ASSET PURCHASE AGREEMENT (KEFLEX)

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:

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     (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

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

     (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

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     (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.

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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.

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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:

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ARTICLE 3
SALE AND PURCHASE; CLOSING; DELIVERABLES

     (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

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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.

     (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.

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ARTICLE 4
ASSIGNMENT AND LICENSE OF RIGHTS

     (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-

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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.

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     (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.

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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:

     (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.

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          (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”.

     (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 with a full and adequate opportunity to review and evaluate the NDAs and their regulatory status.

     (b) (i) Lilly has complied in all material respects with all Applicable Laws in connection with the preparation and submission to the FDA of each of the NDAs, and with their maintenance, and (ii) each of the NDAs has been approved by the FDA, and, except with respect to the Discontinued Products NDAs, nothing has come to the attention of Lilly which has led Lilly to believe that any

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of the NDAs are not in good standing with the FDA.

     (c) All of the NDAs are owned exclusively by Lilly or Certain Lilly Affiliates.

     (d) There is no Action or Proceeding by any Governmental or Regulatory Authority pending or, to the knowledge of Lilly, as of the Effective Date, threatened, seeking the revocation or suspension of any regulatory approval relating to the sale of any Marketed Product in the Territory and, to the knowledge of Lilly, there is no basis for such an Action or Proceeding.

     (a) 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 Agreement, or any agreement, document or instrument

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contemplated by this Agreement, is necessary or required for the performance by Lilly of its obligations contemplated hereby and thereby other than (i) the information submissions required of a former owner of the NDAs pursuant to 21 C.F.R. § 314.72, (ii) any filings reasonably requested by Advancis as may be necessary to change the records of ownership in the U.S. Patent and Trademark or the U.S. Copyright Office.

     (b) Neither the execution and delivery of this Agreement or any agreement, document or instrument contemplated by this Agreement, nor the performance by Lilly or its Certain Lilly Affiliates of its obligations hereunder or thereunder will (i) violate the certificate of incorporation, by-laws or other organizational document of Lilly, (ii) conflict with or result in a violation or breach of, or constitute a default under, any Contract, agreement or instrument to which Lilly is a party or by which Lilly or its Certain Lilly Affiliates or the Purchased Assets are bound, or result in the creation or imposition of any Encumbrance upon any of the Purchased Assets or (iii) violate or conflict with any Applicable Law, applicable to Lilly, its Certain Lilly Affiliates or the Purchased Assets, except in the case of clauses (ii) and (iii) for violations, breaches or defaults which would not result in a Material Adverse Effect, or have a material adverse effect on Lilly’s ability to consummate the transactions contemplated hereby or materially delay the consummation of the transactions contemplated hereby.

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     (a) Lilly, on the Effective Date, will solely own and have good and marketable title to the Purchased Assets, free and clear of any Encumbrances other than Permitted Encumbrances, and will have the legal right and ability to transfer the Purchased Assets to Advancis.

     (b) Upon consummation of the transactions contemplated herein and any agreement, document or instrument contemplated by this Agreement, Advancis shall acquire good title to, and all right, title and interest of Lilly and its Certain Lilly Affiliates in and to the Purchased Assets, free and clear of all Encumbrances, other than Permitted Encumbrances.

     (c) Lilly has not granted any rights or licenses that are inconsistent with the rights and licenses granted to Advancis under this Agreement, and Lilly has the right to grant and has validly granted the rights and licenses granted to Advancis under this Agreement.

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ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF ADVANCIS

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

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ARTICLE 7
ADDITIONAL COVENANTS AND AGREEMENTS
OF THE PARTIES

     (a) Advancis agrees and acknowledges that, as owner of the NDAs, Advancis, and not Lilly, 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 user fees, and medical and technical inquiries. Lilly and Advancis each will keep all records and reports 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.

     (b) During the term of the Manufacturing Agreement and for two (2) years thereafter, Lilly and Advancis each will notify the other within twenty-four

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(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 Marketed 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.

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     (a) In accordance with the Transition Services Agreement, Lilly shall notify all wholesalers and distributors of the Product in the Territory of the transfer of the Purchased Assets to Advancis and the change in the distribution of

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the Product. Such notification shall be in a writing substantially similar to Exhibit E attached hereto (the “Notification Letter”).

