Exhibit 10.5
 
 Confidential Treatment Requested
 
Execution Version

 
LICENSE AGREEMENT
 
by and between

DISCOVERY LABORATORIES, INC.
(a Delaware corporation)

and

PHILIP MORRIS PRODUCTS S.A.
(a Switzerland corporation)
 
March 28, 2008
 

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 TABLE OF CONTENTS
 

 
Page 

   
ARTICLE 1 DEFINITIONS
1 
    ARTICLE 2 LICENSE  

 2.1
License
8
 2.2
Limitations
9
 2.3
Sublicensing Rights
9
 2.4
Retained Rights
10

   
ARTICLE 3 PRODUCT DEVELOPMENT
10
 3.1
Licensed Product Development and No PMPSA Obligations With Respect to the
   
Development of Licensed Products
10
 3.2
Notice of Development of Licensed Products
10
 3.3
Development Effort
10
 3.4
Costs
10
 3.5
Design Configurations
10
 3.6
Status Updates
11
   
ARTICLE 4 COMMERCIALIZATION
11
 4.1
Exclusive Right to Sell the Licensed Products
11
 4.2
Responsibility For Commercialization Matters
11
 4.3
Commercialization
11
 4.4
Status Updates
11
   
ARTICLE 5 REGULATORY MATTERS
12
 5.1
Responsibility and Consultation
12
 5.2
Regulatory Updates and Communications
12
 5.3
Records
12
 5.4
Product Liability Litigation
12
   
ARTICLE 6 FINANCIAL PROVISIONS
12
 6.1
Royalties with Respect to Licensed Products and Substitute Products
12
 6.2
Minimum Royalties
13
 6.3
Prohibition on Bundling
13
 6.4
Fixed Consideration
13
 6.5
Treatment of Partial Product Sales
14
 6.6
Royalty Reports
14
 6.7
Payment of Estimated and Actual Amounts
14
 6.8
Pass-Through Royalties
14
 6.9
Records and Audits
14
 6.10
Foreign Exchange
15
 6.11
Manner of Payments
16
 6.12
Late Payments
16
 6.13
Tax Withholding
16
   
ARTICLE 7 INTELLECTUAL PROPERTY
16
 7.1
Ownership
16
 7.2
Disclosure, Assignment, License and Exploitation
17
 7.3
Agreement with Personnel
17
 7.4
Prosecution of Patents
18

 
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 7.5
Patent Term Extensions
18
 7.6
Third Party Infringement
18
 7.7
Infringement of Third Party Rights
19
 
 
ARTICLE 8 CONFIDENTIAL INFORMATION
20
 8.1
Use of Confidential Information
20
 8.2
Permitted Disclosure and Use
21
 8.3
Disclosure for SEC Filings
22
 8.4
Publications
22
 8.5
Public Announcements
22
 8.6
Survival
23
 
 
ARTICLE 9 REPRESENTATIONS, WARRANTIES AND COVENANTS
23
 9.1
Mutual Representations and Warranties
23
 9.2
Intellectual Property
23
 9.3
No Adverse Effects
24
   
ARTICLE 10 ADDITIONAL COVENANTS
25
 10.1
Compliance with Laws
25
 10.2
Cooperation
25
 10.3
Sharing of Information
25
   
ARTICLE 11 DISCLAIMERS AND LIMITATION OF LIABILITY
26
 11.1
Disclaimer of Warranties
26
 11.2
Limitation of Liability
26
 
 
ARTICLE 12 INDEMNIFICATION; INSURANCE
27
 12.1
Indemnification
27
 12.2
Indemnification Procedures
28
 12.3
Insurance
29
 
 
ARTICLE 13 TERM
30
 
 
ARTICLE 14 TERMINATION
30
 14.1
Termination by Discovery
30
 14.2
Termination Due to Failure to Meet Minimum Royalties
30
 14.3
Termination for Material Breach
30
 14.4
Termination Due to Certain Events
31
 14.5
Effects of Termination Generally
31
   
ARTICLE 15 STANDSTILL AGREEMENT
31
 15.1
General Standstill
31
 15.2
Certain Exceptions
32
 15.3
Exception for an Acquisition Transaction
32
 
 
ARTICLE 16 DISPUTE RESOLUTION
32
 16.1
Dispute Resolution
32
 16.2
Executive Negotiation
33
 16.3
Mediation
33
 16.4
Arbitration
33
 16.5
Right to Injunctive and Other Relief
34
   
ARTICLE 17 MISCELLANEOUS
34
 17.1
Choice of Law
34
 17.2
Severability
34

 
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17.3
Relationship of the Parties
35
17.4
Parties in Interest
35
17.5
Enforcement of Certain Agreements
35
17.6
Use of Affiliates, Subcontractors, Sublicensees and Distributors
35
17.7
Assignment
36
17.8
Further Assurances and Actions
36
17.9
Waiver
36
17.10
Section 365(n) of the Bankruptcy Code
36
17.11
Notices
37
17.12
Construction
37
17.13
Registration and Filing of this Agreement
37
17.14
Force Majeure
38
17.15
Entire Agreement
38
17.16
Third Party Beneficiaries
38
17.17
Execution in Counterparts; Facsimile Signatures
38

 
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LICENSE AGREEMENT
 
THIS LICENSE AGREEMENT effective as of March 28, 2008 (the “Effective Date”) by
and between DISCOVERY LABORATORIES, INC., a Delaware corporation (“Discovery”),
and Philip Morris Products S.A., a Switzerland corporation (“PMPSA”). Discovery
and PMPSA shall be referred to herein individually as a “Party” and collectively
as the “Parties”.
 
