Document:

Exhibit
10.11

2004 EQUITY INCENTIVE PLAN

OF

DEPOMED, INC.

TABLE
OF CONTENTS

	
  

  	
   

  	
  

  	
   

  	
  Page

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Purpose of this Plan

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Definitions and Rules of Interpretation

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2.1

  	
  Definitions

  	
   

  	
  1

  
	
   

  	
  2.2

  	
  Rules of Interpretation

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Shares Subject to this Plan; Term of this Plan

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  3.1

  	
  Number of Award Shares

  	
   

  	
  6

  
	
   

  	
  3.2

  	
  Term of this Plan.

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Administration

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  4.1

  	
  General.

  	
   

  	
  6

  
	
   

  	
  4.2

  	
  Authority of the Administrator

  	
   

  	
  7

  
	
   

  	
  4.3

  	
  Scope of Discretion

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Participants Eligible to Receive Awards

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  5.1

  	
  Eligible Participants

  	
   

  	
  8

  
	
   

  	
  5.2

  	
  Section 162(m) Limitation.

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Terms and Conditions of Options

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  6.1

  	
  Price

  	
   

  	
  9

  
	
   

  	
  6.2

  	
  Term

  	
   

  	
  9

  
	
   

  	
  6.3

  	
  Vesting

  	
   

  	
  9

  
	
   

  	
  6.4

  	
  Form and Method of Payment.

  	
   

  	
  10

  
	
   

  	
  6.5

  	
  Assignability of Options

  	
   

  	
  11

  
	
   

  	
  6.6

  	
  Substitute Options

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Incentive Stock Options

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  8.

  	
  Stock Awards

  	
   

  	
  13

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  8.1

  	
  General

  	
   

  	
  13

  
	
   

  	
  8.2

  	
  Right of Repurchase

  	
   

  	
  13

  

 

 ii
 

 

	
  

  	
  8.3

  	
  Form of Payment for Stock Awards

  	
   

  	
  13

  
	
   

  	
  8.4

  	
  Nonassignability of Stock Awards

  	
   

  	
  13

  
	
   

  	
  8.5

  	
  Substitute Stock Award

  	
   

  	
  14

  
	
   

  	
  8.6

  	
  Maximum Number of Stock Awards

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.

  	
  Exercise of Awards

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  9.1

  	
  In General

  	
   

  	
  14

  
	
   

  	
  9.2

  	
  Time of Exercise

  	
   

  	
  14

  
	
   

  	
  9.3

  	
  Issuance of Award Shares

  	
   

  	
  14

  
	
   

  	
  9.4

  	
  Termination.

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.

  	
  Certain Transactions and Events

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  10.1

  	
  In General

  	
   

  	
  17

  
	
   

  	
  10.2

  	
  Changes in Capital Structure

  	
   

  	
  17

  
	
   

  	
  10.3

  	
  Fundamental Transactions

  	
   

  	
  18

  
	
   

  	
  10.4

  	
  Changes in Control

  	
   

  	
  19

  
	
   

  	
  10.5

  	
  Divestiture

  	
   

  	
  19

  
	
   

  	
  10.6

  	
  Dissolution

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  11.

  	
  Automatic Option Grants to Non-Employee Directors

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  11.1

  	
  Automatic Option Grants to Non-Employee Directors.

  	
   

  	
  19

  
	
   

  	
  11.2

  	
  Certain Transactions and Events.

  	
   

  	
  21

  
	
   

  	
  11.3

  	
  Limited Transferability of Options

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  12.

  	
  Withholding and Tax Reporting

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  12.1

  	
  Tax Withholding Alternatives.

  	
   

  	
  22

  
	
   

  	
  12.2

  	
  Reporting of Dispositions

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  13.

  	
  Compliance with Law

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  14.

  	
  Amendment or Termination of this Plan or Outstanding
  Awards

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  14.1

  	
  Amendment and Termination

  	
   

  	
  23

  
	
   

  	
  14.2

  	
  Shareholder Approval

  	
   

  	
  23

  
	
   

  	
  14.3

  	
  Effect

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  15.

  	
  Reserved Rights

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  15.1

  	
  Nonexclusivity of this Plan

  	
   

  	
  24

  

 

 iii
 

 

	
  

  	
  15.2

  	
  Unfunded Plan

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  16.

  	
  Special Arrangements Regarding Award Shares

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  16.1

  	
  Escrow of Stock Certificates

  	
   

  	
  24

  
	
   

  	
  16.2

  	
  Repurchase Rights.

  	
   

  	
  25

  
	
   

  	
  16.3

  	
  Market Standoff

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  17.

  	
  Beneficiaries

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  18.

  	
  Miscellaneous

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
  18.1

  	
  Governing Law

  	
   

  	
  26

  
	
   

  	
  18.2

  	
  Determination of Value

  	
   

  	
  26

  
	
   

  	
  18.3

  	
  Reservation of Shares

  	
   

  	
  26

  
	
   

  	
  18.4

  	
  Electronic Communications

  	
   

  	
  27

  
	
   

  	
  18.5

  	
  Notices

  	
   

  	
  27

  

 

 iv

2004 EQUITY INCENTIVE
PLAN

OF

DEPOMED, INC.

(As Amended through March 23, 2006)

1.                                       Purpose
of this Plan

The purpose of this 2004 Equity Incentive Plan is to
enhance the long-term shareholder value of Depomed, Inc. by offering
opportunities to eligible participants to share in the growth in value of the
equity of Depomed, Inc. and to provide incentives to eligible Employees,
Company Directors and Consultants to contribute to the success of the Company.

2.                                       Definitions
and Rules of Interpretation

2.1                                 Definitions.  This Plan uses the following defined terms:

(a)                                  “Administrator”  means the
Board, the Committee, or any officer or employee of the Company to whom the
Board or the Committee delegates authority to administer this Plan.

(b)                                 “Affiliate” means a “parent” or
“subsidiary” (as each is defined in Section 424 of the Code) of the Company and
any other entity that the Board or Committee designates as an “Affiliate” for
purposes of this Plan.

(c)                                  “Applicable Law” means any
and all laws of whatever jurisdiction, within or without the United States, and
the rules of any stock exchange or quotation system on which Shares are listed
or quoted, applicable to the taking or refraining from taking of any action
under this Plan, including the administration of this Plan and the issuance or
transfer of Awards or Award Shares.

(d)                                 “Award”
means a Stock Award or Option granted in accordance with the terms of this
Plan.

(e)                                  “Award Agreement” means the
document evidencing the grant of an Award.

(f)                                    “Award Shares” means Shares
covered by an outstanding Award or purchased under an Award.

(g)                                 “Awardee” means: (i) a
person to whom an Award has been granted, including a holder of a Substitute
Award, (ii) a person to whom an Award has been transferred in accordance
with all applicable requirements of Sections 6.5, 7(h), and 17, or (iii) a
person who holds Award Shares subject to a right of repurchase under Section
16.2.

(h)                                 “Board” means the board of
directors of the Company.

(i)                                     “Change in Control” means any
transaction or event that the Board specifies as a Change in Control under
Section 10.4.

(j)                                     “Code” means the Internal
Revenue Code of 1986.

(k)                                  “Committee” means a committee
composed of Company Directors appointed in accordance with the Company’s
charter documents and Section 4.

(l)                                     “Company” means Depomed,
Inc., a California corporation.

(m)                               “Company Director” means a
member of the Board.

(n)                                 “Consultant” means an
individual who, or an entity or employee of any entity that, provides bona fide
services to the Company or an Affiliate not in connection with the offer or
sale of securities in a capital-raising transaction, but who is not an
Employee.

(o)                                 “Director” means a member of
the board of directors of the Company or an Affiliate.

(p)                                 “Divestiture” means any
transaction or event that the Board specifies as a Divestiture under Section
10.5.

(q)                                 “Domestic Relations Order” means a “domestic relations order” as
defined in, and otherwise meeting the requirements of, Section 414(p) of
the Code, except that reference to a “plan” in that definition shall be to this
Plan.

(r)                                    “Employee” means a regular
employee of the Company or an Affiliate, including an Officer or Director, who
is treated as an employee in the personnel records of the Company or an
Affiliate, but not individuals who are classified by the Company or an
Affiliate as: (i) leased from or otherwise employed by a third party,
(ii) independent contractors, or (iii) intermittent or temporary
workers.  The Company’s or an Affiliate’s
classification of an individual as an “Employee” (or as not an “Employee”) for
purposes of this Plan shall not be altered retroactively even if that
classification is changed retroactively for another purpose as a result of an
audit, litigation or otherwise.  An Awardee
shall not cease to be an Employee due to transfers between locations of the
Company, or between the Company and an Affiliate, or to any successor to the
Company or an Affiliate that assumes the Awardee’s Options under
Section 10.  Neither service as a
Director nor receipt of a director’s fee shall be sufficient to make a Director
an “Employee.”

(s)                                  “Exchange Act” means the
Securities Exchange Act of 1934.

 2
 

(t)                                    “Executive” means, if the
Company has any class of any equity security registered under Section 12 of the
Exchange Act, an individual who is subject to Section 16 of the Exchange Act or
who is a “covered employee” under Section 162(m) of the Code, in either
case  because of the individual’s
relationship with the Company or an Affiliate. 
If the Company does not have any class of any equity security registered
under Section 12 of the Exchange Act, “Executive” means any (i) Director or
(ii) officer elected or appointed by the Board.

(u)                                 “Expiration Date” means, with
respect to an Award, the date stated in the Award Agreement as the expiration
date of the Award or, if no such date is stated in the Award Agreement, then
the last day of the maximum exercise period for the Award, disregarding the
effect of an Awardee’s Termination or any other event that would shorten that
period.

(v)                                 “Fair Market Value” means the
value of Shares as determined under Section 18.2.

(w)                               “Fundamental Transaction”
means any transaction or event described in Section 10.3.

(x)                                   “Grant Date” means the date
the Administrator approves the grant of an Award.  However, if the Administrator specifies that
an Award’s Grant Date is a future date or the date on which a condition is
satisfied, the Grant Date for such Award is that future date or the date that
the condition is satisfied.

(y)                                 “Incentive Stock Option”
means an Option intended to qualify as an incentive stock option under Section
422 of the Code and designated as an Incentive Stock Option in the Award
Agreement for that Option.

(z)                                   “Nonstatutory Option”
means any Option other than an Incentive Stock Option.

(aa)                            “Non-Employee Director”
means any person who is a member of the Board but is not an Employee of the
Company or any Affiliate of the Company and has not been an Employee of the
Company or any Affiliate of the Company at any time during the preceding twelve
months.  Service as a Director does not
in itself constitute employment for purposes of this definition.

 3
 

(bb)                          “Objectively Determinable Performance
Condition”  shall mean a performance condition (i) that is
established (A) at the time an Award is granted or (B)  no later than
the earlier of (1) 90 days after the beginning of the period of service to
which it relates, or (2) before the elapse of 25% of the period of service
to which it relates, (ii) that is uncertain of achievement at the time it is
established, and (iii) the achievement of which is determinable by a third
party with knowledge of the relevant facts. 
Examples of measures that may be used in Objectively Determinable
Performance Conditions include achievement of a Company goal, net order
dollars, net profit dollars, net profit growth, net revenue dollars, revenue
growth, individual performance, earnings per share, return on assets, return on
equity, and other financial objectives, objective customer satisfaction
indicators and efficiency measures, each with respect to the Company and/or an
Affiliate or individual business unit.

(cc)                            “Officer” means an officer of
the Company as defined in Rule 16a-1 adopted under the Exchange Act.

(dd)                          “Option” means a right to
purchase Shares of the Company granted under this Plan.

(ee)                            “Option Price” means the
price payable under an Option for Shares, not including any amount payable in
respect of withholding or other taxes.

(ff)                                “Option Shares” means Shares
covered by an outstanding Option or purchased under an Option.

(gg)                          “Plan” means this 2004 Equity
Incentive Plan of Depomed, Inc.

(hh)                          “Purchase Price” means the
price payable under a Stock Award for Shares, not including any amount payable
in respect of withholding or other taxes.

(ii)                                  “Reverse Vesting” means that an
Option is or was fully exercisable but that, subject to a “reverse” vesting
schedule, the Company has a right to repurchase the Option Shares as specified
in Section 16.2(a), with the Company’s right of repurchase expiring in
accordance with a “forward” vesting schedule that would otherwise have applied
to the Option under which the Option Shares were purchased or in accordance
with some other vesting schedule described in the Award Agreement.

(jj)                                  “Rule 16b-3” means Rule 16b-3
adopted under Section 16(b) of the Exchange Act.

(kk)                            “Securities Act” means the
Securities Act of 1933.

(ll)                                  “Share” means a share of the
Common Stock of the Company or other securities substituted for the Common
Stock under Section 10.

 4
 

(mm)                      “Stock Award”  means an offer
by the Company to sell shares subject to certain restrictions pursuant to the
Award Agreement as described in Section 8. 
A Stock Award does not include an option.

(nn)                          “Substitute Award” means a
Substitute Option or Substitute Stock Award granted in accordance with the
terms of this Plan.

(oo)                          “Substitute Option” means an
Option granted in substitution for, or upon the conversion of, an option
granted by another entity to purchase equity securities in the granting entity.

(pp)                          “Substitute Stock Award” means
a Stock Award granted in substitution for, or upon the conversion of, a stock
award granted by another entity to purchase equity securities in the granting
entity.

(qq)                          “Ten Percent Shareholder”
means any person who, directly or by attribution under Section 424(d) of
the Code, owns stock possessing more than ten percent of the total combined
voting power of all classes of stock of the Company or of any Affiliate on the
Grant Date.

(rr)                                “Termination” means that the
Awardee has ceased to be, with or without any cause or reason, an Employee,
Director or Consultant.  However, unless
so determined by the Administrator, or otherwise provided in this Plan,
“Termination” shall not include a change in status from an Employee, Consultant
or Director to another such status.  An
event that causes an Affiliate to cease being an Affiliate shall be treated as
the “Termination” of that Affiliate’s Employees, Directors, and Consultants.

2.2                                 Rules of Interpretation.  Any
reference to a “Section,” without more, is to a Section of this Plan.  Captions and titles are used for convenience
in this Plan and shall not, by themselves, determine the meaning of this
Plan.  Except when otherwise indicated by
the context, the singular includes the plural and vice versa.  Any reference to a statute is also a
reference to the applicable rules and regulations adopted under that
statute.  Any reference to a statute,
rule or regulation, or to a section of a statute, rule or regulation, is a
reference to that statute, rule, regulation, or section as amended from time to
time, both before and after the effective date of this Plan and including any
successor provisions.

 5
 

3.                                       Shares
Subject to this Plan; Term of this Plan

3.1                                 Number of Award Shares.  The Shares issuable under this Plan
shall be authorized but unissued or reacquired Shares, including but not
limited to Shares  repurchased by the Company on
the open market.  Subject to adjustment
under Section 10, the maximum number of Shares that may be issued under this
Plan is 3,500,000.  When an Award is granted, the maximum number
of Shares that may be issued under this Plan shall be reduced by the number of
Shares covered by that Award.  However,
if an Award later terminates or expires without having been exercised in full,
the maximum number of shares that may be issued under this Plan shall be
increased by the number of Shares that were covered by, but not purchased
under, that Award.  By contrast, the
repurchase of Shares by the Company shall not increase the maximum number of
Shares that may be issued under this Plan.

3.2                                 Term of this Plan.

(a)                                  This
Plan shall be effective on, and Awards may be granted under this Plan after,
the date it has been both adopted by the Board and approved by the Company’s
shareholders (the “Effective
Date”).

(b)                                 Subject
to the provisions of Section 14, Awards may be granted under this Plan for
a period of ten years from the earlier of the date on which the Board approves
this Plan and the date the Company’s shareholders approve this Plan.  Accordingly, Awards may not be granted under
this Plan after ten years from the earlier of those dates.

4.                                       Administration

4.1                                 General.

(a)                                  The
Board shall have ultimate responsibility for administering this Plan.  The Board may delegate certain of its
responsibilities to a Committee, which shall consist of at least two members of
the Board.  The Board or the Committee
may further delegate its responsibilities to any Employee of the Company or any
Affiliate.  Where this Plan specifies
that an action is to be taken or a determination made by the Board, only the
Board may take that action or make that determination.  Where this Plan specifies that an action is
to be taken or a determination made by the Committee, only the Committee may
take that action or make that determination. 
Where this Plan references the “Administrator,” the action may be taken
or determination made by the Board, the Committee, or other Administrator.  However, only the Board or the Committee may
approve grants of Awards to Executives and such other participants as may be
specifically designated by the Board, and an Administrator other than the Board
or the Committee may grant Awards only within guidelines established by the
Board or Committee.  Moreover, all
actions and determinations by any Administrator are subject to the provisions
of this Plan.

 6
 

(b)                                 So
long as the Company has registered and outstanding a class of equity securities
under Section 12 of the Exchange Act, the Committee shall consist of
Company Directors who are “Non-Employee Directors” as defined in
Rule 16b-3 and, after the expiration of any transition period permitted by
Treasury Regulations Section 1.162-27(h)(3), who are “outside directors”
as defined in Section 162(m) of the Code.

