Document:

SERVICES AGREEMENT

         THIS SERVICES AGREEMENT (this "Agreement") is made this 29th day of
July, 2002 (the "Effective Date"), by and between EXPRESS SCRIPTS SPECIALTY
DISRIBUTION SERVICES, INC., a Delaware corporation ("SDS"), having a business
address at 13900 Riverport Drive, Maryland Heights, Missouri, 63043, and ORPHAN
MEDICAL, INC. ("Orphan"), a Delaware corporation, having a business address at
13911 Ridgedale Drive, Suite 250, Minnetonka, Minnesota 55305

                                    RECITALS

         WHEREAS, Orphan manufactures Product, and desires to enter into an
agreement with SDS, whereby SDS will facilitate the dispensing and distribution
of Product, and perform certain ancillary functions associated therewith; and

         WHEREAS, SDS has experience in providing the services desired by
Orphan, and is willing to provide such services for Orphan on the terms set
forth in this Agreement.

         NOW, THEREFORE, in consideration of the premises and mutual promises
herein stated, the receipt and sufficiency of which are hereby acknowledged, the
parties hereby agree as follows:

                               TERMS OF AGREEMENT

                                    ARTICLE 1
                                   DEFINITIONS

         As used in this Agreement, each of the following terms (and the plural
or singular thereof, when appropriate) shall have the meaning set forth herein,
except where the context makes it clear that such meaning is not intended:

         1.1 "ACT" shall mean the United States Federal, Food, Drug and Cosmetic
Act, as amended from time to time.

         1.2 "AWP" shall mean the average wholesale price of Product as reported
by First Data Bank.

**       The appearance of a double asterisk denotes confidential information
         that has been omitted from the exhibit and filed separately,
         accompanied by a confidential treatment request, with the Securities
         and Exchange Commission pursuant to Rule 24b-2 of the Securities
         Exchange Act of 1934.

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         1.3 "BUSINESS RULES" shall mean those written business rules mutually
agreed upon and executed prior to the Implementation Date by the parties (or
subsequently agreed to by the parties by amendment to this Agreement), which
either further describe how the Covered Services are to be performed or describe
additional services to be performed under this Agreement.

         1.4 "CONFIDENTIAL INFORMATION" shall have the meaning assigned to it in
Section 5.1.

         1.5 "COVERED SERVICES" shall mean those services to be performed by SDS
as set forth on Exhibit A or as described in any SOP.

         1.6 "DEA" shall mean the United States Drug Enforcement Administration.

         1.7 "FACILITY" shall mean a distribution facility (or facilities) owned
and/or operated by SDS and utilized in connection with the Xyrem Risk Management
Program, as selected by SDS in its discretion and subject to change from time to
time. Orphan Medical reserves the right to inspect and approve any facility used
for Xyrem distribution prior to any change in the aforementioned facility.

         1.8    "FDA" shall mean the United States Food and Drug Administration.

         1.9 "FEES" shall mean the fees as described in Section 4.2 hereof below
to be paid by Orphan to SDS hereunder.

         1.10 "HIPAA" shall mean Health Insurance Portability and Accountability
Act of 1996, as further defined in the United States Code of Federal Regulations
(CRF) 45, Part 164 - Security and Privacy section.

         1.11 "IMPLEMENTATION DATE" shall mean the date on which SDS will first
begin to perform the Covered Services, which will be approximately 30 days after
FDA approval of Xyrem.

         1.12 "NON-PAP ORDER" shall mean each shipment of Product by SDS to any
Person other than a PAP Patient in accordance with applicable law and FDA
guidelines.

         1.13 "NON-PAP PATIENT" shall mean a Patient who is not eligible to
participate in the PAP, as determined by NORD, but for whom SDS dispenses
Product pursuant to a Non-PAP Order.

         1.14 "NORD" shall mean the National Organization of Rare Disorders,
which will be solely responsible for determination whether individuals are
eligible for participation for in the PAP, based on criteria established by NORD
and/or Orphan, and for communicating such eligibility to SDS.

         1.15 "PAP" shall mean the patient assistance program established by
Orphan, pursuant to which SDS will provide dispensing services as described in
the applicable SOP.

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         1.16 "PAP PATIENT" shall mean a Patient who has been approved by NORD
as eligible to participate in the PAP.

         1.17 "PAP ORDER" shall mean a valid prescription indicating the dose,
amount and strength of Product properly prescribed to a PAP Patient by a health
care practitioner who is licensed to prescribe Product, and which is submitted
to SDS in accordance with the relevant SOP.
         1.18 "PATIENT" means an individual who: (a) properly completes all
necessary intake and Xyrem Patient Success forms (the form and content of which
shall be mutually agreed upon by Orphan and SDS prior to the Implementation
Date, and which shall comply with applicable laws and all applicable FDA
requirements), as described in the relevant SOP; and (b) is either deemed
eligible by NORD to participate in the PAP, or is otherwise approved by SDS to
receive Product.

         1.19 "PATIENT CONFIDENTIAL INFORMATION" means individually-specific
medical or prescription information and any other individually-identifiable
information which may be deemed to be confidential or protected under federal or
state law or regulations, including, without limitation, information that
constitutes Protected Health Information under HIPAA.

         1.20 "PERSON" shall mean any natural person, corporation, organization,
association, partnership, limited liability company, HMO, or similar entity.

         1.21 "PRODUCT" shall mean Xyrem(R) (sodium oxybate) oral solution and
dosing kit.

         1.22 "SOPS" shall mean those written standard operating procedures
mutually agreed upon and executed prior to the Implementation Date by the
parties (or subsequently agreed to by the parties by amendment to this
Agreement), which either further describe how the Covered Services are to be
performed or describe additional services to be performed under this Agreement.

         1.23   "TERRITORY" shall mean the United States of America.

         1.24 "MARKS" shall mean those registered and common law trademarks of
Orphan that are listed in Exhibit C.

                                   ARTICLE II
                                    SERVICES

         2.1 Covered Services. From and after the Implementation Date, SDS shall
provide the Covered Services for the benefit of Orphan.

         2.2 Exclusive Distributor. During the term of this Agreement, all
Product sold in the Territory, or made available through the PAP, will be
distributed exclusively through SDS pursuant to this Agreement. Further, Product
sold, or made available through the PAP, in the Territory shall be warehoused at
the Facility in accordance with Exhibit A and any related SOP.

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                                   ARTICLE III
                            SUPPLY OF PRODUCT; AUDIT

         3.1      Consignment Relationship

                  (a) General. Orphan shall deliver, at its own expense, to
SDS's possession at the Facility (on a consignment basis) sufficient quantities
of Product to enable SDS to provide the Covered Services in accordance with this
Agreement. The parties shall mutually agree upon a sufficient level of inventory
of Product to be maintained at the Facility. The Product to be shipped pursuant
to Non-PAP Orders will be furnished to, and held by, SDS on a consignment basis
at all times, except as provided in Subsection 3.1(b). The consignment of
Product hereunder shall at no time be construed as a loan or other debt
financing or secured transaction arrangement between the parties, and title to
consigned Product shall remain with Orphan until transferred pursuant to
Subsection 3.1(b).