WHEREAS, Discovery and Philip Morris USA Inc., Chrysalis Technologies Division,
(“Chrysalis”) entered into a Strategic Alliance Agreement effective December 9,
2005 (the “Original Agreement”) pursuant to which Chrysalis granted to Discovery
a worldwide license under its rights in and to its capillary aerosol generation
technology to develop certain combination drug-device pulmonary surfactant
products;
 
WHEREAS, Chrysalis has assigned to PMPSA all rights outside of the United States
in and to its capillary aerosol generation technology (the “Assigned Rights”);
and
 
WHEREAS, Chrysalis and Discovery are amending and restating the Original
Agreement as of the Effective Date to reflect such assignment of rights to PMPSA
and to cease Chrysalis’ active involvement in the development of such
combination drug-device pulmonary surfactant products (the “Amended and Restated
Chrysalis/Discovery Agreement”); and
 
WHEREAS, PMPSA and Discovery desire to enter into a license agreement pursuant
to which PMPSA will grant to Discovery a license under the Assigned Rights;
 
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:
 
“AAA” means the American Arbitration Association.
 
“Actual Amount” has the meaning set forth in Section 6.7.2.
 
[***]  
 
“Aerosol Device” means a device to aerosolize 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.
 
“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.
 

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  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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“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, “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. For the purposes
of this Amended and Restated License Agreement, Chrysalis and PMPSA shall not be
considered Affiliates with respect to each other.
 
“Agreement” means this License Agreement, including the Schedules attached
hereto.
 
“Breaching Party” has the meaning set forth in Section 14.3.1.
 
“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.
 
“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.
 
“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 Agreement 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.
 
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“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.
 
“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.
 
“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.
 
“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.
 
“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.
 
“Discovery” has the meaning set forth in the Preamble hereto.
 
“Discovery Intellectual Property” has the meaning set forth in Section 7.1.2.
 
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“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.
 
“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.
 
“Discovery Technology Improvements” means any Inventions created or reduced to
practice [***] in the performance of the Agreement or exercise of the license
granted pursuant to this Agreement, which Inventions relate primarily to
Pulmonary Surfactants (alone or in combination with  [***]).
 
“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.
 
“Dispute” has the meaning set forth in Section 16.1.
 
“Dollars” and “$” means, unless otherwise specified, United States Dollars.
 
“Drug Product” means a pharmacological agent(s), including Pulmonary
Surfactants, together with any excipients or inactive ingredients, formulated
for use in connection with an Aerosol Device or Disposable Dose Packet.
 
“Effective Date” has the meaning set forth in the Preamble hereto.
 
“Estimated Amount” has the meaning set forth in Section 6.7.1.
 
[***]  
 
“Exchange Act” has the meaning set forth in Section 15.1.
 
“Exclusive Field” means the therapeutic or preventative use in humans of Aerosol
Technology to deliver Pulmonary Surfactants (alone or in combination with [***]
as an active ingredient for the prevention or treatment of Respiratory
Indications.
 
“FDA” shall mean the United States Food and Drug Administration, and any
successor agency.
 

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  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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“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.
 
“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).
 
“GAAP” means generally accepted accounting principles in the United States of
America.
 
“Hospital Setting” means a (i) hospital-setting in the delivery room, NICU,
PICU, CCU, emergency department, surgical care unit and/or intermediate care
unit, (ii) emergency and specialized medical treatment centers, such as birthing
centers, treatment centers for chronic diseases, trauma centers and other
similar facilities, and (iii) an institution setting which is used to provide
long-term care for people with chronic illness or disability, including hospice
settings and nursing homes.
 
“Indemnitee” has the meaning set forth in Section 12.2.1.
 
“Indemnitor” has the meaning set forth in Section 12.2.1.
 
“Infringement Notice” has the meaning set forth in Section 7.6.1.
 
“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.
 
“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).
 
“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.
 
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“Licensed Product” means a combination drug-device product using or otherwise
practicing the PMPSA Technology and delivering Pulmonary Surfactants (alone or
in combination with [***]).  
 
“Losses” has the meaning set forth in Section 12.1.1.
 
“Major Markets” means [***]. 
 
“Marketing Authorization” means, with respect to each country in the Territory,
the principal Regulatory Approval required to market the Licensed Product in
such country (e.g., the NDA), including satisfactory pricing and reimbursement
approval, when applicable.
 
“NDA” shall mean 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.
 
“Net Sales” means, with respect to Licensed Products and Substitute Products, as
applicable, sold by Discovery, its Affiliates and sublicensees in the Territory,
the [***] amount [***] for Licensed Products or Substitute Products, as
applicable, by Discovery, its Affiliates, and any sublicensees of Discovery in
arms-length, commercial transactions in the Territory 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.
 
“Non-Breaching Party” has the meaning set forth in Section 14.3.1.
 
“Other Product” has the meaning set forth in Section 2.1.2.
 
“Party” and “Parties” have the meanings set forth in the Preamble hereto.
 
“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.
 
“Person” means any natural person, corporation, company, partnership, limited
liability company, proprietorship, trust or estate, joint venture, association,
or other legal entity.
 

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  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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“PMPSA” has the meaning set forth in the Preamble hereto.
 
