Document:

EX-10.136

 

Exhibit 10.136

GREERSON G. McMULLEN

EMPLOYMENT AGREEMENT

     THIS EMPLOYMENT AGREEMENT (the “Agreement”) is entered into by and between CNL HOTELS
& RESORTS, INC., a Maryland corporation formerly known as CNL Hospitality Properties, Inc.
(hereinafter referred to as the “Company”), and GREERSON G. McMULLEN (hereinafter referred
to as the “Executive”) and is effective as of the Effective Date hereinbelow defined at
Section 7.20.

     WHEREAS, simultaneously with the execution and delivery of this Agreement, the Company has
entered into an Amended and Restated Agreement and Plan of Merger among the Company, CNL Hotels &
Resorts Acquisition, LLC, a Florida limited liability company all of the membership interests of
which are owned by the Company (“CHPAC”), CNL Hospitality Properties Acquisition Corp., a
Florida corporation and wholly-owned subsidiary of the Company, CNL Hospitality Corp., a Florida
corporation (the “Advisor”), the Stockholders identified therein, and CNL Financial Group,
Inc., a Florida corporation (the “Merger Agreement”), pursuant to which the Advisor would
be merged with and into CHPAC pursuant to the terms and conditions of the Merger Agreement (the
“Merger”);

     and

     WHEREAS, the Company wishes to offer employment to the Executive, and the Executive wishes to
accept such offer, on the terms set forth below.

     Accordingly, the parties hereto agree as follows:

     1. Term. The Company hereby employs the Executive and the Executive hereby accepts
such employment for an initial term commencing as of the Effective Date and ending on December 31,
2009, unless sooner terminated in accordance with the provisions of Section 4 (the period during
which the Executive is employed hereunder being hereinafter referred to as the “Term”).
The Term shall be subject to automatic one- (1-) year renewals unless either party hereto notifies
the other, in accordance with the notice provisions of Section 7.6, of non-renewal at least ninety
(90) days prior to the end of any such Term (a “Non-Renewal”).

     2. Duties. The Executive, in his capacity as Senior Vice President and General
Counsel of the Company and as Secretary to the Board of Directors of the Company (the
“Board”), shall faithfully perform for the Company the duties of said offices and shall
perform such other duties of an executive, managerial or administrative nature as shall be
specified and designated from time to time by the Chief Executive Officer of the Company and the
Board. Executive shall report to the Board in his capacity as Secretary and to the Chief Executive
Officer in his capacity as

 

 

General Counsel. Such duties may include, without limitation, the
performance of services for, and serving on the board of directors of, any subsidiary of the
Company without any additional compensation. The Executive shall devote substantially all of the
Executive’s business time and effort to the performance of the Executive’s duties hereunder.
Provided that the following activities do not interfere with the Executive’s duties to the Company
and provided that the following activities do not violate the Executive’s covenant against
competition as described at Section 6 hereof, during the Term, the Executive may perform personal,
charitable and other business activities, including, without limitation, serving as a member of one
or more boards of directors of charitable or other professional organizations, and, serve on the
boards of directors of other business organizations that are not engaged in any aspect of the
lodging industry, provided, however, that service on the boards of directors of other business
organizations would require consent of the Board.

     3. Compensation.

          3.1 Salary. The Company shall pay the Executive during the Term a salary at the rate
of Three Hundred Thousand and No/00 Dollars ($300,000) per annum (the “Annual Salary”), in
accordance with the customary payroll practices of the Company applicable to senior executives
generally. The Annual Salary may be increased from time to time, by an amount as may be approved
by the Board or the Compensation Committee of the Board (the “Compensation Committee”),
and, upon such increase, the increased amount shall thereafter be deemed to be the Annual Salary.

          3.2 Bonus. The Executive will be eligible to participate in the Company’s annual
bonus program (the “Bonus Plan”), the terms of which will be established by the
Compensation Committee; provided, however, at a minimum, Executive shall be eligible for such bonus
compensation as is set forth on Attachment “A” attached hereto and made a part hereof by
this reference.

          3.3 Benefits – In General. The Executive shall be permitted during the Term to
participate in any group life, hospitalization or disability insurance plans, health programs,
pension and profit sharing plans and similar benefits that may be available to other senior
executives of the Company generally, on the same terms as may be applicable to such other
executives (except as otherwise provided in this Section 3), in each case to the extent that the
Executive is eligible under the terms of such plans or programs.

          3.4 Paid Time Off. The Executive shall be entitled to no fewer than twenty-five (25)
days of paid time off per year.

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          3.5 Disability Benefits and Life Insurance. To the extent the Company’s group life
and disability insurance plans do not provide this level of benefits, the Executive shall be
entitled to additional benefits so that his long-term disability coverage provides benefits (to
continue for such period as is provided in the applicable disability plan or program, as amended
from time to time, and with waiting periods and pre-existing condition exceptions waived to the
extent such coverage is available on commercially reasonable terms) equal seventy-five percent
(75%) of his Annual Salary in the case of a covered disability and life insurance coverage provides
benefits with a face amount equal to one (1) times the Executive’s Annual Salary.

          3.7 Expenses. The Company shall pay or reimburse the Executive for all ordinary and
reasonable out-of-pocket expenses actually incurred and, in the case of reimbursement, actually
paid by the Executive during the Term in the performance of the Executive’s services under this
Agreement; provided that the Executive shall submit such expenses in accordance with the policies
applicable to senior executives of the Company generally.

     4. Termination of Employment. The Company may terminate the Executive’s employment for
any reason or for no reason and with or without Cause (as defined hereinbelow). The Executive may
terminate the Executive’s employment with the Company for Good Reason (as defined hereinbelow) or
without Good Reason. The Company or the Executive may terminate the Executive’s employment by
Non-Renewal (as defined hereinbelow). The Executive shall be subject to the provisions of the
Covenant Against Competition set forth at Section 6.2. For purposes of this Agreement, with
respect to “earned and accrued” Bonus payments to be made to the Executive in connection with the
termination of his employment, Bonus payments shall be deemed to be “earned and accrued” (a) if the
Executive is employed with the Company as of the date of the last day of the fiscal year for which
a Bonus payment shall be made; (b) to the extent that the criteria for determining the amount of
such Bonus payment is subject to objective criteria; and (c) regardless of whether the Bonus
payment award was actually calculated or declared by the Company as of the date of the Executive’s
employment.

          4.1 Termination upon the Executive’s Death or Disability.

               a. If the Executive dies during the Term, the obligations of the Company to or with respect to
the Executive shall terminate in their entirety except as otherwise provided in this Section 4.1
and except for the surviving provisions of this Agreement as described at Section 7.15.

               b. If the Executive becomes eligible for disability benefits under the Company’s long-term
disability plans and arrangements (or, if none apply, would have been so

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eligible under the most
recent plan or arrangement), the Company or the Executive shall have the right, to the extent
permitted by law, to terminate the employment of the Executive upon at least ninety (90) days’
prior written notice to the other party, provided that neither party shall have the right to
terminate the Executive’s employment if, in the opinion of a qualified physician reasonably
acceptable to both parties, it is reasonably certain that the Executive will be able to resume his
duties on a regular full-time basis within one hundred eighty (180) days of the date that the
notice of such termination is delivered.

               c. Upon the Executive’s death or the termination of the Executive’s employment by virtue of
disability, all of the following shall apply:

                    (i) the Executive, or the Executive’s estate or beneficiaries in the case of the death of the
Executive, shall have no right to receive any compensation or benefit hereunder on and after the
effective date of the termination of employment, except that the Executive, or the Executive’s
estate or beneficiaries the case of the death of the Executive, shall be entitled to receive the
Executive’s Annual Salary, and other benefits that are earned and accrued under this Agreement
prior to the date of termination, the Executive’s earned and accrued bonuses as provided in the
Bonus Plan, vesting providing in clause (ii) below, and reimbursement under this Agreement for
expenses incurred prior to the date of such termination;

                    (ii) all of the Executive’s outstanding and unvested Shares (as defined in Attachment “A”)
shall immediately be vested, any outstanding options to acquire shares of Company stock shall
immediately be vested and shall be exercisable by the Executive or, in the case of the Executive’s
death, by the beneficiaries of Executive’s estate, for one (1) year following the termination (or,
if shorter, the balance of the regular term of the options); and

                    (iii) this Agreement shall otherwise terminate and there shall be no further rights with
respect to the Executive hereunder except for the surviving provisions of this Agreement as
provided in Section 7.15. The payments to be made in this Section 4.1(c) shall be in addition to,
rather than in lieu of, the entitlement of Executive or his estate to any other insurance or
benefit proceeds as a result of his death or disability.

          4.2 Termination by the Company for Cause. The Company may terminate the Executive’s
employment at any time for “Cause” if any of the following have occurred:

               a. the Executive’s conviction for (or pleading nolo contendere to) any felony, or a
misdemeanor involving moral turpitude;

               b. the Executive’s indictment for any felony or misdemeanor involving moral turpitude, if such
indictment is not discharged or otherwise resolved within eighteen (18) months;

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               c. the Executive’s commission of an act of fraud, theft or dishonesty related to the
performance of the Executive’s duties hereunder;

               d. the continuing failure or habitual neglect by the Executive to perform the Executive’s
duties hereunder, except that, if such failure or neglect is curable, the Executive shall first
have thirty (30) days from his receipt of notice of such failure or neglect to cure such condition
and, if the Executive does so, such failure or neglect shall not constitute Cause hereunder;

               e. any material violation by the Executive of the covenants contained in Section 6 except
that, if such violation is not willful and is curable, the executive shall first have thirty (30)
days from his receipt of notice of such violation to cure such condition and, if the Executive does
so, such violation shall not constitute Cause hereunder; or

               f. the Executive’s continuing material breach of this Agreement, except that, if such breach
is curable, the Executive shall first have thirty (30) days from his receipt of such notice of such
breach to cure such breach and, if the Executive does so, such breach shall not constitute Cause
hereunder.

If the Company terminates the Executive’s employment for Cause, the Executive shall have no right
to receive any compensation or benefit hereunder on and after the effective date of the termination
of employment, except that the Executive shall be entitled to receive the Executive’s Annual
Salary, and other benefits that are earned and accrued under this Agreement prior to the date of
termination, any earned and accrued bonuses as provided in the Bonus Plan, and reimbursement under
this Agreement for expenses incurred prior to the date of termination. This Agreement shall
otherwise terminate upon such termination of employment and the Executive shall have no further
rights or obligations hereunder except for the surviving provisions of this Agreement as described
at Section 7.15.

          4.3 Termination by the Company without Cause. The Company may terminate the
Executive’s employment at any time without Cause upon sixty (60) days prior written notice to the
Executive. If the Company terminates the Executive’s employment without the occurrence of any of
the events constituting “Cause”, and the termination is not due to the Executive’s death or
disability or is not a Non-Renewal, then the termination by the Company is without Cause. If the
Company terminates the Executive’s employment without Cause, then the Severance Package provisions
of Section 5 shall apply, and this Agreement shall otherwise terminate and the Executive shall have
no further rights or obligations hereunder except for the surviving provisions

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of this Agreement as described at Section 7.15.

          4.4 Termination of Employment by the Executive for Good Reason. The Executive may
terminate the Executive’s employment with the Company at any time for “Good Reason” and
receive the Severance Package provisions of Section 5 if any of the following have occurred without
the Executive’s written consent:

               a. the material reduction of the Executive’s authority, duties and responsibilities (including
his reporting relationship), or the assignment to the Executive of duties materially inconsistent
with the Executive’s position or positions with the Company and its subsidiaries, except that the
Company shall have thirty (30) days from the date on which the Executive gives the notice thereof
to cure such event or condition and, if the Company does so, such event or condition shall not
constitute Good Reason hereunder;

               b. a reduction of the Annual Salary of the Executive, except that a reduction of the
Executive’s Annual Salary shall not constitute Good Reason for termination if (i) the Company fully
cures (including retroactively) such reduction no later than thirty (30) days from the date on
which the Executive gives the Company notice that the reduction constitutes Good Reason for
termination hereunder; or (ii) such reduction is made in connection with a reduction in
compensation of not more than ten percent (10%) of the Executive’s Annual Salary and such reduction
is made generally applicable to all senior management employees of the Company;

               c. the failure by the Company to obtain an agreement in form and substance reasonably
satisfactory to the Executive from any successor to the business of the Company to assume and agree
to perform this Agreement;

               d. the Company’s material breach of this Agreement, except that the Company shall have thirty
(30) days from the date on which the Executive gives the notice thereof to cure such event or
condition and, if the Company does so, such event or condition shall not constitute Good Reason
hereunder;

               e. a requirement by the Company that Executive’s work location be moved more than fifty (50)
miles from the Company’s principal place of business in Orlando, Florida; or

               f. the occurrence of a change of control, which for purposes of this Agreement shall mean the
sale to an independent third party or group of independent third parties of either (i) more than
thirty percent (30%) of the issued and outstanding equity securities of the Company and the voting
power under normal circumstances to elect a majority of the Company’s

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Board (whether by merger,
consolidation, sale or transfer of the Company’s equity securities); or (ii) all or substantially
all of the Company’s assets determined on a consolidated basis. For the avoidance of doubt, a
change of control shall not include the Merger or any issuance by the Company of equity securities
in an initial public offering.

This Agreement shall otherwise terminate upon such termination of employment and the Executive
shall have no further rights or obligations hereunder except for the surviving provisions of this
Agreement as described at Section 7.15.

          4.5 Termination of Employment by the Executive without Good Reason. The Executive may
terminate the Executive’s employment with the Company at any time without Good Reason. If the
Executive terminates his employment without the occurrence of any of the events constituting
“Good Reason” and the termination is not due to the Executive’s death or disability, then
the termination by the Executive is without Good Reason. If the Executive terminates the
Executive’s employment with the Company without Good Reason, the Executive shall have no right to
receive any compensation or benefit hereunder on and after the effective date of the termination of
employment, except that the Executive shall be entitled to receive the Executive’s Annual Salary,
and other benefits that are earned and accrued under this Agreement or under applicable Company
benefit plans prior to the date of termination, any earned and accrued bonuses as provided in the
Bonus Plan, and reimbursement under this Agreement for expenses incurred prior to the date of
termination. This Agreement shall otherwise terminate upon such termination of employment and the
Executive shall have no further rights or obligations hereunder except for the surviving provisions
of this Agreement as described at Section 7.15.

