authorization for a medicinal product by the European Commission on the basis of a positive opinion by the European Medicines Agency, or the EMA. A centralized marketing authorization is valid for all European Union member states and three of the four European Free Trade Association (EFTA) States (Iceland, Liechtenstein and Norway). The decentralized procedure and the mutual recognition procedure apply between European Union member states. The decentralized marketing authorization procedure involves the submission of an application for marketing authorization to the competent authority of all European Union member states in which the product is to be marketed. One national competent authority, selected by the applicant, assesses the application for marketing authorization. The competent authorities of the other European Union member states are subsequently required to grant marketing authorization for their territory on the basis of this assessment, except where grounds of potential serious risk to public health require this authorization to be refused. The mutual recognition procedure provides for mutual recognition of marketing authorizations delivered by the national competent authorities of European Union member states by the competent authorities of other European Union member states. The holder of a national marketing authorization may submit an application to the competent authority of a European Union member state requesting that this authority recognize the marketing authorization delivered by the competent authority of another European Union member state for the same medicinal product.

We are also subject to the U.K. Bribery Act, and other third country anti-corruption laws and regulations pertaining to our financial relationships with foreign government officials. The U.K. Bribery Act, which applies to any company incorporated or doing business in the UK, prohibits giving, offering, or promising bribes in the public and private sectors, bribing a foreign public official or private person, and failing to have adequate procedures to prevent bribery amongst employees and other agents. Penalties under the Bribery Act include potentially unlimited fines for companies and criminal sanctions for corporate officers under certain circumstances. Liability in relation to breaches of the U.K. Bribery Act is strict. This means that it is not necessary to demonstrate elements of a corrupt state of mind. However, a defense of having in place adequate procedures designed to prevent bribery is available.

 

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Formulary Approvals and Third-Party Payer Coverage and Reimbursement

In both the United States and foreign markets, our ability to commercialize our product candidates successfully, and to attract commercialization partners for our product candidates, depends in significant part on the availability of institutional formulary approvals and on adequate financial coverage and reimbursement from third-party payers, including, in the United States. These payers include CMS, the federal program that runs the Medicare program, and monitors the Medicaid programs offered by each state, as well as national and regional commercial plans. Medicare is a federally funded program managed by CMS through local Medicare Administrative Contractors that administer coverage and reimbursement for certain healthcare items and services furnished to the elderly, disabled and other individuals with certain conditions. Medicaid is an insurance program for certain categories of patients whose income and assets fall below state defined levels that is both federally and state funded and managed by each state. The federal government sets general guidelines for Medicaid and each state creates specific regulations that govern its individual program. Each government or commercial plan has its own process and standards for determining whether it will cover and reimburse a procedure or particular product and how much it will pay for that procedure or product. Commercial plans often rely on the lead of the governmental payers in rendering coverage and reimbursement determinations. Therefore, achieving favorable Medicare coverage and reimbursement is usually an essential component of successfully launching a new product. The competitive position of some of our products will depend, in part, upon the extent of coverage and adequate reimbursement for such products and for the procedures in which such products are used. Reimbursement for our product candidates can be subject to challenge, reduction or denial by government and other commercial plans.

A primary trend in the U.S. healthcare industry and elsewhere is cost containment. Government healthcare programs and other third-party payers are increasingly challenging the prices charged for medical products and services and examining the medical necessity and cost-effectiveness of medical products and services, in addition to their safety and efficacy, and have attempted to control costs by limiting coverage and the amount of reimbursement for particular medications. Increasingly, third-party payers are challenging the prices charged for medical products and requiring that drug companies provide them with predetermined discounts from list prices.

Payers also are increasingly changing the metrics for reimbursement rates, such as basing payment on average sales price, or ASP, AMP, and wholesale acquisition cost. The existing data for reimbursement based on these metrics is relatively limited, although certain states have begun to survey acquisition cost data for the purpose of setting Medicaid reimbursement rates. CMS surveys and publishes retail community pharmacy acquisition cost information in the form of National Average Drug Acquisition Cost files to provide state Medicaid agencies with a basis of comparison for their own reimbursement and pricing methodologies and rates. It may be difficult to project the impact of these evolving reimbursement mechanics on the willingness of payers to cover any products for which we receive regulatory approval.

If we successfully commercialize any of our products, we may participate in the Medicaid Drug Rebate Program. Participation is required for federal funds to be available for our products under Medicaid and Medicare Part B. Under the Medicaid Drug Rebate Program, we would be required to pay a quarterly rebate to each state Medicaid program for our covered outpatient drugs that are dispensed to Medicaid beneficiaries and paid for by a state Medicaid program as a condition of having federal funds being made available to the states for our drugs under Medicaid and Part B of the Medicare program.

Federal law requires that any company that participates in the Medicaid Drug Rebate Program also participate in the Public Health Service’s 340B drug pricing program in order for federal funds to be available for the manufacturer’s drugs under Medicaid and Medicare Part B. The 340B drug pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. These 340B covered entities include a variety of community health clinics and other entities that receive health services grants from the Public Health Service, as well as hospitals that serve a disproportionate share of low-income patients.

 

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Additionally, in order to be eligible to have its products paid for with federal funds under the Medicaid and Medicare Part B programs and purchased by certain federal agencies and grantees, a manufacturer also must participate in the VA FSS pricing program, established by Section 603 of the Veterans Health Care Act of 1992, or VHCA. Under this program, the manufacturer is obligated to make its innovator and single source products available for procurement on an FSS contract and charge a price to four federal agencies, Department of Veterans Affairs, Department of Defense, or DoD, Public Health Service, and Coast Guard, that is no higher than the statutory Federal Ceiling Price. Moreover, pursuant to regulations issued by the DoD’s TRICARE Management Activity, now the Defense Health Agency, to implement Section 703 of the National Defense Authorization Act for Fiscal Year 2008, manufacturers are required to provide rebates on utilization of their innovator and single source products that are dispensed to TRICARE beneficiaries by TRICARE network retail pharmacies. The formula for determining the rebate is established in the regulations and is based on the difference between the annual non-federal average manufacturer price and the Federal Ceiling Price (these price points are required to be calculated by us under the VHCA). The requirements under the 340B, FSS, and TRICARE programs could reduce the revenue we may generate from any products that are commercialized in the future.

There may be significant delays in obtaining coverage and reimbursement for newly approved drugs, and coverage may be more limited than the purposes for which the drug is approved by the FDA or comparable foreign regulatory authorities. Moreover, eligibility for coverage and reimbursement does not imply that a drug will be paid for in all cases or at a rate that covers costs, including research, development, manufacturing, sale and distribution. Interim reimbursement levels for new drugs, if applicable, may also not be sufficient to cover costs and may only be temporary. Reimbursement rates vary according to the use of the drug and the clinical setting in which it is used. Product reimbursement may also be incorporated into existing bundled payments for other services. Net prices for drugs may be reduced by mandatory discounts or rebates required by government healthcare programs or commercial payers and by any future relaxation of laws that presently restrict imports of drugs from countries where they may be sold at lower prices than in the United States. Limited coverage may impact the demand for, or the price of, any product candidate for which marketing approval is obtained. Third-party payers also may seek additional clinical evidence, including expensive pharmacoeconomic studies, beyond the data required to obtain marketing approval, demonstrating clinical benefits and value in specific patient populations, before covering our products for those patients. If reimbursement is available only for limited indications, we may not be able to successfully commercialize any product candidate for which we obtain marketing approval. Our inability to promptly obtain coverage and profitable reimbursement rates from both government-funded and commercial payers for any approved products that we develop could have a material adverse effect on our operating results, our ability to raise capital needed to commercialize products and our overall financial condition.

In addition, in some foreign countries, the proposed pricing for a drug must be approved before it may be lawfully marketed. Moreover, the requirements governing drug pricing and reimbursement vary widely from country to country. For example, in the European Union the sole legal instrument at the European Union level governing the pricing and reimbursement of medicinal products is Council Directive 89/105/EEC, or the Price Transparency Directive. The aim of the Price Transparency Directive is to ensure that pricing and reimbursement mechanisms established in European Union member states are transparent and objective, do not hinder the free movement and trade of medicinal products in the European Union and do not hinder, prevent or distort competition on the market. The Price Transparency Directive does not, however, provide any guidance concerning the specific criteria on the basis of which pricing and reimbursement decisions are to be made in individual European Union member states. Neither does it have any direct consequence for pricing or levels of reimbursement in individual European Union member states. The national authorities of the individual European Union member states are free to restrict the range of medicinal products for which their national health insurance systems provide reimbursement and to control the prices and/or reimbursement of medicinal products for human use. Some individual European Union member states adopt policies according to which a specific price or level of reimbursement is approved for the medicinal product. Other European Union member states adopt a system of reference pricing, basing the price or reimbursement level in their territory either, on the pricing and reimbursement levels in other countries, or on the pricing and reimbursement levels of medicinal products

 

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intended for the same therapeutic indication. Furthermore, some European Union member states impose direct or indirect controls on the profitability of the company placing the medicinal product on the market.

Health Technology Assessment, or HTA, of medicinal products is becoming an increasingly common part of the pricing and reimbursement procedures in some European Union member states. These countries include the United Kingdom, France, Germany and Sweden. The HTA process in the European Union member states is governed by the national laws of these countries. HTA is the procedure according to which the assessment of the public health impact, therapeutic impact and the economic and societal impact of the use of a given medicinal product in the national healthcare systems of the individual country is conducted. HTA generally focuses on the clinical efficacy and effectiveness, safety, cost, and cost-effectiveness of individual medicinal products as well as their potential implications for the national healthcare system. Those elements of medicinal products are compared with other treatment options available on the market.

The outcome of HTA may influence the pricing and reimbursement status for specific medicinal products within individual European Union member states. The extent to which pricing and reimbursement decisions are influenced by the HTA of a specific medicinal product vary between the European Union member states.

In 2011, Directive 2011/24/EU was adopted at European Union level. This Directive concerns the application of patients’ rights in cross-border healthcare. The Directive is intended to establish rules for facilitating access to safe and high-quality cross-border healthcare in the European Union. Pursuant to Directive 2011/24/EU, a voluntary network of national authorities or bodies responsible for HTA in the individual European Union member states was established. The purpose of the network is to facilitate and support the exchange of scientific information concerning HTAs. This could lead to harmonization between European Union member states of the criteria taken into account in the conduct of HTA in pricing and reimbursement decisions and negatively impact price in at least some European Union member states.

United States Healthcare Reform

The United States and many foreign jurisdictions have enacted or proposed legislative and regulatory changes affecting the healthcare system. The United States government, state legislatures and foreign governments also have shown significant interest in implementing cost-containment programs to limit the growth of government-paid healthcare costs, including price controls, restrictions on reimbursement and requirements for substitution of generic products for branded prescription drugs.

In recent years, Congress has considered reductions in Medicare reimbursement levels for drugs administered by physicians. CMS, the agency that administers the Medicare and Medicaid programs, also has authority to revise reimbursement rates and to implement coverage restrictions for some drugs. Cost reduction initiatives and changes in coverage implemented through legislation or regulation could decrease utilization of and reimbursement for any approved products. While Medicare regulations apply only to drug benefits for Medicare beneficiaries, private payers often follow Medicare coverage policy and payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from federal legislation or regulation may result in a similar reduction in payments from private payers.

The Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or collectively the Affordable Care Act, substantially changed the way healthcare is financed by both governmental and private insurers, and significantly impacts the pharmaceutical industry. The Affordable Care Act is intended to broaden access to health insurance, reduce or constrain the growth of healthcare spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for healthcare and health insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health policy reforms. Among other things, the Affordable Care Act expanded manufacturers’ rebate liability under the Medicaid Drug Rebate Program by increasing the minimum Medicaid rebate for both branded and generic drugs, expanded the 340B program, and revised the definition of AMP, which could increase the amount of Medicaid drug rebates manufacturers are required to pay to states. The

 

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legislation also extended Medicaid drug rebates, previously due only on fee-for-service Medicaid utilization, to include the utilization of Medicaid managed care organizations as well and created an alternative rebate formula for certain new formulations of certain existing products that is intended to increase the amount of rebates due on those drugs. On February 1, 2016, CMS issued final regulations to implement the changes to the Medicaid Drug Rebate program under the Affordable Care Act. These regulations became effective on April 1, 2016. There have been significant ongoing efforts to modify or eliminate the Affordable Care Act. For example, the Tax Act, enacted on December 22, 2017, repealed the shared responsibility payment for individuals who fail to maintain minimum essential coverage under section 5000A of the Internal Revenue Code of 1986, as amended, or the Code, commonly referred to as the individual mandate. Further legislative changes to and regulatory changes under the Affordable Care Act remain possible. It is unknown what form any such changes or any law proposed to replace the Affordable Care Act would take, and how or whether it may affect our business in the future. We expect that changes to the Affordable Care Act, the Medicare and Medicaid programs, changes allowing the federal government to directly negotiate drug prices and changes stemming from other healthcare reform measures, especially with regard to healthcare access, financing or other legislation in individual states, could have a material adverse effect on the healthcare industry generally.

The Affordable Care Act requires pharmaceutical manufacturers of branded prescription drugs to pay a branded prescription drug fee to the federal government. Each individual pharmaceutical manufacturer pays a prorated share of the branded prescription drug fee of $4.0 billion in 2017, based on the dollar value of its branded prescription drug sales to certain federal programs identified in the law. Furthermore, the law requires manufacturers to provide a 50% discount off the negotiated price of prescriptions filled by beneficiaries in the Medicare Part D coverage gap, referred to as the “donut hole.”

The Affordable Care Act also expanded the Public Health Service’s 340B drug pricing program. As noted above, the 340B drug pricing program requires participating manufacturers to agree to charge statutorily-defined covered entities no more than the 340B “ceiling price” for the manufacturer’s covered outpatient drugs. The Affordable Care Act expanded the 340B program to include additional types of covered entities: certain free-standing cancer hospitals, critical access hospitals, rural referral centers and sole community hospitals, each as defined by the Affordable Care Act. Because the 340B ceiling price is determined based on AMP and Medicaid drug rebate data, revisions to the Medicaid rebate formula and AMP definition could cause the required 340B discounts to increase.

In addition, other legislative changes have been proposed and adopted since the Affordable Care Act was enacted. For example, beginning April 1, 2013, Medicare payments for all items and services, including drugs and biologics, were reduced by 2% under the sequestration (i.e., automatic spending reductions) required by the Budget Control Act of 2011, as amended by the American Taxpayer Relief Act of 2012. Subsequent legislation extended the 2% reduction, on average, to 2025. Continuation of sequestration or enactment of other reductions in Medicare reimbursement for drugs could affect our ability to achieve a profit on any candidate products that are approved for marketing.

Other Healthcare Laws and Compliance Requirements

If we obtain FDA approval for any of our product candidates and begin commercializing those products in the United States, our activities may become subject to various federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute, the federal civil False Claims Act, and laws and regulations pertaining to limitations on and reporting of healthcare provider payments (physician sunshine laws). These laws and regulations are interpreted and enforced by various federal, state and local authorities including CMS, the Office of Inspector General for the U.S. Department of Health and Human Services, the U.S. Department of Justice, individual U.S. Attorney offices within the Department of Justice, and state and local governments. These laws include:

 

   

the U.S. federal Anti-Kickback Statute, which prohibits, among other things, persons or entities from knowingly and willfully soliciting, offering, receiving or paying any remuneration,

 

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directly or indirectly, overtly or covertly, in cash or in kind, to induce or reward either the referral of an individual for, or the purchase, lease, order, or arranging for or recommending the purchase, lease or order of, any good or service, for which payment may be made, in whole or in part, under federal healthcare programs such as Medicare and Medicaid. A person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation;

   

the U.S. civil False Claims Act (which can be enforced through “qui tam,” or whistleblower actions, by private citizens on behalf of the federal government), prohibits any person from, among other things, knowingly presenting, or causing to be presented false or fraudulent claims for payment of government funds or knowingly making, using or causing to be made or used, a false record or statement material to an obligation to pay money to the government or knowingly and improperly avoiding, decreasing or concealing an obligation to pay money to the U.S. federal government;

   

U.S. federal HIPAA, which imposes criminal and civil liability for, among other things, knowingly and willfully executing, or attempting to execute, a scheme to defraud any healthcare benefit program, or knowingly and willfully falsifying, concealing or covering up a material fact or making any materially false statement, in connection with the delivery of, or payment for healthcare benefits, items or services by a healthcare benefit program, which includes both government and privately funded benefits programs; similar to the U.S. federal Anti-Kickback Statute, a person or entity does not need to have actual knowledge of the statute or specific intent to violate it in order to have committed a violation.

   

state laws and regulations, including state anti-kickback and false claims laws, that may apply to our business practices, including but not limited to, research, distribution, sales and marketing arrangements and claims involving healthcare items or services reimbursed by any third-party payer, including private insurers; state laws that require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines and the relevant compliance guidance promulgated by the U.S. federal government, or otherwise restrict payments that may be made to healthcare providers and other potential referral sources; and state laws and regulations that require drug manufacturers to file reports relating to pricing and marketing information, which requires tracking gifts and other remuneration and items of value provided to healthcare professionals and entities; and

   

the Physician Payments Sunshine Act, implemented as the Open Payments program, and its implementing regulations, requires certain manufacturers of drugs, devices, biologics and medical supplies that are reimbursable under Medicare, Medicaid, or the Children’s Health Insurance Program to report annually to CMS information related to certain payments made in the preceding calendar year and other transfers of value to physicians and teaching hospitals, as well as ownership and investment interests held by physicians and their immediate family members.

Violations of any of these laws or any other governmental regulations that may apply to us, may subject us to significant civil, criminal and administrative sanctions including penalties, damages, fines, imprisonment, and exclusion from government funded healthcare programs, such as Medicare and Medicaid, and/or adverse publicity.

Moreover, government entities and private litigants have asserted claims under state consumer protection statutes against pharmaceutical and medical device companies for alleged false or misleading statements in connection with the marketing, promotion and/or sale of pharmaceutical and medical device products, including state investigations and litigation by certain government entities regarding the marketing of opioid products.

In addition to regulations in the United States, to the extent we choose to clinically evaluate or sell any products outside of the United States, we will be subject to a variety of foreign healthcare laws and compliance requirements. For example, in the European Union, the EU Data Protection Directive imposes strict obligations

 

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and restrictions on the ability to collect, analyze and transfer personal data, including health data from clinical trials and adverse event reporting. Switzerland has adopted similar restrictions. Data protection authorities from the different European Union member states may interpret the applicable laws differently, and guidance on implementation and compliance practices are often updated or otherwise revised, which adds to the complexity of processing personal data in the European Union.

Although there are legal mechanisms to allow for the transfer of personal data from the European Union to the U.S., the decision of the European Court of Justice in the Schrems case (Case C-362/14 Maximillian Schrems v. Data Protection Commissioner) invalidated the Safe Harbor framework and increased uncertainty around compliance with European Union restrictions on cross-border data transfers. As a result of the decision, it was no longer possible to rely on Safe Harbor certification as a legal basis for the transfer of personal data from the European Union to entities in the U.S. On February 29, 2016, however, the European Commission announced an agreement with the United States Department of Commerce, or DoC, to replace the invalidated Safe Harbor framework with a new EU-U.S. “Privacy Shield.” On July 12, 2016, the European Commission adopted a decision on the adequacy of the protection provided by the Privacy Shield. The Privacy Shield is intended to address the requirements set out by the European Court of Justice in its ruling by imposing more stringent obligations on companies, providing stronger monitoring and enforcement by the DoC and Federal Trade Commission, and making commitments on the part of public authorities regarding access to information. U.S. companies have been able to certify to the DoC their compliance with the privacy principles of the Privacy Shield since August 1, 2016.

On September 16, 2016, the Irish privacy advocacy group Digital Rights Ireland brought an action for annulment of the European Commission decision on the adequacy of the Privacy Shield before the European Court of Justice (Case T-670/16). In October 2016, a further action for annulment was brought by three French digital rights advocacy groups (Case T-738/16). Case T-670/16 and Case T-738/16 are still pending before the European Court of Justice. If, however, the European Court of Justice invalidates the Privacy Shield, it will no longer be possible to rely on the Privacy Shield certification to support transfer of personal data from the European Union to entities in the US. Adherence to the Privacy Shield is not, however, mandatory. U.S.-based companies are permitted to rely either on their adherence to the EU-US Privacy Shield or on the other authorized means and procedures to transfer personal data provided by the EU Data Protection Directive.

In December 2015, a proposal for an EU General Data Protection Regulation, intended to replace the current EU Data Protection Directive, introducing new data protection requirements in the EU, as well as substantial fines for breaches of the data protection rules, was agreed between the European Parliament, the Council of the European Union and the European Commission. The EU General Data Protection Regulation has applied since May 25, 2018. The EU Data Protection Regulation increased the responsibility and liability in relation to personal data processed in the European Union and also introduced substantial fines for breaches of the data protection rules. Furthermore, there is a growth towards the public disclosure of clinical trial data in the European Union which adds to the complexity of processing health data from clinical trials. During 2018, we implemented policies and controls to adhere to the EU General Data Protection Regulation.

Facilities

Our principal executive offices are located at 490 Lapp Road, Malvern, PA 19355, where we occupy approximately 22,313 square feet of leased laboratory and office space pursuant to a six-year lease, which expires on December 31, 2022. We also lease a 4,145 square foot office space in Dublin, Ireland, which expires April 16, 2020.

Corporate Information

Baudax Bio was incorporated as a Pennsylvania corporation on September 13, 2019. The contribution of Recro’s acute care business to Baudax Bio is occurring over a period of time prior to the Distribution. At the time of the

 

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Distribution, the address of Baudax Bio’s principal executive offices will be 490 Lapp Road, Malvern, PA 19355. Baudax Bio’s telephone number will be (484) 395-2470. Baudax Bio will also maintain a website at                                         .

Employees

We currently have 20 full-time employees. None of our employees are covered by collective bargaining agreements, and we consider relations with our employees to be good.

Legal Proceedings

We may be involved, from time to time, in various claims and legal proceedings arising in the ordinary course of our business. We are not currently a party to any such claims or proceedings that, if decided adversely to it, would either individually or in the aggregate have a material adverse effect on our business, financial condition or results of operations.

On May 31, 2018, the Securities Litigation was filed against Recro and certain of its officers and directors in the U.S. District Court for the Eastern District of Pennsylvania (Case No. 2:18-cv-02279-MMB) and purported to state a claim for alleged violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10(b)(5) promulgated thereunder, based on statements made by Recro concerning the NDA for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and other costs. On December 10, 2018, lead plaintiff filed an amended complaint that asserted the same claims and sought the same relief but included new allegations and named additional officers and directors as defendants. On February 8, 2019, Recro filed a motion to dismiss the amended complaint in its entirety, which the lead plaintiff opposed on April 9, 2019. On May 9, 2019, Recro filed its response and briefing was completed on the motion to dismiss. On June 26, 2019, the judge heard oral arguments on the motion to dismiss.

As consideration for the acute care assets contributed to us by Recro, Recro assigned and we accepted the assignment of all of Recro’s obligations in connection with the Securities Litigation and agreed to indemnify Recro for all liabilities related to the Securities Litigation. We believe that the lawsuit is without merit and we intend to vigorously defend against it. The lawsuit is in the early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to us.

 

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MANAGEMENT

Directors and Executive Officers

The following table sets forth the names and ages, as of                    , 2019, and titles of the individuals we currently expect to serve as our executive officers and members of our board of directors at the time of the Separation. Certain biographical information with respect to those executive officers and directors follows the table.

 

Name

   Age     

Position

Gerri Henwood

   67     

President and Chief Executive Officer
and Director

Ryan D. Lake

   42     

Chief Financial Officer

Stewart McCallum

   54     

Chief Medical Officer

John Harlow

   44     

Executive Vice President, Commercial

Alfred Altomari

   60     

Director

William L. Ashton

   68     

Director

Winston J. Churchill

   79     

Director

Wayne B. Weisman

   63     

Director

Executive Officers

Gerri Henwood will serve as our President and Chief Executive Officer and a member of our board of directors upon completion of the Separation. Ms. Henwood currently serves as Recro’s President and Chief Executive Officer and a member of the Recro Board. She has held these positions since Recro’s inception in 2008. From 2006 to 2013, Ms. Henwood served as the President of Malvern Consulting Group, or MCG, a pharmaceutical incubator and consulting firm. From 1999 to 2006, Ms. Henwood was the President and Chief Executive Officer of Auxilium Pharmaceuticals, Inc., or Auxilium, a biopharmaceutical company she founded in late 1999. From 1985 to 1999, Ms. Henwood was the founder and Chief Executive Officer of IBAH, Inc., or IBAH, a contract research organization. Ms. Henwood began her career with Smith Kline & French, now GlaxoSmithKline plc. She rose through the ranks to be a Brand Manager, then the head of Regulatory and Medical Affairs for the U.S. business and then to the position of Group Director—Marketing in the International Pharmaceutical Division. Ms. Henwood currently serves on the board of directors of Tetraphase Pharmaceuticals, Inc., a clinical stage biopharmaceutical company, a position she has held since May 2015, and she previously served on the board of directors of Alkermes, Inc. and its successor company, Alkermes plc, a global biopharmaceutical company, from 2003 until March 2015, and on the board of directors of MAP Pharmaceuticals, Inc., a biopharmaceuticals company, from 2004 until its acquisition by Allergan, Inc. in March 2013. Ms. Henwood also serves on the compensation committee of the board of directors of Tetraphase Pharmaceuticals, Inc. Ms. Henwood holds a B.S. in Biology from Neumann University. Ms. Henwood’s expertise in developing, financing and providing strong executive leadership to numerous biopharmaceutical companies, her strong background in pharmaceutical marketing and commercialization, clinical and product development and substantial knowledge of the pharmaceutical industry, her corporate governance experience as a board member of multiple publicly-traded and privately-held companies, as well as her extensive knowledge of our business, contributed to the Recro Board’s conclusion that she should serve as a director of our company.