“PMPSA Intellectual Property” has the meaning set forth in Section 7.1.1.
 
“PMPSA Patents” means all Patents owned by PMPSA in the Territory or to which
PMPSA otherwise has rights in the Territory, as of the Effective Date, that
claim or are directed to the PMPSA Technology.
 
“PMPSA Technology” means (a) PMPSA’s proprietary Aerosol Technology owned or
controlled by PMPSA in the Territory as of the Effective Date (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 PMPSA in the Territory as of the Effective Date
relating to such Aerosol Technology, including, without limitation, the PMPSA
Patents.
 
“PMPSA Technology Improvements” means any rights in the Territory in and to any
Inventions created or reduced to practice [***] in the performance of the
Agreement or exercise of the license granted pursuant to this Agreement, or
[***] under the Amended and Restated Chrysalis/Discovery Agreement or in the
exercise of the license granted pursuant to the Amended and Restated
Chrysalis/Discovery Agreement, in each case which Inventions relate primarily to
the PMPSA Technology.   
 
“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. 
 
“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.
 
“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.
 
“Respiratory Indications” means all respiratory dysfunctions, failures,
syndromes, diseases, disorders, or conditions.
 
“Royalty Credit” has the meaning set forth in Section6.7.2.
 

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   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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“Royalty Report” means the reports to be delivered by Discovery to PMPSA
pursuant to Section 6.6 with respect to each Contract Month and pursuant to
Section 6.7 with respect to each Contract Quarter, which reports shall give such
particulars of each of the Licensed Products and Substitute Products sold by
Discovery and its Affiliates and sublicensees during the preceding Contract
Month in the Territory in the case of Section 6.6 and during the preceding
Contract Quarter in the case of Section 6.7 on a country-by-country basis as are
reasonably pertinent to perform an accounting of royalties under this Agreement.
 
“SEC” has the meaning set forth in Section 8.3.
 
“Substitute Product” means any Aerosol Device, Disposable Dose Packet or Drug
Product (other than a Licensed Product) sold by Discovery, its Affiliates and
sublicensees for use within the Exclusive Field.  
 
“Target Indications” means the following Respiratory Indications: [***].
 
“Target Populations” means human patients [***] receiving forms of treatment for
the applicable Respiratory Indication that are typically and principally
provided [***].
 
“Taxes” has the meaning set forth in Section 6.13.
 
“Term” has the meaning set forth in Article 13.
 
“Territory” means all countries in the world, except the United States of
America and its territories and possessions, including the Commonwealth of
Puerto Rico, Guam, U.S. Virgin Islands, American Samoa, and Northern Mariana
Islands. 
 
“Third Party” means any Person other than PMPSA or Discovery or their respective
Affiliates.
 
“Third Party Claim” has the meaning set forth in Section 12.1.1.
 
“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.
 
ARTICLE 2
LICENSE
 
2.1  License.
 

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  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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2.1.1  Exclusive License. Subject to the terms, conditions, and limitations of
this Agreement, PMPSA hereby grants to Discovery an exclusive right and
royalty-bearing license or sublicense, as applicable, in the Territory, with the
right to grant sublicenses solely as set forth in Section 2.3, under the PMPSA
Technology and PMPSA Technology Improvements to make and have made, to use and
have used, to develop and have developed, 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.
 
2.1.2  Non-Exclusive, Research License. Subject to the terms, conditions, and
limitations of this Agreement, PMPSA hereby grants to Discovery a non-exclusive,
royalty-free, research only license or sublicense, as applicable, in the
Territory, with the right to grant sublicenses solely as set forth in Section
2.3, under the PMPSA Technology and PMPSA Technology Improvements to [***]. An
“Other Product” means a combination drug-device product using or otherwise
practicing the PMPSA Technology and [***] as an active ingredient in humans,
alone or in combination with  [***] ([***]).
 
2.1.3  Other Products. In the event Discovery wishes to obtain a license under
the PMPSA Technology and PMPSA Technology Improvements to develop and
commercialize an Other Product for [***], Discovery shall provide PMPSA with
written notice of the same. Such written notice shall include a description of
the Other Product and shall specify the [***]. Within [***] days of receipt of
such notice, and in the exercise of reasonable discretion and good faith, PMPSA
shall notify Discovery in writing whether it is willing to grant Discovery such
a license under the PMPSA Technology and PMPSA Technology Improvements. In the
event PMPSA is willing to grant Discovery a license under the PMPSA Technology
and PMPSA Technology Improvements to develop and commercialize such Other
Product for [***], PMPSA and Discovery shall use reasonable efforts to enter
into a written amendment to this Agreement pursuant to which PMPSA shall grant
to Discovery such a license on the same terms and conditions set forth herein. 
 
2.2  Limitations. The license granted pursuant to Section 2.1 shall be exclusive
only to the extent that PMPSA 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 PMPSA.
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 PMPSA Technology in the
Territory except as expressly licensed herein. Nothing herein shall limit the
ability of PMPSA to perform any research or development work on or using the
PMPSA Technology. Notwithstanding any other provision of this Agreement, no
rights with respect to any trademarks, trade names, service marks or logos of
PMPSA are granted pursuant to this Agreement.
 
2.3  Sublicensing Rights. The license granted to Discovery pursuant to Section
2.1 by PMPSA shall include the right of Discovery to grant sublicenses, subject
to terms and conditions set forth in Section 17.6. Discovery shall provide PMPSA
with prompt written notice of any sublicenses granted hereunder.
 

