Document:

admp-ex101_296.htm

                                                                                                                                 Exhibit  10.1

 

MANUFACTURING AGREEMENT

 

 

Adamis APC-5000 Dry Powder Inhaler and other Related Products

 

This MANUFACTURING AGREEMENT (the “Agreement”) is entered into this 29th day of June, 2015 (the “Effective Date”) between Adamis Pharmaceuticals Corporation (“Buyer”), a Delaware corporation having an office located at 11682 El Camino Real, Suite #300, San Diego, CA 92130 and Phillips Plastics Corporation (“Seller”), a Wisconsin corporation, having its headquarters at 1201 Hanley Road, Hudson, WI 54016. Buyer and Seller may sometimes be referred to individually as a (“Party”) or collectively as the (“Parties”).

 

WHEREAS, Seller is a contract manufacturer and is in the business of manufacturing and assembling medical device components and subassemblies for its customers and has considerable engineering, development, and manufacturing experience in the area of injection molded plastic and metal parts;

 

WHEREAS, Buyer is a medical device / pharmaceutical / biotechnology company; 

 

WHEREAS, Buyer desires to engage the services of Seller to assist with the manufacture and/or assembly of the Finished Device (defined below) and Seller has expressed a willingness to assist Buyer with same;

 

WHEREAS, at Buyer’s request, Seller has submitted proposal number(s) 23830-M5404 Rev 00 dated April 29th, 2015, entitled Taperhaler (hereinafter the “Proposal(s)”); which Proposal(s) are hereby incorporated by reference and attached hereto as Exhibit C, or if mutually agreed to by the Parties, consecutively numbered Exhibit C’s (i.e. Exhibit C-1, C-2, etc.); and 

 

WHEREAS, the Parties hereby agree that their efforts shall be governed by the terms and conditions set forth herein.

 

NOW, THEREFORE, in reflection of these affirmations, the mutual covenants and agreements contained herein, and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties do hereby agree as follows:

	
1.
	
DEFINITIONS

In addition to other terms which may be defined herein, the following terms, when the first letter is capitalized, whether in singular or plural form, as appropriate, shall have the meanings set forth in this Section.

	
a.
	
“Affiliates” shall mean any corporation, association, or other entity that directly or indirectly owns, is owned by, or is under common ownership with Buyer or with Seller, respectively, either currently or during the term of this Agreement.  As used in this definition, the terms "owns", "owned", or "ownership" mean the direct or indirect 

		
possession of more than fifty percent (50%) of the voting securities, income interest, or a comparable equity in such business entity.

	
b.
	
 “Buyer Furnished Material(s)” or “BFM(s)” means those components, subassemblies, substances, parts or materials that (i) are not independently manufactured or sourced by Seller, or (ii) are provided by or on behalf of Buyer to Seller on consignment or other similar basis for incorporation into a Finished Device.  For the avoidance of Doubt, BFMs are not to be considered Products.

	
c.
	
“Claim(s)” shall mean any third party (i.e., other than Buyer and Seller or their respective Affiliates) action, suit, arbitration, hearing, inquiry, proceeding, complaint, charge, allegation, investigation or the like.   

	
d.
	
“Delivery Date” means the date Products or Finished Devices are scheduled to be delivered to the Delivery Location as specified by the Purchase Order and/or Forecast.

	
e.
	
“Delivery Location” means the location to which the Products or Finished Devices must be delivered by the common carrier, as specified by the applicable Statement or Work, Purchase Order and/or Forecast.

	
f.
	
 “Design Responsibility” shall mean: (i) responsibility for obtaining all regulatory clearances from the FDA, comparable foreign regulatory agencies, and/or any other federal, state, and local agencies with regulatory authority; (ii) responsibility for registration pursuant to Section 510(k) of the Federal Food Drug And Cosmetic Act [21 USC §360];  and (iii) responsibility for ensuring that the specifications and other documents governing the manufacture and/or assembly of Product or Finished Device under this Agreement are consistent with any applicable regulatory requirements established by such regulatory authorities. 

	
g.
	
“Device History Record” shall have the meaning ascribed in 21 CFR 820.

	
h.
	
“Device Master Record” shall have the meaning ascribed in 21 CFR 820.

	
i.
	
“FDA” shall mean the U.S. Food and Drug Administration.

	
j.
	
“Finished Device(s)” means the finished medical device manufactured and/or assembled by Seller as further set forth in the Statements of Work and/or Proposal(s). The Finished Device may be further defined by mutually agreed upon specifications or other requirements documents.  For the avoidance of doubt, Finished Devices are not Products as defined herein.

	
k.
	
“Forecast” means the reasonable estimate of Buyer’s future requirements for Products or Finished Devices after taking into account all reasonably foreseeable circumstances for the timeframe noted herein.

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l.
	
“Improvement” means Intellectual Property that is developed by either Party or jointly that incorporates, exploits, or cannot be used without employing all or any part of a Party's existing Intellectual Property.

	
m.
	
“Intellectual Property” means all patents, applications for patents, discoveries, inventions, trade secrets, know-how, confidential information, works of authorship, including computer programs and software, industrial design, trade secrets, mask works, and other intellectual property rights recognized in any jurisdiction, including Improvements.

	
n.
	
“Kickback” means a direct or indirect offer of money, fee, commission, gift, gratuity, thing of value or compensation for the purpose of improperly obtaining or rewarding favorable treatment.

	
o.
	
“Lead Time” means the typical period of time between the date a Purchase Order for Product or Finished Device is received by Seller and the date the item can be available for shipment.

	
p.
	
“Long Lead Materials” means any parts, components, subassemblies, materials, or supplies that are to be incorporated into the Product or Finished Device which Seller must commit, as of the then current date, to ensure the Delivery Date.

	
q.
	
“Loss” or “Losses” shall mean any and all liabilities, damages, losses, costs, fines, penalties, expenses or the like (including reasonable legal and attorneys’ fees).

	
r.
	
“Manufacturing Activity” or “Manufacturing Activities” means respectively, a manufacturing or assembly activity, or the manufacturing or assembly activities, performed by Seller in the manufacture and supply of Products or Finished Devices hereunder.

	
s.
	
“Material Breach” means a breach which is so substantial that is makes it financially or temporally (but for more than a brief period) impractical or impossible for the non-breaching Party to continue performance under the terms of the Agreement if not timely cured by the breaching Party, such that the non-breaching party will not be able to obtain what was negotiated without seeking performance elsewhere.   

	
t.
	
“Medical Device” shall have the meaning defined by the Federal Food, Drug, and Cosmetic Act, 21 United States Code §321(h) which reads substantially as follows, “a medical device is an instrument, apparatus, implement, machine, contrivance, implant, in vitro reagent, or other similar or related article, including a component part, or accessory which is: (i) recognized in the official National Formulary, or the United States Pharmacopoeia, or any supplement to them; (ii) intended for use in the diagnosis of disease or other conditions, or in the cure, mitigation, treatment, or prevention of disease, in man or other animals; or (iii) intended to affect the structure or any function of the body of man or other animals, and which does not achieve any of its primary intended purposes through chemical action within or on the body of man or other animals and which is not dependent upon being metabolized for the achievement of any of its primary intended purposes”.

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u.
	
“Minimum Buy” means any parts, materials, components, or supplies that are to be incorporated into the Product or Finished Devices which are reasonably obtainable in the marketplace, but only in a minimum order, package, lot size or the like.

	
v.
	
“New Product Technology" means new technology that specifically relates to the Product or Finished Device, including without limitation, the design, layout, specifications or component parts, and is solely, uniquely or specifically related to the Project.

	
w.
	
“Non Cancelable Non Returnable” or “NCNR” means materials or components purchased from suppliers under terms and conditions that prohibit cancellation of the order and/or return of the material.

	
x.
	
“Product(s)” means the component parts manufactured or sourced by Seller as further set forth in the Statements of Work and/or Proposal.  The Products may be further defined by mutually agreed to specifications or other requirements documents.  For the avoidance of doubt, the portions or components of a Medical Device that is not being manufactured or sourced independently by Seller shall not be considered Products.

	
y.
	
“Specification(s)” means, as applicable, the specifications listed in the applicable Statement of Work or Exhibit D as amended form time to time by mutual agreement of Buyer and Seller.  

	
z.
	
“Price(s)” means the amount paid by Buyer to Seller for Product or Finished Devices as set forth in Section 3(e) or the applicable Statement of Work or Exhibit C.

	
aa.
	
