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Supply And Marketing Agreement Between Sovereign Pharmaceuticals, Ltd. And Aristos Pharmace

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Exhibit 10.18 Supply and Marketing Agreement ARISTOS PHARMACEUTICALS, INC. and SOVEREIGN PHARMACEUTICALS, LTD agree as follows: Article 1 - Definitions 1.0 As used throughout this Agreement, the initially capitalized terms shall have the meanings ascribed to them in Sections 1.1 through 1.42. 1.1 " Act" shall mean collectively the Federal Food, Drug, and Cosmetic Act of 1938, including any amendments thereto, and all regulations promulgated thereunder, and the Federal Controlled Substances Act, including all amendments thereto, and any regulations promulgated thereunder. 1.2 " Affiliate" shall mean: (a) any corporation or business entity fifty percent (50%) or more of the voting stock or voting equity interests of which are owned directly or indirectly by a Party; or (b) any corporation or business entity which directly or indirectly owns fifty percent (50%) or more of the voting stock or voting equity interests of a Party; or (c) any corporation or business entity directly or indirectly controlling or under common control of a corporation or business entity as described in (a) or (b). 1.3 " Agreement" shall mean this Supply and Marketing Agreement entered into by and between the Parties as of the Effective Date. 1.4 " ARISTOS" means ARISTOS PHARMACEUTICALS, INC, a Delaware corporation having a place of business at 2000 Regency Parkway, Suite 255, Cary, NC, 27518. 1.5 " Business Day" shall mean any day, other than a Saturday or Sunday, on which commercial banks are not authorized by law to close in the State of North Carolina. 1.6 " cGMP" shall mean the quality systems and current good manufacturing practices set forth in 21 C.F.R. (Parts 210 and 211), as amended from time to time and in effect during the Term of this Agreement. 1.7 " Change of Control" shall have the meaning ascribed to it in Section 6.4. 1.8 " DESI" means any drug approved between 1938 and 1962 that was permitted to stay on the market while evidence of their effectiveness was reviewed. 1.9 " Distribution Cost" means the amount, in respect of any calendar month, which is equal to the actual cost of shipping of the Product from the Distributor for such calendar month. 1.10 " Distributor" means any wholesaler, food/drug/mass merchandising chain, or other company that purchase Product from ARISTOS. [***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.


1.11 " Effective Date" shall mean May 1, 2008. 1.12 " Facility(ies)" shall mean a production facility which has been validated and approved by the Regulatory Authority of the country in which the Product produced in such Facility is to be Marketed, and which complies with the requirements of the Regulatory Authority of the country in which the production facility is located. Initially the Facility shall be SOVEREIGN Pharmaceuticals at 7590 Sand Street, Fort Worth, TX, 76118 which has been inspected and approved. 1.13 " FDA" shall mean the United States Food and Drag Administration or any successor thereof. 1.14 " Initial Commercial Delivery" shall mean the receipt by ARISTOS of the initial batch quantities of each SKU of the Product set forth in the " Per Batch Forecast" contained in the Initial Forecast attached hereto as Exhibit C and to be delivered hereunder as provided for in Section 2.4. 1.15 " Initial Forecast" shall have the meaning ascribed to it in Section 2.1 (a). 1.16 " Initial Order" shall have the meaning ascribed to it in Section 2.1 (b). 1.17 " Losses" shall mean judgments, losses, liabilities, costs or expenses (including reasonable attorney' s fees). 1.18 " Manufacturer" shall mean SOVEREIGN if it Manufactures Product, or the Third Party engaged through agreement of ARISTOS and SOVEREIGN to Manufacture at a Facility if SOVEREIGN does not Manufacture. 1.19 " Manufacturing" or " Manufacture" shall mean the activities associated with producing a finished dosage form of the Product including Materials acquisition, manufacturing, packaging, testing and labeling of finished dosage form of the Product. 1.20 " Market" , " Marketing" , or ' Marketed" shall mean the advertising, marketing sale, selling, marketing, and/or distribution of Product. 1.21 " Materials" means all ingredients, packaging supplies, printed materials and all other components used to Manufacture the Product. 1.22 " Net Profit Share" means the amount equal to a [***]% of Net Receipts (as defined in Section 1.23) between ARISTOS and SOVEREIGN, attached hereto as Exhibit A. 1.23 " Net Receipts" means with respect to a calendar month, the Net Sales for such calendar month less the sum of: (i) the Distribution Cost, (ii) the shipping cost from the Facility to ARISTOS' S designated site, (iii) the shipping cost from the ARISTOS' S designated site to Distributors and (iv) the Purchase Price for the Units of Product sold during such calendar month. [***] Confidential portions of the exhibit have been omitted and filed separately with the Securities and Exchange Commission.


