Manufacturing Services Agreement Between Patheon Pharmaceuticals Inc. And Critical Therapeutics, Inc.

Confidential Materials omitted and filed separately with the


Securities and Exchange Commission. Asterisks denote omissions.


MANUFACTURING SERVICES AGREEMENT


BETWEEN


PATHEON PHARMACEUTICALS INC.


AND


CRITICAL THERAPEUTICS, INC.


JUNE 28, 2005


TABLE OF CONTENTS ARTICLE 1.................................................................. 1


INTERPRETATION............................................................. 1
1.1 DEFINITIONS. ................................................... 1
1.2 CURRENCY........................................................ 4
1.3 SECTIONS AND HEADINGS........................................... 4
1.4 SINGULAR TERMS.................................................. 5
1.5 SCHEDULES....................................................... 5


ARTICLE 2.................................................................. 5


PATHEON'S MANUFACTURING SERVICES........................................... 5
2.1 MANUFACTURING SERVICES.......................................... 5
2.2 STANDARD OF PERFORMANCE......................................... 6


ARTICLE 3.................................................................. 8


CLIENT'S OBLIGATIONS....................................................... 8
3.1 PAYMENT. ....................................................... 8
3.2 ACTIVE MATERIAL................................................. 8


ARTICLE 4.................................................................. 9


CONVERSION FEES AND COMPONENT COSTS........................................ 9
4.1 FIRST YEAR PRICING. ............................................ 9
4.2 SUBSEQUENT YEARS' PRICING. ..................................... 9
4.3 ADJUSTMENTS TO PRICING. ........................................ 10
4.4 ADJUSTMENTS DUE TO TECHNICAL CHANGES. .......................... 12
4.5 MULTI-COUNTRY MANUFACTURING AND PACKAGING REQUIREMENTS. ........ 12


ARTICLE 5.................................................................. 12


ORDERS, DELIVERY, INVOICING, PAYMENT, PRODUCT DEFICIENCIES................. 12
5.1 ORDERS AND FORECASTS............................................ 12
5.2 RELIANCE BY PATHEON. ........................................... 13
5.3 MINIMUM ORDERS. ................................................ 15
5.4 SHIPMENTS. ..................................................... 15
5.5 LATE SHIPMENT AND SHELF LIFE.................................... 15
5.6 INVOICES AND PAYMENT............................................ 16


ARTICLE 6.................................................................. 17


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PRODUCT CLAIMS AND RECALLS................................................. 17
6.1 PRODUCT CLAIMS. ................................................ 17
6.2 PRODUCT RECALLS AND RETURNS..................................... 18
6.3 DISPOSITION OF DEFECTIVE OR RECALLED PRODUCTS................... 19
6.4 CUSTOMER QUESTIONS AND COMPLAINTS. ............................. 19
6.5 SOLE REMEDY..................................................... 20


ARTICLE 7.................................................................. 20


CO-OPERATION............................................................... 20
7.1 QUARTERLY REVIEW................................................ 20
7.2 GOVERNMENTAL AGENCIES. ......................................... 20
7.3 RECORDS AND ACCOUNTING BY PATHEON. ............................. 20
7.4 INSPECTION. .................................................... 21
7.5 ACCESS. ........................................................ 21
7.6 REPORTS......................................................... 21
7.7 FDA FILINGS..................................................... 21
7.8 TECHNOLOGY TRANSFERS............................................ 23


ARTICLE 8.................................................................. 23


TERM AND TERMINATION....................................................... 23
8.1 INITIAL TERM.................................................... 23
8.2 TERMINATION BY PATHEON OR CLIENT. .............................. 23
8.3 TERMINATION FOR CAUSE........................................... 23
8.4 PRODUCT DISCONTINUATION. ....................................... 24
8.5 OBLIGATIONS ON TERMINATION. .................................... 24


ARTICLE 9.................................................................. 25


REPRESENTATIONS, WARRANTIES AND COVENANTS.................................. 25
9.1 AUTHORITY. ..................................................... 25
9.2 NON-INFRINGEMENT................................................ 25
9.3 DEBARRED PERSONS................................................ 26
9.4 PERMITS......................................................... 26
9.5 COMPLIANCE WITH LAWS............................................ 26
9.6 NO WARRANTY..................................................... 26


