Document:

Exhibit 10.01

 

Confidential treatment has been requested for portions of this exhibit.
The copy filed herewith omits the information subject to the confidentiality
request. Omissions are designated as [*]. A complete version of this exhibit
has been filed with the Securities and Exchange Commission pursuant to Rule
24b-2 of the Securities Act of 1934, as amended.

 

SUBLICENSE AND LICENSE AGREEMENT

BETWEEN

NIPPON KAYAKU CO., LTD.

AND

NEOPHARM, INC.

 

SUBLICENSE AND LICENSE AGREEMENT (this “Agreement”)
dated as of December 28, 2004 by and between Nippon Kayaku Co., Ltd., a
corporation organized under the laws of Japan with principal offices located at
Tokyo Fujimi Building, 11-2, Fujimi 1-chome, Chiyoda-ku, Tokyo 102-8172, Japan
(“NK”) and NeoPharm, Inc., a Delaware corporation with principal offices
located at 150 Field Drive, Suite 195, Lake Forest, Illinois 60045 (“NeoPharm”).

 

WITNESSETH:

 

WHEREAS, NK is engaged in the research, development,
manufacture and commercialization of pharmaceuticals for the treatment of
diseases in humans; and

 

WHEREAS, NeoPharm is engaged in the research and
development of proprietary drug products, including, but not limited to,
IL13-PE38QQR (“IL13”), for the treatment of cancer, and in connection therewith
has obtained the rights to such products and has developed and licensed know-how,
technology and other intellectual property relating thereto; and

 

WHEREAS, NK would like to obtain a sublicense and a
license to the technology, patents, know-how and certain other intellectual property
owned or controlled by NeoPharm to research, develop and commercialize products
containing IL13 (as defined below) in the Territory (as
defined below); and

 

WHEREAS, NeoPharm has agreed to exclusively sublicense
and license to NK the Licensed Technology (as defined below) in the Territory.

 

NOW, THEREFORE, in consideration of the foregoing and
of the payments, representations, covenants and promises contained in this
Agreement, the Parties agree as follows:

 

ARTICLE 1

DEFINITIONS

 

1.1 “Affiliate” shall mean
any Person that, directly or indirectly through one or more intermediates,
controls, is controlled by, or is under common control with the Person
specified.  For the purposes of this
definition, control shall mean with respect to a Person, the direct or indirect
ownership of (i) greater than fifty percent (50%) of the voting capital or
shares entitled to vote for the election of directors of the Person or (ii)
greater than fifty percent (50%) of ownership interest of the Person, or (iii)
the ability to direct the management and operations of the Person.

 

 

1.2 “Agreement” shall mean
this Agreement.

 

1.3 “Applicable Laws” shall
mean all applicable laws, statutes, rules, regulations, ordinances, orders,
decrees, writs, judicial or administrative decisions and the like of any nation
or government, any state or other political subdivision thereof, any entity
exercising executive, judicial, regulatory or administrative functions of or
pertaining to government (including, without limitation, any governmental
authority, agency, department, board, commission or instrumentality of any
governmental unit or any political subdivision thereof), any tribunal or
arbitrator of competent jurisdiction, and any self-regulatory organization.

 

1.4 “BLA” shall mean a
Biologics License Application filed with the FDA.

 

1.5 “cGMP” shall mean
current good manufacturing practices of the FDA, including compliance with the
FD&C Act, 21 C.F.R. parts 210 and 211 and all applicable FDA rules,
regulations, policies and guidelines in effect at a given time.

 

1.6 “Claims” shall mean
any and all claims, suits, proceedings, liabilities, losses, damages,
penalties, fines, assessments, expenses and costs of any kind or nature,
primary or secondary, direct or indirect, absolute or contingent, known or
unknown, including, without limitation, costs of settlement, reasonable
attorneys’ fees and related costs and expenses and any liabilities for claims
of personal injury, illness, death or property damage suffered or incurred by
an indemnified Party hereunder.

 

1.7 “Commercialize” or “Commercialization”
shall mean those activities relating to the promotion, marketing and sale of
Products following Governmental Approval to market Products, but with respect
to NK shall not include manufacturing of IL13 or any Product.

 

1.8 “Commercially Reasonable Efforts”
shall mean reasonable best efforts and resources commonly used in the research-based
pharmaceutical industry for a product at a similar stage in its product life of
similar market potential taking into account the competitiveness of alternative
products in the marketplace, the patent and other proprietary position of the
product, the likelihood of regulatory approval given the regulatory structure
involved, the profitability of the product and alternative products and other
relevant factors. Commercially Reasonable Efforts shall be determined on a
market by market basis for a particular Product, and it is anticipated that the
level of effort will change over time reflecting changes in the status of the
Product and the market involved.

 

1.9 “Confidential Information”
shall mean any and all data and information of a proprietary or confidential
nature that are owned or controlled by any Party or their respective Affiliates
and are made available by one Party or its Affiliates to the other Party or its
Affiliates prior to the Term or during
the Term and the
Additional Term and that are
directly or indirectly related to the IL13 and/or Products or the development,
use or sale thereof, including, but without limitation, clinical or
non-clinical data, formulations, customer lists, supplier lists and pricing
information.  Confidential Information
shall not include information which:

 

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(a)           was known or used by the receiving Party
or its Affiliates prior to its date of disclosure to the receiving Party, as
evidenced by the prior written records of the receiving Party or its
Affiliates; or

 

(b)           either before or after the date of the
disclosure to the receiving Party, is lawfully disclosed without restriction on
disclosure to the receiving Party or its Affiliates by an independent,
unaffiliated Third Party whose disclosure of such information does not violate
any obligation to, or right of, the Party owning or controlling the
Confidential Information; or

 

(c)           either before or after the date of the
disclosure to the receiving Party, becomes published or generally known in the industry
through no fault or admission on the part of the receiving Party or its
Affiliates or their employees or agents; or

 

(d)           can be shown by written documents to have
been independently developed by the receiving Party or its Affiliates without
breach of any of the provisions of this Agreement; or

 

(e)           is disclosed by the receiving Party pursuant
to oral questions, interrogatories, requests for information or documents,
subpoena, or a civil investigative demand of a court or governmental agency;
provided that the receiving Party notifies the other Party immediately upon
receipt thereof (and provided that the disclosing Party furnishes only that
portion of the information which it is advised by counsel is legally required
and impose such obligations of secrecy as are possible in that regard); or

 

(f)            is required to be disclosed by a Party
under any statutory, regulatory or similar legislative requirement or any rule
of any stock exchange to which it or any Affiliate is subject; provided, that
the disclosing Party uses reasonable efforts to obtain confidential treatment
of the Confidential Information.

 

1.10         “Controls” or “Controlled”
shall mean, with respect to any know-how or intellectual property right, that a
Party controlling such owns or has a license to use such know-how or right and
has the ability to grant licenses or sublicenses to such know-how or right
without violating the terms of any agreement or other arrangement with, or the
rights of, any Third Party.

 

1.11         “Default” shall mean
with respect to either Party that (i) any representation or warranty of such
Party set forth in this Agreement shall have been untrue in any material
respect when made or (ii) such Party shall have failed in the performance of
any material obligation of such Party set forth herein.

 

1.12         “Develop” or “Development”
shall mean those activities related to the preclinical or clinical development
of IL13 and/or Products and obtainment and preservation of Governmental
Approvals for Products.

 

3

 

1.13         “Development Data”
shall mean preclinical and clinical data possessed as of the Effective Date and
generated after the Effective Date by or on behalf of either Party, its
Affiliates or sublicensees in the Development of IL13 and/or Products.

 

1.14         “Development Plan”
shall mean the plan attached hereto as Exhibit B providing for
the Development of IL13 and/or Products by NK, as the same may be amended from
time to time by the JSC.

 

1.15         “Effective Date” shall
mean the date of this Agreement.

 

1.16         “FDA” shall mean
the United States Food and Drug Administration and any successor agency.

 

1.17         “Field of Use” shall
mean, for each patent or application included in the Licensed Patent Rights
listed on Exhibit A hereto, the field of use designated on Exhibit A
for such patent estate, and for any other Licensed Technology, the “Field of Use” shall mean the field of use for treating human
cancer.

 

1.18         “First Commercial Sale” shall
mean the initial transfer by or on behalf of NK or its Affiliates in exchange
for cash or some equivalent to which value can be assigned for the purpose of determining
Net Sales.

 

1.19         “Force Majeure” shall
mean acts of God; acts, regulations, orders, decrees or laws of any government
or agency thereof that are not due to or caused by any action or inaction of
the Party claiming the benefit of force majeure where such action or inaction
is in violation of such Party’s obligations under this Agreement or Applicable
Laws; war; terrorist acts, damage to or destruction of facilities; labor
disturbances (whether or not any such labor disturbance is within the power of
the affected Party to settle); epidemic; civil commotion; and failure of
suppliers, public utilities or common carriers; provided, however, that
notwithstanding the existence of such a Force Majeure event, the Party affected
shall have used, and shall continue to use throughout the duration of the
event, all reasonable efforts to avoid the occurrence of the event and to
remedy it promptly once it shall have occurred.

 

1.20         “Governmental Approvals”
shall mean any approvals, licenses, registrations, authorizations, or
equivalents, of any United States or Japanese, as applicable, Governmental
Authorities that are necessary for the manufacture,
use, storage, transport, export, import, clinical testing and/or sale of the
Product in the Territory or the United States, as applicable.

 

1.21         “Governmental Authorities” shall
mean all federal or local governmental entities, agencies, departments, bureaus
or other governmental authorities.

 

1.22         “IL13” shall mean
hIL13-PE38QQR and/or cphIL13-PE38QQR.

 

1.23         “Japanese NHI Reimbursement Price”
shall mean the public drug price determined by the MHLW.

 

1.24         “JSC” shall mean
the Joint Steering Committee having the responsibilities set forth in Article 3.

 

4

 

1.25         “Joint Invention” shall mean
each invention or discovery related to IL13 and/or the Product acquired or
developed jointly (as determined by U.S. law of inventorship) by the Parties
(together with their employees, consultants and researchers).

 

1.26         “License Fees” shall mean
the payments to be made by NK to NeoPharm as detailed in Section 4.1.

 

1.27         “Licensed Patent Rights”
shall mean:

 

(a)           Rights
in the Territory to the patent applications and Japanese patents NeoPharm has
licensed from Licensors, as stated in Exhibit A as such and
all patents issuing from such applications, in each case within the Field of
Use identified for each such patent estate. 
NeoPharm shall not amend Exhibit A without the
prior written consent of NK, which consent shall not be unreasonably withheld;
provided, however, that NeoPharm may amend Exhibit A from time to
time if NeoPharm acquires rights to additional patents and patent applications
within the respective Field of Use and in the Territory or PHS exercises the
right to modify NeoPharm’s license to the Licensed Patent Rights according to
35 U.S.C. §209(f)(4).

 

(b)           To
the extent that the following contain one or more claims directed to the
invention or inventions disclosed in (a) above that also relate to IL13 and/or
Product within the respective Field of Use: 
(i) all divisions and continuations-in-part of (a) above; (ii) all
divisions and continuations of these continuations-in-part; (iii) all patents
issuing from such continuations-in-part, divisions and continuations; and (iv)
any reissues, reexaminations and extensions of such patents; in each case only
to the extent NeoPharm has or obtains rights thereto in the Territory.

 

1.28         “Licensed Technology”
shall mean any technology, know-how and other intellectual property (other than
Trademarks) directed to IL13 and/or Products, formulations and/or methods
Controlled on the Effective Date or to be Controlled during the Term and the Additional Term by NeoPharm or its Affiliates which are necessary or useful
to research, Develop, use or Commercialize IL13
and/or the Product in the Territory in the Field of Use and shall include the
Licensed Patent Rights and any NeoPharm Data.

 

1.29         “Licensor” shall mean,
for each patent or application included in the Licensed Patent Rights listed on
Exhibit A hereto, the licensor to NeoPharm designated on Exhibit A
for such patent estate.

 

1.30         “MHLW” shall mean
the Japanese Ministry of Health, Labor and Welfare, and any successor agency.

 

1.31         “Milestone Payments”
shall mean the payments to be made by NK to NeoPharm upon occurrence of certain
events as set forth in Section 4.2.

 

5

 

1.32         “NeoPharm Data” shall
mean clinical, technical, scientific and medical information, knowledge,
know-how, methods, and practices including, but without limitation,
pharmacological, toxicological and clinical test data and results having
application to IL13 and/or the Products
in the Field of Use.

 

1.33         “NeoPharm Territory”
shall mean the entire world excluding the Territory.

 

1.34         “Net Sales” shall mean [*]
percent [*]% of the Japanese NHI Reimbursement Price for the Product sold by NK
and its Affiliates to Third Parties (other than for the purpose of clinical
studies); provided, however, that in case the Japanese pricing system changes
from the Japanese NHI Reimbursement Price to another system, the
Parties shall negotiate with each other about how to
equitably determine net sales of Product.

 

1.35         “New Drug Application” or “NDA”
shall mean (a) the single application or set of applications for approval
and/or pre-market approval to make and sell commercially a pharmaceutical or
biological therapeutic products or delivery systems or device filed with the
FDA or Governmental Authorities in the Territory, as applicable, or any
successor agency having the administrative authority to regulate the approval
for marketing of new human pharmaceutical or biological therapeutic products,
delivery systems and devices in the United States or the Territory, as
applicable, including all information in drug master files related to such
application(s), and (b) any related registrations with or notifications to the
FDA or Governmental Authorities in the Territory, as applicable.

 

1.36         “NHI” shall mean
the Japanese National Health Insurance.

 

1.37         “NK Data” shall mean
any information, including, but not limited to, pre-clinical and clinical data,
obtained by NK or its Affiliates in support of the Development and
Commercialization.

 

1.38         “NK Technology” shall
mean any technology, trade secrets, know-how and other intellectual property
(other than Trademarks) directed to IL13 and/or Products, formulations and/or
methods and any biological materials Controlled on the Effective Date or to be
Controlled thereafter by NK or its Affiliates which are necessary or
useful to research, Develop, use
and Commercialize the Product and/or IL13 and shall include any NK Data.

 

1.39         “Party” shall mean
NeoPharm or NK, as the case may be, and “Parties” shall mean NeoPharm and NK.

 

1.40         “Person” shall mean
an individual, a partnership, a joint venture, a corporation, a trust, an
estate, an unincorporated organization, or any other entity, or a government or
any department or agency thereof.

 

1.41         “Phase I Study” shall
mean a Phase I clinical trial to be conducted by NK the primary objective of
which is to assess histological evidence of antitumor activity and

 

* Certain information on
this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portion.

 

6

 

corresponding
drug toxicities in patients with recurrent resectable malignant glioma, as more
fully described in the Development Plan.

 

1.42         “Phase II Study” shall
mean a Phase II Study to be conducted by NK of Japanese patients with recurrent
resectable malignant glioma to confirm the efficacy and safety with the optimal
administration schedule of IL13 determined in the Phase I Study, as more
fully described in the Development Plan.

 

1.43         “PHS” shall mean
the United States Public Health Service.

 

1.44         “PRECISE” shall mean
NeoPharm’s Phase III Randomized Evaluation of Convection Enhanced Delivery of
IL13-PE38QQR with Survival Endpoint.

 

1.45         “Product(s)” shall mean
any pharmaceutical product containing IL13 as the active component, in any
formulation or dosage.

 

1.46         “Regulatory Filings”
shall mean, collectively, New Drug Applications, Biologics License
Applications, Drug Master Files, New Drug Approvals and/or any other comparable
filings as may be required by Governmental Authorities to obtain Governmental
Approvals in the United States or the Territory, as applicable.

 

1.47         “Royalty” shall mean
the royalty payments described in Section 4.3.

 

1.48         “Specifications” shall mean specifications for or concerning the quality,
manufacturing, testing, and packaging of Products as set forth in the
Governmental Approvals in the Territory for the Product, or as may be agreed upon
by the Parties in writing from time
to time.

 

1.49         “Supply Agreement”
shall mean the supply agreement relating to supply from NeoPharm to NK of
Products for sale by NK in the Territory, to be entered into by the Parties.

 

1.50         “Term” and “Additional Term”
shall have the meaning set forth in Section 11.1.

 

1.51         “Territory” shall mean
Japan.

 

1.52         “Third Party(ies)”
shall mean any Person other than NK and/or NeoPharm or their respective
Affiliates.

 

1.53         “Trademark” shall mean
any trade name, logo or trademark (whether or not registered) together with all
goodwill associated therewith.

 

1.54         “Valid Claim” shall mean
a claim of a
patent or
patent application which has not
lapsed, been canceled, withdrawn, abandoned or
declared invalid by a court or other appropriate body of competent
jurisdiction, and which has not been admitted to be invalid or unenforceable
through reissue or disclaimer and which would, but for this Agreement,
be infringed by the use, sale, offer for sale and/or importation of IL13 and/or Products in the
Territory during the Term and the Additional Term.

 

7

 

ARTICLE 2

SUBLICENSE AND LICENSE GRANT; TECHNOLOGY TRANSFER

 

2.1 Reserved NeoPharm Rights.  NeoPharm shall retain all its license rights,
subject only to the sublicenses and licenses and any other rights expressly
granted to NK hereunder, with respect to the Licensed Technology.

 

2.2 Sublicense and License Grants.  In consideration of the payment of the
License Fee, Milestone Payments, Royalties and the other considerations
described in this Agreement, and subject to Section 2.6 of this Agreement
with respect to those Licensed Patent Rights for which the PHS is the Licensor,
NeoPharm hereby grants to NK with respect to NeoPharm’s rights in and to the
Licensed Technology, an exclusive sublicense, to the extent that such Licensed
Technology is Controlled by NeoPharm with NeoPharm having obtained such
Control, directly or indirectly, from a Third Party, and an exclusive license,
to the extent that such Licensed Technology is Controlled by NeoPharm without
NeoPharm having obtained such Control, directly or indirectly, from a Third
Party, in each case within the Field of Use, and solely within the Territory,
to research, develop, use, sell, offer for sale, promote and/or import IL13
and/or Products during the Term and the Additional Term. Such sublicense and
license shall include rights to NK to designate its employees and the employees
of its Affiliates to promote Products and to use Third Parties to inspect
Products for receipt of shipment of Products. 
NK acknowledges that the exclusive sublicense granted herein is subject
to certain retained rights of the Licensors in some of the Licensed Patent
Rights.

 

2.3 No Sublicenses.  Except to the extent expressly authorized by
this Agreement, the sublicenses and licenses granted to NK by NeoPharm do not
include any right to sublicense any of the Licensed Technology to any Third
Party for any reason.

 

2.4 Transfer of Licensed Technology.  NeoPharm shall transfer
to NK the Licensed Technology within forty-five (45) days after the Effective
Date, and to assist NK in such
transfer by instructing and/or assisting NK’s supervisory employees in the use
and understanding of such technology and data at NeoPharm’s facilities in
Waukegan, Illinois, USA, or such other location as shall be mutually agreed
upon between the Parties.  Such
transfer shall be free of charge, provided, however, NK
will pay to NeoPharm per diem fees based upon NeoPharm’s standard cost recovery
per NeoPharm person, per day, plus travel and related expenses incurred in
connection with the transfer of the Licensed Technology for any such assistance
given to NK by NeoPharm at NK’s request.

 

2.5 Early Termination.  In the event that this Agreement shall be
terminated prior to the expiration of the Term, NK’s sublicenses and licenses
pursuant to this Article 2 shall terminate and all rights shall revert to
NeoPharm as provided in this Agreement. 
For Licensed Patent Rights for which the PHS is the Licensor, if
NeoPharm’s license to any such patent estate is terminated, NK may terminate
this Agreement entirely or as to such sublicense of
such PHS patent
estate, and NK
may, at NK’s option, seek to convert such sublicense to a direct license
between NK and PHS upon termination of NeoPharm’s license with PHS.  If NK elects to convert the sublicense, such
conversion will be subject to PHS approval and contingent upon acceptance by NK
of the remaining provisions of NeoPharm’s license with PHS.

 

8

 

2.6 Reserved Government Rights.

 

(a)           As
to Licensed Patent Rights for which PHS is the Licensor to NeoPharm, PHS has
reserved on behalf of the United States government an irrevocable,
nonexclusive, nontransferable, royalty-free license for the practice of all
inventions licensed under the Licensed Patent Rights throughout the world by or
on behalf of the United States government and on behalf of any foreign
government or international organization pursuant to any existing or future
treaty or agreement to which the United States government is a signatory.  Prior to the First Commercial Sale, NK agrees
to provide to NeoPharm the reasonable quantities of Products or materials made
pursuant to the Licensed Technology that NeoPharm is required to provide to PHS
for PHS research use including for human clinical trials, but not for purposes
of commercial development, manufacture or distribution.

 

(b)           In the event that Licensed Patent Rights
are Subject Inventions (as defined in the PHS License Agreement) made under a
Cooperative Research and Development Agreement (CRADA), NK grants to the United
States government, pursuant to 15 U.S.C. §3710a(b)(2), a nonexclusive, nontransferable,
irrevocable, paid-up license to practice such Licensed Patent Rights or have
such Licensed Patent Rights practiced throughout the world by or on behalf of
the United States government.  In the
exercise of such license, the United States government shall not publicly
disclose trade secrets or commercial or financial information that is
privileged or confidential within the meaning of 5 U.S.C §552(b)(4) or which
would be considered as such if it had been obtained from a non-Federal
party.  Prior to the First Commercial
Sale, NK agrees to provide PHS reasonable quantities of Product(s) or materials
made through the Licensed Technology for PHS research use.

 

(c)           PHS
may enter into future Cooperative Research and Development Agreements (CRADAs)
under the Federal Technology Transfer Act of 1986 that relate to the Licensed
Patent Rights.  NeoPharm may not
unreasonably deny PHS requests for a Research License (as defined in the PHS
License Agreement) from such future collaborators with PHS when acquiring such
rights is necessary in order to make a Cooperative Research and Development
Agreement (CRADA) project feasible.  If
requested by NK, NeoPharm, on behalf of NK, will request an opportunity for NK
to join as a party to the proposed Cooperative Research and Development
Agreement (CRADA).

 

(d)           In
addition to the reservations in Section 2.6(a) above, PHS has reserved the
right to grant nonexclusive Research Licenses (as defined in NeoPharm’s
licenses with PHS) directly or to require NeoPharm to grant nonexclusive
Research Licenses on reasonable terms. 
The purpose of a Research License is to encourage basic research,
whether conducted at an academic or corporate facility.  In order to safeguard the Licensed Patent
Rights, however, PHS shall consult with NeoPharm, and NeoPharm agrees to advise
NK and permit NK to comment, before granting to commercial entities a Research
License or providing to them research samples of materials made pursuant to the
Licensed Patent Rights.

 

2.7 Cooperation with NeoPharm; Conflict.

 

(a)           NK agrees that it will provide such
cooperation to NeoPharm as NeoPharm shall reasonably determine is required for
NeoPharm to perform NeoPharm’s obligations to its Licensors under its
respective license agreements.  To the extent
there is a

 

9

 

conflict between this Agreement and the terms of
the agreements attached hereto as Exhibit E NeoPharm’s two agreements
L-162-02/0 and L-226-96/0 with PHS (the “PHS Licenses”), the terms of the PHS
Licenses shall control.

 

(b)           NK agrees that the obligations of
NeoPharm to PHS under paragraphs 5.01-5.04, 8.01, 10.01-10.04, 12.05, and
13.07-13.09 of NeoPharm’s agreement L-162-02/0 with PHS (copies of which are
attached as Exhibit C) shall be
binding upon NK as if NK were a party to NeoPharm’s agreement L-162-02/0 with
PHS.

 

(c)           NK agrees that the obligations of
NeoPharm to PHS under paragraphs 5.01-5.04, 8.01, 10.01, 10.02, 12.05, and
13.07-13.09 of NeoPharm’s agreement L-226-96/0 with PHS (copies of which are
attached as Exhibit D) shall be
binding upon NK as if NK were a party to NeoPharm’s agreement L-226-96/0 with PHS.

 

ARTICLE 3

DEVELOPMENT AND COMMERCIALIZATION

 

3.1 Joint Steering Committee.  The Parties shall form a joint steering
committee (the “JSC”) consisting of three (3) members from each of NeoPharm and
NK (with NeoPharm and NK having equal representation).  The JSC shall have the following
responsibilities: (i) to establish policies for the Development and
Commercialization of IL13 and/or Products in the Territory, (ii) to review,
approve and monitor the Development Plan, (iii) to co-ordinate data exchange
and preparation of Regulatory Filings, (iv) to monitor the Commercialization of
Products in the Territory, and (v) such other activities as the Parties shall
agree are appropriately decided by the JSC.

 

3.2 Meetings and Decisions of the Joint Steering
Committee.  The chairperson of the JSC shall be designated
annually by NK from one of its representatives on the JSC.  Each Party shall designate one of its JSC
representatives as its “Key Contact” and all communications between the Parties
will be directed through the Key Contacts. 
A secretary will be appointed by the JSC for each meeting and shall be
responsible for the minutes of the meeting. 
The JSC shall meet no less frequently than once per year. 
The meeting may be held by video or audio conference with the consent of
the Parties.  Decisions of the JSC shall be made by vote of
a majority of the representatives of each Party.  In the event the JSC is unable to reach
agreement on any issue, the issue shall be referred to the Chief Executive
Officer of NeoPharm and the Head of Pharmaceuticals Group of NK for
resolution.  All decisions of the JSC
shall be consistent with the Development Plan and shall be reached in good
faith.  NeoPharm shall not have any right
to compel NK to conduct any Development which has not been approved by the
JSC.

 

3.3 Development Plan.  Prior to the Effective Date, NK has prepared
and NeoPharm has approved, the Development Plan for the Territory (as set forth
as Exhibit B).  The goal of the
Development Plan is to maximize Product potential in the Territory through
coordinated, efficient and cost effective Development and
Commercialization.  The Development Plan

 

10

 

includes
[*].  The Development Plan will be
updated on an annual basis and, when necessary in consideration of the progress
of the Development, from time to time by mutual agreement of the Parties.  On or before [*]of each year, NK will submit
to the JSC an updated schedule for the Development of IL13 and/or Products
in the Territory for the following year, which updated Development Plan shall
be subject to the review and approval of the JSC.

 

3.4 Data.  At each meeting of the JSC, and upon written
request at any other time, the Parties shall exchange written summaries of all
Development Data obtained to date. Upon request, each Party shall provide the
other Party with access to Development Data in such detail as shall be
reasonably necessary to allow the other Party to use the Development Data in
support of its Development and Commercialization of IL13 and/or Products in its
respective territory.  All Development
Data shall be considered Confidential Information of the disclosing Party.  The Parties shall maintain all Development
Data, related records, documents and raw data in sufficient detail and in good
scientific manner as will properly reflect all works done and results achieved
in the performance of the Development.

 

3.5 Cooperation; Combining Study Results.

 

(a)           NK shall conduct Development of IL13
and/or Products in the Territory and NeoPharm shall conduct Development of IL13
and/or Products in the NeoPharm Territory. 
In their Development of IL13 and/or Products, each Party may collaborate
or consult with researchers and investigators and contract for clinical studies
without regard to territory restrictions, but in no event will NK conduct
clinical trials outside of the Territory, without the prior written approval of
NeoPharm.

 

(b)           It is the intention of the Parties that
upon NK’s completion of the Phase I Study and the Phase II Study, and upon
NeoPharm’s completion of the PRECISE trial, NeoPharm shall provide NK with the
PRECISE trial results so that, on the basis of the combined Phase I Study,
Phase II Study and PRECISE trial results, NK shall be able to apply to the
applicable Governmental Authorities to obtain all necessary Governmental
Approvals to Commercialize the Product in the Territory.

 

3.6 Development Assistance.  NK may request that NeoPharm conducts,
on NK’s behalf, certain research and/or pre-clinical studies
on IL13 and/or Products set forth in the Development Plan.  In the event NeoPharm has adequate personnel
available, NeoPharm shall undertake to conduct such research and/or pre-clinical
studies on NK’s behalf.  NK will
compensate NeoPharm in accordance with NeoPharm’s standard per diem fees which
will be calculated on the basis of the amount of time per NeoPharm personnel
full-time
equivalent is devoted to such research and/or pre-clinical studies.

 

3.7 Commercialization.  The JSC shall monitor, review and, if found
acceptable, approve the Commercialization of Products in the Territory,
including, but not limited to, all medical claims relating to the
Products.  All matters relating solely to
local issues of promotion,

 

* Certain information on
this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portion.

 

11

 

advertising,
or other issues relating solely to the sales process for Products in the
Territory, may be decided by NK in NK’s sole business judgment.

 

3.8 Reporting.  NeoPharm and NK shall each promptly notify
the other Party of any events that occur in their respective territories which
are required to be reported to any Governmental Authorities in the respective Parties’
territories under any Applicable Laws, including, but not limited to, 21 CFR
314.80, 600.14 and 600.80 of the United States (as such requirements may be
amended from time to time) and any similar or equivalent reporting requirements
to Governmental Authorities in the Territory.

 

3.9 Development Cost.  NK shall be solely responsible for all costs
for Development and Commercialization of IL13 and/or Product in the Territory,
including, but not limited to, any costs associated with pre-clinical studies
and clinical studies, any other studies or research projects and all in-house
studies with the exception, however, that any IL13 (if requested by NK, in the
form of a pharmaceutical preparation in vials and with labels, which labels
shall be furnished by NK to NeoPharm) reasonably required by NK to conduct its
pre-clinical studies, if any, Phase I Study and Phase II Study shall be
provided by NeoPharm at NeoPharm’s cost.

 

ARTICLE 4

LICENSE FEES, MILESTONE PAYMENTS AND ROYALTIES

 

4.1 License Fees.

 

(a)           Upon execution of this Agreement, NK
shall pay to NeoPharm a one-time, nonrefundable license fee payment of Two
Million U.S. Dollars (US $2,000,000). 
The above payment shall be made within fifteen (15) days of execution of this Agreement.

 

(b)           Upon NK’s filing for registration of any
Product with the MHLW or other appropriate Governmental Authority for the first
time, NK shall,
within fifteen
(15) days of such filing, pay to NeoPharm an
additional one-time, non-refundable license fee payment of Two Million U.S. Dollars (U.S.
$2,000,000).

 

(c)           Upon first publication of the Japanese NHI
Reimbursement Price by the MHLW, NK shall, within fifteen (15) days of such publication, pay to
NeoPharm an additional one-time, non-refundable license fee payment of Four Million
U.S. Dollars (U.S. $4,000,000).

 

4.2 Milestone Payments.  Within thirty (30) days after the first
occurrence of each of the applicable milestones set forth below, NK shall pay
to NeoPharm the corresponding payments (the “Milestone Payments”):

 

 

	
  EVENT

  	
   

  	
  PAYMENT

  	
   

  
	
  •      Upon cumulative Net Sales of the Products in the
  Territory reaching $[*] within [*]

  	
   

  	
  $[*]

  	
   

  
	
  •      If cumulative Net Sales of Products in the 

  	
   

  	
  $[*]

  	
   

  
	
  Territory fail to reach $[*] within [*] then, upon
  cumulative Net Sales reaching $[*]

  	
   

  	
   

  	
   

  
	
  •      In the event cumulative Net Sales of Products in the
  Territory fail to reach $[*] within [*], but do reach such level thereafter,
  then upon annual Net Sales of Products in the Territory reaching $[*]

  	
   

  	
  $[*]

  	
   

  

 

* Certain information on
this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portion.

 

12

 

Each Milestone Payment shall be paid only once and then only upon
the
first occurrence of the event requiring such payment, and shall not be payable
again upon subsequent occurrences of such event.

