Document:

Exhibit 10.35

 

Execution Copy

 

COLLABORATION
AND LICENSE AGREEMENT

 

between

 

SONUS
PHARMACEUTICALS, INC.

 

and

 

SCHERING
AG

 

Dated: October 17th
2005

 

 

COLLABORATION
AND LICENSE AGREEMENT

 

This Collaboration and License Agreement (the
“Agreement”) is made as of October 17, 2005 (the “Execution Date”) by and
between Sonus Pharmaceuticals, Inc., a Delaware corporation (“Sonus”), and
Schering AG, a German corporation (“Schering”). 
Sonus and Schering are sometimes referred to collectively herein as the “Parties”
or singly as a “Party.”

 

RECITALS

 

WHEREAS, Sonus has
developed a novel formulation of paclitaxel, known as TOCOSOL® Paclitaxel, a
cancer therapy product;

 

WHEREAS, Schering
possesses substantial resources and expertise in the research, development, manufacturing,
marketing and sale of pharmaceutical products; and

 

WHEREAS, Schering
and Sonus desire to collaborate to develop, promote and commercialize the
Product in the Territory for use in the Field;

 

NOW, THEREFORE, in
consideration of the foregoing recitals and the mutual covenants and agreements
contained herein, the Parties hereto, intending to be legally bound, do hereby
agree as follows:

 

AGREEMENT

 

ARTICLE I

DEFINITIONS

 

The following terms as used in this Agreement
shall, unless the context clearly indicates to the contrary, have the meaning
set forth below:

 

“Act” means the
United States Food, Drug and Cosmetics Act, as amended from time to time and
regulations promulgated thereunder.

 

“Affiliate”
means, with respect to any Person, any other Person that directly or indirectly
controls, is controlled by or is under common control with such Person.  For the purposes of this definition, a Person
shall be deemed to control another Person if such Person possesses the power to
direct or cause the direction of the management, business and policies of such
Person, whether through ownership of fifty percent (50%) or more of the voting
securities of such Person, by contract or otherwise.

 

“Applicable Laws”
means all applicable laws, statutes, rules, regulations, orders, judgments,
injunctions and/or ordinances of any Governmental Authority in the Territory,
including but not limited to: laws, rules and regulations governing the
import, export, development, manufacturing, marketing, distribution and sale of
the Product in the Territory; all current Good Clinical Practices, Good
Manufacturing Practices or current Good Laboratory Practices standards
promulgated by the FDA or other Governmental Authorities, where applicable;
U.S. export control laws and the U.S. Foreign Corrupt Practices Act and
equivalent statutes of any other Governmental Authority; and, for the U.S., the
Guidance of the U.S. Department of Health and Human Services, Office of
Inspector General, entitled “Compliance Program for Pharmaceutical Manufacturers”
released in April 2003,

 

1

 

as it may be amended from time to time, and equivalent laws,
regulations and guidances in other countries.

 

“Approval” means any
approval (including, without limitation, Pricing Approvals), registration,
license or authorization from any Governmental Authority required for the
manufacture, development, Co-Promotion, distribution, sale, storage or
transport of the Product in the Field in any country of the Territory, and shall
include, without limitation, an approval, registration, license or
authorization granted in connection with, any Approval Application.

 

“Approval Application”
means the submission to the relevant Governmental Authority of an appropriate
application seeking any approval, registration, license or authorization from
any Governmental Authority required for the manufacture, development,
Co-Promotion, distribution, sale, storage or transport of the Product in the
Field in any country of the Territory, and shall include, without limitation, a
marketing authorization application, supplementary application or variation
thereof, Pricing Approval, NDA, HRD or any equivalent application in any
country of the Territory.

 

“Audit Disagreement”
has the meaning set forth in Section 8.03(d).

 

“Bankruptcy Event” has
the meaning set forth in Section 16.02(c).

 

“Business Day” means
a day that is not a Saturday, a Sunday or other day on which banks are required
or authorized by law to be closed in the States of Washington or New Jersey,
US, or in Berlin, Germany.

 

“Clinical Development”
means all activities relating to planning and execution of clinical studies in
humans directed towards obtaining Approval of a Product, including but not
limited to Phase 1 clinical trials, Phase 2 clinical trials, Phase 3 clinical
trials and Phase 4 clinical trials but does not include any activities falling
within the definition of CMC/Manufacturing or ISS Activities.

 

“CMC/Manufacturing”
means the development of one or more processes for the manufacture and
packaging of the Product for Preclinical Development, Clinical Development and
Commercialization necessary to achieve a scale of [*]
per aggregate batch, defined as the sum of the batch size capacities of
development facilities.  This includes,
without limitation, formulation, production, fill-finish, sourcing of plant,
equipment, components, raw materials and packaging supplies, development of
regulatory methods and controls, including assays, quality control and quality
assurance methodology and stability protocols, and qualification and scale-up
of one or more production facilities.

 

“CMC/Manufacturing Costs”
means the Development Costs incurred by a Manufacturing Party or for its
account consistent with the CMC/Manufacturing Plan and Budget and specifically
attributable to the CMC/Manufacturing of the Product.

 

“CMC/Manufacturing Plan and Budget”
means a written development plan and budget providing for the CMC/Manufacturing
of the Product in the Territory, as updated, amended, supplemented and
otherwise modified from time to time by the Steering Committee.

 

[*]                                 CONFIDENTIAL
PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION

 

2

 

“Commercialize” means
to promote, market, use for commercial purposes, import, export, distribute and
sell or offer to sell, or to the extent permitted under this Agreement to have
any of those things done, and “Commercialization”
has a corresponding meaning.

 

“Commercially Reasonable Efforts”
means, with respect to the efforts to be expended by a Party with respect to
any objective, such reasonable, diligent and good faith efforts as would
normally be expended by a reasonably prudent pharmaceutical company to
accomplish a similar objective with respect to a product at a similar stage in
its development or product life and of similar market potential, taking into
account efficacy, safety, anticipated or approved labeling, the competitiveness
of alternative products in the marketplace, the patent and other proprietary
position of the Product, the likelihood of Approval given the regulatory
structure involved, the profitability of the Product and other relevant
factors.

 

“Confidential Information”
means Information and any other information and materials regarded by the
disclosing Party as confidential (including, without limitation, information
relating to the Sonus Technology) furnished by one Party to the other pursuant
to this Agreement and all Information created or developed during the course of
the Parties’ collaboration hereunder, whether in oral, written, graphic or
electronic form.  Confidential
Information shall not include any information which the receiving Party can
prove by competent evidence:

 

(a)                                  is now, or hereafter
becomes, through no act or failure to act on the part of the receiving Party,
generally known or available;

 

(b)                                 is known by the
receiving Party, without obligations of confidentiality, at the time of
receiving such information, as demonstrated by written evidence;

 

(c)                                  is hereafter furnished
to the receiving Party by a Third Party, as a matter of right and without
restriction on disclosure;

 

(d)                                 is independently
developed by the receiving Party without the aid, application or use of, the
disclosing Party’s Confidential Information, as demonstrated by written
evidence; or

 

(e)                                  is the subject of a
written permission to disclose provided by the disclosing Party.

 

“Co-Promotion” means
marketing and promotional activities with respect to the Product in the Field,
including, without limitation, detailing of the Product.

 

“Core Development”
means: (i) all Preclinical Development, Clinical Development, and
regulatory affairs activities, regardless of where they are performed, which
are part of the Core Development Plan for the Product for the Field and which
the Steering Committee believes are reasonably necessary to obtain or maintain
NDA Approval in the US for the Product for the Core Indications, and shall
include, without limitation, any post-Approval studies required by a
Governmental Authority with respect to such NDA Approval; and (ii) all ISS
Activities to be performed in the US and which the Steering Committee believes
are reasonably necessary or desirable for the Development of the Product in the
Field in the US.

 

“Core Development Costs”
means those Development Costs incurred in the performance of Core Development
in accordance with the Core Development Plan and Budget.

 

3

 

“Core Development Plan and Budget”
means a written development plan and budget providing for the performance of
Core Development, as updated, amended, supplemented and otherwise modified from
time to time by the Steering Committee in accordance with Section 5.02(b).

 

“Core Indications”
shall mean those Indications for which the Parties wish to jointly develop the
Product as part of their Core Development activities hereunder, which
Indications are identified as Core Indications in the Initial Development Plan
and Budget, together with such additional Indications as may be identified as
Core Indications in the Core Development Plan as updated and modified from time
to time in accordance with this Agreement.

 

“Development” and “Develop”
shall refer to all activities relating to PreclinicaI Development, Clinical
Development, regulatory activities, CMC/Manufacturing and ISS Activities.

 

“Development Costs”
means the total of: (i) the cost of Development FTEs, calculated in
accordance with Section 5.09(c); and (ii) Out-of-Pocket Costs, in
each case incurred by a Party or for its account consistent with the
Development Plan and Budget and specifically attributable to the Development of
the Product.

 

“Development FTE”
means a full-time equivalent person year for a person engaged in Development
activities.  The Parties’ respective
Development FTE costs shall be included in the applicable Development Plan and
Budget and shall be reviewed and mutually agreed upon annually by the Steering
Committee in accordance with Section 5.09(c).

 

“Development Plan and Budget”
means: (i) the Core Development Plan and Budget; and (ii) the
CMC/Manufacturing Plan and Budget, agreed upon by the Parties in accordance
with Sections 5.02 and 5.03 respectively of this Agreement, as updated,
amended, supplemented and otherwise modified from time to time by the Steering
Committee in accordance with this Agreement.

 

“Execution Date”
means the date first written above in the introductory paragraph of this
Agreement.

 

“EMEA” means the
European Medicines Evaluation Agency, or successor agency thereto.

 

“EU Approval” means
receipt by Schering or its Affiliate or sublicensee of the EU Commission’s
written decision granting Approval for the marketing and sale of the Product in
the Field in the EU, or in the case of Approvals granted pursuant to the
de-centralized procedure, the written decisions of all Major EU Member States
granting Approval for the marketing and sale of the Product in the Field in
their respective regulatory jurisdictions.

 

“European Union” or “EU” means the countries of the European Union as
constituted from time to time.

 

“EU Commission”
means the Commission of the European Communities or successor agency thereto.

 

“FDA” means the
United States Food and Drug Administration or successor agency thereto.

 

“Field” means all
uses of the Product for the diagnosis, prevention, treatment, cure or
mitigation of all disease states, conditions, disorders and indications in
humans or in animals.

 

4

 

“GAAP” means those
generally accepted accounting principles in agreement with IFRSs.

 

“Generic Product”
means a product which, if sold in the US on the Execution Date, would infringe
a Valid Claim of a Sonus Patent.

 

“Good Clinical Practices”
means the Good Clinical Practices guidelines published by the FDA, and
published standards of the FDA (or other standards of the FDA that are
generally recognized within the United States pharmaceutical industry) that
relate to the conduct of clinical studies in humans.  Good Clinical Practices also includes similar
standards, guidelines and regulations promulgated or otherwise required by
Governmental Authorities in any country of the Territory that relate to the
conduct of clinical studies in humans including, without limitation, the ICH
Harmonised Tripartite Guideline for Good Clinical Practice, as amended from
time to time.

 

“Good Manufacturing Practices”
means current Good Manufacturing Practices as defined from time to time by the
applicable FDA regulations in effect for the manufacture, handling, testing,
storage and control of pharmaceutical materials as applied to “finished
products” in the United States of America and the corresponding requirements of
each Governmental Authority within the Territory.

 

“Good Laboratory Practices”
means the current Good Laboratory Practices as defined by the applicable FDA
regulations in effect for nonclinical laboratory studies that support
applications for research and marketing of products regulated by the FDA in the
United States of America and the corresponding requirements of each
Governmental Authority in the Territory in which the Product is to be marketed
and sold.

 

“Governmental Authority”
means any court, agency, authority, department, regulatory body or other
instrumentality of any government or country or of any national, federal,
state, provincial, regional, county, city or other political subdivision of any
such government or any supranational organization of which any such country is
a member including, without limitation, the FDA for the United States, the EMEA
and EU Commission for the EU and the MHLW for Japan.

 

“HRD” means a health
registration dossier covering the Product for the Field, filed in any country
in the Territory and which is analogous to an NDA.

 

“HSR Act” means the
Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.

 

“IFRSs” mean
international financial reporting standards, as published by the International
Accounting Standards Board and its predecessor, the International Accounting
Standards Committee.

 

“Improvements” means
any and all developments, inventions or discoveries owned, controlled or
licensed by Sonus, or its Affiliates, at any time during the Term hereof, which
do not relate specifically to the Product but which may be of benefit to the
Development or Commercialization of the Product, and shall include, but not be
limited to, developments which may enhance the safety and/or efficacy of the
Product, or a combination product or new formulation of the Product for use in
the Field.

 

“IND” means an
Investigational New Drug application required for approvals or authorizations
from the FDA to commence human clinical testing of a drug, as defined by the
FDA, or the equivalent application in another country.

 

5

 

“Indication” means a
particular application of the Product in the Field.

 

“Information” means (i) techniques,
data, and information relating to the Product, including, but not limited, to
inventions, practices, methods, knowledge, know-how, skill, trade secrets,
experience, test data including pharmacological, toxicological, preclinical and
clinical test data; data, records and information derived from Preclinical
Development, Clinical Development and ISS Activities; Approval Applications,
adverse reactions, CMC/Process Development, analytical and quality control
data, marketing, pricing, distribution, cost, sales and manufacturing data or
descriptions and, (ii) compounds, compositions of matter, assays and
materials relating to the Product.

 

“Initial Development Plan and Budget”
means the initial Development Plan and Budget concerning the Development of the
Product set out in Schedule Ito this Agreement.

 

“Investigator Sponsored Study”
or “ISS” means any clinical study with
respect to the Product in the Field where the sponsor of the study is a
physician or group of physicians acting as sponsor-investigator(s) and neither
of the Parties nor any of their Affiliates or sublicensees accept the role of
sponsor or co-sponsor of such a study.

 

“ISS Activities”
means interactions with physicians relating to the conduct of Investigator
Sponsored Studies (including discussion of potential Investigator Sponsored
Studies) and the processing of appropriate agreements pursuant to which a Party
provides support (in the form of funding or drug supply) for Investigator Sponsored
Studies for the Product in the Field.

 

“Loss” means the
losses as defined in Section 12.01.

 

“Major EU Member States”
means Germany, France, Italy, Spain, United Kingdom, Belgium, The Netherlands
and Luxembourg.

 

“Manufacturing Party”
means the Party who is from time to time responsible for: (i) manufacture
and supply of Product for use during Development, or (ii) manufacture and
supply of Product for use during Commercialization.

 

“Marketing Plan”
means the marketing plan as provided in Section 6.01.

 

“MHLW” means the
Japanese Ministry of Health, Labor and Welfare, including the agency
responsible for regulating the development and commercialization of human
pharmaceuticals in Japan, and any successor agency.

 

“MHLW Approval”
means receipt by Schering or its Affiliate or sublicensee of the official
approval letter from the MHLW approving the marketing and sale of the Product
in the Field in Japan under an HRD.

 

“NDA” means New Drug
Application, as described in FDA regulations, 21 C.F.R.  50, including all amendments and supplements
to the application.

 

“NDA Approval” means
receipt by Schering, its Affiliate or permitted sublicensee of the official
approval letter from the FDA approving the marketing and sale of the Product in
the Field in the United States of America under an NDA or supplemental NDA, as
applicable.

 

6

 

“Net Sales” means,
for any period, the amount invoiced for sales by Schering, its Affiliates or
sublicensees, of Product in the Territory to Third Parties less the following
deductions:

 

(a)                                  distributors’ fees,
fees paid to wholesalers or other entities in the chain of distribution,
quantity discounts, cash discounts, chargebacks, rebates or allowances actually
paid, granted, allowed or incurred in the ordinary course of business in
connection with the sale of a Product;

 

(b)                                 allowances or credits
to customers in the ordinary course of business in connection with the sale of
a Product, not in excess of the selling price of such Product, on account of
outdating, recall, market withdrawal, rejection, or return of such Product;

 

(c)                                  sales and excise
taxes, customs brokers fees or customs duties paid by the selling Party, and
any other governmental charges imposed upon the sale of a Product and paid by
the selling Party;

 

(d)                                 transportation
charges, and related charges such as insurance relating to the shipment of
Product to the customer, and paid by the selling Party;

 

(e)                                  fees paid to
governmental agencies based on the sales volume (expressed in units or
currency) or selling price of a Product, such as Medicaid rebates paid to
Medicaid authorities, and paid by the selling Party;

 

(f)                                    costs of customer
programs such as cost effectiveness or patient assistance studies or programs
designed to aid in patient compliance with medication schedules, in the
ordinary course of business in connection with the sale of a Product; and

 

(g)                                 all actual bad debts.

 

Components of Net Sales shall be determined
in the ordinary course of business and using the accrual method of accounting
in accordance with GAAP.  Any deductions
listed above which involve a payment by a party shall be taken as a deduction
against aggregate sales for the period in which the payment or deduction is made.  Sales of a Product between the selling Party
and its Affiliates or sublicensees shall be excluded from the computation of
Net Sales.  Net Sales will be accounted
for in accordance with IFRSs, consistently applied.

 

For the purpose of calculating a selling
Party’s Net Sales, the Parties recognize that: (a) a Party’s customers may
include persons in the chain of commerce who enter into agreements with a Party
as to price even though title to the Product does not pass directly from a
Party to such customers, and even though payment for such Product is not made
by such customers directly to a Party, and (b) in such cases chargebacks
paid by a Party to or through a Third Party (such as a wholesaler) can be
deducted by a Party from gross revenue in order to calculate a Product’s Net
Sales.