ARTICLE 10................................................................. 26


REMEDIES AND INDEMNITIES................................................... 26
10.1 CONSEQUENTIAL DAMAGES........................................... 26
10.2 LIMITATION OF LIABILITY......................................... 27


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10.3 PATHEON. ....................................................... 27
10.4 CLIENT.......................................................... 27


ARTICLE 11................................................................. 28


CONFIDENTIALITY............................................................ 28


ARTICLE 12................................................................. 29


DISPUTE RESOLUTION......................................................... 29
12.1 COMMERCIAL DISPUTES. ........................................... 29
12.2 TECHNICAL DISPUTE RESOLUTION. .................................. 29


ARTICLE 13................................................................. 30


MISCELLANEOUS.............................................................. 30
13.1 INVENTIONS...................................................... 30
13.2 INTELLECTUAL PROPERTY........................................... 31
13.3 INSURANCE. ..................................................... 31
13.4 INDEPENDENT CONTRACTORS......................................... 31
13.5 NO WAIVER....................................................... 31
13.6 ASSIGNMENT...................................................... 31
13.7 FORCE MAJEURE................................................... 32
13.8 ADDITIONAL PRODUCT. ............................................ 32
13.9 NOTICES......................................................... 32
13.10 SEVERABILITY.................................................... 33
13.11 ENTIRE AGREEMENT................................................ 34
13.12 OTHER TERMS..................................................... 34
13.13 NO THIRD PARTY BENEFIT OR RIGHT. ............................... 34
13.14 EXECUTION IN COUNTERPARTS. ..................................... 34
13.15 GOVERNING LAW. ................................................. 35


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MANUFACTURING SERVICES AGREEMENT


THIS MANUFACTURING SERVICES AGREEMENT (THE "AGREEMENT") made as of the 22 day of June, 2005


BETWEEN:


PATHEON PHARMACEUTICALS INC.,
a corporation existing under the laws of the State of Delaware,


(hereinafter referred to as "PATHEON"),


- and -


CRITICAL THERAPEUTICS, INC.,
a corporation existing under the laws of the State of Delaware,


(hereinafter referred to as the "CLIENT").


THIS AGREEMENT WITNESSES THAT in consideration of the rights conferred and the obligations assumed herein, and for other good and valuable consideration (the receipt and sufficiency of which are acknowledged by each party), and intending to be legally bound the parties agree as follows:


ARTICLE 1


INTERPRETATION


1.1 DEFINITIONS.


The following terms shall, unless the context otherwise requires, have the respective meanings set out below and grammatical variations of such terms shall have corresponding meanings:


"ACTIVE MATERIAL" means the compound
1-(1-benzo[b]thien-2-ylethyl)-1-hydroxyurea, also known as zileuton;


"ACTIVE MATERIAL REIMBURSEMENT VALUE" means the value to be attributed to
the Active Material for the purposes of Section 2.3 of this Agreement, as
set forth in Schedule D hereto;


"AFFILIATE" means:


(a) a business entity which owns, directly or indirectly, a majority
interest in a party to this Agreement, by stock ownership or
otherwise; or


(b) a business entity at least 50% of which is owned by a party to this
Agreement, either directly or indirectly, by stock ownership or
otherwise; or


(c) a business entity, the majority ownership of which is directly or
indirectly common to the majority ownership of a party to this
Agreement;


"ANNUAL VOLUME" means the minimum volume of Product to be manufactured by
Patheon in any Year of this Agreement for purposes of calculating the fees
as set forth in Schedule B hereto;


"BATCH DOCUMENTATION" means all documentation relating to the production
and analysis of the Product including, but not limited to, executed
manufacturing and packaging batch records, in process and product release
test data, certificate of compliance with cGMPs and certificates of
analysis for all Products, Components and Active Material, as set forth in
Article 3 of the Quality Agreement.