4.2                                 Authority of the Administrator.  Subject to the other provisions of this Plan,
the Administrator shall have the authority to:

(a)                                  grant
Awards, including Substitute Awards;

(b)                                 determine
the Fair Market Value of Shares;

(c)                                  determine
the Option Price and the Purchase Price of Awards;

(d)                                 select
the Awardees;

(e)                                  determine
the times Awards are granted;

(f)                                    determine
the number of Shares subject to each Award;

(g)                                 determine
the methods of payment that may be used to purchase Award Shares;

(h)                                 determine
the methods of payment that may be used to satisfy withholding tax obligations;

(i)                                     determine
the other terms of each Award, including but not limited to the time or times
at which Awards may be exercised, whether and under what conditions an Award is
assignable, and whether an Option is a Nonstatutory Option or an Incentive
Stock Option;

(j)                                     modify
or amend any Award;

(k)                                  authorize
any person to sign any Award Agreement or other document related to this Plan
on behalf of the Company;

(l)                                     determine
the form of any Award Agreement or other document related to this Plan, and
whether that document, including signatures, may be in electronic form;

(m)                               interpret
this Plan and any Award Agreement or document related to this Plan;

(n)                                 correct
any defect, remedy any omission, or reconcile any inconsistency in this Plan,
any Award Agreement or any other document related to this Plan;

 7
 

(o)                                 adopt,
amend, and revoke rules and regulations under this Plan, including rules and
regulations relating to sub-plans and Plan addenda;

(p)                                 adopt,
amend, and revoke special rules and procedures which may be inconsistent with
the terms of this Plan, set forth (if the Administrator so chooses) in
sub-plans regarding (for example) the operation and administration of this Plan
and the terms of Awards, if and to the extent necessary or useful to
accommodate non-U.S. Applicable Laws and practices as they apply to Awards and
Award Shares held by, or granted or issued to, persons working or resident
outside of the United States or employed by Affiliates incorporated outside the
United States;

(q)                                 in
the case of the Board, determine whether a transaction or event should be
treated as a Change in Control, a Divestiture or neither;

(r)                                    determine
the effect of a Fundamental Transaction and, if the Board determines that a
transaction or event should be treated as a Change in Control or a Divestiture,
then the effect of that Change in Control or Divestiture; and

(s)                                  make
all other determinations the Administrator deems necessary or advisable for the
administration of this Plan.

4.3           Scope of Discretion.  Subject to the last sentence of this Section
4.3, on all matters for which this Plan confers the authority, right or power
on the Board, the Committee, or other Administrator to make decisions, that
body may make those decisions.  Those decisions
will be final, binding and conclusive. 
Moreover, but again subject to the last sentence of this Section 4.3, in
making those decisions, the Board, Committee or other Administrator need not
treat all persons eligible to receive Awards, all Awardees, all Awards or all
Award Shares the same way.  However,
except as provided in Section 14.3, the discretion of the Board, Committee
or other Administrator is subject to the specific provisions and specific
limitations of this Plan, as well as all rights conferred on specific Awardees
by Award Agreements and other agreements.

5.                                       Participants
Eligible to Receive Awards

5.1           Eligible Participants.  Awards (including Substitute Awards) may be
granted to, and only to, Employees, Directors and Consultants, including to
prospective Employees, Directors and Consultants conditioned on the beginning
of their service for the Company or an Affiliate.  However, Incentive Stock Options may only be
granted to Employees, as provided in Section 7(g).

 8
 

5.2                                 Section 162(m) Limitation.

(a)                                  Options.  So long as the Company
is a “publicly held corporation” within the meaning of Section 162(m) of the
Code: (i) no Employee may be granted one or more Options within any fiscal
year of the Company under this Plan to purchase more than 500,000 Shares under
Options, subject to adjustment pursuant to Section 10, (ii) Options may be
granted to an Executive only by the Committee (and, notwithstanding Section
4.1(a), not by the Board).  If an Option
is cancelled without being exercised or if the Option Price of an Option is
reduced, that cancelled or repriced Option shall continue to be counted against
the limit on Awards that may be granted to any participant under this Section
5.2.  Notwithstanding anything herein to
the contrary, in connection with his or her initial employment with the Company
or an Affiliate, a new Employee or prospective Employee shall be eligible to
receive up to a maximum of 750,000 Shares under Options (subject to adjustment
pursuant to Section 10), which Shares shall not be counted toward the 500,000
limitation set forth in this Section 5.2(a).

(b)                                 Stock Awards.  Any Stock Award intended as “qualified
performance-based compensation” within the meaning of Section 162(m) of the
Code must vest or become exercisable contingent on the achievement of one or
more Objectively Determinable Performance Conditions.  The Committee shall have the discretion to
determine the time and manner of compliance with Section 162(m) of the Code.

6.                                       Terms
and Conditions of Options

The following rules apply to all Options:

6.1           Price.  No Option
intended as “qualified incentive-based compensation” within the meaning of
Section 162(m) of the Code may have an Option Price less than 100% of the
Fair Market Value of the Shares on the Grant Date.  In no event will the Option Price of any
Option be less than the par value of the Shares issuable under the Option if
that is required by Applicable Law.  The
Option Price of an Incentive Stock Option shall be subject to
Section 7(f).

6.2           Term.  No Option shall
be exercisable after its Expiration Date. 
No Option may have an Expiration Date that is more than ten years after
its Grant Date.  Additional provisions
regarding the term of Incentive Stock Options are provided in Sections 7(a)
and 7(e).

6.3           Vesting.  Options
shall be exercisable: (a) on the Grant Date, or (b) in accordance
with a schedule related to the Grant Date, the date the Awardee’s directorship,
employment or consultancy begins, or a different date specified in the Award
Agreement.  If so provided in the Award
Agreement, an Option may be exercisable subject to the application of Reverse
Vesting to the Option Shares.  Additional
provisions regarding the vesting of Incentive Stock Options are provided in
Section 7(c).  No Option granted to
an individual who is subject to the overtime pay provisions of the Fair Labor
Standards Act may be exercised before the expiration of six months after the
Grant Date.

 9
 

6.4                                 Form and Method of Payment.

(a)                                  The
Administrator shall determine the acceptable form and method of payment for
exercising an Option.

(b)                                 Acceptable
forms of payment for all Option Shares are cash, check or wire transfer,
denominated in U.S. dollars except as specified by the Administrator for
non-U.S. Employees or non-U.S. sub-plans.

(c)                                  In
addition, the Administrator may permit payment to be made by any of the
following methods:

(i)                                     other Shares, or
the designation of other Shares, which (A) are “mature” shares for
purposes of avoiding variable accounting treatment under generally accepted
accounting principles (generally mature shares are those that have been owned
by the Awardee for more than six months on the date of surrender), and (B) have
a Fair Market Value on the date of surrender equal to the Option Price of the
Shares as to which the Option is being exercised;

(ii)                                  provided that a
public market exists for the Shares, consideration received by the Company
under a procedure under which a licensed broker-dealer advances funds on behalf
of an Awardee or sells Option Shares on behalf of an Awardee (a “Cashless Exercise Procedure”),
provided that if the Company extends or arranges for the extension of credit to
an Awardee under any Cashless Exercise Procedure, no Officer or Director may
participate in that Cashless Exercise Procedure;

(iii)                               subject to Section 6.4(e), one or more
promissory notes meeting the requirements of Section 6.4(e) provided,
however, that promissory notes may not be used for any portion of an Award
which is not vested at the time of exercise;

(iv)                              cancellation of any debt
owed by the Company or any Affiliate to the Awardee including without
limitation waiver of compensation due or accrued for services previously
rendered to the Company or an Affiliate; and

(v)                                 any combination of the
methods of payment permitted by any paragraph of this Section 6.4.

(d)                                 The Administrator may
also permit any other form or method of payment for Option Shares permitted by
Applicable Law.

 10

(e)           The promissory notes
referred to in Section 6.4(c)(iii) shall be full recourse.  Unless the Administrator specifies otherwise
after taking into account any relevant accounting issues, the promissory notes
shall bear interest at a fair market value rate when the Option is
exercised.  Interest on the promissory
notes shall also be at least sufficient to avoid imputation of interest under
Sections 483, 1274, and 7872 of the Code. 
The promissory notes and their administration shall at all times comply
with any applicable margin rules of the Federal Reserve.  The promissory notes may also include such
other terms as the Administrator specifies. 
Payment may not be made by promissory note by Officers or Directors if
Shares are registered under Section 12 of the Exchange Act.

6.5           Assignability
of Options.  Except as
determined by the Administrator, no Option shall be assignable or otherwise
transferable by the Awardee except by will or by the laws of descent and
distribution.  However, Options may be
transferred and exercised in accordance with a Domestic Relations Order and may
be exercised by a guardian or conservator appointed to act for the
Awardee.  Incentive Stock Options may
only be assigned in compliance with Section 7(h).

6.6           Substitute
Options.  The Board may
cause the Company to grant Substitute Options in connection with the
acquisition by the Company or an Affiliate of equity securities of any entity
(including by merger, tender offer, or other similar transaction) or of all or
a portion of the assets of any entity. 
Any such substitution shall be effective on the effective date of the
acquisition.  Substitute Options may be
Nonstatutory Options or Incentive Stock Options.  Unless and to the extent specified otherwise
by the Board, Substitute Options shall have the same terms and conditions as
the options they replace, except that (subject to the provisions of Section 10)
Substitute Options shall be Options to purchase Shares rather than equity
securities of the granting entity and shall have an Option Price determined by
the Board.

7.                                       Incentive
Stock Options

The following rules apply only to Incentive Stock
Options and only to the extent these rules are more restrictive than the rules
that would otherwise apply under this Plan. 
With the consent of the Awardee, or where this Plan provides that an
action may be taken notwithstanding any other provision of this Plan, the
Administrator may deviate from the requirements of this Section,
notwithstanding that any Incentive Stock Option modified by the Administrator
will thereafter be treated as a Nonstatutory Option.

(a)           The Expiration Date of an Incentive
Stock Option shall not be later than ten years from its Grant Date, with the
result that no Incentive Stock Option may be exercised after the expiration of ten
years from its Grant Date.

(b)           No Incentive Stock Option may be
granted more than ten years from the date this Plan was approved by the Board.

 11
 

(c)           Options intended to be incentive
stock options under Section 422 of the Code that are granted to any single
Awardee under all incentive stock option plans of the Company and its
Affiliates, including incentive stock options granted under this Plan, may not
vest at a rate of more than $100,000 (or such other amount that may be
hereafter specified in the applicable section of the Code) in Fair Market Value
of stock (measured on the grant dates of the options) during any calendar
year.  For this purpose, an option vests
with respect to a given share of stock the first time its holder may purchase
that share, notwithstanding any right of the Company to repurchase that
share.  Unless the administrator of that
option plan specifies otherwise in the related agreement governing the option,
this vesting limitation shall be applied by, to the extent necessary to satisfy
this $100,000 (or other amount) rule, by treating certain stock options that
were intended to be incentive stock options under Section 422 of the Code as
Nonstatutory Options.  The stock options
or portions of stock options to be reclassified as Nonstatutory Options are
those with the highest option prices, whether granted under this Plan or any
other equity compensation plan of the Company or any Affiliate that permits
that treatment.  This Section 7(c)
shall not cause an Incentive Stock Option to vest before its original vesting
date or cause an Incentive Stock Option that has already vested to cease to be
vested.

(d)           In
order for an Incentive Stock Option to be exercised for any form of payment
other than those described in Section 6.4(b), that form of payment must be
stated at the time of grant in the Award Agreement relating to that Incentive
Stock Option.

(e)           Any
Incentive Stock Option granted to a Ten Percent Shareholder, must have an
Expiration Date that is not later than five years from its Grant Date, with the
result that no such Option may be exercised after the expiration of five years
from the Grant Date.

(f)            The
Option Price of an Incentive Stock Option shall never be less than the Fair
Market Value of the Shares at the Grant Date. 
The Option Price for the Shares covered by an Incentive Stock Option
granted to a Ten Percent Shareholder shall never be less than 110% of the Fair
Market Value of the Shares at the Grant Date.

(g)           Incentive
Stock Options may be granted only to Employees. 
If an Awardee changes status from an Employee to a Consultant, that
Awardee’s Incentive Stock Options become Nonstatutory Options if not exercised
within the time period described in Section 7(i) (determined by treating
that change in status as a Termination solely for purposes of this Section
7(g)).

(h)           No
rights under an Incentive Stock Option may be transferred by the Awardee, other
than by will or the laws of descent and distribution.  During the life of the Awardee, an Incentive
Stock Option may be exercised only by the Awardee.  The Company’s compliance with a Domestic
Relations Order, or the exercise of an Incentive Stock Option by a guardian or
conservator appointed to act for the Awardee, shall not violate this Section
7(h).

 12
 

(i)            An Incentive Stock
Option shall be treated as a Nonstatutory Option if it remains exercisable
after, and is not exercised within, the three-month period beginning with the
Awardee’s Termination for any reason other than the Awardee’s death or
disability (as defined in Section 22(e) of the Code).  In the case of Termination due to death, an
Incentive Stock Option shall continue to be treated as an Incentive Stock
Option if it remains exercisable after, and is not exercised within, the
three-month period after the Awardee’s Termination provided it is exercised
before the Expiration Date.  In the case
of Termination due to disability, an Incentive Stock Option shall be treated as
a Nonstatutory Option if it remains exercisable after, and is not exercised
within, one year after the Awardee’s Termination.

(j)            An Incentive Stock
Option may only be modified by the Board or the Committee.

8.                                       Stock
Awards

8.1           General. 
The specific terms and conditions of a Stock Award applicable to the
Awardee shall be provided for in the Award Agreement. The Award Agreement shall
state the number of Shares that the Awardee shall be entitled to receive or
purchase, the terms and conditions on which the Shares shall vest, the price to
be paid and, if applicable, the time within which the Awardee must accept such offer.
The offer shall be accepted by execution of the Award Agreement.  The Administrator may require that all Shares
subject to a right of repurchase or risk of forfeiture be held in escrow until
such repurchase right or risk of forfeiture lapses.  The grant or vesting of a Stock Award may be
made contingent on the achievement of Objectively Determinable Performance
Conditions.

8.2           Right of Repurchase.  If so provided in the Award Agreement, Award
Shares acquired pursuant to a Stock Award may be subject to repurchase by the
Company or an Affiliate if not vested in accordance with the Award Agreement.

8.3           Form of Payment for Stock Awards.  The Administrator shall determine the
acceptable form and method of payment for exercising a Stock Award.  Acceptable forms of payment for all Award
Shares are cash, check or wire transfer, denominated in U.S. dollars except as
specified by the Administrator for non-U.S. Employees or non-U.S.
sub-plans.  In addition, the
Administrator may permit payment to be made by any of the methods permitted
with respect to the exercise of Options pursuant to Section 6.4.

8.4           Nonassignability of Stock Awards.  Except as determined by the Administrator, no
Stock Award shall be assignable or otherwise transferable by the Awardee except
by will or by the laws of descent and distribution (including without
limitation Section 17).  Notwithstanding
anything to the contrary herein, Stock Awards may be transferred and exercised
in accordance with a Domestic Relations Order.

 13
 

8.5           Substitute Stock Award.  The Board may cause the Company to grant
Substitute Stock Awards in connection with the acquisition by the Company or an
Affiliate of equity securities of any entity (including by merger, tender
offer, or other similar transaction) or of all or a portion of the assets of
any entity.  Any such substitution shall
be effective on the effective date of the acquisition.  Unless and to the extent specified otherwise
by the Board, Substitute Stock Awards shall have the same terms and conditions
as the stock awards they replace, except that (subject to the provisions of
Section 10) Substitute Stock Awards shall be Stock Awards to purchase
Shares rather than equity securities of the granting entity and shall have a
Purchase Price that, as determined by the Board in its sole and absolute
discretion, properly reflects the substitution.

8.6           Maximum
Number of Stock Awards.  The
maximum aggregate number of Shares that may be issued pursuant to Stock Awards
under this Plan shall not exceed ten percent (10%) of the number of Shares that
may be issued pursuant to this Plan under Section 3.1.

9.                                       Exercise
of Awards

9.1           In General. 
An Award shall be exercisable in accordance with this Plan and the Award
Agreement under which it is granted.

9.2           Time of Exercise.  Options and Stock Awards
shall be considered exercised when the Company receives: (a) written
notice of exercise from the person entitled to exercise the Option or Stock
Award, (b) full payment, or provision for payment, in a form and method
approved by the Administrator, for the Shares for which the Option or Stock
Award is being exercised, and (c) with respect to Nonstatutory Options,
payment, or provision for payment, in a form approved by the Administrator, of
all applicable withholding taxes due upon exercise.  An Award may not be exercised for a fraction
of a Share.