 

In the event that Schering or its Affiliates
or sublicensees sells Product (or offers any rebate or discount or any other
reduction in the price of Product) to a Third Party in return for any form of
consideration other than money (for example, in return for obtaining more
favorable pricing for Schering or its Affiliates or sublicensees on other
products), then the amount of such reasonable

 

7

 

value of such non-cash consideration will be included in assessing any payments
due to Sonus as if such non-cash consideration were payment in cash for sales
of the Product.

 

“Non-Core Development”
means: (i) Preclinical Development, Clinical Development, or regulatory
affairs activities that do not constitute Core Development but which are
performed for the purpose of obtaining or maintaining Approval in the US,
regardless of where such Preclinical Development or Clinical Development is
actually performed; and (ii) ISS Activities performed in the US that do
not constitute Core Development.

 

“Non-Core Development Costs”
means Development Costs incurred in the performance of Non-Core Development.

 

“Operating Profits on US.  Net Sales” means the
profits before interest and taxes of Schering from the sale of the Product in
the United States determined in accordance with IFRSs.

 

“Out-of-Pocket Costs”
means direct expenses paid or payable to Third Parties (other than employees or
employees of an Affiliate) that are: (i) specifically identifiable and
incurred in the Development of the Product in the Field in the Territory; and (ii) recorded
as income statement items in accordance with IFRSs.  For avoidance of doubt, Out-of-Pocket Costs
shall not include pre-paid amounts or capital expenditures-

 

“Patent” means all
existing US patents and patent applications and all US patent applications
hereafter filed, including any continuation, continuation-in-part, division,
provisional or any substitute applications, any patent issued with respect to
any such patent applications, any reissue, re-examination, renewal or extension
(including any supplemental protection certificate) of any such patent, and any
confirmation patent or registration patent or patent of addition based on any
such patent, and all foreign counterparts of any of the foregoing that are now
owned or controlled or hereafter acquired or controlled by a Party or its
Affiliates.  “Patents” also includes a
Supplementary Certificate of Protection of a member state of the EU and any
other similar protective rights in any other country.

 

“Patent Committee” means
the patent committee established by the Parties pursuant to Section 9.04
of this Agreement.

 

“Person” means any
individual, partnership, joint venture, limited liability company, corporation,
firm, trust, association, unincorporated organization, governmental authority
or agency, or any other entity not specifically listed herein.

 

“Pharmacovigilance Agreement”
means the pharmacovigilance agreement concerning exchange and reporting of
pharmacovigilance information to be entered into by the Parties in accordance
with Section 8.02 of this Agreement.

 

“Phase 3 Clinical Trial”
has the meaning set forth in 21 CFR 312.21(c), as amended from time to time.

 

“Pivotal Trial”
means the Phase 3 clinical trial of approximately 800 evaluable patients
conducted under protocol number SON-8184-1075.

 

“Preclinical Development”
means all activities relating to the planning and execution of non-human
studies conducted in in vitro or in
relevant in vivo animal models directed toward
obtaining

 

8

 

Approval of a Product in each regulatory jurisdiction in the
Territory.  This includes preclinical
testing, pharmacokinetics, toxicology, documentary and medical writing directly
related to Preclinical Development activities and related regulatory affairs.

 

“Pricing Approval” means,
in countries of the Territory where Governmental Authorities may approve or
determine pricing or pricing reimbursement for pharmaceutical products, and
where such pricing or reimbursement approval is reasonably necessary for
widespread sales of the Product, such approval or determination.

 

“Product” means the
product known as TOCOSOL Paclitaxel, as more particularly described in Exhibit A,
and any other formulation of unmodified paclitaxel that uses -tocopherol
(vitamin E) to provide a sterile delivery vehicle.

 

“Product Launch”
means the first sale of the Product in the Field in a country or regulatory
jurisdiction in the Territory by or on behalf of Schering, or an Affiliate or
permitted sublicensee of Schering after obtaining all required Approvals in
such country or regulatory jurisdiction, including, without limitation, Pricing
Approvals.

 

“Recall” means the
recall of the Product as provided in Section 14.01.

 

“Royalty Term” means
the period for which royalties are payable by Schering to Sonus, as described
in Section 3.02(c) of this Agreement.

 

“ROW” means all
countries, territories and geographical areas of the world, excluding the
United States of America and its territories, commonwealths and possessions.

 

“Safety” means
adverse experiences which are significant, unexpected (as defined in
21 C.F.R. § 314.80(a)), serious or life threatening or have a
significant, unexpected (as defined in 21 C.F.R. § 314.80(a)),
serious or life threatening toxicological effect on one or more body tissues.

 

“Sonus Know-How”
means, with respect to the Product, Information owned, controlled or licensed
by Sonus as of the Execution Date and at any time during the Term, which is not
covered by the Sonus Patent Rights, but is necessary or useful to use,
research, develop, manufacture, market, import for sale or Commercialize the
Product, and shall include Improvements.

 

“Sonus Marks” means
any trademarks owned by Sonus that it agrees may be used in connection with the
promotion of the Product in the Territory pursuant to Section 2.03, alone
or accompanied by any logo or design and any foreign language equivalents in
sound or meaning, whether registered or not.

 

“Sonus Patent Rights”
means, with respect to the Product, all rights owned, controlled or licensed by
Sonus or its Affiliates under Patents as of the Execution Date and at any time
during the Term of this Agreement, which are necessary or useful to use,
research, develop, manufacture, market, import for sale or commercialize the
Product in the Territory for use in the Field, and shall include
Improvements.  A list of the Sonus
Patents existing as of the Execution Date is set forth on Exhibit B.

 

“Sonus Technology”
means the Sonus Patent Rights and the Sonus Know-How.

 

“Steering Committee” means
the committee established pursuant to Section 5.01 below.

 

9

 

“Superior Efficacy Label”
means a label for the Product approved by the appropriate Governmental Authority
which includes language to the effect that the Product is superior as compared
to Taxol with respect to the efficacy of treatment, as measured by objective
response rate, duration of progression-free survival (or comparable endpoint),
or duration of overall survival, for a particular Indication and which allows
Schering to advertise and promote the Product with such a superiority claim
compared to Taxol in accordance with Applicable Laws, and which does not, in
other significant and clinically meaningful respects, taken as a whole, result
in a materially less favorable profile for the Product than for corresponding
data generated for Taxol in the applicable registrational trial.

 

“Territory” means
the entire world.

 

“Term” has the
meaning set forth in Section 16.01.

 

“Third Party” means
any entity other than Sonus or Schering or an Affiliate or sublicensee of Sonus
or Schering.

 

“United States” or “US”
shall mean the United States of America and its territories and possessions,
including but not limited to the District of Columbia and Puerto Rico.

 

“Valid Patent Claim”
means, with respect to the Product any claim of any issued and unexpired patent
included within the Sonus Patent Rights which has not been held revoked,
unenforceable or invalid by a decision of a court or other governmental agency
of competent jurisdiction, unappealable or unappealed within the time allowed
for appeal, and which has not been admitted to be invalid or unenforceable.

 

ARTICLE II

 

LICENSE; OTHER RIGHTS

 

Section 2.01                                Technology License Grant.  Subject to the terms and
conditions of this Agreement, including Schering’s obligations under Article III,
Sonus hereby grants to Schering, an exclusive (even as to Sonus) license, with
the right to sublicense, under Sonus Technology to develop, make, have made,
use, market, distribute, import, offer for sale, and sell the Product in the
Territory for use in the Field.  The
foregoing notwithstanding, Sonus retains (i) the right to Co-Promote the
Product as provided in Section 6.03 below, provided that Sonus exercise
the option to Co-Promote in accordance with Section 6.03 below; and (ii) the
right to conduct Development and related activities and to manufacture and have
manufactured the Product to the extent specifically provided for in this Agreement,
subject to the terms and conditions hereof.

 

Section 2.02                                Sublicenses.  Nothing herein shall
restrict Schering from distributing, marketing and selling Product through or
with sublicensees, distributors or sales representatives; provided, however,
that Schering shall not enter into a sublicense agreement with respect to the
marketing or sale of the Product in the United States or the EU (except where
such sublicense agreement is with an Affiliate) without first providing at
least four (4) weeks’ written notice to Sonus of its intention to enter
into such a sublicense agreement, such notice to include the name of the
proposed sublicensee.  If Sonus, within
two weeks of receipt of Schering’s notice, demonstrates in writing to Schering
that the sublicensee lacks the necessary financial, regulatory or marketing
resources or expertise to fulfill the obligations of Schering in the country or
region in which the

 

10

 

sublicense is to be granted, as and when such
obligations arise, then Schering shall not, without the prior written agreement
of Sonus, enter into the proposed sublicense agreement with such proposed
sublicensee.  Any sublicense grant made
by Schering hereunder shall be made subject to the applicable terms of this
Agreement and shall impose restrictions and conditions upon sublicensees that
are consistent with those imposed upon Schering by this Agreement.  Schering shall remain fully responsible for
the performance and conduct of its sublicensees under the terms of this
Agreement, including any breach of the terms hereof by such sublicensees.  Promptly after the execution of each
sublicense, Schering will provide to Sonus a true and complete copy of such
sublicense; provided that Schering may redact any financial and other
information to the extent not required to enable Sonus to monitor compliance
with this Agreement.

 

Section 2.03                                Trademarks.

 

(a)                                  Subject to the terms
and conditions of this Agreement, including without limitation Section 6.04,
Sonus hereby grants to Schering a non-exclusive royalty-free license and right
to use the Sonus Marks in connection with the manufacture, use, Development and
Commercialization of the Product in the Territory for use in the Field, with
the right to sublicense to sublicensees in accordance with Section 2.02.  Nothing herein shall preclude Sonus or any of
its licensees from using the Sonus Marks in the ordinary course of business for
products other than the Product, or outside of the Field.

 

(b)                                 Schering acknowledges
that the Sonus Marks being licensed to Schering pursuant to this Agreement
belong to Sonus and that Schering shall have no rights in such Sonus Marks
except pursuant to the license granted herein. 
If Schering elects to use the Sonus Marks in connection with its
Commercialization of the Product, Schering shall use the Sonus Marks in the
exact form registered by Sonus, including without limitation, the ® symbol or TM
symbol, as applicable.  Any other use of
the Sonus Marks shall be subject to the prior written approval of Sonus, which
shall not be unreasonably withheld or delayed. 
All content or other specific graphic elements related to the Sonus
Marks provided by Sonus shall remain the property of Sonus and shall be used
only in the manner set forth in this Agreement except as otherwise approved by
Sonus.

 

(c)                                  Schering shall not
take any action inconsistent with Sonus’ exclusive ownership of the Sonus
Marks.  Schering shall not publish,
employ or cooperate in the publication of, any misleading or deceptive
advertising material with regard to Sonus or the Sonus Marks.

 

Section 2.04                                Improvements.  Sonus shall promptly notify Schering of any
Improvements and of any efforts by Sonus to patent Improvements in the
Territory including, but not limited to, designation of the countries in which
any patent application in respect thereof is to be filed- The ownership,
prosecution and maintenance with respect to any patent application or
technology in respect of such Improvement and any patent issued therefrom shall
be handled in accordance with Article IX of this Agreement.  All intellectual property rights in
Improvements, including under such patents and patent applications, shall
become part of the Sonus Patent Rights and Sonus Know-How licensed hereunder,
and Exhibit B shall be modified to reflect the addition of such patents.

 

Section 2.05                                Compliance with Applicable Laws.  Sonus and Schering, and
their respective Affiliates, shall perform their obligations under this
Agreement, including, without limitation, any Co-Promotion activities, in an
effort to Develop and Commercialize the Product and perform all of their
obligations hereunder with respect to the Product for the Field in the
Territory in accordance with all Applicable Laws.  Neither Party nor its Affiliates shall, or
shall be required to, undertake any

 

11

 

activity
under or in connection with this Agreement which violates, or which it
believes, in good faith, may violate, any Applicable Law.

 

ARTICLE III

 

LICENSE
FEE, MILESTONE AND ROYALTY PAYMENTS

 

Section 3.01                                License Fee and Milestone Payments.  In partial consideration for the licenses
granted under Article II, Schering shall pay to Sonus the amounts, and at
the times, set forth in this Section.

 

(a)                                  Initial
License Fee.  Within ten (10) Business
Days of execution of this Agreement by both Parties, Schering shall deliver
into escrow an initial license fee equal to Twenty Million Dollars
($20,000,000) pursuant to the terms of an escrow agreement provided by Schering
(the terms of which shall be reasonably acceptable to Sonus) with an escrow
agent selected by Schering (and reasonably acceptable to Sonus).  The terms of the escrow agreement will
provide that (i) upon effectiveness of this agreement pursuant to Section 16.01(a) hereof,
the initial license fee will be paid to Sonus and (ii) if termination of
the waiting period or approval under the HSR Act is not received within six
months from the date hereof the initial license fee shall be returned to Schering.

 

(b)                                 Product
Milestone Payments.  Schering shall
pay the following amounts within thirty (30) days after the first occurrence of
each of the following Product-related milestones:

 

	
  Milestone

  	
   

  	
  Amount

  
	
   

  	
   

  	
   

  
	
  (i) Product Launch in the United
  States following NDA Approval for a metastatic breast cancer (“MBC”)
  Indication with a Superior Efficacy Label

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (ii) Product Launch in the United
  States following NDA Approval for a MBC Indication without a Superior
  Efficacy Label

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (iii) Product Launch in the EU
  following EU Approval for a MBC Indication with a Superior Efficacy Label

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (iv) Product Launch in the EU
  following EU Approval for a MBC Indication without a Superior Efficacy Label

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (v) Product Launch in Japan following
  MHWL Approval for a MBC Indication with a Superior Efficacy Label

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (vi) Product Launch in Japan following
  MHWL Approval for a MBC Indication without a Superior Efficacy Label

  	
   

  	
  [*]

  

 

[*]                                 CONFIDENTIAL
PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION

 

12

 

	
  Milestone

  	
   

  	
  Amount

  
	
   

  	
   

  	
   

  
	
  (vii) First dosing of a patient in a
  Phase 3 Clinical Trial to support NDA Approval for second Indication

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (viii) Acceptance for filing by the
  FDA of an NDA for second Indication

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (ix) Product Launch in the United
  States following NDA Approval for second Indication with a Superior Efficacy
  Label

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (x) Product Launch in the United
  States following NDA Approval for second Indication without a Superior Efficacy
  Label 

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (xi) Product Launch in the EU
  following EU Approval for second Indication with a Superior Efficacy Label 

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (xii) Product Launch in the EU
  following EU Approval for second Indication without a Superior Efficacy Label

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (xiii) Product Launch in Japan
  following MHWL Approval for second Indication with a Superior Efficacy Label 

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  (xiv) Product Launch in Japan
  following MHWL Approval for second Indication without a Superior Efficacy
  Label

  	
   

  	
  [*]

  
				

 

In no event shall any milestone payment be
paid more than once.  Except for
milestone payments expressly stated to be made for a second Indication in this Section 3.01(b),
payments will be made only for the first Indication for which the Product is
developed regardless of the number of Indications for which the Product is
developed.  Each set of two milestones
listed at (i) and (ii), (iii) and (iv), (v) and (vi), (ix) and
(x), (xi) and (xii) and (xiii) and (xiv) respectively are
alternative and not cumulative milestones and only one of each set of milestone
payments is payable, provided however, that if, in the case of each set of two
milestones: (I) the second milestone (namely the milestone referring to
Approval “without a Superior Efficacy Label”) is reached before the first
milestone of that set (namely the milestone referring to Approval “with a
Superior Efficacy Label”); and (II) the first milestone of that set is
subsequently reached on the basis of further data from the same Phase 3
Clinical Trial for which the Approval described in the second milestone of that
set was reached, then, within thirty (30) days of such first milestone having
been met, Schering shall pay to Sonus the difference between the milestone
payment already paid for the second milestone of that set and the milestone
payment payable for the first milestone of that set.  Only milestone payments falling due and
payable during the Term of the Agreement are payable.  Payments made under this Section 3.01
are not refundable and will not be credited against any other payments payable
by Schering under the terms of this Agreement except to the extent expressly
provided for in this Agreement.

 

[*]                                 CONFIDENTIAL
PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION

 

13

 

(c)                                  Sales
Milestone Payments.  Schering shall
pay the following amounts upon the occurrence of the following sales related
milestones:

 

	
  Milestone

  	
   

  	
  Amount

  
	
   

  	
   

  	
   

  
	
  Annual Worldwide Net Sales of at least [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  Annual Worldwide Net Sales of at least [*]

  	
   

  	
  [*]

  
	
   

  	
   

  	
   

  
	
  Annual Worldwide Net Sales of at least [*]

  	
   

  	
  [*]

  

 

Annual Worldwide Net Sales shall be
determined on a calendar year basis.  As
provided in Section 3.02(f) below, Schering shall provide Sonus with
a report of Net Sales within sixty (60) days of the end of each calendar
quarter, which report shall include payment of the applicable milestone payment
in the event the milestone is achieved by the end of the quarter for which the
report relates.  The above milestone
payments shall be cumulative but in no event shall any milestone payment be
paid more than once.  For example, if
annual Net Sales in the Territory following NDA Approval were: Year 1 – [*], Year 2 – [*], Year 3 – [*] and Year 4 – [*], Sonus
would receive [*] sales milestone payment for
Year 1, a [*] sales milestone payment for Year 2,
[*] sales milestone payment for Year 3
and a [*] milestone payment for Year 4.

