EX-10.4 Development, License and Supply Agreement



 





Exhibit 10.4





The confidential portions of this exhibit have been filed separately with the Securities and
Exchange Commission pursuant to a confidential treatment request in accordance with Rule
24b-2 of the Securities and Exchange Act of 1934, as amended. REDACTED PORTIONS OF THIS
EXHIBIT ARE MARKED BY AN ***.



DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT




by and between




BANNER PHARMACAPS INC.,
a Delaware

Corporation




and




JDS PHARMACEUTICALS, LLC,
a Delaware Limited

Liability Company




dated




April 26, 2007





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TABLE OF CONTENTS






Page




	 	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	Article 1.

	 	Definitions and Construction Principles
	 	 	3	 
	 
	 	 	 	 	 	 
	Article 2.

	 	Registration; Regulatory Matters; Product Development;
Milestone Payments
	 	 	7	 
	 
	 	 	 	 	 	 
	Article 3.

	 	Purchase/Supply of Product(s); Exclusivity;
Non-Competition
	 	 	13	 
	 
	 	 	 	 	 	 
	Article 4.

	 	Terms of Purchase of Product(s) from Banner
	 	 	17	 
	 
	 	 	 	 	 	 
	Article 5.

	 	Supply of Ingredients, Finishing, and Packaging
	 	 	22	 
	 
	 	 	 	 	 	 
	Article 6.

	 	Performance Standards
	 	 	23	 
	 
	 	 	 	 	 	 
	Article 7.

	 	Product(s) Complaints; Recalls; Withdrawals
	 	 	24	 
	 
	 	 	 	 	 	 
	Article 8.

	 	Product(s) Marketing and Sales
	 	 	28	 
	 
	 	 	 	 	 	 
	Article 9.

	 	Term and Termination
	 	 	29	 
	 
	 	 	 	 	 	 
	Article 10.

	 	Treatment of Confidential Information
	 	 	32	 
	 
	 	 	 	 	 	 
	Article 11.

	 	Indemnities; Insurance
	 	 	32	 
	 
	 	 	 	 	 	 
	Article 12.

	 	Intellectual Property
	 	 	34	 
	 
	 	 	 	 	 	 
	Article 13.

	 	Miscellaneous
	 	 	40	 
	 
	 	 	 	 	 	 
	Appendix A.

	 	Active Ingredient, Product(s), Specifications
	 	 	 	 
	 
	 	 	 	 	 	 
	Appendix B.

	 	Agreement Indications
	 	 	 	 
	 
	 	 	 	 	 	 
	Appendix C.

	 	Shipping Instructions
	 	 	 	 
	 
	 	 	 	 	 	 
	Sch. 3.4

	 	Non-Competition
	 	 	 	 
	 
	 	 	 	 	 	 
	Sch. 12.1.

	 	Banner Intellectual Property
	 	 	 1	 







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THIS DEVELOPMENT, LICENSE AND SUPPLY AGREEMENT (“Agreement”) is entered into as of the
26th day of April, 2007 (the “Commencement Date”), by and between BANNER PHARMACAPS INC.
(“Banner”), a Delaware corporation, having an office at 4125 Premier Drive, High Point, North
Carolina 27265, and JDS PHARMACEUTICALS, LLC, (“JDS”) a Delaware Limited Liability Company, having
an office at The Chrysler Building, 405 Lexington Avenue, 59th Floor, New York, New York 10174.




RECITALS



a. Banner possesses expertise in the manufacture of pharmaceutical Product(s) in softgel and other
dosage forms. Banner has filed (or intends to file) an NDA(s) for FDA approval to market and sell
the Product(s) (as such capitalized terms are defined below).



b. JDS possesses expertise in the marketing and sales of pharmaceuticals and desires to obtain the
rights to market and sell the Product(s) consistent with the NDA(s) filed by Banner and to have
Banner supply the Product(s) in accordance with the terms of this Agreement.



c. Both parties desire this Agreement to set forth the terms and conditions pursuant to which
Banner will supply for sale to JDS, and JDS will purchase from Banner and market the Product(s) in
the Territory based on Banner’s NDA(s).



NOW, THEREFORE, in consideration of the premises and the mutual promises hereinafter set forth,
the parties agree as follows:



Article 1. Definitions and Construction Principles.



1.1 Definitions. The terms defined in this Section 1.1 shall for all purposes of this
Agreement have the meanings specified in this Section 1.1. These definitions are applicable in the
possessive, singular and plural forms.



“Act” shall mean the United States Food, Drug and Cosmetic Act and its associated regulations, all
as amended from time to time.



“Active Ingredient” shall mean the active pharmaceutical ingredient listed in Appendix A attached
hereto.



“Adverse Event” shall mean any event associated with the Product(s), whether or not considered
drug-related, that could reasonably be expected to have an adverse impact on the Regulatory
Approval, safety, efficacy or marketability of the Product(s).



“Affiliate” shall mean any corporation, partnership, association, trust, or other business entity
or organization, directly or indirectly controlling, controlled by, or under common control with
such party. For purposes of this definition, “control” shall mean (a) in the





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case of corporate entities, direct or indirect ownership of more than fifty percent (50%) of
the stock or shares having the right to vote for the election of directors and (b) in the case of
non-corporate entities, direct or indirect ownership of at least fifty percent (50%) of the equity
interest with the power to direct the management and policies of such noncorporate entity.



“Agreement Indications” shall mean ***.



“Applicable Law” shall mean all applicable laws, rules, regulations and guidelines (including any
amendments, extensions or replacements thereto) of a Governmental Body, including, without
limitation, cGMPs and the Act.



“cGMPs” shall mean current Good Manufacturing Practices as further defined in regulations
promulgated by the FDA under the Act.



“CNS Physicians” shall mean ***.



“Commercially Available” shall mean (i) that all validation required by the FDA is completed as to
the applicable Product, and (ii) that Banner has made and is ready to deliver at least *** Unit
batches of each dosage strength listed on Appendix A for the applicable Product to JDS, for
shipment by JDS to its third party customers and/or for physician samples as determined and
allocated by JDS.



“Commencement Date” shall have the meaning assigned to it in the first paragraph of this Agreement.



“Direct Competitor” shall mean ***.



“Dispute” shall have the meaning assigned to it in Section 13.3.





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“FDA” shall mean the United States Food and Drug Administration and any of its successor
agencies or departments.



“First Commercial Sale” shall mean the date of the first sale of Product(s) on a Product by
Product basis by JDS to JDS’s third party customer.



“Generally Applicable Technology” shall mean technology used or useful to make Product(s) which is
owned or controlled by Banner and which has general application to the development, use or
manufacture of soft gelatin capsules and, as such, the technology is not predominately or
exclusively used or useful for Product(s).



“Governmental Body” shall mean any nation or government, any state, province, or other political
subdivision thereof, or any entity with legal authority to exercise executive, legislative,
judicial, regulatory, or administrative functions or pertaining to government in the Territory.



“Initial Term” shall have the meaning assigned to it in Section 9.1.



“Initial Valproic Acid EnteriCareTM Minimum Royalty Period” shall mean the period of time commencing
with the First Commercial Sale of the Valproic Acid EnteriCareTM Product and continuing for ***
following the occurrence of the First Commercial Sale of the Valproic Acid EnteriCareTM Product.



“Initial Valproic Acid VersatrolTM Minimum Royalty Period” shall mean the period of time commencing
with the First Commercial Sale of the Valproic Acid VersatrolTM Product and continuing for ***
following the occurrence of the First Commercial Sale of the Valproic Acid VersatrolTM Product.



“Intellectual Property” shall mean any patent, patent application, trademark, service mark, trade
name, trade dress, copyright, trade secret, proprietary know-how, discovery, development or
invention, whether or not patentable.



“Latent Defect” shall mean any instance where Product fails to conform to the applicable
Specifications, and such failure would not be discoverable upon visual inspection of such Product
by JDS. For the purposes of this Agreement, “visual inspection” shall mean: (a) comparing the
applicable Purchase Order against documentation accompanying the shipment to verify that the
delivery date, identity, quantity and exterior shipment labeling comply with the Purchase Order,
and (b) visually inspecting the exterior of the shipment of Products to verify that the shipment
appears to be in good condition.



“Minimum Royalty Payment(s)” shall mean the sum(s) payable by JDS to Banner in accordance with
Section 3.3.



“NDA” shall mean a duly prepared New Drug Application filed with the FDA for the purpose of
obtaining Regulatory Approval to market the Product(s) in the Territory.




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“Net Sales Revenue” shall mean gross revenue invoiced by JDS for sales of the Product(s) to
unrelated third parties reduced by (a) reasonable customer discounts, and (b) amounts repaid or
credited, returns, chargebacks, rebates (including government mandated rebates) and allowances
given in the ordinary course of business (including amounts refunded or credited for Product that
was rejected, spoiled, damaged, outdated or returned). JDS shall determine Net Sales Revenue in
accordance with generally accepted accounting principles.



“Nonconformity” means a Product(s) characteristic that causes any Product(s) to fail to conform to
the Specifications.



“Opt Out Right” shall mean ***



“Packaged Product” shall mean quantities of Product(s) packaged in retail size containers or as
physician samples, as the case may be, and not intended for repackaging or re-labeling under the
Act.



“Product(s)” shall mean either the Valproic Acid EnteriCareTM Product or the Valproic Acid
VersatrolTM Product, or both of them, in Packaged Product form, which are intended for resale for
the Agreement Indications.



“Purchase Forecast” shall have the meaning assigned to it in Section 4.4.



“Purchase Order” shall have the meaning assigned to it in Section 4.4.



“Recall” shall mean removal of Product(s) from distribution or retail locations or from patients
ordered or directed by the FDA or other Governmental Body.



“Regulatory Approval” shall mean the approval by the FDA necessary and effective for the commercial
manufacture, distribution, marketing, promotion, offer of sale, sale and use of the Product(s) in
the Territory including, without limitation, the approval of the NDA, but not including pricing and
third party reimbursement approvals.



“Royalty Payment” shall mean a royalty payment made by JDS to Banner under Section 4.1 (e) of this
Agreement.



“Section 2.3(b) Notice” shall have the meaning set forth in Section 2.3(b).



“Shipping Instructions” shall have the meaning set forth in Section 7.2(e).



“Specifications” shall mean those specifications, tests and associated values contained in the
NDA, as approved by the FDA, for the composition and manufacture of the Product(s) including the
imprinting and packaging thereof.





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“Term” shall mean the periods of time measured separately with respect to the Valproic Acid
VersatrolTM Product and to the Valproic Acid EnteriCareTM Product as defined in Section 9.1.



“Territory” shall mean the United States of America and its territories and possessions, including
without limitation, Puerto Rico.



“Withdrawal” shall mean a voluntary withdrawal of Product(s) from distribution or retail locations
or from patients by the manufacturer or distributor not requested by the FDA or other Governmental
Body.



“Unit” shall mean each soft gelatin capsule of Product(s) with specifications and characteristics
set forth in Section 6.1.



