Document:

Exhibit 10.23

 

CONFIDENTIAL
TREATMENT REQUESTED

 

EXECUTION
COPY

 

‘MANUFACTURING
TRANSFER AGREEMENT

(Controlled Release Metformin Formulations — USA)

 

DEPOMED, INC.
a company organized under the laws of California, USA 

with offices at 

1360 O’Brien Drive

Menlo Park,

California, 94025

 

AND:

 

BIOVAIL LABORATORIES INTERNATIONAL SRL

a Barbados society with restricted liability,

whose head office is

Chelston Park

Building 2, Collymore Rock

St. Michael BH1

Barbados, West Indies

 

Biovail – Depomed
Manufacturing Transfer Agreement

 

THE SYMBOL [***] IS USED
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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

Contents

 

	
  1.

  	
  DEFINITIONS

  	
  2

  
	
   

  	
   

  	
   

  
	
  2.

  	
  1000MG PRODUCT LICENSES

  	
  7

  
	
   

  	
   

  	
   

  
	
   

  	
  PATENT LICENSE

  	
  7

  
	
   

  	
  TRADEMARK LICENSE

  	
  7

  
	
   

  	
  RESERVATION OF RIGHTS

  	
  8

  
	
   

  	
  EXPORTATION

  	
  8

  
	
   

  	
   

  	
   

  
	
  3.

  	
  TRANSFER OF NDA

  	
  9

  
	
   

  	
   

  	
   

  
	
   

  	
  TRANSFER OF TECHNICAL INFORMATION

  	
  9

  
	
   

  	
  MANUFACTURING OF THE 500MG PRODUCT

  	
  11

  
	
   

  	
   

  	
   

  
	
  4.

  	
  ROYALTIES

  	
  11

  
	
   

  	
   

  	
   

  
	
   

  	
  NO ROYALTIES ON CERTAIN PRODUCTS

  	
  11

  
	
   

  	
  ROYALTIES ON 1000MG PRODUCT

  	
  11

  
	
   

  	
  ROYALTIES ON 500MG PRODUCT

  	
  12

  
	
   

  	
  REDUCTION OF ROYALTIES

  	
  12

  
	
   

  	
  ROYALTY REPORTS AND PAYMENTS

  	
  13

  
	
   

  	
  RECORDS AND AUDITS

  	
  13

  
	
   

  	
   

  	
   

  
	
  5.

  	
  PATENTS, INFRINGEMENT

  	
  14

  
	
   

  	
   

  	
   

  
	
   

  	
  INFRINGEMENT

  	
  14

  
	
   

  	
  INFRINGEMENT OF THIRD PARTY PATENTS

  	
  15

  
	
   

  	
   

  	
   

  
	
  6.

  	
  OWNERSHIP OF INVENTIONS AND KNOW-HOW

  	
  16

  
	
   

  	
   

  	
   

  
	
   

  	
  OWNERSHIP OF INTELLECTUAL PROPERTY RIGHTS

  	
  16

  
	
   

  	
  DISCLOSURE OF INVENTIONS

  	
  17

  
	
   

  	
  FILING AND PROSECUTION OF PATENT
  APPLICATIONS BY DEPOMED

  	
  17

  
	
   

  	
  FILING AND PROSECUTION OF PATENT
  APPLICATIONS BY BLS

  	
  18

  
	
   

  	
   

  	
   

  
	
  7.

  	
  REPRESENTATIONS AND WARRANTIES;
  NON-COMPETITION

  	
  19

  
	
   

  	
   

  	
   

  
	
   

  	
  REPRESENTATIONS AND WARRANTIES OF BLS

  	
  19

  
	
   

  	
  MUTUAL REPRESENTATIONS AND WARRANTIES

  	
  20

  
	
   

  	
  NON-COMPETITION

  	
  20

  
				

 

THE
SYMBOL [***] IS USED TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN
OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS
BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

ii

 

CONFIDENTIAL TREATMENT REQUESTED

 

	
  8.

  	
  INDEMNIFICATION

  	
  21

  
	
   

  	
   

  	
   

  
	
   

  	
  INDEMNIFICATION OF BLS

  	
  21

  
	
   

  	
  INDEMNIFICATION OF DEPOMED

  	
  22

  
	
   

  	
   

  	
   

  
	
  9.

  	
  CONFIDENTIALITY

  	
  23

  
	
   

  	
   

  	
   

  
	
  10.

  	
  TERM

  	
  24

  
	
   

  	
   

  	
   

  
	
  11.

  	
  EXPIRY AND TERMINATION

  	
  25

  
	
   

  	
   

  	
   

  
	
  12.

  	
  PUBLICITY

  	
  27

  
	
   

  	
   

  	
   

  
	
  13.

  	
  ASSIGNABILITY

  	
  27

  
	
   

  	
   

  	
   

  
	
  14.

  	
  PATENT LIFE EXTENSION

  	
  28

  
	
   

  	
   

  	
   

  
	
  15.

  	
  NOTICES

  	
  28

  
	
   

  	
   

  	
   

  
	
  16.

  	
  FORCE MAJEURE

  	
  29

  
	
   

  	
   

  	
   

  
	
  17.

  	
  MISCELLANEOUS

  	
  30

  
					

 

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iii

 

CONFIDENTIAL TREATMENT
REQUESTED

 

MANUFACTURING
TRANSFER AGREEMENT

(Controlled Release Metformin Formulations — USA)

 

THIS MANUFACTURING TRANSFER AGREEMENT is made as of the 13th
day of December, 2005, by and between

 

DEPOMED, INC.
a company organized under the laws of California, USA 

with offices at 

1360 O’Brien Drive

Menlo Park,

California, 94025

 

(Hereinafter
referred to as “Depomed”)

 

AND:

 

BIOVAIL LABORATORIES INTERNATIONAL SRL

a Barbados society with restricted liability,

whose head office is

Chelston Park

Building 2, Collymore Rock

St. Michael BH1

Barbados, West Indies

 

(Hereinafter referred to as “BLS”)

 

RECITALS

 

A.                                   BLS
is the owner of original processes, a patent application and know-how for the
development and manufacture of oral drug delivery systems which form the
basis of the 1000mg Product (as defined herein).

 

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B.                                     BLS
has developed and may further develop products using proprietary BLS drug
delivery technology, including without limitation as contemplated by the Supply
Agreement.

 

C.                                     BLS
has agreed to assign to Depomed the Regulatory Approval obtained by BLS or its
Affiliate for the 500mg Product, which Regulatory Approval will be supplemented
with an Application for Regulatory Approval for the 1000mg Product.

 

D.                                    Depomed
desires to obtain rights to market and sell the 1000mg Product in the
Territory.

 

NOW, THEREFORE, in consideration of the agreements and covenants
hereinafter set forth herein and intending to be legally bound hereby, the
parties hereto covenant and agree as follows:

 

1.                                      DEFINITIONS.

 

The terms defined in this Article 1
shall, for all purposes of this Agreement, have the following meanings:

 

1.1                                 “1000mg Product” shall mean the
once-daily oral formulation of the Active Ingredient in combination with BLS’s
proprietary drug delivery technology described in the Patent Rights and
developed pursuant to the Work Plan.

 

1.2                                 “500mg Product” shall mean the
once daily oral tablet formulation of the Active Ingredient in a 500 mg
strength using the AcuForm Delivery Technology that is the subject of NDA No. 21-748
filed with the FDA on April 27, 2004 (as such NDA may be amended or
supplemented subsequent to the Effective Date).

 

1.3                                 “Active Ingredient” shall mean the
chemical compound known as metformin HCl.

 

1.4                                 “Affiliate” shall mean any
corporation or other entity that directly, or indirectly through one or more
intermediaries, controls, is controlled by, or is under common control with the
designated party but only for so long as such relationship exists. For the
purposes of this Section, “Control” shall mean ownership of at
least fifty percent (or such lesser percent as may be the maximum that may be
owned by foreign interests pursuant to the laws of the country of
incorporation) of the shares of stock entitled to vote for directors in the
case of a corporation and at least fifty percent (or such lesser percent as may be
the 

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

maximum
that may be owned by foreign interests pursuant to the laws of the country
of domicile) of the interests in profits in the case of a business entity other
than a corporation.

 

1.5                                 “Application for Regulatory Approval” shall mean an application made to a
Regulatory Authority in any country for permission to Market a pharmaceutical
product in that country.

 

1.6                                 “AcuForm Delivery Technology”
shall mean Depomed’s delivery system
designed to be retained in the stomach for an extended period of time while
that delivery system delivers the incorporated drug or drugs, and includes the
Depomed Patent Rights.

 

1.7                                 “Depomed
Revenues” shall mean
for any calendar quarter, the aggregate of all amounts received, or receivable
in future periods, by Depomed or its Affiliates and assigns in respect of sales
of 1000mg Product by Distributors made in that calendar quarter, or in respect
of sales by Depomed’s licensees of the 500mg Product made in that calendar
quarter, as applicable, including without limitation supply prices, royalties,
trademark license fees, handling fees and commissions, less the following
deductions actually allowed and taken and not otherwise recovered by or
reimbursed to Depomed or its Affiliates and assigns in respect of such amounts:  (i) rebates, credits or other
reimbursements actually paid; and (ii) amounts repaid or credited by
reason of rejections, defects or returns or because of retroactive price
reductions. Depomed Revenues shall not include amounts in respect of sales of
1000mg Product or 500mg Product between or among Depomed or its Affiliates or
assigns.

 

1.8                                 “Distributor” shall mean an
entity designated by Depomed to perform its distribution and Marketing
activities with respect to the 1000mg Product in the Territory, in accordance
with the terms of this Agreement.

 

1.9                                 “Effective Date” shall mean the date
first written on page 1 of this Agreement.

 

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TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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1.10                           “FDA” shall mean the United States
Food and Drug Administration or any successor United States governmental agency
performing similar functions with respect to pharmaceutical products.

 

1.11                           “Final Judgment” shall
mean a judgment by a court of competent jurisdiction that is unappealed (and
the time for appealing has expired) or is unappealable.

 

1.12                           “Invention” shall mean each of the 500mg Product
and the 1000mg Product, any improvement to the 500mg Product or the 1000mg
Product, any new use of the 500mg Product or the 1000mg Product, any new
performance characteristic of the 500mg Product or the 1000mg Product, any new
process used to Manufacture the 500mg Product or the 1000mg Product, or any
step or steps in any such process, and includes all formulations of the 500mg
Product or the 1000mg Product.

 

1.13                           “Know-How” shall mean all
inventions, discoveries, trade secrets, improvements and information not in the
public domain, whether or not patented or patentable (but excluding Patent
Rights), together with all experience, data, formulas, procedures and results,
and improvements thereon, now or hereafter developed or acquired by and
proprietary or licensed with right to sublicense to BLS on the date hereof or
which are developed or acquired during the term of and in connection with this
Agreement, which relate to or are used in conjunction with the development,
manufacture or use of 1000mg Product.

 

1.14                           “Knowledge” or “knowledge” shall mean, with respect to BLS, the
actual knowledge of the executive officers of BLS, after reasonable inquiry
directed to such employees of BLS who would reasonably be expected to have knowledge
of relevant matters.

