Exhibit 10.1

Confidential Treatment Requested
 

Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by “[***]”, have been
separately filed with the Securities and Exchange Commission.

 
STRATEGIC ALLIANCE AGREEMENT

by and between

DISCOVERY LABORATORIES, INC.
(a Delaware corporation)

and

PHILIP MORRIS USA INC., d/b/a CHRYSALIS TECHNOLOGIES
(a Virginia corporation)

DECEMBER 9, 2005

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ARTICLE 1
DEFINITIONS
1
     
ARTICLE 2
SCOPE OF ALLIANCE
10
     
ARTICLE 3
LICENSE
10
3.1
License
10
3.2
Limitations
10
3.3
Sublicensing Rights
10
3.4
Retained Rights
10
3.5
Exclusivity
11
     
ARTICLE 4
PRODUCT DEVELOPMENT
11
4.1
In General
11
4.2
Supported Product Development Projects
11
4.3
Project Plans
11
4.4
Development Responsibilities and Consulting Services
12
 
4.4.1
Direction and Oversight
12
 
4.4.2
Responsibilities of Discovery
12
 
4.4.3
Responsibilities of Chrysalis
12
 
 
(a)     In General
12
 
 
(b)     Development Activities
13
 
 
(c)     Consulting Services
13
4.5
Development Effort
13
4.6
Development Milestone
13
4.7
Skilled Personnel
13
4.8
Costs
14
4.9
Additional License Product Opportunities
14
 
4.9.1
Additional Product Opportunities
14
 
4.9.2
Procedure
14
4.10
Design Configurations
15
     
ARTICLE 5
GOVERNANCE AND COMMITTEE STRUCTURE
15
5.1
General
15
5.2
Alliance Managers
15
 
5.2.1
Appointment and Rules
15
 
5.2.2
Changes in Alliance Managers
15
 
5.2.3
Additional Responsibilities of Alliance Managers
15
5.3
Steering Committee
16
 
5.3.1
Formation and Purpose
16
 
5.3.2
Membership, Chairmanship and Meetings
16
5.4
Project Team
16
 
5.4.1
Formation and Purpose
17
 
5.4.2
Specific Responsibilities of the Project Team
17
 
5.4.3
Membership, Chairmanship and Meetings
17
5.5
Working Groups
17

 
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5.6
General Committee Membership and Procedures
18
 
5.6.1
Membership and Meetings
18
 
5.6.2
Ad Hoc Participants
18
 
5.6.3
Decision-Making
18
 
5.6.4
Meeting Agendas and Minutes
18
 
5.6.5
Interactions between Committees and Internal Teams
19
5.7
Design Review Board
19
     
ARTICLE 6
COMMERCIALIZATION
19
6.1
Exclusive Right to Sell the Licensed Products
19
 6.2
Responsibility for Commercialization Matters
19
6.3
Diligent Commercialization Efforts
19
 
6.3.1
Commercialization Initiation
20
 
6.3.2
Commercialization Milestones
20
     
ARTICLE 7
REGULATORY MATTERS
20
 
 
 7.1
Responsibility and Consultation
20
7.2
Regulatory Communications
21
7.3
Meetings
21
7.4
Sharing of Information
21
7.5
Discovery’s Right to Audit Certain Third Parties
21
     
ARTICLE 8
FINANCIAL PROVISIONS
21
8.1
Royalties with Respect to Supported Products
21
8.2
Royalties with Respect to Independent Products
23
8.3
Prohibition on Bundling
23
8.4
Fixed Consideration
23
8.5
Treatment of Partial Product Sales
23
8.6
Royalty Reports
23
8.7
Payment of Estimated and Actual Amounts
24
 
8.7.1
Payment of Estimated Amounts
24
 
8.7.2
Quarterly Reconciliation and True-Up
24
8.8
Pass-Through Royalties
24
8.9
Records and Audits
24
 
8.9.1
Records
24
 
8.9.2
Audit
24
 
8.9.3
Audit Confidentiality
25
 
8.9.4
Costs of Audits
25
8.10
Foreign Exchange
25
8.11
Manner of Payments
25
8.12
Late Payments
25
8.13
Tax Withholding
26
     
ARTICLE 9
INTELLECTUAL PROPERTY
26
9.1
Ownership
26

 
ii

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9.1.1
Chrysalis Intellectual Property
26
 
9.1.2
Discovery Intellectual Property
26
 
9.1.3
Joint Intellectual Property
26
9.2
Disclosure, Assignment, License and Exploitation
27
 
9.2.1
Disclosure
27
 
9.2.2
Assignment and License
27
 
9.2.3
Exploitation of Intellectual Property
27
9.3
Agreement with Personnel
27
9.4
Prosecution of Patents
27
 
9.4.1
Discovery and Chrysalis Patent Filings
27
 
9.4.2
Joint Patent Filings
28
 
9.4.3
Patent Prosecution Costs
28
 
9.4.4
Abandonment of Prosecution
28
9.5
Patent Term Extensions
28
9.6
Third Party Infringement
29
 
9.6.1
Suits for Infringement
29
 
9.6.2
Step-In Right
29
 
9.6.3
Allocation of Recovery
29
 
9.6.4
Declaratory Actions and Counterclaims
29
9.7
Infringement of Third Party Rights
30
 
9.7.1
Infringement Claims
30
 
9.7.2
Step-In Right
30
 
9.7.3
Notice of Certification
30
     
ARTICLE 10
RIGHT OF FIRST ACCESS TO CERTAIN ADDITIONAL OPPORTUNITIES
31
10.1
First Access Products
31
10.2
Provision of Right of First Access
31
10.3
First Access Product Presentation
31
10.4
Negotiation of First Access Product Arrangements
31
     
ARTICLE 11
CONFIDENTIAL INFORMATION
32
11.1
Use of Confidential Information
32
11.2
Permitted Disclosure and Use
32
11.3
Disclosure for SEC Filings
33
11.4
Publications
33
11.5
Public Announcements
34
11.6
Survival
34

 
iii

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ARTICLE 12
REPRESENTATIONS, WARRANTIES AND COVENANTS
34
12.1
Mutual Representations and Warranties
34
 
12.1.1
Organization; Authority
34
 
12.1.2
Consents
34
 
12.1.3
No Conflict
34
 
12.1.4
Enforceability
35
 
12.1.5
Regulatory
35
12.2
Intellectual Property
35
12.3
No Adverse Effects
37
     
ARTICLE 13
ADDITIONAL COVENANTS
37
13.1
Compliance with Laws
37
13.2
Cooperation
37
13.3
Sharing of Information
37
     
ARTICLE 14
DISCLAIMERS AND LIMITATION OF LIABILITY
37
14.1
Disclaimer of Warranties
37
14.2
Limitation of Liability
34
     
ARTICLE 15
INDEMNIFICATION; INSURANCE
37
15.1
Indemnification
37
 
15.1.1
Obligations of the Parties
38
 
15.1.2
Certain Product Liability Claims
38
 
15.1.3
Complete Indemnification
38
15.2
Indemnification Procedures
38
 
15.2.1
Notification
38
 
15.2.2
Assumption of Defense
38
 
15.2.3
Settlements
39
15.3
Insurance
39
     
ARTICLE 16
TERM
40
     
ARTICLE 17
TERMINATION
40
17.1
Termination for Material Breach
40
 
17.1.1
Right to Terminate Agreement
40
 
17.1.2
Right to Terminate Supported Product
40
 
17.1.3
Applicable Cure Periods Development Projects
41
17.2
Termination Due to Certain Events
41
17.3
Effects of Termination Generally
41
 
17.3.1
Accrued Obligations; Survival
41
 
17.3.2
Outstanding Payments
41

 
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ARTICLE 18
TECHNOLOGY TRANSFER
42
18.1
Technology Transfer
42
18.2
Transfer of Regulatory Files, Data and Filings
42
     
ARTICLE 19
STANDSTILL AGREEMENT
42
19.1
General Standstill
42
19.2
Certain Exceptions
43
19.3
Exception for an Acquisition Transaction
43
19.4
Other Agreements
43
     
ARTICLE 20 
DISPUTE RESOLUTION
44
20.1
Dispute Resolution
44
20.2
Escalation and Executive Negotiation
44
20.3
Mediation
44
20.4
Arbitration
44
 
20.4.1
Referral to Arbitration
44
 
20.4.2
Rules and Procedures
44
 
20.4.3
Awards
45
 
20.4.4
Costs
45
 
20.4.5
No Other Forum
45
20.5
Right to Injunctive and Other Relief
45
     
ARTICLE 21
MISCELLANEOUS
45
21.1
Choice of Law
46
21.2
Severability
46
21.3
Relationship of the Parties
46
21.4
Parties in Interest
46
21.5
Enforcement of Certain Agreements
46
21.6
Use of Affiliates, Subcontractors and Distributors
47
21.7
Assignment
47
21.8
Further Assurances and Actions
47
21.9
Waiver
48
21.10
Section 365(n) of the Bankruptcy Code
48
21.11
Notices
48
21.12
Construction
49
21.13
Registration and Filing of this Agreement
49
21.14
Force Majeure
49
21.15
Entire Agreement
50
21.16
Third Party Beneficiaries
50
21.17
Execution in Counterparts; Facsimile Signatures
50

v

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STRATEGIC ALLIANCE AGREEMENT
 
THIS STRATEGIC ALLIANCE AGREEMENT is made as of December 9, 2005 (the “Effective
Date”), by and between DISCOVERY LABORATORIES, INC., a Delaware corporation
(“Discovery”), and PHILIP MORRIS USA INC., d/b/a CHRYSALIS TECHNOLOGIES, a
Virginia corporation (“Chrysalis”). Discovery and Chrysalis shall be referred to
herein individually as a “Party” and collectively as the “Parties”.
 
WHEREAS, Discovery is currently developing a portfolio of aerosolized surfactant
replacement therapies (aSRT) based upon its proprietary precision-engineered
surfactant technology for the prevention and treatment of respiratory disorders;
 
WHEREAS, Chrysalis is currently developing and has expertise in the development
and design of proprietary technology for the aerosolization of pharmaceutical
products; and
 
WHEREAS, the Parties desire to enter into a strategic alliance pursuant to which
they will develop certain combination drug-device surfactant products, Chrysalis
will license its proprietary aerosolization technology to Discovery, and
Chrysalis will provide certain additional consultative services to Discovery in
connection with combination drug-device surfactant products, all on the terms
and conditions set forth herein.
 
NOW, THEREFORE, in consideration of the foregoing premises and the
representations, warranties, covenants, and agreements contained herein, the
Parties, intending to be legally bound, hereby agree as follows:
 
ARTICLE 1
DEFINITIONS
 
In addition to terms defined elsewhere in this Agreement, the following terms
used in this Agreement are defined below:
 
1.1 “AAA” means the American Arbitration Association.
 
1.2 “Actual Amount” has the meaning set forth in Section 8.7.2.
 
1.3 [***]
 
1.4 “Additional Product Opportunities” has the meaning set forth in
Section 4.9.1.
 
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.

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1.5 “Aerosol Device” means a device for the aerosolization of a pharmaceutical
compound for administration to humans. It is contemplated that the Aerosol
Device shall consist of (i) permanent (e.g., nondisposable) components that
control power and electronics (e.g., control unit) and (ii) a physical mechanism
(e.g., pump) to provide a means for dispensing the Drug Product from the
container closure system.
 
1.6 “Aerosol Technology” means any technology related to the aerosolization of a
liquid form of a pharmaceutical compound. Aerosol Technology does not include
technology that is related to the delivery of aerosols as dry powders.
 
1.7 “Affiliates” means with respect to any Party, any Person, directly or
indirectly, controlling, controlled by or under common control with such Party.
For purposes of this Section 1.7, “control” means (i) in the case of a Person
that is a corporate entity, direct or indirect ownership of more than fifty
percent (50%) of the stock or shares having the right to vote (or such lesser
percentage which is the maximum allowed to be owned by a foreign corporation in
a particular jurisdiction) for the election of directors of such Person or (ii)
in the case of a Person that is an entity, but is not a corporate entity, the
possession, directly or indirectly, of (A) more than fifty percent (50%) of the
economic or partnership interest in the income or capital of such Person or (B)
the power to direct, or cause the direction of, the management or policies of
such Person, whether through the ownership of voting securities, by contract or
otherwise; and the terms “controlling,”  “controlled by” or “under common
control” shall have the meanings correlative to the foregoing.
 
1.8 “Agreement” means this Strategic Alliance Agreement, including the Schedules
attached hereto.
 
1.9 “Alliance” has the meaning set forth in Article 2.
 
1.10 “Alliance Manager” has the meaning set forth in Section 5.2.1.
 
1.11 “Base Hospital General Product” has the meaning set forth in Section 4.2.
 
1.12 “Base NICU Product” has the meaning set forth in Section 4.2.
 
1.13 “Base Supported Product Development Projects” means a Supported Product
Development Project with respect to a Base NICU Product or a Base Hospital
General Product.
 
1.14 “Breaching Party” has the meaning set forth in Section 17.1.1 and 17.1.2,
as applicable.
 
1.15 “Business Day” means a day other than a Saturday, Sunday, or other day on
which commercial banks in New York, New York are authorized or required by Law
to close.
 
1.16 “Chrysalis” has the meaning set forth in the Preamble hereto.
 
1.17 “Chrysalis Intellectual Property” has the meaning set forth in Section
9.1.1.
 
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1.18 “Chrysalis Patents” means all Patents owned by Chrysalis or to which
Chrysalis otherwise has rights that claim or are directed to the Chrysalis
Technology.
 
1.19 “Chrysalis Technology” means (a) Chrysalis’ proprietary Aerosol Technology
(including without limitation the technologies, devices, processes, equipment,
materials and know-how relating to the aerosolization of liquid forms of drug
products and the Aerosol Devices and Disposable Dose Packs therefor) and (b) all
Intellectual Property owned by or licensed to Chrysalis relating to such Aerosol
Technology, including, without limitation, the Chrysalis Patents.
 
1.20 “Chrysalis Technology Improvements” means any Inventions created or reduced
to practice [***] in the performance of the Alliance or exercise of the license
granted pursuant to this Agreement, which Inventions relate primarily to the
Chrysalis Technology.
 
1.21 “Clinical Trials” means Phase I, II, III and, if required, Phase IV
clinical trials and such other tests and studies in human subjects or patients
that are required to obtain, maintain, or sustain Regulatory Approval in a
country in the Territory.
 
1.22 “Combined Net Sales” means with respect to any Contract Year, the total Net
Sales of all of the Supported Products during such Contract Year.
 
1.23 “Committees” has the meaning set forth in Section 5.1.
 
1.24 “Confidential Information” means all information received by either Party
or its Affiliates from or on behalf of the other Party or its Affiliates
relating to this Alliance that the disclosing Party treats as confidential,
including, without limitation: (i) copies of any nonpublic information regarding
a Party’s Patents; (ii) techniques, technology, practices, trade secrets,
inventions (whether or not patentable), designs, methods, manufacturing
processes, formulae, formulations, specifications, documents, knowledge,
know-how, skill, experience, test data, and results, (including that related to
pharmacology, toxicology, preclinical testing, clinical testing, expression
data, Chemistry, Manufacturing and Control (CMC) data, batch records, trials,
and studies, safety and efficacy, analytical, and quality control); (iii)
devices and related components, compounds, polypeptides, proteins, formulations,
compositions of matter, cells, cell lines, markers, assays, and physical,
biological, or chemical material; (iv) marketing information, market research
data, medical/physicians advisory boards, and consultant input, including
clinical studies designed to support promotional efforts; (v) the terms of this
Agreement, and (vi) other proprietary business information such as business
plans, financial or personnel matters, present or future products, research,
process and technology development programs, sales, suppliers, customers,
employees, investors, or other business information, whether in oral, written,
graphic, or electronic form.
 
1.25 “Contract Month” means each month during any Contract Year. The initial
Contract Month will be deemed to begin on the Effective Date and end on the
expiration of that Contract Month in which the Effective Date falls.
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
3

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1.26 “Contract Quarter” means each three (3) month period ending on March 31,
June 30, September 30 and December 31 during any Contract Year. The initial
Contract Quarter will be deemed to begin on the Effective Date and end on the
expiration of that Contract Quarter in which the Effective Date falls.
 
1.27 “Contract Year” means a twelve (12) month period ending on December 31. The
initial Contract Year will be deemed to begin on the Effective Date and end on
December 31 of that Contract Year in which it falls.
 
1.28 “Design Review Board” has the meaning set forth in Section 5.7.
 
1.29 “Diligent Commercialization Efforts” means efforts and resources reasonably
comparable to those commonly used in the research-based pharmaceutical industry
for a medical device, pharmaceutical product or pharmaceutical compound at a
similar stage in its commercialization or product life of similar market
potential, taking into account safety and efficacy, the competitiveness of
alternative products in the marketplace, the patent and other proprietary
position of the product, the likelihood of regulatory approval given the
regulatory structure involved, the potential profitability of the product and
alternative products and other relevant factors relating to the
commercialization of a Licensed Product, including, without limitation, the
potential cost, risk, timing and reward, provided, however, that the fact that
the Parties are required to share revenues with respect to the Licensed Products
shall not be a factor taken into account in determining whether Diligent
Commercialization Efforts were satisfied. Diligent Commercialization Efforts
shall be determined on a market by market basis for a particular Licensed
Product, and it is anticipated that the level of effort will change over time
reflecting changes in the status of the Licensed Product and the market
involved.
 
