Exhibit 10.1

 

CERTAIN CONFIDENTIAL PORTIONS OF THIS EXHIBIT HAVE BEEN OMITTED AND REPLACED
WITH “[***]”. SUCH IDENTIFIED INFORMATION HAS BEEN EXCLUDED FROM THIS EXHIBIT
BECAUSE IT IS (I) NOT MATERIAL AND (II) WOULD LIKELY CAUSE COMPETITIVE HARM TO
THE COMPANY IF DISCLOSED.

 

 

SUPPLY AGREEMENT

This SUPPLY AGREEMENT (the “Agreement”) dated August 15, 2020 (the “Effective
Date”), is between West Pharmaceutical Services, Inc., a Pennsylvania
corporation with an address at 530 Herman O. West Drive, Exton, Pennsylvania
19341 on behalf of itself and its Affiliates ("West"), and scPharmaceuticals
Inc., a Delaware corporation with an address at 2400 District Avenue, Suite 310,
Burlington, MA 01803 ("Customer”).  

Customer desires to purchase from West, and West desires to sell to Customer,
the items listed on Exhibit A hereto (the “Product”) on the terms and subject to
the conditions set forth below.  

Accordingly, the parties hereto, intending to be legally bound, agree as
follows:

 

1.

Definitions. As used herein, the following terms will have the following
meanings:

 

a.

“Affiliate” has the meaning set forth in Section 2(f).

 

b.

“Agreement” has the meaning set forth in the Preamble.

 

c.

“Applicable Laws” means all relevant federal, state, local, and foreign laws,
statutes, rules, regulations, and ordinances and industry standards and
guidelines as in effect on the Effective Date or adopted thereafter and which
are applicable to a party’s activities hereunder, including, without limitation,
all applicable cGMPs together with amendments thereto.

 

d.

“cGMP” means the current good manufacturing practices, including the regulations
promulgated by the FDA under the U.S. Federal Food, Drug, and Cosmetic Act, 21
C.F.R. Part 820, as amended from time to time.

 

e.

“Claims” has the meaning set forth in Section 15(a).

 

f.

“Combination Product” means a product comprised of the Customer Drug Product
plus the Product.  

 

g.

“Confidential Information” has the meaning set forth in Section 22(a).

 

h.

“Customer” has the meaning set forth in the Preamble.

 

i.

“Customer Drug Product” means Customer’s proprietary formulation of the drug
product Furosemide.

 

j.

“Effective Date” has the meaning set forth in in the Preamble.

 

k.

“Facility” means West’s manufacturing plant located at Scottsdale, AZ or any
other manufacturing plant mutually agreed to by the parties to be used by West
to manufacture the Product.

 

l.

“FDA” means the U.S. Food and Drug Administration or any successor entity
thereto.

 

m.

“Force Majeure” has the meaning set forth in Section 12.

 

n.

“Indemnitee” has the meaning set forth in Section 15(a).

 

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o.

“Indemnitor” has the meaning set forth in Section 15(a).

 

p.

“Initial Term” has the meaning set forth in Section 3.

 

q.

“Latent Defect” means a defect that causes a Product to fail to conform to the
Product Warranty, which is not discoverable upon the inspection which (a)
Customer would have been expected to carry out in its ordinary course of
business upon delivery of such Product or (b) Customer is required to conduct,
as mutually agreed to by the parties in writing, but in each case that is
discovered at a later time.

 

r.

“Losses” has the meaning set forth in Section 15(a).

 

s.

“"MPP” has the meaning set forth in Section 2(d).

 

t.

“Nonconforming Product” means Product that does not conform to the Product
Warranty.

 

u.

“"Partners” has the meaning set forth in Section 22(j).

 

v.

“Principals” has the meaning set forth in Section 16.

 

w.

“Product” has the meaning set forth in the recitals.

 

x.

“Production Capacity” has the meaning set forth in Section 2(d).

 

y.

“Product Specifications” means specifications specifically agreed to by West and
Customer contained or referred to in specification document number 19559012.

 

z.

“Product Warranty” has the meaning set forth in Section 14(c).

 

aa.

“Purchase Requirement” has the meaning set forth in Section 2(b).

 

bb.

“Quality Agreement” has the meaning set forth in Section 2(g).

 

cc.

“Records” has the meaning set forth in Section 17(a).

 

dd.

“Renewal Term” has the meaning set forth in Section 3.

 

ee.

“"Representatives” has the meaning set forth in Section 22(b).

 

ff.

“Term” has the meaning set forth in Section 3.

 

gg.

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

 

hh.

“West” has the meaning set forth in the Preamble.

 

2.

Commitment to Sell and Purchase Product.  

 

a.

Supply of Product. During the Term of this Agreement, West will manufacture the
Product in accordance with the terms and conditions of this Agreement, the
Quality Agreement and the Product Specifications and in compliance with
Applicable Laws, and Customer will purchase from West such Product, subject to
the terms and conditions of this Agreement.   The geographic territory of this
Agreement (including for the sake of clarity Customer’s distribution, sale, or
transfer for subsequent resale of the Combination Product) is limited to the
U.S. unless the parties mutually agree via an amendment to this Agreement to
expand the geographic territory.

 

b.

Requirements.  West will sell to Customer, and Customer will purchase from West,
one hundred percent (100%) of Customer’s U.S. requirements of the Product for
use in delivering the Customer Drug Product (the “Purchase Requirement”) in
accordance with the terms and subject to the conditions of this Agreement,
including the Exhibits hereto.  For clarity,

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nothing is this Agreement will restrict Customer from manufacturing products
and/or purchasing products from third parties for use with the Customer Drug
Product that perform the same or substantially the same function as the Product.

 

c.

Facility.  West will manufacture the Product at its Scottsdale, AZ manufacturing
plant.  Customer will permit West to manufacture Product at other West
manufacturing plant(s), subject to such other manufacturing plant(s)’ satisfying
the quality and regulatory obligations imposed herein. In the event that West
unilaterally determines that it is necessary to manufacture Product at other
manufacturing plant(s), West will qualify such other manufacturing plant(s) at
its sole cost and expense. Customer will cooperate with West in good faith to
qualify such other manufacturing plant(s).  

 

d.

Commercial Capacity.  Customer acknowledges that as of the Effective Date, the
maximum annual production capacity for the Product available to Customer is
[***] (“Maximum Annual Production Capacity”), available on a non-dedicated basis
reserved only by issuance of a purchase order for the initial six (6) months, a
firm purchase order for the seventh (7th) month, and seventeen (17) months
non-binding forecast (the “MPP”), (the “Production Capacity”). Additional terms
and conditions for expanded commercial scale capacity are set forth Exhibit B
attached hereto and incorporated herein by reference.  