 

1.15                           “Manufacture”
shall mean to process, prepare, make, and analyze, and Manufacturing and
Manufactured shall have a corresponding meaning.

 

1.16                           “Market” shall mean to promote, distribute, package,
label, market, advertise, sell or offer to sell, and Marketing shall have a
corresponding meaning.

 

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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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1.17                           “NDA” shall mean a New Drug
Application or equivalent application for approval to market submitted to the
FDA.

 

1.18                           “Net Sales” shall mean the total of all
amounts invoiced by Depomed, its Affiliates, Distributors, licensees and
assigns for 1000mg Product and 500mg Product, as applicable, sold to
independent, unrelated third parties in the Territory in bona fide arms-length
transactions, less the following deductions actually allowed and taken by such
third parties and not otherwise recovered by or reimbursed to Depomed or its
Affiliates, sub-licensees and assigns: (i) trade, cash and quantity
discounts in such amounts as are customary in the trade; (ii) rebates,
credits or other reimbursements actually paid; (iii) taxes on sales (such
as sales or use taxes) to the extent added to the sales price and set forth
separately as such in the total amount invoiced; (iv) value added taxes
when included as part of the sales price and not refunded to the payor; (v) freight,
insurance, and other transportation charges to the extent added to the sales
price and set forth separately as such in the total amount invoiced; and (vi) amounts
repaid or credited by reason of rejections, defects or returns or because of
retroactive price reductions. Net Sales shall not include sales of a 1000mg
Product or a 500mg Product between or among Depomed, its Affiliates,
Distributors, licensees or assigns.

 

1.19                           “Party” shall mean BLS or Depomed,
and “Parties” shall mean BLS and Depomed.

 

1.20                           “Patent Rights” shall mean any
patent application or issued patent covering 1000mg Product or any improvement
to 1000mg Product or any methods for making or using 1000mg Product or any improvement
to such methods, which patents or patent applications are owned by or licensed
to BLS as of the date hereof or which are developed or acquired by or licensed
to BLS during the term of this Agreement, in the Territory, including any
addition, continuation, continuation-in-part, or division thereof or any
substitute application thereof, any reissue or extension of any such patent,
and any confirmation patent, registration patent revalidation patent, or patent
of addition based on 

 

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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
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CONFIDENTIAL TREATMENT
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any such
patent, and includes without limitation the United States patent application
set forth in Schedule 1.20.

 

1.21                           “Regulatory Approval” shall mean the permission or consent granted by any relevant Regulatory
Authority for the Marketing of 1000mg Product in the Territory, and includes
all of the contents of the Application for Regulatory Approval as approved by
that Regulatory Authority, and any Drug Master File referenced by that
Application for Regulatory Approval.

 

1.22                           “Regulatory Authority” shall mean, in respect of any country, any government or other agency
responsible for the issuance of approval to Market pharmaceutical products in
or sold from that country, including without limitation the FDA.

 

1.23                           “Regulatory Data” shall mean all
information and data necessary to obtain or maintain Regulatory Approval for
1000mg Product in the Territory, including post-approval reports, filings and
submissions and shall include, but not be limited to, any Clinical Information
required for that purpose.

 

1.24                           “Supplemental NDA” shall mean
the supplemental NDA related to the 1000mg Product to be developed and
submitted in accordance with the Work Plan.

 

1.25                           “Supply Agreement” shall mean
the Supply Agreement, dated as of the Effective Date, between Depomed and BLS
relating, inter alia, to the 1000mg Product.

 

1.26                           “Technical Information” shall mean
all Know-How, and all trade secrets, inventions, data and technology relating
to the 500mg Product or the 1000mg Product, and any improvements and
modifications to any of the foregoing, and includes, without limitation,
processes and analytical methodology used in the development, testing, analysis
and manufacture of the 500mg Product or the 1000mg Product, and medical,
clinical, toxicological and other scientific data relating to the 500mg Product
or the 1000mg Product.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
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1.27                           “Territory” shall mean the United
States and its possessions, including Puerto Rico.

 

1.28                           “Trademark” shall mean the “Glumetza”
trademark owned by BLS.

 

1.29                           “Valid Claim” shall mean a claim of (a) an
unexpired issued patent falling within Patent Rights, which claim shall not
have been withdrawn, cancelled, disclaimed or held invalid by a court,
tribunal, arbitrator or governmental agency of competent jurisdiction in a
final or unappealed or unappealable decision or (b) of any patent
application that has not been cancelled, withdrawn or abandoned, or has been
pending for more than seven years.

 

1.30                           “Work Plan” shall mean the work
plan related to the development of the 1000mg Product, as referred in the
Supply Agreement.

 

2.                                      1000MG PRODUCT LICENSES

 

Patent
License

 

2.1                                 Subject to the provisions of Section 2.4,
BLS hereby grants to Depomed an exclusive license in the Territory under Patent
Rights, with the right to grant sublicenses of the same scope as the license
granted by this Agreement, (except that any sublicensee shall have no right to
grant further sublicenses), to Manufacture, have Manufactured, Market, use and
sell 1000mg Product.

 

Trademark
License

 

2.2                                 Subject to the provisions of Section 2.4,
BLS hereby grants to Depomed an exclusive license in the Territory to the
Trademark for the purpose of Marketing the 1000mg Product in the Territory. Except
as set forth in the preceding sentence, nothing herein shall be deemed to give
either Party any rights to the trademarks of the other Party.

 

2.3                                 The licenses granted to Depomed
pursuant to sections 2.1 in respect of the Manufacture of the 1000mg Product
shall become operative only when Depomed acquires the right to 

 

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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
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grant a
sublicense to a third party supplier pursuant to Section 16.2(b) of
the Supply Agreement.

 

Reservation
of Rights

 

2.4                                 BLS reserves to itself the right

 

(a)                                  to Manufacture the 1000mg Product
for supply to Depomed pursuant to the terms of the Supply Agreement, and to
grant licenses to its Affiliates and to qualified third parties the right to
Manufacture the 1000mg Product for that purpose; and

 

(b)                                 to Manufacture the 1000mg Product
in the Territory for Marketing outside the Territory.

 

Exportation

 

2.5                                 To the extent legally permissible,
Depomed shall use, and shall cause its Affiliates to use, commercially
reasonable efforts to prevent the exportation of the 1000mg Product outside of
the Territory. Depomed shall not, and shall cause its Affiliates not to,
directly or indirectly, in any manner whatsoever, enter into or engage in the
Marketing of the 1000mg Product outside the Territory, and shall not sell the
1000mg Product to any person or entity whom Depomed or an Affiliate of Depomed
has reason to believe may sell or who, to the knowledge of Depomed or an
Affiliate of Depomed, has in the past sold the 1000mg Product outside the
Territory (any such sale, an “Unauthorized Sale”). Depomed shall
promptly use commercially reasonable efforts to take any action reasonably
available to Depomed, and shall within sixty (60) days after any Unauthorized
Sale has come to the attention of Depomed or an Affiliate of Depomed, initiate
all steps lawfully available to Depomed or that Affiliate in the Territory, to
prevent such Unauthorized Sales.

 

2.6                                 BLS and its Affiliates in the United
States, shall use commercially reasonable efforts to take steps lawfully and
reasonably available to them to prevent or reduce Unauthorized Sales.

 

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TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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3.                                      TRANSFER OF NDA

 

3.1                                 As soon as practicable but in no event
later than forty-five (45) days after the Effective Date, BLS shall provide
Depomed with letters addressed to FDA authorizing and requesting that each of
the NDA and IND owned by BLS and pertaining to the 500mg Product and 1000mg
Product be transferred, in its entirety, to the name of Depomed. BLS shall
provide Depomed with a copy of the letter and Depomed shall immediately send a
letter to FDA accepting the NDA and IND. The Parties acknowledge that, prior to
the transfer to Depomed contemplated by this Section 3.1:  (i) the CMC Section of the NDA
related to the 1000mg Product will be transferred to a drug master file in
order to preserve the confidentiality of certain BLS proprietary information
reflected therein, and (ii) certain information related to a solvent-based
1000 mg extended release metformin formulation currently included within the
NDA covering the 500mg Product will be removed from the NDA or transferred to a
drug master file.

 

Transfer
of Technical Information

 

3.2                                 The Parties acknowledge that BLS has
generated certain Technical Information related to the 500mg Product subsequent
to the execution of the Prior Agreement. Accordingly, BLS shall at the written
request of Depomed (a) disclose and transfer to Depomed all of the
Technical Information in the possession of BLS and (b) provide to Depomed
such training and support at the facilities of Depomed, its licensee or its contract
manufacturer, as Depomed, its licensee or its contract manufacturer reasonably
requires to efficiently and economically optimize use of the Technical
Information related to the 500mg Product in the Manufacture and Marketing of
the 500mg Product (the “Technology Transfer”). Depomed shall arrange for
access to the facilities of any licensee or contract manufacturer, at its own
expense, to enable such disclosure and transfer to be conducted. BLS shall
provide sufficient personnel to assist in the Technology Transfer as described
in this Article 3, and may direct or authorize any contract
manufacturer of BLS to provide any part of such Technology Transfer. BLS
and Depomed shall cooperate to ensure that 

 

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TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
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the
Technology Transfer may be completed as expeditiously as possible, but not
later than [***].

 

3.3                                 The training and support to be provided
by BLS to Depomed for the Manufacture of the 500mg Product shall include,
without limitation:

 

(a)                                  training and support in all of the
methods necessary to practice the Technical Information in the analysis,
formulation and manufacturing of the 500mg Product;

 

(b)                                 demonstration of, and support and
training in, the manufacturing processes, analytical testing, packaging and QC
using the Technical Information at that manufacturing facility of BLS or any
third party contract manufacturer, and

 

(c)                                  technical support for the
successful manufacturing by Depomed of three validation batches of the 500mg
Product.

 

3.4                                 In fulfillment of the obligations of
BLS under Section 3.3, and at Depomed’s request upon reasonable notice,
during normal business hours, BLS shall provide not more than three (3) people
who are in BLS’s reasonable determination fully qualified with respect to and
familiar with the procedures and processes used in the Manufacture of the 500mg
Product, for a cumulative period of not more than ten (10) business days
each, to provide or to cause to be provided to Depomed the assistance and
Know-How required pursuant to Section 3.3 to enable Depomed to Manufacture
the 500mg Product in the Territory and to observe and assist in the Manufacture
by Depomed, at Depomed’s own expense, of three (3) pivotal batches of the
500mg Product, at no cost to Depomed. BLS shall not be required to update any
dossiers or other files provided to Depomed as part of the assistance to
be provided to Depomed pursuant to this Article 3 beyond what is required
to put such dossiers or files in compliance with the then current Laws of the
Territory. The obligations of BLS to provide technical assistance under Section this
Article 3 shall expire [***]
years after Depomed’s first request for documents or information under Section 3.3.

