Document:

<PAGE>
Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment and have been filed separately with the Commission.

                                                                 EXHIBIT 10.4.49

                            PRODUCT SUPPLY AGREEMENT

This Agreement dated October 25, 2001, by and between NEOPROBE CORPORATION, a
Delaware corporation, having an office at 425 Metro Place North, Suite 300,
Dublin, Oh 43017 ("Company"), and UMM ELECTRONICS INC., a Delaware Corporation,
having an office at 6911 Hillsdale Court, Indianapolis, Indiana 46250 ("UMM");

                              W I T N E S S E T H:

                  WHEREAS, Company wishes to have UMM manufacture for it the
Product(s) (as hereinafter defined) which are currently being manufactured by a
third party;

                  WHEREAS, Company wishes to have UMM service and repair the
Product(s) and certain predecessor products;

                  WHEREAS, UMM is engaged in the business of manufacturing,
servicing and repairing electronic equipment; and

                  WHEREAS, UMM desires to so manufacture and supply and service
and repair the Product(s) for Company:

                  NOW, THEREFORE, the parties agree as follows:

                                   ARTICLE I

                                   DEFINITIONS
                                   -----------

                  1.01 "Affiliate(s)" shall mean with respect to a party any
other corporation controlling, controlled by or under common control with such
party during the term or any extension of this Agreement.

                  1.02 "Confidential Information" shall mean all information,
data and know-how that concerns the business affairs of a party that is not
known by or generally available to third parties, and which is disclosed by a
party to the other party. Confidential Information may be in tangible or
intangible form, including, without limitation, oral or written disclosures,
ideas, know-how, drawings, graphs, plans, specifications, models, prototypes,
samples, equipment, data, formulas, processes, designs, hardware and software,
and information about marketing, costs and suppliers. All written Confidential
Information shall be prominently identified as such using appropriate legends,
markings, stamps, or other clear and conspicuous written identification that
unambiguously indicates that the information being provided is to be considered
Confidential Information hereunder. A disclosing party shall identify as
Confidential Information only such information as the disclosing party believes
in good faith to be proprietary or competition sensitive. Any information that
is disclosed other than in tangible or other written form shall be considered
Confidential Information but only to the extent that it is identified as
Confidential Information at the time of disclosure and is thereafter summarized
in written form
<PAGE>
which clearly and conspicuously identifies it as Confidential Information. The
term Confidential Information shall not mean any information which is previously
known to the receiving party without obligation of confidence, as shown by its
written records, or without breach of this Agreement, is publicly disclosed
either prior or subsequent to receipt by the receiving party of such
Confidential Information, or is subsequently rightfully received by the
receiving party from a third party without obligation of confidence or
disclosure of which is required by subpoena or other legal, administrative, or
arbitral process or by law. The fact that a party chooses to transmit
Confidential Information to the other party hereto via E-mail shall not in any
way release said information from its status as Confidential Information
hereunder.

                  1.03 "Date of Market Introduction" of a Product shall mean the
date of the receipt and acceptance by Company of a quantity of twenty (20) units
of the Product meeting the specifications of the DMR for said Product.

                  1.04 "Defective Product" shall mean a Product manufactured by
UMM hereunder that does not function or fails to meet the specifications of the
DMR, or has defects in materials or workmanship.

                  1.05 "DMR" shall mean the Device Master Record for a Product,
which shall be maintained in compliance with the QSR. The DMR shall include the
specifications, drawings, and manufacturing instructions that enable UMM or a
third party to manufacture the Products including a set of quality control
parameters suitable for use in acceptance testing of the Products, but excluding
applicable software.

                  1.06 "Engineering Change Notice" or "ECN" shall mean the
controlled change process to effect changes to the Products, processes, or
documentation

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

                  1.08 "Forecast" shall have the meaning set forth in Section
2.04 herein.

                  1.09 "Forecast Period" shall have the meaning set forth in
Section 2.04 herein.

                  1.10 "Initial Term" shall have the meaning set forth in
Section 8.01 hereof.

                  1.11 "NCNR components" shall mean those parts of the Products
orders for which once placed with UMM's suppliers are not cancelable, or that
are not returnable once delivered to UMM without payment of a restocking or
other fee that Company agrees to pay.

                  1.12 "Product(s)" shall mean the medical device(s) listed in
Schedule 1.12 to this Agreement, as such Schedule may be amended from time to
time through written agreement between the parties, that is the subject of a
DMR(s).

                  1.13 "Purchase Orders" shall have the meaning set forth in
Section 2.04(b) hereof.

                                       2
<PAGE>
                  1.14 "QSR" shall mean the Quality System Regulation (21 CFR
820) promulgated by the FDA, as may be amended from time to time during the term
of this Agreement.

                  1.15 "Sustaining Engineering" shall mean the design/drafting
services to maintain DMR and associated drawings; the design, analysis and
verification testing of design improvements; the support of process validations
and quality issues of in-house and sub-tier suppliers; or other engineering
services agreed-to in writing by both parties.

                                   ARTICLE II

                       SUPPLY, SUPPORT AND REPAIR SERVICES
                       -----------------------------------

                  2.01 UMM shall manufacture and sell the Products exclusively
to Company at prices established by the parties pursuant to paragraph 3.01 for
Company's exclusive resale or use. During the Initial Term of this Agreement,
Company shall purchase and take delivery of a minimum of (a) * units of the
Model #1017 Product, and (b) * units of the Model #2100 Product, per year. In
the event that Company does not meet the minimum purchase requirements during
any one (1) year period, UMM shall have the right to adjust the purchase price
on all units of the relevant Product(s) purchased by Company during said one (1)
year period to reflect the reduced quantity as far as overhead absorption,
material costs and labor efficiency are concerned and to invoice Company for
such amount as may be agreed between the parties and Company shall pay to UMM
such mutually agreed adjusted price.

                  2.02 During the term of this Agreement, UMM shall be Company's
sole and exclusive source for the Products, provided that (a) UMM provides an
adequate and timely supply of the Products to Company in accordance with
paragraph 2.04 hereof, and (b) UMM maintains compliance with the QSR and the
quality assurance level agreed upon by the parties.

                  2.03 UMM represents that it will from and after December 31,
2001, maintain sufficient manufacturing capacity to produce the number of
Products forecast by Company in its Forecasts submitted pursuant to paragraph
2.04 hereof. Company agrees to purchase a minimum quantity of Products as listed
in Schedule 1.11, inclusive of the twenty (20) during the first year after the
Date of Market Introduction.

                  2.04 (a) In order to facilitate UMM's planning of production,
Company shall submit not later than the 15th day of each month to UMM an
estimate of its requirements for Products (the "Forecast") covering a forward
period of not less than twelve (12) months (the "Forecast Period"). The first
three (3) months shall be binding on Company on a rolling basis advancing
month-by-month and may not be canceled or rescheduled without the prior written
agreement of UMM. The remaining nine (9) months forecast is to be used by UMM
for planning purposes only and shall not be considered to be firm orders,
Company's only obligation with respect thereto being for the cost of any unique
NCNR components having a lead time of more than three (3) months on a rolling
basis advancing month by month. Company shall submit the initial Forecast
promptly after the execution and delivery of this Agreement.

* Portion has been omitted pursuant to a request for confidential treatment and
  filed separately with the Commission.

                                       3
<PAGE>

                       (b) Company shall place monthly purchase orders ("
Purchase Orders") setting forth the delivery date which shall be a date not
earlier than twelve (12) weeks from the date of the Purchase Order against the
Forecasts under Clause (a) above for the supply of Products; it being agreed and
understood that in the event the UMM discovers that through no fault of UMM a
lead time longer than twelve (12) weeks is required due to the requirements of
one or more of its suppliers that cannot be reduced by UMM on reasonable
commercial terms to enable UMM to meet the lead time of twelve (12) weeks, UMM
shall notify Company in writing and said longer lead time shall prevail. UMM
shall evidence its receipt of each Purchase Order by signing an acknowledgment
copy thereof and returning it to Company within fifteen (15) days after receipt
of such Purchase Order from Company. The sole remedy of Company, at law or in
equity or otherwise, for the failure of UMM to deliver Products on time shall be
to terminate this Agreement or the right of UMM under Section 2.02 hereof to be
the sole source for the Products. Company shall submit the initial Purchase
Order to UMM not later than thirty (30) days after execution of this Agreement.
In case of conflict between the general terms and conditions of a Purchase Order
issued by Company and this Agreement, the terms and conditions of this Agreement
shall take precedence.

                  2.05 UMM agrees to warehouse and store on Company's behalf all
finished Products in accordance with the terms outlined in Schedule 2.05(a). UMM
shall be entitled to invoice Company for Product(s) on the date UMM receives
written acceptance from the Company of the Certificate of Conformance for the
completed Products and puts the Products into storage. Products stored by UMM
shall be ready to ship, F.O.B. UMM's facility, per the Company's written
instruction, to the Company or its subcontract distributors listed in Schedule
2.05(b).

                  2.06 If Company desires to accelerate or reduce any of the
deliveries ordered under a Purchase Order or set forth in a binding forecast, it
shall so notify UMM and UMM shall make reasonable efforts to meet the request,
subject to material and capacity availability. Company shall bear and pay any
reasonable extra costs incurred by UMM to meet an accelerated or a reduced
schedule, including, without limitation, the cost to UMM of holding inventory.
In the event that Company instructs UMM to commence purchasing inventory based
upon a forecast (whether binding or not) and prior to the submission of a
Purchase Order, and the delivery date(s) foreseen in such forecast slip not due
to the fault of UMM, UMM shall invoice Company and Company shall bear and pay
the costs incurred by UMM in holding said materials in inventory during said
delay. In the event Company is responsible for providing to UMM packaging
material or other material without which UMM can not deliver the Product(s) to
Company, and UMM is unable to effect timely delivery of the Product(s) because
it has not received said necessary materials, UMM shall be entitled to invoice
Company for the completed Product(s) on the originally scheduled delivery date
plus the costs of UMM holding said Product(s) in inventory during said delay.

                  2.07 Company agrees to reimburse UMM for the cost of any and
all NCNR components that become obsolete due to changes in the design requested
by Company. UMM agrees to make all reasonable effort(s) to return or sell
obsolete material.

                  2.08 All Products shall be sold and delivered per paragraphs
2.05 and 4.03. All invoices shall be due and payable net thirty (30) days from
the date of receipt of the invoice.

                                       4
<PAGE>

                  2.09 UMM shall obtain the written approval of Company prior to
making any changes, substitutions, or modifications to the Product(s) or the DMR
in accordance with the Change Notification Protocol, a copy of which has been
provided to Company. Company shall promptly respond to any such request for
approval of changes. It is recognized that UMM may, from time to time, be asked
to implement ECNs. The following delineates the proper procedure:

                       (a) Company will notify UMM in writing of the proposed
change. This notification should include the documentation of the change to
effectively support UMM's investigation of the impact of this proposal;

                       (b) Upon receipt of a notice requesting a change, UMM
will review and respond to all cost impacts within a reasonable period of time
not to exceed thirty (30) days;

                       (c) All cost impacts and material availability issues
will be mutually reviewed and agreed to in writing prior to implementation; and

                       (d) Emergency ECNs as identified by Company in writing
will be immediately implemented at Company's request. Company will be liable for
all reasonable costs associated with the implementation of emergency ECNs,
except, if the emergency ECN (i) is the result of a defect in the design of the
Product(s) provided by UMM, (ii) is the direct result of a defect in a part or
sub-component from a supplier to UMM, or (iii) is the direct result of a defect
in workmanship by UMM. UMM shall provide for the repair and /or replacement of
defective Products identified in (i), (ii) and (iii) at its cost.

                  2.10 The Products shall be packaged and labeled in accordance
with Company's specifications. Company shall prepare the artwork necessary for
printing all labels and shall deliver it to UMM as least ten (10) weeks prior to
the scheduled delivery from UMM of the first shipment of Products ordered by
Company.

                  2.11 From and after sixty (60) days from the date of this
Agreement, UMM shall provide to Company repair service or spare parts for
Products and certain predecessor products, on terms and conditions to be agreed
upon in a separate agreement. The service agreement shall be concluded within
thirty (30) days of this Agreement. Service shall extend to other Company
products as well, and shall not be limited to the Products.

                  2.12 From and after sixty (60) days from the date of this
Agreement, UMM shall provide to Company Sustaining Engineering services for
Products, on terms and conditions to be agreed upon in a separate agreement. The
Sustaining Engineering agreement shall be concluded within thirty (30) days of
this Agreement.

                  2.13. UMM warrants, covenants and agrees that (a) it will
maintain an FDA registered facility certified to ISO 9001/EN 46001/ISO 13485,
and (b) the Products will be manufactured and supplied by UMM to Company in
compliance with all applicable laws, ordinances, rules and regulations, whether
local, state or federal, including, but not limited to, the provisions of the
federal Food, Drug and Cosmetic Act, and QSR. UMM will provide documentation
that the UMM facility complies with FDA published guidelines (as defined in 21
CFR 10.90b) and upon request by Company shall demonstrate such compliance.
Company shall have the right upon at least five (5) business days prior notice
in writing to inspect during normal business hours UMM's quality control system,
documentation, receiving, shipping, warehousing, and manufacturing processes and
facilities for the Product(s).

                                       5
<PAGE>

                                  ARTICLE III

                      PRICE FOR PRODUCTS; TERMS OF PAYMENT

                  3.01 UMM agrees to sell and deliver to Company in accordance
with paragraph 2.04, and Company agrees to purchase Products from UMM, at the
prices listed in Schedule 3.01.

                  3.02 The price for each Product shall be fixed for a period of
one year from the Date of Market Introduction; provided, however, in the event
of a material increase in the cost of any material component used in the
manufacture of a Product, UMM shall have the right to renegotiate the prices
then in effect. Conversely, if UMM or the Company becomes aware of a material
decrease in the cost of any material component used in the manufacture of a
Product, the Company shall have the right to renegotiate the price then in
effect. Not later than ninety (90) days before the first anniversary of the Date
of Market Introduction and annually thereafter the parties shall meet and
negotiate in good faith the prices for the Products for the ensuing year.

                  3.03 The prices listed in Schedule 3.01 shall include
manufacturing engineering support (not including reengineering of the
manufacturing process) provided on an "as needed" basis to ECNs and
Non-conforming Material Reports (NMRs) along with Statistical Process Control.
Manufacturing and quality engineers, as appropriate, will perform these
activities.

                  3.04 (a) UMM shall perform transfer engineering services
required in connection with the transfer of the manufacturing process for the
Products from Company's current supplier to UMM, initial qualification of
sub-tier suppliers and setting up the production line for a fee of $25,200; it
being agreed and understood that said fee (i) assumes that Company's designs,
suppliers and manufacturing processes are mature and capable; and (ii) does not
include any In Circuit Test ("ICT") fixtures and software if Company's present
ICT fixtures and software are incompatible with a new circuit board assembly
supplier, PIM board ICT fixture and software development, or Hi-Pot and Burn-in
station development and equipment cost.

