CEMPRA, INC. (Form: 10-Q, Received: 07/31/2013 09:01:58)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2013

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the Transition Period from to

Commission File Number: 001-35405

CEMPRA, INC.

(Exact name of registrant specified in its charter)

Delaware

2834

45-4440364

(State or Other Jurisdiction of

Incorporation or Organization)

(Primary Standard Industrial

Classification Code Number)

(I.R.S. Employer

Identification No.)

6340 Quadrangle Drive, Suite 100

Chapel Hill, NC 27517

(Address of Principal Executive Offices)

(919) 313-6601

(Telephone Number, Including Area Code)

Securities Registered Pursuant to Section 12(b) of the Exchange Act:


Title of Each Class		Name of Exchange on which Registered
Common Stock, $0.001 Par Value		Nasdaq Global Market

Securities Registered Pursuant to Section 12(g) of the Act: None

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

As of July 22, 2013 there were 33,177,712 shares of the registrant’s common stock, $0.001 par value, outstanding.

CEMPRA, INC.

TABLE OF CONTENTS


		Page

PART I - FINANCIAL INFORMATION			1

Item 1.	Financial Statements		1

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operation		18

Item 3.	Quantitative and Qualitative Disclosures about Market Risk		27

Item 4.	Controls and Procedures		27

PART II - OTHER INFORMATION			28

Item 1A.	Risk Factors		28

Item 6.	Exhibits		31

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

CEMPRA, INC.

(A Development Stage Company)

Consolidated Balance Sheets


	December 31, 2012			June 30, 2013
				(Unaudited)
Assets
Current assets
Cash and equivalents	$	70,108,754		$	121,631,928
Receivables		—			232,340
Prepaid expenses		264,981			512,378

Total current assets		70,373,735			122,376,646

Furniture, fixtures and equipment, net		43,217			71,130
Deposits		321,394			322,298

Total assets	$	70,738,346		$	122,770,074


Liabilities
Current liabilities
Accounts payable	$	2,171,633		$	1,973,967
Accrued expenses		341,918			879,210
Accrued payroll and benefits		604,548			466,453
Deferred revenue		—			22,848
Warrant liability		—			690,712
Current portion of long-term debt		2,226,610			—

Total current liabilities		5,344,709			4,033,190
Deferred revenue		—			5,641,740
Long-term debt		7,623,285			14,283,228

Total liabilities		12,967,994			23,958,158

Commitments and contingencies

Shareholder’s Equity

Common stock; $.001 par value; 80,000,000 shares authorized; 24,903,774 and 33,177,712 issued and outstanding at December 31, 2012 and June 30, 2013		24,904			33,178
Additional paid-in capital		178,970,975			234,562,221
Deficit accumulated during the development stage		(121,225,527	)		(135,783,483	)

Total shareholders’ equity		57,770,352			98,811,916

Total liabilities and shareholders’ equity	$	70,738,346		$	122,770,074

The accompanying notes are an integral part of these consolidated financial statements

CEMPRA, INC.

(A Development Stage Company)

Consolidated Statements of Operations

(Unaudited)


													Period from
													November 18,
													2005 (Inception) to
	Three Months Ended June 30						Six Months Ended June 30						June 30,
	2012			2013			2012			2013			2013
Revenue
Contract research		—			232,340			—			232,340			232,340
License		—			4,335,412			—			4,335,412			4,335,412

Total revenue	$	—		$	4,567,752		$	—		$	4,567,752		$	4,567,752

Operating expenses
Research and development		7,423,833			6,326,986			9,300,051			13,697,946			97,425,506
General and administrative		1,777,353			2,081,450			2,749,454			4,728,703			26,291,163

Total operating expenses		9,201,186			8,408,436			12,049,505			18,426,649			123,716,669

Loss from operations		(9,201,186	)		(3,840,684	)		(12,049,505	)		(13,858,897	)		(119,148,917	)

Other income (expense)
Interest income		707			12,678			105,914			13,267			1,486,377
Interest expense		(327,496	)		(385,040	)		(734,094	)		(712,326	)		(6,351,648	)
Other income		—			—			—			—			488,958

Other income (expense), net		(326,789	)		(372,362	)		(628,180	)		(699,059	)		(4,376,313	)

Net loss and comprehensive loss		(9,527,975	)		(4,213,046	)		(12,677,685	)		(14,557,956	)		(123,525,230	)
Accretion of redeemable convertible preferred shares		—			—			(313,588	)		—			(14,002,842	)

Net loss attributable to common shareholders	$	(9,527,975	)	$	(4,213,046	)	$	(12,991,273	)	$	(14,557,956	)	$	(137,528,072	)

Basic and diluted net loss attributable to common shareholders per share	$	(0.45	)	$	(0.16	)	$	(0.76	)	$	(0.57	)

Basic and diluted weighted average shares outstanding		21,034,570			26,381,943			17,142,540			25,646,941

The accompanying notes are an integral part of these consolidated financial statements

CEMPRA, INC.

(A Development Stage Company)

Consolidated Statements of Redeemable Preferred Shares and Shareholders’ Equity (Deficit)


																										Deficit			Total
	Series A						Series B				Series C												Additional			During the			Shareholders’
	Preferred Shares						Preferred Shares				Preferred Shares				Common Shares				Common Stock				Paid-In			Development			Equity
	Shares			Amount			Shares		Amount		Shares		Amount		Shares		Amount		Shares		Amount		Capital			Stage			(Deficit)

Balance as of November 18, 2005 (inception date)		—		$	—			—	$	—		—	$	—		—	$	—		—	$	—	$	—		$	—		$	—
Net loss		—			—			—		—		—		—		—		—		—		—		—			(26,463	)		(26,463	)

Balance as of December 31, 2005		—			—			—		—		—		—		—		—		—		—		—			(26,463	)		(26,463	)
Issuance of common shares to founders		—			—			—		—		—		—		179,825		—		—		—		171			—			171
Issuance of common shares for service		—			—			—		—		—		—		30,702		—		—		—		14,583			—			14,583
Issuance of common shares for license agreement		—			—			—		—		—		—		64,311		—		—		—		91,362			—			91,362
Issuance of Series A preferred share, net of share issuance costs of $150,570		789,191			7,346,745			—		—		—		—		—		—		—		—		—			—			—
Accretion of redeemable convertible preferred shares		—			232,782			—		—		—		—		—		—		—		—		(122,443	)		(110,339	)		(232,782	)
Share-based compensation		—			—			—		—		—		—		—		—		—		—		16,327			—			16,327
Net loss		—			—			—		—		—		—		—		—		—		—		—			(2,228,948	)		(2,228,948	)

Balance as of December 31, 2006		789,191			7,579,527			—		—		—		—		274,838		—		—		—		—			(2,365,750	)		(2,365,750	)
Issuance of common shares upon exercise of options		—			—			—		—		—		—		8,947		—		—		—		5,250			—			5,250
Issuance of Series A preferred shares, net of issuance costs of $20,435		1,557,895			14,779,563			—		—		—		—		—		—		—		—		—			—			—
Conversion of Series A preferred shares to common shares upon financing participation default		(55,120	)		(523,644	)		—		—		—		—		55,120		—		—		—		523,644			—			523,644
Issuance of common shares to CEO		—			—			—		—		—		—		77,368		—		—		—		124,950			—			124,950
Issuance of common shares for license agreement		—			—			—		—		—		—		61,335		—		—		—		99,055			—			99,055
Issuance of Series B preferred shares, net of issuance costs of $43,682		—			—			809,717		9,956,318		—		—		—		—		—		—		—			—			—
Accretion of redeemable convertible preferred shares		—			1,526,057			—		100,000		—		—		—		—		—		—		(808,919	)		(817,138	)		(1,626,057	)
Share-based compensation		—			—			—		—		—		—		—		—		—		—		56,020			—			56,020

CEMPRA, INC.

(A Development Stage Company)

Consolidated Statements of Redeemable Preferred Shares and Shareholders’ Equity (Deficit)


																									Deficit			Total
	Series A				Series B				Series C													Additional			During the			Shareholders’
	Preferred Shares				Preferred Shares				Preferred Shares					Common Shares				Common Stock				Paid-In			Development			Equity
	Shares		Amount		Shares		Amount		Shares		Amount			Shares		Amount		Shares		Amount		Capital			Stage			(Deficit)

Net loss		—		—		—		—		—		—			—		—		—		—		—			(8,075,240	)		(8,075,240	)

Balance as of December 31, 2007		2,291,966		23,361,503		809,717		10,056,318		—		—			477,608		—		—		—		—			(11,258,128	)		(11,258,128	)
Issuance of common shares upon exercise of options		—		—		—		—		—		—			13,469		—		—		—		13,113			—			13,113
Accretion of redeemable convertible preferred shares		—		1,731,269		—		806,390		—		—			—		—		—		—		(106,124	)		(2,431,536	)		(2,537,660	)
Share-based compensation		—		—		—		—		—		—			—		—		—		—		93,011			—			93,011
Net loss		—		—		—		—		—		—			—		—		—		—		—			(14,902,317	)		(14,902,317	)


Balance as of December 31, 2008		2,291,966		25,092,772		809,717		10,862,708		—		—			491,077		—		—		—		—			(28,591,981	)		(28,591,981	)
Issuance of Series C preferred shares, net of issuance cost of $251,733		—		—		—		—		2,488,675		25,248,268			—		—		—		—		—			—			—
Series C Warrant		—		—		—		—		—		(5,174,381	)		—		—		—		—		—			—			—
Accretion of redeemable convertible preferred shares		—		667,997		—		301,946		—		1,321,490			—		—		—		—		(123,404	)		(2,168,029	)		(2,291,433	)
Beneficial conversion costs of Series B preferred shares		—		—		—		73,995		—		—			—		—		—		—		—			(73,995	)		(73,995	)
Share-based compensation		—		—		—		—		—		—			—		—		—		—		123,404			—			123,404
Net loss		—		—		—		—		—		—			—		—		—		—		—			(18,611,814	)		(18,611,814	)

Balance as of December 31, 2009		2,291,966		25,760,769		809,717		11,238,649		2,488,675		21,395,377			491,077		—		—		—		—			(49,445,819	)		(49,445,819	)
Issuance of common shares upon exercise of options		—		—		—		—		—		—			3,947		—		—		—		8,250			—			8,250
Issuance of Series C preferred shares, net of issuance cost of $9,279		—		—		—		—		2,000,700		20,490,721			—		—		—		—		—			—			—
Series C Warrant		—		—		—		—		—		8,597,116			—		—		—		—		—			—			—
Accretion of redeemable convertible preferred shares		—		24,464		—		6,390		—		3,207,407			—		—		—		—		(174,061	)		(3,064,202	)		(3,238,263	)
Beneficial conversion costs of Series B preferred shares		—		—		—		30,082		—		—			—		—		—		—		—			(30,082	)		(30,082	)
Share-based compensation		—		—		—		—		—		—			—		—		—		—		165,811			—			165,811
Net loss		—		—		—		—		—		—			—		—		—		—		—			(19,674,924	)		(19,674,924	)

Balance as of December 31, 2010		2,291,966		25,785,233		809,717		11,275,121		4,489,375		53,690,621			495,024		—		—		—		—			(72,215,027	)		(72,215,027	)

CEMPRA, INC.

(A Development Stage Company)

Consolidated Statements of Redeemable Preferred Shares and Shareholders’ Equity (Deficit)


																															Deficit			Total
	Series A						Series B						Series C															Additional			During the			Shareholders’
	Preferred Shares						Preferred Shares						Preferred Shares						Common Shares					Common Stock				Paid-In			Development			Equity
	Shares			Amount			Shares			Amount			Shares			Amount			Shares			Amount		Shares		Amount		Capital			Stage			(Deficit)

Issuance of common shares upon exercise of options		—			—			—			—			—			—			38,815			—		—		—		69,932			—			69,932
Accretion of redeemable convertible preferred shares		—			24,464			—			6,391			—			3,732,206			—			—		—		—		(513,717	)		(3,249,344	)		(3,763,061	)
Share-based compensation		—			—			—			—			—			—			—			—		—		—		443,785			—			443,785
Net loss		—			—			—			—			—			—			—			—		—		—		—			(21,220,779	)		(21,220,779	)

Balance as of December 31, 2011		2,291,966			25,809,697			809,717			11,281,512			4,489,375			57,422,827			533,839			—		—		—		—			(96,685,150	)		(96,685,150	)
Issuance of common stock upon exercise of options		—			—			—			—			—			—			—			—		10,351		10		34,498			—			34,508
Issuance of common stock upon initial public offering, net of issuance costs of $4.7 million		—			—			—			—			—			—			—			—		9,660,000		9,660		53,184,681			—			53,194,341
Issuance of common stock upon private placement, net of issuance costs of $1.7 million		—			—			—			—			—			—			—			—		3,864,461		3,865		23,508,098			—			23,511,963
Conversion of common shares to common stock		—			—			—			—			—			—			(533,839	)		—		533,839		534		(534	)		—			—
Accretion of redeemable convertible preferred shares		—			2,038			—			533			—			311,017			—			—		—		—		—			(313,588	)		(313,588	)
Conversion of redeemable convertible preferred shares to common stock upon initial public offering		(2,291,966	)		(25,811,735	)		(809,717	)		(11,282,045	)		(4,489,375	)		(57,733,844	)		—			—		9,958,502		9,959		94,817,665			—			94,827,624
Conversion of convertible notes payable to common stock upon initial public offering		—			—			—			—			—			—			—			—		876,621		876		4,723,658			—			4,724,534
Reclassification of warrant liability to additional paid-in capital		—			—			—			—			—			—			—			—		—		—		1,033,647			—			1,033,647
Share-based compensation		—			—			—			—			—			—			—			—		—		—		1,669,262			—			1,669,262
Net loss		—			—			—			—			—			—			—			—		—		—		—			(24,226,789	)		(24,226,789	)

Balance as of December 31, 2012		—		$	—			—		$	—			—		$	—			—		$	—		24,903,774	$	24,904	$	178,970,975		$	(121,225,527	)	$	57,770,352


Share-based compensation (Unaudited)		—			—			—			—			—			—			—			—		—		—		1,618,745			—			1,618,745
Issuance of common stock upon public offering, net of issuance cost of $3.7 million (Unaudited)		—			—			—			—			—			—			—			—		8,273,938		8,274		54,214,088			—			54,222,362
Reclassification of additional paid-in capital to warrant liability (Unaudited)		—			—			—			—			—			—			—			—		—		—		(241,587	)		—			(241,587	)
Net loss (Unaudited)		—			—			—			—			—			—			—			—		—		—		—			(14,557,956	)		(14,557,956	)

Balance as of June 30, 2013 (Unaudited)		—		$	—			—		$	—			—		$	—			—		$	—		33,177,712	$	33,178	$	234,562,221		$	(135,783,483	)	$	98,811,916

The accompanying notes are an integral part of these consolidated financial statements

CEMPRA, INC.

(A Development Stage Company)

Consolidated Statements of Cash Flows

(Unaudited)


							Period From
							November 18, 2005
	Six Months ended June 30,						(Inception) to June 30,
	2012			2013			2013
Operating activities
Net loss	$	(12,677,685	)	$	(14,557,956	)	$	(123,525,230	)
Adjustments to reconcile net loss to net cash used in operating activities
Depreciation		36,427			13,905			255,748
Issuance of common shares for service		—			—			14,583
Issuance of common shares for license agreement		—			—			190,418
Share-based compensation		670,610			1,618,745			4,311,315
Change in fair value of warrant liabilities		(87,204	)		(12,019	)		3,318,782
Amortization of debt issuance costs		181,050			194,848			944,811
Changes in operating assets and liabilities
Receivables		—			(232,340	)		(232,340	)
Prepaid expenses		(312,023	)		(247,397	)		(512,378	)
Deposits		—			(904	)		(322,298	)
Accounts payable		(530,193	)		(197,666	)		1,973,965
Accrued expenses		930,388			537,292			1,136,155
Accrued payroll and benefits		(48,661	)		(138,095	)		466,452
Deferred revenue		—			5,664,588			5,664,588

Net cash used in operating activities		(11,837,291	)		(7,356,999	)		(106,315,429	)

Investing activities
Purchases of furniture, fixtures and equipment		(8,437	)		(41,817	)		(326,876	)
Purchase of investments		—			—			(14,306,177	)
Proceeds from sale of investments		—			—			14,306,177

Net cash used in investing activities		(8,437	)		(41,817	)		(326,876	)

Financing activities
Proceeds from borrowing on convertible promissory notes		—			—			8,100,000
Proceeds from borrowing on long-term debt		—			5,238,327			15,238,327
Payments on long-term debt		—			(238,327	)		(238,327	)
Proceeds from exercise of stock options		15,458			—			131,223
Proceeds from issuance of common stock, net of underwriting discounts		54,777,800			54,442,512			132,732,274
Payment of offering costs		(702,716	)		(220,150	)		(2,279,307	)
Payment of debt issuance costs		—			(300,372	)		(607,270	)
Proceeds from issuance of redeemable convertible preferred shares		—			—			75,197,313

Net cash provided by financing activities		54,090,542			58,921,990			228,274,233

Net change in cash and equivalents		42,244,814			51,523,174			121,631,928
Cash and equivalents at beginning of the period		15,602,264			70,108,754			—

Cash and equivalents at end of the period	$	57,847,078		$	121,631,928		$	121,631,928

Supplemental cash flow information
Cash paid for interest	$	435,056		$	398,673		$	1,319,187
Non-cash investing and financing activities
Accretion of redeemable convertible preferred shares	$	313,588		$	—		$	14,002,845
Beneficial conversion costs of Series B preferred shares	$	—		$	—		$	104,077
Notes payable converted into Series A redeemable convertible preferred shares	$	—		$	—		$	3,100,000
Allocation of the Class C proceeds to the Class C Purchase Option	$	—		$	—		$	5,174,381
Conversion of the Class C Purchase Option	$	—		$	—		$	(8,597,116	)
Allocation of the convertible note proceeds to warrant	$	—		$	—		$	852,485
Allocation of the long-term debt proceeds to warrant	$	—		$	461,144		$	734,238
Conversion of convertible notes payable and accrued interest into common stock	$	—		$	—		$	4,724,534
Conversion of redeemable convertible preferred shares into common stock	$	—		$	—		$	94,827,625
Reclassification of warrant liability to additional paid-in capital	$	—		$	—		$	1,033,647
Reclassification of additional paid-in capital to warrant liability	$	—		$	241,587		$	241,587

The accompanying notes are an integral part of these consolidated financial statements

1. Description of Business

Cempra, Inc. (the “Company” or “Cempra”, previously known as Cempra Holdings, LLC) is the successor entity of Cempra Pharmaceuticals, Inc. which was incorporated on November 18, 2005 and commenced operations in January 2006. Cempra is located in Chapel Hill, North Carolina, and is a pharmaceutical company developing medicines to treat drug-resistant bacterial infections in the community and hospital.

On February 2, 2012, Cempra Holdings, LLC converted from a Delaware limited liability company to a Delaware corporation and was renamed Cempra, Inc. As a result of the corporate conversion, the holders of both common and preferred shares of Cempra Holdings, LLC became holders of shares of common stock of Cempra, Inc. Holders of options to purchase common shares of Cempra Holdings, LLC became holders of options to purchase shares of common stock of Cempra, Inc. Holders of notes convertible into preferred shares of Cempra Holdings, LLC and associated warrants exercisable for preferred shares of Cempra Holdings, LLC became holders of shares of common stock and warrants to purchase shares of common stock of Cempra, Inc.

The Company is in its development stage as defined by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 915, Development Stage Entities . The Company’s activities since inception have consisted principally of acquiring product and technology rights, raising capital and performing research and development activities. Since inception, the Company has incurred significant losses from operations and expects losses to continue for the foreseeable future. The Company’s success depends primarily on the successful development and regulatory approval of its product candidates and its ability to obtain adequate financing.

As of June 30, 2013, the Company has incurred losses since inception of $123.5 million. The Company expects to continue to incur losses and require additional financial resources to advance its products to either the commercial stage or liquidity events.

There can be no assurance that the Company will be able to obtain additional debt or equity financing or generate revenues from collaborative partners on terms acceptable to the Company, on a timely basis or at all. The failure of the Company to obtain sufficient funds on acceptable terms when needed could have a material adverse effect on the Company’s business, results of operations and financial condition.

2. Basis of Presentation

Principles of Consolidation and Basis of Presentation

The accompanying consolidated financial statements include the accounts and results of operations of Cempra, Inc. and its wholly owned subsidiaries. The consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”). All intercompany balances and transactions have been eliminated in consolidation.

Unaudited Interim Financial Data

The accompanying interim consolidated financial statements are unaudited. These unaudited financial statements have been prepared in accordance with the rules and regulations of the United States Securities and Exchange Commission (“SEC”) for interim financial information. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. These unaudited interim consolidated financial statements should be read in conjunction with the audited consolidated financial statements and the accompanying notes for the year ended December 31, 2012 contained in the Company’s Annual Report on Form 10-K. The unaudited interim consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and, in the opinion of management, reflect all adjustments (consisting of normal recurring adjustments) necessary to state fairly the Company’s financial position as of June 30, 2013 and the results of operations and cash flows for the three months and six months ended June 30, 2012 and 2013. The December 31, 2012 consolidated balance sheet included herein was derived from audited consolidated financial statements, but does not include all disclosures including notes required by GAAP for complete financial statements.

Use of Estimates

The preparation of these consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Receivables

Receivables consist of amounts billed and earned but unbilled under the Company’s contract with the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services (“BARDA”). Receivables under the BARDA contract are recorded as qualifying research activities are conducted and invoices from the Company’s vendors are received. Unbilled receivables are also recorded based upon work estimated to be complete for which the Company has not received vendor invoices. The Company carries its accounts receivable at cost less an allowance for doubtful accounts. On a periodic basis, the Company evaluates its accounts receivable and establishes an allowance based on its history of collections and write-offs and the current status of all receivables. The Company does not accrue interest on trade receivables. If accounts become uncollectible, they will be written off through a charge to the allowance for doubtful accounts. The Company has not recorded an allowance for doubtful accounts as management believes all receivables are fully collectible.

Clinical Trial Accrual

As part of the process of preparing financial statements, the Company is required to estimate its expenses resulting from its obligation under contracts with vendors and consultants and clinical site agreements in connection with conducting clinical trials. The Company’s objective is to reflect the appropriate clinical trial expenses in its financial statements by matching those expenses with the period in which services and efforts are expended. The Company accounts for these expenses according to the progress of the trial as measured by patient progression and the timing of various aspects of the trial. The Company determines accrual estimates through discussion with applicable personnel and outside service providers as to the progress of trials, or the services completed. During the course of a clinical trial, the Company adjusts its rate of clinical trial expense recognition if actual results differ from its estimates. The Company makes estimates of its accrued expenses as of each balance sheet date in its financial statements based on facts and circumstances known at that time. Although the Company does not expect its estimates to be materially different from amounts actually incurred, its understanding of status and timing of services performed relative to the actual status and timing of services performed may vary and may result in the Company reporting amounts that are too high or too low for any particular period. Through June 30, 2013, there had been no material adjustments to the Company’s prior period estimates of accrued expenses for clinical trials. The Company’s clinical trial accrual is dependent upon the timely and accurate reporting of contract research organizations and other third-party vendors.

Revenue Recognition

The Company’s revenue generally consists of research related revenue under federal contracts and licensing revenue related to non-refundable upfront fees, milestone payments and royalties earned under license agreements. Revenue is recognized when the following criteria are met: (1) persuasive evidence that an arrangement exists; (2) delivery of the products and/or services has occurred; (3) the selling price is fixed or determinable; and (4) collectability is reasonably assured.

For arrangements that involve the delivery of more than one element, each product, service and/or right to use assets is evaluated to determine whether it qualifies as a separate unit of accounting. This determination is based on whether the deliverable has “stand-alone value” to the customer. The consideration that is fixed or determinable is then allocated to each separate unit of accounting based on the relative selling prices of each deliverable. The consideration allocated to each unit of accounting is recognized as the related goods and services are delivered, limited to the consideration that is not contingent upon future deliverables. If the arrangement constitutes a single unit of accounting, the revenue recognition policy must be determined for the entire arrangement.

3. Fair Value of Financial Instruments

The carrying values of cash equivalents, receivables, prepaid expenses, and accounts payable at June 30, 2013 approximated their fair values due to the short-term nature of these items.

The Company’s valuation of financial instruments is based on a three-tiered approach, which requires that fair value measurements be classified and disclosed in one of three tiers. These tiers are: Level 1, defined as quoted prices in active markets for identical assets or liabilities; Level 2, defined as valuations based on observable inputs other than those included in Level 1, such as quoted prices for similar assets and liabilities in active markets, or other inputs that are observable or can be corroborated by observable input data; and Level 3, defined as valuations based on unobservable inputs reflecting the Company’s own assumptions, consistent with reasonably available assumptions made by other market participants.

At December 31, 2012 and June 30, 2013, these financial instruments and respective fair values have been classified as follows:


	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable		Balance at
	Identical Assets		Inputs		Inputs		December 31,
	(Level 1)		(Level 2)		(Level 3)		2012
Assets:
Money Market Funds	$	67,783,021	$	—	$	—		67,783,021


Total assets at fair value:	$	67,783,021	$	—	$	—	$	67,783,021


	Quoted Prices		Significant
	in Active		Other		Significant
	Markets for		Observable		Unobservable		Balance at
	Identical Assets		Inputs		Inputs		June 30,
	(Level 1)		(Level 2)		(Level 3)		2013
Assets:
Money Market Funds	$	116,684,959	$	—	$	—		116,684,959


Total assets at fair value:	$	116,684,959	$	—	$	—	$	116,684,959

Liabilities:

Warrant liabilities	$	—	$	—	$	690,712		690,712


	$	—	$	—	$	690,712	$	690,712

The change in the fair value measurement using significant unobservable inputs (Level 3) is summarized below:


Balance at December 31, 2012	$	—


Allocation of long-term debt proceeds to warrant (Unaudited)		461,144
Reclassification of additional paid-in capital to warrant (Unaudited)		241,587
Change in fair value recorded as interest income (Unaudited)		(12,019	)

Balance at June 30, 2013 (Unaudited)	$	690,712

The December 2011 Note, which is classified as a level 2 liability (see Note 8) has a variable interest rate and accordingly, its carrying value approximates its fair value. At June 30, 2013, the carrying value was $14.3 million.

4. Significant Agreements and Contracts

License Agreements

Optimer Pharmaceuticals, Inc.

In March 2006, the Company, through its wholly owned subsidiary, Cempra Pharmaceuticals, Inc., entered into a Collaborative Research and Development and License Agreement (“Optimer Agreement”) with Optimer Pharmaceuticals, Inc. (“Optimer”). Under the terms of the Optimer Agreement, the Company acquired exclusive rights to further develop and commercialize certain Optimer technology worldwide, excluding member nations of the Association of Southeast Asian Nations.

In exchange for this license, during 2006 and 2007, the Company issued an aggregate of 125,646 common shares with a total fair value of $190,418 to Optimer. These issuances to Optimer were expensed as incurred in research and development expense.

In July 2010, the Company paid a $500,000 milestone payment to Optimer after the successful completion of its first solithromycin Phase 1 program. In July 2012, the Company paid a $1,000,000 milestone after the successful completion of its first solithromycin Phase 2 program. Both milestones were expensed as incurred in research and development expense. Under the terms of the Optimer Agreement, the Company will owe Optimer additional payments, contingent upon the achievement of various development, regulatory and commercialization milestone events. The aggregate amount of such milestone payments the Company may need to pay is based in part on the number of products developed under the agreement and would total $27,500,000 (including payments made to date) if four products are developed through FDA approval. The Company will also pay tiered mid-single-digit royalties based on the amount of annual net sales of its approved products.

The Scripps Research Institute

In June 2012, the Company entered into a license agreement with The Scripps Research Institute (“TSRI”), whereby TSRI licensed to the Company rights, with rights of sublicense, to make, use, sell, and import products for human or animal therapeutic use that use or incorporate one or more macrolides as an active pharmaceutical ingredient and is covered by certain patent rights owned by TSRI claiming technology related to copper-catalysed ligation of azides and acetylenes. The rights licensed to the Company are exclusive as to the People’s Republic of China (excluding Hong Kong), South Korea and Australia, and are non-exclusive in all other countries worldwide, except the member-nations of the Association of Southeast Asian Nations, which are not included in the territory of the license. Under the terms of the agreement with TSRI, the Company paid a one-time only, non-refundable license issue fee in the amount of $350,000 which was charged to research and development expense in the second quarter of 2012.

The Company is also obligated to pay annual maintenance fees to TSRI in the amount of (i) $50,000 each year for the first three years (beginning on the first anniversary of the agreement), and (ii) $85,000 each year thereafter (beginning on the fourth anniversary of the agreement). Each calendar year’s annual maintenance fees will be credited against sales royalties due under the agreement for such calendar year. Under the terms of the agreement, the Company must pay TSRI low single-digit percentage royalties on the net sales of the products covered by the TSRI patents for the life of the TSRI patents, a low single-digit percentage of non-royalty sublicensing revenue received with respect to countries in the nonexclusive territory and a mid-single-digit percentage of sublicensing revenue received with respect to countries in the exclusive territory, with the sublicensing revenue royalty in the exclusive territory and the sales royalties subject to certain reductions under certain circumstances. TSRI is eligible to receive milestone payments of up to $1.1 million with respect to regulatory approval in the exclusive territory and first commercial sale, in each of the exclusive territory and nonexclusive territory, of the first licensed product to achieve those milestones that is based upon each macrolide covered by the licensed patents. Each milestone is payable once per each macrolide. Each milestone payment made to TSRI with respect to a particular milestone will be creditable against any payment due to TSRI with respect to any sublicense revenues received in connection with the achievement of such milestone. Pursuant to the terms of the Optimer Agreement, any payments made to TSRI under this license for territories subject to the Optimer Agreement can be deducted from any sales-based royalty payments due under the Optimer Agreement up to a certain percentage reduction of the royalties due to Optimer.

Under the terms of the agreement, the Company is also required to pay additional fees on royalties, sublicensing and milestone payments if the Company, an affiliate with TSRI, or a sublicensee challenges the validity or enforceability of any of the patents licensed under the agreement. Such increased payments would be required until all patent claims subject to challenge are invalidated in the particular country where such challenge was mounted.

Contract Research

In May 2013, the Company entered into an agreement with the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services (“BARDA”), for the evaluation and development of the Company’s lead product candidate solithromycin for the treatment of bacterial infections in pediatric populations and infections caused by bioterror threat pathogens, specifically anthrax and tularemia.

The agreement is a cost plus fixed fee development contract, with a base performance segment valued at approximately $17.7 million, and four option work segments that BARDA may request in its sole discretion pursuant to the agreement. If all four option segments are requested, the cumulative value of the agreement would be approximately $58 million. Three of the options are cost plus fixed fee arrangements and one option is a cost sharing arrangement for which the Company would be responsible for a designated portion of the costs associated with that work segment. The estimated period of performance for the base performance segment is April 1, 2013 through May 23, 2015. If all option segments are requested, this estimated period of performance would be extended until approximately May 23, 2018.

Under the agreement, the Company is reimbursed and recognizes revenue as allowable costs are incurred plus a portion of the fixed-fee earned. The Company considers fixed-fees under cost reimbursable agreements to be earned in proportion to the allowable costs incurred in performance of the work as compared to total estimated agreement costs, with such costs incurred representing a reasonable measurement of the proportional performance of the work completed. For the three-month and six-month periods ended June 30, 2013, the Company recognized $0.2 million in revenue under this agreement.

The agreement provides the U.S. government the ability to terminate the agreement for convenience or to terminate for default if the Company fails to meet its obligations as set forth in the statement of work. The Company believes that if the government were to terminate the agreement for convenience, the costs incurred through the effective date of such termination and any settlement costs resulting from such termination would be allowable costs.

Collaboration

In May 2013, Cempra Pharmaceuticals, Inc., the Company’s wholly owned subsidiary, entered into a license agreement with Toyama Chemical Co., Ltd. (“Toyama”), whereby the Company licensed to Toyama the exclusive right, with the right to sublicense, to make, use and sell any product in Japan that incorporates solithromycin, the Company’s lead compound, as its sole active pharmaceutical ingredient, or API, for human therapeutic uses, other than for ophthalmic indications or any condition, disease or affliction of the ophthalmic tissues. Toyama also has a nonexclusive license in Japan and certain other countries, with the right to sublicense, to manufacture or have manufactured API for solithromycin for use in manufacturing such products, subject to limitations and obligations of the concurrently executed supply agreement discussed below. Toyama granted the Company certain rights to intellectual property generated by Toyama under the license agreement with respect to solithromycin or licensed products for use with such products outside Japan or with other solithromycin-based products inside or outside Japan.

Following execution of the agreement, the Company received a $10.0 million upfront payment from Toyama. Toyama is also obligated to pay the Company up to an aggregate of $60.0 million in milestone payments, depending on the achievement of various regulatory, patent, development and commercial milestones. Under the terms of the license agreement, Toyama must also pay the Company a royalty equal to a low-to-high first double decimal digit percentage of net sales, subject to downward adjustment in certain circumstances.

As part of the license agreement, Toyama and the Company also entered into a supply agreement, whereby the Company will be the exclusive supplier (with certain limitations) to Toyama and its sublicensees of API for solithromycin for use in licensed products in Japan, as well as the exclusive supplier to Toyama and its sublicensees of finished forms of solithromycin to be used in Phase 1 and Phase 2 clinical trials in Japan. Pursuant to the supply agreement, which is an exhibit to the license agreement, Toyama will pay the Company for such clinical supply of finished product and all supplies of API for solithromycin for any purpose, other than the manufacture of products for commercial sale in Japan, at prices equal to the Company’s cost . All API for solithromycin supplied by the Company to Toyama for use in the manufacture of finished product for commercial sale in Japan will be ordered from the Company at prices determined by the Company’s manufacturing costs, and which may, depending on such costs, equal, exceed, or be less than such costs. Either party may terminate the supply agreement for uncured material breach or

insolvency of the other party, with Toyama’s right to terminate for the Company’s breach subject to certain further conditions in the case of the Company’s failure to supply API for solithromycin or clinical supply, but otherwise the supply agreement will continue until the expiration or termination of the license agreement.

The Company has determined that there are six deliverables under this agreement including (1) the license to develop and commercialize solithromycin in Japan, (2) the obligation of the Company to conduct Phase 3 studies and obtain regulatory approval in the United States and one other territory, (3) participation in a Joint Development Committee, or JDC, (4) participation in a Joint Commercialization Committee, or JCC, (5) the right to use the Company’s trademark, and (6) a supply agreement. The amounts received under the license agreement have been allocated to the deliverables based on their relative fair values and will be recognized into income when revenue recognition criteria have been achieved. As of June 30, 2013, the license is the only unit of accounting that has been delivered. The Company has recognized $4.3 million in revenue associated with the license. The Company has recorded $5.7 million as deferred revenue at June 30, 2013 which will be recorded as revenue when the revenue recognition criteria of each deliverable have been met.

Milestone payments are recognized when earned, provided that (i) the milestone event is substantive; (ii) there is no ongoing performance obligation related to the achievement of the milestone earned; and (iii) it would result in additional payments. Milestone payments are considered substantive if all of the following conditions are met: the milestone payment is non-refundable; achievement of the milestone was not reasonably assured at the inception of the arrangement; substantive effort is involved to achieve the milestone; and the amount of the milestone appears reasonable in relation to the effort expended, the other milestones in the arrangement, and the related risk associated with the achievement of the milestone. Contingent based event payments the Company may receive under a license agreement will be recognized when received.

Royalties are recorded as earned in accordance with the contract terms when third party sales can be reliably measured and collectability is reasonably assured.

5. Receivables

At June 30, 2013, the Company had $0.2 million of earned but unbilled receivables under the BARDA agreement.

6. Furniture, Fixtures and Equipment

Furniture, fixtures and equipment consist of the following as of:


	Useful Life	December 31,		June 30,
	(years)	2012		2013
				(Unaudited)
Computer equipment	2	$	191,889	$	215,104
Software	2		46,594		39,952
Furniture	5		38,792		38,792
Leasehold improvements	3		4,809		4,809

Total furniture, fixtures and equipment			282,084		298,657
Less accumulated depreciation			238,867		227,527

Furniture, fixtures and equipment, net		$	43,217	$	71,130

During the three-month period ended June 30, 2012 and 2013, the Company recorded $18,381 and $7,976 in depreciation expense, respectively. During the six-month period ended June 30, 2012 and 2013, the Company recorded $36,427 and $13,905 in depreciation expense, respectively. Depreciation expense for the cumulative period from inception through June 30, 2013 was $255,748.

7. Accrued Expenses

Accrued expenses are comprised of the following as of:


	December 31,		June 30,
	2012		2013
			(Unaudited)
Accrued professional fees	$	207,362	$	608,560
Other accrued fees		30,817		52,102
Accrued interest		82,236		201,041
Deferred rent		21,503		17,507

Total accrued expenses	$	341,918	$	879,210

8. Long-term Debt

In December 2011, the Company entered into a $20,000,000 loan and security agreement (the “December 2011 Note”) with Hercules Technology Growth Capital, Inc. (“Hercules”) and borrowed $10,000,000 upon closing. The principal amount outstanding under the $10,000,000 borrowing bears interest at the greater of (i) 9.55%, or (ii) the sum of 9.55% plus the prime lending rate, as published by the Wall Street Journal, minus 3.25% per annum. The terms of the December 2011 Note agreement provided that the Company could, at any time prior to October 1, 2012, request another borrowing in the aggregate amount of $10,000,000. The Company elected not to request the additional borrowing and let the option expire on September 30, 2012. In May 2013, the Company amended its December 2011 Note, increasing the initial loan amount to $15,000,000, receiving an additional $5,238,327 upon closing. The Company also extended the date by which it could request the additional $10,000,000 to September 30, 2013. This amendment also provides for the Company to make interest only payments through June 2014. Principal and interest payments will start July 1, 2014 over a 36-month amortization period. The principal balance outstanding on the loan agreement and all accrued but unpaid interest thereunder will be due and payable on June 1, 2017. In addition, the Company is to pay Hercules the following fees:

•

$400,000 on the earliest to occur of (i) December 1, 2015, (ii) the date that the Company prepays all of the outstanding advances and accrued interest, or (iii) the date that all of the advances and interest become due and payable.

•

$495,245 on the earliest to occur of (i) June 1, 2017, (ii) the date that the Company prepays all of the outstanding advances and accrued interest, or (iii) the date that all of the advances and interest become due and payable

The Company granted Hercules a security interest in all of its assets, except intellectual property. The Company’s obligations to Hercules include restrictions on borrowing, asset transfers, placing liens or security interests on the Company’s assets including its intellectual property, mergers and acquisitions and distributions to stockholders.

First Hercules Warrant expires on December 20, 2021. Proceeds equal to the fair value of the Hercules Warrant were recorded as a liability at the date of issuance and the borrowings under the December 2011 Note will be increased to equal the face amount of the borrowings plus interest through interest expense over the term of the loan using the effective interest method. Upon completion of the Company’s initial public offering (“IPO”), the warrant liability was reclassified to additional paid-in capital. Since the amendment to the warrant resulted in a variable exercise price, the fair value of the warrant as of the date of the amendment was reclassified from additional paid-in capital to a warrant liability.

Additionally, in connection with the amendment of the December 2011 note, the Company entered into a warrant agreement with Hercules (the “Second Hercules Warrant”), under which Hercules has the right to purchase an aggregate number of shares of the Company’s common stock equal to the quotient derived by dividing $609,533 by the exercise price then in effect, which is defined as the lower of (a) $6.11, and (b) the effective price per share of the common stock issued or issuable in any offering of the Company’s equity or equity-linked securities that occurs prior to June 1, 2014, provided that such offering is effected principally for equity or debt-financing purposes. The exercise price is subject to adjustment in the event of a merger, reclassification, subdivision or combination of shares or stock dividend and subject also to antidilution protection. The Second Hercules Warrant expires on May 31, 2023. Proceeds equal to the fair value of the Second Hercules Warrant were recorded as a liability at the date of issuance and the borrowings under the December 2011 Note will be increased to equal the face amount of the borrowings plus interest through interest expense over the term of the loan using the effective interest method.

9. Shareholders’ Equity (Deficit)

Initial Public Offering

During February 2012, the Company completed its IPO, issuing 9,660,000 shares of common stock, at a price of $6.00 per share, resulting in net proceeds to the Company of approximately $53.2 million after deducting underwriting discounts of $3.2 million and offering costs of $1.6 million.

In connection with the IPO, all of the Company’s outstanding preferred shares, including accrued yield of $13.7 million, automatically converted into a total of 9,958,502 shares of its common stock and the preferred stock warrant liability was reclassified to additional paid-in capital upon the conversion of warrants to purchase preferred stock into warrants to purchase common stock. In addition, the Company’s August 2011 Notes and related accrued interest converted into 876,621 shares of common stock.

Private Placement

During October 2012, the Company sold 3,864,461 shares of its common stock at $6.50 per share to certain institutional accredited investors in a private placement financing, raising an aggregate of $25,118,997 before sales agency fees and offering costs of approximately $1.7 million. In connection with this financing, the Company entered into a registration rights agreement, pursuant to which it registered the resale of the shares of common stock issued in the financing.

Public Offering

During June 2013, the Company completed a public offering issuing 8,273,938 shares of common stock, at a price of $7.00 per share, resulting in net proceeds to the Company of approximately $54.2 million after deducting underwriting discounts of $3.5 million and offering costs of $0.2 million.

10. Share Option Plans

The Company adopted the 2006 Stock Plan in January 2006 (“the 2006 Plan”). The 2006 Plan provided for the granting of incentive share options, nonqualified share options and restricted shares to Company employees, representatives and consultants. As of June 30, 2013, there were options for an aggregate of 702,185 shares issued and outstanding under the 2006 Plan.

The Company’s board of directors adopted the 2011 Equity Incentive Plan in October 2011 (the “2011 Plan”), and authorized the issuance of up to 1,526,316 shares for future issuances under the 2011 Plan. During January 2013, the authorized shares under the 2011 Plan automatically increased by 105,263 shares. During May 2013, the Company’s shareholders approved an increase of 1,500,000 shares reserved under the 2011 Plan. As of June 30, 2013, there were 2,001,579 option shares available under the 2011 Plan.

The 2011 Plan became effective upon the conversion of Cempra Holdings, LLC from a limited liability company to a corporation on February 2, 2012 and was adopted by the Company’s shareholders immediately thereafter. Upon effectiveness of the 2011 Plan, the Company eliminated the authorization for any unissued shares previously reserved under the Company’s 2006 Plan. The stock awards previously issued under the 2006 Plan remain in effect in accordance with the terms of the 2006 Plan.

The following table summarizes the Company’s 2006 and 2011 Plan activity:


				Weighted		Weighted
				Average		Average		Aggregate
	Number of			Exercise		Contractual		Intrinsic
	Options			Price		Term (in years)		Value ⁽¹⁾

Outstanding - December 31, 2012		1,162,602		$	4.18

Granted		698,473			6.73
Exercised		—			—
Forfeited		(28,890	)		6.56
Expired		—			—


Outstanding - June 30, 2013		1,832,185			5.10		8.09	$	4,893,553

Exercisable - June 30, 2013		1,231,068			4.68		7.55	$	3,308,488

Vested and expected to vest at June 30, 2013 ⁽²⁾		1,772,552		$	5.07		8.05	$	4,787,384

⁽¹⁾	Intrinsic value is the excess of the fair value of the underlying common shares as of June 30, 2013 over the weighted-average exercise price.

⁽²⁾	The number of stock options expected to vest takes into account an estimate of expected forfeitures.

The following table summarizes certain information about all options outstanding as of June 30, 2013:


	Options Outstanding				Options Exercisable
			Weighted Average				Weighted Average
			Remaining				Remaining
			Contractual				Contractual
Exercise Price	Number of Options		Term (in years)		Number of Options		Term (in years)

$0.48 - $1.71		97,688		3.19		97,688		3.19
$1.71 - $2.94		604,497		6.60		497,456		6.44
$5.40 - $6.63		603		9.66		603		9.66
$6.63 - $7.86		1,129,397		9.31		635,321		9.09

		1,832,185				1,231,068

During the three-month period ended June 30, 2012 and 2013, the Company recorded $506,123 and $628,161 in share-based compensation expense, respectively. During the six-month period ended June 30, 2012 and 2013, the Company recorded $670,610 and $1,618,745 in share-based compensation expense, respectively. Since inception, the Company has recognized $4,311,315 in share-based compensation expense. As of June 30, 2013, approximately $2,255,000 of total unrecognized compensation cost related to unvested share options is expected to be recognized over a weighted-average period of 1.7 years.

11. Income Taxes

The Company estimates an annual effective tax rate of 0% for the year ending December 31, 2013 as the Company incurred losses for the six-month period ended June 30, 2013 and is forecasting additional losses through the fourth quarter, resulting in an estimated net loss for both financial statement and tax purposes for the year ending December 31, 2013. Therefore, no federal or state income taxes are expected and none have been recorded at this time. Income taxes have been accounted for using the liability method in accordance with FASB ASC 740.

Due to the Company’s history of losses since inception, there is not enough evidence at this time to support that the Company will generate future income of a sufficient amount and nature to utilize the benefits of its net deferred tax assets. Accordingly, the deferred tax assets have been reduced by a valuation allowance, since it has been determined that it is more likely than not that all of the deferred tax assets will not be realized.

12. Net Loss Per Share

Basic and diluted net loss per common share was determined by dividing net loss attributable to common shareholders by the weighted average common shares outstanding during the period. The Company’s potentially dilutive shares, which include redeemable convertible preferred shares, convertible debt, warrants and common share options, have not been included in the computation of diluted net loss per share for all periods as the result would be antidilutive.

The following potentially dilutive securities have been excluded from the computation of diluted weighted average shares outstanding, as they would be antidilutive:


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2013		2012		2013
	(Unaudited)				(Unaudited)

Redeemable convertible preferred shares		—		—		1,390,847		—
Convertible debt		—		—		89,855		—
Warrants outstanding		247,370		280,258		230,581		263,905
Stock options outstanding		1,115,967		1,767,194		935,710		1,640,408


		1,363,337		2,047,452		2,646,993		1,904,313

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operation

The interim financial statements and this Management’s Discussion and Analysis of Financial Condition and Results of Operations should be read in conjunction with the financial statements and notes thereto for the year ended December 31, 2012, and the related Management’s Discussion and Analysis of Financial Condition and Results of Operations, both of which are contained in our Annual Report on Form 10-K for the year ended December 31, 2012. In addition to historical information, this discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements are subject to risks and uncertainties, including those set forth under “Part I. Item 1. Business - Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2012, and elsewhere in this report, that could cause actual results to differ materially from historical results or anticipated results.

Overview

We are a clinical-stage pharmaceutical company focused on developing antibiotics to meet critical medical needs in the treatment of bacterial infectious diseases, particularly respiratory tract infections and chronic and acute staphylococcal infections. Our lead program, solithromycin, which we are developing in both oral and IV formulations initially for the treatment of CABP, one of the most serious infections of the respiratory tract, is in a pivotal Phase 3 clinical trial of the oral formulation for the treatment of CABP in a global multi-center double-blinded study. We have also completed a Phase 2 study of solithromycin in uncomplicated gonorrhea. Our second program is Taksta, which we are developing in the U.S. as an oral treatment for prosthetic joint infections caused by S. aureus , including MRSA. We are conducting a Phase 2 trial for Taksta in patients with prosthetic joint infections.

We acquired worldwide rights (exclusive of ASEAN countries) to a library of over 500 macrolide compounds, including solithromycin, from Optimer Pharmaceuticals, Inc. in March 2006. We entered into a long-term supply arrangement with Ercros, S.A. in March 2011, pursuant to which we have the exclusive right to acquire fusidic acid for the production of Taksta. We believe Ercros is one of only two currently known manufacturers that can produce fusidic acid compliant with the purity required for human use.

We have devoted substantially all of our resources to our drug development efforts, including conducting clinical trials of our product candidates, protecting our intellectual property and providing general and administrative support for these operations. We do not have any products approved for sale and have not generated any revenue from product sales. From inception in November 2005 through June 30, 2013, we raised a total of $239.5 million from the issuance of debt, sale of convertible notes, convertible preferred shares, common shares and common stock, including $58.0 million from the sale of common stock in our IPO in February 2012, $25.1 million from the sale of common stock in a private placement in October 2012 and $57.9 million from the sale of common stock in a public offering in June 2013. As more fully discussed below, in May 2013, we licensed rights to solithromycin in Japan to Toyama Chemical Co., Ltd., or Toyama and received a $10.0 million, non refundable, upfront license fee.

We have incurred losses in each year since our inception in November 2005. Our net losses were approximately $9.5 million and $4.2 million for the three months ended June 30, 2012 and June 30, 2013, respectively, and $13.0 million and $14.6 million for the six months ended June 30, 2012 and June 30, 2013, respectively. As of June 30, 2013, we had an accumulated deficit of approximately $135.8 million. Substantially all of our operating losses resulted from costs incurred in connection with our development programs and from general and administrative costs associated with our operations.

We expect to continue to incur significant expenses and increasing operating losses for at least the next several years. We anticipate that our expenses will increase substantially as we:

•

initiate or continue our clinical trials of solithromycin and Taksta and our other product candidates;

•

seek regulatory approvals for our product candidates that successfully complete clinical trials;

•

build appropriate manufacturing facilities for the manufacture of, or outsource the manufacture of, any products for which we may obtain regulatory approval;

•

establish our own sales force, or contract with third parties, for the sales, marketing and distribution of any products for which we obtain regulatory approval;

•

maintain, expand and protect our intellectual property portfolio;

•

continue our other research and development efforts;

•

hire additional clinical, quality control, scientific and management personnel; and

•

add operational, financial and management information systems and personnel, including personnel to support our product development and commercialization efforts.

We do not expect to generate product revenue unless and until we successfully complete development and obtain marketing approval for one or more of our product candidates, which we expect will take a number of years and is subject to significant uncertainty. Accordingly, we will need to raise additional capital prior to the commercialization of solithromycin and Taksta or any of our other product candidates. Until such time, if ever, as we can generate substantial product revenue, we expect to finance our operating activities through a combination of equity offerings, debt financings, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. However, we may be unable to raise additional funds when needed on favorable terms or at all. Our failure to raise capital as and when needed would have a negative impact on our financial condition and our ability to develop our product candidates.

Our Board of Directors approved a 1-for-9.5 reverse stock split of our common and preferred shares on January 12, 2012, which became effective on January 29, 2012. All references to common stock, common shares outstanding, average number of common shares outstanding and per share amounts in our consolidated financial statements and notes to consolidated financial statements have been restated to reflect the 1-for-9.5 reverse stock split on a retroactive basis.

Financial Overview

Revenue

To date, we have not generated revenue from the sale of any products. All of our revenue to date has been derived from (1) a government contract and (2) the receipt of up-front proceeds under our license agreement withToyama, a portion of which has been recognized in accordance with US GAAP.

In May 2013, we entered into an agreement with the Biomedical Advanced Research and Development Authority of the U.S. Department of Health and Human Services, or BARDA, for the evaluation and development of solithromycin for the treatment of bacterial infections in pediatric populations and infections caused by bioterror threat pathogens, specifically anthrax and tularemia.

The agreement is a cost plus fixed fee development contract, with a base performance segment valued at approximately $17.7 million, and four option work segments that BARDA may request in its sole discretion pursuant to the agreement. If all four option segments are requested, the cumulative value of the agreement would be approximately $58 million. Three of the options are cost plus fixed fee arrangements and one option is a cost sharing arrangement for which we would be responsible for a designated portion of the costs associated with that work segment. The estimated period of performance for the base performance segment is May 24, 2013 through May 23, 2015. If all option segments are requested, this estimated period of performance would be extended until approximately May 23, 2018.

Under the contract, we are reimbursed and recognize revenue as allowable costs are incurred plus a portion of the fixed-fee earned. We consider fixed-fees under cost reimbursable contracts to be earned in proportion to the allowable costs incurred in performance of the work as compared to total estimated contract costs, with such costs incurred representing a reasonable measurement of the proportional performance of the work completed. Through June 30, 2013, we recognized $0.2 million in revenue under this agreement.

In May 2013, Cempra Pharmaceuticals, Inc., our wholly owned subsidiary, entered into a license agreement with Toyama, whereby we licensed to Toyama the exclusive right, with the right to sublicense, to make, use and sell any product in Japan that incorporates solithromycin as its sole active pharmaceutical ingredient, or API, for human therapeutic uses, other than for ophthalmic indications or any condition, disease or affliction of the ophthalmic tissues. Toyama also has a nonexclusive license in Japan and certain other countries, with the right to sublicense, to manufacture or have manufactured API for solithromycin for use in manufacturing such products, subject to limitations and obligations of the concurrently executed supply agreement discussed below. Toyama has granted us certain rights to intellectual property generated by Toyama under the license agreement with respect to solithromycin or licensed products for use with such products outside Japan or with other solithromycin-based products inside or outside Japan.

Following execution of the agreement, we received a $10.0 million upfront payment from Toyama. Toyama is also obligated to pay us up to an aggregate of $60.0 million in milestone payments, depending on the achievement of various regulatory, patent, development and commercial milestones. Under the terms of the license agreement, Toyama must also pay us a royalty equal to a low-to-high first double decimal digit percentage of net sales, subject to downward adjustment in certain circumstances. Through June 30, 2013, we recognized $4.3 million in revenue under this agreement.

As part of the license agreement, Toyama and we also entered into a supply agreement, whereby we will be the exclusive supplier (with certain limitations) to Toyama and its sublicensees of API for solithromycin for use in licensed products in Japan, as well as the exclusive supplier to Toyama and its sublicensees of finished forms of solithromycin to be used in its clinical trials in Japan. Pursuant to the supply agreement, Toyama will pay us for such clinical supply of finished product and all supplies of API for solithromycin for any purpose, other than the manufacture of products for commercial sale in Japan, at prices equal to our costs . All API for solithromycin supplied by us to Toyama for use in the manufacture of finished product for commercial sale in Japan will be ordered from us at prices determined by our manufacturing costs, and which may, depending on such costs, equal, exceed, or be less than such costs. Either party may terminate the supply agreement for uncured material breach or insolvency of the other party, with Toyama’s right to terminate for our breach subject to certain further conditions in the case of our failure to supply API for solithromycin or clinical supply, but otherwise the supply agreement will continue until the expiration or termination of the license agreement.

In the future, we anticipate generating revenue from a combination of sales of our products, if approved, whether through our own or a third-party sales force, and license fees, milestone payments and royalties in connection with strategic collaborations regarding any of our product candidates. We expect that any revenue we generate will fluctuate from quarter to quarter. If we or our strategic partners fail to complete the development of solithromycin or Taksta in a timely manner or obtain regulatory approval for them, or if we fail to develop our own sales force or find one or more strategic partners for the commercialization of approved products, our ability to generate future revenue, and our financial condition and results of operations would be materially adversely affected.

Research and Development Expenses

Since our inception, we have focused our resources on our research and development activities, including conducting pre-clinical studies and clinical trials, manufacturing development efforts and activities related to regulatory filings for our product candidates. We recognize our research and development expenses as they are incurred. Our research and development expenses consist primarily of:

•

employee-related expenses, which include salaries, benefits and share compensation expense, for personnel in research and development functions;

•

fees paid to consultants and clinical research organizations, or CROs, in connection with our clinical trials, and other related clinical trial costs, such as for investigator grants, patient screening, laboratory work and statistical compilation and analysis;

•

costs related to acquiring and manufacturing clinical trial materials;

•

costs related to compliance with regulatory requirements;

•

consulting fees paid to third parties related to non-clinical research and development;

•

research supplies; and

•

license fees and milestone payments related to in-licensed technologies.

From inception through June 30, 2013, we have incurred $97.4 million in research and development expenses. We plan to increase our research and development expenses for the foreseeable future as we seek to complete development of solithromycin for CABP and Taksta for prosthetic joint infections and to further advance our other product candidates.

Our direct research and development expenses consist principally of external costs, such as fees paid to investigators, consultants, central laboratories and CROs in connection with our clinical trials, and related clinical trial fees. Our internal resources, employees and infrastructure are not directly tied to any individual research project and are typically deployed across multiple projects. Through our clinical development programs, we are advancing solithromycin and Taksta in parallel primarily for the treatment of CABP and prosthetic joint infections, respectively, as well as for other indications. Through our pre-clinical development programs, we are seeking to develop macrolide product candidates for non-antibacterial indications.

The following table sets forth costs incurred on a program-specific basis for solithromycin and Taksta, excluding personnel-related costs. Macrolide research includes costs for discovery programs. All employee-related expenses for those employees working in research and development functions are included in “Research and development payroll” in the table, including salary, bonus, employee benefits and share-based compensation. We do not allocate insurance or other indirect costs related to our research and development function to specific product candidates. Those expenses are included in “Indirect research and development expense” in the table.


	Three Months Ended June 30,				Six Months Ended June 30,
	2012		2013		2012		2013
	(Unaudited, in thousands)				(Unaudited, in thousands)
Direct research and development expense by program:
Solithromycin	$	6,392	$	4,407	$	7,606	$	10,152
Taksta		263		572		294		988
Macrolide research		18		27		21		39
Research and development personnel cost		698		1,183		1,302		2,262

Total direct research and development expense		7,371		6,189		9,223		13,441
Indirect research and development expense		53		138		77		257

Total research and development expense	$	7,424	$	6,327	$	9,300	$	13,698

The successful development of our clinical and pre-clinical product candidates is highly uncertain. At this time, we cannot reasonably estimate the nature, timing or costs of the efforts that will be necessary to complete the remainder of the development of any of our clinical or pre-clinical product candidates or the period, if any, in which material net cash inflows from these product candidates may commence. This is due to the numerous risks and uncertainties associated with developing drugs, including the uncertainty of:

•

the scope, rate of progress and expense of our ongoing, as well as any additional clinical trials required and other research and development activities;

•

future clinical trial results; and

•

the timing of regulatory approvals.

A change in the outcome of any of these variables with respect to the development of a product candidate could mean a significant change in the costs and timing associated with the development of that product candidate. For example, if the FDA or another regulatory authority were to require us to conduct clinical trials beyond those which we currently anticipate or if we experience significant delays in enrollment in any of our clinical trials, we could be required to expend significant additional financial resources and time on the completion of clinical development.

We are conducting our pivotal trial program for solithromycin, which we believe will require two Phase 3 trials, including one trial with oral solithromycin and one trial with IV solithromycin stepping down to oral solithromycin. Both of these trials will be randomized, double-blinded studies conducted against a comparator drug agreed upon with the FDA, for which we will have to show non-inferiority from an efficacy perspective and

acceptable safety and tolerability. Using feedback received from the FDA, we began the Phase 3 trial with oral solithromycin in December 2012. We finalized the overall development program for solithromycin for CABP with the FDA at our end of Phase 2 meeting for solithromycin, which occurred in May 2013, and plan to initiate the IV-to-oral trial in the fourth quarter of 2013.

In 2010, we successfully completed a Phase 2 clinical trial with Taksta in ABSSSI patients. In this trial, the Taksta loading dose regimen demonstrated efficacy, safety and tolerability that was comparable to linezolid. Like ABSSSI, prosthetic joint infections are often caused by S. aureus , including MRSA. At this time, however, we do not intend to pursue Taksta as a treatment for ABSSSI. In December 2012, we initiated a Phase 2 trial of Taksta in patients with prosthetic joint infections.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries and related costs, including share-based compensation, for employees in executive, operational, finance and human resources functions. Other significant general and administrative expenses include professional fees for accounting, legal, and information technology services, facilities costs, and expenses associated with obtaining and maintaining patents.

We expect that our general and administrative expenses will increase with the continued development and potential commercialization of our product candidates. We believe that these increases will likely include increased costs related to the hiring of additional personnel and increased fees for outside consultants, lawyers and accountants. We also expect to incur significant costs to comply with corporate governance, internal controls and similar requirements applicable to public companies.

Other Income (Expense), Net

Interest income consists of interest earned on our cash and equivalents as well as decreases in fair value of warrants issued in connection with the note issued to Hercules Technology Growth Capital, Inc. in December 2011, referred to as the December 2011 Note and the warrants issued in connection with the May 31, 2013 amendment to the December 2011 Note. We expect our interest income to increase during 2013 as we have significantly increased our cash position through additional financing activities in 2012 and 2013.

Interest expense consists of interest incurred on the notes issued in August 2011 to various investors and that converted to common stock at the close of our initial public offering, or IPO, in February 2012 and the December 2011 Note as well as increases in fair value of warrants issued in connection with the notes. We expect interest expense to increase during 2013 as we increased our long-term debt balance on the outstanding December 2011 Note in May 2013.

Accretion of Redeemable Preferred Shares

Our redeemable convertible preferred shares were initially recorded on our balance sheet at their cost, less associated issuance costs. The amount reflected on the balance sheet for our convertible preferred shares is increased by periodic accretion so that the amount reflected on the balance sheet will equal the aggregate redemption price at the redemption date.

Yield is cumulative and payable to the holders of preferred shares in advance of any distributions on common shares but only when, if and as declared by our board of directors. The holders of Class C preferred shares earned an annual yield at a rate of 8.0% of the original purchase price since May 13, 2009. Through May 13, 2009, the holders of Class A preferred shares and Class B preferred shares earned an annual yield at a rate of 8.0% of the original purchase price. Yield is recorded through periodic accretions which increase the carrying value of the preferred shares and is charged against additional paid-in capital to the extent available or shareholders’ equity (deficit).

Upon completion of our IPO, all of our outstanding preferred shares, including $13.7 million of accrued yield converted into a total of 9,958,502 shares of common stock.

Critical Accounting Policies and Estimates

Our discussion and analysis of our financial condition and results of operations are based on our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenue and expenses and the disclosure of contingent assets and liabilities in our financial statements. We evaluate our estimates and judgments, including those related to accrued expenses and share-based compensation, on an ongoing basis. We base our estimates on historical experience,

known trends and events and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates.

For a description of our critical accounting policies and estimates, please refer to the “Critical Accounting Policies and Estimates” section of the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section in our Annual Report on Form 10-K for the year ended December 31, 2012 filed with the SEC on March 7, 2013. The only material changes to our accounting policies since December 31, 2012 are as follows:

Revenue Recognition

Results of Operations

The following table summarizes the results of our operations for each of three-month and six-month periods ended June 30, 2012 and 2013, together with the changes in those items in dollars:


	Three Months Ended June 30,									Six Months Ended June 30,
							Increase/									Increase/
	2012			2013			(Decrease)			2012			2013			(Decrease)
	(Unaudited, in thousands)									(Unaudited, in thousands)
Revenue:
Contract research	$	—		$	232			232		$	—		$	232			232
License		—			4,335			4,335			—			4,335			4,335

Total revenue		—			4,567			4,567			—			4,567			4,567
Operating expenses:
Research and development expense (1)		7,424			6,327			(1,097	)		9,300			13,698			4,398
General and administrative expense (1)		1,778			2,081			303			2,750			4,729			1,979

Loss from operations		(9,202	)		(3,841	)		5,361			(12,050	)		(13,859	)		(1,809	)
Other income (expense), net		(327	)		(372	)		(45	)		(628	)		(699	)		(71	)

Net income (loss)		(9,529	)		(4,213	)		5,316			(12,678	)		(14,558	)		(1,880	)


(1) Includes the following stock-based compensation expenses:

Research and development expense	$	155		$	194		$	39		$	221		$	485		$	264
General and administrative expense		351			434			83			450			1,134			684

Comparison of the Three Months Ended June 30, 2012 and June 30, 2013

Contract and license revenue

For the three months ended June 30, 2013, total revenue increased to $4.6 million compared to the three months ended June 30, 2012. Contract research revenue increased $0.2 million as we initiated our BARDA contract in May 2013. We expect contract research revenue to continue to increase as the base performance segment of the contract progresses. License revenue increased $4.3 million due to revenue recognized upon receipt of the $10.0 million upfront payment from the execution of the Toyama license agreement in May 2013.

Research and Development Expense

Research and development expense decreased $1.1 million for the three months ended June 30, 2013 compared to the three months ended June 30, 2012 as a result of a $1.3 million decrease in expenses under the Optimer Pharmaceuticals and The Scripps Research Institute license agreements in 2012, offset by a $0.2 million increase in expenses incurred for Taksta primarily related to our Phase 2 prosthetic joint infection trial that initiated in December 2012.

General and Administrative Expense

General and administrative expense increased by $0.3 million for the three months ended June 30, 2013 compared to the three months ended June 30, 2012 as a result of increased employee expense of $0.1 million, primarily stock compensation expense, and professional service fees of $0.2 million.

Other Income (Expense), Net

Other income (expense) remained consistent during the three months ended June 30, 2013 compared to the three months ended June 30, 2012.

Comparison of the Six Months Ended June 30, 2012 and June 30, 2013

Contract and license revenue

For the six months ended June 30, 2013, total revenue increased to $4.6 million compared to the six months ended June 30, 2012. Contract research revenue increased by $0.2 million as we initiated our BARDA agreement in May 2013. We expect contract research revenue to continue to increase as the base performance segment of the BARDA agreement progresses. License revenue increased $4.3 million due to revenue recognized upon receipt of the $10.0 million upfront payment from the execution of the Toyama license agreement in May 2013.

Research and Development Expense

Research and development expense increased $4.4 million for the six months ended June 30, 2013 compared to the six months ended June 30, 2012 as a result of a $2.5 million increase in expenses incurred for solithromycin, primarily related to our Phase 3 clinical trial that initiated in December 2012, a $0.7 million increase in expenses incurred for Taksta primarily related to our Phase 2 trial that initiated in December 2012 and a $1.2 million increase in employee and travel expenses.

General and Administrative Expense

General and administrative expense increased by $2.0 million for the six months ended June 30, 2013 compared to the six months ended June 30, 2012 as a result of increased employee expense of $0.9 million, primarily stock compensation expense, franchise tax of $0.4 million and professional service fees of $0.7 million.

Other Income (Expense), Net

Other income (expense) remained consistent during the six months ended June 30, 2013 compared to the six months ended June 30, 2012.

Liquidity and Capital Resources

Sources of Liquidity

Since our inception in November 2005 through June 30, 2013, we have funded our operations primarily with $239.5 million from a combination of debt, and the sale of convertible notes, convertible preferred shares, common shares and common stock.

The gross proceeds we have received from the issuance and sale of our convertible notes and preferred and common shares are as follows (dollars in thousands):


		Number of		Gross
Issue		Shares		Proceeds

Class A	2006		789,191	$	7,497	⁽¹⁾
Class A	2007		1,557,895		14,800
Class B	2007		809,717		10,000
Class C	2009		2,488,686		25,500
Class C	2010		2,000,700		20,500
August 2011 Notes	2011		—		5,000
December 2011 Note	2011		—		10,000
Common Stock / Initial Public Offering	2012		9,660,000		57,960
Common Stock / Private Placement	2012		3,864,461		25,119
December 2011 Note Amendment	2013		—		5,238
Common Stock / Public Offering	2013		8,273,938		57,918

In addition to the financing activities listed above, we received $10.0 million of up-front proceeds under our license agreement with Toyama in May 2013.

(1)	Includes $3,197 of converted notes payable and accrued interest.

Cash Flows

The following table sets forth the major sources and uses of cash for the periods set forth below:


	Six Months Ended June 30
	2012			2013
	(Unaudited, in thousands)
Net cash provided by (used in):
Operating activities	$	(11,837	)	$	(7,357	)
Investing activities		(8	)		(42	)
Financing activities		54,090			58,922

Net increase (decrease) in cash and equivalents	$	42,245		$	51,523

Operating Activities. Cash used in operating activities of $11.8 million for the six months ended June 30, 2012 was primarily a result of our $12.7 million net loss offset by cash provided by changes in operating assets and liabilities of $0.1 million and by non-cash items of $0.8 million. Cash used in operating activities of $7.4 million for the six months ended June 30, 2013 was primarily a result of our $11.4 million net loss offset by cash provided by changes in operating assets and liabilities of $2.2 million and by non-cash items of $1.8 million.

Investing Activities. Net cash used in investing activities was $8,000 for the six months ended June 30, 2012 and $42,000 for the six months ended June 30, 2013. Cash used in investing activities during each of these periods reflected our purchases of equipment.

Financing Activities. Net cash provided by financing activities of $54.1 million for the six months ended June 30, 2012 consisted primarily of gross proceeds of $58.0 million from the IPO offset by $3.2 million of underwriting discounts and $0.7 million of offering costs. Net cash provided by financing activities of $58.9 million for the six months ended June 30, 2013 consisted of gross proceeds of $57.9 million from the public offering offset by $3.5 million of underwriting discounts and $0.2 million of offering costs and $5.2 million from proceeds from the amendment of the 2011 December Note offset by $0.3 million of issuance costs less principal payments of $0.2 million to the 2011 December Note.

Funding Requirements

To date, we have not generated any product revenue from our development stage product candidates. All of our revenue has been derived from a government contract and the receipt of up-front proceeds under our license agreement with Toyama. We do not know when, or if, we will generate any product revenue. We do not expect to generate product revenue unless and until we obtain marketing approval of and commercialize solithromycin and/or Taksta or any of our other product candidates. At the same time, we expect our expenses to increase in connection with our ongoing activities, particularly as we continue the research, development and clinical trials of, and seek regulatory approval for, solithromycin and Taksta and our other product candidates. In addition, subject to obtaining regulatory approval of any of our product candidates, we expect to incur significant commercialization expenses for product sales, marketing, manufacturing and distribution. We will need substantial additional funding in connection with our continuing operations.

Based on our estimates of costs and timelines for the development of solithromycin for the treatment of CABP and our resources as of June 30, 2013, we expect that we have sufficient funds in hand to complete all studies and trials currently expected to be necessary for submission of an NDA to the FDA. We will need to obtain additional financing for the continued development of solithromycin outside of CABP, Taksta and our other product candidates and prior to the commercialization of any of these product candidates. We have based our estimates on assumptions that may prove to be wrong, and we may use our available capital resources sooner than we currently expect. Due to the numerous risks and uncertainties associated with the development and commercialization of our product candidates, we are unable to estimate the amounts of increased capital outlays and operating expenditures necessary to complete the development of our product candidates.

Our future capital requirements will depend on many factors, including:

•

the progress, costs and results of our ongoing oral solithromycin Phase 3 trial, the results of our end-of-Phase 2 meeting with the FDA for the planned Phase 3 IV-to-oral trial for solithromycin, our ongoing Taksta Phase 2 trial and any future trials for solithromycin and Taksta;

•

the scope, progress costs, and results of pre-clinical development, laboratory testing and clinical trials for our other product candidates;

•

the costs, timing and outcome of regulatory review of our product candidates;

•

the costs of commercialization activities, including product sales, marketing, manufacturing and distribution, for any of our product candidates for which we receive regulatory approval;

•

our ability to establish collaborations on favorable terms;

•

the costs of preparing, filing and prosecuting patent applications and maintaining, enforcing and defending intellectual property-related claims;

•

revenue if any, received from sales of our product candidates, if approved by the FDA;

•

the extent to which we acquire or invest in businesses, products and technologies; and

•

our ability to obtain government or other third-party funding.

Until we can generate substantial product revenue, we expect to finance our cash needs through a combination of equity offerings, debt financings, government or other third-party funding, marketing and distribution arrangements and other collaborations, strategic alliances and licensing arrangements. We do not have any committed external source of funds. To the extent that we raise additional capital through the sale of equity or convertible debt securities, our stockholders’ ownership interests will be diluted, and the terms of any securities may include liquidation or other preferences that adversely affect our stockholders’ rights as a stockholder. Debt

financing, if available, may involve agreements that include covenants limiting or restricting our ability to take specific actions, such as incurring additional debt, making capital expenditures or declaring dividends, such as currently imposed under the loan from Hercules. If we raise additional funds through government or other third-party funding, marketing and distribution arrangements or other collaborations, strategic alliances or licensing arrangements with third parties, we may have to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates or to grant licenses on terms that may not be favorable to us.

We plan to seek partners or other sources of third-party funding, including government grants, for the continued development of solithromycin and Taksta and our other product candidates. If we are unable to raise additional funds when needed, whether on favorable terms or not, we may be required to delay, limit, reduce or terminate our development of our product candidates, or our commercialization efforts, or to grant rights to develop and market product candidates that we would otherwise prefer to develop and market ourselves.

Contractual Obligations and Commitments

We enter into contracts in the normal course of business with clinical research organizations for clinical trials and clinical supply manufacturing and with vendors for pre-clinical research studies, research supplies and other services and products for operating purposes. These contracts generally provide for termination on notice and therefore we believe that our non-cancelable obligations under these agreements are not material.

During the six months ended June 30, 2013, there were no material changes to our contractual obligations and commitments outside the ordinary course of business from those specified in our 2012 Annual Report on Form 10-K, except for:

December 2011 Note

•

In connection with the initial closing of the December 2011 note, the Company entered into a warrant agreement with Hercules (the “First Hercules Warrant”), under which Hercules has the right to purchase 39,038 shares of the Company’s common stock. The exercise price of the First Hercules Warrant was initially $10.25 per share, subject to adjustment in the event of a merger, reclassification, subdivision or combination of shares or stock dividend and subject also to antidilution protection. In connection with the amendment to the loan agreement, the exercise price of the first Hercules Warrant was reduced to the lower of (a) $6.11, and (b) the effective price per share of our common stock issued or issuable in any offering of our equity or equity-linked securities that occurs prior to June 1, 2014, provided that such offering is effected principally for equity or debt-financing purposes, The First Hercules Warrant expires on December 20, 2021. Proceeds equal to the fair value of the Hercules Warrant were recorded as a liability at the date of issuance and the borrowings under the December 2011 Note will be increased to equal the face amount of the borrowings plus interest through interest expense over the term of the loan using the effective interest method. Upon completion of the Company’s initial public offering (“IPO”), the warrant liability was reclassified to additional paid-in capital. Since the amendment to the warrant resulted in a variable exercise price, the fair value of the warrant as of the date of the amendment was reclassified from additional paid-in capital to a warrant liability.

Operating Lease

In May 2013, the Company amended its operating lease agreement for office space in Chapel Hill, North Carolina. The new lease provides for aggregate lease payments of $1.3 million paid over a 68 month term.

Off-Balance Sheet Arrangements

We did not have during the periods presented, and we do not currently have, any off-balance sheet arrangements as defined under SEC rules.

Item 3. Quantitative and Qualitative Disclosures about Market Risk

There have not been any material changes to our exposure to market risk during the quarter ended June 30, 2013. For additional information regarding market risk, refer to “Item 7A. Quantitative and Qualitative Disclosure About Market Risk” of our 2012 Annual Report on Form 10-K.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

Disclosure controls and procedures (as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended, or the Exchange Act), are designed only to provide reasonable assurance that information to be disclosed in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (our principal executive officer) and Chief Financial Officer (our principal financial and accounting officer), of the effectiveness of our disclosure controls and procedures pursuant to Exchange Act Rule 13a-15(b). Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures were effective as of the end of the period covered by this report to provide the reasonable assurance discussed above.

Changes in Internal Control over Financial Reporting

No change to our internal control over financial reporting occurred during the last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A.

Risk Factors

There have been no material changes to the risk factors previously disclosed in our Annual Report on Form 10-K for the year ended December 31, 2012 except as set forth below.

Clinical trials involve a lengthy and expensive process with an uncertain outcome, and results of earlier studies and trials may not be predictive of future trial results.

Clinical testing is expensive, can take many years to complete and its outcome is highly uncertain. Failure can occur at any time during the clinical trial process due to inadequate performance of a drug or inadequate adherence by patients or investigators to clinical trial protocols. Pursuant to FDA guidelines, new drugs must show non-inferiority or superiority to existing approved treatments. We have conducted our solithromycin for CABP and Taksta for ABSSSI clinical trials pursuant to proposed guidelines published by the FDA for drugs being developed for the treatment of CABP and ABSSSI, respectively. To date, those clinical trials demonstrate solithromycin and Taksta are comparable to current standards of care. However, because the numbers of patients in our Phase 2 trial for the oral formulation of solithromycin and our Phase 2 trial for Taksta for ABSSSI were small, our results were not powered to show, and did not show, statistical non-inferiority. If in our ongoing and any later clinical trials solithromycin or Taksta fails to demonstrate safety and/or superiority or non-inferiority according to FDA guidelines, the FDA will not approve that product candidate and we would not be able to commercialize it, which will have a material adverse effect on our business, financial condition, results of operations and prospects.

Our ongoing and planned Phase 3 trials for solithromycin may be more expensive and time consuming than we currently expect. FDA regulations require two Phase 3 trials for any drug for which an NDA is submitted. Based on FDA guidance, we believe we will only need to conduct one Phase 3 trial for oral solithromycin and one Phase 3 IV-to-oral trial because we believe we will have developed the necessary data to support our planned NDA and satisfy the FDA requirement. However, the FDA may disagree with our assessment and may require additional clinical data to support approval. Any expanded or additional trials, for whatever reason, would add to the time and cost of solithromycin’s development.

In addition, the results of pre-clinical studies and early clinical trials of product candidates may not be predictive of the results of later-stage clinical trials. A number of companies in the pharmaceutical and biotechnology industries, including those with greater resources and experience than us, have suffered significant setbacks in Phase 2 and Phase 3 clinical trials despite achieving successful results in earlier stage trials. The failure to obtain positive results in any of our Phase 2 or Phase 3 clinical trials could seriously impair the development prospects, and even prevent regulatory approval, of solithromycin or Taksta or any candidate in our existing proprietary macrolide library.

Our dependence upon third parties for the manufacture and supply of solithromycin, Taksta and any future product candidates may cause delays in, or prevent us from, successfully developing and commercializing our products.

We do not currently have nor do we plan to build the infrastructure or capability internally to manufacture solithromycin or Taksta for use in the conduct of our clinical trials. In January 2013, we entered into an agreement with Wockhardt to supply the API and commercial supply for solithromycin. Wockhardt manufactures solithromycin according to our specifications under our proprietary rights. While we have the ability to develop alternate sources for solithromycin should Wockhardt be unable to supply our needs, we may not be able to negotiate an agreement with another source on acceptable terms, if at all.

We employ the services of Ercros S.A., or Ercros, to produce Taksta’s API and intend to utilize a third-party manufacturer to produce the finished dosing formulation of Taksta. We have a long-term exclusive supply arrangement with Ercros to produce the fusidic acid used in Taksta in which Ercros agrees to exclusively supply us with fusidic acid in the U.S., and we agree to obtain our supply of fusidic acid for commercial sale exclusively from Ercros, subject to a right to develop a second source for limited supply quantities. We believe Ercros is one of only two currently known manufacturers that can produce fusidic acid compliant with the purity required for human use. The second manufacturer is not available as a supplier to us. Fusidic acid is difficult to produce at these purity levels because of its complex fermentation process. As such, there are underlying risks associated with its manufacture, which could include cost overruns, new impurities, difficulties in scaling up or reproducing manufacturing processes and lack of timely availability of raw materials. We have yet to identify a viable second source of fusidic acid but continue to research alternatives. If Ercros cannot supply sufficient quantities of fusidic acid to make clinical supplies of Taksta, it would harm our ability to develop Taksta. We may not be able to locate a second manufacturer or, if we do, we may not be able to negotiate an agreement on favorable terms, if at all.

In addition, regulatory requirements could pose barriers to the manufacture of our API and finished product for solithromycin and Taksta. Our third-party manufacturers are required to comply with the FDA’s current good manufacturing practices, or cGMP, regulations. As a result, the facilities used by Wockhardt, Ercros, and any of our future manufacturers to manufacture solithromycin and Taksta must be approved by the FDA after we submit our NDA to the FDA and before approval of solithromycin and Taksta. Similar regulations apply to manufacturers of our products for use or sale in foreign countries. We do not control the manufacturing process of solithromycin or Taksta and are completely dependent on these third party manufacturing partners for compliance with the applicable regulatory requirements for the manufacture of solithromycin and Taksta API and their finished product. If our manufacturers cannot successfully manufacture material that conforms to our specifications and the strict regulatory requirements of the FDA and any applicable foreign regulatory authority, they will not be able to secure the applicable approval for their manufacturing facilities. If these facilities are unable to comply with the FDA’s cGMP requirements, or otherwise are not approved for the commercial manufacture of solithromycin or Taksta, we may need to find alternative manufacturing facilities, which would result in significant delays of up to several years in obtaining approval for solithromycin or Taksta. In addition, our manufacturers will be subject to ongoing periodic unannounced inspections by the FDA and corresponding state and foreign agencies for compliance with cGMPs and similar regulatory requirements. Failure by any of our manufacturers to comply with applicable cGMP regulations could result in sanctions being imposed on us, including fines, injunctions, civil penalties, delays, suspensions or withdrawals of approvals, operating restrictions, interruptions in supply, and criminal prosecutions, any of which could have a material adverse impact on our business, financial condition, results of operations or prospects.

Finally, we also could experience manufacturing delays if our third-party manufacturers give greater priority to the supply of other products over our product candidates or otherwise do not satisfactorily perform according to the terms of the agreement between us.

If Wockhardt, Ercros, or any alternate supplier of API or finished drug product for solithromycin or Taksta experiences any significant difficulties in its respective manufacturing processes, does not comply with the terms of the agreement between us or does not devote sufficient time, energy and care to providing our manufacturing needs, we could experience significant interruptions in the supply of solithromycin or Taksta, which could impair our ability to supply solithromycin or Taksta at the levels required for our clinical trials and commercialization and prevent or delay their successful development and commercialization. On June 20, 2012, the FDA issued a Warning Letter to Ercros, S.A., citing cGMP violations at the Ercros facility that manufactures the API for Taksta. Although some of the alleged violations may be related to products other than fusidic acid, the FDA’s issuance of a Warning Letter signifies Agency concerns with cGMP compliance at the Ercros facility. We believe Ercros is actively working with FDA to resolve these issues. However, if Ercros is unable to satisfactorily address the FDA’s concerns in a timely manner, the FDA may take further enforcement actions that could significantly jeopardize our supply of Taksta API for use in clinical trials or later commercialization. For example, the FDA might issue an import alert, which could preclude us from importing Taksta API manufactured at the Ercros facility. Particularly in light of the unavailability of alternative suppliers for Taksta API, this could significantly impact our ability to develop and commercialize Taksta.

A substantial portion of our future revenues may be dependent upon our strategic partnerships.

Our success will depend in significant part on our ability to attract and maintain strategic partners and strategic relationships to support the development and commercialization of our product candidates. We currently expect that a substantial portion of our future revenues may be dependent upon our strategic partnership with Toyama. Under the license agreement we entered into in May 2013 with Toyama, Toyama has significant development and commercialization responsibilities with respect to solithromycin in Japan. If Toyama or any of our other strategic partners were to terminate their agreements with us, fail to meet their obligations or otherwise decrease their level of efforts, allocation of resources or other commitments under these agreements with us, our future revenues could be negatively impacted and the development and commercialization of product candidates could be interrupted. In addition, if some or any of the development, regulatory and commercial milestones are not achieved or if certain net sales thresholds are not achieved, as set forth in the Toyama agreement or any agreements with other strategic partners, we will not fully realize the expected economic benefits of those agreements. Further, the achievement of certain of the milestones under our partnership agreements will depend on factors that are outside of our control and most are not expected to be achieved for several years, if at all. Any failure to successfully maintain our strategic partnership agreements could materially and adversely affect our ability to generate revenues.

We have not yet registered our trademarks in all of our potential markets, and failure to secure those registrations could adversely affect our business.

We have filed an application with the USPTO for our mark “Taksta”; however, that application has not yet been examined. We cannot guarantee that the application will be allowed, nor whether the USPTO will ultimately issue a trademark registration. In addition, although we are not currently aware of any oppositions to or cancellations of our registered trademarks or pending applications, it is possible that one or more of the applications could be subject to opposition or cancellation after the marks are registered. The registrations will be subject to use and maintenance requirements. We have not yet registered all of our trademarks in all of our potential markets and there are names or symbols other than “Cempra” that may be protectable marks for which we have not sought registration. Failure to secure those registrations could adversely affect our business. We cannot assure you that opposition or cancellation proceedings will not be filed against our trademarks or that our trademarks would survive such proceedings.

Item 6. Exhibits


Exhibit Number	Description of Document	Registrant’s Form	Dated	Exhibit Number	Filed Herewith

10.3	2011 Equity Incentive Plan, as amended May 23, 2013.				X

10.13*	Exclusive License and Development Agreement by and between Cempra Pharmaceuticals, Inc. and Toyama Chemical Co., Ltd., dated May 8, 2013.				X

10.14*	Supply Agreement by and between Cempra Pharmaceuticals, Inc. and Toyama Chemical Co., Ltd., dated May 8, 2013.				X

10.15*	Contract by and between Cempra, Inc. and the Biomedical Advanced Research and Development Authority, dated May 24, 2013.				X

31.1	Certification of Chief Executive Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X

31.2	Certification of Chief Financial Officer Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.				X

32.1	Certification of Chief Executive Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X

32.2	Certification of Chief Financial Officer Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.				X

101	Financials in XBRL format.				X

*	Confidential treatment has been requested with respect to certain portions of this exhibit. Omitted portions have been filed separately with the SEC.

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	CEMPRA, INC.

Dated: July 31, 2013		By:	/s/ Prabhavathi Fernandes, Ph.D.