 

4.3 Royalties to NeoPharm.

 

(a)           In
consideration for NK’s sublicensing and licensing of the Licensed Technology in
the Territory, NK shall pay to NeoPharm a royalty (the “Royalty”) on all Net
Sales of Products in the Territory at the rate of [*] percent [*]% commencing
with the First Commercial Sale of a Product in the Territory and continuing for
the balance of the Term, as defined in Section 11.1.  During any Additional Term, as defined in Section 11.1,
NK shall pay a Royalty on all its Net Sales of Products in the Territory at the
rate of [*] percent [*]%; provided, however, that, if any Valid Claim of
Licensed Patent Rights in the Territory exists during the Additional Term, the
rate shall be [*] percent [*]%until all of the Valid Claim of Licensed Patent
Rights in the Territory cease to exist. 
Following the expiration of NK’s obligations to pay Royalties to
NeoPharm, NK shall have no further rights under this Agreement or otherwise to
research, develop, use, sell, offer for sale, promote or import IL13 and/or
Product in the Territory and all such rights shall immediately revert
exclusively to NeoPharm.

 

(b)           In the event any of the Products are
packaged or combined with any other products for sale in the Territory, the
Royalties payable with respect to sales of such Product shall be calculated on
the price of the Product as if such Product had continued to be sold alone.

 

(c)           Royalties payable hereunder will be paid
to NeoPharm not later than fifteen (15) days following
the date when IMS JAPAN K.K. having its head office at Aobadai Hills, 7-7,
Aobadai 4-chome, Meguro-ku, Tokyo 153-0042, Japan issues IMS which sets forth
the quantities of Products sold by NK for each calendar quarter, but in no event
more than forty-five (45) calendar days following the end of each
calendar quarter and each such
payment shall be accompanied by a report in writing showing the period to which such payment applies, the quantities of
Products sold by NK during such calendar quarter, the total Net Sales for the
period and the Royalties due on such Net Sales to NeoPharm.

 

4.4 Taxes.  All amounts owing to NeoPharm on account of
License Fees, Milestone Payments and Royalties as specified in this Agreement
shall be paid net of all applicable taxes,

 

* Certain information on
this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portion.

 

13

 

fees
and similar charges, if any, owed by NeoPharm and that are required
to be withheld by NK under Applicable Laws. 
If Applicable Laws require that NK withholds taxes, fees, or similar
charges owed by NeoPharm, NK shall (i) deduct those amounts from the License
Fees, Milestone Payments and Royalties, (ii) timely pay the amounts to the
proper authority(ies), and (iii) send proof of payment to NeoPharm and certify
its receipt by the proper authority(ies) within sixty (60) days following that
payment.  NK shall use its reasonable
best efforts to ensure that NeoPharm is credited, and can use said credit, for
any amounts paid or withheld by NK on behalf of NeoPharm.

 

4.5 Currency of Payment.  All payments to be made by NK to NeoPharm
hereunder shall be made in U.S. Dollars. 
Net Sales shall be first determined in Japanese Yen and shall be
converted quarterly into an amount in U.S. Dollars based on the exchange rate
of the Yen to the Dollar as published by the Wall Street Journal, Asian
Wall Street Journal edition, on the day preceding
payment
in the case of License Fees and Milestone Payments, and as of the last day of
the calendar quarter for which Royalties are being paid.

 

ARTICLE 5

SUPPLY

 

5.1 Pre-clinical and Clinical Supply.  NeoPharm shall, free of charge, supply IL13
(if requested by NK, in the form of a pharmaceutical preparation in vials and
with labels, which labels shall be furnished by NK to NeoPharm) to NK for NK’s
pre-clinical, Phase I Study and Phase II Study as set forth in the Development
Plan in the vial sizes and quantities set forth in the Development Plan.  NeoPharm may elect to contract with any
qualified FDA approved Third Party for such manufacture and supply.  Such pharmaceutical preparation to be
supplied to NK shall have the specifications stipulated by
NeoPharm and meeting the standard of the Japanese applicable regulations.

 

5.2 Supply
Following Approval; Limitation on Cost.  After NK shall obtain Governmental Approval
for the sale of Product, NeoPharm shall, or shall cause
the qualified FDA Third Party manufacturer designated by NeoPharm (the “Primary
Manufacturer”) to, supply Products (in the form of a
finished pharmaceutical preparation in vials and with labels, which labels
shall be furnished by NK to NeoPharm) to NK at a price of [*]; the price to be
adjusted [*]), in accordance with the terms set forth in the Supply Agreement;
provided, however, that if NK has obtained additional Governmental Approval for
the sale of the additional Product the formulation of which is different from
such Product, the price to be charged by NeoPharm per vial  for
supplying such additional Product shall be as agreed by the Parties after good
faith negotiations, unless otherwise provided for herein.  Prior to
Commercialization of Product and thereafter, NK will submit to NeoPharm rolling
forecasts of its requirements for the Products
followed by firm orders in accordance with the terms set forth in the Supply
Agreement at such times and frequencies as the Parties shall mutually agree
shall be necessary to enable NeoPharm, or its subcontractor, to plan its
manufacturing activities in order to maximize efficiency and reduce costs and
supply NK with its reasonable requirements

 

* Certain information on
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with respect to the omitted portion.

 

14

 

for
Product.  The price charged to NK for
Products by NeoPharm shall be on a Delivered Duty Unpaid Narita Airport, Japan
basis (DDU: Incoterms 2000). Notwithstanding any other provision in this
Agreement, in no event shall the price charged to NK for Products by NeoPharm,
when added to the Royalty (or the sum of the Royalty and the royalty or other
payments paid by NK to the Third Party set forth in Section 8.4(d), if
applicable), exceed [*] percent [*]% of NK’s Net Sales.  Shipment of Products from NeoPharm to NK
shall be made on a Delivered Duty Unpaid Narita Airport, Japan basis (DDU:
Incoterms 2000) by NeoPharm.  NeoPharm
shall, or shall cause the Primary Manufacturer and the Back-Up
Manufacturer (as defined in Section 5.6) to,
manufacture and supply the Products in accordance with (i) the Specifications,
(ii) the applicable Governmental Approvals, as may be amended from time to
time, (iii) cGMP requirements and (iv) all other Applicable Laws. 
With respect to Specifications for or concerning the quality,
manufacturing and testing of Product, NK will endeavor to develop Product
meeting specifications set forth in the Governmental Approvals in the United
States for the Product.

 

5.3 Payments.  NK shall pay all amounts owing to NeoPharm
for supply of Products within forty-five (45)
days from receipt of the Products and the accompanying invoice.

 

5.4 No Manufacturing by NK.  The sublicense and license granted to NK by
NeoPharm under this Agreement shall not include or be deemed or considered to
include any right to manufacture or contract with any entity other than NeoPharm
for the manufacture of IL13 and/or any Product; provided, however, that in the
event NeoPharm, for any reason,  other
than a Force Majeure event, is unable to supply at
least [*] percent [*]% of NK’s total order requirement of the Products for a period
of [*] consecutive months or [*] percent [*]% of NK’s total order requirements
of the Products for a period of [*], NK shall have the right to
place its orders for Product directly with
the Primary Manufacturer or, if the Primary Manufacturer shall be unable or
unwilling to supply NK with Product, NK may
place orders with any Back-Up Manufacturer (as hereinafter defined) in order to
fulfill its requirements for Products;
provided, however, that, upon NeoPharm certifying to NK that it again has the
ability to supply NK’s requirements for Products, NK
shall, within three (3) months of receipt of such notification, again obtain
its requirements for Products exclusively
through NeoPharm.  If NeoPharm is unable
to supply the above mentioned amount of the Product for the above mentioned
period for the reason of a Force Majeure event, other than a
Force Majeure event relating to the Primary Manufacturer and the Back-Up
Manufacturer, NeoPharm shall procure the
Product from the Primary Manufacturer or the Back-Up Manufacturer and supply it
to NK in the amount necessary to avoid interruption, delay or failure of sales
of the Product by NK in the Territory.

 

5.5 Supply Agreement.  The Parties shall negotiate with each other
in good faith about the terms of the Supply Agreement and enter into the Supply
Agreement within one (1) year from the Effective Date. Specific details
regarding NeoPharm’s obligation to supply Products shall be set forth in the
Supply Agreement.

 

5.6 Back-Up
Manufacturer. 
Prior to NK’s first Regulatory Filing of a New Drug Application for
Products in the Territory, NeoPharm shall have completed the process whereby a
second FDA approved Third Party shall become qualified to produce Products (the
“Back-Up

 

* Certain information on
this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portion.

 

15

 

Manufacturer”) in the event that the Primary Manufacturer is, for any
reason, unable or unwilling to supply NeoPharm or NK with Product.

 

ARTICLE 6

REPRESENTATIONS, WARRANTIES AND COVENANTS

 

6.1 Representations and Warranties of the Parties.

 

Each of NeoPharm and NK represents and warrants to the
other, as of the Effective Date, as follows:

 

(a)           It is duly organized and validly existing
under the laws of its place of organization and has all requisite power and
authority, corporate or otherwise, to enter into this Agreement and to carry
out its responsibilities hereunder.

 

(b)           The execution, delivery, consummation and
performance of this Agreement and the transactions contemplated hereby have
been duly authorized by all necessary corporate action and will not (i) require
any consent or approval of its stockholders or partners, (ii) violate any
Applicable Laws or (iii) result in a breach of or constitute a default under
any material agreement, mortgage, lease, license, permit or other instrument or
obligation to which it is a party or by which it or its properties may be bound
or affected.

 

(c)           This Agreement is a legal, valid and
binding obligation of such Party and is enforceable in accordance with its
terms. The execution, delivery and performance of this Agreement by it does not
conflict with any agreement, instrument or understanding, oral or written, to
which it is a party or by which it may be bound, nor violate any material law
or regulation of any court, governmental body or administrative or other agency
having jurisdiction over it.

 

(d)           No consent, approval, order or authorization
of, or registration, declaration or filing with, any governmental agency is
required to be obtained or made by or with respect to such Party in connection
with its execution, delivery and performance of this Agreement.

 

6.2 Representations and Warranties of NeoPharm.

 

NeoPharm represents ant warrants that:

 

(a)            NeoPharm Controls (with the right to grant sublicenses
consistent with those granted NK hereunder) the Licensed Technology, including,
but not limited to, the Licensed Patent Rights, and has obtained the written
approval of any applicable Licensor to the sublicense of any Licensed Patent
Rights hereunder.

 

(b)           NeoPharm
has
not granted, and during the Term and the Additional Term
will not grant, any right to a Third Party under the Licensed Technology in the
Territory within the Field of Use that would conflict with any of the rights granted to NK under this
Agreement.

 

16

 

(c)           To NeoPharm’s knowledge, it has not
received any material communication or assertion from or by any Third Party
relating to the validity, enforceability or infringement of any of the Licensed
Patent Rights and/or that the practice in the Territory in the Field of Use of
the inventions claimed in the Licensed Patent Rights and/or comprising the
Licensed Technology infringes the rights of any Third Party.

 

(d)           To NeoPharm’s knowledge, there are no
actions currently asserted or, to NeoPharm’s knowledge, threatened by any Third
Party involving, questioning and/or relative to:  (i) NK’s right to use and/or receive from
NeoPharm the exclusive sublicense under this Agreement; and/or (ii) NeoPharm’s
ability to enter into this Agreement and perform its obligations hereunder.

 

(e)           NeoPharm has conducted all studies for
IL13 and/or the Products (“NeoPharm’s Clinical Studies”) in substantial
compliance with Good Laboratory Practices and all applicable Federal, state and
local laws, rules, regulations and guidelines governing the conduct of clinical
studies.  To NeoPharm’s knowledge, neither
NeoPharm nor any of the investigators, institutions, laboratories, clinical
research organizations or other individuals or entities participating in
NeoPharm’s Clinical Studies have been or are “debarred” as such disclosures
have been obtained in accordance with 21 CFR Part 54 from the investigators
and/or institutions participating in NeoPharm’s Clinical Studies, to the extent
applicable.

 

(f)            Notwithstanding anything appearing in
this Agreement, NeoPharm does not: (i) warrant the validity or enforceability
of the Licensed Patent Rights, (ii) make any representations whatsoever with respect to the
scope of the Licensed Patent Rights, or (iii) represent or warrant either (A)
that the practice of the Licensed Patent Rights within the Field of Use in the
Territory, or (B) that the manufacture, importation, use, sale, or
Commercialization of a Product and/or of IL13, will not infringe other patent
rights or other intellectual property of Third Parties.

 

6.3 Covenants of NK.

 

(a)           NK covenants to use Commercially
Reasonable Efforts to expeditiously Develop and Commercialize IL13 and/or
Products in the Territory in the Field of Use, in accordance with the
Development Plan.

 

(b)           NK will use Commercially Reasonable
Efforts to expeditiously obtain Governmental Approvals to Develop and
Commercialize IL13 and/or Products in the Territory in the Field of Use as
set forth in the Development Plan and for such additional
indications as
shall be determined by the JSC, for which NK will Develop and
Commercialize IL13 and/or Products in
the Territory.

 

(c)           NK covenants to comply with all
Applicable Laws relating to the Development and/or Commercialization of IL13
and/or Products in the Territory.

 

17

 

6.4 Covenants of NeoPharm.

 

(a)           NeoPharm covenants to use Commercially
Reasonable Efforts to expeditiously Develop and Commercialize IL13 and/or Products in the United
States.

 

(b)           NeoPharm will use Commercially Reasonable
Efforts to expeditiously obtain Governmental Approvals to Develop and Commercialize IL13 and/or Products in the United
States.

 

(c)           NeoPharm covenants to comply with all
Applicable Laws relating to the Development and/or Commercialization of IL13 and/or Products in the United
States.

 

6.5 WARRANTY DISCLAIMER.  EXCEPT FOR THE REPRESENTATIONS AND WARRANTIES
SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES ANY OTHER REPRESENTATION OR
WARRANTY, EITHER EXPRESS OR IMPLIED, WITH RESPECT TO IL13 OR ANY PRODUCT.  NEOPHARM MAKES NO
EXPRESS OR IMPLIED WARRANTIES OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR
PURPOSE OR THAT THE USE OF THE PRODUCT(S) WILL NOT INFRINGE ANY PATENT,
COPYRIGHT, TRADEMARK, OR OTHER PROPRIETARY RIGHTS OF ANY THIRD PARTY. EXCEPT
FOR THE REPRESENTATIONS AND WARRANTIES SET FORTH IN THIS AGREEMENT, NEOPHARM
MAKES NO ANY OTHER EXPRESS OR IMPLIED WARRANTIES.

 

6.6 LIMITATION OF LIABILITY.  IN NO EVENT SHALL EITHER PARTY BE LIABLE TO
THE OTHER FOR ANY INDIRECT, INCIDENTAL, SPECIAL OR CONSEQUENTIAL DAMAGES,
INCURRED BY EITHER PARTY AND ARISING FROM PERFORMANCE OR NON-PERFORMANCE UNDER
THIS AGREEMENT, EVEN IF ADVISED OF THE PROBABILITY OF SUCH DAMAGES, WHETHER
BASED ON AN ACTION IN CONTRACT OR TORT OR BASED ON A WARRANTY, OR
REPRESENTATION OR OTHER THEORY.

 

ARTICLE 7

RECORDS; AUDIT

 

7.1 Record Retention. NK shall
keep complete, accurate and correct records in sufficient detail to permit
NeoPharm to confirm the accuracy of the calculation of Net Sales and Royalties
provided for in this Agreement.  Such
records shall be retained for no less than a five (5) year period following the
year in which any such payments were made hereunder.

 

7.2 Audit.  NeoPharm and any Licensor shall each have the
right for a period of five (5) years after receiving any report, statement or
payment with respect to Net Sales or Royalties, to obtain, at its expense, from
an accountant or auditor selected by NeoPharm and agreed by NK an audit of all
relevant records of NK to verify such report, statement or payment.  NK shall make its records available for
inspection by such accountant or auditor during regular business hours at such
place or places where such records are customarily kept, upon reasonable notice
from

 

18

 

NeoPharm
or any Licensor, to the extent reasonably necessary to verify the accuracy of
the reports and payments.  Neither
NeoPharm nor any Licensor may exercise its inspection right more than once in
any calendar year, nor more than once with respect to sales in any given
period, unless a subsequent inspection reveals discrepancies which may have
also occurred during such period.  Such
accountant or auditor shall report to NeoPharm, or a Licensor, as the case may
be, only as to the accuracy of the Net Sales computation and Royalty payments.  If the audit shows that NK has underpaid any
Royalties by five percent (5%) or more, for any period covered by the audit, NK
shall, in addition to promptly remitting to NeoPharm the amount of
underpayment, (i) pay for the cost of such audit and (ii) pay interest to
NeoPharm at a per annum rate equal to three percent (3%) above London
Inter Bank, Offered Rate (LIBOR), as in effect on the date of such
determination, on such underpayment from the date such
amounts were accrued until the date such amounts are paid.  In the event the audit shows that NK has
overpaid any Royalties due to NeoPharm hereunder, NK shall be allowed to deduct
the amount of such overpayment from the next Royalty payment due to
NeoPharm.  Such accountant or auditor
must agree to hold in strict confidence all information concerning Royalty
payments and reports, and all information learned in the course of any audit or
inspection, except to the extent necessary for such entity to reveal such
information in order to allow NeoPharm to enforce its rights under this
Agreement, perform its obligations to any Licensor(s), or disclosure is
required by law.  The failure of NeoPharm
to request verification of any report, statement or payment during the five (5)
year period shall be considered acceptance of the accuracy of such report, and
NK shall have no obligation to maintain records pertaining to such report,
statement or payment beyond the five (5) year period.  The results of the inspection shall be
binding on both Parties.

 

ARTICLE 8

INTELLECTUAL PROPERTY

 

8.1 Trademarks.  Each Party shall market Products under its
own Trademarks and the other Party shall have no right or interest in any such
Trademarks.

 

8.2 Patent Prosecution of the Licensed Patent Rights.  Pursuant to the
licensing agreements between NeoPharm and its Licensors, either NeoPharm or its
Licensors have responsibility for the preparation, filing, prosecution and
maintenance of any and all patent applications or patents included in the
Licensed Patent Rights.

 

8.3 Patent Enforcement of the Licensed Patent Rights.

 

(a)           Each
Party shall promptly notify the other Party upon becoming aware of any Third
Party infringement of the Licensed Patent Rights.

 

(b)           NeoPharm
or its applicable Licensors may, but shall not be obligated to, elect to
enforce the Licensed Patent Rights against Third Parties and to defend the
Licensed Patent Rights against any challenges worldwide, including challenges
in the Territory, and NK shall assist and cooperate with NeoPharm or its
applicable Licensors in any such enforcement or defense within the Territory.  NeoPharm or its applicable Licensors shall
bear all associated costs and expenses (including attorneys’ fees) and retain
any damages or recoveries with respect to any such actions outside the
Territory.  NK shall reimburse NeoPharm
or its applicable Licensors

 

19

 

for
all costs and expenses (including attorneys’ fees) incurred by NeoPharm or its
applicable Licensors after the execution of this Agreement in the enforcement
and/or defense of such action with respect to the Territory, and shall retain
any damages or recoveries with respect to the Territory subject to the payment
to NeoPharm or its applicable Licensors of 40% in total of any
such damages or recoveries after deducting an amount equal to the above
reimbursement made by NK to NeoPharm or its applicable Licensors.

 

(c)           Declaratory
Judgments Relating to Licensed Patent Rights. 
If a declaratory judgment action alleging invalidity or noninfringement
of any of the Licensed Patent Rights shall be brought against NK or raised by
way of counterclaim or affirmative defense in an infringement suit brought by
NK pursuant to this Agreement, NK may (i) defend the suit in its own name, at
its own expense, and on its own behalf for presumably Valid Claims in the
Licensed Patent Rights; (ii) in any such suit, ultimately enjoin infringement
and collect for its use, damages, profits, and awards of whatever nature
recoverable for such infringement; and (iii) settle any claim or suit for
declaratory judgment involving the Licensed Patent Rights; provided, however,
that NeoPharm and its applicable Licensors shall have the first right to take
such actions and shall have a continuing right to intervene in such suit.  If NeoPharm or its applicable Licensors do
not notify NK of their intent to respond to the legal action within a
reasonable time, NK will be free to do so. 
NK shall take no action to compel NeoPharm or its applicable Licensors
either to initiate or to join in any such declaratory judgment action.  NK may request that NeoPharm or its
applicable Licensors initiate or join any such suit if necessary to avoid
dismissal of the suit.  Should NeoPharm
or its applicable Licensors be made a party to any such suit by motion or any
other action of NK, NK shall reimburse them for any costs, expenses, or fees
that they incur as a result of such motion or other action.  NK shall directly pay the attorneys or agents
engaged to defend NeoPharm or its applicable Licensors in said action.  If NK elects not to defend against such
declaratory judgment action, NeoPharm or its applicable Licensors, at their
option, may do so at their own expense. 
In all cases, NK agrees to keep NeoPharm and its applicable Licensors
reasonably apprised of the status and progress of any litigation.  Before NK commences an infringement action,
NK shall notify NeoPharm and its applicable Licensors and give careful
consideration to the views of NeoPharm and its applicable Licensors and to any
potential effects of the litigation on the public health in deciding whether to
bring suit.

 

(d)           In
the event that neither NeoPharm nor its applicable Licensors shall elect to
undertake such enforcement and/or defense in the Territory, NK may, but shall
not be obligated to, do so at its own expense. If NK decides to initiate suit
to enforce the Licensed Patent Rights, NK must notify NeoPharm in writing.  NeoPharm or its applicable Licensors shall
have a continuing right to intervene in such suit.  NK will take no action to compel NeoPharm or
any applicable Licensor to join in any such suit for patent infringement.  If NeoPharm or any Licensor is made party to
such a suit, NK agrees to reimburse them for any costs, expenses, or fees which
they incur as a result of such suit, including any and all costs incurred by them
in opposing joinder as a party to such suit. 
In all cases, NK agrees to keep NeoPharm and its Licensors (as
applicable) reasonably apprised of the status and progress of any litigation.  NK shall retain any damages or recoveries
obtained from such action.

 

20

 

8.4 Third Party Actions.

 

(a)           Notice.  Each
Party shall promptly notify the other Party upon becoming aware of any Third
Party claim or action against NK and/or NeoPharm for infringement of Third Party
Patent Rights through the making, having made, using, selling, or having sold
Products.

 

(b)           NeoPharm as Named Party or NeoPharm and NK as Named
Parties. 
NeoPharm shall defend, or settle any action in the Territory naming
NeoPharm or NeoPharm and NK and claiming the infringement of any Third Party
Patent Right through the making, having made, using, selling or having sold any
Products;
provided, however, NeoPharm shall not settle any action in which NK shall be
responsible for such settlement costs, as hereinafter provided, without NK’s
prior written consent. 
The Parties shall confer with each other and cooperate during the
defense of any such action.  NK shall
assist and co-operate with NeoPharm in the defense of any such action where
only NeoPharm is named and, if NeoPharm finds it necessary to have NK join as a
party, NK shall execute all papers or perform such other acts as may reasonably
be requested by NeoPharm.  NK shall, at
its own expense, be entitled to participate in and have counsel selected by it
participate in any action in which NK is a named party along with NeoPharm.
NeoPharm shall bear all associated costs and expenses (including attorneys’
fees) and pay all damages and settlement amounts with respect to the
importation, making, having made, using, selling, offering to sell or having
sold Products within the NeoPharm Territory. 
NK shall bear all associated costs and expenses (including attorneys’
fees) incurred after the execution of this Agreement and pay all damages and
settlement amounts with respect to the developing, using, selling or having
sold Products in the Territory.

 

(c)           NK as Named Party.  NK shall defend any action which names NK but
does not name NeoPharm and which claims the infringement of any Third Party
Patent Right through the having made, using, selling or having sold Products in
the Territory.  If necessary, and at NK’s
expense, NeoPharm will assist and co-operate with NK in any such defense.  NK shall bear all costs and expenses
(including attorneys’ fees) and all damages and settlement amounts arising out
of or in connection with any such action other than those arising solely out of
or in connection with any action with respect to the manufacture of IL13 and/or
a Product, which shall be NeoPharm’s responsibility.

 

(d)           Notwithstanding the provisions of
Sections 8.4(b) and 8.4(c) hereof, NK may deduct from Royalty due pursuant to Section 4.3(a)
the amount of royalty or other payments paid by NK to the Third Party caused by
the claim of the infringement of the Third Party Patent Right; provided, however,
that such deduction by NK shall not reduce the amount of Royalty due to
NeoPharm under Section 4.3(a) by more than [*]% in any year.  In the event that the deduction by NK would
exceed [*]% of the Royalty payable to NeoPharm in any year, the unreimbursed
royalty or other payments in excess of [*]% may be carried
over as a credit, on the same basis, into succeeding calendar years.

 

8.5 New Inventions.

 

Subject to the retained rights of NeoPharm’s Licensors
delineated in Section 2.6 of this Agreement, NK and NeoPharm agree that:

 

* Certain information on
this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portion.

 

21

 

(a)           Intellectual property rights regarding
any invention conceived solely by either Party during the Term and the Additional Term shall be solely owned by such Party, and
the other Party shall have no rights in or to such invention other than those
rights specifically granted to such other Party hereunder.  The Party who conceived the invention shall
have the right to prosecute and maintain, in its sole discretion and at its own
expenses, all patent application or patent regarding such invention in any
country in the world;

 

(b)           Intellectual property rights regarding
any Joint Invention shall be jointly owned by the Parties and

 

(i)            NeoPharm agrees to take responsibility
for, but to consult with NK, the preparation, filing, prosecution and
maintenance of any and all Joint Invention patent applications and patents in
the NeoPharm Territory.

 

(ii)           NK agrees to take responsibility for, but
to consult with NeoPharm, the preparation, filing, prosecution and maintenance
of any and all Joint Invention patent applications and patents in the
Territory.

 

(iii)          Expenses in the NeoPharm Territory for
the preparation, filing, prosecution and maintenance of Joint Invention patent
applications and patents shall be borne by NeoPharm, and expenses in the Territory for the
preparation, filing, prosecution and maintenance of Joint Invention patent
applications and patents shall be borne by NK.

 

(iv)          With respect to Joint Inventions, except
as provided in paragraph (c) of this Section, NK shall be deemed to have an
exclusive license (even as to NeoPharm) to such Joint Inventions within the
Territory and NeoPharm shall be deemed to have an exclusive license (even as to
NK) to such Joint Inventions within the NeoPharm Territory, which exclusive
license shall be royalty-free, irrevocable and extend until the expiry of the
jointly owned patent(s); and

 

(c)           Each Party may, at its discretion,
determine not to maintain its intellectual property rights set forth in this Section 8.5,
and in such case the discontinuing Party shall notify the other Party in
writing of the discontinuing Party’s determination not to maintain such
intellectual property rights at least 3 months in advance of any deadlines for
maintaining such intellectual property rights. 
After such notice, the discontinuing Party shall be exempted from
obligations to bear any and all expenses regarding such intellectual property
rights.  After such notice, the other
Party shall have the right to maintain such intellectual property rights at its
expense and without any consideration to the discontinuing Party.  After such notice and if the other Party
maintains such intellectual property rights, the discontinuing Party shall have
no right to such intellectual property rights and the other Party who maintains
such intellectual property rights shall have exclusive rights to such
intellectual property rights, regardless of whether the intellectual property
rights are in the Territory.

 

22

 

ARTICLE 9

CONFIDENTIALITY

 

9.1 Confidentiality.  Except to the extent expressly authorized by
this Agreement or otherwise agreed in writing by the Parties, the Parties agree
that, for the Term and the Additional Term
and for five (5) years thereafter, the receiving Party shall keep confidential
and shall not publish or otherwise disclose to any Third Parties other than its
officers, employees, directors, sublicensees or Affiliates who are under a
confidentiality obligation equivalent to that of the receiving Party and shall
not use for any purpose other than as provided for in this Agreement any
Confidential Information furnished to it by the other Party pursuant to this
Agreement.  With respect to any
information that a disclosing Party has identified in writing as its
trade secret, the other Party shall keep such information confidential for the Term
and the Additional Term and for ten (10) years thereafter and shall, upon request of the
disclosing Party,
destroy all such information after the expiration of
the Term and the
Additional Term and certify
its destruction.

 

9.2 The Agreement.

 

(a)           The Parties agree that the material terms
of this Agreement shall be considered Confidential Information of both
Parties.  Each Party shall have the right
to disclose in confidence the material
terms of this Agreement to parties retained by such Party to perform legal,
accounting or similar services and who have a need to know such terms in order
to provide such services, or for bona fide
purposes of entering into a merger, acquisition or sale of the entire business
of a Party or the entire line of business relating to the Licensed Technology.

 

(b)           The Parties will consult with one another
and agree on the provisions of this Agreement to be redacted in any filings
made by either Party with the United States Securities and Exchange Commission
or as otherwise required by law or regulation. Notwithstanding the foregoing,
each Party may disclose the terms of this Agreement to the extent necessary to
comply with the United States Securities and Exchange Commission requirements
or those required by Applicable Laws.

 

9.3 Authorized Disclosure.  Each Party may disclose Confidential
Information belonging to the other Party to the extent such disclosure is
reasonably necessary in the following:

 

(i)            filing, prosecuting or maintaining Patent
Rights included in the Licensed Patent Rights or other Patent Rights to be
acquired hereunder;

 

(ii)           regulatory filings;

 

(iii)          prosecuting or defending litigation set
forth in Article 8;

 

(iv)          complying with applicable regulations of
Governmental Authorities; and

 

23

 

(v)           researching and developing IL13 and/or
Products pursuant to this Agreement under conditions which are
designed to maintain the non-public nature of the Confidential Information to
the extent practicable.

 

Notwithstanding the foregoing, in the event a Party
intends or is required to make a disclosure of the other Party’s Confidential
Information pursuant to this Section 9.3, it shall, except where
impracticable, give reasonable advance notice to the other Party of such
disclosure, use Commercially Reasonable Efforts to secure confidential
treatment of such information, and use Commercially Reasonable Efforts to
assist the other Party’s efforts to intervene or secure confidential treatment
of such information; provided, however, that with respect to a disclosure
pursuant to this Section 9.3 (v), such a Party shall be exempted from the
obligation to give advance notice to the other Party of such disclosure.

 

9.4 Public Announcements and Statements.  Neither NeoPharm nor NK, nor any Affiliate
thereof, shall issue or cause publication of any press release or other public
announcement or public communication with respect to this Agreement or the
transactions contemplated hereby without the prior written consent of the other
Party, which consent shall not be unreasonably withheld, delayed or
conditioned.  Neither Party shall use the
name of the other Party in any public statement or press release without the
prior written approval of the other Party, which approval may not be
unreasonably withheld, delayed or conditioned; provided, however, that both
Parties shall give the other Party a minimum of three (3) business
days to review any such press release or other public statement.  Notwithstanding the foregoing, each Party may
make any disclosure which such Party, in the opinion of its counsel, is
obligated to make pursuant to Applicable Laws, in which case such Party shall
still endeavor to give the other Party an opportunity to review such disclosure
but shall not be obligated to do so if such disclosure must, in the opinion of
its counsel, be made without time for review. 
The failure of a Party to draft such disclosure in a timely fashion shall
not be deemed a reason to avoid submitting such disclosure to the other Party.

 

9.5 Publications or Presentations.  Notwithstanding anything set forth in this
Agreement to the contrary, with respect to research and development activities
conducted or sponsored by NK, whether through its employees, subcontractors,
agents, or any academic, governmental, or other independent contractors, NK
agrees that prior to making, allowing or authorizing any presentations or
publications relating to the results of such activities (each individually a “Publication”)
in the Territory or the NeoPharm Territory, NK shall provide NeoPharm with a
copy of any proposed Publication at least thirty (30) days prior to such
submission, presentation or publication thereof.  NK will not submit, permit or authorize such
a Publication without prior written consent of NeoPharm, which consent,
however, shall not be unreasonably withheld. 
If NeoPharm fails to object to a proposed Publication within such thirty
(30) day time period, NeoPharm shall be deemed to have consented to the
submission, presentation or publication of such Publication.