 

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TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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Manufacturing
of the 500mg Product

 

3.5                                 BLS will assist Depomed in facilitating
supply arrangements between Depomed and BLS’s tablet and active pharmaceutical
ingredient manufacturers of the 500mg Product, and other suppliers to BLS
involved in the manufacture or packaging of the 500mg Product. Concurrently
with the execution of this Agreement, BLS shall have eliminated any conditions
in its supply agreements related to the 500mg Product that preclude any BLS
supplier from manufacturing either the 500mg Product or active pharmaceutical
ingredient for Depomed, and has provided Depomed with evidence of the
elimination of any such provision.

 

4.                                      ROYALTIES

 

No
Royalties on Certain Products

 

4.1                                 Notwithstanding the provisions of
Sections 4.2 to 4.7 below, no royalties shall be payable on any Net Sales of,
or on any Depomed Revenues relating to, any quantities of the 1000mg Product
supplied to Depomed pursuant to the provisions of the Supply Agreement.

 

Royalties
on 1000mg Product

 

4.2                                 In consideration for the licenses
granted herein, and subject to the other provisions of this Article 4
(including without limitation Section 4.1), Depomed shall pay to BLS an
earned royalty equal to the lesser of:

 

(a)                                  six percent
of Net Sales which are Net Sales of 1000mg Product; and

 

(b)                                 thirty percent of Depomed Revenues
in respect of Net Sales which are of 1000mg Product.

 

4.3                                 Subject to the provisions of Section 4.4,
Depomed shall pay the earned royalties required by Section 4.2, in respect
of the Net Sales (or, if applicable, Depomed Revenues) of the 1000mg Product in
the Territory until:

 

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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
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(a)                                  the expiry of [***] from the first commercial sale of
1000mg Product in the Territory; or

 

(b)                                 the 1000mg Product is no longer
covered by a Valid Claim,

 

whichever is later.

 

4.4                                 If at any time during the term of this Agreement,
the 1000mg Product is not covered by a Valid Claim, and the ten year period
referred to in Section 4.3(a) has not expired in the Territory, then
the Net Sales (or, if applicable, Depomed Revenues) of the 1000mg Product in
the Territory that are subject to payment of earned royalty shall be reduced to
one-half of such actual Net Sales (or, if applicable, Depomed Revenues).

 

4.5                                 Upon the expiration of the obligations
of Depomed to make the royalty payments required by Section 4.2 in the
Territory, the licenses granted to Depomed by Sections 2.1 and 2.2 shall be
perpetual and fully paid-up.

 

Royalties
on 500mg Product

 

4.6                                 In consideration for the licenses
granted herein, and subject to the other provisions of this Article 2.5 of
this Agreement, Depomed shall pay to BLS an earned royalty of the lesser of:

 

(a)                                  one percent of Net Sales which are
Net Sales of 500mg Product; and

 

(b)                                 five percent of Depomed Revenues in
respect of Net Sales which are Net Sales of 500mg Product.

 

4.7                                 Depomed shall pay the earned royalties
required by Section 4.6, in respect of the Net Sales (or, if applicable,
Depomed Revenues) of the 500mg Product in the Territory until the expiry of [***] from the first commercial sale of the
500mg Product in the Territory.

 

Reduction
of Royalties

 

4.8                                 In the event that a court or
governmental agency compels Depomed to grant a sub-license to any third party
for 1000mg Product under terms or conditions more favorable than 

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

those
contained herein, Depomed shall automatically have the benefit of the more
favorable terms with respect to all sales of 1000mg Product in the Territory
wherein such third-party compulsory license has been granted.

 

Royalty
Reports and Payments

 

4.9                                 Within ten (10) days after the end
of any calendar month in which Depomed has made any sales of 1000mg Product not
purchased pursuant to the Supply Agreement, Depomed shall deliver a report to
BLS specifying the gross sales of the 1000mg Product sold by Depomed and its
Distributors in that calendar month in the Territory.

 

4.10                           Within fifteen (15) days after the end
of any calendar quarter in which Depomed has made any sales of 1000mg Product
not purchased pursuant to the Supply Agreement, Depomed shall submit to BLS a
report setting forth separately the Net Sales of 1000mg Product (and, if
applicable, the Depomed Revenues in respect of Net Sales of 1000mg Product) and
the 500mg Product (and, if applicable, the Depomed Revenues in respect of Net
Sales of 500mg Product) sold during said calendar quarter in the Territory, the
calculation of earned royalties payable for such calendar quarter, and the
basis for any reduction in those earned royalties taken pursuant to this
Agreement. Earned royalty payments hereunder shall be made in United States
dollars within forty-five days following the end of each calendar quarter, and
each payment shall include royalties which shall have accrued during said
calendar quarter.

 

4.11                           No multiple royalties shall be payable
because 1000mg Product, its manufacture, use or sale is or shall be covered by
more than one Patent Right. No multiple royalties shall be payable because
500mg Product, its manufacture, use or sale is or shall be covered by more than
one Depomed Patent Right.

 

Records
and Audits

 

4.12                           Depomed and its Affiliates shall keep
and maintain, and shall cause its Distributors, licensees and assigns to keep
and maintain, records of Net Sales and Depomed Revenues. 

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

Such
records shall be open to inspection by BLS or, in the case of Distributors,
licensees and assigns, by Depomed on behalf of BLS, at any mutually agreeable
time during normal business hours within two years after the royalty period to
which such records relate by an independent certified public accountant
reasonably acceptable to Depomed but selected by BLS. Said accountant shall
have the right to examine the records kept pursuant to this Agreement and
report findings of said examination of records to BLS only insofar as it is
necessary to evidence any error on the part of Depomed. This right of
inspection shall be exercised only once for any calendar year. The cost of such
inspection shall be borne by BLS unless the result of such examination is the
determination that Net Sales (or, if applicable, Depomed Revenues) have been
understated by at least three percent for any calendar year in which event
Depomed shall bear the reasonable cost of such inspection.

 

5.                                      PATENTS, INFRINGEMENT

 

Infringement

 

5.1                                 If either Party determines that any of
the Patent Rights have been infringed by the Manufacture or Marketing in the
Territory of a product containing metformin as its sole active ingredient, such
Party shall give to the other Party notice of such alleged infringement, in
which event Depomed may at its discretion take such steps as it may consider
necessary to prosecute such infringement. Depomed may not settle any such
litigation in a manner that adversely affects the rights of BLS hereunder
without the consent of BLS, which consent shall not be unreasonably withheld.
BLS shall have the right, at its own expense, to be represented by counsel in
any such litigation. If Depomed, after such notice, elects not to bring suit,
it shall notify BLS of such election within thirty days after receipt of such
notice and BLS shall then have the right to bring suit at its own expense. BLS
shall also have the right to bring suit if Depomed fails to institute suit
within ninety days from the date of the original notice of infringement by BLS.
In furtherance and not in limitation of the foregoing provisions of this Section 5.1,
BLS may at its discretion take such steps as it may consider
necessary to prosecute any 

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

infringement
of any patent or other intellectual property rights owned or Controlled by BLS
by the Manufacture or Marketing outside of the Territory of any product
containing metformin as the sole active ingredient, and Depomed shall have no
right to prosecute, or otherwise participate in the prosecution of, any such
infringement.

 

5.2                                 In any litigation brought by Depomed
under Section 5.1, Depomed shall notify BLS of the commencement of that
litigation and shall have the right to use and sue in BLS’s name, and BLS shall
have the right, at its own expense, to be represented by counsel. In any such
litigation, BLS may elect by notice to Depomed to share equally with
Depomed the costs of such litigation (including any costs incurred by BLS prior
to the Effective Date) in exchange for the right to share equally with Depomed
in any recovery of damages resulting from such litigation. Such election by BLS
shall be made not later than 60 days from the date such litigation is
commenced. Depomed may not settle any such litigation in a manner that
adversely affects the rights of BLS hereunder without BLS’s consent, which
consent shall not be unreasonably withheld.

 

5.3                                 In any litigation brought by BLS
following an election by Depomed pursuant to Section 5.1 not to bring
suit, BLS shall notify Depomed of the commencement of that litigation and shall
have the right to use and sue in Depomed’s name, and Depomed shall have the
right, at its own expense, to be represented by counsel. In any such
litigation, Depomed may elect by notice to BLS to share equally with BLS
the costs of such litigation in exchange for the right to share equally with
BLS in any recovery of damages resulting from such litigation. Such election by
Depomed shall be made not later than 60 days from the date of the commencement
of any such action. BLS may not settle any such litigation in a manner
that adversely affects the rights granted to Depomed under this Agreement
without Depomed’s consent.

 

Infringement
of Third Party Patents

 

5.4                                 In the event of a judgment in any suit
relating to the 1000mg Product requiring Depomed to pay damages or a royalty in
respect of the 1000mg Product to a third party or in the 

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

event of a
settlement of such suit or threatened suit consented to by BLS (which consent
shall not be unreasonably withheld) requiring damages or royalty payments to be
made in respect of the 1000mg Product, the future royalty payments due to BLS
pursuant to Sections 4.2, 4.3 and 4.4 in respect of the 1000mg Product shall be
reduced by the full amounts due under the requirement of such Final Judgment or
under the terms of such settlement, until the full amount of such judgment or
settlement has been recovered by Depomed.

 

6.                                      OWNERSHIP OF INVENTIONS AND KNOW-HOW

 

Ownership
of Intellectual Property Rights

 

6.1                                 Each of Depomed and BLS shall retain
its rights in and/or title to all Inventions which it owned or controlled prior
to the date hereof.

 

6.2                                 All Inventions made
by Depomed or by BLS in the performance of their respective obligations under the Prior Agreement, this Agreement, or the Work
Plan shall be owned as follows:

 

(a)                                  any such Inventions relating to the
formulations of the 1000mg Product, to the BLS drug delivery technology
described in the Patent Rights, or to any process for manufacturing the 1000mg
Product shall belong to BLS; and

 

(b)                                 any such Inventions relating to the
clinical use of the 1000mg Product shall belong to the Party making such
Invention.

 

6.3                                 Depomed shall have the exclusive right
to use, within the Territory, any Invention relating to the clinical use of the
1000mg Product that is subject to Section 6.2(b) and that is owned or
controlled by BLS. BLS shall have the exclusive right to use, outside of the
Territory, any Invention relating to the clinical use of the 1000mg Product
that is subject to Section 6.2(b) and that is owned or controlled by
Depomed.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

6.4                                 The determination of inventorship for
Inventions shall be made in accordance with applicable laws relating to
inventorship set forth in the patent laws of the United States (Title 35,
United States Code).

 

6.5                                 Except as expressly provided in this
Agreement, each joint owner may make, use, sell, keep, license, assign, or
mortgage any jointly owned Inventions, and otherwise undertake all activities a
sole owner might undertake with respect to such inventions, to the extent of
the joint owner’s interest therein, without the consent of and without
accounting to the other joint owner.

 

6.6                                 Each of Depomed and BLS shall cause any
inventor of any Invention employed by Depomed or BLS respectively to assign any
and all rights that any such inventor may have in any such Invention to
Depomed or to BLS, as contemplated by this Agreement, and shall at no further
cost to Depomed execute any documents that may reasonably be required to
apply for and to obtain any such patents.