 

e.

Intentionally Omitted.  

 

f.

Affiliates. Customer’s Affiliates may participate in this Agreement upon written
notification to West of their agreement to be bound by the terms and conditions
hereof as though they were a party hereto, and the term “Customer” will be
deemed to include those of its Affiliates that provide the foregoing written
notification to West.  Customer will be jointly and severally liable for its
Affiliates hereunder.  The term “Affiliate”, with respect to the parties hereto,
means any corporation or business entity fifty percent (50%) or more of the
voting stock or voting equity interests of which are owned directly or
indirectly by such party, or any corporation or business entity which directly
or indirectly owns fifty percent (50%) or more of the voting stock or voting
equity interests of such party.

 

g.

Quality Agreement. The parties entered into that certain Quality Agreement dated
effective as of December 19, 2019 setting out the responsibilities of the
parties with respect to quality assurance of the Product manufactured and
supplied by West pursuant to this Agreement (the “Quality Agreement”). The
Quality Agreement is hereby incorporated by reference into this Agreement.

 

3.

Term.  This Agreement will commence on the Effective Date and, unless terminated
earlier as provided herein, will continue in effect until the fifth (5th)
anniversary thereof (the “Initial Term”); the Initial Term will automatically
extend by successive one (1) year periods (each a “Renewal Term” and together
with the Initial Term, the “Term”) thereafter at West’s then-current rates
unless either party provides notice to the contrary to the other party not less
than nine (9) months prior to the end of the then-current Term.

 

4.

Preferred Supplier. During the Term of this Agreement Customer will designate
West as Customer’s “Preferred Supplier” for the type of products covered by this
Agreement. As such, West will consider in good faith any requests from Customer
(but will not have the obligation) to: (a) participate in Customer’s development
projects that involve the Product or other products; (b) quote on proposals for
Customer’s purchase of other products; and (c) quote on proposals for Customer’s
purchase of

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other items sold by West that are not listed on Exhibit A. For clarity, nothing
in the foregoing imposes upon Customer an obligation to enter into any
discussions or agreements with West with respect to any development projects,
whether or not related to the Product, or for the purchase of additional
quantities of the Product or other items sold by West.

 

5.

Forecasts and Purchase Orders.

 

a.

Firm orders for Product shall be placed by Customer in writing.  All orders
shall specify the Product and quantities ordered (which shall be in whole batch
size quantities), delivery and shipping instructions, requested delivery dates,
and such other information as West may reasonably request in order to allow West
to fill the order.  

 

b.

To facilitate timely delivery of Product, West and Customer shall cooperate
fully in estimating and scheduling the first order of commercial quantities of
Product to be placed by Customer.  In the first six (6) months following the
regulatory approval for the commercial sale of the Combination Product in the
U.S., West and Customer will work together to reasonably mitigate any unforeseen
demands during the launch period of the Combination Product; thereafter,
Customer will need to abide by the six (6) month firm window.  Customer shall
deliver to West a Master Production Plan on or before the 15th day of each
calendar month (or the Friday prior in the event the 15th falls on a weekend or
holiday) during the Term that covers the following twenty-four (24) month
period, includes a non-cancellable purchase order for the initial six (6)
months, a firm purchase order for the seventh (7th) month, and seventeen (17)
months non-binding forecast (the “MPP”).  Customer may also provide an optional
“upside forecast” to support West’s rough cut capacity analysis in month eight
(8) onward to support raw material procurement and capacity planning. [***].

 

c.

Each MPP and accompanying binding purchase order shall be deemed to be
automatically accepted unless West notifies Customer of its rejection of the
same within ten (10) business days of receipt. West shall not unreasonably
reject a MPP if it is less than or equal to the prorated portion of the Maximum
Annual Production Capacity and West shall not unreasonably reject a binding
purchase order from Customer if the quantities of Product is less than or equal
to the binding portion of the MPP and consistent with then-current lead times
and minimum and maximum monthly ordering quantities. If the quantities indicated
outside the binding period of the MPP are greater than the MPP, West will use
commercially reasonable efforts to accommodate the supply of Product ordered by
Customer. Once accepted by West, Purchase Orders are binding on both parties and
may not be cancelled or modified unless mutually agreed upon by the parties or
as specified in Section 11.  The MPP shall be updated to reflect the
acknowledged delivery dates.  

 

d.

Failure to Supply. In the event West fails to deliver the quantities of Product
specified in any binding purchase order by the delivery date set forth therein
for any two (2) consecutive calendar months with a combined unit shortage
greater than [***].  West will provide daily updates on progress and status of
the corrective action if so required by the Customer until the required supply
has been fulfilled.  

 

e.

The parties agree to meet (in person or by telephone) on a reasonable ad hoc
basis upon the request of either party to review and discuss the forecasting,
ordering and shipping procedures implemented pursuant to this Agreement.  

 

6.

Raw Materials.

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a.

Safety Stock. West will procure and maintain for the manufacturing of the
Product a safety stock of raw materials and other components required to be used
by West for the manufacture of the Product and as necessary to satisfy the
Master Production Plan and applicable binding purchase orders for the Product
and avoid supply shortages. In addition, West will procure strategic supply for
any raw materials that have a lead-time in excess of the binding period for a
raw material that may be reasonably expected to be in short supply based on
industry trends within the 24 month forecasted quantity. West will be
responsible for the costs and expenses associated with such safety stock.

 

b.

Allocation of Raw Materials.  

 

i.

In the event that West’s supply of raw materials or other components supplied by
third parties necessary for the manufacture of the Product is disrupted or
adversely affected during the term of this Agreement, such that any such raw
materials or components are in short supply for a period of at least thirty (30)
days, then West will allocate that portion of the available quantity of such raw
materials or components to Customer as Customer’s consumption of such raw
materials or components related to West’s aggregate use of such raw material or
components during the calendar quarter immediately preceding the occurrence of
the event giving rise to the short supply, except to the extent in West’s
reasonable judgment a different allocation of raw materials or components is
required to avoid serious harm or injury to patients.  

 

ii.

In the event the disruption in the supply of raw materials or components is
reasonably expected to continue for an indefinite period, the parties will
jointly consider their available options including the selection of an alternate
supplier of the raw material or component, the identification of suitable
alternate raw material or component and the acquisition of sufficient quantities
of the raw material or component to enable the continued manufacture of the
Product for a reasonable period.

 

iii.