9.3           Issuance of Award Shares.  The Company shall issue
Award Shares in the name of the person properly exercising the Award.  If the Awardee is that person and so
requests, the Award Shares shall be issued in the name of the Awardee and the
Awardee’s spouse.  The Company shall
endeavor to issue Award Shares promptly after an Award is exercised.  Until Award Shares are actually issued, as
evidenced by the appropriate entry on the stock register of the Company or its
transfer agent, the Awardee will not have the rights of a shareholder with
respect to those Award Shares, even though the Awardee has completed all the
steps necessary to exercise the Award. 
No adjustment shall be made for any dividend, distribution, or other
right for which the record date precedes the date the Award Shares are issued,
except as provided in Section 10.

 14
 

9.4           Termination.

(a)           In General.  Except as provided in an Award Agreement or
in writing by the Administrator, and as otherwise provided in
Sections 9.4(b), (c), (d) and (e) after an Awardee’s Termination, the
Awardee’s Awards shall be exercisable to the extent (but only to the extent)
they are vested on the date of that Termination and only during the three
months after the Termination, but in no event after the Expiration Date.  To the extent the Awardee does not exercise
an Award within the time specified for exercise, the Award shall automatically
terminate.

(b)           Leaves of Absence.  Unless otherwise provided in the Award Agreement
or in writing by the Administrator, no Award may be exercised more than three
months after the beginning of a leave of absence, other than a personal or
medical leave approved by an authorized representative of the Company with
employment guaranteed upon return. 
Awards shall not continue to vest during a leave of absence, unless
otherwise determined in writing by the Administrator with respect to an
approved personal or medical leave with employment guaranteed upon return.

(c)           Death or Disability. 
Unless otherwise provided in the Award Agreement or in writing by the
Administrator, if an Awardee’s Termination is due to death or disability (as
determined by the Administrator with respect to all Awards other than Incentive
Stock Options and as defined by Section 22(e) of the Code with respect to
Incentive Stock Options), all Awards of that Awardee to the extent exercisable
at the date of that Termination may be exercised for one year after that
Termination, but in no event after the Expiration Date.  In the case of Termination due to death, an
Award may be exercised as provided in Section 17.  In the case of Termination due to disability,
if a guardian or conservator has been appointed to act for the Awardee and been
granted this authority as part of that appointment, that guardian or
conservator may exercise the Award on behalf of the Awardee.  Death or disability occurring after an
Awardee’s Termination shall not cause the Termination to be treated as having
occurred due to death or disability.  To
the extent an Award is not so exercised within the time specified for its
exercise, the Award shall automatically terminate.

(d)           Divestiture.  If an Awardee’s Termination is due to a
Divestiture, the Board may take any one or more of the actions described in
Section 10.3 or 10.4 with respect to the Awardee’s Awards.

 15
 

(e)           Termination for Cause.  In the discretion of the Administrator, which
may be exercised on the date of grant, or at a date later in time, if an
Awardee’s Termination is due to Cause, all of the Awardee’s Awards shall
automatically terminate and cease to be exercisable at the time of
Termination.  “Cause” means employment-related dishonesty, fraud,
misconduct or disclosure or misuse of confidential information, or other
employment-related conduct that is likely to cause significant injury to the
Company, an Affiliate, or any of their respective employees, officers or
directors (including, without limitation, commission of a felony or similar
offense whether or not employment-related), in each case as determined by the
Administrator.  “Cause” shall not require
that a civil judgment or criminal conviction have been entered against or
guilty plea shall have been made by the Awardee regarding any of the matters
referred to in the previous sentence.  Accordingly,
the Administrator shall be entitled to determine “Cause” based on the
Administrator’s good faith belief.  If
the Awardee is criminally charged with a felony or similar offense, that shall
be a sufficient, but not a necessary, basis for such a belief.

(f)            Administrator Discretion. 
Notwithstanding the provisions of Section 9.4 (a)-(e), the Administrator
shall have complete discretion, exercisable either at the time an Award is
granted or at any time while the Award remains outstanding, to:

(i)            Extend
the period of time for which the Award is to remain exercisable, following the
Awardee’s Termination, from the limited exercise period otherwise in effect for
that Award to such greater period of time as the Administrator shall deem
appropriate, but in no event beyond the Expiration Date; and/or

(ii)           Permit
the Award to be exercised, during the applicable post-Termination exercise
period, not only with respect to the number of vested Shares for which such
Award may be exercisable at the time of the Awardee’s Termination but also with
respect to one or more additional installments in which the Awardee would have
vested had the Awardee not been subject to Termination.

(g)           Consulting or Employment
Relationship. Nothing in this Plan or in any Award Agreement, and no
Award or the fact that Award Shares remain subject to repurchase rights,
shall:  (A) interfere with or limit
the right of the Company or any Affiliate to terminate the employment or
consultancy of any Awardee at any time, whether with or without cause or
reason, and with or without the payment of severance or any other compensation
or payment, (B) interfere with the application of any provision in any of the
Company’s or any Affiliate’s charter documents or Applicable Law relating to
the election, appointment, term of office, or removal of a Director or (C)
interfere with the Company’s right to terminate any consultancy.

 16
 

10.                                 Certain
Transactions and Events

10.1         In General. 
Except as provided in this Section 10, no change in the capital
structure of the Company, merger, sale or other disposition of assets or a
subsidiary, change in control, issuance by the Company of shares of any class
of securities or securities convertible into shares of any class of securities,
exchange or conversion of securities, or other transaction or event shall
require or be the occasion for any adjustments of the type described in this
Section 10.  Additional provisions
with respect to the foregoing transactions are set forth in Section 14.3.

10.2         Changes in Capital Structure.  In the event of any stock split, reverse
stock split, recapitalization, combination or reclassification of stock, stock
dividend, spin-off, or similar change to the capital structure of the
Company (not including a Fundamental Transaction or Change in Control), the
Board shall make whatever adjustments it concludes are appropriate to:
(a) the number and type of Awards that may be granted under this Plan,
(b) the number and type of Options that may be granted to any participant
under this Plan, (c) the Purchase Price and number and class of securities
issuable under each outstanding Stock Award, (d) the Option Price and
number and class of securities issuable under each outstanding Option, and (e)
the repurchase price of any securities substituted for Award Shares that are
subject to repurchase rights.  The
specific adjustments shall be determined by the Board.  Unless the Board specifies otherwise, any
securities issuable as a result of any such adjustment shall be rounded down to
the next lower whole security.  The Board
need not adopt the same rules for each Award or each Awardee.

 17
 

10.3         Fundamental Transactions.  Except for grants to Non-Employee Directors
pursuant to Section 11, in the event of (a) a merger or consolidation in which
the Company is not the surviving corporation (other than a merger or
consolidation with a wholly-owned subsidiary, a reincorporation of the Company
in a different jurisdiction, or other transaction in which there is no
substantial change in the shareholders of the Company or their relative stock
holdings and the Awards granted under this Plan are assumed, converted or
replaced by the successor corporation, which assumption shall be binding on all
participants under this Plan), (b) a merger in which the Company is the surviving
corporation but after which the shareholders of the Company immediately prior
to such merger (other than any shareholder that merges, or which owns or
controls another corporation that merges, with the Company in such merger)
cease to own their shares or other equity interest in the Company, (c) the sale
of all or substantially all of the assets of the Company, or (d) the
acquisition, sale, or transfer of more than 50% of the outstanding shares of
the Company by tender offer or similar transaction (each, a “Fundamental Transaction”),
any or all outstanding Awards may be assumed, converted or replaced by the
successor corporation (if any), which assumption, conversion or replacement
shall be binding on all participants under this Plan.  In the alternative, the successor corporation
may substitute equivalent Awards or provide substantially similar consideration
to participants as was provided to the Company’s shareholders (after taking
into account the existing provisions of the Awards).  The successor corporation may also issue, in
place of outstanding Shares held by participants, substantially similar shares
or other property subject to repurchase restrictions no less favorable to the
participants. In the event such successor corporation (if any) does not assume
or substitute Awards, as provided above, pursuant to a transaction described in
this Section 10.3, the vesting with respect to such Awards shall fully and
immediately accelerate or the repurchase rights of the Company shall fully and
immediately terminate, as the case may be, so that the Awards may be exercised
or the repurchase rights shall terminate before, or otherwise in connection
with the closing or completion of the Fundamental Transaction or event, but
then terminate.  Notwithstanding anything
in this Plan to the contrary, the Board may, in its sole discretion, provide
that the vesting of any or all Award Shares subject to vesting or a right of
repurchase shall accelerate or lapse, as the case may be, upon a transaction
described in this Section 10.3. If the Board exercises such discretion with
respect to Options, such Options shall become exercisable in full prior to the
consummation of such event at such time and on such conditions as the Board
determines, and if such Options are not exercised prior to the consummation of
the Fundamental Transaction, they shall terminate at such time as determined by
the Board.  The Board need not adopt the
same rules for each Award or each Awardee. 
Subject to any greater rights granted to participants under the
foregoing provisions of this Section 10.3, in the event of the occurrence of
any Fundamental Transaction, any outstanding Awards shall be treated as
provided in the applicable agreement or plan of merger, consolidation,
dissolution, liquidation, or sale of assets.

 18
 

10.4         Changes
in Control.  The Board
may also, but need not, specify that other transactions or events constitute a “Change in Control”.  The Board may do that either before or after
the transaction or event occurs. 
Examples of transactions or events that the Board may treat as Changes
in Control are: (a) any person or entity, including a “group” as
contemplated by Section 13(d)(3) of the Exchange Act, acquires securities
holding 50% or more of the total combined voting power or value of the Company,
or (b) as a result of or in connection with a contested election of
Company Directors, the persons who were Company Directors immediately before
the election cease to constitute a majority of the Board.  In connection with a Change in Control, notwithstanding
any other provision of this Plan, the Board may, but need not, take any one or
more of the actions described in Section 10.3. 
In addition, the Board may extend the date for the exercise of Awards
(but not beyond their original Expiration Date).  The Board need not adopt the same rules for
each Award or each Awardee.

10.5         Divestiture. 
If the Company or an Affiliate sells or otherwise transfers equity
securities of an Affiliate to a person or entity other than the Company or an
Affiliate, or leases, exchanges or transfers all or any portion of its assets
to such a person or entity, then the Board may specify that such transaction or
event constitutes a “Divestiture”.  In connection with a Divestiture,
notwithstanding any other provision of this Plan, the Board may, but need not,  take one or more of the actions described in Section 10.3
or 10.4 with respect to Awards or Award Shares held by, for example, Employees,
Directors or Consultants for whom that transaction or event results in a
Termination.  The Board need not adopt
the same rules for each Award or each Awardee.

10.6         Dissolution. 
If the Company adopts a plan of dissolution, the Board may cause Awards
to be fully vested and exercisable (but not after their Expiration Date) before
the dissolution is completed but contingent on its completion and may cause the
Company’s repurchase rights on Award Shares to lapse upon completion of the
dissolution.  The Board need not adopt
the same rules for each Award or each Awardee. 
However, to the extent not exercised before the earlier of the
completion of the dissolution, Awards shall terminate immediately prior to the
dissolution.

11.                               Automatic
Option Grants to Non-Employee Directors

11.1         Automatic Option Grants to Non-Employee Directors.

(a)           Annual Grant.  On the
date of the last regular meeting of directors during each calendar year each
individual who is serving as a Non-Employee Director shall automatically be
granted a Nonstatutory Option to purchase 15,000 Shares (the “Annual Grant”),
provided, however, that such individual has served as a Non-Employee Director
for at least six months.

(b)           Initial Grant.  Upon
the first appointment or election of an individual as a Non-Employee Director,
such individual shall automatically be granted a Nonstatutory Option to
purchase 25,000 Shares (the “Initial
Grant”).

 19
 

(c)           Exercise Price.

(i)            The
Option Price shall be equal to one hundred percent (100%) of the Fair Market
Value of the Shares on the Option grant date.

(ii)           The
Option Price shall be payable in one or more of the alternative forms
authorized pursuant to Section 6.4. 
Except to the extent the sale and remittance procedure specified
thereunder is utilized, payment of the Option Price must be made on the date of
exercise.

(d)           Option Term.  Each
Option shall have a term of ten (10) years measured from the Option grant date.

(e)           Exercise and Vesting of Options.  The Shares underlying each Option issued
pursuant to each Initial Grant shall vest and be exercisable in a series of
forty-eight (48) successive equal monthly installments at the end of each full
month from the date of grant, for so long as the Non-Employee Director
continuously remains a Director. The Shares underlying each Option issued
pursuant to each Annual Grant shall vest and be exercisable in a series of
twelve (12) successive equal monthly installments at the end of each full month
from the date of grant, for so long as the Non-Employee Director continuously
remains a Director.

(f)            Termination of Board Service.  The following provisions shall govern the
exercise of any Options held by the Awardee at the time the Awardee ceases to
serve as a Non-Employee Director:

(i)            In General.  Except as otherwise provided in Section 11.3,
after cessation of service as a Director (the “Cessation Date”),
the Awardee’s Options shall be exercisable to the extent (but only to the
extent) they are vested on the Cessation Date and only during the three months
after such Cessation Date, but in no event after the Expiration Date.  To the extent the Awardee does not exercise
an Option within the time specified for exercise, the Option shall
automatically terminate.

(ii)           Death or Disability.  If an Awardee’s cessation of service on the
Board is due to death or disability (as determined by the Board), all
Non-Employee Director Options of that Awardee, whether or not exercisable upon
such Cessation Date, may be exercised at any time on or prior to the Expiration
Date.  In the case of a cessation of
service due to death, an Option may be exercised as provided in
Section 17.  In the case of a
cessation of service due to disability, if a guardian or conservator has been
appointed to act for the Awardee and been granted this authority as part of
that appointment, that guardian or conservator may exercise the Option on
behalf of the Awardee.  Death or
disability occurring after an Awardee’s cessation of service shall not cause
the cessation of service to be treated as having occurred due to death or
disability.  To the extent an Option is
not so exercised within the time specified for its exercise, the Option shall
automatically terminate.

 20

11.2         Certain Transactions and Events.

(a)           In the event of a
Fundamental Transaction while the Awardee remains a Non-Employee Director, the
Shares at the time subject to each outstanding Option held by such Awardee
pursuant to Section 11, but not otherwise vested, shall automatically vest in
full so that each such Option shall, immediately prior to the effective date of
the Fundamental Transaction, become exercisable for all the Shares as fully
vested Shares and may be exercised for any or all of those vested Shares.
Immediately following the consummation of the Fundamental Transaction, each
Option shall terminate and cease to be outstanding, except to the extent
assumed by the successor corporation (or Affiliate thereof).

(b)           In
the event of a Change in Control while the Awardee remains a Non-Employee
Director, the Shares at the time subject to each outstanding Option held by
such Awardee pursuant to Section 11, but not otherwise vested, shall
automatically vest in full so that each such Option shall, immediately prior to
the effective date of the Change in Control, become exercisable for all the
Shares as fully vested Shares and may be exercised for any or all of those
vested Shares. Each such Option shall remain exercisable for such fully vested
Shares until the expiration or sooner termination of the Option term in
connection with a Change in Control.

(c)           Each Option which is
assumed in connection with a Fundamental Transaction shall be appropriately
adjusted, immediately after such Fundamental Transaction, to apply to the
number and class of securities which would have been issuable to the Awardee in
consummation of such Fundamental Transaction had the Option been exercised
immediately prior to such Fundamental Transaction. Appropriate adjustments
shall also be made to the Option Price payable per share under each outstanding
Option, provided the aggregate Option Price payable for such securities shall
remain the same.

(d)           The grant of Options
pursuant to Section 11 shall in no way affect the right of the Company to
adjust, reclassify, reorganize or otherwise change its capital or business
structure or to merge, consolidate, dissolve, liquidate or sell or transfer all
or any part of its business or assets.

(e)           The remaining terms
of each Option granted pursuant to Section 11 shall, as applicable, be the same
as terms in effect for Awards granted under this Plan.  Notwithstanding the foregoing, the provisions
of Section 9.4 and Section 10 shall not apply to Options granted pursuant to
Section 11.

 21
 

11.3         Limited Transferability of Options.  Each Option granted pursuant to Section 11
may be assigned in whole or in part during the Awardee’s lifetime to one or
more members of the Awardee’s family or to a trust established exclusively for
one or more such family members or to an entity in which the Awardee is
majority owner or to the Awardee’s former spouse, to the extent such assignment
is in connection with the Awardee’s estate or financial plan or pursuant to a
Domestic Relations Order. The assigned portion may only be exercised by the
person or persons who acquire a proprietary interest in the Option pursuant to
the assignment. The terms applicable to the assigned portion shall be the same
as those in effect for the Option immediately prior to such assignment and shall
be set forth in such documents issued to the assignee as the Administrator may
deem appropriate. The Awardee may also designate one or more persons as the
beneficiary or beneficiaries of his or her outstanding Options under Section
11, and those Options shall, in accordance with such designation, automatically
be transferred to such beneficiary or beneficiaries upon the Awardee’s death
while holding those Options. Such beneficiary or beneficiaries shall take the
transferred Options subject to all the terms and conditions of the applicable
Award Agreement evidencing each such transferred Option, including without
limitation, the limited time period during which the Option may be exercised
following the Awardee’s death.

