Document:

ex4-1.htm

Exhibit 4.1

KONA GRILL, INC.

 

2012 STOCK AWARD PLAN

 

      1. Purpose. The purpose of this 2012 Stock Award Plan (the "Plan") is to assist Kona Grill, Inc., a Delaware corporation (the "Company"), and its Related Entities in attracting, motivating, retaining, and rewarding high-quality Employees, officers, Directors, and Consultants by enabling such persons to acquire or increase a proprietary interest in the Company in order to strengthen the mutuality of interests between such persons and the Company's stockholders, and providing such persons with annual and long-term performance incentives to expend their maximum efforts in the creation of stockholder value. The Plan is intended to qualify certain compensation awarded under the Plan for tax deductibility under Section 162(m) of the Code (as hereafter defined) to the extent deemed appropriate by the Committee (or any successor committee) of the Board.

      2. Definitions. For purposes of the Plan, the following terms shall be defined as set forth below, in addition to such terms defined in Section 1 hereof.

            (a) "2005 Plan" means the Company's 2005 Stock Plan.

            (b) "Applicable Laws" means the requirements relating to the administration of equity compensation plans under U.S. state corporate laws, U.S. federal and state securities laws, the Code, the rules and regulations of any stock exchange upon which the Common Stock is listed, and the applicable laws of any foreign country or jurisdiction where Awards are granted under the Plan.

            (c) "Award" means any award granted pursuant to the terms of this Plan including, an Option, Stock Appreciation Right, Restricted Stock, Stock Units, Stock granted as a bonus or in lieu of another award, Dividend Equivalent, Other Stock-Based Award, or Performance Award, together with any other right or interest, granted to a Participant under the Plan.

            (d) "Beneficiary" means the person, persons, trust, or trusts which have been designated by a Participant in his or her most recent written beneficiary designation filed with the Committee to receive the benefits specified under the Plan upon such Participant's death or to which Awards or other rights are transferred if and to the extent permitted under Section 10(b) hereof. If, upon a Participant's death, there is no designated Beneficiary or surviving designated Beneficiary, then the term Beneficiary means the person, persons, trust, or trusts entitled by will or the laws of descent and distribution to receive such benefits.

            (e) "Beneficial Owner," "Beneficially Owning," and "Beneficial Ownership" shall have the meanings ascribed to such terms in Rule 13d-3 under the Exchange Act and any successor to such Rule.

            (f) "Board" means the Company's Board of Directors.

            (g) "Cause" shall, with respect to any Participant, have the equivalent meaning (or the same meaning as "cause" or "for cause") set forth in any employment agreement between the Participant and the Company or a Related Entity or, in the absence of any such agreement, such term shall mean (i) the failure by the Participant to perform his or her duties as assigned by the Company (or a Related Entity) in a reasonable manner, (ii) any violation or breach by the Participant of his or her employment agreement with the Company (or a Related Entity), if any, (iii) any violation or breach by the Participant of his or her confidential information and invention assignment agreement with the Company (or a Related Entity), if any, (iv) any act by the Participant of dishonesty or bad faith with respect to the Company (or a Related Entity), (v) any material violation or breach by the Participant of the Company's or a Related Entity's policy for employee conduct, if any, (vi) any act by the Participant of dishonesty or bad faith with respect to the Company (or a Related Entity), (vii) use of alcohol, drugs, or other similar substances affecting the Participant's work performance, or (viii) the commission by the Participant of any act, misdemeanor, or crime reflecting unfavorably upon the Participant or the Company. The good faith determination by the Committee of whether the Participant's Continuous Service was terminated by the Company for "Cause" shall be final and binding for all purposes hereunder.

 

  

  

  

            (h) "Change in Control" means and shall be deemed to have occurred on the earliest of the following dates:

                  (i) the date on which any "person" (as such term is used in Sections 13(d) and 14(d) of the Exchange Act) obtains "beneficial ownership" (as defined in Rule 13d-3 of the Exchange Act) or a pecuniary interest in more than fifty percent (50%) of the combined voting power of the Company's then outstanding securities ("Voting Stock");

                  (ii) the consummation of a merger, consolidation, reorganization, or similar transaction other than a transaction: (1) (a) in which substantially all of the holders of Company's Voting Stock hold or receive directly or indirectly fifty percent (50%) or more of the voting stock of the resulting entity or a parent company thereof, in substantially the same proportions as their ownership of the Company immediately prior to the transaction; or (2) in which the holders of Company's capital stock immediately before such transaction will, immediately after such transaction, hold as a group on a fully diluted basis the ability to elect at least a majority of the directors of the surviving corporation (or a parent company);

                  (iii) there is consummated a sale, lease, exclusive license, or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license, or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are owned by stockholders of the Company in substantially the same proportions as their ownership of the Company immediately prior to such sale, lease, license, or other disposition; or

                  (iv) individuals who, on the date this Plan is adopted by the Board, are Directors (the "Incumbent Board") cease for any reason to constitute at least a majority of the Directors; provided, however, that if the appointment or election (or nomination for election) of any new Director was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of this Plan, be considered as a member of the Incumbent Board.

      For purposes of determining whether a Change in Control has occurred, a transaction includes all transactions in a series of related transactions, and terms used in this definition but not defined are used as defined in the Plan. The term Change in Control shall not include a sale of assets, merger, or other transaction effected exclusively for the purpose of changing the domicile of the Company.

      Notwithstanding the foregoing or any other provision of this Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company and the Participant shall supersede the foregoing definition with respect to Awards subject to such agreement (it being understood, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply).

            (i) "Code" means the Internal Revenue Code of 1986, as amended from time to time, including regulations thereunder and successor provisions and regulations thereto.

 

  

  

  

            (j) "Committee" means a committee designated by the Board to administer the Plan with respect to at least a group of Employees, Directors, or Consultants.

            (k) "Consultant" means any person (other than an Employee or a Director, solely with respect to rendering services in such person's capacity as a director) who is engaged by the Company or any Related Entity to render consulting or advisory services to the Company or such Related Entity.

            (l) "Continuous Service" means uninterrupted provision of services to the Company as an Employee, a Director, or a Consultant. Continuous Service shall not be considered to be interrupted in the case of (i) any approved leave of absence, (ii) transfers among the Company, any Related Entities, or any successor entities, as either an Employee, a Director, or a Consultant, or (iii) any change in status as long as the individual remains in the service of the Company or a Related Entity as either an Employee, a Director, or a Consultant (except as otherwise provided in the Option Agreement). An approved leave of absence shall include sick leave, military leave, or any other authorized personal leave.

            (m) "Corporate Transaction" means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

                  (i) a sale, lease, exclusive license, or other disposition of all or substantially all, as determined by the Board in its discretion, of the consolidated assets of the Company and its Subsidiaries;

                  (ii) a merger, consolidation, reorganization, or similar transaction, whether or not the Company is the surviving corporation.

 

            (n) "Covered Employee" means an Eligible Person who is a Covered Employee as specified in Section 7(d) of the Plan.

             (o) "Deferred Compensation" means any Award under this Plan that provides for the “deferral of compensation” under a “nonqualified deferred compensation plan” (as those terms are defined under Code Section 409A and the regulations promulgated thereunder) and that would be subject to the taxes specified in Code Section 409A(a)(1) if and to the extent that the Plan and the agreement evidencing the Incentive do not meet or are not operated in compliance with the requirements of Code Section 409A(a)(2), (3) and (4) and the regulations promulgated thereunder. Deferred Compensation shall not include any amount that is otherwise exempt from the requirements of Code Section 409A and the regulations promulgated thereunder.

            (p) "Director" means a member of the Board or the board of directors of any Related Entity.

            (q) "Disability" means a permanent and total disability (within the meaning of Section 22(e) of the Code), as determined by a medical doctor satisfactory to the Committee.

            (r) "Dividend Equivalent" means a right, granted to a Participant under Section 6(g) hereof, to receive cash, Stock, other Awards, or other property equal in value to dividends paid with respect to a specified number of Shares, or other periodic payments.

            (s) "Effective Date" means the effective date of this Plan, which shall be the date this Plan is adopted by the Board, subject to the approval of the stockholders of the Company.

            (t) "Eligible Person" means all Employees (including officers), Directors, and Consultants of the Company or of any Related Entity. The foregoing notwithstanding, only employees of the Company, the Parent, or any Subsidiary shall be Eligible Persons for purposes of receiving any Incentive Stock Options. An Employee on leave of absence may be considered as still in the employ of the Company or a Related Entity for purposes of eligibility for participation in the Plan.

 

  

  

  

            (u) "Employee" means any person, including an officer or Director, who is an employee of the Company or any Related Entity. The Payment of a director's fee by the Company or a Related Entity shall not be sufficient to constitute "employment" by the Company.

            (v) "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time, including rules thereunder and successor provisions and rules thereto.

            (w) "Executive Officer" means an executive officer of the Company as defined under the Exchange Act.

            (x) "Fair Market Value" means the fair market value of Stock, Awards, or other property as determined by the Plan Administrator, or under procedures established by the Plan Administrator. Unless otherwise determined by the Plan Administrator, the Fair Market Value of Stock as of any given date, after which the Stock is publicly traded on a stock exchange or market, shall be the closing sale price per share reported on a consolidated basis for stock listed on the principal stock exchange or market on which Stock is traded on the date as of which such value is being determined or, if there is no sale on that date, then on the last previous day on which a sale was reported.

            (y) "Incentive Stock Option" means any Option intended to be designated as an incentive stock option within the meaning of Section 422 of the Code or any successor provision thereto.

            (z) "Non-Employee Director" means a Director of the Company who is not an Employee.

            (aa) "Option" means a right granted to a Participant under Section 6(b) hereof, to purchase Stock or other Awards at a specified price during specified time periods.

            (bb) "Other Stock-Based Awards" means Awards granted to a Participant pursuant to Section 6(h) hereof.

            (cc) "Parent" means any corporation (other than the Company), whether now or hereafter existing, in an unbroken chain of corporations ending with the Company, if each of the corporations in the chain (other than the Company) owns stock possessing 50 percent or more of the combined voting power of all classes of stock in one of the other corporations in the chain.

            (dd) "Participant" means a person who has been granted an Award under the Plan which remains outstanding, including a person who is no longer an Eligible Person.

            (ee) "Performance Award" means a right, granted to an Eligible Person under Section 7 hereof, to receive Awards based upon performance criteria specified by the Plan Administrator.

            (ff) "Person" has the meaning ascribed to such term in Section 3(a)(9) of the Exchange Act and used in Sections 13(d) and 14(d) thereof, and shall include a "group" as defined in Section 12(d) thereof.

            (gg) "Plan Administrator" means the Board or any Committee delegated by the Board to administer the Plan.

            (hh) "Related Entity" means any Parent, Subsidiary, and any business, corporation, partnership, limited liability company, or other entity in which the Company, a Parent, or a Subsidiary, directly or indirectly, holds a substantial ownership interest.

 

  

  

  

            (ii) "Restricted Stock" means Stock granted to a Participant under Section 6(d) hereof, that is subject to certain restrictions and to a risk of forfeiture.

            (jj) "Rule 16b-3" and "Rule 16a-1(c)(3)" means Rule 16b-3 and Rule 16a-1(c)(3), as from time to time in effect and applicable to the Plan and Participants, promulgated by the Securities and Exchange Commission under Section 16 of the Exchange Act.

            (kk) "Shares" means the shares of the Company's Common Stock, and the shares of such other securities as may be substituted (or resubstituted) for Stock pursuant to Section 10(c) hereof.

            (ll) "Stock" means the Company's Common Stock, and such other securities as may be substituted (or resubstituted) for the Company's Common Stock pursuant to Section 10(c) hereof.

            (mm) "Stock Appreciation Right" means a right granted to a Participant pursuant to Section 6(c) hereof.

            (nn) "Stock Unit" means a right, granted to a Participant pursuant to Section 6(e) hereof, to receive Shares, cash or a combination thereof at the end of a specified period of time.

            (oo) "Subsidiary" means any corporation (other than the Company), whether now or hereafter existing, in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50 percent or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

      3. Administration.

            (a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in Section 3(c).

            (b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

                  (i) To determine from time to time which of the persons eligible under the Plan shall be granted Awards; when and how each Award shall be granted; what type or combination of types of Award shall be granted; the provisions of each Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Shares pursuant to an Award; and the number of Shares with respect to which an Award shall be granted to each such person.

                  (ii) To construe and interpret the Plan and Awards granted under it, and to establish, amend, and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission, or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective.

                  (iii) To amend the Plan or an Award as provided in Section 10(e).

                  (iv) To terminate or suspend the Plan as provided in Section 10(e).

                  (v) To effect, at any time and from time to time, with the consent of any adversely affected Participant, (1) the reduction of the exercise price of any outstanding Award under the Plan, if any, (2) the cancellation of any outstanding Award and the grant in substitution therefor of (A) a new Award under the Plan or another equity plan of the Company covering the same or a different number of Shares, (B) cash and/or (C) other valuable consideration (as determined by the Board, in its sole discretion), or (3) any other action that is treated as a repricing under generally accepted accounting principles.

 

  

  

  

 

                  (vi) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan.

            (c) Delegation to Committee.

                  (i) General. The Board may delegate administration of the Plan to a Committee or Committees of two (2) or more members of the Board, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan.

                  (ii) Section 162(m) and Rule 16b-3 Compliance. In the discretion of the Board, the Committee may consist solely of two or more "Outside Directors", in accordance with Section 162(m) of the Code, and/or solely of two or more "Non-Employee Directors", in accordance with Rule 16b-3. In addition, the Board or the Committee may delegate to a committee of two or more members of the Board the authority to grant Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Award, (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code, or (c) not then subject to Section 16 of the Exchange Act.

            (d) Effect of Board's Decision. All determinations, interpretations, and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding, and conclusive on all persons.

            (e) Arbitration. Any dispute or claim concerning any Award granted (or not granted) pursuant to the Plan or any disputes or claims relating to or arising out of the Plan shall be fully, finally, and exclusively resolved by binding and confidential arbitration conducted pursuant to the rules of Judicial Arbitration and Mediation Services, Inc. ("JAMS") in Phoenix, Arizona. The Company shall pay all arbitration fees. In addition to any other relief, the arbitrator may award to the prevailing party recovery of its attorneys' fees and costs. By accepting an Award, the Participant and the Company waive their respective rights to have any such disputes or claims tried by a judge or jury.

            (f) Limitation of Liability. The Committee and the Board, and each member thereof, shall be entitled to, in good faith, rely or act upon any report or other information furnished to him or her by any officer or Employee, the Company's independent auditors, Consultants or any other agents assisting in the  administration of the Plan. Members of the Committee and the Board, and any officer or Employee acting at the direction or on behalf of the Plan Administrator, shall not be personally liable for any action or determination taken or made in good faith with respect to the Plan, and shall, to the extent permitted by law, be fully indemnified and protected by the Company with respect to any such action or determination.

 

  

  

  

      4. Stock Subject to Plan.

            (a) Limitation on Overall Number of Shares Subject to Awards. Subject to adjustment as provided in Section 10(c) hereof, the total number of Shares reserved and available for delivery in connection with Awards under the Plan shall be 750,000. In addition, as of the date this Plan is first approved by the stockholders, any shares available in the reserve of the 2005 Plan shall be added to the Plan share reserve and be available for issuance under the Plan. Any Shares delivered under the Plan may consist, in whole or in part, of authorized and unissued shares or treasury shares.

            (b) Availability of Shares Not Delivered under Awards.

                  (i) If any Shares subject to an Award or subject to an award under the 2005 Plan are forfeited, expire or otherwise terminate without issuance of such Shares, or any Award is settled for cash or otherwise does not result in the issuance of all or a portion of the Shares subject to such Award, the Shares shall, to the extent of such forfeiture, expiration, termination, cash settlement or non-issuance, again be available for Awards under the Plan, subject to Section 4(b)(iv) below.

                  (ii) If any Shares issued pursuant to an Award or an award under the 2005 Plan are forfeited back to or repurchased by the Company, including, but not limited to, any repurchase or forfeiture caused by the failure to meet a contingency or condition required for the vesting of such shares, then such forfeited or repurchased Shares shall revert to and again become available for issuance under the Plan, subject to Section 4(b)(iv) below.