 

24

 

ARTICLE 10

INDEMNIFICATION; INSURANCE

 

10.1         Indemnification.

 

(a)           Subject to Article 8, each Party shall indemnify and hold the other Party and
the Licensors, and their employees, student researchers, fellows, agents and
consultants, harmless from and against any and all Claims arising out of its or
its Affiliates’ development, design, distribution, use or sale of IL13 and/or
Products, other than those arising out of (i) the infringement of a Patent Right of a
Third Party through the making, using or selling of IL13 and/or Products by the
Party, its Affiliates and/or its sublicensees or (ii) the design, manufacture,
distribution or use of any IL13 and/or Products or materials, or any other
products or processes developed in connection with or arising out of the
Licensed Technology.  Notwithstanding the
foregoing, the other Party shall not be entitled to indemnification under this
subsection (a), against any Claim to the extent such Claim arises from
such other Party’s negligence or misconduct.

 

(b)           Subject to Article 8, each Party
shall indemnify the other Party and hold the other Party and the Licensors
harmless from and against any and all Claims arising out of any allegation of
infringement of a patent right of a Third Party through the importation,
making, having made, using, selling, offering to sell or having sold IL13
and/or Products by or on behalf of the Party which is brought by a Third Party.

 

(c)           For purposes of this Article 10, an
indemnified Party shall be deemed to include the officers, directors,
employees, students, fellows, agents, representatives, attorneys and
consultants, shareholders, and contractors of such Party and its Affiliates.

 

10.2         Indemnification Procedure.  Promptly after an indemnified Party becomes
aware of any actual or potential Claim hereunder, such Party shall promptly
deliver written notice to the indemnifying Party stating the nature of the
Claim; provided, however, that the failure to give such notification shall not
affect the indemnification provided hereunder except to the extent the
indemnifying Party is actually prejudiced as a result of such failure.  The indemnified Party shall give the
indemnifying Party such information with respect to the Claim as the
indemnifying Party may from time to time reasonably request.  NeoPharm or any Licensor shall have the first
right to (a) bring suit in their own respective names, at their own expense,
and on their own behalf for infringement of presumably Valid Claims in the
Licensed Patent Rights; (b) in any such suit, enjoin infringement and collect
for their use, damages, profits, and awards of whatever nature recoverable for
such infringement; and (c) settle any Claim or suit for infringement of the
Licensed Patent Rights; if NeoPharm or any Licensor do not notify NK within
ninety (90) days of their intent to pursue legal action, NK will be free to
initiate such action, provided that NeoPharm and any Licensor shall have a
continuing right to intervene in such action. 
Subject to the foregoing, the indemnifying Party shall have the right to
conduct the defense of any suit or action related to the Claim if it has
assumed responsibility for the suit, action or other proceeding in writing;
provided, however, that if in the reasonable judgment of the indemnified Party
such suit, action or other proceeding involves an issue or matter which

 

25

 

could
have a material adverse effect on the business, operations or assets of the
indemnified Party, the indemnified Party may elect, at its own expense, to
conduct a separate defense thereof, but in no event shall such election be
construed as a waiver of any indemnification rights such indemnified Party may
have under this Article 10, at law or in equity, or otherwise.  If the indemnifying Party defends the suit or
action, the indemnified Party may participate in (but not control) the defense
thereof at its sole cost and expense; provided, however, that the indemnifying
Party shall pay the reasonable fees and costs of any separate counsel required
for the indemnified Party to the extent such representation is due to a
conflict of interest between the Parties.

 

10.3         Settlements.  Neither Party may settle any Claim, or any action or suit
related to a Claim to a Third Party without the consent of the other Party,
which consent shall not be unreasonably withheld, delayed or conditioned, if
such settlement would impose any monetary obligation on the other Party or
require the other Party to submit to an injunction or otherwise materially
limit the other Party’s rights to conduct its business as then conducted or
limit a Party’s rights under this Agreement, and any payment made by a Party in
such a settlement without obtaining such consent shall be at its own cost and
expense.  Notwithstanding the foregoing,
the indemnifying Party will be liable under this Article 10
for any settlement effected without its consent if the indemnifying Party has
refused to acknowledge liability for indemnification hereunder and/or declines
to defend the indemnified Party against any such Claim, or in any action or
proceeding relating to a Claim and it is determined by dispute resolution
pursuant to Article 13 hereof that the indemnifying Party was liable to
the indemnified Party for indemnification related to such settlement.

 

10.4         Insurance.  Each Party shall maintain suitable amounts of
insurance coverage for clinical trials and commercial product liability
proportionate to the risks and exposures and standard for the industry and the
respective territories in which Products are developed and commercialized.  The Parties shall work with one another to
coordinate such appropriate insurance coverage for the activities contemplated
by the Parties under this Agreement.

 

ARTICLE 11

TERM AND TERMINATION

 

11.1         Term of Agreement.  This Agreement shall become effective as of
the Effective Date and, unless earlier terminated pursuant to other provisions
of this Article 11, shall continue in full force and effect until the date
which is the tenth anniversary date of the First Commercial Sale of the Product in the Territory; provided, however, that in the event NK
has obtained by such tenth anniversary date Governmental Approval for the sale
of Product for an additional indication or new formulation or dosage or active
component based on the Development conducted by NK according to the decision of
the JSC, this Agreement shall continue in full force and effect until the date
which is the tenth anniversary date of the date of such Governmental Approval (the “Term”).  NK shall have the right, at its option, to
extend the Term for such additional term (the “Additional Term”) as the Parties
shall mutually agree in good faith, by giving NeoPharm the notice to that
effect by [*] prior to the expiration of the Term or

 

* Certain
information on this page has been omitted and filed separately with the
Commission.  Confidential treatment has
been requested with respect to the omitted portion.

 

26

 

each
Additional Term.  After expiration of this Agreement, including an
Additional Term, if any, any and all rights and licenses granted
hereunder regarding IL13, the Products and/or the Licensed Technology shall
cease and terminate and shall revert back to NeoPharm.

 

11.2         Termination of Product Development.  Should NK fail to actively pursue its efforts
towards Development for a period of more than [*] for any reason other than Force Majeure and a reasonable reason, such as a request by Governmental Authorities of the Territory, as
determined in the reasonable judgment of the JSC, or should NK terminate at its
discretion Development of IL13 and/or Products in the Territory by giving
NeoPharm [*] prior written notice, this Agreement shall
terminate at the end
of such applicable period and all rights of NK to the Licensed Technology or IL13 and/or the
Products (including all data, information, physical manifestations and
Regulatory Filings) in the Territory shall revert and be delivered to NeoPharm,
and NK shall be free from any and all monetary or developmental obligations
otherwise accruing thereafter.  In
addition, NeoPharm shall be granted a royalty-free worldwide exclusive license
with sublicensing rights under the NK Technology and any Joint Inventions.

 

11.3         Default by NK.  Upon any Default by NK under this Agreement,
NeoPharm shall notify NK of such Default and, in the event such Default shall
be a payment Default, require that NK cures such Default within fifteen (15)
days or in the event such Default shall be a Default other than a payment
Default, require that NK cures such Default within thirty (30) days.  In the event NK shall not have cured the
Default at the end of the applicable grace period, NeoPharm may terminate this
Agreement.  Upon termination of this
Agreement pursuant to this Section 11.3, all rights of NK to the Licensed
Technology, IL13 and the Products (including all data, information, physical
manifestations and Regulatory Filings) in the Territory shall immediately
revert to NeoPharm and NK will promptly return to NeoPharm all physical
manifestations of the Licensed Technology.  In addition, if NeoPharm terminates this
Agreement pursuant to this Section 11.3, NK shall, free of charge, furnish
promptly NeoPharm with NK Data which NK has at the time of such termination.

 

11.4         Default by NeoPharm.  Upon the Default by NeoPharm under this
Agreement, NK shall notify NeoPharm of such Default and require that NeoPharm
cures such Default within thirty (30) days. 
In the event NeoPharm shall not have cured the Default at the end of the
thirty (30) day grace period, at NK’s option, NK may terminate
this Agreement or be relieved, without losing the license and sublicense to the
Licensed Technology or any other right granted to NK under or pursuant to this
Agreement (except to the extent NeoPharm’s license from any of its Licensors
has been so terminated as to such Licensed Technology or other right), of any
and all payment obligations other than those for supply of IL13 and/or Products
by NeoPharm or
any Third Party manufacturer to NK hereunder, until such time as
NeoPharm has cured such
Default.  In addition, if NK has selected
not to terminate this Agreement pursuant to this Section 11.4, NeoPharm
shall, free of charge, furnish promptly NK with NeoPharm Data which NeoPharm
has at the time of such selection.  For
Licensed Patent Rights for which the PHS is the Licensor, if NeoPharm’s license
to any such patent estate is terminated, NK may either terminate this Agreement
(with respect to the sublicense of such patent estate) or, at NK’s
option, seek to convert such sublicense to a direct license between NK and PHS
as specified in Section 2.5.

 

* Certain information
on this page has been omitted and filed separately with the Commission.  Confidential treatment has been requested
with respect to the omitted portion.

 

27

 

11.5         Insolvency or Bankruptcy.

 

(a)           To the extent permitted by Applicable
Laws, either Party may, in addition to any other remedies available to it by
law or in equity, terminate this Agreement, in whole or in part, by written
notice to the other Party in the event the other Party shall have become
insolvent or bankrupt, or shall have made an assignment for the benefit of its
creditors, or there shall have been appointed a trustee or receiver of the
other Party or for all or a substantial part of its property, or any case or
proceeding shall have been commenced or other action taken by or against the
other Party in bankruptcy or seeking reorganization, liquidation, dissolution,
winding-up arrangement, composition or readjustment of its debts or any other
relief under any bankruptcy, insolvency, reorganization or other similar act or
law of any jurisdiction now or hereafter in effect, or there shall have been
issued a warrant of attachment, execution, distraint or similar process against
any substantial part of the property of the other Party, and any such event
shall have continued for ninety (90) days undismissed, unbonded and
undischarged.

 

(b)           All rights and licenses granted under or
pursuant to this Agreement, are, and shall otherwise be deemed to be, for
purposes of Section 365 (n) of the U.S. Bankruptcy Code, licenses of
rights to “intellectual property” as defined under Section 101 of the U.S.
Bankruptcy Code. The Parties agree that the Parties as licensees of such rights
under this Agreement, shall retain and may fully exercise all of their rights
and elections under the U.S. Bankruptcy Code or other Applicable Laws.  The Parties further agree that, in the event
of the commencement of a bankruptcy proceeding by or against NK under the U.S.
Bankruptcy Code or other Applicable Laws, NeoPharm shall to the extent legally
possible be entitled to a complete duplicate of (or complete access to, as
appropriate) any such intellectual property and all embodiments of such
intellectual property, and same, if not already in its possession, shall be
promptly delivered to it (i) upon any such commencement of a bankruptcy
proceeding upon its written request therefor, unless NK elects to continue to
perform all of its obligations under this Agreement or (ii) if not delivered
under (i) above, upon the rejection of this Agreement by or on behalf of NK
upon written request therefor by NeoPharm.

 

(c)           Upon the termination of this Agreement by
NeoPharm pursuant to this Section 11.5, all licenses to the Licensed
Technology will revert to NeoPharm.

 

(d)           In case of a commencement of bankruptcy
proceeding by or against NeoPharm under the U.S. Bankruptcy Code or other
Applicable Laws, NeoPharm shall, free of charge, immediately furnish NK with
NeoPharm Data which NeoPharm has at the time of such commencement and NK shall
be entitled to the rights permitted by Applicable Laws.

 

11.6         Accrued Rights, Surviving Obligations.  With the exceptions explicitly provided
otherwise herein, termination, relinquishment or expiration of this Agreement
for any reason shall be without prejudice to any rights and obligations which
shall have accrued to the benefit of either Party prior to such termination,
relinquishment or expiration.

 

11.7         Termination or Modification by PHS.  PHS has reserved the right according to 35
U.S.C. §209(f)(4) to terminate or modify NeoPharm’s license to the Licensed
Patent Rights for which PHS is the Licensor if PHS determines that such action
is necessary to meet requirements for public use specified by federal
regulations issued after the date of the license and such requirements are not
reasonably satisfied by NeoPharm.  In the
event NeoPharm

 

28

 

receives
a notice relating to such termination or modification from PHS, NeoPharm shall
immediately furnish to NK with a copy of such notice.  In the event any license from PHS to NeoPharm
relating to PHS’s Licensed Patent Rights is terminated, this Agreement shall
terminate as to PHS’s Licensed Patent Rights, and within ninety (90) days of
such termination, a final report shall be submitted by NK.  Any Royalty payments, including those
incurred but not yet paid, and those related to patent expense, due to NeoPharm
shall become immediately due and payable. 
If terminated under this Section 11.7, NK may elect to seek to
convert its sublicense to a direct license with PHS.  If NK elects to convert the sublicense, such
conversion will be subject to PHS approval and contingent upon acceptance by
the sublicense of the remaining provisions of NeoPharm’s license with PHS, and
if NK obtained such direct license from PHS, NK shall have the right to deduct
the amount payable to PHS for such direct license from the License Fees,
Milestone Payments and Royalties due pursuant to Article 4.  Unless otherwise specifically provided for
under this Agreement, upon such termination, NK shall return all materials
included within the terminated Licensed Patent Rights to PHS or provide PHS
with certification of the destruction thereof. 
If and to the extent PHS, or any other Licensor, shall modify NeoPharm’s
license to the Licensed Patent Rights, the sublicense to NK granted hereunder
shall be modified to the same extent, mutatis mutandis.

 

ARTICLE 12

RIGHTS AND DUTIES UPON 

TERMINATION OR EXPIRATION; REMEDIES

 

12.1         Monies Paid or Due.  Upon the termination of this Agreement, each Party shall
have the right to retain all payments already received from the other Party
pursuant to this Agreement, and each Party shall pay to the other all sums
accrued hereunder which are then due. 
Further, within sixty (60) days of any termination, NK shall provide an
accounting from an independent accountant or auditor to NeoPharm of all Net
Sales by NK or NK’s Affiliates.

 

12.2         Survival of Rights.  The termination or expiration of this
Agreement shall not affect the accrued rights and obligations of NeoPharm or NK
arising under or out of this Agreement or Claims arising during the Term and the Additional Term, and the obligations relating to such Claims.  In addition, any provision required to
interpret and enforce the Parties’ rights and obligations under this Agreement
shall survive to the extent required for the full observation and performance
of this Agreement by the Parties. 
Notwithstanding any provision herein to the contrary, the provisions of Sections 2.5, 6.5, 6.6, 8.4, 8.5, 14.5 and 14.10 and the provisions of Articles 9, 10, 11, 12 and 13 shall survive the expiration or termination of this
Agreement as long
as necessary.

 

12.3         Transition Upon Termination.  (a) If this Agreement is terminated
by NeoPharm due to reasons
attributable to NK as provided herein, NK shall
upon termination cooperate with NeoPharm and/or its Affiliates to transfer back
to NeoPharm all title and interest in and to the Licensed Technology to use
solely with the Products.  With respect
to any Confidential Information of NeoPharm, NK shall, upon NeoPharm’s request,
return to NeoPharm or destroy all such Confidential Information after the expiration of the Term and the Additional Term
and certify its destruction.  (b) If this
Agreement is terminated by NK due to reasons attributable to NeoPharm as
provided herein, NeoPharm shall, upon NK’s request, return

 

29

 

to
NK or destroy all Confidential Information of NK after the expiration of the Term and the Additional Term
and certify its destruction.

 

12.4         Damages.  In no event shall either Party be responsible
for any consequential damages incurred by the other Party in connection with
this Agreement, including, without limitation, lost profits or opportunities or
injury to person
or property resulting from the termination of this Agreement.

 

12.5         Termination Not Sole Remedy.  Termination is not the sole remedy under this
Agreement and, whether or not termination is effected, all other remedies shall
remain available except as specifically agreed to otherwise herein.

 

ARTICLE 13

DISPUTE RESOLUTION

 

13.1         Disputes.  The Parties recognize that disputes as to
certain matters may from time to time arise which relate to either Party’s or
its Affiliates’ rights and/or obligations hereunder.  It is the objective of the Parties to
establish procedures to facilitate the resolution of such disputes in an
expedient manner by mutual cooperation and without resort to litigation.  To accomplish this objective, the Parties
agree to follow the procedures set forth in this Article 13 if and when
such a dispute arises between the Parties.

 

13.2         Dispute Resolution Procedures.  If the Parties or the JSC cannot resolve a
dispute within twenty (20) days of formal request by either Party to the other,
any Party may, by written notice to the other (the “Dispute Notice”), have such
dispute referred to their respective officers designated below or their
successors, for attempted resolution by good faith negotiations within thirty
(30) days after such notice is received. 
Said designated officers are as follows:

 

For Nippon Kayaku:                            Head of Pharmaceuticals Group

 

For NeoPharm:                                      Chief Executive Officer

 

Any such dispute arising out of or relating to this
Agreement which is not satisfactorily resolved between the Parties or the
designated officers of the Parties pursuant to the foregoing shall be resolved
by final and binding arbitration conducted in Honolulu, Hawaii, USA, under
the current Licensing Agreement Arbitration Rules of the American Arbitration
Association (“AAA”); provided, however, that depositions shall be permitted as
follows:  Each Party may take no more
than seven (7) depositions with a maximum of six (6) hours of examination time
per deposition, and each such deposition shall take place in Chicago, Illinois,
USA if NeoPharm is a defendant and in Tokyo, Japan if NK is a defendant.  The arbitration shall be conducted by three
(3) arbitrators who are generally recognized as knowledgeable in the subject
matter which is at issue in the dispute and who are selected by mutual
agreement of the Parties or, failing such agreement, shall be selected
according to the AAA rules.  In
conducting the arbitration, the arbitrators shall be able to decree any and all
relief of an equitable nature, including, but not limited to, such relief as a
temporary restraining order, a preliminary injunction, a permanent injunction
or replevin of property.  The arbitrators
shall also be able to award actual or general damages, but shall not award any
other form of damages (i.e., punitive or consequential

 

30

 

damages).  The Parties shall
share equally the arbitrators’ fees and expenses pending the resolution of the
arbitration unless the arbitrators, pursuant to their right but not their
obligations, require the nonprevailing Party to bear all or any portion of the
costs of the prevailing Party.  The
decision of the arbitrators shall be final and may be sued on or enforced by
the Party in whose favor it runs in any court of competent jurisdiction at the
option of such Party, and the Parties hereby consent to the jurisdiction of
such court.

 

ARTICLE 14

MISCELLANEOUS PROVISIONS

 

14.1         Assignment; Change of Control.  Neither this Agreement nor any interest
hereunder shall be assignable by either Party without the prior written consent
of the other Party unless such assignment is accompanied by or pursuant to the
sale of all or substantially all of the assigning Party’s assets, a merger, or
other change of control of a Party.  This
Agreement shall be binding upon the successors and permitted assigns of the
Parties and the name of a Party appearing herein shall be deemed to include the
names of such Party’s successors and permitted assigns to the extent necessary
to carry out the intent of this Agreement. 
Any assignment not in accordance with this Section 14.1
shall be void.  In the event of the sale
of all or substantially all of a Party’s assets, a merger or other change of
control, the other Party shall not have a right of first refusal to acquire any
of the selling Party’s rights under this Agreement.

 

14.2         Further Actions.  Each Party agrees to execute, acknowledge and
deliver such further instruments, and to do all such other acts, as may be
necessary or appropriate in order to carry out the purposes and intent of this
Agreement.

 

14.3         Force Majeure.  Neither Party shall be liable to the other
for loss or damages or shall have any right to terminate this Agreement for any
default or delay attributable to any Force Majeure, if the Party affected shall
give prompt notice of any such cause to the other Party.  The Party giving such notice shall thereupon
be excused from such of its obligations hereunder as it is thereby disabled from
performing for so long as it is so disabled, provided, however, that such
affected Party commences and continues to take reasonable and diligent actions
to cure such cause.

 

14.4         No Trademark Rights.  Except as otherwise provided herein, no
right, express or implied, is granted by this Agreement to use in any manner
the name “NeoPharm” or “Nippon Kayaku” or any other Trademark, service mark or
trade name of the other Party in connection with the performance or termination
of this Agreement without the prior written consent of the other Party, which
consent shall not be unreasonably withheld.

 

14.5         Notices.  All notices and other communications
hereunder shall be in writing and shall be deemed given if delivered personally
or by facsimile transmission (receipt verified), telexed, mailed by registered
or certified air mail (return receipt requested), postage prepaid, or sent by
express courier service, to the Parties at the following addresses (or at such
other address for a Party as shall be specified by like notice, provided,
however, that notices of a change of address shall be effective only upon
receipt thereof):

 

31

 

If to NeoPharm, addressed to:

 

NeoPharm, Inc.

150 Field Drive, Suite 195

Lake Forest, Illinois USA 60045

Attention: Chief Executive Officer

Facsimile: 
847-295-8854

 

If to NK, addressed to:

 

Nippon Kayaku Co., Ltd.

Tokyo Fujimi Building

11-2, Fujimi 1-chome, Chiyoda-Ku

Tokyo 102-8172, Japan

Attention:  Head
of Pharmaceuticals Group

Facsimile: 
+81-3237-5081

 

14.6         Amendment.  No amendment, modification or supplement of
any provision of this Agreement shall be valid or effective unless made in
writing and signed by a duly authorized officer of each Party.

 

14.7         Waiver.  No provision of this Agreement shall be
waived by any act, omission or knowledge of any Party or its agents or
employees except by an instrument in writing expressly waiving such provision
and signed by a duly authorized officer of the waiving Party.

 

14.8         Counterparts.  This Agreement shall be executed in two
counterparts, each of which shall contain the signature of the Parties and all
such counterparts shall constitute one and the same agreement.

 

14.9         Descriptive Headings.
The descriptive headings of this Agreement are for convenience only, and shall
be of no force or effect in construing or interpreting any of the provisions of
this Agreement.

 

14.10       Governing Law.  This Agreement shall be governed by and
interpreted in accordance with the substantive laws of the State of Illinois,
USA.

 

14.11       Severability.  Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
Applicable Laws, but if any provision of this Agreement is held to be
prohibited by or invalid under Applicable Laws, such provision will be ineffective
only to the extent of such prohibition or invalidity, without invalidating the
remainder of this Agreement.

 

14.12       Entire Agreement of the Parties.  This Agreement will constitute and contain
the complete, final and exclusive understanding and agreement of the Parties
and cancels and supersedes any and all prior negotiations, correspondence,
understandings and agreements, whether oral or written, between the Parties
respecting the subject matter hereof.

 

32

 

14.13       Independent Contractors.  The relationship between NeoPharm and NK
created by this Agreement is one of independent contractors and neither Party
shall have the power or authority to bind or obligate the other except as
expressly set forth in this Agreement.

 

 

[SIGNATURE PAGE FOLLOWS]

 

33

 

IN WITNESS WHEREOF, the Parties hereto have executed
this Agreement as of the date first above written.

 

 

	
  NEOPHARM, INC.

  
	
   

  	
   

  
	
  /s/ Gregory P. Young

  	
   

  
	
   

  
	
  By:

  	
  Gregory
  P. Young

  
	
   

  	
   

  
	
  Title:

  	
  President
  and Chief Executive Officer

  
	
   

  
	
   

  
	
  NIPPON KAYAKU CO., LTD.

  
	
   

  
	
  /s/ Haruo Inose

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Haruo INOSE

  
	
   

  	
   

  
	
  Title:

  	
  Senior Managing Director, Head of Pharmaceuticals
  Group

  
			

 

34

 

EXHIBIT A

 

LICENSED PATENT RIGHTS

 

	
  Patent or Patent

  Application

  	
   

  	
  Licensor

  	
   

  	
  Field of
  Use

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  
	
  App. No. JP 528499/96

  	
   

  	
  United States PHS  (License
  No. L-226-96/0)

  	
   

  	
  Use of the chimeric molecule hIL-13-PE38QQR or cphIL-13-PE38QQR to
  treat cancer

  
	
  App. No. PCT/US00/31044

  	
   

  	
  United States PHS  (License
  No. L-162-02/0)

  	
   

  	
  Use of the
  Product in gene therapy applications to treat human cancers. Specifically,
  transfection of cancer cells with the IL-13 Receptor-alpha-2 (IL-13aR2)
  chain in order to sensitize such cells to the therapeutic effects of the
  IL-13 receptor-targeted immunoconjugates, hIL13-PE38QQR or cphIL-13-PE38QQR,
  which were exclusively licensed to NeoPharm under DHHS exclusive patent
  license L-226-96/0

  
	
  App. No.
  PCT/US01/25663

  	
   

  	
  United States PHS  (License
  No. L-162-02/0)

  	
   

  	
  Use of the
  Product in gene therapy applications to treat human cancers. Specifically,
  transfection of cancer cells with the IL-13 Receptor-alpha-2 (IL-13aR2)
  chain in order to sensitize such cells to the therapeutic effects of the
  IL-13 receptor-targeted immunoconjugates, hIL13-PE38QQR or cphIL-13-PE38QQR,
  which were exclusively licensed to NeoPharm under DHHS exclusive patent
  license L-226-96/0

  

 

* Certain
information on this page has been omitted and filed separately with the
Commission.  Confidential treatment has
been requested with respect to the omitted portion.

 

A-1

 

EXHIBIT B

 

DEVELOPMENT PLAN

 

[*]

 

 

* Certain
information on this page has been omitted and filed separately with the
Commission.  Confidential treatment has
been requested with respect to the omitted portion.

 

B-1

 

EXHIBIT C

 

Copies
of Paragraphs
5.01-5.04, 8.01, 10.01-10.04, 12.05, and 13.07-13.09 of NeoPharm’s Agreement
L-162-02/0 with PHS are binding upon NK will be attached hereto.

 

	
  5.01

  	
  (a)

  	
  PHS reserves on behalf of the Government an
  irrevocable, nonexclusive, nontransferable, royalty-free license for the
  practice of all inventions licensed under the Licensed Patent Rights
  throughout the world by or on behalf of the Government and on behalf of any
  foreign government or international organization pursuant to any existing or
  future treaty or agreement to which the Government is a signatory.

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  In the event that Licensed Patent Rights are Subject
  Inventions made under a Cooperative Research and Development Agreement
  (CRADA), Licensee grants to the Government, pursuant to 15 U.S.C.
  §3710a(b)(1)(A), a nonexclusive, nontransferable, irrevocable, paid-up
  license to practice Licensed Patent Rights or have Licensed Patent Rights
  practiced throughout the world by or on behalf of the Government. In the
  exercise of such license, the Government shall not publicly disclose trade
  secrets or commercial or financial information that is privileged or
  confidential within the meaning of 5 U.S.C. §552(b)(4) or which would be
  considered as such if it had been obtained from a non-Federal party.

  
	
   

  	
   

  	
   

  
	
  5.02

  	
   

  	
  Licensee agrees that products used or sold in the United
  States embodying Licensed Product(s) or produced through use of Licensed
  Process(es) shall be manufactured substantially in the United States, unless
  a written waiver is obtained in advance from PHS.

  
	
   

  	
   

  	
   

  
	
  5.03

  	
   

  	
  Licensee acknowledges that PHS may enter into future
  CRADAs under the Federal Technology Transfer Act of 1986 that relate to the
  subject matter of this Agreement. Licensee agrees not to unreasonably deny
  requests for a Research License fro such future collaborators with PHS when
  acquiring such rights ins necessary in order to make a CRADA project
  feasible. Licensee may request an opportunity to join as a party to the
  CRADA.

  
	
   

  	
   

  	
   

  
	
  5.04

  	
  (a)

  	
  In addition to the reserved license of Paragraph
  5.01 above, PHS reserves the right to grant nonexclusive Research Licenses
  directly or to require Licensee to grant nonexclusive Research Licenses on
  reasonable terms. The purpose of this Research License is to encourage basic
  research, whether conducted at an academics or corporate facility. In order
  to safeguard the Licensed Patent Rights, however, PHS shall consult with
  Licensee before granting to commercial entities a Research License or
  providing to them research samples of materials made through the Licensed
  Process(es).

  
	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  In exceptional circumstances, and in the event that
  Licensed Patent Rights are Subject Inventions made under a CRADA, the
  Government, pursuant to 15 U.S.C. §3710a(b)(1)(B), retains the right to
  require the Licensee to grant to a responsible applicant a nonexclusive,
  partially exclusive, or exclusive sublicense to use Licensed Patent Rights in
  Licensee’s field of use on terms that are reasonable under the circumstances;
  or if Licensee fails to grant such a license, the Government retains the
  right to grant the license itself. The exercise of such rights by the
  Government shall

  

 

C-1

 

	
   

  	
   

  	
  only be in exceptional circumstances and only if the
  Government determines (i) the action is necessary to meet health or safety
  needs that are not reasonably satisfied by Licensee; (ii) the action is
  necessary to meet requirements for public use specified by Federal
  regulations, and such requirements are not reasonably satisfied by the
  Licensee; or (iii) the Licensee has failed to comply with an agreement containing
  provisions described in 15 U.S.C. §3710a(c)(4)(B). The determination made by
  the Government under this Article is subject to administrative appeal
  and judicial review under 35 U.S.C. §203(2).

  
	
   

  	
   

  	
   

  
	
  8.01

  	
   

  	
  Licensee agrees to keep accurate and correct records
  of Licensed Products(s) made, used, sold, or imported and Licensed
  Process(es) practiced under this Agreement appropriate to determine the
  amount of royalties due PHS. Such records shall be retained for at least five
  (5) years following a given reporting period and shall be available during
  normal business hours for inspection at the expense of PHS by an accountant
  or other designated auditor selected by PHS for the sole purpose of verifying
  reports and payments hereunder. The accountant or auditor shall only disclose
  to PHS information relating to the accuracy of reports and payments made
  under this Agreement. If an inspection shows an underreporting or
  underpayment in excess of five percent (5%) for any twelve (12) month period,
  then Licensee shall reimburse PHS for the cost of the inspection at the time
  Licensee pays the unreported royalties, including any late charges as
  required by Paragraph 9.08 of this Agreement. All payments required under
  this Paragraph shall be due within thirty (30) days of the date PHS provides
  Licensee notice of the payment due.

  
	
   

  	
   

  	
   

  
	
  10.01

  	
   

  	
  Licensee shall use its reasonable commercial efforts
  to bring the License Product(s) and Licensed Process(es) to Practical
  Application. “Reasonable commercial efforts” for the purposes of this
  provision shall include adherence to the Commercial Development Plan at
  Appendix F and performance of the Benchmarks at Appendix E. The efforts of a
  sublicensee shall be considered the efforts of Licensee.

  
	
   

  	
   

  	
   

  
	
  10.02

  	
   

  	
  Upon the First Commercial Sale, until the expiration
  of this Agreement, Licensee shall use its reasonable commercial efforts to
  make Licensed Product(s) and Licensed Process(es) reasonably accessible to
  the United States public.

  
	
   

  	
   

  	
   

  
	
  10.03

  	
   

  	
  Licensee agrees, after its First Commercial Sale, to
  make reasonable quantities of Licensed Product(s) or materials produced
  through the use of Licensed Process(es) available on a compassionate use
  basis to patients, either through the patient’s physician(s) and/or the
  medical center treating the patient.

  
	
   

  	
   

  	
   

  
	
  10.04

  	
   

  	
  Licensee further agrees, after its First Commercial
  Sale and as part of its marketing and product promotion, to develop written
  educational materials (e.g., brochures, advertisements, etc.) directed to
  patients and physicians detailing the License Product(s) and its use to treat
  cancer.

  
	
   

  	
   

  	
   

  
	
  12.05

  	
   

  	
  Licensee shall indemnify and hold PHS, its
  employees, students, fellows, agents, and consultants harmless from and
  against all liability, demands, damages, expenses, and losses, including but not
  limited to death, personal injury, illness, or property damage in connection
  with or arising out of: a) the use by or on behalf of Licensee, its
  sublicensees, directors, employees, or third parties of any Licensed Patent
  Rights; or b) the design, manufacture, distribution, or use of any Licensed product(s), Licensed

  

 

C-2

 

	
   

  	
   

  	
  Processes(es) or materials by Licensee, or other
  products or processed developed in connection with or arising out of the
  Licensed Patent Rights. Licensee agrees to maintain a liability insurance
  program consistent with sound business practice.