                  (b) Transfer of Title. Immediately prior to the shipment of
Product by SDS from the Facility pursuant to a Non-PAP Order, SDS shall purchase
from Orphan such Product being shipped. Title to the consigned Product so
purchased by SDS in connection with a Non-PAP Order shall pass to SDS at the
time of such purchase

                  (c) Shipment of Non-PAP Orders. Subject to the restrictions
set forth in Subsection 4.2(d) of this Agreement or any FDA requirements, SDS
shall have sole authority to determine to whom it will ship a Non-PAP Order and
at what price, although SDS shall not provide Product to any Person suspected of
diversion as outlined in the corresponding SOP.

         3.2 PAP Orders. The Product to be shipped by SDS pursuant to PAP Orders
shall be for the account of Orphan, and title to such Product shall remain with
Orphan until shipped to the PAP Patient, at which time title will pass to the
PAP Patient. Once NORD approves a Patient as eligible to participate in the PAP,
SDS shall treat such Patient as so eligible until notified otherwise by NORD.
SDS shall fulfill PAP Orders and perform certain ancillary services relating
thereto as set forth in the applicable SOP.

         3.3 Risk of Loss. All risk of Product loss or damage during the time
that such Product is at the Facility, after receipt in good condition by SDS at
the Facility, including inventory shortages which are unaccounted for, shall be
borne by SDS, except to the extent caused by the negligence or willful
misconduct of Orphan. Payment to Orphan by SDS for consigned Product lost or
damaged while at SDS's Facility shall be based on Orphan's reasonable
replacement costs, as reasonably determined and documented by Orphan.

         3.4 Financial Audit. During the term of this Agreement (excluding the
months of December and January) and for a period of ninety (90) days after the
expiration or termination of this Agreement, upon reasonable prior notice and
during normal business hours, Orphan, or any third party auditor designated by
Orphan shall be entitled to audit and inspect those books and records of SDS
which are maintained by SDS in connection with its performance of the Covered
Services, subject to confidentiality constraints and applicable law. Such third
party auditor (a) shall not have a conflict of interest with SDS or any of its
affiliates (as determined by SDS in

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good faith), and (b) will be required to sign a confidentiality agreement in a
form reasonably acceptable to SDS prior to commencing such audit. Neither Orphan
nor its auditor shall have access to any Patient Confidential Information in the
context of an audit.

         3.5      Regulatory and Compliance Audits and Information Requests.

                  (a) SDS shall provide to Orphan and/or the FDA, DEA or any
other governmental body all documents and information requested by the FDA, DEA
or any other governmental body in support of Orphan's regulatory filings or any
governmental investigations or inquires. Copies of all documents to be provided
to the FDA or DEA shall be provided to Orphan in advance, if practicable, or
otherwise within two (2) business days of delivery to the FDA or DEA. SDS shall
notify Orphan immediately upon receipt of notice of any inspection by the FDA or
DEA directed specifically toward Product, and Orphan shall have the right to
have an employee present at any such inspection, if allowed by law. In addition,
SDS shall notify Orphan of any FDA or DEA correspondence or inspections that
concern SDS generally and which are related to any SDS compliance issues that
may adversely impact SDS's ability to perform the services contemplated by this
Agreement. SDS shall notify Orphan immediately of any notices, requests for
information or other communications related to Product from the U.S. Department
of Health and Human Services or any other government agency or any state
healthcare program or other state agency and, to the extent permitted under
applicable law, shall give Orphan copies of such communications.

                  (b) SDS shall from time to time submit to audits and
inspections by Orphan during normal business hours or at any other time during
which the services being audited are ongoing, including but not limited to,
audits of regulatory and quality assurance SOPs and of records of contacts with
regulatory agencies, provided the scope of any such audit or inspection shall be
limited to information and facilities pertaining to Orphan's program. Orphan
shall give SDS at least two (2) business days prior notice of any such
inspection and at least thirty (30) days prior notice for any such audit, and
Orphan shall bear the out of pocket costs of such audit or inspection.

         3.6 Returns and Replacement. In the event that SDS-purchased Product is
damaged in transit as a result of SDS's negligence or its designated shipper,
SDS will replace the Product to the Patient free of charge once the damaged
Product is returned to SDS. SDS will monitor all reports of lost Product for the
potential for abuse and diversion. SDS will cooperate with state and federal
authorities fully in any investigations of lost Product, and will provide
reports of such loss to Orphan on a monthly basis for the purpose of allowing
Orphan to track the Product and satisfy its FDA reporting requirements. SDS will
investigate the loss of Product by interviewing the Patient, and/or physician,
report the loss to Orphan and to the appropriate regulatory authorities, as
required by law, and record the loss in the Patient's file. Where there is
suspicion of abuse of diversion, SDS will contact the Orphan designee
responsible for DEA issues, and lost Product will not be replaced without
Orphan's approval. Where abuse or diversion is not suspected, SDS will replace
the lost Product at no charge to the Patient in the event such loss is the
result of SDS's negligence or its designated shipper and record the shipment in
the Patient file. SDS will treat a repeat request for lost Product as a
suspicion of abuse or diversion and report to the Orphan designee responsible
for DEA issues, and SDS will not replace the lost

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Product without Orphan's approval. For damaged Product, SDS will make a good
faith effort to arrange for the damaged Product to be returned to SDS. Upon
receipt of damaged Product, SDS will keep the damaged Product in a secure locked
area, and will dispose of it at SDS's cost in compliance with the applicable SOP
for destruction of Product. SDS shall not be required to disclose any Patient
Confidential Information to Orphan pursuant to this Section 3.6 to the extent
such disclosure is not permitted under HIPAA and other federal and state law.

         3.7 Recalls. If Orphan is required to recall or, on its own initiative,
recalls or withdraws Product sold in the Territory, SDS shall reasonably assist
Orphan in such recall in accordance with applicable laws and regulations. For
such purposes, SDS shall maintain a complete and current list of all Patients
and other third parties to who SDS has shipped (or dispensed) Product, as well
as from whom SDS as accepted returns of Product, with the lot numbers of Product
dispensed/distributed or returned. Orphan shall pay for all costs and expenses
of SDS in connection with any such recall. SDS shall provide to Orphan, at
Orphan's request, any information reasonably requested by Orphan in connection
with Orphan investigations relating to recalled Product, subject to the
confidentiality constraints imposed by HIPAA and any other federal or state law.

