Document:

exv10w25

 

EXHIBIT 10.25

Schedule of Officer Compensation

     The following table sets forth the annual base salary levels of Stratos’ Named Executive Officers
for 2005 and 2004:

	 	 	 	 	 	 	 	 	 	 	 
	Name	 	Position	 	2005	 	2004
	Phillip A. Harris

	 	President & Chief Executive Officer
	 	$	240,000	 	 	 	N/A	 
	Barry Hollingsworth

	 	Vice President, Finance & Chief Financial Officer
	 	$	125,000	 	 	 	N/A	 
	Richard C.E. Durrant

	 	Executive Vice President
	 	$	143,042	 	 	$	137,500	 
	Joe Norwood

	 	Executive Vice President
	 	$	238,000	 	 	$	238,000	 
	Newell V. Starks

	 	Chief Strategy Officer
	 	$	168,000	 	 	$	168,000EX-10.4

 

Exhibit 10.4

MASTER SERVICES AGREEMENT

     This Master Services Agreement (the “Agreement”) is made and entered into this 25th
day of July, 2005 (the “Effective Date”), by and between AAI Development Services, a
division of aaiPharma Inc. (“AAI DS”) having a place of business at 2320 Scientific Park
Dr., Wilmington, NC 28405 and Xanodyne Pharmaceuticals, Inc., a Delaware corporation
(“Purchaser”) having a place of business at 7300 Turfway Road, Suite 300, Florence, KY
41042. Purchaser and AAI DS are referred to singly as “Party” and jointly as
“Parties” throughout this Agreement.

BACKGROUND:

     A. aaiPharma Inc., aaiPharma LLC and Purchaser entered into that certain Asset Purchase
Agreement dated the 6th day of May, 2005, as amended as of June 7, 2005 and July 18, 2005 (the
“APA”).

     B. It is a condition precedent to the Closing that the Parties enter into this Agreement.

     C. AAI DS is in the business of providing (i) analytical services (MD/MV), analytical
(routine), RTP special analytical services, raw material laboratory services, physical chemistry
testing, stability services (stability setup, protocol development, storage, analytical testing,
and photostability studies), biotechnology testing, microbiology services, bioanalytical services,
formulation development, specialized manufacturing (pilot scale and clinical trial material),
project management for the aforementioned services, management of bioavailability/bioequivelance
(BA/BE) Phase I clinical trials (including clinical supplies distribution, pallet storage, study
project management, data management statistics, biostatistics, medical affairs assistance and
pharmacovigilence assistance) (collectively, “Base Services”); (ii) quality control and
assurance assistance (including stability studies oversight and batch record review), medical
affairs assistance and pharmacovigilence assistance and regulatory reporting assistance services
(collectively, the “Additional Services”); and (iii) management of Phase II, III and IV
clinical trials (including study project management, data management, biostatistics, medical
affairs assistance and pharmacovigilence assistance) (collectively, the “Additional Clinical
Trial Services,” and together with the Base Services and the Additional Services, the
“Services”).

     D. Purchaser considers the proposed work as critical to its success and requires that all work
performed under this Agreement meet generally accepted industry standards of quality. Purchaser
desires to obtain such Services from AAI DS throughout the Term (as defined below) of this
Agreement in accordance with the terms set forth herein and in accordance with a defined
specification and scope of work to be mutually agreed upon by the Parties in writing, including any
change orders, as further described below (each hereinafter a “Service Contract”).

     E. On May 10, 2005, aaiPharma Inc. and certain of its domestic affiliates (collectively the
“Debtors”) filed for chapter 11 bankruptcy protection (the “Bankruptcy Cases”) in
the Bankruptcy Court for the District of Delaware (Case No. 05-11341).

 

 

     F. The Debtors are authorized to continue to operate their businesses and manage their
properties as debtors in possession pursuant to sections 1107(2) and 1108 of the Bankruptcy Code.

     NOW THEREFORE, for and in consideration of the mutual covenants and agreements set forth
hereinafter and for other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto do hereby agree as follows:

ARTICLE I

SCOPE OF AGREEMENT

     1.1 Unless it does not have the expertise or resources, as determined by Purchaser and AAI DS
collectively in the exercise of their reasonable judgment, AAI DS will be engaged to perform one
hundred percent (100%) of Purchaser’s requirements for Base Services for the Term with respect to
(i) the Marketed Products, the Lifecycle Products and the New Products, and (ii) pursuant to
Section 3.4 of the APA, any Pain Products containing (a) diclofenac and/or propoxyphene or (b) an
opioid/APAP combination or an opioid/NSAID combination that Purchaser decides to independently
develop (collectively, the “Independent Pain Products,” together with the Marketed
Products, the Lifecycle Products and the New Products, the “Services Products”).
Notwithstanding the foregoing, should AAI DS and Purchaser not be in agreement with respect to
whether AAI DS has the expertise or resources to perform the duties requested, Purchaser shall make
final determination as to which Services are performed by AAI DS, using Purchaser’s reasonable
judgment. For avoidance of doubt, Purchaser must engage AAI DS to perform the Base Services,
provided it is deemed to have the proper expertise and resources, even though Purchaser has the
ability and/or expertise to perform such Base Services on its own behalf by Purchaser’s employees.

     1.2 Unless it does not have the expertise or resources, as determined by Purchaser and AAI DS
collectively in the exercise of their reasonable judgment, AAI DS will be engaged to perform 100%
of Purchaser’s requirements for Additional Services for the Term with respect to Services Products.
Notwithstanding the foregoing, should AAI DS and Purchaser not be in agreement with respect to
whether AAI DS has the expertise or resources to perform the duties requested, Purchaser shall make
final determination as to which Services are performed by AAI DS, using Purchaser’s reasonable
judgment. For avoidance of doubt, unlike with respect to the Base Services, Purchaser is not
required to engage AAI DS to perform the Additional Services if Purchaser wishes to perform such
Additional Services on its own behalf by Purchaser’s employees.

