**Exhibit 10.2**

 

**CONDITIONAL OPTION AGREEMENTBETWEENAVANTI POLAR LIPIDS, INC.ANDNEOPHARM, INC.**

 

 

**THIS CONDITIONAL OPTION AGREEMENT**ishereby made and entered into as of this the 26 day of January, 1999 (the“Effective Date”) by and between **AVANTI POLARLIPIDS, INC.,** an Alabama corporation having its principal place ofbusiness at 700 Industrial Park Drive, Alabaster, Alabama 35007 (“Avanti”), and**NEOPHARM, INC.,** a Delawarecorporation, having a place of business at 100 Corporate North, Suite 215,Bannockburn, Illinois 60015 (“Neopharm”).

 

**WITNESSETH:**

 

**WHEREAS**, Avanti isengaged in the production of certain lipids and other biochemical products suchas synthetic cardiolipin for sale primarily to third parties engaged inresearch and educational activities; and

 

**WHEREAS**, Neopharm isengaged in the development of proprietary liposomal products for use in theencapsulation of cancer drugs; and

 

**WHEREAS**, to date,Neopharm has developed two such products, Liposomal Doxorubiein and Paclitaxel;and

 

**WHEREAS**, syntheticcardiolipin is a key ingredient in both products; and

 

**WHEREAS**, Neopharmand Avanti entered into that certain Synthetic Cardiolipin Supply Agreement(the “Supply Agreement”) dated May 26, 1998, setting forth the terms pursuantto which Avanti will supply Neopharm with synthetic cardiolipin for use inLiposomal Doxorubicin and Paclitaxel; and

 

**WHEREAS**, Section5(e) of the Supply Agreement provides that in the event Avanti elects toterminate the manufacture of synthetic cardiolipin, Neopharm has a right toobtain a non-exclusive license from Avanti to allow Neopharm to continue themanufacture of synthetic cardiolipin on an uninterrupted basis; and

 

**WHEREAS**, Avanti andNeopharm wish to formalize the rights granted to Neopharm pursuant to Section5(e) of the Supply Agreement by entering into this Conditional OptionAgreement.

 

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**AGREEMENT**

 

**NOW, THEREFORE**, forgood and valuable consideration, including, the mutual covenants and agreementsset forth herein, the receipt and sufficiency of which is hereby acknowledged,Avanti and Neopharm, intending to be legally bound, hereby agree as follows:

 

**ARTICLE IDEFINITIONS**

 

**Section 1.1 “Avanti - GMP Production Process”**means those certain processes and procedures thatAvanti has developed and created for the production and manufacture of lipidsused by Avanti and which are in accordance with the “Good ManufacturingPractices” conditions as described in the United States Code of FederalRegulations and “Good Manufacturing Practices” regulations and the EuropeanCommunity Guide to Good Manufacturing Practices, in all events adhering to theU. S. GMP Regulations where conflict between the U. S. GMP Regulations and suchEuropean Community regulations arise.

 

**Section 1.2 “Avanti Intellectual Property”**means any and all innovations, patents, copyrights, trade secrets, patentableideas, copyrightable works, and all confidential technical, scientific orbusiness information, in whatever form or stage of completion, ownedexclusively by Avanti.

 

**Section 1.3 “Field of Use”**means the commercialization of any anthrocyclines and taxanes described in aValid Claim of a Neopharm Patent for use as pharmaceuticals.

 

**Section 1.4 “Neopharm Patent”**means one of the patents or patent applications listed on Exhibit A to thisConditional Option Agreement.

 

**Section 1.5 “Synthetic CardiolipinIntellectual Property”**means that portion of theAvanti Intellectual Property which relates either directly or indirectly tothat portion of the Avanti - GMP Production Process used to supply syntheticcardiolipin to Neopharm pursuant to the terms of the Supply Agreement.

 

**Section 1.6 “Valid Claim”**meansa claim of a Neopharm Patent which has not been held invalid by a non-appealedor unappealable decision by a court or other appropriate body of competent jurisdiction.