         3.8 Expired Product. Orphan will at its cost replace Product that
expires. Orphan will not replace expired Product once it has been purchased by
SDS. SDS will dispose of, or return, expired Product as reasonably directed by
Orphan, subject to applicable law, and Orphan shall promptly reimburse SDS for
all reasonable expenses incurred in complying with this Section 3.8

                                   ARTICLE IV
                         PURCHASE PRICE OF PRODUCT; FEES

         4.1 Set-up Fee. On the Effective Date, Orphan shall pay SDS a
non-refundable set-up fee in the amount set forth on Exhibit B, as payment for
up-front expenses anticipated to be incurred by SDS in preparation for the
performance of the Covered Services.

         4.2      Purchase Price of Product.

                  (a) With respect to all Product purchased by SDS pursuant to
Subsection 3.1(b), SDS shall pay a purchase price to Orphan equal to Orphan's
current wholesale price, as it may be changed by Orphan from time to time on at
least 30 days prior written notice to SDS.

                  (b) The purchase price for Product purchased by SDS within the
first ninety (90) days after the Implementation Date shall be due and payable to
Orphan within ninety (90) days from the date of sale. Thereafter, the purchase
price for Product purchased by SDS shall be due and payable to Orphan within
thirty (30) days from the date of sale. SDA shall provide Orphan with written
confirmation of sales of Product on a weekly basis. If SDS makes payment of the
purchase price of Product within the applicable time period, it shall be
entitled to a two percent (2%) discount off the purchase price of such Product,
and the discount shall be applied by SDS by reducing the amount due and payable
to Orphan by two percent (2%).

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                  (c) SDS shall be responsible for any sales tax or similar
taxes payable in connection with the sale of Product to SDS.

                  (d) SDS shall have the right to establish the price at which
it resells Product to Non-PAP Patients, and shall have all right, title and
interest in and to any amounts that SDS receives from third parties in
connection with Product dispensed or distributed pursuant to Non-PAP Orders;
provided, however, that the price at which SDS sells Product shall not exceed
the greater of (i) 125% of Orphans' then-current wholesale price for Product or
(ii) the then AWP of Product.

         4.3 Fees. As compensation for the Covered Services performed by SDS,
Orphan shall pay SDS the Fees described in Exhibit B. SDS shall invoice Orphan
for the Fees on a bi-weekly basis, commencing on the second Friday after the
Implementation Date, and such Fees shall be due and payable to SDS within thirty
(30) days of the date of SDS's invoice. On the first anniversary of the
Implementation Date, and each anniversary thereafter, SDS shall be entitled to
increase each of the Fees by no more than a percentage which is equal to the
percentage increase to the then current twelve (12) month Consumer Price Index
(all items) as published by the U.S. Department of Labor, Bureau of Labor
Statistics during such twelve (12) month period. SDS shall notify Orphan in
writing within thirty (30) days after the effective time of any such increase in
Fees.

         4.4 Late Penalty. Any amount not paid by the owing party on or before
the respective due date thereof shall bear interest at the rate of 18% per annum
(1.5% per month) or, if lower, the highest interest rate permitted by law.

         4.5 Adjustment. In December, 2003, and annually thereafter, the parties
will, in good faith, re-evaluate the pricing set forth on Exhibit B to determine
whether an adjustment thereto is warranted in light of certain unanticipated
expenditures, efficiencies, reductions or other circumstances that may
necessitate such an adjustment; provided, however, in no event shall either
party be obligated at such time to agree to any such adjustment.

                                    ARTICLE V
                            CONFIDENTIAL INFORMATION

         5.1 Nondisclosure Commitments. The parties acknowledge that, as a
result of this Agreement, each may learn confidential and proprietary
information, including, but not limited to, information about Orphan's
operations, business, and products, and information about SDS's report formats,
computer software, business, and operations (all of which shall collectively be
considered the "Confidential Information" of the respective party). Except as
specifically provided herein, neither Orphan nor SDS shall disclose any
Confidential Information of the other to any person or entity, or use, or permit
any person or entity to use, any of such Confidential Information, excepting
only: (a) disclosures to and use by the employees of Orphan or SDS who have a
reasonable need to know such information in connection with performance to this
Agreement, (b) disclosures which are required by law, and (c) disclosures that
are made on a confidential basis to the attorneys, accountants, and other
professional advisors of Orphan or SDS in connection with matters relating to
this Agreement. Notwithstanding the foregoing,

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Confidential Information shall not include: (x) information which is public or
becomes public through no fault of the receiving party, (y) information of which
the receiving party has knowledge prior to receipt, and (z) information which is
received by one party from a third person not under an obligation of
confidentiality to the other party to this Agreement.

         5.2 Patient Confidential Information. Except as otherwise provided in
Section 6.7, Orphan shall neither have access to nor be entitled to receive any
Patient Confidential Information, except to the extent Orphan must have access
to such Patient Confidential Information to satisfy its FDA reporting
requirements associated with Product. Each party shall maintain the
confidentiality of all information and records, including patient information if
such party receives Patient Confidential Information in any form or manner, to
the extent required by applicable law, including, but not limited to, HIPAA. All
patient-related data and information obtained by SDS hereunder shall be and
remain the property of SDS and shall be deemed the Confidential Information of
SDS. SDS will not utilize Patient Confidential Information it comes into
possession of as a result of this Agreement outside the scope of this Agreement.
SDS will not engage in any activity designed to expand its information of
individual Patients through the use of third parties for a purpose other than to
effectuate the uses and disclosures contemplated by this Agreement. There shall
be no prior use of Patient Confidential Information outside of the scope of this
Agreement. Notwithstanding anything to the contrary, however, SDS and/or its
affiliates may use any such Patient Confidential Information in the aggregate
and on a de-identified basis with other drug-use data, to the extend permitted
by law, without charge, for research, cost analysis, and other business purposes
of SDS and its affiliates, so long as there is no specific disclosure of the
Confidential Information of Orphan. Notwithstanding anything to the contrary
herein, with respect to any information or documents that are subject to
disclosure or that are requested pursuant to Section 3.5 or otherwise, and which
contain Patient Confidential Information, SDS shall only be required to disclose
such information and documents to the extent permitted by federal and state
confidentiality laws and regulations, including, but not limited to, HIPAA and,
in connection with any such disclosure to Orphan pursuant to Section 3.5 or
otherwise which involves Patient Confidential Information, Orphan hereby
represents that such disclosure is required by law or is intended for one of the
purposes described in 45 C.F.R. ss. 164.512(b) and that such documents and
information received by Orphan will be used solely to comply with such law or
with one of the intended purposes under 45 C.F.R. ss. 164.512(b).

                                   ARTICLE VI
                              TERM AND TERMINATION

         6.1 Initial Term; Renewal. The initial term of this Agreement shall
begin on the Effective Date and continue for a period of three (3) years after
the Implementation Date, and may be terminated earlier or automatically extended
in accordance with the terms thereof. Not less than one hundred twenty (120)
days prior to the end of the initial or any renewal term of this Agreement,
either party may notify the other party in writing that it desires to terminate
this Agreement, effective as of the end of the then current term. If no such
written notification is given, this Agreement shall automatically continue with
the same terms and conditions as set forth herein for an additional one (1) year
term, subject to the right of termination as otherwise provided herein.

