ASSET PURCHASE AGREEMENT

Asset Purchase Agreement

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Advancis Pharmaceutical Corporation

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Title: ASSET PURCHASE AGREEMENT
Governing Law: Indiana Date: 7/15/2004
Industry: Biotechnology and Drugs Law Firm: Piper Rudnick LLP Sector: Healthcare

ASSET PURCHASE AGREEMENT, Parties: advancis pharmaceutical corporation

Exhibit 2.1

EXECUTION COPY

ASSET PURCHASE AGREEMENT
(KEFLEX)

This ASSET PURCHASE 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. ” Unless otherwise stated herein, reference to a " Party ” shall include that Party and its Affiliates.

RECITALS

WHEREAS, subject to the terms and conditions set forth in this Agreement, Lilly and Advancis desire to enter into an agreement pursuant to which: (i) Lilly will sell or license to Advancis certain new drug applications, copyrights, trade dress, technology and trademarks owned by Lilly for use in the sale of Product in the Territory and (ii) Advancis will make certain payments to Lilly and assume certain liabilities associated with the rights transferred herein, all in accordance with the terms and conditions set forth in this Agreement; and

WHEREAS, Lilly and Advancis desire to enter into a separate manufacturing agreement (the “ Manufacturing Agreement ”) and a separate transition services agreement (the “ Transition Services Agreement ”), both of even date herewith, whereby Lilly will manufacture certain presentations of Products and perform certain services for and on behalf of Advancis for a limited period of time in order to facilitate the transactions contemplated herein, including transfer of manufacturing responsibilities to a third party of Advancis’ choosing.

NOW, THEREFORE, in consideration of the foregoing, the covenants and promises contained in this Agreement, and other good and valuable consideration, the sufficiency and receipt of which are hereby acknowledged, Lilly and Advancis agree as follows:

ARTICLE 1
DEFINITIONS

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

1.1		“Action or Proceeding ” means any action, suit, proceeding, investigation, arbitration, inquiry, hearing, assessment with respect to fines or penalties, or litigation (whether civil, criminal, administrative, investigative or informal) commenced, brought, conducted or heard by or before, or otherwise involving, any Governmental or Regulatory Authority.

1.2		“Activities” means the manufacturing, packaging, marketing, distribution, promoting, co-marketing, co-promoting and selling of the Product as conducted by Lilly in the Territory on or before the Effective Date.

1.3		[***]

1.4		“Advancis Disclosure Schedules” has the meaning set forth in the introduction to Article 6.

1.5		“Advancis New Product” means (i) any Cephalexin Product that [*], (ii) any Cephalexin Product [] or (iii) any pharmaceutical product []; provided that [], and the [] obligation to pay royalties on Advancis New Product under Section 2.2 shall arise upon the [] of an Advancis New Product []. For purposes of this definition and Section 2.2, [*].

1.6		“Affiliates ” means, with respect to a Party, any Persons directly or indirectly controlling, controlled by, or under common control with, such Party. For purposes of this definition, a Person has control of another Person if it has the direct or indirect ability or power to direct or cause the direction of management policies of such other Person or otherwise direct the affairs of such other Person, whether through ownership of at least fifty percent (50%) of the voting securities of such other Person, by contract or otherwise.

1.7		“Applicable Laws” means all applicable laws, ordinances, rules, regulations, writs, judgments, decrees, injunctions (whether preliminary or final), orders and other requirements of any kind whatsoever of any Governmental or Regulatory Authority, including all laws, ordinances, rules and regulations promulgated by the FDA.

1.8		“Assigned Copyrights” means all of Lilly’s copyright rights in the Territory in and to (i) all materials comprising the NDAs in any media (including information regarding any in-process label changes) (the “ NDA Materials ”); (ii) all materials comprising the Books and Records; and (iii) any and all package inserts, advertising, promotional and informational materials and sales or other manuals which are or were used by Lilly or its Affiliates in connection with the Activities on or prior to the Effective Date within the Territory (the “ Marketing Materials ”) (excluding any copyright rights in Lilly-owned trademarks, logos or designs or trademarks, logos or designs licensed by Lilly other than those trademarks, logos or designs expressly assigned or licensed to Advancis pursuant to the terms hereof).

[***] 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.

1.9		“Assigned Intellectual Property ” means (i) the Assigned Copyrights, (ii) the Assigned Trade Dress, (iii) the Assigned Trademarks, and (iv) the Assigned Patents.

1.10		“Assigned Trade Dress” means any common law trade dress rights, in the Territory, in the appearance, look, shape, size or color of the Products as of the Effective Date, other than the Licensed Trademark and Trade Dress, as such trade dress rights relate to the Products in the Territory, and the goodwill associated therewith.

1.11		“Assigned Trademarks” means the trademarks listed in Schedule 1.11 attached hereto along with the registrations therefor and the goodwill associated therewith. For avoidance of doubt, the Assigned Trademarks do not include the Assigned Trade Dress or Licensed Trademarks and Trade Dress.

1.12		“Assigned Patents” means those Patents listed on Schedule 1.12 .

1.13		“Assumed Liabilities ” has the meaning set forth in Article 11.

1.14		“Books and Records ” means those items listed on Schedule 1.14 .

