Document:

exv10w1

 

Exhibit 10.1

NCI BUILDING SYSTEMS, INC. 2003 LONG-TERM STOCK INCENTIVE PLAN

FORM OF RESTRICTED STOCK AGREEMENT

	 	 	 
	Grantee:

	 	 
	

	 	 
	 
	 	 
	Number of Awarded Shares:

	 	 
	

	 	 
	 
	 	 
	Date of Award:

	 	 
	

	 	 
	 
	 	 
	Expiration of Restriction Period

	 	See Section 3
	

	 	 

NCI Building Systems, Inc., a Delaware corporation (the “Company”), hereby grants to the individual
whose name appears above (“Grantee”), pursuant to the provisions of the NCI Building Systems, Inc.
2003 Long-Term Stock Incentive Plan, as in effect on the date hereof (the “Plan”), a restricted
stock award (this “Award”) of shares (the “Awarded Shares”) of its common stock, $0.01 par value
per share (the “Common Stock”), effective as of the date of award as set forth above (the “Grant
Date”), upon and subject to the terms and conditions set forth in this Restricted Stock Agreement
(this “Agreement”) and in the Plan. Unless otherwise defined in this Agreement, capitalized terms
used in this Agreement shall have the meanings assigned to them in the Plan. A copy of the Plan in
effect as of the date hereof is attached hereto, the terms and conditions of which are incorporated
herein by reference.

     1. Effect of the Plan. The Awarded Shares granted to Grantee are subject to all of
the provisions of the Plan and of this Agreement, together with all rules and determinations from
time to time issued by the Committee and by the Board pursuant to the Plan. The Company hereby
reserves the right to amend, modify, restate, supplement or terminate the Plan without the consent
of Grantee. This Award shall be subject, without further action by the Company or Grantee, to any
amendment, modification, restatement or supplement to the Plan that is beneficial to, or increases
the rights of, Grantee. This Award shall not be subject to any amendment, modification,
restatement or supplement to the Plan that reduces or adversely affects the rights and benefits
available to Grantee hereunder.

     2. Grant. This Award shall evidence Grantee’s ownership of the Awarded Shares, and
Grantee acknowledges that he or she will not receive a stock certificate representing the Awarded
Shares unless and until the Awarded Shares vest as provided in this Agreement and all tax
withholding obligations applicable to the Vested Awarded Shares (as defined below) have been
satisfied. The Awarded Shares will be held in custody for Grantee, by the Chief Financial Officer
of the Company pursuant to joint escrow instructions between Grantee and the Company (substantially
in the form of Exhibit A hereto), until the Awarded Shares have vested in accordance with Section 3
of this Award. Upon vesting of the Awarded Shares, the Company shall, unless otherwise paid by
Grantee as described in Section 9(a) of this Award, withhold that number of Vested Awarded Shares
necessary to satisfy any applicable tax withholding obligation of Grantee in accordance with the
provisions of Section 9(a) of this Award, and thereafter instruct the Chief Financial Officer to
deliver to Grantee all remaining Vested Awarded Shares.

 

 

Grantee agrees that the Awarded Shares shall be subject to all of the terms and conditions set
forth in this Agreement and the Plan, including, but not limited to, the forfeiture conditions set
forth in Section 4 of this Agreement, the restrictions on transfer set forth in Section 5 of this
Agreement and the satisfaction of the Required Withholding as set forth in Section 9(a) of this
Agreement.

     3. Vesting Schedule; Service Requirements. Except as provided otherwise in Section 4
of this Agreement, the Awarded Shares shall vest if Grantee’s continuing employment or consulting
relationship with the Company or any Subsidiary (“Continuous Service”) is not terminated during the
period commencing with the Grant Date and ending with the applicable date that such portion of the
Awarded Shares vests (each, a “Vesting Date”). Awarded Shares that have vested pursuant to this
Agreement are referred to herein as “Vested Awarded Shares” and Awarded Shares that have not yet
vested pursuant to this Agreement are referred to herein as “Unvested Awarded Shares.” Subject to
the provisions of Section 4 of this Agreement, if Grantee’s Continuous Service is not terminated
prior to an applicable Vesting Date, the Awarded shares shall vest as follows:

          (i) twenty-five percent (25%) of the Awarded Shares shall vest on the first anniversary
of the Grant Date;

          (ii) twenty-five-half percent (25%) of the Awarded Shares shall vest on the second
anniversary of the Grant Date;

          (iii) twenty-five percent (25%) of the Awarded Shares shall vest on the third
anniversary of the Grant Date; and

          (iv) the remaining Awarded Shares shall vest on the fourth anniversary of the Grant
Date.

If an installment of the vesting would result in a fractional Vested Awarded Share, such
installment will be rounded to the next higher or lower Awarded Share, as determined by the
Company, except the final installment, which will be for the balance of the Awarded Shares.

     4. Conditions of Forfeiture.

          (a) Upon any termination of Grantee’s Continuous Service (the “Termination Date”):

          (i) by the Company for Cause (as hereinafter defined) or by Grantee’s voluntary
resignation without Good Reason (as hereinafter defined) before all of the Awarded Shares
become Vested Awarded Shares, all Unvested Awarded Shares as of the Termination Date shall,
without further action of any kind by the Company or Grantee, be forfeited; or

          (ii) by the Company without Cause or by Grantee’s voluntary resignation with Good
Reason before all of the Awarded Shares become Vested Awarded Shares, on the Termination
Date, one hundred percent (100%) of the Unvested Awarded Shares shall vest.

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          (b) All Unvested Awarded Shares that are forfeited pursuant to the terms of this Agreement
shall be deemed to be immediately transferred to the Company without any payment by the Company or
action by Grantee, and the Company shall have the full right to cancel any evidence of Grantee’s
ownership of such forfeited Unvested Awarded Shares and to take any other action necessary to
demonstrate that Grantee no longer owns such forfeited Unvested Awarded Shares automatically upon
such forfeiture. Following such forfeiture, Grantee shall have no further rights with respect to
such forfeited Unvested Awarded Shares. Grantee, by his acceptance of the Award granted pursuant
to this Agreement, irrevocably grants to the Company a power of attorney to transfer Unvested
Awarded Shares that are forfeited to the Company and agrees to execute any documents requested by
the Company, including but not limited to one or more stock assignments separate from the
certificate substantially in the form of Exhibit B hereto, to facilitate such transfer upon
forfeiture. The provisions of this Agreement regarding transfers of Unvested Awarded Shares that
are forfeited shall be specifically performable by the Company in a court of equity or law.

          (c) Notwithstanding anything to the contrary in this Agreement, the Unvested Awarded Shares
shall become vested (i) on the death of Grantee during Grantee’s Continuous Service; (ii) if
Grantee suffers a Disability during Grantee’s Continuous Service; (iii) upon Grantee’s cessation of
Continuous Service due to his retirement at or after Normal Retirement Age; or (iv) in accordance
with the provisions of Section 12(b) of the Plan relating to a Change in Control.

          (d) For purposes of this Agreement, Normal Retirement Age shall be deemed to be 65 years of
age.

          (e) For purposes of this Agreement, “Cause” shall have the meaning ascribed to such term in
Grantee’s current employment agreement with the Company or any of its Subsidiaries (the “Employment
Agreement”), or, if no such Employment Agreement exists or if “Cause” is not defined in the
Employment Agreement, “Cause” means:

          (i) Grantee’s failure or inability for any reason to devote substantially all of his
business time and effort to the performance of his duties and responsibilities to the
Company and its Subsidiaries (vacation time and absence due to sickness or disability being
excepted herefrom) and such failure or inability continues for a period of thirty (30) days
after written notice by the Company of the existence of such failure or inability; provided,
however, that only one such notice by the Company need be sent and, if such failure
re-occurs thereafter, no further notice and opportunity to cure such failure shall be
required;

          (ii) indictment for, or conviction of, or plea of nolo contendere to, a felony, other
than a felony involving the operation of a motor vehicle which does not result in serious
bodily harm to any person;

          (iii) breach or failure by Grantee to perform any of his material covenants contained
in the Employment Agreement that is not cured within thirty (30) days after written notice
by the Company of the breach or failure to perform; provided,

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however, that only one such notice by the Company need be sent and, if such failure
re-occurs thereafter, no further notice and opportunity to cure such failure shall be
required;

          (iv) disregard or failure to use commercially reasonable efforts to carry out the
reasonable and lawful instructions of any employee to whom Grantee reports or the Board of
Directors of the Company, or a material violation of policies established by the Company,
with respect to the operation of its business and affairs that continues for a period of
thirty (30) days after written notice by the Company of the existence of such violation,
disregard or failure; provided, however, that only one such notice by the Company need be
sent and, if such violation, disregard or failure re-occurs thereafter, no further notice
and opportunity to cure such violation, disregard or failure shall be required;

          (v) an act committed by Grantee which (A) brings the Company or any of its Subsidiaries
into public disgrace, or (B) harms the business operations of the Company or any of its
Subsidiaries; provided, however, that the Board of Directors of the Company must first
provide to Grantee written notice clearly and fully describing the particular acts or
omissions which the Board reasonably believes in good faith constitutes Cause under this

subsection and an opportunity, within thirty (30) days following his receipt of such notice,
to meet in person with the Board of Directors to explain or defend the alleged acts or
omissions relied upon by the Board of Directors and, to the extent practicable, to cure such
acts or omissions;

          (vi) habitual insobriety or illegal use of controlled substances by Grantee; or

          (vii) breach or failure by Grantee to comply in any material respect with the Company’s
Corporate Governance Guidelines, Code of Business Conduct and Ethics or Employee Policy
Manual (as the same may be amended, restated, extended, supplemented or otherwise modified
in writing from time to time in the sole discretion of the Board of Directors of the
Company) that is not cured within thirty (30) days after written notice by the Company of
the breach or failure to perform; provided, however, that only one such notice by the
Company need be sent and, if such breach or failure reoccurs thereafter, no further notice
and opportunity to cure such breach or failure shall be required.

For purposes of this Agreement, any termination of Grantee’s employment for Cause shall be
effective only upon delivery to Grantee of a certified copy of a resolution of the Board of
Directors of the Company, adopted by the affirmative vote of a majority of the entire membership of
the Board of Directors (excluding Grantee, if applicable) following a meeting at which Grantee was
given an opportunity to be heard on at least five business days’ advance notice, finding that
Grantee was guilty of the conduct constituting Cause, and specifying the particulars thereof.

          (f) For purposes of this Agreement, “Good Reason” shall have the meaning ascribed to such term
in the Employment Agreement, if any, and further includes termination

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after the occurrence of any of the following events that occur without Grantee’s prior written
consent:

          (i) any reduction in the amount of the Grantee’s then current base salary in excess of
ten percent (10%) in any twelve month period; or

          (ii) a significant reduction of Grantee’s duties, position or responsibilities relative
to Grantee’s duties, position or responsibilities in effect immediately prior to such
reduction;

provided, however, that no act or omission shall constitute “Good Reason” for purposes of this
Agreement unless Grantee provides to the Board of Directors of the Company a written notice prior
to Grantee’s termination and within sixty (60) days after the occurrence of the event, that clearly
and fully describes the particular acts or omissions which Grantee reasonably believes in good
faith constitutes “Good Reason”, and an opportunity, within thirty (30) days following its receipt
of such notice, to cure such acts or omissions.

     5. Non-Transferability. Grantee may not sell, transfer, pledge, exchange,
hypothecate, or otherwise encumber or dispose of any of the Unvested Awarded Shares, or any right
or interest therein, by operation of law or otherwise. Any transfer in violation of this Section 5
shall be void and of no force or effect, and shall result in the immediate forfeiture of all
Unvested Awarded Shares.

     6. Dividend and Voting Rights. Subject to the restrictions contained in this
Agreement, Grantee shall have the rights of a stockholder with respect to the Awarded Shares,
including the right to vote all such Awarded Shares, including Unvested Awarded Shares, and to
receive all dividends, cash or stock (other than stock dividends accounted for as a stock split),
paid or delivered thereon, from and after the date hereof. In the event of forfeiture of Unvested
Awarded Shares, Grantee shall have no further rights with respect to such Unvested Awarded Shares.
However, the forfeiture of the Unvested Awarded Shares pursuant to Section 4 hereof shall not
create any obligation to repay cash dividends or stock dividends (other than stock dividends
accounted for as a stock split) received as to such Unvested Awarded Shares, nor shall such
forfeiture invalidate any votes given by Grantee with respect to such Unvested Awarded Shares prior
to forfeiture.

     7. Capital Adjustments and Corporate Events. If, from time to time during the term of
this Agreement, there is any capital adjustment affecting the outstanding Common Stock as a class
without the Company’s receipt of consideration (including stock dividends accounted for as a stock
split), the Unvested Shares shall be adjusted in accordance with the provisions of Section 12 of
the Plan. Any and all new, substituted or additional securities to which Grantee may be entitled
by reason of Grantee’s ownership of the Unvested Awarded Shares hereunder because of a capital
adjustment shall be immediately subject to the forfeiture provisions of this Agreement and included
thereafter as “Unvested Awarded Shares” for purposes of this Agreement.