“Purchase Order(s)” means a binding order for the purchase of Products, Finished Devices or Tooling issued in accordance with and subordinate to this Agreement.

	
bb.
	
“Statement(s) of Work” or “SOW(s)” shall have the meanings set forth below in Section 2(b).

	
cc.
	
“Tooling” or “Tool(s)” means any tool, mold, jig, fixture or other personal property other than capital equipment used in the manufacture of Product.

	
2.
	
CONTRACT TYPE

	
a.
	
This Agreement is a “firm-fixed-price” “build-to-print” contract. This Agreement is not a design, development, or engineering services contract.  Save for continuous improvement activities and routine engineering change orders, no design, development, or engineering services are contemplated or permitted under this Agreement.

	
b.
	
A description of the Manufacturing Activities to be performed may be contained in statements of work attached as individual exhibits to this Agreement in consecutively numbered “Exhibit A’s”, beginning with Exhibit A-1, A-2, A-3 and so forth (each a “Statement of Work” or “SOW”).  Each SOW shall be dually executed by a duly 

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authorized representative of each Party and shall be subject to and deemed a part of this Agreement upon execution.  To the extent that any terms and conditions set forth in a SOW conflict with the terms and conditions set forth in this Agreement. (excluding other SOWs), the terms and conditions of this Agreement shall control, unless otherwise expressly agreed upon by the Parties in such SOW.

	
c.
	
Affiliates may accede to, become bound by, and avail themselves to the rights and remedies of this Agreement by signing or otherwise entering a SOW.  Such Affiliates shall (i) then be bound by the terms and conditions of this Agreement as having entered into the Agreement by themselves, and (ii) shall, with respect to the SOW executed by the Affiliate, be considered either a “Buyer” or “Seller” as defined herein.     For the avoidance of doubt, a Party shall be jointly and severally liable for the obligations of its Affiliates.

	
3.
	
PURCHASE ORDERS AND PRICE AND SELLER AS A SOLE SOURCE SUBCONTRACTOR

	
a.
	
Forecast. At approximately six (6) months prior to the anticipated date of FDA approval of the APC-5000 DPI x 2 Product, Buyer shall furnish Seller with an initial twelve (12) month rolling Forecast. On the first day of each month thereafter, Buyer shall furnish Seller with an updated twelve (12) month rolling Forecast.  Should Buyer fail to provide monthly updates to the Forecast as required above, then the most recent Forecast furnished by Buyer shall auto roll by deleting the first month and adding a new twelfth (12) month with zero (0) quantity in the new twelfth month. 

	
b.
	
Binding and Non-Binding Forecasts. Quantities of Product and/or Finished Device in the first three (3) months of the Forecast are not cancelable and constitute Buyer’s binding obligation to purchase such items. The last nine (9) months of the Forecast are non-binding with respect to Product or Finished Device being purchased.  Buyer, in its sole discretion, may cancel or reschedule any scheduled deliveries in the last nine (9) months of the current forecast. Notwithstanding Buyer’s right to cancel or reschedule in the last nine (9) months of the current Forecast, Buyer acknowledges that Seller will rely upon the Forecasts in scheduling work, and in committing to purchase Long Lead Material, NCNR material, and/or Minimum Buy material, and Buyer shall be liable for the related liabilities and expenses that Seller necessarily incurs to ensure fulfillment of the Forecast.

	
c.
	
Purchase Orders. Concurrent with each monthly update of the Forecast, Buyer shall issue Purchase Order(s) for new binding obligations not covered by previous Purchase Orders, which Purchase Orders shall include: the Product or Finished Device, quantity, Specifications, Delivery Date (which shall be in accordance with the applicable Lead Time), Delivery Location and Price. 

	
d.
	
THE TERMS OF THIS AGREEMENT AND ALL EXHIBITS ATTACHED HERETO SHALL BE CONTROLLING AND ANYINCONSISTENT TERMS OR CONDITIONS ON  ANY  PURCHASE  ORDER, SALES ACKNOWLEDGEMENT OR OTHER DOCUMENTATION GIVEN  OR  

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RECEIVED  BETWEEN THE PARTIES SHALL HAVE NO EFFECT AND SUCH TERMS AND CONDITIONS ARE EXPRESSLY DISCLAIMED AND EXCLUDED.

	
e.
	
Price. The Price for Product and/or Finished Device is shown in either the applicable Statement of Work or Exhibit C.  Notwithstanding, the Parties recognize the cost of the materials may become volatile beyond Seller’s reasonable control, and the Parties agree that should the cost of any material(s) on the Product’s bill-of-material vary by more than plus or minus five percent (5%), the Price will be adjusted to reflect changes in production costs. Documentation will be made available upon request to substantiate increases in price due to material cost increases.  At or prior to the anniversary of the Effective Date, the Parties shall negotiate in good faith to establish new Prices for the coming year.  In the event that the Parties are unable to agree upon new Prices, Seller shall provide Buyer with its documentation and information regarding its price structure (i.e. open book pricing), and Seller shall be entitled to a substantially similar margin or profit structure as compared to that which is in existence as of the commercial launch of production (as evidenced by Seller’s verifiable documentation).  Notwithstanding, commencing two (2) years after the commercial launch of production, and re-occurring in subsequent two (2) year intervals thereafter (at the anniversary of each two year period), Buyer shall have the right to benchmark Seller’s Price against those of third parties, taking into consideration similar volumes, geographical locations and scope of Manufacturing Activities.  The information learned in any benchmarking exercises shall be considered in good faith by the Parties and factored into the on-going good faith price negotiations.  

	
f.
	
Delays. Seller shall: (i) promptly notify Buyer, in writing, about any and all material delays; (ii) promptly discuss any such delays with Buyer; and (iii) work with Buyer to mitigate such delays.

	
g.
	
Payment Terms.  Payment terms are net thirty (30) days from the date of Seller’s invoice. 

	
h.
	
  Seller as the Sole Source Subcontractor.  Commencing on the Effective Date of this Agreement, and continuing for a period of five (5) years from the date of commercial launch of the APC-5000 DPI x 2 Product: (i) neither Buyer nor its Affiliates, or their successors in interest whether by sale, merger, reorganization, change in control or otherwise (collectively the “Restricted Parties”), shall source, purchase, buy or otherwise receive or have manufactured the Taperhaler Product (providing the Seller has not committed a Material Breach of the Agreement), or any next generations or spin-offs of this Product or substantially similar products (collectively the “Single Source Product(s)”), from a party other than Seller or its successors in interest, on a direct or indirect basis, including through the utilization of third party contractors, partners or agents (collectively the “Restriction”), and (ii) subject to the terms and conditions herein, Seller, and/or its successors in interest, have, and are hereby granted, for the term of the Restriction, the exclusive right to be the sole source physical manufacturer of the Single Source Products on a global worldwide basis.   

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For the avoidance of doubt, the Restriction shall apply to and prevent the Restricted Parties from manufacturing or producing the Single Source Products itself and/or other forms of in-sourcing.  The Restriction shall also apply to and prevent the Restricted Parties from selling, licensing or otherwise providing its pharmaceutical product or technology to a third party and then having the third party manufacture or use the Single Source Products.  The above referenced Restriction is irrevocable but may be terminated early only if: (i) Seller terminates this Agreement or a SOW early for Seller’s convenience pursuant to Section 8(b); or (ii) pursuant to a written amendment to this Agreement, executed by both Parties hereto, expressly terminating all or a portion of the Restriction; or (iii) Buyer terminates this Agreement pursuant to Section 8(b) because of Seller’s Material Breach. In the event that this Agreement or SOW is terminated pursuant to Seller’s uncured Material Breach as set forth in Section 8(b), Seller hereby agrees to execute the aforementioned amendment terminating the Restriction, or applicable part thereof.  The Restriction may be terminated in whole or in part, dependent upon what SOWs the applicable parties elect to terminate as the case may be.  Each Party acknowledges and agrees that a breach of the above paragraph may cause the other Party irreparable harm to which breach of contract or monetary damages may be inadequate.  Accordingly, the harmed party shall be entitled to, without waiving any other rights or remedies, injunctive or equitable relief from a court of competent jurisdiction to remedy any threatened or actual breach of this Agreement.        

	
4.
	
REGULATORY COMPLIANCE

	
a.
	
Buyer has Design Responsibility for all Products and Finished Devices under this Agreement.  Seller shall not make any change to the Product’s or Finished Device’s design, manufacturing process, materials, or components without Buyer’s prior written approval.

	
b.
	
