Document:

exv10w1

 

Exhibit 10.1

EXECUTION COPY

MANUFACTURING AGREEMENT

(KEFLEX)

     This MANUFACTURING AGREEMENT (the “Manufacturing Agreement”) is entered
into as of June 30, 2004 (the “Effective Date”), by and between Advancis
Pharmaceutical Corporation (“Advancis”), a corporation organized and existing
under the laws of the State of Delaware, and Eli Lilly and Company (“Lilly”), a
corporation organized and existing under the laws of the State of Indiana.
Advancis and Lilly are sometimes referred to herein individually as a “Party”
and collectively as “Parties”.

RECITALS

     WHEREAS, Lilly and Advancis have entered into an Asset Purchase Agreement
of even date herewith (the “Asset Purchase Agreement”);

     WHEREAS, subject to the terms and conditions set forth in this
Manufacturing Agreement, Advancis wishes to have Lilly manufacture and supply
certain pharmaceutical products to Advancis; and

     WHEREAS, subject to the terms and conditions set forth in this
Manufacturing Agreement, Lilly wishes to manufacture and supply such products
for and to Advancis.

     NOW, THEREFORE, in consideration of the premises, and for other good
and valuable consideration, the Parties, intending to be legally bound,
hereby agree as follows:

 

ARTICLE 1

DEFINITIONS

     For purposes of this Manufacturing Agreement, the following terms will
have the meanings set forth below:

	1.1	 	Capitalized terms not otherwise defined herein will have the meaning
given to them in the Asset Purchase Agreement.
	 
	1.2	 	“Asset Purchase Agreement” will have the meaning set forth in the first
WHEREAS clause of this Manufacturing Agreement.
	 
	1.3	 	“Audit” means a review of facilities, processes, procedures and documents
as described in Section 3.3 of this Manufacturing Agreement.
	 
	1.4	 	“cGMP” means current Good Manufacturing Practices pursuant to 21 C.F.R.
§§11,210 211 et seq., as such may be amended from time to time.
	 
	1.5	 	“Contract Period” means the period beginning as of the Effective Date and
ending on the date of expiration or termination of this Manufacturing
Agreement pursuant to Article 8.
	 
	1.6	 	“Disputed Product” will have the meaning set forth in Section 5.3(b).
	 
	1.7	 	“Effective Date” will have the meaning set forth in the first paragraph
of this Manufacturing Agreement.
	 
	1.8	 	“FDCA” means the Federal Food, Drug and Cosmetic Act (21 U.S.C. § 301 et
seq.), as may be amended from time to time, together with any rules and
regulations promulgated thereunder.

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	1.9	 	“Forecast” will have the meaning set forth in Section 4.2.
	 
	1.10	 	“Initial Forecast” will have the meaning set forth in Section 4.2.
	 
	1.11	 	“Latent Defect” means a defect that causes the Product to fail to conform
to the Specifications and that was not discoverable upon reasonable
inspection and testing by Advancis at the time of receipt of the Product.
	 
	1.12	 	“Lilly Error” means any error due to the negligent performance, failure
to perform or misconduct in the performance by Lilly or its officers,
agents or employees of any obligation imposed upon or assigned to Lilly
under this Manufacturing Agreement.
	 
	1.13	 	“Manufacturing Responsibility Document” or “MRD”, means an agreement
between the Parties which sets forth additional written instructions
regarding the manufacture and supply of Product. The MRD will be compiled
and agreed upon by the Parties as soon as practicable after the Effective
Date. In the event of conflict between the terms of the MRD on the one
hand, and the terms of the Asset Purchase Agreement, this Manufacturing
Agreement, or the Quality Agreement, on the other hand, the terms of the
Asset Purchase Agreement, Manufacturing Agreement or Quality Agreement, as
applicable, will govern.
	 
	1.14	 	“Manufacturing Sites” will have the meaning set forth in Section 2.2.
	 
	1.15	 	“NDA” means the United States New Drug Application 50-405 for Keflex,
oral capsules and all other submissions, supplements or amendments as of
the Effective Date pertaining thereto.
	 
	1.16	 	“Party” or “Parties” will have the meaning set forth in the first
paragraph of this Manufacturing Agreement.

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	1.17	 	“Product” means only the presentations of finished cephalexin
pharmaceutical product set forth in Schedule 1.17 attached hereto marketed
under the Assigned Trademarks in the United States.
	 
	1.18	 	“Purchase Prices” will have the meaning set forth in Section 2.2.
	 
	1.19	 	"Quality Agreement” means an agreement between the Parties which
describes certain quality and regulatory responsibilities relating to the
manufacture and release for sale of the Product by Lilly to Advancis. The
Quality Agreement will be compiled and agreed upon by the Parties as soon
as practicable after the Effective Date. The Quality Agreement will be
subject to and not inconsistent with the terms of this Manufacturing
Agreement and the Asset Purchase Agreement, and in the event of conflict
between terms of this Manufacturing Agreement or the Asset Purchase
Agreement, as applicable, on one hand, and the Quality Agreement on the
other, this Manufacturing Agreement or the Asset Purchase Agreement, as
applicable, will govern. Sections of the Quality Agreement may be
modified from time to time through the issuance of a revised section
signed on behalf of each of the Parties by an authorized representative
incorporating the modification and stating the effective date and revision
number of the modification; provided, however, that no such modification
will be inconsistent with the terms of this Manufacturing Agreement and
the Asset Purchase Agreement, and in the event of conflict between such
modifications, on the one hand, and this Manufacturing Agreement or the
Asset Purchase Agreement, on the other, this Manufacturing Agreement or
the Asset Purchase Agreement, as applicable, will govern. A reference to
“MRD/Quality Agreement” in this Manufacturing Agreement will mean the MRD
and/or Quality Agreement as the context requires.
	 
	1.20	 	“Specifications” means the specifications for manufacturing and packaging
the Product as set forth in the NDA and in Schedule 1.20 attached hereto.
	 
	1.21	 	“Supply Team” will have the meaning set forth in Section 10.1.

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	1.22	 	“Territory” means the fifty (50) states and the District of Columbia
constituting the United States of America, including Puerto Rico.
	 
	1.23	 	“Transition Period” means the period of time from [***] during which
Lilly is providing transition services to Advancis pursuant to the
Transition Services Agreement.

ARTICLE 2

PAYMENTS; PURCHASE AND PRICE OF PRODUCT; 

CERTAIN TRANSITION MATTERS

	2.1	 	Purchases During Transition Period.

          (a) During the Transition Period, Advancis will purchase and
Lilly will sell to Advancis Inventory for distribution and sale in
Territory at the times and in the amounts set forth in the Transition
Services Agreement.

          (b) On [***], Advancis will purchase and Lilly will sell to
Advancis all remaining amounts of Inventory not previously sold to
Advancis pursuant to subparagraph (a) above.

          (c) The quantity of Product comprising the Inventory will be
applied towards Lilly’s maximum supply obligations set forth in
Sections 4.1 and 4.3. Lilly will have no obligation to re-label or
over-label the Inventory. Advancis will not re-label or over-label
any Inventory without the prior written consent of Lilly, which
consent will not be unreasonably withheld. Advancis shall purchase
the Inventory at the Purchase Price as defined in Section 2.2 below.
For quantities purchased during the Transition Period, payment shall
be made in accordance with the Transition Services Agreement. At
any time within 30 days following [***], representatives of Advancis
shall have the right to physically inspect the Inventory purchased
pursuant to subparagraph (b) above. To the extent that a variance
exists between the quantity of Product purported to be sold to
Advancis and the actual quantity shown by the inspection, the Parties
agree to reconcile the difference within 30 days of Advancis
providing notice to Lilly of such variance. The Parties shall
mutually agree upon the procedures to be followed in any such
inspection.

[***] 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
EXCHANGE ACT OF 1934, AS AMENDED.

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	2.2	 	Purchases Following Transition Period.

          (a) As of the end of the Transition Period and during the term
of this Manufacturing Agreement, subject to the terms of this
Manufacturing Agreement, Lilly will manufacture and supply Product
(in addition to the Inventory) for and to Advancis during the
Contract Period and Advancis will purchase from Lilly, Product for
resale in the Territory during the Contract Period. Advancis will pay
the purchase prices for Product set forth on Schedule 2.2A attached
hereto (the “Purchase Prices”). The Purchase Prices include all
applicable freight and insurance expenses in order for the Product
to be shipped in compliance with Section 4.5. The expiration date
with respect to all Product purchased by Advancis pursuant to this
Section 2.2 will be no earlier than [***] from the date of shipment
from Lilly to Advancis. Lilly will have no obligation to manufacture
or package Product for Advancis in any presentation not set forth in
Schedule 1.17. Schedule 2.2B lists Lilly’s and its Affiliates’ sites
where Product will be manufactured (the “Manufacturing Sites”).
Lilly may change from which Manufacturing Site it supplies at its
sole discretion, so long as all Manufacturing Sites are NDA
registered and FDA approved for the Product and provided that any
change in Manufacturing Site does not create any delay in Lilly
performing its obligations under this Manufacturing Agreement. Lilly
shall provide Advancis with prior written notice of any change in
Manufacturing Sites.

          (b) Not later than [***], Advancis shall notify Lilly in writing
whether Advancis desires Lilly to mount one final manufacturing
campaign prior to the end of the Contract Period such that Advancis
has Product supply for resale following the end of the Contract
Period. Subject to the Purchase Maximums provided in Section 4.1
such notice shall specify the quantity of Product that Advancis
desires to purchase. Lilly will use its commercially reasonable
efforts to produce such Product prior to the expiration of the
Contract Period, and Advancis shall purchase such Product at the
Purchase Prices set forth in Schedule 2.2A.

          (c) Lilly acknowledges and agrees that Advancis is not obligated
to purchase any United States labeled Product in Lilly’s possession
which is not included in the Inventory (the “Excess Product”). Lilly
shall either destroy the Excess

        [***] 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
EXCHANGE ACT OF 1934, AS AMENDED.

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	 	 	Product or donate the Excess Product to recognized charitable relief
organizations (which may be based in the United States) for use
outside the United States. The foregoing sentence shall not apply to
the Lilly Finished Product Health Service Supplies.
	 
	2.3	 	Terms of Payment. Advancis agrees to pay all invoices within sixty (60)
days from the date of the applicable invoice, provided that all invoices
are dated the date of shipment of applicable Product. All payments to
Lilly will be made by Federal Reserve wire transfer to an account
previously designated in writing by Lilly. All payments made under this
Manufacturing Agreement will be made in United States currency. Any
payments not made when due shall be subject to interest as provided in
Section 2.4 of the Asset Purchase Agreement.
	 
	2.4	 	Extension of Credit. Advancis acknowledges that Lilly will establish
a credit line for Advancis to facilitate its purchases of the Product
on the terms set forth in Section 2.3 and that Lilly may periodically
review and adjust this credit line as it deems appropriate. In
consideration for providing this credit line, Advancis agrees to
provide Lilly, upon request, the financial information reasonably
necessary for Lilly to perform credit reviews; provided, however, that
if Advancis does not provide such information, or if Lilly’s analysis
of that information does not meet Lilly’s standard credit approval
guidelines, then Lilly will have the right to ask for cash in advance
of shipment should Advancis experience a condition of insolvency, or
if notice of intent to terminate has been issued pursuant to Section
8.2 of this Manufacturing Agreement.
	 
	2.5	 	Transition Services Agreement. Simultaneously herewith, the Parties shall
execute and deliver the Transition Services Agreement pursuant to which,
among other things, Lilly will provide warehousing, distribution and other
transition services to Advancis, including sales and accounts receivable
functions. During the term of the Transition Services Agreement, to the
extent that any provision of this Manufacturing Agreement

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	 	 	conflicts with
the Transition Services Agreement, the Transition Services Agreement shall
apply.
	 
