Common use of Reduction of Royalties Clause in Contracts

Reduction of Royalties. (a) [*] the royalties payable under Section 7.1 above shall be reduced for a given quarter in the event that such Product has a combined COGS and royalty payment (without taking into account any credits), expressed as a percentage of P&U Sales, that exceeds [*] of the P&U Sales of such Product for such quarter, as follows: COGS + Royalty Royalty Rate Reduction -------------- ---------------------- [*] [*] [*] [*] [*] [*] provided, however, that in no event shall the royalty due Geron be reduced by the terms of this Section 7.4 to below [*]. Any such royalty reduction for any calendar quarter shall be effective only to the extent P&U delivers to Geron a written notice that specifies in reasonable detail P&U's calculation of COGS, including, without limitation, a breakdown of the major line items making up the COGS (the "Royalty Reduction Notice"). The Royalty Reduction Notice shall be sent to Geron along with the written account specified in Section 7.6 herein. For each quarter in which the Royalty Reduction Notice is delivered to Gero▇, ▇▇▇▇▇ ▇▇▇ll be entitled to have an independent accounting firm selected by Geron and reasonably acceptable to P&U inspect P&U's accounting records for the purpose of commenting on P&U's accounting practices * Certain portions of this Exhibit have been omitted for which confidential treatment has been requested and filed separately with the Securities and Exchange Commission. for the determination of COGS. P&U shall allow the firm to review the COGS specified in Royalty Reduction Notice against P&U's accounting records and shall reasonably cooperate with such review. All information received from P&U in connection with the inspection and review shall be considered Confidential Information under the terms of this Agreement. In the event the independent accounting firm determines that the COGS reported in the Royalty Reduction Notice does not reflect the COGS reported in P&U's accounting records, Geron shall promptly notify P&U [*]. In the event the parties are unable to agree on a COGS determination, then the matter shall be submitted to arbitration in accordance with Section 19.10. In the event that it is ultimately determined that P&U overstated COGS in the Royalty Reduction Notice, P&U shall pay to Geron an amount equal to the royalty amounts not paid to Geron as a result of the Royalty Reduction Notice, [*] of such underpayments and the costs related to such audit. Such rights of inspection and review shall be subject to the notice and records retention limitations set forth in Section 7.10. (b) In the event royalties are reduced pursuant to Section 7.4(a) for [*] Geron shall have the right to engage an independent consultant reasonably acceptable to P&U to review P&U's manufacturing processes and other elements of COGS. The independent consultant shall have reasonable access to all aspects of P&U's manufacturing process and other aspects of P&U's operations that are relevant to COGS, including the ability to inspect the manufacturing facilities, to review manufacturing documentation and to meet and interview manufacturing personnel. P&U shall provide reasonable assistance to the independent consultant * Certain portions of this Exhibit have been omitted for which confidential treatment has been requested and filed separately with the Securities and Exchange Commission. 36 and all information received in connection with the review shall be considered Confidential Information under the terms of this Agreement. Upon completion of the review, the independent consultant shall provide a written report to both parties that (i) assesses P&U's manufacturing processes and other elements of COGS against prevailing industry comparative measures and (ii) provides recommendations for reducing COGS. The parties agree to meet and discuss the report and to consider in good faith all recommendations for reducing COGS contained therein. The inspection and review rights of Geron set forth in this Section 7.4 shall apply to P&U and any contract manufacturer engaged by P&U, and P&U will use reasonable diligent efforts to secure such rights for Geron in the event KH manufactures Products for P&U pursuant to the Three-Way Agreement.