 

**ARTICLE IICONDITIONAL GRANT**

 

**Section 2.1 Conditional Option toNon-Exclusive License**.  In the event that, pursuant to Section 5(e) of the SupplyAgreement, Avanti elects to terminate the manufacture of synthetic cardiolipin,Avanti hereby grants to Neopharm an option to obtain a non-exclusive license tothe

 

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Synthetic CardiolipinIntellectual Property to make, have made, use, and sell synthetic cardiolipinin the Field of Use.

 

**Section 2.2 Option**.  This Conditional Option Agreement shallcommence on the Effective Date and shall expire on May 1, 2008, unless earlierterminated in accordance with the terms and conditions of the Supply Agreement.  In the event that the Supply Agreement isstill in effect on May 1, 2008, this Conditional Option Agreement shallthereafter automatically renew for additional terms of two (2) years each.Notwithstanding any other provision of the Supply Agreement or this ConditionalOption Agreement, however, this Conditional Option Agreement shall terminateautomatically upon termination of the Supply Agreement.

 

**Section 2.3 Option Exercise**.  The option contemplated in this Agreementshall become effective immediately upon Neopharm’s receipt of writtennotification from Avanti of Avanti’s decision to terminate the manufacture ofsynthetic cardiolipin for supply to Neopharm pursuant to the terms of theSupply Agreement (the “Avanti Notice of Termination”).  Neopharm shall have ninety (90) days fromits receipt of the Avanti Notice of Termination to exercise the optioncontemplated in this Agreement. Neopharm shall notify Avanti of its intent to exercise such option inwriting in accordance with the terms of Section 4.4 of this Conditional OptionAgreement.

 

**ARTICLE IIILICENSE TERMS**

 

Upon exerciseof the option, Avanti and Neopharm hereby agree to negotiate in good faith toestablish the terms of a non-exclusive license agreement granting Neopharmnon-exclusive rights to the Synthetic Cardiolipin Intellectual Property tomake, have made, use and sell synthetic cardiolipin in the Field of Use undersuch terms and conditions as are customary in the trade.  Such non-exclusive license agreement shallinclude, without limitation, the following provisions: a license fee, milestonepayments, royalty payments, right to grant sublicenses together with provisionsallocating the proceeds derived from any such sublicenses between Avanti andNeopharm, a commitment by Neopharm and any sublicensee to exert their bestefforts to utilize synthetic cardiolipin in the Field of Use as rapidly aspracticable, the right of Avanti to terminate the non-exclusive license shouldNeopharm or its sublicensee fail to meet specified due-diligence milestones,and indemnity and insurance provisions.

 

**ARTICLE IVGENERAL TERMS AND CONDITIONS**

 

**Section 4.1 Assignability; Assumption**.  This Conditional Option Agreement shall bebinding upon and shall inure to the benefit of the parties, their legalrepresentatives, successors and assigns. This Conditional Option Agreement and any rights granted hereunder maynot be assigned, transferred or conveyed by either party without the priorwritten consent of the other; provided, however, that Neopharm may assign thisConditional Option Agreement to Pharmacia and Upjohn, Inc. without Avanti’sconsent.  In the event that Avanti shallsell all or substantially all of its assets

 

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relating to the manufacture of Synthetic Cardiolipin to another entity,or in the event that Avanti shall merge (or otherwise combine) with or intoanother entity and shall not be the surviving entity, Avanti agrees that itshall impose as a condition to any such sale or combination that thisConditional Option Agreement shall be a part of the assets which aretransferred and taken up by the purchaser of the assets or the obligationsimposed by this Conditional Option Agreement shall be specifically assumed byany such surviving entity purchaser.

 

**Section 4.2 Choice of Law; Amendment. **This Agreementshall be governed by and construed in accordance with the laws of the State ofAlabama.  Any modifications, changes oramendments to this Agreement shall be effective only if in writing and signedby a duly authorized representative of each party.

 

**Section 4.3 Entire Agreement. **This Agreementconstitutes the entire understanding of the parties relating to the grant byAvanti to Neopharm of a conditional option to acquire a non-exclusive licenseto the Synthetic Cardiolipin Intellectual Property to make, have made, use andsell synthetic cardiolipin in the Field of Use.  Neither Avanti nor Neopharm have relied on and do not rely on anyrepresentations or statements by the other party or such party’s agents,whether verbal or written, with respect to the subject matter of thisConditional Option Agreement.