 

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Ryan D. Lake will serve as our Chief Financial Officer upon completion of the Separation. Mr. Lake currently serves as Recro’s Chief Financial Officer. He has held this position since January 2018. He had previously served as Recro’s Senior Vice President of Finance and Chief Accounting Officer since June 2017. Prior to joining Recro, Mr. Lake served as Chief Financial Officer and Vice President of Finance of Aspire Bariatrics, Inc., a privately-held, commercial stage, medical device company from July 2015 to May 2017. From 2012 to 2015, Mr. Lake held executive management and senior finance positions, including Director of the Natural Materials Division, Controller and Senior Director of Finance, at DSM Biomedical (successor to Kensey Nash Corporation after its acquisition in 2012), a division of Royal DSM (listed on Euronext Amsterdam), a global science-based company active in health, nutrition and materials. From 2002 to 2012, Mr. Lake held various senior financial positions of increasing responsibility, most notably Senior Director of Finance and Interim Chief Financial Officer, with Kensey Nash Corporation, a medical device company. Earlier in his career, Mr. Lake worked at Deloitte & Touche, LLP. Mr. Lake has a B.S. degree in Accounting from West Chester University of Pennsylvania and is a certified public accountant and chartered global management accountant.

Stewart McCallum, M.D. will serve as our Chief Medical Officer Dr. McCallum has served as Recro’s Chief Medical Officer since December 2015. From May 2006 to November 2015, Dr. McCallum worked at GlaxoSmithKline plc, a research-based pharmaceutical and healthcare company, where he served in clinical director positions and ultimately as Clinical Director Academic and Sirtuin, Discovery Performance Units. During his time at GSK, Dr. McCallum successfully led high profile drug development programs across a wide variety of therapeutic areas including urology, oncology, gastrointestinal, dermatology, stem cell therapies, in vitro fertilization and women’s health. He was responsible for the planning, design and execution of comprehensive development plans incorporating medical, regulatory and commercial considerations. From 1998 to 2006, Dr. McCallum served as Assistant Professor Urology at Stanford University Medical Center. Dr. McCallum received his M.D. from the University of Toronto and his B.S. in Biochemistry from the University of Western Ontario. He completed a Clinical Fellowship in Microsurgery and Male Fertility at the Joan & Sanford I. Weill Medical College of Cornell.

John Harlow will serve as our Executive Vice President, Commercial. Mr. Harlow has served as Recro’s Executive Vice President, Commercial since February 2018 and has over 20 years of branded pharmaceutical experience, including commercial leadership roles in marketing, sales and operations. He joined Recro as its Vice President of Marketing in October 2016. From 2015 to 2016, Mr. Harlow served as the Vice President & General Manager of the Pain Business Unit for Endo Pharmaceuticals, a generics and specialty branded pharmaceutical company. From 2012 to 2015, Mr. Harlow was employed at Shionogi Inc., a pharmaceutical company focused on developing, partnering and commercializing medicine to treat unmet medical needs, in roles of increasing responsibilities including Vice President, Sales and Marketing and Vice President of Sales, Training and Operations. Prior to joining Shionogi, Mr. Harlow was a Senior Director of Marketing at King Pharmaceuticals Inc. where he oversaw the pain portfolio that was ultimately acquired by Pfizer. Mr. Harlow spent over 6 years with Novartis Pharmaceuticals Corporation in sales management and marketing leadership roles in the Neuroscience business unit. Earlier in his career, Mr. Harlow was an equity research analyst at Merrill Lynch and a sales representative at Janssen Pharmaceuticals - a Johnson and Johnson company. He earned a BS in Biology from Lehigh University and an M.B.A. in Pharmaceutical Management & Marketing from The Stillman School of Business at Seton Hall University.

Non-Employee Directors

We expect to appoint the following non-management directors to serve on our board of directors upon completion of the Separation:

Alfred Altomari has been a member of the Recro Board since 2014. Mr. Altomari has served as Chairman, President and Chief Executive Officer of Agile Therapeutics, Inc., or Agile, a specialty pharmaceutical company focused on the development and commercialization of new prescription contraceptive products, since October 2010. Mr. Altomari is also a member of the board of directors of Agile and prior to being named President and

 

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Chief Executive Officer, he served as Agile’s Executive Chairman from 2004 to 2010. From 2008 to September 2010, Mr. Altomari also served as a consultant. From 2003 to 2008, Mr. Altomari held multiple senior management positions, including Chief Commercial Officer, Chief Operating Officer, and Chief Executive Officer, at Barrier Therapeutics, Inc., a pharmaceutical company that developed and marketed dermatology products. In 2008, in his role as Chief Executive Officer and as a member of Barrier’s board of directors, Mr. Altomari completed the successful sale of Barrier to Stiefel Laboratories, which was subsequently acquired by GlaxoSmithKline plc. From 1982 to 2003, Mr. Altomari held numerous executive roles in general management, commercial operations, business development, product launch preparation and finance with Johnson & Johnson. Mr. Altomari also serves on the board of directors of Insmed Incorporated. Mr. Altomari received an M.B.A. from Rider University and a B.S. from Drexel University. Mr. Altomari’s extensive experience in the pharmaceutical industry, in senior leadership positions at both large and specialty pharmaceutical companies as well as his experience in the development, commercialization and launch of numerous pharmaceutical products, contributed to the Recro Board’s conclusion that he should serve as a director of our company.

William L. Ashton has been a member of the Recro Board since 2009. Since the beginning of 2013, Mr. Ashton has been a principal at Harrison Consulting Group, Inc., a privately-held biopharmaceutical consulting firm. From August 2009 to June 2013, Mr. Ashton was the senior vice president of external affairs reporting to the president and an assistant professor at the University of the Sciences in Philadelphia, Pennsylvania. From August 2005 to August 2009, Mr. Ashton was the founding Dean of the Mayes College of Healthcare Business and Policy. Mr. Ashton has 29 years’ experience in the biopharmaceutical industry. From 1989 to 2005, Mr. Ashton held a number of positions at Amgen Inc., a biotechnology company, including vice president of U.S. sales and vice president of commercial and government affairs. Mr. Ashton currently serves on the board of directors of Spectrum Pharmaceuticals, Inc. since February 2018, and previously served on the board of directors of Galena Biopharma, Inc. from April 2013 until January 2018. He is also a member of the board of directors of the Academy of Notre Dame and Loyola University. Mr. Ashton holds a B.S. in Education, from the California University of Pennsylvania and an M.A. in Education, from the University of Pittsburgh. Mr. Ashton’s extensive experience with pharmaceutical and biological product commercialization, including developing and leading a commercial sales force, as well as his governance experience as a board member of public and privately-held companies and his reimbursement expertise contributed to the Recro Board’s conclusion that he should serve as a director of our company.

Winston J. Churchill has been a member of the Recro Board since 2008. Since 2007, Mr. Churchill has been a director of the corporate general partner of the common general partner of SCP Vitalife Partners II, L.P. and SCP Vitalife Partners (Israel) II, L.P., collectively referred to herein as SCP Vitalife, which beneficially owns 13.2% of Recro’s outstanding stock as of March 15, 2019. He has also served as a managing member of SCP Vitalife Management Company, LLC, which by contract provides certain management services to the common general partner of SCP Vitalife. Mr. Churchill has also served since 1993 as the President of CIP Capital Management, Inc., the general partner of CIP Capital, L.P., an SBA-licensed private equity fund. Prior to that, Mr. Churchill was a managing partner of Bradford Associates, which managed private equity funds on behalf of Bessemer Securities Corporation and Bessemer Trust Company. From 1967 to 1983, Mr. Churchill practiced law at the Philadelphia firm of Saul Ewing, LLP, where he served as Chairman of the Banking and Financial Institutions Department, Chairman of the Finance Committee and was a member of the Executive Committee. Mr. Churchill is a director of Innovative Solutions and Support, Inc., Amkor Technology, Inc. and various SCP Vitalife portfolio companies and he previously served as a director of Griffin Industrial Realty from April 1997 until May 2016. In addition, he serves as a director on the boards of a number of charities and as a trustee of educational institutions including the Gesu School and Young Scholars Charter School and is a Trustee Fellow of Fordham University. From 1989 to 1993, Mr. Churchill served as Chairman of the Finance Committee of the Pennsylvania Public School Employees’ Retirement System. He was awarded a B.S. in Physics, summa cum laude, from Fordham University followed by an M.A. in Economics from Oxford University, where he studied as a Rhodes Scholar, and a J.D. from Yale Law School. Mr. Churchill’s insight into financial and investment matters from his experience in private equity investing in life sciences companies, his financial and corporate governance

 

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experience from serving on numerous public and private boards of directors, as well as his long service as a director on the Recro Board, where he gained extensive knowledge of Recro’s business and history, contributed to the conclusion of the Recro Board that he should serve as a director of our Company.

Wayne B. Weisman has been a member and the chairman of the Recro Board since 2008. Since 2007, Mr. Weisman has been a director of the corporate general partner of the common general partner of SCP Vitalife, which beneficially owns approximately 13.2% of Recro’s outstanding stock as of March 15, 2019. He has also served as a managing member of SCP Vitalife Management Company, LLC, which by contract provides certain management services to the common general partner of SCP Vitalife. He has also led the activities of SCP Private Equity Partners II, L.P., a venture capital fund of which he and Mr. Churchill are principals, in the life sciences area; these activities include investments in the United States and Israel. He has also led several other technology investments for SCP Private Equity Partners II, L.P. He has been a member of the investment committee of the Vitalife Life Sciences funds since their inception in 2002 and has worked closely with these funds since then. Mr. Weisman was a member of the board of directors of CIP Capital, L.P., a small business investment company licensed by the U.S. Small Business Administration since its inception in 1991 until 2017. From 1992 to 1994, Mr. Weisman was executive vice president and member of the board of a public drug delivery technology company. In addition, he also operated a management and financial advisory firm focusing on the reorganization and turnaround of troubled companies and began his career practicing reorganization law at a large Philadelphia law firm. Mr. Weisman possesses extensive experience in venture capital investing, particularly in the life sciences area. In addition to being our Chairman, Mr. Weisman serves on the board of directors of ReWalk Robotics Ltd. and on the board of directors for a number of private companies. He is the Vice Chairman of the board of trustees of Young Scholars Charter School. He is also an advisory board member of the Philadelphia-Israel Chamber of Commerce and Mid-Atlantic Diamond Ventures, the venture forum of Temple University. Mr. Weisman holds a B.A. from the University of Pennsylvania, and a J.D. from the University of Michigan Law School. Mr. Weisman’s leadership as a director of various pharmaceutical and healthcare companies, his experience serving on the board of directors of life sciences companies, his insight into the legal issues facing our business, as well as his in-depth knowledge of our business and history as a long time director of Recro, contributed to the conclusion of the Recro Board that he should serve as a director of our Company.

Board Composition and Independence

Our business and affairs are managed under the direction of our board of directors. Upon completion of the Separation, our board of directors will consist of five members. Our directors hold office until their successors have been elected and qualified or until their earlier death, resignation or removal. There are no family relationships among any of our directors or executive officers. It is anticipated that a majority of our board of directors will satisfy the independence standard established by the listing standards of the Nasdaq Capital Market as well as the corporate governance principles to be adopted by our board of directors.

Board Committees

Upon the completion of the Separation, our board of directors will have three standing committees: an audit committee, or the Audit Committee, a compensation committee, or the Compensation Committee, and a nominating and corporate governance committee, or the Governance Committee, each of which will operate pursuant to a charter to be adopted by our board of directors.

Each of the Committees will have the authority, as its members deem appropriate, to engage legal counsel or other experts or consultants in order to assist the Committee in carrying out its responsibilities.

 

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Audit Committee

The Audit Committee will consist of                     ,                      and                     . Our board has determined that each of                     ,                      and                      are independent under the Nasdaq Listing Rules and Rule 10A-3(b)(1) of the Exchange Act. The chair of the Audit Committee will be             . The Recro Board has determined that                      is an “audit committee financial expert” as such term is currently defined in Item 407(d)(5) of Regulation S-K. This designation does not impose any duties, obligations or liabilities that are greater than are generally imposed on members of the Audit Committee and our board of directors. The Audit Committee will, among other things, assist the Board by providing oversight of our financial management, independent auditor and financial reporting procedures. The responsibilities of the Audit Committee will be more fully described in our Audit Committee Charter and are expected to include, among other duties:

 

   

appointing, retaining, compensating, overseeing, evaluating, and, when appropriate, terminating our independent registered public accounting firm;

 

   

discussing with management and the independent registered public accounting firm our annual and quarterly financial statements and related disclosures;

 

   

periodically reviewing policies and procedures with respect to data privacy and security we employ in conducting our business;

 

   

reviewing with management its assessment of our internal control over financial reporting, disclosure controls and procedures;

 

   

reviewing our code of business conduct and ethics and recommending any changes to the Board;

 

   

overseeing our risk assessment and risk management processes;

 

   

reviewing and ratifying all related party transactions, based on the standards set forth in our Related Party Transactions Policy; and

 

   

preparing and approving the Audit Committee report required to be included in our annual proxy statement.

Compensation Committee

The Compensation Committee will consist of                     ,                      and                     , each of which is a non-employee director, as defined by Rule 16b-3 promulgated under the Exchange Act and meets the requirements for independence under the current Nasdaq Listing Rules. The chair of the Compensation Committee will be             . The Compensation Committee will, among other things, review the performance and development of our management in achieving corporate goals and objectives and assures that our executive officers (including our CEO) are compensated effectively in a manner consistent with our strategy, competitive practice and shareholder interests. The responsibilities of the Compensation Committee will be more fully described in our Compensation Committee Charter and are expected to include, among other duties:

 

   

annually reviewing and recommending to the Board for approval the corporate goals and objectives applicable to the compensation of our CEO and other executive officers and evaluating at least annually our CEO’s and other executive officers’ performance in light of those goals and objectives;

 

   

annually reviewing and approving our peer group for compensation benchmarking;

 

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determining and approving our CEO’s and other executive officers’ compensation level (including salary, cash and equity-based incentive awards and any personal benefits);

 

   

administering, or where appropriate, overseeing the administration of, executive and equity compensation plans and such other compensation and benefit plans that will be adopted by us from time to time;

 

   

determining stock ownership guidelines for our CEO and other executive officers and monitoring compliance with such guidelines, if deemed advisable by our Board or the Compensation Committee; and

 

   

overseeing risks and exposures associated with executive compensation plans and arrangements.

Nominating and Corporate Governance Committee

The Governance Committee will consist of                     ,                     and                     , each of which meets the requirements for independence under the current Nasdaq Listing Rules. The chair of the Governance Committee will be             . The Governance Committee will be tasked with providing oversight of the corporate governance affairs of the Board. In addition, the Governance Committee will identify qualified individuals for membership on the Board, recommend to the Board the director nominees to fill vacancies on the Board and to stand for election at the next annual meeting of shareholders and develop and recommend to the Board a set of corporate governance guidelines for the Board. The responsibilities of the Governance Committee will be more fully described in our Nominating and Corporate Governance Committee Charter and are expected to include, among other duties:

 

   

developing and submitting to the Board for its adoption a list of selection criteria for new directors to serve on the Board;

 

   

identifying, reviewing and evaluating candidates, including candidates submitted by shareholders, for election to the Board and recommending to the Board (i) nominees to fill vacancies or new positions on the Board and (ii) the slate of nominees to stand for election by the Company’s shareholders at each annual meeting of shareholders;

 

   

developing, recommending, and overseeing the implementation of and monitor compliance with, our corporate governance guidelines, and periodically reviewing and recommending any necessary or appropriate changes to our corporate governance guidelines;

 

   

annually recommending to the Board (i) the assignment of directors to serve on each Committee; (ii) the chairperson of each Committee and (iii) the chairperson of the Board or lead independent director, as appropriate;

 

   

periodically assessing the appropriate size and composition of the Board as a whole, the needs of the Board and the respective committees of the Board, and the qualification of director candidates in light of these needs;

 

   

reviewing the adequacy of our articles of incorporation and bylaws and recommending to the Board, as conditions dictate, amendments for consideration by the shareholders;

 

   

reviewing any proposals submitted by shareholders for action at the annual meeting of shareholders and make recommendations to the Board regarding action to be taken in response to each proposal; and

 

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implementing policies with respect to governance risk oversight, assessment and management of risk associated with the independence of our Board and director nominees, potential conflicts of interest of members of our Board and our executive officers and the effectiveness of the Board and the committees thereof.

The Governance Committee will also be responsible for identifying individuals that the Committee believes are qualified to become Board members, as described above in the section entitled “Board Composition and Independence.”

Our board of directors may establish other committees from time to time.

Risk Management

Upon completion of the Separation, we expect the Board’s role in risk oversight to be consistent with our anticipated leadership structure, with management having day-to-day responsibility for assessing and managing our risk exposure and the Board actively overseeing management of our risks—both at the Board and Committee level. The risk oversight process will include receiving regular reports from Committees and our executive officers to enable our Board to understand our risk identification, risk management and risk mitigation strategies with respect to areas of potential material risk, including operations (including cyber-security), finance, legal, regulatory, strategic and reputational risk.

The Board will focus on the overall risks affecting us. Each Committee will be delegated the responsibility for the oversight of specific risks that fall within its areas of responsibility. For example:

 

   

The Audit Committee will oversee management of financial reporting, compliance and litigation risks, including risks related to our insurance, information technology, cybersecurity, human resources and regulatory matters, as well as the steps management has taken to monitor and control such exposures.

 

   

The Compensation Committee will be responsible for overseeing the management of risks relating to our executive compensation policies, plans and arrangements and the extent to which those policies or practices increase or decrease risk for the Company.

 

   

The Governance Committee will manage risks associated with the independence of the Board, potential conflicts of interest and the effectiveness of the Board.

While each Committee will be responsible for evaluating certain risks and overseeing the management of such risks, the entire Board will be regularly informed through Committee reports about such risks. Matters of significant strategic risk will be considered by our entire Board.

Compensation Committee Interlocks and Insider Participation

During the fiscal year ended December 31, 2018, Baudax Bio did not exist and did not have a compensation committee or any other committee serving a similar function. Prior to the Separation, decisions as to the compensation of those who are expected to serve as our executive officers were made by the Recro Compensation Committee.

Corporate Governance Principles and Code of Business Conduct and Ethics

In connection with the Separation and the Distribution, our board of directors will adopt corporate governance principles that set forth the responsibilities of the board of directors and the qualifications and independence of its members and the members of its standing committees. In addition, in connection with the Separation and Distribution, our board of directors will adopt, among other codes and policies, a code of conduct setting forth standards applicable to all of our companies and our directors, officers and employees. The corporate governance principles and code of conduct will be available on our website at                . Any amendment to the code, or any waivers of its requirements, will be disclosed on our website.

 

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EXECUTIVE COMPENSATION

Executive Compensation

Overview

The following tables and discussion relate to the compensation paid to or earned by Gerri Henwood, who currently serves as Chief Executive Officer of Recro and will serve as our Chief Executive Officer, and our two most highly compensated executive officers (other than Ms. Henwood). They are Stewart McCallum, who currently serves as Chief Medical Officer of Recro and will serve as our Chief Medical Officer, and John Harlow who currently serves as Executive Vice President, Commercial of Recro and will serve as our Executive Vice President, Commercial. Ms. Henwood, Dr. McCallum and Mr. Harlow are referred to collectively in this information statement as our “named executive officers.”

Prior to the Separation, the compensation of our named executive officers for their service to Recro was designed and determined by Recro and the Recro Compensation Committee. Prior to the Separation, the Recro Compensation Committee may determine to adopt new or alternative compensation arrangements to attract and retain talented executives at Baudax Bio, and in connection with or following the Separation, our Compensation Committee may adopt such compensation arrangements or adopt its own compensation arrangements to attract and retain talented executives.

Summary Compensation Table

The following table sets forth information about certain compensation awarded to, earned by or paid to our named executive officers under Recro’s compensation and benefit plans and programs during fiscal year 2018:

 

Name and Principal

          Position          

    Salary ($)     Bonus
 ($)(1)(2) 
  Non-
Equity
Incentive

 Plan ($)(2) 
  Stock
Awards
  ($)(3)(5)  
  Option
Awards
  ($)(3)  
  All Other
  Compensation  

($)(4)
    Total ($)  

Gerri Henwood

President and Chief
Executive Officer

  598,662     183,600   1,008,000   600,000   37,172   2,427,434

Stewart McCallum

Chief Medical Officer

  458,200     75,195   430,039   193,200   42,676   1,199,310

John Harlow

Executive Vice President,
Commercial

  324,580     47,355   417,648   396,500   44,187   1,230,270

 

(1)

Reflects discretionary bonus amounts paid for performance in excess of corporate and individual objectives under our annual performance cash bonus plan.

 

(2)

The amounts represent annual performance cash bonuses earned in 2018 and paid in the following year.

 

(3)

Reflects the grant date fair value determined in accordance with the Financial Accounting Standards Board Accounting Standards, Codification Topic 718, Compensation — Stock Compensation, or ASC 718. The assumptions made in these valuations are included in Note 16 of the Notes to the Annual Financial Statements included in Recro’s Annual Report on Form 10-K for the year ended December 31, 2018.

 

(4)

These amounts consist of 401(k) matching contributions, the cost of medical benefits and life and disability insurance premiums.

 

(5)

The 2018 amounts reflect both time-based and performance-based restricted stock awards, of which certain performance-based awards were forfeited and canceled due to unmet 2018 performance criteria. Refer to the Outstanding Equity Awards at Fiscal Year-End table for more information.

 

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Non-Equity Incentive Plan Compensation

Each of the named executive officers will be eligible to receive an annual performance cash bonus based on the achievement of pre-established corporate and individual objectives as determined by our Compensation Committee and upon review of the recommendations of our CEO for our other named executive officers. Each officer will be assigned a target bonus expressed as a percentage of his or her base salary. Actual bonus payments may be higher or lower than the target bonus amount, as determined by our Board or Compensation Committee, based on the achievement of corporate and individual objectives.

The target bonus amount in 2018 as set by the Recro Compensation Committee for Ms. Henwood, Dr. McCallum and Mr. Harlow were 60%, 40% and 40%, respectively.

In determining the amount of performance bonus awards, our Compensation Committee will determine the level of achievement of the corporate goals and individual goals for each year. In determining the level of achievement for our other named executive officers, our Compensation Committee will review and consider the recommendations of our CEO. These achievement levels will be used to determine each named executive officer’s bonus.

Actual bonus amounts that were paid to each named executive officer by Recro are reflected in the “Non-Equity Incentive Plan” column of the Summary Compensation Table above.

Equity-Based Compensation

We will award equity compensation to our named executive officers based on their performance in the form of time-vesting stock options and time- and performance-vested restricted stock units. We will determine our equity award guidelines based on information and recommendations provided by our compensation consultant. With respect to our named executive officers other than our CEO, we will also utilize recommendations provided by our CEO. In determining the amount of awards, we will not consider an employee’s current equity ownership in our common stock or the prior awards that are fully vested. Rather, we will evaluate each employee’s awards based on the recommendation received from our CEO and reference to other competitive market factors in our industry.

Our stock option awards will typically vest over a four-year period subject to the continued service of the employee with us. Our time-based restricted stock unit awards will typically vest in equal annual installments over a four-year period subject to the continued service of the employee with us. Our performance-based restricted stock unit awards will include vesting criteria relating to the achievement of certain development, commercialization and financial goals. We believe these vesting arrangements will encourage our named executive officers to continue service with us for a longer period of time and remain focused on our multi-year long-term drug development and commercialization programs.

Agreements with our Named Executive Officers

Each of Ms. Henwood and Dr. McCallum entered into employment agreements with Recro that, among other things, entitled them to receive certain benefits in the event of termination without cause or such named executive officer resigns for certain reasons within 12 months of a change of control (each as defined in the respective agreement). Mr. Harlow is not a party to an employment agreement with Recro. We intend to enter into employment agreements with each of Ms. Henwood and Dr. McCallum that are consistent in all material respects with their respective Recro employment agreements as described below.

Recro’s employment agreements with its named executive officers provide for annual base salaries for each of Recro’s named executive officers, subject to adjustment from time to time, in the discretion of the Recro Board and compensation committee. In addition to base salaries, the Recro employment agreements provide that each

 

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of Recro’s named executive officers is eligible to participate in Recro’s incentive bonus program. The Recro Board and compensation committee consider a cash bonus opportunity each year for its named executive officers and potential target cash bonuses to Ms. Henwood and Dr. McCallum. Dr. McCallum has a prescribed target bonus under his Recro employment agreement of 40% of base salary.

For 2018, the Recro Board and compensation committee established target bonuses of 60% and 40% of base salary, respectively, for Ms. Henwood and Dr. McCallum, with actual payment dependent upon performance factors.

Each of the Recro employment agreements is for an initial term of one year and automatically renews for one-year periods, unless terminated by either party by delivery of 30 days written notice to the other party. Pursuant to each of the employment agreements, if Recro terminates one of the named executive officers’ employment without cause (as defined below) or such named executive officer resigns for certain reasons described below within 12 months after a change of control (as defined below), such named executive officer will be entitled to receive:

(i) such executive officer’s base salary and health insurance benefits, at Recro’s expense, for a period of 12 months following the date of termination;

(ii) with respect to Dr. McCallum, any accrued but unused vacation and paid time off, any earned but unpaid bonus, reimbursement of any proper business expenses as of the date of termination and, with respect to Ms. Henwood, reimbursement of any proper business expenses as of the date of termination (referred to as the Accrued Benefits);

(iii) with respect to Dr. McCallum, a pro-rata annual bonus in respect of the fiscal year in which the effective date of termination occurs, with such annual bonus (if any) paid at the same time it would have otherwise been paid absent Dr. McCallum’s termination of employment; and

(iv) with respect to Dr. McCallum, outplacement services for a period of 12 months following the date of termination, which shall not exceed $25,000.