     1.3 Unless it does not have the expertise or resources, as determined by Purchaser and AAI DS
collectively in the exercise of their reasonable judgment, AAI DS will be engaged to perform 100%
of Purchaser’s requirements for Additional Clinical Trial Services for the Term with respect to
Services Products; provided, however, that (i) for avoidance of doubt, Purchaser must engage AAI DS
to perform the Additional Clinical Trial Services even though Purchaser has the ability and/or
expertise to perform such Additional Clinical Trial Services on its own behalf by Purchaser’s
employees, provided however that if, taking into account the nature of the project and the
capabilities of AAI DS, Purchaser can reasonably demonstrate the greater

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likelihood of success of the project or a greater economic benefit to both Parties, Purchaser
will be permitted to conduct the applicable clinical trial using either internal resources or a
third party, and (ii) in the event Purchaser exercises its rights to conduct the applicable
clinical trial using either internal resources or a third party under clause (i) of this Section
1.3 with respect to a Services Product and Sellers are entitled to a royalty under the APA with
respect to such Services Product, Sellers shall be entitled to receive the royalty as if Sellers or
their respective Subsidiaries developed such Services Product all the way up to commercialization.
Notwithstanding the foregoing, in no event will Purchaser use a price quoted by AAI DS to solicit
competitive bids for Additional Clinical Trial Services. Notwithstanding the foregoing, should AAI
DS and Purchaser not be in agreement with respect to whether Purchaser can reasonably demonstrate
the greater likelihood of success of the project or a greater economic benefit to both Parties by
having the clinical trials performed by internal resources or a third party, Purchaser shall make
such final determination, using Purchaser’s reasonable judgment.

     1.4 The Parties hereby agree to enter into a Service Contract for each engagement of the
performance of Services. Each Service Contract shall include, among other things, the scope of the
Services to be performed, the fees to be paid by Purchaser to AAI DS for the performance of the
Services, and the payment schedule for those fees. Service Contracts shall be in the form set
forth in Exhibit B attached hereto and incorporated herein by reference.

     1.5 Services provided by AAI DS shall comply in all material respects with Applicable Laws.

     1.6 The Parties understand that AAI DS shall use commercially reasonable efforts to initiate,
conduct and complete the Services as set forth in a Service Contract in a timely fashion.
Purchaser understands and agrees that completing the Services as set forth in the Service Contract
assumes the full cooperation of Purchaser as well as other third parties.

ARTICLE II

PROJECT IMPLEMENTATION

     2.1 The execution of a Service Contract shall authorize AAI DS to proceed under the terms and
conditions of this Agreement and such Service Contract.

     2.2 AAI DS shall use commercially reasonable efforts to anticipate the scope of activities
necessary to complete Services established by a Service Contract. However, Service Contracts
constitute both Parties’ informed estimate of those Services necessary to satisfactorily complete
the project and are based upon the Parties’ then current knowledge of the factual situation as well
as the then current regulatory environment. Therefore, the scope of proposed Services (and the
related fees and timeline) may require modification of the Service Contract during the course of
performance. In the event additional or different Services are required, AAI DS shall notify
Purchaser immediately and shall not be authorized or required to perform such modified Services
unless and until Purchaser requests such modification in writing, and AAI DS agrees in writing, to
perform such additional or different Services. If AAI DS does not have the

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expertise or resources or is otherwise unable to perform the Services as modified, as
determined by Purchaser and AAI DS collectively in the exercise of their reasonable judgment,
Purchaser may utilize a third party for the performance of such modified Services. Notwithstanding
the foregoing, should AAI DS and Purchaser not be in agreement with respect to whether AAI DS has
the expertise or resources or is otherwise unable to perform the Services as modified, Purchaser
shall make final determination as to which Services are performed by AAI DS, using Purchaser’s
reasonable judgment. If AAI DS is willing to provide such additional or different Services, AAI DS
shall promptly acknowledge Purchaser’s written authorization by issuing a change order for such
additional or different Services.

     2.3 Purchaser shall have the right to review and approve the qualifications of all personnel
AAI DS assigns to perform work under this Agreement and any Service Contract, such approval not to
be unreasonably withheld or delayed. Purchaser shall also have the right to designate, for good
cause, that any such personnel be removed or replaced. AAI DS may also replace personnel when
necessary and appropriate.

     2.4 AAI DS will use commercially reasonable efforts to complete the agreed upon Services
within the limits set forth in the executed Service Contract. The Parties will agree upon target
timelines for completion of the Services. However, the Parties recognize that the Services to be
provided hereunder are not subject to precise advance determination, unless otherwise stated in the
Service Contract or otherwise. To the extent there is any discrepancy between the provisions of
this Agreement and a Service Contract, the terms and conditions of this Agreement shall govern.

     2.5 Acceptance will occur when deliverables under an applicable Service Contract meet the
agreed upon acceptance criteria as described in the applicable Service Contract. If the
deliverables do not meet the acceptance criteria when they are offered by AAI DS to Purchaser for
acceptance, Purchaser will give AAI DS detailed written notification of the deficiency or
non-conformance within thirty (30) days after receipt of the applicable deliverable. AAI DS then
shall, within thirty (30) days of receipt of such written notification, either correct the
deficiency or non-conformance or provide Purchaser with a plan reasonably acceptable to Purchaser
for correcting that deficiency or non-conformance. If the deficiency or non-conformance is not
corrected or if an acceptable plan is not established during such period, then, upon request by
Purchaser, AAI DS shall refund Purchaser all fees paid by Purchaser relating to such deliverable as
specified in the applicable Service Contract.