Seller maintains FDA registered facilities which have controls that comply with 21 CFR Part 820 and 21 CFR Part 210/211. Seller is also certified to several ISO Standards including: ISO 9001:2008, ISO 13485:2003, and ISO 14001. Seller is compliant with, but not registered or certified to: (i) Pharmaceutical Affairs Law 2002 (PAL) [Japan]; (ii) Medical Device Directive 93/42/EEC [Europe]; (iii) ISO 60601-1, and (iv) ISO 60601-1-2. During the performance of this Agreement, Seller shall continue to maintain the above registrations and/or certifications applicable to the Products, Finished Devices and/or Manufacturing Activities and also continue to comply, if applicable, with those laws, directives, or standards listed above to which Seller is not currently registered or certified and all laws and regulations (including without limitation any applicable FDA cGMP requirements) directly related to the manufacture of Products, Finished Devices or Manufacturing Activities.

	
c.
	
Seller shall comply with all applicable anti-bribery and anti-collusion laws, statutes and regulations; and neither Party shall offer, grant, demand or accept bribes, illegal payments, payoffs or Kickbacks in exchange for business opportunities or favorable treatment by with one another.

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d.
	
In addition to the regulatory requirements set forth in Sections 4(a) through 4(d) above, Seller shall also comply with the quality requirements document attached hereto as Exhibit E, or the then current version of the quality requirements or quality agreement as mutually agreed to by the Parties in writing (the “Quality Agreement”). 

	
e.
	
Seller shall maintain true and accurate books, records, test and laboratory data, reports and all other information relating to all services performed under this Agreement, including all information required to be maintained by applicable laws. 

	
f.
	
Seller shall make its facilities and all records relating to the services performed hereunder available to the FDA or other regulatory authorities at times agreed with such authorities and shall notify Buyer if the FDA or other regulatory authority begins or schedules an inspection of Seller’s records, facilities, or manufacturing processes related to the services and provide Buyer access to any documentation related to or resulting from the inspection. 

	
g.
	
Seller hereby certifies it does not and shall not employ, contract with or retain any person directly or indirectly to perform services under this Agreement if such person is debarred under 21 U.S.C. 335a (a) or (b) or other equivalent laws, rules, regulations or standards of any other relevant jurisdiction.

	
h.
	
Seller will cooperate in providing to Buyer any nonconfidential information in its control relating to this Agreement that Buyer may reasonably require in connection with its regulatory or governmental filings, provided that such information shall be provided in whatever form held by Seller. If applicable, Seller will provide a letter permitting FDA to reference its relevant drug master file.

	
5.
	
CONFIDENTIALITY

That certain Non-Disclosure Agreement executed by the Parties and made effective February 18, 2015 is incorporated herein by reference and made a part of this Agreement.

	
6.
	
INTELLECTUAL PROPERTY

	
a.
	
Ownership.   Each of the Parties hereto owns Intellectual Property developed or acquired at its own expense which pre-existed or exists independently of this Agreement.  Each Party shall continue to own its Intellectual Property and all Improvements thereto.  

	
b.
	
No Third Party Intellectual Property.  Except as specified or approved in writing in advance by Buyer, Seller will not knowingly incorporate into the Finished Device or Product any Intellectual Property that is owned by third parties.  Buyer acknowledges that Seller has not made and is not obligated to make any independent inquiry or investigation as to whether the Product, Finished Device or Manufacturing Activities infringe upon any patent, copyright or trade secret.

	
c.
	
Improvements and New Product Technology.  Seller hereby assigns and agrees to assign to Buyer all right, title and interest in and to all Improvements to Buyer’s 

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Intellectual Property that Seller may develop in the performance of this Agreement and any New Product Technology.  Buyer hereby assigns and agrees to assign to Seller all right, title and interest in and to all Improvements to Seller’s proprietary methods, processes and know-how developed in the performance of this Agreement.  The Parties will cooperate fully to execute assignments and other documents, and furnish evidence, as may be necessary and appropriate, to effectuate the other’s rights to respective Improvements.

	
d.
	
Limited License to Buyer’s Technology.  Solely for the purposes of carrying out its obligations under this Agreement, Buyer grants to Seller a limited, revocable, non-exclusive license to use Buyer’s respective Intellectual Property.  

	
e.
	
Seller Proprietary Methods, Processes and Know-How.  Notwithstanding the foregoing, Buyer acknowledges and agrees that Seller may utilize its proprietary methods, processes and know-how during the Manufacturing Activities contemplated hereunder and that the ownership of any such proprietary methods, processes and know-how are and will remain solely with Seller.  Unless expressly provided herein, no other rights or licenses in any Intellectual Property shall be provided or conferred from one Party to another. 

	
7.
	
ORDER OF PRECEDENCE

All exhibits attached hereto form an integral part of this Agreement (the “Exhibits”).  The provisions of each Exhibit shall be incorporated by reference into and be deemed to be a part of this Agreement.  If any conflict exists between the provisions of this Agreement and the following documents, or among the provisions of the Exhibits themselves, the order of precedence shall be as follows:

	
i.
	
This Agreement

	
ii.
	
Exhibit A – the Statements of Work or SOWs

	
iii.
	
Exhibit B – the Nondisclosure Agreement

	
iv.
	
Exhibit C – the Proposal(s)

	
v.
	
Exhibit D – Specifications

	
vi.
	
Exhibit E – Quality Agreement

	
8.
	
TERM AND TERMINATION

	
a.
	
Unless terminated earlier in accordance with the provisions set forth below in this Section 8, the initial term of this Agreement shall be for a period of five (5) years commencing from the Effective Date.  After the initial term, this Agreement will automatically renew on its yearly anniversary for successive one (1) year increments unless either Party provides the other Party at least ninety (90) days written notice of its intent not to renew at the end of the then current renewal term.  Notwithstanding the expiration or termination of this Agreement or a SOW, this Agreement shall remain in effect solely with respect to any on-going SOWs that are still operative until those SOWs terminate or expire.  

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b.
	
This Agreement and/or any SOW may be terminated early by: (i) mutual agreement of the Parties hereto; (ii) for convenience by Seller upon one hundred twenty (120) days advance written notice to Buyer; or (iii) either Party upon the other’s Material Breach; provided, the non-breaching Party has given written notice of such perceived breach and the breaching Party has failed to cure such breach within thirty (30) days of receipt of such notice.

	
c.
	
Upon either Party providing written notice of its intent to terminate this Agreement or any SOW for convenience, Seller shall, with respect to the SOWs being terminated: (i) immediately cease all work in progress; (ii) immediately notify any subcontractors to stop work; (iii) await instructions from Buyer as to how to conduct itself during the ninety (120) days following the notice; and (iv) perform any Manufacturing Activities requested by Buyer within such ninety 120) day period that can be completed within such period; provided, such request is for Manufacturing Activities that, except for the termination, would have been within the scope of this Agreement.

	
d.
	
Notwithstanding the foregoing, in the event (i) this Agreement is terminated for convenience by Seller, and (ii) provided Buyer is and remains current in its payment obligations, Buyer shall have the right to make a last-time-buy of Product or Finished Devices. The quantity of such last-time-buy shall not exceed one hundred twenty percent (120%) of the quantity actually ordered by Buyer and delivered by Seller in the six (6) month period preceding termination.  Such last-time-buy shall be governed by the terms of this Agreement. 

	
e.
	
With respect to any SOW being terminated, Buyer's obligation and liability to Seller shall be payment for: (i) all Manufacturing Activities within the scope of that SOW which were performed up to the effective date of termination, including any expenses for Long Lead Materials and NCNR materials; (ii) any approved out-of-pocket expenses up to and including the effective date of termination; and (iii) all services requested by Buyer following notice of termination.

	
f.
	
Termination or expiration of this Agreement and/or any SOW shall not relieve a Party its obligation incurred prior to the termination or expiration date.  The terms, conditions, rights and obligations of this Agreement that are intended by their natural meaning to survive the expiration or termination of this Agreement or any SOW shall do so.

	
9.
	
FORCE MAJEURE

Neither Seller nor Buyer shall be liable for a failure to perform under this Agreement on account of incidents of force majeure, including but not limited to strikes, lockouts, fires, floods, other casualties, explosions, acts of God, material procurement problems that could not have been reasonably avoided, governmental actions, state of war or other similar causes beyond the reasonable control of Seller or Buyer; provided, that the Parties shall resume performance as rapidly as possible after the force majeure incident ceases, and each Party’s obligations to perform under this Agreement shall be suspended only for the reasonable duration of the force majeure incident.  Seller shall not be liable to Buyer 

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for delay or failure to perform that is attributable to Buyer’s delay or inability to provide BFMs, secure regulatory approvals, and/or Buyer’s failure to perform its other obligations and responsibilities.