If a named executive officer’s employment is terminated as a result of such named executive officer’s disability or death, such named executive officer or such named executive officer’s estate will be entitled to receive:

(i) such executive officer’s base salary and health insurance benefits, at Recro’s expense, for a period of 6 months following the date of termination;

(ii) the Accrued Benefits; and

(iii) with respect to Dr. McCallum, a pro-rata target bonus in respect of the fiscal year in which the effective date of termination occurs, with such annual bonus (if any) paid within 30 days of termination.

If the severance and other benefits provided in a named executive officer’s employment agreement or otherwise payable to a named executive officer would be subject to excise tax under Section 280(G) of the Code, then the named executive officer’s severance benefits will be either delivered in full or delivered as to such lesser extent that would result in no portion of the severance benefits being subject to such excise tax, whichever results in the receipt by the named executive officer on an after-tax basis of the greatest portion of such total severance and other benefits.

For purposes of the Recro employment agreements, “cause” generally means an named executive officer’s (1) commission of an act of fraud or dishonesty against Recro; (2) failure to substantially perform his or her

 

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duties or material violation of the employment agreement, which failure or violation continues for 30 days or more following written notice to such named executive officer; (3) loss of any permit, license, accreditation or other authorization necessary for such named executive officer to perform his or her duties; (4) conviction of a felony or a plea of “no contest” to a felony; or (5) conduct that is likely, in the judgment of the Recro Board, to materially adversely affect its reputation; with regard Dr. McCallum, his employment agreement requires his conduct under item (2) above to be willful, and for his conduct to continue for five days or more following written notice by Recro of the conduct under item (5) above.

For purposes of the Recro employment agreements, a “change of control” shall be deemed to have occurred upon the happening of any of the following events: (1) the consummation by Recro of a plan of dissolution or liquidation; (2) the consummation of the sale or disposition of all or substantially all of Recro’s assets; (3) the consummation by Recro of a merger, consolidation or other shareholder-approved fundamental business transaction in which Recro is a participant with another entity where Recro shareholders, immediately prior to the referenced transaction, will not beneficially own, immediately after the referenced transaction, shares or other equity interests entitling such shareholders to more than 50% of all votes to which all equity holders of the surviving entity would be entitled in the election of directors; (4) the date any entity, person or group, (within the meaning of Section 13(d)(3) or Section 14(d)(2) of the Exchange Act), (other than (A) Recro or any of its subsidiaries or any employee benefit plan (or related trust) sponsored or maintained by Recro or any of its subsidiaries or (B) any person who, on the date the plan is effective, is the beneficial owner of Recro outstanding securities), shall have become the beneficial owner of, or shall have obtained voting control over, more than fifty percent (50%) of Recro’s outstanding shares of the common stock; or (5) the first day after the date hereof when directors are elected such that a majority of the Recro Board shall have been members of the Recro Board for less than twenty-four (24) months, unless the nomination for election of each new director who was not a director at the beginning of such twenty-four (24) month period was approved by a vote of at least two-thirds of the directors then still in office who were directors at the beginning of such period. A named executive officer will receive the payments and benefits described above if they terminate within 12 months after a change of control and during such twelve-month period Recro and/or its successor: (1) materially and adversely change such named executive officer’s status, responsibilities or perquisites, subject to a 30 day cure period; (2) with regard to Dr. McCallum, reduce such named executive officer’s base salary except as part of an across the board decrease in which such executive officer’s reduction is not more than any other executive officer; or (3) require such officer to be principally based at any office or location more than 50 miles from such named executive officer’s principal office prior to the change of control.

 

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Outstanding Equity Awards at Fiscal Year-End

The following table sets forth information regarding Recro equity awards held by our named executive officers as of December 31, 2018.

 

    Option Awards      Stock Awards  
Name   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable
     Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
    Option
Exercise
Price
($)
     Option
Expiration
Date
     Number
of Time-
Based
Shares or
Units of
Stock
That
Have Not
Vested
(#)(1)
     Market
Value of
Time-
Based
Shares or
Units of
Stock That
Have Not
Vested
($)(2)
     Number of
Performance-
Based Shares
or Units of
Stock That
Have Not
Vested
(#)(1)
    Market
Value of
Performance-
Based Shares
or Units of
Stock That
Have Not
Vested
($)(2)
 
Gerri
Henwood
    60,000        -       8.00        03/11/2024               
      40,000        -       7.00        04/07/2024               
      123,500        -       2.47        12/16/2024               
      123,500        -       2.47        12/16/2024               
      78,975        26,325 (3)       8.41        12/15/2025               
      105,300        -       7.86        12/01/2026               
      69,335        75,365 (3)       7.33        01/17/2027               
      22,917        77,083 (3)       9.04        01/01/2028               
                   15,000        106,500         
                   50,000        355,000         
                                                           50,000 (5)       355,000  
Stewart
McCallum
    77,250        25,750 (4)       9.29        11/30/2025               
      17,250        18,750 (3)       7.33        01/17/2027               
      7,379        24,821 (3)       9.04        01/01/2028               
                   18,000        127,800         
                   16,100        114,310         
                   14,668        104,143         
                                                           16,100 (5)       114,310  

John Harlow

    21,667        18,333 (3)       8.74        10/02/2026               
      4,792        5,208 (3)       7.33        01/17/2027               
      3,667        12,333 (3)       9.04        01/01/2028               
      10,417        39,583 (3)       9.01        02/28/2028               
                   1,500        10,650         
                   8,000        56,800         
                   15,000        106,500         
                   16,422        116,596         
                                                           11,000  (5)      78,100  

 

 

(1)

The restricted stock units vest in four equal annual installments beginning on the date that is one year from the date of grant, subject to continued employment with Recro.

 

(2)

The market value is based on the closing stock price of $7.10 on December 31, 2018 (the last trading date in the 2018 fiscal year).

 

(3)

The stock option vests in equal monthly installments over 48 months, beginning on the date that is one month from the date of grant, subject to continued employment with Recro.

 

(4)

The stock option vests in equal monthly installments over 48 months, beginning on the date that is one month from the date of grant, subject to continued employment with Recro. The stock option is an inducement grant under Nasdaq listing rule 5635(c)(4).

 

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(5)

The vesting of the performance-based restricted stock units was based upon meeting certain 2018 performance criteria, subject to continued employment with Recro. All of such performance-based restricted stock units were forfeited and canceled based on failure to meet the 2018 performance goals. The performance-based restricted stock units are shown here at the target level of performance.

Director Compensation

Following the Distribution, we will adopt a non-employee director compensation program, based on market and peer data, setting forth the compensation that members of our board of directors will be eligible to receive going forward in respect of their service to us.

2019 Compensation Plans

Prior to the Distribution, our board of directors intends to adopt the 2019 Equity Incentive Plan, or our 2019 Plan. The following summaries describe what we anticipate to be the material terms of our 2019 Plan. These summaries are not a complete description of all of the terms of our 2019 Plan and are qualified in their entirety by reference to our 2019 Plan, which will be filed as an exhibit to the registration statement of which this information statement is a part.

Purpose. The 2019 Plan is intended as an additional incentive to current and prospective employees, consultants and directors to enter into or remain in the service or employ with us or any affiliate, to devote themselves to our success, and to encourage the creation of shareholder value. Under the 2019 Plan, we may provide such persons with opportunities to acquire or increase their interests in us through options to purchase our common stock, grants of stock appreciation rights and awards of our common stock. Under the 2019 Plan, we may grant (i) incentive stock options, (ii) nonqualified stock options, (iii) stock appreciation rights, (iv) stock awards, (v) restricted stock awards, and (vi) restricted stock units.

Authorized Shares. A total of                shares of our common stock will be reserved for issuance under the 2019 Plan. In addition, on January 1 of each year, the number of shares of common stock reserved for issuance under the 2019 Plan will be automatically increased, without the necessity of further approval from our shareholders or our Board, by an amount equal to no greater than five percent (5%) of our issued and outstanding common stock on such date. If any award under the 2019 Plan expires, lapses, terminates unexercised, becomes unexercisable or is forfeited, or if shares underlying an award are tendered or withheld in payment of the exercise price of an award or the taxes payable with respect to the exercise, then such unpurchased, forfeited, tendered or withheld shares shall thereafter be available for further awards under the 2019 Plan unless, in the case of stock options granted under the 201 9 Plan, related stock appreciation rights are exercised. With respect to stock appreciation rights that are settled with shares, upon settlement, only the number of shares delivered to a participant upon the exercise of the stock appreciation right shall count against the number of shares issued under the 2019 Plan. Awards under the 2019 Plan that are settled in cash shall not be counted against the foregoing maximum share limitations.

In the event that any reorganization, recapitalization, stock split, reverse stock split, stock dividend, combination of shares, merger, consolidation, distribution of assets, or any other change in our corporate structure or our shares affects shares such that an adjustment is appropriate in order to prevent dilution or enlargement of the rights of participants under the 2019 Plan, the Board shall make such equitable adjustments in any or all of the following in order to prevent such dilution or enlargement of rights: the number and kind of shares or other property available for issuance under the 2019 Plan (including, without limitation, the total number of shares available for issuance under the 2019 Plan), the number and kind of awards or other property covered by awards, and the exercise price of outstanding options and stock appreciation rights.

Eligibility. Awards under the 2019 Plan may be granted to our employees or employees of any parent or subsidiary affiliate. Awards may also be made to our consultants and members of our Board. Only employees may be granted incentive stock options.

 

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Administration. The Compensation Committee will administer the 2019 Plan (except with respect to any award granted to non-employee directors, which is administered by our full Board). Subject to the terms and conditions of the 2019 Plan, our Compensation Committee will have the authority to select the persons to whom awards are to be made, to determine the type or types of awards to be granted to each person, determine the number of awards to grant, determine the number of shares to be subject to such awards, and the terms and conditions of such awards, and to interpret the 2019 Plan.

Awards. The 2019 Plan provides for the grant of incentive stock options, nonqualified stock options, stock appreciation rights, stock awards, restricted stock awards and restricted stock units. Each award is set forth in a separate award agreement with the person receiving the grant, which agreement indicates the type, terms, restrictions and conditions of the award. A recipient may receive more than one award of stock options, stock appreciation rights, stock awards, restricted stock or restricted stock units.

Award Limits. To the extent required by Section 162(m) of the Code for awards under the Plan to qualify as “performance-based compensation,” the maximum number of shares which may be granted under the 2019 Plan during any fiscal year of the Company to each participant, and which are subject to an award for which the grant of such award is subject to the attainment of performance goals, shall be 400,000 shares per type of award, provided that the maximum number of shares for all types of awards does not exceed 1,000,000 during any fiscal year of the Company.

Stock Options. Stock options entitle the holder to purchase from us a stated number of shares of common stock. The 2019 Plan permits the grant of stock options that are intended to qualify as incentive stock options, or ISOs, and nonstatutory stock options, or NSOs.

The exercise price of a stock option granted under the 2019 Plan may not be less than 100% of the fair market value of the common stock subject to the stock option on the date of grant and, in some cases (see “Limitations on Incentive Stock Options” below), may not be less than 110% of such fair market value.

The term of stock options granted under the 2019 Plan may not exceed ten years and, in some cases (see “Limitations on Incentive Stock Options” below), may not exceed five years. Acceptable forms of consideration for the purchase of our common stock pursuant to the exercise of a stock option under the 2019 Plan will be determined by the Board and may include payment: (1) by cash, (2) by certified check payable to us, (3) by payment through a broker in accordance with the procedures permitted by Regulation T of the Federal Reserve Board; (4) by delivery of shares of common stock, as permitted in the discretion of the Board, (5) by a net exercise arrangement (for NSOs only); (6) in other legal consideration approved by the Board and permitted for the issuance of shares under the Pennsylvania Business Corporation Law, as amended; or (7) any combination of the foregoing.

Stock options granted under the 2019 Plan may become exercisable in cumulative increments, or “vest,” as determined by the Board or at the rate specified in the stock option agreement.

Unless otherwise provided in an award agreement or determined by the Compensation Committee, if a participant terminates employment with us due to death or disability, the participant’s unexercised options may be exercised, to the extent they were exercisable on the termination date, for a period of twelve months from the termination date or until the expiration of the original award term, whichever period is shorter. If the participant terminates employment with us (or our affiliates) for cause, (i) all unexercised options (whether vested or unvested) shall terminate and be forfeited on the termination date, and (ii) any shares in respect of exercised options for which we have not yet delivered share certificates will be forfeited. If the participant’s employment terminates for any other reason, any vested but unexercised options may be exercised by the participant, to the extent exercisable at the time of termination, for a period of three months from the termination date or until the expiration of the original option term, whichever period is shorter. Unless otherwise provided by the Compensation Committee, any options that are not exercisable at the time of termination of employment shall terminate and be forfeited on the termination date.

 

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Limitations on Incentive Stock Options

The aggregate fair market value, determined at the time of grant, of shares of our common stock with respect to ISOs that are exercisable for the first time by a participant during any calendar year under all of our stock plans may not exceed $100,000. The stock options or portions of stock options that exceed this limit or otherwise fail to qualify as ISOs are treated as NSOs. No ISO may be granted to any person who, at the time of grant, owns or is deemed to own stock possessing more than 10% of our total combined voting power or that of any affiliate unless the following conditions are satisfied:

 

   

the exercise price of the ISO must be at least 110% of the fair market value of the common stock subject to the ISO on the date of grant; and

 

   

the term of the ISO must not exceed five years from the date of grant.

Stock Appreciation Rights. Stock appreciation rights represent the right to receive, upon exercise, any appreciation in a share of common stock over a particular time period and may be granted in connection with options or on a standalone basis pursuant to stock appreciation right agreements. The appreciation amount may be settled in shares of our common stock, cash or a combination thereof. The strike price of each stock appreciation right will be determined by the Board. The Board may also impose restrictions or conditions upon the vesting of stock appreciation rights that it deems appropriate. Stock appreciation rights will be subject to the same conditions upon termination of continuous service and restrictions on transfer as stock options under the 2019 Plan.

Stock Awards. Stock awards consist of transferred shares of our common stock without payment or any other consideration. Stock awards shall be subject to the terms and conditions as the Board determines, including restrictions on sale or other disposition and our rights to reacquire such shares subject to a stock award upon termination of continuous services with us.

Restricted Stock Awards. Restricted stock awards are grants of our common stock pursuant to restricted stock award agreements, which may impose limitations on such shares, including any limitation on the right to vote shares or receive any dividend, other rights or property. Shares of our common stock acquired under a restricted stock award may be subject to forfeiture conditions to be determined by the Board. If the specified conditions are not attained, the participant will forfeit the portion of the restricted stock award with respect to which those conditions are not attained, and the underlying common stock will be forfeited. If the conditions, if any, have been satisfied, the restrictions imposed will lapse with respect to the applicable number of shares.

Restricted Stock Unit Awards. Restricted stock unit awards, or RSUs, may be granted pursuant to restricted stock unit award agreements. RSUs are granted in reference to a specified number of shares of common stock and entitle the holder to receive, subject to satisfaction of forfeiture conditions, if any, one share (or the value of one share) of common stock (at the time of distribution) for each such share of common stock covered by the RSU. Unless otherwise provided in an award agreement or determined by the Compensation Committee, upon termination of service a participant will forfeit all RSUs that then remain subject to forfeiture, subject to pro rata vesting upon a termination due to retirement, death or disability.

Extension of Time to Exercise Options. Our Board may extend the period of time that a non-qualified stock option may be exercised by a person whose employment with the Company and its affiliates has terminated, provided that the time to exercise an option may not be extended beyond the original term of such option.

Change of Control. Unless otherwise provided in a recipient’s employment or service agreement, in the event of a Change of Control (as defined in the 2019 Plan), our Board may take whatever action with respect to outstanding awards it deems necessary or desirable, including, without limitation, accelerating the vesting of an award or terminating or redeeming an award. If options or stock appreciation rights granted pursuant to the 2019 Plan are accelerated, such awards shall become immediately exercisable in full.

 

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Amendment and Termination. The 2019 Plan will automatically terminate ten years from the date of its adoption by the Board, unless terminated at an earlier time by the Board. Our Board may also amend the 2019 Plan from time to time and in such manner as it deems advisable, Notwithstanding the foregoing, any amendment that would change the individuals eligible to receive awards under the 2019 Plan, extend the expiration date of the 2019 Plan, reduce the exercise price of an option or stock appreciation rights award, exchange an option or stock appreciation rights award which has an exercise price that is greater than the fair market value of a share for cash or shares, cancel an option or stock appreciation rights award in exchange for a replacement option or another award with a lower exercise price or increase the maximum number of shares of common stock available for issuance under the 2019 Plan (other than as a result of a yearly increase not in excess of five percent (5%) of our issued and outstanding common stock) will only be effective if approved by a majority of our outstanding voting stock then outstanding.

Federal Income Tax Consequences

The following is a summary of the United States federal income tax consequences that generally will arise with respect to awards granted under the 2019 Plan, This summary is based on the federal tax laws in effect as of the date of this information statement. In addition, this summary assumes that all awards are exempt from, or comply with, the rules under Section 409A of the Code regarding nonqualified deferred compensation. Changes to these laws could alter the tax consequences described below.

Incentive Stock Options. A participant in the 2019 Plan will not have income upon the grant of an incentive stock option. Also, except as described below, a participant will not have income upon exercise of an incentive stock option if the participant has been employed by us at all times beginning with the option grant date and ending three months before the date the participant exercises the option. If the participant has not been so employed during that time, then the participant will be taxed as described below under “Nonqualified Stock Options.” The exercise of an incentive stock option may subject the participant to the alternative minimum tax.

A participant will have income upon the sale of the shares acquired under an incentive stock option at a profit (if sales proceeds exceed the exercise price), The type of income will depend on when the participant sells the shares, If a participant sells the shares more than two years after the option was granted and more than one year after the option was exercised, then all of the profit will be long-term capital gain. If a participant sells the shares prior to satisfying these waiting periods, then the participant will have engaged in a disqualifying disposition and, if the sales proceeds exceed the value of the shares on the date of exercise, all or a portion of the profit will be ordinary income and the portion (if any) by which the sales proceeds exceed the exercise date value will be capital gain. This capital gain will be long-term if the participant has held the shares for more than one year and otherwise will be short-term. If a participant sells the shares at a loss (sales proceeds are less than the exercise price), then the loss will be a capital loss. This capital loss will be long-term if the participant held the shares for more than one year and otherwise will be short-term.

Nonqualified Stock Options. A participant will not have income upon the grant of a nonqualified stock option. A participant will have compensation income upon the exercise of a nonqualified stock option equal to the value of the shares on the day the participant exercised the option less the exercise price. Upon sale of the shares, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the shares on the day the option was exercised. This capital gain or loss will be long-term if the participant has held the shares for more than one year and otherwise will be short-term.

Stock Appreciation Rights. A participant will not have income upon the grant of a stock appreciation right. A participant generally will recognize compensation income upon the exercise of a stock appreciation right equal to the amount of the cash and the fair market value of any shares received, Upon the sale of the shares, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the shares on the day the stock appreciation right was exercised. This capital gain or loss will be long-term if the participant held the shares for more than one year and otherwise will be short-term.

 

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Restricted Stock Awards. A participant will not have income upon the grant of restricted stock unless an election under Section 83(b) of the Code is made within 30 days of the date of grant. If a timely 83(b) election is made, then a participant will have compensation income equal to the value of the shares less the purchase price. When the shares are sold, the participant will have capital gain or loss equal to the difference between the sales proceeds and the value of the shares on the date of grant. If the participant does not make an 83(b) election, then when the shares vest the participant will have compensation income equal to the value of the shares on the vesting date less the purchase price. When the shares are sold, the participant will have capital gain or loss equal to the sales proceeds less the value of the shares on the vesting date. In each case, any capital gain or loss will be long-term if the participant held the shares for more than one year and otherwise will be short-term,

Restricted Stock Units. A participant will not have income upon the grant of a restricted stock unit. When the restricted stock unit vests, the participant will have income on the vesting date in an amount equal to the fair market value of the shares on such date less the purchase price, if any. When the shares are sold, the participant will have capital gain or loss equal to the sales proceeds less the value of the shares on the vesting date. Any capital gain or loss will be long-term if the participant held the shares for more than one year and otherwise will be short-term.

Other Stock-Based Awards. The tax consequences associated with any other stock-based award granted under the 2019 Plan will vary depending on the specific terms of such award. Among the relevant factors are whether or not the award has a readily ascertainable fair market value, whether or not the award is subject to forfeiture provisions or restrictions on transfer, the nature of the property to be received by the participant under the award and the participant’s holding period and tax basis for the award or underlying common stock.

Tax Consequences to us. There will be no tax consequences to us with respect to awards made under the 2019 Plan, except that we will be entitled to a deduction when a participant has compensation income (or upon a disqualifying disposition of an incentive stock option). Any such deduction will be subject to the limitations of Section 162(m) of the Code.

 

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CERTAIN RELATIONSHIPS AND RELATED PERSON TRANSACTIONS

Relationship with Recro

Prior to the completion of the Separation, all of our outstanding shares of common stock are owned by Recro. Following the completion of the Separation, Recro will no longer own any shares of our common stock. See “Risk Factors—Risks Related to the Separation” and “The Separation and Distribution.”

Following the Distribution, Baudax Bio and Recro will operate separately, each as an independent public company. In connection with the Separation, we and Recro have entered or will enter into certain agreements that will affect the separation of our business from Recro and govern our relationship with Recro after the Separation. The following is a summary of the terms of the material agreements that we intend to enter into with Recro prior to the completion of the Separation, which will be filed as exhibits in a subsequent amendment to the registration statement on Form 10 of which this information statement is a part. These summaries set forth the terms of the agreements that we believe are material and are qualified in their entirety by reference to the full text of such agreements.

Changes to these agreements, some of which may be material, may be made prior to the Distribution.

Agreements with Recro

Separation Agreement

We intend to enter into the Separation Agreement with Recro prior to the Distribution. The Separation Agreement will set forth our agreements with Recro regarding the principal actions to be taken in connection with the Separation, including the Distribution. The Separation Agreement will identify assets to be transferred, liabilities to be assumed and contracts to be assigned to each of Baudax Bio and Recro as part of the Separation, and it will provide for when and how these transfers, assumptions and assignments will occur.

Transfer of Assets and Assumption of Liabilities. The Separation Agreement will identify assets to be transferred, liabilities to be assumed and contracts to be assigned to each of Recro and us, and it will provide for the transfer of such assets, assumption of such liabilities and assignment of such contracts upon the execution of the Separation Agreement to the extent such transfers and assignments have not already occurred. The Separation Agreement is intended to provide for those transfers of assets and assumptions of liabilities that are necessary so that after the Distribution we and Recro have the assets necessary to operate our respective businesses and retain or assume the liabilities related to those assets. The Separation Agreement will also provide for the settlement or extinguishment of certain liabilities and other obligations between us and Recro.

The allocation of liabilities with respect to taxes, except for payroll tax withholding and reporting and other tax matters expressly covered by the employee matters agreement, are solely covered by the tax matters agreement.

Further Assurances. Each party will agree to use commercially reasonable efforts to take or to cause to be taken all actions, and to do, or to cause to be done, all things reasonably necessary under applicable law or contractual obligations to consummate and make effective the transactions contemplated by the Separation Agreement and other transaction agreements.

The Distribution. The Separation Agreement will govern the rights and obligations of the parties with respect to the Distribution and certain actions that must occur prior to the Distribution. Recro will cause its agent to distribute to holders of shares of Recro’s common stock as of the record date for the Distribution all of the issued and outstanding shares of our common stock. Recro will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the Distribution and, to the extent it determines to so proceed, to determine the date of the Distribution.

The Capital Contribution. The Separation Agreement will set forth the terms of the $19 million capital contribution from Recro to Baudax Bio prior to or upon completion of the Distribution.

 

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Conditions. The Separation Agreement will provide that the Distribution is subject to several conditions that must be satisfied (or waived by Recro, in its sole and absolute discretion). For further information regarding these conditions, see “The Separation and Distribution— Conditions to the Distribution.”

Indemnification. The Separation Agreement will provide for releases, with respect to pre-Distribution claims, and cross-indemnities, with respect to post-Distribution claims, that, except as otherwise provided in the Separation Agreement, are principally designed to place financial responsibility for the obligations and liabilities allocated to us under the Separation Agreement with us and financial responsibility for the obligations and liabilities allocated to Recro under the Separation Agreement with Recro. The Separation Agreement will also specify procedures with respect to claims subject to indemnification and related matters. Indemnification with respect to taxes will be governed by the tax matters agreement described below.

Term/Termination. Prior to the Distribution, Recro will have the unilateral right to terminate, modify or amend the terms of the Separation Agreement and amend, modify or abandon the Distribution. After the effective time of the Distribution, the Separation Agreement may only be terminated, modified or amended with the prior written consent of both Recro and us.

Other Matters Governed by the Separation Agreement. Other matters governed by the Separation Agreement include, without limitation, access to financial and other information, insurance, confidentiality and access to and provision of records.

Transitional Services Agreement

We intend to enter into a transition services agreement with Recro prior to the Distribution that will set for the terms of which we will provide Recro, and Recro will provide to us, on a transitional basis, certain services or functions that the companies historically have shared. Transition services will include various corporate, administrative and information technology services. The transition services agreement will provide for the provision of specified transition services for an initial term of twelve months and will thereafter automatically renew for subsequent twelve month periods unless one of the parties provides three months’ written notice of its intent to not renew the agreement.

Tax Matters Agreement

We intend to enter into a tax matters agreement with Recro prior to the Distribution which will generally govern Recro’s and our respective rights, responsibilities and obligations after the Distribution to pay taxes for any tax period ending on or before the distribution date, as well as tax periods beginning before and ending after the distribution date. In addition, the tax matters agreement will address the allocation of liability for taxes, if any, that are incurred as a result of the Restructuring.