	2.6	 	No Excuse. Notwithstanding any provision of this Manufacturing Agreement
to the contrary, Advancis will not be excused from or relieved of its
obligations to pay the amounts described in this Article 2 by any claimed
or actual event of force majeure, commercial or other impracticability or
impossibility, or frustration of essential purpose.

ARTICLE 3

MANUFACTURING AND QUALITY

	3.1	 	Manufacturing. Lilly will manufacture, package, label, test, prepare for
shipment and ship Product to Advancis from Lilly’s facilities, or the
facilities of a Third Person under subcontract with Lilly, at the times
and in the quantities set forth by Advancis in a purchase order pursuant
to Section 4.3, subject, however, to the quantity restrictions set forth
in Sections 4.1 and 4.2. Each shipment of Product: (i) will have been
manufactured in accordance with cGMP in effect at the time of manufacture,
(ii) will not be adulterated or misbranded by Lilly within the meaning of
the FDCA, (iii) will not have been manufactured, sold or shipped in
violation of any Applicable Laws in any material respect, and (iv) upon
delivery to Advancis, FOB a common carrier located in the United States
designated by Advancis, will convey good title to such Product to Advancis
and such conveyance will be free and clear of any Encumbrance other than
Encumbrances created by Advancis. Lilly will provide to Advancis with
each shipment of Product appropriate documentation, to be mutually agreed
upon by the Parties, confirming that the Product meets the Specifications
then in effect, including a certificate of analysis and Lilly’s standard
release documents
	 
	3.2	 	Modifications.

          (a) Advancis will inform Lilly in writing as soon as reasonably
practical of any proposed modification to the Specifications or
analytical requirements (“Modification”). For the purpose of this
Section 3.2, the term Modification shall not

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include any proposed
change to the Specifications that relates solely to the
identification of the Parties, their respective trade names and
trademarks or Third Person manufacturers, packers or distributors on
the Current Labeling or the New
Labeling (as such terms are defined in Article 5); such changes
shall be governed solely by Article 5.

          (b) If Lilly is willing and able to make a Modification, Lilly will
inform Advancis in writing of the amount of any additional costs and
expenses (including capital expenditures, regulatory and any other costs)
Lilly would actually incur due to the Modification. If Advancis elects to
adopt the Modification, Advancis will promptly reimburse Lilly for any
required capital expenditures, regulatory and other costs associated with
the Modification and the Purchase Price will be increased to reflect any
increase in on-going Product manufacturing costs resulting from the
Modification (exclusive of any indirect costs associated with capital
expenditures actually paid for by Advancis). Any assets acquired by Lilly
on Advancis’ behalf pursuant to this Section 3.2 and paid for by Advancis
will be maintained by Lilly in the normal course of business and, to the
extent severable from Lilly’s facility without unreasonable damage or
unreasonable disruption to such facility, returned to Advancis as soon as
practicable after the termination or expiration of this Manufacturing
Agreement. Advancis will also promptly pay for any additional analytical
tests or any other additional requirements resulting from such
Modifications. If Lilly is unable or unwilling to comply with a proposed
Modification or if Advancis is unwilling to pay Lilly’s costs to
implement a Modification or the increase in Purchase Price associated
therewith, then Advancis will withdraw the proposed Modification and the
Specifications will remain in full force and effect.

          (c) Lilly will follow the above-described procedure, including the
payment of any capital expenditures, regulatory and other costs, if it
proposes a Modification. Lilly will not implement any Modification
(other than with respect to minor changes to secondary packaging not
otherwise prohibited under Section 5.1) without Advancis’ prior written
consent, which consent will not be unreasonably withheld. Either Party
will notify the other as soon as practical of any Modifications that are
required by Applicable Law and that could have an impact on such Party’s
performance of this Manufacturing

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Agreement. Any such Modifications will
be deemed (and treated as) Modifications proposed by Advancis under this
Section 3.2; provided, however, that if Advancis is not willing to pay
for such Modification that is required by Applicable Laws as described in
this Section 3.2 or Lilly is unable to implement such Modification that
is required by
Applicable Laws after exercising commercially reasonable efforts,
either Party may terminate this Manufacturing Agreement as of the earlier
of (i) the date Applicable Laws require the implementation of such
Modification that is required by Applicable Laws, or (ii) thirty (30)
days after written notice from one Party to the other. Every proposed
Modification will be treated separately. Notwithstanding the foregoing,
Lilly shall not have the right to terminate this Manufacturing Agreement
pursuant to this Section 3.2 if Advancis is unwilling to pay the
additional costs associated with any Modification proposed by Lilly,
other than Modifications that are required for regulatory reasons or
otherwise reasonably necessary for Lilly to continue to manufacture
Product in a commercially reasonable manner.

          (d) In no event will Lilly be required to make (or not to make) a
Modification that is prohibited (or required) by applicable regulations
or regulatory authorities. Advancis will have sole responsibility for
obtaining any and all necessary regulatory approvals from the FDA for
Modifications and for reporting any Modifications to the FDA as
appropriate.

          (e) Lilly represents and warrants that as of the Effective Date it
has no present intent to make any material Modifications for any reason,
including any anticipated change in Applicable Laws. Lilly shall
indemnify Advancis in accordance with Section 11 for any breach of this
representation and warranty.

	3.3	 	Quality Control and Assurance; cGMP Audit.

          (a) Quality Control and Assurance. Lilly will manufacture
the Product in compliance with the Specifications. Lilly will perform
quality control and quality assurance testing on the Product to be
delivered to Advancis hereunder in accordance with the Specifications,
cGMP and the MRD/Quality Agreement.

          (b) Access to Lilly Facilities by Advancis Representatives.
Upon no less than fifteen (15) days’ written notice to Lilly and no more
than one time during the Contract

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Period, Lilly will permit Advancis to
conduct an Audit of Lilly’s facilities related to the Product during
regular business hours for the purpose of making quality control
inspections to assure cGMP compliance of the facilities used in the
manufacturing, receiving, sampling, analyzing, storing, handling,
packaging and shipping of Product,
including, but not limited to, in the receipt, storage and issuance
of raw materials, labeling and packaging components, and ingredients
thereof. Notwithstanding the immediately preceding sentence, in the event
of either (i) a rejection of Product by Advancis pursuant to Section 5.3,
because of a failure to meet Specifications (ii) a change in
Manufacturing Site pursuant to Section 2.2(a), or (iii) a negative
regulatory inspection that could impact Product quantity or supply of
Product to Advancis, then Advancis will have the right to conduct one
additional Audit under the provisions of this Section 3.3(b) during the
Contract Period. Lilly shall notify Advancis immediately after a
negative regulatory inspection that could impact Product quality or
supply of product to Advancis. Any Advancis representatives will be
advised of the confidentiality obligations of Article 9 below, and will
follow such security and facility access procedures as are reasonably
designated by Lilly.

          Lilly may require that at all times the Advancis representatives be
accompanied by a Lilly representative and that the Advancis
representatives not enter areas of the facility used in production of the
Product at times other than when the production of Product is occurring
to assure protection of Lilly or Third Person confidential information.
Lilly will provide Advancis with a written response to any written Audit
observations provided by Advancis as soon as reasonably practicable, but
in any event no later than forty-five (45) days of Lilly’s receipt
thereof, provided, however, that Lilly will have no obligation to further
act upon such Audit, but will consider the Audit in good faith.

          (c) Safety Procedures. Lilly will have responsibility for
developing, adopting and enforcing safety procedures for the handling and
production of Product by Lilly and the handling and disposal of all waste
relating thereto. Such responsibilities will terminate as to Product
upon delivery thereof to Advancis’ common carrier.

          (d) Access to Advancis Facilities by Lilly Representatives.
Upon no less than fifteen (15) days’ written notice to Advancis and no
more than one time during the Contract Period, Advancis will permit Lilly
to conduct an Audit of the specific Advancis’

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	 	 	facilities used in the
receiving, sampling, analyzing, storing, handling, packaging and shipping
of Product during regular business hours for the purpose of making
quality control inspections to assure cGMP compliance. Notwithstanding
the immediately preceding sentence, in the event of a rejection of
Product by Advancis pursuant to Section
5.3, below, because of a failure to meet Specifications, then Lilly
will have an additional right to conduct an Audit under the provisions of
this Section 3.3. Any Lilly representatives will be advised of the
confidentiality obligations of Article 9 below, and will follow such
security and facility access procedures as are reasonably designed by
Advancis. Advancis may require that at all times the Lilly
representatives be accompanied by an Advancis representative and that the
Lilly representatives not enter areas of the facility unrelated to the
Product. Advancis will provide Lilly with a written response to any
written Audit observations provided by Lilly within forty-five (45) days
of Advancis’ receipt thereof; provided, however, that Advancis will have
no obligation to further act upon such Audit, but will consider the Audit
in good faith.
	 
	3.4	 	Records and Accounting by Lilly. Lilly will, with respect to each lot of
Product produced by it hereunder, for the longer of (i) any period
required by Applicable Laws, or (ii) a period of one (1) year after the
expiry of the expiration dating of such lot, keep accurate records of the
manufacture and testing of the Product produced by it hereunder,
including, without limitation, all such records which are required under
Applicable Laws. Access to such records will be made available by Lilly
to Advancis during normal business hours upon Advancis’ reasonable written
request.
	 
	3.5	 	Bulk Active Pharmaceutical Ingredient. Lilly currently obtains bulk
active pharmaceutical ingredient (“API”) used in Lilly’s manufacture of
Product from [***]. Lilly will acquire, at its own cost and expense, the
API in such quantities as are necessary to enable Lilly to manufacture and
supply the desired quantities of the Product during the Contract Period.
Lilly will perform all quality control procedures with respect to the API
in accordance with the Specifications. Lilly will use its commercially
reasonable efforts to secure an adequate supply of API from [***], or if
practicable, an alternative supplier, but shall have no liability for any
failure to perform by [***] or any alternative supplier. Lilly

        [***] 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
EXCHANGE ACT OF 1934, AS AMENDED.

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	 	 	shall also
use its commercially reasonable efforts to cause [***] or any alternative
supplier to cooperate with Advancis in connection with matters related to
this Manufacturing Agreement, including granting Advancis the right to
inspect [***] facilities.

ARTICLE 4

PURCHASE OF PRODUCT; FORECASTS

	4.1	 	Maximum Purchase Amounts. Lilly will not be required to supply Advancis
with more than the maximum quantities of Product specified in Schedule 4.1
during the Contract Period (the “Purchase Maximum”). In the event
Advancis requests Product in excess of the Purchase Maximum, Lilly agrees
to discuss in good faith supplying Advancis with such quantities, but will
have no obligation to so provide Advancis with such quantities. For
purposes of this Manufacturing Agreement, Lilly will be deemed to have
“supplied” Product to Advancis on the date that Lilly has delivered
Product to Advancis in accordance with Section 4.5, below.
	 
	4.2	 	Forecasts.

          (a) In addition to the notice provided in Section 2.2(b), within
forty-five days following the Effective Date (the “Initial Forecast”) and
on or before the first day of each Calendar Quarter thereafter, Advancis
will provide to Lilly Advancis’ estimate of the total quantity of Product
to be delivered for the following Calendar Quarter and the remaining
Calendar Quarters of the Contract Period, broken down into calendar
months (each a “Forecast”). For each of the first three (3) Calendar
Quarters of the Initial Forecast (Q3’04, Q4’04, Q1’05), (i) Advancis will
be obligated to purchase [***] of the quantities of Product forecasted
pursuant to purchase orders submitted by Advancis to Lilly, and (ii)
Lilly will, be obligated to supply Advancis with quantity ordered by
Advancis unless the quantity exceeds [***] of the quantities of Product
forecasted. Thereafter, for each remaining Calendar Quarter, Advancis
will be obligated to purchase [***] of the quantities of Product
forecasted for such Calendar Quarter in the Forecast in which such
Calendar Quarter was the third (3rd) Calendar Quarter of the Forecast,
and

        [***] 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
EXCHANGE ACT OF 1934, AS AMENDED.