1.30 “Diligent Development Efforts” means efforts and resources reasonably
comparable to those commonly used in the research-based pharmaceutical industry
for a medical device, pharmaceutical product or pharmaceutical compound at a
similar stage in its development of similar market potential, taking into
account safety and efficacy, product profile, difficulty in developing the
product, competitiveness of alternative products in the marketplace, the patent
and other proprietary position of the product, the likelihood of regulatory
approval given the regulatory structure involved, the potential profitability of
the product and alternative products and other relevant factors affecting the
cost, risk and timing of development and total potential reward to be obtained
if a Licensed Product is commercialized, provided, however, that the fact that
the Parties are required to share revenues with respect to the Licensed Products
shall not be a factor taken into account in determining whether Diligent
Development Efforts were satisfied.
 
1.31 “Discovery” has the meaning set forth in the Preamble hereto.
 
1.32 “Discovery Intellectual Property” has the meaning set forth in Section
9.1.2.
 
1.33 “Discovery Patents” means all Patents owned by Discovery or to which
Discovery otherwise has rights that claim or are directed to any Discovery
Intellectual Property.
 
4

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1.34 “Discovery Technology” means (a) Discovery’s proprietary Pulmonary
Surfactant technology (including without limitation the technologies,
formulations, processes, equipment, materials and know-how relating to the
manufacture and use of Pulmonary Surfactants for treatment of respiratory
conditions), and (b) all Intellectual Property owned by or licensed to Discovery
relating to such Pulmonary Surfactant technology, including, without limitation,
the Discovery Patents.
 
1.35 “Discovery Technology Improvements” means any Inventions created or reduced
to practice [***] in the performance of the Alliance or exercise of the license
granted pursuant to this Agreement, which Inventions relate primarily to
Pulmonary Surfactants (alone or in combination with other pharmaceutical
compounds).
 
1.36 “Disposable Dose Packet” consists of: (i) Drug Product within a container
(comprising the drug formulation containing the drug substance and the container
closure system in which it is packaged), (ii) aerosolization capillary (heatable
capillary through which the formulation is pumped to produce an aerosol), (iii)
patient interface (components through which the aerosol produced by the
capillary travels in order to reach the patient), and (iv) all ancillary tubing,
connectors and fittings related thereto.
 
1.37 “Dispute” has the meaning set forth in Section 20.1.
 
1.38 “Dollars” and “$” means, unless otherwise specified, United States Dollars.
 
1.39 “Drug Product” means Pulmonary Surfactant(s) or other pharmacological
agent(s), together with any excipients or inactive ingredients, formulated for
use in a Licensed Product.
 
1.40 “Effective Date” has the meaning set forth in the Preamble hereto.
 
1.41 “Estimated Amount” has the meaning set forth in Section 8.7.1.
 
1.42 [***]
 
1.43 “Exchange Act” has the meaning set forth in Section 19.1.
 
1.44 “Exclusive Field” means the therapeutic or preventative use in humans of
Aerosol Technology to deliver Pulmonary Surfactants (alone or in combination
with any other pharmaceutical compound(s)) as an active ingredient for the
prevention or treatment of Respiratory Indications.
 
1.45 “FDA” shall mean the United States Food and Drug Administration, and any
successor agency.
 
1.46 “First Access Product” has the meaning set forth in Section 10.1.
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.

5

--------------------------------------------------------------------------------

 
1.47 “First Access Product Presentation” has the meaning set forth in Section
10.3.
 
1.48 “First Commercial Sale” means the first arms-length commercial sale of a
Licensed Product to a Third Party by Discovery or its Affiliates or
sublicensees, as the case may be, in any country in the Territory after receipt
of Marketing Authorization in such country which results in an exchange for cash
or some equivalent to which value can be assigned for the purpose of determining
Net Sales.
 
1.49 “Force Majeure Event” means an event or occurrence that materially
interferes with the ability of a Party to perform its obligations or duties
hereunder which is not within the reasonable control of the Party affected or
any of its Affiliates, not due to malfeasance by such Party or its Affiliates,
and which could not with the exercise of due diligence have been avoided,
including without limitation fire, earthquake, acts of God, acts of war, labor
strikes or lockouts, riots, civil disturbances, actions or inactions of
governmental authorities (except actions in response to a breach of applicable
Law by such Party).
 
1.50 “GAAP”means generally accepted accounting principles in the United States
of America.
 
1.51 “Hospital General Products” has the meaning set forth in Section 4.2.
 
1.52 “Hospital Setting” means a hospital-setting in the delivery room, NICU,
PICU, CCU, emergency department, surgical care unit and/or intermediate care
unit.
 
1.53 “Indemnitee” has the meaning set forth in Section 15.2.1.
 
1.54 “Indemnitor” has the meaning set forth in Section 15.2.1.
 
1.55 “Independent Product” means any Licensed Product other than a Supported
Product.
 
1.56 “Infringement Notice” has the meaning set forth in Section 9.6.1.
 
1.57 “Intellectual Property” means all know how, Inventions, Patents,
copyrights, trademarks, trade secrets and any other intellectual property rights
in the Territory that may be secured in any place under laws now or hereafter in
effect.
 
1.58 “Invention” means any new or improved apparatus, process, information,
product, invention, discovery, idea, suggestion, material, data, equipment,
design, circuit component, drawing, tooling, prototype, report, computer
software, documentation or other intellectual property or know-how (whether or
not patentable) discovered, produced, conceived, created or reduced to practice
by either or both Parties (or their Affiliates, sublicensees, subcontractors,
successors or assigns).
 
1.59 “Joint Inventions” has the meaning set forth in Section 9.1.3.
 
1.60 “Joint Patents” means all Patents that claim or are directed to any Joint
Inventions.
 
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1.61 “Law” means any applicable statute, law, ordinance, regulation, order, or
rule of any federal, state, local, foreign, or other governmental agency or body
or of any other type of regulatory body (including common law) or securities
exchange or automated quotation system.
 
1.62 “Licensed Product”means a combination drug-device product using or
otherwise practicing the Chrysalis Technology and delivering Pulmonary
Surfactants (alone or in combination with other pharmaceutical compounds).
 
1.63 “Losses” has the meaning set forth in Section 15.1.1.
 
1.64 “Major Markets” means [***].
 
1.65 “Marketing Authorization” means, with respect to each country in the
Territory, the principal Regulatory Approval required to market the Product in
such country (e.g., the NDA), including satisfactory pricing and reimbursement
approval, when applicable.
 
1.66 “NDA” shall mean (a) a new drug application, biologics license application,
pre-market approval application, or a pre-market clearance under FDCA Section
510k that may be filed with the FDA in the United States or any comparable
application that may be filed with any equivalent Regulatory Authority in the
Territory.
 
1.67 “Net Sales” means, with respect to Licensed Products, as applicable, sold
by Discovery, its Affiliates and sublicensees, the [***] amount [***] for
Licensed Products by Discovery, its Affiliates, and any sublicensees of
Discovery in arms-length, commercial transactions with customers that are Third
Parties, less the following deductions to the extent included in such [***]
amount: [***]
 
Any discretionary rebates, discounts or other adjustments to the [***] amount
shall be commercially reasonable and consistent with standard industry
practices. Net Sales (including each applicable deduction from the [***] amount)
shall be determined from the books and records of Discovery maintained in
accordance with GAAP consistently applied.
 
1.68 “NICU” means neonatal intensive care unit.
 
1.69 “NICU Products” has the meaning set forth in Section 4.2.
 
1.70 “Non-Breaching Party” has the meaning set forth in Section 17.1.1 and
17.1.2, as applicable.
 
1.71 “Party” and “Parties” have the meanings set forth in the Preamble hereto.
 
1.72 “Party Vote” has the meaning set forth in Section 5.6.3.
 
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.

7

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1.73 “Patents” means all patents and patent applications, and all patents
issuing thereon (including utility, model and design patents and certificates of
invention), together with all reissue patents, patents of addition, divisions,
renewals, continuations, continuations-in-part, substitutions, additions,
extensions (including supplemental protection certificates), registrations,
confirmations, re-examinations, and foreign counterparts of any of the foregoing
in the Territory.
 
1.74 “Person” means any natural person, corporation, company, partnership,
limited liability company, proprietorship, trust or estate, joint venture,
association, or other legal entity.
 
1.75 “Phase 2 Completion Point” has the meaning set forth in Section 10.2.
 
1.76 “Project Plan”means a plan for the overall development and
commercialization of Licensed Products pursuant to a Supported Product
Development Project.
 
1.77 “Project Team” has the meaning set forth in Section 5.4.1.
 
1.78 “Pulmonary Surfactant” means surface active agents designed for deposition
in the lungs in order to exert a physiological or pharmacological affect to
prevent or treat Respiratory Indications. 
 
1.79 “Regulatory Approval” means any approvals (including, where necessary for
the marketing, use, or other distribution of a drug, medical device, or
combination drug and medical device in a regulatory jurisdiction, pricing, and
reimbursement approvals), licenses, registrations, or authorizations or
equivalents necessary for the manufacture, use, storage, import, export,
clinical testing, transport, marketing, sale, and distribution of the Drug
Product or Aerosol Device and any Licensed Product in a regulatory jurisdiction
anywhere in the Territory, including Marketing Authorizations.
 
1.80 “Regulatory Authority” means any federal, national, multinational, state,
provincial, or local regulatory agency, department, bureau, or other
governmental entity with authority to regulate the marketing and sale of a
pharmaceutical product, delivery system or device in a country in the Territory,
including the FDA in the United States.
 
1.81 “Regulatory Data” means any and all research data, pharmacology data,
chemistry, manufacturing, and control data, preclinical data, clinical data
and/or all other documentation submitted, or required to be submitted, to
Regulatory Authorities in association with an Investigational New Drug
Application or NDA for Licensed Products (including any Drug Master Files,
Device Master Files, Chemistry, Manufacturing and Control (CMC) data, or similar
documentation). “Respiratory Indications” means all respiratory dysfunctions,
failures, syndromes, diseases, disorders, or conditions.
 
1.82 “Right of First Access” has the meaning set forth in Section 10.1.
 
1.83 “Royalty Credit” has the meaning set forth in Section 8.7(b).
 
1.84 “Royalty Report” means the reports to be delivered by Discovery to
Chrysalis pursuant to Section 8.6 with respect to each Contract Month and
pursuant to Section 8.7 with respect to each Contract Quarter, which reports
shall give such particulars of each of the Licensed Products sold by Discovery
and its Affiliates and sublicensees during the preceding Contract Month in the
case of Section 8.6 and during the preceding Contract Quarter in the case of
Section 8.7 on a country-by-country basis as are reasonably pertinent to perform
an accounting of royalties under this Agreement.
 
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1.85 “SEC” has the meaning set forth in Section 11.3.
 
1.86 “Steering Committee” has the meaning set forth in Section 5.3.1.
 
1.87 “Supported Product” means: (i) the NICU Product, (ii) the Hospital General
Product, and (iii) any other Licensed Products deemed to be Supported Products
pursuant to Section 4.9.
 
1.88 “Supported Product Development Projects” has the meaning set forth in
Section 4.1.
 
1.89 “Target Indications” means the following Respiratory Indications:
Respiratory Distress Syndrome (RDS); Chronic Lung Disease (BPD); Transient
Tachypnea; Hypoxemia; Pulmonary Hypertension; Pneumonia; Bronchiolitis;
Diaphragmatic Hernia; Acute Lung Injury (ALI); Acute Respiratory Distress
Syndrome (ARDS); Lung Transplantation; Respiratory Syncitial Virus (RSV); and,
Cystic Fibrosis.
 
1.90 “Target Populations” means human patients in a Hospital Setting receiving
forms of treatment for the applicable Respiratory Indication that are typically
and principally provided within a Hospital Setting. For the sake of clarity,
Target Populations shall not include patients or forms of treatment which are
typically rendered outside a Hospital Setting or in ambulatory or chronic care
modalities, even if such forms of treatment are also administered in a Hospital
Setting.
 
1.91 “Taxes” has the meaning set forth in Section 8.13.
 
1.92 “Term” has the meaning set forth in Article 16.
 
1.93 “Territory” means all countries in all continents of the world.
 
1.94 “Third Party” means any Person other than Chrysalis or Discovery or their
respective Affiliates.
 
1.95 “Third Party Claim” has the meaning set forth in Section 15.1.1.
 
1.96 “Valid Claim” means a claim of an issued and unexpired patent, which claim
has not been held unpatentable, invalid, or unenforceable by a court or other
government agency of competent jurisdiction from which no appeal can be or has
been taken and has not been held or admitted to be invalid or unenforceable
through re-examination or disclaimer, opposition procedure, nullity suit or
otherwise, which claim, but for the licenses granted herein, would be infringed
by the sale of a Licensed Product.
 
1.97 “Working Group” has the meaning set forth in Section 5.5.
 
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ARTICLE 2
SCOPE OF ALLIANCE
 
The Parties agree to enter into this Agreement for the general purpose of
developing and licensing for manufacturing and commercialization by Discovery
certain combination drug-device products to promote and enhance human health on
the terms and conditions set forth herein (the “Alliance”). To facilitate the
development of such products, pursuant to this Agreement, Chrysalis is granting
Discovery a license under the Chrysalis Technology, Chrysalis and Discovery have
agreed to work together to develop certain combination drug-device products and
Chrysalis has agreed to provide certain additional consultative services to
Discovery, all on the terms and conditions set forth herein. Except as set forth
in this Agreement or otherwise agreed to in writing, the Parties shall have no
rights and obligations with respect to the Alliance. The Parties agree at all
times to act in good faith and in a cooperative manner and, subject to any
contractual or legal restrictions, to share such information as reasonably
necessary to facilitate each Party’s performance of its obligations hereunder
under this Agreement.
 
ARTICLE 3
LICENSE
 
3.1 License. Subject to the terms, conditions, and limitations of this
Agreement, Chrysalis hereby grants to Discovery an exclusive right and
royalty-bearing license or sublicense, as applicable, with the right to grant
sublicenses solely as set forth in Section 3.3 under the Chrysalis Technology
and Joint Patents to make and have made, to use and have used, to sell and have
sold, to offer for sale and have offered for sale, to import and export and have
imported and exported Licensed Products in the Exclusive Field in the Territory
during the Term.
 
3.2 Limitations. The license granted pursuant to Section 3.1 shall be exclusive
only to the extent that Chrysalis has the right to grant an exclusive license
with respect to the Licensed Product in question. No right or license outside of
the Exclusive Field is granted and all such rights are expressly reserved by
Chrysalis. No right or license is or shall be granted under this Agreement by
implication. All such rights or licenses are or shall be granted only as
expressly provided in this Agreement. Discovery shall not practice the Chrysalis
Technology except as expressly licensed herein. Nothing herein shall limit the
ability of Chrysalis to perform any research or development work on or using the
Chrysalis Technology. Notwithstanding any other provision of this Agreement, no
rights with respect to any trademarks, trade names, service marks or logos of
Chrysalis are granted pursuant to this Agreement.
 
3.3 Sublicensing Rights. The license granted to Discovery pursuant to Section
3.1 by Chrysalis shall include the right of Discovery to grant sublicenses,
subject to terms and conditions set forth in Section 21.6. Discovery shall
provide Chrysalis with prompt written notice of any sublicenses granted
hereunder.
 
3.4 Retained Rights. Any rights of each Party not expressly granted to the other
Party under the provisions of this Agreement shall be retained by each Party,
and, subject to any applicable terms, conditions, and limitations of this
Agreement, each Party shall retain the right to: (a) exploit such Party’s own
Intellectual Property relating to Licensed Products to develop, manufacture, and
commercialize products outside the Exclusive Field; (b) exploit such Party’s own
Intellectual Property relating to Licensed Products for other purposes outside
the Exclusive Field unrelated to the Licensed Products; and (c) perform its
obligations and exercise its rights under this Agreement.
 
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3.5 Exclusivity. In light of the substantial investments and undertakings to be
made by each Party in connection with the Alliance in order to successfully
develop and bring to market products to enhance human health, each Party agrees
that the Alliance shall be exclusive in the Exclusive Field. Accordingly, during
the Term, neither Party shall without the other Party’s prior written consent
directly or indirectly offer for sale or sell, or grant any third party the
right to offer for sale or sell any Aerosol Device, Disposable Dose Packet or
Drug Product for use in the Exclusive Field other than a Licensed Product.
 
ARTICLE 4
PRODUCT DEVELOPMENT
 
4.1 In General. In light of Chrysalis’ substantial expertise regarding the
Chrysalis Technology and Discovery’s substantial expertise regarding Pulmonary
Surfactants, Discovery desires to have Chrysalis work with Discovery on the
development of certain of the Licensed Products. The Parties have agreed to work
together on Supported Product projects (the “Supported Product Development
Projects”) with the objective of developing Licensed Products on the terms and
conditions set forth in this Article 4.
 
4.2 Supported Product Development Projects. As of the Effective Date, the
Parties have agreed to work together on the following Supported Product
Development Projects to develop aerosolized Pulmonary Surfactant products for
use in the Hospital Setting: (i) a project to develop an initial aerosolized
Pulmonary Surfactant product for the prevention and treatment of Respiratory
Indications in neonates in the NICU (the initial Licensed Product resulting
therefrom, the “Base NICU Product” and, together with any other NICU-related
Licensed Products, the “NICU Products”); and (ii) a project to develop an
initial aerosolized Pulmonary Surfactant product for the prevention and
treatment of Respiratory Indications in patients outside of the NICU (the
initial Licensed Product resulting therefrom, the “Base Hospital General
Product” and, together with any other non-NICU-related Licensed Products, the
“Hospital General Products”). As soon as practicable after the Effective Date,
the Project Team shall mutually agree upon and submit to the Steering Committee
for approval a Project Plan for each of the Base Supported Product Development
Projects. Licensed Products that may be developed other than the Base NICU
Product and the Base Hospital General Product shall be treated as Additional
Product Opportunities as provided for in Section 4.9.
 