		Prabhavathi Fernandes, Ph.D.
		President and Chief Executive Officer

Dated: July 31, 2013		By:	/s/ Mark W. Hahn
		Mark W. Hahn
		Chief Financial Officer

Exhibit 10.3

CEMPRA, INC.

2011 EQUITY INCENTIVE PLAN

Approved by the Board: October 11, 2011

Approved by the Stockholders: February 2, 2012

Amended by the Stockholders (Section 3(a)): May 23, 2013

Termination Date: October 11, 2021

1.	GENERAL.

(a) Establishment. Cempra, Inc., a Delaware corporation, hereby establishes the Cempra, Inc. 2011 Equity Incentive Plan (as may be amended from time to time, the “ Plan ”) effective as of February 2, 2012, the date of its approval by the stockholders of the Company (the “ Effective Date ”).

(b) Successor to Prior Plan. This Plan is intended as the successor to the Company’s Sixth Amended and Restated 2006 Stock Plan (the “ Prior Plan ”). Following the Effective Date, no additional stock awards shall be granted under the Prior Plan. Any shares remaining available for issuance pursuant to the exercise of options or settlement of stock awards under the Prior Plan shall become available for issuance pursuant to Stock Awards granted hereunder, as provided in Section 3(a) hereof. Any shares subject to outstanding stock awards granted under the Prior Plan that expire or terminate for any reason prior to exercise or settlement shall become available for issuance pursuant to Stock Awards granted hereunder, as provided in Section 3(b) hereof. All outstanding stock awards granted under the Prior Plan shall remain subject to the terms of the Prior Plan with respect to which they were originally granted.

(c) Eligible Award Recipients. The persons eligible to receive Stock Awards are Employees, Directors and Consultants.

(d) Available Awards. The Plan provides for the grant of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) Restricted Stock Awards, (iv) Restricted Stock Unit Awards, (v) Stock Appreciation Rights, (vi) Performance Stock Awards and (vii) Other Stock Awards.

(e) Purpose . The purpose of the Plan is to advance the interests of the Company and its stockholders by providing an incentive to attract, retain and reward persons eligible to receive Stock Awards as set forth in Section 1(c), and by motivating such persons to contribute to the growth and profitability of the Company.

2.	ADMINISTRATION.

(a) Administration by Board. The Board shall administer the Plan unless and until the Board delegates administration of the Plan to a Committee or Committees, as provided in Section 2(c).

(b) Powers of Board. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan:

(i) To determine from time to time (A) which of the persons eligible under the Plan shall be granted Stock Awards; (B) when and how each Stock Award shall be granted; (C) what type or combination of types of Stock Awards shall be granted; (D) the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive cash or Common Stock pursuant to a Stock Award; and (E) the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person.

(ii) To determine the provisions of each Stock Award granted (which need not be identical), including without limitation, (A) the exercise or purchase price of shares of Common Stock purchased pursuant to any Stock Award, (B) the method of payment for shares of Common Stock purchased pursuant to any Stock Award, (C) the method for satisfaction of any tax withholding obligation arising in connection with Stock Award, including by the withholding or delivery of shares of Common Stock, (D) the timing, terms and conditions of the exercisability or vesting of any Stock Award or any shares acquired pursuant thereto, (E) the Performance Criteria necessary to satisfy Performance Goals applicable to any Stock Award and the extent to which such Performance Goals have been attained, (F) the time of the expiration of any Stock Award, (G) the effect of the Participant’s termination of Continuous Service on any of the foregoing, and (H) all other terms, conditions and restrictions applicable to any Stock Award or shares acquired pursuant thereto not inconsistent with the terms of the Plan.

(iii) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan or Stock Award fully effective.

(iv) To settle all controversies regarding the Plan and Stock Awards granted under it.

(v) To accelerate, continue, extend or defer the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest.

(vi) To suspend or terminate the Plan at any time. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the affected Participant.

(vii) To amend the Plan in any respect the Board deems necessary or advisable, including, without limitation, relating to Incentive Stock Options and certain nonqualified deferred compensation under Section 409A of the Code and/or to bring the Plan or Stock Awards granted under the Plan into compliance therewith, subject to the limitations, if any, of applicable law. However, except as provided in Section 9(a) relating to Capitalization Adjustments, stockholder approval shall be required for any amendment of the Plan that either (A) materially increases the number of shares of Common Stock available for issuance under the Plan, (B) materially expands the class of individuals eligible to receive Stock Awards under the Plan, (C) materially increases the benefits accruing to Participants under the Plan or materially reduces the price at which shares of Common Stock may be issued or purchased under the Plan, (D) materially extends the term of the Plan, or (E) expands the types of Stock Awards available for issuance under the Plan, but in each of (A) through (E) only to the extent required by applicable law or listing requirements. Except as provided above, rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (1) the Company requests the consent of the affected Participant, and (2) such Participant consents in writing.

(viii) To submit any amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of (A) Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to Covered Employees, (B) Section 422 of the Code regarding Incentive Stock Options, or (C) Rule 16b-3.

(ix) To approve forms of Stock Award Agreements for use under the Plan and to amend the terms of any one or more Stock Awards, including, but not limited to, amendments to provide terms more favorable than previously provided in the Stock Award Agreement, subject to any specified limits in the Plan that are not subject to Board discretion; provided however, that a Participant’s rights under any Stock Award shall not be impaired by any such amendment unless (A) the Company requests the consent of the affected Participant, and (B) such Participant consents in writing. Notwithstanding the foregoing, subject to the limitations of applicable law, if any, the Board may amend the terms of any one or more Stock Awards without the affected Participant’s consent if necessary to maintain the qualified status of the Stock Award as an Incentive Stock Option or to bring the Stock Award into compliance with Section 409A of the Code and the related guidance thereunder.

(x) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and that are not in conflict with the provisions of the Plan or Stock Awards.

(xi) To adopt such procedures and sub-plans as are necessary or appropriate to permit participation in the Plan by Employees, Directors or Consultants who are foreign nationals or employed outside the United States.

(xii) To effect, at any time and from time to time, with the consent of any adversely affected Participant, (A) the reduction of the exercise price (or strike price) of any outstanding Option or Stock Appreciation Right under the Plan; (B) the cancellation of any outstanding Option or Stock Appreciation Right under the Plan and the grant in substitution therefor of (1) a new Option or Stock Appreciation Right under the Plan or another equity plan of the Company covering the same or a different number of shares of Common Stock, (2) a Restricted Stock Award, (3) a Restricted Stock Unit Award, (4) an Other Stock Award, (5) cash and/or (6) other valuable consideration (as determined by the Board, in its sole discretion); or (C) any other action that is treated as a repricing under generally accepted accounting principles.

(c) Delegation to Committee.

(i) General. The Board may delegate some or all of the administration of the Plan to a Committee or Committees. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board that have been delegated to the Committee, including the power to delegate to a subcommittee of the Committee any of the administrative powers the Committee is authorized to exercise (and references in the Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may retain the authority to concurrently administer the Plan with the Committee and may, at any time, revest in the Board some or all of the powers previously delegated.

(ii) Section 162(m) and Rule 16b-3 Compliance. In the sole discretion of the Board, the Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, or solely of two or more Non-Employee Directors, in accordance with Rule 16b-3. In addition, the Board or the Committee, in its sole discretion, may (A) delegate to a Committee who need not be Outside Directors the authority to grant Stock Awards to eligible persons who are either (I) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award, or (II) not persons with respect to whom the

Company wishes to comply with Section 162(m) of the Code, or (B) delegate to a Committee who need not be Non-Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act.

(d) Delegation to Officers. The Board may delegate to one or more Officers the authority to do one or both of the following (i) designate Employees of the Company or any of its Subsidiaries to be recipients of Options (and, to the extent permitted by Delaware law, other Stock Awards) and the terms thereof, and (ii) determine the number of shares of Common Stock to be subject to such Stock Awards granted to such Employees; provided, however, that the Board resolutions regarding such delegation shall specify the total number of shares of Common Stock that may be subject to the Stock Awards granted by such Officer and that such Officer may not grant a Stock Award to himself or herself. Notwithstanding anything to the contrary in this Section 2(d), the Board may not delegate to an Officer authority to determine the Fair Market Value of the Common Stock pursuant to Section 12(u)(ii) below.

(e) Repricing. The Board shall not approve a program providing for either (a) the cancellation of outstanding Stock Awards and the grant in substitution therefor of new Stock Awards having a lower exercise or purchase price or (b) the amendment of outstanding Stock Awards to reduce the exercise price thereof, unless the stockholders of the Company have approved such an action within twelve (12) months prior to such an event. This paragraph shall not be construed to apply to “issuing or assuming a stock option in a transaction to which section 424(a) applies,” within the meaning of Section 424 of the Code.

(f) Effect of Board’s Decision. All determinations, interpretations and constructions made by the Board in good faith shall not be subject to review by any person and shall be final, binding and conclusive on all persons.

(g) Indemnification. In addition to such other rights of indemnification as they may have as members of the Board or the Committee or as officers or employees of the Company, members of the Board or the Committee and any officers or employees of the Company to whom authority to act for the Board, the Committee or the Company is delegated shall be indemnified by the Company against all reasonable expenses, including attorneys’ fees, actually and necessarily incurred in connection with the defense of any action, suit or proceeding, or in connection with any appeal therein, to which they or any of them may be a party by reason of any action taken or failure to act under or in connection with the Plan, or any right granted hereunder, and against all amounts paid by them in settlement thereof (provided such settlement is approved by independent legal counsel selected by the Company) or paid by them in satisfaction of a judgment in any such action, suit or proceeding, except in relation to matters as to which it shall be adjudged in such action, suit or proceeding that such person is liable for gross negligence, bad faith or intentional misconduct in duties; provided, however, that within sixty (60) days after the institution of such action, suit or proceeding, such person shall offer to the Company, in writing, the opportunity at its own expense to handle and defend the same.

3.	SHARES SUBJECT TO THE PLAN.

(a) Share Reserve. Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, the aggregate number of shares of Common Stock that may be issued pursuant to Stock Awards under the Plan is equal to Three Million One Hundred Thirty-One Thousand Five Hundred Seventy-Nine (3,131,579) shares (the “ Share Reserve ”). In addition, the number of shares of Common Stock available for issuance under the Plan shall automatically increase on January 1st of each year for a period of nine (9) years commencing on January 1, 2013 and ending on (and including) January 1, 2021, in an amount equal to the lesser of (i) four percent (4%) of the total number of shares of Common Stock outstanding on December 31st of the preceding calendar year, or (ii) One Hundred Five Thousand Two

Hundred Sixty-Three (105,263) shares. Notwithstanding the foregoing, the Board may act prior to the first day of any calendar year, to provide that there shall be no increase in the share reserve for such calendar year or that the increase in the share reserve for such calendar year shall be a lesser number of shares of Common Stock than would otherwise occur pursuant to the preceding sentence. For clarity, the limitation in this Section 3(a) is a limitation in the number of shares of Common Stock that may be issued pursuant to the Plan. Accordingly, this Section 3(a) does not limit the granting of Stock Awards except as provided in Section 7(a). Shares may be issued in connection with a merger or acquisition as permitted by, as applicable, NASDAQ Marketplace Rule 4350(i)(1)(A)(iii), NYSE Listed Company Manual Section 303A.08, AMEX Company Guide Section 711 or other applicable stock exchange rules, and such issuance shall not reduce the number of shares available for issuance under the Plan. If an outstanding Stock Award for any reason expires or is terminated or canceled without having been exercised or settled in full, or if shares of Common Stock acquired pursuant to a Stock Award subject to forfeiture or repurchase are forfeited or repurchased by the Company at the Participant’s purchase price to effect a forfeiture of unvested shares upon termination of Continuous Service, the shares of Common Stock allocable to the terminated portion of such Stock Award or such forfeited or repurchased shares of Common Stock shall be added back to the Share Reserve and again be available for issuance under the Plan. Shares of Common Stock shall not be deemed to have been issued pursuant to the Plan with respect to any portion of a Stock Award (other than a Stock Appreciation Right that may be settled in shares of Common Stock and/or cash) that is settled in cash. Shares withheld in satisfaction of tax withholding obligations pursuant to Section 8(g) shall not again become available for issuance under the Plan. Upon exercise of a Stock Appreciation Right, whether in cash or shares of Common Stock, the number of shares available for issuance under the Plan shall be reduced by the gross number of shares for which the Stock Appreciation Right is exercised. If the exercise price of an Option is paid by “net exercise” (as described in Section 5(c)(iv)) or tender to the Company, or attestation to the ownership, of shares of Common Stock owned by the Participant, the number of shares available for issuance under the Plan shall be reduced by the gross number of shares for which the Option is exercised.

(b) Additions to the Share Reserve. The Share Reserve also shall be increased from time to time by a number of shares equal to the number of shares of Common Stock that (i) are issuable pursuant to awards outstanding under the Prior Plan as of the Effective Date and (ii) but for the termination of the Prior Plan as of the Effective Date, would otherwise have reverted to the share reserve of the Prior Plan pursuant to the provisions thereof.

(c) Incentive Stock Option Limit. Notwithstanding anything to the contrary in this Section 3(c), subject to the provisions of Section 9(a) relating to Capitalization Adjustments, the aggregate maximum number of shares of Common Stock that may be issued pursuant to the exercise of Incentive Stock Options shall be One Million Five Hundred Twenty-Six Thousand Three Hundred Sixteen (1,526,316) shares of Common Stock.

(d) Source of Shares. The stock issuable under the Plan shall be shares of authorized but unissued or reacquired Common Stock, including shares repurchased by the Company on the open market.

4.	ELIGIBILITY.

(a) Eligibility for Specific Stock Awards. Incentive Stock Options may be granted only to Employees. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants.

(b) Ten Percent Stockholders. A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock on the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant.

(c) Section 162(m) Limitation. Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, at such time as the Company may be subject to the applicable provisions of Section 162(m) of the Code, no Employee shall be eligible to be granted during any calendar year Stock Awards whose value is determined by reference to an increase over an exercise or strike price of at least one hundred percent (100%) of the Fair Market Value of the Common Stock on the date the Stock Award is granted covering more than Seven Hundred Sixty-Three Thousand One Hundred Fifty-Eight (763,158) shares of Common Stock.

(d) Consultants. A Consultant shall be eligible for the grant of a Stock Award only if, at the time of grant, a Form S-8 Registration Statement under the Securities Act (“ Form S-8 ”) is available to register either the offer or the sale of the Company’s securities to such Consultant.

5.	OPTION PROVISIONS.

Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates shall be issued for shares of Common Stock purchased on exercise of each type of Option. If an Option is not specifically designated as an Incentive Stock Option, then the Option shall be a Nonstatutory Stock Option. The provisions of separate Options need not be identical; provided, however , that each Option Agreement shall conform to (through incorporation of provisions hereof by reference in the Option Agreement or otherwise) the substance of each of the following provisions:

(a) Term. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, no Option shall be exercisable after the expiration of ten (10) years from the date of its grant or such shorter period specified in the Option Agreement.

(b) Exercise Price. Subject to the provisions of Section 4(b) regarding Ten Percent Stockholders, the exercise price of each Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option if such Option is granted pursuant to an assumption or substitution for another option in a manner consistent with the provisions of Section 409A and Section 424(a) of the Code (whether or not such options are Incentive Stock Options).

(c) Consideration. The purchase price of Common Stock acquired pursuant to the exercise of an Option shall be paid, to the extent permitted by applicable law and as determined by the Board in its sole discretion, by any combination of the methods of payment set forth below. The Board shall have the authority to grant Options that do not permit all of the following methods of payment (or otherwise restrict the ability to use certain methods) and to grant Options that require the consent of the Company to utilize a particular method of payment. The methods of payment permitted by this Section 5(c) are:

(i) by cash, check, bank draft or money order payable to the Company;

(ii) pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of the stock subject to the Option, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds;

(iii) by delivery to the Company (either by actual delivery or attestation) of shares of Common Stock;

(iv) by a “net exercise” arrangement pursuant to which the Company will reduce the number of shares of Common Stock issuable upon exercise by the largest whole number of shares with a Fair Market Value that does not exceed the aggregate exercise price; provided, however, that the Company shall accept a cash or other payment from the Participant to the extent of any remaining balance of the aggregate exercise price not satisfied by such reduction in the number of whole shares to be issued; provided, further, that shares of Common Stock will no longer be subject to an Option and will not be exercisable thereafter to the extent that (A) shares issuable upon exercise are reduced to pay the exercise price pursuant to the “net exercise,” (B) shares are delivered to the Participant as a result of such exercise, and (C) shares are withheld to satisfy tax withholding obligations; or

(v) in any other form of legal consideration that may be acceptable to the Board in its sole discretion and permissible under applicable law.

(d) Transferability of Options. The Board may, in its sole discretion, impose such limitations on the transferability of Options as the Board shall determine. In the absence of such a determination by the Board to the contrary, the following restrictions on the transferability of Options shall apply:

(i) Restrictions on Transfer. An Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder; provided, however, that the Board may, in its sole discretion, permit transfer of the Option in a manner that is not prohibited by applicable tax and securities laws upon the Optionholder’s request.

(ii) Domestic Relations Orders. Notwithstanding the foregoing, an Option may be transferred pursuant to a domestic relations order, provided, however, that if an Option is an Incentive Stock Option, such Option may be deemed to be a Nonstatutory Stock Option as a result of such transfer.

(iii) Beneficiary Designation. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form provided by or otherwise satisfactory to the Company and any broker designated by the Company to effect Option exercises, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. In the absence of such a designation, the executor or administrator of the Optionholder’s estate shall be entitled to exercise the Option.

(e) Vesting of Options Generally. The total number of shares of Common Stock subject to an Option may vest and therefore become exercisable in periodic installments that may or may not be equal. The Option may be subject to such other terms and conditions on the time or times when it may or may not be exercised (which may be based on the satisfaction of Performance Goals or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this Section 5(e) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised.

(f) Termination of Continuous Service. In the event that an Optionholder’s Continuous Service terminates (other than for Cause or upon the Optionholder’s death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination of Continuous Service) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder’s Continuous Service (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination of Continuous Service, the Optionholder does not exercise his or her Option within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.

(g) Extension of Termination Date. An Optionholder’s Option Agreement may provide that if the exercise of the Option following the termination of the Optionholder’s Continuous Service (other than for Cause or upon the Optionholder’s death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of a period of three (3) months after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of such registration requirements, or (ii) the expiration of the term of the Option as set forth in the Option Agreement. In addition, unless otherwise provided in an Optionholder’s Option Agreement, if the sale of the Common Stock received upon exercise of an Option following the termination of the Optionholder’s Continuous Service (other than for Cause) would violate the Company’s Insider Trading Policy, then the Option shall terminate on the earlier of (i) the expiration of a period equal to the post-termination exercise period described in Section 5(f) above or Sections 5(h) or 5(i) below after the termination of the Optionholder’s Continuous Service during which the exercise of the Option would not be in violation of the Company’s Insider Trading Policy; or (ii) the expiration of the term of the Option as set forth in the Option Agreement.

(h) Disability of Optionholder. In the event that an Optionholder’s Continuous Service terminates as a result of the Optionholder’s Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination of Continuous Service), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination of Continuous Service (or such longer or shorter period specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination of Continuous Service, the Optionholder does not exercise his or her Option within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.

(i) Death of Optionholder. In the event that (i) an Optionholder’s Continuous Service terminates as a result of the Optionholder’s death, or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder’s Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder’s estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder’s death, but only within the period ending on the earlier of (A) the date twelve (12) months following the date of death (or such longer or shorter period specified in the Option Agreement), or (B) the expiration of the term of such Option as set forth in the Option Agreement. If, after the Optionholder’s death, the Option is not exercised within the time specified herein or in the Option Agreement (as applicable), the Option shall terminate.

(j) Termination for Cause. Except as explicitly provided otherwise in an Optionholder’s Option Agreement, in the event that an Optionholder’s Continuous Service is terminated for Cause, the Option shall terminate upon the termination date of such Optionholder’s Continuous Service, and the Optionholder shall be prohibited from exercising his or her Option from and after the time of such termination of Continuous Service.

(k) Non-Exempt Employees. No Option granted to an Employee who is a non-exempt employee for purposes of the Fair Labor Standards Act shall be first exercisable for any shares of Common Stock until at least six months following the date of grant of the Option. The foregoing provision is intended to operate so that any income derived by a non-exempt employee in connection with the exercise or vesting of an Option will be exempt from his or her regular rate of pay.

6.	PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS.

(a) Restricted Stock Awards. Each Restricted Stock Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. To the extent consistent with the Company’s Bylaws, at the Board’s election, shares of Common Stock may be (x) held in book entry form subject to the Company’s instructions until any restrictions relating to the Restricted Stock Award lapse; or (y) evidenced by a certificate, which certificate shall be held in such form and manner as determined by the Board. The terms and conditions of Restricted Stock Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Award Agreements need not be identical, provided, however , that each Restricted Stock Award Agreement shall conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i) Consideration. A Restricted Stock Award may be awarded in consideration for (A) cash, check, bank draft or money order payable to the Company; (B) past or future services actually or to be rendered to the Company or an Affiliate; or (C) any other form of legal consideration that may be acceptable to the Board in its sole discretion and permissible under applicable law.

(ii) Vesting. Shares of Common Stock awarded under a Restricted Stock Award Agreement may be subject to forfeiture to the Company in accordance with a vesting schedule to be determined by the Board.

(iii) Termination of Participant’s Continuous Service. In the event a Participant’s Continuous Service terminates, the Company may receive via a forfeiture condition or a repurchase right, any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination of Continuous Service under the terms of the Restricted Stock Award Agreement.

(iv) Transferability. Rights to acquire shares of Common Stock under the Restricted Stock Award Agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the Restricted Stock Award Agreement, as the Board shall determine in its sole discretion, so long as Common Stock awarded under the Restricted Stock Award Agreement remains subject to the terms of the Restricted Stock Award Agreement.

(b) Restricted Stock Unit Awards. Each Restricted Stock Unit Award Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of Restricted Stock Unit Award Agreements may change from time to time, and the terms and conditions of separate Restricted Stock Unit Award Agreements need not be identical, provided, however, that each Restricted Stock Unit Award Agreement shall conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i) Consideration. At the time of grant of a Restricted Stock Unit Award, the Board will determine the consideration, if any, to be paid by the Participant upon delivery of each share of Common Stock subject to the Restricted Stock Unit Award. The consideration to be paid (if any) by the Participant for each share of Common Stock subject to a Restricted Stock Unit Award may be paid in any form of legal consideration that may be acceptable to the Board in its sole discretion and permissible under applicable law.

(ii) Vesting. At the time of the grant of a Restricted Stock Unit Award, the Board may impose such restrictions or conditions to the vesting of the Restricted Stock Unit Award as it, in its sole discretion, deems appropriate.

(iii) Payment. A Restricted Stock Unit Award may be settled by the delivery of shares of Common Stock, their cash equivalent, any combination thereof or in any other form of consideration, as determined by the Board and contained in the Restricted Stock Unit Award Agreement.

(iv) Additional Restrictions. At the time of the grant of a Restricted Stock Unit Award, the Board, as it deems appropriate, may impose such restrictions or conditions that delay the delivery of the shares of Common Stock (or their cash equivalent) subject to a Restricted Stock Unit Award to a time after the vesting of such Restricted Stock Unit Award.

(v) Dividend Equivalents. Dividend equivalents may be credited in respect of shares of Common Stock covered by a Restricted Stock Unit Award, as determined by the Board and contained in the Restricted Stock Unit Award Agreement. At the sole discretion of the Board, such dividend equivalents may be converted into additional shares of Common Stock covered by the Restricted Stock Unit Award in such manner as determined by the Board. Any additional shares covered by the Restricted Stock Unit Award credited by reason of such dividend equivalents will be subject to all the terms and conditions of the underlying Restricted Stock Unit Award Agreement to which they relate.

(vi) Termination of Participant’s Continuous Service. Except as otherwise provided in the applicable Restricted Stock Unit Award Agreement, such portion of the Restricted Stock Unit Award that has not vested will be forfeited upon the Participant’s termination of Continuous Service.

(vii) Compliance with Section 409A of the Code. Notwithstanding anything to the contrary set forth herein, any Restricted Stock Unit Award granted under the Plan that is not exempt from the requirements of Section 409A of the Code shall incorporate terms and conditions necessary to avoid the consequences of Section 409A(a)(1) of the Code. Such restrictions, if any, shall be determined by the Board and contained in the Restricted Stock Unit Award Agreement evidencing such Restricted Stock Unit Award.

(c) Stock Appreciation Rights. Each Stock Appreciation Right Agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. Stock Appreciation Rights may be granted as stand-alone Stock Awards or in tandem with other Stock Awards. The terms and conditions of Stock Appreciation Right Agreements may change from time to time, and the terms and conditions of separate Stock Appreciation Right Agreements need not be identical; provided, however , that each Stock Appreciation Right Agreement shall conform to (through incorporation of the provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions:

(i) Term. No Stock Appreciation Right shall be exercisable after the expiration of ten (10) years from the date of its grant or such shorter period specified in the Stock Appreciation Right Agreement.

(ii) Strike Price. Each Stock Appreciation Right will be denominated in shares of Common Stock equivalents. The strike price of each Stock Appreciation Right shall not be less than one hundred percent (100%) of the Fair Market Value of the Common Stock equivalents subject to the Stock Appreciation Right on the date of grant.

(iii) Calculation of Appreciation. The appreciation distribution payable on the exercise of a Stock Appreciation Right will be not greater than an amount equal to the excess of (A) the aggregate Fair Market Value (on the date of the exercise of the Stock Appreciation Right) of a number of shares of Common Stock equal to the number of shares of Common Stock equivalents in which the Participant is vested under such Stock Appreciation Right, and with respect to which the Participant is exercising the Stock Appreciation Right on such date, over (B) the strike price.

(iv) Vesting. At the time of the grant of a Stock Appreciation Right, the Board may impose such restrictions or conditions to the vesting of such Stock Appreciation Right as it, in its sole discretion, deems appropriate.

(v) Exercise. To exercise any outstanding Stock Appreciation Right, the Participant must provide written notice of exercise to the Company in compliance with the provisions of the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.

(vi) Payment. The appreciation distribution in respect of a Stock Appreciation Right may be paid in Common Stock, in cash, in any combination of the two or in any other form of consideration, as determined by the Board and set forth in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.

(vii) Termination of Continuous Service. In the event that a Participant’s Continuous Service terminates (other than for Cause), the Participant may exercise his or her Stock Appreciation Right (to the extent that the Participant was entitled to exercise such Stock Appreciation Right as of the date of termination of Continuous Service) but only within such period of time ending on the earlier of (A) the date three (3) months following the termination of the Participant’s Continuous Service (or such longer or shorter period specified in the Stock Appreciation Right Agreement), or (B) the expiration of the term of the Stock Appreciation Right as set forth in the Stock Appreciation Right Agreement. If, after termination of Continuous Service, the Participant does not exercise his or her Stock Appreciation Right within the time specified herein or in the Stock Appreciation Right Agreement (as applicable), the Stock Appreciation Right shall terminate.

(viii) Termination for Cause. Except as explicitly provided otherwise in an Participant’s Stock Appreciation Right Agreement, in the event that a Participant’s Continuous Service is terminated for Cause, the Stock Appreciation Right shall terminate upon the termination date of such Participant’s Continuous Service, and the Participant shall be prohibited from exercising his or her Stock Appreciation Right from and after the time of such termination of Continuous Service.

(ix) Compliance with Section 409A of the Code. Notwithstanding anything to the contrary set forth herein, any Stock Appreciation Rights granted under the Plan that are not exempt from the requirements of Section 409A of the Code shall incorporate terms and conditions necessary to avoid the consequences described in Section 409A(a)(1) of the Code. Such restrictions, if any, shall be determined by the Board and contained in the Stock Appreciation Right Agreement evidencing such Stock Appreciation Right.

(d) Performance Stock Awards . A Performance Stock Award is either a Restricted Stock Award or Restricted Stock Unit Award that may be granted or may vest based upon the attainment during a Performance Period of certain Performance Goals. A Performance Stock Award may, but need not, require the completion of a specified period of Continuous Service. The length of any Performance Period, the Performance Goals to be achieved during the Performance Period, and the measure of whether and to what degree such Performance Goals have been attained shall be conclusively determined by the Committee in its sole discretion. Subject to the provisions of Section 9(a) relating to Capitalization Adjustments, the maximum number of shares that may be granted to any Participant in a calendar year attributable to Performance Stock Awards described in this Section 6(d)(i) shall not exceed Seven Hundred Sixty-Three Thousand One Hundred Fifty-Eight (763,158) shares of Common Stock. In addition, to the extent permitted by applicable law and the applicable Stock Award Agreement, the Board may determine that cash may be used in payment of Performance Stock Awards.

(e) Other Stock Awards. Other forms of Stock Awards valued in whole or in part by reference to, or otherwise based on, Common Stock may be granted either alone or in addition to Stock Awards provided for under Section 5 and the preceding provisions of this Section 6. Subject to the provisions of the Plan, the Board shall have sole and complete authority to determine the persons to whom and the time or times at which such Other Stock Awards will be granted, the number of shares of Common Stock (or the cash equivalent thereof) to be granted pursuant to such Other Stock Awards and all other terms and conditions of such Other Stock Awards.

7.	COVENANTS OF THE COMPANY.

(a) Availability of Shares. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards.

(b) Securities Law Compliance. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority that counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained.

(c) No Obligation to Notify. The Company shall have no duty or obligation to any holder of a Stock Award to advise such holder as to the time or manner of exercising such Stock Award. Furthermore, the Company shall have no duty or obligation to warn or otherwise advise such holder of a pending termination or expiration of a Stock Award or a possible period in which the Stock Award may not be exercised. The Company has no duty or obligation to minimize the tax consequences of a Stock Award to the holder of such Stock Award.

8.	MISCELLANEOUS.

(a) Use of Proceeds. Proceeds from the sale of shares of Common Stock pursuant to Stock Awards shall constitute general funds of the Company.

(b) Corporate Action Constituting Grant of Stock Awards. Corporate action constituting a grant by the Company of a Stock Award to any Participant shall be deemed completed as of the date of such corporate action, unless otherwise determined by the Board, regardless of when the instrument, certificate, or letter evidencing the Stock Award is communicated to, or actually received or accepted by, the Participant.

(c) Stockholder Rights. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until (i) such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms, and (ii) the issuance of the Common Stock pursuant to such exercise has been entered into the books and records of the Company.

(d) No Employment or Other Service Rights. Nothing in the Plan, any Stock Award Agreement or other instrument executed thereunder or in connection with any Stock Award granted pursuant to the Plan shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without Cause, (ii) the service of a Consultant pursuant to the terms of such Consultant’s agreement with the Company or an Affiliate, or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be.

(e) Incentive Stock Option $100,000 Limitation. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and any Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof that exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options, notwithstanding any contrary provision of the applicable Option Agreement(s).

(f) Investment Assurances. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant’s knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant’s own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (x) the issuance of the shares upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act, or (y) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock.

(g) Withholding Obligations. Unless prohibited by the terms of a Stock Award Agreement, the Company may, in its sole discretion, satisfy any federal, state or local tax withholding obligation relating to a Stock Award by any of the following means (in addition to the Company’s right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) causing the Participant to tender a cash payment; (ii) withholding shares of Common Stock from the shares of Common Stock issued or otherwise issuable to the Participant in connection with the Stock

Award; provided, however , that no shares of Common Stock are withheld with a value exceeding the minimum amount of tax required to be withheld by law (or such lower amount as may be necessary to avoid classification of the Stock Award as a liability for financial accounting purposes); (iii) withholding cash from a Stock Award settled in cash; (iv) withholding payment from any amounts otherwise payable to the Participant; or (v) by such other method as may be set forth in the Stock Award Agreement.

(h) Electronic Delivery. Any reference herein to a “written” agreement or document shall include any agreement or document delivered electronically or posted on the Company’s intranet.

(i) Deferrals. To the extent permitted by applicable law, the Board, in its sole discretion, may determine that the delivery of Common Stock or the payment of cash, upon the exercise, vesting or settlement of all or a portion of any Stock Award may be deferred and may establish programs and procedures for deferral elections to be made by Participants. Deferrals by Participants will be made in accordance with Section 409A of the Code. Consistent with Section 409A of the Code, the Board may provide for distributions while a Participant is still an employee. The Board is authorized to make deferrals of Stock Awards and determine when, and in what annual percentages, Participants may receive payments, including lump sum payments, following the Participant’s termination of employment or retirement, and implement such other terms and conditions consistent with the provisions of the Plan and in accordance with applicable law.

(j) Compliance with Section 409A. To the extent that the Board determines that any Stock Award granted under the Plan is subject to Section 409A of the Code, the Stock Award Agreement evidencing such Stock Award shall incorporate the terms and conditions necessary to avoid the consequences described in Section 409A(a)(1) of the Code. To the extent applicable, the Plan and Stock Award Agreements shall be interpreted in accordance with Section 409A of the Code and Department of Treasury regulations and other interpretive guidance issued thereunder, including without limitation any such regulations or other guidance that may be issued or amended after the Effective Date. Notwithstanding any provision of the Plan to the contrary, in the event that following the Effective Date the Board determines that any Stock Award may be subject to Section 409A of the Code and related Department of Treasury guidance (including such Department of Treasury guidance as may be issued after the Effective Date), the Board may adopt such amendments to the Plan and the applicable Stock Award Agreement or adopt other policies and procedures (including amendments, policies and procedures with retroactive effect), or take any other actions, that the Board determines are necessary or appropriate to (1) exempt the Stock Award from Section 409A of the Code and/or preserve the intended tax treatment of the benefits provided with respect to the Stock Award, or (2) comply with the requirements of Section 409A of the Code and related Department of Treasury guidance.

9.	ADJUSTMENTS UPON CHANGES IN COMMON STOCK; OTHER CORPORATE EVENTS.

(a) Capitalization Adjustments . In the event of a Capitalization Adjustment, the Board shall appropriately and proportionately adjust: (i) the class(es) and maximum number of securities subject to the Plan pursuant to Section 3(a); (ii) the class(es) and maximum number of securities that may be issued pursuant to the exercise of Incentive Stock Options pursuant to Section 3(d); (iii) the class(es) and maximum number of securities that may be awarded to any person pursuant to Section 4(c) and 6(d); and (iv) the class(es) and number of securities and price per share of stock subject to outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive.

(b) Dissolution or Liquidation . Except as otherwise provided in a Stock Award Agreement, in the event of a dissolution or liquidation of the Company, all outstanding Stock Awards (other than

Stock Awards consisting of vested and outstanding shares of Common Stock not subject to a forfeiture condition or the Company’s right of repurchase) shall terminate immediately prior to the completion of such dissolution or liquidation, and the shares of Common Stock subject to the Company’s repurchase rights may be repurchased by the Company notwithstanding the fact that the holder of such Stock Award is providing Continuous Service, provided, however, that the Board may, in its sole discretion, cause some or all Stock Awards to become fully vested, exercisable and/or no longer subject to repurchase or forfeiture (to the extent such Stock Awards have not previously expired or terminated) before the dissolution or liquidation is completed but contingent on its completion.

(c) Corporate Transaction. The following provisions shall apply to Stock Awards in the event of a Corporate Transaction unless otherwise provided in the instrument evidencing the Stock Award or any other written agreement between the Company or any Affiliate and the holder of the Stock Award.

(i) Stock Awards May Be Assumed. Except as otherwise stated in the Stock Award Agreement, in the event of a Corporate Transaction, any surviving corporation or acquiring corporation (or the surviving or acquiring corporation’s parent company) may assume or continue any or all Stock Awards outstanding under the Plan or may substitute similar stock awards for Stock Awards outstanding under the Plan (including but not limited to, awards to acquire the same consideration paid to the stockholders of the Company pursuant to the Corporate Transaction), and any reacquisition or repurchase rights held by the Company in respect of Common Stock issued pursuant to Stock Awards may be assigned by the Company to the successor of the Company (or the successor’s parent company, if any), in connection with such Corporate Transaction. A surviving corporation or acquiring corporation (or its parent) may choose to assume or continue only a portion of a Stock Award or substitute a similar stock award for only a portion of a Stock Award. The terms of any assumption, continuation or substitution shall be set by the Board in accordance with the provisions of Section 2 hereof. Notwithstanding the foregoing, if such Stock Awards are so assumed, continued or substituted as set forth above, in the event of a termination of a grantee’s employment or consulting relationship by the Company or its successor other than for Cause in connection with the Corporate Transaction or within one year after the effective time of the Corporate Transaction, then the greater of (i) fifty percent (50%) of the shares subject to such grantee’s Stock Awards which remain unvested at the effective time of such Corporate Transaction and (ii) the shares subject to such grantee’s Stock Awards which remain unvested at the effective time of such Corporate Transaction which are scheduled to otherwise vest over the twelve (12) month period after the effective time of such Corporate Transaction shall vest on the date of such termination and become immediately exercisable, any reacquisition rights or repurchase rights held by the Company with respect to the Stock Awards shall lapse and any of such grantee’s additional remaining unvested Stock Awards that remain outstanding after the effective time of such Corporate Transaction shall be deemed to vest ratably over the remaining scheduled vesting period, subject to all other terms of the Plan and the applicable Stock Award Agreement.

(ii) Stock Awards Held by Current Participants. Except as otherwise stated in the Stock Award Agreement, in the event of a Corporate Transaction in which the surviving corporation or acquiring corporation (or its parent company) does not assume or continue such outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards in accordance with subsection (i) above, then with respect to Stock Awards that have not been assumed, continued or substituted and that are held by Participants whose Continuous Service has not terminated (except for such purposes, a termination in connection with a Corporate Transaction) prior to the effective time of the Corporate Transaction (referred to as the “ Current Participants ”), the vesting of such Stock Awards (and, with

respect to Options and Stock Appreciation Rights, the time at which such Stock Awards may be exercised) shall (contingent upon the effectiveness of the Corporate Transaction), unless otherwise provided by the Board, in its sole discretion, be accelerated in full to a date prior to the effective time of such Corporate Transaction as the Board shall determine (or, if the Board shall not determine such a date, to the date that is five (5) days prior to the effective time of the Corporate Transaction), and such Stock Awards shall terminate if not exercised (if applicable) at or prior to the effective time of the Corporate Transaction, and any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall lapse (contingent upon the effectiveness of the Corporate Transaction). Notwithstanding the foregoing, if the Board determines in its sole discretion not to vest in full the unvested Stock Awards at the effective time of the Corporate Transaction and a grantee is terminated other than for Cause at the effective time of the Corporate Transaction or in connection with the Corporate Transaction, then, taking into account for such purpose any partial vesting of unvested Stock Awards provided by the Board, and subject to the effectiveness of the Corporate Transaction, a minimum of (i) fifty percent (50%) of the shares subject to such grantee’s Stock Awards which remain unvested at the effective time of such Corporate Transaction and (ii) the shares subject to such grantee’s Stock Awards which remain unvested at the effective time of such Corporate Transaction and are scheduled to otherwise vest over the twelve (12) month period after the effective time of such Corporate Transaction shall vest and become immediately exercisable as of a date prior to the effective time of such Corporate Transaction as the Board shall determine (or, if the Board shall not determine such a date, to the date that is five (5) days prior to the effective time of such Corporate Transaction), any reacquisition rights or repurchase rights held by the Company with respect to the Stock Awards shall lapse, and such Stock Awards not exercised at the effective time of such Corporate Transaction shall terminate, subject to all other terms of the Plan and the applicable Stock Award Agreement.

(iii) Stock Awards Held by Persons other than Current Participants. Except as otherwise stated in the Stock Award Agreement, in the event of a Corporate Transaction in which the surviving corporation or acquiring corporation (or its parent company) does not assume or continue such outstanding Stock Awards or substitute similar stock awards for such outstanding Stock Awards in accordance with subsections (i) or (ii) above, respectively, then with respect to Stock Awards that have not been assumed, continued or substituted and that are held by persons other than Current Participants, the vesting of such Stock Awards (and, if applicable, the time at which such Stock Award may be exercised) shall not be accelerated and such Stock Awards (other than a Stock Award consisting of vested and outstanding shares of Common Stock not subject to a forfeiture condition or the Company’s right of repurchase) shall terminate if not exercised (if applicable) prior to the effective time of the Corporate Transaction; provided, however, that any reacquisition or repurchase rights held by the Company with respect to such Stock Awards shall not terminate and may continue to be exercised notwithstanding the Corporate Transaction.

(iv) Payment for Stock Awards in Lieu of Exercise. Notwithstanding the foregoing, in the event a Stock Award will terminate if not exercised prior to the effective time of a Corporate Transaction, the Board may provide, in its sole discretion, that the holder of such Stock Award may not exercise such Stock Award but will receive a payment, in such form as may be determined by the Board, equal in value to the excess, if any, of (A) the value of the property the holder of the Stock Award would have received upon the exercise of the Stock Award (including, at the discretion of the Board, any unvested portion of such Stock Award), over (B) any exercise price payable by such holder in connection with such exercise.

(d) Change in Control. A Stock Award may be subject to additional acceleration of vesting and exercisability upon or after a Change in Control as may be provided in the Stock Award Agreement for such Stock Award or as may be provided in any other written agreement between the Company or any Affiliate and the Participant. A Stock Award may vest as to all or any portion of the shares subject to the Stock Award (i) immediately upon the occurrence of a Change in Control, whether or not such Stock Award is assumed, continued, or substituted by a surviving or acquiring entity in the Change in Control, or (ii) in the event a Participant’s Continuous Service is terminated, actually or constructively, within a designated period before or after the occurrence of a Change in Control. In the absence of such provisions, no such acceleration shall occur.

10.

TERMINATION OR SUSPENSION OF THE PLAN.

(a) Plan Term. The Board may suspend or terminate the Plan at any time. Unless terminated sooner, the Plan shall terminate on the day before the tenth (10th) anniversary of the earlier of (i) the date the Plan is adopted by the Board, or (ii) the date the Plan is approved by the stockholders of the Company. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated.

(b) No Impairment of Rights. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the affected Participant.

11.

CHOICE OF LAW.

The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to that state’s conflict of laws rules.

12.

DEFINITIONS.

As used in the Plan, the following definitions shall apply to the capitalized terms indicated below:

(a) “ Affiliate ” means, at the time of determination, any “parent” or “subsidiary” of the Company as such terms are defined in Rule 405 of the Securities Act. The Board shall have the authority to determine the time or times at which “parent” or “subsidiary” status is determined within the foregoing definition.

(b) “ Board ” means the Board of Directors of the Company.

(c) “ Capitalization Adjustment ” means any change that is made in, or other events that occur with respect to, the Common Stock subject to the Plan or subject to any Stock Award after the Effective Date without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company). Notwithstanding the foregoing, the conversion of any convertible securities of the Company shall not be treated as a transaction “without the receipt of consideration” by the Company.

(d) “ Cause ” means with respect to a Participant, the occurrence of any of the following events: (i) such Participant’s conviction of, or a plea of nolo contendere to, a felony; (ii) such Participant’s theft or embezzlement, or attempted theft or embezzlement, of money or property or assets of the Company; (iii) such Participant’s violation of the Company’s drug policy; or (iv) such Participant’s intentional and willful engagement in misconduct which is materially injurious to the Company.

(e) “ Change in Control ” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i) any Exchange Act Person becomes the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities other than by virtue of a merger, consolidation or similar transaction. Notwithstanding the foregoing, a Change in Control shall not be deemed to occur (A) on account of the acquisition of securities of the Company by an investor, any affiliate thereof or any other Exchange Act Person from the Company in a transaction or series of related transactions the primary purpose of which is to obtain financing for the Company through the issuance of equity securities or (B) solely because the level of Ownership held by any Exchange Act Person (the “ Subject Person ”) exceeds the designated percentage threshold of the outstanding voting securities as a result of a repurchase or other acquisition of voting securities by the Company reducing the number of shares outstanding, provided that if a Change in Control would occur (but for the operation of this sentence) as a result of the acquisition of voting securities by the Company, and after such share acquisition, the Subject Person becomes the Owner of any additional voting securities that, assuming the repurchase or other acquisition had not occurred, increases the percentage of the then outstanding voting securities Owned by the Subject Person over the designated percentage threshold, then a Change in Control shall be deemed to occur;

(ii) there is consummated a merger, consolidation or similar transaction involving (directly or indirectly) the Company and, immediately after the consummation of such merger, consolidation or similar transaction, the stockholders of the Company immediately prior thereto do not Own, directly or indirectly, either (A) outstanding voting securities representing more than fifty percent (50%) of the combined outstanding voting power of the surviving Entity in such merger, consolidation or similar transaction or (B) more than fifty percent (50%) of the combined outstanding voting power of the parent of the surviving Entity in such merger, consolidation or similar transaction, in each case in substantially the same proportions as their Ownership of the outstanding voting securities of the Company immediately prior to such transaction;

(iii) the stockholders of the Company approve or the Board approves a plan of complete dissolution or liquidation of the Company, or a complete dissolution or liquidation of the Company shall otherwise occur, except for a liquidation into a parent corporation;

(iv) there is consummated a sale, lease, exclusive license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries, other than a sale, lease, license or other disposition of all or substantially all of the consolidated assets of the Company and its Subsidiaries to an Entity, more than fifty percent (50%) of the combined voting power of the voting securities of which are Owned by stockholders of the Company in substantially the same proportions relative to each other as their Ownership of the outstanding voting securities of the Company immediately prior to such sale, lease, license or other disposition; or

(v) individuals who, on the date the Plan is adopted by the Board, are members of the Board (the “ Incumbent Board ”) cease for any reason to constitute at least a majority of the members of the Board; provided, however, that if the appointment or election (or nomination for election) of any new Board member was approved or recommended by a majority vote of the members of the Incumbent Board then still in office, such new member shall, for purposes of the Plan, be considered as a member of the Incumbent Board.

For avoidance of doubt, the term Change in Control shall not include a sale of assets, merger or other transaction effected exclusively for the purpose of changing the domicile of the Company.

Notwithstanding the foregoing or any other provision of the Plan, the definition of Change in Control (or any analogous term) in an individual written agreement between the Company or any Affiliate and the Participant shall supersede the foregoing definition with respect to Stock Awards subject to such agreement; provided, however, that if no definition of Change in Control or any analogous term is set forth in such an individual written agreement, the foregoing definition shall apply.

The Board may, in its sole discretion and without a Participant’s consent, amend the definition of “Change in Control” to conform to the definition of “Change in Control” under Section 409A of the Code, and the regulations thereunder.

(f) “ Code ” means the Internal Revenue Code of 1986, as amended.

(g) “ Committee ” means a committee of one (1) or more Directors to whom authority has been delegated by the Board in accordance with Section 2(c).

(h) “ Common Stock ” means the common stock of the Company.

(i) “ Company ” means Cempra, Inc., a Delaware corporation.

(j) “ Consultant ” means any person, including an advisor, who is (i) engaged by the Company or an Affiliate to render consulting or advisory services and is compensated for such services, or (ii) serving as a member of the board of directors of an Affiliate and is compensated for such services. However, service solely as a Director, or payment of a fee for such service, shall not cause a Director to be considered a “Consultant” for purposes of the Plan.

(k) “ Continuous Service ” means that the Participant’s service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. A change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant’s service with the Company or an Affiliate, shall not terminate a Participant’s Continuous Service; provided, however , if the Entity for which a Participant is rendering services ceases to qualify as an “Affiliate,” as determined by the Board in its sole discretion, such Participant’s Continuous Service shall be considered to have terminated on the date such Entity ceases to qualify as an Affiliate. To the extent permitted by law, the Board or the chief executive officer of the Company, in that party’s sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of: (i) any leave of absence approved by the Board or the chief executive officer of the Company, including sick leave, military leave or any other personal leave; or (ii) transfers between the Company, an Affiliate, or their successors. Notwithstanding the foregoing, a leave of absence shall be treated as Continuous Service for purposes of vesting in a Stock Award only to such extent as may be provided in the Company’s leave of absence policy, in the written terms of any leave of absence agreement or policy applicable to the Participant, or as otherwise required by law.

(l) “ Corporate Transaction ” means the occurrence, in a single transaction or in a series of related transactions, of any one or more of the following events:

(i) a sale or other disposition of all or substantially all, as determined by the Board in its sole discretion, of the consolidated assets of the Company and its Subsidiaries;

(ii) a sale or other disposition of at least ninety percent (90%) of the outstanding securities of the Company;

(iii) the consummation of a merger, consolidation or similar transaction following which the Company is not the surviving corporation; or

(iv) the consummation of a merger, consolidation or similar transaction following which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger, consolidation or similar transaction are converted or exchanged by virtue of the merger, consolidation or similar transaction into other property, whether in the form of securities, cash or otherwise.

(m) “ Covered Employee ” shall have the meaning provided in Section 162(m)(3) of the Code.

(n) “ Director ” means a member of the Board.

(o) “ Disability ” means, with respect to a Participant, the inability of such Participant to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment which can be expected to result in death or can be expected to last for a continuous period of not less than 12 months, as provided in Section 22(e)(3) and 409A(a)(2)(c)(i) of the Code.

(p) “ Effective Date ” means the date the Plan is approved by the stockholders of the Company, as set forth in Section 1(a) hereof.

(q) “ Employee ” means any person employed by the Company or an Affiliate. However, service solely as a Director, or payment of a fee for such services, shall not cause a Director to be considered an “Employee” for purposes of the Plan.

(r) “ Entity ” means a corporation, partnership, limited liability company or other entity.

(s) “ Exchange Act ” means the Securities Exchange Act of 1934, as amended.

(t) “ Exchange Act Person ” means any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act), except that “Exchange Act Person” shall not include (i) the Company or any Subsidiary of the Company, (ii) any employee benefit plan of the Company or any Subsidiary of the Company or any trustee or other fiduciary holding securities under an employee benefit plan of the Company or any Subsidiary of the Company, (iii) an underwriter temporarily holding securities pursuant to an offering of such securities, (iv) an Entity Owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their Ownership of stock of the Company; or (v) any natural person, Entity or “group” (within the meaning of Section 13(d) or 14(d) of the Exchange Act) that, as of the Effective Date, is the Owner, directly or indirectly, of securities of the Company representing more than fifty percent (50%) of the combined voting power of the Company’s then outstanding securities.

(u) “ Fair Market Value ” means, as of any date, the value of the Common Stock determined as follows:

(i) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq Global Select Market or the Nasdaq Global Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock as quoted on such exchange (or the exchange or market with the greatest volume of trading in the Common Stock) on the date of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable.

(ii) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined by the Board in good faith and in a manner that complies with Section 409A of the Code.

(v) “ Incentive Stock Option ” means an Option which qualifies as an “incentive stock option” within the meaning of Section 422 of the Code and the regulations promulgated thereunder.

(w) “ Non-Employee Director ” means a Director who either (i) is not a current employee or officer of the Company or an Affiliate, does not receive compensation, either directly or indirectly, from the Company or an Affiliate for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act (“ Regulation S-K ”)), does not possess an interest in any other transaction for which disclosure would be required under Item 404(a) of Regulation S-K, and is not engaged in a business relationship for which disclosure would be required pursuant to Item 404(b) of Regulation S-K; or (ii) is otherwise considered a “non-employee director” for purposes of Rule 16b-3.

(x) “ Nonstatutory Stock Option ” means an Option that does not qualify as an Incentive Stock Option.

(y) “ Officer ” means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder.

(z) “ Option ” means an Incentive Stock Option or a Nonstatutory Stock Option to purchase shares of Common Stock granted pursuant to the Plan.

(aa) “ Option Agreement ” means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan.

(bb) “ Optionholder ” means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option.

(cc) “ Other Stock Award ” means an award based in whole or in part by reference to the Common Stock which is granted pursuant to the terms and conditions of Section 6(e).

(dd) “ Outside Director ” means a Director who either (i) is not a current employee of the Company or an “affiliated corporation” (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an “affiliated corporation” who receives compensation for prior services (other than benefits under a tax-qualified retirement plan) during the taxable year, has not been an officer of the Company or an “affiliated corporation,” and does not receive remuneration from the Company or an “affiliated corporation,” either directly or indirectly, in any capacity other than as a Director, or (ii) is otherwise considered an “outside director” for purposes of Section 162(m) of the Code.

(ee) “ Own ,” “ Owned ,” “ Owner ,” “ Ownership ” A person or Entity shall be deemed to “Own,” to have “Owned,” to be the “Owner” of, or to have acquired “Ownership” of securities if such person or Entity, directly or indirectly, through any contract, arrangement, understanding, relationship or otherwise, has or shares voting power, which includes the power to vote or to direct the voting, with respect to such securities.

(ff) “ Participant ” means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award.

(gg) “ Performance Criteria ” means the one or more criteria that the Board shall select for purposes of establishing the Performance Goals for a Performance Period. The Performance Criteria that shall be used to establish such Performance Goals may be based on any one of, or combination of, the following: (i) earnings per share; (ii) earnings before interest, taxes and depreciation; (iii) earnings before interest, taxes, depreciation and amortization (EBITDA); (iv) total stockholder return; (v) return on equity; (vi) return on assets, investment, or capital employed; (vii) operating margin; (viii) gross margin; (ix) operating income; (x) net income (before or after taxes); (xi) net operating income; (xii) net operating income after tax; (xiii) pre- and after-tax income; (xiv) pre-tax profit; (xv) operating cash flow; (xvi) sales or revenue targets; (xvii) orders and revenue; (xviii) increases in revenue or product revenue; (xix) expenses and cost reduction goals; (xx) improvement in or attainment of expense levels; (xxi) improvement in or attainment of working capital levels; (xxii) economic value added (or an equivalent metric); (xxiii) market share; (xxiv) cash flow; (xxv) cash flow per share; (xxvi) share price performance; (xxvii) debt reduction; (xxviii) implementation or completion of projects or processes; (xxix) achievement of product development or commercialization milestones; (xxx) stockholders’ equity; (xxxi) quality measures; and (xxxii) to the extent that a Stock Award is not intended to comply with Section 162(m) of the Code, other measures of performance selected by the Board. Partial achievement of the specified criteria may result in the payment or vesting corresponding to the degree of achievement as specified in the Stock Award Agreement. The Board shall, in its sole discretion, define the manner of calculating the Performance Criteria it selects to use for such Performance Period.

(hh) “ Performance Goals ” means, for a Performance Period, the one or more goals established by the Board for the Performance Period based upon the satisfaction of the Performance Criteria. Performance Goals may be based on a Company-wide basis, with respect to one or more business units, divisions, Affiliates, or business segments, and in either absolute terms or relative to the performance of one or more comparable companies or the performance of one or more relevant indices. At the time of the grant of any Stock Awards, the Board is authorized to determine whether, when calculating the attainment of Performance Goals for a Performance Period: (i) to exclude restructuring and/or other nonrecurring charges; (ii) to exclude exchange rate effects, as applicable, for non-U.S. dollar denominated net sales and operating earnings; (iii) to exclude the effects of changes to generally accepted accounting standards required by the Financial Accounting Standards Board; (iv) to exclude the effects of any statutory adjustments to corporate tax rates; and (v) to exclude the effects of any “extraordinary items” as determined under generally accepted accounting principles. In addition, the Board retains the discretion to reduce or eliminate the compensation or economic benefit due upon attainment of Performance Goals.

(ii) “ Performance Period ” means one or more periods of time, which may be of varying and overlapping duration, as the Committee may select, over which the attainment of one or more Performance Goals will be measured for the purpose of determining a Participant’s right to and the payment of a Performance Stock Award.

(jj) “ Performance Stock Award ” means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(d).

(kk) “ Plan ” means this Cempra, Inc. 2011 Equity Incentive Plan.

(ll) “ Prior Plan ” means the Company’s 2004 Stock Plan, as in effect immediately prior to the Effective Date.

(mm) “ Restricted Stock Award ” means an award of shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(a).

(nn) “ Restricted Stock Award Agreement ” means a written agreement between the Company and a holder of a Restricted Stock Award evidencing the terms and conditions of a Restricted Stock Award grant. Each Restricted Stock Award Agreement shall be subject to the terms and conditions of the Plan.

(oo) “ Restricted Stock Unit Award ” means a right to receive shares of Common Stock which is granted pursuant to the terms and conditions of Section 6(b).

(pp) “ Restricted Stock Unit Award Agreement ” means a written agreement between the Company and a holder of a Restricted Stock Unit Award evidencing the terms and conditions of a Restricted Stock Unit Award grant. Each Restricted Stock Unit Award Agreement shall be subject to the terms and conditions of the Plan.

(qq) “ Rule 16b-3 ” means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time.

(rr) “ Securities Act ” means the Securities Act of 1933, as amended.

(ss) “ Stock Appreciation Right ” means a right to receive the appreciation on Common Stock that is granted pursuant to the terms and conditions of Section 6(c).

(tt) “ Stock Appreciation Right Agreement ” means a written agreement between the Company and a holder of a Stock Appreciation Right evidencing the terms and conditions of a Stock Appreciation Right grant. Each Stock Appreciation Right Agreement shall be subject to the terms and conditions of the Plan.

(uu) “ Stock Award ” means any Option, Restricted Stock Award, Restricted Stock Unit Award, Stock Appreciation Right, Performance Stock Award, or any Other Stock Award granted under the Plan.

(vv) “ Stock Award Agreement ” means a written agreement between the Company and a Participant evidencing the terms and conditions of a Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan.

(ww) “ Subsidiary ” means, with respect to the Company, (i) any corporation of which more than fifty percent (50%) of the outstanding capital stock having ordinary voting power to elect a majority of the board of directors of such corporation (irrespective of whether, at the time, stock of any other class or classes of such corporation shall have or might have voting power by reason of the happening of any contingency) is at the time, directly or indirectly, Owned by the Company, and (ii) any partnership, limited liability company or other entity in which the Company has a direct or indirect interest (whether in the form of voting or participation in profits or capital contribution) of more than fifty percent (50%).

(xx) “ Ten Percent Stockholder ” means a person who Owns (or is deemed to Own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or any Affiliate.

Exhibit 10.13

*Portions of this exhibit marked [*] are requested to be treated confidentially.

EXCLUSIVE LICENSE AND DEVELOPMENT AGREEMENT

T HIS E XCLUSIVE L ICENSE AND D EVELOPMENT A GREEMENT (the “ Agreement ”) is entered into as of May 8, 2013 (the “ Effective Date ”) by and between C EMPRA P HARMACEUTICALS , I NC . , a Delaware corporation having an address at Building Four Quadrangle, 6340 Quadrangle Drive, Suite 100, Chapel Hill, North Carolina 27517 USA (“ Cempra ”), and T OYAMA C HEMICAL C O ., L TD . , a Japanese corporation having an address at 2-5, Nishishinjuku 3-chome, Shinjuku-ku, Tokyo 160-0023, Japan (“ Toyama ”). Cempra and Toyama may be referred to herein individually as a “ Party ” or collectively, as the “ Parties .”

R ECITALS

W HEREAS , Cempra has developed and owns or controls certain intellectual property rights with respect to the Compound (as defined below), and owns or controls certain know-how, technology, documentation, data, and other materials relating thereto;

W HEREAS , Toyama wishes to license such rights in order to develop and commercialize products incorporating the Compound or a Permitted Derivative thereof as their sole active ingredient in Japan for the treatment of certain human indications, as set forth in this Agreement; and

N OW , T HEREFORE , in consideration of the foregoing and the covenants and promises contained in this Agreement, the Parties agree as follows:

1.	D EFINITIONS .

The following capitalized terms shall have the subsequent meanings when used in this Agreement. Any capitalized terms not otherwise defined in this Agreement shall have the meaning set forth therefore in the Supply Agreement (as defined below).

1.1 “ Acquired Entity ” means, in the event either Party or any Affiliate thereof acquires any Third Party or all or substantially all of the stock, assets, or business of a Third Party or otherwise obtains control of a Third Party (with “control”, for purposes of this definition, having the meaning set forth below in the definition of “Affiliate”), such Third Party or any Affiliate thereof.

1.2 “ Acquiring Entity ” means any entity that (i) acquires all or substantially all of the stock, assets, or business of either Party (or all or substantially all of the assets or business thereof related, in either case, to this Agreement) or otherwise obtains control of such Party (with “control”, for purposes of this Section 1.2, having the meaning set forth in Section 1.4 below), or any Affiliate of such an entity and/or (ii) following such acquisition of stock, assets or business of such Party or obtaining control thereof, merges with (e.g. via “roll up”) such Party.

1.3 “ Adverse Event ” means any untoward medical occurrence in a patient or clinical investigation subject administered Licensed Products and which does not necessarily have to have a causal relationship with such treatment.

1.4 “ Affiliate ” means, with respect to a party, any person, corporation or other business entity which, directly or indirectly through one or more intermediaries, actually controls, is actually controlled by, or is under common control with such party. As used in this Section 1.4, “control” means to possess, directly or indirectly, the power to affirmatively direct the management and policies of such person, corporation or other business entity, whether through ownership of at least fifty percent (50%) of the voting securities or by contract relating to voting rights or corporate governance.

1.5 “ Agreement ” means this document including any and all exhibits and amendments to it as may be added and/or amended from time to time in accordance with the provisions of this Agreement.

1.6 “ API ” means active pharmaceutical ingredient.

1.7 “ API Price ” means Supplied Compound Price or, with respect to any Compound or Permitted Derivative not supplied to Toyama by or on behalf of Cempra, the reasonable, documented direct cost incurred by Toyama or any Sublicensee in manufacturing or having manufactured its supply of Compound or any Permitted Derivative thereof in reasonable, commercial-scale quantities for purposes of manufacturing Licensed Products for use or sale in the Territory, provided that API Price shall, [*].

1.8 “ Applicable Law ” means all applicable statutes, laws, rules, and regulations, or other pronouncements of any Governmental Authority having the effect of law, relating to the use, development, manufacture, or commercialization of a pharmaceutical product, this Agreement, and/or the Parties’ performance of their obligations or exercise of their rights hereunder, including GCP, GLP and GMP.

1.9 “ Average API Price ” means, for a particular Licensed Product sold by Toyama or its Sublicensees under this Agreement in a particular Calendar Year that incorporates a particular Compound or Permitted Derivative, the weighted average API Price for all such Commercial Use API purchased or manufactured by Toyama and its Sublicensees during the prior Calendar Year, provided that (i) if, with respect to the initial Calendar Year in which sales of a particular Licensed Product incorporating a particular API occur, no such Commercial Use API was purchased in the prior Calendar Year, the Average API Price for such Licensed Product shall equal the weighted average API Price for all Commercial Use API purchased or manufactured for purposes of manufacturing reasonable quantities of launch stocks of such Licensed Product and (ii) for sales of a particular Licensed Product incorporating a particular API in any other Calendar Year and for which no such Commercial Use API was purchased in the prior Calendar Year, the Parties shall use Commercially Reasonable Efforts to agree in good faith on the reasonable and appropriate Average API Price to apply with respect to such sales of such Licensed Product, based on principles consistent with the methods of determining Average API Price set forth above and the API Prices for, and past purchases of, the relevant Commercial Use API by Toyama, among other reasonable factors.

1.10 “ Business Day ” means any day except (a) Saturday, (b) Sunday, or (c) a day that is a federal legal holiday in the U.S. (with respect to any obligations of Cempra hereunder) or legal national holiday in Japan (with respect to any obligations of Toyama hereunder).

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

1.11 “ Calendar Day ” means each of those seven (7) days in the week.

1.12 “ Calendar Quarter ” means each of those three (3) calendar month periods of each Calendar Year ending March 31, June 30, September 30 and December 31, provided, that (i) the initial Calendar Quarter shall begin on the Effective Date and ending June 30, 2013 and (ii) the Calendar Quarter in which this Agreement expires or is terminated shall extend from the first day of such Calendar Quarter until the effective date of such expiration or termination.

1.13 “ Calendar Year ” means (a) for the first Calendar Year, the period commencing on the Effective Date and ending on December 31 of the same year, (b) for the Calendar Year in which this Agreement expires or is terminated, the period beginning on January 1 of such Calendar Year and ending on the effective date of such expiration or termination, and (c) for all other years, each successive twelve (12) consecutive month period beginning on January 1 and ending December 31.

1.14 “ CFR ” means the U.S. Code of Federal Regulations.

1.15 “ Cempra Data ” means all data that is Controlled by Cempra or its Affiliates on or after the Effective Date and constitutes data, results, analyses, reports, and other information or material resulting from Cempra’s and its Affiliates’ research or Development of Licensed Products or any pre-clinical testing, animal testing, clinical trials, in vitro or in vivo testing or analysis, or other evaluation of Compound, any Permitted Derivative, or any Licensed Product that is performed by or on behalf of Cempra or its Affiliates thereof prior to the Effective Date.

1.16 “ Cempra First Commercial Sale ” means the date, following Regulatory Approval of a Licensed Product in the U.S., on which such a Licensed Product in the Field is first sold by Cempra, any Affiliate thereof, or any Third Party sublicensee of Cempra or any Affiliate thereof to any Third Party.

1.17 “ Cempra Know-How ” means (i) to the extent Controlled by Cempra or its Affiliates, all Know-How necessary for the Development, manufacture, or Commercialization of any Licensed Product in the Field in the Territory or, for the exercise of the Back-Up Supply Rights, in the Manufacturing Territory, (ii) any Know-How Controlled by Cempra pursuant to Section 11.2 with respect to Product Improvements by Cempra, and (iii) to the extent Controlled by Cempra, Cempra’s interests in Know-How constituting Joint Product Improvements. Notwithstanding anything to the contrary, Cempra Know-How shall not include any (X) Know-How (a) to the extent related to any API other than the Compound or any Permitted Derivative or (b) that is (x) owned, licensed, or otherwise controlled by any Acquiring Entity of Cempra (a “ Cempra Acquiring Entity ”) prior to the date of the transaction by which such Cempra Acquiring Entity first became a Cempra Acquiring Entity (such Know-How described in this clause (x), the “ Cempra Acquiring Entity Know-How ”), except to extent such Cempra Acquiring Entity Know-How was already included within the Cempra Know-How prior to the date of the transaction by which such Cempra Acquiring Entity first became an Cempra Acquiring Entity, or (y) owned, licensed, or otherwise controlled by any Acquired Entity of Cempra (a “ Cempra Acquired Entity ”) prior to the date of the transaction by which such Cempra Acquired Entity first became a Cempra Acquired Entity (such Know-How described in this clause (y), the “ Cempra Acquired Entity Know-How ”), except to the extent such Cempra Acquired Entity Know-How was already included within the Cempra Know-How prior to the date of the transaction by which such Cempra Acquired Entity first became a Cempra Acquired Entity or (Y) Optimer Know-How.

1.18 “ Cempra-Owned Patents ” means Cempra Patents in the Territory that are (i) wholly-owned by Cempra or (ii) jointly owned by Cempra with one or more other parties, provided that, notwithstanding anything to the contrary, the Parties hereby agree that the terms of this Agreement, and the Parties’ rights and obligations under this Agreement, shall only apply and be effective with respect to Cempra Patents that are jointly owned by Cempra with one or more other parties to the extent such terms or the application or enforcement thereof, or the existence, performance, exercise, or enforcement of such rights or obligations, (X) do not violate, are not limited or prohibited by, and are not subject to any requirements of any applicable law, rule, or regulation and (Y) do not conflict with or cause any breach of, are not limited or prohibited by, and are not subject to any requirements of any arrangement, agreement, contract, or other obligation to which Cempra is a party with respect to such Cempra Patent.

1.19 “ Cempra Parent ” means Cempra, Inc., a Delaware corporation.

1.20 “ Cempra Patents ” means, solely with respect to the Territory and to the extent Controlled by Cempra or any Affiliate thereof:

(a) those Patents in the Territory set forth on Schedule 1.20 attached hereto (the “ Initial Patent Rights ”);

(b) any divisionals, conversion, extensions and term restorations, registrations, re-instatements, amendments, or correction of the Initial Patent Rights;

(d) any Patents Covering any Product Improvement by Cempra that are Controlled by Cempra pursuant to Section 11.2; and

(e) Cempra’s interests in any Patents Covering Joint Product Improvements.

Notwithstanding anything to the contrary:

(i) Cempra Patents shall include, solely for purposes of the Back-Up Supply Rights, (X) any foreign counterparts in the Manufacturing Territory of any of the Patents described above in this Section 1.20 and (Y) any other Patents Controlled by Cempra or any of its Affiliates that are necessary for the exercise of the Back-Up Supply Rights in the Manufacturing Territory, provided that the Patents described in clause (Y) shall not in any event include any Patents (1) owned, licensed, or otherwise controlled by any Cempra Acquiring Entity prior to the date of the transaction by which such Cempra Acquiring Entity first became a Cempra Acquiring Entity (such Patents described in this clause (1), the “Cempra Acquiring Entity Patents”), except to extent (I) such Cempra Acquiring Entity Patents were already included within the Cempra Patents described in clause (Y) prior to the date of the transaction by which such Cempra Acquiring Entity first became an Cempra Acquiring Entity or (II) Cempra practices the subject matter

Covered by such Cempra Acquiring Entity Patents in its manufacture of Compound, Permitted Derivative, or Clinical Supply under the Supply Agreement, or (2) owned, licensed, or otherwise controlled by any Cempra Acquired Entity prior to the date of the transaction by which such Cempra Acquired Entity first became a Cempra Acquired Entity (such Patents described in this clause (2), the “Cempra Acquired Entity Patents”), except to the extent (I) such Cempra Acquired Entity Patents were already included within the Cempra Patents described in clause (Y) prior to the date of the transaction by which such Cempra Acquired Entity first became a Cempra Acquired Entity or (II) Cempra practices the subject matter Covered by such Cempra Acquiring Entity Patents in its manufacture of Compound, Permitted Derivative, or Clinical Supply under the Supply Agreement; and

(ii) the Patents referenced in this Section 1.20 do not, and the Cempra Patents shall not, in any event, include any Optimer Patents.

1.21 “ Cempra Product Marks ” means any trademarks, including the Japanese names and English names, Controlled by Cempra that may be proposed for use with the Licensed Products in the Territory by Cempra solely and specifically for, and for which registration is applied for or issued solely and specifically with respect to, a particular Licensed Product in the Field in connection with the promotion, marketing, or sale of such Licensed Product in the Field outside the Territory, provided that (i) Toyama’s rights to Cempra Product Marks under this Agreement shall include (but only include) such rights thereto that are Controlled by Cempra in the Territory, including to the extent Controlled by Cempra and available for use and registration with the relevant trademark authority in the Territory, any such English names for the Licensed Product and Japanese equivalents thereof and (ii) Cempra Product Marks shall not include any trademarks, logos, trade dress, or similar rights that are not specific to a particular Licensed Product or that are used for any product outside the Field (e.g. no rights to any corporate names or logos of Cempra or any of its Affiliates shall be included in Cempra Product Marks).

1.22 “ Cempra Technology ” means the Cempra Know-How and the Cempra Patents.

1.23 “ Cempra Territory ” means all countries of the world other than the Territory.

1.24 “ Challenge ”. Toyama or a Sublicensee will be deemed to have made a “ Challenge ” of the [*] if Toyama or a Sublicensee: (a) institutes or maintains, or causes its counsel to institute or maintain on Toyama’s or such Sublicensee’s behalf, any interference, opposition, re-examination or similar proceeding with respect to any [*] with the U.S. Patent and Trademark Office or any foreign patent office; or (b) makes any filing or institutes or maintains any legal proceeding, or causes its counsel to make any filing or institute or maintain any legal proceeding on Toyama’s or such Sublicensee’s behalf, with a court or other governmental body (including, without limitation, the U.S. Patent and Trademark Office or any foreign patent office) in which one or more claims or allegations challenges the validity or enforceability of any [*]. The Parties agree, however, that, notwithstanding the foregoing, the following actions or filings shall not constitute a Challenge for purposes of this Agreement: (i) arguments and comments made by or on behalf of Toyama or any Sublicensee in its usual course of business with respect to prosecution of Toyama’s or any Sublicensees’ patents or patent applications in response to office actions and other communications from patent offices, agencies, or authorities, provided

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

that such arguments and comments are directed at differentiating Toyama’s or any Sublicensees’ patents or patent applications as patentably distinct from [*] and not aimed at questioning or contesting the validity or enforceability of [*]; (ii) arguments and comments made by Toyama or any Sublicensee in legal proceedings in defense of Toyama’s or any Sublicensees’ patents or patent applications, but only if an opposing party uses a [*] to challenge the validity or enforceability of the defended patents or patent applications of Toyama or any Sublicensee, provided that such arguments and comments are directed at differentiating Toyama’s or Sublicensees’ patents or patent applications as patentably distinct from [*] and not aimed at questioning or contesting the validity or enforceability of [*]; (iii) any defenses, counterclaims, or countersuits brought by Toyama or any Sublicensee in response to a legal proceeding filed by [*] with respect to any [*] against Toyama or such Sublicensee with respect to an alleged or actual infringement of [*] by Toyama or such Sublicensee with respect to a product or service not intended for use in the [*] (or the use, manufacture or sale thereof) and where Toyama or such Sublicensee does not question or contest the validity or enforceability of [*] with respect to any product or service intended for use in the [*] (or the use, manufacture or sale thereof) (i.e., if Toyama or such Sublicensee contests the validity or enforceability of [*] with respect to any product or service intended for use in the [*] (or the use, manufacture or sale thereof), such action shall constitute a “Challenge” under this Agreement); or (iv) if Toyama or a Sublicensee files a dismissal with prejudice, or withdraws, or takes any action having the same effect as a dismissal with prejudice or withdrawal, with respect to any action or proceeding commenced by Toyama or such Sublicensee in any patent office, authority, agency or court or other governmental body in which it challenged the validity or enforceability of any [*] within [*] Calendar Days after the initial filing of such action or proceeding, and delivers a conformed copy of such dismissal with prejudice or withdrawal, or reasonable documentary evidence of any similar action having the same effect as a dismissal with prejudice or withdrawal, to Cempra and [*] within such [*] day period.

1.25 “ Clinical Supply ” means finished forms of Licensed Products and its placebo for use in all Phase 1 Trials and Phase 2 Trials conducted by or on behalf of Toyama in the Field in the Territory that Commence, and are reasonably and demonstrably intended to be Completed, prior to the earlier of (a) Commencement of the initial Phase 3 Trial in the Field in the Territory or (b) receipt of the initial Regulatory Approval of Licensed Product in the Field in the Territory, provided that Clinical Supply shall not in any event include any placebo or Licensed Product in any form or dosage except that which is used by or on behalf of Cempra to perform any human clinical trials of Licensed Products in the Field in the U.S. at the time Toyama orders any corresponding Clinical Supply under the Supply Agreement (subject to any labeling changes required for purposes of conducting such trials in the Territory).

1.26 “ Commence ” or “ Commencement ,” when used to describe any human clinical trial of a Licensed Product (including a Phase 1 Trial, Phase 2 Trial, or Phase 3 Trial), means the first dosing of the first patient or subject for such trial.

1.27 “ Commercialization ” means all activities that are undertaken after Regulatory Approval of a Licensed Product and that relate to the commercial marketing, sale, and/or distribution of such Licensed Product, including but not limited to advertising, marketing, promotion, distribution, and/or sales.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

1.28 “ Commercially Reasonable Efforts ” means the carrying out of obligations or tasks in a manner consistent with the exercise of reasonable, customary scientific and business practices within the pharmaceutical industry for, and of a level no less than consistent with the efforts a Party devotes to, research, development or marketing of a pharmaceutical product or products of similar market potential, profit potential or strategic value, which shall be no less than such efforts devoted by a Party to such a product resulting from its own research efforts or for its own benefit, taking into account technical, regulatory and intellectual property factors, target product profiles, product labeling, past performance, costs, economic return, the regulatory environment and competitive market conditions in the therapeutic or market niche, all based on conditions then prevailing. “ Commercially Reasonable ” shall have a corresponding meaning.

1.29 “ Comparison-Based Price Calculation Procedure ” means one of the price calculation methods applicable to new drug products appearing in the National Health Insurance price lists in the Territory, as set forth in Chapter 2 of the Notice on the Standards of the National Health Insurance Price, published by the Health Insurance Bureau of the MHLW on February 10, 2012 (hereinafter referred to as the “Standards”). If there are any comparator drugs that are selected by considering following items: (i) indication, (ii) pharmacology, (iii) composition and chemical structure, and (iv) the means of administration, dosage form and usage, this Comparison-Based Calculation Procedure shall be applied. This procedure is based on two principles: (a) that Prices for new drugs are determined by daily prices, and (b) that a premium is applied if higher benefits than comparator drugs are verified.

1.30 “ Completion ” means, with respect to a human clinical trial of a Licensed Product in the Field, completion of enrollment and treatment of the minimum required number of subjects (as set forth in the protocol therefor, as it may be amended) and completion of a reasonable form of draft study report with respect to such human clinical trial.

1.31 “ Compound ” means solithromycin, which has the chemical structure set forth on Schedule 1.31 and all [*] thereof.

1.32 “ Confidential Information ” means all proprietary information and know-how and any tangible embodiments thereof provided by or on behalf of one Party to the other Party either in connection with the discussions and negotiations pertaining to this Agreement, the Supply Agreement, or the Safety Agreement, or in the course of performing under or acting in relation to this Agreement, the Supply Agreement, or the Safety Agreement, which may include data, knowledge, practices, processes, ideas, research plans, formulation or manufacturing processes and techniques, scientific, manufacturing, marketing and business plans, and financial and personnel matters relating to the disclosing Party or to its present or future products, sales, suppliers, customers, employees, investors or business; provided, that, information or know-how of a Party will not be deemed Confidential Information of such Party for purposes of this Agreement if such information or know-how: (a) was already known to the receiving Party, other than under an obligation of confidentiality or non-use, at the time of disclosure to such receiving Party, as can be shown by contemporaneous written records; (b) was generally available or known to parties reasonably skilled in the field to which such information or know-how pertains, or was otherwise part of the public domain, at the time of its disclosure to such receiving Party; (c) became generally available or known to parties reasonably skilled in the field to which such information or know-how pertains, or otherwise became part of the public domain,

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

after its disclosure to such receiving Party through no fault of the receiving Party; (d) was disclosed to such receiving Party, other than under an obligation of confidentiality or non-use, by a Third Party who had no obligation to the disclosing Party not to disclose such information or know-how to others, as can be shown by written records; or (e) was independently discovered or developed by such receiving Party, as can be shown by its written records, without the use or benefit of, or reliance on, Confidential Information belonging to the disclosing Party. Notwithstanding anything to the contrary, (A) Product Improvements by Cempra, and all information concerning Product Improvements by Cempra, shall be deemed Cempra’s Confidential Information (and Cempra shall be deemed the disclosing Party, and Toyama shall be deemed the receiving Party, with respect thereto), (B) Product Improvements by Toyama, and all information concerning Product Improvements by Toyama, shall be deemed Toyama’s Confidential Information (and Toyama shall be deemed the disclosing Party, and Cempra shall be deemed the receiving Party, with respect thereto), and (C) Joint Inventions, all information concerning Joint Inventions, and the terms of this Agreement shall be deemed the Confidential Information of both Parties (with each Party being treated as both the receiving Party and disclosing Party with respect thereto).

1.33 “ Controlled ” means, with respect to any intellectual property or right therein, the possession by a Party of the ability to grant a license or sublicense as provided for herein without violating the terms of any arrangement or agreements between such Party (or any Affiliate of such Party) and any Third Party.

1.34 “ Cover ” means that the use, manufacture, sale, offer for sale, development, commercialization or importation of the subject matter in question by an unlicensed entity would infringe a Valid Claim of a Patent.

1.35 “ Derivative ” means, with respect to the Compound, any isomer, tautomer, enantiomer, diastereomer, prodrug, metabolite, ester, salt, hydrate, solvate, racemate, or co-crystal thereof.

1.36 “ Develop ” or “ Development ” means, with respect to a Licensed Product, engaging in preclinical, clinical, and other development activities, which may include but is not limited to research, pre-clinical, clinical and regulatory activities directed towards obtaining Regulatory Approval of a Licensed Product.

1.37 “ Development Use API ” means Compound or Permitted Derivative supplied under the Supply Agreement for (i) purposes of manufacturing Licensed Products for use in any human clinical trials in the Territory or (ii) use prior to Regulatory Approval for any purposes other than (x) those set forth in clause (i) hereof or (y) the manufacture of Licensed Products for commercial use or sale following Regulatory Approval in the Territory.

1.38 “ DMF ” means a drug master file, as provided for in Title 21, Section 314.420 of the CFR or similar submission to or file maintained with the FDA or other Governmental Authority that may be used to provide confidential detailed information about facilities, processes, or articles used in the manufacturing, processing, packaging, and storing of one or more human drugs.

1.39 “ Effective Date ” means the date as set forth in the first paragraph of this Agreement.

1.40 “ EU Country ” means any member country of the European Union as of the Effective Date of this Agreement.

1.41 “ Excluded Derivative ” means, with respect to the Compound, any Derivative thereof other than a Permitted Derivative.

1.42 “[*]” means (X) [*] by the application of Foreign Price Adjustment Procedure, with an approved price of Licensed Product that equals or exceeds an amount equal to two times the price that would be obtained for [*] or (Y) [*], any Sublicensee, any Wholesaler, or any other distributor or re-seller of Licensed Products in the Territory is, at any time prior to or on the Launch Date, regardless of or by what process or procedure (if any), and without violation of Applicable Law, [*].

1.43 “ FDA ” means the United States Food and Drug Administration, or any successor federal agency thereto.

1.44 “ Field ” means all human therapeutic uses other than the treatment, prevention, management, or amelioration of any ophthalmic indications or any condition, disease, or affliction of the eye or any of its constituent tissues.

1.45 “ First Commercial Sale ” means the date, following Regulatory Approval of a Licensed Product in the Territory, on which such a Licensed Product is first sold by Toyama, any Sublicensees or Toyama Sole Distributors to a Third Party.

1.46 “ [*] Procedure ” means the procedure with respect to the adjustment of the price of new drug products calculated based on Comparison-Based Calculation Procedure or cost-based method, as set forth in Chapter 1 of the Standards. If the price calculated as specified above is different to such degree as specified [*], and [*], for a particular comparable drug product, this [*] shall apply to adjust the drug price [*] as specified in Exhibit 3 of the Standards.

1.47 “ Fully-Burdened Manufacturing Costs ” means Cempra’s total cost of manufacturing, supplying, storing, procuring, and/or shipping a particular batch or other amount of API or Clinical Supply supplied under the Supply Agreement (as defined in Cempra’s accounting policies consistently applied, and including all direct and indirect costs and expenses incurred by Cempra in manufacturing or procuring API or Clinical Supply, including but not limited to costs of Third Party contractors, materials, any consumption or use taxes imposed outside of Japan by an authority other than the Japanese government and related to the manufacture or procurement of Compound or Permitted Derivative, and, to the extent required, any customs duties incurred with respect to the export of Compound, Permitted Derivative, or Clinical Supply from any departure airport/port outside of Japan to a location in Japan) (any such taxes, duties, tariffs, or similar charges with respect to Cempra’s, Toyama’s, any Affiliates’, or any Third Party’s manufacturing or procurement of Compound, Permitted Derivative, or Clinical Supply, “ FBMC Taxes/Tariffs ”). Notwithstanding anything to the contrary, however, Fully-Burdened Manufacturing Costs shall not include [*] or, with respect to Licensed Products, any similar charges incurred with respect thereto, provided that the foregoing shall not in any event

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

be construed to limit Toyama’s obligation to pay [*] under the Supply Agreement or any other agreement entered into by Toyama or any Sublicensee for the manufacture or supply of Licensed Product, Compound or Permitted Derivative.

1.48 “ General Patents ” means all Cempra Patents other than Product-Specific Patents.

1.49 “ Generic Competition ” means, with respect to a Licensed Product in the Territory, the occurrence of both of the following situations in the initial Calendar Quarter during which (i) one or more Generic Equivalents corresponding to such Licensed Product are being marketed, sold, or distributed by a Third Party in the Territory and (ii) [*].

1.50 “ Generic Equivalent ” means, with respect to a particular Licensed Product in the Territory, a product that [*].

1.51 “ Good Clinical Practices ” or “ GCP ” means all applicable Good Clinical Practice standards for the design, conduct, performance, monitoring, auditing, recording, analyses and reporting of clinical trials, including, as applicable, (a) those standards required by the MHLW, (b) as set forth in European Commission Directive 2001/20/EC relating to the implementation of good clinical practice in the conduct of clinical trials on medicinal products for human use, and brought into law by European Commission Directive 2005/28/EC laying down the principles and detailed guidelines for good clinical practice for investigational medicinal products, (c) as set forth in the International Conference on Harmonisation of Technical Requirements for Registration of Pharmaceuticals for Human Use (“ ICH ”) Harmonised Tripartite Guideline for Good Clinical Practice (CPMP/ICH/135/95) and any other guidelines for good clinical practice for trials on medicinal products in the Territory, (d) the Declaration of Helsinki (2004) as last amended at the 52nd World Medical Association in October 2000 and any further amendments or clarifications thereto, (e) CFR Title 21, Parts 50 (Protection of Human Subjects), 56 (Institutional Review Boards), and 312 (Investigational New Drug Application), as may be amended from time to time, and (f) the equivalent Applicable Laws in any relevant country, each as may be amended and applicable from time to time and in each case, that provide for, among other things, assurance that the clinical data and reported results are credible and accurate and protect the rights, integrity, and confidentiality of trial subjects.