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Lilly will be obligated to supply Advancis with quantity ordered by
Advancis unless the quantity exceeds [***] of the quantities of Product
forecasted for such Calendar Quarter in the Forecast in which such
Calendar Quarter was the third (3rd) Calendar Quarter of the Forecast.
Except as otherwise set forth in this Section 4.2 or elsewhere in this
Manufacturing Agreement, the Parties agree that the Forecasts will be for
general
planning purposes only, and will not be binding on Lilly or
Advancis. The provisions of this Section 4.2(a) are subject to the
maximum purchase obligations in Section 4.1.

          (b) Unique and Unused Components or Materials. Reasonable
quantities of unique components, or materials that are used in the
manufacture of the Product, will be purchased by Lilly in reliance by
Lilly on the Initial Forecast and each Forecast. If Advancis thereafter
requests any change to the quantities previously forecasted for a
Calendar Quarter in a Forecast that causes any obsolescence of any such
unique components or materials purchased by Lilly, Advancis will be
responsible to Lilly for the reasonable and direct costs and expenses
actually incurred associated with said components or materials
(including, but not limited to, any costs related to returning such
components or material to the vendor or otherwise disposing thereof).

	4.3	 	Purchase Orders. Advancis will purchase Product solely by written
purchase orders, which purchase orders must be consistent with the
quantity restrictions set forth in Sections 2.2, 4.1 and 4.2. Such
purchase orders must be for minimum order quantities of Product as
identified in Schedule 4.3A attached hereto. Advancis may not order
Product such that a lot is split into more than [***] different package
sizes. Each purchase order will be governed by the terms of this
Manufacturing Agreement, the Asset Purchase Agreement and the MRD/Quality
Agreement, and no terms or conditions of Advancis purchase orders, Lilly’s
acknowledgement forms, or any other forms will be applicable except those
specifying quantity ordered (subject to the quantity restrictions),
shipment locations and invoice information. Advancis will submit each
such written purchase order to Lilly at least [***] in advance of the date
specified in each purchase order by which delivery of the Product is
required. Each purchase order will include quantity, delivery date and
such other information as reasonably necessary to place a purchase

        [***] 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
EXCHANGE ACT OF 1934, AS AMENDED.

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	•	 	order. Notwithstanding the foregoing, Lilly will use commercially reasonable
efforts, but will not be obligated, to meet any request of Advancis for
delivery of Product in less than [***], and further, Lilly will attempt,
but will not be obligated, to accommodate any changes requested by
Advancis in delivery schedules for Product following Lilly’s receipt of
purchase orders from Advancis; provided, however, that Lilly may add to
the Purchase
Price Lilly’s incremental increase in the cost of such Product incurred
by Lilly in accommodating Advancis’ requests pursuant to this sentence.
Upon receipt and acceptance of each purchase order by Lilly hereunder,
Lilly will supply the Product in such quantities (with any variances
permitted hereunder) and will use commercially reasonable efforts to
deliver such Product to Advancis on the delivery dates specified in such
purchase order, unless otherwise mutually agreed to in writing by the
Parties. Delivery by Lilly of greater than [***] of the quantity ordered
will be accepted by Advancis in full satisfaction of the quantity ordered
in such purchase order; provided, however, that Advancis will only be
invoiced and required to pay for the quantities that Lilly actually
delivers to Advancis. Only such quantities that are actually received by
Advancis will be applied to the Purchase Maximum.
	 
	4.4	 	Transfer of Manufacturing Responsibilities.

          (a) Technical Assistance. In order to facilitate the
transfer of Product manufacturing responsibilities from Lilly to Advancis
or a Third Person designated by Advancis, upon the request of Advancis,
and only upon such request, Lilly shall provide up to [***] of technical
assistance to Advancis or its Third Person designee during the Contract
Period at no cost to Advancis other than the expenses described in
Section 4.4(b) (the “Technical Assistance”). The Technical Assistance
shall consist of the provision by Lilly of direct, person-to-person,
expert assistance in transferring and explaining the Product-specific
manufacturing and testing know-how. Lilly also shall provide to Advancis
or its Third Person designee, upon the request of Advancis, and only upon
such request, such documentation as is reasonably necessary to transfer
the Product manufacturing responsibilities to Advancis or its Third
Person designee. The time necessary for Lilly to provide such
documentation shall be counted against the above-

        [***] 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
EXCHANGE ACT OF 1934, AS AMENDED.

-15-

 

referenced [***].
Travel time not exceeding an aggregate of [***] shall not be counted
against the above-referenced [***].

          (b) Reimbursement. Advancis agrees to pay Lilly promptly all
reasonable travel, room and board expenses incurred by Lilly personnel in
providing the Technical Assistance. Lilly will invoice Advancis on a
monthly basis for such reasonable expenses associated with the Technical
Assistance incurred during the previous calendar
month. Advancis will pay such invoices in accordance with Section
2.3, except that Advancis will not pay such invoices by wire transfer if
so instructed by Lilly not to do so.

	4.5	 	Shipment of Product. Shipment of Product will be to not more than [***]
distribution centers previously designated by Advancis. Lilly will select
and pay the carrier. Product will be shipped from Lilly’s loading dock,
freight class, Class 70 (Class of Commodity for Food and Pharmaceutical
Product) or as may otherwise be required pursuant to Applicable Laws.
Title and risk of loss or damage to the Product will remain with Lilly
until the Product has passed through United States customs and to the
loading dock of a common carrier located in the United States designated
by Advancis, at which time title to the Product will rest in, and risk of
loss or damage to the Product will pass to, Advancis. For Product already
located in the United States at the time of purchase and not required to
pass through United States customs, title and risk of loss will pass at
Lilly’s loading dock and Advancis shall be responsible for the costs of
shipment and insurance from Lilly’s loading dock to the Advancis
distribution center. For avoidance of any doubt, Lilly acknowledges that
it will not make direct shipments to final customers. The common carrier
designated by Advancis shall be reasonably satisfactory to Lilly.

ARTICLE 5

LABELING; TRADE DRESS; NON-CONFORMING PRODUCT

	5.1	 	Labeling, Trade Dress and Packaging.

          (a) Lilly will label, prepare and pack for shipment the Product
(including the Inventory) in compliance with the NDA and cGMP and in
accordance with the MRD/Quality Agreement.

        [***] 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
EXCHANGE ACT OF 1934, AS AMENDED.

-16-

 

          (b) Lilly will label and package all Product with the labels,
packaging, inserts and related materials used by Lilly as of the
Effective Date (the “Current Labeling”) until the New Labeling has been
provided to Lilly by Advancis and has been implemented by Lilly pursuant
to Section 5.1(c). Lilly shall not make any material change to the
Current Labeling or the New Labeling (as applicable) or the branding of
the Product itself (including, without limitation, changes to the use and
appearance of trademarks, trade
names and trade dress) and shall not over-label the Current Labeling
or New Labeling (as applicable) without the prior written consent of
Advancis.

          (c) Advancis may modify the Current Labeling to reflect, among other
things, changes in usage of the respective trade names and trade marks of
the Parties and any Third Person manufacturers, packer or distributors or
to otherwise create new or revised packaging, labeling, inserts or
related materials for use in connection with the Products (the “New
Labeling”). Advancis, at its expense, will provide Lilly with an
electronic graphics file for any New Labeling and for any subsequent
changes thereto. Lilly shall use its commercially reasonable efforts to
implement any New Labeling and any subsequent changes thereto upon
request by Advancis, after all applicable regulatory requirements with
respect thereto have been met, and in accordance with the provisions to
be set forth in the MRD/Quality Agreement, at such subsequent date to be
determined by Advancis at its sole discretion. Lilly will have no
obligation to re-label or over-label any Product packaged prior to the
implementation of the New Labeling. Advancis shall use its commercially
reasonable efforts to convert to New Labeling not including the Lilly or
Dista names as soon as possible.

          (d) The New Labeling and all changes thereto will be made in
accordance with the procedures set forth in the MRD. Advancis will
reimburse Lilly for any direct costs incurred by Lilly in order to
implement the New Labeling and for any subsequent packaging and labeling
change work required or otherwise requested by Advancis hereunder,
including without limitation, commercially reasonable costs associated
with the destruction of printed components rendered obsolete as a result
of changes requested by Advancis.

          (e) Lilly hereby grants to Advancis, for no additional
consideration, a non-exclusive license to use the trademarks and/or trade
names “Lilly” and “Dista” owned by

-17-

 

Lilly that are included in the Current
Labeling solely in connection with the Current Labeling, and the
marketing, sale and promotion of Product delivered by Lilly hereunder
under the Current Labeling, until such time as New Labeling is adopted
eliminating use of such trademarks and/or trade names. The foregoing
license will terminate upon Advancis’ final sale of all of such Product,
including saleable returned Product.

          (f) The Parties acknowledge and agree that Lilly’s use of the
Assigned Trademarks and Assigned Trade Dress (collectively the
“Trademarks”) hereunder shall be for the sole purpose of its fulfillment
obligations for the manufacture and supply of Product on behalf of
Advancis and that such use of the Trademarks shall be in compliance with
the strict quality control standards set forth herein. Lilly has no
licensed right to use the Trademarks in the Territory without the written
authority of Advancis. Prior to implementation of the New Labeling,
Lilly shall use the Trademarks consistently and accurately, in the manner
and form used by Lilly in connection with the Current Labeling and
Product as of the Effective Date. With respect to the New Labeling and
any subsequent changes thereto, Lilly shall use the Trademarks
consistently and accurately, in the manner and form designated by
Advancis.

	5.2	 	Lot Numbering. Lilly’s lot numbers will be affixed on the containers for
the Product and on each shipping carton in accordance with Applicable
Laws.
	 
	5.3	 	Testing and Rejection of Delivered Product.

          (a) Non-Conforming Product. Advancis will be entitled, at its
cost and expense and using the test methods set forth in the NDA, to test
any and all Product delivered to it hereunder to determine whether such
Product complies with the Specifications and the labeling requirements of
Section 5.1. Advancis will use validated methods to test Product.
Advancis will notify Lilly in writing promptly, and in any event not
later than [***] after receipt thereof at an Advancis distribution center
if it rejects any Product delivered to it because such Product failed to
meet the Specifications. If Advancis rejects any such Product Lilly and
Advancis will conduct a joint investigation to determine the cause. Lilly
shall have the right, at its request and at its expense, the opportunity
to conduct its own tests on such rejected Product. Product not rejected
within

        [***] 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
EXCHANGE ACT OF 1934, AS AMENDED.

-18-

 

the [***] period will be deemed accepted and will constitute a
waiver of any claims Advancis may have against Lilly with respect to
payment for such shipment subject, however, to Advancis’ right to reject
any Product for Latent Defects discovered by Advancis and promptly
reported to Lilly after such stipulated period has expired. Lilly will
use commercially reasonable efforts to replace any properly rejected
Product with Product which meets the Specifications within a commercially
reasonable time and will deliver such replacement Product, at Lilly’s
sole cost and expense, to Advancis. In addition, Lilly will, at Lilly’s
sole cost and expense, arrange for all such rejected Product to be picked
up promptly and, where applicable, destroyed in accordance with all
Applicable Laws. Advancis will have no responsibility to Lilly for the
Purchase Price of such nonconforming Product but will pay Lilly the
Purchase Price for the replacement Product in accordance with Section
2.3; provided, however, that to the extent Advancis previously paid for
Product it properly rejected in accordance with this Section 5.3(a),
Advancis will receive a credit against the Purchase Price for replacement
Product. Product properly rejected in accordance with this Section
5.3(a) will not be applied to the applicable Purchase Maximums, or the
purchase obligation set forth in Section 2.2, but replacement Product
will be so applied.