                  (iii) In the event that any Option or other Award granted hereunder or under the 2005 Plan is exercised through the tendering of Shares (either actually or by attestation) or by the withholding of Shares by the Company, or withholding tax liabilities arising from such Option, other Award or other award are satisfied by the tendering of Shares (either actually or by attestation) or by the withholding of Shares by the Company, then only the net number of Shares actually issued to the Participant shall be counted as issued for purposes of determining the maximum number of Shares available for grant under the Plan, subject to Section 4(b)(iv) below.

                  (iv) Notwithstanding anything in this Section 4(b) to the contrary and solely for purposes of determining whether Shares are available for the grant of Incentive Stock Options, the maximum aggregate number of shares that may be granted under this Plan shall be determined without regard to any Shares restored pursuant to this Section 4(b) that, if taken into account, would cause the Plan, for purposes of the grant of Incentive Stock Options, to fail the requirement under Code Section 422 that the Plan designate a maximum aggregate number of shares that may be issued.

            (c) Application of Limitations. The limitation contained in this Section 4 shall apply not only to Awards that are settled by the delivery of Shares but also to Awards relating to Shares but settled only in cash (such as cash-only Stock Appreciation Rights). The Plan Administrator may adopt reasonable counting procedures to ensure appropriate counting, avoid double counting (as, for example, in the case of tandem or substitute awards) and make adjustments if the number of Shares actually delivered differs from the number of shares previously counted in connection with an Award.

      5.    Eligibility. Awards may be granted under the Plan only to Eligible Persons.

      6.    Terms of Awards.

            (a) General. Awards may be granted on the terms and conditions set forth in this Section 6. In addition, the Plan Administrator may impose on any Award or the exercise thereof, at the date of grant or thereafter (subject to Section 10(e)), such additional terms and conditions, not inconsistent with the provisions of the Plan, as the Plan Administrator shall determine, including but not limited to terms requiring forfeiture of Awards in the event of termination of Continuous Service by the Participant and terms permitting a Participant to make elections relating to his or her Award. The Plan Administrator shall retain full power and discretion to accelerate, waive, or modify, at any time, any term or condition of an Award that is not mandatory under the Plan.

 

  

  

  

            (b) Options. The Plan Administrator is authorized to grant Options to Participants on the following terms and conditions:

                  (i) Stock Option Agreement. Each grant of an Option shall be evidenced by a Stock Option Agreement. Such Stock Option Agreement shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Plan Administrator deems appropriate for inclusion in a Stock Option Agreement. The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.

                  (ii) Number of Shares. Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide, either explicitly or pursuant to general incorporation of the Plan by reference into such Stock Option Agreement, for the adjustment of such number in accordance with Section 10(c) hereof. The Stock Option Agreement shall also specify whether the Stock Option is an Incentive Stock Option or a Non-Qualified Stock Option.

                  (iii) Exercise Price.

                        (A) In General. Each Stock Option Agreement shall state the price at which Shares subject to the Option may be purchased (the "Exercise Price"), which shall be, with respect to Incentive Stock Options, not less than 100% of the Fair Market Value of the Stock on the date of grant. In the case of Non-Qualified Stock Options, the Exercise Price shall be determined in the sole discretion of the Plan Administrator.

                        (B) Ten Percent Stockholder. If a Participant owns or is deemed to own (by reason of the attribution rules applicable under Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Related Entity, any Incentive Stock Option granted to such Participant must have an Exercise Price per share of at least 110% of the Fair Market Value of a share of Stock on the date of grant.

                  (iv) Time and Method of Exercise. The Plan Administrator shall determine the time or times at which or the circumstances under which an Option may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements). The Plan Administrator may also determine the time or times at which Options shall cease to be or become exercisable following termination of Continuous Service or upon other conditions. The Board or the Committee may determine the methods by which such exercise price may be paid or deemed to be paid (including, in the discretion of the Plan Administrator, a cashless exercise procedure), the form of such payment, including, without limitation, cash, Stock, other Awards or awards granted under other plans of the Company or a Related Entity, or other property (including notes or other contractual obligations of Participants to make payment on a deferred basis), and the methods by or forms in which Stock will be delivered or deemed to be delivered to Participants.

                  (v) Incentive Stock Options. The terms of any Incentive Stock Option granted under the Plan shall comply in all respects with the provisions of Section 422 of the Code. Anything in the Plan to the contrary notwithstanding, no term of the Plan relating to Incentive Stock Options (including any Stock Appreciation Rights in tandem therewith) shall be interpreted, amended, or altered, nor shall any discretion or authority granted under the Plan be exercised, so as to disqualify either the Plan or any Incentive Stock Option under Section 422 of the Code, unless the Participant has consented in writing to the change that will result in such disqualification. If and to the extent required to comply with Section 422 of the Code, Options granted as Incentive Stock Options shall be subject to the following special terms and conditions:

 

  

  

  

                        (1) the Option shall not be exercisable more than ten years after the date such Incentive Stock Option is granted; provided, however, that if a Participant owns or is deemed to own (by reason of the attribution rules of Section 424(d) of the Code) more than 10% of the combined voting power of all classes of stock of the Company or any Parent Corporation and the Incentive Stock Option is granted to such Participant, the term of the Incentive Stock Option shall be (to the extent required by the Code at the time of the grant) for no more than five years from the date of grant; and

                        (2) If the aggregate Fair Market Value (determined as of the date the Incentive Stock Option is granted) of the Shares with respect to which Incentive Stock Options granted under the Plan and all other option plans of the Company, its Parent or any Subsidiary are exercisable for the first time by a Participant during any calendar year exceeds $100,000, then such Participant's Incentive Stock Option(s) or portions thereof that exceed such $100,000 limit shall be treated as Non-statutory Stock Options (in the reverse order in which they were granted, so that the last Incentive Stock Option will be the first treated as a Non-statutory Stock Option). This paragraph shall only apply to the extent such limitation is applicable under the Code at the time of the grant.

                  (vi) Repurchase Rights. The Committee and the Board shall have the discretion to grant Options that are exercisable for unvested shares of Common Stock. Should the Participant's Continuous Service cease while holding such unvested shares, the Company shall have the right to repurchase any or all of those unvested shares, at either (a) the exercise price paid per share, (b) the fair market value, or (c) the lower of the exercise price paid per share and the fair market value. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right.

 

                  (vii)  Limitation on Awards. During any one fiscal year, no Person shall receive Options and Stock Appreciation Rights that exceed, in the aggregate, 300,000 Shares.

            (c) Stock Appreciation Rights. The Plan Administrator is authorized to grant Stock Appreciation Rights to Participants on the following terms and conditions:

                  (i) Right to Payment. A Stock Appreciation Right shall confer on the Participant to whom it is granted a right to receive, upon exercise thereof, the excess of (A) the Fair Market Value of one share of stock on the date of exercise over (B) the grant price of the Stock Appreciation Right as determined by the Plan Administrator.

                  (ii) Other Terms. The Plan Administrator shall determine at the date of grant or thereafter, the time or times at which and the circumstances under which a Stock Appreciation Right may be exercised in whole or in part (including based on achievement of performance goals and/or future service requirements), the time or times at which Stock Appreciation Rights shall cease to be or become exercisable following termination of Continuous Service or upon other conditions, the method of exercise, method of settlement, form of consideration payable in settlement, method by or forms in which Stock will be delivered or deemed to be delivered to Participants, whether or not a Stock Appreciation Right shall be in tandem or in combination with any other Award, and any other terms and conditions of any Stock Appreciation Right. Stock Appreciation Rights may be either freestanding or in tandem with other Awards.

 

  

  

  

            (d) Restricted Stock. The Plan Administrator is authorized to grant Restricted Stock to Participants on the following terms and conditions:

                  (i) Grant and Restrictions. Restricted Stock shall be subject to such restrictions on transferability, risk of forfeiture, and other restrictions, if any, as the Plan Administrator may impose, or as otherwise provided in this Plan. The restrictions may lapse separately or in combination at such times, under such circumstances (including based on achievement of performance goals and/or future service requirements), in such installments or otherwise, as the Plan Administrator may determine at the date of grant or thereafter. Except to the extent restricted under the terms of the Plan and any Award agreement relating to the Restricted Stock, a Participant granted Restricted Stock shall have all of the rights of a stockholder, including the right to vote the Restricted Stock and the right to receive dividends thereon (subject to any mandatory reinvestment or other requirement imposed by the Plan Administrator). During the restricted period applicable to the Restricted Stock, subject to Section 10(b) below, the Restricted Stock may not be sold, transferred, pledged, hypothecated, margined, or otherwise encumbered by the Participant.

                  (ii) Forfeiture. Except as otherwise determined by the Plan Administrator at the time of the Award, upon termination of a Participant's Continuous Service during the applicable restriction period, the Participant's Restricted Stock that is at that time subject to restrictions shall be forfeited and reacquired by the Company; provided that the Plan Administrator may provide, by rule or regulation or in any Award agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Restricted Stock shall be waived in whole or in part in the event of terminations resulting from specified causes, and the Plan Administrator may in other cases waive in whole or in part the forfeiture of Restricted Stock.

                  (iii) Certificates for Stock. Restricted Stock granted under the Plan may be evidenced in such manner as the Plan Administrator shall determine. If certificates representing Restricted Stock are registered in the name of the Participant, the Plan Administrator may require that such certificates bear an appropriate legend referring to the terms, conditions, and restrictions applicable to such Restricted Stock, that the Company retain physical possession of the certificates, that the certificates be kept with an escrow agent and that the Participant deliver a stock power to the Company, endorsed in blank, relating to the Restricted Stock.

                  (iv) Dividends and Splits. As a condition to the grant of an Award of Restricted Stock, the Plan Administrator may require that any cash dividends paid on a share of Restricted Stock be automatically reinvested in additional shares of Restricted Stock or applied to the purchase of additional Awards under the Plan. Unless otherwise determined by the Plan Administrator, Stock distributed in connection with a Stock split or Stock dividend, and other property distributed as a dividend, shall be subject to restrictions and a risk of forfeiture to the same extent as the Restricted Stock with respect to which such Stock or other property has been distributed.

            (e) Stock Units. The Plan Administrator is authorized to grant Stock Units to Participants, which are rights to receive Stock, cash, or a combination thereof at the end of a specified time period, subject to the following terms and conditions:

                  (i) Award and Restrictions. Satisfaction of an Award of Stock Units shall occur upon expiration of the time period specified for such Stock Units by the Plan Administrator (or, if permitted by the Plan Administrator, as elected by the Participant). In addition, Stock Units shall be subject to such restrictions (which may include a risk of forfeiture) as the Plan Administrator may impose, if any, which restrictions may lapse at the expiration of the time period or at earlier specified times (including based on achievement of performance goals and/or future service requirements), separately or in combination, in installments or otherwise, as the Plan Administrator may determine. Stock Units may be satisfied by delivery of Stock, cash equal to the Fair Market Value of the specified number of Shares covered by the Stock Units, or a combination thereof, as determined by the Plan Administrator at the date of grant or thereafter. Prior to satisfaction of an Award of Stock Units, an Award of Stock Units carries no voting or dividend or other rights associated with share ownership.

 

  

  

  

                  (ii) Forfeiture. Except as otherwise determined by the Plan Administrator, upon termination of a Participant's Continuous Service during the applicable time period thereof to which forfeiture conditions apply (as provided in the Award agreement evidencing the Stock Units), the Participant's Stock Units (other than those Stock Units subject to deferral at the election of the Participant) shall be forfeited; provided that the Plan Administrator may provide, by rule or regulation or in any Award agreement, or may determine in any individual case, that restrictions or forfeiture conditions relating to Stock Units shall be waived in whole or in part in the event of terminations resulting from specified causes, and the Plan Administrator may in other cases waive in whole or in part the forfeiture of Stock Units.

                  (iii) Dividend Equivalents. Unless otherwise determined by the Plan Administrator at date of grant, any Dividend Equivalents that are granted with respect to any Award of Stock Units shall be either (A) paid with respect to such Stock Units at the dividend payment date in cash or in shares of unrestricted Stock having a Fair Market Value equal to the amount of such dividends, or (B) deferred with respect to such Stock Units and the amount or value thereof automatically deemed reinvested in additional Stock Units, other Awards or other investment vehicles, as the Plan Administrator shall determine or permit the Participant to elect.

            (f) Bonus Stock and Awards in Lieu of Obligations. The Plan Administrator is authorized to grant Stock as a bonus, or to grant Stock or other Awards in lieu of Company obligations to pay cash or deliver other property under the Plan or under other plans or compensatory arrangements, provided that, in the case of Participants subject to Section 16 of the Exchange Act, the amount of such grants remains within the discretion of the Committee to the extent necessary to ensure that acquisitions of Stock or other Awards are exempt from liability under Section 16(b) of the Exchange Act. Stock or Awards granted hereunder shall be subject to such other terms as shall be determined by the Plan Administrator.

            (g) Dividend Equivalents. The Plan Administrator is authorized to grant Dividend Equivalents to a Participant entitling the Participant to receive cash, Stock, other Awards, or other property equal in value to dividends paid with respect to a specified number of Shares, or other periodic payments. Dividend Equivalents may be awarded on a free-standing basis or in connection with another Award. The Plan Administrator may provide that Dividend Equivalents shall be paid or distributed when accrued or shall be deemed to have been reinvested in additional Stock, Awards, or other investment vehicles, and subject to such restrictions on transferability and risks of forfeiture, as the Plan Administrator may specify.

            (h) Other Stock-Based Awards. The Plan Administrator is authorized, subject to limitations under applicable law, to grant to Participants such other Awards that may be denominated or payable in, valued in whole or in part by reference to, or otherwise based on, or related to, Stock, as deemed by the Plan Administrator to be consistent with the purposes of the Plan, including, without limitation, convertible or exchangeable debt securities, other rights convertible or exchangeable into Stock, purchase rights for Stock, Awards with value and payment contingent upon performance of the Company or any other factors designated by the Plan Administrator, and Awards valued by reference to the book value of Stock or the value of securities of or the performance of specified Related Entities or business units. The Plan Administrator shall determine the terms and conditions of such Awards. Stock delivered pursuant to an Award in the nature of a purchase right granted under this Section 6(h) shall be purchased for such consideration (including without limitation loans from the Company or a Related Entity), paid for at such times, by such methods, and in such forms, including, without limitation, cash, Stock, other Awards or other property, as the Plan Administrator shall determine. The Plan Administrator shall have the discretion to grant such other Awards which are exercisable for unvested shares of Common Stock. Should the Participant's Continuous Service cease while holding such unvested shares, the Company shall have the right to repurchase, at a price determined by the Administrator at the time of grant, any or all of those unvested shares. The terms upon which such repurchase right shall be exercisable (including the period and procedure for exercise and the appropriate vesting schedule for the purchased shares) shall be established by the Plan Administrator and set forth in the document evidencing such repurchase right. Cash awards, as an element of or supplement to any other Award under the Plan, may also be granted pursuant to this Section 6(h).

 

  

  

  

      7.    Performance Awards.

            (a) Performance Conditions. The right of a Participant to exercise or receive a grant or settlement of any Award, and the timing thereof, may be subject to such performance conditions as may be specified by the Plan Administrator. The Plan Administrator may use such business criteria and other measures of performance as it may deem appropriate in establishing any performance conditions, and may exercise its discretion to reduce the amounts payable under any Award subject to performance conditions, except as limited under Section 7(b) hereof in the case of a Performance Award intended to qualify under Code Section 162(m). If and to the extent required under Code Section 162(m), any power or authority relating to a Performance Award intended to qualify under Code Section 162(m), shall be exercised by the Committee as the Plan Administrator and not the Board.

            (b) Performance Awards Granted to Designated Covered Employees. If and to the extent that the Committee determines that a Performance Award to be granted to an Eligible Person who is designated by the Committee as likely to be a Covered Employee should qualify as "performance-based compensation" for purposes of Code Section 162(m), the grant, exercise, and/or settlement of such Performance Award shall be contingent upon achievement of pre-established performance goals and other terms set forth in this Section 7(b).