“Valproic Acid EnteriCareTM Product” shall mean enteric release soft gelatin capsules containing
the Active Ingredient in the dosage strengths and dosage forms for the Valproic Acid EnteriCareTM
Product described in Appendix A attached hereto and made using Banner’s EnteriCareTM technology.



“Valproic Acid VersatrolTM Product” shall mean extended release soft gelatin capsules containing
the Active Ingredient in the dosage strengths and dosage forms for the Valproic Acid VersatrolTM
Product described in Appendix A attached hereto and made using Banner’s VersatrolTM technology.



1.2 Construction Principles. As used in this Agreement:



(a) references to Sections shall mean sections of this Agreement, unless otherwise expressly
indicated;



(b) references to days, weeks, months, quarters, and years shall be references to calendar days,
weeks, months, quarters, and years, unless otherwise stated in this Agreement, for example, in
Section 3.3(a);



(c) all sums of money are in United States Dollars.




Article 2. Registration; Regulatory Matters; Product Development; Milestone Payments.




2.1 Regulatory Matters.





	 	(a)	 	Responsibility for Regulatory Submissions.
	 
	 	 	 	(i) Banner shall be responsible for interacting with the FDA and shall diligently
act to complete any requirements for obtaining Regulatory Approval of the
Product(s). Banner may discharge its responsibility under this Section 2.1(a)(i)
directly or through a third party. Banner shall consult




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	 	 	 	with JDS prior to selection of any such third party, Banner shall be
responsible to maintain all Regulatory Approvals or other FDA-filings or
applications for Regulatory Approval as long as required for use in connection with
either party’s activities under this Agreement.
	 
	 	 	 	(ii) JDS shall be responsible, with Banner’s full cooperation, to prepare FDA
approvable label copy, proposed samples of packaging and artwork for Products, and
shall use reasonable commercial efforts to provide such label copy and artwork to
Banner in sufficient time to prevent any delay in obtaining Regulatory Approval due
to the label copy, proposed samples of packaging or artwork; provided however, that
in the case of the Valproic Acid EnteriCareTM Product, such proposed label copy and
artwork (but not samples of packaging) shall be provided by JDS to Banner no later
than ***. All such JDS label copy and final packaging specifications shall be
subject to Banner’s prior approval to the extent it contains information subject to
Regulatory Approval.
	 
	 	 	 	(iii) Upon request by Banner, JDS shall cooperate with Banner in, and shall provide
Banner with, all other information with respect to JDS or its activities hereunder
reasonably necessary for filing in connection with obtaining or maintaining the
Regulatory Approval of the Product(s) and/or in responding to any questions or
requests for additional information by the FDA.
	 
	 	(b)	 	NDA Ownership. Banner owns the rights to and shall retain all Regulatory
Approvals and all applications for Regulatory Approval (including, without limitation, any
NDA and any other registration or FDA-filed dossier) for the Product(s).
	 
	 	(c)	 	Costs and Expenses of Registration Activities and Maintaining Regulatory
Approval. Banner shall be responsible for and timely make payment for the costs and
expenses related to the maintenance, preparation and filing of NDA or other documents
necessary to obtain and/or maintain the Regulatory Approval of the Product(s). JDS shall be
responsible for and timely make payment of all costs and expenses related to the
development and preparation of the label copy, samples of packaging and artwork for the
Product(s).
	 
	 	(d)	 	Extraordinary Regulatory Events. ***




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***





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***




     2.2 Milestone Payments to Banner. In consideration of Banner’s regulatory and development
services related to the Product(s), JDS shall make milestone payments to Banner in immediately
available funds payable to an account specified by Banner, which when paid shall be nonrefundable.
Milestone payments payable by JDS to Banner are as follows:




(a) $1,900,000.00 (one million nine hundred thousand dollars) shall be due and payable
immediately upon execution and delivery of this Agreement by both parties.




(b) $1,500,000.00 (one million five hundred thousand dollars) shall be due and payable ***.




(c) $500,000.00 (five hundred thousand dollars) shall be due and payable ***.




(d) $1,000,000.00 (one million dollars) shall be due and payable ***.




(e) Subject to *** $3,000,000.00 (three million dollars) ***




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***





	2.3	 	Product Developments.
	 
	 	 	(a) Dosage Strengths. From time to time during the Term, Banner and JDS may agree to
develop dosage strengths of Products for the Agreement Indications in addition to the dosage
strengths listed on Appendix A attached hereto. Upon agreement to develop such dosage
strengths, (i) Banner and JDS shall negotiate in good faith and enter into a development
agreement specifying, among other things, defined timelines and an established budget
pursuant to which JDS shall reimburse Banner for all costs of developing such mutually
agreed to additional dosage strengths, including without limitation, actual direct out of
pocket costs, Banner’s internal research and development costs determined in an established
project accounting system at standard hourly rates, and the costs to obtain Regulatory
Approval to market the additional strengths in the Territory. Banner shall invoice JDS for
such costs for developing the additional dosage strengths and JDS shall pay such invoices
within thirty (30) days from the date of the invoice received, and (ii) Appendix A attached
hereto shall be amended to include such additional dosage strengths so that the terms and
conditions of this Agreement shall then be applicable to the additional dosage strengths so
added. If in developing the additional dosage strengths, Banner develops, discovers or
creates patentable Intellectual Property that provides a commercial advantage for Product(s)
over the then existing technology used to make, use or sell Product(s), and the parties
agree that it is commercially advantageous for Banner to implement such Intellectual
Property to develop, make, use or sell the Product(s) in new dosage strengths, the parties
shall negotiate in good faith appropriate fair compensation to Banner for the added
commercial value of such new Banner Intellectual Property (e.g., by upfront milestone fees
and/or additional royalties on sales of the new Product dosage strengths). The determination
of such fair compensation to Banner will take into consideration, among other things, the
amount of funds already expended and to be expended by JDS in developing the Product(s) in
additional dosage strengths, the contribution of JDS to the development of the product
concept, and the financial return likely to be earned from the proposed




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	 	 	commercialization of the Product(s) in new dosage strengths. However, if the parties
cannot agree to the appropriate fair compensation to Banner for the added commercial value
of such new Intellectual Property for the new Product dosage strengths, Appendix A shall
not be amended to include such new dosage strengths and such new dosage strengths shall not
be included in the Product(s) covered by this Agreement.
	 	 	(b) Additional Indications. ***
	 
	 	 	(c) Dosage Forms. If during the Term, Banner decides to develop additional dosage
forms of Valproic Acid or its salts for the Agreement Indications (i.e., dosage forms other
than soft gelatin capsules and enrobed tablets), then Banner shall notify JDS of its
decision in writing and shall provide information as reasonably requested by JDS with
respect to such development projects from time to time. ***






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***




Article 3. Purchase/Supply of Product(s); Exclusivity; Non-Competition.



3.1 Banner’s Supply Commitments. Banner shall manufacture, imprint and supply Product(s)
to JDS pursuant to JDS’s Purchase Orders (submitted by JDS pursuant to the terms and conditions of
this Agreement) and in accordance with the Regulatory Approval, the Specifications and in
compliance with Applicable Law.



3.2 JDS’s Commitment.





(a) Exclusive Purchases. JDS shall, during the Term, purchase exclusively from
Banner all of JDS’s requirements of the Product(s) for distribution and sale in the
Territory in accordance with the terms and conditions of this Agreement.




(b) Efforts. JDS shall use reasonable commercial efforts (i) to achieve the First
Commercial Sale of each Product within *** after the Regulatory Approval for that Product
provided that such Product is Commercially Available; and (ii) to thereafter legally
maximize JDS’s sales volume of that Product throughout the Territory. Notwithstanding the
foregoing, JDS shall have no obligation to achieve the First Commercial Sale of a Product
on or before ***, unless an earlier launch date is agreed to in writing by the parties.




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	3.3	 	Exclusivity.
	 
	 	 	(a) Definition. As used in this Section 3.3, “year” means each period of twelve
(12) full consecutive calendar months during the Term, with the first “year” beginning on
the First Commercial Sale of each Product and ending at the end of the twelfth full
calendar month after the First Commercial Sale of such Product.
	 
	 	 	(b) Minimum Royalty Payments. JDS shall have the exclusive right to sell the
Products in the Territory, provided that JDS pays Banner at least the Minimum Royalty
Payment each year for each Product.






	 	 	 	(i) Product Contributions to Minimum Royalty Payment. The respective dollar
contribution of each Product to the Minimum Royalty Payment shall be calculated as
follows:
	 
	 	 	 	***






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	 	 	 	*** 
	 	 	 	(ii) Carryover Contributions. If in any year the Royalty Payments actually
paid by JDS to Banner exceed the Minimum Royalty Payment required for that year,
the excess amount shall be credited in the immediately following year solely to the
extent needed to allow JDS to achieve the Minimum Royalty Payment.
	 
	 	 	 	(iii) Minimum Royalty Payment Abatement. If for reasons directly
attributable to Banner’s actions or failure to act, or to Force Majeure, JDS cannot
fulfill JDS’s customer orders for Product(s) and, as a consequence, JDS’s Net Sales
Revenue is reduced, and not merely delayed, then JDS may reduce the Minimum Royalty
Payment due to Banner for the applicable year by an amount proportionate to the
amount that JDS’s Net Sales Revenue was reduced in such year because of Banner’s
actions or failure to act, or because of Force Majeure.






(c) Termination of Exclusivity. Banner shall have the right, in its sole
discretion, upon thirty (30) days prior written notice to JDS, to terminate JDS’s exclusive
right to sell the Product(s) in the Territory, on a Product by Product basis, and
thereafter shall have the right to offer coextensive rights to one or more third parties if
both of the following conditions exist during the same year: ***




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	 	 	*** Should Banner terminate JDS’s exclusive right to sell one or more Product(s) in
the Territory under this Section 3.3(c) then the non-competition restrictions imposed on
Banner under Section 3.4 shall also terminate with respect to such Product(s).
	 
	3.4	 	Non-Competition.
	 
	 	 	(a) Subject to Section 3.3(c), with the exception of soft gelatin capsules containing as an
active ingredient Valproic Acid, salts thereof or oligomers thereof that Banner supplies to
third parties in the Territory as of the Commencement Date pursuant to written agreements
as of the Commencement Date, which third parties and agreements are listed on Schedule 3.4
attached hereto (the “Exception”), Banner shall not, directly or indirectly, either itself
or through a third party, supply for sale, market or otherwise commercialize in the
Territory any Valproic Acid, salt thereof or oligomer thereof, in each case, in the form of
a soft gelatin capsule, hard gelatin capsule or tablet product that possesses FDA marketing
approval for any Agreement Indication. For the avoidance of doubt, the Exception shall be
limited to the specific products that Banner is supplying in the Territory to the scheduled
third parties, or their successors, pursuant to the scheduled written agreements as of the
Commencement Date.
	 
	 	 	(b) Other than the Products supplied by Banner under this Agreement, JDS shall not,
directly or indirectly, either itself or through a third party, offer for sale, market or
otherwise commercialize in the Territory any Valproic Acid, salt thereof or oligomer
thereof, in each case, in the form of a soft gelatin capsule, hard gelatin capsule or
tablet product that possesses FDA marketing approval for the Agreement Indications.
	 