	
10.
	
INDEPENDENT CONTRACTOR

Seller and Buyer are independent contractors.  Neither Party shall be construed to be a partner, joint venturer, franchisee, employee, principal, agent, representative or participant of or with the other for any purpose whatsoever.  Neither Party shall have any right or authority to assume or to create any obligation or responsibility, express or implied, on behalf of or in the name of the other.

	
11.
	
RESPONSIBILITIES

	
a.
	
With respect to the Manufacturing Activities performed hereunder, Seller shall, as applicable, manufacture, supply or assemble the Products or Finished Devices initiated and developed by Buyer in accordance with the Specifications and timeframes agreed to by Seller and Buyer.  Seller will exercise diligence in the fulfillment of its obligations hereunder and its performance will be in accordance with the regular practices of the injection molded plastics industry and the terms and conditions contained herein.  

	
b.
	
Seller’s role is limited to that of a contract manufacturer and it does not, and has not, engaged in the initiation or the development of any product, the component parts of any product, a finished device, and/or the related designs and specifications.  Accordingly, Buyer shall be responsible for design and manufacturing defects and compliance with the requirements of medical or combination device manufactures or sellers as set forth in the Federal Food, Drug and Cosmetic Act; comparable foreign regulatory agencies; and/or any other federal, state, or local agencies, except to the extent that the aforementioned laws and regulations expressly designate a responsibility to a contract manufacturer.  Seller, its employees and contractors may rely upon instructions and information provided by Buyer, or any person designated by Buyer, and Seller, its employees, agents and contractors shall not incur any liability for such reliance for the actions they take in reliance upon the instructions and information provided by Buyer, its employees, agents and contractors.  

	
c.
	
The Parties shall cooperate in the investigation of any customer complaint related to the use of the Product or Finished Device. In addition, each of the Parties shall notify the other promptly if any batch or lot of the Product or Finished Device is the subject of a recall, market withdrawal or correction, and the Parties shall cooperate in the handling and disposition of such recalled, withdrawn or corrected Product or Finished Devices.  To the extent that a recall, market withdrawal or correction  relates to Seller’s failure to deliver the Product or Finished Device in accordance with the Specifications, and to the extent that such recall, market withdrawal or correction occurs within the applicable shelf life of the product, Seller shall, in addition to the remedies provided below in Section 12, reimburse Buyer for the direct and verifiable costs for the inspection, testing, sorting, quarantine, shipping and re-installation of the 

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recalled, withdrawn or corrected Product or Finished Device; provided, Seller’s liability for this reimbursement shall not exceed ten percent (10%) of the total amount paid to Seller by Buyer for the nonconforming Product or Finished Device in the preceding one (1) year period ending on the date that such Product or Finished Device was recalled, withdrawn or corrected.

	
d.
	
To the extent that a recall, market withdrawal or correction is attributable to the acts or omissions of an entity that supplied Seller one or more BFMs, such recall, market withdrawal, or correction shall not be deemed Seller’s failure to conform to the Specifications or an act or omission of Seller, unless such recall, market withdrawal, or correction is predominately attributable to Seller’s gross negligence or willful misconduct or Seller’s Material Breach of the Quality Agreement set forth on Exhibit E attached hereto.

	
12.
	
LIMITED WARRANTY

	
a.
	
Limited Product Warranty:  For a period of twelve (12) months from the time of delivery, Seller warrants that the Products shall be manufactured in accordance with the Specifications and be free from defects in materials and workmanship.  In the event that a Product fails to comply with this limited product warranty, Seller shall either: repair, replace, or refund the Purchase Price (including transportation cost) of the non-conforming Product returned to Seller.  

	
b.
	
Limited Finished Device Warranty:  If applicable, for a period of twelve (12) months from the time of delivery, Seller warrants that the Finished Devices shall be assembled in accordance with the Specifications and under cGMP conditions and regulations and be free from defects in materials and workmanship.  In the event that a Finished Device fails to comply with this limited finished device warranty, Seller shall either: repair, replace, or refund the Purchase Price (including transportation cost) of the non-conforming Finished Device returned to Seller.  Notwithstanding anything to the contrary, the foregoing limited finished device warranty and remedy shall not apply to any defects and/or nonconformities associated in any BFMs; except to the extent that Seller failed to discover such defects and/or nonconformities and was in material violation of the Quality Agreement set forth on Exhibit E.

	
c.
	
Limited Tooling Warranty:  The Tooling supplied hereunder (if any) shall be free from defects in material and workmanship and shall be capable of producing the number of units, shots or cycles set forth in the Proposal attached hereto (i.e. the “useful life” of the Tool); provided, the Tooling is made, operated and maintained by Seller at Seller’s facility.  In the event that a Tool fails to comply with the limited tooling warranty stated above, Seller shall either: repair, replace, or refund the purchase price (including transportation cost) of the non-conforming Tool.   Once a Tool has produced the number of units, shots or cycles set in the Proposal and is past its useful life, all maintenance, repairs, upkeep and modifications to the Tool shall be at Buyer’s sole expense, except for routine cleaning and maintenance. Long before the end of a tools useful life, Buyer and Seller will negotiate an appropriate strategy 

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to insure that product meeting all specifications can be achieved. A cost schedule of maintenance, expected repairs and upkeep will be provided to Buyer in advance. 

	
d.
	
THE FOREGOING LIMITED WARRANTIES AND ASSOCIATED REMEDIES ARE THE SOLE AND EXCLUSIVE WARRANTIES PROVIDED HEREUNDER.  SELLER MAKES NO OTHER GUARANTEES OR WARRANTIES, EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES ON DESIGN, PERFORMANCE, NON-INFRINGEMENT, AND/OR ANY IMPLIED WARRANTY OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

	
13.
	
INFRINGEMENT

	
a. 
	
In the event Buyer is enjoined for using or reselling Product or Finished Devices delivered under this Agreement due to claims that Seller’s methods or processes infringe the intellectual property rights of a third party, Seller shall remedy such claims by either: (i) re-manufacturing the Product or Finished Device such that it no longer infringes, (ii) procuring a license enabling Buyer to continue to use and resell the Product or Finished Device, or (iii) if neither of the foregoing is economically feasible, refunding the Price of the infringing Product or Finished Device returned to Seller. 

	
b.
	
THE FOREGOING REMEDY IS THE SOLE AND EXCLUSIVE REMEDY IN THE EVENT SELLER’S METHODS OR PROCESSES INFRINGE A THIRD PARTY’S INTELLECTUAL PROPERTY.  SELLER HAS NO RESPONSIBILITY OR OBLIGATION OF ANY KIND TO REMEDY CLAIMS THAT THE PRODUCT’S OR FINISHED DEVICE’S DESIGN OR SPECIFICATIONS INFRINGE A THIRD PARTY’S INTELLECTUAL PROPERTY.

	
14.
	
SELLER’S INDEMNIFICATION OF BUYER

Seller agrees to defend, indemnify and hold harmless, at its own cost, Buyer and its Affiliates and their respective employees, directors, officers and agents against Losses that result from third party personal injury Claims, whether actual or threatened, arising from: Seller’s failure to manufacture Product in conformance with Specifications; Seller’s failure to assemble the Finished Device in conformance with the Specifications; and/or Seller’s gross negligence or willful misconduct.

	
15.
	
BUYER’S INDEMNIFICATION OF SELLER

Subject to: (i) Seller’s warranty obligations in Section 12; (ii) Seller’s infringement obligations in Section 13; and (iii) Seller’s indemnification obligations in Section 14; Buyer will defend, indemnify and hold harmless, at its own cost, Seller and its Affiliates and their respective employees, directors, officers and agents from and against any and all other Losses incurred in connection with any Claim, whether actual or threatened, regardless of cause including but not limited to: defects in the design; claims that Product or Finished Device infringes a third party’s intellectual property; omissions by Buyer in 

13

 

		
inspecting, marketing, or distributing Buyer’s final products; and/or Buyer’s negligence or willful misconduct. 

	
16.
	