          4.6 Termination upon Expiration and Non-Renewal of Agreement. The Company may
terminate the Executive’s employment by providing notice of Non-Renewal of the Term in accordance
with the provisions of Section 1 and Section 7.6 hereof, and the Severance Package provisions of
Section 5 shall apply. If the Executive terminates employment by Non-Renewal, it will be treated
as a termination of employment without Good Reason. This Agreement shall otherwise terminate upon
such termination of employment and the Executive shall have no further rights or obligations
hereunder except for the surviving provisions of this Agreement as described at Section 7.15.

     5. Severance Package for Certain Terminations of Employment. The Executive shall be
entitled to certain rights and shall be bound by certain obligations as described in this Section 5
(the “Severance Package”) if the Executive’s employment terminates because of the
Non-Renewal by the Company of this Agreement, or if the Company terminates the Executive’s
employment without Cause, or if the Executive terminates the Executive’s employment for Good
Reason. For purposes of this Agreement, the “Severance Package” shall consist of all of
the following rights and obligations:

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               a. other than as set forth in this Section 5 generally, the Executive shall have no right to
receive any compensation or benefit hereunder on and after the effective date of the termination of
employment, except that the Executive shall be entitled to receive the Executive’s Annual Salary,
and other benefits that are earned and accrued under this Agreement and under applicable Company
benefit plans prior to the date of termination, any earned and accrued bonuses as provided in the
Bonus Plan, and reimbursement under this Agreement for expenses incurred prior to the date of
termination;

               b. subject to the execution of a general release of claims in favor of the Company as set
forth in Attachment “B”, the Executive shall receive both:

                    (i) a cash payment equal to two (2) times the sum of (w) the Executive’s Annual Salary (as in
effect on the effective date of such termination excluding any reduction not permitted by this
Agreement) plus (x) the average of the Executive’s Annual Bonus actually earned for the two
of the last three full fiscal years that would result in the highest average (“Average Annual
Bonus”), payable in equal installments over the period that corresponds to the period during
which the covenants provided in Section 6.2 hereof are to be applicable in accordance with the
Company’s usual and customary salary payroll practices, commencing on the first payday following
Executive’s termination. (If, at the time of a termination to which this sub-subparagraph b(i)
applies, at least three full fiscal years have not occurred, then to the extent necessary to
calculate the Average Annual Bonus for the last three years as set forth above, the annual bonus or
bonuses payable to Executive by Executive’s former employer shall be used); provided,
however, that in the event the termination of employment is in connection with a
Non-Renewal by the Company, such payments shall equal the sum of (y) the Executive’s Annual Salary
(as in effect on the effective date of such termination excluding any reduction not permitted by
this Agreement) plus (z) the Executive’s Average Annual Bonus, which together shall be
payable in equal installments over a twelve (12) month period in accordance with the Company’s
usual and customary salary payroll practices (and made payable to the Executive’s estate in the
event that the Executive dies prior to the expiration of such period), commencing on the first
payday following Executive’s termination; and provided, further, that if the
covenants provided in Section 6.2 are not applicable, in a single lump sum within five (5) days of
termination of employment; provided, further, that if the Executive is a “key
employee” within the meaning of Internal Revenue Code of 1986, as amended, Section 409A (“Section
409A”), payments shall not commence (or be made in the case of a lump sum payment) until six months
following the Executive’s separation from service to the extent necessary to avoid the imposition
of the additional 20% tax under Section 409A (and in the case of installment payments, the first
payment shall include all installment payments required by this subsection that otherwise would
have been made during such six month period); and

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                    (ii) for a period of twelve (12) months after termination of employment such continuing health
benefits (including any medical, vision or dental benefits), under the Company’s health plans and
programs applicable to senior executives of the Company generally as the Executive would have
received under this Agreement (and at such costs to the Executive) as would have applied in the
absence of such termination or expiration (but not taking into account any post-termination
increases in Annual Salary that may otherwise have occurred without regard to such termination and
that may have favorably affected such benefits) it being expressly understood and agreed that
nothing in this clause (b)(ii) shall restrict the ability of the Company to generally amend or
terminate such plans and programs from time to time in its sole discretion; provided,
however, that the Company shall in no event be required to provide such coverage after such
time as the Executive becomes entitled to receive health benefits from another employer or
recipient of the Executive’s services (and provided, further, that such entitlement
shall be determined without regard to any individual waivers or other arrangements);

               c. subject to the execution of a general release of claims in favor of the Company as set
forth in Attachment “B”, the Executive’s outstanding and unvested Shares (as defined in
Attachment “A”) that would have vested in the calendar year employment terminates (treating
the performance criteria for the year of termination as fully satisfied) shall be vested, any
outstanding options to acquire shares of Company stock shall immediately be vested and shall be
exercisable by the Executive or, in the case of the Executive’s death, by the beneficiaries of
Executive’s estate, for one (1) year following the termination (or, if shorter, the balance of the
regular term of the options); provided, however, that if such termination of
employment occurs in connection with or on or after a change of control, all of the Executive’s
outstanding awards of Shares shall immediately be vested (treating the performance criteria for the
applicable year(s) as fully satisfied).

This Agreement shall otherwise terminate upon such termination of employment and the Executive
shall have no further rights hereunder except for surviving provisions of this Agreement as
provided in Section 7.15.

     6. Covenants of the Executive.

          6.1 General Covenants of the Executive. The Executive acknowledges that (a) the
principal business of the Company is the acquisition, development and ownership of interests in
hotel and resort properties including full service hotels and resorts, limited service hotels,
extended stay hotels and upper upscale and luxury resorts (such business, and any and all other
businesses that after the date hereof, and from time to time during the Term, become material with

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respect to the Company’s then-overall business, herein being collectively referred to as the
“Business”); (b) the Company knows of a limited number of persons who have developed the
Company’s Business; (c) the Company’s Business is, in part, national in scope; (d) the Executive’s
work for the Company and its subsidiaries (and the predecessors of either) has given and will
continue to give the Executive access to the confidential affairs and proprietary information of
the Company and to “trade secrets,” as defined in Section 688.002(4) of the Florida Statutes, of
the Company and its subsidiaries; (e) the covenants and agreements of the Executive contained in
this Section 6 are essential to the business and goodwill of the Company; and (f) the Company would
not have entered into this Agreement but for the covenants and agreements set forth in this Section
6.

          6.2 Covenant Against Competition. The covenant against competition herein described
shall apply as follows:

               a. during the Term;

               b. for a period of one (1) year following a termination of the Executive’s employment by the
Company for Cause, by the Company without Cause, by the Executive without Good Reason or by either
party after Non-Renewal;

               c. for a period of two (2) years following a termination of the Executive’s employment by the
Executive for Good Reason; or

               d. as to Section 6.2(bb) and (dd), at any time during and after the Executive’s employment
with the Company and its subsidiaries (and the predecessors of either).

During the time periods for described hereinabove, the Executive covenants as follows:

               aa. The Executive shall not, directly or indirectly, own, manage, control or participate in
the ownership, management, or control of, or be employed or engaged by or otherwise affiliated or
associated as an employee, employer, consultant, agent, principal, partner, stockholder, corporate
officer, director or in any other individual or representative capacity, engage or participate in
any business that owns and operates hotel and resort properties, or is a real estate investment
trust which owns hotel and resort properties, or in the business of providing hotel management or
consulting services, and that has assets, or provides services to entities that have assets, in
excess of Seven Hundred Fifty Million and No/00 Dollars ($750,000,000), and such business is in
competition in any manner whatsoever with the Business of the Company in any state or country or
other jurisdiction in which the Company conducts its Business; provided, however,
that, notwithstanding the foregoing, (i) the Executive may own or participate in the ownership of
any entity which he owned or managed or participated in the ownership or

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management of prior to the
Effective Date which ownership, management or participation has been disclosed to the Company; and
(ii) the Executive may invest in securities of any entity, solely for investment purposes and
without participating in the business thereof, if (A) such securities are traded on any national
securities exchange or the National Association of Securities Dealers, Inc. Automated Quotation
System or equivalent non-US securities exchange, (B) the Executive is not a controlling person of,
or a member of a group which controls, such entity and (C) the Executive does not, directly or
indirectly, own one percent (1%) or more of any class of securities of such entity.

               bb. Except in connection with the business and affairs of the Company and its affiliates: the
Executive shall keep secret and retain in strictest confidence, and shall not use for his benefit
or the benefit of others, all confidential matters relating to the Business and the business of any
of its affiliates and to the Company and any of its affiliates, learned by the Executive heretofore
or hereafter directly or indirectly from the Company or any of its subsidiaries (or any predecessor
of either) (the “Confidential Company Information”), including, without limitation,
information with respect to the Business and any aspect thereof, profit or loss figures, and the
Company’s or its affiliates’ (or any of their predecessors) properties, and shall not disclose such
Confidential Company information to anyone outside of the Company except with the Company’s express
written consent and except for Confidential Company Information which (i) at the time of receipt or
thereafter becomes publicly known through no wrongful act of the Executive; (ii) is clearly
obtainable in the public domain; (iii) was not acquired by the Executive in connection with the
Executive’s employment or affiliation with the Company; (iv) was not acquired by the Executive from
the Company or its representatives or from a third-party who has an agreement with the Company not
to disclose such information; or (v) is required to be disclosed by rule of law or by order of a
court or governmental body or agency. For purposes of this Agreement, “affiliate” means, with
respect to the Company, any person, partnership, corporation or other entity that controls, is
controlled by or is under common control with the Company within the meaning of Rule 405 of
Regulation C under the Securities Act of 1933, as now in effect or as hereafter amended.

               cc. The Executive shall not, without the Company’s prior written consent, directly or
indirectly, (i) knowingly solicit or knowingly encourage to leave the employment or other service
of the Company or any of its affiliates, any employee thereof or knowingly hire (on behalf of the
Executive or any other person or entity) any employee who has left the employment or other service
of the Company or any of its affiliates (or any predecessor of either) within one (1) year of the
termination of such employee’s or independent contractor’s employment or other service with the
Company and its affiliates; or (ii) whether for the Executive’s own account or for the account of
any other person, firm, corporation or other business organization, intentionally interfere with
the Company’s or any of its affiliates, relationship with,

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or endeavor to entice away from the
Company or any of its affiliates, any person who during the Executive’s employment with the Company
and its affiliates (or the predecessors of either) is or was a customer or client of the Company or
any of its affiliates (or any predecessor of either).

               dd. All memoranda, notes, lists, records, property and any other tangible product and
documents (and all copies thereof) made, produced or compiled by the Executive or made available to
the Executive concerning the Business of the Company and its affiliates shall be the Company’s
property and shall be delivered to the Company at any time on request.

          6.3 Rights and Remedies upon Breach. The Executive acknowledges and agrees that any
breach by him of any of the provisions of Sections 6.1 or 6.2 (the “Restrictive Covenants”)
would result in irreparable injury and damage for which money damages would not provide an adequate
remedy. Therefore, if the Executive breaches, or threatens to commit a breach of, any of the
Restrictive Covenants, the Company and its affiliates shall have the right and remedy to have the
Restrictive Covenants specifically enforced (without posting bond and without the need to prove
damages) by any court having equity jurisdiction, including, without limitation, the right to an
entry against the Executive of restraining orders and injunctions (preliminary, mandatory,
temporary and permanent) against violations, threatened or actual, and whether or not then
continuing, of such covenants. This right and remedy shall be in addition to, and not in lieu of,
any other rights and remedies available to the Company and its affiliates under law or in equity
(including, without limitation, the recovery of damages). The existence of any claim or cause of
action by the Executive, whether predicated on this Agreement or otherwise, shall not constitute a
defense to the enforcement of the Restrictive Covenants. The Company has the right to cease making
the payments provided as part of the Severance Package in the event of a material breach of any of
the Restrictive Covenants that, if capable of cure and not willful, is not cured within thirty (30)
days after receipt of notice thereof from the Company.

     7. Other Provisions.

          7.1 Severability. The Executive acknowledges and agrees that the Executive has had an
opportunity to seek advice of counsel in connection with this Agreement; and that the Restrictive
Covenants are reasonable in geographical and temporal scope and in all other respects. If it is
determined that any of the provisions of this Agreement, including, without limitation, any of the
Restrictive Covenants, or any part thereof, is invalid or unenforceable, the remainder of the
provisions of this Agreement shall not thereby be affected and shall be given full affect, without
regard to the invalid portions.

          7.2 Duration and Scope of Covenants. If any court or other decision maker of

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competent jurisdiction determines that any of the Executive’s covenants contained in this
Agreement, including, without limitation, any of the Restrictive Covenants, or any part thereof,
are unenforceable because of the duration or geographical scope of such provision, then, after such
determination has become final and unappealable, the duration or scope of such provision, as the
case may be, shall be reduced so that such provision becomes enforceable and, in its reduced form,
such provision shall then be enforceable and shall be enforced.

          7.3 Enforceability of Restrictive Covenants; Jurisdictions. The Company and the
Executive intend to and hereby consent to jurisdiction to enforce the Restrictive Covenants upon
the courts of any jurisdiction within the geographical scope of the Restrictive Covenants. If the
courts of any one or more of such jurisdictions hold the Restrictive Covenants wholly unenforceable
by reason of breadth of scope or otherwise it is the intention of the Company and the Executive
that such determination not bar or in any way affect the Company’s right, or the right of any of
its affiliates, to the relief provided above in the courts of any other jurisdiction within the
geographical scope of such Restrictive Covenants, as to breaches of such Restrictive Covenants in
such other respective jurisdictions, such Restrictive Covenants as they relate to each
jurisdiction’s being, for this purpose, severable, diverse and independent covenants, subject,
where appropriate, to the doctrine of res judicata.

          7.4 Arbitration. Except with regard to Section 6, all disputes between the parties or
any claims concerning the performance, breach, construction or interpretation of this Agreement, or
in any manner arising out of this Agreement, shall be submitted to binding arbitration in
accordance with the Commercial Arbitration Rules, as amended from time to time, of the American
Arbitration Association (the “AAA”), which arbitration shall be carried out in the manner
set forth below:

               a. Within fifteen (15) days after written notice by one party to the other party of its demand
for arbitration, which demand shall set forth the name and address of its designated arbitrator,
the other party shall appoint its designated arbitrator and so notify the demanding party. Within
fifteen (15) days thereafter, the two arbitrators so appointed shall appoint the third arbitrator.
If the two appointed arbitrators cannot agree on the third arbitrator, then the AAA shall appoint
an independent arbitrator as the third arbitrator. The dispute shall be heard by the arbitrators
within ninety (90) days after appointment of the third arbitrator. The decision of any two (2) or
all three (3) of the arbitrators shall be binding upon the parties without any right of appeal.
The decision of the arbitrators shall be final and binding upon the Company, its successors and
assigns, and upon Executive, his heirs, personal representatives, and legal representatives

               b. The arbitration proceedings shall take place in Orlando, Florida, and the judgment and
determination of such proceedings shall be binding on all parties. Judgment

13

 

upon any award
rendered by the arbitrators may be entered into any court having competent jurisdiction without any
right of appeal.

               c. Each party shall pay its or his own expenses of arbitration, and the expenses of the
arbitrators and the arbitration proceeding shall be shared equally. However, if in the opinion of
a majority of the arbitrators, any claim or defense was unreasonable, the arbitrators may assess,
as part of their award, all or any part of the arbitration expenses of the other party (other than
attorneys’ fees, which are addressed in Section 7.5 below) and of the arbitrators and the
arbitration proceeding.