 

**Section 4.4 Notices. **Any notice,communication or other information permitted or required to be given under thisAgreement shall be effective and deemed properly given upon sending withconfirmed written answer back, if sent by facsimile; upon delivery, return asundeliverable, or refusal of delivery, if delivered by hand; or on the seventh(7th) day after being placed in the United States Mail, addressed to a party atthe address set forth below or as hereinafter identified by a party, postageprepaid, return receipt requested; in all events any such notice, communicationor information shall be sent to the parties addressed as follows:

 
| If to Avanti:   |   | Avanti Polar Lipids, Inc.      |
|-----------------|--------|--------------------------------|
|            |   | 700 Industrial Park Drive      |
|            |   | Alabaster, Alabama 35007       |
|            |   | Attention: Dr. Walter A. Shaw  |
|            |   | Facsimile: 205/663-0756        |
|            |   |                           |
| If to Neopharm: |   | Neopharm, Inc.                 |
|            |   | 100 Corporate North, Suite 215 |
|            |   | Bannockburn, Illinois 60015    |
|            |   | Attention: Mr. James M. Hussey |
|            |   | Facsimile: (847) 295-8678      |

 

Any party may give notice of a change of address, facsimile number,telephone number or other pertinent mailing or delivery information from timeto time, so long as such notice is given in accordance with this Section.

 

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**Section 4.5 Captions. **The captionscontained in this Agreement are inserted only as a matter of convenience and inno way define, limit, extend or describe the scope of this Agreement or theintent of any provision hereof.

 

**Section 4.6 Severability. **The invalidity, inwhole or in part, of any covenant, promise, undertaking or any paragraph,subsection, sentence, clause, phrase or word or any provision of thisConditional Option Agreement shall not affect validity of the remaining portionsthereof.  Each party acknowledges andagrees that the restrictions contained in this Conditional Option Agreement arereasonable and valid in scope and in all other respects.  If any provision of this Conditional OptionAgreement or the application thereof by or to any party or circumstance shallbe determined to be invalid or unenforceable to any extent, the remainder ofthis Conditional Option Agreement and the application of such provision toother parties or circumstances shall not be affected thereby and shall beenforced to the maximum permitted under applicable law.  Without limiting the generality of theforegoing, if any court of competent jurisdiction determines that any part ofthis Conditional Option Agreement is unenforceable because of the duration orscope of any provision, or both, the parties agree that such duration or scopeshall be reduced to the extent determined to be reasonable by such court ofcompetent jurisdiction and, in its reduced form, such provisions shall then bevalid and enforceable.

 

**IN WITNESS WHEREOF**,each Party has caused the due execution of this Agreement as of the EffectiveDate.

 
| **ATTEST:** |                                 |   | **Avanti Polar  Lipids, Inc.,**an Alabama corporation, |
|-------------|--------------------------------------|--------|--------------------------------------------------------|
|        |                                 |   |                                                   |
| By:         |   /s/ Stephen W. Burgess   |   |                                                   | By: |   /s/ Walter A. Shaw |   |
|        |                                 |   |                                                   |   | Walter A. Shaw, Ph.D. |
| Its:        | Director, Research & Development |   |                                                   | Its: | President |
|        |                                 |   |                                                   |
| **ATTEST:** |                                 |   | **Neopharm, Inc.,**a Delaware corporation,             |
|        |                                 |   |                                                   |
| By:         |   /s/ Lewis Strauss        |   |                                                   | By: |   /s/ James M. Hussey |   |
|        |                                 |   |                                                   |   | James M. Hussey, R. Ph., M.B.A. |
| Its:        | CHIEF MEDICAL OFFICER                |   |                                                   | Its: | President |
|             |                                      |        |                                                        |  |  |  |  |  |  |

 

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**EXHIBIT A**

 

**Neopharm Patents**

 

United States Patent No.5,560,923, *Method of encapsulatinganthracycline in liposomes*, issued October 1, 1996.

 

United States Patent No.5,424,073, *Liposome encapsulated taxol and amethod of using the same*, issued June 13, 1995.

 

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