Document:

Exhibit 10.5

 

WARRANT TO PURCHASE COMMON STOCK

 

THIS WARRANT AND THE SECURITIES ISSUABLE
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR
SALE, PLEDGED OR OTHERWISE TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND ANY APPLICABLE STATE SECURITIES LAWS
OR THE AVAILABILITY OF AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT AND ANY
APPLICABLE STATE SECURITIES LAWS.

 

WARRANT
TO PURCHASE COMMON STOCK

 

	
  Number
  of Shares:

  	
   

  	
  120,370 shares

  
	
   

  	
   

  	
   

  
	
  Warrant
  Price:

  	
   

  	
  $0.27 per share

  
	
   

  	
   

  	
   

  
	
  Issuance
  Date:

  	
   

  	
  March 10, 2006

  
	
   

  	
   

  	
   

  
	
  Expiration
  Date:

  	
   

  	
  March 10, 2009

  

 

 

THIS
WARRANT CERTIFIES THAT for value received, Mercator Momentum
Fund III, L.P., or its registered assigns (hereinafter called the “Holder”) is entitled
to purchase from Spescom Software Inc. (hereinafter called the “Company”), the above
referenced number of fully paid and nonassessable shares (the “Shares”) of common
stock (the “Common Stock”),
of Company, at the Warrant Price per Share referenced above; the number of
shares purchasable upon exercise of this Warrant referenced above being subject
to adjustment from time to time as described herein. This Warrant is issued in
connection with that certain Subscription Agreement dated as of March 10,
2006, by and between the Company, M.A.G. Capital, LLC, Monarch Pointe Fund,
Ltd. and Holder (the “Subscription
Agreement”). The exercise of this Warrant shall be subject to
the provisions, limitations and restrictions contained herein.

 

1.                                      Term
and Exercise.

 

1.1                               Term. This Warrant is exercisable in whole
or in part (but not as to any fractional share of Common Stock), at any
time and from time to time after the date hereof prior to 6:00 p.m. on the
Expiration Date set forth above.

 

1.2                               Warrant Price. The Warrant shall be exercisable at
the Warrant Price described above.

 

1.3                               Maximum Number of
Shares. The
maximum number of Shares of Common Stock exercisable pursuant to this Warrant
is 120,370  Shares. However,
notwithstanding anything herein to the contrary, in no event shall the Holder
be permitted to exercise this Warrant for a number of Shares greater than the
number that would cause the aggregate beneficial ownership of the Company’s
Common Stock (calculated pursuant to Rule 13d-3 of the Securities Exchange
Act of 1934, as amended) of (a) the Holder and its affiliates or (b) M.A.G.
Capital, LLC, and its affiliates to equal 9.99% of the Company’s Common Stock
then outstanding.

 

1.4                               Procedure for
Exercise of Warrant. Holder may exercise this Warrant by delivering
the following to the principal office of the Company in accordance with Section 5.1
hereof: (i) a duly executed Notice of Exercise in substantially the form attached
as Schedule A, (ii) payment of the Warrant Price then in effect for
each of the Shares being purchased, as designated in the Notice of Exercise,
and (iii) this Warrant. Payment of the Warrant Price may be in cash,
certified or official bank check payable to the order of the Company, or wire
transfer of funds to the Company’s account (or any combination of any of the
foregoing) in the amount of the Warrant Price for each share being purchased.

 

1.5                               Delivery of
Certificate and New Warrant. In the event of any exercise of the rights represented
by this Warrant, a certificate or certificates for the shares of Common Stock
so purchased, registered in the name of the Holder or such other name or names
as may be designated by the Holder, together with any other securities or
other property which the Holder is entitled to receive upon exercise of this
Warrant, shall be delivered to the Holder hereof, at the Company’s expense,
within a reasonable time, not exceeding fifteen (15) calendar days, after the
rights represented by this Warrant shall have been so exercised; and, unless
this Warrant has expired, a new Warrant representing the number of Shares
(except a remaining fractional share), if any, with respect to which this
Warrant shall not then have been exercised shall also be issued to the Holder
hereof within such time. The person in whose name any certificate for shares of
Common Stock is issued upon exercise of this Warrant shall for all purposes be
deemed to have become the holder of record of such shares on the date on which
the Warrant was surrendered and payment of the Warrant Price was received by
the Company, irrespective of the date of delivery of such certificate, except
that, if the date of such surrender and payment is on a date when the stock
transfer books of the Company are closed, such person shall be deemed to have
become the holder of such Shares at the close of business on the next
succeeding date on which the stock transfer books are open.

 

1.6                               Restrictive Legend. Each certificate for Shares shall
bear a restrictive legend in substantially the form as follows, together
with any additional legend required by (i) any applicable state securities
laws and (ii) any securities exchange upon which such Shares may, at the
time of such exercise, be listed:

 

The
shares of stock evidenced by this certificate have not been registered under
the U.S. Securities Act of 1933, as amended, and may not be offered, sold,
pledged or otherwise transferred (“transferred”) in the absence of such
registration or an applicable exemption therefrom. In the absence of such
registration, such shares may not be transferred unless, if the Company
requests, the Company has received a written opinion from counsel in form and
substance satisfactory to the Company stating that such transfer is being made
in compliance with all applicable federal and state securities laws.

 

Any certificate issued at
any time in exchange or substitution for any certificate bearing such legend
shall also bear such legend unless, in the opinion of counsel for the Holder
thereof (which counsel shall be reasonably satisfactory to the Company), the
securities represented thereby are not, at such time, required by law to bear
such legend.

 

1

 

1.7                               Fractional Shares. No fractional Shares shall be
issuable upon exercise or conversion of the Warrant. In the event of a
fractional interest, the number of Shares to be issued shall be rounded down to
the nearest whole Share.

 

2.                                      Representations,
Warranties and Covenants.

 

2.1                               Representations and
Warranties.

 

(a)                                  The Company is a corporation duly
organized, validly existing and in good standing under the laws of its state of
incorporation and has all necessary power and authority to perform its
obligations under this Warrant;

 

(b)                                 The execution, delivery and
performance of this Warrant has been duly authorized by all necessary actions
on the part of the Company and constitutes the legal, valid and binding
obligation of the Company, enforceable against the Company in accordance with
its terms; and

 

(c)                                  This Warrant does not violate and is
not in conflict with any of the provisions of the Company’s Articles of
Incorporation or Certificate of Determination, Bylaws and any resolutions of
the Company’s Board of Directors or stockholders, or any agreement of the
Company, and no event has occurred and no condition or circumstance exists that
might (with or without notice or lapse of time) constitute or result directly
or indirectly in such a violation or conflict.

 

2.2                               Issuance of Shares. The Company covenants and agrees
that all shares of Common Stock that may be issued upon the exercise of
the rights represented by this Warrant will, upon issuance, be validly issued,
fully paid and nonassessable, and free from all taxes, liens and charges with
respect to the issue thereof. The Company further covenants and agrees that it
will pay when due and payable any and all federal and state taxes which may be
payable in respect of the issue of this Warrant or any Common Stock or
certificates therefor issuable upon the exercise of this Warrant. The Company
further covenants and agrees that the Company will at all times have authorized
and reserved, free from preemptive rights, a sufficient number of shares of
Common Stock to provide for the exercise in full of the rights represented by
this Warrant. If at any time the number of authorized but unissued shares of
Common Stock of the Company shall not be sufficient to effect the exercise of
the Warrant in full, subject to the limitations set forth in Section 1.3
hereto, then the Company will take all such corporate action as may, in the
opinion of counsel to the Company, be necessary or advisable to increase the
number of its authorized shares of Common Stock as shall be sufficient to
permit the exercise of the Warrant in full, subject to the limitations set
forth in Section 1.3 hereto, including without limitation, using its best
efforts to obtain any necessary stockholder approval of such increase. The
Company further covenants and agrees that if any shares of capital stock to be
reserved for the purpose of the issuance of shares upon the exercise of this
Warrant require registration with or approval of any governmental authority
under any federal or state law before such shares may be validly issued or
delivered upon exercise, then the Company will in good faith and as
expeditiously as possible endeavor to secure such registration or approval, as
the case may be. If and so long as the Common Stock issuable upon the
exercise of this Warrant is listed on any national securities exchange or the
Nasdaq Stock Market, the Company will, if permitted by the rules of such
exchange or market, list and keep listed on such exchange or market, upon
official notice of issuance, all shares of such Common Stock issuable upon
exercise of this Warrant.

 

3.                                      Other
Adjustments.

 

3.1                               Subdivision or
Combination of Shares. In case the Company shall at any time subdivide its
outstanding Common Stock into a greater number of shares, the Warrant Price in
effect immediately prior to such subdivision shall be proportionately reduced,
and the number of Shares subject to this Warrant shall be proportionately
increased, and conversely, in case the outstanding Common Stock of the Company
shall be combined into a smaller number of shares, the Warrant Price in effect
immediately prior to such combination shall be proportionately increased, and
the number of Shares subject to this Warrant shall be proportionately
decreased.

 

3.2                               Dividends in Common
Stock, Other Stock or Property. If at any time or from time to time the holders of
Common Stock (or any shares of stock or other securities at the time receivable
upon the exercise of this Warrant) shall have received or become entitled to
receive, without payment therefor:

 

(a)                                  Common Stock, Options or any shares
or other securities which are at any time directly or indirectly convertible
into or exchangeable for Common Stock, or any rights or options to subscribe
for, purchase or otherwise acquire any of the foregoing by way of dividend or
other distribution;

 

(b)                                 any cash paid or payable otherwise
than as a regular cash dividend; or

 

(c)                                  Common Stock or additional shares or
other securities or property (including cash) by way of spin-off, split-up,
reclassification, combination of shares or similar corporate rearrangement (other
than Common Stock issued as a stock split or adjustments in respect of which
shall be covered by the terms of Section 3.1 above) and additional shares,
other securities or property issued in connection with a Change (as defined
below) (which shall be covered by the terms of Section 3.4 below), then
and in each such case, the Holder hereof shall, upon the exercise of this
Warrant, be entitled to receive, in addition to the number of shares of Common
Stock receivable thereupon, and without payment of any additional consideration
therefor, the amount of stock and other securities and property (including cash
in the cases referred to in clause (b) above and this clause (c)) which
such Holder would hold on the date of such exercise had such Holder been the holder
of record of such Common Stock as of the date on which holders of Common Stock
received or became entitled to receive such shares or all other additional
stock and other securities and property.