          7.5 Attorneys’ Fees. In the event of any legal proceeding (including an arbitration
proceeding) relating to this Agreement or any term or provision thereof, the losing party shall be
responsible to pay or reimburse the prevailing party for all reasonable attorneys’ fees and
expenses incurred by the prevailing party in connection with such proceeding.

          7.6 Notices. Any notice, consent or other communication required or permitted
hereunder shall be in writing and shall be delivered personally, telegraphed, telexed, sent by
facsimile transmission or sent by certified, registered or express mail, postage prepaid. Any such
notice, consent or other communication shall be deemed given when so delivered personally,
delivered by overnight courier, telexed or sent by facsimile transmission or, if mailed, five days
after the date of deposit in the United States mails as follows:

	 	a.	 	If to the Company, to:

CNL Hotels & Resorts, Inc.

CNL Center at City Commons

450 South Orange Avenue

Orlando, Florida 32801

Attention: Chairman (James M. Seneff, Jr.)

Facsimile: (407) 650-1011

	 	 	 	with a copy in either case to:

Greenberg Traurig, LLP

The MetLife Building

200 Park Avenue

New York, NY 10166

Attention: Judith D. Fryer, Esq.

Facsimile: (212) 805-9330

14

 

	 	b.	 	If to the Executive, to:

Greerson McMullen

673 Granville Drive

Winter Park, Florida 32789

Facsimile: (407)

	 	 	 	with a copy in either case to:

Baker & Hostetler LLP

SunTrust Center

200 South Orange Avenue, Suite 2300

Orlando, Florida 32801

Attention: G. Thomas Ball, Esq.

Facsimile: (407) 841-0168

Any such person may by notice given in accordance with this Section to the other parties hereto
designate another address or person for receipt by such person of notices hereunder.

          7.7 Entire Agreement. This Agreement contains the entire agreement between the
parties with respect to the subject matter hereof and supersedes all prior agreements, written or
oral, with the Company or its subsidiaries (or any predecessor of either), except (i) the
Indemnification Agreement, dated as of October 3, 2005, between the Company and the Executive (and
any successor thereto or replacement thereof), (ii) the Consent and Waiver, dated as of May 22,
2006, among the Company, Executive and the Advisor, and (iii) any accrued and unsatisfied rights
under the employment letter, dated May 22, 2006, between the Company and the Executive.

          7.8 Waivers and Amendments. This Agreement may be amended, superseded, canceled,
renewed or extended, and the terms hereof may be waived, only by a written instrument signed by the
parties or, in the case of a waiver, by the party waiving compliance. No delay on the part of any
party in exercising any right, power or privilege hereunder shall operate as a waiver thereof, nor
shall any waiver on the part of any party of any such right, power or privilege nor any single or
partial exercise of any such right, power or privilege, preclude any other or further exercise
thereof or the exercise of any other such right, power or privilege. If Executive is terminated
without Cause or is terminated due to a Non-Renewal of this Agreement by the Company, the Company
hereby waives, as to the Executive only, the no-hire provision in the Merger Agreement.

15

 

          7.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE
WITH THE LAWS OF THE STATE OF FLORIDA WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW.

          7.10 Assignment. This Agreement, and the Executive’s rights and obligations
hereunder, may not be assigned by the Executive; any purported assignment by the Executive in
violation hereof shall be null and void. In the event of any sale, transfer or other disposition
of all or substantially all of the Company’s assets or business, whether by merger, consolidation
or otherwise, the Company may assign this Agreement and its rights hereunder.

          7.11 Withholding. The Company shall be entitled to withhold from any payments or
deemed payments any amount of withholding required by law. In the event that the Company
determines that any federal, state, local or foreign tax or withholding payment is required
relating to the vesting in or delivery of Shares, the Company shall have the right to require such
payments from the Executive or withhold such amounts from other payments due to the Executive from
the Company or any affiliate, or to withhold Shares that would otherwise have been issued to the
Executive. The Executive shall have the right to elect, in his discretion, the manner in which
such payments shall be made or withheld. No other taxes, fees, impositions, duties or other
charges or offsets of any kind shall be deducted or withheld from amounts payable hereunder, unless
otherwise required by law.

          7.12 No Duty to Mitigate. The Executive shall not be required to mitigate damages or
the amount of any payment provided for under this Agreement by seeking other employment or
otherwise, nor will any payments hereunder be subject to offset in the event the Executive does
mitigate.

          7.13 Binding Effect. This Agreement shall be binding upon and inure to the benefit of
the parties and their respective successors, permitted assigns, heirs, executors and legal
representatives.

          7.14 Counterparts. This Agreement may be executed by the parties hereto in separate
counterparts, each of which when so executed and delivered shall be an original but all such
counterparts together shall constitute one and the same instrument. Each counterpart may consist
of two copies hereof each signed by one of the parties hereto.

          7.15 Survival. Anything contained in this Agreement to the contrary notwithstanding,
the provisions of Sections 3.7, 4, 5, 6, 7.3, 7.4, 7.5, 7.11, 7.12, 7.18, 7.19 and 7.21 and the
other provisions of this Section 7 (to the extent necessary to effectuate the survival of Sections
4, 5, 6, 7.3, 7.4, 7.11, and 7.12) shall survive the termination of this Agreement and any

16

 

termination of the Executive’s employment hereunder.

          7.16 Existing Agreements. Executive represents to the Company that the Executive is
not subject or a party to any employment or consulting agreement, non-competition covenant or other
agreement, covenant or understanding which might prohibit the Executive from executing this
Agreement or limit the Executive’s ability to fulfill the Executive’s responsibilities hereunder.

          7.17 Headings. The headings in this Agreement are for reference only and shall not
affect the interpretation of this Agreement.

          7.18 Parachute Provisions. If any amount payable to or other benefit receivable by
the Executive pursuant to this Agreement is deemed to constitute a Parachute Payment (as defined
below), alone or when added to any other amount payable or paid to or other benefit receivable or
received by the Executive which is deemed to constitute a Parachute Payment (whether or not under
an existing plan, arrangement or other agreement), and would result in the imposition on the
Executive of an excise tax under Section 4999 of the Internal Revenue Code of 1986, as amended,
then, in addition to any other benefits to which the Executive is entitled under this Agreement,
the Executive shall be paid by the Company an amount in cash equal to the sum of the excise taxes
payable by the Executive by reason of receiving Parachute Payments plus the amount necessary to put
the Executive in the same after-tax position (taking into account any and all applicable federal,
state and local excise, income or other taxes at the highest applicable rates on such Parachute
Payments and on any payments under this Section 7.18) as if no excise taxes had been imposed with
respect to Parachute Payments. The amount of any payment under this Section 7.18 shall be computed
by a certified public accounting firm mutually and reasonably acceptable to the Executive and the
Company, the computation expenses of which shall be paid by the Company. “Parachute Payment” shall
mean any payment deemed to constitute a “parachute payment” as defined in Section 280G of the
Internal Revenue Code of 1986, as amended.

          7.19 Company’s Repurchase of Certain Shares. At the Executive’s option, exercisable at
any time within twelve (12) months after the date Shares (as defined in Attachment “A”) (including
any additional shares of the Company’s Common Stock then owned by the Executive and attributable to
such Shares as a result of a stock dividend, stock-split, or recapitalization of the Company) are
includible in Executive’s taxable income, the Company shall purchase from the Executive an amount
of shares of the Company’s Stock then owned by the Executive sufficient to pay the difference
between the income tax attributable to the inclusion of the value of such Shares in Executive’s
taxable income and the amount previously withheld (“Put Right”); provided, however, that such Put
Right shall not be exercisable with regard to any shares of the Company’s Stock the repurchase of
which would result in an accounting charge to the

17

 

Company. The Executive’s Put Right shall be
exercisable at the fair market value of the shares as of the date such Put Right is exercised (the
“Purchase Price”) as determined in good faith by the Company. Unless the Company and the Executive
shall mutually agree upon other terms, the Purchase Price shall be paid in cash or other readily
available funds, to be paid to the Executive thirty (30) days from the date that the Executive
elects to exercise his Put Right. If the shares Company Common Stock are listed on an established
national or regional stock exchange or are admitted to quotation on The Nasdaq Stock Market, Inc.,
or are publicly traded in an established securities market, the foregoing Put Right shall
terminate as of the first date that the shares of Common Stock are so listed, quoted or publicly
traded.

          7.20 Effective Date. The Effective Date shall be the Effective Time (as such term is
defined in the Merger Agreement).

          7.21 Indemnification. Subject to the Company’s Articles of Incorporation and Bylaws,
the Company shall indemnify the Executive with respect to his performance of services hereunder on
the Company’s and its affiliates’ behalf, to the fullest extent allowed under the laws of the State
of Florida, and if such is held not to be applicable, then to the fullest extent allowed under the
laws of the state of the Company’s incorporation.

18

 

     IN WITNESS WHEREOF, the parties hereto have signed their names to this Employment Agreement as
of the day and year set forth below.

	 	 	 	 	 	 	 
	 	 	COMPANY:	 	 
	 
	 	 	 	 	 	 
	 	 	CNL HOTELS & RESORTS, INC.,	 	 
	 	 	a Maryland corporation:	 	 
	 
	 

	 	By:

Name:
	 	/s/ Dianna Morgan
 

Dianna Morgan
	 	 
	 

	 	Title:
	 	Chair, Compensation Committee	 	 
	 

	 	Date:
	 	5/14/06	 	 
	 
	 	 	 	 	 	 
	 	 	EXECUTIVE:	 	 
	 
	 	 	 	 	 	 
	 	 	/s/ Greerson G. McMullen	 	 
	 	 	 	 	 
	 	 	Greerson G. McMullen	 	 
	 
	 	 	 	 	 	 
	 

	 	Date:
	 	June 1, 2006	 	 

19

 

GREERSON McMULLEN

EMPLOYMENT AGREEMENT

ATTACHMENT “A”

	A.	 	BONUS COMPENSATION

     1. Annual Bonus Compensation. Executive shall be eligible to participate in the Bonus
Plan during the term of this Agreement. Executive’s bonus will be subject to Executive’s
achievement of performance criteria established annually by the Compensation Committee: 

          1.1. For Threshold level, Executive shall receive 50% of his Annual Salary as bonus
compensation;

          1.2. For Target level, Executive shall receive 100% of his Annual Salary as bonus
compensation; and

          1.3. For Maximum level, Executive shall receive 125% of his Annual Salary as bonus
compensation.

For purpose of the Annual Bonus, Annual Salary means the Annual Salary paid the Executive during
the calendar, or portion of the calendar, year covered by the bonus. Executive’s performance
criteria shall be established annually by the Compensation Committee. For each fiscal year,
Executive’s bonus, if any, will be paid to Executive in a lump sum on or before seventy five (75)
days after the end of such fiscal year.

     2. Withholding. All amounts payable to Executive hereunder shall be subject to all
required federal, state or local income tax or other withholding by the Company.

	B.	 	OTHER BENEFITS AND PAYMENTS

     3. Shares. Subject to the Company’s 2004 Omnibus Long-Term Incentive Plan, as an
incentive bonus, shares of the Company’s common stock (“Shares”) shall be granted to the Executive
in accordance with the following provisions:

          3.1. A total of Twenty Three Thousand Six Hundred Twenty Five (23,625) Shares shall be granted
in the form of stock units which shall vest in four equal installments on each of December 31,
2006, December 31, 2007, December 31, 2008 and December 31, 2009, if Executive then remains in
service to the Company. The shares related to the vested stock units

 

 

shall be delivered to the Executive when vested.

          3.2 A total of One Hundred Seven Thousand Six Hundred Twenty Five (107,625) Shares shall be
granted in the form of stock units which shall be subject to vesting based on the achievement of
performance criteria over partial year, annual and cumulative performance periods starting December
31, 2006 and ending on the last day of each calendar year through December 31, 2009, as determined
by the Compensation Committee, and the shares related to the vested stock units shall be delivered
to the Executive when vested or, to the extent vested, on an earlier termination of employment.

          3.3 Delivery of shares of Company common stock subject to the stock units shall be delayed six
months if such delivery is made in connection with the Executive’s separation from service and such
delay is necessary to avoid the 20% additional tax imposed by Section 409A. In the event share
delivery is delayed, at the same time the Shares are delivered, the Executive shall receive an
amount equal to the dividend(s) that would be payable on the number of Shares subject to the
delayed delivery if the record date of such dividend(s) is after the date of the Executive’s
separation from service and prior to the delivery of the shares to the Executive.

2

 

EXHIBIT
B

GREERSON McMULLEN

EMPLOYMENT AGREEMENT

ATTACHMENT “B”

General Release of Claims If Executive Is 40 Years-Old or Older on the Date of Execution

          Consistent with Section 5 of the Employment Agreement dated                      ___, 2006 between me and
CNL Hotels & Resorts Inc. (the “Employment Agreement”) and in consideration for and contingent upon
my receipt of the Severance Package set forth in Sections 5(b) and 5(c) of the Employment
Agreement, I, for myself, my attorneys, heirs, executors, administrators, successors, and assigns,
do hereby fully and forever release and discharge CNL Hotels & Resorts Inc. and its affiliated
entities (as defined in the Employment Agreement), as well as their predecessors, successors,
assigns, and their current or former directors, officers, partners, agents, employees, attorneys,
and administrators from all suits, causes of action, and/or claims, demands or entitlements of any
nature whatsoever, whether known, unknown, or unforeseen, which I have or may have against any of
them arising out of or in connection with my employment by CNL Hotels & Resorts Inc., the
Employment Agreement, the termination of my employment with CNL Hotels & Resorts Inc., or any
event, transaction, or matter occurring or existing on or before the date of my signing of this
General Release, except that I am not releasing any (a) right to indemnification that I may
otherwise have, (b) right to Annual Salary and benefits under applicable benefit plans that are
earned and accrued but unpaid as of the date of my signing this General Release, (c) right to
reimbursement for business expenses incurred and not reimbursed as of the date of my signing this
General Release, (d) right to any bonus payment(s) under the Bonus Plan that are earned and accrued
for the most recent completed calendar year for which a bonus payment has not then been paid as of
the date of my signing this General Release, or (e) claims arising after the date of my signing
this General Release. I agree not to file or otherwise institute any claim, demand or lawsuit
seeking damages or other relief and not to otherwise assert any claims, demands or entitlements
that are lawfully released herein. I further hereby irrevocably and unconditionally waive any and
all rights to recover any relief or damages concerning the claims, demands or entitlements that are
lawfully released herein. I represent and warrant that I have not previously filed or joined in
any such claims, demands or entitlements against CNL Hotels & Resorts Inc. or the other persons
released herein and that I will indemnify and hold them harmless from all liabilities, claims,
demands, costs, expenses and/or attorneys’ fees incurred as a result of any such claims, demands or
lawsuits.