12.                                 Withholding
and Tax Reporting

12.1         Tax Withholding Alternatives.

(a)           General.  Whenever Award Shares are issued or become
free of restrictions, the Company may require the Awardee to remit to the
Company an amount sufficient to satisfy any applicable tax withholding
requirement, whether the related tax is imposed on the Awardee or the
Company.  The Company shall have no
obligation to deliver Award Shares or release Award Shares from an escrow or
permit a transfer of Award Shares until the Awardee has satisfied those tax
withholding obligations.

(b)           Method of Payment.  The Awardee shall pay any required
withholding using the forms of consideration described in Section 6.4(b),
except that, in the discretion of the Administrator, the Company may also
permit the Awardee to use any of the forms of payment described in Section
6.4(c).  The Administrator, in its sole
discretion, may also permit Award Shares to be withheld to pay required
withholding.  If the Administrator
permits Award Shares to be withheld, the Fair Market Value of the Award Shares
withheld, as determined as of the date of withholding, shall not exceed the
amount determined by the applicable minimum statutory withholding rates.

12.2         Reporting of Dispositions.  Any holder of Option
Shares acquired under an Incentive Stock Option shall promptly notify the
Administrator, following such procedures as the Administrator may require, of
the sale or other disposition of any of those Option Shares if the disposition
occurs during:  (a) the longer of
two years after the Grant Date of the Incentive Stock Option and one year after
the date the Incentive Stock Option was exercised, or (b) such other
period as the Administrator has established.

 22
 

13.                                 Compliance
with Law

The grant of Awards and the issuance and subsequent
transfer of Award Shares shall be subject to compliance with all Applicable
Law, including all applicable securities laws. 
Awards may not be exercised, and Award Shares may not be transferred, in
violation of Applicable Law.  Thus, for
example, Awards may not be exercised unless: 
(a) a registration statement under the Securities Act is then in
effect with respect to the related Award Shares, or (b) in the opinion of
legal counsel to the Company, those Award Shares may be issued in accordance
with an applicable exemption from the registration requirements of the
Securities Act and any other applicable securities laws.  The failure or inability of the Company to
obtain from any regulatory body the authority considered by the Company’s legal
counsel to be necessary or useful for the lawful issuance of any Award Shares
or their subsequent transfer shall relieve the Company of any liability for
failing to issue those Award Shares or permitting their transfer.  As a condition to the exercise of any Award
or the transfer of any Award Shares, the Company may require the Awardee to
satisfy any requirements or qualifications that may be necessary or appropriate
to comply with or evidence compliance with any Applicable Law.

14.                                 Amendment
or Termination of this Plan or Outstanding Awards

14.1         Amendment and Termination.  Subject to Section 14.2 and 14.3, the Board
may at any time amend, suspend, or terminate this Plan.

14.2         Shareholder Approval.  The Company shall obtain the approval of the
Company’s shareholders for any amendment to this Plan if shareholder approval
is necessary or desirable to comply with any Applicable Law or with the
requirements applicable to the grant of Awards intended to be Incentive Stock
Options.  The Board may also, but need
not, require that the Company’s shareholders approve any other amendments to
this Plan.

14.3         Effect.  No amendment, suspension, or
termination of this Plan, and no modification of any Award even in the absence
of an amendment, suspension, or termination of this Plan, shall impair any
existing contractual rights of any Awardee unless the affected Awardee consents
to the amendment, suspension, termination, or modification.  However, no such consent shall be required if
the Board determines, in its sole and absolute discretion, that the amendment,
suspension, termination, or modification: 
(a) is required or advisable in order for the Company, this Plan or the
Award to satisfy Applicable Law, to meet the requirements of any accounting
standard or to avoid any adverse accounting treatment, or (b) in connection
with any transaction or event described in Section 10, is in the best interests
of the Company or its shareholders.  The
Board may, but need not, take the tax or accounting consequences to affected
Awardees into consideration in acting under the preceding sentence.  Those decisions shall be final, binding and
conclusive.  Termination of this Plan
shall not affect the Administrator’s ability to exercise the powers granted to
it under this Plan with respect to (i) Awards granted before the termination of
this Plan or (ii) Award Shares issued under such Awards even if those Award
Shares are issued after the termination of this Plan.

 23
 

15.                                 Reserved
Rights

15.1         Nonexclusivity of this Plan.  This
Plan shall not limit the power of the Company or any Affiliate to adopt other
incentive arrangements including, for example, the grant or issuance of stock
options, stock, or other equity-based rights under other plans.

15.2         Unfunded Plan.  This Plan shall be
unfunded.  Although bookkeeping accounts
may be established with respect to Awardees, any such accounts will be used
merely as a convenience.  The Company
shall not be required to segregate any assets on account of this Plan, the
grant of Awards, or the issuance of Award Shares.  The Company and the Administrator shall not
be deemed to be a trustee of stock or cash to be awarded under this Plan.  Any obligations of the Company to any Awardee
shall be based solely upon contracts entered into under this Plan, such as
Award Agreements.  No such obligations
shall be deemed to be secured by any pledge or other encumbrance on any assets
of the Company.  Neither the Company nor
the Administrator shall be required to give any security or bond for the
performance of any such obligations.

16.                                 Special
Arrangements Regarding Award Shares

16.1         Escrow of Stock Certificates.  To enforce any restrictions on Award Shares,
the Administrator may require their holder to deposit the certificates
representing Award Shares, with stock powers or other transfer instruments
approved by the Administrator endorsed in blank, with the Company or an agent
of the Company to hold in escrow until the restrictions have lapsed or
terminated.  The Administrator may also
cause a legend or legends referencing the restrictions to be placed on the
certificates.  Any Awardee who delivers a
promissory note as partial or full consideration for the purchase of Award
Shares will be required to pledge and deposit with the Company some or all of
the Award Shares as collateral to secure the payment of the note.  However, the Administrator may require or
accept other or additional forms of collateral to secure the note and, in any
event, the Company will have full recourse against the maker of the note,
notwithstanding any pledge or other collateral.

 24
 

16.2         Repurchase Rights.

(a)           General.  If
an Option is subject to Reverse Vesting or a Stock Award is subject to vesting
conditions, the Company shall have the right, during the seven months after the
Awardee’s Termination, to repurchase any or all of the Award Shares that were
unvested as of the date of that Termination. 
If the Award Shares were purchased with a promissory note, the
repurchase price shall be the lower of: 
(a) the Purchase Price for the Award Shares (minus the amount of any
cash dividends paid or payable with respect to the Award Shares for which the
record date precedes the repurchase) and (b) the Fair Market Value at the date
of Termination.  In all other cases, the
repurchase price shall be determined by the Administrator in accordance with
this Section 16.2 which shall be either (i) the Purchase Price for the
Award Shares (minus the amount of any cash dividends paid or payable with
respect to the Award Shares for which the record date precedes the repurchase)
or (ii) the lower of (A) the Option Price or Purchase Price for the
Award Shares or (B) the Fair Market Value of those Award Shares as of the
date of the Termination.  The repurchase
price shall be paid in cash or if the Award Shares were purchased in whole or
in part with a promissory note, cancellation in whole or in part of
indebtedness under that note, or a combination of those means.  The Company may assign this right of
repurchase.

(b)           Procedure.  The Company or its assignee may choose to
give the Awardee a written notice of exercise of its repurchase rights under
this Section 16.2.  However, the Company’s
failure to give such a notice shall not affect its rights to repurchase Award
Shares.  The Company must, however,
tender the repurchase price during the period specified in this Section 16.2
for exercising its repurchase rights in order to exercise such rights.

Market Standoff.  If requested by the Company or a
representative of its underwriters in connection with a registration of any
securities of the Company under the Securities Act, Awardees or certain
Awardees shall be prohibited from selling some or all of their Award Shares
during a period not to exceed 180 days after the effective date of the Company’s
registration statement.  This restriction
shall not apply to any registration statement on Form S-8, Form S-4 or an
equivalent registration statement.

17.                                 Beneficiaries

An Awardee may file a written designation of one or
more beneficiaries who are to receive the Awardee’s rights under the Awardee’s
Awards after the Awardee’s death.  Such
designation shall be accompanied by a signed acknowledgment from the Awardee’s
spouse, if any, consenting to such designation. 
An Awardee may change such a designation at any time by written
notice.  If an Awardee designates a
beneficiary, the beneficiary may exercise the Awardee’s Awards after the
Awardee’s death.  If an Awardee dies when
the Awardee has no living beneficiary designated under this Plan, the Company
shall allow the executor or administrator of the Awardee’s estate to exercise
the Award or, if there is none, the person entitled to exercise the Option
under the Awardee’s will or the laws of descent and distribution.  In any case, no Award may be exercised after
its Expiration Date.

 25
 

18.                                 Miscellaneous

18.1         Governing Law.  This Plan, the Award
Agreements and all other agreements entered into under this Plan, and all
actions taken under this Plan or in connection with Awards or Award Shares,
shall be governed by the laws of the State of California.

18.2         Determination of Value.  Fair Market Value shall be determined as
follows:

(a)           Listed Stock.  If the Shares are traded on any established
stock exchange or quoted on a national market system, Fair Market Value shall
be the closing sales price for the Shares as quoted on that stock exchange or
system for the date the value is to be determined (the “Value Date”) as reported by such stock exchange or
national market system, or, if not reported by such stock exchange or national
market system, as reported in The  Wall Street Journal or a similar publication.  If no sales are reported as having occurred
on the Value Date, Fair Market Value shall be that closing sales price for the
last preceding trading day on which sales of Shares are reported as having
occurred.  If no sales are reported as
having occurred during the five trading days before the Value Date, Fair Market
Value shall be the closing bid for Shares on the Value Date.  If Shares are listed on multiple exchanges or
systems, Fair Market Value shall be based on sales or bid prices on the primary
exchange or system on which Shares are traded or quoted.

(b)           Stock Quoted by Securities
Dealer.  If Shares are
regularly quoted by a recognized securities dealer but selling prices are not
reported on any established stock exchange or quoted on a national market system,
Fair Market Value shall be the mean between the high bid and low asked prices
on the Value Date.  If no prices are
quoted for the Value Date, Fair Market Value shall be the mean between the high
bid and low asked prices on the last preceding trading day on which any bid and
asked prices were quoted.

(c)           No Established Market.  If Shares are not traded on any established
stock exchange or quoted on a national market system and are not quoted by a
recognized securities dealer, the Board or Committee will determine Fair Market
Value in good faith.  The Board or
Committee will consider the following factors, and any others it considers
significant, in determining Fair Market Value: (i) the price at which
other securities of the Company have been issued to purchasers other than
Employees, Directors, or Consultants, (ii) the Company’s shareholder’s
equity, prospective earning power, dividend-paying capacity, and non-operating
assets, if any, and (iii) any other relevant factors, including the
economic outlook for the Company and the Company’s industry, the Company’s
position in that industry, the Company’s goodwill and other intellectual
property, and the values of securities of other businesses in the same
industry.

18.3         Reservation of Shares.  During the term of this
Plan, the Company shall at all times reserve and keep available such number of
Shares as are still issuable under this Plan.

 26
 

18.4         Electronic Communications.  Any Award Agreement,
notice of exercise of an Award, or other document required or permitted by this
Plan may be delivered in writing or, to the extent determined by the
Administrator, electronically. 
Signatures may also be electronic if permitted by the Administrator.

18.5         Notices.  Unless the Administrator specifies
otherwise, any notice to the Company under any Award Agreement or with respect
to any Awards or Award Shares shall be in writing (or, if so authorized by
Section 18.4, communicated electronically), shall be addressed to the
Company, and shall only be effective when received by the Company.

Adopted by the Board on:  March 19, 2004

Approved by the shareholders on:  May 27, 2004

Effective date of this Plan:  May 27, 2004

Amended by the Board
on:  March 23, 2006

 27Exhibit
10.31

CERTAIN CONFIDENTIAL PORTIONS OF
THIS EXHIBIT WERE OMITTED AND REPLACED WITH THE SYMBOL “[***]”.  A COMPLETE VERSION OF THIS EXHIBIT HAS BEEN
FILED SEPARATELY WITH THE SECRETARY OF THE SECURITIES AND EXCHANGE COMMISSION
PURSUANT TO AN APPLICATION REQUESTING CONFIDENTIAL TREATMENT UNDER RULE 24B-2
OF THE SECURITIES EXCHANGE ACT OF 1934.

SUBLICENSE AGREEMENT

This Sublicense Agreement (this “Agreement”) is
made as of October 13, 2006 (the “Effective Date”)
by and between PharmaNova Inc. a Delaware corporation with its principal place
of business located at 50 Lucius Gordon Drive, Ste 206, West Henrietta, NY
14586 (“Licensor”), and Depomed, Inc., a
California corporation with its principal place of business located at 1360 O’Brien
Drive, Menlo Park, CA 94025 (“Licensee”)
(each, a “Party” and collectively, the “Parties”).

1.             PREAMBLE

1.1                                 Licensor
has exclusively licensed the rights (with the right to sub-license) to certain
intellectual property specifically covering the use of gabapentin for certain
conditions secondary to hormonal variation.

1.2                                 Licensee
has in clinical development a gabapentin product utilizing Licensee’s
proprietary drug delivery technology currently referred to as the AcuForm
technology (“Gabapentin GR”).  Licensee desires, pursuant to terms and
subject to conditions set forth in this Agreement, to create a unique dosage
form of Gabapentin GR, utilizing the same proprietary drug delivery technology
and a unique strength, release profile or mechanism of drug delivery relative
to Licensee’s current formulation of Gabapentin GR, for the treatment of
certain conditions secondary to hormonal variation, and to seek to obtain
regulatory approvals for such product in the US.

1.3                                 Licensor
desires to grant to Licensee a license for certain of the use and territorial
rights to gabapentin held by Licensor.

NOW, THEREFORE, The Parties agree as follows:

2.             DEFINITIONS:  Terms defined in this Article 2, and
parenthetically defined elsewhere in this Agreement, will throughout this Agreement
have the meaning here or there provided. 
Defined terms may be used in the singular or in the plural, as sense
requires.

2.1                                 “‘098  Patent”
means U.S. Patent No. 6,310,098, including all re-examinations, reissues,
supplemental protection certificates and extensions thereof.

2.2                                 “Affiliate” means any corporation or other business entity
that controls, is controlled by or is under common control with the Licensee or
Licensor.  “Controls,” “control” or “controlled”
as used in this paragraph means direct or indirect ownership of more than fifty
percent (50%) of the voting stock of such corporation or the ability to
exclusively direct, either directly or indirectly, the decision-making
authority of such other unincorporated business entity.

2.3                                 “API” means gabapentin
[1-(aminomethyl)
cyclohexaneacetic acid].

2.4                                 “Cancer Indications” means treatment, diagnosis or
prevention of vasomotor symptoms associated with cancer (e.g., conditions such
as breast, endometrial, uterine and prostate cancer) and/or drug treatment for
cancer and/or chemotherapy for cancer.

2.5                                 “Cancer Product” means a product when
labeled for use for any of the Cancer Indications.

2.6                                 “Clinical Information” shall mean all
in-vivo or clinical, pharmacology, toxicology, safety and efficacy data,
formulary submissions, pharmacoeconomic data, Phase I, II and III clinical data
and results, and other such information now or hereafter known and available to
University, Licensor or its Affiliates, whether generally known to others or
not, which concerns Product and does not concern PharmaNova Product.

2.7                                 “Collaboration Committee” means the committee described in
Section 6.

 2
 

2.8                                 “Commercialize” or “Commercialization” means the ongoing process and
activities generally engaged in by a pharmaceutical company to sell and market
a pharmaceutical product.

2.9                                 “Confidential Information” means information that is marked
as confidential, or, if orally disclosed, is indicated at the time of
disclosure as confidential and provided in written form within thirty days.  Not withstanding the foregoing, the receiving
Party will have no obligation of confidentiality relating to any information of
the disclosing Party that:

(i)                                     is
or becomes part of the public domain through no fault of the receiving Party;

(ii)                                  is
known to the receiving Party prior to the disclosure by the disclosing Party,
as evidenced by documentation;

(iii)                               is
independently developed by the receiving Party without reference or use of the
Confidential Information or without any breach of this Agreement as evidenced
by documentation;

(iv)                              is
subsequently obtained by the receiving Party from a duly authorized Third
Party;

(v)                                 is
publicly released as authorized under this Agreement by the disclosing Party,
its employees or agents.

2.10                           “Confidentiality Agreement” means that certain Confidentiality
Agreement between Licensor and Licensee dated May 24, 2004.

2.11                           “Control”
or “Controlled” shall mean, with
respect to any intellectual property right or other intangible property, that a
Party or one of its Affiliates owns or has a license or sublicense to such item
or right, and has the ability to grant access, license or sublicense in or to
such right without violating the terms of any agreement or arrangement with any
Third Party.