 

Section 3.02                                Royalty Payments

 

(a)                                  Royalty
Payments for U.S. Net Sales.  In the event Sonus does not elect to exercise
its Co-Promotion rights pursuant to Section 6.03 below, in addition to the
other consideration provided for herein, and subject to the other terms of this
Agreement, Schering shall pay to Sonus a royalty on U.S. Net Sales of the
Product, in the following amounts:

 

	
  U.S.
  Annual Net Sales

  	
   

  	
  Royalty (% of U.S. Net Sales)

  	
   

  
	
  On that portion of U.S. Annual Net Sales
  from [*] to [*]

  	
   

  	
  15

  	
  %

  
	
  On that portion of U.S. Annual Net Sales
  from [*] to [*]

  	
   

  	
  20

  	
  %

  
	
  On that portion of U.S. Annual Net Sales
  from [*] to [*]

  	
   

  	
  25

  	
  %

  
	
  On that portion of U.S. Annual Net Sales
  above [*]

  	
   

  	
  30

  	
  %

  

 

(b)                                 Royalty
Payments on ROW Net Sales.  In addition to
the other consideration provided for herein, and subject to the other terms of
this Agreement, Schering shall pay to Sonus a royalty equal to fifteen percent
(15%) of Net Sales of the Product in the countries of the ROW Territory.

 

[*]                                 CONFIDENTIAL
PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION

 

14

 

(c)                                  Royalty
Term.  All royalties payable by
Schering to Sonus shall be paid, on a country-by-country basis, from the date
of Product Launch by Schering or an Affiliate or sublicensee of the Product in
a particular country until the later of: (i) ten (10) years from the
date of Product Launch in such country; and (ii) the last to expire of any
Sonus Patent containing a Valid Claim which covers the use or sale of the
Product in such country.

 

(d)                                 No
Valid Claim:  For countries
in which, at any time during the Royalty Term, there is no Sonus Patent
containing at least one Valid Claim which covers the use or sale of the
Product, the applicable royalty on Net Sales of the Product in that country
shall, for the period during which there is no such Sonus Patent containing at
least one Valid Claim, be reduced in accordance with the terms of this Section 3.02(d) as
follows:

 

(i)                                     For as long as
there is no Generic Product sold in the applicable country, the royalty payable
in the applicable country during the Royalty Term shall be [*] of the royalty rate provided for in Section 3.02(a) or
3.02(b), as the case may be, and;

 

(ii)                                  For as long as
a Generic Product is sold in the applicable country, the royalty payable in the
applicable country during the Royalty Term shall be [*] of the royalty rate provided for in Section 3.02(a) or
3.02(b), as the case may be.

 

(e)                                  License
following Expiration.  Upon expiration
of the Royalty Term in each country as described above, Schering shall
thereafter have an exclusive (even as to Sonus), paid-up license under Sonus
Know-How to make, have made, use, sell, offer for sale, have sold and import
the Product in that country.  This Section 3.02(e) shall
survive the expiration of this Agreement.

 

(f)                                    Royalty
Reports and Payments.  Schering shall
make royalty payments to Sonus within sixty (60) days after the end of each
calendar quarter in which Net Sales occurred. 
A report summarizing the Net Sales of the Product during each relevant
quarter, on a country-by-country basis, shall be delivered to Sonus within
sixty (60) days following the end of each calendar quarter for which royalties
are due in sufficient detail to permit confirmation of the accuracy of the
royalty payment made, including, without limitation, withholding taxes, if any,
required to be withheld, the method used to calculate the royalty payment, any
discounts, rebates, or other amounts included in calculating Net Sales, and the
exchange rates used.

 

(g)                                 Exchange
Rate; Manner and Place of Payment.  All payments to be made by Schering pursuant
to this Section 3.02 shall be payable by Schering to Sonus in United
States Dollars by wire transfer to a bank account designated in writing by
Sonus at least ten (10) Business Days before such payment is due and
payable.  The calculation of royalty
rates within Schering is based upon EUR. 
Therefore, where payments are based on Net Sales in countries other than
the member states of the European Monetary Union, the amount of such Net Sales
expressed in the currency of each country shall be converted into EUR at the
Euro Foreign Exchange Reference Rates published by the European Central Bank in
Frankfurt / Main Germany on the last Business Day of the applicable calendar
quarter.  The resulting EUR amount will
be converted into USD again at the Euro Foreign Exchange Reference Rates
published by the European Central Bank in Frankfurt / Main Germany on the last
Business Day of the applicable calendar quarter.

 

15

 

These Euro Foreign Exchange Reference Rates
are, as of the Execution Date, published on Reuters screen <ECB37>.  If no Euro Foreign Exchange Reference Rate is
determined for the relevant currency, the Parties shall agree upon another
reference rate.

 

(h)                                 Taxes.  All taxes levied on account of the royalties
and other payments accruing to Sonus under this Agreement shall be paid by
Sonus for its own account, including taxes levied thereon as income to
Sonus.  If provision is made in law or
regulation for withholding on payments due to Sonus, such tax shall be deducted
from the royalty payment or other payment made by Schering and paid to the
proper taxing authority and a receipt of payment of the tax secured promptly
delivered to Sonus.  Each Party agrees to
provide reasonable assistance to the other Party in claiming exemption from
such deductions or withholdings under any double taxation or similar agreement
or treaty from time to time in force.

 

ARTICLE IV

 

STOCK PURCHASE

 

Section 4.01                                Purchase and Sale of Stock.  Concurrently with the
execution and delivery of this Agreement, Sonus and Schering shall enter into a
Stock Purchase Agreement and Registration Rights Agreement in the form of Exhibit C
and Exhibit D, respectively, attached hereto (the “Stock Purchase
Agreement” and “Registration Rights Agreement” respectively), whereby Sonus
shall issue and deliver to Schering Berlin Venture Corporation a number of
shares of Common Stock of Sonus equal to Fifteen Million Six Hundred and
Seventy-Eight Thousand Dollars ($15,678,000) divided by the closing sales price
of the Common Stock of Sonus on the last trading day preceding the closing date
under the Stock Purchase Agreement and issue and deliver to Schering a Warrant
to purchase 975,000 shares of Common Stock of Sonus.

 

ARTICLE V

 

DEVELOPMENT

 

Section 5.01                                Steering Committee

 

(a)                                  Formation
of the Steering Committee.  Within fifteen
(15) days after the Execution Date, the Parties shall establish the Steering
Committee.  The Steering Committee shall
consist of an equal number of representatives of Sonus and Schering to be
agreed upon from time to time.  Each
member shall have the appropriate background and expertise to contribute to the
deliberations and decisions of the Steering Committee.  Each Party may, in its reasonable discretion,
invite non-member representatives of such Party to attend meetings of the
Steering Committee as appropriate to provide input with respect to matters on
the agenda.  Non-member representatives
will not have the power to vote on matters before the Steering Committee.  Regardless of the number of representatives
from each Party on the Steering Committee, each Party shall have one vote on
each issue.  The Parties may rotate their
respective representatives on the Steering Committee to ensure that the
Steering Committee is comprised, at all times, of members whose backgrounds,
experiences and expertise are appropriate in light of the progressive stages of
Development and Commercialization of the Product in the Field in the
Territory.  One of the Schering members
of the Steering Committee, chosen at the sole discretion of Schering, along
with one of the Sonus members of the Steering Committee, chosen at the sole
discretion of Sonus, shall serve as co-chairs of the Steering Committee.

 

16

 

(b)                                 Functions
of the Steering Committee.  The Steering
Committee shall function as a forum for the Parties to inform and consult with
one another concerning progress of and changes to Development, to the Core
Development Plan and Budget, and to the CMC/Manufacturing Plan and Budget.  The Parties shall also inform and consult
with one another with respect to progress in meeting Development goals, dealing
with obstacles to successful Development, and the status of obtaining
Approvals.  The Steering Committee shall
also function as a forum for Schering to keep Sonus informed of progress in the
Development of the Product in the ROW and Commercialization of the Product in
the Territory.  The following specific
functions shall be delegated to the Steering Committee:

 

(i)                                     Plan,
coordinate and oversee the Core Development and the CMC/Manufacturing of the
Product;

 

(ii)                                  Review and
approve updates yearly to the Core Development Plan and Budget, which plan and
budget will specify in reasonable detail the Core Development to be undertaken
by the Parties, and the allocation of such activities between the Parties;

 

(iii)                               Review and
approve updates yearly to the CMC/Manufacturing Plan and Budget, which plan and
budget will specify in reasonable detail the CMC/Manufacturing activities to be
undertaken by the Parties, and the allocation of such activities between the
Parties;

 

(iv)                              Review and
approve any amendments to the Core Development Plan and Budget and/or the
CMC/Manufacturing Plan and Budget that are not covered in the yearly updates.

 

(v)                                 Adopt and oversee
the operation of the Pharmacovigilance Agreement (required pursuant to Section 8.02)
consistent with the requirements for regulatory compliance in all countries of
the Territory.

 

(vi)                              Receive reports
from any Party who is performing Non-Core Development, on the progress of such
Non-Core Development.

 

(vii)                           Receive reports
from Schering on the Development of the Product in the ROW; and provide summary
of reports.

 

(viii)                        Receive reports
from Schering on marketing and sale of the Product in the Field in the
Territory.

 

(c)                                  Meetings
of the Steering Committee.  Meetings of the
Steering Committee shall be held quarterly, and may be called by either Party
with not less than ten (10) Business Days notice to the other unless such
notice is waived, and meetings shall alternate between the offices of Sonus in
Bothell, Washington and the offices of Schering’s Affiliate in Montville, New
Jersey, unless otherwise agreed.  The
Parties may meet by telephone or videoconference rather than in person if both
Parties agree.  In addition to the
quarterly meetings, the Steering Committee may be polled, or consulted from
time to time by means of telecommunication or correspondence.  Each Party will disclose to the other
proposed agenda items reasonably in advance of each meeting of the Steering
Committee.  Each Party shall bear its own
costs for participation in the Steering Committee.

 

17

 

(d)                                 Limitation
on Steering Committee Authority.  Notwithstanding
the creation of the Steering Committee, each Party to this Agreement shall
retain the rights, powers and discretions granted to it hereunder, and the
Steering Committee shall not be delegated or vested with any such rights,
powers or discretions unless such delegation or vesting is expressly provided
for herein or the Parties expressly so agree in writing.  The Steering Committee shall not have the
power to amend or modify this Agreement, which may be amended or modified only
as provided in Section 17.10.

 

(e)                                  Resolution
of Disputes.  If the Steering
Committee cannot reach a unanimous decision with respect to the Development
matters delegated to it within ten (10) Business Days, then the disputed
matter shall promptly be referred to a senior manager of each Party designated
by such Party for resolutions.  If the
senior managers are unable to resolve such matter within ten (10) Business
Days after one Party notifies the other of its desire to have the matter
referred to such senior managers, then the decision of Schering’s senior manager
shall control, provided, however, that the following decisions must be by
unanimous consent of the Parties and shall not be subject to the final decision
of Schering’s senior manager: (i) any decision to add or remove a Core
Indication from the Core Development Plan; (ii) any decision which would
have the effect of increasing the Core Development Costs and/or the
CMC/Manufacturing Costs by an aggregate amount of [*]; and (iii) any other decision which would increase in
any material respect the duties, obligations, or responsibilities of Sonus
pursuant to the Core Development Plan or Budget or pursuant to the
CMC/Manufacturing Plan and Budget.

 

Section 5.02                                Core Development

 

(a)                                  Each of Sonus
and Schering agree to co-operate in the Core Development of the Product and to
use Commercially Reasonable Efforts to bring the Product to market in the
US.  Sonus and Schering each agree to use
Commercially Reasonable Efforts to execute and substantially perform the
obligations assumed by each of them under the Core Development Plan and
Budget.  All Preclinical and Clinical
Development, including all clinical trials other than the Pivotal Trial, shall
be conducted by the Parties, as determined by the Steering Committee.  All ISS Activities shall be conducted by Schering.  The Pivotal Trial shall be conducted by Sonus
under the supervision of the Steering Committee.  Promptly following the Execution Date, Sonus
shall transfer legal title to all data from completed studies of the Product to
Schering, provided however, that (subject to Section 5.08(a)), Sonus shall
assign and transfer to Schering all of Sonus’ right, title and interest in and
to, and sponsorship of, U.S. IND 60,980 for the Product at the time of first
NDA Approval of the Product.  The NDA
will be developed and prepared for submission by Schering in collaboration with
Sonus as provided in the Core Development Plan and Budget.  Promptly following the conclusion of the
Pivotal Trial, Sonus shall transfer legal title to all data from the Pivotal
Trial to Schering.

 

(b)                                 Core
Development of the Product shall be governed by a Core Development Plan and
Budget to be agreed upon by the Parties within three (3) months of the
Execution Date, such Core Development Plan and Budget to be consistent with the
Initial Development Plan and Budget attached hereto as Schedule I.  The Core Development Plan and Budget shall be
updated annually by the Steering Committee, and submitted by October 1 in
each calendar year to the Parties for review and approval not later than sixty
(60) days after such submission.  The
Core Development Plan and Budget may also be amended, supplemented and
otherwise modified from time to time by the Steering Committee in accordance
with this Agreement.

 

[*]                                 CONFIDENTIAL
PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION

 

18

 

The Core Development Plan and Budget shall
provide a reasonably detailed written time-line for each step to be achieved
with respect to the performance of Core Development, the estimated Core
Development Costs and the description of the final Product.

 

Section 5.03                                CMC/Manufacturing

 

(a)                                  Each of Sonus
and Schering agree to co-operate in the CMC/Manufacturing of the Product and to
use Commercially Reasonable Efforts to bring the Product to market in the
US.  Sonus and Schering each agree to use
Commercially Reasonable Efforts to execute and substantially perform the
obligations assumed by each of them under the CMC/Manufacturing Plan and Budget.

 

(b)                                 CMC/Manufacturing
of the Product shall be governed by a CMC/Manufacturing Plan and Budget to be
agreed upon by the Parties within three (3) months of the Execution Date,
such CMC/Manufacturing Plan and Budget to be consistent with the Initial
Development Plan and Budget attached hereto as Schedule I.  The CMC/Manufacturing Plan and Budget shall
be updated annually by the Steering Committee, and submitted by October 1
in each calendar year to the Parties for review and approval not later than
sixty (60) days after such submission. 
The CMC/Manufacturing Plan and Budget may also be amended, supplemented
and otherwise modified from time to time by the Steering Committee in
accordance with this Agreement.  The
CMC/Manufacturing Plan and Budget shall provide a reasonably detailed written
time-line for each step to be achieved with respect to the performance of
CMC/Manufacturing, the estimated CMC/Manufacturing Costs and the description of
the final Product.

 

Section 5.04                                Non-Core Development

 

(a)                                  If either Party
wishes to pursue any Preclinical Development or Clinical Development for the
purposes of obtaining Approval in the US or any ISS Activities in the US that
are not included in the Core Development Plan, that Party will provide to the
other Party and the Steering Committee written details of the proposed
Preclinical Development or Clinical Development or ISS Activity and including a
trial outline for any proposed Clinical Development and the following
provisions shall apply:

 

(i)                                     If the Party
who has not proposed the activity has objective medical or ethical reasons to
oppose such Development activity or can reasonably demonstrate that the
performance or outcome of any such proposed Development activity could
jeopardize the interests of such other Party in the Product, then within thirty
(30) days of receipt of notice of such proposed Development, it shall provide
to the Party proposing the Development activity and to the Steering Committee
written notice of such objection and the grounds for objection.

 

(ii)                                  In the event
that the proposing Party, notwithstanding the notice of objection provided by
the other Party, wishes to pursue such Development activity, the Steering
Committee shall determine whether such Development activity shall be
permitted.  No such Development activity
shall be commenced unless or until the Steering Committee (or the senior
managers of the Parties as applicable) have determined that it shall be allowed
to proceed.  If the Steering Committee
resolves that the Development activity should be allowed to proceed, the Parties
shall then agree, within a further thirty (30) days whether to add such
Development activity to the Core Development Plan.  If the Parties do not agree to so add the
Development activity, then such Development activity shall be deemed to be
Non-Core Development and the following provisions shall apply: (x) the
Party who wishes to proceed with such Non-Core Development (the “Continuing

 

19

 

Party”) shall be entitled to proceed with
such Non-Core Development at its own cost and expense; and (y) if the Non-Core
Development results in an NDA Approval, the other Party shall, within thirty
(30) days of the date of such NDA Approval, pay to the Continuing Party a sum
equal to A plus B, where A equals [*]
of the Non-Core Development Costs incurred by the Continuing Party in the
performance of the applicable Non-Core Development; and (B) equals [*] of A, provided however, that if
Schering is the Continuing Party in the performance of Non-Core Development,
Sonus may, within six (6) months of the commencement by Schering of the
applicable Non-Core Development, provide notice to Schering of Sonus’ intention
to participate in such Development, in which case, on payment by Sonus of [*] of the Non-Core Development Costs incurred
by Schering for the first six months of such Development together with interest
at the rate set out in Section 8.03(b) of this Agreement, such
Non-Core Development shall, with effect from the end of such initial six (6) month
period become Core Development, and the provisions of Sections 5.02 and 5.09(a) shall
apply.

 

Section 5.05                                Other CMC/Manufacturing Activities.  Any CMC/Manufacturing
activities not included in the CMC/Manufacturing Plan and Budget may be
performed by the Manufacturing Party at its own cost and expense.

 

Section 5.06                                Development in ROW.  Schering will use
Commercially Reasonable efforts to obtain Approvals in all major commercial
markets in the Territory as soon as practicable and shall be responsible at its
sole cost and expense for the performance of all Preclinical and Clinical
Development and all ISS Activities in the ROW.