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  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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2.4  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.
 
 
ARTICLE 3
PRODUCT DEVELOPMENT
 
3.1  Licensed Product Development and No PMPSA Obligations With Respect to the
Development of Licensed Products. Discovery shall be solely responsible for the
development of Licensed Products and PMPSA shall have no obligations with
respect to the development of Licensed Products unless PMPSA agrees otherwise in
writing. PMPSA acknowledges and agrees that Discovery may partner with third
parties with respect to the development of Licensed Products.
 
3.2  Notice of Development of Licensed Products. Discovery shall provide PMPSA
with written notification of its intention to proceed with Phase II Clinical
Trials for a Licensed Product. Such written notification shall include
sufficient detail for PMPSA to understand the nature of such Licensed Product to
be developed by Discovery.
 
3.3  Development Effort. Discovery shall use Diligent Development Efforts to
develop at least one Licensed Product and to otherwise carry out its
responsibilities under this Agreement relating to such Licensed Product 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 Discovery will be
successful in developing any commercially viable Licensed Products, or that the
development of any Licensed Products will proceed as anticipated.
 
3.4  Costs. Discovery shall be solely responsible for all costs incurred by
Discovery in connection with the development of Licensed Products hereunder.
 
3.5  Design Configurations. 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, and provided PMPSA has received appropriate prior written
notification from Discovery describing the packaging for the Disposable Dose
Packets and Licensed Products in sufficient detail for PMPSA to comply with this
Section 3.5, PMPSA shall not offer for sale or sell, nor authorize any Third
Party to offer for sale or sell, any pharmaceutical product (i) in packaging
similar in appearance to the Disposable Dose Packet for a Licensed Product, or
(ii) in packaging that is interchangeable with the Disposable Dose Packet of a
Licensed Product for purposes of use in an Aerosol Device.
 
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3.6  Status Updates. Upon the reasonable request of PMPSA, Discovery shall
provide PMPSA with an update on the status of the development of Licensed
Products hereunder; provided that in no event shall Discovery be required to
provide an update more often than once a Contract Quarter.
 
ARTICLE 4
COMMERCIALIZATION
 
4.1  Exclusive Right to Sell the Licensed Products. The Parties agree that
during the Term, 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 in the Territory.
 
4.2  Responsibility For Commercialization Matters. Discovery shall have the sole
responsibility and assumes all liabilities for all activities associated with
the commercialization of the Licensed Products in the Territory, 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.
 
4.3  Commercialization.
 
4.3.1  Diligent Commercialization Efforts. Discovery shall use Diligent
Commercialization Efforts to bring the Licensed Products to market and to market
and sell the Licensed Products in the Territory with a particular focus on
obtaining Marketing Authorizations for and commercializing Licensed Products in
the Major Markets. Discovery shall promptly notify PMPSA of the receipt of any
Marketing Authorization for a Licensed Product in the Territory.
 
4.3.2  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 PMPSA [***]. 
 

4.4  Status Updates. Upon PMPSA’s reasonable request, Discovery shall provide
PMPSA with an update on the status of the commercialization of Licensed Products
in the Territory hereunder; provided that in no event shall Discovery be
required to provide an update more often than once a Contract Quarter.
 

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ARTICLE 5
REGULATORY MATTERS 
 
5.1  Responsibility and Consultation. Discovery shall be responsible for
preparing, submitting, seeking and maintaining all Regulatory Approvals for the
Licensed Products in the Territory, including without limitation Marketing
Authorizations.
 
5.2  Regulatory Updates and Communications. Within thirty (30) days after the
end of each Contract Quarter, Discovery shall provide PMPSA with a written
update on the status of the Regulatory Approvals for the Licensed Products in
the Territory. In addition, Discovery shall provide PMPSA with a copy of any
medical device reports relating to the use of Licensed Products in the Territory
and a copy (if in writing) or a description (if oral) of any significant contact
or communication from any Regulatory Authority relating to a material safety
issue with the PMPSA Technology, in each case, promptly after Discovery’s
receipt of the same.
 
5.3  Records. Except to the extent otherwise required by law, the Parties
acknowledge and agree that PMPSA shall have no obligation to maintain any
records relating to the PMPSA Technology or the Licensed Product.
 
5.4  Product Liability Litigation. Discovery shall promptly inform PMPSA of the
initiation of any (i) recalls, corrections or removals of Licensed Products in
the Territory, and (ii) litigation or investigations in the Territory relating
to the Licensed Product involving a claim of death or bodily injury (or
allegations thereof) to an individual and shall provide PMPSA with regular
written updates with respect thereto. If any such recalls, corrections,
removals, litigation or investigations relate to the PMPSA Technology, then
PMPSA shall have the right to audit the books, records and facilities relating
to such Licensed Products (solely to the degree that Discovery has the right to
grant any such access and solely to the degree such books, records and
facilities relate to such litigation and investigation), and Discovery shall
reasonably cooperate with PMPSA in connection therewith.
 
ARTICLE 6
FINANCIAL PROVISIONS
 
6.1  Royalties with Respect to Licensed Products and Substitute Products. In
consideration of the rights granted and payments made to Discovery herein,
Discovery shall pay royalties to PMPSA on Net Sales of Licensed Products and
Substitute Products in the Territory in an amount equal to [***] of the Net
Sales for such Licensed Products and Substitute Products.  
 