          (b) Disputed Product. Notwithstanding Section 5.3(a), if following
the joint investigation contemplated by Section 5.3(a), Advancis and
Lilly disagree on whether any Product rejected by Advancis pursuant to
subsection (a), above, complies with the Specifications or on the methods
for or results of testing of any of such rejected Product, an independent
laboratory which is acceptable to both Parties will test the Product in
dispute (“Disputed Product”) using the test methods set forth in the NDA,
and any other applicable cGMP test method used by Lilly at the time the
Disputed Product was manufactured, which tests will be validated by such
laboratory independently. If such laboratory finds that the Disputed
Product meets the Specifications, Advancis will pay the fees of such
laboratory related to such testing and will promptly pay for the Disputed
Product. If such laboratory finds that the Disputed Product fails to
meet the Specifications, Lilly will pay the fees of such laboratory
related to such testing and will promptly replace the Disputed Product in
accordance with the preceding subsection (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 EXCHANGE ACT OF 1934, AS AMENDED.

-19-

 

Both Parties hereby agree to accept and be bound by the findings of
such independent laboratory.

ARTICLE 6

ADDITIONAL REPRESENTATIONS AND WARRANTIES OF LILLY

	 	 	Lilly hereby represents and warrants to Advancis that, as of the date
hereof:
	 
	6.1	 	Organization and Standing. Lilly is a corporation duly organized, validly
existing, and in good standing under the laws of the State of Indiana.
	 
	6.2	 	Powers and Authority. Lilly has all requisite corporate power and
authority to execute, deliver, and perform this Manufacturing Agreement
and the other agreements and instruments to be executed and delivered by
it pursuant hereto and thereto and to consummate the transactions
contemplated herein and therein.
	 
	6.3	 	Corporate Action; Binding Effect. Lilly has duly and properly taken all
action required by law, its organizational documents, or otherwise, to
authorize the execution, delivery, and performance of this Manufacturing
Agreement and the other instruments to be executed and delivered by it
pursuant hereto and thereto and the consummation of the transactions
contemplated hereby and thereby. This Manufacturing Agreement has been
duly executed and delivered by Lilly and constitutes, and the other
instruments contemplated hereby when duly executed and delivered by Lilly
will constitute legal, valid, and binding obligations of Lilly enforceable
against it in accordance with its respective terms, except as enforcement
may be affected by bankruptcy, insolvency, or other similar laws.
	 
	6.4	 	Governmental Approval. No consent, approval, waiver, order or
authorization of, or registration, declaration or filing with, any
Governmental or Regulatory Authority or any other Third Person is required
in connection with the execution, delivery and performance of this
Manufacturing Agreement, or any agreement or instrument contemplated by
this

-20-

 

	     	 	Manufacturing Agreement, by Lilly or the performance by Lilly of its
obligations contemplated hereby and thereby.

	6.5	 	Brokerage. No broker, finder or similar agent has been employed by or on
behalf of Lilly, and no Person with which Lilly has had any dealings or
communications of any kind is entitled to any brokerage commission,
finder’s fee or any similar compensation, in connection with this
Manufacturing Agreement or the transactions contemplated hereby.
	 
	6.6	 	Product Specifications. All of the Inventory purchased by Advancis
pursuant to Section 2.1 and all other Product delivered by Lilly to
Advancis hereunder will at the time it is delivered: (i) conform to the
Specifications then in effect, (ii) will have been manufactured in
accordance with cGMP in effect at the time of manufacture, (iii) will not
be adulterated or misbranded within the meaning of the FDCA or any
equivalent local legislation, (iv) will not have been manufactured, sold
or shipped in violation of any Applicable Laws in any material respect,
and (v) upon delivery to Advancis, FOB a common carrier located in the
United States designated by Advancis, will convey good title to such
Product to Advancis and such conveyance will be free and clear of any
Encumbrance other than any Encumbrance created by Advancis or any of its
Affiliates.
	 
	6.7	 	Not Debarred. Lilly and its employees are not debarred and has not and
will not use in any capacity the services of any Person debarred under
subsections 306(a) or (b) of the Generic Drug Enforcement Act of 1992. If
at any time this representation and warranty is no longer accurate, Lilly
will immediately notify Advancis of such fact.
	 
	6.8	 	Applicable Laws. Lilly will comply with all Applicable Laws relating to
its manufacture of the Product.
	 
	6.9	 	Implied Warranties. EXCEPT AS EXPRESSLY PROVIDED IN THIS ARTICLE 6 ,
LILLY MAKES NO REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, EITHER IN
FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND LILLY
SPECIFICALLY DISCLAIMS ANY AND ALL IMPLIED OR

-21-

 

	 	 	STATUTORY WARRANTIES, INCLUDING ANY IMPLIED WARRANTY OF MERCHANTABILITY,
WARRANTY OF FITNESS FOR A PARTICULAR PURPOSE AND WARRANTY OF
NONINFRINGEMENT. Without limiting the foregoing, Advancis acknowledges
that it has not and is not relying upon any implied warranty of
merchantability, fitness for a particular purpose, non-infringement, or
upon any representation or warranty whatsoever as to the prospects
(financial, regulatory or otherwise) or the likelihood of commercial
success of the Product after the date of this Manufacturing Agreement.
	 
	6.10	 	API Suppliers. Lilly knows of no reason that
[***] or an alternative
supplier would fail or be unable to provide the API in such quantities as
are necessary to enable Lilly to manufacture and supply the Maximum
Purchase Amount of Product during the Contract Period.
	 
	6.11	 	Lilly’s Employee Health Services. The amount of Lilly Finished Product
Health Services Supplies is de minimis and under no circumstances will be
resold or refilled except by purchase from Advancis. This shall not
prohibit purchase of generic equivalents.

ARTICLE 7

REPRESENTATIONS AND WARRANTIES OF ADVANCIS

	 	 	Advancis represents and warrants to Lilly that, as of the date hereof:
	 
	7.1	 	Organizations and Standing. Advancis is a corporation duly organized,
validly existing, and in good standing under the laws of the State of
Delaware.
	 
	7.2	 	Power and Authority. Advancis has all requisite corporate power and
authority to execute, deliver, and perform this Manufacturing Agreement
and the other agreements and instruments to be executed and delivered by
it pursuant hereto and thereto and to consummate the transactions
contemplated herein and therein.

[***] 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 EXCHANGE ACT OF 1934, AS AMENDED.

-22-

 

	7.3	 	Corporate Action; Binding Effect. Advancis has duly and properly taken
all action required by law, its organizational documents, or otherwise, to
authorize the execution, delivery, and performance of this Manufacturing
Agreement and the other instruments to be executed and delivered by it
pursuant hereto and thereto and the consummation of the transactions
contemplated hereby and thereby. This Manufacturing Agreement has been
duly executed and delivered by Advancis and constitutes, and the other
instruments contemplated hereby when duly executed and delivered by
Advancis will constitute legal, valid, and binding obligations of Advancis
enforceable against it in accordance with its respective terms, except as
enforcement may be affected by bankruptcy, insolvency, or other similar
laws.
	 
	7.4	 	Governmental Approval. No consent, approval, waiver, order or
authorization of, or registration, declaration or filing with, any
Governmental or Regulatory Authority or any other Third Person is required
in connection with the execution, delivery and performance of this
Manufacturing Agreement, or any agreement or instrument contemplated by
this Manufacturing Agreement, by Advancis or the performance by Advancis
of its obligations contemplated hereby and thereby.
	 
	7.5	 	Brokerage. No broker, finder or similar agent has been employed by or on
behalf of Advancis, and no Person with which Advancis has had any dealings
or communications of any kind is entitled to any brokerage commission,
finder’s fee or any similar compensation, in connection with this
Manufacturing Agreement or the transactions contemplated hereby.
	 
	7.6	 	Not Debarred. Advancis is not debarred and has not and will not use in
any capacity the services of any Person debarred under subsections 306(a)
or (b) of the Generic Drug Enforcement Act of 1992. If at any time this
representation and warranty is no longer accurate, Advancis will
immediately notify Lilly of such fact.

-23-

 

	7.7	 	Applicable Laws. Advancis will comply with Applicable Laws relating to
its distributing, marketing, promoting and selling of the Product.
	 
	7.8	 	Sale of Short Dated Product. Advancis shall not sell any Product which,
at the time of such sale, does not have remaining expiration dating of at
least six (6) months.

ARTICLE 8

TERM OF MANUFACTURING AGREEMENT; TERMINATION

	8.1	 	Term of Manufacturing Agreement. Unless sooner terminated in
accordance with this Article 8, this Manufacturing Agreement will take
effect and commence on the Effective Date and continue in effect for a
term that will expire on [***].
	 
	8.2	 	Termination. In addition to termination by expiration under Section
8.1, above, the Parties will have the right to terminate this
Manufacturing Agreement as follows:

          (a) Either Party may terminate this Manufacturing Agreement because
of a material breach or material default of this Manufacturing Agreement
by the other Party as follows: The terminating Party will give the other
Party prior written notice thereof, specifying in reasonable detail the
alleged material breach or material default, and if such alleged material
breach or material default continues unremedied for a period of thirty
(30) days with respect to monetary breaches or defaults or forty-five
(45) days with respect to non-monetary breaches or defaults after the
date of receipt of the notification, then such terminating Party may
immediately terminate this Manufacturing Agreement by again providing
written notification to the defaulting Party. Except as otherwise
provided in the Asset Purchase Agreement, this Section 8.2(a) will not be
exclusive and will not be in lieu of any other remedies available to a
Party hereto for any breach or default hereunder on the part of the other
Party.

          (b) Either Party may immediately terminate this Manufacturing
Agreement by providing written notice to the other Party if the other
Party is declared insolvent or bankrupt by a court of competent
jurisdiction, or a voluntary petition of bankruptcy is filed in any court
of competent jurisdiction by the other Party, or an involuntary petition

[***] 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 EXCHANGE ACT OF 1934, AS AMENDED.

-24-

 

for relief under the United States Bankruptcy Code is filed in a
court of competent jurisdiction against the other Party which is not
dismissed within thirty (30) days of its filing, or the other Party makes
or executes any assignment for the benefit of creditors.

          (c) Advancis may terminate this Manufacturing Agreement upon thirty
(30) days written notice to Lilly, in the event that Advancis has
identified and entered into a manufacturing agreement with a third party
whereby such third party agrees to manufacture and supply Product to
Advancis.

	8.3	 	Effect of Termination. Upon termination of this Manufacturing Agreement
for any reason (whether due to breach of either Party, expiration pursuant
to Section 8.1 or otherwise), Lilly will furnish to Advancis a complete
inventory of all work in process for the manufacture of the Product and an
inventory of all finished Product. Unless otherwise agreed to between the
Parties, all stock on hand as of the effective date of termination of this
Manufacturing Agreement will be dealt with promptly as follows:

          (a) Product manufactured and packaged pursuant to purchase orders
received from Advancis and accepted by Lilly will be delivered by Lilly
to Advancis, whereupon Advancis will pay Lilly therefore in accordance
with the terms hereof; and

          (b) Work in process commenced by Lilly against accepted purchase
orders from Advancis or work in process or finished Product commenced or
finished in reliance on [***] of the quantity of Product forecasted for
each Calendar Quarter through and including the Calendar Quarter which
was the third Calendar Quarter in the Forecast delivered to Lilly on or
before the first day of the previous Calendar Quarter will be completed
by Lilly and delivered to Advancis, whereupon Advancis will pay Lilly
therefore in accordance with the terms hereof. Except as provided in
this Section 8.3, Advancis will have no obligation to purchase any
quantity of Product forecasted for any other Calendar Quarter in any
other Forecast.

          (c) Advancis will reimburse Lilly for Lilly’s actual cost of raw
materials (including packaging components) dedicated for use in the
manufacture of Product provided that Lilly purchased such raw materials
in support of [***] of the quantities of Product forecasted for each
Calendar Quarter through and including the Calendar Quarter which was the
third Calendar Quarter in the Forecast delivered to Lilly on 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 EXCHANGE ACT OF 1934, AS AMENDED.

