Document:

Exhibit 10.2

 

EXECUTION VERSION

 

LETTER AMENDMENT NO. 2

 

to

 

MASTER SHELF AGREEMENT

 

As of June 18, 2004

 

Prudential Investment Management, Inc.

The Prudential Insurance Company of America

Pruco Life Insurance Company

Each of other purchasers of Series C Notes

listed on the Purchaser Schedule

attached hereto (the “Series C
Purchasers”)

c/o Prudential Capital Group

Gateway Center Four

100 Mulberry Street

Newark, New Jersey 08102-4069

 

Ladies and Gentlemen:

 

We refer to the Master Shelf Agreement, dated as of June 3, 2003,
among Crosstex Energy Services, L.P., a Delaware limited partnership (the “Company”),
Prudential Investment Management, Inc. (“Prudential”), The Prudential Insurance
Company of America (“PICA”) and Pruco Life Insurance Company (“Pruco”
and, together with Prudential, PICA and each of the Series C Purchasers, the “Purchasers”),
as amended by Letter Amendment No. 1 dated as of April 1, 2004 (as so
amended, the “Agreement”).  Unless
otherwise defined in this Letter Amendment No. 2 to Master Shelf Agreement
(this “Amendment”),
the terms defined in the Agreement shall be used herein as therein defined.

 

The Company desires that Prudential amend the Agreement to increase the
aggregate amount of Notes that may be issued under the Agreement to $125,000,000,
extend the Issuance Period to June 18, 2007 and provide for the
authorization of the issuance of a series of senior secured notes thereunder as
hereinafter provided.  In addition to
the foregoing, the Company has requested that the Purchasers make certain other
amendments to the Agreement.

 

Subject to the terms and conditions specified herein, the Purchasers
have indicated their willingness to make such amendments, all as more
particularly set forth herein. 
Accordingly, subject to satisfaction of the conditions set forth in
paragraph 12 hereof, and in reliance on the representations and warranties of
the Company set forth in paragraph 11 hereof, the Purchasers hereby agree with
the Company to amend the Agreement as provided in paragraphs 1 through 10 below,
effective in each case as of the Amendment No. 2 Effective Date (as defined in
paragraph 12 below).

 

 

1.                                      Amendment to Cover Page.

 

Cover
Page.  The
cover page of the Agreement is hereby amended by replacing “$50,000,000”
therein with “$125,000,000”.

 

2.                                      Amendment to Paragraph 1. Authorization of Issue of
Notes.

 

Paragraph
1. Authorization of Issue of Notes.  Paragraph 1 of the Agreement is hereby
amended by deleting the first sentence thereof in its entirety and replacing it
with the following:

 

“The Company will authorize the issue of its senior secured promissory
notes (the “Notes”) in the aggregate principal amount of $125,000,000; to
be dated the date of issue thereof; to mature, in the case of each Note so
issued, no more than 10 years after the date of original issuance thereof; to
have an average life, in the case of each note so issued, of no more than 8
years after the date of original issuance thereof; to bear interest on the
unpaid balance thereof from the date thereof at the rate per annum, and to have
such other particular terms, as shall be set forth (a) in the case of each
Series A Note and Series C Note, paragraphs 2H(1)(a) and 2H(1)(b) hereto,
respectively, and (b) in the case of each Note of any other Series of Notes so
issued, in the Confirmation of Acceptance with respect to such Note delivered
pursuant to paragraph 2F; and to be substantially in the form of Exhibit A-1,
Exhibit A-2 or Exhibit A-3, as applicable, attached hereto.”

 

3.                                      Amendments to Paragraph 2.  Purchase and Sale of Notes.

 

(a)                                  Paragraph
2B. Issuance Period. 
Paragraph 2B of the Agreement is hereby amended by deleting clause (i)
thereof in its entirety and replacing it with “(i) June 18, 2007 and”.

 

(b)                                 Paragraph 2H. 
Closing.  Paragraph
2H(1) of the Agreement is hereby renumbered as paragraph 2H(1)(a), and new
paragraph 2H(1)(b) is added to the Agreement, such paragraph 2H(1)(b) to read
as follows:

 

“2H(1)(b).  Series C Closing. 
The Company hereby agrees to sell to each Purchaser identified on the Purchaser
Schedule attached hereto as a Purchaser of the Series C Notes and,
subject to the terms and conditions herein set forth, each such Purchaser
agrees to purchase from the Company under the Facility the 6.96% Senior Secured
Notes, Series C, due June 18, 2014 (the “Series C Notes”) in the
aggregate principal amount set forth opposite its name on the Purchaser
Schedule attached hereto at 100% of such aggregate principal
amount.  The Series C Notes shall be
substantially in the form of Exhibit A-3 attached hereto.  The Company will deliver to Prudential, at
the offices of Schiff Hardin LLP, 6600 Sears Tower, Chicago, Illinois  60606, one or more Series C Notes registered
in the name of such Purchasers, evidencing the aggregate principal amount of
Series C Notes to be purchased by such Purchasers and

 

2

 

in the denomination or denominations specified in the Purchaser
Schedule attached hereto against payment of the purchase price thereof
by transfer of immediately available funds to the credit of the Company’s
account #0880423630 at Union Bank of California, Los Angeles, California (ABA
No. 122000496) on the date of closing, which shall be June 18, 2004, or
any other date upon which the Company and Prudential may mutually agree in
writing (the “Series C Closing”).”

 

(c)                                  Paragraph 2H(2). 
Subsequent Closings. 
Paragraph 2H(2) of the Agreement is hereby amended by replacing “Baker
Botts L.L.P., 2001 Ross Avenue, Dallas, Texas 
75201” with “Schiff Hardin LLP, 6600 Sears Tower, Chicago, Illinois  60606”.

 

(d)                                 Paragraph 2I(2). 
Issuance Fee. 
Paragraph 2I(2) of the Agreement is amended in its entirety to read as
follows:

 

“2I(2).  Issuance Fee. 
The Company will pay to each Purchaser in immediately available funds a
fee (the “Issuance
Fee”) on (i) the Series C Closing in an amount equal to 0.15% of the
aggregate principal amount of the Series C Notes sold to such Purchaser on the
Series C Closing, and (ii) each Closing Day on or after June 18, 2004 in
an amount equal to 0.25% of the aggregate principal amount of Notes sold to
such Purchaser on such Closing Day.

 

(e)                                  Paragraph
2I(5). Renewal Fee. 
Paragraph 2I(5) of the Agreement is hereby deleted in its entirety.

 

4.                                      Amendment
to Paragraph 3B.  Opinion of Purchaser’s
Special Counsel.  Paragraph 3B of
the Note Agreement is amended by replacing “Baker Botts L.L.P.” with “Schiff
Hardin LLP”.

 

5.                                      Amendments
to Paragraph 6.  Negative Covenants.

 

(a)                                  Paragraph 6A(4).  Minimum Tangible Net Worth. 
Paragraph 6A(4) of the Agreement is hereby deleted in its entirety.

 

(b)                                 Paragraph 6C(2).  Debt.

 

(1)                                  Clause (xi) of paragraph 6C(2) of the Agreement
is amended in its entirety to read as follows:

 

“(xi)                          unsecured
Funded Debt of the Company, a Finance Entity and/or any Guarantor, and/or any
unsecured guaranty by the Company or any Guarantor of Funded Debt of the MLP or
any other Affiliate of the Company; provided that (a) the Company is in
compliance with paragraph 6A(3) immediately after giving effect to the
incurrence of any such Funded Debt or guaranty determined based upon the
outstanding amount of Funded Debt of

 

3

 

 

the Company and its Subsidiaries on a Consolidated basis, immediately
after giving effect to such incurrence, EBITDA for the four fiscal quarters
most recently ended on or before the date of such incurrence and the maximum
Leverage Ratio allowed as of the end of the fiscal quarter most recently ended
on or prior to the date of such incurrence (and in the case of any guaranty of
Funded Debt of the MLP or any other Affiliate of the Company, the aggregate
amount of such Funded Debt so guaranteed shall be “Funded Debt” of the Company
for purposes of calculating the Leverage Ratio), (b) such Debt does not impose
any financial or other “maintenance” covenants on the Company or any of the
Subsidiaries that are more onerous than the covenants set forth in this
Agreement, (c) such Debt shall not require any scheduled payment on account of
principal (whether by redemption, purchase, retirement, defeasance, set-off or
otherwise) prior to the latest maturity date of any Note and (d) such Debt
shall contain terms and conditions that are customary for such transactions.”