     (b) Subject to the Transition Services Agreement, Lilly will take such steps as may be reasonably required to insure that all customer orders for Product received after the Effective Date from customers in the Territory are forwarded to Advancis in writing within forty-eight (48) hours after receipt by Lilly. Lilly agrees that any customer in the Territory ordering or requesting any information with respect to the Product after the Effective Date will be informed that Advancis is now supplying the Product. As soon as practicable after the Effective Date, Lilly will send a letter to applicable Lilly customers notifying them of the change in the distribution of the Product.

     (a) Sales of Marketed Product Under Lilly’s NDC Code. Lilly will process and be responsible for the administration and initial payment of all

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federal, state and local managed care and other rebate programs, including Medicaid/Medicare rebates, as well as chargebacks for the Product (collectively, “Rebate Programs”), in each case, related to Marketed Product sold under a Lilly label bearing Lilly’s NDC code, regardless of whether such Marketed Product was sold by Lilly, Advancis or any of their respective permitted sellers. As of the Effective Date, Advancis will be financially responsible for the cost of Rebate Programs relating to such sales of Product by Advancis under a Lilly label bearing Lilly’s NDC code on or after the Effective Date, and Advancis shall reimburse Lilly for all costs of Rebate Programs relating to such sales of Product on and after the Effective Date. Lilly will invoice Advancis as soon as these costs are reasonably known for each calendar Quarter, and Advancis agrees to pay this invoice within 30 days. The financial responsibility for the Calendar Quarter that includes the Effective Date will be prorated based on the number of days prior to and after the Effective Date.

     (b) Sales of Product Under an NDC Code Other Than Lilly’s. Advancis will process and be responsible for the administration and payment of all costs of Rebate Programs related to Product that is not sold under a Lilly label bearing Lilly’s NDC Code that is sold by Advancis on or after the Effective Date.

     (c) Product Returns. In the case of any returned Marketed Product bearing a Lot Number that was partially sold by Lilly and partially sold by Advancis (“Partial Lots”), responsibility for Product returns will be apportioned in accordance with Schedule 5.13.:

          1) Advancis will be responsible for all returns of Product and Advancis New Products sold by Advancis or its Affiliates on or after the Effective Date in the Territory,

          2) Lilly will be responsible for all returns of Marketed Product sold before the Effective Date and

          3) In the case of any returned Marketed Product bearing a Lot Number that was partially sold by Lilly and partially sold by Advancis (“Partial Lots”), responsibility will be apportioned by the percentage of the Partial Lot that was originally sold by Lilly or Advancis.

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of doubt: (a) the foregoing right of reference does not include any right to reference any supplements to the NDAs that may be made by Advancis or any other regulatory approvals citing to the NDAs that may be obtained by Advancis and (b) no provision in this Agreement nor any agreement or instrument contemplated by this Agreement limits Advancis’ rights to use the NDAs, including any data, studies or other materials incorporated in the NDAs, for any purpose whether inside or outside the Territory. Notwithstanding the foregoing grant of rights to Lilly and any other provision of this Agreement, Advancis shall have no obligation to Lilly to maintain the NDAs.

     (a) Notice. Advancis will promptly notify Lilly of any infringement or suspected infringement which may come to its notice of any Licensed Patents, Licensed Technology or the Licensed Trademark and Trade Dress, and will provide Lilly with any information with respect thereto. Lilly will promptly notify Advancis of any infringement or suspected infringement which may come to its notice of any intellectual property rights relating to the Product in the Territory, including the Assigned Intellectual Property, Licensed Patents, Licensed Technology, or the Licensed Trademark and Trade Dress, and will provide Advancis with any information with respect thereto.

     (b) Advancis Rights. In the event of any past, present or future infringement by a Third Person of any intellectual property rights relating to Assigned Intellectual Property (only as it relates to an infringement in the Territory), Licensed Patents (only as it relates to infringement thereof of a Product in the Territory) or NDAs, Advancis will have the sole right (but no obligation) to pursue any and all injunctive relief, and any or all compensatory and other remedies and relief (collectively, “Remedies”) against such Third Person.

     (c) Advancis Additional Rights. In the event of any infringement by a Third Person in the Territory of the Licensed Technology or Licensed Trademark and Trade Dress, Advancis will have the first right (but not the obligation) to pursue any and all Remedies against such Third Person. Should Advancis determine not to purpose Remedies with respect to any such licensed intellectual

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property within thirty (30) days after notice from Lilly requesting Advancis to do so, then Lilly will have the right (but not the obligation) to pursue Remedies against such Third Person.