LIMITATION OF LIABILITY

EXCEPT WITH RESPECT TO THIRD PARTY CLAIMS REQUIRED TO BE INDEMNIFIED PURSUANT TO EITHER SECTION 14 OR 15, OR A MATERIAL BREACH OF SECTION 3(H) REGARDING EXCLUSIVITY, NEITHER PARTY SHALL BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL, CONSEQUENTIAL, OR PUNITIVE DAMAGES OF ANY KIND REGARDLESS OF HAVING BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES. 

NOTWITHSTANDING ANY TERM OR CONDITION IN THIS AGREEMENT TO THE CONTRARY, SAVE FOR DAMAGES ARISING OUT OF A SELLER’S GROSS NEGLIGENCE, WILLFUL MISCONDUCT OR ITS INDEMNIFICATION OBLIGATIONS SET FORTH HEREIN, SELLER’S MAXIMUM LIABILITY HEREUNDER SHALL BE LIMITED TO THE LESSER OF: (A) THE DOLLAR VALUE OF THE PRODUCTS OR FINISHED DEVICES ACTUALLY DELIVERED IN THE PRECEEDING TWELVE MONTHS; OR (B) ONE MILLION DOLLARS ($1,000,000.00).

If at a later date once the volumes for commercial production are more defined (based on the Forecast or actual annual order volumes of Product or Finished Devices being ordered by Buyer), the Parties shall revisit the aggregate liability cap above and negotiate modifications to the upper limitation of the cap in good faith.  Any modifications to the aggregate liability cap shall be memorialized in a written amendment to this Agreement.   

INSURANCE

During the Term of this Agreement and at all times that Seller performs Manufacturing Activities hereunder, Seller shall maintain in full force and effect, at its own expense, insurance coverage in the forms and amounts set forth below: 

	
a.
	
Worker’s Compensation and Employers Liability Insurance.  Worker’s compensation insurance as required by law or regulation.  Additional employer’s liability insurance in amounts not less than $1,000,000 per accident for bodily injury and $1,000,000 per incident by disease.

	
b.
	
Commercial General Liability.  Commercial General Liability insurance with minimum combined single limits for bodily injury and property damage of $1,000,000 per occurrence and $2,000,000 aggregate.  The Commercial General Liability coverage shall also include products and completed operations liability with an aggregate limit of $2,000,000.

	
17.
	
DISPUTE RESOLUTION

The Parties recognize that disputes, controversies, causes of action, or claims relating to the provisions or performance of this Agreement may arise from time to time during the 

14

 

Term of this Agreement or thereafter (hereinafter “Dispute(s)”. Within sixty (60) days of learning or becoming aware of a Dispute or potential Dispute, the Party shall provide the other Party’s authorized representatives with written notice of the Disputes.  The Parties shall then attempt to resolve any such Disputes through good faith negotiations.  If mutually agreeable resolutions are not negotiated within ninety (90) days, the Parties agree that any remaining Disputes may, upon mutual agreement of the Parties, be settled by binding arbitration in accordance with the Commercial Arbitration Rules of the American Arbitration Association (“AAA”) and its Supplementary Procedures for International Commercial Arbitration, then in effect, as modified or supplemented by this Section 18.  If binding arbitration is agreed upon by the Parties, the following shall apply:

	
a.
	
The arbitration venue will be in the State of Wisconsin, United States of America, unless otherwise agreed upon by the Parties. The arbitration shall be conducted in the English language. Initially, if appropriate, the arbitration will be conducted with a single arbitrator.  If the issue cannot be resolved, the arbitration will be handled as follows: The arbitration will be conducted before a panel of three (3) arbitrators. Each arbitrator will be an individual with substantial commercial transactional experience of at least fifteen (15) years in a corporate or judicial legal setting.  The arbitration panel will be selected as follows:  the Parties will request a list of ten (10) arbitrators drawn from the AAA's panel of commercial arbitrators.  From this list, both Parties will each choose one arbitrator.  After they have been notified of their panel selection, the two (2) arbitrators will agree on a third arbitrator from the list of ten (10), who will be the chair of the panel, and the panel will be final. 

	
b.
	
The decision of the majority of the arbitrators will be the panel’s decision. The arbitrators will not have the authority to add, change, or disregard any term of this Agreement. The arbitrators shall have the authority to enforce any terms agreed upon by the Parties or otherwise required to be adhered to pursuant to this section of the Agreement. The arbitrators’ decision will be in writing and binding on the Parties, and judgment on the arbitration award may be entered by a court of competent jurisdiction.

	
c.
	
Nothing within this provision shall prevent the Parties from seeking a court order for injunctive relief, if necessary, so as to stop or prevent the misuse or misappropriation of its Confidential Information, including but not limited to its Intellectual Property and trade secrets.

	
18.
	
MISCELLANEOUS

	
a.
	
The Parties acknowledge and agree that Seller may be dedicating specific manufacturing floor space and other capital or human resources towards the manufacture and supply of Product hereunder.  The Parties also acknowledge and agree that once these items are dedicated or obtained, it may be burdensome, impractical or expensive to redeploy or idle such resources on a temporary or long-term basis.  While the specifics of any such considerations are unknown as of the Effective Date of this Agreement, the Parties agree to negotiate the idle capacity or redeployment arrangements at a later date (if applicable).  Any such agreements will 

15

 

		
be memorialized in either an addendum to this Agreement or a subsequently executed Statement of Work.

	
b.
	
Equal Opportunity and Affirmative Action.  Phillips Plastics Corporation, through its responsible managers, recruits, hires, advances, trains and promotes in all job titles without regard to race, color, religions, sex, national origin age, disability or veteran status.  As a federal contractor/subcontractor, Phillips Plastics Corporation is subject to the requirements of: Executive Order 11246, as amended (Equal Employment Opportunity); Section 2012 of the Vietnam Era Veterans’ Readjustment Assistance Act of 1974; Section 503 of the Rehabilitation Act of 1973; and Executive Order 13201 (Notice of Employee Rights Concerning Payment of Union Dues).  It is a Phillips Plastics Corporation requirement that all applicable suppliers, subcontractors and service providers to Phillips Plastics Corporation adhere and fully comply under the foregoing executive orders (clauses incorporated by reference).

	
c.
	
Any notice or other communication in connection with this Agreement shall be in writing, in person, by Federal Express or similar courier service, by fax to a Party’s current fax number or, if within the United States, by certified U.S. Mail.  Such notices shall be deemed to be given (i) if in person, or by national courier service, when received by a Party, (ii) if by certified U.S. Mail, return receipt requested, four (4) days after posting properly addressed and postage prepaid, or (iii) upon fax transmission, provided that the sender retains electronically dated documentary proof of successful transmission (if the fax transmission is not made on a regular business day or is made after 5 p.m. it shall be effective on the next business day).  Any notice shall be addressed as follows:

 

If to Buyer:Adamis Pharmaceuticals Corporation 

Attn: Karen Daniels

11682 El Camino Real, Suite #300

San Diego, CA 92130

Email: _kdaniels@adamispharma.com______________

 

If to Seller:Phillips Plastics Corporation

Attn:  Contracts Coordinator

1201 Hanley Road

Hudson, WI 54016

Email: ContractCoordinator@phillipsmedisize.com 

	
d.
	
Each Party represents to the other that it is under no legal impediment that would prevent their signing this Agreement or performing the same.

	
e.
	
Except as may be required by applicable law, neither Party shall issue any press release or external announcement without the other’s prior written consent.  Notwithstanding anything else in this Agreement, each party may make such disclosures in its filings and disclosures with the Securities and Exchange 

16

 

		
Commission or otherwise as such party in good faith concludes are necessary or appropriate in order to comply with its obligations under securities laws or applicable laws. If a party is required to disclose confidential information of the other party as part of a judicial process, government investigation, legal proceeding, or other similar process, if it is reasonably possible to do so, such party shall give the other party prior written notice of the requirement and an opportunity to seek an appropriate protective order or modification of any disclosure. 

	
f.
	
During the term of this Agreement and for a period of one (1) year thereafter, neither Party shall, on its own account or that of a third party, solicit, or recruit, either directly or indirectly, any employee of the other for employment or any other services.  

	
g.
	
In case any provision (or portion thereof) of this Agreement shall for any reason be held to be invalid, illegal or unenforceable in any respect, except in those instances where removal or elimination of such invalid, illegal or unenforceable provision would result in a failure of consideration hereunder, such invalidity, illegality or unenforceability shall not affect the remaining provisions and the remaining provisions shall be construed as if such invalid, illegal or unenforceable provision had never been contained herein.  The captions and headings used in this Agreement are for reference only and shall not be construed in any way as terms or used to interpret the provisions of this Agreement.

	
h.
	