1.52 “ Good Laboratory Practices ” or “ GLP ” means all applicable Good Laboratory Practice standards, including, as applicable, (a) those standards required by the MHLW, (b) as set forth in European Commission Directive 2004/10/EC relating to the application of the principles of good laboratory practices, as may be amended from time to time as well as any Rules Governing Medicinal Products in the European Community Vol. III, ISBN 92.825 9619-2 (ex—OECD principles of GLP), (c) as set forth in the then-current good laboratory practice standards promulgated or endorsed by the FDA as defined in Title 21, Part 58 of the CFR and (d) the equivalent laws in any relevant country, each as may be amended and applicable from time to time.

1.53 “ Good Manufacturing Practices ” or “ GMP ” means all applicable Good Manufacturing Practices including (a) those standards required by the MHLW, (b) the applicable part of quality assurance to ensure that products are consistently produced and controlled in accordance with the quality standards appropriate for their intended use, as defined in European

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

Commission Directive 2003/94/EC laying down the principals and guidelines of good manufacturing practice, (c) the principles detailed in the U.S. Current Good Manufacturing Practices, Title 21, Parts 210, 211, 601 and 610 of the CFR, (d) the principles detailed in the ICH Q7A guidelines, (e) the Rules Governing Medicinal Products in the European Community, Volume IV Good Manufacturing Practice for Medicinal Products, and (f) the equivalent laws in any relevant country, each as may be amended and applicable from time to time.

1.54 “ Government Approvals ” means all Regulatory Approvals and Pricing Approvals.

1.55 “ Governmental Authority ” means any court, agency, department or other instrumentality of any foreign, federal, state, county, city or other political subdivision (including any supra-national agency).

1.56 “ Grant of [*] Patent ” means the first to occur of (I) a “Decision to Grant”, notice of allowance, or similar written indication by Japan Patent Office with respect to, or issuance or grant of, a single Cempra Patent in the Territory [*] or (II) the first date on which a “Decision to Grant”, notice of allowance, or similar written indication by Japan Patent Office with respect to, or issuance or grant has occurred for two or more Cempra Patents in the Territory which collectively, in combination, include [*], whether or not such a “Decision to Grant”, notice of allowance, or similar written indication by Japan Patent Office with respect to, or issuance or grant occurs on the same date for each such Cempra Patent. For example, in the event of a “Decision to Grant”, notice of allowance, or similar written indication by Japan Patent Office with respect to, or issuance or grant of, a single Cempra Patent in the Territory that includes a claim Covering [*], and a “Decision to Grant”, notice of allowance, or similar written indication by Japan Patent Office with respect to, or issuance or grant of, a Cempra Patent in the Territory that includes [*] subsequently occurs, Grant of [*] Patent shall be deemed to have occurred on the “Decision to Grant”, notice of allowance, or similar written indication by Japan Patent Office with respect to, or issuance or grant of, the Cempra Patent in the Territory that includes [*].

1.57 “ IFRS ” means International Financial Reporting Standards promulgated by the International Accounting Standards Board, applied on a basis consistent throughout the periods indicated and consistent with each other.

1.58 “ IND ” means an Investigational New Drug Application filed with the FDA or the equivalent application or filing filed with any equivalent agency or government authority outside of the United States (including any supra-national agency such as in the European Union) necessary to commence human clinical trials in such jurisdiction.

1.59 “ Joint Product Improvement ” means a Joint Invention related to the Compound, any Permitted Derivative, any Licensed Product, or the composition, use, or manufacture of any of the foregoing.

1.60 “ Know-How ” means all technical, scientific and other know-how and information, trade secrets, knowledge, technology, inventions, means, methods, processes, practices, formulas, instructions, skills, techniques, procedures, experiences, ideas, technical assistance, designs, drawings, assembly procedures, computer programs, apparatuses, specifications, data, results and other material, and other drug discovery and development

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

technology, pre-clinical and clinical trial results, manufacturing procedures, test procedures and purification and isolation techniques, (whether or not confidential, proprietary, patented or patentable) in written, electronic or any other form now known or hereafter developed, and all improvements, whether to the foregoing or otherwise, and other discoveries, developments inventions and other intellectual property (whether or not confidential, proprietary, patented or patentable), provided that Know-How shall not include Patents.

1.61 “ Launch ” means the initiation of a Commercially Reasonable communication, marketing, and Commercialization campaign for a Licensed Product in the Field in the Territory with the target customers or patients for Regulatory Authority-approved indication(s) to educate them concerning such product with the aim of encouraging the prescription or sales of such product through various aspects of Toyama’s, Sublicensees’ or Toyama Sole Distributors’ sales, marketing, advertising and medical affairs resources.

1.62 “ Launch Date ” means the date on which the later of Launch or First Commercial Sale has occurred in the Territory with respect to a particular Licensed Product.

1.63 “ Licensed Product ” means any human pharmaceutical product, in oral tablet, capsule, intravenous, topical, or similar form (other than any such forms intended for treatment of ophthalmic indications or any other indications concerning the treatment, prevention, or amelioration of any condition, disease, or affliction of the eye), that incorporates the Compound or a Permitted Derivative as its sole API.

1.64 “ Licensed Product-Related Materials ” means all advertising, marketing, and promotional materials (including but not limited to flyers, brochures, pamphlets and electronic media), labeling and packaging materials, and any materials or items similar to the foregoing to the extent, in each case, pertaining exclusively to the Licensed Products and in the possession or control of Toyama or any other Sublicensee, and all copyright and similar rights to the contents thereof, provided that the foregoing rights shall not include any rights to any trademark, logos, or the like other than Toyama Product Marks.

1.65 “ Manufacturing Territory ” means (1) Japan and India and (2) all other countries in which there are no Optimer Patents, except for the [*] and [*] and [*], provided that the Manufacturing Territory shall include, on a country-by-country basis, [*], and [*] beginning on the date on which there is not at least one Valid Claim (which, solely for purposes of this Section 1.65, shall [*] of the [*] Covering Compound or Permitted Derivative in such country.

1.66 “ Marketing Application ” means any application for Regulatory Approval in the Territory or equivalent filings with any Governmental Authority in the Territory, including any updates or supporting Regulatory Filings made with respect thereto.

1.67 “ MHLW ” means the Japanese Ministry of Health, Labor and Welfare, or a successor agency thereto.

1.68 “ NDA ” means a new drug application (as defined in Title 21 of the CFR, as amended from time to time) submitted to the FDA seeking regulatory approval to market and sell a Licensed Product in the United States.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

1.69 “ Net Sales ” means in the case of Licensed Products, gross amounts invoiced or otherwise received for Toyama’s, Sublicensees’, or Toyama Sole Distributors’ (collectively, Toyama, Sublicensees, and Toyama Sole Distributors, “ Net Sales Parties ”) sales or other transfers of Licensed Products, less the sum of the following, to the extent Commercially Reasonable and directly and solely related to the sale of such Licensed Products (such sums, collectively, “ Sales Deductions ”): (1) discounts to customers in amounts customary in the trade; (2) rebates, credits, and chargeback payments granted to local and other governments or managed health care organizations (including their agencies, purchasers, and/or reimbursers), under programs available or required by Applicable Law, or reasonably entered into to sustain and/or increase market share for Licensed Products, and trade customers, including Wholesalers, chains and pharmacy buying groups; (3) sales, value added, and/or use taxes directly imposed and with reference to particular sales and that are paid by the Net Sales Parties; (4) amounts allowed or credited on returns and return reserves, including allowances actually given, for spoiled, damaged, out-dated, rejected, or returned Licensed Product, or withdrawals and recalls of Licensed Product; and (5) shipping and insurance charges with respect to Licensed Products that are itemized on the relevant invoice and paid by the customer. Such amounts shall be determined from the books and records of the Net Sales Parties maintained in accordance with IFRS, consistently applied.

For the purpose of this Section 1.69,

(i) sales of Licensed Products between Toyama, Sublicensees, and Toyama Sole Distributors for purposes of resale or, to the extent sold or transferred for an amount less than or equal to the cost to manufacture or supply such Licensed Product, for research or development purposes or use, disposal, or transfer in a sampling, promotional, or compassionate use program shall be disregarded for the purpose of calculating Net Sales,

(ii) in the case where a discount is granted on the combined sales of Licensed Products and other pharmaceutical products by Toyama, a Sublicensee, or a Toyama Sole Distributor, the Sales Deduction corresponding to the portion of such discount allocable to such Licensed Products’ Net Sales shall be calculated by multiplying the total of such discount granted on such combined sales by the fraction A/(A+B), where A is the total reasonable, good faith, arm’s length selling price of the Licensed Products subject to such discount (without taking into account such discount) and B is the total reasonable, good faith, arm’s length selling prices of the other pharmaceutical products subject to such discount (without taking into account such discount); for purposes of clarification, but not limitation, the result of such multiplication for a particular discount with respect to a particular Licensed Product shall be considered directly and solely related to the sale of the applicable Licensed Product for the purpose of calculating Net Sales. The details of such calculation of such Sales Deductions for Net Sales, including the determination of the applicable total selling prices for each of the Licensed Products and other products included in the combined sales subject to such discount, shall be reasonably determined by the Parties in good faith in a manner consistent with the foregoing and, to the extent royalties are due under the Scripps License with respect to sales of such Licensed Products, the relevant terms of the Scripps License, and

(iii) in the case where a rebate is granted on pharmaceutical products sales including both sales of Licensed Products and sales of other pharmaceutical products, primarily as incentives to such pharmaceutical products sales (including such sales of Licensed Products), by Toyama, a Sublicensee, or a Toyama Sole Distributor, the Sales Deduction corresponding to the portion of such rebate allocable to such Licensed Products’ Net Sales shall be calculated by multiplying the total of such rebate granted or paid on such sales of both Licensed Products and other pharmaceutical products, by the fraction A/(A+B), where A is the total reasonable, good faith, arm’s length selling price of the Licensed Products subject to such rebate (without taking into account such rebate and B is the total reasonable, good faith, arm’s length selling prices of the other pharmaceutical products subject to such rebate (without taking into account such rebate); for purposes of clarification, but not limitation, the result of such multiplication for a particular rebate with respect to a particular Licensed Product shall be considered directly and solely related to the sale of the applicable Licensed Product for the purpose of calculating Net Sales. The details of such calculation of such Sales Deductions for Net Sales, including the determination of the applicable total selling prices for each of the Licensed Products and other products included in such sales of both Licensed Products and other pharmaceutical products subject to such rebate, shall be reasonably determined by the Parties in good faith in a manner consistent with the foregoing and, to the extent royalties are due under the Scripps License with respect to sales of such Licensed Products, the relevant terms of the Scripps License.

No deductions from the amounts defined above may be made for commissions paid to individuals whether those individuals be associated with independent sales agencies or regularly employed by any of the Net Sales Parties, nor may deductions be made for cost of collections. If any of the Net Sales Parties receives refunds or reimbursements of any amounts, or actual amounts allowed or credited on returns corresponding to certain reserved amounts do not equal or exceed such reserves, deducted from gross sales to calculate Net Sales as set forth herein, then such refunded or reimbursed amounts, or reserves not fully accounted for by actual returns corresponding to such reserved amounts, shall be considered Net Sales in the applicable reporting period in which such refunded or reimbursed amounts are received, or reserves are reasonably determined not to be fully accounted for by actual returns corresponding thereto (such amounts in all cases, “ Unwound Sales Deductions ”). Licensed Products are considered “sold” when billed out or invoiced or, in the event such Licensed Products are not billed out or invoiced, when the consideration for sale or provision of the Licensed Products is received. For sales or other transfers of Licensed Products by Net Sales Parties in other than an arm’s-length transaction, the value of the Net Sales attributed under this Section 1.69 to such a transaction shall be no less than the greater of (x) that which would have been received in an arm’s-length transaction, based on sales of like quality and quantity products on or about the time of such transaction or (y) [*]. Notwithstanding the foregoing, Net Sales shall not include, and shall be deemed zero with respect to, (i) the no-charge distribution of reasonable quantities of promotional samples of Licensed Products, (ii) Licensed Products provided, prior to Regulatory Approval, for clinical trials or research purposes at a price equal to or less than the cost to manufacture or procure such Licensed Products, or (iii) Licensed Products provided by a Net Sales Party to a Net Sales Party for purposes of resale thereby, provided that such Licensed Products’ resale shall be subject to royalties due to Cempra under Section 3.3 of this Agreement (as they may be adjusted pursuant to Section 3.4). In the event any Affiliates of Toyama that are

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

neither Sublicensees nor Toyama Sole Distributors sell or transfer Licensed Products in the Territory to Third Parties that are neither Sublicensees nor Toyama Sole Distributors (since the proceeds of such Sublicensees’ or Toyama Sole Distributors sales or other transfers of any such Licensed Products are and will be included in Net Sales), by breach of Section 2.1 or otherwise, such net sales of Licensed Products by such Affiliates shall, notwithstanding anything to the contrary, be included in Net Sales, and subject to the royalties payable on Net Sales, for purposes of this Agreement, with such net sales calculated in a manner consistent with this Section 1.69, including (and as calculated consistent with) the fourth sentence of this final paragraph of Section 1.69.

1.70 “ Optimer Know-How ” shall have the meaning set forth in the Optimer License.

1.71 “ Optimer License ” means that certain Collaborative Research and Development and License Agreement between Cempra and Optimer Pharmaceuticals, Inc., dated March 31, 2006, as amended.

1.72 “ Optimer Patents ” means any Patents licensed to Cempra under the Optimer License.

1.73 “ Owned ” means, with respect to any intellectual property or right therein that Toyama owns, solely or jointly, in each case with the ability to grant a right, license, or access to such material, information or intellectual property right to Cempra on the terms and conditions set forth herein, without violating the terms of any agreement or other arrangement with any of Toyama’s Affiliates and/or Third Party(ies). “Ownership” has the correlative meaning. For the avoidance of doubt, and notwithstanding the use of the word “owns” in this Section 1.73, any intellectual property or right therein that is provided or granted to Toyama from a Sublicensee, Toyama Sole Distributor, or Third Party academic institution, contract research organization, contract manufacturer, or other contractor, in each case with the ability to grant a right, license, or access to such material, information or intellectual property right to Cempra on the terms and conditions set forth herein, without violating the terms of such agreement or other arrangement with such Affiliate and/or Third Party, shall be deemed Owned by Toyama.

1.74 “ Patent(s) ” means any granted patents and pending patent applications, together with all additions, divisionals, continuations, continuations-in-part, substitutions, reissues, re-examinations, extensions, registrations, patent term extensions, revalidations, supplementary protection certificates, and renewals of any of the foregoing, and all foreign applications and patents corresponding to or claiming priority from any of the foregoing.

1.75 “ Permitted Derivative ” means, with respect to the Compound, any prodrug, salt, or co-crystal thereof.

1.76 “ Phase 1 Trial ” means a human clinical trial of a Licensed Product, the principal purpose of which is a preliminary determination of safety in patients or healthy individuals, or the metabolism and pharmacokinetic properties and clinical pharmacology of such Licensed Product, and generally consistent with Title 21, Section 312.21(a) of the CFR or a similar clinical study in any other country.

1.77 “ Phase 2 Trial ” means a human clinical trial of a Licensed Product, including possibly pharmacokinetic studies, the principal purpose of which is to make a preliminary determination that such Licensed Product is safe in patients for its intended use and to obtain sufficient information about such Licensed Product’s efficacy to permit the design of further clinical trials, and generally consistent with Title 21, Section 312.21(b) of the CFR, or a similar clinical study in any other country.

1.78 “ Phase 3 Trial ” means a human clinical trial that provides for a pivotal human clinical trial of a Licensed Product, which trial is designed to (a) establish that a Licensed Product is safe and efficacious for its intended use, (b) define warnings, precautions and adverse reactions that are associated with the Licensed Product in the dosage range to be prescribed, (c) support Regulatory Approval of such Licensed Product, and (d) is generally consistent with Title 21, Section 312.21(c) of the CFR, or a similar clinical study in any other country.

1.79 “ [*] ” means any form of Compound, including any [*] of Compound, such as [*], [*], or [*], or any amorphous form of Compound, whether or not such [*] and/or [*] are isolated, or [*].

1.80 “ [*] ” means the [*] of Compound as disclosed in PCT international publication No. [*] and referred to as [*] therein, and which may be defined or identified by any of [*].

1.81 “ [*] ” means the [*] of Compound as disclosed in PCT international publication No. [*] and referred to as [*] therein, and which may be defined or identified by any of [*].

1.82 “ [*] Patent ” means (I) a Cempra Patent in the Territory which includes (a) one or more claims Covering [*] and (b) one or more claims Covering [*] or (II) two or more Cempra Patents in the Territory which, collectively, in combination, include [*].

1.83 “ Pricing Approvals ” means any pricing and reimbursement approvals which must be obtained before placing a Licensed Product on the market in a particular jurisdiction.

1.84 “ Product-Specific Patents ” means Cempra Patents (other than any Scripps Patents, which shall not in any event be included within Product-Specific Patents) (i) containing Valid Claims Covering the Compound, a Permitted Derivative, or a Licensed Product and (ii) not containing any Valid Claims Covering (a) any APIs or chemical compounds other than the Compound or a Permitted Derivative or (b) any products or technology other than the Licensed Product.

1.85 “ Protected Patent ” shall mean (i) any Patent included, in whole or in part, within the Cempra Patents, the Scripps Patents, or the Optimer Patents or (ii) any counterpart of any of the foregoing Patents, whether inside or outside the Territory.

1.86 “ Regulatory Approval ” means any and all approvals, licenses, registrations, clearances, or authorizations of any national, supra-national, regional, state or local regulatory agency, department, bureau, commission, council or other governmental entity, that are necessary for the commercial manufacture, distribution, use, and sale of a Licensed Product for human therapeutic use in a particular jurisdiction, provided that Regulatory Approvals shall exclude Pricing Approvals.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

1.87 “ Regulatory Authority ” means any Governmental Authority with responsibility for granting any licenses or approvals necessary for the marketing and sale of pharmaceutical or biological products for human therapeutic use in a particular jurisdiction.

1.88 “ Regulatory Filing ” means an NDA or IND (with respect to the U.S.), any foreign counterparts or equivalents of any of the foregoing, any DMFs, and any Marketing Applications, filings, or other submissions required by or provided to Governmental Authorities relating to the Development, manufacture, or Commercialization of any Licensed Product, supporting documentation, correspondence, meeting minutes, amendments, supplements, registrations, licenses, regulatory drug lists, advertising and promotion documents, adverse event files, complaint files, and manufacturing, shipping, or storage records with respect to any of the foregoing.

1.89 “ Scripps Field ” means the prevention, treatment or amelioration of a specific disease, symptom, state of health, or medical- or health-related condition in humans and/or animals.

1.90 “ Scripps License ” means that certain License Agreement between Cempra and The Scripps Research Institute (“ Scripps ”), effective June 12, 2012.

1.91 “ Scripps Patents ” means the Patents licensed to Cempra pursuant to the Scripps License.

1.92 “ Serious Adverse Event ” means an Adverse Event that (i) results in death, (ii) is life-threatening, (iii) requires inpatient hospitalization or prolongation of existing hospitalization, (iv) results in persistent or significant disability/incapacity, or (v) is a congenital anomaly/birth defect. The term “life-threatening” in this definition refers to an event in which the patient or subject was at risk of death at the time of the event; it does not refer to an event which hypothetically might have caused death if it had been more severe. Important medical events that may not be immediately life-threatening or result in death or hospitalization but may jeopardize the patient or subject or require intervention to prevent one of the other outcomes listed above should also be included in this definition to the extent reasonable medical and scientific judgment indicates that expedited reporting is appropriate under Applicable Laws.

1.93 “ Sublicensee ” means a Third Party or Affiliate of Toyama granted a sublicense to any of the rights granted to Toyama under this Agreement, including any rights to develop, manufacture, or sell one or more Licensed Products in the Field in the Territory (including any Third Party acting in collaboration with Toyama), but “Sublicensees” shall not include any Affiliates, Toyama Sole Distributors, Third Party contractors or Wholesalers that are not granted any rights under any Cempra Patents, Cempra Know-How, Cempra Product Marks, Toyama Patents, Toyama Know-How, Toyama Product Marks, Regulatory Filings, or Governmental Approvals. For the purpose of clarification, Sublicensee shall not include [*].

1.94 “ Supplied Compound Price ” shall mean price for Compound or Permitted Derivative supplied by Cempra to Toyama under the Supply Agreement as calculated pursuant to Sections 3.2 and 3.3 thereof. Notwithstanding anything to the contrary, however, Supplied Compound Price shall not include [*], provided that the foregoing shall not in any event be

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

construed to limit Toyama’s obligation to pay any [*] under the Supply Agreement or any other agreement entered into by Toyama or any Sublicensee for the manufacture or supply of Compound or Permitted Derivative.

1.95 “ Term ” has the meaning set forth in Section 12.1.

1.96 “ Territory ” means Japan.

1.97 “ Third Party ” means any entity other than (a) Cempra, (b) Toyama, or (c) any Affiliate of either Party.

1.98 “ Toyama Data ” means all Know-How that becomes Owned by Toyama or Sublicensees on or after the Effective Date and constitutes data, results, analyses, reports, and other information or material resulting from Toyama’s and Sublicensees’ Development or Commercialization of Licensed Products or any pre-clinical testing, animal testing, clinical trials, in vitro or in vivo testing or analysis, or other evaluation of Compound, any Permitted Derivative, or any Licensed Product that is performed by or on behalf of Toyama or Sublicensees.

1.99 “ Toyama Know-How ” means all Know-How that (X) is or becomes Owned by Toyama on or after the Effective Date and results from exercise of any rights granted hereunder or use of or access to the Compound, any Permitted Derivative, Licensed Products, Cempra Technology, or Cempra’s Confidential Information or (Y) concerns any Product Improvement by Toyama, provided that, notwithstanding anything to the contrary, Toyama Know-How includes Toyama’s interests in any Know-How constituting Joint Product Improvements. Notwithstanding anything to the contrary, Toyama Know-How shall not include any Know-How that is (x) owned, licensed, or otherwise controlled by any Acquiring Entity of Toyama (a “ Toyama Acquiring Entity ”) prior to the date of the transaction by which such Toyama Acquiring Entity first became a Toyama Acquiring Entity (such Know-How described in this clause (x), the “ Toyama Acquiring Entity Know-How ”), except to extent such Toyama Acquiring Entity Know-How was already included within the Toyama Know-How prior to the date of the transaction by which such Toyama Acquiring Entity first became an Toyama Acquiring Entity, or (y) owned, licensed, or otherwise controlled by any Acquired Entity of Toyama (a “ Toyama Acquired Entity ”) prior to the date of the transaction by which such Toyama Acquired Entity first became a Toyama Acquired Entity (such Know-How described in this clause (y), the “ Toyama Acquired Entity Know-How ”), except to the extent such Toyama Acquired Entity Know-How was already included within the Toyama Know-How prior to the date of the transaction by which such Toyama Acquired Entity first became a Toyama Acquired Entity.

1.100 “ Toyama Parent ” means FUJIFILM Holdings Corporation, a Japanese corporation.

1.101 “ Toyama Patents ” means all Patents that (X) are or become Owned by Toyama on or after the Effective Date and (i) Cover Licensed Products, Compound, or Permitted Derivative or (ii) are necessary to manufacture, use, research, develop, sell, promote, market, commercialize, import or export Licensed Products, Compound, or Permitted Derivative or (Y) Cover any Product Improvement by Toyama, provided that, notwithstanding anything to the

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

contrary, Toyama Patents includes Toyama’s interests in any Patents Covering any Joint Product Improvements. Notwithstanding anything to the contrary, Toyama Patents shall not include any Patents that are (a) owned, licensed, or otherwise controlled by any Toyama Acquiring Entity prior to the date of the transaction by which such Toyama Acquiring Entity first became a Toyama Acquiring Entity (such Patent described in this clause (a), the “ Toyama Acquiring Entity Patent ”), except to extent such Toyama Acquiring Entity Patent was already included within the Toyama Patents prior to the date of the transaction by which such Toyama Acquiring Entity first became a Toyama Acquiring Entity, or (b) owned, licensed, or otherwise controlled by any Toyama Acquired Entity prior to the date of the transaction by which such Toyama Acquired Entity first became a Toyama Acquired Entity (such Patent described in this clause (b), the “ Toyama Acquired Entity Patent ”), except to the extent such Toyama Acquired Entity Patent was already included within the Toyama Patents prior to the date of the transaction by which such Toyama Acquired Entity first became a Toyama Acquired Entity.

1.102 “ Toyama Sole Distributor ” shall mean (i) upon written notice by Toyama to Cempra designating [*] (or a successor entity thereto) as a Toyama Sole Distributor, [*] (or a successor entity thereto), (ii) upon written notice by Toyama to Cempra designating [*] (or a successor entity thereto) as a Toyama Sole Distributor, [*] (or a successor entity thereto), and/or (iii) an independent Third Party value-added distributor that (A) establishes and maintains a sales force for the promotion and selling the Licensed Product in the Territory reasonably sufficient together with Toyama and Sublicensees, if any, to carry out Toyama’s responsibility for the Commercialization of Licensed Product in the Territory under this Agreement, (B) purchases finished Licensed Products directly from Toyama and resells finished Licensed Products to Third Parties (including but not limited to Wholesalers), and (C) engages in material marketing, advertising, promotional, sales calls or detailing, physician or health care provider education, or similar Commercialization activities with respect to Licensed Product, provided that Toyama shall notify Cempra in writing of any such Third Party as set forth in this clause (iii) prior to appointing any such Third Party as Toyama Sole Distributor. For clarification, Toyama Sole Distributors shall not include Wholesalers.

1.103 “ Toyama Technology ” means the Toyama Know-How and the Toyama Patents. For the avoidance of doubt, the Know-How, Patents and any other right which is Owned by Toyama Parent, Toyama’s Affiliates or Toyama’s Wholesalers, other than Sublicensees or Toyama Sole Distributors, shall not be included in Toyama Technology, without prior written consent or agreement of such entity.

1.104 “ [*] ”.

1.105 “ U.S. ” means the United States of America and all territories thereof.

1.106 “ Valid Claim ” means a claim of any pending patent application or any issued, unexpired patent that has not been dedicated to the public, disclaimed, abandoned or held invalid or unenforceable by a court or other body of competent jurisdiction from which no further appeal can be taken, and that has not been explicitly disclaimed, or admitted in writing to be invalid or unenforceable or of a scope not Covering a particular product or service through reissue, disclaimer or otherwise.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

1.107 “ Wholesaler ” means any Third Party or Affiliate that (i) is not a Sublicensee or Toyama Sole Distributor, (ii) purchases finished Licensed Product from Toyama or its Sublicensee for purposes of reselling such finished Licensed Product in the Field in the Territory, and (iii) either (a) is primarily engaged in the business of logistical distribution of pharmaceutical products or supply chain management or (b) does not engage in any material marketing, advertising, promotional, sales calls or detailing, physician or health care provider education, or similar Commercialization activities with respect to Licensed Product.

1.108 Miscellaneous Interpretation Aids .

(a) Each use in this Agreement of the term “including,” “comprising,” or “containing” (or a variant form thereof) shall be understood to have an open, non-limiting meaning. Thus, e.g., “including” shall be interpreted as meaning “including without limitation” or “including but not limited to,” regardless of whether the words “without limitation” or “but not limited to” actually follow the term “including.” Similarly, the terms “such as,” “for example,” and “e.g.” shall be understood as referring to non-limiting illustrations or examples.

(b) “Herein,” “hereby,” “hereunder,” “hereof,” and other equivalent words shall be understood as referring to this Agreement in its entirety, and not solely to the particular provision or portion of this Agreement in which any such word is used.

(d) All references to days, months, quarters, or years shall be understood to refer, respectively, to calendar days, calendar months, Calendar Quarters, or Calendar Years, unless otherwise indicated.

(e) Any reference to a supranational, national, federal, state, local, or foreign statute or law shall be understood to refer to the applicable version of the law or statute then in force (as it may have been amended or superseded) as well as all rules and regulations promulgated thereunder, unless the context requires otherwise.

(f) All references to “dollars,” “Dollars,” “US$,” or “$” shall mean United States dollars.

2.	L ICENSES AND R ELATED R IGHTS AND O BLIGATIONS .

2.1 License to Toyama . Subject to the terms and conditions of this Agreement, Cempra hereby grants to Toyama an exclusive (except with respect to the Back-Up Supply Rights and the Scripps Patents) royalty-bearing license, with the right to sublicense, under the Cempra Technology to make and have made the Licensed Products using the bulk Compound or Permitted Derivative supplied by Cempra under the Supply Agreement or manufactured pursuant to the exercise of Back-Up Supply Rights or following the termination or expiration of the Supply Agreement, and to use, have used, sell, offer for sale, import and export Licensed Products, in the Field in the Territory.

(a) Notwithstanding anything to the contrary, the licenses granted by Cempra to Toyama under this Agreement shall include, in addition to the rights set forth above, a nonexclusive license under Cempra Technology, with the right to sublicense to use or have used, manufacture or have manufactured, sell, offer for sale, import, and export (x) in the Manufacturing Territory, the Compound or any Permitted Derivative for use in manufacturing Licensed Product for use or sale in the Field and in the Territory under this Agreement or (y) in the Territory, Clinical Supply for use in the Field in the Territory under this Agreement, respectively, which licenses (and the right to exercise them) shall, prior to the termination or expiration of the Supply Agreement with respect thereto, be subject to the limitations and obligations set forth in Section 2.7 of the Supply Agreement. The “ Back-Up Supply Rights ” shall mean the rights described in this Section 2.1(a), as they are limited by Section 2.7 of the Supply Agreement prior to the termination or expiration thereof.

(b) The licenses granted to Toyama under this Agreement shall (i) only include rights under the Scripps Patents to the extent Cempra has been granted rights thereunder pursuant to the Scripps License, which rights are non-exclusive in the Manufacturing Territory and shall be subject to the retained rights of Scripps and the U.S. Government under the Scripps Patents as set forth in the Scripps License, and (ii) to the extent including any rights to Scripps Patents, be subject to the applicable terms and conditions of the Scripps License (including but not limited to the applicable terms thereof concerning Challenges, reporting, audit rights, indemnity, insurance, disclaimers of warranty, limits of liability, confidentiality, and rights upon expiration or termination). Notwithstanding anything to the contrary, Toyama agrees that (x) no Affiliates of Toyama shall, nor have any rights to, Develop, Commercialize, manufacture, use, sell, offer for sale, import, or export Licensed Products or otherwise have any rights with respect to Cempra Technology, Compound, Permitted Derivatives, or Licensed Products and (y) Toyama shall not provide any Cempra Technology or Confidential Information of Cempra embodying Cempra Technology to any Affiliate of Toyama, except to the extent in the case of clause (x) or (y), such Affiliates constitute Sublicensees or Toyama Sole Distributors, respectively, under this Agreement pursuant to a written sublicense or distribution (or similar) agreement, respectively, with respect thereto executed in accordance with this Agreement, provided that (1) Toyama’s Affiliates’ possession of certain of Cempra’s Confidential Information as a result of the disclosure thereof under the Toyama CDA or that certain Confidential Agreement between Cempra and FUJIFILM Corporation dated April 3, 2012 (the “ Fuji CDA ”) shall not constitute a breach of this Section 2.1(b) and (2) such Confidential Information of Cempra in the possession of an Affiliate of Toyama shall remain subject to such Affiliates’ obligations under the Toyama CDA or Fuji CDA with respect thereto (except to the extent such Affiliates of Toyama are Sublicensees or Toyama Sole Distributors).

(c) The Parties agree that, notwithstanding anything to the contrary, no rights of any kind to make, have made, use, sell, offer for sale, import, or export Compound or Permitted Derivative are granted by Cempra under this Agreement outside of the Manufacturing Territory.

2.2 Rights and Obligations for the Benefit of Non-Commercial Third Parties .

(a) The research leading to certain of the Cempra Patents, technology Covered thereby, and Cempra Know-How was funded in part by the U.S. Government, and the rights granted in Section 2.1 above are subject to any rights the U.S. Government may have pursuant to any grant funding agreement between the U.S. Government and Scripps or Cempra and any applicable law, rule, or regulation. The Parties agree that, notwithstanding any use of descriptive terms such as “exclusive” in Section 2.1 and elsewhere in this Agreement, the U.S. Government has certain rights with respect to such Cempra Patents, the inventions claimed thereby, and Cempra Know-How as set forth in 35 U.S. Code §§202-212 and applicable regulations of Title 37 of the CFR, including a non-exclusive, non-transferable, irrevocable, paid-up license to practice or have practiced such inventions or Know-How for its own purposes. If there is a conflict between any such grant funding agreement or applicable law, rule, or regulation and this Agreement, the terms of such government agreement or applicable law, rule, or regulation shall prevail.

(b) Notwithstanding anything to the contrary in this Agreement, the rights to Scripps Patents granted under this Agreement shall be subject to (i) the right of Scripps to practice under the Scripps Patents for its own educational, research and clinical purposes without restriction and without payment of royalties or other fees, including the right to (a) provide technology claimed in the Scripps Patents to governmental laboratories and to other non-profit institutions and (b) perform research for non-commercial purposes without restriction and without payment of royalties or other fees and (ii) Scripps’ right to provide materials which are within the scope of the claims of the Scripps Patents to governmental laboratories and to other institutions of higher learning and academic research for non-commercial purposes without payment of royalties or other fees, each as provided in the Scripps License.

2.3 License of Cempra’s Trademark .

(a) Option . In selecting any potential Cempra Product Mark for use with Licensed Product in the Field outside the Territory, Cempra shall provide Toyama a reasonable opportunity to comment on such Cempra Product Mark’s (or its Japanese’ equivalent’s) availability or advisability for Licensed Product in the Field in the Territory. Upon Cempra First Commercial Sale using a particular Cempra Product Mark, Cempra shall provide written notice thereof to Toyama, which notice shall include Cempra’s reasonable guidelines for the use and display of such Cempra Product Mark (such Cempra Product Mark’s “ Trademark Use Guidelines ”). Toyama shall have the option, for a period of [*] Calendar Days following such notice from Cempra with respect to such Cempra Product Mark, to be granted the license set forth in Section 2.3(b) below with respect to such Cempra Product Mark, subject to the terms and conditions of this Section 2.3 and this Agreement. Notwithstanding anything to the contrary, as between the Parties, Cempra Product Marks for the Licensed Product in the Territory shall be owned by Cempra and, if a Cempra Product Mark used for the sale of Licensed Product in the Field outside the Territory is available for trademark registration in the Territory with respect to Licensed Product in the Field, Cempra shall use Commercially

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

Reasonable Efforts to register (or cause to be registered) such Cempra Product Mark for the Licensed Product in the Field with the applicable trademark authority in the Territory, at Cempra’s expense. The Parties agree that, notwithstanding anything to the contrary, if Toyama (i) does not exercise its option to be granted rights to a particular Cempra Product Mark within [*] Calendar Day Period set forth above, (ii) Toyama exercises such option with respect to a particular Cempra Product Mark but does not satisfy the conditions set forth in Section 2.3(b) for the grant of a license to Toyama with respect thereto, or (iii) Toyama obtains a license with respect to a particular Cempra Product Mark pursuant to this Section 2.3(a) and Section 2.3(b) but such license is later terminated pursuant to Section 2.3(e), Cempra shall have no obligations with respect to such Cempra Product Mark in the Territory. Toyama may identify its own trade name and/or trademark for use with the Licensed Product in the Territory at Toyama’s own expense and subject in all respects to all Applicable Laws and Regulatory Approvals.

(b) License . If and when Toyama provides written notice to Cempra, within the above-referenced [*] Calendar Day period, with respect to a particular Cempra Product Mark in which Toyama (i) elects to be granted a license in the Territory and in the Field with respect to such Cempra Product Mark and (ii) Toyama agrees in writing to comply with the applicable Trademark Use Guidelines with respect to such Cempra Product Mark, be subject to all of the terms of this Section 2.3 with respect to such Cempra Product Mark, and be fully responsible and liable for Sublicensees’ compliance with such Trademark Use Guidelines and the terms of this Section 2.3 with respect to such Cempra Product Mark (such a notice, a “ Trademark Use Notice ”), Cempra hereby grants to Toyama a fully-paid license (with the right to sublicense in accordance with Section 2.4), effective upon Cempra’s receipt of the applicable Trademark Use Notice to use such Cempra Product Mark solely in connection with the Commercialization of such Licensed Product in the Field in the Territory. Toyama and Sublicensees may only use a Cempra Product Mark on a particular Licensed Product in the Field in the Territory subject in all respects to all Applicable Laws and Regulatory Approvals in the Territory. Any licenses granted under this Section 2.3(b) shall not include rights to any derivatives of any Cempra Product Marks.

(c) Use of Trademarks . With respect to each Cempra Product Mark for which Toyama provides a Trademark Use Notice in accordance with Section 2.3(b), Toyama shall comply with all Applicable Laws pertaining to the proper use and designation of such Cempra Product Mark and, additionally, Toyama shall:

(i) ensure that such Cempra Product Mark is accompanied by words accurately describing the nature of the goods or services to which it relates and that such Cempra Product Mark is displayed as set forth in the applicable Trademark Use Guidelines;

(ii) To the extent reasonably practicable after receipt of a written request from Cempra, comply with any additional reasonable requirements of Cempra, not included in the Trademark Use Guidelines, as to the form, manner, scale and context of use of such Cempra Product Mark, the use of the statements to accompany it, as well as the appearance of such Cempra Product Mark on containers, packaging and related marketing and promotional materials to be used in the Territory for Licensed Product;

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

(iii) display the proper form of trademark and service mark notice associated with each Cempra Product Mark in accordance with instructions received in writing from Cempra;

(iv) include, on any item which bears such Cempra Product Mark, a statement identifying Cempra as the owner of such Cempra Product Mark and stating that Toyama or Sublicensee is an authorized user of such Cempra Product Mark;

(v) not conduct, without the written consent of Cempra, the whole or any part of its business (or in the case of any Sublicensee, such Sublicensee’s business) under a business name or trading style which incorporates any of the Cempra Product Marks;

(vi) neither use nor display such Cempra Product Mark in such relation to any other mark or marks owned by any Third Party, Toyama, or any Sublicensee thereof as to suggest that the multiple marks constitute a single or composite trademark, service mark, or are under the same proprietorship; and

(vii) ensure such Cempra Product Marks are only used with Licensed Products that are made, used, and sold in the Territory in the Field in compliance with Applicable Laws, Regulatory Approvals applicable to the relevant Licensed Product, this Agreement, and Toyama’s and Sublicensees’ quality standards with respect to their pharmaceutical products generally.

(d) Additional Trademark Terms . Toyama shall not take any action inconsistent with Cempra’s ownership of any Cempra Product Mark. Any right accruing to Toyama (including goodwill), excluding any rights associated with Third Party sale or purchase agreements for the Licensed Products, as a result of the use of the Cempra Product Mark in the sale, advertising and promotion of the Licensed Product, shall be for the sole benefits of and automatically vest in Cempra. Toyama shall not form any combination trademarks or trade names with any Cempra Product Mark. If Toyama exercises the option to license any Cempra Product Mark(s), Toyama shall grant Cempra reasonable access to Toyama’s facilities, records, packaging, and promotional materials for the purpose of inspecting Toyama’s use of such Cempra Product Mark(s). Notwithstanding anything to the contrary, Toyama shall not, and shall ensure that Sublicensees do not, use any Cempra Product Mark, any other trademark used by Cempra, or any Affiliate or licensee thereof with respect to any Licensed Product or the use, sale, marketing or promotion thereof, or any trademark that is a derivative of, or confusingly similar to any of the foregoing, except to the extent rights to a Cempra Product Mark are granted to Toyama under this Section 2.3.

(e) Termination of Trademark License . Cempra shall be entitled to terminate Toyama’s rights to any Cempra Product Mark hereunder, in their entirety or with respect

to one or more Licensed Product(s), on written notice to Toyama if neither Toyama nor any Sublicensee has used the Cempra Product Marks with respect to the relevant Licensed Product for any consecutive period of [*] months or more after the First Commercial Sale. Notwithstanding with foregoing, after the expiration of this Agreement, any license granted under this Section 2.3 shall survive, subject to the terms provided in this Section 2.3, and Cempra shall be entitled to terminate such license for any material breach of such terms by Toyama or any Sublicensee thereof that is not cured within sixty (60) Calendar Days of any notice thereof by Cempra.

2.4 Toyama Sublicensing . Toyama shall have the right to sublicense its rights under Sections 2.1 and, if applicable, 2.3 to one or more Third Parties or Affiliates of Toyama. Toyama shall provide Cempra a true, accurate, and complete copy of each such sublicense (and each amendment thereto, if any) promptly following its execution. Each sublicense shall (i) be subject to, and consistent with, the applicable terms and conditions of this Agreement, (ii) not conflict with the terms of this Agreement, and (iii) contain terms and conditions reasonably sufficient to enable Toyama to comply with the terms of this Agreement. However, Toyama shall remain responsible for the performance of and compliance with the terms of this Agreement by all Sublicensees.

2.5 Cempra Rights in Toyama Technology . During the Term and after expiration or termination of this Agreement, Toyama hereby grants to Cempra and its Affiliates, a royalty-free, fully-paid, perpetual, irrevocable, transferable, exclusive license, with the right to sublicense, under the Toyama Technology (and including a right of reference to all Regulatory Filings and Governmental Approvals in the Territory and, in the event the Back-Up Supply Rights are exercised by Toyama, including a right of reference to all Regulatory Filings and Regulatory Approvals in the Manufacturing Territory) to make, have made, use, have used, sell, offer for sale, import, and export (i) Licensed Products outside the Territory, (ii) Licensed Products outside the Field in the Territory, or (iii) Compound, Permitted Derivative, or any product, other than Licensed Product, incorporating one or more of the foregoing as its API(s), but not incorporating any API other than the Compound or any Permitted Derivative(s), inside or outside the Territory for any and all uses or applications, provided that Cempra shall, and shall ensure that any transferee or sublicensee of Cempra’s rights to Toyama Technology shall, transfer or sublicense the above rights to Toyama Technology only in conjunction with a license or transfer of Know-How, Patents, regulatory assets or rights, manufacturing assets or rights, trademarks, tradenames, trade dress, or other intellectual property rights or intellectual property assets (other than Toyama Technology) related to Licensed Product, Compound, Permitted Derivative, or any product, other than Licensed Product, incorporating one or more of the foregoing as its API(s), but not incorporating any API other than the Compound or any Permitted Derivative(s). As used in this Section 2.5, rights to Toyama Technology can only be practiced with respect to the manufacture, use, sale offer for sale, import or export of Licensed Products, Compound, Permitted Derivative, or any product, other than Licensed Product, incorporating one or more of the foregoing as its API(s), but not incorporating any API other than the Compound or any Permitted Derivative(s).

2.6 No Implied Licenses . Except as expressly and specifically provided under this Agreement, the Parties agree that neither Party is granted any implied rights to or under any of the other Party’s current or future Patents, Know-How, trade secrets, copyrights, moral rights, trade or service marks, trade dress, or any other intellectual property rights.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

3.	F INANCIAL T ERMS .

3.1 Upfront Payment . Upon the Effective Date, Toyama shall pay Cempra US$10,000,000 (ten million US Dollars), which shall be non-refundable and non-creditable, within twenty (20) Business Days after the Effective Date.

3.2 Milestone Payments .

(a) Toyama shall pay Cempra the following amounts, which shall be non-refundable and non-creditable, within the sooner of (i) twenty (20) Business Days of Toyama’s written notice to Cempra of initial achievement of the indicated milestone or (ii) forty (40) Business Days of the initial achievement of the indicated milestone:

M ILESTONE

P AYMENT DUE

The earliest of (i) [*], (ii) [*], or (iii) [*].

US$[*]

Upon (i) Grant of [*] Patent and (ii) the Development, manufacture, or Commercialization of a Licensed Product in the Territory that (a) is Covered by [*] Patent or (b) contains or was manufactured using (x) API Covered by [*] Patent or (y) any [*] of such an API.

US$[*]

The earliest of (i) [*], (ii) [*], (iii) [*], (iv) [*], or (v) [*].

US$[*]

If either one of the following occurs: [*].

US$[*]

Net Sales of Licensed Product(s) in the Territory in a Calendar Year exceed [*] Japanese Yen

US$[*]

Toyama shall provide Cempra written notice of the initial achievement of each milestone described above within twenty (20) Business Days of such achievement.

(b) For purposes of clarification, but not limitation, with respect to milestone B above, if clause (i) thereof is achieved, [*].

(d) All milestone payments in the table set forth in Section 3.2(a) shall each only be paid once under this Agreement.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

3.3 Royalty Payments . Toyama shall pay to Cempra an amount equal to:

[*] percent ([*]%) of all Net Sales in a particular Calendar Year less than or equal to [*] Japanese Yen;

[*] percent ([*]%) of all Net Sales in a particular Calendar Year in excess of [*] Japanese Yen and less than or equal to [*] Japanese Yen;

[*] percent ([*]%) of all Net Sales in a particular Calendar Year in excess of [*] Japanese Yen and less than or equal to [*] Japanese Yen; and

[*] percent ([*]%) of all Net Sales in a particular Calendar Year in excess of [*] Japanese Yen.

For example, if Net Sales in a particular Calendar Year equal [*] Japanese Yen, the total royalties payable under this Section 3.3 with respect thereto shall, without taking into account any possible adjustment(s) under Section 3.4, equal [*] Japanese Yen (calculated as follows: ([*]% x [*]) + ([*]% x [*]) = [*] + [*] = [*]), subject to the effects of Section 3.10.

3.4 Royalty Adjustments.

(a) If [*], the royalty rate applicable to Net Sales of such Licensed Product during such Calendar Year under clauses a. and b. of Section 3.3 shall be reduced by [*] percent ([*]%) (e.g. to [*] percent ([*]%) and [*] percent ([*]%), respectively, if there are no additional adjustments under Section 3.4(b)) for Net Sales of such Licensed Product in the Territory. If [*], the royalty rate applicable to Net Sales of such Licensed Product during such Calendar Year under clauses a. and b. of Section 3.3 shall be adjusted pursuant to the following formulas:

[*] = X

Clause a. of Section 3.3: Adjusted royalty percent = [*]% + ([*]% x (([*] – X)/ [*]))

Clause b. of Section 3.3: Adjusted royalty percent = [*]% + ([*]% x (([*] – X)/ [*]))

Notwithstanding the foregoing, if a royalty adjustment under Section 3.4(b) applies to the sale of any Licensed Product for which a royalty adjustment under this Section 3.4(a) also applies, the applicable formulas under this Section 3.4(a) shall, as required by Section 3.4(c), instead read as follows:

[*] = X

Clause a. of Section 3.3: Adjusted royalty percent = greater of [*]% + ([*]% x (([*] – X)/ [*])) or [*] percent ([*]%)

Clause b. of Section 3.3: Adjusted royalty percent = greater of [*]% + ([*]% x (([*] – X)/ [*])) or [*] percent ([*]%)

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

As an example of a royalty adjustment under this Section 3.4(a), in the case [*], the adjusted royalty percents under clauses a. and b. of Section 3.3 for such Calendar Year, without taking into account any potential adjustments under Section 3.4(b), shall be [*]% and [*]% respectively.

Notwithstanding anything to the contrary, for any Licensed Product sold in a particular Calendar Year for which [*], the royalty rates applicable thereto shall be those set forth in clauses a. and b. of Section 3.3, without any adjustment being applied under this Section 3.4(a) (i.e. the royalty rates applicable under clauses a. and b. of Section 3.3 shall be [*]% and [*]%, respectively).

(b) For each Licensed Product, the royalty rate applicable to Net Sales of such Licensed Product shall be reduced to [*] percent ([*]%) of the royalty rate in Section 3.3 for all sales or transfers of such Licensed Product occurring on or after the last day of the first Calendar Quarter during which [*] (e.g., in the case of such an adjustment to royalties due under clause a. of Section 3.3, without taking into account any potential adjustment under Section 3.4(a), the applicable royalty rate thereunder shall be reduced to [*] percent ([*]%) of Net Sales), provided that, if the conditions described in clauses (i) and (ii) of [*] do not apply to any subsequent Calendar Quarter, the reduction described herein shall not apply to royalties due under Section 3.3 on any Net Sales of Licensed Products sold or transferred during such Calendar Quarter.

(c) In the event that the circumstances triggering the adjustments described in both Sections 3.4(a) and 3.4(b) apply to the sale of a particular Licensed Product, the adjustments in both Sections 3.4(a) and 3.4(b) shall apply in combination (including the manner contemplated by the alternative formulas provided in Section 3.4(a) above) down to a minimum royalty rate, under any possible combination of royalty adjustments under this Agreement, of [*] percent ([*]%). As an example of an adjustment under Sections 3.4(a) and 3.4(b) not involving the application of such [*] percent ([*]%) minimum royalty, if (I) [*] (and the adjustment set forth in subsection (b) above applies to all four Calendar Quarters of a particular Calendar Year), (II) [*], and (III) [*], the royalty rate applicable to sales of such Licensed Product in such Calendar Year under clause a. of Section 3.3 shall equal [*] percent ([*]%) (calculated as follows: [*]% + ([*]% x (([*]-[*])/[*])) = [*]% + ([*]% x [*]) = [*]% + [*]%).

For purposes of clarification with respect to the [*] percent ([*]%) minimum royalty referenced above, the Parties agree that the royalty rate applicable to Net Sales of Licensed Products in the Territory under this Agreement shall not in any event be less than [*] percent ([*]%), regardless of the number or types of adjustments that may be applied thereto under this Section 3.4 or otherwise.

3.5 Payment Increase in the Event of a Challenge .

(a) Challenge By Toyama or any Sublicensee . In the event Toyama or a Sublicensee directly or indirectly institutes, makes or maintains any Challenge, then in addition to all other amounts due under this Agreement, Toyama shall pay to Cempra, in addition to any other amounts due under this Agreement, [*]. Such payments shall be made on a Calendar Quarter-by-Calendar Quarter basis consistent with the requirements of Section 3.6.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

(b) No Right to Recoup . In the event Toyama or a Sublicensee directly or indirectly institutes, makes or maintains any Challenge, Toyama shall have no right to recoup, recover, set-off or otherwise get reimbursement of any royalties, milestone payments, or other monies that are, in each case, paid hereunder to Cempra prior to or during the period of such Challenge, and Toyama hereby voluntarily and irrevocably waives any right to seek return of such royalties, milestone payments, or other monies paid by Toyama to Cempra in the event Toyama or a Sublicensee directly or indirectly institutes, makes or maintains any Challenge, provided that the foregoing shall not be construed to limit Toyama’s right to claim a refund or reimbursement of any overpayment to Cempra under this Agreement resulting solely from good faith accounting, reporting, or other errors that occurred through no fault of Cempra.

(c) Pre-Challenge Requirements . Except to the extent any defenses, counterclaims, countersuits, or responses brought by Toyama or a Sublicensee solely in response to a legal proceeding filed by [*] with respect to any [*] must, as a result of any legally-imposed time limitation, be brought or filed within a period less than [*] Calendar Days following the filing of such a proceeding by [*], in which case all [*] Calendar Days time periods referenced below shall instead be equal to [*] Calendar Days fewer than the number of Calendar Days within which Toyama or a Sublicensee is required to respond to such proceeding (i.e., if a response to a proceeding filed by Scripps is required within [*] Calendar Days thereof, all [*] Calendar Days periods set forth below shall instead be [*] Calendar Days), Toyama will provide written notice to Cempra [*] at least [*] Calendar Days prior to Toyama or, to the extent known to Toyama, a Sublicensee instituting or making any Challenges, and Toyama agrees that (i) neither Toyama nor any Sublicensee will institute such Challenge for at least [*] Calendar Days after the date of such notice, and (ii) it will use commercially reasonable efforts to ensure that Sublicensees do not institute a Challenge for at least [*] Calendar Days after the date of such notice. Toyama will include with such written notice a list of all prior art and a description of the other facts and arguments that support its contention that any of the [*] are invalid or unenforceable, provided that such obligation shall apply with respect to any Challenge initiated by or on behalf of any Sublicensee only to the extent such information is in the possession of Toyama or can be reasonably obtained by Toyama from such challenging Sublicensee. During such [*] Calendar Days period, the Parties will discuss the same with Scripps and attempt in good faith to mutually resolve such issues.

(d) Reasonable Provisions . The Parties agree that neither of them is entering into this Agreement with the anticipation that Challenges will be instituted or made by Toyama or any Sublicensees against [*], and consequently the financial terms and conditions of this Agreement reflect that understanding. Toyama and Cempra further agree that if the Parties did expect that such Challenges would be made against [*] or [*], the financial terms and conditions of this Agreement would be significantly higher. Accordingly, the Parties agree that the provisions herein for payment under Section 3.5(a) and the other provisions of this Section 3.5 are reasonable and reflect a mutual adjustment of certain financial provisions of this Agreement to accommodate those situations in which a Challenge is made against [*] or [*] in lieu of increasing the royalty rates and other financial terms and conditions of this Agreement as of the Effective Date.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

3.6 Payments and Payment Reports . Except as provided in Section 3.2, all royalties and payments due under this Section 3 shall be paid within [*] Calendar Days of the end of each Calendar Quarter. Each payment shall be accompanied by a statement stating (as applicable) the number (in units), description, and aggregate gross sales and Net Sales of each Licensed Product sold or transferred during the relevant Calendar Quarter by Toyama, Sublicensees, and Toyama Sole Distributors detailing the calculation of royalties and milestones due for such Calendar Quarter (including detailed descriptions and amounts of the amounts deducted from gross sales to calculate Net Sales), including the amount and description of any Unwound Sales Deductions to be included in Net Sales for such Calendar Quarter. Each such statement shall be certified by an officer of Toyama.

3.7 Payment Method . All payments due under this Agreement to Cempra shall be made by bank wire transfer in immediately available funds to an account designated by Cempra in writing. All payments hereunder shall be made in the legal currency of the U.S.

3.8 Taxes . In the event any tax is paid or required to be withheld by Toyama for the benefit of Cempra on account of any royalties or other payments payable to Cempra under this Agreement, the corresponding amounts payable to Cempra shall be reduced by the amount of taxes deducted and withheld, and Toyama shall pay the amounts of such taxes to the proper Governmental Authority in a timely manner and promptly transmit from Toyama to Cempra an official tax certificate or other evidence of such tax obligations together with proof of payment from the relevant Governmental Authority of all amounts deducted and withheld sufficient to enable Cempra to claim such payment of taxes. Any such withholding taxes required under applicable law to be paid or withheld shall be an expense of, and borne solely by, Cempra. Toyama will provide Cempra with, at Cempra’s expense, reasonable assistance to enable Cempra to recover such taxes or amounts otherwise withheld as permitted by Applicable Law. In addition, Toyama acknowledges the receipt from Cempra of: (a) two originally-executed copies of the Application Form for Income Tax Convention (FORM3) and (b) one originally-executed copy of the Attachment Form for Limitations on Benefit Articles (FORM17). To the extent not provided to Toyama on or prior to the Effective Date, Cempra shall provide to Toyama, as soon as reasonably possible following the Effective Date, one original of the United States Residency Certification for Cempra issued by the IRS.

3.9 Sublicenses; Toyama Sole Distributors . For avoidance of doubt, the Parties agree that in the event that Toyama grants licenses or sublicenses to Affiliates of Toyama or Third Parties the right to sell Licensed Products in the Territory, or in the event Toyama sells Licensed Products to any Toyama Sole Distributors, Toyama shall include in such licenses or sublicenses, or require as a contractual condition of any sale(s) of Licensed Product to any Toyama Sole Distributor(s), an obligation for such Sublicensee(s) and Toyama Sole Distributor(s) to account for and report their sales of Licensed Products on a basis substantially similar to that provided in this Agreement in order to enable Toyama to pay Cempra the royalties and other amounts due under this Agreement and satisfy Toyama’s reporting obligations hereunder.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

3.10 Foreign Exchange . Net Sales occurring in Japanese Yen during a particular Calendar Quarter will be converted into the U.S. dollar equivalent using the averaged conversion rate existing in the U.S. (as reported in The Wall Street Journal) during such Calendar Quarter. If The Wall Street Journal ceases to be published, then the rate of exchange to be used shall be that reported in such other business publication of national circulation in the U.S. as the Parties reasonably agree.

3.11 Interest . If one Party fails to make any payment in full when due to the other Party under this Agreement, then interest shall accrue on the balance due at a per annum rate of [*] percent ([*]%) per month (or, if lower, the maximum rate allowable by law) starting with the original due dates for the payments of such amounts. The obligation to pay interest on such late payments set forth in this Agreement shall not be construed to limit or restrict Cempra’s or Toyama’s right to any other rights or remedies which may be available to it, including any applicable right to terminate this Agreement in accordance with the terms and conditions of this Agreement.

3.12 Records; Audits . Toyama shall keep, and cause and require to be kept by Sublicensees and Toyama Sole Distributors, such records as are reasonably required to determine (i) in a manner consistent with IFRS or applicable financial standard in the Territory, the payments and amounts due under this Agreement and (ii) whether or not Toyama, Sublicensees, and Toyama Sole Distributors are complying with the terms of this Agreement to, with respect to this clause (ii) only, the extent constituting a sublicense granted by Cempra under the Scripps License; such records must be kept for a minimum of [*] years following the end of the Calendar Year to which such records pertain. At the request of Cempra, Toyama shall (and Toyama shall cause Sublicensees and Toyama Sole Distributors to) permit an independent certified public accounting firm engaged on behalf of Cempra (which firm may also represent Scripps with respect to any audit requested by or conducted on behalf of Scripps), at reasonable times not more than once a Calendar Year (unless Scripps requests an audit of Toyama and/or any Sublicensees or Toyama Sole Distributors during a particular Calendar Year in which Cempra has previously requested an audit of Toyama and/or any Sublicensees or Toyama Sole Distributors, in which case, one such request initiated by Scripps shall be honored hereunder during such Calendar Year, in addition to any preceding audit request made by Cempra independently of any audit request made by Scripps) and upon prior written notice, to audit, examine, and/or copy those records as may be relevant to determine, with respect to any Calendar Year ending not more than [*] years prior to the applicable request, (x) the correctness or completeness of any royalty report or payment made under this Agreement or, with respect to any audit, examination, or inspection requested by or on behalf of Scripps, (y) whether or not Toyama, Sublicensees, and Toyama Sole Distributors are in compliance with this Agreement to the extent constituting a sublicense granted by Cempra under the Scripps License. With respect to any audit, examination, or inspection requested by or on behalf of Scripps, Cempra shall, if and as requested by Toyama, and without limitation of Scripps’ rights under their agreements with Cempra and their corresponding rights hereunder, (I) use Commercially Reasonable Efforts to schedule such audit and accompany the applicable certified public accounting firm on any such audit, examination, or inspection occurring on Toyama’s premises and (II) ensure that Scripps maintains any information they obtain from Toyama in the course of any audit hereunder as confidential under the applicable terms of the Scripps License. The independent certified public accounting firm shall not be paid on a contingency basis depending upon the results of

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

such audit and shall only report on (a) the existence of any over or under payment and the amount, if any, of such over or under payment and, to the extent engaged with respect to an audit, examination, or inspection requested by or on behalf of Scripps, to determine whether or not Toyama, Sublicensees, and Toyama Sole Distributors are complying with the terms of this Agreement to the extent constituting a sublicense granted by Cempra under the Scripps License, as permitted above, (b) such compliance or the nature and extent of any failure by Toyama, Sublicensees, or Toyama Sole Distributors to comply with such terms hereof. Cempra shall promptly provide a copy of the results of any such audit or examination to Toyama. Cempra shall bear the full cost of the performance of any such audit or examination, unless such audit or examination discloses an underpayment exceeding [*] of the amount actually due hereunder with respect to any particular four (4) consecutive Calendar Quarters. Toyama shall, within twenty (20) Business Days of Toyama’s receipt of the results of such audit or examination pay to Cempra the amount of any underpayment revealed thereby. Any actual overpayment of royalties or any other amount made to Cempra by Toyama hereunder revealed by an examination and review shall be credited against future payments due Cempra under this Agreement or promptly refunded to Toyama, at Toyama’s request.

3.13 [*] Procedure . Toyama shall use Commercially Reasonable Efforts, in compliance with Applicable Law, to have the highest Pricing Approval sought for Licensed Products in the Territory, with such efforts to include (but not be limited to) seeking higher Pricing Approval for Licensed Products through the [*] Procedure.

4.	D EVELOPMENT

4.1 General . Toyama shall use Commercially Reasonable Efforts to Develop and seek, obtain, and maintain Regulatory Approval of Licensed Products in the Field in the Territory. Within thirty (30) Calendar Days of the Effective Date, Cempra shall transfer to Toyama, at no additional cost, all material Cempra Know-How in Cempra’s possession for the Development of Licensed Product in the Territory. Upon Toyama’s reasonable request, Cempra shall, within a reasonable period, provide Toyama with any Cempra Know-How material to Development of the Licensed Product in the Territory coming under Cempra’s Control following the Effective Date. Toyama and Sublicensees shall only perform or conduct Development of Licensed Products in the Territory in accordance with specific advice and recommendations from the Joint Development Committee (the “ JDC ”), and shall provide the JDC a reasonable opportunity to review and comment on any proposed Development in advance of the initiation thereof, and Toyama shall use Commercially Reasonable Efforts not to, and to ensure that Sublicensees do not, take or permit any actions that adversely affect, or would reasonably be anticipated to adversely effect, the Development, manufacture, ability to seek, obtain, or maintain Governmental Approval, or Commercialization of any Licensed Product in the U.S. or any other country. Toyama shall use Commercially Reasonable Efforts to promptly report in detail the results of its Development activities, including the results of any human clinical trials, to Cempra in writing and shall, upon Cempra’s written request, use Commercially Reasonable Efforts to promptly provide to Cempra copies of and complete access to Toyama Know-How, the use of which by or on behalf of Cempra, its Affiliates, or licensees or sublicensees of either of the foregoing shall be subject to Sections 2.5 and, if applicable, 12.9, and documentation related to such Toyama Know-How or the Development activities related to such Toyama Know-How, the use of which by or on behalf of Cempra, its Affiliates, or licensees or sublicensees of either of the foregoing shall be subject to Sections 2.5 and, if applicable, 12.9.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

4.2 Liaison . Each Party will designate an individual to serve as the liaison between the Parties to undertake and coordinate any day-to-day communications as may be required between the Parties relating to their respective activities under this Agreement or the Development or Commercialization of Licensed Product. Each Party may change such liaison from time to time upon written notice thereof to the other Party.

4.3 Joint Development Committee .

(a) Joint Development Committee . Promptly after the Effective Date, the Parties shall establish a Joint Development Committee (the “ JDC ”) as described in this Section 4.3. The JDC shall exist during the Term. The JDC shall (i) monitor and comment on the Parties’ progress with respect to the Development of Licensed Products in the Field (including the Development of Licensed Products in the Field in the Cempra Territory), (ii) advise the Parties with respect thereto, (iii) review and comment on any human, animal, or, to the extent material, in vitro Development of Licensed Product in the Field undertaken by or on behalf of Toyama, Sublicensees, or Cempra, (iv) monitor the allocation of Development work between the Parties with respect to Licensed Product in the Field in the Territory, recommending changes as necessary, and (v) have such other responsibilities as may be referenced in this Agreement, provided that, notwithstanding anything to the contrary, the JDC shall not have any decision-making authority of any kind with respect to any Development of Licensed Products, Compound, or Permitted Derivative (i) outside the Field or (ii) inside the Field outside the Territory, but shall merely serve as a forum for information-sharing and discussion with respect to such Development. The Parties shall report to the JDC on all significant research, development, clinical, regulatory, and manufacturing issues relating to Licensed Products or the Development thereof to the extent, in either case, directly concerning the Field and Territory, and the JDC shall make recommendations and provide non-binding guidance with respect to such issues. Each Party shall (i) provide, within thirty (30) Calendar Days of the end of each Calendar Quarter, a written progress report detailing the Development performed by (or on behalf of) such Party with respect to Licensed Products in the Field during such Calendar Quarter and, subject to, in the case of Cempra, any confidentiality or similar obligations Cempra or any Affiliate thereof may have to any Third Party(ies), (ii) otherwise keep the JDC reasonably informed in reasonable detail of its progress and activities related to the Development of Licensed Products in the Field.

(b) Membership . The JDC will be comprised of up to [*] members in total and an equal number of representatives from each Party. Each Party shall provide the other with a list of its initial members of the JDC promptly after the Effective Date. Each Party may replace any or all of its representatives on the JDC at any time upon written notice to the other Party. Any member of the JDC may designate a substitute to attend and perform the functions of that member at any meeting of the JDC. Each Party may, in its reasonable discretion, invite non-member representatives of such Party to attend meetings of the JDC.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

(c) Meetings . The JDC shall meet at least [*] times per Calendar Year, or more or less frequently as the Parties may agree in writing, on such dates, and at such places and times, as provided herein or as the Parties shall agree in writing, provided that (i) the first meeting shall be held within [*] Calendar Days of the Effective Date, (ii) a meeting shall be held as soon as reasonable possible following the completion, termination, or suspension of any human clinical trial of Licensed Product conducted by or on behalf of Toyama or any Sublicensee in the Territory. Meetings of the JDC shall alternate between the offices of the Parties, or such other place as the Parties may agree. The members of the JDC also may convene or be polled or consulted from time to time by means of telecommunications, video conferences, electronic mail or correspondence, as deemed necessary or appropriate, provided that the Parties hold at least one face-to-face meeting each Calendar Year. Each Party shall bear all costs and expenses relating to its members’ attendance at meetings of the JDC. Cempra will designate one of its representatives as the chairperson of the JDC. The chairperson shall be responsible for scheduling meetings, preparing and circulating an agenda in advance of each meeting, preparing and issuing minutes of each meeting within thirty (30) Calendar Days thereafter, revising such minutes to reflect timely comments thereon, and overseeing the ratification of such revised minutes. Either Party may invite subject matter experts or other relevant personnel to attend any meeting of the JDC.

(d) Decision-Making . The JDC shall use reasonable efforts to operate and make decisions by consensus, provided any decision by the JDC shall require its unanimous vote, with each Party’s representatives collectively having one vote; if the JDC is unable to reach unanimity with respect to a particular matter within thirty (30) Calendar Days of such matter being submitted thereto (the “ Initial Resolution Period ”), Toyama shall have the right to make the final decision for such matter with respect to (x) all matters concerning the non-clinical Development of Licensed Products in the Field in the Territory, (y) any matter concerning the dosing regimen for any human clinical trial of any Licensed Product to be conducted in the Field in the Territory, including any such trial conducted by Toyama or any Sublicensee, and (z) any other matters directly and solely concerning Toyama’s and Sublicensees’ conduct of human clinical trials of Licensed Product in the Field in the Territory. Any final decision of the JDC made by a particular Party as described above, for any matter on which the JDC has been explicitly granted decision-making authority under this Agreement, shall be binding on both Parties for purposes of this Agreement.

4.4 Specific Development Obligations .

(a) Cempra . Cempra shall use Commercially Reasonable Efforts to perform (or have performed) Phase 3 Trials to the extent required to obtain Regulatory Approval in the U.S., the plans for which, as they exist as of the Effective Date, are attached hereto as Exhibit C (the “ Initial Development Schedule ”), provided that Cempra shall be entitled in its sole discretion to (i) suspend or terminate the conduct of any such Phase 3 Trial to the extent necessary, as determined by Cempra in its sole discretion, to protect subject or patient health or safety or to comply with any Applicable Law or directive of any Governmental Authority or (ii) modify the Initial Development Schedule and/or conduct additional clinical trials of Licensed Product as Cempra may determine in its sole

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

discretion, provided Cempra shall use Commercially Reasonable Efforts to provide the JDC a reasonable opportunity to review and comment on any material such changes. Cempra shall use Commercially Reasonable Efforts:

(i) to obtain [*] by [*]; and

(ii) to obtain Regulatory Approval (and, to the extent required in any applicable country outside the U.S., Pricing Approval) of, and following such Regulatory Approval (and, to the extent required in the applicable country outside the U.S., Pricing Approval), sell a Licensed Product in the Field in the U.S. and at least one other country [*].

The Parties agree that the efforts of any Affiliate, licensee, or sublicensee of Cempra (or any Affiliate thereof) to achieve the foregoing shall constitute the efforts of Cempra for purposes of this Section 4.4(a).

(b) Toyama . Toyama shall use Commercially Reasonable Efforts to Develop Licensed Products in the Field in the Territory. Toyama shall use Commercially Reasonable Efforts to:

(i) Commence a Phase 1 Trial in the Field in Japanese subjects in the Territory within [*] months of the Effective Date,

(ii) Commence a Phase 3 Trial in the Field in Japanese subjects in the Territory within [*] of the Effective Date, and

(iii) obtain Regulatory Approval in the Field in the Territory no later than the earlier of (x) the date [*] months of first Commencing a Phase 3 Trial in the Field in Japanese subjects in the Territory or (y) the [*] anniversary of the Effective Date.

For avoidance of doubt, [*]. If the Parties are unable to agree on whether or not [*], within [*] Calendar Days of [*].

(c) Amendment . If any Regulatory Authority requires unexpected modification to either Party’s plans for the Development of Licensed Products, Parties shall discuss in good faith the possible need to amend each Party’s specific development efforts in this Section 4.4. The Parties shall arrange an appropriate meeting within thirty (30) Calendar Days after either Party provides written notice to the other Party requesting such a meeting.

4.5 Subcontracting . Each Party may perform any activities in support of its Development of Licensed Products through its Affiliates, licensees or sublicensees with respect to Licensed Product, or any Third Party contractor or contract service organization, provided that (a) any such party (including, with respect to Toyama, Toyama Sole Distributors) to whom such Party discloses Confidential Information of the other Party shall enter into an appropriate written agreement obligating such Third Party to be bound by obligations of confidentiality and restrictions on use of such Confidential Information that are no less restrictive than the

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

obligations in this Agreement and provisions with respect to intellectual property that are substantially consistent with, and as protective of the other Party’s rights, as those of this Agreement and (b) each Party shall at all times be responsible and liable for the performance of such party in accordance with the terms of this Agreement.

4.6 Development Support for Pediatric Formulation of Licensed Product. Cempra shall provide Toyama prompt written notice if Cempra obtains written notice from the U.S. Government indicating that the U.S. Government will provide financial support for the development of Licensed Product for pediatric indications and, in such case, the Parties shall use Commercially Reasonable, good faith efforts to negotiate and enter into an amendment of this Agreement, or a separate agreement, concerning a collaboration between the Parties with respect to the development of such a pediatric formulation, which amendment or agreement would include provisions indicating that Toyama will use Commercially Reasonable Efforts to support such program by Cempra (including the provision or application of certain know-how with respect to pediatric formulations of anti-bacterial products), Cempra shall supply Toyama with appropriate amount of the Compound and/or Permitted Derivative at no charge for use in such pediatric formulation development and manufacturing of Clinical Supply therefor. Notwithstanding the foregoing, neither Party shall have specific performance or other obligations with respect to any such pediatric development program unless and until the Parties execute an amendment to this Agreement, or separate written agreement, between the Parties with respect thereto, except the obligation of Cempra to provide the written notice, and of both Parties, to use Commercially Reasonable, good faith efforts to negotiate such an amendment or agreement, as set forth in the first sentence of this Section 4.6.

5.	R EGULATORY M ATTERS ; C OMPLIANCE .

5.1 General . Toyama shall comply, and shall ensure that any Sublicensees or Toyama Sole Distributors comply, with all Applicable Laws and Governmental Approvals in the exercise of any rights granted under this Agreement and the manufacture, Development, use, Commercialization, import, and export of Licensed Products in the Field in the Territory. Cempra shall comply, and shall ensure that its Affiliates, any licensees and any sublicensees comply, with all Applicable Laws and Governmental Approvals, in the performance of any of Cempra’s obligations under this Agreement.

5.2 Adverse Event Reporting .

(a) Toyama and Cempra, respectively, shall be responsible for complying with all Applicable Laws governing Adverse Events in the Field in (i) the Territory or (ii) Cempra Territory, respectively, which occur after the Effective Date. Each Party shall submit copies (with English translations) of reports of such Adverse Events to the other Party no later than simultaneously with submission to the applicable Regulatory Authorities, provided that, with respect to Adverse Events occurring with respect to Licensed Products for, or countries in which, Cempra has granted rights to a Third Party with respect thereto, Cempra shall provide such reports to Toyama promptly following Cempra’s receipt thereof. Toyama and Cempra, respectively, shall notify the other Party in a timely manner and in any event within no less than seven (7) Calendar Days of receiving any Serious Adverse Event reports from any human clinical trial of any

Licensed Product performed in the Field in (i) the Territory or (ii) Cempra Territory, respectively, notice from a Regulatory Authority, independent review committee, data safety monitoring board or another similar clinical trial or post-marketing monitoring body alleging significant concern regarding a patient safety issue or other material information relevant to the safety or efficacy of any Licensed Product in the Field.

(b) Cempra (or an Affiliate or licensee thereof) shall be responsible for establishing and maintaining a global safety database with respect to Licensed Product, including in accordance with Applicable Laws in Cempra Territory, as shall be further detailed in the Safety Agreement.

(c) If during a Licensed Product’s Development or Commercialization in the Field, such Licensed Product becomes subject to Adverse Effects or information of the type referred to in the last sentence of Section 5.2(a) is received, in each case which either Party, in good faith, reasonably believes would seriously impact the long-term viability of a Licensed Product in the Field, either Party may determine whether or not there exists such serious impact on the long-term viability of such Licensed Product in the Field and recommend to the JDC or Joint Commercialization Committee (the “ JCC ”), as applicable, what if anything, should be done to address the matter.

5.3 Safety Agreement . Toyama and Cempra will, simultaneously with this Agreement, execute a safety data exchange and pharmacovigilance agreement in the form attached hereto as Exhibit A (the “ Safety Agreement ”). Such agreement will describe the coordination of collection, investigation, reporting, and exchange of information concerning Adverse Events or any other safety problem of any significance, and product quality and product complaints involving Adverse Events, sufficient to permit each Party, its Affiliates, licensees or sublicensees to comply with its legal and regulatory obligations with respect to Licensed Products, and shall coordinate the management of a global safety database, which will, as between the Parties, be the responsibility of Cempra. In addition, Cempra (or its Affiliate or licensee) shall grant reasonable access rights to a global safety database for Licensed Products in the Field to Toyama and/or Sublicensees to the extent necessary for Development and Commercialization of Licensed Products in the Field in the Territory.

5.4 Regulatory Filings and Correspondence .

(a) Regulatory Filings .

(i) Cempra shall, as between the Parties, have the right and responsibility for all regulatory affairs related to Licensed Products in Cempra Territory, or outside the Field, including the preparation and filing of applications for Regulatory Approval in Cempra Territory, or outside the Field, provided that this clause shall not be construed as (x) creating any affirmative obligation in excess of those otherwise explicitly set forth in this Agreement on the part of Cempra to engage in Development or Commercialization of Licensed Products or make any submissions or filings with any Governmental Authority or (y) limiting Cempra’s ability to permit any Affiliates or other Third Parties to engage in any such Development or Commercialization, to own any Regulatory Filings or Government Approvals, or to engage with any Governmental Authorities.

(ii) Subject to the other provisions of this Agreement, Toyama shall have the right and responsibility for all regulatory affairs related to Licensed Products in the Field in the Territory, including the preparation and filing of applications for Regulatory Approval in the Field in the Territory.

(iii) Toyama shall use Commercially Reasonable Efforts to prepare and file Marketing Applications in the Field in the Territory, provided that (i) Toyama shall use Commercially Reasonable Efforts to ensure that neither it nor any Sublicensee, by act or omission, in the course of exercising its rights hereunder or satisfying such obligations, creates any circumstance reasonably likely to materially adversely affect the Development or Commercialization of any Licensed Product in the Territory or Cempra Territory and, in the event Toyama (or any Sublicensee thereof) intends to file any Marketing Application for any Licensed Product in the Field in the Territory prior to receipt of Regulatory Approval for such Licensed Product in the Field in the United States, (ii) the form and content of any such Marketing Application (and any related correspondence) in the Territory shall, notwithstanding anything to the contrary herein, be subject to Cempra’s prior written recommendation, such recommendation not to be unreasonably withheld.

(iv) Toyama shall provide the English translated executive summary (which shall in any event include any material data or information concerning product claims, labeling, proposals for addressing any material safety concerns, “black box warnings”, and items of similar concern) of any Regulatory Filings, including any proposed Marketing Applications, in the Territory to Cempra prior to their submission to any Governmental Authority and provide Cempra a reasonable opportunity to review and comment thereon prior to submission thereof. In the event Cempra raises any reasonable, material objection to any portion of any such submission to any Governmental Authority, including any proposed label or any formulation changes, such matters shall be subject to resolution by JDC. Toyama shall provide the English translated full copies of any Regulatory Filings, including any proposed Marketing Applications, in the Territory to Cempra within (i) a reasonable timeframe not to exceed ninety (90) Calendar Days following their finalization or submission thereof or (ii) such earlier timeframe as may be requested by Cempra for purposes of satisfying any purposes under Applicable Law or with respect to Regulatory Filings, including any Marketing Applications, or Governmental Approvals inside or outside the Territory. Further, upon written request of Cempra, Toyama shall promptly provide full Japanese copies of all Regulatory Filings, including any proposed Marketing Applications.

(v) Toyama shall promptly provide Cempra with the English translated executive summary (which shall in any event include any material data or information concerning product claims, labeling, proposals for addressing any

material safety concerns, “black box warnings”, and items of similar concern) of all Regulatory Filings made by or on behalf of Toyama or any Sublicensee, including any applications for Governmental Approval in the Territory, and all Governmental Approvals in the Territory. Toyama shall provide the English translated full, accurate, and complete copies of all Regulatory Filings made by or on behalf of Toyama or any Sublicensee, including any applications for Governmental Approval, and all Governmental Approvals in the Territory to Cempra within the earlier of (i) a reasonable timeframe not to exceed ninety (90) Calendar Days from the date of finalization, submission, or receipt thereof or (ii) such earlier timeframe as may be requested by Cempra for purposes of satisfying any purposes under Applicable Law or with respect to Regulatory Filings, including any Marketing Applications, or Governmental Approvals inside or outside the Territory. Further, upon written request of Cempra, Toyama shall promptly provide full Japanese copies of all Regulatory Filings, including any proposed Marketing Applications, and Governmental Approvals (or applications therefor). Cempra shall promptly provide Toyama with full, accurate, and complete copies of (i) all material Regulatory Filings other than applications for Regulatory Approval in the Field made by or on behalf of Cempra or any Affiliate thereof (but not by or on behalf of any licensee of either of the foregoing) and (ii) any applications for Regulatory Approval in the Field made by or on behalf of Cempra, any Affiliate thereof, or, to the extent available to Cempra after Cempra’s exercise of Commercially Reasonable Efforts to obtain such a copy, any licensee of either of the foregoing, and Cempra shall provide a copy of any resulting Governmental Approval in the Field owned by Cempra, any Affiliate thereof, or, to the extent available to Cempra after Cempra’s exercise of Commercially Reasonable Efforts to obtain such a copy, any licensee of either of the foregoing to Toyama.

(b) Notification of Regulatory Correspondence . Toyama shall promptly (and in any event, within three (3) Business Days of the date of receipt of notice) notify Cempra in writing of, and shall provide Cempra with copies of, any correspondence and other documentation received or prepared by Toyama in connection with any of the following events: (i) receipt of a material regulatory letter, warning letter, or similar item, from any Governmental Authority directed to the Development, manufacture, packaging, storage, or Commercialization of Licensed Product in the Territory or use or manufacture of Compound or Permitted Derivative pursuant to the exercise of Back-Up Supply Rights in the Manufacturing Territory, or any facility associated with manufacture of Licensed Product for use, distribution, or sale in the Territory; (ii) any recall, field correction, or market withdrawal (any of the foregoing, a “ Recall ”) of any Licensed Product in the Territory; and (iii) any comments from any Governmental Authority (or foreign equivalent thereof) relating to Licensed Product requiring a response or action by Toyama or any Sublicensee under Applicable Law. Toyama shall provide Cempra with reports at regularly scheduled meetings in respect to any correspondence and other documentation Toyama or any Sublicensee receives of the kind referred to in this paragraph. Toyama shall promptly notify Cempra in writing of any Regulatory Approvals Toyama (or any Sublicensees) receives. Notwithstanding foregoing, if Toyama receives a large document in Japanese with aforementioned purpose whose

length exceeds the equivalent of twenty (20) standard letter-sized pages, Toyama will provide Cempra with English translated summary or abstracts for Cempra’s initial review within three (3) Business Days of receiving such document, and Toyama shall provide the complete English translated copy to Cempra within reasonable timeframe not to exceed thirty (30) Calendar Days or such shorter period that may be required to enable Cempra, any Affiliate thereof, or any licensee or sublicensee of any of the foregoing to comply with Applicable Law.

(c) Regulatory Correspondence Requiring a Response . In the event that Toyama receives any material regulatory letter or comments from any Governmental Authority relating to the Development, manufacture, or Commercialization of Licensed Product in or for the Territory or relating to the use or manufacture of Compound or Permitted Derivative pursuant to the exercise of Back-Up Supply Rights in the Manufacturing Territory, Cempra will, at Cempra’s expense, promptly provide Toyama with any data or information in Cempra’s possession and Control and required by Toyama in preparing any response in the Territory and reasonably cooperate with Toyama in preparing such response. To the extent reasonably practicable (subject to the time by which a response is mandated), Toyama shall provide Cempra with a copy of each such response for Cempra’s review and comment at least ten (10) Business Days prior to Toyama’s (or Sublicensee’s) submission of the response to any Regulatory Authority in the Territory or, with respect to Toyama’s or its Sublicensees’ use or manufacture of Compound or Permitted Derivative pursuant to the exercise of Back-Up Supply in the Manufacturing Territory, at least ten (10) Business Days prior to Toyama’s (or Sublicensee’s) submission of the response to any Regulatory Authority in the Manufacturing Territory. Toyama shall give good faith consideration to any Cempra comments to each such proposed Toyama response and may incorporate such comments to the extent Toyama deems necessary or appropriate. Toyama shall have the final decision with respect to any responses or actions required by such letter or comments in the Territory.

5.5 Product Recalls and Withdrawals . In the event that either Party becomes aware that Licensed Product in the Field may not comply with Applicable Law (either by notification from a Regulatory Authority or otherwise) and/or that a Recall of Licensed Product in the Field is desirable, such Party shall promptly notify the other Party in writing. Further, Toyama shall inform Cempra in writing immediately of any defect or nonconformity found by Toyama, or of which Toyama is aware, with respect to any Supplied Compound or Clinical Supply which may be grounds to initiate a Recall of any Supplied Product, Licensed Product manufactured therefrom, or Clinical Supply. With respect to any circumstances in the Territory described in the preceding sentences of this Section 5.5, Toyama shall undertake an appropriate investigation and make a determination with respect to the disposition of any such matter, including determining whether Licensed Product in the Field shall be Recalled in the Territory. If a Recall in the Field in the Territory is required or reasonably necessary pursuant to the Regulatory Authorities or Applicable Law or Toyama determines that Licensed Product in the Field shall be Recalled in the Territory, Toyama shall develop and implement a Commercially Reasonable plan to conduct such Recall. Toyama shall bear all costs and expenses associated with conducting any Recall in the Field in the Territory (including any reasonable, documented direct costs and expenses incurred by Cempra with respect to any such Recall), except to the extent (a) such

Recall directly and solely results from (I) Toyama’s or any Sublicensee’s distribution of finished Licensed Products manufactured using Compound or Permitted Derivative, supplied by Cempra under the Supply Agreement, that (x) was not manufactured, stored, or released by or on behalf of Cempra in accordance with the Specifications (as defined in the Supply Agreement) under the Supply Agreement or (y) did not conform with the explicit quality standards or quality obligations imposed on Cempra in the Quality Agreement with respect to such Compound or Permitted Derivative or (II) failure to comply with Applicable Laws on the part of Cempra and (b) such Recall does not result from any negligence, intentional misconduct, or failure to comply with Applicable Laws on the part of Toyama, any Sublicensee, or any contractor of any of the foregoing, in which case Cempra shall bear all direct, reasonable, documented costs and expenses incurred by Toyama in conducting any Recall in the Field in the Territory (including any reasonable, documented direct costs and expenses incurred by Toyama with respect to the reasonable conduct of any such Recall), provided that such Recall results from negligence, intentional misconduct, or failure of both Parties, in which case Cempra and Toyama shall bear all cost and expenses pro rata in accordance with their share of fault (for purpose of clarification, Compound or Permitted Derivative, supplied by Cempra under the Supply Agreement, that (x)was not manufactured, stored, or released by or on behalf of Cempra in accordance with the Specifications (as defined in the Supply Agreement) under the Supply Agreement, or (y) did not conform with the explicit quality standards or quality obligations imposed on Cempra in the Quality Agreement with respect to such Compound or Permitted Derivative, shall, solely for purposes of this proviso, constitute such negligence, intentional misconduct, or failure on the part of Cempra).

