exhibit101.htm


    
      

      

    

    Exhibit
10.1

    

      ASSET
PURCHASE AGREEMENT

      


      This Asset Purchase Agreement (this
"Agreement") is dated as of February 11, 2009 by and between Pharmos Corporation
("Pharmos US"), Pharmos Ltd. ("Pharmos IL" and together with Pharmos US, the
"Seller") and Reperio Pharmaceuticals Ltd., an Israeli company ("Buyer") (Seller
and Buyer shall sometimes be referred to collectively as the “Parties”, and
severally as a “Party”).

      


      W I T N E S S E T
H:

      


      WHEREAS, Seller has been engaged in the
research and development of CB2 synthetic small molecular drugs;

      


      WHEREAS, Seller is the owner of the
patent applications specified in Exhibit A (the
"Applications") and the related Know How (as defined below).

      


      WHEREAS, Seller desires to sell to
Buyer and Buyer desires to purchase from Seller all right, title and interest in
and to the Applications, any Patent Rights thereto, and the Know How (as defined
below), on the terms and conditions set forth in this Agreement.

      


      NOW,
THEREFORE, in consideration of the premises, the mutual covenants and agreements
herein contained, and for other good and valuable consideration, the receipt,
adequacy, and sufficiency of all of which are hereby acknowledged, and intending
to be legally bound hereby, the Parties hereby agree as follows:

      


      DEFINITIONS

      


      “Additional Ingredient” shall mean any
compound or substance which (i) is contained in a product and (ii) when
administered to a patient has a therapeutic or prophylactic clinical effect
independent of a Product (as defined below), either directly or by acting
synergistically with or otherwise enhancing the effect of other compounds or
substances other than the Product (as defined below) contained in such
product.

      


      "Affiliate" shall mean, with respect to
a Party, any person, organization or entity controlling, controlled by or under
common control with, such Party. For purposes of this definition only, “control”
of another person, organization or entity shall mean the possession, directly or
indirectly, of the power to direct or cause the direction of the activities,
management or policies of such person, organization or entity, whether through
the ownership of voting securities, by contract or otherwise. Without limiting
the foregoing, control shall be presumed to exist when a person, organization or
entity (i) owns or directly controls more than fifty percent (50%) of the
outstanding voting shares or other ownership interest of the other organization
or entity, or (ii) possesses, directly or indirectly the power to elect or
appoint more than fifty percent (50%) of the members of the governing body of
the organization or other entity.

      


      "Assets" means: (i) the Patent Rights;
(ii) the Know How; (iii) any quantity of those compounds described in or covered
by the Applications, held by Seller; (iv) any documentation in connection with
the Sponsored Programs in either digital and/or hard copy, including
without


      
        
           


        

        
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      limitation,
the actual OCS grants received starting 2004, as reflected in the financial
files prepared by the independent auditor of the Seller; and (v) the
Contracts.

      


      "Contracts" means the agreements with
any of the following: (i) Prof. Manuel Guzman, Department of Biochemistry and
Molecular Biology. School of Biology, Complutense University, Madrid, Spain, and
(ii) CHDI Foundation Inc, the Huntingdon's Disease Research Group, US attached
hereto as Exhibit
B.

      


      


      “Closing” shall have the meaning
ascribed thereto in Section 1.5 hereof; including the closing of the
transactions contemplated thereby;

      


      “Combination
Product” shall mean a product, compound or substance which comprises a Product
(as defined below) and at least one Additional Ingredient.

      "Exit Event" shall mean (a) a merger of
the Buyer with any third party, following which the Buyer is not the surviving
entity; (b) the sale of all or substantially all of the Buyer’s assets in one
transaction or series of related transactions; or (c) the sale of all or
substantially all of the issued and outstanding share capital of the Buyer by
its then current shareholders to any third party.

      


      “Encumbrances” means any and all
leases, charges, claims, equitable interests, liens, options, rights of refusal,
pledges, mortgage, assignments, security interests, sales contracts, license
agreements or arrangements, any liability whatsoever to make any payment by way
of royalties, fees or otherwise, restrictions, obligations or encumbrances of
any kind with the exception of the Assumed Liabilities as defined
below.

      


      "Know
How" means the know how, information, technology, formulae, data, designs,
drawings, specifications, associated to and inventions described in the
Applications, any other proprietary information required or useful for the
exploitation of the Patent Rights and any intellectual property rights related
thereto including: (i) all technical reports and documentation, chemical data
and laboratory data and notebooks available at Pharmos IL relating solely to the
Application, the compounds described therein and the process of the development
thereof; (ii) the research and development programs conducted at Pharmos IL,
with the support of the OCS resulting in the inventions described in the
Applications and the supporting documentation; (iii) any customer and supplier
lists (including contact details), pricing and cost information, and business
and marketing plans, proposals and information relating solely to the compounds
covered under the Applications; (iv) any material, data, correspondences and
information in connection with the discussions and negotiations between Seller
and any potential partner or collaborator, including without
limitations,  the entities specified in Section 1.4(b) in connection
with the Assets; and (v) any material, data, correspondences and information in
connection with the Contracts and the activities taken thereunder. Certain items
specified above are subject to confidentiality undertaking by Seller and shall
be assigned subject to Buyer assuming such limitation.

      


      “Liabilities”
means (i) any and all indebtedness of Seller, whether or not evidenced by any
contract, and (ii) all liabilities, duties and obligations of, and claims
against, or relating to Seller, or to the operation of the business or the
ownership, possession or use of any of the Assets


      
        
           


        

        
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      or any
other assets by the Seller on or prior to the Closing, in each case whether
accrued, unaccrued, matured, unmatured, absolute, contingent, known or unknown,
asserted or unasserted and whether now existing or arising at any time prior to,
at, or after the Closing.

      


      “License
Payment” shall mean any payments or other consideration that Buyer receives from
an unaffiliated third party ("Licensee"), in consideration of or under a
license, or the grant of an option to obtain a license, of some or all of the
rights in the Patent Rights (whether or not any such grant of right is actually
referred to as a license but specifically excluding any M&A type of
transaction), including without limitation royalty payment, license fees,
milestone payments and license maintenance fees but specifically excluding: (i)
reimbursement for research and development and patent related expenses; (ii)
payments specifically committed to cover future costs to be incurred by Buyer
under further research and development program; and (iii) Royalties payable in
accordance with Section 1.4 below in connection with sales by the Buyer
("Transaction"). In the event that the Transaction with the Licensee involves
additional technology and/or intellectual property of the Buyer, then License
Payment shall be determined by multiplying the amount received by the Buyer from
the Licensee under the Transaction by the fraction of C/(C+D) where “C” is the
fair market value of the Patent Rights; and “D” is the fair market value of all
other technology and intellectual property included in the Transaction with
Licensee.  In such event, the Parties shall negotiate in good faith to
arrive at a determination of the respective fair market values of the Patent
Rights and all other technology and intellectual property included in the
Transaction.

      


      "Patent
Rights" means the Applications including, without limitation, all provisional
applications, continuations, continuations-in-part, divisions, reissues,
renewals, and all patents granted thereon, and all patents-of-addition, reissue
patents, reexaminations and extensions or restorations by existing or future
extension or restoration mechanisms, including, without limitation,
supplementary protection certificates or the equivalent thereof.

      


      "Sponsored
Programs" the research and development programs conducted at Pharmos IL, with
the support of the Office of the Chief Scientist of the Israeli Ministry of
Industry, Trade and Labor (the “OCS”) and specified in Exhibit
C.