     8. Refusal to Transfer. The Company shall not be required (i) to transfer on its
books any Unvested Awarded Shares that have been sold or otherwise transferred in violation of any
of the provisions of this Agreement or the Plan, or (ii) to treat as owner of such Unvested

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Awarded Shares, or accord the right to vote or pay or deliver dividends or other distributions
to, any purchaser or other transferee to whom or which Grantee shall have attempted to transfer
such Unvested Awarded Shares.

     9. Tax Matters.

          (a) The Company’s obligation to deliver Awarded Shares to Grantee upon the vesting of such
shares shall be subject to the satisfaction of all applicable federal, state and local income and
employment tax withholding requirements (the “Required Withholding”). The Company shall withhold
from the Vested Awarded Shares that otherwise would have been delivered to Grantee the number of
Vested Awarded Shares necessary to satisfy Grantee’s Required Withholding, and deliver the
remaining Vested Awarded Shares to Grantee, unless Grantee has made arrangements with the Company
for Grantee to deliver to the Company cash, a check or other available funds for the full amount of
the Required Withholding by 5:00 P.M. Central Standard Time on the later of (i) the date Awarded
Shares become Vested Awarded Shares or (ii) the date on which the Vested Awarded Shares are
distributed to Grantee, or by such date Grantee has not made such other provision for the
satisfaction of the Required Withholding in form satisfactory to the Committee or Board, in its
sole discretion. The amount of the Required Withholding and the number of Vested Awarded Shares to
be withheld by the Company, if applicable, to satisfy Grantee’s Required Withholding, as well as
the amount reflected on tax reports filed by the Company, shall be based on the value of the Vested
Awarded Shares determined by using the last sales price of the Common Stock (as reported by the New
York Stock Exchange) on the date prior to the applicable Vesting Date or the date on which the
Vested Awarded Shares are distributed to Grantee, as appropriate. The obligations of the Company
under this Award will be conditioned on such satisfaction of the Required Withholding.

          (b) Grantee acknowledges that the tax consequences associated with the Award are complex and
that the Company has urged Grantee to review with Grantee’s own tax advisors the federal, state,
and local tax consequences of this Award. Grantee is relying solely on such advisors and not on
any statements or representations of the Company or any of its agents. Grantee understands that
Grantee (and not the Company) shall be responsible for Grantee’s own tax liability that may arise
as a result of the Award. Grantee understands further that Section 83 of the Internal Revenue Code
of 1986, as amended (the “Code”), taxes as ordinary income the fair market value of the Vested
Awarded Shares as of the Vesting Date for those shares. Grantee also understands that Grantee may
elect to be taxed at Grant Date rather than at the time the Awarded Shares vest by filing an
election under Section 83(b) of the Code with the Internal Revenue Service and by providing a copy
of the election to the Company. GRANTEE ACKNOWLEDGES THAT HE OR SHE HAS BEEN INFORMED OF THE
AVAILABILITY OF MAKING AN ELECTION IN ACCORDANCE WITH SECTION 83(b) OF THE CODE; THAT SUCH ELECTION
MUST BE FILED WITH THE INTERNAL REVENUE SERVICE (AND A COPY OF THE ELECTION GIVEN TO THE COMPANY)
WITHIN 30 DAYS OF THE GRANT OF AWARDED SHARES TO GRANTEE; AND THAT GRANTEE IS SOLELY RESPONSIBLE
FOR MAKING SUCH ELECTION.

     10. Covenants of Grantee.

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          (a) For the period beginning on the Grant Date through the fifth anniversary of the Grant
Date, Grantee shall not, directly or indirectly and whether on his own behalf or on behalf of any
other person, partnership, association, corporation or other entity, engage in or be an owner,
director, officer, employee, agent, consultant or other representative of or for, or lend money or
equipment to or otherwise support, any business that manufactures, engineers, markets, sells or
provides, within a 250-mile radius of any then existing manufacturing facility of the Company and
its subsidiaries and affiliates, metal building systems or components (including, without
limitation, primary and secondary framing systems, roofing systems, end or side wall panels, doors,
windows or other metal components of a building structure), coated or painted steel or metal coils,
coil coating or painting services, or any other products or services that are the same as or
similar to those manufactured, engineered, marketed, sold or provided by the Company or its
subsidiaries and affiliates during the Continuous Service of Grantee. Ownership by Grantee of
equity securities of the Company, or of equity securities in other publicly owned companies
constituting less than 1% of the voting securities in such companies, shall be deemed not to be a
breach of this covenant.

          (b) For the period beginning on the Grant Date through the fifth anniversary of the Grant
Date, Grantee shall not, directly or indirectly and whether on his own behalf or on behalf of any
other person, partnership, association, corporation or other entity, either (i) hire, seek to hire
or solicit the employment or service of any employee, agent or consultant of the Company or its
subsidiaries and affiliates, (ii) in any manner attempt to influence or induce any employee, agent
or consultant of the Company or its Subsidiaries and affiliates to leave the employment or service
of the Company or its Subsidiaries and affiliates; (iii) use or disclose to any person,
partnership, association, corporation or other entity any information concerning the names and
addresses of any employees, agents or consultants of the Company or its Subsidiaries and affiliates
unless required by due process of law; or (iv) call upon, solicit, divert or attempt to call upon,
solicit or divert the business of any customer, vendor or acquisition prospect of the Company or
any of its Subsidiaries or affiliates with whom Grantee dealt, directly or indirectly, during his
engagement with the Company or its Subsidiaries or affiliates.

          (c) Prior to the vesting of Grantee’s Unvested Awarded Shares, for purposes of the covenants
made in this Section 10, the Company promises to provide Grantee (as is necessary for Grantee’s
position) with various trade secrets and proprietary and confidential information consisting of,
but not limited to, processes, computer programs, compilations of information, records, sales
procedures, customer requirements, pricing techniques, customer lists, methods of doing business
and other confidential information (collectively referred to as the “Trade Secrets”), which are
owned by the Company and regularly used in the operation of its business, but in connection with
which the Company takes precautions to prevent dissemination to persons other than certain
directors, officers and employees. Grantee acknowledges and agrees that the Trade Secrets (a) are
secret and not known in the industry or to the public; (b) are entrusted to him after being
informed of their confidential and secret status by the Company and because of the fiduciary
position occupied by him with the Company; (c) have been developed by the Company for, and on
behalf of, the Company through substantial expenditures of time, effort and money and are used in
its business; (d) give the Company an advantage over competitors who do not know or use the Trade
Secrets; (e) are of such value and nature as to make it reasonable and necessary to protect and
preserve the confidentiality and secrecy of the Trade Secrets; and (f) the Trade Secrets are
valuable, special and unique assets of the Company,

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the disclosure of which could cause substantial injury and loss of profits and goodwill to the
Company. Grantee shall not use in any way or disclose any of the Trade Secrets, directly or
indirectly, during his Continuous Service with the Company, or at any time thereafter, except as
required in the course of his Continuous Service with the Company. All files, records, documents,
information, data and similar items relating to the business of the Company, whether prepared by
Grantee or otherwise coming into his possession, shall remain the exclusive property of the Company
and shall not be removed from the premises of the Company under any circumstances without the prior
written consent of the Board of Directors of the Company (except in the ordinary course of business
during Grantee’s Continuous Service with the Company), and in any event shall be promptly delivered
to the Company upon termination of Grantee’s Continuous Service for any reason. Grantee agrees
that, upon his receipt of any subpoena, process or other request to produce or divulge, directly or
indirectly, any Trade Secrets to any entity, agency, tribunal or person, he shall timely notify and
promptly hand deliver a copy of the subpoena, process or other request to the Chairman of the Board
and Chief Executive Officer of the Company. For this purpose, Grantee irrevocably nominates and
appoints the Company (including any attorney retained by the Company), as his true and lawful
attorney-in-fact, to act in his name, place and stead to perform any act that he might perform to
defend and protect against any disclosure of any Trade Secrets.

          (d) For the period beginning on the Grant Date through the fifth anniversary of the Grant
Date, Grantee shall not for any reason whatsoever (whether or not related to this Agreement or the
Awarded Shares) institute any legal proceedings against the Company, any of its subsidiaries, or
any of its officers, directors, agents or representatives.

     (e) (i) The parties hereto intend all provisions of subsections (a), (b), (c) and (d)
of this Section 10 to be enforced to the fullest extent permitted by law. Accordingly,
should a court of competent jurisdiction determine that the scope of any provision of
subsections (a), (b), (c) or (d) of this Section 10 is too broad to be enforced as written,
the parties intend that the court may reform the provision to such narrower scope as it
determines to be reasonable and enforceable, and, in the event the court reforms Section
10(a) hereof, the Company may elect to either accept enforcement of the provision as so
modified or require the return of cash or Shares as set forth in Section 10(e)(ii). In
addition, however, Grantee agrees that the non-competition agreements, non-employment
agreements, non-disclosure and no litigation agreements set forth above each constitute
separate agreements independently supported by good and adequate consideration and shall
survive this Agreement. The existence of any claim or cause of action of Grantee against
the Company, except for a breach of this Agreement by the Company or its subsidiaries, shall
not constitute a defense to the enforcement by the Company of the covenants and agreements
of Grantee contained in the non-competition, non-employment, non-disclosure and no
litigation agreements.

          (ii) If in connection with the challenge by Grantee of any provision of Section 10(a),
any court of competent jurisdiction determines that the non-competition agreement in Section
10(a) hereof is void or unenforceable or modifies Section 10(a) and the Company declines to
accept the modification, Grantee agrees to return to the Company an amount equal to 80% of
the total value awarded Grantee under this Award, whether in the form of (A) Vested Awarded
Shares still owned by Grantee, (B) cash or

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other immediately available funds in an amount equal to the then fair market value of
the Vested Awarded Shares determined by using the last sales price of the Common Stock (as
reported by the New York Stock Exchange) on the date such determination is made, or (C) any
combination of (A) and (B).

          (f) Grantee hereby agrees that a breach of any of the provisions of this Section 10 would
cause irreparable injury to the Company and its Subsidiaries and affiliates, for which they would
have no adequate remedy at law. If Grantee breaches or threatens to breach any of the covenants
set forth in this Section 10, then without regard for any provision to the contrary, including
Section 13 hereof, the Company shall have the right to immediately seek injunctive relief from a
court having jurisdiction for any actual or threatened breach of this Section 10 without necessity
of complying with any requirement as to the posting of a bond or other security (it being
understood that Grantee hereby waives any such requirement). Any such injunctive relief shall be
in addition to any other remedies to which the Company may be entitled at law, in equity or
otherwise. Grantee hereby agrees that upon receipt of notice of the Company’s intent to seek
injunctive relief, Grantee will not sell, transfer, pledge, exchange, hypothecate, or otherwise
encumber or dispose of any of the Vested Awarded Shares, or any right or interest therein, pending
the final resolution of such injunctive relief proceeding. In addition, Grantee shall, within ten
(10) business days after it is ultimately determined that he has committed such a breach hereof,
whether in an injunctive proceeding brought under this Section 10(f) or pursuant to the dispute
resolution provisions of Section 13 hereof, either (i) redeliver to the Company the Vested Awarded
Shares, if still owned by Grantee, or (ii) reimburse the Company an amount equal to the then fair
market value of the Vested Awarded Shares determined by using the last sales price of the Common
Stock (as reported by the New York Stock Exchange) on the date such determination is made; which
amount shall be paid to the Company in cash or other immediately available funds.

          (g) By acceptance of this Agreement, Grantee agrees to cooperate with, provide information to,
and to participate in such exams and activities as requested by, the Company, if the Company, in
its sole discretion, elects to obtain insurance or make other financial arrangements to fund or
otherwise assure or assist in the performance and satisfaction of the Company’s obligations and
liabilities under this Agreement.

     11. Entire Agreement; Governing Law. The Plan and this Agreement constitute the
entire agreement of the Company and Grantee (collectively, the “Parties”) with respect to the
subject matter hereof and supersede in their entirety all prior undertakings and agreements of the
Parties with respect to the subject matter hereof. If there is any inconsistency between the
provisions of this Agreement and of the Plan, the provisions of the Plan shall govern. Nothing in
the Plan and this Agreement (except as expressly provided therein or herein) is intended to confer
any rights or remedies on any person other than the Parties. The Plan and this Agreement are to be
construed in accordance with and governed by the internal laws of the State of Texas, without
giving effect to any choice-of-law rule that would cause the application of the laws of any
jurisdiction other than the internal laws of the State of Texas to the rights and duties of the
Parties. Should any provision of the Plan or this Agreement relating to the Shares (excluding for
this purpose the provisions of Section 10(a), which is addressed in Section 10(e)) be determined by
a court of law to be illegal or unenforceable, such provision shall be enforced to the fullest

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extent allowed by law and the other provisions shall nevertheless remain effective and shall
remain enforceable.