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         6.2 Termination for Bankruptcy. Either party shall have the right to
terminate this Agreement upon five (5) days' written notice, if (a) the other
party files a petition for reorganization or liquidation under any federal or
state bankruptcy law, or any such petition is filed against such other party
and, in either case, the petition is not withdrawn or dismissed within sixty
(60) days after filing, or (b) a receiver is appointed for any part of its
assets and said appointment is not vacated within sixty (60) days.

         6.3 Termination for Noncompliance. Orphan shall have the right to
terminate this agreement upon five (5) days' written notice to SDS if SDS is
cited as non-compliant with regulatory requirements as determined by an audit of
SDS facilities by Orphan and confirmed by a third-party audit, or if SDS is
cited as non-compliant as determined by a regulatory body, and appropriate
corrective action cannot be mutually agreed to by the parties within thirty (30)
days after such determination of non-compliance or such earlier date as is
specified by the regulatory body.

         6.4 Termination for Cause. Notwithstanding anything to the contrary
herein, either party may give the other written notice of a material breach of
this Agreement. If the breaching party has not cured said breach within thirty
(30) days from the date such notice was sent, this Agreement may be terminated
at the option of the non-breaching party. If the amount of time commercially
reasonable for the breach to be cured is longer than thirty (30) days, this
Agreement may not be terminated by the non-breaching party pursuant to this
provision until such commercially reasonable period of time has elapsed;
provided, however, that in no event shall such cure period exceed sixty (60)
days from the date such notice was sent. Notwithstanding the foregoing, Orphan
may terminate this Agreement under Section 10.5 if SDS is precluded from
rendering Covered Services as a result of an event of force majeure.

         6.5 Transition of Covered Services. Upon termination or expiration of
this Agreement, the parties shall mutually agree on an expeditious schedule of
transition of the Covered Services. SDS shall promptly return to Orphan (or to
any other third party as directed by Orphan) all Product then in SDS's
possession or control which has not been purchased by SDS pursuant to Subsection
3.1(b). If this Agreement has been terminated by Orphan under Sections 6.2, 6.3,
or 6.4, SDS shall be responsible for the costs of returning Product to Orphan;
otherwise, Orphan shall be responsible for such costs.

         6.6 Return of Confidential Information. Upon termination or expiration
of this Agreement, each party shall, if requested by the other party, promptly:
(a) return to the other party all documentation and other materials (including
all copies of original documentation or other materials) containing any
Confidential Information, and (b) certify to the other party as to the
destruction or return of all such documentation and other materials public
through no fault of the receiving party.

         6.7 Transfer of Patient Information, Etc. Upon termination or
expiration of this Agreement, for whatever reason, Orphan shall have the right
to transfer all mutually-developed Xyrem Risk Management SOPs and the toll free
Xyrem telephone number to another specialty pharmacy and/or distributor of its
choice, and SDS shall cooperate with Orphan in the transfer of such items to
another qualified specialty pharmacy and/or distributor. In addition, Orphan may

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request that SDS also transfer Patient Confidential Information to such other
specialty pharmacy for the purpose of continuing "treatment" (as that term is
defined under HIPAA) of such Patients, and SDS shall expeditiously honor such
request to the extent disclosure of such Patient Confidential Information by SDS
is permitted under applicable law, including, but not limited to, HIPAA. If this
Agreement has been terminated by Orphan under Sections 6.2, 6.3 or 6.4, Orphan
shall promptly reimburse SDS for all expenses incurred in connection with the
transition described in this Section 6.7; otherwise, SDS shall be responsible
for all such costs incurred by SDS in connection with such transition.

                                   ARTICLE VII
               COMPLIANCE WITH LAW; REPRESENTATIONS AND WARRANTIES

         7.1 Compliance With Law. Each party agrees that it will perform its
respective obligations hereunder in accordance with applicable federal, state
and local laws, including but not limited to applicable DEA, FDA, state and
local retail and wholesale pharmacy requirements. FDA laws are not limited to
section 505 of the Federal Food, Drug and Cosmetic Act, but also include any
special considerations required by the FDA for approval of Product. SDS will be
notified of such requirements in writing by Orphan. In the event any such
special FDA requirements not communicated to SDS by the Effective Date cause
SDS's obligations under this Agreement to be materially more burdensome or
expensive, the parties shall promptly negotiate an appropriate modification to
the Fees, and if the parties cannot agree on such a modification, or SDS in good
faith views such additional responsibility as too burdensome to continue with
the Agreement, SDS shall have the right to terminate this Agreement without
penalty upon five (5) days written notice to Orphan.

         7.2      Representations and Warranties.

                  (a) Each party hereby represents and warrants to the other
party that: (i) it has all requisite corporate power and authority to enter into
this Agreement and perform and observe all obligations and conditions required
to be performed or observed by that party under this Agreement; (ii) neither the
execution and delivery of the Agreement nor the performance by that party of its
respective obligations under this Agreement will conflict with or result in a
breach of any covenant or agreement between that party and any third party;
(iii) this Agreement represents the legal, valid and binding obligation of that
party; and (iv) such party has (or will have at such time as performance of its
obligations under this Agreement may require) obtained all of the local, state
and federal permits, licenses or another regulatory registrations or approvals
necessary for the performance of its obligations under this Agreement; provided,
however, SDS shall make a good faith effort to apply and obtain the requisite
DEA license necessary in order for SDS to distribute Product to Persons other
than the end-user, but the failure to obtain such license shall not constitute a
breach of this Agreement by SDS.

                  (b) Orphan hereby represents and warrants that Product at the
time of shipment to SDS's facility: (i) shall not be adulterated or misbranded
within the meaning of the Act, or within the meaning of any applicable state or
municipal law in which the definitions of adulteration or misbranded are
substantially the same as those contained in the Act, as the Act and such laws
are constituted and effective at the time of shipment; and (ii) shall not be a
product which may not, under the provisions of the Act or FDA guidelines
pertaining to the Product, be introduced into interstate commerce.

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                                  ARTICLE VIII
                          INDEMNIFICATION AND INSURANCE

         8.1      Indemnification.

                  (a) SDS shall indemnify and hold harmless Orphan and its
directors, officers, employees, and affiliates from and against all claims,
liabilities, losses, damages, costs, and expenses (including without limitation
reasonable attorneys' fees) arising out of: (i) any breach by SDS of this
Agreement, including, but not limited to, its representations and warranties;
(ii) the negligent act or negligent omission, or the willful misconduct, of SDS
or any of its employees or agents in connection with the performance of its
obligations under this Agreement; and (iii) SDS's use of patient information in
violation of applicable laws governing confidentiality; except to the extend
such claims arise out of Orphan's negligence or willful misconduct or breach
hereunder, including, but not limited to, a breach of Orphan's representations
and warranties hereunder.