      


      


      ARTICLE
I

      TERMS OF
THE TRANSACTION

      


      Section
1.1                                Sale and Purchase of the
Assets.  On and subject to the terms and conditions set forth
hereunder and in reliance upon the representations and warranties of the Parties
set forth herein, effective as of and contingent upon the Closing, Seller shall
and hereby does sell, transfer, convey, assign and deliver to Buyer, and Buyer
shall purchase from Seller, all of Seller's Assets, rights, title and/or
interest in the Assets as of the Closing.  The Assets shall be
conveyed free and clear of all liabilities, obligations, or Encumbrances other
than the Assumed Liabilities specified in Section 1.3 below; Following the
Closing the Seller shall not have any right title or interest whatsoever in any
of the Assets, other than that the Buyer shall and hereby grants the Seller or
any successor or assignee a non exclusive right to use the information covered
under items (iv) and (v) of the definition "Know How" for any use or purpose
without limitation to the extent such information is applicable other than to
the Assets. Nothing contained


      
        
           


        

        
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      herein
shall derogate from Seller's undertaking under Section 7.2 below or be deemed or
interpreted as a grant of license or right in and to any of the other
Assets.

      


      Section
1.2                                Consideration. In
consideration of the transfer and assignment of the Assets, Buyer shall, at the
Closing: (i) assume the Assumed Liabilities as specified in Section 1.3 below;
(ii) pay Pharmos US an amount equal to US$ 200,000 (Two Hundred Thousand US
Dollars), V.A.T, if applicable, not included (the “Upfront Payment”); and (iii)
issue to Pharmos US 11,111 ordinary shares of the Buyer with nominal value of
NIS0.01 each (the "Shares"),  constituting
10% (ten percent) of the issued and outstanding share capital of the Buyer as of
the date hereof. Thereafter, Pharmos US shall be further entitled to Royalty
Payment and License Payment as set forth in Section 1.4 below.

      


      Section
1.3                                Assumed
Liabilities.   At the Closing, the Buyer shall and hereby
does assume and agree to pay, perform and discharge when due all liabilities and
obligations of Seller under the Sponsored Programs to the extent such liability
or obligation relates to the inventions described in the Applications and
specified in the letter provided to the OCS in the form attached hereto as Exhibit D (the
"Assumed Liabilities") and as may be further amended with the consent of the
Parties and the OCS and reflected in the final approval of the OCS, which will
be attached as Exhibit
D and replace the attached letter. Other than as set forth herein, Buyer
shall not assume or have any responsibility or obligation, with respect to any
Liability of the Seller.

      


      Section
1.4                                The Contingent
Payments. Following the Closing, the Buyer shall pay Pharmos US
additional amounts, as follows:

      


      (a)           Royalties.  Royalty
payment equal to 3.5% (three and a half) of the gross amount invoiced or billed
by the Buyer or its Affiliate on its behalf (but not any of its Licensees or
assignees) in connection with the sale of any product, process or service that
is derived from, comprises of or incorporates the Patent Rights and/or the Know
How or any part thereof, or that uses the Patent Rights and/or the Know How as a
basis for subsequent modifications of the compounds covered under the Patent
Rights and that are standard in drug development including, without limitation,
the construction of modified compounds based on the Patent Rights that work
essentially in a chemically analogues manner to the Patent Rights (the "Product"
and the "Royalties" respectively).

       

      Notwithstanding
anything to the contrary set forth herein, in the event a Product is sold by the
Buyer in the form of a Combination Product, Royalties from such Combination
Product, shall be determined by multiplying the gross amount invoiced or billed
by the Buyer (but not any of its Licensees or assignees) in connection with the
sale of the Combination Product during the applicable royalty reporting period,
by the fraction A/(A+B) where: “A” is the average sale price of the Product
contained in the Combination Product when sold separately by the Buyer; and “B”
is the average price of the other Additional Ingredients included in the
Combination Product when sold separately by its supplier, in each case during
the applicable royalty reporting period or if sales of both the Product and/or
other Additional Ingredients did not occur in such period, then in the most
recent royalty reporting period in which sales of both occurred.  In
the event that such average sale price cannot be determined for either the
Product and all other Additional Ingredients included in the Combination
Product, Royalties from such Combination Product, shall be determined by
multiplying the gross amount

       


      
        
           


        

        
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      invoiced
or billed by the Buyer (but not any of its licensees or assignees) in connection
with the sale of the Combination Product during the applicable royalty reporting
period, by the fraction of C/(C+D) where “C” is the fair market value of the
Product; and “D” is the fair market value of all other Additional Ingredients
included in the Combination Product.  In such event, the Parties shall
negotiate in good faith to arrive at a determination of the respective fair
market values of the Product and all other Additional Ingredients included in
the Combination Product.

       

      (b)           License Payment.
Buyer or its Affiliate on its behalf shall pay an amount equal to 10% (ten
percent) of all License Payment actually received by the Buyer or its Affiliate
on its behalf from a Licensee. Notwithstanding the foregoing, the rate shall be
equal to 25% (twenty five percent) if the License Payment is received by the
Buyer or its Affiliate on its behalf from any of the following companies:
P&G, BTG, J&J, AstraZeneca or Bayer under a Transaction consummated at
any time prior to the second anniversary of the execution of this
Agreement.

       

      (c)           Payment upon Exit
Event. Upon the occurrence of an Exit Event, if the closing thereof is
held at any time prior to lapse of 18 months following the execution of this
Agreement (the "Initial Period"), the Buyer shall pay an amount equal to 10%
(ten percent) of the aggregate pre-tax consideration amount to be received by
the Buyer or its shareholders (as applicable), in cash or in kind, subject to
and upon the closing of the Exit Event, whether any such amount is paid at the
initial closing of such Event or thereafter through an earn-out or escrow
arrangement (the "Consideration"). Notwithstanding the foregoing, the rate shall
be equal to 25% (twenty five percent) if the Exit Event is entered into with any
of the following companies: P&G, BTG, J&J, AstraZeneca or Bayer.
Following the Initial Period, Buyer shall pay an amount equal to 5% (five
percent) of the fair market value assigned to the Assets as part of the Exit
Event out of the aggregate Consideration received by the Buyer or its
shareholders. Upon the payment of the foregoing Consideration, the assignee
and/or the Buyer shall be released from the obligations set forth above in
connection with payment of Royalties and License Payment in connection with the
Assets assigned under such transaction. In the event that the Consideration
includes any success or milestone based payments or royalties from future sales
of products, then the rate shall be increased to 10% (ten percent).

       

      (d)           Sale of Assets. In
the event that the Buyer sells its right and title in and to any of the Assets
and such sale does not constitute an Exit Event (i.e. does not involve the sale
of all or substantially all of the assets of the Buyer), then, Buyer shall pay
an amount equal to 5% (five percent) of the aggregate pre-tax consideration
amount to be received by the Buyer, in cash or in kind, upon the closing of such
transaction or thereafter, as further detailed hereafter. In the event that the
foregoing transaction includes any success or milestone based payments or
royalties from future sales of products, then the transaction shall be deemed a
Transaction entitling Seller to receive License Payment in accordance with
Section 1.4(b) above. Payment in several installments (based on passage of time
alone), payment under escrow arrangement for indemnification purposes or any
other payment mechanism that is not milestone, success or sales related shall
not cause the payment to be deemed License Payment and shall be covered under
this Section, provided that Seller shall be entitled to its share from any such
future amount. In any event the assignee shall be released from any payment
obligation to the Seller, and the Buyer shall be subject to any payment pursuant
to this Section 1.4(d).