Employee Matters Agreement

We intend to enter into an employee matters agreement with Recro prior to the Distribution that will govern each company’s respective compensation and benefit obligations with respect to current and former employees, directors and consultants. The employee matters agreement will set forth general principals relating to employee matters in connection with the Separation, such as the assignment of employees, the assumption and retention of liabilities and related assets, expense reimbursements, workers’ compensation, leaves of absence, the provision of comparable benefits, employee service credit, the sharing of employee information and the duplication or acceleration of benefits.

The employee matters agreement generally will allocate liabilities and responsibilities relating to employee compensation and benefit plans and programs with Recro retaining liabilities (both pre- and post-Distribution) and responsibilities with respect to Recro employees who remain with Recro and with us assuming liabilities and

 

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responsibilities with respect to Recro employees who will transfer to us in connection with the Separation. The employee matters agreement will provide that, following transfer of employment to us, our active employees generally will no longer participate in benefit plans sponsored or maintained by Recro and will commence participation in our benefit plans.

The employee matters agreement will also provide that (i) the Distribution does not constitute a change in control under Recro’s plans, programs, agreements or arrangements and (ii) the Distribution and the assignment, transfer or continuation of employment of employees with another entity will not constitute a severance event under applicable plans, programs, agreements or arrangement.

Related Party Transactions Policy

In connection with the Separation, we plan to adopt a related party transactions policy that will govern the review and approval of related party transactions following the Separation. Pursuant to this policy, if we want to enter into a transaction with a related party or an affiliate of a related party, our audit committee will review the proposed transaction to determine, based on applicable rules of Nasdaq and the SEC, whether such transaction requires pre-approval by our audit committee or our board of directors. If pre-approval is required, the proposed transaction will be reviewed at the next regular or special meeting of our audit committee or our board of directors, as applicable. We may not enter into a related party transaction unless our audit committee has specifically confirmed in writing that either no further reviews are necessary or that all requisite corporate reviews have been obtained.

Each of the agreements between us and Recro and its subsidiaries that have been entered into prior to the completion of the Separation, and any transactions contemplated thereby, will be deemed to be approved and not subject to the terms of such policy.

 

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SECURITY OWNERSHIP BY CERTAIN BENEFICIAL OWNERS AND MANAGEMENT

Prior to the Distribution, all of the outstanding shares of our common stock will be owned beneficially and of record by Recro. The following tables set forth information with respect to the expected beneficial ownership of our common stock immediately following the Distribution by: (i) each person who we believe will be a beneficial owner of more than five percent of our common stock, (ii) each of our expected directors and named executive officers and (iii) all of our expected directors and executive officers as a group. Except as noted below, we based the share amounts on each person’s beneficial ownership of Recro common stock as of                     , 2019. Immediately following the Distribution, we estimate that shares of our common stock will be issued and outstanding based on the number of shares of Recro common stock outstanding as of                     , 2019. The actual number of our outstanding shares of our common stock issued in the Distribution will be determined on                     , 2019, the record date. Unless otherwise indicated, the address of each beneficial owner is in care of Recro Pharma, Inc., 490 Lapp Road, Malvern, PA 19355.

Security Ownership of Certain Beneficial Owners

Based solely on the information publicly available reporting beneficial ownership of Recro common stock, we anticipate the following shareholders will beneficially own more than five percent of our common stock following the Distribution.

 

Name of Beneficial Owner

   Number of Shares
  of Our Common Stock  
     Percent of
Shares
  Outstanding  
 
  

 

 

    

 

 

 

SCP Vitalife Partners II, L.P.(1)

1200 Liberty Ridge Drive

Suite 300

Wayne, PA 19087

     

SCP Vitalife Partners (Israel) II, L.P.(1)

32B Habarzel St.

Ramat Hachayal

Tel Aviv 69710 Israel

     

Broadfin Capital, LLC(2)

300 Park Avenue

New York, NY 10022

     

Newtyn Management, LLC(3)

405 Park Avenue, Suite 1104,

New York, New York 10022

     

Blackrock, Inc.(4)

55 East 52nd Street

New York, NY 10055

     

 

(1)

Based upon information set forth in the Schedule 13D filed on March 21, 2014 and information set forth in Form 4s filed through October 22, 2019 by SCP Vitalife Partners II, L.P., or SCP Vitalife Partners, SCP Vitalife Partners (Israel) II, L.P., or SCP Vitalife Israel, SCP Vitalife II Associates, L.P., or SCP Vitalife Associates, SCP Vitalife II GP, LTD (SCP Vitalife GP), Winston J. Churchill, Jeffrey Dykan, and Wayne B. Weisman. SCP Vitalife Partners beneficially owns 2,172,900 shares of Recro common stock and SCP Vitalife Israel beneficially owns 726,055 shares of Recro common stock. As the general partner of SCP Vitalife Partners and SCP Vitalife Israel, SCP Vitalife Associates may be deemed to beneficially own 2,898,955 shares of Recro common stock. As the general

 

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partner of SCP Vitalife Associates, SCP Vitalife GP may be deemed to beneficially own 2,898,955 shares of Recro common stock. As directors of SCP Vitalife GP, Messrs. Churchill, Dykan and Weisman may be deemed to beneficially own 2,898,955 shares of Recro common stock. SCP Vitalife Partners shares dispositive and voting power with respect to the 2,172,900 shares of Recro common stock owned. SCP Vitalife Israel shares dispositive and voting power with respect to the 726,055 shares of Recro common stock owned. SCP Vitalife Associates, SCP Vitalife GP, Messrs. Churchill, Dykan and Weisman have shared dispositive and voting power with respect to the aggregate 2,898,955 shares of common stock owned by SCP Vitalife Partners and SCP Vitalife Israel.

 

(2)

Based upon information set forth in the Schedule 13G/A and Form 4s filed on May 24, 2018 by Broadfin, Broadfin Healthcare Master Fund, Ltd., or Master Fund, and Kevin Kotler. Broadfin, Master Fund and Mr. Kotler have shared voting and dispositive power over 2,048,025 shares of Recro common stock. Broadfin and Mr. Kotler each disclaim beneficial ownership of the shares reported herein except to the extent of its or his pecuniary interest therein.

 

(3)

Based upon information set forth in the Schedule 13G filed on February 14, 2019, by Newtyn Management LLC. Newtyn Management, LLC is the investment manager to Newtyn Partners, LP, or NP, and Newtyn TE Partners, LP, or NTE. Newtyn Management LLC., as the investment manager to NP and NTE, has sole power to direct the vote and the sole power to direct the disposition of the 1,600,000 shares of Recro common stock held in the aggregate by NP and NTE.

 

(4)

Based upon information set forth in the Schedule 13G/A filed on June 7, 2019, by BlackRock, Inc., BlackRock Advisors LLC, BlackRock Fund Advisors, BlackRock Institutional Trust Company, National Association, BlackRock Financial Management, Inc. and BlackRock Investment Management, LLC.

Security Ownership of Directors and Executive Officers

The following table provides information regarding beneficial ownership of our named executive officers, our expected directors and all of our expected directors and executive officers as a group.

 

Name of Beneficial Owner

  Number of Shares
of Our Common Stock
    Percent of
Shares
Outstanding
 

Gerri Henwood

   

Ryan D. Lake

   

Stewart McCallum

   

John Harlow

   

Alfred Altomari

   

William L. Ashton

   

Winston J. Churchill

   

Wayne B. Weisman

   
   

Directors and Officers as a Group (     persons)

   

 

 

  *

Less than one percent

 

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THE SEPARATION AND DISTRIBUTION

Overview

On                     , 2019, Recro announced its plans to separate its acute care business from its CDMO business through a pro rata distribution of Baudax Bio common stock to shareholders of Recro. The Distribution generally will be taxable to Recro shareholders for U.S. federal income tax purposes.

In furtherance of this plan, on                     , 2019, the Recro Board approved the distribution of all of the issued and outstanding shares of Baudax Bio common stock on the basis of one share of Baudax Bio common stock for every                 shares of Recro common stock issued and outstanding as of the close of business on                     , 2019, the record date for the Distribution. As a result of the Distribution, Baudax Bio and Recro will become two independent companies.

On                     , 2019, the distribution date, each Recro shareholder will receive one share of Baudax Bio common stock for every                 shares of Recro common stock held of record at the close of business on the record date, as described below. Registered shareholders will receive cash in lieu of any fractional shares of Baudax Bio common stock that they would have received as a result of the application of the distribution ratio. Shareholders will not be required to make any payment, surrender or exchange their Recro common stock or take any other action to receive shares of Baudax Bio common stock in the Distribution.

The Distribution as described in this information statement is subject to the satisfaction or waiver of certain conditions. For a more detailed description of these conditions, see this section under “—Conditions to the Distribution.”

Reasons for the Separation

The Recro Board determined that separating the acute care business from Recro would be in the best interests of Recro and its shareholders and approved the plan of separation. A wide variety of factors were considered by the Recro Board in evaluating the Separation. Among other things, the Recro Board considered the following potential benefits of the Separation:

 

   

the Separation will allow each business to pursue its own operational and strategic priorities and more quickly respond to trends, developments and opportunities in its respective markets;

 

   

the Separation will give each business opportunity and flexibility by pursuing its own investment, capital allocation and growth strategies consistent with its long-term objectives;

 

   

the Separation will create two separate and distinct management teams focused on each business’s unique strategic priorities, target markets and corporate development opportunities;

 

   

the Separation will enable the boards and management teams of each business to better align corporate performance goals with the specific vision, strategy and objectives of each business; and

 

   

the Separation will allow investors to separately value each business based on the unique merits, performance and future prospects of each business, providing investors with two distinct investment opportunities.

The Recro Board also considered a number of potentially negative factors in evaluating the Separation, including the following factors impacting Baudax Bio:

 

   

Recro and Baudax Bio may not achieve the anticipated benefits of the Separation for a variety of reasons, including: (i) the Separation will require significant amounts of management’s time

 

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and effort, which may divert management’s attention from operating and growing the Recro and Baudax Bio businesses and (ii) following the Separation, each business will be less diversified than Recro’s business prior to the Separation;

 

   

costs and liabilities that were less significant to Recro as a whole will be more significant for Baudax Bio as a standalone company, and after the Distribution, as a separate, independent entity, Baudax Bio may be unable to obtain goods, services and technologies at prices or on terms as favorable as those Recro obtained prior to the Distribution;

 

   

Baudax Bio will incur costs in connection with the transition to being a standalone public company that will include establishment of accounting, tax, auditing, legal and other professional services costs, recruiting and relocation costs associated with hiring personnel new to Baudax Bio and costs to separate information systems; and

 

   

the trading prices of Baudax Bio and Recro common stock following the Separation, and whether the combined market value of shares of Baudax Bio common stock and shares of Recro common stock will be less than, equal to, or greater than the market value of shares of Recro common stock prior to the Separation, cannot be predicted with certainty.

The Recro Board concluded that the potential benefits of the Separation outweighed these factors. However, neither Recro nor Baudax Bio can assure you that, following the Separation, any of the benefits described above or otherwise will be realized to the extent anticipated or at all. For more information on the risks involved in the separation process, see “Risk Factors—Risks Related to the Separation.”

Contribution of Acute Care Business

As part of the plan to create two independent public companies, Recro plans to transfer the assets and liabilities of the acute care business to Baudax Bio prior to the Distribution through an internal reorganization.

When and How You Will Receive the Distribution

With the assistance of the distribution agent, Recro expects to distribute Baudax Bio common stock on                , 2019, the distribution date, to all holders of outstanding Recro common stock as of the close of business on                     , 2019, the record date. Broadridge will serve as the distribution agent in connection with the Distribution.

If you own Recro common stock as of the close of business on the record date, Baudax Bio common stock that you are entitled to receive in the Distribution will be issued electronically, as of the distribution date, to you in direct registration form or to your bank or brokerage firm on your behalf. If you are a registered holder, the distribution agent or the transfer agent will then mail you a direct registration account statement that reflects your shares of Baudax Bio common stock. “Direct registration form” refers to a method of recording share ownership when no physical share certificates are issued to shareholders, as is the case in this Distribution.

Commencing on or shortly after the distribution date, if you hold physical share certificates that represent your Recro common stock and you are the registered holder of the shares represented by those certificates, the distribution agent will mail to you an account statement that indicates the number of shares of Baudax Bio common stock that have been registered in book-entry form in your name, and the distribution agent will mail you a check for any cash in lieu of fractional shares you are entitled to receive. If you sell Recro common stock in the “regular way” market up to and including the distribution date, you will be selling your right to receive shares of Baudax Bio common stock in the Distribution.

Most Recro shareholders hold their common stock through a bank or brokerage firm. In such cases, the bank or brokerage firm would be said to hold the shares in “street name” and ownership would be recorded on the bank

 

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or brokerage firm’s books. If you hold your Recro common stock through a bank or brokerage firm, your bank or brokerage firm will credit your account for the Baudax Bio common stock that you are entitled to receive in the Distribution. Your bank or brokerage firm will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales and will distribute to your account your share of such proceeds. If you have any questions concerning the mechanics of having shares held in “street name,” please contact your bank or brokerage firm.

Results of the Distribution

After the Separation, Baudax Bio will be an independent company. The actual number of shares to be distributed will be determined on                     , 2019, the record date for the Distribution, and will reflect any exercise of Recro options between the date the Recro Board declares the Distribution and the record date for the Distribution. The Distribution will not affect the number of outstanding shares of Recro common stock or any rights of Recro’s shareholders. Recro will not distribute any fractional shares of Baudax Bio common stock.

Prior to the Distribution, Baudax Bio intends to enter into a Separation Agreement and certain other agreements with Recro, including a tax matters agreement, an employee matters agreement, and a transition services agreement under which Baudax Bio will temporarily provide certain services to Recro. These agreements will provide for the separation between Recro and Baudax Bio of the assets, liabilities and obligations (including employee benefits, intellectual property and tax-related assets and liabilities) attributable to periods prior to, at and after the Distribution and will govern the relationship between Recro and Baudax Bio after the Separation. For a more detailed description of these agreements, see “Certain Relationships and Related Person Transactions— Agreements with Recro.”

The Number of Shares of Baudax Bio Common Stock You Will Receive

For every                shares of Recro common stock that you own at the close of business on                     , 2019, the record date, you will receive one share of Baudax Bio common stock on the distribution date. Recro will not distribute any fractional shares of Baudax Bio common stock to its shareholders. Instead, the distribution agent will aggregate fractional shares into whole shares, sell the whole shares in the open market at prevailing market prices and distribute the aggregate cash proceeds (net of discounts and commissions) of the sales pro rata (based on the fractional share such holder would otherwise have been entitled to receive) to each holder who otherwise would have been entitled to receive a fractional share in the Distribution. The distribution agent, in its sole discretion, without any influence by Recro or Baudax Bio, will determine when, how, through which broker-dealer and at what price to sell the whole shares. Broadridge is not an affiliate of either Recro or Baudax Bio. Any broker-dealer used by the transfer agent will not be an affiliate of either Recro or Baudax Bio. Neither Baudax Bio nor Recro will be able to guarantee any minimum sale price in connection with the sale of these shares. Recipients of cash in lieu of fractional shares will not be entitled to any interest on the amounts of payment made in lieu of fractional shares.

The aggregate net cash proceeds distributed to Recro shareholders in lieu of fractional shares will be taxable for U.S. federal income tax purposes. See “Material U.S. Federal Income Tax Consequences” for an explanation of the material U.S. federal income tax consequences of the Distribution. If you hold physical certificates for Recro common stock and are the record holder, you will receive a check from the distribution agent in an amount equal to your pro rata share of the aggregate net cash proceeds of the sales. Baudax Bio estimates that it will take approximately two weeks from the distribution date for the distribution agent to complete the distributions of the aggregate net cash proceeds. If you hold your Recro common stock through a bank or brokerage firm, your bank or brokerage firm will receive, on your behalf, your pro rata share of the aggregate net cash proceeds of the sales and will distribute to your account your share of such proceeds.

Transferability of Shares You Receive

Shares of Baudax Bio common stock distributed to holders through the Distribution will be transferable without registration under the Securities Act, except for shares received by persons who may be deemed to be

 

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Baudax Bio affiliates. Persons who may be deemed to be Baudax Bio affiliates after the Distribution generally include individuals or entities that control, are controlled by or are under common control with Baudax Bio, which may include certain of Baudax Bio executive officers, directors or principal shareholders. Securities held by Baudax Bio affiliates will be subject to resale restrictions under the Securities Act. Baudax Bio affiliates will be permitted to sell shares of Baudax Bio common stock only pursuant to an effective registration statement or an exemption from the registration requirements of the Securities Act, such as the exemption afforded by Rule 144 promulgated under the Securities Act.

Market for Baudax Bio Common Stock

There is currently no public trading market for Baudax Bio common stock. Baudax Bio has applied for listing on the Nasdaq Capital Market under the symbol “BXRX.” Baudax Bio has not and will not set the initial price of its common stock. The initial price will be established by the public markets.

Baudax Bio cannot predict the price at which its common stock will trade after the Distribution. In fact, the combined trading prices, after the Distribution, of the shares of Baudax Bio common stock that each Recro shareholder will receive in the Distribution and Recro common stock held at the record date may not equal the “regular way” trading price of a share of Recro common stock immediately prior to the Distribution. The price at which Baudax Bio common stock trades may fluctuate significantly, particularly until an orderly public market develops. Trading prices for Baudax Bio common stock will be determined in the public markets and may be influenced by many factors. See “Risk Factors—Risks Related to Ownership of Our Common Stock.”

Trading Between the Record Date and Distribution Date

Beginning on or shortly before the record date and continuing up to and including through the distribution date, we expect that there will be two markets in Recro common stock: a “regular way” market and an “ex-distribution” market. Shares of Recro common stock that trade on the “regular way” market will trade with an entitlement to Baudax Bio common stock distributed pursuant to the Separation. Shares of Recro common stock that trade on the “ex-distribution” market will trade without an entitlement to Baudax Bio common stock distributed pursuant to the Distribution. Therefore, if you sell Recro common stock in the “regular way” market up to and including through the distribution date, you will be selling your right to receive Baudax Bio common stock in the Distribution. If you own Recro common stock at the close of business on the record date and sell those shares on the “ex-distribution” market up to and including through the distribution date, you will receive the shares of Recro common stock that you are entitled to receive pursuant to your ownership as of the record date of Recro common stock.

Furthermore, we anticipate that trading in our common stock will begin on a “when issued” basis on or shortly before the record date for the Distribution and will continue up to and including the distribution date. “When issued” trading in the context of a separation refers to a sale or purchase made conditionally on or before the distribution date because the securities of the separated entity have not yet been distributed. The “when issued” trading market will be a market for Baudax Bio common stock that will be distributed to holders of Recro common stock on the distribution date. If you owned Recro common stock at the close of business on the record date, you would be entitled to Baudax Bio common stock distributed pursuant to the Distribution. You may trade this entitlement to shares of Baudax Bio common stock, without Recro common stock you own, on the “when issued” market. On the first trading day following the distribution date, “when issued” trading with respect to Baudax Bio common stock will end, and “regular way” trading will begin.

 

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Conditions to the Distribution

We expect that the Distribution will be effective at 12:01 a.m., Eastern Time, on                , 2019, the distribution date, provided that certain conditions shall have been satisfied or waived by Recro in its sole and absolute discretion:

 

   

the SEC declaring effective Baudax Bio’s registration statement on Form 10 of which this information statement forms a part, and no stop order relating to the registration statement shall be in effect and no proceedings for such purpose shall be pending before or threatened by the SEC, and the distribution of the information statement (or the Notice of Internet Availability of the Information Statement) to all holders of record of shares of Recro common stock as of the close of business on the record date;

 

   

the receipt and continuing validity of an opinion from an independent appraisal firm to the Recro Board, that is in form and substance acceptable to Recro in its sole and absolute discretion, confirming the solvency of Baudax Bio after the Distribution;

 

   

the shares of our common stock to be delivered in the Distribution shall have been approved for listing on the Nasdaq Capital Market, subject to official notice of issuance;

 

   

all permits, registrations and consents required under the securities or blue sky laws of states or other political subdivisions of the United States or of other foreign jurisdictions in connection with the Distribution shall have been received;

 

   

no order, injunction, or decree issued by any court of competent jurisdiction or other legal restraint or prohibition preventing the consummation of the Distribution or any of the related transactions shall be pending, threatened, issued or in effect;

 

   

the Recro Board shall have declared the Distribution and approved all related transactions (and such declaration and approval not having been withdrawn);

 

   

Baudax Bio shall have executed and delivered the transaction agreements relating to the Separation; and

 

   

no other event or development existing or having occurred that, in the sole and absolute judgment of the Recro Board, makes it inadvisable to effect the Distribution and other related transactions.

Recro and Baudax Bio cannot assure you that any or all of these conditions will be met and, to the extent permissible under applicable law, Recro in its sole discretion may waive any of the conditions to the Distribution. In addition, Recro will have the sole and absolute discretion to determine (and change) the terms of, and whether to proceed with, the Distribution and, to the extent it determines to so proceed, to determine the record date for the Distribution and the distribution date and the distribution ratio. Recro does not intend to notify its shareholders of any modifications to the terms of the Separation that, in the judgment of its board of directors, are not material. For example, the Recro Board might consider changes to the distribution ratio, the assets to be contributed or the liabilities to be assumed in the Separation as material changes. To the extent that the Recro Board determines that any modifications by Recro materially change the material terms of the Distribution or to abandon the Distribution, Recro will notify Recro shareholders in a manner reasonably calculated to inform them about the modification as may be required by law, by, for example, publishing a press release, filing a Current Report on Form 8-K, or circulating a supplement to this information statement.

 

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MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES

General

The following describes certain United States federal income tax consequences relevant to the Distribution for U.S. Holders and Non-U.S. Holders (as defined below). This discussion is based upon the Internal Revenue Code of 1986, as amended, or the Code, existing and proposed United States Treasury regulations, administrative pronouncements and judicial decisions, all as in effect on the date hereof and changes to which could materially affect the tax consequences described herein and could be made on a retroactive basis.

This discussion deals only with Recro shares that are held as capital assets and does not deal with all tax consequences that may be relevant to holders in light of their particular circumstances or to holders subject to special tax rules (including, without limitation, dealers in securities or commodities, traders in securities that elect to mark their holdings to market, financial institutions, regulated investment companies, real estate investment trusts, U.S. expatriates, U.S. Holders (as defined below) whose functional currency is not the United States dollar, insurance companies, tax-exempt organizations, partnerships or other pass through entities and investors therein or persons who hold shares as part of a hedging, conversion or constructive sale transaction or as a position in a straddle). In particular, different rules may apply to shares acquired as compensation. This discussion does not address the consequences of the alternative minimum tax, Medicare contribution tax, or any state, local or foreign tax consequences of participating in the Distribution. Holders of shares should consult their tax advisors as to the particular consequences to them of participation in the Distribution.

As used in this section, a “U.S. Holder” means an owner of shares that is for United States federal income tax purposes: (a) an individual who is a citizen or resident of the United States, (b) a corporation (or any other entity treated as a corporation for United States federal income tax purposes) created or organized under the laws of the United States, any state thereof or the District of Columbia, (c) an estate the income of which is subject to United States federal income taxation regardless of its source, or (d) a trust if it (x) is subject to the primary supervision of a court within the United States, and one or more United States persons have the authority to control all substantial decisions of the trust or (y) has a valid election in effect under applicable United States Treasury regulations to be treated as a United States person.

As used herein, a “Non-U.S. Holder” means a beneficial owner of shares that is neither a U.S. Holder nor a partnership (or any other entity treated as a partnership for United States federal income tax purposes).

If a partnership holds shares, the tax treatment of a partner will generally depend upon the status of the partner and the activities of the partnership. Holders that are partners of a partnership holding shares should consult their own tax advisors.

U.S. Holders.

It is our expectation that the Distribution by Recro of the Baudax Bio shares is not a tax free transaction. Each U.S. Holder will generally be treated as having received a distribution in an amount equal to the fair market value of the Baudax Bio stock received in the Distribution (including any fractional share that is deemed to be received by and sold on behalf of the U.S. Holder). The Distribution will be (a) taxable as a dividend to the extent of the U.S. Holder’s allocable share of Recro’s current and accumulated earnings, then (b) a reduction in the U.S. Holder’s tax basis in the Recro stock (but not below zero), to the extent the Distribution exceeds the amount in (a), and then (c) gain from the sale or exchange of Recro common stock to the extent the Distribution exceeds the amounts in (a) and (b). Provided certain holding period requirements are satisfied, non-corporate U.S. Holders generally will be subject to United States federal income tax at a reduced rate on the gross amount treated as dividends. To the extent that the Distribution is received by a U.S. Holder that is a corporation for tax purposes, it will be eligible for a dividends-received deduction to the extent the amount received is described in (a) in the preceding sentence (subject to applicable limitations), except that it may be subject to the “extraordinary

 

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dividend” provisions of the Code in which case the dividend will not be eligible for the dividends received deduction and corporate U.S. Holders may be subject to adverse tax consequences.

Recro believes that it has no accumulated earnings and profits, and, based on current projections, it does not anticipate having current earnings and profits. That is, however, subject to finalization and it is possible that Recro may have current earnings and profits. Current earnings and profits for 2019 will not be finally determined until after December 31, 2019. Current earnings and profits will be reported on the IRS Form 1099-DIV that will be filed in 2020 for the relevant U.S. Holders.

Under the United States federal income tax backup withholding rules, 24% of the value of the Distribution payable to a U.S. Holder or other U.S. payee, pursuant to the Distribution, must be withheld and remitted to the United States Treasury, unless the U.S. Holder or other U.S. payee provides his or her correct taxpayer identification number (employer identification number or Social Security number) to the distribution agent, certifies as to no loss of exemption from backup withholding and complies with applicable requirements of the backup withholding rules, or such U.S. Holder or other U.S. payee is otherwise exempt from backup withholding. Therefore, unless an exemption exists and is proven in a manner satisfactory to the distribution agent, each U.S. Holder should complete and sign the IRS Form W-9 included as part of the Letter of Transmittal so as to provide the information and certification necessary to avoid backup withholding. Certain U.S. Holders (including, among others, corporations) are not subject to these backup withholding requirements.