     2.6 The Parties agree that all disputes between them relating to this Agreement shall be
submitted for informal resolution to their respective chief executive officers and any remaining
dispute shall be submitted to a panel of three arbitrators, with each Party choosing one panel
member and the third member (the “Third Member”) chosen by the first two panel members.
The Third Member will be experienced in pharmaceutical development services. The proceedings shall
be conducted in accordance with the Commercial Dispute Resolution Procedures (the “CDRP”)
of the American Arbitration Association and shall be conducted in a location mutually acceptable to
the Parties. The award of the arbitrators shall include a written explanation of their decision,
shall be limited to remedies otherwise available in court and shall be binding upon the Parties and
enforceable in any court of competent jurisdiction. The panel will set and follow an expedited
schedule for the proceeding so that the panel’s final decision and

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explanation will be issued not later than 45 days after engagement of the services of the
Third Member (unless extended by mutual agreement of the Parties or by the panel), and shall
utilize “Expedited Procedures” (as defined in the CDRP). The losing party shall pay the costs of
any such arbitration, which costs shall not be Out-of-Pocket Expenses (as defined in Section 3.7.)

ARTICLE III

PAYMENT FOR SERVICES RENDERED

     3.1 The initial prices for the Services are set forth on Exhibit A (the “Purchase
Prices”). Purchaser agrees to pay for Services according to the applicable Service
Contract. A deposit of 15% of the projected cost of each project shall be due upon the signing of
the applicable Service Contract.

     3.2 AAI DS may increase the Purchase Prices effective as of each January 1 during the Term by
the amount equal to the percentage change in the Producers Price Index, Drugs and Pharmaceuticals,
Preparations, ethical (prescription) (Code 0635) (or any comparable successor index) during the
twelve month period ending on the September 30 immediately preceding the January 1 Purchase Price
adjustment. AAI DS shall provide written notification of any increase in the Purchase Prices by
the November 1 prior to the January 1 effective date of the increase in Purchase Prices.

     3.3 During the first year of the Initial Term (“Year 1”), Purchaser shall purchase or
offer to purchase, in accordance with this Section 3.3 (collectively, “Acquire”) Services from AAI
DS for amounts, inclusive of Out-of-Pocket Expenses (as defined in Section 3.7) (“Service
Amounts”) that, in the aggregate, are equal to at least $10,000,000 (the “Year 1
Minimum”). During the second year of the Initial Term (“Year 2”), Purchaser shall
Acquire Service Amounts that, in the aggregate, are equal to at least $5,000,000 (as may be
adjusted, the “Year 2 Minimum”). During the third year of the Initial Term (“Year
3”, and collectively with Year 1 and Year 2, the “Subject Years”), Purchaser shall
Acquire Service Amounts that, in the aggregate, are equal to at least $5,000,000 (as may be
adjusted, the “Year 3 Minimum”, and collectively with the Year 1 Minimum and the Year 2
Minimum, the “Minimum Purchase Amounts”); provided, however, that if on or prior to April
30, 2006, there has been completion of the appropriate Phase I PK Study or Studies for the
Darvocet-N XR Product and agreement or consent by the FDA to allow the initiation of the Phase III
efficacy studies based on the Phase I data, the Year 2 Minimum and the Year 3 Minimum shall each be
$10,000,000 (subject to adjustment as provided for in Section 3.5 and Section 3.6 (as applicable)).

	(a)	 	The Service Amounts that shall be credited towards Purchaser’s satisfaction of the Minimum
Purchase Amount in each of the Subject Years shall be for the actual Services in respect of
which payments are accrued during the applicable Subject Year plus the Out-of-Pocket Expenses
that are invoiced to Purchaser by AAI DS during the applicable Subject Year plus any
Out-of-Pocket Expenses that are invoiced on or prior to 45 days after the end of the
applicable Subject Year but which relate to the applicable Subject Year. The Parties
acknowledge and agree that, notwithstanding anything herein or in any

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	 	 	Service Contract to the contrary, AAI DS shall be entitled to invoice, and Purchaser shall
pay, all Service Amounts that are credited towards Purchaser’s satisfaction of the Minimum
Purchase Amount for an applicable Subject Year.
	 
	(b)	 	Each of Purchaser and AAI DS acknowledges and agrees that (i) Services which Purchaser has
engaged AAI DS to provide with regard to XP12B on and after the Effective Date shall be
credited towards Purchaser’s satisfaction of the Minimum Purchase Amount for the applicable
Subject Year and (ii) any Services performed by AAI DS with regard to the Odyssey Product
engaged by Purchaser or a third party shall be credited towards Purchaser’s satisfaction of
the Minimum Purchase Amount for the applicable Subject Year. For the avoidance of doubt, any
out-of-pocket expenses invoiced to a third-party by AAI DS related to Services performed for
such third-party shall only be credited against Purchaser’s satisfaction of the applicable
Minimum Purchase Amount if such out-of-pocket expenses paid by such third-party are
Out-of-Pocket Expenses, as defined in Section 3.7 below (i.e., if Purchaser pays a 20% margin
on such Out-of-Pocket Expenses).
	 
	(c)	 	If Purchaser offers to engage AAI DS to provide Services for which AAI DS has the expertise
and resources to perform, as determined in AAI DS’s reasonable discretion (solely for purposes
of this clause (c)), and AAI DS does not choose to perform the Services, an amount equal to
the replacement cost for the same Services incurred by Purchaser shall be credited towards
Purchaser’s satisfaction of the Minimum Purchase Amount for the applicable Subject Year in
which such amounts are incurred by Purchaser.
	 
	(d)	 	For the avoidance of doubt, Reimbursable Expenses under the Odyssey Co-Development Agreement
shall not be credited towards Purchaser’s satisfaction of any Minimum Purchase Amount, other
than Services as contemplated in Section 3.3(b) above and out-of-pocket expenses related to
such Services invoiced by AAI DS that are Out-of-Pocket Expenses (as defined in Section 3.7
below). Notwithstanding anything to the contrary herein, Purchaser shall not be permitted to
credit any amount against any Minimum Purchase Amount if (i) AAI DS is determined not to have
the expertise or resources to perform the Service in accordance with the provisions of Article
2 of this Agreement or is otherwise unable to perform the Services, or (ii) except as provided
in clause (c) of this Section 3.3, Purchaser employs or otherwise contracts for a third party
to perform the Services.