                       (b) When UMM validates the manufacturing lines, it shall
track first pass yields to understand better the capabilities of Company's
designs, suppliers and manufacturing processes. UMM and Company shall then
evaluate the need for any non-recurring efforts to resolve mutually agreed
quality or yield issues and UMM shall supply those services to Company on a time
and materials basis based on (a) actual hours worked at UMM's then current
billing rate, and (b) direct expenses incurred and paid to third parties plus
fifteen percent (15%), but otherwise excluding any corporate overhead of UMM.
Travel expenses for such incremental efforts will be billed at cost plus 5%.
Travel expenses shall include mileage at the latest rate determined by the
Internal Revenue Service, parking tolls and fares, car rental fees, if required,
air fare, if required, and food and lodging away from the home office. Travel
time will be billed at the individual's then current billing rate. Video
teleconferencing, if utilized, will be billed at $150 per hour for conferences
held within the U.S. and $350 for calls involving parties outside the U.S. UMM
shall invoice Company no more frequently than bi-weekly for its charges
associated with such incremental non-recurring efforts, with payment due from
Company within thirty (30) days from the date of UMM's invoice.

                                       6

<PAGE>

                  3.05 Promptly after execution and delivery of this Agreement,
Company shall pay to UMM:

                       (a) The amount of One hundred Fifty Thousand Dollars
($150,000.00) to be held by UMM as an initial deposit hereunder (the "Initial
Deposit"). The Initial Deposit shall bear interest at the rate of four percent
(4%) per annum. UMM shall apply the Initial Deposit and accrued interest against
the final invoices rendered by UMM for Products under this Agreement. UMM agrees
to review the necessity for and the amount of the Initial Deposit at least
annually and also following receipt by UMM of payment by Company for the first
two hundred (200) Model 2100 control units manufactured and delivered by UMM
under this Agreement.

                       (b) An amount to be agreed upon promptly after execution
and delivery of this Agreement to be held by UMM as a revolving deposit
hereunder (the "Revolving Deposit") to cover the cost of material components
that, as agreed to by both parties, UMM purchases to support the manufacture of
Products beyond the first three months in the Forecast Period and for which
delivery cannot be scheduled on a just-in-time basis beyond the first three
months in the Forecast Period. Company and UMM agree to review the necessity for
and amount of the Revolving Deposit at least quarterly and adjust the amount
accordingly to the nearest thousand dollars.

                  3.06 A late fee of 1 1/2 % per month will be assessed on
invoices not paid by Company within the later of thirty (30) days of the date of
receipt of the original invoice or ten (10) business days from the Company's
receipt of any corrected invoice other than on the amount of said invoices being
contested in good faith.

                                   ARTICLE IV

                         INSPECTION AND QUALITY CONTROL

                  4.01 UMM shall, at its discretion, either accept or create an
internal Quality Assurance Plan(s) that is compliant with the Quality Assurance
Plan(s) provided by the Company. The Quality Assurance Plan(s) shall be approved
by the Company.

                  4.02 Prior to the Date of Market Introduction, UMM shall
perform at Company's expense (as included in the $25,200 transfer engineering
fee provided for in paragraph 3.04) a Process Failure Modes and Effects Analysis
(PFMEA) to verify robustness of the manufacturing process. Process Validation
testing shall be performed at Company's expense (as included in the $25,200
transfer engineering fee provided for in Paragraph 3.04 above) prior to the
start of production to ensure that the equipment and processes operate as
designed. Annual Process Qualifications shall be performed by UMM to verify the
stability of the production process and to look for improvements in the
calibration and test process.

                  4.03 UMM shall establish and maintain quality records for each
unit of Product(s) produced (identified by serial number) consisting of, at a
minimum, but not limited to:

                                       7

<PAGE>

                  (a)      Certificate of Conformance;

                  (b)      Label Certification Sheet; and,

                  (c)      Device History Record.

UMM shall present these quality records to Company for immediate inspection by
Company on completion of the production cycle, and prior to release of Product
into storage per paragraph 2.05. Upon receipt of said records, Company shall
perform an immediate inspection of these quality records, and shall within two
(2) business days, provide written inspection status (Pass/Reject) to by fax
UMM. UMM shall maintain these quality records for a period of time equivalent to
each Product's life cycle, plus five (5) years, or as prescribed by applicable
medical device regulations, whichever is longer.

                  4.04 Within fifteen (15) days after delivery of Products into
storage per paragraph 2.05, Company shall have the right to conduct its product
audit to include a physical inspection of Products delivered thereof in which
Products will be compared with the specifications and quality control parameters
contained in the Quality Assurance Plan and DMR, and shall inform UMM of the
results of such inspection. In the event such inspection by Company reveals
unacceptable variances from the specifications and quality control parameters
contained in the Quality Assurance Plan and DMR, Company shall notify UMM (which
notice shall specify the manner in which the defective Products fail to meet the
specifications in the DMR), and UMM shall have fifteen (15) days in which to
verify the variances. Upon the earlier of (a) verification by UMM or (b) the
expiration of thirty (30) days from the date of said notice, Company shall have
the right to refuse acceptance of the defective or deficient shipment(s) and to
require, at the option of UMM, that said Products be replaced or corrected free
of charge to the Company. If UMM's inspection results in a finding that the
Products are not defective or deficient, UMM shall immediately notify Company of
the same and shall resubmit the Products for acceptance. In the event that UMM
and Company do not agree on the acceptability of a Product, both parties agree
to conduct joint testing and/or inspection. Failure of Company to complete the
above-mentioned acceptance inspection within said fifteen (15) day period shall
constitute acceptance by Company of the Products, however such acceptance shall
not reduce the Warranty coverage for Products provided in accordance with
Article VII herein.

                                   ARTICLE V

                            CONFIDENTIAL INFORMATION

                  5.01 During the term of this Agreement and for a period of
three (3) years after its termination, UMM and Company each agree to hold all
Confidential Information of the other party disclosed to it hereunder in
confidence and not to disclose such Confidential Information of the other party
to any third party, except those who have a need to know such Confidential
Information for purposes of carrying out the terms of this Agreement and are
bound by a similar obligation of confidentiality and non-use, and not to use
such Confidential Information for any purpose other than for the purposes of
this Agreement. Thereafter, the right of one party to use

                                       8

<PAGE>

the Confidential Information of the other shall be limited only by the copyright
and patent rights of the other party.

                  5.02 Each party represents to the other that its employees are
governed by company regulations that prohibit the disclosure of confidential and
proprietary information that may belong to the other party and that such
internal regulations will enable it to comply with all of the items of this
Agreement.

                                   ARTICLE VI

                             LICENSE FOR USE OF DMR

                  6.01 Company hereby grants UMM a non-exclusive,
non-assignable, royalty free license to use the DMR to manufacture the Products
during the term of this Agreement. Company hereby further grants UMM a royalty
free non-assignable license (which may not be sub-licensed except to an
Affiliate of UMM) for the use of any manufacturing methods, inventions, or
processes developed by UMM for products other than those that compete with the
Products.

                  6.02 UMM hereby grants Company a royalty free license for the
use of any manufacturing methods and processes developed by UMM for the Products
for use only in connection with the manufacture of any Company Products.

                                  ARTICLE VII

                         WARRANTIES AND INDEMNIFICATION

                  7.01 UMM warrants to Company that all Products to be supplied
hereunder will upon shipment meet the specifications in the DMR and will be free
from defects in materials and workmanship. UMM MAKES NO OTHER WARRANTIES,
WRITTEN, ORAL, OR IMPLIED, INCLUDING WITHOUT LIMITATION ANY IMPLIED WARRANTIES
OF DESIGN, MERCHANTABILITY OR FITNESS FOR ANY SPECIFIC OR GENERAL PURPOSE. This
limited warranty shall apply for a period of twelve (12) months after the date
of shipment by UMM of the Product from storage at UMM's facilities to the
Company or its subcontract distributors per paragraph 2.05, but in no event
longer than fifteen (15) months from the date of acceptance by the Company of
the Certificate of Conformance for the Product. UMM shall satisfy this warranty
requirement by repairing or replacing, at UMM's option, each Defective Product
returned to it prior to the expiration of the warranty period. Satisfaction of
UMM's warranty shall include the cost of shipping repaired or replaced product,
as appropriate. Major components, assemblies or sub-systems purchased by UMM
from others shall carry the warranty of the manufacturers thereof. To the
maximum extent practical, UMM shall promptly document and return any defective
material under warranty from sub-tier suppliers so that these items can be
repaired or replaced and used in the respective production and/or service units.

                                       9

<PAGE>

                  7.02 UMM shall, conduct a failure analysis as required by US
Food and Drug Administration ("FDA") regulations, i.e. 21 CFR Parts 820.115 and
820.198(b) with respect to Defective Products returned to it under paragraph
7.01. Such analysis shall be conducted promptly upon receipt by UMM of the
subject Defective Product and a results report shall be returned to Company no
later than forty-five (45) days after UMM's receipt of the defective Product.
The cost of such failure analysis shall be borne by UMM if the analysis confirms
that the failure is related to an issue covered by UMM's limited warranty set
forth in Paragraph 7.01 above to the Company or by the Company in the absence of
such confirmation.

                  7.03 UMM shall be liable for and shall indemnify, defend and
save Company, its shareholders, directors, officers, employees, representatives
and agents ("Company Indemnified Parties") harmless against any and all claims,
suits, proceedings, recoveries, settlements and damages, including, but not
limited to, reasonable attorney and paralegal fees, interest and penalties
("Claims") arising from the death of, or bodily injury to, any person on account
of the use of any Product to the extent caused by UMM's failure to deliver such
Product in accordance with UMM's warranties as provided in this Agreement.

                  7.04 Company shall be liable for and shall indemnify, defend
and save UMM, its shareholders, directors, officers, employees, representatives
and agents ("UMM Indemnified Parties") harmless from and against any and all
Claims, whether groundless or not, in connection with (a) any and all injuries,
losses, damages, or liability of any kind whatsoever directly or indirectly
attributable to the design of the Products (except to the extent designed by
UMM) or any omission or misstatement in the literature supplied by Company for
use with the Instrument, and (b) the alleged infringement of any patent
(including utility models and registered designs), copyrights or other
intellectual property rights relating to the design of the Products (except to
the extent designed by UMM) and any literature supplied by Company for use with
the Instrument.

                  7.05 In the event any UMM Indemnified Party or Company
Indemnified Party seeking indemnification hereunder ("Indemnified Party") should
have a Claim hereunder against Company or UMM, as the case may be, hereto
("Indemnifying Party"), which Claim does not involve a Claim being asserted
against or sought to be collected from such Indemnified Party by a third party,
the Indemnified Party shall as promptly as practical send a notice ("Claim
Notice") with respect to such Claim to the Indemnifying Party. Any failure to
give or delay in giving the Claim Notice will not waive any rights of the
Indemnified Party, except to the extent the rights of the Indemnifying Party are
actually prejudiced by such failure or delay. If the Indemnifying Party does not
notify the Indemnified Party within thirty (30) days of receipt of a Claim
Notice that it disputes a Claim, the amount of such Claim shall be conclusively
deemed a liability of the Indemnifying Party hereunder and shall be paid to the
Indemnified Party immediately. If the Indemnifying Party has timely disputed its
liability with respect to such Claim, the Indemnifying Party and the Indemnified
Party will proceed in good faith to negotiate a resolution of such dispute.

                  7.06 In the event of any Claim by an Indemnified Party
involving a third party, the Indemnified Party shall promptly notify the
Indemnifying Party in writing of said Claim, and, if then determinable, a
reasonable estimate of the amount thereof, which in such party's good faith
opinion, might be sustained in connection with such Claim. In such event, the
Indemnifying

                                       10

<PAGE>

Party shall have the right, exerciseable by giving written notice to the
Indemnified Party within thirty (30) days after the giving of such notice by the
Indemnified Party, to assume and control the contest and defense or settlement
of such Claim, at its own expense, with counsel of its own choice, which counsel
shall be reasonably satisfactory to the Indemnified Party; provided that the
Indemnifying Party will not agree to any settlement without the written consent
of the Indemnified Party (which consent will not be unreasonably withheld)
unless such settlement (i) requires no more than a monetary payment for which
the Indemnifying Party has irrevocably agreed to indemnify such Indemnified
Party hereunder, and (ii) includes a full, unconditional and complete release of
such Indemnified Party.

                  7.07 If the Indemnifying Party agrees to defend such Claim,
the Indemnifying Party will have full control of such defense, including any
settlement thereof (subject to the rights of the Indemnified Party as set forth
in the immediately preceding paragraph), and if requested by the Indemnifying
Party, the Indemnified Party agrees to cooperate fully with the Indemnifying
Party and its attorneys with respect to such contest and defense at the expense
of the Indemnifying Party. The Indemnified Party shall have the right to engage
its own counsel and to participate in, but not control, such defense, but the
Indemnified Party shall be solely responsible for all fees and expenses of its
own counsel.

                  7.08 If the Indemnifying Party does not agree to defend such
Claim or fails to notify the Indemnified Party of its election as herein
provided, the Indemnifying Party agrees to pay the reasonable costs and expenses
of the Indemnified Party, including, without limitation, reasonable attorneys'
and paralegals' fees, interest and penalties incurred in connection with such
contest and defense, monthly, against the receipt of invoices with supporting
documentation and will promptly pay any judgment rendered against or settlement
reached by such Indemnified Party with respect to any such Claim; provided,
however, that the Indemnifying Party will not be liable hereunder for any
settlement made by any Indemnified Party without its prior written consent,
which consent will not be unreasonably withheld. If the Indemnifying Party has
timely disputed its liability with respect to such third party claim, the
Indemnifying Party and the Indemnified Party will proceed in good faith to
negotiate a resolution of such dispute. Failing such resolution, either party
may elect to commence arbitration as set forth in Paragraph 10.08.

                                  ARTICLE VIII

                       TERM, TERMINATION AND CANCELLATION

                  8.01 The term of this Agreement shall begin the date hereof
and unless terminated earlier in accordance with paragraph 8.02 shall continue
for three (3) years from the Date of Market Introduction (the "Initial Term").

                  8.02 After the Initial Term, the term shall automatically be
extended for successive one (1) year periods, provided, however, that this
Agreement may be terminated by UMM or Company upon one hundred and eighty (180)
days prior written notice.

                                       11
<PAGE>

                  8.03 Either UMM or Company may terminate this Agreement for
cause. Cause shall be defined as a material breach or repeated non-material
breaches of this Agreement which are not cured by the breaching party as quickly
as reasonably possible, but in no event longer than sixty (60) days after
receipt of written notice demanding such breaches be cured. Cause shall also
include the following: (a) the failure, cessation, liquidation or dissolution of
the either party's (the "Defaulting Party") business, (b) if the Defaulting
Party makes an assignment for the benefit of creditors, files a petition in
bankruptcy, applies to or petitions any tribunal for the appointment of a
custodian, receiver, intervenor or trustee for such Defaulting Party or a
substantial part of such Defaulting Party's assets; or (c) if the Defaulting
Party shall commence a proceeding under any bankruptcy, rearrangement of debt,
dissolution or liquidation law or statute of any jurisdiction, whether now or
hereafter in effect, or if any such petition or application shall have been
filed or proceeding commenced against the Defaulting Party and the Defaulting
Party shall not have dismissed the same within thirty (30) days, or if such
custodian, receiver, intervenor or trustee shall have been appointed for the
Defaulting Party or such party's properties or assets.