 

(2)                                  The following new paragraph is added to the end
of paragraph 6C(2) of the Agreement:

 

“Notwithstanding the foregoing, if at any
time any provision of Section 6.02 of the Bank Agreement (other than
clause (j) thereof) is modified, then the Company and the holders of the Notes
agree to execute an amendment to this Agreement, in form reasonably
satisfactory to the Required Holder(s), under which this paragraph 6C(2) is
modified in the same manner in which Section 6.02 of the Bank Agreement
has been modified; provided, however that no holder of a Note
shall be required to execute any such amendment to this Agreement unless the
holders of the Notes have received compensation equivalent (on a proportionate
basis based upon the aggregate outstanding principal amount of the Notes and
the aggregate outstanding principal amount of the Debt outstanding under the
Bank Agreement) to any fees or other compensation paid to any Bank or its agent
with respect to such modification to the Section 6.02 of the Bank
Agreement.”

 

(c)                                  Paragraph 6K.  New
paragraph 6K is added to the Agreement, such paragraph to read as follows:

 

“6K.                       Other Debt.  The Company will not make any optional or
scheduled payments or prepayments on account of principal (whether by
redemption, purchase, retirement, defeasance, set-off or otherwise) in respect
of any unsecured Debt incurred pursuant to paragraph 6C(2)(xi) prior to the
latest maturity date of any Note, other than principal payments not exceeding
$3,000,000 in the aggregate prior to such latest maturity date.  The Company shall

 

4

 

not amend, supplement or otherwise modify the terms of any Debt
incurred under paragraph 6C(2)(xi), if such amendment, supplement or other
modification would not be permitted by the terms of paragraph 6C(2)(xi) without
the prior written consent of the Required Holder(s), which consent will not be
unreasonably withheld.

 

6.                                      Amendment
to Paragraph 8I.  Use of Proceeds.

 

Paragraph 8I of the Agreement is amended to add the following as the
new second sentence thereof:

 

“The proceeds of the Series C Notes will be used to refinance Debt,
make capital expenditures and/or for general corporate purposes.”

 

7.                                      Amendment
to Paragraph 10A.  Yield-Maintenance
Terms.

 

Paragraph 10A is amended by amending the definition of
“Yield-Maintenance Amount” in its entirety to read as follows:

 

“Yield-Maintenance
Amount” means, with respect to any Note, (a) other than with respect
to the Series C Notes, an amount equal to the excess, if any, of the Discounted
Value of the Called Principal of such Note over the sum of (i) such Called
Principal plus (ii) interest accrued thereon as of (including interest due on)
the Settlement Date with respect to such Called Principal and (b) with respect
to the Series C Notes (1) if the Settlement Date with respect to which the
Yield-Maintenance Amount is being determined is on or before June 18,
2007, an amount equal to the excess, if any, of the Discounted Value of the
Called Principal of such Series C Note over the sum of (i) such Called
Principal plus (ii) interest accrued thereon as of (including interest due on)
the Settlement Date with respect to such Called Principal, and (2) if the
Settlement Date with respect to which the Yield-Maintenance Amount is being
determined is after June 18, 2007, the percentage of the Called Principal
of such Series C Note set forth below opposite the Settlement Date:

 

	
  Settlement Date

  	
   

  	
  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  After June 18, 2007 and on or before

  June 18, 2008

  	
   

  	
  3.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  After June 18, 2008 and on or before

  June 18, 2009

  	
   

  	
  3.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  After June 18, 2009 and on or before

  June 18, 2010

  	
   

  	
  2.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  After June 18, 2010 and on or before

  June 18, 2011

  	
   

  	
  2.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  After June 18, 2011 and on or before

  June 18, 2012

  	
   

  	
  1.50

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  After June 18, 2012 and on or before

  June 18, 2013

  	
   

  	
  1.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  
	
  After June 18, 2013

  	
   

  	
  0.00

  	
  %

  

 

5

 

The Yield-Maintenance Amount shall in no event be less than zero.”

 

8.                                      Amendments
to Paragraph 10B. Other Terms.

 

(a)                                  The
definition of “Closing Day” in
paragraph 10B of the Agreement is amended by adding “, with respect to the
Series C Notes, the Series C Closing” immediately after the words “the Series A
Closing”.

 

(b)                                 Paragraph
10B of the Agreement is amended by adding the following definitions thereto in
appropriate alphabetical order:

 

“Collateral Release Date”
shall mean the date upon which each of the following shall have occurred: (i)
the Company shall have obtained a rating of its senior unsecured debt of BBB –
or better from Standard and Poor’s, a division of the McGraw-Hill Company, Baa3
or better from Moody’s Investors Services, Inc., or BBB – or better from Fitch
Ratings, (ii) all of the other Creditors (as defined in the Intercreditor
Agreement) shall have directed the Collateral Agent in writing, in form and
substance reasonably satisfactory to the Required Holder(s), to release all
Liens in the Collateral securing any Obligations (as defined in the
Intercreditor Agreement) and to terminate all Security Agreements, Mortgages,
Pledge Agreements and any other instrument or agreement pursuant to which a
Lien has been created or arose to secure any or all of the Obligations (as
defined in the Intercreditor Agreement), (iii) all parties to the Intercreditor
Agreement shall have executed an amendment to or a restatement of the
Intercreditor Agreement, in form and substance reasonably satisfactory to the
Required Holder(s), amending the Intercreditor Agreement to reflect the
releases and terminations referred to in clause (ii), above, and the
termination of the appointment and authority of the Collateral Agent (except
with respect to distribution of “Specified Payments” (as defined in the
Intercreditor Agreement), (iv) all parties to the Bank Agreement shall have
executed an amendment to the Bank Agreement, in form and substance reasonably
satisfactory to the Required Holder(s), deleting any requirement that the
Company or any Subsidiary grant or maintain any Lien to secure any Obligations
owed thereunder,

 

6

 

changing the definition of “Credit Documents” contained thereto to
delete the reference to “the Security Documents”, and making other changes to
reflect the terminations and releases referred to in clause (ii), above, and
the other amendments referred to in this clause (iv), and (v) no Default or
Event of Default shall have occurred and be continuing.

 

“Series C Closing”
shall have the meaning specified in paragraph 2H(1)(b).

 

“Series C Notes”
shall have the meaning specified in paragraph 2H(1)(b).

 

9.                                      Amendment
to Paragraph 11.  Miscellaneous.  Paragraph 11 of the Agreement is amended
to add new paragraph 11T thereto, such paragraph 11T to read as follows:

 

“11T.  Release of Collateral.  Prudential, each Purchaser and the Company agree that, effective
upon the Collateral Release Date:

 

(i) 
Prudential and each Purchaser will deliver a direction to the Collateral
Agent to release all Liens in the Collateral securing the Obligations (as
defined in the Intercreditor Agreement) and to terminate all Security
Agreements, Mortgages, Pledge Agreements and any other instrument or agreement
pursuant to which a Lien has been created or arose to secure any or all of the
Obligations (as defined in the Intercreditor Agreement);

 

(ii) 
paragraphs 3A(xi), 3A(xii), 3A(xiii), 3J, 3K, 6C(1)(i), and 7A(xv) of
this Agreement shall no longer be effective and shall be deleted from the
Agreement;

 

(iii) 
clause (i) of paragraph 6C(4) of this Agreement shall be amended in its
entirety to read as follows:

 

“(i)                               so long as no Default or
Event of Default has occurred and is continuing or would be caused thereby, the
Company or any Subsidiary may make any Acquisition; provided, however,
that any such Acquisition shall be permitted only if, (a) on or before or
concurrently with the effectiveness of such Acquisition and to the extent
required by the Required Holders, the Company delivers to the Holders (I)
guaranties duly executed by the parties thereto, in form and substance
satisfactory to the Required Holders, and accompanied by UCC searches and title
investigations, (II) such legal opinions in relation to the documents described
in the foregoing subclause (I) as the Required Holders

 