	 	 	(c) Banner shall be free to sell the Products and any other Valproic Acid product,
including salts thereof and oligomers thereof in any dosage form, any dosage strength and
for any indication, to one or more third parties for resale or distribution outside the
Territory without restriction except as follows:
	 
	 	 	***






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     ***



Article 4. Terms of Purchase of Product(s) from Banner.





	4.1	 	Pricing; Royalties.
	 
	 	 	(a) The price as of the Commencement Date for Valproic Acid EnteriCareTM

Products in Packaged Product form shall be:
	 
	 	 	***
	 
	 	 	(b) The price for Valproic Acid VersatrolTM Products in Packaged Product form shall be
determined according to Banner’s standard cost systems in accordance with generally
accepted accounting principles and shall be consistent with Banner’s determination of the
Valproic Acid EnteriCareTM Product price in Packaged Product form charged by Banner to JDS.
Banner shall provide JDS with summary documentation to support such price determination,
including, without limitation, to the extent that the pricing of Valproic Acid




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	 	 	VersatrolTM Product is greater than the pricing of Valproic Acid EnteriCareTM Product,
the components and the costs associated with such components that caused such increase in
pricing. The price for Valproic Acid VersatrolTM Product shall be fixed only after the
formulation for the Valproic Acid VersatrolTM Product is finalized and scale up to full
batch size is completed.
	 
	 	 	(c) At JDS’s option, up to ***
	 
	 	 	(d) Pricing provided under this Section 4.1 is based on a minimum production lot size of
*** Units. Should JDS require smaller or larger size lots, pricing shall be negotiated in
good faith and pricing adjusted accordingly.
	 
	 	 	(e) In addition to the Product(s) price set forth above, JDS shall make Royalty Payments to
Banner as follows:
	 
	 	 	***




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	 	 	***
	 
	 	 	(f) JDS shall make Royalty Payments quarterly. Accrued but unpaid Royalty Payments shall be
paid within thirty (30) days after the end of each quarter, in the same manner as invoice
payments under Section 4.3. With each Royalty Payment, JDS shall provide to Banner a
summary statement of Net Sales Revenue for the applicable quarter.
	 
	 	 	(g) If there is a delay in achieving the First Commercial Sale of Valproic Acid EnteriCareTM
Product so that it does not occur before *** and this delay is due to circumstances beyond
JDS’s reasonable control including delay in obtaining Regulatory Approval not attributable
to JDS and Force Majeure, then the Royalty Payment set forth in Section 4.1(e)(i) shall
commence on the date of the First Commercial Sale of the Valproic Acid EnteriCareTM Product
and shall end *** thereafter, and the beginning of each new Royalty Payment set forth in
Sections 4.1(ii), (iii) and (iv) shall be extended and commence accordingly.
	 
	 	 	(h) Upon request of JDS, the parties shall discuss in good faith terms and conditions under
which JDS could buy out its obligation to make Royalty Payments under this Agreement,
however, neither party is bound to agree to or accept any such term or condition.




4.2 Price Adjustments. Banner shall be entitled to increase the labor and overhead
component of the price of the Product(s) annually at a percentage rate equal to the change in the
United States Department of Labor’s Bureau of Labor Statistics’ Producer Price Index for
Pharmaceutical Preparations from the previous year, provided however, that in the event Banner
determines that an extraordinary labor condition exists that has caused or will cause Banner’s
labor and overhead costs to increase at a rate exceeding the annual adjustment, Banner shall
provide JDS with reasonably detailed documentation of the actual or projected increased labor and
overhead costs and the parties shall negotiate in good faith appropriate price increases to
compensate Banner for the extraordinary labor condition on a going forward basis. In addition, no
more than once per calendar quarter, Banner shall decrease or increase the price of Products to
reflect decreased or increased raw materials costs for new Purchase Orders if the aggregate
decrease or increase in raw materials costs is at least five percent (5%) of the raw materials cost
at the Commencement Date or at the date the last price decrease or increase due to raw materials
costs was implemented, whichever is later. The benefits of decreases in raw material prices shall
be shared by the parties equally so that price decreases implemented by Banner shall not exceed an
amount greater that *** of the subject aggregate raw material price decrease. Banner shall provide
JDS with sixty (60) days written notice of any price increase or decrease under this Section 4.2.
If requested, Banner shall provide JDS with reasonable written evidence of raw material cost
increases and decreases, and with the calculation of any extraordinary increase in labor and
overhead costs.





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4.3 Payment Terms. Banner shall invoice JDS upon each shipment of Product(s), and JDS
shall pay such invoices within *** from the date of such invoice. Banner shall deliver to JDS
correct and complete invoices at, or promptly after, the date Product(s) ship to JDS. Payment
shall be in U.S. dollars and paid to an account designated by Banner in writing. All amounts
payable by JDS to Banner under this Agreement shall, if delinquent, accrue interest at one (1%)
percent per month from the date of the delinquency.





	4.4	 	Purchase Forecasts.
	 
	 	 	(a) JDS shall submit to Banner a forecast of the quantity of Product(s) that JDS
anticipates ordering from Banner for the first twelve (12) months of the Term (the
“Purchase Forecast”). JDS’s initial Purchase Forecast shall be due at a date agreed to by
the parties which date shall be a reasonable period in advance of the anticipated date of
the Regulatory Approval. JDS shall update this Purchase Forecast on or before the tenth
(10th) day of every calendar month, thereby creating a 12-month rolling
forecast. The first four (4) months of such forecast shall be a binding purchase commitment
and the remaining eight (8) months shall be non-binding. Banner shall use commercially
reasonable efforts, but is not obligated, to supply any monthly forecast that exceeds one
hundred and twenty percent (120%) of the quantity previously forecast for that month.
	 
	 	 	(b) At least six (6) months prior to the anticipated date of Regulatory Approval of a
Product, Banner and JDS shall cooperate to determine the details of the first Purchase
Forecast, including without limitation, the launch quantities of such Product, the Product
mix (e.g., dosage strengths) and the desirable mix of Product quantities as physicians
samples and as retail size containers. As promptly as practicable following the delivery to
Banner of the first Purchase Forecast JDS shall provide Banner with binding firm orders
(each a “Purchase Order”) for the first four (4) months of the Purchase Forecast. The
Purchase Orders shall meet the requirements for Purchase Orders set forth in Section 4.5.
	 
	4.5	 	Purchase Orders.
	 
	 	 	(a) Each month within two (2) weeks after submission of the Purchase Forecast for that
month, JDS shall provide Banner with Purchase Orders for the fourth month (i.e., the month
newly added to the binding purchase commitment under Section 4.4). The Purchase Order shall
specify: the specific Product(s) being ordered, the proposed shipment date to JDS, the
quantities of Product(s) ordered (which total monthly volume for the order period shall be
no less than the applicable binding portion of the Purchase Forecast as provided in Section
4.4), and the requested place and manner of delivery, including any carrier designated for
use by JDS. If JDS does not designate a carrier, then Banner shall select the carrier. In no
event shall Banner be obligated to accept any Purchase Order for less than the minimum batch
size of ***




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	 	 	***. Banner shall be provided a minimum lead-time for delivery of *** on Purchase
Orders. Within five (5) business days after receipt of a Purchase Order, Banner shall
notify JDS of its acceptance of such Purchase Order as a binding order or shall indicate
what portion of the amounts covered by the Purchase Order Banner is willing to accept as a
binding order. Such confirmation shall also confirm the proposed shipment date or specify a
reasonable alternate shipment date. Both parties shall make reasonable good faith efforts
to adjust order requirements to reflect market conditions, except that change requests may
not be made within *** from the scheduled ship date of the subject Product(s) without
Banner’s written approval not to be unreasonably withheld.
	 
	 	 	(b) Banner’s acceptance of any Purchase Order is limited to the terms and conditions stated
in this Agreement. All terms and conditions proposed by JDS in any Purchase Order or
otherwise which are different from or in addition to this Agreement are expressly rejected.
No purported oral or verbal agreement or other understanding which attempts in any way to
modify the conditions stated herein will be binding, unless both parties agree to the
modification, in advance and in writing.
	 
	 	 	(c) If Banner (i) is unable to fulfill JDS Purchase Orders for Product or (ii) becomes aware
of any circumstances (including Force Majeure) that will cause Banner to become unable to
fulfill JDS Purchase Orders, in each case, for any continuous sixty (60) day period, Banner
shall give JDS prompt written notice, describing such circumstances together with a proposed
course of action to remedy such failure, which may include supplying Product from a second
source (including without limitation a Banner Affiliate) qualified to provide Product under
the Regulatory Approval. In the event Banner cannot fulfill JDS Purchase Orders from a
qualified second source, JDS may, in its discretion, cancel each affected Purchase Order
and/or meet the shortfall from any alternate source or sources selected by JDS in its sole
discretion. Any procurement by JDS from such alternative sources shall be limited to the
extent of the material shortfall by Banner and such procurement shall cease as soon as
Banner is able to resume normal supplies, subject to depletion of any inventory on hand that
was purchased or is to be delivered pursuant to binding contractual commitments to purchase
from the alternate source or sources. In meeting its requirements under this Section 4.5(c),
JDS shall not enter into any long term supply commitments with any third party source. The
Net Sales Revenue from the product that JDS purchases from a source other than Banner under
the terms of this Agreement shall be included in Net Sales Revenue.
	 
	 	 	(d) If Banner orders a specific raw material ingredient for a Product(s) and the raw
material is delayed or fails to meet Banner’s acceptance criteria, through no act or
omission by Banner, then for all purposes of this Agreement, Banner’s shipment timetable
shall be extended by the period of such delay, or in the case of unacceptable material to
allow Banner adequate time to obtain an acceptable




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	 	 	replacement material, but if the delay exceeds sixty (60) days then the provisions of
Section 4.5(c) shall apply.
	4.6	 	Shipment.
	 
	 	 	(a) With respect to Products: (i) Banner or it’s third party finish packager will ship each
order of Product(s) Ex Works the packaging facility, (ii) Banner shall package the
Product(s), or arrange to have the Product(s) packaged, for shipment in accordance with
customary practices in the trade and shall arrange for shipment to the location designated
by JDS, and (iii) freight and insurance shall be for the account of JDS, and JDS shall bear
the risk of loss, delay or damage in transit from and after delivery by Banner or such
third party finish packager to the carrier for shipment to JDS.
	 
	 	 	(b) Any extra reasonable cost incurred by Banner on account of shipment changes requested
by JDS shall be reimbursed by JDS.
	 
	 	 	(c) Banner shall include the following with each shipment of the Product(s): (i) the
Purchase Order number; (ii) the lot number; (iii) the quantity of the Product(s); and (i) a
certificate of analysis as required by Section 6.2 hereof.





Article 5. Supply of Ingredients, Finishing, and Packaging.