 

3.3                               Reorganization,
Reclassification, Consolidation, Merger or Sale. If any recapitalization,
reclassification or reorganization of the share capital of the Company, or any
consolidation or merger of the Company with another corporation, or the sale of
all or substantially all of its shares and/or assets or other transaction
(including, without limitation, a sale of substantially all of its assets
followed by a liquidation) shall be effected in such a way that holders of
Common Stock shall be entitled to receive shares, securities or other assets or
property (a “Change”), then, as a condition of such Change, lawful and
adequate provisions shall be made by the Company whereby the Holder hereof
shall thereafter have the right to purchase and receive (in lieu of the Common
Stock of the Company immediately theretofore purchasable and receivable upon
the exercise of the rights represented hereby) such shares, securities or other
assets or property as may be issued or payable with respect to or in
exchange for the number of outstanding Common Stock which such Holder would
have been entitled to receive had such Holder exercised this Warrant
immediately prior to the consummation of such Change. The Company or its
successor shall promptly issue to Holder a new Warrant for such new securities
or other property. The new Warrant shall provide for adjustments which shall be
as nearly equivalent as may be practicable to give effect to the
adjustments provided for in this Section 3 including, without limitation,
adjustments to the Warrant Price and to the number of securities or property
issuable upon exercise of the new Warrant. The provisions of this Section 3.3
shall similarly apply to successive Changes.

 

4.                                      Ownership
and Transfer.

 

4.1                               Ownership of This
Warrant.
The Company may deem and treat the person in whose name this Warrant is
registered as the holder and owner hereof (notwithstanding any notations of
ownership or writing hereon made by anyone other than the Company) for all
purposes and shall not be affected by any notice to the contrary until
presentation of this Warrant for registration of transfer as provided in this Section 4.

 

4.2                               Transfer and
Replacement.
Subject to the terms and conditions of this Warrant and compliance with all
applicable securities laws, and upon prior written consent of the Company,
which consent shall not be unreasonably withheld, this Warrant and all rights
hereunder are transferable in whole or in part upon the books of the
Company by the Holder hereof in person or by duly authorized attorney, and a
new Warrant or Warrants, of the same tenor as this Warrant but registered in

 

2

 

the name
of the transferee or transferees (and in the name of the Holder, if a partial
transfer is effected) shall be made and delivered by the Company upon surrender
of this Warrant duly endorsed, at the office of the Company in accordance with Section 6.1
hereof. Upon receipt by the Company of evidence reasonably satisfactory to it
of the loss, theft or destruction, and, in such case, of indemnity or security
reasonably satisfactory to it, and upon surrender of this Warrant if mutilated,
the Company will make and deliver a new Warrant of like tenor, in lieu of this
Warrant; provided that if the Holder hereof is an instrumentality of a state or
local government or an institutional holder or a nominee for such an
instrumentality or institutional holder an irrevocable agreement of indemnity
by such Holder shall be sufficient for all purposes of this Warrant, and no
evidence of loss or theft or destruction shall be necessary. This Warrant shall
be promptly cancelled by the Company upon the surrender hereof in connection
with any transfer or replacement. Except as otherwise provided above, in the
case of the loss, theft or destruction of a Warrant, the Company shall pay all
expenses, taxes and other charges payable in connection with any transfer or
replacement of this Warrant, other than income taxes and stock transfer taxes
(if any) payable in connection with a transfer of this Warrant, which shall be
payable by the Holder. Holder will not transfer this Warrant and the rights
hereunder except in compliance with federal and state securities laws and
except after providing evidence of such compliance reasonably satisfactory to
the Company.

 

5.                                      Compliance
with Securities Laws. By acceptance of this Warrant, the Holder hereby
represents, warrants and covenants that any shares of stock purchased upon
exercise of this Warrant or acquired upon conversion thereof shall be acquired
for investment only and not with a view to, or for sale in connection with, any
distribution thereof; that the Holder has had such opportunity as Holder has
deemed adequate to obtain from representatives of the Company such information
as is necessary to permit the Holder to evaluate the merits and risks of its
investment in the Company; that the Holder is able to bear the economic risk of
holding such shares as may be acquired pursuant to the exercise of this
Warrant for an indefinite period; that the Holder understands that the shares
of stock acquired pursuant to the exercise of this Warrant or acquired upon
conversion thereof will not be registered under the Act (unless otherwise
required pursuant to exercise by the Holder of the registration rights, if any,
previously granted to the registered Holder) and will be “restricted securities”
within the meaning of Rule 144 under the Securities Act of 1933 and that
the exemption from registration under Rule 144 will not be available for
at least one year from the date of exercise of this Warrant, and even then will
not be available unless a public market then exists for the stock, adequate
information concerning the Company is then available to the public, and other
terms and conditions of Rule 144 are complied with; and that all stock
certificates representing shares of stock issued to the Holder upon exercise of
this Warrant or upon conversion of such shares may have affixed thereto a
legend substantially in the form set forth in Section 1.6 above.

 

6.                                      Miscellaneous
Provisions.

 

6.1                               Notices. Any notice or other document
required or permitted to be given or delivered to the Holder shall be delivered
or forwarded to the Holder at c/o M.A.G. Capital, LLC, 555 South Flower Street,
Suite 4200, Los Angeles, California 90071, Attention:  David F. Firestone (Facsimile No. 213/553-8285),
or to such other address or number as shall have been furnished to the Company
in writing by the Holder, with a copy to Sheppard Mullin Richter &
Hampton LLP, 333 South Hope Street, 48th Floor, Los Angeles,
California 90071-1448 Attention David C. Ulich (Facsimile No. 213/620-1398).
Any notice or other document required or permitted to be given or delivered to
the Company shall be delivered or forwarded to the Company at 10052 Mesa Ridge Court, Suite 100,
San Diego, California, 92121, Attention: 
John Low (Facsimile No. 858/625-3010), with a copy to Gibson, Dunn &
Crutcher LLP, 1881 Page Mill Rd., Palo Alto, California, 94304 Attention:
Russell C. Hansen (Facsimile No. 650/849-5083), or to such other address
or number as shall have been furnished to Holder in writing by the Company.

 

6.2                               All notices, requests and approvals
required by this Warrant shall be in writing and shall be conclusively deemed
to be given (i) when hand-delivered to the other party, (ii) when
received if sent by facsimile at the address and number set forth above;
provided that notices given by facsimile shall not be effective, unless either (a) a
duplicate copy of such facsimile notice is promptly given by depositing the
same in the mail, postage prepaid and addressed to the party as set forth below
or (b) the receiving party delivers a written confirmation of receipt for
such notice by any other method permitted under this paragraph; and further
provided that any notice given by facsimile received after 5:00 p.m.
(recipient’s time) or on a non-business day shall be deemed received on the
next business day; (iii) five (5) business days after deposit in the
United States mail, certified, return receipt requested, postage prepaid, and
addressed to the party as set forth below; or (iv) the next business day
after deposit with an international overnight delivery service, postage
prepaid, addressed to the party as set forth below with next business day
delivery guaranteed; provided that the sending party receives confirmation of
delivery from the delivery service provider.

 

6.3                               No Rights as
Shareholder; Limitation of Liability. This Warrant shall not entitle the Holder to any of
the rights of a shareholder of the Company except upon exercise in accordance
with the terms hereof. No provision hereof, in the absence of affirmative
action by the Holder to purchase shares of Common Stock, and no mere
enumeration herein of the rights or privileges of the Holder, shall give rise
to any liability of the Holder for the Warrant Price hereunder or as a
shareholder of the Company, whether such liability is asserted by the Company
or by creditors of the Company.

 

6.4                               Governing Law. This Warrant shall be governed by
and construed in accordance with the laws of the State of California as applied
to agreements among California residents made and to be performed entirely
within the State of California, without giving effect to the conflict of law
principles thereof.

 

6.5                               Binding Effect on
Successors.
This Warrant shall be binding upon any corporation succeeding the Company by
merger, consolidation or acquisition of all or substantially all of the Company’s
assets and/or securities. All of the obligations of the Company relating to the
Shares issuable upon the exercise of this Warrant shall survive the exercise
and termination of this Warrant. All of the covenants and agreements of the
Company shall inure to the benefit of the successors and assigns of the Holder.

 

6.6                               Waiver, Amendments
and Headings.
This Warrant and any provision hereof may be changed, waived, discharged
or terminated only by an instrument in writing signed by both parties (either
generally or in a particular instance and either retroactively or
prospectively). The headings in this Warrant are for purposes of reference only
and shall not affect the meaning or construction of any of the provisions
hereof.

 

6.7                               Jurisdiction. Each of the parties irrevocably
agrees that any and all suits or proceedings based on or arising under this
Agreement may be brought only in and shall be resolved in the federal or
state courts located in the City of Los Angeles, California and consents to the
jurisdiction of such courts for such purpose. Each of the parties irrevocably
waives the defense of an inconvenient forum to the maintenance of such suit or
proceeding in any such court. Each of the parties further agrees that service
of process upon such party mailed by first class mail to the address set
forth in Section 6.1 shall be deemed in every respect effective service of
process upon such party in any such suit or proceeding. Nothing herein shall
affect the right of a Holder to serve process in any other manner permitted by
law. Each of the parties agrees that a final non-appealable judgment in any
such suit or proceeding shall be conclusive and may be enforced in other
jurisdictions by suit on such judgment or in any other lawful manner.

 

6.8                               Attorneys’ Fees and
Disbursements.
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party or parties shall be entitled to
receive from the other party or parties reasonable attorneys’ fees and
disbursements in addition to any other relief to which the prevailing party or
parties may be entitled.

 

3

 

IN
WITNESS WHEREOF, the Company has caused this Warrant to be
signed by its duly authorized officer this tenth day of March, 2006.

 

	
  COMPANY:

  	
  SPESCOM
  SOFTWARE INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By

  	
  /s/
  John W. Low

  
	
   

  	
   

  	
   

  
	
   

  	
  Print
  Name:

  	
  John
  W. Low

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief
  Financial Officer

  
					

 

4

 

SCHEDULE A

 

FORM OF NOTICE OF EXERCISE

 

[To be signed only
upon exercise of the Warrant]

 

TO BE EXECUTED BY THE REGISTERED
HOLDER

TO EXERCISE THE WITHIN WARRANT

 

The undersigned hereby
elects to purchase           
shares of Common Stock (the “Shares”) of Spescom Software, Inc. under the
Warrant to Purchase Common Stock dated March 10, 2006, which the
undersigned is entitled to purchase pursuant to the terms of such Warrant. The
undersigned has delivered $          ,
the aggregate Warrant Price for          
Shares purchased herewith, in full in cash or by certified or official bank
check or wire transfer.