       

      (e)           Payment and Termination of
Obligation. Payment of Royalties shall be made within 30 days following
the end of a calendar year with respect to the preceding

       


      
        
           


        

        
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      year on a
Product-by-Product and country-by-country basis until the expiry of the last of
any Patent Rights covering the respective Product in such jurisdiction. Payment
on account of License Payment shall be made within 10 days following the actual
receipt of any non-contingent, non refundable License Payment by the Buyer and
as long as the Buyer or its Affiliate receives any payment from a Licensee under
a respective Transaction in connection with the Patent Rights. Payment upon Exit
Event shall be made following the actual receipt of non-contingent,
non-refundable amount on account of Consideration by the Buyer or its
shareholders, as applicable. Payment in connection with the sale of the Assets
or any part thereof, under Section 2.4(d) shall be made following the actual
receipt of non-contingent, non-refundable amount by the Buyer.

       

      (f)           Reports. The Buyer
shall report to Pharmos US in writing within 30 days following the first
commercial sale of a Product or the closing of a definitive agreement for a
Transaction with a Licensee which may result in License Payment. Within 30 days
following the end of each calendar year the Buyer shall provide Pharmos US with
a report signed by the Buyer’s chief financial officer of all amounts due to
Pharmos US in connection with Royalties and License Payment during the preceding
year pursuant to this Section 1.4 including a breakdown of the number and type
of products sold, discounts, returns, the country and currency in which the
sales were made, invoice dates and all other data enabling the Royalties and
License Payment payable to be calculated accurately. The annual report shall
accompany the annual payment of Royalties and shall also include the Buyer's
sales and Royalty forecasts for the following calendar year, if available. The
Buyer shall require any Licensee to provide it with royalty reports detailed as
customary in license agreements of such type.   Upon request, the
Buyer shall produce such reports to Pharmos US.

       

      (g)           Currency and Method of
Payment. All payments to be made to Pharmos US pursuant to this Agreement
shall be made in U.S. dollars and by wire transfer to such bank account as
Pharmos US may direct from time to time. Foreign currency shall be converted
into U.S. dollars using the average applicable interbank transfer rate
determined by reference to the currency trading rates published by The Wall
Street Journal (Eastern U.S. edition), over all business days of the calendar
year for which the payment is due.

       

      (h)           Audit. The Buyer
shall keep and shall cause its Licensee to keep true and complete records
regarding sales of Products in accordance with generally accepted accounting
principles, in their respective countries of operation and to retain such
records within the preceding period of five years and, if this Agreement is
terminated for any reason whatsoever, for five (5) years after the end of the
calendar year in which such termination becomes effective. Such records shall
contain sufficient detail to enable the determination of any Royalties and
License Payment due to Pharmos US hereunder.  Upon reasonable written
notice to the Buyer, Pharmos US, through a designated independent auditor, shall
have access during normal business hours to all such records of the Buyer and to
any audit prepared by the Buyer  under an agreement with its
Licensees, if any, once for each calendar year. The independent auditor
appointed by Pharmos US shall report to Pharmos US on such records only to the
extent reasonably necessary to enable Pharmos US to assess whether the
obligation of the Buyer with respect to the maintenance of such records has been
fulfilled and/or to determine the amount of any Royalties or License Payment due
to Pharmos US hereunder. The independent auditor shall be obligated to maintain
the confidentiality of such records. Any discrepancy shall be amended based on
such report. Pharmos US shall bear the costs of such audit, unless the audit
performed

       


      
        
           


        

        
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      reveals
underpayment of more than 10% in a calendar year, in which case Buyer shall bear
the full costs of such audit.

       

      (i)           Late
Payments.  Buyer shall pay interest to Seller on the aggregate
amount of any payments that are not paid on or before the date such payments are
due under this Agreement at a rate per annum equal to three percent (3%) above
the London Interbank Offer Rate (LIBOR) as determined for each month on the last
business day of that month, assessed from the day payment was initially due until the date of
payment.

       

      (j)           Withholding Tax. If
applicable laws require that taxes be withheld from any amounts due to Seller
hereunder, Buyer shall (a) deduct these taxes from the remittable amount, (b)
pay the taxes to the proper taxing authority, and (c) promptly deliver to Seller
a statement including the amount of tax withheld and justification therefor, and
such other information as may be necessary for tax credit purposes.

       

      


      Section
1.5                                The
Closing.

      


      The Closing shall take place
immediately upon the satisfaction or waiver of the conditions precedent set
forth in this Agreement, or at such other time and place as may be agreed by the
Parties (the “Closing”). Upon the Closing the following transactions shall occur
and all transactions at the Closing shall be deemed to take place
simultaneously, and no transaction shall be deemed to have been completed and no
documents or certificates shall be deemed to have been delivered until all other
transactions are completed and all other documents and certificates are
delivered:

      (a)           Buyer
shall pay Pharmos US the Upfront Payment by wire transfer to the following bank
account:  Account No. 200-001-298-118-6, at Wachovia Bank, NA, 1889
State Route 27, Edison, NJ 08817, USA, ABA No. 021200025; or as shall be
otherwise agreed upon between the Parties and shall provide Pharmos US with a
share certificate evidencing the issuance of the Shares;

       

      (b)           Seller
shall deliver to Buyer an executed bill of sale for the Assets and executed
letter of assignments for the Applications and the Contracts in the form
attached hereto as Schedule 1.5(b), accompanied by any consent required under
the Contracts in connection with the assignment thereof;

       

      (c)           Seller
shall deliver to Buyer an executed power of attorney in the form reasonably
acceptable to Parties;

       

      (d)           
The Parties shall execute such assignments and other instruments of conveyance
as the Buyer may reasonably request to effectively consummate the transactions
to be consummated at the Closing (it being understood that the Buyer and the
Seller shall not be required to make any representations, warranties or
covenants, expressed or implied, in any such assignments and other instruments);
and

       

      (e)           Seller
shall sell, assign, transfer and deliver to Buyer, Seller’s entire, right, title
and interest in the Assets and provide Buyer with any item of the Assets which
is in tangible form (including documents, materials and hard copy
data).

       


      
        
           


        

        
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      ARTICLE
II

      REPRESENTATIONS
AND WARRANTIES OF SELLER

      


      Seller represents and warrants to Buyer
that the following statements are true, correct and complete as of the date
hereof and as of the Closing:

      


      Section
2.1                                Authority Relative to This
Agreement.  Seller has full power and authority to execute,
deliver, and perform this Agreement and to consummate the transactions
contemplated hereby.  This Agreement has been duly executed and
delivered by Seller and constitutes, and each other agreement, instrument, or
document executed or to be executed by Seller in connection with the
transactions contemplated hereby has been, or when executed will be, duly
executed and delivered by Seller, a valid and legally binding obligation of
Seller, enforceable against Seller in accordance with their respective terms,
except that such enforceability may be limited by (a) applicable bankruptcy,
insolvency, reorganization, moratorium, and similar laws affecting creditors'
rights generally and (b) equitable principles which may limit the availability
of certain equitable remedies (such as specific performance) in certain
instances.

      


      Section
2.2                                Organization and Good
Standing. Each of Pharmos US and Pharmos IL is duly organized, in good
standing and validly existing under the laws of its jurisdiction of
incorporation, and has the requisite power and authority to own its properties
and to carry on its business.

      


      Section
2.3                                Noncontravention.  The
execution, delivery, and performance by Seller of this Agreement and the
consummation by it of the transactions contemplated hereby do not and will not:
(a) violate or be in conflict with (i) any law, rule, regulation, or order of
any governmental agency applicable to Seller, (ii) the organizational documents
of Seller, (iii) any agreement, judgment, license, order, or permit applicable
to or binding upon Seller, or (iv) any provision of any bond, debenture, note,
mortgage, indenture, lease, contract, agreement, or other instrument or
obligation to which Seller is a party or by which Seller or any of its
properties may be bound. (b) constitute (with or without the giving of notice or
the passage of time or both) a default under, or give rise (with or without the
giving of notice or the passage of time or both) to any right of termination,
cancellation, or acceleration thereunder, (c) result in the acceleration of any
indebtedness owed by Seller, or (d) result in or require the creation of any
encumbrance upon any assets or properties of Seller, or (e) give rise to any
claim by or right of a creditor of the Seller under bankruptcy or insolvency
laws,  in each case, where such conflict, acceleration or encumbrance
would have a material adverse effect upon the condition of the Assets, the
ability of the Seller to perform its undertakings hereunder or the binding
effect of this Agreement.