-25-

 

before the first day of the previous Calendar Quarter and such raw
materials cannot be returned by Lilly or used in other products
manufactured by Lilly. At Advancis’ option and expense, Lilly will
deliver to Advancis any raw materials paid for by Advancis under this
provision, FOB point of shipment. Except as provided in this Section
8.3, Advancis will have no obligation to reimburse Lilly for its cost of
raw materials purchased by Lilly in support of any other Forecast whether
or not such raw materials may be returned or reused.

          Notwithstanding Section 2.3, but subject to Section 2.4, payment for
all Product and other materials delivered to Advancis pursuant to this
Section 8.3 will be deemed payable within sixty (60) days of the date of
an invoice for such Product and materials provided the invoice is dated
as of the date such raw materials are shipped.

	8.4	 	Continuing Obligations. Termination of this Manufacturing Agreement for
any reason will not relieve the Parties of any obligation accruing prior
thereto or any antecedent breach of the provisions of this Manufacturing
Agreement, and, except as otherwise provided in the Asset Purchase
Agreement, will be without prejudice to the rights and remedies of either
Party with respect to any antecedent breach of the provisions of this
Manufacturing Agreement. Without limiting the generality of the foregoing
and in addition to the foregoing, no termination of this Manufacturing
Agreement, whether by lapse of time or otherwise, will serve to terminate
the rights and obligations of the Parties hereto under Articles 6, 7, 9,
11 and 12 hereof and Sections 2.3, 3.4, 8.4, 8.5, 10.2, and 10.3 hereof,
and such obligations will survive any such termination.
	 
	8.5	 	Non-Exclusive Remedies. Except as otherwise provided in the Asset
Purchase Agreement, the remedies set forth in this Section 8 or elsewhere
in this Manufacturing Agreement will be in addition to, and will not be to
the exclusion of, any other remedies available to the Parties at law, in
equity or under this Manufacturing Agreement. Without limiting the
generality of the foregoing, if Lilly at any time, pursuant to Section
12.15 or otherwise, is unable to fulfill the purchase orders of Advancis
for Product in accordance with this Manufacturing Agreement, any necessary
allocation of raw materials, facility

-26-

 

	 	 	systems or capacity used for the affected Product and any other product
or purposes, will be made as between Advancis’ needs and the needs of any
other Party to whom Lilly has firm contractual obligations on a basis no
less favorable than pro rata on a volume basis.

ARTICLE 9

CONFIDENTIALITY

     Confidentiality of information will be provided under and pursuant to, and
in accordance with the terms of, Article 8 of the Asset Purchase Agreement,
which terms of such Article 8 are by this reference incorporated herein and
made a part of this Manufacturing Agreement, and all of which for purposes of
this Manufacturing Agreement will survive any termination or expiration of the
Asset Purchase Agreement.

ARTICLE 10

ADDITIONAL COVENANTS AND AGREEMENTS OF THE PARTIES

	10.1	 	Supply Team. The Parties will form a team (the “Supply Team”) to oversee
the activities contemplated by this Manufacturing Agreement. The Supply
Team will be comprised of members appointed by Lilly and members appointed
by Advancis. Advancis and Lilly will each appoint one of its members as
that Party’s lead and that individual will be the contact person for the
other Party. During the first ninety (90) days after the Effective Date,
the Supply Team may meet as reasonably needed and determined by the Supply
Team as reasonably appropriate to conduct business and assure a smooth
transition.
	 
	10.2	 	Compliance with Law. Lilly will comply with all Applicable Laws relating
to its manufacturing of the Product. Advancis will comply with all
Applicable Laws relating to its distributing, marketing, promoting and
selling of the Product. Advancis agrees and acknowledges that as owner of
the NDA it will have sole responsibility for, among other things, adverse
event reporting, product quality complaints, label maintenance, other
regulatory reporting obligations, payment of any and all product
establishment fees, and medical and technical inquiries. Lilly and
Advancis each will keep all records and reports

-27-

 

	 	 	required to be kept by Applicable Laws, and each will make its facilities
available at reasonable times during regular business hours for
inspection by representatives of governmental agencies. During the
Contract Period and for two years thereafter, Lilly and Advancis each
will notify the other within twenty-four (24) hours of receipt of any
notice or any other indication whatsoever of any FDA or other
governmental agency inspection, investigation or other inquiry, or other
notice or communication of any type from a governmental agency, involving
the manufacturing, selling, marketing, promoting, co-promoting and
co-marketing of the Product in the Territory. Advancis and Lilly will
cooperate with each other during any such inspection, investigation or
other inquiry including allowing upon reasonable request a representative
of the other to be present during the applicable portions of any such
inspection, investigation or other inquiry and providing copies of all
relevant documents. Advancis and Lilly will discuss any response to
observations or notifications received in connection with any such
inspection, investigation or other inquiry and each will give the other
an opportunity to comment upon any proposed response before it is made.
In the event of disagreement concerning the form or content of such
response, however, Lilly will be responsible for deciding the appropriate
form and content of any response with respect to any of its cited
activities and Advancis will be responsible for deciding the appropriate
form and content of any response with respect to any of its cited
activities. The requirements set forth in this Section 10.2 shall not
affect any other requirements set forth in the documents and agreements
contemplated in the Asset Purchase Agreement including the Transition
Services Agreement and the Pharmacovigilance Agreement.
	 
	10.3	 	Recall. Lilly and Advancis will each maintain such traceability records
as may be necessary to permit a recall or field correction of the Product.
If Lilly or Advancis is required or requested by any governmental
authority, or if Advancis in its sole discretion otherwise elects, to
recall any Product for any reason, Advancis will be responsible for
initiating such recall after consultation with Lilly. If Lilly identifies
or discovers a problem with Product which has or may have been shipped to
third parties, then Lilly will notify Advancis within twenty-four (24)
hours in writing and by telephone to David J. Kudla, Jr., Advancis’ Vice
President of Quality Assurance. Lilly will cooperate fully with Advancis
in connection with any recall. If Product distributed prior to the
Effective

-28-

 

	     	   	Date is recalled, then Lilly will bear all costs associated with such
recall. If any recall of Product distributed on or after the Effective
Date is due to Lilly Error, Lilly will reimburse Advancis for (i) the
Purchase Price(s) paid by Advancis for such recalled Product, and (ii)
all of Advancis’ other reasonable costs and expenses actually incurred by
Advancis in connection with the recall including, but not limited to,
costs of retrieving Product already delivered to customers and costs and
expenses Advancis is required to pay for notification, shipping and
handling charges; provided, however, that for each such recall (a)
Advancis will in good faith consult with Lilly and, to the extent
commercially reasonable, implement Lilly’s recommendations on whether or
how best to conduct the recall including, without limitation, the recall
notification and retrieval of Product and (b) prior to any reimbursement
hereunder, Advancis will provide Lilly with detailed supporting
documentation of all costs and expenses for which reimbursement is being
sought, and (c) in no event will the direct costs and expenses described
in (iii) above, include Advancis’ lost profits associated with such
Product. If a recall of Product distributed after the Effective Date is
due to anything other than Lilly Error, Advancis will bear all costs
associated with the resale, Advancis will remain responsible for the
Purchase Price(s) for such Product and will reimburse Lilly for all of
the reasonable direct costs and expenses described above actually
incurred by Lilly (if any) in connection with such recall including, but
not limited to, administration of the recall and such other reasonable
direct costs as may be reasonably related to the recall.

	10.4	 	Expenses. Lilly and Advancis will each bear their own direct and
indirect expenses incurred in connection with the negotiation and
preparation of this Manufacturing Agreement and, except as set forth in
this Manufacturing Agreement, the performance of the obligations
contemplated hereby.
	 
	10.5	 	Reasonable Efforts. Lilly and Advancis each hereby agrees to use all
reasonable efforts to take, or cause to be taken, all actions and to do,
or cause to be done, all things reasonably necessary or proper to make
effective the transactions contemplated by this Manufacturing Agreement,
including such actions as may be reasonably necessary to obtain approvals
and consents of Governmental or Regulatory Authorities and other

-29-

 

	 	 	Persons (including, without limitation, all applicable drug listing and
NDA notifications to the FDA identifying Advancis as a distributor of the
Product); provided, however, that no Party will be required to (i) pay
money (other than as expressly required pursuant to this Manufacturing
Agreement or as implicitly required in order for a Party to carry out
its obligations hereunder), or (ii) assume any other material obligation
not otherwise required to be assumed by this Manufacturing Agreement.
	 
	 	 	In addition, Advancis hereby agrees to use all reasonable efforts to
take, or cause to be taken, all actions and to do, or cause to be done,
all things necessary or proper to begin manufacturing Product as of the
expiration of this Manufacturing Agreement including such actions as may
be reasonably necessary to obtain approvals and consents of governmental
Persons and other Persons (including, without limitation, all applicable
drug listing and NDA notifications to the FDA identifying Advancis as a
manufacturer of the Product). ADVANCIS AGREES THAT UNDER NO CIRCUMSTANCES
WILL LILLY HAVE ANY OBLIGATION TO MANUFACTURE PRODUCT BEYOND THE END OF
THE CONTRACT PERIOD, REGARDLESS OF WHETHER ADVANCIS HAS OBTAINED AN
ALTERNATE SOURCE OF SUPPLY.

	10.6	 	Cooperation.

          (a) Cooperation with Third Persons. If either Party becomes engaged
in or participates in any investigation, claim, litigation or other
proceeding with any Third Person, including the FDA, relating in any way
to the manufacturing, selling, marketing, promoting, co-marketing or
co-promoting the Product in the Territory, the other Party will cooperate
in all reasonable respects with such Party in connection therewith,
including using its reasonable efforts to make available to the other
such employees who may be helpful with respect to such investigation,
claim, litigation or other proceeding, provided that, for purposes of
this provision, reasonable efforts to make available any employee will be
deemed to mean providing a Party with reasonable access to any such
employee at no cost for a period of time not to exceed twenty-four (24)
hours (e.g., three (3) eight (8) -hour business days) and provided that
neither Party is required to disclose any legally privileged documents or
information to the other Party. Thereafter, any such

-30-

 

employee will be made available for such time and upon such terms
and conditions (including compensation) as the Parties may mutually
agree.

          (b) Cooperation with Third Person Manufacturer. If Lilly enters
into an arrangement with a Third Person to manufacture Product for
Advancis in accordance herewith, or if Lilly elects to transfer any
portion of the manufacture of Product from one Lilly facility to another
Lilly facility, then Advancis will cooperate in all reasonable respects
with Lilly and such Third Person, if applicable, in obtaining any
required FDA approvals. Lilly will reimburse Advancis for any reasonable
costs incurred by Advancis in providing such assistance.

	10.7	 	Conflicting Rights. Neither Party will grant any right to any Third
Person which would violate the terms of or conflict with the rights
granted by such Party to the other Party pursuant to this Manufacturing
Agreement.

	10.8	 	Deemed Breach of Covenant. Neither Lilly nor Advancis will be deemed to
be in breach of this Manufacturing Agreement if such Party’s deemed breach
is the result of any action or inaction on the part of the other Party.

ARTICLE 11

INDEMNIFICATION; INSURANCE

	11.1	 	Indemnification and Insurance. Indemnification and insurance coverage
will be provided under and pursuant to and in accordance with the terms of
Article 11 of the Asset Purchase Agreement, which terms of such Article 11
are by this reference incorporated in and made a part of this
Manufacturing Agreement, and all of which for purposes of this
Manufacturing Agreement will survive any termination or expiration of the
Asset Purchase Agreement.