                  (i) Performance Goals Generally. The performance goals for such Performance Awards shall consist of one or more business criteria and a targeted level or levels of performance with respect to each of such criteria, as specified by the Committee consistent with this Section 7(b). Performance goals shall be objective and shall otherwise meet the requirements of Code Section 162(m) and regulations thereunder including the requirement that the level or levels of performance targeted by the Committee result in the achievement of performance goals being "substantially uncertain." The Committee may determine that such Performance Awards shall be granted, exercised, and/or settled upon achievement of any one performance goal or that two or more of the performance goals must be achieved as a condition to grant, exercise, and/or settlement of such Performance Awards. Performance goals may differ for Performance Awards granted to any one Participant or to different Participants.

                  (ii) Business Criteria. One or more of the following business criteria for the Company, on a consolidated basis, and/or specified Related Entities or business units of the Company, shall be used exclusively by the Committee in establishing performance goals for such Performance Awards that are intended to qualify as “performance-based” compensation within the meaning of Section 162(m) of the Code: earnings per share, operating income or profit, net income, gross or net sales, expenses, expenses as a percentage of net sales, inventory turns, cash flow (including, but not limited to, operating cash flow, free cash flow, cash flow return on equity, and cash flow return on investment), gross profit, margins, working capital, earnings before interest and tax (EBIT), earnings before interest, tax, depreciation and amortization (EBITDA), return measures (including, but not limited to, return on assets, capital, invested capital, equity, sales, or revenue), revenue growth, share price (including, but not limited to, growth measures and total shareholder return), operating efficiency, productivity ratios, market share, economic value added and safety (or any of the above criteria as compared to the performance of a group of comparator companies, or published or special index that the Plan Administrator, in its sole discretion, deems appropriate, or the Committee may select criteria based on the Company’s share price as compared to various stock market indices. The Plan Administrator, in its sole discretion, may modify the performance goals if it determines that circumstances have changed and modification is required to reflect the original intent of the Performance Goals; provided, however, that no such change or modification may be made to the extent it increases the amount of compensation payable to any Participant who is a Covered Employee” within the meaning of Code Section 162(m).

 

  

  

  

                  (iii) Performance Period; Timing For Establishing Performance Goals. Achievement of performance goals in respect of such Performance Awards shall be measured over a performance period of up to ten (10) years, as specified by the Committee. Performance goals shall be established not later than ninety (90) days after the beginning of any performance period applicable to such Performance Awards, or at such other date as may be required or permitted for "performance-based compensation" under Code Section 162(m).

                  (iv) Performance Award Pool. The Committee may establish a Performance Award pool, which shall be an unfunded pool, for purposes of measuring Company performance in connection with Performance Awards. The amount of such Performance Award pool shall be based upon the achievement of a performance goal or goals based on one or more of the business criteria set forth in Section 7(b)(ii) hereof during the given performance period, as specified by the Committee in accordance with Section 7(b)(iii) hereof. The Committee may specify the amount of the Performance Award pool as a percentage of any of such business criteria, a percentage thereof in excess of a threshold amount, or as another amount which need not bear a strictly mathematical relationship to such business criteria.

                  (v) Settlement of Performance Awards; Other Terms. Settlement of such Performance Awards shall be in cash, Stock, other Awards or other property, in the discretion of the Committee. The Committee may, in its discretion, reduce the amount of a settlement otherwise to be made in connection with such Performance Awards. The Committee shall specify the circumstances in which such Performance Awards shall be paid or forfeited in the event of termination of Continuous Service by the Participant prior to the end of a performance period or settlement of Performance Awards.

            (c) Written Determinations. All determinations by the Committee as to the establishment of performance goals, the amount of any Performance Award pool or potential individual Performance Awards and as to the achievement of performance goals relating to Performance Awards under Section 7(b), shall be made in writing in the case of any Award intended to qualify under Code Section 162(m). The Committee may not delegate any responsibility relating to such Performance Awards if and to the extent required to comply with Code Section 162(m).

            (d) Status of Performance Awards Under Code Section 162(m). It is the intent of the Company that Performance Awards under this Section 7 hereof granted to persons who are designated by the Committee as likely to be Covered Employees within the meaning of Code Section 162(m) and regulations thereunder shall, if so designated by the Committee, constitute "qualified performance-based compensation" within the meaning of Code Section 162(m) and regulations thereunder. Accordingly, the terms of Sections 7(b), (c) and (d), including the definitions of Covered Employee and other terms used therein, shall be interpreted in a manner consistent with Code Section 162(m) and regulations thereunder. The foregoing notwithstanding, because the Committee cannot determine with certainty whether a given Participant will be a Covered Employee with respect to a fiscal year that has not yet been completed, the term Covered Employee as used herein shall mean only a person designated by the Committee, at the time of grant of Performance Awards, as likely to be a Covered Employee with respect to that fiscal year. If any provision of the Plan or any agreement relating to such Performance Awards does not comply or is inconsistent with the requirements of Code Section 162(m) or regulations thereunder, such provision shall be construed or deemed amended to the extent necessary to conform to such requirements.

 

  

  

  

      8.    Certain Provisions Applicable to Awards or Sales.

            (a) Stand-Alone, Additional, Tandem, and Substitute Awards. Awards granted under the Plan may, in the discretion of the Plan Administrator, be granted either alone or in addition to, in tandem with, or in substitution or exchange for, any other Award or any award granted under another plan of the Company, any Related Entity, or any business entity to be acquired by the Company or a Related Entity, or any other right of a Participant to receive payment from the Company or any Related Entity. Such additional, tandem, and substitute or exchange Awards may be granted at any time. If an Award is granted in substitution or exchange for another Award or award, the Plan Administrator shall require the surrender of such other Award or award in consideration for the grant of the new Award. In addition, Awards may be granted in lieu of cash compensation, including in lieu of cash amounts payable under other plans of the Company or any Related Entity.

            (b) Form and Timing of Payment Under Awards; Deferrals. Subject to the terms of the Plan and any applicable Award agreement, payments to be made by the Company or a Related Entity upon the exercise of an Option or other Award or settlement of an Award may be made in such forms as the Plan Administrator shall determine, including, without limitation, cash, other Awards or other property, and may be made in a single payment or transfer, in installments, or on a deferred basis. The settlement of any Award may be accelerated, and cash paid in lieu of Stock in connection with such settlement, in the discretion of the Plan Administrator or upon occurrence of one or more specified events (in addition to a Change in Control). Installment or deferred payments may be required by the Plan Administrator (subject to Section 10(g) of the Plan) or permitted at the election of the Participant on terms and conditions established by the Plan Administrator. Payments may include, without limitation, provisions for the payment or crediting of a reasonable interest rate on installment or deferred payments or the grant or crediting of Dividend Equivalents or other amounts in respect of installment or deferred payments denominated in Stock.

            (c) Exemptions from Section 16(b) Liability. It is the intent of the Company that this Plan comply in all respects with applicable provisions of Rule 16b-3 or Rule 16a-1(c)(3) to the extent necessary to ensure that neither the grant of any Awards to nor other transaction by a Participant who is subject to Section 16 of the Exchange Act is subject to liability under Section 16(b) thereof (except for transactions acknowledged in writing to be non-exempt by such Participant). Accordingly, if any provision of this Plan or any Award agreement does not comply with the requirements of Rule 16b-3 or Rule 16a-1(c)(3) as then applicable to any such transaction, such provision will be construed or deemed amended to the extent necessary to conform to the applicable requirements of Rule 16b-3 or Rule 16a-1(c)(3) so that such Participant shall avoid liability under Section 16(b).

 

            (d) No Option Repricing. Other than for capitalization adjustment pursuant to Section 10(c), without approval of the Company’s stockholders, the Plan Administrator shall not be permitted to (A) lower the exercise price per Share of an Option after it is granted, (B) cancel an Option when the exercise price per Share exceeds the Fair Market Value of the underlying Shares in exchange for another Award or cash, or (C) take any other action with respect to an Option that may be treated as a repricing under the federal securities laws or Generally Accepted Accounting Principles.

 

  

  

  

      9.    Change in Control; Corporate Transaction.

            (a) Change in Control.

                  (i) The Plan Administrator may, in its discretion, accelerate the vesting, exercisability, lapsing of restrictions, or expiration of deferral of any Award, including upon the occurrence of a Change in Control. In addition, the Plan Administrator may provide in an Award agreement that the performance goals relating to any Performance Award will be deemed to have been met upon the occurrence of any Change in Control.

                  (ii) In addition to the terms of Section 9(a)(i) above, the effect of a "Change in Control," may be provided (1) in an employment, compensation, or severance agreement, if any, between the Company or any Related Entity and the Participant, relating to the Participant's employment, compensation, or severance with or from the Company or such Related Entity, or (2) in the agreement evidencing the Award.

            (b) Corporate Transactions. In the event of a Corporate Transaction, any surviving corporation or acquiring corporation may either (i) assume or continue any or all Awards outstanding under the Plan, or (ii) substitute similar stock awards for outstanding Awards (it being understood that similar awards include, but are not limited to, awards to acquire the same consideration paid to the stockholders or the Company, as the case may be, pursuant to the Corporate Transaction). In the event that any surviving corporation or acquiring corporation does not assume or continue any or all such outstanding Awards or substitute similar stock awards for such outstanding Awards, then with respect to Awards that have been not assumed, continued, or substituted, then such Awards shall terminate if not exercised (if applicable) at or prior to such effective time (contingent upon the effectiveness of the Corporate Transaction). The Administrator, in its discretion and without the consent of any Participant, may (but is not obligated to) either (i) accelerate the vesting of all Awards (and, if applicable, the time at which such Awards may be exercised) in full or as to some percentage of the Award to a date prior to the effective time of such Corporate Transaction as the Administrator shall determine (contingent upon the effectiveness of each Corporate Transaction) or (ii) provide for a cash payment in exchange for the termination of an Award or any portion thereof where such cash payment is equal to the Fair Market Value of the Shares that the Participant would receive if the Award were fully vested and exercised (if applicable) as of such date (less any applicable exercise price). The Administrator, in its sole discretion, shall determine whether each Award is assumed, continued, substituted, or terminated.

                  With respect to Restricted Stock and any other Award granted under the Plan that the Company has any reacquisition or repurchase rights, the reacquisition or repurchase rights for such Awards may be assigned by the Company to the successor of the Company (or the successor's parent company) in connection with such Corporate Transaction. In addition, the Administrator, in its discretion, may (but is not obligated to) provide that any reacquisition or repurchase rights held by the Company with respect to such Awards shall lapse in whole or in part (contingent upon the effectiveness of the Corporate Transaction).

            (c) Dissolution or Liquidation. In the event of a dissolution or liquidation of the Company, then all outstanding Awards shall terminate immediately prior to the completion of such dissolution or liquidation, and shares of Common Stock subject to the Company's repurchase option may be repurchased by the Company notwithstanding the fact that the holder of such stock is still in Continuous Service.

 

  

  

  

      10.   General Provisions.

            (a) Compliance With Legal and Other Requirements. The Company may, to the extent deemed necessary or advisable by the Plan Administrator, postpone the issuance or delivery of Stock or payment of other benefits under any Award until completion of such registration or qualification of such Stock or other required action under any federal or state law, rule, or regulation, listing or other required action with respect to any stock exchange or automated quotation system upon which the Stock or other Company securities are listed or quoted, or compliance with any other obligation of the Company, as the Plan Administrator, may consider appropriate, and may require any Participant to make such representations, furnish such information, and comply with or be subject to such other conditions as it may consider appropriate in connection with the issuance or delivery of Stock or payment of other benefits in compliance with applicable laws, rules, and regulations, listing requirements, or other obligations. The foregoing notwithstanding, in connection with a Change in Control, the Company shall take or cause to be taken no action, and shall undertake or permit to arise no legal or contractual obligation, that results or would result in any postponement of the issuance or delivery of Stock or payment of benefits under any Award or the imposition of any other conditions on such issuance, delivery, or payment, to the extent that such postponement or other condition would represent a greater burden on a Participant than existed on the 90th day preceding the Change in Control.

            (b) Limits on Transferability; Beneficiaries.

                  (i) General. Except as provided in the Award agreement, a Participant may not assign, sell, transfer, or otherwise encumber or subject to any lien any Award or other right or interest granted under this Plan, in whole or in part, other than by will or by operation of the laws of descent and distribution, and such Awards or rights that may be exercisable shall be exercised during the lifetime of the Participant only by the Participant or his or her guardian or legal representative.

                  (ii) Permitted Transfer of Option. The Plan Administrator, in its sole discretion, may permit the transfer of an Option (but not an Incentive Stock Option, or any other right to purchase Stock other than an Option) as follows: (A) by gift to a member of the Participant's Immediate Family or (B) by transfer by instrument to a trust providing that the Option is to be passed to beneficiaries upon death of the Participant. For purposes of this Section 10(b)(ii), "Immediate Family" shall mean the Participant's spouse (including a former spouse subject to terms of a domestic relations order); child, stepchild, grandchild, child-in-law; parent, stepparent, grandparent, parent-in-law; sibling and sibling-in-law, and shall include adoptive relationships. If a determination is made by counsel for the Company that the restrictions contained in this Section 10(b)(ii) are not required by applicable federal or state securities laws under the circumstances, then the Committee or Board, in its sole discretion, may permit the transfer of Awards (other than Incentive Stock Options and Stock Appreciation Rights in tandem therewith) to one or more Beneficiaries or other transferees during the lifetime of the Participant, which may be exercised by such transferees in accordance with the terms of such Award, but only if and to the extent permitted by the Plan Administrator pursuant to the express terms of an Award agreement (subject to any terms and conditions which the Plan Administrator may impose thereon, and further subject to any prohibitions and restrictions on such transfers pursuant to Rule 16b-3). A Beneficiary, transferee, or other person claiming any rights under the Plan from or through any Participant shall be subject to all terms and conditions of the Plan and any Award agreement applicable to such Participant, except as otherwise determined by the Plan Administrator, and to any additional terms and conditions deemed necessary or appropriate by the Plan Administrator.

             (c)   Adjustments.

                  (i) Adjustments to Awards. In the event that any dividend or other distribution (whether in the form of cash, Stock, or other property), recapitalization, forward or reverse split, reorganization, merger, consolidation, spin-off, combination, repurchase, share exchange, liquidation, dissolution, or other similar corporate transaction or event affects the Stock and/or such other securities of the Company or any other issuer such that a substitution, exchange, or adjustment is determined by the Plan Administrator to be appropriate, then the Plan Administrator shall, in such manner as it may deem equitable, substitute, exchange, or adjust any or all of (A) the number and kind of Shares which may be delivered in connection with Awards granted thereafter, (B) the number and kind of Shares by which annual per-person Award limitations are measured under Section 5 hereof, (C) the number and kind of Shares subject to or deliverable in respect of outstanding Awards, (D) the exercise price, grant price, or purchase price relating to any Award and/or make provision for payment of cash or other property in respect of any outstanding Award, and (E) any other aspect of any Award that the Plan Administrator determines to be appropriate.

 

  

  

  

 

                  (ii) Other Adjustments. The Committee (and the Board if and only to the extent such authority is not required to be exercised by the Committee to comply with Code Section 162(m)) is authorized to make adjustments in the terms and conditions of, and the criteria included in, Awards (including Performance Awards and performance goals and performance goals relating thereto) in recognition of unusual or nonrecurring events (including, without limitation, acquisitions and dispositions of businesses and assets) affecting the Company, any Related Entity or any business unit, or the financial statements of the Company or any Related Entity, or in response to changes in applicable laws, regulations, accounting principles, tax rates, and regulations or business conditions or in view of the Committee's assessment of the business strategy of the Company, any Related Entity or business unit thereof, performance of comparable organizations, economic and business conditions, personal performance of a Participant, and any other circumstances deemed relevant; provided that no such adjustment shall be authorized or made if and to the extent that such authority or the making of such adjustment would cause Options, Stock Appreciation Rights, Performance Awards granted under Section 7(b) hereof to Participants designated by the Committee as Covered Employees and intended to qualify as "performance-based compensation" under Code Section 162(m) and the regulations thereunder to otherwise fail to qualify as "performance-based compensation" under Code Section 162(m) and regulations thereunder.