7

 

may reasonably request, and (III) evidence of Company authority to
enter into, and environmental assessments with respect to, such Acquisition,
(b) the Company or such Guarantor is the acquiring or surviving entity, (c) no
Default or Event of Default exists and the Acquisition could not reasonably be
expected to cause a Default or Event of Default, (d) after giving effect to
such Acquisition on a pro forma basis, the Company would have been in
compliance with all of the covenants contained in this Agreement, including,
without limitation, paragraph 6A as of the end of the most recent fiscal
quarter, (e) the acquisition target is in the same or similar line of business
as the Company and its Subsidiaries, (f) the terms of paragraph 6G are
satisfied, and (g) the aggregate amount of cash (including the proceeds of any
Debt permitted to be incurred under clause (xi) of paragraph 6C(2) or otherwise
hereunder), Permitted Investments and the remaining unused portion of the
Revolver A Commitment under the Bank Agreement is sufficient to fund such
Acquisition;”;

 

(iv) 
clause (a) paragraph 8U of the Agreement shall be amended to delete the
words “and Liens in favor of the Collateral Agent” from the second sentence
thereof and clause (b) of paragraph 8U of the Agreement shall be amended to
delete the words “, other than in favor of the Collateral Agent” therefrom;

 

(v)                                 the definition of
“Assigned Agreements” shall be amended and restated in its entirety to read as
follows:

 

“Assigned Agreements”
shall mean all agreements, guaranties, contracts, leases, licenses, contract
rights and rights to payment, including purchase contracts, sales contracts,
transportation contracts, gathering service agreements, gas purchase
agreements, pipeline lease agreements, gas marketing agreements and gas
processing agreements, to which the Company or any Subsidiary is a party.

 

(vi) 
the definition of “Loan Documents” shall be amended to delete the words
“, the Security Documents” therefrom.

 

8

 

10.                               Amendments
to Purchaser Schedule and Exhibits.

 

(a)                                  The
Purchaser Schedule to the Agreement is amended by adding thereto the
Series C Purchaser Schedule in the form attached hereto.

 

(b)                                 The
Exhibits to the Agreement are amended by adding thereto Exhibit A-3 in the form
attached hereto.

 

11.                               Representations
and Warranties.  In order to induce
the Purchasers to enter into this Amendment, the Company hereby represents and
warrants as follows:

 

(a)                                  The execution, delivery and performance by the Company and the Guarantors of this
Amendment, the Agreement, as amended hereby, and each of documents described in
paragraph 12 hereof to which each is a party, and the Loan Documents, as
amended hereby, have in each case been duly authorized by all necessary limited liability company, limited
partnership or other organizational action and do not and will not (i)
contravene the terms of the Company Partnership Agreement or the limited
liability company agreement or certificate of formation (or other
organizational documents) of the General Partner, the Company or any of
their Subsidiaries, (ii) conflict with or
result in any breach or contravention of, or the creation of any Lien under,
any document evidencing any contractual obligation to which the General
Partner, the Company or any of their Subsidiaries is a party and which could subject any holder of
Notes to any liability, (iii) conflict with or result in any breach or
contravention of any order, injunction, writ or decree of any governmental
authority binding on the General Partner, the Company, any of their
Subsidiaries or their respective
properties, or (iv) violate any applicable law binding on or affecting the
General Partner, the Company or any of their Subsidiaries.

 

(b)                                 Each
of the representations and warranties contained in paragraph 8 of the Agreement
is true and correct on and as of the date hereof, and will be true and correct
immediately upon, and as of the date of, the effectiveness of this Amendment in
each case except to the extent that such representations and warranties
specifically refer to an earlier date, in which case they shall be true and
correct as of such earlier date.

 

(c)                                  On
and as of the date hereof, and after giving effect to this Amendment, no
Default or Event of Default exists under the Agreement.

 

(d)                                 No
Governmental Action is required for the due execution, delivery or performance
by the Company or the Guarantors of this Amendment, the Agreement, as amended
hereby, each of the documents described in paragraph 12 hereto to be executed
by the Company or any Guarantor, or any of the Loan Documents, as amended in
connection herewith, to which the Company or any of its Subsidiaries is a
party.

 

(e)                                  This
Amendment, the Agreement, as amended hereby, each of the documents described in
paragraph 12 hereto to be executed by the Company or any Guarantor, and each of
the Loan Documents, as amended in connection herewith, to which the Company or
any Guarantor is a party, constitute legal, valid and binding obligations of
the Company or such Guarantor, as applicable, enforceable against the Company
or such Guarantor, as applicable, in accordance with their respective terms.

 

(f)                                    Each
of the Liens under the Security Documents constitutes (and each of the Liens
under the Security Documents to be delivered in connection with paragraph 5P of
the

 

9

 

Agreement, as amended hereby, will constitute) an Acceptable Security
Interest on the Collateral purported to be encumbered thereby, enforceable
against all third parties in all jurisdictions, securing the payment of all
obligations stated to be secured thereby under such Security Documents, and the
execution, delivery and performance of this Amendment and the Agreement, as
amended hereby, do not adversely affect any Lien under any of the Security
Documents.

 

(g)                                 The
quarterly and annual financial statements most recently delivered to the
Purchasers pursuant to clauses (i) and (ii) of paragraph 5A of the Agreement
fairly present the Consolidated financial condition of the Company and its
Subsidiaries as of the respective dates thereof and the Consolidated results of
the operations of the Company and its Subsidiaries for the respective fiscal
periods ended on such dates, all in accordance with GAAP applied on a
consistent basis (subject to normal year-end audit adjustments and the absence
of footnotes in the case of the quarterly financial statements).  Since December 31, 2003 there has been
no material and adverse change in the business, condition (financial or
otherwise), operations, performance, properties or prospects of the Company or
any of its Subsidiaries.  The Company
and its Subsidiaries have no material contingent liabilities except as
disclosed in such financial statements or the notes thereto.

 

(h)                                 There
is no pending or, to the knowledge of the Company, threatened action or
proceeding affecting the Company or any of its Subsidiaries before any
Governmental Person, referee or arbitrator that could reasonably be expected to
have a Material Adverse Effect.

 

(i)                                     The
Subsidiaries owning pipelines in the State of Louisiana have the power of
eminent domain pursuant to the provisions of R.S. 19:2 of the Louisiana
Statutes.

 

(j)                                     Neither
the Company, the General Partner nor any of their Subsidiaries have paid, or
agreed to pay, any fees or other compensation for or with respect to the
amendment to the Bank Agreement referred to in paragraph 12(vii) hereof except
as expressly set forth in such amendment.

 

12.                               Conditions
to Effectiveness.  This Amendment
shall become effective as of the date (the “Amendment No. 2 Effective Date”)
first above written when and if each of the conditions set forth in this
paragraph 12 shall have been satisfied (or waived in writing by the Required
Holder(s)).

 

(a)                                  Execution
and Delivery of Documents. 
Each Purchaser shall have received the following, each to be dated the
date of execution and delivery thereof unless otherwise indicated, and each to
be in form and substance satisfactory to such Purchaser and executed and
delivered by each of the parties thereto, as applicable:

 

(i)                                     This
Amendment, dated as of the Amendment No. 2 Effective Date.

 

(ii)                                  A certificate of a
Responsible Officer, dated as of the Amendment No. 2 Effective Date, certifying
that (A) the representations and warranties contained in this Amendment and the
Agreement, as amended hereby, are true and correct on and as of the Amendment
No. 2 Effective Date, except to the extent that such representations and
warranties specifically refer to an earlier date, in which case they shall be
true and correct

 

10

 

as of such earlier date, (B) no Event of Default or Default exists as
of the date thereof and (C) all of the conditions specified in this paragraph
12 have been met.

 

(iii)                               An amendment to each
Security Agreement and Pledge Agreement increasing the dollar amount of the
additional Notes that may be issued under the Agreement referred to in the
recitals thereof to $95,000,000.

 

(iv)                              A certificate of the
Secretary or an Assistant Secretary of the General Partner, dated as of the
Amendment No. 2 Effective Date, certifying (A) the existence of the Company and
the General Partner, (B) the Company Partnership Agreement, (C) the General
Partner’s organizational documents, (D) the resolutions of the General Partner
approving this Amendment, the documents to be executed by the Company described
in this paragraph 12 and the related transactions, and (E) all documents
evidencing other necessary corporate, partnership or limited liability company
action and governmental approvals, if any, with respect to this Amendment and
the other documents executed in connection herewith.