     (d) Assistance and Cooperation. In the event that a Party will pursue Remedies hereunder, the other Party will use all reasonable efforts to assist and cooperate with the Party pursuing such Remedies. Each Party will bear its own costs and expenses relating to such pursuit, up to an aggregate of out of pocket cost of $100,000 and 200 person hours. Any damages or other amounts collected will be distributed, first, to the Party that pursued Remedies to cover its costs and expenses and, second, to the other Party to cover its costs and expenses, if any, relating to the pursuit of such Remedies; any remaining amount will be distributed to the Party that pursued the Remedies.

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Advancis, at Advancis’ expense, audited financial statements with respect to the Products in the Territory for the required periods which are compliant with the rules and regulations of the SEC and will specifically include net sales and gross margin of the Marketed Products in the Territory (the “Financial Statements”). Advancis will pay the cost of the Financial Statements. The audit of the Financial Statements will be performed by Ernst & Young LLP, Lilly’s independent certified public accountant, and Lilly will deliver the Financial Statements at a mutually agreeable time, which shall be within sixty (60) days of the Effective Date.

          (a) Based upon a review of readily available internal records, Lilly believes that there exists only three (3) related Preexisting Agreements: one (1) that relates to Lilly’s manufacture for a Third Person of non-Keflex branded Marketed Product for sale in the United States and two (2) that relate to the sale in the United States of such product so manufactured. However, Lilly has advised Advancis that other Preexisting Agreements may in fact exist.

          (b) Notwithstanding any other provision of this Agreement to the contrary, Advancis agrees that (i) the existence of any Preexisting Agreement shall not constitute a violation of any representation or warranty of Lilly, (ii) that the fulfillment by Lilly of its obligations under the Preexisting Agreements are a Permitted Use and shall not constitute a violation of any provision of this Agreement and (iii) Advancis shall permit any beneficiary of a Preexisting Agreement to continue to reference the Marketed Product NDA after the Effective Date in substantially the same manner and for the same period of time as Lilly was obligated to permit such reference.

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          (c) Nothing in this Section 7.23 shall limit Advancis’s rights to indemnification for Preexisting Agreement Claims pursuant to Section 12.1.

          (d) Based upon the information available to Lilly as of the Effective Date, Lilly believes the three Preexisting Agreements, specifically referenced in subsection (a) above, will expire prior to approximately the end of 2005. Lilly shall not enter any new Preexisting Agreements. Lilly shall take commercially reasonable efforts to terminate the Preexisting Agreements as soon as reasonably possible, which efforts shall not require the payment of money by Lilly but shall include providing notice of termination at the earliest time possible and preventing the operation of any automatic renewal provisions.

7.24 Certain Agreements relating to [***]. Lilly agrees that prior to the [***] anniversary of the Effective Date it will not enter into any agreement relating to the sale, license or other disposition by Lilly of its rights to the trade name [***] in the United States or the U.S. NDA relating to such product [***] without the prior written consent of Advancis. If following the [***] anniversary of the Effective Date, but before the [***] anniversary of the Effective Date, Lilly determines that it desires to sell, license or otherwise dispose of the [***], it shall, prior to engaging in negotiations with any other party, notify Advancis in writing of its desire to sell. Advancis shall have [***] from the date of receipt of such notice to advise Lilly that it desires to negotiate in good faith the terms upon which Lilly would be willing to sell the [***] to Advancis. If Advancis notifies Lilly that it desires to engage in such negotiations, then Lilly and Advancis shall negotiate in good faith on an exclusive basis for a period of [***] in an effort to reach mutually acceptable and commercially reasonable agreement, which period may be extended by agreement of the parties. If Advancis fails to notify Lilly of its desire to negotiate within the [***] period, or if at the end of such [***] period the Parties have not reached a mutually acceptable agreement, then Lilly shall have no further obligation to Advancis with respect to the [***].