1.15		“Calendar Quarter” means the three-month period ending on March 31, June 30, September 30, or December 31. The initial Calendar Quarter will be deemed to begin on the Effective Date and end on the first to occur of March 31, June 30, September 30 or December 31.

1.16		“Calendar Year” means the twelve (12) month period ending on December 31st. The initial Calendar Year will be deemed to begin on the Effective Date and end on December 31, 2004.

1.17		“Cephalexin” means – all of the following and any synonyms thereof: 5-Thia-1-azabicyclo[4.2.0]oct-2-ene-2-carboxylic acid, 7-[[(2R)-aminophenylacetyl]amino]-3-methyl-8-oxo-, (6R,7R)- (9CI); 5-Thia-1-azabicyclo[4.2.0]oct-2-ene-2-carboxylic acid, 7-(2-amino-2-phenylacetamido)-3-methyl-8-oxo-, D- (8CI); 5-Thia-1-azabicyclo[4.2.0]oct-2-ene-2-carboxylic acid, 7-[(aminophenylacetyl)amino]-3-methyl-8-oxo-, [6R-[6 a ,7 b (R)]]-; 7-( a -Amino-D-phenylacetamido)-3-deacetoxycephalosporanic acid; 7-[D-(-)- a -Aminophenylacetamido]-3-methyl-3-cephem-4-carboxylic acid; Registry number 15686-71-2 as defined in the Chemical Registry and 5-Thia-1-azabicyclo[4.2.0]oct-2-ene-2 carboxylic acid, 7-[(aminophenylacetyl)amino]-3-methyl-8-oxo-, monohydrate [6R-[6 a , 7 b (R)]]-; ((6R, 7R)-7-[®-2-Amino-2-phenylacetamido]-3-methyl-8-oxo-5-thia-1-azabicyclo[4. 2.0]-oct-2-ene-2-carboxylic acid monohydrate; 7-(D- a -Amino- a -phenylacetamido)-3-methyl-3-cephem-4-carboxylic acid monohydrate. CAS-23325-78-2 as defined on page 177 of the 2004 USP Dictionary of USAN and International Drug Names.

1.18		“Cephalexin Product” means any pharmaceutical product that contains Cephalexin or any analog or derivative or polymorph of Cephalexin as an active ingredient, and/or a salt, base, or solvate thereof, [***].

1.19		“Certain Existing Obligations” means the contractual obligations listed on Schedule 5.12 .

1.20		“Certain Lilly Affiliates” shall mean only those Affiliates of Lilly who own or control as of the Effective Date any of the Purchased Assets or the Licensed Patents, Licensed Technology and/or Licensed Trademark and Trade Dress.

1.21		“Closing” has the meaning set forth in Section 3.2.

1.22		“Confidential Information” means information received (whether disclosed in writing, machine readable form, orally or by observation) by one Party (the “ Receiving Party ”) from the other Party (the “ Disclosing Party ”) that the Receiving Party has a reasonable basis to believe is confidential to the Disclosing Party or is treated by the Disclosing Party as confidential, unless such information:

(a) was known to the Receiving Party or its Affiliates prior to receipt from the Disclosing Party, as documented in written records or publications, that lawfully are in the possession of the Receiving Party or its Affiliates;

(b) was lawfully available to the trade or to the public prior to receipt from the Disclosing Party;

(c) becomes lawfully available to the trade or to the public after receipt from the Disclosing Party through no act on the part of the Receiving Party or its Affiliates;

(d) is obtained by the Receiving Party or its Affiliates from any Third Person without an obligation of confidentiality; or

(e) is independently developed by an employee, contractor or agent of the Receiving Party or its Affiliates, subsequent to and without access or reference to the information received from the Disclosing Party, as demonstrated by contemporaneous written records.

Notwithstanding the foregoing, where a Disclosing Party discloses Confidential Information relating to an asset of such Disclosing Party to the Receiving Party, and the Receiving Party is or later becomes the owner of the asset, the Confidential Information then will be deemed to be Confidential Information of the Receiving Party, and the Disclosing Party may disclose and use such Confidential Information only in accordance with Article 9, below, provided, however, that where such Confidential Information was originally owned by Lilly prior to the Effective Date, Lilly may use such Confidential Information for, and

disclose such Confidential Information in connection with, the Permitted Uses, without the prior written consent of Advancis.

1.23		“Contracts ” means any and all legally binding commitments, contracts, purchase orders, leases, or other agreements, whether written or oral.

1.24		“Damages” means any and all costs, losses, claims, demands for payment, Governmental or Regulatory Authority enforcement actions, liabilities, fines, penalties, expenses, court costs, and reasonable fees and disbursements of counsel, consultants and expert witnesses incurred by a Party hereto or its Affiliates (including interest which may be imposed in connection therewith).

1.25		“Discontinued Product” means any pharmaceutical product referenced in the Discontinued Product NDA.

1.26		“Discontinued Product NDA” means the United States New Drug Applications and Investigational New Drug Applications listed in Schedule 1.26 and all other submissions, supplements or amendments pertaining thereto.

1.27		“Effective Date” has the meaning set forth in the first paragraph of this Agreement.