 

(v)                                 A certificate of the
Secretary or an Assistant Secretary of the General Partner, dated as of the
Amendment No. 2 Effective Date, certifying the names and true signatures of the
officers of the General Partner authorized to sign this Amendment and the other
documents executed in connection herewith.

 

(vi)                              Certificates of the
Secretary or an Assistant Secretary of each of the Guarantors, dated as of the
Amendment No. 2 Effective Date, certifying (A) the organizational documents of
such Guarantor, (B) the resolutions of the governing body of such Guarantor
approving this Amendment, the documents to be executed by such Guarantor
described in this paragraph 12 and the related transactions, and (C) all other
documents evidencing other necessary corporate, partnership or limited
liability company action and governmental approvals, if any, with respect to
this Amendment and the other documents executed in connection herewith.

 

(vii)                           An executed amendment to the
Bank Agreement deleting Section 6.15 of the Bank Agreement, amending
Section 6.02 of the Bank Agreement in the same manner in which paragraph
6C(2) of the Agreement is being amended under Section 5(b) of this
Amendment and amending the Bank Agreement to permit the issuance of the Series
C Notes, certified by a Responsible Officer as being a true and correct copy of
such amendment as of the Amendment No. 2 Effective Date, and such amendment
shall be in full force and effect.

 

(viii)                        A favorable opinion of Baker
Botts, L.L.P., special counsel to the Company and the Guarantors, and Taylor,
Porter, Brooks & Phillips, LLP, Louisiana counsel to the Company and the
Guarantors, addressed to the Purchasers substantially in the form of Exhibit D
to the Agreement and covering this Amendment, the amendments referred to in
clause (iii) of this paragraph 12 and the Agreement and the Loan Documents, as
amended hereby or as contemplated hereby, and as to such other matters as the
Purchasers may reasonably request.  The
Company and each Guarantor hereby directs such counsel to deliver such
opinions, agrees that the issuance and sale of any

 

11

 

Notes will constitute a reconfirmation of such direction, and
understands and agrees that each Purchaser receiving such an opinion will be
and is hereby authorized to rely on such opinion.

 

(ix)                                Such additional
documents or certificates with respect to such legal matters or limited
liability company, limited partnership or other proceedings related to the
transactions contemplated hereby as may be reasonably requested by such
Purchaser prior to the purchase of the Series C Notes by the Purchasers.

 

(b)                                 [Intentionally Omitted]

 

13.                               Miscellaneous.

 

(a)                                  Effect on
Agreement.  On and after the
Amendment No. 2 Effective Date, each reference in the Agreement to “this
Agreement”, “hereunder”, “hereof”, or words of like import referring to the
Agreement and each reference in the Notes and all other documents executed in
connection with the Agreement to “the Agreement”, “thereunder”, “thereof”, or
words of like import referring to the Agreement shall mean the Agreement as
amended by this Amendment. The Agreement, as amended by this Amendment, is and
shall continue to be in full force and effect and is hereby in all respects
ratified and confirmed.  The execution,
delivery and effectiveness of this Amendment shall not operate as a waiver of
any right, power or remedy under the Agreement nor constitute a waiver of any
provision of the Agreement.  Without
limiting the generality of the foregoing, nothing in this Amendment shall be
deemed (i) to constitute a waiver of compliance or consent to noncompliance by
the Company or any other Person with respect to any term, provision, covenant
or condition of the Agreement or any other Loan Document or (ii) to prejudice
any right or remedy that any holder of Notes may now have or may have in the
future under or in connection with the Agreement or any other Loan Document.

 

(b)                                 Counterparts.  This Amendment may be executed in any number
of counterparts (including those transmitted by facsimile) and by any
combination of the parties hereto in separate counterparts, each of which
counterparts shall be an original and all of which taken together shall
constitute one and the same Amendment. 
Delivery of this Amendment may be made by facsimile transmission of a
duly executed counterpart copy hereof.

 

(c)                                  Expenses.  The Company confirms its agreement, pursuant
to paragraph 11B of the Agreement, to pay promptly all out-of-pocket expenses
of the Purchasers related to the preparation, negotiation, reproduction,
execution and delivery of this Amendment and all matters contemplated hereby
and thereby, including without limitation all fees and out-of-pocket expenses
of the Purchasers’ special counsel.

 

(d)                                 Governing Law. 
THIS AMENDMENT SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH, AND
THE RIGHTS OF THE PARTIES SHALL BE GOVERNED BY, THE LAW OF THE STATE OF NEW
YORK.

 

(e)                                  Affirmation of Obligations.  Notwithstanding that such
consent is not required under the Guaranties, each of the Guarantors consents
to the execution and delivery of this Amendment by the parties hereto,
including, without limitation, the increase in the aggregate

 

12

 

amount of Notes that may be issued under the
Agreement to $125,000,000.  As a
material inducement to the undersigned to amend the Agreement as set forth herein, each of the Guarantors
respectively (i) acknowledges and confirms the continuing existence, validity
and effectiveness of the Guaranty to which it is a party, including, without
limitation, with respect to the Series C Notes and any other Notes that may be
issued as a result of the foregoing increase, and (ii) agrees that the
execution, delivery and performance of this Amendment shall not in any way
release, diminish, impair, reduce or otherwise affect its obligations
thereunder.

 

(f)                                    The Agreement shall inure to the benefit of each
Series C Purchaser as a “Purchaser”
thereunder and each Series C Purchaser agrees to be bound by the provisions of
the Agreement applicable to a “Purchaser”
thereunder.

 

(g)                                 FINAL AGREEMENT.  THIS AMENDMENT, TOGETHER WITH THE AGREEMENT
AND THE OTHER TRANSACTION DOCUMENTS, REPRESENTS THE FINAL AGREEMENT BETWEEN THE
PARTIES AND MAY NOT BE CONTRADICTED BY EVIDENCE OF PRIOR, CONTEMPORANEOUS, OR
SUBSEQUENT ORAL AGREEMENTS OF THE PARTIES. 
THERE ARE NO UNWRITTEN ORAL AGREEMENTS BETWEEN THE PARTIES.

 

{Remainder of this
page blank; signature page follows.}

 

13

 

If you agree to the terms and provisions hereof, please evidence your
agreement by executing and returning at least one counterpart to the Company at
2501 Cedar Springs, Suite 600, Dallas, Texas 85201.

 

	
   

  	
  Very truly yours,

  
	
   

  	
   

  
	
   

  	
  CROSSTEX ENERGY SERVICES, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Crosstex Operating GP, LLC,

  its general partner

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William W. Davis

  	
   

  
	
   

  	
  Name:

  	
  William W. Davis

  
	
   

  	
  Title:

  	
  Executive Vice President and

  Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Agreed to as of the
  Amendment No. 2 Effective  Date:

  

 

 

	
  PRUDENTIAL INVESTMENT MANAGEMENT, INC.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Brian Lemmons

  	
   

  	
   

  
	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  THE PRUDENTIAL INSURANCE COMPANY OF AMERICA

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Brian Lemmons

  	
   

  	
   

  
	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PRUCO LIFE INSURANCE COMPANY

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Brian Lemmons

  	
   

  	
   

  
	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  PRUCO LIFE INSURANCE COMPANY OF

  NEW JERSEY

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Brian Lemmons

  	
   

  	
   

  
	
   

  	
  Vice President

  	
   

  

 

 

	
  GIBRALTAR LIFE INSRUANCE CO., LTD.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Prudential Investment Management (Japan), Inc.,

  	
   

  
	
   

  	
  as Investment Manager

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Prudential Investment Management, Inc.,

  	
   

  
	
   

  	
  as Sub-Adviser

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Brian Lemmons

  	
   

  	
   

  
	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  RGA REINSURANCE COMPANY

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Prudential Private Placement Investors,

  	
   

  
	
   

  	
  L.P. (as Investment Advisor)

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Prudential Private Placement Investors, Inc.

  	
   

  
	
   

  	
  (as its General Partner)

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Brian Lemmons

  	
   

  	
   

  
	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  CONNECTICUT GENERAL LIFE INSURANCE

  COMPANY

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Prudential Investment Management, Inc.,

  	
   

  
	
   

  	
  as Investment Manager

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Brian Lemmons

  	
   

  	
   

  
	
   

  	
  Vice President

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  ZURICH AMERICAN INSURANCE COMPANY

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Prudential Private Placement Investors,

  	
   

  
	
   

  	
  L.P. (as Investment Advisor)

  	
   

  
	
   

  	
   

  
	
  By:

  	
  Prudential Private Placement Investors, Inc.