4.3 Project Plans. The Project Plans for each Supported Product Development
Project shall, subject to the Steering Committee’s right to modify or add to the
following requirements in its discretion, include: (i) a list of development
activities (including preclinical studies, toxicology work, Clinical Trials,
Clinical Trial material requirements, specifications and other key activities
required for obtaining Marketing Authorizations and timelines for the
performance of the development activities; (ii) a reasonably detailed and
specific budget for such development activities; and (iii) Discovery’s plan for
commercialization (including timing and plans for Discovery obtaining Marketing
Authorizations in the Major Markets). The Parties acknowledge that the Project
Plan budgets are intended to provide an estimation of expenditures and resource
deployment and are not required to disclose sensitive data on either Party’s
cost structure (for the sake of clarity, Parties are expected to provide
reasonable detail on such items as aggregate costs for relevant cost categories
(e.g., personnel and overhead expenses) but are not expected to provide data
regarding individual personnel costs or line-by-line overhead cost
classifications). The Project Team shall be responsible for the preparation of
the budget for each Project Plan. The Project Plans for each Supported Product
Development Project shall be updated, amended and modified as deemed necessary
by the Project Team, but no less frequently than each Contract Year. Updated
Project Plans shall be submitted by the Project Team to the Steering Committee
for approval in a timely fashion by a date that is determined from time-to-time
by the Steering Committee that shall conform to the greatest practicable extent
the Parties’ respective internal budgeting cycles. Neither Party will pursue
development tasks or product studies relating to Supported Product Development
Projects not provided for in the Project Plans prior to presenting such
proposals to the Steering Committee and obtaining authorization therefor from
the Steering Committee.
 
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4.4 Development Responsibilities and Consulting Services.
 
4.4.1 Direction and Oversight. All development activities in connection with
Supported Product Development Projects shall be conducted under the direction
and oversight of the Steering Committee and the Project Team. In order to
facilitate effective management of the projects each Party shall have lead
responsibility for particular aspects of the development as set forth below in
Sections 4.4.2 and 4.4.3(b), as appropriate. Each Party shall also reasonably
support the other Party as provided for in the relevant Project Plan to
facilitate such other Party’s ability to perform its development
responsibilities. Chrysalis shall also provide consulting to Discovery with
respect to certain of Discovery’s responsibilities as set forth below in
Section 4.4.3(c).
 
4.4.2 Responsibilities of Discovery. The specific activities to be undertaken by
Discovery in connection with each project and the Supported Products developed
pursuant thereto shall be as set forth in the applicable Project Plan. Discovery
shall act as the lead Party for, and shall be principally responsible for
performing, the following activities with respect to each project: (i) drug
product formulation development; (ii) development and implementation of
analytical methods for quality assurance/control of Drug Product, Aerosol Device
and Disposable Dose Packet; (iii) manufacturing of Supported Products, including
manufacturing of the Drug Product, Aerosol Device and Disposable Dose Packet:
(iv) filling of Disposable Dose Packets; (v) development of procedures for final
release testing and testing of Supported Products; (vi) pre-clinical and
clinical development and trials; (vii) regulatory activities relating to the
Supported Products, including without limitation submissions to regulatory
authorities; (viii) medical affairs, such as adverse event reporting and
pharmacovigilance. Discovery shall also be solely responsible for manufacturing
and commercializing the Supported Products.
 
4.4.3 Responsibilities of Chrysalis. 
 
(a) In General. The specific activities to be undertaken by Chrysalis in
connection with each Supported Product Development Project and the Supported
Products developed pursuant thereto shall be as set forth in the applicable
Project Plan.
 
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(b) Development Activities. Chrysalis shall act as the lead Party for, and shall
be principally responsible for performing, the following development activities
with respect to each Supported Product Development Project: (i) unfilled
Disposable Dose Packet development, including the container closure system,
aerosolization capillary and patient interface; (ii) Aerosol Device development,
including the control unit and pump; and (iii) design and development of filling
equipment.
 
(c) Consulting Services. In addition to the development activities to be
performed by Chrysalis, Chrysalis shall also provide certain consulting services
to Discovery as set forth in the Project Plan with respect to each Supported
Product. In particular, Chrysalis shall provide consulting services to Discovery
regarding: (i) manufacturing development for the Aerosol Device and Disposable
Dose Packet; (ii) the development and implementation of quality control
specifications and processes for the Aerosol Device and Disposable Dose Packet;
(iii) training and set-up of the Aerosol Device and Disposable Dose Packet for
preclinical and clinical studies; (iv) the development of Discovery’s
organizational infrastructure to manage manufacturing of the Supported Products;
and (v) troubleshooting and corrective measures regarding the Aerosol Device and
Disposable Dose Packet.
 
4.5 Development Effort. Each Party shall use Diligent Development Efforts to
develop the Supported Products in accordance with the Project Plans therefor and
to otherwise carry out its responsibilities under this Agreement relating to
such Supported Products promptly and expeditiously in accordance with all Laws.
Notwithstanding the foregoing, the Parties acknowledge that the development of
pharmaceutical products is inherently speculative and there is no guarantee that
the Alliance will be successful in developing any commercially viable Supported
Products, or that the development of any Supported Products will proceed as
anticipated or in accordance with the Project Plans. 
 
4.6 Development Milestone. As soon as practicable after the Effective Date,
Discovery and Chrysalis shall mutually agree in writing with respect to each of
the Base Supported Product Development Projects on a particular development
milestone related to the development activities to be performed by Chrysalis in
connection therewith (e.g., the delivery of an initial Aerosol Device and
related Disposable Dose Packet design validated by a prototype) (such event, the
“Development Milestone”) and the date by which such Development Milestone should
reasonably be achieved (the “Milestone Date”). Chrysalis shall use Diligent
Development Efforts to achieve the Development Milestone by the Milestone Date.
To the extent any delay in achieving such Development Milestone is caused by
Discovery or other factors beyond Chrysalis’ reasonable control, the Milestone
Date shall be equitably extended by the Steering Committee to take into account
such delays. If, after taking into account any such equitable adjustments to the
Milestone Date, Chrysalis fails to achieve the Development Milestone by such
adjusted Milestone Date with respect to a Base Supported Product Development
Project for a particular Base NICU Product or Base Hospital General Product,
then the royalty payments to Chrysalis hereunder in connection with all NICU
Products or Hospital General Products, as the case may be, shall be modified as
provided in Section 8.1(c).  
 
4.7 Skilled Personnel. Each Party shall promptly assign responsibilities for the
various operational aspects of the Alliance, including without limitation,
pursuant to Supported Product Development Projects, to portions of their
respective organizations which have expertise reasonably appropriate to perform
such functions. Each Party shall be solely responsible for making all decisions
regarding its staffing and personnel.
 
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4.8 Costs. Except as otherwise expressly provided in this Agreement, each Party
shall be solely responsible for all costs incurred by such Party in the
performance of its obligations in connection with a Supported Product
Development Project. Each Party shall internally budget for its development
costs and shall provide resources (financial, personnel and otherwise) in
accordance with the budgets set forth in the applicable Project Plans to satisfy
their respective responsibilities under such Project Plan.
 
4.9 Additional Licensed Product Opportunities.
 
4.9.1 Additional Product Opportunities. In the event that Discovery desires to
(a) exercise the rights granted pursuant to Section 3.1 or (b) develop or
commercialize any Licensed Product other than the Base NICU Product and the Base
Hospital General Product (each, an “Additional Product Opportunity”), then the
following shall apply: (i) should Discovery, in its sole discretion, develop any
such Additional Product Opportunity independently of Chrysalis (either on its
own or with Third Parties), such Additional Product Opportunity shall be deemed
to be a Supported Product for the purposes of determining the application of
royalties provided for in Section 8.1; (ii) should Discovery, in its sole
discretion, offer Chrysalis the opportunity to assist with the development of
any such Additional Product Opportunity and (X) should Chrysalis agree to so
assist on the terms and conditions provided for in this Agreement, then such
Additional Product Opportunity shall be deemed to be a Supported Product for the
purposes of determining the application of royalties provided for in Section
8.1; or (Y) should Chrysalis choose not to assist, then such Additional Product
Opportunity shall be deemed to be a Independent Product and any royalties
thereon shall be as provided for in Section 8.2.
 
4.9.2 Procedure. Additional Product Opportunities presented by Discovery to the
Steering Committee shall be in a reasonably detailed manner to enable Chrysalis
to conduct an evaluation of the potential market and collaborative opportunity
with respect thereto. Reasonably promptly following the presentation of any such
Additional Product Opportunity, Chrysalis shall make the determination (a) to
participate in the development of the Licensed Product that is the subject of
the Additional Product Opportunity (in which case such Licensed Product will
become a Supported Product Development Project), or (b) not to participate in
the development of the Licensed Product that is the subject of the Additional
Product Opportunity (in which case such Licensed Product shall constitute an
Independent Product). In the event Chrysalis fails to notify Discovery of its
decision to participate in such Additional Product Opportunity within sixty (60)
days after such presentation, Chrysalis shall be deemed to have elected not to
participate. In the event Chrysalis elects to participate in the development of
such Licensed Product, the Parties shall commence a Supported Product
Development Project with respect to such Supported Product as soon as
practicable thereafter. The specific responsibilities of each Party in
connection with the development of such Supported Product shall be as mutually
agreed and set forth in a Project Plan as soon as practicable after each such
election. The Parties intend that Chrysalis’ and Discovery’s responsibilities
with respect to such Supported Product shall be reasonably comparable to those
set forth in Sections 4.4.2 and 4.4.3 except as otherwise mutually agreed taking
into account the particular needs with respect to the development of such
Supported Product.
 
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4.10 Design Configurations. Throughout the Term, unless otherwise mutually
agreed to by the Parties, it shall be a design objective of the Alliance to
minimize the number of different configurations of the Disposable Dose Packets
and Aerosol Devices in the Exclusive Field. Furthermore, the Parties agree that
any Aerosol Device and Disposable Dose Packet configuration developed for use
outside the Exclusive Field shall be distinct in appearance from those for use
with the Licensed Products and shall not be interchangeable with the Aerosol
Device or Disposable Dose Packet of the Licensed Products. Without limiting the
generality of the foregoing, neither Party shall offer for sale or sell, or
authorize any Third Party to offer for sale or sell, any pharmaceutical product
(other than a Licensed Product) (i) in the Disposable Dose Packet for a Licensed
Product, (ii) in packaging similar in appearance to the Disposable Dose Packet
for a Licensed Product, or (iii) in packaging that is interchangeable with the
Disposable Dose Packet of a Licensed Product for purposes of use in an Aerosol
Device.
 
ARTICLE 5
GOVERNANCE AND COMMITTEE STRUCTURE
 
5.1 General. The Alliance shall be governed by the Steering Committee, Alliance
Managers, a Project Team and such Working Groups as mutually agreed to by the
Parties and as provided in this Article 5. The Steering Committee and the
Project Team are collectively referred to herein as the “Committees.”
 
5.2 Alliance Managers.
 
5.2.1 Appointment and Roles. Promptly after the Effective Date, and in any event
within thirty (30) days thereafter, each of the Parties shall appoint a single
individual to act as that Party’s alliance manager (the “Alliance Manager”). The
role of the Alliance Managers is to act as a single point of contact for its
respective Party. The Alliance Managers shall have the right to attend all
Committee meetings and shall support the Committee chairpersons in the discharge
of their responsibilities. Alliance Managers shall be nonvoting participants in
such Committee meetings, unless they are also appointed members of such
Committee; provided, however, that an Alliance Manager may bring any matter to
the attention of any Committee if such Alliance Manager reasonably believes that
such matter warrants such attention.
 
5.2.2 Changes in Alliance Managers. Each Party may change its designated
Alliance Manager from time to time upon written notice to the other Party. Any
Alliance Manager may designate a substitute to temporarily perform the functions
of that Alliance Manager by written notice to the other Party. Each Alliance
Manager shall be charged with creating and maintaining a collaborative work
environment within and among the Committees.
 
5.2.3 Additional Responsibilities of Alliance Mangers. Each Alliance Manager,
with respect to its Party, shall also: (i) coordinate the relevant functional
representatives of the Parties in developing and executing strategies and plans
for the Supported Products in an effort to ensure consistency and efficiency
throughout the Territory; (ii) provide a single point of communication for
seeking consensus both internally within the respective Parties’ organizations
and between the Parties regarding key strategy and plan issues with respect to
the development of the Supported Products; (iii) plan and coordinate cooperative
efforts and internal and external communications; and (iv) take responsibility
for ensuring that governance activities, such as the conduct of required
Committee meetings and production of meeting minutes occur as set forth in this
Agreement, and that relevant action items resulting from such meetings are
appropriately carried out or otherwise addressed.
 
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5.3 Steering Committee.
 
5.3.1 Formation and Purpose. Discovery and Chrysalis hereby establish a Steering
Committee (“Steering Committee”) that shall generally operate by the procedures
set forth in Section 5.6. The Steering Committee shall have overall
responsibility for the Alliance, including for:
 
(i) managing the overall relationship and development activities for the
Supported Products;
 
(ii) overseeing the Project Team;
 
(iii) reviewing, commenting on, and approving or rejecting Project Plans and
updates or amendments thereto;
 
(iv) facilitating the flow of information between the Parties and coordinating
the activities of the Parties;
 
(v) attempting to resolve disputes, if any, with respect to general Alliance
matters and any disputes referred to the Steering Committee by the Project Team;
 
(vi) discussing and making recommendations with respect to Intellectual Property
developed under the Alliance; and
 
(vii) performing such other functions as appropriate to further the purposes of
this Agreement and the Alliance as determined by the Parties.
 
5.3.2 Membership, Chairmanship and Meetings. The Steering Committee shall be
comprised of representatives of each Party and initially shall consist of senior
representatives from each Party having the technical knowledge and decision
making authority appropriate for supervising such Party’s responsibilities under
this Agreement. Each Party shall designate its respective Steering Committee
members within thirty (30) days of the Effective Date. Discovery shall designate
the Chairperson of the Steering Committee. The Steering Committee shall meet at
least every six (6) months.
 
5.4 Project Team.
 
5.4.1 Formation and Purpose. Reasonably promptly after the Effective Date,
Discovery and Chrysalis shall establish a project team (“Project Team”)
consisting of representatives designated by each Party. The Project Team shall
generally operate by the procedures set forth in Section 5.6.
 
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5.4.2 Specific Responsibilities of the Project Team. In furtherance of its
responsibility for overseeing, coordinating and expediting the development of
the Supported Products in the Territory, the Project Team shall have
responsibility for:
 
(i) developing Project Plans (including preparation of the applicable budget and
related operational plans) for the development of Licensed Products for
manufacture by Discovery and technology transfer regarding Licensed Products in
coordination with the Design Review Board;
 
(ii)  managing the day-to-day activities related to the operational plans in
order to fulfill Project Plans;
 
(iii)  reviewing, amending and updating individual Project Plans on an annual
basis as well as more frequently as shall be necessary or advisable to take into
account completion, commencement or cessation of development not then
contemplated by the Project Plan and submitting such amended or updated Project
Plan to the Steering Committee for approval;
 
(iv)  monitoring the progress of development of any Supported Product;
 
(v)  facilitating the exchange of all development information;
 
(vi)  working together to assure a smooth transition from development to
Discovery’s manufacturing and commercialization;
 
(vii) reporting on a regular basis to the senior management of each Party as
well as to the Steering Committee; and
 
(viii) overseeing any Working Groups established by the Project Team.
 
5.4.3 Membership, Chairmanship and Meetings. The Project Team shall be comprised
of representatives from each Party possessing the appropriate experience and
expertise and responsible for: Aerosol Device, Disposable Dose Packet and Drug
Product development; quality control/assurance; regulatory affairs; project
management; clinical affairs. The initial members of the Project Team for each
Party shall be designated promptly following the Effective Date. The Project
Team shall be jointly chaired by the Parties. The Project Team shall meet no
less than monthly.
 
5.5 Working Groups. From time to time, the Committees may establish
sub-committees or directed teams (each, a “Working Group”) on an “as-needed”
basis to oversee particular projects or activities. Each such Working Group
shall be constituted and shall operate as the applicable parent Committee
determines. Each Working Group and its activities shall be subject to the
oversight, review and approval of, and shall report to, the applicable parent
Committee that established such Working Group. In no event shall the authority
of the Working Group exceed that specified for the relevant Committee in this
Article 5. The Parties agree and acknowledge that Alliance Managers shall have
access to all members of the Working Groups, at reasonable times and places, so
as to be able to have appropriate oversight and direct interaction with such
Working Group members.
 
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5.6 General Committee Membership and Procedures.
 
5.6.1 Membership and Meetings. With respect to the Parties’ Committee
representatives, each representative may serve on more than one Committee as
appropriate in view of such representative’s expertise. Each Party may replace
its Committee representatives at any time upon written notice to the other
Party. Meetings of any Committee may be held by audio or video teleconference
with the consent of each Party. All Committee representatives shall be given
prior notice of any Committee meetings. Each meeting shall require that
representatives from each Party be in attendance before business may be
conducted.
 
5.6.2 Ad Hoc Participants. Other employees of each Party (including the Alliance
Managers) may attend meetings of any Committee as nonvoting participants with
the reasonable consent of the other Party. In addition, with the consent of both
Parties, consultants or advisors to a Party may attend Committee meetings as
nonvoting observers; provided that such Third Party representatives are under
obligations of confidentiality and non-use applicable to the Confidential
Information of each Party and that are at least as stringent as those set forth
in Article 11. Each Party shall be responsible for all of its own expenses of
participating in any Committee.
 