1.28		“Encumbrance ” means any mortgage, pledge, license of intellectual property rights, assessment, security interest, deed of trust, lease, lien, adverse claim, levy, charge or other encumbrance, third-party right or retained right of any kind, or any conditional sale or title retention agreement or other agreement to give any of the foregoing in the future. Requirements of Applicable Laws relating to regulation of pharmaceutical products shall not be deemed Encumbrances.

1.29		“Excluded Liabilities” means all Obligations of Lilly and its Affiliates other than Assumed Liabilities, including:

(a) any Obligations arising out of any claims by the FDA, or any other Governmental or Regulatory Authority that Lilly has failed to fulfill Lilly’s regulatory obligations in connection with the NDAs prior to the Effective Date (except to the extent that such Damages arise out of any action or inaction on the part of Advancis);

(b) any Obligations arising out of the development, manufacture, marketing or sale of the Products prior to the Effective Date;

(c) any Obligations that Lilly expressly covenants and agrees to perform or Obligations as to which Lilly has expressly assumed liability pursuant to the provisions of this Agreement, the Manufacturing Agreement, the Transition Services Agreement, or in any other document delivered in connection herewith or therewith; and

(d) any Obligations arising under the Preexisting Agreements and any Obligations arising from or relating to sale of Product by Lilly, its Affiliates or any Third Person under the authority of Lilly in the Territory on or before the Effective Date.

1.30		“FDA” means the United States Food and Drug Administration, and any successor agency or entity thereto that may be established hereafter.

1.31		[***]

1.32		“Governmental or Regulatory Authority” means any United States federal, state or local governmental or regulatory authority, agency, commission, court or instrumentality, including the FDA.

1.33		“Implementation Team” has the meaning set forth in Section 8.1.

1.34		“Indemnified Party” and “Indemnifying Party” has the meanings set forth in Section 12.3.

1.35		“Inventory” means the portion of Lilly’s finished goods inventory of Marketed Product (containing an expiration date of [*] or more) located in the Territory on the Effective Date that Advancis has agreed to purchase pursuant to the Manufacturing Agreement as set forth in Schedule 1.35** .

1.36		“Know-How” means all of the following: specifications; tangible or intangible manufacturing, physical chemistry and formulation know-how; analytical testing methods and validations; technical knowledge; tangible or intangible trade secrets; confidential and/or proprietary information; analytical methodology; processes; methods; data and results; chemical samples or substances; and all other know-how, whether or not patentable.

1.37		“Licensed Patents” means U.S. patents, patent applications, and statutory invention registrations (which, for the purpose of this Agreement, will be deemed to include provisional applications and invention disclosures), owned by or licensed to Lilly as of the Effective Date and reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, all inventions disclosed therein, all rights provided by international treaties and conventions, and all rights to obtain and file for patents and registrations thereto including, but not limited to those patents listed on Schedule 1.37 in each case only as to claims under which a license is required to research, develop, make, have made, distribute, use, sell, offer to sell, have sold, market, co-market, import, export, promote and co-promote Cephalexin Products and in the case of Cephalexin Products other than those that include Cephalexin, only to the extent that Lilly has a right as of the Effective Date to grant a license thereunder, and only for use as an antibiotic or anti-infective.

1.38		“Licensed Technology” means all Know-How developed, created, made, used or acquired on or before the Effective Date by Lilly or its Affiliates, to the extent it pertains to the development, promotion, marketing, sale, use or importation of Products in the Territory as of the Effective Date and/or to the manufacture of Products as of the Effective Date.

1.39		“Licensed Trademark and Trade Dress” means (i) the United States Pulvules ^® Trademark, and (ii) the United States Paraboloidal Capsule Trademark.

1.40		“Lilly Disclosure Schedules” has the meaning set forth in the introduction to Article 5.

1.41		“Lilly Finished Product Health Services Supplies” means the supply of Marketed Product held or in the possession of Lilly’s employee health services as of the Effective Date.

1.42		“Manufacturing Agreement” means that certain Manufacturing Agreement dated as of the date hereof by and between Lilly and Advancis in substantially the same form as Exhibit A attached hereto.

1.43		“Marketed Product” means the following product formulations referenced in the Marketed Product NDA: (i) 250 mg. Keflex ^® Oral Capsule and (ii) 500 mg. Keflex® Oral Capsule.

1.44		“Marketed Product NDA” means the United States New Drug Applications and Investigational New Drug applications (“ IND ”) listed in Schedule 1.44 attached hereto and all other submissions, supplements or amendments as of the Effective Date pertaining thereto. The term “Marketed Product NDA” includes the materials contained in the official and working regulatory and clinical files and the data pertaining to any of the foregoing in the possession or control of Lilly or its Affiliates and of the type normally maintained by regulatory affairs groups, but not primary sources such as laboratory notebooks or historical records not relevant to the maintenance of regulatory filings relating to the Marketed Products. For avoidance of doubt, the Marketed Product NDA does not include any marketing authorizations or any other submissions, supplements or amendments, files or data pertaining primarily to jurisdictions outside of the Territory.