  	
   

  
	
   

  	
  (as its General Partner)

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Brian Lemmons

  	
   

  	
   

  
	
   

  	
  Vice President

  	
   

  

 

Agreed to and acknowledged by each of the
undersigned for the purposes set forth in paragraphs 12(a)(viii)
and 13(e):

 

 

	
   

  	
  GUARANTORS:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CROSSTEX ENERGY, L.P.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Crosstex Energy GP, L.P.,

  	
   

  
	
   

  	
   

  	
  its general partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  Crosstex Energy GP, LLC,

  	
   

  
	
   

  	
   

  	
  its general partner

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William W. Davis

  	
   

  	
   

  
	
   

  	
  Name:

  	
  William W. Davis

  	
   

  
	
   

  	
  Title:

  	
  Executive Vice President and

  Chief Financial Officer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CROSSTEX CCNG GATHERING LTD.

  	
   

  
	
   

  	
  CROSSTEX CCNG MARKETING LTD.

  	
   

  
	
   

  	
  CROSSTEX CCNG PROCESSING LTD.

  	
   

  
	
   

  	
  CROSSTEX CCNG TRANSMISSION LTD.

  	
   

  
	
   

  	
  CROSSTEX GULF COAST MARKETING LTD.

  	
   

  
	
   

  	
  CROSSTEX GULF COAST TRANSMISSION LTD.

  	
   

  
	
   

  	
  CROSSTEX TREATING SERVICES, L.P.

  	
   

  
	
   

  	
  CROSSTEX ALABAMA GATHERING SYSTEM, L.P.

  	
   

  
	
   

  	
  CROSSTEX MISSISSIPPI INDUSTRIAL

  GAS SALES, L.P.

  	
   

  
	
   

  	
  CROSSTEX MISSISSIPPI PIPELINE, L.P.

  	
   

  
	
   

  	
  CROSSTEX SEMINOLE GAS, L.P.

  	
   

  
	
   

  	
  CROSSTEX ACQUISITION MANAGEMENT, L.P.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  Crosstex Energy Services GP, LLC,

  	
   

  
	
   

  	
   

  	
  general partner of each above limited partnerships

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William W. Davis

  	
   

  	
   

  
	
   

  	
  Name:

  	
  William W. Davis

  	
   

  
	
   

  	
  Title:

  	
  Executive Vice President and

  Chief Financial Officer

  	
   

  
						

 

 

	
   

  	
  CROSSTEX TUSCALOOSA, LLC

  	
   

  
	
   

  	
  CROSSTEX LIG, LLC

  	
   

  
	
   

  	
  CROSSTEX LIG LIQUIDS, LLC

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William W. Davis

  	
   

  	
   

  
	
   

  	
  Name:

  	
  William W. Davis

  	
   

  
	
   

  	
  Title:

  	
  Executive Vice President and

  Chief Financial OfficerExhibit
10.1

 

SEPARATION
AGREEMENT AND FULL RELEASE OF ALL CLAIMS

 

THIS SEPARATION AGREEMENT AND FULL RELEASE OF ALL CLAIMS (hereinafter
the “Agreement”) is entered into as of this 17th day of June, 2004 by and
between NEOPHARM, INC. (the “Company”) and JAMES M. HUSSEY (“Executive”).

 

WITNESSETH

 

A.                                   The
Company and Executive are parties to that certain Employment Agreement (the
“Employment Agreement”) dated as of March 16, 1998.

 

B.                                     Executive
has resigned as an officer and director of the Company and from all related
offices and positions with affiliates of the Company, as set forth in the
letter of resignation attached hereto as Exhibit A for reference.

 

C.                                     Executive
and the Company are terminating their employment relationship effective on the
date of this Agreement, and desire to settle fully and finally all issues
between them that may arise out of or relate to Executive’s employment with the
Company and all other claims the Company or Executive have or may have against
each other through the date of this Agreement.

 

NOW, THEREFORE, in consideration of the recitals, the mutual agreements
contained herein and other good and valuable consideration, the receipt,
adequacy and sufficiency of which is hereby acknowledged, the parties to this
Agreement hereby agree, promise and covenant as to each of the following:

 

1.                                       Capacity to Execute.

 

Each of the parties represents and warrants that he or it is legally
viable and competent to enter into this Agreement, is relying on independent
judgment and has not been influenced, pressured or coerced to any extent
whatsoever in making this Agreement by any representations or statements made
by the Company and/or any person or persons representing the Company, and that
the individuals executing this Agreement on his or its behalf are authorized to
do so. Each of the parties further represents and warrants that he or it has
not sold, assigned, transferred, conveyed or otherwise disposed of all or any
part of the claims released hereunder, whether known or unknown.

 

2.                                       Specific
Consideration Provided to Executive.

 

In exchange for the covenants of Executive hereunder, the future
consulting services to be provided by Executive, and other good and valuable
consideration the receipt of which is hereby acknowledged, and notwithstanding
any provisions to the contrary contained in the Employment Agreement, which
provisions shall be considered to be null and void, Executive shall receive the
following consideration from the Company:

 

(a)                                  The Company shall: (i) provide Executive with salary
continuance, subject to Sections 2(c) and 4 below, for twelve (12) months based
upon his current base salary (the “Salary Continuance”), plus (ii) an amount
equal to 50% of Executive’s target milestone bonus as established by the
Compensation Committee of the Board of Directors (the “Bonus Payment”) for
2004, payable at such time as the Company makes payment to its other employees
of bonus payments from 2004, but only if at such time the Company’s payment
obligations under this Agreement have not been terminated, plus (iii) subject
to Sections 2(b), 2(c) and 4 below, for twelve (12) months from the date of
this Agreement, either continue to provide Executive with coverage under the
Company’s medical insurance plan (“Medical Insurance”) or, in the event Executive
shall not be eligible for such coverage, pay the cost of COBRA coverage for
Executive which shall be substantially equivalent to the Medical Insurance,
plus (iv) pay Executive for any unused vacation time remaining available to him
in 2004, on the basis of his correct base salary, plus (v) subject to
Section 3(b), all of Executive’s previously issued, but currently unvested
options granted pursuant to the Company’s stock option plans, shall continue to
vest in accordance with their current vesting schedules.

 

(b)                                 The benefits set forth in Section 2(a)(iii) above,
which provide for twelve (12) months of Medical Insurance or, alternatively,
COBRA coverage for Executive shall, in addition, include such benefits for
those of Executive’s dependents who are currently included in Executive’s
Medical Insurance coverage and which would be subject to COBRA to the extent
such benefits otherwise are in effect for Executive under the

 

 

Employment Agreement,
understanding, however, that Executive is responsible for complying with all
terms and conditions of any such insurance plan.

 

(c)                                  The Salary Continuance provided in Section 2(a)(i) and
Medical Insurance or COBRA payments provided in Section 2(a)(iii) shall
continue only until such time as Executive shall have accepted another
full-time position or until the first date that Executive provides consulting
or other services to any pharmaceutical or biotechnology entity.  In addition, in the event that Executive
shall perform consulting or other services for any third party, other than a
pharmaceutical or biotechnology entity, for which he shall receive compensation
during the period he is receiving the Salary Continuance, all such compensation
shall be reported to the Company and shall be offset against any remaining
Salary Continuance payments.  Failure of
Executive to promptly report the receipt of any compensation from a third party
or the acceptance of a new position, or the rendering of consulting or other
services to any pharmaceutical/biotechnology entity, shall entitle the Company
to terminate all remaining Salary Continuance, the Bonus Payment, Medical
Insurance or COBRA benefit payments and to seek restitution for any such
payments made to Executive subsequent to such job acceptance or performance of
such pharmaceutical/biotechnology services, or other compensation receipt.

 

(d)                                 Any Salary Continuance payments shall be made in accordance
with the usual payroll practices which were applicable prior to
termination.  Except as otherwise
specifically set forth herein, any and all payments made pursuant to this
Agreement shall be net of any and all applicable federal, state and local
payroll and withholding taxes.