            (d) Taxes. The Company and any Related Entity are authorized to withhold from any Award granted, any payment relating to an Award under the Plan, including from a distribution of Stock, or any payroll or other payment to a Participant, amounts of withholding and other taxes due or potentially payable in connection with any transaction involving an Award, and to take such other action as the Plan Administrator may deem advisable to enable the Company and Participants to satisfy obligations for the payment of withholding taxes and other tax obligations relating to any Award. This authority shall include authority to withhold or receive Stock or other property and to make cash payments in respect thereof in satisfaction of a Participant's tax obligations, either on a mandatory or elective basis in the discretion of the Committee.

            (e) Changes to the Plan and Awards. The Board may amend, alter, suspend, discontinue, or terminate the Plan, or the Committee's authority to grant Awards under the Plan, without the consent of stockholders or Participants. Any amendment or alteration to the Plan shall be subject to the approval of the Company's stockholders if such stockholder approval is deemed necessary and advisable by the Board. However, without the consent of an affected Participant, no such amendment, alteration, suspension, discontinuance, or termination of the Plan may materially and adversely affect the rights of such Participant under any previously granted and outstanding Award. The Plan Administrator may waive any conditions or rights under, or amend, alter, suspend, discontinue, or terminate any Award theretofore granted and any Award agreement relating thereto, except as otherwise provided in the Plan; provided that, without the consent of an affected Participant, no such action may materially and adversely affect the rights of such Participant under such Award.

            (f) Limitation on Rights Conferred Under Plan. Neither the Plan nor any action taken hereunder shall be construed as (i) giving any Eligible Person or Participant the right to continue as an Eligible Person or Participant or in the employ of the Company or a Related Entity; (ii) interfering in any way with the right of the Company or a Related Entity to terminate any Eligible Person's or Participant's Continuous Service at any time, (iii) giving an Eligible Person or Participant any claim to be granted any Award under the Plan or to be treated uniformly with other Participants and Employees, or (iv) conferring on a Participant any of the rights of a stockholder of the Company unless and until the Participant is duly issued or transferred Shares in accordance with the terms of an Award.

 

  

  

  

            (g) Unfunded Status of Awards; Creation of Trusts. The Plan is intended to constitute an "unfunded" plan for incentive and deferred compensation. With respect to any payments not yet made to a Participant or obligations to deliver Stock pursuant to an Award, nothing contained in the Plan or any Award shall give any such Participant any rights that are greater than those of a general creditor of the Company; provided that the Committee may authorize the creation of trusts and deposit therein cash, Stock, other Awards or other property, or make other arrangements to meet the Company's obligations under the Plan. Such trusts or other arrangements shall be consistent with the "unfunded" status of the Plan unless the Committee otherwise determines with the consent of each affected Participant. The trustee of such trusts may be authorized to dispose of trust assets and reinvest the proceeds in alternative investments, subject to such terms and conditions as the Plan Administrator may specify and in accordance with applicable law.

            (h) Nonexclusivity of the Plan. Neither the adoption of the Plan by the Board nor its submission to the stockholders of the Company for approval shall be construed as creating any limitations on the power of the Board or a committee thereof to adopt such other incentive arrangements as it may deem desirable including incentive arrangements and awards which do not qualify under Code Section 162(m).

            (i) Fractional Shares. No fractional Shares shall be issued or delivered pursuant to the Plan or any Award. The Plan Administrator shall determine whether cash, other Awards, or other property shall be issued or paid in lieu of such fractional shares or whether such fractional shares or any rights thereto shall be forfeited or otherwise eliminated.

 

            (j) Governing Law. The validity, construction, and effect of the Plan, any rules and regulations under the Plan, and any Award agreement shall be determined in accordance with the laws of the state of Delaware without giving effect to principles of conflicts of laws, and applicable federal law.

            (k) Plan Effective Date and Stockholder Approval; Termination of Plan. The Plan shall become effective on the Effective Date, subject to subsequent approval within twelve (12) months of its adoption by the Board by stockholders of the Company eligible to vote in the election of directors, by a vote sufficient to meet the requirements of Code Sections 162(m) (if applicable) and 422, Rule 16b-3 under the Exchange Act (if applicable), applicable NASDAQ requirements, and other laws, regulations, and obligations of the Company applicable to the Plan. Awards may be granted subject to stockholder approval, but may not be exercised or otherwise settled in the event stockholder approval is not obtained. The Plan shall terminate no later than ten (10) years from the date of the later of (x) the Effective Date and (y) the date an increase in the number of shares reserved for issuance under the Plan is approved by the Board (so long as such increase is also approved by the stockholders).

            (l) 2005 Plan. Notwithstanding the adoption of this Plan by the Board and its approval by the stockholders, the 2005 Plan shall remain in effect, and all grants and awards made under the 2005 Plan shall be governed by the terms of the 2005 Plan. Upon approval of the Plan by the stockholders of the Company, no further Awards will be granted under the 2005 Plan.

            (m) Code Section 409A Provisions; Deferred Compensation.

                  (i) Except to the extent such acceleration or deferral is permitted or complies with the requirements of Code Section 409A and the regulations promulgated thereunder, neither the Plan Administrator nor a Participant may accelerate or defer the time or schedule of any payment of, or the amount scheduled to be paid under, an Award that constitutes Deferred Compensation; provided, however, that payment shall be permitted if it is in accordance with a fixed date or schedule or on account of “separation from service,” “disability,” death, “change in control” or “ unforeseeable emergency” as those terms are defined under Code Section 409A and the regulations promulgated thereunder.

 

  

  

  

 

                  (ii) Notwithstanding anything in the Plan, unless the agreement evidencing the Award specifically provides otherwise, the Company may not make payment to a Specified Employee (as determined under Code Section 409A by the Plan Administrator in good faith) of any Award that constitutes Deferred Compensation, earlier than 6 months following the Participant’s “separation from service” as defined for purposes of Code Section 409A (or if earlier, upon the Specified Employee’s death), except as permitted under Code Section 409A and the regulations promulgated thereunder. Any payments that otherwise would be payable to the Specified Employee during the foregoing 6 month period will be accumulated and payment delayed until the first date after the 6 month period. The Plan Administrator may specify in the Award agreement, that the amount of the Deferred Compensation delayed shall accumulate interest, earnings or Dividend Equivalents (as applicable) during the period of such delay.

 

                  (iii) The Plan Administrator may, however, reform any provision in an Award intended to comply with (or be exempt from) Code Section 409A to maintain to the maximum extent practicable the original intent of the applicable provision without violating the provisions of Code Section 409A and the regulations promulgated thereunder.Zogenix-AlkermesCommercialSupplyAgreementConfidentialTreatment-

Confidential
Execution Version

CERTAIN MATERIAL (INDICATED BY AN ASTERISK) HAS BEEN OMITTED FROM THIS DOCUMENT PURSUANT TO A REQUEST FOR CONFIDENTIAL TREATMENT. THE OMITTED MATERIAL HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION.
Exhibit 10.32

	
	
	ALKERMES PHARMA IRELAND LIMITED
AND
ZOGENIX, INC.

	 

	

COMMERCIAL MANUFACTURING AND SUPPLY AGREEMENT

THIS AGREEMENT is dated November 2, 2012 (the "Effective Date")
PARTIES:
		
	(1)
	ALKERMES PHARMA IRELAND LIMITED, an Irish company having an address at Monksland, Co Westmeath, Ireland("Alkermes") and 

		
	(2)
	ZOGENIX, INC., a Delaware corporation having its principal place of business at 12400 High Bluff Drive, Suite 650, San Diego, California, USA 92130 ("Zogenix")

BACKGROUND:
		
	(A)
	Elan Pharma International Limited (“EPIL”) and Zogenix entered into a License Agreement dated November 27, 2007, which was amended pursuant to a First Amendment to License Agreement dated as of September 28, 2009 (such agreement, as amended through the date hereof and thereafter from time to time, the "License Agreement"). On August 2, 2011, EPIL assigned all of its rights and obligations in the License Agreement to EDT Pharma Holdings Limited, which has subsequently changed its name to Alkermes Pharma Ireland Limited.

		
	(B)
	The License Agreement provides, inter alia, for the Parties (or their party Affiliates) to negotiate in good faith and execute a Commercial Manufacturing and Supply Agreement, whereby Alkermes or an Alkermes Affiliate will supply to Zogenix commercial quantities of the Commercial Product (as defined below) licensed under the License Agreement.  

		
	(C)
	Accordingly, Alkermes has agreed to supply the Commercial Product to Zogenix through itself or an Affiliate upon the terms and conditions set forth in this Agreement, and this Agreement is intended by the Parties to be the Commercial Manufacturing and Supply Agreement referred to in the License Agreement.

TERMS:
The Parties agree as follows:
1.    DEFINITIONS AND INTERPRETATION
		
	1.1
	Definitions:

In this Agreement, the following expressions shall have the following meanings:
	
		
	"Affiliate"
	means any corporation or entity controlling, controlled or under common control with Alkermes, Zogenix or the entity referred to, as the case may be.  For the purposes of this Agreement, "control" means the direct or indirect ownership of more than 50% of the issued voting shares or other voting rights of the subject entity to elect directors, or if not meeting the preceding criteria, any entity owned or controlled by or owning or controlling at the maximum control or ownership right permitted in the country where such entity exists.

	"Agreement"
	means this agreement, including its recitals, with the attached Schedules.

	"Alkermes Facility"
	means Alkermes's Affiliate's manufacturing facility at Gainesville, Georgia, or such other facility as Alkermes may nominate from time to time under this Agreement.

	
		
	"Available Quota"
	means that part of the Procurement Quota which is at the applicable time unfilled (such that Alkermes or Alkermes’s Affiliate would be permitted to supply the Commercial Product in question in the time requested).

	"Batch"
	means a single Manufacturing batch of a single dosage strength of the Commercial Product, whose approximate sizes are set out in Schedule 1, as the same may be amended from time to time by the mutual written agreement of the Parties through an amendment to Schedule 1.

	“Bead Blend Intermediate”
	means the Product intermediate created during Manufacture which contains the relevant blend of immediate release and sustained release components in a unified blend immediately prior to encapsulation.

	“Bead Blend Intermediate Batch”
	means the minimum quantity of Bead Blend Intermediate that must be created during Manufacture to supply Commercial Product to Zogenix.

	"Business Day"
	means a day other than a Saturday, Sunday or any days on which the clearing banks are generally closed in Dublin Ireland and/or New York, New York.

	“Certificate of Analysis”
	means test results against the criteria specified in the Specifications and including test methods, specification parameters and the pass/fail criteria and results used to show that a particular Batch meets Product Specifications.

	"cGMP"
	means the then-current Good Manufacturing Practices, as defined in the US Federal Food, Drug and Cosmetic Act, and the regulations promulgated thereunder, as may be amended from time to time.

	"Claims"
	means any and all claims (whether successful or otherwise), loss, liability, damages and expenses, including reasonable attorneys' fees and expenses and legal costs.

	“Commercial Product”
	means the Product developed and licensed by Alkermes to Zogenix under the License Agreement and for which Zogenix filed a Regulatory Application on May 1, 2012 in the dosage strengths specified in Schedule 1 (including such additional dosage strengths or additional packaging configurations that may be subsequently added by mutual agreement through a written amendment to Schedule 1) that is packaged and labelled for commercial sale in the Territory or that is provided, if expressly agreed by the Parties, in bulk packaging for onward packaging and commercial sale in the Territory.  For clarity, unless expressly agreed and amended by the Parties in writing pursuant to Clause 23.10, this Agreement shall not govern the commercial supply of any second or subsequent formulations of Product developed by Alkermes and Zogenix under the License Agreement or any Product manufactured for sale or use outside the Territory.

	"Commercially Reasonable Efforts"
	means those efforts of a Party which are consistent with those utilised by such Party for its own internally developed or in-licensed pharmaceutical products, taking into account all factors that impact the manufacturing, development, regulatory approval, marketing, and sales of such products, as applicable.

	"Compound"
	means the active drug substance hydrocodone bitartrate.

	“Confirmed Order”
	has the meaning set out in Clause 5.4.1.

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	"Controlled Substance"
	has the same meaning as in the Controlled Substances Act 21 U.S.C. 801-904, as may be amended from time to time.

	"DEA"
	means the United States Drug Enforcement Administration or any successor agency.

	“Development and Clinical Supply Agreement”
	means the development and clinical supply agreement relating to the Product that was entered into between Zogenix and Elan Drug Delivery, Inc. on December 20, 2007, as may be amended from time to time, and that has been subsequently assigned to Alkermes’s affiliate, Alkermes Gainesville LLC.

	“[***] Forecasts”
	means those forecast quantities relating to [***].

	"EXW"
	has the meaning of that expression (ex works) set out in Incoterms 2010.

	"Failure to Supply"
	has the same meaning as set out in Clause 1.1 of the License Agreement.  For clarity, where Zogenix can meet its properly forecasted and ordered requirements of Commercial Product from the Second Facility in accordance with the terms of this Agreement, any inability of Alkermes Facility to provide such requirements shall not constitute a Failure to Supply.

	“First Approval”
	means receipt of the first Regulatory Approval for the Commercial Product in the Territory.

	“Forecast”
	has the meaning set out in Clause 5.1.3.

	"Force Majeure Event"
	has the meaning set out in Clause 22.1.

	"Governmental Authority"
	means all governmental and regulatory bodies, agencies, departments or entities, whether or not located in the country of manufacture or sale, which regulate, direct or control commercial and other related activities in or with the country of manufacture or sale.

	“Initial Batch Size”
	means the number of Product capsules constituting a single Batch in a single dosage strength of Commercial Product at the initial commercial scale for Commercial Product Manufactured at the Alkermes Facility set out in Schedule 1 under the column “Initial Batch Size.”

	“Launch Stock”
	means any Commercial Product that is intended for commercial sale which is manufactured by or on behalf of Alkermes prior to First Approval.  For clarity, Zogenix may designate validation batches of Product as Launch Stock prior to First Approval.

	“License Agreement”
	has the meaning set out in Section (A) of the Background Section above.

	"Manufacture" or "Manufacturing"
	means all operations in the manufacturing, production, finishing, packaging, labelling, warehousing, quality control testing (including in-process release and stability testing, when applicable) and release for shipping of Commercial Product.

	“Manufacturing Cost”
	has the same meaning as set out in the License Agreement but with [***].

	“Manufacturing License”
	has the same meaning as set out in Clause 9.1 of the License Agreement.

	"Materials"
	means the Compound and all excipients and other materials necessary to Manufacture the Commercial Product.

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	"Minor Changes"
	means changes which affect only the manner and/or order in which activities under the Process Transfer Plan are to be performed, and do not affect the scope of those activities.

	“Net Sales”
	has the same meaning as set out in the License Agreement.

	“Notional NSP”
	has the same meaning as set out in the License Agreement.

	“NSP” or “Net Selling Price”
	has the same meaning as set out in the License Agreement.

	“Optimized Batch Size”
	means the number of Product capsules constituting a single Batch in a single dosage strength of Commercial Product following Batch size optimization for Commercial Product Manufacture at the Alkermes Facility set out in Schedule 1 under the column “Optimized Batch Size.”

	“Party” or “Parties”
	has the same meaning as set out in the License Agreement.

	“Process Transfer Plan”
	has the meaning set out in Clause 3.1.

	"Procurement Quota"
	means the quota for the Commercial Product or the Compound, as referenced in the US CFR 1303.12, from time to time.

	“Product”
	has the meaning as set out in the License Agreement when used as a stand alone term in this Agreement but for clarity and as also set out in Section 1.3.4, unless expressly provided otherwise any reference in the definitions incorporated herein from the License Agreement to the term “Product” shall for the purposes of this Agreement mean “Commercial Product”.

	"Product Specifications"
	means the specifications for the final manufactured dosage form(s) of the Commercial Product as set out in the Regulatory Approval in the Territory, or as may be agreed between the Parties in writing in the Technical Agreement from time to time, together with applicable cGMP.

	“Project Manager”
	has -the meaning set out in Clause 4.1.