 

 

          Except as otherwise expressly provided above, this General Release specifically includes, but
is not limited to, all claims of breach of contract, employment discrimination (including any
claims coming within the scope of Title VII of the Civil Rights Act, the Age Discrimination in
Employment Act, the Older Workers Benefit Protection Act, the Equal Pay Act, the Americans with
Disabilities Act, the Family and Medical Leave Act, and any comparable Florida law, all as amended,
or any other applicable federal, state, or local law), claims under the Employee Retirement Income
Security Act, as amended, claims under the Fair Labor Standards Act, as amended (or any other
applicable federal, state or local statute relating to payment of wages), claims concerning
recruitment, hiring, termination, salary rate, severance pay, stock options, wages or benefits due,
sick leave, holiday pay, vacation pay, life insurance, group medical insurance, any other fringe
benefits, worker’s compensation, termination, employment status, libel, slander, defamation,
intentional or negligent misrepresentation and/or infliction of emotional distress, together with
any and all tort, contract, or other claims which might have been asserted by me or on my behalf in
any suit, charge of discrimination, or claim against CNL Hotels & Resorts or the persons released
herein.

          I acknowledge that I have been given an opportunity of twenty-one (21) days to consider this
General Release and that I have been encouraged by CNL Hotels & Resorts Inc. to discuss fully the
terms of this General Release with legal counsel of my own choosing. Moreover, for a period of
seven (7) days following my execution of this General Release, I shall have the right to revoke the
waiver of claims arising under the Age Discrimination in Employment Act, a federal statute that
prohibits employers from discriminating against employees who are age 40 or over. If I elect to
revoke this General Release within this seven-day period, I must inform CNL Hotels & Resorts Inc.
by delivering a written notice of revocation to CNL Hotels & Resorts Inc.’s Director of Human
Resources,                                         , no later than 11:59 p.m. on the seventh calendar day after I
sign this General Release. I understand that, if I elect to exercise this revocation right, this
General Release shall be voided in its entirety and CNL Hotels & Resorts Inc. shall be relieved of
all obligations to make the portion of the Severance Package described in Section 5(b) and (c) of
the Employment Agreement. I may, if I wish, elect to sign this General Release prior to the
expiration of the 21-day consideration period, and I agree that if I elect to do so, my election is
made freely and voluntarily and after having an opportunity to consult counsel.

	 	 	 	 	 	 	 
	 

	 	AGREED:	 	 	 	 
	 
	 	 	 	 	 	 
	 
	 	 	 	 	 	 
	 

	 	 

Greerson G. McMullen
	 	 

           Date<PAGE>

[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

                                                                    EXHIBIT 10.1

                                SUPPLY AGREEMENT

                                 by and between

                       NASTECH PHARMACEUTICAL COMPANY INC.

                                       and

                     PROCTER & GAMBLE PHARMACEUTICALS, INC.

                          Effective as of June 1, 2006

<PAGE>

[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

                                SUPPLY AGREEMENT

     This Supply Agreement ("AGREEMENT"), is effective as of June 1, 2006 (the
"EFFECTIVE DATE"), by and between Nastech Pharmaceutical Company Inc., a company
organized and existing under the laws of the State of Delaware and having its
principal office at 3450 Monte Villa Parkway, Bothell, WA 98021 (hereinafter
referred to as "NASTECH"), and PROCTER & GAMBLE PHARMACEUTICALS, INC., a company
organized and existing under the laws of Ohio and having its principal office at
8700 Mason Montgomery Road, Mason, OH 45040 (hereinafter referred to as "P&GP");

                                   WITNESSETH:

WHEREAS, P&GP and NASTECH have entered into a PRODUCT DEVELOPMENT AND LICENSE
AGREEMENT effective as of January 27, 2006 (the "LICENSE AGREEMENT") relating to
a grant of a license from NASTECH to P&GP; and

WHEREAS, as part of the LICENSE AGREEMENT, P&GP desires to purchase, and NASTECH
desires to supply, P&GP's and its RELATED PARTIES' (as defined in the LICENSE
AGREEMENT) requirements of PRODUCT (as hereinafter defined) in the TERRITORY (as
hereinafter defined) pursuant to the terms set forth herein.

NOW, THEREFORE, in consideration of the covenants herein contained, the parties
hereto agree as follows:

1.   DEFINITIONS

     References to "Articles", "Sections" and "subsections" in this AGREEMENT
     shall be to Articles, Sections and subsections respectively, of this
     AGREEMENT unless otherwise specifically provided. Capitalized terms used
     but not defined herein shall have the meanings set forth in the LICENSE
     AGREEMENT. As used in this AGREEMENT the following terms, whether used in
     the singular or the plural, shall have the meanings set forth in this
     Article:

1.1  The term "AFFILIATE", shall mean (i) any corporation or business entity of
     which fifty percent (50%) or more of the securities or other ownership
     interests representing the equity, the voting stock or general partnership
     interest are owned, controlled or held, directly or indirectly, by P&GP or
     NASTECH; or (ii) any corporation or business entity which, directly or
     indirectly, owns, controls or holds fifty percent (50%) (or the maximum
     ownership interest permitted by law) or more of the securities or other
     ownership interests representing the equity, the voting stock or, if
     applicable, the general partnership interest, of P&GP or NASTECH; or (iii)
     any corporation or business entity of which fifty percent (50%) or more of
     the securities or other ownership interests representing the equity, the
     voting stock or general partnership interest are owned, controlled or held,
     directly or indirectly, by a corporation or business entity described in
     (i) or (ii).

                                       1

<PAGE>

[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

1.2  The term "CALENDAR YEAR" means any period during the TERM commencing on
     January 1 and ending on December 31.

1.3  The term "cGMP" shall mean all laws and regulations, including, without
     limitation, the laws and regulations applicable in the United States,
     European Union, Canada, Australia and/or Japan, relating to the MANUFACTURE
     of PRODUCT, including but not limited to, the current Good Manufacturing
     Practices as specified in the United States Code of Federal Regulations,
     the EU Good Manufacturing Guidelines, Q7A Good Manufacturing Practice
     Guidance for Active Pharmaceutical Ingredients (also known as Annex 18 to
     EudraLex Volume 4, "European Commission Guide to Good Manufacturing
     Practice for Medicinal Products"), and any other applicable laws,
     guidelines and/or regulations.

1.4  The term "COMPOUND" shall mean the COMPOUND as defined in the LICENSE
     AGREEMENT.

1.5  [***]

1.6  The term "DELIVERY" (or the forms thereof) shall have the meaning set forth
     in Section 4.3.

1.7  The term "DMF" shall mean a Drug Master File covering COMPOUND maintained
     with the U.S. REGULATORY AUTHORITY or its equivalent maintained with other
     REGULATORY AUTHORITIES.

1.8  The term "FACILITY" or "FACILITIES" shall mean, as appropriate, either or
     both of, (i) NASTECH's facility located at 3450 Monte Villa Parkway,
     Bothell, WA, and (ii) NASTECH's facility located at 45 Davids Drive,
     Hauppauge, New York 11788.

1.9  The term "FIRM ORDER" means a binding commitment in writing made by P&GP to
     purchase PRODUCT from NASTECH in accordance with Section 3.2.

1.10 The term "FIRST COMMERCIAL SALE" shall mean with respect to a PRODUCT in a
     country, the initial transfer of a Product billed or invoiced by P&GP (or
     one of its AFFILIATES or sublicensees) to a non-sublicensee Third Party in
     such country after all required REGULATORY APPROVALS have been granted by
     the REGULATORY AUTHORITY of such country. Sales in such country for
     clinical study purposes or compassionate, named patient use or under
     treatment IND programs or similar uses will not constitute a FIRST
     COMMERCIAL SALE in such country. "IND" means an Investigational New Drug
     application, Clinical Study Application or Clinical Trial Exemption (as
     such terms are defined by the FDA), or any similar application or
     submission for approval to conduct human clinical investigations in
     accordance with applicable regulations and requirements of the FDA or the
     corresponding Regulatory Authority in any jurisdiction outside the United
     States.

1.11 [***]

                                       2

<PAGE>

[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

1.12 The term "LICENSE AGREEMENT" shall have the meaning assigned in the
     recitals hereto.

1.13 The term "LONG RANGE PLAN" shall have the meaning set forth in Section 3.3.

1.14 The term "MANUFACTURE/MANUFACTURING/MANUFACTURED" shall mean all operations
     involved in the receipt, incoming inspections, storage and handling of
     MATERIALS and the manufacturing, formulating, PRIMARY PACKAGING, secondary
     packaging (i.e., putting PRIMARY PACKAGED PRODUCT into appropriate
     containers/cartons), labeling, warehousing, quality control testing
     (including in-process, release and stability testing), release, and
     shipping of PRODUCT; provided that in the event P&GP elects to perform
     secondary packaging and labeling pursuant to Section 2.1 of this AGREEMENT,
     then secondary packaging and labeling shall be excluded from the definition
     of "MANUFACTURE".

1.15 The term "MATERIALS" shall mean all raw materials, including without
     limitation, the COMPOUND, excipients, components, containers, labels and
     packaging materials necessary for the MANUFACTURE of PRODUCT.

1.16 The term "MONTH" shall mean a calendar month.

1.17 The term "NASAL FORMULATIONS" shall mean the intranasally administrated
     formulation of the COMPOUND [***].

1.18 The term "NASTECH KNOW-HOW" shall have the meaning given in the LICENSE
     AGREEMENT.

1.19 [***]

1.20 The term "PRIMARY PACKAGED PRODUCT" shall mean a NASAL FORMULATION
     contained in a primary container, and accompanied by an actuator used to
     administer the NASAL FORMULATION, as specified in Schedule 1.26. For the
     purposes of this AGREEMENT, "primary container" shall include a glass
     bottle or other similar packaging which comes into contact with the NASAL
     FORMULATION as specified in Schedule 1.26.

1.21 The term "PRIMARY PACKAGING" shall mean the process of manufacturing
     PRIMARY PACKAGED PRODUCT.

1.22 The term "PRODUCT" shall mean, as to each jurisdiction where either
     commercial sale or administration to human patients in a Clinical Trial in
     the Field has been approved by the appropriate REGULATORY AUTHORITY, the
     PRIMARY PACKAGED PRODUCT in the final packaged and labeled form approved by
     such REGULATORY AUTHORITY and ready for commercial sale or use in such
     Clinical Trial, provided, however, that "PRODUCT" shall not include
     "Product/Novel" as defined in the LICENSE AGREEMENT.

                                       3
<PAGE>

[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

1.23 The term "QUARTER" shall mean the respective periods of three (3)
     consecutive calendar months ending on March 31, June 30, September 30 and
     December 31.

1.24 The term "REGISTRATIONS" shall mean the technical, medical and scientific
     licenses, registrations, authorizations and/or approvals of the PRODUCT
     (including the prerequisite manufacturing approvals or authorizations,
     marketing authorization based upon such approvals and pricing, third party
     reimbursement and labeling approvals related thereto) that are required by
     any national, supranational (e.g., the European Commission or the Council
     of the European Union), regional, state or local regulatory agency,
     department, bureau or other governmental entity in the TERRITORY, as
     amended or supplemented from time to time.

1.25 The term "SECONDARY MANUFACTURER" shall have the meaning set forth in
     Section 2.3.

1.26 The term "SPECIFICATIONS" shall mean the P&GP specifications for MATERIALS,
     PRODUCT and PRIMARY PACKAGED PRODUCT set forth in Schedule 1.26 hereto,
     which may be amended from time to time under the terms of this AGREEMENT.

1.27 The term "SLEA" shall mean the supplier level execution agreement entered
     into between NASTECH and P&GP which is a non-binding agreement outlining
     details and expectations of the parties hereto associated with but not
     limited to production planning, customer service, problem solving
     procedures, and similar activities, as may be amended, modified, extended
     or supplemented from time to time.

1.28 The term "SUPPLY PRICE" shall have the meaning set forth in Section 4.1.

1.29 The term "TERM" shall have the meaning set forth in Section 12.1.

1.30 The term "TERRITORY" shall mean all of the countries in the world, and
     their respective territories and possessions.

1.31 The term "UNIT" shall mean a glass bottle of PRODUCT or PRIMARY PACKAGED
     PRODUCT.

2.   SUPPLY OF PRODUCT

2.1  Appointment. NASTECH agrees to MANUFACTURE and supply, and P&GP agrees to
     purchase from NASTECH, 100% of P&GP's and its RELATED PARTIES' requirements
     of PRODUCT in the TERRITORY during the TERM (except as set forth in
     Sections 2.2 and 2.3 below), subject to [***] the terms and conditions
     herein. For the avoidance of doubt RELATED PARTIES includes but is not
     limited to any potential sublicensees outside of the U.S. Notwithstanding
     the foregoing, P&GP shall have the option to perform secondary packaging
     and labeling for its requirements of PRODUCT in all or part of the
     TERRITORY; if P&GP elects to exercise this option the parties shall [***].
     In this case NASTECH shall supply P&GP with PRIMARY PACKAGED PRODUCT for
     such TERRITORY. P&GP's RELATED PARTIES may purchase PRODUCT

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

     directly from NASTECH under this AGREEMENT upon notification to NASTECH of
     their agreement to be bound by the terms and conditions hereof; provided
     that any Affiliate of P&GP may do so without such notification. For the
     purposes of this AGREEMENT, all references to P&GP's requirements for
     PRODUCT shall include the requirements of its RELATED PARTIES if RELATED
     PARTIES have provided such notification to NASTECH.