     12. Interpretive Matters. Whenever required by the context, pronouns and any
variation thereof shall be deemed to refer to the masculine, feminine, or neuter, and the singular
shall include the plural, and vice versa. The term “include” or “including” does not denote or
imply any limitation. The captions and headings used in this Agreement are inserted for
convenience and shall not be deemed a part of the Restricted Stock Award or this Agreement for
construction or interpretation.

     13. Dispute Resolution. Except as provided in Section 10 hereof, the provisions of
this Section 13 shall be the exclusive means of resolving disputes of the Parties (including any
other persons claiming any rights or having any obligations through the Company or Grantee) arising
out of or relating to the Plan and this Agreement. The Parties shall attempt in good faith to
resolve any disputes arising out of or relating to the Plan and this Agreement by negotiation
between individuals who have authority to settle the controversy. Either Party may commence
negotiations by delivering to the other Party a written statement of the Party’s position and the
name and title of the individual who will represent the Party. Within thirty (30) days of the
written notification, the Parties shall meet at a mutually acceptable time and place, and
thereafter as often as they reasonably deem necessary, to resolve the dispute. If the dispute has
not been resolved by negotiation within ninety (90) days of the written notification of the
dispute, either Party may file suit and each Party agrees that any suit, action, or proceeding
arising out of or relating to the Plan or this Agreement shall be brought in the United States
District Court for the Southern District of Texas (or should such court lack jurisdiction to hear
such action, suit or proceeding, in a Texas state court in Harris County, Texas) and that the
Parties shall submit to the jurisdiction of such court. The Parties irrevocably waive, to the
fullest extent permitted by law, any objection a Party may have to the laying of venue for any such
suit, action or proceeding brought in such court. THE PARTIES ALSO EXPRESSLY WAIVE ANY RIGHT THEY
HAVE OR MAY HAVE TO A JURY TRIAL OF ANY SUCH SUIT, ACTION OR PROCEEDING. If any one or more
provisions of this Section 13 shall for any reason be held invalid or unenforceable, it is the
specific intent of the Parties that such provisions shall be modified to the minimum extent
necessary to make it or its application valid and enforceable.

     14. Nature of Payments. Any and all grants or deliveries of Awarded Shares hereunder
shall constitute special incentive payments to Grantee and shall not be taken into account in
computing the amount of salary or compensation of Grantee for the purpose of determining any
retirement, death or other benefits under (a) any retirement, bonus, life insurance or other
employee benefit plan of the Company, or (b) any agreement between the Company and Grantee, except
as such plan or agreement shall otherwise expressly provide.

     15. Payment of Par Value. The Company’s obligation to deliver Awarded Shares to
Grantee upon the vesting of such shares shall be subject to the payment in full of the requisite
par value per share of the Awarded Shares prior to such issuance (collectively, the “Par Value”).
If the Company has not received from Grantee cash, a check or other available funds for the full
amount of the Par Value by 5:00 P.M. Central Standard Time within five (5) days after the Grant
Date, or Grantee has not made by that date such other provision for the payment of the Par Value in
form satisfactory to the Committee or Board in its sole discretion, the Company shall pay the

10

 

Par Value of the Awarded Shares on behalf of Grantee and will report the amount of such
payment as income to Grantee for the taxable period of Grantee during which the Awarded Shares are
granted. Grantee acknowledges and agrees that he shall be responsible for the payment of any and
all federal, state and local taxes on such income if the Company pays the Par Value on behalf of
Grantee.

     16. Amendment; Waiver. This Agreement may be amended or modified only by means of a
written document or documents signed by the Company and Grantee. Any provision for the benefit of
the Company contained in this Agreement may be waived, either generally or in any particular
instance, by the Board or by the Committee. A waiver on one occasion shall not be deemed to be a
waiver of the same or any other breach on a future occasion.

     17. Notice. Any notice or other communication required or permitted hereunder shall
be given in writing and shall be deemed given, effective, and received upon prepaid delivery in
person or by courier or upon the earlier of delivery or the third business day after deposit in the
United States mail if sent by certified mail, with postage and fees prepaid, addressed to the other
Party at the Company’s principal executive office or the address of Grantee in the records and
books of the Company, or to such other address as such Party may designate in writing from time to
time by notice to the other Party in accordance with this Section 17.

	 	 	 	 	 
	 	 	NCI BUILDING SYSTEMS, INC.
	 
	 	 	 	 
	 
	 	BY:	 	 
	

	 	 	 	A. R. Ginn
	

	 	 	 	Chairman of the Board and
	

	 	 	 	Chief Executive Officer

GRANTEE ACKNOWLEDGES AND AGREES THAT THE SHARES SUBJECT TO THIS RESTRICTED STOCK AWARD SHALL VEST
AND THE FORFEITURE PROVISIONS SHALL LAPSE, IF AT ALL, ONLY DURING THE PERIOD OF GRANTEE’S
CONTINUOUS SERVICE OR AS OTHERWISE PROVIDED IN THIS AGREEMENT (NOT THROUGH THE ACT OF BEING GRANTED
THE RESTRICTED STOCK AWARD). GRANTEE FURTHER ACKNOWLEDGES AND AGREES THAT NOTHING IN THIS
AGREEMENT OR THE PLAN SHALL CONFER UPON GRANTEE ANY RIGHT WITH RESPECT TO FUTURE AWARDS OR
CONTINUATION OF GRANTEE’S CONTINUOUS SERVICE. Grantee acknowledges receipt of a copy of the Plan,
represents that he or she is familiar with the terms and provisions thereof, and hereby accepts the
Restricted Stock Award subject to all of the terms and provisions hereof and thereof. Grantee has
reviewed this Agreement and the Plan in their entirety, has had an opportunity to obtain the advice
of counsel prior to executing this Agreement, and fully understands all provisions of this
Agreement and the Plan. Grantee hereby agrees that all disputes arising out of or relating to this
Agreement and the Plan shall be resolved in accordance with Section 13 of this Agreement. Grantee
further agrees to notify the Company upon any change in the address for notice indicated in this
Agreement.

11

 

	 	 	 
	DATED:                                                            

	 	SIGNED:                                                             
	

	 	                    GRANTEE

12

 

EXHIBIT A

JOINT ESCROW INSTRUCTIONS

__________ __, 200_

	 	 	 
	Chief Financial Officer

	 	 
	NCI Building Systems, Inc.

	 	 
	10943 North Sam Houston Parkway West
	 	 
	Houston, Texas 77064
	 	 

Dear Sir or Madam:

As Escrow Agent for both NCI Building Systems, Inc., a Delaware corporation (the “Company”), and
the undersigned grantee (the “Grantee”) of shares of Common Stock of the Company (the “Shares”)
under that certain Restricted Stock Agreement between the Company and the Grantee (the
“Agreement”), you are hereby authorized and directed to hold the Shares, the stock certificate(s)
evidencing the Shares, and any other property and documents delivered to you pursuant to the
Agreement, in accordance with the following instructions:

     1. In the event the Shares are forfeited to the Company pursuant to the Agreement, the Company
shall give the Grantee and you a written notice of such forfeiture and the number of the Shares to
be forfeited thereunder (the “Notice”). The Grantee and the Company hereby irrevocably authorize
and direct you to complete the transaction described in the Notice in accordance with the terms of
the Notice. To complete the transaction described in the Notice at the closing, you are directed
(a) to complete, as appropriate, the stock assignment(s) necessary for the transfer of forfeited
Shares to the Company as described in the Notice, and (b) to deliver same, together with the
certificate(s) evidencing the forfeited Shares to be transferred, to the Company.

     2. The Grantee irrevocably authorizes the Company to deposit with you any certificates
evidencing the Shares to be held by you hereunder and any additions and substitutions to said
Shares as described in the Agreement. The Grantee does hereby irrevocably constitute and appoint
you as the Grantee’s attorney-in-fact and agent for the term of this escrow to execute with respect
to such Shares all documents necessary or appropriate to make such Shares negotiable and to
complete any transaction herein contemplated. Subject to the provisions of this paragraph 2, the
Grantee shall exercise all rights and privileges of a shareholder of the Company with respect to
the Shares while the Shares are held by you.

     3. Upon written request to you and to the Company by the Grantee following the lapse of the
forfeiture provisions described in the Agreement, you shall deliver to the Grantee a stock
certificate or stock certificates representing those Shares as to which the forfeiture provisions
have lapsed.

     4. If, at the time of termination of this escrow (upon the lapse of forfeiture provisions
regarding all of the Shares and other property in your possession in accordance with

A-1

 

the Agreement), you should have in your possession any documents, securities, or other
property belonging to the Grantee, you shall deliver all of the same to the Grantee and shall be
discharged of all further obligations hereunder.

     5. Your duties hereunder may be altered, amended, modified or revoked only by a writing signed
by all of the parties hereto.

     6. You shall be obligated only for the performance of such duties as are specifically set
forth herein and may rely, and you shall be protected in relying or refraining from acting on any
instrument reasonably believed by you to be genuine and to have been signed or presented by the
proper party or parties. You shall not be personally liable for any act you may do or omit to do
hereunder as Escrow Agent or as attorney-in-fact for the Grantee while acting in good faith, and
any act done or omitted by you pursuant to the advice of your own attorneys shall be conclusive
evidence of such good faith.

     7. You are hereby expressly authorized to disregard any and all warnings given by any of the
parties hereto or by any other person or entity, excepting only orders or process of courts of law,
and are hereby expressly authorized to comply with and obey orders, judgments, or decrees of any
court. In case you obey or comply with any such order, judgment, or decree, you shall not be liable
to any of the parties hereto or to any other person or entity by reason of such compliance,
notwithstanding any such order, judgment, or decree being subsequently reversed, modified,
annulled, set aside, vacated, or found to have been entered without jurisdiction.

     8. You shall not be liable in any respect on account of the identity, authorities or rights of
the parties executing or delivering, or purporting to execute or deliver, the Agreement or any
documents or papers deposited or called for hereunder.

     9. You shall be entitled to employ such legal counsel and other experts as you may deem
necessary properly to advise you in connection with your obligations hereunder, may rely upon the
advice of such counsel, and may pay such counsel reasonable compensation therefor, for which you
will be reimbursed by the Company.

     10. Your responsibilities as Escrow Agent hereunder shall terminate if you shall cease to be
the Chief Financial Officer of the Company or if you shall resign by written notice to each party.
In the event of any such termination, the Company shall appoint a successor Escrow Agent, who may
be any person or entity selected by the Company. In the absence of such appointment by the
Company, or until it has so specifically appointed another person or entity as a successor Escrow
Agent, the successor Escrow Agent automatically, without the necessity of any further action by the
Company, shall be deemed to be the person appointed or elected as the successor Chief Financial
Officer of the Company to succeed the Chief Financial Officer who so resigned or otherwise ceased
to be the Chief Financial Officer of the Company.

     11. If you reasonably require other or further instruments in connection with these Joint
Escrow Instructions or obligations in respect hereto, the necessary party or parties hereto shall
join in furnishing such instruments.

A-2

 

     12. It is understood and agreed that should any dispute arise with respect to the delivery
and/or ownership or right of possession of the Shares or any other property held by you hereunder,
you are authorized and directed to retain in your possession, without liability to anyone, all or
any part of such property until such dispute shall have been settled either by mutual written
agreement of the parties concerned or by a final order, decree, or judgment of a court of competent
jurisdiction after the time for appeal has expired and no appeal has been perfected, but you shall
be under no duty whatsoever to institute or defend any such proceedings.

     13. Any notice required or permitted hereunder shall be given in writing and shall be given by
personal or courier delivery or deposit in the United States mail, by registered or certified mail
with postage and fees prepaid, addressed to each of the other parties thereunto entitled at the
following addresses or at such other addresses as a party may designate by ten days’ advance
written notice to each of the other parties hereto:

	 	 	 	 	 
	

	 	If to the Company:
	 	NCI Building Systems, Inc.
	 

	 	 	 	10943 North Sam Houston Parkway West
	

	 	 	 	Houston, Texas 77064
	

	 	 	 	Attention: Chairman of the Board
	 
	 	 	 	 
	

	 	If to the Grantee:
	 	The address set forth opposite the Grantee’s
	

	 	 	 	signature below, or if none, to the care of the
	

	 	 	 	Company at the Company’s address above.
	 
	 	 	 	 
	

	 	If to the Escrow Agent:
	 	c/o NCI Building Systems, Inc.
	

	 	 	 	10943 North Sam Houston Parkway West
	

	 	 	 	Houston, Texas 77064
	

	 	 	 	Attention: Chief Financial Officer

Any notice so given by personal or courier delivery shall be deemed to have been duly
given upon delivery, and any notice so given by United States mail shall be deemed to
have been duly given upon the earlier of receipt by the addressee or the fourth business
day after deposit in the mail.

     14. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose
of the Joint Escrow Instructions; you do not become a party to the Agreement.