2.12                           “Diligent
Efforts” shall mean the carrying out of obligations or tasks
consistent with the commercially reasonable practices of the pharmaceutical
industry for the development or Commercialization of a pharmaceutical product
having similar market potential or profit potential as the Product, based on
conditions then prevailing.  Diligent
Efforts

 3
 

requires that the Party, at a minimum:  
(a) determine the general industry practices with respect to the
applicable activities, (b) reasonably promptly assign responsibility for such
obligations to specific employee(s) who are held accountable for progress and
monitor such progress on an on-going basis, (c) set and consistently seek to
achieve specific and meaningful objectives for carrying out such obligations,
and (d) make and implement decisions and allocate resources designed to advance
progress with respect to such objectives.

2.13                           “FDA” means the United States Food and Drug
Administration or any successors to its responsibilities with respect to
pharmaceutical products such as the Products.

2.14                           “First Commercial Sale” means the initial transfer by or on
behalf of Licensee or its Sublicensees of Products in exchange for cash or some
equivalent to which value can be assigned for the purpose of determining Net
Sales Revenue.

2.15                           “Government
Authority” means any court, agency, department, authority or other
instrumentality of any federal, state, county, city or other political
subdivision.

2.16                           “Law” or “Laws” means all laws, statutes,
rules, regulations, orders, judgments and/or ordinances of any Government
Authority.

2.17                           “Licensed Patent” means the ‘098 Patent.

2.18                           “Licensor Patent Rights” means any Patent Rights, including
without limitation those rights in the Licensed Patent granted to and held by
Licensor under the University License, in the field of use of API for Menopause
Indications, which rights are owned by or Controlled by Licensor or an
Affiliate of Licensor as of the Effective Date; provided, however, that Licensor Patent Rights
shall not include the PharmaNova Patent Application or any Patent Rights
associated therewith.  All Licensor
Patent Rights currently within this definition are set forth on Exhibit A,
which exhibit shall be amended from time to time as necessary to reflect
changes or additions to the Licensor Patent Rights.

 4
 

2.19                           “Menopause Indications” means the treatment, diagnosis or
prevention of vasomotor symptoms of hormonal variation (e.g., hot flashes) associated with
menopause in women.

2.20                           “NDA” means a New Drug Application filed with the FDA with
respect to a pharmaceutical product (or similar application, if such
application is no longer available or appropriate).

2.21                           “Net Sales” means the gross amount of monies or
cash equivalent or other consideration that is paid by Third Parties to
Licensee or any of its Affiliates, assignees, licensees, Sublicensees,
transferees, distributors or commercial partners (or their affiliates) or
designees thereof for Product by sale or other mode of transfer, in bona fide arm’s length transactions, less
the following deductions, in each case related specifically to Product and
actually allowed and customarily taken by such Third Parties and not otherwise
recovered by or reimbursed to Licensee or any of its affiliates, assignees,
licensees, Sublicensees, transferees, distributors or commercial partners (or
their affiliates) or designees thereof:  
(i) all trade, quantity and cash discounts actually allowed and
customarily taken; (ii) customary and usual credits, and allowances actually granted
and taken on account of rejections, returns or billing errors; (iii) packing
costs; (iv) transportation; and, (v) insurance, solely related to shipping such
Product except
that no deductions may be made for commissions paid to individuals whether they
be with independent sales agencies or regularly employed by Licensee, its
Affiliates or Sublicensees, and on its payroll.

2.22                           “Patent
Rights” shall mean (i) valid and enforceable patents,
re-examinations, reissues, renewals, extensions, supplementary protection
certificates and term restorations, any confirmation patent or registration
patent or patent of addition based on any such patent, (ii) pending
applications for patents, including without limitation continuations,
continuations-in-part, divisional, provisional and substitute applications, and
inventors’ certificates, and (iii) all priority applications of any of the
foregoing.

 5
 

2.23                           “PharmaNova
Product” means any pharmaceutical product containing API as
an active pharmaceutical ingredient such that (i) the development, manufacture,
sale or use of such product in the Territory would be covered by a Valid Claim
of a Licensed Patent, and (ii) such product or its use is described in, or is
covered by one or more of the claims of, PCT Patent Application No.
PCT/US06/001887 (Pharmaceutical Formulations and Methods of Use) (the “PharmaNova Product Patent Application”).

2.24                           “Phase III Clinical Studies” means controlled human clinical studies
involving administration of a drug with the goal of establishing that a drug is
safe and efficacious for its intended use, and to be considered as a pivotal
study or studies for submission of an NDA.

2.25                           “Product” means any pharmaceutical product containing API as
an active pharmaceutical ingredient such that the development, manufacture,
sale or use of such product for the Menopause Indications would, but for the
license granted under this Agreement, infringe in the Territory a Valid Claim
of a Licensed Patent.  Product does not
include PharmaNova Products nor any product that is Commercialized in the
Territory but is not expressly labeled or marketed for the Menopause
Indications.

2.26                           “Program” means all activities related to the development and commercialization
of Product performed by or on behalf of Licensee (or its Affiliates) or
Licensor (or its Affiliates) pursuant to this Agreement; provided, however,
that all activities related to the development of Products conducted by
Licensee (or its Affiliates) prior to the Effective Date will be deemed to
be conducted outside of the Program.

2.27                           “Quarter” means each of the three-month periods
ending on March 31, June 30, September 30 and December 31 in any calendar year.

2.28                           “Regulatory Approval” means in the United States, written
notice of marketing approval by the FDA based on approval of an NDA and satisfaction
of any related applicable FDA registration and notification requirements (if
any) which are required before a product may be commercially sold in the United
States.

 6
 

2.29                           “Regulatory Data” means any information and
data necessary or useful to obtain or maintain Regulatory Approval for the
Product in the Territory, including post-approval reports, filings and
submission and shall include, but not be limited to, any Clinical Information
required for that purpose.

2.30                           “Sublicense” means the present, future or contingent
transfer of any license, right, option, first right to negotiate or other right
granted under the Licensor Patent Rights in whole or in part pursuant to
Section 4.2; provided, however,
that the development, promotion, distribution or marketing of the Product by a
Third Party on behalf of Licensee does not constitute a Sublicense.

2.31                           “Sublicensee” means a Third Party that is granted a
Sublicense.

2.32                           “Territory” means United States of America and its
territories including Puerto Rico.

2.33                           “Third Party” means any individual, estate, trust,
partnership, joint venture, association, firm, corporation, company or other
entity, other than Licensor or Licensee or any of their Affiliates.

2.34                           “University” means the University of Rochester, located
in Rochester, New York.

2.35                           “University License” means the Exclusive Patent License
Agreement, dated August 11, 2004, between Licensor and University, as amended
by Amendment No. 1 thereto dated as of the Effective Date, and as may be
subsequently amended in accordance with this Agreement.

2.36                           “University Provisions” means the following provisions of this Agreement:  Section 4.2 (Sublicensing); Section
4.3 (Research License); Section 5.7.1 (Records); Section 6.2 (Product
Development Diligence Obligations); Section 6.5 (Patent Marking); Section 9.2.1
(Control of Actions); Section 13.4 (Use of Names); Section 14.6 (Assumption by
University); Section 15.2 (Indemnification of University); Section 15.3 (No
Consequential Damages); Section 15.4 (Insurance); and Section 15.5
(Settlements).

 7
 

2.37                           “Valid Claim” means any claim of an issued and
non-expired patent which has not been withdrawn, canceled, or disclaimed nor
held invalid by a court, tribunal, arbitrator or governmental agency of
competent jurisdiction in a final or unappealed or unappealable decision.

3.             UNIVERSITY CONSENT AND APPROVAL

3.1                                 University
Approval.  Licensor has delivered to the University
a copy of this Agreement, and received the University’s written approval of the
sublicense in the Licensor Patent Rights granted herein, and has provided
Licensee with a complete and accurate copy of such written approval.

3.2                                   Consent
and Acknowledgement.  Licensor
has received from the University a Consent and Acknowledgement providing that,
to the extent that any of the University Provisions are inconsistent with any
provision of the University License, the University Provisions shall control,
and that Licensee shall be a third party beneficiary of such Consent and
Acknowledgement.  Licensor has provided Licensee
with a complete and accurate copy of such Consent and Acknowledgement.

4.             LICENSE

4.1                                 Grant.   Subject to the terms of this Agreement and
Licensee’s obligations arising therefrom, Licensor hereby grants, effective
upon Closing, to Licensee and its Affiliates an exclusive, royalty-bearing
license, under the Licensor Patent Rights to import, develop, have developed,
make, have made, use, offer for sale and sell Product for the Menopause
Indications in the Territory.

4.2                                 Sublicensing. 
Licensee shall have the right to Sublicense its rights to the Licensor
Patent Rights, but solely to the extent such Sublicense is consistent with the
following limitations:

4.2.1                        Licensee
is responsible for its Sublicensees and must not grant any rights that are
inconsistent with the rights granted to and obligations of Licensee
hereunder.  Any act or omission of a
Sublicensee that would be a breach of this Agreement if performed

 8
 

by Licensee will be deemed to be a breach by Licensee of this
Agreement.

4.2.2                        Each
Sublicense granted by Licensee must provide that the obligations of Licensee to
(i) University in the University Provisions and (ii) Licensor in this Agreement
shall be binding upon the Sublicensee as if it were a party to this Agreement.

4.2.3                        No
Sublicense may contain any provision that would cause the sublicensed rights to
the Licensor Patent Rights to extend beyond the term of this Agreement or to
extend outside the scope of the license granted to Licensee in this Agreement.

4.2.4                        Any
and all Sublicenses granted by Licensee are subject to the prior approval of
Licensor and University; such approval will not be unreasonably withheld,
delayed or conditioned, and shall be deemed granted unless Licensor or
University reasonably report within 30 (thirty) business days of its receipt of
such sublicense that such Sublicense is unacceptable.

4.2.5                        No
Sublicensee shall have the power to grant a sublicense under any Sublicense.

4.2.6                        Licensee
must promptly give Licensor and University the name and address of each
Sublicensee with whom it concludes a Sublicense, and must forward to Licensor
and University a copy of each executed Sublicense within thirty (30) days of
the date of execution of such Sublicense.

4.3                                 Research License. 
The license granted to Licensee herein is subject to and
restricted by a reserved non-exclusive license, with the right to
non-exclusively sublicense, to non-profit institutions for research purposes
only, to University to make, have made, and use, but not to sell or have sold,
or license others to sell or have sold, Products.

 9
 

5.             CONSIDERATION

As partial consideration for the rights
and licenses granted to Licensee in this Agreement, Licensee agrees to pay the
following, subject to the provisions of Section 10.1:

5.1                                 License Issue Fee. 
Licensee shall pay to Licensor a one-time, non-refundable,
non-creditable license issue fee of five hundred thousand US dollars ($500,000)
on the Effective Date, fifty thousand US dollars ($50,000) of which has been
paid pursuant to the letter of intent between the Parties dated as of June 22,
2006.

5.2                                 Development Milestone Payments. 
Milestone payments, when made, will be non-refundable, non-recoupable
and non-creditable.  Each milestone
payment will be payable only once no matter how many Products attain such
specified milestone events.  Each payment
is dependent upon the reaching of the specified milestone event.  In addition to (and not in lieu of) royalty
payments due under this Agreement, Licensee will pay Licensor the following
one-time development milestone payments no later than forty-five (45) days
following the occurrence of each of the events listed below:

5.2.1                        Five Hundred Thousand
US dollars ($500,000)
upon the dosing with Product of the first patient in the first Phase III
Clinical Study conducted by or on behalf of Licensee or any of its Affiliates; provided, however, that in the event
this milestone has not been reached by April 1, 2008, Licensee shall pay
Licensor $100,000 (one hundred thousand dollars) monthly towards such milestone
(up to a maximum of $500,000) until the milestone is reached whereupon the
balance of the milestone shall be immediately paid to Licensor.

5.2.2                        One Million US Dollars ($1,000,000) upon submission for
review by the FDA of the first NDA for Product in the Territory;

5.2.3                        Two Million US Dollars
($2,000,000) upon receipt of
the first Regulatory Approval for Product in the United States.

 

 10

5.2.4                        Licensor
will be solely responsible for, and will satisfy in a timely manner, all
milestone payments and royalty obligations agreed by Licensor and University in
the University License.

5.3                                 Royalties. 
Licensee shall pay on a quarterly basis to Licensor royalties on all Net
Sales occurring during the Term in the Territory in an amount comprising the
following:  [*  *  *].  Aggregate
Annual Net Sales shall be calculated on a calendar year basis.

5.4                                 Commercial Milestone Payments. 
Licensee shall pay Licensor the following one-time commercial
milestone payments, up to a maximum cumulative amount of [* 
*  *] in payments under
this Section 5.4 during the Term, upon Licensee’s achievement of each of the
following Aggregate Annual Net Sales targets as follows:  [*  *  *].  For example, [*  *  *].

5.5                                 Revenue Sharing Payments.

5.5.1                        Licensee
shall pay Licensor [*  *  *]
percent [*  *  *] of
all revenues received by Licensee or its Affiliates in connection with sales of
Product by Third Parties with whom Licensee has entered into a Sublicense or an
agreement for the development, promotion, distribution or marketing of Product
(“Revenue Sharing Payments”), such
Revenue Sharing Payments shall not exceed the amount which would be due as
royalties on such sales under Section 5.3 if such sales were made by Licensee
or its Affiliate.  Revenue Sharing
payments for sales of Product by Third Parties shall equal the amount which
would be due as a royalty on such sales under Section 5.3 as if such product
sales had been made by Licensee if Licensee has an ownership interest (whether
direct or indirect) exceeding twenty percent (20%) in such Third Party.

5.5.2                        Licensee
shall pay Licensor [*  *  *] percent
[* 
*  *] of any sub-license
fees, milestone payments and other revenues received by

* * *  Portions of this page have been omitted
pursuant to a request for Confidential Treatment and filed separately with the
Commission.

 11
 

Licensee as a
result of sub-licensing the rights to the Licensor Patent Rights or entering
into co-development or marketing agreements with any Third Party.

5.6                                 Consultancy Retainer. 
Licensee will pay to Licensor consultancy fees of three hundred thousand
US dollars ($300,000) in consideration for the provision of consulting services
by Licensor in the amount
of up to 150 person-days in support of the development of the Product. Such
consultancy shall be performed, and Licensor’s related expenses shall be
reimbursed, pursuant to Licensee’s standard form of consulting agreement
consistent with the terms of this Agreement; provided, however that Licensee
shall pay Licensor such consultancy fees in monthly installments, commencing on
the Effective Date, of thirty thousand US dollars ($30,000), and such payments
shall be reconciled on a quarterly basis against consulting services actually
performed.  The consulting services under
such consulting agreement shall be performed by employees and/or advisors and
consultants of Licensor.

5.7                                 Payment and Reports. 
Payments owed pursuant to Sections 5.3 — 5.5 shall be paid by Licensee
to Licensor not later than forty-five (45) calendar days following the end of
the Quarter in which the obligation to make such payment accrues.  Each royalty payment made pursuant to Section
5.3 will be accompanied by a report in writing (the “Royalty Report”) specifying the Quarter to which such royalty
payment applies and detailing the calculation of the royalties due to Licensor
for such Quarter (including total invoiced amount and the total amount of the
deductions from such total invoiced amount which were taken into account in
determining Net Sales).

5.7.1                        Records. 
Licensee will keep, and will require any of its Affiliates and
Sublicensees selling Product to keep, for five (5) years from the date of each
payment of royalties, complete and accurate records of Net Sales of each
Product in sufficient detail to allow the royalties to be determined
accurately.  Licensor will have the

 12
 

right for a period of five (5) years after receiving any report or
statement with respect to royalties due and payable or after delivery of such
report is required, to appoint an independent certified public accountant with
national presence and reputation that is not Licensor’s auditor to inspect the
relevant records to verify such report or statement.  Licensee will make its records and the
records of its Affiliates available (including any Net Sales reports received
from its Sublicensees selling Products) for inspection by such independent
certified public accountant during regular business hours at such place or
places where such records are customarily kept, upon reasonable notice from the
other Party, to verify the accuracy of the reports and payments.  Such inspections may occur not more than once
per calendar year.  No period may be
audited more than one time pursuant to this Section 5.7.1.  The Party requesting the audit will bear all
costs and expenses associated with an audit conducted pursuant to this Section
5.7; provided, however, that if
the designated auditor discovers an underpayment of 5% or more for any year
between the amount of any royalties Licensee has paid to the Licensor under
this Agreement, and the amount of royalties actually owed to Licensor under
this Agreement, then Licensee shall bear all costs and expenses associated with
such audit.  Licensor agrees to hold in
confidence all information concerning royalty payments and reports of Licensee,
and all information learned in the course of any audit or inspection, except to
the extent necessary for Licensor to (i) reveal such information in order to
enforce its rights under this Agreement, (ii) to provide required
information to University pursuant to the University License; or (iii) make
such disclosure as is required by Law. 
The results of each inspection, if any, will be binding on both
Parties.  Licensee will require
substantially the

 13
 

same audit rights in any Sublicense it grants hereunder in order to
verify the correctness of payments due thereunder.