ARTICLE 8
TRANSITION SERVICES COVENANTS

     8.1 Implementation Team. The Parties will form a team (the “Implementation Team”) to oversee the activities contemplated by this Agreement, the Manufacturing Agreement and the Transition Services Agreement. The Implementation Team will be comprised of three (3) members from each Party. Each Party will appoint a team leader to provide overall contract and relationship management and such team leader will appoint a member representing each of such Party’s manufacturing, marketing/sales and regulatory components. Either Party may change its representative(s) on the Implementation Team at any time by providing prior written notice to the other Party. Unless otherwise agreed to by the Parties, after the Effective Date, the Implementation Team will meet (in person or by telephone or video conference) at least one (1) time each Calendar Quarter upon no less than thirty (30) days prior written notice from one Party to

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the other to discuss any matters arising out of a Party’s performance (or non-performance) of its obligations under this Agreement. The Implementation Team will initially be responsible for creating detailed operational plans for the transition contemplated by this Agreement. The detailed operational plans will include a time line and clear understanding of roles and responsibilities contemplated by this Agreement. The Implementation Team will also have responsibility for coordinating effective communication of progress and issues that arise between the Parties. Special meetings of the Implementation Team may be called by either Party upon no less than thirty (30) days’ prior written notice to the other Party, which notice must be accompanied by a written agenda of items to be discussed at such special meeting. No more than three (3) special meetings shall be held unless the Parties agree otherwise. Each Party will bear its own expenses with respect to such Party’s participation on the Implementation Team. Minutes of meetings will be kept and promptly circulated for approval. The Implementation Team will disband on the first Anniversary of this Agreement, unless the Parties agree to continue the duties of the Implementation Team.

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ARTICLE 9
CONFIDENTIALITY

     (a) made in response to a valid order or subpoena of a court of competent jurisdiction or other governmental body of a country or any political subdivision thereof of competent jurisdiction; provided, however, that the Receiving Party will first have given notice to the Disclosing Party and given the Disclosing Party a reasonable opportunity to quash such order or subpoena and to obtain a protective order requiring that the Confidential Information and documents that are the subject of such order or subpoena be held in confidence by such court or governmental body or, if disclosed, be used only for purposes for which the order or subpoena was issued; provided further, however, that if a disclosure order or subpoena is not quashed or a protective order is not obtained, the Confidential Information disclosed in response to such court or governmental order or subpoena will be limited to that information which is legally required to be disclosed in such response to such court or governmental order or subpoena;

     (b) otherwise as required by law, in the opinion of legal counsel to the Receiving Party, as expressed in an opinion letter in form and substance reasonably satisfactory to the Disclosing Party, which will be provided to the Disclosing Party at least twenty-four (24) hours prior to the Receiving Party’s disclosure of the Confidential Information pursuant to this Section 9.2;

     (c) made by Advancis as the Receiving Party to the Governmental or Regulatory Authority as required to obtain or maintain marketing approval for the Product or an Advancis New Product, provided that reasonable measure will be taken to assure confidential treatment of such information;

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     (d) made by Lilly as Receiving Party to a Third Person as may be necessary or useful in connection with the activities of Lilly following the Effective Date within the scope of the Permitted Uses during the remaining term thereof or made by Advancis as the Receiving Party in connection with the activities of Advancis, its Affiliates and contractors in the manufacture or development and commercialization of Product, or in connection with the granting of a license under or permitted assignment of this Agreement or to the extent reasonably required in connection with a proposed merger, consolidation or sale of assets, or selling or purchase of equity, or loan or other financing, provided that the Receiving Party will in each case use its commercially reasonable efforts to obtain from the proposed Third Person recipient a written confidentiality agreement containing confidentiality obligations no less onerous than those set forth in this Section;

     (e) made by the Receiving Party to a United States or foreign tax authority;

     (f) made by the Receiving Party to its Representatives; provided, however, that (i) the Representative has a need to know such Confidential Information for purposes of this Agreement, the Manufacturing Agreement or the Transition Services Agreement; (ii) the Receiving Party informs its Representatives receiving Confidential Information of its confidential nature; and (iii) the Receiving Party will be responsible for any breach of this Article 9 by any of its Representatives to the same extent as if the breach were by the Receiving Party; or

     (g) by Advancis with respect to the Financial Statements and Confidential Information pertaining to the Products that is required, in the opinion of Advancis’ outside SEC counsel, to be included in legally required filings or disclosures with the Securities and Exchange Commission.

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otherwise limited pursuant to Article 12, below, the rights provided in the immediately preceding sentences will be cumulative and in addition to any other rights or remedies that may be available to Disclosing Party. Nothing in this Section is intended, or should be construed, to limit a Party’s right to preliminary and permanent injunctive relief or any other remedy for a breach of any other provision of this Agreement.