     15. This instrument shall be binding upon and inure to the benefit of the parties hereto and
their respective successors and permitted assigns.

     16. These Joint Escrow Instructions shall be governed by, and construed and enforced in
accordance with, the internal substantive laws, but not the choice of law rules, of the State of
Texas.

A-3

 

Sincerely,

NCI BUILDING SYSTEMS, INC.

	 	 	 
	By:	 
	 	

	

	 	A. R. Ginn
	

	 	Chairman of the Board and
	

	 	Chief Executive Officer

GRANTEE:

	 	 	 
	 

	 	 
	 

	 	 
	Signature

	 	Street Address
	 
	 	 
	 

	 	 
	 

	 	 
	Print Name

	 	City, State Zip Code

ESCROW AGENT:

	 	 	 
	 

	 	  
	Chief Financial Officer
	 	 

A-4

 

EXHIBIT B

ASSIGNMENT SEPARATE FROM CERTIFICATE

FOR VALUE RECEIVED, I, ____________________________________, hereby sell, assign and transfer unto
NCI Building Systems, Inc. (the “Company”) __________________________ (____________) shares of the
Company’s Common Stock standing in my name of the books of the Company represented by Certificate
No. _____ delivered herewith, and do hereby irrevocably constitute and appoint
___________________________________ as attorney-in-fact, with full power of substitution, to
transfer the such shares on the books of the Company.

                                                            

(Signature)

                                                            

(Please print name)

INSTRUCTIONS:

Please do not fill in any blanks other than the signature lines. The purpose of this assignment is
to enable the Company to receive the shares upon the occurrence of a forfeiture of all, or any
portion of, the shares, as set forth in the Restricted Stock Agreement, without requiring
additional signatures on the part of the Grantee.

B - 1exv10w41

 

Exhibit 10.41

COMMERCIAL SUPPLY AGREEMENT

     THIS COMMERCIAL SUPPLY AGREEMENT (this “Agreement”) is made as of December 3, 2004 (the
“Effective Date”), by and between ADVANCIS PHARMACEUTICAL CORPORATION, a Delaware corporation
(“Advancis”), and CEPH INTERNATIONAL CORPORATION, a Commonwealth of Puerto Rico corporation
(“CEPH”).

Recitals

     WHEREAS, CEPH manufactures and sells certain cephalexin pharmaceutical products; and

     WHEREAS, Advancis desires to purchase products from CEPH, and CEPH is willing to supply such
products to Advancis, all upon the terms and conditions of this Agreement;

     NOW, THEREFORE, the parties hereby agree as follows:

ARTICLE 1

DEFINITIONS; RULES OF CONSTRUCTION

     1.1 Definitions. As used in this Agreement, the following capitalized terms
shall have the following meanings, unless the context otherwise requires:

     “Act” means the United States Federal Food, Drug and Cosmetic Act.

     “Affiliate” means any legal entity directly or indirectly controlling, controlled by or under
common control with a party to this Agreement. As used in this definition, “control” means the
legal power to direct or cause the direction of the general management or policies of such entity
through the ownership of voting securities, by contract or otherwise.

     “Agreement” has the meaning set forth in the preamble.

     “ANDA” means the Abbreviated New Drug Application for the Products as filed with the FDA by
CEPH, as amended from time to time.

     “API” means cephalexin, the active pharmaceutical ingredient in the Products.

     “Applicable Laws” means all applicable laws, rules, regulations and guidelines (including any
such laws, rules, regulations or guidelines issued by any federal, state, or local regulatory
agency, department, bureau or other government entity) that may apply to the testing, development,
manufacture, packaging, distribution, storage, import, export, handle, transport, disposal,
marketing, sale or use of the Products in the Territory or the performance of either party’s
obligations under this Agreement, including the Act, all applicable environmental laws, rules,
regulations and guidelines and all cGMPs.

     “Batch Records” has the meaning set forth in Section 4.6.

 

 

     “cGMPs” means the Current Good Manufacturing Practices regulations of the FDA.

     “Confidential Information” means all secret, confidential or proprietary data, know-how and
related information, including (a) all Regulatory Applications, regulatory and clinical materials
and related Regulatory Filings, applications and data, (b) the content of any unpublished patent
applications, (c) operating methods and procedures, (d) marketing, manufacturing, distribution and
sales methods and systems, (e) sales figures, pricing policies and price lists and (f) other
business information of either party; provided, that Confidential Information shall not
include any information that (i) is already known to the Receiving Party at the time of disclosure
by the Disclosing Party, as demonstrated by competent proof, (ii) is or becomes generally available
to the public other than through any act or omission of the Receiving Party, (iii) is acquired by
the Receiving Party, free of an obligation of confidentiality, from a third party who is not,
directly or indirectly, under an obligation of confidentiality to the Disclosing Party with respect
to such information, or (iv) is developed independently by the Receiving Party without use, direct
or indirect, of Confidential Information of the Disclosing Party.

     “Delivery Date” has the meaning set forth in Section 2.2(c).

     [***]

     “Disclosing Party” has the meaning set forth in Section 9.1.

     “FDA” means the United States Food and Drug Administration or any successor thereto.

     “Finished Package Form” means the Products filled, inspected, labeled, packaged and packed in
bottles or blister packaging in accordance with the Specifications and in compliance with all
Applicable Laws.

     “Firm Quantity” has the meaning set forth in Section 2.2(d).

     “Force Majeure Event” has the meaning set forth in Section 11.6.

     “Forecast” has the meaning set forth in Section 2.2(b).

     “Indemnified Party” has the meaning set forth in Section 8.3.

     “Indemnifying Party” has the meaning set forth in Section 8.3.

     “Initial Forecast” has the meaning set forth in Section 2.2(a).

     “Initial Term” has the meaning set forth in Section 10.1.

     “Labeling Specifications” means that portion of the Specifications relating to labeling and
packaging requirements of the Products (including all label copy and printing on bottles and
capsules), as provided by or approved by Advancis and attached hereto as Schedule C.

     “Liability” has the meaning set forth in Section 8.1.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934,
AS AMENDED.

-2-

 

     “MOVA” means MOVA Pharmaceutical Corporation, a Commonwealth of Puerto Rico corporation.

     “Plant” means the CEPH facility located in Carolina, Puerto Rico, which shall be used to
manufacture the Products.

     “Products” means the cephalexin pharmaceutical products produced under the ANDA in the
presentations listed on Schedule A, whether branded as KEFLEX products or as generic
equivalents.

     “Purchase Order” has the meaning set forth in Section 2.2(c).

     “Quality Agreement” has the meaning set forth in Section 5.5.

     “Raw Materials” means the raw materials and ingredients described in the Specifications.

     “Receiving Party” has the meaning set forth in Section 9.1.

     “Regulatory Approval” means all approvals (including price and reimbursement approvals),
licenses, registrations, or authorizations of any federal, state or local regulatory agency,
department, bureau or other government entity, necessary for the manufacture, use, storage, import,
transport and sale of the Products.

     “Regulatory Authorities” means the FDA, as well as the national regulatory authorities of the
countries within the Territory with responsibility for regulating the testing, manufacture,
marketing, distribution, sale or use of the Products.

     “Regulatory Filing” means an application for Regulatory Approval and any other filing pursuant
to the regulations and procedures required by any Regulatory Authority in the Territory for the
testing, manufacture, marketing, distribution, sale or use of the Products.

     “Renewal Term” has the meaning set forth in Section 10.1.

     “Representatives” of a party means such party’s Affiliates, officers, directors, agents and
employees.

     “Secondary Supplier” has the meaning set forth in Section 2.6(b)(iv).

     “Specifications” means the specifications, procedures, requirements, standards and criteria
required to manufacture and package the Products, including all formulae, Raw Materials, test
methods, standards of quality control and quality assurance, release criteria and instructions for
the Products, and master production records, all as provided by or approved by Advancis and
attached hereto as Schedule B, including the Labeling Specifications.

     “Term” has the meaning set forth in Section 10.1.

-3-

 

     “Territory” means the fifty (50) states and the District of Columbia constituting the United
States of America and any territory or commonwealth owned or controlled by the United States of
America, including the Commonwealth of Puerto Rico.

     1.2 Rules of Construction. The definitions in this Agreement shall apply equally to
both the singular and plural forms of the terms defined. Whenever the context may require, any
pronoun shall include the corresponding masculine, feminine and neuter forms. The words “include,”
“includes” and “including” shall be deemed to be followed by the phrase “but not limited to.” All
references herein to Articles, Sections and Schedules shall be deemed references to Articles and
Sections of and Schedules to, this Agreement unless the context shall otherwise require. All
Schedules attached to this Agreement shall be deemed incorporated herein by reference as if fully
set forth herein. Words such as “herein,” “hereof,” “hereto,” “hereby” and “hereunder” refer to
this Agreement and to the Schedules, taken as a whole. “Or” is disjunctive but not necessarily
exclusive. Except as otherwise expressly provided herein: (a) any reference in this Agreement to
any agreement shall mean such agreement as amended, restated, supplemented or otherwise modified
from time to time; (b) any reference in this Agreement to any law shall include corresponding
provisions of any successor law and any regulations and rules promulgated pursuant to such law or
such successor law; and (c) all terms of an accounting or financial nature shall be construed in
accordance with U.S. generally-accepted accounting principles, as in effect from time to time.
Neither the captions to Sections or subdivisions thereof shall be deemed to be a part of this
Agreement.

ARTICLE 2

PURCHASE AND SUPPLY OF PRODUCT

     2.1 Agreement to Supply.

          (a) During the Term, CEPH shall supply to Advancis, in accordance with the Specifications and
this Agreement, such Products in Finished Package Form for sale, use or other disposition in the
Territory as Advancis may order from time to time during the Term. Except as explicitly provided
in this Agreement, Advancis shall purchase all of its requirements for Products listed on
Schedule A exclusively from CEPH. Notwithstanding the above: (i) if CEPH is fully meeting
its obligations hereunder, Advancis shall have the right to [***]; and (ii) as provided in Section
2.6, Advancis shall have the right to [***]. In addition, Advancis shall have the right to [***].

          (b) The parties may, from time to time, mutually agree to include additional Products by
amending Schedule A. From time to time, Advancis may require and CEPH may agree to [***].
The parties may decide to include certain [***] by amending Schedule A. Each such [***],
shall be manufactured by CEPH [***] for Advancis until [***].

          (c) CEPH, in accordance with its customary practices of pharmaceutical product manufacturing,
maintains paper and/or electronic documents that track its manufacturing process including, without
limitation, Batch Records (as defined in Section 4.6). CEPH shall arrange regular meetings with
Advancis by telephone or in person, as agreed upon by the parties, regarding all issues relating to
the supply of Products hereunder.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934,
AS AMENDED.

-4-

 

     2.2 Forecasts; Purchase Orders.

     (a) Within [***] after the Effective Date, Advancis shall provide to CEPH its initial twelve
(12) month forecast for Advancis’ purchases of Products (the “Initial Forecast”). The Initial
Forecast shall cover the twelve (12) month period commencing with the next calendar month following
the month in which Advancis delivers the Initial Forecast to CEPH. The Initial Forecast shall be
in good faith and nonbinding. For commercial launch supplies of Products, Advancis shall provide
its initial firm order no later than [***] prior to the designated delivery date.

     (b) After the Initial Forecast, on or before the [***] of each calendar quarter throughout the
Term, Advancis shall provide to CEPH a twelve (12) month rolling written forecast for its purchases
of Products per month (each, a “Forecast”). Each Forecast shall cover the twelve (12) month period
commencing with the next calendar quarter following the quarter in which Advancis delivers such
Forecast to CEPH. For example, if the delivery date of a Forecast were [***], then the Forecast
would cover the twelve (12) month period commencing [***] and ending [***].

     (c) After providing its initial firm order, Advancis shall deliver to CEPH purchase orders for
the Products (each a “Purchase Order”) on a monthly basis. Each Purchase Order shall be firm. The
required shipment date for the Products ordered in each Purchase Order shall be the date indicated
by Advancis in each Purchase Order (the “Delivery Date”). Advancis shall deliver each Purchase
Order to CEPH no later than ninety (90) days before the applicable Delivery Date. CEPH shall
confirm the Delivery Dates, in writing, within fifteen (15) days of receipt of the Purchase Orders
from Advancis. Each Purchase Order shall be placed for entire lot quantities of Products as
described in Schedule E. Each Purchase Order shall designate the amount of each type of
Product ordered by Advancis (in entire lot quantities as described in Schedule E). For
example, Schedule F attached hereto provides hypothetical order amounts for Products.