	11.2	 	Limitation of Liability. IN NO EVENT WILL EITHER PARTY BE LIABLE FOR
INDIRECT, SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES OR
DAMAGES FOR LOST PROFITS, HOWEVER CAUSED OR UPON

-31-

 

	 	 	ANY THEORY OF LIABILITY (INCLUDING A PARTY’S OR ITS AFFILIATES’ OWN
NEGLIGENCE, GROSS NEGLIGENCE OR WILLFUL MISCONDUCT (OR THE NEGLIGENCE,
GROSS NEGLIGENCE OR WILLFUL MISCONDUCT OF A PARTY’S OR A PARTY’S
AFFILIATES’ EMPLOYEES, AGENTS OR CONTRACTORS)), ARISING OUT OF THIS
MANUFACTURING AGREEMENT OR THE PERFORMANCE OF, OR THE FAILURE TO PERFORM,
ANY OBLIGATIONS SET FORTH HEREIN.

ARTICLE 12

MISCELLANEOUS PROVISIONS

	12.1	 	Successors and Assigns. This Manufacturing Agreement will be binding
upon and will inure to the benefit of the Parties hereto and their
respective successors and assigns; provided that except for (a) a
sale, merger, consolidation or other business combination involving
all or substantially all of such parties’ assets or capital stock in
which the assuming Party is not the surviving Party or (b) an
assignment by Advancis to an Affiliate, neither may assign this
Manufacturing Agreement without the other Party’s prior written
consent, which may not be unreasonably withheld, for assignments
wherein the assigning Party does not remain liable for the assignee’s
performance hereunder.
	 
	12.2	 	Subcontracting. Neither Party may subcontract any or all of its
rights or obligations under this Manufacturing Agreement to any
subcontractor or consultant without prior written consent of the other
Party, which shall not unreasonably be withheld; provided, however,
that either Party may subcontract any or all of its rights or
obligations under this Manufacturing Agreement to any of its
Affiliates without the consent of the other Party. Subject to the
preceding sentence, the subcontracting Party will be fully responsible
to the other Party for any portion of the services performed by the
subcontractor or consultant to the same extent as if such portion of
the services was performed directly by the subcontracting Party.
Advancis acknowledges that Lilly will obtain necessary supplies of
bulk active pharmaceutical ingredient necessary for

-32-

 

	 	 	Lilly’s manufacture of Product from [***], and except as provided in
Section 3.5, that Lilly will have no liability for any failure of
[***] to deliver.
	 
	12.3	 	Notices. Unless otherwise stated in this Manufacturing Agreement as
to the method of delivery, all notices or other communications
required or permitted to be given hereunder will be in writing and
will be deemed to have been duly given if delivered by hand, courier,
facsimile or if mailed first class, postage prepaid, by registered or
certified mail, return receipt requested (such notices will be deemed
to have been given on the date delivered in the case of hand delivery
or delivery by courier, on the date set forth in the confirmation
sheet in the case of facsimile delivery, and on the fifth business day
following the date of post mark in the case of delivery by mail) as
follows:
	 
	 	 	If to Lilly, as follows:

	 	 	Eli Lilly and Company

Lilly Corporate Center

Indianapolis, Indiana 46285

Facsimile: (317) 433-3000

Attn: Vice President, Manufacturing

	 	 	With a copy to:

	 	 	Eli Lilly and Company

Lilly Corporate Center

Indianapolis, Indiana 46285

Facsimile: (317) 433-3000

Attn: General Counsel

	 	 	If to Advancis, as follows:

	 	 	Advancis Pharmaceutical Corporation

20425 Seneca Meadows Parkway

Germantown, Maryland 20876

Facsimile: (301) 944-6700

Attn: Kevin S. Sly, Chief Business Officer

[***] 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 EXCHANGE ACT OF 1934, AS AMENDED.

-33-

 

	 	 	With a copy to:

	 	 	Piper Rudnick LLP

6225 Smith Avenue

Baltimore, MD 21209-3600

Facsimile: (410) 580-3001

Attn: Howard S. Schwartz, Esq.

	 	 	or in any case to such other address or addresses as hereafter will be
furnished in a written notice as provided in this Section 12.3 by any
Party hereto to the other Party.
	 
	12.4	 	Waiver. Any term or provision of this Manufacturing Agreement may be
waived at any time by the Party entitled to the benefit thereof only by a
written instrument executed by such Party. No delay on the part of Lilly
or Advancis in exercising any right, power or privilege hereunder will
operate as a waiver thereof, nor will any waiver on the part of either
Lilly or Advancis of any right, power or privilege hereunder operate as a
waiver of any other right, power or privilege hereunder nor will 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.
	 
	12.5	 	Entire Agreement. This Manufacturing Agreement, the Asset Purchase
Agreement, each of their appendices, exhibits, schedules and certificates,
and all documents and certificates delivered in connection herewith and
therewith constitute the entire agreement between the Parties with respect
to the subject matter hereof and supersede all prior agreements or
understandings of the Parties relating thereto.
	 
	12.6	 	Amendment. This Manufacturing Agreement may be modified or amended only
by written agreement of the Parties hereto signed by authorized
representatives of the Parties.
	 
	12.7	 	Counterparts. This Manufacturing Agreement may be executed in any number
of counterparts, each of which will be deemed an original but all of which
together will constitute a single instrument.

-34-

 

	12.8	 	Governing Law. This Manufacturing Agreement will be governed and
construed in accordance with the laws of the State of Indiana excluding
any choice of law rules that may direct the application of the law of
another state.
	 
	12.9	 	Captions. All section titles or captions contained in this Manufacturing
Agreement and in any exhibit, schedule or certificate referred to herein
or annexed to this Manufacturing Agreement are for convenience only, will
not be deemed a part of this Manufacturing Agreement and will not affect
the meaning or interpretation of this Manufacturing Agreement.
	 
	12.10	 	No Third Person Rights. No provision of this Manufacturing Agreement
will 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 Manufacturing
Agreement (except for the rights of a Party’s Affiliates and its and its
Affiliates’ directors, officers and employees to receive indemnification
from the other Party hereunder).
	 
	12.11	 	Construction. This Manufacturing Agreement will be deemed to have been
drafted by both Lilly and Advancis and will not be construed against
either Party as the draftsperson hereof. Unless the context of this
Manufacturing Agreement otherwise requires: (a) words of any gender
include each other gender; (b) words using the singular or plural number
also include the plural or singular number, respectively, (c) the terms
“hereof,” “herein,” “hereby” and derivative or similar words refer to this
entire Manufacturing Agreement; (d) the terms “Article” or “Section” refer
to the specified Article or Section of this Manufacturing Agreement; and
(e) the term “including” or “includes” means “including without
limitation” or “includes without limitation.” Whenever this Manufacturing
Agreement refers to a number of days, such number shall refer to calendar
days unless business days are specified.
	 
	12.12	 	Appendices, Exhibits, Schedules and Certificates. Each appendix,
exhibit, schedule and certificate attached hereto is incorporated herein
by reference and made a part of this Manufacturing Agreement.

-35-

 

	12.13	 	No Joint Venture. Nothing contained herein will be deemed to create any
joint venture or partnership between the Parties hereto, and, except as is
expressly set forth herein, neither Party will have any right by virtue of
this Manufacturing Agreement to bind the other Party in any manner
whatsoever.
	 
	12.14	 	Severability. If any provision of this Manufacturing Agreement is held
to be illegal, invalid, or unenforceable under present or future laws
effective while this Manufacturing Agreement remains in effect, the
legality, validity and enforceability of the remaining provisions will not
be affected thereby.
	 
	12.15	 	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, 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 will (a)
provide written notice of same to the other Party, and (b) subject to its
following obligations with respect to said Party’s efforts to remove the
disability and Section 2.5, its obligations that are prevented from
compliance by such force majeure are suspended, without liability, during
such period of force majeure. Said notice will be provided within five
(5) business days of the occurrence of such event and will identify the
requirements of this Manufacturing Agreement or such of its obligations as
may be affected. The Party prevented from performing hereunder will use
commercially reasonably efforts to remove such disability as promptly as
possible and will continue performance whenever such causes are removed.
The Party so affected will 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. If the period of any previous
actual nonperformance of Lilly because of Lilly force majeure conditions
plus the anticipated future period of Lilly nonperformance because of such
conditions will exceed

-36-

 

	 	 	an aggregate of [***], Advancis may terminate this Manufacturing
Agreement by prior written notice to Lilly. If the period of any
previous actual nonperformance of Advancis because of Advancis force
majeure conditions plus the anticipated future period of Advancis
nonperformance because of such conditions will exceed an aggregate of
[***], Lilly may terminate this Manufacturing Agreement by prior written
notice to Advancis. When such circumstances as those contemplated herein
arise, the Parties will discuss in good faith, what, if any, modification
of the terms set forth herein may be required in order to arrive at an
equitable solution.

[***] 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 EXCHANGE ACT OF 1934, AS AMENDED.

-37-

 

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

	 	 	 	 	 
	 	 	ELI LILLY AND COMPANY
	 
	 	 	 	 
	

	 	By:
	 	/s/ John C. Lechleiter
	

	 	 	 	
 
	 	 	Printed Name: John C. Lechleiter
	 
	 	 	 	 
	

	 	Title:
	 	Executive Vice President
Pharmaceutical Operations
	 
	 	 	 	 
	 	 	ADVANCIS PHARMACEUTICAL

CORPORATION
	 
	 	 	 	 
	

	 	By:
	 	/s/ Edward M. Rudnic, Ph.D.
	

	 	 	 	
 
	 	 	Printed Name: Edward M. Rudnic, Ph.D.
	 
	 	 	 	 
	

	 	Title:
	 	Chairman & CEO

 

 

Schedule 1.17

Product List

500 mg Keflex Oral Capsules – 100 count bottle

500 mg Keflex Oral Capsules – 20 count bottle

250 mg Keflex Oral Capsules – 100 count bottle

250 mg Keflex Oral Capsules – 20 count bottle

 

 

Schedule 1.20

Specifications

Specifications for KEFLEX Capsules

Pulvules PU0402 and PU 0403

The product conforms with the standards of the USP.Test

	 	 	 	 	 
	Test
	 	Method
	 	Specification

	Identification

	 	HPLC (USP)

(Method Code B00741)
	 	[***]
	 
	 	 	 	 
	Potency

	 	HPLC (USP)

(Method Code B00741)
	 	[***]
	 
	 	 	 	 
	Uniformity of Dosage Units

	 	HPLC (USP)

(Method Code B00741)
	 	[***]
	 
	 	 	 	 
	Water

	 	Titrimetric Method USP
	 	[***]
	 
	 	 	 	 
	Dissolution

	 	USP Method
	 	[***]
	 
	 	 	 	 
	Physical Appearance

	 	Visual Examination
	 	[***]
	 
	 	 	 	 
	[***]

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

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

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

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

	 	[***]
	 	[***]

[***] 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 EXCHANGE ACT OF 1934, AS AMENDED.

 

 

Schedule 2.2A

Price list for Products

500 mg Keflex Oral Capsules – 100 count bottle: $[***]/bottle

500 mg Keflex Oral Capsules – 20 count bottle: $[***]/bottle

250 mg Keflex Oral Capsules – 100 count bottle: $[***]/bottle

250 mg Keflex Oral Capsules – 20 count bottle: $[***]/bottle

[***] 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 EXCHANGE ACT OF 1934, AS AMENDED.

 

 

Schedule 2.2B

Manufacturing Sites

[***]

[***] 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 EXCHANGE ACT OF 1934, AS AMENDED.

 

 

Schedule 4.1

Maximum Purchase Quantities

500 mg Keflex Oral Capsules – 100 count bottle: [***] bottles

500 mg Keflex Oral Capsules – 20 count bottle: [***] bottles

250 mg Keflex Oral Capsules – 100 count bottle: [***] bottles

250 mg Keflex Oral Capsules – 20 count bottle: [***] bottles

[***] 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 EXCHANGE ACT OF 1934, AS AMENDED.