                  (b) Orphan shall indemnify and hold harmless SDS and its
directors, officers, employees and affiliates from and against all claims,
liabilities, losses, damages, costs, and expenses (including without limitation
reasonable attorneys' fees) arising out of (i) any breach by Orphan of this
Agreement, including , but not limited to, its representations and warranties;
(ii) the negligent act or negligent omission, or the willful misconduct, of
Orphan or any of its employees or agents in connection with the performance of
its obligations under this Agreement; (iii) any claim relating to the
manufacturing of the Product or use of the Product by a Patient or other
individual; and (iv) use by SDS of a Mark in accordance with the terms of this
Agreement, except to the extent such claims arise out of SDS's negligence or
willful misconduct or breach hereunder, including, but not limited to, a breach
of SDS's representations and warranties hereunder.

         8.2 Insurance. Each party shall procure and maintain during the term of
this Agreement, comprehensive general liability insurance in the amount of **
per claim made, and in the aggregate, including but not limited to, for
contractual liability, personal and bodily injury, and product liability. Each
party shall provide the other party with evidence of such insurance upon
request. A party may not cause or permit such insurance to be canceled without
obtaining comparable replacement coverage or modified to materially reduce its
scope or limits of coverage during the term of the Agreement.

                                   ARTICLE IX
                                   TRADEMARKS

         9.1 Grant of License. Orphan grants to SDS a nonexclusive,
royalty-free, nontransferable license to use the Marks in the Territory in
connection with the rendering of the services and sale of Product contemplated
by this Agreement, and SDS accepts the license subject to the following terms
and conditions.

         9.2 Ownership of the Service Marks. SDS acknowledges that Orphan is the
exclusive owner of the Marks and that all use of the marks by SDS will inure to
the benefit of and be on

                                       11
<PAGE>

behalf of Orphan. SDS will do nothing inconsistent with such ownership and will
reasonably assist Orphan in recording the evidence of this license arrangement
with any appropriate government authorities. Nothing in this Agreement shall
give SDS any right, title, or interest in the Marks other than the right to use
the Marks in accordance with this Agreement, and SDS will not attack the title
of Orphan to the Marks.

         9.3 Quality Standards. All use of the marks by SDS will be in
compliance with the quality control standards that are furnished from time to
time by Orphan or its agents. SDS will reasonably cooperate with Orphan in
facilitating Orphan's ultimate control of such nature and quality standards,
will permit reasonable inspection of SDS's operation, and, upon request of
Orphan, will supply Orphan with specimens of all uses by SDS of the Marks.

         9.4 Marking. SDS's use of the Marks will comply with all marking
requirements and other laws pertaining to trademarks in force during the term of
this Agreement.

         9.5 Form of Use. SDS will use the Marks only in the form and manner and
with appropriate legends as prescribed from time to time by Orphan.

         9.6 Infringement Proceedings. SDS will promptly notify Orphan of an
unauthorized uses of the Marks by others that come to SDS's attention. Orphan
will have the sole right and discretion to bring infringement, dilution or
unfair competition proceedings involving the Marks.

         9.7 Effect of Termination. Upon termination of this Agreement, SDS will
immediately discontinue all use of the Marks and any term or symbol confusingly
similar thereto, will cooperate with Orphan or its agents to apply to the
appropriate authorities to cancel any recording of evidence of this Agreement
from all government records, and will destroy all printed materials bearing the
Marks.

                                    ARTICLE X
                                  MISCELLANEOUS

         10.1 Notices. Except as otherwise specified in this Agreement any
notice or other communication required or contemplated under the provisions of
this Agreement shall be in writing and (a) delivered in person, evidenced by a
signed receipt, (b) deposited in the United States mail, first class postage
prepaid, (c) sent by electronic facsimile transmission, or (d) sent via Federal
Express, Airborne, or any other similar express delivery service, to the
addresses indicated below or to such other persons or addresses as the parties
may provide by written notice to the other. The date of the notice shall be (x)
the date of delivery if the notice is personally delivered or sent via Federal
Express or similar express service, or (y) three (3) days after the date of
mailing if the notice is mailed by United States mail.

         If to SDS:        Express Scripts Specialty Distribution Services, Inc.
                           13900 Riverport Drive
                           Maryland Heights, Missouri 63043
                           Attn:  Vice President and General Manager
                           Fax No. (314) 702-7120

                                       12
<PAGE>

         WITH A COPY TO:   Express Scripts, Inc.
                           13900 Riverport Drive
                           Maryland Heights, Missouri 63043
                           Attn: General Counsel
                           Fax No. (314) 702-7120

         If to Orphan:     Orphan Medical, Inc.
                           13911 Ridgedale Drive, Suite 250
                           Minnetonka, Minnesota 55305
                           Attn: Vice President of Commercial Operations
                           Fax No. 952-541-9209

         10.2 Invalidity. Should any of the provisions hereof become legally
invalid or unenforceable, the remainder of this Agreement shall remain
effective, provided that the essential purpose of the Agreement can still be
carried out. In such event, the parties agree to negotiate a mutually acceptable
amendment to the terms and conditions of this Agreement.

         10.3 Non-Waiver. A failure by any party to insist upon strict
compliance with any term of this Agreement, to exercise any option, to enforce
any right, or to seek any remedy upon any default of any other party shall not
affect, or constitute a waiver of, the first party's right to insist upon any
default of the other party shall affect, or constitute a waiver of, the first
party's right to insist upon strict compliance, to exercise that option, to
enforce that right, or to seek that remedy with respect to that default or any
prior, contemporaneous, or subsequent default. No custom or practice of the
parties at variance with any provision of this Agreement shall affect, or
constitute a waiver or, a party's right to demand strict compliance with all
provisions of this Agreement

         10.4 Remedies. The rights and remedies of each party under this
Agreement shall be cumulative and in addition to any other rights or remedies
available to such party, whether under any other agreement, at law, or in
equity, including without limitation specific performance, a temporary
restraining order, and temporary or permanent injunctions.

         10.5 Force Majeure. If the performance of any part of this Agreement by
either party shall be affected for any length of time by fire or other casualty,
government restrictions, war, riots, strikes, or labor disputes, lock out,
transportation delays, and acts of God, or any other similar causes which are
beyond the reasonable control of such party, such party shall not be responsible
for delay or failure of performance of this Agreement for such length of time;
provided, however, that the obligation of the parties to pay amounts then due
shall not be suspended or delayed; and provided, further, that if SDS is
precluded from rendering Covered Services for a continuous period in excess of
ten (10) business days, Orphan shall be entitled to terminate this Agreement
upon five (5) days written notice to SDS.