     (d) With respect to each Purchase Order, the total number of units of Products forecasted in
the most recent Forecast for the month of the applicable Delivery Date shall be referred to as the
“Firm Quantity.” CEPH shall be required to manufacture, supply and ship the quantities of Products
ordered by Advancis in each Purchase Order, up to [***] of the Firm Quantity (in entire lot
quantities as described in Schedule E). In addition, upon the request of Advancis, CEPH
shall use commercially reasonable efforts to manufacture, supply and deliver to Advancis additional
quantities of Products (i.e., quantities in excess of [***] of the Firm Quantity). For each month
throughout the Term, Advancis shall order and agrees to purchase from CEPH no less than [***] of
the Firm Quantity (in entire lot quantities as described in Schedule E).

     (e) For each Purchase Order, CEPH shall deliver the ordered Products, in accordance with
Article 3, no later than [***] after the applicable Delivery Date. Advancis shall be obligated to
pay CEPH, in accordance with Article 3, for quantities of Products produced and delivered by CEPH
in accordance with the instructions contained in the Purchase Orders.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934,
AS AMENDED.

-5-

 

     2.3 Summary Purchase Reports. On the date of each shipment of Products, CEPH shall
submit to Advancis, via facsimile, a packing slip containing the ship date, trailer number,
contents and quantities of each shipment. Not later than [***] of each calendar month during the
term of this Agreement (beginning with month in which the first delivery of Products occurs), CEPH
shall submit to Advancis, via facsimile, a report detailing the shipments made during the calendar
month immediately preceding the date of such report.

     2.4 Documents to be Included With Each Shipment. With each lot of Products shipped to
Advancis, CEPH shall provide Advancis (i) a certificate of analysis, (ii) a certificate of
compliance and disposition sheet, each signed by the responsible quality official of CEPH, (iii) a
summary in the English language, including all deviations that may impact regulatory commitments or
quality and (iv) critical in-process control data, if any. The certificate of analysis shall
include the numerical results for each test (chemical, microbiological and bacteriological)
performed to assure results are in compliance with the Specifications. CEPH also shall provide
Advancis with Batch Records as provided under Section 4.6.

     2.5 Standard Forms. Except as otherwise expressly agreed to by both parties in
writing, if any term of any Purchase Order, invoice or acknowledgment or other document issued by
either party in connection herewith conflicts with the terms of this Agreement, the terms of this
Agreement shall control. Subject to the foregoing sentence, the terms of all Purchase Orders shall
be deemed part of this Agreement.

     2.6 Late Delivery; Inability to Supply.

     (a) CEPH shall provide Advancis prompt written notice if CEPH becomes aware of any
circumstance that may render it unable to timely supply to Advancis Products as set forth herein.
CEPH shall use its best efforts to avoid or minimize any delay in delivery including, at Advancis’
reasonable request, the expenditure of premium time and shipping via air or other expedited routing
to avoid Product stock-outs.

     (b) If CEPH fails to timely supply to Advancis Products as set forth herein, Advancis may
exercise, at its option, one or more of the following remedies:

          (i) Notwithstanding anything to the contrary herein, in the event CEPH fails to deliver within
[***] of the requested delivery date, for reasons [***] (but provided that CEPH gives notice to
Advancis of such reasons prior to such [***]), any Products pursuant to any Purchase Orders and the
terms hereof, Advancis may [***], provided however that [***].

          (ii) If Advancis does not cancel any non-delivered quantity of Products, [***]. Any
additional cost caused by these requirements shall be borne by the party causing the delay.

          (iii) In the event that CEPH fails to deliver at least [***] of the volume of Products per
order for [***] orders, which order shall not to be placed in the same month, or [***] of the sum
of the Products ordered during such [***] orders (provided, that CEPH shall not be deemed to have
failed to deliver any Products if delivery of such Products occurs within [***] of the confirmed
delivery date), for reasons other than those related to: (i) [***]; or (ii) [***], the

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934,
AS AMENDED.

-6-

 

price payable for any succeeding Products delivered against such original Purchase Orders will
be reduced by [***] for the total Purchase Order amount which was unfulfilled below such [***] or
[***] as applicable. However, in the event that CEPH fails to deliver at least [***] of the volume
of Products per order for an additional order, that is, for [***] orders, then the price payable
for any succeeding Products delivered against such original Purchase Orders shall be reduced by an
additional [***], that is, for a total of [***], for the total Purchase Order amount which was
unfulfilled below such [***].

          (iv) Notwithstanding anything to the contrary herein, if CEPH is unable for any reason, other
than for reasons [***], to meet its supply obligations of Products to Advancis for at least [***]
during which time CEPH fails to meet [***] in aggregate total of Advancis’ Purchase Orders,
Advancis shall have the right to [***] unless and until such time that CEPH has demonstrated, to
Advancis’ sole satisfaction, that it can resume supply of Product and upon fulfillment by Advancis
of any Product volume purchase requirement in any [***] contract into which Advancis has entered.
In such case, CEPH shall cooperate with Advancis and provide reasonable assistance in its efforts
to [***]. The rights and obligations of the parties under this Section 2.6(b) shall be
notwithstanding the occurrence of any Force Majeure Event.

     2.7 Shortfall Allocation. If at any time CEPH is unable to supply the quantities of
Products ordered by Advancis in a Purchase Order in accordance with this Agreement, CEPH shall use
[***] to supply Advancis’ requirements for Products listed in Schedule A in accordance with
Section 2.6 of this Agreement. In such event , CEPH shall (i) immediately notify Advancis,
(ii) have an ongoing obligation to provide Advancis with its good faith estimate as to whether it
is able to fulfill Advancis’ requirements for Products hereunder, (iii) keep Advancis
fully-informed as to the portion of Advancis’ requirements for Products that it will supply, (iv)
provide Advancis with an estimate of how long it will be unable to fulfill Advancis’ requirements
for Products and (v) notify Advancis at the time it resumes the ability to fulfill Advancis’
requirements for Products.

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

     2.9 Except as explicitly provided in this Agreement, Advancis shall not be restricted from
manufacturing, purchasing, marketing or otherwise dealing in any cephalexin pharmaceutical
products. Nothing in this Agreement shall restrict Advancis from manufacturing, purchasing,
marketing or otherwise dealing in any pharmaceutical products other than the Products listed on
Schedule A, at any time from any source.

ARTICLE 3

PRICE; PAYMENT; DELIVERY

     3.1 Prices. The prices to be paid to CEPH by Advancis for the manufacture, packaging,
storage, handling and supply of the Products in Finished Package Form shall be as set forth in
Schedule E to this Agreement. The parties shall review and adjust such prices in
accordance with the provisions set forth in Schedule E.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934,
AS AMENDED.

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     3.2 Invoices/Quantities. CEPH shall submit all invoices to Advancis upon delivery of
the Products by CEPH to the common carrier designated by Advancis. Advancis shall pay CEPH for all
delivered Products that meet the Specifications and the requirements of Applicable Laws within
thirty (30) days after invoice date. If Advancis disagrees for any reason with the amount of any
invoice submitted by CEPH, Advancis shall notify CEPH of such disagreement within thirty (30) days
after receipt of such invoice, and the parties shall promptly attempt to resolve the difference.
Any portion of the invoiced amount that is not in dispute shall be paid within thirty (30) days
after the original date of the invoice.

     3.3 Advancis Prices. Advancis shall have sole discretion to establish the prices at
which it sells the Products to its customers.

     3.4 Sales and Use Taxes. CEPH shall pay any federal, state, county or municipal sales
or use tax, excise or similar charge or other tax assessment (other than that assessed against
income) assessed or charged solely on the sale of the Products to Advancis pursuant to this
Agreement.

     3.5 Withholding Taxes. Payments made by Advancis under this Agreement shall be
reduced by any taxes, licenses, fees or other withholdings levied upon such payments under
Applicable Law.

     3.6 Shipping Instructions/Risk of Loss. CEPH shall deliver the Products ordered by
Advancis pursuant hereto [***]. Delivery shall be timely if it is made at the [***] of the
Delivery Date specified in the applicable Purchase Order. CEPH shall prepare for shipping the
Products on slip sheets and pallets consistent with the Specifications and as instructed in writing
by Advancis, and shall include certificates of analysis and all documents specified in Section 2.4
with all shipments of Products. In addition, at Advancis’ request, CEPH shall arrange for the
shipment of the Products from the Plant to the location designated by Advancis, using the carrier
designated by Advancis, including scheduling freight pick up, loading the carrier’s trailer,
arranging for proper and reasonable insurance, and completing the shipping documentation, all at
[***] risk and expense. Risk of loss of all Products shipped hereunder shall remain with [***].

ARTICLE 4

PRODUCTION; RECORDKEEPING

     4.1 Standards. CEPH shall manufacture and package the Products (including disposal of
waste) strictly in accordance with the Specifications, all Applicable Laws and such trademark usage
and other reasonable requirements as may be instructed by Advancis and shall otherwise perform
under this Agreement in accordance with all Applicable Laws. All Products shall conform to the
Specifications. CEPH shall, at its sole cost and expense, obtain and comply with all
registrations, licenses, consents, permits and laws which may from time to time be required by the
Regulatory Authorities with respect to the manufacture and packaging of the Products, the Plant and
otherwise to permit the performance of CEPH’s obligations hereunder. Advancis shall (or shall
cause its distributors to), at its sole cost and expense, obtain and comply with all registrations,
licenses, consents, permits and laws which may from time to time be required by appropriate
Regulatory Authorities with respect to the use, sale, distribution and marketing of the

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

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Products in the Territory and otherwise to permit the performance of Advancis’ obligations
hereunder.

     4.2 Supply of Materials. CEPH shall procure, receive, test and release against
approved specifications sufficient quantities of Raw Materials and packaging materials to enable
CEPH to manufacture, finish, package and deliver the Products in Finished Package Form in
accordance with Advancis’ Purchase Orders. CEPH shall maintain and provide all necessary resources
(labor, facilities, equipment and materials) for performance of its obligations under this
Agreement. CEPH shall be responsible for all expenses attributable to its performance under this
Agreement, and no such expense shall be chargeable to Advancis, except as may be specifically
authorized by Advancis in writing. CEPH shall procure all API, Raw Materials and other components
for Products in accordance with the ANDA as approved by the FDA. Any proposed change to the
suppliers, for materials [***] shall be mutually agreed upon by CEPH and Advancis in accordance
with this Agreement. Both CEPH and Advancis may participate in quality audits of all APIs, Raw
Materials and other component suppliers for changes that may have an impact with respect to any
KEFLEX branded Products [***].

     4.3 Storage Requirements. CEPH shall store all Raw Materials (including API),
packaging materials and Products in accordance with the Specifications in accordance with cGMPs.
Storage and handling of the foregoing shall be strictly in accordance with the provisions of all
Applicable Laws, the Quality Agreement, the quality control programs and the standards set forth in
the Specifications. CEPH shall notify Advancis of any need to use a third party warehouse for any
Raw Materials or packaging materials and any such storage at such third party warehouse shall be
subject to Advancis’ prior written approval, which approval shall not be unreasonably withheld.
CEPH shall be responsible for any incremental cost associated with using a third party warehouse
for storage. Raw Materials and packaging materials utilized by CEPH in connection with the
manufacture and packaging of the Products shall be primarily used by CEPH on a first in, first out
basis; provided, that Raw Materials shall not be used by CEPH beyond the shelf life
required under Applicable Laws or designated or approved in writing by Advancis from time to time,
as applicable.

     4.4 Maintenance of Facility and Equipment. CEPH shall maintain all equipment utilized
in the manufacture, packaging and supply of the Products hereunder in good operating condition and
shall maintain the Plant and such equipment in accordance with (a) all Applicable Laws, including
all applicable regulations and requirements of the FDA, including cGMPs, and (b) all requirements
set forth in the Specifications.

     4.5 Disposal of Waste. CEPH shall, at its sole cost and expense, dispose of all waste
in a manner prescribed by and consistent with all Applicable Laws, including environmental laws and
regulations. Rejected Products returned to CEPH shall be disposed of at CEPH’s sole cost and
expense, provided, however that Advancis shall be responsible for the cost of disposal for any
Products rejected for causes not caused by or under CEPH’s control.

     4.6 Batch Records. Records which set forth information relating to the manufacturing,
packaging and quality operation for each lot of the Products (“Batch Records”) shall be prepared by
CEPH for each lot at the time at which such operations occur. The Batch

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

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Records shall include but not be limited to the following documentation: (i) API and other
components test results, (ii) manufacturing, Raw Materials and other components charge-in records;
(iii) mixing and fillings records; (iv) packaging records; (v) component traceability records; (vi)
equipment usage records; (vii) in-process and final laboratory testing results; (viii) in-process
and final product physical inspection results; (ix) yield reconciliation for bulk and finished
product; (x) label samples; (xi) labeling control records; (xii) Product certificate of analysis
for the Products; and (xiii) documentation listing any deviations and/or excursions from approved
procedure (as well as CEPH’s investigation and corrective actions) incurred during the processing
and packaging of the lot. Advancis may, upon reasonable request, review the original Batch Records
for each lot when inspecting the Plant. In addition, in connection with any development or
follow-up work, including stability studies, or in connection with any quality analysis/quality
assurance review reasonably conducted by Advancis in the event that any Products fail to meet
Specifications, then CEPH shall provide to Advancis a copy of the Batch Records for any one or more
lots of Products upon request by Advancis at Advancis’ expense. In addition, CEPH shall maintain
such complete and accurate records relating to the Products as may be required by the Act or any
other Applicable Law.