West has a formal business continuity plan detailing West’s plans, procedures
and designated resources for timely response to and recovery from potential
information technology, civil, natural, and physical disasters that could
reasonably be expected to disrupt West’s performance of the manufacturing of the
Product, and covering potential disruption that might arise in connection with
the COVID-19 pandemic (“Business Continuity Plan”). Without limiting the
foregoing, the Business Continuity Plan identifies the necessary steps that West
will take to mitigate potential risks and threats to its ability to manufacture
and supply products to its customers. The Business Continuity Plan contains site
level procedures for maintaining and restoring critical business operations to
acceptable functionality in the unlikely event of a severe disruption in normal
operations. West will evaluate and update the Business Continuity Plan on a
yearly basis, and upon request, West will make a summary of such Business
Continuity Plans available to Customer or its designated representative (subject
to the execution of a written confidentiality agreement between West and such
designated representative) for review. West will consider in good faith any
reasonable comments that Customer may have with respect to the Business
Continuity Plans. During the Term of this Agreement, West will promptly notify
Customer in writing of any potential disruption to the manufacturing and supply
of the Product.

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7.

Invoices; Payment Terms.

 

a.

West will invoice Customer at the time of shipment to Customer of the Product.
Customer will pay all invoices for undisputed payments within thirty (30) days
from the date of invoice unless otherwise stated or agreed in writing by
West.  All invoice and payments under this Agreement will be in U.S. Dollars.
[***] on any unpaid undisputed amounts not paid on the applicable due date.  In
the event Customer disputes an invoice in good faith, Customer shall (i) provide
to West within the payment terms a written statement setting forth, in
reasonable detail, the specific nature of the dispute, and (ii) pay the
undisputed portion of such invoice within the applicable invoice terms for
payment.  The parties shall attempt to resolve any such invoice dispute in good
faith as soon as possible.  

 

b.

Pro rata payments will become due as partial shipments are made, including
multiple shipments on a single order.  If shipments are delayed by Customer for
any reason, West may elect to invoice Customer for the Product prior to shipment
and will store the Product either on or off-site; such storage will be at
Customer’s risk and expense as provided in Section 10 hereof.  

 

c.

For Product shipped from West locations in Brazil, Israel and the United States,
Product prices do not include shipping pallets, which are separately chargeable
by West.  Customer will select the size and type of shipping pallet to be used
in the shipping of each order shipped from those locations; provided, in the
absence of any specific instruction from Customer, West will select a size and
type of shipping pallet it reasonably deems appropriate.

 

8.

Delivery; Risk of Loss.  West will deliver the Product within plus or minus five
(+/-5) days of the date of delivery set forth in the applicable purchase order.
Unless otherwise agreed in the applicable purchase order, all sales are EXW
(INCOTERM 2020) point of manufacture. Title to the Product will pass to Customer
upon Customer’s designated common carrier taking possession of the shipment.
Delivery of ten percent (10%) more or less than the quantity of the Product
specified will constitute fulfillment of the purchase order, and in each case
the difference will be paid for or allowed at the current price.  Customer and
West may agree to allow West to make delivery in installments, which will be
separately invoiced at the time of shipment and paid for by Customer within
thirty (30) days of invoice date, without regard to subsequent deliveries.

 

9.

Non-conforming Products.

 

a.

Incoming Visual Examination.  Customer will verify that the shipment upon its
arrival at the specified destination is intact, that there is no obvious
shortage, loss or damage, and that the shipment does not contain any
Nonconforming Product apparent under reasonable visual examination of the
incoming shipping cartons or pallets.  Customer will notify West within ten (10)
days of (i) receipt of shipment, if the shipment is not intact, has obvious
shortage, loss or damage, or contains any Nonconforming Product; or (ii) within
thirty (30) days of discovery of a  Latent Defect, but in any event within the
Product shelf-life. For orders for which risk of loss transfers at West’s
facility based on the applicable INCOTERMS, claims for loss or damage to Product
in transit by common carrier must be made to the carrier and not to West.

 

b.

Product Testing.  If Customer and West are unable to agree as to whether certain
the Product  is Nonconforming Product, the parties will cooperate to have the
Product in dispute analyzed by an independent testing laboratory of recognized
repute selected by Customer and approved by West, which approval will not be
unreasonably withheld,

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conditioned or delayed.  The results of such laboratory testing will be final
and binding on the parties as to whether such Product is a Nonconforming
Product.  If the alleged Nonconforming Product is determined to meet the Product
Warranty, then Customer will bear the cost of the independent laboratory testing
and pay for the Product in accordance with this Agreement.  If the Product is
determined not to have met the Product Warranty, then West will bear the cost of
laboratory testing and Customer will be entitled to avail itself of the remedies
provided in Section 9(c).

 

c.

Remedies of Buyer.  Provided a claim is made within the timeframes specified in
Section 9(a), at Customer’s option: [***].

 

d.

Recalls. In the event any regulatory authority issues in the U.S., or Customer
voluntarily undertakes, a recall of the Product, Customer will promptly notify
West, and West will provide reasonable assistance to Customer in conducting such
recall, including providing Customer with all reasonably pertinent records and
information.  [***].

 

10.

Storage.  West will store the Product in accordance with the applicable Product
Specifications. If West is not able to ship the Product to Customer within
thirty (30) days after notification has been made to Customer that they are
ready for shipping due to Customer's failure to give shipping instructions or
for any other reason within Customer’s control, or if Customer otherwise refuses
to accept delivery of the Product upon its arrival at the location specified in
Customer’s order, then West may store the Product in accordance with the
applicable Product Specifications or Customer’s written instructions in a
warehouse or upon West's premises, and Customer will promptly pay all handling,
transportation and storage expenses at the prevailing commercial rates following
West's submission of invoices for such amounts.  Risk of loss to such Product
will pass to Customer upon their transfer into storage.

 

11.

Changes to Submitted Orders.  For all orders that have been accepted by West,
reduction in the quantity of Products ordered, cancellation or suspension of
deliveries, order increases, expedited delivery and all other changes are not
allowed except with West's consent and may be subject to Customer’s payment of
West’s fees (including, without limitation, the Idle Capacity Fee) for permitted
order changes, in accordance with West’s Order Cancellation Policy.    

 

12.