5.6.3 Decision-Making. Each Party’s representatives on a Committee shall,
collectively, have one vote (the “Party Vote”) on all matters brought before
such Committee, which Party Vote shall be determined by majority vote of such
representatives present at any meeting. Except as expressly provided in this
Section 5.6.3, each Committee shall operate as to matters within its
jurisdiction by unanimous vote (although the vote of the representatives present
at a meeting underlying the Party Vote need not be unanimous); provided that
only the Steering Committee in accordance with Section 21.15, shall have the
authority to amend or modify, or waive compliance with, this Agreement. If a
Committee fails to achieve a unanimous vote with respect to any matter, such
dispute shall be resolved in accordance with Article 20.
 
5.6.4 Meeting Agendas and Minutes. The chairperson(s) of each Committee shall be
responsible for calling meetings and preparing, and circulating an agenda in
advance of each meeting of such Committee. Each Party shall disclose to the
chairperson(s) of each Committee proposed agenda items for a meeting, along with
appropriate information for such proposed agenda item, at least three (3)
Business Days in advance of each meeting of the applicable Committee; provided
that under exigent circumstances requiring Committee input, a Party may provide
its agenda items to the chairperson(s) of each Committee within a lesser period
of time in advance of the meeting, or may propose that there not be a specific
agenda for a particular meeting, so long as such other Party consents to such
later addition of such agenda items or the absence of a specific agenda for such
Committee meeting. The Alliance Managers, or the particular Committee
representatives of each Party designated by such Alliance Managers, shall be
responsible for, on an alternate basis, preparing and issuing minutes of each
meeting within ten (10) days of each Committee meeting; provided, however, that
the minutes will not be finalized until both Parties review and confirm the
accuracy of such minutes in writing.
 
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5.6.5 Interactions between Committees and Internal Teams. The Parties recognize
that while they will establish Committees and Working Groups for the purpose of
the Alliance, each Party possesses an internal structure (including various
committees, teams and review boards) that will be involved in administering such
Party’s activities under this Agreement. Each Committee and Working Group shall
establish procedures to facilitate communications between such Committee or
Working Group and the relevant internal committee, team, or board of each Party
in order to maximize the efficiency of the Alliance, including by requiring
appropriate members of such Committees to be available at reasonable times and
places and upon reasonable prior notice for making appropriate oral reports to,
and responding to reasonable inquiries from, the relevant internal committee,
team, or board of each Party.
 
5.7 Design Review Board. Discovery shall have the right to designate one or more
(as agreed by the Parties) representatives to participate in the design review
board established by Chrysalis to oversee the design of Aerosol Devices for use
in the Alliance (the “Design Review Board”). The role and voting power of such
representative shall be mutually determined by the Parties.
 
ARTICLE 6
COMMERCIALIZATION
 
6.1 Exclusive Right to Sell the Licensed Products. The Parties agree that during
the Term, subject to Discovery’s achievement of the commercialization milestones
and minimums in this Article 6, Discovery shall have the exclusive right to
market and have marketed, sell and have sold, and offer for sale or have offered
for sale any Licensed Products.
 
6.2 Responsibility For Commercialization Matters. Discovery shall have the sole
responsibility for all activities associated with the commercialization of the
Licensed Products, including, without limitation, (a) preparing, submitting and
seeking Marketing Authorizations for the Licensed Products, (b) sales,
advertising and marketing of the Licensed Product, (c) scientific and medical
affairs, (d) customer service and distribution related services, such as order
taking, shipping, billing, accounts receivable, returns, allowance activities
and product support; (e) Phase IV Clinical Trials, (f) commercial manufacture of
the Licensed Product; and (g) branding of the Licensed Products.
 
6.3 Diligent Commercialization Efforts. Discovery shall use Diligent
Commercialization Efforts to bring the Licensed Products to market and to market
and sell the Licensed Products with a particular focus on obtaining Marketing
Authorizations for and commercializing Supported Products in the Major Markets.
Discovery shall promptly notify Chrysalis of the receipt of any Marketing
Authorization for a Licensed Product.
 
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6.3.1 Commercialization Initiation. With respect to each Licensed Product, the
First Commercial Sale in each country constituting the Major Markets shall occur
within [***] of receipt of the relevant Marketing Authorization for such country
for such Licensed Product. Should Discovery materially fail to achieve any such
commercialization initiation within [***] of having received written notice of
such failure from Chrysalis [***].
 
 
6.3.2 Commercialization Milestones. Discovery shall meet certain mutually agreed
upon commercialization milestones (determined in the best faith of the Parties)
with respect to minimum sales levels to be achieved for each Licensed Product in
each of the Major Markets. Such commercialization milestones shall be
established no later than [***] prior to the First Commercial Sale of such
Licensed Product in each of the Major Markets and shall equal Discovery's good
faith estimate of total Net Sales for [***] after the First Commercial Sale of
such Licensed Product, which estimate shall be the same as the estimate used by
Discovery for its financial projections and other business purposes (the
"Estimated Sales"). The Estimated Sales forecast for [***] shall be reviewed for
compliance [***] prior to the end of [***], and may be reduced for purposes of
this calculation of Estimated Sales by up to [***] percent ([***]%) for [***] in
the event that Discovery's good faith estimate of such sales has gone down [***]
percent ([***]%) or more. Should Discovery fail to satisfy [***] percent
([***]%) of the Estimated Sales levels (taking into account any adjustment in
the [***] forecast as provided above) with respect to the subject Licensed
Product on a country-by-country basis in the Major Markets for [***].
 
ARTICLE 7
REGULATORY MATTERS
 
7.1 Responsibility and Consultation. Discovery shall be responsible for
preparing, submitting, seeking and maintaining Marketing Authorization for the
Licensed Products in the United States and other jurisdictions in the Territory.
Discovery shall consult with Chrysalis regarding, and keep Chrysalis regularly
and fully informed with respect to such regulatory matters. Chrysalis shall
provide consultant services to Discovery regarding Aerosol Device and Disposable
Dose Packet related regulatory matters regarding the Supported Products.
Discovery shall provide Chrysalis with advance notice of all regulatory
activities regarding the Licensed Products that are initiated by Discovery and
Chrysalis shall have the right to participate in any such activities. Within
their respective responsibilities as outlined in Article 4, the Parties shall
cooperate to provide each other all reasonable assistance and take all actions
reasonably requested that are necessary to comply with any material requirement
of a Law applicable to Licensed Products. Each Party shall obtain and maintain
all necessary Regulatory Approvals for the performance of its obligations and
lead responsibilities under this Agreement and shall take all actions necessary
to comply with any material requirement of a Law applicable to the performance
of such Party’s obligations and the exercise of such Party’s rights with respect
to the Licensed Products.
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
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7.2 Regulatory Communications. The Parties shall cooperate with respect to all
interactions and in the drafting and review of all submissions to Regulatory
Authorities. Each Party shall, immediately upon receipt of any significant
contact with or communication from any Regulatory Authority relating to a
Licensed Product, but in no event more than two (2) Business Days after such
receipt or contact, forward a copy (if in writing) or description (if oral) of
the same to the other Party and respond to all reasonable inquiries by the other
Party relating thereto. Each Party shall, within two (2) Business Days of
receipt thereof by such Party, provide notice to the other Party of any
additional requirements which a Regulatory Authority may impose with respect to
a Regulatory Approval (including, without limitation, additional clinical
studies) and of all Regulatory Authority inquiries requiring a response.
 
7.3 Meetings. To the extent not prohibited by Law, each Party will have an
opportunity to participate in all material meetings between the other Party and
a Regulatory Authority to the extent that they pertain to the Licensed Products.
To the extent practicable, the Alliance Managers and their designees shall use
reasonable efforts to agree in advance on the scheduling of such meetings and on
the objectives to be accomplished at such meetings, conferences, and discussions
and the agenda for the meetings, conferences, and discussions with the
Regulatory Authorities. Each Party shall provide the other Party at least five
(5) Business Days before any such meeting with copies of all documents,
correspondence, and other materials in its possession, which are relevant to the
matters to be addressed at any such meeting.
 
7.4 Sharing of Information. In addition to any other reports required under this
Agreement, each Party shall provide to the other Party at least once every three
Contract Months copies of all updated data and information provided by such
Party to a Regulatory Authority in connection with the Licensed Products in the
Territory.
 
7.5 Discovery’s Right to Audit Certain Third Parties. Chrysalis shall use
reasonable efforts to obtain from Third Parties providing products or services
relating to the Supported Product Development Projects, the right for Discovery
or its representatives, with reasonable prior written notice and during regular
business hours, (i) to examine and inspect such Third Party’s facilities and
(ii) subject to applicable law and any Third Party confidentiality restrictions
or obligations, to examine and inspect data, documentation, and work products
relating to the activities performed by such Third Party.
 
ARTICLE 8
FINANCIAL PROVISIONS
 
8.1 Royalties with Respect to Supported Products. For each individual Supported
Product:  
 
(a) Royalties Prior to [***]. Until [***] the First Commercial Sale of such
Supported Product, Discovery shall pay royalties to Chrysalis on Net Sales of
Supported Product(s) as follows depending on the Combined Net Sales attributable
to all of the Supported Products during such Contract Year:
 

Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
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Combined Net Sales of Supported Products During Such Contract Year
Royalty Rate
First $500 million of Combined Net Sales of Supported Products in a Contract
Year
[***]% of the Net Sales for the particular Supported Product
Next $500 million of Combined Net Sales of Supported Products in a Contract Year
[***]% of Net Sales for the particular Supported Product
In excess of $1 billion of Combined Net Sales of Supported Products in a
Contract Year
[***]% of the Net Sales for the particular Supported Product; subject to the
exception set forth in Section 8.1(c) below.

 
(b) Royalties Commencing on [***]. Starting [***] the First Commercial Sale of a
particular Supported Product, Discovery shall pay royalties to Chrysalis on Net
Sales of Supported Product as follows depending on the Combined Net Sales
attributable to all of the Supported Products during such Contract Year:
 
Combined Net Sales of Supported Products During Such Contract Year
Royalty Rate
First $500 million of Combined Net Sales of Supported Products in a Contract
Year
[***]% of Net Sales for the particular Supported Product.
In excess of $500 million of Combined Net Sales of Supported Products in a
Contract Year
[***]% of Net Sales for the particular Supported Product, subject to the
exception set forth in Section 8.1(c) below.

 
For the avoidance of doubt, Net Sales with respect to Independent Products shall
not be taken into account in the calculation of Combined Net Sales with respect
to Supported Product(s) for purposes of Sections 8.1(a) and 8.1(b).
 
(c) Reduction for Failure to Timely Achieve Development Milestone. In the event
that with respect to a particular Base Supported Product Development Project,
Chrysalis fails to achieve the applicable Development Milestone by its Milestone
Date, after any adjustments in such dates pursuant to Section 4.6, then, unless
Discovery shall be entitled to and shall elect to terminate the Agreement
pursuant to Section 17.1.1 or a Supported Product Development Project pursuant
to Section 17.1.2, [***].
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
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8.2 Royalties with Respect to Independent Products. For each individual
Independent Product, Discovery shall pay royalties to Chrysalis on Net Sales of
Independent Product(s) in an amount equal to [***]% of Net Sales for such
Independent Product.
 
8.3 Prohibition on Bundling. Notwithstanding any other provision of this
Agreement to the contrary, Discovery hereby covenants that it will not include
or bundle any Licensed Products or components thereof as part of a multiple
product offering with any other products or services if it would result in the
price of the Licensed Product or any components thereof being discounted from
the then-applicable sale price in such jurisdiction, nor shall Discovery permit
its Affiliates or sublicensees to do so, except with the prior written consent
of Chrysalis. In the event any such bundled sales occur, the Net Sales with
respect to such bundled transactions shall be deemed to be the-then current
average Net Sales for the Licensed Product in such jurisdiction in arms length
transactions or in the event there are no unbundled transactions, the fair
market value of such Net Sales.
 
8.4 Fixed Consideration. In the event that Discovery receives any fixed payment,
fee or other consideration from a Third Party in consideration of any discount,
credit or similar allowance granted to such Third Party in connection with the
purchase of any Licensed Product(s), then Discovery shall pay to Chrysalis a
royalty equal to the product of (a) such consideration multiplied by (b) the
royalty rate applicable to the sale of such Licensed Product(s) to such Third
Party. Discovery shall report on the amount of any such consideration, and the
royalty payable thereon in U.S. Dollars, in the Royalty Report.
 
8.5 Treatment of Partial Product Sales. In the event that portions of a Licensed
Product are sold separately, (e.g., Aerosol Device, Disposable Dose Packet, Drug
Product) the royalties payable pursuant to this Article 8 shall be paid [***].
 
8.6 Royalty Reports. Within [***] days after the end of each Contract Month,
Discovery shall deliver to Chrysalis a preliminary Royalty Report. [***] The
Royalty Report shall include at least the following items, separately stated as
to each of the Licensed Products, as applicable:
 
(i) the quantity of each of the Licensed Products (delineated as Aerosol Devices
and Disposable Dose Packets) invoiced by Discovery and its Affiliates and
sublicensees during such Contract Month and the [***] amount therefor;
 
(ii) the allowable deductions therefrom and an itemization of each specific
deduction [***]; and
 
(iii) whether each such Licensed Product is a Supported Product or Independent
Product;
 
(iv) the calculation of royalties, if any, thereon in a manner consistent with
the amounts set forth in the Royalty Report prepared in accordance with this
Section 8.6.
 
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
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8.7 Payment of Estimated and Actual Amounts.
 
8.7.1 Payment of Estimated Amounts. Simultaneous with the issuance of the
preliminary Royalty Report, Discovery shall make payment of estimated amounts
due to Chrysalis hereunder with respect to such Contract Month (the “Estimated
Amount”).
 
8.7.2 Quarterly Reconciliation and True-Up. Within [***] days following each
Contract Quarter, Discovery shall calculate the actual amount due to Chrysalis
hereunder with respect to the immediately preceding Contract Quarter (the
“Actual Amount”) and provide to Chrysalis a true and accurate Royalty Report for
such Contract Quarter, setting forth the corrected calculations for such
Contract Quarter. If the Estimated Amounts paid to Chrysalis pursuant to Section
8.7.1 for the three Contract Months comprising the immediately preceding
Contract Quarter exceeds the Actual Amount for such Contract Quarter, Discovery
shall notify Chrysalis and such excess amount (the “Royalty Credit”) shall, at
the discretion of Discovery, be available to offset future royalties payable to
Chrysalis by Discovery. If such Actual Amount exceeds such Estimated Amount,
Discovery shall promptly pay such excess amount to Chrysalis. [***]
 
8.8 Pass-Through Royalties. Each Party shall be solely responsible for paying
any royalties which may be due to Third Parties with respect to such Party’s
Intellectual Property.
 
8.9 Records and Audits.
 
8.9.1 Records. Discovery shall keep, and shall require its Affiliates and
sublicensees to keep, such records as are necessary to determine accurately the
sums due to each other under this Agreement. Such records shall be retained by
Discovery for the Term and for three (3) years thereafter.
 
8.9.2 Audit. At the written request of Chrysalis, with reasonable advance
notice, Discovery shall make available for inspection, review, and audit, by an
internationally recognized independent certified public accounting firm
appointed by Chrysalis and reasonably acceptable to Discovery, such records of
Discovery as may be reasonably necessary to verify Discovery’s accounting
reports and payments made or to be made pursuant to this Agreement; provided,
however, that such audits may not be performed by Chrysalis more than twice per
Contract Year in the absence of a reasonable basis for concern regarding
compliance with the Agreement or any applicable Laws. If such accountants
identify a discrepancy, then the appropriate Party shall pay the other Party the
amount of the discrepancy within thirty (30) days of the date of receiving such
accountant’s written report, or as otherwise agreed upon by the Parties, plus,
in the event of any underpayment, interest calculated in accordance with
Section 8.12.
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.

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8.9.3 Audit Confidentiality. Chrysalis shall cause any accountants selected by
it to enter into a confidentiality agreement acceptable to Discovery obligating
such accountants to retain all such information in confidence pursuant to such
confidentiality agreement. Such accountants shall not reveal to Chrysalis the
details of its review, except for such information as is required to be
disclosed under this Agreement, and such details shall be treated as
Confidential Information. Each Party agrees to hold in strict confidence all
information concerning payments and reports, and all information learned in the
course of any audit or inspection (and not to make copies of such reports and
information), except to the extent necessary for such Party to reveal such
information in order to enforce its rights under this Agreement or if disclosure
is required by Law, regulation or judicial order.
 
8.9.4 Costs of Audits. Chrysalis shall pay for such inspections, except that in
the event the adjustment shown by such inspection is greater than [***] percent
([***]%) of the amount incurred, Discovery shall pay for such inspection.
 
8.10 Foreign Exchange. For the purpose of computing the Net Sales for Licensed
Products sold in a currency other than Dollars, such amounts shall be converted
into Dollars each Contract Month in the then standard manner used by Discovery
in the preparation of its audited financial statements, consistently applied.
Such method of currency conversion used by Discovery shall be a commercially
reasonable method consistent with industry standards, and Discovery shall
disclose to Chrysalis [***] prior to First Commercial Sale of a Licensed Product
in a country such method of currency conversion. Notwithstanding anything herein
to the contrary, at Chrysalis’ option, with respect to any particular country in
the Territory, Discovery shall pay royalties for Licensed Products sold in such
country in such country’s local currency. Discovery shall not change such method
of currency conversion disclosed to Chrysalis pursuant to this Section 8.10
without obtaining Chrysalis’ prior written consent, such consent not to be
unreasonably withheld.
 