 

(e)                                  The severance obligations of the Company set forth in
paragraphs 2(a), 2(b) and 2(c) herein shall constitute the total payment and
severance obligations under this Agreement, which represent payments and
obligations that Executive would not otherwise be entitled to receive from the
Company. Accordingly, Executive understands and warrants that no amount other
than as set forth in this Section 2 (which supercedes and goes beyond
post-termination benefits otherwise available under the Employment Agreement)
is or shall be due or claimed to be due from the Company and/or from any other
person or entity released in paragraph 5 below with respect to any claim or
claims released in Section 5 below, including, but not limited to, any and
all claims for attorneys’ fees and the costs of litigation that he may have
under any federal, state or local law, common law or in equity; provided,
however, that notwithstanding the foregoing, the Company shall continue to
indemnify Executive in accordance with the Company’s Certificate of
Incorporation and By-laws and Delaware law, including, but not limited to, the
payment or reimbursement of attorneys fees.

 

3.                                       Consulting Services.

 

(a)                                  Effective with Executive’s
termination of employment, and continuing until the earlier of termination of
this Agreement or twenty-four (24) months from the date hereof (the “Consulting
Term”), Executive’s status shall change to that of a consultant to, and not an
employee of, the Company.  During the
Consulting Term, Executive will be reasonably available to NeoPharm personnel
during normal business hours for consultation on matters relating to the
Company’s business operations and strategies, including, but not limited to,
the Company’s development of drugs and nondrugs which are currently being
researched and developed by the Company; provided, however, that such
consultation shall not exceed twenty (20) hours per week.

 

(b)                                 While serving as a
consultant to the Company, Executive’s previously granted options will continue
to vest in accordance with the current vesting schedule applicable to such
options and shall remain exercisable until the date that is ninety (90) days
after the termination of the Consulting Term.

 

4.                                       Restrictive Covenants for Executive.

 

(a)                                  Executive hereby covenants
and agrees with the Company that, in consideration for the payments and other
valuable consideration to be provided to Executive under this Agreement, for a
period (the “Restricted Period”) of twenty-four (24) months from the date of
this Agreement, Executive shall not, without the prior written consent of the
Company, which consent shall be within the sole and exclusive discretion of the
Company, either directly or indirectly, on his own account or as an executive,
consultant, agent, partner,

 

2

 

 joint venturer, owner, officer, director or
shareholder of any other person, firm, corporation, partnership, limited
liability company or other entity:

 

(i)                                     Perform services for any Competing Business, as hereinafter defined, including
specifically, but not limited to, participating in the research, development,
sale or marketing of drug or non-drug products or the management of individuals
involved in the research, development, sale or marketing of drug or non-drug
products.  For purposes of this
covenant, the term “Competing Business” shall mean any entity engaged in the
research, development, marketing or sale of drug and nondrug products which are
or would be competitive in the fields of cancer or liposome technology
with:  (1) those products being marketed
by the Company at the time of Executive’s termination; or (2) those products
that Executive was aware were under research and development by the Company and
expected to be marketed within four years of Executive’s termination.  This covenant shall apply only within the
“Territory” which is defined as the fifty states of the United States.  Executive recognizes and agrees that in his
capacity as President and CEO of the Company, his duties extended throughout
the entire service area of the Company which includes, at a minimum, the fifty
states of the United States and that, because of the executive nature of
Executive’s position with the Company, in order to afford the Company
protection from unfair competition by the Executive following his termination
of employment, this covenant must extend throughout the stated Territory.  Executive further acknowledges that this
covenant does not prohibit him from engaging in his entire trade or business
but only a very limited segment of the pharmaceuticals industry; or

 

(ii)                                  Solicit any current
employee, supplier, customer, or client of the Company with whom Executive
dealt, or with whom anyone in Executive’s direct chain of command dealt, on
behalf of the Company within the year preceding Executive’s termination of
employment, for the purpose of researching, developing or purchasing, selling
or marketing drug or non-drug products, which are or would be competitive in
the fields of cancer or liposome technology with:  (1) those products being marketed by the Company at the time of
Executive’s termination; or (2) those products that Executive was aware were
under development by the Company and expected to be marketed within four years
of Executive’s termination;

 

Executive acknowledges and agrees that breach by Executive of the
provisions of this Section 4(a) shall entitle the Company, at its option,
to terminate this Agreement, including, but not limited to, termination of the
remaining payments, if any, to be made to Executive under Section 2
hereof.

 

(b)                                 Executive acknowledges that
all ideas, inventions, trademarks, and other developments or improvements
conceived or developed by the Executive, alone or with others, during the term
of his employment with the Company or during the Restricted Period, whether or
not during working hours, that are within the scope of the Company’s business
operations, or that relate to any Company work or projects, are conclusively
presumed to have been created for or on behalf of the Company as part of the
Executive’s services to the Company (“Developments”).  Such Developments are the exclusive property of the Company
without the payment of consideration therefore, and the Executive hereby
transfers, assigns and conveys all of the Executive’s right, title and interest
in any such Developments to the Company and agrees to execute and deliver any
documents that the Company deems necessary to effect such transfer on the
demand of the Company.  The Executive
agrees to assist the Company, at its expense, to obtain patents on any such
patentable Developments, and agrees to execute all documents necessary to
obtain such patents in the name of the Company.  This Agreement does not apply to any invention for which no
equipment, supplies, facility or trade secret information of the Company was
used and which was developed entirely on the Executive’s own time unless:  (1) the invention relates (a) to the
business of the Company or (b) to the Company’s actual demonstratively
anticipated research and development, or (2) the invention results from any
work performed by the Executive for the Company.

 

(c)                                  Executive recognizes and
understands that Executive’s duties at the Company while in its employ or
during the Restricted Period, may have included, or may include, the
preparation of materials, including written or graphic materials and other
Developments, and that any such materials conceived or

 

3

 

written by Executive are deemed to be “work made for hire” as defined
and used in the Federal Copyright Act, 17 U.S.C. § 101.  In the event of publication of such
materials, Executive understands that since such work is “work made for hire,”
the Company shall solely retain and own all rights in such materials, including
any right of copyright.

 

5.                                       Mutual Release of Claims.

 

(a)                                  In consideration of the payments provided for in paragraph 2
above, and other good and valuable consideration, the receipt, adequacy, and
sufficiency of which is hereby acknowledged, Executive and his heirs,
executors, administrators, agents, assigns, receivers, attorneys, servants,
legal representatives, predecessors and successors in interest, regardless of
form, trustees in bankruptcy or otherwise, wards, and any other representative
or entity acting on his or their behalf, pursuant to, or by virtue of the
rights of any of them, do hereby now and forever unconditionally release,
discharge, acquit and hold harmless the Company and any parent, subsidiary or
related companies, and any and all of their officers, directors, employees,
agents, administrators, assigns, receivers, attorneys, servants, legal representatives,
affiliates, insurers, predecessors and successors in interest, regardless of
form, trustees in bankruptcy or otherwise, insurance benefit plans, and any
other representative or entity acting on its or their behalf (collectively, the
“Released Parties”), from any and all claims, rights, demands, actions, suits,
damages, losses, expenses, liabilities, indebtedness, and causes of action, of
whatever kind or nature related to the Company that existed from the beginning
of time through the date of execution of this Agreement, regardless of whether
known or unknown, and regardless of whether asserted by Executive to date,
including, but not limited to, all claims for or relating to assault, battery,
negligence, negligent hiring, negligent retention, negligent supervision,
negligent training, negligent or intentional infliction of emotional distress,
false imprisonment, defamation (whether libel or slander), personal injury,
bodily injury, bad faith, pain and suffering, medical expenses, wage and hour,
lost income and earnings (including, but not limited to, back pay, front pay
and any other form of present or future income, benefits and/or earnings),
equitable reinstatement, breach of any express or implied contract, breach of
the covenant of good faith and fair dealing, workers’ compensation, wrongful
termination, wrongful demotion, wrongful failure to promote, wrongful
deprivation of a career opportunity, discrimination (including disparate
treatment and disparate impact), hostile work environment, quid pro quo sexual
harassment, retaliation, any request to submit to a drug or polygraph test,
and/or whistleblowing, whether said claim(s) are brought pursuant to Title VII
of the Civil Rights Act of 1964, the Civil Rights Act of 1991,42 U.S.C.
§ 1981, the Executive Retirement Income Security Act, the Equal Pay Act,
the Pregnancy Discrimination Act, the Fair Labor Standards Act, the Age
Discrimination in Employment Act, the Americans with Disabilities Act, the
Family and Medical Leave Act or any other constitutional, federal, regulatory,
state or local law, or under the common law or in equity.