5.8                                 Withholding Taxes.  In the event any of the payments made by
Licensee pursuant to this Section 5 become subject to withholding taxes under
the Laws of any jurisdiction, Licensee shall deduct and withhold the amount of
such taxes for the account of Licensor to the extent required by Law.  Amounts payable to Licensor shall be reduced
by the amount of taxes deducted and withheld, and Licensee shall pay the
amounts of such taxes to the proper Government Authority in a timely manner and
shall promptly transmit to Licensor an official tax certificate or other
evidence of such tax obligations together with proof of payment from the
relevant Government Authority of all amounts deducted and withheld sufficient
to enable Licensor to claim such payment of taxes.  Any such withholding taxes required under
applicable Law to be paid or withheld shall be an expense of, and borne solely
by, Licensor.  Licensee will provide
Licensor with reasonable assistance to enable Licensor to recover such taxes as
permitted by Law.

5.9                                 No Multiple Royalties.  No multiple royalties under Section 5.3 shall
be payable because the Product, its manufacture, use or sale is or shall be
covered by more than one Licensor Patent Right.

6.                                      PRODUCT DEVELOPMENT:   COLLABORATION COMMITTEE

6.1                                 Product Development
Obligations.  Licensee shall have control over development
and Commercialization in the Territory of the Product throughout the Term.  Licensee (itself or through an Affiliate or
Third Party) will be responsible for determining which form(s) of Products to
develop, the design and completion of formulation activities, and pre-clinical
and clinical studies in the Territory. 
Licensee will bear all the expenses for Product development activities.

6.2                                   Product
Development Diligence Obligations.

6.2.1                        Licensee,
during the Term, agrees to use Diligent
Efforts to proceed with the development, manufacture, and

 14
 

Commercialization
of Product(s) consistent with a First Commercial Sale of Product on or before [*  *  *],
either by itself or through Affiliate(s), Third Parties, or
Sublicensee(s).  Subject to the
obligations set forth in the immediately preceding sentence and with respect to
the development of Product, the Parties acknowledge that it is in their mutual
interest to cause the First Commercial Sale of Product to occur on or before [* 
*  *], and that the
development target dates set forth in Exhibit B reflect the Parties’
desire to cause the First Commercial Sale of Product to occur by that date,
provided that all of the assumptions set forth in Exhibit B prove to be
correct in all material respects.  The
Parties acknowledge that the dates set forth in Exhibit B are target
dates, and may not be achieved for reasons that include without limitation the
following:  (i) the inaccuracy of any of
the assumptions set forth in Exhibit B; (ii) recommendations or
requirements of the FDA relating to the Product; (iii) delays in the
development of the Product arising from issues related to intellectual
property, safety, clinical trial enrollment, manufacturing, or supply.  Subject to the qualifications set forth in
the immediately preceding sentence, Licensee additionally agrees to use
Diligent Efforts to meet the Product development target dates set forth in Exhibit
B.

6.2.2                        The
Parties acknowledge and agree that in the event that Licensee determines that
any of the target dates set forth in Exhibit B is not reasonably
achievable notwithstanding Licensee’s compliance with Section 6.2.1, and the
failure to achieve such target date is reasonably likely to  delay the First Commercial Sale of the
Product beyond [*  *  *],
then Licensor and Licensee shall meet and confer with University regarding
Licensee’s development program with respect to the Product, and request that
Licensor’s

* * *  Portions of this page have been omitted
pursuant to a request for Confidential Treatment and filed separately with the
Commission.

 15
 

obligation in
the University License to cause the First Commercial Sale of the Product to
occur on or before [*  *  *] be extended for a period of time equal to
the delay in the First Commercial Sale likely to be caused by the failure to
achieve such target date.  The Parties
acknowledge that University’s decision not to agree to any such extension will
require a reasonable determination on the part of University that Licensee is
not diligently pursuing the development of the Product, and that a Third Party
could develop and commercially launch an alternative formulation of the Product
(including without limitation an immediate release formulation) more rapidly
than Licensee.   Any extension beyond [* 
*  *] of the deadline to
cause the First Commercial Sale of the Product to occur under the University
License will have the effect of extending the [*  *  *] target date set forth above an
equivalent period of time.

6.2.3                        
Licensee acknowledges and agrees that in connection with any assumption or
assignment of this Agreement by University, Licensee’s obligations with respect
to the development and Commercialization of the Product in the Territory shall
be as set forth in Article 6 of the University License, as set forth therein on
the date hereof (or as amended in accordance with the written approval of
Licensee subsequent to the date hereof), and such provisions shall supersede
the provisions of Section 6.2.1 above.

6.2.4                        The
Parties further agree that in the event that the First Commercial Sale of
Product occurs before [*  *  *],
then, if requested in writing by Licensee within six (6) month following the
First Commercial Sale of Product, the Territory shall thereafter during the
Term additionally include Canada, and the Parties shall negotiate in good faith
Licensee’s obligations in respect of the

* * * Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

 16
 

development
and Commercialization of the Product in Canada, and, if agreed by the Parties,
set forth such obligations in an amendment to this Agreement.

6.3                                 Collaboration Committee.  Within thirty (30) days after the Effective Date, the Parties will form
a joint committee (the “Collaboration
Committee”), which will meet at least monthly until the initiation
of Phase III Clinical Trials and, thereafter, no less frequently than quarterly
until Regulatory Approval is obtained. 
The Collaboration Committee will be composed of at least two, but not
more than four, representatives from Licensee or its Affiliates and at least
one, but no more than three, representatives from Licensor.  The chairperson of the Collaboration
Committee will be one of Licensee’s representatives.  The Collaboration Committee may request that other
employees or consultants of Licensee or Licensor or their Affiliates attend its
meetings to present information or participate in discussions on an ad hoc basis as it deems appropriate.  Participation by representatives of Licensor
in the Collaboration Committee shall constitute consulting services provided by
Licensor to Licensee.  The Collaboration
Committee will review and discuss the activities of the Parties with respect to
Product development, and plans for obtaining Regulatory Approvals, Licensee
will also inform the Collaboration Committee at its meeting of then-current
Commercialization plans.  The
Collaboration Committee may meet in person or by telephone or video conference.  Each party will bear its own costs arising
from or associated with travel for the purpose of attending such meetings,
except that Licensor’s attendance at such meetings may be considered consulting
services for purposes of the consultancy arrangement contemplated by Section
5.6.

6.4                                 Trademarks. 
Licensee will determine which trademark or trademarks will be used in
marketing Products in the Territory.

6.5                                 Patent Marking. 
Licensee must mark, and must require any Affiliate or Sublicensee to
mark, any and all material forms of Products or packaging

 17
 

pertaining thereto sold by Licensee (and/or by its Affiliates or
Sublicensees) in the Territory with an appropriate patent marking identifying
the Licensor Patent Rights.

6.6                                 Use of Regulatory Data. 
Licensee shall have the right to use any Regulatory Data concerning the
Product, which Regulatory Data is owned or controlled by Licensor or its
Affiliates, at any time after the Effective Date for the purpose of obtaining
or maintaining Regulatory Approval of the Product in the Territory.  Licensor shall (i) provide to Licensee all Clinical
Information in its possession not later than ten (10) days after the Effective
Date, and (ii) on a periodic basis during the Term, but not less frequently
than quarterly, provide to Licensee any and all additional Regulatory Data
created subsequent to the Effective Date that is owned or controlled by
Licensor or its Affiliates.

6.7                                 Licensee Regulatory
Data.  All Regulatory Data concerning Product and
created by or on behalf of Licensee or its Affiliates pursuant to the Program
shall be owned by Licensee.  Neither
Licensor nor University shall have any interest in or to any such Regulatory
Data.

7.                                       COMMERCIALIZATION.

7.1                                 Commercialization. 
Licensee (itself or through an Affiliate) will be responsible for sales,
marketing and promotional activities for Products in the Territory and will
bear related expenses (although such activities may be performed through an
Affiliate or Third Party).

7.2                                 Covenant. 
In the event that Licensee or its Affiliate Commercializes in the
Territory a pharmaceutical product containing API other than Product, Licensee
shall not Commercialize, and shall cause its Affiliates not to Commercialize,
such product in a way that materially and adversely affects the
Commercialization of Product.

7.3                                 Unauthorized Sales. 
To the extent legally permissible, Licensor shall, and shall cause its
Affiliates to, ensure that any licensee or sublicense of the Licensor Patent
Rights (or any associated foreign patent rights) outside of the Territory uses
commercially reasonable efforts to prevent the

 18
 

exportation of the Product from outside of the Territory for sale
within the Territory.  Licensor shall
not, and shall cause its Affiliates not to, license any of the Licensor Patent
Rights (or any associated foreign patent rights) to any Third Party or entity
whom Licensor or one of its Affiliates has reason to believe may export or who,
to the knowledge of Licensor or one of its Affiliates, has in the past
exported, or permitted the exportation of, the Product from outside of the
Territory for sale within the Territory (any such sale, an “Unauthorized Sale”).  Licensor shall promptly use commercially
reasonable efforts to take any action reasonably available to Licensor or one
of its Affiliates, and shall within sixty (60) days after any Unauthorized Sale
has come to the attention of Licensor or one of its Affiliates, initiate all
commercially reasonable steps which are lawfully available to Licensor in the
Territory, to prevent such Unauthorized Sales.

7.4                                 Cancer Product
Development and Promotion Arrangement.  Licensee acknowledges that this
Agreement does not grant Licensee any right to import, develop, have developed,
make, have made, use, offer for sale and sell Product for the Cancer
Indications.  During the [*  *  *]-month
period beginning on the Effective Date, Licensee and Licensor agree to
negotiate in good faith an arrangement whereby Licensee would develop on
Licensor’s behalf a formulation of Gabapentin GR for the Cancer Indications and
provide Licensor with a supply of such Gabapentin GR formulation for the
clinical development of a Cancer Product (“Promotion
Agreement”).  Any such
Promotion Agreement shall be subject to the execution and delivery of a
definitive agreement providing for such an arrangement that is acceptable to
each Party in its sole discretion.

8.                                      OWNERSHIP AND INTELLECTUAL
PROPERTY

8.1                                 Intellectual Property
Ownership.  Subject to the license granted herein, all
rights, title and interest in intellectual property held by a Party to this

* * * Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

 19
 

Agreement prior to the
Effective Date shall continue to be owned by such Party.  All intellectual property (i) relating to
Product developed or funded by Licensee and its Affiliates or developed by
Licensor pursuant to its consulting services under Section 5.6, shall be and
remain the property of Licensee.  All
intellectual property relating to drug delivery or gastric retention in
connection with, or compositions or uses of, Licensee’s Gabapentin GR in
non-nociceptive pain shall be owned by Licensee.

8.2                                 Patent Prosecution. 
As between the parties, Licensor shall be responsible for ensuring the
prosecution and maintenance of patents within the Licensor Patent Rights.  Each Party shall be responsible for the full
costs of and responsibility for preparing, filing and prosecuting, in its sole
discretion, patent applications for inventions owned by it as provided herein.

8.3                                 Trademarks. Licensor
will have no interest in any trademarks used in commercializing the Product in
the Territory.

8.4                                 Cooperation. 
Each Party will cooperate, and will cause its employees, consultants and
subcontractors to cooperate, with all reasonable requests of the other Party
for assistance in preparation and prosecution and maintenance of any
applications for patent and any patent issuing therefrom.  Each Party will sign documents to vest or
maintain title to patents in the owner determined in accordance with this
Article 8.

8.5                                 Licensed Patents. 
Licensor shall ensure that (i) all patents within the Licensor Patent
Rights are maintained, and the fees required for such purpose by the US Patent
and Trademark Office are promptly and timely paid, and (ii) such patent
extensions or restorations of patent terms as may become available from time to
time regarding patents within the Licensor Patent Rights are obtained.  Licensor will keep Licensee fully informed of
all prosecutions and other actions pursuant to this Article 8, including by
promptly submitting to Licensee copies of all official actions and responses
thereto.  Licensee shall have reasonable
opportunities to provide comments to Licensor or University, as applicable.  Licensor shall

 20

consider in good faith any such comments.  University shall have no obligation to accept
such comments, with respect to the preparation, filing, and prosecution of the
patents and patent applications contained in the Licensor Patent Rights.

9.                                      INFRINGEMENT BY OR CLAIMS AGAINST
THIRD PARTIES

9.1                                 Notices. 
Each Party will advise the other promptly upon its becoming aware
of:  (a) any unlicensed activities which
such Party believes may be an actual or impending infringement in the Territory
of any patent or other proprietary right owned or applied for by it or the
other Party and related to the Product or the development, manufacture, use,
importation, or sale thereof; (b) any attack on or appeal of the grant of any
patent owned or applied for by it or the other Party in the Territory and
related to the Product or the development, manufacture, use or sale thereof;
(c) any application for patent by, or the grant of a patent to, a Third Party
in the Territory in respect of rights which may be related to the Product so as
to potentially affect the development, manufacture, use, importation, or sale
therefore or which may claim the same subject matter as or conflict with any
patent owned or applied for by it or the other Party and related to the Product
or the development, manufacture, use, importation or sale thereof.

9.2                                 Control of Actions.

9.2.1                        In
the event of an alleged infringement or patent invalidity action concerning any
of the Licensor Patent Rights, the Parties shall meet to discuss in good faith
an appropriate course of action to defend the intellectual property and to
prevent any infringement of these rights.  
Licensor and Licensee shall then meet with University to discuss same
and attempt to secure the University’s agreement to the Parties chosen course
of action.  As between Licensor and
Licensee, Licensee shall have the first right, but not the obligation, to
prosecute alleged infringement actions against Third Parties and defend against
infringement or patent invalidity actions against the Parties or University.  The Parties acknowledge

 21
 

that before
Licensee may commence an infringement action or defend against a declaratory
judgment action, counterclaim or affirmative defense alleging non-infringement
or invalidity of the Licensor Patent Rights, University must first grant its
permission to initiate such an action. 
Pursuant to the Consent and Acknowledgement: University has agreed, with
respect to any such suit, (i) not to unreasonably withhold, delay or condition
its permission to initiate or settle such an action and (ii) in any action
as to which University’s consent is granted to permit Licensee to join the
University in such suit.  Should
University be made a party to any such suit which Licensee elects to initiate
or defend on behalf of the University (but not any such suit which University
elects to initiate or defend), Licensee must reimburse University for any
reasonable costs, expenses, or fees that University incurs as a result of such
suit, including any and all costs incurred by University in opposing any such
motion or other action.  If requested by
University, Licensee shall advance such costs on a monthly basis.  Upon Licensee’s payment of all costs incurred
by University as a result of Licensee’s joinder motion or other action, these
actions by Licensee will not be considered a default in the performance of any
material obligation under this Agreement. 
In all cases, Licensee will keep University and Licensor reasonably
apprised of the status and progress, and will collaborate with respect to the
prosecution or defense, of any litigation prosecuted or defended by
Licensee.  The University may, at its own
expense, retain separate counsel to participate in any such action or
proceeding in which it is or is reasonably likely to become a party so that it
can control its own prosecution or defense, but the University shall still be
obligated to collaborate, as appropriate, with Licensee and Licensor.  Licensor and Licensee each agree that it will
not, without the prior written consent of the University,

 22
 

settle,
compromise or consent to the entry of any judgment in any action or proceeding
related to the matters contemplated in this section.

9.2.2                        In
any action commenced or defended pursuant to Section 9.2.1 by Licensee, the
expenses of Licensee, including costs, fees, attorney fees, and disbursements,
must be paid by Licensee.  Any recovery
made by Licensee from such action, through court judgment or settlement, may
first be applied to reimburse Licensee for its litigation expenses with respect
to all such actions;  [* 
*  *] percent [* 
*  *] of any remaining
recoveries shall be paid to Licensor.

10.                               INFRINGEMENT OF THIRD PARTY
RIGHTS

10.1                           Third Party Claims. 
In the event of a judgment in any suit in which a Third Party asserts
patent rights covering the use of API for Menopause Indications, which judgment
requires Licensee to pay damages or a royalty in respect of the Product to such
Third Party or in the event of a settlement of such suit or threatened suit
consented to by Licensor (which consent shall not be unreasonably withheld)
requiring damages or royalty payments to be made in respect of the Product, the
payments thereafter due to Licensor pursuant to Sections 5.2, 5.3, 5.4, 5.5 and
5.6 shall be reduced by an amount equal to no greater than [*  *  *]
percent [*  *  *] of the full amounts due under Sections
5.2, 5.3, 5.4, 5.5 and 5.6, as applicable, until the cumulative amount of such
reductions equals the full amount of such damages or royalties actually paid by
Licensee to such Third Party; provided,
however, this Section 10.1 shall not apply with respect to Third
Party patent rights unless the use of Product for Menopause Indications, as
opposed to any other indication, is a necessary element of the infringement of
such patent rights; and provided further,
that Licensor shall not be required to return, or forego payment of,

* * * Portions of this page have been omitted pursuant to a request for
Confidential Treatment and filed separately with the Commission.

 23
 

amounts previously accrued or any of the payments previously made by
Licensee to Licensor.