8.11 Manner of Payments. All sums due to Chrysalis under this Agreement shall be
payable by electronic funds transfer in immediately available funds to such bank
account(s) as Chrysalis shall designate at least two (2) Business Days in
advance. 
 
8.12 Late Payments. Any amounts not paid when due under this Agreement shall be
subject to interest from and including the date payment is due through and
including the date upon which Chrysalis has collected immediately available
funds in an account designated by Chrysalis at an annual rate equal to the sum
of [***] percent ([***]%) plus the annual prime rate of interest quoted in the
Money Rates section of the East Coast edition of the Wall Street Journal
calculated daily on the basis of a 365-day year, or similar reputable data
source, or, if lower, the highest rate permitted under applicable law.
Notwithstanding the foregoing, any payment of amounts by Discovery representing
the excess of Actual Amount over Estimated Amount, calculated in accordance with
Section 8.7, shall not be subject to this Section 8.12.
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
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8.13 Tax Withholding. Any taxes, levies, or other duties (“Taxes”) paid or
required to be withheld under the appropriate local tax Laws by Discovery on
account of monies payable to Chrysalis under this Agreement shall be deducted
from the amount of monies otherwise payable to Chrysalis under this Agreement
and paid by Discovery to the proper taxing authority. Discovery shall secure and
send to Chrysalis within a reasonable period of time proof of any such Taxes
paid or required to be withheld by Discovery for the benefit of Chrysalis. The
Parties shall cooperate reasonably with each other to (i) ensure that any
amounts required to be withheld by Discovery are reduced in amount to the
fullest extent permitted by Law and (ii) to resolve such other Party’s taxation
concerns.
 
ARTICLE 9
INTELLECTUAL PROPERTY
 
9.1 Ownership.
 
9.1.1 Chrysalis Intellectual Property. Chrysalis shall own (i) all Intellectual
Property owned or controlled by Chrysalis relating to the Chrysalis Technology
or Licensed Products that was existing or conceived prior to the Effective Date,
(ii) all Intellectual Property relating to the Chrysalis Technology or the
Licensed Products developed by Chrysalis outside of the performance of the
Alliance or to which Chrysalis otherwise obtains rights from a Third Party;
(iii) all Inventions conceived, created and reduced to practice solely by or on
behalf of Chrysalis in the course of the performance of the Alliance, except
Discovery Technology Improvements; and (iv) all Chrysalis Technology
Improvements (collectively, “Chrysalis Intellectual Property”).
 
9.1.2 Discovery Intellectual Property. Discovery shall own (i) all Intellectual
Property owned or controlled by Discovery relating to Discovery Technology or
the Licensed Products that was existing or conceived prior to the Effective Date
or is developed by Discovery outside of the performance of the Alliance, (ii)
all Intellectual Property relating to Discovery Technology or the Licensed
Products developed by Discovery outside of the performance of the Alliance or
exercise of the license granted hereunder or to which Discovery otherwise
obtains rights from a Third Party, and (iii) all Inventions conceived, created
and reduced to practice solely by or on behalf of Discovery in the course of the
performance of the Alliance or exercise of the license granted hereunder, except
Chrysalis Technology Improvements; and (iv) all Discovery Technology
Improvements (collectively “Discovery Intellectual Property”).
 
9.1.3 Joint Intellectual Property. Inventions conceived, created and reduced to
practice jointly by or on behalf of the Parties in the course of the performance
of the Alliance or exercise of the license granted hereunder shall be jointly
owned by the Parties, except regardless of whether such Inventions were jointly
conceived, created or developed by the Parties, all Chrysalis Technology
Improvements shall be owned by Chrysalis and all Discovery Technology
Improvements shall be owned by Discovery, as provided in Sections 9.1.1 and
9.1.2. Any Inventions that are jointly-owned pursuant to the allocation of
Intellectual Property Rights set forth in this Section 9.1.3 shall be referred
to herein as the “Joint Inventions.”
 
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9.2 Disclosure, Assignment, License and Exploitation.
 
9.2.1 Disclosure. Each Party shall cause all personnel conducting work or
exercising rights on its behalf under the Alliance to, promptly disclose to the
other Party all Intellectual Property in which the other Party has an ownership
interest pursuant to Section 9.1, and to assign any and all right, title and
interest in all such Inventions and Intellectual Property in accordance with
this Agreement. Each Party shall maintain records in sufficient detail and in
good scientific manner appropriate for patent prosecution purposes to properly
reflect all work done and results achieved in conducting its work hereunder, and
shall respond to reasonable requests of the other Party for information
regarding Intellectual Property in which the other Party has an ownership
interest.
 
9.2.2 Assignment and License. In the event Chrysalis conceives, creates or
reduces to practice any Discovery Technology Improvements, Chrysalis shall
promptly notify Discovery and Chrysalis shall assign all right, title and
interest in and to such Discovery Technology Improvements to Discovery. In the
event Discovery conceives, creates or reduces to practice any Chrysalis
Technology Improvements, Discovery shall promptly notify Chrysalis of such
Invention and Discovery shall assign all right, title and interest in and to
such Chrysalis Technology Improvements to Chrysalis, however, such Chrysalis
Technology Improvements are included in the Intellectual Property licensed to
Discovery pursuant to Section 3.1.
 
9.2.3 Exploitation of Intellectual Property. To the extent permitted by Law,
except as expressly provided in this Section 9.2.3 below, Chrysalis agrees not
to exploit the Chrysalis Intellectual Property or its ownership interest in the
Joint Intellectual Property in a pharmaceutical product for the Target
Populations for the Target Indications in a manner that competes with a Licensed
Product(s) in the Hospital Setting for such Target Indications. Notwithstanding
the foregoing, this Section 9.2.3 shall not limit Chrysalis’ ability to exploit
any Inventions conceived, created and reduced to practice solely by or on behalf
of Chrysalis after the Effective Date, except Discovery Technology Improvements.
To the extent permitted by Law, Discovery agrees not to exploit its ownership
interest in the Joint Intellectual Property in a pharmaceutical product for the
Target Populations for the Target Indications in a manner that competes with a
Licensed Product(s) in the Hospital Setting for such Target Indications.
 
9.3 Agreement with Personnel. Each Party shall have valid and enforceable
written agreements with all personnel conducting work on its behalf under the
Alliance containing a nondisclosure obligation comparable in scope to Article 11
and giving the other Party all rights and authority necessary to effectuate the
provisions of this Article 9. Each Party shall provide copies of these
agreements to the other Party upon the other Party’s request as allowed by each
Party’s internal personnel policies.
 
9.4 Prosecution of Patents.
 
9.4.1 Discovery and Chrysalis Patent Filings. Discovery and Chrysalis each shall
use commercially reasonable efforts to diligently prosecute their respective
Patents claiming a Licensed Product in the Territory. As soon as practicable
prior to any contemplated filing, the Party filing a Patent claiming a Licensed
Product shall submit a substantially completed draft of the applicable Patent to
the other Party for its review and comment, which comments shall be considered
in good faith. Within forty-five (45) days of a Party’s receipt of an allowance
or grant of a Patent, the Party prosecuting the Patent shall inform the other
Party of such allowance or grant, and provide the other Party with a copy of the
allowed or granted Patent claims thereof. If the other Party determines that
filing one or more continuing or divisional Patents is necessary to cover such
Party’s rights or commercial interests, then the prosecuting Party shall file
such one or more continuing or divisional patents in a timely manner prior to
the expiration of any period for making such filings.
 
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9.4.2 Joint Patent Filings. The Parties shall refer any Joint Inventions to the
Steering Committee to allow the Steering Committee to determine which Party
should be responsible for filing, prosecuting, and maintaining any Joint Patent
related to such Joint Invention based on a good faith determination of the
relative contributions of the Parties to the Joint Inventions, the relative
level of interest of the Parties in the Joint Inventions and the relative extent
to which the Licensed Product relating to such Joint Patents is being developed
or commercialized. The Steering Committee may decide not to file a Joint Patent
for any Joint Invention. The Party determined to be responsible for a Joint
Patent shall use commercially reasonable efforts to diligently prosecute that
Patent in the Territory. As soon as practicable prior to any contemplated
filing, the Party responsible hereunder for such activities shall submit a
substantially completed draft of the applicable Joint Patent or Joint Patents to
the other Party for its approval, which shall not be unreasonably withheld.
Within forty-five (45) days of the allowance or grant of a Joint Patent, the
Party responsible hereunder shall inform the other Party of such allowance or
grant, and provide the other Party with a copy of the allowed or granted Patent.
If the other Party determines that filing one or more continuing or divisional
Patents is necessary to cover the Parties’ rights or commercial interests in
Joint Inventions, then the responsible Party shall file such one or more
continuing or divisional patents in a timely manner prior to the expiration of
any period for making such filings.
 
9.4.3 Patent Prosecution Costs. Each Party shall bear its own costs to file,
prosecute and maintain its Patents, or Joint Patents for which it is
responsible, in the Territory (including, without limitation, patent term
extension).
 
9.4.4 Abandonment of Prosecution. Each Party shall notify the other Party in the
event it is unable for any reason to meet its obligations under this Article 9
with respect to any Patents covering the Licensed Products. Such notification
shall be given within a reasonable period prior to the date on which such
Patents will lapse or become abandoned. The Party receiving any notification
hereunder shall then have the option, exercisable upon written notification to
the Party that delivered such notification, to assume full responsibility, at
its discretion and its sole cost and expense, for prosecution or maintenance of
the affected Patents in such country or countries in the Territory.
 
9.5 Patent Term Extensions. Each Party shall have the right to request that the
other Party file all applications and take all actions necessary to obtain
patent extension pursuant to 35 U.S.C. § 156 or like foreign statutes for the
respective Parties’ Patents and the Joint Patents in the Territory. If the
filing Party declines to pursue such patent term extensions, then as permitted
by law, the other Party shall have the right (at its cost and expense) on behalf
of the filing Party to file, or direct the filing of, all such applications and
take all such actions necessary to obtain such patent term extensions. Each
Party agrees to sign such further documents and take such further actions as may
be requested by the other Party in this regard.
 
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9.6 Third Party Infringement.
 
9.6.1 Suits for Infringement. If Discovery or Chrysalis becomes aware of
infringement of any Patent included in the Discovery Patents or the Chrysalis
Patents by a Third Party in the Territory, such Party shall promptly notify the
other Party in writing to that effect and provide a summary of the relevant
facts and circumstances known to such Party relating to such infringement
(“Infringement Notice”). Each Party shall have the right, at its sole discretion
and expense, on its own behalf, to institute, prosecute, and control any action
or proceeding to restrain infringement of any of its Patents. A Party
instituting suit shall have control of such suit and all negotiations for its
settlement or compromise; provided however, that the instituting Party shall not
settle or compromise any such suit or enter into any consent order for the
settlement or compromise thereof which would materially adversely affect the
Intellectual Property rights with respect to a Licensed Product without the
prior written consent of the other Party, which consent shall not be
unreasonably withheld, conditioned, or delayed.
 
9.6.2 Step-in Right. If, prior to the expiration of three (3) months from said
Infringement Notice, the Party whose Patents are alleged to be infringed has not
obtained a discontinuance of an alleged infringement by a Third Party or brought
an infringement action or proceeding or otherwise taken appropriate action to
abate such infringement, such Party shall notify the other Party at any time
prior thereto of its intention not to bring suit against an alleged infringer.
Upon such notice and if such infringement is reasonably likely to materially
adversely affect a Licensed Product in the Territory, then, and in those events
only, the other Party shall have the right, but not the obligation, at its sole
expense to institute, prosecute, and control any action or proceeding to
restrain such infringement. Each Party agrees to be joined as a party if
necessary to prosecute the action or proceeding and shall provide all reasonable
cooperation, including any necessary use of its name, required to prosecute such
litigation. The other Party shall have control of any such suit and all
negotiations for its settlement or compromise; provided, however, that the other
Party shall not settle or compromise any such suit or enter into any consent
order for the settlement or compromise thereof without the prior written consent
of the patentee Party, which consent shall not be unreasonably withheld,
conditioned, or delayed.
 
9.6.3 Allocation of Recovery. All damages, settlements and rewards made or
obtained in connection with any suit or other legal proceeding under this
Section 9.6 shall be shared among the parties as follows: [***]
 
9.6.4 Declaratory Actions and Counterclaims. In the event that an action
alleging invalidity or non-infringement of any of the Discovery Patents or
Chrysalis Patents is brought against Discovery or Chrysalis, the Party defending
such action or counterclaim, at its sole discretion, shall have the right,
within thirty (30) days after the commencement of such action, to take or regain
control of the action at its own expense. If the defending Party determines not
to exercise this right, the other Party may take over or remain as lead counsel
for the action at that Party’s sole discretion. Any recovery obtained from such
litigation, proceeding or settlement shall be shared in accordance with Section
9.6.3.
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
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9.7 Infringement of Third Party Rights.
 
9.7.1 Infringement Claims. With respect to any and all claims instituted by
Third Parties for patent infringement involving the manufacture, use, offer for
sale, or sale of a Licensed Product in the Territory during the Term, the Party
named as defendant shall promptly notify the other Party of such claim, and the
defending Party shall have the right, at its sole discretion and expense, to
defend and control any action or proceeding with respect to such claim. The
other Party agrees to be joined as a Party if necessary to defend the action or
proceeding and shall provide reasonable cooperation, including any necessary use
of its name, required to defend such litigation. The defending Party shall have
sole control of any such suit and all negotiations for its settlement or
compromise; provided, however, that the defending Party shall not settle or
compromise any such suit or enter into any consent order for the settlement or
compromise thereof without the prior written consent of the other Party if such
settlement would materially adversely affect the other Party’s rights or impose
any obligation on the other Party, which consent shall not be unreasonably
withheld, conditioned, or delayed.
 
9.7.2 Step-in Right. If, prior to the expiration of three (3) months from said
claim being brought, or such sooner period as may be necessary to appropriately
respond to said claim, the defending Party has not elected to defend such action
or proceeding, or if the defending Party shall notify the other Party at any
time prior thereto of its intention not to defend such action or proceeding,
then, and in those events only, the other Party shall have the right, but not be
obligated, at its own expense to defend and control any action or proceeding.
Such other Party shall have sole control of any such suit and all negotiations
for its settlement or compromise; provided, however, that the other Party shall
not settle or compromise any such suit or enter into any consent order for the
settlement or compromise thereof without the prior written consent of the
original defending Party, which consent shall not be unreasonably withheld,
conditioned, or delayed.
 
9.7.3 Notice of Certification. Discovery and Chrysalis each shall immediately
give notice to the other of any certification filed under the U.S. “Drug Price
Competition and Patent Term Restoration Act of 1984” claiming that Discovery
Patents, Chrysalis Patents or the Joint Patents are invalid or that any
infringement will not arise from the manufacture, use, or sale of any Licensed
Product by a Third Party. If a Party decides not to bring infringement
proceedings against the entity making such a certification, that Party shall
give notice to the other Party of its decision not to bring suit within
twenty-one (21) days after receipt of notice of such certification. The other
Party may then, but is not required to, bring suit against the party that filed
the certification. Any suit by Discovery or Chrysalis shall either be in the
name of Discovery or in the name of Chrysalis, or jointly in the name of
Discovery and Chrysalis, as may be required by Law. For this purpose, the Party
not bringing suit shall execute such legal papers necessary for the prosecution
of such suit as may be reasonably requested by the Party bringing suit.
 
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ARTICLE 10
RIGHT OF FIRST ACCESS TO CERTAIN ADDITIONAL OPPORTUNITIES

10.1 First Access Products. During the five year period commencing on the
Effective Date and ending on the fifth anniversary thereof, each Party shall
provide the other with the first option to negotiate described in this Article
10 (the “Right of First Access”) with respect to all First Access Products. A
“First Access Product” shall mean a combination drug-device product comprised of
an aerosolization device and an active pharmaceutical compound (other than a
Pulmonary Surfactant) which pharmaceutical product (a) is intended for the
treatment of a Respiratory Indication in the Hospital Setting in the Target
Populations and (b) is a pharmaceutical compound that such Party has the right
to market and sell and there is no restriction as to the use of Discovery or
Chrysalis, as applicable, as a development or commercialization partner for
combination drug-device products containing such pharmaceutical compound. 

10.2 Provision of Right of First Access. Each Party shall provide to the other
the Right of First Access within sixty (60) days of such Party’s completion of a
phase 2 clinical trial for FDA submission (constituting a study of a candidate
drug in the target patient population of a sufficient number and sufficient
length of time whereby adequate safety data is provided and there is a clear
indication of dosage effects with respect to efficacy as defined in the study
protocol for such drug candidate). Such completion date shall be referred to as
the “Phase 2 Completion Point”.
 
10.3 First Access Product Presentation. Within sixty (60) days after the Phase 2
Completion Point for a First Access Product, the Party which developed the First
Access Product shall, in compliance with any Third Party confidentiality
restrictions, present the opportunity for the treatment of the specified
indication in the Target Population to the other Party in a reasonably detailed
manner to enable the receiving Party to conduct an evaluation of the potential
market and collaborative opportunity with respect thereto (the “First Access
Product Presentation”).
 