 

Executive further understands and warrants that this Agreement shall
operate as a fully binding and complete resolution of all claims as to the
parties to this Agreement and all parties represented by or claiming through
such parties, and that he shall not be able to seek any monies for any claim
related to the Company, whether known or unknown, against any of the persons or
entities released hereunder other than as provided in paragraphs 2 and 8 of
this Agreement.

 

(b)                                 The Company does hereby now and forever unconditionally
release, discharge, acquit and hold harmless Executive from any and all claims,
rights, demands, actions, suits, damages, losses, expenses, liabilities,
indebtedness, and causes of actions, of whatever kind or nature that existed
from the beginning of time through the date of execution of this Agreement,
regardless of whether known or unknown, and regardless of whether asserted by
the Company to date, except for any criminal acts or fraudulent acts or
omissions of Executive.

 

6.                                       Mutual Covenant Not-to-Sue.

 

(a)                                  Executive covenants and
agrees not to file or initiate a lawsuit against any of the Released Parties in
regard to any claims, demands, causes of action, suits, damages, losses and
expenses, arising from acts or omissions of the Company occurring on or before
the date of execution of this Agreement, and Executive will ask no other person
or entity to initiate such a lawsuit on his behalf. If Executive breaches this
covenant and agreement, Executive must immediately repay and refund to the
Company all payments he

 

4

 

received pursuant to paragraph 2 above, and Executive shall also
indemnify and hold harmless the Company, any of the Released Parties, and any
of their officers, owners, directors, executives and agents from any and all
costs incurred by any and all of them, including their reasonable attorneys’
fees, in defending against any such lawsuit.

 

(b)                                 The Company covenants and
agrees not to file or initiate a lawsuit against Executive in regard to any
claims, demands, causes of action, suits, damages, losses and expenses, arising
from acts or omissions (except for any criminal act or fraudulent acts or
omissions) of Executive occurring on or before the date of execution of this
Agreement, and the Company will ask no other person or entity to initiate such
a lawsuit on its behalf.

 

7.                                       No Proceedings Initiated.

 

Executive represents and warrants that neither he nor anyone acting on
his behalf has filed or initiated any charge or claim against the Company in
any administrative or judicial proceeding.

 

8.                                       Covenants of the Parties.

 

(a)                                  Executive ratifies and confirms the confidentiality provisions
of Section 9 of the Employment Agreement and acknowledges that such
covenants and agreement survive the termination of employment of Executive with
the Company and remain in full force and effect in accordance with their terms.

 

(b)                                 Executive agrees that he shall not disparage the Company or its officers,
directors, employees, agents, representatives or its products or products in
development, or otherwise seek to reduce the goodwill of the Company or the
reputation of the Company or its officers, directors, employees, agents, or
representatives. The Company, on behalf of its directors and executive
officers, agrees not to disparage Executive or to act in any way to diminish
Executive’s reputation.

 

(c)                                  Upon execution of this Agreement, Executive shall deliver to the Company
possession of any and all property owned or leased by the Company which may
then be in Executive’s possession or under his control, including, without
limitation, any and all such keys, credit cards, automobiles, equipment,
supplies, books, records, files, computer equipment, computer software and
other such tangible and intangible property of any description whatsoever.  If, following the date of this Agreement,
Executive shall receive any mail, including, but not limited to, electronic mail,
addressed to the Company or to the Executive as an officer of the Company,
Executive shall immediately deliver, or forward, such mail, unopened, and in
its original envelope or package, to the Company;

 

9.                                       No Voluntary Assistance.

 

Executive hereby covenants and agrees that, except under compulsion of
law, he will not voluntarily assist, support, or cooperate with, directly or
indirectly, any entity or person alleging or pursuing any claim, administrative
charge, or cause of action against the Company, including without limitation,
by providing testimony or other information, audio or video recordings, or
documents.  If compelled to testify,
nothing contained herein shall in any way inhibit or interfere with Executive
providing completely truthful testimony or producing documents.  In addition, and notwithstanding anything
elsewhere appearing in this Agreement, nothing herein shall prevent or hinder
Executive’s full cooperation with any investigation or other proceeding by any
federal, state or local governmental agency, including, but not limited to, the
ongoing investigation by the U.S. Securities and Exchange Commission.

 

10.                                 No Admission of Liability.

 

The parties agree and acknowledge that this Agreement is a full and
complete compromise of the matters released herein between the parties hereto;
that neither the releases nor the negotiations for this Agreement and the
settlement embodied herein, including all statements or communications made to
date, shall be considered admissions by them.

 

11.                                 Confidentiality.

 

(a)                                  Executive acknowledges that the information, observations
and data that has been or will be obtained by him during his involvement with
the Company as an employee or consultant concerning the

 

5

 

business or affairs of the
Company which has not been released publicly by authorized representatives of
the Company (“Confidential Information”) is the property of the Company.  Accordingly, Executive agrees, on behalf of
himself and any affiliate, that he will not disclose to any person not
authorized by the Company to receive such Confidential Information, or use for
his own account, any of the Confidential Information previously obtained during
his employment or which is hereafter obtained during the Consulting Term
without the prior written consent of the Company, unless, and to the extent
that, the aforementioned matters (i) are or become generally known to and
available for use by the public otherwise than as a direct or indirect result
of Executive’s acts or omissions to act in the protection of such Confidential
Information or (ii) are disclosed to Executive by a third party who, to the
best knowledge of Executive, is not thereby in breach of any duty to the
Company or any of its affiliates.  For
purposes of this Agreement, the term “affiliate” means any person, partnership,
corporation or business entity controlling, controlled by or under common
control with the Company or Executive, as the case may be.

 

(b)                                 Executive acknowledges that the Confidential Information is
proprietary and of value to the Company and, accordingly, Executive will follow
reasonable security practices with regard to the protection and non-disclosure
of the Confidential Information.  If
Executive is required to disclose any Confidential Information in accordance
with applicable law, Executive will, whenever possible, first provide to the
Company a copy of the proposed disclosure so that the Company may have a
sufficient opportunity to review and comment thereon and Executive agrees to
seek such maximum confidential treatment of such disclosure as NeoPharm
requests or as may be permitted by applicable law.  Executive’s obligations under this Article will survive any
termination of this Agreement.

 

(c)                                  Upon completion or earlier termination of this Agreement,
Executive will promptly return to NeoPharm all written or electronic
Confidential Information, as well as all written or electronic material which
incorporates any Confidential Information.

 

12.                                 OWBPA Rights.

 

(a)                                  Executive is advised to seek legal counsel regarding the
terms of this Agreement. Executive acknowledges that he has either sought legal
counsel or has, notwithstanding the foregoing, consciously decided not to seek
legal counsel regarding the terms and effect of this Agreement.

 

(b)                                 Executive acknowledges that this Agreement releases only
those claims which exist as of the date of Executive’s execution of this
Agreement.

 

(c)                                  Executive acknowledges that he may take a period of
twenty-one (21) days from the date of receipt of this Agreement (June 14,
2004) within which to consider and sign this Agreement.

 

(d)                                 Executive acknowledges that he will have seven (7) days from
the date of signing this Agreement to revoke the Agreement in writing in its
entirety (“Revocation Period”). Executive acknowledges that the Agreement will
not become effective or enforceable until the Revocation Period has expired and
that pending acceptance of this Agreement by Executive, and other than as may
be provided for by the terms of the Employment Agreement, upon termination of
employment the Company shall not be obligated to make any of the payments or to
provide any of the benefits to be provided to Executive under this
Agreement.  In
the event the Executive chooses to revoke this Agreement, within the Revocation
Period, he will:

 

(i)         Revoke the entire Agreement in a signed
writing, delivered to the following person on or before the seventh (7th) day
after he executed the Agreement:

 

NeoPharm, Inc.

c/o Mr. Rick Hanson

14404 Champion Woods Place

Louisville, KY 40245

 

(ii)                                  Forfeit all severance and
other consideration from the Company that is contemplated by this Agreement;
and

6

 

(iii)                               Return the full amount of
any consideration received under this Agreement, if any, to the Company along
with the signed writing.