 

 

Schedule 4.3A

Minimum Order Quantities

500 mg Keflex Oral Capsules – 100 count bottle: [***] bottles

500 mg Keflex Oral Capsules – 20 count bottle: [***] bottles

250 mg Keflex Oral Capsules – 100 count bottle: [***] bottles

250 mg Keflex Oral Capsules – 20 count bottle: [***] bottles

[***] 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 EXCHANGE ACT OF 1934, AS AMENDED.exv10w2

 

Exhibit 10.2

EXECUTION COPY

TRANSITION SERVICES AGREEMENT

     THIS TRANSITION SERVICES AGREEMENT (this “Agreement”), is entered into as
of June 30, 2004 (the “Effective Date”) by and between Advancis Pharmaceutical
Corporation (“Advancis”), a corporation organized and existing under the laws
of the State of Delaware with offices located at 20425 Seneca Meadows Parkway,
Germantown, Maryland 20876, and Eli Lilly and Company (“Lilly”), a corporation
organized and existing under the laws of the State of Indiana with offices
located at Lilly Corporate Center, Indianapolis, Indiana 46285. Advancis and
Lilly are sometimes referred to herein individually as a “Party” and
collectively as “Parties”.

     WITNESSETH:

     WHEREAS, Lilly and Advancis have entered into an Asset Purchase Agreement
of even date herewith (the “Purchase Agreement”) and a Manufacturing Agreement
of even date herewith (the “Manufacturing Agreement”);

     WHEREAS, pursuant to the Purchase Agreement, Lilly has agreed, among other
things, to sell to Advancis the Purchased Assets and Advancis has agreed to
purchase the Purchased Assets, including the Marketed Product;

     WHEREAS, the Parties wish to provide for the warehousing, distribution,
medical inquiries, complaint management and other transition services to be
provided by Lilly and its Affiliates (collectively, “Service Provider”) to
Advancis, including sales and accounts receivable, during the [***] after the
Effective Date;

     WHEREAS, it is a condition to the consummation of the transactions
contemplated by the Purchase Agreement and the Manufacturing Agreement that
Lilly and Advancis enter into this Agreement; and

     WHEREAS, the Service Provider is willing to provide certain transitional
services to Advancis upon the terms and conditions set forth below.

     NOW THEREFORE, in consideration of the mutual covenants and agreements set
forth in this Agreement, the Parties agree as follows:

     1. Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below and capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed to such terms in
the Purchase Agreement and Manufacturing Agreement.

          (a) "Advancis Sale” has the meaning specified in Section 5.

          (b) "Business Day” means any day that is not a Saturday, Sunday or other
day on which banks are authorized or required to close in the state of New
York.

	[***]  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 EXCHANGE ACT OF 1934, AS AMENDED.

 

 

          (c) "Distribution Fee” has the meaning specified in Section 4.

          (d) "Independent Accounting Firm” has the meaning specified in Annex A.

          (e) "Order” has the meaning specified in Section 5.

          (f) "Order Purchase Price” has the meaning specified in Section 5.

          (g) "Parties” has the meaning specified in the Introduction.

          (h) "Services” has the meaning specified in Section 2.

          (i) "Service Provider” has the meaning specified in the recitals.

          (j) "Service Period” has the meaning specified in Section 3.

          (k) "Settlement Calculation” has the meaning specified in Annex A.

          (l) "Settlement Calculation Objection Notice” has the meaning specified in
Annex A.

          (m) "Settlement Calculation Resolution Period” has the meaning specified
in Annex A.

          (n) "Transferred Inventory” has the meaning specified in Section 6.

          (o) "Inventory Transfer Notice” has the meaning specified in Section 6.

     2. Services to be Provided.

          (a) During the Service Period, the Service Provider shall provide to
Advancis or its Affiliates the following services described on Annex A
attached hereto solely with respect to the sale of the Marketed Product in the
United States (collectively, the “Services”):

               (i) Inventory, Warehousing and Management Services;

               (ii) Medical Inquires and Complaint Management Services;

               (iii) Distribution Services; and

               (iv) Accounting and Reconciliation Services.

          (b) Advancis hereby grants to the Service Provider, for no additional
consideration, a non-exclusive license to use the Trademarks solely in
connection with

-2-

 

the Services. The foregoing license shall terminate
automatically, simultaneously with the expiration or termination of this
Agreement.

          (c) The Service Provider shall render the Services in accordance with the
standards and guidelines described in Annex A. The Services shall be of
the same nature and of the same or higher quality as such similar services
provided by the Service Provider, Lilly and/or its Affiliates in connection
with the sale of the Marketed Product in the United States immediately prior to
the Effective Date. Any Marketed Product that is manufactured, sold or
distributed by the Service Provider pursuant to this Agreement shall be in
compliance with the Quality Control and Assurance provisions set forth in
Section 3.3 of the Manufacturing Agreement and the MRD/Quality Agreement (as
defined therein). All Marketed Product shall be labeled, prepared and packaged
in accordance with Section 5.1 of the Manufacturing Agreement and the
MRD/Quality Agreement.

          (d) During the Service Period and subject to the requirements of Section
8.4 of the Asset Purchase Agreement, Lilly shall provide
pharmacovigilance
reporting in according with its standard procedures until such time as the
Pharmacovigilance Agreement is completed and entered by the Parties. At such
time, all such matters shall be handled in accordance with the
Pharmacovigilance Agreement.

     3. Term; Termination.

          (a) The “Service Period” shall commence on the Effective Date and shall
expire on [***], with respect to Medical Inquiries and Complaint Management
Services, and [***], with respect to all other Services, unless sooner
terminated in accordance with the provisions of this Section 3 (such period
during which any of the Services are provided, the “Service Period”).

          (b) In the event that either Party materially fails to perform any of its
duties or obligations pursuant to this Agreement and such failure is not cured
within ten (10) Business Days after notice to such Party specifying the nature
of such material failure, the other Party may terminate this Agreement upon
further notice to the defaulting Party.

          (c) Advancis may terminate this Agreement upon ten (10) Business Days’
prior written notice to the Service Provider. Advancis will be relieved of any
obligation to pay for terminated Services from and after the effective date of
such termination; provided, however, that Advancis will continue to pay for any
reasonable noncancellable commitments reasonably made by the Service Provider
in anticipation of providing the Services as required herein.

          (d) The expiration or termination of this Agreement, for any reason, will
not release either Party from any liability which at said time it has already
incurred to
the other Party, nor affect in any way the survival of any rights, duties
or obligations of either Party that are expressly stated elsewhere in this
Agreement to survive said expiration or prior termination. Nothing in the
immediately preceding sentence will

	[***]  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 EXCHANGE ACT OF 1934, AS AMENDED.

-3-

 

affect the right of the Party aggrieved by
any breach of this Agreement to be compensated for any injury or damage
resulting therefrom that is incurred before or after such expiration or
termination.

          (e) Upon expiration or termination of this Agreement, other than fees
related to rebates, returns or chargebacks, all fees and payments owed by
either Party to the other Party hereunder as of the date of such expiration or
termination will be paid within thirty (30) days of the date of such expiration
or termination.

          (f) Promptly after the expiration or termination of this Agreement,
Service Provider will deliver to Advancis a report which will contain the same
categories of information as the Semi-Monthly Reports (as defined herein),
together with any other information that Advancis shall reasonably request and
can reasonably be provided by Service Provider relating to the sale of Marketed
Products.

     4. Distribution Fee. For providing the Services during the Service
Period, Service Provider will be entitled to the fees (the “Distribution Fees”)
listed on Exhibit A for each of the Marketed Products. The Distribution
Fees will be equal to [***] of each of the Marketed Products listed on
Exhibit A and invoiced by Service Provider during the Service Period.

     5. Sale of Inventory and Distribution Services. Commencing on July
1, 2004, Service Provider shall be responsible for receiving purchase orders
for the sale of Marketed Product, which orders are received (each, an “Order”)
directly from wholesalers with which Lilly has established wholesaler
relationships. Within one (1) Business Day after receipt by Service Provider
of an Order (or on such later date as the wholesaler requests shipment of
Marketed Product), Service Provider shall sell the same quantity and type of
Marketed Product specified in the Order to Advancis at the applicable Purchase
Price set forth on Schedule 2.2A of the Manufacturing Agreement (the
"Order Purchase Price”). Immediately after such sale and purchase, Advancis
shall sell to Service Provider (the “Advancis Sale”) the same amount and type
of Marketed Product sold to Advancis by Service Provider as specified in the
Order at the Order Purchase Price. Within one (1) Business Day of the Advancis
Sale, Service Provider will distribute the same quantity and type of Marketed
Product specified in the Order. Service Provider will distribute Marketed
Products sold pursuant to this Section 5 in accordance with Annex A.

     6. Delivery of Inventory. During the Service Period, from time to
time, Service Provider shall ship the quantity and amount of Inventory (the
"Transferred Inventory”) to a warehouse location specified by Advancis in a
written notice from Advancis (the “Inventory Transfer Notice”). The
Transferred Inventory shall be shipped by Service Provider FOB Advancis’
carrier within three (3) Business Days following delivery of the Inventory
Transfer Notice from Advancis to Service Provider.

     7. Notification to Customers, Wholesalers and Distributors. At a
time mutually agreed upon by Service Provider and Advancis, Service Provider
shall notify all customers, wholesalers and distributors of the Marketed
Product in the United States 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 EXCHANGE ACT OF 1934, AS AMENDED.

-4-

 

the transfer of the Marketed Product and
Inventory to Advancis and the change in the distribution of the Marketed
Product.

     8. Confidentiality Obligations. The Parties acknowledge that the
information provided to them and their representatives in connection with this
Agreement is subject to, and the Parties shall, and shall cause their
representatives to, fully comply with their respective obligations under
Article IX of the Purchase Agreement and Article IX of the Manufacturing
Agreement.

     9. Service Provider’s Employees. Service Provider shall be solely
responsible for payment of compensation to Service Provider’s employees and for
any injury to them in the course of their employment. Service Provider shall
assume full responsibility for payment of all federal, state and local taxes or
contributions imposed or required under unemployment insurance, social security
and income tax laws with respect to such persons. Advancis has no power to
supervise, give directions or otherwise regulate the operations of Service
Provider or its employees.

     10. Assignment. This Agreement shall be binding upon and inure to
the benefit of the Parties and their respective successors and permitted
assigns. No Party may assign either this Agreement or any of its rights,
interests or obligations hereunder without the prior written approval of the
other Party; provided, however, that Advancis may assign its
rights, interests and/or obligations hereunder to any of its Affiliates without
the prior written approval of Lilly, so long as such assignment does not
release Advancis from any liability to Lilly hereunder. Lilly may contract
with one or more of its Affiliates or Third Persons for the performance of all
or any part of Lilly’s obligations under this Agreement.

     11. Indemnification. In addition to the Parties’ rights and
obligations to indemnify any Person in connection with the transactions
contemplated herein which are set forth in the Purchase Agreement, Advancis
agrees to indemnify and hold harmless Lilly and it Affiliates and their
respective, officers, directors, agents and employees from and against any
claims for Damages related to or arising out of Lilly’s or its Affiliates
provision of Services hereunder, or the failure to so provide Services or
perform, except for Damages that are a result of the willful misconduct or
gross negligence of Lilly or its Affiliates.

     12. Miscellaneous.

          (a) Amendment and Waivers. No amendment of any provision of this
Agreement shall be valid unless the same shall be in writing and signed by duly
authorized representatives of each of the Parties. No waiver by any Party
hereto of any default, misrepresentation or breach of warranty or covenant
hereunder, whether intentional or not, shall be deemed to extend to any prior
or subsequent default, misrepresentation or breach of warranty or covenant
hereunder or affect in any way any
rights arising by virtue of any prior or subsequent such occurrence. No
course of dealing or failure of any Party to strictly enforce any term, right
or condition of this Agreement shall be construed as a waiver of such term,
right or condition.

-5-

 

          (b) Notices. All notices, requests, claims, demands or other
communications that are required or may be given pursuant to the terms of this
Agreement shall be in writing and shall be delivered to the Parties in
accordance with Section 12.3 of the Purchase Agreement.

          (c) Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original but all of which
together will constitute one and the same instrument.