U.S. Holders are urged to consult their own tax advisors regarding the application of United States federal income, state and local tax consequences of the receipt of the Distribution.

Non-U.S. Holders.

A Non-U.S. Holder is subject to tax to the extent the Distribution is supported by the allocable share of current or accumulated earnings and profits of Recro. Because, as described above, we will not know the current earnings and profits before the close of 2019, the Distribution agent will withhold United States federal income taxes equal to 30% of the fair market value of the Distributions payable to a Non-U.S. Holder or his or her agent unless the distribution agent determines that a reduced rate of withholding is available. The withholding would be satisfied by withholding and selling a portion of the Baudax Bio shares otherwise deliverable to the Non-U.S. Holder, or withholding from any cash distributions otherwise payable to the Non-U.S. Holder.

Generally, to establish an applicable exemption from, or reduced rate of, United States federal withholding tax, a Non-U.S. Holder must deliver to the distribution agent either (i) IRS Form W-8BEN or W-8BEN-E, as applicable (or other acceptable evidence under Treasury regulations) in which the holder certifies that it is eligible for a lower tax treaty rate with respect to dividends on the Recro shares or (ii) an IRS Form W-8ECI in which the holder certifies that amounts it receives are effectively connected with the conduct of a trade or business within the United States (and, if required by a tax treaty, are attributable to a permanent establishment that it maintains within the United States). The distribution agent may generally determine a holder’s status as a Non-U.S. Holder and eligibility for a reduced rate of, or exemption from, withholding by reference to any outstanding certificates or statements concerning eligibility for a reduced rate of, or exemption from, withholding (e.g., an applicable IRS Form W-8) unless facts and circumstances indicate that such reliance is not warranted. A Non-U.S. Holder may be eligible to obtain a refund of all or a portion of any tax withheld if there are no current earnings and profits for 2019. The IRS Form 1042 filed with the IRS and the Non-U.S. Holder for 2019 will identify the amount of the Distribution that is supported by current earnings and profits. Backup withholding generally will not apply to amounts paid to a Non-U.S. Holder that provides the distribution agent with an applicable IRS Form W-8 (or other acceptable certification).

Non-U.S. Holders are urged to consult their own tax advisors regarding the application of United States federal income tax withholding, including eligibility for a withholding tax reduction or exemption, and the refund procedure.

 

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Under Sections 1471 through 1474 of the Code, commonly referred to as “FATCA,” and administrative guidance, a United States federal withholding tax of 30% generally will be imposed on dividends that are paid to “foreign financial institutions” and “non-financial foreign entities” (as specifically defined under these rules) unless specified requirements are met. Because, as discussed above, the distribution agent will treat amounts paid to Non-U.S. Holders as dividends for United States federal income tax purposes, such amounts may also be subject to withholding under FATCA if such requirements are not met. In such case, any withholding under FATCA may be credited against, and therefore reduce, any 30% withholding tax on dividend distributions as discussed above. Non-U.S. Holders should consult with their tax advisors regarding the possible implications of these rules on their receipt of the Distribution.

 

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DESCRIPTION OF BAUDAX BIO’S CAPITAL STOCK

General

The following description of our capital stock and provisions of our amended and restated articles of incorporation, amended and restated bylaws and the PBCL are summaries and are qualified in their entirety by reference to our amended and restated articles of incorporation and the amended and restated bylaws that will be in effect at the closing of the Separation, which will be filed as exhibits to the Form 10 of which the information statement is part. The description of our capital stock reflects changes to our capital structure that will occur upon the closing of the Separation.

Upon the closing of the Separation and the filing of our amended and restated articles of incorporation, our authorized capital stock will consist of                million shares of our common stock and                shares of our preferred stock, to be designated from time to time by our board of directors.

As of June 30, 2019, we had 100 shares of common stock and no shares of preferred stock issued and outstanding and had one shareholder of record.

Common Stock

Holders of our common stock will be entitled to one vote for each share held on all matters submitted to a vote of shareholders, including the election of directors, and will not have cumulative voting rights. Accordingly, the holders of a majority of the outstanding shares of common stock in person or represented by proxies in any election of directors will be able to elect all of the directors standing for election, if they so choose, other than any directors that holders of any preferred stock that we may issue may be entitled to elect.

Subject to preferences that may be applicable to any then-outstanding shares of preferred stock, holders of our common stock will be entitled to receive ratably dividends when, as, and if declared by our board of directors out of funds legally available therefor, subject to any preferential dividend rights of outstanding preferred stock. In the event of our liquidation, dissolution, or winding up, holders of our common stock will be entitled to ratably receive the net assets of our company available after the payments of all debts and other liabilities and subject to the prior rights of the holders of any then-outstanding shares of preferred stock.

Holders of our common stock will have no preemptive, subscription, redemption or conversion rights. All outstanding shares of our common stock will be, duly authorized, validly issued, fully paid and non-assessable. The rights and privileges of the holders of the common stock will be subject to, and may be adversely affected by, the rights of the holders of shares of any series of preferred stock that we may designate and issue in the future.

We have applied to have our common stock listed on the Nasdaq Capital Market under the trading symbol “BXRX.”

Preferred Stock

Our board of directors has the authority, without further action by our shareholders, to issue up to                shares of preferred stock in one or more series, to establish from time to time the number of shares to be included in each such series, to fix the dividend, voting and other rights, preferences and privileges of the shares of each wholly unissued series and any qualifications, limitations or restrictions thereon, and to increase or decrease the number of shares of any such series, but not below the number of shares of such series then outstanding. Our board of directors may authorize the issuance of preferred stock with voting or conversion rights that could adversely affect the voting power or other rights of the holders of our common stock. The issuance of preferred stock, while providing flexibility in connection with possible acquisitions and other corporate purposes, could,

 

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among other things, have the effect of delaying, deferring or preventing a change in our control and may adversely affect the market price of the common stock and the voting and other rights of the holders of our common stock. We have no current plans to issue any shares of preferred stock.

Anti-takeover Effects of Our Amended and Restated Articles of Incorporation and Our Amended and Restated Bylaws

Provisions of our amended and restated articles of incorporation and amended and restated bylaws may delay or discourage transactions involving an actual or potential change of control or change in our management, including transactions in which shareholders might otherwise receive a premium for their shares, or transactions that our shareholders might otherwise deem to be in their best interests. Therefore, these provisions could adversely affect the price of our common stock. Among other things, our amended and restated articles of incorporation and amended and restated bylaws:

 

   

divide our board of directors into three classes with staggered three-year terms;

 

   

provide that a special meeting of shareholders may be called only by a majority of our board of directors;

 

   

establish advance notice procedures with respect to shareholder proposals to be brought before a shareholder meeting and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors;

 

   

provide that shareholders may only act at a duly organized meeting; and

 

   

provide that members of our board of directors may be removed from office by our shareholders only for cause by the affirmative vote of 75% of the total voting power of all shares entitled to vote generally in the election of directors.

Our amended and restated bylaws also provide that, unless we consent in writing to the selection of an alternative forum, a state or federal court located within the County of Philadelphia in the Commonwealth of Pennsylvania will be the sole and exclusive forum for (i) any derivative action or proceeding brought on behalf of our company, (ii) any action asserting a claim of breach of a fiduciary duty owed by any of our directors, officers or other employees or our shareholders, (iii) any action asserting a claim arising pursuant to any provision of the PBCL, or (iv) any action asserting a claim peculiar to the relationships among or between our company and our officers, directors and shareholders.

The exclusive forum provision described above is intended to apply to the fullest extent permitted by law, including to actions arising under the Securities Act or the Exchange Act. However, the enforceability of exclusive forum provisions in the governing documents of other companies has been challenged in legal proceedings, and it is possible that a court could find our forum selection provision to be inapplicable or unenforceable with respect to actions arising under the Securities Act or the Exchange Act. Even if it is accepted that our exclusive forum provision applies to actions arising under the Securities Act, shareholders will not be deemed to have waived our compliance with the federal securities laws and the rules and regulations thereunder.

Anti-Takeover Provisions under Pennsylvania Law

Pennsylvania Anti-Takeover Law

Provisions of the PBCL applicable to us provide, among other things, that:

 

   

we may not engage in a business combination with an “interested shareholder,” generally defined as a holder of 20% of a corporation’s voting stock, during the five-year period after the interested shareholder became such except under certain specified circumstances;

 

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holders of our common stock may object to a “control transaction” involving us (a control transaction is defined as the acquisition by a person or group of persons acting in concert of at least 20% of the outstanding voting stock of a corporation), and demand that they be paid a cash payment for the “fair value” of their shares from the “controlling person or group”;

 

   

holders of “control shares” will not be entitled to voting rights with respect to any shares in excess of specified thresholds, including 20% voting control, until the voting rights associated with such shares are restored by the affirmative vote of a majority of disinterested shares and the outstanding voting shares of the Company; and

 

   

any “profit,” as defined, realized by any person or group who is or was a “controlling person or group” with respect to us from the disposition of any equity securities of within 18 months after the person or group became a “controlling person or group” shall belong to and be recoverable by us.

Pennsylvania-chartered corporations may exempt themselves from these and other anti-takeover provisions. Our amended and restated articles of incorporation do not provide for exemption from the applicability of these or other anti-takeover provisions in the PBCL.

The provisions noted above may have the effect of discouraging a future takeover attempt that is not approved by our board of directors but which individual shareholders may consider to be in their best interests or in which shareholders may receive a substantial premium for their shares over the then current market price. As a result, shareholders who might wish to participate in such a transaction may not have an opportunity to do so. The provisions may make the removal of our board of directors or management more difficult. Furthermore, such provisions could result in our company being deemed less attractive to a potential acquiror and/or could result in our shareholders receiving a lesser amount of consideration for their shares of our common stock than otherwise could have been available either in the market generally and/or in a takeover.

Transfer Agent and Registrar

The transfer agent and registrar for our common stock will be Broadridge.

Indemnification of Directors and Officers

Our amended and restated bylaws provide that, to the fullest extent permitted by Pennsylvania law, any of our officers or directors who was or is a party or is threatened to be made a party to, any threatened, or pending or completed action, suit or proceeding, whether civil, criminal, administrative, or investigative, by reason of fact that he/she is or was acting as our representative, or is or was serving at the request or for our benefit as a director, officer, employee, agent, partner, or fiduciary of, or in any other capacity for, another corporation or any partnership, joint venture, trust, employee benefit plan or other enterprise, shall be indemnified by us for any losses or expenses (including attorneys’ fees) reasonably incurred in connection with service as our officer or director, if the director or officer acted in good faith and in a manner he reasonably believed to be in, or not opposed to, our best interests and, with respect to any criminal proceeding, had no reasonable cause to believe his conduct was unlawful.

Pennsylvania law requires that to the extent that one of our directors or officers has been successful on the merits or otherwise in defense of any action or proceeding referred to above or in defense of any claim, issue or matter therein, that director or officer shall be indemnified against expenses (including attorney fees) actually and reasonably incurred by him in connection therewith. Our amended and restated bylaws further provide that the right to indemnification includes the right to have expenses reasonably incurred in defending any action or proceeding described above paid by us in advance of the final disposition of the action or proceeding to the fullest extent permitted by Pennsylvania law; provided that, if required by Pennsylvania law, the payment of such

 

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expenses incurred in advance of the final disposition of the action or proceeding shall be made only upon delivery to us of an undertaking to repay all amounts so advanced without interest if it is ultimately determined that the director or officer is not entitled to be indemnified.

Indemnification shall not be made in respect of any claim, issue or matter as to which the person has been adjudged to be liable to us unless and only to the extent that a court determines that, despite the adjudication of liability but in view of all the circumstances of the case, the person is fairly and reasonably entitled to indemnity for the expenses that the court deems proper. Nor shall indemnification be made in any case where the act or failure to act giving rise to the claim for indemnification is determined by a court to have constituted willful misconduct or recklessness.

Sale of Unregistered Securities

In the past three years, Baudax Bio has not sold any securities, including sales of reacquired securities, new issues, securities issued in exchange for property, services or other securities and new securities resulting from the modification of outstanding securities.

 

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WHERE YOU CAN FIND MORE INFORMATION

We have filed a registration statement on Form 10 with the SEC with respect to the shares of our common stock being distributed as contemplated by this information statement. This information statement is a part of, and does not contain all of the information set forth in, the registration statement and the exhibits and schedules to the registration statement. For further information with respect to us and our common stock, please refer to the registration statement, including its exhibits and schedules. Statements made in this information statement relating to any contract or other document are not necessarily complete, and you should refer to the exhibits attached to the registration statement for copies of the actual contract or document. You may review a copy of the registration statement, including its exhibits and schedules, on the Internet website maintained by the SEC at www.sec.gov.

As a result of the Distribution, we will become subject to the information and reporting requirements of the Exchange Act and, in accordance with the Exchange Act, we will file periodic reports, proxy statements and other information with the SEC, which will be available at www.sec.gov.

 

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INDEX TO FINANCIAL STATEMENTS

 

Report of Independent Registered Public Accounting Firm

     F-2  

Combined Balance Sheets as of December 31, 2017 and 2018

     F-3  
Combined Statements of Operations for the years ended December 31, 2017 and 2018      F-4  

Combined Statements of Net Parent Investment as of December  31, 2017 and 2018

     F-4  
Combined Statements of Cash Flows for the years ended December 31, 2017 and 2018      F-5  

Notes to Combined Financial Statements

     F-6  

Combined Balance Sheets as of December 31, 2018 and June 30, 2019

     F-22  
Combined Statements of Operations for the six months ended June 30, 2018 and 2019      F-23  
Combined Statements of Parent Company Net Investment as of June 30, 2018 and 2019      F-23  
Combined Statements of Cash Flows for the six months ended June 30, 2018 and 2019      F-24  

Notes to Combined Financial Statements

     F-25  


Table of Contents

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Recro Pharma, Inc.:

Opinion on the Combined Financial Statements

We have audited the accompanying combined balance sheets of the Recro Pharma Acute Care Business (the Company) as of December 31, 2018 and 2017, the related combined statements of operations, parent company net investment, and cash flows for each of the years then ended, and the related notes (collectively, the combined financial statements). In our opinion, the combined financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2018 and 2017, and the results of its operations and its cash flows for the years then ended, in conformity with U.S. generally accepted accounting principles.

Emphasis of a Matter

As discussed in Note 1 to the combined financial statements, the combined financial statements reflect the Company’s historical financial position, results of operations and cash flows as the business was operated as part of Recro Pharma, Inc. (Recro). Recro’s plans to spin-off the Company as a standalone entity and the risks associated with the approval and commercialization of the Company’s lead product candidate are disclosed in Note 2 to the combined financial statements.

Basis for Opinion

These combined financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these combined financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB and in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the combined financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the combined financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the combined financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the combined financial statements. We believe that our audits provide a reasonable basis for our opinion.

/s/ KPMG LLP

We have served as the Company’s auditor since 2019.

Philadelphia, Pennsylvania

June 24, 2019

 

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Recro Pharma Acute Care Business

Combined Balance Sheets

 

(amounts in thousands)

       December 31, 2018            December 31, 2017    

Assets

     

Current assets:

     

Prepaid expenses and other current assets

  

   $

2,514  

 

  

   $

2,468  

 

  

 

 

 

  

 

 

 

Total current assets

  

 

2,514  

 

  

 

2,468  

 

Property, plant and equipment, net

  

 

3,982  

 

  

 

1,766  

 

Intangible assets

  

 

26,400  

 

  

 

26,400  

 

Goodwill

  

 

2,127  

 

  

 

2,127  

 

  

 

 

 

  

 

 

 

Total assets

  

   $

                         35,023  

 

  

   $

                         32,761  

 

  

 

 

 

  

 

 

 

Liabilities and Parent Company Net Investment

     

Current liabilities:

     

Accounts payable

  

   $

2,653  

 

  

   $

7,155  

 

Accrued expenses and other current liabilities

  

 

9,773  

 

  

 

5,541  

 

Current portion of contingent consideration

  

 

10,354  

 

  

 

32,054  

 

  

 

 

 

  

 

 

 

Total current liabilities

  

 

22,780  

 

  

 

44,750  

 

Other long-term liabilities

  

 

32  

 

  

 

109  

 

Long-term portion of contingent consideration

  

 

80,558  

 

  

 

50,359  

 

  

 

 

 

  

 

 

 

Total liabilities

  

 

103,370  

 

  

 

95,218  

 

  

 

 

 

  

 

 

 

Commitments and contingencies (Note 10)

     
  

 

 

 

  

 

 

 

Parent company net investment

  

 

(68,347)  

 

  

 

(62,457)  

 

  

 

 

 

  

 

 

 

Total liabilities and parent company net investment

  

   $

35,023  

 

  

   $

32,761  

 

  

 

 

 

  

 

 

 

See accompanying notes to combined financial statements.

 

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Recro Pharma Acute Care Business

Combined Statements of Operations

 

    For the Year ended December 31,

(amounts in thousands)

              2018                            2017            
 

 

 

 

Operating expenses:

    

Research and development

  $                         35,583            $                       28,635      

General and administrative

    29,453            19,626      

Change in contingent consideration valuation

    8,499            12,839      
 

 

 

 

  

 

 

 

Total operating expenses

    73,535            61,100      
 

 

 

 

  

 

 

 

Operating loss

    (73,535)            (61,100)      

Other income (expense):

    

Other income (expense)

    (132)            16      
 

 

 

 

  

 

 

 

Net loss

  $ (73,667)            $ (61,084)      
 

 

 

 

  

 

 

 

See accompanying notes to combined financial statements.

Recro Pharma Acute Care Business

Combined Statements of Parent Company Net Investment

 

(amounts in thousands)

   Parent Company
        Net Investment        

Balance, December 31, 2016

     $ (49,344)      

Net loss

     (61,084)      

Net transfers from parent

                             44,559      

Parent allocation – share based compensation

     3,412      
  

 

 

 

Balance, December 31, 2017

     (62,457)      

Net loss

     (73,667)      

Net transfer from parent

     63,203      

Parent allocation – share-based compensation

     4,574      
  

 

 

 

Balance, December 31, 2018

     $ (68,347)      
  

 

 

 

See accompanying notes to combined financial statements.

 

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Recro Pharma Acute Care Business

Combined Statements of Cash Flows

 

     For the Year ending December 31,

(amounts in thousands)

                   2018                                    2017                 

Cash flows from operating activities

    

Net loss

 

     $

 

(73,667)

 

 

 

    $

 

(61,084)

 

 

 

Adjustments to reconcile net loss to net cash used in operating activities:

    

Stock-based compensation

 

    

 

                        4,574

 

   

 

   

 

                        3,412

 

   

 

Depreciation expense

     396       72  

Acquired in-process research and development charges

 

    

 

 

 

 

   

 

766

 

 

 

Change in contingent consideration valuation

     8,499       12,839  

Changes in operating assets and liabilities:

 

    

Prepaid expenses and other current assets

     (46)       (1,894)  

Accounts payable, accrued expenses and other liabilities

 

    

 

493

 

 

 

   

 

2,617

 

 

 

  

 

 

 

 

 

 

 

Net cash used in operating activities

     (59,751)       (43,272)  
  

 

 

 

 

 

 

 

Cash flows from investing activities:

 

    

Purchase of property and equipment

     (3,370)       (768)  

Acquisition of license agreement

 

    

 

(82)

 

 

 

   

 

(519)

 

 

 

  

 

 

 

 

 

 

 

Net cash used in investing activities

     (3,452)       (1,287)  
  

 

 

 

 

 

 

 

Cash flows from financing activities:

 

    

Investment from parent

     63,203       44,559  
  

 

 

 

 

 

 

 

Net cash provided by financing activities

 

    

 

63,203

 

 

 

   

 

44,559

 

 

 

  

 

 

 

 

 

 

 

Net (decrease) increase in cash and cash equivalents

            

Cash and cash equivalents, beginning of year

 

    

 

 

 

 

   

 

 

 

 

  

 

 

 

 

 

 

 

Cash and cash equivalents, end of year

     $

 

 

 

 

    $

 

 

 

 

  

 

 

 

 

 

 

 

Supplemental disclosure of cash flow information

 

    

Purchase of property, plant and equipment included in accrued expenses and accounts payable

     $ 280       $ 1,039  
  

 

 

 

 

 

 

 

See accompanying notes to combined financial statements.

 

  F-5  


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Recro Pharma Acute Care Business

Notes to the Combined Financial Statements

(amounts in thousands, except share data)

 

(1)

Nature of Business and Basis of Presentation

Recro Pharma, Inc. or Recro, was incorporated in Pennsylvania on November 15, 2007. Recro is a pharmaceutical company that operates through two business segments: a revenue-generating contract development and manufacturing, or CDMO business and an Acute Care Business. Recro plans to separate its Acute Care pharmaceutical segment, referred to herein as the Recro Pharma Acute Care Business or the Company, including certain assets and liabilities associated with its pharmaceutical pipeline programs into an independent, publicly traded company. Following the separation the Company intends to focus on developing innovative products for hospital and other acute care settings, including its product candidate intravenous, or IV, meloxicam, for which the Company is pursuing resolution of a Complete Response Letter, or CRL, received from the U.S. Food and Drug Administration, or FDA, regarding the New Drug Application, or NDA, for IV meloxicam. See Note 15.

The accompanying combined financial statements are derived from Recro’s consolidated financial statements and accounting records. The Recro Pharma Acute Care Business did not consist of a separate, standalone group of legal entities in the periods presented and, accordingly, allocations were required. These combined financial statements reflect the Company’s historical financial position, results of operations and cash flows as the business was operated as part of Recro prior to the planned spin-off, in conformity with U.S. generally accepted accounting principles, or U.S. GAAP.

The Company has determined that it operates in a single segment: the development of innovative products for hospital and other acute care settings.

The combined financial statements include certain assets and liabilities that have historically been held at the Recro corporate level, but which are specifically identifiable or allocable to the Company. All intracompany transactions and accounts have been eliminated. All intercompany transactions between the Company and Recro are considered to be effectively settled in the combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statement of cash flows as a financing activity and in the combined balance sheet as parent company net investment. The Company does not record interest expense on amounts funded by Recro. Long-term debt held at the Recro corporate level will be retained by Recro and will not be assumed by the Company.

Historically, certain corporate level activity costs have been incurred and reported within the legal entity that includes the Recro Pharma Acute Care Business. A portion of these costs have been allocated out and the Company’s combined financial statements include a remaining allocation of expenses related to these certain Recro corporate functions that pertain to the Company, including senior management, legal, human resources, finance, and information technology. These expenses are included in general and administrative expense and have been allocated based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of expenses, headcount, or other measures. The Company considers the expense allocation methodology and results to be reasonable for all periods presented, however, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent, publicly-traded company for the periods presented. For the years ended December 31, 2018 and 2017, a total of $5,165 and $4,598 of general and administrative costs have been allocated to the CDMO business.

The income tax amounts in these combined financial statements have been calculated based on a separate return methodology and presented as if the Company was a standalone taxpayer in each of its tax jurisdictions. Because of the Company’s history of losses as a standalone entity, a full valuation allowance is recorded against deferred tax assets in all periods presented.

Recro maintains its stock-based compensation plan at a corporate level. The Company’s employees participate in those programs and a portion of the cost of those plans is included in these combined

 

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financial statements using an allocation methodology similar to the methodology used to allocate the cash compensation of the related employees.

The parent company net investment balances in these combined financial statements represents the accumulated deficit of the Recro Pharma Acute Care Business and the net funding provided to the Company, which are reflected as net transfers from parent in the combined statements of parent company net investment.

 

(2)

Development-Stage Risks and Liquidity

The Company has a history of operating losses and negative cash flows while operating as part of Recro and, accordingly, was dependent upon Recro for its capital funding and liquidity needs. Recro plans to contribute an amount of cash to the Company immediately prior to the spin-off, that management believes is sufficient to maintain operations of the Company for at least one year from the date of the spin-off. Recro has not committed any additional funding to the Company beyond the amount to be contributed as of the spin-off date and the Company may be required to raise additional funds needed to operate as a standalone entity beyond one year from the spin-off date. The initial cash contribution from Recro is contingent upon certain approvals of third parties, such as Recro’s lender, which are expected to occur prior to the spin-off but have not yet occurred as of the date of these combined financial statements. The Company’s ability to generate cash inflows is highly dependent on the approval and commercialization of IV meloxicam and there can be no assurance that such approval will be obtained or that IV meloxicam can be successfully commercialized. In addition, development activities, clinical and pre-clinical testing and commercialization of the Company’s product candidates, if approved, will require significant additional funding. The Company could delay clinical trial activity or reduce funding of specific programs in order to reduce cash needs. Insufficient funds may cause the Company to delay, reduce the scope of or eliminate one or more development, commercialization or expansion activities, including personnel. The Company may raise such funds through debt financings, bank or other loans, through strategic research and development, licensing (including out-licensing) and/or marketing arrangements or through public or private sales of equity or debt securities from time to time. Financing may not be available on acceptable terms, or at all, and failure to raise capital when needed could materially adversely impact the Company’s growth plans and its financial condition or results of operations. Additional equity financing, if available, may be dilutive to future holders of its common stock and may involve significant cash payment obligations and covenants that restrict the Company’s ability to operate its business. The Company may be required to wind down operations if IV meloxicam is not approved or cannot be successfully commercialized.

 

(3)

Summary of Significant Accounting Principles

 

  (a)

Use of Estimates

The preparation of financial statements and the notes to the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.

 

  (b)

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are as follows: three to seven years for furniture, office and computer equipment; six to ten years for manufacturing equipment; and the shorter of the lease term or useful life for leasehold improvements. Repairs and maintenance cost are expensed as incurred.