         10.6 Governing Law. This Agreement and performance hereunder shall be
governed by, and construed in accordance with, the laws of the State of
Delaware, without regard to choice of law principles.

                                       13
<PAGE>

         10.7 Successors and Assigns. This Agreement may not be assigned by any
party hereto without the prior written consent of the other parties, which
consent shall not be unreasonably withheld.

         10.8 Relationship of the Parties. The parties are independent
contractors and shall not be considered as an employee, agent or legal
representative of any other party for any purposes whatsoever. Nothing herein
shall be construed to create a partnership, joint venture or general agency.
Except as expressly provided for herein, the parties shall have no authority to
act for or on behalf of the any party or to sign or otherwise enter into any
kind of contract, undertaking or agreement, or make any promise, warranty or
representation, with respect to the Product or any other matter on behalf of any
other party, and no other party shall be bound by or liable for any acts,
obligations, or defaults of the other party, its employees or agents. Each party
shall have exclusive liability and responsibility for workers' compensation
insurance, taxes and other obligations with respect to itself, its employees and
agents.

         10.9 Complete Agreement; Amendment. This Agreement (together with the
exhibits, all of which are hereby incorporated herein by reference) contains the
entire agreement between the parties and supersedes all prior or contemporaneous
discussions, negotiations, representations, warranties, or agreements relating
to the subject matter of this Agreement. This Agreement may not be amended or
changed in any of its provisions except by a subsequent written agreement
between the parties.

         10.10 Headings. The article, section and paragraph headings used in
this Agreement are for convenience only and are not part of the agreement
between the parties.

         10.11 Survival. Notwithstanding any provisions of this Agreement to the
contrary, Section 3.3, Section 3.5(a), Article IV, Article V, Section 6.5,
Article VII, Article VIII, and Sections 10.3, 10.4, 10.6 and 10.11 shall survive
the expiration or termination of this Agreement for any reason.

         IN WITNESS WHEREOF, the parties have signed this Agreement effective as
of the Effective Date.

EXPRESS SCRIPTS SPECIALTY                ORPHAN MEDICAL, INC.
DISTRIBUTION SERVICES, INC.

By:      /s/ Jean-Marc Quach             By:     /s/ John H. Buillion
         --------------------                    ----------------------
Name:    Jean-Marc Quach                 Name:   John H. Bullion
Title:   Vice President and              Title:   Chief Executive Officer
         General Manager

<PAGE>

                                    EXHIBIT A
                                COVERED SERVICES

o   ADMINISTRATION OF THE XYREM SUCCESS PROGRAMSM

    |X|  Call Center Services
    |X|  Drug Information and Fulfillment Services
    |X|  Physician and Patient Registries
    |X|  Xyrem Patient Assistance Program
    |X|  **
    |X|  Dispensing Services
    |X|  Pharmacy Services
    |X|  Distribution Services
    |X|  Provision of a Xyrem program manager

o   INVENTORY MANAGEMENT

    |X| Orphan monitors production cycles and expected inventories and
        communicates information to SDS
    |X| SDS's inventory system tracks Product production cycles and planned
        availability
    |X| Inventory reports daily to Orphan

o   MASTER WAREHOUSE

    |X|  Sole source distribution agent for Xyrem
    |X|  Separate storage, dispensing distribution and security area for Xyrem
    |X|  Inventory of Xyrem
    |X|  Inventory storage in compliance with Orphan's reasonable requirements
    |X|  Maintaining mutually agreed upon inventory levels.
    |X|  Tracking of Xyrem, by lot #, NDC# and expiration date.
    |X|  Maintaining and FIFO inventory
    |X|  Full Class I Recall capabilities
    |X|  Management of a database of lot numbers
    |X|  Return goods-storage, processing and disposal

o   REPORTING

    |X|  Reporting as agreed on Product inventory (non-patient identifiable)
    |X|  **
    |X|  Adverse event reporting as required by Orphan medical
    |X|  **
    |X|  Other reports mutually agreed upon
    |X|  Custom and ad hoc reports reasonably requested by Orphan Medical

o   SOPS AND BUSINESS RULES

Any other services as mutually agreed upon by the parties and memorialized in
written SOPs or Business RuLes.

                                       14
<PAGE>

                           EXHIBIT B
                             FEES

---------------------------------- ----------------------------
          Type of Fee                  Amount Owed by Orphan
---------------------------------- ----------------------------
---------------------------------- ----------------------------
Set-Up Fee                         **
---------------------------------- ----------------------------
---------------------------------- ----------------------------
Non-PAP Administrative Fee         ** *
---------------------------------- ----------------------------
---------------------------------- ----------------------------
PAP Administrative Fee             **
---------------------------------- ----------------------------
---------------------------------- ----------------------------
PAP Order Dispensing Fee           **
---------------------------------- ----------------------------
---------------------------------- ----------------------------
PAP Order Shipping Costs           **
---------------------------------- ----------------------------
---------------------------------- ----------------------------
Custom and ad hoc reports          **
---------------------------------- ----------------------------

* The ** fee is based on the current strength, dosage and bottle size of
  Product as of the Effective Date, and is subject to change as
  mutually determined in good faith by SDS and Orphan if the current
  strength, dosage or bottle size changes.

                                       15
<PAGE>

                                    EXHIBIT C
                                      XYREM

XYREM & DESIGN (As identified in U.S. Reg. No. 2,472,156)

XYREM & DESIGN (Color)(As identified in U.S. Reg. No. 2,423,880)

XYREM CIII SODIUM OXYBATE ORAL SOLUTION & DESIGN

XYREM SUCCESS PROGRAM

XYREM PATIENT SUCCESS PROGRAM

XYREM PHYSICIAN SUCCESS PROGRAM

1-866-XYREM88

O ORPHAN MEDICAL & DESIGN (As shown in U.S. Reg. No. 1,906,107)

ORPHAN

ORPHAN MEDICAL

ORPHAN MEDICAL, INC.

                                       16aug2704_ex1026

Exhibit 10.26

[CALLIDUS SOFTWARE LETTERHEAD]

  August 24, 2004 

  Mr. Daniel Welch

  6038 White Haven Court

  San Jose,
  CA 95138 

  Dear Dan: 

  This letter is to confirm our agreement (the “Agreement”)
  with respect to your separation from Callidus Software Inc. (the “Company”).
  To ensure that there are no ambiguities, this Agreement explains in detail
  both your rights and obligations and those of the Company upon termination
  of your employment.