 

Section 5.07                                Performance of Development

 

(a)                                  Each Party
agrees to perform its obligations set out in this Article 5 in compliance
with Applicable Laws.  Each Party shall
have the right, at reasonable frequency and on reasonable advance notice to the
other Party, during or following the conduct of Preclinical Development,
Clinical Development or CMC/Manufacturing of the Product, to visit the site or
sites at which such Preclinical Development, Clinical Development or
CMC/Manufacturing has been or is being conducted, subject to any contractual
restrictions imposed by any Third Party. 
During such visits the visiting Party shall have the right to examine
all data, documents and records relating to the Product to determine whether
the activities have been or are being conducted in compliance with the protocol
or protocols in the Development Plan and Budget and in compliance with
Applicable Laws.  Recommendations of the
visiting Party shall be given due consideration by the other Party.

 

(b)                                 In the event
that either Party fails to perform or ceases to perform its obligations set
forth in this Article 5, and fails to commence such performance within a
reasonable time of receipt of written notice from the other Party pursuant to Section 16.02(b),
then (but without prejudice to any other rights of the other Party) the other
Party shall have the right to perform, or cause one or more of its Affiliates
to perform, such obligations.  The
reasonable expenses incurred by the performing Party in performing the
obligations of the non-performing Party shall be recovered by the performing
Party on a dollar-for-dollar basis. 
However, if the nonperforming Party is Sonus, Schering shall recover
reasonable expenses incurred through reduction of the milestone payments and
royalty payments next due to Sonus pursuant to Article III.

 

[*]                                 CONFIDENTIAL
PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION

 

20

 

The performing Party shall be
entitled to reasonable cooperation and assistance from the non-performing
Party, including, without limitation, assignment to the performing Party of
sponsorship of Approval Applications if necessary to permit the exercise of the
performing Party’s rights hereunder.

 

Section 5.08                                Approval Applications and Approvals

 

(a)                                  Clinical Development.  Except in the case of the Pivotal Trial,
Schering shall be responsible for preparing, filing and prosecuting all
Approval Applications for permission to conduct Clinical Development in such
countries of the Territory which require such applications to be filed and
where Schering, in good faith and in the exercise of reasonable business
judgment, determines it is commercially reasonable to do so.  With respect to the US and any other country
where Sonus has an Approval Application on file with a Governmental Authority,
Sonus shall transfer such Approval Application to Schering promptly following
the request of Schering, provided that, from and after the Execution Date,
Schering shall have authority and control with respect to any such Approval
Applications and, prior to transfer to Schering, all communications and
interactions with Governmental Authorities by Sonus with respect to such Approval
Applications shall be reviewed and approved in advance by Schering.

 

(b)                                 Cooperation.  The
Parties shall consult and cooperate (including, in the case of Sonus, providing
such commercially reasonable assistance as Schering shall reasonably request)
in the preparation of each Approval Application and in obtaining and
maintaining Approval Applications in the Territory, provided however, that,
except with regard to the Pivotal Trial, prior to and following Approval of an
Approval Application, Schering shall be solely responsible for interactions
with Governmental Authorities throughout the Territory.  Subject to the foregoing, Schering shall
provide Sonus and Sonus shall provide Schering (until transfer of Approval
Applications for permission to conduct Clinical Development and thereafter
solely in respect of the Pivotal Trial) with reasonable advance notice of any
scheduled meeting with the FDA relating to any Approval Application, and Sonus
or Schering, as applicable, shall have the right to participate in any such
meeting.  In the event that any
Governmental Agency threatens to or initiates an action to remove the Product
from the market in any country of the Territory, Schering shall notify Sonus of
such communication within three Business Days of receipt by Schering.  As between the Parties, Schering shall be the
legal and beneficial owner of all Approval Applications and Approvals in the
Territory.

 

Section 5.09                                Costs of Development

 

(a)                                  Core Development Costs and CMC/Manufacturing Costs.  All Core Development Costs and
CMC/Manufacturing Costs shall be shared equally by the Parties, including
Development Costs incurred by Sonus as of the Execution Date in the performance
of the Pivotal Trial, provided however, that such Development Costs incurred by
Sonus in the performance of the Pivotal Trial will be shared solely to the
extent that such costs are included in the Core Development Plan and Budget.  Each Party shall calculate and maintain
records of Core Development Costs and CMC/Manufacturing Costs incurred by it in
accordance with procedures to be agreed upon by the Parties.  Accounting by Schering for Core Development
Costs and CMC/Manufacturing Costs shall be in accordance with IFRSs
consistently applied.  Accounting by
Sonus shall be in accordance with US generally accepted accounting principles
consistently applied.  Each Party shall
report quarterly to the other on Core Development Costs and CMC/Manufacturing
Costs, with such reports to be submitted within thirty (30) days of the end of
each calendar quarter.  At the end of
each calendar year, the Parties shall assess the Core Development Costs and
CMC/Manufacturing Costs incurred

 

21

 

and documented by each Party.  In the event that either Party disagrees with
the assessment, then the Chief Financial Officer of Sonus and the Head of
Corporate Accounting of Schering shall meet and attempt to resolve the
disagreement.  If the Chief Financial
Officer and Head of Corporate Accounting are unable to resolve the
disagreement, it shall then be resolved in the same manner as an Audit
Disagreement pursuant to Section 8.03(d). 
Each Party shall also have the right to audit the Core Development Costs
and the CMC/Manufacturing Costs and any Non-Core Development Costs reported by
the other Party pursuant to Section 8.03(d).  Each Party shall pay to the other Party the
net amount of its share of Core Development Costs or CMC/Manufacturing Costs
within sixty (60) days of its receipt of each report referred to in this Section 5.09(a).

 

(b)                                 Non-Core Development Costs.  Any Party who performs Non-Core Development
shall calculate and maintain records of the Non-Core Development Costs incurred
by it in accordance with procedures to be agreed upon by the Parties.  Accounting by Schering for Non-Core
Development Costs shall be in accordance with IFRSs consistently applied.  Accounting by Sonus shall be in accordance
with US generally accepted accounting principles consistently applied.  Any Party who performs Non-Core Development
shall report quarterly to the other on Non-Core Development Costs with such
reports to be submitted within thirty (30) days of the end of each calendar
quarter.  At the end of each calendar
year, the Parties shall assess the Non-Core Development Costs incurred and
documented by each Party.  In the event
that either Party disagrees with the assessment, then the Chief Financial
Officer of Sonus and the Head of Corporate Accounting of Schering shall meet
and attempt to resolve the disagreement. 
If the Chief Financial Officer and Head of Corporate Accounting are
unable to resolve the disagreement, it shall then be resolved in the same
manner as an Audit Disagreement pursuant to Section 8.03(d).  Each Party shall also have the right to audit
the Non-Core Development Costs reported by the other Party pursuant to Section 8.03(d).  Except as otherwise provided in Section 5.04,
each Party shall be responsible for its Non-Core Development Costs.

 

(c)                                  Costs of Development FTEs. 
Within three (3) months of the Execution Date, the Parties shall
agree upon methods of calculating the costs of Development FTEs (on a
function-by-function basis if appropriate), including, without limitation, the
annual total of hours on which the calculation of Development FTEs is based and
the annual cost of each Development FTE.

 

(d)                                 Engagement of Third Parties

 

(i)                                     In
the course of its business, Sonus regularly uses Third Parties to perform
certain Development activities.  Subject
to Section 5.09(d)(ii) below, Sonus may continue to do so during the
course of this Agreement, provided, however, that Schering shall be notified in
advance of the identity of the Third Party, and that Schering shall have the
right to evaluate and approve of the Third Party (such approval not to be
unreasonably withheld or delayed), and that the Third Party agrees that all
results of the Third Party activities (including all intellectual property)
will, as between Sonus and the Third Party, be vested, without limitation,
encumbrance or restriction, in Sonus.  For
the avoidance of doubt, the Parties hereby agree that the provisions of the
preceding sentence apply only to Third Party contracts entered into by Sonus on
or after the Execution Date.

 

(ii)                                  Sonus
shall notify Schering in writing fifteen (15) days prior to entering into a
material contract with a Third Party to perform any Development activities
allocated to Sonus under the Core Development Plan and Budget or the
CMC/Manufacturing Plan, unless such contract may be canceled or terminated by
Sonus without penalty on sixty (60) days or less notice.  During the fifteen (15) day period following
such notice from Sonus, Schering shall have the right to

 

22

 

offer to perform itself such
Development activities that Sonus proposed to contract to a Third Party.  If Schering decides to offer to perform such
Development activities, it shall notify Sonus in writing during such fifteen
(15) day period and shall include with such notice the terms of its offer to
perform such Development activities.  Sonus
shall have no obligation to accept such an offer, but shall consider any such
offer in good faith and negotiate towards entering into an agreement with
Schering if Schering’s offer and capabilities are economically and operationally
equivalent to those of such Third Party. 
All other things being equal, Sonus shall accept Schering’s offer if it
is no more expensive than such Third Party’s offer, and if Schering commits to
finish such activities in substantially equal or less time than agreed to by
the Third Party identified by Sonus.

 

ARTICLE VI

 

COMMERCIALIZATION

 

Section 6.01                                Marketing Plan.  Schering, in cooperation with Sonus,
shall in accordance with Schering’s internal planning procedures, but in no
event later than the date of submission of the NDA for the Product, prepare a
marketing plan for the Product to support Product Launch in the Territory,
which shall include, without limitation, a list of marketing studies to be
conducted in connection with the Product, marketing strategies, plans for
implementing marketing strategies, distribution strategies, product launch
plans and budget for each commercially important geographic region included in
the Territory (the “Marketing Plan”).  Schering
shall provide Sonus at least annually an updated Marketing Plan.  The Marketing Plan may be amended from time
to time as proposed by Schering.  Sonus
will have the opportunity to review and provide comments with respect to the
Marketing Plan and any updates and amendments thereto, and will provide such
comments to Schering within thirty (30) days following Sonus’ receipt of each
version of the Marketing Plan.  Schering
shall give good faith consideration to Sonus’ comments regarding the Marketing
Plan.  The responsibilities and costs
associated with developing and implementing the Marketing Plan shall be the
sole responsibility of Schering.

 

Section 6.02                                Schering’s Promotion and Marketing
Obligations.  Schering
agrees to use Commercially Reasonable Efforts to promote the sale, marketing and
distribution of the Product in the Territory consistent with the Marketing Plan.  Except as provided in Section 6.03
relating to the Co-Promotion rights of Sonus, Schering shall be solely
responsible for all costs and expenses incurred in connection with the
marketing, sales and distribution of the Product in the Territory.  Schering shall promptly advise Sonus of any
issues that materially and adversely affect Schering’s ability to market the
Product in the Territory.  In such event,
the Parties shall meet and in good faith discuss what actions should be taken
in light of such issues.  Schering agrees
to mark all Product labeling and promotional materials as being developed by
and under license from Sonus.

 

Section 6.03                                Co-Promotion.  Sonus shall have the option, in its
discretion, to Co-Promote the Product in the Field in the United States.  Sonus shall exercise its Co-Promotion right,
if at all, by providing Schering at least ninety (90) days prior written
notice, which written notice must be delivered on or before the submission of
the first NDA to the FDA under this Agreement, Upon the election of Sonus to
exercise its right of Co-Promotion of the Product in the United States,
Schering and Sonus shall have co-exclusive responsibility for promoting sales
of the Product in United States, subject to the terms and conditions of this
Agreement.  The Parties shall co-operate
in connection with the Co-Promotion of the Product based upon the principle of
maximizing profits from sales of the Product. 
In connection with such Co-Promotion, the marketing efforts of Sonus
shall be consistent with the overall market strategy established by Schering.  The Co-Promotion Agreement

 

 

23

 

shall cover at least the
following topics: budget for the Co-Promotion activities of both Parties; the
Parties’ advertising and detailing responsibilities; the physician audience to
which the Parties’ respective sales representatives will target their detailing
calls; and a process for auditing the Parties’ respective detailing call
efforts.  In the event that Sonus elects
to exercise its Co-Promotion right, the Parties shall share all costs of
commercializing the Product in the United States and will share in all US
Operating Profits: [*] Schering
and [*] Sonus, and Schering shall
not be required to pay any royalties to Sonus on Net Sales of the Product in
the United States.  By way of
clarification, Schering shall be solely responsible for booking all sales of
the Products in the United States and elsewhere in the Territory.

 

Section 6.04                                Trademarks.  Schering shall select and use its own
trademarks, in connection with the promotion of the Product under this
Agreement (the “Schering Marks”).  Schering
will own the Schering Marks and any domain names incorporating such trademarks
used by Schering in connection with marketing and sale of the Products in the
Territory, and all goodwill associated therewith.  Sonus will not have, assert or acquire any
right, title or interest in or to any of the Schering Marks or make any use of
the Schering Marks, except that Sonus may reference the Schering Marks in
connection with its general business activities related to the Product and
except as otherwise agreed by the Parties. 
Schering shall be responsible for the costs of prosecuting, maintaining
and enforcing any of the Schering Marks. 
If mutually agreed by the Parties, Schering may use the Sonus Marks in
connection with its promotion of the Product in the Territory, subject to Section 2.03,
and Sonus may use Schering Marks in connection with its Co-Promotion of the
Product in the United States, in accordance with the Co-Promotion Agreement to
be negotiated between the Parties pursuant to Section 6.03 above.

 

ARTICLE VII

 

MANUFACTURE AND SUPPLY

 

Section 7.01                                Manufacture and Supply by Sonus.  Until such time (if any) as Schering
shall exercise its option to assume responsibility for manufacture and supply
of Product pursuant to Section 7.05 below, Sonus shall be responsible for
CMC/Manufacturing of Product (including management of Third Party contractors
and suppliers) but subject to all other provisions of this Agreement.  From the Execution Date of this Agreement,
Sonus shall manufacture, or arrange for manufacture of Product and supply
Product to Schering or to Schering’s designee for use in connection with
Development and for the Commercialization of the Product in each applicable
country of the Territory.  Sonus will not
enter into any Third Party contract relating to the manufacture of the Product
without Schering’s consent, which shall not be unreasonably withheld or delayed.  All CMC/Manufacturing plans, the
implementation of such plans, and all changes to manufacturing plans and
processes shall be subject to the approval of the Steering Committee.  Regardless of whether Schering exercises its
option to manufacture or have manufactured the Product pursuant to Section 7.05
below, Schering shall be responsible, at its own cost, for all capital
expenditures incurred by Schering in scaling up manufacture of the Product or
establishing new manufacturing facilities for the Product to the extent such
activities are not included in the CMC/Manufacturing Plan and Budget.

 

[*]                                 CONFIDENTIAL
PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION

 

24

 

Section 7.02                                Manufacturing and Supply Agreement.  Within three (3) months of the
Execution Date, the Parties shall enter into a manufacturing and supply
agreement to cover the supply of Product to Schering by Sonus hereunder, such
agreement to include a Quality Assurance Agreement.

 

Section 7.03                                Approvals for Manufacturing.  Schering shall be responsible for
preparing all Approval Applications to obtain, or causing a Third Party
manufacturer to make all necessary filings to obtain, Approval for the
manufacture of the Product as part of the Approval Application for the Product.  At the reasonable request of Schering, Sonus
will provide draft submissions for filing to Schering and will provide, or have
provided to Schering, whatever other technical support and expertise Schering
reasonably deems necessary to effectively obtain Approval for the manufacture
of the Product as part of the Approval for the Product.  Schering shall have authority and control
with respect to all filings to obtain Approval for the manufacture of the
Product.  Subject to the foregoing,
Schering shall provide Sonus and Sonus shall provide Schering with reasonable
advance notice of any scheduled meeting with the FDA, EMEA or other
Governmental Authority in a major regulatory jurisdiction relating to any
filing to obtain Approval for the Product, and Sonus or Schering, as
applicable, shall have the right to participate in any such meeting.  Once Approval Applications have been
submitted, Sonus shall not make or permit to be made any manufacturing process
changes with respect to the Product unless such manufacturing process changes
are approved in advance by Schering in writing.

 

Section 7.04                                Pricing.  Until such time, if any, as Schering
shall exercise its option to assume responsibility for manufacture and supply
of the Product pursuant to Section 7.05 of this Agreement, Sonus shall
supply all of Schering’s requirements of Product [*] together, after first
Product Launch, with [*] as the Parties shall agree in the manufacturing and
supply agreement to be negotiated pursuant to Section 7.02 above.  Notwithstanding the foregoing, if Schering
has not, within [*] of Product Launch in the US, exercised the option to
manufacture or have manufactured provided for in Section 7.05 below, then,
except where Schering’s failure to exercise the option is due to a restriction
in any Third Party contract entered into by Sonus prior to the Execution Date
which would prevent Schering from assuming responsibility for manufacture of
all requirements of the Product in the Territory, Schering and Sonus shall
re-negotiate the manufacturing and supply agreement provided for in Section 7.02
to allow Sonus to charge [*] for the manufacturing and supply services provided
by Sonus thereunder and not otherwise reimbursed by Schering.

 

Section 7.05                                Schering Option.  Notwithstanding anything to the contrary
herein, Schering may, at any time, by delivery of written notice to Sonus,
elect to become the Manufacturing Party hereunder in respect of the Product and
to make or have made the Product.  Subject
to the terms of all relevant Third Party contracts related to manufacture of
the Product, such election shall become effective on the date specified in such
notice, whereupon Sonus will be deemed to have transferred and assigned to
Schering (and will promptly transfer to Schering) all Information regarding
Sonus Know-How and all Third Party contracts related to the manufacture of the
Product, subject to the terms of all relevant Third Party contracts.  In the event that Schering wishes to use
property, plant and equipment of Sonus dedicated to the manufacture of the
Product, Sonus shall sell such property, plant and equipment to Schering at
fair market value.  Anything herein to
the contrary notwithstanding, nothing herein shall be deemed to constitute an
assignment of any third Party contract that requires consent to assignment.