 

  (c)

Business Combinations

In accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 805, “Business Combinations,” or ASC 805, the Company allocates the

 

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purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Valuations are performed to assist in determining the fair values of assets acquired and liabilities assumed, which requires management to make significant estimates and assumptions, in particular with respect to intangible assets and contingent consideration. Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based in part on historical experience and information obtained from management of the acquired companies and expectations of future cash flows. Transaction costs and restructuring costs associated with the transaction are expensed as incurred. In-process research and development, or IPR&D, is the value assigned to those projects for which the related products have not received regulatory approval and have no alternative future use. Determining the portion of the purchase price allocated to IPR&D requires the Company to make significant estimates. In a business combination, the Company capitalizes IPR&D as an intangible asset, and for an asset acquisition the Company expenses IPR&D in the combined statements of operations on the acquisition date.

 

  (d)

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company (see Note 4). Goodwill is not amortized but assessed for impairment on an annual basis or more frequently if impairment indicators exist. The impairment model prescribes a one-step method for determining impairment.

The one-step quantitative test calculates the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company has one reporting unit.

The Company’s intangible asset is classified as an IPR&D asset. Intangible assets related to IPR&D are considered indefinite-lived intangible assets and are assessed for impairment annually or more frequently if impairment indicators exist. If the associated research and development effort is abandoned, the related assets will be written-off, and the Company will record a noncash impairment loss on its combined statements of operations. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives.

The impairment test for indefinite-lived intangible assets is a one-step test, which compares the fair value of the intangible asset to its carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

The Company performs its annual goodwill and indefinite-lived intangible asset impairment test as of November 30th, or whenever an event or change in circumstances occurs that would require reassessment of the recoverability of those assets. In performing the evaluation, the Company assesses qualitative factors such as overall financial performance of its reporting unit, anticipated changes in industry and market conditions, including recent tax reform, and competitive environments. As of December 31, 2018, no impairment exists.

 

  (e)

Research and Development

Research and development costs for the Company’s proprietary products/product candidates are charged to expense as incurred. Research and development expenses consist primarily of funds paid to third parties for the provision of services for pre-commercialization and manufacturing scale-up activities, drug development, clinical trials, statistical analysis and report writing and regulatory filing fees and compliance costs. At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expenses relating to these costs.

 

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Upfront and milestone payments made to third parties who perform research and development services on the Company’s behalf are expensed as services are rendered. Costs incurred in obtaining product technology licenses are charged to research and development expense as acquired IPR&D if the technology licensed has not reached technological feasibility and has no alternative future use.

 

  (f)

Stock-Based Awards

Share-based compensation is based upon the Recro share-based compensation plan. The Recro plan includes grants of stock options, time-based vesting restricted stock units (RSUs) and performance-based vesting RSUs. These carve out financial statements reflect share-based compensation related to stock options and RSUs issued to Acute Care employees as well as an allocation of a portion of share-based compensation issued to corporate employees and members of the Board of Directors.

The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award.

Determining the appropriate fair value of stock options requires the input of subjective assumptions, including the expected life of the option and expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and/or management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses the historical volatility of our publicly traded stock in order to estimate future stock price trends. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option.

The Company has elected to account for forfeitures as they occur.

 

  (g)

Income Taxes

The income tax amounts in these combined financial statements have been calculated based on a separate return methodology and presented as if the Company was a standalone taxpayer in each of its tax jurisdictions. Because of the Company’s history of losses as a standalone entity, a full valuation allowance is recorded against deferred tax assets in all periods presented.

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is recorded to the extent it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not been recognized in the combined financial statements. The Company recognizes the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The

 

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Company does not anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

 

  (h)

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In January 2017, the FASB issued ASU No. 2017-04Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment,” or ASU 2017-04. ASU 2017-04 allows companies to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The amendments of the ASU are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this guidance as of October 1, 2018 and there was no impact on its combined financial statements.

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13,Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value Measurement,” or ASU 2018-13. ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820 “Fair Value Measurement”. ASU 2018-13 eliminates certain disclosures related to transfers and the valuations process, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the potential impact on its disclosures.

In February 2016, the FASB issued ASU No. 2016-02,Leases (Topic 842),” or ASU 2016-02. ASU 2016-02 establishes a wholesale change to lease accounting and introduces a lease model that brings most leases on the balance sheet. It also eliminates the required use of bright-line tests in current U.S. GAAP for determining lease classification. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which provides an alternative transition method permitting the recognition of a cumulative-effect adjustment on the date of adoption rather than restating comparative periods in transition as originally prescribed by Topic 842. The new guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance in the first quarter of 2019. The Company elected the optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The Company elected certain practical expedients permitted under the transition guidance. On January 1, 2019, the Company recorded a right-of-use asset of $1,174 and an operating lease liability of $1,219.

 

(4)

Acquisitions

Gainesville Facility and Meloxicam

On April 10, 2015, Recro completed the Gainesville Transaction. The consideration paid in connection with the Gainesville Transaction consisted of $50,000 cash at closing, a $4,000 working capital adjustment and a seven-year warrant to purchase 350,000 shares of Recro’s common stock at an exercise price of $19.46 per share, according to the original agreement. In addition, according to the original agreement, Recro may be required to pay up to an additional $125,000 in milestone payments including $45,000 upon regulatory approval, as well as net sales milestones related to injectable meloxicam and a percentage of future product net sales related to injectable meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent). Under the acquisition method of accounting, the consideration paid and

 

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the fair value of the contingent consideration and royalties are allocated to the fair value of the assets acquired and liabilities assumed. The contingent consideration obligation is remeasured each reporting date with changes in fair value recognized as a period charge within the statement of operations (see Note 6 for further information regarding fair value).

The assets acquired, including goodwill, and liabilities assumed in the Gainesville Transaction were allocated to the Acute Care Business and CDMO business as of the date of the acquisition. The accompanying financial statements reflect the IPR&D asset of $26,400 and goodwill of $2,127 that were recorded by the Acute Care Business related to the Gainesville transaction. The liability for the contingent consideration will be assumed by the Company following the spin-off and is included in the Company’s Combined Balance Sheets. The warrant associated with the transaction remains on Recro’s Consolidated Balance Sheets as the equity plan is held at the corporate level.

In December 2018, the Company entered into an Amendment to the Purchase and Sale Agreement that restructured the $45,000 milestone to $60,000 therefore increasing the amount the Company may be required to pay Alkermes to $140,000, however, the amendment spread the payments of the development milestone over a seven-year period. In addition, the Company amended the warrant agreement with Alkermes, which decreased the exercise price of the warrant to $8.26 per share.

Based on the amended terms of the Alkermes agreement, the contingent consideration consists of four separate components. The first component is (i) a $5,000 payment due January 19, 2019 (30 days after signing such amendment) and (ii) a $5,000 payment due by April 23, 2019. The second components will be payable upon certain regulatory approval and include (i) a $5,000 payment due within 180 days following regulatory approval for IV meloxicam and (ii) $45,000 payable in seven equal annual payments of approximately $6,400 beginning on the first anniversary of such approval. The third component consists of three potential payments, based on the achievement of specified annual revenue targets, the last of which represents over 60% of these milestone payments and currently does not have a fair value assigned to its achievement. The fourth component consists of a royalty payment between 10% and 12% (subject to a 30% reduction when no longer covered by patent) for a defined term on future meloxicam net sales.

The fair value of the first and second contingent consideration components is estimated by applying a risk-adjusted discount rate to the probability-adjusted contingent payments and the expected approval dates. The fair value of the third contingent consideration component is estimated using the Monte Carlo simulation method and applying a risk-adjusted discount rate to the potential payments resulting from probability-weighted revenue projections based upon the expected revenue target attainment dates. The fair value of the fourth contingent consideration component is estimated by applying a risk-adjusted discount rate to the potential payments resulting from probability-weighted revenue projections and the defined royalty percentage.

These fair values are based on significant inputs not observable in the market, which are referred to in the guidance as Level 3 inputs. The contingent consideration components are classified as liabilities and are subject to the recognition of subsequent changes in fair value through the results of operations.

 

(5)

NMBA Related License Agreement

In June 2017, Recro acquired the exclusive global rights to two novel neuromuscular blocking agents, or NMBAs, and a proprietary chemical reversal agent from Cornell University, or Cornell. The NMBAs and reversal agent are referred to herein as the NMBA Related Compounds. The NMBA Related Compounds include one novel intermediate-acting NMBA that has initiated Phase I clinical trials and two other agents, a novel short-acting NMBA, and a rapid-acting reversal agent proprietary to these NMBAs. This license agreement is included in the Company’s pipeline product candidates.

The transaction was accounted for as an asset acquisition, with the total cost of the acquisition of $766 allocated to acquired IPR&D. The Company recorded an upfront payment obligation of $350, as well as operational liabilities and acquisition-related costs of $416, primarily consisting of reimbursement to Cornell for specified past patent, legal and pre-clinical costs.

 

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In addition, Recro is obligated to make: (i) an annual license maintenance fee payment until the first commercial sale of the NMBA Related Compounds; and (ii) milestone payments upon the achievement of certain milestones, up to a maximum, for each NMBA, of $5,000 for U.S. regulatory approval and commercialization milestones and $3,000 for European regulatory approval and commercialization milestones. Recro is also obligated to pay Cornell royalties on net sales of the NMBA Related Compounds at a rate ranging from low to mid-single digits, depending on the applicable NMBA Related Compounds and whether there is a valid patent claim in the applicable country, subject to an annual minimum royalty amount. Further, Recro will reimburse Cornell ongoing patent costs related to prosecution and maintenance of the patents related to the Cornell patents for the NMBA Related Compounds. This obligation will be transferred to the Company in connection with the spin-off.

The Company accounted for the transaction as an asset acquisition based on an evaluation of the accounting guidance (ASC Topic 805) and considered the early clinical stage of the novel and unproven NMBA Related Compounds. The Company concluded that the acquired IPR&D of Cornell did not constitute a business as defined under ASC 805 due to the incomplete nature of the inputs and the absence of processes from a market participant perspective. Substantial additional research and development will be required to develop any NMBA Related Compounds into a commercially viable drug candidate, including completion of pre-clinical testing and clinical trials, and, if such clinical trials are successful, application for regulatory approvals and manufacturing repeatability and scale-up. There is risk that a marketable compound may not be well tolerated and may never be approved.

Acquired IPR&D in the asset acquisition was accounted for in accordance with FASB ASC Topic 730, “Research and Development.” At the date of acquisition, the Company determined that the development of the projects underway at Cornell had not yet reached technological feasibility and that the research in process had no alternative future uses. Accordingly, the acquired IPR&D was charged to expense in the combined statements of operations on the acquisition date. The acquired IPR&D charge is expected to be deductible over a 15-year period for income tax purposes.

 

(6)

Fair Value of Financial Instruments

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” for fair value measurement recognition and disclosure purposes for its financial assets and financial liabilities that are remeasured and reported at fair value each reporting period. The Company measures the contingent consideration at fair value on a recurring basis. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. Categorization is based on a three-tier valuation hierarchy, which prioritizes the inputs used in measuring fair value, as follows:

 

   

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities

 

   

Level 2: Inputs that are other than quoted prices in active markets for identical assets and liabilities, inputs that are quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are either directly or indirectly observable; and

 

   

Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

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The Company has classified liabilities measured at fair value on a recurring basis as follows:

 

    

Fair value measurements at reporting date  using

 
    

Quoted prices in
active markets

for identical

assets

(Level 1)

    

Significant other
observable
inputs

(Level 2)

    

Significant
unobservable
inputs

(Level 3)

 

At December 31, 2017:

        

Liabilities:

        

Contingent consideration (See Note 4)

  

  $

                         —  

 

  

  $

                     —  

 

  

  $

            82,413  

 

  

 

 

    

 

 

    

 

 

 
  

  $

—  

 

  

  $

—  

 

  

  $

82,413  

 

  

 

 

    

 

 

    

 

 

 

At December 31, 2018:

        

Liabilities:

        

Contingent consideration (See Note 4)

  

  $

—  

 

  

  $

—  

 

  

  $

90,912  

 

  

 

 

    

 

 

    

 

 

 
  

  $

—  

 

  

  $

—  

 

  

  $

90,912  

 

  

 

 

    

 

 

    

 

 

 

The reconciliation of the contingent consideration measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

 

    

Contingent Consideration           

 

Balance at December 31, 2016

  

  $

                     69,574  

 

Remeasurement

  

 

12,839  

 

  

 

 

 

Balance at December 31, 2017

  

 

82,413  

 

Remeasurement

  

 

8,499  

 

  

 

 

 

Total at December 31, 2018

  

  $

90,912  

 

  

 

 

 
  

Current portion as of December 31, 2018

  

  $

10,354  

 

Long-term portion as of December 31, 2018

  

  $

80,558  

 

The current portion of the contingent consideration approximates the probability adjusted fair value amount that the Company currently expects to become payable within one year as of December 31, 2018 (see Note 4 for additional information). The Company plans to continue to reevaluate this classification and measurement as it progresses through discussions with the FDA and the appeals process regarding IV meloxicam.

The Company follows the disclosure provisions of FASB ASC Topic 825, “Financial Instruments” (ASC 825), for disclosure purposes for financial assets and financial liabilities that are not measured at fair value. As of December 31, 2018, the financial assets and liabilities recorded on the Combined Balance Sheets that are not measured at fair value on a recurring basis include accounts payable and accrued expenses, which approximate fair value due to the short-term nature of these instruments.

 

  F-13  


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(7)

Property, Plant and Equipment

Property, plant and equipment consists of the following:

 

    

  December 31, 2018      

 

       December 31, 2017        

Building and improvements

  

  $

196  

 

  

  $

78  

 

Furniture, office and computer equipment

  

 

                             1,688  

 

  

 

360  

 

Manufacturing equipment

  

 

101  

 

  

 

101  

 

Construction in progress

  

 

2,469  

 

  

 

                             1,303  

 

  

 

 

    

 

 

 
  

 

4,454  

 

  

 

1,842  

 

Less: accumulated depreciation and amortization

  

 

472  

 

  

 

76  

 

  

 

 

    

 

 

 

Property, plant and equipment, net

  

  $

3,982  

 

  

  $

1,766  

 

  

 

 

    

 

 

 

Depreciation expense for the years ended December 31, 2018 and 2017 was $396 and $72, respectively.

 

(8)

Intangible Assets

The following represents the balance of the intangible assets at December 31, 2018 and 2017:

 

     Cost  

In-process research and development

  

  $

          26,400  

 

  

 

 

 

Total

  

  $

26,400  

 

  

 

 

 

There was no amortization expense for the years ended December 31, 2018 and 2017.

 

(9)

Accrued Expenses

Accrued expenses consist of the following:

 

     December 31      
2018        
     December 31      
2017        
 

Clinical trial and related costs

  

  $

683  

 

  

  $

383  

 

Professional and consulting fees

  

 

671  

 

  

 

1,010  

 

Payroll and related costs

  

 

2,172  

 

  

 

3,969  

 

Property plant and equipment

  

 

278  

 

  

 

—  

 

Pre-commercialization scale-up costs

  

 

4,445  

 

  

 

—  

 

Other research and development costs

  

 

678  

 

  

 

—  

 

Other

  

 

846  

 

  

 

179  

 

  

 

 

    

 

 

 
  

  $

          9,773  

 

  

  $

            5,541  

 

  

 

 

    

 

 

 

 

(10)

Commitments and Contingencies

 

  (a)

License and Supply Agreements

Recro is party to an exclusive license with Orion for the development and commercialization of Dexmedetomidine, or Dex, for use in the treatment of pain in humans in any dosage form for transdermal, transmucosal (including sublingual and intranasal), topical, enteral or pulmonary (inhalational) delivery, but specifically excluding delivery vehicles for administration by injection or infusion, worldwide, except for Europe, Turkey and the CIS (currently includes Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan), referred to herein as the Territory. Recro is required to pay Orion lump sum payments of up to €20,500 ($23,460 as of December 31, 2018) on the achievement of certain developmental

 

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and commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 20% depending on annual sales levels. Through December 31, 2018, no such milestones have been achieved.

Recro is also party to an exclusive license agreement with Orion for the development and commercialization of Fadolmidine, or Fado, for use as a human therapeutic, in any dosage form in the Territory. Recro is required to pay Orion lump sum payments of up to €12,200 ($13,961 as of December 31, 2018) on achievement of certain developmental and commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 15% depending on annual sales levels. Through December 31, 2018, no such milestones have been achieved.

Recro is party to a license agreement with Cornell. Recro will pay Cornell an initial upfront fee and Cornell is also entitled to receive additional milestone payments, annual license maintenance fees as well as royalties. See Note 5 for further information regarding these payment obligations.

These obligations will be transferred to the Company in connection with the spin-off.

 

  (b)

Contingent Consideration for the Gainesville Transaction

Pursuant to the purchase and sale agreement and subsequent amendment governing the Gainesville Transaction (see Note 4), the Company agreed to pay to Alkermes up to an additional $140,000 in milestone payments including $50,000 upon regulatory approval payable over a seven-year period, as well as net sales milestones related to injectable meloxicam and royalties on future product sales of injectable meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent).

Recro is party to a Development, Manufacturing and Supply Agreement, or Supply Agreement, with Alkermes (through a subsidiary of Alkermes) that will be assumed by the Company following the spin-off, pursuant to which Alkermes will (i) provide clinical and commercial bulk supplies of injectable meloxicam formulation and (ii) provide development services with respect to the Chemistry, Manufacturing and Controls section of an NDA for injectable meloxicam. Pursuant to the Supply Agreement, Alkermes will supply the Company with such quantities of bulk injectable meloxicam formulation as shall be reasonably required for the completion of clinical trials of injectable meloxicam. During the term of the Supply Agreement, the Company will purchase its clinical and commercial supplies of bulk injectable meloxicam formulation exclusively from Alkermes, subject to certain exceptions, for a period of time.

 

  (c)

Litigation

The Company and Recro are involved, from time to time, in various claims and legal proceedings arising in the ordinary course of their respective businesses. Except as disclosed below, the Company is not currently a party to any such claims or proceedings that, if decided adversely to it, would either individually or in the aggregate have a material adverse effect on its business, financial condition or results of operations.

On May 31, 2018, a securities class action lawsuit was filed against Recro and certain of its officers and directors in the U.S. District Court for the Eastern District of Pennsylvania (Case No. 2:18-cv-02279-MMB) that purported to state a claim for alleged violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10(b)(5) promulgated thereunder, based on statements made by Recro concerning the NDA for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and other costs. On December 10, 2018, lead plaintiff filed an amended complaint that asserted the same claims and sought the same relief but included new allegations and named additional officers and directors as defendants. On February 8, 2019, Recro filed a motion to dismiss the amended complaint in its entirety, which the lead plaintiff opposed on April 9, 2019. On May 9, 2019, Recro filed its response and briefing was completed on the motion to dismiss. No hearing date has been set. The Company and Recro believe that the lawsuit is without merit and intend to

 

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vigorously defend against it. The lawsuit is in the early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to the Company and Recro.

 

  (d)

Leases

The Company is a party to various operating leases in Malvern, Pennsylvania and Dublin, Ireland for office space and office equipment. Rent expense includes rent as well as additional operating and tenant improvement expenses.

As of December 31, 2018, future minimum lease payments excluding operating expenses and tenant improvements for the leases, are as follows:

 

2019

  

  $

517  

 

2020

  

 

414  

 

2021

  

 

367  

 

2022

  

 

373  

 

  

 

 

 

Total

  

  $

              1,671  

 

  

 

 

 

 

  (e)

Purchase Commitments

As of December 31, 2018, the Company had outstanding non-cancelable and cancelable purchase commitments of $15,417 related to capital expenditures and other goods and services, including pre-commercial/manufacturing scale-up and clinical activities.

 

  (f)

Certain Compensation and Employment Agreements

Recro has entered into employment agreements with certain of its named executive officers. As of December 31, 2018, these employment agreements provided for, among other things, annual base salaries in an aggregate amount of not less than $188 from that date through calendar year 2019, which represents the allocated portion to the Company.

 

(11)

Stock-Based Compensation

Certain employees of the Company participate in Recro’s stock-based compensation plan, which provides for the grants of stock options and RSUs. The expense associated with the Company’s employees who participate in the plan is included in the accompanying combined statements of operations. A portion of these costs have been allocated out of the Company as they relate to employees responsible for corporate level activities that historically were incurred by the entity that represents the Company. Additionally, the entity that represents the Company historically incurred the costs related to the board of directors, which has also been partially allocated out of the Company.

In October 2013, Recro established the 2013 Equity Incentive Plan, or the 2013 Plan, which allows for the grant of stock options, stock appreciation rights and stock awards for a total of 600,000 shares of common stock. In June 2015, Recro’s shareholders approved the Amended and Restated Equity Incentive Plan, or the A&R Plan, which amended and restated the 2013 Plan and increased the aggregate amount of shares available for issuance to 2,000,000. On December 1st of each year, pursuant to the “Evergreen” provision of the A&R Plan, the number of shares available under the plan may be increased by the Recro Board by an amount equal to 5% of the outstanding common stock on December 1st of that year. In December 2018 and 2017 the number of shares available for issuance under the A&R Plan was increased by 1,082,972 and 956,341, respectively. The total number of shares authorized for issuance under the A&R plan as of December 31, 2018 is 8,119,709.

Stock options are exercisable generally for a period of 10 years from the date of grant and generally vest over four years. As of December 31, 2018, 3,777,352 shares are available for future grants under Recro’s A&R Plan.

 

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All shares described herein represent shares of Recro. The share information included in this disclosure includes 100% of the shares issued to Acute Care Business employees, corporate employees and Board members of Recro; however, a portion of the expenses related to the corporate employees and Board members of Recro have been allocated out of share-based compensation expense in these carve out financial statements using an allocation methodology similar to the allocation methodology used to allocate cash compensation expense.

The weighted average grant-date fair value of the options awarded to employees during the years ended December 31, 2018 and 2017 was $6.07 and $5.42, respectively. The fair value of the options was estimated on the date of grant using a Black-Scholes option pricing model with the following assumptions:

 

     December 31,
    

 

2018

  

 

2017

Range of expected option life

  

5.5 - 6 years

  

6 years

Expected volatility

  

    73.26% - 82.00%    

  

    75.10 - 84.71%    

Risk-free interest rate

  

2.32 - 3.03%

  

1.87 - 2.27%

Expected dividend yield

  

  

The following table summarizes stock option activity during the year ended December 31, 2018:

 

     Number of
shares
     Weighted- average
    exercise price    

per share
     Weighted-
average
remaining
    contractual life    
 

Balance, December 31, 2017

  

 

3,015,032  

 

  

  $

6.77  

 

  

 

6.9 years  

 

Granted

  

 

803,294  

 

  

 

9.14  

 

  

Exercised

  

 

(350,268)  

 

  

 

5.15  

 

  

Expired/forfeited/cancelled

  

 

(375,452)  

 

  

 

8.79  

 

  
  

 

 

    

 

 

    

Balance, December 31, 2018

  

 

            3,092,606  

 

  

  $

7.32  

 

  

 

7.3 years  

 

  

 

 

    

 

 

    

Vested

  

 

1,881,989  

 

  

  $

6.71  

 

  

 

6.5 years  

 

Vested and expected to vest

  

 

3,092,606  

 

  

  $

                     7.32  

 

  

 

7.3 years  

 

Included in the table above are 950,000 options granted outside the plan. The grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq Listing Rule 5635(c)(4).

The following table summarizes restricted stock units activity during the year ended December 31, 2018:

 

         Number of shares      

Balance, December 31, 2017

  

 

262,593  

 

  

 

 

 

Granted

  

 

894,557  

 

Vested and settled

  

 

(131,268)  

 

Expired/forfeited/cancelled

  

 

(44,429)  

 

  

 

 

 

Balance, December 31, 2018

  

 

981,453  

 

  

 

 

 

Expected to vest

  

 

768,510  

 

Included in the table above are 47,000 time-based RSUs granted outside the plan. The grants were made pursuant to the Nasdaq inducement grant exception in accordance with Nasdaq Listing Rule 5635(c)(4).

Stock-based compensation expense related to the employees of the Company for the twelve months ended December 31, 2018 and 2017, net of allocations, was $4,574 and $3,412, respectively.

 

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As of December 31, 2018, net of allocations, there was $8,509 of unrecognized compensation expense related to unvested options and time-based RSUs that are expected to vest and will be expensed over a weighted average period of 1.9 years. As of December 31, 2018, net of allocations, there was $1,929 of unrecognized compensation expense related to unvested performance-based RSUs that will be expensed if the performance criteria are met.

The aggregate intrinsic value represents the total amount by which the fair value of the common stock subject to options exceeds the exercise price of the related options. As of December 31, 2018, the aggregate intrinsic value of the vested and unvested options was $2,143 and $100, respectively.

