Contingent
Cash Consideration Agreements
Pursuant
to the Merger Agreement, prior to the Offer Closing, Endo will enter into two
separate agreements with American Stock Transfer & Trust Company (the "Paying
Agent"), for the purpose of establishing the terms, policies and
procedures by which those stockholders entitled to any of the Contingent Cash
Consideration Payments (as defined below) will be paid.
In
accordance with 21 C.F.R. Part 314, and all supplements filed pursuant to the
requirements of the U.S. Food and Drug Administration (the "FDA"), Indevus
intends to file certain new drug applications for the right to market and sell
(i) a certain octreotide implant currently under development for the treatment
of acromegaly and carcinoid syndrome, which is a soft, flexible 6-month hydrogel
implant based on the patented HYDRON Polymer Technology that delivers
octreotide, a somatostatin analogue (such octreotide implant, "Octreotide" and
such new drug application, the "Octreotide NDA") and (ii) a certain long-acting
intramuscular depot injection of testosterone undecanoate currently under
development for the treatment of male hypogonadism (such injection, "NEBIDO®"
and such new drug application, the " NEBIDO® NDA" or, together with the
Octreotide NDA, the "NDAs").
In the
event that Indevus receives an approval letter from the FDA with respect to the
NEBIDO® NDA on or before the third anniversary of the time at which we purchase
Shares in the Offer (such time, the "Offer Closing"), then Purchaser will,
subject to the terms described below, (i) pay an additional $2.00 per Share to
stockholders of Indevus whose Shares are accepted for payment in connection with
the Offer, if such approval letter grants the right to market and sell NEBIDO®
immediately and provides labeling for NEBIDO® that does not contain a "boxed
warning" (as defined in 21 C.F.R. 201.57(c)(1)) (such approval letter, the
"NEBIDO® With Label Approval" and such payment, the "NEBIDO® With Label Approval
Contingent Cash Consideration Payment") or alternatively, (ii) pay an additional
$1.00 per Share to stockholders of Indevus whose Shares are accepted for payment
in connection with the Offer, if such approval letter grants the right to market
and sell NEBIDO® immediately and provides labeling for NEBIDO® that contains a
"boxed warning" (as defined in 21 C.F.R. 201.57(c)(1)) (such approval letter,
the "NEBIDO® Without Label Approval" and such payment, the "NEBIDO® Without
Label Contingent Cash Consideration Payment"). In the event that either a
NEBIDO® With Label Approval or a NEBIDO® Without Label Approval has not been
obtained prior to the third anniversary of the Effective Time, then Purchaser
will not pay, and tendering stockholders shall not receive, the NEBIDO® With
Label Contingent Cash Consideration Payment or the NEBIDO® Without Label
Contingent Cash Consideration Payment, as applicable.
A boxed
warning is ordinarily used to highlight for prescribers one of the following
situations: (1) there is an adverse reaction so serious in proportion to the
potential benefit from the drug (e.g., a fatal, life-threatening or permanently
disabling adverse reaction) that it is essential that it be considered in
assessing the risks and benefits of using a drug, (2) there is a serious adverse
reaction that can be prevented or reduced in frequency or severity by
appropriate use of the drug (e.g., patient selection, careful monitoring,
avoiding certain concomitant therapy, addition of another drug or managing
patients in a specific manner, avoiding use in a specific clinical situation),
or (3) the FDA approved the drug with restrictions to assure safe use because
the FDA concluded that the drug can be safely used only if distribution or use
is restricted. A boxed warning can also be used in other situations to highlight
warning information that is especially important to the prescriber.
Further,
in the event that the NEBIDO® Without Label Approval is received and
subsequently, Endo and its subsidiaries publicly report audited financial
statements which reflect that Net Sales (as defined below) of NEBIDO® of at
least $125,000,000, on or prior to the fifth anniversary of the date of the
first commercial sale of NEBIDO® (such event, the "NEBIDO® Net Sales Event"),
then Purchaser will, subject to the terms described below, pay an additional
$1.00 per Share to stockholders of Indevus whose Shares are accepted for payment
in connection with the Offer (such payment, the "NEBIDO® Net Sales Contingent
Cash Consideration Payment" and, together with the NEBIDO® Without Label
Approval Contingent Cash Consideration Payment, the NEBIDO® With Label Approval
Contingent Cash Consideration Payment and the Ocreotide Contingent Cash
Consideration Payment, the "Contingent Cash Consideration Payments"). In the
event that the NEBIDO® Net Sales Event does not occur prior to the fifth
anniversary of the date of the first commercial sale of NEBIDO® then Purchaser
will not pay, and tendering stockholders shall not receive, the NEBIDO® Net
Sales Contingent Cash Consideration Payment.