 

Disclosure
of Inventions

 

6.7                                 Each of BLS and Depomed shall endeavour
to advise the other of any Inventions and of any patent applications that it
intends to file that may be subject to the provisions of this Article 6,
as promptly as possible, to arrange, to the fullest extent possible, for
simultaneous filing of applications where appropriate and to avoid as much as
possible any disclosure that may be considered to be prior art to an
application filed by the other Party. If at any time during the term of this
Agreement it appears that any further agreement between the Parties is
reasonably required to assist in obtaining patent protection for the 1000mg
Product, the Parties shall act diligently and reasonably to negotiate the terms
of, and enter into, such an agreement.

 

Filing and
Prosecution of Patent Applications by Depomed

 

6.8                                 Depomed shall have right and the
responsibility for filing, prosecuting and maintaining patents and patent applications
for all Inventions owned by Depomed.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

6.9                                 Depomed shall advise BLS in writing of
its plans to file patent applications for any such Invention, and of the
countries in which Depomed intends to file such applications. BLS may at
its own expense file an application for any Invention in any country in respect
of which Depomed has not indicated it will file an application. Any such
application filed by BLS and any patent issuing therefrom shall be filed in the
name of the inventors or of Depomed and shall at the request of BLS be assigned
to BLS.

 

Filing and
Prosecution of Patent Applications by BLS

 

6.10                           BLS shall have right and the
responsibility for filing, prosecuting and maintaining patents and patent
applications for all Inventions owned by BLS in the Territory. BLS shall
disclose to Depomed the complete texts of all patent applications filed by BLS
that relate to the 1000mg Product owned by BLS, as well as all information
received concerning the institution or possible institution of any
interference, opposition, re-examination, reissue, revocation, nullification or
any official proceeding involving such a patent application anywhere in the
world. Depomed shall have the right to review all such pending applications and
other proceedings and make recommendations to BLS concerning such applications.
BLS shall keep Depomed promptly and fully informed of the course of patent
prosecution or other proceedings relating to any such invention, and shall
provide to Depomed copies of any substantive communications submitted to or
received from patent offices throughout the world.

 

6.11                           Depomed shall have the right to assume
responsibility for any patent or patent application filed in the Territory
relating to the 1000mg Product that BLS intends to abandon or otherwise cause
or allow to be forfeited. BLS shall give Depomed reasonable written notice
prior to abandonment or other forfeiture of any patent or patent application so
as to permit Depomed to exercise its rights under this Section at its own
expense.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

7.                                      REPRESENTATIONS AND WARRANTIES; NON-COMPETITION

 

Representations
and Warranties of BLS

 

7.1                                 BLS hereby warrants and represents to
Depomed that:

 

(a)                                  to BLS’s knowledge, BLS has full
right, title, and interest in and to or the right to practice all presently
existing Patent Rights, Know-How, and Technical Information relating to 1000mg
Product;

 

(b)                                 there are no outstanding written or
oral agreements inconsistent with this Agreement; and

 

(c)                                  to BLS’s knowledge, it is empowered
and has the right to enter into this Agreement and to grant the licenses
provided herein without burdens, encumbrances, restraints, or limitations of
any kind which could adversely affect the rights of Depomed under this
Agreement; and

 

(d)                                 BLS has no knowledge of any patents
or patent applications owned by a third party and not licensed to BLS that
would be infringed by the practice of the presently existing Patent Rights,
Know-How or Technical Information or by the Manufacture or Marketing of the
1000mg Product in the Territory nor has BLS received any claims by third
parties with respect to such matters.

 

(e)                                  BLS has no knowledge of any claim
that any third party asserts ownership rights in any of the Patent Rights,
Know-How, and Technical Information,

 

(f)                                    BLS has no knowledge that BLS’s or
its Affiliates’ use of any of the Patent Rights, Know-How, or Technical
Information infringes any right of any third party.

 

(g)                                 except for general disclosures that
have not been and will not be in detail sufficient to enable the recipient to
Manufacture the 1000mg Product, and to BLS’s knowledge, BLS’s Technical
Information has not been disclosed to others, and will 

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

not be disclosed to persons other than Depomed, except
pursuant to appropriate confidentiality agreements or to the extent disclosed
in the patents, or as otherwise expressly permitted by this Agreement.

 

Mutual
Representations and Warranties

 

7.2                                 Each Party hereby represents and
warrants to the other Party as follows:

 

(a)                                  It is a corporation (or, in the
case of BLS, a society with restricted liability) duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization. It has all requisite power and authority to carry on its business
and to own and operate its properties and assets. The execution, delivery and
performance of this Agreement have been duly authorized by its Board of
Directors;

 

(b)                                 There is no pending or, to its
knowledge, threatened litigation involving it which would have any material
adverse effect on this Agreement or on its ability to perform its
obligations hereunder; and

 

(c)                                  There is no indenture, contract, or
agreement to which it is a party or by which it is bound which prohibits or
would prohibit the execution and delivery by it of this Agreement or the
performance or observance by it of any material term or condition of this
Agreement.

 

Non-Competition

 

7.3                                 BLS covenants and agrees with Depomed
that, during the term of this Agreement, BLS shall not, in the Territory,
whether for its own or any Affiliate’s account or for the account or benefit of
any third party, make, have made, use, import, offer for sale, sell, or
otherwise commercialise any product that includes the Active Ingredient (or any
other salt, chiral forms or metabolites thereof) as the sole active ingredient
except as contemplated by this Agreement, or authorize, permit or assist any
other person to do any of the foregoing, except as permitted by this Agreement.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

7.4                                 The provisions of Section 7.3
shall not apply to the Manufacture or Marketing by BLS of the 1000mg Product if
this Agreement is terminated by BLS with respect to the 1000mg Product, or if
BLS acquires or re-acquires the right to the 1000mg Product from Depomed
pursuant to this Agreement or to the Supply Agreement.

 

8.                                      INDEMNIFICATION

 

Indemnification
of BLS

 

8.1                                 Depomed shall indemnify and hold
harmless BLS and its officers, directors, employees and agents against and from
any losses, damages, injuries, liabilities, claims, demands, settlement,
judgments, awards, fines, penalties, taxes, fees, charges, or expenses
(including reasonable attorneys’ fees) of BLS or any of its officers,
directors, employees or agents arising from or relating to:

 

(a)                                  The breach or inaccuracy in any
material respect of any Depomed representation or warranty contained in Article 7
of this Agreement;

 

(b)                                 Any claim that 1000mg Product
packaging, labels, inserts and marketing and sales materials infringe a
trademark, trade dress or copyright of a third party in the Territory
(excluding any claim related to the Trademark);

 

(c)                                  Any injury or alleged injury to any
person (including death) or to the property of any person not a party hereto
arising out of the gross negligence or intentional act or omission of Depomed
or its employees or agents relating to the Marketing of 1000mg Product;

 

(d)                                 The Marketing of 1000mg Product by
Depomed, its Affiliates, its sublicensees, distributors and customers; or

 

(e)                                  The enforcement of BLS’s
indemnification rights hereunder.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

Indemnification
of Depomed

 

8.2                                 BLS shall indemnify and hold harmless
Depomed and its officers, directors, employees and agents against and from any
losses, damages, injuries, liabilities, claims, demands, settlement, judgments,
awards, fines, penalties, taxes, fees, charges or expenses (including
reasonable attorneys’ fees) of Depomed or a third party arising from or
relating to:

 

(a)                                  The breach or inaccuracy in any
material respect of any BLS representation, warranty or covenant contained in Article 7
of this Agreement;

 

(b)                                 Any injury or alleged injury to any
person (including death) or to the property of any person not a party hereto
arising out of the gross negligence or intentional act or omission of BLS or
its employees or agents relating to 1000mg Product;

 

(c)                                  Any injury or alleged injury to any
person (including death) or to the property of any person not a party hereto
arising out of the use of BLS’s proprietary drug delivery technology in the
1000mg Product;

 

(d)                                 The CMC section of the NDA for
the 1000mg Product;

 

(e)                                  The manufacture of the 1000mg
Product by or on behalf of BLS or its Affiliates; or

 

(f)                                    The enforcement of Depomed’s
indemnification rights hereunder.

 

8.3                                 If any indemnified Party intends to
claim indemnification under this Article 8 it shall promptly notify the
other Party in writing of such alleged claim. The indemnifying Party shall have
the sole right to control the defense and settlement thereof. The indemnified
Party shall cooperate with the indemnifying Party and its legal representatives
in the investigation of any action, claim or liability covered by this Article 8.
The indemnified Party shall not, except at its own cost, voluntarily make any
payment or incur any expense with respect to any claim or suit without the
prior written consent of the indemnifying Party. In addition, the indemnifying
Party shall be subrogated to the rights 

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

of the
indemnified Party against any third party, and such indemnified Party hereby
assigns to the indemnifying Party all claims, causes of action and other rights
that the indemnified Party may then have against any third party,
including Affiliates and sublicensees, with respect to the claim, suit or
proceeding. Conversely, and without in any way limiting the obligation of
either Party to indemnify the other Party as herein provided, to the extent
that any Party shall fail to perform its indemnification obligations under
Section 8.1 or Section 8.2, such Party owing a duty of
indemnification hereby assigns to the indemnified Party to whom indemnification
is owed all claims, cause of action and other rights that the Party owing such
duty may then have against any third party, including Affiliates and
sublicensees with respect to the claim, suit or proceeding.

 

9.                                      CONFIDENTIALITY

 

9.1                                 Each of Depomed and BLS shall maintain
all Technical Information and Clinical Information, and any other information
about this Agreement and the businesses or affairs of the other relating to
each of the 500mg Product and the 1000mg Product, in confidence, and shall not
at any time disclose any such information to persons other than their
Affiliates, officers, employees, agents, consultants, advisers, and licensees
and potential sub-licensees, except where permitted by this Agreement, and only
to the extent necessary for the purposes of this Agreement. Depomed and BLS
shall use such information only to the extent necessary or permitted by this
Agreement, or required by law. Depomed and BLS shall take all reasonable steps
to ensure that their respective Affiliates, agents, officers, employees,
representatives, consultants, advisors and licensees and potential licensees
and sub-licensees maintain the obligations of confidence imposed on Depomed and
BLS by this Agreement.

 

9.2                                 Section 9.1 shall not apply to any
Technical Information or Clinical Information that:

 

(a)                                  is owned or Controlled by Depomed,
or jointly by Depomed and BLS;

 

(b)                                 was known to Depomed at the time of
its disclosure by BLS;

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

(c)                                  has been published or is otherwise
within the public knowledge or is generally known to the public;

 

(d)                                 has come into the public domain
without any breach of this Agreement;

 

(e)                                  became known or available to
Depomed from a source having the right to make such disclosure to Depomed and
without restriction on such disclosure to Depomed;

 

(f)                                    is disclosed to the public and is
generally available to the public as a result of compliance with any applicable
law or regulation;

 

(g)                                 is disclosed as the result of any
applications for patents relating to the 1000mg Products anywhere in the world;
or

 

(h)                                 after Regulatory Approval of the
1000mg Product is reasonably required by Depomed for the Marketing of the
1000mg Product in the Territory

 

9.3                                 Each Party acknowledges that improper
use or disclosure of information of the other Party that must be kept in
confidence under Section 9.1 above would cause substantial harm to the
other Party (in particular in barring patent protection for that Party’s
technology), and that such harm could not be remedied by the payment of damages
alone. Accordingly, each Party will be entitled to preliminary and permanent
injunctive relief and other equitable relief for any breach of this Article 9
by the other Party, without prejudice to all other remedies available at law or
in equity.