2.1.1 [***]

2.2  Shortage of Supply.

     2.2.1 In the event that at any time NASTECH foresees that it will be unable
          to MANUFACTURE in whole or in part an ordered or forecasted quantity
          of PRODUCT for any reason, including Section 13.4 (Force Majeure),
          NASTECH shall notify P&GP of such inability immediately, the reasons
          therefor and the date such inability is expected to end, the
          quantities of PRODUCT available during such period and the proposed
          amount of the MATERIALS and/or resources allocated to P&GP in the
          event such inability is caused by a shortage of MATERIALS and/or
          resources required for the MANUFACTURE of PRODUCT by delivery to P&GP
          of a notice (a "SUPPLY ISSUE NOTICE"). The allocation provided in the
          preceding sentence shall guarantee a minimum supply of PRODUCT
          determined as follows: [***]. NASTECH will guarantee to maintain
          REGULATORY AUTHORITY approval for PRODUCT MANUFACTURING in each of the
          NASTECH FACILITIES.

     2.2.2 Upon delivery of a SUPPLY ISSUE NOTICE by Nastech pursuant to Section
          2.2.1 above, or in any event [***], P&GP and NASTECH will immediately
          meet and work together, in good faith, to identify an appropriate
          resolution to the supply problem. [***]. Any agreed resolution to the
          supply problem will be set forth in a writing executed by both
          parties.

     2.2.3 If the parties cannot reach agreement on an appropriate resolution to
          the supply problem [***], NASTECH shall make a firm commitment of the
          amount of the affected PRODUCTS that NASTECH will be able to supply,
          on a monthly basis, during the period when such supply problem with
          respect to such PRODUCTS is expected to continue. Any agreed
          resolution by the parties to the supply problem will be set forth in a
          writing executed by both parties. If, despite good faith efforts,
          [***] are unable to reach agreement on the resolution of such supply
          problem [***] then at either party's immediate written request, the
          problem will be governed by the terms of Section 2.5 Disputes (except
          application of Section 2.1 as referenced in Section 2.5) of the
          LICENSE AGREEMENT, and if after good faith negotiation there is still
          no resolution, either party may refer the issue to arbitration
          pursuant to Article XV of the LICENSE AGREEMENT.

     2.2.4 If there is a supply problem subject to the provisions of subsections
          2.2.1 through 2.2.3 above, and the parties have failed to reach a good
          faith agreement on the resolution of such problem [***], then while
          the Parties are using the LICENSE

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

          AGREEMENT dispute resolution process referred to in Section 2.2.3, at
          P&GP's written request provided to NASTECH [***], at P&GP's option

               (x) NASTECH will continue to supply PRODUCT in accordance with
          Section 3.2, or

               (y) NASTECH shall grant to P&GP a royalty free license (the
          "BACK-UP LICENSE") under the relevant NASTECH PATENTS and NASTECH
          KNOW-HOW, as necessary to permit P&GP to make or have made the
          PRODUCTS that are the subject of such supply problem that was not
          resolved by the parties, solely for sale in accordance with the terms
          of this AGREEMENT and the LICENSE AGREEMENT, and solely in quantities
          to meet the amounts of P&GP and P&GP's RELATED PARTIES and
          sublicensees' (if any) requirements for such PRODUCTS above the
          amounts of such PRODUCTS that NASTECH remains able to supply on a
          timely basis under this AGREEMENT.

               (a) [***]

               (b) Immediately upon P&GP's written request hereunder to obtain
               the BACK-UP LICENSE, NASTECH shall, at its expense, (i) transfer
               to P&GP [***] reasonably necessary to enable P&GP to manufacture
               such PRODUCTS, (ii) promptly make available to P&GP [***] and
               (iii) promptly assist P&GP [***] for the MANUFACTURE of PRODUCT
               by P&GP or its designee. [***]. NASTECH shall provide P&GP
               reasonable assistance, at P&GP's request and P&GP's expense, with
               respect to [***].

               (c) At such time as NASTECH is able to meet all of P&GP's
               forecasted orders for PRODUCTS, the BACK-UP LICENSE granted under
               this Section 2.2.4 shall terminate with respect to such PRODUCTS,
               and P&GP shall immediately cease to exercise and practice the
               BACK-UP LICENSE, [***].

               (d) Sales by P&GP or its RELATED PARTIES of PRODUCTS manufactured
               by or on behalf of P&GP pursuant to exercise of the BACK-UP
               LICENSE under this Section 2.2.4 shall be included in Net Sales
               for purposes of the LICENSE AGREEMENT. Nothing in the foregoing
               shall limit or affect in any way P&GP's obligations to make the
               payments as set forth in this AGREEMENT to the full extent
               required on all PRODUCTS supplied to P&GP by NASTECH.

     2.2.5 At the request of P&GP, NASTECH shall [***].

     2.2.6 P&GP's exercise of its rights under this Section 2.2 shall not limit
          other remedies available to P&GP at law or in equity, including
          without limitation due to NASTECH's breach of its manufacturing
          obligations hereunder.

2.3  Secondary Manufacturer.

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

     Notwithstanding anything to the contrary herein or in the LICENSE
     AGREEMENT, solely as a precaution [***], P&GP shall have the option to
     develop a secondary source of supply for PRODUCT, [***] (the "SECONDARY
     MANUFACTURER"). [***]. In the event P&GP exercises the rights [***],
     NASTECH shall (i) immediately provide the SECONDARY MANUFACTURER [***],
     (ii) promptly assist the SECONDARY MANUFACTURER [***] for the MANUFACTURE
     of PRODUCT, (iii) allow the SECONDARY MANUFACTURER [***] to otherwise
     enable P&GP to exercise its rights under this Section 2.3, and (iv) at the
     request of P&GP, supply [***].

2.4  Subcontracting.

     NASTECH may not subcontract its obligations under this AGREEMENT to a third
     party without P&GP's prior written consent, which shall not be unreasonably
     withheld or delayed.

2.5  Procurement of Materials.

     NASTECH shall be responsible for the procurement of all MATERIALS. [***].
     Notwithstanding the foregoing, P&GP shall have the option, with prior
     written notice to NASTECH, to [***]. In the event P&GP exercises its option
     set forth above, [***].

3.   FORECASTS AND ORDERS

3.1  Forecasts.

     (a)  In order to assist NASTECH in its production planning, no later than
          [***] prior to the date of the anticipated FIRST COMMERCIAL SALE, P&GP
          will provide NASTECH with a written [***] forecast of P&GP's
          requirements for PRODUCTS [***]. On or about the first day of each
          month after delivery of such initial forecast (each, a "FORECAST
          DELIVERY DATE"), P&GP shall submit to NASTECH its updated forecast
          [***] in the same format.

     (b)  Except as otherwise provided in Section 3.2, it is understood and
          agreed that forecasts shall not constitute commitments to purchase
          PRODUCT or FIRM ORDERS.

3.2  Firm Orders.

     (a)  Firm orders. No later than [***] of each MONTH during the TERM (each,
          a "FIRM ORDER MONTH") preceding the MONTH during which P&GP requires
          PRODUCTS to be delivered (the "DELIVERY MONTH"), P&GP shall place an
          order (a "FIRM ORDER") for its requirements of PRODUCT, [***].

     (b)  Calculation of Firm Order Obligation. With respect to each PRODUCT for
          which P&GP places a FIRM ORDER, the quantity which NASTECH shall be
          obligated

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ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

          to supply (the "FIRM SUPPLY") shall not exceed or be less than the
          amount determined as follows [***]:

               (i)  [***]

               (ii) [***]

               (iii) [***]

               (iv) [***]

     (c)  NASTECH shall use good faith, diligent, commercially reasonable
          efforts to meet P&GP's requirements in excess of the FIRM SUPPLY.
          NASTECH shall satisfy each FIRM ORDER in the TARGET MONTH specified in
          each FIRM ORDER provided by P&GP and shall endeavor to manufacture and
          deliver PRODUCT in accordance with the then current SLEA.

     (d)  A FIRM ORDER shall be made on a purchase order, releases or other
          reasonable appropriate documentation ("PURCHASE ORDER"). Such PURCHASE
          ORDERS shall specify quantities of PRODUCT consistent with this
          Section 3.2, shipping instructions, delivery date(s) and detailed
          instructions for the delivery of PRODUCT (with release schedules,
          delivery orders or equivalent notices). Each PURCHASE ORDER shall be
          binding upon NASTECH and P&GP, and shall be deemed to constitute a
          part of this AGREEMENT as if fully set forth herein, and all terms and
          conditions of this AGREEMENT shall be deemed to apply to the subject
          matter of such PURCHASE ORDER as if fully set forth therein. In the
          event of any conflict or inconsistency between the terms of this
          AGREEMENT and the terms of any PURCHASE ORDER, the terms of this
          AGREEMENT shall prevail.

3.3  Long Range Plan. In addition to the rolling monthly forecast, [***], P&GP
     shall provide NASTECH with a long range plan containing a non-binding
     estimate of annual requirements of PRODUCT for the following [***] (each a
     "LONG RANGE PLAN"). [***]

3.4  Customer Service. P&GP will establish standards for customer service
     necessary to meet P&GP's requirements. The parties will agree on
     measurements of compliance with these standards, and expected levels of
     performance. NASTECH will develop and maintain systems, staffing and
     procedures to meet P&GP's requirements. The parties will cooperate to
     develop a non-binding SLEA outlining details and expectations associated
     with but not limited to production planning, customer service, problem
     solving procedures, and similar activities.

4.   PRICE; PAYMENT AND TERMS OF SALE

4.1  Price. The supply price (the "SUPPLY PRICE") payable by P&GP to NASTECH for
     each Unit of PRODUCT DELIVERED hereunder, shall be fixed for each Calendar
     Year of the TERM and shall equal [***]

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DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

     4.1.1 [***]

          4.1.1.1 [***]

     4.1.2 [***]

     4.1.3. Cost of Samples. The cost of samples of PRODUCT shall follow the
     calculation as described above in Section 4.1.1 [***].

4.2  Payment. Payment of the SUPPLY PRICE for PRODUCT DELIVERED to P&GP shall be
     made by P&GP in United States dollars, free and clear of any reduction,
     charges, fees or withholding of any nature unless acknowledged by NASTECH
     in writing [***] after the date the accurate invoice (as illustrated in the
     SLEA) is received by P&GP or the date of the corresponding DELIVERY,
     whichever is later. Payment by P&GP shall be made by bank wire transfer to
     a bank account designated in writing by NASTECH from time to time.

4.3  DELIVERY. NASTECH shall DELIVER PRODUCT, under P&GP shipping
     specifications, purchased by P&GP FCA (INCOTERMS 2000), site of MANUFACTURE
     (each a "DELIVERY").

4.4  Title and Risk of Loss. Title to the PRODUCT sold hereunder shall pass to
     P&GP upon DELIVERY, whereupon P&GP shall assume all risk of loss or damage.

4.5  Terms of Sale. The terms and conditions of this AGREEMENT shall be
     controlling over any inconsistent terms or conditions included in any FIRM
     ORDER or any other sales acknowledgment or document. No provision of P&GP's
     purchase order forms which may impose different conditions than those
     herein referenced upon NASTECH, P&GP or their respective Affiliates shall
     be of any force or effect unless expressly agreed to in writing by NASTECH.

4.6  Expiration Dating. All PRODUCT delivered to P&GP shall have no less than
     [***] shelf life remaining on the date of its DELIVERY [***] to P&GP in
     accordance with SECTION 4.3.

4.7  [***]

4.8  Cost Savings. P&G will work with NASTECH to develop and execute continuous
     improvement and cost savings for all processes associated with the Product
     and services associated with the PRODUCT.

5    WARRANTY AND LIMITATIONS

5.1  NASTECH Warranty. NASTECH represents and warrants that (A) all PRODUCT and
     (B) all PRIMARY PACKAGED PRODUCT as supplied under Section 2.1 hereof

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ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

     (collectively (A) and (B) shall be "SECTION 5 PRODUCT"), shall, at the time
     of DELIVERY, (i) meet the SPECIFICATIONS, (ii) be MANUFACTURED in
     accordance with cGMPs, and (iii) be MANUFACTURED in accordance with all
     applicable LAWS and regulations, REGULATORY AUTHORITY and REGISTRATIONS
     requirements in effect on the day of DELIVERY. Without limiting the
     warranty in Section 5.1, NASTECH guarantees that no SECTION 5 PRODUCT
     shall, at the time of DELIVERY, be (a) adulterated or misbranded within the
     meaning of the U.S. Federal Food, Drug and Cosmetic Act (the "Act"), or any
     similar law of any other jurisdiction, or (b) an article which may not,
     under the provisions of the Act, or any similar law of any other
     jurisdiction, be introduced into interstate commerce.

5.2  Warranty Claims.

     (a)  If P&GP claims that any shipment of SECTION 5 PRODUCT did not, at the
          time of DELIVERY, meet the warranty specified in Section 5.1(i), P&GP
          shall promptly notify NASTECH. If P&GP and NASTECH are unable to agree
          as to whether such SECTION 5 PRODUCT met such warranties, the parties
          shall cooperate to have the SECTION 5 PRODUCT in dispute analyzed by
          an independent testing laboratory of recognized repute selected by
          P&GP and approved by NASTECH, which approval shall not be unreasonably
          withheld. The results of such laboratory testing shall be final and
          binding on the parties on the issue of compliance of the SECTION 5
          PRODUCT with such warranty. If the SECTION 5 PRODUCT is determined to
          meet such warranty, then P&GP shall bear the cost of the independent
          laboratory testing and pay for the SECTION 5 PRODUCT in accordance
          with this AGREEMENT. If the SECTION 5 PRODUCT is determined not to
          have met such warranty, then NASTECH shall bear the cost of laboratory
          testing, and NASTECH shall, at P&GP's election, either replace the
          rejected SECTION 5 PRODUCT within [***] of the date of such
          determination, at no cost to P&GP, or refund to P&GP the price paid
          for such SECTION 5 PRODUCT, plus any applicable delivery charge.

     (b)  If P&GP claims that any shipment of SECTION 5 PRODUCT did not meet the
          warranties specified in Section 5.1(ii) or (iii), P&GP shall notify
          NASTECH, and if P&GP and NASTECH are unable to agree as to whether or
          not such SECTION 5 PRODUCT met such warranties, then the problem will
          be governed by the terms of Section 2.5 Disputes (except for
          application of Section 2.1 as referenced in Section 2.5) of the
          LICENSE AGREEMENT, and if after good faith negotiation there is still
          no resolution, either party may refer the issue to arbitration
          pursuant to Article XV of the LICENSE AGREEMENT. If the SECTION 5
          PRODUCT is determined not to have met any such warranty, then NASTECH
          shall, at P&GP's election, either replace the rejected SECTION 5
          PRODUCT within [***] of the date of such determination, at no cost to
          P&GP, or refund to P&GP the price paid for such SECTION 5 PRODUCT,
          plus any applicable delivery charge.