10.4 Negotiation of First Access Product Arrangements. Within thirty (30) days
from the date of the First Access Product Presentation, the receiving Party
shall notify the presenting Party in writing whether it desires to enter into
negotiations with respect to a potential commercial arrangement regarding the
development and/or commercialization of such First Access Product for the
treatment of a Respiratory Indication in the Hospital Setting. In the event the
receiving Party notifies the presenting Party of its desire to negotiate a
possible commercial arrangement during such thirty (30) day period, the Parties
shall promptly commence such negotiations. In the event the receiving Party
fails to notify the presenting Party of its desire to negotiate a possible
commercial arrangement during such thirty (30) day period, or the Parties fail,
despite such negotiations to enter into definitive agreements within sixty (60)
days of the date of the initiation of such negotiations, the presenting Party
shall be entitled to negotiate and enter into commercial arrangements with Third
Parties relating to the First Access Product for the specified indication in the
Target Population, provided that any such arrangements with Third Parties shall
not be on terms that are, in substance, more favorable than those offered to the
receiving Party, taking into account the relative merits of the respective
technologies and the development and commercialization capabilities of the
prospective partners.
 
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ARTICLE 11
CONFIDENTIAL INFORMATION
 
11.1 Use of Confidential Information. A Party receiving Confidential Information
(the “Receiving Party”) from the other Party (the “Disclosing Party”) shall keep
all such Confidential Information with the same degree of care it maintains the
confidentiality of its own confidential information, but in no event less than a
reasonable degree of care. Neither Party shall use such Confidential Information
for any purpose other than in performance of this Agreement, and shall not
disclose the same to any Person other than to its Affiliates and such of its and
their employees or agents who have a need to know such Confidential Information
to implement the terms of this Agreement, and who are subject to a nondisclosure
obligation comparable in scope to this Article 11. Each Party shall advise any
employee or agent who receives such Confidential Information of the confidential
nature thereof and of the obligations contained in this Agreement relating
thereto, and such Party shall ensure that all such employees and agents comply
with such obligations as if they had been a Party hereto. Upon termination of
this Agreement, each Party shall use commercially reasonable efforts to return
or destroy all documents, tapes or other media containing Confidential
Information of the Disclosing Party that remains in such Party’s or its agents’
or employees’ possession, except that each Party may keep one (1) copy of the
Confidential Information solely for archival purposes. Such archival copy shall
be deemed to be the property of the Disclosing Party, and shall continue to be
subject to the provisions of this Article 11. Notwithstanding anything to the
contrary in this Agreement, Confidential Information shall not include any
information or materials that the Receiving Party can demonstrate by documentary
evidence: 
 
(i) were already known to the Receiving Party (other than under an obligation of
confidentiality), at the time of disclosure by the Disclosing Party;
 
(ii) were generally available to the public or otherwise part of the public
domain at the time of its disclosure to the Receiving Party;
 
(iii) became generally available to the public or otherwise part of the public
domain after its disclosure or development, as the case may be, and other than
through any act or omission of a Party in breach of such Party’s confidentiality
obligations under this Agreement;
 
(iv) were disclosed to a Party, other than under an obligation of
confidentiality, by a Third Party who had no obligation to the Disclosing Party
not to disclose such information to others; or
 
(v) were independently discovered or developed by or on behalf of the Receiving
Party without the use of the Confidential Information belonging to the other
Party.
 
11.2 Permitted Disclosure and Use. Notwithstanding anything to the contrary in
this Agreement, in the event that the Receiving Party or any of its directors,
officers, employees, agents and advisors and their representatives deems it
necessary or are requested or required (by oral questions, deposition,
interrogatories, requests for information or documents, subpoena, civil
investigative demand or other legal process by a court or other governmental
authority, or by any Regulatory Authority to obtain Regulatory Approval of a
Licensed Product) to disclose all or any part of any Confidential Information,
the Receiving Party will provide the Disclosing Party with prompt notice of such
request or requirement (which notice shall be reasonably in advance of such
requested or required disclosure), as well as notice of the terms and
circumstances surrounding such request or requirement, so that the Disclosing
Party may seek an appropriate protective order or waive compliance with the
provisions of this Agreement. In such case, the Receiving Party shall consult
with the Disclosing Party with respect to the advisability of pursuing any such
order or other legal action or available steps to resist or narrow such request
or requirement. If, failing the entry of a protective order or the receipt of a
waiver hereunder, the Receiving Party is, in the opinion of counsel satisfactory
to the Disclosing Party and its counsel, legally compelled to disclose any
Confidential Information, the Receiving Party may disclose that portion of the
Confidential Information which its counsel advises the Receiving Party that the
Receiving Party is legally compelled to disclose. In any event, the Receiving
Party will use reasonable efforts to obtain and will not oppose action by the
Disclosing Party to obtain, an appropriate protective order or other reliable
assurance that confidential treatment will be afforded the disclosure of such
Confidential Information. The Receiving Party will use best efforts to cause its
directors, officers, employees, affiliates, agents and advisors and their
representatives to comply with the terms of this Section. A Receiving Party may
disclose Confidential Information belonging to a Disclosing Party to the extent
such disclosure is reasonably necessary to enforce the provisions of this
Agreement.
 
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11.3 Disclosure for SEC Filings. Notwithstanding anything to the contrary in
this Agreement, the Parties expressly acknowledge that Discovery may file a copy
of this Agreement with the Securities and Exchange Commission (the “SEC”) in any
of its SEC reports and filings, as well as incorporate them by reference into
other SEC filings. Discovery shall request confidential treatment of sensitive
terms hereof to the extent such confidential treatment is reasonably available
to Discovery under the prevailing circumstances. Discovery shall coordinate in
advance with Chrysalis with regard to the terms of this Agreement, for which
Discovery shall seek to be redacted in any such SEC filings, and Discovery shall
use reasonable efforts to seek confidential treatment for such mutually agreed
terms and terms reasonably requested by Chrysalis; provided, however, that each
Party shall retain ultimate control and responsibility for their respective
disclosures to the SEC and the public generally. To the extent permitted by Law,
Discovery shall use reasonable efforts to provide Chrysalis reasonable advance
notice of any SEC filing related to this Agreement which differs materially from
prior filings.
 
11.4 Publications. Subject to any Third Party rights existing as of the
Effective Date, each Party shall submit to the other Party for review and
approval all proposed academic, scientific and medical publications and public
presentations relating to a Licensed Product or any research or development
activities conducted as part of the Alliance for review in connection with
preservation of Patents, and trade secrets and/or to determine whether
Confidential Information should be modified or deleted from the proposed
publication or public presentation. Written copies of such proposed publications
and presentations shall be submitted to the non-publishing Party no later than
sixty (60) days before submission for publication or presentation and the
non-publishing Party shall provide its comments with respect to such
publications and presentations within ten (10) Business Days of its receipt of
such written copy. The review period may be extended for an additional thirty
(30) days if the non-publishing Party can demonstrate a reasonable need for such
extension including the preparation and filing of patent applications. By
written agreement, this period may be further extended. The Parties will each
comply with standard academic practice regarding authorship of scientific
publications and recognition of contribution of other Persons in any
publications relating to a Licensed Product or any research or development
activities under this Agreement.
 
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11.5 Public Announcements. Subject to Section 11.2 and Section 11.3, neither
Party will make any public announcement of any information regarding this
Agreement, the Licensed Products or any research or development activities under
this Agreement without the prior written approval of the other Party, provided
however that each Party may disclose (i) the general stage of development,
commercialization and manufacturing at any given time during the course of the
Alliance, except to the extent that any such information constitutes
Confidential Information, (ii) any information required by Law, and (iii) any
other information that has been previously approved for disclosure by the other
Party, without further approval from the other Party hereunder. The Parties
agree and acknowledge that Discovery may, at its sole discretion, subject to its
compliance with this Article 11, file a Current Report on Form 8-K with the SEC
to announce the filing of the press release and file it as an exhibit thereto,
as well as to incorporate it by reference into other SEC filings. At each
Party’s option, public releases by the other Party concerning the Alliance,
including press releases, technical publications, regulatory filings, seminar
and conference speeches and posters, interviews, videos and other public
statements concerning the Alliance shall mention the other Party as a
development partner.
 
11.6 Survival. The obligations and prohibitions contained in this Article 11
shall survive the expiration or termination of this Agreement.
 
ARTICLE 12
REPRESENTATIONS, WARRANTIES AND COVENANTS
 
12.1 Mutual Representations and Warranties. Each Party hereby represents,
warrants and covenants to the other Party that as of the Effective Date:
 
12.1.1 Organization; Authority. It is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its incorporation, has full
right, corporate power and authority to enter into this Agreement, to perform
its obligations under this Agreement, to grant the licenses granted by such
Party pursuant to this Agreement and to carry out the provisions hereof.
 
12.1.2 Consents. Except for any Regulatory Approvals necessary for the
development, manufacture, or commercialization of a Licensed Product, all
necessary consents, approvals, orders, permits and authorizations of all
government authorities and Regulatory Authorities and other Persons or Third
Parties required to be obtained by it as of the Effective Date in connection
with the execution, delivery, and performance of this Agreement have been
obtained.
 
12.1.3 No Conflict. The execution and delivery of this Agreement by such Party,
the performance of such Party’s obligations hereunder, and the rights, licenses
and sublicenses to be granted by such Party pursuant to this Agreement, (i) do
not conflict with, violate or constitute a breach or default under any
requirement of Laws or regulations existing as of the Effective Date and
applicable to such Party or under any instrument, judgment, order, writ, decree,
contract of such Party or any of its Affiliates existing as of the Effective
Date; (ii) do not give rise to any event that results in the creation of any
lien, charge or encumbrance upon any assets of such Party or the suspension,
revocation, impairment, forfeiture or non-renewal of any material permit,
license, authorization or approval that applies to such Party, its business or
operations or any of its assets or properties; or (iii) conflict with any rights
granted by such Party to any Third Party or breach any obligation that such
Party has to any Third Party.
 
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12.1.4 Enforceability. This Agreement is a legal and valid obligation binding
upon it and is enforceable against it in accordance with its terms, subject to
and limited by: (i) applicable bankruptcy, insolvency, reorganization,
moratorium, and other laws generally applicable to creditors’ rights; and (ii)
judicial discretion in the availability of equitable relief.
 
12.1.5 Regulatory. There are no investigations, inquiries, actions or other
proceedings pending before or, to such Party’s knowledge, threatened, by any
Regulatory Authority or other government agency with respect to any Licensed
Products (or components thereof) or any facility where such Licensed Products
(or components thereof) are manufactured, and such Party has not received
written notice threatening any such investigation.
 
12.2 Intellectual Property. Discovery represents, warrants, and covenants to
Chrysalis that as of the Effective Date with respect to the Discovery
Intellectual Property and, except with regard to Chrysalis’ intellectual
property rights in the name “Aria,” Chrysalis represents, warrants, and
covenants to Discovery that as of the Effective Date with respect to the
Chrysalis Intellectual Property:
 
(i) It (a) holds good title to and is the legal and beneficial owner of, or (b)
is the licensee of, such Intellectual Property free and clear of any lien,
mortgage, security interest, license, right, pledge, restriction on
transferability, defect of title or other claim, charge, or encumbrance of any
nature whatsoever on or affecting any property or property interest and no Third
Party has any right, title, or interest in or to such Intellectual Property.
 
(ii) To its knowledge, the Patents included in such Intellectual Property are
valid and enforceable in the Major Markets and there have been no, and such
Party has no reason to believe that there will be any, inventorship challenges
with respect to any of such Patents.
 
(iii) There are no infringement proceedings, actions, suits or complaints
pending against nor any outstanding injunctions, judgments, orders, decrees,
rulings or other charges against such Party relating to such Intellectual
Property.
 
(iv) It has not received any form of notice from a third party of infringement
of Third Party Patent rights that may affect the making, using or selling of
Licensed Products; and to its knowledge (a) the manufacture, development and
commercialization of the Licensed Products will not infringe the Patents of any
Third Party and (b) there are no Third Party patent applications pending which,
if issued, would materially adversely affect the ability to make, use or sell
the Licensed Products.
 
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(v) It has not granted any third party any license, covenant not to sue,
options, or other right with respect to such Intellectual Property that would
impact its ability to enforce such Intellectual Property. There are no existing
agreements, options, commitments, or rights with, of, or to any Person to
acquire or obtain any rights with respect to the Intellectual Property that are
inconsistent with the rights granted herein.
 
(vi) Each agreement pursuant to which a Third Party has granted, assigned or
otherwise transferred rights with respect to such Intellectual Property are in
full force and effect, and no Party to such agreements is in breach or default
thereunder, and the execution and performance of this Agreement will not result
in a breach or default thereunder. It has provided a true and complete copy of
each such Third Party agreement to which it is a party to the other Party.
 
12.3 No Adverse Effects. Discovery represents, warrants and covenants to
Chrysalis that as of the Effective Date, the studies of Pulmonary Surfactants
conducted by Discovery prior to the Effective Date have not shown any adverse
effects or toxicity of the Pulmonary Surfactant in humans that could reasonably
be anticipated to frustrate the purposes of this Alliance, and as of the
Effective Date, Discovery has not been informed of any such adverse effects or
toxicity.
 
ARTICLE 13
ADDITIONAL COVENANTS
 
13.1 Compliance with Laws. Each Party shall perform its responsibilities in a
good scientific manner in accordance with the terms of this Agreement and in
compliance in all material respects with the requirements of Laws.
 
13.2 Cooperation. The Parties agree that maintaining effective and open
communication between the Parties on matters relating to the Alliance is
important to the success of the Alliance. Upon reasonably advance notice, each
Party shall make its employees and consultants reasonably available to consult
with the other Party on any aspect of the relationship, including regulatory,
scientific, technical and clinical testing issues and shall provide the other
Party reasonable access to materials relating to the development of Licensed
Products.
 
13.3 Sharing of Information. Subject to applicable Law and privileges and
obligations of confidentiality, the Parties agree to provide the other Party,
upon such other Party’s reasonable request, copies or access to all data,
documentation and work products, including Clinical Trials, relating to any
Licensed Product.
 
ARTICLE 14
DISCLAIMERS AND LIMITATION OF LIABILITY
 
14.1 Disclaimer of Warranties. EXCEPT AS OTHERWISE SPECIFICALLY PROVIDED IN THIS
AGREEMENT, NEITHER PARTY MAKES ANY REPRESENTATIONS OR WARRANTIES, EXPRESS,
IMPLIED, STATUTORY, OR OTHERWISE, CONCERNING THE DEVELOPMENT, COMMERCIALIZATION,
MARKETING, OR SALE OF ANY PRODUCT INCLUDING THE SUCCESS OR POTENTIAL SUCCESS
THEREOF. EXCEPT AS EXPRESSLY SET FORTH HEREIN, EACH PARTY EXPRESSLY DISCLAIMS
ANY AND ALL REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF ANY KIND, EXPRESS OR
IMPLIED, INCLUDING THE WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A
PARTICULAR PURPOSE.
 
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THE PARTIES UNDERSTAND THAT THE LICENSED PRODUCTS ARE THE SUBJECT OF ONGOING
CLINICAL RESEARCH AND DEVELOPMENT AND THAT NEITHER PARTY CAN ASSURE THE SAFETY
OR USEFULNESS OF LICENSED PRODUCTS. NEITHER PARTY MAKES ANY REPRESENTATION OR
WARRANTY EXCEPT AS SET FORTH IN THIS ARTICLE 14 CONCERNING ITS PATENT RIGHTS OR
KNOW-HOW, INCLUDING THE VALIDITY OR SCOPE OF ITS PATENT RIGHTS OR THAT THE
MANUFACTURE, USE OR SALE OF ANY LICENSED PRODUCT WILL NOT INFRINGE THE PATENT
RIGHTS OF THIRD PARTIES.
 
14.2 Limitation of Liability. IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE
OTHER PARTY OR ANY OF ITS PERSONNEL FOR ANY CONSEQUENTIAL, INCIDENTAL, INDIRECT,
SPECIAL, PUNITIVE OR EXEMPLARY DAMAGES (INCLUDING, LOST PROFITS, BUSINESS, OR
GOODWILL) SUFFERED OR INCURRED BY SUCH OTHER PARTY OR ITS AFFILIATES AND THEIR
RESPECTIVE PERSONNEL IN CONNECTION WITH A BREACH OR ALLEGED BREACH OF THIS
AGREEMENT EXCEPT WHERE ATTRIBUTABLE TO A WILLFUL OR INTENTIONAL BREACH OF THIS
AGREEMENT. NOTHING IN THIS SECTION 14.2 IS INTENDED TO, NOR SHALL, LIMIT OR
RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF EITHER PARTY WITH RESPECT
TO THIRD PARTY CLAIMS UNDER THIS ARTICLE 14, OR ANY REMEDIES OR DAMAGES
AVAILABLE FOR BREACHES OF CONFIDENTIALITY OBLIGATIONS IN ARTICLE 11.
 
ARTICLE 15
INDEMNIFICATION; INSURANCE
 
15.1 Indemnification.
 
15.1.1 Obligations of the Parties. Each of the Parties shall defend, indemnify
and hold harmless the other Party, its Affiliates and its and their respective
directors, officers, employees, consultants, contractors, representatives and
agents (collectively, the “Indemnified Parties”) from and against any and all
losses, costs, damages, fees, liabilities, or expenses (including reasonable
attorneys’ fees and expenses) (collectively, “Losses”) incurred in connection
with any Third Party claim, action or proceeding (a “Third Party Claim”) arising
out of or related to:
 
(i) any material breach by the indemnifying Party of any of its representations,
warranties, covenants or obligations pursuant to this Agreement;
 
(ii) any negligence, recklessness, willful misconduct or wrongful intentional
acts or omissions of the indemnifying Party, its Affiliates, or their officers,
directors, employees, contractors, consultants, agents, representatives, or
sublicensees in the exercise of any of the indemnifying Party’s rights or the
performance of any of the indemnifying Party’s obligations under this Agreement,
provided, however, that each Party maintains the right to seek indemnification
pursuant to this Section 15.1.1 with respect to strict liability claims by Third
Parties to the extent that the other Party’s negligence resulted in such strict
liability claim; and
 
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(iii) intellectual property infringement and trade secret misappropriation
liability resulting from acts or omissions by the indemnifying Party, its
Affiliates and sublicensees relating to the development, manufacture, or
commercialization of any Licensed Product.
 