     4.7 Retention of Records. CEPH shall maintain all records required to be maintained
hereunder for a period of not less than [***] after the expiration date of the Products or such
longer period as may be required by Applicable Law. After such retention period, CEPH shall give
Advancis not less than [***] prior written notice before destroying any such records and, upon
Advancis’ request and at Advancis’ expense, shall deliver such records to Advancis.

     4.8 Legal and Regulatory Filings and Requests. CEPH shall cooperate and be diligent
in responding to all requests for information from, and in making all legally required filings
with, the Regulatory Authorities.

     4.9 Specifications. The Specifications may be amended only by mutual agreement of
CEPH and Advancis, provided, that notwithstanding the foregoing, CEPH may unilaterally
amend the Specifications solely to the extent required to obtain Regulatory Approval or to comply
with changes in Applicable Laws. CEPH shall promptly notify Advancis of any and all changes so
made to the Specifications.

ARTICLE 5

QUALITY CONTROL INSPECTION; REJECTION

     5.1 Quality Tests and Checks. CEPH shall perform all stability, validation, Raw
Material and in-process and finished product tests or checks required by the Specifications and
Applicable Laws as set forth in Schedule B. For purposes of this Agreement, such tests
and/or checks shall be considered routine and shall be performed at CEPH’s expense. All tests and
test results shall be carefully performed, documented and summarized by CEPH in accordance with the
Specifications and Applicable Laws. Without limiting the foregoing, CEPH shall test and inspect
each lot of the Products for compliance with the Specifications prior to release and shipment of
such Products to Advancis. Each release of Products by CEPH shall include all documents specified
in Section 2.4. CEPH also shall provide to Advancis all necessary material safety data sheets.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

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     5.2 Rejection of Products.

          (a) For [***] following receipt by Advancis or its designee of any shipment of Products
hereunder, Advancis shall have the right to reject all or any part of such shipment of Products
that fails to meet the Specifications or otherwise fails to conform to the representations and
warranties given by CEPH herein; provided that Advancis shall have the right to reject any
Products which contain latent defects within [***] after Advancis becomes aware of such latent
defects. For purposes of this Agreement, no rejection due to latent defects shall be made after
[***] after the expiration date of the applicable Products. Such rejection shall be made effective
by Advancis giving notice to CEPH specifying the manner in which all or part of such shipment of
Products fails to meet the aforementioned requirements. Advancis may elect, in its sole
discretion, to have CEPH replace any rejected Products at CEPH’s sole cost (including any
applicable freight charges).

          (b) Upon Advancis’ delivery of any notice of rejection to CEPH, the parties shall investigate
the cause of the non-conformity or defect. If the parties do not agree whether the Products
conform to the Specifications, the parties shall submit samples of the non-conforming Products in
question to a mutually agreed upon independent laboratory of recognized repute within the U.S.
pharmaceutical industry for evaluation with respect to conformance to the Specifications. The
decision of such independent laboratory shall be final and binding upon the parties. The cost of
such independent laboratory analysis shall be paid for by the party who is determined to be
incorrect with respect to the conformity or non-conformity of the Products to the Specifications.

          (c) If Advancis rejects all or any portion of a shipment before the date on which payment
therefor is due, it may withhold payment for that shipment or the rejected portion. All shipments
or portions thereof which Advancis rejects but which it is later determined Advancis did not have
the right to reject shall be paid within [***] following the day on which such determination is
made. If Advancis rejects a shipment or portion thereof of Product, after payment therefor has
been made, and such reason for rejection is attributable to CEPH, as determined by an independent
laboratory of the type described under Section 5.2(b), Advancis shall be entitled to recoup the
payment amount by, at Advancis’ election, (i) CEPH issuing a prompt refund or (ii) Advancis setting
off such amount against the payment of future invoices or other amounts that may become due
hereunder. CEPH’s representations and warranties shall survive any failure of Advancis to reject
Products under this Section 5.2.

          (d) The provisions of this Section 5.2 shall survive termination or expiration of this
Agreement with respect to shipments of Products (or any portions thereof) manufactured and packaged
by CEPH that are received by Advancis subsequent to the termination or expiration of this
Agreement.

     5.3 Inspections and Audits by Advancis. Advancis shall have the right, upon
reasonable notice to CEPH, to, and to cause, Advancis’ outside counsel or other representatives (a)
to conduct a reasonable inspection related to the ANDA and the intellectual property of CEPH
relating to the Products and (b) to inspect each plant where Products are being manufactured or
stored to monitor compliance by CEPH and its Affiliates with Applicable Laws

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

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and to otherwise confirm that the Products are being manufactured, and that CEPH is operating,
in compliance with the provisions of this Agreement in all respects. CEPH shall have the right to
have its representatives present throughout such inspections. Advancis’ representatives shall
promptly notify CEPH of any non-compliance determined through such inspections and, upon receipt of
such notice, CEPH shall promptly and diligently rectify any non-compliance and implement
appropriate procedures with a view to avoiding repetition of such non-compliance. CEPH shall
promptly notify Advancis in writing of any circumstances relating to any of its facilities that may
affect the quality of the Products. From time to time and by mutual agreement of the parties,
Advancis shall have the right to have a representative present during the manufacture and/or
testing of Products made for Advancis. Advancis’ representative(s) shall comply with CEPH’s safety
and GMP site requirements.

     5.4 Quality Agreement. In performing its respective obligations under this Agreement,
each of Advancis and CEPH agrees to be bound by the additional quality control/assurance procedures
and related provisions as set forth in the document attached as Schedule D (the “Quality
Agreement”). The Quality Agreement may be amended from time to time upon the mutual written and
duly executed agreement of the parties. If any such amendment to the Quality Agreement results in
any additional costs to either Advancis or CEPH, the parties shall negotiate in good faith an
appropriate allocation of such additional costs between the parties in accordance with the terms
and provisions of Schedule E.

ARTICLE 6

ADVERSE EXPERIENCE; RECALL

     6.1 Customer Complaints.

          (a) CEPH and Advancis each shall report to the other any information of which they become
aware concerning any Product complaints within a reasonable amount of time. CEPH shall investigate
all Product complaints by analyzing the Products, Raw Materials and other components to determine
the cause, if any, of an alleged Product manufacturing defect or failure. CEPH shall conduct such
investigations in the usual course in accordance with its standard operating procedures for
complaints. CEPH shall work to expeditiously provide a written report of its determination within
[***] from receipt of Advancis’ written request for complaint investigation, which may include
analysis and samples of the lot of Products that is the basis for the complaint. In the event that
Advancis reasonably determines that any additional physical, chemical, biological, or other
evaluation should be conducted by CEPH in relation to a Product complaint, Advancis shall so advise
CEPH, and CEPH shall conduct the necessary evaluations and advise Advancis of the results;
provided that if CEPH notifies Advancis that Advancis’ requests for additional analysis
exceed CEPH’s capacity to perform such analysis, then CEPH and Advancis shall negotiate in good
faith (i) whether to engage a third party to perform any analysis requested by Advancis and (ii)
the parameters of any analysis that the parties agree will be performed by such third party.

          (b) Advancis or its designated distributors shall be responsible for all correspondence with
complainants on all complaints associated with the Products.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-12-

 

     6.2 Adverse Experience Reporting.

          (a) CEPH and Advancis each shall report to the other any information of which they become
aware concerning any adverse drug experience in connection with the use of the Products, including
the incidence or severity thereof. Reports of routine adverse drug experiences of the type defined
in Section 314.80 of Title 21 of the United States Code of Federal Regulations shall be exchanged
by the parties on a quarterly basis. Reports of serious adverse drug experiences of the type
defined in Sections 312.32 and 314.80 of Title 21 of the United States Code of Federal Regulations
shall be made available to the other party within five (5) calendar days after a party becomes
aware of such serious adverse drug experience. Upon receipt of any such information concerning any
serious drug experience by either CEPH or Advancis, the parties shall promptly consult each other
and use their best efforts to arrive at a mutually acceptable procedure for taking such possible
actions as appropriate or required under the circumstances; provided, that nothing
contained herein shall be construed as restricting the right or duty of either party to make a
required report or submission to the FDA or take any other action that it deems to be appropriate
or required by Applicable Law. In all events, the responsibility of making any reports to the FDA
shall be upon CEPH as holder of the ANDA.

          (b) [***] shall be responsible for all correspondence with complainants on all complaints
associated with the Products.

          (c) [***] shall be responsible for reporting all adverse drug experiences to the FDA.

     6.3 Government Inspections, Seizures and Recalls. If the FDA or any other Regulatory
Authority conducts an inspection at CEPH’s premises, seizes any Products and/or its Raw Materials,
requests a recall of any Products, or otherwise notifies CEPH of any violation or potential
violation of any Applicable Laws relating to or affecting the Products, CEPH shall notify Advancis
immediately and take such actions as may be required under the Specifications or as reasonably
instructed by Advancis.

     6.4 Voluntary Recalls. CEPH shall not initiate a voluntary recall until it has
communicated with Advancis concerning the necessity for a recall and the scope of the recall. All
coordination of any recall or field correction activities involving the Products shall be handled
jointly by the parties, whether or not such action was initially requested by CEPH or Advancis.

     6.5 Expenses. In the event that any Products are recalled as a result of (i) the
[***] or (ii) the [***], then [***] shall bear all of the out-of-pocket costs and expenses of such
recall including expenses related to communications and meetings with all required Regulatory
Authorities, expenses of replacement stock, the cost of notifying customers and costs associated
with shipment of recalled Products from customers and shipment of an equal amount of replacement
Products to those customers. [***] of the Products subject to the recall shall not be included as
an expense of the recall and shall, in all instances, be borne by [***]. The remedy set forth
above shall constitute the sole remedy with respect to recalls; notwithstanding the foregoing,
nothing in this Section 6.5 shall limit the indemnification provided under Article 8.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

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ARTICLE 7

REPRESENTATIONS AND WARRANTIES

     7.1 CEPH Warranties. CEPH represents and warrants to Advancis as follows:

          (a) CEPH has the full power and authority to execute and deliver this Agreement and to perform
its obligations hereunder.

          (b) CEPH has no obligations, contractual or otherwise, that would conflict with its entering
into or performing its obligations under this Agreement.

          (c) CEPH shall comply with all Applicable Laws relating to the Products. CEPH has such
permits, licenses and authorizations of governmental authorities as are necessary to own its
properties, conduct its business and consummate the transactions contemplated hereby.

          (d) The ANDA for the Products and any other filings made with the FDA or other Regulatory
Authorities in connection with the Products were accurate, complete and truthful when filed and
made in good faith upon the best information available to CEPH and its Affiliates at such time.
The ANDA and all other such Regulatory Filings have been, or shall be, amended, supplemented or
otherwise updated in a timely manner whenever the information contained in any of them is no longer
accurate, complete and truthful or as required by annual reporting requirements, and CEPH shall
promptly notify Advancis of any such changes.

          (e) Any Products supplied by CEPH shall meet the Specifications, be in conformity with the
current version of the ANDA, cGMPs and all Applicable Laws, rules and regulations (including
Regulatory Approval for commercial sale in the Territory) and not be adulterated or misbranded or
an article which may not be introduced into interstate commerce under the provisions of Section 404
of the Act.

          (f) All Products supplied by CEPH hereunder shall be manufactured, packaged, stored, tested
and released at (i) the Plant, which is an FDA-approved manufacturing facility, or (ii) with the
prior written consent of Advancis in each instance, another FDA-approved facility of CEPH.

          (g) No more than [***] of the total approved shelf life for each presentation of the Products
shall have expired at the time such Products are shipped to Advancis. At the time of delivery to
Advancis, the Products shall have a minimum shelf life of [***].

          (h) The composition of the Products and the manufacturing and packaging procedures used by
CEPH in producing the Products shall be as stated in the ANDA as approved by the FDA.

          (i) All Products supplied by CEPH hereunder shall be transferred to Advancis free and clear of
all liens, title claims, encumbrances, security interests and other third party claims.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

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          (j) Neither CEPH nor any of its Affiliates (i) is prohibited by any Applicable Law from
selling the Products or other pharmaceutical products within the Territory or (ii) is listed by a
United States federal agency as debarred, suspended, proposed for debarment or otherwise ineligible
for federal programs in the United States or other jurisdictions within the Territory.

          (k) Neither the testing, development, manufacture, packaging, distribution, storage, import,
export, handle, transport, disposal, marketing, sale or use of the Products in the Territory nor
the performance of either party’s obligations under this Agreement shall infringe any patents or
other intellectual property rights of third parties. CEPH represents that it has not received any
notice of any claimed infringement (including patent infringement) in connection with the Products.