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6.2  Minimum Royalties. Commencing [***] and continuing thereafter throughout
the Term, if the royalties paid by Discovery to PMPSA hereunder are not equal to
or greater than the following for each Contract Quarter of the applicable
Contract Year:
 
[***] (the “Minimum Royalty”), then PMPSA shall have the right to terminate this
Agreement pursuant to Section 14.2; provided, that Discovery can cure any such
royalty shortfall by paying PMPSA [***]  after the end of the applicable
Contract Quarter the difference between the Minimum Royalty due for the
applicable Contract Quarter and the actual royalties paid by Discovery hereunder
for such Contract Quarter (the “Royalty Shortfall”). The royalty payments
required to be paid in any given Contract Quarter pursuant to Section 6.1 shall
be subject to an offsetting reduction by Discovery in an amount equal to the
Royalty Shortfall; provided, however, that (i) no such offset shall be applied
until the royalty payments for such Contract Quarter exceed the Minimum
Royalties for such Contract Quarter, and (ii) such offset may be made only to
the extent such Royalty Shortfall has not previously been subject to offset
pursuant to this Section.
 
6.3  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 and Substitute 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 Substitute 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 PMPSA. 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 or Substitute 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.
 
6.4  Fixed Consideration. In the event that Discovery receives any fixed
payment, fee or other consideration from a Third Party (i) in consideration of
any discount, credit or similar allowance granted to such Third Party in
connection with the purchase of any Licensed Product(s) or Substitute Product(s)
or (ii) in lieu of any royalties with respect to any Licensed Product(s) or
Substitute Product(s), then Discovery shall pay to PMPSA a royalty equal to the
product of (a) such consideration multiplied by (b) the royalty rate set forth
in Section 6.1 Discovery shall report on the amount of any such consideration,
and the royalty payable thereon in U.S. Dollars, in the Royalty Report. For the
avoidance of doubt, this Section 6.4 shall not apply with respect to any fixed
payment, fee or other consideration from a Third Party in respect of development
fees, milestone payments or other similar payments in transactions that
incorporate a market-rate royalty structure.
 

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6.5  Treatment of Partial Product Sales. In the event that portions of a
Licensed Product or Substitute Product are sold separately (e.g., Aerosol
Device, Disposable Dose Packet, Drug Product), the royalties payable pursuant to
this Article 6 shall be paid [***].  
 
6.6  Royalty Reports. Within [***] days after the end of each Contract Month
(beginning with [***] Licensed Product or Substitute Product, as the case may
be), Discovery shall deliver to PMPSA a preliminary Royalty Report. [***] The
Royalty Report shall include at least the following items, separately stated as
to each of the Licensed Products and Substitute Products, as applicable:
 
(i)  the quantity of each of the Licensed Products and Substitute 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 [***];
 
(iii)  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 6.6.
 
6.7  Payment of Estimated and Actual Amounts.
 
6.7.1  Payment of Estimated Amounts. Simultaneous with the issuance of the
preliminary Royalty Report, Discovery shall make payment of estimated amounts
due to PMPSA hereunder with respect to such Contract Month (the “Estimated
Amount”).
 
6.7.2  Quarterly Reconciliation and True-Up. Within [***] days following each
Contract Quarter, Discovery shall calculate the actual amount due to PMPSA
hereunder with respect to the immediately preceding Contract Quarter (the
“Actual Amount”) and provide to PMPSA 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 PMPSA pursuant to Section
6.7.1 for the three Contract Months comprising the immediately preceding
Contract Quarter exceeds the Actual Amount for such Contract Quarter, Discovery
shall notify PMPSA and such excess amount (the “Royalty Credit”) shall, at the
discretion of Discovery, be available to offset future royalties payable to
PMPSA by Discovery. If such Actual Amount exceeds such Estimated Amount,
Discovery shall promptly pay such excess amount to PMPSA. [***]
 
6.8  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.
 
6.9  Records and Audits.
 

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6.9.1  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.
 
6.9.2  Audit. At the written request of PMPSA, with reasonable advance notice,
Discovery shall make available for inspection, review, and audit, by an
internationally recognized independent certified public accounting firm
appointed by PMPSA 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 PMPSA more than once 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 6.12.
 
6.9.3  Audit Confidentiality. PMPSA 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 PMPSA 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.
 
6.9.4  Costs of Audits. PMPSA shall pay for such inspections, except that in the
event the adjustment shown by such inspection is greater than [***] percent
([***]%) of the original royalty amounts in question, Discovery shall pay for
such inspection. 
 
6.10  Foreign Exchange. For the purpose of computing the Net Sales for Licensed
Products and Substitute 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 PMPSA [***] prior to First Commercial Sale of a
Licensed Product or Substitute Product in a country such method of currency
conversion.
 
Notwithstanding anything herein to the contrary, at PMPSA’s option, with respect
to any particular country in the Territory, Discovery shall pay royalties for
Licensed Products and Substitute Products sold in such country in such country’s
local currency. Discovery shall not change such method of currency conversion
disclosed to PMPSA pursuant to this Section 6.10 without obtaining PMPSA’s prior
written consent, such consent not to be unreasonably withheld.
 

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6.11  Manner of Payments. All sums due to PMPSA under this Agreement shall be
payable by electronic funds transfer in immediately available funds to such bank
account(s) as PMPSA shall designate at least two (2) Business Days in advance.
 
6.12  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 PMPSA has collected immediately available funds in
an account designated by PMPSA 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 6.7, shall
not be subject to this Section 6.12.
 