 

[*]                                 CONFIDENTIAL
PORTIONS OMITTED AND FILED SEPARATELY WITH THE COMMISSION

 

25

 

ARTICLE VIII

 

INFORMATION AND REPORTS

 

Section 8.01                                Information and Reports during
Development and Commercialization.  Schering and Sonus will disclose and make
available (subject to any confidentiality agreements or requirements of law) to
each other without charge all preclinical, clinical, regulatory, marketing,
pricing, sales and other Information including copies of all preclinical and
clinical reports held by Schering or Sonus directly concerning the Product
within the Field at any time during the Term of this Agreement.

 

Each Party shall own and
maintain its own database of clinical trial data accumulated from all clinical
trials of the Product for which it was responsible, and of adverse drug event
information for the Product.  At the option
of the requesting Party, such data shall be provided in a computer readable
format by the providing Party to the extent available.  Without limiting the foregoing, each Party
shall supply to the other the Information required by the other Party and reasonably
requested by it (either as a routine practice or as a specific request) for
purposes of compliance with regulatory requirements.  With respect to Information concerning
Commercialization, Schering agrees to keep Sonus regularly informed on all such
activities in accordance with the requirements of Article VI of this
Agreement.

 

Section 8.02                                Adverse Drug Event Reporting.

 

(a)                                  Following
execution of this Agreement, the Parties will develop and adopt a
Pharmacovigilance Agreement specifying the roles and responsibilities of both
Parties for adverse event reporting to assure compliance with regulatory
requirements in the Territory.  Each
Party shall advise the other Party, under the terms of the Pharmacovigilance
Agreement, if it becomes aware of any potentially serious or unexpected adverse
event (including adverse drug experiences, as defined in 21 C.F.R. § 314.80
or other applicable regulations) involving the Product.  After the Product Launch, Schering shall have
the sole responsibility for pharmacovigilance for marketed Product, including
but not limited to: (i) monitoring such adverse events; and (ii) making
any reports to the Governmental Authorities in the Territory in accordance with
Schering’s Standard Operating Procedures relating to adverse event reporting.

 

In the event either Party requires
information regarding adverse events in connection with the preparation or
filing of reports required to be filed by it in order to comply with Applicable
Laws, including obligations to report adverse events to the Governmental
Authorities, each Party agrees to provide such information to the other on a
timely basis.

 

Section 8.03                                Records of Revenues and Expenses.

 

(a)                                  Each
Party will maintain complete and accurate records which are relevant to
revenues, costs, expenses and payments on a country-by-country basis in the
Territory under this Agreement and such records shall be open during reasonable
business hours for a period of two (2) years from creation of individual
records for examination at the other Party’s expense and not more often than
once each year by a firm of certified public accountants selected by the other
Party, for the sole purpose of verifying for the inspecting Party the
correctness of calculations and classifications of such revenues, costs,
expenses or payments made under this Agreement. 
Each Party shall bear its own costs related to such audit; provided
that, for any underpayments greater than five (5) percent by

 

26

 

the other Party, the other
Party shall pay to the inspecting Party the amount of underpayment, interest as
provided in Section 8.03(b) below and the inspecting Party’s
out-of-pocket expenses.  For any
underpayments of less than five (5) percent by the other Party found under
this section, the other Party shall pay to the inspecting Party the amount of
underpayment only.  Any overpayments by
the other Party will be refunded by the inspecting Party.  Any records or accounting information
received from the other Party shall be Confidential Information for the
purposes of Section 10.01 Results of any such audit shall be provided to
both Parties subject to the confidentiality obligations of Section 10.01.

 

(b)                                 Due Date; Interest.  Any
payments due under this Agreement shall be due on such date as specified in
this Agreement and, in the event such date is a day on which commercial banks
are not authorized to conduct business in either the States of Washington or
New Jersey or the city of Berlin, Federal Republic of Germany, then the next
succeeding Business Day.  Any failure by
a Party to make such payment within ten (10) Business Days after the date
when due shall obligate such Party to pay computed interest to the receiving
Party at a rate per annum equal to the Prime Rate as publicly announced by the
Bank of America on Reuters Screen “US PRIME” on the due date or the next
Business Day computed on the basis of a 356/360 year, such interest to be due
and payable upon tender of payment.

 

(c)                                  Payment to or Reports by Affiliates. 
Any payment required under any provision of this Agreement to
be made to either Party or any report required to be made by either Party to
the other shall be made to or by an Affiliate of that Party if designated by
that Party as the appropriate recipient or reporting entity, without relieving
the other Party from responsibility for such payment or report.; provided
however, that this Section shall not have any adverse tax, accounting, or
cash flow impact to the other Party.

 

(d)                                 Audits; Disputes.  If
there is any dispute between the Parties following any audit pursuant to Section 8.03(a) above,
either Party may refer the issue (an “Audit Disagreement”) to an independent
certified public accountant for resolution. 
In the event an Audit Disagreement is submitted for resolution by either
Party, the Parties shall comply with the following procedures:

 

(i)                                     The
Party submitting the Audit Disagreement for resolution shall provide written
notice to the other that it is invoking the procedures of this Section.

 

(ii)                                  Within
thirty (30) days of giving such notice, the Parties shall jointly select a
recognized independent international accounting form to act as an independent
expert to resolve such Audit Disagreement.

 

(iii)                               The
Audit Disagreement submitted for resolution shall be described by the Parties
to the independent expert, which description may be in written or oral form,
within ten (10) Business Days of the selection of such an independent
expert.

 

(iv)                              The
independent expert shall render a decision on the matter as soon as
practicable.

 

(v)                                 the
decision of the independent expert shall be final and binding unless such Audit
Disagreement involves alleged fraud, or breach of this Agreement or
interpretation of any of the terms and conditions of this Agreement other than
accounting terms and definitions.

 

27

 

(vi)                              All
fees and expenses of the independent expert, including any Third Party support
staff, or other costs incurred with respect to carrying out the procedures
specified at the direction of the independent expert in connection with such
Audit Disagreement, shall be borne by each Party in inverse proportion to the
disputed amounts awarded to the Party by the independent expert through such
decision.  For example, Party A disputes
$100, the independent expert awards Party A $60: Party A must pay forty (40)
percent and Party B sixty (60) percent of the independent expert’s costs.

 

ARTICLE IX

 

PATENTS AND TRADEMARKS

 

Section 9.01                                Prosecution and Maintenance of
Patents.  Sonus shall, at
Sonus’ expense, be responsible for prosecuting and maintaining the Sonus Patent
Rights in the countries in the Territory set forth on Exhibit B; provided
however, that upon written request by Sonus, Schering shall, at no cost or
expense to Schering, provide such assistance as may be reasonably necessary and
as Schering is reasonably capable of providing to enable Sonus to comply with
the administrative formalities necessary to maintain any Sonus Patent Rights.  Schering may request that Sonus file patent
applications in additional countries in the Territory if commercially
practicable, at Schering’s expense.  Sonus
shall keep Schering advised as to the status of the Sonus Patent Rights by
providing Schering, in a timely manner prior to their due date, with copies of
all official documents and correspondence relating to the prosecution,
maintenance, and validity of the Sonus Patent Rights.  Schering shall have twenty (20) Business Days
after receipt to review and comment on such official documents and
correspondence.  Sonus shall give good
faith consideration to Schering’s comments regarding patent-related documents,
provided however that the ultimate decision relating to patent-related
documents shall remain with Sonus in its discretion, subject always to Section 9.04
and the other terms of this Agreement.  The
foregoing notwithstanding, Sonus shall not abandon prosecution of any patent
application within the Sonus Patent Rights without first notifying Schering
sixty (60) days prior to any bar date, of Sonus’ intention and reason
therefore, and providing Schering with reasonable opportunity to assume
responsibility for prosecution, maintenance and associated costs of such
patents and patent applications.  In the
event that Schering does agree to assume responsibility for the prosecution,
maintenance and associated costs of any such patent application, then Sonus
shall transfer to Schering, free of charge, its rights and ownership in such
patent application, and such patent application and any patents arising
therefrom shall no longer form part of the Sonus Patent Rights.  Sonus shall use Commercially Reasonable
Efforts to ensure that any patent application filed outside of the US prior to
a filing in the US will be in a form sufficient to establish the date of
original filing as a priority date for the purposes of a subsequent filing in
the US.  Sonus shall use Commercially
Reasonable Efforts to ensure that any patent application filed in the US prior
to a filing outside the US will be in a form sufficient to establish the date
of original filing as a priority date for the purpose of a subsequent filing in
any contracting state of the Paris Convention.

 

Section 9.02                                Maintenance of Marks.  Sonus shall, at its sole expense,
register and maintain the Sonus Marks in those countries in the Territory where
the Parties have agreed the Sonus Marks will be used in connection with the
promotion and sale of the Product by Schering; provided however, that upon
written request by Sonus, Schering shall provide such assistance as may be
reasonably necessary to enable Sonus to comply with the administrative
formalities necessary to maintain any Sonus Marks.

 

28

 

Section 9.03                                Patent and Technology Ownership.  Each Party shall remain the sole owner or
licensee, as applicable, of all technology, discoveries, patent applications,
patents, know-how and inventions owned or controlled by such Party on the
Execution Date and shall have no rights in or to technology, discoveries, patent
applications, patents, know-how and inventions owned by the other Party except
as specifically provided by this Agreement. 
The entire right and title in all technology arising out of work
performed by the Parties in the course of conducting activities pursuant to
this Agreement (i) conceived by employees or others acting solely on
behalf of Sonus or its Affiliates shall be owned solely by Sonus (ii) conceived
by employees or others acting solely on behalf of Schering or its Affiliates
shall be owned solely by Schering, and (iii) conceived by employees or
others acting jointly on behalf of Sonus and Schering, or their respective
Affiliates, shall be owned jointly by Sonus and Schering, provided however,
that neither Party may license rights in any technology which is jointly owned
without the prior written consent of the other Party, except that Schering may
license such rights as part of a permitted sublicense pursuant to Section 2.02
of this Agreement.

 

Section 9.04                                Cooperation of the Parties.  Each Party agrees to cooperate fully in
the preparation, filing, and prosecution of any Patents under this Agreement.  Such cooperation includes, but is not limited
to:

 

(a)                                  executing
all papers and instruments, or requiring its employees or agents, to execute
such papers and instruments, so as to effectuate the ownership of Patents set
forth in Section 9.03 above and to enable the other Party to apply for and
to prosecute patent applications in any country; and

 

(b)                                 promptly
informing the other Party of any matters coming to such Party’s attention that
may affect the preparation, filing, or prosecution of any such patent
applications.

 

(c)                                  promptly,
and reasonably in advance of the intended date for submission of such
application to a governmental patent authority, disclosing to the other Party
any Patent application disclosing inventions made jointly by the Parties.

 

(d)                                 cooperating
with each other in regard to maximizing the duration of and extending the term
of Patent coverage, including, without limitation, assembling and prosecuting
one or more applications for Patent term extension in the US and any other
countries where such extension is available.

 

Within three (3) months of the Execution
Date, the Parties agree to establish a patent committee (“Patent Committee”)
comprised of intellectual property experts from Sonus and Schering for the
purpose of providing a forum for the Parties to consult with each other on
patent strategy and to agree on procedures for the filing and maintenance of
Patents covering joint inventions of the Parties.

 

Section 9.05                                New Patent Filings.

 

(a)                                  Each
Party, at its own cost, shall prepare, file, prosecute and maintain Patents to
cover inventions made during the Term solely by its own employees or
consultants, and shall use reasonable efforts to file initially all such
applications in the US or the appropriate forum under the circumstances.  If a Party elects not to file, prosecute or
maintain any such Patent in any country, the Party shall give the other Party
notice thereof within a reasonable period prior to allowing such Patent to
lapse, become abandoned or become unenforceable.  The other Party, at its sole discretion and
cost, may file, prosecute or maintain such

 

29

 

Patent in its own name, in
which case the Party shall transfer, free of charge, its right and ownership in
such Patent in the applicable country to the other Party.

 

(b)                                 Schering
shall have the right to file, prosecute and maintain Patents to cover
inventions made jointly by personnel of Sonus and Schering or by consultants or
other Third Parties providing services to Sonus and Schering jointly in the
course of their collaboration under this Agreement (collectively “Joint Patents”)
in the name and on behalf of Schering and Sonus.  The Parties shall bear equally all external
costs and expenses related to the filing, prosecuting and maintenance of Joint
Patents worldwide, provided however, that either Party may elect not to share
in the costs and expenses related to the filing, prosecuting and maintenance of
any such Joint Patent in any country, in which case the other Party may at its
own cost file, prosecute or maintain such Patent in its own name in the
applicable country, and the Party which does not share in the costs and expenses
shall transfer, free of charge, its right and ownership in such Joint Patent in
the applicable country to the other Party.

 

Section 9.06                                Enforcement Rights.

 

(a)                                  Notification of Infringement.  Each
Party shall give prompt notice to the other of any Third Party act which comes
to its attention that may infringe or threaten to infringe either the Sonus
Technology, the Joint Patents or the Sonus Marks in the Territory, and shall
provide such other Party with all available evidence of such infringement.

 

(b)                                 Enforcement in the Territory - Patents. 
Schering shall have the right, but not the obligation, to
institute, prosecute and control, at its own expense and by counsel of its own
choice, any action or proceeding with respect to infringement of any Sonus
Patents, Schering Patents or Joint Patents covering the manufacture, use,
importation, sale or offer for sale of any Product being Developed or
Commercialized in the Territory during the Term.  Sonus shall have the right, at its own
expense, to be represented in any such action by counsel of its own choice.  If Schering fails to bring any such action or
proceeding or otherwise take appropriate action to abate such infringement
within a period of one hundred eighty (180) days of notice by Sonus to Schering
requesting action, Sonus will have the right, but not the obligation, to bring
and control, at its own expense and by counsel of its own choice, any such
action or proceeding relating to Sonus Patents or Joint Patents.  Schering shall have the right, at its own
expense, to be represented in any such action by counsel of its own choice.  If one Party brings any such action or
proceeding, the other Party agrees to be joined as a party plaintiff if
necessary to prosecute the action or proceeding and to give the first Party
reasonable assistance and authority to file and prosecute the suit.  Any damages or other monetary awards
recovered pursuant to this Section 9.06(b) shall be allocated first
to the costs and expenses of the Party bringing suit, then to the costs and
expenses, if any, of the other Party.  Any
amounts remaining shall be distributed as follows: compensatory damages shall
be treated as Net Sales in the country and calendar quarter received and
punitive and exemplary damages shall be paid equally to Schering and Sonus.

 

(c)                                  Enforcement in the Territory - Sonus Marks.  Sonus shall have the right, but
not the obligation, to institute, prosecute and control, at its own expense and
by counsel of its own choice, any action or proceeding with respect to
infringement of the Sonus Marks.  Schering
shall have the right, at its own expense, to be represented in any such action
by counsel of its own choice.  If Sonus
fails to bring such action within a period of one hundred eighty (180) days of
notice by

 

30

 

Schering requesting action,
Schering shall have the right, but not the obligation, to bring and control, at
its own expense and by counsel of its own choice, any such action or proceeding
relating to the Sonus Marks to the extent that the Sonus Marks are used by
Schering in the Commercialization of the Product.  Sonus shall have the right, at its own
expense, to be represented in any such action by counsel of its own choice.  If one Party brings any such action or
proceeding, the other Party agrees to be joined as a party plaintiff if
necessary to prosecute the action or proceeding and to give the first Party
reasonable assistance and authority to file and prosecute the suit.  Any damages or other monetary awards
recovered pursuant to this Section 9.06(c) shall be allocated first
to the costs and expenses of the Party bring suit, then to the costs and
expenses, if any, of the other Party.  Any
amounts remaining shall be paid equally to Sonus and Schering.

 

Section 9.07                                Infringement Claimed By Third
Parties.  In the event a
Third Party asserts that a patent, trademark or other intangible right owned by
it is infringed by any Product in the Territory, Sonus and Schering will be
jointly responsible for defending against any such assertions, including
selection of counsel and development of strategy.  The Parties shall share equally the cost and
expense of defense, including attorneys fees but no settlement may be entered
into without the written consent of both Parties, which shall not be
unreasonably withheld or delayed.  Subject
to the preceding sentence, Sonus agrees to defend, indemnify and hold harmless
Schering from and against all losses, damages, liabilities, costs and expenses
incurred by Schering in connection with any judicial or administrative
proceeding instituted by a Third Party against Schering based on the
manufacture, use or sale by Schering of the Product.  .The Parties agree that, if any Third Party
is successful in any such claim, and Schering is ordered to make any payments
to such Third Party in connection therewith, then (without prejudice to any
other remedies available to Schering pursuant to this Agreement), any such
payments may be offset or deducted from the payment obligations of Schering to
Sonus under the Agreement.