"BUSINESS DAY" means a day other than a Saturday, Sunday or a day that is a
statutory holiday in the State of Ohio and/or the Commonwealth of
Massachusetts;


"CGMPS" means current good manufacturing practices as described in Parts
210 and 211 of Title 21 of the United States' Code of Federal Regulations
together with the latest FDA guidance documents pertaining to manufacturing
and quality control practice, all as updated, amended and revised from time
to time;


"COMMENCEMENT DATE" means the first day upon which commercial manufacturing
shall commence;


"COMPONENTS" means, collectively, all packaging components, raw materials
and ingredients (including labels, product inserts and other labelling for
the Products), required to be used in order to produce the Products in
accordance with the Specifications, other than the Active Material;


"CONFIDENTIALITY AGREEMENT" means the agreement relating to the
non-disclosure of confidential information between Patheon and the Client
dated May 20, 2004 and attached hereto as Schedule J;


"DEFICIENCY NOTICE" shall have the meaning ascribed thereto in Section
6.1(a);


"EXW" means ex works, as that term is defined in INCOTERMS 2000;


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"FDA" means the United States government department known as the Food and
Drug Administration;


"FIRM ORDERS" has the meaning specified in Section 5.1(b);


"INTELLECTUAL PROPERTY" includes, without limitation, rights in patents,
patent applications, formulae, trade-marks, trade-mark applications,
trade-names, Inventions, copyrights, and industrial designs;


"INVENTION" means information relating to any innovation, improvement,
development, discovery, computer program, device, trade secret, method,
know-how, process, technique or the like, whether or not written or
otherwise fixed in any form or medium, regardless of the media on which it
is contained and whether or not patentable or copyrightable;


"INVENTORY" means all inventories of Components and work-in-process
produced or held by Patheon in connection with the manufacture of the
Products but, for greater certainty, does not include the Active Material;


"MANUFACTURING SERVICES" means the manufacturing, quality control, quality
assurance and stability testing, packaging and related services, as
contemplated in this Agreement, required to produce Products from Active
Material and Components;


"MANUFACTURING SITE" means Patheon's facilities located at 2110 East
Galbraith Road, Cincinnati, Ohio;


"MINIMUM RUN QUANTITY" means the minimum number of batches of a Product to
be produced during the same cycle of manufacturing as set forth in Schedule
B hereto;


"PRODUCT" means an immediate release tablet formulation of the Active
Material as described in the sNDA submitted by Client to the FDA;


"QUALITY AGREEMENT" means the agreement dated April 7, 2005 entered into
between the parties hereto setting out the quality assurance standards to
be applicable to the Manufacturing Services provided by Patheon, which
agreement is attached hereto as Schedule G;


"SPECIFICATIONS" means the file, for each Product, which is provided by the
Client to Patheon in accordance with the procedures listed in Schedule A
hereto and which contains documents relating to such Product, including,
without limitation:


(a) specifications for Active Material and Components including the test
methods for the Active Material and Components;


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(b) manufacturing specifications, directions and processes;


(c) storage requirements;


(d) all environmental, health and safety information relating to the
Product including material safety data sheets; and


(e) the finished Product specifications, packaging specifications and
shipping requirements for each Product including test methods for
Products;


all as updated, amended and revised from time to time by the Client in
accordance with the terms of this Agreement;


"TECHNICAL DISPUTE" has the meaning specified in Section 12.2;


"TERRITORY" means in the geographic area of the United States, its
territories and possessions;


"THIRD PARTY RIGHTS" means the Intellectual Property of any third party;


"USP" shall mean the then current United States Pharmacopeia;


"WAREHOUSE SITE" means Patheon Pharmaceuticals Inc., Blue Ash Warehouse,
4750 Lake Forest Drive, Cincinnati, OH 45242, USA


"YEAR" means in the case of the first year of this Agreement the period
from the Commencement Date up to and including December 31 of the same
calendar year, and thereafter shall mean a calendar year.


1.2 CURRENCY.


Unless otherwise indicated, all monetary amounts are expressed in this Agreement in the lawful currency of the United States of America.