	“Purchase Order”
	has the meaning set out in Clause 5.4.1.

	“Quota Forecast”
	has the meaning set out in Clause 5.2.

	“Recall”
	has the meaning set out in Clause 13.2.

	“Recall Costs”
	has the same meaning as set out in Clause 19.6.1

	"Regulatory Application"
	has the same meaning as set out in the License Agreement.

	"Regulatory Approval"
	means the final approval to market the Commercial Product in the Territory, including any approval which is required to launch the Commercial Product in the normal course of business.

	"Safety Stocks"
	has the meaning set out in Clause 5.5.

	“Second Facility”
	has the meaning set out in Clause 9.1.

	"Substantial Changes"
	means changes which affect the scope of the activities under the Process Transfer Plan.

	“Supply Committee”
	has the meaning set out in Clause 4.3

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	“Technical Agreement”
	has the meaning set out in Clause 2.3

	“Territory”
	means the United States of America and its possessions and territories, including Puerto Rico.

	“Third Party”
	means any individual or entity which is neither a Party or an Affiliate of a Party.

	“Trade Demand”
	means [***].

		
	1.2
	Other Defined Terms:  Other capitalised expressions not specifically defined in this Agreement shall have the same meaning as in the License Agreement.

		
	1.3
	Interpretation:  In this Agreement:

		
	1.3.1
	the singular includes the plural and vice versa, and unless the context or subject otherwise requires, references to words in one gender include references to the other genders;

		
	1.3.2
	unless the context otherwise requires, reference to a recital, article, paragraph, provision, clause or schedule is to a recital, article, paragraph, provision, clause or schedule of or to this Agreement;

		
	1.3.3
	the headings in this Agreement are inserted for convenience only and do not affect its construction; 

		
	1.3.4
	unless expressly provided otherwise, any references in the definitions incorporated herein from the License Agreement to “Product” or “Bottled Product” shall mean “Commercial Product”; and

		
	1.3.5
	the expressions "include", "includes", "including", "in particular" and similar expressions shall be construed without limitation.

		
	2.
	EXCLUSIVE SUPPLY

		
	2.1
	Appointment.  Zogenix hereby appoints Alkermes as its exclusive manufacturer of the Commercial Product for the Territory, upon the terms and conditions set out in this Agreement.  Except as expressly provided in Clauses 9 and 10, during the Term Zogenix shall purchase its entire requirement of Commercial Product from Alkermes.

		
	2.2
	Technical Agreement.  Prior to any supply of Commercial Product under this Agreement, the Parties shall enter into technical agreement(s) in relation to Commercial Product supplied in Manufacturing (each, as applicable, the "Technical Agreement"), which shall specify: 

		
	2.2.6
	which Party (or Third Party, if applicable) is responsible for handling which tasks associated with the cGMP aspects of Manufacturing the Commercial Product;

		
	2.2.7
	the procedures pursuant to which Commercial Product will be released and delivered to Zogenix;

		
	2.2.8
	the inspection and testing for compliance of Compound to be conducted by Alkermes prior to incorporation into Commercial Product;

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	2.2.9
	the testing and quality analysis of Commercial Product to be conducted by Alkermes prior to delivery of Commercial Product to Zogenix;

		
	2.2.10
	the format of the Certificate of Analysis and certificate of release to be furnished by Alkermes to Zogenix upon release of the Commercial Product to Zogenix;

		
	2.2.11
	any quality analysis or other activities to be conducted by Zogenix; 

		
	2.2.12
	the manner in which changes to the Product Specifications and/or the process of Manufacturing may be made; 

		
	2.2.13
	audit/inspection rights of manufacturing facilities that manufacture Compound and raw material suppliers; 

		
	2.2.14
	the responsibilities of the Parties with respect to pharmacovigilance and Commercial Product Recall, including how the parties should share and exchange information with respect to adverse event data collection and reporting; and

		
	2.2.15
	such other matters relating to Manufacturing as the Parties may mutually agree should be addressed in the Technical Agreement

In the event there is a conflict in terms between this Agreement and the Technical Agreement(s), the terms and conditions of this Agreement shall prevail.
		
	3.
	PROCESS TRANSFER 

		
	3.1
	Transfer Plans.  Alkermes shall create as needed process transfer plans ("Process Transfer Plan(s)") and work plans under the Development and Clinical Supply Agreement, which shall include activities necessary for the transfer, validation and commercial scale-up of the Commercial Product’s manufacturing processes within the Alkermes Facility.   

		
	3.2
	Conduct.  The Parties shall use Commercially Reasonable Efforts to conduct their activities under such Process Transfer Plan(s) and work plans.  In performing their activities, the Parties shall act collaboratively, reasonably and in good faith with a view to timely achieving the aims of the Process Transfer Plan.

		
	3.3
	Inherent Uncertainties.  The Parties acknowledge that there are inherent uncertainties involved in the scale up, transfer and manufacture of pharmaceutical products and that such uncertainties form part of the business risk involved in undertaking the form of commercial collaboration set out in this Agreement.    

		
	4.
	OVERSIGHT 

		
	4.1
	Project Managers.  Each Party shall designate a "Project Manager" who shall be the principal point of contact between the Parties for all matters relating to process transfer, scale up and validation.  A Party may designate a new Project Manager by written notice to the other Party. 

		
	4.2
	Communications.  The Project Managers shall communicate on a regular basis and make themselves reasonably available to each other for this purpose.

		
	4.3
	Supply Committee.  After the Effective Date, the Parties shall establish a supply committee (the "Supply Committee").  The Supply Committee shall be comprised of a minimum of two (2) Alkermes employees and two (2) Zogenix employees having appropriate technical credentials, knowledge and experience, or such other number as the Parties may agree.  Additional invitees may attend Supply Committee meetings upon the approval of both Alkermes and Zogenix.  

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	4.4
	General Remit.  The Supply Committee shall serve as the coordinating body for the Manufacture and supply of Commercial Product under this Agreement.  The Supply Committee shall also work to resolve any matter which arises between the Parties relating to the Manufacture and supply of Commercial Product under this Agreement.  If the Parties are unable to resolve the matter through the Supply Committee, the Parties shall refer the matter to the committee organized and operating pursuant to Section 7.7.2 of the License Agreement, which is responsible for the overall development, regulatory and commercialization activities of Commercial Product under all of the Product agreements.  If the License Agreement committee set out in such Section 7.7.2 is also unable to resolve the issue, then the dispute resolution mechanism set out in Section 12.6 of the License Agreement shall be applied to the issue as if such mechanism was fully set forth herein.

		
	4.5
	Meetings.  The Supply Committee shall meet monthly by telephone or in person. Meeting agendas shall include as appropriate information on (a) anticipated market demand and inventory positions (including Compound inventory) and any material changes in market demand or inventory positions (including Compound inventory), (b) supply capability, (c) any capacity problems, unusual production situations, or prioritization issues, including pursuant to Clause 10.1, (d) any changes in Compound or Commercial Product delivery or sourcing, (e) any quality related issues, (f) any proposed amendments to Batch sizes based upon forecasted demand or changes in Product Specifications, (g) any forecast trends or proposed amendments to forecasts, and (h) any other matters which may impact or influence the Commercial Product supply chain.

		
	4.6
	Costs.  Each Party shall be responsible for its own costs in respect of travel and accommodation expenses in attending such meetings.

		
	5.
	FORECASTING, ORDERING AND CAPACITY

		
	5.1
	Forecasts.  Zogenix shall provide Alkermes with good faith, written, non-binding (subject to Clause 5.4.2 and 5.4.3) forecasts of its expected commercial requirements of the Commercial Product to be delivered as follows:

		
	5.1.1
	within [***] of the Effective Date, an [***] forecast, broken down on [***] basis, for the period beginning [***];

		
	5.1.2
	thereafter every [***] until [***], an updated forecast prepared on the same basis;

		
	5.1.3
	within [***], and thereafter every calendar month not later than the [***], a rolling eighteen (18) month forecast, broken down on [***] basis for the first [***] and [***] basis for the remaining [***], for the period commencing at the beginning of the following [***] in a form substantially similar to that which is mutually agreed by the Parties ("Forecast"); and

		
	5.1.4
	not later than [***], a [***] forecast, broken down on a [***] basis.

Each Forecast made by Zogenix shall supersede any previous Forecast.  Forecast quantities for any [***] shall not be less than seventy-five percent (75%) nor more than [***] of the aggregate forecast quantity for the previous [***], without the prior written agreement of Alkermes.  For any [***] Forecasts that exceed these limitations, Alkermes will work in good faith with Zogenix through the Supply Committee to fulfil, delay or cancel outstanding Purchase Orders or minimize costs, taking into consideration Alkermes’s supply chain commitments in reference to Commercial Product, other manufacturing commitments and other capacity constraints.    
		
	5.2
	Additional Forecast for Procurement Quota.   As a consequence of the restrictions currently imposed upon the importation, use and distribution of the Compound in and into the Territory, the Parties acknowledge the requirement to order the appropriate quantity of Compound in sufficient time to enable the supplier of the Compound to obtain the appropriate aggregate Procurement Quota for Manufacture.  

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In this regard, the Parties shall negotiate and mutually agree not later than [***] a forecast for the supply of Compound for the [***], broken down on [***] ("Quota Forecast").  The Quota Forecast shall be in addition to and not in substitution for the Forecasts.  Alkermes shall use Commercially Reasonable Efforts to procure Compound in accordance with the Quota Forecast.  Zogenix shall use Commercially Reasonable Efforts to obtain sufficient quantities of Zogenix Commercial Product Procurement Quota, if required, to accept Commercial Product manufactured by Alkermes in compliance with the then-applicable Forecast and Quota Forecast.
		
	5.3
	Increased Capacity.  If at any time after Commercial Product launch the Forecasts exceed Alkermes' then-current Manufacturing capacity, Alkermes and Zogenix shall meet and discuss in good faith ways in which additional Alkermes capacity may be secured to meet the Forecasts.  If the additional capacity requires Alkermes capital expenditure, then the Parties shall negotiate (a) [***] which shall ensure the Commercially Reasonable utilisation of such capital equipment or (b) the [***], in each case, taking into account other products which could be manufactured on such equipment.  For clarity, the maintenance of then-current Manufacturing capacity, even if the purchase of replacement capital equipment is required, shall be at Alkermes’ sole cost and expense.  

		
	5.4
	Purchase Orders.

		
	5.4.1
	A "Purchase Order" is a binding order for such quantities of Commercial Product as is set out in the order.  The Purchase Order shall include: (i) the quantity of Commercial Product to be delivered and (ii) the date on which the Commercial Product should be delivered and (iii) any other information reasonably requested by Alkermes.  For clarity, once a Purchase Order has been accepted (a “Confirmed Order”), Zogenix shall be required to compensate Alkermes pursuant to the terms of this Agreement for any Commercial Product manufactured under such Confirmed Order, even if Zogenix or a Zogenix third party designee is unable to accept delivery of such Commercial Product because of insufficient Commercial Product Procurement Quota or lack of a valid DEA registration by Zogenix or Zogenix’s third party designee to receive such Commercial Product.

		
	5.4.2
	Validation batches that are manufactured for potential use as Commercial Product/Launch Stock shall be forecasted, ordered, delivered and paid pursuant to the terms of this Agreement.  In conjunction with execution of this Agreement, Zogenix has submitted and Alkermes has accepted and confirmed a binding Purchase Order for validation batches that may be used as Commercial Product/Launch Stock  which contains a delivery date that has been mutually agreed by the Parties.  For other Launch Stock (if any), Zogenix shall submit a binding Purchase Order in which the date for delivery of the Commercial Product specified by Zogenix shall be not less than [***] following acceptance of such Purchase Order by Alkermes, taking into account Available Quota.  On the first business day of each [***] after First Approval, Zogenix shall submit to Alkermes a Purchase Order for the quantity of Commercial Product specified in the first four (4) months of the last Forecast, less any Confirmed Orders or Launch Stock for delivery in that period.  Unless otherwise agreed by Alkermes, the date for delivery of the Commercial Product specified by Zogenix shall be not less than four (4) months following acceptance of each Purchase Order by Alkermes.

		
	5.4.3
	Upon receipt of a Purchase Order Alkermes shall either accept or reject (to the extent entitled) the Purchase Order by written notification to Zogenix within [***] after receipt of the applicable Purchase Order.  An accepted Purchase Order shall be a "Confirmed Order," subject to Alkermes’ ability to obtain sufficient Procurement Quota for Compound to Manufacture such Commercial Product.

		
	5.4.4
	Alkermes shall be entitled to reject any Purchase Order that does not conform to Clause 5.4.1 or that part of a Purchase Order that:

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	(a)
	Exceeds in the aggregate (together with other Purchases Orders previously submitted) one hundred percent (100%) of the [***] requirement that was forecast by Zogenix for the [***] of delivery in the Forecast submitted [***]; 

		
	(b)
	exceeds the Available Quota; 

		
	(c)
	exceeds (or in conjunction with Confirmed Orders in the relevant period exceeds) Alkermes's then-current maximum manufacturing capacity, which Alkermes shall have previously shared with Zogenix in a timely manner through the Supply Committee; or

		
	(d)
	requests partial Batches or less than a single Batch or where the total aggregate amount of Commercial Product ordered in a Purchase Order, when taken as a whole, does not [***].

If Alkermes in its absolute discretion chooses to accept a Purchase Order that Alkermes is not required to accept pursuant to this Clause 5.4.4 or that may otherwise be rejected by Alkermes in accordance with this Agreement, that fulfilment shall not affect Alkermes's right to reject any subsequent Purchase Order that it may not be required to accept pursuant to Clause 5.4.4 or that may otherwise be rejected by Alkermes in accordance with this Agreement.
		
	5.4.5
	The terms of this Agreement are hereby incorporated by reference into each Purchase Order submitted by Zogenix. No other terms or conditions, including any contained in a Purchase Order, shall apply to the sale and purchase of Commercial Product as between the Parties except pursuant to a modification duly executed as provided in this Agreement.

		
	5.5
	Safety Stocks.  Zogenix shall use Commercially Reasonable Efforts to build during the first [***] and thereafter to maintain an inventory of Commercial Product [***] which is not less than the equivalent of the [***] ("Safety Stocks"), subject to Available Quota for the Commercial Product.  Zogenix shall make Forecasts consistent with this requirement and will make good faith estimates of [***].  If requested by Zogenix, Alkermes and Zogenix shall discuss in good faith the ability of Alkermes or its Affiliates to hold Safety Stocks, the storage of such Safety Stocks being at [***].

		
	6.
	MINIMUM ORDER QUANTITIES

		
	6.1
	Minima.  Manufacture of validation batches and other Launch Stock shall be in Batch sizes of not less than the minimum quantities set out in Schedule 3 of this Agreement or in multiples thereof and the total aggregate amount of validation batches or other Launch Stock in a single Confirmed Order, when taken as a whole, must utilize [***].  Manufacture of Commercial Product shall be in Batch sizes of not less than the minimum quantities set out in Schedule 1 of this Agreement or in multiples thereof and the total aggregate amount of Commercial Product in a single Confirmed Order, when taken as a whole, must utilize [***].  The Parties shall discuss and agree other minimum Batch quantities as necessary through the Supply Committee.

		
	7.
	SUPPLY OF COMMERCIAL PRODUCT

		
	7.1
	Supply.  Alkermes shall use Commercially Reasonable Efforts to supply the quantities of Commercial Product requested in each Confirmed Order. 

		
	7.2
	Materials.  Alkermes shall be responsible for procuring all Materials at its own cost; provided that: 

		
	7.2.6
	in the event of (i) a change in the specifications for any Materials, or (ii) expiration or termination of this Agreement, Zogenix shall bear [***] last Forecast. Alkermes shall use Commercially Reasonable Efforts to mitigate such costs;  

		
	7.2.7
	in the event that Compound that has been ordered and paid for, or must be paid for, by Alkermes pursuant to the Quota Forecast becomes obsolete for any reason (other than failure to meet 

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Product Specifications or due to Alkermes’ negligence or misconduct) prior to use, Zogenix shall [***].  Alkermes shall use Commercially Reasonable Efforts to obtain a Procurement Quota for the Compound consistent with the then applicable Quota Forecast.  
		