 

ARTICLE X

 

CONFIDENTIALITY

 

Section 10.01                          Confidentiality.  During the Term and for a period of ten (10) years
thereafter, each Party shall maintain all Confidential Information of the other
Party as confidential and shall not disclose any such Confidential Information
to any Third Party or use any such Confidential Information for any purpose,
except (a) as expressly authorized by this Agreement, (b) as required
by law, rule, regulation or court order (provided that the disclosing Party
shall first notify the other Party and shall use Commercially Reasonable
Efforts to obtain confidential treatment of any such information required to be
disclosed), or (c) to its Affiliates and its employees, agents,
consultants and other representatives (“Representatives”) to accomplish the
purposes of this Agreement, so long as such persons are under an obligation of
confidentiality no less stringent than as set forth herein.  Each Party may use such Confidential
Information only to the extent required to accomplish the purposes of this
Agreement.  Each Party shall use at least
the same standard of care as it uses to protect its own Confidential
Information to ensure that it and its Affiliates and Representatives do not
disclose or make any unauthorized use of the other Party’s Confidential
Information.  Each Party shall be
responsible for any breach of this Agreement by its Representatives.  Each Party shall promptly notify the other
Party upon discovery of any unauthorized use or disclosure of the other Party’s
Confidential Information,

 

Section 10.02                          Disclosure of Agreement.  Neither Party shall release to any Third
Party or publish in any way any non-public information with respect to the
terms of this Agreement without

 

31

 

the prior written consent of
the other Party, which consent shall not be unreasonably withheld, except for
the disclosure by a Party of the terms of this Agreement to lenders, investment
bankers and other financial institutions of its choice solely for purposes of
financing the business operations of such Party, provided such Party obtains a
signed confidentiality agreement with any such financial institution with
respect to such information on terms substantially similar to those contained
in this Article X, and either Party, in its sole discretion, may disclose
terms of this Agreement to potential permitted assignees, provided that they
obtain a signed confidentiality agreement with respect to the information
disclosed on terms substantially similar to those contained in this Article X.  Nothing contained in this paragraph shall
prohibit either Party from filing this Agreement as required by the rules and
regulations of the Securities and Exchange Commission, national securities
exchanges or the Nasdaq National Market or any Applicable Law, provided the
disclosing Party discloses only the minimum information required to be
disclosed in order to comply with such requirements, including requesting
confidential treatment for appropriate provisions of this Agreement (after
reasonable consultation with the other Party) and filing this Agreement in
redacted form.  Where materiality of
disclosure requires a press release or other disclosure pertaining to this
Agreement, the disclosing Party shall (without prejudice to the provisions of Section 17.12
below) give at least three (3) Business Days’ advance notice to the other
Party, unless otherwise required by Applicable Law.

 

Section 10.03                          Use of Names.  Neither Party shall use the name of the
other Party in relation to this transaction in any written public announcement,
press release or other public document without the written consent of such
other Party, which consent shall not be unreasonably withheld or delayed,
provided, however, that either Party may use the name of the other Party in any
document filed with a Governmental Authority, including the FDA and the
Securities and Exchange Commission, in which case Schering shall be referred to
as “Schering AG, Germany”.  Sonus agrees
not to use the name “Schering” in relation to this transaction in any press
release, written public announcement or other public document without the prior
written approval of Schering, which approval shall not be unreasonably withheld
or delayed, unless otherwise required by Applicable Law.  Nothing in this Section 10.03 shall
restrict either Party from using the name of the other Party in any written
public announcement, press release or other public document relating to any
press release or statement permitted pursuant to Section 17.12.

 

ARTICLE XI

 

REPRESENTATIONS AND WARRANTIES

 

Section 11.01                          Corporate Power.  Each Party hereby represents and warrants
that such Party is duly organized and validly existing under the laws of the
state of its incorporation and has full corporate power and authority to enter
into this Agreement and to carry out the provisions hereof.

 

Section 11.02                          Due Authorization.  Each Party hereby represents and warrants
that such Party is duly authorized to execute and deliver this Agreement and to
perform its obligations hereunder.

 

Section 11.03                          Binding Obligation.  Each Party hereby represents and warrants
that this Agreement is a legal and valid obligation binding upon it and is
enforceable in accordance with its terms, except as enforceability thereof may
be limited by bankruptcy, insolvency, reorganization or other similar laws
relating to or affecting the rights of creditors generally, and by general
principles of equity.  The execution,
delivery and performance of this Agreement by such Party does not conflict with
any agreement, instrument or understanding, oral or written, to which it is a
party or by

 

32

 

which it may be bound, nor
violate any law or regulation of any court, governmental body or administrative
or other agency having authority over it, subject to compliance with and
filings under the HSR Act.

 

Section 11.04                          Ability to Carry Out Obligations.  Each Party hereby represents and warrants
that there are no actions, suits or proceedings pending or, to its knowledge,
threatened against it or its Affiliates that affect its ability to carry out
its obligations under this Agreement.

 

Section 11.05                          Compliance with Laws.  Each Party hereby represents and warrants
that its activities in connection with this Agreement will be carried out in
compliance with any applicable federal, state or local laws, regulations or
guidelines covering the relevant conduct.

 

Section 11.06                          Sonus Representations.  Sonus represents and warrants that as of
the Execution Date:

 

(a)                                  it
is the sole owner of all right, title and interest in and to the Sonus
Technology and the Sonus Marks, and that no such rights are licensed from a
Third Party;

 

(b)                                 except
as it may have previously disclosed to Schering in writing, it has not received
any notices of infringement or any written communications from a Third Party
relating to a possible infringement with respect to the Product, and that it is
not aware that the manufacture, use or sale of the Product infringes any Third
Party patent rights;

 

(c)                                  it
has not granted any license under the Sonus Technology, nor has it granted any
license to use the Sonus Marks, for the Product in the Territory for use in the
Field to any Third Party and is under no obligation to grant any such license;

 

(d)                                 it
does not own or license any patents or patent applications not included in the
Sonus Patents which would be infringed by the manufacture, use or sale of any
Product or the practice of any methods or processes covered by the Sonus Technology
by Schering or its Affiliates;

 

(e)                                  to
its knowledge, all patents included in the Sonus Patents are valid and in full
force and effect and it is unaware of any publications or activities or any
prior art or any fact, including without limitation, patents, articles, and
public uses or sales, by it or others, which would or might invalidate any
claim(s) of any patent or patent application included in the Sonus Patents;

 

(f)                                    it
has not received notice that any patent application within the Sonus Patent Rights
is the subject of any pending interference, opposition, cancellation or other
protest proceeding;

 

(g)                                 Sonus
has provided Schering with all material information and data relating to the
Product and on-going clinical trials of the Product in Sonus’ possession or
control (excluding written attorney-client privileged documents), including,
without limitation, all information concerning efficacy, side effects, injury,
toxicity or sensitivity, reaction and incidents or severity thereof, associated
with any clinical use, studies, investigations or tests with the Product
(animal or human), whether or not determined to be attributable to the Product,
and has not withheld any information that would make any information provided
by Sonus misleading in any material respects;

 

(h)                                 to
its knowledge, neither it, nor any of its employees, officers, subcontractors
or consultants who have rendered services relating to the Product (i) have
been debarred or convicted

 

33

 

of a crime for which an entity
or person could be debarred under 21 U.S.C. 
Section 335(a), or (ii) have been under indictment for a crime
for which a person or entity could be debarred under 21 U.S.C.  Section 335(a); and

 

(i)                                     In
the course of Developing the Product, to its knowledge has not conducted, and
during the course of this Agreement it will not knowingly conduct, any
Development activities in material violation of Applicable Laws;

 

(j)                                     to
its knowledge, it has obtained all right, title and interest in and to all
rights to the Product and the Sonus Technology, free and clear of any Third
Party rights, and of any liens, encumbrances or rights to repurchase;

 

(k)                                  to
its knowledge, no outstanding notice, citation, summons or order has been
issued, no outstanding complaint has been filed, no outstanding penalty has
been assessed and no investigation or review is pending or threatened by any
government authority or other person with respect to any alleged violation by
Sonus related to the Product or any law, ordinance, rule, regulation, code or
order of any government authority.

 

ARTICLE XII

 

INDEMNIFICATION

 

Section 12.01                          Schering Indemnified by Sonus.  Sonus shall indemnify and hold Schering
harmless from and against any Third Party liabilities or obligations, damages,
losses, claims, encumbrances, costs or expenses (including reasonable attorneys’
fees) (any or all of the foregoing herein referred to as “Loss”) insofar as a
Loss or actions in respect thereof, whether existing or occurring prior to, on
or subsequent to the Execution Date, arises out of or is based upon (a) any
misrepresentation or breach of any of the representations, warranties,
covenants or agreements made by Sonus in this Agreement (b) Sonus
manufacturing, marketing, sale, distribution or promotion of the Product or (c) the
negligence or willful misconduct of Sonus, except Losses to the extent caused
by Schering’s negligence or willful misconduct, or for which Schering
indemnifies Sonus pursuant to Section 12.02.

 

Section 12.02                          Sonus Indemnified by Schering.  Schering shall indemnify and hold
harmless Sonus from and against any Loss insofar as such Loss or actions in
respect thereof, whether existing or occurring prior to, on or subsequent to
the date hereof, arises out of or is based upon (a) any misrepresentation
or breach of any of the representations, warranties, covenants or agreements
made by Schering in this Agreement or (b) Schering’s manufacturing,
marketing, sale, distribution or promotion of the Product or (c) the
negligence or willful misconduct of Schering, except Losses to the extent
caused by Sonus’ negligence or willful misconduct, or for which Sonus
indemnifies Schering pursuant to Section 12.01.

 

Section 12.03                          Conditions to Indemnification.  A person or entity that intends to claim
indemnification under this Article XII (the “Indemnitee”) shall promptly
notify the other Party (the “Indemnitor”) of any loss, claim, damage, liability
or action in respect of which the Indemnitee intends to claim such
indemnification, and the Indemnitor shall assume the defense thereof, with
counsel reasonably satisfactory to the Indemnitee, whether or not such claim is
rightfully brought; provided, however, that an Indemnitee shall have the right
to retain its own counsel, with the fees and expenses to be paid by the
Indemnitor if Indemnitor does not assume the defense, or if representation

 

34

 

of such Indemnitee by the
counsel retained by the Indemnitor would be inappropriate due to differing interests
between such Indemnitee and any other person represented by such counsel in
such proceedings.  The indemnity
agreement in this Article XII shall not apply to amounts paid in
settlement of any loss, claim, damage, liability or action if such settlement
is effected without the consent of the Indemnitor, which consent shall not be
withheld or delayed unreasonably.  The
failure to deliver notice to the Indemnitor within a reasonable time after the
commencement of any such action, only to the extent prejudicial to its ability
to defend such action, shall relieve such Indemnitor of liability to the
Indemnitee under this Article XII, but the omission so to deliver notice
to the Indemnitor will not relieve it of any liability that it may have to any
Indemnitee otherwise than under this Article XII.  The Indemnitee under this Article XII,
its employees and agents, shall cooperate fully with the Indemnitor and its
legal representatives in the investigations of any action, claim or liability
covered by this indemnification.  Any
actions taken or payments made by an Indemnitor hereunder shall be without
prejudice to the Indemnitor’s right to contest the Indemnitee’s right to
indemnification and subject to refund if the Indemnitor is ultimately held not
to be obligated to indemnify the Indemnitee.

 

Section 12.04                          Limitations.

 

(a)                                  Limited Warranty.  THE
WARRANTIES HEREIN ARE IN LIEU OF ALL WARRANTIES, EITHER EXPRESS OR IMPLIED, AND
EXCEPT AS SET FORTH HEREIN, EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL
WARRANTIES OF ANY KIND, EXPRESS OR IMPLIED, INCLUDING, WITHOUT LIMITATION, ANY
IMPLIED WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
NONINFRINGEMENT, TITLE OR ARISING FROM A COURSE OF DEALING, USAGE OR TRADE
PRACTICES.

 

(b)                                 Limitation of Liability.  NEITHER
PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY OR ITS AFFILIATES FOR ANY
SPECIAL, CONSEQUENTIAL, INDIRECT, EXEMPLARY, PUNITIVE OR INCIDENTAL DAMAGES
ARISING OUT OF OR RELATED TO THIS AGREEMENT HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY (INCLUDING NEGLIGENCE), WHETHER OR NOT A PARTY HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.  The
foregoing is not intended to limit the indemnification obligations of either
Party for such damages claimed by a Third Party or to limit a Party’s liability
for breach of its obligations under Article X (Confidentiality).

 

ARTICLE XIII

 

ADDITIONAL COVENANTS

 

Section 13.01                          Sales Forecasts.  Commencing on the date of the initial
Product Launch and continuing through the Term, Schering shall provide Sonus
with an annual sales forecast for the Product in each country within the
Territory, which sales forecast shall be updated quarterly.  Product forecasts shall be considered good
faith estimates of Product sales based on information available to Schering and
shall not be binding on Schering.

 

Section 13.02                          Noncompetition.  During the Term, both Parties agree not
to, directly or indirectly, through one or more Third Parties, market or sell
to end users any competing products in the Territory, provided however, that if
Schering has sublicensed the Product in a country in accordance with Section 2.02
of this Agreement, then the sale by Schering of a “competing product”.  shall not constitute a breach of this Section 13.02.  A “competing product” means any cancer
therapy

 

35

 

product that includes
paclitaxel as its active ingredient for use in the treatment or prevention of
cancer.

 

Section 13.03                          Rights of First Negotiation.

 

(a)                                  Schering Right.  If
Sonus wishes, at any time during the Term, to grant a license to any Third
Party with respect to Sonus’ proprietary formulation of a camptothecin derivative
using Sonus’ TOCOSOL technology (“Camptothecin”), Sonus shall first provide
Schering with written notice of its wish to grant such license to a Third Party
together with a summary of key data relating to Camptothecin.  If Schering, within four weeks of receipt of
such written notice, confirms that it is interested in obtaining rights to
Camptothecin and submits to Sonus a written term sheet proposing terms for such
license, Sonus and Schering shall enter into good faith negotiations with
respect to the licensing of Camptothecin on the terms proposed in the Schering
term sheet.  If, within three months of
receipt by Schering of the original written notice from Sonus, the Parties have
not agreed upon the terms of any licensing agreement with respect to
Camptothecin, Sonus shall be free to negotiate and enter into a licensing
agreement with any Third Party with respect to Camptothecin, provided however,
that Sonus may not enter into such a licensing agreement with a Third Party on
terms less favorable to Sonus (taken as a whole) than the terms proposed by
Schering without first offering Schering the opportunity to enter into such
license agreement on such terms less favorable to Sonus.

 

(b)                                 Sonus Right.  Schering
shall, within three (3) years of the Execution Date, nominate to Sonus a
product or compound owned or controlled by Schering that is at an equivalent
stage of development, as of the Execution Date, as Camptothecin and that
Schering intends to license to a Third Party (the “Schering Product”).  Schering shall first provide Sonus with a
summary of key data relating to the Schering Product.  If Sonus, within four weeks of receipt of such
written notice, confirms that it is interested in obtaining rights to the
Schering Product and submits to Schering a written term sheet proposing terms
for such license, Schering and Sonus shall enter into good faith negotiations
with respect to the licensing of the Schering Product on the terms proposed in
the Sonus term sheet.  If, within three
months of receipt by Sonus of the original written notice from Schering, the
Parties have not agreed upon the terms of any licensing agreement with respect
to the Schering Product, Schering shall be free to negotiate and enter into a
licensing agreement with any Third Party with respect to the Schering Product,
provided however, that Schering may not enter into such a licensing agreement
with a Third Party on terms less favorable to Schering (taken as a whole) than
the terms proposed by Sonus without first offering Sonus the opportunity to
enter into such license agreement on such terms less favorable to Schering.

 

ARTICLE XIV

 

PRODUCT RECALL

 

Section 14.01                          Product Recalls or Withdrawal.  If at any time or from time to time any
Governmental Authority of any country requests either Party or an Affiliate of
either Party or a sublicensee of Schering to recall the Product, or if a
voluntary recall is contemplated (a “Recall”), the Party to whom such request
is made or the Party contemplating such Recall, as the case may be, shall
immediately notify the other Party, it being understood and agreed that each
Party shall have rights to initiate a recall if required by Applicable Laws.  Any Recall in the Territory involving
investigational clinical trial activities conducted by Sonus shall be carried
out by Sonus in as expeditious a manner as reasonably possible to preserve the
goodwill and

 

36

 

reputation of the Product and
the goodwill and reputation of the Parties. 
Any other Recall in the Territory shall be carried out by Schering in as
expeditious a manner as reasonably possible to preserve the goodwill and
reputation of the Product and the goodwill and reputation of the Parties.  Unless otherwise required by law, Schering
shall in all events be responsible for conducting any Recalls in the Territory,
market withdrawals or corrections with respect to the Product in consultation
with Sonus.  Schering or its designee
shall maintain records of all sales and distribution of Product, as applicable,
and customers sufficient to adequately administer a Recall, market withdrawal
or correction for a period equal to the shelf-life of the Product plus one year
after the date the record is created.

 

Section 14.02                          Recall Costs.  The cost and expense of a Recall shall be
allocated as follows:

 

(a)                                  if
such Recall is a voluntary Recall or shall be due to tampering or other cause,
other than a manufacturer’s defect, but not due to the.  negligence or misconduct of the Parties, then
the Parties shall share equally the costs and expenses incurred by the Party
conducting the Recall in connection with such Recall, including, without
limitation, all Product credits and returns, freight and shipping costs and
Product disposal expenses;

 

(b)                                 if
such Recall is due to the negligence, breach of contract or misconduct of
Sonus, all such costs and expenses shall be borne and paid solely by Sonus; and

 

(c)                                  if
such Recall is due to the negligence, breach of contract or misconduct of
Schering, all such costs and expenses shall be borne and paid solely by
Schering.

 

Section 14.03                          Notification of Threatened Action.  Throughout the duration of this
Agreement, each Party shall immediately notify the other Party of any
information it receives regarding any threatened or pending action, inspection
or communication by or from a concerned Governmental Authority which may affect
the safety or efficacy claims of the Product or the continued marketing of the
Product.  Upon receipt of such
information, the Parties shall consult with each other in an effort to arrive
at a mutually acceptable procedure for taking appropriate action.