Domestic shipments shall be delivered F.O.B. Seller’s plant, loaded on the truck of carrier designated by Buyer. International shipments shall be delivered Ex-Works (Incoterms 2010) Seller’s plant, loaded on the truck of carrier designated by Buyer.  

	
i.
	
This Agreement shall not be assigned in whole or in part by either Party without the written consent of the other which consent shall not be unreasonably withheld.  Notwithstanding the foregoing, a Party may assign this Agreement to a purchaser of all or substantially all of that Party’s business to which this Agreement pertains without the prior consent of the other Party.

	
j.
	
This Agreement and the Exhibits hereto constitute and contain the entire understanding and agreement between the Parties with respect to the subject matter hereof.  

	
k.
	
This Agreement shall be construed in accordance with the laws of Wisconsin, without regard to its choice of law rules.  The jurisdiction and venue shall be the state and federal courts located in the State of Wisconsin.

	
l.
	
This Agreement may be modified only by a written document signed by an authorized representative of each Party and which refers to this Agreement.

	
m.
	
Each Party may be currently or in the future be developing information internally or receiving information in confidence from other parties that may be similar or competitive to the information received from the other Party herein. Accordingly, nothing in this Agreement shall be construed as a representation or inference that 

17

 

		
either Party will not develop information, products or processes, for itself or others, that either relate to or compete with the products or processes contemplated by the other Party hereto.

	
n.
	
Each Party acknowledges that it participated in the negotiation and preparation of this Agreement and that it had the opportunity to consult with an attorney of its choice in connection therewith.  Ambiguities, if any, in this Agreement shall not be construed against either Party, irrespective of which Party may be deemed to have drafted the Agreement or authorized the ambiguous provision. 

	
o.
	
No waiver of the provisions or requirements of this Agreement shall be deemed, or shall constitute, a waiver of any subsequent breach, whether or not similar, nor shall any waiver constitute a continuing waiver.

	
p.
	
A PDF or other reproduction of this Agreement may be executed by the Parties and shall be considered valid, binding and effective for all purposes.  This Agreement may be signed in counterparts, each of which shall constitute an original, but all of which together shall constitute one and the same Agreement.

 

 

IN WITNESS WHEREOF, the Parties have caused this Agreement to be signed by their duly authorized representatives effective as of the Effective Date.

 

Adamis Pharmaceuticals CorporationPhillips Plastics Corporation 

 

By:_________________________By: _____________________________

 

Title:_________________________Title:_____________________________

 

Date: _________________________Date: _____________________________

 

 

18

 

*EXAMPLE*

 

Exhibit A

Statement of Work Template

 

Exhibit A-# Statement of Work No. 00#

 

Project Name and Scope of Statement of Work

 

This Statement of Work is entered into and subject to the terms and conditions of the Manufacturing Agreement by and between Adamis Pharmaceuticals  Corporation(“Buyer”) and Phillips Plastics Corporation (“Seller”) as of _________________, 2015 (the “Agreement”).  Together, this Statement of Work and the Agreement and all applicable exhibits and amendments thereto constitute the terms and conditions under which Seller will perform the work set forth below.

 

I.Description of Manufacturing Activities:

 

 

II.Materials and Instruction to be Provided by Buyer:

 

III.Period of Performance:

Start Date:

Anticipated Completion Date:

 

IV.Deliverables:

 

V.Designated Buyer Representative:

Name:

Phone:

Email:

 

VI.Designated Seller Representative:

 

Name:

Phone:

Email:

 

VII.Price, Costs and Payment:

(as applicable)

 

VIII.Miscellaneous:

 

IX.Attachments:

(if any)

 

Exhibit B

 

Nondisclosure Agreement dated February 18, 2015 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2

 

Exhibit C

Proposal(s)

 

 

Proposal for the Taperhaler Product numbered 23830-M5404 Rev 00 and dated April 29th, 2015

 

 

 

 

3

 

Exhibit D

Specifications

 

The Specifications and similar requirements expressly referenced in the Proposal(s) or Statements of Work. 

 

The Specifications may be mutually agreed to by the Parties at a later date, or modified pursuant to the mutual written agreement of the Parties.

 

 

Exhibit E

Quality Agreement 

 

I. General

	
·
	
Capitalized terms not defined in this document shall have the meaning ascribed in the Agreement.

	
·
	
Seller shall be ethical in its relationship with Buyer. Ethical conduct includes protecting confidential and intellectual property from other companies.

 

	
·
	
Prints, gages, and other property consigned by Buyer to Seller shall be surrendered upon Buyer’s request.

 

	
·
	
If there is a known discrepancy, or an unclear, incorrect, or incomplete document (e.g., description, specifications, data sheets, drawings, samples), either party shall notify the other without delay and seek clarification and/or agreement to resolve the issue.

 

  II. Quality Assurance System

	
·
	
Seller shall maintain a quality management system which shall be capable of meeting the applicable requirements of 21CFR820, ISO 9001:2008 and ISO 13485:2003.

 

	
·
	
All Products, Finished Devices and services under the Agreement shall be manufactured and tested in accordance with the above requirements and any applicable Seller specifications and procedures, at a minimum.

 

 III. Audits and On-site Inspections

	
·
	
Buyer shall be entitled to audit Seller to evaluate its compliance with the quality requirements set forth in Section II above.  Audits require reasonable advance notice. Seller may deny access to and/or inspection of proprietary manufacturing methods and other industrial secrets if compliance can be demonstrated through other means.

 

 IV. Changes

	
·
	
Seller shall at all times comply with the change control procedures specified in the Agreement (if any) and in Seller’s Quality Management System. 

 

	
·
	
Seller shall give Buyer notice prior to any “significant change(s)” and afford Buyer the opportunity to evaluate such change.

 

	
·
	
“Significant change(s)” are those changes that Seller reasonably believes could affect the safety and effectiveness of a Product or Finished Device and may include, but are not limited to: critical process changes or new indications for uses, labeling changes, the use of a different facility, changes in manufacture, process or packaging of the Product or Finished Device, changes in sterilization 

		
procedures, changes in the design specifications, circuits, components, raw materials, principle of operation, or physical layout of the device, or changes in the overall Quality Management System.

 

V. Record Retention

	
·
	
Seller shall retain device history records (DHR) for complete devices for a period that is determined by the expected life and storage period of the device, but not less than 2 years from the date of product release by the organization or as specified by relevant regulatory requirements.  Records and samples (if applicable) shall be retained and available for inspection during the life of the Product or Finished Device.  If the business relationship terminates, then Buyer may be required to transfer such records or copies of such records to Buyer’s custody.  Such transfer will be at the option and upon the request of Buyer.

 

VI. Product Complaints

	
·
	
Buyer will be solely responsible for the reporting of adverse experiences with respect to the Product or Finished Device to the FDA and other global regulating bodies.  Seller is responsible for adverse event reporting as prescribed in Seller’s Quality Management System, after consultation with the customer.

 

	
·
	
Seller will notify Buyer without delay, of any customer complaints or medical adverse event reports that implicate the processes used in the manufacture of the device (e.g., manufacturing, filling, packaging and/or distribution).

 

	
·
	
Seller will notify Buyer without delay of any Product or Finished Device complaints, or internal problems which could result in a customer complaint.

 

	
·
	
Seller will conduct internal investigations, record reviews, and sample evaluation as required to determine the validity of any complaint and report the results to the Buyer.  The nature of the complaint will dictate the response time.

 

VII. Field Alerts and Recalls

	
·
	
In the event the Buyer is required or voluntarily decides to recall or withdraw Product or Finished Devices that implicates a manufacturing process, Seller will cooperate fully in connection with such a recall or withdrawal.   Seller will provide appropriate contact information to the Buyer for this purpose.  Buyer will be responsible for disposing of any recalled or withdrawn Product or Finished Devices. 

 

VIII. Subcontracting

	
·
	
If Seller receives production or test equipment, software, services, materials, semi-finished parts or other supplies from third parties or subcontractors for the manufacture or quality assurance of their products, Seller shall ensure that these are in compliance with its documented quality management system including those for monitoring subcontractors, whether it be by contract with these parties or through carrying out sufficient tests as are necessary to assure compliance with 

2

 

		
the quality management system and with any known existing governmental regulations.

 

	
·
	
As required in Section IV, significant subcontracting changes will require notification to the Buyer.