                  8.04 UMM shall have the right from and after the date two (2)
years from the Date of 'Market Introduction (the "Grace Period") to terminate
this Agreement with respect to a Product upon at least one hundred eighty (180)
days prior notice in writing if during a period of two (2) consecutive quarters
after the end of the Grace Period the average number of said Product ordered by
Company during said two (2) quarters period drops below a rate of seventy-five
(75) units per quarter.

                  8.05 Company agrees to pay UMM, at the time of termination, an
amount equal to UMM's standard cost for any and all materials in inventory, or
on order for consumption within the Forecast period that is not cancelable or
returnable, and any restocking fees, that were purchased by UMM to manufacture
Products under this Agreement. UMM agrees to use its best efforts to cancel or
return such materials in order to mitigate the total cost to the Company. UMM's
standard cost shall mean the actual purchase price for a component, plus the
material overhead costs of purchasing, receiving, inspecting and warehousing the
component. Any materials paid for by the Company pursuant to this Section 8.05
will be delivered by UMM to the Company.

                  8.06 Upon termination of this Agreement in accordance with
this Article 8 the DMR and all tooling being used by UMM that has been paid for
by Company shall be transferred to Company; provided that if this Agreement is
terminated by UMM for Cause, the Company first pays UMM any amounts then owing
to UMM under this Agreement. UMM shall provide Company with a listing of such
tooling within sixty (60) days of termination, and Company shall advise UMM
within thirty (30) days of receipt of such listing the disposition of all such
tooling. All costs directly related to the transfer of such tooling shall be
borne by Company.

                                       12
<PAGE>

                                   ARTICLE IX

                                    INSURANCE

                  9.01 During the term of this Agreement, and for a period of
ten (10) years thereafter if on a claims made basis, UMM shall carry and
maintain in force (a) comprehensive general liability insurance with coverage
satisfactory to Company, which is at least of the type usually carried by
prudent developers and manufacturers of products similar to the Product(s) and
which covers risks of the kind customarily insured against by such prudent
developers and manufacturers, (b) products liability insurance in an amount not
less than Ten Million Dollars ($10,000,000) and (c) workers' compensation
insurance as required by law. Upon the execution of this Agreement and at such
other times during its term as Company may request, UMM shall provide Company
with a certificate of insurance evidencing such coverage hereof. The policies
required of UMM pursuant to this Agreement shall provide that they may not be
cancelled or changed without at least thirty (30) days notice to Company from
the company providing such insurance. The insurer utilized by UMM hereunder
shall be an insurance company generally providing insurance of the type required
hereunder and shall be reasonably acceptable to the Company.

                                   ARTICLE X

                               GENERAL PROVISIONS

                  10.01 The rights and obligations of Articles 5 (Confidential
Information), 6 (License for use of the DMR), 7 (Warranties and
Indemnification), 8 (Term, Termination and Cancellation), 9 (Insurance) and 10
(General Provisions) shall survive any termination of this Agreement and shall
bind the parties and their legal representatives, successors and assigns.

                  10.02 Each of the parties hereto shall be excused from the
performance of its obligations hereunder in the event such performance is
prevented by force majeure and such excuse shall continue as long as the
condition constituting such force majeure continues, plus thirty (30) days after
the termination of such condition. For purposes of this Agreement, force majeure
is defined as follows:

                        Causes reasonably beyond the control of UMM or Company,
including, without limitation, regulations, laws or acts of any government,
destruction of production facilities or material by fire, or failure of public
utilities or common carriers or embargo.

                  10.03 Company shall obtain and shall own the necessary
governmental registrations and permits for marketing the Product(s) in the
United States. In the event of export of the Product(s) by Company or its
Affiliates, Company or its Affiliates shall obtain and own the necessary
governmental registrations and permits for marketing Product(s) in locations

                                       13
<PAGE>

outside the United States. In the event of export of the Product(s) by Company
or its Affiliates or subcontract distributors, Company or its Affiliates or
subcontract distributors shall obtain and own the necessary governmental
registrations and permits for marketing Product(s) in locations outside the
United States.

                  10.04 In no event shall either party be liable for any
consequential damages under this Agreement.

                  10.05 Company shall have the right, at its own expense, during
the term of this Agreement and for one (1) year thereafter, to have an
independent public accountant, reasonably acceptable to UMM, examine the
relevant financial books and records of account of UMM during normal business
hours, upon reasonable notice, to determine or verify the amount of any amounts
billed to the Company under Sections 2.04(a), 2.06, 2.07, 3.04, 8.05 or 8.06. If
errors of five percent (5%) or more in Company's favor are discovered as a
result of such examination, UMM shall reimburse Company for the expense of such
examination. As a condition to such examination, the independent public
accountant selected by Company shall execute a written agreement, reasonably
satisfactory in form and substance to UMM, to maintain in confidence all
information obtained during the course of any such examination except for
disclosure to UMM as necessary for the above purpose.

                  10.06 This Agreement and its appendices embody the entire
understanding and agreement among the parties and supersedes all previous
negotiations, representations, writings and agreements, written or oral, with
respect to the development and sale of Product(s).

                  10.07 All notices, demands and communications provided for in
this Agreement shall be in writing and shall be deemed effective by a party upon
hand delivery or when mailed, postage prepaid, by registered or certified mail
or when sent by telecopy, to the other party or its copy designee at the
respective addresses listed below, unless and until such address is changed by
giving written notice thereof in like manner.

                  To Company:
                        Neoprobe Corporation
                        425 Metro Place North, Suite 300
                        Dublin, Oh 43015
                        Attn: President
                        Telecopy No.: (614) 793-7520

To UMM:

                        UMM Electronics Inc.
                        6911 Hillsdale Court
                        Indianapolis, IN  46250
                        Attn:  President
                        Telecopy No.:  (317) 576-5044

                                       14
<PAGE>

                  10.08 This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware not including its choice of
law rules. The invalidity or unenforceability of any provision of this Agreement
shall not affect or limit the validity or enforceability of any other provision
hereof. Both parties agree to use their best efforts in a good faith attempt to
settle as promptly as possible any and all disputes arising from this Agreement
or a transaction conducted pursuant to this Agreement; but failing an amicable
settlement, such dispute shall be finally settled by arbitration pursuant to the
Commercial Arbitration Rules of the American Arbitration Association by a single
arbitrator. The arbitration proceedings shall be held in New York, New York. The
judgment of the arbitrator shall be final and binding on both parties and may be
enforced in any court of competent jurisdiction.

                  10.09 The parties represent and warrant that, upon expiration
of this Agreement, neither party will take any action to impair or diminish the
good will or business of the other party.

                  10.10 No modification, amendment, extension or waiver of this
Agreement or any provision hereof shall be binding or effective unless in
writing and signed by the President or a Vice President of each of the parties.
Furthermore, it is the intention of the parties that this Agreement be
controlling over additional or different terms of any order, confirmation,
invoice or similar document, even if accepted in writing by both parties.

                  10.11 All provisions contained in this Agreement shall extend
to and be binding upon the parties and their respective successors and assigns.
Without the prior written consent of the other party, neither party may assign,
transfer or convey any of its rights, duties or interest under this Agreement,
nor shall it delegate any of the obligations or duties required to be kept or
performed by it hereunder; provided, however, that (a) either party ("Assignor")
may, without such consent, assign this Agreement to (i) any of Assignor's
Affiliates (provided, however, such assignment shall not relieve Assignor of any
of its obligations hereunder) or (ii) a successor in interest of Assignor by
merger or operation of law or (iii) a purchaser of all of Assignor's assets
provided such purchaser shall have agreed in writing to perform all of
Assignor's obligations under this Agreement.

                  10.12 This Agreement may be executed in one or more
counterparts, all of

                                       15
<PAGE>
which taken together shall constitute one and the same instrument.

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

                                  NEOPROBE CORPORATION

                                  By:   /s/ David Bupp
                                      ----------------------------------------
                                      Name:    David Bupp
                                      Title:   President & CEO

                                  UMM ELECTRONICS INC.

                                  By:   /s/ Robert D. Sires
                                      ----------------------------------------
                                       Name:   Robert D. Sires
                                       Title:  President

                                       16
<PAGE>
                                  SCHEDULE 1.12

                                   PRODUCT(S)

     -------------------- ----------------------------------------------------
      NEOPROBE MODEL #    DESCRIPTION

     -------------------- ----------------------------------------------------
            1017          14mm Reusable Gamma Detection Probe

     -------------------- ----------------------------------------------------
            2100          NEO2000(R) Gamma Detection System Console

     -------------------- ----------------------------------------------------
            2100U         NEO2000(R)Gamma Detection System Console Upgrade(1)
     -------------------- ----------------------------------------------------

Notes:

    1.  UMM will provide the capability to upgrade at Company's cost the
        Model 2000 NEO2000(R)to a Model 2100 configuration

                                       17
<PAGE>
                                  SCHEDULE 2.05
                            BILL & HOLD ARRANGEMENTS

Company hereby requests that UMM store Products of the types listed in Schedule
1.11 that have been finished, certified complete, packaged and palletized
subject to the maximum quantities listed herein and paid for by Company. With
respect to Products stored under the terms of this Agreement, Company agrees:
-  to accept title to the Product upon delivery by UMM of the Product into
   storage;
-  upon delivery by UMM of the Product into storage, to accept the risk of
   insuring the Product against casualty loss not caused by negligence on the
   part of UMM; and,
-  acknowledges that from and after the delivery by UMM of Products into
   storage, UMM has no further performance obligations with respect to stored
   Product beyond the standard product warranty as specified in the Agreement.
   Specifically, and not by way of limitation, Company agrees not to hold UMM
   responsible for making any upgrades or modifications to stored product that
   was previously certified based on changes made to Product Specifications in
   the DMR subsequent to the manufacture and certification of such product
   without prior written agreement with UMM to upgrade or modify said units;
   and,

UMM agrees:

-  to store designated Product separately from other incomplete products or
   completed products UMM may choose to manufacture that are in excess of
   Company's purchase commitments;
-  to provide storage facilities that fully comply with storage requirements for
   medical devices as specified in ISO9001/EN46002/ISO13485 and U.S. FDA
   21C.F.R. Section 820;
-  to periodically provide and/or update certain details regarding the facility
   in which the Products to be stored: address, type of building construction
   [i.e., brick, wooden frame, metal siding], fire protection [i.e., sprinkler
   system, proximity to nearest fire department]); and
-  to charge Company at a rate of $965 per quarter, which amount Company agrees
   to pay; and, not to ship Product that has been stored without written
   instruction from an authorized representative of Company.

                                       18
<PAGE>
                                  SCHEDULE 3.01

                                   PRICE LIST

<TABLE>
<CAPTION>
-------------------- --------------------------------------------------------- ------------ -----------------
 NEOPROBE MODEL #    DESCRIPTION                                               ANNUAL QTY        PRICE
-------------------- --------------------------------------------------------- ------------ -----------------
<S>                  <C>                                                           <C>            <C>
       1017          14mm Reusable Gamma Detection Probe                             *              *

-------------------- --------------------------------------------------------- ------------ -----------------
       2100          NEO2000(R)Gamma Detection System Console                        *              *
                                                                                     *              *
-------------------- --------------------------------------------------------- ------------ -----------------
       2100U         NEO2000(R)Gamma Detection System Console Upgrade                             TBD
-------------------- --------------------------------------------------------- ------------ -----------------
</TABLE>

* Portion has been omitted pursuant to a request for confidential treatment and
filed separately with the Commission.

                                       19EXHIBIT 10.1

Portions of this Exhibit have been omitted pursuant to a request for
confidential treatment. The omitted portions, marked by [***], have been
separately filed with the Securities and Exchange Commission.

================================================================================

                     SUBLICENSE AND COLLABORATION AGREEMENT

                                     between

                          DISCOVERY LABORATORIES, INC.

                                       and

                        LABORATORIOS DEL DR. ESTEVE, S.A.

                      Concerning Sinapultide (Lucinactant)

                                 March 6, 2002

================================================================================

                                       1
<PAGE>

                     SUBLICENSE AND COLLABORATION AGREEMENT

            THIS SUBLICENSE AND COLLABORATION AGREEMENT (this "Agreement" or
      "Collaboration Agreement") is made as of March 6, 2002 (the "Effective
      Date"), between DISCOVERY LABORATORIES, INC. ("Licensor"), a Delaware
      corporation, and laboratorios del dr. esteve, s.a., a corporation
      organized and existing under the laws of Spain ("Licensee").

            WHEREAS, Licensor has the exclusive worldwide right, under a license
from Johnson & Johnson, Inc., to sublicense certain technology, including
certain technology relating to synthetic pulmonary surfactant peptides and
proteins, one of which is known as sinapultide;

            WHEREAS, Licensor owns certain technology and patent rights relating
to synthetic pulmonary surfactant formulations;

            WHEREAS, Licensor and Licensee have entered into a Sublicense
Agreement, as amended, and a Supply Agreement dated October 26, 1999, for the
commercialization of Licensed Products (as such term is defined therein) in
Spain, Andorra, Portugal, Greece, Central and South America, with an option for
Italy;

            WHEREAS, Licensor and Licensee desire to replace the aforementioned
agreements by a new Sublicense and Collaboration Agreement and a new Supply
Agreement, in order to extend the collaborative relationship between the parties
and the territories where Licensee shall be entitled to commercialize the
Licensed Products (as such term is hereinafter defined).

            NOW, THEREFORE, in consideration of the promises and the performance
of the covenants herein contained, the parties agree as follows:

                                    ARTICLE 1

                                   DEFINITIONS

            For the purposes of this Agreement, the following terms shall have
the following meanings:

            "Affiliate(s)" of a Person shall mean any Person which directly or
indirectly Controls, is Controlled by or is under common Control with such
Person.

            "Business Day" shall mean any day on which banking institutions are
open or authorized to be open in the Commonwealth of Pennsylvania and in
Barcelona, Spain.

            "Control" shall mean direct or indirect beneficial ownership of at
least fifty percent (50%) of the voting stock of a Person having outstanding
voting securities, or a fifty

                                       2
<PAGE>

percent (50%) or greater interest in the income of a Person not having
outstanding securities, or, in either case, the power to direct or cause the
direction of the management or policies of such Person.

            "Development" shall refer to all activities relating to formulation,
process development, manufacturing scale-up, quality assurance/quality control,
clinical studies and regulatory affairs in connection with a Licensed Product.

            "EMEA" shall mean the European Medicines Evaluation Agency.

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

            "Field" shall mean the use of Licensed Products for the Indication;
provided, however, that Field shall not include the use of a Licensed Product in
any manner whatsoever where its significant purpose in such use is that of a
respiratory drug delivery mechanism.

            "Indication" shall solely mean any use of Licensed Products for the
treatment or prophylaxis of patients suffering or potentially suffering from
acute lung injury or acute respiratory distress syndrome ("ALI/ARDS"), meconium
aspiration syndrome ("MAS") or idiopathic respiratory distress syndrome
("IRDS").

            "Initial Period" shall mean, on a country by country basis, the
period beginning on the Effective Date and ending on that date that is the
latest of the following dates:

      (i)   the expiration of the last Patent Rights containing a Valid Claim
            covering a Licensed Product in such country;

      (ii)  the first commercial sale of the first to appear generic formulation
            of the subject Licensed Product in such country; or

      (iii) the tenth (10th) anniversary of the first commercial sale of a
            Licensed Product in such country.