5.1 Product Ingredients. Banner shall supply the Active Ingredient and all other raw
materials as required for compounding, processing and imprinting the Product(s), and the
components for bulk packaging and bulk labeling, if applicable. Banner’s receipt, processing,
handling and storage of the Active Ingredient and all raw materials required hereunder shall be
conducted in accordance with Applicable Law. In the manufacture of Product(s), Banner shall not
use any materials that fail to meet the current standards for materials under Applicable Law,
where such standards are established and are applicable.



5.2 Finish Packaging. Banner shall supply, or arrange for the supply of, all finish
packaging components, including without limitation and if applicable, bottles, labels, outserts,
caps, blister and corrugated materials. Banner may finish package Product itself or arrange for
finish packaging by a third party. In the latter case, Banner hereby assumes the liabilities,
responsibilities and obligations pertaining to arranging for finish packaging of Product(s).
Banner shall, in its own discretion, select the third party finish packager after consultation
with JDS regarding the selection. Banner shall cause the finished packaging of the Product(s) to
be conducted in accordance with all Applicable Law. Banner shall not assume any obligation,
responsibility or liability of JDS with respect to the content, development or supply of label
copy, or artwork.







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Article 6. Performance Standards.



6.1 Specifications and Characteristics. Banner shall manufacture and provide to JDS
Product(s) in compliance with the Regulatory Approval, the Specifications and Applicable Law. The
Product(s) shall have a minimum shelf life of at least *** with respect to finished Product(s) and
at least *** with respect to physician samples, at the time of delivery to JDS (provided JDS takes
delivery in accordance with requested date of delivery on the applicable Purchase Order). After
Banner completes stability studies in accordance with Applicable Law which Banner undertakes to
complete within a reasonable period of time after the Commencement Date, Product(s) shall have a
minimum shelf life of at least *** at the time of delivery to JDS (provided JDS takes delivery in
accordance with requested date of delivery on the applicable Purchase Order).



6.2 Certificate of Analysis. Concurrent with shipment, Banner shall deliver to JDS a
certificate of analysis, in Banner’s customary form, for each lot of Product(s) sold to JDS,
confirming that the Product(s) meets the Specifications.



6.3 Product(s) Acceptance.





	 	 	(a) Within thirty (30) days of receipt of Product(s) by JDS, JDS or its designee shall
conduct a visual inspection of Product(s). Should the visual inspection indicate a deviation
from the Specifications, JDS shall promptly notify Banner in writing by facsimile. If after
conducting its own investigation of the samples within fourteen (14) calendar days, Banner
agrees that such samples do not conform to the Specifications, and unless Banner reasonably
determines that the Nonconformity is directly attributable to JDS’s or its agents’ shipping,
handling, distribution or storage of the nonconforming Products, Banner shall promptly
provide JDS, free of any additional charge, with new deliveries of the same quantity of the
Product(s) as the delivered shipment, or identifiable subset thereof, from which the sample
was taken, or, in Banner’s discretion and at its cost, and if appropriate under Applicable
Law, Banner may promptly reprocess the nonconforming Product(s) to meet the Specifications.
In either event (unless Banner reasonably determines that the Nonconformity is directly
attributable to JDS or its agents’ shipping, handling, distribution or storage of the
nonconforming Products), JDS shall return, at Banner’s expense, the particular lot, portion,
or shipment of the non-conforming Product(s) if requested to do so by Banner; provided that
if Banner elects to destroy such nonconforming Product(s), Banner shall arrange for such
destruction at its expense. If Banner reasonably determines that the Nonconformity is
directly attributable to JDS’s or its agent’s shipping, handling, distribution or storage of
the nonconforming Products, and JDS disagrees, the matter shall be submitted to an
independent testing laboratory pursuant to Section 6.3(c). Except as to Latent Defects, if
JDS fails to notify Banner of a non-conforming Product(s) by the thirty-fifth
(35th) day following JDS’s receipt of the Product(s), then JDS shall be deemed to
have accepted such Product(s).




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	 	 	(b) Promptly after either Banner or JDS become aware of a Latent Defect, it shall
notify the other of the batch involved, and at JDS’s election, the batch shall be
quarantined as of the date of such notice. If the parties agree that the Product(s) have
one or more Latent Defects, then if Banner is responsible for the Latent Defect Banner
shall refund all monies paid for that shipment of Product to JDS, and shall reimburse JDS
for its reasonable and customary actual out of pocket costs and expenses incurred in
accepting returns from its customers and shall be responsible for all actual out of pocket
costs reasonably incurred by JDS in recalling Product(s) that have Latent Defects,
including costs of destroying such Products as necessary. If it is determined that JDS is
responsible for the Latent Defect, then JDS shall pay Banner the purchase price for such
Product in accordance with the terms of this Agreement and shall be responsible for any and
all costs of recalling the Product(s), including costs of destroying such Products as
necessary and the cost of accepting returns. Banner shall replace each nonconforming
shipment of Product, or the nonconforming portion thereof, with conforming Product as soon
as reasonably practicable after receipt of notice of rejection thereof. If the parties do
not agree on whether Product(s) have Latent Defects, testing shall be performed in
accordance with Section 6.3(c).
	 
	 	 	(c) If Banner and JDS do not agree on whether the Product(s) conforms to the
Specifications, the matter will be submitted to an independent testing laboratory
acceptable to both parties for its review and determination. The parties will agree on an
inter-laboratory methods transfer process to be implemented at the laboratory to ensure
acceptable data from a scientific and regulatory (cGMP) basis. The determination of such
independent laboratory will be binding on both parties. The cost of the independent
laboratory shall be borne by the party whose testing results were in error. If the
Product(s) is determined not to conform to the Specifications, then Banner and JDS shall
have the obligations with respect to the non-conforming Product(s) set forth in Section
6.3(a) or 6.3(b) as applicable. If the Product(s) is determined to conform to the
Specifications, then JDS shall accept and pay for the Product(s) in accordance with the
terms of this Agreement.
	 
	 	 	(d) Subject to the indemnification obligations of Section 11.1, Banner’s obligations
including to reprocess or replace Product(s) in this Section 6.3 shall constitute JDS’s
sole remedy for non-conforming Product(s) and is not in addition to any other remedy.





Article 7. Product(s) Complaints; Recalls; Withdrawals.



7.1 Product(s) Complaints; Nonconformities; Adverse Events. Any and all confirmed
Product(s) complaints, Nonconformities, or Adverse Events of which either party becomes aware
relating to any Product(s) shall be promptly reported to the other party. JDS shall also forward
summary reports of complaints it receives from end-users to Banner on a monthly basis. JDS shall
report serious Adverse Events to Banner within


-24-









 






five (5) days of its knowledge of such serious Adverse Event. Notification of serious Adverse
Events shall be given by facsimile. Banner shall be responsible for completion and submission of
all required reports to applicable authorities with respect to Adverse Events in accordance with
Applicable Law.





	7.2	 	Investigations.
	 
	 	 	(a) General. The parties shall investigate all reports of Nonconformities,
Product(s) complaints and Adverse Events in order to assure the conformity of Product(s) to
Specifications and Applicable Law and the safety and efficacy of the Product(s). The
parties shall act promptly and shall cooperate fully in such investigations.
	 
	 	 	(b) Direction. Banner, as the holder of the NDA, shall have the responsibility and
sole right to control and direct any or all aspects of an investigation conducted under
this Section 7.2. Banner shall advise JDS from time to time throughout such investigation
of Banner’s intentions regarding control and direction of the investigation.
	 
	 	 	(c) Assistance. Upon written request, each party shall provide all reasonably
requested assistance and information to the other in connection with an investigation of
any Nonconformity, Product(s) complaint or Adverse Event. Each party shall have the right
to conduct at its own expense any further tests it deems appropriate regarding such
investigation provided that it shall share the results with the other.
	 
	 	 	(d) Reporting. Each party shall provide to the other (i) a preliminary written
report of its determinations and conclusions from any investigation conducted by it,
testing or other requested assistance related to such investigation as soon as reasonably
practicable, but in no event later than five (5) days after the completion of such
investigation, and (ii) preliminary samples (if available) of the affected Product(s). Any
final report regarding a Nonconformity, Product(s) complaint or Adverse Event shall be
submitted to the other party within thirty (30) days of a notification given by the other
party under Section 7.1. Upon request, Banner shall provide to JDS a written report of
Banner’s determinations and conclusions from any investigation, report, testing, or
portions thereof. Each party shall hold all communications related to such investigation,
testing or other requested assistance in confidence according to the provisions of Section
10. Banner shall be responsible for maintaining Adverse Event and complaint master files in
accordance with Applicable Law.
	 
	 	 	(e) Costs of Investigations and Reporting. Costs, if any, associated with
investigations, shall be borne by the party that is determined to be responsible for the
Nonconformity, Product(s) complaint or Adverse Event. If neither party is responsible, or
fault cannot be determined, then Banner shall bear such costs if JDS can demonstrate through
applicable records that the shipping, handling and




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	 	 	storage of the Products, after delivery to JDS or its agent, are in compliance with
Applicable Law and with Shipping Instructions; provided however, that if despite such
records, Banner can demonstrate that JDS or its agent is responsible for such
Nonconformity, Product(s) complaint or Adverse Event then JDS shall bear the costs
associated with the investigations. For purposes of this Agreement, “Shipping Instructions”
shall mean Banner’s written instructions for shipping, handling and storage of the
Products, a copy of which is attached hereto as Appendix C, as may be amended by Banner as
reasonably necessary and in accordance with customary industry practices for soft gelatin
capsules, upon prior written notice to JDS. The parties shall equally share the reasonable,
customary and required costs of (i) Adverse Event reporting, (ii) the maintenance of
Adverse Event records, and (iii) pharmacovigilance activities related to the Product(s).
	7.3	 	Certain Product(s) Events.
	 
	 	 	(a) Notification and Cooperation. In the event Banner, after consultation with JDS
on how best to proceed, initiates a Recall, Withdrawal or field correction, field alert
report or comparable report with respect to Product(s), whether or not such Recall,
Withdrawal, field correction or field alert report has been requested or ordered by any
Governmental Body, Banner shall notify JDS in writing, and Banner and JDS shall fully
cooperate with each other to implement the same.
	 
	 	 	(b) Coordination of Efforts. In the event either party becomes aware of information
that may warrant Banner taking any action with respect to Product(s), it shall immediately
provide the other with such information in writing. The parties shall cooperate with each
other in determining the necessity and nature of such action; provided, however, that JDS
shall take no action to effect the same without the written concurrence of Banner.
	 
	 	 	(c) Contacts and Statements. With respect to any Recall, Withdrawal, field
correction, field alert report or comparable report with respect to any Product(s), Banner
shall consult with JDS and Banner shall make all contacts with the applicable Governmental
Body and shall be responsible for coordinating all of the necessary activities in
connection with any such Recall, Withdrawal, field correction, field alert report or
comparable report. Banner and JDS shall meaningfully consult with each other with respect
to statements to the media made by JDS and/or Banner, including press releases and
interviews for publication or broadcast, but Banner as the NDA owner, acting reasonably and
in good faith, shall have the right of final approval of such media statements.