Force Majeure.  Neither party hereto will be held liable to the other party for
any loss or damage or be in breach of this Agreement for its delay or inability
to perform its obligations hereunder to the extent such delay or failure results
from causes beyond its reasonable control that are not reasonably foreseeable or
avoidable, including without limitation embargoes, war, fires, earthquakes,
floods, strikes, pandemics or government actions (“Force Majeure”).  Should any
Force Majeure events occur, the affected party will give prompt notice to the
other party of such cause, and will take whatever reasonable steps are necessary
to relieve the effect of such cause as rapidly as possible.  If a Force Majeure
event persists for more than thirty (30) calendar days, the parties shall work
together for a mutually agreed upon corrective action. However, the nonaffected
party may terminate this Agreement upon thirty (30) days’ written notice to the
other party if the adverse effects of a Force Majeure event on the other party’s
performance persists for more than ninety (90) calendar days.  Notwithstanding
the foregoing, disruptions or other adverse effects attributable in whole or in
part to COVID-19 disease or the SARS-CoV-2 virus, including any subtypes or
strains thereof, including without limitation (a) the failure of a party’s
suppliers to provide products or materials, (b) labor shortages, (c) government
action, (d) reduction in customer demand or (e) any related Force Majeure
events, will be deemed  to be a Force Majeure event for the purpose of this
Section, subject to West’s obligations under Section 6(b)(iii).

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13.

Intentionally omitted.

 

14.

Representations, Warranties, Remedies and Limitations of Liability.

 

a.

Mutual Representations.  Each party hereto represents and warrants that as of
the Effective Date: it is, and will remain, a corporation duly organized,
validly existing and in good standing under the laws of its jurisdiction of
organization; it has the authority to enter into this Agreement; the execution
and delivery of this Agreement has been authorized by all requisite corporate
action; this Agreement is and will remain a valid and binding obligation of the
executing party, enforceable in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency and the relief of
debtors; the individual executing this Agreement on behalf of such party is
authorized to do so; there is no action, suit or proceeding, at law or in
equity, before or by any court or governmental authority, pending or, to the
best of such party's knowledge, threatened against it, wherein an unfavorable
decision, ruling or filing would materially adversely affect its performance of
its obligations hereunder or the other transactions contemplated hereby, or
which, in any way, would adversely affect the enforceability of this Agreement,
or any other agreement or instrument entered into by it in connection with the
transactions contemplated hereby; and, during the Term it will comply with all
Applicable Laws and regulations regarding its obligations arising under this
Agreement, including but not limited to compliance with the U.S. Federal Food,
Drug, and Cosmetic Act .

 

b.

West Representations and Warranties.  West represents and warrants that as of
the Effective Date: West holds all necessary permits, approvals, consents and
licenses necessary to enable the performance of the manufacturing services at
the Facility; the Facility is, and will remain during the Term of this
Agreement, in compliance with Applicable Laws; and, the Product and the use of
West’s intellectual property to manufacture the Product under this Agreement
will not infringe the intellectual property rights of any third party and West
will promptly notify Customer in writing should it become aware of any claims
asserting such infringement; provided, however, that the parties acknowledge and
agree that certain registration activities will need to occur following the
regulatory approval for the commercial sale of the Combination Product in the
U.S. (i.e., the addition of the approved Combination Product to West’s
licenses).  

 

c.

Product Warranty.  West represents and warrants that all Product delivered to
Customer will: (ii) on the date of shipment to Customer meet the Product
Specifications; (ii) be manufactured and delivered in accordance with the
Quality Agreement and cGMPs; and (iii) not be adulterated or misbranded within
the meaning of the U.S. Federal Food, Drug, and Cosmetic Act, as amended, and
any regulations promulgated thereunder (the “Product Warranty”). In addition,
West represents and warrants that all Product delivered to Customer will, on the
date of shipment to Customer, be free and clear of any lien or encumbrance
levied as a result of West’s actions or inactions.

 

d.

Disclaimer of Representations and Warranties. EXCEPT AS OTHERWISE SPECIFICALLY
PROVIDED IN THIS AGREEMENT,  NEITHER PARTY MAKES, AND EACH PARTY EXPRESSLY
DISCLAIMS, ANY AND ALL REPRESENTATIONS OR WARRANTIES OF ANY KIND, EXPRESS OR
IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS
FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT. THE REPRESENTATIONS AND
WARRANTIES IN THIS AGREEMENT RUN SOLELY TO THE PARTIES HERETO.

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e.

Customer Responsibility.  Customer acknowledges and agrees that all Products are
sold only on the basis that it is the sole responsibility and duty of Customer
to assure that the Products are fit for the uses and purposes for which Customer
intends to use them, and are compatible with Customer's particular product and
its processing and packaging methods.  Except to the extent of any obligations
expressly imposed on West pursuant to this Agreement, Customer assumes all risks
whatsoever as to the result of the use of the Products, whether used singly or
in combination with other goods or substances.

 

f.

Limitations of Liability. NOTWITHSTANDING ANYTHING IN THIS AGREEMENT TO THE
CONTRARY, IN NO EVENT WILL EITHER PARTY BE LIABLE FOR ANY SPECIAL, INCIDENTAL,
PUNITIVE, CONSEQUENTIAL OR INDIRECT DAMAGES, LOST PROFITS OR REVENUES ARISING
OUT OF THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING,
without limitation, NEGLIGENCE or delayed performance or delivery). THIS
LIMITATION WILL APPLY EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGE. notwithstanding the foregoing, this section 14(F)
will NOT APPLY TO any claims or DAMAGES RESULTING FROM a party’s gross
negligence or willful misconduct or a Party’s indemnification obligations under
Section 15 or ITS DUTY OF CONFIDENTIALITY AND NON-USE IMPOSED UNDER SECTION 22
or customer’s payment obligations hereunder.  [***].

 

15.

Indemnification.

 

a.

[***].  

 

b.

Each Indemnitee agrees to give the Indemnitor prompt written notice of any
Claim; provided, however, that the failure to provide such prompt notice will
not eliminate the Indemnitor’s obligation to indemnify the Indemnitee under this
Section 15 except (and to the extent) the Indemnitor has been prejudiced by such
failure. The Indemnitor will have sole control of the defense and settlement of
such claim; provided; however, that the Indemnitor will not enter into a
settlement or otherwise compromises such claim in any manner which requires the
Indemnitee to admit fault without the Indemnitee’s prior written consent, such
consent not to be unreasonably withheld, delayed or conditioned. The Indemnitee
will be entitled to participate in the defense of such matter and to employ
counsel at its expense to assist therein. The Indemnitee will provide the
Indemnitor with such information and assistance as the Indemnitor may reasonably
request, at the expense of the Indemnitor. The Indemnitor’s obligation under
this Section is conditional upon the Indemnitee's agreement that, if the use of
the Confidential Information becomes, or in the Indemnitor’s opinion is likely
to become, the subject of an infringement claim, then the Indemnitee will permit
the Indemnitor, at the Indemnitor’s expense, either to procure the right for the
Indemnitee to continue to use such items or to replace or modify them so that
they become non-infringing.  This is the sole indemnification arising under this
Agreement, and Customer’s sole remedy and West’s sole liability relating to
infringement of third party intellectual property rights resulting from the
Product or the use of West’s intellectual property to manufacture the Product
under this Agreement.