  Your employment with the Company and its subsidiaries will terminate on September 30, 2004 (“Termination Date”).
  You will be paid your regular base salary until your Termination Date, and
  any vacation pay that has accrued through your Termination Date, minus any
  applicable withholding taxes. If you sign the attached Release of Claims (the “Release”)
  and agree to be subject to the Trading Restrictions (as defined below), the
  Company agrees to pay you $115,951.34, (representing the equivalent of six
  months of base pay and six months of your applicable COBRA payments), minus
  applicable withholding taxes, on or before September 30, 2004, you will be
  provided with one month of Executive Service outplacement services through
  Right Management Consultants beginning September 1, 2004, and you will be allowed
  to keep your currently assigned computer, the Dell Latitude SN 69GXG31 (the “Severance Benefits”).
  The Severance Benefits will be in lieu of any amounts that would otherwise
  be due to you under any other agreement, plan or policy or applicable law in
  connection with your termination of employment.

  If you are contributing to the Company’s 401(k)
  Plan, your contributions will cease upon your Termination Date. You will continue
  to have life insurance coverage through the Company until your Termination
  Date, upon which  date, such coverage will cease. Furthermore, vesting on stock
  options that have been granted to you will cease upon your Termination Date.
  You will have the number of days from your Termination Date specified in the
  applicable option agreement to  exercise any vested options. In consideration
  of the additional benefits to be provided to you in accordance with this Agreement
  and the Release, you agree that you will remain subject to the terms of the
  Company’s insider trading policy and
blackout period as if you remained an executive officer of the Company, and that
  as such you agree not to enter into any purchase or sale of the Company’s
  stock or any of the other transactions described in Section 4 of the Company’s
insider trading policy from September
1, 2004 (or such earlier date as the Company may next impose trading restrictions
on employees) until
  two full business days after the Company has completed its third quarter earnings
  call (expected to occur towards the end of October 2004) (the “Trading
  Restrictions”),
  upon which time the Trading Restrictions shall cease and be of no further force
  or effect. For your reference, we have
  enclosed a copy of the Company's current insider trading policy. By
  signing below you acknowledge that the Company will be permitted to instruct
  its transfer agent not to process any transaction executed in violation of
  the Trading Restrictions. Should you need assistance or have any questions
  with respect to the option exercise process, please contact Virginia Sajor
  at (408) 808-6597. For questions relating to the
  insider trading policy, please contact me at 408-808-6470.

  Any additional equipment such as your Blackberry, phone card, etc. should be returned to the Company. Any outstanding business expenses that you have incurred up to your Termination Date, 

  but have not submitted, must be submitted within 60 days of your Termination Date to Patricia Ducote in Accounting. For your convenience, an expense form has been enclosed with this packet. 

  As you are aware, your obligations under the Employment,
  Confidential Information and Invention Assignment Agreement (“Employee Inventions Agreement”)
  will remain in effect following the Termination Date in accordance with the
  terms of that agreement. For your reference, we have enclosed a copy of your
  Employee Inventions Agreement. 

  As referred to earlier, the Company is prepared to offer you additional benefits to which you would otherwise not be entitled in exchange for (i) an agreement to be bound by the Trading Restrictions discussed in this Agreement and
(ii) signing the attached Release. Specifically, in exchange for the foregoing (i) and (ii), the Company is prepared to offer you a lump sum payment for the equivalent of six months of your current base salary and six months of your COBRA payments,
less deductions and withholdings that are authorized or required by law. If you wish to accept such additional benefits in consideration for the Release and your agreement to be subject to the Trading Restrictions, your signature below and on the
enclosed Release will reflect your agreement.

  In accordance with the Older Workers Benefit Protection Act, you have up to 21 days from the date of this Agreement to accept its terms. By signing this Agreement and the attached Release, you acknowledge that you fully understand
the terms of this agreement and the Release. Should you have any questions in respect of the foregoing, you are advised to seek legal counsel for advice. Once you execute this Agreement and the Release, you will have an additional seven (7) days in
which to revoke the Release. To revoke your acceptance, you must deliver to me a written statement of revocation, in which case you will not receive the Severance Benefits. 

  We wish you the best of success in your future
endeavors.

Sincerely, 

/s/ Ronald J. Fior 

  Ron J. Fior

  Vice President & Chief Financial Officer

  Callidus
  Software Inc. 

  Encl. 

  	Accepted and agreed on August
      24, 2004:
	 	 
	By:	/s/ Daniel Welch
	 	

	 	     Daniel Welch

  

  

  

  RELEASE OF CLAIMS 
  

  I, Daniel Welch, expressly agree and consent to the
  termination of my employment on September 30, 2004 in exchange for the benefits
  described in
  the letter agreement between Callidus Software (the “Company”)
  and me dated as of August 19, 2004 (the “Letter
  Agreement”).
  I understand that these are benefits for which I am not eligible unless I elect
  to sign this Release of Claims (the “Release”) and agree to
  be subject to the Trading Restrictions described in the Letter Agreement. I
  understand that the Company is prepared to offer me the Severance Benefits
  (as defined in the Letter Agreement) in return for my agreement with the
  terms of this Release and the Letter Agreement. 

  In consideration of these benefits, I, on behalf of myself and my spouse, dependents, assigns, heirs, executors and administrators, hereby fully and completely release, waive and forever discharge the Company, its past,
present and future affiliates, subsidiaries, agents, officers, directors, stockholders, employees, attorneys, insurers, successors, assigns and other representatives from any and all claims, of any and every kind, nature and character, known or
unknown, foreseen or unforeseen, based on any act or omission occurring prior to September 30, 2004, the date of my signing this Release, including but not limited to any claims arising out of my offer of employment, my employment or termination of
my employment with the Company, this Release, the Letter Agreement or my right to purchase, or the actual purchase of shares of stock of the Company, including, without limitation, any claims for fraud, misrepresentation, breach of fiduciary duty,
breach of duty under applicable state corporate law, and securities fraud under any state or federal law. The matters released also include, but are not limited to, any claims under federal, state or local laws, including claims arising under, Title
VII of the Civil Rights Act of 1964, the Civil Rights Act of 1866, the Civil Rights Act of 1991, the Employee Retirement and Income Security Act of 1974, the Americans with Disabilities Act, or the Age
Discrimination in Employment Act, each as amended
to date, and any common law, tort, contract or statutory claims, and any claims
for attorneys’ fees and costs. For the avoidance of doubt, nothing contained
in the foregoing shall be deemed to limit my rights to receive unemployment or workers compensation, nor shall any of my rights as a vested beneficiary under the Company 401(k) plan be limited by the foregoing. Moreover, nothing in this release
shall remove my right to indemnification by the Company for my actions or omissions during the period which were in the course and scope of my employment as an executive officer of the Company under the terms of the Company’s current directors
and officers insurance policy, my Indemnification Agreement with the Company dated August 26, 2003, or Article 10 of the Company’s
Amended and Restated Certificate of Incorporation, which rights to insurance
and indemnification shall be limited and terminated only in accordance with the
terms of such policy, agreement or document. 

  I represent that I am over the age of 40. 