            "Key Markets" shall mean France, Germany, Italy, Mexico, Spain and
the United Kingdom and any other country of the Licensed Territory in which the
market for Licensed Products shall develop to be comparable in size to any Key
Market country.

            "Licensed Know-how" shall mean all know-how, data, information or
technology arising before or during the course of this Agreement which are
proprietary to the Licensor and/or with respect to which Licensor has the power
and right to grant the licenses provided for herein and which relate to the
development or therapeutic use of Licensed Products.

            "Licensed Methods" shall mean the methods for treating respiratory
distress syndromes that are covered by one or more claims of issued and pending
patents as set forth on Schedule I hereto.

                                       3
<PAGE>

            "Licensee Proprietary Information" shall mean any scientific and
technical information or data developed, possessed or acquired by Licensee
relating to Licensed Products, Patent Rights or Licensed Know-how which Licensee
is free to disclose other than such information that is generally available to
the public.

            "Licensed Products" shall mean any surfactant pharmaceutical
compositions for use in the Field which are formulations of lipids and solely
the polypeptide (lucinactant), whether in suspension for pulmonary instillation
or in aerosol form that have been developed by Licensor or that may be developed
by Licensor during the term of this Agreement (including, but not limited to,
the product that is now known as "Surfaxin"(R)).

            "Licensed Rights" shall mean collectively the Patent Rights, the
Licensed Methods, the Trademarks and the Licensed Know-how.

            "Licensed Territory" shall mean Albania, Andorra, Austria, Belarus,
Benelux (Belgium, Luxembourg and The Netherlands), Bosnia and Herzegovina,
Bulgaria, Croatia, Cyprus, Czech Republic, Estonia, France, Germany, Greece,
Hungary, Ireland, Italy (including the Republic of San Marino and the Vatican
City), Latvia, Liechtenstein, Lithuania, Macedonia, Malta, Moldova, Monaco,
Poland, Portugal, Romania, Scandinavia (Denmark, Finland, Iceland, Norway and
Sweden), Slovak Republic, Slovenia, Spain, Switzerland, The Russian Federation,
Turkey, Ukraine, United Kingdom, Yugoslavia and Latin America (defined as the
countries in the continent of South America and the region generally known as
Central America and including Mexico).

            "Major Indication" shall mean the use of Licensed Products solely
for the treatment of patients suffering from ALI/ARDSor IRDS

            "Marketing Regulatory Approvals" shall mean all permissions and
applications for such permissions from the regulatory and/or governmental health
authorities in the Licensed Territory which are necessary for the importation of
the Licensed Products and their marketing, use, distribution and sale in the
Licensed Territory.

            "NDA" shall mean a New Drug Application or Product License
Application filed with the United States Food and Drug Administration under 21
USC 355(b) (FDCA Section 505(b)) or its equivalent filed with the EMEA or with
any regulatory authority of any country within the Licensed Territory.

            "Original License" shall mean the Sublicense Agreement dated as of
October 28, 1996 between the Original Licensor and Licensor.

            "Original Licensor" shall mean Johnson & Johnson, Inc.

            "Patent Rights" shall mean (i) the patents and patent applications
set forth on Schedule I hereto; (ii) any other patents or patent applications
covering the surfactant pharmaceutical compositions referenced in the patents
and patent applications in Schedule I or their use or administration owned by
Licensor or under which Licensor has the right, at any time

                                       4
<PAGE>

while this Agreement is in effect, to license to Licensee; and (iii) with
respect to the foregoing letters patent and patent applications, all
corresponding national patents and patent applications, Patent Cooperation
Treaty and European Patent Convention filings and applications and filings and
applications under similar administrative international conventions, together
with any divisional, continuation, continuation-in-part, substitution, reissue,
extension, supplementary protection certificate or other application based
thereon. Notwithstanding the foregoing, "Patent Rights" shall not include any
patents or patent applications, filings, or applications under any treaty, or
any divisional, continuation, continuation-in-part, substitution, reissue,
extension, supplementary protection certificate or other application relating in
whole or in part to the use or administration of any of the surfactant
pharmaceutical compositions on Schedule I or any Licensed Product, alone or
together with other active or inactive components, outside the Field.

            "Person" shall mean any natural person, corporation, limited
liability company, unincorporated association, partnership, joint venture or
other entity.

            "Pricing Approvals" shall mean approvals by the regulatory and/or
governmental health authorities in the Licensed Territory granting the prices of
the Licensed Products and reimbursement conditions for the sale thereof.

            "Product Failure" shall mean, with respect to the Licensed Products
or any Replacement Product, the earlier to occur of (i) a determination by the
EMEA that the Licensed Product or such Replacement Product may not be
commercialized for a Major Indication, or that further clinical trials of the
Licensed Products or such Replacement Product should not be conducted for a
Major Indication or (ii) a good faith determination by the Steering Committee
(as defined in Section 5.5) that the continued development of the Licensed
Products or such Replacement Product for a Major Indication is not economically
justifiable or is unlikely to result in the receipt of Marketing Regulatory
Approvals from the EMEA within time frames that will permit Licensor and
Licensee to achieve the anticipated benefits of this Agreement.

            "Replacement Product" shall mean a formulation of lipids with one of
the surfactant peptides or proteins (other than sinapultide) for the Major
Indication that is covered, in whole or in part, by one or more Valid Claim of
the issued patents listed on Schedule I.

            "Scripps Patent Rights" shall mean the Patent Rights identified in
part (a) of Schedule I.

            "Stock Purchase Agreement" shall mean the Common Stock Purchase
Agreement dated as of the date hereof between Licensor, as the seller, and
Licensee, as the purchaser.

            "Trademark" shall mean Surfaxin(R) and such other trademarks owned
by Licensor that are selected by the Development Committee (as defined in
Section 5.6) for use within the Licensed Territory in connection with one or
more Licensed Products.

            "Valid Claim" shall mean a claim of an unexpired patent within the
Patent Rights which has matured into an issued patent or a claim being
prosecuted in a pending application

                                       5
<PAGE>

within the Patent Rights. In each case a claim shall be presumed to be valid
unless and until it has been held to be invalid by a final, unappealable
judgment of a court of competent jurisdiction.

                                    ARTICLE 2
                                      GRANT

            Section 2.1. Grant of License. Licensor hereby grants to Licensee,
and Licensee hereby accepts from Licensor, upon the terms and conditions herein
specified, an exclusive license under the Patent Rights, the Licensed Know-how
and the Trademark, and the right to practice Licensed Methods, solely in
connection with the importation, promotion, distribution, use and sale of
Licensed Products under the Trademark in the Licensed Territory in the Field.
Licensor hereby agrees that it shall not grant any other licenses to exploit the
Licensed Rights or the Licensed Products in the Licensed Territory to any third
party (including, without limitation, its Affiliates) during the term of this
Agreement. The license granted hereunder does not include any right or license
of Licensee to make or have made Licensed Products, all such right and license
being hereby retained by Licensor. The license granted under this Article 2
shall be subject to the terms and conditions of this Agreement and the following
terms:

                  (a) The rights of the Original Licensor of the Scripps Patent
      Rights to use the Scripps Patent Rights for educational and research
      purposes;

                  (b) To the extent applicable, the rights of the United States
      Government pursuant to 35 U.S.C. 202 et seq. and 37 C.F.R. 401.1 et seq.
      which may have arisen or resulted from federal funding of research
      relating to the Scripps Patent Rights, including the non-exclusive right
      of the United States Government to practice the inventions covered by the
      Scripps Patent Rights;

                  (c) The reserved right of Licensor, to use the Licensed Rights
      for research and development purposes and, to the extent permitted by
      Section 6.2, for publication purposes subject to approval by Licensee,
      which approval shall not be unreasonable withheld; and

                  (d) The Standard of Diligence (as such term is set forth in
      Section 5.9).

Licensee shall have no right to sublicense or otherwise share its rights
hereunder with any other Person other than (i) Affiliates of Licensee (provided
that Licensee shall not be relieved of any of its obligations under this
Agreement), as provided for in Section 14.9, and (ii) third parties pursuant to
a sublicense or distribution agreement complying with Section 2.3.

            Section 2.2 No Active Sales Outside Licensed Territory. Licensee
shall neither directly nor indirectly carry out any active sales of or actively
seek customers for the Licensed Products outside the Licensed Territory and it
shall not advertise the Licensed Products or maintain branches for the
distribution of the Licensed Products outside the Licensed Territory.

                                       6
<PAGE>

            Section 2.3. Sublicense Agreements. Licensee shall be entitled to
sublicense its rights and obligations under this Agreement in any country of the
Licensed Territory, provided that (i) any such sublicense agreement shall be
under terms no less stringent than the ones contained in this Agreement
including, without limitation, Licensee's performance requirements set forth in
Section 5.9; (ii) the effect of such sublicense shall not be an assignment of
all of Licensee's rights and a delegation of all of its obligations under this
Agreement; and (iii) Licensee obtains Licensor's prior approval for such
sublicense, which shall not be unreasonably withheld or delayed. Licensee hereby
warrants and represents that any such sublicensee will comply with all
applicable terms of this Agreement and, further, guarantees performance of this
Agreement by any such sublicensee.

            Section 2.4. Consideration for Licensed Products. Licensee shall not
accept as consideration for the sale or transfer of Licensed Products any
consideration other than cash except as consented to by Licensor following
agreement between Licensor and Licensee on the methodology for valuing such
non-cash consideration.

            Section 2.5. Right of First Negotiation on New Products. For a
period of seven (7) years from the Effective Date, subject, however, to prior
termination as hereinafter provided in Article 7, Licensor shall grant to
Licensee an exclusive right of first negotiation to all future products
developed by Licensor (each a "New Product"), solely to the extent to which
Licensor is not legally restricted or prevented from licensing any such rights
within the Licensed Territory, in accordance with the following terms and
conditions:

                  (a) Within sixty (60) days of completion of Licensor's written
      clinical study report(s) for all Phase 2 clinical trials with respect to
      any such product opportunity, Licensor shall present in writing, including
      a copy of the relevant Phase II clinical study final report(s), such
      product opportunity to Licensee together with any additional information
      which, at Licensor's judgment, is reasonably necessary for Licensee to
      evaluate its possible interest in the New Product in a manner that is
      reasonably intended to provide a basis for Licensee's decision as to
      whether to exercise its option hereunder (a "New Product Presentation").
      At Licensee's request, Licensor shall provide Licensee with any additional
      information solely to the extent that such additional information is
      reasonably necessary for Licensee to evaluate its possible interest in the
      New Product.

            (b) Within sixty (60) days from the date of any such New Product
      Presentation, Licensee shall notify Licensor in writing of Licensee's
      intention to enter into negotiations to license the rights to any such
      product. Licensee and Licensor hereby expressly agree that such license or
      any other similar grant of rights in respect thereto shall contain, among
      other customary terms and conditions, the following:

            (i)   up-front cash payment(s) to be paid by Licensee to Licensor in
                  o amounts that are consistent with customary pharmaceutical
                  industry practices and appropriate with reference to the
                  technology value and potential product value of such New
                  Product;

                                       7
<PAGE>

            (ii)  Licensor, Licensee and other sublicensees of the Licensor
                  shall share all future clinical development work and or
                  expenses with respect to any such New Product opportunity, in
                  relation with Phase 3 clinical trials necessary to obtain
                  and/or maintain the Marketing Regulatory Approvals in the
                  Licensed Territory, on a proportional basis using the relevant
                  IMS annual global pharmaceutical data relative to the
                  aggregate pharmaceutical market size of the proposed licensed
                  territory for all pharmaceutical products as the basis of
                  determining the amount of such costs to be borne by each of
                  the parties at the time. Licensee and its sublicensees shall
                  be responsible for the work and costs associated with any and
                  all clinical development activities that is conducted in the
                  Licensed Territory for the New Product that are not necessary
                  to obtain or maintain Marketing Regulatory Approval for any
                  such New Product;

            (iii) payment to Licensor of cash milestones in amounts that are
                  consistent with customary pharmaceutical industry practices
                  and are reflective of the value of such New Product created
                  during the development process and which amounts take into
                  account Licensee's contribution to development of any such
                  value;

            (iv)  Licensee shall be responsible for customary commercialization
                  costs associated with the New Product including, without
                  limitation, sales, marketing, distribution, and safety and
                  medical affairs expenses, in a manner similar to that set
                  forth in this Agreement with respect to Licensed Products; and

            (v)   Licensor shall be responsible for the manufacture of any such
                  New Product. The supply price for the New Product, which shall
                  duly take into account the development expenses and cash
                  milestones paid by Licensee for any such New Product, shall
                  ensure a reasonable profit for Licensee in the light of the
                  prevailing and expected market conditions at that time.

            (c) Should Licensee fail to exercise its option to negotiate in
      accordance with this Section, or should the parties fail to enter into
      definitive agreements within hundred and twenty (120) days of the date of
      Licensee's notice, delivered to Licensor in accordance with Section
      2.5(b), Licensor shall have the right to offer the New Product opportunity
      to any other third party offeree(s) at terms and conditions that are in
      substance no more favorable for such other third party offeree(s) than
      those last offered to Licensee in writing , provided, however, that
      Licensor shall not execute any agreement on the New Product with any such
      third party offeree(s) without previously offering Licensee the right to
      enter into an agreement on substantially similar terms than those
      contained in the final agreement with the relevant third party offeree.

            (d) Should senior executive officers of Licensor become aware of the
      possible interest of any third party to enter into an agreement in
      relation with any New Product prior to completion of all Phase 2 clinical
      trials, then Licensor shall promptly notify

                                       8
<PAGE>

      Licensee of such possible interest of a third party. In such event, and
      notwithstanding Section 2.5(a) hereinabove, Licensor and Licensee agree to
      initiate good faith negotiations with respect of such New Product with a
      view to enter into an agreement for the development and commercialization
      of such New Product prior to the completion of the Phase 2 development for
      that New Product; provided, however, that in any such event the parties
      agree that any negotiations hereunder shall be performed within timeframes
      similar to those as set forth in Section 2.5 and shall encompass terms and
      conditions similar to those set forth in Sections 2.5(b) and (c).

            Section 2.6. Product Failure. In the case of a Product Failure, the
Steering Committee shall seek to identify a single Replacement Product for
development by Licensee and Licensor for such Product Failure. In the event a
Replacement Product has not been identified for development in writing by the
Steering Committee within six (6) months of such Product Failure, or within such
other time-limit that may be agreed by the Chief Executive Officers (or
equivalent position) of Licensor and Licensee, either party shall have, within
thirty (30) days following expiration of such period by written notice to the
other party, the right to terminate this Agreement with respect to such Major
Indication in those countries where the Product Failure has occurred. The
Steering Committee shall prepare a written development plan with respect to each
Replacement Product that has been identified for development by the Steering
Committee as promptly as practicable following its identification, which shall
include provisions for the funding of development with respect to such
Replacement Product by Licensor, Licensee and other Licensor's licensees in
countries outside the Licensed Territory where Licensor or its licensees intend
to commercialize such Replacement Product. In the event the Steering Committee
has not reached agreement upon such development plan, including the funding of
development in connection with the Replacement Product, within ninety (90) days
after identification of a Replacement Product for development hereunder, then
either party shall have the right to terminate this Agreement with respect to
such Major Indication in those countries where a Marketing Regulatory Approval
for such Major Indication has not been obtained, by written notice to the other
within the thirty (30) days following expiration of such ninety (90) day period;
provided, however, that in such event, Licensor shall not enter into any
agreement relating to the development, distribution, marketing and sale of the
same product in the Licensed Territory with a third party on terms which, taken
as a whole, are more favorable to such third party than those last offered to
Licensee in writing by Licensor for such product.