1.45		“Material Adverse Effect ” means an effect or condition that individually or in the aggregate is materially adverse to (i) the Assigned Trademarks; (ii) the Marketed Product NDA; (iii) the Purchased Assets taken as a whole, other than the Assigned Trademarks and the Marketed Product NDA; (iv) any Product or its regulatory approval (including the NDAs) in the Territory, each taken individually; or (v) the business of manufacturing, marketing or selling Products, taken as a whole, as conducted by Lilly and Certain Lilly Affiliates in the ordinary course of business in the Territory prior to the Effective Date.

1.46		“NDA Materials” shall have the meaning set forth in Section 1.8.

1.47		“NDAs” means the Marketed Product NDA and the Discontinued Product NDA.

1.48		“Net Sales” means, with respect to any Advancis New Product, the [***] amount invoiced by a Permitted Seller, for sales within the Territory of Advancis New Product to Third Persons (other than Permitted Sellers), less

(a)		[***];

(b)		[***];

(c)		[***];

(d)		[***]; and

(e)		[***].

Such amounts will be determined in accordance with U.S. Generally Accepted Accounting Principles, consistently applied (“ GAAP ”) from the books and records of Permitted Sellers, which shall be maintained in accordance with GAAP. No deductions will be made for commissions.

1.49		“Notification Letter” has the meaning set forth in Section 7.9.

1.50		“Obligations” has the meaning set forth in Article 11.

1.51		“Patents” means U.S. patents, patent applications, and statutory invention registrations (which, for the purpose of this Agreement, will be deemed to include provisional applications and invention disclosures), including reissues, divisions, continuations, continuations-in-part, extensions and reexaminations thereof, all inventions disclosed therein, all rights provided by international treaties and conventions, and all rights to obtain and file for patents and registrations thereto.

1.52		[***]

1.53		“Permitted Encumbrance ” means (i) any Encumbrance for taxes, assessments and other governmental charges not yet due and payable or that may thereafter be paid without penalty, or that are being contested in good faith by appropriate proceedings for which adequate reserves have been established, and which shall be paid by Lilly, (ii) any imperfection of title or other Encumbrance that, individually or in the aggregate with other such imperfections and Encumbrances, would not have a Material Adverse Effect, (iii) any encumbrance arising from any Assumed Liabilities and (iv) any rights expressly reserved or retained by Lilly pursuant to the terms of this Agreement.

1.54		“Permitted Seller” means Advancis and its Affiliates and any assignee, licensee or sublicensee (but not a distributor of any of them) having the right to sell Advancis New Product.

1.55		“Permitted Uses” means (i) all activities by Lilly permitted within the scope of the licenses explicitly granted to Lilly or rights explicitly retained by Lilly under this Agreement and (ii) subject to the provisions of this Agreement, all activities by Lilly in connection with making, having made, distributing, using, selling, offering to sell, importing (except importing, directly or indirectly, into the Territory), exporting (except exporting, directly or indirectly, to the Territory), marketing, promoting, co-marketing and co-promoting the Product outside of the Territory.

1.56		“Person” means a natural person, a corporation, a partnership, a trust, a joint venture, a limited liability company, any Governmental or Regulatory Authority or any other organization or entity.

1.57		“Pharmacovigilance Agreement” means that certain pharmacovigilance agreement by and between Lilly and Advancis referred to in Section 8.4.

1.58		“Preexisting Agreement” means any effective agreement between Lilly and a Third Person relating to the manufacture of Marketed Product that is not marketed under the Assigned Trademarks for such Third Person’s sale in the United States and/or granting a Third Person the right to reference the Marketed Product NDAs for the purpose of manufacturing, selling or distributing Marketed Product not marketed under the Assigned Trademarks in the United States.

1.59		“Preexisting Agreement Claim” means any claim for Damages arising out of, relating to or resulting from (i) any action by the FDA relating to Advancis or the Marketed Product NDA resulting from any violation or alleged violation of Applicable Law by a Third Person party to a Preexisting Agreement (ii) any claim by a Third Person party to a Preexisting Agreement that the transactions contemplated by this Agreement constitute a violation of the provisions of a Preexisting Agreement or that Advancis otherwise is liable for any violation of the Preexisting Agreement and (iii) any Product Liability Claim or other claim arising out of the sale of any pharmaceutical product by a Third Person party to a Preexisting Agreement, which claim relates in any way to the grant by Lilly or Advancis of rights to reference the Marketed Product NDA or any other rights granted by Lilly under the Preexisting Agreement.

1.60		“Product” means the Marketed Product and/or the Discontinued Product.

1.61		" PULSYS™ ” means drug delivery technology involving front-loaded, sequential bursts, or pulses, of a pharmaceutical product.

1.62		“Purchased Assets ” means: (i) all rights, title and interest in and to the Products in the Territory; (ii) the NDAs and all rights, title and interest in and to the NDAs; (iii) all rights, title and interest in and to the Assigned Intellectual Property; and (iv) the Books and Records and all rights, title and interest therein. The Purchased Assets do not include any fixed assets or Inventory.

1.63		“Purchase Price ” has the meaning set forth in Section 2.1.

1.64		“Remedies” has the meaning set forth in Section 7.16(b).