1.24 " Net Sales" means the total gross invoices for Units of Product sold during a calendar month to Third Party customers in the Territory in bona fide arms length transactions, less: (a) quantity and/or cash discounts actually allowed or taken, (b) customs duties and taxes, if any, directly related to the sale of the Product and paid by ARISTOS, (c) amounts allowed or credited by reason of rejections, return of goods, and any retroactive price reductions specifically identifiable as relating to the Product, within limits which are customary in the pharmaceutical industry with respect to the marketing of generic products, (d) amounts incurred resulting from mandated rebate programs of the government of the Territory (or any agency thereof), (e) third party rebates and chargebacks related to the sale of the Product, to the extent allowed, and (f) floor stocks. 1.25 " Party" or " Parties' shall mean ARISTOS or SOVEREIGN or both of them, depending on the context. 1.26 " Person" means any individual, corporation, partnership, joint venture, limited liability company, trust or unincorporated organization or government or any agency or political subdivision thereof. 1.27 " Product" shall mean one or more DESI products in the forms and strengths identified in Exhibit D, in finished form, packaged and labeled as set forth in Exhibit E (each such package being referred to herein as a " Unit" and each strength and bottle size collectively referred to herein as a " SKU" ). 1.28 " Product Specifications" shall mean those product, process, Manufacturing, packaging and labeling specifications required in the Manufacture and delivery to ARISTOS of Products in compliance with all applicable Regulatory Requirements, including the Product formula and materials required for the Manufacture of the Product that are to be purchased and supplied under this Agreement, as such are in effect as of the Effective Date and as such may be modified by SOVEREIGN after the Effective Date. 1.29 " Purchase Order" shall have the meaning set forth in Section 2.3. 1.30 " Purchase Price" shall mean with respect to each Unit of Product, the prices to be paid by ARISTOS to SOVEREIGN per Unit during the Term and which are set forth in Exhibit B. 1.31 " Quality Agreement" shall mean the agreement that shall be entered into by and between the Parties within thirty (30) days of the Effective Date and which shall govern all quality and regulatory issues arising out of the transactions contemplated by this Agreement. 1.32 " Registration" shall mean all permits, licenses, approvals and authorizations granted by any Regulatory Authority with regard to the Product. 1.33 " Regulatory Authority" shall mean any federal, state or local regulatory agency, department, bureau or other governmental entity, including, without limitation, the FDA and the U.S. Drug Enforcement Administration, which is responsible for issuing


approvals, licenses, registrations (including the Registrations), permits or authorizations necessary for, or otherwise governs, the Manufacture, handling, use, storage, import, transport, distribution or sale of the Product in the Territory. 1.34 " Regulatory Requirements" shall mean all applicable approvals, licenses, registrations (including the Registrations), cGMPs, and authorizations and all other requirements of each applicable Regulatory Authority in relation to the Product, including each of the foregoing which is necessary for, or otherwise governs, the Manufacture, handling, use, storage, import, transport, distribution or sale of the Product. 1.35 " SKU" shall have the meaning ascribed to it in Section 1.27. 1.36 " SOVEREIGN" shall mean SOVEREIGN Pharmaceuticals Ltd, a Texas limited partner, located at 7590 Sand Street, Fort Worth, TX, 76118 1.37 " Standard Manufacturing Batch" shall mean, with respect to each Product, the standard finished lot size as set forth on Exhibit G attached hereto. 1.38 " Subsequent Forecast" shall have the meaning ascribed to it in Section 2.2. 1.39 " Term" shall have the meaning ascribed to it in Section 6.0. 1.40 " Territory" shall mean the United States of America, its territories and possessions, including Puerto Rico. 1.41 " Third Party" shall mean any Person other than ARISTOS or SOVEREIGN. 1.42 " Unit" shall have the meaning ascribed to it in Section 1.27. Article 2 - Manufacture. Orders, Pricing, Payment and Conformance 2.0 Manufacture and Sale of Product . (a) SOVEREIGN hereby grants to ARISTOS the exclusive right during the Term to Market in the Territory. (b) During the Term, SOVEREIGN shall not grant to any Third Party in the Territory the right to Market the Product, as listed in Exhibit D (c) SOVEREIGN shall Manufacture, sell and deliver the Product hereunder in accordance with (i) the Product Specifications; (ii) cGMP; and (iii) the Act and all other applicable Regulatory Requirements. (d) Product shall be Manufactured at the SOVEREIGN Facility at 7590 Sand Street, Fort Worth, TX, 76118 or at a Third Party Manufacturer' s Facility.