      


      Section
2.4                                Title to the
Assets.

      


      (a) To
its best knowledge, Seller is the sole and exclusive owner of all rights, title
and interests in and to the Assets free and clear of all
Encumbrances.

       


      
        
           


        

        
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      (b) To
its best knowledge, the delivery to Buyer of the instruments of transfer of
ownership contemplated by this Agreement will, at the Closing, vest good and
marketable title to the Assets in Buyer, free and clear of all
Encumbrances.

       

      


      Section
2.5                                Encumbrances.  Seller
has good and transferable title to the Assets, free and clear of all
Encumbrances and other than the Assumed Liabilities, to its
knowledge:

      


      (a)           There
are no third party rights whatsoever with respect to the Assets or any part
thereof;

      (b)           No
item of the Assets or directly related thereto is subject to any law, judgment,
injunction, order, decree, ruling or agreement restricting the use or licensing
thereof;

      (c)           No
person or entity, including, any founder, shareholder, director or employee of
Seller or any of its affiliates (whether past or present) has any ownership
right, title, interest, claim in or any Encumbrance on any of the
Assets;

      


      (d)           No
claim, action, suit, proceeding, hearing, investigation, charge, complaint,
dispute or disagreement is pending or is threatened, which challenges the
legality, validity, enforceability, use or ownership of any item of any of the
Assets, and to the knowledge of Seller after due inquiry, no third party is
infringing the Assets;

      


      (e)           No
contract, undertaking, agreement (written or oral) or commitment was entered
into by Seller or is binding upon Seller with respect to the Assets or to which
the Assets are or may be subject.

      


      Seller
represents and warrants to Buyer that the File History contains all material
documents and information applicable to the Application and related Patent
Rights, including any national or foreign applications filed (and translations
thereof, if any), patent agent offices engaged, and opinions as to prior art and
non-infringement available to Seller as of the date of the Closing.

      


       

      Seller
maintained and maintains adequate and sufficient security measures for the
preservation of the secrecy and proprietary nature of the Assets and to the
knowledge of the Seller, there is no unauthorized use or infringement of any of
the rights in and to the Assets.

       

      Section
2.6                                No Action, Proceeding,
etc.  No action, proceeding, investigation, regulation or
legislation shall have been instituted, threatened or proposed before any court,
governmental agency or legislative body to enjoin, restrain, prohibit, prevent,
or obtain substantial damages in respect of, or which is related to, or arises
out of, this Agreement or the consummation of the transactions contemplated
hereby, or which affects or may affect the right of Buyer to purchase and own
the Assets (the "Proceeding"). Seller is not aware of any basis for such
Proceedings.

       

      


      Section
2.7                                Consents.  Except
as contemplated in this Agreement, no consent, approval, authorization order,
filing, registration, or qualification of or with any court, governmental
authority, or third person is required to be made or obtained by Seller
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      connection
with the execution and delivery of this Agreement by Seller or the consummation
by Seller of the transactions contemplated hereby, which such consent was not
obtained prior to the execution hereof or the Closing, as
applicable.

      


      Section
2.8                                Seller’s
Liabilities.  Seller has additional Liabilities, however such
Liabilities, other than the Assumed Liabilities, belong to Seller, and shall be
borne solely by Seller and nothing contained herein shall be deemed assignment
to or assumption by the Buyer of any of the Liabilities other than the Assumed
Liabilities.

      


      Section
2.9                                Disclosure. Neither
this Agreement nor any agreement or document made or delivered by Seller in
connection herewith contains any untrue statement of a fact or omits to state a
fact necessary to make the statements herein or therein not misleading. The
representations and warranties of Seller as set forth hereinabove fully and
accurately reflect the condition and state of Seller and the Assets. There is no
material fact or information relating to the Assets that has not been disclosed
to Buyer by Seller. Buyer has the right to rely fully upon the representations,
warranties and covenants of Seller contained in this Agreement or any document
executed or delivered in connection with or pursuant to any of the
foregoing.

      


      Section
2.10                                Representations and
Warranties on Closing.  The representations and warranties made
in this Article II are true and correct as of the date hereof and will be true
and correct on and as of the Closing with the same force and effect as if such
representations and warranties had been made on and as of the
Closing.

      


      ARTICLE
III

      REPRESENTATIONS
AND WARRANTIES OF BUYER

      


      Buyer represents and warrants to Seller
that the following statements are true, correct, and complete.

      


      Section
3.1                                Authority Relative to This
Agreement.  Buyer has full power and authority to execute,
deliver, and perform this Agreement and to consummate the transactions
contemplated hereby.  This Agreement has been duly executed and
delivered by Buyer and constitutes, and each other agreement, instrument, or
document executed or to be executed by Buyer in connection with the transactions
contemplated hereby has been, or when executed will be, duly executed and
delivered by Buyer, a valid and legally binding obligation of Buyer, enforceable
against Buyer in accordance with their respective terms, except that such
enforceability may be limited by (a) applicable bankruptcy, insolvency,
reorganization, moratorium, and similar laws affecting creditors' rights
generally and (b) equitable principles which may limit the availability of
certain equitable remedies (such as specific performance) in certain
instances.

      


      Section
3.2                                Organization. Buyer
is duly organized and validly existing under the laws of the State of Israel,
and has the requisite power and authority to own its properties and to carry on
its business.

      


      Section
3.3                                Noncontravention and
Consents.  The execution, delivery, and performance by Buyer of
this Agreement and the consummation by it of the transactions


      
        
           


        

        
          10

          
            

          

        

        
           


        

      


      contemplated
hereby do not and will not (a) conflict with any provision of (i) any law, rule,
regulation, or order of any governmental agency applicable to Buyer, (ii) the
organizational documents of Buyer, (iii) any agreement, judgment, license,
order, or permit applicable to or binding upon Buyer, or (iv) any provision of
any bond, debenture, note, mortgage, indenture, lease, contract, agreement, or
other instrument or obligation to which Buyer is a party or by which Buyer or
any of its properties may be bound. (b) constitute (with or without the giving
of notice or the passage of time or both) a default under, or give rise (with or
without the giving of notice or the passage of time or both) to any right of
termination, cancellation, or acceleration thereunder, (c) result in the
acceleration of any indebtedness owed by Buyer, or (d) result in or require the
creation of any encumbrance upon any assets or properties of Buyer in each case,
where such conflict, acceleration or encumbrance would have a material adverse
effect upon Buyer or its ability to perform its undertakings
hereunder.

      


      Except as expressly contemplated in
this Agreement, no consent, approval, authorization, or order of, and no notice
to or filing with, any governmental agency or third party is required in
connection with the execution, delivery, or performance by Buyer of the
transactions contemplated by this Agreement or to consummate any transactions
contemplated by this Agreement.

      


      Section
3.4                                Representations and
Warranties on the Closing.  The representations and warranties
made in this Article III are true and correct as of the date hereof and will be
true and correct on and as of the Closing with the same force and effect as if
such representations and warranties had been made on and as of the
Closing.