 

Please issue a
certificate or certificates representing such shares of Common Stock in the
name of the undersigned or in such other name as is specified below and in the
denominations as is set forth below:

 

	
   

  	
   

  	
   

  
	
   

  	
  [Type Name of Holder as it should appear on the
  stock certificate]

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  [Requested
  Denominations – if no denomination is specified, a single certificate will be
  issued]

  
	
   

  	
   

  
	
   

  	
  The initial address of
  such Holder to be entered on the books of Company shall be:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
				

 

The undersigned
hereby represents and warrants that the undersigned is acquiring such shares
for his own account for investment purposes only, and not for resale or with a
view to distribution of such shares or any part thereof.

 

	
   

  	
  By:

  	
   

  
	
   

  	
   

  
	
   

  	
  Print Name:

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  
	
   

  	
   

  
	
   

  	
  Dated:

  	
   

  
						

 

1

 

FORM OF ASSIGNMENT

(ENTIRE)

 

[To be signed only upon transfer of
entire Warrant]

 

TO BE EXECUTED BY THE REGISTERED
HOLDER

TO TRANSFER THE WITHIN WARRANT

 

FOR VALUE RECEIVED                                       
hereby sells, assigns and transfers unto                                       
all rights of the undersigned under and pursuant to the within Warrant, and the
undersigned does hereby irrevocably constitute and appoint                                       
Attorney to transfer the said Warrant on the books of                                       ,
with full power of substitution.

 

 

	
   

  	
   

  
	
  [Type Name of Holder]

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Dated:

  	
   

  	
   

  
					

 

 

NOTICE

 

The signature to the foregoing Assignment must correspond exactly to
the name as written upon the face of the within Warrant, without alteration or
enlargement or any change whatsoever.

 

1

 

FORM OF ASSIGNMENT

(PARTIAL)

 

[To be signed only upon partial
transfer of Warrant]

 

TO BE EXECUTED BY THE REGISTERED
HOLDER

TO TRANSFER THE WITHIN WARRANT

 

FOR VALUE RECEIVED                                         
hereby sells, assigns and transfers unto                                         
(i) the rights of the undersigned to purchase                              
shares of Common Stock under and pursuant to the within Warrant, and (ii) on
a non-exclusive basis, all other rights of the undersigned under and pursuant
to the within Warrant, it being understood that the undersigned shall retain,
severally (and not jointly) with the transferee(s) named herein, all rights
assigned on such non-exclusive basis. The undersigned does hereby irrevocably
constitute and appoint                                         
Attorney to transfer the said Warrant on the books of Spescom Software, Inc.,  with full power of substitution.

 

	
   

  	
   

  
	
  [Type Name of Holder]

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  
	
   

  
	
  Dated:

  	
   

  	
   

  
					

 

 

NOTICE

 

The signature to the foregoing Assignment must correspond exactly to
the name as written upon the face of the within Warrant, without alteration or
enlargement or any change whatsoever.

 

1Exhibit 10.20

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

MOVA Pharmaceutical Corporation

and

Depomed, Inc.

 

TECHNOLOGY TRANSFER AND COMMERCIAL MANUFACTURING

AGREEMENT

 

THIS AGREEMENT
is executed as of this 5th day of October, 2005 (the “Effective Date”), by and
between MOVA Pharmaceutical Corporation (“MOVA”), a corporation organized under
the laws of the Commonwealth of Puerto Rico, having its principal place of
business at Caguas, Puerto Rico, and Depomed,
Inc. (“DEPOMED”), a corporation organized under the laws of the State of
California, having its principal place of business at 1360 O’Brien Drive, Menlo
Park, California 94025.

 

WITNESSETH:

 

WHEREAS, MOVA
is in the business of providing contract manufacturing services to the
pharmaceutical industry and desires to provide such services to DEPOMED;

 

WHEREAS,
DEPOMED desires to engage MOVA to provide certain of such services; and

 

WHEREAS, MOVA
and DEPOMED have agreed upon a contract pursuant to which MOVA would provide
manufacturing and packaging services for the Product (as hereinafter defined)
for DEPOMED pursuant to the terms and conditions set forth below.

 

NOW,
THEREFORE, in consideration of the foregoing premises, which are hereby
incorporated as a substantive part of this Agreement, and in consideration of
the performance of the mutual covenants and promises herein contained, MOVA and
DEPOMED intending to be legally bound, agree as follows:

 

 

ARTICLE 1 – DEFINITIONS

 

The following terms have the
following respective meanings:

 

 

1.1                               “AAA” shall have the meaning set
forth in Article 17.

 

1.2                               “Act” shall have the meaning set
forth in Section 15.1(d).

 

THE SYMBOL
[***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND
FILED SEPARATELY WITH THE COMMISSION. 
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED
PORTION.

 

1

 

CONFIDENTIAL TREATMENT REQUESTED

 

1.3                               “Active Pharmaceutical Ingredient” or “API” shall mean the substance having
the name of ciprofloxacin, HCl.

 

1.4                               “Affiliate” shall mean, with respect to
either party, all corporations or other business entities that, directly or
indirectly, are controlled by, control or are under the common control with
that party. For this purpose, the meaning of the word “control” shall mean
having the ability substantially to direct the affairs or management of an
entity, including, but not be limited to, 
ownership of more than fifty percent (50%) of the voting shares or
interest of such corporation or other business entity.

 

1.5                               “Batch Records” shall mean the executed
manufacturing instructions, the executed packaging order, the analytical
testing results and any other manufacturing related document, such as deviation
or investigation reports.

 

1.6                               “Certificate of Analysis” shall mean
documented test results in written form executed by an authorized responsible
person that demonstrate compliance to the Specifications.

 

1.7                               “cGMPs” shall mean the then current and
applicable good manufacturing practice regulations established in 21 C.F.R.
Parts 210 and 211, as amended and in effect from time to time and other
applicable FDA policies and the Guide to GMP for Medicinal Products as
promulgated under European Directive 91/356/EEC, as applicable and in effect
from time to time during the term of this Agreement.

 

1.8                               “Confidential Information” shall
have the meaning set forth in Section 7.1

 

1.9                               “Correspondence” shall have the
meaning set forth in Article 19.

 

1.10                        “FDA” shall mean the United States Food
and Drug Administration.

 

1.11                        “Forecast” shall have the meaning
set forth in Section 3.2.

 

1.12                        “Initial Term” shall have the
meaning set forth in Section 11.1.

 

1.13                        “Laboratory” shall have the meaning
set forth in Section 5.4.

 

1.14                        “Latent Defect” shall mean a defect in
the Product or the API that results in the Product not conforming to the
Specifications and that was not discoverable with commercially reasonable
inspection.

 

1.15                        “Materials” shall mean all materials
necessary for the manufacture and packaging of the Product, including but not
limited to labels, excipients, packaging components and raw materials,
excluding the Active Pharmaceutical Ingredient.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

2

 

CONFIDENTIAL TREATMENT REQUESTED

 

1.16                        “NDA” shall mean the New Drug Application(s) or Abbreviated
New Drug Application, as the case may be, for the Product submitted to the FDA
by DEPOMED, including any amendments and supplements thereto.

 

1.17                        “MOVA Facilities” shall mean the MOVA Pharmaceutical
Corporation’s manufacturing facilities located in Caguas, Puerto Rico.

 

1.18                        “Product” shall mean those finished
pharmaceutical products that contain Active Pharmaceutical Ingredient as its
active ingredient.

 

1.19                        “Production
Fee (s)” shall have the meaning
set forth in Section 6.1.

 

1.20                        “Purchase Order” shall have the meaning
set forth in Section 3.3.

 

1.21                        “Quality Agreement” shall mean the
quality agreement attached hereto as Schedule D.

 

1.22                        “Section 335(a) or (b)” shall have
the meaning set forth in Section 15.1(f).

 

1.23                        “Significant Deviation” shall have
the meaning set forth in Section 5.4.

 

1.24                        “Specifications” shall mean the bulk
drug specifications, the formulations, processing specifications, packaging
specifications, packaging bills of material (BOMs), and finished product
specifications that are set forth in Schedule A hereto for Product
manufacturing, packaging and testing, and any revisions thereto. Specifications
shall also include any specifications added to this Agreement by mutual written
agreement of the parties during the term of this Agreement.

 

ARTICLE 2 – TECHNOLOGY TRANSFER

 

2.1                               Technology
Transfer Complete. MOVA and DEPOMED hereby acknowledge that the
technology transfer from DEPOMED to MOVA necessary for the manufacture of the
Product under this Agreement has heretofore been completed.  All trial, demonstration,
registration/stability and validation batches, to the extent required, have
been performed, and DEPOMED has provided among other things HPLC developed
residual test methods; developed methods for the API identification test for
incoming purposes; developed methods for Finished Product and cleaning, and
protocol and report for analytical methods validation.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL TREATMENT
HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

3

 

CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 3 – COMMERCIAL MANUFACTURING

 

3.1                               Commercial
Manufacturing. Based upon the successful technology transfer referred
to above, during the term of and subject to the terms and conditions of this
Agreement, DEPOMED hereby grants MOVA the exclusive right to manufacture and
package its requirements for [***]
of the Product set forth on Schedule C, and MOVA hereby agrees to manufacture
and package such requirements of Product for DEPOMED.  At such time as DEPOMED first seeks
manufacturing services of a nature similar to those provided by MOVA under this
Agreement to meet the need for Product supply in a country or geographical
region, as the case may be, where Product has not previously been sold, DEPOMED
shall offer to MOVA the opportunity to discuss its capabilities relating to
such supply outside [***] and to
make a proposal to DEPOMED in such regard.

 

3.2                               Forecasts.
Manufacturing, packaging and delivery of Product to DEPOMED shall be conducted
by MOVA in accordance with the following forecasting procedure. On or before
the first day of each quarter during the term of this Agreement, DEPOMED agrees
to provide MOVA with a written forecast of the required quantities for each
strength and unit size of the Product, 
that DEPOMED expects to purchase during each of the next twelve (12)
months commencing January 1, 2006 (“Forecast”). DEPOMED shall advise MOVA of
any significant changes in its estimated forecast of Products. Except as
otherwise explicitly described herein, the quarterly Forecast shall be
non-binding.  Notwithstanding the
foregoing to the contrary, the initial Forecast shall be submitted to MOVA on
or before October 1, 2005, and shall incorporate Product to be manufactured by
MOVA under purchase orders submitted by DEPOMED to MOVA and pending at the
Effective Date.