 

16.

Certification Regarding Debarment.  Each party certifies, to the best of its
knowledge and belief, that it and its Principals, Affiliates, subcontractors,
employees or any other person performing obligations under this Agreement: (a)
have not been debarred and are not presently debarred, suspended, proposed for
debarment pursuant to Section 306 of the U.S. Federal Food, Drug, and

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Cosmetic Act, 21 U.S.C. § 335a, or declared ineligible for the award of
contracts by any federal agency; (b) are not ineligible to participate in any
federal and/or state healthcare programs or federal procurement or
non-procurement programs (as that term is defined in 42 U.S.C. 1320a-7b(f)); (c)
are not disqualified by any government or regulatory authorities from performing
specific services, and are not subject to a pending disqualification proceeding;
and (d) have not been convicted of a criminal offense related to the provision
of healthcare items or services and are not subject to any such pending
action.  "Principals", for the purposes of this certification, means officers,
directors, owners, partners, and persons having primary management or
supervisory responsibilities within a business entity (e.g., general manager,
plant manager, head of a subsidiary, division, or business segment, and similar
positions). Each party will provide immediate written notice to the other party
if, at any time prior to the execution of or during the term of this Agreement,
it learns that such party, its Principals, Affiliates, or subcontractors,
employees or any person used to perform obligations under this Agreement, as
applicable, is subject to the foregoing, or if any action, suit, claim,
investigation, or proceeding relating to the foregoing is pending.  The
certification in this provision is a material representation of fact upon which
reliance was placed when entering into this Agreement. Notwithstanding any
provision to the contrary in this Agreement, if it is later determined that
either party knowingly rendered an erroneous certification or such certification
becomes erroneous by reason of changed circumstances, the other party may
terminate this Agreement immediately upon written notice to such party.

 

17.

Records; Audit Rights; Regulatory Inspections.  

 

a.

Records. For eight (8) years from Product manufacture, or for such longer period
as may be required by Applicable Laws, West will maintain true, complete and
accurate records, reports and all other information relating the manufacture of
the Product, including all information required to be maintained by Applicable
Laws (the “Records”).

 

b.

Customer Audits.  No more than once per calendar year (except in the case of
“for cause” audits), upon reasonable advance notice and during normal working
hours, Customer or its designee may audit (i) the Facility and West’s quality
systems and manufacturing operations at the Facility to the extent related to
the manufacture of the Product and (ii) the Records, in each case to verify that
West is manufacturing the Product in accordance with this Agreement. The parties
will mutually agree on the date, time, scope, duration, and number of auditors
in advance of any audit.  “For cause” audits to investigate deviations will be
scheduled on an expedited basis.  Customer will not be entitled to audit
financial records (except to the extent needed to verify shipping quantities and
invoices) or personnel records, nor any portion of the Facility that is solely
dedicated to either the manufacture of Products or the performance of services
for third parties. Confidential Information observed during an audit is subject
to the confidentiality obligations in Section 22; provided, however, that West
reserves the right to require the execution of a confidentiality and
nondisclosure agreement prior to the audit activity that specifically relates to
such audit. Each party is liable for its own costs and expenses related to the
conduct of an audit pursuant to this section 17(b).

 

18.

Price and Price Adjustments. [***].

 

a.

[***].

 

b.

[***].   

 

19.

Cost Savings. [***].

10

 

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20.

Intentionally Omitted.

 

21.

Intellectual Property.

 

a.

All specifications, Product Specifications, drawings, design, data, information,
ideas, methods, patterns, and/or inventions made, conceived, developed, or
acquired by West in connection with procuring and/or executing Customer's
purchase order will vest in and inure to West's sole benefit notwithstanding any
charges therefor which may have been or may be imposed by West.  

 

b.

This Agreement does not contemplate or include a license to or transfer of
ownership of any of either party’s intellectual property to the other party.

 

c.

Customer agrees to include the following notice regarding trademarks on any
printed materials and webpages created after the Effective Date of this
Agreement and as soon as reasonably practicable thereafter which shows the
exterior of the Product:  “The exterior configuration of this drug delivery
device is a trademark of West Pharma. Services IL, Ltd., a subsidiary of West
Pharmaceutical Services, Inc., and is used with permission.”

 

22.

Confidentiality Obligations.

 

a.

As used in this Agreement, the term "Confidential Information" means any and all
information (including but not limited to trade secrets, customer business
associations, transactions, financial arrangements and technical or commercial
affairs of the disclosing party, specifications, know-how, materials, data,
reports and other communications relating to the supply of Products) which are
disclosed or provided by one party to the other in connection with this
Agreement, whether in oral, written, or in any electronic or other tangible form
and whether furnished before, on or after the Effective Date.  Confidential
Information includes, without limitation, all portions of analyses, studies and
other documents containing any of the foregoing, and the existence of this
Agreement and its terms.

 

b.

Each party will keep all of the other party’s Confidential Information
confidential and will not use such Confidential Information in any way except in
connection with the performance of its obligations or exercise of its rights
under this Agreement.  Without the prior written consent of the other party,
neither party will analyze, have analyzed, or otherwise attempt to determine the
composition or structure of any samples, nor disclose any of the other party’s
Confidential Information to any third party; provided, however, that each party
may disclose the other party’s Confidential Information to its Affiliates and to
its and its Affiliates’ directors, officers, employees, agents, subcontractors,
consultants, auditors, lenders or other representatives (“Representatives”) who
have a need-to-know and are bound by written obligations of confidentiality and
non-use at least as restrictive as those set forth in this Agreement. Each party
will be liable to the other party for breach by its Representatives of the
obligations of confidentiality and non-use of this Section 22.

 

c.

All written disclosures of information considered to be Confidential Information
by the disclosing party will bear the notation "Confidential".  All non-written
disclosures of Confidential Information must be confirmed by the disclosing
party as being confidential at the time of disclosure or in writing within
thirty (30) days following the non-written disclosure.  The written confirmation
will identify the particular Confidential Information, state that it is
considered confidential.  Notwithstanding the requirements of this Section

11

 

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22(c), the failure to label or identify any information as Confidential
Information will not change the confidential status of such information if a
reasonable person would know that such information was confidential or
proprietary to the disclosing party.

 

d.

Each party will ensure that the other party’s Confidential Information is not
used or disclosed in any manner except as permitted by this Agreement.