5.6 Regulatory Updates . During the Term, Toyama and Cempra, respectively, will keep the other Party generally apprised in writing of the status of any Regulatory Filings related to Licensed Product in the Field in (i) the Territory or (ii) Cempra Territory, respectively. Each Party shall promptly notify the other Party in writing upon receipt of any Governmental Approval of Licensed Product in the Field.

6.	C OMMERCIALIZATION .

6.1 General . Toyama shall use Commercially Reasonable Efforts to Commercialize Licensed Products in the Field in the Territory. Toyama shall use Commercially Reasonable Efforts to achieve First Commercial Sale of each Licensed Product in the Field in the Territory within [*] months of Pricing Approval thereof reasonably sufficient to initiate sales thereof in the Territory. [*] months prior to the expected date of the First Commercial Sale in the Territory and at least [*] weeks prior to the beginning of each second Calendar Quarter in each Calendar Year thereafter, Toyama shall submit to Cempra in writing a marketing, sales and distribution plan for the Licensed Product during the following Calendar Year, including reasonable sales forecasts for the following Calendar Year. Toyama shall provide Cempra a reasonable opportunity to review and comment on such plan during the [*] Business Days following Cempra’s receipt of such plan and a retrospective report on Toyama’s, Sublicensees, and Toyama Sole Distributors’ Commercialization activities from the previous Calendar Year. In addition, upon the request of Cempra, Toyama shall provide Cempra with copies of any market research reports in Toyama’s or Sublicensees’ possession (including any market research reports provided by Toyama Sole Distributors to Toyama) relating to the Commercialization of Licensed Product in the Territory, Licensed Product sales, or Licensed Product competition in the Territory.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

6.2 Joint Commercialization Committee . Toyama’s, Sublicensees’, and Toyama Sole Distributors’ Commercialization of Licensed Product in the Field in the Territory shall be reviewed and commented on by a Joint Commercialization Committee (the “ JCC ”) with responsibilities as described in this Section 6.2. The JCC shall act as an advisory body for Toyama’s, Sublicensees’, and Toyama Sole Distributors’ Commercialization of Licensed Product in the Field in the Territory and shall not have the authority to bind or direct Toyama, Sublicensees, or Toyama Sole Distributors except as mutually agreed by the Parties.

(a) Membership . The JCC shall be composed of [*] members, [*] members appointed by each Party. The JCC will consist of at least [*] or his or her designee from each Party. Reasonably in advance of the submission of the initial application for Regulatory Approval in the Territory, each Party shall appoint its initial representatives to the JCC. Each Party may replace one or more of its JCC representatives at any time upon written notice to the other Party. Toyama will designate one of its representatives as the Chairperson of the JCC. The Chairperson shall be responsible for scheduling meetings, preparing and circulating an agenda in advance of each meeting, preparing and issuing minutes of each meeting within thirty (30) Calendar Days thereafter, revising such minutes to reflect timely comments thereon, and overseeing the ratification of such revised minutes.

(b) Meetings . Beginning within [*] Calendar Days of the JDC’s or Cempra’s receipt of the initial Marketing Application proposed for submission by or on behalf of Toyama or any Sublicensee (the “ JCC Trigger ”), the JCC shall meet at least [*] times per Calendar Year, or more or less frequently as the Parties may agree in writing, on such dates, and at such places and times, as provided herein or as the Parties shall agree in writing, provided that (i) the first meeting shall be held within [*] Calendar Days of the JCC Trigger (and in any event prior to the submission of the above-referenced Marketing Application to any Governmental Authority), (ii) a meeting shall be held as soon as reasonably possible following, but in any event no later than within [*] Business Days of both the initial Regulatory Approval and initial Pricing Approval of Licensed Product in the Field in the Territory, and (iii) a meeting shall be held as soon as reasonable possible following any suspension of Commercialization in the Territory following the First Commercial Sale in the Territory. Meetings of the JCC shall alternate between the offices of the Parties, or such other place as the Parties may agree. The members of the JCC also may convene or be polled or consulted from time to time by means of telecommunications, video conferences, electronic mail or correspondence, as deemed necessary or appropriate, provided that the Parties hold at least one face-to-face meeting each year. Each Party shall bear all costs and expenses relating to its members’ attendance at meetings of the JCC. Toyama will designate one of its representatives as the chairperson of the JCC. The chairperson shall be responsible for scheduling meetings, preparing and circulating an agenda in advance of each meeting, preparing and issuing minutes of each meeting within thirty (30) Calendar Days thereafter, revising such minutes to reflect timely comments thereon, and overseeing the ratification of such revised minutes. Within [*] Calendar Days following the end of each Calendar Quarter, and at least [*] Calendar Days in advance of each meeting of the JCC, Toyama shall provide Cempra with a reasonably detailed written report and update describing efforts to Commercialize Licensed Products in the Field in the Territory and the results of such

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

efforts (such report to include information concerning targeted prescribers, number of sales representatives, advertising and promotional expenses, prescription volume, quantity of samples, and number of detailing). Either Party may invite subject matter experts or other relevant personnel to attend any meeting of the JCC.

(c) Responsibilities . The JCC shall (i) review and comment on all plan(s) for the Commercialization of Licensed Products in the Territory proposed or developed by Toyama, Sublicensees, or Toyama Sole Distributors (ii) review and comment on implementation of such plans, (iii) discuss the state of the market(s) for Licensed Products in the Field in the Territory and opportunities and issues concerning the Commercialization of Licensed Product in the Field in the Territory, including consideration of marketing and promotional strategy, marketing research plans, labeling, product positioning and product profile issues, (iv) advise regarding the sales, marketing, promotional, and other Commercialization efforts of Toyama, Sublicensees, and Toyama Sole Distributors in the Field in the Territory with respect to Licensed Product, (v) review and comment on post-Regulatory Approval development activities concerning each Licensed Product in the Field in the Territory, and (vi) perform such other functions as appropriate to further the purposes of this Agreement and as allocated to it in writing by mutual written agreement of the Parties.

6.3 Sales . Except as may be permitted by the prior written consent of Cempra, not to be unreasonably withheld, conditioned or delayed, Toyama shall not sell Licensed Products to any party other than Sublicensees or Toyama Sole Distributors.

6.4 No Bundling . Toyama shall not, and shall ensure that Sublicensees and Toyama Sole Distributors do not, provide discounts on “bundles” of separate products or services which include Licensed Products, offer Licensed Products with other products or services for a single price, or provide discounts on Licensed Products for purposes, or that would reasonably be expected to have the effect, of inducing or causing sales of other products or services offered by Toyama, its Sublicensees, or Toyama Sole Distributors.

7.	M ANUFACTURING AND S UPPLY .

7.1 General . Cempra will be the exclusive supplier to Toyama, Sublicensees and manufacturers acting on behalf of either of the foregoing, of (i) API for purposes of manufacturing Licensed Products and (ii) Clinical Supply, and Cempra shall supply API and Clinical Supply for use or sale within the Territory to Toyama, as described in, and during the term of, the supply agreement attached hereto as Exhibit B (the “ Supply Agreement ”), which shall be executed simultaneously with this Agreement. Neither Toyama nor any Sublicensee shall manufacture, have manufactured, or obtain Compound, any Permitted Derivative, or any Clinical Supply from any source other than Cempra, except pursuant to the exercise of the Back-Up Supply Rights, as limited by the Supply Agreement, or following the termination or expiration of the Supply Agreement with respect thereto. In the event Toyama, any Sublicensee, or any contract manufacturer of License Product for either of the forgoing obtains any API from any source other than Cempra (e.g. from a contract manufacturer or by Toyama, any Sublicensee, or any contract manufacturer of either of the foregoing manufacturing API), Toyama shall, and shall ensure, that it and its Sublicensee use their Commercially Reasonable Efforts to minimize the API price therefor.

8.	P ATENT P ROSECUTION AND M AINTENANCE ; P ATENT M ARKING .

8.1 Prosecution and Maintenance of Cempra Patents .

(a) Cempra shall be responsible for, and use Commercially Reasonable Efforts to pursue, the preparation, filing, prosecution, and maintenance of Other Cempra Patents in the Territory. Cempra shall be responsible for and pursue the preparation, filing, and prosecution, and maintenance of all Key Cempra Patents in the Territory, except for such Key Cempra Patents that Toyama agrees need not be prosecuted, filed, or maintained in the Territory, such agreement not to be unreasonably withheld.

(b) In the event of Product Improvement by Cempra arising after the Effective Date that is wholly-owned by Cempra and for which Cempra plans to prepare and file a patent application in the Territory claiming such Product Improvement by Cempra that is not included in the Cempra Patents being prosecuted or maintained as of the Effective Date, Cempra shall provide reasonable written notice thereof to Toyama and the Parties shall discuss in good faith and attempt to agree in writing as to whether such new Cempra Patent in the Territory should be a Key Cempra Patent or Other Cempra Patent. If the Parties do not agree within [*] Calendar Days of such notice as to whether such new Cempra Patent in the Territory should be a Key Cempra Patent or Other Cempra Patent, such matter shall, upon written notice from either Party to the other Party within [*] Calendar Days of the expiration of such [*] Calendar Day period (such notice, a “ Key Patent Resolution Notice ”), be resolved pursuant to Section 15, provided that, if a Key Patent Resolution Notice is not provided within such [*] Calendar Day period, such Cempra Patent shall be deemed an Other Cempra Patent for purposes of this Agreement. Toyama shall be given reasonable opportunity to advise Cempra in the filing, prosecution, maintenance, and defense of Cempra Patents in the Territory to the extent concerning Licensed Products in the Field in the Territory, provided that such rights with respect to the Scripps Patents shall only apply to the extent Cempra has such rights thereunder. To the extent reasonably possible and, with respect to the Scripps Patents, only to the extent Cempra has the following rights (and Scripps has any corresponding obligation) under the Scripps License, Cempra shall provide prior written notice to Toyama within [*] Calendar Days of Cempra’s initial decision to abandon any Cempra Patent in the Territory, or any claim contained therein, to the extent Covering any Licensed Product in the Field in the Territory. The reasonable, documented costs (including attorneys’ fees) incurred by or on behalf of Cempra following the Effective Date with respect to the filing, prosecution, maintenance, and defense (including defense against challenges or claims of invalidity) of Cempra Patents with respect to the Territory shall be borne by Cempra. The Cempra Patents in the Territory as of the Effective Date are set forth in Schedule 1.20; Schedule 1.20 shall be updated periodically to reflect the further prosecution of Cempra Patents in the Territory, and Cempra shall inform Toyama of updated annual information of Cempra Patents in the Territory at least once a Calendar Year in writing. For purposes of this Section 8.1, (x) “ Key Cempra Patents ” means those Cempra Patents in the Territory specified on Schedule 8.1 attached thereto and

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incorporated herein by reference as of the Effective Date and any Cempra Patents in the Territory, first filed following the Effective Date, deemed Key Cempra Patents as contemplated above, provided that Key Cempra Patents shall not in any event include any Patents that are not wholly-owned by Cempra, and (y) “Other Cempra Patents” means all Cempra Patents in the Territory other than Key Cempra Patents.

(c) Should Cempra choose not to prosecute or maintain, or choose to otherwise abandon, any Other Cempra Patent in the Territory, Cempra shall promptly inform Toyama in writing of such intention (an “ Abandonment Notice ”) and, with respect to any such Other Cempra Patent that is a Cempra-Owned Patent, Toyama shall have a period of [*] Calendar Days following such Abandonment Notice within which to provide Cempra written notice if Toyama wishes to be assigned Cempra’s interest in such Other Cempra Patent in order to enable Toyama to prosecute or maintain such Other Cempra Patent in the Territory (an “ Assignment Notice ”). If (I) Toyama does not provide an Assignment Notice within such [*] Calendar Day period, (II) Cempra provides notice to Toyama within [*] Calendar Days following such Assignment Notice that Cempra will resume the prosecution or maintenance of such Other Cempra Patent (such a notice, a “ Resumption Notice ”) (and Cempra thereafter does resume such prosecution or maintenance within a reasonable period of time), or (III) such Other Cempra Patent is not a Cempra-Owned Patent, Toyama shall not have any rights to have assigned to it, and Cempra shall not have any obligation to assign to Toyama, Cempra’s interests in such Other Cempra Patent. If Toyama provides an Assignment Notice for a particular Other Cempra Patent that is a Cempra-Owned Patent within [*] Calendar Days of a corresponding Abandonment Notice, and Cempra does not provide a corresponding Resumption Notice (or, if providing such a Resumption Notice, fails to resume prosecution and maintenance of the applicable Other Cempra Patent within a reasonable period of time), then, for any such Other Cempra Patent that is a Cempra-Owned Patent, Cempra shall assign its interest in such Other Cempra Patent to Toyama, provided that, notwithstanding anything to the contrary, (x) any such assignment of Cempra’s interest in an Other Cempra Patent shall remain subject to any rights granted thereunder by Cempra, any Affiliate thereof, any joint owner(s) thereof, or any licensee or sublicensee of any of the foregoing to any Affiliate of Cempra or Third Party(ies), (y) Toyama hereby grants Cempra, under any such Other Cempra Patents for which Cempra’s interest therein is assigned to Toyama hereunder, a royalty-free, fully-paid, exclusive, perpetual, irrevocable, transferable license, with rights of sublicense, to make, have made, use, sell, offer for sale, and import any product or process in any field other than Licensed Products in the Field, and (z) upon any termination or expiration of this Agreement, any such Other Cempra Patent for which Cempra’s interests therein are assigned to Toyama hereunder shall be, and hereby is, to the extent an interest therein was previously assigned by Cempra to Toyama, assigned to Cempra, free and clear of all liens, claims, and encumbrances subject to Cempra reimbursing Toyama for Toyama’s reasonable and documented costs and expenses incurred in connection with prosecution, maintenance and/or assignment of such Patent. Each Party shall execute such authorizations and other documents and take such other actions as may be reasonably requested by the other Party in connection with such prosecution or maintenance and to effect such assignment, provided that, without limitation of Cempra’s efforts to use Commercially Reasonable Efforts as set forth herein with respect to Other Cempra Patents that are not wholly

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owned by Cempra, Cempra shall not, in any event, be obligated to cause the assignment of any Cempra Patent that is not a Cempra-Owned Patent or itself execute or cause the execution of any documents or taking of any actions by any other owners thereof.

8.2 Prosecution and Maintenance of Toyama Patents . Toyama shall handle the Toyama Patents at Toyama’s sole cost and expenses. Toyama shall use Commercially Reasonable Efforts to consult with Cempra as to the filing, prosecution, and maintenance of all Toyama Patents in sufficient time before any action is due to allow Cempra to provide comments thereon, which comments Toyama must reasonably consider if provided to Toyama reasonably before such action is due. Should Toyama decide that it does not desire to file, prosecute, or maintain a Toyama Patent, it shall advise Cempra thereof no less than [*] Business Days prior to the date when the Toyama Patent will become abandoned or no longer eligible for filing in such country. At written request of Cempra, Toyama shall then assign to Cempra all right, title, and interest in such Toyama Patent which Toyama has finally decided not to file, prosecute or maintain, free and clear of all liens, claims, and encumbrances, and Cempra may thereafter file, prosecute, and maintain the same in Cempra’s name, at Cempra’s sole cost and expense, to the extent that Cempra desires to do so, provided that, upon such assignment, such former Toyama Patent shall, notwithstanding anything to the contrary, not be included a Toyama Patent or Cempra Patent under this Agreement (i.e. it shall be excluded from any licenses granted hereunder), except to the extent elected to be treated as a Cempra Patent by Cempra by written notice to Toyama.

8.3 Patent Prosecution and Maintenance of Patents Covering Joint Inventions . For Patents claiming Joint Inventions (“ Joint Invention Patents ”), Cempra will have, without prejudice to ownership, the first right to prepare, file and prosecute such Patent applications and maintain any resulting issued Patents; provided, however, that Cempra may request that Toyama undertake such responsibilities with respect to any particular Joint Invention Patent upon written notice to Toyama, and Toyama may agree to do so, in its sole discretion. If Toyama does not agree to undertake such responsibilities within [*] Calendar Days of such request with respect to any such Joint Invention Patents, Cempra shall not have any further obligations to prosecute or maintain such Joint Invention Patents. Within [*] months after the filing date of a Patent application in respect of a Joint Invention, or at such earlier time as may be reasonably necessary to avoid losing the availability of potential patent protection therefor in a particular country, the Party filing such application will request that the other Party identify those non-priority, non-PCT (“foreign”) countries in which the other Party desires that the filing Party file corresponding Patent applications. Within [*] Calendar Days after receipt of such request, the other Party will provide to the filing Party a written list of such foreign countries in which the other Party wishes to effect corresponding foreign patent application filings. The Parties will then attempt to agree on the particular countries in which such applications will be filed, provided that in the event agreement is not reached, the issue shall be resolved pursuant to Section 15 (“ Designated Foreign Filings ”). Thereafter, the filing Party will effect all such Designated Foreign Filings in a timely manner. It is presumed unless otherwise agreed in writing by the Parties, that a corresponding PCT application will be filed designating all PCT member countries. Should the Party filing the priority application for a particular Joint Invention not agree to file or cause to be filed a Designated Foreign Filing, the other Party will have the right to effect such Designated Foreign Filing. Regardless of which Party is responsible for preparation, prosecution and maintenance of a Joint Invention Patent, the Parties shall share equally all reasonable,

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documented costs and expenses incurred in connection with procuring Joint Invention Patents (including entering national phase in all agreed countries), including application preparation, filing fees, prosecution, maintenance and all costs associated with reexamination, oppositions and interference proceedings, provided that either Party may, upon [*] Calendar Days’ written notice to the other Party, elect not to support its portion of such costs with respect to any particular Joint Invention or Joint Invention Patent, in which case, effective upon the [*] Calendar Day following such written notice, the Party giving such notice (i) hereby assigns all of its right, title, and interest in such Joint Invention or Joint Invention Patent subject to such notice to the other Party and (ii) shall no longer have any obligations under this Section 8.3 with respect to such Joint Invention or Joint Invention Patent, except the obligation to cooperate, as reasonably requested by the other Party in writing and at the other Party’s expense, as necessary to enable the other Party to file, prosecute, maintain, and defend the applicable Joint Invention Patent(s). The filing, prosecuting, or maintaining Party shall invoice the other Party for that portion of patent-related costs and expenses with respect to Joint Invention Patents to be borne by the other Party under this Section 8.3, and the other Party will pay such invoices within [*] Calendar Days after receipt.

8.4 Patent Term Extensions . Toyama shall promptly notify Cempra in writing of each Regulatory Approval in the Territory and, where reasonably possible and reasonably useful or materially valuable in the Commercialization of Licensed Products in the Field in the Territory, after such notification from Toyama, Cempra shall apply, or, in the case of any Cempra Patents in the Territory that are not wholly-owned by Cempra, use Commercially Reasonable Efforts to cause the owner(s) of any such Cempra Patent to apply, for a patent term extension, adjustment or restoration, supplementary protection certificate, or other form of market exclusivity conferred by Applicable Laws in the Territory with respect to any applicable Cempra Patent in the Territory (collectively, “ Patent Term Extensions ”). Cempra shall use its best efforts to execute such authorizations and other documents and take such other actions as may be reasonably requested by Toyama to obtain such Patent Term Extensions with respect to any Cempra Patent in the Territory that is a Cempra-Owned Patent and eligible for such Patent Term Extensions. Cempra shall, if and as reasonably requested by Toyama, file for (or, in the case of any Cempra Patents in the Territory that are not Cempra-Owned Patents, use Commercially Reasonable Efforts to cause the owner(s) of such Cempra Patent in the Territory to apply for) such Patent Term Extensions under Applicable Law with respect thereto; provided, that in the event that, within a reasonable period of time following such a request by Toyama with respect to a particular Cempra Patent in the Territory, Cempra elects not to file (or cannot cause the owner of such a Cempra Patent in the Territory to file) for a Patent Term Extension in the Territory with respect to such Cempra Patent, Cempra shall (a) promptly inform Toyama of its intention not to file therefor (or its inability to cause the owner of such Cempra Patent to file therefor) and, for any such Cempra Patent in the Territory that is a Cempra-Owned Patent, (b) [*], further provided that, notwithstanding anything to the contrary, (x) [*], (y) [*], and (z) [*]. Each Party shall execute such authorizations and other documents and take such other actions as may be reasonably requested by the other Party to obtain such extensions in the Territory, provided that, without limitation of Cempra’s efforts to use Commercially Reasonable Efforts as set forth herein with respect to Cempra Patents in the Territory that are Cempra-Owned Patents, Cempra shall not, in any event, be obligated [*] or ensure any Patent Term Extension, or itself execute or cause the execution of any documents or taking of any actions, by any other party. The Parties shall reasonably cooperate with each other in obtaining Patent Term Extensions in the Territory wherever and whenever applicable.

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8.5 Patent Marking . To the extent required under Applicable Law in the Territory, and Toyama shall, and shall ensure that Sublicensees, properly mark all Licensed Products or their containers in accordance with Applicable Law in the Territory concerning patent marking. Upon Cempra’s request, Toyama shall provide to Cempra copies of its and any Sublicensees’ patent marking of all Licensed Products, if any. To the extent Toyama or Sublicensees mark any Licensed Products by referencing any Cempra Patents thereon, Toyama represents and warrants that such Licensed Products are Covered by a claim of the referenced Cempra Patents.

9.	P ATENT I NFRINGEMENT .

9.1 Notice . If either Party becomes aware of any actual, potential, or alleged infringement of any of the rights to (i) Cempra Patents granted to Toyama under this Agreement with respect to Licensed Products, (ii) Toyama Patents, or (iii) Joint Invention Patents, such Party shall give to the other Party prompt and reasonably detailed written notice of such actual, potential, or alleged infringement.

9.2 Infringement of Cempra Patents in the Cempra Territory or Outside the Field . With respect to any actual, potential, or alleged infringement in the Territory of any Cempra Patents outside the Field or with respect to any products other than Licensed Products, Cempra shall, as between the Parties, have the sole and primary right to initiate, prosecute, and control any action or legal proceedings, and/or enter into a settlement, including any declaratory judgment action, with respect to such actual, potential, or alleged infringement, and neither Toyama nor any Sublicensee shall have any such rights with respect to any such infringement. In any such litigation brought by Cempra, Cempra shall have the right, upon notice to Toyama, to join Toyama as a party to such litigation to the extent reasonably necessary to enforce any Cempra Patent(s) in the Territory and, upon Cempra’s reasonable request in writing, Toyama shall cooperate reasonably, at Cempra’s expense (which expense shall be reasonable).

9.3 Infringement of Cempra Patents in the Licensed Territory and in the Field . With respect to any actual, potential, or alleged infringement of the rights to Cempra Patents granted to Toyama in the Field in the Territory under this Agreement, Cempra shall, as between the Parties, have the exclusive first right, but not the obligation, to litigate or settle such matter at its costs and, with respect to any rights of Toyama hereunder to Cempra-Owned Patents, Toyama shall, subject to the rights of any co-owners of such Cempra-Owned Patents, have the exclusive second right, but not the obligation, to, initiate, prosecute, and control any action or legal proceedings, and/or enter into a settlement, including any declaratory judgment action, with respect to any such actual, potential, or alleged infringement thereof in the Field in the Territory. In any such litigation brought by Cempra in the Field in the Territory, Toyama shall, at Cempra’s request, join such litigation as an assisting intervenor, and Toyama shall cooperate reasonably, as requested by Cempra and at Cempra’s expense (which expense shall be reasonable). Cempra shall have the right in any case to participate in any action under this Section 9.3 and to be represented by counsel of its own choice. If, with respect to any potential, actual, or alleged infringement of the rights to Cempra-Owned Patents granted to Toyama in the Field in the Territory under this Agreement, Cempra (i) has been unsuccessful in persuading the alleged

infringer to desist within [*] months of the relevant notice under Section 9.1, (ii) shall not have brought and shall not be diligently prosecuting an infringement action within [*] months of the relevant notice under Section 9.1, and (iii) either (X) has not entered into settlement discussions with respect to such actual, potential, or alleged infringement within [*] months of the relevant notice under Section 9.1 or (Y) has entered into settlement discussions with respect to such actual, potential, or alleged infringement within [*] months of the notice above, but has not executed a settlement agreement with respect thereto within [*] months of the relevant notice under Section 9.1, or if Cempra notifies Toyama in writing at any time that it has decided not to undertake, or to cease its undertaking of, any of the foregoing against any such alleged infringer, then, subject to the rights of any co-owners of such Cempra-Owned Patents, (A) the rights granted to Toyama by Cempra, pursuant to this Agreement, under such Cempra-Owned Patents in the Field in the Territory, may be registered as an exclusive license with Japan Patent Office, and (B) Toyama shall then have the right to bring suit to enforce any such Cempra-Owned Patents, or enter into a settlement or other voluntary disposition, with respect to such actual, potential, or alleged infringement of the rights granted to Toyama by Cempra, pursuant to this Agreement, under such Cempra-Owned Patents in the Field in the Territory, at its own expense and, in such case, provided that in the event that any such suit is filed, Toyama shall immediately notify Cempra thereof in writing.

9.4 Infringement of Third Party Rights . In the event that a claim of infringement of a Third Party’s Patents is made or brought against either Party, any Affiliate of Cempra or, in the case of Toyama, any Sublicensee with respect to the manufacture, use, sale, or importation of the Licensed Product in the Field in the Territory (or the manufacture of Compound, Permitted Derivative or Clinical Supply supplied under the Supply Agreement or manufactured pursuant to the Back-Up Supply Rights in the Manufacturing Territory), such Party shall promptly inform the other Party in writing, and the Parties shall consult with each other in order to develop a strategy for addressing the alleged infringement. Each Party shall reasonably cooperate with the other in any investigations undertaken to determine any potential infringement. As between the Parties, the defendant Party shall, subject to any applicable indemnification provided under Section 14 with respect to any such claim and the term and conditions therefor set forth in Section 14 with respect thereto, have the first and primary right at its own expense to defend, control the defense of, and/or settle any such claim against the defendant Party, its Affiliates, or any Third Party licensees or sublicensees of either of the foregoing, using counsel of its own choice, provided however that, in the course of such defense or settlement (or negotiations related thereto), Toyama shall not take (and use Commercially Reasonable Efforts to ensure that Sublicensees do not take) any action that may adversely affect any Protected Patent(s) or the scope, enforceability, or validity of any claim contained therein.

9.5 Litigation Control . The Party pursuing or controlling any action, defense, or settlement under Section 9.2, 9.3 or 9.4 (the “ Controlling Party ”) shall be free to enter into a settlement, consent judgment, or other voluntary disposition of any such action or defense, provided, however, that (i) the Controlling Party shall consult with the other Party (the “ Secondary Party ”) prior to entering into any settlement or voluntary disposition of any such matter, (ii) any settlement or other voluntary disposition of such actions which (1) subjects the Secondary Party to any non-indemnified liability or obligation or (2) admits fault or wrongdoing on the part of Secondary Party must, in each case, be approved in writing by Secondary Party, and (iii) any settlement, consent judgment or other voluntary disposition of such actions which

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would reasonably be anticipated by the Controlling Party to materially limit the scope, validity, or enforceability of, or otherwise materially and adversely affect, any Cempra Patents, or Toyama’s ability to Develop, manufacture, or Commercialize any Licensed Products in the Field in the Territory, shall not be entered into, consented to, approved, or agreed upon without the Secondary Party’s prior written approval, such approval not to be unreasonably withheld. With respect to clause (ii) above, the Secondary Party shall provide the Controlling Party notice of its approval or denial of such approval within [*] Calendar Days of any request for such approval by the Controlling Party, provided that (X) in the event Secondary Party wishes to deny such approval, such notice shall include a written description of Secondary Party’s reasonable objections to the proposed settlement or other voluntary disposition and (Y) Secondary Party shall be deemed to have approved such proposed settlement or other voluntary disposition in the event it fails to provide such notice within such [*] Calendar Day period. Any recovery, damages, or amounts in settlement received by the Controlling Party with respect to the alleged, actual, or potential infringement of the rights to Cempra Patents granted in the Territory in the Field under this Agreement, or any settlement agreement entered into with respect thereto, shall be used first to reimburse the Parties for unreimbursed reasonable, documented expenses incurred in connection with such action or settlement, and the remainder shall be split (i) in the event Cempra is the Controlling Party, [*] percent ([*]%) to each Party and (ii) in the event Toyama is the Controlling Party, [*] percent ([*]%) to Toyama and [*] percent ([*]%) to Cempra, with the Controlling Party promptly paying the applicable amount to the Secondary Party; any recovery, damages, or amounts in settlement received by the Controlling Party with respect to any other alleged, actual, or potential infringement of the Cempra Patents, or settlement entered into with respect thereto, shall be used first to reimburse the Parties for unreimbursed reasonable, documented expenses incurred in connection with such action or settlement, and the remainder shall be retained entirely by Cempra (in the event of any action, settlement, or voluntary disposition entered into by Cempra) or paid to Cempra by Toyama (in the event of any action, settlement, or voluntary disposition entered into by Toyama). Notwithstanding the foregoing, the Secondary Party, at its expense, shall have the right to be represented by counsel of its choice in any proceeding governed by this Section 9.5.

9.6 Reimbursement . Each Party shall invoice the other Party for any reasonable, documented costs incurred that are to be borne by the other Party pursuant to this Section 9. Each Party shall pay the other Party such amounts within [*] Calendar Days of its receipt of any such invoice, except to the extent such amounts are the subject of a good faith dispute, in which the amounts subject to such dispute shall be due within [*] Calendar Days of the resolution of such dispute.

9.7 Toyama Product Trademarks . In addition to, and without limitation of its rights under Section 2.3, Toyama may, in its sole discretion, select trademarks or logos, other than Cempra Product Marks, for the Licensed Product in the Field in the Territory (such trademarks and logos, other than Cempra Product Marks or any trademarks or logos not specifically related to the Licensed Product or the Commercialization thereof, “ Toyama Product Marks ”) and shall, subject to Section 12.9, own all such trademarks and logos. To the extent Toyama or any Sublicensee pursues Toyama Product Marks, as between the Parties, Toyama shall, subject to Section 12.9, have the sole responsibility for the filing, prosecution and maintenance of registrations of Toyama Product Marks, at its sole expense.

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10.

C ONFIDENTIALITY .

10.1 Confidentiality Obligations . The Parties agree that, for the Term and for [*] years thereafter, each Party will keep completely confidential and will not publish, submit for publication or otherwise disclose, and will not use for any purpose except for the purposes contemplated by this Agreement, any Confidential Information of the other Party.

10.2 Authorized Disclosure . Each Party may disclose Confidential Information of the other Party to the extent that such disclosure is:

(a) made in response to a valid order of a court of competent jurisdiction; provided, however, that in each case such disclosing Party will, to the extent reasonably practicable, (i) first have given written notice to the other Party and given such other Party a reasonable opportunity to take appropriate action and (ii) cooperate with such other Party as necessary to obtain an appropriate protective order or other protective remedy or treatment; provided, further, that in each case, the Confidential Information disclosed in response to such court or governmental order will be limited to that information which is legally required to be disclosed in response to such court or governmental order, as determined in good faith by counsel to the Party that is obligated to disclose Confidential Information pursuant to such order;

(b) otherwise required to be disclosed by law or regulation or the requirements of any stock exchange to which a Party is subject; provided, however, that the Party that is so required will provide such other Party with written notice of such disclosure reasonably in advance thereof to the extent reasonably practicable and reasonable measures will be taken to assure confidential treatment of such information, including such measures as may be reasonably requested by the disclosing Party with respect to such Confidential Information;

(c) not prohibited by the last sentence of Section 2.1(b) and made by such Party, in connection with the performance of or exercise of rights under this Agreement, to such Party’s Affiliates, licensees, licensors, directors, officers, employees, consultants, representatives or agents, or to other Third Parties, in each case on a need to know basis and solely to use such information for business purposes relevant to and/or permitted by this Agreement, and provided that (i) each individual and entity to whom such Confidential Information is disclosed is bound in writing to non-use and non-disclosure obligations substantially as protective as those set forth in this Agreement and (ii) the Party making such disclosure shall be liable for such Third Parties’ compliance with such obligations; or

(d) not prohibited by the last sentence of Section 2.1(b) and made by such Party to existing or potential acquirers, acquisition or merger targets, collaborators, investment bankers, accountants, attorneys, investors, partners, venture capital firms or other financial institutions or investors for use of such information for business purposes relevant to this Agreement or for due diligence in connection with the financing, licensing, or acquisition activities of such Party (or such Party’s acquisition of, or merger with, a Third Party or acquisition of any Third Party’s assets related to the subject matter

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hereof), and provided that (i) each individual and entity to whom such Confidential Information is disclosed is bound in writing to non-use and non-disclosure obligations (or in the case of attorneys, an equivalent professional duty of confidentiality) substantially as protective as those set forth in this Agreement and (ii) the Party making such disclosure shall be liable for such Third Parties’ compliance with such obligations.

Cempra shall also be entitled to disclose in confidence this Agreement and any Confidential Information of Toyama to Scripps or Optimer as necessary to comply with Cempra’s obligations under the Scripps License or Optimer License. Toyama shall also be entitled to disclose in confidence this Agreement and, except to the extent prohibited by the last sentence of Section 2.1(b), any Confidential Information of Cempra to Toyama’s Affiliates or its potential or actual Sublicensees, Toyama Sole Distributors, and contractors, provided (i) such Affiliates, Sublicensees, Toyama Sole Distributors, and contractors agree to conditions of confidentiality with respect to thereto, for the benefit of Cempra, at least as strict as those contained in this Agreement and (ii) any breach of the terms of this Section 10 by such Affiliates, Sublicensees, Toyama Sole Distributors, or contractors with respect to this Agreement or Cempra’s Confidential Information shall be deemed the breach hereof by Toyama, with Toyama being liable for such breach as if it had itself engaged in such breach.

10.3 Publicity; Use of Name .

(a) Press releases or other similar public communication by either Party not required by law, regulation, or the requirements of any stock exchange to which a Party is subject and disclosing the existence or terms of this Agreement, or concerning either Party’s performance or exercise of its rights under this Agreement, will require the advance written approval of the other Party, which approval will not be unreasonably withheld, conditioned or delayed. The foregoing notwithstanding, communications required by applicable law, regulation, or the requirements of any stock exchange to which a Party is subject, and disclosures of information for which consent has previously been obtained, will not require advance approval, but will be provided to the other Party as soon as practicable after the release or communication thereof, provided that, with respect to any such communications required by applicable law or regulation or the requirements of any stock exchange to which a Party is subject, the Party required to make such disclosure shall, to the extent reasonable practicable and such disclosure does not include information for which consent has previously been obtained, provide the other Party a reasonable opportunity to review and comment on such communications.

(b) Except as otherwise required by any applicable law, rule or regulation (including, without limitation, rules of the U.S. Securities and Exchange Commission and rules of any stock exchange upon which Toyama’s or Toyama’s Parent’s securities are or may be listed), the use of the name “The Scripps Research Institute”, “Scripps” or any variation thereof in connection with the marketing, advertising, promotion, distribution, or sale of Licensed Products is expressly prohibited.

10.4 Publications . Subject to this Section 10.4 and Sections 10.1, 10.2, and 10.3, each Party shall have the right to publish, present or otherwise disclose, including in scientific journals or promotional literature, information pertaining to Cempra Technology or any Licensed Product.

(a) If Toyama or any Sublicensee desires to publish or present any information pertaining to Cempra Technology or any Licensed Product, then the following procedure shall apply: (i) Toyama shall first provide a copy of the proposed publication or presentation to Cempra for review and comment at least [*] Calendar Days (or at least [*] Business Days in the case of oral or poster presentations) in advance of any submission for publication or presentation (the “ Cempra Review Period ”); (ii) if, during the Cempra Review Period, Toyama receives written notice from Cempra identifying specific Confidential Information of Cempra in such a proposed publication or presentation, then, as requested by Cempra in such notice and at Cempra’s option, Toyama shall, and Toyama shall ensure that Sublicensees, delete such Confidential Information from the proposed publication and/or presentation; and (iii) if Cempra provides written notice to Toyama in writing, within [*] Calendar Days after receipt of the copy of the proposed publication or presentation (or at least [*] Business Days in the case of oral or poster presentations), that such publication or presentation in Cempra’s reasonable judgment describes an invention, solely or jointly conceived and/or reduced to practice by Cempra (or any Affiliate, licensee, or other contractor or Third Party agent or representative of Cempra or any of the foregoing), for which Cempra reasonably desires to obtain patent protection, Toyama shall either delete such description from such publication or presentation, not proceed with such publication or presentation, or delay such publication or presentation for such reasonable period of time, not to exceed [*] Calendar Days from the date such publication or presentation was provided to Cempra, as may be requested by Cempra as sufficient to permit the timely preparation and filing of a patent application(s) on the applicable invention, and in no event shall such period be greater than [*] Calendar Days from the date of the initial notice of such publication or presentation. If and as requested by Cempra in writing within the Cempra Review Period, Cempra shall be entitled to receive in any publication or presentation subject to this Section 10.4(a) an acknowledgment of (a) Cempra’s support of and involvement in the research and development of Licensed Products and (b) Cempra Technology to the extent there is any that relates to the Licensed Products.

(b) If Cempra or any Affiliate thereof desires to publish or publicly present any information directly pertaining to any Licensed Product in the Field, then the following procedure shall apply: (i) Cempra shall first provide a copy of the proposed publication or presentation to Toyama for review and comment at least [*] Calendar Days (or at least [*] Business Days in the case of oral or poster presentations) in advance of any submission for publication or presentation (the “ Toyama Review Period ”); (ii) if, during the Toyama Review Period, Cempra receives written notice from Toyama identifying specific Confidential Information of Toyama in such a proposed publication or presentation, then, as requested by Toyama in such notice and at Toyama’s option, Cempra shall, and Cempra shall ensure that its Affiliates, delete such Confidential Information from the proposed publication and/or presentation; and (iii) if Toyama provides written notice to Cempra in writing, within [*] Calendar Days after receipt of the copy of the proposed publication or presentation (or at least [*] Business Days in the case of oral or poster presentations), that such publication or presentation in Toyama’s

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

reasonable judgment describes an invention, solely or jointly conceived and/or reduced to practice by Toyama (or any Sublicensee or other contractor or Third Party agent or representative of Toyama or any Sublicensee), for which Toyama reasonably desires to obtain patent protection, Cempra shall either delete such description from such publication or presentation, not proceed with such publication or presentation, or delay such publication or presentation for such reasonable period of time, not to exceed [*] Calendar Days from the date such publication or presentation was provided to Toyama, as may be requested by Toyama as sufficient to permit the timely preparation and filing of a patent application(s) on the applicable invention, and in no event shall such period be greater than [*] Calendar Days from the date of the initial notice of such publication or presentation. If and as requested by Toyama in writing within the Toyama Review Period, Toyama shall be entitled to receive in any publication or presentation subject to this Section 10.4(b) an acknowledgment of (a) Toyama’s support of and involvement in the research and development of Licensed Products and (b) Toyama Technology to the extent there is any that relates to the Licensed Products.

10.5 Commercial Considerations . Nothing in this Agreement shall prevent Toyama (or any Sublicensee) or Cempra (or any Affiliate or licensee of Cempra or any Affiliate thereof), respectively, from disclosing Confidential Information of Cempra or Toyama, respectively, to Governmental Authorities to the extent required or reasonably useful to secure Government Approval for (i) the Development, manufacture or Commercialization of Licensed Products in the Field in the Territory or (ii) the Development, manufacture, or Commercialization of Licensed Products, or any other products Covered by Protected Patents or Toyama Patents (to the extent licensed to Cempra hereunder) or incorporating any Cempra Technology or Toyama Know-How (to the extent licensed to Cempra hereunder), respectively, provided that Toyama (or any Affiliate or Sublicensee) or Cempra (or any Affiliate or licensee of Cempra or any Affiliate thereof), as applicable, uses Commercially Reasonable Efforts to obtain confidential or protective treatment of such Confidential Information when disclosing such Confidential Information to Governmental Authorities.

10.6 Return of Confidential Information . At any time upon the request of the disclosing Party, to the extent its Confidential Information is not reasonably necessary to enable a receiving Party to perform its obligations or exercise its rights under this Agreement, the receiving Party shall promptly return to the disclosing Party or destroy the disclosing Party’s Confidential Information, and shall destroy all copies thereof, together with all notes, drawings, abstracts and other information relating to the disclosing Party’s Confidential Information prepared by the receiving Party or any of its Representatives, regardless of the medium in which such information is stored; provided, however, that the receiving Party may maintain a single archival copy of the disclosing Party’s Confidential Information in its files solely for purposes of establishing the extent of disclosures by the disclosing Party under this Agreement. At the disclosing Party’s written request, the disclosing Party’s Confidential Information that is otherwise required to be returned to it shall be destroyed by the receiving Party and such destruction shall be certified in writing by an authorized officer of the receiving Party. The return and/or destruction of such Confidential Information as provided above shall not relieve the receiving Party of its other obligations under this Section 10.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

10.7 Injunctive Relief . In the event that either Toyama or Cempra breaches or threatens to breach any provision of this Section 10, the Parties agree that irreparable harm to the other Party is presumed and the damage to such Party likely would be very difficult to ascertain and would be inadequate. Accordingly, in the event of such circumstances, each of Toyama and Cempra agree that, in addition to any other right and remedies available at law or in equity, the non-breaching Party shall have the right to obtain injunctive relief from any court of competent jurisdiction, and the breaching party waives the requirement that a bond be posted.

11.

I NTELLECTUAL P ROPERTY .

11.1 Toyama Inventions . Subject to Sections 2.5, 12.9, and 16.11, Toyama shall be entitled to sole ownership of all inventions, discoveries, or improvements that (i) are conceived, reduced to practice, or otherwise generated by Toyama, its Sublicensees or any employee, agent, or representative of any of the foregoing following the Effective Date, solely or jointly with any Third Party(ies), as a result or in the course of activities conducted, or the Parties’ interactions, under this Agreement, or Toyama’s, any Sublicensees’, or Toyama’s or any Sublicensees’ employees’, contractors’, agents’ or representatives’ knowledge or use of, or access to, Cempra’s Confidential Information, the Compound, any Permitted Derivative, Cempra Technology, or any Licensed Product (collectively, all of the foregoing satisfying clause (i) and (ii), “ Toyama Inventions ”), and all intellectual property rights resulting therefrom. Toyama shall promptly disclose to Cempra any Toyama Invention related to the Compound, any Permitted Derivative, any Licensed Product, or the composition, use, or manufacture of any of the foregoing (“ Product Improvement by Toyama ”) or any Joint Product Improvement of which it has knowledge as soon as reasonably possible upon the conception, reduction to practice, or other generation of such Product Improvement by Toyama or Joint Product Improvement. Toyama shall (a) ensure that all contracts with Sublicensees or Third Parties concerning the use, manufacture, sale, Development, or Commercialization of Licensed Products in the Field in the Territory or manufacture of Compound or Permitted Derivative in the Manufacturing Territory, include terms sufficient to ensure Toyama’s compliance with this Section 11.1 and Sections 11.2, 11.3 and 2.5 and, without limitation of the foregoing, (b) use Commercially Reasonable Efforts to ensure that any Know-How and Patents, respectively, that result from Sublicensees’, or such above referenced Third Parties’ use, manufacture, sale, Development, or Commercialization of Licensed Products, Compound, or Permitted Derivative in the Territory or manufacture of Compound or Permitted Derivative in the Manufacturing Territory, and are necessary for the Development, manufacture, or Commercialization of Licensed Products, Compound, or Permitted Derivatives are included in Toyama Know-How and Toyama Patents, respectively.

11.2 Cempra Inventions . Subject to Section 2.1, Cempra shall be entitled to sole ownership of all inventions, discoveries, or improvements that are conceived, reduced to practice, or otherwise generated by Cempra, any Affiliate thereof, or any employee, agent, or representative of any of the foregoing, solely or jointly with any Third Party(ies) (“ Cempra Inventions ”), and all intellectual property rights resulting therefrom. Cempra shall promptly disclose to Toyama any Cempra Invention related to the Compound, any Permitted Derivative, any Licensed Product, or the composition, use, or manufacture of any of the foregoing (“ Product Improvement by Cempra ”) or any Joint Product Improvement of which it has knowledge as soon as reasonably possible upon the conception, reduction to practice, or other generation of such Product Improvement by Cempra or Joint Product Improvement.

11.3 Joint Inventions . Subject to Sections 2.1, 2.5, and 12.9, Toyama and Cempra shall jointly own all inventions, discoveries, or improvements that (i) are conceived or otherwise generated following the Effective Date as a result of the Parties’ activities under this Agreement or either Party’s, its Affiliates’, employees’, contractors’, agents’ or representatives’ knowledge or use of, or access to, the other Party’s Confidential Information, the Compound, any Permitted Derivative, Cempra Technology, Toyama Technology, or any Licensed Product and (ii) are jointly conceived or otherwise jointly generated by (q) Toyama, any Affiliate thereof, or any employee, agent, or representative of either of the foregoing and (r) Cempra, any Affiliate thereof, or any employee, agent, or representative of either of the foregoing, and all intellectual property rights resulting therefrom (collectively, all of the foregoing, “ Joint Inventions ”). Subject to any rights in Joint Inventions granted to either Party under this Agreement, and only to the extent required by any applicable law, rule, or regulation of any particular jurisdiction, each Party shall make prior consent, approval, and permission with the other Party regarding the other Party’s separate and independent enjoyment, licensing, sublicensing, assignment, or transfer to Affiliates and/or Third Parties of any of the other Party’s rights in and to practice such Joint Inventions, all intellectual property rights therein, and all intellectual property rights resulting from any of the foregoing in such jurisdiction, including making, using, offering for sale, selling, and importing such Joint Inventions, and with respect to licensing, sublicensing, assignment, or transfer to Affiliates and/or Third Parties, including the right to further license, sublicense, transfer, or assign such rights, respectively, in such jurisdiction. Notwithstanding anything to the contrary, if the applicable laws, rules, and regulations of any particular jurisdiction do not require the prior approval, consent, permission, or agreement of the owners of a Joint Invention (or intellectual property rights therein), or the accounting to or sharing of proceeds with other joint owner(s) thereof, with respect to any owner’s independent enjoyment, licensing, sublicensing, assignment, or transfer of such Joint invention (or intellectual property rights therein), no such requirement or obligation will be imposed by this Agreement. To the extent required by Applicable Law in Japan, each Party shall inform their consideration to the other Party for prior written consents regarding the right to further license, sublicense, transfer, or assign such Joint Inventions and all intellectual property rights therein, solely with respect to Japan (i.e. to the extent the licensing, sublicensing, transfer, or assignment of such Joint Inventions (or intellectual property rights therein) occurs with respect to any jurisdiction outside of Japan, this sentence’s requirement shall not apply). Each Party hereby further agrees that, except as may be required by any specific provision of this Agreement or law or regulation in any particular jurisdiction, no payments or other amounts shall be due to it with respect to the other Party’s enjoyment, licensing, sublicensing, assignment, or transfer of any rights to Joint Inventions under its interests therein, and that the consideration provided under this Agreement is sufficient consideration for any of the foregoing (without any additional payments or consideration being due). Notwithstanding the foregoing, however, to the extent the applicable laws, rules, or regulations of any particular jurisdiction require (a) prior written consent, approval, or permission of a Party (other than such consent, approval, or permission as is granted above) for the other Party to be able to enjoy, license, sublicense, assign, or transfer any rights with respect to Joint Inventions or any intellectual property rights resulting therefrom in such jurisdiction or (b) that the owners of any jointly-owned intellectual property rights must share the proceeds of any enjoyment, licensing, sublicensing, assignment, or transfer of such intellectual property rights with the other joint owner(s) thereof, the Parties shall, upon written notice from either Party, negotiate in good faith and use their best efforts to reach agreement, as quickly as

possible, on Commercially Reasonable financial terms concerning such sharing of proceeds and granting of such consent, approval, or permission in a manner intended to have the least possible financial impact and minimum other effects on each Party’s enjoyment, licensing, sublicensing, assignment, and/or transfer of its rights in Joint Inventions and resulting intellectual property rights, provided that such required sharing of proceeds shall be limited to the minimum amount allowed by the applicable laws, rules, or regulations of that jurisdiction. Each Party will, in any case, provide to the other Party the complete name and address of each of their respective licensees, sublicensees, assignees, and transferees of Joint Inventions and all intellectual property rights resulting therefrom.

12.

T ERM AND T ERMINATION .

12.1 Term . This Agreement shall become effective on the Effective Date and, subject to any earlier termination pursuant to this Section 12, shall continue on a Licensed Product-by-Licensed Product basis until the latest of (i) the first date on which there are no Valid Claims in the Cempra Patents in the Territory Covering a particular Licensed Product that is then being Commercialized or being Developed by or on behalf of Toyama, any Sublicensee, or any Toyama Sole Distributor in the Territory, (ii) the fifteenth (15 ^th ) anniversary of the Launch Date of such Licensed Product in the Territory, or (iii) the first commercial sale (defined in a manner corresponding to that defined as a “ First Commercial Sale ” with respect to Licensed Products) by a Third Party of a Generic Equivalent of such Licensed Product in the Field in the Territory (such period from the Effective Date until the latest of (i), (ii), or (iii) to occur for the last Licensed Product for which such dates occur, the “Term”). Upon expiration of this Agreement pursuant to this Section 12.1 (but not any termination hereof), Toyama shall have, and Cempra hereby grants to Toyama upon such date, (a) a fully-paid, royalty-free, non-exclusive right, with rights of sublicense under the Cempra Technology, (x) solely in the Field and in the Territory, to make, have made, use, sell, offer for sale, and import Licensed Products being sold by Toyama or any Sublicensee and (y) in the Manufacturing Territory, to use or have used, manufacture or have manufactured, sell, offer for sale, import and export the Compound or any Permitted Derivatives for use in the manufacture of Licensed Products or Clinical Supply for use or sale in the Field in the Territory hereunder and (b) the fully-paid royalty-free right to use Cempra Product Marks in connection with the Commercialization of Licensed Products in the Field in the Territory as of such expiration (subject to the terms and conditions of Section 2.3, which shall remain effective following expiration with respect to such license to the Cempra Product Marks).

12.2 Termination for Material Breach . Either Party may, without prejudice to any other remedies available to it at law or in equity with respect to any breach of this Agreement, terminate this Agreement in the event that the other Party (the “ Breaching Party ”) shall have committed a material breach of this Agreement or failed to pay any amount due hereunder. The Breaching Party shall have [*] Calendar Days (or, for any failure to pay any amounts due hereunder, [*] Calendar Days) after written notice thereof was provided to the Breaching Party by the other Party describing such material breach and requesting the remedy of such default (“ Peremptory Notice Period ”). Any such termination shall become effective at the end of such Peremptory Notice Period unless the Breaching Party has cured any such breach or default prior to the expiration of such Peremptory Notice Period, in which case this Agreement shall not terminate.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

12.3 Termination for Financial Insecurity . In the event that either Party files for protection under bankruptcy laws, makes an assignment for the benefit of creditors, appoints or suffers appointment of a receiver or trustee over its property, files a petition under any bankruptcy or insolvency act or has any such petition filed against it which is not discharged within [*] Calendar Days of the filing thereof, then (i) such Party shall immediately provide written notice of such circumstance to the other Party and (ii) the other Party may terminate this Agreement effective immediately upon written notice to such Party.

12.4 Termination for Convenience by Toyama . This Agreement may be terminated by Toyama, in its sole discretion, upon [*] Calendar Days’ written notice to Cempra.

12.5 Termination by Toyama after Identification of Serious Adverse Event . In the event of the occurrence of any Serious Adverse Event (including severe hepatotoxicity, syncope, loss of consciousness and visual disturbance) in any human clinical trial of any Licensed Product in the Field performed in the U.S. or Territory, Toyama and Cempra shall discuss in the good faith methods to remedy any related safety issue for Licensed Products in the Field within [*] Calendar Days after both Parties become aware, by written notice, of such Serious Adverse Event (such [*] Calendar Day period, the “Discussion Period”). If Toyama reasonably determines that a safety issue directly related to such a Serious Adverse Event that is reasonably established to be directly caused by such Licensed Product would seriously impact the long-term viability thereof for Commercialization in the Territory by significantly limiting the market potential for such Licensed Product in the Territory, or making such Licensed Product otherwise unacceptable for marketing or sale in the Territory, as reasonably demonstrated by Toyama in such notice, Toyama shall be entitled to terminate this Agreement upon on [*] Calendar Days’ written notice to Cempra given within [*] Calendar Days’ of the expiration of the Discussion Period.

12.6 Termination by Cempra for Diligence Failure by Toyama . Without limitation of Cempra’s termination rights under Section 12.2 with respect to any uncured material breach of this Agreement by Toyama, Cempra shall be entitled to terminate this Agreement upon [*] prior written notice to Toyama given at any time following the occurrence of one (or more) of the following circumstances:

(a) A Phase 1 Trial in the Field in the Territory has not been Commenced by or on behalf of Toyama within [*] months of the Effective Date;

(b) A Phase 3 Trial in the Field in the Territory has not been Commenced by or on behalf of Toyama within [*] months of the Effective Date;

(c) Regulatory Approval in the Territory is not obtained within [*] months of the Commencement of Phase 3 Trials in the Field in Japanese subjects in the Territory;

(d) Launch and First Commercial Sale of a Licensed Product in the Field have not both occurred in the Territory within [*] months of receiving Regulatory Approval and, if necessary in the Territory, Pricing Approval of such Licensed Product in the Field in the Territory;

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

(e) Toyama and Sublicensees have not used Commercially Reasonable Efforts to market and sell Licensed Products in the Field in the Territory pursuant to Section 6.1; or

(f) Net Sales in any Calendar Year (the “ First Reference Year ”) are less than [*] percent ([*]%) of Toyama’s proposed expectation of Net Sales in the Territory for such Calendar Year as described in the sales forecast therefor provided in Section 6.1, except to the extent Toyama reasonably demonstrates to Cempra through competent written evidence that such failure to meet such percentage of such proposed expectation of Net Sales results directly and solely from any material adverse change of marketing environment in the Field in the Territory that is outside Toyama’s and its Sublicensees’ reasonable control or any failure of Cempra to supply Compound to Toyama, in material satisfaction of Toyama’s orders therefor, in accordance with the Supply Agreement, and Net Sales in the following Calendar Year (the “ Second Reference Year ”) are less than [*] percent ([*]%) of the greater of Toyama’s proposed expectation, as described in the relevant sales forecasts provided in Section 6.1, of Net Sales in the Territory for the First Reference Year or Second Reference Year, without any material adverse change of marketing environment in the Field in the Territory that is outside Toyama’s and its Sublicensees’ reasonable control. For example, if Toyama’s projected Net Sales in the forecasts provided under Section 6.1 for 2020 and 2021, respectively, are US$[*] and US$[*], respectively, and Net Sales in the Territory under this Agreement in 2020 and 2021, respectively, are US$[*] and US$[*], respectively, Cempra would have the right to terminate under this clause (f) of Section 12.6; however, using the same forecasted Net Sales for 2020 and 2021 stated in the preceding portion of this sentence, if Net Sales in the Territory under this Agreement in 2020 and 2021, respectively, totaled US$[*] and US$[*], respectively, Cempra would not have the right to terminate under this clause (f) of Section 12.6 on the basis thereof. As an additional example, if Toyama’s projected Net Sales in the forecasts provided under Section 6.1 for 2020 and 2021, respectively, are US$[*] and US$[*], respectively, and Net Sales in the Territory under this Agreement in 2020 and 2021, respectively, are US$[*] and US$[*], respectively, Cempra would have the right to terminate under this clause (f) of Section 12.6 on the basis thereof; however, using the same forecasted Net Sales for 2020 and 2021 stated in the preceding portion of this sentence, if Net Sales in the Territory under this Agreement in 2020 and 2021, respectively, are US$[*] and US$[*], Cempra would not have the right to terminate under this clause (f) of Section 12.6 on the basis thereof.

Notwithstanding anything to the contrary, for avoidance of doubt, [*], provided that, [*]. If the Parties are unable to agree on whether or not [*], within [*] Calendar Days of [*], be resolved pursuant to Section 15.

12.7 Termination by Toyama for Development Diligence Failure by Cempra . For each of circumstances described in each of clause (a), (b), or (c) below, Toyama shall be entitled to terminate this Agreement upon [*] prior written notice to Cempra given by Toyama within [*] Calendar Days of:

(a) [*], if [*] has not occurred by [*]; or

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

(b) [*], if, by [*], Cempra, an Affiliate thereof, or any licensee or sublicensee of either of the foregoing, have not, alone or in combination or collaboration with any of the foregoing parties, submit (and have accepted by FDA for filing) an NDA for Licensed Product in the Field in the U.S. consistent with such filing as discussed in the pre-NDA meeting(s) with the FDA and a Marketing Application for a Licensed Product in the Field in at least one other country whose pricing can be used in the application of [*] Procedure; or

12.8 Termination for Conviction of a Felony . Cempra shall be entitled to terminate this Agreement upon written notice to Toyama if Toyama or any Sublicensee is convicted of a felony or similar crime relating to the development, manufacture, use, marketing, distribution or sale of Licensed Products and Scripps terminates the Scripps License on the basis of such conviction.

12.9 Effects of Termination .

(a) Upon any termination of this Agreement other than the expiration of this Agreement or a termination of this Agreement by Toyama pursuant to Sections 12.2, 12.5, and 12.7, (i) Toyama shall use reasonable efforts to promptly provide to Cempra all relevant and material information in Toyama’s possession or control concerning Licensed Products, Licensed Product inventory, Toyama Know-How, Toyama Patents, Product Improvements by Toyama, Joint Product Improvements, Toyama Product Marks, Licensed Product-Related Materials, Regulatory Filings, and Regulatory Approvals and, to the extent subsequently requested by Cempra in writing, transfer and assign to Cempra all right, title, and interest in all inventory of Licensed Product and Licensed Product in the process of manufacture (except to the extent such Licensed Product may be sold by Toyama pursuant to this Section 12.9(a)), Regulatory Filings, Regulatory Approvals, Toyama Product Marks, and Licensed Product-Related Materials, (ii) Toyama hereby grants and shall grant, upon Cempra’s written request, Cempra and its Affiliates the perpetual, irrevocable, royalty-free, fully-paid exclusive, transferable right, with rights of sublicense, under Toyama Know-How and Toyama Patents to manufacture, have manufactured, use, sale offer for sale, import, or export Licensed Products in the Territory, however, if Toyama wishes to assign or transfer such Toyama Know-How or Toyama Patents, such Toyama Know-How and Toyama Patents shall be assigned or transferred to Cempra, and (iii) Toyama shall reasonably provide Cempra all relevant and material information requested by Cempra concerning any manufacturing, supplier, distributor, research, development, clinical study, or other contracts concerning the Development, manufacture, or Commercialization of Licensed Products entered into by Toyama with Affiliates or Third Parties (“ Licensed Product-Related Contracts ”) and, to the extent subsequently requested by Cempra and permitted by the terms of such Licensed Product-Related Contracts without consent of the other party(ies) thereto (or, to the extent not permitted by such terms without such consent, Toyama obtains consent to such assignment, which Toyama shall have the obligation to use Commercially Reasonable Efforts to obtain), assign such Licensed Product-Related Contracts to Cempra

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

or otherwise help facilitate introductions between Cempra and such Affiliates or Third Parties, provided that, notwithstanding the foregoing, (A) Toyama shall have the privilege, subject to the payment of royalties and milestones as required under Section 3, of selling, upon commercially reasonable conditions and within [*] months of the date this Agreement is terminated (the “ Termination Date ”), all finished Licensed Products or Licensed Products in inventory or the process of manufacture as of the Termination Date, provided that, to the extent Licensed Products, Compound, or Permitted Derivative are Covered by any Scripps Patents, such privilege shall only be effective (and Toyama shall only have the right to complete the manufacture of or sell such Licensed Products following the termination of this Agreement under this clause (A)) to the extent Toyama has rights from Scripps to such Scripps Patents sufficient for Toyama to exercise such privilege without infringement of such Scripps Patents or breach of any related agreement with Scripps, (B) any above-referenced assignment of any tangible or intangible assets to Cempra by Toyama shall be made subject to the rights any Sublicensee may have with respect to such assets under any commercially reasonable sublicense entered into in accordance with this Agreement and surviving such termination in accordance with Section 12.9(g) below, (C) Toyama shall not have any obligation to assign any Licensed Product-Related Contracts to Cempra to the extent prohibited by the terms thereof without consent of the other party(ies) thereto and Toyama does not obtain the relevant Affiliate’s or Third Party’s consent to such assignment, and (D) with respect to any Licensed Product inventory, Licensed Product in the process of manufacture, or Licensed Product Materials requested and received by Cempra (that Toyama does not elect to sell in accordance with this Section 12.9(a)), (X) Cempra shall pay Toyama a commercially reasonable amount as consideration for the assignment and transfer of any Licensed Product inventory, Licensed Product in the process of manufacture, or Licensed Product-Related Materials, with such amount to be commercially reasonable and negotiated in good faith by the Parties based on the facts and circumstances at such time and which amount shall not, in any event, exceed Toyama’s reasonable, documented direct costs of manufacturing or procuring such Licensed Product inventory, Licensed Product in the process of manufacture, or Licensed Product-Related Materials, (Y) Toyama shall not have any obligation to deliver such Licensed Product inventory, Licensed Product in the process of manufacture, or Licensed Product-Related Materials to Cempra until an agreement on such price is reached (or such price is determined pursuant to the procedures described in Section 15), and (Z) Cempra shall, at any time prior to its written agreement with Toyama on the amount to be paid for such Licensed Product inventory, Licensed Product in the process of manufacture, and/or Licensed Product-Related Materials, have the right to waive its right to have any of the foregoing assigned to it (and thereby not be obligated to make any payments with respect thereto).

(b) Upon any termination of this Agreement by Toyama pursuant to Sections 12.2, 12.5, and 12.7, other than any termination of this Agreement by Toyama pursuant to Section 12.2 for material uncured breach of this Agreement by Cempra that [*], (i) Toyama shall use reasonable efforts to promptly provide to Cempra all relevant and material information under the Ownership or control of Toyama concerning Licensed Products, Licensed Product inventory, Toyama Know-How, Toyama Patents, Product Improvements by Toyama, Joint Product Improvements, Toyama Product Marks, Licensed Product-Related Materials, Regulatory Filings, and Regulatory Approvals and,

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

to the extent subsequently requested by Cempra in writing, (ii) Toyama shall, in exchange for the financial consideration determined pursuant to the second paragraph of this subsection (b), transfer and assign to Cempra all right, title, and interest in all inventory of Licensed Product and Licensed Product in the process of manufacture (except to the extent such Licensed Product may be sold by Toyama pursuant to this Section 12.9(b)), Regulatory Filings, Regulatory Approvals, Toyama Product Marks, and Licensed Product-Related Materials, (iii) Toyama hereby grants Cempra and its Affiliates a royalty-bearing, non-exclusive, transferable right, with rights of sublicense, under Toyama Know-How and Toyama Patents, to manufacture, have manufactured, use, sell, offer for sale, import or export Licensed Products in the Territory, however, if Toyama wishes to assign or transfer such Toyama Know-How or Toyama Patents, such Toyama Know-How and Toyama Patents shall be assigned or transferred to Cempra, and (iv) Toyama shall reasonably provide Cempra all relevant and material information requested by Cempra concerning any Licensed Product-Related Contracts and, to the extent subsequently requested by Cempra and permitted by the terms of such Licensed Product-Related Contracts without consent of the other party(ies) thereto (or, to the extent not permitted by such terms without such consent, Toyama obtains consent to such assignment, which Toyama shall have the obligation to use Commercially Reasonable Efforts to obtain), assign such Licensed Product-Related Contracts to Cempra or otherwise help facilitate introductions between Cempra and such Affiliates or Third Parties, provided that, notwithstanding the foregoing, provided that, notwithstanding the foregoing, (A) Toyama shall have the privilege, subject to the payment of royalties and milestones as required under Section 3, of selling, upon commercially reasonable conditions, all finished Licensed Products or Licensed Products in inventory or the process of manufacture as of the Termination Date, provided that, to the extent Licensed Products, Compound, or Permitted Derivative are Covered by any Scripps Patents, such privilege shall only be effective (and Toyama shall only have the right to complete the manufacture of or sell such Licensed Products following the termination of this Agreement under this clause (A)) to the extent Toyama has rights from Scripps to such Scripps Patents sufficient for Toyama to exercise such privilege without infringement of such Scripps Patents or breach of any related agreement with Scripps, (B) any above-referenced assignment of any tangible or intangible assets to Cempra by Toyama shall be made subject to the rights any Sublicensee may have with respect to such assets under any commercially reasonable sublicense entered into in accordance with this Agreement and surviving such termination in accordance with Section 12.9(g) below, and (C) Toyama shall not have any obligation to assign any Licensed Product-Related Contracts to Cempra to the extent prohibited by the terms thereof without consent of the other party(ies) thereto and Toyama does not obtain the relevant Affiliate’s or Third Party’s consent to such assignment.

Upon termination of this Agreement by Toyama pursuant to Sections 12.2, 12.5, and 12.7, other than any termination of this Agreement by Toyama pursuant to Section 12.2 for a material uncured breach of this Agreement by Cempra that materially and adversely affects the overall economic prospects of the Development and/or Commercialization of Licensed Products in the Field in the Territory, if and as requested by Cempra, the Parties shall enter into good faith negotiations concerning the Commercially Reasonable value of the assets to be transferred, and rights to be licensed,

to Cempra pursuant to the first paragraph of this subsection (b), and use Commercially Reasonable Efforts to reach written agreement, within [*] Calendar Days of such termination, on Commercially Reasonable financial consideration to be paid to Toyama in exchange for such transfer or license, as applicable, of all of the foregoing (which may include upfront payments, milestone payments, and/or royalties, as may be Commercially Reasonable). If the Parties are unable to reach written agreement with respect thereto within such [*] Calendar Days period pursuant to the foregoing, the form and amount of such consideration to be paid to Toyama in exchange for the performance of its obligations under the first paragraph of this subsection (b), which shall in any event be Commercially Reasonable, shall, if and as requested by Cempra in writing by notice to Toyama, be determined pursuant to Section 15. Upon the determination of the form and amount of such consideration pursuant to Section 15, Cempra shall have a period of [*] Calendar Days thereafter within which to elect, by written notice to Toyama, to agree to pay such consideration or waive its rights to be assigned such assets, transferred such materials, and/or licensed such rights as are contemplated by the first paragraph of this subsection (b) provided that [*] as set forth in Section 15.

(c) Upon any termination of this Agreement by Toyama pursuant to Section 12.2 for a material breach of this Agreement by Cempra [*], then Toyama may elect, in its sole discretion by written notice given to Cempra prior to the effectiveness of the relevant termination, to require the following: (i) Toyama shall use reasonable efforts to promptly provide to Cempra all relevant and material information under the Ownership or control of Toyama concerning Licensed Products, Licensed Product inventory, Toyama Know-How, Toyama Patents, Product Improvements by Toyama, Joint Product Improvements, Toyama Product Marks, Licensed Product-Related Materials, Regulatory Filings, and Regulatory Approvals and, to the extent subsequently requested by Cempra in writing, Toyama shall use Commercially Reasonable Efforts to mitigate the costs of Licensed Product-Related Materials, including by re-using, re-purposing, or returning Licensed Product-Related Materials, to the extent practicable, (ii) Cempra shall pay to Toyama the financial consideration determined pursuant to the second paragraph of this subsection (c) by the date(s) established thereunder for such payment(s), and Toyama shall transfer and assign to Cempra all right, title, and interest in all inventory of Licensed Product and Licensed Product in the process of manufacture (except to the extent such Licensed Product may be sold by Toyama pursuant to this Section 12.9(c)), Regulatory Filings, Regulatory Approvals, Toyama Product Marks, and Licensed Product-Related Materials, (iii) Toyama shall grant Cempra and its Affiliates a royalty-bearing, non-exclusive, transferable right, with rights of sublicense, under Toyama Know-How and Toyama Patents, to manufacture, have manufactured, use, sell, offer for sale, import or export Licensed Products in the Territory, however, if Toyama wishes to assign or transfer such Toyama Know-How or Toyama Patents, such Toyama Know-How and Toyama Patents shall be assigned or transferred to Cempra, and (iv) Toyama shall reasonably provide Cempra all relevant and material information requested by Cempra concerning any Licensed Product-Related Contracts and, to the extent subsequently requested by Cempra and permitted by the terms of such Licensed Product-Related Contracts without consent of the other party(ies) thereto (or, to the extent not permitted by such terms without such consent, Toyama obtains consent to such assignment, which Toyama shall have the obligation to use Commercially Reasonable Efforts to obtain),

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

assign such Licensed Product-Related Contracts to Cempra or otherwise help facilitate introductions between Cempra and such Affiliates or Third Parties, provided that, notwithstanding the foregoing, (A) Toyama shall have the privilege, subject to the payment of royalties and milestones as required under Section 3, of selling, upon commercially reasonable conditions, all finished Licensed Products or Licensed Products in inventory or the process of manufacture as of the Termination Date, provided that, to the extent Licensed Products, Compound, or Permitted Derivative are Covered by any Scripps Patents, such privilege shall only be effective (and Toyama shall only have the right to complete the manufacture of or sell such Licensed Products following the termination of this Agreement under this clause (A)) to the extent Toyama has rights from Scripps to such Scripps Patents sufficient for Toyama to exercise such privilege without infringement of such Scripps Patents or breach of any related agreement with Scripps, (B) any above-referenced assignment of any tangible or intangible assets to Cempra by Toyama shall be made subject to the rights any Sublicensee may have with respect to such assets under any commercially reasonable sublicense entered into in accordance with this Agreement and surviving such termination in accordance with Section 12.9(g) below, and (C) Toyama shall not have any obligation to assign any Licensed Product-Related Contracts to Cempra to the extent prohibited by the terms thereof without consent of the other party(ies) thereto and Toyama does not obtain the relevant Affiliate’s or Third Party’s consent to such assignment.

Upon a termination of this Agreement by Toyama pursuant to Section 12.2 that is subject to this Section 12.9(c), the Parties shall enter into good faith negotiations concerning the Commercially Reasonable value of the assets to be transferred, and rights to be licensed, to Cempra pursuant to the first paragraph of this subsection (c), and use Commercially Reasonable Efforts to reach written agreement, within [*] Calendar Days of such termination, on Commercially Reasonable financial consideration to be paid to Toyama in exchange for such transfer or license, as applicable, of all of the foregoing (which may include upfront payments, milestone payments, and/or royalties, as may be Commercially Reasonable). If the Parties are unable to reach written agreement with respect thereto within such [*] Calendar Days period pursuant to the foregoing, the form and amount of such consideration to be paid to Toyama in exchange for the performance of its obligations under the first paragraph of this subsection (c), which shall in any event be Commercially Reasonable, shall, if and as requested by either Party in writing by notice to the other Party, be determined pursuant to Section 15.

(d) Obligations Related to Ongoing Activities . From the date of notice of any termination until the effective date of any termination, Toyama shall, without limitation of any other obligations under this Agreement, continue, in a Commercially Reasonable fashion, all Development or Commercialization activities concerning Licensed Products in the Field in the Territory, including preparatory activities, ongoing as of the date of notice of termination. However, Toyama shall not be obliged to initiate any new human clinical trials or pediatric formulation development of Licensed Product not ongoing at the date of notice of termination, except to the extent required by Applicable Law or any Governmental Authority.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

(e) Obligations Related to Manufacturing . In the case of any termination or expiration of this Agreement, if a Licensed Product has been sold in the Field in the Territory within the [*] months prior to, or at any time following, the date of the notice of termination of this Agreement, then, upon the request of Cempra, and in addition to Toyama’s obligations and Cempra’s rights under Section 12.9(a), 12.9 (b), and 12.9(c), Toyama shall, if and as requested by Cempra, manufacture and supply Licensed Product to Cempra for a period which shall not exceed [*] months from the effective date of termination of this Agreement at a Commercially Reasonable price, and on Commercially Reasonable other terms, as shall be agreed by the Parties in good faith, provided that, if the Parties cannot reach agreement on such price and terms within [*] Calendar Days of such termination and Cempra provides written notice, within [*] Calendar Days of the expiration of such [*] Calendar Day period electing to resolve the price and/or other terms of such supply pursuant to Section 15, such price and terms shall be determined pursuant to Section 15. Cempra shall use Commercially Reasonable Efforts to take over the manufacturing as soon as possible after the effective date of termination.

(f) Assisting Cempra in Obtaining Third Party License Rights . In case of termination of this Agreement other than a termination by Toyama pursuant to Section 12.2 hereof, if Toyama or any Sublicensee has obtained patent rights, included in Toyama Patents, by license from a Third Party that are necessary for the Development, manufacture, or Commercialization of Licensed Products in the Field in the Territory (such a license, a “ Third Party License ”), and such rights cannot be licensed to Cempra, or such license agreement cannot be assigned to Cempra, as applicable, pursuant to Section 12.9(a), 12.9(b), or 12.9(c) due to the terms and conditions of such license, Toyama shall, if and as requested by Cempra, use Commercially Reasonable Efforts to obtain approval from such Third Party to license such rights to Cempra, or transfer or assign Toyama’s rights and obligations under such Third Party License with respect to Licensed Products in the Territory to Cempra.

(g) Survival of Sublicenses . Notwithstanding any provision herein to the contrary, in the event (A) Toyama has entered into any sublicense agreement granting any Sublicensee rights to Develop, manufacture, and/or Commercialize Licensed Products in the Territory as permitted by, and in accordance with, this Agreement (but which agreement must, in any event, include rights for such Third Party to Commercialize Licensed Products in the Field in the Territory), (B) this Agreement is terminated other than by Toyama pursuant to Section 12.2, (C) the applicable Sublicensee is not in material breach of such sublicense, (D) Cempra indicates, by written notice to Toyama, a desire to have such sublicense agreement assigned to it, and (E) the applicable Sublicensee agrees, in writing and prior to or on the date of such termination, to automatic assignment of such sublicense to Cempra contemplated in this Section 12.9(g), (i) such sublicense agreement (including any rights to payment thereunder) shall, to the extent concerning Licensed Products in the Field in the Territory, not imposing obligations on Cempra in excess of those contained in this Agreement, and provided for in such sublicense, be automatically assigned to Cempra and (ii) Cempra shall grant such Third Party the rights granted with respect to Cempra Technology (and any other rights Cempra may enjoy hereunder upon such termination) under the assigned sublicense, subject to such Third Party’s compliance with its terms. In all other circumstances, all sublicenses of rights granted hereunder shall terminate upon termination of this Agreement.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

(h) Availability of Remedies . Except as explicitly provided for in this Agreement any rights or remedies set forth in this Section 12 are not exclusive, and shall not limit any other legal or equitable remedies that are available to the Parties as a result of any circumstances which may be related or unrelated to such termination.

(i) Royalty and Payment Obligations . Without limitation of Section 12.9, expiration of this Agreement or termination of this Agreement by a Party, for any reason, shall not release Toyama from any obligation to pay royalties or make any payments to Cempra which are due and payable, or for which the action triggering such obligation has occurred, prior to the effective date of termination.

12.10 Scripps License Termination .

(a) Upon termination of the Scripps License for any reason other than Toyama’s or any Sublicensee’s breach of this Agreement or any provisions hereof or of the Scripps License applicable to such party, Cempra will promptly notify Toyama in writing of such termination and, to the extent this Agreement constitutes a sublicense of rights granted by Scripps to Cempra under the Scripps License, such sublicense will survive such termination with Scripps as Toyama’s direct licensor with respect to such rights, provided that:

(i) neither Toyama nor any Sublicensee is the cause of the breach that resulted in termination of the Scripps License, and neither Toyama nor any Sublicensee is in default of any of its obligations under this Agreement or any sublicense hereunder pertaining to the Scripps Patents under this Agreement or the Scripps License;

(ii) Toyama pays to Scripps any and all unpaid amounts (including but not limited to royalties, milestones, and other payments) owed by Cempra under the Scripps License with respect to the exercise of rights under the Scripps License that are sublicensed to Toyama hereunder that were past due at the time of termination of the Scripps License within thirty (30) Calendar Days after receipt of an itemized (by type of payment) written invoice therefor from Scripps;

(iii) Toyama’s payment obligations with respect to its surviving license to the Scripps Patents shall be those set forth in the Scripps License, except to the extent any amounts due under Section 3.5 [*];

(iv) Toyama delivers to Scripps within [*] Calendar Days after termination of the Scripps License an executed license agreement with Scripps in the form of the Scripps License (a “ New Scripps License ”), as reasonably modified to be no greater in scope than the scope of the sublicense granted to Toyama under this Agreement with respect to the Scripps Patents and shall also contain provisions that: (i) Toyama shall not have any obligations to Scripps other than Toyama’s obligations to Scripps as set forth in the New Scripps License; (ii)

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

Scripps shall have no liability to Toyama for any actual or alleged breach of this Agreement by Cempra; (iii) Scripps shall not have any obligations to Toyama other than Scripps’ obligations to Toyama as set forth in the New Scripps License; and (iv) are reasonably necessary to conform any terms contained herein that may, as a result of the substitution of Toyama for Cempra as a result of the process contemplated by this Section 12.10(a) or for any other reason, be inconsistent with the Scripps License to those corresponding terms of the Scripps License; and

(v) Cempra shall procure Scripps to promptly execute the New Scripps License, provided that in no event shall Scripps or Toyama be obliged to accept provisions in the New Scripps License (X) unless such provisions correspond to rights to Scripps Patents sublicensed by Cempra hereunder in conformance with Scripps License or (Y) where such provisions are in conflict with the legal obligations under any sublicense agreement granted under the Scripps License by Cempra or any Third Party with respect to any rights not granted to Toyama under this Agreement, or by applicable federal, state or local statute or regulation.

The provisions of this Section 12.10(a) must be included or specifically referenced in any sublicense granted hereunder by Toyama or any Sublicensee in order for the applicable Sublicensee’s sublicense of rights granted hereunder with respect to the Scripps Patents to survive termination of the Scripps License. If the Scripps License terminates and Toyama executes a New Scripps License, (x) Toyama shall be entitled to a credit applicable against future payments due under this Agreement equal to any amounts paid to Scripps by Toyama pursuant to clause (ii) above and (y) Toyama shall be entitled to deduct any amounts paid to Scripps under the Scripps License in a particular Calendar Quarter from amounts due Cempra under this Agreement in such Calendar Quarter.

(b) Notwithstanding anything to the contrary, if there are no Scripps Patents (I) in the Territory Covering Licensed Products being Developed, manufactured, or Commercialized by or on behalf of Toyama or any Sublicensee in the Territory or (II) in the applicable countries in the Manufacturing Territory in which Toyama is exercising the Back-Up Supply Rights (the “ Applicable Territories ”) Covering the manufacture, use, sale, import, or export of Compound or Permitted Derivative for incorporation into such Licensed Products for Development, manufacture, or Commercialization in the Territory, and no Scripps Patents otherwise necessary for any of the foregoing, at the time of the termination of the Scripps License then Toyama may, from time to time, indicate by written notice to Cempra, at any time prior to termination of the Scripps License or immediately following Cempra’s notifying Toyama of such termination, that Toyama does not wish to obtain a New Scripps License upon such termination (each such notice a “ Disclaimer of New Scripps License ”):

(i) the Scripps Patents shall be deemed, effective upon the termination of the Scripps License, to be excluded from the Cempra Patents for purposes of this Agreement;

(ii) Toyama shall represent and warrant to Cempra in the Disclaimer of New Scripps License, effective as of the termination of the Scripps License and at all times thereafter, that there are no Scripps Patents (x) in the Territory that Cover Licensed Products being Developed, manufactured, Commercialized, made, used, sold, imported, or exported by or on behalf of Toyama or any Sublicensee in the Territory, (y) in the Applicable Territory(ies) that Cover the manufacture, use, sale, import, or export of Compound or Permitted Derivative for incorporation into any such Licensed Products for Development, manufacture, or Commercialization in the Territory, or (z) are otherwise necessary for any of the foregoing; and

(iii) Toyama shall not be required to comply with clauses (ii) through (v) of Section 12.10(a).

12.11 Survival . Termination or expiration of this Agreement for any reason will be without prejudice to any rights that will have accrued to the benefit of any Party prior to such termination or expiration. The following provisions shall survive any expiration or termination of this Agreement: 1, 2.2, 2.3 (only upon expiration, but not upon termination, of this Agreement), 2.4 (only upon expiration, but not upon termination, of this Agreement), 2.5, 2.6, 3.6, 3.7, 3.8, 3.9, 3.10, 3.11, 3.12, 3.13, 4.5, 5.1, 5.2 (with respect to both Parties upon expiration, and only with respect to Toyama’s obligations upon termination), 5.4 (with respect to both Parties upon expiration, and only with respect to Toyama’s obligations upon termination), 5.5, 8.2, 8.3, 10, 11, 12.9, 12.11, 13.3(f), 13.4, 14, 15, and, with respect to actual or alleged infringements occurring prior to termination or expiration, 9.1, 9.2, 9.3, 9.4, 9.5, and 9.6, together with any Sections referenced in such surviving provisions or necessary to give them effect.

13.

R EPRESENTATIONS ; W ARRANTIES ; C OVENANTS .

13.1 Representations and Warranties of Cempra . Cempra represents and warrants to Toyama as follows as of the Effective Date:

(a) Cempra is a corporation, duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to operate its properties and to carry on its business as presently conducted.

(b) Cempra is, as of the Effective Date, a wholly-owned subsidiary of Cempra Parent.

(c) Cempra has provided to Toyama all material [*] Cempra Data obtained by Cempra prior to the Effective Date concerning the Development or Commercialization of Licensed Products in the Field and such Cempra Data [*] was generated in accordance with Applicable Law (including, if and as reasonably applicable, GLP or GCP) and customary scientific standards. The execution, delivery and performance by Cempra of this Agreement and the consummation of the transactions contemplated hereby will not result in any violation of, conflict with, result in a breach of or constitute a default under any contract or agreement to which Cempra is a party.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

(d) There is no action, suit, proceeding or investigation pending or, to Cempra’s knowledge, currently threatened in writing against or affecting Cempra that questions the validity of this Agreement or the right of Cempra to enter into this Agreement or consummate the transactions contemplated hereby and, to Cempra’s knowledge, there is no basis for the foregoing.

(e) To Cempra’s knowledge, no consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local Governmental Authority, or any Third Party, on the part of Cempra is required in connection with the execution, delivery and performance of this Agreement, other than those consents, approvals, waivers, and authorizations which have been obtained by Cempra prior to or on the Effective Date.

(f) To Cempra’s knowledge, Cempra has disclosed in writing to Toyama all Patents Controlled by Cempra or its Affiliates as of the Effective Date which Cover the Licensed Product in the Field in the Territory, which Patents are set forth on Schedule 1.20.

(g) To Cempra’s knowledge, the Cempra Technology is Controlled by Cempra, free and clear of all mortgages, pledges, charges, liens, equities, security interests, or other encumbrances or similar agreements, or any other obligation with respect to any of the foregoing that would materially and adversely conflict or interfere with any of the rights or licenses granted to Toyama hereunder.

(h) Cempra has not, prior to the Effective Date, received any written claim from, or written demand of, any person or entity that the development, manufacture, use or sale of the Compound or, with respect the form thereof that is under Development by Cempra as of the Effective Date, the Licensed Product infringed or misappropriated any intellectual property rights of such Third Party in the Territory.

(i) To Cempra’s knowledge as of the Effective Date, without duty or obligation of investigation or inquiry, there is no Patent owned by any Third Party, other than those Patents included within the Cempra Patents, that Covers the Compound, any Permitted Derivative, or, with respect the form thereof that is under Development by Cempra as of the Effective Date, Licensed Product in the Territory.

(j) Cempra has provided Toyama a complete and accurate copy of each of the Scripps License and Optimer License, as each are in effect as of the Effective Date.

(k) As of the Effective Date, to Cempra’s knowledge, there are no Optimer Patents licensed to Cempra under the Optimer License that Cover the Licensed Product in the Field in the Territory.

13.2 Cempra Covenants .

(a) To the extent any rights to Scripps Patents are included in the rights granted Toyama under this Agreement, Cempra shall use Commercially Reasonable Efforts to comply with the Scripps License and Cempra shall not amend, modify, or

terminate the Scripps License in any way that would adversely affect Toyama’s rights to the Scripps Patents under this Agreement. Within thirty (30) Calendar Days of Cempra’s provision of any royalty report to Scripps under the Scripps License that relates to the payment of royalties to Scripps with respect to Toyama’s or Sublicensees’ sales of Licensed Products in the Territory, Cempra shall provide Toyama a copy of the portion of such report related to sales of Licensed Products under this Agreement and confirm the amount of Cempra’s corresponding royalty payments to Scripps with respect thereto. Further, Cempra shall promptly provide Toyama a copy of any notice of breach from Scripps to Cempra under the Scripps License that relates to the payment of royalties on sales of Licensed Products in the Territory under this Agreement.

(b) Cempra shall (i) provide Toyama all material and substantially all Cempra Data coming under Cempra’s Control following the Effective Date as soon as reasonably practicable following the receipt thereof by Cempra and (ii) shall ensure that all such Cempra Data is accurate and generated in accordance with Applicable Law (including, if and as reasonably applicable, GLP or GCP) and customary scientific standards.