6.13  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 PMPSA under this Agreement shall be deducted from
the amount of monies otherwise payable to PMPSA under this Agreement and paid by
Discovery to the proper taxing authority. Discovery shall secure and send to
PMPSA within a reasonable period of time proof of any such Taxes paid or
required to be withheld by Discovery for the benefit of PMPSA. 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 7
INTELLECTUAL PROPERTY
 
7.1  Ownership.
 
7.1.1  PMPSA Intellectual Property. PMPSA shall own (i) all Intellectual
Property owned or controlled by PMPSA relating to the PMPSA Technology or
Licensed Products that was existing or conceived prior to the Effective Date,
(ii) all Intellectual Property developed by PMPSA outside of the performance of
this Agreement or to which PMPSA otherwise obtains rights from a Third Party
(including without limitation all Intellectual Property relating to the PMPSA
Technology or the Licensed Products); (iii) all Inventions conceived, created
and reduced to practice solely by or on behalf of PMPSA in the course of the
performance of this Agreement, except Discovery Technology Improvements; and
(iv) all PMPSA Technology Improvements (collectively, “PMPSA Intellectual
Property”).
 

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7.1.2  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 this Agreement, (ii)
all Intellectual Property relating to Discovery Technology or the Licensed
Products developed by Discovery outside of the performance of this Agreement 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 this Agreement or exercise of the license granted hereunder,
except PMPSA Technology Improvements; (iv) all Inventions conceived, created and
reduced to practice jointly by or on behalf of the Parties in the course of the
performance of this Agreement or exercise of the license granted hereunder,
except PMPSA Technology Improvements; and (v) all Discovery Technology
Improvements (collectively “Discovery Intellectual Property”).
 
7.2  Disclosure, Assignment, License and Exploitation.
 
7.2.1  Disclosure. Each Party shall cause all personnel conducting work or
exercising rights on its behalf under the Agreement to, promptly disclose to the
other Party all Intellectual Property in which the other Party has an ownership
interest pursuant to Section 7.1, 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.
 
7.2.2  Assignment and License. In the event PMPSA conceives, creates or reduces
to practice any Discovery Technology Improvements, PMPSA shall promptly notify
Discovery and PMPSA 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 PMPSA Technology Improvements,
Discovery shall promptly notify PMPSA and Discovery shall assign all right,
title and interest in and to such PMPSA Technology Improvements to PMPSA,
however, such PMPSA Technology Improvements are included in the Intellectual
Property licensed to Discovery pursuant to Section 2.1.
 
7.2.3  Exploitation of Intellectual Property. To the extent permitted by Law,
PMPSA agrees not to exploit the PMPSA Intellectual Property in the Exclusive
Field in any country in the world; provided, however, that in the event
Discovery terminates this Agreement pursuant to Article 14 with respect to
[***], this Section 7.2.3 shall no longer apply to PMPSA with respect to such
[***] and PMPSA shall have the right to exploit the PMPSA Intellectual Property
in the Exclusive Field in the Territory with respect to such [***].  
 
7.3  Agreement with Personnel. Each Party shall have valid and enforceable
written agreements with all personnel conducting work on its behalf under the
Agreement containing a nondisclosure obligation comparable in scope to Article 8
and giving the other Party all rights and authority necessary to effectuate the
provisions of this Article 7. 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.
 

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7.4  Prosecution of Patents.
 
7.4.1  Discovery and PMPSA Patent Filings. Discovery and PMPSA each shall use
commercially reasonable efforts to diligently prosecute and maintain their
respective PMPSA Patents and Discovery Patents in the Territory; provided that
solely for the purposes of this Section, Discovery Patents shall mean those
Discovery Patents that claim or are directed to Discovery Technology. 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.
 
7.4.2  Patent Prosecution Costs. Each Party shall bear its own costs to file,
prosecute and maintain its Patents in the Territory (including, without
limitation, patent term extension).
 
7.4.3  Abandonment of Prosecution or Maintenance. Each Party shall notify the
other Party in the event it is unable for any reason to meet its obligations
under this Article 7 with respect to any Patents that are subject to Section
7.4.1. 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.
 
7.5  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 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.
 
7.6  Third Party Infringement.
 
7.6.1  Suits for Infringement. If Discovery or PMPSA becomes aware of
infringement of any Patent included in the Discovery Patents or the PMPSA
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.
 
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7.6.2  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.
 
7.6.3  Allocation of Recovery. All damages, settlements and rewards made or
obtained in connection with any suit or other legal proceeding under this
Section 7.6 shall be shared among the parties as follows:
 
(i)  [***]
 
(ii)  [***] 
 
7.6.4  Declaratory Actions and Counterclaims. In the event that an action
alleging invalidity or non-infringement of any of the Discovery Patents or PMPSA
Patents is brought against Discovery or PMPSA in the Territory, 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 7.6.3.
 
7.7  Infringement of Third Party Rights.
 
7.7.1  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.
 

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7.7.2  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.
 
ARTICLE 8
CONFIDENTIAL INFORMATION
 
8.1  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 8. 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 8. 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:
 
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(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.
 
8.2  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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8.3  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 PMPSA 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 PMPSA; 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 PMPSA reasonable advance
notice of any SEC filing related to this Agreement which differs materially from
prior filings.
 
8.4  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 Agreement 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.
 