      


      ARTICLE
IV

      COVENANTS

      


                 Section
4.1                                Closing Efforts. On
the terms and subject to the conditions of this Agreement, each of the Buyer and
the Seller shall use commercially reasonable efforts to cause the Closing to
occur hereunder, including by using commercially reasonable efforts to take or
cause to be taken all actions and using such efforts to do or cause to be done
all things reasonably necessary or advisable to perform its obligations
hereunder, satisfy the conditions to Closing set forth in Article V, consummate
the transactions contemplated hereby and comply with all legal requirements that
may be imposed on it in connection with the consummation of the transactions
contemplated hereby and thereby.  Each of the Buyer and the Seller
shall promptly notify the other of any fact, condition or event known to it that
would reasonably be expected to prohibit, make unlawful or delay the
consummation of the transactions contemplated by this Agreement.

      


      The Seller and the Buyer have
approached the OCS in connection with the assumption by the Buyer of the Assumed
Liabilities (but not all Liabilities of the Seller to the OCS) in connection
with the Sponsored Programs and will continue to collaborate as necessary to
obtain the consent of the OCS to the transactions contemplated by this Agreement
and the assumption by the Buyer of the Assumed Liabilities under the terms set
forth in the letter filed to the OCS by the Seller in the form attached hereto
as Exhibit D,
or any other terms to be agreed between the Parties and the OCS and reflected in
the final approval of the OCS which will be attached as Exhibit D and replace
the foregoing letter.  The Buyer and the Seller shall furnish one
another


      
        
           


        

        
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      with such
necessary information and reasonable assistance as the other may request in
connection with the preparation of any filing, appeal, notification, report or
submission.  The Buyer and the Seller shall keep one another apprised
of the status of any communications with, and any inquiries or requests for
additional information from, the OCS and shall comply promptly with any such
inquiry or request and shall promptly provide any supplemental information
requested in connection with the filings made pursuant to such applicable law.
Immediately following the execution hereof, Seller shall furnish the Buyer with
a copy of all requests, approvals, documents and correspondences related to the
Sponsored Programs including the financial files prepared by the independent
auditor of the Seller.

      


      The Buyer and the Seller shall use
commercially reasonable efforts to obtain any consent, approval, authorization
or clearance required under applicable law for the consummation of the
transactions contemplated by this Agreement.

      


                 Section
4.2                                Prosecution and Maintenance
of Patent Rights. Until the Closing, Seller shall use commercially
reasonable efforts and be responsible at its own expense to: (i) prosecute the
Applications, including any and all related continuations,
continuations-in-part, divisions, renewals, reissues, reexaminations,
extensions, foreign counterparts and substitute applications; and (ii) maintain
at the applicable patent offices all patents granted thereunder and to defend
any challenge or opposition relating thereto. Seller shall provide Buyer with
the opportunity to opine, initiate, participate and assist in the preparation,
filing, prosecution, protection and maintenance of the foregoing, at its own
expense. Until the Closing, Seller shall inform Buyer immediately in the event
it is aware of any infringement by third party of its Patent
Rights.

      


      Section
4.3                                Operation of the
Business. During
the period following the execution thereof and until the earlier of the Closing
or the termination of the Agreement, Seller shall not:

      


      (a)           sell,
license, transfer or create any Encumbrances in the Assets, or enter into any
agreement or undertake any new obligation with respect to the Assets with any
person or entity;

      (b)           abandon,
waive or fail to preserve any of the rights in and to
the  Assets;

      (c)           create
or allow any third party to create an Encumbrance over the Assets;

      (d)           enter
into any transaction which may affect, directly or indirectly, the Assets, this
Agreement or the transactions contemplated hereunder; and

      (e)           fail
to comply with any law, decree or contractual obligation which may affect,
directly or indirectly, the Assets, this Agreement or the transactions
contemplated hereunder.

      


      Seller
shall inform Buyer in connection with any intellectual property that directly
relates to the Assets and was developed by the Seller prior to the Closing. Such
intellectual property shall be automatically included in the Assets purchased
hereunder and the Parties shall amend the Agreement to reflect such additional
Assets.

      


      Section
4.4                                Notices. Prior to
Closing, the Seller shall immediately notify Buyer, in writing, of the
occurrence of any event or condition which may have an adverse affect on
the


      
        
           


        

        
          12

          
            

          

        

        
           


        

      


      technological
and/or business status, condition or prospects of the Assets or of any
governmental complaints, investigations or hearings (or communications
indicating that the same may be contemplated), adjudicatory or arbitral
proceedings against any of the Assets or the Seller (if the same may have a
material adverse effect on the Assets), and shall keep Buyer fully informed of
such events and shall permit the Buyer prompt access to all necessary materials
prepared in connection therewith.

      


      Section
4.5                                No Shop. The Seller
agrees that until the Closing, it will not directly, through any agent or
otherwise, solicit, accept, initiate or encourage (by providing confidential
information or otherwise) submission of proposals or offers from any person or
entity or negotiate or suggest negotiations at any future time with or to any
other person any transaction related to or which may affect the transactions
contemplated hereunder or the Assets. Without derogating from the above, the
abovementioned restriction shall not apply to any negotiation or transaction in
connection with Cannabinor.

      


      Section
4.6                                Due Diligence and
Performance of Study. Seller shall afford Buyer and its officers,
directors, agents and counsel access at times and upon conditions reasonably
convenient to the Seller and make available all properties, books, records,
contracts and documents of the Seller, and an opportunity to make such
investigations as it shall reasonably desire to make of the Seller, all subject
to Seller's confidentiality limitations and undertakings. The Seller shall
furnish or cause to be furnished to Buyer and its authorized representatives all
such information with respect to the Assets as Buyer and its authorized
representatives may request and make the officers, directors, employees,
auditors and counsel of the Seller available for consultation and permit access
to other third parties reasonably requested for verification of any information
so obtained, all subject to Seller's confidentiality limitations and
undertakings.

      


      As part of the scientific due
diligence, Buyer intends and shall be entitled under this Agreement to conduct,
at its own expense, an animal efficacy study of the lead candidate
(PRS-639,058)  and its enantiomers covered under the Applications, to
enable an enantiomer selection as customary in the pharma industry (the
“Study”). For the purpose of such Study, upon the execution hereof, the Seller
shall provide Buyer, for no additional consideration, with up to 4 gr. of the
racemic mixture and 4 gr. of each enantiomer, to the extent available with the
Seller.

      


      The Buyer shall own all intellectual
property rights of the results arising out of or relating to the Study (the
“Results”), provided however that such Results and the intellectual property
rights therein shall be returned to the Seller in the event that the Closing
does not take place and this Agreement is cancelled or in case of Termination of
the Agreement subject to section 8.2 hereafter.

      


      


      ARTICLE
V

      CONDITIONS
TO CLOSING

      


      The obligations of the Parties to
consummate the transactions contemplated by this Agreement shall be subject to
the fulfillment on or prior to the Closing of each of the following conditions
and transactions, which transactions shall be deemed to take place
simultaneously and no transaction shall be deemed to have been completed or any
document delivered until all such


      
        
           


        

        
          13

          
            

          

        

        
           


        

      


      transactions
have been completed and all required documents delivered, unless waived by the
Parties:

      


      Section
5.1                                Representations and
Warranties True.  All the representations and warranties of the
Seller set forth in Article II and of the Buyer set forth in Article III of this
Agreement, and in any agreement, instrument, or document delivered pursuant
hereto or in connection herewith on or prior to the Closing, shall be true and
correct in all respects on and as of the Closing as if made on and as of such
date, except as affected by transactions contemplated or permitted by this
Agreement.

      


      Section
5.2                                Covenants and Agreements
Performed.  Each of the Parties shall have performed and
complied with all covenants and agreements required by this Agreement to be
performed or complied with by it on or prior to the Closing.