 

3.3                               Purchase
Orders. During the term of this Agreement, not less than ninety (90)
calendar days prior to each requested delivery date, DEPOMED will provide MOVA
with firm purchase orders setting forth the quantities of Product ordered for
each month (“Purchase Order”). The quantities indicated in the Purchase Order
will be for not less than [***]
and no more than [***]    of
the total number of units of Product forecasted for such month, as provided to
MOVA in the last quarterly Forecast prior to the placement of the Purchase
Order. Within ten (10) calendar days from receipt of each Purchase Order, MOVA
shall issue an order confirmation for such Purchase Order and shall notify
DEPOMED of MOVA’s requirements for API to manufacture and package the
quantities covered by the Purchase Order and the corresponding needs for each
month of that quarter.    No
Purchase Order, confirmation, shipping document or other document between the
parties shall supplement or alter the terms set forth in this Agreement without
the express written consent of the Parties.

 

3.4                               Supply
of Materials for Commercial Manufacturing. MOVA shall purchase all
Materials, except the Active Pharmaceutical Ingredient, required for the
manufacture of 

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

4

 

CONFIDENTIAL TREATMENT REQUESTED

 

Product from DEPOMED’s approved
vendors, or vendors mutually agreed to in writing by the parties. MOVA shall
not change any vendors of packaging components or excipient materials without
previous notification to and written approval from DEPOMED. MOVA shall be
responsible for sampling, inspecting, testing and releasing all excipient
material, packaging materials and labels for Product.

 

3.5                               Supply
of Active Pharmaceutical Ingredient. DEPOMED shall furnish to MOVA at
MOVA’s plant in Caguas, Puerto Rico,  the
Active Pharmaceutical Ingredient [***],
in a timely manner, in such quantities as are necessary, as established in
Section 3.3, to enable MOVA to manufacture and package the required quantities
of Product in accordance with the Specifications in Schedule A hereto. All
shipments of Active Pharmaceutical Ingredient shall be accompanied by a
certificate of analysis from the Active Pharmaceutical Ingredient manufacturer
confirming the identity, purity and compliance with the Active Pharmaceutical
Ingredient Specifications covering such Active Pharmaceutical Ingredient. MOVA
shall verify the quantity of each Active Pharmaceutical Ingredient lot, and
will release the supplied material based on tests of conformance detailed in
the Specifications for Active Pharmaceutical Ingredient approved by DEPOMED.  The
failure of DEPOMED to supply API or any other item hereunder shall not give
rise to a right to terminate this Agreement or to any cause of action by MOVA,
but shall stand as sufficient justification for MOVA of its inability to
deliver Product, without any further consequences to MOVA, to the extent it is
a direct result of such failure to supply API by DEPOMED.

 

 

ARTICLE 4 – DELIVERY AND TITLE

 

4.1                               Shipment.
MOVA shall deliver the Product, F.C.A., MOVA Facilities (Incoterms 2000) and ship it at [***], in accordance with DEPOMED’s written routing orders to
DEPOMED’s designated distribution centers or warehouses. The Product shall be
shipped by MOVA under conditions consistent with Product labeling, the
Specifications and the type of transport to be established by DEPOMED. For each
lot of Product shipped to DEPOMED by MOVA a Certificate of Analysis will be
provided by MOVA.

 

4.2                               Title.
Title and risk of loss to all Active Pharmaceutical Ingredient, all work in
process to manufacture the Product, and all Product in the possession of, or
under control or responsibility of, MOVA shall, at all times, remain in
DEPOMED.  However, MOVA shall assume
liability for any loss or damage relating to the foregoing due to MOVA’s
negligence or willful misconduct.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

5

 

CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 5 – QUALITY

 

5.1                               Quality
Control. MOVA shall ensure that all Product supplied to DEPOMED
complies with the Specifications and has been manufactured in accordance with
cGMP’s.  In addition, without limiting
the foregoing, MOVA and DEPOMED shall comply with their respective obligations
under the Quality Agreement.

 

5.2                               Test
Reports and Certificates of Analysis. Prior to delivery to DEPOMED of
each lot of Products supplied pursuant to this Agreement, MOVA shall test the
Product in accordance with the Specifications. Each test report shall set forth
the items tested, the Specifications, and the test results in a Certificate of
Analysis for each batch or lot of Product delivered. MOVA shall send such
Certificate of Analysis to DEPOMED at the time of the shipment of Products. With
every shipment MOVA shall certify that each batch or lot has been manufactured
and packaged in accordance with cGMP’s and with the Specifications.

 

5.3                               Modifications.
DEPOMED will inform MOVA in writing of any modifications required to the
Specifications. Any change in the manufacturing process by MOVA (such as
changes in Specifications, raw material testing, quality controls, equipment,
facilities, manufacture and/or packaging) shall be subject to DEPOMED ́s prior
written approval. In the event that there are changes in laws or regulations,
cGMP’s, or the Specifications in a manner that increases or decreases, in the
aggregate, the manufacturing cost on a per lot basis by more than [***] of the per unit price to DEPOMED, the
entire corresponding change on a per unit price to DEPOMED shall be made to the
Production Fees set forth in Schedule B, any other relevant document and the
related schedules shall be revised.

 

5.4                               Deviations.  MOVA will diligently track all deviations
associated with the Product.  MOVA shall
be responsible for investigating, resolving, and documenting deviations from
Batch Records and Specifications and reporting on such matters to DEPOMED
promptly and regularly.  MOVA will notify
DEPOMED of any Significant Deviations (as defined herein) within twenty-four
(24) hours of occurrence according to written standard operating procedures
approved in writing by DEPOMED.  MOVA
shall ensure that appropriate investigations are conducted.  MOVA shall provide quality assurance approval
for all investigations and corrective and preventive action plans, all of which
shall be shared in advance with DEPOMED and shall be subject to the reasonable
approval of DEPOMED.  For purposes of
this Agreement a “Significant Deviation” shall mean any deviation: (i) resulting
in an immediate or probable wide-ranging impact on GMP products, processes or
systems in any facility where activities are conducted pursuant to this
Agreement, (ii) which could result in significant Product safety or efficacy
risks (e.g., sterility failure or data integrity issues), (iii) which would
require notification to a regulatory authority, or (iv) which would otherwise
be considered by reasonable quality assurance professionals to be significant.

 

5.5                               Rejection.
DEPOMED shall have thirty (30) calendar days following the date on which
DEPOMED actually receives a shipment of Product from MOVA to reject the 

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

6

 

CONFIDENTIAL TREATMENT REQUESTED

 

same, because all or part of
the shipment fails to conform to cGMP’s or the Specifications. For purposes of
this Agreement, no claims due to Latent Defects shall be made after six (6)
months after the expiration date of the Product. DEPOMED shall notify MOVA
within thirty (30) calendar days following discovery of any Latent Defect not
discoverable upon reasonable physical inspection. MOVA shall not be held
responsible for reasons related to the carrier; provided MOVA has packed and
shipped in accordance with applicable Specifications and followed DEPOMED’s
other shipping instructions. A shipment of Product shall not be deemed received
until actual receipt by DEPOMED, or third parties designated by DEPOMED in the
Purchase Order, of both the Product with the appropriate shipping documents,
and copies of the complete certificates of analysis relating thereto including,
but not limited to, certification of manufacture in compliance with cGMPs and
including any deviation report.  Any
rejection shall be made effective by DEPOMED giving notice to MOVA specifying
the manner in which all or part of such shipment fails to meet the
aforementioned requirements. Upon rejection of a shipment of PRODUCT, DEPOMED
may require at its option, rework in accordance with procedures spelled out in
the applicable NDA, destruction or replacement of the shipment. Cost associated
with such rework, destruction or replacement of shipment shall be borne by the
Party responsible.  MOVA shall be so
responsible for only those failures due to its negligence or willful
misconduct.  For clarification purposes
and by means of example, MOVA’s failure to follow the protocols agreed to by
the parties, MOVA’s standard operating procedures, written instructions from
DEPOMED not contrary to law, or cGMP regulations shall be deemed to constitute
negligence on the part of MOVA.  If MOVA
and DEPOMED fail to agree on the cause for such Product failure, the dispute
may be referred to a Laboratory pursuant to Section 5.6 herein, and the finding
of such Laboratory shall be determinative as to the cause for such
failure.  When there has been no
definitive determination of the cause for failure, whether following reasonable
investigations by MOVA and DEPOMED or referral of a dispute to the Laboratory,
each of MOVA and DEPOMED shall bear their respective costs of such
failure.  DEPOMED shall not be entitled
to payment from MOVA for lost raw materials and MOVA shall not be entitled to
payment for services in manufacturing such failed Product.  If DEPOMED, due to the negligence or willful
misconduct of MOVA, rejects a shipment before the date on which payment
therefor is due pursuant to Sections 6.1 and 6.2 hereof, DEPOMED may withhold
payment for that shipment or the rejected portion thereof. In the event that
DEPOMED, due to the negligence or willful misconduct of MOVA, rejects a
shipment or portion thereof within such thirty (30) calendar day period but
after payment therefor has been made, DEPOMED shall be entitled to recoup the
payment amount by, at DEPOMED’s election, MOVA issuing a prompt refund or
DEPOMED offsetting such amount against the payment of future invoices for
shipments of Product that may become due hereunder. Payments for all shipments
or portions thereof that DEPOMED rejects but, did not have the right to reject,
shall be paid to MOVA within fifteen (15) calendar days following the date on
which such determination is made and DEPOMED shall bear the responsibility for
any costs incurred by MOVA as a consequence of such rejection, including the
destruction of the rejected lots. 
Notwithstanding the foregoing, MOVA 

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

7

 

CONFIDENTIAL TREATMENT REQUESTED

 

shall not destroy any rejected
lots as to which there exists a dispute until such dispute has been
resolved.  DEPOMED’s exclusive remedies
under this Agreement for the delivery of Product not conforming to the
Specifications, delivered without the required documentation, or not
manufactured in accordance with cGMPs shall be as set forth in this Article 5,
Section 9.1, Section 11.3, and Section 11.7.