            For the avoidance of doubt, this Section 2.6 shall not limit in any
respect whatsoever Licensee's rights under Section 2.5 and under Section 7.3.

                                       9
<PAGE>

                                    ARTICLE 3

                                   GRANT BACK

            In consideration for Licensor (i) making the Licensed Know-how
(including any improvements thereto and solely to the extent provided for in
Section 2.1) available to Licensee on a continuing basis for the duration of
this Agreement and (ii) procuring, and making available to Licensee the benefit
of, equivalent grants from Licensor's other licensees for the Licensed Products
outside the Licensed Territory, Licensee hereby grants to Licensor and such
other licensees as Licensor may designate a royalty-free, nonexclusive license
outside the Licensed Territory and limited to the Field, with the right to grant
sublicenses, under any and all inventions and Licensee Proprietary Information
(whether patentable or not) hereafter during the term of this Agreement,
developed, possessed or acquired by Licensee related to the Licensed Products,
Patent Rights, Licensed Know-how or Licensed Methods; provided that Licensee is
not legally restricted or prevented from granting such rights in connection with
the relevant invention. Licensee shall provide Licensor with a written enabling
disclosure of each invention (such as a patent application or internal docket
reference) unambiguously identifying it as an invention governed by this Article
3 prior to filing a patent application or taking any other action disclosing or
potentially disclosing the same to third parties.

            Licensee shall promptly disclose all Licensee Proprietary
Information to Licensor and, subject to the execution of confidentiality
undertakings comparable to those set forth in Article 6, to Licensor's other
licensees (and or Affiliates and permitted sublicensees) of Patent Rights
outside the Licensed Territory on a continuing basis during the term of this
Agreement. Licensee hereby grants to Licensor and such licensees a royalty-free
nonexclusive license, with the right to grant sublicenses, to use the Licensee
Proprietary Information outside the Licensed Territory and limited to the Field.
Licensee shall not disclose any such invention and or Licensee Proprietary
Information under circumstances that would reasonably be expected to result in
the loss of the protectible status of any such invention and or Licensee
Proprietary Information without the prior written consent of Licensor, which
consent shall not be unreasonably withheld or delayed.

                                    ARTICLE 4

                                  CONSIDERATION

            Section 4.1. Common Stock Purchase. Within twenty-four (24) hours
after the execution of this Agreement, Licensee shall purchase of a number of
shares of common stock, of the Licensor, par value $.001 per share for an
aggregate purchase price of $4,000,000 and otherwise in accordance with the
terms and conditions as set forth in the Stock Purchase Agreement.

            Section 4.2. License Fee. Upon the execution of this Agreement,
Licensee shall pay to Licensor, as soon as practicable but in no event later
than ten (10) Business Days after receipt of Licensor's invoice, a
non-refundable license fee of $500,000.

                                       10
<PAGE>

            Section 4.3 Supply Agreement. Concurrently with the execution of
this Agreement, Licensor and Licensee shall enter into a supply agreement for
Licensed Products (the "Supply Agreement").

            Section 4.4 Additional Cash Payments Upon EMEA Approval. Licensee
shall pay to Licensor the following cash amounts upon the receipt of the
relevant EMEA Marketing Regulatory Approval, as soon as practicable but in no
event later than ten (10) Business Days after receipt of Licensor's invoice , as
indicated below:

            ---------------------------------------------- ---------------------
                             Indication                            Amount
            ---------------------------------------------- ---------------------
            MAS                                            [***]
            ---------------------------------------------- ---------------------
            IRDS                                           [***]
            ---------------------------------------------- ---------------------
            ARDS /ALI (first to occur)                     [***]
            ---------------------------------------------- ---------------------

            Section 4.5 Manner of Payment. The amounts provided for in Sections
4.2 and 4.4 shall be paid to Licensor in United States Dollars. Any and all
taxes that are levied on license fees accruing under this Agreement in a country
in which provision is made in the law or by regulation for withholding may be
deducted by the payor from such amounts and paid to the proper taxing authority
and evidence of such payment shall be secured and sent to Licensor as promptly
as possible. The parties shall do all such lawful acts and things and sign all
such lawful deeds and documents as either party may reasonably request from the
other party to enable Licensee or Licensor, or their respective Affiliates
and/or sublicensees to take advantage of any applicable legal provision or any
double taxation treaties with the object of paying the sums due to Licensor
hereunder without withholding any tax or as promptly as practicable recovering
any such withheld tax.

                                    ARTICLE 5

                           SCOPE OF THE COLLABORATION

            Section 5.1. Goals of the Collaboration. The parties hereto desire
to collaborate in a strategic relationship with regard to a product Development
and commercialization program with the following goals and in the following
manner:

            (a) the Development and clinical testing of Licensed Products;

            (b) Marketing Regulatory Approval of Licensed Products in the
      Licensed Territory in the Field; and

----------
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.

                                       11
<PAGE>

            (c) the manufacturing by Licensor and the marketing, sale, and
      distribution by Licensee of Licensed Products in the Licensed Territory in
      the Field.

            In performance of the foregoing, Licensor and Licensee agree to
collaborate diligently in the overall strategic relationship and in the
Development and commercialization of Licensed Products in the Licensed Territory
in the Field in accordance with the terms and conditions contained in this
Agreement including, without limitation, the respective roles and
responsibilities of the parties as set forth in this Article 5.

            Section 5.2. Roles and Responsibilities. The principal mechanism by
which the parties contemplate coordinating their respective clinical Development
and sales and marketing activities will be through consensus-based
decision-making through a joint Development Committee established and governed
pursuant to Section 5.6 of this Agreement that shall be under the oversight of a
joint Steering Committee established and governed pursuant to Section 5.5 of
this Agreement, provided, that the parties expressly acknowledge and agree that
the following shall apply:

            (a) Conduct of Clinical Investigations. The Development Committee
      (as such term is defined in Section 5.6) shall be responsible for the
      Development of Licensed Products in the Licensed Territory; provided,
      however, that

      (i)   Licensor shall at its own cost and expense conduct the Phase 3
            clinical trials and other Development activities necessary for
            obtaining and maintaining Marketing Regulatory Approvals for the
            IRDS and MAS indications,

      (ii)  Licensee shall be responsible for paying up to [***] of the costs
            related to the clinical Development activities necessary for
            obtaining Marketing Regulatory Approvals for the ARDS and or ALI
            indications regardless of whether such trials are conducted in or
            outside of the Licensed Territory in part or in whole, it being
            understood that any costs related to the clinical Development
            activities necessary for obtaining Marketing Regulatory Approvals
            for the ARDS and or ALI indications in excess of [***] as well as
            any cost not related to clinical Development activities shall be
            borne by Licensor, and

      (iii) Licensor and Licensee shall co-sponsor all clinical trials conducted
            in the Territory and which are necessary for obtaining and
            maintaining Marketing Regulatory Approvals for the ARDS and or ALI
            indications.

      In the event that Licensor should fail to receive EMEA Marketing
      Regulatory Approval for the IRDS indication by December 31, 2004, Licensee
      shall have the right on sixty (60) days advance written notice to Licensor
      to suspend Licensee's obligation to pay for clinical Development costs
      incurred subsequent to such suspension date related to obtaining Marketing
      Regulatory Approvals for the ARDS and/or ALI indications. Such

----------
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.

                                       12
<PAGE>

      suspension of Licensee's obligation of payment shall not affect the full
      validity and enforceability of the remaining provisions of this Agreement;
      provided, however, that upon the receipt by Licensor of EMEA Marketing
      Regulatory Approval for the IRDS indication should Licensee choose to
      promptly pay to Licensor the cash amount set forth in Section 4.4 of this
      Agreement, Licensee's obligations under Section 5.2(a)(ii) hereinabove
      shall be reinstated without obligation to pay any costs that may have been
      incurred thereunder during such suspension period.

      Licensee shall be responsible for the costs associated with any and all
      clinical activities that are conducted in the Licensed Territory for the
      Indications that are not necessary to obtain or maintain Marketing
      Regulatory Approval for any such Indication. Licensor and Licensee shall
      keep each other fully informed on the progress of all clinical trials of
      Licensed Products and shall promptly provide the other with copies of all
      submissions to regulatory authorities in connection therewith, all
      significant communications received from such regulatory authorities and
      reasonably detailed descriptions (in English) of all meetings with and
      verbal communications with such regulatory authorities which are of
      significance.

      Each of Licensor and Licensee shall use its best efforts to complete all
      clinical trials for which it is responsible within the parameters
      established by the Development Committee (as such term is defined in
      Section 5.6).

            (b) Commercialization Activities. Through the governance mechanism
      of the Steering Committee (as such term is defined in Section 5.6),
      Licensor and Licensee shall actively participate in the strategic
      marketing activities for Licensed Products in the Licensed Territory.
      Without prejudice to Section 2.1 and 2.3, Licensee shall be responsible
      for activities and associated costs and expenses involved in the
      marketing, sales, and distribution of Licensed Products in the Licensed
      Territory including, without limitation, (i) providing country-specific
      marketing resources including, but not limited to, personnel, marketing
      materials and other customary marketing tools and methods; (ii) furnishing
      sufficient sales personnel to adequately detail Licensed Products in the
      Licensed Territory and achieve insertion of Licensed Products into
      hospital formularies; (iii) managing and conducting order taking, storage
      and distribution of Licensed Product in the Licensed Territory; (iv)
      performing country-specific regulatory affairs activities and price and
      reimbursement negotiations during the Regulatory Marketing Approval
      process; and (v) managing local medical affairs and reporting of drug
      safety issues to Licensor and appropriate regulatory authorities.
      Licensee, shall develop a sales and marketing plan, which shall be subject
      to review and approval of the Steering Committee as provided hereunder,
      comprised of individual sales and marketing plans for Key Markets in the
      Licensed Territory (the "Marketing Plan").

            Section 5.3 Submission for Regulatory Approvals. (a) Subject to the
completion of requisite clinical investigations, Licensor shall prepare and
submit to the regulatory authorities in the Licensed Territory applications for
Marketing Regulatory Approvals as soon as practicable and shall use its diligent
efforts to obtain and maintain all Marketing Regulatory Approvals that are
obtained by Licensor for the term of this Agreement, all at the

                                       13
<PAGE>

cost and expense of Licensor, except as may otherwise be provided for in Section
5.2. When filing for Marketing Regulatory Approvals, Licensor shall designate
Licensee or such Licensee's Affiliates or permitted sublicensees designated by
Licensee as its distributors or local representatives for the Licensed Products
in the Licensed Territory. Licensor shall, upon the granting of each Marketing
Regulatory Approval obtained by Licensor, promptly supply Licensee with a copy
of such approval.

            Without prejudice to the foregoing, if in any jurisdiction of the
Licensed Territory it is not legally permissible that Licensor submits a
Marketing Regulatory Approval, Licensee (or, as the case may be, its Affiliates
or sublicensees) shall submit, at Licensee's expense, the application to obtain
the appropriate Marketing Regulatory Approvals in such jurisdiction, and
Licensor and Licensee shall diligently cooperate to obtain the same as
expeditiously as possible. Upon the granting of each such Marketing Regulatory
Approval obtained by Licensee (or, as the case may be, its Affiliates or
sublicensees), Licensee shall promptly supply, or shall cause its Affiliates
and/or sublicensees to promptly supply, Licensor with a copy of such approval.

            (b) Subject to receipt of the Marketing Regulatory Approvals,
      Licensee, where appropriate, shall prepare and submit to the regulatory
      authorities in the Licensed Territory applications for Pricing Approvals
      as soon as practicable and shall use its diligent efforts to obtain and
      maintain all Pricing Approvals that are obtained by Licensee for the term
      of this Agreement, all at the cost and expense of Licensee. Licensee
      shall, upon the granting of each Pricing Approval obtained by Licensee,
      promptly supply Licensor with a copy of such approval.

            Section 5.4 Access of Licensee to Marketing Regulatory Approvals.
Licensor shall, in connection with any Marketing Regulatory Approval obtained by
it in the Licensed Territory, grant Licensee an irrevocable right of access and
reference thereto and shall effect such notifications to regulatory authorities
as shall be reasonably necessary to accomplish the foregoing. To the extent that
the Marketing Regulatory Approval is obtained by Licensee (or as the case may
be, by its Affiliates or sublicensees), Licensee shall maintain, or cause its
Affiliates or sublicensees to maintain, such Marketing Regulatory Approvals at
its cost and expense. Licensor shall assist Licensee in maintaining such
Marketing Regulatory Approvals including supplying to Licensee any information
in connection therewith.

            Section 5.5 Joint Steering Committee. (a) Licensee and Licensor
shall jointly form an oversight committee (the "Steering Committee") that shall
(i) manage the overall strategic relationship and the strategic marketing and
sales activities for Licensed Products in the Licensed Territory, (ii) to review
and approve the pre- and post-launch Marketing Plan as well as any other matters
required for the sales and promotion of Licensed Products in the Licensed
Territory, except to the extent that certain matters are solely the
responsibility of a single party under this Agreement; (iii) to advise, provide
input and determine strategy for future clinical and/or marketing studies; (iv)
have overall responsibility for the success of such matters as established by
this Agreement, and (v) be charged with promptly resolving disputes of the
parties, if any, subject to Section 14.4.

                                       14
<PAGE>

                        (b) The Steering Committee will be comprised of a number
      of Licensor and Licensee representatives, not exceeding three
      representatives of each party unless otherwise mutually agreed, that shall
      be senior executives of such party who shall functionally have
      responsibility for commercialization and/or business development
      activities within their respective organizations. The Steering Committee
      shall be chaired alternatively by a designee of Licensor and by a designee
      of Licensee, with any such designee serving as chairperson for a one year
      period. The initial members of the Steering Committee shall be designated
      by the parties hereto not later than thirty (30) days after the Effective
      Date and the first Chairperson shall be a designee of Licensor. The
      representatives of Licensor shall collectively be entitled to one (1) vote
      and the representatives of Licensee shall collectively be entitled to one
      (1) vote. The Steering Committee shall to the extent practicable seek to
      operate by consensus. In the event of any deadlock or other inability of
      the Steering Committee to reach a determination with respect to any matter
      within the authority of the Steering Committee, the issue shall be
      referred to the respective Chief Executive Officers (or equivalent
      position) of each party who shall use their best endeavors to agree in
      good faith to a resolution of the dispute within thirty (30) days of their
      receipt of notice as to such dispute. If they are unable to resolve the
      dispute within such thirty (30)-day period, it shall be referred to the
      decision of an external expert suitably qualified to resolve such dispute
      which is mutually acceptable to both parties, whose decision shall be
      final. In resolving the dispute, the appointed expert shall take into
      account development and marketing practices and procedures common in the
      pharmaceutical industry and appropriate with reference to the specific
      Indication.

                        Either party may appoint, substitute or replace members
      of the Steering Committee to serve as their representatives upon notice to
      the other party.