11.                               REPRESENTATIONS AND WARRANTIES

11.1                           Representations and
Warranties of Both Parties.  Licensor and Licensee each
hereby represents and warrants to the other, as of the Effective Date as follows:

11.1.1                  It is a corporation, duly organized,
validly existing and in good standing under the laws of the jurisdiction of its
incorporation and has all requisite power and authority, corporate or
otherwise, to conduct its business as now being conducted, to own, lease and
operate its properties and to execute, deliver and perform this Agreement.

11.1.2                  Neither it, nor any of its employees or
consultants who shall be undertaking any activities related to this Agreement
or the subject matter thereof, has been debarred or is the subject of debarment
or other disciplinary proceedings by the FDA or any Regulatory Authority in the
Territory.

11.1.3                  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.

11.1.4                  The execution, delivery and performance
by it of this Agreement and the transactions contemplated thereby have been
duly authorized by all necessary corporate action and stockholder action and
will not (i) violate any applicable laws or regulations or (ii) 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; provided,
however, that the Parties acknowledge that terms of this
Agreement, with respect to any

 24
 

Sublicense of the Licensed Patent are subject to the approval of
University.

11.1.5                  This Agreement is a legal, valid and
binding obligation of such Party, enforceable against it in accordance with its
terms and conditions, except as such enforceability may be limited by
applicable bankruptcy, insolvency, moratorium, reorganization or similar Laws,
from time to time in effect, affecting creditors’ rights generally and general
principles of equity.

11.1.6                  It is not under any obligation to any
Third Party, contractual or otherwise, that conflicts with the terms of this
Agreement or that limits the rights of such party to fulfill its obligations
hereunder.

11.2                           Representations and
Warranties of Licensor.  Licensor hereby represents and warrants to
Licensee, as of the execution date of this Agreement, as follows:

11.2.1                  Licensor owns or has (and will for the
term of any such grant hereunder maintain) the lawful right to grant the
license rights granted herein.

11.2.2                  To Licensor’s knowledge, the use of any
right in the Licensor Patent Rights granted hereunder does not infringe any
right of a Third Party.

11.2.3                  Licensor has
not received any notice or other communication, written or oral, from University regarding any
breach by Licensor of
its obligations under the University
License.

11.2.4                  Licensor has
provided Licensee with a complete, current, and accurate copy of the University License
subject only to redaction of certain financial terms related to Licensor’s
payment of an initial license fee to University set forth in Section 8.1
thereof.  Licensor has also provided
Licensee with copies of all amendments and modifications to the University
License and will provide to Licensee such future amendments and modifications
to the University License as are entered into during the Term.

 25
 

Licensor
has provided Licensee with true and complete copies of all material
correspondence between Licensor and University concerning the University
License received or sent by Licensor subsequent to the initial execution of the
University License.

11.2.5                  Licensor has carried out all
requirements under the University License that are necessary to enable it to
validly grant sublicenses to Licensee pursuant to the terms thereof, and that
there are no other requirements necessary to enable Licensor to validly grant
sublicenses under the University License.

11.2.6                  Subject to such rights as the University
may have granted to Third Parties in the Licensed Patent with respect to
products not containing API, no Third Party other than University has any
rights, title or interest in or to the Licensor Patent Rights.

11.2.7                  Licensor has received no notice of
default under the University License and Licensor is not in default and there
are no circumstances existing as of the Effective Date which constitute a
default under the University License.

11.2.8                  The University License is a legal, valid
and binding agreement, enforceable in accordance with its terms except as
enforceability may be limited by bankruptcy, fraudulent conveyance, insolvency,
reorganization, moratorium and other Laws relating to or affecting creditors’
right generally and by general equitable principles.

11.2.9                  Other than the University License,
Licensor is not a party to any material agreement, contract or commitment
pertaining to the Product in the Territory.

11.3                           MUTUAL LIMITATIONS ON
WARRANTIES.  OTHER THAN THE REPRESENTATIONS AND WARRANTIES
MADE BY THE PARTIES PURSUANT TO SECTION 11, THE PARTIES DISCLAIM ANY AND ALL
OTHER WARRANTIES WHETHER EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY
WARRANTIES OF NON-INFRINGEMENT, MERCHANTABILITY OR FITNESS FOR A

 26
 

PARTICULAR PURPOSE OR ANY WARRANTY ARISING FROM COURSE OF DEALING OR
USAGE OF TRADE.

12.                               COVENANTS

12.1                           Covenants of the
Parties.

12.1.1                  Throughout the Term, Licensor and
Licensee will comply in all material respects with all applicable Laws
concerning the development, manufacture, use and sale of the Products.

12.1.2                  Each of Licensor and Licensee will
promptly advise the other if it becomes aware of any information which relates
to fatal, life threatening or other serious adverse events associated with
Product (“Adverse Event Information”).  Each Party shall advise the other Party of
such Adverse Event Information by telephone, telex or other instantaneous
method of communication and shall within fifteen (15) days thereafter provide
written confirmation of such Adverse Event Information.

12.1.3                  Noncompetition.  During the Term, neither Licensor nor any of
its Affiliates shall, whether for its own account or for the account or benefit
of any Third Party, develop, offer for sale, sell, distribute or otherwise
Commercialize in the Territory any product, including but not limited to
PharmaNova Product, that includes the API (including without limitation by
licensing intellectual property rights to a Third Party for the purpose of
developing, offering for sale, distributing, or otherwise Commercializing a
product that includes the API in the Territory), other than pursuant to any
Promotion Agreement entered into pursuant to Section 7.3.

12.1.4                  Covenant Not To Sue.  On its own behalf, and on behalf of its
Affiliates, Licensor covenants and agrees that with respect to any Applicable Patents (as defined below)
it will not sue or otherwise bring any proceeding or enforcement procedure
against Licensee
or its Affiliates for infringement based on the manufacture, use, sale, offer
for sale or import of any Product in the Territory during

 27
 

the Term provided that (i) such Product was
made or sold by Licensee, its Affiliates or Sublicensees under the license
rights granted herein  and (ii) all applicable accrued royalties hereunder which
are not disputed by Licensee have been timely paid.  Nothing in this Section 12.4.1 shall limit
Licensor’s rights or remedies under this Agreement.

12.1.4.1                      Nothing in this
Section 12.1.4 shall affect Licensor’s rights against any person or entity
other than Licensee
or its Affiliates or Sublicensees.

12.1.4.2                      For purposes of this Section 12.1.4,  “Applicable
Patents” means all Patent Rights  (i)
which as of the Effective Date are owned or controlled by Licensor or any of
its Affiliates, (ii) which as of the Effective Date Licensor or any of its
Affiliates has the right to enforce; or (iii) which cover the manufacture, use,
sale, offer for sale or import of API for Menopause Indications and which Licensor
or any of its Affiliates own or control or have the right to enforce at any
time following the Effective Date.

12.1.5                  Further Assurances. 
The Parties will execute and deliver any further or additional
instruments or documents and perform any acts which may be reasonably necessary
in order to effectuate and carry out the purposes of this Agreement.

12.1.6                  During the Term, Licensor shall not (i)
amend so as to alter or impair Licensee’s right in the Licensor Patent Rights
granted hereunder, alter Licensee’s obligations hereunder, or adversely affect
the anticipated benefits to Licensee hereunder (ii) terminate, or (iii) cause
to be terminated, the University License without the prior written consent of
Licensee, which consent shall not be unreasonably withheld.

 28
 

12.1.7                  Licensor shall not exercise or fail to
exercise any of Licensor’s material rights or obligations under the University
License to the extent such exercise or failure to exercise would materially
alter the obligations or anticipated benefits of Licensee under this Agreement,
without the prior written consent of Licensee, such consent not to be
unreasonably withheld.

12.1.8                  Licensor will comply with all
obligations and duties under the University License (including any provisions
necessary to maintain in effect any rights granted to Licensee hereunder and,
if applicable, the exclusive nature of such rights, including the preservation
of Licensee’s rights hereunder in the event that Licensor shall breach or
default on its obligations under the University License) to the extent a
failure to do so would have or could reasonably be expected to have a material
adverse effect on the obligations or anticipated benefits of Licensee under
this Agreement.

12.1.9                  If Licensor should at any time breach or
default on the University License or become unable to timely perform its
obligations thereunder, or receive notice that it may be, is or is deemed to be
in breach or default of the University License or has otherwise given rise to a
right on the part of the University to terminate Licensor’s license in whole or
in part, Licensor shall immediately notify Licensee, and, if Licensee
reasonably believes, following consultation with Licensor, that Licensor will
not be able to cure such breach or default within the applicable notice period,
Licensee shall be permitted to attempt to cure such breach or default on behalf
of Licensor in accordance with the terms and conditions of the University
License, or to otherwise attempt to resolve such breach or default jointly with
Licensor and University.

 29
 

13.                               CONFIDENTIAL INFORMATION

13.1                           Confidentiality.

13.1.1                  Each Party agrees that during the Term
and at all times thereafter, it shall use all commercially reasonable efforts
to keep, and cause its Affiliates and Sublicensees, if any, to keep
confidential all Confidential Information of the other Party, and neither Party
nor any of its Affiliates or Sublicensees, if any, will use or disclose the
Confidential Information of the other Party except as expressly permitted in
this Agreement.  All information
disclosed pursuant to the Confidentiality Agreement will be deemed Confidential
Information of the disclosing Party within the meaning of this Agreement and
subject to the terms hereof. 
Notwithstanding the foregoing the Party receiving Confidential
Information of the other Party may (i) disclose it to government agencies
and others where such information may be required to be included in patent
applications or regulatory filings permitted under the terms of this Agreement;
(ii) provide it to Third Parties under agreements including confidentiality
provisions substantially equivalent to those in this Agreement for consulting,
market research, manufacturing, development, and preclinical and clinical
testing with respect to the Products and similar activities under the Program;
or (iii) publish it if and to the extent such publication has been approved in
writing by the disclosing Party.  In each
of the foregoing cases, the receiving Party will use diligent efforts to limit
the disclosure and maintain confidentiality to the extent possible.

13.1.2                  The fact that a particular item of
information is not or has ceased to be Confidential Information by virtue of
one or more of the exclusions specified in the definition of Confidential
Information set forth in Section 2.9 (the “Excluded
Item”) shall not relieve the Party who obtained or received the
Excluded Item from that

 30
 

Party’s obligation of confidentiality and non-use (a) as to any other
item of Confidential Information of the other Party or (b) as to the
relationship of the Excluded Item to any other item of Confidential Information
of the other Party.

13.1.3                  Each Party hereby acknowledges that the
Confidential Information of the other Party is highly valuable, proprietary and
confidential and that any disclosure to any officer, employee, or agent of such
Party or any of its Affiliates will be made only to the extent necessary to
carry out its responsibilities under this Agreement and only if such officer,
employee or agent is informed of the confidential nature thereof and shall have
agreed to hold such information in confidence under confidentiality provisions
at least as stringent as those provided in this Agreement.

13.1.4                  The Parties agree that the obligations
of this Section 13 are necessary and reasonable in order to protect the Parties’
respective businesses, and that monetary damages alone may be inadequate to
compensate a Party for any breach by the other Party of its covenants and
agreements set forth herein.  The Parties
agree that any breach or threatened breach of this Section 13 may cause
irreparable injury to the injured Party for which Damages may not be an
adequate remedy and that, in addition to any other remedies that may be
available, in law and equity or otherwise, such Party will be entitled to seek
equitable relief against the breach or threatened breach of the provisions of
this Section 13.

13.1.5                  Following termination of this Agreement
for any reason and at the request of the other and except as provided to the
contrary herein, each Party will destroy all physical records or embodiments of
Confidential Information of the other Party or return such information to the
other Party, at the returning Party’s expense, and a senior officer of such
Party shall certify to the other Party that all such items have been so
returned or destroyed; provided, however,

 31
 

that each Party will be entitled to maintain one copy of the
Confidential Information of the other Party solely for the purpose of
monitoring its continuing obligations hereunder.

13.2                           Disclosure to
Investors; Public Announcements.  The Parties have agreed on an
initial press release of the transaction contemplated by this Agreement (the “Initial Press Release”).  The Initial Press Release may be issued or
used by each or any Party individually or by the Parties jointly after Licensor’s
grant of the License to Licensee.  Other
than the Initial Press Release, neither Party will originate any publicity,
news release or public announcement, written or oral, whether to the public,
the press, stockholders or otherwise, disclosing the existence of this
Agreement, the subject matter to which it relates, the performance under it or
any of its specific terms and conditions without the prior written approval of
the other Party, except such announcements, as in the opinion of the counsel
for the Party making such announcement, are required by Law or rules or
regulations of any stock exchange on which a Party’s securities are listed or
quoted.  If a Party decides to make an
announcement it believes to be required by law with respect to this Agreement,
it will give the other Party such notice as is reasonably practicable.  Notwithstanding the foregoing, Licensor will
also have the right to provide investors and potential investors in Licensor
with information regarding (i) the existence of this Agreement and the
essential terms hereof and (ii) pursuant to confidentiality restrictions at
least as stringent as those set forth herein which are binding on such persons,
the text of this Agreement.

13.3                           Required Disclosure. 
The receiving Party will be entitled to disclose Confidential
Information where such disclosure is reasonably necessary to enforce its rights
pursuant to this Agreement or where demand for such disclosure is made on the
receiving Party pursuant to:  (i) a valid
order of a court or other governmental body or (ii) any other applicable Law;
provided that if the receiving Party intends to make such disclosure or

 32
 

receives such demand, the receiving Party shall give the disclosing Party
prompt notice of such fact to enable the disclosing Party to seek a protective
order or other appropriate remedy concerning any such disclosure.  The receiving Party will fully co-operate
with the disclosing Party at the disclosing Party’s expense in connection with
the disclosing Party’s efforts to obtain any such order or other remedy.  If any such order or other remedy does not
fully preclude disclosure, the receiving Party will make such disclosure only
to the extent that such disclosure is legally required.

13.4                           Use of Names. 
Nothing contained in this Agreement will be construed as conferring any
right on Licensee to use in advertising, publicity or other promotional
activities any name, trade name, trademark or other designation of University,
including any contraction, abbreviation or simulation of any of the foregoing,
unless the express written permission of University has been obtained, provided
that Licensee may state the existence of this Agreement.  For any other use other than the foregoing,
Licensee hereby expressly agrees not to use the name “University of Rochester”
without prior written approval from University.

14.                               TERM AND TERMINATION

14.1                           Term. 
Unless otherwise terminated pursuant to this Section 14, this Agreement
will remain in effect for the longer of ten (10) years or the life of the
Licensor Patent Rights, with any extensions, in the Territory (“Term”).

14.2                           Termination by Licensor. 
Licensor may terminate this Agreement immediately upon written notice (“Termination Notice”) in the event of a
material breach by Licensee or its Affiliates of this Agreement, provided that
Licensee has received, at least ninety (90) days before such Termination
Notice, written notice from Licensor of such breach, specifying in reasonable
detail the particulars of the alleged breach (“Breach Notice”), and such breach has not been cured within
ninety (90) calendar days after the date of such Breach Notice.

 33

14.3       Termination by Licensee.  Licensee may terminate this Agreement upon
delivery of a Termination Notice to Licensor immediately in the event of a
material breach by Licensor or its Affiliates of this Agreement, provided that
Licensor has received a Breach Notice from Licensee regarding such breach,
specifying in reasonable detail the particulars of the alleged breach, such
breach is continuing for ninety (90) calendar days after such Breach Notice and
such breach has not been cured within such ninety (90) days of such Breach
Notice.

14.4       Termination for Force Majeure Event.  Either Party may terminate this Agreement
upon delivery of a Termination Notice to the other Party, provided (a) such
termination is not effective for at least fifteen (15) days following delivery
of such Termination Notice and (b) a Force Majeure Event continues with
respect to the other Party for a period in excess of six (6) consecutive months
and through the date such termination is to become effective.

14.5       Rights and Duties upon Termination or Expiration.  Upon
the termination or expiration of this Agreement, each Party will have the right
to retain all payments from the other Party properly made pursuant to this
Agreement, and each Party shall pay to the other all sums accrued hereunder
which are then due.  In the event that
this Agreement is terminated by Licensor pursuant to either of Sections 14.2 or
14.4, Licensee shall, upon Licensor’s request, negotiate in good faith with
Licensor during the three month period following such termination for the
transfer to Licensor of the rights and information necessary to allow Licensor
to continue the development and Commercialization of Product.  Any such transfer shall be made pursuant to
definitive documentation that is acceptable to each Party in its sole
discretion.

14.6       Assumption by University.  In the event that Licensee has sent Licensor
a Breach Notice and the Licensor has not cured the breach within ninety (90)
days of the Breach Notice, Licensee, instead of terminating this Agreement
pursuant to Section 14.3, may give written notice to Licensor

 34
 

to assign this Agreement to
University.  Upon receipt of such notice,
Licensor will promptly assign this Agreement to University with such mutually
agreeable modifications to this Agreement as University shall reasonably
request (provided that University shall not be entitled to request any changes
to the provisions of Article 5 hereof), and the University will keep this
Agreement in full force and effect. 
Notwithstanding the foregoing provisions of this Section 14.6, the
following provisions of this Agreement shall not be binding upon University in
the event of any assumption of this Agreement by University:  (i) Section 12.1.3 (Noncompetition); and (ii)
Section 12.1.4 (Covenant Not to Sue).  In
connection with any termination of the University License by University, other
than any termination of the University License that arises from circumstances
or events that give rise to a right in favor of Licensor to terminate this
Agreement pursuant to Section 14.2, this Agreement will be assigned to
University as contemplated by Section 11.7 of the University License, as in
effect on the date hereof.