  
	
   

  	
   

  	
   

  
	
  13.07

  	
   

  	
  When the public health and safety so require, and
  after written notice to Licensee providing Licensee a sixty (60) day
  opportunity to respond, PHS shall have the right to require Licensee to grant
  sublicenses to responsible applicants, on reasonable terms, in any Licensed
  Fields of Use under the Licensed Patent Rights, unless Licensee can
  reasonably demonstrate that the grating of the sublicense would not
  materially increase the availability to the public of the subject matter of
  the Licensed Patent Rights. PHS shall not require the granting of a
  sublicense unless the responsible applicant has first negotiated in good
  faith with Licensee.

  
	
   

  	
   

  	
   

  
	
  13.08

  	
   

  	
  PHS reserves the right according to 35 U.S.C.
  §209(f)(4) to terminate or modify this Agreement if it is determined that
  such action is necessary to meet requirements for public use specified by
  federal regulations issued after the date of the license and such
  requirements are not reasonably satisfied by Licensee.

  
	
   

  	
   

  	
   

  
	
  13.09

  	
   

  	
  Within thirty (30) days of receipt of written notice
  of PHS’s unilateral decision to modify or terminate this Agreement, Licensee
  may, consistent with the provisions of 37 CFR Part 404.11, appeal the
  decision by written submission to the designated PHS official. The decision
  of the designated PHS official shall be the final agency decision. Licensee
  may thereafter exercise any and all administrative or judicial remedies that
  may be available.

  

 

C-3

 

EXHIBIT D

 

Copies of Paragraphs 5.01-5.04, 8.01, 10.01-10.02,
12.05, and 13.07-13.09 of NeoPharm’s Agreement L-226-96/0
with PHS are binding upon NK will be attached hereto.

 

	
  5.01

  	
  PHS reserves on
  behalf of the Government an irrevocable, nonexclusive, nontransferable,
  royalty-free license for the practice of all inventions licensed under the
  Licensed Patent Rights throughout the world by or on behalf of the Government
  and on behalf of any foreign government or international organization
  pursuant to any existing or future treaty or agreement to which the
  Government is a signatory. Prior to the First Commercial Sale, Licensee
  agrees to provide PHS reasonable quantities of Licensed Products or materials
  made through the Licensed Processes for PHS research use including for human
  clinical trials but not for purposes of commercial development, manufacture
  or distribution.

  
	
   

  	
   

  
	
  5.02

  	
  Licensee agrees
  that products used or sold in the United States embodying Licensed Products
  or produced through use of Licensed Processes shall be manufactured
  substantially in the United States, unless a written waiver is obtained in
  advance from PHS.

  
	
   

  	
   

  
	
  5.03

  	
  Licensee
  acknowledges that PHS may enter into future Cooperative Research and
  Development Agreements (CRADAs) under the Federal Technology Transfer Act of
  1986 that relate to the subject matter of this Agreement. Licensee agrees not
  to unreasonably deny requests for a Research License from such future collaborators
  with PHS when acquiring such rights is necessary in order to make a CRADA
  project feasible. Licensee may request an opportunity to join as a party to
  the proposed CRADA.

  
	
   

  	
   

  
	
  5.04

  	
  In addition to
  the reserved license of Paragraph 5.01 above, PHS reserves the right to grant
  such nonexclusive Research Licenses directly or to require Licensee to grant
  nonexclusive Research Licenses on reasonable terms. The purpose of this
  Research License is to encourage basic research, whether conducted at an
  academic or corporate facility. In order to safeguard the Licensed Patent
  Rights, however, PHS shall consult with Licensee before granting to
  commercial entities a Research License or providing to them research samples
  of the materials.

  
	
   

  	
   

  
	
  8.01

  	
  Licensee agrees
  to keep accurate and correct records of Licensed Products made, used, or sold
  and Licensed Processes practiced under this Agreement appropriate to
  determine the amount of royalties due PHS. Such records shall be retained for
  at least five (5) years following a given reporting period. They shall be
  available during normal business hours for inspection at the expense of PHS
  by an accountant or other designated auditor selected by PSH for the sole
  purpose of verifying reports and payments hereunder. The accountant or
  auditor shall only disclose to PHS information relating to the accuracy of
  reports and payments made under this Agreement. If an inspection shows an
  underreporting or underpayment in excess of five percent (5%) for any twelve
  (12) month period, then Licensee shall reimburse PHS for the cost of the
  inspection at the time Licensee pays the unreported royalties, including any
  late charges as required by Paragraph 9.08 of this Agreement. All

  

 

D-1

 

	
   

  	
  payments
  required under this Paragraph shall be due within thirty (30) days of the
  date PHS provides Licensee notice of the payment due.

  
	
   

  	
   

  
	
  10.01

  	
  Licensee shall
  use its reasonable best efforts to bring the License Products and Licensed
  Processes to Practical Application. “Reasonable best efforts” for the
  purposes of this provision shall include adherence to the Commercial
  Development Plan at Appendix F and performance of the Benchmarks at Appendix
  D. The efforts of a sublicensee shall be considered the efforts of Licensee.

  
	
   

  	
   

  
	
  10.02

  	
  Upon the First
  Commercial Sale, until the expiration of this Agreement, Licensee shall use
  its reasonable best efforts to make Licensed Products and Licensed Processes
  reasonably accessible to the United States public.

  
	
   

  	
   

  
	
  12.05

  	
  Licensee shall
  indemnify and hold PHS, its employees, students, fellows, agents and
  consultants harmless from and against all liability, demands, damages,
  expenses, and losses, including but not limited to death, personal injury,
  illness, or property damage in connection with or arising out of a) the use
  by or on behalf of Licensee, its sublicensees, directors, employees, or third
  parties of any Licensed Patent Rights, or b) the design, manufacture,
  distribution, or use of any License Products, Licensed Processes or materials
  by Licensee, or other products or processes developed in connection with or
  arising out of the Licensed Patent Rights. Licensee agrees to maintain a
  liability insurance program consistent with sound business practice.

  
	
   

  	
   

  
	
  13.07

  	
  PHS reserves the
  right according to 35 U.S.C. §209(f)(4) to terminate or modify this Agreement
  if it is determined that such action is necessary to meet requirements for
  public use specified by federal regulations issued after the date of the
  license and such requirements are not reasonably satisfied by Licensee.

  
	
   

  	
   

  
	
  13.08

  	
  Within thirty
  (30) days of receipt of written notice of PHS’s unilateral decision to modify
  or terminate this Agreement, Licensee may, consistent with the provisions of
  37CFR 404.11, appeal the decision by written submission to the designated PHS
  official. The decision of the designated PHS official shall be the final
  agency decision. Licensee may thereafter exercise any and all administrative
  or judicial remedies that may be available.

  
	
   

  	
   

  
	
  13.09

  	
  Within ninety
  (90) days of termination of this Agreement under this Article 13 or
  expiration under Paragraph 3.02, a final report shall be submitted by
  Licensee. Any royalty payments, including those related to patent expense,
  due to PHS shall become immediately due and payable upon termination or
  expiration. If terminated under this Article 13, sublicensees may elect
  to convert their sublicenses to direct licenses with PHS pursuant to
  Paragraph 4.03.

  

 

D-2

 

EXHIBIT E

 

Copies of forms of PHS Licenses (NeoPharm’s two agreements L-162-02/0
and L-226-96/0 with PHS)

 

PHS PATENT LICENSE AGREEMENT—EXCLVSIVE

 

PHS and Licensee agree as
follows:

 

1.             BACKGROUND

 

1.01         In the
course of conducting biomedical and behavioral research, PHS investigators made
inventions that may have commercial applicability.

 

1.02         By
assignment of rights from PHS employees and other inventors, DHHS, on behalf of
the United States Government, owns intellectual property rights claimed in any
United States and foreign patent applications or patents corresponding to the
assigned inventions. DUBS also owns any tangible embodiments of these
inventions actually reduced to practice by PBS.

 

1.03         The
Assistant Secretary for Health of DHHS has delegated to PHS the authority to
enter into this Agreement for the licensing of rights to these inventions under
35 U.S.C. §§ 200-212, the Federal Technology Transfer Act of 1986, 15
U.S.C. § 37103, and/or the regulations governing the licensing of
Government-owned inventions, 37 CFR Part 404.

 

1.04         PHS desires
to transfer these inventions to the private sector through commercialization
licenses to facilitate the commercial development of products and processes for
public use and benefit.

 

1.05         Licensee
desires to acquire commercialization rights to certain of these inventions in
order to develop processes, methods, or marketable products for public use and
benefit.

 

2.             DEFINITIONS

 

2.01         “Background
Patent Rights” shall mean U.S. Patent No. 4,892,827.

 

2.02         “Benchmarks”
mean the performance milestones that are set forth in Appendix D.

 

2.03         “Commercial
Development Plan” means the written commercialization plan attached as Appendix
E.

 

2.04         “First
Commercial Sale” means the initial transfer by or on behalf of Licensee or its
sublicensees of Licensed Products or the initial practice of a Licensed Process
by or on behalf of Licensee or its sublicensees in exchange for cash or some
equivalent to which value can be assigned for the purpose of determining Net
Sales.

 

2.05         “Government”
means the Government of the United States of America.

 

2.06         “Licensed
Fields of Use” means the fields of use identified in Appendix B.

 

E-1

 

 

2.07         “Licensed Patent Rights” shall mean:

 

(a)           U.S. patent applications and patents listed in Appendix A as
such, all divisions and continuations of these applications, all patents
issuing from such applications, divisions, and continuations, and any reissues,
reexaminations, and extensions of all such patents;

 

(b)           to the extent that the following contain one or more claims
directed to the invention or inventions disclosed in a) above: i)
continuations-in-part of a) above; ii) all divisions and continuations of these
continuations-in-part; iii) all patents issuing from such
continuations-in-part, divisions, and continuations; and iv) any reissues,
reexaminations, and extensions of all such patents;

 

(c)           to the extent that the following contain one or more claims
directed to the invention or inventions disclosed in a) above: all counterpart
foreign applications and patents to a) and b) above, including those listed in
Appendix A.

 

Licensed Patent Rights shall not include b)
or c) above to the extent that they contain one or more claims directed to new
matter which is not the subject matter disclosed in a) above.

 

2.08         “Licensed Process(es)” means processes which, in the course
of being practiced would, in the absence of this Agreement, infringe one or
more claims of the Licensed Patent Rights that have not been held invalid or
unenforceable by an unappealed or unappealable judgment of a court of competent
jurisdiction.

 

2.09         “Licensed Product(s)” means tangible materials which, in the
course of manufacture, use, or sale would, in the absence of this Agreement,
infringe one or more claims of the Licensed Patent Rights that have not been
held invalid or unenforceable by an unappea1ed or unappealable judgment of a
court of competent jurisdiction.

 

2.10         “Licensed Territory” means the geographical area identified
in Appendix B.

 

2.11         “Net Sales” means the total gross receipts for sales of
Licensed Products or practice of Licensed Processes by or on behalf of Licensee
or its sublicensees, and from leasing, renting, or otherwise making Licensed
Products available to others without sale or other dispositions, whether
invoiced or not, less returns and allowances actually granted, packing costs,
insurance costs, freight out, taxes or excise duties imposed on the transaction
(if separately invoiced), and wholesaler and cash discounts in amounts
customary in the trade. No deductions shall be made for commissions paid to
individuals, whether they be with independent sales agencies or regularly
employed by Licensee, or sublicensees, and on its payroll, or for the cost of
collections.

 

2.12         “Practical Application” means to manufacture in the case of
a composition or product, to practice in the case of a process or method, or to
operate in the case of

 

E-2

 

a machine or system; and in each case, under
such conditions as to establish that the invention is being utilized and that
its benefits are to the extent benefits are to tlle extent permitted by law or
Government regulations available to the public on reasonable terms.

 

2.13         “Research License” means a nontransferable, nonexclusive
license to make and to use the Licensed Products or Licensed Processes as
defined by the Licensed Patent Rights for purposes of research including human
clinical trials and not for purposes of commercial manufacture or distribution
or in lieu of purchase if Licensed Products or Licensed Processes are marketed
by Licensee.

 

3.             GRANT OF
RIGHTS

 

3.01         PHS hereby grants and Licensee accepts, subject to the terms
and conditions of this Agreement, an exclusive license under the Licensed
Patent Rights in the Licensed Territory to make and have made, to use and have
used, and to sell and have sold any Licensed Products in the Licensed Fields of
Use and to practice and have practiced any Licensed Processes in the Licensed
Fields of Use.

 

3.02         PHS hereby grants and Licensee accepts, subject to the terms
and conditions of this Agreement, a non-exclusive license under the Background
Patent Rights in the Licensed Territory to make and have made. to use and have
used. and to sell and have sold any Licensed Products in the Licensed Fields of
Use and to practice and have practiced any Licensed Processes in the Licensed
Fields of Use.

 

3.03         This Agreement confers no license or rights by implication.
estoppel, or otherwise under any patent applications or patents of PHS other
than Licensed Patent Rights and Background Patent Rights regardless of whether
such patents are dominant or subordinate to Licensed Patent Rights or Background
Patent Rights.

 

4.             SUBLICENSING

 

4.01         Upon written approval by PHS which will be given within
thirty (30) days of a written request by Licensee, said approval not to be
unreasonably withheld, Licensee may enter into sublicensing agreements under
the Licensed Patent Rights.

 

4.02         Licensee agrees that any sublicenses granted by it shall
provide that the obligations to PHS of Paragraphs 5.01-5.04, 8.01, 10.01,
10.02, 12.05 and 13.07-13.09 of this Agreement shall be binding upon the
sublicensee as if it were a party to this Agreement. Licensee further agrees to
attach copies of these Paragraphs to all sublicense agreements.

 

4.03         Any sublicenses granted by Licensee shall provide for the
termination of the sublicense, or the conversion to a license directly between
such sublicensees and PHS, at the option of the sublicensee, upon termination
of this Agreement under Article 13. Such conversion is subject to PHS approval
and contingent upon acceptance by the sublicensee of the remaining provisions
of this Agreement.

 

E-3

 

4.04         Licensee agrees to forward to PHS a copy of each fully
executed sublicense agreement postmarked within thirty (30) days of the
execution of such agreement. To the extent permitted by law, PHS agrees to
maintain each such sublicense agreement in confidence.

 

5.             STATUTORY
AND PHS REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS

 

5.01         PHS reserves on behalf of the Government an irrevocable,
nonexclusive, nontransferable, royalty-free license for the practice of all
inventions licensed under the Licensed Patent Rights throughout the world by or
on behalf of the Government and on behalf of any foreign government or
international organization pursuant to any existing or future treaty or
agreement to which the Government is a signatory. Prior to the First Commercial
Sale, Licensee agrees to provide PHS reasonable quantities of Licensed Products
or materials made through the Licensed Processes for PHS research use including
for human clinical trials but not for purposes of commercial development,
manufacture or distribution.

 

5.02         Licensee agrees that products used or sold in the United
States embodying Licensed Products or produced through use of Licensed
Processes shall be manufactured substantially in the United States, unless a
written waiver is obtained in advance from PHS.

 

5.03         Licensee acknowledges that PHS may enter into future
Cooperative Research and Development Agreements (CRADAs) under the Federal
Technology Transfer Act of 1986 that relate to the subject matter of this
Agreement. Licensee agrees not to unreasonably deny requests for a Research
License from such future collaborators with PHS when acquiring such rights is
necessary in order to make a CRADA project feasible. Licensee may request an
opportunity to join as a party to the proposed CRADA.

 

5.04         In addition to the reserved license of Paragraph 5.0 I
above, PHS reserves the right to grant such nonexclusive Research Licenses
directly or to require Licensee to grant nonexclusive Research Licenses on
reasonable terms.  The purpose of this
Research License is to encourage basic research, whether conducted at an
academic or corporate facility.  In order
to safeguard the Licensed Patent Rights, however, PHS shall consult with
Licensee before granting to commercial entities a Research License or providing
to them research samples of the materials.

 

6.             ROYALTIES
AND REIMBURSEMENT

 

6.01         Licensee agrees to pay to PHS a noncreditable, nonrefundable
license issue royalty as set forth in Appendix C within thirty (30) days from
the date that this Agreement becomes effective.

 

6.02         Licensee agrees to pay to PHS a nonrefundable minimum annual
royalty as set forth in Appendix C. The minimum annual royalty is due and
payable on January

 

E-4

 

1 of each calendar year and may be credited
against any earned royalties due for sales made in that year. The minimum
annual royalty due for the first calendar year of this Agreement may be
prorated according to the fraction of the calendar year remaining between the
effective date of this Agreement and the next subsequent January 1.

 

6.03         Licensee agrees to pay PHS earned royalties as set forth in
Appendix C. Licensee agrees to pay PHS benchmark royalties as set forth in Appendix
C.

 

6.04         Licensee agrees to pay PHS sublicensing royalties as set
forth in Appendix C.

 

6.05         Licensee agrees to pay PHS assignment royalties as set forth
in Appendix C.

 

6.06         A claim of a patent or patent application licensed under
this Agreement shall cease to fall within the Licensed Patent Rights or
Background Patent Rights for the purpose of computing the minimum annual
royalty and earned royalty payments in any given country on the earliest of the
dates that a) the claim has been abandoned but not continued, b) the patent
expires or irrevocably lapses, or c) the claim has been held to be invalid or
unenforceable by an unappealed or unappealable decision of a court of competent
jurisdiction or administrative agency.

 

6.07         No multiple royalties shall be payable because any Licensed
Products or Licensed Processes are covered by more than one of the Licensed
Patent Rights.

 

6.08         (a) Transfer of Licensed Products by Licensee to
sublicensees or an affiliated party made in other than an arm’s-length transaction
for no further resale shall be attributed a value which would have been
received in an arm’s-length transaction of like quantity and quality of
products sold on or about the time of the transfer of Licensed Products for the
purpose of calculating Net Sales.

 

6.08          (b)
Transfer of Licensed Products by Licensee to sublicensees or affiliated party
for further resale shall have attributed either a value which would have been
received in arm’s-length transaction based on sales of like quantity and
quality of products transferred on or about the time of such transfer of
Licensed Products or the actual value received in a later arm’s-length
transaction, whichever is greater, for purposes of calculating Net Sales.

 

6.09         (a) With regard to expenses associated with the preparation,
filing, prosecution, and maintenance of all patent applications and patents
included within the Licensed Patent Rights incurred by PHS prior to the
effective date of this Agreement, Licensee shall pay to PHS, as an additional
royalty, within sixty (60) days of PHS’s submission of a statement and request
for payment to Licensee, an amount equivalent to such patent expenses
previously incurred by PHS.

 

6.09         (b)
With regard to expenses associated with the preparation, filing, prosecution, and
maintenance of all patents included within the Background Patent Rights
incurred by PHS prior to the effective date of this Agreement, Licensee shall
pay 

 

E-5

 

to PHS, as an
additional royalty, within (60) days of PHS’s submission of a statement
and request for payment an amount equivalent to three thousand three-hundred
dollars ($3,300.00).

 

6.10         With regard to expenses associated with the preparation,
filing, prosecution, and maintenance of all patent applications and patents
included within the Licensed Patent Rights incurred by PHS on or after the
effective date of this Agreement. PHS, at its sole option, may require
Licensee:

 

(a) to pay PHS on an annual basis, within sixty (60) days of PHS’s
submission of a statement and request for payment, a royalty amount equivalent
to all such patent expenses incurred during the previous calendar year(s); or

 

(b) to pay such expenses directly to the law firm employed by PHS to
handle such functions.  However, in such
event, PHS and not Licensee shall be the client of such law firm.

 

Under exceptional circumstances, Licensee may be given the right to
assume responsibility for the preparation, filing, prosecution, or maintenance
of any patent application or patent included with the Licensed Patent Rights.
In that event, Licensee shall directly pay the attorneys or agents engaged to
prepare, file, prosecute or maintain such patent applications or patents and
shall provide to PHS copies of each invoice associated with such services as
well as documentation that such invoices have been paid.

 

6.11         Licensee may elect to surrender its rights in any country of
the Licensed Territory under any Licensed Patent Rights upon sixty (60) days
written notice to PHS and owe no payment obligation under Article 6.10 (a) for
patent-related expenses incurred in that country after the effective date of
such written notice.

 

7.             PATENT
FILING. PROSECUTION. AND MAINTENANCE

 

7.01         Except as otherwise provided in this Article 7, PHS agrees
to take responsibility for, but to consult with, the Licensee in the
preparation, filing, prosecution, and maintenance of any and all patent
applications or patents included in the Licensed Patent Rights and shall
furnish copies of relevant patent-related documents to Licensee.

 

7.02         Upon PHS’s written request, Licensee shall assume the
responsibility for the preparation, filing, prosecution, and maintenance of any
and all patent applications or patents included in the Licensed Patent Rights
and shall on an ongoing basis promptly furnish copies of all patent-related
documents to PHS. In such event, Licensee shall, subject to the prior approval
of PHS, select registered patent attorneys or patent agents to provide such
services on behalf of Licensee and PHS. PHS shall provide appropriate powers of
attorney and other documents necessary to undertake such actions to the patent
attorneys or patent agents providing such services. Licensee and its attorneys
or agents shall consult with PHS in all aspects of the preparation, filing,
prosecution and maintenance of patent applications and patents included within
the Licensed Patent Rights and

 

E-6

 

shall provide PHS sufficient opportunity to
comment on any document that Licensee intends to file or to cause to be filed
with the relevant intellectual property or patent office.

 

7.03         At any time, PHS may provide Licensee with written notice
that PHS wishes to assume control of the preparation, filing, prosecution, and
maintenance of any and all patent applications or patents included in the
Licensed Patent Rights. If PHS elects to assume such responsibilities, Licensee
agrees to cooperate fully with PHS, its attorneys and agents in the
preparation, filing, prosecution, and maintenance of any and all patent
applications or patents included in the Licensed Patent Rights and to provide
PHS with complete copies of any and all documents or other materials that PHS
deems necessary to undertake such responsibilities. If PHS elects to assume
control of the preparation, filing, prosecution, and maintenance of any and all
patent applications or patents included in the Licensed Patent Rights for a
reason other than Licensee’s failure to perform under this Agreement, PHS shall
be responsible for all costs associated with transferring patent prosecution
responsibilities to an attorney or agent of PHS’s choice.

 

7.04         Each party shall promptly inform the other as 10 all matters
that come to its attention that may affect the preparation, filing. prosecution,
or maintenance of the Licensed Patent Rights and permit each other to provide
comments and suggestions with respect to the preparation, filing, and
prosecution of Licensed Patent Rights, which comments and suggestions shall be
considered by the other party.

 

8.             RECORD
KEEPING

 

8.01         Licensee agrees to keep accurate and correct records of
Licensed Products made, used, or sold and Licensed Processes practiced under
this Agreement appropriate to determine the amount of royalties due PHS. Such
records shall be retained for at least five (5) years following a given
reporting period. They shall be available during normal business hours for
inspection at the expense of PHS by an accountant or other designated auditor
selected by PHS for the sole purpose of verifying reports and payments
hereunder. The accountant or auditor shall only disclose to PHS information
relating to the accuracy of reports and payments made under this Agreement. If
an inspection shows an underreporting or underpayment in excess of five percent
(5%) for any twelve (12) month period, then Licensee shall reimburse PHS for
the cost of the inspection at the time Licensee pays the unreported royalties,
including any late charges as required by Paragraph 9.08 of this Agreement. All
payments required under this Paragraph shall be due within thirty (30) days of
the date PHS provides Licensee notice of the payment due.

 

8.02         Licensee agrees to conduct an independent audit of sales and
royalties at least every two years if annual sales of the Licensed Product or
Licensed Processes are over two (2) million dollars.  The audit may be conducted in conjunction
with the annual audit performed on behalf of Licensee. The audit shall address,
at a

 

E-7

 

minimum, the amount of gross sales by or on
behalf of Licensee during the audit period, the amount of funds owed to the
Government under this Agreement, and whether the amount owed has been paid to
the Government and is reflected in the records of the Licensee. A report by the
auditor shall be submitted promptly to PHS on completion. Licensee shall pay
for the entire cost of the audit.

 

9.             REPORTS ON
PROGRESS. BENCHMARKS. SALES. AND PAYMENTS

 

9.01         Prior to signing this Agreement, Licensee has provided to
PHS the Commercial Development Plan at Appendix F, under which Licensee intends
to bring the subject matter of the Licensed Patent Rights to the point of
Practical Application. This Commercial Development Plan is hereby incorporated
by reference into this Agreement. Based on this plan, performance Benchmarks
are determined as specified in Appendix D.

 

9.02         Licensee shall provide written annual reports on its product
development progress or efforts to commercialize under the Commercial
Development Plan for each of the Licensed Fields of Use within sixty (60) days
after December 31 of each calendar year. These progress reports shall include,
but not be limited to: progress on research and development, status of
applications for regulatory approvals, manufacturing, sublicensing, marketing,
and sales during the preceding calendar year, as well as plans for the present
calendar year. PHS also encourages these reports to include information on any
of Licensee’s public service activities that relate to the Licensed Patent Rights.
If reported progress differs from that projected in the Commercial Development
Plan and Benchmarks, Licensee shall explain the reasons for such differences.
In any such annual report, Licensee may propose amendments to the Commercial
Development Plan, acceptance of which by PHS may not be denied unreasonably.
Licensee agrees to provide any additional information reasonably required by
PHS to evaluate Licensee’s performance under this Agreement. Licensee may amend
the Benchmarks at any Lime upon written consent by PHS. PHS shall not
unreasonably withhold approval of any request of Licensee to extend the time
periods of this schedule if such request is supported by a reasonable showing
by Licensee of diligence in its performance under the Commercial Development
Plan and toward bringing the Licensed Products to the point of practical
application as defined in 37 CFR 404.3(d). Licensee shall amend the Commercial
Development Plan and Benchmarks at the request of PHS to address any Licensed
Fields of Use not specifically addressed in the plan originally submitted.

 

9.03         Licensee shall report to PHS the date of the First
Commercial Sale in each country in the Licensed Territory within thirty (30)
days of such occurrence.

 

9.04         Licensee shall submit to PHS within sixty (60) days after
each calendar half-year ending June 30 and December 31 a royalty report setting
forth for the preceding half-year period the amount of the Licensed Products
sold or Licensed Processes practiced by or on behalf of Licensee in each country
within the Licensed Territory, the Net Sales, and the amount of royalty
accordingly due. With each

 

E-8

 

such royalty report, Licensee shall submit
payment of the earned royalties due. If no earned royalties are due to PHS for
any reporting period, the written report shall so state. The royalty report
shall be certified as correct by an authorized officer of Licensee and shall
include a detailed listing of all deductions made under Paragraph 2.11 to determine
Net Sales made under Article 6 to determine royalties due.

 

9.05         Licensee agrees to forward semi-annually to PHS a copy of
such reports received by Licensee from its sublicensees during the preceding
half-year period as shall be pertinent to a royalty accounting to PHS by
Licensee for activities under the sublicense.

 

9.06         Royalties due under Article 6 shall be paid in U.S. dollars.
For conversion of foreign currency to U.S. dollars, the conversion rate shall
be the New York foreign exchange rate quoted in The Wall Street Journal on the
day that the payment is due. All checks and bank drafts shall be drawn on
United States banks and shall be payable, as appropriate, for FDA or NIH
licenses to the National Institutes of Health, P.O. Box 360120, Pittsburgh,
Pennsylvania 15251-6120. Any loss of exchange, value, taxes, or other expenses
incurred in the transfer or conversion to U.S. dollars shall be paid entirely
by Licensee. The royalty report required by Paragraph 9.04 of this Agreement
shall accompany each such payment and a copy of such report shall also be
mailed to PHS at its address for notices indicated on the Signature Page of
this Agreement.

 

9.07         Licensee shall be solely responsible for determining if any
tax on royalty income is owed outside the United States and shall pay any such
tax and be responsible for all filings with appropriate agencies of foreign
governments. The taxes paid by Licensee on behalf of PHS may be deducted from
the earned royalty due under paragraph 6.03.

 

9.08         Late charges will be assessed by PHS as additional royalties
on any overdue payments at a rate of one (I) percent per month compounded
monthly. The payment of such late charges shall not prevent PHS from exercising
any other rights it may have as a consequence of the lateness of any payment.

 

9.09         All plans and reports required by this Article 9 and marked “confidential”
by Licensee shall, to the extent permitted by law, be treated by PHS as
commercial and financial information obtained from a person and as privileged and
confidential and any proposed disclosure of such records by the PHS under the
Freedom of Information Act, 5 U.S.C. § 552 shall be subject to the
predisclosure notification requirements of 45 CFR § 5.65(d).

 

10.           PERFORMANCE

 

10.01       Licensee shall use its reasonable best efforts to bring the
License Products and Licensed Processes to Practical Application. “Reasonable
best efforts” for the purposes of this provision shall include adherence to the
Commercial

 

E-9

 

Development Plan at Appendix F and
performance of the Benchmarks at Appendix D. The efforts of a sublicensee shall
be considered the efforts of Licensee.

 

10.02       Upon the First Commercial Sale. until the expiration of this
Agreement, Licensee shall use its reasonable best efforts to make Licensed
Products and Licensed Processes reasonably accessible to the United States
public.

 

11.           INFRINGEMENT
AND PATENT ENFORCEMENT

 

11.01       PHS and Licensee agree to notify each other promptly of each
infringement or possible infringement of the Licensed Patent Rights, as well as
any facts which may affect the validity, scope, or enforceability of the
Licensed Patent Rights of which either Party becomes aware.

 

11.02       Pursuant to this Agreement and the provisions of Chapter 29
of title 35, United States Code, Licensee may a) bring suit in its own name, at
its own expense, and on its own behalf for infringement of presumably valid
claims in the Licensed Patent Rights; b) in any such suit, enjoin infringement
and collect for its use, damages, profits, and awards of whatever nature
recoverable for such infringement; and c) settle any claim or suit for
infringement of the Licensed Patent Rights provided, however, that PHS and
appropriate Government authorities shall have the first right to take such
actions. If Licensee desires to initiate a suit for patent infringement,
Licensee shall notify PHS in writing. If PHS does not notify Licensee of its
intent to pursue legal action within ninety (90) days, Licensee will be free to
initiate suit. PHS shall have a continuing right to intervene in such suit.
Licensee shall take no action to compel the Government either to initiate or to
join in any such suit for patent infringement. Licensee may request the
Government to initiate or join in any such suit if necessary to avoid dismissal
of the suit. Should the Government be made a party to any such suit, Licensee
shall reimburse the Government for any costs, expenses, or fees which the
Government incurs as a result of such motion or other action, including any and
all costs incurred by the Government in opposing any such motion or other
action. In all cases, Licensee agrees to keep PHS reasonably apprised of the
status and progress of any litigation. Before Licensee commences an infringement
action, Licensee shall notify PHS and give careful consideration to the views
of PHS and to any potential effects of the litigation on the public health in
deciding whether to bring suit.

 

11.03       In the event that a declaratory judgment action alleging
invalidity or non-infringement of any of the Licensed Patent Rights shall be
brought against Licensee or raised by way of counterclaim or affirmative
defense in an infringement suit brought by Licensee under Paragraph 11.02,
pursuant to this Agreement and the provisions of Chapter 29 of Title 35, United
States Code or other statutes, Licensee may a) defend the suit in its own name,
at its own expense, and on its own behalf for presumably valid claims in the
Licensed Patent Rights; b) in any such suit, ultimately to enjoin infringement
and to collect for its

 

E-10

 

use, damages, profits, and awards of whatever
nature recoverable for such infringement; and c) settle any claim or suit for
declaratory judgment involving the Licensed Patent Rights-provided, however,
that PHS and appropriate Government authorities shall have the first right to
take such actions and shall have a continuing right to intervene in such suit.
H PHS does not notify Licensee of its intent to respond to the legal action
within a reasonable time, Licensee will be free to do so. Licensee shall take
no action to compel the Government either to initiate or to join in any such
declaratory judgment action. Licensee may request the Government to initiate or
to join any such suit if necessary to avoid dismissal of the suit. Should the
Government be made a party to any such suit by motion or any other action of
Licensee, Licensee shall reimburse the Government for any costs, expenses, or
fees which the Government incurs as a result of such motion or other action. If
Licensee elects not to defend against such declaratory judgment action, PHS, at
its option, may do so at its own expense. In all cases, Licensee agrees to keep
PHS reasonably apprised of the status and progress of any litigation. Before
Licensee commences an infringement action, Licensee shall notify PHS and give
careful consideration to the views of PHS and to any potential effects of the
litigation on the public health in deciding whether to bring suit.