1.65		“Representatives” of a Party means that Party’s agents, contractors, employees, officers, directors, consultants, and advisors; its Affiliates; and the agents, contractors, employees, officers, directors, consultants and advisors of its Affiliates, agents, contractors, consultants and advisors.

1.66		“Tax” means any and all of the following tax by any Governmental or Regulatory Authority in connection with the operations of either Party or its Affiliates or the transactions contemplated hereby: (i) any net income, alternative or add-on minimum tax, gross income, gross receipts, sales, use, ad valorem, transfer, franchise, profits, license, excise, severance, stamp, occupation, premium, property, environmental or windfall profit tax, custom, duty or other tax, governmental fee or other like assessment; (ii) any Obligation for the payment of any amounts of the type described in (i) above as a result of being a member of any affiliated, consolidated, combined, unitary or other group for any taxable period; and (iii) any Obligation for the payment of any amounts of the type described in (i) or (ii) above as a result of any express or implied obligation to indemnify any other person.

1.67		“Third Person” means a Person that is not a Party to this Agreement or an Affiliate of a Party to this Agreement.

1.68		“Transition Services Agreement” means that certain transition services agreement by and between Lilly and Advancis referred to in Section 8.3.

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

1.70		“United States Paraboloidal Capsule Trade Dress” means the United States registered trademark design for a paraboloidal capsule, registration number 732,393, registration date 06/05/1962.

1.71		“United States Pulvules ^® Trademark” means the United States registered trademark Pulvules ^® , registration number 144,210, registration date 06/28/1921.

ARTICLE 2
PAYMENTS

In consideration of (i) Lilly’s sale of Purchased Assets to Advancis as set forth in this Agreement and (ii) the licenses granted by Lilly to Advancis under the Licensed Technology and Licensed Trademark and Trade Dress, as set forth in this Agreement, Advancis will pay the following amounts to Lilly:

2.1		Advancis’s Payment Upon the Effective Date. On the Effective Date, Advancis will pay to Lilly the sum of Eleven Million United States Dollars (US$11,000,000) by Federal Reserve electronic wire transfer in immediately available funds to an account designated by Lilly (the “ Purchase Price ”).

2.2		Royalty Payment. Advancis will pay to Lilly a royalty equal to [*] per Calendar Year. Such royalty shall be payable on an Advancis New Product by Advancis New Product basis for [] following the [] for such Advancis New Product. Advancis will pay to Lilly the royalty attributable to [] made during a Calendar Quarter within forty five (45) days of the end of such Calendar Quarter. For purposes of this Agreement, a []. Within forty five (45) days of the end of each Calendar Quarter, Advancis will provide Lilly with a written report detailing the [] made during the previous Calendar Quarter. All payments to Lilly will be made by Advancis by wire transfer on or before its due date to an account designated by Lilly. Notwithstanding any provision to the contrary, Advancis shall not have any obligation to pay royalties with respect to [**] the first Advancis New Product.

2.3		Audits . Advancis will keep full and accurate books and records relating to the performance required of its obligations under this Agreement and its Net Sales. For any period in which Advancis is obligated to pay a royalty, Lilly will have the right, through an independent certified public accountant of Lilly’s choice and reasonably acceptable to Advancis, during regular business hours and upon reasonable advance notice, to audit such books and records of Advancis no more frequently than once per Calendar Year so as to verify the accuracy of the royalty payments. Such audit may cover the three (3) Calendar Years preceding the date of the request for such audit. The cost of such audit will be borne by Lilly; provided, however, in the event such audit reveals that the royalty payments previously made to Lilly are less than the properly calculated amount of royalty payments due hereunder by five percent (5%) or more, and any deficiency is greater than One Hundred Thousand Dollars ($100,000), then the reasonable costs of the audit will be borne by Advancis. Advancis will include in all sublicenses granted with respect to an Advancis New Product, and in any other agreements enabling a Third Person to be a Permitted Seller of an Advancis New Product, an audit provision substantially similar to the foregoing requiring such Permitted Seller to keep full and accurate books and records relating to Net Sales and granting Lilly the right, through an independent certified public accountant of

		Lilly’s choice and reasonably acceptable to Advancis, to audit the accuracy of the information reported by the sublicensee in connection therewith.

2.4		Late Payments . Any amounts not paid by Advancis when due under this Agreement or the Manufacturing Agreement will be subject to interest from and including the date payment is due through and including the date upon which Lilly has collected the funds in accordance herewith at a rate equal to the lesser of (i) the sum of five percent (5%) plus the prime rate of interest quoted in the Money Rates section of the Wall Street Journal , calculated daily on the basis of a three hundred sixty-five (365) day year, or (ii) the maximum interest rate allowed by law. Lilly may be paid accrued interest as a result of any breach by Advancis in the payment of royalty payments owed with respect to an Advancis New Product in the Territory, for the period of time that Advancis fails to pay Lilly any royalty payments so owed as provided in this Section 2.4.

ARTICLE 3
SALE AND PURCHASE; CLOSING; DELIVERABLES

3.1

Purchase and Sale of Purchased Assets to Advancis .