15.1.2 Certain Product Liability Claims. In addition to the indemnity set forth
in Section 15.1.1 above, Discovery shall defend, indemnify and hold harmless
Chrysalis, its Affiliates and its and their respective directors, officers,
employees, consultants, contractors, representatives and agents from and against
any and all Losses incurred in connection with any Third Party Claims arising
out of or relating to the commercialization, marketing, sale, use, handling,
manufacture and/or storage of any Licensed Product, including any claims that
involve death or bodily injury (or allegations thereof) to any individual,
except to the extent such Losses are due to matters for which Chrysalis is
required to provide indemnification pursuant to Section 15.1.1.
 
15.1.3 Complete Indemnification. As the Parties intend complete indemnification,
all direct out of pocket costs and expenses reasonably incurred by an Indemnitee
in connection with enforcement of Section 15.1 shall also be reimbursed by the
Indemnitor.
 
15.2 Indemnification Procedures.
 
15.2.1 Notification. In the case of a Third Party Claim as to which a Party may
be obligated to provide indemnification pursuant to this Agreement (the
“Indemnitor”), such Indemnified Party seeking indemnification hereunder
(“Indemnitee”) will notify the Indemnitor in writing of the Third Party Claim
(and specifying in reasonable detail the factual basis for the Third Party Claim
and to the extent known, the amount of the Third Party Claim) reasonably
promptly after becoming aware of such Third Party Claim; provided, however, that
failure to give such notification will not affect the indemnification provided
hereunder except to the extent the Indemnitor shall have been actually
prejudiced as a result of such failure.
 
15.2.2 Assumption of Defense. If a Third Party Claim is made against an
Indemnitee, the Indemnitor will be entitled, within one hundred twenty (120)
days after receipt of written notice from the Indemnitee of the commencement or
assertion of any such Third Party Claim, to assume the defense thereof (at the
expense of the Indemnitor) with counsel selected by the Indemnitor and
reasonably satisfactory to the Indemnitee, for so long as the Indemnitor is
conducting a good faith and diligent defense. Should the Indemnitor so elect to
assume the defense of a Third Party Claim, the Indemnitor will not be liable to
the Indemnitee for any legal or other expenses subsequently incurred by the
Indemnitee in connection with the defense thereof; provided, however, that if in
the opinion of counsel, such counsel and opinion being satisfactory to
Indemnitor and its counsel, a conflict of interest exists between the Indemnitor
and an Indemnitee in respect of such claim, such Indemnitee shall have the right
to employ separate counsel (which shall be reasonably satisfactory to the
Indemnitor) to represent such Indemnitee with respect to the matters as to which
a conflict of interest exists and in that event, the reasonable fees and
expenses of such separate counsel shall be paid by such Indemnitor; provided
further, that the Indemnitor shall only be responsible for the reasonable fees
and expenses of one (1) separate counsel for such Indemnitee. If the Indemnitor
assumes the defense of any Third Party Claim, the Indemnitee shall have the
right to participate in the defense thereof and to employ counsel, at its own
expense, separate from the counsel employed by the Indemnitor. If the Indemnitor
assumes the defense of any Third Party Claim, the Indemnitor will promptly
supply to the Indemnitee copies of all correspondence and documents relating to
or in connection with such Third Party Claim and keep the Indemnitee informed of
developments relating to or in connection with such Third Party Claim, as may be
reasonably requested by the Indemnitee (including providing to the Indemnitee on
reasonable request updates and summaries as to the status thereof). If the
Indemnitor chooses to defend a Third Party Claim, all Indemnitees shall
reasonably cooperate with the Indemnitor in the defense thereof (such
cooperation to be at the expense, including reasonable legal fees and expenses,
of the Indemnitor). If the Indemnitor does not elect to assume control of the
defense of any Third Party Claim, within the one hundred twenty (120) day period
set forth above, or if such good faith and diligent defense is not being or
ceases to be conducted by the Indemnitor, the Indemnitee shall have the right,
at the expense of the Indemnitor, after three (3) Business Days notice to the
Indemnitor of its intent to do so, to undertake the defense of the Third Party
Claim for the account of the Indemnitor (with counsel selected by the
Indemnitee), and to compromise or settle such Third Party Claim, exercising
reasonable business judgment.
 
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15.2.3 Settlements. The Indemnitee may agree to any settlement, compromise, or
discharge of such Third Party Claim that the Indemnitor may recommend that by
its terms obligates the Indemnitor to pay the full amount of Losses (whether
through settlement or otherwise) in connection with such Third Party Claim and
unconditionally and irrevocably releases the Indemnitee completely from all
liability in connection with such Third Party Claim; provided, however, that,
without the Indemnitee’s prior written consent, the Indemnitor shall not consent
to any settlement, compromise, or discharge (including the consent to entry of
any judgment), and the Indemnitee may refuse in good faith to agree to any such
settlement, compromise, or discharge, that provides for injunctive or other
nonmonetary relief affecting the Indemnitee. The Indemnitee shall not (unless
required by Law) admit any liability with respect to, or settle, compromise, or
discharge, such Third Party Claim without the Indemnitor’s prior written consent
(which consent shall not be unreasonably withheld, conditioned, or delayed).
 
15.3 Insurance. Each Party agrees to obtain and maintain commercial general
liability insurance and/or self-insurance, including prior to the date a
Licensed Product is first administered in humans, commercial general liability
insurance and/or self-insurance for Clinical Trials and products liability, with
reputable and financially secure insurance carriers, in such amounts and subject
to such deductibles as are reasonable and customary in the pharmaceutical
industry for companies of comparable size and activities. Each Party shall
maintain such insurance for so long as Licensed Products in the Territory
continue to be developed, manufactured, or commercialized and thereafter for so
long as is necessary to cover any and all Third Party Claims required to be
indemnified by such Party which Third Party Claims may arise from the
development, manufacture, and/or commercialization of a Licensed Product in the
Territory. Upon reasonable request by a Party, the other Party shall produce
evidence that such insurance policies are valid, kept up to date, and in full
force and effect. The insurance obligations set forth in this Section 15.3 may
be satisfied by commercially reasonable self-insurance or a commercially
reasonable combination of insurance and self-insurance.
 
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ARTICLE 16
TERM
 
This Agreement shall become effective on the Effective Date, and unless
terminated earlier in accordance with the provisions of Article 17 shall expire
as follows as to each Licensed Product in each country in the Territory, on a
country-by-country basis, upon the latest of: (a) the 10th anniversary of the
date of the First Commercial Sale of the Licensed Product; (b) the date on which
the sale of such Licensed Product ceases to be covered by a Valid Claim in such
country, or (c) in consideration of the performance by Chrysalis of development
services without charge, the date a generic form of the product is introduced in
such country (the “Term”).
 
ARTICLE 17
TERMINATION
 
17.1 Termination for Material Breach.
 
17.1.1 Right to Terminate Agreement. If a Party (the “Breaching Party”) commits
a material breach of this Agreement and fails to cure such breach within the
applicable Cure Period (as provided in 17.1.3 below), the other Party (the
“Non-Breaching Party”) may, by written notice of termination within thirty (30)
days after the expiration of the applicable Cure Period, elect to terminate the
Agreement. Without limiting the generality of the foregoing, and notwithstanding
the Cure Period set forth in Section 17.1.3, the practice by Discovery of the
Chrysalis Technology outside the scope of the licenses and sublicenses granted
herein, which practice does not cease within thirty (30) days after the receipt
of written notice of such breach from Chrysalis, shall constitute a material
breach.
 
17.1.2 Right to Terminate Supported Product Development Projects. If a Party
(the “Breaching Party”) commits a material breach of its obligations in
connection with a Supported Product Development Project and fails to cure such
breach within the applicable Cure Period (as provided in 17.1.3 below), the
other Party (the “Non-Breaching Party”) may, by written notice of termination
within thirty (30) days after the expiration of the applicable Cure Period elect
to terminate such Supported Product Development Project and/or any other
Supported Product Development Project that has been affected by such material
breach. In the event that Discovery terminates any Supported Product Development
Project pursuant to this Section 17.1.2 due to a material breach by Chrysalis,
[***]. If such material breach by Chrysalis also constitutes a material breach
of the Agreement, Discovery may, at its option, terminate this Agreement
pursuant to Section 17.1.1. In the event that Chrysalis terminates any Supported
Product Development Project pursuant to this Section 17.1.2 due to a material
breach by Discovery, [***]. If such material breach by Discovery also
constitutes a material breach of the Agreement, Chrysalis may, at its option,
terminate this Agreement pursuant to Section 17.1.1.
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
 
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17.1.3 Applicable Cure Periods. Upon receipt of written notice of a material
breach pursuant to Section 17.1.1 or 17.1.2, and except as otherwise provided
for in Section 17.1.1, the allegedly Breaching Party shall have sixty (60) days
to cure such material breach (the “Cure Period”), provided, however, that in the
case of any material breach that cannot be reasonably cured within the sixty
(60) day cure period, should the Breaching Party deliver to the Non-Breaching
Party a plan for curing such material breach which is reasonably sufficient to
effect a cure and uses commercially reasonable efforts to pursue such plan and
effect a cure, the Cure Period shall be extended for an additional sixty (60)
days.
 
17.2 Termination Due to Certain Events. Without prejudice to any other remedies
available to it at Law or in equity, either Party may, subject to the provisions
set forth herein, terminate this Agreement immediately upon written notice to
the other Party if, at any time, the other Party shall (i) file in any court
pursuant to any statute a petition for bankruptcy or insolvency, or for
reorganization in bankruptcy, or for an arrangement or for the appointment of a
receiver, trustee or administrator of such Party or of its assets, (ii) be
served with an involuntary petition against it, filed in any insolvency
proceeding, and such petition shall not be dismissed within sixty (60) days
after the filing thereof, (iii) propose or be a party to any dissolution, (iv)
make an assignment for the benefit of its creditors; or (v) ceases to do
business in the ordinary course.
 
17.3 Effects of Termination Generally
 
17.3.1 Accrued Obligations; Survival. Upon expiration or termination of this
Agreement, all of the Parties’ rights and obligations under this Agreement
including the exclusive license in Section 3.1 obligations of exclusivity set
forth in Section 3.5 shall terminate immediately except: (a) any rights that
shall have accrued to the benefit of any Party prior to such termination or
expiration, including the right of Chrysalis to receive royalties as provided in
Article 8; and (b) any rights and obligations of the Parties which are expressly
indicated to survive termination or expiration of this Agreement. All of the
Parties’ rights and obligations under, and the provisions contained in [***]
shall survive termination or expiration of this Agreement. [***] 
 
17.3.2 Outstanding Payments. All payments of amounts owing to either Party under
this Agreement as of its expiration or termination shall be due and payable
within the later of (i) to the extent such amounts can be calculated and a fixed
sum determined at the time of expiration or termination of this Agreement, sixty
(60) days after the date of such expiration or termination, and (ii) ten (10)
days after the date in which such amounts can be calculated and a fixed sum
determined.
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
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ARTICLE 18
TECHNOLOGY TRANSFER
 
18.1 Technology Transfer. Commencing [***] after the Effective Date, Chrysalis
shall provide Discovery with a technology transfer reasonable in scope to enable
the practice of the Chrysalis Technology for purposes of exercising the license
rights granted hereunder. Upon expiration or termination of any Supported
Product Development Project other than termination by Chrysalis pursuant to
Section 17.1 or 17.2, Chrysalis shall provide Discovery with an incremental
technology transfer with respect to such Supported Product Development Project
reasonable to enable the practice of the Chrysalis Technology utilized in
connection with such Supported Product Development Project, to the extent such
technology transfer has not previously occurred. 
 
18.2 Transfer of Regulatory Files, Data and Filings. In connection with the
technology transfer contemplated pursuant to Section 18.1, Chrysalis shall
provide to Discovery or its designee, a copy of all governmental or regulatory
correspondence, conversation logs, filings, and approvals relating to the
development, manufacture or commercialization of the Licensed Product (including
study protocols, study results, analytical methodologies, validation
documentation, and regulatory documentation) that are reasonably necessary for
the continued development and sale of the Licensed Product. Chrysalis shall also
provide to Discovery copies of and permit Discovery to reference in connection
with any Licensed Products all reasonably necessary Regulatory Data relating to
Licensed Product to continue the development, marketing and sale of the Licensed
Product. From and after such time, all such Regulatory Data and information
provided to Discovery shall remain Confidential Information of Chrysalis,
provided, however, that Discovery may use all such Regulatory Data and
information solely for the purposes of continuing to pursue the development and
commercialization of Licensed Products. Chrysalis shall execute all documents
and take all such further actions as may be reasonably requested by Discovery
and required in order to give effect to the foregoing.
 
ARTICLE 19
STANDSTILL AGREEMENT
 
19.1 General Standstill. Except as set forth in this Section 19.1, Chrysalis
hereby agrees that, without the written consent of Discovery, during the Term
and for a [***] period beginning on the date of termination of this Agreement
for any reason, neither Chrysalis nor any of its Affiliates will (nor assist or
encourage others to), directly or indirectly, without the written consent of
Discovery: (i) acquire, or agree to acquire, directly or indirectly, alone or in
concert with others, by purchase, gift, or otherwise, any direct or indirect
beneficial ownership (within the meaning of Rule 13d-3 under the Securities
Exchange Act of 1934, as amended (the “Exchange Act”), or interest in any
securities or direct or indirect rights, warrants, or options to acquire, or
securities convertible into or exchangeable for, any securities of Discovery;
(ii) directly or indirectly effect or seek, initiate, offer, or propose or
participate in any (A) tender or exchange offer, merger, consolidation, or other
business combination involving Discovery, or (B) any recapitalization,
restructuring, liquidation, dissolution, sale of all or substantially all the
assets, or other extraordinary transaction with respect to Discovery; (iii)
make, or in any way participate in, directly or indirectly, alone or in concert
with others, any “solicitation” of “proxies” to vote (as such terms are used in
the proxy rules of the SEC promulgated pursuant to Section 14 of the Exchange
Act); (iv) form or become a member of a “group” (as defined under the Exchange
Act) with respect to any voting securities of Discovery (including by depositing
any securities of Discovery in a voting trust or by subjecting any securities of
Discovery to any other arrangement or agreement with respect to the voting of
such securities); or (v) enter into any agreements, discussions, or arrangements
with any Third Party with respect to any of the foregoing. 
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
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19.2 Certain Exceptions. Nothing in this Article 19 shall prohibit Chrysalis’ or
its Affiliates’ employees from purchasing securities of Discovery pursuant to
(i) a pension plan established for the benefit of Chrysalis’ or its Affiliates’
employees, (ii) any employee benefit plan of Chrysalis or its Affiliates, (iii)
any stock portfolios not controlled by Chrysalis or any of its Affiliates that
invest in Discovery among other companies, or (iv) de minimis passive
investments not to exceed five percent (5%) of Discovery’s outstanding voting
securities. 
 
19.3 Exception for an Acquisition Transaction. This Article 19 shall terminate
(subject to revival as provided below) and Chrysalis and its Affiliates shall
have the right to acquire any securities of Discovery without regard to the
limitations set forth in this Article 19 in the event that Discovery publicly
announces a transaction, an intention or desire to effect any transaction, or
the receipt of any offer, which would result in (a) the sale of all or
substantially all of the assets of Discovery within the meaning of Section 271
of the Delaware General Corporation Law, or (b) Discovery common shareholders
immediately prior to such transaction owning less than fifty percent (50%) of
the outstanding common stock of the acquiring entity or, in the case of a merger
transaction, the surviving corporation (an “Acquisition Transaction”). If the
proposed Acquisition Transaction has not been consummated within six (6) months
following Discovery’s public announcement in respect thereof, the provisions of
this Article 19 shall be revived and have full force and effect until such time
as Discovery makes a subsequent public announcement regarding an Acquisition
Transaction, at which time the provisions of this Article 19 shall once again
apply.
 
19.4 Other Agreements. Notwithstanding anything in this Agreement to the
contrary, Discovery agrees that if, subsequent to the date hereof and prior to
the end of the [***] period following the Term, any other party which becomes a
licensee of Discovery patents or other technology does not agree to the terms
contained in this Article 19, or agrees to terms that are materially less
restrictive to such other party than those contained in this Article 19, then
Discovery will so notify Chrysalis, and will as appropriate describe in such
notice any such less restrictive terms and, if Chrysalis elects, the provisions
of this Article 19 will be deemed to have been modified to delete the provisions
of this Article 19 or to provide Chrysalis with the benefit of such materially
less restrictive terms, as appropriate.
 
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.
 
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ARTICLE 20
DISPUTE RESOLUTION
 
20.1 Dispute Resolution. Except as expressly otherwise provided in this
Agreement, any material dispute, difference, claim, action, demand, request,
investigation, controversy, threat or other question arising out of or relating
to the interpretation of any provisions of this Agreement or the failure of any
Party to perform or comply with any obligations or conditions applicable to such
Party pursuant to this Agreement unresolved by the Steering Committee (a
“Dispute”) shall be settled in accordance with the provisions of this Article
20; provided, however, that after the expiration or termination of this
Agreement, such Disputes shall be referred directly to the senior executives of
the Parties as provided for in Section 20.2. If a Party intends to initiate
executive negotiation, mediation or arbitration (as set forth below) to resolve
a Dispute, such Party shall provide written notice to the other Party informing
such other Party of such intention and the issues to be resolved.
 