 

(e)                                  The Effective Date of this Agreement shall be the eighth (8th) day after the date Executive
signs this Agreement, assuming
the Executive has not revoked the Agreement in writing within the Revocation
Period.

 

(f)                                    Executive expressly acknowledges that the payments and the
other consideration that he is receiving under this Agreement constitute
material consideration for his execution of this Agreement, and represent
valuable consideration to which he would not otherwise be entitled.

 

13.                                 Jurisdiction/Choice of Forum.

 

The laws of the State of Illinois shall govern this Agreement, unless
pre-empted by any applicable federal law controlling the review of this
Agreement. The parties further stipulate and agree that any litigation
regarding this Agreement shall be brought in the state or federal courts for
the Northern District of Illinois and neither party will object to personal
jurisdiction or venue in any of these courts.

 

14.                                 Advice of Attorneys.

 

The parties acknowledge that they have fully read, understood and
unconditionally accepted this Agreement after consulting with their attorneys
or having the opportunity to consult with an attorney, and acknowledge that
this Agreement is mutual and binding upon all parties hereto regardless of the
extent of damages allegedly suffered by any of the parties hereto.

 

15.                                 Counterparts.

 

This Agreement may be signed in counterpart originals with the same
force and effect as if signed in a single original document.

 

16.                                 Cooperation of the Parties.

 

The parties to this Agreement agree to cooperate fully and to execute
any and all supplementary documents and to take all additional actions that may
be necessary or appropriate to give full force and effect to the basic terms
and intent of this Agreement and the settlement embodied herein. Executive
further agrees to fully cooperate with the Company in any and all
investigations, inquiries or litigation whether in any judicial,
administrative, or public, quasi-public or private forum, in which the Company
is involved, including, but not limited to, the current investigation of the
Company by the U.S. Securities and Exchange Commission and the class action
litigation involving the Company which is currently pending in the federal
court for the Northern District of Illinois, whether or not Executive is a
defendant in such investigations, inquiries, proceedings or litigation.
Executive shall provide truthful and accurate testimony, background
information, and other support and cooperation as the Company may reasonably
request. The Company will compensate Executive for all travel expenses,
attorney’s fees, and preparation expenses and lost wages associated with
pursuit of actions necessary to comply with this Section 16.

 

17.                                 Modification in Writing Only.

 

Neither this Agreement nor any provision of this Agreement may be
modified or waived in any way except by an agreement in writing signed by each
of the parties hereto consenting to such modification or waiver.

 

18.                                 Construction of this Agreement.

 

The parties agree that they each have participated in the drafting of
this Agreement, and that, as a result, this Agreement shall not be construed in
favor of or against any party hereto.

 

19.                                 No False Statements or Misrepresentation.

 

The Company and Executive each hereby warrants and represents that they
have not made any false statements or misrepresentations in connection with
this Agreement.

 

7

 

20.                                 Headings and Captions.

 

The headings and captions used in the Agreement are for convenience of
reference only, and shall in no way define, limit, expand, or otherwise affect
the meaning or construction of any provision of this Agreement.

 

21.                                 Remedies.

 

Executive agrees that money damages cannot adequately compensate the
Company in case of a breach or threatened breach of the covenants contained in
Sections 4(a) or 11 and that, accordingly, the Company would be entitled to
injunctive relief upon such breach. 
Executive understands that it is the Company’s intent to have the
covenants contained in Section 4(a) and 11 enforced to their fullest
extent.  Accordingly, Executive and the
Company agree that, if any portion of the restrictions contained in
Section 4(a) or 11 are deemed unenforceable, the court shall construe and
enforce these covenants to the fullest extent permitted by law.

 

22.                                 Enforcement Costs.

 

If any legal action or other proceeding is brought for the enforcement
of this Agreement, or because of an alleged dispute, breach, default or
misrepresentation in connection with any provisions of this Agreement, the
successful or prevailing party or parties shall be entitled to recover
reasonable attorney’s fees, court costs and all expenses even if not taxable as
court costs (including, without limitation, all such fees, costs and expenses
incident to appeal and other post-judgment proceedings), incurred in that
action or proceeding, in addition to any other relief to which such party or
parties may be entitled.  Attorney’s fees
shall include, without limitation, paralegal fees, investigative fees,
administrative costs, sales and use taxes and all other charges billed by the
attorney to the prevailing party.

 

23.                                 Notices.

 

Any and all notices necessary or desirable to be served hereunder shall
be in writing and shall be

 

(a)                                  personally delivered, or

 

(b)                                 sent by certified mail,
postage prepaid, return receipt requested, or guaranteed overnight delivery by
a nationally recognized express delivery company, in each case addressed to the
intended recipient at the address set forth below.

 

(c)                                  For notices sent to the
Company:

 

NeoPharm, Inc.

150 Field Drive, Suite 195

Lake Forest, IL 60045

 

Telephone No.:     (847) 295-8678

Facsimile No.:       (847) 295-8854

 

(d)                                 For notices sent to Executive:

 

Mr. James M. Hussey

15 Mulberry Drive

Hawthorn Woods, IL 60047

 

Either party hereto may amend the addresses for notices to such party
hereunder by delivery of a written notice thereof served upon the other party
hereto as provided herein.  Any notice sent
by certified mail as provided above shall be deemed delivered on the third (3rd)
business day next following the postmark date which it bears.

 

24.                                 Binding Agreement.

 

This Agreement shall be binding upon and inure to the benefit of the
parties hereto, jointly and severally, and the past, present and future heirs,
executors, administrators, agents, executors, servants, attorneys, affiliated
persons and entities, predecessors and successors in interest and assigns,
regardless of form, trustees in bankruptcy or otherwise, and any other
representative or entity acting on behalf of, pursuant to, or by virtue of the
rights of each.

 

8

 

25.                                 Non-Assignability: Assignment in the Event
of Acquisition or Merger

 

This Agreement, and the benefits hereunder are not assignable or
transferable by Executive and the rights and obligations of the Company under
this Agreement will automatically be deemed to be assigned by the Company to
any corporation or entity acquiring all or substantially all of the assets or
stock of the Company or of any corporation or entity with or into which the
Company may be merged or consolidated; provided, however, that in the event of
Executive’s death, the Company shall make such payments as may then be due and
owing to the Executive, if any, to the Executive’s estate.

 

26.                                 Entire Agreement.

 

This Agreement contains the entire agreement of the parties concerning
the subject matter hereof, and is intended and shall be construed as an
integrated agreement. Each party understands, acknowledges and hereby
represents and warrants that this Agreement supersedes any and all prior or
contemporaneous understandings, agreements, representations and/or promises,
whether oral or written, which are not expressly set forth herein or expressly
referred to in this Agreement, and no understanding, agreement, representation,
warranty, promise or inducement has been made concerning the subject matter of
this Agreement other than as set forth in this Agreement, and that each party
enters into this Agreement without any reliance whatsoever upon any
understanding, agreement, representation, warranty or promise not set forth
herein.

 

[SIGNATURE
PAGE TO FOLLOW]

 

9

 

IN WITNESS WHEREOF, the undersigned have
executed this Separation Agreement and Full Release of All Claims.

 

	
   

  	
  EXECUTIVE:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  S/ James M. Hussey

  	
   

  
	
   

  	
  James M. Hussey

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Date: 6/16/04

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NEOPHARM, INC:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  s/ Erick  E. Hanson

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chairman of the Corporate Governance Committee

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Date:

  	
  6/17/04

  	
   

  

 

10

 

Exhibit A

 

June 17, 2004

 

Board of Directors

NeoPharm, Inc.

150 Field Drive, Suite 195

Lake Forest, IL 60521

 

Re: Resignation

 

Gentlemen:

 

I am resigning effective June 17, 2004, from any and all offices
which I hold with NeoPharm, Inc. (including, but not limited to, as a director)
and any subsidiary of NeoPharm, Inc., including, but not limited to, NeoPharm
EU Limited, and as trustee, administrator or otherwise for any employee plan of
NeoPharm, Inc.  In addition, I also
hereby withdraw my name from consideration as a nominee for election as a
director of the Company at the 2004 NeoPharm Annual Meeting of Stockholders to
be held June 17, 2004.

 

	
   

  	
  Sincerely,

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ James M. Hussey

  
	
   

  	
  James M. Hussey

  

 

11

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