(a) Subject to the terms and conditions set forth herein and as provided in the bill of sale, a form of which is attached hereto as Exhibit B (“ Lilly Bill of Sale ”), on the Effective Date, Lilly shall, and shall cause its Certain Lilly Affiliates to, assign, sell, convey, transfer and deliver to Advancis, and Advancis shall purchase, acquire and accept from Lilly and its Certain Lilly Affiliates all of Lilly’s and its Certain Lilly Affiliates’ right, title and interest in, to and under the Purchased Assets, free and clear from all Encumbrances other than Permitted Encumbrances for the Purchase Price. Notwithstanding the foregoing, Lilly will be entitled to retain a copy of all or any portion of any document or record included in the Purchased Assets for archival purposes and for all purposes relating to Permitted Uses. In the event, following the Effective Date, that Lilly or Advancis discovers that any of the Purchased Assets was held at the time of Closing by Lilly or any Affiliate of Lilly and not transferred to Advancis at the Closing, Lilly will, at its own cost, transfer or cause the transfer thereof to Advancis as soon as is commercially practicable after such discovery.

(b) Notwithstanding the foregoing, Lilly and its Certain Lilly Affiliates’ assignment, sale, conveyance, transfer and delivery of the Assigned Trade Dress is restricted to the use of such trade dress with Cephalexin Products and nothing in this Agreement will be construed to restrict Lilly, its Affiliates or its licensees, assignees or successors from utilizing the Assigned Trade Dress in connection with any products other than Cephalexin Products.

(c) Lilly has advised Advancis that due to the age of the Marketed Products and the fact that they are no longer actively promoted by Lilly, Lilly may

have no currently utilized Marketing Material, and that any Marketing Materials used in the past may no longer exist or may be available only in Lilly archives that are not readily accessible. Accordingly, Lilly shall have no obligation to provide Advancis with copies of any Marketing Materials (other than the current package inserts). If Advancis identifies any Marketing Materials that it believes Lilly may still possess, which Marketing Material would be of significant value to Advancis, it may request Lilly to provide a copy thereof, in which case Lilly will make a good faith search of readily available records, and provide a copy of such Marketing Materials if located. It is understood that any such request should be an unusual event, and that Lilly makes no representation or warranty regarding the usefulness or appropriateness of any Marketing Materials.

3.2

Closing; Deliverables .

(a) The consummation of the transactions contemplated by this Agreement (the “Closing ”) shall take place on the Effective Date.

(b) At Closing, Lilly shall deliver or cause to be delivered to Advancis the following: (i) a duly executed Lilly Bill of Sale; (ii) the duly executed Manufacturing Agreement; (iii) the duly executed Transition Services Agreement; (iv) a duly executed Assignment of Copyrights; (v) a duly executed Assignment of Trademarks.

(c) At Closing, Advancis shall deliver to Lilly, the following: (i) cash in the aggregate amount of the Purchase Price; (ii) the duly executed Manufacturing Agreement; (iii) the duly executed Transition Services Agreement; (iv) a duly executed Assignment of Copyrights substantially in the form attached hereto as Exhibit C; and (v) a duly executed Assignment of Trademarks substantially in the form attached hereto as Exhibit D.

3.3

NDA Materials . Within sixty (60) days after the Effective Date, Lilly will deliver to Advancis by overnight mail, at Lilly’s expense, the NDA Materials in electronic media form and paper copy; provided that, at Closing, Lilly shall deliver to Advancis those portions of the NDA Materials reasonably requested by Advancis prior to Closing. Thereafter, if Advancis identifies any regulatory materials or Studies developed prior to the Effective Date and related to the Manufactured Products that were not included in the NDA Materials that it believes Lilly may possess, which materials or studies would be of significant value to Advancis, it may request Lilly to provide a copy thereof, in which case Lilly will make a good faith search of readily available records, and provide a copy of such materials or studies if located. It is understood that any such request should be an unusual event, and that Lilly makes no representation or warranty regarding the usefulness or appropriateness of any such materials or studies.

3.4

Sales Taxes . Advancis will be responsible for all sales, use, stamp duty, transfer, value added and other related or similar Taxes, if any, arising out of the sale by Lilly and its Certain Lilly Affiliates of the Purchased Assets to Advancis pursuant to this Agreement or payable in connection with the transactions contemplated hereby.

ARTICLE 4
ASSIGNMENT AND LICENSE OF RIGHTS

4.1		Grant of License to Advancis under Licensed Patents . Subject to the terms and conditions set forth herein, as of the Effective Date, Lilly hereby grants to Advancis, an irrevocable (subject to suspension in accordance with Section 10.1), fully-paid, royalty-free, exclusive license under the Licensed Patents, with a right to sublicense or assign such license rights in accordance with the terms of this Agreement, solely to research, develop, make, have made, distribute, use, sell, offer to sell, have sold, market, co-market, import, export, promote and co-promote Cephalexin Products in the Territory.