      


      Section
5.3                                No Adverse Change and
completion of Due Diligence Process.  There shall not have
occurred prior to the Closing any adverse change in the technological and/or
business status, condition or prospects of the Assets. The Buyer shall have
completed the due diligence examination, including the Study, and the outcome of
which shall be satisfactory to the Buyer.

      


      Section
5.4                                Consents, Permits, and
Waivers.  Each of the Parties shall have obtained any and all
consents, permits, and waivers necessary for the consummation of the
transactions set forth in, or contemplated by, this Agreement at the
responsibility of such Party, including without limitation, the receipt by the
Seller of the approval of the OCS under the terms set forth in Exhibit D (or as
otherwise agreed between the Parties and the OCS) and any approval required in
connection with the assignment of the Contracts hereunder.

      


      Section
5.5                                Buyer
shall have received the certificates, instruments, documents, and other items
listed below:

      


      (a)           All
assignments, deeds and bills of sale and/or other documents necessary for the
assignment and transfer of the Assets to the Buyer free and clear of all
Encumbrances, in form and substance reasonably satisfactory to the Buyer duly
executed and delivered by Seller, attached hereto as Schedule
1.5(b);

      (b)           All
materials and documents pertaining or relevant to the Assets and the use
thereof;

      (c)           The
receipt of the consent of the OCS to this Agreement under the terms set forth in
the letter attached hereto as Exhibit D, or as otherwise
agreed between the Parties and the OCS, in which case the latter shall replace
the foregoing letter.

      (d)           An
executed copy of the power of attorney in form reasonably acceptable to the
Parties.

      (e)           Any
consent required for the assignment of the Contracts hereunder.

      


      Section
5.6                                Buyer
shall have received a copy of the File History and the contents of the File
History shall be acceptable to Buyer in its reasonable discretion. Seller
represents and warrants to Buyer that the File History contains all material
documents and information applicable to the Application and the related Patent
Rights, including any national or foreign


      
        
           


        

        
          14

          
            

          

        

        
           


        

      


      applications
filed (and translations thereof, if any), patent agent offices engaged, and
opinions as to prior art and non-infringement available to Seller as of the date
of the Closing.

      


      Section
5.7                                Pharmos
US shall have received the Upfront Payment and share certificate evidencing the
issuance of the Shares as specified in Section 1.2 above.

      


      Section
5.8                                Frustration of Closing
Conditions.  Neither Party may rely on the failure of any
condition set forth in this Article V to be satisfied if such failure was caused
by such Party’s failure to act in good faith or to use commercially reasonable
efforts to cause the Closing to occur, or to otherwise act as required by
Section 4.1.

      


      


      ARTICLE
VI

      SURVIVAL
OF REPRESENTATIONS; INDEMNIFICATION

      


      Section
6.1                                Survival of
Representations.  The representations and warranties of the
Seller contained in this Agreement or in any certificate, instrument, or
document delivered pursuant hereto shall survive the Closing until the first
anniversary of the Closing regardless of any investigation made by or on behalf
of the Buyer.

      


      Section
6.2                                Indemnification by
Seller.  Seller agrees to indemnify, defend and hold Buyer and
Buyer's affiliates’, security holders, shareholders, officers, directors,
employees, agents, successors, and assigns (Buyer and such persons are
hereinafter collectively referred to as "Buyer Indemnified Persons"), harmless
from and against any and all loss, liability, damage or deficiency (including
interest, penalties, costs of preparation and investigation, and reasonable
attorneys' fees) (collectively "Buyer Losses") that any Buyer Indemnified Person
may suffer, sustain, incur, or become subject to arising out of or resulting
from (i) any misrepresentation, breach of warranty or breach of covenant made or
undertaken by Seller under this Agreement; (ii) any of the Liabilities other
than the Assumed Liabilities, (iii) any claims by any person or entity allegedly
arising out of such person’s or entity’s rights as a shareholder, member, former
shareholder, former member, employees, consultant, service provider, or security
holder of Seller, (iv) any claims made by any creditor of Seller.

      


      Section
6.3                                Notice and Opportunity to
Defend.  If there occurs an event that either party reasonably
asserts is an identifiable event pursuant to Section 6.2, the party seeking
indemnification (the "Indemnities") shall notify Seller (the "Indemnitor") in
writing, promptly.  If such event involves (a) any claim or (b) the
commencement of any action or proceeding by a third person, the Indemnities
shall give the Indemnitor written notice of such claim or the commencement of
such action or proceeding within 15 days of Indemnities becoming aware thereof;
provided, however, that delay or failure to so notify the Indemnitor shall only
relieve the Indemnitor of its obligations to the extent, if at all, that it is
prejudiced by reasons of such delay or failure.  The Indemnitor shall
have a period of 30 days within which to respond thereto.  If the
Indemnitor accepts responsibility or does not respond within such 30-day period,
the Indemnitor shall be obligated to compromise or defend, at its own expense
and by counsel chosen by the Indemnitor.  If the Indemnitor does
respond within such 30-day period and rejects responsibility for such matter in
whole or in part, the Indemnitee shall be free to pursue, without prejudice to
any of its rights hereunder, such remedies as may be available to the Indemnitee
under applicable


      
        
           


        

        
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      law.  The
Indemnitee agrees to cooperate fully with the Indemnitor and its counsel in the
defense against any such asserted liability.  In any event, the
Indemnitee shall have the right to participate in a non- controlling manner and
at its own expense in the defense of such asserted liability.  Any
compromise of such asserted liability by the Indemnitor shall require the prior
written consent of the Indemnitee which may not be unreasonably withheld and
until such consent is obtained the Indemnitor shall continue the defense of such
asserted liability.

      


      Section
6.4                                Limitations

      .

      


      In no event shall the Seller be liable
for any Buyer Losses,  (i) unless and until the individual claim
giving rise to any Losses exceeds US$10,000, in which case the Seller shall,
subject to the following clause (ii), be liable for all Buyer Losses arising
from such claim, and (ii) the aggregate amount of all such Buyer Losses shall
not exceed an amount equal to the Upfront Payment.  Seller shall not
have the right to offset any Losses claimed by the Buyer Indemnified Person
hereunder against any other amounts owed by Buyer to the Seller.

      


      THE INDEMNIFICATION OBLIGATIONS OF THE
SELLER SHALL NOT EXTEND TO SPECIAL, EXEMPLARY, PUNITIVE, INDIRECT OR
CONSEQUENTIAL DAMAGES, INCLUDING BUSINESS INTERRUPTION OR LOST
PROFITS.

      


      


      


      ARTICLE
VII

      POST
CLOSING COVENANTS

      


      Section
7.1                                Further Acts. At
Buyer sole cost and expense, Seller hereby
undertakes to execute, verify, acknowledge and deliver any and all reasonable
documents and to take any and all reasonable actions as Buyer may deem necessary
or desirable in order to effectuate the assignment set forth herein and the
fulfillment thereof, to vest, secure, perfect, protect or enforce the rights and
interests of Buyer in and to the Assets, to put Buyer in actual possession and
operating control thereof and to assist Buyer to obtain any and all necessary
approvals and consents, including the filing of the assignment or other transfer
of title covenants with the USPTO and other patent offices.   In
the event that Buyer is unable for any reason whatsoever to secure Seller's
signature to any document following written request to Seller regarding such
matter and a non response period of at least 7 days, it is entitled to under the
preceding paragraph, Seller hereby irrevocably designates and appoints Buyer and
its duly authorized officers and agents, as its agents and attorneys-in-fact to
act for and on its behalf and in its stead, to execute and file any such
document and to do all other lawfully permitted acts to further the purposes of
the foregoing with the same legal force and effect as if executed or done by
Seller.