ARTICLE 10
REMEDIES

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ARTICLE 11
ASSUMPTION OF LIABILITIES BY ADVANCIS

     Except as otherwise specifically provided in this Agreement or to the extent that any of the following is an Excluded Liability, Advancis hereby assumes and agrees, in each case as of the Effective Date, to bear and be responsible for and to perform and satisfy all responsibilities, duties (including compliance with all Applicable Laws), obligations, claims, Damages, liabilities, debts, burdens and problems of any nature whatsoever (whether known or unknown, asserted or unasserted, absolute or contingent, accrued or unaccrued, liquidated or unliquidated, matured or unmatured, determinable or undeterminable and due or to become due) (collectively, the “Obligations”) to the extent arising following the Effective Date from Advancis’s ownership, licensing, operation and/or use of the Assigned Intellectual Property, the Licensed Trademark and Trade Dress, the NDAs, Books and Records and the Licensed Technology, as well as those associated directly or indirectly with the manufacturing, distributing, marketing, promoting, selling or using the Products or Advancis New Products from and after the Effective Date, including all recalls, arising in connection with Product sold on or after the Effective Date, except for those Obligations with respect to which Lilly is providing indemnification pursuant to the provisions of Section 12.1 of this Agreement, which Obligations will remain the responsibility of Lilly. In addition, Advancis shall assume all liability for all claims arising from use of Products or Advancis New Products (without regard to the nature of the causes of action alleged or theories of recovery asserted (“Product Liability Claims”) sold by Advancis on and after the Effective Date, subject to Lilly’s representations, warranties and covenants relating to the manufacture of Products for Advancis. All of the foregoing are hereinafter collectively referred to as the “Assumed Liabilities.” Notwithstanding the foregoing, Advancis will not be deemed to, and does not, assume the Excluded Liabilities.

ARTICLE 12
INDEMNIFICATION; INSURANCE

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     (a) any breach of any representation or warranty made by Lilly in this Agreement, the Manufacturing Agreement, the Transition Services Agreement, or in any other document delivered in connection herewith or therewith;

     (b) any failure to perform duly and punctually any covenant, agreement or undertaking on the part of Lilly contained in this Agreement, the Manufacturing Agreement, or the Transition Services Agreement;

     (c) Lilly’s and its Affiliates’ conduct of Activities prior to the Effective Date;

     (d) any Excluded Liabilities;

     (e) the negligence, willful misconduct or illegal acts of Lilly or its Affiliates; and

     (f) any Preexisting Agreement Claim.

Notwithstanding the foregoing, Lilly shall have no obligation to indemnify Advancis for any Product Liability Claim, except as may be provided for in the Manufacturing Agreement with respect to Marketed Product manufactured by Lilly for sale by Advancis.

     (a) any breach of any representation or warranty made by Advancis in this Agreement, the Manufacturing Agreement, or the Transition Services Agreement or in any other document delivered in connection herewith or therewith;

     (b) any failure to perform duly and punctually any covenant, agreement or undertaking on the part of Advancis contained in this Agreement, the Manufacturing Agreement, or the Transition Services Agreement;

     (c) any Assumed Liabilities; and

     (d) the negligence, willful misconduct or illegal acts of Advancis or its Affiliates.

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     (a) Promptly after receipt by a Party hereto of notice of any claim which could give rise to a right to indemnification pursuant to Section 12.1 or 12.2, such Party (the “Indemnified Party”) will give the other Party (the “Indemnifying Party”) written notice describing the claim in reasonable detail. The failure of an Indemnified Party to give notice in the manner provided herein will not relieve the Indemnifying Party of its obligations under this Article 12, except to the extent that such failure to give notice materially prejudices the Indemnifying Party’s ability to defend such claim (except that the Indemnifying Party shall not be liable for any expenses incurred during the period in which the Indemnified Party failed to give such notice). Thereafter, the Indemnified Party shall promptly deliver to the Indemnifying Party after the Indemnified Party’s receipt thereof, copies of all notices and documents (including court papers) received by the Indemnifying Party relating to the Third Person Claim.