  I understand and agree that this Release extinguishes all claims, whether known or unknown, foreseen or unforeseen, except for those claims expressly described above. I expressly waive any rights or benefits under Section
1542 of the California Civil Code, or any equivalent statute. California Civil Code Section 1542 provides as follows:

  
    “A general release does not extend
      to claims which the creditor does not know or suspect to exist in his favor
      at the time of executing the release, which if known by him must have materially
      affected his settlement with the debtor.” 
    

  I fully understand that, if any fact with respect to any matter covered by this Release is found hereafter to be other than or different from the facts now believed by me to be true, I expressly accept and assume that this
Release shall be and remain effective, notwithstanding such difference in the facts.

  I agree not to file any claim, charge, action or complaint concerning any matter referred to in this Release. If I have previously filed any claims, I agree to take all steps necessary to cause them to be withdrawn without
delay. The Company agrees to and does fully and completely release, discharge and waive any and all claims, charges, causes of actions or complaints of whatever kind which the Company has or may have against me by reason of any event, matter, cause
or thing related to my employment or the termination thereof which has occurred prior to the 

  execution of this agreement except any claims, charges, causes of actions or complaints of whatever kind which are founded upon or relate to allegations of fraud, intentional or willful misconduct or other criminal conduct
while employed at the Company for which the Company, under applicable law, may not indemnify me in any action, suit or proceeding brought or threatened by a third party directly or in the right of the Company. Notwithstanding the foregoing, the
Company does not waive any rights to which it may be entitled to seek to enforce the Letter Agreement. 

  I further acknowledge that during my employment,
  I may have obtained confidential, proprietary and trade secret information,
  including information relating to the Company’s financial condition, results
  of operations, products, plans, designs and other valuable confidential information.
  I agree not to disclose any such confidential information unless required by
  subpoena or court order, and that I will first give the Company written notice
  of such subpoena or court order with reasonable advance notice to permit the
  Company to oppose such subpoena or court order if it chooses to do so. 

  This Release and the Letter Agreement constitute
  the entire agreement between the Company and me with respect to any matters
  referred to in this Release. This Release and the Letter Agreement supersede
  any and all of the other agreements between the Company and me, except for
  the Employment, Confidential Information and Invention Assignment Agreement
  dated September 14, 1998, the Indemnification Agreement dated August 26, 2003,
  and the Stock Option Agreements dated September 16, 1998, October 12, 1999,
  March 13, 2001, December 23, 2002, August 26, 2003, and February 3, 2004 (collectively,
  the “Other Agreements”),
  all of which have been included in my termination packet and remain in effect
  (except that if the Letter Agreement and this Release conflict with any such Other Agreements, the Letter Agreement and this Release shall govern) and will terminate in accordance with their respective terms. No other consideration, agreements, representations, oral
statements, understandings or course of conduct which are not expressly set forth in this Release or the Letter Agreement should be implied or are binding. I am not relying upon any other agreement, representation, statement, omission, understanding
or course of conduct which is not expressly set forth in this Release or the Letter Agreement. I understand and agree that neither this Release nor the Letter Agreement shall be deemed or construed at any time or for any purposes as an admission of
any liability or wrongdoing by either the Company or me. I also agree that if any provision of this Release, the Letter Agreement or the Other Agreements is deemed invalid, the remaining provisions will still be given full force and effect. The
terms and conditions of this Release and the Letter Agreement will be governed by, interpreted and construed in accordance with the laws of California. 

  I agree that, during the remaining term of my employment with the Company and for a period of twelve (12) months immediately following the termination of my relationship with the Company, I shall not either directly or
indirectly solicit, induce, recruit or encourage any of the Company's employees to leave their employment, take away such employees from the Company, or attempt to so solicit, induce, recruit, encourage or take away employees of the Company, either
for myself or on behalf of any other person or entity. 

  I agree that I will not impugn the business of the
  Company, including the use of defamatory statements towards the Company, or
  its or its subsidiaries’ officers, directors, or former or current employees. I further
acknowledge and agree that inquiries from my future potential employers should be directed to the Company’s human resources department, which shall supply my dates of employment, position held and salary. The Company agrees that it shall not,
and shall not authorize any officer, director, or other employee of the Company to, make negative statements or representations, or otherwise communicate negatively about me, directly or indirectly, in writing, orally, or otherwise, or take any
action which may, directly or indirectly, disparage or be damaging to me or my reputation. Finally, I agree that I will not disclose voluntarily or allow anyone else to disclose either the existence of, reason for, contents of, or the discussions
between myself and the Company about this Release or the Letter Agreement without the Company’s prior written consent, unless required to do so by law. Notwithstanding this provision, I am authorized to disclose this Release and the Letter
Agreement to my spouse, attorneys and tax advisors on a “need to know” basis,
on the condition that they agree with the Company to hold the terms of the Release
and the Letter Agreement in strictest confidence. I am further authorized to
make appropriate disclosures as required by court order, provided that I notify
the Company in writing of such legal obligations to disclose at least five (5)
business days in advance of any such disclosure.

  I understand that the Company is subject to the rules
  and regulations of the Securities and Exchange Commission (the “SEC”)
  and therefore may be required to disclose some or all of the terms of this
  Release and/or the Letter Agreement with the SEC, including by filing this
  Release and the Letter Agreement as an exhibit to one or more reports filed
  with the SEC. 

  Prior to execution of this Release and the Letter Agreement, I have apprised myself of sufficient relevant information in order that I can intelligently exercise my own judgment. I have had sufficient time to consult legal
counsel and the Company has also given me at least 21 days in which to consider this Release and the Letter Agreement, if I wish. I further acknowledge and agree that this Release and the Letter Agreement are executed voluntarily and with full
knowledge of their legal significance. I also understand and agree that if any suit is brought to enforce the provisions of this Release or the Letter Agreement, the prevailing party shall be entitled to its costs, expenses, and attorneys' fees as
well as any and all other remedies specifically authorized under the law.

  I understand that the Company’s failure to insist upon strict adherence to any term of this Release or the Letter Agreement on any occasion shall not be considered a waiver of the Company’s
  rights or deprive the Company of the right to insist on strict adherence to
  that term or any other term hereof or thereof.

  EMPLOYEE'S ACCEPTANCE OF RELEASE 
  

  I HAVE CAREFULLY READ AND FULLY UNDERSTAND AND VOLUNTARILY AGREE TO BE SUBJECT TO ALL THE TERMS OF THIS RELEASE IN EXCHANGE FOR THE ADDITIONAL BENEFITS DESCRIBED IN THIS RELEASE AND THE LETTER AGREEMENT TO WHICH I WOULD
OTHERWISE NOT BE ENTITLED.
  

	Dated: 	8/24/04	 	/s/ Daniel Welch
	 	
	 	

	 	 	 	Daniel Welch
	 	 	 	 
	Dated: 	8/24/04	 	/s/ Ronald J. Fior
	 	
	 	

	 	 	 	On Behalf of Callidus Software

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