     3.4 In the event that Purchaser does not Acquire in a Subject Year Service Amounts that, in
the aggregate, equal at least the then applicable Minimum Purchase Amount, Purchaser shall pay to
AAI DS, within sixty (60) calendar days after the end of such Subject Year, the difference between
(i) the applicable Minimum Purchase Amount for such Subject Year and (ii) the amount of the
aggregate Service Amounts that Purchaser has accrued (in respect of Services) and paid (in respect
of Out-of-Pocket Expenses) in respect of such Subject Year.

     3.5 In the event that Purchaser has Acquired in Year 1 Service Amounts that, in the aggregate,
equal more than the Year 1 Minimum, then the amount of such excess, but not to

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exceed twenty percent (20%) of the Year 1 Minimum (i.e., $2 million), shall be credited
towards Purchaser’s satisfaction of the Year 2 Minimum.

     3.6 In the event that Purchaser has Acquired in Year 2 Service Amounts that, in the aggregate,
equal more than the Year 2 Minimum, then the amount of such excess, but not to exceed twenty
percent (20%) of the Year 2 Minimum (i.e., $1 million or $2 million, as applicable), shall be
credited towards Purchaser’s satisfaction of the Year 3 Minimum.

     3.7 In addition, Purchaser will reimburse AAI DS for reasonable and customary documented
out-of-pocket expenses for raw materials which shall be invoiced by AAIDS to Purchaser at cost plus
a 20 percent (20%) handling fee (the “Raw Material Expenses”). Other out-of-pocket
expenses, such as travel and pass through expenses (e.g., investigator fees), will be
expensed at cost on a “pass through basis” plus a twenty percent (20%) handling fee (“Other
Expenses”, and collectively, with the Raw Material Expenses, the “Out-of-Pocket
Expenses”). AAI DS shall obtain prior written consent for any individual Other Expense in
excess of $10,000. Purchaser agrees to pay in advance any substantial pass through expenses.

     3.8 Unless otherwise set forth in the applicable Service Contract, AAI DS shall invoice
Purchaser on a calendar month basis for Services rendered and expenses incurred during the previous
calendar month. Invoices are due and payable within thirty (30) days of date of invoice. All
payments to AAI DS shall be made in U.S. dollars. Invoice balances not remitted within thirty (30)
days of receipt of invoice shall be subject to a one and one-half percent (1.5%) per month interest
charge. Should any part of the invoice be in dispute, Purchaser shall pay the remainder of the
undisputed amount according to the terms and conditions described herein while said dispute is
being resolved.

     3.9 The fees payable under this Agreement shall not, and shall not be construed to, include
local, state, federal or foreign sales and use taxes, if any, and any such taxes shall be assumed
and paid by Purchaser.

     3.10 AAI DS shall not subcontract any of the Services as set forth in a Service Contract,
other than to an Affiliate of AAI DS, without the prior written consent of Purchaser, which consent
shall not be unreasonably withheld or delayed.

     3.11 Any amounts payable to Purchaser hereunder, including, without limitation, claims for
indemnification, shall be administrative expense priority claims in the Bankruptcy Cases pursuant
to sections 503 and 507(a)(1) of the Bankruptcy Code.

     3.12 The obligations of AAI DS under this Agreement or the Service Contracts shall not be
discharged by entry of an order confirming a plan of reorganization in the Bankruptcy Cases and,
pursuant to section 1141 (d)(4) of the Bankruptcy Code, AAI DS has waived such discharge.

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ARTICLE IV

INTELLECTUAL PROPERTY

     4.1 DS hereby assigns to Purchaser all right, title and interest in Intellectual Property
discovered by AAI DS in the course of providing Services which are directly and solely related to
the Services (collectively, the “Project IP”); provided, that, notwithstanding the
foregoing, to the extent such Project IP relates to, or is an improvement upon, Licensed Assets or
Licensed Intellectual Property (such Project IP, collectively, “Licensed Project IP”), in
lieu of the assignment provided above, AAI DS hereby grants to Purchaser a non-exclusive,
perpetual, transferable, royalty-free license (with a right of sublicense without consent) in the
Territory to all of AAI DS’s right, title and interest in such Licensed Project IP. For purposes
of clarity, and notwithstanding anything in this Agreement or any Service Contract to the contrary,
AAI DS will continue to own any Intellectual Property included in the Project IP that was owned or
independently developed by AAI DS prior to providing any Services or developed independent of such
Services (the “AAI DS Proprietary Technology”) and has the right to use such Intellectual
Property in AAI DS’s sole discretion. In the event that Purchaser chooses to further develop
and/or commercialize a technology comprising, in whole or in part, AAI DS Proprietary Technology,
and the AAI DS Proprietary Technology is not already licensed to Purchaser under the APA, Purchaser
must first obtain a license for such development and/or commercialization from AAI DS, to be
memorialized by a separate writing negotiated in good faith by AAI DS and Purchaser.

     4.2 DS will, at the expense and the written request of Purchaser, do all reasonable acts and
execute all documents as Purchaser may reasonably request to transfer to and vest in Purchaser the
ownership and registration of all Intellectual Property rights that may exist in such owned Project
IP and to provide such license rights in the Licensed Project IP.

Purchaser acknowledges that AAI DS is in the business of providing Services for a variety of
organizations other than Purchaser. Accordingly, except to the extent otherwise set forth in the
APA, nothing in this Agreement shall preclude or limit AAI DS from providing Services or developing
materials for itself or other clients, or from utilizing the general knowledge gained during the
course of its performance hereunder, the AAI DS Proprietary Technology or the Licensed Project IP
to perform similar Services for other clients, provided that such provision of Services or
development of materials does not constitute a breach of confidentiality under Article V herein or
any provisions of the APA.