8.5  Public Announcements. Subject to Section 8.2 and Section 8.3, (i) 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, and (ii)
Discovery shall not make any public statements regarding its activities with
PMPSA, its relationship with PMPSA or any other public statements regarding
PMPSA without the prior written approval of PMPSA, provided however that each
Party may disclose (a) the general stage of development, commercialization and
manufacturing at any given time during the course of the Agreement, except to
the extent that any such information constitutes Confidential Information, (b)
any information required by Law, and (c) 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 8, 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.
 
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8.6  Survival. The obligations and prohibitions contained in this Article 8
shall survive the expiration or termination of this Agreement.
 
ARTICLE 9
REPRESENTATIONS, WARRANTIES AND COVENANTS
 
9.1  Mutual Representations and Warranties. Each Party hereby represents,
warrants and covenants to the other Party that as of the Effective Date:
 
9.1.1  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.
 
9.1.2  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.
 
9.1.3  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.
 
9.1.4  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.
 
9.1.5  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.
 
9.2  Intellectual Property. Discovery represents, warrants, and covenants to
PMPSA that as of the Effective Date with respect to the Discovery Intellectual
Property and, except with regard to PMPSA’s intellectual property rights in the
name “Aria,” PMPSA represents, warrants, and covenants to Discovery that as of
the Effective Date with respect to the PMPSA Intellectual Property:
 
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(i)  To its present actual knowledge, it (a) holds good title to and is the
legal and beneficial owner of, or (b) is the licensee of, such Intellectual
Property in the Territory 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 in the Territory.
 
(ii)  To its present actual 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 in the Major Markets.
 
(iii)  To its present actual knowledge, 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 in the Territory.
 
(iv)  To its present actual knowledge, 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 in the Territory; and to its
knowledge (a) the manufacture, development and commercialization of the Licensed
Products in the Territory will not infringe the Patents of any Third Party in
the Territory and (b) there are no Third Party patent applications in the
Territory pending which, if issued, would materially adversely affect the
ability to make, use or sell the Licensed Products in the Territory.
 
(v)  To its present actual knowledge, it has not granted any third party any
license, covenant not to sue, options, or other right with respect to such
Intellectual Property in the Territory that would impact its ability to enforce
such Intellectual Property in the Territory. 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 in the Territory that are
inconsistent with the rights granted herein.
 
(vi)  To its present actual knowledge, each agreement pursuant to which a Third
Party has granted, assigned or otherwise transferred rights with respect to such
Intellectual Property in the Territory 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.
 
9.3  No Adverse Effects. Discovery represents, warrants and covenants to PMPSA
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 Agreement, and as of the Effective
Date, Discovery has not been informed of any such adverse effects or toxicity.
 
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ARTICLE 10
ADDITIONAL COVENANTS
 
10.1  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.
 
10.2  Cooperation. The Parties agree that maintaining effective and open
communication between the Parties on matters relating to the Agreement is
important to the success of the Agreement.
 
10.3  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.
 
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ARTICLE 11
DISCLAIMERS AND LIMITATION OF LIABILITY
 
11.1  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.
 
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 11 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.
 
11.2  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 11.2 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 11, OR ANY REMEDIES OR DAMAGES
AVAILABLE FOR BREACHES OF CONFIDENTIALITY OBLIGATIONS IN ARTICLE 8.
 
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ARTICLE 12
INDEMNIFICATION; INSURANCE
 
12.1  Indemnification.
 
12.1.1  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; and
 
(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.
 
12.1.2  Additional Indemnification by PMPSA. In addition to the indemnity set
forth in Section 12.1.1 above, PMPSA shall defend, indemnify and hold harmless
Discovery, 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 Claim that the
PMPSA Technology infringes or misappropriates such Third Party intellectual
property in the Territory to the extent such Losses are directly attributable to
actual infringement or misappropriation of such Third Party’s intellectual
property by the PMPSA Technology, except to the extent such infringement and
misappropriation is attributable to further development, modifications or
enhancements of the PMPSA Technology by Discovery or due to the combination by
Discovery (directly or indirectly) of the PMPSA Technology with any other
technology and provided that Discovery uses all reasonable efforts to minimize
any such Losses.
 
12.1.3  Additional Indemnification by Discovery. In addition to the indemnity
set forth in Section 12.1.1 above, Discovery shall defend, indemnify and hold
harmless PMPSA, 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 Claim arising out
of or related to any intellectual property infringement and trade secret
misappropriation liability relating to the development, manufacture, or
commercialization of any Licensed Product, except to the extent such Losses are
due to matters for which PMPSA is required to provide indemnification pursuant
to Section 12.1.2.
 
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12.1.4  Certain Product Liability Claims. Notwithstanding Sections 12.1.1,
12.1.2, and 12.1.3, Discovery shall defend, indemnify and hold harmless PMPSA,
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.
 
12.1.5  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 12.1 shall also be
reimbursed by the Indemnitor.
 
12.2  Indemnification Procedures.
 
12.2.1  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.
 
12.2.2  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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12.2.3  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).
 
12.3  Insurance. Discovery 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. Discovery 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 Discovery which Third Party Claims may arise from the
development, manufacture, and/or commercialization of a Licensed Product in the
Territory. Upon reasonable request by PMPSA, Discovery 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 12.3 may be
satisfied by commercially reasonable self-insurance or a commercially reasonable
combination of insurance and self-insurance.
 