5.3  Disposition of Non-conforming Product. Any SECTION 5 PRODUCT DELIVERED by
     NASTECH to P&GP that are not in full compliance with any representation,
     warranty,

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ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

     covenant or other obligation set forth in this AGREEMENT may, upon mutual
     agreement between P&GP and NASTECH within [***] after P&GP'S notice to
     NASTECH, or at P&GP's option any time thereafter, be (i) returned to
     NASTECH at NASTECH's expense for credit to P&GP [***]; (ii) scrapped by
     P&GP, at NASTECH's expense, in which case P&GP shall be relieved of any
     payment obligations with respect to such SECTION 5 PRODUCT, or (iii)
     reworked by P&GP or NASTECH, at NASTECH's expense. The rights and remedies
     set forth in this Section are not exclusive and nothing herein shall limit
     the rights and remedies either PARTY may have under this AGREEMENT or at
     law.

6.   QUALITY

6.1  General Obligations. NASTECH shall MANUFACTURE and supply PRODUCT in
     accordance with the SPECIFICATIONS, in accordance with applicable laws,
     regulations and REGULATORY AUTHORITY and REGISTRATIONS requirements,
     compliant with cGMPs. PRODUCT supplied hereunder shall be labeled in
     compliance with the REGISTRATIONS. To the extent that NASTECH or P&GP
     should enter into contracts with suppliers or contract laboratories in
     connection with the MANUFACTURE or supply of PRODUCT, such contracts shall
     contain provisions that such suppliers or contract laboratories shall
     deliver supplies or perform contracted services in accordance with
     applicable laws, regulations and REGULATORY AUTHORITY and REGISTRATIONS
     requirements, compliant with cGMPs. In addition, P&GP covenants that all
     materials supplied to NASTECH by or on behalf of P&GP for incorporation by
     NASTECH into a Product shall be acquired pursuant to a contract in
     compliance with the immediately preceding sentence.

6.2  Change Control.

     (a)  Notwithstanding anything herein to the contrary, NASTECH shall not
          amend, change or supplement any of the following without P&GP's prior
          written consent (which consent may not be unreasonably withheld or
          delayed with respect to clauses (C), (E), or (G)), except as may be
          required to comply with applicable LAWS and regulations and REGULATORY
          AUTHORITY requirements: (A) the SPECIFICATIONS; (B) the MATERIALS; (C)
          the source of MATERIALS; (D) the specifications for MATERIALS; (E) the
          equipment used in the MANUFACTURE; (F) the test methods used in
          connection with the MANUFACTURING of PRODUCT and MATERIALS; and (G)
          the process for MANUFACTURING PRODUCT or MATERIALS. Any change in any
          of the foregoing shall, in each case, comply with cGMPs and all
          applicable laws, regulations and REGULATORY AUTHORITY requirements and
          should be made in accordance with the CHANGE CONTROL PROCEDURE (as
          defined below). In the event that NASTECH needs to change any of the
          foregoing, NASTECH shall (i) immediately notify P&GP of the requested
          change, (ii) be responsible, at its expense, for ensuring that all
          COMPOUND and PRODUCT MANUFACTURED following such change meets the
          SPECIFICATIONS and (iii) provide P&GP with all information needed to
          amend the REGISTRATIONS and any other regulatory filings maintained
          with respect to PRODUCT. NASTECH shall continue to supply P&GP with
          PRODUCT approved under NASTECH's DMF, P&GP's then existing
          REGISTRATIONS and other regulatory

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COMMISSION.]

          filings for PRODUCT until such time as the COMPOUND or PRODUCT
          MANUFACTURED following such change is permitted under the
          REGISTRATIONS and other regulatory filings for COMPOUND and PRODUCT.
          If NASTECH or its supplier is responsible for regulatory filings and
          obtaining REGULATORY AUTHORITY approvals, NASTECH must immediately
          notify P&GP whether such changes have been approved or rejected.

     b)   Product Changes. For changes required by applicable law, rule or
          regulation or by medical or scientific concerns as to the safety or
          efficacy of PRODUCT supplied hereunder (collectively, "PRODUCT
          CHANGES"), the parties shall co-operate in making such changes
          promptly and P&GP shall, unless otherwise agreed, bear the costs of
          making and/or implementing such changes. For the avoidance of doubt,
          PRODUCT CHANGES do not include any changes resulting from or relating
          to stability testing programs for PRODUCT (which are the
          responsibility of NASTECH).

     c)   Other Required Changes. For changes which (i) are not the result of a
          PRODUCT CHANGE (as defined above), and (ii) which are required by
          applicable law, rule or regulation and (iii) are required to bring
          NASTECH's facilities and/or processes into compliance with such
          requirements, the parties shall co-operate in making such changes
          promptly and NASTECH shall, unless otherwise agreed, bear the costs of
          making and/or implementing such changes and the costs of the scrapping
          of materials (including but not limited to raw and packaging
          materials, work in process, inventory and labeling materials)
          necessitated by any such changes.

     d)   Discretionary Changes. With respect to changes to the PRODUCT, the
          Specifications or any related processes not required by applicable
          law, rule or regulation or by medical or scientific concerns as to the
          safety or efficacy of PRODUCT sold hereunder (collectively,
          "Discretionary Changes"), the parties shall cooperate in making such
          changes. P&GP reserves the right to make Discretionary Changes
          unilaterally, subject however, to prior consultation with NASTECH and
          to the condition that NASTECH's overall production planning and
          PRODUCT commitments to other parties are not materially adversely
          impacted by any such change. In either event, the party initiating
          such change(s) shall bear the costs necessitated by making and/or
          implementing such changes.

6.3  Facility. NASTECH shall, at its own cost and expense, ensure the FACILITIES
     are approved as MANUFACTURING sites for PRODUCT prior to approval by the
     applicable REGULATORY AUTHORITY of the first NDA for a PRODUCT. NASTECH
     shall provide P&GP with access to such FACILITIES for verifying their
     compliance with cGMP and P&GP'S quality standards, and shall, at NASTECH's
     own cost and expense, take any corrective action to rectify any
     deficiencies identified by P&GP. NASTECH shall, at its own cost and
     expense, maintain the REGULATORY AUTHORITY approved status of the
     FACILITIES during the TERM.

     NASTECH shall MANUFACTURE all PRODUCT supplied hereunder at the FACILITY.
     MANUFACTURING of PRODUCT may not be relocated without P&GP's prior written
     consent. Any such relocation of the MANUFACTURING of PRODUCT shall comply
     with cGMPs and all applicable laws, regulations and REGULATORY

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COMMISSION.]

     AUTHORITY and REGISTRATIONS requirements and shall be made in accordance
     with the CHANGE CONTROL PROCEDURE. NASTECH shall permit one or more
     qualified technical specialists from P&GP, upon reasonable prior notice and
     during normal business hours, to conduct audits (including, but not limited
     to, quality, safety and environmental) of the FACILITIES or any other
     facility which is proposed to be used to MANUFACTURE PRODUCT. Observations
     and conclusions of P&GP's audits will be issued to, and promptly discussed
     with, NASTECH and corrective action shall be implemented by NASTECH, at
     NASTECH's expense, prior to filling new or outstanding FIRM ORDERS;
     provided, however, that P&GP may, in its sole discretion, accept PRODUCT
     from NASTECH prior to NASTECH's completion of the corrective action. P&GP
     shall have the right to review all relevant documentation pertinent to the
     corrective actions implemented by NASTECH.

6.4  Maintenance; Validation. NASTECH agrees, at its expense, to operate and
     maintain the FACILITY and all equipment used, directly or indirectly, to
     MANUFACTURE PRODUCT in accordance with cGMPs and all applicable LAWS and
     regulations and REGULATORY AUTHORITY requirements and to maintain said
     FACILITY and equipment in an acceptable state of repair and operating
     efficiency so as to meet the SPECIFICATIONS and comply with the PRODUCT
     KNOW-HOW. NASTECH shall be responsible for validating the equipment
     (including without limitation conducting installation, operational and
     performance qualification), production, cleaning, packaging, process and
     any other appropriate steps performed at the FACILITY in accordance with
     the PRODUCT KNOW-HOW. Validation procedures presently used by NASTECH may
     be used; provided, such procedures (i) are found acceptable to P&GP, (ii)
     meet applicable regulatory requirements, and (iii) are found acceptable by
     REGULATORY AUTHORITY inspectors, if applicable. If P&GP or any REGULATORY
     AUTHORITY finds NASTECH's validation procedures to be unacceptable, then
     all validation must be repeated in a timely manner to meet all applicable
     regulatory requirements and guidelines and to receive all REGULATORY
     AUTHORITY approvals.

6.5  Certificate of Analysis. NASTECH shall provide P&GP with certificates of
     analysis for each lot of PRODUCT released for DELIVERY hereunder. These
     certificates will document that each lot received by P&GP conforms to the
     SPECIFICATIONS. These certificates shall include the date of MANUFACTURE
     and either a retest date or expiry date for PRODUCT, as appropriate. A copy
     of each certificate shall be included with each lot delivered to P&GP, and
     one copy shall be faxed at the time of delivery to the P&GP representative
     specified in the QUALITY AGREEMENT. NASTECH shall also provide P&GP with
     REGULATORY AUTHORITY certification, for those countries in which the
     applicable REGULATORY AUTHORITY is in the practice of requiring any such
     certifications.

6.6  Quality Control Testing. NASTECH shall perform, at its quality control
     laboratories or its qualified external contract laboratory facilities as
     described in the approved REGISTRATIONS, such quality control tests as are
     indicated in the SPECIFICATIONS, in accordance with the test methods and
     procedures. NASTECH shall make the results of its quality control tests
     available to P&GP on or before the date of DELIVERY of the corresponding
     lots of PRODUCT. No Production lot of PRODUCT shall be released for

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COMMISSION.]

     DELIVERY unless NASTECH's tests show the PRODUCT to meet the standards set
     forth in the SPECIFICATIONS. Should any production lot fail to meet the
     standards set forth in the SPECIFICATIONS, P&GP may, at its option,
     investigate the cause of such failure or require NASTECH to do so and to
     provide P&GP with a written report summarizing the results of NASTECH's
     investigations. P&GP shall perform such confirmatory testing of PRODUCT
     released for DELIVERY to P&GP as P&GP may deem appropriate, which may
     include, but is not limited to, the recommended procedures set forth in the
     SPECIFICATIONS. P&GP shall advise NASTECH of any failure of such PRODUCT to
     meet the standards set forth in the SPECIFICATIONS without undue delay.

6.7  PRODUCT Release. P&GP is responsible for final release of each lot of
     PRODUCT for sale within the TERRITORY in accordance with P&GP's standard
     practices. NASTECH is responsible for providing a copy of those
     MANUFACTURING records, as specified in the QUALITY AGREEMENT, for each lot
     of PRODUCT MANUFACTURED in support of P&GP's responsibility for final
     release decision.

6.8  Reference Samples. NASTECH shall supply P&GP, upon request, with reasonable
     quantities of reference standards relating to PRODUCT as specified in the
     QUALITY AGREEMENT, [***], in order to facilitate P&GP's confirmatory
     testing.

6.9  Retention of Samples. As part of the stability program, NASTECH is
     responsible for retaining representative samples of each lot of PRODUCT
     that is MANUFACTURED. The quantity of retention samples shall be [***] the
     amount of PRODUCT required to perform quality control release testing. Such
     amounts shall be stored and retained for [***] following completion of
     MANUFACTURE. Retained samples of PRODUCT shall be visually examined at
     least annually. NASTECH shall promptly notify P&GP of any observed
     abnormality.

6.10 Stability Testing. At P&GP's expense [***], NASTECH shall perform an
     on-going program of annual stability testing, in accordance with the
     REGISTRATIONS and a protocol approved by P&GP. The number of lots for such
     program will be agreed to by the PARTIES, [***]. Such stability testing
     shall be stability indicating. In the event that NASTECH detects any
     instability or has a confirmed out of specification result, NASTECH shall
     notify P&GP within [***] of such event. NASTECH shall specifically
     incorporate such additional testing and controls (e.g., storage condition
     changes) as P&GP may specify with respect to such instability and/or
     degradant. In addition, the PARTIES shall agree to assess the need to place
     additional lot(s) of PRODUCT on stability following the implementation of a
     change as described in Section 6.2.

6.11 Annual Product Review ("APR"). NASTECH agrees to implement and perform, at
     its own expense, an Annual Product Review Program for PRODUCT including,
     but not limited to, a review of production related and quality control
     testing related atypical investigations. The APR will be provided by
     NASTECH to P&GP for review and approval.

6.12 Cross Contamination. NASTECH hereby declares that as of the date of
     execution of this AGREEMENT it is not producing, packaging, labeling,
     warehousing, quality control

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COMMISSION.]

     testing (including in-process, release and stability testing), releasing or
     shipping any chemical entity classified as penicillins or other beta-lactam
     antibiotics such as cephalosporins or carbapenems, steroids, alkaloids,
     controlled substances, LIVE AGENTS, cytotoxic drug substances, pesticides,
     herbicides, fungicides, or other toxic non-drug substances in the FACILITY.
     The term "LIVE AGENT" means a product containing a living organism that
     causes infectious disease, including, but not limited to, viruses,
     bacteria, rickettsia, fungi, and protozoa. In the event that NASTECH
     intends, during the course of this AGREEMENT, to produce, package, label,
     warehouse, quality control test (including in-process, release and
     stability testing), release or ship any chemical entity belonging to the
     classes of products listed above, NASTECH shall promptly notify P&GP in
     writing of its intention to do so in order to allow P&GP to consider any
     potential questions of cross-contamination or regulatory requirements. In
     the event P&GP, after reasonable consultation with NASTECH, identifies a
     potential problem of cross-contamination or regulatory requirements that
     would prohibit the activity, NASTECH agrees not to manufacture, formulate
     or package products in the FACILITY that P&GP considers to present
     cross-contamination problems for PRODUCT.