1.3 SECTIONS AND HEADINGS.


The division of this Agreement into Articles, sections, subsections and Schedules and the insertion of headings are for convenience of reference only and shall not affect the interpretation of this Agreement. Unless otherwise indicated, any reference in this Agreement to a Section or Schedule refers to the specified Section or Schedule to this Agreement. In this Agreement, the terms "THIS AGREEMENT", "HEREOF", "HEREIN", "HEREUNDER" and similar expressions refer to this Agreement and not to any particular part, Section, Schedule or the provision hereof.


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1.4 SINGULAR TERMS.


Except as otherwise expressly provided herein or unless the context otherwise requires, all references to the singular shall include the plural and vice versa.


1.5 SCHEDULES.


The following Schedules are attached to, incorporated in and form part of this Agreement:


Schedule A - Procedure for Shipment and Acceptance of Product
Specifications and Test Methods
Schedule B - Minimum Run Quantity, Minimum Annual Volume & Fees
Schedule C - Stability Testing
Schedule D - Active Material & Active Material Reimbursement Value
Schedule E - Batch Numbering & Expiration Dates
Schedule F - Technical Dispute Resolution
Schedule G - Quality Agreement
Schedule H - Quarterly Active Material Inventory Report
Schedule I - Report of Annual Active Material Inventory
Reconciliation and Calculation of Actual Annual Yield
Schedule J - Confidentiality Agreement


ARTICLE 2


PATHEON'S MANUFACTURING SERVICES


2.1 MANUFACTURING SERVICES.


Patheon shall provide the Manufacturing Services for the Territory for the fees specified in Schedules B and C in order to produce Products for the Client solely at the Manufacturing Site. Active Material, Products and Components shall only be stored at the Warehouse Site. If Manufacturing Services have not commenced within 12 months of the Effective Date, Patheon reserves the right to amend fees set out in Schedules B and C. Client shall purchase at least 50% of its requirements of Products for sale in the Territory for each Year of the Term from Patheon pursuant to the terms of this Agreement. In providing the Manufacturing Services, Patheon shall perform each of the following services:


(a) Conversion of Active Material and Components. Patheon shall convert
Active Material and Components into Products.


(b) Quality Control and Quality Assurance. Patheon shall perform the
quality control and quality assurance testing specified in the Quality
Agreement. Each time


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Patheon ships Products to the Client or the Client's designated agent,
Patheon shall provide the Client with a certificate of analysis that
sets out the test results for each batch of Products, and that
certifies that such batch has been evaluated by Patheon's Quality
Control/Quality Assurance department and that the Products comply with
the Specifications. At the same time, Patheon shall provide the Client
with a certificate of cGMPs conformance for the Product. If requested
by the Client, Patheon shall also provide full manufacturing and
packaging batch records and release raw data to Client.


(c) Active Material and Components. Patheon shall purchase all Components
with the exception of those that are supplied by the Client. Further,
Patheon shall test all Components and Active Material to USP standards
or as otherwise specified by the Specifications, at Patheon's expense.


(d) Stability Testing. Patheon shall conduct stability testing on the
Products in accordance with the protocols set out in the
Specifications for the separate fees specified in Schedule C. Patheon
shall not make any changes to these testing protocols without prior
written approval from the Client. In the event that any batch of
Products fails stability testing, Patheon and the Client shall jointly
determine the proceedings and methods to be undertaken to investigate
the causes of such failure, including which party shall bear the cost
of such investigation, provided that Patheon shall not be liable for
any such costs unless there has been a failure by it to provide the
Manufacturing Services in accordance with the Specifications and
cGMPs. Patheon will provide any and all data and results relating to
the stability testing upon request by the Client.


(e) Packaging. Patheon shall package the Products with labels, product
inserts and other packaging as set out in the Specifications. In
addition, Patheon shall make arrangements for and implement the
imprinting of batch numbers and expiration dates for each Product
shipped. Such batch numbers and expiration dates shall be affixed on
the Products and on the shipping carton of each Product as outlined in
the Specifications and as required by cGMPs. The system used by
Patheon for batch numbering and expiration dates is detailed in
Schedule E hereto. The Client may, in its sole discretion, make
changes to labels, product inserts and other packaging for the
Products, which changes shall be submitted by the Client to all
applicable governmental agencies and other third parties responsible
for the approval of the Products. Patheon hereby consents to the use
of its name on the Products label or anywhere else on the Products.