 

e.

All Confidential Information will remain the property of the disclosing party,
except for analyses, studies, or other documents prepared for the recipient
which contain, reflect or are based upon, in whole or in part, any Confidential
Information furnished by the disclosing party.  Upon the written request of the
disclosing party: (i) all tangible Confidential Information (including all
copies thereof), except analyses, studies, and other documents prepared for the
benefit of the recipient, will be promptly returned to the disclosing party or
destroyed by the recipient; (ii) to the extent any analyses, studies, and other
documents prepared for the benefit of the recipient (including all copies
thereof) contain, reflect or are based upon Confidential Information, such
analyses, studies, and other documents will be destroyed.

 

f.

The obligations of confidentiality and non-use set forth in this Section will
not apply to any portion of the Confidential Information which:

 

i.

legitimately and through no other breach of any confidentiality obligation is or
becomes available to the general public other than through the act or default of
the recipient or its agents;

 

ii.

is obtained by the recipient from a third party who is rightfully in possession
of the Confidential Information and does not violate any obligation of
confidentiality or non-use by disclosing such Confidential Information on a
non-confidential basis;

 

iii.

is in the recipient’s possession and is not subject to any confidentiality
obligation prior to disclosure by the disclosing party; or

 

iv.

is independently developed by the recipient without use of or access to the
Confidential Information.

 

g.

If the recipient of Confidential Information is required by any governmental
authority, court order or a court of competent jurisdiction or by Applicable
Laws, including for any legal process (such as deposition, interrogatories,
requests for information, documents or admissions, subpoenas, or the like), to
disclose any Confidential Information, the recipient may disclose the disclosing
party’s Confidential Information, provided it notifies the disclosing party in
advance of any such disclosure as promptly as practicable. The disclosing party
may seek an appropriate protective order and/or waive the recipient's obligation
to comply with this Agreement.  The recipient will fully cooperate with all
efforts to obtain any such order and take all reasonable and lawful actions to
avoid or minimize the degree of such disclosure and to have the disclosed
Confidential Information treated as confidential.   Any such disclosure,
however, will not relieve the recipient of its obligations contained herein.

 

h.

Specific aspects or details of Confidential Information will not be considered
available to the general public, in the public domain, or in the prior
possession of the recipient merely because it is embraced by more general
information available to the general public or in the prior possession of the
recipient.

12

 

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i.

The parties recognize and acknowledge the competitive value and confidential
nature of the other’s Confidential Information and the irreparable damage that
could result if Confidential Information is used or disclosed in violation of
this Agreement.  Either party may unilaterally institute appropriate proceedings
to enforce its rights hereunder.  The parties acknowledge and agree that money
damages would be an insufficient remedy for any violation of the confidentiality
obligations under this Section 22 and, accordingly, either party will be
entitled, in addition to any monetary damages, to seek specific performance and
injunctive relief as remedies.  These remedies will not be exclusive but will be
in addition to all other remedies available at law or in equity.

 

j.

Notwithstanding anything in this Agreement, Customer may disclose the existence
and terms of this Agreement to its actual or prospective investors, lenders,
acquirers, collaborators, licensors, (sub) licensees or strategic partners, and
their respective accountants, financial advisors and other professional
representatives, (“Partners”) in each case, who have a need to know such
Confidential Information and are bound by customary obligations of
confidentiality; provided that, if any such Partner is a competitor or customer
of West, Customer agrees to limit its disclosure to a redacted version of this
Agreement that does not contain any financial terms, and Customer shall not
disclose the unredacted version of this Agreement to such Partner that is a
competitor or customer of West without West’s prior written consent.  West will
have the opportunity to review the redacted version of this Agreement in advance
of any such disclosure, and Customer shall consider in good faith any additional
redactions reasonably suggested by West.  Customer will be liable to West for
breach by such Partners of the obligations of confidentiality and non-use of
this Section 22.

 

k.

Except to the extent required by Applicable Laws and as otherwise provided in
this Section 22, neither party will make any public statements or releases
concerning this Agreement or the transactions contemplated by this Agreement
without obtaining the prior written consent of the other party, which consent
will not be unreasonably withheld or delayed.   For any public statements or
releases that include the mention of a party’s trademark, both parties agree to
include a statement attributing ownership of that trademark to the appropriate
party.  In the event that one Party reasonably concludes that disclosure of this
Agreement is required by Applicable Laws (including the disclosure requirements
of the United States Securities and Exchange Commission) and the other Party
would prefer not to make such disclosure, the Party seeking disclosure shall (i)
provide reasonable advance notice to the other Party of the intended disclosure
and the content of such disclosure; and (ii) prepare a redacted version of this
Agreement and permit the other Party reasonable advance notice and the
opportunity to comment on any such redacted Agreement; and (iii) file the
redacted Agreement in accordance with the rules and regulations of the United
States Securities and Exchange Commission.  Prior to the filing, the Party
seeking to make such disclosure or its counsel, as the case may be, will in good
faith (A) consider incorporating such comments and (B) use reasonable efforts to
incorporate such comments or limit disclosure to the extent reasonably requested
by the other Party.  Customer shall, whether or not requested by West, redact
for any financial terms and such other additional terms, in each case in
accordance with the disclosure requirements of the United States Securities and
Exchange Commission, and will disclose only the minimum amount of West
information that is required by Applicable Laws to be disclosed.  

13

 

--------------------------------------------------------------------------------

 

 

l.

The obligations of this Section 22 will survive for a period of ten (10) years
from the expiration or termination of this Agreement, except with respect to
trade secrets, for which the obligations of this Section 22 will continue for so
long as such information remains a trade secret under Applicable Laws.

 

23.

Quarterly Business Review Meetings.  Customer and West will participate in
business review meetings during the Term on a periodic (but no less than
quarterly) basis at a mutually agreed time and location.  The agenda for these
meetings will be jointly determined, but are expected to address the current and
anticipated business drivers affecting each party including, without limitation,
new products and new business opportunities.

 

24.

Default and Termination.

 

a.

Either party has the right to terminate this Agreement upon material breach by
the other party upon thirty (30) days’ notice (fifteen (15) days with respect to
payment obligations) if such breach is not cured within such 30-day period
(fifteen (15) days with respect to payment obligations). Such notice will
specify in reasonable detail the material breach and the basis upon which this
Agreement is to be terminated.   If by its nature such breach cannot be cured
within such thirty (30) day period (fifteen (15) days with respect to payment
obligations) and the breaching party is proceeding diligently to effect a cure
of such breach, then this Agreement may not be terminated for an additional
thirty (30) days (fifteen (15) days with respect to payment obligations) or
until such time as the breaching party ceases to effect a cure, whichever is
shorter. In addition to the foregoing, West shall have the right to delay
shipment of product immediately upon such failure to pay if the Customer does
not pay all delinquent amounts within five (5) business days of written notice
(“Warning Period”).