 

11.04       In any action under Paragraphs 11.02 or 11.03, the expenses
including costs, fees, attorney fees, and disbursements, shall be paid by
Licensee. Up to twenty-five percent (25%) of such expenses may be credited
against the royalties payable to PHS under Paragraph 6.03 under the Licensed
Patent Rights in the country in which such a suit is filed. In the event that
twenty-five percent (25%) of such expenses exceed the amount of royalties
payable by Licensee in any calendar year, the expenses in excess may be carried
over as a credit on the same basis into succeeding calendar years. A credit
against litigation expenses, however, may not reduce the royal ties due in any
calendar year to less than the minimum annual royalty. Any recovery made by Licensee,
through court judgment or settlement, first shall be applied to reimburse PHS
for royalties withheld as a credit against litigation expenses and then to
reimburse Licensee for its litigation expense. Any remaining recoveries shall
be split with seventy-five (75%) going to Licensee and twenty-five percent
(25%) going to PHS.

 

11.05       PHS shall cooperate fully with Licensee in connection with
any action under Paragraphs 11.02 or 11.03. 
PHS agrees promptly to provide access to all necessary documents and to
render reasonable assistance in response to a request by Licensee.

 

12.           NEGATION OF
WARRANTIES AND Indemnification

 

12.01       PHS offers no warranties other than those specified in
Article 1.

 

12.02       PHS does not warrant the validity of the Licensed Patent Rights
and makes no representations whatsoever with regard to the scope of the
Licensed Patent Rights,

 

E-11

 

or that the Licensed Patent Rights may be
exploited without infringing other patents or other intellectual property
rights of third parties.

 

12.03       PHS MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY SUBJECT MATTER
DEFINED BY THE CLAIMS OF THE LICENSED PATENT RIGHTS.

 

12.04       PHS does not represent that it will commence legal actions
against third parties infringing the Licensed Patent Rights.

 

12.05       Licensee shall indemnify and hold PHS, its employees,
students, fellows, agents, and consultants harmless from and against all
liability, demands, damages, expenses, and losses, including but not limited to
death, personal injury, illness, or property damage in connection with or
arising out of a) the use by or on behalf of Licensee, its sublicensees,
directors, employees, or third parties of any Licensed Patent Rights, or b) the
design, manufacture, distribution, or use of any Licensed Products, Licensed
Processes or materials by Licensee, or other products or processes developed in
connection with or arising out of the Licensed Patent Rights. Licensee agrees
to maintain a liability insurance program consistent with sound business
practice.

 

13.           TERM,
TERMINATION, AND MODIFICATION OF RIGHTS

 

13.01       This Agreement is effective when signed by all parties and
shall extend to the expiration of the last to expire of the Licensed Patent
Rights unless sooner terminated as provided in this Article 13.

 

13.02       In the event that Licensee is in default in the performance
of any material obligations under this Agreement, including but not limited to
the obligations listed in Article 13.05, and if the default has not been
remedied within ninety (90) days after the date of notice in writing of such
default, PHS may terminate this Agreement by written notice.

 

13.03       In the event that Licensee becomes insolvent, files a petition
in bankruptcy, has such a petition filed against it, determines to file a
petition in bankruptcy, or receives notice of a third party’s intention to file
an involuntary petition in bankruptcy, Licensee shall immediately notify PHS in
writing. .

 

13.04       Licensee shall have a unilateral right to terminate this
Agreement and/or any licenses in any country by giving PHS sixty (60) days
written notice to that effect.

 

13.05       PHS shall specifically have the right to terminate or
modify, at its option. this Agreement, if PHS determines that the Licensee: 1)
is not executing the Commercial Development Plan submitted with its request for
a license and the Licensee cannot otherwise demonstrate to PHS’s satisfaction
that the Licensee has taken, or can be expected to take within a reasonable
time, effective steps to achieve practical application of the Licensed Products
or Licensed Processes; 2)

 

E-12

 

has not achieved the Benchmarks as may be
modified under Paragraph 9.02; 3) has willfully made a false statement of, or
willfully omitted, a material fact in the license application or in any report
required by the license agreement; 4) has committed a material breach of a
covenant or agreement contained in the license; 5) is not keeping Licensed
Products or Licensed Processes reasonably available to the public after
commercial use commences; 6) cannot reasonably satisfy unmet health and safety
needs; or 7) cannot reasonably justify a failure to comply with the domestic production
requirement of Paragraph 5.02 unless waived. In making this determination, PHS
will take into account the normal course of such commercial development
programs conducted with sound and reasonable business practices and judgment
and the animal reports submitted by Licensee under Paragraph 9.02. Prior to
invoking this right, PHS shall give written notice to Licensee providing
Licensee specific notice of, and a ninety (90) day opportunity to respond to,
PHS’s concerns as to the previous items 1) to 7). If Licensee fails to
alleviate PHS’s concerns as to the previous items 1) to 7) or fails to initiate
corrective action to PHS’s satisfaction, PHS may terminate this Agreement.

 

13.06       When the public health and safety so require, and after
written notice to Licensee providing Licensee a sixty (60) day opportunity to
respond, PHS shall have the right to require Licensee to grant sublicenses to
responsible applicants, on reasonable terms, in any Licensed Fields of Use
under the Licensed Patent Rights, unless Licensee can reasonably demonstrate
that the granting of the sublicense would not materially increase the
availability to the public of the subject matter of the Licensed Patent Rights.
PHS will not require the granting of a sublicense unless the responsible
applicant has first negotiated in good faith with Licensee.

 

13.07       PHS reserves the right according to 35 U.S.C. § 209(f)(4) to
terminate or modify this Agreement if it is determined that such action is
necessary to meet requirements for public use specified by federal regulations
issued after the date of the license and such requirements are not reasonably
satisfied by Licensee.

 

13.08       Within thirty (30) days of receipt of written notice of PHS’s
unilateral decision to modify or terminate this Agreement, Licensee may,
consistent with the provisions of 37 CFR 404.11, appeal the decision by written
submission to the designated PHS official. The decision of the designated PHS
official shall be the final agency decision. Licensee may thereafter exercise
any and all administrative or judicial remedies that may be available.

 

13.09       Within ninety (90) days of termination of this Agreement
under this Article 13 or expiration under Paragraph 3.02, a final report shall
be submitted by Licensee. Any royalty payments, including those related to
patent expense, due to PHS shall become immediately due and payable upon
termination or expiration. If terminated under this Article 13, sublicensees
may elect to convert their sublicenses to direct licenses with PHS pursuant to
Paragraph 4.03.

 

E-13

 

14.           GENERAL
PROVISIONS

 

14.01       Neither Party may waive or release any of its rights or
interests in this Agreement except in writing. The failure of the Government to
assert a right hereunder or to insist upon compliance with any term or
condition of this Agreement shall not constitute a waiver of that right by the
Government or excuse a similar subsequent failure to perform any such term or
condition by Licensee.

 

14.02       This Agreement constitutes the entire agreement between the
Parties relating to the subject matter of the Licensed Patent Rights. and all
prior negotiations. representations, agreements, and understandings arc merged
into. extinguished by, and completely expressed by this Agreement.

 

14.03       The provisions of this Agreement are severable, and in the
event that any provision of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of law such determination shall not in
any way affect the validity or enforceability of the remaining provisions of
this Agreement.

 

14.04       If either Party desires a modification to this Agreement,
the Parties shall, upon reasonable notice of the proposed modification by the
Party desiring the change, confer in good faith to determine the desirability
of such modification. No modification will be effective until a written
amendment is signed by the signatories to this Agreement or their designees.

 

14.05       The construction, validity, performance, and effect of this Agreement
shall be governed by Federal law as applied by the Federal courts in the
District of Columbia.

 

14.06       All notices required or permitted by this Agreement shall be
given by prepaid, first class, registered or certified mail properly addressed
to the other Party at the address designated on the following Signature Page,
or to such other address as may be designated in writing by such other Party,
and shall be effective as of the date of the postmark of such notice.

 

14.07       This Agreement shall not be assigned by Licensee except a)
with the prior written consent of PHS, such consent not to be withheld
unreasonably; or b) as part of a sale or transfer of substantially the entire
business of Licensee relating to operations which concern this Agreement. Licensee
shall notify PHS within ten (10) days of any assignment of this Agreement by
Licensee.

 

14.08       Licensee agrees in its use of any PHS-supplied materials to
comply with all applicable statutes, regulations, and guidelines, including
Public Health Service and National Institutes of Health regulations and
guidelines. Licensee agrees not to use the materials for research involving
human subjects or clinical trials in the United States without complying with
21 CFR Part 50 and 45 CFR Part 46. Licensee agrees not to use the materials for
research involving human subjects or clinical trials outside of the United
States without notifying PHS, in writing, of such research or trials and
complying with the applicable regulations of the

 

E-14

 

appropriate national control authorities.
Written notification to PHS of research involving human subjects or clinical
trials outside of the United States shall be given no later than sixty (60)
days prior to commencement of such research or trials.

 

14.09       Licensee acknowledges that it is subject to and agrees to
abide by the United States laws and regulations (including the Export
Administration Act of 1979 and Arms Export Control Act) controlling the export
of technical data, computer software, laboratory prototypes, biological
material, and other commodities. The transfer of such items may require a
license from the cognizant Agency of the U.S. Government or written assurances
by Licensee that it shall not export such items to certain foreign countries
without prior approval of such agency. PHS neither represents that a license is
or is not required or that, if required, it shall be issued.

 

14.10       Licensee agrees to mark the Licensed Products or their
packaging sold in the United States with all applicable U.S. patent numbers and
similarly to indicate “Patent Pending” status. All Licensed Products
manufactured in, shipped to, or sold in other countries shall be marked in such
a manner as to preserve PHS patent rights in such countries.

 

14.11       By entering into this Agreement, PHS does not directly or
indirectly endorse any product or service provided. or to be provided, by
Licensee whether directly or indirectly related to this Agreement. Licensee
shall not state or imply that this Agreement is an endorsement by the
Government, PHS, any other Government organizational unit, or any Government
employee.  Additionally, Licensee shall
not use the names of NIH, CDC, PHS, or DHHS or the Government or their
employees in any advertising, promotional, or sales literature without the
prior written consent of PHS.

 

14.12       The Parties agree to attempt to settle amicably any
controversy or claim arising under this Agreement or a breach of this
Agreement. except for appeals of modifications or termination decisions
provided for in Article 13. Licensee agrees first to appeal any such unsettled
claims or controversies to the designated PHS official, or designee, whose
decision shall be considered the final agency decision. Thereafter, Licensee
may exercise any administrative or judicial remedies that may be available.

 

14.13       Nothing relating to the grant of a license, nor the grant
itself, shall be construed to confer upon any person any immunity from or
defenses under the antitrust laws or from a charge of patent misuse, and the
acquisition and use of rights pursuant to 37 CFR Part 404 shall not be
immunized from the operation of state or Federal law by reason of the source of
the grant.

 

14.14       Paragraphs 4.03, 8.01, 9.06-9.08, 12.01-12.05, 13.08, 13.09,
and 14.12 of this Agreement shall survive termination of this Agreement.

 

E-15

 

SIGNATURES
BEGIN ON NEXT PAGE

 

E-16

 

PHS
PATENT LICENSE AGREEMENT—EXCLUSIVE

 

SIGNATURE
PAGE

 

	
  For PHS:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
    s/
  Barbara McGay

  	
   

  	
  9/23/97

  	
   

  
	
  Signature of
  Authorized PHS Official

  	
   

  	
  Date

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Printed Name

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Title

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Mailing
  Address for Notices:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  

 

 

For Licensee (Upon information and belief,
the undersigned expressly certifies or affirms that the contents of any
statements of Licensee made or referred to in this document are truthful and
accurate.):

 

 

	
  by:

  	
   

  	
   

  
	
  Signature of
  Authorized Official

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
    s/
  John N.Kapoor

  	
   

  	
   

  	
   

  
	
  Signature of
  Authorized PHS Official

  	
   

  	
  Date

  	
   

  
	
   

  	
   

  	
   

  
	
      John
  N.Kapoor

  	
   

  	
   

  
	
  Printed Name

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
     Chairman

  	
   

  	
   

  
	
  Title

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Mailing
  Address for Notices:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  225 East
  Deerpath

  	
   

  	
   

  
	
  Suite 250

  	
   

  	
   

  
	
  Lake Forest,
  IL. 60045

  	
   

  	
   

  

 

E-17

 

APPENDIX
A—Patent(s) or Patent Application(s)

 

Patent(s) or Patent Application(s) that are Licensed
Patent Rights:

U.S. Patent 5,614,191 issued March 25, 1997

USSN 08/821,840 (div of 08/404,685) filed March 21,
1997

 

Patent(s) or Patent Application(s) that are Background
Patent Rights:

U.S. Patent No. 4,892,827 issued January 9,1990

 

E-18

 

APPENDIX
B—Licensed Fields of Use and Territory

 

Licensed Fields of Use: Use of the chimeric molecule
hIL-13-PE38QQR or cphIL.-13-PE38QQR to treat cancer.

 

Licensed Territory: 
World-wide

 

E-19

 

APPENDIX
C—Royalties

 

Royalties:

 

1.             Licensee agrees to pay to PHS a
noncreditable, nonrefundable license issue royalty in the amount of seventy
five thousand dollars ($75,000).

 

2.             Licensee agrees to pay to PHS a nonrefundable
minimum annual royalty in the amount of ten thousand dollars ($10,000) prior to
the First Commercial Sale or twenty-five thousand dollars ($25,000.00) after
the First Commercial Sale.

 

3.             Licensee agrees to pay PHS an earned royalty
of four percent (4%) on Net Sales; provided however that Licensee shall be
entitled to a credit of one-half percent (0.5%) against the earned royalty rate
for each percent point in excess of two percent (2.0%) that Licensee must pay
to an unaffiliated licensor for the manufacture and sale of Licensed Products.
Said credit, however, shall not reduce the earned royalty due to PHS for
Licensed Products below two percent (2.0%).

 

4.             Licensee agrees to pay PHS benchmark
royalties as follows:

 

 

	
  1.

  	
  Submission of first IND

  	
   

  	
  $

  	
  25,000

  	
   

  
	
  2.

  	
  Completion of first Phase I Clinical Trial

  	
   

  	
  $

  	
  50,000

  	
   

  
	
  3.

  	
  Completion of first Phase II Clinical Trial

  	
   

  	
  $

  	
  75,000

  	
   

  
	
  4.

  	
  Completion of each additional Phase II
  Clinical Trial

  	
   

  	
  $

  	
  35,000

  	
   

  
	
  5.

  	
  5. Completion of first Phase III Clinical
  Trial

  	
   

  	
  $

  	
  100,000

  	
   

  
	
  6.

  	
  Completion of each additional Phase III
  Clinical Trial

  	
   

  	
  $

  	
  50,000

  	
   

  
	
  7.

  	
  Approval of first BLN/ELA/PLA/NDA

  	
   

  	
  $

  	
  300,000

  	
   

  
	
  8.

  	
  Approval of each additional BLA/PLA/ELA/NDA

  	
   

  	
  $

  	
  150,000

  	
   

  

 

5.             Licensee agrees to pay PHS sublicensing
royalties as follows:

 

(a)           Twenty-five percent (25%) of earned royalties
paid by a sublicensee on Net Sales or two percent of the Net Sales of a
sublicensee, whichever is greater; and

 

(b)           Twenty percent (20%) of all non-creditable
and non-refundable consideration received for granting a sublicense, if the
technology is sublicensed on or before the one year anniversary of this
Agreement; or ten percent (10%) of all non-creditable and non-refundable consideration
received in granting a sublicense, if the technology is sublicensed after the
one year anniversary of this Agreement. Fees paid expressly for research and
development of Licensed Product and Licensed Processes, such as clinical trial
support, shall be excluded.

 

6.             In the event that Licensee shall transfer, in
a separate and distinct transaction, that aspect of its business involving this
Agreement, Licensee agrees to pay PHS an assignment royalty of fifteen-percent
(15%) of any cash consideration received as part of such sale or transfer;
provided, however, that no such royalty shall be owed to PHS in the event that
the foregoing transfer is part of or results from a merger, consolidation or
other reorganization of the Licensee or from a sale, exchange or other transfer
of all or substantially all of its assets.

 

E-20

 

APPENDIX D
— Benchmarks and Performance

 

Licensee agrees to the following Benchmarks for its
performance under this Agreement and, within ten (10) days of achieving a
Benchmark, shall notify PHS that the Benchmark has been achieved.

 

Not Done 

 

	
  Benchmark

  	
   

  	
  Deadline

  
	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Pilot Scale Up Production

  	
   

  	
  within one year of
  executing this Agreement but not later than August 1, 1998

  
	
  2.

  	
  Initiation of In Vivo
  Efficacy Studies

  	
   

  	
  December 1, 1998

  
	
  3.

  	
  Completion of In Vivo
  Efficacy Studies

  	
   

  	
  October 1, 1999

  
	
  4.

  	
  Initiation of
  Toxicological and Pharmacological Studies

  	
   

  	
  April 1, 2000

  
	
  5.

  	
  Completion of
  Toxicological and Pharmacological Studies

  	
   

  	
  April 1, 2001

  
	
  6.

  	
  IND Submission

  	
   

  	
  November 1, 2001

  
	
  7.

  	
  Initiation of Phase I
  Clinical Trial

  	
   

  	
  March 1, 2002

  
	
  8.

  	
  Completion of Phase I
  Clinical Trial

  	
   

  	
  March 1, 2003

  
	
  9.

  	
  Initiation of Small Phase
  II Clinical Trials for Renal Cell Carcinoma (use 20 patients)

  	
   

  	
  September 1, 2003

  
	
  10.

  	
  Completion of Small Phase
  II Clinical Trial in patients with Renal Cell Carcinoma

  	
   

  	
  March 1, 2004

  
	
  11.

  	
  Initiation of Large Phase
  II Clinical Trials in Renal Cell Carcinoma (use at least 150 patients)

  	
   

  	
  September, 2004

  
	
  12.

  	
  Election of 2nd cancer type-
  for development 13. Initiation of Small Phase II Clinical Trial on 2nd cancer
  type to be developed

  	
   

  	
  March, 2005

  
	
  14.

  	
  Completion of Large Phase
  II in patients with Renal Cell Carcinoma.

  	
   

  	
  September, 2005

  
	
  15.

  	
  Completion of Small Phase
  II Clinical Trial on 2nd cancer to be developed

  	
   

  	
  June, 2006

  
	
  16.

  	
  Initiation of Phase III
  Clinical Trial for Renal Cell Cancer

  	
   

  	
  September, 2006

  
	
  17.

  	
  Initiation of Large Phase
  II Clinical Trial for 2nd Cancer type to be developed

  	
   

  	
  January, 2007

  
	
  18.

  	
  Submission of a Revised Development
  Plan which includes election of 3rd indication to be developed and benchmarks
  for development

  	
   

  	
  June, 2007

  
	
   

  	
   

  	
   

  	
   

  
	
  19.

  	
  Completion of Large Phase
  II Clinical Trial for 2nd Cancer type to be developed

  	
   

  	
  June, 2008

  

 

E-21

 

	
  20.

  	
  Completion of Phase III
  Clinical Trial Renal Cell Cancer

  	
   

  	
  September, 2008

  
	
  21.

  	
  Initiation of Phase III
  Clinical Trial for 2nd Cancer type to be developed

  	
   

  	
  January, 2009

  
	
  22.

  	
  BLA Submission for Renal
  Cell Cancer

  	
   

  	
  March, 2009

  
	
  23.

  	
  Product Launch for Renal
  Cell Cancer

  	
   

  	
  March, 2010

  
	
  24.

  	
  Completion of Phase III
  Clinical Trial for 2nd Cancer type in development

  	
   

  	
  January, 2011

  
	
  25.

  	
  BLA Submission for 2nd
  Cancer Type Developed

  	
   

  	
  June, 2011

  
	
  26.

  	
  Product Launch for 2nd
  Cancer Type Developed

  	
   

  	
  June, 2012

  

 

The next therapy to be developed will treat either
brain, pancreatic, ovarian, prostate, breast or colon cancer or Karposi’s
sarcoma.

 

E-22

 

APPENDIX
E—Commercial Development Plan

 

See Attached

 

E-23

 

See Attached

 

E-24

 

REVISED PROPOSAL FOR THE
CLINICAL AND

 

COMMERCIAL

 

DEVELOPMENT OF hIL13-PE38QQR
AS ANTICANCER AGENT.

 

(U.s. Patent 5,614,191)

 

 

NeoPharm, Inc.

225 E. Deerpath Road

Suite 250

Lake Forest, IL 60045

 

E-25

 

NeoPharm’s Action Plan

 

The studies performed by Dr. Puri et al described
the expression of interleukin-13 receptor on solid human tumor cells. The
technology describes the fusion of receptor binding ligand, IL-13, to mutant
form of a bacterial toxin, Pseudomonas exotoxin (PE38QQR).  The chimeric protein known as hIL13-PE38QQR
is expressed in Escherichia coli.  The
resulting fusion protein is obtained from the inclusion bodies in E. coli, from
where they are isolated and purified. Based on this technology, the fusion
protein has been extracted in sufficient quantities to perform the in vitro
experiments in several human cell lines to derme the therapeutic potential of
this technology. It has been demonstrated that the chimeric human protein
hIL13-PE38QQR is cytotoxic in picomole concentration to human glioblastomas
cells and renal cancer cells. These are highly exciting observations since
IL-13 receptors are very exclusively expressed by the human solid tumors and
not by the normal cells of the body so far examined. Hence, specific targeting
to tumor sites with this chimeric protein should be more effective while
avoiding the toxicities to the normal cells. This modality of treatment in
cancer chemotherapy will be potentially preferred since treatment limiting
toxicities of anticancer drugs are the major obstacles for the successful
management of the disease. At present the technology describes the in vitro
application, however, some preliminary in vivo efficacy data recently became
available. Hence, a major thrust of our Development Plan will be to a) obtain
large quantities of this chimeric protein and to derme whether b) chimeric
protein is as effective in vivo as in vitro, c) to identify other tumor types
which express IL-13 receptors such as pancreatic cancers, Kaposi’s sarcoma,
prostate cancer and colon cancers, etc., d) to identify the toxicities of this
chimeric protein in at least two animal species by administering it through
i.v., or i.p., and to define the 

 

E-26

 

LD10, LD50 and LD100
doses in animals and e) to perform the clinical trials of this chimeric protein
in various indications leading to the approval and marketing of this product.

 

1.         Implement Plans to Independently Secure future Continuing
Supplies of hIL13-PE38QQR for Preclinical and Clinical Development:

 

The chimeric protein hIL13-PE38QQR is extracted from
Escherichia Coli from the inclusion bodies. The process which is developed by
Dr. Puri, Dr. Pas tan and Dr. Debinski provides quantities which are sufficient
for in vitro and in a limited scale for in vivo studies.  However, for enlarged preclinical evaluation
and for Phase I clinical use, the chimeric fusion protein has to be produced in
larger quantities under Good Laboratory Practice (GLP) and Good Manufacturing
Practice (GMP). NeoPharm believes that this task can be easily achieved by
contracting out the scale-up production. With that consideration, NeoPharm has
already identified three places where this chimeric protein can potentially be
scaled-up. One of these is Inland Laboratories of Houston, Texas (contact
person: Dr. Jerry Fulton), the second is Advanced Biosciences Laboratory,
Kensington, MD (contact person:  Dr. Phil
Markhum) and the third is Biological Response Modifier Programs of NCI,
Frederick, MD, where fee-for-service contracts are now accepted (contact
person: Dr. Steve Creekmore).  NeoPharm
will select one of these sites for scale-up production after the formal
approval of this licensing application. 
The scale-up production of this chimeric protein will be achieved with
the full cooperation and participation of the inventors of this
technology.  The exact methodology of
transfecting the E. Coli with the combined gene of IL-13R binding domain and
the exotoxin gene expressing PE38QQR will be provided to contract
manufacturer.  The manufacturer will
perform this transfection, the E. Coli are grown in controlled media and from
the inclusion bodies, IL13-PE38QQR is extracted, purified by gel chromatography
and HPLC method and analyzed by Western Blot for biological 

 

E-27

 

characterization and cytotoxic characterization in
Renal Cells Carcinoma (RCC cells). The scale-up chimeric protein has to meet
all the criteria which are established by Dr. Puri’s laboratory at FDA. It is
expected that the production of hIL13-PE38QQR in either of the places mentioned
above would be sufficient for preclinical and Phase I studies with this
protein. We expect that this chimeric protein should be available to us in
sufficient quantity within one year of signing agreement. However, a major
challenge would be to have enlarged quantities for Phase II trial leading to
commercialization. This will involve identifying a pharmaceutical manufacturer
with large fermentation capacity and resources to biologically characterize the
chimeric protein production with full compliance of GLP and GMP requirements.
We will undertake this task while the Phase I trials are in progress and the
data supports the biological activity of hIL13-PE38QQR in a particular cancer
type. In any situation, the investigators at FDA and NCI have to interact
closely with the pharmaceutical manufacturer to validate the method and
biologic activity of this chimeric protein with the established laboratory
methods.

 

2.             To further enhance the in vitro and in vivo studies of
hIL13-PE38QQR:

 

Within four months following the availability of
sufficiently large quantities of this chimeric protein hIL13-PE38QQR, further
studies will be performed to evaluate its cytotoxicity in Kaposi’s sarcoma
cells, prostate cancer and pancreatic cancer established cell lines. These cell
lines will be maintained at Dr. Puri’s laboratory and necessary experiments
will be performed there.

 

The in vivo therapeutic evaluation of the chimeric
protein hIL13-PE38QQR will be performed in nude mice implanted with renal
carcinoma cells and Kaposi’s sarcoma cells. These tumor cells will be
implemented S.C. and when the tumor mass becomes about 50 mm3, mice will be
randomly divided in a group of ten and will be injected i. v. with this
chimeric protein. The 

 

E-28

 

chimeric protein doses will range from 5 jlg/kg to
50 jlg/kg and will be administered three times at alternate days. The tumor
volume will be calculated based on the formula, volume = (length) x (width)2 x
(0.4). These doses will give a determination of minimal effective dose, most
optimal dose as well as toxic therapeutic dose. The mice will be observed till
day 60. The dose range employed in this study will determine the effectiveness
of this modality of treatment in delaying the growth of the tumor, in
completely curing the mice with tumor and also the cure rate of tumor with
associated toxicities. It is expected that it will take about six months to
complete these studies with necessary reporting to the company by the
contractor.

 

3.             In Vivo Toxicity Evaluation

 

It is possible that the chimeric protein
hIL13-PE38QQR would bind and internalize non-specifically into normal tissues,
particularly the liver, thus adversely compromising the therapeutic potential
of this modality of treatment. Further, a safe starting dose for clinical trial
in humans will be derived by the LDIO doses in mice and rats. Hence, nude mice
will be injected i.v. with this chimeric protein at doses of 50 p.g - 250
p.g/kg on day 1, 3 and 5, having 10 mice at each dose level. Three days after
the last dose, half of the mice in each group will be bled by orbital sinus,
blood will be collected and chemistries will be performed. Mice will then be
sacrificed by cervical dislocation and tissues will be fixed in formalin for
histopathologic evaluation. The blood chemistry determination will define the
alterations in liver function tests as well as any abnormalities in metabolic
processes. The tissues such as liver and spleen with abnormalities will
identify the possible non-specific binding of this chimeric protein to these
organs and pathological lesions observed therein.  All these studies will be performed in a GLP
laboratory which is approved by FDA such as Hazelton Labs of Virginia.

 

E-29

 

A major concern with this chimeric protein is the
manifestation of Vasculature Leakage Syndrome, VLS.  This phenomenon has been observed with other
immunotoxins such as LMB-l. Though the chimeric protein LMB-l is much bigger
than the chimeric protein hIL13-PE38QQR, it is hoped that manifestations of VLS
will be minimal with this agent. 
However, it will be highly prudent to evaluate the occurrence of this
syndrome in mice and rats by histopathologic determinations established in Dr.
Puri’s laboratory.  This methodology will
be established in the contract laboratory of NeoPharm to perform the VLS
studies. In addition, the dose range we have selected with this chimeric
protein hIL13 PE38QQR will define the LD10 and LD50 doses
in nude mice. The understanding of these doses will define the safe starting
dose of this chimeric protein in humans. The same studies will be performed in
rats at equivalent doses of mice.

 

We expect these studies to be completed within six
months.

 

Pharmacokinetic Studies

 

The phannacokinetic studies of the chimeric protein
hIL13-PE38QQR will be performed in nude mice at a dose of 25 jLg/kg Lv. For
this study, thirty mice will be used and three mice at specified time will be
bled from orbital sinus and 100-200 jLl of blood will be collected at 5, 10, 15,
20, 30, 60 and 120 minutes and at 4, 6 and 24 hours. The serum will be
separated and stored at -70°C before the determination of toxin levels. Levels
of recombinant toxin will be determined by their cytotoxic activity toward
renal cell carcinoma (RCC) cells using a standard curve generated by the
cytotoxic activity of purified toxin toward RCC cells. (These methods are well
established in Dr. Puri’s laboratory). 
The levels of toxin in the serum will be assayed by the contract
laboratory as identified by NeoPharm.  In
addition, the tissues will be homogenized in saline, centrifuged and
supernatant will be assayed for the toxin levels by the established 

 

E-30

 

methods. These studies will provide the plasma half-life,
area under the plasma concentration curve, clearance, and volume of
distribution as well as tissue distribution of this toxin.  The attached chart describes the major
activities which NeoPharm will be supporting for hIL13-PE38QQR.  We expect that this portion of studies will
be completed within six months.

 

4.             Clinical Evaluation of hIL13-PE38QQR Chimeric Protein:

 

Within six months of having performed the in vivo
toxicity and therapeutic evaluation of this chimeric protein, NeoPharm will
submit an IND for the initiation of Phase I clinical trial.  This Phase I trial will be designed by
NeoPharm and Dr. Puri and other collaborators at FDA and NCI. A major thrust of
this Phase I protocol would be to identify the toxicities and if possible,
efficacy of this chimeric protein at various dose levels. The starting Phase I
dose of this chimeric protein will be 1/10h of the LD10 dose in
mice. Assuming the LD10 dose of hIL13-PE38QQR to be 500 fJ.g/kg, the
starting dose of Phase I in patients will be 50 fLg/kg. Three patients will
receive this dose level and will be evaluated fully for the next three weeks
for any toxicities. If no toxicities are observed, a cohort of three patients
will be started with 50 % higher dose level of the initial dose and will be observed
similarly for three weeks. If no grade 3 or 4 toxicities are observed, then the
dose will be escalated to 100% i.e. 100 fJ.g/kg in the next cohort of 3
patients. This scheme of dose escalation will be continued in patients till
grade 3 or 4 toxicities are encountered. If that happens, then the dose will be
reduced to half the previous dose to describe in more detail the toxicities in
3 more patients. This will then be defined as the maximum tolerated dose (MTD).
It is expected that the whole Phase I trial will enroll about 25 patients. It
is executed that this Phase I trial will take about one year to be completed
with full clinical evaluation of the data.

 

E-31

 

Patients eligible for this study will have a
histologic diagnosis of a malignant solid tumor and have exhausted the
available chemotherapeutic protocols for their disease, or have a malignant
disease for which no palliable therapy is available. Where possible, biopsy
samples of the tumor will be obtained to determine the IL-13 receptor sites. To
enroll in the study, patients must be over 18 years of age and a KPS of at
least 70%, with adequate bone marrow reserves and no organ function
abnormality. All patients must provide an informed, written consent in
accordance with Federal and Institutional guidelines. Though patients with any
kind of malignancies will be enrolled, the investigators will give preference
to enroll kidney cancer patients with distant metastasis to have some feeling
about the performance of the chimeric protein hIL13-PE38QQR in the planned
Phase II setting. In this Phase I trial all the patients, before therapy, will
be required to have a medical history, physical examination, complete blood
counts, biochemical profile analysis, electrocardiograms, chest x-rays and CAT
scans as required for establishing the index of lesions. Patients will be
monitored weekly for most of the above tests to define the occurrence of any
toxicities as well as for the appearance of any antibodies either related to
the recombinant protein receptor or recombinant exotoxin. Toxicities will be
documented according to the Common Toxicity Criteria, Clinical Trials
Evaluation Program, National Cancer Institute. Patients will be very carefully
evaluated for Vascular Leakage Syndrome, fluid retention, hypotension,
pulmonary edema and dyspnea.