4.2		Grant of License to Advancis under Licensed Technology . Subject to the terms and conditions set forth herein, as of the Effective Date, Lilly hereby grants to Advancis, an irrevocable (subject to suspension in accordance with Section 10.1), fully-paid, royalty-free, non-exclusive license under the Licensed Technology, with a right to sublicense or assign such license rights in accordance with the terms of this Agreement, solely to research, develop, make, have made, distribute, use, sell, offer to sell, have sold, market, co-market, import, export, promote and co-promote Cephalexin Products in the Territory. In addition, should Advancis desire in the future to use the Licensed Technology for the purpose of manufacturing Cephalexin Products in a country outside the Territory for sale within the Territory, Advancis may so advise Lilly. Subject to any then existing licenses between Lilly and any Third Person, Lilly will, without further charge, grant to Advancis an irrevocable (subject to suspension in accordance with Section 10.1), fully-paid, royalty-free, non-exclusive license under the Licensed Technology, with a right to sublicense or assign such license rights in accordance with the terms of this Agreement, to make or have made Cephalexin Products in such country outside the Territory solely for selling, distributing, using, offering to sell, importing, marketing and promoting Cephalexin Products in the Territory. The provisions governing the transfer of the Licensed Technology and the materials comprising the Licensed Technology, as well as access to Lilly’s employees, are set forth in the Manufacturing Agreement, and such transfer shall not occur unless and until Advancis gives notice to Lilly.

4.3		Grant of License to Advancis Under Licensed Trademark and Trade Dress.

(a) Subject to the terms and conditions set forth herein, as of the Effective Date, Lilly hereby grants to Advancis, a fully-paid, royalty-free, non-

exclusive license under the Licensed Trade Mark and Trade Dress, solely to make, have made, distribute, use, sell, offer to sell, have sold, market, co-market, promote and co-promote the Product or Advancis New Product in the Territory.

(b) All uses by Advancis of the Licensed Trademark and Trade Dress will be in an appropriate manner, without jeopardizing the significance, distinctiveness or validity of the Licensed Trademark and Trade Dress; will use the designation “R” with the Licensed Trademark and Trade Dress which are registered trademarks and trade dress; will indicate that Pulvules® and the appearance of the paraboloidal capsule are registered trademarks of Lilly; and will only be in such form and manner as approved in writing by Lilly. All trademark and trade dress rights from Advancis’s use of the Licensed Trademark and Trade Dress will inure to the benefit of Lilly. Advancis will not contest or challenge the validity of, or Lilly’s ownership of, the Licensed Trademark and Trade Dress.

(c) All Product featuring any of the Licensed Trademark and Trade Dress must be manufactured, labeled, sold, distributed and advertised in accordance with the applicable specifications set forth in the relevant NDA and all Applicable Laws. If Lilly requests, once each Calendar Year, in order that Lilly can assure itself of the maintenance of the above-described quality standards, Advancis will: (i) provide to Lilly free of charge two (2) then-current production samples of each Product and Advancis New Product featuring any of the Licensed Trademark and Trade Dress (with then-current packaging) not manufactured by Lilly, and (ii) permit Lilly to inspect the manufacturing process for each Product and Advancis New Product not manufactured by Lilly featuring any of the Licensed Trademark and Trade Dress upon fifteen (15) days prior notice; provided that Advancis may require that Lilly personnel conducting such inspection be bound by appropriate confidentiality obligations to Advancis.

(d) Notwithstanding anything in this Section 4.3 to the contrary, the licenses under the Licensed Trademark and Trade Dress granted to Advancis pursuant to this Section 4.3 will not preclude Lilly or Certain Lilly Affiliates from carrying out activities within the scope of the licenses granted under Section 4.5.

(e) Notwithstanding anything in this Section 4.3 to the contrary, any license granted to Advancis under a Licensed Trademark and Trade Dress will terminate in the Territory upon the date that Advancis permanently ceases to make, have made, sell, have sold, use, market, promote, co-market and co-promote all Products and Advancis New Products that use such Licensed Trademark and Trade Dress in the Territory.

4.4

Sublicenses. The licenses granted herein by Lilly to Advancis pursuant to Sections 4.1, 4.2 and 4.3 may be freely sublicensed by Advancis, subject to the sublicensee’s compliance with the relevant obligations hereof with respect to such licensed rights, without any consent by Lilly; provided that (a) Advancis provides

		written notice of such sublicense or assignment to Lilly prior to granting such sublicense, (b) Advancis shall be liable to Lilly for any act or failure to act by the sublicensee but only to the extent that if such act of failure had been performed or not performed, as the case may be, by Advancis it would have been a breach of this Agreement; and (c) Advancis will remain liable for royalty payments as a result of Net Sales made by a Third Person pursuant to a sublicense or license permitted pursuant to this Section 4.4. The licenses granted herein by Lilly to Advancis pursuant to Sections 4.1, 4.2 and 4.3 may be sublicensed by Advancis without continuing liability to Lilly therefore only with the prior written consent of Lilly, which will not unreasonably be withheld.

4.5		Grant of License in Assigned Patents, Assigned Trademarks and Assigned Trade Dress to Lilly.

(a) Manufacturing Agreement. Subject to the terms and conditions set forth herein, as of the Effective Date, Advancis hereby grants to Lilly and to its Affiliates, for no additional consideration, a royalty-free, non-exclusive license, under the Assigned Patents, if any, and, as provided in the Manufacturing Agreement, under the Assigned Trademarks and Assigned Trade Dress with a right to sublicense, in the Territory, to manufacture, or to have manufactured, the Marketed Products for Advancis under the Manufacturing Agreement and otherwise fulfill its obligations thereunder.