7.4 Retained Samples; Stability Studies; Product(s) Storage. Banner shall retain the Active
Ingredient raw material and samples, in each case, from each batch of Product(s) for a period of
one (1) year after the expiration date of such batch or such longer period required by Applicable
Law for record keeping, testing and regulatory purposes for each Product(s). When storing
Product(s), Nonconforming Product(s) or







-26-









 







Product(s) returns, JDS shall comply with, and shall maintain all storage facilities in
compliance with applicable provisions of this Agreement, the Specifications and Applicable Law.
Banner shall be responsible, at its expense unless otherwise agreed by the parties in writing, to
conduct on-going stability studies on the Products and report thereon to the FDA in accordance
with Applicable Law, with a copy of such report promptly forwarded to JDS.



7.5 Recall, Withdrawal, Field Correction Costs. In the event of any Recall, Withdrawal, or
field correction with respect to any Product(s), the party that is determined to be responsible
for the cause of the Recall or Withdrawal, or field corrections shall be responsible for the costs
of such Recall, Withdrawal, or field correction (including cost of goods, distribution expenses,
destruction costs, and third party recall expenses), in addition to the cost of promptly
replacing, or if practicable, reprocessing, the affected quantity of Product(s). If neither party
is responsible, or fault cannot be determined, then Banner shall bear such costs if JDS can
demonstrate through applicable records that the shipping, handling and storage of the Products,
after delivery to JDS or its agent, are in compliance with Applicable Law and with Shipping
Instructions; provided however, that if despite such records Banner can demonstrate that JDS or
its agent is responsible, then JDS shall bear such costs.





	7.6	 	Inspections and Reports by Regulatory Authorities.
	 
	 	 	(a) Inspections. Each party shall notify the other party in writing within five (5)
days in the event of any inspection by representatives of any Governmental Body with
respect to the Product(s) or to its cGMP compliance status relating to or affecting the
manufacture of the Product(s), and shall provide to the other party summary descriptions of
any correspondence with the Governmental Body relating to such inspection to the extent
related to the Product(s), including, without limitation, summaries of the respective
Governmental Body’s inspection report and the party’s response.
	 
	 	 	(b) Reports. Each party shall promptly notify the other of its receipt from the FDA
of a Form 483 report (or any similar form or notice from a governmental oversight authority)
specifically addressing the Product(s) or matters affecting a Party’s or its subcontractor’s
performance under this Agreement. Each party shall provide to the other summaries of (i) all
material correspondence, notices or responses received from and to the FDA and other
Governmental Bodies relating to the Product(s) and its manufacture or marketing, including,
without limitation, all inspection reports issued by the FDA and such other authorities
during the Term, and related correspondence, and (ii) reports and correspondence relating to
the Products and their manufacture as become available in connection with any of the
following events: (a) receipt of a Warning Letter or similar advisory from the FDA or any
other Governmental Body relating to the manufacture, packaging and storage of the Products;
and (b) any regulatory comments relating to the manufacture of the Products requiring a
response or action by the notifying party, including without limitation, a 483 Report
and the party’s responses thereto.




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7.7 Product(s) Returns from the Field. In the event that any third party returns any
Product(s) to JDS, JDS shall promptly notify Banner in writing and include all information JDS has
relating to the return. JDS shall promptly forward all such Product(s) to a location specified by
Banner, and shall take no other action regarding such Product(s) (except for safeguarding such
Product(s)), unless requested in writing by Banner or required by Applicable Law. This Section 7.7
shall not apply to Product(s) returned to JDS due to excess inventory or expired or short-dated
shelf life.



Article 8. Product(s) Marketing and Sales.



8.1 Marketing and Sales Activities. With the exception of materials associated with the
Regulatory Approval that Banner has the right to approve consistent with its ownership of the
Regulatory Approval in accordance with Section 2.1 (a)(ii), JDS shall be solely responsible for
the conduct of all marketing and sales activities of the Product(s) sold hereunder in the
Territory and shall have commercial operating freedom in its discretion with respect to all
commercialization matters relating to the Products, including, without limitation, with respect to
the use of trademarks, trade names, logos, and trade dress owned by JDS, provided that JDS shall
conduct all marketing and sales activities at all times in compliance with the Regulatory Approval
and Applicable Laws, and provided further that JDS complies with Section 12.1(e). JDS may engage a
third party sales force to assist in the marketing and sales of Product(s) subject to Banner’s
prior written consent, not to be unreasonably withheld.



8.2 Packaging, Labeling. Marketing and Promotional Materials. JDS shall be solely
responsible for the content of the package label copy, content of labeling, marketing and
promotional materials for the Product(s), subject only to Banner’s right of prior approval of
package label copy and final packaging materials for compliance with the Regulatory Approval under
Section 2.1(a)(ii). JDS covenants and agrees that such materials will at all times comply with the
Regulatory Approval and Applicable Law. JDS shall provide Banner with samples of such packaging,
content of labeling, marketing and promotional materials upon request. Banner shall have no
responsibility or liability for JDS’s packaging, advertising, promotional materials, trademarks or
content of labeling, except with respect to any changes, additions, or modifications requested by
Banner. JDS shall not make any claims or statements whether in or on its packaging, labeling,
promotional materials or otherwise, that is not in compliance with, or that is outside, the scope
of the Regulatory Approval.



8.3 Terms and Conditions of Sale. JDS shall determine the price, terms and conditions of
sales of Product(s) to JDS’s customers.




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Article 9. Term and Termination.



9.1 Term; Renewal. For the Valproic Acid EnteriCareTM Product, the Term of this Agreement
shall start on the Commencement Date and continue for an initial period of five (5) years
following the date the Regulatory Approval is received for the Valproic Acid EnteriCareTM Product
(the “Initial Term” for Valproic Acid EnteriCareTM Products). For the Valproic Acid VersatrolTM
Product, the Term of this Agreement shall start on the Commencement Date and continue for an
initial period of five (5) years following the date the Regulatory Approval is received for the
Valproic Acid VersatrolTM Product (the “Initial Term” for Valproic Acid VersatrolTM Products). Upon
expiration of each such Initial Term, this Agreement shall automatically renew as to the pertinent
Product for successive renewal terms of two (2) years without further action of the parties.



9.2 Termination by Either Party. This Agreement may be terminated by either party, at any
time, on a Product by Product basis, by providing written notice to the non-terminating party upon
the occurrence of the following events or conditions:





	 	 	(a) If the other party commits a material breach of any of its obligations herein (other
than an obligation to pay money owed) and fails (i) to remedy that breach within sixty (60)
days after written notice from the non-breaching party where a remedy is reasonably
possible and is required by the non-breaching party; or (ii) where a remedy is not
reasonably possible within sixty (60) days after written notice from the non-breaching
party, and the non-breaching party requests remedy of such breach, to propose a plan within
sixty (60) days which is reasonably capable of providing a remedy, and subsequently fails
to diligently and continuously execute the proposed plan;
	 
	 	 	(b) If a party fails to pay any amounts due and payable hereunder to the other party within
ten (10) days after written notice of such failure to pay;
	 
	 	 	(c) If the other party (i) applies for or consents to the appointment of a receiver, trustee
or liquidator of it or of its properties and assets; (ii) admits in writing its inability to
pay its debts as they mature; (iii) makes a general assignment for the benefit of creditors;
(iv) is adjudicated a bankrupt or insolvent; (v) files a voluntary petition under the United
States Federal Bankruptcy Code or takes advantage of any insolvency, readjustment of debt,
dissolution or liquidation law or statute or files an answer admitting the material
allegations of a petition filed against it at any proceeding under any such law; or (vi) has
entered against it an order, judgment or decree issued by any court of competent
jurisdiction approving a petition seeking reorganization of it or of its properties and
assets or appointing a receiver, trustee or liquidator of it;
	 
	 	 	(d) If the other party has received from the FDA a Form 483 report with respect to
Product(s) or the packaging or manufacturing facilities thereof, which Form 483 report would
prevent the party who received the Form 483 report from materially performing its
obligations under this Agreement, and such party has
not taken appropriate and necessary actions to address the matters raised in such Form
483 and is thereby not diligently pursuing corrective action in response thereto.




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	 	 	(e) If the other party is prevented by reason of any circumstances referred to in Section
9.5 of this Agreement from performing any of its obligations hereunder for a continuous
period of six (6) months.




9.3 Termination by Banner. This Agreement may be terminated by Banner, upon thirty (30)
days written notice to JDS, effective at the end of any calendar year during the Term beginning
at the end of 2008 if:





	 	 	(a) both of the following conditions exist during the same calendar year after the end of
2007: ***; or
	 
	 	 	(b) all three of the following conditions exist during the same calendar year after the end
of 2007:***.




9.4 Termination by JDS.




     ***




-30-









 









	 	 	***
	 
	 	 	(b) This Agreement may be terminated by JDS upon thirty (30) days prior written notice to
Banner if Banner fails to obtain Regulatory Approval for the Valproic Acid EnteriCareTM
Product on or before ***.
	 
	 	 	(c) JDS may elect to terminate all of this Agreement or only the portions of this Agreement
related to a specific Product pursuant to Section 12.4(d).
	 
	9.5	 	Post Termination Obligations.
	 
	 	 	(a) Upon termination of this Agreement by Banner under Section 9.2 or Section 9.3, JDS
shall purchase from Banner and pay Banner for all Product(s) for which JDS has outstanding
Purchase Orders that have been accepted by Banner and shall reimburse Banner for the actual
cost of materials obtained by Banner due to the rolling forecast provided by JDS and which
materials Banner cannot use because of the termination of this Agreement.
	 
	 	 	(b) Upon termination of this Agreement under Section 9.2(unless due to the breach of
Banner), Section 9.3, Section 9.4(a) or Section 9.4(c), at Banner’s election, JDS and
Banner shall negotiate in good faith appropriate terms and conditions for Banner to
purchase from JDS the trademarks and trade dress associated with the Product(s).
	 
	 	 	(c) In the event this Agreement is terminated by JDS under Section 9.2(a) Banner shall use
reasonable commercial efforts to continue to satisfy JDS’s requirements for the Products
consistent with the terms of this Agreement for a period, at JDS’s option, of up to twelve
(12) months following such termination.




9.6 Quality Agreement. Banner and JDS agree to enter into a quality agreement for the
manufacture of the Product(s), which will specify each party’s responsibility for quality,
compliance, and regulatory matters, within ninety (90) days from the Commencement Date.



9.7 Force Majeure. Neither Banner nor JDS shall be considered in default or be liable to
the other party for any delay in performance or for non-performance of the terms of this Agreement
caused by circumstances that the delaying party can establish was beyond the reasonable control of
such party and not due to its act or failure to act, including but not limited to, acts of God;
explosion; fire; flood; earthquake or tremor; war, whether declared or not; acts of terrorism;
substantial unavailability, shortage or interruption in the usual supply of raw materials;
unusually severe weather; insurrection; riot; sabotage; accident; labor strike or labor
disturbances; or orders or decrees of any court; provided, however, that the terms of this Section
9.7 shall not forgive or excuse any failure of a party hereto to make a payment to the other party
or a third party when and as required under this Agreement.





