1

 
Edison has satisfied the Minimum ESC Requirement will be determined in accordance with theAgreement.     3. Mutual Release. In consideration of the agreements and mutual obligations executedherein, each of Penwest and Edison hereby agrees to fully release and forever discharge the otherparty hereto and their respective subsidiaries, divisions, parents, affiliated companies,successors and assigns, and all of their respective officers, directors, shareholders, employees,contractors, agents, and representatives, from any claim, whether known or unknown, relating to theforegoing dispute identified in Section A above; provided, however, that nothing in this SettlementAgreement shall operate to release any party hereto from (a) any obligation or representation setforth in this Settlement Agreement, or (b) any claims arising from the commission or allegedcommission of any fraud by such party.     4. California Civil Code Section 1542. The parties acknowledge that they have beenadvised by legal counsel and are familiar with the provisions of California Civil Code Section1542, which provides as follows:“A general release does not extend to claims which the creditor does not know orsuspect to exist in his favor at the time of executing the release, which if knownby him must have materially affected his settlement with the debtor.”     The parties hereto, being aware of said code section, agree to expressly waive any rights theymay have thereunder, or under any similar provision under the laws of any other jurisdiction, aswell as under any other statute or common law principles of similar effect with respect to therelease set forth in Section B(3) above.     5. Offset Against Milestones and Royalties. Penwest may offset the “Specified Amount”(as defined below) against fifty percent (50%) of any milestone payments owed by Penwest after thedate of this Settlement Agreement under Section 6.1 of the Agreement and any royalty payments owedunder Section 7.1 of the Agreement. The Specified Amount is $550,000. For example, upon Penwest’sselection of a Future Compound for development under the Collaboration pursuant to Section 2.3.3,Penwest may offset fifty percent (50%) of the $500,000 payment, resulting in a net payment toEdison of $250,000, with $300,000 of the Specified Amount remaining for offset against milestonesor royalties payable thereafter. The amount of any offset when added together with all prioroffsets shall not exceed the Specified Amount, subject to the provisions of Section 6 below.     6. Loan Repayment. Simultaneously with the execution of the Agreement, Penwest andEdison entered into a Loan Agreement dated as of July 16, 2007 (the “Loan Agreement”) pursuant towhich Penwest loaned $1,000,000 to Edison (plus interest accrued but unpaid pursuant to the termsof the Loan Agreement, the “Loan Amount”). A disagreement has arisen with regard to whether an“Event of Default” has occurred due to Edison’s failure to meet the Minimum ESC Requirement.Penwest and Edison have agreed that the Loan Amount shall be repaid as follows: after the entireSpecified
2

 
Amount has been offset pursuant to the terms of Section B(5) above, the Loan Amount may beoffset by Penwest against fifty percent (50%) of any milestone payments owed by Penwest after thedate of this Settlement Agreement under Section 6.1 and any royalty payments owed under Section7.1, it being understood that such reduction shall be applied to the Loan Amount as if suchreduction were a permitted prepayment and in accordance with Section 2(e) of the Loan Agreement.The Loan Amount is otherwise due and payable by Edison according to original terms under the LoanAgreement, including without limitation the continued accrual of interest on the outstandingprincipal balance of the Loan as set forth in the Loan Agreement. For clarity, Penwest herebyforever waives any and all Events of Default (as such term is defined in the Loan Agreement)occurring on or before the date hereof.     7. No Other Modification of Agreements. Except as otherwise expressly set forth inthis Settlement Agreement, the terms of the Agreement and the Loan Agreement remain in full forceand effect.C. Miscellaneous     1. No Admission of Liability. The parties hereto understand and acknowledge that thisSettlement Agreement constitutes a compromise and settlement. Except as otherwise set forthherein, no action taken by the parties hereto, or any of them, either previously or in connectionwith this Settlement Agreement shall be deemed or construed to be (a) an admission of the truth orfalsity of any claims heretofore made or (b) an acknowledgment or admission by any party of anyfault or liability whatsoever to the other party or to any third party.     2. Authority. The parties hereto each represent that they have the full legal right,power and authority (both corporate or otherwise) to execute, deliver and perform this SettlementAgreement, that all corporate action necessary for the execution, delivery and performance of thisSettlement Agreement has been duly taken, that they are not under any disability to sign it andthat each party has consulted with its own attorney or counsel before executing this SettlementAgreement. Each party warrants and represents that there are no liens or claims of lien orassignments in law or equity or otherwise of or against any of the claims or causes of actionreleased herein.     3. Severability. In the event that any provision hereof becomes or is declared by acourt of competent jurisdiction to be illegal, unenforceable or void, this Settlement Agreementshall continue in full force and effect without said provision.     4. Entire Agreement. This Settlement Agreement, along with the Agreement and the LoanAgreement, represent the entire agreement and understanding between the parties concerning theobligations set forth herein and supersede and replace any and all prior agreements andunderstandings concerning the subject matter hereof.     5. No Oral Modification. This Settlement Agreement may only be amended in writingsigned by the parties.
3

 
     6. Governing Law. This Settlement Agreement shall be governed by, subject to andconstrued in accordance with the laws of the State of Delaware.     7. Counterparts. This Settlement Agreement may be executed in counter-parts, and eachcounterpart shall have the same force and effect as an original and shall constitute an effective,binding agreement on the part of each of the undersigned.     8. Voluntary Execution of Agreement. This Settlement Agreement is executedvoluntarily and without any duress or undue influence on the part or behalf of the parties hereto,with the full intent of releasing all claims. The parties acknowledge that: (i) They have read this Settlement Agreement;  (ii) They have been represented in the preparation, negotiation, andexecution of this Settlement Agreement by legal counsel of their own choice orthat they have voluntarily declined to seek such counsel;  (iii) They understand the terms and consequences of this SettlementAgreement and of the releases it contains; and  (iv) They are fully aware of the legal and binding effect of thisSettlement Agreement.               EDISON PHARMACEUTICALS, INC.   PENWEST PHARMACEUTICALS CO.               By: /s/ Guy Miller   By: /s/ Jennifer L. Good      Title:  Chairman & CEO   Title:  President & CEO      Date: May 5, 2009   Date: May 5, 2009      
4