6.13 Quality Agreement. As soon as practicable after the EFFECTIVE DATE but in
     no event more than [***] thereafter, the Parties shall negotiate and
     execute a supplemental Quality Agreement (the "QUALITY AGREEMENT"),
     consistent with the terms of this AGREEMENT, which shall provide for each
     party's respective compliance responsibilities associated with the
     MANUFACTURE of PRODUCT, including but not limited to a mutually agreeable
     change control request and approval procedure (the "CHANGE CONTROL
     PROCEDURE").

7.   RECORDS RETENTION

7.1  All MANUFACTURING records for each lot (including stability testing
     records) shall be retained by NASTECH for a period of not less than [***]
     from the date of MANUFACTURE of such lot of PRODUCT to which said records
     pertain. NASTECH shall provide P&GP with complete and accurate copies of
     the appropriate documents for each production lot, upon P&GP's request.
     NASTECH shall retain all records related to the MANUFACTURING of validation
     lots for [***] past the effective date of termination of this AGREEMENT.
     Thereafter, NASTECH shall notify P&GP of any intention to destroy such
     records and shall afford P&GP the opportunity to obtain such records.

8.   REGULATORY MATTERS

8.1  Recalls.

     (a)  In the event that (i) any governmental agency or authority issues a
          request or directive or order that PRODUCT be recalled or retrieved;
          (ii) a court of competent jurisdiction orders that PRODUCT be recalled
          or retrieved; or (iii) P&GP reasonably determines that PRODUCT should
          be recalled or retrieved, P&GP shall promptly notify NASTECH of such
          event and shall conduct such

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COMMISSION.]

          activity and take appropriate corrective actions, and NASTECH shall
          provide such assistance to P&GP as is reasonably necessary to carry
          out such activities. All reasonable cost and expense of such recall
          and corrective actions shall be the responsibility of P&GP, provided
          that NASTECH shall indemnify P&GP for such cost and expense to the
          extent that the recall and corrective actions taken hereunder are
          caused by: (x) any breach by NASTECH of its obligations under this
          AGREEMENT, or (y) any intentional or negligent act or omission of
          NASTECH or its Affiliates or any of their directors, officers,
          employees or agents in connection with the manufacture and supply of
          PRODUCT hereunder. In the event that P&GP's cost and expense are
          indemnified by NASTECH, NASTECH shall be entitled to audit such cost
          and expense.

     (b)  NASTECH agrees to abide by all decisions of P&GP to recall or withdraw
          PRODUCT.

8.2  Notices of Health and Safety Information. NASTECH shall [***] notify P&GP
     of any information of which it is aware concerning PRODUCT supplied to P&GP
     which may affect the safety or efficacy or the continued marketing of the
     PRODUCT. Any such notification will include all related information in
     detail. Upon receipt of any such information, NASTECH shall consult with
     P&GP in an effort to arrive at a mutually acceptable procedure for taking
     appropriate action; provided, however, that nothing contained herein shall
     be construed as restricting the right of either party to make a timely
     report of such matter to any REGULATORY AUTHORITY or take other action that
     it deems to be appropriate or required by applicable law or regulation.
     Each party will notify the other immediately of any health hazards with
     respect to PRODUCT which may impact employees involved in the MANUFACTURE
     of PRODUCT.

8.3  Regulatory Authority Inspection. NASTECH hereby agrees to advise P&GP [***]
     of any proposed or unannounced visit or inspection by any governmental
     authority, including, without limitation, any REGULATORY AUTHORITY or any
     environmental regulatory authority and agrees to inform P&GP if such visit
     or inspection is related to the PRODUCT or its MANUFACTURE. NASTECH agrees,
     if such visit or inspection is related to the PRODUCT or its MANUFACTURE,
     to permit one or more qualified representative(s) of P&GP to be present if
     requested by P&GP. If P&GP is not present during such a visit or
     inspection, and such visit or inspection is related to the PRODUCT or its
     MANUFACTURE, NASTECH shall promptly provide NASTECH's summary report of the
     results of the inspection to P&GP in English. NASTECH shall [***] furnish
     P&GP English summaries of all REGULATORY AUTHORITY reports, documents or
     correspondence with respect to any REGULATORY AUTHORITY requests or
     inspections of the FACILITY if such reports, documents or correspondence
     are related to the PRODUCT or its MANUFACTURE, as well as a copy of each
     such report, document or correspondence in English. The Parties will
     cooperate in the development and review of responses that are required by
     any REGULATORY AGENCY and relating to the MANUFACTURE of PRODUCT prior to
     submission to the regulatory agency. Nothing contained within this article
     shall restrict the right of either party to make a timely report to any
     REGULATORY AGENCY or take action that it deems to be appropriate or
     required by APPLICABLE LAW. NASTECH shall without delay notify P&GP of any

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COMMISSION.]

     REGULATORY AGENCY request for samples of PRODUCT or PRODUCT MANUFACTURING
     lot records and will not provide such material until such notification is
     made to P&GP.

8.4  Complaints and Adverse Events. NASTECH hereby agrees to advise P&GP
     immediately (and, in any event, within twenty-four (24) hours) of any
     information it receives relating to the safety, efficacy or potency of the
     PRODUCT. NASTECH will assist P&GP in investigating and resolving all
     complaints and adverse events related to the MANUFACTURING of the PRODUCT
     and NASTECH will complete its investigation and report results to P&GP
     [***]. P&GP will be responsible for communicating to any REGULATORY
     AGENCIES regarding PRODUCT complaints or adverse events. NASTECH will take
     any corrective actions agreed to by the parties to avoid future occurrences
     of PRODUCT complaints or adverse events.

9.   INDEMNITY

9.1  Indemnification by NASTECH. NASTECH shall defend, indemnify and hold P&GP,
     its RELATED PARTIES and their respective directors, officers, employees and
     agents, and their respective successors and permitted assigns, harmless
     from any and all claims, actions, causes of action, liabilities, losses,
     damages, costs or expenses, including reasonable attorney's fees, which
     arise out of or relate to (i) the failure of SECTION 5 PRODUCT (as defined
     in Section 5.1) provided by NASTECH hereunder to meet the warranties set
     forth in Section 5.1; (ii) a breach by NASTECH of any of its
     representations, warranties, covenants, agreements or obligations under
     this AGREEMENT; or (iii) the negligence, recklessness or willful misconduct
     of NASTECH in supply of PRODUCT hereunder or in the performance of its
     other obligations under this AGREEMENT.

9.2  Indemnification by P&GP. P&GP shall defend, indemnify and hold NASTECH, its
     AFFILIATES, and their respective directors, officers, employees and agents,
     and their respective successors and permitted assigns, harmless from any
     and all claims, actions, causes of action, liabilities, losses, damages,
     costs or expenses, including reasonable attorneys' fees, which arise out of
     or relate to (i) a breach by P&GP of any of its representations,
     warranties, covenants, agreements or obligations under this AGREEMENT; or
     (ii) the negligence, recklessness or willful misconduct of P&GP in the
     performance of its obligations under this AGREEMENT.

9.3  Notification of Claims. Each party agrees to give the other (i) prompt
     written notice of any claims made for which the other might be liable under
     the foregoing indemnification and (ii) the opportunity to defend,
     negotiate, and settle such claims. The party seeking indemnification under
     this AGREEMENT shall provide the other party with all information in its
     possession, all authority, and all assistance reasonably necessary to
     enable the indemnifying party to carry on the defense of such suit;
     provided, however, that each party shall have the right to retain counsel
     to defend itself in such suit. Neither party shall be responsible or bound
     by any settlement made without its prior written consent.

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COMMISSION.]

10.  CONFIDENTIALITY AND PUBLIC ANNOUNCEMENTS

10.1 Confidentiality and Required Disclosure. The provisions of Section 12.1 and
     12.2 of the LICENSE AGREEMENT are incorporated herein by reference as if
     fully stated herein.

10.2 Publicity/Use of Names; Survival. The provisions of Section 12.3 and 12.5
     of the LICENSE AGREEMENT are incorporated herein by reference as if fully
     stated herein.

11.  ARBITRATION/GOVERNING LAW

11.1 Governing Law; Disputes. The parties acknowledge and agree that this
     AGREEMENT constitutes a contract pertaining to a transaction covering in
     the aggregate not less than $1,000,000 and that their choice of law
     specified below have been made pursuant to and in accordance with Sections
     5-1401 and 5-1402, respectively, of the New York General Obligations Law.
     Accordingly, the parties acknowledge and agree that this AGREEMENT shall be
     governed by the laws of the State of New York as to all matters including,
     but not limited to, matters of validity, construction, effect, performance
     and liability, without consideration of conflicts of laws provisions
     contained therein. The U.N. Convention on International Sales of Goods
     shall not apply. In the event of any controversy or claim arising out of or
     relating to this AGREEMENT or breach thereof, the dispute resolution and
     arbitration provisions of the LICENSE AGREEMENT, Section 2.5 (except for
     application of Section 2.1 as referenced in Section 2.5) and Article XV,
     shall apply.

11.2 Remedies Cumulative. No remedy referred to in this AGREEMENT is intended to
     be exclusive, but each shall be cumulative and in addition to any other
     remedy referred to in this AGREEMENT or otherwise available at law or in
     equity.

12   TERM AND TERMINATION

12.1 Term. Unless earlier terminated as provided in this Article 12 (the "TERM")
     this AGREEMENT shall be effective as of the EFFECTIVE DATE and shall
     continue in effect for a period of [***] years thereafter, P&GP may, in its
     sole discretion, extend the TERM for up to [***] by providing NASTECH with
     written notice no less than [***] prior to the expiration of the applicable
     preceding TERM.

12.2 Mutual Agreement. This AGREEMENT may be terminated by written agreement of
     the parties.

12.3 Termination by Either Party.

     (a)  This AGREEMENT may be terminated with written notice by either party
          to the other at any time during the term of this AGREEMENT:

          (i) if the other party is in breach of a material representation,
          warranty, covenant or other obligation hereunder (except by a Force
          Majeure cause pursuant

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          to Section 13.4) and has not cured such breach within thirty (30) days
          after written notice requesting cure of the breach has been given;
          provided, however, in the event of a good faith dispute with respect
          to the existence of a material breach, the thirty (30) day cure period
          shall be tolled until such time as the dispute is resolved pursuant to
          Section 11.1, and provided further, that if the breaching party is
          making good faith efforts to cure such breach, such thirty (30) day
          cure period shall be extended for a period of sixty (60) days, for an
          aggregate period of ninety days (90) from such notice requesting cure
          or,

          (ii) upon the filing or institution of bankruptcy, reorganization,
          liquidation or receivership proceedings by the other party or upon an
          assignment of a substantial portion of the assets for the benefit of
          creditors by the other party; provided, however, in the case of any
          involuntary bankruptcy proceeding such right to terminate shall only
          become effective if the party consents to the involuntary bankruptcy
          or such proceeding is not dismissed within sixty (60) days of the
          filing thereof.

     (b)  [***] In case of NASTECH's failure to cure any breach of a material
          representation, warranty, covenant or other obligation within the
          period provided in paragraph (a) of this Section 12.3, P&GP, at P&GP's
          option, shall have the right to [***].

12.4 Termination by P&GP. This AGREEMENT may be terminated by P&GP if P&GP
     exercises its rights to MANUFACTURE pursuant to a BACK-UP LICENSE under
     Sections 2.2 and 4.7 of this AGREEMENT. [***].

12.5 Termination of LICENSE AGREEMENT. This AGREEMENT shall automatically
     terminate in the event the LICENSE AGREEMENT is terminated early pursuant
     to the LICENSE AGREEMENT Sections 13.2, 13.3, and 13.4.

12.6 Payment of Outstanding Debts. Upon expiration or termination of this
     AGREEMENT for whatever reason, either party shall settle all outstanding
     invoices or monies owed to the other party or its AFFILIATES pursuant to
     their stated terms; provided however, that in the event the termination is
     the result of a breach by a party, all uncontested amounts owed to the
     other party shall become immediately due and payable.

12.7 Return of Information. Unless otherwise permitted under this AGREEMENT or
     the LICENSE AGREEMENT, within [***] subsequent to the expiration or
     termination of this AGREEMENT, either party shall return to the other
     party, (or have destroyed upon approval of the Party to whom the
     information would have been returned), all Information received from the
     other party, including all copies thereof; provided, however, that each
     party shall have the right to retain one copy of Information in its
     confidential files to the extent retention of such Information is required
     by applicable laws and regulations.

12.8 Disposition of Inventory; Firm Orders.

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COMMISSION.]

     (a)  In the event this AGREEMENT expires or is terminated by P&GP and the
          LICENSE AGREEMENT is still in effect, P&GP, its RELATED PARTIES and
          distributors shall have the right to continue to sell all PRODUCT
          remaining in their possession at the time of expiration or termination
          (or purchased pursuant to paragraph (b) below), in accordance with the
          terms of the LICENSE AGREEMENT.

     (b)  In the event this AGREEMENT is terminated by P&GP pursuant to Section
          12.3 or 12.4 or is terminated by mutual agreement of the parties
          pursuant to Section 12.2 above, P&GP shall purchase, and NASTECH shall
          supply, all quantities of PRODUCTS specified in any FIRM ORDERS
          effective as of the date of such termination, at the price in effect
          for such FIRM ORDERS as of the date of such FIRM ORDER.

12.9 License of NASTECH Know-How.

     (a)  In the event the TERM of this AGREEMENT expires and is not extended by
          P&GP pursuant to Section 12.1 above or terminated by P&GP pursuant to
          Section 4.7, 12.3, or 12.4, NASTECH shall grant to P&GP a
          non-exclusive, royalty-free license to utilize the NASTECH PATENTs and
          NASTECH KNOW-HOW to the extent necessary for P&GP to make or have made
          PRODUCT.

     (b)  P&GP may not MANUFACTURE or have MANUFACTURED PRODUCT under the
          license granted under Section 12.9(a) above earlier than six (6)
          months prior to the expiration of the Term of this AGREEMENT except
          for the purpose of enabling P&GP or its designee to obtain the
          necessary REGULATORY AUTHORITY approval for its MANUFACTURE of PRODUCT
          after the expiration of this AGREEMENT. No PRODUCTS MANUFACTURED by
          P&GP pursuant to the license granted under Section 12.9(a) shall be
          sold by P&GP prior to the expiration of the TERM.

12.10 Surviving Clause. Expiration or termination of this AGREEMENT shall not
     relieve the Parties of any obligation accruing prior to such expiration or
     termination. Any expiration or termination of this AGREEMENT shall be
     without prejudice to the rights of either party against the other accrued
     or accruing under this AGREEMENT prior to expiration or termination.
     Sections 5, 7, 8.1, 8.2, 8.4, 9.1 9.2, 9.3, 10.1, 10.2, 11.1, 11.2, 12 and
     the definitions relating to the foregoing, shall survive expiration or
     termination of this AGREEMENT; provided that Section 10.1 (confidentiality)
     shall survive the expiration or termination of this AGREEMENT for [***]
     thereafter.