 

ARTICLE XV

 

INSURANCE

 

Section 15.01                          Insurance.  Each Party shall, at its sole
cost and expense, obtain and keep in force comprehensive general liability
insurance, including any applicable self-insurance coverage, product liability,
clinical trial liability, and property and casualty insurance providing
commercially reasonable coverage (at least US $10,000,000 coverage) for its
activities under this Agreement and its equipment, premises and businesses to
be maintained during the Term and for a period of at least five (5) years
thereafter.  The insurance policies of
the Parties in the United States shall be with financially strong insurance
carriers (or, in the case of Schering, self-insurance or insurance through a
captive insurance company) and will be primary to any other insurance owned,
secured or in place.  Upon execution of
this Agreement, each Party shall furnish the other with a certificate of
insurance signed by an authorized representative of such Party’s insurance
underwriter evidencing the insurance coverage required by this Agreement.

 

37

 

ARTICLE XVI

 

TERM AND TERMINATION

 

Section 16.01                          Term.

 

(a)                                  Except
for the obligations under Sections 3.01(a) and Section 16.1(b), which
shall be come effective upon execution of this Agreement by both Parties, this
Agreement shall commence as of, and the effectiveness of the respective
obligations of each party hereunder (including under Article III) is
subject to the satisfaction or waiver of the condition that the waiting period
(and any extension thereof) applicable to the this Agreement under the HSR Act
shall have been terminated or shall have expired.

 

(b)                                 Each
party hereunder shall use its best efforts promptly as practicable to prepare
and make the applicable filings under the HSR Act and to thereafter respond as
promptly as practicable to any request for additional information or
documentary material that may be made under the HSR Act.

 

(c)                                  After
becoming effective as provided above, unless terminated as provided herein,
this Agreement shall continue in effect until such time as: (i) no
royalties are payable under Section 3.02 hereunder to Sonus; and (ii) Sonus
and Schering are no longer Co-Promoting the Product in the US, provided that
the license granted pursuant to Section 3.02(e) shall survive such
termination.

 

Section 16.02                          Termination.

 

(a)                                  Termination at Will.  Notwithstanding
any other term or provision of this hereof expressly or impliedly to the
contrary, Schering may terminate this Agreement in its entirety (or, in the
case of Section 16.02(a)(iii) and Section 16.02(a)(iv) below,
on a country-by-country basis), and be fully released of any obligations
hereunder (except as is expressly provided for herein) as follows:

 

(i)                                     upon
thirty (30) days prior written notice at any time if Schering determines, in
its reasonable judgment, that there are issues of Safety;

 

(ii)                                  upon
thirty (30) days prior written notice if the manufacturing process for the
Product cannot be scaled to achieve CMC/Manufacturing within the timelines set
out in the CMC/Manufacturing Plan and Budget, as revised from time to time by
the Steering Committee;.

 

(iii)                               immediately
if any Third Party receives an injunction (preliminary or permanent)
restricting the manufacture, use or sale of the Product in any country on the
grounds of Third Party patent infringement and such injunction continues in
force for a period of three (3) months or longer;

 

(iv)                              upon
thirty (30) days’ written notice to Sonus, if, based upon assembled NDA
submission data from, or the results of, the Pivotal Trial, Schering
determines, using its reasonable judgment, that such results do not support the
submission of the Product for NDA Approval; or

 

38

 

(v)                                 at
any time after NDA Approval, upon twelve (12) months’ notice to Sonus, for any
reason, during which time Schering shall remain responsible for all of its
duties and obligations hereunder;

 

(b)                                 Termination for Material Breach. 
Failure by Schering or Sonus to comply with any of the
respective material obligations and conditions contained in this Agreement
shall entitle the other Party to give the Party in default notice requiring it
to cure such default.  If such default is
not cured within ninety (90) days after receipt of such notice, the notifying
Party shall be entitled (without prejudice to any other rights conferred on it
by this Agreement) to terminate this Agreement or, in the event of an uncured
material breach by Sonus, effect the rights of Schering set forth in Section 16.03(c) by
giving a notice to take effect immediately. 
Notwithstanding the foregoing, in the event of non-monetary default, if
the default is not reasonably capable of being cured within the ninety (90) day
cure period by the defaulting Party and such defaulting Party is making a good
faith effort to cure such default, the notifying Party may not terminate this
Agreement, provided, however, that the notifying Party may terminate this
Agreement if such default is not cured within one hundred eighty (180) days of
such original notice of default.  The
right of either Party to terminate this Agreement as hereinabove provided shall
not be affected in any way by its waiver of, or failure to take action with
respect to any previous default.

 

(c)                                  Termination for Insolvency. 
In the event that one of the Parties hereto shall go into liquidation,
or if a receiver or trustee be appointed for the property or estate of that
Party and said receiver or trustee is not removed within sixty (60) days, or
the Party makes an assignment for the benefit of creditors (collectively, a “Bankruptcy
Event”), and whether any of the aforesaid Bankruptcy Events be the outcome of
the voluntary act of that Party, or otherwise, the other Party shall be
entitled to terminate this Agreement (or in the event Sonus suffers such
Bankruptcy Event, Schering may effect its rights described in Section 16.03(c))
forthwith by giving a written notice to Sonus. 
Each Party agrees (to the extent it may lawfully do so) that it will not
at any time insist upon, or plead, or in any manner whatsoever claim to take
the benefit or advantage of, any stay or extension law or any other law
wherever enacted, now or at any time hereafter in force, which would prohibit
the termination of this Agreement or in any way modify the effects thereof as
provided herein; and each Party (to the extent it may lawfully do so) hereby
expressly waives all benefit or advantage of any such law, and covenants that
it will not hinder, delay or impede the execution of any power herein granted
to the other Party, but will suffer and permit the execution of every power as
though no such law had been enacted.

 

Section 16.03                          Effect of Termination.

 

(a)                                  Effect of Termination by Schering under Section 16.02(a) or
by Sonus under Section 16.02(b) or 16.02(c).  In the event that this Agreement
is terminated by Schering in one or more countries or in its entirety in
accordance with Section 16.02(a) hereof or in the event that this
Agreement is terminated by Sonus in its entirety in accordance with Section 16.02(b) or
16.02(c) hereof, Schering will, with respect to each country for which the
termination applies entirely: (i) deliver to Sonus the Sonus Know-How and
assign to Sonus its rights in said Sonus Know-How, Sonus Marks and Sonus
Patents, if any, in either case relating solely to the country that is the
subject of the termination; (ii) not use the Sonus Know-How as long as it
is to be held confidential pursuant to Section 10.01 hereof in such
country; (iii) not infringe any of the Sonus Patents or Sonus Marks in
such country; (iv) make all payments accrued under this Agreement with
respect to such country prior to the effective termination date; (v) transfer
all Approval Applications and Approvals related to such country to Sonus upon
Sonus’ written request for same; (vi) transfer to Sonus responsibility

 

39

 

for and control of ongoing work
of Schering related to the Product in an expeditious and orderly manner with
the costs for such work assumed by Sonus as of the date of notice; (vii) sell
to Sonus, at any time within ninety (90) days of such termination, at Sonus’
election, all or any portion of the inventory of the Product owned by Schering
or its Affiliates which are intended for sale in such country at a price equal
to Schering’s or its Affiliates’ fully burdened costs for such inventory.  Such election shall be made by Sonus in
writing and within thirty (30) days of such termination.  If Sonus elects to purchase such Schering
inventory, then Schering shall ship at Sonus’ cost and direction such inventory
to Sonus.  Sonus shall pay for such
inventory in advance of receipt of such inventory.

 

(b)                                 Election by Schering.  In
the event of a Bankruptcy Event or a material default described in Section 16.02(b) and
(c) by Sonus (which default is not cured as provided therein), Schering
may elect, in lieu of terminating this Agreement, to declare the license
granted pursuant to this Agreement to be irrevocable.  From the date of receipt of notice of such
election, Sonus shall have no further rights or obligations under this
Agreement, except that Sonus may enforce any financial obligations of Schering
pursuant to Article III of this Agreement, provided that any additional
Development Costs incurred by Schering to Develop and Commercialize the Product
(in the absence of Sonus’ contribution as provided for in this Agreement) shall
be credited against all amounts payable by Schering to Sonus pursuant to Article III.

 

(c)                                  General.  Except where
expressly provided for otherwise in this Agreement, termination of this
Agreement shall not relieve the Parties hereto of any liability including any
obligation to make payments hereunder, which accrued hereunder prior to the
Execution Date of such termination, nor preclude either Party from pursuing all
rights and remedies it may have hereunder at law or in equity with respect to
any breach of this Agreement nor prejudice any Party’s right to obtain
performance of any obligation.  This section shall
survive termination or expiry of the Agreement for any reason.

 

Section 16.04                          Surviving Rights.  The rights and obligations set forth in
this Agreement shall extend beyond the term or termination of this Agreement
only to the extent expressly provided for herein, or to the extent that the
survival of such rights or obligations are necessary to permit their complete
fulfillment or discharge.

 

Section 16.05                          Return of Confidential Information
upon Termination.  Within
thirty (30) days following the expiration or termination of this Agreement,
each Party shall return to the other Party, or destroy, upon the written
request of the other Party, any and all Confidential Information of the other
Party in its possession and upon a Party’s request, such destruction (or
delivery) shall be confirmed in writing to such Party by a responsible officer
of the other Party; provided, however, that each Party may keep one copy of
such Confidential Information as necessary to comply with applicable law.

 

ARTICLE XVII

 

MISCELLANEOUS

 

Section 17.01                          Assignment.  Schering may assign any of its
rights or obligations under this Agreement in any country to any of its
Affiliates, provided that such assignment does not relieve Schering of its
obligations hereunder or otherwise result in a novation, and may sublicense its
rights hereunder as permitted under Section 2.02 of this Agreement.  Except as expressly provided hereunder,
neither this Agreement nor any rights or obligations hereunder may be assigned
or

 

40

 

otherwise transferred by either
Party without the prior written consent of the other Party, which consent shall
not be unreasonably withheld.  Notwithstanding
the foregoing, either Party can sell, transfer or assign its rights under the
Agreement to any Third Party as part of a sale of all or substantially all of
the assets of such Party or in connection with a merger or consolidation;
provided that such Third Party expressly agrees in writing to assume and
perform all of the duties and obligations of such Party under this Agreement..  The rights and obligations of the Parties
under this Agreement shall be binding upon and inure to the benefit of the successors
and permitted assigns of the Parties.  Any
assignment not in accordance with this Agreement shall be void.

 

Section 17.02                          Force Majeure.  Neither Party shall be held
liable or responsible to the other Party nor be deemed to have defaulted under
or breached this Agreement for failure or delay in fulfilling or performing any
term of this Agreement (other than non-payment) when such failure or delay is
caused by or results from causes beyond the reasonable control of the affected
Party, including, but not limited to, fire, floods, embargoes, war, acts of war
(whether war be declared or not), insurrections, riots, civil commotions,
strikes, lockouts or other labor disturbances, acts of God or acts, omissions
or delays in acting by the other Party.

 

Section 17.03                          Governing Law.  This Agreement shall be
governed by, and construed and enforced in accordance with, the laws of the
State of New York, except that no conflict of laws provision shall be applied
to make the laws of any other jurisdiction applicable to this Agreement.

 

Section 17.04                          Patent Marking.  Schering agrees to mark all
Product (or the container or label as appropriate) it sells or distributes
pursuant to this Agreement in accordance with the applicable statute or
regulations pertaining to intellectual property in the country or countries of
manufacture and sale thereof.

 

Section 17.05                          Waiver.  Except as specifically
provided for herein, the waiver from time to time by either of the Parties of
any of their rights or their failure to exercise any remedy shall not operate
or be construed as a continuing waiver of same or of any other of such Party’s
rights or remedies provided in this Agreement.

 

Section 17.06                          Severability.  In case any provision of this
Agreement shall be invalid, illegal or unenforceable, the validity, legality
and enforceability of the remaining provisions shall not in any way be affected
or impaired thereby.

 

Section 17.07                          Notices.  All notices and other
communications provided for hereunder shall be in writing and shall be mailed
by first-class, registered or certified mail, postage paid, or delivered
personally, or by overnight delivery service addressed as follows:

 

	
  If to
  Sonus:

  	
   

  	
  Sonus Pharmaceuticals, Inc.

  
	
   

  	
   

  	
  22026 20th Avenue, S.E.

  
	
   

  	
   

  	
  Bothell, Washington 98021

  
	
   

  	
   

  	
  Attention: President

  
	
   

  	
   

  	
  Telephone:

  	
   

  	
   

  
	
   

  	
   

  	
  Facsimile:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Copy to:

  	
   

  	
  K. 
  C.  Schaaf, Esq.

  	 

	
   

  	
   

  	
  Stradling Yocca Carlson & Rauth

  660 Newport Center Drive, Suite 1600

  	 

							

 

41

 

	
   

  	
   

  	
  Newport Beach, CA 92660

  Telephone: (949) 725-4000

  Facsimile: (949) 725-4100

  
	
   

  	
   

  	
   

  
	
  If to
  Schering:

  	
   

  	
  Schering Aktiengesellschaft

  13342 Berlin

  Germany

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attn: Head of Legal Department

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Copy to:

  	
   

  	
  Berlex Pharmaceuticals, an Operating Unit
  of Berlex, Inc.

  340 Changebridge Road

  Montville, NJ 07045

  
	
   

  	
   

  	
  Attn: Head of Oncology Global Business Unit

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Copy to:

  	
   

  	
  Berlex Pharmaceuticals, an Operating Unit
  of Berlex, Inc.

  340 Changebridge Road

  Montville, NJ 07045

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attn: General Counsel

  
	
   

  	
   

  	
   

  

 

Either Party may by like notice specify or
change an address to which notices and communications shall thereafter be sent.  Notices sent by mail or overnight delivery
service shall be effective upon receipt, and notices given personally shall be
effective when delivered.

 

Section 17.08                          Independent Contractors.  It is expressly agreed that
Sonus and Schering shall be independent contractors and that the relationship
between the two Parties shall not constitute a partnership or agency of any
kind.  Neither Sonus nor Schering shall
have the authority to make any statements, representations or commitments of
any kind, or to take any action, which shall be binding on the other Party,
without the prior written consent of the other Party.

 

Section 17.09                          Rules of Construction.  The Parties hereto agree that
they have been represented by counsel during the negotiation and execution of
this Agreement and, therefore, waive the application of any law, regulation,
holding or rule of construction providing that ambiguities in an agreement
or other document will be construed against the Party drafting such agreement
or document.

 

Section 17.10                          Entire Agreement; Amendment.  This Agreement (including the
Exhibits and Schedules attached hereto) sets forth all of the covenants,
promises, agreements, warranties, representations, conditions and
understandings between the Parties hereto with respect to the subject matter
hereof and supersedes and terminates all prior agreements and understandings
between the Parties.  There are no
covenants, promises, agreements, warranties, representations conditions or
understandings, either oral or written, between the Parties other than as set
forth herein.  No subsequent alteration,
amendment, change or addition to this Agreement shall be binding upon the

 

42

 

Parties hereto unless reduced
to writing and signed by the respective authorized officers of the Parties.

 

Section 17.11                          Headings.  The captions contained in this
Agreement are not a part of this Agreement, but are merely guides or labels to
assist in locating and reading the several articles hereof.

 

Section 17.12                          Publicity.  Schering and Sonus shall
consult with each other before issuing any press release with respect to this
Agreement or the transactions contemplated hereby (including, without
limitation, relating to the activities or information included in any
Development Plan), and neither shall issue any such press release or make any
such public statement without the prior consent of the other, which consent
shall not be unreasonably withheld; provided, however, (i) that a Party
may, without the prior consent of the other Party, issue such press release or
make such public statement as may upon the advice of counsel be required by law
or the rules and regulations of the Nasdaq or any stock exchange, or under
applicable securities laws, or any other Applicable Laws if it has used
reasonable efforts to consult with the other Party prior thereto, and (ii) such
consent shall be deemed to have been given if the recipient of the press
release or public statement fails to respond to the other Party within
forty-eight (48) hours after the recipient’s receipt of such proposed press
release or public statement delivered in accordance with the terms of Section 17.07.  No such consent of the other Party shall be
required to release information which has previously been made public.

 

Section 17.13                          Counterparts.  This Agreement may be executed
in two or more counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.

 

Section 17.14                          Bankruptcy Matters.  All licenses granted under
this Agreement are deemed to be, for purposes of Section 365(n) of the
United States Bankruptcy Code (the “Bankruptcy Code”), licenses of right to “intellectual
property” as defined in Section 101 of the Bankruptcy Code.  The Parties agree that Schering may fully
exercise all of its rights and elections under the Bankruptcy Code.  The Parties further agree that, in the event
Schering elects to retain its rights as a licensee under the Bankruptcy Code, Schering
shall be entitled to complete access to the Sonus Technology and Approvals
licensed to it hereunder and all embodiments of such Sonus Technology and
Approvals, but only as necessary for the purposes of exploitation of the
licenses granted under this Agreement.  Such
embodiments of Sonus Technology and Approvals shall be delivered to Schering
upon written request of Schering.

 

Section 17.15                          Further Assurances.  Each Party agrees to execute,
acknowledge and deliver such further instructions, and to do all such other
acts, as may be necessary or appropriate in order to carry out the purposes and
intent of this Agreement.

 

Section 17.16                          Affiliates.  Each Party may perform its
obligations hereunder personally or through one or more of its Affiliates.  Neither Party shall permit any of its
Affiliates to commit any act (including any act of omission) which such Party
is prohibited hereunder from committing directly.

 

43

 

IN WITNESS WHEREOF, the
Parties hereto have caused this Agreement to be executed in duplicate by their
duly authorized officers as of the Effective Date.

 

	
  Sonus
  Pharmaceuticals, Inc. 