          (l) The extent that CEPH is required to comply with United States federal or state law
regarding equal opportunity, (i) CEPH has made a commercially reasonable good faith effort to
recruit, hire, train, promote and retain persons of diverse backgrounds in its own labor force,
and, at a minimum, is in compliance with all affirmative action orders and regulations and decrees
applicable to it, and (ii) CEPH prohibits any form of unlawful discrimination in the Plant and in
other facilities where the manufacturing and delivery of the Products occurs.

          (m) CEPH is a wholly-owned subsidiary of MOVA and MOVA consents to CEPH’s entering into this
Agreement. MOVA has indicated such consent by causing the statement of consent on the Execution
page hereof to be signed by its duly authorized representative.

     7.2 Advancis Warranties. Advancis represents and warrants to CEPH as follows:

          (a) Advancis has the full power and authority to execute and deliver this Agreement and to
perform its obligations hereunder.

          (b) Advancis has no obligations, contractual or otherwise, that would conflict with its
entering into or performing its obligations under this Agreement.

          (c) Advancis has the right to use the KEFLEX brand in connection with the Products in the
Territory.

          (d) Any Products distributed, stored, imported, exported, handled, transported, disposed of,
marketed, sold or used by Advancis shall not be adulterated or misbranded or an article which may
not be introduced into interstate commerce under the provisions of Section 404 of the Act.

     7.3 [***]

ARTICLE 8

INDEMNIFICATION

     8.1 By CEPH. CEPH shall indemnify, defend and hold harmless Advancis and its
Representatives from any and all third party claims, liabilities, losses, injuries, damages, costs
or

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

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expenses, including reasonable attorneys’ fees and expenses (collectively, “Liabilities”),
that may arise from or out of: (a) defects or alleged defects in the Products; (b) product warranty
obligations or services and any returned Products; (c) any breach of CEPH’s representations,
warranties, covenants or agreements hereunder; (d) any claim, action or proceeding brought by any
Regulatory Authority or other governmental entity arising out of or resulting from the failure by
CEPH or any CEPH Representative to perform its obligations under this Agreement, (e) the willful
misconduct or negligence of CEPH or any CEPH Representative in connection with this Agreement; (f)
any bodily injury, illness or death of any person caused or alleged to be caused by the use,
distribution or sale of the Products (except to the extent any such bodily injury, illness or death
is the result of a breach by Advancis of any of Advancis’ representations, warranties, covenants or
agreements hereunder); (g) the enforcement by Advancis and the Advancis Representatives of their
rights under this Section 8.1; or (g) CEPH’s or any CEPH Representative’s violation of any
Applicable Law.

     8.2 By Advancis. Advancis shall indemnify, defend and hold harmless CEPH and its
Representatives from any and all Liabilities that may arise from or out of: (a) any breach of
Advancis’ representations, warranties, covenants or agreements hereunder; (b) any claim, action or
proceeding brought by any Regulatory Authority or other governmental entity arising out of or
resulting from the failure by Advancis or any Advancis Representative to perform its obligations
under this Agreement, (c) the willful misconduct or negligence of Advancis or any Advancis
Representative in connection with this Agreement; (d) the enforcement by CEPH and the CEPH
Representatives of their rights under this Section 8.2; or (e) Advancis’ or any Advancis
Representative’s violation of any Applicable Law; provided, that Advancis shall have no
indemnification obligation hereunder to the extent that (i) CEPH has any indemnification
obligations under Section 8.1 or (ii) the Liabilities result solely from the performance of CEPH’s
obligations under this Agreement.

     8.3 Claims. If any claim, action or proceeding of any kind alleging Liability is
instituted or threatened by a third party against either party to this Agreement (the “Indemnified
Party”) in respect of which indemnity is sought against the other party (the “Indemnifying Party”)
under this Article 8, the Indemnified Party shall promptly notify the Indemnifying Party thereof in
writing; provided that any failure of the Indemnified Party to notify the Indemnifying
Party of such claim, action or proceeding shall relieve the Indemnifying Party from its obligations
under this Article 8 solely to the extent that such delay in notification prejudices the
Indemnifying Party’s defense of such claim, action or proceeding. The Indemnifying Party shall
have the right to direct the defense of such action on behalf of the Indemnified Party unless, in
the opinion of counsel to the Indemnified Party, there may be defenses available to the Indemnified
Party which are unique to or different from those available to the Indemnifying Party (in which
case the Indemnifying Party shall not have the right to direct the defense of such action on behalf
of the Indemnified Party). The Indemnified Party may participate in any such action by counsel of
its own choice, at its own expense. The Indemnified Party and its Representatives shall, at the
Indemnifying Party’s sole cost, provide the Indemnifying Party with such assistance as the
Indemnifying Party may reasonably request in order to investigate and defend against any claim,
action or proceeding in respect of which indemnity is sought hereunder. The Indemnifying Party
shall not, without the prior written consent of the Indemnified Party,

-16-

 

which consent shall not be unreasonably withheld, settle or compromise any claim or cause of
action, or permit a default or consent to the entry of any judgment in respect thereof, unless such
settlement, compromise, or consent includes the giving by the claimant to the Indemnified Party of
an unconditional and irrevocable release from all liability in respect of such claim. The
Indemnifying Party will not be liable hereunder for any settlement of any Liability by the
Indemnified Party without the Indemnifying Party’s prior written consent, which consent shall not
be unreasonably withheld.

     8.4 Injuries or Damages Suffered by CEPH Representatives. As an independent
contractor, any bodily injury or property damage suffered by CEPH or its Representatives in the
course of carrying out any duties under this Agreement will be CEPH’s sole responsibility, except
to the extent such bodily injury or property damage is caused by Advancis’ negligence or willful
misconduct. No workers’ compensation insurance shall be obtained by Advancis concerning CEPH.
CEPH shall comply with workers’ compensation laws and shall provide a certificate of workers’
compensation insurance, where applicable.

     8.5 Insurance. CEPH shall at all time during the Term maintain commercial liability
insurance covering its obligations under this Agreement, which insurance shall afford limits of not
less than [***] per occurrence for bodily injury liability, property damage liability, contractual
liability and completed operations liability and not less than [***] per occurrence for products
liability, in each case with an insurance carrier qualified to do business in the United States.
CEPH shall promptly furnish to Advancis evidence of the maintenance of the insurance required
hereunder and shall name Advancis as an “additional insured” under the general and products
liability insurance policies. In case any such policies are written on a “claims made” basis, such
policies shall remain in effect for a period of five years following the expiration or earlier
termination of this Agreement.

ARTICLE 9

CONFIDENTIALITY

     9.1 Confidentiality. Pursuant to the terms of this Agreement, each party (in such
capacity, the “Disclosing Party”) has disclosed and will disclose to the other party and/or its
Representatives (in such capacity, the “Receiving Party”), certain Confidential Information of the
Disclosing Party. The Receiving Party shall not disclose the Confidential Information of the
Disclosing Party to any third party without the prior written consent of the Disclosing Party and
shall make no use of such Confidential Information except in the exercise of its rights and the
performance of its obligations set forth in this Agreement. Confidential Information disclosed by
the Disclosing Party shall remain the sole and absolute property of the Disclosing Party, subject
to the rights granted herein.

     9.2 Compelled Disclosure. In the event the Receiving Party is required to disclose
Confidential Information of the Disclosing Party under Applicable Law, to respond to an inquiry of
a Regulatory Authority concerning the Products or in a judicial, administrative or arbitration
proceeding, then the Disclosing Party shall (i) provide the Disclosing Party with as much advance
notice as reasonably practicable of the required disclosure, (ii) cooperate with the

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-17-

 

Disclosing Party in any attempt to prevent or limit the disclosure, and (iii) limit any
disclosure to the specific purpose at issue.

     9.3 Limitation. Nothing in this Article 9 shall be interpreted to limit the ability
of either CEPH or Advancis to disclose its own Confidential Information to any other person on such
terms and subject to such conditions as it deems advisable or appropriate.

     9.4 Confidentiality of Agreement. Each of CEPH and Advancis acknowledge and agree
that the terms and conditions of this Agreement shall be considered Confidential Information of
each party and shall be treated accordingly. Notwithstanding the foregoing, CEPH acknowledges and
agrees that Advancis may be required to disclose some or all of the information included in this
Agreement in order to comply with its obligations under the United States Securities Act of 1933,
the United States Securities Exchange Act of 1934, listing standards or agreements of any national
or international securities exchange or The NASDAQ Stock Market or other similar laws of a
governmental authority, and CEPH hereby consents to such disclosure.

     9.5 Remedies. Each party specifically recognizes that any breach by it of this
Article 9 may cause irreparable injury to the other party, that actual damages arising from such
breach may be difficult to ascertain and that, in any event, such actual damages may be inadequate
to compensate the other party for such breach. Accordingly, and without limiting the availability
of legal or equitable remedies under any other provisions of this Agreement, each party agrees that
in the event of any such breach the other party shall be entitled to seek, by way of private
litigation in the first instance, injunctive relief and such other legal and equitable remedies as
may be available.

     9.6 Survival. The obligations to maintain in confidence all Confidential Information
shall survive the termination or expiration of this Agreement for any reason.

ARTICLE 10

TERM/TERMINATION

     10.1 Term. The term of this Agreement shall commence on the Effective Date, shall
continue for an initial period of five years (the “Initial Term”) and shall automatically renew for
additional one-year periods thereafter (each, a “Renewal Term,” and, together with the Initial
Term, the “Term”), unless either party shall give notice of non-renewal to the other party at least
[***] prior to the end of the Initial Term or any Renewal Term (in which case the Term shall expire
at the end of the then-current Term) or unless sooner terminated in accordance with the provisions
of this Article 10.

     10.2 Termination. Either party shall have the right to terminate this Agreement upon
the occurrence of any of the following events by giving the other party written notice identifying
the reason for such termination:

          (a) A decree or order shall have been entered by a court of competent jurisdiction adjudging
the other party bankrupt or insolvent, or approving as properly filed a

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-18-

 

petition seeking reorganization, readjustment, arrangement, composition or similar relief for
the other party under any bankruptcy law or any other similar applicable statute, law or
regulation, or a decree or order of a court of competent jurisdiction shall have entered for the
appointment of a receiver or liquidator or trustee or assignee in bankruptcy or insolvency of the
other party or a substantial part of its property, or for the winding up or liquidation of its
affairs;

          (b) The other party shall institute proceedings to be adjudicated a voluntary bankrupt, or
shall consent to the filing of a bankruptcy petition against it, or shall file a petition or answer
or consent seeking reorganization, readjustment, arrangement, composition, liquidation or similar
relief under any bankruptcy law or any other similar applicable statute, law or regulation, or
shall consent to the appointment of a receiver or liquidator or trustee or assignee in bankruptcy
or insolvency of it or of a substantial part of its property, or shall make an assignment for the
benefit of creditors, or shall be unable to pay its debts generally as they become due;

          (c) The other party commits a material breach of the terms of this Agreement and such party,
which shall use its best efforts to remedy such breach as quickly as possible, fails remedy such
breach within [***] after written notice thereof is given to it by the non-breaching party;

          (d) The manufacture, use, sale or distribution of the Products is enjoined permanently and
unavoidably by a court or administrative agency of competent jurisdiction as infringing the patent
or other intellectual property rights of any third party;

          (e) Such party reasonably determines, based on the written advice of competent and reputable
outside patent counsel that the manufacture, use, sale or distribution of the Products unavoidably
infringes the patent or other intellectual property rights of any third party;

          (f) A Regulatory Authority shall have determined that the Products are unmarketable; or

          (g) CEPH becomes subject to an FDA consent decree such that CEPH is unable to manufacture the
Products.

     10.3 Accrued Liabilities.

     (a) Except as provided in this Section 10.3, termination of this Agreement for any reason
shall not discharge either party’s liability for obligations incurred hereunder and amounts unpaid
at the time of such termination.

     (b) Upon termination of this Agreement for any reason, CEPH shall furnish to Advancis complete
inventory of all stock on hand of work-in-progress for the manufacture of the Products. Unless
otherwise agreed to between the parties, all stock on hand as of the effective date of termination
of this Agreement shall be dealt with promptly as follows: (i) Products manufactured and packaged
pursuant to Purchase Orders from Advancis shall be delivered by CEPH to Advancis, whereupon
Advancis shall pay CEPH therefor in accordance with the terms

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-19-

 

hereof; and (ii) work-in-progress commenced by CEPH against Purchase Orders from Advancis
shall be completed by CEPH and delivered to Advancis, whereupon Advancis shall pay CEPH therefore
in accordance with the terms hereof.

     (c) Upon termination of this Agreement by Advancis pursuant to Section 10.2, if CEPH fails to
comply with any termination and post-termination obligations hereunder, Advancis shall have the
right to cancel Purchase Orders for Products made prior to termination and shall be relieved of its
obligations under Section 10.3(b). Also, upon termination of this Agreement by Advancis pursuant
to Section 10.2, CEPH shall bear the costs of disposal of Raw Materials and API.