 

NeoPharm’s Plan and Support for
Clinical Development Leading to FDA Approval for Marketing.

 

After the completion of Phase I trial of
hIL13-PE38QQR, NeoPharm will start a Phase II trial with the MTD doses of this
chimeric protein in kidney cancer patients with metastasis.  This trial will enroll 20 patients to defme
the efficacy of this chimeric protein for this indication.  The 

 

E-32

 

enrollment criteria will include histologic
diagnosis of a malignant tumor which has not responded to conventional
chemotherapy. Those patients should not have been treated with any immune
modulator and do not express any antibodies for any known immune
modulator.  This exclusion criteria
ensures that overlapping toxicities are not manifested to mask any effect of
this therapy. This Phase II trial will take six to nine months to be completed.
If there are two responders in this limited Phase II trial, then NeoPharm, in
concurrence with FDA, will start an enlarged Phase II trial at various cancer
centers.  This enlarged Phase II trial
will enroll at least 150 patients who have been newly diagnosed with the cancer.
It is estimated that this Phase II trial will take about 18 months to be
completed.  Since there is no approved
drug for kidney cancer patients, a randomized Phase II trial would possibly be
not required under the present guidelines of Cancer Drug Approval of FDA as
initiated by Clinton Administration. 
Though IL-2 is indicated for kidney cancer patients with KPS 0-1,
however, patients with KPS 2-4 are contraindicated and therapy does not appear
to have any clinical activity rather appears to be more toxic to those patient
population.  Hence, it is expected that
this enlarged Phase II trial will serve as a pivotal trial leading to the
approval of drug from FDA depending on the clinical outcome and eventual
approval for commercialization of this chimeric protein. NeoPharm expects to
submit a BLA application six months after the enlarged Phase II trial is
completed.  However, if the FDA feels
that we have to perform a Phase II trial to justify the approval of this agent
for commercialization, NeoPharm will undertake the trial which will enroll 300
patients to establish the efficacy of this agent for renal cell carcinoma and
will take a minimum of two years to complete it.

 

To seek further indications for this chimeric
protein as cancer therapeutic agent, NeoPharm will support Phase II trials of
hIL13-PE38QQR in Kaposi’s sarcoma and brain cancer patients. The 

 

E-33

 

preliminary data which is gathered in the laboratory
of Dr. Puri provides the justification for the initiation of these trials.
Depending on the clinical outcome of these trials and the clinical efficacy of
this chimeric protein for these neoplasms, decisions will be made by NeoPharm
and FDA and NCI investigators to either up-scale the efforts or downsize the
efforts. In any situation, it will be prudent for the company to seek one
indication aggressively and dedicate most of the resources for that clinical
indication.

 

NeoPharm will collect all the clinical data, perform
the statistical analysis, compile the clinical efficacy and for each patient
list the adverse reactions observed. The company will compile the whole CMC
relating to the commercial production of this chimeric protein. All this work
will be done independently by the Company to avoid any perceived or factual
appearance of the conflict of interest with FDA due to the association of the
inventors. As has been described in the various action plan of the company,
NeoPharm will become a major partner with FDA and NCI investigators in
promoting efforts and clinical trials for this chimeric protein hIL13-PE38QQR.
However, when the approval application for marketing of this chimeric protein
is prepared, there will be an arms length relationship between the company and
FDA, NCI investigators. The eventual marketing of this compound at reasonable
cost will have a major impact on overall well being of the cancer patients. It
is hoped that these efforts by NeoPharm will provide access for this compound
to community oncologist for a wider spectrum of needy patients and will
eventually improve their quality of life, and as well as extend the survival
rates of those patients.

 

E-34

 

ADDENDUM TO
PROTOCOL

 

The following is the addendum for the quality
control testing of the IL-13 chimeric protein. 
This addendum becomes an integral part of the attached protocol.

 

The homogeneity of the chimeric protein will be
performed by:

 

1.             SDS - polyacrylamide gel filtration

2.             Reverse- phase HPLC

 

In addition, the final product will also be tested
for endotoxin levels.  If the desired
levels are not achieved, the endotoxin will be removed by chromatographic
methods until satisfactory levels are achieved.

 

340893

 

E-35

 

PUBLIC HEALTH SERVICE

 

PATENT LICENSE AGREEMENT - EXCLUSIVE

 

 

COVER PAGE

 

 

For PHS
internal use only:

 

Patent License Number:

 

L 162 02/0

 

Serial Number(s) of Licensed Patent(s) and/or
Patent Application(s):

 

U.S. Provisional Patent Application, S/N
60/229,842 [DHHS Ref. E-032-00/1], filed on August 31,2001; and

 

PCT Patent Application, S/N PCT/US00/31044
[DHHS Ref. E-032-00/3], filed on August 15, 2001.

 

Licensee:

 

NeoPharm, Inc.

150 Fields Drive

Suite 195

Lake Forest,
Illinois 60045

 

Phone: (847)295
8678

Fax: (847) 295
8854

 

Cooperative Research and Development
Agreement (CRADA) Number (if applicable):

 

No. 26 97 with the Food and Drug
Administration

 

Additional Remarks: N/A

 

 

Public Benefit(s):

 

NeoPharm, Inc. agrees, after its First
Commercial Sale, to make reasonable quantities of Licensed Product(s) or
materials produced through the use of Licensed Process(es) available on a
compassionate use basis to patients, either through the patient’s physician(s)
and/or the medical center treating the patient; and

 

NeoPharm, Inc. further agrees, after its
First Commercial Sale and as part of its marketing and product promotion, to
develop written educational materials (e.g., brochures, advertisements, etc.)
directed to patients and physicians detailing the Licensed Products) and its
use to treat cancer.

 

E-36

 

This Patent
License Agreement, hereinafter referred to as the “Agreement”, consists of this
Cover Page, an attached Agreement, a Signature Page, Appendix A (List of
Patent(s) and/or Patent Application(s)), Appendix B (Fields of Use and
Territory), Appendix C (Royalties), Appendix D (Modifications), Appendix E
(Benchmarks), and Appendix F (Commercial Development Plan). The Parties to this
Agreement are:

 

1)             The
National Institutes of Health (“NIH”), the Centers for Disease Control and
Prevention (“CDC”), or the Food and Drug Administration (“FDA”), hereinafter
singly or collectively referred to as “PHS”, agencies of the United States
Public Health Service within the Department of Health and Human Services (“DHHS”);
and

 

2)             The
person, corporation, or institution identified above and/or on the Signature
Page, having offices at the address indicated on the Signature Page,
hereinafter referred to as “Licensee”.

 

E-37

 

PHS PATENT LICENSE AGREEMENT - EXCLUSIVE

 

PHS and
Licensee agree as follows:

 

1.             BACKGROUND

 

1.01         In the course of conducting biomedical and behavioral
research, PUS investigators made inventions that may have commercial
applicability.

 

1.02         By assignment of rights from PHS employees and other
inventors, DHHS, on behalf of the United States Government, owns intellectual
property rights claimed in any United States and/or foreign patent applications
or patents corresponding to the assigned inventions. All rights, titles and
interests in the Licensed Patent Rights have been transferred to PUS. DHHS also
owns any tangible embodiments of these inventions actually reduced to practice
by PUS.

 

1.03         The Secretary of DHHS has delegated to PUS the authority to
miter into this Agreement for the licensing of rights to these inventions under
35 U.S.C. §§200 212, the Federal Technology Transfer Act of 1986, 15 U.S.C.
§3710a, and/or regulations governing the licensing of Government owned
inventions, 37 CFR Part 404.

 

1.04         PUS desires to transfer these inventions to the private
sector through commercialization licenses to facilitate the commercial
development of products and processes for public use and benefit.

 

1.05         Licensee desires to acquire rights to certain of these
inventions in order to develop processes, methods, and/or marketable products
for public use and benefit.

 

2.             DEFINITIONS

 

2.01         “Benchmarks” mean the performance milestones that are set
forth in Appendix E.

 

2.02         “Commercial Development Plan” means the written
commercialization plan attached as Appendix F.

 

2.03         “First Commercial Sale” means the initial transfer by or on
behalf of Licensee or its sublicensees of Licensed Product(s) or the initial
practice of a Licensed Process(es) by or on behalf of Licensee or its
sublicensees in exchange for cash or some equivalent to which value can be
assigned for the purpose of determining Net Sales.

 

2.04         “Government” means the Government of the United States of
America.

 

2.05         “Licensed Fields of Use” means the fields of use identified
in Appendix B.

 

2.06         “Licensed Patent Rights” shall mean:

 

E-38

 

a)             Patent applications (including
provisional patent applications and PCT patent applications) and/or patents
listed in Appendix A, all divisions and continuations of these applications,
all patents issuing from such applications, divisions, and continuations, and
any reissues, reexaminations, and extensions of all such patents;

 

b)            to the extent that the following
contain one or more claims directed to the invention or inventions disclosed in
a) above: i) continuations-in-part of a) above; ii) all divisions and
continuations of these continuations in part; iii) all patents issuing from
such continuations in part, divisions, and continuations; iv) priority patent
applications) of a) above; and v) any reissues, reexaminations, and extensions
of all such patents;

 

c)             to the extent that the following
contain one or more claims directed to the invention or inventions disclosed in
a) above: all counterpart foreign and U.S. patent applications and patents to
a) and b) above, including those listed in Appendix A.

 

Licensed Patent Rights shall not include b)
or c) above to the extent that they contain one or more claims directed to new
matter which is not the subject matter disclosed in a) above.

 

2.07         “Licensed Process(es)” means processes which, in the course
of being practiced would be within the scope of one or more claims of the
Licensed Patent Rights that have not been held unpatentable, invalid or
unenforceable by an unappealed or unappealable judgment of a court of competent
jurisdiction.

 

2.08         “Licensed Product(s)” means tangible materials, which, in
the course of manufacture, use, sale, or importation would be within the scope
of one or more claims of the Licensed Patent Rights that have not been held
unpatentable, invalid or unenforceable by an unappealed or unappealable
judgment of a court of competent jurisdiction.

 

2.09         “Licensed Territory” means the geographical area identified
in Appendix B.

 

2.10         “Net Sales” means the total gross receipts for sales of
Licensed Product(s) or practice of Licensed Process(es) by or on behalf of
Licensee or its sublicensees, and from leasing, renting, or otherwise making
Licensed Product(s) available to others without sale or other dispositions,
whether invoiced or not, less returns and allowances, packing costs, insurance
costs, freight out, taxes or excise duties imposed on the transaction (if separately
invoiced), and wholesaler and cash discounts in amounts customary in the trade
to the extent actually granted. No deductions shall be made for commissions
paid to individuals, whether they be with independent sales agencies or
regularly employed by Licensee, or sublicensees, and on its payroll, or for the
cost of collections.

 

2.11         “Practical Application” means to manufacture in the case of
a composition or product, to practice in the case of a process or method, or to
operate in the case of 

 

E-39

 

a machine or system; and in each case, under
such conditions as to establish that the invention is being utilized and that
its benefits are to the extent permitted by law or Government regulations
available to the public on reasonable terms.

 

2.12         “Research License” means a nontransferable, nonexclusive
license to make and to use the Licensed Product(s) or Licensed Process(es) as
defined by the Licensed Patent Rights for purposes of research and not for
purposes of commercial manufacture or distribution or in lieu of purchase.

 

3.             GRANT OF RIGHTS

 

3.01         PHS hereby grants and Licensee accepts, subject to the terms
and conditions of this Agreement, an exclusive license under the Licensed
Patent Rights in the Licensed Territory to make and have made, to use and have
used, to sell and have sold, to offer to sell, and to import any Licensed
Product(s) in the Licensed Fields of Use and to practice and have practiced any
Licensed Process(es) in the Licensed Fields of Use.

 

3.02         This Agreement confers no license or rights by implication,
estoppel, or otherwise under any patent applications or patents of PHS other
than Licensed Patent Rights regardless of whether such patents are dominant or
subordinate to Licensed Patent Rights.

 

4.             SUBLICENSING

 

4.01         Upon written approval by PHS, which approval shall not be
unreasonably withheld, Licensee may enter into sublicensing agreements under
the Licensed Patent Rights.

 

4.02         Licensee agrees that any sublicenses granted by it shall
provide that the obligations to PHS of Paragraphs 5.01 5.04, 8.01, 10.01 10.04,
12.05, and 13.07 13.09 of this Agreement shall be binding upon the sublicensee
as if it were a party to this Agreement. Licensee further agrees to attach
copies of these Paragraphs to all sublicense agreements.

 

4.03         Any sublicenses granted by Licensee shall provide for the
termination of the sublicense, or the conversion to a license directly between
such sublicensees and PHS, at the option of the sublicensee, upon termination
of this Agreement under Article 13. Such conversion is subject to PHS
approval and contingent upon acceptance by the sublicensee of the remaining
provisions of this Agreement.

 

4.04         Licensee agrees to forward to PHS a copy of each fully
executed sublicense agreement postmarked within thirty (30) days of the
execution of such agreement. To the extent permitted by law, PHS agrees to
maintain each such sublicense agreement in confidence.

 

E-40

 

5.             STATUTORY AND PHS
REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS

 

5.01         (a)           PHS reserves on behalf of the Government an irrevocable,
nonexclusive, nontransferable, royalty free license for the practice of all
inventions licensed under the Licensed Patent Rights throughout the world by or
on behalf of the Government and on behalf of any foreign government or
international organization pursuant to any existing or future treaty or
agreement to which the Government is a signatory.

 

(b)           In
the event that Licensed Patent Rights are Subject Inventions made under a
Cooperative Research and Development Agreement (CRADA), Licensee grants to the
Government, pursuant to 15 U.S.C. §3710a(b)(1)(A), a nonexclusive,
nontransferable, irrevocable, paid up license to practice Licensed Patent Rights
or have Licensed Patent Rights practiced throughout the world by or on behalf
of the Government. In the exercise of such license, the Government shall not
publicly disclose trade secrets or commercial or financial information that is
privileged or confidential within the meaning of 5 U.S.C. §552(b)(4) or which
would be considered as such if it had been obtained from a non Federal party.

 

5.02         Licensee agrees that products
used or sold in the United States embodying Licensed Product(s) or produced
through use of Licensed Process(es) shall be manufactured substantially in the
United States, unless a written waiver is obtained in advance from PHS.

 

5.03         Licensee acknowledges that PHS may enter into future CRADAs
under the Federal Technology Transfer Act of 1986 that relate to the subject
matter of this Agreement. Licensee agrees not to unreasonably deny requests for
a Research License from such future collaborators with PHS when acquiring such
rights is necessary in order to make a CRADA project feasible. Licensee may
request an opportunity to join as a party to the CRADA.

 

5.04         (a)           In addition to the reserved
license of Paragraph 5.01 above, PHS reserves the right to grant nonexclusive
Research Licenses directly or to require Licensee to grant nonexclusive
Research Licenses on reasonable terms. The purpose of this Research License is
to encourage basic research, whether conducted at an academic or corporate
facility. In order to safeguard the Licensed Patent Rights, however, PHS shall
consult with Licensee before granting to commercial entities a Research License
or providing to them research samples of materials made through the Licensed
Process(es).

 

(b)          In
exceptional circumstances, and in the event that Licensed Patent Rights are
Subject Inventions made under a CRADA, the Government, pursuant to 15 U.S.C.
§3710a(b)(1)(B), retains the right to require the Licensee to grant to a
responsible applicant a nonexclusive, partially exclusive, or exclusive
sublicense to use Licensed Patent Rights in Licensee’s field of use on terms
that are reasonable under the circumstances; or if Licensee fails to grant such
a license, 

 

E-41

 

the Government retains the right to grant the
license itself. The exercise of such rights by the Government shall only be in
exceptional circumstances and only if the Government determines (i) the action
is necessary to meet health or safety needs that are not reasonably satisfied
by Licensee; (ii) the action is necessary to meet requirements for public use
specified by Federal regulations, and such requirements are not reasonably
satisfied by the Licensee; or (iii) the Licensee has failed to comply with an
agreement containing provisions described in 15 U.S.C. §3710a(c)(4)(B). The
determination made by the Government under this Article is subject to
administrative appeal and judicial review under 35 U.S.C. §203(2).

 

6.             ROYALTIES AND
REIMBURSEMENT

 

6.01         Licensee agrees to pay to PHS a noncreditable, nonrefundable
license issue royalty as set forth in Appendix C within thirty (30) days from
the date that this Agreement becomes effective.

 

6.02         Licensee agrees to pay to PHS a nonrefundable minimum annual
royalty as set forth in Appendix C. The minimum annual royalty is due and
payable on January 1 of each calendar year, and the minimum annual royalty
due for the first calendar year of this Agreement may be prorated according to
the fraction of the calendar year remaining between the effective date of this
Agreement and the next subsequent January 1;

 

a)           PHS
agrees to waive the minimum annual royalty as long as Licensee’s CRADA, No. 26
97, with the Food and Drug Administration is in effect. Licensee agrees to
start paying the minimum annual royalty once the CICADA has expired or been
terminated.  Upon said expiration or
termination, the first minimum annual royalty will be due on the following January 1.

 

6.03         Licensee agrees to pay PHS earned royalties as set forth in
Appendix C.

 

6.04         Licensee agrees to pay PHS benchmark royalties as set forth
in Appendix C.

 

6.05         Licensee agrees to pay PHS sublicensing royalties as set
forth in Appendix C.

 

6.06         A claim of a patent or patent application licensed under
this Agreement shall cease to fall within the Licensed Patent Rights for the
purpose of computing the minimum annual royalty or the earned royalty payments
in any given country on the earliest of the dates that a) the claim or
application has been abandoned and not continued, b) the patent expires or
irrevocably lapses, or c) the claim has been held to be invalid or
unenforceable by an unappealed or unappealable decision of a court of competent
jurisdiction or administrative agency.

 

6.07         No multiple royalties shall be payable because any Licensed
Product(s) or Licensed Process(es) are covered by more than one of the Licensed
Patent Rights.

 

E-42

 

6.08         On sales of Licensed Product(s) by Licensee to sublicensees
or on sales made in other than an arm’s length transaction, the value of the
Net Sales attributed under this Article 6 to such a transaction shall be
that which would have been received in an arm’s length transaction, based on
sales of like quantity and quality products on or about the time of such
transaction.

 

6.09         With regard to expenses associated with the preparation,
filing, prosecution, and maintenance of all patent applications and patents
included within the Licensed Patent Rights incurred by PHS prior to the
effective date of this Agreement, Licensee shall pay to PHS, as an additional
royalty, within sixty (60) days of PHS’s submission of a statement and request
for payment to Licensee, an amount equivalent to such patent expenses
previously incurred by PHS.

 

6.10         With regard to expenses associated with the preparation,
filing, prosecution, and maintenance of all patent applications and patents
included within the Licensed Patent Rights incurred by PHS on or after the
effective date of this Agreement, PHS, at its sole option, may require
Licensee:

 

a)             to pay PHS on an annual basis,
within sixty (60) days of PHS’s submission of a statement and request for
payment, a royalty amount equivalent to all such patent expenses incurred
during the previous calendar year(s); or

 

b)            to pay such expenses directly to
the law firm employed by PHS to handle such functions. However, in such event,
PHS and not Licensee shall be the client of such law firm.

 

In limited circumstances, Licensee may be
given the right to assume responsibility for the preparation, filing,
prosecution, or maintenance of any patent application or patent included with
the Licensed Patent Rights. In that event, Licensee shall directly pay the
attorneys or agents engaged to prepare, file, prosecute, or maintain such
patent applications or patents and shall provide to PHS copies of each invoice associated
with such services as well as documentation that such invoices have been paid.

 

6.11         Licensee may elect to surrender its rights in any country of
the Licensed Territory under any Licensed Patent Rights upon ninety (90) days
written notice to PHS and owe no payment obligation under Article 6.10 for
patent related expenses incurred in that country after ninety (90) days of the
effective date of such written notice.

 

7.             PATENT FILING,
PROSECUTION, AND MAINTENANCE

 

7.01         Except as otherwise provided in this Article 7, PHS
agrees to take responsibility for, but to consult with, the Licensee in the
preparation, filing, prosecution, and maintenance of any and all patent
applications or patents included in the Licensed Patent Rights and shall
furnish copies of relevant patent related documents to Licensee.

 

E-43

 

7.02         Upon PHS’s written request, Licensee shall assume the
responsibility for the preparation, filing, prosecution, and maintenance of any
and all patent applications or patents included in the Licensed Patent Rights
and shall on an ongoing basis promptly furnish copies of all patent related
documents to PHS. In such event, Licensee shall, subject to the prior approval
of PHS, select registered patent attorneys or patent agents to provide such
services on behalf of Licensee and PHS. PHS shall provide appropriate powers of
attorney and other documents necessary to undertake such actions to the patent
attorneys or patent agents providing such services. Licensee and its attorneys
or agents shall consult with PHS in all aspects of the preparation, filing,
prosecution and maintenance of patent applications and patents included within
the Licensed Patent Rights and shall provide PHS sufficient opportunity to comment
on any document that Licensee intends to file or to cause to be filed with the
relevant intellectual property or patent office.

 

7.03         At any time, PHS may provide Licensee with written notice
that PHS wishes to assume control of the preparation, filing, prosecution, and
maintenance of any and all patent applications or patents included in the
Licensed Patent Rights. If PHS elects to assume such responsibilities, Licensee
agrees to cooperate fully with PHS, its attorneys, and agents in the preparation,
filing, prosecution, and maintenance of any and all patent applications or
patents included in the Licensed Patent Rights and to provide PHS with complete
copies of any and all documents or other materials that VHS deems necessary to
undertake such responsibilities. If PHS elects to assume control of the
preparation, filing, prosecution and maintenance of any and all patent
applications or patents included in the Licensed Patent Rights for a reason
other than Licensee’s failure to perform under this Agreement, PHS shall be
responsible for all costs associated with transferring patent prosecution
responsibilities to an attorney or agent of PHS’s choice.

 

7.04         Each party shall promptly inform the other as to all matters
that come to its attention that may affect the preparation, filing,
prosecution, or maintenance of the Licensed Patent Rights and permit each other
to provide comments and suggestions with respect to the preparation, filing,
prosecution, and maintenance of Licensed Patent Rights, which comments and
suggestions shall be considered by the other party.

 

8.             RECORD KEEPING

 

8.01         Licensee agrees to keep accurate and correct records of
Licensed Product(s) made, used, sold, or imported and Licensed Process(es)
practiced under this Agreement appropriate to determine the amount of royalties
due PHS. Such records shall be retained for at least five (5) years following a
given reporting period and shall be available during normal business hours for
inspection at the expense of PHS by an accountant or other designated auditor
selected by PHS for the sole purpose of verifying reports and payments
hereunder. The accountant or auditor shall only disclose to PHS information
relating to the accuracy of reports and payments made under this Agreement. If
an inspection shows an 

 

E-44

 

underreporting or underpayment in excess of
five percent (5%) for any twelve (12) month period, then Licensee shall
reimburse PHS for the cost of the inspection at the time Licensee pays the
unreported royalties, including any late charges as required by Paragraph 9.08
of this Agreement. All payments required under this Paragraph shall be due
within thirty (30) days of the date PHS provides Licensee notice of the payment
due.

 

8.02         Licensee agrees to have an audit of sales and royalties
conducted by an independent auditor at least every two (2) years if annual
sales of the Licensed Product or Licensed Process(es) are over two (2) million
dollars. The audit may be conducted in conjunction with the annual audit
performed on behalf of Licensee. The audit shall address, at a minimum, the
amount of gross sales by or on behalf of Licensee during the audit period,
terms of the license as to percentage or fixed royalty to be remitted to the
Government, the amount of royalty funds owed to the Government under this
Agreement, and whether the royalty amount owed has been paid to the Government
and is reflected in the records of the Licensee. The audit shall also indicate
the PHS license number, product, and the time period being audited. A report
certified by the auditor shall be submitted promptly by the auditor directly to
PHS on completion. Licensee shall pay for the entire cost of the audit.

 

9.             REPORTS ON
PROGRESS, BENCHMARKS, SALES, AND PAYMENTS

 

9.01         Prior to signing this Agreement, Licensee has provided to
PHS the Commercial Development Plan at Appendix F, under which Licensee intends
to bring the subject matter of the Licensed Patent Rights to the point of
Practical Application. This Commercial Development Plan is hereby incorporated
by reference into this Agreement. Based on this plan, performance Benchmarks
are determined as specified in Appendix E.

 

9.02         Licensee shall provide written annual reports on its product
development progress or efforts to commercialize under the Commercial
Development Plan for each of the Licensed Fields of Use within sixty (60) days
after December 31 of each calendar year. These progress reports shall
include, but not be limited to: progress on research and development, status of
applications for regulatory approvals, manufacturing, sublicensing, marketing,
importing, and sales during the preceding calendar year, as well as plans for
the present calendar year. PHS also encourages these reports to include
information on any of Licensee’s public service activities that relate to the
Licensed Patent Rights. If reported progress differs from that projected in the
Commercial Development Plan and Benchmarks, Licensee shall explain the reasons
for such differences. In any such annual report, Licensee may propose
amendments to the Commercial Development Plan, acceptance of which by PHS may
not be denied unreasonably. Licensee agrees to provide any additional
information reasonably required by PHS to evaluate Licensee’s performance under
this Agreement. Licensee may amend the Benchmarks at any time upon written
consent by PHS. PHS shall not unreasonably withhold approval of any request of
Licensee to extend the time periods of this schedule if such 

 

E-45

 

request is supported by a reasonable showing
by Licensee of diligence in its performance under the Commercial Development
Plan and toward bringing the Licensed Product(s) to the point of Practical
Application as defined in 37 CFR Part 404.3(d). Licensee shall amend the
Commercial Development Plan and Benchmarks at the request of PHS to address any
Licensed Fields of Use not specifically addressed in the plan originally
submitted.

 

9.03         Licensee shall report to PHS the dates for achieving
Benchmarks specified in Appendix E and the First Commercial Sale in each
country in the Licensed Territory within thirty (30) days of such occurrences.

 

9.04         Licensee shall submit to PHS within sixty (60) days after
each calendar half year ending June 30 and December 31 a royalty
report setting forth for the preceding half year period the amount of the
Licensed Product(s) sold or Licensed Process(es) practiced by or on behalf of
Licensee in each country within the Licensed Territory, the Net Sales, and the
amount of royalty accordingly due. With each such royalty report, Licensee
shall submit payment of the earned royalties due. If no earned royalties are
due to PHS for any reporting period, the written report shall so state. The
royalty report shall be certified as correct by an authorized officer of
Licensee and shall include a detailed listing of all deductions made under
Paragraph 2.10 to determine Net Sales made under Article 6 to determine
royalties due.

 

9.05         Licensee agrees to forward semi annually to PHS a copy of
such reports received by Licensee from its sublicensees during the preceding
half year period as shall be pertinent to a royalty accounting to PUS by
Licensee for activities under the sublicense.

 

9.06         Royalties due under Article 6 shall be paid in U.S.
dollars. For conversion of foreign currency to U.S. dollars, the conversion
rate shall be the New York foreign exchange rate quoted in The Wall Street
Journal on the day that the payment is due. All checks and bank drafts shall be
drawn on United States banks and shall be payable, as appropriate, to “NIH/Patent
Licensing.” All such payments shall be sent to the following address: NIH, P.O.
Box 360120, Pittsburgh, PA 15251-6120. Any loss of exchange, value, taxes, or
other expenses incurred in the transfer or conversion to U.S. dollars shall be
paid entirely by Licensee. The royalty report required by Paragraph 9.04 of
this Agreement shall accompany each such payment, and a copy of such report
shall also be mailed to PHS at its address for notices indicated on the
Signature Page of this Agreement.

 

9.07         Licensee shall be solely responsible for determining if any
tax on royalty income is owed outside the United States and shall pay any such
tax and be responsible for all filings with appropriate agencies of foreign
governments. The taxes paid by Licensee on behalf of PHS maybe deducted from
the earned royalty due under paragraph 6.03.

 

E-46

 

9.08         Interest and penalties may be assessed by PHS on any overdue
payments in accordance with the Federal Debt Collection Act. The payment of
such late charges shall not prevent PHS from exercising any other rights it may
have as a consequence of the lateness of any payment.

 

9.09         All plans and reports required by this Article 9 and
marked “confidential” by Licensee shall, to the extent permitted by law, be
treated by PHS as commercial and financial information obtained front a person
and as privileged and confidential, and any proposed disclosure of such records
by the PHS under the Freedom of Information Act (FOIA), 5 U.S.C: §552 shall be
subject to the predisclosure notification requirements of 45 CFR part 5.65(d).

 

10.           PERFORMANCE

 

10.01       Licensee shall use its reasonable commercial efforts to
bring the Licensed Product(s) and Licensed Process(es) to Practical
Application. “Reasonable commercial efforts” for the purposes of this provision
shall include adherence to the Commercial Development Plan at Appendix F and
performance of the Benchmarks at Appendix E. The efforts of a sublicensee shall
be considered the efforts of Licensee.

 

10.02       Upon the First Commercial Sale, until the expiration of this
Agreement, Licensee shall use its reasonable commercial efforts to make
Licensed Product(s) and Licensed Process(es) reasonably accessible to the
United States public.

 

10.03       Licensee agrees, after its First Commercial Sale, to make
reasonable quantities of Licensed Product(s) or materials produced through the
use of Licensed Process(es) available on a compassionate use basis to patients,
either through the patient’s physician(s) and/or the medical center treating
the patient.

 

10.04       Licensee further agrees, after its First Commercial Sale and
as part of its marketing arid product promotion, to develop written educational
materials (e.g., brochures, advertisements, etc.) directed to patients and
physicians detailing the Licensed Product(s) and its use to treat cancer.

 

10.05       PHS acknowledges that information and materials related to
the Licensed Patent Rights may be of assistance to Licensee in its
commercialization efforts. Accordingly, PHS, at its discretion, will consider
reasonable requests by Licensee for access to the inventors of the Licensed
Patent Rights with regard to this information and materials. More specifically,
PHS agrees to provide Licensee with information and materials, if available,
related to the cDNA, mRNA, sequence data. etc., that might be necessary for the
development and commercialization of the Licensed Product(s) and/or the
Licensed Process(es) in the Licensed Fields of Use.

 

E-47

 

11.           INFRINGEMENT AND
PATENT ENFORCEMENT

 

11.01       PHS and Licensee agree to notify each other promptly of each
infringement or possible infringement of the Licensed Patent Rights, as well as
any facts which may affect the validity, scope, or enforceability of the
Licensed Patent Rights of which either Party becomes aware.

 

11.02       Pursuant to this Agreement and the provisions of Chapter 29
of title 35, United States Code, Licensee may: a) bring suit in its own name,
at its own expense, and on its own behalf for infringement of presumably valid
claims in the Licensed Patent Rights; b) in any such suit, enjoin infringement
and collect for its use, damages, profits, and awards of whatever nature
recoverable for such infringement; and c) settle any claim or suit for
infringement of the Licensed Patent Rights provided, however, that PHS and
appropriate Government authorities shall have the first right to take such
actions. If Licensee desires to initiate a suit for patent infringement,
Licensee shall notify PHS in writing. If PHS does not notify Licensee of its
intent to pursue legal action within ninety (90) days, Licensee shall be free
to initiate suit. PHS shall have a continuing right to intervene in such suit.
Licensee shall take no action to compel the Government either to initiate or to
join in any such suit for patent infringement. Licensee may request the
Government to initiate or join in any such suit if necessary to avoid dismissal
of the suit. Should the Government be made a party to any such suit, Licensee
shall reimburse the Government for any costs, expenses, or fees which the
Government incurs as a result of such motion or other action, including any and
all costs incurred by the Government in opposing any such motion or other
action. In all cases, Licensee agrees to keep PHS reasonably apprised of the
status and progress of any litigation. Before Licensee commences an
infringement action, Licensee shall notify PHS and give careful consideration
to the views of PHS and to any potential effects of the litigation on the
public health in deciding whether to bring suit.