 

10.                               TERM

 

10.1                           Unless sooner terminated as herein
provided, this Agreement shall become effective on the Effective Date and shall
continue in effect thereafter until it is terminated in accordance with the
terms hereof.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
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11.                               EXPIRY AND TERMINATION

 

11.1                           Unless earlier terminated pursuant to Section 11.2
below, this Agreement shall not expire.

 

11.2                           At any time during the Term of this
Agreement, either BLS or Depomed may terminate this Agreement with respect
to the 500mg Product or the 1000mg Product if the other Party is in material
breach or default in the performance or observance of any of the provisions of
this Agreement applicable to it and relating to the product in respect of which
termination of this Agreement is sought, and such breach or default is not
cured within sixty days (or thirty days in the case of failure to make royalty
or other payments due hereunder) after the giving of notice by the Party
specifying such breach or default.

 

11.3                           At any time during the Term of this
Agreement, either Depomed or BLS may terminate this Agreement forthwith
for cause, as “Cause” is described below, by giving written notice to the other
Party. “Cause” for termination by one Party of this Agreement shall be deemed
to exist if, with respect to the other Party:

 

(a)                                  (i) a voluntary case under any
applicable bankruptcy, insolvency or other similar law now or hereafter in
effect shall be instituted by such Party, or such Party shall consent to the
entry of any order for relief in an involuntary case under any such law; (ii) a
general assignment for the benefit of creditors shall be made by such Party; (iii) such
Party shall consent to the appointment of or possession by a receiver,
liquidation, trustee, custodian, sequestrator or similar official of the
property of such Party or of any substantial part of its property; or (iv) such
Party shall adopt a directors resolution in furtherance of any of the foregoing
actions specified in this subsection (a); or

 

(b)                                 a decree or order for relief by a
court of competent jurisdiction shall be entered in respect of such Party in an
involuntary case under any applicable bankruptcy, insolvency or other similar
law now or hereafter in effect, or appointing a receiver, liquidator, trustee,
sequestrator or other similar official of such Party to wind up or 

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

liquidate its affairs, and any such decree or order shall
remain unstayed or undischarged and in effect for a period of sixty days.

 

11.4                           Upon termination by BLS for Cause,
Depomed shall, at the request of BLS, assign to BLS the Regulatory Approval for
the 1000mg Product in the Territory, within ten (10) days after BLS has
paid to Depomed all of the costs incurred by Depomed in obtaining Regulatory
Approval of the 1000mg Product in the Territory.

 

11.5                           Except as set forth in Sections 11.1
and 11.4, upon termination of this Agreement pursuant to Section 11.2, the
licenses granted to Depomed in Sections 2.1 and 2.2 of this Agreement shall
terminate. Notwithstanding such termination, and subject to the terms and
conditions of this Agreement, Depomed may dispose of, by sale or
otherwise, any remaining inventory of 1000mg Product that Depomed may have
in its possession or control on the date of termination.

 

11.6                           Termination shall not release Depomed
or BLS from any obligations or liabilities that matured prior to termination,
including without limitation the obligations of Depomed to make any payments
owing at the time of termination through the date of termination. If the terms
of this Agreement expressly state that a right or obligation shall survive
expiration or termination of this Agreement, such right or obligation shall
survive expiration or termination to the degree necessary to allow complete
fulfilment or discharge of the right or obligation. The provisions of Articles
6.1 - 6.5, 7, 8, 9 and 12 of this Agreement shall survive the expiration or
termination of this Agreement.

 

11.7                           In the event of termination or
expiration, each of BLS and Depomed shall retain ownership of the ideas,
inventions, discoveries, developments, designs, trademarks, trade secrets,
improvements, know-how, process, procedures, techniques, formulae, computer
programs, drawings, technology(ies) and intellectual and industrial property
accorded to each under the terms of this Agreement.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

26

 

CONFIDENTIAL TREATMENT
REQUESTED

 

12.                               PUBLICITY

 

12.1                           Neither Party will originate any
publicity, news release, public comment or other public announcement, written
or oral, whether to the press, to stockholders, or otherwise, relating to this
Agreement, without the written consent of the other Party, except for such
announcement which, in accordance with the advice of legal counsel to the Party
making such announcement, is required by law or the regulations of the
securities exchange or market on which the disclosing Party’s securities are
traded. The Party making any announcement which is required by law or the
regulations of the securities exchange or market on which the disclosing Party’s
securities are traded will, unless prohibited by law, give the other Party an
opportunity to review the form and content of such announcement and
comment before it is made. Either Party shall have the right to make such
filings with governmental agencies as to the contents and existence of this
Agreement as it shall reasonably deem necessary or appropriate.

 

13.                               ASSIGNABILITY

 

13.1                           This Agreement may be assigned by
either Party to an Affiliate or as part of the sale by either Party of all
of its business of which this Agreement may be a part without the
consent of the other Party; provided, however, that neither Party shall assign
this Agreement to an Affiliate that is not reasonably capable of performing all
of its obligations under this Agreement. Except as permitted by this Section 13.1,
Depomed shall not assign any rights licensed to BLS under this Agreement. BLS may assign,
sublicense, subcontract or delegate, to any Affiliate of BLS reasonably capable
of performing such obligations, all or part of the rights and obligations
of BLS under this Agreement, but in no event shall such assignment,
sublicensing, subcontracting or delegation be deemed to relieve BLS of its
liabilities or obligations to Depomed under this Agreement. BLS expressly
acknowledges and agrees that BLS shall remain fully and unconditionally
obligated and responsible for the full and complete performance of all of BLS’s
obligations under the terms and conditions of this Agreement. This Agreement 

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

27

 

CONFIDENTIAL TREATMENT
REQUESTED

 

may not
otherwise be assigned by either Party without the prior written consent of the
other Party, which consent shall not be unreasonably withheld.

 

13.2                           No assignment permitted by this Article 13
to an Affiliate of either Party shall serve to release either Party from
liability for the performance of its obligations hereunder.

 

14.                               PATENT LIFE EXTENSION

 

Each Party undertakes to inform the
other Party of:

 

(a)                                  the date of filing any Applicable
Permit covering 1000mg Product in a given country;

 

(b)                                 the date of approval by the FDA or
its equivalent from the relevant authority in the country, if required;

 

(c)                                  the date of obtaining Product
approval (or equivalent authorization) from the FDA or its equivalent in a
given country;

 

(d)                                 if applicable, the date of
obtaining the price approval in a given country as well as the amount of the
price approval with regard to any such country;

 

(e)                                  the date of the first sale of
1000mg Product in a given country; and

 

(f)                                    any events which might be material
to the other Party in connection with a possible extension of the patent
protection term.

 

15.                               NOTICES

 

15.1                           All notifications, demands, approvals
and communications required to be made under this Agreement shall be given in
writing and shall be effective when either personally delivered or sent by
facsimile if followed by prepaid air express addressed as set forth below. The
Parties hereto shall have the right to notify each other of changes of address
during the Term of this Agreement.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

28

 

CONFIDENTIAL TREATMENT
REQUESTED

 

Depomed, Inc.

1360 O’Brien Drive

Menlo Park, California 94025 

Attention: President

 

Facsimile: 650-462-9991

 

With a copy to:

 

Heller Ehrman LLP

275 Middlefield Road

Menlo Park, California 94025

Attention:  Matthew Gosling

Facsimile: 650-324-0638

 

Biovail Laboratories International SRL

Chelston Park

Building 2, Collymore Rock

St. Michael BH1

Barbados, West Indies

 

Attention: Mr. Eugene Melnyk, President 

Facsimile No.: (246) 437-7085

 

With a copy to:

 

Biovail Corporation 

7150 Mississauga Road

Mississauga, Ontario

L5N 8M5

 

Attention: Vice President, Associate General
Counsel 

Facsimile: 905 286 3374

 

Any such notice mailed as aforesaid shall be
deemed to have been received by and given to the addressee on the date
specified on the notice of receipt and delivery evidenced to the sender.

 

16.                               FORCE MAJEURE

 

16.1                           In the event of any failure or delay in
the performance by a Party of any provision of this Agreement due to acts
beyond the reasonable control of such Party (such as, for example, 

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

29

 

CONFIDENTIAL TREATMENT
REQUESTED

 

fire,
explosion, strike or other difficulty with workmen, shortage of transportation
equipment, accident, act of God, or compliance with or other action taken to
carry out the intent or purpose of any law or regulation, or an order or
judgment of any court of competent jurisdiction, whether interim, temporary,
interlocutory or permanent), then such Party shall have such additional time to
perform as shall be reasonably necessary under the circumstances. In the
event of such failure or delay, the affected Party will use its diligent
efforts, consonant with sound business judgment and to the extent permitted by
law, to correct such failure or delay as expeditiously as possible.

 

16.2                           In the event that a Party is unable to
perform any of its obligations under this Agreement by a reason described
in Section 16.1 above, the obligations under this Agreement shall be
suspended during such time of non-performance.

 

17.                               MISCELLANEOUS

 

17.1                           This Agreement and the Supply Agreement
define the full extent of the legally enforceable undertakings of the Parties
hereto with respect to the Manufacture and Marketing of the 500mg Product and
the 1000mg Product for and in the Territory as of and after the Effective Date,
and with respect to the rights and obligations of the Parties relating the
Manufacture and Marketing of the 500mg Product and the 1000mg Product for and
in the Territory after the Effective Date, supersedes all previous writings and
understandings. No terms or provisions of this Agreement shall be varied or
modified by any prior or subsequent statement, conduct or act of either of the
Parties, except that the Parties may amend this Agreement by written
instruments specifically referring to and executed in the same manner as this
Agreement. Nothing in this Agreement affects any rights or obligations of the
Parties relating to the Manufacture or Marketing of the 500mg Product for or in
the Territory prior to the Effective Date, and except as otherwise expressly
provided by this Agreement, none of the rights or obligations of the Parties
under the Prior Agreement, any amendments thereto or any other agreements
between the Parties relating to the 500mg Product in the Territory prior to the
Effective Date are 

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

30

 

CONFIDENTIAL TREATMENT
REQUESTED

 

affected
by this Agreement, provided, however, that no such rights or obligations
created or arising prior to the Effective Date shall continue in force after
the Effective Date except as expressly provided in this Agreement. No promise
or representation, written or oral, with respect to the subject matter hereof
which is not set forth explicitly in this Agreement is intended by either Party
to be legally binding. Both Parties acknowledge that in deciding to enter into
this Agreement and to consummate the transactions contemplated hereby, neither
has relied upon any statements or representations, written or oral, other than
those explicitly set forth in this Agreement.