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ARTICLE 13
TERM
 
This Agreement shall become effective on the Effective Date, and unless
terminated earlier in accordance with the provisions of Article 14 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) the date a generic form of the product is introduced in such
country (the “Term”). 
 
ARTICLE 14
TERMINAION
 
14.1  Termination by Discovery. Discovery may terminate this Agreement for any
reason, in its entirety, [***], upon [***] days written notice to PMPSA.
 
14.2  Termination Due to Failure to Meet Minimum Royalties. PMPSA may terminate
this Agreement upon [***] days’ prior written notice to Discovery, if commencing
[***] and continuing [***], Discovery does not pay PMPSA each Contract Quarter
the Minimum Royalties due pursuant to Section 6.2, and Discovery does not cure
such shortfall as provided for in Section 6.2; provided, however, that PMPSA
shall not have a right to terminate the Agreement pursuant to this Section 14.2
for any time period in which Discovery is disputing in good faith amounts due
under this Agreement.  
 
14.3  Termination for Material Breach.
 
14.3.1  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 15.1.2 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 14.3.2, the practice by Discovery of the
PMPSA 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 PMPSA, shall constitute a material breach.
 
14.3.2  Applicable Cure Periods. Upon receipt of written notice of a material
breach pursuant to Section 14.3.1, and except as otherwise provided for in
Section 14.3.1, 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.
 

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  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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14.4  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.
 
14.5  Effects of Termination Generally
 
14.5.1  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 2.1, 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 PMPSA to receive
royalties as provided in Article 6; 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. [***]  
 
14.5.2  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.
 
ARTICLE 15  
STANDSTILL AGREEMENT
 
15.1  General Standstill. Except as set forth in this Section 15.1, PMPSA 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 PMPSA 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) involving Discovery;
(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.
 

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 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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15.2  Certain Exceptions. Nothing in this Article 15 shall prohibit PMPSA’s or
its Affiliates’ employees from purchasing securities of Discovery pursuant to
(i) a pension plan established for the benefit of PMPSA’s or its Affiliates’
employees, (ii) any employee benefit plan of PMPSA or its Affiliates, (iii) any
stock portfolios not controlled by PMPSA 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.
 
15.3  Exception for an Acquisition Transaction. This Article 15 shall terminate
(subject to revival as provided below) and PMPSA and its Affiliates shall have
the right to acquire any securities of Discovery without regard to the
limitations set forth in this Article 15 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 15 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 15 shall once again
apply.
 
ARTICLE 16
DISPUTE RESOLUTION
 
16.1  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 (a “Dispute”) shall be settled in accordance
with the provisions of this Article 16. 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.
 
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16.2  Executive Negotiation. Promptly upon a Party’s receipt of a notice by the
other Party as provided in Section 16.1 with respect to a Dispute, and in any
event within thirty (30) days of such receipt, the senior executives of each
Party shall meet for attempted resolution of such Dispute by good faith
negotiations.
 
16.3  Mediation. If the senior executives referenced in Section 16.2 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.
 
16.4  Arbitration.
 
16.4.1  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 16.4.
 
16.4.2  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 16.4. 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 PMPSA 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. PMPSA 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. PMPSA 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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16.4.3  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.
 
16.4.4  Costs. Each Party shall pay its own expenses of arbitration, and the
expenses of the arbitrators shall be equally shared between PMPSA 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.
 
16.4.5  No Other Forum. Except as provided in Section 16.5, the provisions of
this Section 16.4 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 16.4 shall pay the costs of
the other Party, including, without limitation, reasonable attorney’s fees and
defense costs.
 
16.5  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.
 
ARTICLE 17
MISCELLANEOUS
 
17.1  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.
 
17.2  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.
 
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17.3  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.
 
17.4  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.
 
17.5  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 17.5 shall terminate as of the date on which
such agreement and the obligations regarding noncompetition have terminated or
expired in accordance with its terms.
 
17.6  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 8, (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 PMPSA or its
Affiliates without PMPSA’s prior written consent, (iv) PMPSA 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 17.7, 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.
 
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17.7  Assignment. PMPSA 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 PMPSA without the prior written consent of
Discovery subject only to the limitations set forth in Section 17.6 (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 PMPSA, subject
only to the limitations set forth in Section 17.6 (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 17.6
(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.
 
17.8  Further Assurances and Actions. From time to time after the Effective
Date, Discovery and PMPSA 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. PMPSA 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.
 
17.9  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.
 
17.10  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.
 
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17.11  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 PMPSA:
 
Vice President and Associate General Counsel Intellectual Property Law Group
Philip Morris International
Avenue de Rhodanie 50
Case Postale 1171
1001 Lausanne
Switzerland
Fax : +41(0)58-242-0101
 
If to Discovery:
 
Discovery Laboratories, Inc.
2600 Kelly Road, Suite 100
Warrington, PA 18976
Attention : David L. Lopez, Esq., CPA

with a copy to:
 
Dickstein Shapiro LLP
1177 Avenue of the Americas
New York, NY 10036
Attention: Ira L. Kotel, Esq.
 
17.12  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 vice
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.
 
17.13  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.
 
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17.14  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 PMPSA, 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.
 
17.15  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 PMPSA.
 
17.16  Third Party Beneficiaries. Except for any Third Party Indemnities under
Article 12, 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.
 
17.17  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]
 
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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 PRODUCTS S.A.  
   
   
    By:   /s/ Frances Bruttin   

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Name:  Frances Bruttin
Title:    VP Applied Science
   

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

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

 
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