13.3 Representations and Warranties of Toyama . Toyama represents and warrants to Cempra as follows:

(a) Toyama is a corporation, duly incorporated, validly existing and in good standing under the laws of its jurisdiction of incorporation, with full corporate power and authority to operate its properties and to carry on its business as presently conducted.

(b) Toyama has full power and authority to execute, deliver and perform this Agreement. This Agreement constitutes the legally binding and valid obligations of Toyama, enforceable in accordance with their terms.

(c) The execution, delivery and performance by Toyama of this Agreement and the consummation of the transactions contemplated thereby will not result in any violation of, conflict with, result in a breach of or constitute a default under any contract or agreement material to Toyama, its business or its assets.

(d) No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any Governmental Authority on the part of Toyama is required in connection with the execution, delivery and performance of this Agreement.

(e) There is no action, suit, proceeding or investigation pending or, to Toyama’s knowledge, currently threatened against or affecting Toyama or that questions the validity of this Agreement, or the right of Toyama to enter into this Agreement or consummate the transactions contemplated hereby and to Toyama’s knowledge, there is no basis for the foregoing.

(f) To Toyama’s knowledge, there are, and shall be, no Know-How or Patents owned, controlled, or licensed by any of Toyama’s Affiliates, other than Toyama’s Sublicensees, as a result of activities under this Agreement, or any use of access to Cempra Technology or any Compound, Permitted Derivative, Licensed Product, or Cempra Confidential Information.

(g) To Toyama’s knowledge as of the Effective Date, without duty or obligation of investigation or inquiry, there is no Patent owned by any Third Party, other than those Patents included within the Cempra Patents, that Covers any Compound, Permitted Derivative, or Licensed Product in the Territory.

13.4 Disclaimer . EXCEPT FOR THE EXPRESS WARRANTIES SET FORTH IN THIS AGREEMENT, INCLUDING SECTIONS 13.1 AND 13.3, AS APPLICABLE, THE PARTIES MAKE NO REPRESENTATIONS AND GRANT NO WARRANTIES, EXPRESS OR IMPLIED, EITHER IN FACT OR BY OPERATION OF LAW, BY STATUTE OR OTHERWISE, AND THE PARTIES EACH SPECIFICALLY DISCLAIM ANY OTHER WARRANTIES, WHETHER WRITTEN OR ORAL, OR EXPRESS OR IMPLIED, INCLUDING ANY WARRANTY OF QUALITY, MERCHANTABILITY OR FITNESS FOR A PARTICULAR USE OR PURPOSE, OR AS TO THE SUCCESS OR LIKELIHOOD OF SUCCESS OF THE RESEARCH, DEVELOPMENT OR COMMERCIALIZATION OF THE COMPOUND OR PRODUCT UNDER THIS AGREEMENT.

13.5 Protective Provisions . Toyama shall (and shall ensure that Sublicensees and Toyama Sole Distributors do):

(a) not manufacture, use, develop, promote, sell, distribute, or otherwise commercialize any product in the Territory, other than a Licensed Product in the Field subject to the terms of this Agreement, incorporating the Compound or any Derivative thereof for the treatment of any indication in the Field;

(b) not acquire from any Third Party or any Affiliate of Toyama the right to manufacture, use, develop, promote, sell, distribute, or otherwise commercialize any product, other than a Licensed Product in the Field in the Territory subject to the terms of this Agreement, incorporating the Compound or any Derivative thereof for the treatment of any indication in the Field;

(c) not enter into any agreement pursuant to, or in the exercise of rights under, which any Third Party or any Affiliate of Toyama may manufacture, use, develop, promote, sell, distribute, or otherwise commercialize any product, other than a Licensed Product in the Field in the Territory subject to the terms of this Agreement, incorporating the Compound or any Derivative thereof for the treatment of any indication in the Field;

(d) not otherwise enable any Third Party or any Affiliate of Toyama, directly or indirectly, to manufacture, develop, promote, sell, distribute, or otherwise commercialize any product, other than a Licensed Product in the Field in the Territory subject to the terms of this Agreement, incorporating the Compound or any Derivative thereof for the treatment of any indication in the Field;

(e) not, directly or indirectly, develop, use, sell, market, promote, advertise, or distribute any Licensed Products in the Field outside the Territory;

(f) use all Commercially Reasonable Efforts to impose upon its distributors, Sublicensees, Toyama Sole Distributors, and customers contractual obligations not to seek or accommodate consumers outside the Territory for the Licensed Products;

(g) restrict its, Sublicensees’, and Toyama Sole Distributors’ development, use, marketing, promotion, advertisement, sale, and distribution of the Licensed Products in the Field within the Territory;

(h) not, directly or indirectly, knowingly sell, market, or distribute the Licensed Products to any person or entity for use, resale, marketing, or distribution outside the Territory;

(i) ensure Sublicensees, Toyama Sole Distributors, and Wholesalers do not ship, sell, or otherwise distribute any Licensed Products for ultimate use in the Field outside the Territory; and

(j) not, directly or indirectly, sell via the Internet or mail order Licensed Products in the Field outside the Territory or for use in the Field outside the Territory, and impose, as an essential condition of doing business with respect to Licensed Products, upon its distributors, Sublicensees, Toyama Sole Distributors, and customers a contractual obligation to comply with such foregoing obligation.

Toyama shall ensure that all Sublicensees and Toyama Sole Distributors comply with all of the requirements and limitations of this Section 13.5.

14.

I NDEMNITIES ; L IMITS ON L IABILITY .

14.1 Indemnification by Cempra . Subject to Section 14.3, Cempra hereby agrees to defend, indemnify and hold harmless Toyama, its Affiliates, Sublicensees, Toyama Sole Distributors, and Toyama’s and its Affiliates’ directors, officers, employees, contractors, agents, other representatives, successors and assigns (collectively, “ Toyama Indemnitees ”) from and against all suits, claims, proceedings or causes of action brought by Third Parties (“ Claims ”), and all associated damages, liabilities, expenses and/or loss, including reasonable legal expenses and reasonable attorneys’ fees (“ Losses ”), to the extent arising out of:

(a) any Cempra Indemnitee’s (i) negligence, willful misconduct, or fraud with respect to Licensed Product, Compound, Permitted Derivative, or its activities under this Agreement, (ii) breach of this Agreement, (iii) failure to comply with Applicable Law with respect to any Cempra Indemnitee’s activities with respect to Licensed Product, Compound, or Permitted Derivative, or (iv) manufacture, use, sale, offering for sale, import, export, Development, or Commercialization of (q) the Compound, Permitted Derivative, or Licensed Products outside the Field or outside the Territory or (r) any products, other than Licensed Products, incorporating the Compound or any Permitted Derivative as their sole API (including but not limited to any product liability claims or similar claims arising from such activities);

(b) any Third Party claim that [*];

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

(d) any Third Party claim that [*],

except to the extent, in the case of (a), (b), (c), and (d), such Claims or Losses result from any Toyama Indemnitee’s (i) negligence, willful misconduct, or fraud with respect to Development, manufacture, or Commercialization of Licensed Products, Compound or Permitted Derivative, (ii) breach of this Agreement, or (iii) failure to comply with any Applicable Laws.

14.2 Indemnification by Toyama . Subject to Section 14.3, Toyama hereby agrees to indemnify, defend and hold harmless Cempra, its Affiliates and Cempra’s and its Affiliates’ licensors, officers, directors, employees, contractors, agents, other representatives, successors, and assigns (collectively, “ Cempra Indemnitees ”) from and against any Claims and Losses to the extent arising out of:

(a) any Toyama Indemnitee’s (i) negligence, willful misconduct, or fraud with respect to Licensed Product, Compound, Permitted Derivative, or its activities under this Agreement, (ii) breach of this Agreement, (iii) failure to comply with Applicable Laws with respect to any Toyama Indemnitee’s activities with respect to Licensed Product, Compound, or Permitted Derivative, or (iv) Development, Commercialization, manufacture, use, import, export, or sale of any Compound, Permitted Derivative, or Licensed Product in the Territory and in the Field (or with respect to the exercise of Back-Up Supply Rights, in the Manufacturing Territory) (including but not limited to any product liability claims or similar claims arising from such activities);

(b) any Third Party claim that any Compound or Permitted Derivative incorporated in any Licensed Product used or sold in the Field in the Territory caused personal injury or death [*];

(c) a Third Party claim that any Licensed Product made, used, or sold by or on behalf of Toyama, any Sublicensee, or any Toyama Sole Distributor, or the manufacture, Development, or Commercialization of any Licensed Product by or on behalf of Toyama, any Sublicensee, or any Toyama Sole Distributor, infringes or misappropriates a Third Party’s intellectual property rights; or

(d) any Third Party claim that Toyama’s, its Sublicensees’, or any of Toyama’s or Sublicensees’ contractors’ manufacture of any Compound or Permitted Derivative, [*],

except to the extent, in the case of (a), (b), (c), and (d), such Claims or Losses are subject to indemnification by Cempra under the Supply Agreement or this Agreement.

14.3 Indemnification Procedures . Each Party’s agreement to indemnify, defend, and hold harmless under Section 14.1 or 14.2, as applicable, is conditioned upon the indemnified party (a) providing written notice to the indemnifying Party of any Claim arising out of the allegedly or actually indemnified matter as soon as reasonably possible, and in any event no later than within [*] Calendar Days after the indemnified Party has actual knowledge of such claim,

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

demand or action, (b) permitting the indemnifying Party to assume control at its sole expense over the investigation of, preparation and defense against, and settlement or voluntary disposition of any such claim, demand or action, using counsel reasonable acceptable to the indemnified Party, (c) assisting the indemnifying Party, as reasonably requested by the indemnifying Party and at the indemnifying Party’s reasonable expense, in the investigation, preparation, defense, and settlement or voluntary disposition of any such claim, demand or action, (d) not compromising, settling, or entering into any voluntary disposition of any such claim, demand or action without the indemnifying Party’s prior written consent, which consent shall not be unreasonably withheld, and (e) furnishing promptly to the indemnifying Party copies of all notices and documents (including court papers) received by any indemnified party in connection with the Claim for which indemnification is being sought; provided, however, that, if the party entitled to indemnification hereunder fails to comply with any of the foregoing conditions, the indemnifying Party will only be relieved of its indemnification obligation under this Agreement to the extent materially prejudiced by such failure. In no event may the indemnifying Party compromise, settle, or enter into any voluntary disposition of any claim, demand or action in any manner that admits material fault or wrongdoing on the part of the indemnified Party or incurs non-indemnified liability on the part of the indemnified Party without the prior written consent of the indemnified Party, and in no event may the indemnifying Party settle, compromise, or agree to any voluntary disposition of any matter subject to indemnification hereunder in any manner which would reasonably be anticipated by the indemnifying Party to adversely affect any portion of the Cempra Technology, the other Party’s ability to Develop, manufacture, or Commercialize Licensed Products in the Field in the Territory, or, in the event Toyama is the indemnifying Party, Cempra’s, its Affiliates’ or their licensees’ ability to develop or exploit Cempra Technology, or any product incorporating, utilizing, or covered by the Cempra Technology or any Protected Patents, outside the Field, outside the Territory, or with respect to any products other than Licensed Products without the indemnified Party’s prior written consent, such consent not to be unreasonably withheld.

14.4 Limitation of Liability .

(a) IN NO EVENT SHALL EITHER PARTY OR ITS AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS AGREEMENT, PROVIDED THAT, NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE FOREGOING SHALL NOT BE CONSTRUED TO LIMIT THE INDEMNITY OBLIGATIONS SET FORTH IN SECTIONS 14.1 AND 14.2 ABOVE, EITHER PARTY’S LIABILITY FOR PATENT INFRINGEMENT OR BREACH OF ARTICLE 10, OR TOYAMA’S LIABILITY FOR ANY BREACH OF SECTION 2.1 OR 2.3.

(b) For purposes of Section 14.1(a)(ii) and 14.2(a)(ii) and the indemnification provided by Cempra or Toyama thereunder, any failure of Cempra or Toyama (as the case may be) to satisfy its obligations under the Supply Agreement shall not be considered a breach of this Agreement.

14.5 Insurance .

(a) Coverage . Toyama shall carry and maintain, with reputable insurers, insurance of the types and in amounts which are no less than reasonable and customary in the Japanese pharmaceutical industry for companies of comparable size and activities. Such insurance will insure against all liability, including but not limited to, bodily injury or property damage arising out of the manufacture, sale, distribution, marketing, Development or Commercialization of Licensed Products and specifically shall include: (i) product liability; (ii) completed operations; (iii) clinical trials, as applicable; (iv) broad form property damage; (v) advertising injury; (vi) premises operation; (vii) personal injury; and (viii) contractual liability coverages for Toyama’s indemnification and other obligations under this Agreement. Such insurance coverage shall have limits of liability which are commercially reasonable for the Japanese pharmaceutical industry, but shall not be less than [*] dollars (US$[*]) per loss occurrence and [*] dollars (US$[*]) annual aggregate. Toyama shall name and cause Cempra and Scripps to be named as “additional insureds” on any commercial general liability and product liability insurance policies maintained by Toyama and Sublicensees applicable to the Licensed Products or this Agreement. The insurance coverage amounts specified herein or the maintenance of such insurance policies shall not in any way limit Toyama’s indemnity or other liability under this Agreement. If Toyama desires to self-insure all or part of the limits described above, such self-insurance program must be approved in advance by Cempra such approval not to be unreasonably withheld. Such coverage shall be maintained by Toyama for not less than [*] years following the last date on which Toyama or any Sublicensee has exercised any rights under this Agreement. Upon written request from Cempra, Toyama shall promptly provide written evidence (e.g., certificates) of such insurance in a form that is reasonably satisfactory to Cempra.

(b) Waiver of Subrogation . Toyama, on behalf of itself and its insurance carriers, waives any and all claims and rights of recovery against Cempra, Scripps and any other party indemnified by Toyama under this Agreement, including without limitation all rights of subrogation, with respect to either party’s performance under this Agreement or for any loss of or damage to Toyama or its property or the property of others under its control. Toyama’s commercial general liability insurance policy shall also include a waiver of subrogation consistent with this Section 14.5 in favor of Cempra, Scripps, and all other parties to be indemnified under this Agreement. Toyama shall be responsible for obtaining such waiver of subrogation from its insurance carriers. Toyama’s insurance policies shall be primary and not contributory to any insurance carried by Sublicensees, Cempra, or Scripps. At the time when Toyama sends any annual or quarterly progress report to Cempra under this Agreement and upon Cempra’s additional written request, Toyama shall deliver to Cempra copies of insurance certificates and endorsements that comply with the requirements of this Section 14.5.

14.6 Cancellation/Changes in Coverage . Toyama shall provide Cempra with written notice at least [*] Calendar Days prior to the cancellation, non-renewal or material change in any insurance required by this Section 14.6. If Toyama does not obtain replacement insurance providing comparable coverage within [*] Calendar Days of notice from Cempra demanding that Toyama obtain such replacement insurance, Cempra shall have the right to immediately terminate this Agreement by providing written notice to Toyama and without providing any additional cure period.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

15.

D ISPUTE R ESOLUTION .

In the event that a dispute arises between the Parties in the course of this Agreement, the dispute will be referred to the attention of the Chief Executive Officer of Cempra and the Executive Vice President of Toyama (the “ Executive Officers ”). The Executive Officers will meet as soon as reasonably possible thereafter and in good faith attempt to resolve such dispute. If, within [*] Calendar Days after referral of such dispute to the Executive Officers by either Party, the Executive Officers are unable to resolve such dispute, either Party will have the right to have the dispute resolved by binding arbitration, initiated by either Party on [*] Business Days notice to the other Party following the expiration of the [*] Calendar Day period referenced above (the “ Initiation Notice ”), under the Rules of Arbitration of the International Chamber of Commerce (“ ICC ”) then pertaining, except where those rules conflict with this provision, in which case this provision controls, applying the laws of the State of New York, without regards to its conflicts of law provisions, before three (3) independent, neutral arbitrators experienced in the pharmaceutical industry and licensing transactions in such industry. Cempra and Toyama shall each be entitled to select one (1) such arbitrator, with the two (2) such arbitrators so selected selecting the third (3 ^rd ) such arbitrator. In the event either Party fails to select its arbitrator in accordance with the forgoing within [*] Business Days of the Initiation Notice, the arbitrator selected by the other Party within such [*] Business Day period shall be entitled to select such arbitrator, and, to the extent all three such arbitrators are not selected within [*] Calendar Days of the Initiation Notice, such arbitrators shall be appointed by the International Court of Arbitration of the ICC. Prior to the commencement of hearings, each of the arbitrators appointed must provide an oath of undertaking of impartiality. The decision of the arbitrators will be final and binding on the Parties, and judgment upon the award or determination rendered by the arbitrators may be entered and enforced in any court of competent jurisdiction. The arbitration shall be conducted in English, and the place of arbitration shall be New York, New York. Each Party shall bear its own expenses and an equal share of the reasonable, documented expenses of the arbitration panel and any fees required by ICC to submit such matter to arbitration, unless the panel determines that any such fees or expenses are to be paid by the non-prevailing Party, and the Parties hereby agree that the panel shall be entitled and empowered to make such a determination. Notwithstanding anything to the contrary in this Agreement, either Party will have the right to seek injunctive or equitable relief in any court of competent jurisdiction as may be available to such Party under the laws and rules applicable in such jurisdiction with respect to any matters arising out of this Agreement.

16.

M ISCELLANEOUS .

16.1 Force Majeure . Neither Party shall be held liable or responsible to the other Party, nor be deemed to have defaulted under or breached this Agreement, for failure or delay in fulfilling or performing any term of this Agreement, to the extent, and for so long as, such failure or delay is caused by or results from causes beyond the reasonable control of the affected Party, including fire, floods, earthquake, tsunami, embargoes, power shortage or failure, acts of war (whether war be declared or not), insurrections, riots, terrorism, civil commotions, strikes, lockouts or other labor disturbances, acts of God or any acts, omissions or delays in acting by

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

any governmental authority or the other Party, provided that, notwithstanding the foregoing, (i) the payment of amounts due under this Agreement may not be delayed due to such a force majeure affecting the Party required to make such payment and (ii) in the event Toyama’s (or any of Sublicensees’) failure to perform any material obligation under this Agreement is delayed by a period in excess of [*] consecutive months or more for reasons subject to this Section 16.1, Cempra shall be entitled to terminate this Agreement on [*] Calendar Days written notice to Toyama.

16.2 Assignment . Neither Party may assign this Agreement, or any of its rights or obligations hereunder without the other Party’s prior written consent, which consent shall not be unreasonably withheld, provided that, notwithstanding the foregoing, Cempra shall be entitled, without Toyama’s prior written consent, to assign or transfer this Agreement: (i) in connection with the transfer or sale of all or substantially all of Cempra’s or Cempra Parent’s assets or business (or that portion thereof related to the subject matter of this Agreement), (ii) in the event of Cempra’s or Cempra Parent’s merger, consolidation, reorganization, change of control or similar transaction, or (iii) to an Affiliate of Cempra. Toyama shall be entitled, without Cempra’s prior written consent, to assign or transfer this Agreement: (i) in connection with the transfer or sale of all or substantially all of Toyama’s or Toyama Parent’ assets or business (or that portion thereof related to the subject matter of this Agreement), (ii) in the event of Toyama’s or Toyama Parent’ merger, consolidation, reorganization, change of control or similar transaction, or (iii) to an Affiliate of Toyama. Any permitted assignee of either Party shall, as a condition to such assignment, assume all obligations of its assignor arising under this Agreement following such assignment. Any purported assignment by a Party of this Agreement, or any of such Party’s rights or obligations hereunder, in violation of this Section 16.2 shall be void.

16.3 Severability . If one or more provisions of this Agreement is held to be invalid, illegal or unenforceable, the Parties shall substitute, by mutual consent, valid provisions for such invalid, illegal or unenforceable provisions which valid provisions are, in their economic effect, sufficiently similar to the invalid provisions that it can be reasonably assumed that the Parties would have entered into this Agreement with such provisions. In the event that such provisions cannot be agreed upon, the invalidity, illegality or unenforceability of one or more provisions of the Agreement shall not affect the validity of this Agreement as a whole.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

16.4 Notices . Any notice, consent or report required or permitted to be given or made under this Agreement by one Party to the other Party shall be in English and in writing, delivered personally or by express courier providing evidence of receipt, postage prepaid (where applicable), at the following address for a Party (or such other address for a Party as may be specified by like notice):


To Toyama :		To Cempra :

Toyama Chemical Co., Ltd.		Cempra Pharmaceuticals, Inc.
2-5, Nishishinjuku 3-chome		Building Four Quadrangle
Shinjuku-ku, Tokyo 160-0023		6340 Quadrangle Drive, Suite 100
Japan		Chapel Hill, North Carolina 27517
Attn: [*]		USA
Business Development Department		Attn: Prabhavathi Fernandes, Ph.D.,
		Chief Executive Officer

		With a copy (which shall not
		constitute notice) to:

		Wyrick Robbins Yates & Ponton LLP
		4101 Lake Boone Trail, Suite 300
		Raleigh, North Carolina 27607
		Attn: Jason S. Wood

All such notices, consents or reports shall be effective upon receipt.

16.5 Applicable Law . This Agreement shall be governed by and interpreted in accordance with the laws of the State of New York without giving effect to any conflict of laws provisions, except matters of intellectual property that will be determined in accordance with the intellectual property laws relevant to the intellectual property in question. The United Nations Convention on Contracts for the International Sale of Goods is expressly disclaimed by the Parties with respect to this Agreement and the transactions contemplated hereby.

16.6 Entire Agreement . This Agreement (including the Schedules or Exhibits attached hereto, the Supply Agreement (and any quality agreement executed thereunder), and the Safety Agreement) and that certain Material Transfer Agreement between the Parties, dated March 18, 2013, which shall expire on the Effective Date pursuant to Section 6(a) thereof (the “ MTA ”), contains the entire agreement by the Parties with respect to the subject matter hereof, and supersedes any prior or contemporaneous express or implied agreements, understandings and representations, either oral or written, which may have related to the subject matter hereof in any way, including the Confidential Disclosure Agreement, dated September 30, 2011, between Cempra and Toyama (the “ Toyama CDA ”), provided that, notwithstanding anything to the contrary, (i) any of “Cempra’s Confidential Information” (as defined in the Toyama CDA), and all “Confidential Information” (as defined in the Fuji CDA) of Cempra, shall be deemed Cempra’s Confidential Information under this Agreement and, therefore, be subject to the applicable protections provided therefor herein (except to the extent otherwise provided in Section 2.1(b)).

16.7 Interpretation . The captions to the several Articles and Sections of this Agreement are not a part of this Agreement, but are included for convenience of reference and shall not affect its meaning or interpretation. In this Agreement: (a) the word “including” shall

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

be deemed to be followed by the phrase “without limitation,” “including but not limited to,” or like expression; (b) the singular shall include the plural and vice versa ; and (c) masculine, feminine and neuter pronouns and expressions shall be interchangeable.

16.8 Independent Contractors . It is expressly agreed that Toyama and Cempra shall be independent contractors and that the relationship between the two Parties shall not constitute a partnership, joint venture or agency or other fiduciary relationship. Neither Toyama nor Cempra shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party to do so.

16.9 Waiver; Amendment . Except as otherwise expressly provided in this Agreement, any term of this Agreement may be waived only by a written instrument executed by a duly authorized representative of the Party waiving compliance. The delay or failure of any Party at any time to require performance of any provision of this Agreement shall in no manner affect such Party’s rights at a later time to enforce the same. This Agreement may be amended, and any term of this Agreement may be modified, only by a written instrument executed by a duly authorized representative of each Party.

16.10 Binding Effect . This Agreement shall be binding upon and inure to the benefit of the Parties and their respective legal representatives, successors and permitted assigns.

16.11 Compliance with the Applicable Law . Each Party shall comply with Applicable Law in the course of performing its obligations or exercising its rights pursuant to this Agreement. No Party (nor any of their Affiliates) shall be required under this Agreement to take any action or to omit to take any action otherwise required to be taken or omitted by it under this Agreement if the taking or omitting of such action, as the case may be, would violate any judgment, having the enforceable power of law, to which it may be subject at the time such act or omission is required under this Agreement. Notwithstanding anything to the contrary in this Agreement, neither Party nor any of its Affiliates shall be required to take any action that is prohibited by Applicable Law.

16.12 Counterparts . This Agreement may be executed in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. Facsimile and other electronically scanned signatures shall have the same effect as their originals.

16.13 No Strict Construction . This Agreement has been prepared jointly and shall not be strictly construed against either Party.

16.14 Export Control . This Agreement is subject to all of the United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities and technology. It is understood that Cempra is subject to United States laws and regulations controlling the export of technical data, computer software, laboratory prototypes and other commodities (including the Arms Export Control Act, as amended and the Export Administration Act of 1979), and that its obligations under this Agreement are contingent on compliance with applicable United States export laws and regulations. The transfer of certain

technical data and commodities may require a license from the cognizant agency of the United States Government. Cempra makes no promise or representation that a license is not required nor that, if required, it will be issued.

16.15 Responsibility for Affiliates . The Parties recognize that each Party may perform some or all of its obligations, or exercise its rights, under this Agreement through such Party’s Affiliates, provided, however , that each Party shall remain responsible for the payment and performance by its Affiliates and shall cause its Affiliates to comply with the provisions of this Agreement. Any breach of any provision of this Agreement by any Affiliate of a Party shall be deemed a breach hereof by such Party, with such Party being liable hereunder with respect to such breach as if such Party itself had breached this Agreement.

16.16 Bankruptcy . All licenses granted under this Agreement are deemed to be, for purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right to “intellectual property” as defined in Section 101 of such Code. The Parties agree that the other Party may fully exercise all of its rights and elections under the U.S. Bankruptcy Code and any foreign equivalent thereto in any country having jurisdiction over a Party or its assets. The Parties further agree that, in the event a Party elects to retain its rights as a licensee under such Code, such Party shall be entitled to complete access to any technology licensed to it hereunder and all embodiments of such technology. Such embodiments of the technology shall be delivered to such Party not later than:

(a) the commencement of bankruptcy proceedings against the other Party, upon written request, unless such other Party elects to perform its obligations under this Agreement, or

(b) if not previously delivered as set forth above, upon the rejection of this Agreement by or on behalf of the other Party, upon electing Party’s written request.

16.17 Communication in English . All notices and other correspondence between the Parties shall be in English and English translations of all documents originally prepared, provided, or obtained in Japanese shall be provided to Cempra simultaneously with the Japanese originals thereof at Toyama’s expense.

[S IGNATURE PAGE TO FOLLOW .]

I N W ITNESS W HEREOF , the Parties have executed this Agreement by their proper officers as of the Effective Date.


C EMPRA P HARMACEUTICALS , I NC .		T OYAMA C HEMICAL C O ., L TD .

B Y :	Prabhavathi Fernandes	B Y :	Masuji Sugata



N AME :	Prabhavathi Fernandes	N AME :	Masuji Sugata



T ITLE :	President & CEO	T ITLE :	President

EXHIBIT A

SAFETY AGREEMENT

FINAL EXECUTION COPY

SAFETY DATA EXCHANGE AGREEMENT

T HIS S AFETY D ATA E XCHANGE A GREEMENT (the “ SDEA ”) is entered into as of May 8, 2013 (the “ Effective Date ”) by and between C EMPRA P HARMACEUTICALS , I NC . , a Delaware corporation having an address at Building Four Quadrangle, 6340 Quadrangle Drive, Suite 100, Chapel Hill, North Carolina 27517 USA (“ Cempra ”), and T OYAMA C HEMICAL C O ., L TD . , a Japanese corporation having an address at 2-5 Nishishinjuku 3-chome, Shinjuku-ku, Tokyo 160-0023, Japan (“ Toyama ”). Cempra and Toyama may be referred to herein individually as a “ Party ” or collectively, as the “ Parties .”

WHEREAS, Cempra and Toyama entered into that certain Exclusive License and Development Agreement (the “ License Agreement ”) and Supply Agreement (the “ Supply Agreement ”) relating to Licensed Products in the Field in the Territory, both of even date to this SDEA;

WHEREAS, the Parties desire to set forth the pharmacovigilance responsibilities of each of the Parties with respect to Licensed Products;

WHEREAS, this SDEA sets forth the terms under which Cempra and Toyama shall exchange safety data and collaborate on related safety surveillance activities concerning Licensed Products before and after Regulatory Approval thereof; and

WHEREAS, this SDEA applies to pharmacovigilance for Licensed Products as well as Adverse Event data relating to Licensed Products obtained from any source, including but not limited to information derived from any clinical, post-marketing surveillance or epidemiological investigations, commercial marketing experience, reports in the scientific literature and unpublished scientific papers, as well as any reports from Regulatory Authorities, whether inside or outside the Territory.

NOW THEREFORE, in accordance with each Party’s commercially reasonable standard operating procedures (“ SOPs ”) and in consideration of the mutual promises and covenants set forth below, the Parties agree as follows with respect to Licensed Products:

1 DEFINITIONS

All definitions relating to this SDEA and related terminologies are consistent with ICH guidelines; CFR Title 21 (including but not limited to 21CFR312.32 and 21CFR314.80); Directive 2010/84/EU, Regulation EU No. 1235/2010 and Guidelines on good pharmacovigilance practices (GVP); and any relevant or comparable regulations promulgated by the Japanese MHLW or other competent agencies of the Japanese government, all as amended. All capitalized terms that are used in this SDEA and not otherwise defined herein will have the meanings set forth in the License Agreement.

1.1. “ Adverse Event ,” “ Adverse Experience ,” or “ AE ” means any untoward medical occurrence in a patient or clinical investigation subject administered a pharmaceutical product which does not necessarily have a causal relationship with this treatment. An AE

can therefore be any unfavorable and unintended sign (including an abnormal laboratory finding, for example), symptom, or disease temporally associated with the use of a medicinal product, whether or not considered related to the medicinal product.

1.2. “ CIOMS ” means Council for International Organizations of Medical Sciences.

1.3. “ Company Core Data Sheet ” is an unofficial working document prepared by marketing authorization holders typically containing material relating to safety, indications, dosing, pharmacology, and other information concerning the product.

1.4. “ Serious Adverse Event ” or “ SAE ” means any untoward medical occurrence (Adverse Event (experience) or reaction) that at any dose: results in death, is life-threatening, requires inpatient hospitalization or prolongation of existing hospitalization, persistent, results in persistent or significant disability/incapacity, or is a congenital anomaly/birth defect. (NOTE: The term “life-threatening” in the definition of “serious” refers to an event in which the patient or subject was at risk of death at the time of the event; it does not refer to an event which hypothetically might have caused death if it were more severe.) A Serious Adverse Event is also any event which may jeopardize the patient or subject or may require intervention to prevent one of the outcomes listed above. Important medical events that may not be immediately life-threatening or result in death or hospitalization but, based on appropriate medical and scientific judgment, may jeopardize the patient/subject or may require intervention (e.g., medical, surgical) to prevent one of the other outcomes listed in the definition above. Examples of such events include, but are not limited to, intensive treatment in an emergency room or at home for allergic bronchospasm; blood dyscrasias or convulsions that do not result in hospitalization.

1.5. “ Unexpected ” means an Adverse Event, the nature and severity which is not consistent with the applicable product information (e.g., investigational drug brochure for an unapproved investigational product or package insert/summary of product characteristics for an approved product).

1.6. “ Date of First Receipt ” is the date that a Party’s personnel first becomes aware of an AE reported with the use of the Licensed Product and determines that it meets the minimum criteria for reporting to a health authority.

1.7. “ Expedited AE Report ” is a report of an SAE (or other identified event) that meets specified criteria for submission to Regulatory Authorities in an expedited time frame, generally within 7 or 15 Calendar Days.

1.8. “ Periodic Adverse Drug Experience Report ” means a periodic report for marketed Licensed Products in the United States that includes adverse experience information that was not required to be reported on an expedited basis. Such reports are required quarterly for the first three (3) years after NDA approval, then annually thereafter.

1.9. “ Periodic Safety Report ” means a periodic report for marketed Licensed Products in Japan. Such reports are required semiannually for the first two (2) years after Regulatory Approval in Japan, then annually thereafter.

FINAL EXECUTION COPY

1.10. “ Minimum criteria for an AE Report ” means that the following four elements must be known:

1.11.

1.11.1.

Knowledge of a patient/subject or specific patient/subject identifiers (e.g., initials, patient number, date of birth or age, or gender);

1.11.2.

A suspect medicinal product;

1.11.3.

An identifiable reporting source (e.g., doctor, dentist, pharmacist, nurse, or consumer; their name and address if available); and

1.11.4.

An AE or suspected adverse reaction.

2 LANGUAGE

All reports and documentation must be provided in English. AE reports and relevant information from source documents should be translated into English as necessary.

3 SAFETY DATA EXCHANGE

Investigational Studies

3.1

Cempra agrees to timely provide Toyama with all SAEs from clinical trials. The reports concerning SAEs that were unexpected and associated with the use of the Licensed Product will be sent as promptly as possible, but in no event later than [*] Calendar Days of notification of the SAE to Cempra. In addition, such reports of fatal or life-threatening SAEs must be provided to Toyama as promptly as possible, but in no event later than [*] Business Days of notification of the SAE to Cempra.

3.2

Toyama agrees to provide Cempra with all SAEs from clinical trials. The reports will be sent as promptly as possible, but in no event later than [*] Calendar Days of notification of the SAE to Toyama. In addition, reports of fatal or life-threatening SAEs must be provided to Cempra as promptly as possible, but in no event later than [*] Business Days of notification of the SAE to Toyama.

Marketed Product

3.3

Cempra agrees to provide, in a timely fashion, Toyama all SAE reports, including lack of efficacy and pregnancy, received from any source other than Toyama. The reports will be sent as promptly as possible, but in no event later than [*] Calendar Days of notification of the SAE to Cempra.

3.4

Toyama agrees to provide Cempra, within [*] Calendar Days of receipt, all SAE report, including lack of efficacy and pregnancy, received from any source in the Territory.

3.5

Both Parties agree to provide each other with all other cases received not included above in Section 3.3 and 3.4 as CIOMS II line listings at a frequency no less than [*] times per year. Cases from clinical trials that are not serious and not associated with the Licensed Product need not to be included.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

FINAL EXECUTION COPY

General

3.6

Both Parties agree to provide adequate and reasonable responses to all questions affecting case evaluation or regulatory reporting with regard to exchanged cases.

3.7

A CIOMS I form or MedWatch 3500A is accepted by both Parties as the method of single case information exchange. By mutual agreement, the Parties may agree to utilize other forms of information exchange, such electronic formats.

4 SAFETY DATABASE

Each Party will maintain a commercially reasonable form of safety database for the Licensed Products consistent with industry standards and Applicable Law, that allows such Party to manage safety data collected and fulfill their regulatory requirements in their respective territories (i.e. in Japan with respect to Toyama, and outside of Japan with respect to Cempra). It is agreed that Cempra shall maintain the global safety database for any Licensed Products, which may be searched to help provide answers to safety queries, for signal evaluation, and for the preparation of Periodic Safety Update Reports (“PSURs”), provided that Cempra shall be entitled to satisfy its obligations under this Section 4 by having an Affiliate of Cempra, or a licensee or sublicensee of Cempra (or any Affiliate thereof) with respect to any Licensed Product(s), maintain such a database. The Parties agree that Toyama will use, and shall have reasonable rights and access to use, the global safety database for the preparation of Periodic Safety Reports in the Territory. Notwithstanding anything to the contrary, Cempra shall be entitled to satisfy its obligations under this Section 4 by having an Affiliate of Cempra, or a licensee or sublicensee of Cempra (or any Affiliate thereof) with respect to any Licensed Product(s), maintain one or more databases consistent with the foregoing.

5 FOLLOW-UP ON INDIVIDUAL CASES

Toyama shall be responsible, within the Territory, and Cempra shall be responsible, outside the Territory, to obtain (or, in the case of Cempra, for using commercially reasonable efforts to cause its Affiliates, or licensees or sublicensees of Cempra or its Affiliates, to obtain) follow-up information from the reporter as needed for regulatory purposes or medical understanding of the case and will send any such follow-up information so obtained to the other Party as provided for in Section 3.0. In general, cases that are not serious and are labeled will not be subject to follow-up.

6 PRODUCT LABELING INFORMATION

Cempra will provide Toyama with the Company Core Data Sheet used by Cempra for the marketed Licensed Products within its organization (or Cempra will use commercially reasonable efforts to provide Toyama with that of Cempra’s or its Affiliates’ licensees or sublicensees) and Toyama will provide Cempra with the Japanese labeling for Licensed Products each time there is a significant safety update. Each Party will notify the other Party immediately of any regulatory actions or pending actions of which it is aware within its territory (i.e. Toyama for actions within the Territory, Cempra for actions outside the Territory) that might reasonably result in a change in labeling or market restriction for Licensed Products.

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7 PERIODIC REPORTS

Cempra agrees to provide Toyama a copy of the IND Annual Report and/or Periodic Adverse Drug Experience Report at the time of submission to the FDA. Likewise, Toyama agrees to provide Cempra a copy of the Periodic Safety Report from Toyama’s clinical studies and/or periodic post-marketing safety report in the Territory at the time of submission to Regulatory Authorities.

8 SIGNAL DETECTION

The Parties shall keep each other informed of all material risks (e.g., based on nonclinical, clinical, quality, epidemiological studies or post marketing safety data) which become known to each Party that would be reasonably likely to have an adverse consequence on the benefit-risk assessment regarding the Licensed Product labeling, or may require immediate safety measures. This would include directives from Regulatory Authorities regarding changes in labeling that would restrict Licensed Product use.

9 PREGNANCY

Each Party shall report by fax or other mutually-agreed written electronic means to the other Party all known occurrences of the use of the Licensed Products during pregnancy within seven (7) Calendar Days of the reporting Party’s receipt of such a report. The outcome of the pregnancy will also be sought and reported in the same manner.

10 REGULATORY AUTHORITY INQUIRIES

The Parties shall notify each other no later than [*] Business Days of receiving notification of any request, action or notice from a Regulatory Authority concerning the safety of the Licensed Product. Notwithstanding the foregoing, if Toyama receives a large document in Japanese with aforementioned purpose whose length exceeds the equivalent of twenty (20) standard letter-sized pages, Toyama will provide Cempra with English translated summary or abstracts for Cempra’s initial review within [*] Business Days of receiving such document, and Toyama shall provide the complete English translated copy to Cempra within reasonable timeframe not to exceed [*] Calendar Days or such shorter period that may be required to enable Cempra, any Affiliate thereof, or any licensee or sublicensee of any of the foregoing to comply with Applicable Law. The recipient of the inquiry shall be responsible for preparing a response and for submitting the response to the Regulatory Authority. Upon request, both Parties shall assist each other, to an extent reasonably possible, with the preparation of the response. Each Party shall provide the other Party with a copy of the response at the time it is submitted.

11 REGULATORY AUTHORITY INSPECTIONS

If either Party undergoes a regulatory inspection that directly relates to the Licensed Product, or if either Party receives notice that it is scheduled to undergo such an inspection, the Parties shall immediately notify each other. To the extent reasonably practical, the Parties shall permit each other or its designee to participate in all regulatory inspections involving the Licensed Products and in the development of any responses to, or corrective actions resulting from, inspection findings.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

12 ANNUAL UPDATE

This Agreement will be reviewed annually and updated as necessary.

13 AUDITING

Cempra (or any designee or representative thereof, including but not limited to Cempra’s or its Affiliates’ licensees or sublicensees) shall be entitled to perform a pharmacovigilance audit of Toyama’s pharmacovigilance functions with respect to Licensed Product upon reasonable advance written notice. Toyama shall be entitled to perform a pharmacovigilance audit of Cempra’s (or its Affiliates’ pharmacovigilance functions with respect to Licensed Product upon reasonable advance written notice (and Cempra shall use commercially reasonable efforts to provide Toyama the right to conduct such audits of Cempra’s and its Affiliates’ licensees or sublicensees with respect to Licensed Products). Such audit shall take place during normal business hours and shall be conducted in a reasonable manner. The results of the audit shall be made available to the other Party within a reasonable time of the audit being completed.

14 SAFETY RISK MANAGEMENT PLANNING

To the extent a Safety Risk Management Plan (“SRMP”) is required under Applicable Law in the United States with respect to the Licensed Product, if at all, Cempra (i) shall be responsible for preparing and maintaining, or using commercially reasonable efforts to ensure that its Affiliates, or Cempra’s or its Affiliates’ licensee or sublicensee, prepare and maintain, an SRMP for the Licensed Products in accordance with Applicable Law in the United States, and (ii) shall keep (or use commercially reasonable efforts to ensure that its Affiliates, or Cempra’s or its Affiliates’ licensee or sublicensees, keep) such SRMP reasonably continuously updated to reflect new and developing information and changes in Applicable Law in the United States relevant to the Licensed Product. Cempra shall use commercially reasonable efforts to notify Toyama in advance of all proposed amendments to any SRMP required under Applicable Law in the United States with respect to the Licensed Product. A copy of any final SRMP for the Licensed Product to be submitted by Cempra or any Affiliate thereof in the United States will be sent to Toyama before such final SRMP is filed to the Regulatory Authority (and Cempra shall use commercially reasonable efforts to do the same with respect to any such final SRMP to be submitted by any of Cempra’s or its Affiliates’ licensees or sublicensees with respect to Licensed Products). For purposes of clarification, if Applicable Law in the United States does not require an SRMP with respect to Licensed Product, Cempra shall not have any obligations under this Section 14. In addition, if Toyama prepares the risk management plan for the Territory, Toyama will provide Cempra with such risk management plan before filing thereof to the Regulatory Authority.

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15 SAFETY CRISES MANAGEMENT

In case of a safety crisis, e.g. where safety issues have a potential impact on the indication(s) or on the conduct of clinical trial(s), or where there is media involvement, with respect to the Licensed Product, upper drug safety management of the Party where the crisis originates will contact their appropriate officer as soon as possible.

16 TERM AND TERMINATION

This SDEA and the respective responsibilities of the Parties shall continue in effect until the latest of (a) the expiration or earlier termination of the License Agreement, (b) [*], or (c) with respect to all ongoing clinical trials of Licensed Product in the Field, until such clinical trials are completed.

The expiration or termination of this SDEA shall be without prejudice to any rights or obligations of the Parties that may have accrued prior to the termination and, except as otherwise expressly provided herein, shall not limit any rights or remedies that may be available by law or otherwise. Upon the termination or expiration of this SDEA, each Party shall, at its expense, promptly return to the other Party all of such other Party’s Confidential Information, in the possession of, or under the control of, such Party.

17 ENTIRE AGREEMENT; AMENDMENT

This SDEA, along with the License Agreement, and the Supply Agreement (and the Quality Agreement to be executed pursuant thereto), contains the entire agreement and understanding between the Parties and shall supersede all prior oral or written agreements and understandings between the Parties with respect to the subject matter contained herein. This SDEA shall only apply and effective with respect to Licensed Products, or the use, administration, development, sale, marketing, or commercialization thereof, and not any other pharmaceutical products or such activities with respect thereto. This SDEA may be amended solely by mutual written agreement of the Parties. In the case of (i) a change in any Applicable Law necessitating a change to this SDEA, as reasonably determined by either Party, or (ii) the involvement of licensees or sublicensees of Cempra with respect to any Licensed Product outside the Territory (or outside the Field) reasonably requires one or more amendments hereto to satisfy the general purposes hereof, as determined by Cempra in its reasonable discretion, the Parties shall use good faith efforts to renegotiate or amend this SDEA as soon as reasonably possible to enable the relevant Party(ies) to comply with Applicable Law or account for such licensees or sublicensees involvement with the development or commercialization of Licensed Products outside the Territory or outside the Field. Notwithstanding anything to the contrary in this SDEA, in the event of an explicit conflict between this SDEA and the License Agreement, the License Agreement shall take precedence. The provisions of this SDEA shall not be construed to restrict either Party’s (or any of their Affiliates’, licensees’, or sublicensees’) ability to take action that it deems to be required of it under any Applicable Laws.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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18 ASSIGNMENT

Neither Party may assign this SDEA, or any of its rights or obligations hereunder without the other Party’s prior written consent, which consent shall not be unreasonably withheld, provided that, notwithstanding the foregoing, (a) in the event the License Agreement is assigned by either Party in accordance with the terms of the License Agreement, such Party shall be permitted to assign this SDEA without such consent to the same Party to which the License Agreement is assigned without the prior written consent of the other Party, (b) each Party shall be entitled (without the prior written consent of the other Party) to assign this SDEA (or any of its rights or obligations under this SDEA) to its Affiliate (as long as such entity remains an Affiliate of the relevant Party), provided that the assigning Party shall be responsible for the performance of and compliance with this SDEA by such Affiliate, and (c) Cempra shall not be entitled to assign this SDEA, without Toyama’s prior written consent, to any party to whom Cempra licenses any rights to any Licensed Product in the Field in any jurisdiction outside the Territory. If a Party delegates all or any of its obligations under this SDEA to any Third Party (without assignment of this SDEA in its entirety), the Party delegating shall be fully responsible to the other Party for the proper performance of those obligations and for any act or omission made by the Third Party or its staff in relation thereto.

19 DISPUTE RESOLUTION; GOVERNING LAW; JURISDICTION

In the event that a dispute arises between the Parties in the course of this SDEA, the dispute will be referred to the attention of the Chief Executive Officer of Cempra and the Senior Vice President of Toyama (the “ Executive Officers ”). The Executive Officers will meet as soon as reasonably possible thereafter and in good faith attempt to resolve such dispute. If, within [*] Calendar Days after referral of such dispute to the Executive Officers by either Party, the Executive Officers are unable to resolve such dispute, either Party will have the right to have the dispute resolved by binding arbitration, initiated by either Party on [*] Business Days notice to the other Party following the expiration of the [*] Calendar Day period referenced above (the “ Initiation Notice ”), under the Rules of Arbitration of the International Chamber of Commerce (“ ICC ”) then pertaining, except where those rules conflict with this provision, in which case this provision controls, applying the laws of the State of New York, without regards to its conflicts of law provisions, before three (3) independent, neutral arbitrators experienced in the pharmaceutical industry and licensing transactions in such industry. Cempra and Toyama shall each be entitled to select one (1) such arbitrator, with the two (2) such arbitrators so selected selecting the third (3 ^rd ) such arbitrator. In the event either Party fails to select its arbitrator in accordance with the forgoing within [*] Business Days of the Initiation Notice, the arbitrator selected by the other Party within such [*] Business Day period shall be entitled to select such arbitrator, and, to the extent all three such arbitrators are not selected within [*] Calendar Days of the Initiation Notice, such arbitrators shall be appointed by the International Court of Arbitration of the ICC. Prior to the commencement of hearings, each of the arbitrators appointed must provide an oath of undertaking of impartiality. The decision of the arbitrators will be final and binding on the Parties, and judgment upon the award or determination rendered by the arbitrators may be entered and enforced in any court of competent jurisdiction. The arbitration shall be conducted in English, and the place of arbitration shall be New York, New York. Each Party shall bear its own expenses and an equal share of the reasonable, documented expenses of the

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

arbitration panel and any fees required by ICC to submit such matter to arbitration, unless the panel determines that any such fees or expenses are to be paid by the non-prevailing Party, and the Parties hereby agree that the panel shall be entitled and empowered to make such a determination. Notwithstanding anything to the contrary in this SDEA, either Party will have the right to seek injunctive or equitable relief in any court of competent jurisdiction as may be available to such Party under the laws and rules applicable in such jurisdiction with respect to any matters arising out of this SDEA.

This SDEA shall be governed by and interpreted in accordance with the laws of the State of New York without giving effect to any conflict of laws’ provisions, except matters of intellectual property that will be determined in accordance with the intellectual property laws relevant to the intellectual property in question. The United Nations Convention on Contracts for the International Sale of Goods is expressly disclaimed by the Parties with respect to this SDEA and the transactions contemplated hereby.

20 THIRD PARTIES

Except as otherwise provided herein, nothing in this SDEA shall confer any benefits or rights on any person or entity other than the Parties to this SDEA.

21 LIMITED LIABILITY

IN NO EVENT SHALL EITHER PARTY OR ITS AFFILIATES BE LIABLE TO THE OTHER PARTY FOR ANY INDIRECT, INCIDENTAL, SPECIAL, PUNITIVE, EXEMPLARY OR CONSEQUENTIAL DAMAGES, WHETHER BASED UPON A CLAIM OR ACTION OF CONTRACT, WARRANTY, NEGLIGENCE, STRICT LIABILITY OR OTHER TORT, OR OTHERWISE, ARISING OUT OF THIS SDEA, PROVIDED THAT, NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE FOREGOING SHALL NOT BE CONSTRUED TO LIMIT THE INDEMNITY OBLIGATIONS SET FORTH IN THE LICENSE AGREEMENT, ANY REMEDIES AVAILABLE FOR BREACH OF ANY OBLIGATIONS OF CONFIDENTIALITY, OR THE AVAILABILITY OF ANY DAMAGES OR REMEDY(IES) FOR MATTERS ARISING OUT OF THE LICENSE AGREEMENT OR THE SUPPLY AGREEMENT.

22 CONFIDENTIALITY

The provisions of this SDEA, and any information exchanged or provided hereunder, shall be subject to the confidentiality provisions set out in Section 10 of the License Agreement.

23 COUNTERPARTS

This SDEA may be executed in two or more counterparts, each of which shall be deemed an original but all of which together shall constitute one and the same instrument.

[Signature page to follow.]

I N W ITNESS W HEREOF , the Parties have executed this SDEA by their proper officers as of the Effective Date.


CEMPRA PHARMACEUTICALS, INC.		TOYAMA CHEMICAL CO. LTD.

BY:	/s/ Prabhavathi Fernandes	BY:	/s/ Yoshimitsu Ando



NAME:	Prabhavathi Fernandes	NAME:	Yoshimitsu Ando



TITLE:	President & CEO	TITLE:	Head of Development Division

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Appendix A - CONTACT DETAILS

The following points of contact are to be used for all reports of suspected Adverse Events or Adverse Drug Reactions:

CEMPRA:

Dr. Gary Horwith

Executive Vice President

Cempra Pharmaceuticals, Inc.

6340 Quadrangle Drive, Suite 100

Chapel Hill, NC 27517 USA

Email: ghorwith@cempra.com

Tel: 919. 313. 6601

Fax: 919. 313. 6620

and

Dr. David Oldach

Senior Vice President Clinical

Cempra Pharmaceuticals, Inc.

6340 Quadrangle Drive, Suite 100

Chapel Hill, NC 27517 USA

Email: doldach@cempra

Tel: 919. 313. 6601

Fax: 919. 313. 6620

TOYAMA:

Clinical Safety Group, Pharmacovigilance & Surveillance Department

Toyama Chemical Co., Ltd.

2-5, Nishishinjuku 3-chome, Shinjuku-ku Tokyo 160-0023 Japan

TEL: +81 3 5381 3809, FAX: +81 3 3345 3587

E-mail: adr_clinical@toyama-chemical.co.jp

The following points of contact are to be used for Safety Management to this SDEA:

CEMPRA:

Dr. Gary Horwith

Executive Vice President

Cempra Pharmaceuticals, Inc.

6340 Quadrangle Drive, Suite 100

Chapel Hill, NC 27517 USA

Email: ghorwith@cempra.com

Tel: 919. 313. 6601

Fax: 919. 313. 6620

and

Dr. David Oldach

Senior Vice President Clinical

Cempra Pharmaceuticals, Inc.

6340 Quadrangle Drive, Suite 100

Chapel Hill, NC 27517 USA

Email: doldach@cempra

Tel: 919. 313. 6601

Fax: 919. 313. 6620

TOYAMA:

Clinical Safety Group, Pharmacovigilance & Surveillance Department

Toyama Chemical Co., Ltd.

2-5, Nishishinjuku 3-chome, Shinjuku-ku Tokyo 160-0023 Japan

TEL: +81 3 5381 3809, FAX: +81 3 3345 3587

E-mail: adr_clinical@toyama-chemical.co.jp

The following points of contact are to be used for all other issues pertaining to this SDEA:

CEMPRA:

Dr. Gary Horwith

Executive Vice President

Cempra Pharmaceuticals, Inc.

6340 Quadrangle Drive, Suite 100

Chapel Hill, NC 27517 USA

Email: ghorwith@cempra.com

Tel: 919. 313. 6601

Fax: 919. 313. 6620

and

Dr. David Oldach

Senior Vice President Clinical

Cempra Pharmaceuticals, Inc.

6340 Quadrangle Drive, Suite 100

Chapel Hill, NC 27517 USA

Email: doldach@cempra

Tel: 919. 313. 6601

Fax: 919. 313. 6620

TOYAMA:

Clinical Safety Group, Pharmacovigilance & Surveillance Department

Toyama Chemical Co., Ltd.

2-5, Nishishinjuku 3-chome, Shinjuku-ku Tokyo 160-0023 Japan

TEL: +81 3 5381 3809, FAX: +81 3 3345 3587

E- mail : adr_clinical@toyama-chemical.co.jp

EXHIBIT B

SUPPLY AGREEMENT

EXHIBIT C

[*]

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

SCHEDULE 1.20

CEMPRA PATENTS


Title	Country	Type	Application Serial No,	Filing Date	Patent No.
Copper-Catalysed Ligation of Azides and Acetylenes	Japan	National	2004-509665	30 May 2003	4638225
Process for the Preparation of Macrolide Antibacterial Agents	Japan	National	2010-531238	23 Oct 2008
Methods for Treating Resistant Diseases Using Triazole Containing Macrolides	Japan	National	2011-533398	24 Oct 2009
Biodefenses Using Triazole-Containing Macrolides	Japan	National	2011-533399	24 Oct 2009
Methods for Treating Gastrointestinal Diseases	Japan	National	2011-533397	24 Oct 2009
Methods of Treating Malaria, Tuberculosis and MAC Diseases	Japan	National	2012-528953	10 Sep 2010
Parenteral Formulations of Macrolide Antibiotics	Japan	National	2012-557258	10 Mar 2011
Crystalline Forms of a Macrolide, and Uses Therefor	Japan	National	2013-501396	22 Mar 2011
Processes for Preparing Macrolides and Ketolides and Intermediates Therefor	Japan	National	2013-511385	20 May 2011

The Initial Patent Rights shall also include any Japanese counterpart(s) to PCT International Application No. [*], entitled “[*]”, filed [*]; U.S. Provisional Application No. [*], entitled “[*]”, filed [*]; and U.S. Provisional Application No. [*], entitled “[*]”, filed [*].

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

SCHEDULE 1.31

COMPOUND

LOGO

SCHEDULE 8.1

KEY CEMPRA PATENTS


Title	Country	Type	Application Serial No,	Filing Date	Patent No.
Process for the Preparation of Macrolide Antibacterial Agents	Japan	National	2010-531238	23 Oct 2008
Parenteral Formulations of Macrolide Antibiotics	Japan	National	2012-557258	10 Mar 2011
Crystalline Forms of a Macrolide, and Uses Therefor	Japan	National	2013-501396	22 Mar 2011
Processes for Preparing Macrolides and Ketolides and Intermediates Therefor	Japan	National	2013-511385	20 May 2011

Exhibit 10.14

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*Portions of this exhibit marked [*] are requested to be treated confidentially.

SUPPLY AGREEMENT

T HIS S UPPLY A GREEMENT (the “Agreement”) is made and entered into as of May 8, 2013 (the “ Effective Date ”) by and between C EMPRA P HARMACEUTICALS , I NC . , a Delaware corporation having an address at Building Four Quadrangle, 6340 Quadrangle Drive, Suite 100, Chapel Hill, North Carolina 27517 USA (“ Cempra ”), and T OYAMA C HEMICAL C O ., L TD . , a Japanese corporation having an address at 2-5, Nishishinjuku 3-chome, Shinjuku-ku, Tokyo, 160-0023, JAPAN (“ Toyama ”). Cempra and Toyama may be referred to herein individually as a “ Party ” or collectively, as the “ Parties ”.

RECITALS

WHEREAS, Cempra is a pharmaceutical company engaged in the discovery, development, manufacture and sale of pharmaceuticals;

WHEREAS, Toyama is a company that is engaged in the development, distribution and sale of certain pharmaceutical products;

WHEREAS, on the Effective Date, Cempra and Toyama entered into an Exclusive License and Development Agreement (the “ License Agreement ”) pursuant to which Cempra shall grant certain rights to Toyama with respect to the development and commercialization of certain products based on Cempra’s proprietary compound known as CEM-101; and

WHEREAS, as required by the License Agreement, the Parties desire to enter into a supply agreement pursuant to which Cempra will supply Toyama with active pharmaceutical ingredient for the manufacture of such products and clinical supplies of such products, as further described herein.

NOW, THEREFORE, in consideration of the foregoing recitals, mutual covenants, agreements, representations and warranties contained herein, the Parties hereby agree as follows:

Article I

Definitions

Capitalized terms used in this Agreement but not defined below or elsewhere in this Agreement shall, for purposes of this Agreement, have the meaning provided therefor in the License Agreement.

“ Certificate of Analysis ” shall mean a document identified as such and provided by Cempra to Toyama that (i) sets forth the analytical test results for a specified lot of Supplied Compound or Clinical Supply supplied to Toyama hereunder and (ii) states whether such Supplied Compound or Clinical Supply is manufactured in accordance with the Specifications and cGMP.

“ Consent ” shall mean any consent, authorization, permit, certificate, license or approval of, exemption by, or filing or registration with, any Governmental Authority or other Third Party.

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“ Current Good Manufacturing Practices ” or “ cGMP ” shall mean the regulatory requirements for the current good manufacturing practices in the United States Code of Federal Regulations 21 CFR Part 210 & Part 211 in effect at any given time during the Term.

“ Delivery Date ” shall mean the date specified by Toyama that Cempra shall make particular Supplied Compound or Clinical Supply available at the destination in Japan designated by Toyama in accordance with this Agreement.

“ Drug Application ” shall mean any application for Regulatory Approval of a Licensed Product in the Field in the Territory.

“ Facility ” shall mean, with respect to the Supplied Compound or Clinical Supply, (i) the initial facility(ies) and location(s) at which Supplied Compound or Clinical Supply will be manufactured and made available for delivery under this Agreement (as provided by written notice to Toyama by Cempra promptly following the Effective Date) or (ii) any other facility for the manufacture of Clinical Supply or, with respect to Supplied Compounds, any site(s) for the manufacture thereof that may be designated therefor by Cempra in accordance with Section 5.5.

“ Finished Product ” means Licensed Product in finished form for use in Development, Commercialization, or any other purpose permitted under the License Agreement.

“ Losses ” shall have the meaning set forth in Section 9.1.

“ Materials ” shall mean (i) all raw materials, components, work-in-process and other ingredients required to manufacture Supplied Compound or Clinical Supply and (ii) all packaging materials used in the manufacture, storage and shipment of Supplied Compound or Clinical Supply.

“ Order ” means a Clinical Supply Order, Development Use Supplied Compounds Order, or Commercial Supplied Compounds Order.

“ Specifications ” shall mean (i) with respect to the Supplied Compound, all specifications for Materials, formula, manufacturing, analytical and testing procedures, release, packaging, storage, and other processes relating to the manufacture of Supplied Compound specified in Exhibit A-1 to this Agreement, all as amended from time to time as contemplated by this Agreement, and (ii) with respect to Clinical Supply, those specifications therefor specified in Exhibit A-2 to this Agreement, subject to changes thereto provided to Toyama by Cempra in writing to the extent constituting corresponding to changes in the specifications for Licensed Products (and corresponding placebos) used by Cempra (or any Affiliate thereof or Cempra Licensee) in the Development or Commercialization of Licensed Products outside the Territory.

“ Supplied Compound ” means Compound or any Permitted Derivative as described in the Specifications.

“ Supplied Compound Price ” shall mean price for Supplied Compound supplied by or on behalf of Cempra to Toyama, as defined in Section 1.94 of the License Agreement.

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“ Tax ” shall mean any liability imposed by a Governmental Authority (as defined in the License Agreement and applied without geographical or other restriction) on gross receipts, sales, use, permits, value added, personal property, intangibles, or otherwise, and any stamp duty, customs duty, transfer, license, registration, premium or withholding tax, or any other kind of tax or assessment of any kind whatsoever, excluding any tax on the income of Cempra, including but not limited to any interest, additions to tax, or additional amounts in respect of the foregoing Taxes or returns required to be filed under Applicable Law. “Tax” shall not include any fines or penalties, provided that, notwithstanding anything to the contrary, “Tax” shall include any fines or penalties imposed with respect to any Tax for which Cempra or Toyama is liable, under applicable law, rule, or regulation, to the applicable Governmental Authority to the extent such fines or penalties are imposed on Toyama or Cempra as a direct result of Toyama’s failure to timely pay any Tax required to be paid by Toyama under this Agreement (e.g. pursuant to Section 3.4).

“ Term ” shall mean the period during which this Agreement is in effect pursuant to Article X.

“ Toyama Indemnitee ” shall have the meaning provided in Section 9.1 of this Agreement.

Article II

Sale and Purchase of Product

2.1 Exclusivity . Subject to the terms and conditions of this Agreement, Cempra shall manufacture and supply, to the extent ordered by Toyama in accordance with this Agreement, Supplied Compound and Clinical Supply for sale to Toyama. Except in the case of an exercise of the Toyama’s Back-Up Supply Rights to the extent not prohibited by Section 2.7, Toyama will (i) purchase one hundred percent (100%) of its, Sublicensees’, and its and its Sublicensees’ manufacturer’s requirements of Compound, Permitted Derivatives, and Clinical Supply from Cempra and (ii) not purchase (or permit Sublicensees, or other parties manufacturing Licensed Product on behalf of Toyama or Sublicensees, to purchase) any Compound, Permitted Derivatives, or Clinical Supply from any Third Party or Affiliate of Toyama or otherwise manufacture or have manufactured any of the foregoing on its behalf. In any agreement concerning any Licensed Product with any Sublicensee, and subject to the exercise of the Back-Up Supply Rights to the extent not prohibited by Section 2.7, Toyama shall ensure that (1) such Sublicensee is contractually prohibited from (x) manufacturing Compound, Permitted Derivatives, and Clinical Supply, (y) obtaining Compound, any Permitted Derivatives, or Clinical Supply from any Third Party, or (z) permitting any other party manufacturing Finished Product on behalf of such Sublicensee from procuring any Compound or Permitted Derivative from any party other than Cempra and (2) that Cempra is a third party beneficiary of such prohibition with the right to enforce such provision against such Sublicensee (or such other manufacturer), provided that the following prohibition shall not preclude Toyama from supplying Compound, any Permitted Derivative, or any Clinical Supply obtained from Cempra hereunder to a Sublicensee, or other party manufacturing Finished Products on behalf of Toyama or any Sublicensee, under obligations and limitations consistent with this Section 2.1. In any agreement executed by Toyama with any other party for the manufacture of Licensed Product, and subject to any exercise of the Back-Up Supply Rights not prohibited by Section 2.7, Toyama shall ensure that such manufacturer shall not procure any Compound or Permitted Derivative from any source other than Cempra. For the sake of clarity, except (i) upon termination or expiration of this Agreement, (ii) pursuant to the Back-Up Supply Rights to the extent not prohibited by Section 2.7, or (iii) as otherwise explicitly provided

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in this Agreement or License Agreement, neither Toyama nor any Sublicensee shall have any right under this Agreement or the License Agreement to manufacture or have manufactured any Compound, Permitted Derivative, or Clinical Supply.

2.2 Clinical Supply . Subject to the further provisions of this Section 2.2, Toyama may from time to time place, and Cempra will accept, binding written purchase orders for batches of Licensed Product or corresponding placebo constituting Clinical Supply (“ Clinical Supply Orders ”). Toyama shall provide Cempra, at least [*] calendar months in advance of its first Clinical Supply Order, and on a monthly basis thereafter, a non-binding forecast of the amount of each Licensed Product and/or corresponding placebo constituting Clinical Supply in such Clinical Supply Order. Each Clinical Supply Order shall be placed at least [*] calendar months in advance of the requested date of delivery therefor, and the amount of Clinical Supply ordered therein shall not, in any event, vary by more than [*] percent [*]%) from the amount of Clinical Supply specified in the corresponding non-binding forecast thereof (i.e. actual Clinical Supply Orders may not be less than [*] percent ([*]%), nor more than [*] percent ([*]%), of the corresponding forecasted amount). Subject to this Section 2.2, Cempra shall supply Clinical Supply in the amounts, and according to the delivery schedule, contained in any Clinical Supply Order, and shall use Commercially Reasonable Efforts to supply any ordered amounts of Clinical Supply in excess of [*]% of the forecasted amount.

2.3 Supplied Compounds for Development Use . Subject to the further provisions of this Section 2.3 and only to the extent Supplied Compounds hereunder is to constitute Development Use API for use in the manufacture of Licensed Product not required to be obtained from Cempra under Section 2.1, Toyama may from time to time place, and Cempra will accept, binding written purchase orders for Supplied Compound to constitute Development Use API (“ Development Use Supplied Compounds Orders ”). Toyama shall provide Cempra, at least [*] calendar months in advance of any Development Use Supplied Compounds Order, a non-binding forecast of the amount of Supplied Compound in such Development Use Supplied Compounds Order. Each Development Use Supplied Compounds Order shall be placed at least [*] calendar months in advance of the requested date of delivery therefor, and the amount of Supplied Compound ordered therein shall not, in any event, vary by more than [*] percent ([*]%) from the amount of Supplied Compound specified in the corresponding non-binding forecast thereof (i.e. actual Development Use Supplied Compounds Orders may not be less than [*] percent ([*]%), nor more than [*] percent ([*]%), of the corresponding forecasted amount). Subject to this section 2.3, Cempra shall supply Supplied Compound in the amounts, and according to the delivery schedule, contained in any Development Use Supplied Compounds Order, and shall use Commercially Reasonable Efforts to supply any ordered amounts of Supplied Compounds in excess of [*]% of the forecasted amount.

2.4 Supplied Compounds for Commercial Use .

(a) Monthly Forecasts . During the Term, Toyama shall provide to Cempra a projection for the next succeeding [*] calendar months of the anticipated volumes of Supplied Compound constituting Commercial Use API, or any Supplied Compound for use in the Territory other than Development Use API, to be ordered by

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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Toyama pursuant to, in each case, Section 2.4(d) below (each, a “ Non-binding Forecast ”). Toyama shall provide Cempra with written notice of such rolling projections on the first day of each month during the Term of this Agreement. Cempra shall notify Toyama in writing within ten (10) Business Days of receipt of any Non-binding Forecast if the quantities of Supplied Compound indicated therein by Toyama exceed Cempra’s (or its contractors’) production capacity.

(b) Non-Binding Forecasts . The Supplied Compound volumes specified for the [*] through [*] calendar month (or, if earlier, the final calendar month) of each volume forecast shall be non-binding estimates of future requirements of Supplied Compound for use in manufacturing Licensed Products for use or sale following Regulatory Approval thereof in the Territory, provided, however, that the Supplied Compound volumes for any month of a Non-binding Forecast other than a month within the Firm Zone thereof (as defined below) shall not vary by more than (i) [*] percent ([*]%) from those set forth for such month on the first Non-binding Forecast containing the forecast for such month and (ii) [*] percent ([*]%) from those set forth for such month on the immediately preceding Non-binding Forecast. Should Toyama wish to increase order quantities at any time in excess of the volumes permitted under this Section 2.4(b) or Section 2.4(d), Toyama may contact Cempra to request and Cempra shall use Commercially Reasonable Efforts to supply any such increase in volumes.

(c) Firm Zone . The volume of Supplied Compound set forth for each of the first [*] calendar months of each Non-binding Forecast will, notwithstanding anything to the contrary, be a binding commitment by Cempra to manufacture and supply to Toyama, and by Toyama to purchase, the specified volumes of Supplied Compound during each of those months (each such [*] calendar month period shall be referred to herein as the “ Firm Zone ”).

(d) Purchase Orders . Toyama shall deliver to Cempra an order for the aggregate volume of each Supplied Compound during each Firm Zone, provided that, with respect to the first [*] orders placed hereunder, Toyama may, at its option, place its orders for Supplied Compound no less than [*] months in advance of the desired delivery date therefor (any order described in this sentence, a “ Commercial Supplied Compounds Order ”). Each Commercial Supplied Compounds Order shall specify the volume of Supplied Compound ordered, and the Delivery Date of Supplied Compound is to be made available to Toyama under Section 4.4. The amount of each Supplied Compound ordered in each Commercial Supplied Compounds Order shall not vary by more than [*] percent ([*]%) from the amount of such Supplied Compound specified in the most recently preceding Non-binding Forecast therefor (i.e. actual Commercial Supplied Compounds Orders for delivery in a particular month may not be less than [*] percent ([*]%), nor more than [*] percent ([*]%), of the corresponding amount specified in the most recent preceding Non-binding Forecast). Any Orders will be delivered electronically or by other means to such location as Cempra shall designate to Toyama. Except as described above with respect to the first [*] Commercial Supplied Compounds Orders placed hereunder, Toyama shall issue each Commercial Supplied Compounds Order to Cempra not

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less than [*] calendar months prior to the Delivery Date on which Toyama has requested Cempra to deliver Supplied Compound pursuant to each such Commercial Supplied Compounds Order. In the absence of the receipt by Cempra of a Commercial Supplied Compounds Order for a particular month within the Firm Zone, such month of the Firm Zone shall constitute a binding Commercial Supplied Compounds Order for the volumes of Supplied Compound forecast in such month with a designated Delivery Date of the [*] Calendar Day of such month. Each Commercial Supplied Compounds Order that is submitted, or deemed submitted, in accordance with this Section 2.4 shall be deemed accepted by Cempra and Cempra shall fulfill each Commercial Supplied Compounds Order. Deliveries of Supplied Compound or Clinical Supply under this Agreement may vary by up to [*] Calendar Days from the specified Delivery Date (i.e., may be between [*] Calendar Days before the specified Delivery Date and [*] Calendar Days after the specified Delivery Date). Such variance in actual date of delivery shall not constitute a breach of contract by Cempra.

(e) Accommodations . From time to time, due to significant unforeseen circumstances, Toyama may deliver to Cempra a Commercial Supplied Compounds Order for volumes of Supplied Compound in excess of those specified in any Firm Zone. Upon Toyama’s written request, Cempra shall use Commercially Reasonable Efforts to provide Toyama with such excess Supplied Compound volumes, but shall not have any obligation to do so if accommodating Toyama would adversely impact Cempra’s ability to satisfy its or its Affiliates’ needs or fulfill its commitments to other customers.

(f) Overtime Expenses . In the event that Toyama’s order quantity of Supplied Compound for a calendar month in the Firm Zone portion of the forecast varies sufficiently from the forecast that, in order to supply Toyama with the Supplied Compound volume ordered, Cempra necessarily will incur overtime expenses (itself or with any Affiliate or Third Party contractor), then upon written notification by Cempra that such overtime expenses will be incurred, Toyama shall, at its option by written notice to Cempra, either: (a) reimburse Cempra for such reasonably incurred overtime expenses or (b) promptly reduce its order quantity for such Supplied Compound by an amount sufficient to enable Cempra to avoid incurring overtime expenses by written notice to Cempra. In the case any amounts are charged to or reimbursed by Toyama under this subsection (f), such amounts shall not constitute a portion of the Supplied Compound Price, Fully-Burdened Manufacturing Costs, or the like for any purposes under the License Agreement related to milestone payments, royalty adjustments, or similar provisions.

2.5 Limited Use . Toyama shall only use Supplied Compound provided under this Agreement for the manufacture of Licensed Products for use or sale in Field in the Territory pursuant to the License Agreement. Toyama shall not (x) use Supplied Compound for any other purpose or (y) provide or transfer any Supplied Compound to any Affiliate of Toyama or Third Party for any purpose other than the manufacture of Licensed Products for use or sale in Field in the Territory pursuant to the License Agreement, and Toyama shall ensure that all Affiliates and Sublicensees only use Supplied Compound for the above-referenced purposes. Further, Toyama shall not (itself or through any Sublicensee or other Third Party) (i) market, advertise or otherwise

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promote in any way the sale of any Licensed Product as a product of Cempra (or any Affiliate thereof) or containing any product of Cempra (or any Affiliate thereof), expressly or implicitly (except to the extent required by Applicable Law) or (ii) use any name, logo, trademark, or tradedress of Cempra or any Affiliate thereof to market, promote, advertise or sell any Finished Product (in each case except to the extent (if any) required by Applicable Law or explicitly permitted by the License Agreement). Toyama shall only use Clinical Supply for purposes of performing Development of Licensed Products in the Field in the Territory.

2.6 Supply Responsibility. In order to satisfy Cempra’s obligations under this Agreement, Cempra shall (i) maintain manufacturing site(s) of its own or its Affiliates or (ii) maintain contract with Third Party manufacturers for Compound (or, if applicable Permitted Derivative) and Clinical Supply. If Cempra does not satisfy its supply obligations under this Agreement, or reasonably anticipates any circumstances that may materially and adversely impact its ability to satisfy its supply obligations under this Agreement, Cempra shall promptly notify Toyama of such circumstances and, upon Cempra’s written request, Toyama will assist Cempra in obtaining an alternative source of Compound (or, if applicable Permitted Derivative) or Clinical Supply, as applicable, to the extent requested by Cempra, in which case, Cempra shall bear all reasonable, documented out-of-pocket cost and expenses incurred by Toyama for such assistance. If Cempra cannot supply Compound (or, if applicable Permitted Derivative) or Clinical Supply to Toyama in accordance this Agreement, Cempra shall promptly notify Toyama, and the Parties shall discuss in good faith alternative supply solutions for Compounds (or, if applicable Permitted Derivative) and/or Clinical Supply, as appropriate.

2.7 Back-Up Supply Rights. Cempra shall, upon written request of Toyama, transfer the necessary technologies Controlled by Cempra for manufacturing Compound or Permitted Derivatives to Toyama or Sublicensees, provided that (i) Cempra shall not be required to provide more than [*] business days’ technical assistance in person at any facility(ies) of Toyama or any contract manufacturer thereof and (ii) Toyama shall be entitled to call Cempra by telephone or, as reasonably requested by Toyama, visit Cempra’s facilities to obtain such support for a period of up to (but not in excess of) [*] following the effectiveness of such Back-Up Rights. Notwithstanding the foregoing, Toyama covenants that neither it nor any Sublicensee shall exercise the Back-Up Supply Rights to manufacture any commercial quantities of Compound, Permitted Derivatives, or Clinical Supply unless and until (i) Cempra either (a) does not [*] or [*] and (ii) Toyama has provided written notice to Cempra of [*] at least [*] Business Days [*] or as soon as reasonably practicable but not later than [*] Business Days [*] prior to Toyama’s exercise of the Back-Up Supply Rights with respect to commercial quantities of whichever of the Compound (or, if applicable, Permitted Derivative) or Clinical Supply, respectively, was the subject of [*].

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2.8 Technology Transfer . Cempra shall provide Toyama with Cempra Know-How, and otherwise provide Toyama, at no cost to Toyama, with up to [*] person-hours of technical assistance reasonably requested by Toyama in writing to enable Toyama to manufacture Licensed Products in the Territory. In the event Toyama requires any additional such technical assistance, the Parties shall negotiate in good faith regarding reasonable terms on which such assistance may be provided.

Article III

Prices for Supplied Compounds and Clinical Supply; Shipment; Payments

3.1 Price; Annual Adjustment . During the Term of this Agreement, Toyama shall pay Cempra’s Fully-Burdened Manufacturing Costs for Clinical Supply and the applicable Supplied Compound Price for the Supplied Compound, as the Supplied Compound Price shall be set or adjusted from time-to-time by Cempra in a manner consistent with this Agreement. Cempra shall provide Toyama a reasonable estimate of [*] every Calendar Year and the Parties shall meet, at least [*] Calendar Days prior to the beginning of each Calendar Year during the Term, to review and discuss expected Supplied Compound Price and the price to be charged for Clinical Supply hereunder.

3.2 Supply Prices for Development Use API, Clinical Supply, and Samples . All Development Use API, Clinical Supply, and any API for use in manufacturing promotional samples of Licensed Products or other Licensed Products for use other than for commercial sale supplied by Cempra to Toyama shall be invoiced to Toyama at a price as equal to the applicable Fully-Burdened Manufacturing Costs therefor.

3.3 Supply Prices for Commercial Use API . All API for use in manufacturing Licensed Products for commercial sale in the Territory supplied by Cempra to Toyama (“ Commercial Use API ”) shall be invoiced to Toyama at a price equal to the applicable amount defined by the following formulas:

[*];

[*]; and

[*]:

[*]

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[*].

3.4 Supply Taxes/Shipping Charges . Toyama shall timely pay and be responsible for Supply Taxes/Shipping Charges (as defined below) incurred by Cempra with respect to its supply of API and Clinical Supply hereunder and all other Taxes arising out of any payment, transaction, or activity under this Agreement, or otherwise applicable to, assessed upon, or levied against the manufacture, supply, or sale of any Supplied Compound or Clinical Supply under this Agreement, whether Cempra or Toyama is liable therefor under Applicable Law, [*] or taxes on net income of Cempra. Notwithstanding the foregoing or anything to the contrary, (i) Toyama shall pay directly to the relevant Third Party or governmental agency, any customs duties, tariffs, or similar charges or consumption tax imposed by and collected by or on behalf of the Japanese national or any local government, transportation cost from the destination airport/port in Japan to Toyama’s facility(ies) (or that of any manufacturers of Licensed Product or Sublicensees), and handling charges for customs clearance in Japan with respect to, in each case, any API or Clinical Supply (and any such amounts shall not be included in Fully-Burdened Manufacturing Costs, Supplied Compound Price, or API Price) and (ii) Toyama shall pay Cempra for all Supply Taxes/Shipping Charges (as defined in this Section 3.4). “ Supply Taxes/Shipping Charges ” means transportation cost for Compound, Permitted Derivative, or Clinical Supply from the departure airport/port (inside or outside of Japan) to the Delivery Point, insurance cost related to the above transportation (or storage related thereto), handling charge for import/export procedures, related taxes, duties, or tariffs for any of the foregoing operations (other than such duties specifically referenced in the definition of FBMC Taxes/Tariffs), and sales or value added taxes charged on Cempra (but not any contract manufacturer thereof) for its sale or provision of API or Licensed Product to Toyama under this Agreement (or, in the event Toyama obtains any API or Licensed Product from an Affiliate or Third Party following termination or expiration of this Agreement, sales or value added taxes charged on such Affiliate or Third Party for its sale or provision of API or Licensed Product to Toyama).

3.5 Audit Rights of Toyama for the [*]. Cempra and its Affiliates shall keep true and accurate records of [*] under this Agreement. At the expense of Toyama, Toyama shall have the right to engage an internationally recognized independent accountant approved by Cempra (such approval not to be unreasonably withheld), to perform, on behalf of Toyama an audit of such records of Cempra and its Affiliates, that are reasonably deemed necessary by such independent public accountant to confirm [*] for the period or periods requested by Toyama and the correctness of any report or payments made under this Agreement. Upon timely request and at

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least [*] Calendar Days prior written notice from Toyama, such audit shall be conducted by Toyama, during regular business hours in such a manner as to not unnecessary or unreasonably interfere with Cempra’s or its Affiliates’ normal business activities, and shall be limited to results in any Calendar Year ending no more than [*] years prior to audit notification. Such audit shall not be performed more frequency than once per Calendar Year nor more frequency than once with respect to records covering any specific period of time. Toyama shall promptly provide a copy of the results of any such audit to Cempra. If the audit accurately reveals an overpayment by Toyama, then Cempra shall reimburse Toyama for amount of the overpayment within [*] Business Days of Cempra’s receipt of the results of such audit. If the audit reveals an underpayment, then Toyama shall make up such underpayment promptly and in a single payment to Cempra within [*] Business Days of Toyama’s receipt of the results of such audit.

Article IV

Supply Procedure of Supplied Compound and Clinical Supply

4.1 Invoices .

(a) All invoices for the sale of Supplied Compound or Clinical Supply, including the price therefor and all Supply Taxes/Shipping Charges associated therewith, shall be submitted by Cempra to Toyama at 2-5, Nishishinjuku 3-chome, Shinjuku-ku, Tokyo, 160-0023, JAPAN at the same time as, or any time after, the Supplied Compound or Clinical Supply is made available to Toyama in accordance with Section 4.4.

(b) All invoices for any and all other expenses and fees due Cempra under this Agreement shall be submitted by Cempra to Toyama at 2-5, Nishishinjuku 3-chome, Shinjuku-ku, Tokyo, 160-0023, JAPAN on a monthly basis during the Term of this Agreement.

4.2 Payment . Payments for Supplied Compounds and Clinical Supply invoiced under Section 4.1 above shall be due [*] Calendar Days from the date of invoice. Any payment due Cempra from Toyama that is past due under this Agreement shall bear interest at a rate equal to the lesser of (i) [*] percent [*]%) per month or (ii) the maximum rate permitted by Applicable Law, calculated based on the number of Calendar Days that the payment is delinquent, provided that, upon Toyama’s second late payment under this Agreement (e.g. the second time Toyama fails to make a payment within [*] Calendar Days of the date of an invoice), the interest rate referenced in clause (i) of the preceding sentence shall be increased to [*] percent ([*]%) per month.

4.3 Payment Method . All payments due under this Agreement to Cempra shall be made by bank wire transfer in immediately available funds to an account designated by Cempra in writing. All payments to be made under this Agreement shall be made in United States dollars unless otherwise specified herein or agreed by the Parties.

4.4 Shipment; Title; Transport; Location of Sale .

(a) General . All Supplied Compounds and Clinical Supply shall be shipped DAP (as defined in INCOTERMS, 2010 edition, published by the International Chamber

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of Commerce, ICC Publication 560) Kansai Airport or other port/airport in Japan designated by Toyama (the “ Delivery Point ”), except with regard to title and risk of loss, which is described below in Section 4.4(b). Cempra shall arrange for freight loading, forwarding, and carriage from the applicable Facility(ies), and Cempra will make the Supplied Compounds and Clinical Supply available for unloading by Toyama or its designated carrier at the Delivery Point, provided that, notwithstanding anything to the contrary, Toyama shall pay Cempra for all Supply Taxes/Shipping Charges (and shipping-related insurance costs) incurred by or on behalf of Cempra with respect to any Supplied Compound or Clinical Supply supplied under this Agreement.

(b) Title/Risk of Loss . Title to and risk of loss with respect to any Supplied Compound or Clinical Supply shall pass from Cempra to Toyama when such Supplied Compound or Clinical Supply is made available for unloading from the ship/airplane at the Delivery Point.

(c) The Parties hereby agree, without limitation of, and consistent with, the foregoing, that all sales of Clinical Supply and Supplied Compound to Toyama under this Agreement occur in Japan.

Article V

Testing and Quality Assurance

5.1 General . Cempra shall manufacture, test, package, store, label, release and deliver all Supplied Compound and Clinical Supply in accordance with the Specifications, cGMP, Applicable Law and the Quality Agreement (defined in Section 5.6 below).

5.2 Change Control . (a) Specifications . Either Party may request a Specifications change. The Parties shall discuss in good faith the implementation of any such requested changes; provided however, that (i) such changes, other than changes to Specifications for Clinical Supply corresponding to changes in the specifications for Licensed Products (and corresponding placebos) used by Cempra (or any Affiliate thereof or Cempra Licensee) in the Development or Commercialization of Licensed Products outside the Territory (such changes, “ Cempra-Initiated Clinical Supply Changes ”), shall be made only with the Parties’ mutual written consent, (ii) such consent shall not be unreasonably withheld with respect to any Specifications change required for compliance with Applicable Law or cGMP, and (iii) Cempra shall notify Toyama in writing of any Cempra-Initiated Clinical Supply Changes and such Cempra-Initiated Clinical Supply Changes shall be effective upon such notice (or such later date indicated in such notice), without requirement of any further agreement or consent by Toyama. All requests by a Party for revisions to the Specifications shall be submitted in writing to the other Party (and all notices of Cempra-Initiated Clinical Supply Changes shall be provided in writing by Cempra to Toyama) and, subject to the preceding portion of this Section 5.2(a), all changes to Specifications shall be made in accordance with the Quality Agreement, provided that, in the event of any conflict between the Quality Agreement and this Section 5.2(a) with respect to any Specifications changes, this Section 5.2(a) shall govern and supersede the conflicting provisions of the Quality Agreement.

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(b) Processes . No changes to any methods, processes, procedures or testing protocols and/or methods governing the manufacture, storage, testing (in process, release, stability) of Supplied Compound or Clinical Supply not addressed in the Specifications (“ Non-Specification Processes ”) shall be made without reasonable written notice to Toyama, in order to enable Toyama to notify, and, if necessary, obtain the approval of, the relevant Regulatory Authority(ies) in the Territory of such change.

(c) General . Prior to implementation of any change to the Specifications or Non-Specification Processes, the Parties shall use reasonable good faith efforts to agree upon a procedure to ensure that, to the extent required by Applicable Law, applicable Governmental Authorities have approved the proposed amended Specifications or Non-Specification Processes, and that Cempra is given a reasonable period of time to implement any changes required with regard to any amended Specifications.

(d) Payment . For any Specification changes or changes to Non-Specification Processes pursuant to Section 5.2 above or instituted as necessary to comply with any requirement of cGMP or Applicable Laws, any increased or other additional costs for any such change:

[*];

[*]; or

[*].