 

5.6                               Disputes.
Notwithstanding anything in this Agreement to the contrary, if MOVA
disputes DEPOMED’s right to reject all or part of any shipment of the Product
pursuant to the provisions of Section 5.4 hereof, and such dispute is not
resolved by mutual agreement of the parties within sixty (60) calendar days,
such dispute shall be resolved by the determination of a laboratory approved by
both MOVA and DEPOMED that is compliant with FDA guidelines and regulations or
an independent expert of recognized repute within the United States
pharmaceutical industry, as applicable, mutually agreed upon by the parties (the
“Laboratory”), the appointment of which shall not be unreasonably withheld or
delayed by either party. The determination of the Laboratory shall be final and
binding upon the parties. The fees and expenses of the Laboratory making the
determination as well as all costs relating to the supply of defective Product
shall be paid by the party against whom the determination is made.

 

5.7                               Defective
Active Pharmaceutical Product. In
the event that the Laboratory or MOVA determines that the failure of Product to
meet Specifications is due to a defect in Active Pharmaceutical Product that
could not have been reasonably discovered using the testing methods set forth
in the Specifications, and contemplated by, this Agreement, MOVA shall be
entitled to the Production Fees (as defined in Section 6.1) for (i) such
finished Product, and (ii) the costs of the testing methods employed by MOVA to
determine the defect in Active Pharmaceutical Product.

 

5.8                               Access
to MOVA Facilities by DEPOMED Representatives. Upon reasonable advance
notice, MOVA shall permit DEPOMED representatives to enter MOVA’s plant during
regular business hours for the purpose of making quality control inspections of
the facilities used in the manufacture of Product for DEPOMED, during the
period of such use. Any DEPOMED representatives shall be advised of the
confidentiality obligations of Article 7 and shall follow such security and
facility access procedures as are reasonably designated by MOVA. MOVA may
require that at all times the DEPOMED representative be accompanied by a MOVA
representative and that the DEPOMED representative not enter areas of the
facility used in production of the Product at times other than when the
production is occurring to assure protection of MOVA or third party
confidential information.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

8

 

CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 6 – PRODUCTION FEES AND PAYMENT

 

6.1                               Production
Fees. DEPOMED shall pay MOVA for manufacturing finished Product in
accordance with the fees set forth in Schedule B hereto (“Production Fee(s)”). [***]

 

6.1.1                      The
Production Fees shall be adjusted [***].

 

6.2                               Invoices.
MOVA shall invoice DEPOMED for the Production Fees on or after MOVA ships the
subject Product and sends the manufacturing and testing records and deviation
report, if any, for each lot of Product to DEPOMED. All invoices shall be due
and payable within thirty (30) calendar days after the receipt of the invoice.
If DEPOMED disagrees for any reason with the amount of any invoice submitted by
MOVA, DEPOMED shall notify MOVA of such disagreement within fifteen (15)
calendar days after receipt of such invoice, and the parties shall promptly
attempt to resolve the difference. Any portion of the invoiced amount that is
not in dispute shall be paid within thirty (30) calendar days after the original
date of receipt of the invoice.

 

6.2.1
In the event that any Product manufactured in accordance with DEPOMED ́s orders
cannot be recommended for disposition by MOVA for a period of thirty (30)
calendar days following completion of manufacturing and such delay arises from
cause(s) which have been established to be other than the negligent or willful
misconduct of MOVA or MOVA’s failure to fully comply with the manufacturing
protocols and GMPs, MOVA may upon the expiration of such thirty (30) day period
invoice DEPOMED for the applicable Production Fees and such invoice shall be
due according to Section 6.2 hereof.

 

6.3                               Adjustments for Cost of Materials.  At any time during a calendar year when MOVA
determines that its actual cost of Materials used in the manufacture of Product
has increased or decreased in excess of [***]
of the per unit prices set forth on Schedule B (or otherwise established) for
either or both bulk and bottled Product, the price per unit of Product so
affected shall be adjusted to give effect to the actual increase in cost or
savings in the cost of Materials in excess of [***].  MOVA shall make such calculation on a per lot
basis, but shall convert such calculation into the units expressed on Schedule
B for proper comparison.  Such newly calculated
prices shall take effect with the first lot of Material so affected.  Any such adjusted price shall remain in
effect until next adjusted.  No
adjustment shall be made in any calendar year when increases or decreases in
the actual cost of Materials do not exceed [***],
as described above.  In support of any
adjustment to the prices of Product to DEPOMED made pursuant to this Section
6.3, MOVA shall disclose in writing to DEPOMED the costs of Materials before
and after such adjustment.  MOVA shall keep
complete and accurate records of such costs and shall allow DEPOMED or its
representatives to audit such records. 
MOVA shall use its best efforts to keep the cost of Materials at current
levels while utilizing only those vendors approved by DEPOMED.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

9

 

CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 7 – CONFIDENTIAL INFORMATION

 

7.1                               Confidentiality.
Any information or data (including but not limited to technical information,
experience, or data) regarding either party’s formulations, plans, programs,
plants, process, technical materials, products, production requirements,
standard specifications, costs, equipment, operations, procedures, instructions
or customers (all of which is herein referred to as “Confidential Information”)
is the sole property of each respective party. Each party shall treat the other
party’s Confidential Information in the same protective manner that it treats
its own Confidential Information. Except as provided herein, the parties shall
not during the term of this Agreement and for a period of five (5) years from
the date of termination of expiration of this Agreement, use, or disclose to
others, or permit their employees or agents to use or disclose to others
Confidential Information which has heretofore come or hereafter may come within
the knowledge of, or which has been or may hereafter be acquired or developed
by the respective party, its employees or agents, in the performance of any
services hereunder.  For the avoidance of
doubt, manufacturing processes, analytical methods used in the manufacture of
Product and test results shall be the Confidential Information of DEPOMED.  This paragraph shall not prevent either party
from using or disclosing to others information:

 

(a)                                  that
is known to the receiving party at the time it is disclosed by or obtained from
the disclosing party, which knowledge can be established by competent evidence;
or

 

(b)                                 that is in the public
domain at the time of disclosure, or through no fault of the receiving party
becomes available to the public;

 

(c)                                that
lawfully becomes available to the receiving party from a source other than the
disclosing party;

 

(d)                                 that
a party can prove by written records dated prior to the date of disclosures
hereunder that such information was independently developed by persons not
engaged in activities hereunder and without regard to any information conveyed
hereunder or arising in connection herewith; or

 

(e)                                  is
required by law or court order or a judicial or administrative agency of
competent jurisdiction to be disclosed, after maximum practicable notice by the
Receiving Party to the Disclosing Party, provided that in each case the
Receiving Party shall use its best efforts to limit such disclosure and
maintain the confidentiality of such Confidential Information to the extent possible;
or

 

THE SYMBOL [***] IS USED TO INDICATE THAT A
PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY WITH THE
COMMISSION.  CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

10

 

CONFIDENTIAL TREATMENT REQUESTED

 

(f)                                    that
is needed to be disclosed for the sole purpose of carrying out the
responsibilities and obligations of this Agreement.

 

7.2                               Obligations
Upon Termination. Upon termination of this Agreement, if requested, the
receiving party shall deliver to the disclosing party all notes, drawings,
blueprints, manuals, letters, notebooks, reports and other materials of or
pertaining to the Confidential Information, including all copies thereof, and
all other Confidential Information that is in the possession of or under the
control of the receiving party, except for one copy which shall be maintained
in the files of counsel for the sole purpose of assuring compliance with the
continuing confidentiality obligations under this Agreement.

 

7.3                               Access
Restriction. The parties shall restrict access to Confidential
Information to as few as practicable of their employees and agents, and in all
cases shall restrict such knowledge to only those employees and agents who are directly
connected with the performance of the services hereunder.

 

7.4                               Equitable
and other Injunctive Relief.  The
Parties acknowledge and agree that disclosure, distribution, use or any other
handling of the Confidential Information contrary to the terms of this
Agreement will cause irreparable harm to the Party owning such Confidential
Information for which damages at law will not provide an adequate remedy.  The Parties agree that the provisions of this
Article 7 may be specifically enforced in addition to any and all other
remedies available at law or in equity.

 

ARTICLE 8 – INDEMNIFICATION

 

8.1                               Indemnification
by DEPOMED. DEPOMED shall indemnify, defend and hold MOVA, its
Affiliates and their respective directors, officers, employees and agents
harmless from and against all claims, causes of action, suits, costs and
expenses (including reasonable attorney’s fees), losses or liabilities of any
kind asserted by third persons (except to the extent due to an act or omission
of an indemnified party) that arise out of or are attributable to

 

(i) any material breach of this
Agreement by DEPOMED; or

 

(ii) any negligence or willful
misconduct on the part of DEPOMED, its employees, agents or representatives; or

 

(iii) any violation by DEPOMED
of any intellectual property rights, including but not limited to, patent
rights or any property rights of any third party related to the Product, except
where such violation is attributable to MOVA.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

11

 

CONFIDENTIAL TREATMENT REQUESTED

 

8.2                               Indemnification
by MOVA. MOVA shall indemnify, defend and hold DEPOMED, its Affiliates
and their respective directors, officers, employees and agents harmless from
and against all claims, causes of action, suits, costs and expenses (including
reasonable attorney’s fees), losses or liabilities of any kind asserted by
third persons (except to the extent due to an act or omission of an indemnified
party) that arise out of or are attributable to:

 

(i) any material breach of this
Agreement by MOVA; or

 

(ii) any negligence or willful
misconduct on the part of MOVA, its employees, agents or representatives; or

 

(iii) any violation by MOVA of
any intellectual property rights, including but not limited to, patent rights
or any property rights of any third party related to the Product, except where
such violation is attributable to DEPOMED.

 

8.3                             Consequential
Damages. Under no circumstances whatsoever
shall either party be liable to the other in contract, tort, negligence, breach
of statutory duty or otherwise for (i) any (direct or indirect) loss of
profits, of production, of anticipated savings, of business or goodwill or (ii)
any other liability, damage, costs or expense of any kind incurred by the other
party of an indirect or consequential nature, regardless of any notice of the
possibility of such damages.  The
foregoing shall not be construed to limit payment of any amount due pursuant to
either Section 8.1 or Section 8.2.