	7.3
	Packaging Materials.  Zogenix shall be responsible for and shall supply Alkermes with all packaging artwork and inserts required for the Commercial Product.  Except in reference to Alkermes trademarks reviewed and approved prior to their application, Zogenix shall indemnify Alkermes for any trademark, copyright or other content claims that may be made against Alkermes arising from such materials.  

Zogenix shall bear the cost of changing and repackaging Commercial Product to meet regulatory requirements.  Zogenix may also, at its sole cost, change such artwork from time to time by reasonable notice to Alkermes and subject to having obtained all requisite approvals from Governmental Authorities.  If Alkermes requests a change to packaging artwork and inserts to accommodate an Alkermes business need and Zogenix accepts such proposed changes, then Alkermes shall bear the cost of any such artwork and insert changes. 
		
	7.4
	Supply Terms.  Commercial Product supplied by Alkermes to Zogenix shall:

		
	7.4.1
	be delivered EXW the Alkermes Facility, except with respect to validation batches and Launch Stock which shall be delivered in accordance with Section 16.2;

		
	7.4.2
	be free from any liens, security interests or other encumbrances on title;

		
	7.4.3
	conform to Product Specifications and be manufactured in accordance with applicable cGMP and other applicable law;

		
	7.4.4
	have consumed no more than [***] with respect to Commercial Product that has [***] or, with respect to Commercial Product that has [***], have consumed no more than [***] provided however that (i) Zogenix may, at its option, accept Commercial Product with [***] and (ii) in circumstances where Zogenix decides to reject Commercial Product for not meeting [***] requirements, Zogenix will discuss its reasons in good faith with Alkermes through the Supply Committee.  This provision shall not apply to validation batches/Launch Stock as provided in Section 16.2 of this Agreement or Commercial Product that is not released by Zogenix within the turnaround time that shall be agreed and defined in the Technical Agreement;

		
	7.4.5
	be packed in bottles in a packaging configuration provided by Zogenix and approved (or expected to be approved) by the FDA for Commercial Product that is ready for distribution in the Field in the Territory, or if agreed by Alkermes and Zogenix in writing, bulk packaged in a suitable manner for shipment;

		
	7.4.6
	be accompanied by a Certificate of Analysis for such Batch of Commercial Product; and

		
	7.4.7
	conform in all material respects with applicable provisions of the Technical Agreement with respect to Commercial Product.

		
	7.5
	Obsolete Commercial Product.  In the event that Zogenix does not obtain sufficient Zogenix Commercial Product Procurement Quota or is otherwise unable to accept delivery of Commercial Product for which there is a Confirmed Order, then Alkermes shall be entitled to invoice and seek payment for such Commercial Product, including in-process Commercial Product, from Zogenix in accordance with Section 16 below.

		
	7.6
	Responsibility After Delivery.  Title shall pass on delivery of Commercial Product to Zogenix.  Zogenix shall be solely responsible for the storage, maintenance and transportation of Commercial Product from 

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the time of delivery to Zogenix, and, except as set forth in Clauses 12.7 and 13.3, all risks of loss shall pass upon delivery, whether or not such delivery is accepted.
		
	7.7
	Notification of Loss.  Zogenix shall immediately notify Alkermes of the loss or damage of any Commercial Product in transit and/or shortfall in receipt before or after transit, and fully co-operate with Alkermes with respect to providing information to the DEA to support a notice of loss or theft and otherwise so as to enable Alkermes to comply with its obligations with regard to Controlled Substances.  For clarity, this shall not affect the passage of risk of loss upon EXW delivery.

		
	8.
	CHANGE CONTROL

		
	8.1
	Modification of Product Specifications.  Neither Party shall implement modifications to the Product Specifications without the other’s prior written request and approval.  The Technical Agreement will contain processes for requesting and implementing changes to the Product Specifications. 

		
	8.2
	Modification of Commercial Product Process.  Zogenix shall have the right to review any proposed changes specific to Commercial Product manufacturing, testing or controls documentation in advance of their implementation, and shall have the right to approve any proposed changes which reasonably require either prior approval by any Governmental Authority or notice to any Governmental Authority.  Any other changes that the Parties may agree require prior Zogenix approval and the review and approval process for any changes which require prior approval shall be set out in the Technical Agreement.

		
	8.3
	Change of Manufacturing Facility. Alkermes shall not change the Alkermes Facility from Gainesville (or other subsequent location) without Zogenix’s prior written consent, not to be unreasonably withheld or delayed.  If Alkermes has requested a change of Alkermes Facility, Alkermes shall bear all costs and expenses associated with such change of Alkermes Facility, including costs associated with notice to and any approvals required from a Governmental Authority.  This provision related to cost shall not apply where Zogenix has requested a change of Alkermes Facility, in which case it shall be at Zogenix’s cost, or the Parties otherwise mutually agree to change the Alkermes Facility, in which case the Parties shall allocate costs as mutually agreed.  

		
	9.
	VOLUNTARY SECOND SOURCE 

		
	9.1
	Voluntary Second Source Option.  If after receipt of the First Approval and if so requested in writing by Zogenix, Alkermes shall use Commercially Reasonable Efforts to enter into the relevant contracts and to validate a second manufacturing facility, which shall at Alkermes's option be another facility operated by Alkermes or its Affiliates, or a facility operated by a Third Party identified by Zogenix and agreed to by Alkermes (each, a "Second Facility").  Under no circumstances shall the owner of any such Second Facility be a Technological Competitor or be an Affiliate of a Technological Competitor without the prior written consent of Alkermes and provided further that Zogenix must take steps in all instances related to any Second Facility operated by a Third Party identified and/or used by Zogenix to ensure that Technological Competitors do not gain access, directly or indirectly, to Alkermes Confidential Information.  Additionally, in the event that the Second Facility operated by a Third Party becomes a Technological Competitor, or an Affiliate of a Technological Competitor, the Second Facility must ensure that Alkermes Confidential Information and the manufacture of Commercial Product is “Contained Within a Ring Fence” as such phrase is defined in Section 16.3.2.1 of the License Agreement.

		
	9.2
	Voluntary Second Source Technology Transfer Plan.  For this purpose and provided that Zogenix has exercised its right to validate a second manufacturing facility, Alkermes shall develop a plan of activities to enable the Second Facility to Manufacture and supply commercial quantities of Commercial Product to Zogenix in compliance with Product Specifications.  Zogenix shall be responsible for the reasonable costs of all such activities, including all operator charges, Third Party expenses and the costs associated 

11

with employing Alkermes personnel to facilitate the technology transfer, which shall be invoiced to Zogenix at Alkermes's then-current FTE (full time equivalent) rate.
		
	9.3
	Costs of Second Facility.  

		
	9.3.1
	Zogenix shall be responsible for any costs associated with the scale up, validation and maintenance of any Second Facility and any equipment purchased by Second Facility to support and facilitate the Manufacture and supply of Commercial Product from the Second Facility; provided, however, Zogenix shall not be responsible for  maintenance costs associated with unused capacity of any Alkermes-operated Second Facility in excess of amounts forecasted in the then-applicable Forecasts.   

		
	9.3.2
	If Commercial Product is supplied from a Second Facility operated by a Third Party, Zogenix shall make compensating payments to Alkermes pursuant to Clause 16.5. 

		
	9.3.3
	Where the Second Facility is operated by a Third Party: 

		
	(a)
	in no event shall any supply by the Second Facility exceed  (i) [***] of Zogenix’s total aggregate requirements of Commercial Product for any [***] and, only if and when applicable, (ii) additional amounts of Commercial Product that Zogenix is entitled to obtain from a Third Party manufacturer in accordance with Clause 10 of this Agreement; 

		
	(b)
	any Third Party operator of the Second Facility (“Third Party Second Facility Operator”) shall directly invoice Zogenix for any Commercial Product Manufactured by the Third Party Second Facility Operator and Zogenix shall pay the Third Party Second Facility Operator for any such Commercial Product; and

		
	(c)
	Zogenix shall be solely responsible for organizing and fully reimbursing the Third Party Second Facility Operator for all Materials, equipment, licenses, and process and equipment validations required by applicable law or regulations for the Second Facility operated by a Third Party and for ensuring such Second Facility passes all inspections required to Manufacture and supply Commercial Product through the Second Facility.   

		
	9.3.4
	Where the Second Facility is operated by Alkermes or an Alkermes Affiliate, Zogenix shall compensate Alkermes (or its Affiliate, as directed by Alkermes) for Commercial Product supplied at [***] and any other costs incurred by Alkermes or its Affiliate in accordance with the terms of this Agreement. 

		
	10.
	FAILURE TO SUPPLY  

		
	10.1
	Notification of Failure to Supply.  Subject to Zogenix keeping Alkermes informed as to their inventory position, if at any time during the Term, Alkermes anticipates that there will be a Failure to Supply, then Alkermes shall (a) give Zogenix prompt notice thereof and (b) use Commercially Reasonable Efforts to fulfil Purchase Orders with such quantities of Commercial Product as are available through itself on a timely basis. 

		
	10.2
	Failure to Supply.  In the event of a Failure to Supply and subject to the terms of this Clause 10, for so long as there is a Failure to Supply, Zogenix shall be entitled to obtain its requirements of Commercial Product from the Designated Manufacturer, as defined in Clause 9.1 of the License Agreement and pursuant to the provisions of the Manufacturing License granted to Zogenix in Clause 9 of the License Agreement.  For clarity, the Third Party Second Facility Operator may be the Designated Manufacturer. 

		
	10.3
	Supply Resumption.  When Alkermes remedies the cause of the Failure to Supply and is once again able to fulfil Zogenix's Confirmed Orders, Alkermes shall so notify Zogenix (the "Resumption Notice") and Zogenix shall cease, or procure that the Designated Manufacturer ceases, Manufacturing the 

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12

Commercial Product and shall resume purchasing the Commercial Product exclusively from Alkermes pursuant to the terms of this Agreement; provided that Zogenix shall be entitled to continue to obtain Commercial Product from the Designated Manufacturer pursuant to the Manufacturing License to the extent that [***].
		
	10.4
	Responsibility.  In manufacturing the Commercial Product pursuant to the Manufacturing License, as between Alkermes and Zogenix, Zogenix shall be solely responsible for all costs, Procurement Quotas for Compound and Commercial Product, licenses, process and equipment validation required by applicable law or regulations for a Designated Manufacturer which is a Third Party and shall, subject to Alkermes obligations set forth in Clause 10.5, take all steps reasonably necessary to enable a Designated Manufacturer which is a Third Party to Manufacture Commercial Product. 

		
	10.5
	Technology Transfer.  In the event of (a) a Failure to Supply or (b) where the circumstances set forth in Clause 12.3.2, 12.3.3 or 12.3.4 of the License Agreement apply to Alkermes but Zogenix does not terminate this Agreement, Zogenix may notify Alkermes that it wishes to effect a technology transfer.  Upon receipt of such notice (and as previously set out in the License Agreement in Clause 9.4), Alkermes shall: 

		
	10.5.1
	provide Zogenix with any technical data incorporated in the Elan Know-How, including access to the CMC Section to give effect to the provisions of Clause 9.1 of the License Agreement and Alkermes shall promptly provide to Zogenix the documentation constituting the required material support, more particularly practical performance and advice, shop practice, specifications as to materials to be used and control methods; and

		
	10.5.2
	assist Zogenix for a period of [***] with the working up and use of the technology and with the training of Zogenix personnel which may be reasonably necessary in relation to the exercise of the Manufacturing License, including receiving Zogenix representatives in its or its Affiliates’ premises for limited periods as may be agreed upon by the Parties. 

Zogenix shall reimburse Alkermes for any actual and reasonable costs incurred in connection with any transfer of technology pursuant to this Clause 10 within [***].  For clarity, such a transfer of technology is solely for the purposes of the Manufacturing License and shall not be deemed to permit Zogenix to Manufacture or obtain supplies of Commercial Product from a Third Party other than as expressly set out in this Clause 10.  By way of example, although this technology transfer permits Zogenix to effect a technology transfer where Alkermes goes into liquidation or receivership and Zogenix decides not to terminate this Agreement, it does not entitle Zogenix to utilize such technology transfer or the Manufacturing License granted under the License Agreement except where there has been a Failure to Supply and Alkermes shall be entitled to resume supplying the Commercial Product in such circumstances in accordance with this Clause 10.
		
	10.6
	Sole Remedy For Failure to Supply.  This Clause 10 and also Clauses 12.3.1 and 13.2.5 of the License Agreement solely to the extent that Alkermes is found to have materially breached Section 9.4 of the License Agreement set out Zogenix's sole and exclusive remedies in respect of Failure to Supply Commercial Product.

		
	11.
	STABILITY TESTING

		
	11.1
	Alkermes shall conduct stability testing of Commercial Product as may be required by the Regulatory Approval on the Commercial Product or cGMP, at Alkermes’ sole cost and expense. Zogenix shall reimburse Alkermes for any additional stability testing requested by Zogenix at Alkermes’ then-current standard pull rates, currently [***].  For clarity, expenses related to stability testing of process validation lots will be governed by the Process Transfer Plan, as set forth in Clause 16.1.

		
	12.
	ACCEPTANCE AND REJECTION

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13

		
	12.1
	Acceptance Procedures.  Zogenix shall determine suitability for acceptance and release of Commercial Product for commercial distribution.  If the Parties agree to additional acceptance procedures in the Technical Agreement, Alkermes shall use reasonable efforts to support transfer of any or all commercial methods to a third party laboratory and to provide test samples of any lot of Commercial Product when requested in order to establish acceptance testing ability.

		
	12.2
	Deficiency Notice.  If Zogenix determines that the Commercial Product deviates from the Product Specifications or there are other material defects in Manufacturing that make such Commercial Product unsalable (a "Deviation"), Zogenix shall give Alkermes written notice (a "Deficiency Notice") outlining the Deviation, including such other information reasonably necessary to identify the Deviation, within [***].  Should Zogenix fail to provide Alkermes with a Deficiency Notice within the relevant and applicable time periods set out earlier in this paragraph, then delivery will be deemed to have been accepted by Zogenix, and Alkermes will have no liability for any Deviations for which it has not received notice within the applicable period.

		
	12.3
	Counter Notice.  Within [***], Alkermes may provide written notice to Zogenix (a "Deficiency Counter Notice") that it contests the existence of a Deviation.

Where Alkermes is unable to make such a determination within that period, Alkermes may within that period request such access to the Commercial Product delivered and/or testing data and/or any other information that Zogenix may have concerning the Deviation.  Zogenix shall provide such access, data and/or information, and Alkermes may serve its Deficiency Counter Notice at any time [***].
Should Alkermes fail to provide Zogenix with a Deficiency Counter Notice within the relevant and applicable time periods set out earlier in this Section, then Alkermes will be deemed to have accepted the Deviation specified in the Deficiency Notice.
		
	12.4
	Dispute Resolution.  In the event of an unresolved dispute as to the conformity of Commercial Product with Product Specifications, the Parties shall appoint an independent testing laboratory, acceptable to both Parties and subject to the confidentiality agreements herein, to undertake the relevant analysis, which analysis shall be performed in compliance with the applicable laws of the relevant regulatory Governmental Authority, to determine whether the Commercial Product conformed or did not conform to the Product Specifications.  The test results obtained from such laboratory shall be conclusive and binding upon the Parties except in the case of fraud or manifest error.  The fees and expenses of such testing shall be borne by Alkermes if it is ultimately determined that the Commercial Product failed to meet Product Specifications, or Zogenix in other cases.

		
	12.5
	Right to Reject.  Where Alkermes does not provide a Deficiency Counter Notice in response to a Deficiency Notice alleging a Deviation, or where a dispute is resolved in Zogenix's favour pursuant to Clause 12.4 or by written agreement of the Parties, the Commercial Product in question shall be deemed rejected.

		
	12.6
	No Effect on Remainder of Delivery.  No Deviation shall affect the delivery of any conforming part of the delivery.