 

17.2                           It is the desire and intent of the
Parties that the provisions of this Agreement shall be enforced to the extent
permissible under the laws and public policies applied in each jurisdiction in
which enforcement is sought. Accordingly, if any particular provision of this
Agreement which substantially affects the commercial basis of this Agreement
shall be determined to be invalid or unenforceable, such provision shall be
amended as hereinafter provided to delete therefrom or revise the portion thus
determined to be invalid or unenforceable. Such amendment shall apply only with
respect to the operation of such provision of this Agreement in the particular
jurisdiction for which such determination is made, provided no unfairness results.
In such event, the Parties agree to use reasonable efforts to agree on
substitute provisions, which, while valid, will achieve as closely as possible
the same economic effects or commercial basis as the invalid provisions, and
this Agreement otherwise shall continue in full force and effect. If the
Parties cannot agree to such revision within sixty days after such invalidity
or unenforceability is established, the matter may be submitted by either
Party to arbitration as provided in this Agreement to finalize such revision.

 

17.3                           The waiver by a Party of any single
default or breach or succession of defaults or breaches by the other shall not
deprive either Party of any right under this Agreement arising out of any
subsequent default or breach.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

31

 

CONFIDENTIAL TREATMENT
REQUESTED

 

17.4                           All matters affecting the
interpretation, validity, and performance of this Agreement shall be governed
by the laws of the State of New York without regard to that state’s conflict of
laws rules or principles.

 

17.5                           Nothing in this Agreement authorizes
either Party to act as agent for the other Party as to any matter. The
relationship between BLS and Depomed is that of independent contractors.

 

17.6                           Any and all disputes between the
Parties relating in any way to the entering into of this Agreement and/or the
validity, construction, meaning, enforceability, or performance of this
Agreement or any of its provisions, or the intent of the Parties in entering
into this Agreement, or any of its provisions arising under this Agreement,
except for any disputes relating to the provisions of Articles 5, 7, 8 and 11,
shall be settled by binding arbitration. Such arbitration shall be conducted at
New York, New York, in accordance with the rules then pertaining of the
American Arbitration Association with a panel of three arbitrators. Each Party
shall select one arbitrator and the two selected arbitrators shall select the
third arbitrator. If the two selected arbitrators cannot agree on a third
arbitrator then the American Arbitration Association shall select said
arbitrator from the National Panel of Arbitrators. Reasonable discovery as
determined by the Arbitrators shall apply to the arbitration proceeding. The
law of the State of New York shall apply to the arbitration proceedings. Judgment
upon the award rendered by the arbitrators may be entered in any court
having jurisdiction thereof. The successful Party in such arbitration, in
addition to all other relief provided, shall be entitled to an award of all its
reasonable costs and expenses including attorney costs. Both Parties agree to
waive, and the Arbitrators shall have no right to award, punitive damages in
connection with an arbitration proceeding hereunder.

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

32

 

CONFIDENTIAL TREATMENT
REQUESTED

 

IN WITNESS WHEREOF, the undersigned have caused this Agreement to be
duly executed by their duly authorized officers on the date first above
written.

 

 

	
   

  	
  DEPOMED, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Carl A. Pelzel

  
	
   

  	
  Name:

  	
  Carl A. Pelzel

  
	
   

  	
  Title:

  	
  Executive Vice President & COO

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  BIOVAIL LABORATORIES 

  
	
   

  	
  INTERNATIONAL SRL

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John A.R. McCleery

  
	
   

  	
  Name:

  	
  John A.R. McCleery

  
	
   

  	
  Title:

  	
  Vice President, General Manager

  
					

 

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SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.

 

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CONFIDENTIAL TREATMENT
REQUESTED

 

Schedule 1.20

 

Patent Rights - Patents and Patent Applications

 

[***]

 

THE SYMBOL [***] IS USED
TO INDICATE THAT A PORTION OF THE EXHIBIT HAS BEEN OMITTED AND FILED
SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH
RESPECT TO THE OMITTED PORTION.Exhibit 10.3

 

UNOVA, INC.

2002
DIRECTOR STOCK OPTION AND FEE PLAN

 

As
Amended Effective January 1, 2005

 

1.   Purpose. The UNOVA, Inc. 2002 Director Stock Option and Fee Plan (the “Plan” ) is intended to provide an incentive to members of
the board of directors of UNOVA, Inc., a Delaware corporation (the “Company” ), who are neither officers nor employees of the
Company, to remain in the service of the Company and increase their efforts for
the success of the Company and to encourage such directors to own shares of the
Company’s stock, thereby aligning their interests more closely with the
interests of the Company’s shareholders. The Plan is also intended to assist
the Company in attracting experienced and qualified candidates to become
members of the Board.

 

2.   Definitions.

 

“1997 Plan” means the UNOVA, Inc. Director Stock
Option and Fee Plan, adopted September 24, 1997, and amended July 27,
1999.

 

“Average Quarterly Price” means the average of the Fair Market Value of
Common Stock on each trading date of a calendar quarter.

 

“Accrued Quarterly Meeting Fees” means the amount of Meeting Fees earned by a
Director for the preceding calendar quarter to which an Option Election
applies.

 

“Board” means the Board of Directors of the Company.

 

“Cash Account” means the bookkeeping account established by
the Company for the deferral of Fees by Directors which will be credited with
interest pursuant to Section 6(d) hereof.

 

“Code” means the Internal Revenue Code of 1986, as
amended.

 

“Common Stock” means the common stock, par value $.01 per
share, of the Company.

 

“Deferral Election” means an election pursuant to Section 6
hereof to defer receipt of Fees into a Share Account or Cash Account.

 

“Deferred Amounts” mean the amounts credited to a Director’s
Share Account or Cash Account pursuant to a Deferral Election or otherwise
pursuant to Section 6(h).

 

“Director” means a member of the Board who is neither an
officer nor an employee of the Company. A director of the Company shall not be
deemed to be an employee of the Company solely by reason of the existence of a
consulting contract between such director and the Company or any subsidiary
thereof pursuant to which the director agrees to provide consulting services as
an independent consultant to the Company or its subsidiaries on a regular or
occasional basis for a stated consideration. The term “Director” as used in
this Plan shall include any person who may hereafter become an advisory
director of the Company, as that term is used in the Company’s By-Laws.

 

“Effective Date” means January 1, 2002, subject to
approval by the Company’s shareholders as provided in Section 12 hereof.

 

“Exchange Act” means the Securities Exchange Act of 1934, as
amended.

 

 

“Fair Market Value” means, as of any given date, the average of
the highest and lowest reported sales prices of the Common Stock on the New
York Stock Exchange Composite Tape or, if not listed on such exchange, on any
other national securities exchange on which the Common Stock is listed or on
NASDAQ. If there is no regular public trading market for such Common Stock, the
Fair Market Value of the Common Stock shall be determined by the Board in good
faith.

 

“Fees” means Retainer Fees and Meeting Fees.

 

“Meeting Fees” means fees scheduled to be paid to a Director
for attendance at Board or committee meetings.

 

“Options” means the options to purchase Common Stock
granted to a Director under (i) Section 5(d) pursuant to an Option
Election or (ii) under Section 7(a) as an annual grant.

 

“Option Election” means the election by a Director to receive
Options in lieu of Meeting Fees as set forth in Section 5(d) hereof.

 

“Option Ratio” means (i) for calendar year 2002, one
(1) share of Common Stock to be issued upon exercise of an Option divided
by One Dollar ($1.00) of Accrued Quarterly Meeting Fees, and (ii) for
calendar years after 2002, such number of shares of Common Stock per One Dollar
($1.00) of Accrued Quarterly Meeting Fees, if any, as the Board may authorize
for such calendar year; provided, however,
that the Option Ratio under this Plan for a calendar year shall be the same as
the option ratio offered to the Company’s senior management employees for such
calendar year.

 

“Retainer Fees” means the annual retainer scheduled to be
paid to a Director for the calendar year and additional annual fees scheduled
to be paid to a Director for serving as Chair of a Board committee.

 

“Share Account” means the bookkeeping account established by
the Company for the deferrals of Fees by Directors, which will be credited with
Share Units pursuant to Section 6(a) hereof.

 

“Share Election” means the election by a Director to receive
shares of Common Stock in lieu of Meeting Fees as set forth in Section 5(b)
hereof.

 

“Share Unit” means a share of Common Stock credited as a
bookkeeping entry to a Director’s Share Account. Each Share Unit shall
represent the right to receive one share of Common Stock.

 

“Subsequent Election” means a Deferral Election with respect to
Fees earned during the current calendar year or prior calendar years as set
forth in Section 6(b) hereof.

 

3.   Administration of the Plan. Subject to the express provisions of the
Plan, the Board will have complete authority to interpret the Plan; to
prescribe, amend, and rescind rules and regulations relating to the Plan; to
determine the terms and provisions of the respective option agreements (which
need not be identical); and to make all other determinations necessary or
advisable for the administration of the Plan. The Board’s determination on the
matters referred to in this Section 3 shall be conclusive.

 

4.   Stock Reserved for the Plan. The number of shares of Common Stock
authorized for issuance under this Plan is 500,000 plus (i) the number of
shares reserved and available for issuance under the 1997 Plan on the Effective
Date of this Plan and (ii) any shares subject to grants made under the
1997 Plan, but which subsequently expire or are canceled, forfeited, or
terminated. The number of shares of 

 

2

 

Common Stock issuable under
this Plan shall be subject to adjustment pursuant to Section 10 hereof.
Shares of Common Stock delivered hereunder may be either authorized but
unissued shares or previously issued shares reacquired and held by the Company
as treasury shares.

 

5.   Terms and Conditions of Payment of Fees in the Form of Shares or
Options.

 

(a)  Retainer Fees. Subject to Section 5(f) hereof, each Director shall receive in the
form of Common Stock (subject to a Deferral Election) all, or such lesser
amount as the Board may determine from time to time in the exercise of its
judgment, of his or her Retainer Fees earned in each calendar year. The shares
of Common Stock (and cash in lieu of fractional shares) issuable under this
Section 5(a) shall be issued quarterly in accordance with
Section 5(c) hereof.

 

(b)  Meeting Fees; Share Election. Subject to Section 5(f) hereof, each
Director may make an annual election (the “Share Election”)
to receive in the form of Common Stock (subject to a Deferral Election) any or
all of his or her Meeting Fees earned in each calendar year; provided, however, that such Share Election must be made
with respect to at least an aggregate of 10% of the Director’s Meeting Fees, in
multiples of 10%. Unless a Director has made a Share Election with respect to
100% of his or her Meeting Fees, a Director may also make an Option Election
for a calendar year with respect to all or any portion of the remaining
percentage of his or her Meeting Fees. The shares of Common Stock (and cash in
lieu of fractional shares) issuable pursuant to a Share Election shall be
issued quarterly in accordance with Section 5(c) hereof. The Share
Election must be in writing and delivered to the Secretary of the Company on or
prior to December 31 of the calendar year preceding the calendar year in which
the applicable Fees are to be earned; provided, however, that any Director who commences service on the
Board on or subsequent to January 1 of a calendar year may make a Share
Election during the thirty-day period immediately following the commencement of
his or her directorship. A Share Election, once made, shall be irrevocable for
the calendar year with respect to which it is made and shall remain in effect
for future calendar years unless revoked in writing or modified by a subsequent
Share Election or Option Election, as the case may be, with respect to future
calendar years on or prior to December 31 of the calendar year preceding the
calendar year in which such revocation shall take effect and in accordance with
the provisions hereof.