 

(12)

Income Taxes

The components of loss before income tax are as follows:

 

     December 31,  
     2018     2017        

Domestic

  

$

(43,505

 

$

(33,477

 

Foreign

  

 

  (30,162

 

 

  (27,607

 
  

 

 

   

 

 

   

Loss before income taxes

  

$

(73,667

 

$

(61,084

 
  

 

 

   

 

 

   

The components of income tax provision (benefit) are as follows:

 

     December 31,  
     2018      2017  

Current:

     

Federal

  

$

— 

 

  

$

— 

 

State and local

  

 

— 

 

  

 

— 

 

Foreign

  

 

— 

 

  

 

— 

 

  

 

 

    

 

 

 
  

$

— 

 

  

$

— 

 

Deferred:

     

Federal

  

$

(10,034) 

 

  

$

(3,928) 

 

State and local

  

 

(4,026) 

 

  

 

(1,144) 

 

Foreign

  

 

(3,770) 

 

  

 

3,451 

 

  

 

 

    

 

 

 
  

 

(17,830) 

 

  

 

(1,621) 

 

  

 

 

    

 

 

 

Change in valuation allowance

  

 

17,830 

 

  

 

1,621 

 

  

 

 

    

 

 

 
  

$

                     — 

 

  

$

                     — 

 

  

 

 

    

 

 

 

 

  F-18  


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A reconciliation of the statutory U.S. federal income tax rate to the Company’s effective tax rate is as follows:

 

     Year ended December 31,  
           2018                 2017              

U.S. federal statutory income tax rate

  

 

                     21.0

 

 

                     34.0

 

Foreign tax rate differential

  

 

(3.5

)% 

 

 

(9.7

)% 

 

State taxes, net of federal benefit

  

 

5.5

 

 

1.9

 

Nondeductible expenses

  

 

0.3

 

 

 

 

Research and development credits

  

 

0.7

 

 

0.8

 

Change in federal tax rate

  

 

0.1

 

 

(13.0

)% 

 

Change in valuation allowance

  

 

(24.2

)% 

 

 

(14.0

)% 

 

Other

  

 

0.1

 

 

 

 
  

 

 

   

 

 

   

Effective income tax rate

  

 

 

 

 

 

 
  

 

 

   

 

 

   

The tax effects of temporary differences that gave rise to significant portions of the deferred tax assets were as follows:

 

     December 31,  
     2018     2017  

Net operating loss carryforwards

  

$

        24,384

 

 

$

        11,943

 

Research and development credits

  

 

972

 

 

 

472

 

Capitalized start-up costs

  

 

1,489

 

 

 

1,431

 

Intangibles

  

 

206

 

 

 

 

Contingent consideration

  

 

9,746

 

 

 

6,588

 

Stock-based compensation

  

 

3,924

 

 

 

2,345

 

Other temporary differences

  

 

161

 

 

 

91

 

  

 

 

   

 

 

 

Gross deferred tax asset

  

 

40,882

 

 

 

22,870

 

Valuation allowance

  

 

(40,618

 

 

(22,788

  

 

 

   

 

 

 

Net deferred tax asset

  

 

264

 

 

 

82

 

Deferred tax liability

  

 

(264

 

 

(82

  

 

 

   

 

 

 

Net deferred taxes

  

$

            —

 

 

$

 

  

 

 

   

 

 

 

In assessing the realizability of the net deferred tax asset, the Company considers all relevant positive and negative evidence in determining whether it is more likely than not that some portion or all of the deferred income tax assets will not be realized. The realization of the gross deferred tax assets is dependent on several factors, including the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards.

Within the Company’s deferred tax assets are amounts included for net operating loss carryforwards and research and development credits, as these are the amounts that would have been generated by the Company on a separate basis prior to the transaction for 2018 and 2017. These tax attributes are included here, based on the separate return methodology, and the amounts disclosed will not carry forward to the Company subsequent to the transaction.

In 2018 and 2017, the Company evaluated the need for a valuation allowance against its U.S. and state deferred tax assets based on the available positive and negative evidence available as if the Company was a standalone entity for all periods presented. An important aspect of objective negative evidence evaluated

 

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was the Company’s historical operating results over its life to date. The Company is in a three-year cumulative loss position for both 2018 and 2017. Thus, it is more likely than not that the Company’s U.S. and state deferred tax assets will not be realized and a full valuation allowance has been recognized against the Company’s U.S. and state deferred tax assets.

The Company will recognize interest and penalties related to uncertain tax positions in income tax expense. As of December 31, 2018, the Company had no accrued interest or penalties related to uncertain tax positions and no amounts have been recognized in the Company’s statements of operations.

On December 22, 2017, the Tax Cuts and Jobs Act (H.R. 1) (the “Tax Act”) was signed into law. The Tax Act contains significant changes to corporate taxation, including (i) the reduction of the corporate income tax rate to 21%, (ii) the acceleration of expensing for certain business assets, (iii) the one-time transition tax related to the transition of U.S. international tax from a worldwide tax system to a territorial tax system, (iv) additional limitations on the deductibility of interest expense, and (v) expanded limitations on executive compensation. The most significant impacts on the Company are as follows:

 

   

The Company remeasured its existing U.S. federal deferred tax assets and liabilities at the rate that the Company expects to be in effect when those deferred taxes will be realized, which is now 21%. In 2017, the Company recognized a one-time net expense from the deferred tax remeasurement of approximately $7,900.

 

   

A one-time tax is due on certain accumulated foreign earnings (Deemed Repatriation Tax), which is payable over eight years. The tax rate is generally 15.5% on the portion of the earnings held in cash and cash equivalents and 8% on the remainder. As the Company has an accumulated foreign deficit for its operations in Ireland, it is not currently subject to this Deemed Repatriation Tax.

 

   

The Company will be able to claim an immediate deduction for investments in qualified fixed assets acquired and placed in service beginning September 27, 2017 through 2022. This provision phases out through 2026.

 

   

Given the Company’s taxable losses in the U.S., it will be limited in its ability to deduct future interest expense, if any. Any disallowed interest expense for future tax years will result in an indefinite carry forward until such time as the Company meets the taxable income thresholds required to deduct interest expense.

 

(13)

Related Party Transactions

A Non-Executive Director of the Company’s Irish subsidiary is a Managing Director and a majority shareholder of HiTech Health Ltd, or HiTech Health, a consultancy firm for the biotech, pharmaceutical and medical device industry. Since 2016, HiTech Health has provided the Company with certain consulting services and in November 2017 both parties entered into a Service Agreement to engage in both regulatory and supply chain project support and consultancy. In consideration for such services, the Company recorded $309 and $151 of expenses for the twelve months ended December 31, 2018 and 2017, respectively. A portion of the amount relates to consultancy services provided by the Non-Executive Director.

 

(14)

Retirement Plan

Recro has a voluntary 401(k) Savings Plan (the 401(k) Plan) in which all employees are eligible to participate. Recro’s policy is to match 100% of the employee contributions up to a maximum of 5% of employee compensation. Total contributions related to employees of the Company to the 401(k) plan for the year ended December 31, 2018 and 2017 were $540 and $469, respectively.

 

(15)

Subsequent Events

In March of 2019, Recro received a second CRL from the FDA regarding the NDA for IV meloxicam. The Company plans to pursue resolution of the IV meloxicam CRL, including appeal to one or more levels of

 

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the FDA, if required. On April 3, 2019, Recro implemented a strategic restructuring initiative, and corresponding reduction in workforce, aimed at reducing operating expenses, while maintaining key personnel needed to select a partner and obtain FDA approval of IV meloxicam. The restructuring initiative includes a reduction of a majority of Recro’s Acute Care Business workforce, which encompasses the entities that represent the Company, by approximately 50 positions. Recro estimates that it will incur approximately $4,000 of costs in connection with the reduction in workforce related to severance pay and other related termination benefits. Recro communicated the workforce reduction on April 3, 2019 and expects the majority of the costs to be incurred during the quarter ending June 30, 2019.

 

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Recro Pharma Acute Care Business

Combined Balance Sheets

(unaudited)

 

  (amounts in thousands)        June 30, 2019              December 31, 2018      

Assets

     

Current assets:

     

Prepaid expenses and other current assets

     $                     3,586          $                         2,514    
  

 

 

    

 

 

 

Total current assets

     3,586          2,514    

Property, plant and equipment, net

     5,091          3,982    

Right of use asset

     943          —    

Intangible assets

     26,400          26,400    

Goodwill

     2,127          2,127    
  

 

 

    

 

 

 

Total assets

     $ 38,147          $ 35,023    
  

 

 

    

 

 

 

Liabilities and Parent Company Net Investment

     

Current liabilities:

     

Accounts payable

     $ 352          $ 2,653    

Accrued expenses and other current liabilities

     4,233          9,773    

Current operating lease liability

     400          —    

Current portion of contingent consideration

     —          10,354    
  

 

 

    

 

 

 

Total current liabilities

     4,985          22,780    

Long-term operating lease liability

     587          —    

Other long-term liabilities

     —          32    

Long-term portion of contingent consideration

     61,762          80,558    
  

 

 

    

 

 

 

Total liabilities

     67,334          103,370    
  

 

 

    

 

 

 

Commitments and contingencies (Note 10)

     
  

 

 

    

 

 

 

Parent company net investment

     (29,187)          (68,347)    
  

 

 

    

 

 

 

Total liabilities and parent company net investment

     $ 38,147          $ 35,023    
  

 

 

    

 

 

 

See accompanying notes to combined financial statements.

 

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Recro Pharma Acute Care Business

Combined Statements of Operations

(unaudited)

 

           For the Six Months ended June 30,        
  (amounts in thousands)                2019                            2018            

Operating expenses:

     

Research and development

     $                          16,734          $                15,826    

General and administrative

     17,284          19,062    

Change in contingent consideration valuation

     (19,150)          2,916    
  

 

 

    

 

 

 

Total operating expenses

     14,868          37,804    
  

 

 

    

 

 

 

Operating loss

     (14,868)          (37,804)    

Other income (expense)

     

Other income (expense)

     (49)          (90)    
  

 

 

    

 

 

 

Net loss

     $ (14,917)          $ (37,894)    
  

 

 

    

 

 

 

See accompanying notes to combined financial statements.

Recro Pharma Acute Care Business

Combined Statements of Parent Company Net Investment

(unaudited)

 

  (amounts in thousands)    Parent Company
    Net Investment    
 

Balance, December 31, 2017

     $                 (62,457)    

Net loss

     (37,894)    

Net transfer from parent

     33,123    

Parent allocation – share-based compensation

     2,102    
  

 

 

 

Balance, June 30, 2018

     $ (65,126)    
  

 

 

 

Balance, December 31, 2018

     $ (68,347)    

Net loss

     (14,917)    

Net transfers from parent

     50,875    

Parent allocation – share-based compensation

     3,202    
  

 

 

 

Balance, June 30, 2019

     $ (29,187)    
  

 

 

 

See accompanying notes to combined financial statements.

 

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Recro Pharma Acute Care Business

Combined Statements of Cash Flows

(unaudited)

 

     For the six months ended June 30,  

(amounts in thousands)

                   2019                                       2018                   

Cash flows from operating activities:

     

Net loss

     $ (14,917)          $ (37,894)    

Adjustments to reconcile net loss to net cash used in operating activities:

     

Stock-based compensation

                             3,202                                   2,102     

Depreciation expense

     246           112     

Change in contingent consideration valuation

     (19,150)          2,916     

Changes in operating assets and liabilities:

     

Prepaid expenses and other current assets

     (1,074)          (20)     

Right-of-use asset

     231           —     

Accounts payable, accrued expenses and other liabilities

     (7,464)           1,521    

Operating lease liability

     (232)          —     
  

 

 

    

 

 

 

Net cash used in operating activities

     (39,158)          (31,263)    
  

 

 

    

 

 

 

Cash flows from investing activities:

     

Purchase of property and equipment

     (1,635)          (1,778)    

Acquisition of license agreement

     (82)          (82)    
  

 

 

    

 

 

 

Net cash used in investing activities

     (1,717)          (1,860)    
  

 

 

    

 

 

 

Cash flows from financing activities

     

Payment of contingent consideration

     (10,000)          —     

Investment from parent

     50,875           33,123     
  

 

 

    

 

 

 

Net cash provided by financing activities

     40,875           33,123     
  

 

 

    

 

 

 

Net (decrease) increase in cash and cash equivalents

     —           —     

Cash and cash equivalents, beginning of year

     —           —     
  

 

 

    

 

 

 

Cash and cash equivalents, end of period

     $ —           $ —     
  

 

 

    

 

 

 

Supplemental disclosure of cash flow information:

     

Purchase of property, plant and equipment included in accrued expenses and accounts payable

     $ —           $ 202     

See accompanying notes to combined financial statements.

 

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Recro Pharma Acute Care Business

Notes to the Combined Financial Statements

(amounts in thousands, except share data)

(Unaudited)

 

(1)

Nature of Business and Basis of Presentation

Recro Pharma, Inc. or Recro, was incorporated in Pennsylvania on November 15, 2007. Recro is a pharma services and pharmaceutical company that operates through two business segments: a revenue-generating contract development and manufacturing, or CDMO segment and the Acute Care pharmaceutical segment. Recro plans to separate its Acute Care pharmaceutical segment, referred to herein as the Acute Care Business or the Company, including certain assets and liabilities associated with its pharmaceutical pipeline programs into an independent, publicly traded company named Baudax Bio, Inc. Following the separation, Baudax Bio, Inc., or the Company, intends to focus on developing innovative products for hospital and other acute care settings, including its product candidate intravenous, or IV, Meloxicam, for which the Company is pursuing resolution of a Complete Response Letter, or CRL, received from the U.S. Food and Drug Administration, or FDA, regarding the New Drug Application, or NDA, for IV meloxicam.

The accompanying unaudited combined financial statements are derived from Recro’s consolidated financial statements and accounting records and should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2018 included in Recro’s Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The Recro Pharma Acute Care Business did not consist of a separate, standalone group of legal entities for public company reporting and certain other corporate functions in the periods presented and, accordingly, allocations were required. These combined financial statements reflect the Company’s historical financial position, results of operations and cash flows as the business was operated as part of Recro prior to the planned spin-off, in conformity with U.S. generally accepted accounting principles (U.S. GAAP).

The Company has determined that it operates in a single segment: the development of innovative products for hospital and other acute care settings.

The combined financial statements include certain assets and liabilities that have historically been held at the Recro corporate level, but which are specifically identifiable or allocable to the Company. All intracompany transactions and accounts have been eliminated. All intercompany transactions between the Company and Recro are considered to be effectively settled in the combined financial statements at the time the transaction is recorded. The total net effect of the settlement of these intercompany transactions is reflected in the combined statements of cash flows as a financing activity and in the combined balance sheet as parent company net investment. The Company does not record interest expense on amounts funded by Recro. Long-term debt held at the Recro corporate level will be retained by Recro and will not be assumed by the Company.

Historically, certain corporate level activity costs have been incurred and reported within the legal entity that includes the Recro Pharma Acute Care Business. A portion of these costs have been allocated out and the Company’s combined financial statements include a remaining allocation of expenses related to these certain Recro corporate functions, including senior management, legal, human resources, finance, and information technology. These expenses are included in general and administrative expense and have been allocated based on direct usage or benefit where identifiable, with the remainder allocated on a pro rata basis of expenses, headcount, or other measures. The Company considers the expense allocation methodology and results to be reasonable for all periods presented, however, the allocations may not be indicative of the actual expense that would have been incurred had the Company operated as an independent, publicly-traded company for the periods presented. For the six months ended June 30, 2019 and 2018, a total of $4,951 and $2,609 of costs have been allocated to the CDMO business.

The income tax amounts in these combined financial statements have been calculated based on a separate return methodology and presented as if the Company was a standalone taxpayer in each of its tax

 

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jurisdictions. Because of the Company’s history of losses as a standalone entity, a full valuation allowance is recorded against deferred tax assets in all periods presented.

Recro maintains its stock-based compensation plan at a corporate level. The Company’s employees participate in those programs and a portion of the cost of those plans is included in the Company’s combined financial statements using an allocation methodology similar to the methodology used to allocate the cash compensation of the related employees.

The parent company net investment balances in these combined financial statements represents the accumulated deficit of the Recro Pharma Acute Care Business and the net funding provided to the Company, which are reflected as net transfers from parent in the combined statements of parent company net investment.

In April 2019, after receipt of the second CRL for IV meloxicam, the Company announced it had implemented a strategic restructuring initiative, and corresponding reduction in the Acute Care segment workforce, aimed at reducing operating expenses, while maintaining key personnel needed to partner and obtain FDA approval of IV meloxicam (Note 9).

 

(2)

Development-Stage Risks and Liquidity

The Company has a history of operating losses and negative cash flows while operating as part of Recro and, accordingly, was dependent upon Recro for its capital funding and liquidity needs. Recro plans to contribute $19,000 to the Company immediately prior to the spin-off, that management believes is sufficient to maintain operations of the Company for at least one year from the date of the spin-off. Recro has not committed any additional funding to the Company beyond the $19,000 to be contributed as of the spin-off date and the Company may be required to raise additional funds needed to operate as a standalone entity beyond one year from the spin-off date. The $19,000 contribution is contingent upon certain approvals of third parties, such as Recro’s lender, which are expected to occur prior to the spin-off but have not yet occurred as of the date of these combined financial statements. The Company’s ability to generate cash inflows is highly dependent on the approval of IV meloxicam and there can be no assurance that such approval will be obtained or that IV meloxicam can be successfully commercialized. In addition, development activities, clinical and pre-clinical testing and commercialization of the Company’s product candidates, if approved, will require significant additional funding. The Company could delay clinical trial activity or reduce funding of specific programs in order to reduce cash needs. Insufficient funds may cause the Company to delay, reduce the scope of or eliminate one or more development, commercialization or expansion activities, including personnel. The Company may raise such funds through debt financings, bank or other loans, through strategic research and development, licensing (including out-licensing) and/or marketing arrangements or through public or private sales of equity or debt securities from time to time. Financing may not be available on acceptable terms, or at all, and failure to raise capital when needed could materially adversely impact the Company’s growth plans and its financial condition or results of operations. Additional equity financing, if available, may be dilutive to future holders of its common stock and may involve significant cash payment obligations and covenants that restrict the Company’s ability to operate its business. The Company may be required to wind down operations if IV meloxicam is not approved or cannot be successfully commercialized.

 

(3)

Summary of Significant Accounting Principles

 

  (a)

Basis of Preparation

The accompanying unaudited combined financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles, or U.S. GAAP, for interim financial information and with the instructions of Form 10-Q and Article 10 of Regulation S-X and, therefore, do not include all of the information and notes required by U.S. GAAP for complete annual financial statements. The Company’s combined financial statements have been prepared on a carve out basis for the Acute Care Business (Note 1). All intercompany accounts and transactions have been eliminated. In the opinion of management, the accompanying combined financial statements include

 

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all normal and recurring adjustments (which consist primarily of accruals, estimates and assumptions that impact the financial statements) considered necessary to present fairly the Company’s results for the interim periods. Operating results for the six months ended June 30, 2019 are not necessarily indicative of the results that may be expected for the full year ending December 31, 2019.

The accompanying unaudited interim combined financial statements should be read in conjunction with the annual audited financial statements and related notes as of and for the year ended December 31, 2018 included herein.

 

  (b)

Use of Estimates

The preparation of financial statements and the notes to the financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from such estimates.

 

  (c)

Property and Equipment

Property and equipment are recorded at cost less accumulated depreciation. Depreciation is computed using the straight-line method over the estimated useful lives of the assets, which are as follows: three to seven years for furniture, office and computer equipment; six to ten years for manufacturing equipment; and the shorter of the lease term or useful life for leasehold improvements. Repairs and maintenance cost are expensed as incurred.

 

  (d)

Business Combinations

In accordance with Financial Accounting Standards Board, or FASB, Accounting Standards Codification, or ASC, Topic 805, “Business Combinations,” or ASC 805, the Company allocates the purchase price of acquired companies to the tangible and intangible assets acquired and liabilities assumed based on their estimated fair values. Valuations are performed to assist in determining the fair values of assets acquired and liabilities assumed, which requires management to make significant estimates and assumptions, in particular with respect to intangible assets and contingent consideration. Management makes estimates of fair value based upon assumptions believed to be reasonable. These estimates are based in part on historical experience and information obtained from management of the acquired companies and expectations of future cash flows. Transaction costs and restructuring costs associated with the transaction are expensed as incurred. In-process research and development, or IPR&D, is the value assigned to those projects for which the related products have not received regulatory approval and have no alternative future use. Determining the portion of the purchase price allocated to IPR&D requires the Company to make significant estimates. In a business combination, the Company capitalizes IPR&D as an intangible asset, and for an asset acquisition the Company expenses IPR&D in the combined statements of operations on the acquisition date.

 

  (e)

Goodwill and Intangible Assets

Goodwill represents the excess of purchase price over the fair value of net assets acquired by the Company (see Note 4). Goodwill is not amortized but assessed for impairment on an annual basis or more frequently if impairment indicators exist. The impairment model prescribes a one-step method for determining impairment.

The one-step quantitative test calculates the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The Company has one reporting unit.

The Company’s intangible asset is classified as an IPR&D asset. Intangible assets related to IPR&D are considered indefinite-lived intangible assets and are assessed for impairment annually or more frequently if impairment indicators exist. If the associated research and development effort is

 

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abandoned, the related assets will be written-off, and the Company will record a noncash impairment loss on its combined statements of operations. For those compounds that reach commercialization, the IPR&D assets will be amortized over their estimated useful lives. The impairment test for indefinite-lived intangible assets is a one-step test, which compares the fair value of the intangible asset to its carrying value. If the carrying value exceeds its fair value, an impairment loss is recognized in an amount equal to the excess.

The Company performs its annual goodwill and indefinite-lived intangible asset impairment test as of November 30th, or whenever an event or change in circumstances occurs that would require reassessment of the recoverability of those assets. In performing the evaluation, the Company assesses qualitative factors such as overall financial performance of its reporting unit, anticipated changes in industry and market conditions, including recent tax reform, and competitive environments. Due to the receipt of the CRL, an indicator of potential impairment, the Company performed an impairment test as of March 31, 2019, which indicated that there was no impairment to goodwill or indefinite-lived intangible assets. There have been no further triggering events as of June 30, 2019. The Company will perform its annual test as of November 30, 2019.

 

  (f)

Research and Development

Research and development costs for the Company’s proprietary products/product candidates are charged to expense as incurred. Research and development expenses consist primarily of funds paid to third parties for the provision of services for pre-commercialization and manufacturing scale-up activities, drug development, clinical trials, statistical analysis and report writing and regulatory filing fees and compliance costs. At the end of the reporting period, the Company compares payments made to third-party service providers to the estimated progress toward completion of the research or development objectives. Such estimates are subject to change as additional information becomes available. Depending on the timing of payments to the service providers and the progress that the Company estimates has been made as a result of the service provided, the Company may record net prepaid or accrued expenses relating to these costs.

Upfront and milestone payments made to third parties who perform research and development services on the Company’s behalf are expensed as services are rendered. Costs incurred in obtaining product technology licenses are charged to research and development expense as acquired IPR&D if the technology licensed has not reached technological feasibility and has no alternative future use.

 

  (g)

Stock-Based Awards

Share-based compensation is based upon the Recro share-based compensation plan. The Recro plan includes grants of stock options, time-based vesting restricted stock units (RSUs) and performance-based vesting RSUs. These carve out financial statements reflect share-based compensation related to stock options and RSUs issued to Acute Care employees as well as an allocation of a portion of share-based compensation issued to corporate employees and members of the Board of Directors.

The Company measures employee stock-based awards at grant-date fair value and recognizes employee compensation expense on a straight-line basis over the vesting period of the award.

Determining the appropriate fair value of stock options requires the input of subjective assumptions, including the expected life of the option and expected stock price volatility. The Company uses the Black-Scholes option pricing model to value its stock option awards. The assumptions used in calculating the fair value of stock-based awards represent management’s best estimates and involve inherent uncertainties and the application of management’s judgment. As a result, if factors change and/or management uses different assumptions, stock-based compensation expense could be materially different for future awards.

The expected life of stock options was estimated using the “simplified method,” as the Company has limited historical information to develop reasonable expectations about future exercise patterns and

 

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post-vesting employment termination behavior for its stock options grants. The simplified method is based on the average of the vesting tranches and the contractual life of each grant. For stock price volatility, the Company uses the historical volatility of our publicly traded stock in order to estimate future stock price trends. The risk-free interest rate is based on U.S. Treasury notes with a term approximating the expected life of the option. The Company has elected to account for forfeitures as they occur.

 

  (h)

Income Taxes

The income tax amounts in these combined financial statements have been calculated based on a separate return methodology and presented as if the Company was a standalone taxpayer in each of its tax jurisdictions. Because of the Company’s history of losses as a standalone entity, a full valuation allowance is recorded against deferred tax assets in all periods presented. Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis, operating losses and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in operations in the period that includes the enactment date. A valuation allowance is recorded to the extent it is more likely than not that some portion or all of the deferred tax assets will not be realized.

Unrecognized income tax benefits represent income tax positions taken on income tax returns that have not been recognized in the combined financial statements. The Company recognizes the benefit of an income tax position only if it is more likely than not (greater than 50%) that the tax position will be sustained upon tax examination, based solely on the technical merits of the tax position. Otherwise, no benefit is recognized. The tax benefits recognized are measured based on the largest benefit that has a greater than 50% likelihood of being realized upon ultimate settlement. The Company does not anticipate significant changes in the amount of unrecognized income tax benefits over the next year.

 

  (i)

Recent Accounting Pronouncements

Recently Adopted Accounting Pronouncements

In June 2018, the FASB issued ASU No. 2018-07, “Compensation – Stock Compensation (Topic 718)” or ASU 2018-07. ASU 2018-07 simplifies the accounting for share-based payments to nonemployees by aligning it with the accounting for share-based payments to employees, with certain exceptions. The new guidance expands the scope of ASC 718 “Compensation – Stock Compensation” to include share-based payments granted to nonemployees in exchange for goods or services used or consumed in an entity’s own operations and supersedes the guidance in ASC 505-50 “Equity-Based Payments to Non-Employees”. The guidance is effective for public business entities in annual periods beginning after December 15, 2018, and interim periods within those annual periods. Early adoption is permitted, including in an interim period for which financial statements have not been issued, but not before an entity adopts ASU 2014-09 “Revenue from Contracts with Customers (Topic 606)”. The Company adopted this guidance effective June 30, 2018. There was no impact upon adoption.

In May 2017, the FASB issued ASU No. 2017-09, “Stock Compensation – Scope of Modification Accounting” or ASU 2017-09. ASU 2017-09 provides guidance on which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. The new standard was effective for fiscal years beginning after December 15, 2017. The Company adopted the guidance effective January 1, 2018. There was no impact upon adoption.