 

11.03       In the event that a declaratory judgment action alleging
invalidity or non infringement of any of the Licensed Patent Rights shall be
brought against Licensee or raised by way of counterclaim or affirmative
defense in an infringement suit brought by Licensee under Paragraph 11.02,
pursuant to this Agreement and the provisions of Chapter 29 of Title 35, United
States Code or other statutes, Licensee may: a) defend the suit in its own
name, at its own expense, and on its own behalf for presumably valid claims in
the Licensed Patent Rights; b) in any such suit, ultimately to enjoin
infringement and to collect for its use, damages, profits, and awards of
whatever nature recoverable for such infringement; and c) settle any claim or
suit for declaratory judgment involving the Licensed Patent Rights provided,
however, that PHS and appropriate Government authorities shall have the first
right to take such actions and shall have a continuing right to intervene in
such suit. If PHS does not notify Licensee of its intent to respond to the
legal action within a reasonable time, Licensee shall be free to do so.
Licensee shall take no action to compel the Government either to 

 

E-48

 

initiate or to join in any such declaratory
judgment action. Licensee may request the Government to initiate or to join any
such suit if necessary to avoid dismissal of the suit. Should the Government be
made a party to any such suit by motion or any other action of Licensee,
Licensee shall reimburse the Government for any costs, expenses, or fees, which
the Government incurs as a result of such motion or other action. PHS agrees to
submit a report to Licensee detailing these costs, expenses or fees within
sixty (60) days of their verification and approval by PHS. If Licensee elects
not to defend against such declaratory judgment action, PHS, at its option, may
do so at its own expense. In all cases, Licensee agrees to keep PHS reasonably
apprised of the status and progress of any litigation. Before Licensee
commences an infringement action, Licensee shall notify PHS and give careful
consideration to the views of PHS and to any potential effects of the
litigation on the public health in deciding whether to bring suit.

 

11.04       In any action under Paragraphs 11.02 or 11.03, the expenses
including costs, fees, attorney fees, and disbursements, shall be paid by
Licensee. The value of any recovery made by Licensee through court judgment or
settlement shall be treated as Net Sales and subject to earned royalties.

 

11.05       PHS shall cooperate fully with Licensee in connection with
any action under Paragraphs 11.02 or 11.03. PHS agrees promptly to provide
access to all necessary documents and to render reasonable assistance in
response to a request by Licensee.

 

12.           NEGATION OF
WARRANTIES AND INDEMNIFICATION

 

12.01       PHS offers no warranties other than those specified in Article 1.

 

12.02       PHS does not warrant the validity of the Licensed Patent
Rights and makes no representations whatsoever with regard to the scope of the
Licensed Patent Rights, or that the Licensed Patent Rights may be exploited
without infringing other patents or other intellectual property rights of third
parties.

 

12.03       PHS MAKES NO WARRANTIES, EXPRESSED OR IMPLIED, OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE OF ANY SUBJECT MATTER
DEFINED BY THE CLAIMS OF THE LICENSED PATENT RIGHTS OR TANGIBLE MATERIALS
RELATED THERETO.

 

12.04       PHS does not represent that it shall commence legal actions
against third parties infringing the Licensed Patent Rights.

 

12.05       Licensee shall indemnify and hold PHS, its employees,
students, fellows, agents, and consultants harmless from and against all
liability, demands, damages, expenses, and losses, including but not limited to
death, personal injury, illness, or property damage in connection with or
arising out of: a) the use by or on behalf of Licensee, its sublicensees,
directors, employees, or third parties of any Licensed Patent Rights; or b) the
design, manufacture, distribution, or use of any Licensed Product(s), Licensed
Process(es) or materials by Licensee, or other products or 

 

E-49

 

processes developed in connection with or
arising out of the Licensed Patent Rights. Licensee agrees to maintain a
liability insurance program consistent with sound business practice.

 

13.           TERM TERMINATION,
AND MODIFICATION OF RIGHTS

 

13.01       This Agreement is effective when signed by all parties and
shall extend to the expiration of the last to expire of the Licensed Patent
Rights unless sooner terminated as provided in this Article 13.

 

13.02       The terms and conditions of this Agreement shall be
considered by PHS to be withdrawn from Licensee’s consideration and the terms
and conditions of this Agreement and the Agreement itself to be null and void,
unless this Agreement is executed within thirty (30) days from the date of
printing indicated at the bottom of each page.

 

13.03       In the event that Licensee is in default in the performance
of any material obligations under this Agreement, including but not limited to
the obligations listed in Paragraph 13.06, and if the default has not been
remedied within ninety (90) days after the date of notice in writing of such
default, PHS may terminate this Agreement by written notice and pursue
outstanding amounts owed through procedures provided by the Federal Debt
Collection Act.

 

13.04       In the event that Licensee becomes insolvent, files a
petition in bankruptcy, has such a petition filed against it, determines to
file a petition in bankruptcy, or receives notice of a third party’s intention
to file an involuntary petition in bankruptcy, Licensee shall immediately
notify PHS in writing. Furthermore, PHS shall have the right to terminate this
Agreement immediately upon Licensee’s receipt of written notice.

 

13.05       Licensee shall have a unilateral right to terminate this
Agreement and/or any licenses in any country or territory by giving PHS thirty
(30) days written notice to that effect.

 

13.06       PHS shall specifically have the right to terminate or
modify, at its option, this Agreement, if PHS determines that the Licensee: 1)
is not executing the Commercial Development Plan submitted with its request for
a license and the Licensee cannot otherwise demonstrate to PHS’s satisfaction
that the Licensee has taken, or can be expected to take within a reasonable
time, effective steps to achieve Practical Application of the Licensed
Product(s) or Licensed Process(es); 2) has not achieved the Benchmarks as may
be modified under Paragraph 9.02; 3) has willfully made a false statement of,
or willfully omitted, a material fact in the license application or in any report
required by the license Agreement; 4) has committed a material breach of a
covenant or agreement contained in the license; 5) is not keeping Licensed
Product(s) or Licensed Process(es) reasonably available to the public after
commercial use commences; 6) cannot reasonably satisfy unmet health and safety
needs; or 7) cannot reasonably justify a failure to 

 

E-50

 

comply with the domestic production
requirement of Paragraph 5.02 unless waived. In making this determination, PUS
shall take into account the normal course of such commercial development
programs conducted with sound and reasonable business practices and judgment
and the annual reports submitted by Licensee under Paragraph 9.02. Prior to
invoking this right, PHS shall give written notice to Licensee providing
Licensee specific notice of, and a ninety (90) day opportunity to respond to,
PHS’s concerns as to the previous items 1) to 7). If Licensee fails to
alleviate PHS’s concerns as to the previous items 1) to 7) or fails to initiate
corrective action to PHS’s satisfaction, PHS may terminate this Agreement.

 

13.07       When the public health and safety so require, and after
written notice to Licensee providing Licensee a sixty (60) day opportunity to respond,
PHS shall have the right to require Licensee to grant sublicenses to
responsible applicants, on reasonable terms, in any Licensed Fields of Use
under the Licensed Patent Rights, unless Licensee can reasonably demonstrate
that the granting of the sublicense would not materially increase the
availability to the public of the subject matter of the Licensed Patent Rights.
PHS shall not require the granting of a sublicense unless the responsible
applicant has first negotiated in good faith with Licensee.

 

13.08       PHS reserves the right according to 35 U.S.C., §209(f)(4) to
terminate or modify this Agreement if it is determined that such action is
necessary to meet requirements for public use specified by federal regulations
issued after the date of the license and such requirements are not reasonably
satisfied by Licensee.

 

13.09       Within thirty (30) days of receipt of written notice of PHS’s
unilateral decision to modify or terminate this Agreement, Licensee may,
consistent with the provisions of 37 CFR Part 404.11, appeal the decision by
written submission to the designated PHS official. The decision of the
designated PHS official shall be the final agency decision. Licensee may
thereafter exercise any and all administrative or judicial remedies that may be
available.

 

13.10       Within ninety (90) days of expiration or termination of this
Agreement under this Article 13, a final report shall be submitted by
Licensee. Any royalty payments, including those incurred but not yet paid (such
as the full minimum annual royalty), and those related to patent expense, due
to PHS shall become immediately due and payable upon termination or expiration.
If terminated under this Article 13, sublicensees may elect to convert
their sublicenses to direct licenses with PHS pursuant to Paragraph 4.03.
Unless otherwise specifically provided for under this Agreement, upon
termination or expiration of this Agreement, Licensee shall return all Licensed
Product(s) or other materials included within the Licensed Patent Rights to PHS
or provide PHS with certification of the destruction thereof.

 

E-51

 

14.           GENERAL PROVISIONS

 

14.01       Neither Party may waive or release any of its rights or
interests in this Agreement except in writing. The failure of the Government to
assert a right hereunder or to insist upon compliance with any term or
condition of this Agreement shall not constitute a waiver of that right by the
Government or excuse a similar subsequent failure to perform any such term or
condition by Licensee.

 

14.02       This Agreement constitutes the entire agreement between the
Parties relating to the subject matter of the Licensed Patent Rights, and all
prior negotiations, representations, agreements, and understandings are merged
into, extinguished by, and completely expressed by this Agreement.

 

14.03       The provisions of this Agreement are severable, and in the
event that any provision of this Agreement shall be determined to be invalid or
unenforceable under any controlling body of law, such determination shall not
in any way affect the validity or enforceability of the remaining provisions of
this Agreement.

 

14.04       If either Party desires a modification to this Agreement,
the Parties shall, upon reasonable notice of the proposed modification by the
Party desiring the change, confer in good faith to determine the desirability
of such modification, No modification shall be effective until a written
amendment is signed by the signatories to this Agreement or their designees.

 

14.05       The construction, validity, performance, and effect of this
Agreement shall be governed by Federal law as applied by the Federal courts in
the District of Columbia.

 

14.06       All notices required or permitted by this Agreement shall be
given by prepaid, first class, registered or certified mail or by an
express/overnight delivery service provided by a commercial carrier, properly
addressed to the other Party at the address designated on the following
Signature Page, or to such other address as may be designated in writing by such
other Party. Notices shall be considered timely if such notices are received on
or before the established deadline date or sent on or before the deadline date
as verifiable by U.S. Postal Service postmark or dated receipt from a
commercial carrier. Parties should request a legibly dated U.S. Postal Service
postmark or obtain a dated receipt from a commercial carrier or the U.S. Postal
Service. Private metered postmarks shall not be acceptable as proof of timely
mailing.

 

14.07       This Agreement shall not be assigned by Licensee except: a)
with the prior written consent of PHS, such consent not to be withheld
unreasonably; or b) as part of a sale or transfer of substantially the entire
business of Licensee relating to operations which concern this Agreement. Licensee
shall notify PHS within ten (10) days of any assignment of this Agreement by
Licensee.

 

14.08       Licensee agrees in its use of any PHS supplied materials to
comply with all applicable statutes, regulations, and guidelines, including PHS
and DHHS regulations and guidelines. Licensee agrees not to use the materials
for research involving human subjects or clinical trials in the United States
without complying with 21 CFR Part 50 and 45 CFR Part 46. Licensee agrees not
to use the materials, for research 

 

E-52

 

involving human subjects or clinical trials
outside of the United States without notifying PHS, in writing, of such
research or trials and complying with the applicable regulations of the
appropriate national control authorities. Written notification to PHS of
research involving human subjects or clinical trials outside of the United
States shall be given no later than sixty (60) days prior to commencement of
such research or trials.

 

14.09       Licensee acknowledges that it is subject to and agrees to
abide by the United States laws and regulations (including the Export
Administration Act of 1979 and Arms Export Control Act) controlling the export
of technical data, computer software, laboratory prototypes, biological
material, and other commodities. The transfer of such items may require a
license from the cognizant Agency of the U.S. Government or written assurances
by Licensee that it shall not export such items to certain foreign countries
without prior approval of such agency. PHS neither represents that a license is
or is not required or that, if required, it shall be issued.

 

14.10       Licensee agrees to mark the Licensed Product(s) or their
packaging sold in the United States with all applicable U.S. patent numbers and
similarly to indicate “Patent Pending” status. All Licensed Product(s)
manufactured in, shipped to, or sold in other countries shall be marked in such
a manner as to preserve PHS patent rights in such countries.

 

14.11       By entering into this Agreement, PHS does not directly or
indirectly endorse any product or service provided, or to be provided, by
Licensee whether directly or indirectly related to this Agreement. Licensee
shall not state or imply that this Agreement is an endorsement by the Government,
PHS, any other Government organizational unit, or any Government employee.
Additionally, Licensee shall not use the names of NIH, CDC, PHS, or DHHS or the
Government or their employees in any advertising, promotional, or sales
literature without the prior written consent of PHS.

 

14.12       The Parties agree to attempt to settle amicably any
controversy or claim arising under this Agreement or a breach of this
Agreement, except for appeals of modifications or termination decisions
provided for in Article 13. Licensee agrees first to appeal any such
unsettled claims or controversies to the designated PHS official, or designee,
whose decision shall be considered the final agency decision. Thereafter,
Licensee may exercise any administrative or judicial remedies that may be
available.

 

14.13       Nothing relating to the grant of a license, nor the grant
itself, shall be construed to confer upon any person any immunity from or
defenses under the antitrust laws or from a charge of patent misuse, and the
acquisition and use of rights pursuant to 37 CFR Part 404 shall not be
immunized from the operation of state or Federal law by reason of the source of
the grant.

 

E-53

 

14.14       Paragraphs 4.03, 8.01, 9.05 9.07, 12.01 12.05, 13.09, 13.10,
and 14.12 of this Agreement shall survive termination of this Agreement.

 

 

SIGNATURES BEGIN ON NEXT PAGE

 

PHS PATENT LICENSE AGREEMENT - EXCLUSIVE

 

SIGNATURE PAGE

 

For PHS:

 

 

	
    s/
  Jack Spiegel

  	
   

  	
    4-29-02

  	
   

  
	
  Jack
  Spiegel, Ph.D.

  	
  Date

  
	
  Director,
  Division of Technology Development and Transfer

  	
   

  
	
  Office of
  Technology Transfer

  	
   

  
	
  National
  Institutes of Health

  	
   

  

 

Mailing
Address for Notices:

Office of Technology Transfer

National Institutes of Health

6011 Executive Boulevard, Suite 325

Rockville, Maryland 20852 3804 U.S.A.

 

For Licensee
(Upon, information and belief, the undersigned expressly certifies or affirms
that the contents of any statements of Licensee made or referred to in this
document are truthful and accurate.):

 

	
  by:

  
	
   

  
	
    s/
  James M. Hussey

  	
   

  	
       7-1-02

  	
   

  
	
  Signature of
  Authorized Official

  	
  Date

  
	
   

  
	
   

  
	
       James
  M. Hussey

  	
   

  
	
  Printed Name

  
	
   

  
	
   

  
	
       President

  	
   

  
	
  Title

  

 

Official and
Mailing Address for Notices:

 

NeoPharm, Inc.

150 Fields Drive

Suite 195

Lake Forest, Illinois 60045

Phone: (847) 295 8678

Fax:(847)295 8854a

 

E-54

 

Any false or
misleading statements made, presented, or submitted to the Government,
including any relevant omissions, under this Agreement and during the course of
negotiation of this Agreement are subject to all applicable civil and criminal
statutes including Federal statutes 31 U.S.C. §§3801 3812 (civil liability) and
18 U.S.C. § 1001 (criminal liability including fines) and/or
imprisonment).

 

E-55

 

APPENDIX A Patents) or Patent Application(s)

 

Patent(s)
or Patent Application(s):

 

U.S. Provisional Patent Application, S/N
60/229,842 [DHHS Ref. E-032-00/1], filed on August 31, 2001; and

 

PCT Patent Application, S/N PCT/US00/31044
[DHHS Ref. E-032-00/3], filed on August 15, 2001.

 

E-56

 

APPENDIX B - Licensed Fields of Use and
Territory

 

Licensed
Fields of Use:

 

Use of the Licensed Product(s) and/or the
Licensed Process(es) in gene therapy applications to treat human cancers.
Specifically, transfection of cancer cells with the IL-13 Receptor-alpha-2
(IL-13Ra2) claim in order to
sensitize such cells to the therapeutic effects of the IL-13 Receptor targeted
immunoconjugates, hIL-13-PE38QQR or cphIL-13-PE38QQR, which were exclusively
licensed to Licensee under DHHS exclusive patent license L-226-96/0.

 

Licensed
Territory:

 

Worldwide

 

E-57

 

APPENDIX C - Royalties

 

Royalties:

 

I.              Licensee
agrees to pay to PHS a noncreditable, nonrefundable license issue royalty in
the amount of One Hundred Thousand Dollars ($100,000.00);

 

II.            Licensee
agrees to pay to PHS a nonrefundable minimum annual royalty in the amount of;

 

a.              Ten
Thousand Dollars ($10,000.00) prior to the First Commercial Sale; and

 

b.             Twenty
Five Thousand Dollars ($25,000.00) after the First Commercial Sale, said Twenty
Five Thousand Dollars ($25,000.00) being creditable against the earned royalty
on Net Sales due for sales made in that year. .

 

III.           Licensee
agrees to pay PHS earned royalties on Net Sales by or on behalf of Licensee and
its sublicensees as follows:

 

a.              Four
(4.0) percent on Net Sales; provided however that Licensee shall be entitled to
a credit of one half percent (0.5%) against the earned royalty rate for each
percent point in excess of two percent (2.0%) that Licensee must pay to an
unaffiliated licensor for the manufacture and sale of Licensed Product(s). Said
credit, however, shall not reduce the earned royalty due to PHS for Licensed
Product(s) below two percent (2.0%).

 

IV.           Licensee
agrees to pay PHS benchmark royalties as follows:

 

	
  a.

  	
  Submission
  of first IND

  	
  $  10,000.00;

  
	
  b.

  	
  Completion
  of first Phase I Clinical Trial

  	
  $  50,000.00;

  
	
  c.

  	
  Completion
  of first Phase 11 Clinical Trial

  	
  $  75,000.00;

  
	
  d.

  	
  Completion
  of first Phase III Clinical Trial

  	
  $100,000.00;

  
	
  e.

  	
  Approval of
  first BLA/ELA/PLA/NDA

  	
  $250,000.00;
  and

  
	
  f.

  	
  First
  Commercial Sale

  	
  $300,000;

  

 

V.            Licensee
agrees to pay PHS additional sublicensing royalties as follows:

 

a.              Twenty
(20.0) percent of all non creditable and non refundable consideration received
for granting a sublicense, if the technology is sublicensed on or before the
one year anniversary of this Agreement; or ten (10.0) percent of all non
creditable and non refundable consideration received in granting a sublicense,
if the technology is sublicensed after the one year anniversary of this
Agreement. Fees paid expressly for research and development, after the
effective date of this Agreement, of Licensed Product(s) and Licensed
Process(es), such as clinical trial support, shall be excluded.

 

E-58

 

APPENDIX D - Modifications

 

PHS and
Licensee agree to the following modifications to the Articles and Paragraphs of
this Agreement:

 

Modifications made to the model
language have been incorporated into the body of this Agreement.

 

E-59

 

APPENDIX E - Benchmarks and Performance

 

Licensee
agrees to the following Benchmarks for its performance under this Agreement
and, within thirty (30) days of achieving a Benchmark, shall notify PHS that
the Benchmark has been achieved.

 

The deadlines
provided herein extend from the date of receipt by Licensee of the cDNA for IL-13Ra2
from the PHS and are cumulative:

 

	
  1. Scale up
  of the Licensed Product(s):

  	
  Two (2)
  years;

  
	
  2.
  Comparative Study of viral and liposomal based vector systems:

  	
  One (1)
  year;

  
	
  3. Pre
  clinical studies and data review:

  	
  One (1)
  year;

  
	
  4. GMP
  production of cDNA/vector delivery system for use in clinical trials:

  	
  One (1)
  year;

  
	
  5.
  Completion of first Phase I clinical trials:

  	
  Eighteen
  (18) months;

  
	
  6.
  Completion of first Phase II clinical trials:

  	
  Two (2)
  years;

  
	
  7.
  Completion of first Phase III clinical trials:

  	
  Three (3)
  years;

  
	
  8. First
  Commercial Sale

  	
  One (1) year
  after submission of BLA Application

  

 

E-60

 

APPENDIX F - Commercial Development Plan

 

The technology
described in the Licensed Patent Rights will be used as gene therapy for
various types of cancers. Several years ago Dr. Raj Puri at FDA identified the
receptors for Interleukin 13 (IL-13) on various human tumors. Subsequently, he
showed that a chimeric protein IL-13 PE38QQR is highly cytotoxic to those
cancers, which express high levels of IL-13 receptors, such as renal cell
carcinoma, glioblastoma and Kaposi’s sarcoma. In addition, it was demonstrated
that the primary IL-13 binding protein, IL-13 Ra2
chain, plays a dominant role in ligand binding and internalization. This chain
is expressed on a variety of cancer cell lines; however, some cancer cell types
express low levels of this receptor chain. Because of this low level expression
of IL-13-Ra2 chain, these cells
show very little sensitivity to the targeted toxin IL-13-PE38QQR. It was
proposed that gene transfer of this chain with cancer cells might increase
their sensitivity to IL-13 toxin. Hence, IL-13-Ra2-chain gene was cloned from human glioma cell lines and
inserted into expression vector for gene transfer. It has been demonstrated
that head and neck cancer cells that are not sensitive to IL-13 PE38QQR
acquired pronounced sensitivity as a result of gene transfer of IL-13-Ra2. In addition, remarkable antitumor
activity was observed in two tumor models of head and neck cancer cells
transfected with IL-13-Ra2 gene in vivo.

 

The field of
use for this gene transfer modality could be quite important in cancer
chemotherapy for localized tumors such as head and neck cancers, prostate
cancers and brain cancers. It is possible to sensitize these cancers by
intratumoral or systemic transfer of IL-13-Ra2
gene.

 

A major thrust
of the Licensee’s Commercial Development plan will be a) to obtain large
quantities of this cDNA and identify the most effective vector for the plasmid;
b) to evaluate the in vivo
efficacy of this gene therapy in various tumor models by systemic
administration; c) to identify the toxicities of this plasmid and the vector in
at least two animal species by administering it through i.v. and s.c.
administration; to define LD10, LD50 and LD100
doses in animals and d) to perform the clinical trials of this plasmid with the
appropriate vector in various indications leading to the regulatory approval
and marketing of this technology.

 

The various
steps of drug development outlined above are defined more elaborately as
benchmarks mutually agreed upon between Licensee and PHS and are listed in
Appendix E of this Agreement. The Licensee will perform quite diligently to
achieve these defined benchmarks leading to the marketing of this product, The
Licensee is already performing Phase Il/III trials with IL-13-PE38QQQR in brain
cancer, glioblastoma. The Licensee intends to expedite the commercial
development of this immunotoxin with the concurrent development of this gene therapy
technology for cancer cells to overexpress high levels of IL-13 receptors. The
Licensee is willing to commit the necessary financial resources for the
successful development of this technology.

 

E-61Exhibit 10.12

 

FORM OF INDEMNIFICATION
AGREEMENT

 

THIS INDEMNIFICATION
AGREEMENT (this “Agreement”) is made as of                        
by and among K-Sea General Partner GP, LLC, a Delaware limited liability
company (the “Company”), K-Sea General Partner, L.P., a Delaware limited
partnership (the “General Partner”), K-Sea Transportation Partners L.P., a
Delaware limited partnership (the “Partnership”), and                             
(“Indemnitee”).

 

PRELIMINARY STATEMENT

 

WHEREAS, qualified
persons are reluctant to serve organizations as directors or officers or in
other capacities unless they are provided with adequate protection against
inordinate risks of claims and actions against them arising out of their
service to and activities on behalf of such organizations;

 

WHEREAS, the parties
hereto recognize that the legal risks and potential liabilities, and the threat
thereof, associated with lawsuits filed against persons serving the Company,
the General Partner, the Partnership and/or their respective subsidiaries, and
the resultant substantial time, expense and anxiety spent and endured in
defending lawsuits bears no reasonable relationship to the compensation
received by such persons, and thus poses a significant deterrent and increased
reluctance on the part of experienced and capable individuals to serve the
Company, the General Partner, the Partnership and/or their respective
subsidiaries;

 

WHEREAS, the
uncertainties related to obtaining adequate insurance and indemnification have
increased the difficulty of attracting and retaining such persons;

 

WHEREAS, it is
reasonable, prudent and necessary for the Company, the General Partners and the
Partnership to contractually agree to indemnify such persons to the fullest
extent permitted by law, so that such persons will serve or continue to serve
the Company, the General Partner, the Partnership and/or their respective
subsidiaries free from undue concern that they will not be adequately
indemnified; and

 

WHEREAS, the Indemnitee
is willing to serve, continue to serve and to take on additional service for an
on behalf of the Company, the General Partner and the Partnership on the
condition that the Indemnitee is indemnified according to the terms of this
Agreement;

 

NOW, THEREFORE, in
consideration of the premises and the covenants herein, the parties to this
Agreement agree as follows:

 

Section 1.  Services by
Indemnitee.  Indemnitee
will serve, or continue to serve, as a Functionary of the Company and, as
Indemnitee and the Company may agree, as a Functionary of one or more Related
Enterprises.  Indemnitee may at any time
and for any reason resign from any such service, subject to any other
contractual obligation or any obligation applicable law imposes.  This Agreement is not and is not to be
construed as an employment contract by the Company or any other Related
Enterprise with Indemnitee or as otherwise affecting Indemnitee’s status, if
any, as an employee of the Company or any Related Enterprise.

 

 

Section 2.  Indemnification.  (a)  If and whenever:

 

(1)                                  Indemnitee
was or is, or is threatened to be made, a party to any Proceeding by reason of:

 

(A)                              the
fact that Indemnitee serves or served as (1) a Functionary of the Company
or, at the request of the Company, (2) a Functionary of a Related
Enterprise; or

 

(B)                                the actual or alleged service or conduct of Indemnitee in
Indemnitee’s capacity as that Functionary, including any act actually or
allegedly done or not done by Indemnitee;

 

and

 

(2)                                  Indemnitee
(A) engaged in the service or conduct at issue in that Proceeding in good
faith and in a manner Indemnitee reasonably believed to be in or not opposed to
the best interests of the Company and, in the event that Proceeding was or is a
criminal action or proceeding involving Indemnitee’s conduct, (B) had no
reasonable cause to believe that that conduct was unlawful,

 

the
Partnership will, or will cause another Partnership Entity to, indemnify
Indemnitee against, and hold Indemnitee harmless from and in respect of:

 

(1)                                  in
the case of each Claim in that Proceeding, other than a Company Claim, all
liabilities and losses, including the amounts of all judgments, penalties and
fines, including excise taxes, and amounts paid in settlement, Indemnitee has
suffered or will suffer, and all Expenses Indemnitee reasonably has incurred or
will incur, as a result of or in connection with that Claim; and

 

(2)                                  in
the case of each Company Claim in that Proceeding, all Expenses Indemnitee
reasonably has incurred or will incur as a result of or in connection with that
Company Claim; provided, however, that the Partnership will not have any
obligation under this clause (2) to, or to cause another Partnership
Entity to, indemnify Indemnitee against, or hold Indemnitee harmless from or in
respect of, any Company Claim as to which Indemnitee was or is adjudged to be
liable to the Company or any Related Enterprise unless, and only to the extent
that, the Court of Chancery or the court in which that Company Claim was or is
brought determines on application that, despite the adjudication of liability,
but in view of all the circumstances of the case, Indemnitee is fairly and
reasonably entitled to indemnity for such of those Expenses as the Court of
Chancery or that other court shall deem proper.

 

(b)                                 If
and whenever Indemnitee was or is, or is threatened to be made, a party to any
Proceeding of any type to which Section 2(a) refers and has been
successful, on the merits or otherwise, in defense of that Proceeding, or in
defense of any Claim therein, the Partnership will, or will cause another Partnership
Entity to, indemnify Indemnitee against, and hold Indemnitee harmless from and
in respect of, all Expenses Indemnitee reasonably has incurred in connection 

 

2

 

therewith.  The rights of Indemnitee under this Section 2(b) are
in addition to, and independent of, the rights of Indemnitee under Sections 2(a) or
2(c).

 

(c)                                  If
and whenever Indemnitee was, or reasonably could have been expected to have
been, or is, or reasonably could be expected to be, by reason of the knowledge
of facts Indemnitee actually or allegedly has obtained in the course of his
service as (1) a Functionary of the Company or, at the request of the
Company, (2) a Functionary of a Related Enterprise, a witness in or a
deponent in connection with any Proceeding to which Indemnitee was or is not a
party, the Partnership will, or will cause another Partnership Entity to,
indemnify Indemnitee against, and hold Indemnitee harmless from and in respect
of, all Expenses Indemnitee reasonably has incurred or will incur in connection
therewith.  The rights of Indemnitee
under this Section 2(c) are in addition to, and independent of, the
rights of Indemnitee under Sections 2(a) or 2(b).

 

Section 3.  Advancement
of Expenses. (a) If
and whenever Indemnitee is, or is threatened to be made, a party to any
Proceeding that may give rise to a right of Indemnitee to indemnification under
Section 2(a), the Partnership will, or will cause another Partnership
Entity to, advance all Expenses reasonably incurred by or on behalf of
Indemnitee in connection with that Proceeding within 10 days after the Company
receives a statement or statements from Indemnitee requesting the advance or
advances from time to time, whether prior to or after final disposition of that
Proceeding.  Each such statement must
reasonably evidence the Expenses incurred by or on behalf of Indemnitee and
include or be preceded or accompanied by an undertaking by or on behalf of
Indemnitee to repay any Expenses advanced if it ultimately is determined that
Indemnitee is not entitled to be indemnified by the Company under Section 2(a) against
those Expenses.  The Partnership will
accept any such undertaking without reference to the financial ability of
Indemnitee to make repayment.  If the Partnership
or another Partnership Entity advances Expenses in connection with any Claim as
to which Indemnitee has requested or may request indemnification under Section 2(a) and
a determination is made under Section 5(c) that Indemnitee is not
entitled to that indemnification, Indemnitee will not be required to reimburse
the Partnership or that other Partnership Entity for those advances until the
180th day following the date of that determination; provided, however, that if
Indemnitee timely commences and thereafter prosecutes in good faith a judicial
proceeding or arbitration under Section 7(a) or otherwise to obtain
that indemnification, Indemnitee will not be required to reimburse the
Partnership or that other Partnership Entity for those Expenses until a
determination in that proceeding or arbitration that Indemnitee is not entitled
to that indemnification has become final and nonappealable.

 

(b)                                 The
Partnership or another Partnership Entity may advance Expenses under Section 3(a) to
Indemnitee or, at the Company’s option, directly to the Person to which those
Expenses are owed, and Indemnitee hereby consents to any such direct payment,
to Indemnitee’s legal counsel or any other Person.

 

(c)                                  For
the avoidance of doubt, the parties agree that the provisions of this Section 3
shall be applicable during the pendancy of any determination of the right of
the Indemnitee to indemnification under Section 2(a), including the
pendancy of any court or arbitration proceeding contemplated by Section 7.

 

3

 

Section 4.  Notification
and Defense of Claims. 
(a)  If Indemnitee receives notice, otherwise than from the
Company, that Indemnitee is or will be made, or is threatened to be made, a
party to any Proceeding in respect of which Indemnitee intends to seek
indemnification hereunder, Indemnitee must promptly notify the Company in
writing of the nature and, to Indemnitee’s knowledge, status of that
Proceeding.  If this Section 4(a) requires
Indemnitee to give such a notice, but Indemnitee fails to do so, that failure
will not relieve the Company from, or otherwise affect, the obligations the
Partnership may have to indemnify Indemnitee under this Agreement, unless the
Company can establish that the failure has resulted in actual prejudice to the
Company.