 

b.

This Agreement may be terminated by either party on immediate written notice in
the event that the other party becomes insolvent, bankrupt, makes an assignment
for the benefit of creditors, or otherwise becomes subject to a plan of
reorganization.

Prior to commercial launch, this Agreement may be terminated by Customer upon
written notice to West if (i) Customer receives from FDA notice of FDA’s refusal
to approve Customer’s application for approval to market the Customer Drug-
Device Combination Product or (ii) a complete response letter indicating that
Customer’s application for approval to market the Customer Drug-Device
Combination Product cannot be approved without one or more additional clinical
trials being performed, in either case within ninety (90) days of receipt of FDA
communication.

 

c.

Termination or expiration of this Agreement will not affect the rights and
obligations of the parties that accrued prior to the effective date of such
termination or expiration.  Sections 1, 7, 9, 10, 12, 14, 15, 16, 17(a), 21, 22,
24 and 25 will survive any termination or expiration of this Agreement.

 

25.

Miscellaneous.

 

a.

Limitation of End Usage.  Notwithstanding any other provision of this Agreement,
Customer acknowledges and agrees that Products will be used for packaging
pharmaceutical products and not any other end usage without the prior written
consent of West, which West may withhold in its sole and absolute
discretion.  Customer will not re-sell or further distribute Products except as
they are incorporated into Customer’s products as contemplated herein.  

14

 

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b.

Conflicting Documents.  Terms or conditions contained in any purchase orders,
invoices, sales receipts, shipping documents, forms, billing documents or other
similar documents issued by either party hereto to the other shall be without
force or effect. Notwithstanding anything in the foregoing, in the event of any
conflict between this Agreement and the Quality Agreement, the terms and
conditions of (i) the Quality Agreement will govern with respect to all matters
pertaining to quality control/quality assurance and regulatory compliance and
(ii) this Agreement will govern in all other respects.

 

c.

Assignment.  Neither this Agreement nor any of the rights hereunder may be
assigned by either party hereto except with the prior written consent of the
other party, and any purported assignment to the contrary will be void;
provided, however, that either party may assign this Agreement to (i) an
Affiliate or (ii) a successor-in-interest in the event of a merger,
consolidation or change of control or (iii) in connection with the transfer or
sale of all, or substantially all, of the assets of such party to which this
Agreement relates, but only if the successor in interest agrees in writing, in a
form reasonably satisfactory to the other party, to be bound by the terms of
this Agreement as if named as a party hereto. No assignment will relieve the
assignor of its obligations under this Agreement. Any attempted assignment in
violation of this Section 25(c) will be null and void.

 

d.

Notices.  All notices, requests, consents, and other communications required or
permitted under this Agreement will be in writing and will be hand-delivered,
mailed by postage prepaid registered or certified mail, return receipt
requested, or sent by a guaranteed overnight delivery service, and addressed to:

If to Customer:

scPharmaceuticals Inc.

2400 District Avenue, Suite 310

Burlington, MA 01803

Attention: John Tucker

 

If to West:

West Pharmaceutical Services, Inc.

530 Herman O. West Drive

Exton, Pennsylvania  19341

Attention:  Senior Vice President of Commercial Products and Emerging Markets

 

with a copy to:

West Pharmaceutical Services, Inc.

530 Herman O. West Drive

Exton, Pennsylvania  19341

Attention:  General Counsel

 

or to such other place and with such copies as either party may designate by
notice to the other party in the manner prescribed above.  All notices will be
deemed delivered upon receipt.

 

e.

Taxes.  Each party will be responsible for all taxes imposed on it by any
Applicable Laws.  For the sake of clarity and without limiting the generality of
the foregoing, all value added,

15

 

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occupational, sales, excise, use, gross income (other than West’s income tax) or
other taxes associated with the sale of the Products will be paid by Customer,
and all federal and state income taxes and unemployment and other
employee-related taxes imposed upon West will be paid by West.  Responsibility
for import and export duties will be borne by West or Customer based upon the
INCOTERM (2010) applicable to the associated shipment.  In the event West is
required to pay any tax, fee, or charge that the Customer is responsible for,
Customer will reimburse West for such payment, or in lieu of such payment,
Customer will provide West prior to the time the order is submitted an exemption
certificate or other document acceptable to the authority imposing the tax, fee
or charge.

 

f.

Applicable Law. This Agreement will be construed and interpreted in accordance
with the laws of the State of Delaware, regardless of the laws governing the
principles of conflicts of laws applicable thereto.  The parties agree that the
provisions of the United Nations Convention on Contracts for the International
Sale of Goods will not apply to this Agreement, and are expressly excluded.

 

g.

Jurisdiction.  The parties hereby unconditionally and irrevocably submit to (and
waive any objection on the grounds of inconvenient forum or otherwise) the
jurisdiction of the courts of the State of Delaware or the United States
District Court for the District of Delaware, which courts will have exclusive
jurisdiction to adjudicate and determine any suit, action or proceeding
regarding or relating to this Agreement. A judgment, order or decision of those
courts in respect of any such claim or dispute will be conclusive and may be
recognized and enforced by any courts of any state, country or other
jurisdiction.

 

h.

Severability.  If any term or provision of this Agreement will for any reason be
held invalid, illegal or unenforceable in any respect by a court or other body
of competent jurisdiction, such invalidity, illegality or unenforceability will
not affect any other term or provision hereof, and this Agreement will continue
in full force and effect and will be interpreted and construed as if such term
or provision, to the extent the same will have been held to be invalid, illegal
or unenforceable, had never been contained herein.  If any provision of this
Agreement is held to be excessively broad, it will be reformed and construed by
limiting and reducing it so as to be enforceable to the maximum extent permitted
by law. The parties will use their commercially reasonable efforts to replace
the invalid, illegal or unenforceable provision(s) with valid, legal and
enforceable provision(s), which, insofar as practical, implement the intent of
the parties.

 

i.

Waiver.  No waiver hereunder will be effective unless signed by the party
granting the waiver. Any delay or failure by either party to enforce any rights
under this Agreement will not be construed as a waiver of such rights nor will a
waiver by a party in one or more instances be construed as constituting a
continuing waiver or as a waiver in any other instances.

 

j.