20.2 Escalation and Executive Negotiation. Any dispute or disagreement between
the representative of Discovery and Chrysalis on the Project Team as to matters
within such Project Team’s jurisdiction shall, at the election of either Party,
be addressed, first, with the Alliance Managers, and if the dispute is not
resolved within ten (10) Business Days after such referral to the Alliance
Managers, then it shall, at the election of either Party, be submitted to the
Steering Committee for resolution, provided however that after the expiration or
termination of this Agreement, such disputes shall be referred directly to the
senior executives of the Parties as provided for in this Section 20.2. The
Steering Committee shall attempt in good faith to resolve any issues presented
to it. If the Steering Committee, after acting in good faith and in a diligent
manner, is unable to resolve any Dispute submitted to it within a reasonable
period of time and in any event within thirty (30) days of such submission, such
matter shall, at the election of either Party, be referred for good faith
negotiation to a senior executive of each Party.
 
20.3 Mediation. If the senior executives referenced in Section 20.2 are unable
to resolve any such Dispute within ten (10) Business Days, either Party may,
upon written notice to the other Party, refer such Dispute to mediation. Upon
such written notice, the Parties shall mutually agree on a mediator to assist in
the negotiations. If the Parties fail to mutually agree on a mediator within one
week of the written notice, a mediator shall be appointed by the AAA. The Party
responsible for referring the Dispute to mediation shall bear the costs of such
mediation. Any settlement reached by mediation shall be resolved in writing,
signed by the Parties, and shall be binding on them.
 
20.4 Arbitration.  
 
20.4.1 Referral to Arbitration. In the event that a Dispute is not resolved
during mediation within thirty (30) days of the selection of a mediator, either
Party may refer such Dispute to final and binding arbitration by sending written
notice of such election to the other Party clearly marked “Arbitration Demand,”
whereupon such Dispute shall be arbitrated in accordance with this Section 20.4.
 
20.4.2 Rules and Procedures. Except as expressly otherwise provided in this
Agreement, any Dispute shall be finally settled by arbitration under the
then-current expedited procedures applicable to the then-current Commercial
Arbitration Rules of the AAA in accordance with the terms set forth in this
Section 20.4. The arbitration of any Dispute shall be kept confidential and
shall be filed with the office of the AAA located in Washington, D.C. or such
other AAA office as the Parties may agree. Such arbitration shall be conducted
by three arbitrators, one appointed by each of Chrysalis and Discovery and the
third selected by the first two appointed arbitrators. Each arbitrator shall be
a person with relevant experience in the pharmaceutical industry. Chrysalis and
Discovery must make their respective arbitrator appointments within ten (10)
Business Days of notice being given to a Party by the other Party of its
intention to resolve such Dispute through arbitration. Such appointed
arbitrators shall select the third arbitrator within ten (10) Business Days of
the last to occur of their respective appointments. Chrysalis and Discovery
shall instruct such arbitrators to render a determination of any such Dispute
within sixty (60) days after the appointment of the third arbitrator. All
Disputes shall be resolved by submission of documents unless the arbitration
panel determines that an oral hearing is necessary.
 
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20.4.3 Awards. The decision of the arbitrators with respect to any Dispute shall
be in writing and state the findings, facts and conclusions of law upon which
the decision is based. Any such decision and award rendered by the arbitrators
shall be final and binding upon the Parties. Judgment upon any award rendered
may be entered in any court having jurisdiction, or application may be made to
such court for a judicial acceptance of the award and an order of enforcement,
as the case may be. Each Party submits itself to the jurisdiction of any such
court for the entry and enforcement to judgment with respect to the decision of
the arbitrators hereunder. The arbitrators shall have the power to grant all
legal and equitable remedies except specific performance and award compensatory
damages provided by applicable law, but shall not have the power or authority to
award punitive damages. No Party shall seek punitive damages or specific
performance in relation to any matter under, arising out of, or in connection
with or relating to this Agreement in any other forum, provided however, that
the foregoing does not preclude suits or limit damages associated with
infringement.
 
20.4.4 Costs. Each Party shall pay its own expenses of arbitration, and the
expenses of the arbitrators shall be equally shared between Chrysalis and
Discovery unless the arbitrators assess as part of their award all or any part
of the arbitration expenses of a Party or Parties (including reasonable
attorneys’ fees) against the other Party or Parties, as the case may be.
 
20.4.5 No Other Forum. Except as provided in Section 20.5, the provisions of
this Section 20.4 shall be a complete defense to any suit, action or proceeding
instituted in any federal, state or local court or before any administrative
tribunal with respect to any Dispute arising under this Agreement. Any Party
commencing a lawsuit in violation of this Section 20.4 shall pay the costs of
the other Party, including, without limitation, reasonable attorney’s fees and
defense costs.
 
20.5 Right to Injunctive and Other Relief. Nothing in this Agreement, shall
prohibit either Party from seeking injunctive relief from a court of competent
jurisdiction in the event of a breach or prospective breach of this Agreement by
the other Party which would cause irreparable harm to the first Party. Nothing
in this Agreement shall prevent a Party from seeking any remedies available at
law or in equity in any court of competent jurisdiction in the event of the
practice of such Party’s Intellectual Property outside the scope of the rights
granted herein. 
 
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ARTICLE 21
MISCELLANEOUS
 
21.1 Choice of Law. This Agreement shall be governed by and interpreted under,
and any action or proceeding shall apply, the Laws of the State of New York
excluding (i) its conflicts of Laws principles, other than Section 5-1401 of the
New York General Obligations Law (ii), the United Nations Conventions on
Contracts for the International Sale of Goods and (iii) the 1974 Convention on
the Limitation Period in the International Sale of Goods and any Protocols
thereto, done at Vienna, April 11, 1980.
 
21.2 Severability. If, under Law, any provision of this Agreement is invalid or
unenforceable, or otherwise directly or indirectly affects the validity of any
other material provision(s) of this Agreement, this Agreement shall endure
except for such provision. The Parties shall consult one another and use their
best efforts to agree upon a valid and enforceable provision that is a
reasonable substitute for such invalid or unenforceable provision in view of the
intent of this Agreement.
 
21.3 Relationship of the Parties. Each Party shall bear its own fees, expenses,
and disbursements, including the fees and expenses of their respective counsel,
accountants, bankers, and other experts, in connection with the subject matter
of this Agreement and costs incurred in the performance of its obligations
hereunder without charge or expense to the other except as expressly provided in
this Agreement. Neither Party shall have any responsibility for the hiring,
termination or compensation of the other Party’s employees or for any employee
benefits of such employee. No employee or representative of a Party shall have
any authority to bind or obligate the other Party to this Agreement for any sum
or in any manner whatsoever, or to create or impose any contractual or other
liability on the other Party without said Party’s approval. For all purposes,
and notwithstanding any other provision of this Agreement to the contrary, the
Parties’ legal relationship under this Agreement shall be that of independent
contractors. This Agreement is not a partnership agreement and nothing in this
Agreement shall be construed to establish a partnership, joint venture, agency,
or employer-employee relationship between the Parties.
 
21.4 Parties in Interest. This Agreement shall be binding upon and inure to the
benefit of and be enforceable by the respective legal representatives,
successors, and permitted assigns of the Parties hereto. Nothing in this
Agreement, express or implied, is intended to confer on any Person other than
the Parties hereto, or their respective successors and assigns, any rights,
remedies, obligations, or liabilities under or by reason of this Agreement.
 
21.5 Enforcement of Certain Agreements. Each Party shall use commercially
reasonable efforts at its expense to enforce the provisions of any
confidentiality agreements and agreements with respect to noncompetition
existing as of the Effective Date with any of its present or former employees,
agents, consultants or independent contractors of Discovery that relate to any
Licensed Product; provided, however, that the obligation with respect to any
agreement related to this Section 21.5 shall terminate as of the date on which
such agreement and the obligations regarding noncompetition have terminated or
expired in accordance with its terms.
 
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21.6 Use of Affiliates, Subcontractors, Sublicensees and Distributors. Each
Party shall have the right to use Affiliates, subcontractors, sublicensees and
distributors in exercising its rights and carrying out its obligations under
this Agreement, provided, however, that (i) such entities agree in writing to be
bound by the provisions of Article 11, (ii) the use of such entities does not in
any way materially diminish the other Party’s rights or otherwise modify the
other Party’s rights or obligations hereunder without such other Party’s prior
written consent, (iii) Discovery may not delegate, sublicense, assign, or
otherwise transfer any of its rights or obligations hereunder to any entity
(including any Affiliate) that competes with any tobacco product of Chrysalis or
its Affiliates or a company engaged in the development or sale of Aerosol
Technologies without Chrysalis’ prior written consent, (iv) Chrysalis may not
delegate, assign or otherwise transfer any of its rights or obligations
hereunder to a company engaged in pulmonary critical care medicine, without
Discovery’s prior written consent and (v) except with respect to rights,
benefits and obligations assigned as permitted pursuant to Section 21.7, each
Party shall be liable for any actions or omissions of its Affiliates,
subcontractors, sublicensees and distributors in connection with this Agreement
and the Intellectual Property and Confidential Information of the other Party to
the same extent as if such actions or omissions were conducted by the Party
itself. 
 
21.7 Assignment. Chrysalis may assign or otherwise transfer this Agreement or
any or all right, benefit or obligation hereunder (whether by operation of Law
or otherwise) to any Affiliate of Chrysalis without the prior written consent of
Discovery subject only to the limitations set forth in Section 21.6 (iv) above.
Discovery may assign or otherwise transfer this Agreement or any or all right,
benefit or obligation hereunder (whether by operation of Law or otherwise) to
any Affiliate of Discovery without the prior written consent of Chrysalis,
subject only to the limitations set forth in Section 21.6 (iii) above, provided,
however, notwithstanding such an assignment, Discovery shall remain responsible
for the performance of the indemnification obligations set forth herein. No
Party may assign or otherwise transfer this Agreement or any or all right,
benefit or obligation hereunder (whether by operation of Law or otherwise) to
any other Person other than an Affiliate without the prior written consent of
the other Party, which consent shall not be unreasonably withheld, conditioned,
or delayed; except that, subject to the limitations set forth in Section 21.6
(iii) and (iv) above, either Party may assign or otherwise transfer any or all
of its rights and interests hereunder in connection with the sale of all or
substantially all of its assets or business to which this Agreement relates,
whether by way of merger, sale of stock, sale of assets or other similar
transaction, provided that the assignee or transferee expressly agrees to assume
all of the obligations hereunder.
 
21.8 Further Assurances and Actions. From time to time after the Effective Date,
Discovery and Chrysalis shall execute, acknowledge and deliver to each other any
further documents, assurances, and other matters, and will take any other action
consistent with the terms and conditions of this Agreement, that may reasonably
be requested by a Party and necessary or desirable to carry out the purpose and
intent of this Agreement. Chrysalis and Discovery shall cooperate and use all
reasonable efforts to make all other registrations, filings, and applications,
to give all notices, and to obtain as soon as practicable all governmental or
other consents, transfers, approvals, orders, qualifications, authorizations,
permits, and waivers, if any, and to do all other things necessary or desirable
for the consummation of this Agreement.
 
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21.9 Waiver. Any term or condition of this Agreement may be waived at any time
by the Party that is entitled to the benefit thereof, but no such waiver shall
be effective unless set forth in a written instrument duly executed by or on
behalf of the Party waiving such term or condition. No waiver by any Party of
any term or condition of this Agreement, in any one or more instances, shall be
deemed to be or construed as a waiver of the same or any other term or condition
of this Agreement on any future occasion. Except as expressly set forth in this
Agreement, all rights and remedies available to a Party, whether under this
Agreement or afforded by Law or otherwise, will be cumulative and not in the
alternative to any other rights or remedies that may be available to such Party.
 
21.10 Section 365(n) of the Bankruptcy Code. All rights and licenses granted
under or pursuant to any section of this Agreement are, and shall otherwise be
deemed to be, for purposes of Section 365(n) of the Bankruptcy Reform Act of
1978, 11 U.S.C. §§ 101 et seq., as amended (the “Bankruptcy Code”), licenses of
rights to “intellectual property” as defined under Section 101(35A) of the
Bankruptcy Code. The Parties shall retain and may fully exercise all of their
respective rights and elections under Section 365(n) of the Bankruptcy Code.
 
21.11 Notices. All notices that are required or permitted hereunder shall be in
writing and shall be sufficient if personally delivered or sent by mail or
Federal Express or other delivery service. Any notices shall be deemed given
upon the earlier of the date when received at, or the third day after the date
when sent by registered or certified mail or the day after the date when sent by
Federal Express to, the address set forth below, unless such address is changed
by notice to the other Parties hereto:
 
If to Chrysalis:
 
Chrysalis Technologies
615 Maury Street
Richmond, VA 23224
Attention: Timothy Beane
 

If to Discovery:
 
Discovery Laboratories, Inc.
2600 Kelly Road, Suite 100
Warrington, PA 18976
Attention : David L. Lopez, Esq., CPA

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with a copy to:
 
Dickstein Shapiro Morin & Oshinsky, LLP
1177 Avenue of the Americas, 47th Fl
New York, NY 10036
Attention: Ira L. Kotel, Esq.
 
21.12 Construction. Unless the context of this Agreement clearly requires
otherwise, (i) references to any gender include all genders, (ii) “or” has the
inclusive meaning frequently identified with the phrase “and/or,” (iii)
“including” has the inclusive meaning frequently identified with the phrase
“including but not limited to” or “including without limitation”, and (iv)
references to “hereunder” or “herein” relate to this Agreement and (v) all terms
defined in the singular shall have the same meaning in the plural and visa
versa. The section and other headings contained in this Agreement are for
reference purposes only and shall not control or affect the construction of this
Agreement or the interpretation thereof in any respect. Section, subsection,
Schedule and Exhibit references are to this Agreement unless otherwise
specified. Each accounting term used herein that is not specifically defined
herein shall have the meaning given to it under GAAP.
 
21.13 Registration and Filing of this Agreement. To the extent, if any, that
either Party concludes in good faith that it or the other Party is required to
file or register this Agreement or a notification thereof with any Regulatory
Authority, including the SEC or the U.S. Federal Trade Commission, in accordance
with Law, such Party shall inform the other Party thereof. Should both Parties
jointly agree that either of them is required to submit or obtain any such
filing, registration or notification, they shall cooperate, each at its own
expense, in such filing, registration or notification and shall execute all
documents reasonably required in connection therewith. In such filing,
registration or notification, the Parties shall request confidential treatment
of sensitive provisions of this Agreement, to the extent permitted by Law. The
Parties shall promptly inform each other as to the activities or inquiries of
any such Regulatory Authority relating to this Agreement, and shall reasonably
cooperate to respond to any request for further information therefrom on a
timely basis.
 
21.14 Force Majeure. No Party shall be held liable or responsible to the other
Party nor be deemed to be in default under, or in breach of any provision of,
this Agreement for failure or delay in fulfilling or performing any obligation
of this Agreement when such failure or delay is due to Force Majeure, and
without the fault or negligence of the Party so failing or delaying. For
purposes of this Agreement, Force Majeure is defined as causes beyond the
control of the Party, including, without limitation, acts of God; acts,
regulations, or laws of any government; war; civil commotion; destruction of
production facilities or materials by fire, flood, earthquake, explosion or
storm; labor disturbances; epidemic; and failure of public utilities or common
carriers. In such event Discovery or Chrysalis, as the case may be, shall
immediately notify the other Party of such inability and of the period for which
such inability is expected to continue. The Party giving such notice shall
thereupon be excused from such of its obligations under this Agreement as it is
thereby disabled from performing for so long as it is so disabled and the thirty
(30) days thereafter. To the extent possible, each Party shall use reasonable
efforts to minimize the duration of any Force Majeure.
 
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21.15 Entire Agreement. This Agreement constitutes the entire agreement between
the Parties with respect to the subject matter and supersedes all previous
agreements and understandings between the Parties, whether written or oral. This
Agreement may be altered, amended or changed only by a writing making specific
reference to this Agreement and signed by duly authorized representatives of
Discovery and Chrysalis.
 
21.16 Third Party Beneficiaries. Except for any Third Party Indemnities under
Article 15, none of the provisions of this Agreement shall be for the benefit of
or enforceable by any Third Party, including any creditor of either Party
hereto, and no such Third Party (except for such Indemnitees, as such) shall
obtain any right under any provision of this Agreement or shall by reasons of
any such provision make any claim in respect of any debt, liability or
obligation (or otherwise) against either Party hereto.
 
21.17 Execution in Counterparts; Facsimile Signatures. This Agreement may be
executed in counterparts, each of which counterparts, when so executed and
delivered, shall be deemed to be an original, and both of which counterparts,
taken together, shall constitute one and the same instrument even if both
Parties have not executed the same counterpart. Signatures provided by facsimile
transmission shall be deemed to be original signatures.
 
[Signature Page Follows]

50

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IN WITNESS WHEREOF, this Agreement has been executed by the Parties hereto as of
the day and year first written above.

       
PHILIP MORRIS USA INC.,
d/b/a CHRYSALIS TECHNOLOGIES
 
   
   
    By:   /s/ John R. Nelson  

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Name: John R. Nelson
Title: President, Operations and Technology

        DISCOVERY LABORATORIES, INC.  
   
   
    By:   /s/ Robert J. Capetola  

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Name: Robert J. Capetola, Ph.D.
Title: President and Chief Executive Officer

 

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