 

8.4                               Indemnification
Procedures. Each Party shall notify the other promptly of any
threatened or pending claim or proceeding covered by any of the above Sections
in this Article 8 and shall include sufficient information to enable the other
Party to assess the facts. Each Party shall cooperate fully with the other
Party in the defense of all such claims. No settlement or compromise shall be
binding on a party hereto without its prior written consent, whereas such
consent shall not be unreasonably withheld or delayed.  The indemnitee, its Affiliates and their
respective directors, officers, employees and agents shall cooperate fully with
the indemnitor and its legal representatives in the investigation and defense
of any claim, lawsuit or other action covered by this indemnification, all at
the reasonable expense of the indemnitor. 
The indemnitee shall have the right, but not the obligation, to be
represented by counsel of its own selection and expense.

 

8.5                               Insurance.
During the term of this Agreement, each party shall maintain adequate product
liability insurance. During the term of this Agreement, MOVA and DEPOMED shall
each maintain comprehensive general liability insurance, including product
liability. At the time of first commercial sale of 

 

THE
SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED
AND FILED SEPARATELY WITH THE COMMISSION. 
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED
PORTION.

 

12

 

CONFIDENTIAL TREATMENT REQUESTED

 

Product
manufactured pursuant to this Agreement, the insurance afforded by the parties
shall be primary insurance with minimum limits of [***] per occurrence and an annual aggregate amount of [***]. Such insurance shall not be
cancelled or modified without providing the other party at least thirty (30)
calendar days prior written notice. If requested each party will provide the
other with a certificate of insurance evidencing the above and showing the name
of the issuing company, the policy number, the effective date, the expiration
date and the limits of liability.   If a
party is unable to maintain the insurance policies required under this
Agreement through no fault on the part of such party, then such party shall
forthwith notify the other party in writing and the parties shall in good faith
negotiate appropriate amendments to the insurance provision of this Agreement
in order to provide adequate assurances.

 

ARTICLE 9 – RECALLS

 

9.1                               Recalls.
In the event (i) any government authority issues a request, directive or
order that the Product be recalled, or (ii) a court of competent jurisdiction
orders such a recall, or (iii) DEPOMED reasonably determines that the Product
should be recalled, the parties shall take all appropriate corrective actions.
In the event that such recall results from the manufacture, packaging, storage,
testing and handling of the Product by MOVA and such recall or event is due to
MOVA’s negligence or willful misconduct, MOVA shall be responsible for all
expenses of recall. In all other cases, DEPOMED shall be responsible for the
expenses of the recall. For the purposes of this Agreement, the expenses of
recall shall include, without limitation, the expenses of notification and
destruction or return of the recalled Product, and DEPOMED’s costs for the
Product recalled. Marketing and advertising expenses associated with the
goodwill of the Product subject to the recall shall not be included as an
expense of recall and shall, in all instances, be borne by DEPOMED. The
remedies set forth above shall constitute the sole remedy of each party under
this Section 9.1.

 

9.2                               Recall
Coordination. All coordination of any recall or field correction
activities involving Product shall be handled by DEPOMED.

 

9.3                               Recall
Records. Each of the parties shall maintain complete and accurate
recall records of all the Product sold by it for such periods as may be
required by applicable law, but in no event less than three (3) years after the
date of the recall.

 

9.4                               Disputes.
Any disputes, as between MOVA and DEPOMED, with regards to the quality of
the Product shall be handled according to the provisions stated in Section 5.6
of this Agreement.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 10 – RECORDS AND AUDITS

 

10.1                        Records
and Retained Samples. During the term hereof, MOVA shall (i) prepare
and maintain Batch Records and (ii) retain samples, properly stored, from each
lot or batch of Products supplied by MOVA hereunder, sufficient to perform each
quality control test specified in the Specifications at least twice. DEPOMED
agrees to provide for such purpose all the information, processes, analytical
methods, testing procedures, and any other information reasonably requested by
MOVA and in the possession of DEPOMED necessary for manufacturing the Product
in accordance with cGMP’s. MOVA agrees to provide DEPOMED upon release and
delivery of the Product, copies of the analytical testing data such as
Certificate of Analysis. MOVA agrees to provide DEPOMED copies of its executed
Batch Records and related documents. Such records shall be available for audit
by DEPOMED, and its designates, as well as FDA and foreign regulatory agencies,
upon request. MOVA shall store the manufacture and analysis documentation for
each batch of PRODUCT for the shelf life period of the respective batch and for
two (2) years thereafter.

 

ARTICLE 11 – TERM AND TERMINATION

 

11.1                        Term.
Subject to the termination provisions of Section 11.3, the initial term of this
Agreement shall commence on the Effective Date and shall end on the fifth (5th)
anniversary from regulatory approval of the first dosage form of the Product at
MOVA’s Facilities, the (“Initial Term”). Thereafter, this Agreement shall be
automatically renewed for an additional term of two (2) years unless one party
gives notice to terminate twelve (12) months prior to the expiration of the
Initial Term or any extension thereof.

 

11.2                        Termination
due to Market Conditions. At any time after
a period of two (2) years from the Effective Date, DEPOMED shall be entitled to
terminate this Agreement, upon one hundred and eighty (180) days written notice
to MOVA, if due to market conditions, the Product becomes commercially
unfeasible and DEPOMED discontinues selling the Product. If DEPOMED
subsequently elects to resume commercializing the Product, this Agreement shall
once again take effect between the parties, and the parties shall meet in good
faith to determine the procedure to follow in order for DEPOMED to resume the
purchase of Product from MOVA and MOVA resume the supply of Product to DEPOMED.

 

11.3                        Termination.
This Agreement may be terminated under the conditions stated herein:

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(a)                                  by
either party by giving the other party written notice thereof if the other
party fails to remedy and make good any breach in the performance of any
condition or obligation under this Agreement after ninety (90) calendar days of
the date of a written notice of breach is sent to the breaching party thereof,
or if such breach cannot be reasonably remedied within such ninety (90)
calendar day period; the party in default diligently commences and continues to
remedy such breach; or

 

(b)                                 by
DEPOMED by giving MOVA written notice of a breach of the Quality Agreement if
MOVA fails to remedy and make good any breach in the performance of any
condition or obligation under the Quality Agreement after ninety (90) calendar
days of the date of a written notice of breach is sent to the breaching party
thereof, or if such breach cannot be reasonably remedied within such ninety
(90) calendar day period;

 

(c)                                  by
either party if the other party is declared insolvent or bankrupt by a court of
competent jurisdiction, or a voluntary petition of bankruptcy is filed in any
court of competent jurisdiction by the other party, or the other party makes or
executes any assignment for the benefit of creditors.

 

(d)                                 by
DEPOMED, immediately, by giving MOVA written notice of such termination as a
result of any debarment, whether actual or threatened, or any conviction which
could result in debarment, whether it does so in fact or not; provided that if
such circumstance relates to an individual, MOVA may avoid such termination by
the immediate removal of such person from all tasks performed pursuant to this
Agreement and replacement of such person by another qualified person.

 

11.4                        Effect
of Termination. Upon termination of this Agreement for any reason MOVA
shall furnish to DEPOMED a complete inventory of all stock on hand of
work-in-progress for the manufacture of the Product and finished Product.
Unless otherwise agreed to between the parties, all stock on hand as of the
effective date of termination of this Agreement shall be dealt with promptly as
follows:

 

(a)                                  Product
manufactured and packaged pursuant to Purchase Orders from DEPOMED shall be
delivered by MOVA to DEPOMED, whereupon DEPOMED shall pay MOVA therefor in
accordance with the terms hereof;

 

(b)                                 Work-in-progress
commenced by MOVA against Purchase Orders from DEPOMED shall be completed by
MOVA and delivered to DEPOMED, whereupon DEPOMED shall pay MOVA therefore in
accordance with the terms hereof; and

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(c)                                  Materials
not necessary to complete 11.3(b) above but having been ordered or purchased by
MOVA in accordance with DEPOMED ́S then current twelve (12) months rolling
forecast shall be disposed of by MOVA or returned to DEPOMED at DEPOMED’s
option and expense. If MOVA terminates this Agreement under Section 11.3(a)
herein, DEPOMED shall reimburse MOVA for MOVA’s actual cost of such raw
materials purchased by MOVA in order to fulfill DEPOMED ́s then current twelve
(12) months rolling forecast. Additionally, DEPOMED shall reimburse MOVA for
any fees charged to MOVA for the termination of such supply contracts for raw
materials which MOVA can only use for the manufacture of Products. In all other
events of termination and without prejudice to the above mentioned, the party
having given reason to the termination shall bear the costs of disposal of raw
materials and Active Pharmaceutical Ingredient.

 

11.5                        No
Discharge of Obligations. Termination of this Agreement for any reason
shall not discharge either party’s liability for obligations incurred hereunder
and amounts unpaid at the time of such termination.

 

11.6                        Tooling.
Upon any termination, MOVA shall after consultation with and upon request by
DEPOMED deliver to DEPOMED or a third party designated by DEPOMED all tooling
and equipment purchased and for which DEPOMED has remitted payment to MOVA,
with delivery costs to be borne by DEPOMED.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

11.7                        Conversion to Non-Exclusive
Rights. In the event that MOVA fails to
deliver at least [***] of the Product volume per order for [***]
consecutive months or [***] of the sum of the Product ordered during such [***]
consecutive months (provided, that MOVA shall not be deemed to have failed to
deliver any Product during a calendar month, if delivery of such Product occurs
within five business days of the confirmed delivery date), for reasons other
than those related to: (i) DEPOMED, including, failure to diligently place the
corresponding purchase orders; (ii) DEPOMED’s failure to provide the Specifications
or supplying Active Pharmaceutical Ingredient; or (ii) due to a Force Majeure
Event (which shall be governed by Article 18); the exclusive manufacturing
right granted to MOVA in Section 3.1 of this Agreement shall immediately, and
with notice to MOVA, become non-exclusive entitling DEPOMED to place orders for
the greater of (a) [***] of DEPOMED’S requirements for the Product, or (b)
the quantity of Product not delivered by MOVA. 
If DEPOMED exercises its right to use an alternative supplier hereunder,
MOVA shall cooperate in good faith with DEPOMED’s reasonable requests relating
to the provision of the Specifications, SOPs, analytical tests, procedures and
all other applicable documents to the alternative supplier(s) designated by
DEPOMED, which shall be entitled to use the same for DEPOMED.  The foregoing conversion shall not apply in
the event that the reason for the delay or shortfall was due to a failure of
supply of API by, or other fault of, DEPOMED.