2.1 Initial Forecast: Initial Order . (a) ARISTOS shall within fifteen (15) Business Days of the Effective Date, provide a forecast of the monthly requirements of Product to be manufactured and supplied by the Manufacturer hereunder for the first twelve (12) full calendar months of this Agreement (the " Initial Forecast" ). (b) The first three (3) full calendar month portion of the Initial Forecast shall be deemed a firm order (the " Initial Order" ). (c) A Purchase Order for the Initial Order shall be submitted on or before the twentieth (20th) Business Day after the Effective Date. (d) The production and supply requirements specified in and for the remaining period of such Initial Forecast shall constitute ARISTOS' S best estimate forecast of its Product production and supply requirements. 2.2 Rolling Forecast . On or before the first (1st) calendar day of the last month of any calendar quarter (excluding only the first such date following the Effective Date), ARISTOS shall provide SOVEREIGN with an updated twelve (12) month forecast for the Product (each, a " Subsequent Forecast" ). (a) Accompanying each Subsequent Forecast will be a Purchase Order for the first three (3) months of such Subsequent Forecast; (b) SOVEREIGN will confirm its acceptance of the Subsequent Forecast no later than the 15th calendar day of the calendar month preceding the forecast period covered by such Subsequent Forecast at which time such Subsequent Forecast shall become a firm order; provided, however, that if SOVEREIGN is not able to commit to supply the forecasted amount in such Subsequent Forecast, it shall inform ARISTOS of the amount it can supply and the Parties shall meet and discuss the discrepancy. (c) Forecasts (both the Initial Forecast and Subsequent Forecasts) and Purchase Orders shall be in full Standard Manufacturing Batches. (1) If a particular strength of Product is sold in SKU' s of varying bottle sizes, then the composite of the forecasted SKUs with respect to such strength of Product must equate to a Standard Manufacturing Batch. (2) If a generically equivalent product to a Product launches, the Forecast will be adjusted within thirty (30) days of notification of the generically equivalent product' s launch. (d) All Product batches shall be made to order. ARISTOS will provide firm Purchase Orders at least twelve (12) weeks prior to the expected delivery date. (e) SOVEREIGN will use reasonable efforts to maintain adequate active pharmaceutical ingredient and other components to meet the requirements of the forecast provided by ARISTOS.


2.3 Orders . Each purchase order or any acknowledgment thereof, whether printed, stamped, typed or written, shall be governed by the terms of this Agreement and none of the provisions of such purchase order or acknowledgment shall be applicable, except those specifying quantity ordered and required delivery dates which shall be as specified in the relevant Initial Forecast or the Subsequent Forecast, as the case may be (each, a " Purchase Order" ). 2.4 Delivery : Risk of Loss. (a) SOVEREIGN shall complete the Initial Commercial Delivery on or before dates as set forth in Exhibit H. (b) SOVEREIGN shall complete all other deliveries of Product hereunder in accordance with the terms as set forth in 2.2(d). (c) Shipment of Product shall be to the ARISTOS location designated in the Purchase Order and shall be FOB ARISTOS PHARMACEUTICALS, INC.' s distribution center in Memphis, TN or such other site as ARISTOS may designate during the Term. (d) Title and risk of loss to Product supplied hereunder shall pass to ARISTOS upon delivery of the Product to the designated carrier at the SOVEREIGN' S warehouse specified in Section 2.6(c). 2.5 Inventory . Upon the expiration or termination of this Agreement: (a) ARISTOS may elect to submit a Purchase Order for and if so submitted, SOVEREIGN shall sell to ARISTOS, in accordance with all Regulatory Requirements, the amount of Product in the current Subsequent Forecast or Subsequent Forecast for next calendar quarter for which ARISTOS has not already placed a Purchase Order. (b) SOVEREIGN agrees that, notwithstanding the expiration or termination of this Agreement, ARISTOS may continue to sell Product in its inventory, including Product purchased under this Section 2.5, until such inventory is exhausted. (c) This Section 2.5 shall survive expiration or termination of this Agreement. 2.6 Shipment: Payment Terms . (a) SOVEREIGN shall invoice ARISTOS, upon shipment for the Purchase Pricecorresponding to the quantities and types of Product delivered pursuant to the applicable Purchase Order consistent with the terms of this agreement. (b) ARISTOS shall make payment in U.S. dollars net ninety (90) days following receipt of each invoice unless a longer period is agreed between ARISTOS PHARMACEUTICALS, INC. and SOVEREIGN.