The forgoing terms and provisions of this Article IV are in addition to the relevant terms and
provisions of the APA; provided that, to the extent any of the terms and provisions set forth in
this Article IV are inconsistent with the terms of the APA, the terms of the APA shall govern.

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ARTICLE V

CONFIDENTIALITY

     5.1 Section 8.9(d) of the APA is incorporated herein by reference and shall be binding on the
Parties, and as incorporated herein, shall continue until the fifth (5th) anniversary of the
expiration or earlier termination of this Agreement.

     5.2 Neither Party (nor any of their respective Affiliates) shall issue any press release or
make any public announcement with respect to this Agreement and the transactions contemplated
hereby without obtaining the prior written consent of the other Party (such consent not to be
unreasonably withheld or delayed), except as may be required by Applicable Law upon the advice of
counsel and only if the disclosing Party provides the non-disclosing Party with a reasonable
opportunity to first review the release or other public announcement.

ARTICLE VI

REPRESENTATION AND WARRANTIES

     6.1 Representations and Warranties of AAI DS. AAI DS hereby represents and warrants
as follows:

     (a) AAI DS shall comply in all material respects with all Applicable Laws in the performance
of the Services.

     (b) The execution, delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby are within AAI DS’s powers and have been duly authorized by all
necessary action on the part of AAI DS. This Agreement has been duly executed and delivered by AAI
DS and, assuming the due execution and delivery hereof by Purchaser and approval by the Bankruptcy
Court, constitutes legal, valid and binding obligations of AAI DS, enforceable against AAI DS in
accordance with its terms, except as such enforceability may be limited by applicable bankruptcy,
insolvency, moratorium, reorganization or similar laws from time to time in effect which affect the
enforcement of creditors’ rights generally.

     (c) The execution, delivery and performance by AAI DS of this Agreement does not and will not
(i) contravene or conflict with the organizational documents of aaiPharma Inc., (ii) contravene or
conflict with or constitute a violation of any Applicable Laws, or (iii) materially breach or
constitute a material default under the provisions of any material contract, agreement or
instrument to which it is a party or by which it is bound.

     (d) AAI DS is not debarred and has not and shall not knowingly and intentionally use in any
capacity the services of any Third Person debarred under subsections 306(a) or (b) of the Generic
Drug Enforcement Act of 1992.

     (e) All Services performed by AAI DS pursuant to this Agreement will meet generally accepted
industry standards of quality.

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     (f) AAI DS shall not seek to reject or modify this Agreement or any Service Contract in the
Bankruptcy Cases including, without limitation, pursuant to any plan of reorganization or
liquidation filed in the Bankruptcy Cases and AAI DS shall not seek to modify this Agreement or any
Service Contract in any subsequent chapter 11 cases commenced under the Bankruptcy Code.

     EXCEPT AS SET FORTH IN THIS SECTION 6.1, AAI DS MAKES NO REPRESENTATIONS OR WARRANTIES,
EXPRESS OR IMPLIED, AND SPECIFICALLY DISCLAIMS ALL SUCH REPRESENTATIONS AND WARRANTIES, INCLUDING,
WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, INFRINGEMENT, TITLE OR FITNESS FOR A
PARTICULAR PURPOSE.

     6.2 Representations and Warranties of Purchaser. Purchaser hereby represents and
warrants as follows:

     (a) The execution, delivery and performance of this Agreement and the consummation of the
transactions contemplated hereby are within Purchaser’s powers and have been duly authorized by all
necessary action on the part of Purchaser. This Agreement has been duly executed and delivered by
Purchaser and, assuming the due execution and delivery hereof by AAI DS and approval by the
Bankruptcy Court, constitutes legal, valid and binding obligations of Purchaser, enforceable
against Purchaser in accordance with its terms, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or similar laws from time to time in
effect which affect the enforcement of creditors’ rights generally.

     (b) The execution, delivery and performance by Purchaser of this Agreement does not and will
not (i) contravene or conflict with the organizational documents of Purchaser, (ii) contravene or
conflict with or constitute a violation of any Applicable Laws, or (iii) materially breach or
constitute a material default under the provisions of any material contract, agreement or
instrument to which it is a party or by which it is bound.

ARTICLE VII

INDEMNIFICATION

     7.1 By Purchaser. Purchaser hereby indemnifies AAI DS and its directors, officers,
employees, Affiliates, stockholders, agents, attorneys, representatives, successors and permitted
assigns (collectively, the “AAI DS Indemnified Parties”) against and agrees to hold each of
them harmless from any and all losses, liabilities, obligations, damages, costs and expenses
(“Losses”) incurred by any AAI DS Indemnified Party to the extent based upon, attributable
to or resulting from: (a) any misrepresentation or breach of warranty made by Purchaser in this
Agreement, (b) any breach of any covenant or agreement made or to be performed by Purchaser
pursuant to this Agreement and/or applicable Service Contracts, or (c) any Services provided to the
Purchaser pursuant to this Agreement and/or applicable Service

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Contracts, unless such Losses arise from claims for which AAI DS would be required to provide
indemnification pursuant to Section 7.2.

     7.2 By AAI DS. AAI DS hereby indemnifies Purchaser and its directors, officers,
employees, Affiliates, stockholders, agents, attorneys, representatives, successors and permitted
assigns (collectively, the “Purchaser Indemnified Parties”) against and agrees to hold each
of them harmless from any and all Losses incurred by any Purchaser Indemnified Party to the extent
based upon, attributable to or resulting from: (a) any misrepresentation or breach of warranty made
by AAI DS in this Agreement and (b) any breach of any covenant or agreement made or to be performed
by AAI DS pursuant to this Agreement and/or applicable Service Contracts; provided, however, that
in no event shall AAI DS have indemnification obligations in excess of two times the aggregate fees
received by AAI DS under the applicable Service Contracts.