 

ARTICLE 12 – REGULATORY MATTERS

 

12.1                        Regulatory
Filings. DEPOMED shall be responsible for preparing and submitting all
documents necessary for maintaining the NDA including without limitation
adverse drug reaction reports and annual reports. MOVA shall use best efforts
to assist DEPOMED in complying with any arising requirements of the FDA and any
other regulatory authorities. MOVA agrees to comply with all reasonable
commitments made in the NDA and any supplement thereto regarding MOVA’s
manufacturing responsibilities as directed herein, provided that MOVA is
notified of such responsibilities and given an opportunity to review such
commitments with sufficient time prior to their being included in the submitted
document by DEPOMED and provided they are not inconsistent with the then
applicable Specifications. Any incremental costs as a result of the above are
subject to the price adjustments as provided in Section 5.3 herein.

 

12.2                        Compliance.
DEPOMED shall be responsible for compliance of the Specifications (including
but not limited to the text and accuracy of any labeling required by DEPOMED)
with FDA standards. MOVA shall be responsible for compliance of the
manufacturing, processing, packaging procedures and testing procedures with FDA
standards, including those pertaining to cGMPs. Each party will provide
reasonable assistance to the other, at no charge, if necessary to respond to
FDA audits, inspections, inquiries or requests concerning the Product. DEPOMED
employees present at the 

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

17

 

CONFIDENTIAL TREATMENT REQUESTED

 

facility shall at all times
adhere to safety regulations, cGMPs and work schedule generally applicable to
MOVA’s own employees, provided that such DEPOMED employees are notified of the
same.

 

12.3                        Adverse
Events Reporting and Product Information Requests.

 

(a)                                  Adverse
Reaction Reporting. During the term of this Agreement, MOVA shall immediately
but in any case within twenty-four (24) hours notify DEPOMED, by facsimile or
telephone, of any adverse drug experience involving the Product that a
responsible employee of MOVA becomes aware of.

 

(b)                                 Product
Information Requests. Information concerning any complaints, inquiries and/or
drug information requests from consumers, physicians, or other third parties
regarding the Product shall be forwarded to DEPOMED within twenty-four (24)
hours of MOVA’s receipt of the information and/or inquiry. DEPOMED shall
respond to such complaints and inquiries, if necessary, in accordance with its
usual and customary procedures. DEPOMED shall supply MOVA, for MOVA’s
information purposes only, with copies of its standard response information for
the Product as well as any updates thereto.

 

(c)                                  Governmental
Reports. DEPOMED shall be responsible for filing with the FDA any required
adverse reaction reports that it receives directly from third parties and any
adverse reaction reports that it receives through MOVA.

 

12.4                        Cooperation.
The parties expect that any information concerning the Product required by
the FDA will be submitted by DEPOMED. If MOVA is required to submit to the FDA
any information concerning the Product as part of a FDA inspection or audit in
connection with the manufacture of the Product, DEPOMED will provide to MOVA
such documentation, data and other information as MOVA may require for
submission to the FDA. DEPOMED shall also provide, if required by the FDA,
information concerning its quality control procedures and marketing of the
Product and any other information reasonably requested by FDA. DEPOMED shall
provide its reasonable cooperation and consultation to MOVA in addressing any issue
raised by FDA concerning manufacture of the Product.

 

12.5                        Compliance
Audits. MOVA shall permit representatives of DEPOMED to conduct audits
to confirm MOVA’s compliance with cGMPs and Specifications upon reasonable
advance notice and subject to the provisions of Article 7. MOVA shall notify
DEPOMED within twenty-four (24) hours after it receives notice of an FDA audit
or inspection involving the Product, any component thereof, or any portion of
MOVA’s facility used or likely to be used in connection with the activities of
MOVA to be conducted under this Agreement, and shall allow DEPOMED to be
present and to participate in any such inspection.  In each such case, whether or not DEPOMED 

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

18

 

CONFIDENTIAL TREATMENT REQUESTED

 

attended such audit or inspection
provide to DEPOMED copies of any resulting document of action (FDA Form 483
inspection observation report, regulatory letters, etc.) resulting from these
audits, which pertains to the Product, any component thereof, or any portion of
MOVA’s facility used or likely to be used in connection with the activities of
MOVA to be conducted under this Agreement, within two (2) calendar days after
receipt. Should either MOVA or DEPOMED receive any such document of action, it
shall so notify the other within two (2) business days after receipt and shall
provide to the other an opportunity to the extent feasible under the
circumstances, to provide input to any response to any such document of action.

 

ARTICLE 13 – INTELLECTUAL PROPERTY

 

13.1                        Trademarks
and Labeling. MOVA shall affix labeling to the Product as specified in
the Specifications. That labeling shall bear one or more trademarks to be
designated by DEPOMED. Nothing contained herein shall give MOVA any right to
use any DEPOMED trademark except on Product for DEPOMED, and MOVA shall not
obtain any right, title or interest in any DEPOMED trademark by virtue of this
Agreement or its performance of services hereunder.

 

13.2                        No
Rights Granted. Nothing in this Agreement shall grant, directly or
indirectly, any rights to either party to any technology, information or
intellectual property owned by, possessed by or licensed to the other party at
the time of signing of this Agreement.

 

ARTICLE 14 – RELATIONSHIP OF PARTIES

 

14.1                        Independent
Contractors. It is not the intent of the parties hereto to form any
partnership or joint venture. Each party shall, in relation to its obligations
hereunder, act as an independent contractor, and nothing in this Agreement
shall be construed to give such party the power or authority to act for, bind
or commit the other party in any way whatsoever.

 

14.2                        Public
Statements. MOVA and DEPOMED each agree not to disclose the terms of
this Agreement in any public statements, whether oral or written, including but
not limited to shareholder reports, communications with stock market analysts,
statements to other customers or prospective customers, press releases or other
communications with the media, or prospectuses, without the other party’s prior
written consent, which shall not be unreasonably withheld or delayed, or as
required by applicable law. If possible, each party shall give the other at
least five (5) calendar days advance written notice of a disclosure required by
applicable law and will cooperate with the other party to minimize the scope
and content of such disclosure.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

19

 

CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 15 – WARRANTIES

 

15.1                        MOVA’s
Warranty. MOVA hereby represents and warrants as follows:

 

(a)                                  The
Product shall conform with the Specifications as set out in Schedule A at the
time of delivery to a common carrier pursuant to Section 4.1.

 

(b)                                 MOVA
shall comply in all material respects with any law, regulation, ordinance,
order, injunction, decree or requirement applicable to the manufacture of the
Product (including cGMPs).  For purposes
of this Section 15.1(b), and without limiting the foregoing sentence, any
failure to comply with any such law, regulation, ordinance, order, injunction,
decree or requirement that exposes DEPOMED to any sanction or liability, or
prevents DEPOMED from using the Product as intended, shall be deemed to be a
material non-compliance.

 

(c)                                  MOVA
shall maintain all required governmental permits, licenses, orders,
applications and approvals regarding the manufacturing of the Product, and MOVA
shall manufacture Product in accordance with all such permits, licenses,
orders, applications and approvals. Any expenses incurred to obtain special
permits for Product that MOVA would not have to acquire absent this Agreement
will be reimbursed by DEPOMED.

 

(d)                                 Product
shall, at the time it is shipped to DEPOMED (i) not be adulterated or
misbranded within the meaning of the Federal Food, Drug and Cosmetic Act (the “Act”)
as amended, or within the meaning of any applicable State or municipal laws in
the U.S.A. and (ii) not be articles that may not, under the Act or any other
applicable law, statute or regulation, be introduced into interstate commerce.

 

(e)                                  MOVA has full
authority to enter into this Agreement, that it has been granted full rights
and license to manufacture the Product under all relevant U.S. patents, to the
extent applicable, and that nothing contained in any other agreements prohibits
or restricts MOVA from entering into any part of this Agreement.

 

(f)                                    MOVA
represents as of the date of this Agreement and continuously during the term of
this Agreement that it and its employees, affiliates, and agents have never
been (i) debarred or (ii) convicted of a crime for which a person can be
debarred, under Section 335(a) or 335(b) of the Federal Food, Drug, and
Cosmetic Act (“Section 335(a) or (b)”). 
MOVA represents that it has never been and, to the best of its knowledge
after due inquiry, none of its employees, Affiliates, or agents has ever been
(i) threatened to be debarred or (ii) indicted for 

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

a crime or
otherwise engaged in conduct for which a person can be debarred, under Section
335(a) or (b).  MOVA agrees that it will
promptly notify DEPOMED in the event of any such debarment, conviction, threat,
or indictment.

 

 

15.2                        DEPOMED’s
Warranty. DEPOMED hereby represents and warrants as follows:

 

(a)                                  The
Active Pharmaceutical Ingredient shall, to the best of DEPOMED’s knowledge, at
the time it is shipped to MOVA, (i) not be adulterated or misbranded within the
meaning of the Federal Food, Drug, and Cosmetic Act (“the Act “) or within the
meaning of any applicable state or municipal law in which the definitions of
adulteration and misbranding are substantially the same as those contained in
the Act; (ii) not be articles that may not, under the Act or any other
applicable law, statute or regulation, be introduced into interstate
commerce,  (iii) comply with its
specifications as provided by DEPOMED and (iv) to the best of DEPOMED’s
knowledge, the use of the Active Pharmaceutical Ingredient for the manufacture
of the Product does not infringe third party intellectual property rights.

 

(b)                                 As
of the time that any Product produced hereunder is sold, DEPOMED will own all
rights to the Product trademarks and the Product labeling will meet regulatory
requirements.

 

(c)                                  The
manufacture, marketing and sale of the Product by or on behalf of DEPOMED or
its customers shall not, to the best of DEPOMED’s knowledge, infringe any
patent, trademark, trade secret or other proprietary right of any third person.

 

(d)                                 DEPOMED
has full authority to enter into this Agreement, that it has been granted full
rights and license to manufacture and sell the Product under all relevant U.S.
patents, to the extent applicable, and that nothing contained in any other
agreements prohibits or restricts DEPOMED from entering into any part of this
Agreement.

 

(e)                                  All
material safety data sheets and other raw material, Active Pharmaceutical
Ingredient or any data supplied by DEPOMED to MOVA are accurate to the best of
DEPOMED’s knowledge. The parties understand that MOVA will not do analysis to
verify the accuracy of such DEPOMED supplied data.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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15.3                        No
Implied Warranties. EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT,
MOVA AND DEPOMED MAKE NO REPRESENTATIONS AND EXTEND NO WARRANTIES OF ANY KIND,
EITHER EXPRESS OR IMPLIED, INCLUDING, IN THE CASE OF MOVA, ANY EXPRESS OR
IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE.