            (c) The Steering Committee shall meet within sixty (60) days after
      the Effective Date and thereafter at least every twelve (12) months. The
      location of such meetings shall alternate between Doylestown,
      Pennsylvania, United States and Barcelona, Spain, unless otherwise agreed
      to by Licensor and Licensee. The Steering Committee may also meet by means
      of a telephone or video conference call with the consent of each of
      Licensor and Licensee. Licensee and Licensor shall use reasonable efforts
      to cause their representatives to attend the meetings of the Steering
      Committee. If a representative of either of the parties hereto is unable
      to attend a meeting, such party may designate an alternate to attend such
      meeting in place of the absent representative. In addition, each party
      may, with the consent of the other party, invite consultants or scientific
      advisors to attend meetings of the Steering Committee, subject to
      confidentiality obligations.

            Section 5.6 Joint Development Committee. (a) Licensee and Licensor
shall jointly form a development committee (the "Development Committee") to
oversee the Development of Licensed Products within the Licensed Territory. The
Development Committee shall have functional responsibility for the success of
the matters related to the Development of the Licensed Products in the Licensed
Territory as established by this Agreement, including

                                       15
<PAGE>

without limitation: (i) to determine and oversee the overall strategy for
Development, of Licensed Products in the Licensed Territory, as well as in other
countries; (ii) to plan and coordinate the parties' activities hereunder related
to Development activities of Licensed Products in the Licensed Territory; and
(iii) to facilitate the flow of information among the Parties, including
coordinating Development activities with manufacturing schedules and
distribution.

                        (b) The Development Committee shall be comprised of four
      members, two members to be executives appointed by, and to be
      representatives of, each of Licensee and Licensor. Either party from time
      to time may designate Ad Hoc members (subject to confidentiality
      obligations), as necessary, to address specific issues related to
      Development activities. The Development Committee shall be chaired
      alternatively by a designee of Licensor and a designee of Licensee, with
      any such designee serving as chairperson for a one (1) year period. The
      initial members of the Development Committee shall be designated by the
      parties hereto not later than (thirty) 30 days after the Effective Date.
      Upon resignation by or removal of any member of the Development Committee,
      Licensee or Licensor, as appropriate, shall have the sole right to appoint
      a successor. The representatives of Licensor shall collectively be
      entitled to one (1) vote and the representatives of Licensee shall
      collectively be entitled to one (1) vote. The Development Committee shall
      to the extent practicable seek to operate by consensus. In the event of
      any deadlock or other inability of the Development Committee to reach a
      determination with respect to any matter within the authority of the
      Development Committee, the issue shall be submitted to the Steering
      Committee. In the case the Steering Committee is unable to resolve the
      issue within thirty (30) days, the question shall be referred to the
      respective Chief Executive Officers (or equivalent position) of each party
      who shall use their best endeavours to agree in good faith on a resolution
      of the dispute within thirty (30) days of their receipt of notice as to
      such dispute. If they are unable to resolve the dispute within such thirty
      (30)-day period, it shall be referred to the decision of an external
      expert suitably qualified to resolve such dispute which is mutually
      acceptable to both parties, whose decision shall be final. In resolving
      the dispute, the appointed expert shall take into account clinical
      development practices and procedures common in the pharmaceutical industry
      and appropriate with reference to the specific Indication.

            (c) The Development Committee shall meet within sixty (60) days
      after the Effective Date and thereafter at least every six months. The
      location of such meetings shall alternate between Doylestown,
      Pennsylvania, United States and Barcelona, Spain, unless otherwise agreed
      to by Licensor and Licensee. The Development Committee may also meet by
      means of a telephone or video conference call with the consent of each of
      Licensor and Licensee. Licensee and Licensor shall use reasonable efforts
      to cause their representatives to attend the meetings of the Development
      Committee. If a representative of either of the parties hereto is unable
      to attend a meeting, such party may designate an alternate to attend such
      meeting in place of the absent representative. In addition, each party
      may, with the consent of the other party, invite consultants or scientific
      advisors to attend meetings of the Development Committee, subject to
      confidentiality obligations.

                                       16
<PAGE>

            (d) The Development Committee will report to the Steering Committee
      semi-annually in an appropriately detailed manner and shall provide the
      Steering Committee annually with a written comprehensive report on the
      execution of the clinical development programs contemplated hereunder.

            Section 5.7 Commencement of Marketing. Licensee shall consummate its
first commercial sale of each Licensed Product in each country of the Licensed
Territory within ninety (90) days after official publication of the obtaining of
Pricing Approval (or if Pricing Approval is not applicable, within ninety (90)
days of Marketing Regulatory Approval in such country); provided, however, that
if Licensee has failed to meet such deadlines in any country because of reasons
beyond the control of Licensee, Licensor and Licensee shall discuss in good
faith a new deadline for such country. In the event Licensee does not consummate
a sale within such period, Licensor may notify Licensee of a default under this
Section 5.7 and, in the event such default is not cured within thirty (30) days
from such notice of default, Licensor shall have the right to terminate the
license granted to Licensee hereunder with respect to such Licensed Product in
such country.

            Section 5.8. Post-Authorization Studies. Licensee shall be
responsible for conducting, at its own cost and expense such post-authorization
studies activities as may be useful or necessary for the better knowledge and
use of the Licensed Products in the Licensed Territory provided that the
protocol shall be approved in accordance with Section 5.2(a) in advance of its
commencement. The Development Committee shall monitor and supervise the conduct
thereof. Licensor shall provide Licensed Product for any such clinical trials at
no expense to the Licensee.

            Section 5.9. Standard of Diligence. (a) Licensee shall determine in
good faith, after consultation with Licensor, the annual sales targets for the
Licensed Products applicable in each Key Market. Licensee shall inform Licensor
of the annual sales targets for each country of the Licensed Territory at least
three (3) months prior to the commercial launch of the Licensed Products and
shall update such sales targets on an annual basis.

Should Licensee fail to satisfy 75% of the annual sales targets with respect to
the Licensed Products in a country of the Licensed Territory for two (2)
consecutive years, Licensor shall have the right to terminate the exclusivity
character of the rights granted hereunder with respect to the relevant
country(ies) where such failure has occurred with a prior notice of ninety (90)
days addressed to Licensee; provided, however, that such notice shall be sent,
in order to be valid and enforceable, within sixty (60) days after Licensor
becoming aware of Licensee's failure.

Should Licensee fail to satisfy 50% of the annual sales targets with respect to
the Licensed Products in a country of the Licensed Territory for two (2)
consecutive years, Licensor shall have the right to terminate this Agreement
with respect to the relevant country(ies) where such failure has occurred with a
prior notice of ninety (90) days addressed to Licensee; provided, however, that
such notice shall be sent, in order to be valid and enforceable, within sixty
(60) days after Licensor becoming aware of Licensee's failure.

                                       17
<PAGE>

      For the avoidance of doubt, the annual sales targets referred to in this
      Section 5.9.(a) shall be, for each specific country, the aggregate of the
      sales for all the indications included in the Indication. (b) Licensee
      shall use commercially reasonable efforts to commercialize the Licensed
      Products in the Licensed Territory throughout the term of this Agreement
      in accordance with all applicable legal and regulatory requirements,
      including promoting the Licensed Products by accepted promotional
      practices consistent with those used (i) by Licensee in connection with
      the promotion of its other products and (ii) in the critical care
      pharmaceutical industry generally.

            (c) From and after the date that an new drug application with
      respect to any Licensed Product is filed with the EMEA or the applicable
      regulatory authority in the Licensed Territory, Licensee shall provide
      Licensor regularly with summary reports on its plans for launch of
      Licensed Products in the countries within the Licensed Territory that are
      member countries of the European Union (in the case of the EMEA) and of
      the anticipated commercial potential therefor in such countries.

            Section 5.10. Marketing Plan. Licensee, shall submit to the Steering
Committee the Marketing Plan (as such term is defined in Section 5.2(b)
hereinabove) for the Licensed Products within ninety (90) days prior to the
planned launch date in each of the Key Markets, such Marketing Plan to be
updated by Licensee before the end of each calendar year.

            Section 5.11. Reports; Record-keeping. (a) Licensee shall, as
promptly as practicable, submit written reports to Licensor as follows: (i)
quarterly statements showing the amount of sales of Licensed Products in terms
of units and currency of the Licensed Territory on a country-by-country basis;
and (ii) annual statements by no later than February 28 of each year detailing
the marketing activities carried out by Licensee during the previous calendar
year in the Key Markets.

            (b) Licensor shall maintain complete and accurate records for such
      periods as may be required by applicable law, but in no event less than
      three (3) years, of all Licensed Products sold by it, including
      distribution data.

            Section 5.12. Promotional Material. Licensor shall supply free of
charge Licensee with samples of all training aids and literature used by
Licensor and its Affiliates and distributors and sublicensees thereof for
training their sales representatives and samples of all promotional and sales
material used by Licensor or its Affiliates and distributors and sublicensees
thereof for the Licensed Products.

            Section 5.13. Promotional Claims. All technical and scientific
information and therapeutic claims referred to by Licensee in promotional
advertisements, promotional literature, sales aids, training aids and literature
and the like with respect to each Licensed Product shall be consistent with any
Marketing Regulatory Approval and the information and claims made by Licensor
with respect thereto insofar as the latter are consistent with Marketing
Regulatory Approvals or permitted practices in the Licensed Territory. Licensee
shall not employ any sales practice or display any advertisement which the
Steering Committee determines is detrimental to

                                       18
<PAGE>

Licensor's interests and Licensor shall be entitled to require licensee to
promptly cease any such practice or withdraw any such advertisement.

            Section 5.14. Samples of Licensee's Promotional Material. Licensee
shall supply free of charge Licensor with samples of product labeling, packages
and/or cartons and the like and of all advertisements, promotional literature,
sales aids, training material for salesmen, used by Licensee in connection with
the promotion and sale of the Licensed Products.

            Section 5.15. Adverse Event Reporting. The parties shall establish a
procedure for the handling of adverse events as soon as is practicable after the
Effective Date, which procedure shall be in conformance with all applicable
laws, rules and regulations; provided, however, that Licensor shall be the
central contact for adverse event reporting in the Licensed Territory and in
connection therewith agrees to implement and maintain, at its sole cost and
expense, a central adverse event reporting database for the Licensed Product in
the Licensed Territory. Each party shall advise the other, by telephone or
facsimile, within twenty-four (24) hours after it becomes aware of any serious
adverse event arising in connection with the use of any Licensed Products and
shall include the following information: a description of the patient (which
shall be made in compliance with any applicable data protection regulations),
the Licensed Product, the reporting source and a description of the event and/or
such other information as may be required by the relevant regulatory authorities
in the Licensed Territory at the time the serious adverse event occurs. No later
than five (5) days after its initial report, the party informing of a serious
adverse event shall provide the other with a written report delivered by
confirmed facsimile of any reported serious adverse event stating the full facts
known to it, including but not limited to such information as may be required by
the relevant regulatory authorities in the Licensed Territory at the time the
serious adverse event occurs. The Adverse Event Reporting to the EMEA and other
regulatory agencies shall be made by Licensor, unless this responsibility may be
assumed by Licensee (or as the case may be its Affiliates and/or sublicensees)
pursuant to any applicable law. In any event, Licensor and Licensee shall
promptly provide each other with a copy of any Adverse Event notice that they
may address to any regulatory agency (including, without limitation, the FDA) in
connection with the Licensed Products.

                                    ARTICLE 6

           TRANSFER OF LICENSED KNOW-HOW; CONFIDENTIALITY; PUBLICATION

            Section 6.1. Transfer of Licensed Know-How. Promptly after the
Effective Date and from time to time as it becomes available during the term of
this Agreement, Licensor shall provide Licensee with the Licensed Know-How,
subject, however, to the terms and conditions contained herein including,
without limitation, those set forth in Article 2 of this Agreement.

            Section 6.2. Confidentiality. Any information disclosed by either
party, its Affiliates or permitted licensees to the other party hereunder shall
be safeguarded by the recipient, shall not be disclosed to third parties and
shall be made available only to recipient's

                                       19
<PAGE>

employees, Affiliates, licensees for the Licensed Products, independent
contractors or external counsels who agree to or are bound by equivalent
conditions and who have a need to know the information for the purposes
specified under this Agreement. Subject to the license granted under Article 2,
all confidential information shall remain the property of and shall be
immediately returned to the disclosing party, upon request, after any
termination of this Agreement. These mutual obligations of confidentiality shall
apply during and for a period of ten (10) years after the term of this
Agreement, but such obligations shall not apply to any information that can be
established by competent evidence:

            (a) is or hereafter becomes generally available to the public other
      than by reason of any default with respect to a confidentiality obligation
      under this Agreement; or

            (b) was already known to the recipient as evidenced by prior written
      documents in its possession; or

            (c) is disclosed to the recipient by a third party who is not in
      default of any confidentiality obligation to the disclosing party
      hereunder; or

            (d) is developed by or on behalf of the receiving party, without
      reliance on confidential information received hereunder; or

            (e) is provided to third parties under appropriate terms and
      conditions including confidentiality provisions equivalent to those in
      this Agreement for Development purposes including, without limitation,
      consulting, manufacturing Development, manufacturing, external testing and
      marketing trials with respect to the Licensed Products; or

            (f) is used with the consent of the disclosing party (which consent
      shall not be unreasonably withheld) in applications for patents or
      copyrights under the terms of this Agreement; or

            (g) has been approved in writing for publication by each of the
      parties; or

            (h) is required to be disclosed in compliance with applicable laws
      or regulations in connection with the manufacture or sale of Licensed
      Products; or

            (i) is otherwise required to be disclosed in compliance with
      applicable laws or regulations or order by a court or other regulatory
      body having competent jurisdiction; or

            (j) is product-related information which is reasonably required to
      be disclosed in connection with marketing of Licensed Products.

            Section 6.3. Procedures for Obtaining Permission for Disclosure. In
the event that either party (the "Disclosing Party") desires to publish or
disclose, by written, oral or other presentation, any confidential information
or other information regarding the Licensed Rights,

                                       20
<PAGE>

the Disclosing Party shall notify the other party (the "Nondisclosing Party") in
accordance with Section 14.2 at least sixty (60) days before any written or
other publication or disclosure. The Disclosing Party shall include with such
notice a description of any proposed oral presentation or, in any proposed
written or other disclosure, a current draft of such proposed disclosure or
abstract. The Nondisclosing Party may, no later than thirty (30) days following
the receipt of such notice, notify the Disclosing Party that the Nondisclosing
Party will not consent to such disclosure of confidential information. If the
Disclosing Party does not receive any such objection to the proposed disclosure
of confidential information or other information regarding the Licensed Rights
within such 30-day period, the Disclosing Party shall be free to make such
disclosure in substantially the manner and form proposed at the time notice was
given to the Nondisclosing Party.

                                       21
<PAGE>

                                    ARTICLE 7

                                   TERMINATION

            Section 7.1. Term. Unless otherwise terminated by operation of law
or by acts of the parties in accordance with the provisions of this Agreement,
this Agreement shall be in force from the Effective Date and shall remain in
effect with respect to each Licensed Product in each country of the Licensed
Territory for the duration of the Initial Period. Upon expiry of the Initial
Period with respect to each country in the Licensed Territory, the license
granted under Section 2.1 shall become fully paid up in such country.