     7.3 Indemnification Procedures

     (a) In the event that any Legal Proceeding shall be instituted or that any claim or demand
shall be asserted by any Person in respect of which payment may be sought under Section 7.1 or
Section 7.2 hereof (regardless of the limitations set forth in Section 7.2) (“Indemnification
Claim”), the indemnified party shall reasonably and promptly cause written notice of the
assertion of any Indemnification Claim of which it has knowledge which is covered by this indemnity
to be forwarded to the indemnifying party. The indemnifying party shall have the right, at its
sole expense, to be represented by counsel of its choice, which must be reasonably satisfactory to
the indemnified party, and to defend against, negotiate, settle or otherwise deal with any
Indemnification Claim which relates to any Losses indemnified against hereunder; provided
that the indemnifying party shall have acknowledged in writing to the indemnified party its
unqualified obligation to indemnify the indemnified party as provided hereunder. If the
indemnifying party elects to defend against, negotiate, settle or otherwise deal with any
Indemnification Claim which relates to any Losses indemnified against hereunder, it shall within
twenty (20) Business Days (or sooner, if the nature of the Indemnification Claim so requires)
notify the indemnified party of its intent to do so. If the indemnifying party elects not to
defend against, negotiate, settle or otherwise deal with any Indemnification Claim which relates to
any Losses indemnified against hereunder, fails to notify the indemnified party of its election as
herein provided or contests its obligation to indemnify the indemnified party for such Losses under
this Agreement, the indemnified party may defend against, negotiate, settle or otherwise deal with
such Indemnification Claim. If the indemnified party defends any Indemnification Claim, then the
indemnifying party shall reimburse the indemnified party for any and all Expenses of defending such
Indemnification Claim upon submission of periodic bills. If the indemnifying party shall assume
the defense of any Indemnification Claim, the indemnified party may participate, at his or its own
expense, in the defense of such Indemnification Claim; provided, however, that such
indemnified party shall be entitled to participate in any such defense with separate counsel at the
expense of the indemnifying party if (i) so requested by the indemnifying party to participate or
(ii) in the reasonable opinion of counsel to the indemnified party a conflict or potential conflict
exists between the indemnified party and the indemnifying party that would make such separate
representation advisable; and provided, further, that the indemnifying party shall
not be required to pay for more than one such counsel for all indemnified parties in connection
with any Indemnification Claim. The parties

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hereto agree to cooperate fully with each other in connection with the defense, negotiation or
settlement of any such Indemnification Claim. Notwithstanding anything in this Section 7.3 to the
contrary, neither the indemnifying party nor the indemnified party shall, without the written
consent of the other party, settle or compromise any Indemnification Claim or permit a default or
consent to entry of any judgment unless the claimant and such party provide to such other party an
unqualified release from all liability in respect of the Indemnification Claim. Notwithstanding
the foregoing, if a settlement offer solely for money damages is made by the applicable third party
claimant, and the indemnifying party notifies the indemnified party in writing of the indemnifying
party’s willingness to accept the settlement offer and, subject to the applicable limitations of
Section 7.2, pay the amount called for by such offer, and the indemnified party declines to accept
such offer, the indemnified party may continue to contest such Indemnification Claim, free of any
participation by the indemnifying party, and the amount of any ultimate liability with respect to
such Indemnification Claim that the indemnifying party has an obligation to pay hereunder shall be
limited to the lesser of (A) the amount of the settlement offer that the indemnified party declined
to accept plus the Losses of the indemnified party relating to such Indemnification Claim through
the date of its rejection of the settlement offer or (B) the aggregate Losses of the indemnified
party with respect to such Indemnification Claim. If the indemnifying party makes any payment on
any Indemnification Claim, the indemnifying party shall be subrogated, to the extent of such
payment, to all rights and remedies of the indemnified party to any insurance benefits or other
claims of the indemnified party with respect to such Indemnification Claim.

     (b) After any final judgment or award shall have been rendered by a Governmental Body of
competent jurisdiction and the expiration of the time in which to appeal therefrom, or a settlement
shall have been consummated, or the indemnified party and the indemnifying party shall have arrived
at a mutually binding agreement with respect to an Indemnification Claim hereunder, the indemnified
party shall forward to the indemnifying party notice of any sums due and owing by the indemnifying
party pursuant to this Agreement with respect to such matter and the indemnifying party shall be
required to pay all of the sums so due and owing to the indemnified party by wire transfer of
immediately available funds within ten (10) Business Days after the date of such notice.

     (c) The failure of the indemnified party to give reasonably prompt notice of any
Indemnification Claim shall not release, waive or otherwise affect the indemnifying party’s
obligations with respect thereto except to the extent that the indemnifying party can demonstrate
actual loss and prejudice as a result of such failure.

     7.4 Disclaimer of Damages. Notwithstanding anything in this Agreement to the
contrary, in no event shall either Party be liable to the other under any theory, including
negligence, for any indirect, incidental, consequential, special or exemplary damages or lost
profits.

     7.5 Exclusive Remedy. The right to indemnification and other rights under this
Article 7 shall constitute Purchaser’s (and its Affiliates) and AAI DS’s (and its Affiliates) sole
and exclusive remedies with respect to any and all claims arising under or relating to this
Agreement and/or any applicable Service Contract. In furtherance of the foregoing, each of
Purchaser and AAI DS hereby waives, and shall cause any Affiliates to waive, to the fullest

12

 

extent permitted by Applicable Law, any and all rights, claims and causes of action that they
may have against any other Party or its Affiliates in connection with such transactions, except
those arising under Article 7.

ARTICLE VIII

TERM AND TERMINATION

     8.1 Unless earlier terminated in accordance with this Article 8, this Agreement shall take
effect and commence on the Effective Date and continue in effect for seven (7) years (“Initial
Term”). In addition, after the expiration of the Initial Term, the Agreement will
automatically renew for consecutive two (2) year terms (“Renewal Period”) until either of
the Parties terminates this Agreement by providing the other Party with at least sixty (60) days’
written notice prior to the end of the Initial Term or applicable Renewal Period. The Initial
Term, together with any Renewal Period(s), is referred to herein as the “Term”.