Independent Contractor Status.  The relationship of West and Customer
established by this Agreement is that of independent contractors and neither
party will incur any debts or make any commitments for the other party except to
the extent expressly provided in this Agreement.  Nothing contained in this
Agreement is intended to create or will be construed as creating between West or
Customer the relationship of co-partners, principal/agent, employer/employee or
joint venturers with the other party or as a participant in a joint or common
undertaking with the other party.  Neither party will have any responsibility
for the hiring, termination or compensation of the other party’s employees or
contractors or for any employee benefits of any such employee or contractor.

16

 

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k.

No Third Party Beneficiaries.  The representations, warranties, covenants and
agreements set forth in this Agreement are for the sole benefit of the parties
hereto and their successors and permitted assigns, and they will not be
construed as conferring any rights on any other persons other than each party’s
Indemnitees pursuant to the indemnification provisions of Section 15(a).

 

l.

Counterparts.  This Agreement may be executed in any number of counterparts,
each of which will be an original but together will constitute a single
Agreement. Any photocopy, facsimile or electronic reproduction of the executed
Agreement will constitute an original.

 

m.

Headings; Construction.  The paragraph headings herein are for convenience only
and will not affect the meaning or interpretation of this Agreement.  Both
parties have participated equally in the formation of this Agreement and the
language of this Agreement will not be presumptively construed against either
party. The words “include,” “includes” and “including” when used in this
Agreement are deemed to be followed by the phrase “but not limited to”.  The
words "shall," "will" and “agrees” are imperative, and “may” is permissive.

 

n.

Entire Agreement.  This Agreement, together with the Exhibits attached hereto,
the Quality Agreement and each purchase order issued under this Agreement, which
are incorporated herein by reference, constitute the entire agreement between
the parties concerning the subject matter contained in this Agreement and
supersedes all written or oral prior agreements or understandings with respect
thereto.  No course of dealing, usage of trade or course of performance will be
relevant to explain or supplement any of these terms and conditions.  No
variation or modification of any of the terms or exhibits of this Agreement or
any waiver of the terms of provisions hereof will be valid unless in writing and
signed by an authorized representative of each party.

 

IN WITNESS WHEREOF, the parties hereto have caused their duly authorized
officers to execute this Agreement as of the Effective Date.

 

scPharmaceuticals Inc.

WEST PHARMACEUTICAL SERVICES, INC.

 

By: /s/ John H. Tucker    

By: /s/ Eric Green

Name: John H. Tucker

Title:    Chief Executive Officer

 

Name: Eric Green

Title:    Chief Executive Officer

 

17

 

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EXHIBIT A

PRICING EXHIBIT

 

 

1.

Product: On-body drug delivery system based on West SmartDose technology,
cartridge and piston.

 

Part Number

Description

19559012

SMARTDOSE GEN II DEVICE

19558583

DS PISTON 10ML FR2 D21-7HW RUV 190

19550709

CARTRIDGE TUB ASSEMBLY 10ML 30 HOLE RU

 

 

 

2.

[***].

 

 

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

[***]

 

[***].

 

[***].

 

 

 

18

 

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EXHIBIT B

COMMERCIAL CAPACITY [***]

 

 

1.

Commercial Capacity.  

 

 

a.

Capital Investment.  Upon the parties’ mutual written agreement, recognizing
that any capacity expansion will require a lead time of approximately [***], if
Customer’s demand for the Product exceeds the Production Capacity, then West
shall use commercially reasonable efforts to increase its commercial production
capacity for the Product at a manufacturing plant selected in West’s reasonable
discretion to meet Customer’s requirements for the Product.  In exchange for
West agreeing to expand capacity and the preferential pricing offered in this
Agreement, Customer agrees to fund fifty percent (50%) of West’s investment
(which the total investment amount by the parties is estimated to be [***] as of
the Effective Date) in additional equipment (the “New Production Line”) to
support the capacity increase, provided any such amount in excess of the
aforementioned estimate has been agreed to in writing by Customer. The New
Production Line shall be owned in its entirety by West, regardless of any
amounts paid by Customer with respect thereto.  West shall qualify such new
manufacturing plant at its sole cost and expense and such new manufacturing
plant shall be deemed a “Facility”, subject to the terms and conditions of this
Agreement, and the manufacture of any Product for Customer at such new
manufacturing plant shall be subject to the terms and conditions of this
Agreement.

 

 

b.

Unutilized Asset Fees.  Beginning with the validation of the New Production
Line, if the 6 month firm orders do not average at least [***] per month for the
New Production Line, Customer shall reimburse West for expenses associated with
maintaining the New Production Line (the “Unutilized Asset Fees”); provided
that, West shall use commercially reasonable efforts to sell any unutilized
production capacity for the New Product Line to third-party customers. The
Unutilized Asset Fees consist of recurring costs and can be calculated at
[***]/month for the New Production Line or [***]/month including labor
expenses.  West will have the option for production to remain in Scottsdale and
charge the Customer [***]/month of Unutilized Asset Fees until orders of [***]
for the New Production Line per month or greater are placed by the Customer.  If
the New Production Line has been staffed with direct labor, the Unutilized Asset
Fee will be [***]/month.  The Unutilized Asset Fees in any month would be
reduced to the extent that the associated costs are recovered through sales to
third-party customers from the New Production Line. To the extent it applies,
the Unutilized Asset Fee will be charged in lieu of the Idle Capacity Fee
described in (c) below.

 

 

c.

Idle Capacity Fees.  Once production has commenced and orders fulfilled from the
New Production Line, the June MPP and firm purchase orders provided by Customer
shall create the annual volume baseline for the next calendar year.  In the
event that Customer does not take delivery [***], within established monthly min
and max ordering quantities, West can charge the Customer an idle capacity fee
equaling [***] (the “Idle Capacity Fee”) times the difference between [***]
(full lot quantities) of the annual volume baseline and the actual quantity
delivered.  The Idle Capacity Fee will be assessed and paid in the first quarter
of each year following an event that triggers the Idle Capacity Fee.

19

 

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d.

In no event will the Unused Asset Fees exceed [***].  The Unused Asset Fee
obligation will extend twenty-four (24) months beyond the validation of the New
Production Line.

 

 

e.

The above quantities and fees are calculated based on the assumption of the
Customer committing to a capital investment of [***] into a New Production Line
capable of producing [***] per year.  West and the Customer may jointly agree to
alter the investment amount and target capacity.  As such, the above fees and
quantities will be adjusted and negotiated in good faith based upon the premise
of the original agreement considering the new volume and investment
assumptions.  As part of the agreement for the New Production Line, West and the
Customer will jointly agree on initial staffing levels and target production
volumes as it affects item 1(b).

 

 

 

 

20