            In such case and in relation with each of such countries, the
following shall apply:

            (a) Licensee shall be entitled to continue to market the Licensed
Products in the relevant country under the Trademark and the Marketing
Regulatory Approval;

            (b) Should Licensee decide not to purchase the Licensed Products
from Licensor, Licensee shall pay a running royalty of [***] of the Base
Integrated Price (as such term is defined in the Supply Agreement) per unit of
Licensed Product so purchased and sold under the Trademark in consideration of
the use of the Trademark;

            (c) Should Licensee decide not to purchase the Licensed Products
from Licensor, Licensor shall promptly transfer free of charge the Marketing
Regulatory Approval of the relevant country to Licensee or to the third party
that may be indicated by Licensee, the transfer expenses being borne by
Licensee; provided, however, that the EMEA Marketing Regulatory Approval shall
only be transferred to Licensee upon expiry of the Initial Period in all the
countries of the European Union;

            (d) Should Licensee decide not to purchase the Licensed Products
from Licensor, Licensor shall transfer free of charge to Licensee all such
know-how that is necessary to enable Licensee to manufacture and/or have
manufactured the Licensed Products, and Licensee shall pay a running royalty of
[***] of the Base Integrated Price (as such term is defined in the Supply
Agreement) per unit of Licensed Product manufactured under such know-how, it
being understood that Sections 6.2 and 6.3 hereof shall continue to apply with
respect to the use of such know-how by Licensee or its subcontractors.

            (e) Should Licensee decide to continue purchasing the Licensed
Products from Licensor, Licensor shall maintain the Marketing Regulatory
Approvals in force;

            (f) Licensor shall take all appropriate steps and shall timely and
diligently cooperate with Licensee so as to avoid any possible discontinuation
in the commercialization of the Licensed Products in each country of the
Licensed Territory upon the expiry of the Initial Period; and

----------
Information marked by [***] has been omitted pursuant to a request for
confidential treatment. The omitted portion has been separately filed with the
Securities and Exchange Commission.

                                       22
<PAGE>

            (g) Should Licensee decide not to purchase the Licensed Products
from Licensor, Licensee shall ensure that such purchased products conform with
the Specifications (as such term is defined in the Supply Agreement) and all
relevant regulatory authority requirements.

            Section 7.2. Termination by Breach. Upon any material breach of or
default under this Agreement (including, without limitation, as provided for in
Section 7.2 of the Supply Agreement) by either party, the non-infringing party
may terminate this Agreement upon ninety (90) days written notice to the
infringing party. Said notice shall become effective at the end of said period,
unless during said period the infringing party shall cure such breach or
default.

            In the event that this Agreement is terminated by Licensee pursuant
to Section 7.2 of this Agreement, subsections (a) to (f) of Section 7.1 shall
apply and, in addition, (i) Licensor shall transfer free of charge to Licensee
all such know-how that is necessary to enable Licensee to manufacture and/or
have manufactured the Licensed Products, and (ii) Licensor shall promptly return
and cease to use any Licensee Proprietary Information and any other information
provided by Licensee to Licensor under Article 3 hereinabove.

            Section 7.3. Termination by Licensee. Licensee may terminate this
Agreement hereunder as follows:

            (a) Prior to the date of receipt of first Marketing Regulatory
      Approval, Licensee may terminate this Agreement on sixty (60) days advance
      written notice to Licensor for any reason, whereupon Licensee shall not be
      obligated to make any further payments to Licensor other than those
      payments accruing prior to such termination; and

            (b) After and including the date of receipt of first Marketing
      Regulatory Approval, Licensee may terminate this Agreement upon written
      notice to Licensor of such intention to terminate, provided that (i)
      Licensee hereby agrees that in any such event, in order to minimize
      disruption of the availability of Licensed Product in the Licensed
      Territory, Licensee shall negotiate with Licensor and or Licensor's
      designee mutually agreeable terms and conditions providing for the
      transfer of Licensee's rights and obligations hereunder to Licensor and or
      appropriate third parties and a mutually determined date of termination in
      accordance therewith provided, however, that failing an agreement on the
      date of termination, this Agreement will terminate six (6) months after
      the date of Licensee's termination notice sent under this Section7.3.(b)
      and (ii) Licensee shall not be obligated to make any further payments to
      Licensor other than those payments accruing prior to such termination.

                  Section 7.4. Termination Upon Bankruptcy Event. If (i)
            Licensee files a petition in bankruptcy or for the appointment of a
            receiver or trustee, (ii) Licensee proposes a written agreement of
            composition or extension of its debts or makes an assignment for the
            benefit of its creditors, or (iii) an involuntary petition against
            Licensee is filed in any insolvency proceeding and such petition is
            not dismissed within sixty (60) days after filing, Licensor may
            immediately terminate this Agreement.

                                       23
<PAGE>

            Section 7.5. No Automatic Termination upon Licensor's Bankruptcy. If
(i) Licensor files a petition in bankruptcy or for the appointment of a receiver
or trustee; (ii) Licensor proposes a written agreement of composition or
extension of its debts or makes an assignment for the benefit of its creditors;
or (iii) an involuntary petition against Licensor is filed in any insolvency
proceeding and such petition is not dismissed within sixty (60) days after
filing, Licensee shall have the option, as permitted by applicable law, to
either:

            (a) Immediately terminate this Agreement; or

            (b) Continue to market the Licensed Products under the Licensed
      Know-How, Patent Rights, Marketing Regulatory Approvals and the Trademark,
      in which case the license granted hereunder to Licensee pursuant to
      Section 2.1 shall become a license to "make, have made, import, use, offer
      to sell and sell Licensed Products", provided that such license to make or
      have made Licensed Products shall be nonexclusive and that Licensor shall
      be entitled to a royalty in an amount equal to the sum of (i) any and all
      royalties owed by Licensor to third parties (including without limitation,
      Original Licensor) with respect to sales of Licensed Products and (ii)
      five percent (5%) of such Licensed Product sales. Licensee shall be solely
      responsible for payment of the third party royalty obligations under such
      circumstances; provided, however, that any royalties to be paid under this
      Section 7.5 (b) shall be due only to the extent that Licensee's cost of
      the Licensed Product in finished, packaged and labeled form, quality
      controlled and ready for resale to the ultimate customer plus the
      royalties hereinabove established shall not exceed the Transfer Price
      established in Section 2.2 of the Supply Agreement. In addition the
      parties agree that in such event the intellectual property delivered to
      Licensee shall include all know-how necessary or useful to give Licensee
      the capability of manufacturing the Licensed Products and such know-how
      shall be delivered to Licensee in such a way as to communicate it to
      Licensee promptly, effectively and economically.

            Section 7.6. Termination With Respect to Competitive Activities.
During the term of this Agreement, in the event Licensee acquires marketing
rights in the Licensed Territory for a surfactant product suitable for use in
treating any Indication (including off-label use)(a "Competitive Product"), or
in the event Licensee becomes an Affiliate of a Person whose product line
includes a Competitive Product (an "Affiliation"), Licensee shall notify
Licensor within thirty (30) days of such acquisition or Affiliation and of its
intention to either (a) divest such Competitive Product or Affiliation or (b)
terminate this Agreement and the Supply Agreement. Any such termination shall be
effective sixty (60) days after such notice becomes effective in accordance with
Section 14.2. Alternatively, Licensee may notify Licensor that it intends to
retain such Competitive Product in its portfolio but does not wish to terminate
this Agreement, in which event Licensor can in its sole discretion, within
ninety (90) days after receipt of such notice, advise Licensee of its intent to
terminate this Agreement, provided that (i) Licensee hereby agrees that in any
such event, in order to minimize disruption of the availability of Licensed
Product in the Licensed Territory, Licensee shall negotiate with Licensor and or
Licensor's designee mutually agreeable terms and conditions providing for the
transfer of Licensee's rights and obligations hereunder to Licensor and or
appropriate third parties and (ii) Licensee shall not be obligated to make any
further payments to Licensor other than those

                                       24
<PAGE>

payments accruing prior to such termination (including, without limitation, any
payments owed by Licensee pursuant to Sections 4.4 and 5.2(a)(ii), or pursuant
to Section 7.8.

            Section 7.7. Reversion upon certain Early Termination Cases. Upon
termination of this Agreement for any reason, other than expiry of the Initial
Period (which shall be governed by Section 7.1 hereinabove) or the breach of
this Agreement by Licensor (which shall be governed by Section 7.2 hereinabove),
all rights granted to Licensee hereunder shall revert to Licensor and Licensee
undertakes:

            (a)   to deliver to Licensor all copies of any Licensed Know-how in
                  its possession,

            (b)   not to use the Licensed Know-how as long as it has to be kept
                  confidential under Article 6 hereof;

            (c)   to transfer to Licensor, at Licensor's request, a single copy
                  of all Licensee Proprietary Information and, at Licensor's
                  expense, all health regulatory approvals and regulatory
                  filings relating to Licensed Products in Licensee's
                  possession;

            (d)   to the extent requested by Licensor, to transfer to Licensor
                  or its designee responsibility for and control of ongoing
                  Licensed Products Development work, including control over
                  contracts with third parties for such work, where permissible
                  in accordance with such contracts, in an expeditious and
                  orderly manner with the costs for such work to be assumed by
                  Licensor or its designee as of the date of such transfer; and

            (e)   to the extent requested by Licensor, to transfer to Licensor
                  or its designee all inventory of Licensed Products at a price
                  equal to Licensee's fully amortized standard cost.

            Section 7.8. Survival. Upon any termination of this Agreement,
Articles 3, 6, 9, 10 and 11 and Sections 5.15, 7.1, 7.2, 7.7 and 7.9, shall
survive such termination and continue in force and effect to the extent
necessary to effectuate such provisions.

            Section 7.9. Disposition. Upon termination of this Agreement (other
than by expiration of the Initial Period), subject to Sections 7.4 and 7.6,
Licensee shall have no right under the Patent Rights to import, use or sell
Licensed Products, except that Licensee shall have the right for one hundred
twenty (120) days following termination to dispose of Licensed Products on hand
and complete any existing contracts requiring rights under the Patent Rights
which can be completed within the one hundred twenty (120) days.

                                       25
<PAGE>

                                    ARTICLE 8

                                  INFRINGEMENT

            Section 8.1. Notice. (a) In the event that Licensee believes that
there is an infringement of the Licensed Rights by a third party hereto selling
material quantities of products in the Licensed Territory in competition with
Licensee's sale of Licensed Products hereunder, Licensee shall promptly provide
Licensor with written notice that such infringement is occurring. In the event
that Licensee believes that such infringement is to Licensee's substantial
detriment, Licensee shall provide Licensor with reasonable evidence of the
infringement.

            (b) Licensor shall have the right, at Licensor's sole expense
      (subject to Section 8.5(a)), to bring suit against the infringer for
      infringement of the Licensed Rights. However, if after six (6) months from
      the date of receipt of evidence of infringement from Licensee, Licensor
      has not initiated suit against the infringer, Licensee shall have the
      right, at Licensee's sole expense (subject to Section 8.5(b)), to bring
      such suit provided that the Original Licensor has consented to Licensee
      bringing such suit. Licensor shall make its best efforts to obtain the
      Original Licensor's consent in favor of Licensee.

            Section 8.2. Assistance. In the event either party hereto shall
initiate or carry on legal proceedings to enforce the Licensed Rights against an
alleged infringer, as provided herein, the other party hereto shall render
reasonable assistance to and cooperate with the party initiating or carrying on
such proceedings.

            Section 8.3. Legal Proceedings. In the event that either party shall
institute legal proceedings to enforce the Licensed Rights, it shall have sole
control of such suit and the other party shall be entitled to be represented in
any such suit by counsel of its choosing, at its sole expense.

            Section 8.4. Discontinuance. Neither party hereto shall discontinue
or settle any such proceedings brought by it without obtaining the concurrence
of the other party if such action would impose any obligations on such other
party or affect the exercise of the rights granted hereunder to such other party
(which concurrence shall not be unreasonably withheld).

            Section 8.5. Recoveries. All damages, settlements and awards made or
obtained in connection with any suit or other legal proceeding under this
Article 8 shall be distributed as follows:

            (a) If Licensor initiated the suit and prosecuted it to its
      conclusion, Licensor shall be entitled to retain the balance of any
      damages, settlements and awards, provided that Licensee may elect (within
      thirty (30) days of initiation of such suit) to fund up to twenty-five
      percent (25%) of Licensor's litigation costs and to share in the same
      proportion of net recoveries.

                                       26
<PAGE>

            (b) If the Licensee initiated the suit and prosecuted it to its
      conclusion, Licensee shall be entitled to retain the balance of any
      damages, settlements and awards; provided that Licensor may elect (within
      thirty (30) days of initiation of such suit) to fund up to twenty-five
      percent (25%) of Licensee's litigation costs and to share in the same
      proportion of net recoveries received by Licensee.

                                    ARTICLE 9

                                NON-USE OF NAMES

            Section 9.1. Non-Use. Subject to the licenses expressly granted
hereunder with respect to the Trademark, nothing contained in this Agreement
shall be construed as granting to Licensor or Licensee any right to use in
advertising, publicity, or other promotional activities any name, trade name,
trademark, or other designation of the other (including contraction,
abbreviation or simulation of any of the foregoing) without the prior, written
consent of the other.

            Section 9.2. Relationship. Nothing herein shall be deemed to
establish a relationship of principal and agent between Licensor and Licensee,
nor any of their agents or employees for any purpose whatsoever. This Agreement
shall not be construed as constituting Licensor and Licensee as partners, or as
creating any other form of legal association or arrangement which would impose
liability upon one party for the act or failure to act of the other party.

                                   ARTICLE 10

                         REPRESENTATIONS AND WARRANTIES

            Section 10.1 Representations of Licensor. Licensor represents and
warrants to Licensee that:

            (a) it has the right to grant the license granted and the Right of
      First Negotiation of New Products granted under Sections 2.1. and 2.5,
      respectively, of this Agreement and that it has full power and authority
      to execute, deliver and perform this Agreement, the Supply Agreement and
      the Stock Purchase Agreement and the obligations hereunder and thereunder.

            (b) to Licensor's knowledge, there are no claims or potential claims
      by any third parties (other than the Original Licensor and Scripps) to an
      ownership interest in the Licensed Rights licensed to Licensee under this
      Agreement.

            (c) Licensor has obtained any required third-party consents under
      contracts to which Licensor or any of its Affiliates is a party to
      Licensor's entry into this Agreement,

                                       27
<PAGE>

      the Supply Agreement and the Stock Purchase Agreement and the performance
      of its obligations hereunder and thereunder.

            (d) To Licensor's knowledge, based solely on a review of the records
      of the United States Patent and Trademark Office and the corresponding
      offices in countries other than the United States, the patents listed on
      Schedule I are valid.

            (e) No third party has served on Licensor or any of its Affiliates
      any claim, lawsuit, charge, complaint or other action alleging that the
      Licensed Rights are invalid or unenforceable or that the Licensed Rights
      infringe any patent or other proprietary or property rights of any third
      parties or advised Licensor or any of its Affiliates that it intends to
      pursue any such claim, lawsuit, charge, complaint or other action.
      Licensor has not, prior to the date hereof, entered into any compulsory
      license with a third party with respect to the Patent Rights.