(b) Domestic Manufacture for Export. Subject to the terms and conditions set forth herein, as of the Effective Date, Advancis hereby grants to Lilly and to Certain Lilly Affiliates, for no additional consideration, a non-exclusive, royalty-free license, with the right to sublicense, under the Assigned Patents to make or have made the Product inside the Territory solely for selling, distributing, using, offering to sell, importing, marketing and promoting the Product outside of the Territory.

(c) Termination. The license granted in Section 4.5(a) shall automatically terminate effective upon the termination of the Manufacturing Agreement. In the event that the Assigned Patents expire, terminate or otherwise become invalid, the licenses granted in Sections 4.5(a) and 4.5(b) shall automatically terminate with respect to such invalid Assigned Patents. Notwithstanding the foregoing grant of licenses to Lilly, Advancis shall have no obligation to Lilly to maintain the validity of the Assigned Patents.

4.6

Excluded Assets. Anything herein to the contrary notwithstanding, except as set forth in the Manufacturing Agreement, Advancis will have no right, title or interest in or to: (i) the trademarks “ELI LILLY AND COMPANY”; “LILLY” and “DISTA” and any variation thereof, and any other rights in or to such names; and (ii) any other asset of Lilly or its Affiliates not expressly transferred to Advancis pursuant to this Agreement.

4.7

Lilly Employee Health Services . Subject to and in accordance with Section 7.22, Lilly reserves the right, and the rights granted or licensed to Advancis are subject to Lilly’s right to utilize all Lilly Finished Product Health Services Supplies.

ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF LILLY

Lilly hereby represents and warrants to Advancis as of the date hereof, subject to the exceptions as are specifically disclosed in the schedules (referencing the appropriate Sections hereof) supplied by Lilly (the “ Lilly Disclosure Schedules ”), which Lilly Disclosure Schedules shall be deemed to be the representations and warranties of Lilly as if made herein, as follows:

5.1

Intellectual Property.

(a) Completeness. The (i) Assigned Copyrights, (ii) Assigned Trade Dress, (iii) Assigned Trademarks, (iv) Licensed Technology, (v) Licensed Patents and (vi) Licensed Trademark and Trade Dress (collectively, the “ Intellectual Property ”) includes all intellectual property rights owned by Lilly and used by Lilly in the conduct the Activities in the Territory on or before the Effective Date. The foregoing sentence shall not constitute a representation or warranty by Lilly that conduct of the Activities will not infringe the Intellectual Property rights of Third Persons.

(b) Trademarks. To the knowledge of Lilly, without investigation, Schedule 1.11 identifies all registrations in the Territory of the Assigned Trademarks. To the knowledge of Lilly, without investigation, Lilly does not own any domain name registrations comprised, in whole or in part, of the Assigned Trademarks. Except as identified on Schedule 5.1(b) , to the knowledge of Lilly, without investigation, there are no domain name registrations incorporating the Assigned Trademarks, in whole or in part.

(c) Ownership. Except as described in Schedule 5.1(c) , Lilly solely and exclusively owns or will own, as of the Effective Date, free and clear of all Encumbrances (other than Permitted Encumbrances), the Assigned Intellectual Property and the Licensed Patents

(d) Maintenance.

(i) All payments and filings due as of the Effective Date with respect to the registrations and applications relating to the Assigned Intellectual Property have been duly made. Lilly has provided to Advancis complete copies of all registrations and applications relating to the Assigned Patents and the Licensed Patents.

(ii) Except as set forth in Schedule 5.1(d) , none of the Assigned Intellectual Property or the Licensed Patents has been abandoned, canceled or adjudicated invalid or, to the knowledge of Lilly, without investigation, is subject to any outstanding order, judgment or decree restricting its use or adversely affecting Lilly’s rights or is subject to any challenge or opposition.

(iii) Except as identified on Schedule 5.1(d) , to the knowledge of Lilly, without investigation, none of the Assigned Intellectual Property or the Licensed Patents is currently being infringed by any Third Person. Lilly has not given any notice within the two (2) years prior to the Effective Date to any Third Persons, asserting infringement by such Third Persons upon any of the Assigned Intellectual Property or the Licensed Patents.

(e) Non-infringement.

(i) No claims are pending or, to the knowledge of Lilly, threatened against Lilly or any of its Affiliates by any Third Person with respect to the ownership, validity, enforceability, or effectiveness, of any Assigned Intellectual Property or the Licensed Patents.

(ii) To the knowledge of Lilly, without investigation, as of the Effective Date, there are no patents, trademarks, trade names or copyrights or any other proprietary rights of any Third Person that would be infringed by the manufacture, use or sale of the Products in the Territory.

(f) Exception. Notwithstanding anything in this Agreement to the contrary, Lilly makes no representation or warranty as to the validity, enforceability, or non-infringement of the Assigned Copyrights or the Assigned Trade Dress, and is transferring the same to Advancis “As Is”.

5.2

NDAs; Regulatory Matters.

(a) Lilly has furnished Advancis with access to a complete and accurate copy of the NDAs, including all amendments and supplements thereto, and has provided Advancis wi

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