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Article 10. Treatment of Confidential Information.



During the Term of this Agreement and for a period ending at the occurrence of one of the
exceptions to restrictions (a) through (c) or (e) found below in this Article 10, JDS and Banner
each shall keep, and shall cause its respective Affiliates, officers, directors, employees and
agents to keep, confidential all information proprietary to the other party and that has been
acquired by it through its participation in the negotiation and performance of this Agreement, and
each shall use such information solely for purposes of performing its obligations or exercising
its rights hereunder, provided that the foregoing restriction shall not apply to information that
(a) is or hereafter becomes generally available to the public other than by reason of any default
with respect to confidentiality under this Agreement; (b) is hereafter disclosed to such party by
a third party who is not in default of any confidentiality obligation to the other party (and such
disclosure can be properly demonstrated by the receiving party); (c) was previously or is
hereafter developed by or on behalf of such party, without reference to confidential information
of the other party acquired prior to or after the date hereof (and such can be properly
demonstrated by the receiving party); (d) is required to be disclosed in compliance with
applicable laws or regulations or order by a court or other governmental or regulatory agency or
body having competent jurisdiction, provided that reasonable measures shall be taken to assure
confidential treatment of such information, but the disclosure restrictions shall only be released
to the extent of such specific disclosure required under this clause (d); (e) is provided by such
party under appropriate terms and conditions, including confidentiality provisions equivalent to
those in this Agreement, to accountants and/or lawyers; or (f) if such party considers it
reasonably necessary to disclose such information in connection with any action, suit or
proceeding before any court or any governmental or other regulatory agency or body or any arbitral
panel, or any audit or investigation brought by any governmental or other regulatory agency or
body, or the assertion of any claim against any insurer or other third party, but then only after
providing prompt written notice to the other party and a reasonable opportunity for the other
party to object to disclosure and protect its rights. Each of JDS and Banner recognizes that any
violation of this confidentiality provision may cause the other irreparable harm and agrees that
the other party shall be entitled, in addition to any other right or remedy it may have, at law or
in equity, to an injunction without the posting of any bond or other security, enjoining the
disclosing party, its Affiliates and their respective officers, directors, employees and agents
from any violation or potential violation of this Article 10. The terms of this Article 10 shall
survive any termination of this Agreement.



Article 11. Indemnities; Insurance,



11.1 Indemnification By Banner. Notwithstanding anything contained in this Agreement to the
contrary, Banner shall indemnify and hold JDS and its Affiliates and their respective officers,
directors, members, shareholders and employees harmless against any and all liability, damage,
loss, cost or expense (including reasonable and actual attorneys fees) resulting from any third
party claim made or suit brought against


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JDS or such persons to the extent such claim (a) is caused by Banner’s gross negligence or
willful misconduct; or (b) is caused by Banner’s material breach of any representation, warranty,
covenants, or term of this Agreement; (c) is caused by a Product’s failure to conform to the
Applicable Law, the Regulatory Approval or the Specifications and such failure is attributable to
Banner’s or its agents’ actions or failure to act; or (d) is caused by any infringement or alleged
infringement of any Intellectual Property right of a third party resulting from or relating to
Banner’s use of Generally Applicable Technology. Upon being notified of the filing of any such
claim or suit, JDS shall promptly notify Banner thereof and shall permit Banner, at its cost, to
handle and control such claim or suit with counsel of Banner’s own choosing. JDS shall have the
right to participate in the defense of such claim or suit at its own expense. Banner shall make no
admission on behalf of JDS without JDS’s prior express written consent.



11.2 Indemnification By JDS. JDS shall indemnify and hold Banner and its Affiliates and
their respective officers, directors, members, shareholders and employees harmless against any and
all liability, damage, loss, cost or expense (including reasonable and actual attorney fees)
resulting from any third party claim made or suit brought against Banner or such persons to the
extent such claim (a) is caused by JDS’s gross negligence or willful misconduct; (b) is caused by
JDS’s material breach of any representation, warranty, covenant, or term of this Agreement; (c) is
caused by a Product’s failure to conform to the Applicable Law, the Regulatory Approval or the
Specifications and the failure is attributable to JDS ‘s or its agents’ actions or failure to act;
(d) alleges any infringement by the Product(s)’s retail packaging copy, artwork, content of
labeling, advertising or marketing materials, of Intellectual Property rights of third parties.
Upon being notified of the filing of any such claim or suit, Banner shall immediately notify JDS
thereof and shall permit JDS at its cost to handle and control such claim or suit with counsel of
its own choosing. Banner shall have the right to participate in the defense of such claim or suit
at its own expense. JDS shall make no admission on behalf of Banner without Banner’s prior express
written consent signed by its President or its Global Vice President/Legal and Public Affairs.



11.3 Claims. No claim shall be made, or be enforceable against either party, under this
Article 11 unless written notice thereof with full particulars is received by the indemnifying
party within thirty (30) days after the existence of the claim is known to the indemnified party,
however, failure to notify the indemnifying party within such thirty (30) day period shall not
relieve the indemnifying party of its obligations under this Article 11 unless such indemnifying
party is demonstrably prejudiced as a result of the delay.



11.4 Insurance. Both JDS and Banner shall each maintain, during the Term of this Agreement
and the three (3) years thereafter, at least *** in Product(s) liability coverage, with the other
party listed as an additional insured. Within thirty (30) days following the date of this Agreement
and then annually thereafter for the Term of this Agreement and the three (3) years thereafter,
each party shall provide the other with a certificate of insurance evidencing the coverage
maintained in accordance with this Section 11.4.





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11.5 LIABILITY LIMITATIONS. NOTWITHSTANDING ANYTHING TO THE CONTRARY IN THIS
AGREEMENT, BUT EXCEPT AS EXPRESSLY PROVIDED IN ARTICLE 12, NEITHER BANNER NOR JDS SHALL BE LIABLE
FOR ANY INCIDENTAL, INDIRECT, SPECIAL OR CONSEQUENTIAL DAMAGES (INCLUDING, WITHOUT LIMITATION,
LOST PROFITS OR REVENUE, IN EACH CASE WHETHER OR NOT DETERMINED TO BE A DIRECT OR INDIRECT
DAMAGE), WHETHER OR NOT FORESEEABLE, OR WHETHER OR NOT EITHER PARTY HAS BEEN ADVISED OF THE
POSSIBILITY OF SUCH DAMAGES, RESULTING FROM THE FAILURE OF THE PRODUCT(S) TO MEET THE
SPECIFICATIONS OR FOR ANY BREACH OF THIS AGREEMENT. SUCH LIMITATION SHALL APPLY TO ALL CLAIMS MADE
UNDER OR RELATING TO THIS AGREEMENT EXCEPT AS EXPRESSLY PROVIDED IN ARTICLE 12, INCLUDING, WITHOUT
LIMITATION, ANY CLAIM FOR INDEMNIFICATION UNDER THIS ARTICLE 11.




Article 12. Intellectual Property





	12.1	 	Banner Intellectual Property.
	 
	 	 	(a) Title to and the right of enforcement for all Banner formulations, technology, all
other Banner Intellectual Property applicable to the Product(s) (including, without
limitation, the patents and patent applications listed on Schedule 12.1 attached hereto)
owned by Banner prior to the Commencement Date shall remain with Banner. Banner shall use
reasonable efforts to notify JDS of additional patents or patent applications relating
directly to the Products that are filed by or on behalf of Banner in the Territory during
the Term.
	 
	 	 	(b) Banner shall own and retain all right, title and interest in and to any and all
inventions, whether invented, developed or discovered solely by Banner or jointly by Banner
and JDS, relating to (i) excipient system formulations, fill formulations, or gelatin or
non-gelatin shell formulations, (including, without limitation, relating in any manner to
Banner’s VersatrolTM or EnteriCareTM technologies), or (ii) making Product(s) utilizing
gelatin or non-gelatin technology, or (iii) otherwise relating to developing, using or
making soft gel capsules or enrobed tablets.
	 
	 	 	(c) Banner shall own and retain all right, title and interest in and to any and all
Intellectual Property of a non-technical nature invented, created or discovered by Banner
under this Agreement.
	 
	 	 	(d) Banner grants to JDS a non-transferable (except as set forth in Section 13.4), license
consistent in scope with the terms and conditions of this Agreement under Banner
Intellectual Property, whether existing at the Commencement Date or thereafter developed or
acquired, only to the extent necessary to use, have used, market, distribute, sell and have
sold Products in the Territory except that JDS shall not use, or permit its customers to
use, Banner’s name or trademarks in any advertising, promotions, marketing, and/or labeling
of the Product(s) or similar Product(s), without the prior written consent
of Banner. JDS may grant sublicenses to a third party sales force consistent with the
provisions of Section 8.1.




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	 	 	(e) When applicable to the Product(s), JDS shall cause a reference to Banner’s patent
numbers relative to the Product(s) to be placed on the finished packaging for the
Product(s). At Banner’s request and when applicable, JDS shall also cause the term “patent
pending” and/or Banner’s EnteriCareTM or VersatrolTM trademark to be placed on the finished
packaging for the Product(s). Changes to the finished packaging of the Products, including
changes to the listing of patent numbers relative to the Product(s), that are requested by
Banner shall be at Banner’s expense if not necessitated by the Regulatory Approval or
Governmental Bodies.
	 
	 	 	(f) JDS acknowledges that it will not acquire any Intellectual Property rights in and to
the Product(s) subject to Section 12.2, or to the trademarks VersatrolTM or EnteriCareTM.
	 
	 	 	(g) Except as set forth in Section 3.4 or as otherwise expressly set forth in this
Agreement, this Agreement does not restrict Banner from using any soft gelatin capsule
related technology whether previously owned or controlled, or subsequently owned or
controlled, or developed or acquired as a result of this Agreement, for other Banner
customers, or for Banner’s own account.
	 
	12.2	 	JDS Intellectual Property.
	 
	 	 	(a) Title to and the right of enforcement for all JDS Intellectual Property owned by JDS
prior to the Commencement Date shall remain with JDS.
	 
	 	 	(b) JDS shall own and retain all right, title and interest in and to any and all
Intellectual Property related to the sales, marketing, promotion and distribution of the
Product(s) which is invented, developed or discovered by JDS or jointly by JDS and Banner,
including, without limitation, trademarks, trade names, logos and trade dress with respect
to the Product(s), and including, without limitation, capsule color and color combination,
and graphics. For the avoidance of doubt, Banner shall have title to the trademarks
VersatrolTM and EnteriCareTM.
	 
	 	 	(c) JDS grants to Banner a non-exclusive license under JDS Intellectual Property only to
the extent necessary for Banner to receive and maintain Regulatory Approval within the
Territory.




12.3 Publicity/ Press Releases. Unless required to do so by law or regulation, neither
party shall issue any press release or other public communication related to the relationship
between the parties or the existence of this Agreement without the prior written consent of the
other party. The party desiring to issue the communication shall provide the other party with an
advance copy of the proposed text of the public


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communication for review and shall adopt any reasonable changes requested by the reviewing
party prior to issuing such public communication.