5.3 Validations and Stability Studies .

(a) General . Cempra shall perform all validations and stability studies required by the Specifications or cGMP in connection with the regular course of manufacturing the Supplied Compound and Clinical Supply. For the sake of clarity, such cost for validations and stability studies shall be included in [*], as determined by Cempra’s reasonably appropriate allocation.

(b) Reference Standards . Cempra shall provide reasonable amounts of all analytical reference standards for each of the Supplied Compounds and Clinical Supply manufactured under this Agreement, as reasonably requested by Toyama from time-to-time, at Toyama’s cost (which shall be documented and reasonable).

5.4 Materials . Cempra shall prepare or cause to be prepared by its suppliers, as the case may be, all certifications as to any Materials required by cGMP or, at Toyama’s reasonable written request, Applicable Law outside the Territory or Applicable Law in the Territory (each, a “ Materials Certification ”). Such Materials Certifications shall include, without limitation, any and all required certifications related to Materials derived from animal products. As between the Parties, Cempra will be responsible for procuring all Materials required for the manufacture of Supplied Compound and Clinical Supply under this Agreement.

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5.5 Selection of Manufacturing Sites . Cempra expressly reserves the right to select, and subsequently change, at its sole discretion, the facility(ies) at which Supplied Compound or Clinical Supply will be manufactured. Cempra will provide, not less than [*] calendar months prior to the first supply of Supplied Compound from any site(s) other than any site(s) previously permitted hereunder, written notice to Toyama if the manufacturing of any Supplied Compound is to be shifted to any site other than any site(s) specifically approved therefor, if any, in any applicable Drug Application or Regulatory Approval in the Territory for such Supplied Compound’s corresponding Finished Product; Cempra shall not be required to provide any advance written notice for any changes of manufacturing facility(ies) with respect to any Clinical Supply, provided however, Cempra shall provide Toyama with a written notice following any changes of such manufacturing facility(ies). Notwithstanding the preceding portions of this Section 5.5, however, Cempra shall use Commercially Reasonable Efforts to ensure that its selection or change of manufacturing sites will not materially and adversely affect its ability to fulfill its then current supply obligations to Toyama pursuant to this Agreement. Upon Toyama’s written request, Cempra shall submit to Toyama manufacturing capacity and forecast of the manufacturing sites of Supplied Compound to the extent Toyama can evaluate an adverse effect on Cempra’s supply obligations to Toyama. In the event that Cempra makes a change of manufacturing sites that Cempra reasonably anticipates may materially and adversely affect Cempra’s ability to fulfill its obligations under this Agreement, then Cempra shall, at its own risk of loss, use Commercially Reasonable Efforts to stockpile sufficient quantities of such Supplied Compound to minimize such adverse effect. Cempra may source any Supplied Compound and/or Clinical Supply from multiple facilities without prior notice to Toyama, provided however, Cempra shall provide Toyama with a written notice following such decision to source any Supplied Compound and/or Clinical Supply from multiple facilities. All Supplied Compound shall be manufactured and supplied to Toyama in compliance with cGMP, this Agreement and Applicable Law. In the event that Cempra changes or adds a Facility for Clinical Supply or, as described in this Section 5.5, any Supplied Compound, such newly selected or added facility shall be deemed a Facility for Clinical Supply or such Supplied Compound, respectively, for purposes of this Agreement.

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5.6 Quality Agreement (GMP agreement) . The Parties shall execute a reasonable and customary form of quality agreement (GMP agreement) (the “ Quality Agreement ”) with respect to Cempra’s supply of API and Clinical Supply within [*] months of the Effective Date. Each Party shall comply with its obligations set forth in the Quality Agreement. In the event of a conflict between the terms of the Quality Agreement and the terms of this Agreement, the terms of this Agreement shall control. After the signature of this Agreement, Toyama shall conduct a GMP audit of Cempra’s subcontractors’ manufacturing sites for API and, subject to the terms and limitations of any contract(s) between Cempra and its manufacturer(s) of Clinical Supply, [*].

5.7 Testing of Supplied Compound and Clinical Supply . Prior to release of any Supplied Compound or Clinical Supply, Cempra shall test the Supplied Compounds or Clinical Supply, as appropriate, in accordance with the testing procedures described in the Specifications, and shall provide Toyama with a Certificate of Analysis for each batch of each of the Supplied Compounds or Clinical Supply, as appropriate.

5.8 Cempra Holds and Rejections .

(a) General . Toyama shall notify Cempra of Toyama’s (or any Sublicensee’s) placing any Supplied Compounds or Clinical Supply on hold for further investigation of a Nonconformity (as described below), or of Toyama’s rejection of any batch (or part thereof) of any Supplied Compound or Clinical Supply within [*] Calendar Days after receipt of such Supplied Compounds or Clinical Supply by Toyama. Toyama’s notice shall state the basis for the hold or rejection. Failure to give notice within this [*] Calendar Day period shall constitute acceptance of any Supplied Compound or Clinical Supply delivered, except in the case of a latent Cempra Nonconformity that (i) would not have been revealed by a timely inspection in accordance with customary and reasonable procedures, (ii) is discovered prior to the expiration date of the applicable Supplied Compound or Clinical Supply, and (iii) is the subject of written notice to Cempra describing such Cempra Nonconformity in reasonable detail provided to Cempra within [*] Business Days of Toyama’s initial knowledge thereof. Toyama, at its discretion, may also test or have tested any batch of Supplied Compounds or Clinical Supply supplied to Toyama.

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(b) Replacement. If Toyama notifies Cempra of what it reasonably alleges to be a Cempra Nonconformity, such rejected Supplied Compound or Clinical Supply, respectively, shall be replaced as soon as practically possible by a substantially similar amount of Supplied Compound or Clinical Supply, respectively, without Cempra Nonconformity (such replacement Supplied Compound or Clinical Supply, “ Replacement Product ”). If Cempra accepts Toyama’s rejection in accordance with subsection (a), or it is determined pursuant to subsection (c) that Toyama’s rejection, for an alleged Cempra Nonconformity is appropriate (i.e. there was such a Cempra Nonconformity with respect to the Supplied Compound or Clinical Supply at issue), such replacement shall be at no additional cost to Toyama. If Cempra rejects Toyama’s rejection provided under subsection (a) and (x) Toyama agrees with Cempra’s rejection of such rejection or (y) it is determined pursuant to subsection (c) that the Supplied Compound or Clinical Supply that was subject to Toyama’s rejection under subsection (a) was not subject to a Cempra Nonconformity, Toyama shall be obligated to pay Cempra for the corresponding Replacement Product on the same terms hereunder as if Toyama had placed an order for such Replacement Product.

(c) Independent Testing . If the Parties disagree as to whether Supplied Compounds or Clinical Supply subject to hold or rejected meet the Specifications, Toyama’s most senior quality assurance officer and Cempra’s most senior quality assurance officer, or such other persons as they may designate in writing, shall confer to review samples and/or batch records, as appropriate. If the disagreement is not resolved, then samples, batch records and other data relating to the batch in dispute shall promptly be submitted for testing and evaluation to an independent Third Party (including a testing laboratory) approved in writing by both Parties, such approval not to be unreasonably withheld. The findings of the Third Party shall be final and binding on the Parties. The cost of the testing and evaluation by the Third Party shall be borne by the Party whose position was not supported by the determination of the Third Party.

(d) Notice . In the event that after the release of any Supplied Compounds or Clinical Supply, Toyama becomes aware that any batch of the Supplied Compounds or Clinical Supply may have a Nonconformity, despite any testing and quality assurance activities, Toyama shall immediately notify Cempra in writing.

5.9 Nonconformity .

(a) Nonconformity . If either Party becomes aware that any batch or shipment of Supplied Compound or Clinical Supply has a Nonconformity, at any time regardless of the status of Cempra’s testing and quality assurance activities, such Party shall notify the other Party within [*] Business Days of becoming aware of a Nonconformity. “ Nonconformity ” means a product characteristic that (i) is attributable to failure to

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manufacture, test, package, store, label, release or deliver any Supplied Compound or Clinical Supply in accordance with the Specifications or cGMP prior to such Supplied Compound or Clinical Supply being made available at the Delivery Point (such a Nonconformity, a “ Cempra Nonconformity ”) or (ii) is not a Cempra Nonconformity and causes any Supplied Compound or Clinical Supply to fail to conform to the applicable Specifications or cGMP. In the event of a Nonconformity, the Parties shall mutually agree as to the procedure by which the Nonconformity will be investigated.

(b) Supplied Compounds or Clinical Supply Subject to Nonconformity . Any batch or shipment of Supplied Compound or Clinical Supply, or Finished Product that was manufactured using Supplied Compound that is the subject of a Nonconformity, shall be handled as follows:

(i) any portion of such batch or shipment of Supplied Compound or Clinical Supply held in inventory by Cempra shall not be shipped to Toyama;

(ii) any portion of such batch or shipment of Supplied Compound or Clinical Supply shipped to Toyama and held in stock by Toyama shall maintain a “hold” or “unpassed” status, and shall not be released into passed inventory of Toyama, used in the manufacture of any Finished Product or other Licensed Product (in the case of Supplied Compound), or administered to any human subjects or patients or used in any other Development activities (in the case of Clinical Supply), until Toyama has completed any investigations related to such Supplied Compounds or Clinical Supply, as applicable, and approved in writing the disposition of the Supplied Compound or Clinical Supply, as applicable, subject to the Nonconformity; and

(iii) any portion of any batch of Finished Product manufactured using such Supplied Compound or Clinical Supply that is held in stock by Toyama shall maintain a “hold” or “unpassed” status, and shall not be released into passed inventory of Toyama or for use or sale, until Toyama has completed any investigations related to the Supplied Compound or Clinical Supply that was the subject of the Nonconformity and approved in writing the disposition of such Supplied Compound or Clinical Supply.

5.10 Product Complaints . Any and all complaints of which Cempra becomes aware relating to any Supplied Compound, corresponding Finished Product, or Clinical Supply shall promptly be forwarded to Toyama’s senior quality officer or his/her designee. Toyama shall promptly inform Cempra of any and all complaints that Toyama receives which implicate Cempra’s manufacturing or other processes at the applicable Facility(ies). Notification shall be given by telephone, with an e-mail confirmation immediately following. The Party receiving such notification shall acknowledge the receipt of such notification within [*] Business Days.

5.11 Manufacturing-Related Adverse Events . If an Adverse Event of which Toyama becomes aware implicates Cempra’s manufacturing of any Supplied Compound or Clinical Supply or other processes at any applicable Facility(ies), Toyama shall promptly inform Cempra of such Adverse Event and such implication and shall disclose to Cempra any information related thereto.

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5.12 Investigations . The Parties shall use Commercially Reasonable Efforts to investigate all reports of Nonconformity-, Supplied Compound- or Clinical Supply-related complaints, Finished Product-related complaints and Adverse Events in order to assure the conformity of Supplied Compound and Clinical Supply to the applicable Specifications and cGMP. The Parties shall act promptly and shall cooperate fully in such investigations.

5.13 Retained Samples . Cempra shall retain samples, as required to comply with cGMP or Applicable Law in the Territory, from each batch of Supplied Compound or Clinical Supply to the extent prescribed in the Quality Agreement.

Article VI

Regulatory Matters

6.1 Drug Application and Regulatory Approval Documentation . Toyama shall, as between the Parties, be responsible for submitting, obtaining approval of, and maintaining all Consents, Drug Applications and Regulatory Approvals with respect to the Finished Products in the Field in the Territory. Toyama shall be responsible for responding to all requests for information related to such any of the foregoing made by, and making all legally required filings relating to any of the foregoing with, any Governmental Authority in the Territory having jurisdiction to make such requests or require such filings. Cempra shall cooperate with Toyama as reasonably requested by Toyama with respect to Toyama’s preparation, obtaining approval, and maintaining of all Consents, Drug Applications and Regulatory Approvals with respect to the Finished Products in the Field in the Territory. Upon request from Cempra, Toyama shall provide Cempra with information regarding any Consents, Drug Applications, or Regulatory Approvals or discrete sections of any of the foregoing. In the event any Consent, Applications or Regulatory Approval held by Toyama relating directly to any of the Supplied Compounds, Clinical Supply, or Finished Products is hereafter suspended or revoked, Toyama shall promptly notify Cempra of the event and shall promptly inform Cempra of the impact on Toyama’s purchases, or Cempra’s manufacture, of Supplied Compound or Clinical Supply and Toyama’s general intentions with respect to Supplied Compound, Clinical Supply, and Licensed Products.

6.2 Drug Master File. Unless information equivalent to that incorporated into a DMF is incorporated into or maintained as part of an NDA, or equivalent foreign filing, owned or controlled by Cempra, any Affiliate thereof, or any Cempra Licensee, Cempra shall be responsible (itself or via any Affiliate of Cempra, Cempra Licensee, or Third Party contractor any of the foregoing) for filing and maintaining a DMF with respect to Supplied Compound provided (or to be provided) hereunder for purposes of enabling Toyama to file a Drug Application and obtain Regulatory Approval in the Field in the Territory. If Cempra (itself or via any Affiliate of Cempra, Cempra Licensee, or Third Party contractor of any of the foregoing) shall submit a DMF with respect to Supplied Compound provided (or to be provided) hereunder, Cempra shall provide Toyama (or any appropriate Governmental Authorities in the Territory) access thereto to the extent necessary to enable Toyama to file a Drug Application and obtain Regulatory Approval in the Field in the Territory. If Cempra (itself or via any Affiliate of Cempra, Cempra Licensee, or Third Party contractor any of the foregoing) does not submit or maintain a DMF for purposes of enabling Toyama to file a Drug Application and obtain Regulatory Approval in the Field in the Territory,

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Cempra shall promptly disclose any information in Cempra’s or its Affiliates’ possession concerning the Supplied Compound provided (or to be provided) hereunder, corresponding to that which would be contained in a DMF therefor, to Toyama (or any appropriate Governmental Authorities in the Territory) that may be required by Governmental Authorities in the Territory for purposes of filing a Drug Application and/or obtaining Regulatory Approval in the Field in the Territory, upon Toyama’s request, and Cempra shall use Commercially Reasonable Efforts to obtain possession of such information from any Cempra Licensees or Third Party contractors of Cempra or its Affiliates with respect to the manufacture of any Supplied Compound provided (or to be provided) hereunder.

6.3 Regulatory Changes . The Parties will promptly notify each other of any material revisions or amendment of or additions to cGMP and will confer with each other with respect to the best means to comply with such requirements.

6.4 Records . Cempra shall maintain (or to cause its Affiliates and/or contract manufacturers to maintain) all records reasonably necessary to comply with cGMP and, to the extent informed thereof by Toyama and any reasonable additional out-of-pocket expense therefor is paid by Toyama, Applicable Law in the Territory. Cempra shall ensure that such records shall be available for inspection, audit and copying by Toyama, its representatives, and any Regulatory Authorities upon reasonable request during normal business hours, provided that any reasonable additional out-of-pocket expense therefor shall be paid by Toyama. All such records shall be maintained for a period as required under cGMP and, to the extent informed thereof by Toyama and any reasonable additional out-of-pocket expense therefor is paid by Toyama, Applicable Law in the Territory.

6.5 Regulatory Inspections/Requests/Notices .

(a) Cempra shall promptly notify Toyama of its knowledge or receipt of notice of the initiation of any inquiries, notices or inspection activity by any Governmental Authority with respect to Supplied Compound or Clinical Supply and shall provide Toyama with a reasonable description of any such inquiries and documentation (including but not limited to any FDA Establishment Inspection Report Form 483 or FDA warning letter)

(b) If Cempra is notified that any Supplied Compound, Clinical Supply, or Facility(ies) will be subject to an inspection by any Governmental Authority, including the Governmental Authority of the Territory, Cempra shall promptly advise Toyama in writing of such investigation and reasonably cooperate with such Governmental Authority and allow any such inspection to the extent required by Applicable Law, provided any reasonable additional out-of-pocket expense incurred with respect to any inspection by any Governmental Authority in the Territory shall be paid by Toyama. Within [*] Business Days of Cempra’s receipt thereof, Cempra shall provide to Toyama a copy of any report and other written communications received by them from any Governmental Authority to the extent that such report or communication relates to Cempra’s performance under this Agreement, any Supplied Compound, Clinical Supply, or the manufacture of

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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any of the foregoing. Cempra shall provide Toyama with frequent, prompt status updates with regard to any audit or inspection conducted by any Governmental Authority of which Cempra is aware that relates directly to Supplied Compound or Clinical Supply or which could impact on the ability to make or to continue to make and supply Supplied Compound or Clinical Supply.

6.6 Audit Rights by Toyama . Toyama shall have the right at any time and from time to time during business hours, after prior arrangements have been established with Cempra, to audit the Facilities of Cempra including, to the extent permitted by Cempra’s contractors (Cempra being committed to obtain such permission), its subcontractor(s) related to manufacture of the Supplied Compound for sole purpose of reviewing Cempra’s compliance with Specifications and cGMP. Each Party shall bear its own out-of-pocket expense and costs related to such audit, any reasonable additional out-of-pocket expense therefor imposed by any Third Party contractor with respect to any such audit by or on behalf of Toyama shall be paid by Toyama.

Article VII

Documentation

7.1 Documentation . Each Party shall maintain, in accordance with and for the period required under cGMP and all other Applicable Law, complete and adequate records pertaining to the methods and facilities used for the manufacture, processing, testing, packing, labeling, holding and distribution of the Supplied Compounds, Clinical Supply, and, in the case of Toyama, Finished Products.

Article VIII

Representations, Warranties, and Covenants

8.1 Representations and Warranties of Cempra . Cempra represents and warrants that:

(a) the manufacture, packaging, generation, processing, supply, distribution, transport, treatment, storage, disposal and other handling of any Supplied Compounds or Clinical Supply by or on behalf of Cempra prior to it being made available at the Delivery Point shall be in strict accordance with and conform to the Specifications, the Quality Agreement, cGMP, and Applicable Law;

[*];

[*]; and

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[*].

DISCLAIMER: THE REPRESENTATIONS AND WARRANTIES PROVIDED IN THIS AGREEMENT DO NOT APPLY TO SUPPLIED COMPOUND OR CLINICAL SUPPLY (COLLECTIVELY, “SUPPLIED PRODUCT”) TO THE EXTENT THAT, AFTER BEING MADE AVAILABLE BY CEMPRA TO TOYAMA, OCCURRENCES AFFECTING OR ALTERING THE SUPPLIED PRODUCT AFTER BEING MADE AVAILABLE FOR PICK-UP BY TOYAMA’S CARRIER AT THE DELIVERY POINT, OR ACTIONS TAKEN OR FAILED TO BE TAKEN AFTER THE SUPPLIED PRODUCT WAS SHIPPED THEREBY, THE SUPPLIED PRODUCT FAILS TO CONFORM TO SPECIFICATIONS OR CGMP. EXCEPT AS EXPRESSLY SET FORTH IN THIS SECTION 8.1, CEMPRA DISCLAIMS ALL OTHER WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NON-INFRINGEMENT OF THE INTELLECTUAL PROPERTY OF ANY THIRD PARTY. The foregoing disclaimers shall not be deemed to affect in any way the representations and warranties made in the License Agreement.

8.1A Cempra Covenant . Cempra shall (i) provide Toyama [*] following the Effective Date as soon as reasonably practicable following the receipt thereof by Cempra and (ii) [*].

8.2 Representations and Warranties of Toyama . Toyama represents and warrants to Cempra that Toyama has all Consents and other governmental approvals, permits, consents, and licenses necessary for the performance of its obligations hereunder and will obtain, prior to any manufacture, marketing, distribution, or sale of the Supplied Compounds, Clinical Supply, or Finished Product under the License Agreement, all Consents and other governmental approvals, permits, consents, and licenses necessary therefor. To Toyama’s knowledge as of the Effective Date, without duty or obligation of investigation or inquiry, there is no Patent owned by any Third Party, other than those Patents included within the Cempra Patents, that Covers any Supplied Compound or Clinical Supply in the Territory.

8.3 Storage and Distribution of the Supplied Compounds and Clinical Supply . Toyama shall comply, and shall ensure that its Affiliates and Sublicensees comply, with cGMP, the Specifications, and all Applicable Law in the storage, handling, use, and distribution of the Supplied Compound and Clinical Supply supplied by Cempra pursuant to this Agreement, and Toyama shall comply, and shall ensure that its Affiliates, Sublicensees and Toyama Sole Distributors comply, with cGMP, the Specifications, and all Applicable Law in the manufacture, storage, handling, sale, use, and distribution of all Finished Products manufactured using such Supplied Compound.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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Article IX

Liability and Indemnification

9.1 Indemnification by Cempra . Subject to Section 9.3, Cempra hereby agrees to defend, indemnify and hold harmless Toyama, its Affiliates, Sublicensees, Toyama Sole Distributors, and Toyama’s and its Affiliates’ directors, officers, employees, contractors, agents, other representatives, successors and assigns (collectively, “ Toyama Indemnitees ”) from and against all suits, claims, proceedings or causes of action brought by Third Parties (“ Claims ”), and all associated damages, liabilities, expenses and/or loss, including reasonable legal expenses and reasonable attorneys’ fees (“ Losses ”), to the extent arising out of:

(b) any Third Party claim that [*];

(d) any Third Party claim that [*],

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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9.2 Indemnification by Toyama . Subject to Section 9.3, Toyama hereby agrees to indemnify, defend and hold harmless Cempra, its Affiliates and Cempra’s and its Affiliates’ licensors, officers, directors, employees, contractors, agents, other representatives, successors, and assigns (collectively, “ Cempra Indemnitees ”) from and against any Claims and Losses to the extent arising out of:

(b) any Third Party claim that any Compound or Permitted Derivative incorporated in any Licensed Product used or sold in the Field in the Territory caused personal injury or death to the extent such personal injury or death was claimed on the basis of, or caused by, [*];

(d) any Third Party claim that Toyama’s, its Sublicensees’, or any of Toyama’s or Sublicensees’ contractors’ manufacture of any Compound or Permitted Derivative, [*], infringes or misappropriates any intellectual property rights of any Third Party, except to the extent, in the case of (a), (b), (c), and (d), such Claims or Losses are subject to indemnification by Cempra under the License Agreement or this Agreement.

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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9.3 Indemnification Procedures . Each Party’s agreement to indemnify, defend, and hold harmless under Section 14.1 or 14.2, as applicable, is conditioned upon the indemnified party (a) providing written notice to the indemnifying Party of any Claim arising out of the allegedly or actually indemnified matter as soon as reasonably possible, and in any event no later than within [*] Calendar Days after the indemnified Party has actual knowledge of such claim, demand or action, (b) permitting the indemnifying Party to assume control at its sole expense over the investigation of, preparation and defense against, and settlement or voluntary disposition of any such claim, demand or action, using counsel reasonable acceptable to the indemnified Party, (c) assisting the indemnifying Party, as reasonably requested by the indemnifying Party and at the indemnifying Party’s reasonable expense, in the investigation, preparation, defense, and settlement or voluntary disposition of any such claim, demand or action, (d) not compromising, settling, or entering into any voluntary disposition of any such claim, demand or action without the indemnifying Party’s prior written consent, which consent shall not be unreasonably withheld, and (e) furnishing promptly to the indemnifying Party copies of all notices and documents (including court papers) received by any indemnified party in connection with the Claim for which indemnification is being sought; provided, however, that, if the party entitled to indemnification hereunder fails to comply with any of the foregoing conditions, the indemnifying Party will only be relieved of its indemnification obligation under this Agreement to the extent materially prejudiced by such failure. In no event may the indemnifying Party compromise, settle, or enter into any voluntary disposition of any claim, demand or action in any manner that admits material fault or wrongdoing on the part of the indemnified Party or incurs non-indemnified liability on the part of the indemnified Party without the prior written consent of the indemnified Party, and in no event may the indemnifying Party settle, compromise, or agree to any voluntary disposition of any matter subject to indemnification hereunder in any manner which would reasonably be anticipated by the indemnifying Party to adversely affect any portion of the Cempra Technology, the other Party’s ability to Develop, manufacture, or Commercialize Licensed Products in the Field in the Territory, or, in the event Toyama is the indemnifying Party, Cempra’s, its Affiliates’ or their licensees’ ability to develop or exploit Cempra Technology, or any product incorporating, utilizing, or covered by the Cempra Technology or any Protected Patents, outside the Field, outside the Territory, or with respect to any products other than Licensed Products without the indemnified Party’s prior written consent, such consent not to be unreasonably withheld.

9.4 Limitation of Liability .

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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CONTRARY, THE FOREGOING SHALL NOT BE CONSTRUED TO LIMIT THE INDEMNITY OBLIGATIONS SET FORTH IN SECTIONS 9.1 AND 9.2 IN THIS AGREEMENT OR EITHER PARTY’S LIABILITY FOR PATENT INFRINGEMENT.

(b) EACH PARTY’S TOTAL, AGGREGATE LIABILITY FOR ALL CLAIMS ARISING UNDER THIS AGREEMENT, WHETHER IN CONTRACT, TORT, PRODUCT LIABILITY, STRICT LIABILITY, OR OTHERWISE, SHALL NOT EXCEED THE GREATER OF (i) US$[*] MILLION [*] OR (ii) [*], PROVIDED THAT, NOTWITHSTANDING ANYTHING TO THE CONTRARY, THE FOREGOING SHALL NOT BE CONSTRUED TO LIMIT CEMPRA’S INDEMNITY OBLIGATIONS UNDER THIS AGEEMENT EXCEPT WITH RESPECT TO SUCH OBLIGATIONS UNDER CLAUSE (a)(ii) OF SECTION 9.1 OF THIS AGREEMENT WITH RESPECT TO CLAIMS MADE BY, OR LOSSES OF, THIRD PARTIES WITH RESPECT TO ANY BREACH OF CONTRACT OR SIMILAR ARRANGEMENT, ANY FAILURE TO PERFORM UNDER OR COMPLY WITH ANY CONTRACTUAL PROVISION OR SIMILAR OBLIGATION, OR SIMILAR OCCURRENCE OR ON THE BASIS OF ANY SIMILAR THEORY OR CAUSE OF ACTION.

Article X

Term; Termination

10.1 Term . Unless earlier terminated in accordance with this Article X, this Agreement shall commence on the Effective Date and continue until the expiration or termination of the License Agreement.

10.2 Termination .

(a) Material Breach . Either Party may terminate this Agreement, effective upon (i) [*] Calendar Days written notice to the other Party for any failure to pay any amounts when due under this Agreement or (ii) [*] Calendar Days prior written notice to the other Party in the case of any other breach of this Agreement, respectively, if the other Party fails to pay any amounts when due under this Agreement or commits a material breach of this Agreement and fails to cure such breach by the end of such [*] or [*] Calendar Day period, respectively; provided, however, that (i) failure to pay amounts due under this Agreement within [*] Calendar Days after such payments are due (as set forth in Section 4.2) shall in any event, and without limitation of any other rights or remedies available to Cempra under this Agreement, relieve Cempra of any further obligation to perform under this Agreement until all outstanding payments are brought current, and, should Cempra elect in writing to require reasonable security, Toyama shall also have provided reasonable security for future payment as required by Cempra. Notwithstanding anything to the contrary, Toyama shall only be entitled under this Section 10.2(a) to terminate this Agreement for (X) any uncured failure by Cempra to deliver Supplied Compounds or Clinical Supply, respectively, in accordance with Orders properly placed under this Agreement if [*], or [*], and (Y) with respect to whichever of Supplied

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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Compound or Clinical Supply was the subject of Cempra’s uncured supply failure that caused, or was reasonably anticipated by Toyama to be the cause, of such material adverse effect, and this Agreement may remain in effect with respect to whichever of the Supplied Compound or Clinical Supply was not the subject of such uncured supply failure by Cempra, at the option of Toyama.

(b) Termination for Financial Insecurity . In the event that either Party files for protection under bankruptcy laws, makes an assignment for the benefit of creditors, appoints or suffers appointment of a receiver or trustee over its property, files a petition under any bankruptcy or insolvency act or has any such petition filed against it which is not discharged within [*] Calendar Days of the filing thereof, then (i) such Party shall immediately provide written notice of such circumstance to the other Party and (ii) the other Party may terminate this Agreement effective immediately upon written notice to such Party.

10.3 Effects of Termination . In the event of termination or expiration of this Agreement, Cempra shall have no further obligation to sell Supplied Compound or Clinical Supply to Toyama (including with respect to any outstanding Orders), provided that, without limitation of any rights or remedies Cempra may have with respect to any breach of this Agreement or the License Agreement by Toyama, Cempra shall have the option, in its sole discretion, to fulfill any Orders outstanding at the time of such termination and, in the event it does fulfill any such outstanding Orders, Toyama shall be obligated to buy, pay for, and take delivery of such Supplied Compound or Clinical Supply on the terms set forth in this Agreement. In addition, in the event of any expiration or termination of this Agreement, Toyama shall reimburse Cempra, within [*] Calendar Days of any invoice provided by Cempra, for all reasonable, documented costs incurred by it or its Affiliates with respect to any Supplied Compound or Clinical Supply to be supplied hereunder that is in the process of manufacture as of the date of such expiration or termination or reasonable amounts of Materials obtained in reasonable anticipation of Cempra’s supply of Supplied Compound or Clinical Supply hereunder pursuant to any Orders, Firm Zone, or Non-binding Forecasts provided hereunder. Notwithstanding the foregoing or anything to the contrary, in the event of termination of this Agreement by Toyama pursuant to Section 10.2(a) or expiration of this Agreement due to the termination of the License Agreement by Toyama pursuant to Section 12.2 thereof, Toyama shall have the right to cancel (in writing) any unfulfilled orders for Supplied Compound or Clinical Supply outstanding as of the date of such termination (except to the extent shipment of Supplied Compound or Clinical Supply to the Delivery Point has been initiated by or on behalf of Cempra prior to such cancellation, for which corresponding orders may not be canceled and Toyama shall remain liable), and Toyama shall not have any obligation to pay for any such canceled orders nor to reimburse Cempra for any costs incurred by it or its Affiliates with respect to any Supplied Compound or Clinical Supply that is the subject of such canceled orders.

10.4 Survival . Articles I, III, VII, IX, X, and XI, Sections 2.5, 5.2(d), 5.8, 5.9, 5.10, 5.11, 5.12, 5.13, 6.1, 6.4, 6.5, 8.1, 8.2 and 8.3, and any other provision which by its terms specifically shall so state, together with any Articles or Sections referenced in such surviving provisions or necessary to give them effect and any obligation to make accrued but unpaid payments due hereunder (and any payment obligations resulting from any post-termination or

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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expiration supply of Supplied Compound or Clinical Supply, or request for reimbursement for work-in-process or Materials, under Section 10.3), shall survive the termination or expiration of this Agreement.

Article XI

Miscellaneous

11.1 General . Except to the extent the contrary is explicitly stated in this Agreement, Sections 10, 13.1 (solely with respect to clauses (a), (b), (c), (d), (e), and (f) thereof), 13.3, 13.4 (solely with respect to the portions of Sections 13.1 and 13.3 of the License Agreement previously referenced in this Section 11.1), 14.5, 14.6, 15, 16.2, 16.3, 16.5, 16.6, 16.7, 16.8, 16.9, 16.10, 16.11, 16.12, 16.13, 16.14, 16.16, and 16.17 of the License Agreement will apply to the subject matter hereof mutatis mutandis.

11.2 Standard Forms . In all communications, Cempra and Toyama may employ their standard forms, but nothing in those forms, including Orders, shall be construed to modify or amend the terms and conditions of this Agreement, and, in the case of any conflict herewith, the terms and conditions of this Agreement shall control.

11.3 Notices . In addition to the other specific procedures for notification required herein, all notices, demands, requests and other communications made hereunder shall be in writing and shall be given either by personal delivery, by nationally recognized overnight courier (with charges prepaid), or by facsimile transmission (with telephone confirmation), and shall be deemed to have been given or made: (i) if personally delivered, on the day of such delivery; (ii) if sent by overnight courier, on the Business Day following the date deposited with such overnight courier service; or (iii) if by facsimile transmission, on the date transmitted to receiving facsimile machine and confirmed by telephone, in each case pending the designation of another address, addressed as follows:

If to Cempra :

Cempra Pharmaceuticals, Inc.

Building Four Quadrangle

6340 Quadrangle Drive, Suite 100

Chapel Hill, North Carolina 27517 USA

Attn: Prabhavathi Fernandes, Ph.D., Chief Executive Officer

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With a copy (which shall not constitute notice) to :

Wyrick Robbins Yates & Ponton LLP

4101 Lake Boone Trail, Suite 300

Raleigh, North Carolina 27607

Attn: Jason S. Wood

If to Toyama :

Toyama Chemical Co., Ltd.

2-5, Nishishinjuku 3-chome

Shinjuku-ku, Tokyo 160-0023

Japan

Attn: [*],

[*], Business Development Department

11.4 Subcontractors . Cempra may utilize subcontractors (including any Affiliates of Cempra) to the extent such subcontractors have appropriate expertise and experience in the performance of its obligations under this Agreement.

11.5 CISG Disclaimer . The United Nations Convention on Contracts for the International Sale of Goods is expressly disclaimed by the Parties with respect to this Agreement and the transactions contemplated hereby.

11.6 Force Majeure . Neither Party shall be liable to the other on account of any failure to perform or on account of any delay in performance of any obligation under this Agreement (other than any obligation to pay any amounts due, which shall not be subject to this Section 11.6), if and to the extent that such failure or delay shall be due to a cause beyond the reasonable control of the relevant Party and which, by the exercise of its Commercially Reasonable Efforts of diligence and care, such Party could not reasonably have been expected to avoid (a “Force Majeure Event”). The Party experiencing the delay and seeking relief under this Section 11.6 shall promptly notify the other Party of the delay and the probable duration of the delay and shall use Commercially Reasonable Efforts to overcome such delay. The Party affected shall be excused from the performance of such obligation to the extent such performance is prevented, hindered or delayed thereby during the continuance of any such happening or event. This Agreement, in so far as it relates to such obligation, shall be deemed suspended so long as and to the extent that such cause delays the performance of any Force Majeure Event obligation.

[Signature page to follow.]

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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IN WITNESS WHEREOF, each of the Parties hereto has caused this Supply Agreement to be duly executed as of the Effective Date written above.


				CEMPRA PHARMACEUTICALS, INC.

				By:		/s/ Prabhavathi Fernandes

				Name:		Prabhavathi Fernandes

				Title:		President & CEO

				TOYAMA CHEMICAL CO., LTD.

				By:		/s/ Hirokazu Narita

				Name:		Hirokazu Narita

				Title:		Senior Executive Vice President

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EXHIBIT A-1

SUPPLIED COMPOUND SPECIFICATIONS


Test		Specifications
[*]		[*]
[*]
	[*]	[*]
	[*]	[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]		[*]
[*]
	[*]	[*]
	[*]	[*]
	[*]	[*]
	[*]	[*]
	[*]	[*]
	[*]	[*]
	[*]	[*]
[*]
	[*]	[*]
	[*]	[*]
	[*]	[*]
	[*]	[*]
	[*]	[*]

[*].

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

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EXHIBIT A-2

CLINICAL SUPPLY SPECIFICATIONS

CEM-101 Capsules


Test	Method	Components	Specifications CEM-101 Capsules
[*]	[*]	[*]	[*]
[*]	[*]	[*]	[*]
	[*]	[*]	[*]
[*]	[*]	[*]	[*]
[*]	[*]	[*]	[*]
[*]	[*]	[*]	[*]
[*]	[*]	[*]	[*]
[*]	[*]	[*]	[*]
[*]	[*]	[*]
[*]			[*]
[*]			[*]
[*]			[*]
[*]			[*]
[*]			[*]
[*]			[*]
[*]			[*]
[*]	[*]	[*]	[*]
		[*]	[*]
		[*]	[*]

[*].

[*] Confidential treatment requested; certain information omitted and filed separately with the SEC.

Exhibit 10.15


Portions of this exhibit marked [] are requested to be treated confidentially.		OMB Approval 0990-0115

AWARD/CONTRACT

1. THIS CONTRACT IS A RATED ORDER UNDER DPAS (15 CFR 350)

RATING

PAGE OF PAGES

N/A

119

2. CONTRACT (Proc. Inst. Indent.) NO.

3. EFFECTIVE DATE

4. REQUISITION/PURCHASE REQUEST/PROJECT NO.

HHSO100201300009C

See Block 20C.

OS111976

5. ISSUED BY

CODE

6. ADMINISTERED BY (If other than Item 6)

CODE

Office of Acquisitions Management, Contracts, and Grants (AMCG)

330 Independence Ave., S.W. Room G640

Washington, D.C. 20201

See Block 5.

7. NAME AND ADDRESS OF CONTRACTOR (No. street, county, state and ZIP Code)

8. DELIVERY

CEMPRA, Inc.

Building 4 Quadrangle

See Schedule.

6340 Quadrangle Drive, Suite 100

Chapel Hill, NC 27517

9/ DISCOUNT FOR PROMPT PAYMENT

N/A.

CAGE: 4D2L7 TIN: 45-4440364

10. SUBMIT INVOICES

ITEM

CODE DUNS No. 623713034

FACILITY CODE

ADDRESS SHOWN IN:

See Section G.

11. SHIP TO/MARK FOR

CODE

N/A

12. PAYMENT WILL BE MADE BY

CODE

N/A

See Block 5.

13. AUTHORITY FOR USING OTHER FULL AND OPEN COMPETITION: N/A

14. ACCOUNTING AND APPROPRIATION DATA

Appropriation Year: 2013; Object Class:25106; CAN# 1992002 $17,710,427.25

¨ 10 U.S.C. 2304(c)( ) ¨ 41 U.S.C. 253(c)( )

15A. ITEM NO.

15B. SUPPLIES/SERVICES

15C. UNIT PRICE

15D. AMOUNT

15E. UNIT PRICE

15F. AMOUNT

See Section B.

15G. TOTAL AMOUNT OF CONTRACT u

$17,710,427.25

16. TABLE OF CONTENTS

( ü )

SEC.

DESCRIPTION

PAGE(S)

( ü )

SEC.

DESCRIPTION

PAGE(S)

PART I - THE SCHEDULE

PART II - CONTRACT CLAUSES

SOLICITATION/CONTRACT FORM

CONTRACT CLAUSES

SUPPLIES OR SERVICES AND PRICE/COST

PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACH.

DESCRIPTION / SPECS / WORK STATEMENT

LIST OF ATTACHMENTS

PACKAGING AND MARKING

PART IV - REPRESENTATIONS AND INSTRUCTIONS

INSPECTION AND ACCEPTANCE

REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS

DELIVERIES OR PERFORMANCE

CONTRACT ADMINISTRATION DATA

INSTRS., CONDS., AND NOTICES TO OFFERORS

SPECIAL CONTRACT REQUIREMENTS

EVALUATION FACTORS FOR AWARD

CONTRACTING OFFICER WILL COMPLETE ITEM 17 OR 18 AS APPLICABLE

17. x CONTRACTOR’S NEGOTIATED AGREEMENT ( Contractor is required to sign this document and return 1 copies to issuing office.) Contractor agrees to furnish and deliver all items or perform all the services set forth or otherwise identified above and on any continuation sheets for the consideration stated herein. The rights and obligations of the parties to this contract shall be subject to and governed by the following documents: (a) this award/contract, (b) the solicitation, if any, and (c) such provisions, representations, certifications, and specifications, as are attached or incorporated by reference herein. (Attachments are listed herein.)

18. ¨ AWARD ( Contractor is not required to sign this document.) Your offer on Solicitation Number , including the additions or changes made by you which additions or changes are set forth in full above, is hereby accepted as to the items listed above and on any continuation sheets. This award consummates the contract which consists of the following documents: (a) the Government’s solicitation and your offer, and (b) this award/contract. No further contractual document is necessary.

19A. NAME AND TITLE OF SIGNER (Type or print)

20A. NAME OF CONTRACTING OFFICER

Susan Cortes-Shrank AMCG, ASPR, OS, DHHS

19B. NAME OF CONTRACTOR

19C. DATE SIGNED

20B. UNITED STATES OF AMERICA

20C. DATE SIGNED

(Signature of person authorized to sign)

(Signature of Contracting Officer)


NSN 7540-01-152-8069	26-107	STANDARD FORM 26 (REV. 4-85)
PREVIOUS EDITION UNUSABLE	Computer Generated	Prescribed by GSAFAR (48 CFR) 53.214(a)

CONTRACT TABLE OF CONTENTS


PART I – THE SCHEDULE			3

SECTION B - SUPPLIES OR SERVICES AND PRICES/COSTS			3

SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT			11

SECTION D - PACKAGING, MARKING AND SHIPPING			13

SECTION E - INSPECTION AND ACCEPTANCE			14

SECTION F - DELIVERIES OR PERFORMANCE			15

SECTION G - CONTRACT ADMINISTRATION DATA			32

SECTION H - SPECIAL CONTRACT REQUIREMENTS			38

PART II – CONTRACT CLAUSES			56

SECTION I - CONTRACT CLAUSES			56

PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS			62

SECTION J - LIST OF ATTACHMENTS			62

PART IV – REPRESENTATIONS AND INSTRUCTIONS			63

SECTION K – REPRESENTATIONS, CERTIFICATIONS, AND OTHER STATEMENTS OF OFFERORS			63

PART I – THE SCHEDULE

SECTION B – SUPPLIES OR SERVICES AND PRICES/COSTS

ARTICLE B.1. BRIEF DESCRIPTION OF SUPPLIES OR SERVICES

This contract is for the development of Solithromycin (CEM-101), a novel fluoroketolide antibiotic of the macrolide class for the treatment of select bacterial infections. The Research and Development (R&D) effort will progress in specific stages that cover the base performance segment and four (4) option segments as specified in this contract. Work performed during the base segment and during each option segment constitutes an independent, non-severable discrete work segment that cannot be subdivided for separate performance and is necessary to support R&D tasks related to the antibiotic. Each non-severable, work segment constitutes an entire job [discrete requirement] which shall contain multiple R&D activities that when reviewed in total shall satisfy a defined end-product. The non-severable, work segment will be fully funded from an appropriation source that is current at the time the work will be authorized to begin.

The government has determined a Bona Fide Need for each non-severable discrete work segment which will conclude upon the completion of a defined task(s) that provides independent merit and value to the Government. The Contractor must achieve a defined end-product required in each discrete work segment, as outlined in Article F of this contract, before the Government will consider exercising any of the follow-on option segment(s). The Contractor’s success in completing the required tasks under each work segment must be demonstrated through the Deliverables and Milestones specified under Article F of this contract. Those deliverables will support the GO/NO GO Contract Milestones and Decision Gates specified therein. The GO/NO GO Contract Milestones and Decision Gates will constitute the basis for the Government’s decision, at its sole discretion, to exercise any follow-on option segment(s).

The base and option segments under Contract Line Items (CLINs) 0001 through 0005 are event driven work segments rather than time driven CLINs. The funds for each independent, non-severable discrete work segment [requirement], regardless of duration, are separated by CLIN, and shall only be used for the scope of work covered in each discrete work segment (Attachment J). The periods of performance listed under each of the CLINs under Article B.2 and Article B.3 below are estimated time periods. Those individual time periods may be extended to complete the tasks required under each work segment. It is possible that more than one independent, non-severable discrete work segment [requirement], may be awarded at one time and that individual CLINs may overlap and/or proceed concurrently.

ARTICLE B.2. ESTIMATED COST AND FIXED FEE

The total estimated cost of the base performance segment is $[*]

The total fixed fee for the base performance segment is $[*] . The fixed fee shall be paid subject to Allowable Cost and Payment and Fixed Fee Clauses.

The total amount of the base performance segment , CLIN 0001, represented by the sum of the total estimated cost plus fixed fee is $17,710,427.25 . The Government will not be responsible for any Contractor incurred costs that exceed this amount unless a modification to the contract is signed by the Contracting Officer which expressly increases this amount.

It is estimated period of performance of the base performance segment is through May 23, 2015 .

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

The Contractor shall maintain records of all contract costs and such records shall be subject to the Audit and Records-Negotiation and Final Decisions on Audit Findings clauses of the General Clauses.

CLIN

Estimated
Period of
Performance

Supplies/Services

Total Estimated
Cost

Fixed Fee

Total Estimated

Cost Plus

Fixed Fee

0001

24 May 2013 through 23 May 2015.

Toxicology studies, PK/PD modeling, safety studies, animal model efficacy studies, select chemical synthesis activities

Reports and Other Data Deliverables.

$[*]

$17,710,427.25

SOW Reference

1.2.2, 1.3.2, 1.4.1, 1.5.1, 1.5.2, 1.6.1, 1.6.2, 1.6.3, 1.6.5

ARTICLE B. 3. OPTION PRICES

Unless the government exercises its option pursuant to the option clause contained in ARTICLE I.2, the contract consists only of the Base Work segment specified in the Statement of Work as defined in SECTONS C, for the price set forth in ARTICLE B.2 of the contract.

Pursuant to FAR Clause 52.217-9 (Option to Extend the Term of the Contract), the Government may, by unilateral contract modification, require the Contractor to perform the Option Work Segments specified in the Statement of Work as defined in SECTIONS C and F of this contract. If the Government exercises the/these option(s), written notice must be given to the Contractor within 30 days after the Government has completed its analysis of the deliverables associated with the applicable GO/NO GO Decision gate ; and the Government must give the Contractor a preliminary written notice of its intent to exercise the option at least 30 days before the contract expires. Specific information regarding the time frame for this notice is set forth in the OPTION CLAUSE Article in SECTION G of this contract. The estimated cost of the contract will be increased as set forth below:

OPTIONS

Option 1 (CLIN 0002) - CPFF

Option 2 (CLIN 0003) - CPFF

Option 3 (CLIN 0004) – Cost Share (Fee unallowable)

Option 4 (CLIN 0005) - CPFF


CLIN	Estimated Period of Performance	Supplies/Services	Total Estimated Cost	Fixed Fee	Total Estimated Cost Plus Fixed Fee
0002	24 May 2014 through 5 June 2016.	[*] Reports and Other Data Deliverables.	$[*]	$[*]	$[*] SOW Reference 2.4.1, 2.4.2, 2.5.2, 2.6.3, 2.6.5
0003	14 November 2015 through 27 March 2017.	[*] Reports and Other Data Deliverables.	$[*]	$[*]	$[*] SOW Reference 3.3.3, 3.4.1, 3.5.2, 3.6.3, 3.6.5
0005	9 November 2017 through 23 May 2018.	[*] Reports and Other Data Deliverables.	$[*]	$[*]	$[*] SOW Reference 5.5.2;

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

Cost
Share
CLIN

Estimated
Period of
Performance

Supplies/Services

Total Estimated

Cost of CLIN
0004

Total Estimated

Cost CEMPRA
share

Total Estimated
Cost Government
Share

0004

28 March 2015 through 23 May 2018.

[*]

Reports and Other Data Deliverables.

$[*]

SOW Reference

4.4.2,

CLIN 0004 is a cost share CLIN and is subject to FAR Clause 52.216-12

ARTICLE B. 4. PROVISIONS APPLICABLE TO DIRECT COSTS

a.	Items Unallowable Unless Otherwise Provided

Notwithstanding the clauses, ALLOWABLE COST AND PAYMENT and FIXED FEE, incorporated in this contract, unless authorized in writing by the Contracting Officer, the cost of the following items or activities shall be unallowable as direct costs:

Acquisition, by purchase or lease, of any interest in real property;

Special rearrangement or alteration of facilities;

Accountable Government Property ( see the Contractor’s Guide for Control for Government Property incorporated by ARTICLE G.10. of this contract);

Note: this includes the lease or purchase of any item of general purpose office furniture or office equipment regardless of dollar value.

Purchase or lease scientific instruments or equipment over $1,500

Travel to attend general scientific meetings/conferences;

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

Printing Costs (as defined in the Government Printing and Binding Regulations);

Overtime (premium) compensation

Entering into certain types subcontract of arrangements (See Article B.5(c) for specific obligations). Note that most consulting agreements require a Contracting Officers Authorization (COA).

Foreign Travel;

10)

Patient care costs (see Attachment 6);

b.	Travel Costs

Total expenditures for travel (transportation, lodging, subsistence, and incidental expenses) incurred in direct performance of this contract during the base segment (CLIN001) or any option segment(s) shall not exceed $[*] without the prior written approval of the Contracting Officer.

If, pursuant to FAR Clause 52.217-9 (Option to Extend the Term of the Contract), the Government exercises an option, travel costs for each CLIN shall not exceed the following schedule:

Option 1 (CLIN 0002) - $[*]

Option 2 (CLIN 0003) - $[*]

Option 3 (CLIN 0004) - $[*] (BARDA share which excludes Cempra’s portion of travel costs for this Cost Share CLIN)

Option 4 (CLIN 0005) - $[*]

Subject to the annual dollar limitation specified under B.4.b.1. above, the Contactor shall invoice and be reimbursed for all travel costs in accordance with Federal Acquisition Regulation (FAR) 31. .2 – Contracts with Commercial Organizations, Subsection 31.205-46, Travel Costs.

If foreign travel is necessary, a COA will be required. Expenditures for foreign travel (transportation, lodging, subsistence, and incidental expenses) incurred in direct performance of this contract shall not exceed the amount specified in each approved COA, without the prior written approval of the Contracting Officer.

Requests for foreign travel must be submitted at least four weeks in advance and shall contain the following:

(a) meeting(s) and place(s) to be visited, with breakout of costs and dates;

(b) name(s) and title(s) of Contractor personnel to travel and their functions in the contract project;

(d) how travel of Contractor personnel will benefit and contribute to accomplishing the contract project, or will otherwise justify the expenditure of ASPR contract funds;

(e) how such advantages justify the costs for travel and absence from the project of more than one person if such are suggested; and

(f) what additional functions may be performed by the travelers to accomplish other purposes of the contract and thus further benefit the project.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

ARTICLE B.5. ADVANCE UNDERSTANDINGS

FDA Guidance

At the time of contract award, dated May 20, 2013, specific guidance from the FDA associated with optional CLIN 0004 ([*]) in a pediatric population is not available. The Contractor will conduct a meeting with the FDA during the base period of performance (CLIN 0001) of the contract to determine an appropriate strategy for obtaining approval of Solithromycin (CEM-101) for the treatment of Community Acquired Bacterial Pneumonia in pediatric populations. The GO/NO GO Contract Milestone #1 under Article F of this contract outlines the specific end products that the Contractor must meet before the Government will consider exercising the follow-on option segment [CLIN0004]. Article F of this contract describes the Go Criteria for Milestone #1 as [*].

In the event that the FDA provides guidance that extrapolation of efficacy data from adult populations is sufficient to support a label indication for a pediatric population without performing a pediatric efficacy study, activities described in the statement of work under attachment J, item 1 may be modified.

The contracting officer may request a modified statement of work for CLIN 0004 to align with the FDA guidance to ensure the Contractor can obtain relevant data to support submission of a NDA for their pediatric indication.

Any contract modification to the statement of work under CLIN 0004 will not impact the percentage of cost sharing under CLIN 0004 as agreed to by the Government and the Contractor prior to contract award. The Contractor to Government cost sharing distribution of [*]%:[*]% may not be renegotiated.

The GO/NO GO Contract Milestones and Decision Gates will constitute the basis for the Government’s decision, at its sole discretion, to exercise CLIN 0004.

Man-in-Plant

With seven (7) days advance notice to the Contractor in writing from the Contracting Officer, the Government may place a man-in-plant in the Contractor’s facility, who shall be subject to the Contractor’s policies and procedures regarding security and facility access at all times while in the Contractor’s facility. As determined by federal law, no Government representative shall publish, divulge, disclose, or make known in any manner, or to any extent not authorized by law, any information coming to him in the course of employment or official duties, while stationed in a contractor plant.

Security Plan

No Security Plan is required at this point for this effort. It is anticipated a security waiver will be approved. In the event a security waiver cannot successfully be attained, a security plan must be delivered to the Government subsequently.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

Subcontracts and Consultants

Prior written consent from the Contracting Officer in the form of Contracting Officer Authorization (COA) is required for any subcontract that is a cost-reimbursement type or fixed price and exceeds $[*].

Contracting Officer shall request appropriate supporting documentation in order to review and determine authorization, pursuant with FAR Clause 52.244-2, Subcontracts. After receiving written consent of the subcontract by the Contracting Officer, a copy of the signed, executed subcontract and consulting agreement shall be provided to the Contracting Officer.

Note: Consulting services are treated as subcontracts and subject to the ‘consent to subcontract’ provisions set forth in this Article.

Site Visits and Inspections

At the discretion of the USG and independent of activities conducted by the Contractor, with 48 hours notice to the contractor, the USG reserves the right to conduct site visits and inspections on an as needed basis, including collection of product samples and intermediates held by the contractor, or subcontractor. In case of subcontractor visits and inspections that are independent of activities conducted by the Contractor, the USG shall demonstrate cause for such visit and/or inspection. All costs reasonably incurred by the Contractor and subcontractor for such visit and/or inspection shall be allowed costs. The Contractor shall coordinate these visits and shall have the opportunity to accompany the USG on any such visits. Under time-sensitive or critical situations, the USG reserves the right to suspend the 48 hour notice to the Contractor. The areas included under the site visit could include, but are not limited to: security, regulatory and quality systems, and cGMP/GLP/GCP compliance.

If BARDA, the Contractor, or other parties identifies any issues during an audit, the Contractor shall capture the issues, identify potential solutions, and provide a report to BARDA for review and acceptance.

—

If issues are identified during the audit, Contractor shall submit a report to BARDA detailing the finding and corrective action(s) within 10 business days of the audit.

—

COR and CO will review the report and provide a response to the Contractor within 10 business days.

—

Once corrective action is completed, the Contractor will provide a final report to BARDA.

QA AUDIT:

BARDA reserves the right to participate in QA audits. Upon completion of the audit/site visit the Contractor shall provide a report capturing the findings, results and next steps in proceeding with the subcontractor. If action is requested of the subcontractor, detailed concerns for addressing areas of non-conformance to FDA regulations for GLP, GMP, or GCP guidelines, as identified in the audit report, must be provided to BARDA for review and acceptance. The Contractor shall provide responses from the subcontractors to address these concerns and plans for corrective action execution.

—

Contractor shall notify CO and COR of upcoming, ongoing, or recent audits/site visits of subcontractors as part of weekly communications

—

Contractor shall notify the COR and CO within 5 business days of report completion.

Invoices - Cost and Personnel Reporting and Variances from the Negotiated Budget

See Attachment #2 for detailed requirements for Invoicing.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

The Contractor agrees to provide a detailed breakdown on invoices of the following cost categories:

Direct Labor - List individuals by name, title/position, hourly/annual rate, level of effort (actual hours or % of effort), breakdown by task performed by personnel, and amount claimed.

Fringe Benefits - Cite rate and amount

Overhead - Cite rate and amount

Materials & Supplies - Include detailed breakdown when total amount is greater than $1,500.

Travel - Identify travelers, dates, destination, purpose of trip, and amount. Cite COA, if appropriate. List separately domestic travel, general scientific meeting travel, and foreign travel.

Consultant Fees - Identify individuals and amounts. Cite appropriate COA.

Subcontracts - Attach Subcontractor invoice(s). Cite appropriate COA.

Equipment - Cite authorization and amount. Cite appropriate COA.

Other Direct Costs - Include detailed breakdown when total amount is greater than $1,500.

G&A - Cite rate and amount.

Total Cost

Fixed Fee

Total CPFF

Monthly invoices must include the cumulative total expenses to date, adjusted (as applicable) to show any amounts suspended by the Government. In order to verify allowability, further breakdown of costs may be requested at the Government’s discretion.

See Attachment #2 for detailed requirements for Invoicing

Confidential Treatment of Sensitive Information

The Contractor shall guarantee strict confidentiality of any information/data of a sensitive nature that is provided to the Contractor by the Government during the performance of the contract. The Government has determined that the information/data that the Contractor will be provided during the performance of the contract is of a sensitive nature.

Disclosure of information/data that is sensitive in nature, in whole or in part, by the Contractor can only be made after the Contractor receives prior written approval from the Contracting Officer. Whenever the Contractor is uncertain with regard to the proper handling of information/data under the contract, the Contractor shall obtain a written determination from the Contracting Officer. (See also HHSAR clause 352.224-70).

Notwithstanding the foregoing, such information/data shall not be deemed of a sensitive nature with respect to the Contractor for purposes of this contract if such information/data: (a) was already known to the Contractor; (b) was generally available or known, or was otherwise part of the public domain, at the time of its disclosure to the Contractor; (c) became generally available or known, or otherwise became part of the public domain, after its disclosure to, or, with respect to the information/data by, the Contractor through no fault of the Contractor; (d) was disclosed to the Contractor, other than under an obligation of confidentiality or non-use, by a third party who had no obligation to the Government that controls such information/data not to disclose such information/data to others; or (e) was independently discovered or developed by the Contractor, as evidenced by its written records, without the use of information/data belonging to the Government.

Contractor may disclose information/data of a sensitive nature provided by the Government to the extent that such disclosure is: (a) made in response to a valid order of a court of competent jurisdiction or other supra-national, federal, national, regional, state, provincial or local governmental or regulatory body of competent jurisdiction; provided , however , that the Contractor shall first have given notice to the Government and give the Government a reasonable opportunity to quash such order and to obtain a protective order requiring that the information/data of a sensitive nature that is the subject of such order be held in confidence by such court or agency or, if disclosed, be used only for the purposes for which the order was issued; and provided further that if a disclosure order is not quashed or a protective order is not obtained, the information/data disclosed in response to such court or governmental order shall be limited to that information which is legally required to be disclosed in response to such court or governmental order; (b) otherwise required by law, in the opinion of legal counsel to the Contractor as expressed in an opinion letter in form and substance reasonably satisfactory to the Government, which shall be provided to the Government at least two (2) business days prior to the Contractor’s disclosure of the information/data; or (c) made by the Contractor to the Regulatory Authorities as required in connection with any filing, application or request for Regulatory Approval; provided , however , that reasonable measures shall be taken to assure confidential treatment of such information/data.

Sharing of contract deliverables within United States Government (USG)

In an effort to build a robust medical countermeasure pipeline through increased collaboration, BARDA may share technical deliverables with USG entities responsible for Medical Countermeasure Development. In accordance with recommendations from the Public Health Emergency Medical Countermeasure Enterprise Review, agreements established in the Integrated Portfolio’s Portfolio Advisory Committee (PAC) Charter, Technology Transfer Agreements (TTA) between BARDA and the Defense Threat Reduction Agency and the National Institute of Allergies and Infectious Diseases (NIAID), BARDA may share technical deliverables set forth in Article F.2 with colleagues within the Integrated Portfolio. This advance understanding does not authorize BARDA to share financial information outside HHS. The Contractor is advised to review the terms of FAR Clause 52.227-14 regarding the Government’s rights to deliverables submitted during performance as well as the Government’s rights to data contained within those deliverables.

Overtime Compensation

No overtime (premium) compensation is authorized under the subject contract. Billing of actual hours is limited to total productive hours in a month.

SECTION C - DESCRIPTION/SPECIFICATIONS/WORK STATEMENT

ARTICLE C.1. STATEMENT OF WORK

Independently and not as an agent of the Government, the Contractor shall furnish all the necessary services, qualified personnel, material, equipment, and facilities not otherwise provided by the Government as needed to perform the Statement of Work set forth in SECTION J-List of Attachments, attached hereto and made a part of the contract.

ARTICLE C.2. REPORTING REQUIREMENTS

Refer to ARTICLE F.2. for specific instructions regarding Reporting Requirements.

ARTICLE C.3. EARNED VALUE MANAGEMENT SYSTEM (EVMS) IMPLEMENTATION REQUIREMENTS

The Contractor and BARDA agree that the EVMS implementation requirements that are contained in this contract are limited to the implementation requirements outlined by the 7 Principles of Earned Value Management Tier 2 System Implementation Intent Guide contained in the Attachments (Section J) of the contract. The total amount of this contract reflects the use of the 7 Principles of EVMS Implementation. Any EVMS implementation requirements that are beyond the intent of the 7 Principles of EVMS Implementation shall not proceed until the Contracting Officer sends a written request for a proposal to the Contractor and a bilateral modification is issued to the contract for the purposes of incorporating the additional costs for the performance of these requirements into the contract.

Refer to ARTICLE F.2. for specifics on EVMS deliverables.

ARTICLE C.4. PROJECT MEETING CONFERENCE CALLS ONCE EVERY TWO WEEKS

A teleconference call between the Contracting Officer’s Representative and the Contractor’s Program Manager shall occur bi-weekly (every two weeks), or at the discretion of the U.S. Government. During this call, the Program Manager will discuss the activities during the reporting period, any problems that have arisen, and the activities planned for the ensuing reporting period. The Contractor’s Program Manager may choose to include other key personnel on the conference call to give detailed updates on specific projects or this may be requested by the Contracting Officer’s Representative.

Contractor will be responsible for preparing an agenda for the conference call and providing to BARDA no later than 2 business days prior to the scheduled conference call.

ARTICLE C.5. PROJECT MEETINGS

The Contractor shall participate in Project Meetings to coordinate the performance of the contract, as requested by the Contracting Officer’s Technical Representative. These meetings may include face-to-face meetings with BARDA/AMCG in Washington, D.C. and at work sites of the Contractor and its subcontractors. Such meetings may include, but are not limited to, meetings of the Contractor (and subcontractors invited by the Contractor) to discuss study designs, site visits to the Contractor’s and subcontractor’s facilities, and meetings with the Contractor and HHS officials to discuss the technical, regulatory, and ethical aspects of the program. The Contractor must provide data, reports, and presentations to groups of outside experts (subject to appropriate protections for Contractor confidential or proprietary data) and USG personnel as required by the Contracting Officer’s Technical Representative in order to facilitate review of contract activities.

Kickoff Meeting

The Contractor shall complete a Kickoff meeting within [*] days after contract award. Contractor shall provide an itinerary/agenda no later than 5 business days before meeting.

Quarterly and Ad-Hoc Meetings

At the discretion of BARDA, the Contractor shall participate in Project Meetings to coordinate the performance of the contract, as requested by the Contracting Officer’s Representative. These meetings may include face-to-face meetings with BARDA/AMCG in Washington, D.C. or at work sites of the Contractor and its subcontractors. Such meetings may include, but are not limited to, meetings of the Contractor (and subcontractors invited by the Contractor) to discuss study designs, site visits to the Contractor’s and subcontractor’s facilities, and meetings with the Contractor and HHS officials to discuss the technical, regulatory, and ethical aspects of the program. The Contractor must provide data, reports, and presentations to groups of outside experts (subject to appropriate protections for Contractor confidential or proprietary data) and USG personnel as required by the Contracting Officer’s Representative in order to facilitate review of contract activities.

Contractor shall provide itinerary/agenda at least 5 business days in advance of face-to-face meeting.

ARTICLE C.6 SUBJECT INVENTION REPORTING REQUIREMENT

All reports and documentation required by FAR Clause 52.227-11, including, but not limited to: the invention disclosure report, the confirmatory license, and the Government support certification, shall be directed to the Contracting Officer. The final invention statement (see FAR 27.303(b)(2)(ii)) shall be submitted to the Contracting Officer on the expiration date of the contract. See also FAR clause 52.227-11 (Patent Rights-Ownership by the Contractor).

Reports and documentation submitted to the Contracting Officer shall be sent to the Contracting Officer to the address set forth in SECTION G – CONTRACT ADMINISTRATION DATA.

If no invention is disclosed or no activity has occurred on a previously disclosed invention during the applicable reporting period, a negative report shall be submitted to the Contracting Officer at the address listed above.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

SECTION D – PACKAGING, MARKING AND SHIPPING

All deliverables required under this contract shall be packaged, marked and shipped in accordance with Government specifications. At a minimum, all deliverables shall be marked with the contract number and Contractor name. The Contractor shall guarantee that all required materials shall be delivered in immediate usable and acceptable condition.

Report Deliverables

Unless otherwise specified by the Contracting Officer, delivery of reports to be furnished to the Government under this contract (including invoices), shall be delivered to BARDA electronically along with a concurrent email notification to the Contracting Officer, Contract Specialist, and COR summarizing the electronic delivery.

Delivery of physical reports to be furnished shall be addressed to the COR, CO, and CS (as defined in SECTION G – CONTRACT ADMINISTRATION DATA).

SECTION E – INSPECTION AND ACCEPTANCE

The Contracting Officer (CO) or the duly authorized representative will perform inspection and acceptance of materials and services to be provided under this contract.

For the purpose of this SECTON, the designated Contracting Officer’s Representative (COR) is the authorized representative of the Contracting Officer. The COR will assist in resolving technical issues that arise during performance. The COR however is not authorized to change any contract terms or authorize any changes in the Statement of Work or modify or extend the period of performance, or authorize reimbursement of any costs incurred during performance.

Inspection and acceptance will be performed at:

Biomedical Advanced Research and Development Authority/Office of Acquisition

Management, Contracts, and Grants (AMCG)

Office of the Assistant Secretary for Preparedness and Response

U.S. Department of Health and Human Services

330 Independence Avenue, S.W., Room G644

Washington, D.C. 20201

SECTION F – DELIVERIES OR PERFORMANCE

ARTICLE F.1. ESTIMATED PERIOD OF PERFORMANCE

Under CLIN 0001, the estimated period of performance for the base performance segment of this contract shall be consistent with the dates set forth in ARTICLE B.2. If the Government exercises its option(s) pursuant to the Option Clauses in Article G.11 and Article I.2 of the contract, the period of performance (PoP) will be increased as shown in the table in Article B.3.

ARTICLE F.2. DELIVERABLES

Successful performance of the final contract shall be deemed to occur upon performance of the work set forth in the Statement of Work, dated April 17, 2013 set forth in SECTION J-List of Attachments of this contract and upon delivery and acceptance, as required by the Statement of Work, by the Contracting Officer, or the duly authorized representative, of the following items in accordance with the stated delivery schedule:

The items specified below as described in the REPORTING REQUIREMENTS Article in SECTION C of this contract and the Statement of Work set forth in SECTION J-List of Attachments will be required to be delivered in accordance with and by the date(s) specified below and any specifications stated in SECTION D, PACKAGING, MARKING AND SHIPPING, of this contract. All reports identified below relate solely to the development activity funded under this contract:

1.	Summary of Contract Deliverables

Unless otherwise stated, each deliverable in the table below shall be provided as one (1) electronic copy to the COR and CO.


CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
01	Kickoff Meeting	The Contractor shall complete a Kickoff meeting after contract award	— Within [*] days of contract award. — Contractor shall provide itinerary and agenda at least 5 business days in advance of site visit. — COR approves and distributes itinerary and agenda within 3 business days. — Contractor provides meeting minutes to COR within 3 business days after the meeting. — COR reviews, comments, and approves minutes within 10 business days.
02	Quarterly Meetings	The Contractor shall hold recurring Program Review Meetings approximately every third month. The meetings will be used to discuss contract progress in relation to the Program Management deliverables described below as well as study designs, technical, regulatory, and ethical aspects of the program.	— Contractor provides Quarterly Status Report five business days prior to meeting. This report is an expanded version of the Monthly Status Report. — Contractor shall provide itinerary, agenda and meeting slides at least 5 business days in advance of the meeting. — COR approves and distributes itinerary and agenda within 3 business days. — Contractor provides meeting minutes to COR within 3 business days after the meeting. — COR reviews, comments, and approves minutes within 10 business days.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.


CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
03	Project Status meeting	The Contractor shall participate in teleconferences every two weeks with BARDA to discuss the performance of the contract.	— Contractor provides agenda to COR no later than 2 business days in advance of meeting — COR approves (with CO concurrence) and distributes agenda prior to meeting — Contractor provides meeting minutes to COR within 3 business days of the meeting — COR reviews, comments, and approves minutes within 10 business days.
04	Monthly, Quarterly & Annual Project Status Report/Annual Meeting	The Monthly and Annual Technical Progress report shall address each of the below items and be cross-referenced to the Work Breakdown Structure (WBS), Statement of Work (SOW), Integrated Master Schedule (IMS), Performance Measurement Baseline Review report (PMBR), Earned Value Management (EVM), and Contract Performance Report (CPR). 1. An Executive Summary highlighting the progress, issues and relevant manufacturing, non-clinical, clinical and regulatory activities. The Executive Summary should highlight only critical issues for that reporting period and resolution approach; limited to 2-3 pages. 2. Progress in meeting contract milestones – broken out by subtasks within each milestone, overall project assessment, problems encountered and recommended solutions. The reports shall detail the planned and actual progress during the period covered, explaining occurrences of any differences between the two and the corrective steps. 3. The reports shall also include a three-month rolling forecast of the key planned activities, referencing the WBS/IMS. 4. A tracking log of progress on regulatory submissions with the FDA number, description of submission, date of submission, status of submission and next steps. 5. IMS updates 6. Provide updated EVM CPR 7. Estimated and Actual Expenses. a. This report shall also contain a narrative or table detailing whether there is a significant discrepancy (>10%) at this time between the % of work completed and the cumulative costs incurred to date. Monthly and actual expenses should be broken down to the appropriate WBS level. This section of the report should also contain estimates for the Subcontractors’ expenses from the previous month if the Subcontractor did not submit a bill in the previous month. If the subcontractor(s) was not working or did not incur any costs in the previous month, then a statement to this effect should be included in this report for those respective subcontractors.	— Monthly Reports shall be submitted on the 20 ^th calendar day of each month or the next business day, with an Annual Report submitted on the 20 ^th calendar day of the final month of each contract year for the previous twelve calendar months. Monthly progress reports are not required for the periods when the Annual Report(s) and Final Report are due. The COR and CO will review the monthly reports with the Contractor and provide feedback. — Contractor provides Annual Project Status Report deliverables 5 business days prior to meeting. A draft report including .ppt slides should be provided 5 business days prior to the meeting. The annual report should also include information from the annual meeting due 15 business days after the meeting. — COR approves (with CO concurrence) and distributes agenda no later than 2 business days in advance of meeting — COR approves (with CO concurrence) all meeting material no later than 2 business days in advance of meeting — Contractor provides meeting minutes within 5 business days of meeting — COR reviews, comments, and approves minutes within 10 business days of receipt — Contractor provides FINAL annual report within 15 business days after the conclusion of the annual meeting. — COR reviews, comments, and approves (with CO concurrence) FINAL Annual Report — BARDA and Contractor shall participate in an in-process review.


CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
05	Earned Value Management (EVM) / Contract Performance Report (CPR)	Contractor will provide a monthly Contract Performance Report (CPR) Format 1 at an agreed upon reporting level using the BARDA provided WBS and a Variance Analysis Report (Format 5). The supplemental monthly CAP report shall contain, at the work package level, time phased budget (budgeted cost of work scheduled), earned value (budgeted cost of work performed), and actual costs of work performed as captured in Contractor’s EVM systems. The Contractor shall provide a rationale in the package of its use of % complete as EVMS methodology or identity if any other EVMS methodology is being used.	— Contractor shall provide EVM/CPR as part of the Monthly Progress Report on the 20 ^th day of the month after the end of each month — Contractor shall provide top level or key changes in baseline cost as a result of anticipated cost savings or risks — BARDA may request, on a monthly or ad hoc basis that the Contractor provide raw data at a reporting level or lower level as BARDA deems necessary. — Contractor must address, in writing, all concerns raised by BARDA.
06	Performance Measurement Baseline Review (PMBR)	PMBR Report shall address each of the items listed below and be cross-referenced to the IMP, WBS, SOW, and Risk Management Plan. 1. Contractor provides baseline proposal 2. Responsibility Assignment Matrix 3. A description of the work scope through control account Work Authorization Documents and/or WBS Dictionary down to the control account level 4. Template for work packages 5. IMS with the inclusion of agreed major milestones and control account plans for all control accounts 6. Baseline revision documentation and program log(s) risk management plan	— Due within 90 days of contract award — Contractor shall provide baseline proposal .ppt briefing 10 business days prior to meeting — Contractor provides agenda to COR 2 business days in advance of meeting — COR approves (with CO concurrence) and distributes agenda no later than 2 business days in advance of meeting — COR approves (with CO concurrence) all meeting material no later than 2 business days in advance of meeting — Contactor provides minutes within 3 business days of the meeting — COR reviews and approves (with CO concurrence) minutes — BARDA will review documentation and provide written comments and questions to Contractor Contractor shall address BARDA’s comments and resubmit PMBR report for BARDA approval within 10 business days.
07	Risk Management Plan	The Contractor shall provide a Risk Management Plan that outlines the impacts of each risk in relation to the cost, schedule, and performance objectives. The plan shall include risk mitigation strategies. Each risk mitigation strategy will capture how the corrective action will reduce impacts on cost, schedule and performance.	— Due within 90 days of contract award — Contractor provides updated Risk Management Plan in Monthly Progress Report — BARDA shall provide Contractor with a written list of concerns in response plan submitted — Contractor must address, in writing, all concerns raised by BARDA within 20 business days of Contractor’s receipt of BARDA’s concerns.
08	Deviation Notification and Mitigation Strategy	Process for changing IMS activities associated with cost and schedule as baselined at the PMBR. Contractor shall notify BARDA of significant changes the IMS defined as increases in cost above []% for Go/No Go milestones or schedule slippage of more than [] days, which would require a PoP extension. Contractor shall provide a high level management strategy for risk mitigation.	— Due as needed

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.


CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
09	Go/No-Go Decision Gate Presentation	Contractor shall provide a presentation detailing technical progress made towards completion of Go/No-Go decision gate milestones following a prescribed template provided by BARDA prior to the IPR	— Contractor shall provide presentation in .ppt format 10 business days prior to the In-Process Review (IPR) — Contractor shall submit written justification of progress towards satisfying Go/No-Go criteria — After reviewing, BARDA COR and CO will provide a written response.
10	Incident Report	Contractor shall communicate and document all critical programmatic concerns, risks, or potential risks with BARDA.	— Due within 48 hours of activity or incident or within 24 hours for a security activity or incident — Email or telephone with written follow-up to COR and CO — Additional updates due to COR and CO within 48 hours of additional developments — Contractor shall submit within 5 business days a Corrective Action Plan (if deemed necessary by either party) to address any potential issues. — If corrective action is deemed necessary, Contractor must address in writing, its consideration of concerns raised by BARDA within 5 business days.
11	Draft and Final Technical Progress Report	A draft Final Technical Progress Report containing a summation of the work performed and the results obtained for the entire contract PoP. The draft report shall be duly marked as ‘Draft’. The Final Technical Progress Report incorporating feedback received from BARDA and containing a summation of the work performed and the results obtained for the entire contract PoP. The final report shall document the results of the entire contract. This report shall be in sufficient detail to fully describe the progress achieved under all milestones. The final report shall be duly marked as ‘Final’.	— Contractor shall provide a draft Technical Progress Report 75 calendar days before the end of the PoP and the Final Technical Progress Report on or before the completion date of the PoP. — Subcontractor prepared reports received by the Prime Contractor shall be submitted to the COR and CO for review and comment no later than 5 business days after receipt by the prime contractor — COR shall provide feedback on draft report within 10 business days of receipt, which the Contractor shall consider incorporating into the Final Report — Contractor shall submit, with the Final Technical Progress Report, a summary (not to exceed 200 words) of salient results achieved during the performance of the contract.
12	Draft and Final Reports for Clinical and Non-Clinical Studies	Contractor shall provide Draft and Final Clinical/Non-Clinical Study Reports to BARDA for review and comment.	— Draft report due within 45 calendar days after completion of analysis and at least 15 business days prior to submission to FDA. — Subcontractor prepared reports received by the Prime Contractor shall be submitted to the Contracting Officer’s Representative (COR) and Contracting Officer (CO) for review and comment no later than 5 business days after receipt by Prime Contractor.


CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
			— The Government shall provide written comments to the Draft Final Report for Clinical and Non-Clinical Studies within 10 business days after the submission. — Final report due 30 calendar days after receiving comments on the Draft Final Report for Clinical and Non-Clinical Studies. If corrective action is recommended, Contractor must address, in writing, all concerns raised by BARDA. — Contractor shall consider revising reports to address BARDA’s recommendations prior to FDA submission. — Final FDA submissions shall be provided to BARDA concurrently or no later than 1 business day after submission to the FDA.
13	Standard Operating Procedures	The Contractor shall make internal and subcontractor Standard Operating Procedures (SOPs) available for review electronically.	Upon request from the Contracting Officer Representative/Contracting Officer
14	Manufacturing Campaign Reports	Contractor shall provide Manufacturing Campaign Reports to BARDA for review and comment prior to submission to FDA. The COR and CO reserve the right to request within the PoP a non-proprietary Manufacturing Campaign Report for distribution within the USG.	— Contractor will submit Manufacturing Campaign Reports at least 15 business days prior to FDA submission. — If corrective action is recommended, Contractor must address, in writing, all concerns raised by BARDA. — Contractor shall consider revising reports to address BARDA’s concerns and/or recommendations prior to FDA submission. — Final FDA submission shall be submitted to BARDA concurrently or no later than 1 business day after submission to the FDA.
15	FDA Correspondence	The Contractor shall memorialize any correspondence related to this contract between Contractor and FDA and submit to BARDA. All documents shall be duly marked as either “Draft” or “Final”.	— Contractor shall provide written summary of any FDA correspondence within 5 business days of correspondence.
16	FDA Meetings	The Contractor shall forward the dates and times of any meeting related to this contract with the FDA to BARDA and make arrangements for appropriate BARDA staff to attend the FDA meetings. BARDA staff shall include up to a maximum of four people (COR, CO and up to 2 subject matter experts).	— Contractor shall notify BARDA of upcoming FDA meeting within 24 hours of scheduling Type A, B or C meetings OR within 24 hours of meeting occurrence for ad hoc meetings. — The Contractor shall forward initial Contractor and FDA-issued draft minutes and final minutes of any meeting with the FDA to BARDA within 5 business days of receipt. All documents shall be duly marked as either “Draft” or “Final”.


CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
17	FDA Submissions	The Contractor shall provide BARDA the opportunity to review and comment upon all draft documents before submission to the FDA. Contractor shall provide BARDA with an electronic copy of the final FDA submission. All documents shall be duly marked as either “Draft” or “Final”.	— Contractor shall submit draft FDA submissions to BARDA at least 15 business days prior to FDA submission — BARDA will provide feedback to Contractor within 10 business days of receipt — If corrective action is recommended, the Contractor must address, in writing, its consideration of all concerns raised by BARDA — The Contractor shall consider revising their documents to address BARDA’s concerns and/or recommendations prior to FDA submission — Final FDA submissions shall be submitted to BARDA concurrently or no later than 1 calendar day of it submission to CDER.
18	FDA Audits	In the event of an FDA inspection which occurs as a result of this contract and for the product, or for any other FDA inspection that has the reasonable potential to impact the performance of this contract, the Contractor shall provide the USG with an exact copy (non-redacted) of the FDA Form 483 and the Establishment Inspection Report (EIR). The Contractor shall provide the COR and CO with copies of the plan for addressing areas of non-conformance to FDA regulations for GLP, GMP, or GCP guidelines as identified in the audit report, status updates during the plans execution and a copy of all final responses to the FDA. The Contractor shall also provide redacted copies of any FDA audits received from subcontractors that occur as a result of this contract or for this product. The Contractor shall make arrangements for BARDA representative(s) to be present during the final debrief by the regulatory inspector.	— Contractor shall notify CO and COR within 10 business days of a scheduled FDA audit or within 24 hours of an ad hoc site visit/audit if the FDA does not provide advanced notice. — Contractor shall provide copies of any FDA audit report received from subcontractors that occur as a result of this contract or for this product within 5 business days of receiving correspondence from the FDA or third party. — Within 10 business days of audit report, Contractor shall provide CO with a plan for addressing areas of nonconformance, if any are identified.
19	QA Audit Reports	BARDA reserves the right to participate in QA audits. Upon completion of the audit/site visit the Contractor shall provide a report capturing the findings, results and next steps in proceeding with the subcontractor. If action is requested of the subcontractor, detailed concerns for addressing areas of non-conformance to FDA regulations for GLP, GMP, or GCP guidelines, as identified in the audit report, must be provided to BARDA. The Contractor shall provide responses from the subcontractors to address these concerns and plans for corrective action execution.	— Contractor shall notify CO and COR 10 days in advance of upcoming, ongoing, or recent audits/site visits of subcontractors as part of weekly communications — Contractor shall notify the CO and COR within 5 business days of report completion.
20	BARDA Audit	Contractor shall accommodate periodic or ad hoc site visits by BARDA. If BARDA, the Contractor, or other parties identifies any issues during an audit, the Contractor shall capture the issues, identify potential solutions, and provide a report to BARDA.	— If issues are identified during the audit, Contractor shall submit a report to BARDA detailing the finding and corrective action(s) within 10 business days of the audit. — CO and COR will review the report and provide a response to the Contractor with 10 business days. — Once corrective action is completed, the Contractor will provide a final report to BARDA.


CDRL#	Deliverable	Deliverable Description	Reporting Procedures and Due Dates
21	Technical Documents	Upon request, Contractor shall provide CO and COR with deliverables from the following contract funded activities: process Development Reports, Assay Qualification Plan/Report, Assay Validation Plan/Report, Assay Technology Transfer Report, Batch Records, SOPs, Master Production Records, Certificate of Analysis, Clinical Studies Data or Reports. The CO and COR reserve the right to request within the PoP a non-proprietary technical document for distribution within the USG.	— Contractor shall provide technical document within 10 business days of CO or COR request. Contractor can request additional time on an as needed basis. — If corrective action is recommended, the Contractor must address, in writing, concerns raised by BARDA
22	Animal Model or Other Technology Transfer Package	Contractor shall provide Animal Model or Other Technology Transfer Package relevant data	— Contractor shall provide package within 10 business days of CO or COR request.
23	Raw Data or Data Analysis	Contractor shall provide raw data or data analysis to BARDA upon request	— Contractor shall provide data or data analysis to CO and COR within 20 business days of request.
24	Product Transition Strategy	Contractor shall provide a 2-4 page summary document containing a Product Transition Strategy to support transition of the product(s) prior to end of the base and/or option(s) POP. The Product Transition Strategy should provide a strategic plan for further development and/or stockpiling of the product The transition strategy shall provide options and/or a specific approach for the transition of MCM product for further development, procurement, approval and/or stockpile	— Contractor shall provide a Product Transition Strategy to support transition of the product(s) 90 days prior to the end of the (base/option) POP as addendum to the Quarterly Project Status Report
25	Publications	Any manuscript or scientific meeting abstract containing data generated under this contract must be submitted to BARDA for review prior to submission	— Contractor must submit all manuscript or scientific meeting abstract to CO and COR within 20 business days for manuscripts and 10 business days for abstracts — Contractor must address in writing all concerns raised by BARDA — Final submissions shall be submitted to BARDA concurrently or no later than one (1) calendar day of its submission
26	Press Releases	Contractor agrees to accurately and factually represent the work conducted under this contract in all press releases	— Contractor shall ensure that the CO has received and approved an advanced copy of any press release to this contract not less than 5 business days prior to the issuance of the press release — If corrective action is required, the Contractor agrees to accurately and factually represent the work conducted under this contract in all press releases — Any final submissions shall be submitted to BARDA concurrently or no later than one (1) calendar day of its submission.

NOTE: Pursuant to federal law, no Government personnel shall publish, divulge, disclose, or otherwise make known to any non-government entity any Contractor data marked according to FAR regulation, unless permitted to do so by law or regulation.

2.	Detailed Description of Select Contract Deliverables

Monthly and Annual Progress Reports

In addition to those reports required by the other terms of this contract, the Contractor shall prepare and submit the following reports in the manner stated below and in accordance with this Article F of this contract, and in SECTION J-List of Attachments, attached hereto and made a part of the contract.

Monthly Progress Report

This report shall include a description of the activities during the reporting period, and the activities planned for the ensuing reporting period. The first reporting period consists of the first full month of performance plus any fractional part of the initial month. Thereafter, the reporting period shall consist of each calendar month.

The Contractor shall submit a Monthly Progress Report according to the dates set forth in the summary table under this article. The format should include:

A cover page that includes the contract number and title; the type of report and period that it covers; the Contractor’s name, address, telephone number, fax number, and e-mail address; and the date of submission; The progress report shall conform to the requirements set forth in the DELIVERIES Article in SECTION F of this contract.

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SECTION I – EXECUTIVE SUMMARY

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SECTION II - PROGRESS

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SECTION II Part A: OVERALL PROGRESS - A description of overall progress.

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SECTION II Part B: MANAGEMENT AND ADMINISTRATIVE UPDATE - A description of all meetings, conference calls, etc. that have taken place during the reporting period. Include progress on administration and management issues (e.g., evaluating, and managing subcontractor performance, and personnel changes).

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SECTION II Part C: TECHNICAL PROGRESS - For each activity related to Gantt chart, document the results of work completed and cost incurred during the period covered in relation to proposed progress, effort and budget. The report shall be in sufficient detail to explain comprehensively the results achieved. The description shall include pertinent data and/or graphs in sufficient detail to explain any significant results achieved and preliminary conclusions resulting from analysis and scientific evaluation of data accumulated to date under the contract. The report shall include a description of problems encountered and proposed corrective action; differences between planned and actual progress, why the differences have occurred and what corrective actions are planned; preliminary conclusions resulting from analysis and scientific evaluation of data accumulated to date under the project.

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SECTION II Part D: PROPOSED WORK - A summary of work proposed related to Gantt chart for the next reporting period and preprints/reprints of papers and abstracts.