      


      Section
7.2                                Covenant Not to
Compete.  Seller undertakes and covenants that following the
Closing and during a period of one (1) year thereafter (the “Restricted
Period”), it shall not compete with the Buyer in exploitation of technology
which may directly compete with the Assets. Without derogating from the above,
the abovementioned restriction shall not apply to any use or commercialization
of the Cannabinor.  During the Restricted Period, Seller shall take
all actions necessary in order to ensure that its current and former employees,
consultants and service providers will comply with any and all confidentiality,
non compete and non solicit


      
        
           


        

        
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      undertakings
they have towards Seller and which relate in any way or manner to the Assets, to
the extent they are not employed by Buyer.

      


      Section
7.3                                Covenant to Protect
Confidential Information.  Seller acknowledges that in
connection with its ownership of the Assets, Seller has Confidential
Information, and Seller agrees that, after Closing, it will maintain in strict
confidence and will not disclose to any person other than to Buyer or any person
designated by Buyer, any Confidential Information, except with the prior written
consent of Buyer. The term “Confidential Information” means any information
which is proprietary or unique to the Assets, including to trade secret
information, know-how, matters of a technical nature such as processes,
techniques, data and formulae, research and development subjects and results,
plans and strategies, operations, products, revenues, expenses, profits, sales,
and any information concerning the Assets learned by Seller heretofore or
hereafter. The foregoing undertaking shall not apply to any information that is
relevant to any other technology owned or license by the Seller and not
purchased hereunder or any information that becomes public knowledge with no
fault of the Seller.

      


      Section
7.4                                Former Employees.
Upon the execution hereof, Arnon Aharon M.D and Iris Alroy PhD, formerly
employees of Pharmos IL, will be released from any restriction existing pursuant
to their engagement with the Seller, if any, in order to enable their engagement
as founders and employees of the Buyer, including any confidentiality,
non-solicitation and non-competition undertakings, to the extent applicable to
the Assets and the exploitation and use thereof. In addition, the foregoing
individuals shall be permitted to approach on behalf of and as part of the Buyer
any manufacturers, subcontractors and consultants introduced to them during
their engagement with Seller for the exploitation or use of the Assets by the
Buyer.

      


      


      ARTICLE
VIII

      TERMINATION

      


      Section
8.1                                Termination of Agreement
Prior to the Closing. This Agreement may be terminated and the
transactions contemplated hereby abandoned at any time prior to the Closing as
provided below:

      (a)           by
mutual written consent of the Buyer and the Seller;

      (b)           by
the Buyer, if any of the conditions set forth in Section 5 applicable to the
Seller shall have become incapable of fulfillment;

      (c)           by
the Seller, if any of the conditions set forth in Section 5 applicable to the
Buyer shall have become incapable of fulfillment;

      (d)           by
the Seller or the Buyer, if the Closing shall not have been consummated on or
before June 6, 2009; and

      (e)           by
the Buyer, if prior to the Closing occurred any adverse change in the condition
of the Assets.

      provided, however, that the Party
seeking termination pursuant to clauses (b) through (d) is not then in material
breach of any of its agreements or covenants contained in this Agreement or if
as a result of such Party's actions the Closing does not occur or is incapable
of fulfillment.


      
        
           


        

        
          17

          
            

          

        

        
           


        

      


      


      Any termination of this Agreement
pursuant to this Section 8.1 shall be effective upon delivery of notice by the
terminating party to the other party, and thereupon this Agreement and the
transactions contemplated hereby shall be terminated, without further action by
any Party.

      


      Section
8.2                                Termination of Agreement
Following the Closing. Following the Closing, Seller shall be entitled to
terminate the Agreement in the event that at any time prior to the second
anniversary of this Agreement: (i) Buyer (but not any of its Licensees or
assignees) permanently abandons the development or commercialization efforts of
the Assets or permanently ceases to sell Products (provided that the first
commercial sale of a Product actually occurs prior to such time); or (ii) Buyer
does not meet both of the following milestones (such that meeting any of the
milestones shall not entitle the Seller to terminate the Agreement): (a) Buyer
raises at least US$4,000,000 for its operation whether as equity investment,
loan, grant or other form of financing; and (b) completion of MTD trials in two
species (rodents and non rodents) compatible for IND filing. In the event that
at any time until the second anniversary of the Agreement, Buyer enters into a
Transaction, co-development agreement or any other form of strategic partnering,
then the Seller's right under this Section 8.2(ii) shall expire and be of no
further force and effect. Seller shall provide Buyer with prior written notice
of its intention to terminate this Agreement pursuant to Section 8.2 hereof, and
Buyer shall be entitled during the 30 day period following the receipt of such
notice to provide Seller with evidence that it continues the development or
commercialization efforts of the Assets or the sale of the Products, as
applicable or otherwise is in compliance with the terms of Section 8.2(ii). If
no such evidence is provided during the 30 day period, this Agreement shall be
terminated with no further action of the Seller. Any dispute under this
Agreement, shall be resolved pursuant to Section 9.10 below.

      


      Section
8.3                                Effect of
Termination.  If this Agreement is terminated pursuant to
Section 8.1, all obligations of the parties hereunder shall terminate without
any liability of either party to the other party (provided that the undertaking
in Section 9.11 regarding confidentiality shall survive any such
termination).  Notwithstanding the foregoing, termination of this
Agreement shall not relieve any Party for liability for any breach by such
Party, prior to the termination of this Agreement, of any covenant or agreement
(but not any representation or warranty) contained in this Agreement or impair
the right of any Party to obtain such remedies as may be available to it in law
or equity with respect to such a breach by any other Party.

      


      In
addition to the above, in the event that this Agreement is terminated in
accordance with Section 8.2, Buyer shall assign to Seller all right, title and
interest in and to the Assets and the Result "as is" in the condition of such
asset at the time of termination. The assignment upon termination in accordance
with Section 8.2(ii) shall be subject to the Seller repaying the Buyer the
Upfront Payment, assuming any of the Assumed Liabilities and reimbursing the
Buyer for the costs and expenses expended and incurred by the Buyer in
connection with the maintenance of the Patent Rights. In such event, Section 7.1
above shall apply on the Buyer, mutatis mutandis, with the necessary changes,
subject to the approval of the OCS.

      


      



      
        
           


        

        
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      ARTICLE
IX

      MISCELLANEOUS

      


      Section
9.1                                Notices.  All
notices, requests, demands, and other communications required or permitted to be
given or made hereunder by any party hereto shall be in writing and shall be
deemed to have been duly given or made (a) if delivered personally, at the time
of such delivery, (b) if transmitted by first class registered or certified
mail, postage prepaid, return receipt requested, three (3) business days after
the date of such mailing, (c) if sent by prepaid overnight delivery service, the
next business day after being sent, or (d) if transmitted by cable, telegram,
facsimile, or telex, at the time of such transmission, in each case to the
Parties at the following addresses (or at such other addresses as shall be
specified by the Parties by like notice):

      


      If to Seller:

      


      Pharmos
Corporation

      99 Wood
Avenue South, Suite 311

      Iselin,
NJ  08830, USA

      Phone:
(732) 452-9556

      Fax:
(732) 452-9557

      Email:
scneill@pharmos-us.com

      


      If to
Buyer:

      


      Reperio
Pharmaceuticals Ltd.

      12A
Kibush Ha’avoda Street

      Herzliya
46322, Israel

      


      
        	
                 
      

              	
                With
      a copy to:

              


      

      


      Baratz,
Horn & Co.

      1 Azrieli
Center

      Round
Tower, 18th
Floor

      Tel Aviv
67021, Israel

      Attention:  Yuval
Horn, Adv.