 

(b)                                 Except
as this Section 4(b) otherwise provides below, in the case of any
Proceeding in respect of which Indemnitee seeks indemnification hereunder:

 

(1)                                  the Company and any Related Enterprise that also may be
obligated to indemnify Indemnitee in respect of that Proceeding will be
entitled to participate at its own expense in that Proceeding;

 

(2)                                  the
Company or that Related Enterprise, or either of them, will be entitled to
assume the defense of all Claims, other than (A) Company Claims, if any,
and (B) other Claims, if any, as to which Indemnitee shall reasonably
reach the conclusion clause (3) of the next sentence describes, in
that Proceeding against Indemnitee by prompt written notice of that election to
Indemnitee; and

 

(3)                                  if
clause (2) above entitles the Company or that Related Enterprise to assume
the defense of any of those Claims and it delivers to Indemnitee notice of that
assumption under clause (2), the Company will not be liable to Indemnitee
hereunder for any fees or expenses of legal counsel for Indemnitee which
Indemnitee incurs after Indemnitee receives that notice.

 

Indemnitee will have the
right to employ Indemnitee’s own legal counsel in that Proceeding, but, as
clause (3) of the preceding sentence provides, will bear the fees and
expenses of that counsel unless:

 

(1)                                  the Company has authorized Indemnitee in writing to retain
that counsel;

 

(2)                                  the Company shall not within a reasonable period of time
actually have employed counsel to assume the defense of those Claims; or

 

(3)                                  Indemnitee
shall have (A) reasonably concluded that a conflict of interest may exist
between Indemnitee and the Company as to the defense of one or more of those
Claims and (B) communicated that conclusion to the Company in writing.

 

(c)                                  The
Partnership will not be obligated hereunder to, or to cause another Partnership
Entity to, indemnify Indemnitee against or hold Indemnitee harmless from and in
respect of any amounts paid, or agreed to be paid, by Indemnitee in settlement
of any Claim against Indemnitee which Indemnitee effects without the Company’s
prior written consent.  The Company will
not settle any Claim against Indemnitee in any manner that would impose any
penalty or limitation on Indemnitee without Indemnitee’s prior written
consent.  Neither the 

 

4

 

Company
nor Indemnitee will unreasonably delay or withhold consent to any such
settlement the other party proposes to effect.

 

Section 5.  Procedure
for Determination of Entitlement to Indemnification.  (a)  To obtain indemnification under
this Agreement, Indemnitee must submit to the Company a written request
therefor which includes, or is accompanied by, such documentation and
information as is reasonably available to Indemnitee and is reasonably
necessary to determine whether and to what extent Indemnitee is entitled to
that indemnification.  Indemnitee may
request indemnification hereunder at any time and from time to time as
Indemnitee deems appropriate in Indemnitee’s sole discretion.  In the case of any request for
indemnification under Section 2(a) as to any Claim which is pending
or threatened at the time Indemnitee delivers that request to the Company and
would not be resolved with finality, whether by judgment, order, settlement or
otherwise, on payment of the indemnification requested, the Company may defer
the determination under Section 5(c) of Indemnitee’s entitlement to
that indemnification to a date that is no later than 45 days after the
effective date of that final resolution if the Board concludes in good faith
that an earlier determination would be materially prejudicial to the Company or
a Related Enterprise.

 

(b)                                 On
written request by Indemnitee under Section 5(a) for indemnification
under Section 2(a), the determination of Indemnitee’s entitlement to that
indemnification will be made:

 

(1)                                  if Indemnitee will be a director or officer of the Company
at the time that determination is made, under Section 5(c) in each
case; or

 

(2)                                  if
Indemnitee will not be a director or officer of the Company at the time that
determination is made, under Section 5(c) in any case, if so
requested in writing by Indemnitee or so directed by the Board, or, in the
absence of that request and direction, as the Board shall duly authorize or
direct.

 

(c)                                  Each
determination of Indemnitee’s entitlement to indemnification under Section 2(a) to
which this Section 5(c) applies will be made as follows:

 

(1)                                  by
a majority vote of the Disinterested Directors, even though less than a quorum;
or

 

(2)                                  by
a committee of Disinterested Directors designated by a majority vote of the
Disinterested Directors, even though less than a quorum; or

 

(3)                                  if (A) there are no Disinterested Directors or (B) a
majority vote of the Disinterested Directors so directs, by an Independent
Counsel in a written opinion to the Board, a copy of which the Company will
deliver to Indemnitee;

 

provided,
however, that if Indemnitee has so requested in Indemnitee’s request for
indemnification, an Independent Counsel will make that determination in a
written opinion to the Board, a copy of which the Company will deliver to
Indemnitee.

 

5

 

(d)                                 If
it is determined that Indemnitee is entitled to indemnification under Section 2(a),
the Partnership will, or will cause another Partnership Entity to, subject to
the provisions of Section 5(f):

 

(1)                                  within
10 days after that determination pay to Indemnitee all amounts (A) theretofore
incurred by or on behalf of Indemnitee in respect of which Indemnitee is
entitled to that indemnification by reason of that determination and (B) requested
from the Company in writing by Indemnitee; and

 

(2)                                  thereafter
on written request by Indemnitee, pay to Indemnitee within 10 days after that
request such additional amounts theretofore incurred by or on behalf of
Indemnitee in respect of which Indemnitee is entitled to that indemnification
by reason of that determination.

 

Indemnitee will cooperate
with the person, persons or entity making the determination under Section 5(c) with
respect to Indemnitee’s entitlement to indemnification under Section 2(a),
including providing to such person, persons or entity, on reasonable advance
request, any documentation or information that is:

 

(1)                                  not privileged or otherwise protected from disclosure;

 

(2)                                  reasonably
available to Indemnitee; and

 

(3)                                  reasonably necessary to that determination.

 

(e)                                  If
an Independent Counsel is to make a determination under Section 5(c) of
entitlement to indemnification under Section 2(a), it will be selected by
the Company with the consent of the Indemnitee (which consent shall not be
unreasonably withheld).  The Partnership
will pay any and all reasonable fees and expenses the Independent Counsel
incurs in connection with acting under Section 5(c), and the Partnership
will pay all reasonable fees and expenses incident to the procedures this Section 5(e) sets
forth, regardless of the manner in which the Independent Counsel is selected or
appointed.  If Indemnitee becomes
entitled to, and does, initiate any judicial proceeding or arbitration under Section 7,
the Company will terminate its engagement of the person or firm acting as
Independent Counsel, whereupon that person or firm will be, subject to the
applicable standards of professional conduct then prevailing, relieved of any
further responsibility in the capacity of Independent Counsel.

 

(f)                                    The
amount of any indemnification against Expenses to which Indemnitee becomes
entitled under any provision hereof, including Section 2(a), will be
determined subject to the provisions of this Section 5(f).  Indemnitee will have the burden of showing
that Indemnitee actually has incurred the Expenses for which Indemnitee
requests indemnification.  If the
Partnership or a Partnership Entity has made any advance in respect of any
Expense incurred by Indemnitee without objecting in writing to Indemnitee at
the time of the advance to the reasonableness thereof, the incurrence of that
Expense by Indemnitee will be deemed for all purposes hereof to have been
reasonable.  In the case of any Expense
as to which such an objection has been made, or any Expense for which no
advance has been made, the incurrence of that Expense will be presumed to have
been reasonable, and the Company will have the burden of proof to overcome that
presumption.

 

6

 

Subject to the
provisions of the preceding paragraph, the advancement of Expenses to
Indemnitee under Section 3 will not, of itself, create a presumption that
the Proceeding or Claim therein to which those Expenses relate is a Proceeding
or Claim of the type to which Section 2(a) applies.  If the Company, prior to or in connection
with the making any advance of Expenses under Section 3 to or for the
benefit of Indemnitee, notifies Indemnitee in writing that the Proceeding or
any Claim therein is or reasonably could be expected to be in whole or in any
specified part not one to which Section 2(a) applies, Indemnitee
will, to the extent those Expenses are reasonably allocable among the claims,
issues and matters involved in that Proceeding, cause Indemnitee’s counsel and
other service providers to effect that allocation.

 

Section 6.  Presumptions
and Effect of Certain Proceedings.  (a)  In making a determination under Section 5(c) with
respect to entitlement to indemnification under Section 2(a), the person,
persons or entity making that determination must presume that Indemnitee is
entitled to that indemnification if Indemnitee has submitted a request for
indemnification in accordance with Section 5(a), and the Company will have
the burden of proof to overcome that presumption in connection with the making
by any person, persons or entity of any determination contrary to that
presumption.

 

(b)                                 The
termination of any Proceeding or of any Claim therein, by judgment, order,
settlement or conviction, or on a plea of nolo contendere or its equivalent,
will not, except as this Agreement otherwise expressly provides, of itself
adversely affect the right of Indemnitee to indemnification hereunder or, in
the case of any determination under Section 5(c) of Indemnitee’s
entitlement to indemnification under Section 2(a), create a presumption
that Indemnitee did not act in good faith and in a manner Indemnitee reasonably
believed to be in or not opposed to the best interests of the Company or, with
respect to any criminal action or proceeding, that Indemnitee had reasonable
cause to believe that Indemnitee’s conduct was unlawful.

 

(c)                                  Any
service of Indemnitee as a Functionary of the Company or any Related Enterprise
which imposes duties on, or involves services by, Indemnitee with respect to
any Related Enterprise that is an employee benefit or welfare plan or related
trust, if any, or the participants or beneficiaries of that plan or trust will
be deemed for all purposes hereof as service at the request of the
Company.  Any action Indemnitee takes or
omits to take in connection with any such plan or trust will, if taken or
omitted in good faith by Indemnitee and in a manner Indemnitee reasonably
believed to be in the interest of the participants in or beneficiaries of that
plan or trust, be deemed to have been taken or omitted in a manner “not opposed
to the best interests of the Company” for all purposes hereof.

 

Service by a
person as an agent or representative of an Enterprise means service on behalf
of that Enterprise in its relations with persons and entities other than the
Affiliates and Functionaries of that Enterprise.

 

(d)                                 For
purposes of any determination hereunder as to whether Indemnitee has performed
services or engaged in conduct on behalf of any Enterprise in good faith,
Indemnitee will be deemed to have acted in good faith if Indemnitee acted in
reliance on the records of the Enterprise or on information, opinions, reports
or statements, including financial statements and 

 

7

 

other
financial information, concerning the Enterprise or any other Person which were
prepared or supplied to Indemnitee by:

 

(1)                                  one or more of the officers or employees of the Enterprise;

 

(2)                                  appraisers,
engineers, investment bankers, legal counsel or other Persons as to matters
Indemnitee reasonably believed were within the professional or expert
competence of those Persons; and

 

(3)                                  any committee of the board of directors or equivalent
managing body of the Enterprise of which Indemnitee is or was, at the relevant
time, not a member;

 

provided,
however, that if Indemnitee has actual knowledge as to any matter that makes
any such reliance unwarranted as to that matter, this Section 6(d) will
not entitle Indemnitee to any presumption that Indemnitee acted in good faith
respecting that matter.

 

(e)                                  For
purposes of any determination hereunder as to whether Indemnitee is entitled to
indemnification under Section 2(a), neither the knowledge nor the conduct
of any other Functionary of the Company or any Related Enterprise, other than
Indemnitee, shall be imputed to Indemnitee, but Indemnitee will be irrebutably
presumed to have read and understood the Company’s code of business conduct for
purposes of any determination under the Charter Documents or this Agreement as
to whether Indemnitee has performed services or engaged in conduct on behalf of
any Enterprise in good faith.

 

(f)                                    Indemnitee
will be deemed a party to a Proceeding for all purposes hereof if Indemnitee is
named as a defendant or respondent in a complaint or petition for relief in
that Proceeding, regardless of whether Indemnitee ever is served with process
or makes an appearance in that Proceeding.

 

(g)                                 If
Indemnitee serves or served as a Functionary of a Related Enterprise, that
service will be deemed to be “at the request of the Company” for all purposes
hereof notwithstanding that the request is not evidenced by a writing or shown
to have been made orally.  In the event the
Company were to extend the rights of indemnification
and advancement of Expenses hereunder to Indemnitee’s serving at the request of
the Company as a Functionary of any Enterprise other than the Company or a
Related Enterprise, Indemnitee must show that the request was made by the Board
or at its authorization.

 

Section 7.  Remedies of
Indemnitee in Certain Cases. 
(a)  If Indemnitee makes a written request in compliance with Section 5(a) for
indemnification under Section 2(a) and either:

 

(1)                                  no
determination as to the entitlement of Indemnitee to that indemnification is
made before the last to occur of (A) the close of business on the date, if
any, the Company has specified under Section 5(a) as the outside date
for that determination or (B) the elapse of the 45-day period beginning
the day after the date the Company receives that request; or

 

8

 

(2)                                  a
determination is made under Section 5(c) that Indemnitee is not
entitled to that indemnification in whole or in any part in respect of any
Claim to which that request related,

 

Indemnitee will be
entitled to an adjudication from the Court of Chancery
of Indemnitee’s entitlement to that indemnification.  Alternatively, Indemnitee, at Indemnitee’s
option, may seek an award in arbitration to be conducted by a single arbitrator
in accordance with the Commercial Arbitration Rules of the American
Arbitration Association.  In the case of
any determination under Section 5(c) that is adverse to Indemnitee,
Indemnitee must commence any such judicial proceeding or arbitration within 180
days following the date on which Indemnitee first has the right to commence
that proceeding under this Section 7(a) or Indemnitee will be bound
by that determination for all purposes of this Agreement.

 

(b)                                 If
a determination has been made under Section 5 that Indemnitee is not
entitled to indemnification hereunder, any judicial proceeding or arbitration
commenced under this Section 7 will be conducted in all respects as a de
novo trial or arbitration on the merits, and Indemnitee will not be prejudiced
by reason of that adverse determination. 
In any judicial proceeding or arbitration commenced under this Section 7,
the Company will have the burden of proving that Indemnitee is not entitled to
indemnification hereunder, and the Company may not, for any purpose, refer to
or introduce into evidence any determination under Section 5(c) which
is adverse to Indemnitee.

 

(c)                                  If
a determination has been made under Section 5 that Indemnitee is entitled
to indemnification hereunder, the Company will be bound by that determination
in any judicial proceeding or arbitration Indemnitee thereafter commences under
this Section 7 or otherwise, absent:

 

(1)                                  a
misstatement by Indemnitee of a material fact, or an omission by Indemnitee of
a material fact necessary to make Indemnitee’s statements not materially
misleading, in connection with Indemnitee’s request for indemnification; or

 

(2)                                  a prohibition of that indemnification under applicable law.

 

(d)                                 If
Indemnitee, under this Section 7 or otherwise, seeks a judicial
adjudication of or an award in arbitration to enforce Indemnitee’s rights under
this Agreement, Indemnitee will be entitled to recover from the Partnership,
and will be indemnified by the Partnership against, any and all Expenses
reasonably incurred by or on behalf of Indemnitee in that judicial adjudication
or arbitration, but only if Indemnitee prevails therein.  If it is determined in that judicial adjudication
or arbitration that Indemnitee is entitled to receive part of, but not all, the
indemnification or advancement of expenses sought, the expenses incurred by
Indemnitee in connection with that judicial adjudication or arbitration will be
appropriately prorated between those in respect of which this Agreement
entitles Indemnitee to indemnification and those Indemnitee must bear.

 

(e)                                  In
any judicial proceeding or arbitration under this Section 7, the Company:

 

9

 

(1)                                  will not, and will not permit any other Person acting on its
behalf to, assert that the procedures or presumptions this Agreement
establishes are not valid, binding and enforceable; and

 

(2)                                  will stipulate that it is bound by all the provisions
hereof.

 

Section 8.  Non-exclusivity;
Survival of Rights; Insurance; Subrogation.  (a)  The rights to indemnification and
advancement of Expenses and the remedies this Agreement provides are not and
will not be deemed exclusive of any other rights or remedies to which
Indemnitee may at any time be entitled under applicable law, the Company’s
Charter Documents, any agreement, a vote of unitholders of the Partnership or
Disinterested Directors, or otherwise, but each such right or remedy hereunder
will be cumulative with all such other rights and remedies.  No amendment, alteration or termination of
this Agreement or any provision hereof will limit or restrict any right of
Indemnitee hereunder in respect of any action Indemnitee has taken or omitted
in Indemnitee’s capacity as a Functionary of the Company or any Related
Enterprise prior to that amendment, alteration or termination.

 

(b)                                 If
the Company maintains an insurance policy or policies providing liability
insurance for Functionaries of the Company or of any Related Enterprise who
serve or served in the same capacities as Indemnitee, Indemnitee will be
covered by the policy or policies in accordance with its or their terms to the
maximum extent of the coverage available for any such Functionary under the
policy or policies.  If the Company
receives written notice from any source of a pending Proceeding to which
Indemnitee is a party and in respect of which Indemnitee might be entitled to
indemnification under Section 2(a) and the Company then maintains any
such policy of which Indemnitee is a beneficiary, the Company will:

 

(1)                                  promptly give notice of that Proceeding to the relevant
insurers in accordance with the applicable policy procedures; and

 

(2)                                  thereafter take all action necessary to cause those insurers
to pay, on behalf of Indemnitee, all amounts payable in accordance with the
applicable policy terms as a result of that Proceeding;

 

provided,
however that the Company need not comply with the provisions of this sentence
if its failure to do so would not actually be prejudicial to Indemnitee in any
material respect.

 

(c)                                  The
Partnership will not be liable under this Agreement to make or cause to be made
any payment of amounts otherwise indemnifiable hereunder, or to make or cause
to be made any advance this Agreement otherwise requires it to make or cause to
be made, to or for the account of Indemnitee, if and to the extent that
Indemnitee has otherwise actually received or had applied for Indemnitee’s
benefit that payment or advance or obtained the entire benefit therefrom under
any insurance policy, any other contract or agreement or otherwise.

 

(d)                                 If
the Partnership makes or causes to be made any payment hereunder, it will be
subrogated to the extent of that payment to all the rights of recovery of
Indemnitee, who will execute all papers required and take all action necessary
to secure those rights, including execution of such documents as are necessary
to enable the Company to bring suit to enforce those rights.

 

10

 

(e)                                  The
Partnership’s obligation to make or cause to be made any payment or advance
hereunder to or for the account of Indemnitee with respect to Indemnitee’s
service at the request of the Company as a Functionary of any Related
Enterprise will be reduced by any amount Indemnitee has actually received as
indemnification or advancement of expenses from that Related Enterprise.

 

Section 9.  Duration of
Agreement; Binding Effect. 
This Agreement will continue until and terminate on the later of:

 

(1)                                  10
years after the date that Indemnitee has ceased to serve as a Functionary of
the Company and each Related Enterprise that Indemnitee served at the request
of the Company; or

 

(2)                                  one
year after the final, nonappealable termination of any Proceeding then pending
in respect of which Indemnitee is granted rights of indemnification or
advancement of Expenses hereunder and of any proceeding commenced by Indemnitee
under Section 7 or otherwise.

 

This Agreement will be
binding on the Company and its successors and assigns and will inure to the benefit
of Indemnitee and his spouse, if Indemnitee resides in Texas or another
community property state, heirs, executors and administrators.

 

Section 10.  Severability.  If any provision or provisions hereof is or
are invalid, illegal or unenforceable for any reason whatsoever:

 

(1)                                  the
validity, legality and enforceability of the remaining provisions hereof,
including each portion of any Section containing any such invalid, illegal
or unenforceable provision which is not itself invalid, illegal or unenforceable,
will not in any way be affected or impaired thereby;

 

(2)                                  such provision or provisions will be deemed reformed to the
extent necessary to conform to applicable law and to give the maximum effect to
the intent of the parties hereto; and

 

(3)                                  to
the fullest extent possible, the provisions hereof, including each portion of
any Section containing any such invalid, illegal or unenforceable
provision which is not itself invalid, illegal or unenforceable, will be
construed so as to give effect to the intent manifested thereby.

 

Section 11.  Exceptions
to Right of Indemnification or Advancement of Expenses.  No provision in this Agreement will obligate
the Partnership to pay or cause to be paid any indemnity to or for the account
of Indemnitee, or to advance or cause to be advanced Expenses under Section 3,
in connection with or as a result of:

 

(1)                                  any
Claim made against Indemnitee for an accounting of profits, under Section 16(b) of
the Exchange Act or similar provision of state statutory or common law, from
the purchase and sale, or sale and purchase, by Indemnitee of securities of the
Company or any Related Enterprise;

 

11

 

(2)                                  any Company Claim made against Indemnitee for:

 

(A)                              any unauthorized conversion to personal use, embezzlement or
misappropriation of assets of the Company or any Related Enterprise or any
transaction from which Indemnitee derived an improper personal benefit;

 

(B)                                any forgery or alteration of negotiable instruments of the
Company or any Related Enterprise;

 

(C)                                any falsification of the records or financial statements of
the Company or any Related Enterprise for personal or other reasons; or

 

(D)                               any breach of a contractual obligation to pay or repay or
otherwise return money to the Company or any Related Enterprise; or

 

(3)                                  except
for any Claim initiated by Indemnitee, whether as a cause of action or as a
defense to a cause of action under Section 7 or otherwise, to enforce or
establish, by declaratory judgment or otherwise, Indemnitee’s rights or
remedies hereunder, any Claim initiated by Indemnitee without the prior
authorization of the Board against the Company or any Related Enterprise or any
of their respective present or former Functionaries.

 

Section 12.  Identical
Counterparts.  This
Agreement may be executed in one or more counterparts, each of which will for
all purposes be deemed to be an original but all of which together will
constitute one and the same agreement. 
Only one such counterpart signed by the party against whom enforceability
is sought needs to be produced to evidence the existence of this Agreement.

 

Section 13.  Headings.  The headings of the Sections hereof are
inserted for convenience only and do not and will not be deemed to constitute
part of this Agreement or to affect the construction thereof.

 

Section 14.  Definitions
and Definitional Provisions. 
(a) For purposes of this Agreement:

 

“Affiliate” has the meaning Exchange Act Rule 12b-2
specifies.

 

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

 

“Charter Documents” means, with respect to any corporation or
other entity at any time, in each case as amended, modified and supplemented at
that time:

 

(1)                                  the articles or certificate of formation, incorporation or
organization, or the equivalent organizational documents, of that entity;

 

(2)                                  the
bylaws or limited liability company agreement or regulations, limited
partnership agreement, or the equivalent governing documents, of that entity;
and

 

12

 

(3)                                  each document setting forth the designation, amount and
relative rights, limitations and preferences of any class or series of that
entity’s capital stock or other equity interests.

 

“Claim”
means any claim for damages or a declaratory, equitable or other substantive remedy,
or any other issue or matter, in any Proceeding.

 

“Company Claim” means any Claim brought by or in the right of
the Company or a Related Enterprise against Indemnitee.

 

“Court of Chancery” means the Court of Chancery of the State
of Delaware.

 

“Disinterested Director” means a director of the Company who
is not and was not a party to the Proceeding, or any Claim therein, in respect
of which indemnification is sought by Indemnitee hereunder.

 

“Enterprise”
means any business trust, corporation, joint venture, limited liability
company, partnership or other entity or enterprise, including any operational
division of any entity or any operational group of entities or divisions of
entities, or any employee benefit or welfare plan or related trust.

 

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

 

“Expenses” include all attorneys’ fees, retainers, court
costs, transcript costs, fees of experts, witness fees, travel expenses,
duplicating costs, printing and binding costs, telephone charges, postage,
delivery service fees, all other disbursements or expenses of the types
customarily incurred in connection with prosecuting, defending, preparing to
prosecute or defend, investigating, being or preparing to be a witness in, or
otherwise participating in, a Proceeding. 
Should any payments by the Company or a Company Entity to or for the
account of Indemnitee under this Agreement be determined to be subject to any
federal, state or local income or excise tax, “Expenses” also will include such
amounts as are necessary to place Indemnitee in the same after-tax position,
after giving effect to all applicable taxes, Indemnitee would have been in had
no such tax been determined to apply to those payments.

 

“Functionary”
of any Enterprise means any natural person who is a director, officer, manager,
administrator, employee, agent, representative or other functionary of that
Enterprise, including, in the case of any employee benefit or welfare plan, any
member of any committee administering that plan or any individual to whom the
duties of that committee are delegated.

 

“Independent Counsel” means in the case of any determination
under Section 5 a law firm, or a member of a law firm that or who is
experienced in matters of corporation law and neither presently is, nor in the
past five years has been, retained to represent:

 

(1)                                  the Company or any of its Affiliates or Indemnitee in any
matter material to any such Person; or

 

13

 

(2)                                  any other party to the Proceeding giving rise to a claim for
indemnification hereunder.

 

Notwithstanding the
foregoing, the term “Independent Counsel” does not include at any time any
Person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Company or a Related Enterprise or Indemnitee in an action to determine
Indemnitee’s rights under this Agreement.

 

“Partnership
Entity” means any Related Enterprise, other than an employee
benefit or welfare plan or its related trust, if any.

 

“Person” means any natural person, sole proprietorship,
corporation, partnership, limited liability company, business trust,
unincorporated organization or association, mutual company, joint
stock company, joint venture or any other entity of any kind having a
separate legal status or any estate, trust, union or employee organization or
governmental authority.

 

“Proceeding” includes any threatened, pending or completed
action, suit, arbitration, alternate dispute resolution procedure,
investigation, inquiry or other threatened, actual or completed proceeding,
whether of a civil, criminal, administrative, investigative or private nature
and irrespective of the initiator thereof, and any appeal in any such
proceeding.

 

“Related
Enterprise” means at any time any Enterprise:

 

(1)                                  50%
or more of the outstanding capital stock or other ownership interests of which,
or the assets of which, the Company owns or controls, or previously owned or
controlled, directly or indirectly, at that time;

 

(2)                                  50%
or more of the outstanding voting power of the outstanding capital stock or
other ownership interests of which the Company owns or controls, or previously
owned or controlled, directly or indirectly, at that time;

 

(3)                                  that
is, or previously was, an Affiliate of the Company which the Company controls,
or previously controlled, by ownership, contract or otherwise and whether alone
or together with another Person, directly or indirectly, at that time; or

 

(4)                                  if that Enterprise is an employee benefit or welfare plan or
related trust, whose participants or beneficiaries are present or former
employees of the Company or any other Related Enterprise.

 

(b)                                 This
Agreement uses the words “herein,” “hereof” and “hereunder” and words of
similar import to refer to this Agreement as a whole and not to any provision
of this Agreement, and the words “Section” and “Preliminary Statement” refer to
Sections of and the Preliminary Statement in this Agreement, unless it
otherwise specifies.

 

14

 

(c)                                  Whenever
the context so requires, the singular number includes the plural and vice
versa, and a reference to one gender includes the other gender and the neuter.

 

(d)                                 The
word “including,” and, with correlative meaning, the word “include,” means
including, without limiting the generality of any description preceding that
word, and the words “shall” and “will” are used interchangeably and have the
same meaning.

 

(e)                                  The
language this Agreement uses will be deemed to be the language the parties
hereto have chosen to express their mutual intent, and no rule of strict
construction will be applied against either party hereto.

 

Section 15.  Modification
and Waiver.  No
supplement to or modification or amendment of this Agreement will be binding
unless executed in writing by both parties hereto.  No waiver of any provision hereof will be
deemed or will constitute a waiver of any other provision hereof, whether or
not similar, nor will any such waiver constitute a continuing waiver.

 

Section 16.  Reliance.  The Company confirms and agrees with
Indemnitee that it has entered into this Agreement and assumed the obligations
this Agreement imposes on it in order to induce Indemnitee to serve, or
continue to serve, as a Functionary of the Company or a Related
Enterprise.  The Company acknowledges
that Indemnitee is relying on this Agreement in so serving.

 

Section 17.  Notices.  All notices, requests, demands and other
communications hereunder must be in writing or by electronic transmission and
will be deemed delivered and received:

 

(1)                                  if personally delivered or if delivered by telex, telegram,
facsimile, electronic transmission or courier service, when actually received
by the party to whom the notice or communication is sent; or

 

(2)                                  if
delivered by mail, whether actually received or not, at the close of business
on the third business day in the city in which the Company’s principal
executive office is located next following the day when placed in the U.S.
mail, postage prepaid, certified or registered, addressed to the appropriate
party at the address of that party set forth below, or at such other address as
that party may designate by notice in writing or by electronic transmission to
the other party in accordance herewith:

 

(3)                                  If
to Indemnitee, to:

 

[Name]

[Address]

 

with a copy, which will not constitute notice for
purposes of this Agreement, to such legal counsel, if any, as Indemnitee may
designate in writing or by electronic transmission; and

 

15

 

(4)                                  If
to the Company, to:

 

K-Sea General Partner
G.P., L.L.C.

3245 Richmond Terrace

Staten Island, New York
10303

Attention:  Corporate Secretary

Fax No.:(718) 720-7207

E-mail:  rfalcinelli@k-sea.com

 

Section 18.  Contribution.  If it is established, under Section 5(c) or
otherwise, that Indemnitee has the right to be indemnified under Section 2(a) in
respect of any claim, but that right is unenforceable by reason of any
applicable law or public policy, then, to the fullest extent applicable law
permits, the Partnership, in lieu of indemnifying or causing the
indemnification of Indemnitee under Section 2(a), will, or will cause a
Partnership Entity to, contribute to the amount Indemnitee has incurred,
whether for judgments, fines, penalties, excise taxes, amounts paid or to be
paid in settlement or for Expenses reasonably incurred, in connection with that
Claim, in such proportion as is deemed fair and reasonable in light of all the
circumstances of that Claim in order to reflect:

 

(1)                                  the relative benefits Indemnitee and the Partnership have
received as a result of the event(s) or transaction(s) giving rise to that
Claim; or

 

(2)                                  the relative fault of Indemnitee and of the Partnership and
its other Functionaries in connection with those event(s) or transaction(s).

 

Section 19.  Governing
Law; Submission to Jurisdiction.  This Agreement and the legal relations among
the parties will be governed by, and construed and enforced in accordance with,
the laws of the State of Delaware, without regard to its conflict of laws
rules.  Except with respect to any
arbitration Indemnitee commences under Section 7 or as Section 2(a) expressly
contemplates otherwise, the Company and Indemnitee hereby irrevocably and
unconditionally:

 

(1)                                  agree that any action or proceeding arising out of or in
connection with this Agreement will be brought only in the Court of Chancery
and not in any other state or federal court in the United States of America or
any court in any other country;

 

(2)                                  consent to submit to the exclusive jurisdiction of the Court
of Chancery for purposes of any action or proceeding arising out of or in
connection with this Agreement;

 

(3)                                  waive
any objection to the laying of venue of any such action or proceeding in the
Court of Chancery; and

 

(4)                                  waive, and agree not to plead or to make, any claim that any
such action or proceeding brought in the Court of Chancery has been brought in
an improper or otherwise inconvenient forum.

 

16

 

Section 20.  Entire
Agreement.  This
Agreement constitutes the entire agreement and understanding between the
Company and Indemnitee, and supersedes all prior oral, written or implied
agreements and understandings of the Company and Indemnitee with respect to the
subject matter hereof.

 

17

 

IN WITNESS WHEREOF, the parties hereto have executed
this Agreement effective as of the day and year first above written.

 

	
  ATTEST:

  	
  K-SEA GENERAL PARTNER GP LLC

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  [Name]

  
	
   

  	
   

  	
  [Title]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ATTEST:

  	
  K-SEA GENERAL PARTNER L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  K-Sea General Partner GP LLC,

  
	
   

  	
   

  	
  its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  [Name]

  
	
   

  	
   

  	
   

  	
  [Title]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ATTEST:

  	
  K-SEA TRANSPORTATION PARTNERS L.P.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  K-Sea General Partner L.P.,

  
	
   

  	
   

  	
  its general partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  K-Sea General Partner GP LLC,

  
	
   

  	
   

  	
   

  	
  its general partner

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  [Name]

  
	
   

  	
   

  	
   

  	
  [Title]

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ATTEST:

  	
  INDEMNITEE:

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  [Name]

  
									

 

18

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