     8.2 Notwithstanding Section 8.1 herein, this Agreement may be terminated as follows:

	(a)	 	immediately upon the delivery of written notice by one Party, if the other Party materially
breaches any of the provisions of this Agreement and such breach is not cured within sixty
(60) calendar days after the giving of written notice thereof (or if cure has been commenced
during such period, if it is not diligently pursued to completion);
	 
	(b)	 	immediately upon delivery of written notice by one Party, if the other Party has been unable
to perform its obligations hereunder for one hundred twenty (120) calendar days by reason of
force majeure (as defined in Section 10.11); or
	 
	(c)	 	immediately if (i) the Bankruptcy Court enters an order in the Bankruptcy Cases appointing a
trustee, examiner with expanded powers or responsible officer in the Bankruptcy Cases, (ii)
any of the Bankruptcy Cases are converted to a case(s) under chapter 7 of the Bankruptcy Code
or (iii) the Bankruptcy Cases are dismissed.

     8.3 Upon termination or expiration of this Agreement:

	(a)	 	AAI DS shall stop all Services, each Party shall return to the other any Confidential
Information of such other Party and AAI DS shall transfer all Project IP to Purchaser as
provided in Section 4.2 of this Agreement upon payment by Purchaser as set forth in Section
8.3(b) below.
	 
	(b)	 	Purchaser shall be obligated to pay to AAI DS the cost of all Services completed and expenses
incurred, as set forth in the relevant Service Contract(s) then in effect at the time of
termination in accordance with the terms and conditions set forth in this Agreement.
Purchaser shall be obligated to pay for all unused supplies and materials that were ordered by
AAI DS in order to perform the Services and, upon such payment, Purchaser shall be permitted
to take delivery of such unused supplies and materials. AAI DS shall use commercially
reasonable efforts to minimize the costs associated with the cessation of Services.

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     8.4 AAI DS and Purchaser agree that the following provisions shall survive the termination of
this Agreement: Article IV, Article V, Article VII, Section 8.3, Section 8.4 and Article X.

ARTICLE IX

RECORDS AND AUDITS

     9.1 AAI DS agrees to maintain records of all Services performed under this Agreement in
accordance with the FDA archival guidelines. Upon reasonable prior written notice (not less than
fifteen (15) Business Days), during regular business hours, and at mutually agreed upon times,
Purchaser may, at its own cost and expense, review one time each calendar year AAI DS’s quality
control procedures and records, and review the records of AAI DS relating to the Services performed
and expenses incurred to assure compliance with all provisions of this Agreement, in each case with
a representative of AAI DS present. If Purchaser determines in its reasonable judgment that AAI
DS’s quality control procedures and records are not satisfactory or identifies significant
deficiencies or problems with such records or expenses, Purchaser reserves the right to perform
additional visits until remedied.

     9.2 In the event of an inspection by any governmental or regulatory agency concerning the
Services performed hereunder, AAI DS shall notify Purchaser promptly upon learning of such an
inspection, shall supply Purchaser with copies of any correspondence or portions or correspondence
relating to Purchaser’s materials and shall inform Purchaser of the general findings and outcomes
of such inspections. Purchaser shall reimburse AAI DS for actual time and reasonable expenses
incurred by AAI DS in connection with any inspection pursuant to this Section 9.2 to the extent the
inspection is directly related to the Services performed by AAI DS on behalf of Purchaser. AAI DS
shall provide Purchaser with an invoice detailing such time and expenses. AAI DS shall invoice
Purchaser at its then current rates applicable at the time of such review. Purchaser shall also be
invoiced for any incidental expenses AAI DS incurs resulting from such review. Payment of such
invoice shall be in accordance with Section 3.8 herein. Notwithstanding the foregoing, in the
event that the inspection determines that Services were not in material compliance with any
Applicable Law, Purchaser shall not be obligated to make any payments for any expenses related to
such inspection.

ARTICLE X

MISCELLANEOUS

     10.1 Successors and Assigns. Neither Party may assign this agreement without the
other Party’s prior written consent, which consent shall not be unreasonably withheld or delayed,
except that Purchaser may assign its rights or obligations hereunder only to an Affiliate or third
party that purchases substantially all of the assets of Purchaser relating to the Services Products
provided that such Affiliate or third party agrees in writing to be bound by all terms and
conditions of this Agreement.

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     10.2 Notices. Any notice required or permitted under this Agreement shall be in
writing, shall specifically refer to this Agreement, and shall be sent by hand, recognized
overnight courier, confirmed facsimile transmission, or registered or certified mail service,
postage prepaid, return receipt requested, to the following addresses or facsimile numbers of the
Parties:

Purchaser:

Xanodyne Pharmaceuticals, Inc.

7300 Turfway Road

Suite 300

Florence, KY 41042

Facsimile: (859) 371-7692

Attention: Thomas P. Jennings, Esq.

AAI DS:

President

aaiPharma Inc.

2320 Scientific Park Drive

Wilmington, NC 28405

Fax: 910-815-2387

With a copy sent to:

aaiPharma Inc.

2320 Scientific Park Dr.

Wilmington, NC 28409

Attn: General Counsel

Fax: (910) 815-2387

All notices under this Agreement shall be deemed received (i) upon receipt when sent by hand, (ii)
two (2) Business Days after deposit with a recognized overnight courier, (iii) upon confirmation of
delivery when sent by facsimile and (iv) five (5) Business Days after deposit in registered or
certified mail service. A party may change its contact information immediately upon written notice
to the other party in the manner provided in this Section.