 

IX. Certifications

	
·
	
Buyer will provide the applicable Finished Device, Product and component descriptions via engineering drawings and material, process and quality specifications.  Seller will certify in writing that the Finished Devices, Products and components meet all requirements of these specifications.  If Buyer supplies customer furnished material with the order, Seller shall use such material to fulfill the order.  For all customer furnished material, Buyer shall furnish lot number, serial number, date code, part number and other data necessary to identify and track the material.  Seller shall also certify conformance to any process specification called for on the manufacturing documentation.

 

X. Redress

 

	
·
	
Any quality notices required to be given to Seller should be addressed as follows:

 

Phillips Plastics Corporation

Attention: Quality Assurance Manager

1201 Hanley Road

Hudson, Wisconsin 54016

 

3WGBS ex_10.3

EXHIBIT 10.3

WAFERGEN BIO-SYSTEMS, INC.

NONSTATUTORY STOCK OPTION AGREEMENT

This Nonstatutory Stock Option Agreement (this “Agreement”) is executed May 12, 2015, by and between WAFERGEN BIO-SYSTEMS, INC., a Delaware corporation (the “Company”), and Rolland Carlson (“Grantee”).

W I T N E S S E T H:

WHEREAS, the Company wishes to grant Grantee a Nonstatutory Stock Option in connection with Grantee’s recent appointment as President and Chief Executive  Officer (“CEO”) of the Company, subject to the terms provided in this Agreement; and 

WHEREAS, the Compensation Committee of the Board of Directors of the Company anticipates that this Agreement will promote the best interests of the Company and its stockholders by providing Grantee a proprietary interest in the Company with a stronger incentive to put forth maximum effort for the continued success and growth of the Company and its subsidiaries;

NOW, THEREFORE, in consideration of the Grantee’s entering into that certain Executive Employment Agreement, dated May 11, 2015, by and between the Grantee and the Company (the “Employment Agreement”) and the benefits that the Company will derive in connection with the services to be rendered by Grantee thereunder, the Company and Grantee hereby agree as follows:

1.  Capitalized Terms; Determinations by Administrator.  

(a)    Capitalized terms used but not defined herein shall have the meanings ascribed to such terms in the Employment Agreement. 

(b)    The Administrator (as defined below) shall make all interpretations, rules and regulations necessary to administer this Agreement, and such determinations of the Administrator shall be binding upon Grantee.  For purposes of this Agreement, the term “Administrator” shall mean the Compensation Committee of the Board of Directors. Any question or dispute regarding the administration or interpretation of this Agreement shall be submitted by the Grantee or by the Company to the Administrator. The resolution of such question or dispute by the Administrator shall be final and binding on all persons.

2.  Option; Number of Shares; Option Price.  The Option (as defined below) granted hereunder is intended to be a nonstatutory stock option and therefore shall not qualify as an incentive stock option pursuant to Section 422 of the Internal Revenue Code of 1986, as amended.  Grantee shall have the right and option to purchase all or any part of an aggregate of one hundred fifty thousand (150,000) shares of $0.001 par value common stock of the Company (“Share(s)”) at the purchase price of $3.78 per Share (the “Option”). 

1

3.  Vesting and Expiration.  

(a)    Vesting.  The Option shall vest (become exercisable) and remain exercisable only in accordance with Annex 1 attached hereto.

(b)    Expiration.  To the extent not previously exercised according to the terms hereof, the Option shall expire on the seven (7) year anniversary of the date hereof.

4.  Exercise Period.  

(a)    Disability.  Upon Grantee’s termination of employment due to a Disability, Grantee shall have one (1) year from the date of such termination to exercise the Option granted hereunder as to all or part of the Shares subject to this Option provided Grantee has a present right to exercise such Option as of the date of such termination; provided, however, that this Option shall not be exercisable subsequent to the expiration date specified in Section 3(b), above. 

(b)    Death.  Upon Grantee’s termination of employment due to death, the Option, as to all or any part of the Shares subject to this Option, shall be exercisable provided Grantee has a present right to exercise such Option as of the date of such termination:
(1)    for one (1) year after Grantee’s death, but in no event subsequent to the expiration dates specified in Section 3(b), above; and

(2)    only (i) by the designated beneficiary of Grantee (such designation to be made in writing at such time and in such manner as the Administrator shall approve or prescribe), or (ii) if Grantee dies without a surviving designated beneficiary, by the personal representative, administrator, or other representative of the estate of Grantee, or by the person or persons to whom the deceased rights of Grantee under the Option shall pass by will or the laws of descent and distribution.  Grantee may change the beneficiary designation at any time, by giving written notice to the Administrator, subject to such conditions and requirements as the Administrator may prescribe in accordance with applicable law.

(c)    Other Terminations of Employment.  Upon Grantee’s termination of employment for any reason other than those specified above in this Section 4, Grantee shall have ninety (90) days from the date of such termination to exercise the Option as to all or part of the Shares, provided Grantee has a present right to exercise such Option as of the date of such termination; provided, however, that the Option shall not be exercisable subsequent to the expiration dates specified in Section 3(b), above.  Notwithstanding the foregoing, if Grantee’s employment is terminated for Cause, to the extent the Option held by Grantee is not effectively exercised prior to such termination, it shall lapse immediately upon such termination.

(d)    Extension of Exercise Period.  The Administrator may in its sole discretion extend the period permitted for exercise of the Option upon Grantee’s termination of employment as otherwise provided in this Section 4 if allowable under applicable law.

2

5.  Method of Exercising Option.  Except as otherwise permitted by the Administrator, the Option shall be exercisable by delivery to the Company (to the attention of its Secretary), at its offices in Fremont, California, of (i) written notice identifying the Option and stating the number of Shares with respect to which it is being exercised, (ii) payment in full of the exercise price of the Shares then being acquired as provided in Section 6, below, and (iii) execution of such other documentation as is determined to be necessary or appropriate by the Administrator from time to time the form of which shall be provided to Grantee at the time of execution and delivery of this Agreement.  The Company shall have the right to delay the issue or delivery of any Shares to be delivered hereunder until (i) the completion of such registration or qualification of such Shares under federal, state, or foreign law, ruling, or regulation as the Company shall deem to be necessary or advisable, and (ii) receipt from Grantee of such documents and information as the Administrator may deem necessary or appropriate in connection with such registration or qualification or the issuance of Shares hereunder.

6.  Payment of Exercise Price.  The exercise price shall be payable in whole or in part in cash, Shares held by Grantee, other property, or such other consideration consistent with the Agreement’s purpose and applicable law as may be determined by the Administrator from time to time.  Except as otherwise determined by the Administrator at the time of grant, such price shall be paid in cash in full at the time that the Option is exercised.  If Grantee is permitted by the Administrator to pay all or a part of the exercise price in Shares and elects to do so, Grantee may make such payment by delivering to the Company a number of Shares, either directly or by attestation, which are equal in value to the purchase or exercise price hereunder.  For this purpose, all Shares so delivered shall be valued per share at the Fair Market Value (as defined above; provided, however, if a Share is not susceptible to valuation by the above method, the term “Fair Market Value” of a Share shall mean the fair market value of a Share as the Administrator may determine in conformity with pertinent law) of a Share on the business day immediately preceding the day on which such Shares are delivered.

7.  Transfer Restrictions; Compliance with Laws.  Unless otherwise provided by the Administrator and except as provided below, the Option, and the rights and privileges conferred hereby, may not be transferred by Grantee, and shall be exercisable during the lifetime of Grantee only by Grantee.  The Option shall not be subjected to execution, attachment or similar process.  Grantee shall have the right to transfer the Option upon Grantee’s death, either to Grantee’s designated beneficiary (such designation to be made in writing at such time and in such manner as the Administrator shall approve or prescribe), or, if Grantee dies without a surviving designated beneficiary, by the terms of Grantee’s will or under the laws of descent and distribution, subject to any limitations set forth in this Agreement and all such distributees shall be subject to all terms and conditions of this Agreement to the same extent as Grantee would be if still living. Grantee agrees that Grantee shall comply with (or provide adequate assurance as to future compliance with) all applicable securities laws as determined by the Company as a condition precedent to the delivery of any Shares pursuant to this Agreement. In addition, Grantee agrees that, upon request, Grantee will furnish a letter agreement providing that (i) Grantee will not distribute or resell any of said Shares in violation of the Securities Act of 1933, as amended, (ii) Grantee will indemnify 

3

and hold the Company harmless against all liability for any such violation and (iii) Grantee will accept all liability for any such violation.