2.2 STANDARD OF PERFORMANCE.


Patheon shall provide the Manufacturing Services in accordance with the Specifications and cGMPs.


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2.3 ACTIVE MATERIAL YIELD.


(a) Reporting. Patheon shall provide the Client with a quarterly inventory report of the Active Material held by Patheon in accordance with the inventory report form annexed hereto as Schedule H, which shall contain the following information for such quarter:


QUANTITY RECEIVED: The total quantity of Active Material that complies with
the Specifications and is received at a Manufacturing Site during the
applicable period.


QUANTITY DISPENSED: The total quantity of Active Material dispensed at a
Manufacturing Site during the applicable period. The Quantity Dispensed is
calculated by adding the Quantity Received to the inventory of Active
Material that complies with the Specifications and is held at the beginning
of the applicable period, less the inventory of Active Material that
complies with the Specifications and is held at the end of such period. The
Quantity Dispensed shall only include Active Material received and
dispensed in connection with commercial manufacturing of Products and, for
certainty, shall not include any Active Material received or dispensed in
connection with technical transfer activities or development activities
during the applicable period, including, without limitation, any
regulatory, stability, validation or test batches manufactured during the
applicable period.


QUANTITY CONVERTED: The total amount of Active Material contained in the
Products produced with the Quantity Dispensed (including any additional
Products produced in accordance with Section 6.1 or 6.2), delivered by
Patheon and, except as provided in Section 5.5(c), not rejected, recalled
or returned in accordance with Section 6.1 or 6.2 as a result of a failure
by Patheon to provide Manufacturing Services in accordance with
Specifications and cGMPs.


Within 60 days after the end of each Year, Patheon shall prepare an annual reconciliation of Active Material in accordance with the reconciliation report form annexed hereto as Schedule I including the calculation of the "ACTUAL ANNUAL YIELD" or "AAY" for the Product at the Manufacturing Site during the Year, which AAY is the percentage of the Quantity Dispensed that was converted to Products and is calculated as follows:


Quantity Converted during the Year
----------------------------------
Quantity Dispensed during the Year


After Patheon has produced a minimum of [**] commercial and validation production batches of Product and has produced commercial and validation production batches for at least [**] months at a Manufacturing Site (collectively, the "TARGET YIELD DETERMINATION BATCHES") pursuant to this Agreement, the Parties will mutually agree on the target yield in respect of such Product at such Manufacturing Site (each, a "TARGET YIELD"); provided, however, that the Target Yield Determination Batches shall not include any batches that, in Patheon's reasonable judgment,


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were produced in production runs involving technical difficulties or involving an extraordinary loss of Active Material. Thereafter, Patheon shall strive to maintain Actual Annual Yield levels for each Product above the applicable Target Yield.


(b) Shortfall Calculation. If the Actual Annual Yield falls more than [**] percent below the respective Target Yield in a Year, then the shortfall for such Year (the "Shortfall") shall be determined based on the following calculation:


[**]


The Shortfall shall be disclosed by Patheon to the Client on the reconciliation report prepared in the form annexed hereto as Schedule I.


(c) Reimbursement. Patheon shall reimburse the Client for any Shortfall in a Year. Each payment under this Section 2.3 shall be summarized on the reconciliation report prepared in the form attached hereto as Schedule I and shall be made 30 days following the end of each Year.


(d) Maximum Reimbursement. Notwithstanding the foregoing provisions of this Section 2.3, Patheon's liability for Active Material calculated in accordance with this Section 2.3 for any Product in a Year shall not exceed, in the aggregate, the Maximum Reimbursement Value set forth in Schedule D hereto.


(e) No Material Breach. It shall not constitute a material breach of this Agreement by Patheon, for the purposes of Section 8.2(a), if the Actual Annual Yield is less that the Target Yield.


ARTICLE 3


CLIENT'S OBLIGATIONS


3.1 PAYMENT.


Pursuant to the terms of this Agreement, the Client shall pay Patheon for the provision of the Manufacturing Services ...