            (f) The rights of the Original Licensor and of any subsequent
      licensor (excluding the Licensor) of the Scripps Patent Rights do not
      prevent the grant of the license made hereunder nor do such rights permit
      any such person to sell (directly or indirectly) or license for sale
      surfactant pharmaceutical preparations based on or embodying the Patent
      Rights in the Licensed Territory or enable such person to demand any
      indemnity, royalty or compensation of whatever nature from Licensee as a
      result of Licensee's sales of Licensed Products in the Licensed Territory
      in accordance with the terms of this Agreement.

            (g) Licensor is not in breach of any of its material obligations
      under the Original License as of the date hereof.

            (h) All of Licensor's employees having access to any confidential
      information with respect to the Licensed Rights are subject to written
      confidentiality obligations with respect to the disclosure of such
      information.

            (i) Prior to the execution of this Agreement it has disclosed to
      Licensee all material information pertaining to the Licensed Products and
      the Patent Rights reasonably relevant to Licensee in order to assess its
      interest in entering into this Agreement, and that no material information
      pertaining to the Licensed Products and the Patent Rights actually known
      to Licensor as of the Effective Date regarding the foregoing has been
      withheld from Licensee by Licensor.

            Section 10.2. Mutual Representation. Each party hereby warrants that
the execution, delivery and performance of this Agreement, the Supply Agreement
and the Stock Purchase Agreement has been duly approved and authorized by all
necessary corporate actions of both parties; does not require any shareholder
approval which has not been obtained or the approval and consent of any trustee
or the holders of any indebtedness of either party; does not contravene any law,
regulation rules or order binding on either party, and does not contravene the
provisions of or constitute a default under any indenture, mortgage contract or
other agreement or instrument to which either party is a signatory.

                                       28
<PAGE>

            Section 10.3. Validity. Subject to the foregoing provisions of this
Article 10, nothing in this Agreement shall be construed as a representation or
a warranty by Licensor that any process practiced or anything imported, used or
sold under any license granted under this Agreement is or will be free from
infringement of patents of third parties.

            Section 10.4. No Consequential Damages. IN NO EVENT WILL EITHER
PARTY BE LIABLE TO THE OTHER FOR ANY INCIDENTAL, SPECIAL OR CONSEQUENTIAL
DAMAGES RESULTING FROM THE PERFORMANCE OF THIS AGREEMENT.

                                   ARTICLE 11

                                 INDEMNIFICATION

            Section 11.1. Indemnification by Licensee. Subject to Section 10.4
and to the extent not covered by Licensor's indemnity under Section 11.2,
Licensee agrees to indemnify and hold harmless Licensor and its Affiliates and
their respective officers, directors, employees and agents from and against any
and all claims, damages and liabilities, including reasonable attorneys fees and
expenses, asserted by third parties, both government and private (collectively,
"Claims"), arising from Licensee's or its Affiliates' or sublicensees' import,
use, offer to sell or sale of Licensed Products pursuant to this Agreement,
including without limitation any claim for breach of warranty, negligence or
strict liability with respect to any Licensed Product. This Section shall apply
to the Supply Agreement. In the event of any contradiction between the Supply
Agreement and any of the terms contained in this Agreement, the terms of this
Agreement shall prevail.

            Section 11.2. Indemnification by Licensor. Subject to Section 10.4,
Licensor agrees to indemnify and hold harmless Licensee, its Affiliates and
sublicensees and their respective officers, directors, employees and agents from
and against any and all Claims arising from (a) any infringement of any patent
or other intellectual property interest in the Licensed Territory by any Person
other than the parties to this Agreement relating to the Licensed Products; (b)
any breach by Licensor of its representations and warranties set forth in this
Agreement; (c) any negligent act or omission of Licensor and (d) any intrinsic
or manufacturing defect of the Licensed Products existing when the Licensed
Products are placed by Licensor in the custody of the carrier for transport to
Licensee. This Section shall apply to the Supply Agreement. In the event of any
contradiction between the Supply Agreement and any of the terms contained in
this Agreement, the terms of this Agreement shall prevail.

            Section 11.3. Insurance. Licensor and Licensee shall maintain during
the term of this Agreement insurance policies covering their respective
obligations under this Article 11, issued by reputable insurance companies under
ordinary terms and conditions in the pharmaceutical industry and will prove the
existence thereof to the other party if so requested.

                                       29
<PAGE>

                                   ARTICLE 12

                        TRADEMARK MATTERS; PATENT MARKING

            Section 12.1. Trademarks Used in Connection With Licensed Products.
(a) Licensed Products shall be marketed under the Trademark. Licensee admits the
validity of the Trademark and agrees that it shall not challenge the same in the
Licensed Territory or elsewhere.

            (b) Licensor shall be responsible, at its own cost and expense, to
      register, maintain and renew registrations of the Trademark in the
      Licensed Territory, to the extent that it is necessary for the purposes of
      obtaining Marketing Regulatory Approval and for the marketing of the
      Licensed Products in the Licensed Territory. Licensee agrees not to take
      any actions (including without limitation effecting any trademark
      registrations) inconsistent with the foregoing and not to register
      anywhere in the world any trademark confusingly similar to Surfaxin(R) or
      any derivative thereof.

            (c) Licensee agrees to take such actions as may be reasonably
      requested by Licensor to assist Licensor to register, maintain or renew
      any Trademark at the sole cost and expense of Licensor.

            Section 12.2. Patent Marking. Licensee shall mark all Licensed
Products made, used, or sold under the terms of this Agreement, or their
containers, in accordance with the applicable patent marking laws.

                                   ARTICLE 13

                       PATENT PROSECUTION AND MAINTENANCE

            Section 13.1. Maintenance of Patent Rights. Licensor has obtained
certain commitments from the Original Licensor of the Scripps Patent Rights and
the patent rights listed in Section (b) of Schedule I (collectively, the "Third
Party Patent Rights") that the Original Licensor will maintain the Third Party
Patent Rights or, in the event that the Original Licensor does not do so, that
Licensor shall be given the right to do so. Licensor undertakes to enforce its
rights with respect to maintenance of the Third Party Patent Rights against the
Original Licensor and, to the extent Licensor succeeds to the maintenance of the
Third Party Patent Rights, to use all commercially reasonable efforts to do so.
Licensor further undertakes to maintain the Patent Rights owned by Licensor as
well as to carry out any and all necessary steps in order to enable such Patent
Rights be enforced and applicable in each country of the Licensed Territory.
Licensor shall provide Licensee with copies of all written materials received by
Licensor from the Original Licensor, the Original Licensor's or Licensor's
counsel, or any governmental agency or instrumentality relating to prosecution
and/or maintenance of Patent Rights and shall afford Licensee the opportunity to
review and comment upon any filings to be made with respect to the Patent Rights
(in the case of the Third Party Patent Rights, to the same extent Licensor is
entitled to do so).

                                       30
<PAGE>

            Section 13.2. Cooperation By Parties. Licensor and Licensee agree to
cooperate in order to avoid loss of any rights which may be available to
Licensor or the Original Licensor under the U.S. Drug Price Competition and
Patent Term Restoration Act of 1984, the Supplementary Certificate of Protection
of Member States of the European Community and other similar measures in any
country. Without limiting the foregoing, Licensee agrees to timely supply
Licensor with all information reasonably requested by Licensor to file or have
filed (or to permit the Original Licensor to file or have filed) an application
for patent term extension within the 60-day period following U.S. NDA approval.
The same shall apply with respect to the approval by health regulatory
authorities in a country of the European Community or approval by the
appropriate authorities in any other country in the Licensed Territory.

                                   ARTICLE 14

                                     GENERAL

            Section 14.1. Entire Agreement. This Agreement, including the
Schedules, Annexes and Exhibits hereto, constitutes the entire agreement and
understanding between the parties as to the subject matter hereof. All prior
negotiations, representations, agreements, contracts, offers and earlier
understandings of whatsoever kind, whether written or oral between Licensor and
Licensee in respect of the subject matter of this Agreement including, without
limitation, the Sublicense Agreement dated October 26, 1999, the Supply
Agreement and the Securities Agreement of even date between Licensee and
Licensor, are superseded by, merged into, extinguished by and completely
expressed by this Agreement. No aspect, part or wording of this Agreement may be
modified except by mutual agreement between the Licensor and Licensee taking the
form of an instrument in writing signed and dated by duly authorized
representatives of both Licensor and Licensee.

            Section 14.2. Notices. Any notice or communication or permitted to
be given by this Agreement shall be given by post-paid, first class, registered
or certified mail or by reputable courier service addressed to:

            In the case of Licensor:  Discovery Laboratories, Inc.
                                      350 South Main Street, Suite 307
                                      Doylestown, Pennsylvania 18901
                                      Attention: Robert J. Capetola, Ph.D.
                                                 Chief Executive Officer

            With a copy to:           Roberts, Sheridan & Kotel
                                      The New York Practice of
                                      Dickstein Shapiro's Corporate &
                                        Finance Group
                                      1177 Avenue of the Americas, 41st Floor
                                      New York, NY 10036-2714
                                      Attn: Ira L. Kotel
                                      Facsimile: (212) 997-9880

                                       31
<PAGE>

            In the case of Licensee:  Laboratorios del Dr. Esteve, S.A.
                                      Av. Mare de Deu de Montserrat, 221
                                      08041 Barcelona (Spain)
                                      Attention:  Development Director
                                      Facsimile: (34) 93 433 00 72

            Such addresses may be altered by notice so given. If no time limit
is specified for a notice required or permitted to be given by this Agreement,
the time limit therefor shall be ten (10) Business Days, not including the day
of mailing. Notice shall be considered made as of the date of deposit with the
appropriate post office or courier service.

            Section 14.3. Governing Law. This Agreement and its effect are
subject and shall be construed and enforced in accordance with the laws of the
State of New York, United States (without giving effect to the principles of
conflict of laws), except as to any issue which depends upon the validity, scope
or enforceability of any patent within the Patent Rights, which issue shall be
determined in accordance with the applicable patent laws of the country of such
patent.

            Section 14.4 Dispute Resolution.

            (a) Internal Review. In the event that a dispute, difference, claim,
      action, demand, request, investigation, controversy, threat, discovery
      request or request for testimony or information or other question arises
      pertaining to any matters which arise under, out of, in connection with,
      or in relation to this Agreement (a "Dispute") and either party so
      requests in writing, prior to the initiation of any formal legal action,
      the Dispute will be submitted to the Chief Executive Officers (or
      equivalent position) of Licensee and Licensor. For all Disputes referred
      to the Chief Executive Officers (or equivalent position), the Chief
      Executive Officers (or equivalent position) shall use their good faith
      efforts to meet in person and to resolve the Dispute within two weeks
      after such referral.

            (b) Arbitration. If, pursuant to Section 14.4(a), within two weeks
            or such other period as may be agreed upon between the parties
            following such reference, the dispute remains unresolved, it shall
            be settled on application by either party by arbitration conducted
            in the English language, in Stockholm (Sweden) in accordance with
            the Rules of Arbitration of the International Chamber of Commerce by
            one or more arbitrators appointed in accordance with the said rules.
            The parties expressly agree to abide the award rendered. This
            provision shall not prevent either party from addressing any
            competent court or tribunal in order to seek for interim measures.

            (c) Costs. The parties shall bear their own costs in preparing for
      and participating in the resolution of any Dispute, and the costs of
      mediator(s) and arbitrator(s) shall be equally divided between the
      parties.

                                       32
<PAGE>

            Section 14.5. Conflicts. Nothing in this Agreement shall be
construed so as to require the commission of any act contrary to law, and
whenever there is any conflict between any provision of this Agreement or
concerning the legal right of the parties to contract and any statute, law,
ordinance or treaty, the latter shall prevail, but in such event the affected
provisions of this Agreement shall be curtailed and limited only to the extent
necessary to bring it within the applicable legal requirements.

            Section 14.6. Registration. Licensee shall take all reasonable and
necessary steps to register this Agreement in any country where such is required
to permit the transfer of funds and/or payment of royalties to Licensor
hereunder or is otherwise required by the government or law of such country to
effectuate or carry out this Agreement. Notwithstanding anything contained
herein, Licensee shall not be relieved of any of its obligations under this
Agreement by any failure to register this Agreement in any country, and,
specifically, Licensee shall not be relieved of its obligation to make any
payment due to Licensor hereunder at Licensor's address specified in Article
14.2 hereof, where such payment is blocked due to any failure to register this
Agreement.

            Section 14.7. Headings. As used in this Agreement, singular includes
the plural and plural includes the singular, wherever so required by the
context. The headings appearing at the beginning of the numbered Articles and
Sections hereof have been inserted for convenience only and do not constitute a
part of this Agreement.

            Section 14.8. Force Majeure. Notwithstanding any other provisions of
this Agreement, neither of the parties hereto shall be liable in damages for any
delay or default in performing hereunder if such delay or default is caused by
conditions beyond its control including but not limited to acts of God,
governmental restrictions, wars, or insurrections, strikes, floods, work
stoppages and/or lack of materials; provided, however, that the party suffering
such delay or default shall notify the other party in writing of the reasons for
the delay or default. If such reasons for delay or default continuously exist
for six (6) months and the parties are unable to reasonably agree upon
alternatives, this Agreement may be terminated by either party.

            Section 14.9. Assignment. Except as otherwise set forth in Sections
2.1 and 2.3 of this Agreement with respect to Licensor's right to grant
sublicenses, neither party hereto may assign or transfer this Agreement or any
rights or obligations hereunder without the prior written consent of the other,
except that a party may make such an assignment without the other party's
consent to Affiliates or to a successor to substantially all of the business of
such party, whether in a merger, sale of stock, sale of assets or other
transaction. Any permitted successor or assignee of rights and/or obligations
hereunder shall, in a writing to the other party, expressly assume performance
of such rights and/or obligations. Any permitted assignment shall be binding on
the successors of the assigning party. Any assignment or attempted assignment by
either party in violation of the terms of this Section 14.9 shall be null and
void and of no legal effect.

            Section 14.10. Successors and Assigns. Subject to Section 14.9, this
Agreement shall be binding upon and inure to the benefit of the permitted
successors or permitted assigns of Licensor and Licensee respectively.

                                       33
<PAGE>

            Section 14.11. Counterparts. This Agreement may be executed in any
number of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one and the same instrument.

            Section 14.12. Announcements. Neither party shall make any public
announcement or press release regarding the content or signature of this
Agreement without the other party's prior written consent other than as may be
required by law or any stock exchange rules. If such public announcement or
press release is required by law or any stock exchange rules the parties shall
use their reasonable endeavors to agree to the text and content thereof prior to
making such public announcement or press release.

              [THE REMAINDER OF THIS PAGE LEFT INTENTIONALLY BLANK]

                                       34
<PAGE>

            IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
and duly executed this Agreement on the date(s) indicated below, to be effective
the day and year first above written.

                                 DISCOVERY LABORATORIES, INC.

                                 By:  /s/ Robert J. Capetola
                                      -----------------------------------------
                                 Name: Robert J Capetola, Ph.D.
                                 Title: President and Chief Executive Officer

                                 LABORATORIOS DEL DR. ESTEVE, S.A.

                                 By:  /s/ Joan Esteve
                                      ------------------------------------------
                                 Name: Mr. Joan Esteve
                                 Title: Vice-President

                                       35

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