     (d) Upon termination of this Agreement by CEPH pursuant to Section 10.2, Advancis shall
reimburse for all Raw Materials (including API and printed components) not necessary to complete
10.3(b) above but having been ordered or purchased by CEPH in accordance with Advancis’ then
current Forecast and for which CEPH has no use in other production.

     10.4 Survival. The obligations of the parties under Article 1, 6, 7, 8, 9, 11 and
Sections 3.2, 4.7, 4.8, 10.3, 10.4 shall survive any expiration or termination of this Agreement.

ARTICLE 11

MISCELLANEOUS

     11.1 Notices. All notices or other formal communications hereunder (other than
routine business communications) shall be made either by hand, by certified or registered letter,
postage prepaid, return receipt requested, or by fax or other electronic transmission or next
business day delivery service directed to the other party as provided below:

	 	(a)  	If to Advancis:

General:

Steven A. Shallcross

Senior Vice President and Chief Financial Officer

Advancis Pharmaceutical Corporation

20425 Seneca Meadows Parkway

Germantown, MD 20876

Phone: [***]

Fax: [***]

Quality Assurance and Quality Control:

Head of Quality Assurance

Advancis Pharmaceutical Corporation

20425 Seneca Meadows Parkway

Germantown, MD 20876

Phone: [***]

Fax: [***]

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-20-

 

With a copy to:

Howard S. Schwartz, Esq.

Piper Rudnick LLP

6225 Smith Avenue

Baltimore, Maryland 21209-3600

Phone: [***]

Fax: [***]

	 	(b)  	If to CEPH:

CEPH International Corporation

P.O. Box 2970

Carolina, Puerto Rico 00984-2970

Attention: Verónica Viso, President

With a copy to:

Silvestre M. Miranda, Esq.

McConnell Valdes

270 Muñoz Rivera Avenue

Hato Rey, Puerto Rico 00918

Facsimile: [***]

     Either party from time to time may change its address or fax number by giving the other party
notice as provided herein.

     11.2 Entire Agreement. This Agreement (including the Schedules) constitutes the
entire agreement between the parties relating to the subject matter hereof. All prior agreements
or arrangements, written or oral, between the parties relating to the subject matter hereof are
hereby canceled and superseded. This Agreement may not be modified except in writing signed by
both parties.

     11.3 Assignment. This Agreement, and all rights and obligations hereunder, are
personal as between the parties and shall not be assigned in whole or in part by any of the parties
to any other person or company without the prior written consent of the other party, except to an
Affiliate or by a party to the successor to or the assignee of all or substantially all of its
pharmaceutical business. Advancis may, after written notice to CEPH, assign this Agreement to any
person or entity to which it has sold, licensed or otherwise transferred the rights to market and
sell the Product in the Territory and which has assumed all of Advancis’ obligations hereunder
provided that such assignment shall not release Advancis of its obligations hereunder.
Notwithstanding the aforesaid, Advancis shall have no further obligations hereunder, except to the
extent the same have accrued prior to such assignment, if the assignee has, in the reasonable
judgment of CEPH, sufficient financial capability and regulatory status to enable it to perform the
obligations of Advancis hereunder. CEPH shall provide Advancis with written notice of its release
from the terms of this Agreement, or of any reasonable objection CEPH may have to the assignee,
within [***] of Advancis’ notice to CEPH of such assignment. Any such consent shall not be
unreasonably withheld by CEPH. Except as provided herein, the terms and conditions of

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-21-

 

this Agreement shall be binding upon, and shall inure to the benefit of the parties hereto and
their respective successors and permitted assigns.

     11.4 Waiver of Default. No waiver of any default by either party shall be deemed to
constitute a waiver of any subsequent default with respect to the same or any other provision
hereof. No waiver shall be effective unless made in writing with specific reference to the
relevant provision(s) of this Agreement and signed by a duly authorized representative of the party
granting the waiver.

     11.5 Governing Law. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to its conflict of laws principles.

     11.6 Force Majeure.

          (a) Neither party shall be liable to the other for default or delay in the performance of any
of its obligations under this Agreement if such default or delay is caused directly or indirectly
by accident, fire, flood, riot, war, terrorism, act of God, embargo, strike, failure or delay of
normal source of supply of materials, or delay of carriers, equipment failure or complete or
partial shutdown of plant by any of the foregoing causes or other causes beyond its reasonable
control (a “Force Majeure Event”), provided (i) the Force Majeure Event is not due to the
fault or neglect of the defaulting or delaying party, (ii) the defaulting or delaying party
provides, within [***] of its occurrence, notice to the other party stating the nature of the Force
Majeure Event, its anticipated duration and the action being taken to avoid or minimize its effect,
and (iii) the defaulting or delaying party uses commercially reasonable best efforts to remedy its
inability to perform with utmost dispatch. The suspension of performance hereunder shall be of no
greater scope and no longer duration than is required by the Force Majeure Event.

          (b) In the event that CEPH defaults or delays in the performance of any of its obligations
under this Agreement due to a Force Majeure Event for a period of [***], CEPH shall advise
Advancis, within [***] after such [***], as to whether it will be able to resume performance within
the following [***] period (i.e., [***] from the commencement of the default or delay). If CEPH
advises Advancis that it will not be able to resume performance within such time period, Advancis
shall have the right to terminate this Agreement effective upon notice to CEPH. If CEPH timely
advises Advancis that it will be able to resume performance within such [***] period, CEPH shall
promptly, but no later than [***] following its advice, demonstrate to Advancis that it will be
able to resume performance within such one [***] period. Advancis shall determine, in its
reasonable discretion, whether CEPH has adequately demonstrated that that it will be able to resume
performance within such [***] period. If so, CEPH shall have the opportunity to cure the
applicable defaults or delays in performance within such [***] period. If not, Advancis shall have
the right to terminate this Agreement, by giving notice to CEPH, which termination shall be
effective [***] after the commencement of the default or delay. For the purpose of this Section
11.6(b), the term “day” shall mean calendar day.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-22-

 

          (c) Notwithstanding anything in this Section 11.6, the party to whom performance is owed but
not rendered because of a Force Majeure Event shall, after the passage of [***] after commencement
of the default of delay, [***].

     11.7 Independent Contractors. The parties hereto expressly understand and agree that
their relationship shall be that of independent contractors in the performance of each and every
part of this Agreement. Nothing in this Agreement shall constitute one party as an employee,
agent, joint venture partner or servant of another. Each party is solely responsible for all of
its employees and agents and its labor costs and expenses arising in connection therewith.

     11.8 Public Statements. CEPH and Advancis each agree not to disclose the terms of
this Agreement in any public statements, whether oral or written, including but not limited to
shareholder reports, communications with stock market analysts, statements to other customers or
prospective customers, press releases or other communications with the media, or prospectuses,
without the other party’s prior written consent, which shall not be unreasonably withheld.
Notwithstanding the foregoing, each party may make any such disclosures without the other party’s
consent that are required by applicable law including filings or disclosures required by or to the
Securities and Exchange Commission (and any other applicable securities exchanges). If possible,
each party shall give the other at least five (5) business days advance written notice of a
disclosure required by applicable law.

     11.9 Dispute Resolution. In the event of any dispute or disagreement between the
parties as to the interpretation of any provision of this Agreement (or the performance of
obligations hereunder), the matter, upon written request of either party, shall first be referred
to representatives of the parties for decision, each party being represented by a senior executive
officer who has no direct operational responsibility for the matters contemplated by this
Agreement. Such representatives shall promptly meet in a good faith effort to resolve the dispute.
If the dispute cannot be resolved by such representatives within thirty (30) days after its
submission, the matter shall then be settled by mandatory binding arbitration to be held in New
York, NY under the commercial rules of the American Arbitration Association.

     11.10 Counterparts. This Agreement may be executed in multiple counterparts, each of
which shall be deemed an original but all of which together shall constitute one and the same
Agreement.

     11.11 Remedies. The rights and remedies provided in this Agreement are cumulative and
not exclusive of each other or of any rights or remedies provided by applicable law.

     11.12 Time is of the Essence. Time is of the essence for all provisions hereof.

[Execution Page Follows]

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-23-

 

Execution

     IN WITNESS WHEREOF, the parties have caused this Commercial Supply Agreement to be executed as
of the Effective Date.

	 	 	 	 	 
	 	 	ADVANCIS PHARMACEUTICAL CORPORATION
	 
	 	 	 	 
	

	 	By:
	 	   /s/ Kevin S. Sly
	

	 	 	 	

	

	 	 	 	Name: Kevin S. Sly
	

	 	 	 	Title: SVP & CBO
	 
	 	 	 	 
	 	 	CEPH INTERNATIONAL CORPORATION
	 
	 	 	 	 
	

	 	By:
	 	   /s/ Verónica Viso
	

	 	 	 	

	

	 	 	 	Name: Verónica Viso
	

	 	 	 	Title: President

CONSENT TO AGREEMENT

MOVA Pharmaceutical Corporation (“MOVA”) hereby acknowledges that CEPH International Corporation
(“CEPH”) is a wholly-owned subsidiary of MOVA which has been authorized by MOVA to enter into the
foregoing Commercial Supply Agreement with Advancis Pharmaceutical Corporation. MOVA hereby
consents to CEPH’s entry into the foregoing Commercial Supply Agreement and to the performance of
its obligations thereunder.

	 	 	 
	MOVA PHARMACEUTICAL CORPORATION
	By:

	 	   /s/ Jack Van Hulst
	

	 	

	

	 	Name: Jack Van Hulst
	

	 	Title:

-24-

 

SCHEDULE A

Products

Keflex Branded Products

[***]

[***]

[***]

[***]

Generic Products

[***]

[***]

[***]

[***]

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-25-

 

SCHEDULE B

Specifications

(to be included no later than 30 days from the Effective Date)

-26-

 

SCHEDULE C

Labeling Specifications

(to be included no later than 30 days from the Effective Date)

-27-

 

SCHEDULE D

Quality Agreement

(to be included no later than 30 days from the Effective Date)

-28-

 

Schedule E

Prices for Finished Products

	 	 	 	 	 	 	 	 	 
	 
	 	Product Type	 	 	Purchase Order Lot Size	 	 	Price	 
	 	[***]

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

	 	 	[***]
	 	 	[***]	 
	 

There is an additional charge of [***] per lot for the [***].

*Figure represents amount of branded Products set aside from Purchase Orders of generic Products.

CEPH has based the prices for Products on [***].

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-29-

 

1. Price. CEPH will charge Advancis and Advancis will pay CEPH the above prices per
lot of Products, which prices are based on current Specifications and include the costs of
manufacture and bulk packaging of Products. [***]. Notwithstanding anything to the contrary
herein, [***].

2. [***]

3. [***]

4. Price Changes due to changes in laws, regulations, cGMP’s, Specifications. In the event
that there are changes in laws or regulations, cGMP’s or the Specifications in a manner that
increases or decreases, in the aggregate, the manufacturing cost on a per lot basis by more than
[***] of the per unit price to Advancis, [***]. CEPH, for itself and its Affiliates, shall keep
and maintain or cause to be maintained all documentation pertaining to any such changes in laws or
regulations, cGMP’s or the Specifications and shall provide to Advancis adequate documentation in
support of any resultant price changes.

5. Price Changes due to changes cost of materials. Beginning in the calendar year
beginning January 1, 2006, and on an annual basis thereafter, in the event that there are changes
in CEPH’s acquisition cost of Raw Materials (excluding API) in a manner that increases or
decreases, in the aggregate, the manufacturing cost on a per lot basis by more than [***] of the
per unit price to Advancis, [***]. CEPH, for itself and its Affiliates, shall keep and maintain or
cause to be maintained all documentation pertaining to any such changes in Raw Materials and shall
provide to Advancis adequate documentation in support of any resultant price changes.

6. Price Changes Due to Market Conditions. If cephalexin finished product market
conditions significantly change, the [***].

7. Amendment. Any agreed upon modification to the prices set forth above will be
set forth in a written amendment to this Agreement, signed by both parties.

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-30-

 

Schedule F

Example Order Amounts for Products

	 	 	 	 	 	 	 	 	 	 	 	 
	 
	 	 	 	 	Grand Total	 	 	 	 	 	 	 
	 	 	 	 	Order Amount (for	 	 	 	 	 	 	 
	 	 	 	 	Generic and	 	 	 	 	 	 	 
	 	 	 	 	KEFLEX branded	 	 	Order Amount for	 	 	Order Amount for	 
	 	Product Type	 	 	combined)	 	 	KEFLEX branded	 	 	Generic	 
	 	[***]

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

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

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

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

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

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

[***] INDICATES MATERIAL THAT HAS BEEN OMITTED AND FOR WHICH CONFIDENTIAL TREATMENT HAS BEEN
REQUESTED. ALL SUCH OMITTED MATERIAL HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES AND EXCHANGE ACT OF 1934, AS AMENDED.

-31-

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