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SECTION III: Estimated and Actual Expenses.

a. This report shall also contain a narrative or table detailing whether there is a significant discrepancy (>[*]%) at this time between the % of work completed and the cumulative costs incurred to date. Monthly and actual expenses should be broken down to the appropriate WBS level. This section of the report should also contain estimates for the Subcontractors’ expenses from the previous month if the Subcontractor did not submit a bill in the previous month. If the subcontractor(s) was not working or did not incur any costs in the previous month, then a statement to this effect should be included in this report for those respective subcontractors.

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SECTION III: Earned Value Management Reporting: Contractor will provide a monthly Contract Performance Report (CPR) at an agreed upon reporting level (WBS level 3) using the BARDA provided WBS and a Variance Analysis Report. EVMS shall be applied to all Cost Plus Fixed Fee CLINs as part of the Integrated Master Project Plan following the Seven Principles of Earned Value Management. In accordance with FAR 52.215-2, Audit and Records-Negotiation, BARDA may request, on a quarterly or ad hoc basis that the Contractor provide raw data. BARDA may request additional data at a reporting level or at lower levels, as BARDA deems necessary.

A Monthly Progress Report will not be required in the same month that the Annual Progress Report is submitted.

ii.

Annual Progress Report

This report shall include a summation of the results of the entire contract work for the period covered. Monthly Progress Reports shall not be submitted in the same month when an Annual Progress Report is due. Furthermore, an Annual Progress Report will not be required for the period when the Final Report is due.

The first Annual Progress Report shall be submitted in accordance with the date set forth in the table under ARTICLE F.2. of this contract.

Each Annual Progress Report shall include:

A Cover page that includes the contract number and title; the type of report and period that it covers; the Contractor’s name, address, telephone number, fax number, and email address; and the date of submission; The progress report shall conform to the requirements set forth in the DELIVERIES Article in SECTION F of this contract.

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SECTION I: EXECUTIVE SUMMARY - A brief overview of the work completed, and the major accomplishments achieved during the reporting period.

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SECTION II: PROGRESS

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SECTION II Part A: OVERALL PROGRESS - A description of overall progress.

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SECTION II Part B: MANAGEMENT AND ADMINISTRATIVE UPDATE - A high level summary of critical meetings, etc. that have taken place during the reporting period. Include progress on administration and management to critical factors of the project (e.g. regulatory compliance audits and key personnel changes).

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

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SECTION II Part C: TECHNICAL PROGRESS - A detailed description of the work performed structured to follow the activities and decision gates outlined at the Integrated Baseline Review and as described in the Integrated Master Plan. The Report should include a description of any problems (technical or financial) that occurred or were identified during the reporting period, and how these problems were resolved.

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SECTION II Part D: PROPOSED WORK - A summary of work proposed for the next year period to include an updated Gantt Chart.

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SECTION III: Estimated and Actual Expenses.

a. This report shall also contain a narrative or table detailing whether there were discrepancies between estimated and actual expenses over the past year. Actual expenses should be broken down to the appropriate WBS level. This section of the report should also contain estimates for outstanding costs for the previous year which may have been incurred, but not yet billed.

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SECTION IV: EARNED VALUE MANAGEMENT REPORTING - Contractor will provide a quarterly Contract Performance Report (CPR) at an agreed upon (WBS level 3) reporting level using the BARDA provided WBS and a Variance Analysis Report. EVMS shall be applied to all Cost Plus Fixed Fee CLINs as part of the Integrated Master Project Plan following the Seven Principles of Earned Value Management. In accordance with FAR 52.215-2, Audit and Records-Negotiation, BARDA may request, on a quarterly or ad hoc basis that the Contractor provide raw data. BARDA may request additional data at a reporting level or at lower levels, as BARDA deems necessary.

Contractor also should include the following in the Annual Progress Report:

Copies of manuscripts (published and unpublished), abstracts, and any protocols or methods developed specifically under the contract during the reporting period; and

A summary of any Subject Inventions per the requirements under FAR Clause 52.227-11.

iii.

Draft Final Report and Final Report

These reports are to include a summation of the work performed and results obtained for the entire contract period of performance. This report shall be in sufficient detail to describe comprehensively the results achieved. The Draft Final Report and Final Report shall be submitted in accordance with the DELIVERIES Article in SECTION F of the contract. An Annual Progress Report will not be required for the period when the Final Report is due. The Draft Final Report and the Final Report shall be submitted in accordance with the dates set forth in ARTICLE F.2. of this contract. The report shall conform to the following format:

Cover page to include the contract number, contract title, performance period covered, Contractor’s name and address, telephone number, fax number, email address and submission date.

SECTION I: EXECUTIVE SUMMARY - Summarize the purpose and scope of the contract effort including a summary of the major accomplishments relative to the specific activities set forth in the Statement of Work.

SECTION II: RESULTS - A detailed description of the work performed related to WBS and Gantt chart, the results obtained, and the impact of the results on the scientific and/or public health community including a listing of all manuscripts (published and in preparation) and abstracts presented during the entire period of performance and a summary of all inventions.

Draft Final Report: The Contractor is required to submit the Draft Final Report to the Contracting Officer’s Representative and Contracting Officer. The Contracting Officer’s Representative and Contracting Officer will review the Draft Final Report and provide the Contractor with comments in accordance with the dates set forth in ARTICLE F.2. of this contract.

Final Report: The Contractor will deliver the final version of the Final Report on or before the completion date of the contract. The final version shall include or address the Contracting Officer’s Representative comments and Contracting Officer comments on the draft report. Final Report shall be submitted on or before the completion date of the contract.

iv.

Summary of Salient Results

The Contractor shall submit, with the Final Report, a summary (not to exceed 200 words) of salient results achieved during the performance of the contract.

Audit Reports

Within thirty (30) calendar days of an audit related to conformance to FDA regulations and guidance, including adherence to GLP, GMP, GCP guidelines, the Contractor shall provide copies of the audit report (so long as received from the FDA) and a plan for addressing areas of nonconformance to FDA regulations and guidelines for GLP, GMP, or GCP guidelines as identified in the final audit report.

vi.

Other Technical Reports

Draft Report for Clinical and Non-Clinical Studies and Final Report for Clinical and Non-Clinical Studies

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The non-clinical and clinical trial reports shall follow the format of International Conference on Harmonization document ICH E3 “Guidelines on Structure and Content of Clinical Study Reports” ( http://www.pharmacontract.ch/support/su_ich_liste.htm )

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Draft Final Report for Clinical and Non-Clinical Studies funded by this contract will be submitted to the Contracting Officer’s Representative and Contracting Officer (CO) for review and comment within the time frames set forth under this section of this contract (ARTICLE F.2.).

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Subcontractor prepared reports received by the Prime Contractor shall be submitted to the Contracting Officer’s Representative and Contracting Officer (CO) for review and comment as set forth by the table in this Article.

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The Government shall provide written comments to the Draft Final Report for Clinical and Non-Clinical Studies in accordance with the dates set forth by the table in this Article.

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The comprehensive Final Report for Clinical and Non-Clinical Studies will be submitted to the Contracting Officer and the Contracting Officer’s Representative set forth by the table in this Article. The final version shall include or address the Contracting Officer’s Representative comments and Contracting Officer comments on the draft report.

Supplemental Technical Documents

Upon request, Contractor shall provide CO and COR with the following contract funded documents as specified below but not limited to: Process Development Reports; Assay Qualification Plan/Report, Assay Validation Plan/Report, Assay Technology Transfer Report, Batch Records, Contractor/Subcontractor Standard Operating Procedures (SOP’s), Master Production Records, Certificate of Analysis, Clinical Studies Data or Reports. The CO and COR reserve the right to request within the Period of Performance a non-proprietary technical document for distribution within the USG. Contractor shall provide technical document within 10 business days of CO or COR request. Contractor can request additional time on an as needed basis. If edits are recommended, the Contractor must address, in writing, concerns raised by BARDA

Deliverables Arising from FDA Correspondence

FDA Meetings

The Contractor shall forward the dates and times of any meeting with the FDA to BARDA and make arrangements for appropriate BARDA staff to attend the FDA meetings. BARDA staff shall include up to a maximum of four people (COR, CO and up to 2 subject matter experts).

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Contractor shall notify BARDA of upcoming FDA meeting within 24 hours of scheduling Type A, B or C meetings OR within 24 hours of meeting occurrence for ad hoc meetings.

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The Contractor shall forward initial Contractor and FDA-issued draft minutes and final minutes of any meeting with the FDA to BARDA within 3 business days of receipt. All documents shall be duly marked as either “Draft” or “Final”.

ii.

FDA Submissions

The Contractor shall provide BARDA all documents submitted to the FDA. Contractor shall provide BARDA with an electronic copy of the final FDA submission. All documents shall be duly marked as either “Draft” or “Final”.

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If draft documents are submitted for BARDA review, BARDA will provide feedback to Contractor within 10 business days of receipt.

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If BARDA reviews draft documents, the Contractor shall consider revising their documents to address BARDA’s concerns and/or recommendations prior to FDA submission.

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Final FDA submissions shall be submitted to BARDA concurrently or no later than 24 hours of their submission to FDA.

iii.

FDA Audits

In the event of an FDA inspection which occurs as a result of this contract and for the product, or for any other FDA inspection that has the reasonable potential to impact the performance of this contract, the Contractor shall provide the USG with an exact copy (non-redacted) of the FDA Form 483 and the Establishment Inspection Report (EIR). The

Contractor shall provide the COR and CO with copies of the plan for addressing areas of non-conformance to FDA regulations for GLP, GMP, or GCP guidelines as identified in the audit report, status updates during the plans execution and a copy of all final responses to the FDA. The Contractor shall also provide redacted copies of any FDA audits received from subcontractors that occur as a result of this contract or for this product. The Contractor shall make arrangements for BARDA representative(s) to be present during the final debrief by the regulatory inspector.

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Contractor shall notify CO and COR within 10 business days of a scheduled FDA audit or within 24 hours of an ad hoc site visit/audit if the FDA does not provide advanced notice.

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Contractor shall provide copies of any FDA audit report received from subcontractors that occur as a result of this contract or for this product within 3 business days of receiving correspondence from the FDA, Subcontractor, or third party.

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Within 10 business days of audit report, Contractor shall provide CO with a plan for addressing areas of nonconformance, if any are identified.

iv.

Manufacturing Campaign Reports

Contractor shall provide Manufacturing Campaign Reports to BARDA for review and comment prior to submission to FDA.

The COR and CO reserve the right to request within the Period of Performance (PoP) a non-proprietary Manufacturing Campaign Report for distribution within the USG.

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Contractor will submit Manufacturing Campaign Reports at least 15 business days prior to FDA submission.

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If corrective action is recommended, Contractor must address, in writing, all concerns raised by BARDA.

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Contractor shall consider revising reports to address BARDA’s concerns and/or recommendations prior to FDA submission.

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Final FDA submission shall be submitted to BARDA concurrently or no later than 1 business day after submission to the FDA.

Other FDA Correspondence

The Contractor shall memorialize any correspondence between Contractor and FDA and submit to BARDA. All documents shall be duly marked as either “Draft” or “Final.” Contractor shall provide written summary of any FDA correspondence within 3 business days of correspondence.

C.	Earned Value Management (EVM) Deliverables

Earned Value Management (EVM) / Contract Performance Report (CPR)

Contractor will provide a monthly CPR at an agreed upon reporting level using WBS and Variance Analysis report formats agreed upon by BARDA.

The supplemental monthly Control Account Plan (CAP) report shall contain, at the work package level, time phased budget (budgeted cost of work scheduled), earned value (budgeted cost of work performed), and actual costs of work performed as captured in Contractor’s EVM systems. The Contractor shall provide a rationale in the package of its use of % complete as EVMS methodology, or identity if any other EVMS methodology is being used.

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Contractor shall provide EVM/CPR as part of the Monthly Progress Report (this requirement begins only as set forth in the Contract Milestones & Related Deliverables table, see Attachment #10)

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Contractor shall provide top level or key changes in baseline cost as a result of anticipated cost savings or risks

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BARDA may request, on a monthly or ad hoc basis that the Contractor provide raw data at a reporting level or lower level as BARDA deems necessary.

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Contractor must address, in writing, all concerns raised by BARDA.

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Reporting will commence after the EVM system has been implemented but no later than 12 months after start of base period.

ii.

Integrated Master Plan (IMP)

The Contractor shall provide an IMP including WBS, critical path milestones, and Earned Value Management Plan

—

Contractor shall provide the draft IMP within [*] days of contract award with final due [*] months after award and updated monthly as part of the Monthly Progress Report

—

Contractor must address, in writing, all concerns raised by BARDA

iii.

Performance Measurement Baseline Review (PMBR)

PMBR Report shall address each of the items listed below and be cross-referenced to the IMP, WBS, SOW, and Risk Management Plan.

—

Contractor provides baseline proposal

—

Responsibility Assignment Matrix

—

A description of the work scope through control account Work Authorization Documents and/or WBS Dictionary down to the agreed upon control account level.

—

Template for work packages

—

Integrated Master Schedule (IMS) with the inclusion of agreed major milestones and control account plans for all control accounts

—

Baseline revision documentation and program log(s) risk management plan

—

PMBR is due within 90 days of contract award

—

Contractor shall provide baseline proposal .ppt briefing 10 business days prior to meeting

—

Contractor provides agenda to COR 2 business days in advance of meeting

—

COR approves (with CO concurrence) and distributes agenda

—

COR approves (with CO concurrence) all meeting material

—

Contactor provides minutes with 2 business days of the meeting

—

COR reviews and approves (with CO concurrence) minutes

—

BARDA will review documentation and provide written comments and questions to Contractor

—

Contractor shall address BARDA’s comments and resubmit PMBR report for BARDA approval within 10 business days.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

iv.

Risk Management Plan

The Contractor shall provide a Risk Management Plan that outlines the impacts of each risk in relation to the cost, schedule, and performance objectives. The plan shall include risk mitigation strategies. Each risk mitigation strategy will capture how the corrective action will reduce impacts on cost, schedule and performance.

Due within 90 days of contract award

Contractor provides updated Risk Management Plan in Monthly Progress Report

BARDA shall provide Contractor with a written list of concerns in response plan submitted

Contractor must address, in writing, all concerns raised by BARDA within 20 business days of Contractor’s receipt of BARDA’s concerns.

Requirement for Notification of Deviation and Mitigation Strategy

Process for changing IMS activities associated with cost and schedule as baselined at the PMBR. Contractor shall notify BARDA of significant changes to the IMS defined as increases in cost above [*]% for Go/No Go Milestones or schedule slippage of more than 30 days, which would require an extension to the period of performance. Contractor shall provide a high level management strategy for risk mitigation. Notice due within one (1) business day after discovery.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

3. Contract WBS Milestones & Related Deliverables

No.

Milestone Definition

Go Criteria

No-Go Criteria

Deliverable

WBS/

SOW#

CLIN #

[*]

1.5.1.1

1.5.1.2

Base

CLIN

0001

[*]

1.5.1.3

Base

CLIN

0001

[*]

1.3.2.3

1.3.2.4

Base

CLIN

0001

[*]

1.4.1.2

Base

CLIN

0001

[*]

1.4.1.3

Base

CLIN

0001

[*]

2.4.1.1

Option 1

CLIN

0002

[*]

2.5.2.2

Option 1

CLIN

0002

[*]

3.3.3.1

3.3.3.2

Option 2

CLIN

0003

[*]

3.3.3.3

Option 2

CLIN

0003

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

No.

Milestone Definition

Go Criteria

No-Go Criteria

Deliverable

WBS/

SOW#

CLIN #

10.

[*]

3.5.2.2

Option 2

CLIN

0003

11.

[*]

4.4.2.1

5.5.2.1

5.5.2.2

Option 3

CLIN

0004

12.

[*]

5.5.2.1

Option 4

CLIN

0005

13.

[*]

5.5.2.2

Option 4

CLIN

0005

* If at any time during the contract performance period any of the above No-Go criteria are satisfied, the Government may conduct an In-Process-Review (IPR) to evaluate whether to continue activities covered by the contract. This IPR will may occur within [*] calendar days of the No-Go criteria being satisfied.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

SECTION G - CONTRACT ADMINISTRATION DATA

ARTICLE G.1. CONTRACTING OFFICER

The following Contracting Officer (CO) will represent the Government for the purpose of this contract:

Susan Cortés-Shrank, Contracting Officer

DHHS/OS/ASPR/AMCG

330 Independence Avenue, S.W.

Room G640

Washington, D.C. 20201

E-mail:[*]

1)	The Contracting Officer is the only individual who can legally commit the Government to the expenditure of public funds. No person other than the Contracting Officer can make any changes to the terms, conditions, general provisions, or other stipulations of this contract.

The Contracting Officer is the only person with the authority to act as agent of the Government under this contract. Only the Contracting Officer has authority to (1) direct or negotiate any changes in the statement of work; (2) modify or extend the period of performance; (3) change the delivery schedule; (4) authorize reimburse to the Contractor of any costs incurred during the performance of this contract; (5) otherwise change any terms and conditions of this contract.

No information other than that which may be contained in an authorized modification to this contract, duly issued by the Contracting Officer, which may be received from any person employed by the US Government, other otherwise, shall be considered grounds for deviation from any stipulation of this contract.

4)	The Government may unilaterally change its COR designation.

The following Contract Specialist (CS) assigned to this contract is:

Susan Cortés-Shrank, Contracting Officer

DHHS/OS/ASPR/AMCG

330 Independence Avenue, S.W.

Room G640

Washington, D.C. 20201

E-mail: [*]

ARTICLE G.2. CONTRACTING OFFICER’S REPRESENTATIVE (COR)

The following Contracting Officer’s Representative (COR) will represent the Government for the purpose of this contract:

[*]

Contracting Officer’s Representative (COR)

Biomedical Advanced Research and Development Authority (BARDA)

Office of the Assistant Secretary for Preparedness and Response (ASPR)

Department of Health and Human Services

Mailing Address :

330 Independence Avenue, SW Room G640

Washington, D.C. 20201

[*] (Office)

Email: [*]

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

Alternate COR :

[*]

Branch Chief – Broad Spectrum Antimicrobials

Division of CBRN Countermeasures

Biomedical Advanced Research & Development Authority (BARDA)

Office of Secretary for Preparedness & Response (ASPR)

Department of Health and Human Services

Mailing Address:

330 Independence Avenue, SW Room G640

Washington, D.C. 20201

Office: [*]

Email: [*]

The COR is responsible for:

1)	Monitoring the Contractor’s technical progress, including the surveillance and assessment of performance and recommending to the Contracting Officer changes in requirements;

2)	Assisting the Contracting Officer in interpreting the statement of work and any other technical performance requirements;

3)	Performing technical evaluation as required;

4)	Performing technical inspections and acceptances required by this contract; and

5)	Assisting in the resolution of technical problems encountered during performance. The Government may unilaterally change its COR designation.

ARTICLE G.3. KEY PERSONNEL

Pursuant to the Key Personnel clause incorporated in Section I of this contract, the following individuals are considered to be essential to the work being performed hereunder:


#	NAME	ORGANIZATION	TITLE
1	Prabha Fernandes, PhD	CEMPRA, Inc.	President and CEO/ Principal Investigator
2	Gary Horwith, MD	CEMPRA, Inc.	EVP of Regulatory Affairs
3	David Oldach, MD, SVP	CEMPRA, Inc.	SVP of Clinical Research
4	David Pereira, SVP	CEMPRA, Inc.	SVP of Chemistry
5	Lily Nguyen, MBA	CEMPRA, Inc.	Director of Project Management
6	Shane Barton, CPA	CEMPRA, Inc.	Corporate Controller

The key personnel specified in this contract are considered to be essential to work performance. At least thirty (30) business days prior to diverting any of the specified individuals to other programs or contracts, including, where practicable, an instance when an individual must be replaced as a result of leaving the employ of the Contractor, the Contractor shall notify the Contracting Officer and shall submit comprehensive justification for the diversion or replacement request (including proposed substitutions for key personnel) to permit evaluation by the Government of the impact on performance under this contract. The Contractor shall not divert or otherwise replace any key personnel without the written consent of the Contracting Officer.

ARTICLE G.4. CONTRACT FINANCIAL REPORT

a. Financial reports on the attached Financial Report of Individual Project/Contract (see Attachments 2 and 3) shall be submitted by the Contractor in accordance with the instructions for completing this form, which accompany the form, in an electronic copy, not later than the

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

30th business day after the close of the reporting period. The line entries for subdivisions of work and elements of cost (expenditure categories) which shall be reported within the total contract are discussed in paragraph e., below. Subsequent changes and/or additions in the line entries shall be made in writing.

b. Unless otherwise stated in that part of the instructions for completing this form, entitled “PREPARATION INSTRUCTIONS,” (see Attachment 4) all columns A through J, shall be completed for each report submitted.

c. The first financial report shall cover the period consisting of the first full three calendar months following the date of the contract, in addition to any fractional part of the initial month. Thereafter, reports will be on a quarterly basis.

d. The Contracting Officer may require the Contractor to submit detailed support for costs contained in one or more interim financial reports. This clause does not supersede the record retention requirements in FAR Part 4.7.

e. The listing of expenditure categories to be reported is incorporated within the Attachment entitled, “Financial Report of Individual Project/Contract,” located in SECTION J and made a part of this contract.

f. The Government may unilaterally revise the “Financial Report of Individual Project/Contract” to reflect the allotment of additional funds.

ARTICLE G.5. INVOICE/FINANCING REQUEST AND CONTRACT FINANCIAL REPORTING

1)	The billing address that should be shown on the invoice shall be the same as defined in ARTICLE G.2. of this contract as follows:

DHHS/OS/ASPR/AMCG

Attn: Susan Cortés-Shrank , Contracting Officer

330 Independence Ave., S.W.

Room G640

Washington, D.C. 20201

2)	The Contractor shall submit an electronic copy of contract monthly invoices/financial reports to the Contracting Officer and Contract Specialist as defined above, in ARTICLE G of this contract.

3)	Contractor invoices/financial reports shall conform to the form, format, and content requirements of the instructions for Invoice/Financing requests and Contract Financial Reporting made a part of the contract in Section J (See also ARTICLE B.5. and Attachment 2).

4)	Monthly invoices must include the cumulative total expenses to date, adjusted (as applicable) to show any amounts suspended by the Government.

The Contractor agrees to immediately notify the Contracting Officer in writing if there is an anticipated overrun (any amount) or unexpended balance (greater than 10 percent) of the estimated costs for the base segment or any option segment(s) (See estimated costs under Articles B.2. and B.3., of the contract) and the reasons for the variance. Also refer to the requirements of the Limitation of Cost FAR 52.232-20 clause in the contract.

6)	All invoice submissions shall be in accordance with FAR Clause 52.232-25 (c) in Section I of this contract.

ARTICLE G.6. REIMBURSEMENT OF COST

The Government shall reimburse the Contractor the cost determined by the Contracting Officer to be allowable (hereinafter referred to as allowable cost) in accordance with the clause entitled Allowable Cost and Payment in Section I, Contract Clauses, and FAR Subpart 31.7. Examples of allowable costs include, but are not limited to, the following:

All direct materials and supplies that are used in the performing of the work provided for under the contract, including those purchased for subcontracts and purchase orders.

All direct labor, including supervisory, that is properly chargeable directly to the contract, plus fringe benefits.

All other items of cost budgeted for and accepted in the negotiation of this basic contract or modifications thereto.

Travel costs including per diem or actual subsistence for personnel while in an actual travel status in direct performance of the work and services required under this contract subject to the following:

(i)

Air travel shall be by the most direct route using “air coach” or “air tourist” (less than first class) unless it is clearly unreasonable or impractical (e.g., not available for reasons other than avoidable delay in making reservations, would require circuitous routing or entail additional expense offsetting the savings on fare, or would not make necessary connections).

(ii)

Rail travel shall be by the most direct route, first class with lower berth or nearest equivalent.

(iii)

Costs incurred for lodging, meals, and incidental expenses shall be considered reasonable and allowable to the extent that they comply with FAR 31.7.

(iv)

Travel via privately owned automobile shall be reimbursed at not more than the current General Services Administration (GSA) FTR established mileage rate.

ARTICLE G.7. INDIRECT COST RATES

The following rates will be utilized for billing purposes during both the base and option periods as provisional rates:

Fringe benefits at [*]% and an indirect rate estimated at [*]%.

ARTICLE G.8. POST AWARD EVALUATION OF CONTRACTOR PERFORMANCE

1. Contractor Performance Evaluations

Interim and final evaluations of Contractor performance will be prepared on this contract in accordance with FAR Subpart 42.15. The final performance evaluation will be prepared at the time of completion of work. In addition to the final evaluation, an interim evaluation shall be submitted annually.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

Interim and final evaluations will be provided to the Contractor as soon as practicable after completion of the evaluation. The Contractor will be permitted thirty days to review the document and to submit additional information or a rebutting statement. If agreement cannot be reached between the parties, the matter will be referred to an individual one level above the Contracting Officer whose decision will be final.

Copies of the evaluations, Contractor responses, and review comments, if any, will be retained as part of the contract file, and may be used to support future award decisions.

2. Electronic Access to Contractor Performance Evaluations

Contractors that have Internet capability may access evaluations through a secure Web site for review and comment by completing the registration form that can be obtained at the following address:

http://www.cpars.csd.disa.mil/cparsmain.htm

The registration process requires the Contractor to identify an individual that will serve as a primary contact and who will be authorized access to the evaluation for review and comment. In addition, the Contractor will be required to identify an alternate contact that will be responsible for notifying the cognizant contracting official in the event the primary contact is unavailable to process the evaluation within the required 30-day time frame.

ARTICLE G.9. CONTRACT COMMUNICATIONS/CORRESPONDENCE (JULY 1999)

The Contractor shall identify all correspondence, reports, and other data pertinent to this contract by imprinting the contract number from Page 1 of the contract.

ARTICLE G.10. GOVERNMENT PROPERTY

1. In addition to the requirements of the clause, GOVERNMENT PROPERTY, incorporated in SECTION I of this contract, the Contractor shall comply with the provisions of HHS Publication, “Contractor’s Guide for Control of Government Property,” which is incorporated into this contract by reference. This document can be accessed at:

http://www.hhs.gov/hhsmanuals/ (HHS Logistics Management Manual)

Among other issues, this publication provides a summary of the Contractor’s responsibilities regarding purchasing authorizations and inventory and reporting requirements under the contract.

2. Notwithstanding the provisions outlined in the HHS Publication, “Contractor’s Guide for Control of Government Property,” which is incorporated in this contract in paragraph 1. above, the Contractor shall use the form entitled, “Report of Government Owned, Contractor Held Property” for submitting summary reports required under this contract, as directed by the Contracting Officer or his/her designee. This form is included as an attachment in SECTION J of this contract.

3. Title will vest in the Government for equipment purchased as a direct cost.

ARTICLE G.11. EXERCISE OF OPTIONS

Unless the Government exercises its option pursuant to the Option Clause set forth in Section I, Article I.2, the contract will consist only of CLIN 0001 of the Statement of Work, Deliverables and Requirements as defined in Sections C, F and J of the contract. Pursuant

to FAR Clause 52.217-9 (Option to Extend the Term of the Contract) set forth in Section I of this contract, under Article I.2, the Government may, by unilateral contract modification, require the Contractor to perform the additional CLINs listed in Section B, Article B.3., and as also defined in Sections C, F of this contract. If the Government exercises an option, written notice must be given to the Contractor within [*] days after the Government has completed its analysis of the deliverables associated with the applicable GO/NO-GO Decision gates ; and the Government must give the Contractor a preliminary written notice of its intent to exercise the option at least [*] days before the contract expires. The amount of the contract may then be increased as set forth in Section B, Article B.3 provided that funds are available.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

SECTION H - SPECIAL CONTRACT REQUIREMENTS

If provisions set forth in this Section are not applicable to the work performed directly by the Contractor, those provisions might still apply to subcontractors performing work under this contract. It is the Contractor’s responsibility to monitor their subcontractors to confirm that these provisions are satisfied. Accordingly, those provisions shall be flowed-down as applicable.

ARTICLE H.1 CLINICAL AND NON-CLINICAL TERMS OF AWARD

BARDA has a responsibility to obtain documentation concerning mechanisms and procedures that are in place to protect the safety of participants and animals in BARDA funded clinical trials and non-clinical studies. Therefore, the Contractor shall develop a protocol for each clinical trial and non-clinical study funded under this contract and submit all such protocols and protocol amendments to the BARDA Contracting Officer’s Representative (COR) for evaluation and comment. Approval is required before work under a protocol may begin. BARDA COR comments will be forwarded to the Contractor within ten (10) business days. The Contractor must address, in writing, all concerns ( e.g. study design, safety, regulatory, ethical, and conflict of interest) noted by the BARDA COR.

If the draft protocols are to be submitted to the FDA, BARDA review shall occur before submission, pursuant to the terms set forth by ARTICLE F.2 of this contract. The Contractor shall consider revising their protocols to address BARDA’s concerns and recommendations prior to FDA submission. The Contractor must provide BARDA with a copy of FDA submissions, within the time frame set forth by ARTICLE F.2 of this contract.

Execution of clinical and non-clinical studies requires written authorization from BARDA. The Government will provide written authorization to the Contractor upon either 1) receiving documentation in which all COR comments have been satisfactorily addressed; or 2) receiving documentation that the FDA has reviewed and commented on the protocol.

BARDA shall have rights to all protocols, data resulting from execution of these protocols, and final reports funded by BARDA under this contract, as set forth in PART II of this contract and defined in the FAR. BARDA reserves the right to request that the Awardee provide any contract deliverable in a non-proprietary form to ensure BARDA has the ability to review and distribute the deliverables as BARDA deems necessary.

Important information regarding performing human subject research is available at http://www3.niaid.nih.gov/healthscience/clinicalstudies/ .

Any updates to technical reports are to be addressed in the Monthly and Annual Progress Reports. The Contractor shall advise the Contracting Officer’s Representative or designee in writing and via electronic communication in a timely manner of any issues potentially affecting contract performance.

Non-Clinical Terms of Award

These Non-Clinical Terms of Award detail an agreement between the Biomedical Advanced Research and Development Authority (BARDA) and the Contractor; they apply to all grants and contracts that involve non-clinical research.

Safety and Monitoring Issues

PHS Policy on Humane Care and use of Laboratory Animals

Before award and then with the annual progress report, the Contractor must submit to BARDA a copy of the current Institutional Animal Care and Use Committees (IACUC) documentation of continuing review and approval and the Office of Laboratory Animal Welfare (OLAW) federal wide assurance number for the institution or site.

If other institutions are involved in the research (e.g., a multicenter trial or study), each institution’s IACUC must review and approve the protocol. They must also provide BARDA initial and annual documentation of continuing review and approval and federal wide assurance number.

The Contractor must ensure that the application, as well as all protocols, are reviewed by the performing institution’s IACUC.

To help ensure the safety of animals used in BARDA-funded studies, the Contractor must provide BARDA copies of documents related to all major changes in the status of ongoing protocols, including the following:

•

All amendments or changes to the protocol, identified by protocol version number, date, or both and date it is valid.

•

All material changes in IACUC policies and procedures, identified by version number, date, and all required signatories (if applicable).

•

Termination or temporary suspension of the study(ies) for regulatory issues.

•

Termination or temporary suspension of the protocol.

•

Any change that is made in the specific IACUC approval for the indicated study(ies).

•

Any other problems or issues that could affect the scientific integrity of the study(ies), i.e., fraud, misrepresentation, misappropriation of funds, etc.

Contractor must notify BARDA of any of the above changes within five (5) working days from the time the Contractor becomes aware of such changes by email or fax, followed by a letter signed by the institutional business official, detailing notification of the change of status to the local IACUC and a copy of any responses from the IACUC.

If a non-clinical protocol has been reviewed by an institutional biosafety committee (IBC) or the NIH Recombinant DNA Advisory Committee (RAC), the Contractor must provide information about the initial and ongoing review and approval, if any. See the NIH Guidelines for Research Involving Recombinant DNA Molecules.

ii.

Non-Clinical Data and Safety Monitoring Requirements

BARDA strongly recommends continued safety monitoring for all non-clinical studies of investigational drugs, devices, or biologics. FDA expects non-clinical studies to include safety in addition to efficacy. Awardee should consider evaluation of clinical relevant safety markers in the pivotal and non-pivotal, non-clinical studies. In preparation for clinical trials of licensed or not yet licensed products, it is imperative that BARDA-sponsored studies of any type measure the risk and safety parameters that are elicited and provide a safety profile from the studies for future human risk assessment.

A risk is minimal where the probability and magnitude of harm or discomfort anticipated in the proposed research are not greater than those ordinarily encountered in daily life or during the performance of routine physical or psychological examinations or tests. For example, the risk of drawing a small amount of blood from a healthy subject for research purposes is no greater than the risk of doing so as part of a routine physical examination (45 CFR 46.102(i)).

BARDA will work with the Contractor on decisions regarding the type and extent of safety data accrual to be employed before the start of efficacy or safety studies.

The Contractor shall inform BARDA of any upcoming site visits and/or audits of CRO facilities funded under this effort. BARDA reserves the right to accompany the Contractor on site visits and/or audits of CRO’s as BARDA deems necessary.

BARDA Review Process before Non-Clinical study Execution Begins

BARDA is under the same policy-driven assurances as NIH in that it has a responsibility to ensure that mechanisms and procedures are in place to protect the safety and welfare of animals used in BARDA-funded non-clinical trials. Therefore, before study execution, the Contractor must provide the following (as applicable) for review and comment by BARDA:

•

IACUC approved (signed) non-clinical research protocol identified by version number, date, or both, including details of study design, euthanasia criteria, proposed interventions, and exclusion criteria.

•

For non-pivotal mouse studies, the Contractor will provide an annual animal care and use protocol.

•

Documentation of IACUC approval, including OLAW federal wide number, IACUC registration number, and IACUC name.

•

Contractor should reduce the number of animals required for a study using power of statistics.

•

Plans for the management of side effects, rules for interventions and euthanasia criteria.

•

Procedures for assessing and collecting safety data were appropriate.

•

If a study is contracted through Contract Research Organizations (CROs), work orders and service agreements the Contractor shall assure an integrated safety documentation plan is in place for the study site, pharmacy service records on the dosing material to be used and excipients, and laboratory services (including histopathology).

•

Documentation that the Contractor and all required staff responsible for the conduct of the research have received training in the protection and handling of animals, or that the CRO has the required documentation.

•

Purchasing of animals and/or other supplies for non-clinical studies funded in part or in whole by BARDA requires written approval by the Contracting Officer in accordance with the contract. The Contractor must have the ability to return/re-sell animals, at purchase price, to distributor or a third part, in the event that the final protocols do not obtain approval and a Contracting Officer Authorization is not granted.

•

Provide justification for whether studies require good laboratory practice (GLP) conditions.

•

Provide justification for whether studies will be classified as non-pivotal or pivotal studies.

Documentation of each of the above items shall be submitted to BARDA for evaluation and comment in conjunction with the protocol. Execution of non-clinical studies requires written authorization from BARDA in accordance with this section of the contract.

References

Public Health Service Policy on Humane Care and Use of Laboratory Animals:

http://grants.nih.gov/grants/olaw/InvestigatorsNeed2Know.pdf

USDA Animal Welfare Act:

http://awic.nal.usda.gov/nal_display/index.php?info_center=3&tax_level=3&tax_

subject=182&topic_id=1118&level3_id=6735&level4_id=0&level5_id=0&placement_default=0

Clinical Terms of Award

These Clinical Terms of Award detail an agreement between the Biomedical Advanced Research and Development Authority (BARDA) and the Contractor; they apply to all grants and contracts that involve clinical research.

Draft protocols for each clinical study will be submitted to BARDA for evaluation and comment. BARDA comments will be addressed and/or incorporated into the draft protocol prior to submission to the FDA for comment, if required.

BARDA shall have rights to all protocols, data generated from the execution of these protocols, and final reports, funded by BARDA under this contract, as defined in Rights in Data Clause in FAR 52.227-14. BARDA reserves the right to request that the Contractor provide any contract deliverable in a non-proprietary form, to ensure BARDA has the ability to review and distribute the deliverables, as BARDA deems necessary.

Safety and Monitoring Issues

a. Institutional Review Board or Independent Ethics Committee Approval

Before award and then with the annual progress report, the Contractor must submit to BARDA a copy of the current IRB-or IEC-approved informed consent document, documentation of continuing review and approval and the OHRP federal wide assurance number for the institution or site.

If other institutions are involved in the research (e.g., a multicenter clinical trial or study), each institution’s IRB or IEC must review and approve the protocol. They must also provide BARDA initial and annual documentation of continuing review and approval, including the current approved informed consent document and federal wide number.

The Contractor must ensure that the application as well as all protocols are reviewed by their IRB or IEC.

To help ensure the safety of participants enrolled in BARDA-funded studies, the Contractor must provide BARDA copies of documents related to all major changes in the status of ongoing protocols, including the following:

•

All amendments or changes to the protocol, identified by protocol version number, date, or both and dates it is valid.

•

All changes in informed consent documents, identified by version number, dates, or both and dates it is valid.

•

Termination or temporary suspension of patient accrual.

•

Termination or temporary suspension of the protocol.

•

Any change in IRB approval.

•

Any other problems or issues that could affect the participants in the studies.

The Contractor must notify BARDA through the COR or CO of any of the above changes within five (5) working days by email or fax, followed by a letter signed by the institutional business official, detailing notification of the change of status to the local IRB and a copy of any responses from the IRB or IEC.

If a clinical protocol has been reviewed by an institutional biosafety committee (IBC) or the NIH Recombinant DNA Advisory Committee (RAC), the Contractor must provide information about the initial and ongoing review and approval, if any. See the NIH Guidelines for Research Involving Recombinant DNA Molecules.

b. Data and Safety Monitoring Requirements

BARDA strongly recommends independent safety monitoring for clinical trials of investigational drugs, devices, or biologics; clinical trial of licensed products; and clinical research of any type involving more than minimal risk to volunteers. Independent monitoring can take a variety of forms. Phase III clinical trials must be reviewed by an independent data and safety monitoring board

(DSMB); other trials may require DSMB oversight as well. The Contractor shall inform BARDA of any upcoming site visits and/or audits of CRO facilities funded under this effort. BARDA reserves the right to accompany the Contractor on site visits and/or audits of CROs as BARDA deems necessary. The Contractor shall inform BARDA 30 days in advance of a DSMB board meetings for studies funded under this effort. BARDA reserves the right to participate in the DSMB board meetings on an impromptu basis as a non-voting member.

A risk is minimal where the probability and magnitude of harm or discomfort anticipated in the proposed research and not greater than those ordinarily encountered in daily life or during the performance of routine physical or psychological examinations or tests. For examples, the risk of drawing a small amount of blood form a healthy individual for research purposes is no greater than the risk of doing so as part of a routine physical examination (45 CFR 46.102I).

Final decisions regarding the type of monitoring to be used must be made jointly by BARDA and the Contractor before enrollment starts. Discussions with the responsible BARDA Project Officer regarding appropriate safety monitoring and approval of the final monitoring plan by BARDA must occur before patient enrollment begins and may include discussions about the appointment of one of the following.

•

Independent Safety Monitor – a physician or other appropriate expert who is independent of the study and available in real time to review and recommend appropriate action regarding adverse events and other safety issues.

•

Independent Monitoring Committee (IMC) or Safety Monitoring Committee (SMC) – a small group of independent investigators and biostatisticians who review data from a particular study.

•

Data and Safety Monitoring Board – an independent committee charged with reviewing safety and trial progress and providing advice with respect to study continuation, modification, and termination. The Contractor may be required to use an established BARDA DSMB or to organize an independent DSMB. All phase III clinical trials must be reviewed by a DSMB; other trials may require DSMB oversight as well. Please refer to: NIAID Principles for Use of a Data and Safety Monitoring Board (DSMB) For Oversight of Clinical Trials Policy

When a monitor or monitoring board is organized, a description of it, its charter or operating procedures (including a proposed meeting schedule and plan for review of adverse events), and roster and curriculum vitae from all members must be submitted to and approved by BARDA before enrollment starts. The Contractor will also ensure that the monitors and board members report any conflicts of interest and the Contractor will maintain a record of this. The Contractor will share conflict of interest reports with BARDA.

Additionally, the Contractor must submit written summaries of all reviews conducted by the monitoring group to the BARDA within thirty (30) days of reviews or meetings.

ii.

BARDA Protocol Review Process Before Patient Enrollment Begins

BARDA has a responsibility to ensure that mechanisms and procedures are in place to protect the safety of participants in BARDA-supported clinical trials. Therefore, before patient accrual or participant enrollment, the Contractor must ensure the following (as applicable) are in place at each participating institution, prior to patient accrual or enrollment:

—

IRB- or IEC-approved clinical research protocol identified by version number, date, or both, including details of study design, proposed interventions, patient eligibility, and exclusion criteria.

—

Documentation of IRB or IEC approval, including OHRP federal wide number, IRB or IEC registration number, and IRB and IEC name.

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IRB- or IEC- approved informed consent document, identified by version number, date, or both and dates it is valid.

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Plans for the management of side effects.

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Procedures for assessing and reporting adverse events.

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Plans for data and safety monitoring (see above) and monitoring of the clinical study site, pharmacy, and laboratory.

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Documentation that the Contractor and all study staff responsible for the design or conduct of the research have received training in the protection of human subjects.

Documentation to demonstrate that each of the above items are in place shall be submitted to the BARDA) for evaluation and comment in conjunction with the protocol. Execution of clinical studies requires written authorization from BARDA in accordance with this section of this contract.

iii.

Investigational New drug or Investigational Device Exemption Requirements

Consistent with federal regulations, clinical research projects involving the use of investigational therapeutics, vaccines, or other medical interventions (including licensed products and devices for a purpose other than that for which they were licensed) in humans under a research protocol must be performed under a Food and Drug Administration (FDA) investigational new drug (IND) or investigational device exemption (IDE).

Exceptions must be granted in writing by FDA. If the proposed clinical trial will be performed under an IND or IDE, the Contractor must provide BARDA with the name and institution of the IND or IDE sponsor, the date the IND or IDE was filed with FDA, the FDA IND or IDE number, any written comments from FDA, and the written responses to those comments.

Unless FDA notifies Contractor otherwise, The Contractor must wait thirty (30) calendar days from FDA receipt of an initial IND or IDE application before initiating a clinical trial.

The Contractor must notify BARDA if the FDA places the study on clinical hold and provide BARDA any written comments from FDA, written responses to the comments, and documentation in writing that the hold has been lifted.

The Contractor must not use grant or contract funds during a clinical hold to fund the clinical studies that are on hold. The Contractor must not enter into any new financial obligations related to clinical activities for the clinical trial on clinical hold.

iv.

Required Time-Sensitive Notification

Under an IND or IDE, the sponsor must provide FDA safety reports of serious adverse events. Under these Clinical Terms of Award, the Contractor must submit copies to the responsible BARDA representative or the Contracting Officer’s Representative (COR) as follows:

• Expedited safety report of unexpected or life-threatening experience or death:

A copy of any report of unexpected or life-threatening experience or death associated with the use of an IND drug, which must be reported to FDA by telephone or fax as soon as possible but no later than seven (7) days after the IND sponsor’s receipt of the information, must be submitted to BARDA representative or COR within 24 hours of FDA notification.

• Expedited safety reports of serious and unexpected adverse experiences:

A copy of any report of unexpected and serious adverse experience associated with use of an IND drug or any finding from tests in laboratory animals that suggests a significant risk for human subjects, which must be reported in writing to FDA as soon as possible but no later than 15 day after the IND sponsor’s receipt of the information, must be submitted to the BARDA representative or COR within 24 hours of FDA notification.

• IDE reports of unanticipated adverse device effect:

A copy of any reports of unanticipated adverse device effect submitted to FDA must be submitted to BARDA representative or COR within 24 hours of FDA notification.

• Expedited safety reports:

Sent to BARDA representative or the COR concurrently with the report to FDA.

• Other adverse events documented during the course of the trial should be included in the annual IND or IDE report and reported to BARDA annually.

In case of problems or issues, the BARDA representative or the Contracting Officer’s Representative will contact the Contractor within ten (10) working days by email or fax, followed within thirty (30) calendar days by an official letter to the Contractor’s Project Manager, with a copy to the institutions’ office of sponsored programs, listing issues and appropriate actions to be discussed.

•

Safety reporting for research not performed under an IND or IDE.

Final decisions regarding ongoing safety reporting requirements for research not performed under an IND or IDE must be made jointly by the BARDA Project Officer or the Contracting Officer’s Representative and the Contractor.

ARTICLE H.2. PROTECTION OF HUMAN SUBJECTS, HHSAR 352.270-4 (January 2006)

(a) The Contractor agrees that the rights and welfare of human subjects involved in research under this contract shall be protected in accordance with 45 CFR Part 46 and with the Contractor’s current Assurance of Compliance on file with the Office for Human Research Protections (OHRP), Department of Health and Human Services. The Contractor further agrees to provide certification at least annually that the Institutional Review Board has reviewed and approved the procedures, which involve human subjects in accordance with 45 CFR Part 46 and the Assurance of Compliance.

(b) The Contractor shall bear full responsibility for the performance of all work and services involving the use of human subjects under this contract and shall ensure that work is conducted in a proper manner and as safely as is feasible. The parties hereto agree that the Contractor retains the right to control and direct the performance of all work under this contract. The Contractor shall not deem anything in this contract to constitute the Contractor or any subcontractor, agent or employee of the Contractor, or any other person, organization, institution, or group of any kind whatsoever, as the agent or employee of the Government. The Contractor agrees that it has entered into this contract and will discharge its obligations, duties, and undertakings and the work pursuant thereto, whether requiring professional judgment or otherwise, as an independent contractor without imputing liability on the part of the Government for the acts of the Contractor or its employees.

(c) If at any time during the performance of this contract, the Contracting Officer determines, in consultation with OHRP that the Contractor is not in compliance with any of the requirements and/or standards stated in paragraphs (a) and (b) above, the Contracting Officer may immediately suspend, in whole or in part, work and further payments under this contract until the Contractor corrects the noncompliance. The Contracting Officer may communicate the notice of suspension by telephone with confirmation in writing. If the Contractor fails to complete corrective action within the period of time designated in the Contracting Officer’s written notice of suspension, the Contracting Officer may, after consultation with OHRP, terminate this contract in whole or in part, and the Contractor’s name may be removed from the list of those contractors with approved Human Subject Assurances.

ARTICLE H.3. HUMAN MATERIALS (ASSURANCE OF OHRP COMPLIANCE)

The acquisition and supply of all human specimen material (including fetal material) used under this contract shall be obtained by the Contractor in full compliance with applicable Federal, State and Local laws and the provisions of the Uniform Anatomical Gift Act in the United States, and no undue inducements, monetary or otherwise, will be offered to any person to influence their donation of human material.

The Contractor shall provide written documentation that all human materials obtained as a result of research involving human subjects conducted under this contract, by collaborating sites, or by subcontractors identified under this contract, were obtained with prior approval by the Office for Human Research Protections (OHRP) of an Assurance to comply with the requirements of 45 CFR 46 to protect human research subjects. This restriction applies to all collaborating sites without OHRP-approved Assurances, whether domestic or foreign, and compliance must be ensured by the Contractor.

Provision by the Contractor to the Contracting Officer of a properly completed “Protection of Human Subjects Assurance Identification/IRB Certification/Declaration of Exemption”, Form OMB No. 0990-0263(formerly Optional Form 310), certifying IRB review and approval of the protocol from which the human materials were obtained constitutes the written documentation required. The human subject certification can be met by submission of a self designated form provided that it contains the information required by the “Protection of Human Subjects Assurance Identification/IRB Certification/Declaration of Exemption”, Form OMB No. 0990-0263(formerly Optional Form 310).

ARTICLE H.4. RESEARCH INVOLVING HUMAN FETAL TISSUE

All research involving human fetal tissue shall be conducted in accordance with the Public Health Service Act, 42 U.S.C. 289g-1 and 289g-2. Implementing regulations and guidance for conducting research on human fetal tissue may be found at 45 CFR 46, Subpart B and http://grants1.nih.gov/grants/guide/notice-files/not93-235.html and any subsequent revisions to this NIH Guide to Grants and Contracts (“Guide”) Notice.

The Contractor shall make available, for audit by the Secretary, HHS, the physician statements and informed consents required by 42 USC 289g-1(b) and (c), or ensure HHS access to those records, if maintained by an entity other than the Contractor.

ARTICLE H.5. NEEDLE EXCHANGE

The Contractor shall not use contract funds to carry out any program of distributing sterile needles or syringes for the hypodermic injection of any illegal drug.

ARTICLE H.6. CARE OF LIVE VERTEBRATE ANIMALS, HHSAR 352.270-5 (October 2009)

(a) Before undertaking performance of any contract involving animal-related activities where the species is regulated by USDA, the Contractor shall register with the Secretary of Agriculture of the United States in accordance with 7 U.S.C. 2136 and 9 CFR sections 2.25 through 2.28. The Contractor shall furnish evidence of the registration to the Contracting Officer.

(b) The Contractor shall acquire vertebrate animals used in research from a dealer licensed by the Secretary of Agriculture under 7 U.S.C. 2133 and 9 CFR Sections 2.1-2.11, or from a source that is exempt from licensing under those sections.

(c) The Contractor agrees that the care, use and intended use of any live vertebrate animals in the performance of this contract shall conform with the Public Health Service (PHS) Policy on Humane Care of Use of Laboratory Animals (PHS Policy), the current Animal Welfare Assurance (Assurance), the Guide for the Care and Use of Laboratory Animals (National Academy Press, Washington, DC) and the pertinent laws and regulations of the United States Department of Agriculture (see 7 U.S.C. 2131 et seq. and 9 CFR Subchapter A, Parts 1-4). In case of conflict between standards, the more stringent standard shall govern.

(d) If at any time during performance of this contract, the Contracting Officer determines, in consultation with the Office of Laboratory Animal Welfare (OLAW), National Institutes of Health (NIH), that the Contractor is not in compliance with any of the requirements and standards stated in paragraphs (a) through (c) above, the Contracting Officer may immediately suspend, in whole or in part, work and further payments under this contract until the Contractor corrects the noncompliance. Notice of the suspension may be communicated by telephone and confirmed in writing. If the Contractor fails to complete corrective action within the period of time designated in the Contracting Officer’s written notice of suspension, the Contracting Officer may, in consultation with OLAW, NIH, terminate this contract in whole or in part, and the Contractor’s name may be removed from the list of those contractors with approved Assurances.

Note: The Contractor may request registration of its facility and a current listing of licensed dealers from the Regional Office of the Animal and Plant Health Inspection Service (APHIS), USDA, for the region in which its research facility is located. The location of the appropriate APHIS Regional Office, as well as information concerning this program may be obtained by contacting the Animal Care Staff, USDA/APHIS, 4700 River Road, Riverdale, Maryland 20737 (E-mail: ace@aphis.usda.gov ; Web site: ( http://www.aphis.usda.gov/animal_welfare ).

ARTICLE H.7. ANIMAL WELFARE

All research involving live, vertebrate animals shall be conducted in accordance with the Public Health Service Policy on Humane Care and Use of Laboratory Animals. This policy may be accessed at:

http://grants1.nih.gov/grants/olaw/references/phspol.htm .

ARTICLE H.8. PROTECTION OF PERSONNEL WHO WORK WITH NONHUMAN PRIMATES

All Contractor personnel who work with nonhuman primates or enter rooms or areas containing nonhuman primates shall comply with the procedures set forth in NIH Policy Manual 3044-2, entitled, “Protection of NIH Personnel Who Work with Nonhuman Primates,” located at the following URL:

http://www1.od.nih.gov/oma/manualchapters/intramural/3044-2/

ARTICLE H.9. PUBLICATION AND PUBLICITY

No information related to data obtained under this contract shall be released or publicized without the prior written consent of BARDA.

In addition to the requirements set forth in HHSAR Clause 352.227-70, Publications and Publicity incorporated by reference in SECTION I of this contract, Section 507 of P.L. 104-208 mandates that Contractors funded with Federal dollars, in whole or in part, acknowledge Federal funding when issuing statements, press releases, requests for proposals, bid solicitations and other documents. Contractors are required to state: (1) the percentage and dollar amounts of the total program or project costs financed with Federal money and; (2) the percentage and dollar amount of the total costs financed by nongovernmental sources.

For purposes of this contract “publication” is defined as an issue of printed material offered for distribution or any communication or oral presentation of information, including any manuscript or scientific meeting abstract. Any publication containing data generated under this contract must be submitted for BARDA review no less than thirty (30) calendar days for manuscripts and fifteen (15) calendar days for abstracts before submission for public presentation or publication. Contract support shall be acknowledged in all such publications substantially as follows:

“This project has been funded in whole or in part with Federal funds from the Biomedical Advanced Research and Development Authority, Office of the Assistant Secretary for Preparedness and Response, Office of the Secretary, Department of Health and Human Services, under Contract No. HHSO100201300009C”.

ARTICLE H.10. REVIEW OF PRESS RELEASES

The contractor agrees to accurately and factually represent the work conducted under the contract in all press releases. Misrepresenting contract results or releasing information that is injurious to the integrity of BARDA may be construed as improper conduct. Press releases shall be considered to include the public release of information to any medium, excluding peer-reviewed scientific publications. The contractor shall ensure that the CO/COR has received an advance copy of any press release related to the contract not less than five (5) working days prior to the issuance of the press release.

The Contractor shall acknowledge the support of the Department of Health and Human Service, Office of the Assistant Secretary for Preparedness and Response, Biomedical Advanced Research and Development Authority, whenever publicizing the work under this contract in any media by including an acknowledgment substantially as follows:

“This project has been funded in whole or in part with Federal funds from the Department of Health and Human Services; Office of the Assistant Secretary for Preparedness and Response; Biomedical Advanced Research and Development Authority, under Contract No HHSO100201300009C.

ARTICLE H.11. REPORTING MATTERS INVOLVING FRAUD, WASTE AND ABUSE

Anyone who becomes aware of the existence or apparent existence of fraud, waste and abuse in BARDA funded programs is encouraged to report such matters to the HHS Inspector General’s Office in writing or on the Inspector General’s Hotline. The toll free number is 1-800-HHS-TIPS (1-800-447-8477). All telephone calls will be handled confidentially. The e-mail address is Htips@os.dhhs.gov and the mailing address is:

Office of Inspector General

Department of Health and Human Services

TIPS HOTLINE

P.O. Box 23489

Washington, D.C. 20026

ARTICLE H.12. PROHIBITION ON CONTRACTOR INVOLVEMENT WITH TERRORIST ACTIVITIES

The Contractor acknowledges that U.S. Executive Orders and Laws, including but not limited to E.O. 13224 and P.L. 107-56, prohibit transactions with, and the provision of resources and support to, individuals and organizations associated with terrorism. It is the legal responsibility of the Contractor to ensure compliance with these Executive Orders and Laws. This clause must be included in all subcontracts issued under this contract.

ARTICLE H.13. CONFLICT OF INTEREST

The Contractor represents and warrants that, to the best of the Contractor’s knowledge and belief, there are no relevant facts or circumstances which could give rise to an organizational conflict of interest, as defined in FAR Subpart 9.5, or that the Contractor has disclosed all such relevant information. Prior to commencement of any work, the Contractor agrees to notify the Contracting Officer promptly that, to the best of its knowledge and belief, no actual or potential conflict of interest exists or to identify to the Contracting Officer any actual or potential conflict of interest the firm may have. In emergency situations, however, work may begin but notification shall be made within five (5) working days. The Contractor agrees that if an actual or potential organizational conflict of interest is identified during performance, the Contractor shall promptly make a full disclosure in writing to the Contracting Officer. This disclosure shall include a description of actions, which the Contractor has taken or proposes to take, after consultation with the Contracting Officer, to avoid, mitigate, or neutralize the actual or potential conflict of interest. The Contractor shall continue performance until notified by the Contracting Officer of any contrary action to be taken. Remedies include termination of this contract for convenience, in whole or in part, if the Contracting Officer deems such termination necessary to avoid an organizational conflict of interest. If the Contractor was aware of a potential organizational conflict of interest prior to award or discovered an actual or potential conflict after award and did not disclose it or misrepresented relevant information to the Contracting Officer, the Government may terminate the contract for default, debar the Contractor from Government contracting, or pursue such other remedies as may be permitted by law or this contract.

ARTICLE H.14. PROHIBITION ON THE USE OF APPROPRIATED FUNDS FOR LOBBYING ACTIVITIES AND HHSAR 352.203-70 ANTI-LOBBYING (Jan 2006)

The Contractor is hereby notified of the restrictions on the use of Department of Health and Human Service’s funding for lobbying of Federal, State and Local legislative bodies.

Section 1352 of Title 10, United Stated Code (Public Law 101-121, effective 12/23/89), among other things, prohibits a recipient (and their subcontractors) of a Federal contract, grant, loan, or cooperative agreement from using appropriated funds (other than profits from a federal contract) to pay any person for influencing or attempting to influence an officer or employee of any agency, a Member of Congress, an officer or employee of Congress, or an employee of a Member of Congress in connection with any of the following covered Federal actions; the awarding of any Federal contract; the making of any Federal grant; the making of any Federal loan; the entering into of any cooperative agreement; or the modification of any Federal contract, grant, loan, or cooperative agreement. For additional information of prohibitions against lobbying activities, see FAR Subpart 3.8 and FAR Clause 52.203-12.

In addition, as set forth in HHSAR 352.203-70 “Anti-Lobbying” (January 2006), the current Department of Health and Human Services Appropriations Act provides that no part of any appropriation contained in this Act shall be used, other than for normal and recognized executive-legislative relationships, for publicity or propaganda purposes, for the preparation, distribution, or use of any kit, pamphlet, booklet, publication, radio, television, or video presentation designed to support, or defeat legislation pending before the Congress, or any State or Local legislature except in presentation to the Congress, or any State or Local legislative body itself.

The current Department of Health and Human Services Appropriations Act also provides that no part of any appropriation contained in this Act shall be used to pay the salary or expenses of any contract or grant recipient, or agent acting for such recipient, related to any activity designed to influence legislation or appropriations pending before the Congress, or any State or Local legislature.

ARTICLE H.15. PRIVACY ACT APPLICABILITY

Notification is hereby given that the Contractor and its employees are subject to criminal penalties for violation of the Privacy Act to the same extent as employees of the Government. The Contractor shall assure that each of its employees knows the prescribed rules of conduct and that each is aware that he or she can be subjected to criminal penalty for violation of the Act. A copy of 45 CFR Part 5b, Privacy Act Regulations, may be obtained at http://www.gpoaccess.gov/cfr/index.html

2)	The Project Officer is hereby designated as the official who is responsible for monitoring contractor compliance with the Privacy Act.

3)	The Contractor shall follow the Privacy Act guidance as contained in the Privacy Act System of Records number 09-25-0200. This document may be obtained at the following link: http://oma.od.nih.gov/ms/privacy/pa-files/0200.htm

ARTICLE H.16. LABORATORY LICENSE REQUIREMENTS

The Contractor shall comply with all applicable requirements of Section 353 of the Public Health Service Act (Clinical Laboratory Improvement Act as amended). This requirement shall also be included in any subcontract for services under the contract.

ARTICLE H.17. DISSEMINATION OF INFORMATION (May 1998)

No information related to data obtained under this contract shall be released or publicized without the prior written consent of the Contracting Officer.

ARTICLE H.18. IDENTIFICATION AND DISPOSITION OF DATA

The Contractor will be required to ensure that certain data generated under this contract is provided to the Department of Health and Human Services (DHHS). DHHS reserves the right to review any other data determined by DHHS to have been generated under this contract. The Contractor shall ensure that copies of all data required by the Food and Drug Administration (FDA) relevant to this contract are kept for the time specified by the FDA.

ARTICLE H.19. INFORMATION ON COMPLIANCE WITH ANIMAL CARE REQUIREMENTS

Registration with the U. S. Dept. of Agriculture (USDA) is required to use regulated species of animals for biomedical purposes. USDA is responsible for the enforcement of the Animal Welfare Act (7 U.S.C. 2131 et. seq.), http://www.nal.usda.gov/awic/legislat/awa.htm .

The Public Health Service (PHS) Policy is administered by the Office of Laboratory Animal Welfare (OLAW) http://grants2.nih.gov/grants/olaw/olaw.htm . An essential requirement of the PHS Policy http://grants2.nih.gov/grants/olaw/references/phspol.htm is that every institution using live vertebrate animals must obtain an approved assurance from OLAW before they can receive funding from any component of the U. S. Public Health Service.

The PHS Policy requires that Assured institutions base their programs of animal care and use on the Guide for the Care and Use of Laboratory Animals http://www.nap.edu/readingroom/books/labrats/ and that they comply with the regulations (9 CFR, Subchapter A) http://www.nal.usda.gov/awic/legislat/usdaleg1.htm issued by the U.S. Department of Agriculture (USDA) under the Animal Welfare Act. The Guide may differ from USDA regulations in some respects. Compliance with the USDA regulations is an absolute requirement of this Policy.

The Association for Assessment and Accreditation of Laboratory Animal Care International (AAALAC) http://www.aaalac.org is a professional organization that inspects and evaluates programs of animal care for institutions at their request. Those that meet the high standards are given the accredited status. As of the 2002 revision of the PHS Policy, the only accrediting body recognized by PHS is the AAALAC. While AAALAC Accreditation is not required to conduct biomedical research, it is highly desirable. AAALAC uses the Guide as their primary evaluation tool. They also use the Guide for the Care and Use of Agricultural Animals in Agricultural Research and Teaching . It is published by the Federated of Animal Science Societies http://www.fass.org .

ARTICLE H.20. REQUIREMENTS FOR ADEQUATE ASSURANCE OF PROTECTION OF VERTEBRATE ANIMAL SUBJECTS

The PHS Policy on Humane Care and Use of Laboratory Animals requires that applicant organizations proposing to use vertebrate animals file a written Animal Welfare Assurance with the Office for Laboratory Animal Welfare (OLAW), establishing appropriate policies and procedures to ensure the humane care and use of live vertebrate animals involved in research activities supported by the PHS. The PHS Policy stipulates that an applicant organization, whether domestic or foreign, bears responsibility for the humane care and use of animals in PHS-supported research activities. Also, the PHS policy defines “animal” as “any live, vertebrate animal used, or intended for use, in research, research training, experimentation, biological testing or for related purposes.” This Policy implements and supplements the U.S. Government

Principles for the Utilization and Care of Vertebrate Animals Used in Testing, Research, and Training, and requires that institutions use the Guide for the Care and Use of Laboratory Animals as a basis for developing and implementing an institutional animal care and use program. This Policy does not affect applicable State or local laws or regulations that impose more stringent standards for the care and use of laboratory animals. All institutions are required to comply, as applicable, with the Animal Welfare Act as amended (7 USC 2131 et. seq.) and other Federal statutes and regulations relating to animals. These documents are available from the Office of Laboratory Animal Welfare, National Institutes of Health, Bethesda, MD 20892, (301) 496-7163. See http://grants.nih.gov/grants/olaw/olaw.htm .

No PHS supported work for research involving vertebrate animals will be conducted by an organization, unless that organization is operating in accordance with an approved Animal Welfare Assurance and provides verification that the Institutional Animal Care and Use Committee (IACUC) has reviewed and approved the proposed activity in accordance with the PHS policy. Applications may be referred by the PHS back to the institution for further review in the case of apparent or potential violations of the PHS Policy. No award to an individual will be made unless that individual is affiliated with an assured organization that accepts responsibility for compliance with the PHS Policy. Foreign applicant organizations applying for PHS awards for activities involving vertebrate animals are required to comply with PHS Policy or provide evidence that acceptable standards for the humane care and use of animals will be met. Foreign applicant organizations are not required to submit IACUC approval, but should provide information that is satisfactory to the Government to provide assurances for the humane care of such animals.

ARTICLE H.21. APPROVAL OF REQUIRED ASSURANCE BY OLAW

Under governing regulations, federal funds which are administered by the Department of Health and Human Services, Office of Biomedical Advanced Research and Development Authority (BARDA) shall not be expended by the Contractor for research involving live vertebrate animals, nor shall live vertebrate animals be involved in research activities by the Contractor under this award unless a satisfactory assurance of compliance with 7 U.S.C. 2316 and 9 CFR Sections 2.25-2.28 is submitted within 30 days of the date of this award and approved by the Office of Laboratory Animal Welfare (OLAW). Each performance site (if any) must also assure compliance with 7 U.S.C. 2316 and 9 CFR Sections 2.25-2.28 with the following restriction: Only activities which do not directly involve live vertebrate animals (i.e. are clearly severable and independent from those activities that do involve live vertebrate animals) may be conducted by the Contractor or individual performance sites pending OLAW approval of their respective assurance of compliance with 7 U.S.C. 2316 and 9 CFR Sections 2.25-2.28. Additional information regarding OLAW may be obtained via the Internet at http://grants2.nih.gov/grants/olaw/references/phspol.htm

ARTICLE H.22. REGISTRATION WITH THE SELECT AGENT PROGRAM FOR WORK INVOLVING THE POSSESSION, USE, AND/OR TRANSFER OF SELECT BIOLOGICAL AGENTS OR TOXINS

Work involving select biological agents or toxins shall not be conducted under this contract until the Contractor and any affected subcontractor(s) are granted a certificate of registration or are authorized to work with the applicable select agents.

For prime or subcontract awards to domestic institutions who possess, use, and/or transfer Select Agents under this contract, the institution must complete registration with the Centers for Disease Control and Prevention (CDC), Department of Health and Human Services (DHHS) or the Animal and Plant Health Inspection Services (APHIS), U.S. Department of Agriculture (USDA), as applicable, before performing work involving Select Agents, in accordance with 42 CFR 73. No Government funds can be used for work involving Select Agents, as defined in 42 CFR 73, if the final registration certificate is denied.

For prime or subcontract awards to foreign institutions who possess, use, and/or transfer Select Agents under this contract, the institution must provide information satisfactory to the Government that a process equivalent to that described in 42 CFR 73 ( http://www.cdc.gov/od/sap/docs/42cfr73.pdf ) for U.S. institutions is in place and will be administered on behalf of all Select Agent work sponsored by these funds before using these funds for any work directly involving the Select Agents. The Contractor must provide information addressing the following key elements appropriate for the foreign institution: safety, security, training, procedures for ensuring that only approved/appropriate individuals have access to the Select Agents, and any applicable laws, regulations and policies equivalent to 42 CFR 73 . The Government will assess the policies and procedures for comparability to the U.S. requirements described in 42 CFR Part 73 . When requested by the contracting officer, the Contractor shall provide key information delineating any laws, regulations, policies, and procedures applicable to the foreign institution for the safe and secure possession, use, and transfer of Select Agents. This includes summaries of safety, security, and training plans, and applicable laws, regulations, and policies. For the purpose of security risk assessments, the Contractor must provide the names of all individuals at the foreign institution who will have access to the Select Agents and procedures for ensuring that only approved and appropriate individuals have access to Select Agents under the contract.

Listings of HHS select agents and toxins, biologic agents and toxins, and overlap agents or toxins as well as information about the registration process, can be obtained on the Select Agent Program Web site at http://www.cdc.gov/od/sap/.

ARTICLE H.23. EPA ENERGY STAR REQUIREMENTS

In compliance with Executive Order 12845 (requiring Agencies to purchase energy efficient computer equipment) all microcomputers, including personal computers, monitors, and printers that are purchased using Government funds in performance of a contract shall be equipped with or meet the energy efficient low-power standby feature as defined by the EPA Energy Star program unless the equipment always meets EPA Energy Star efficiency levels. The microcomputer, as configured with all components, must be Energy Star compliant.

This low-power feature must already be activated when the computer equipment is delivered to the agency and be of equivalent functionality of similar power managed models. If the equipment will be used on a local area network, the vendor must provide equipment that is fully compatible with the network environment. In addition, the equipment will run commercial off-the-shelf software both before and after recovery from its energy conservation mode.

ARTICLE H.24. MANUFACTURING STANDARDS

The Good Manufacturing Practice Regulations (GMP)(21 CFR Parts 210-211) and regulations pertaining to small molecules will be the standard to be applied for manufacturing, processing, packaging, storage and delivery of this product.

If at any time during the life of the contract, the Contractor fails to comply with GMP in the manufacturing, processing, packaging, storage, stability and other testing of the manufactured drug substance or product and delivery of this product and such failure results in a material adverse effect on the safety, purity or potency of the product (a material failure) as identified by the FDA, the Contractor shall have thirty (30) calendar days from the time such material failure is identified to cure such material failure. If, within the thirty (30) calendar day period, the Contractor fails to take such an action to the satisfaction of the USG Project Officer, or fails to provide a remediation plan that is acceptable to the COR, then the contract may be terminated.

ARTICLE H.25. EXPORT CONTROL NOTIFICATION

Offerors are responsible for ensuring compliance with all export control laws and regulations that maybe applicable to the export of and foreign access to their proposed technologies. Offerors may consult with the Department of State with any questions regarding the International Traffic in Arms Regulation (ITAR) (22 CRF Parts 120-130) and /or the Department of Commerce regarding the Export Administration Regulations (15 CRF Parts 730-774).

ARTICLE H.26. INSTITUTIONAL RESPONSIBILITY REGARDING CONFLICTING INTERESTS OF INVESTIGATORS

The Contractor shall comply with the requirements of 45 CFR Part 94, Responsible Prospective Contractors, which promotes objectivity in research by establishing standards to ensure that investigators (defined as the principal investigator and any other person who is responsible for the design, conduct, or reporting of research funded under BARDA contracts) will not be biased by any conflicting financial interest. For the purposes of this part relating to financial interests, “Investigator” includes the Investigator’s spouse and dependent children. 45 CFR Part 94 is available at the following Web site: http://ecfr.gpoaccess.gov/cgi/t/text/text-idx?c=ecfr;sid=9f130b6d2d48bb73803ca91ce943be3a;rgn=div5;view=text;node=45%3A1.0.1.1.53;idno=45;cc=ecfr

As required by 45 CFR Part 94, the Contractor shall, at a minimum:

a. Maintain a written, enforceable policy on conflict of interest that complies with 45 CFR Part 94 and inform each investigator of the policy, the investigator’s reporting responsibilities, and the applicable regulations. The Contractor must take reasonable steps to ensure that investigators working as collaborators or subcontractors comply with the regulations.

b. Designate an official(s) to solicit and review financial disclosure statements from each investigator participating in BARDA-funded research. Based on established guidelines consistent with the regulations, the designated official(s) must determine whether a conflict of interest exists, and if so, determine what actions should be taken to manage, reduce, or eliminate such conflict. A conflict of interest exists when the designated official(s) reasonably determines that a Significant Financial Interest could directly and significantly affect the design, conduct, or reporting of the BARDA-funded research. The Contractor may require the management of other conflicting financial interests in addition to those described in this paragraph, as it deems appropriate. Examples of conditions or restrictions that might be imposed to manage actual or potential conflicts of interests are included in 45 CFR Part 94, under Management of Conflicting Interests.

c. Require all financial disclosures to be updated during the period of the award, either on an annual basis or as new reportable Significant Financial Interests are obtained.

d. Maintain records, identifiable to each award, of all financial disclosures and all actions taken by the Contractor with respect to each conflicting interest 3 years after final payment or, where applicable, for the other time periods specified in 48 CFR Part 4, subpart 4.7, Contract Records Retention.

e. Establish adequate enforcement mechanisms and provide for sanctions where appropriate.

If a conflict of interest is identified, the Contractor shall report to the Contracting Officer the existence of the conflicting interest found. This report shall be made and the conflicting interest managed, reduced, or eliminated, at least on a temporary basis, within sixty (60) days of that identification.

If the failure of an investigator to comply with the conflict of interest policy has biased the design, conduct, or reporting of the BARDA-funded research, the Contractor must promptly notify the Contracting Officer of the corrective action taken or to be taken. The Contracting Officer will take appropriate action or refer the matter to the Contractor for further action which may include directions to the Contractor on how to maintain appropriate objectivity in the funded research.

The Contracting Officer may at any time inquire into the Contractor’s procedures and actions regarding conflicts of interests in BARDA-funded research including a review of all records pertinent to compliance with 45 CFR Part 94. The Contracting Officer may require submission of the records or review them on site. On the basis of this review, the Contracting Officer may decide that a particular conflict of interest will bias the objectivity of the BARDA-funded research to such an extent that further corrective action is needed or that the Contractor has not managed, reduced, or eliminated the conflict of interest. The issuance of a Stop Work Order by the Contracting Officer may be necessary until the matter is resolved.

If the Contracting Officer determines that BARDA-funded clinical research, whose purpose is to evaluate the safety or effectiveness of a drug, medical device, or treatment, has been designed, conducted, or reported by an investigator with a conflict of interest that was not disclosed or managed, the Contractor must require disclosure of the conflict of interest in each public presentation of the results of the research.

ARTICLE H.27 NOTIFICATION OF CRITICAL PROGRAMMATIC CONCERNS, RISKS, OR POTENTIAL RISKS

If any action occurs that creates a cause for critical programmatic concern, risk, or potential risk to BARDA or the Contractor an Incident Report shall be delivered to BARDA.

—

Within 48 hours of activity or incident or within 24 hours for a security related activity or incident, Contractor must notify BARDA.

—

Additional updates due to COR and CO within 48 hours of additional developments.

—

Contractor shall submit within 5 business days a Corrective Action Plan (if deemed necessary by either party) to address any potential issues.

If corrective action is deemed necessary, Contractor must address in writing, its consideration of concerns raised by BARDA within 5 business days.

PART II - CONTRACT CLAUSES

SECTION I - CONTRACT CLAUSES

ARTICLE I.1. FAR 52.252-2, CLAUSES INCORPORATED BY REFERENCE (FEBRUARY 1998)

This contract incorporates the following clauses by reference, with the same force and effect as if they were given in full text. Upon request, the Contracting Officer will make their full text available. Also, the full text of a clause may be accessed electronically at: https://www.acquisition.gov/

General Clauses for Cost-Reimbursement Research and Development Contract

a. FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES:


FAR CLAUSE NO.	DATE	TITLE
52.202-1	Jan 2012	Definitions
52.203-3	Apr 1984	Gratuities
52.203-5	Apr 1984	Covenant Against Contingent Fees
52.203-6	Sep 2006	Restrictions on Subcontractor Sales to the Government
52.203-7	Oct 2010	Anti-Kickback Procedures
52.203-8	Jan 1997	Cancellation, Rescission, and Recovery of Funds for Illegal or Improper Activity
52.203-10	Jan 1997	Price or Fee Adjustment for Illegal or Improper Activity
52.203-12	Oct 2010	Limitation on Payments to Influence Certain Federal Transactions (Over $150,000)
52.203-13	Apr 2010	Contractor Code of Business Ethics and Conduct
52.203-14	Dec 2007	Display of Hotline Poster(s)
52.204-4	May 2011	Printed or Copied Double-Sided on Recycled Paper
52.204-7	Dec 2012	Central Contractor Registration
52.204-10	Aug 2012	Reporting Executive Compensation and First-Tier Subcontract Awards ($25,000 or more)
52.204-13	Dec 2012	Central Contractor Registration Maintenance
52.209-6	Dec 2010	Protecting the Government’s Interests When Subcontracting With Contractors Debarred, Suspended, or Proposed for Debarment (Over $30,000)
52.215-2	Oct 2010	Audit and Records – Negotiation
52.215-8	Oct 1997	Order of Precedence - Uniform Contract Format
52.215-10	Aug 2011	Price Reduction for Defective Cost or Pricing Data (Over $700,000)
52.215-12	Oct 2010	Subcontractor Cost or Pricing Data (Over $700,000)
52.215-14	Oct 2010	Integrity of Unit Prices
52.215-15	Oct 2010	Pension Adjustments and Asset Reversions
52.215-17	Oct 1997	Waiver of Facilities Capital Cost of Money
52.215-18	Jul 2005	Reversion or Adjustment of Plans for Post-Retirement Benefits (PRB) other than Pensions
52.215-19	Oct 1997	Notification of Ownership Changes
52.215-21	Oct 2010	Requirements for Cost or Pricing Data or Information Other Than Cost or Pricing Data - Modifications
52.215-23	Oct 2009	Limitations on Pass-Through Charges (Over the Simplified Acquisition threshold)
52.216-7	Jun 2011	Allowable Cost and Payment


FAR CLAUSE NO.	DATE	TITLE
52.216-8	Jun 2011	Fixed Fee
52.216-12	Apr 1984	Cost Sharing Contract – no fee
52.217-9	Mar 2000	Option to Extend the Term of the Contract (a) The Government may extend the term of this contract by written notice to the Contractor within [insert the period of time within which the Contracting Officer may exercise the option]; provided that the Government gives the Contractor a preliminary written notice of its intent to extend at least 30 days before the contract expires. The preliminary notice does not commit the Government to an extension. (b) If the Government exercises this option, the extended contract shall be considered to include this option clause. (c) The total duration of this contract, including the exercise of any options under this clause, shall not exceed 5 years.
52.219-16	Jan 1999	Liquidated Damages - Subcontracting Plan
52.222-2	Jul 1990	Payment for Overtime Premiums
52.222-3	Jun 2003	Convict Labor
52.222-21	Feb 1999	Prohibition of Segregated Facilities
52.222-26	Mar 2007	Equal Opportunity
52.222-35	Sep 2010	Equal Opportunity for Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (Over $100,000)
52.222-36	Oct 2010	Affirmative Action for Workers with Disabilities
52.222-37	Sep 2010	Employment Reports on Special Disabled Veterans, Veterans of the Vietnam Era, and Other Eligible Veterans (Over $100,000)
52.222-40	Dec 2010	Notification of Employee Rights Under the National Labor Relations Act
52.222-50	Feb 2009	Combating Trafficking in Persons
52.222-54	Jan 2009	Employment Eligibility Verification
52.223-6	May 2001	Drug-Free Workplace
52.223-18	Aug 2011	Encouraging Contractor Policy to Ban Text Messaging While Driving
52.224-1	April 1984	Privacy Act Notification
52.224-2	April 1984	Privacy Act
52.225-1	Feb 2009	Buy American Act - Supplies
52.225-13	Jun 2008	Restrictions on Certain Foreign Purchases
52.227-1	Dec 2007	Authorization and Consent, Alternate I (Apr 1984)
52.227-2	Dec 2007	Notice and Assistance Regarding Patent and Copyright Infringement
52.227-3	Apr 1984	Patent Indemnity
52.227-11	Dec 2007	Patent Rights - Ownership by the Contractor (Note: In accordance with FAR 27.303(b)(2), paragraph (e) is modified to include the requirements in FAR 27.303(b)(2)(i) through (iv). The frequency of reporting in (i) is annual.


FAR CLAUSE NO.	DATE	TITLE
52.227-14	Dec 2007	Rights in Data – General, Alternate II. Completed portion as follows: Limited Rights Notice (Dec 2007) (a) These data are submitted with limited rights under Government Contract No. HHSO10020XX000XXX (and subcontract , if appropriate). These data may be reproduced and used by the Government with the express limitation that they will not, without written permission of the Contractor, be used for purposes of manufacture nor disclosed outside the Government; except that the Government may disclose these data outside the Government for the following purposes, provided that the Government makes such disclosure subject to prohibition against further use and disclosure: (i) Use (except for manufacture) by support service contractors. (ii) Evaluation by nongovernment evaluators. (b) This Notice shall be marked on any reproduction of these data, in whole or in part.
52.227-16	Jun 1987	Additional Data Requirements
52.232-9	Apr 1984	Limitation on Withholding of Payments
52.232-17	Oct 2010	Interest
52.232-20	Apr 1984	Limitation of Cost
52.232-23	Jan 1986	Assignment of Claims
52.232-25	Oct 2008	Prompt Payment, Alternate I (Feb 2002)
52.232-33	Oct 2003	Payment by Electronic Funds Transfer--Central Contractor Registration
52.233-1	Jul 2002	Disputes
52.233-3	Aug 1996	Protest After Award, Alternate I (Jun 1985)
52.233-4	Oct 2004	Applicable Law for Breach of Contract Claim
52.242-1	Apr 1984	Notice of Intent to Disallow Costs
52.242-3	May 2001	Penalties for Unallowable Costs (Over $700,000)
52.242-4	Jan 1997	Certification of Final Indirect Costs
52.242-13	Jul 1995	Bankruptcy
52.242-15	Aug 1989	Stop Work Order. Alt I (Aug 1984)
52.243-2	Aug 1987	Changes - Cost Reimbursement, Alternate V (Apr 1984)
52.244-2	Oct 2010	Subcontracts, Alternate I (June 2007)
52.244-5	Dec 1996	Competition in Subcontracting
52.244-6	Dec 2010	Subcontracts for Commercial Items
52.245-1 Alt. II	Aug 2010	Government Property, Alternate II (Jun 2007)
52.245-9	Aug 2010	Use and Charges
52.246-9	Apr 1984	Inspection of Research and Development (Short Form)
52.246-23	Feb 1997	Limitation of Liability
52.247-63	Jun 2003	Preference for U.S.-Flag Air Carriers
52.249-6	May 2004	Termination (Cost-Reimbursement)
52.249-14	Apr 1984	Excusable Delays
52.253-1	Jan 1991	Computer Generated Forms

b.	DEPARTMENT OF HEALTH AND HUMAN SERVICES ACQUISITION REGULATION (HHSAR) (48 CFR CHAPTER 3) CLAUSES:


HHSAR CLAUSE NO.	DATE	TITLE
352.202-1	Jan 2006	Definitions - with Alternate paragraph (h) (Jan 2006)
352.203-70	Mar 2012	Anti-Lobbying
352.216-70	Jan 2006	Additional Cost Principles
352.222-70	Jan 2010	Contractor Cooperation in Equal Employment Opportunity Investigations
352.223-70	Jan 2006	Safety and Health
352.224-70	Jan 2006	Privacy Act
352.227-70	Jan 2006	Publications and Publicity
352.228-7	Dec 1991	Insurance - Liability to Third Persons
352.231-70*	Aug 2012	Salary Rate Limitation
352.231-71	Jan 2001	Pricing of adjustments
352.233-71	Jan 2006	Litigation and Claims
352.242-70	Jan 2006	Key Personnel
352.242-73	Jan 2006	Withholding of Contract Payments
352.242-74	Apr 1984	Final Decisions on Audit Findings
352.270-4	Jan 2006	Protection of Human Subjects
352.270-6	Jan 2006	Restriction on use of Human Subjects

* The provisions set forth by this clause will only apply if and when any funds are obligated from HHS funding appropriated in the 2012 government fiscal year.

[End of GENERAL CLAUSES FOR A NEGOTIATED COST-REIMBURSEMENT RESEARCH AND DEVELOPMENT CONTRACT-Rev. 12/2011].

ARTICLE I.2. ADDITIONAL FAR CONTRACT CLAUSES INCLUDED IN FULL TEXT

This contract incorporates the following clauses in full text.

FEDERAL ACQUISITION REGULATION (FAR) (48 CFR CHAPTER 1) CLAUSES:

a. FAR Clause 52.217-9, Option to Extend the Term of the Contract (Mar 2000)

(a) The Government may extend the term of this contract by written notice to the Contractor within [ * ] days after the Government has completed its analysis of the deliverables associated with the applicable GO/NO GO Decision gate ; provided that the Government gives the Contractor a preliminary written notice of its intent to extend at least [ * ] days before the contract expires. The preliminary notice does not commit the Government to an extension.

(b) If the Government exercises this option, the extended contract shall be considered to include this option clause.

(c). FAR Clause 52.219-28, Post-Award Small Business Program Representation (April 2009).

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

(a) Definitions . As used in this clause--

Long-term contract means a contract of more than five years in duration, including options. However, the term does not include contracts that exceed five years in duration because the period of performance has been extended for a cumulative period not to exceed six months under the clause at 52.217-8, Option to Extend Services, or other appropriate authority.

Small business concern means a concern, including its affiliates, that is independently owned and operated, not dominant in the field of operation in which it is bidding on Government contracts, and qualified as a small business under the criteria in 13 CFR part 121 and the size standard in paragraph (c) of this clause. Such a concern is “not dominant in its field of operation” when it does not exercise a controlling or major influence on a national basis in a kind of business activity in which a number of business concerns are primarily engaged. In determining whether dominance exists, consideration shall be given to all appropriate factors, including volume of business, number of employees, financial resources, competitive status or position, ownership or control of materials, processes, patents, license agreements, facilities, sales territory, and nature of business activity.

(b) If the Contractor represented that it was a small business concern prior to award of this contract, the Contractor shall represent its size status according to paragraph (e) of this clause or, if applicable, paragraph (g) of this clause, upon the occurrence of any of the following:

(1) Within 30 days after execution of a novation agreement or within 30 days after modification of the contract to include this clause, if the novation agreement was executed prior to inclusion of this clause in the contract.

(2) Within 30 days after a merger or acquisition that does not require a novation or within 30 days after modification of the contract to include this clause, if the merger or acquisition occurred prior to inclusion of this clause in the contract.

(3) For long-term contracts--

(i) Within 60 to 120 days prior to the end of the fifth year of the contract; and

(ii) Within 60 to 120 days prior to the date specified in the contract for exercising any option thereafter.

(c) The Contractor shall represent its size status in accordance with the size standard in effect at the time of this representation that corresponds to the North American Industry Classification System (NAICS) code assigned to this contract. The small business size standard corresponding to this NAICS code can be found at http://www.sba.gov/contractingopportunities/officials/size/index.html .