"Net
Sales" means, with respect to NEBIDO®, the gross amount invoiced by or on behalf
of Endo or its affiliates, licensees or sublicensees for NEBIDO® sold to third
parties other than licensees or sublicensees in bona fide, arm's-length
transactions, less the following deductions, determined in accordance with
Endo's standard accounting methods as generally and consistently applied by
Endo, to the extent included in the gross invoiced sales price of the product or
otherwise directly paid or incurred by Endo, its affiliates, licensees or
sublicensees acting on its behalf with respect to the sale of such
product:
(1) normal
and customary trade and quantity discounts actually allowed and properly taken
directly with respect to sales of the product;
(2) amounts
repaid or credited by reasons of defects, recalls, returns, rebates and
allowances of goods or because of retroactive price reductions specifically
identifiable to the product;
(3) chargebacks,
rebates (or the equivalent thereof) and other amounts paid on sale or dispensing
of the product;
(4) rebates
(or the equivalent thereof) and administrative fees paid to medical healthcare
organizations, to group purchasing organizations or to trade customers in line
with approved contract terms or other normal and customary understandings and
arrangements;
(5) amounts
payable resulting from governmental (or agency thereof) mandated rebate programs
or chargeback programs;
(6) tariffs,
duties, excise, sales, value-added and other taxes (other than taxes based on
income) and charges of Governmental Authorities;
(7) cash
discounts for timely payment;
(8) rebates
paid to wholesalers for inventory management programs;
(9) amounts
repaid or credited or provisions made for uncollectible amounts on previously
sold products; and
(10) required
distribution commissions and fees (such as fees related to services provided
pursuant to distribution service agreements with major wholesalers) payable to
any third party providing distribution services to Endo so long as such
commissions and fees are consistent with the distribution commissions and fees
payable in respect to other branded prescription products commercialized by
Endo;
all as
determined in accordance with Endo's usual and customary accounting methods,
which shall be in accordance with U.S. Generally Accepted Accounting Principles;
or in accordance with International Financial Reporting Standards "IFRS", should
Endo be required to, or elect to maintain records and books of accounts in
accordance with IFRS. Sales from Endo to it's affiliates, licensees or
sublicensees shall be disregarded for purposes of calculating Net Sales. Any of
the items set forth above that would otherwise be deducted from the invoice
price in the calculation of Net Sales but which are charged to third parties
shall not be deducted from the invoice price in the calculation of Net Sales.
Further: (1) In the case of any sale or other disposal of a product between or
among Endo and its affiliates, licensees and sublicensees, for resale, Net Sales
shall be calculated as above only on the value charged or invoiced on the first
arm's-length sale thereafter to a third party; (2) In the case of any sale which
is not invoiced or is delivered before invoice, Net Sales shall be calculated at
the time of shipment or when the product is paid for, if paid for before
shipment or invoice; and (3) In the case of any sale or other disposal for
value, such as barter or counter-trade, of any product, or part thereof, other
than in an arm's-length transaction exclusively for money and excluding any
patient assistance programs, Net Sales shall be calculated as above on the value
of the non-cash consideration received or the fair market price (if higher) of
the product in the country of sale or disposal.
Endo has
agreed to deposit $175,000,000 in cash with a paying agent pursuant to the terms
of the NEBIDO® Contingent Cash Consideration Agreement, which amount is equal to
the aggregate amount payable to Indevus stockholders if the NEBIDO® approval is
obtained and is not subject to a "boxed warning" label (described above) by the
FDA, and will be paid to the Indevus stockholders under the terms of the NEBIDO®
Contingent Cash Consideration Agreement.
Similarly,
in the event that an approval letter from the FDA is received with respect to
the Octreotide NDA (such approval letter, the "Octreotide Approval") on or
before the fourth anniversary of the Offer Closing, then Purchaser will, subject
to the terms described below, pay an additional $1.00 per Share to stockholders
of Indevus whose Shares are accepted for payment in connection with the Offer
(such payment, the "Octreotide Contingent Cash Consideration Payment"). In the
event that an Octreotide Approval has not been obtained prior to the fourth
anniversary of the Offer Closing, then Purchaser will not pay, and tendering
stockholders shall not receive, the Octreotide Contingent Cash Consideration
Payment.
Pursuant
to the Nebido Contingent Cash Consideration Agreement, within five business days
of the NEBIDO® With-Label Approval, the NEBIDO® Without-Label Approval or
NEBIDO® Net Sales Event, as applicable, Endo will provide the Paying Agent with
a certificate stating that such approval or event has occurred and the payment
date with respect on which such Contingent Cash Consideration Payment shall be
made, which shall be within five business days of the date of such certificate.
The Paying Agent will pay the applicable Contingent Cash Consideration Payment
to the stockholders who tendered their Shares in the Offer or who are entitled
to receive the Merger Consideration (as defined in the Merger Agreement) on the
payment date specified in the certificate. Such Contingent Cash Consideration
Payment will be equal to (i) $2.00, in the case of the NEBIDO® With Label
Approval, (ii) $1.00, in the case of the NEBIDO® Without Label Approval or (iii)
$1.00, in the case of the NEBIDO® Net Sales Event. Endo has agreed to deposit
$175,000,000 in cash with a paying agent pursuant to the terms of the NEBIDO®
Contingent Cash Consideration Agreement, which amount is equal to the aggregate
amount payable to Indevus stockholders if the NEBIDO® approval is obtained and
is not subject to a "boxed warning" label (described above) by the FDA, and will
be paid to the Indevus stockholders under the terms of the NEBIDO® Contingent
Cash Consideration Agreement. The foregoing summary is qualified in its entirety
by reference to the complete text of the form of NEBIDO® Contingent Cash
Consideration Agreement, which is attached hereto as Exhibit 10.3, and which is
incorporated herein by reference.
Pursuant
to the Octreotide Contingent Cash Consideration Agreement, within five business
days of the Octreotide Approval, Endo will provide the Paying Agent with a
certificate stating that such approval or event has occurred and the payment
date with respect on which the applicable $1.00 Contingent Cash Consideration
Payment shall be made, which shall be within five business days of the date of
such certificate. The Paying Agent will pay the $1.00 Contingent Cash
Consideration Payment to the stockholders who tendered their Shares in the Offer
or who are entitled to receive the Merger Consideration (as defined in the
Merger Agreement) on the payment date specified in the certificate. The
foregoing summary is qualified in its entirety by reference to the complete text
of the form of Octreotide Contingent Cash Consideration Agreement, which is
attached hereto as 10.4, and which is incorporated herein by
reference.