13.  MISCELLANEOUS PROVISIONS

13.1 Binding Effect; Assignment.

     (a)  This AGREEMENT shall inure to the benefit of and be binding upon each
          of the parties hereto and their respective successors and

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          permitted assigns.

     (b)  This AGREEMENT may not be assigned or otherwise transferred, nor may
          any right or obligation hereunder be assigned or transferred, by
          either party without the consent of the other party, such consent not
          to be unreasonably withheld or delayed. Notwithstanding the foregoing,
          this AGREEMENT may be assigned by either party (i) in connection with
          a CHANGE of CONTROL of such party to its acquiring party, without the
          consent of the other party to this AGREEMENT, provided that the
          permitted assignee shall assume all assigned obligations of the
          assignor under this AGREEMENT, and

          (ii) to an Affiliate of the assigning party, provided that the
          assigning party shall remain liable for the performance of its
          obligations hereunder by such Affiliate, and provided that the
          permitted assignee shall assume all assigned obligations of the
          assignor under this AGREEMENT.

     (c)  Any attempted assignment not in accordance with this Section 13.1
          shall be null and void.

13.2 Cooperation. Each party agrees to execute such further papers, agreements,
     documents, instruments and the like as may be necessary or desirable to
     effect the purpose of this AGREEMENT and to carry out its provisions.

13.3 Entire Agreement. This AGREEMENT, together with the LICENSE AGREEMENT
     contain the entire agreement between the parties with respect of the
     subject matter hereof and supersedes and cancels all previous agreements,
     negotiations, commitments and writings in respect of the subject matter
     hereof and may not be changed or modified in any manner, or released,
     discharged, abandoned, or otherwise terminated unless in writing and signed
     by the duly authorized officers and representatives of the parties.

13.4 Force Majeure.

     (a)  Neither party shall be held liable to the other party nor be deemed to
          have defaulted under or breached this AGREEMENT for failure or delay
          in performing any obligation under this AGREEMENT when such failure or
          delay is caused by or results from causes beyond the reasonable
          control of the affected party including, but not limited to,
          embargoes, war, acts of war (whether war be declared or not), acts of
          terrorism, insurrections, riots, civil commotions, strikes, lockouts
          or other labor disturbances, fire floods, or other acts of God, or
          acts, omissions or delays in acting by any governmental authority or
          the other party. The affected party shall notify the other party of
          such force majeure circumstances as soon as reasonably practical, and
          shall promptly undertake all reasonable efforts necessary to cure such
          force majeure circumstances.

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COMMISSION.]

     (b)  During the duration of any Force Majeure, NASTECH shall allocate
          MATERIALS and/or resources required for the MANUFACTURE of PRODUCT in
          the manner set forth in Section 2.2.

     (c)  The requirements that all reasonable efforts be made to eliminate,
          cure or overcome a Force Majeure condition shall not require the
          settlement of strikes or labor controversies by acceding to the
          demands of the opposing party or parties.

13.5 Insurance. NASTECH agrees to maintain, during the TERM and for [***]
     thereafter, at its own expense, commercial general liability insurance,
     including blanket contractual liability, products liability and products
     completed operations coverages, with a minimum limitation of U.S.$ [***]
     per occurrence and U.S.$ [***] annual aggregate upon execution of this
     AGREEMENT. Workers Compensation will provide no-fault statutory benefits as
     prescribed by the LAW of the State or Countries in which work is performed
     to NASTECH's employees due to a job-related injury resulting from an
     accident or occupational disease. Employers' Liability is to be provided in
     the minimum amount of $[***] per occurrence for all sums that the insured
     becomes legally obligated to pay as damages because of bodily injury by
     accident or disease sustained by the insured arising out of and in the
     course of employment. NASTECH shall promptly submit to P&GP, from an
     insurer with an A.M. Best rating of A- or better or otherwise acceptable to
     P&GP, a certificate of insurance evidencing that the required insurance is
     in force and effect. Such certificate shall provide that not less than
     thirty (30) days' advance notice, in writing, shall be given to P&GP of any
     cancellation, termination or material alteration of such insurance
     coverages.

13.6 Headings. The Article and Section headings in this AGREEMENT are solely for
     the convenience and reference of the parties hereto and are not intended to
     be descriptive of the entire contents of, or to affect, any of the terms or
     provisions hereof or their interpretation.

13.7 No Agency. Nothing contained herein shall be deemed to establish or
     otherwise create a relationship of principal and agent between NASTECH and
     P&GP, or P&GP and NASTECH, it being understood that each of NASTECH and
     P&GP is an independent contractor who cannot and shall not be deemed an
     agent of the other or its AFFILIATES for any purpose whatsoever. Neither
     NASTECH nor any of its agents or employees shall have any right or
     authority to assume or create any obligation of any kind, whether express
     or implied, on behalf of P&GP or its AFFILIATES or have any authority to
     bind P&GP or its AFFILIATES in any way without the prior written approval
     of P&GP. Neither P&GP nor any of its agents or employees shall have any
     right or authority to assume or create any obligation of any kind, whether
     express or implied, on behalf of NASTECH or its AFFILIATES or have any
     authority to bind NASTECH or its AFFILIATES in any way without the prior
     written approval of NASTECH.

13.8 Notice. Any notice or request required or permitted to be given in
     connection with this AGREEMENT shall be deemed to have been sufficiently
     given if personally delivered, sent by pre-paid registered or certified
     airmail, or by facsimile with electromechanical

                                       22

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

     confirmation of delivery, to the intended recipient at its address set
     forth above or to such other business address as may have been furnished in
     writing by the intended recipient to the sender. Any such notice shall be
     deemed to have been given: (a) when delivered if personally delivered or
     sent by facsimile on a business day (or if delivered or sent on a
     non-business day, then on the next business day); (b) on the business day
     after dispatch if sent by nationally-recognized overnight courier; or (c)
     on the fifth (5th) business day following the date of mailing if sent by
     mail. Any required notice shall be given in English.

     Notice to NASTECH shall be addressed to:

     Nastech Pharmaceutical Company Inc.
     3450 Monte Villa Parkway
     Bothell, WA 98021
     Attention: Office of the Chief Executive Officer and President
     Facsimile No.: [***]

     With a copy to:

     Pryor Cashman Sherman & Flynn LLP
     410 Park Avenue
     New York, NY 10022
     Attention: Lawrence Remmel
     Facsimile No.: [***]

     Notice to P&GP shall be addressed to:

     Vice President - North American Pharmaceuticals
     Procter & Gamble Pharmaceuticals, Inc.
     8700 Mason Montgomery Road
     Mason, OH 45040
     Facsimile No.: [***]

     with a copy to:

     Associate General Counsel - Pharmaceuticals
     Procter & Gamble Pharmaceuticals, Inc.
     8700 Mason Montgomery Road
     Mason, OH 45040
     Facsimile No.: [***]

     Either party may change its address by giving written notice to the other
     party.

13.9 Prevailing Language. The AGREEMENT shall be prepared and executed in
     English and if translated into a language other than English for any
     purpose, the English version shall in all events prevail and be paramount
     in the event of any differences, questions or disputes concerning the
     meaning, form, validity, or interpretation of this AGREEMENT.

                                       23

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

13.10 Severability. In the event any one or more of the provisions contained in
     this AGREEMENT should be held invalid, illegal or unenforceable in any
     respect, the validity, legality and enforceability of the remaining
     provisions contained herein shall not in any way be affected or impaired
     thereby, unless the absence of the invalidated provision(s) adversely
     affect the substantive rights of the parties. The parties shall in such an
     instance use their best efforts to replace the invalid, illegal or
     unenforceable provision(s) with valid, legal and enforceable provision(s)
     which, insofar as practical, implement the purposes of this AGREEMENT.

13.11 Modification and Waiver. No amendment, modification or alteration of the
     terms of this AGREEMENT shall be binding unless the same shall be in
     writing and duly executed by the parties hereto, except that any of the
     terms or provisions of this AGREEMENT may be waived in writing at any time
     by the party which is entitled to the benefits of such waived terms or
     provisions. No waiver of any of the provisions of this AGREEMENT shall be
     deemed to or shall constitute a waiver of any other provision hereof
     (whether or not similar). No delay on the part of any party exercising any
     right, power or privilege hereunder shall operate as a waiver thereof.

13.12 Counterparts. This AGREEMENT may be executed in one or more counterparts,
     each of which shall for all purposes be deemed an original and all of which
     shall constitute one and the same AGREEMENT.

13.13 Waiver of Rule of Construction. Each party has had the opportunity to
     consult with counsel in connection with the review, drafting and
     negotiation of this AGREEMENT. Accordingly, the rule of construction that
     any ambiguity in this AGREEMENT shall be construed against the drafting
     party shall not apply.

13.14 Successors and Assigns. The terms and conditions of this AGREEMENT shall
     be binding upon, and shall inure to the benefit of, the parties hereto and
     their respective successors and permitted assigns.

13.15 Audit Rights. NASTECH's records, which shall include, but not be limited
     to, accounting records, time sheets, written policies and procedures, test
     results, reports, correspondence, memoranda and any other documentation
     relating to the performance of this AGREEMENT, shall be open to inspection
     and subject to audit and/or reproduction, during normal working hours, by
     P&GP or its authorized representative to the extent necessary to adequately
     evaluate claims submitted by NASTECH (including NASTECH's calculation of
     the SUPPLY PRICE), required by governmental authorities or reasonably
     necessary for any other valid business purpose. NASTECH shall preserve such
     records, except for MANUFACTURING records addressed in Section 7 herein,
     for a period of [***] after the end of the TERM or for such longer period
     as may be required by law. For the purpose of such audits, inspections,
     examinations and evaluations, P&GP or its authorized representative shall
     have access to such records beginning on the EFFECTIVE DATE and continuing
     until [***] after the satisfaction of NASTECH'S obligations or P&GP's last
     payment of the SUPPLY PRICE under this AGREEMENT. In addition, NASTECH
     shall provide adequate and appropriate workspace

                                       24

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

     for P&GP or its authorized representatives to conduct such audit. P&GP or
     its authorized representative shall give NASTECH reasonable advanced notice
     of an intent to audit.

13.16 COMPLIANCE WITH LAWS AND SAFETY MEASURES

13.16.1 Laws. NASTECH represents, warrants and covenants that NASTECH is and
     shall at all times, be in full compliance with all applicable governmental,
     legal, regulatory and professional requirements, including without
     limitation all applicable laws, and material codes, regulations, rules,
     ordinances, judgments, orders and decrees, including, without limitation,
     those related to Intellectual Property rights, fair trade and anti trust,
     customs, immigration, labor, employment, working conditions, worker health
     and safety, branding and labeling, adulteration and contamination, board of
     health and environmental matters (collectively "LAWS").

13.16.2 Licenses, Consents and Permits. NASTECH represents, warrants and
     covenants that NASTECH has obtained and maintains in full force and effect
     all licenses, consents, permits, approvals, authorizations and the like
     required to lawfully perform NASTECH'S obligations under this AGREEMENT.
     NASTECH (i) shall promptly notify P&GP if NASTECH receives any notice,
     demand, summons or complaint from any governmental or regulatory authority,
     agency or other body relating to the PRODUCT and parts thereof or NASTECH'S
     performance in accordance with this AGREEMENT, and (ii) shall take all
     steps, at NASTECH'S expense, to remedy and resolve any issues raised
     therein as promptly as practicable.

13.16.3 NASTECH Diversity Program. If NASTECH has operations (production, sales,
     administrative) physically located in the United States of America which
     are involved in NASTECH's performance under this AGREEMENT, then NASTECH is
     expected to develop procurement and contracting strategies aimed at meeting
     the goals of P&GP's minority and women-owned business development program
     (a.k.a. Supplier Diversity Program). Such strategies shall include sourcing
     methods, goals, reporting and efforts to encourage sub-contractors' use of
     minority and women-owned vendors. NASTECH shall use its commercially
     reasonable efforts to seek to achieve continuous improvement in the use of
     such minority and women-owned vendors. NASTECH shall report to P&GP the
     amount of such minority and women-owned vendor spending quarterly.

13.16.4 Child Labor and Forced Labor. NASTECH warrants that it does not employ
     children, prison labor, indentured labor, bonded labor or use corporal
     punishment or other forms of mental and physical coercion as a form of
     discipline. Moreover, NASTECH agrees that it will not conduct business with
     vendors employing children, prison labor, indentured labor, bonded labor or
     who use corporal punishment or other forms of mental and physical coercion
     as a form of discipline. In the absence of any national or local law, P&G
     and NASTECH agree to define "child" as less than 15 years of age. If local
     minimum age law is set below 15 years of age, but is in accordance with
     exceptions under International Labor Organization (ILO) Convention 138, the
     lower age will apply. P&GP has the right to audit NASTECH'S premises to
     ensure compliance with this paragraph.

                                       25

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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

     IN WITNESS WHEREOF, the parties have caused this AGREEMENT to be executed
by their duly authorized representatives as of the date first above written.

                                        PROCTER & GAMBLE PHARMACEUTICALS, INC.

                                        By: /s/ Ronny L. Taff
                                            ------------------------------------
                                        Name: Ronny L. Taff
                                        Title: Vice President - Product Supply
                                               Procter & Gamble Pharmaceuticals,
                                               Inc.

                                        NASTECH PHARMACEUTICAL COMPANY INC.

                                        By: /s/ Steven C. Quay
                                            -----------------------------------
                                        Name: Steven C. Quay
                                        Title: Chief Executive Officer and
                                               President

                                       26
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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

                                  SCHEDULE 1.10

                                      [***]

                                       27
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[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

                                  SCHEDULE 1.18

                                      [***]
<PAGE>

[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

                                  SCHEDULE 1.26

                                 SPECIFICATIONS

                                      [***]
<PAGE>

[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

                                 SCHEDULE 4.1.1

                                      [***]
<PAGE>

[*CONFIDENTIAL TREATMENT HAS BEEN REQUESTED AS TO CERTAIN PORTIONS OF THIS
DOCUMENT. EACH SUCH PORTION, WHICH HAS BEEN OMITTED HEREIN AND REPLACED WITH AN
ASTERISK [***], HAS BEEN FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION.]

                                  EXHIBITS 3.2

                                      [***]

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