(d) The small business size standard for a Contractor providing a product which it does not manufacture itself, for a contract other than a construction or service contract, is 500 employees.

(e) Except as provided in paragraph (g) of this clause, the Contractor shall make the representation required by paragraph (b) of this clause by validating or updating all its representations in the Online Representations and Certifications Application and its data in the Central Contractor Registration, as necessary, to ensure that they reflect the

Contractor’s current status. The Contractor shall notify the contracting office in writing within the timeframes specified in paragraph (b) of this clause that the data have been validated or updated, and provide the date of the validation or update.

(f) If the Contractor represented that it was other than a small business concern prior to award of this contract, the Contractor may, but is not required to, take the actions required by paragraphs (e) or (g) of this clause.

(g) If the Contractor does not have representations and certifications in ORCA, or does not have a representation in ORCA for the NAICS code applicable to this contract, the Contractor is required to complete the following representation and submit it to the contracting office, along with the contract number and the date on which the representation was completed:

The Contractor represents that it [x] is, [ ] is not a small business concern under NAICS Code assigned to contract number.

[Contractor to sign and date and insert authorized signer’s name and title].

PART III - LIST OF DOCUMENTS, EXHIBITS AND OTHER ATTACHMENTS

SECTION J - LIST OF ATTACHMENTS

The following documents are attached and incorporated in this contract:

1. Statement of Work

Statement of Work, dated 22 April 2013.

2. Invoice/Financing Request Instructions and Contract Financial Reporting Instructions for BARDA Cost-Reimbursement Type Contracts,

Invoice/Financing Request Instructions and Contract Financial Reporting Instructions for BARDA Cost-Reimbursement Type Contracts, 5 pages.

3. Financial Report of Individual Project/Contract, 1 page

4. Instructions for Completing Financial Report of Individual Project/Contract, 3 pages

5. Inclusion Enrollment Report

Inclusion Enrollment Report, 5/01 (Modified OAMP: 10/01), 1 page.

6. Research Patient Care Costs

Research Patient Care Costs, 1 page.

7. Report of Government Owned, Contractor Held Property

Report of Government Owned, Contractor Held Property, 1 page. Located at: http://rcb.cancer.gov/rcb-internet/forms/Govt-Owned-Prop.pdf

8. 7 Principles of Earned Value Management Tier 2 System Implementation Guide

PART IV - REPRESENTATIONS AND INSTRUCTIONS

SECTION K - REPRESENTATIONS, CERTIFICATIONS AND OTHER STATEMENTS OF OFFERORS

The following documents are incorporated by reference in this contract:

1)	Representations & Certifications - Status Active on SAM.gov.

2)	Final Cost Proposal Budget received 26 March 2013.

3)	Final Technical Proposal received 22 April 2013.

4)	Human Subjects Assurance Identification Numbers:

i. Duke Clinical Research Institute (DCRI): 00009025

ii. Celerion: FWA00003049

5)	Animal Welfare Assurance Numbers (OLAW/PHS):

i. Lovelace: A3083-01

ii. MPI Research: A3181-01

3.	STATEMENT OF WORK

3.1

Preamble

Independently and not as an agent of the Government, the Contractor shall be required to furnish all the necessary services, qualified personnel, material, equipment, and facilities, not otherwise provided by the Government, as needed to perform the Statement of Work submitted in response to Broad Agency Announcement (BAA) BARDA CBRN BAA-12-100-SOL-00011.

The Government reserves the right to modify the milestones, progress, schedule, budget, or product to add or delete products, process, or schedule as need may arise. Because of the nature of this (R&D) contract and complexities inherent in this and prior programs, at designated milestones the Government will evaluate whether work should be redirected, removed, or whether schedule or budget adjustments should be made. In any event, the Government reserves the right to change product, process, schedule, or event to add or delete part or all of these elements as the need arises.

3.2

Overall Objectives and Scope

The overall objective of this contract is to advance the development of solithromycin (SOLI) as an intravenous (IV) and orally-delivered antibiotic for use in the pediatric population for the treatment of community-acquired bacterial pneumonia (CABP) and for protection against biothreat organisms, including Bacillus anthracis and Francisella tularensis . The scope of work is organized in 5 severable phases (Clinical Line Item Number [CLIN] 1 through 5):

LOGO

1.	CLIN 1

The Contractor will carry out the following tasks and subtasks and in accordance with the agreed upon Integrated Master Schedule and Integrated Master Plan, which further details the conduct of the specific tasks and subtasks.

1.1

Program Management (WBS 1.1)

The Contractor outsources a majority of the work to established practitioners in each discipline, with the Contractor team providing experienced program management, coordination, and oversight. All selected purchased commercial service providers for the BARDA project have proven their ability to deliver quality work cost-effectively and on schedule. The Contractor shall provide for the following program management activities as outlined below:

1.1.1

The Contractor will provide overall management, integration and coordination of all contract activities, including a technical and administrative infrastructure to ensure the efficient planning, initiation, implementation, and direction of all contract activities.

1.1.2

The Principal Investigator is responsible for overall leadership for project management, communication, tracking, monitoring and reporting on status and progress, and modification to the project requirements and timelines, including projects undertaken by subcontractors.

1.1.3

The Project Manager will oversee the monitoring and tracking day-to-day progress and timelines, coordinating communication and project activities; costs incurred; and program management.

1.1.4

The Principal Investigator and the Project Manager will act as the BARDA Liaison with responsibility for effective communication with the Project Officer and Contracting Officer.

1.1.5

The Contractor has adequate administrative staff and legal consultants to provide development of compliant subcontracts, consulting, and other legal agreements, and ensure timely acquisition of all proprietary rights, including IP rights, and reporting all inventions made in the performance of the project.

1.1.6

The Contractor’s Project Management Team along with support from the Finance department has responsibility for financial management and reporting on all activities conducted by the Contractor and any subcontractors and service providers.

1.1.7

Contract Review Meetings

1.1.7.1

The Contractor’s team will participate in regular face-to-face meetings on a quarterly basis to coordinate and oversee the contract effort as directed by the Contracting and Project Officers. Such meetings may include, but are not limited to, meeting of the Contractor and subcontractors to discuss clinical manufacturing progress, product development, product assay development, scale up manufacturing development, clinical sample assays development, preclinical/clinical study designs and regulatory issues; meetings with individual Contractors and other HHS officials to discuss the technical, regulatory, and ethical aspects of the program; and meeting with technical consultants to discuss technical data provided by the Contractor.

1.1.7.2

The Contractor will participate in teleconferences every 2 weeks between the Contractor and BARDA to review technical progress. The Contractor will include subcontractors and service providers as necessary. If additional teleconferences or face-to-face meetings are requested by BARDA, the Contractor will be available.

1.1.8

Integrated Master Schedule (IMS)

1.1.8.1 Within 30 calendar days of the effective date of the contract, the Contractor will submit a first draft of an updated IMS in a format agreed upon by BARDA to the Project Officer and the Contracting Officer for review and comment. The Integrated Master Schedule will be incorporated into the contract, and will be used to monitor performance of the contract. The Contractor will include the key milestones and Go/No Go decision gates. The IMS for the period of performance will be reviewed and accepted by BARDA at the PMBR.

1.1.9

Integrated Master Plan (IMP)

1.1.9.1

Work Breakdown Structure: The Contractor will utilize a WBS template agreed upon by BARDA for reporting on the contact. The Contractor will expand and delineate the Contract Work

Breakdown Structure (CWBS) to a level agreed upon by BARDA as part of their Integrated Master Plan for contract reporting. The CWBS will be discernible and consistent. At BARDA’s request, the Contractor will furnish WBS data at the work package level or at a lower level if there is significant complexity and risk associated with the task.

1.1.9.2

GO/ NO-GO Decision Gates/Contract Milestones: The IMP will outline key milestones with “Go/No Go” decision criteria (entrance and exit criteria for each phase of the project). The project plan should include, but not be limited to, milestones in manufacturing, non-clinical and clinical studies, and regulatory submissions.

1.1.9.3

Earned Value Management System Plan: Subject to the requirements under HHSAR Clause 352.234-4, the Contractor will use principles of Earned Value Management System (EVMS) in the management of this contract. The Contractor will follow the Seven Principles:

The Contractor will plan all work scope for the program to completion.

II.

The Contractor will break down the program work scope into finite pieces that can be assigned to a responsible person or organization for control of technical, schedule, and cost objectives.

III.

The Contractor will integrate program work scope, schedule, and cost objectives into a performance measurement baseline plan against which accomplishments may be measured.

IV.

The Contractor will use actual cost incurred and recorded in accomplishing the work performed.

The Contractor will objectively assess accomplishments at the work performance level.

VI.

The Contractor will analyze significant variances from the plan, forecast impacts, and prepare an estimate at completion based on performance to date and work to be performed.

VII.

The Contractor will use earned value information in the company’s management processes.

We understand that elements of EVMS will be applied to all applicable projects as part of the IMP. In addition, the Contractor will submit a written summary of the management procedures that will be used to establish, maintain and comply with EVMS requirements.

1.1.10

Decision Gate Reporting: On completion of a stage of the product development, as defined in the agreed upon IMS and IMP, the Contractor will prepare and submit to the Project Officer and the Contracting Officer a Decision Gate Report that contains (i) sufficient detail, documentation and analysis to support successful completion of the stage according to the predetermined qualitative and quantitative criteria that were established for Go/No Go decision making; and (ii) a description of the next stage of product development to be initiated and a request for approval to proceed to the next stage of product development.

1.1.11

Risk Management Plan: The Contractor will develop a risk management plan within 90 days of contract award highlighting potential problems and/or issues that may arise during the life of the contract, their impact on cost, schedule and performance, and appropriate remediation plans. This plan will reference relevant WBS elements where appropriate. Updates to this plan will be included every 3 months (quarterly) in the monthly Project Status Report.

1.1.12

Performance Measurement Baseline Review (PMBR): The Contractor will submit a plan for a PMBR to occur within [*] days of contract award. At the PMBR, the Contractor and BARDA will mutually agree upon the budget, schedule and technical plan baselines (Performance Measurement Baseline). These baselines will be the basis for monitoring and reporting progress throughout the life of the contract. The PMBR is conducted to achieve confidence that the baselines accurately capture the entire technical scope of work, are consistent with contract schedule requirements, are reasonably and logically planned, and have adequate resources assigned. The goals of the PMBR are as follows:

Jointly assess areas such as the Contractor’s planning for complete coverage of the SOW, logical scheduling of the work activities, adequate resources, and identification of inherent risks

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

II.

Confirm the integrity of the Performance Measurement Baseline (PMB)

III.

Foster the use of EVM as a means of communication

IV.

Provide confidence in the validity of the Contractor’s reporting

Identify risks associated with the PMB

VI.

Present any revised PMBs for mutual agreement

VII.

Present an IMS: The Contractor will deliver an initial program IMS that rolls up all time-phased WBS elements down to the activity level. This IMS will include the dependencies that exist between tasks. This IMS will be agreed to and finalized at the PMBR.

VIII.

Present the Risk Management Plan

1.1.13

Deviation Request: During the course of contract performance, in response to a need to change IMS activities as baselined at the PMBR, the Contractor will submit a Deviation Report. This report will be used to request a change in the agreed-upon IMS and timelines, if necessary. This report will include: (i) discussion of the justification/rationale for the proposed change; (ii) options for addressing the needed changes from the agreed upon timelines, including a cost-benefit analysis of each option; and (iii) recommendations for the preferred option that includes a full analysis and discussion of the effect of the change on the entire product development program, timelines, and budget.

1.1.14

Monthly and Annual Reports: The Contractor will deliver Project Status Reports on a monthly basis. The reports will address the items below cross referenced to the WBS, SOW, IMS, and EVMS:

Executive summary highlighting the progress, issues, and relevant activities in manufacturing, non-clinical, clinical, and regulatory;

II.

Progress in meeting contract milestones, detailing the planned progress and actual progress during the reporting period, explaining any differences between the two and corrective steps;

III.

Updated IMS;

IV.

Updated EVMS;

Updated Risk Management Plan (Every 3 months);

VI.

Three month rolling forecast of planned activities;

VII.

Progress of regulatory submissions;

VIII.

Estimated and actual expenses;

1.1.15

Data Management: The Contractor will develop and implement data management and quality control systems/procedures, including transmission, storage, confidentiality, and retrieval of all contract data;

1.1.15.1

Provide for the statistical design and analysis of data resulting from the research;

1.1.15.2

Provide raw data or specific analyses of data generated with contract funding to the Project Officer, upon request.

1.2

[*] (WBS 1.2)

1.2.1

[*] (WBS 1.2.1 - reserved)

1.2.2

[*] (WBS 1.2.2)

1.2.2.1

[*]

1.2.2.2

[*]

1.3

[*] (WBS 1.3)

1.3.1

[*] (WBS 1.3.1 - reserved)

1.3.2

[*] (WBS 1.3.2)

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

1.3.2.1

[*]

1.3.2.2

[*]

1.3.2.3

[*]

1.3.2.4

[*]

1.3.2.5

[*]

1.3.3

[*] (WBS 1.3.3 - reserved)

1.4

[*] (WBS 1.4)

1.4.1

[*] (WBS 1.4.1)

1.4.1.1

[*]

1.4.1.2

[*]

1.4.1.3

[*]

1.4.1.4

[*]

1.4.2

[*] (WBS 1.4.2 - reserved)

1.5

[*] (WBS 1.5)

1.5.1

[*] (WBS 1.5.1)

1.5.1.1

[*]

1.5.1.2

[*]

1.5.1.3

[*]

1.5.1.4

[*]

1.5.2

[*] (WBS 1.5.2)

1.5.2.1

[*]

1.5.2.2

[*]

1.5.2.3

[*]

1.5.2.4

[*]

1.5.2.5

[*]

1.6

[*] (WBS 1.6)

1.6.1

[*] (WBS 1.6.1)

1.6.1.1

[*]

1.6.1.2

[*]

1.6.1.3

[*]

1.6.1.4

[*]

1.6.2

[*] (WBS 1.6.2)

1.6.2.1

[*]

1.6.3

[*] (WBS 1.6.3)

1.6.3.1

[*]

1.6.3.2

[*]

1.6.3.4

[*]

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

1.6.4

[*] (WBS 1.6.4 - reserved)

1.6.5

[*] (WBS 1.6.5).

[*]

1.6.5.1 [*]

1.6.5.2 [*]

2.	CLIN 2

2.1

Program Management (WBS 2.1)

2.1.1

Program management scope is consistent with that outlined in CLIN 1.

2.2

[*] (WBS 2.2 – reserved)

2.3

[*] (WBS 2.3 – reserved)

2.4

[*] (WBS 2.4)

2.4.1

[*] (WBS 2.4.1)

2.4.1.1

[*]

2.4.1.2

[*]

2.4.2

[*] (WBS 2.4.2)

2.4.2.1 [*]

2.5

[*] (WBS 2.5)

2.5.1

[*] (WBS 2.5.1 – reserved)

2.5.2

[*] (WBS 2.5.2)

2.5.2.1

[*]

2.5.2.2

[*]

2.5.2.4

[*]

2.6

[*] (WBS 2.6)

2.6.1

[*] (WBS 2.6.1 - reserved)

2.6.2

[*] (WBS 2.6.2 - reserved)

2.6.3 [*] (WBS 2.6.3)

2.6.3.1

[*]

2.6.3.2

[*]

2.6.3.3

[*]

2.6.3.4

[*]

2.6.4

[*] (WBS 2.6.4 - reserved)

2.6.5

[*] (WBS 2.6.5).

2.6.5.1

[*] (WBS 2.6.5.1)

3.	CLIN 3

3.1

Program Management (WBS 3.1)

3.1.1

Program management scope is consistent with that outlined in CLIN 2.

3.2

[*] (WBS 3.2 - reserved)

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

3.3

[*] (WBS 3.3)

3.3.1

[*] (WBS 3.3.1 – reserved)

3.3.2

[*] (WBS 3.3.2 – reserved)

3.3.3

[*] (WBS 3.3.3)

3.3.3.1

[*]

3.3.3.2

[*]

3.3.3.3

[*]

3.4

[*] (WBS 3.4)

3.4.1

[*] (WBS 3.4.1)

3.4.1.1

[*]

3.4.2

[*] (WBS 3.4.2 - reserved)

3.5

[*] (WBS 3.5)

3.5.1

[*] (WBS 3.5.1 – reserved)

3.5.2

[*] (WBS 3.5.2)

3.5.2.1

[*]

3.5.2.2

[*]

3.6

[*] (WBS 3.6)

3.6.1

[*] (WBS 3.6.1 - reserved)

3.6.2

[*] (WBS 3.6.2 - reserved)

3.6.3

[*] (WBS 3.6.3)

3.6.3.1

[*]

3.6.4

[*] (WBS 3.6.4 - reserved)

3.6.5

[*] (WBS 3.6.5)

3.6.5.1

[*] (WBS 3.6.5.1)

4.	CLIN 4 (GOVERNMENT/CONTRACTOR COST-SHARE)

4.1

Program Management (WBS 4.1)

4.1.1

Program management scope is consistent with that in CLIN 3.

4.2

[*] (WBS 4.2 – reserved)

4.3

[*] (WBS 4.3 - reserved)

4.4

[*] (WBS 4.4)

4.4.1

[*] (WBS 4.4.1 – reserved)

4.4.2

[*] (WBS 4.4.2)

4.4.2.1

[*]

4.5

[*] (WBS 4.5 - reserved)

4.6

[*] (WBS 4.6 - reserved)

5.	CLIN 5

5.1

Program Management (WBS 5.1)

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

5.1.1

Program management scope is consistent with that in CLIN 4.

5.2

[*] (WBS 5.2 - reserved)

5.3

[*] (WBS 5.3 - reserved)

5.4

[*] (WBS 5.4 - reserved)

5.5

[*] (WBS 5.5)

5.5.1

[*] (WBS 5.5.1 – reserved)

5.5.2

[*] (WBS 5.5.2)

5.5.2.1

[*]

5.5.2.2

[*]

5.6

[*] (WBS 5.6 - reserved)

6.	OTHER ITEMS

6.1

Facilities, Equipment, and Other Resources

The Contractor confirms the subcontractor and all purchased commercial service providers provide equipment, facilities and other resources under Federal and HHS regulations.

[*]	Confidential treatment requested; certain information omitted and filed separately with the SEC.

Attachment 2

INVOICE/FINANCING REQUEST AND CONTRACT FINANCIAL REPORTING

INSTRUCTIONS FOR BARDA COST-REIMBURSEMENT CONTRACTS

Format: Payment requests shall be submitted on the Contractor’s self-generated form in the manner and format prescribed herein and as illustrated in the Sample Invoice/Financing Request. Standard Form 1034, Public Voucher for Purchases and Services Other Than Personal, may be used in lieu of the Contractor’s self-generated form provided it contains all of the information shown on the Sample Invoice/Financing Request. DO NOT include a cover letter with the payment request.

Number of Copies: Payment requests shall be submitted in the quantity specified in the Invoice Submission Instructions in Section G of the Contract Schedule.

Frequency: Payment requests shall not be submitted more frequently than once every two weeks in accordance with the Allowable Cost and Payment Clause incorporated into this contract. Small business concerns may submit invoices/financing requests more frequently than every two weeks when authorized by the Contracting Officer.

Cost Incurrence Period: Costs incurred must be within the contract performance period or covered by precontract cost provisions.

Billing of Costs Incurred: If billed costs include (1) costs of a prior billing period, but not previously billed, or (2) costs incurred during the contract period and claimed after the contract period has expired, the Contractor shall site the amount(s) and month(s) in which it incurred such costs.

Contractor’s Fiscal Year: Payment requests shall be prepared in such a manner that the Government can identify costs claimed with the Contractor’s fiscal year.

Currency: All BARDA contracts are expressed in United States dollars. When the Government pays in a currency other than United States dollars, billings shall be expressed, and payment by the Government shall be made, in that other currency at amounts coincident with actual costs incurred. Currency fluctuations may not be a basis of gain or loss to the Contractor. Notwithstanding the above, the total of all invoices paid under this contract may not exceed the United States dollars authorized.

Costs Requiring Prior Approval: Costs requiring the Contracting Officer’s approval, including those set forth in an Advance Understanding in the contract, shall be identified and reference the Contracting Officer’s Authorization (COA) Number. In addition, the Contractor shall show any cost set forth in an Advance Understanding as a separate line item on the payment request.

Invoice/Financing Request Identification: Each payment request shall be identified as either:

(a)	Interim Invoice/Contract Financing Request: These are interim payment requests submitted during the contract performance period.

(b)

Completion Invoice: The completion invoice shall be submitted promptly upon completion of the work, but no later than one year from the contract completion date, or within 120 days after settlement of the final indirect cost rates covering the year in which the contract is physically complete (whichever date is later). The Contractor shall submit the completion invoice when all costs have been assigned to the contract and it completes all performance provisions.

(c)	Final Invoice: A final invoice may be required after the amounts owed have been settled between the Government and the Contractor (e.g., resolution of all suspensions and audit exceptions).

Preparation and Itemization of the Invoice/Financing Request: The Contractor shall furnish the information set forth in the instructions below. The instructions are keyed to the entries on the Sample Invoice/Financing Request.

(a)	Designated Billing Office Name and Address: Enter the designated billing office name and address, as identified in the Invoice Submission Instructions in Section G of the Contract Schedule.

(b)

Contractor’s Name, Address, Point of Contact, VIN, and DUNS or DUNS+4 Number: Show the Contractor’s name and address exactly as they appear in the contract, along with the name, title, phone number, and e-mail address of the person to notify in the event of an improper invoice or, in the case of payment by method other than Electronic Funds Transfer, to whom payment is to be sent. Provide the Contractor’s Vendor Identification Number (VIN), and Data Universal Numbering System (DUNS) number or DUNS+4. The DUNS number must identify the Contractor’s name and address exactly as stated on the face page of the contract. When an approved assignment has been made by the Contractor, or a different payee has been designated, provide the same information for the payee as is required for the Contractor (i.e., name, address, point of contact, VIN, and DUNS).

(c)	Invoice/Financing Request Number: Insert the appropriate serial number of the payment request.

(d)	Date Invoice/Financing Request Prepared: Insert the date the payment request is prepared.

(e)	Contract Number and Order Number (if applicable): Insert the contract number and order number (if applicable).

(f)	Effective Date: Insert the effective date of the contract or if billing under an order, the effective date of the order.

(g)

Total Estimated Cost of Contract/Order: Insert the total estimated cost of the contract, exclusive of fixed-fee. If billing under an order, insert the total estimated cost of the order, exclusive of fixed-fee. For incrementally funded contracts/orders, enter the amount currently obligated and available for payment.

(h)	Total Fixed-Fee: Insert the total fixed-fee (where applicable) or the portion of the fixed-fee applicable to a particular invoice as defined in the contract.

(i)	Two-Way/Three-Way Match: Identify whether payment is to be made using a two-way or three-way match. To determine required payment method, refer to the Invoice Submission Instructions in Section G of the Contract Schedule.

(j)	Office of Acquisitions: Insert the name of the Office of Acquisitions, as identified in the Invoice Submission Instructions in Section G of the Contract Schedule.

(k)	Central Point of Distribution: Insert the Central Point of Distribution, as identified in the Invoice Submission Instructions in Section G of the Contract Schedule.

(l)	Billing Period: Insert the beginning and ending dates (month, day, and year) of the period in which costs were incurred and for which reimbursement is claimed.

(m)

Amount Billed - Current Period: Insert the amount claimed for the current billing period by major cost element, including any adjustments and fixed-fee. If the Contract Schedule contains separately priced line items, identify the contract line item(s) on the payment request and include a separate breakdown (by major cost element) for each line item.

(n)

Amount Billed - Cumulative: Insert the cumulative amounts claimed by major cost element, including any adjustments and fixed-fee. If the Contract Schedule contains separately priced line items, identify the contract line item(s) on the payment request and include a separate breakdown (by major cost element) for each line item.

(o)	Direct Costs: Insert the major cost elements. For each element, consider the application of the paragraph entitled “Costs Requiring Prior Approval” on page 1 of these instructions.

(1)

Direct Labor: Include salaries and wages paid (or accrued) for direct performance of the contract. List individuals by name, title/position, hourly/annual rate, level of effort (actual hours or % of effort), breakdown by task performed by personnel, and amount claimed.

(2)

Fringe Benefits: List any fringe benefits applicable to direct labor and billed as a direct cost. Do not include in this category fringe benefits that are included in indirect costs.

(3)

Accountable Personal Property: Include any property having a unit acquisition cost of $5,000 or more, with a life expectancy of more than two years, and sensitive property regardless of cost (see the HHS Contractor’s Guide for Control of Government Property )(e.g. personal computers). Note this is not permitted for reimbursement without pre-authorization from the CO.

On a separate sheet of paper attached to the payment request, list each item for which reimbursement is requested. Include reference to the following (as applicable):

- item number for the specific piece of equipment listed in the Property Schedule, and

- COA number, if the equipment is not covered by the Property Schedule.

The Contracting Officer may require the Contractor to provide further itemization of property having specific limitations set forth in the contract.

(4)

Materials and Supplies: Include all consumable material and supplies regardless of amount. Detailed line-item breakdown (e.g. receipts, quotes, etc.) is required.

(5)

Premium Pay: List remuneration in excess of the basic hourly rate.

(6)

Consultant Fee: List fees paid to consultants. Identify consultant by name or category as set forth in the contract or COA, as well as the effort (i.e., number of hours, days, etc.) and rate billed.

(7)

Travel: Include domestic and foreign travel. Foreign travel is travel outside of Canada, the United States and its territories and possessions. However, for an organization located outside Canada, the United States and its territories and possessions, foreign travel means travel outside that country. Foreign travel must be billed separately from domestic travel.

(8)

Subcontract Costs: List subcontractor(s) by name and amount billed. Provide subcontract invoices/receipts as backup documentation. If subcontract is of the cost-reimbursement variety, detailed breakdown will be required. Regardless, include backup documentation (e.g. subcontractor invoices, quotes, etc.).

(9)

Other: Include all other direct costs not fitting into an aforementioned category. If over $1,000, list cost elements and dollar amounts separately. If the contract contains restrictions on any cost element, that cost element must be listed separately.

(p)	Cost of Money (COM): Cite the COM factor and base in effect during the time the cost was incurred and for which reimbursement is claimed, if applicable.

(q)	Indirect Costs: Identify the indirect cost base (IDC), indirect cost rate, and amount billed for each indirect cost category.

(r)	Fixed-Fee: Cite the formula or method of computation for fixed-fee, if applicable. The fixed-fee must be claimed as provided for by the contract.

(s)	Total Amounts Claimed: Insert the total amounts claimed for the current and cumulative periods.

(t)	Adjustments: Include amounts conceded by the Contractor, outstanding suspensions, and/or disapprovals subject to appeal.

(u)	Grand Totals

(v)	Certification of Salary Rate Limitation: If required by the contract (see Invoice Submission Instructions in Section G of the Contract Schedule), the Contractor shall include the following certification at the bottom of the payment request:

“I hereby certify that the salaries billed in this payment request are in compliance with the Salary Rate Limitation Provisions in Section H of the contract.”

**Note the Contracting Officer may require the Contractor to submit detailed support for costs claimed on payment requests. Every cost must be determined to be allocable, reasonable, and allowable per FAR Part 31.

FINANCIAL REPORTING INSTRUCTIONS :

These instructions are keyed to the Columns on the sample invoice/financing request.

Column A - Expenditure Category: Enter the expenditure categories required by the contract.

Column B - Cumulative Percentage of Effort/Hrs. - Negotiated: Enter the percentage of effort or number of hours agreed to for each employee or labor category listed in Column A.

Column C - Cumulative Percentage of Effort/Hrs. - Actual: Enter the percentage of effort or number of hours worked by each employee or labor category listed in Column A.

Column D - Amount Billed - Current: Enter amounts billed during the current period.

Column E - Amount Billed - Cumulative: Enter the cumulative amounts to date.

Column F - Cost at Completion: Enter data only when the Contractor estimates that a particular expenditure category will vary from the amount negotiated. Realistic estimates are essential.

Column G - Contract Amount: Enter the costs agreed to for all expenditure categories listed in Column A.

Column H - Variance (Over or Under): Show the difference between the estimated costs at completion (Column F) and negotiated costs (Column G) when entries have been made in Column F. This column need not be filled in when Column F is blank. When a line item varies by plus or minus 10 percent, i.e., the percentage arrived at by dividing Column F by Column G, an explanation of the variance should be submitted. In the case of an overrun (net negative variance), this submission shall not be deemed as notice under the Limitation of Cost (Funds) Clause of the contract.

Modifications: Any modification in the amount negotiated for an item since the preceding report should be listed in the appropriate cost category.

Expenditures Not Negotiated: An expenditure for an item for which no amount was negotiated (e.g., at the discretion of the Contractor in performance of its contract) should be listed in the appropriate cost category and all columns filled in, except for G. Column H will of course show a 100 percent variance and will be explained along with those identified under H above.

SAMPLE INVOICE/PAYMENT REQUEST AND CONTRACT FINANCIAL REPORT

(a)

Designated Billing Office Name and Address:

(c)

Invoice/Financing Request No.:

DHHS/OS/ASPR/BARDA

(d)

Date Invoice Prepared:

Attn: Contracting Officer

330 Independence Ave., S.W.

Room G644

Washington, D.C. 20201

(e)

(f)

Contract No. and Order No. (if applicable):

Effective Date:

(b)

Contractor’s Name, Address, Point of Contact, VIN, and DUNS or DUNS+4 Number:

(g)

(h)

Total Estimated Cost of Conract/Order:

Total Fixed-Fee (if applicable):

ABC CORPORATION

(i)

¨ Two-Way Match:

100 Main Street

¨ Three-Way Match

Anywhere, USA Zip Code

(j)

Office of Acquisitions:

Name, Title, Phone Number, and E-mail Address of person to notify in the event of an improper invoice or, in the case of payment by method other than Electronic Funds Transfer, to whom payment is to be sent.

(k)

Central Point of Distribution

VIN:

DUNS or DUNS+4

(l) This invoice/financing request reimbursable costs for the period from to

Cumulative Percentage

of Effort/Hrs.

Amount Billed

Expenditure Category*

Negotiated

Actual

(m)

Current

(n)

Cumulative

Cost at

Completion

Contract

Amount

Variance

(o) Direct Costs:

(1) Direct Labor

(2) Fringe Benefits

(3) Accountable Property

(4) Materials & Supplies

(5) Premium Pay

(6) Consultant Fees

(7) Travel

(8) Subcontracts

(9) Other

Total Direct Costs

(p) Cost of Money

(q) Indirect Costs

(r) Fixed Fee

(s) Total Amount Claimed

(t) Adjustments

(u) Grand Totals

I certify that all payments are for appropriate purposes and in accordance with the contract.

(Name of Official)

(Title)

* Attach details as specified in the contract

Attachment 3

FINANCIAL REPORT OF INDIVIDUAL

PROJECT/CONTRACT

Note: Complete this Form in Accordance with Accompanying Instructions.

Project Task:

Contract No.:

Date of Report:

0990-0134

0990-0131

Reporting Period:

Contractor Name and Address:

Expenditure Category*

Percentage of

Effort/Hours

Cumulative
Incurred Cost
at End of
Prior Period

Incurred

Cost-

-Current

Cumulative

Cost to Date

(D + E)

Estimated
Cost to
Complete

Estimated Cost at
Completion (F+G)

Negotiated
Contract
Amount

Variance (Over
or Under) (I-H)

Negotiated

Actual

Attachment 4

INSTRUCTIONS FOR COMPLETING

“FINANCIAL REPORT OF INDIVIDUAL PROJECT/CONTRACT”

GENERAL INFORMATION

Purpose . This Quarterly Financial Report is designed to: (1) provide a management tool for use by be BARDA in monitoring the application of financial and personnel resources to the BARDA contracts; (2) provide contractors with financial and personnel management data which is usable in their management processes; (3) promptly indicate potential areas of contract underruns or overruns by making possible comparisons of actual performance and projections with prior estimates on individual elements of cost and personnel; and (4) obtain contractor’s analyses of cause and effect of significant variations between actual and prior estimates of financial and personnel performance.

REPORTING REQUIREMENTS

Scope. The specific cost and personnel elements to be reported shall be established by mutual agreement prior to award. The Government may require the contractor to provide detailed documentation to support any element(s) on one or more financial reports.

Number of Copies and Mailing Address. An original and two (2) copies of the report(s) shall be sent to the contracting officer at the address shown on the face page of the contract, no later than 30 working days after the end of the period reported. However, the contract may provide for one of the copies to be sent directly to the Contracting Officer’s Technical Representative.

REPORTING STATISTICS

A modification which extends the period of performance of an existing contract will not require reporting on a separate quarterly report, except where it is determined by the contracting officer that separate reporting is necessary. Furthermore, when incrementally funded contracts are involved, each separate allotment is not considered a separate contract entity (only a funding action). Therefore, the statistics under incrementally funded contracts should be reported cumulatively from the inception of the contract through completion.

Definitions and Instructions for Completing the Quarterly Report . For the purpose of establishing expenditure categories in Column A, the following definitions and instructions will be utilized. Each contract will specify the categories to be reported.

(1)

Key Personnel. Include key personnel regardless of annual salary rates. All such individuals should be listed by names and job titles on a separate line including those whose salary is not directly charged to the contract but whose effort is directly associated with the contract. The listing must be kept up to date.

(2)	Personnel--Other. List as one amount unless otherwise required by the contract.

(3)

Fringe Benefits. Include allowances and services provided by the contractor to employees as compensation in addition to regular salaries and wages. If a fringe benefit rate(s) has been established, identify the base, rate, and amount billed for each category. If a rate has not been established, the various fringe benefit costs may be required to be shown separately. Fringe benefits which are included in the indirect cost rate should not be shown here.

(4)

Accountable Personal Property. Include nonexpendable personal property with an acquisition cost of $1,000 or more and with an expected useful life of two or more years, and sensitive items regardless of cost. Form HHS 565, “Report of Accountable Property,” must accompany the contractor’s public voucher (SF 1034/SF 1035) or this report if not previously submitted. See “Contractor’s Guide for Control of Government Property.”

(5)	Supplies. Include the cost of supplies and material and equipment charged directly to the contract, but excludes the cost of nonexpendable equipment as defined in (4) above.

(6)	Inpatient Care. Include costs associated with a subject while occupying a bed in a patient care setting. It normally includes both routine and ancillary costs.

(7)	Outpatient Care. Include costs associated with a subject while not occupying a bed. It normally includes ancillary costs only.

(8)

Travel. Include all direct costs of travel, including transportation, subsistence and miscellaneous expenses. Travel for staff and consultants shall be shown separately. Identify foreign and domestic travel separately. If required by the contract, the following information shall be submitted: (i) Name of traveler and purpose of trip; (ii) Place of departure, destination and return, including time and dates; and (iii) Total cost of trip.

(9)	Consultant Fee. Include fees paid to consultant(s). Identify each consultant with effort expended, billing rate, and amount billed.

(10)	Premium Pay. Include the amount of salaries and wages over and above the basic rate of pay.

(11)	Subcontracts. List each subcontract by name and amount billed.

(12)	Other Costs. Include any expenditure categories for which the Government does not require individual line item reporting. It may include some of the above categories.

(13)	Overhead/Indirect Costs. Identify the cost base, indirect cost rate, and amount billed for each indirect cost category.

(14)	General and Administrative Expense. Cite the rate and the base. In the case of nonprofit organizations, this item will usually be included in the indirect cost.

(15)	Fee. Cite the fee earned, if any.

(16)	Total Costs to the Government.

PREPARATON INSTRUCTIONS

These instructions are keyed to the Columns on the Quarterly Report.

Column A--Expenditure Category. Enter the expenditure categories required by the contract.

Column B--Percentage of Effort/Hours Negotiated . Enter the percentage of effort or number of hours agreed to during contract negotiations for each labor category listed in Column A.

Column C--Percentage of Effort/Hours-Actual . Enter the cumulative percentage of effort or number of hours worked by each employee or group of employees listed in Column A.

Column D--Cumulative Incurred Cost at End of Prior Period . Enter the cumulative incurred costs up to the end of the prior reporting period. This column will be blank at the time of the submission of the initial report.

Column E--Incurred Cost-Current Period . Enter the costs which were incurred during the current period.

Column F--Cumulative Incurred Cost to Date . Enter the combined total of Columns D and E.

Column G--Estimated Cost to Complete . Make entries only when the contractor estimates that a particular expenditure category will vary from the amount negotiated. Realistic estimates are essential.

Column H--Estimated Costs at Completion . Complete only if an entry is made in Column G.

Column I--Negotiated Contract Amount . Enter in this column the costs agreed to during contract negotiations for all expenditure categories listed in Column A.

Column J--Variance (Over or Under) . Complete only if an entry is made in Column H. When entries have been made in Column H, this column should show the difference between the estimated costs at completion (Column H) and negotiated costs (Column I). When a line item varies by plus or minus 10 percent, i.e., the percentage arrived at by dividing Column J by Column I, an explanation of the variance should be submitted. In the case of an overrun (net negative variance), this submission shall not be deemed as notice under the Limitation of Cost (Funds) Clause of the contract.

Modifications . List any modification in the amount negotiated for an item since the preceding report in the appropriate cost category.

Expenditures Not Negotiated . List any expenditure for an item for which no amount was negotiated (e.g., at the discretion of the contractor in performance of its contract) in the appropriate cost category and complete all columns except for I. Column J will of course show a 100 percent variance and will be explained along with those identified under J above.

Attachment 5

INCLUSION ENROLLMENT REPORT

This report format should NOT be used for data collection from study participants


Study Title:
Total Enrollment:		Protocol Number:
Contract Number:
PART A. TOTAL ENROLLMENT REPORT: Number of Subjects Enrolled to Date (Cumulative) by Ethnicity and Race
Ethnic Category	Sex/Gender
Ethnic Category	Females		Males	Unknown or Not Reported	Total
Hispanic or Latino
Not Hispanic or Latino
Unknown (Individuals not reporting ethnicity)
Ethnic Category: Total of All Subjects*
Racial Categories
American Indian/Alaska Native
Asian
Native Hawaiian or Other Pacific Islander
Black or African American
White
More than one race
Unknown or not reported
Racial Categories: Total of All Subjects*

PART B. HISPANIC ENROLLMENT REPORT: Number of Hispanics or Latinos Enrolled to Date (Cumulative)
Racial Categories	Females		Males	Unknown or Not Reported	Total
American Indian/Alaska Native
Asian
Native Hawaiian or Other Pacific Islander
Black or African American
White
More than one race
Unknown or not reported
Racial Categories: Total of Hispanics or Latinos**
These totals must agree * these totals must agree

Attachment 6

Research Patient Care Costs

(a) Research patient care costs are the costs of routine and ancillary services provided to patients participating in research programs described in this contract.

(b) Research patient care costs shall be computed in a manner consistent with the principles and procedures used by the Medicare Program for determining the part of Medicare reimbursement based on reasonable costs. The Diagnostic Related Group (DRG) prospective reimbursement method used to determine the remaining portion of Medicare reimbursement shall not be used to determine research patient care costs. Research patient care rates or amounts shall be established by the Secretary of HHS or his/her duly authorized representative.

(c) Prior to submitting an invoice for research patient care costs under this contract, the contractor must make every reasonable effort to obtain third party payment, where third party payors (including Government agencies) are authorized or are under a legal obligation to pay all or a portion of the charges incurred under this contract for research patient care.

(d) The contractor must maintain adequate procedures to identify those research patients participating in this contract who are eligible for third party reimbursement.

(e) Only those charges not recoverable from third party payors or patients and which are consistent with the terms and conditions of the contract are chargeable to this contract.

Attachment 7


Contracting Site – Contract number – Inventory Sheet
DHHS TAG*	S/N	TYPE	MAKE	MODEL	LOCATION

*Until or unless BARDA affixes an HHS generated ID, the contractor shall track and monitor all equipment, materials, and supplies purchased under this contract in a manner which affords a clear distinction from other contractor property.

Department of Health & Human Services

HHS

Office of the Assistant Secretary for Preparedness and Readiness

ASPR

Biomedical Advanced Research and Development Authority

BARDA

7 Principles of Earned Value

Management

Tier 2

System Implementation

Intent Guide

21 December 2011

LOGO

TABLE OF CONTENTS


OVERVIEW			1

EVM IMPLEMENTATION TIERS			2

SEVEN PRINCIPLES OF EVM			3
Principle 1: Plan all Work Scope			3

Principle 2: Break Work into Finite Pieces and Define Person/Organization Responsible for Work			3

Principle 3a: Integrate Scope, Schedule and Budget into a Performance Measurement Baseline			4

Principle 3b: Control Changes to the Baseline			5

Principle 4: Use Actual Costs Incurred and Recorded in Accomplishing the Work Performed			5

Principle 5: Objectively Assess Accomplishments at the Work Performance Level			6

Principle 6a: Analyze Significant Variances From the Plan			7

Principle 6b: Prepare an Estimate at Completion Based on Performance to Date and Work to be Performed			7

Principle 7: Use EVMS Information in the Company’s Management Processes			7

APPENDICES			9
APPENDIX 1: Glossary of Terms			9

Appendix 2 Supplemental EVM Implementation Guideline			15

Appendix 3 Sample EVM Documents			17

7 Principles of EVM Tier 2 System Implementation Intent Guide

OVERVIEW

Earned Value Management (EVM) is a program management tool, technique, and discipline that facilitates systematic planning for and monitoring of, high value, complex projects. It integrates a project’s scope of work with the related budget and schedule to permit detailed assessment of overall performance during the life of the project.

Several government-wide guidance documents govern the definition and use of EVM systems. Guidelines outlining the qualities and characteristics of an EVM system are set forth in the American National Standards Institute/Electronic Industries Alliance (ANSI/EIA) Standard-748 (most current version). More detailed and specific guidance and direction is contained in OMB Circular A-11, Preparation, Submission and Execution of the Budget , specifically in Part 7 of that Circular A-11, Planning, Budgeting, Acquisition, and Management of Capital Assets , and its supplement, the Capital Programming Guide. Based on this collective OMB guidance, EVMS is intended to be used on those parts of acquisitions that will involve developmental effort. This would include not only those acquisitions designated by the agency as major systems but also those acquisitions that include significant developmental, modification, or upgrade during the operational or steady-state phase of a program.

The FAR rule on EVMS became effective on July 5, 2006. Its purpose is to implement EVMS policy in accordance with OMB Circular A-11. Because the new FAR coverage applies throughout the executive branch and to agencies with disparate definitions of and processes and procedures for major systems acquisitions, the FAR Council decided against a “one-size-fits all” approach and left several significant aspects of the detailed implementation up to the discretion of each covered agency.

The FAR and Health and Human Services Acquisition Regulations (HHSAR) language for EVMS will be utilized for all construction or Information Technology (IT) projects. Since most of the acquisitions at the Biomedical Advanced Research and Development Agency (BARDA) are unique in that most acquisitions are not Information Technology projects or construction projects, BARDA is developing EVM language that incorporates the 7 Principles of Earned Value Management. These principles allow flexibility to an EVM system structure but still meet the spirit of the ANSI/EIA Standard-748. It also incorporates discipline in implementation and operations and also provides the same reporting data outlined by OMB.

The Seven Principles of Earned Value Management are as follows:

Plan all work scope to completion

Break down the program work scope into finite pieces that can be assigned to a responsible person or organization for control of technical, schedule and cost objectives

Integrate program work scope, schedule, and cost objectives into a performance measurement baseline plan against which accomplishments can be measured. Control changes to the baseline.

Use actual costs incurred and recorded in accomplishing the work performed.

Objectively assess accomplishments at the work performance level.

Analyze significant variances from the plan, forecast impacts, and prepare an estimate at completion based on performance to date and work to be performed.

Use earned value information in the company’s management processes.

7 Principles of EVM Tier 2 System Implementation Intent Guide

EVM IMPLEMENTATION TIERS

BARDA will be implementing a tiered approach to EVM based on the type of acquisition, size of the acquisition and the technical readiness level. There are three tiers and they are as follows:

TIER 1

For all construction contracts and IT contracts the ANSI/EIA-748 Standard for Earned Value Management Systems will apply and all relevant FAR/HHSAR clauses pertaining to EVMS will be incorporated in the contract. The National Defense Industrial Association (NDIA) Program Management Systems Committee (PMSC) ANSI/EIA-748 Standard for Earned Value Management Systems Intent Guide should be used as guidance.

TIER 2

For countermeasure research and development contracts that have a total acquisition costs greater than or equal to $25 million and have a Technical Readiness Level (TRL) of less than 7 will apply EVM principles for tracking cost, schedule and technical performance that comply with the 7 Principles of EVM Implementation.

TIER 3

For countermeasure research and development contracts that have total acquisition costs less than $25 million but greater than $10 million will apply EVM principles for tracking cost, schedule and technical performance that are consistent with the 7 Principles of EVM Implementation.

This Guide is an explanation of the intent of what is expected for a Tier 2 system implementation of the 7 Principles of EVM.

7 Principles of EVM Tier 2 System Implementation Intent Guide

SEVEN PRINCIPLES OF EVM

Principle 1: Plan all Work Scope

In a performance measurement system implementation the Statement of Work (SOW) should reflect all work that is to be performed. In a 7 Principles implementation a Work Breakdown Structure (WBS) shall be developed to include all elements of the SOW. The level of the WBS may not be as detailed as in a Tier 1 implementation. It would be developed at a higher level, such as level three or four, however, the government may expand specific technical legs to lower than level four and it may retract some non-technical legs to higher than 3. It is beneficial and required to develop a WBS dictionary that explains what work is going to be performed in each WBS in detail. This will ensure that the contractor has identified all work scope and left no major work undefined. It is recommended that the work packages descriptions are clear and detailed so that there is an understanding of the work that is to be performed in the work packages. For the 7 Principles implementation programs it would be acceptable for the WBS Dictionary be expanded to include information that would normally be kept on a Work Authorization Document, such as charge numbers associated with the work, period of performance, the manager who is responsible for the work, and budget associated with the WBS. The additional “WAD info” would only be added to the lowest level (i.e. level 3 or 4) of the WBS. The roll up level WBS would only include scope. By doing this documentation is limited to one document instead of two.

By developing a WBS and a WBS Dictionary/Work Authorization Document the work scope has been defined but the documentation is greatly reduced and the costs associated with developing and updating the documentation is reduced. The intent of the combination document is not to reduce the level of information provided to the government but to reduce the amount of documents that need to be produced. An example of a WBS dictionary and Work Authorization document and what is expected on the document(s) is provided.

Principle 2: Break Work into Finite Pieces and Define Person/Organization Responsible for Work

In a 7 Principles Tier 2 implementation it is recommended that the work be broken into finite pieces in the schedule tool. It is recommended to plan the work by the lowest level WBS. The lowest level WBS (level 3 or 4) should be the control account and the activities would act as the work packages. For Tier 2 programs that are of larger value (greater than $25M) the expectation is that the control account will be at least at level 4 and potentially level 5. Most of the normal functions accomplished when scheduling will be required on a 7 Principles Tier 2 implementation. These normal functions include, network scheduling, horizontal and vertical traceability, forecasting schedule start and completion dates, and running critical path analysis. As part of vertical traceability it is expected that all contract milestones will be listed on the schedule.

The schedule should include but is not limited to include the following fields:

WBS number

Control Account number

Work package number

Task name

Duration

Baseline Start and Finish Dates

Actual Start and Finish Dates

Forecast Start and Finish Dates

Predecessor/Successors

Activity Percent Complete

All the work scheduled at the lowest level WBS should be identified by a single responsible manager. This manager, known as a Control Account Manager should be identified in the schedule tool and/or in a cost tool. In a 7 Principles implementation, only individuals at the lowest level WBS need be identified and there is no requirement for the costs to roll up by organization, although if it is not cost intensive or tool restricted then developing the OBS is recommended. In many cases, BARDA will provide the top three levels of the WBS for the contractor to use.

7 Principles of EVM Tier 2 System Implementation Intent Guide

Principle 3a: Integrate Scope, Schedule and Budget into a Performance Measurement Baseline

This principle integrates the work scope, the schedule and the budget into a performance measurement baseline. Since we discussed work scope and schedule the focus of this principle is the incorporation of the budget in a time-phased manner. The budget must be integrated with the scope of work and the schedule into a Performance Measurement Baseline (PMB). The budget is made up of both direct and indirect dollars. An accepted way of incorporating the budget and integrating with the scope and schedule is to resource load the Microsoft Project (or other scheduling tool) schedule. This is done by loading the individual people and their loaded rate into the tool. This budget data will be input at the work package level with a rate that includes the indirect costs. The budget will have to have the capability to be rolled up to the control account level and will need to be reported in a way that provides the responsible manager (Control Account Manager) with information needed to manage the program. Resource loading of the schedule is not the only way to incorporate the budget. As long as the budget in the budget/EV tool is linked to the schedule activities and it is flexible to change when schedule baseline dates change, then loading the budget in the Budget/EV tool is an acceptable way to integrate the cost and schedule baselines. The budget information will be displayed on the time-phased Control Account Plan reports. These reports should have the flexibility to report the dollars both in total dollars, as well as, direct and indirect broken out separately. Also the report is generally required as a deliverable on most contracts and must have the capability to include earned value or Budgeted Cost of Work Performed (BCWP) and actual costs or Actual Costs of Work Performed (ACWP).

Budgeting of subcontractor effort will vary depending on whether or not the subcontractor is a cost plus or fixed price subcontract. If it is cost plus then the expectation is that there will be monthly billing of costs from the subcontractor to the prime contractor and therefore budget must be planned in accordance with the work completed and billed. If it is fixed price then the budget should be planned with work execution or milestones completed and budget should only be planned in those months where work is expected to be completed.

It is recommended that management reserve and undistributed budget be utilized in the budgeting process. Undistributed budget is budget that has not yet been distributed to a control account and it requires additional time to plan the work and distribute the budget to a control account. It is a temporary holding account and budget should only stay in Undistributed Budget for one or two months. If the work scope is easily identified to all the control accounts then the use of Undistributed Budget may not be necessary.

Management Reserve is budget that is set aside, normally by the Program Manager, to be used to budget future but currently unknown tasks. It is associated with risk issues and is to be used to mitigate risk. It is not part of the Performance Measurement Baseline and it should not be used for out of scope work and to cover overruns.

7 Principles of EVM Tier 2 System Implementation Intent Guide

Principle 3b: Control Changes to the Baseline

A properly controlled PMB is crucial to effective program management. The timely and accurate incorporation of contractual changes ensures that the information generated from the execution of the baseline plan provides an accurate picture of progress and facilitates correct management actions and decisions. The accurate and timely incorporation of authorized and negotiated changes into the PMB ensures that valid performance measurement information is generated for the new scope being executed. Near term new scope effort should be planned and have budget in control accounts. Far term new scope effort that cannot be reasonably planned in the near term can either be put in planning packages in the control account or left in Undistributed Budget if the control account has not been identified. The timely and accurate incorporation of authorized and negotiated changes into the PMB ensures that valid performance measurement information is generated for the new scope being executed. Budget revisions are made when work is added to the contract and are traceable from authorized contract target costs to the control account budgets or from management reserve. Management reserve may be used for future work when additional in-scope work has been identified.

Retroactive changes to the baseline may mask variance trends and prevent the use of performance data to project estimates of cost and schedule at completion. Controlling retroactive adjustments, which should only be made in the current period, if possible, is imperative because they could arbitrarily eliminate existing cost and schedule variances.

The use of program budget logs should be used to track and log all budget changes. The ability to track budget values for both the internal and external changes will help in the maintenance of the performance measurement baseline from program start to completion. Contractor is expected to utilize baseline change documentation facilitating the change. It should provide the rationale/justification, approval process, work scope additions or deletions, dollars, changes to schedules, estimate at completion, etc. It should also include contractual change documents for external changes, such as a contract modification, letter to proceed, not to exceed letter, change order, etc., that transmit and authorize the change or addition to work, budget, and schedule. Other documents that should change if a change of scope has been authorized is: Statement of Work, WBS (changes if applicable); WBS Dictionary (additions or deletions to scope); work authorization documents authorizing new scope, schedule and budget; schedules.

Principle 4: Use Actual Costs Incurred and Recorded in Accomplishing the Work Performed

Some of the new acquisitions at BARDA will be required to be compliant with the Cost Accounting Standards. For 7 Principles implementation contractors must utilize a work order/job order/task code charge number structure that uniquely identifies costs at the control account level. This will allow for accumulation and summarization of costs to higher levels of the work breakdown structure. Actual costs are accumulated in the formal accounting system in a manner consistent with the way the related work is planned and budgeted. Actual costs reported in the performance reports agrees with the costs recorded in the accounting system or can be explained as timing differences. The contractor will have to be able to incorporate and reconcile to the accounting system actual costs on their Contract Performance Reports (CPR) to the customer.

Depending on the amount of material and subcontractors on the program, it may be necessary for reporting purposes, to include accruals, or estimated actuals, for these costs. Since material and subcontractor invoices are not paid and recorded in the accounting system for up to several months after the work has been planned, performance data will be skewed. Accruing or estimating actual costs based on receipt (for material) and expended hours for subcontractors will alleviate this issue. The use of accrual/estimated actuals should be reviewed on a case by case basis depending on the size of program, the amount of material or subcontractor budget and costs. If the material and subcontract effort on the project is minimal (represents less than 5% of the project budget) then the time and effort needed to manage the accruals would outweigh the benefit of having the costs accrued since the performance data would only be minimally affected. Although actual costs are generally reported to the USG in total dollars the system must be able to differentiate and report direct costs and indirect costs if requested.

If the subcontractor has a fixed price contract the prime contractor, then the prime contractor must report actual costs in accordance with the work that is accomplished. This is acheived by recording the actual costs equal to the work

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that was performed in the EVM system and on the CPR. If the subcontractor is a cost plus contract its imperative the costs the prime reports is in accordance with the costs incurred in that month. This is necessary to ensure that the data reported is not skewed. With this premise, fixed price subcontractors cost variances should not exist or be reported on the CPR whereas the cost reported for cost plus subcontractors should be based on what was incurred and not what has been invoiced to date, which may be months behind.

Principle 5: Objectively Assess Accomplishments at the Work Performance Level

In order to meet this Principle, the scheduling of the scope of work in work packages or activities need to incorporate measurable units or milestones in order to objectively assess accomplishments or obtain what we call “earned value”. These units or milestones are given a value based on labor resources needed to accomplish the work (which becomes the Budgeted Cost of Work Scheduled or BCWS). When they are accomplished (known as Budgeted Cost of Work Performed or BCWP) they receive the value associated with the budget which measures progress.

Schedule status to measure progress needs to be on at least on a monthly basis although it is preferred on a bi-weekly basis. As part of the status process progress dates, such as actual start/complete and forecast start/complete need to be updated.

Since Microsoft Project seems to be the schedule tool of choice by most contractors, there are four types of earned value methodologies utilized by Microsoft Project of which two assess progress by the completion of milestones and they are the 50/50 and 0/100 methodologies. In both cases, progress is reported for completion milestones and in the 50/50 methodology fifty percent of the value of the work package/activity is credited for starting the work. The other two earned value methodologies are assessed percent complete (also know as Supervisor’s Estimate) and level of effort (LOE). All four methodologies are legitimate earn value measurement techniques but the assessed percent complete based or supervisor’s estimates are highly discouraged. The reason is that it is highly subjective and is not based on any quantifiable criteria. BARDA will not accept these earned value methodologies unless approved as an exception on a case by case basis. If percent complete on work packages is used with objective measurable activities, the contractor must show distinct relationship between the budget planned at the work package level and the value earned at the activity level. If this is done properly then the measurement will be objective and the schedule variance will be clearly understood and easy to explain. If this is not done properly then schedule activities are not aligned with the budget in the performance measurement baseline and schedule variances will not be easy to understand. If the latter is the case, BARDA will not accept that as an acceptable earned value methodology.

There are built in weaknesses with the 0/100 and 50/50 methodologies also. If the responsible manager is being asked to plan their work in monthly increments in order to utilize the 0/100 methodology then they may be asked to break the work up in pieces that don’t make logical sense or represent the natural ending of the work. Also the 50/50 methodology, which is usually used for a two month work package, will provide skewed monthly data if the resources in the work package are not loaded equally for each month. It will give an artificial positive or negative schedule variance the first month and vice versa the next month.

Additional earned value methodologies, such as the weighted milestone methodology and percent complete with milestone gates may be utilized. The weighted milestone method allows value to be earned based on the resource value in each month, which eliminates artificial schedule variances.

For all discrete measurable work packages or control accounts, there must be an activity in each month to measure. Gaps, in which there is nothing to measure in a month or months is not acceptable.

For subcontractors that have a fixed price contract with the prime contractor, the expectation is that there will be no cost variance. The ACWP reported on the CPR will equal the BCWP earned, regardless of the payment schedule with subcontractor.

7 Principles of EVM Tier 2 System Implementation Intent Guide

Principle 6a: Analyze Significant Variances From the Plan

The purpose of this principle is to ensure that the earned value data is analyzed by the contractor and reported to the customer. The 7 Principles programs should be able to calculate the cost variance (BCWP minus Actual Cost of Work Performed (ACWP) and the schedule variance (BCWP minus BCWS) at least on a cumulative basis. It is recommended that variances be calculated on a current month basis also. The EVM system should also provide both monthly and cumulative Cost Performance Index (BCWP divided by ACWP) and Schedule Performance Index (BCWP divided by the BCWS). This data should be provided at the control account level and at the roll up levels and it needs to be in a format for Control Account Managers and program management to be able to utilize in managing the work.

It is also recommended that the To-Complete Performance Index (TCPI) be included in the Control Account Manager performance report. The TCPI is a valuable index that calculates the cost performance the control account needs to perform at in order to complete the work within the current reported EAC. When the TCPI is compared against the cumulative CPI it gives a good indication whether or not the current EAC is reasonable. For example, if a cumulative CPI is .85 and the TCPI calculates to equal 1.15 that is the performance factor that work would need to perform at in order to meet the current EAC. If the cumulative CPI is .85 then it can be determined that the current EAC might not be reasonable. It allows management and Project Controls the opportunity to question the Control Account Manager as to the validity of the current EAC. As a rule in thumb if the deviation between the CPI and the TCPI is greater than .2 then the CAM should reassess the control account EAC.

These reports, which should be provided monthly, should also include the current Budget at Completion (BAC) and the current Estimate at Completion (EAC). In addition, it would be a plus if the CAM could see a report with their time-phased spread of hours and dollars for their budget plan (BCWS), work accomplished (BCWP) and actual costs (ACWP).

For all variances that exceed the contractual variance threshold will include a description of what caused the variance, impact to the control account and the program, and a corrective action.

Principle 6b: Prepare an Estimate at Completion Based on Performance to Date and Work to be Performed

Providing an updated EAC is a prime concern of the customer and the contractor. Therefore a robust EAC process should be in place whether the program is ANSI compliant or not.

Based on the performance to date the Estimates at Completion can be updated on a monthly basis by the Control Account Manager in the scheduling tool during the status process or in the cost/EVM tool at the end of the month’s process prior to submittal of the EVM report. The EAC is an element of the performance measurement system that needs to accurately reflect the contractor’s best estimate of what it will cost to complete the project.

Program management should be able to validate control account manager’s EACs by looking at performance indices, such as the To-Complete Performance Index, as well as independent statistical EACs.

Principle 7: Use EVMS Information in the Company’s Management Processes

One of the key areas that concerns government Program Management Offices (PMO) is the level of importance that contractor’s place on EVM as a management tool. During a site visit, such as conducting an Integrated Baseline Review, the PMO gauges what the interest, knowledge, and most importantly, the usage of the performance measurement data in managing the program. They want to know that the managers on the program, including the program manager, have received some earned value training. The level of involvement and use of the EVM data to manage their schedule, cost and technical issues is ascertained by questions. The PMO can also tell by how robust the EACs are and if the variance narratives are being written with impacts to the program and corrective actions being monitored by the contractor. It is important that the contractor’s management team, including the Program Manager, utilize the data from the performance measurement system as a management tool. They should be knowledgeable and understand the data. They should know what is causing the variances and ensure that the

7 Principles of EVM Tier 2 System Implementation Intent Guide

variance narratives are written properly and answer what the issues, impacts and corrective actions are. They should be able to demonstrate that they use the information to assist them in the management decision process. They should hold their Control Account Managers accountable to use the data and write clear proper variance analysis report (VAR). If the Control Account Manager does not write a proper VAR then Project Controls needs to help instruct them how to do it. It is recommended that prior to the Earned Value report be sent to the government that the Program Manager has a meeting with the Control Account Managers and Project Control and review the data and ensure that the variance analysis is complete and that the Program Manager agrees with it. This review is also used to ensure that the EACs are acceptable to the Program Manager, who is ultimately responsible for the program EAC. This is an efficient and quick way to make any adjustments to the earned value report since all the key personnel are in one room. If the data appears to be unreliable then the PM needs to hold Project Controls accountable to ensure that they are using discipline in changing baselines, assessing process properly, and capturing actual costs to ensure that the data that is reported is accurate.

7 Principles of EVM Tier 2 System Implementation Intent Guide

APPENDICES

The following appendices provide further support in understanding the meaning and intent of properly implementing the 7 Principles of EVM.

Appendix 1 is a glossary of the terms used in the Intent Guide.

Appendix 2 is supplemental guidance on EVM implementation. It provides some guidelines on what is expected in the implementation, required documents needed for the Performance Measurement Baseline Review, expected EVM implementation costs, EVM engines functionality needs, explains what is expected in the monthly EVM facilitation, discusses what EVM consultants need to know, and what the expected costs of EVM to BARDA.

Appendix 3 are examples of some of the EVM documents that are needed in an EVM system. There are three documents and they mostly apply to Tier 2 EVM implementations. These documents are samples and are not a reflection of the specific way the document must look. It’s included to provide contractors with an understanding of the type of information that is expected on these forms.

APPENDIX 1: Glossary of Terms


Actual Cost of Work Performed (ACWP)		The costs actually applied and recorded in accomplishing the work performed within a specified period.

Actual Direct Cost		Those costs identified specifically with a contract, based upon the contractor’s cost identification and accumulation system as accepted by the cognizant DCAA representatives. (See Direct Costs).

Advance Agreement (AA)		An agreement between the contractor and the Contract Administration Office concerning the application of an approved earned value management system to contracts within the affected facility.

Authorized Work		That effort which has been authorized and is on contract, or that for which authorized contract costs have not been agreed to but for which written authorization has been received.

Baseline		(See Performance Measurement Baseline).

Budget at Completion (BAC)		The sum of all budgets (BCWS) allocated to the contract. Synonymous with the term Performance Measurement Baseline.

Budgeted Cost for Work Performed (BCWP)		The sum of the budgets for completed Work Packages and completed portions of open Work Packages, plus the appropriate portion of the budgets for level of effort and apportioned effort (Also see Earned Value).

Budgeted Cost for Work Scheduled (BCWP)		The sum of the budgets for completed Work Packages, planning packages, etc., scheduled to be accomplished (including in-process Work Packages), plus the amount of level of effort and apportioned effort scheduled to be accomplished within a given time period.

Change Order (CO)		A formal authorization by the Procuring Contracting Officer for a change of scope to an existing contract

Contract Modification		A written and binding authorization to proceed created after change proposal negotiations.

7 Principles of EVM Tier 2 System Implementation Intent Guide


Contract Budget Base (CBB)		The negotiated contract cost plus the estimated cost of authorized unpriced work, where:

		(1) Negotiated Contract Cost is that cost on which contractual agreement has been reached. For an incentive contract, it is the definitized contract target cost plus/minus the value of changes which have been priced and incorporated into the contract through contract change order or supplemental agreement. For fixed-fee contracts, it is the negotiated estimated cost. Changes to the estimated cost will consist only of the formal contract modifications or change orders or change in the contract statement of work, not for cost growth, and

		(2) Estimated cost of authorized, unpriced work is the estimated cost (excluding fee or profit) for that work for which written authorization has been received, but for which definitized contract prices have not been incorporated into the contract through supplemental agreement.

Control Account		A management control point at which actual costs can be accumulated and compared to budgeted cost for work performed. A control account is a natural control point for cost/schedule planning and control since it represents the work assigned to one responsible organizational element on one contract work breakdown structure (CWBS) element.

Control Account Manager (CAM)		A member of a functional organization responsible for task performance detailed in a Control Account and for managing the resources authorized to accomplish the tasks.

Control Account Plan (CAP) Report		A CAP report is a timephased report which reflects all the work and effort to be performed in a control account. The CAP report will reflect the hours and dollars by element of cost (labor, subcontract, ODC, etc).

Contract Performance Report (CPR)		The monthly report submitted to the customer showing the current, cumulative and at completion status, the performance measurement baseline, manpower loading, and a narrative explanation of significant program variances.

Contract Target Cost		The dollar value (excluding fee or profit) negotiated in the original contract plus the cumulative cost (excluding fee or profit) applicable to all definitized changes to the contract. It consists of the estimated cost negotiated for a cost plus fixed fee contract and the definitized target cost for an incentive contract. The contract target cost does not include the value of authorized/un-negotiated work, and is thus equal to the contract budget base only when all authorized work has been negotiated/definitized.

Cost Performance Index (CPI)		An efficiency rating reflecting a project’s budget performance - either over or under. Measured as a ratio of the budgeted value of work accomplished versus the actual costs expended for a given project time period. The formula for CPI is BCWP/ACWP.

Discrete Effort		Program effort that has a measurable output, product or service.

Direct Costs		Those costs (labor, material, etc.) that can be reasonably and consistently related directly to service performed on a unit of work, and are charged directly to the contract, without distribution to an overhead unit.

Earned Value		See Budgeted Cost for Work Performed (BCWP)

Earned Value Management System (EVMS)		A project management system utilized for measuring project progress in an objective manner. Combines measurements of scope, schedule, and cost in a single integrated system.

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Estimate at Completion (EAC)		A value (expressed in dollars and/or hours) developed to represent a realistic appraisal of the final cost of tasks when accomplished. It’s the sum of direct & indirect costs to date plus the estimate of costs for all authorized Work remaining. The EAC = ACWP + the Estimate-to-Complete.

Estimate to Completion (ETC)		A value (expressed in dollar and/or hours) developed to represent a realistic appraisal of the cost of the work still required to be accomplished in completing a task.

Indirect Costs		Represents those costs, because they are incurred for common or joint objectives, are not readily subject to treatment as direct costs. (See overhead).

Integrated Baseline Review (IBR)		An Integrated Baseline Review (IBR) also known as Performance Measurement Baseline Review (PMBR) is a formal review led by the Government Program Manager and Technical Support Staff. An IBR is conducted jointly with the Government and their Contractor counterparts. The purpose of an IBR is to: verify the technical content of the Performance Measurement Baseline (PMB); assess the accuracy of the related resources (budgets) and schedules; identify potential risks.

Integrated Master Plan (IMP)		The overall program plan including the work definition, technical approach, performance criteria, and completion criteria.

Integrated Master Schedule (IMS)		The IMS expands the IMP to the work planning level. It defines the tasks, their durations, milestones, milestone dates which relate to the IMP completion criteria, and interdependencies required to complete the program. The IMP and IMS are used to track and execute the program.

Integrated Product Team (IPT)		A grouping of project personnel along project objective lines rather than along organizational lines. Integrated Product Teams are work teams that represent a transition from a functional organization structure to a multi-functional project objective arrangement.

Internal Replanning		Replanning actions performed by the program for remaining effort within the recognized total allocated budget.

Level of Effort (LOE)		Work that does not result in a final product, e. g., liaison, coordination, follow-up, or other support activities, and which cannot be effectively associated with a definable end product process result. It is measured only in terms of resources actually consumed within a given time period.

Management Reserve (MR)		An amount of the total Contract Budget Base (CBB) withheld for management control purposes rather than designated for the accomplishment of a specific task or set of tasks. It is not a part of the Performance Measurement Baseline.

Negotiated Contract Target Cost		The estimated cost negotiated in a Cost Plus Award Fee (CPAF), Cost Plus Fixed Fee (CPFF), Cost Plus Incentive Fee (CPIF) or Fixed Price Incentive Fee (FPIF) contract.

Original Budget		The budget established at, or near, the time the contract was signed, based on the negotiated contract cost.

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Overhead		Indirect labor and material, supplies and services costs and other charges, which cannot be consistently identified with individual programs.

Other Direct Costs		A group of accounting elements which can be isolated to specific tasks, other than labor and material. Included in ODC are such items as travel, computer time, and services

Performance Measurement Baseline (PMB)		The time-phased budget plan against which contract performance is measured. It is formed by the budgets assigned to scheduled Control Accounts and the allocation of overhead costs. For future effort, not planned to the Control Account level, the performance measurement baseline also includes budgets assigned to higher level WBS elements, and undistributed budgets. It equals the total assigned budget less management reserve.

Performing Organization		A defined unit within the program organization structure, which applies the resources to performs the authorized scope of work.

Planning Package		A logical aggregation of far term work within a Control Account that can be identified and budgeted but not yet defined into Work Packages.

Reprogramming		Replanning of the effort remaining in the contract, resulting in a new budget allocation which exceeds the contract budget base. The resulting baseline is called an Over Target Baseline (OTB).

Responsible Organization		A defined unit within program’s organization structure that is assigned responsibility for accomplishing specific tasks.

Risk Register		Is a tool commonly used in project planning and organizational risk assessments. It is often referred to as a Risk Log. It is used for identifying, analyzing and managing risks.

Schedule Performance Index (SPI)		An efficiency rating reflecting how quickly or slowly project work is progressing. Measured as a ratio of work accomplished versus work planned for a given period of time. The formula for SPI is BCWP/BCWS.

Significant Variances		Those differences between planned and actual cost and schedule performance which require further review, analysis, or action. Appropriate thresholds are established as to the magnitude of variances which will require variance analysis.

Statistical Estimate at Completion		Is a single point estimate that can be quickly prepared and used to test the reasonableness of the current cost estimates and budget and to indicate when a comprehensive EAC should be prepared

Time-Phased S/P/A Report		Provides the timphased budget, performance (earned value) and actual costs at a specific level. It may be at the reporting level, control account, and/or work package level. In all cases the report will also provide the data at the total project level.

To-Complete Performance Index (TCPI)		An efficiency rating that provides a projection of the anticipated performance required to achieve the EAC. TCPI indicates the future required cost efficiency needed to achieve a target EAC (Estimate At Complete). Any significant difference between TCPI and the CPI needed to meet the EAC should be accounted for by management in their forecast of the final cost.

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Total Allocated Budget (TAB)		The sum of all budgets allocated to the contract. Total allocated budget consists of the performance measurement baseline and all management reserve. The total allocated budget will reconcile directly to the Contract Budget Base (CBB). Any differences will be documented as to quantity and cause.

Undistributed Budget (UB)		Budget applicable to contract effort which has not yet been identified to WBS elements at or below the lowest level of reporting to the Government.

Variance Analysis Report (VAR)		The internal report completed by the Control Account Manager and submitted, through the Intermediate Manager, to the program manager for those Control Accounts which have variances in excess of established thresholds.

Variances		(See Significant Variances).

Work Authorization Document (WAD)		A form used to formally authorize and budget work to the Control Account Manager. This document must include, as a minimum, the Control Account number, Statement of Work, scheduled start and finish dates, budget, and the identity of the CAM. It must be approved by Intermediate Manager, and be agreed to by the Control Account Manager.

Work Breakdown Structure (WBS)		A product-oriented, family-tree composed of hardware, software, services, data and facilities which results from system engineering efforts. A work breakdown structure displays and defines the product(s) to be developed and/ or produced and relates the elements of work to be accomplished to each other and to the end product. Program WBS. The work breakdown structure that covers the acquisition of a specific defense material item and is related to contractual effort. A program work breakdown structure includes all applicable elements consisting of at least the first three levels of the work breakdown structure and extended by the program manager and /or contractor(s). A program work breakdown structure has uniform element terminology, definition, and placement in the family tree structure. Contract WBS (CWBS) The complete WBS for a contract, developed and used by a contractor within the guidelines of MIL-Handbook 881 (latest revision) or NASA WBS Handbook (insert reference) or other customer guidelines and according to the contract work statement. It includes the approved work breakdown structure for reporting purposes and its discretionary extension to the lower levels by the contractor, in accordance with MIL-Handbook 881 and the contract work statement. It includes all the elements for the products (hardware, software, data, or services) which are the responsibility of the contractor.

Work Packages		Detailed short-span jobs, or material items, identified by the contractor for accomplishing work required to complete the contract. A Work Package has the following characteristics. It represents units of work at levels where work is performed. It is clearly distinguishable from all other work packages. It is assignable to a single organizational element. It has scheduled start and finish dates and, as applicable, interim milestones, all of which are representative of physical accomplishment.

7 Principles of EVM Tier 2 System Implementation Intent Guide


		It has a budget or assigned value expressed in terms of dollars, man-hours or other measurable units. Its duration is limited to a relatively short span of time or it is subdivided by discrete value milestones to facilitate the objective measurement of work performed. It is integrated with detailed engineering, manufacturing, or other schedules.

Work Package Budgets		Resources which are formally assigned by the CAM to accomplish a Work Package, expressed in dollars and/or hours.

7 Principles of EVM Tier 2 System Implementation Intent Guide

Appendix 2 Supplemental EVM Implementation Guideline

Implementation of a 7 Principles of EVM system should be less expensive than if there was an ANSI/EIA-748. There is no need for the system to have to go through an EVM compliance review, plus the level of documentation should be streamlined.

The implementation should include:

—

EVM Process flows that reflect how a company will build and maintain the EVM system. (EVM Procedures may also be included if the cost associated with them is reasonable)

—

EVM engine tool and a schedule tool. It is not necessary to load the schedule tool, such as Microsoft Project, with resources. This adds an extra strep, additional costs and little to no value. It is recommended that all resource information be loaded in the EVM engine and leave the schedule tool to what it does best, measure progress through time (duration).

—

The EVM Engine needs to be integrated with the company’s accounting system.

Documentation needed for the Performance Measurement Baseline Review (PMBR)

—

WBS Dictionary/Control Account Work Authorization Documentation

—

Integrated Master Schedule

—

Responsibility Assignment Matrix

—

Control Account Plans

—

PMB Log

—

Baseline Revision Documents

—

Risk Register

EVM IMPLEMENTATION COSTS

The cost for an implementation depends on the size of the contract and the tier level of EVM.

Tier 2 (projects greater than $25M) Implementation costs should range $75K-$150K

Tier 3 (projects less than $25M)

Implementation costs should range ($50K - $100K)

EVM ENGINES/TOOLS

Depending on the size of the contract would predicate the level of functionality that would be needed. For Tier 2 contracts a larger, more robust EVM engine would be needed. For the Tier 3 small contracts MS Project or the MSP wrap-around would probably suffice although the more robust EVM engines can be used also.

Tier 2

It is recommended that one of the larger and flexible EVM engines be utilized. The tool should have the flexibility to be able to download data from MS Project and be able to upload or input budget data to provide time-phased budget information down to the work package level. It should be able to incorporate the companies Organization Breakdown Structure. It should be able to maintain baseline, actual costs, forecast and performance periodic data. It should be able to forecast Estimate to Complete with the ability to set up different rate tables if necessary. It should have the capability to use all earned value methodologies. It should be able to print many types of EVM reports that can provide information to the Control Account Managers (CAM) and Program Managers (PM), as well as, the Contract Performance Report (CPR) and the Control Account Plans (CAP) that are contract deliverables.

7 Principles of EVM Tier 2 System Implementation Intent Guide

Tier 3

For Tier 3 projects, a company can certainly utilize an EVM engine as listed above or a less robust, less expensive EVM engine that provides the CPR and timephased S/P/A report. It may also use the Microsoft Project wrap-around tools of which there are several on the market. These tools also will provide the CPR and timephased S/P/A report for contract deliverable purposes.

EVM FACILITATION

EVM facilitation pertains to the monthly process to include:

—

Schedule Status

—

Integration of accounting data into EVM engine

—

Run monthly reports for Control Account Managers (Tier 2 only)

—

Prepare the monthly Contract Performance Report (CPR) Formats 1 and 5

—

Run the Control Account Plans for both internal and external (contract requirement)

—

PMB Change Control

Depending on the size of contract, a contractor should have an EVM/cost analyst and schedule analyst for a Tier 2 contract and one combined cost/schedule analyst for a Tier 3 contract. The costs for a schedule analyst on a yearly basis for an employee hire should be equal to or less than $135K. For a cost analyst it should be equal to or less than $120K. If a company is bringing in a contractor to provide staff implementation the costs should be up to $135/hr for a schedule analyst and $120/hr for an EVM/cost analyst.

EVM CONSULTANTS

There may be the need to bring in consultants to help set up your EVM system and perhaps provide EVM staff augmentation to provide the monthly facilitation. Make sure that you shop around and get several quotes. Also make sure that the consultants understand the statement of work pertaining to the BARDA EVM requirements. Most EVM consultants are used to working with companies that have a requirement to implement an ANSI/748 compliant EVM system per the DoD requirements and it is important that they have an understanding of what is required in a 7 Principles EVM implementation so that they don’t propose much more complex EVM system than is needed. Please be advised that the government will only accept reasonable costs associated with implementing a 7 Principles of EVM system.

COST OF EVM

BARDA is working diligently to keep the costs of EVM implementation and facilitation at a reasonable level. Since the goal at BARDA is to provide an integrated, systematic approach to the development and purchase of the necessary vaccines, drugs, therapies, and diagnostic tools for public health medical emergencies, it is imperative that the funds for product development are used for that such purpose. BARDA expects the costs for implementation and monthly facilitation of EVM to range 1%-2% of development budget. This is ratified by the white paper by Dr. Christenson titled “The Costs and Benefits of the Earned Value Management Process”.

7 Principles of EVM Tier 2 System Implementation Intent Guide

Appendix 3 Sample EVM Documents

WBS 1.4.1.x Cardiac (QTc) Safety

Description

Study Title: “A Phase 1 study to assess the cardiovascular safety of intravenous (IV) Panaceomycin in volunteers” (Thorough QT Study)

We will conduct a thorough evaluation of the cardiac effect of Panaceomycin Injection via a randomized, double-blind crossover study. A total of 100 participants (18-22 per arm) will randomize to one of five study arms to receive in a double-blind fashion a single IV infusion of either Panaceomycin Injection 10 mg/kg, Panaceomycin Injection at a supra-therapeutic dose, ciprofloxacin (positive control), or placebo. 12-Lead digital ECGs will be collected in triplicate via Holter monitor from each participant during dosing. Seven days after dosing, participants will be re-randomized to receive another treatment. ECGs will be collected and analyzed. A full statistical analysis and expert ECG report will be generated. Serum PK samples will also be collected at ECG collection time points and analyzed to confirm exposure.

Targeted Outcome: No evidence of delay in cardiac repolarization induced by Panaceomycin as shown by analysis of the QT interval.

7 Principles of EVM Tier 2 System Implementation Intent Guide

Subcontractors


Vendor	Area of Responsibility
Phase Research	^¡	Study Documentation Design and Development
	^¡	Clinical Monitoring: Includes site initiation, interim, and close-out monitoring visits,
	^¡	Pharmacovigilence
	^¡	Data Management: Includes build and maintenance of electronic case report forms (eCRFs); data query generation and resolution
	^¡	Biostatistics
	^¡	Medical Writing:
	^¡	Project Management: The Project Manager will actively facilitate Phase Research’s interaction with the research site and provide close monitoring oversight in conjunction with the assigned CRA. Project Management will also assist in the finalization of all applicable study documents and provide coordination between study vendors.
	^¡	Pass-through Expenses
		Travel for CRA monitoring visits to clinical sites, shipping and printing costs
	^¡	Investigator Grants
Energetics	Core Cardiac Lab
TBD	Clinical study site(s)
Pulse Tech	To provide Central Lab services
Analyx	To perform PK analyses
Claritron	To write the PK report
Obelisk	To label and distribute study drug product

Consultants


Joe Josephs		Internal Medical Monitor: Sponsor medical oversight
Rolf Xerd		Pharmacologist: Design and analysis consultation for PK parameters and analysis
Julie Simms		Clinical Trials Manager
Phil Thomas		Medical Writer
Claire Cools		SAS Programmer
Mary Doe		Clinical Contracts
Jim Dodds		Supply Chair Manager

7 Principles of EVM Tier 2 System Implementation Intent Guide

Milestones, EV at Milestones

Consultants and Phase Project Management will earn value as Level of Effort activities. All other costs will earn value according to the schedule below.


Signed Study Protocol		10%
First participant dosed		20%
40 % Enrollment		35%
70% Enrollment		50%
Last participant procedure (Treatment phase)		60%
Last participant follow-up		70%
Database lock		80%
Clinical Study Report		90%
Transferred Trial Master File		100%

Deliverables

Signed Study Protocol

Top-line data

Signed Clinical Study Report

External Dependencies

Top-line Data from an External Clinical Study Identifying Panaceomycin Maximum Tolerated Dose as a single dose in Humans. The Maximum Tolerable Dose will be defined in a study not included in the BARDA contract. This dose will be used in selecting the Supra-therapeutic dose in this Thorough QT Study.

Successful production of cGMP lot of Panaceomycin.

Enrollment and retention of study participants.

Sample WBS Dictionary

7 Principles of EVM Tier 2 System Implementation Intent Guide

Work Authorization

Project/Contract

BARDA

WBS #

1.1.6.2

WBS description

Program Management, Meetings and Control

Authorization version #

Scheduled Start

Oct 2010

Scheduled Finish

Sep 2012

Work Description

staff will manage the integration and performance control of the program.

For further detail, see description of scope for WBS 1.1.6.2

Budget

Labor

$250,000

Subcontractors

Consultants

Material

Travel

Total

$250,000

Approvals

Control Account Manager

Name: Benjamin Gay

Signature:

Date:

Project Manager

Name: Ronald Smith

Signature:

Date:

Finance

Name: Denise Blessi

Signature:

Date:

Sample Work Authorization Document

7 Principles of EVM Tier 2 System Implementation Intent Guide

CAP:

1.1.1 Drug Production

Month End: 3/31/2011


Control Account Performance
		Month 1		Month 2		Month 3		Month 4		Month 5		Month 6		Month 7		Month 8		Month 9		Month 10		Month 11		Month 12		Total
BCWS			200		30		30		40		60		80		60		80		15		25		30		25		675
BCWP			10		190		60
ACWP			12		190		60
SV			-190		160		30
CV			-2		0		0
Resource Summary
		Month 1		Month 2		Month 3		Month 4		Month 5		Month 6		Month 7		Month 8		Month 9		Month 10		Month 11		Month 12		Total
Labor			10		10		10		10		10		10		10		10		10		10		10		10		120
Sub DB					20		20		30																		70
Sub DP											50		70		50		70										240
Sub Pack																					5		20		15		40
Material			190																								190
ODC																			5		10						15
BCWS			200		30		30		40		60		80		60		80		15		25		30		25		675
Work Package Summary
	EVM	Month 1		Month 2		Month 3		Month 4		Month 5		Month 6		Month 7		Month 8		Month 9		Month 10		Month 11		Month 12		Total
Sub Contract Management	LOE		10		10		10		10		10		10		10		10		10		10		10		10		120
Purchase Materials	0/100		190																								190
Manufacture Drug Substance	MS				20		20		30																		70
Manufacture Drug Product	MS										50		70		50		70										240
Ship	Units																		5		10						15
Package & Store	Units																				5		20		15		40
BCWS			200		30		30		40		60		80		60		80		15		25		30		25		675

Sample Control Account Plan

Exhibit 31.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Prabhavathi Fernandes, Ph.D., certify that:

(1)

I have reviewed this quarterly report on Form 10-Q of Cempra, Inc.;

(2)

Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

(3)

Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects, the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(4)

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a – 15(f) and 15d – 15(f)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles.

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in the report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

(5)

The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 31, 2013

/s/ Prabhavathi Fernandes, Ph.D.

Prabhavathi Fernandes, Ph.D.

Chief Executive Officer (Principal Executive Officer)

Exhibit 31.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER PURSUANT TO

SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Mark W. Hahn, certify that:

(1)

I have reviewed this quarterly report on Form 10-Q of Cempra, Inc.;

(2)

(3)

(4)

(a)

(b)

(c)

(d)

(5)

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Dated: July 31, 2013

/s/ Mark W. Hahn

Mark W. Hahn

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Exhibit 32.1

CERTIFICATION OF THE CHIEF EXECUTIVE OFFICER

PURSUANT TO 18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Cempra, Inc. (the “Company”) for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Prabhavathi Fernandes, Ph.D., Chief Executive Officer (Principal Executive Officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 31, 2013

/s/ Prabhavathi Fernandes, Ph.D.

Prabhavathi Fernandes, Ph.D.

Chief Executive Officer (Principal Executive Officer)

Exhibit 32.2

CERTIFICATION OF THE CHIEF FINANCIAL OFFICER

PURSUANT TO 18 U.S. C. SECTION 1350

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the quarterly report on Form 10-Q of Cempra, Inc. (the “Company”) for the period ended June 30, 2013, as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Mark W. Hahn, Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer) of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to my knowledge:

(1)

The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2)

The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Dated: July 31, 2013

/s/ Mark W. Hahn

Mark W. Hahn

Chief Financial Officer (Principal Financial Officer and Principal Accounting Officer)

Large accelerated filer

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