     10.3 Waiver. No delay on the part of AAI DS or Purchaser in exercising any right,
power or privilege hereunder shall operate as a waiver thereof, nor shall any waiver on the part of
either Party of any right, power or privilege hereunder operate as a waiver of any other right,
power or privilege hereunder, nor shall any single or partial exercise of any right, power or
privilege hereunder preclude any other or further exercise thereof or the exercise of any other
right, power or privilege hereunder. Any provision of this Agreement may be waived if, and only
if, such waiver is in writing and signed by the Party against whom the waiver is to be effective.

15

 

     10.4 Entire Agreement. This Agreement, the APA and the Service Contracts executed
pursuant to this Agreement constitute the entire agreement between the Parties with respect to the
subject matter hereof and supersede all prior agreements, understanding and negotiations, both
written and oral, between the Parties with respect to the subject matter of this Agreement.

     10.5 Amendment. This Agreement may be modified or amended only by written agreement
of the Parties hereto.

     10.6 Counterparts. This Agreement may be executed by facsimile and in any number of
counterparts, each of which shall be deemed an original but all of which together shall constitute
a single instrument. This Agreement may be executed on signature pages exchanged by facsimile, in
which event each Party shall promptly deliver to the others such number of original executed copies
as the others may reasonably request.

     10.7 Governing Law; Jurisdiction.

	(a)	 	This Agreement shall be governed and construed in accordance with the laws of the State of
New York excluding any choice of law rules which may direct the application of the law of
another state.
	 
	(b)	 	Any action or proceeding arising out of or relating to this Agreement or any of the
transactions contemplated hereby may be brought in the United States District Court for the
Southern District of New York, and each of the Parties irrevocably submits to the exclusive
jurisdiction of such court in any such action or proceeding, waives any objection it may now
or hereafter have to venue or to convenience of forum, agrees that all claims in respect of
such action or proceeding shall be heard and determined only in such court and agrees not to
bring any action or proceeding arising out of or relating to this Agreement or the
transactions contemplated hereby in any other court.

     10.8 Severability. If any provision of this Agreement is held to be illegal, invalid
or unenforceable under any present or future law, and if the rights or obligations of any Party
hereto under this Agreement will not be materially and adversely affected thereby, (a) such
provision will be fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof, (c) the remaining
provisions of this Agreement will remain in full force and effect and will not be affected by the
illegal, invalid or unenforceable provision or by its severance herefrom, and (d) in lieu of such
illegal, invalid or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar to the terms to such illegal, invalid
or unenforceable provision as may be possible and reasonably acceptable to the Parties herein.
Notwithstanding the foregoing, the Parties acknowledge that it is their intent that this Agreement
and all of the Service Contracts constitute one agreement and that neither Party may assume certain
Service Contracts and reject other Service Contracts or this Agreement in any subsequent chapter 11
case.

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     10.9 No Third Party Rights. Except as otherwise expressly set forth herein, no
provision of this Agreement shall be deemed or construed in any way to result in the creation of
any rights or obligations in any Person not a Party to this Agreement.

     10.10 Exhibits. The Exhibits referenced in this Agreement are an integral part of
this Agreement and are incorporated herein by reference.

     10.11 Force Majeure. If either Party is prevented from complying, either totally or
in part, with any of the terms or provisions set forth herein by reason of force majeure,
including, by way of example and not of limitation, fire, flood, explosion, storm, hurricane,
strike, lockout or other labor dispute, riot, war, rebellion, accidents, acts of God, acts of
governmental agencies or instrumentalities, failure of suppliers or any other similar or dissimilar
cause, in each case to the extent beyond its control despite its commercially reasonable efforts to
avoid, minimize, and resolve such cause as promptly as possible, said Party shall (a) provide
written notice of same to the other Party, and (b) subject to the obligations set forth above in
this Section 10.11 with respect to said Party’s efforts to remove the disability, its obligations
that are prevented from compliance by such force majeure are suspended, without liability, during
such period of force majeure. Said notice shall be provided within five (5) business days of the
occurrence of such event and shall identify the requirements of this Agreement or such of its
obligations as may be affected. The Party so affected shall give to the other Party a good faith
estimate of the continuing effect of the force majeure condition and the duration of the affected
Party’s nonperformance.

     10.12 No Other Relationship. It is expressly agreed that AAI DS, on the one hand, and
Purchaser, on the other hand, shall be independent contractors and that nothing contained herein
shall be deemed to create any joint venture or partnership between the Parties hereto, and, except
as is expressly set forth herein, neither Party shall have any right by virtue of this Agreement to
bind the other Party in any manner whatsoever.

     10.13 Non-Solicitation. Purchaser agrees that, except as otherwise permitted by
Sections 8.9 and 9.1 of the APA, neither it nor its Affiliates will, commencing on the date that
the Bankruptcy Court enters the Sale Order and continuing until one (1) year following the
expiration or termination of this Agreement: (i) knowingly hire a person who has been an employee
of AAI DS or its Affiliates during the two (2) years prior to such hiring, or (ii) directly or
indirectly solicit to employ the employees of AAI DS or its Affiliates, provided that newspaper and
internet advertisements to fill job openings shall not be deemed to be “solicitation” hereunder.

     10.14 Definitions. Capitalized terms used but not otherwise defined herein shall have
the meaning given to them in the APA.

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     IN WITNESS WHEREOF, the Parties hereto have executed this Agreement as of the date first above
written.

	 	 	 	 	 
	 

	 	XANODYNE PHARMACEUTICALS, INC.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ S. A. Stamp
	 

	 	 	 	 
	 

	 	Printed Name: S. A. Stamp

Title: Chief Financial Officer
	 
	 	 	 	 
	 
	 	 	 	 
	 

	 	AAI DEVELOPMENT
SERVICES, a division of

aaiPharma Inc.
	 
	 	 	 	 
	 

	 	By:
	 	/s/ Ludo J. Reynders
	 

	 	 	 	 
	 

	 	Printed Name: Ludo J. Reynders

Title: President/CEO

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