		
	12.7
	Remedy.  In respect of Commercial Product properly rejected and agreed, Alkermes shall Manufacture and deliver replacement Commercial Product as soon as practicable, but in any event within [***], subject to the availability of Materials, available Manufacturing capacity and Available Quota.  Alkermes shall be responsible for its own costs of doing so, including the cost of the Materials and costs associated with the Manufacture and supply of replacement of such Commercial Product to Zogenix (including reasonable Third Party costs incurred by Zogenix in connection with Zogenix receiving such replacement Commercial Product) and, for clarity, Zogenix shall not pay an Initial Fee or Final Fee with respect to any properly rejected Commercial Product until such time as Zogenix accepts the 

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14

replacement Commercial Product.  In the event that Alkermes is unable to deliver replacement Commercial Product within such [***], Alkermes shall [***]. 
In the absence of fraud or willful misconduct by Alkermes, this Clause 12 sets out Zogenix’s sole remedies in respect of Commercial Product delivered by Alkermes but not yet sold by Zogenix to a Third Party which Commercial Product does not conform to Product Specifications.  Remedies and liabilities for Commercial Product sold by Zogenix to a Third Party shall be governed exclusively by the terms of Clause 13 below.  
		
	13.
	ADVERSE EVENTS AND PRODUCT RECALL

		
	13.1
	Adverse Events and Safety Reporting.  Each Party shall, in accordance with the timing and procedures set forth in the Technical Agreement, give the other Party written notice of:

		
	13.1.1
	any matter arising out of this Agreement that must be reported by such other Party to a regulatory Governmental Authority;

		
	13.1.2
	any complaint about the quality or safety of Commercial Product supplied by Alkermes or which may reasonably affect the other Party's activities under this Agreement;

The Technical Agreement shall set out the detailed procedures regarding the format, timing, responsibilities and content of notices under this Clause 13.1.
		
	13.2
	Zogenix's Discretion to Recall.  If either Party is notified by a Governmental Authority that a recall, market withdrawal, stock recovery or other corrective action related to Commercial Product in the Territory (collectively a “Recall”) is required, requested or otherwise advisable, it shall promptly notify the other Party in writing of such notification.  In circumstance where such a notification has been made or, alternatively if Zogenix establishes a need to conduct a Recall, Zogenix shall have sole discretion (except where required to take an action by Governmental Authorities) over whether and under what circumstances to require a Recall.  Zogenix shall be responsible for coordinating Recalls and for ensuring that such activities are conducted in a commercially reasonable manner and Alkermes shall afford Zogenix reasonable assistance in conducting any such activities. 

		
	13.3
	Recall Costs.  

		
	13.3.1
	Except as provided in Section 13.3.2, Zogenix shall bear all costs of any Recall.  Alkermes shall not invoice Zogenix for the cost of any internal Alkermes activities associated with such Recall but shall be entitled to invoice Zogenix for all other reasonable costs.

		
	13.3.2
	In circumstances where:

		
	(a)
	Commercial Product Recall arises from (a) Alkermes failure (or its Affiliate’s failure) to supply Commercial Product in accordance with Product Specifications and cGMP, (b) the negligent acts or omissions of Alkermes (or its Affiliate) in Manufacturing the Commercial Product or (c) from Alkermes breach of this Agreement, including without limitation Clause 7.4 with respect to such Commercial Product; and also that

		
	(b)
	Zogenix could not have discovered such failure or acts or omissions prior to the sale of such Commercial Product by exercising reasonable diligence; 

Zogenix shall consult with Alkermes prior to implementing any Recall plan and Alkermes shall [***].  Zogenix costs shall not include costs of any internal Zogenix activities associated with such Recall for which Zogenix shall not seek reimbursement.  If Alkermes does not [***], Alkermes shall, at Zogenix’s option, [***].  Where the Recall is a multiple Batch Recall, the Parties shall discuss and agree on the specific Batches to be recalled.  For 

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15

clarity, Zogenix may deliver more than one notification to Alkermes pursuant to this Clause 13.3.2 with respect to a single Recall.
		
	14.
	REGULATORY MATTERS

		
	14.1
	Alkermes.  As provided in Clause 6.1 of the License Agreement, Alkermes shall own, and shall be responsible at its own expense, for filing for and maintaining all necessary approvals to operate the Alkermes Facility as a cGMP manufacturing site.

		
	14.2
	DMF.  In accordance with Clauses 6.1 and 6.6 of the License Agreement, Alkermes owns and shall be responsible, at its own expense, for filing and for maintaining the DMF.  Pursuant to Clause 6.5 of the License Agreement, Alkermes has granted to Zogenix reference rights under such DMF in respect of Regulatory Applications in the Territory.

		
	14.3
	Zogenix.  Except as provided in Clauses 14.1 and 14.2 of this Agreement and as provided in Clause 6.2 of the License Agreement, Zogenix shall own and shall be responsible for filing for and maintaining all necessary Regulatory Approvals in the Territory in respect of the Commercial Product and Zogenix shall provide Alkermes access to and use of such materials in accordance with Clause 6.6 of the License Agreement.

		
	14.4
	Cooperation.  Clause 6.3 of the License Agreement is hereby incorporated in its entirety by this reference.

		
	14.5
	Governmental Inspection.  Each Party shall notify the other Party as soon as practicable of any notification received from the FDA in connection with conduct of a cGMP inspection of facilities in relation to the Commercial Product.  Each Party shall promptly provide to the other Party copies of all correspondence with the FDA related to the Manufacture or supply of Commercial Product in the Territory.

		
	14.6
	Right to Inspect.  Alkermes shall procure that such portion of the facility where the Commercial Product is manufactured, tested or stored by or on behalf of Alkermes, including all record and reference samples, are made available for inspection:

		
	14.6.1
	by Zogenix's duly qualified employees upon reasonable notice or, alternatively, by an agent or consultant (who has been retained by Zogenix to conduct such activity) upon reasonable notice, provided however that any such agent or consultant is bound by written confidentiality provisions no less strict that those set out herein.  Zogenix may exercise its rights under this Clause 14.6.1 to inspect the Alkermes Facility once in any calendar year utilising no more than two (2) inspectors during a single visit or on a “for cause” basis to investigate or resolve specific issues relating to the Manufacture of the Commercial Product at the Alkermes Facility; or

		
	14.6.2
	by the relevant Governmental Authority.

		
	14.7
	Cure of Deficiencies.  Each Party shall be responsible for correcting any deficiencies associated with the activities for which it is responsible under this Agreement or the License Agreement and identified by the FDA in the course of any inspection or audit.

		
	15.
	INTELLECTUAL PROPERTY

The terms of the License Agreement apply in respect of the ownership, prosecution, enforcement, defence and use of intellectual property rights under this Agreement.
		
	16.
	FINANCIAL PROVISIONS

		
	16.1
	Process Transfer Plan Activities.  Zogenix shall compensate Alkermes for the costs of the activities specified in the Process Transfer Plan and all other activities directed to scale-up, optimisation, and 

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16

validation which may be invoiced and paid in accordance with fixed fees, timing and milestones agreed by the Parties in the Process Transfer Plan, workplans and the Development and Services Agreement.  
		
	16.2
	Manufacturing – Validation Batches and Launch Stocks.  Alkermes shall be entitled to partially invoice Zogenix for any validation batches or other Launch Stock ordered by Zogenix pursuant to a Confirmed Order that is manufactured and held in bulk capsule form by Alkermes prior to First Approval.  Partial payments shall be invoiced at the time Alkermes delivers to Zogenix an appropriate Certificate of Analysis for such validation batch/other Launch Stock (which establishes that the validation batch/other Launch Stock have been manufactured and are being held by Alkermes in bulk form).  These partial payment fees shall be invoiced per item of validation batch/other Launch Stock as set out in Schedule 3.  Partial payments made on validation batches/other Launch Stock invoices shall be [***] irrespective of whether or when such the validation batch/other Launch Stock is delivered to Zogenix.  The Parties shall also conduct a True-Up on all validation batches/other Launch Stock delivered before or at the time of launch to [***] as set forth in Clause 16.4 below (which, for clarity, shall be equivalent to [***] with the initial fee referred to in that section being equal to the partial payment set forth above in this paragraph.  In circumstances where Commercial Product is not delivered or the validation batches/other Launch Stock becomes obsolete prior to the time that any Regulatory Approval is obtained in the Territory to facilitate delivery, the partial payment set out above in this paragraph shall be deemed the price of such validation batch/other Launch Stock, and no further payment shall be due.  For clarity, validation batches/other Launch Stock with [***] at the time of First Approval may be deemed obsolete by Zogenix.

		
	16.3
	Manufacturing – Initial Fee for Commercial Product other than Validation Batches and Launch Stock.  [***] after the delivery of Commercial Product (other than validation batches/other Launch Stock) which meets the requirements of Clause 7.4 or which Zogenix nonetheless accepts for delivery, Zogenix shall pay Alkermes the initial fee for such delivery, being [***] in effect during the [***] of scheduled delivery multiplied [***] (the "Initial Fee").  

		
	16.4
	Final Fee True-Up.  Upon provision of the Statement referred to in Clause 11.1 of the License Agreement, Zogenix shall additionally deliver to Alkermes a statement setting out (i) [***] ("Final Fee"), and:

		
	16.4.3
	if the Final Fee exceeds the Initial Fee applicable to the Commercial Product delivered, Zogenix shall within [***] pay to Alkermes the difference;

		
	16.4.4
	if the Initial Fee applicable to the Commercial Product delivered exceeds the Final Fee, Alkermes shall within [***] issue to Zogenix [***].

		
	16.4.5
	Except as provided in Clause 16.2 with respect to validation batches and Launch Stock, if for whatever reason the Commercial Product supplied by Alkermes to Zogenix which meets the requirements of Clause 7.4 when delivered to Zogenix is not sold by Zogenix, payment to Alkermes shall none-the-less be effected and the price for such Commercial Product shall be determined by reference to the [***] calculated pursuant to the provisions of this Clause.

		
	16.4.6
	An example of supply price calculations is set out in Schedule 2.

		
	16.5
	Compensating Payment for Third Party Second Source Supply.   

		
	16.5.1
	In respect of all Commercial Product purchased from a Third Party Second Facility Operator pursuant to Clause 9, Zogenix shall make a compensating payment to Alkermes calculated [***].

		
	16.5.2
	Such compensating payment shall be made in respect of a particular [***] at the time of provision of the Statement, based on [***].  The Parties shall adjust their account as of the end of each [***] by Zogenix paying Alkermes, or by Alkermes crediting Zogenix (as the case may be), 

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17

the difference between the sum paid pursuant to Clause 16.5.1 and the actual payment calculated on the basis of [***] calculated at the end of the [***], or such other period as may be agreed by the Parties in writing.   
		
	16.5.3
	For clarity, such compensating payment shall not be made with respect to Commercial Product purchased from the Designated Manufacturer during a Failure to Supply pursuant to Clause 10 (Failure to Supply) or if the Second Facility is an Affiliate Voluntary Second Source Facility.

		
	16.6
	Floor Price.  Notwithstanding any other provisions set out in this Clause 16, under no circumstances shall Alkermes be obliged to supply the Commercial Product for [***].  Accordingly the Initial Fee shall be not [***], no adjustment under Clause 16.4 shall reduce the supply price below [***].  

		
	16.7
	VAT.  All fees are exclusive of VAT, for which Zogenix will be additionally liable, if payable.

		
	16.8
	Sales and use tax. Prior to the supply of Commercial Product by Alkermes to Zogenix, Zogenix shall supply a sales and use tax exemption certificate to Alkermes. In the absence of such a certificate, sales and use tax may be charged by Alkermes to Zogenix on supplies of Commercial Product to Zogenix. 

		
	16.9
	Manner of Payment, Interest and Correction of Discrepancies.   The provisions of Clauses 11.6, 11.7 and 11.9 of the License Agreement shall apply mutatis mutandis.

		
	16.10
	Audit.  Each Party shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable hereunder.  Such books of account and supporting data shall be kept at each Party’s principal place of business and shall be open, at all reasonable times and upon reasonable notice and subject to the confidentiality provisions as contained in this Agreement during the Term [***], to the inspection of the other Party or the other Party’s independent certified accountants (reasonably acceptable to the audited Party), for the sole purpose of verifying the accuracy and reasonable composition of the calculations under this Agreement, provided however that such examination shall not take place more often than [***] and shall not cover more than the preceding [***], with no right to audit any period previously audited.    

		
	16.11
	Net Sale Deductions.  Zogenix shall use good faith efforts to estimate and/or calculate Net Sales deductions when calculating payments due under this Agreement and the License Agreement.  Estimates and actual deductions shall be shared [***] with Alkermes and reviewed [***].  If requested by Alkermes, the Parties shall (no more than once per year) meet in person to discuss such estimates and actual deductions at Zogenix offices.      

		
	17.
	DURATION AND TERMINATION

		
	17.1
	Term.  This Agreement shall be deemed to have come into force on the Effective Date and shall continue in force until the expiry or termination of the License Agreement (the "Term").

		
	17.2
	Termination for Breach.  Either Party will be entitled forthwith to terminate this Agreement by written notice to the other Party if that other Party commits a material breach of any of the provisions of this Agreement, and fails to cure the same within sixty (60) days after receipt of a written notice from the other Party giving full particulars of the breach and requiring it to be remedied; provided, that if the breaching Party has proposed a course of action to cure the breach and is acting in good faith to cure same but has not cured the breach by the sixtieth (60th) day, such period shall be extended by such period as is reasonably necessary to permit the breach to be cured, provided that such period shall not be extended by more than ninety (90) days, unless otherwise agreed in writing by the Parties.  Notwithstanding the foregoing, if the alleged breaching Party disputes by written notice to the non-breaching Party such material breach in good faith within sixty (60) days of receipt of the notice described above, the non-breaching Party shall not have the right to terminate unless it has been determined through the application of the dispute resolution mechanisms  set out in Clause 12.6 of the License 

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18

Agreement that this Agreement was materially breached and the breaching Party fails to thereafter to cure such material breach within sixty (60) days of the decision of the arbitrators.  The right to terminate shall be in addition to and not in substitution for any other available remedy at law or equity. 

19

		
	18.
	CONSEQUENCES OF TERMINATION/EXPIRY

		
	18.1
	General Consequence.  Upon expiry or the exercise of those rights of termination specified in Clause 17, this Agreement shall, subject to Clause 18.2 automatically terminate forthwith and be of no further legal force or effect.

		
	18.2
	Specific Consequences.  Upon expiry or termination of this Agreement by either Party, the following shall be the consequences:

		
	18.2.7
	any payments outstanding to Alkermes shall be made within [***];

		
	18.2.8
	in respect of any unbilled activities under any Process Transfer Plan, Alkermes shall be entitled to raise an invoice forthwith and Zogenix shall pay such invoice within [***] with any supporting documentation;

		
	18.2.9
	Subject to Section 13.2.4.6 of the License Agreement, Alkermes shall be entitled, but not obliged, to complete any Confirmed Orders then-outstanding and to receive payment for them accordingly;  

		
	18.2.10
	the rights of inspection and audit shall continue in force for the period referred to in the relevant provisions of this Agreement; and

		
	18.2.11
	the following provisions shall additionally survive expiry or termination, namely: 

		
	(a)
	Clause 1 (definitions and interpretation);

		
	(b)
	Clause 3.3 (inherent uncertainties);

		
	(c)
	Clause 4.6 (costs);

		
	(d)
	Clause 7.2 (Materials) as stated therein;

		
	(e)
	Clauses 10.6 with respect to remedies for Failure to Supply;  

		
	(f)
	Clause 12 (acceptance and rejection) insofar as it applies to Commercial Product delivered prior to expiry or termination or pursuant to Clause 18.2.3, provided that Alkermes shall not under any circumstances have the obligation to Manufacture any replacement Commercial Product, and  in respect of Commercial Product properly rejected and agreed, Zogenix's remedy shall be that its payment obligation in respect of such delivery shall be reduced correspondingly;

		
	(g)
	Clause 13 (adverse events and product recall);

		
	(h)
	Clause 15 (intellectual property) insofar as that provision survives the expiration or termination of the License Agreement;

		
	(i)
	Clause 16 (financial provisions) insofar as it applies to Commercial Product delivered prior to expiry or termination or pursuant to Clause 18.2.3;

		
	(j)
	Clause 18 (consequences of termination);

		
	(k)
	Clause 19 (representations, warranties, indemnification and liability);

		
	(l)
	Clause 20 (confidentiality)

		
	(m)
	Clause 22 (force majeure); and

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20

		
	(n)
	Clause 23 (general)

		
	(o)
	together with any other provision of this Agreement which, by its nature, is intended to continue after expiry or termination. 