15.        INDEMNIFICATION AND
LIMITATION OF LIABILITY

15.1       Indemnification by the Parties.

15.1.1     Licensor will defend, at its own expense, indemnify and hold harmless
the Licensee and its Affiliates from and against any and all damages,
liabilities, losses, costs, and expenses, including attorneys fees, arising out
of any claims, causes of action, lawsuits or other proceedings (“Claims”) brought against it to the extent such
Claim arises out of or relates to (i) any breach or violation of, or failure to
perform, any covenant or agreement made by Licensor in this Agreement, unless
waived in writing by Licensee; (ii) any breach of the representations or
warranties made by Licensor in this Agreement; or (iii) the negligence or
willful misconduct of Licensor or its Affiliates, except, with respect to
clauses (i) and (ii)

 35
 

above, to the extent arising
out of the breach, violation, failure, negligence or willful misconduct of the
indemnified party.

15.1.2     Licensee will defend, at its own expense, indemnify and hold harmless
Licensor and its Affiliates from and against any and all Claims brought against
it to the extent such Claim arises out of or relates to (i) any breach or
violation of, or failure to perform, any covenant or agreement made by Licensee
in this Agreement, unless waived in writing by Licensor; (ii) any breach of the
representations or warranties made by Licensee in this Agreement; (iii) the
negligence or willful misconduct of Licensee, its Affiliate or Sublicensees; or
(iv) the development, use, offer for sale, or sale of Product by Licensee, its
Affiliates or Sublicensees, except, with respect to clauses (i) and (ii) above,
to the extent arising out of the breach, violation, failure, negligence or
willful misconduct of Licensor.

15.1.3     Each Party agrees that it shall promptly notify the other in writing of
any such claim or action and give the indemnifying Party full information and
assistance in connection therewith.  The
indemnifying Party shall have the sole right to control the defense if any such
claim or action and the sole right to settle or compromise any such claim or
action, except that the prior written consent of the other Party shall be
required in connection with any settlement or compromise which could (i) place
any obligation on or require any action of such other Party; (ii) admit or
imply any liability or wrongdoing of such other Party; or (iii) adversely
affect the goodwill or public image of such other Party.  Notwithstanding the foregoing, the
indemnified Party may participate therein through counsel of its choice, but
the cost of such counsel shall be borne solely by the indemnified Party.

15.2       Indemnification of University.  Licensee agrees that it will defend,
indemnify and hold harmless University, its faculty members, scientists,

 36
 

researchers, employees,
officers, trustees, agents and each of them (the “University Indemnified Parties”), from and against any and all Claims filed
or otherwise instituted against any of the University Indemnified Parties
related directly or indirectly to or arising out of the design, process,
manufacture, or use by any person or Party of Product or as a result of the
exercise by Licensee, its Affiliates or Sublicensees of any rights granted
hereunder, including without limitation any Claim by a Third Party for
infringement even though such Claims and the costs (including but not limited
to, the payment of all reasonable attorneys’ fees and costs of litigation or
other defense) related thereto are based upon doctrines of strict liability or
product liability; provided, however, that such indemnity will not apply to any
Claims (i) arising from gross negligence, fraud, or willful misconduct of
any University Indemnified Party, or (ii) with respect to which Licensor is
obligated to indemnify Licensee pursuant to Section 15.1, and which obligation
Licensor has acknowledged in writing with respect to the Claim.  Licensee will also assume responsibility for
all costs and expenses related to such Claims for which it is obligated to
indemnify the University Indemnified Parties pursuant to this Section 15,
including, but not limited to, the payment of all reasonable attorneys’ fees
and costs of litigation or other defense. 
University shall be an express third party beneficiary of this Section
15.2.

15.3       NO CONSEQUENTIAL DAMAGES.  NEITHER PARTY SHALL BE LIABLE
TO THE OTHER PARTY FOR ANY SPECIAL, CONSEQUENTIAL, LOST PROFIT, EXPECTATION,
PUNITIVE OR OTHER INDIRECT DAMAGES IN CONNECTION WITH ANY CLAIM ARISING OUT OF
OR RELATED TO THIS AGREEMENT, WHETHER GROUNDED IN TORT (INCLUDING NEGLIGENCE),
STRICT LIABILITY, CONTRACT, OR OTHERWISE.

15.4       Insurance.  Prior to the administration of Product to any
human being, Licensee will obtain and for three (3) years following the end of
the Term, maintain comprehensive general liability insurance, including product

 37
 

liability insurance, with a
reputable and financially secure insurance carrier consistent with industry
standards, to cover the activities of Licensee, its Affiliates and Sublicensees
with annual coverage limits of at least [* 
*  *] per occurrence and [*  *  *]
in the aggregate.  Such insurance shall
name Licensor and University as additional insureds.  Such insurance shall cover claims relating to
Product incurred, discovered, manifested or made during or after the Term of
this Agreement. Within fifteen (15) days of the Effective Date of such
insurance, Licensee will furnish a Certificate of Insurance evidencing
compliance with these coverage requirements. 
Licensee will provide Licensor and University with prompt written notice
of cancellation or material change affecting these coverage requirements. Such
insurance will be primary coverage; and the insurance of Licensor and
University shall be excess and noncontributory. 
University shall be a third-party beneficiary of the insurance
requirements of this Section 15.4.

15.5       Settlements.  No person who has undertaken to defend a
Claim under Sections 15.1, or15.2 will, without written consent of all
Indemnified Parties or University Indemnified Parties, as the case may be,
settle or compromise any Claim or consent to entry of any judgment, provided, however, that such consent will not be required if
such settlement, compromise or judgment (i) includes as an unconditional term
thereof the release by the claimant or plaintiff of all such indemnified
Parties from all liability arising from events which allegedly gave rise to
such Claim and (ii) contains no restriction, limitation or prohibition of any
kind on the manner in which any such indemnified Party conducts its
business.  Any payment made by a Party to
settle a Claim against it without obtaining consent of the indemnifying Party
will be at its own cost and expense. 
Notwithstanding the foregoing, the indemnifying Party will be liable
under this Section 15 for any settlement effected without its consent if the
indemnifying Party has refused to acknowledge liability for

* * * Portions of this
page have been omitted pursuant to a request for Confidential Treatment and
filed separately with the Commission.

 38
 

indemnification hereunder
and/or declines to defend such indemnified Party in any such Claim, action or
proceeding and it is determined that the indemnifying Party was liable to such
indemnified Party for indemnification related to such settlement.

16.        MISCELLANEOUS

16.1       Governing Law.  For all matters other than the scope and
validity of patents, this Agreement shall be deemed to have been made in the
State of California and its form, execution, validity, construction and effect
shall be determined in accordance with the laws of the State of California,
without giving effect to the principles of conflicts of law thereof.

16.2       Arbitration.

16.2.1     All disputes arising out of or in connection with this Agreement or its
validity will be finally settled without any recourse to the ordinary courts of
law in accordance with the Rules of the American Arbitration Association  by three arbitrators appointed in accordance
with such rules, which arbitrators will have expertise in transactions of the
nature of the transactions contemplated under this Agreement (the “Arbitrators”).

16.2.2     The arbitration proceedings, including the making of any award, will
take place in San Francisco, California.

16.2.3     The arbitration hearing need not be conducted strictly according to
rules of law relating to examination of witnesses or presentation of evidence,
and the parties to the proceeding may present evidence determined to be
relevant by the Arbitrators appointed hereunder regardless of its admissibility
in a court of law.  The parties expressly
agree that exclusion of evidence by the Arbitrators on grounds of irrelevance
or redundancy will not be grounds for failure to confirm and enforce the
award.  In deciding any matter duly
submitted hereunder to the Arbitrators, the Arbitrators will be bound to apply
the pertinent contractual provisions of this Agreement and will be bound by any
prior factual or legal

 39
 

determination made by any
other Arbitrators appointed under this Agreement.  The Arbitrators may, under procedures which
the Arbitrators deem appropriate, hear and determine any preliminary issue of
law asserted by a Party to the proceeding to be dispositive, in whole or in
part, of a claim or defense to the same extent that a court could do so under a
motion for summary judgment.  The award
(the “Award”) determined by the Arbitrators will be
issued in accordance with a dated, written opinion, which will set forth the
Arbitrators’ findings of fact and conclusions of law.  Counterparts of the Award and opinion will be
promptly sent to the Parties to the proceeding.

16.2.4     No Party will be entitled to commence or maintain any action in a court
of law upon any matter in dispute, except for interim injunctive relief, until
such matter will have been submitted to arbitration and determined as provided
in this Section 16.2, and then only for the enforcement of any Award.  The Parties agree that judgment on the arbitration
award may be entered in any court of competent jurisdiction and they will not
challenge such judgment.

16.2.5     All costs of enforcing this Agreement, including the costs of
arbitration, judicial enforcement of the arbitration and award, court costs,
reasonable accountants’ and expert witness fees, and reasonable attorneys’
fees, will be awarded to the prevailing Party. 
“Reasonable attorneys’ fees” for purposes of this Agreement refers to
such fees as are reasonable and customary in light of the relevant dispute.

16.2.6     Pending the resolution of a dispute by arbitration, the Parties will,
except in the event of termination, continue to perform all their obligations
under this Agreement without prejudice to a final adjustment in accordance with
the arbitral award.

 40
 

16.3       Assignment and Binding Effect. This Agreement may not be assigned by either Party without the prior
written consent of the other, except as part of a merger, consolidation, sale,
or transfer of all or substantially all its assets, but only if the intended
assignee executes and delivers to the Party which is not the assignor a writing
whereby the assignee expressly undertakes to perform and comply with all of its
assignor’s obligations hereunder. 
Notwithstanding such undertaking, such assignor shall continue to be
primarily liable for such assignee’s performance hereof and compliance
herewith.

16.3.1     Any assignment in violation of this Section 16.3 shall be void and of
no effect.

16.3.2     This Agreement, and the rights and duties of the Parties herein
contained, shall be binding upon, and shall inure to the benefit of, the
Parties and their respective legal representatives, successors and permitted
assigns.

16.4       Independent Contractor Status.  The relationship of the
Parties hereto is that of independent contractors.  Nothing in this Agreement will be construed
to constitute, create, give effect or otherwise imply a joint venture, agency,
partnership or other formal business organization or any employer/employee
relationship of any kind between the Parties.

16.5       Notices.  All notices, requests and other
communications required or permitted to be given hereunder or with respect
hereto will be in writing, and may be given by (i) personal service, (ii)
registered first-class United States mail, postage prepaid, return receipt
requested, or (iii) overnight delivery service, charges prepaid, and in each
case addressed to the other Party at the address for such Party as set forth
below, and shall be effective upon receipt in the case of clauses (i) or (iii)
above, and five days after mailing in the case of clause (ii) above.

	
  If to Licensor:

  	
  PharmaNova Inc.

  150 Lucius Gordon Drive, Ste 206

  West Henrietta, NY 14586

  Attention: President

  

 

 41
 

 

	
  

  	
  Copy to:

  

  Pillsbury Winthrop Shaw Pittman LLP

  1540 Broadway

  New York, NY

  10036-4039

  Attention: Ron Fleming

  
	
   

  	
   

  
	
  If to Licensee:

  	
  Depomed, Inc.

  1360 O’Brien Drive

  Menlo Park, CA 94025

  Attention:President

  
	
   

  	
   

  
	
   

  	
  Copy to:

  
	
   

  	
   

  
	
   

  	
  Heller Ehrman LLP

  4350 La Jolla Village Drive

  7th Floor

  San Diego, CA 92122

  Attn: Stephen Ferruolo

  

 

The address of either
Party set forth above may be changed from time to time by written notice in the
manner prescribed herein from the Party requesting the change.

16.6       Waivers.  The waiver by either Party of a default or a
breach of any provision of this Agreement by the other Party will not operate
or be construed to operate as a waiver of any subsequent default or
breach.  The continued performance by
either Party with knowledge of the existence of a default or breach will not
operate or be construed to operate as a waiver of any default or breach.  Any waiver by a Party of a particular
provision or right will be in writing, will be as to a particular matter and,
if applicable, for a particular period of time and will be signed by such
Party.

16.7       Entire Agreement.  This Agreement (including the Exhibits
hereto) constitutes the entire agreement between the Parties with respect to
the subject matter hereof, superseding all prior agreements and negotiations,
and may be modified only by written agreement executed by both Parties.

16.8       Severability.  If any provision in this Agreement is deemed
to be, or becomes, invalid, illegal, void or unenforceable under applicable
laws, then:  (i) it will be deleted and
the validity, legality and enforceability of the remaining provisions of this
Agreement shall not be impaired or

 42
 

affected in any way, and
(ii) the Parties will use commercially reasonable efforts to substitute for the
invalid, illegal or unenforceable provision a valid, legal and enforceable
provision which conforms as nearly as possible with the original intent of the
Parties.

16.9       Counterparts.  This Agreement may be executed in more than
one counterpart, each of which shall be deemed to be an original but all of
which taken together shall be deemed a single instrument.  A facsimile transmission of the signed
Agreement will be legal and binding on both Parties.

16.10     Force Majeure.  Neither Party to this Agreement will be
liable for failure or delay in the performance of any of its obligations
hereunder (other than the failure to pay monies owed), if such failure or delay
is due to causes beyond its reasonable control, including, without limitation,
acts of God, earthquakes, fires, strikes, acts of war, or intervention of any
governmental authority (each a “Force
Majeure Event”), but any
such delay or failure will be remedied by such Party as soon as practicable
after the removal of the cause of such failure or delay.  Upon the occurrence of a Force Majeure Event,
the Party failing or delaying performance will promptly notify the other Party
in writing, setting forth the nature of the occurrence, its expected duration
and how such Party’s performance is affected.

16.11     Interest on Late Payments.  If any Party fails to pay in
full on or before the date due any royalty, fee or other amount that is
required to be paid to the other Party under this Agreement, the paying Party
will also pay to the other Party (or its designee), on demand, interest
compounded daily on any such amount beginning 16 days after such due date at an
annual rate equal to the lowest prime rate as published by The Wall Street
Journal (or, if The Wall Street Journal is not then published, such
other financial periodical of general circulation in the United States) on or
nearest to such due date plus two percent (2%) to be assessed from the date
payment of the amount in question first became due.

 43
 

16.12     Amendment.  This Agreement may not be amended,
supplemented or otherwise modified except by an instrument in writing signed by
both Parties that specifically refers to this Agreement.  Any amendment, supplementation or
modification of any of the University Provisions, or of any other provision of
this Agreement in a manner that has the effect of amending, supplementing or
modifying any of the University Provisions, shall require the prior written
approval of University.

16.13     Headings and References.  All section headings contained in this
Agreement are for convenience of reference only and will not affect the meaning
or interpretation of this Agreement.

16.14     No Strict Construction.  This Agreement has been prepared jointly and
will not be strictly construed against either Party.

16.15     Survival.  The Provisions of Sections 2, 6.7, 8, 13, 14,
15 and 16 shall survive any expiration or termination of this Agreement.

 44
 

IN WITNESS WHEREOF, the
Parties hereto, intending to be legally bound hereby, have caused this
Agreement to be executed by their duly authorized representatives as of the
date first written above.

	
  PHARMANOVA INC.

  	
   

  	
  DEPOMED, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Rodney Brown

  	
   

  	
  By:

  	
  /s/ Carl A. Pelzel

  
	
  Name: Rodney Brown

  	
   

  	
  Name: Carl A. Pelzel

  
	
  Title: President

  	
   

  	
  Title: Executive Vice
  President & COO

  
	
  Date: October 13, 2006

  	
   

  	
  Date: October 13, 2006

  
					

 

 45

Exhibit
A

Licensor
Patent Rights:

·                  Rights in U.S. Patent No. 6,310,098 granted
to Licensor under the University License in the field of use of API for
Menopause Indications.

Exhibit
B

Product
Development Target Dates

	
  Activity /
  Event

  	
   

  	
  Target Date

  
	
  [* * *]

  	
   

  	
  [* * *]

  
	
  [* * *]

  	
   

  	
  [* * *]

  
	
  [* * *]

  	
   

  	
  [* * *]

  
	
  [* * *]

  	
   

  	
  [* * *]

  
	
  [* * *]

  	
   

  	
  [* * *]

  
	
  [* * *]

  	
   

  	
  [* * *]

  
	
  [* * *]

  	
   

  	
  [* * *]

  
	
  [* * *]

  	
   

  	
  [* * *]

  

Key Assumptions

[*  *  *]

* * * Portions of this
page have been omitted pursuant to a request for Confidential Treatment and
filed separately with the Commission.

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00119-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00119-of-00352.parquet"}]]