	12.4	 	Intellectual Property Enforcement and Defense.
	 
	(a)	 	Intellectual Property Enforcement. Unless otherwise specifically agreed
by the parties in writing:
	 
	 	 	(i) If either Banner or JDS suspects third party infringement of any of the
Intellectual Property covering or relating to Product(s), that party shall promptly
advise the other as to the facts and circumstances surrounding the suspected
infringement. If Banner determines that an infringement action is commercially
reasonable (taking into account the likelihood of success and relative
cost/benefits), Banner may institute an infringement action against said third
party. However, should Banner decide not to bring an infringement action, JDS may
request Banner to undertake such infringement action using counsel of Banner’s
choice (after conferring with JDS) at JDS’s expense. Banner and JDS shall confer
regarding strategy for any patent infringement action brought under this Section
12.4(a) but Banner shall be solely responsible for the management and control of
such patent infringement action. Notwithstanding the foregoing, nothing in this
Section 12.4(a)(i) shall require JDS to participate in or contribute to the cost of
Banner’s Intellectual Property enforcement efforts unless the third party’s
infringement directly and materially adversely impacts, or is reasonably likely to
directly and materially adversely impact, sales of the Product(s) and, in all other
situations Banner is free to enforce Banner Intellectual Property on its own
behalf, at its own cost, and without contribution or indemnification thereof by
JDS. In this latter case, Banner shall retain for itself all awards paid by third
parties (whether by settlement or otherwise) as a result of Banner’s enforcement
efforts.
	 
	 	 	(ii) Subject to Section 12.4(a)(i), the costs and expenses of any enforcement
action by Banner (including reasonable fees and expenses of attorneys and other
third parties) shall be paid by Banner and one-half (1/2) of any such costs and
expenses incurred by Banner shall be invoiced to JDS monthly and paid net thirty
(30) days of issuance.
	 
	 	 	(iii) Each party shall execute all necessary and proper documents and take such
actions as shall be reasonably requested by the other to allow it to institute and
prosecute any such enforcement actions, including being named as a co-plaintiff in
the action if warranted, in accordance with the terms of this Section.
	 
	 	 	(iv) Provided that JDS has actually participated in the cost of enforcement efforts
pursuant to Section 12.4(a)(i) and (ii) and to the extent any award paid by third
parties as a result of such an enforcement




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	 	 	action (whether by way of settlement or otherwise) relates to lost revenue
associated with the Product(s), such award shall be treated as Net Sales Revenue
hereunder (after deduction by Banner and JDS, as the case may be, of all costs and
expenses, including, without limitation internal personnel costs, relating to such
action). All other awards, or portions of awards not related to lost revenue
associated with the Products, shall be shared by the parties equally.
	 
	(b)	 	Declaratory Relief.
	 
	 	 	(i) If a third party commences an action for declaratory relief or similar action
against Banner attacking the applicability, validity or enforceability of any
Intellectual Property relating to Product(s), Banner shall advise JDS as to the
facts and circumstances surrounding the action. Banner shall defend said action
and/or institute an infringement counterclaim against the third party if Banner
determines it is legally advisable and commercially reasonable to do so (taking into
account the likelihood of success and relative cost/benefits). However, should
Banner decide not to defend said action and/or institute an infringement
counterclaim against the third party, JDS may request Banner to undertake such
action using counsel of Banner’s choice (after conferring with JDS) at JDS’s
expense. Banner and JDS shall confer regarding strategy for any action or defense
brought under this Section 12.4(b) but Banner shall be solely responsible for the
management and control of such action. Notwithstanding the foregoing, nothing in
this Section 12.4(b)(i) shall require JDS to participate or contribute to the cost
of Banner’s Intellectual Property enforcement or defense efforts unless the third
party’s legal action (if successful) or infringement directly and materially
adversely impacts, or is reasonably likely to directly and materially adversely
impact, sales of the Product(s) and, in all other declaratory judgment actions
relating to the Banner Intellectual Property, Banner is free to defend suit
(including asserting Banner Intellectual Property infringement as a counterclaim) on
its own behalf, at its own cost, and without contribution or indemnification thereof
by JDS. In this latter case, Banner shall retain for itself all awards paid by third
parties (whether by settlement or otherwise) as a result of Banner’s enforcement
efforts.
	 
	 	 	(ii) Subject to Section 12.4(b)(i), the costs and expenses of any such defense
and/or counterclaim by Banner (including reasonable fees and expenses of attorneys
and other third parties) shall be treated in the same manner as patent enforcement
expenses pursuant to Section 12.4(a)(ii).
	 
	 	 	(iii) Each party shall execute all necessary and proper documents and take such
actions as shall be reasonably requested by the other to defend said action and/or
institute and prosecute such counterclaim, including
being named as a co-plaintiff or co-defendant in the action and/or counterclaim
if warranted, in accordance with the terms of this Section.




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	 	 	(iv) Provided that JDS has actually participated in the cost of enforcement efforts
pursuant to Section 12.4(b)(i) and (ii), any award paid by third parties as a result
of a counterclaim brought under this Section 12.4(b) (whether by way of settlement
or otherwise) shall be treated in the same manner as patent enforcement award
pursuant to Section 12.4(a)(iv). Any award due to third parties as a result of the
action shall be treated in the same manner as an award pursuant to Section
12.4(c)(iv).
	 
	(c)	 	Intellectual Property Defense.
	 
	 	 	(i) In the event a third party commences an action against Banner for Intellectual
Property infringement, or threatens to do so, for activities pertaining to the
making, using, or selling of Product(s) and not primarily pertaining to the
Generally Applicable Technology, Banner shall advise JDS as to the facts and
circumstances surrounding the action. Banner shall defend said action if Banner
determines it is legally advisable and commercially reasonable to do so (taking
into account the likelihood of success and relative cost/benefits). However, should
Banner decide not to defend said action, JDS may request Banner to undertake such
defense using counsel of Banner’s choice (after conferring with JDS) at JDS’s
expense, and in this case, JDS shall pay all damages awarded as a result of the
action directly relating to the Products as well as expenses reasonably incurred by
Banner in maintaining such action, for example, reasonable internal personnel
costs; provided, however, that JDS shall have a right to reimburse itself and
deduct such damages and expenses from the Royalty Payments otherwise due to Banner
under Section 4.1(e). In the event a third party commences an action against Banner
for Intellectual Property infringement, or threatens to do so, for activities
pertaining to the making, using, or selling of Product(s) but primarily pertaining
to the Generally Applicable Technology, Banner shall advise JDS as to the facts and
circumstances surrounding the action, and the parties shall discuss and negotiate
in good faith the allocation between them of costs and expenses of any such defense
and/or counterclaim. Banner and JDS shall confer regarding strategy for any defense
maintained under this Section 12.4(c) but Banner shall be solely responsible for
the management and control of such action.
	 
	 	 	(ii) Except as set forth in Section 12.4(c)(i), the costs and expenses of any such
defense and/or counterclaim by Banner (including reasonable fees and expenses of
attorneys and other third parties) shall be shared equally by the parties and paid
in the same manner as Intellectual Property enforcement expenses pursuant to Section
12.4(a)(ii).




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	 	 	(iii) Each party shall execute all necessary and proper documents and take such
actions as shall be reasonably requested by the other to defend said action,
including being named as a co-plaintiff in the action and/or any counterclaim if
warranted, in accordance with the terms of this Section.
	 
	 	 	(iv) Except as provided in Section 12.4(c)(i), any damages award paid to third
parties as a result of an infringement action brought by any third party (whether by
way of settlement or otherwise) shall be shared equally by the parties. The parties
shall agree with respect to any settlement requiring payments by way of royalties or
otherwise that are unrelated to actual damages for past infringement.






	 	 	(d) Notwithstanding anything in this Section 12.4 to the contrary unless where JDS has
requested Banner to undertake actions for infringement, enforcement or defense pursuant to
Section 12.4(a)(i), 12.4(b)(i) or 12.4(c)(i), if JDS determines that the risks and/or costs
presented by the actions for infringement, enforcement or defense hereunder outweigh the
benefits of such actions, then JDS shall have the right, upon written notice to Banner if
given prior to the date of the close of discovery, to terminate this Agreement with respect
to the Product(s) which are the subject of such actions and JDS shall have no further
obligation to participate in or contribute to the cost of going forward with such actions,
provided, however that JDS shall participate in any damage award (whether by way of
settlement or otherwise) as provided under Section 12.4(c)(iv) subject to the following
limit (i) fifty percent (50%) of the greater of the amount of damages sought by or accrued
to the third party at the time of JDS triggering this provision; (ii) fifty percent (50%)
of the lowest good faith settlement offer by the opposing litigant that is acceptable to
JDS but that is unacceptable to Banner; or (iii) fifty percent (50%) of the actual award
paid by Banner, whichever is less. Promptly following such notice, the parties shall amend
this Agreement to remove the provisions affected by such termination and, thereafter,
Banner shall have unrestricted rights to commercialize the effected Product(s), including,
but not limited to, the right to offer to any third party exclusive rights to such
Product(s) in any dosage forms, in any dosage strengths and for any indications,
notwithstanding any provision of this Agreement to the contrary.
	 
	 	 	(e) If any actions for infringement, enforcement or defense in which JDS participates
pursuant to the terms of this Section 12.4 relates to the Products and other Banner
products, then the parties will discuss in good faith to determine an appropriate
allocation of costs and expenses of any such action and any damages payable by JDS.
	 
	 	 	(f) Banner shall provide JDS with information reasonably requested by JDS with respect to
any action contemplated by this Section 12, and Banner shall
promptly provide JDS with written notice and a reasonably detailed description of any
settlement offers by the third party.




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	 	 	(g) Effect of Opt Out Right. JDS’s obligations under this Section 12.4 are subject
to JDS’s Opt Out Right such that, if JDS has elected to exercise its Opt Out Right, then
JDS shall have no obligations or rights under this Section 12.4 to the extent that any
Intellectual Property infringement, enforcement or defense action is related solely to the
Valproic Acid VersatrolTM Product, provided however, that to the extent that any action
relates to both the Valproic Acid VersatrolTM Product and the Valproic Acid EnteriCareTM
Product, then JDS shall be obligated under this Section 12.4 in the same proportion that
the harm alleged in such action relates to the Valproic Acid EnteriCareTM Product.





Article 13. Miscellaneous.



13.1 Inspection. Either party and their respective representatives shall have the right,
at reasonable intervals, on at least ten (10) business days prior notice and during normal
business hours, to inspect the other party’s (or such party’s subcontractor provided that Banner
shall use reasonable commercial efforts to include substantially similar inspection rights with
respect to its third party packager) applicable areas of their performance, manufacturing,
laboratory, packaging and warehousing facilities used in the manufacture, packaging, storage,
testing, shipping and receiving of the Product(s) or its components. The frequency and extent of
routine inspections shall be no more than once per calendar year, unless upon just cause, or as
otherwise mutually agreed to by the parties. Any information learned through such inspection shall
be confidential in accordance with Section 10.