 

(c)  Issuance of Shares. Shares of Common Stock issuable to a Director
pursuant to Sections 5(a) and 5(b) shall be issued to such Director on the
first business day following the end of each calendar quarter. The total number
of shares of Common Stock to be so issued shall be determined by dividing
(x) the dollar amount of the Director’s Retainer Fees for the preceding
calendar quarter and any Meeting Fees for the preceding calendar quarter to
which a Share Election applies, by (y) the Average Quarterly Price for the
preceding quarter. In no event shall the Company be required to issue
fractional shares. In the event that a fractional share of Common Stock would
otherwise be required to be issued, an amount in lieu thereof shall be paid in
cash based upon the Fair Market Value of such fractional share on the last
business day of the preceding calendar quarter.

 

(d)  Meeting Fees; Option Election.  If the Board authorizes the
Company for any calendar year to grant to any class of senior management
employees options to purchase Common Stock in lieu of cash compensation, the
Board may also authorize the Company to grant Options to Directors for such
calendar year in accordance with the terms of this Section 5(d) and
Section 5(e). If authorized by the Board and subject to Section 5(f)
hereof, each Director may make an annual election (the “Option
Election”) to receive in the form of Options any or all of his or
her Meeting Fees earned in each calendar year; provided,
however, that such Option Election must be made with respect to at
least an aggregate of 10% of the Director’s Meeting 

 

3

 

Fees, in multiples of 10%.
Unless a Director has made an Option Election with respect to 100% of his or
her Meeting Fees, a Director may also make a Share Election for a calendar year
with respect to all or any portion of the remaining percentage of his or her
Meeting Fees. Options granted pursuant to an Option Election shall be granted
quarterly in accordance with Section 5(e) hereof. The Option Election must
be in writing and delivered to the Secretary of the Company on or before December
31 of the calendar year preceding the calendar year in which the applicable
Meeting Fees are to be earned; provided, however, that
any Director who commences service on or subsequent to January 1 of a
calendar year may make an Option Election during the thirty-day period
immediately following the commencement of his or her directorship. An Option
Election, once made, shall be irrevocable for the calendar year with respect to
which it is made and shall remain in effect for future calendar years unless
revoked in writing or modified by a subsequent Share Election or Option
Election, as the case may be, with respect to future calendar years on or prior
to December 31 of the calendar year preceding the calendar year in which such
revocation shall take effect and in accordance with the provisions hereof; provided, however, that if the Board does not authorize an
Option Election for a calendar year, then a Director’s Option Election shall
become void for that year and subsequent calendar years, a Director shall have
the right to make a Share Election for such calendar year in accordance with
Section 5(b), provided that such Share Election is made or before December
31 of the preceding calendar year, and such Director must make a new Option
Election for any subsequent calendar year for which the Board authorizes Option
Elections.

 

(e)  Option Grants.  Options to be granted to a Director pursuant to
Section 5(d) shall be granted to such Director on the first business day
following the end of each calendar quarter, except for the first quarter of
2002, in which case the date of grant shall be April 15, 2002. The total
number of shares of Common Stock that a Director shall have the right to
purchase pursuant to such Option shall be equal to the Option Ratio multiplied
by such Director’s Accrued Quarterly Meeting Fees. In no event shall the
Company be required to grant Options to purchase fractional shares. If an
Option to purchase a fractional share of Common Stock would otherwise be
required to be granted, the number of shares of Common Stock subject to such
Option shall be rounded up to the next highest whole number of shares. The
exercise price per share of Common Stock of each Option so granted
(i) with respect to the first calendar quarter of 2002 shall be equal to
the Fair Market Value of the Common Stock on April 15, 2002, which is the
date of grant, and (ii) with respect to all subsequent calendar quarters
shall be equal to the Fair Market Value of the Common Stock on the date of
grant. Options shall be exercisable immediately on the date of grant, except
that no option shall be exercisable unless and until shareholder approval of
this Plan. The Options shall have such other terms and conditions not
inconsistent with the express provisions of this Plan regarding payment,
expiration, termination, and transfer as the Board may determine from time to
time, which terms and conditions need not be identical to those of the Options
granted pursuant to Section 7 of this Plan.

 

(f)  Termination of Services.   If a Director ceases to be
a Board member before the end of a calendar quarter, the Director shall receive
in cash the Fees such Director would otherwise have been entitled to receive
for such quarter in the absence of this Plan.

 

6.   Terms and Conditions of Deferral Elections.

 

(a)  In General.  Each Director may irrevocably elect annually to defer
receiving all or a portion of (i) the shares of Common Stock that would
otherwise be issued in connection with such Director’s Retainer Fees in respect
of a calendar year, (ii) the shares of Common Stock that would otherwise
be issued upon a Share Election, or (iii) such Director’s Meeting Fees in
respect of a calendar year that are not subject to a Share Election (a “Deferral Election”). A Director who 

 

4

 

has made a Deferral Election
with respect to shares of Common Stock shall have the number of shares of
Common Stock that are the subject of the Deferral Election credited to a Share
Account in the form of Share Units. A Director who has made a Deferral Election
with respect to Meeting Fees that are not subject to a Share Election shall
have the amount of deferred fees credited to a Cash Account.

 

(b)  Timing of Deferral Election.  The Deferral Election shall be in
writing and delivered to the Secretary of the Company on or prior to December
31 of the calendar year preceding the calendar year in which the applicable
Fees are to be earned; provided, however, that a Director who commences service on the Board on
or subsequent to January 1 of a calendar year may make a Deferral Election
during the thirty-day period immediately following the commencement of his or
her directorship; and provided, further, that
such Director may not defer payment of any Fees earned prior to the date on
which such Director makes such Deferral Election. A Deferral Election, once
made, shall be irrevocable for the calendar year with respect to which it is made
and shall remain in effect for future calendar years unless revoked or modified
by a subsequent Deferral Election with respect to future calendar years on or
prior to December 31 of the calendar year preceding the calendar year in which
such revocation shall take effect and in accordance with the provisions hereof.
Any subsequent Deferral Election with respect to Fees earned during the current
calendar year or prior calendar years (a “Subsequent Election”)
shall be restricted as follows:

 

	
  (i)

  	
   

  	
  Any Subsequent Election
  that either delays a payment or changes a payment election under Section 6(f)
  hereof may not take effect for at least 12 months after the Subsequent
  Election is made;

  
	
   

  	
   

  	
   

  
	
  (ii)

  	
   

  	
  Payment under a Subsequent
  Election must be delayed for at least five years from the original payment
  date (except as otherwise set forth in Section 6(g) hereof); and

  
	
   

  	
   

  	
   

  
	
  (iii)

  	
   

  	
  Subsequent Elections must
  be made at least 12 months prior to the date of the first scheduled payment
  pursuant to Section 6(f) hereof.

  

 

(c)  Share Accounts.  Each Share Account shall be deemed to be invested in shares
of Common Stock. Whenever regular cash dividends are paid by the Company on
outstanding Common Stock, there shall be credited to the Director’s Share
Account additional Share Units equal to (i) the aggregate dividend that
would be payable on outstanding shares of Common Stock equal to the number of
Share Units in such Share Account on the record date for the dividend, divided
by (ii) the Fair Market Value of the Common Stock on the payment date of
the dividend.

 

(d)  Cash Accounts.  Each Director’s Cash Account shall be credited with
interest on the last day of each calendar quarter calculated on the basis of
the average daily balance in the Cash Account during the calendar quarter. The
interest rate for any calendar quarter shall be the prime rate of interest as
reported in the Wall Street Journal as the
prevailing prime rate of interest on the first business day of the calendar
quarter.

 

(e)  Commencement of Payment.  Except as otherwise provided in
Section 6(g) hereof, a Director’s Deferred Amounts shall become payable in
the January following the year in which the Director terminates service as a
Director. Payments from a Share Account shall be made by converting Share Units
into Common Stock on a one-for-one basis, with payment of fractional shares to
be made in cash based upon the Fair Market Value of such fractional share on
the last business day of the preceding calendar quarter.

 

5

 

(f)  Timing of Payments.  Subject to Section 6(g) hereof, each Director shall elect
in his or her Deferral Election to receive payment of his or her Deferred
Amounts either in a lump sum or in two to fifteen substantially equal annual
installments.

 

(g)  Distributions Upon Death, Disability or Unforeseeable Emergency.  In the event of a Director’s
death, payment of the remaining portion of the Director’s Deferred Amounts will
be made to the Director’s beneficiary (or, if no beneficiary has been designated,
to the Director’s estate or other legal representative) in the same form as the
Director has elected; provided, however,
that if permitted under the Code and the rules and regulations promulgated
thereunder, such payment of the remaining portion of the Director’s Deferred
Amounts will be made to the Director’s beneficiary (or, if no beneficiary has
been designated, to the Director’s estate or other legal representative) in a
lump sum as soon as practicable following the Director’s death. Notwithstanding
any Deferral Election, in the event of disability (as defined in Section
409A(a)(2)(C) of the Code) or severe financial hardship to a Director resulting
from an illness or accident of the Director, the Director’s spouse or a
dependent (as defined in Section 152(a) of the Code) of the Director, loss of
the Director’s property due to casualty, or other similar extraordinary and
unforeseeable circumstances arising as a result of events beyond the control of
the Director, a Director may, by providing written notice to the Secretary of
the Company, withdraw any portion of the Share Units in his or her Share
Account (in an equivalent number of shares of Common Stock) and/or cash in his
or her Cash Account provided that, as determined under regulations of the Secretary
of the Treasury, the amounts distributed with respect to an emergency do not
exceed the amounts necessary to satisfy such emergency plus amounts necessary
to pay taxes reasonably anticipated as a result of the distribution, after
taking into account the extent to which such hardship is or may be relieved
through reimbursement or compensation by insurance or otherwise or by
liquidation of the participant’s assets (to the extent the liquidation of such
assets would not itself cause severe financial hardship).

 

(h)  No Account Transfers.  A Director may not transfer or
convert a Share Account to a Cash Account, or vice versa.

 

(i)  Status of Accounts.  The Share and Cash Accounts shall not be funded, and all
Deferred Amounts shall be held in the general assets of the Company and be
subject to the general creditors of the Company.