(c) SOVEREIGN' S designated warehouse is located in Fort Worth, TX. (d) The Purchase Price set forth in Exhibit B shall be applicable throughout the Term. 2.7 Non-Availability of Product . (a) At Fault. In the event that SOVEREIGN fails to deliver batch quantities of Product consistent with the Initial Forecast or any Subsequent Forecast and such delivery failures result in stock outages through fault of SOVEREIGN that result in penalties from Distributors, SOVEREIGN will reimburse all fines associated with said penalties to ARISTOS. (b) No Fault. In the event that SOVEREIGN fails to deliver batch quantities of Product consistent with the Initial Forecast or any Subsequent Forecast and such delivery failures result in stock outages through no fault of SOVEREIGN that are not resolved through good faith discussions, then ARISTOS may elect to purchase Product from Third Parties for the period that SOVEREIGN is unable to deliver Product hereunder. 2.8 Reports . On the thirtieth (30th) day of each calendar month, ARISTOS shall provide to SOVEREIGN a report setting forth, by SKU, the number of Units sold and the gross sales dollars for the previous calendar month. If the market price for Product listed on Exhibit D decrease(s) by more than ten percent (10%), ARISTOS shall so notify SOVEREIGN within seven (7) Business Days of ARISTOS' s receipt of such information. 2.9 Payment to SOVEREIGN . ARISTOS shall within ninety (90) days after the end of each calendar month: (a) provide SOVEREIGN with a written statement detailing the computation of the Net Profit Share for each Product for such month, and (b) pay to SOVEREIGN such Net Profit Share. See Exhibit A. 2.10 SOVEREIGN' S Audit Rights . ARISTOS shall maintain and shall require its Affiliates to maintain, at their respective offices, accurate and complete books and records relating to the Products in such form and in such reasonable detail as to enable SOVEREIGN and its Affiliates to verify such information. Upon the written request of SOVEREIGN, but not more than once each Contract Year, ARISTOS shall permit an independent certified public accounting firm or consultants to have access during normal business hours to such of the records of ARISTOS as shall be necessary to verify the accuracy of ARISTOS' s payments to SOVEREIGN. If such accounting firm or consultant concludes that there are discrepancies in the reporting or calculation of the Product sales such accounting firm shall recalculate such amounts and (a) ARISTOS shall pay any additional sums underpaid to SOVEREIGN within thirty (30) calendar days of such redetermination; or (b) SOVEREIGN shall credit ARISTOS for any overpaid amounts. The fees and expenses charged by such accounting firm shall be paid by SOVEREIGN.


Article 3 - Warranties, Covenants and Indemnification 3.0 By SOVEREIGN . SOVEREIGN hereby represents, warrants and covenants to ARISTOS that: (a) all of the Product supplied and delivered by SOVEREIGN to ARISTOS under and pursuant to this Agreement shall: (1) conform in all respects to the Product Specifications; (2) comply with all of the requirements under the Act and any Regulatory Requirements (3) at the time of delivery, not be (A) adulterated or misbranded within the meaning of the Act, or (B) be an article which may not, under the provisions of the Act, be introduced into interstate commerce; (4) be free from all liens, encumbrances and defects in title other than those that arise directly as a result of actions taken by ARISTOS; (5) not, to its knowledge, infringe any patents, trademarks or copyrights or misappropriate any trade secrets of any Third Party in the Territory; (b) it shall not, directly or indirectly, during the Term and for so long as ARISTOS' s rights are exclusive, Market other than through ARISTOS; (c) it will, on or before May 1, 2008, exclusively own all the right, title and interest in any intellectual property associated with the Product in Exhibit D (d) it has the exclusive right to purchase Product from SOVEREIGN; (f) it has the right to have ARISTOS order Product directly from SOVEREIGN; (g) that SOVEREIGN will fill ARISTOS' s orders for Product at the Purchase Price; (h) has the right to license the rights set forth in (d), (e) and (f) to ARISTOS; and (i) it will, in carrying out the terms of this Agreement, act in a reasonable commercial manner. 3.1 By ARISTOS . ARISTOS hereby represents, warrants and covenants to SOVEREIGN that: (a) the Marketing shall comply with all of the requirements under the Act and any Regulatory Requirements; (b) it will n
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