 

ARTICLE 16 – ASSIGNMENT

 

Except as set
forth in this Article, this Agreement, and all rights and obligations
hereunder, are personal to MOVA and shall not be assigned in whole or in part
by MOVA to any other person or company without the prior written consent of
DEPOMED, which consent shall not be unreasonably withheld.  Notwithstanding the foregoing, MOVA shall be
entitled to assign this Agreement to an Affiliate whose performance is
guaranteed by MOVA or to a party which is the successor to, or the assignee of,
all or substantially all of MOVA’s pharmaceutical business; provided, however,
that any such successor or assignee has agreed in writing to assume all of MOVA’s
obligations under this Agreement. 
DEPOMED may, without the consent of MOVA, assign this Agreement provided,
however, that DEPOMED shall give prior written notice of any assignment to
MOVA. Any assignee of DEPOMED to which it has sold or licensed rights to
manufacture, market or sell the Product in the Territory, which has assumed all
of DEPOMED’s obligations hereunder must be qualified and shall have (i) a
financial condition at the time of assignment at least comparable to that of
DEPOMED as of the Effective Date, and (ii) has neither been debarred by the FDA
nor is otherwise subject to an order of the FDA or a court of competent
jurisdiction which would prevent it from performing the obligations of DEPOMED
hereunder.  In the event of any
assignment pursuant to the provisions of this Article, the assigning party
shall have no further obligations hereunder except:  (i) to the extent the same has accrued prior
to such assignment or (ii) pursuant to the guarantee obligation set forth
above.  The terms and conditions of this
Agreement shall be binding upon, and shall inure to the benefit of, the parties
hereto and their respective successors and permitted assigns.

 

ARTICLE 17 – GOVERNING LAW AND DISPUTE
RESOLUTION

 

Any
controversy, claim or dispute arising out of or relating to this Agreement or
the breach thereof shall be settled, if possible, through good faith negotiation
between the parties. Such good faith negotiations shall commence promptly upon
a party’s receipt of notice of any claim or dispute from the other party and
continue for a period of sixty (60) calendar days.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

If such
efforts are not successful, such controversy, claim or dispute relating to,
arising out of, or in any way connected with this Agreement or any term or
condition hereof, or the performance by either party of its obligations
hereunder, whether before or after termination of this Agreement, except as
otherwise expressly provided in this Agreement, shall be finally resolved by
binding arbitration. Whenever a party shall decide to institute arbitration
proceedings, it shall give written notice to that effect to the other party.
This Agreement shall be governed by and construed in accordance with the laws
of the Commonwealth of Puerto Rico without reference to any rules of conflicts
of law or renvoi. Disputes shall be resolved through arbitration before three
(3) arbitrators. Such arbitration shall take place in the vicinity of the
non-triggering Party, and shall proceed in accordance with the Commercial
Arbitration Rules of the American Arbitration Association (“AAA”). Within seven
(7) calendar days of either party making a demand for arbitration (or longer if
the parties so agree), DEPOMED and MOVA shall each select one (1) arbitrator. A
third arbitrator shall be selected by the arbitrators selected by the parties
within thirty (30) calendar days of the demand for arbitration. In the event
that either party shall fail to appoint its arbitrator, or the two arbitrators
selected by the parties fail to appoint the third arbitrator, in either case
within the prescribed time period, then either party may apply to the AAA for
the appointment of such arbitrator. The determination of a majority of the
panel of arbitrators shall be the decision of the arbitrators and shall be
binding regardless of whether one of the parties fails or refuses to
participate in the arbitration; said determination shall be enforceable by any
court of competent jurisdiction. Each party shall pay for the arbitrator it
selects with the cost of the third arbitrator being split equally between the
parties. All other costs shall also be split equally between the parties.
Either party may enter any arbitration award in any court having jurisdiction
or may make application to any such court for a judicial acceptance of the
award and order of enforcement, as the case may be. The parties’ agreement to
submit to arbitration referred to herein shall in no way prevent either party
from exercising its right to terminate this Agreement consistent with the terms
herein.

 

ARTICLE 18 – FORCE MAJEURE

 

Neither party
shall be liable to the other for default or delay in the performance of its
obligations under this Agreement, if such default or delay shall be caused
directly or indirectly by accident, fire, flood, riot, war, weather, act of
God, embargo, strike, failure or delay of usual sources of supply of materials,
or delay of carriers or governmental orders or regulations, or complete or
partial shutdown of plant by any of the foregoing causes or other causes beyond
its reasonable control, provided the same are not due to the negligence or
willful misconduct of such party and provided further that any such default,
delay or failure shall be remedied by such party as soon as possible after the
removal of the cause of such default, failure or delay. Obligations to pay
amounts due under this Agreement shall not be subject to the forestated
excuses.  If due to force majeure MOVA is
unable to supply DEPOMED with the Product for a period exceeding one hundred
and 

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

23

 

CONFIDENTIAL TREATMENT REQUESTED

 

twenty (120) days then DEPOMED
shall have the right to terminate this Agreement without further cost and with
immediate effect and upon written notice to MOVA.  At the end of the first sixty (60) days
during the persistence of the force majeure event MOVA shall reasonably determine
whether it will be able to resume supplying Product at the end of such one
hundred and twenty (120) days period and notify DEPOMED in writing of such
assessment.  If MOVA has concluded that
it will be unable to resume supplying Product at the end of such period,
DEPOMED shall have the right to terminate this Agreement upon thirty (30) days
written notice to MOVA without further cost.  
MOVA will provide reasonable assistance during the technology transfer
for the Product upon termination due to force majeure.

 

ARTICLE 19 – NOTICES

 

Unless otherwise
provided herein, any notice required or permitted to be given hereunder or any
proposal for any modification of this Agreement (hereinafter collectively
referred to as the “Correspondence”) shall be faxed, mailed by overnight mail,
mailed by certified mail, postage prepaid, or delivered by hand to the party or
the individual to whom such Correspondence is required or permitted to be given
hereunder. If mailed, any such Correspondence shall be deemed to have been
given five (5) business days from the date mailed, as evidenced by the postmark
at the point of mailing. If delivered by hand or fax, any such Correspondence
shall be deemed to have been given when received by the party to whom such
Correspondence is given, as evidenced by written and dated receipt of the
receiving party.

 

All
correspondence to MOVA shall be addressed as follows:

 

MOVA
Pharmaceutical Corporation

P.O. Box 8639

Caguas, Puerto
Rico 00726

Attention:
President

Facsimile:
(787) 258-1794

 

with a copy
to:

 

Patheon, Inc.

7070
Mississauga Road, Suite 350

Mississauga ON
L5N 7J8

Attention:   General Counsel

fax:        (905) 812-6613

 

All
correspondence to DEPOMED shall be addressed as follows:

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

24

 

CONFIDENTIAL TREATMENT REQUESTED

 

Depomed, Inc.

1360 O’Brien
Drive

Palo Alto,
California 94025

Attention:
Vice President, Operation

Facsimile:
(650) 462-9993

 

with a copy
to:

 

Heller Ehrman
LLP

4350 La Jolla
Village Drive, 7th Floor

San Diego,
California 92122

Attention:  Richard A. Kaufman,
Esq.

Facsimile:  (858) 450-8499

 

Either party
may change the address to which any correspondence to it is to be addressed by
notification to the other party as provided herein.

 

ARTICLE 20 – CAPTIONS

 

The captions in this Agreement are solely for
convenience of reference and shall not be used for purposes of interpreting or
construing the provisions hereof.

 

ARTICLE 21 – SEVERABILITY

 

Should any
part or provision of this Agreement be held unenforceable or in conflict with
the applicable laws or regulations of any jurisdiction, the invalid or
unenforceable part or provision shall be replaced with a provision that
accomplishes, to the extent possible, the original business purpose of such
part or provision in a valid and enforceable manner, and the remainder of this
Agreement shall remain binding upon the parties hereto.

 

ARTICLE 22 – WAIVER

 

No failure on
the part of either party hereto to exercise, and no delay in exercising, any
right, privilege or power hereunder shall operate as a waiver or relinquishment
of the provision giving rise thereto; nor shall any single or partial exercise
by either party hereto of any right, privilege or power hereunder preclude any
other further exercise thereof, or the exercise of any other right, privilege
or power.

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

25

 

CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE 23 – SURVIVAL

 

The provisions
of Articles 1, 7 through 10, Sections 11.4, 11.5, 11.6, 11.7, 12.4, 12.5,
Articles 13 through 14, 18 through 23 and 24 shall survive the termination or
expiration of this Agreement.

 

ARTICLE 24 – ENTIRE AGREEMENT

 

This Agreement, together with the Schedules hereto
constitute the complete and exclusive Agreement between the parties hereto with
reference to the subject matter hereof, and no statement or agreements, oral or
written, made prior to or at the signing hereof shall vary or modify the written
terms hereof, and neither party shall claim any modification or rescission from
any provision hereof unless such modification or rescission is in writing,
signed by the other party.

 

IN WITNESS
WHEREOF, the parties have caused this Agreement to be executed by their
respective duly authorized representatives as of the day and year first above
written.

 

 

	
  MOVA
  Pharmaceutical Corporation

  	
   

  	
  Depomed,
  Inc.

  
	
  Name:

  	
  /s/ Clive
  Bennett

  	
   

  	
   

  	
  Name:

  	
   /s/ John N. Shell

  	
   

  
	
  Title:
  Presendente & COO

  	
   

  	
  Title: Vice
  President, Operations

  
	
  Date: October
  5, 2005

  	
   

  	
  Date: October
  18, 2005

  
							

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

26

 

CONFIDENTIAL TREATMENT REQUESTED

 

Schedule A

Specifications

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

27

 

CONFIDENTIAL TREATMENT REQUESTED

 

Schedule B

Commercial Production Fees

 

1.                                      Per
unit prices

 

The prices of Product are as follows:

 

(a) Bulk
Tablets (not packaged) in 25 kilogram drums

or in other suitable bulk container:

 

[***]

 

(b) Tablets in
bottles of 50:

 

[***]

 

2.                                      Price
Adjustments

 

[***]

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

28

 

CONFIDENTIAL TREATMENT REQUESTED

 

Schedule C

Commercial Volumes

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

29

 

CONFIDENTIAL TREATMENT REQUESTED

 

Schedule D

Quality Agreement

 

[TO BE INCLUDED AS SOON AS PRACTIBLE]

 

THE SYMBOL [***] IS USED TO
INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION.  CONFIDENTIAL
TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

30

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