     (b) The Indemnifying Party will have the right, at its option, to compromise or defend, at its own expense and by its own counsel, any such matter involving the asserted liability of the Party seeking such indemnification. If the Indemnifying Party undertakes to compromise or defend any such asserted liability, it will promptly (and in any event not more than thirty (30) business days after receipt of the Indemnified Party’s original notice) notify the Indemnified Party in writing of its intention to do so, and the Indemnified Party agrees to cooperate fully with the Indemnifying Party and its counsel in the compromise or defense against any such asserted liability, provided that the Indemnified Party is not obligated to disclose legally privileged documents or information in such cooperation. All reasonable costs and expenses incurred in connection with such cooperation will be borne by the Indemnifying Party. If the Indemnifying Party elects not to compromise or defend the asserted liability, fails to timely notify the Indemnified Party of its election to compromise or defend as herein provided, fails to admit its obligation to indemnify under this Agreement, the Manufacturing Agreement, or the Transition Services Agreement with respect to the claim, or, if in the reasonable opinion of the Indemnified Party, the claim could result in the Indemnified Party becoming subject to injunctive relief or relief (other than the payment of money damages) that could materially adversely affect the ongoing business of the Indemnified Party, the Indemnified Party will have the right, at its option, to pay, compromise or defend such asserted liability by its own counsel and its reasonable costs, expenses, and any payment made therewith will be included as part of the indemnification obligation of the Indemnifying Party hereunder, where such indemnification obligation exists hereunder. Notwithstanding the foregoing, neither the Indemnifying Party nor the Indemnified Party may settle, compromise or admit liability for any claim without consent of the other where such settlement, compromise or admission would impose injunctive obligations on the non-settling or non-compromising Party or any Damages on the non-settling or non-compromising Party that are not subject to indemnification hereunder; provided, however, that consent to settlement or compromise will not be unreasonably withheld. In any event, the Indemnified

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Party and the Indemnifying Party may participate, at their own expense (or at the Indemnifying Party’s expense, in the circumstances described above (i.e., if the Indemnifying Party elects not to compromise or defend the asserted liability where such indemnification obligation exists hereunder)), in the defense of such asserted liability. If the Indemnifying Party chooses to defend any claim, the Indemnified Party will make available to the Indemnifying Party any non-privileged books, records or other documents within its control that are necessary or appropriate for such defense; provided, however, any such books, records or other documents within the control of the Indemnified Party which are made available to the Indemnifying Party hereunder will be held in strict confidence by the Indemnifying Party (except to the extent disclosure is reasonably necessary for the defense of such claim) and will be disclosed by the Indemnified Party to the Indemnifying Party only to the extent that such books, records or other documents relate to the claim.

     (c) Notwithstanding anything to the contrary in this Section 12.3, (i) the Party conducting the defense of a claim will (A) keep the other Party informed on a reasonable and timely basis as to the status of the defense of such claim (but only to the extent such other Party is not participating jointly in the defense of such claim), and (B) conduct the defense of such claim in a prudent manner, and (ii) to the extent the Indemnifying Party has elected to defend a claim, the Indemnifying Party will not cease to defend such claim without the prior written consent of the Indemnified Party (which consent will not be unreasonably withheld).

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AGREEMENT OR THE PERFORMANCE OF, OR THE FAILURE TO PERFORM, ANY OBLIGATION(S) SET FORTH HEREIN.

ARTICLE 13
MISCELLANEOUS

     (a) This 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 merger or consolidation in which the assuming party is not the surviving party, neither may only assign this Agreement without the other party’s prior

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written consent, which may not be unreasonably withheld, for assignments wherein the assigning party does not remain liable for the assignee’s performance hereunder.

If to Lilly, as follows:

Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Facsimile: (317)  ###-###-####
Attn: Executive Vice President, Pharmaceutical Products

With a copy to:

Eli Lilly and Company
Lilly Corporate Center
Indianapolis, Indiana 46285
Facsimile: (317)  ###-###-####
Attn: General Counsel

If to Advancis, as follows:

Advancis Pharmaceutical Corporation
20425 Seneca Meadows Parkway
Germantown, Maryland 20876
Facsimile: (301)  ###-###-####
Attn: Kevin S. Sly, Chief Business Officer

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With copies to:

Piper Rudnick LLP
6225 Smith Avenue
Baltimore, MD ###-###-####
Facsimile: (410)  ###-###-####
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 13.2 by any Party hereto to the other Party.

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[SIGNATURE PAGES FOLLOW]

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Exhibit 2.1

EXECUTION COPY

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

Signature Page to Asset Purchase Agreement