		
	19.
	REPRESENTATIONS, WARRANTIES, INDEMNIFICATION AND LIABILITY

		
	19.1
	Mutual Warranties.  Alkermes and Zogenix represent and warrant to each other as of the Effective Date, as follows:

		
	19.1.12
	It has the right to enter into this Agreement.

		
	19.1.13
	There are no agreements between it and any Third Party that conflict with this Agreement.

		
	19.1.14
	No consent, approval, authorization or order of any court or governmental agency or body or Third Party is required for the execution and delivery of this Agreement.

		
	19.1.15
	It is not debarred and will not knowingly use in any capacity under this Agreement any person debarred under Section 306(a) or (b) of the U.S. Generic Drug Enforcement Act of 1992, as amended, or any comparable law of the EU or an ICH confirming country.

		
	19.1.16
	EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING BUT NOT LIMITED TO WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT WHETHER ARISING UNDER STATUTE OR OTHERWISE, AND ALL SUCH REPRESENTATIONS AND WARRANTIES ARE HEREBY DISCLAIMED. 

		
	19.2
	Mutual Indemnification.  Except as otherwise provided in this Clause 19, each of the Parties shall indemnify and hold harmless the other Party and its Affiliates and each of their officers, directors, employees, agents and consultants from and against any and all Claims by a Third Party insofar as they arise out of any material breach by the first Party of its warranties under this Agreement or from fraud or wilful misconduct under this Agreement that is conducted by or on behalf of the first Party, except in each case to the extent due to the fraud or wilful misconduct of the other Party seeking the indemnification or such other Party’s Affiliates, officers, directors, employees, agents or consultants.

		
	19.3
	Zogenix Indemnity.  Zogenix shall indemnify and hold harmless Alkermes and its Affiliates and each of their officers, directors, employees, agents and consultants (“Alkermes Indemnitees”) from and against any and all Claims (i) arising from the manufacture, storage, use or diversion of the Commercial Product, marketing, sale, use or promotion of the Commercial Product, in each case in the Territory, (ii) by Third Parties for personal injury (including death) and/or for costs of medical treatment caused by or attributed to the use of the Commercial Product supplied to Zogenix under this Agreement, and/or (iii) otherwise arising out of this Agreement and not otherwise provided for in this Clause 19.  Notwithstanding the foregoing, Zogenix shall not be required to indemnify and hold harmless Alkermes Indemnitees with respect to any Claim to the extent that the same is covered by Alkermes’s indemnification obligations in Clause 19.2 and/or Clause 19.4.  

		
	19.4
	Alkermes Indemnity.  Alkermes shall indemnify and hold harmless Zogenix and its Affiliates and each of their officers, directors, employees, agents and consultants (“Zogenix Indemnitees”) from and against any and all Claims by Third Parties for personal injury (including death) and/or for costs of medical treatment solely to the extent caused by the failure of any Commercial Product supplied by Alkermes to conform to Sections 7.4.3 and 7.4.5 which Zogenix could not have discovered by exercising reasonable diligence.  Notwithstanding the foregoing, Alkermes shall not be required to 

indemnify and hold harmless Zogenix Indemnitees with respect to any Claim to the extent that the same is covered by Zogenix’s indemnification obligations in Clause 19.2 and/or Clause 19.3.
		
	19.5
	Conduct of Claims.  The Party seeking an indemnity shall:

		
	19.5.1
	fully and promptly notify the other Party of any claim or proceedings, or threatened claim or proceedings;

		
	19.5.2
	permit the indemnifying Party to take full control of such claim or proceedings, with counsel of the indemnifying Party's choice, provided that the indemnifying Party shall reasonably and regularly consult with the indemnified Party in relation to the progress and status of such claim or proceedings;

		
	19.5.3
	fully co-operate in the investigation and defense of such claim or proceedings at the indemnifying Party’s expense; and

		
	19.5.4
	take all reasonable steps to mitigate any loss or liability in respect of any such claim or proceedings.

The indemnifying Party may settle a Claim on terms which provide only for monetary relief and do not include any admission of liability.  Save as aforesaid, neither the indemnifying Party nor the Party to be indemnified shall acknowledge the validity of, compromise or otherwise settle any Claim without the prior written consent of the other, which shall not be unreasonably withheld, conditioned or delayed.
		
	19.6
	Limitations of Liability.

		
	19.6.1
	Alkermes’s total aggregate liability in respect of any Recall costs arising out of Clause 13.3.2 shall not under any circumstances exceed [***], which for clarity [***] (“Recall Costs”).    

		
	19.6.2
	Except with respect to Alkermes liability arising from Alkermes’s fraud or wilful misconduct, Alkermes's total aggregate liability arising out of this Agreement shall be as follows:

		
	(a)
	for all claims filed during the Term of this Agreement during [***], Alkermes total annual aggregate liability shall not exceed [***]; provided that this limitation shall not apply so as to limit Recall Costs that may be recovered by Zogenix under Clause 19.6.1; provided further that such Recall Costs shall count for purposes of computing the cap under this Clause 19.6.2 (By way of illustration, if Recall Costs are [***]; and 

		
	(b)
	Alkermes shall have no liability for any claims filed following the termination or expiration of this Agreement except with respect to Third Party personal injury claims filed within [***] of the expiration or termination of this Agreement. With respect to Third Party personal injury claims filed within this [***], Alkermes’s total aggregate liability shall be calculated and capped on a [***], with each [***] ending respectively on the [***] of the expiration or termination of the Agreement.  For each of these [***], Alkermes total aggregate liability for any Third Party personal injury claims filed during that [***] shall not exceed [***] of the [***] during the [***] immediately preceding the expiration or termination of this Agreement.  

		
	19.7
	Exclusion of Consequential and Other Losses.  Without prejudice to the obligation of either Party to indemnify the other in respect of claims by Third Parties, notwithstanding anything to the contrary in this Agreement, Alkermes and Zogenix shall not be liable to the other by reason of any representation or warranty, condition or other term of any duty of common law or under the express terms of this Agreement, for any indirect, consequential, special, incidental or punitive loss or damage (whether by way of example for loss of current profits, loss of enterprise value, loss of anticipated savings, loss of business opportunity, loss of goodwill or otherwise) and whether occasioned by the negligence of the respective Parties, their employees or agents or otherwise.   

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

22

		
	19.8
	Extension of Indemnification.  Where this Agreement provides for the indemnification of a Party to this Agreement or for the exclusion or limitation of a Party's liability, such indemnification and/or exclusion and/or limitation (as the case may be) shall also apply for the benefit of such Party's Affiliates and the employees, officers, directors and agents of any of them, acting in such capacity.

		
	19.9
	Construction.  For clarity, the provisions of Clauses 19.6 (limitation of liability), 19.7 (exclusion of consequential and other losses) and 19.8 (extension of indemnification) shall apply notwithstanding any contrary provision of this Agreement and shall be cumulative.

		
	19.10
	Insurance.  Zogenix shall maintain insurance consistent with the requirements set forth in Clause 14.13 of the License Agreement. Alkermes shall maintain comprehensive general liability insurance which is consistent with industry standards and which includes product liability insurance on the Commercial Product for the duration of this Agreement and for such period thereafter as necessary to cover the insured risks.

		
	20.
	CONFIDENTIALITY

		
	20.1
	The provisions of Clause 15 of the License Agreement shall apply mutatis mutandis.

		
	21.
	ASSIGNMENT, SUBCONTRACTING 

		
	21.1
	The provisions of Clauses 16.2, 16.3 and 16.4 of the License Agreement shall apply mutatis mutandis.  For clarity, the term “this Agreement” in such provisions shall apply herein to this Agreement. 

		
	22.
	FORCE MAJEURE

		
	22.1
	No Party hereto shall be liable to the other Party for any losses or damages attributable to a default in or breach of this Agreement which is the result of any cause beyond the reasonable control of such Party, including but not limited to war (whether declared or undeclared), acts of God, revolution, terrorism, civil commotion, strike or labor disruption, fire, earthquake, flood, pestilence, explosion, riot, enactment or change of laws and regulations, accident(s), or labor trouble (each, a “Force Majeure Event”). If a Force Majeure Event prevents or delays performance by a Party of any obligations under this Agreement, then the Party claiming the Force Majeure Event shall promptly notify the other Party in writing.  The Parties shall thereafter, as soon as practicable, discuss how best to continue their operations in accordance with this Agreement and shall thereafter continue such discussions on a regular basis while the Force Majeure Event continues. The performance of obligations hereunder shall be suspended during, but no longer than, the existence of such Force Majeure Event and only if reasonably required by the Force Majeure Event.  The Party affected by the Force Majeure Event shall use all reasonable efforts to avoid, minimize or remove the cause of such delay or non-performance and to mitigate its effects and shall continue performance with due dispatch whenever such causes are removed.  In the event that a Force Majeure Event prevents performance of this Agreement by a Party for [***], the Party which is not experiencing the Force Majeure Event shall be entitled to terminate this Agreement by written notice to the other provided it has complied with its obligations under this Clause 22.

		
	23.
	GENERAL

		
	23.1
	No Third Party Beneficiaries.  Each of the Parties enters into this Agreement on its own behalf and not on behalf of any other person or entity.

		
	23.2
	Parties Bound.  This Agreement shall be binding upon and run for the benefit of the Parties, their successors and permitted assigns.

		
	23.3
	Relationship of the Parties.  In this Agreement, nothing shall be deemed to constitute a partnership between the Parties or make either Party an agent for the other, for any purpose whatsoever.

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

23

		
	23.4
	Entire Agreement.  This Agreement and the License Agreement constitutes the entire agreement and understanding between the Parties with respect to their subject matter. In the event of a conflict between the License Agreement and this Agreement, the License Agreement shall prevail.  Except with respect to the License Agreement, this Agreement supersedes all prior representations, writings, negotiations and understandings with respect to the supply and manufacture of Commercial Product.  The Parties acknowledge that, in entering into this Agreement, they have not relied on, and shall have no right or remedy in respect of, any statement, representation, assurance or warranty (whether made negligently or innocently) other than as expressly set forth in this Agreement. Nothing in this clause shall limit or exclude any liability for fraud.

		
	23.5
	Severability.  If any provision in this Agreement is deemed to be, or becomes invalid, illegal, void or unenforceable under applicable laws, such provision will be deemed amended to conform to applicable laws so as to be valid and enforceable, or if it cannot be so amended without materially altering the intention of the Parties, it will be deleted, but the validity, legality and enforceability of the remaining provisions of this Agreement shall not be impaired or affected in any way.

		
	23.6
	Further Assurance.  Each Party shall do and execute, or arrange for the doing and executing of, each necessary act, document and thing reasonably within its power to implement this Agreement.

		
	23.7
	Due Execution.  This Agreement shall not become effective until each Party has executed a counterpart and exchanged it with the other Party.  Exchange by fax or by e-mail attaching an executed copy of this Agreement in Adobe Portable Document Format (PDF) will be considered valid.

		
	23.8
	Counterparts.  This Agreement may be executed in any number of counterparts, each of which shall be considered an original and which together shall constitute this Agreement.

		
	23.9
	Waivers.  A failure to exercise or delay in exercising a right or remedy provided by this Agreement or by law does not constitute a waiver of the right or remedy or a waiver of other rights or remedies.  No single or partial exercise of a right or remedy provided by this Agreement or by law prevents further exercise of the right or remedy or the exercise of another right or remedy.  No waiver of any right under this Agreement shall be deemed effective unless contained in a written document signed by the Party charged with such waiver.

		
	23.10
	Variations.  No modification, amendment, or waiver of any provision of this Agreement shall be valid unless in writing and signed by a duly authorised officer or representative of each of the Parties hereto.

		
	23.11
	Notices.

		
	23.11.1
	A notice under or in connection with this Agreement (a "Notice"):

		
	(a)
	shall be in writing; and

		
	(b)
	may be delivered personally or sent by internationally recognized overnight courier or by fax to the Party due to receive the Notice at its address set out below:

		
	23.11.2
	The address referred to in Clause 23.11.1 is:

		
	(a)
	in the case of Alkermes:

Address:    Alkermes Pharma Ireland Limited
Connaught House
1 Burlington Road
Dublin 4
Ireland

24

Tel:        +353 1 772 8000
Fax:        +353 1 772 8001
Marked for the attention of:  Company Secretary 
with a copy (receipt of which shall not constitute notice) to:
VP, Alliance Management 
Same contact details as above
		
	(b)
	in the case of Zogenix:

Address:    12400 High Bluff Drive, Ste 650
San Diego, California, 92130
United States of America
Fax:    +1 (858) 259-1166
Marked for the attention of: Chief Financial Officer
with a copy (receipt of which shall not constitute notice) to:
Address:        Latham & Watkins LLP 
12636 High Bluff Drive, Suite 400 
San Diego, California 92130
USA
Fax:        +1 (858) 523-5450
Marked for the attention of: Faye H. Russell, Esq.
		
	23.11.3
	Notice is deemed given:

		
	23.11.4
	if delivered personally, when the person delivering the notice obtains the signature of a person at the address referred to in Clause 23.11.2

		
	23.11.5
	if sent by overnight courier, two (2) business days after posting it;

		
	23.11.6
	if sent by fax, when confirmation of its transmission has been recorded by the sender's fax machine.

		
	23.12
	Governing Law and Jurisdiction. This Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to its conflict of laws principles, and shall be subject to the exclusive jurisdiction of the State and Federal Courts located in New York, New York.

***

25

Schedule 1 
COMMERCIAL PRODUCT COVERED BY THIS AGREEMENT
Dosage Strengths and Batch Sizes* 
	
			
	Dosage Strength
	Initial Batch Size  (capsules)

	Optimized Batch Size 
(capsules)

	[***]
	[***]
	[***]

	[***]
	[***]
	[***]

	[***]
	[***]
	[***]

	[***]
	[***]
	[***]

	[***]
	[***]
	[***]

	[***]
	[***]
	[***]

	[***]
	[***]
	[***]

	[***]
	[***]
	[***]

*Initial Batch Sizes shall apply to all Purchase Orders for Commercial Product under this Agreement from the Effective Date of this Agreement until Zogenix’s [***] is projected to exceed on [***] per [***] for the forecast period [***] in the future or the Parties otherwise agree to move to Optimized Batch Sizes. Thereafter, Optimized Batch Sizes shall apply to all Purchase Orders unless otherwise agreed by the Parties in circumstances relating to any [***] following [***] in which [***].    
**Depending upon the sales forecast for the [***], the Optimized Batch Sizes for [***] will be mutually established as the [***].  For further clarity, Optimized Batch Size may be established as the following approximate capsule quantities for the [***].

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

26

Schedule 2 
PRICE CALCULATION; TRUE-UP

[***].

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

27

Schedule 3 
Validation batches and other Launch Stock 
Dosage Strengths, Batch Sizes and Initial Fee Payments 
	
						
	[***]

	[***]
	[***]
	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]
	[***]
	[***]

	[***]
	[***]

	
				
	[***]

	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]

	[***]
	[***]
	[***]
	[***]

Note:  The total fee for validation batches and other Launch Stock deemed commercially saleable is [***].  The partial fees set out above will be trued-up for such Batches to [***] in accordance with Section 16 of this Agreement.  Note also that the “Total cost” in the Validation Batch Fee table above does not include amounts due under the Development and Clinical Supply Agreement.  

*See Clause 6.1 for limitations on Confirmed Order and Purchase Order Batch sizes. 

*** Certain information on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portions.

28

EXECUTED by the Parties on the date appearing at the top of page 1.

SIGNED

_/s/ Shane Cooke___________________
Duly authorized for and on behalf of
ALKERMES PHARMA IRELAND LIMITED

SIGNED

_/s/ Roger L. Hawley________________
Duly authorized for and on behalf of
ZOGENIX, INC.

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