 

7.   Annual Grants of Stock Options.

 

(a)  Annual Grants.  Commencing in 2005, Options to purchase 10,000 shares of
Common Stock shall be granted to each Director automatically on the first
business day of January in each year. Any person who becomes a Director at any
other time of the year shall receive a pro-rata portion of the Annual Grant,
based upon the time remaining in such year. The Board shall have the right to
increase or decrease the number of shares of Common Stock subject to the annual
grant of Options to Directors as the Board may determine is necessary or
appropriate to attract and retain persons to serve as members of the Board, it
being understood that all such grants and changes in the number of options
granted shall comply with Section 16 of the Exchange Act and the rules
promulgated thereunder and the Internal Revenue Code of 1986, as amended.

 

(b)  Option Price Per Share.  Options granted pursuant to this
Section 7 shall be exercisable at a price per share equal to the Fair
Market Value of the Common Stock on the date of the grant of the Option.

 

6

 

(c)  Period of Option.  Each Option granted pursuant to this Section 7 shall
become exercisable on the first anniversary of the date upon which it is
granted; provided, however,
that all options granted pursuant to this Section 7 shall become
exercisable in full upon the first to occur of (i) the retirement of the
Director in accordance with the mandatory retirement policy for members of the
Board, (ii) the total and permanent disability of the Director, or
(iii) the death of the Director while a member of the Board. Each Option
granted pursuant to the Plan shall remain exercisable until the expiration of
three years following the first to occur of the retirement or resignation of
the optionee as a director of the Company (or the failure of the optionee to be
re-elected a director of the Company), the total and permanent disability of
the optionee, or the death of the optionee.

 

(d)  Exercise of Options.  Options may be exercised only by
written notice to the Company at its corporate office accompanied by payment of
the full consideration for the shares as to which they are exercised. The
purchase price is to be paid in full to the Company upon the exercise of the
option (i) by cash, including a personal check payable to the order of the
Company, or (ii) by delivering Common Stock already owned by the optionee for
a period of at least six months (valued at Fair Market Value as of the date of
delivery), or (iii) any combination of cash and Common Stock so valued.

 

(e)  Nonstatutory Options.  No option granted hereunder shall
constitute an “incentive stock option” as that term is defined in the Code.

 

8.   Modification, Extension, and Renewal of Options.  The Board shall have the power to
modify, extend, or renew outstanding options and authorize the grant of new
options in substitution therefor, provided that such power may not be exercised
in a manner which would (i) alter or impair any rights or obligations of
any option previously granted without the written consent of the optionee,
(ii) adversely affect the qualification of the Plan or any other
stock-related plan of the Company under Rule 16b-3 under the Exchange Act,
(iii) lower the exercise price of existing options, or
(iv) substitute new options for previously granted options having a higher
exercise price.

 

9.   Limitation of Rights.

 

(a)  No Right to Continue as a Director.  Neither the Plan, nor the
granting of an option or the making of a Share Election, Option Election or
Deferral Election, or any other action taken pursuant to the Plan, shall
constitute or be evidence of any agreement or understanding, express or implied,
that the Company will retain a Director for any period of time, or at any particular
rate of compensation.

 

(b)  No Shareholder’s Rights.  An optionee or a Director who has
made a Share Election, Option Election or Deferral Election (or his or her
representative) shall have no rights as a shareholder with respect to the
shares covered by his or her options, Share Election or Option Election or to
any Share Units with respect to a Deferral Election until the date of the
actual issuance to him or her (or such representative) of shares of Common
Stock (either through the Company’s Direct Registration System or by
certification) and, subject to Sections 6(c) and 10 hereof, no adjustment will
be made for dividends or other rights for which the record date is prior to the
date such shares are issued.

 

10.   Effect of Certain Changes in Capitalization.  In the event of any change in
corporate capitalization (such as a stock split), any corporate transaction
(such as any merger, consolidation or separation (including a spinoff)), any
other distribution of stock or property of the Company, any reorganization
(whether or not such reorganization comes within the definition of such term in

 

7

 

Section 368 of the Code)
or any partial or complete liquidation of the Company, the Board shall
equitably adjust the Share Account to reflect any such transaction and shall
make such substitution or adjustments in the aggregate number and kind of
shares reserved for issuance under the Plan, in the number, kind and option
price of shares subject to outstanding options, in the number and kind of
shares subject to option grants pursuant to an Option Election and automatic
option grants pursuant to Section 7 and/or such other equitable
substitution or adjustments in the terms of options as it may determine to be
appropriate in its sole discretion; provided, however, that the number of shares subject to any option
shall always be a whole number.

 

11.   Change in Control.

 

(a)  Definition. For purposes of the Plan, a “Change in Control” shall
mean a change in the ownership or effective control of the Company, or in the
ownership of a substantial portion of the assets of the Company as provided in
Section 409A(2)(A)(v) of the Code and the regulations thereunder and
interpretations thereof, as the same may be applicable from time to time.

 

(b)  Consequences
of Change in Control.   Notwithstanding
anything in the Plan to the contrary, upon the occurrence of a Change in
Control:

 

	
  (i)

  	
  all Share Units credited
  to a Share Account shall be converted into Common Stock and together with all
  

  
	
  Deferred Amounts credited
  to a Cash Account shall be transferred as soon as practicable to each
  Director;

  
	
   

  
	
  (ii)

  	
  Fees earned in respect of
  the calendar quarter in which the Change in Control occurs shall be paid in 

  
	
  cash as soon as
  practicable; and

  
	
   

  
	
  (iii)

  	
  all Options shall
  immediately vest and become exercisable in full.

  

 

12.   Term of Plan.  This Plan shall be effective as of the Effective Date,
subject to approval of the Plan by the shareholders of the Company at the first
annual meeting of shareholders after the Effective Date. The Plan shall
terminate on December 31, 2011, unless earlier terminated by the Board.
Notwithstanding the Plan’s termination, amounts shall be delivered pursuant to
any Deferral Election made prior to the Plan’s termination in accordance with
such election. Options may be granted under the Plan at any time prior to the
termination of the Plan. Deferral Elections, Share Elections and Option
Elections may not be made for any Fees which would be paid following the date
of the termination of the Plan. If the shareholders of the Company do not
approve this Plan, then this Plan shall be void, all Share Elections and
Deferral Elections made with respect to this Plan shall be deemed to be Share
Elections and Deferral Elections under the 1997 Plan, and all shares of Common
Stock issued, Share Units credited to a Director’s Share Account, and Fees
credited to a Director’s Cash Account under this Plan shall be deemed to have
been issued and credited under the 1997 Plan.

 

13.   Amendment; Termination.  The Board may at any time and
from time to time alter, amend, suspend, or terminate the Plan in whole or in
part; provided, however,
that no amendment which is required by any regulation, law or stock exchange
rule to be approved by shareholders shall be effective unless it is approved by
the shareholders of the Company entitled to vote thereon. Notwithstanding the
foregoing, no amendment shall affect adversely any of the rights of any
Director, under any option or under any election theretofore in effect under
the Plan, or with respect to Deferred Amounts, without such Director’s consent.

 

14.   Nontransferability.  No Option, or right or interest of any Director in Deferred
Amounts, shall be transferable by a Director other than (i) by will or by
the laws of descent and distribution, 

 

8

 

(ii) pursuant to a
qualified domestic relations order (as defined in the Code or Title I of the
Employee Retirement Income Security Act of 1974, as amended), or (iii) in
the case of an Option, as otherwise expressly permitted under the applicable
option agreement including, if so permitted, pursuant to a gift to such
optionee’s family, whether directly or indirectly or by means of a trust or
partnership or otherwise. All Options or rights with respect to Deferred
Amounts shall be exercisable, during the Director’s lifetime, only by the
Director or by the guardian or legal representative of the Director or an
alternate payee pursuant to a qualified domestic relations order or, in the
case of an Option, by any person to whom such Option is transferred pursuant to
the preceding sentence. Under the Plan, it is understood that the term “optionee”
includes the guardian and legal representative of the Director named in the
option agreement and any person to whom an Option is transferred by will or the
laws of descent and distribution, pursuant to a qualified domestic relations
order or as otherwise described above.

 

15.   Beneficiaries.  The Board shall establish such procedures as it deems
appropriate for a Director to designate a beneficiary to whom any amounts
payable in the event of a Director’s death are to be paid or by whom any
Options held by a Director may be exercised following his or her death.
Directors shall make a beneficiary election with respect to Deferred Amounts at
the same time that a Deferral Election is made.

 

16.   Compliance with Law, Etc.   Notwithstanding any other
provision of the Plan or agreements made pursuant hereto, the Company shall not
be required to issue or deliver any certificate or certificates for shares of
Common Stock under the Plan prior to fulfillment of all of the following
conditions:

 

(a)  the
listing, or approval for listing upon notice of issuance, of such shares on the
New York Stock Exchange or such other securities exchange or NASDAQ as may at
the time be the principal market for Common Stock;

 

(b)  any
registration or other qualification of such shares of the Company under any
state or federal law or regulation, or the maintaining in effect of any such
registration or other qualification which the Board shall, in its absolute
discretion upon the advice of counsel, deem necessary or advisable; and

 

(c)  the
obtaining of any other consent, approval, or permit from any state or federal
governmental agency, which the Board shall, in its absolute discretion after
receiving the advice of counsel, determine to be necessary or advisable.

 

17.   Notice.  Any written notice to the Company required by any of the
provisions of the Plan shall be addressed to the Secretary of the Company and
shall become effective when it is received.

 

18.   Governing Law.  The Plan and all determinations made and actions taken
pursuant hereto shall be governed by the laws of the State of Delaware, without
reference to principles of conflict of laws, and shall be construed
accordingly.

 

19.   Headings.  The headings of sections and subsections herein are
included solely for convenience of reference and shall not affect the meaning
of any of the provisions of the Plan.

 

20.   Termination of the 1997 Plan.  If the shareholders of the
Company approve this Plan as provided in Section 12 hereof, the 1997 Plan
shall terminate in accordance with Section 12 thereof as of the date of
such approval. In that case, Share Accounts and Cash Accounts maintained under
the 1997 Plan shall be converted to and maintained as Share Accounts and Cash
Accounts under this Plan. If the shareholders of the Company do not approve
this Plan, then the 1997 Plan shall continue in full force and effect until
terminated in accordance with the provisions thereof, all grants of options
made pursuant to 

 

9

 

Sections 5(d) and 5(e) shall
be null and void, and all Share Elections and Deferral Elections made under
this Plan shall be deemed to have been made under the 1997 Plan.

 

21.   Savings Clause.  This Plan is intended to comply in all respects with the American
Jobs Creation Act of 2004 and the rules and regulations promulgated thereunder and
the interpretations thereof (collectively, the “AJCA”).
In the event that any provision of this Plan violates AJCA or would result in
imposition of any excise tax, penalties or similar adverse tax consequences to
the Company or any Director, such provision shall without further action by the
Board be modified, restricted or nullified, as appropriate to avoid such adverse
tax consequences. In addition, if the time or form of any payment election is
made in accordance with this Plan, but in violation of the AJCA, then such
payment election shall be null and void, and all amounts deferred shall be paid
or payments thereof shall commence on the earliest date permitted in accordance
with the AJCA without the imposition of any excise tax, penalties or other
adverse tax consequences to the Director and the Company.

 

10

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