	13.2	 	Representations and Warranties.






	 	(a)	 	Banner Representations and Warranties. Banner represents and warrants that:






	 	 	 	(i) Products manufactured hereunder shall conform to the applicable Specifications;
	 
	 	 	 	(ii) Products shall be manufactured, tested, packaged and stored in compliance with
the Regulatory Approval and all Applicable Laws, and shall not be adulterated or
misbranded under any Applicable Law;
	 
	 	 	 	(iii) It does not, to its best knowledge, (A) employ an individual who has been
debarred by the FDA pursuant to 21 U.S.C. § 335a(a) or (b) (“Debarred Individual”)
to provide services in any capacity to a person or entity that has an approved or
pending drug product application, or an employer, employee or partner of such a
Debarred Individual or, (B) utilize a corporation, partnership or association that
has been debarred by FDA pursuant to 21 U.S.C. § 335a(a) or 21 U.S.C. § 335a(b)
(“Debarred Entity”) from submitting or assisting in the submission of a
drug
application, or an employee, partner, shareholder, member, subsidiary, or
Affiliate of a Debarred Entity.




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	 	 	 	(iv) As of the Commencement Date:






	 	 	 	(a) It has the right to grant the rights and licenses granted to JDS
hereunder;
	 
	 	 	 	(b) To its best knowledge, it is the owner of the Banner Intellectual
Property to the extent related primarily to the Product(s); and to its best
knowledge, there is no pending or threatened action, suit, proceeding or
claim by others challenging Banner’s rights in or to Banner Intellectual
Property to the extent related primarily to the Product(s);
	 
	 	 	 	(c) To its best knowledge, there is no pending or threatened action, suit,
proceeding or claim by others challenging the validity or scope of the
Banner Intellectual Property to the extent related primarily to the
Product(s);
	 
	 	 	 	(d) To its best knowledge, there is no pending or threatened action, suit,
proceeding or claim by others that the development, making, using or selling
of the Product(s) infringes or otherwise violates any patent or trade secret
rights of others; and
	 
	 	 	 	(e) To its best knowledge, there is no patent or patent application of
another which contains claims that dominate or may dominate any Banner
Intellectual Property to the extent related primarily to the Products.






For purposes of this Section 13.2(a), “best knowledge” shall mean those matters known to
Banner’s directors, officers, key employees or its legal counsel after due inquiry.



     (b) Mutual Representations and Warranties. Each of Banner and JDS represents
and warrants that:




(i) It has full corporate power and authority to enter into this Agreement and
consummate the transactions contemplated hereby;




(ii) It has such permits, licenses and authorizations of Governmental Bodies as are
necessary to own its respective properties, conduct its business and consummate the
transactions contemplated hereby; and




(iii) There are no agreements with third parties that conflict with or impair its
right to enter into this Agreement or to grant the rights or accept the obligations
hereunder.



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	 	 	(c) EXCEPT AS EXPRESSLY SET FORTH IN THIS AGREEMENT, BANNER AND JDS MAKE NO WARRANTY
OR REPRESENTATION, EXPRESS OR IMPLIED, CONCERNING “PRODUCT(S)” OR THEIR RESPECTIVE
PERFORMANCE UNDER THIS AGREEMENT, INCLUDING, BUT NOT LIMITED TO, ANY WARRANTY OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE WITH RESPECT TO “PRODUCT(S).”
	 
	13.3	 	Dispute Resolution.
	 
	 	 	(a) Good Faith Negotiation. The parties agree that, before resorting to any formal dispute
resolution process concerning any dispute arising from or in any way relating to this
Agreement (a “Dispute”), they will first attempt to engage in good faith negotiations in an
effort to find a solution that serves their respective and mutual interests, including
their continuing business/professional relationship. If after thirty (30) days following
receipt of notice by one party from the other of a Dispute, the parties are unable to
resolve the Dispute, then within ten (10) business days following the end of such thirty
(30) day period, the parties shall each appoint a principal to personally review the facts
of the Dispute and seek to resolve the matter by means of direct discussion between the
appointed principals. Unless otherwise agreed in writing, the parties shall have five (5)
business days from the date the principals are appointed to begin the direct discussions
between them and ten (10) business days to resolve the Dispute by such direct discussions.
	 
	 	 	(b) Mediation. If the principals are not appointed, or the negotiations do not take place
within the time provided in Section 13.3(a), or if the negotiations do not conclude with a
mutually agreed upon solution within that time frame (or its agreed upon extension), the
parties agree to mediate any Dispute. If the parties cannot agree upon a mediator within ten
(10) days following the conclusion of their good faith negotiations or expiration of the
time within which to negotiate as provided in Section 13.3(a), then each shall select one
name from a list of mediators maintained by any bona fide dispute resolution provider or
other private mediator; the two selected shall then choose a third person who will serve as
mediator. The parties agree to appoint principals to participate in the mediation process,
including being reasonably present throughout the mediation session(s). The parties shall
have thirty (30) days within which to commence the first mediation session following the
conclusion of their good faith negotiations or expiration of the time within which to
negotiate as provided in Section 13.3(a). The parties further confirm their motivating
purpose in selecting mediation is to find a solution that serves their respective and mutual
interests, including their continuing business/professional relationship.
	 
	 	 	(c) Costs. The parties agree to share the mediator’s fees equally.




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	 	 	(d) Notice of Dispute. The notice of a Dispute shall be in writing. It shall provide
sufficient details of the Dispute to apprise the other party of the basis of the
disputant’s claims. The notice should include the invitation to begin negotiation, and
where unsuccessful, mediation.
	 
	 	 	(e) Litigation. Should the negotiations and mediations contemplated by this Section 13.3
fail to achieve a mutually acceptable resolution of the Dispute, either party may file a
lawsuit related to the Dispute. Except for disputes predominantly related to intellectual
property which may be brought in any jurisdiction at the sole discretion of the party
bringing the lawsuit, the party filing the lawsuit shall file it in the state or federal
judicial district where the other party’s principal U.S. executive offices are located.
	 
	 	 	(f) Injunctive Relief. Each party has the right before or during the negotiation and/or
mediation contemplated by this Section 13.3 to seek and obtain from a court of competent
jurisdiction equitable relief in the form of preliminary injunction to avoid irreparable
harm, maintain the status quo or preserve the subject matter of the Dispute.




13.4 Successors and Assigns. Neither party may assign this Agreement or assign or
subcontract any of its rights, duties or obligations hereunder without the express prior written
consent of the other party, which shall not be unreasonably withheld, except that Banner may
assign part or all of its responsibilities and obligations under this Agreement to one or more
wholly-owned subsidiaries, and except that either party may assign this Agreement and its rights,
subject to its obligations, hereunder in connection with the transfer of all or substantially all
of its business or assets, or in the case of its merger, consolidation, change of control or
similar transaction, provided that JDS may not assign this Agreement or any of its rights or
obligations hereunder to a Direct Competitor of Banner.



13.5 Entire Agreement. This Agreement and any attachments, appendices and exhibits which
are referenced herein set forth the entire agreement between the parties relating to the subject
matter contained herein, and supersede any prior agreement with respect to the subject matter
herein (written or verbal) between the parties. Neither this Agreement, nor any of its provisions,
may be modified, amended or waived except by a written agreement signed by the parties hereto



13.6 Severability. The provisions of this Agreement shall be deemed separate. Therefore,
if any part of this Agreement is rendered void, invalid or unenforceable, such rendering shall not
affect the validity and enforceability of the remainder of this Agreement unless the part or parts
which are void, invalid or unenforceable shall substantially impair the value of the whole
Agreement to either party.



13.7 Notices. Unless otherwise stated in this Agreement, any and all communications
required as provided for in this Agreement shall be in writing and sent by (a) Certified or
Registered Mail, postage prepaid, return receipt requested; (b) facsimile followed by a


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letter of confirmation; or (c) by an express overnight courier service, postage prepaid,
return receipt requested and addressed as set forth below. Notices shall be deemed given three (3)
days following mailing by Certified or Registered Mail, and one (1) day following the date sent by
facsimile or overnight courier.




Any notice to be given to Banner shall be addressed to:




Banner Pharmacaps Inc.

4125 Premier Drive

High Point, North Carolina 27265

Attention: President and CEO




With a copy (which shall not constitute notice) to;




Banner
Pharmacaps Inc.

4100 Mendenhall Oaks Parkway, Suite 301

High Point, NC 27265

Attention: Global Vice-President/Legal and Public Affairs




Any notice to be given to JDS shall be addressed to:




JDS Pharmaceuticals, LLC. The

Chrysler Building

405 Lexington Avenue

59th Floor

New York, New York 10174

Attention: Michael Satow




With a copy (which shall not constitute notice) to:




Cohen Tauber Spievack & Wagner, LLP

420 Lexington Avenue, Suite 2400

New York, New York 10170

Attention: Y. Jerry Cohen, Esq.



Either party may give written notice of a change of address, and after such notice has been
received, any notice thereafter shall be given to such party as provided above at such changed
address.



13.8 Headings. The headings used in this Agreement are for the convenience of the parties
only, and shall not be considered in interpreting or applying the provisions of this Agreement.



13.9 Counterparts. This Agreement may be executed in any number of counterparts, each of
which shall be deemed an original and all of which taken together shall be one and the same
agreement.





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13.10 Relationship of the Parties. The relationship of Banner and JDS established by
this Agreement is that of independent contractors, and nothing contained herein shall be construed
to (a) give either party any right or authority to create or assume any obligation of any kind on
behalf of the other or (b) constitute the parties as partners, joint venturers, co-owners or
otherwise as participants in a joint or common undertaking.



13.11 Survival. The following sections of this Agreement, and the definitions referenced
therein, as well as any other section necessary to interpret such sections shall survive
termination of this Agreement for any reason: Sections 1.1, 1.2, 7.1-7.7 but only to the extent
applicable to Product(s) supplied under this Agreement, Sections 9.5, 9.7, 10, 11.1-11.5, 12.1,
12.2, 12.3, 12.4, 13.2, 13.11 and 13.12.



13.12 Governing Law: Jurisdiction. This Agreement shall be governed and construed in all
respects by and under the laws of the State of North Carolina. The federal courts located in the
States of North Carolina and New York and courts of the States of North Carolina and New York shall
have non-exclusive jurisdiction to hear any and all disputes arising under or concerning this
Agreement.



[Signature page follows.]





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IN WITNESS WHEREOF, the parties hereto have duly executed and delivered, or caused to be duly
executed and delivered, this Agreement as of the day and year first above written.




	 	 	 	 	 
	 	BANNER PHARMACAPS INC.

 	 
	 	By:  	/s/ Roger E. Gordon
 	 
	 	 	Roger E. Gordon, Ph.D. President and CEO 	 
	 	 	 	 
	 



	 	 	 	 	 
	 	JDS PHARMACEUTICALS, LLC

 	 
	 	By:  	/s/ Phillip M. Satow
 	 
	 	 	Phillip M. Satow  Chairman and CEO 	 
	 	 	 	 
	 




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