8.  Nature of Option.  Grantee shall not have any interest in any fund or in any specific asset or assets of the Company by reason of the Option granted hereunder, or any right to exercise any of the rights or privileges of a stockholder with respect to the Option until Shares are issued in connection with any exercise.

9.  Adjustment provisions. 
    
(a)    Share Adjustments.  In the event of any stock dividend, stock split, recapitalization, merger, consolidation, combination or exchange of shares of Company stock, or the like, as a result of which shares of any class shall be issued in respect of the outstanding Shares, or the Shares shall be changed into the same or a different number of the same or another class of stock, or into securities of another person, cash or other property (not including a regular cash dividend), the number of Shares subject to the Option and the exercise price applicable to the Option shall be appropriately adjusted in such equitable and proportionate amount as determined by the Administrator.  No fractional Share shall be issued under the Agreement resulting from any such adjustment but the Administrator in its sole discretion may make a cash payment in lieu of a fractional Share.

(b)    Acquisitions.  In the event of a merger or consolidation of the Company with another corporation or entity, or a sale or disposition by the Company of all or substantially all of its assets, the Administrator shall, in its sole discretion, have authority to provide for (i) waiver in whole or in part of any remaining restrictions or vesting requirements in connection with the Option granted hereunder, (ii) the conversion of the outstanding Option into cash, (iii) the conversion of the Option into the right to receive securities, including options, of another person or entity upon such terms and conditions as are determined by the Administrator in its sole discretion and/or (iv) the lapse of the Option after notice in writing has been given that the Option may be exercised within a set period from the date of such notice and that any Option not exercised within such period shall lapse.  

(c)    Binding Effect.  Without limiting the generality of what is provided in Section 1 hereof and for avoidance of doubt, any adjustment, waiver, conversion or other action taken by the Administrator under this Section 9 shall be conclusive and binding on Grantee and the Company and any respective successors and assigns.

10.  Notices.  Any notice to be given to the Company under the terms of this Agreement shall be given in writing to the Company at its offices in Fremont, California.  Any notice to be given to Grantee may be addressed to Grantee’s address as it appears on the payroll records of the Company or any subsidiary thereof.  Any such notice shall be deemed to have been duly given if and when actually received by the party to whom it is addressed, as evidenced by a written receipt to that effect.

4

11.  Taxes.  The Grantee is ultimately liable and responsible for all taxes owed by the Grantee in connection with the Award, regardless of any action the Company takes with respect to any tax withholding obligations that arise in connection with the Award. The Company makes no representation or undertaking regarding the treatment of any tax withholding in connection with any aspect of the Award, including the grant, vesting, assignment, release or cancellation of the Option, the delivery of underlying Shares, the subsequent sale of any Shares acquired upon vesting and the receipt of any dividends or dividend equivalents. The Company does not commit and is under no obligation to structure the Option to reduce or eliminate the Grantee’s tax liability. The Company may require payment or reimbursement of or may withhold any minimum tax that it believes is required as a result of the grant or exercise of the Option, and the Company may defer making delivery with respect to Shares or cash payable hereunder or otherwise until arrangements satisfactory to the Company have been made with respect to such withholding obligations.

12.  Nature of Award; Acknowledgments.  

		
	(a)
	The Option shall not confer upon Grantee any right to continue employment with the Company or a subsidiary, nor shall it interfere in any way with the right of the Company or such subsidiary to terminate Grantee’s employment any time.

		
	(b)
	The Option, and any payments or other benefits received by Grantee under the Option, is discretionary and shall not be deemed a part of Grantee’s regular, recurring compensation for any purpose, including without limitation for purposes of termination, indemnity, or severance pay law of any country and shall not be included in, nor have any effect on, the determination of benefits under any other employee benefit plan, contract or similar arrangement provided to Grantee unless expressly so provided by such other plan, contract or arrangement, or unless the Administrator expressly determines otherwise.

		
	(c)
	The Company is not providing any tax, legal or financial advice, nor is the Company making any recommendations regarding the Option or Grantee’s acquisition or sale of the underlying Shares.

		
	(d)
	Grantee is hereby advised to consult with the Grantee’s own personal tax, legal and financial advisers regarding the Option.

13.  Amendment.  The Administrator may amend the Agreement; provided, however, that Grantee’s consent to such action shall be required unless the Administrator determines that the action, taking into account any related action, would not materially and adversely affect Grantee’s rights hereunder.  However, notwithstanding any other provision of the Agreement, the Administrator may not adjust or amend the exercise price of the Option, whether through amendment, cancellation and replacement grants, or any other means, except in accordance with Section 9 hereof.

14.  Entire Agreement.  This Agreement, together with the Employment Agreement, constitutes the final understanding between Grantee and the Company regarding the Option.  In the event there is a conflict between this Agreement and the Employment Agreement, the Employment Agreement shall govern. 

5

15.  Severability.  In the event any provision of this Agreement shall be held illegal or invalid for any reason, the illegality or invalidity shall not affect the remaining parts of the Agreement, and this Agreement shall be construed and enforced as if the illegal or invalid provision had not been included.

16.  Governing Law.  This Agreement and all actions taken hereunder shall be governed by, and construed in accordance with, the laws of the State of California, applied without regard to the laws of any other jurisdiction that otherwise would govern under conflict of law principles.

[SIGNATURE PAGE FOLLOWS]

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IN WITNESS WHEREOF, the Company has caused these presents to be executed as of the date and year first above written, which is the date of the granting of the Option evidenced hereby.

WAFERGEN BIO-SYSTEMS, INC.

By:    /s/ Ivan Trifunovich    
Name: Ivan Trifunovich
Title: Executive Chairman

The undersigned Grantee hereby accepts the foregoing Option and agrees to the several terms and conditions hereof.

/s/ Rolland Carlson    
Rolland Carlson

[SIGNATURE PAGE - OPTION AWARD AGREEMENT]

Annex 1
For so long as Grantee remains continuously an employee of the Company, this Option shall vest and become exercisable over a three (3) year period with one-third (1/3) of the Option vesting on the first (1st) anniversary, and the remaining two-thirds (2/3) of the Option vesting in eight (8) equal quarterly installments over two (2) years following the first (1st) anniversary. 
Notwithstanding the foregoing, if the Company terminates Grantee’s employment with the Company other than For Cause within three (3) months before or twelve (12) months following a Change of Control, this Option shall vest and become exercisable in full on the date of such termination.  
Except as described in the preceding paragraph or determined by the Administrator, upon Grantee’s termination of employment for any reason, Grantee shall forfeit the Option or portion of the Option that has not vested at the time of such termination.  Notwithstanding the foregoing, the Administrator may, in its discretion, accelerate the date that any installment of this Option becomes exercisable.  The foregoing rights are cumulative and may be exercised only before the date which is seven (7) years from the date of this Option.  Following the expiration of this Option in accordance with the preceding sentence, all of Grantee’s rights hereunder will be forfeited and canceled in their entirety.
If Grantee ceases to remain continuously an employee of the Company, other than by reason of death or Disability or termination For Cause, no further installments of this Option shall become exercisable, and this Option shall expire (may no longer be exercised) after the passage of ninety (90) days from Grantee’s last day of employment, but in no event later than the scheduled expiration date.  Following the expiration of this Option in accordance with the preceding sentence, all of Grantee’s rights to exercise the Option will be forfeited and canceled in their entirety.
If Grantee ceases to remain continuously an employee of the Company as the result of termination For Cause, this Option shall expire (that is, may no longer be exercised) upon Grantee’s receipt of written notice of such termination and shall thereafter not be exercisable to any extent whatsoever. Following the expiration of this Option in accordance with the preceding sentence, all of Grantee’s rights hereunder to exercise the Option will be forfeited and canceled in their entirety.
If Grantee dies while employed by the Company, this Option may be exercised, to the extent otherwise exercisable on the date of death, by Grantee’s estate, personal representative or beneficiary to whom this Option has been transferred, only at any time within one (1) year after the date of death, but not later than the scheduled expiration date.  Following the expiration of this Option in accordance with the preceding sentence, all of Grantee’s rights to exercise the Option will be forfeited and canceled in their entirety.
If Grantee ceases to remain continuously an employee of the Company by reason of Disability,  this Option may be exercised, to the extent otherwise exercisable on the date of cessation of employment, only at any time within one year after such cessation of employment, but not later than the scheduled expiration date.  Following the expiration of this Option in accordance with the preceding sentence, all of Grantee’s rights to exercise the Option will be forfeited and canceled in their entirety.

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