      Phone:  (972)
3-607-3777

      Fax:      (972)
3-607-3778

      Email:
y.horn@bar-law.com

       

      


      


      Section
9.2                                Entire
Agreement.  This Agreement, together with the schedules,
exhibits, annexes, and other writings referred to herein or delivered pursuant
hereto, constitutes the entire agreement between the Parties hereto with respect
to the subject matter hereof and supersedes all prior agreements and
understandings, both written and oral, between the Parties with respect to the
subject matter hereof, including the term sheet executed between the Parties on
January 20, 2009.


      
        
           


        

        
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      Section
9.3                                Amendment.  This
Agreement may be changed, modified, or amended only by an instrument in writing
duly executed by each of the Parties hereto.

      


      Section
9.4                                Waiver.  The
failure of any party to insist upon strict performance of a covenant hereunder,
irrespective of the length of time for which such failure continues, shall not
be a waiver of such party's rights to demand strict compliance in the
future.  No consent or waiver, express or implied to or of any breach
or default in the performance of any obligations hereunder shall constitute a
consent or waiver to or of any other breach or default in the performance of the
same or any other obligation hereunder.

      


      Section
9.5                                Binding Effect; Assignment;
No Third Party Benefit.  Neither this Agreement nor any of the
rights, interests, or obligations hereunder shall be assigned by either Party
without the prior written consent of the other Party, which shall not be
unreasonably withheld. This Agreement is binding upon, inures to the benefit of
and is enforceable by the Parties hereto and their respective successors and
permitted assigns. Notwithstanding, each Party may, without the other Party's
consent, assign this Agreement and the rights, obligations and interests of such
Party, in whole or in part, to any purchaser of all or substantially all of its
assets or shares, or to any successor corporation resulting from any merger or
consolidation of such Party with or into such corporation, provided that any such
assignee agrees in writing to be bound by the terms of this Agreement.
Nothing contained herein shall be interpreted or deemed to require the consent
of the Seller for any transaction or grant of rights in and to the Assets
following the Closing.

      


      Nothing in this Agreement, express or
implied, is intended to or shall confer upon any person other than the Parties
hereto, and their respective heirs, legal representatives, successors, and
permitted assigns, any rights, benefits, or remedies of any nature whatsoever
under or by reason of this Agreement.

      


      Section
9.6                                Severability.  If
any provision of this Agreement is held to be unenforceable, this Agreement
shall be considered divisible and such provision shall be deemed inoperative to
the extent it is deemed unenforceable, and in all other respects this Agreement
shall remain in full force and effect; provided, however, that if any such
provision may be made enforceable by limitation thereof, then such provision
shall be deemed to be so limited and shall be enforceable to the maximum extent
permitted by law.

      


      Section
9.7                                Governing
Law.  The Parties agree and confirm that all matters relating
to the validity, interpretation, implementation and enforcement of this
Agreement, and the rights, duties and obligations of the Parties pursuant
hereto, will be governed solely by the laws of the State of Israel, even if,
under the rules relating to the conflict of laws which apply in Israel it could
be held that another law governs.

      


      Section
9.8                                Fees and
Expenses.  All fees and expenses, including fees and expenses
incurred in connection with this Agreement and the transactions contemplated
hereby shall be paid by the Party incurring such fee or expense, whether or not
the Closing shall have occurred.


      
        
           


        

        
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      Section
9.9                                Counterparts;
Fax.  This Agreement may be separately executed in any number
of counterparts and by any of the Parties hereto in separate counterparts, each
of which when so executed shall be deemed to constitute one and the same
Agreement.  This Agreement may be validly executed and delivered by
facsimile or other electronic transmission.

      


      Section
9.10                                Arbitration.  In
respect of any action or proceeding arising out of or relating to this Agreement
or the transactions contemplated hereby, each of the Parties hereto consents to
Any dispute, controversy or claim arising in relation to this Agreement or the
transactions contemplated hereby, including with regard to its validity,
invalidity, breach, enforcement or termination, will be referred to a single
arbitrator, who shall be appointed by the Head of the Israeli Institute of
Commercial Arbitration.  Arbitration proceedings shall take place in
Tel Aviv, Israel, and shall be conducted according to the rules of substantive
law either in Hebrew or in English. The arbitrator will not be bound by rules of
evidence or procedure and will give the reasons for his judgment. The
arbitrator's decision shall be final and enforceable in any court. This
paragraph shall constitute an arbitration agreement between the
Parties.

      


      Section
9.11                                Confidentiality.
Following the execution hereof, the Buyer (the “Receiving Party”) agrees that,
without the express prior written consent of the Seller (the “Disclosing
Party”), it will keep confidential, and not disclose or use Disclosing Party’s
Confidential Information (as defined below) other than for the purposes of this
Agreement. Receiving Party shall treat such Confidential Information with the
same degree of confidentiality as it keeps its own confidential information, but
in all events no less than a reasonable degree of confidentiality. Receiving
Party may disclose the Disclosing Party’s Confidential Information only to
employees, and consultants of such party who have a “need to know” such
information in order to enable such party to exercise its rights and fulfill its
obligations under this Agreement and are legally bound by agreements which
impose confidentiality and non-use obligations comparable to those set forth in
this Agreement. This confidentiality obligation shall expire upon the Closing in
connection with any Confidential Information that relates to the Assets or
otherwise upon the fifth anniversary hereof. In the event that the Closing is
not held and this Agreement is terminated, this confidentiality obligation shall
survive such termination and shall expire upon the fifth anniversary
hereof.

      


      For purposes of this Agreement,
"Confidential Information" means any scientific, technical, trade or business
information, techniques, processes, materials, compositions, devices, methods,
formulas, trade secrets, patents and patent applications  disclosed by
or on behalf of the Disclosing Party to Receiving Party within the framework of
this Agreement, whether in oral, visual, written, graphic or electronic form,
except to the extent such information: (i) was known to such party at the time
it was disclosed, other than by previous disclosure by or on behalf of the
Disclosing Party, as evidenced by such Receiving Party’s written records at the
time of disclosure; (ii) is at the time of disclosure or later becomes publicly
known under circumstances involving no breach of this Agreement; (iii) is
lawfully and in good faith made available to Receiving Party by a third party
who is not subject to obligations of confidentiality to the Disclosing Party,
with respect to such information; or (iv) is independently developed by
Receiving Party without the use of or reference to the Confidential Information,
as demonstrated by documentary evidence.


      
        
           


        

        
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      Buyer is entitled to disclose this
Agreement and any Confidential Information as part of the due diligence process
by potential investors or collaborators under confidentiality undertaking,
provided such party is legally bound by agreements which impose confidentiality
and non-use obligations comparable to those set forth in this Agreement. Buyer
shall not use the name of Seller in its fund raising or collaboration efforts
other than as required in connection with the disclosure of the Agreement and
its terms.

      


      Section
9.12                                Publicity

      .  Neither
Party shall issue any press release or public announcement pertaining to this
Agreement, without the consent of the other Party, nor shall it use the other
Party's name, provided however that following the Closing the Buyer shall be
entitled to indicate that it has purchased the Assets from the
Seller.

       

      


       

      


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      IN WITNESS WHEREOF, the parties have
executed this Agreement, or caused this Agreement to be executed by their duly
authorized representatives, all as of the day and year first above
written.

      


      


      
        	
                PHARMOS
      LTD.

                 

              
	
                By:
      ______________________

              
	 
      
	 
      
	 
      
	 
      
	
                PHARMOS
      CORPORATION

                 

              
	
                By:
      ______________________

              
	 
      
	 
      
	 
      
	 
      
	
                REPERIO
      PHARMACEUTICALS LTD.

                 

              
	
                By:
      Silvia Noiman, PhD,
    MBA

              


      

      


       

       

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