In January 2017, the FASB issued ASU No. 2017-04 “Intangibles – Goodwill and Other (Topic 350): Simplifying the Accounting for Goodwill Impairment,” or ASU 2017-04. ASU 2017-04 allows

 

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companies to apply a one-step quantitative test and record the amount of goodwill impairment as the excess of a reporting unit’s carrying amount over its fair value, not to exceed the total amount of goodwill allocated to the reporting unit. The amendments of the ASU are effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company adopted this guidance as of October 1, 2018 and there was no impact on its combined financial statements.

In February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842),” or ASU 2016-02. ASU 2016-02 establishes a wholesale change to lease accounting and introduces a lease model that brings most leases on the balance sheet. It also eliminates the required use of bright-line tests in current U.S. GAAP for determining lease classification. In July 2018, the FASB issued ASU No. 2018-11, Leases (Topic 842), Targeted Improvements, which provides an alternative transition method permitting the recognition of a cumulative-effect adjustment on the date of adoption rather than restating comparative periods in transition as originally prescribed by Topic 842. The new guidance is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted. The Company adopted this guidance as of January 1, 2019. The Company elected the optional transition method to account for the impact of the adoption with a cumulative-effect adjustment in the period of adoption and did not restate prior periods. The Company opted to elect the package of practical expedients to not reassess prior conclusions related to contracts containing leases, lease classification and initial direct costs, and certain other practical expedients, including the use of hindsight to determine the lease term for existing leases and in assessing impairment of the right-of-use asset, and the exception for short-term leases. For its current classes of underlying assets, the Company did not elect the practical expedient under which the lease components would not be separated from the nonlease components. At January 1, 2019, the Company recorded a right-of-use asset of $1,174 and an operating lease liability of $1,219. For additional information regarding how the Company is accounting for leases under the new guidance, refer to Note 10 (d).

Accounting Pronouncements Not Yet Adopted

In August 2018, the FASB issued ASU 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement,” or ASU 2018-13. ASU 2018-13 removes, modifies and adds certain disclosure requirements in Topic 820 “Fair Value Measurement”. ASU 2018-13 eliminates certain disclosures related to transfers and the valuations process, clarifies the measurement uncertainty disclosure, and requires additional disclosures for Level 3 fair value measurements, including the range and weighted average of significant unobservable inputs used to develop Level 3 fair value measurements. ASU 2018-13 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2019, with early adoption permitted. The Company is currently evaluating the potential impact on its disclosures.

 

(4)

Acquisitions

Gainesville Facility and Meloxicam

On April 10, 2015, Recro completed the Gainesville Transaction. The consideration paid in connection with the Gainesville Transaction consisted of $50,000 cash at closing, a $4,000 working capital adjustment and a seven-year warrant to purchase 350,000 shares of Recro’s common stock at an exercise price of $19.46 per share, according to the original agreement. In addition, according to the original agreement, the Company may be required to pay up to an additional $125,000 in milestone payments including $45,000 upon regulatory approval, as well as net sales milestones related to injectable meloxicam and a percentage of future product net sales related to injectable meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent). Under the acquisition method of accounting, the consideration paid and the fair value of the contingent consideration and royalties are allocated to the fair value of the assets acquired and liabilities assumed. The contingent consideration obligation is remeasured

 

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each reporting date with changes in fair value recognized as a period charge within the statement of operations (see Note 6 for further information regarding fair value).

The assets acquired, including goodwill, and liabilities assumed in the Gainesville Transaction were allocated to the Acute Care Business and CDMO business as of the date of the acquisition. The accompanying financial statements reflect the IPR&D asset of $26,400 and goodwill of $2,127 that were recorded by the Acute Care Business related to the Gainesville transaction. The liability for the contingent consideration will be assumed by the Company following the spin-off and is included in the Company’s Combined Balance Sheets. The warrant associated with the transaction remains on Recro’s Consolidated Balance Sheets with no allocation to the Company as it is a warrant to purchase Recro common stock.

In December 2018, the Company entered into an Amendment to the Purchase and Sale Agreement that restructured the $45,000 milestone to $60,000 therefore increasing the amount the Company may be required to pay Alkermes to $140,000, however, the amendment spread the payments of the development milestone over a seven-year period. In addition, the Company amended the warrant agreement with Alkermes, which decreased the exercise price of the warrant to $8.26 per share.

Based on the amended terms of the Alkermes agreement, the contingent consideration consists of four separate components. The first component is (i) a $5,000 payment made in the first quarter of 2019 and (ii) a $5,000 payment made in the second quarter of 2019. The second components will be payable upon certain regulatory approval and include (i) a $5,000 payment due within 180 days following regulatory approval for IV meloxicam and (ii) $45,000 payable in seven equal annual payments of approximately $6,400 beginning on the first anniversary of such approval. The third component consists of three potential payments, based on the achievement of specified annual revenue targets, the last of which represents over 60% of these milestone payments and currently does not have a fair value assigned to its achievement. The fourth component consists of a royalty payment between 10% and 12% (subject to a 30% reduction when no longer covered by patent) for a defined term on future meloxicam net sales.

The fair value of the second contingent consideration component is estimated by applying a risk-adjusted discount rate to the probability-adjusted contingent payments and the expected approval dates. The fair value of the third contingent consideration component is estimated using the Monte Carlo simulation method and applying a risk-adjusted discount rate to the potential payments resulting from probability-weighted revenue projections based upon the expected revenue target attainment dates. The fair value of the fourth contingent consideration component is estimated by applying a risk-adjusted discount rate to the potential payments resulting from probability-weighted revenue projections and the defined royalty percentage.

These fair values are based on significant inputs not observable in the market, which are referred to in the guidance as Level 3 inputs. The contingent consideration components are classified as liabilities and are subject to the recognition of subsequent changes in fair value through the results of operations.

 

(5)

NMBA Related License Agreement

In June 2017, Recro acquired the exclusive global rights to two novel neuromuscular blocking agents, or NMBAs, and a proprietary reversal agent from Cornell University, or Cornell. The NMBAs and reversal agent are referred to herein as the NMBA Related Compounds. The NMBA Related Compounds include one novel intermediate-acting NMBA that has initiated Phase I clinical trials and two other agents, a novel short-acting NMBA, and a rapid-acting reversal agent specific to these NMBAs. This license agreement is included in the Company’s pipeline product candidates.

The transaction was accounted for as an asset acquisition, with the total cost of the acquisition of $766 allocated to acquired IPR&D. Recro recorded an upfront payment obligation of $350, as well as operational liabilities and acquisition-related costs of $416, primarily consisting of reimbursement to Cornell for specified past patent, legal and pre-clinical costs.

In addition, Recro is obligated to make: (i) an annual license maintenance fee payment until the first commercial sale of the NMBA Related Compounds; and (ii) milestone payments upon the achievement of

 

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certain milestones, up to a maximum, for each NMBA, of $5,000 for U.S. regulatory approval and commercialization milestones and $3,000 for European regulatory approval and commercialization milestones. Recro is also obligated to pay Cornell royalties on net sales of the NMBA Related Compounds at a rate ranging from low to mid-single digits, depending on the applicable NMBA Related Compounds and whether there is a valid patent claim in the applicable country, subject to an annual minimum royalty amount. Further, Recro will reimburse Cornell ongoing patent costs related to prosecution and maintenance of the patents related to the Cornell patents for the NMBA Related Compounds. This obligation will be transferred to the Company in connection with the spin-off.

The Company accounted for the transaction as an asset acquisition based on an evaluation of the accounting guidance (ASC Topic 805) and considered the early clinical stage of the novel and unproven NMBA Related Compounds. The Company concluded that the acquired IPR&D of Cornell did not constitute a business as defined under ASC 805 due to the incomplete nature of the inputs and the absence of processes from a market participant perspective. Substantial additional research and development will be required to develop any NMBA Related Compounds into a commercially viable drug candidate, including completion of pre-clinical testing and clinical trials, and, if such clinical trials are successful, application for regulatory approvals and manufacturing repeatability and scale-up. There is risk that a marketable compound may not be well tolerated and may never be approved.

Acquired IPR&D in the asset acquisition was accounted for in accordance with FASB ASC Topic 730, “Research and Development.” At the date of acquisition, the Company determined that the development of the projects underway at Cornell had not yet reached technological feasibility and that the research in process had no alternative future uses. Accordingly, the acquired IPR&D was charged to expense in the combined statements of operations on the acquisition date. The acquired IPR&D charge is expected to be deductible over a 15-year period for income tax purposes.

 

(6)

Fair Value of Financial Instruments

The Company follows the provisions of FASB ASC Topic 820, “Fair Value Measurements and Disclosures,” for fair value measurement recognition and disclosure purposes for its financial assets and financial liabilities that are remeasured and reported at fair value each reporting period. The Company measures the contingent consideration at fair value on a recurring basis. The Company’s assessment of the significance of a particular input to the fair value measurement requires judgment and may affect the valuation of financial assets and financial liabilities and their placement within the fair value hierarchy. Categorization is based on a three-tier valuation hierarchy, which prioritizes the inputs used in measuring fair value, as follows:

 

   

Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities;

 

   

Level 2: Inputs that are other than quoted prices in active markets for identical assets and liabilities, inputs that are quoted prices for identical or similar assets or liabilities in inactive markets, or other inputs that are either directly or indirectly observable; and

 

   

Level 3: Unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions.

 

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The Company has classified assets and liabilities measured at fair value on a recurring basis as follows:

 

     Fair value measurements at reporting date using  
    

Quoted prices in
active markets
for identical
assets

(Level 1)

    

Significant
other
observable
inputs

(Level 2)

    

Significant
unobservable
inputs

(Level 3)

 

At December 31, 2018:

        

Liabilities:

        

Contingent consideration (See Note 4)

     $                     —          $             —          $             90,912    
  

 

 

    

 

 

    

 

 

 
     $ —          $ —          $ 90,912    
  

 

 

    

 

 

    

 

 

 

At June 30, 2019:

        

Liabilities:

        

Contingent consideration (See Note 4)

     $ —          $ —          $ 61,762    
  

 

 

    

 

 

    

 

 

 
     $ —          $ —          $ 61,762    
  

 

 

    

 

 

    

 

 

 

The reconciliation of the contingent consideration measured at fair value on a recurring basis using unobservable inputs (Level 3) is as follows:

 

      Contingent Consideration   

Balance at December 31, 2018

     $ 90,912    

Payment of contingent consideration

     (10,000)    

Remeasurement

     (19,150)    
  

 

 

 

Total at June 30, 2019

     $ 61,762    
  

 

 

 

Current portion as of June 30, 2019

     $ —    

Long-term portion as of June 30, 2019

     $ 61,762    

The current portion of the contingent consideration approximates the probability adjusted fair value amount that the Company currently expects to become payable within one year as of June 30, 2019 (see Note 4 for additional information). The Company plans to continue to reevaluate this classification and measurement as it progresses through discussions with the FDA and appeals process regarding IV meloxicam.

The Company follows the disclosure provisions of FASB ASC Topic 825, “Financial Instruments” (ASC 825), for disclosure purposes for financial assets and financial liabilities that are not measured at fair value. As of June 30, 2019, the financial assets and liabilities recorded on the Combined Balance Sheets that are not measured at fair value on a recurring basis include accounts payable and accrued expenses, which approximate fair value due to the short-term nature of these instruments.

 

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(7)

Property, Plant and Equipment

Property, plant and equipment consists of the following:

 

         June 30, 2019              December 31, 2018      

Building and improvements

     $ 196          $ 196    

Furniture, office and computer equipment

     1,671          1,688    

Manufacturing equipment

     101          101    

Construction in progress

     3,814          2,469    
  

 

 

    

 

 

 
     5,782          4,454    

Less: accumulated depreciation and amortization

     691          472    
  

 

 

    

 

 

 

Property, plant and equipment, net

     $ 5,091          $ 3,982    
  

 

 

    

 

 

 

Depreciation expense for the six months ended June 30, 2019 and 2018 was $246 and $112, respectively.

 

(8)

Intangible Assets

The following represents the balance of the intangible asset at June 30, 2019 and 2018:

 

     Cost  

In-process research and development

     $             26,400    
  

 

 

 

Total

     $ 26,400    
  

 

 

 

There was no amortization expense for the six months ended June 30, 2019 and 2018.

 

(9)

Accrued Expenses and Other Current Liabilities

Accrued expenses and other current liabilities consist of the following:

 

     June 30,
2019
     December 31,
2018
 

Clinical trial and related costs

     $ 124          $ 683    

Professional and consulting fees

     813          671    

Accrued restructuring costs

     1,836          —    

Payroll and related costs

     1,126          2,172    

Property plant and equipment

     —          278    

Pre-commercialization scale-up costs

     —          4,445    

Other research and development costs

     205          678    

Other

     129          846    
  

 

 

    

 

 

 
     $               4,233          $                 9,773    
  

 

 

    

 

 

 

After receipt of the second CRL, the Company incurred approximately $7,200 in restructuring costs, of which $1,836 remains accrued and unpaid as of June 30, 2019.

 

(10)

Commitments and Contingencies

 

  (a)

Licenses and Supply Agreements

Recro is party to an exclusive license with Orion for the development and commercialization of Dexmedetomidine for use in the treatment of pain in humans in any dosage form for transdermal, transmucosal (including sublingual and intranasal), topical, enteral or pulmonary (inhalational) delivery, but specifically excluding delivery vehicles for administration by injection or infusion,

 

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worldwide, except for Europe, Turkey and the CIS (currently includes Armenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan), referred to herein as the Territory. Recro is required to pay Orion lump sum payments of up to €20,500 ($23,301 as of June 30, 2019) on the achievement of certain developmental and commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 20% depending on annual sales levels. Through June 30, 2019, no such milestones have been achieved.

Recro is also party to an exclusive license agreement with Orion for the development and commercialization of Fadolmidine for use as a human therapeutic, in any dosage form in the Territory. Recro is required to pay Orion lump sum payments of up to €12,200 ($13,867 as of June 30, 2019) on achievement of certain developmental and commercial milestones, as well as a royalty on net sales during the term, which varies from 10% to 15% depending on annual sales levels. Through June 30, 2019, no such milestones have been achieved.

Recro is party to a license agreement with Cornell for the exclusive license of the NMBA Related Compounds. Under the terms of the agreement, the Company will pay Cornell an initial upfront fee and Cornell is also entitled to receive additional milestone payments, annual license maintenance fees as well as royalties. See Note 5 for further information regarding these payment obligations.

These obligations will be transferred to the Company in connection with the spin-off.

 

  (b)

Contingent Consideration for the Gainesville Transaction

Pursuant to the purchase and sale agreement and subsequent amendment governing the Gainesville Transaction, the Company agreed to pay to Alkermes up to an additional $140,000 in milestone payments including $50,000 upon regulatory approval payable over a seven-year period, as well as net sales milestones related to injectable meloxicam and royalties on future product sales of injectable meloxicam between 10% and 12% (subject to a 30% reduction when no longer covered by patent). As of June 30, 2019, the Company has paid $10,000 in milestone payments to Alkermes.

Recro is party to a Development, Manufacturing and Supply Agreement, or Supply Agreement, with Alkermes (through a subsidiary of Alkermes), that will be assumed by the Company following the spin-off pursuant to which Alkermes will (i) provide clinical and commercial bulk supplies of injectable meloxicam formulation and (ii) provide development services with respect to the Chemistry, Manufacturing and Controls section of an NDA for injectable meloxicam. Pursuant to the Supply Agreement, Alkermes will supply the Company with such quantities of bulk injectable meloxicam formulation as shall be reasonably required for the completion of clinical trials of injectable meloxicam. During the term of the Supply Agreement, the Company will purchase its clinical and commercial supplies of bulk injectable meloxicam formulation exclusively from Alkermes, subject to certain exceptions, for a period of time.

 

  (c)

Litigation

The Company is involved, from time to time, in various claims and legal proceedings arising in the ordinary course of its business. Except as disclosed below, the Company is not currently a party to any such claims or proceedings that, if decided adversely to it, would either individually or in the aggregate have a material adverse effect on its business, financial condition or results of operations.

On May 31, 2018, a securities class action lawsuit was filed against Recro and certain of its officers and directors in the U.S. District Court for the Eastern District of Pennsylvania (Case No. 2:18-cv-02279-MMB) that purported to state a claim for alleged violations of Section 10(b) and 20(a) of the Exchange Act and Rule 10(b)(5) promulgated thereunder, based on statements made by Recro concerning the NDA for IV meloxicam. The complaint seeks unspecified damages, interest, attorneys’ fees and other costs. On December 10, 2018, lead plaintiff filed an amended complaint that asserted the same claims and sought the same relief but included new allegations and named

 

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additional officers and directors as defendants. On February 8, 2019, Recro filed a motion to dismiss the amended complaint in its entirety, which the lead plaintiff opposed on April 9, 2019. On May 9, 2019, Recro filed its response and briefing was completed on the motion to dismiss. On June 26, 2019, the judge heard oral arguments on the motion to dismiss. The judge asked the plaintiffs to file a supplemental brief by August 30, 2019, and Recro will have 30 days to submit a reply brief. Recro and the Company believe that the lawsuit is without merit and intends to vigorously defend against it. The lawsuit is in the early stages and, at this time, no assessment can be made as to its likely outcome or whether the outcome will be material to the Company and Recro.

 

  (d)

Leases

The Company is a party to various operating leases in Malvern, Pennsylvania and Dublin, Ireland for office space and office equipment.

The Company determines if an arrangement is a lease at inception. The arrangement is a lease if it conveys the right to the Company to control the use of identified property, plant, or equipment for a period of time in exchange for consideration. Lease terms vary based on the nature of operations, however, all leased facilities are classified as operating leases with remaining lease terms between 1 and 4 years. Most leases contain specific renewal options where notice to renew must be provided in advance of lease expiration or automatic renewals where no advance notice is required. Periods covered by an option to extend the lease were included in the non-cancellable lease term when exercise of the option was determined to be reasonably certain. Costs determined to be variable and not based on an index or rate were not included in the measurement of operating lease liabilities. As most leases do not provide an implicit rate, Recro’s effective interest rate was used to discount its lease liabilities.

The Company’s leases with an initial term of 12 months or less that do not have a purchase option or extension that is reasonably certain to be exercised are not included in the right of use asset or lease liability on the Combined Balance Sheets. Lease expense is recognized on a straight-line basis over the lease term.

As of June 30, 2019, undiscounted future lease payments for non-cancellable operating leases are as follows:

 

     Lease
    payments    
 

2019

     $ 244      

2020

     403      

2021

     362      

2022

     374      
  

 

 

 

Total lease payments

     1,383      

Less imputed interest

     (396)      
  

 

 

 

Total operating liabilities

     $ 987      
  

 

 

 

As of December 31, 2018, under legacy ASC 840 “Leases”, undiscounted future lease payments for non-cancellable operating leases were as follows:

 

2019

     $ 517      

2020

     414      

2021

     367      

2022

     373      
  

 

 

 

Total

     $             1,671      
  

 

 

 

 

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For the six months ended June 30, 2019, the weighted average remaining lease term was 3 years and the weighted average discount rate was 16%.

The components of the Company’s lease cost were as follows for the six months ended June 30, 2019:

 

Operating lease cost

     $             242      

Short-term lease cost

     14      
  

 

 

 

Total lease cost

     $ 256      
  

 

 

 

 

  (e)

Purchase Commitments

As of June 30, 2019, the Company had outstanding non-cancelable and cancelable purchase commitments in the aggregate amount of $4,609 related to capital expenditures and other goods and services, including pre-commercial/manufacturing scale-up and clinical activities. The timing of certain purchase commitments cannot be estimated as it is dependent on timing of FDA approval or the outcome of other strategic evaluations.

 

  (f)

Certain Compensation and Employment Agreements

The Company has entered into employment agreements with certain of its named executive officers. As of June 30, 2019, these employment agreements provided for, among other things, annual base salaries in an aggregate amount of not less than $925, from that date through March 2020, which represents the allocated portion to the Company.

 

(11)

Stock-Based Compensation

Certain employees of the Company participate in Recro’s stock-based compensation plan, which provides for the grants of stock options and RSUs. The expense associated with the Company’s employees who participate in the plan is included in the accompanying combined statements of operations. A portion of these costs have been allocated out of the Company as they relate to employees responsible for corporate level activities that historically were incurred by the entity that represents the Company. Additionally, the entity that represents the Company historically incurred the costs related to the board of directors, which has also been partially allocated out of the Company.

In October 2013, Recro established the 2013 Equity Incentive Plan, or the 2013 Plan, which allows for the grant of stock options, stock appreciation rights and stock awards for a total of 600,000 shares of common stock. In June 2015, Recro’s shareholders approved the Amended and Restated Equity Incentive Plan, or the A&R Plan, which amended and restated the 2013 Plan and increased the aggregate amount of shares available for issuance to 2,000,000. On December 1st of each year, pursuant to the “Evergreen” provision of the A&R Plan, the number of shares available under the plan may be increased by the Recro Board by an amount equal to 5% of the outstanding common stock on December 1st of that year. In December 2018 and 2017 the number of shares available for issuance under the A&R Plan was increased by 1,082,972 and 956,341, respectively. The total number of shares authorized for issuance under the A&R plan as of June 30, 2019 is 8,119,709.

Stock options are exercisable generally for a period of 10 years from the date of grant and generally vest over four years. As of June 30, 2019, 2,666,387 shares are available for future grants under Recro’s A&R Plan.

All shares described herein represent shares of Recro. The share information included in this disclosure includes 100% of the shares issued to Acute Care Business employees, corporate employees and Board members of Recro; however, a portion of the expenses related to the corporate employees and Board members of Recro have been allocated out of share-based compensation expense in these carve out financial statements using an allocation methodology similar to the allocation methodology used to allocate cash compensation expense.

 

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The weighted average grant-date fair value of the options awarded to employees for the six months ended June 30, 2019 and 2018 was $5.53 and $6.18, respectively. The fair value of the options was estimated on the date of grant using a Black-Scholes option pricing model with the following assumptions:

 

     June 30,
                 2019                            2018            

Range of expected option life

   5.5 - 6 years    5.5 - 6 years

Expected volatility

   79.11% - 81.54%    73.26% - 82.00%

Risk-free interest rate

   2.23 – 2.66%    2.32 – 2.89%

Expected dividend yield

     

The following table summarizes stock option activity during the six months ended June 30, 2019:

 

         Number of    
    shares    
     Weighted
average
exercise
  price per share  
     Weighted
average
remaining
  contractual life  
 

Balance, December 31, 2018

     3,092,606            $ 7.32            7.3 years  

Granted

     1,094,756            $ 7.95         

Exercised

     (235,823)            $ 8.93         

Expired/forfeited/cancelled

     (637,376)            $ 7.84         
  

 

 

       

Balance, June 30, 2019

     3,314,163            $ 7.62            6.9 years  
  

 

 

       

Vested

     2,027,552            $ 7.30            5.7 years  

Vested and expected to vest

     3,314,163            $ 7.62            6.9 years  

Included in the table above are 594,820 options outstanding as of June 30, 2019 that were granted outside the plan. The grants were made pursuant to the NASDAQ inducement grant exception in accordance with NASDAQ Listing Rule 5635(c)(4).

As a result of the Company’s reduction in workforce announced in April 2019, the Company cancelled approximately 600,000 unvested stock options upon termination, which are reflected in the table above. The Company expects an additional approximately 300,000 shares related to stock options to be affected in which the shares will be cancelled if not exercised within the exercisable period in the termination agreements.

The following table summarizes restricted stock units activity during the six months ended June 30, 2019:

 

         Number of shares      

Balance, December 31, 2018

     981,453      
  

 

 

 

Granted

     664,210      

Vested and settled

     (408,343)      

Expired/forfeited/cancelled

     (431,586)      
  

 

 

 

Balance, June 30, 2019

     805,734      
  

 

 

 

Expected to vest

     554,534      

Included in the table above are 25,500 time-based RSUs outstanding as of June 30, 2019 that were granted outside the plan. The grants were made pursuant to the NASDAQ inducement grant exception in accordance with NASDAQ Listing Rule 5635(c)(4).

 

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As a result of the Company’s reduction in workforce announced in April 2019, the Company cancelled approximately 300,000 shares related to RSUs upon termination, which is reflected in the table above.

Stock-based compensation expense related to the employees of the Company for the six months ended June 30, 2019 and 2018, net of allocations, was $3,202 and $2,102, respectively.

As of June 30, 2019, net of allocations, there was $8,646 of unrecognized compensation expense related to unvested options and time-based RSUs that are expected to vest and will be expensed over a weighted average period of 2.2 years. As of June 30, 2019, net of allocations, there was $1,621 of unrecognized compensation expense related to unvested performance-based RSUs and will be expensed if the performance criteria are met.

The aggregate intrinsic value represents the total amount by which the fair value of the common stock subject to options exceeds the exercise price of the related options. As of June 30, 2019, the aggregate intrinsic value of the vested and unvested options was $5,980 and $2,657, respectively.

 

(12)

Related Party Transactions

A Non-Executive Director of the Company’s Irish subsidiary is a Managing Director and a majority shareholder of HiTech Health Ltd, or HiTech Health, a consultancy firm for the biotech, pharmaceutical and medical device industry. Since 2016, HiTech Health has provided the Company with certain consulting services and in November 2017 both parties entered into a Service Agreement to engage in both regulatory and supply chain project support and consultancy. In consideration for such services, the Company recorded $104 and $253, in consideration for such services, respectively. A portion of the amount relates to consultancy services provided by the Non-Executive Director.

 

(13)

Retirement Plan

The Company has a voluntary 401(k) Savings Plan (the 401(k) Plan) in which all employees are eligible to participate. The Company’s policy is to match 100% of the employee contributions up to a maximum of 5% of employee compensation. Total Company contributions to the 401(k) plan for the six months ended June 30, 2019 and 2018 were $236 and $274, respectively.

 

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