          (d) Headings. The headings and numbering of sections in this
Agreement are for convenience only and shall not be construed to define or
limit any of the terms or provisions of this Agreement or affect the scope,
meaning, or interpretation of this Agreement or the particular sections to
which they relate.

          (e) Third Party Beneficiaries. This Agreement shall not confer any
rights or remedies upon any Person other than the Parties and their respective
successors and permitted assigns.

          (f) Entire Agreement. The Purchase Agreement, the Manufacturing
Agreement and this Agreement (including the documents referred to therein and
herein) constitute the entire agreement between the Parties and supersede any
prior understandings, agreements or representations by or among the Parties,
written or oral, to the extent they related in any way to the subject matter
hereof.

          (g) Severability. Any term or provision of this Agreement that is
invalid or unenforceable in any situation in any jurisdiction shall not affect
the validity or enforceability of the remaining terms and provisions hereof or
the validity or enforceability of the offending term or provision in any other
situation or in any other jurisdiction.

          (h) Construction. The Parties have participated jointly in the
negotiation and drafting of this Agreement. In the event an ambiguity or
question of intent or interpretation arises, this Agreement shall be construed
as if drafted jointly by the Parties and no presumption or burden of proof
shall arise favoring or disfavoring any Party by virtue of the authorship of
any of the provisions of this Agreement. Any reference to any law shall be
deemed also to refer to all rules and regulations promulgated thereunder,
unless the context requires otherwise. The word “including” shall mean
including, without limitation.

          (i) Governing Law. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of Indiana without
giving effect to any choice or conflict of law provision or rule.

          (j) Relationship of Parties. Nothing contained in this Agreement
shall be construed as creating a partnership, joint venture, agency, trust or
other association of any kind, each Party being individually responsible only
for its obligations as set forth in this Agreement.

-6-

 

          (k) Further Assurances. Subject to the provisions hereof, each of
the Parties will execute and deliver such other agreements, documents or
instruments and take or cause to be taken such other actions as may be
reasonably required in order to effect the purposes of this Agreement and to
consummate the transactions contemplated hereby. Subject to the provisions
hereof, each of the Parties will, in connection with entering into this
Agreement, performing its obligations hereunder and taking any and all actions
relating hereto, comply with all applicable laws, obtain all required consents
and approvals and make all required filings with any Governmental Authority and
promptly provide the other with all such information as the other Party may
reasonably request in order to be able to comply with the provisions of this
sentence.

          (l) Incorporation of Annexes. The Annexes identified in this
Agreement are incorporated herein by reference and made a part hereof.

          (l) Impracticality. Service Provider shall not be required to
provide any Services to the extent the performance of such Services becomes
impractical as a result of a cause or causes outside the reasonable control of
Service Provider, or to the extent the performance of such Services would
require Service Provider to violate any applicable laws, rules or regulations.

[Signature Page Follows]

-7-

 

     IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
Effective Date.

	 	 	 	 	 	 	 
	 	 	ELI LILLY AND COMPANY
	 
	 	 	 	 	 	 
	

	 	By: /s/ John C. Lechleiter	 	 
	

	 	 	
	 	 
	 
	 	 	 	 	 	 
	

	 	Printed Name: John C. Lechleiter	 	 
	 
	 	 	 	 	 	 
	

	 	Title: Executive Vice President Pharmaceutical Operations	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 	 	ADVANCIS PHARMACEUTICAL CORPORATION
	 
	 	 	 	 	 	 
	

	 	By: /s/ Edward M. Rudnic, Ph.D.	 	 
	

	 	 	
	 	 
	 
	 	 	 	 	 	 
	

	 	Printed Name: Edward M. Rudnic, Ph.D.	 	 
	 
	 	 	 	 	 	 
	

	 	Title: Chairman & CEO	 	 

Signature Page to Transition Services Agreement

 

 

ANNEX A

SERVICES

I. WAREHOUSING AND INVENTORY MANAGEMENT SERVICES

Service Provider will warehouse and inventory Marketed Product at Service
Provider’s distribution facility. Service Provider will store all Marketed
Product in compliance with current good manufacturing practice regulations and
guidelines and other requirements of the FDA and all other Applicable Laws.
Upon the Effective Date and thereafter, together with the Semi-Monthly Reports
(defined below), Service Provider will deliver system generated inventory by
SKU, expiration date, lot number and warehouse. In addition to and together
with the Semi-Monthly Reports (defined below) and only if readily available
using Service Provider’s standard reporting systems, Service Provider will
provide to Advancis semi-monthly Inventory transaction histories detailing the
transaction history of each lot of Marketed Product in or sold from Inventory.

II. DISTRIBUTION SERVICES

A. Service Provider will distribute Marketed Products in accordance with (i)
good manufacturing practice guidelines and other requirements of the FDA, (ii)
other Applicable Laws, and (iii) using policies, procedures and practices in
effect immediately prior to the Effective Date, that are consistent with
services normally provided by Service Provider in connection with the
distribution of products and services and in substantially the same manner as
provided by Service Provider in connection with the Marketed Product
immediately prior to the Effective Date.

B. Service Provider will be responsible for distribution and inventory tasks,
including:

	 	1.	 	To continually maintain Marketed Product inventory in accordance
with the terms of this Agreement;
	 
	 	2.	 	To provide Advancis, at Service Provider’s expense, one (1)
physical inventory of Marketed Product. A physical inventory will
be scheduled based upon a written request from Advancis and a
mutually agreed upon inventory date;
	 
	 	3.	 	To allow Advancis, at Advancis’ expense, to inspect Marketed
Product at Service Provider’s facility upon reasonable prior
request provided that Advancis does not interfere with Service
Provider’s operations; and
	 
	 	4.	 	To provide tracking for all shipments in accordance with Service
Provider’s standard procedures.

 

 

III. MEDICAL INQUIRES AND COMPLAINT MANAGEMENT SERVICES

Service Provider shall continue to operate a call center for customers and
physicians to contact regarding the Marketed Product. The Parties shall
mutually agree on policies and procedures for addressing any complaints or
inquiries including, without limitation, quality assurance/quality control or
similar issues concerning Marketed Product, received by Service Provider that
will enable Advancis to satisfy any regulatory requirements and/or Applicable
Laws; provided, however, unless the Parties agree otherwise, any complaint or
inquiry received by Service Provider at the call center or otherwise that
requires or may require Service Provider to notify any regulatory or
Governmental Authority pursuant to Applicable Law or in accordance with Service
Provider’s existing policies and procedures shall be reported to Advancis
within 24 hours of receipt of such complaint or inquiry. All notices required
to be delivered by Service Provider in accordance with this paragraph shall be
sent by e-mail and fax to Advancis, Attention: James Bruno, Vice President,
Pharmaceutical Sales, 20425 Seneca Meadows Parkway, Germantown, Maryland 20876;
email: [***]; fax: (301) 944-6700. Service Provider shall
continue to operate the call center in accordance with policies and procedures
in existence on the Effective Date.

IV. ACCOUNTING AND RECONCILIATION

[***] 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 EXCHANGE ACT OF 1934, AS AMENDED.

 

 

A. Periodic Reporting. During the Service Period, Service Provider will
prepare a report on a semi-monthly basis, detailing the Marketed Products sold
and delivered during the applicable time period (the “Semi-Monthly Report”).
The Semi-Monthly Report will consist of the following information: date of
sale, customer, to whom shipped, lot number, quantity, and Net Wholesale Price.
The Semi-Monthly Reports shall cover activity during the following periods:
[***]. The Semi-Monthly
Reports should be available within seven (7) Business Days and will be sent by
e-mail and fax to: Advancis Finance Dept, Attention: Robert C. Low,
Controller, 20425 Seneca Meadows Parkway, Germantown, Maryland 20876; email:
[***]; fax: (301) 944-6700.

B. Transition Period Settlement. Amounts due to each of the Parties will be
settled on a net basis at the end of the Service Period. Amounts due to a
Party from the other Party will be calculated, and the Party having a net
liability to the other will wire to the other Party the amount of such net
liability within 15 days of agreement on the settlement calculation. The
settlement calculation will consist of the following elements (the “Settlement
Calculation”):

	 	1.	 	Amount due to Service Provider for each sale of Marketed Product

to Advancis to fulfill customer orders during the Service Period;
	 
	 	2.	 	Amount due to Advancis for each sale of Marketed Product to
Service Provider to fulfill Orders during the Service Period;
	 
	 	3.	 	Net amount due to Advancis for each sale invoiced by Service
Provider during the Service Period, calculated as follows: Service
Provider’s Net Wholesale Price (“NWP”) for Marketed Product sold to
wholesalers, less the Purchase Price set forth in Schedule 2.2 of
the Manufacturing Agreement, [***];
	 
	 	4.	 	Amount due to Service Provider for its Distribution Fee for all
invoiced sales during the Service Period (the Distribution Fee is
calculated as the quantity of each Marketed Product shipped to
Customers multiplied by the applicable distribution fee price in
accordance with Exhibit A);
	 
	 	5.	 	Amounts due for Transferred Inventory calculated based upon the
Purchase Price set forth on Schedule 2.2A of the Manufacturing
Agreement; and
	 
	 	6.	 	Amount due to Service Provider for the purchase of remaining,
unsold Inventory by Advancis at the end of the Service Period.

C. Transition Period Settlement Review. Within 15 days following the
expiration 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 EXCHANGE ACT OF 1934, AS AMENDED.

 

 

the Service Period, the Settlement Calculation will be prepared
and submitted by Service Provider to Advancis for review and approval. The
Settlement Calculation shall be conclusive and binding on the Parties unless
Advancis gives written notice of any objections thereto setting forth in
reasonable detail the amounts in dispute and the basis for such dispute (a
"Settlement Calculation Objection Notice”) to Service Provider within thirty
(30) days after receipt of the Settlement Calculation and all work papers and
back-up materials relating thereto. Advancis shall submit therewith payment in
full for any amounts not in dispute. If Advancis delivers a Settlement
Calculation Objection Notice as provided above, the Parties shall attempt in
good faith to resolve such dispute, and any resolution by them as to any
disputed amounts shall be final, binding and conclusive on the Parties. If the
Parties are unable to resolve, despite good faith negotiations, all disputes
reflected in the Settlement Calculation Objection Notice within thirty (30)
days thereafter (the “Settlement Calculation Resolution Period”), then the
Parties will, within ten (10) days after the expiration of the Settlement
Calculation Resolution Period, submit any such unresolved dispute to Ernst &
Young LLP (the “Independent Accounting Firm”). Advancis and Service Provider
shall provide to the Independent Accounting Firm all work papers and back-up
materials relating to the unresolved disputes requested by the Independent
Accounting Firm to the extent available to Advancis or Service Provider.
Advancis and Service Provider shall be afforded the opportunity to present to
the Independent Accounting Firm any material related to the unresolved disputes
and to discuss the issues with the Independent Accounting Firm. The
determination by the Independent Accounting Firm, as set forth in a notice to
be delivered to Advancis and Service Provider thirty (30) days after the
submission of the unresolved disputes to the Independent Accounting Firm, shall
be final, binding and conclusive on the Parties. The fees and expenses of the
Independent Accounting Firm shall be split equally between Advancis and Service
Provider. The Settlement Calculation, as revised to reflect the resolution of
any and all disputes by the Parties and/or the Independent Accounting Firm,
shall be deemed to be the “Settlement Calculation.”

 

 

EXHIBIT A

NET WHOLESALE PRICES AND DISTRIBUTION FEES FOR TRANSITION PERIOD

	 	 	 	 	 
	 	 	Net Wholesale	 	Distribution
	 	 	Price (NWP)	 	Fee
	500 mg, 100 count
	 	[***]	 	[***]
	500 mg, 20 count
	 	[***]	 	[***]
	250 mg, 100 count
	 	[***]	 	[***]
	250 mg, 20 count
	 	[***]	 	[***]

	[***]  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 EXCHANGE ACT OF 1934, AS AMENDED.

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