  	
   

  	
  Schering
  Aktiengesellschaft

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Michael A. Martino 

  	
   

  	
   

  	
  By:

  	
  /s/ Hubertus Erlen 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
  Michael A. Martino 

  	
   

  	
   

  	
  Name:

  	
  Hubertus Erlen 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
  President & Chief Executive
  Officer

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  By:

  	
  /s/ Ulrich Koestlin

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Name:

  	
  Ulrich Koestlin 

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
																	

 

1

 

EXHIBIT A

 

Product
Definition and Specification

 

 

A-1

 

EXHIBIT B

 

Patents
and Patent Applications

 

B-2Exhibit 10.36

 

SECURITIES PURCHASE AGREEMENT

 

This SECURITIES PURCHASE AGREEMENT (this “Agreement”),
dated as of October 17, 2005 is made by and among Sonus Pharmaceuticals, Inc.,
a Delaware corporation, with headquarters located at 22026 20th Avenue S.E.,
Bothell, Washington 98021 (the “Company”), and Schering AG, a German
corporation (“Schering AG”), and Schering Berlin Venture Corporation, a
Delaware corporation (“SBVC”, and collectively with Schering AG, the “Investor”).

 

RECITALS:

 

A.            The
Company and Investor are executing and delivering this Agreement in reliance
upon the exemption from securities registration afforded by Section 4(2) of the
Securities Act and Rule 506 under Regulation D.

 

B.            The
Investor desires, upon the terms and conditions stated in this Agreement, to
purchase 3,900,000 shares of the Company’s Common Stock (the “Common Shares”)
and a warrant in the form of Exhibit A hereto, to purchase 975,000
shares of the Company’s Common Stock (the “Warrant” and collectively
with the Common Shares, the “Securities”) for an aggregate purchase
price of Fifteen Million Seven Hundred Ninety Nine Thousand Eight Hundred
Seventy-Five Dollars ($15,799,875).  The
purchase price per share of the Common Shares is $4.02, which is equal to the
per share closing sale price as reported on Nasdaq for the trading day
immediately preceding the date of this Agreement, or, if this Agreement is
entered into after 4:00 p.m. Eastern Standard Time, the day of this
Agreement.  The purchase price for the
Warrant is $.125 multiplied by the number of shares of Common Stock exercisable
under the Warrant (the “Warrant Shares”).

 

C.            Contemporaneously
with the execution and delivery of this Agreement, the parties hereto are
executing and delivering a Registration Rights Agreement under which the
Company has agreed to provide certain registration rights under the Securities
Act, the rules and regulations promulgated thereunder and applicable state
securities laws.

 

D.            The
capitalized terms used herein and not otherwise defined have the meanings given
them in Article IX hereof.

 

In consideration of the premises and the mutual
covenants contained herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the Company and
Investor hereby agrees as follows:

 

ARTICLE I

PURCHASE AND SALE OF SECURITIES

 

1.1           Purchase
and Sale of Securities.  On the
Closing Date, subject to the terms of this Agreement and the satisfaction or
waiver of the conditions set forth in Articles VI and VII hereof, the Company
will issue and sell to (A) SBVC, and SBVC will purchase directly from the
Company, 3,900,000 Common Shares, to be registered in the name of SBVC, and
(B) Schering AG, and Schering AG will purchase directly from the Company,
the Warrant, to be registered in the name of Schering AG.

 

1.2           Payment.  At the Closing, Investor will pay the
purchase price for the Securities, by wire transfer of immediately available
funds in accordance with the wire instructions set forth on

 

1

 

Exhibit B hereto.  The Company shall deliver to Investor a
certificate representing the Common Shares and a certificate representing the
Warrant so purchased by Investor on the Closing Date against delivery of the
purchase price as described above.

 

1.3           Closing
Date.  Subject to the satisfaction or
waiver of the conditions set forth in Articles VI and VII hereof, the Closing
will take place at 8 a.m. Pacific Standard Time on October 17, 2005, or at
such other date or time agreed upon by the parties to this Agreement (the “Closing
Date”).  The Closing will be held at
the offices of Stradling Yocca Carlson & Rauth or at such other place as
the parties agree.

ARTICLE II

INVESTOR’S REPRESENTATIONS AND WARRANTIES

 

Investor represents and warrants to the Company that:

 

2.1           Investment
Purpose.  Investor is purchasing
Securities for its own account and not with a present view toward the public
sale or distribution thereof, except pursuant to sales registered or exempted
from registration under the Securities Act, provided, however, that by making
the representation herein, the Investor does not agree to hold any of the
Securities for any minimum or other specific term and reserves the right to
dispose of the Securities at any time in accordance with or pursuant to a
registration statement or an exemption from registration under the Securities
Act, subject to the restrictions on transfer set forth in the Registration
Rights Agreement.

 

2.2           Accredited
Investor.  Investor is an “accredited
investor” as such term is defined in Regulation D promulgated under the
Securities Act.

 

2.3           Reliance
on Exemptions.  Investor understands
that the Securities are being offered and sold to it in reliance upon specific
exemptions from the registration requirements of United States federal and
state securities laws and that the Company is relying upon the truth and
accuracy of, and Investor’s compliance with, the representations, warranties,
agreements, acknowledgments and understandings of Investor set forth herein in
order to determine the availability of such exemptions and the eligibility of
Investor to acquire the Securities.

 

2.4           Information.  Investor has received and read the SEC
Documents.  Investor and its advisors, if
any, have been furnished with all materials relating to the business, finances
and operations of the Company, and materials relating to the offer and sale of
the Securities, that have been requested by Investor or its advisors, if
any.  Investor and its advisors, if any,
have been afforded the opportunity to ask questions of the Company.  Neither such inquiries nor any other due
diligence investigation conducted by Investor or any of its advisors or
representatives modify, amend or affect Investor’s right to rely on the
Company’s representations and warranties contained in Article III below.  Investor acknowledges and understands that
its investment in the Securities involves a significant degree of risk,
including the risks reflected in the SEC Documents.

 

2.5           Governmental
Review.  Investor understands that no
United States federal or state agency or any other government or governmental
agency has passed upon or made any recommendation or endorsement of the
Securities or an investment therein.

 

2

 

2.6           Transfer
or Resale.  Investor understands
that:

 

(a)           except
as provided in the Registration Rights Agreement, the Securities have not been
and are not being registered under the Securities Act or any applicable state
securities laws and, consequently, Investor will not be afforded the protection
of Section 11 of the Securities Act, and Investor may have to bear the risk of
owning the Securities for an indefinite period of time because the Securities
may not be transferred unless (i) the resale of the Securities is registered
pursuant to an effective registration statement under the Securities Act; (ii)
Investor has delivered to the Company an opinion of counsel (in form, substance
and scope customary for opinions of counsel in comparable transactions) to the
effect that the Securities to be sold or transferred may be sold or transferred
pursuant to an exemption from such registration; (iii) the Securities are sold
or transferred pursuant to Rule 144; or (iv) the Securities are sold or
transferred to an affiliate (as defined in Rule 144) of Investor;

 

(b)           any
sale of the Securities made in reliance on Rule 144 may be made only in
accordance with the terms of Rule 144 and, if Rule 144 is not applicable, any
resale of the Securities under circumstances in which the seller (or the person
through whom the sale is made) may be deemed to be an underwriter (as that term
is defined in the Securities Act) may require compliance with some other
exemption under the Securities Act or the rules and regulations of the SEC thereunder;
and

 

(c)           except
as set forth in the Registration Rights Agreement, neither the Company nor any
other person is under any obligation to register the Securities under the
Securities Act or any state securities laws or to comply with the terms and conditions
of any exemption thereunder.

 

2.7           Legends.  Investor understands that until (a) the
Securities may be sold by Investor under Rule 144(k) or (b) such time as the
resale of the Securities has been registered under the Securities Act as
contemplated by the Registration Rights Agreement, the certificates
representing the Securities will bear a restrictive legend in substantially the
following form (and a stop-transfer order may be placed against transfer of the
certificates for such Securities):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE
SECURITIES LAWS OF ANY STATE OF THE UNITED STATES.  THE SECURITIES MAY NOT BE SOLD, TRANSFERRED
OR ASSIGNED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SECURITIES UNDER APPLICABLE SECURITIES LAWS, OR UNLESS OFFERED, SOLD OR
TRANSFERRED PURSUANT TO AN AVAILABLE EXEMPTION FROM THE REGISTRATION
REQUIREMENTS OF THOSE LAWS.

 

The legend set forth above will be removed and the Company
will issue a certificate without the legend to the holder of any certificate
upon which it is stamped, in accordance with the terms of Article V hereof.

 

2.8           Authorization;
Enforcement.  This Agreement, the
Registration Rights Agreement and the Warrant have been duly and validly
authorized, executed and delivered on behalf of Investor and are valid and
binding agreements of Investor enforceable in accordance with their terms,
subject to the effect of any applicable bankruptcy, insolvency, reorganization,
moratorium or similar laws affecting the rights of creditors generally and the
application of general principles of equity.

 

3

 

2.9           Residency.  Investor is a resident of (or, if an entity,
has its principal place of business in) the jurisdiction set forth immediately
below Investor’s name on the signature page hereto.

 

ARTICLE III

REPRESENTATIONS AND WARRANTIES OF THE COMPANY

 

The Company represents and warrants to Investor that:

 

3.1           Organization
and Qualification.  The Company is
duly incorporated, validly existing and in good standing under the laws of the
jurisdiction in which it is incorporated, with full power and authority
(corporate and other) to own, lease, use and operate its properties and to carry
on its business as and where now owned, leased, used, operated and
conducted.  The Company is duly qualified
to do business and is in good standing in every jurisdiction in which the
nature of the business conducted by it makes such qualification necessary,
except where the failure to be so qualified or in good standing would not have
a Material Adverse Effect.

 

3.2           Authorization;
Enforcement.  (a) The Company has all
requisite corporate power and authority to enter into and to perform its
obligations under this Agreement, the Registration Rights Agreement and the
Warrant, to consummate the transactions contemplated hereby and thereby and to
issue the Securities in accordance with the terms hereof and thereof; (b) the
execution, delivery and performance of this Agreement, the Registration Rights
Agreement and the Warrant by the Company and the consummation by it of the
transactions contemplated hereby and thereby (including without limitation the
issuance of the Securities) have been duly authorized by the Company’s Board of
Directors and no further consent or authorization of the Company, its Board or
Directors, or its shareholders is required; (c) this Agreement, the
Registration Rights Agreement and the Warrant have been duly executed by the
Company; and (d) each of this Agreement, the Registration Rights Agreement and
the Warrant constitutes a legal, valid and binding obligation of the Company
enforceable against the Company in accordance with its terms, subject to the
effect of any applicable bankruptcy, insolvency, reorganization, or moratorium
or similar laws affecting the rights of creditors generally and the application
of general principles of equity.

 

3.3           Capitalization.  As of the date hereof, the authorized capital
stock of the Company consists of (a) 75,000,000 shares of Common Stock, par
value $.001 per share, of which 26,301,142 shares are issued and outstanding,
2,916,783 shares are reserved for issuance upon exercise of stock options
outstanding under the Company’s employee and director stock option plans,
1,341,677 shares are reserved for grants of rights to purchase under the
Company’s employee and director stock option plans, 39,650 shares are reserved
for issuance pursuant to the Company’s employee stock purchase plan and 401(k)
plan and 3,929,052 shares are reserved for issuance under warrants issued by
the Company on June 15, 2001, January 18, 2002, July 28, 2003, and August 15,
2005, and (b) 5,000,000 shares of preferred stock, par value $.001 per share,
500,000 of which shares are designated Series A Junior Participating Preferred
Stock, par value $.001 per share, none of which is issued and outstanding.  All of such outstanding shares of capital
stock are, or upon issuance will be, duly authorized, validly issued, fully
paid and nonassessable.  No shares of
capital stock of the Company, including the Securities issuable pursuant to
this Agreement, are subject to preemptive rights or any other similar rights of
the stockholders of the Company or any liens or encumbrances imposed through
the actions or failure to act of the Company. 
Except as disclosed in this Section 3.3 and except for the transactions
contemplated hereby, (i) there are no outstanding options, warrants, scrip,

 

4

 

rights to subscribe for, puts, calls, rights of first
refusal or preemptive or other similar rights, agreements, understandings,
claims or other commitments or rights of any character whatsoever relating to,
or securities or rights directly or indirectly convertible into, exercisable
for, or exchangeable for any shares of capital stock of the Company, or
arrangements by which the Company is or may become bound to issue additional
shares of capital stock of the Company; (ii) there are no agreements or
arrangements (other than the Registration Rights Agreement, the separate
Registration Rights Agreements entered into on June 15, 2001, January 18, 2002,
July 28, 2003, May 7, 2004 and August 15, 2005 and the Purchase Warrants dated
June 15, 2001) under which the Company is obligated to register the sale of any
of its securities under the Securities Act and (iii) there are no anti-dilution
or price adjustment provisions contained in any security issued by the Company
(or in any agreement providing rights to security holders) that will be
triggered by the issuance of the Securities (other than the exercise price
adjustments pursuant to the warrants to purchase an aggregate of 385,800 shares
of Common Stock, issued by the Company on January 18, 2002 and the contingent
obligation to issue additional warrants to purchase an aggregate of 2,325,936
shares pursuant to the Securities Purchase Agreement dated August 15,
2005).  The Company has furnished to
Investor true and correct copies of the Company’s Certificate of Incorporation,
as amended, as in effect on the date hereof, the Company’s Bylaws as in effect
on the date hereof and the terms of all securities convertible into or
exercisable for Common Stock of the Company and the material rights of the
holders thereof in respect thereto.

 

3.4           Issuance
of Securities.  The Securities are
duly authorized and, upon issuance in accordance with the terms of this
Agreement, will be validly issued, fully paid and non-assessable, free from all
taxes, liens, claims, encumbrances and charges with respect to the issue
thereof, will not be subject to preemptive rights or other similar rights of
stockholders of the Company, and will not impose personal liability on the
holders thereof.  The Company has reserved
a sufficient number of shares of Common Stock for issuance upon exercise of the
Warrant, and upon payment of the exercise price and exercise of the Warrant in
accordance with its terms, the Warrant Shares will be validly issued, fully
paid and non-assessable, free from all taxes, liens, claims, encumbrances and
charges with respect to the issue thereof, will not be subject to preemptive
rights or other similar rights of stockholders of the Company and will not
impose personal liability on the holders thereof.

 

3.5           No
Conflicts; No Violation.

 

(a)           The
execution, delivery and performance of this Agreement, the Registration Rights
Agreement and the Warrant by the Company and the consummation by the Company of
the transactions contemplated hereby and thereby (including, without
limitation, the issuance of the Securities) will not (i) conflict with or
result in a violation of any provision of its Certificate of Incorporation or
Bylaws or (ii) violate or conflict with, or result in a breach of any provision
of, or constitute a default (or an event which with notice or lapse of time or
both could become a default) under, or give to others any rights of
termination, amendment (including without limitation, the triggering of any
anti-dilution provision), acceleration or cancellation of, any agreement, indenture,
patent, patent license, or instrument to which the Company is a party, or (iii)
result in a violation of any law, rule, regulation, order, judgment or decree
(including U.S. federal and state securities laws and regulations and
regulations of any self-regulatory organizations to which the Company or its
securities are subject) applicable to the Company or by which any property or
asset of the Company is bound or affected (except for such conflicts, breaches,
defaults, terminations, amendments, accelerations, cancellations and violations
as would not, individually or in the aggregate, have a Material Adverse
Effect).

 

5

 

(b)           The
Company is not in violation of its Certificate of Incorporation, Bylaws or
other organizational documents and the Company is not in default (and no event
has occurred which with notice or lapse of time or both could put the Company
in default) under any agreement, indenture or instrument to which the Company
is a party or by which any property or assets of the Company is bound or
affected, except for possible defaults as would not, individually or in the
aggregate, have a Material Adverse Effect.

 

(c)           The
Company is not conducting its business in violation of any law, ordinance or
regulation of any governmental entity, the failure to comply with which would,
individually or in the aggregate, have a Material Adverse Effect.

 

(d)           Except
as specifically contemplated by this Agreement and as required under the
Securities Act and any applicable state securities laws or any listing
agreement with any securities exchange or automated quotation system, the
Company is not required to obtain any consent, authorization or order of, or
make any filing or registration with, any court or governmental agency or any
regulatory or self regulatory agency in order for it to execute, deliver or
perform any of its obligations under this Agreement, the Registration Rights
Agreement or the Warrant, in each case in accordance with the terms hereof or
thereof, or to issue and sell the Securities in accordance with the terms
hereof.  All consents, authorizations,
orders, filings and registrations which the Company is required to obtain
pursuant to the preceding sentence have been obtained or effected on or prior
to the date hereof.  The Company is not
in violation of the listing requirements of Nasdaq.

 

3.6           SEC
Documents, Financial Statements. 
Since June 30, 2002, the Company has timely filed all reports,
schedules, forms, statements and other documents required to be filed by it
with the SEC pursuant to the reporting requirements of the Exchange Act (all of
the foregoing filed prior to the date hereof and all exhibits included therein
and financial statements and schedules thereto and documents (other than exhibits)
incorporated by reference therein, being hereinafter referred to herein as the
“SEC Documents”).  The Company has
delivered to Investor, or Investor has had access to, true and complete copies
of the SEC Documents, except for such exhibits and incorporated documents.  As of their respective dates, the SEC
Documents complied in all material respects with the requirements of the
Exchange Act or the Securities Act, as the case may be, and the rules and
regulations of the SEC promulgated thereunder applicable to the SEC Documents,
and none of the SEC Documents, at the time they were filed with the SEC,
contained any untrue statement of a material fact or omitted to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading.  As of their respective
dates, the financial statements of the Company included in the SEC Documents
complied in all material respects with applicable accounting requirements and
the published rules and regulations of the SEC with respect thereto.  Such financial statements have been prepared
in accordance with U.S. generally accepted accounting principles, consistently
applied, during the periods involved (except (i) as may be otherwise indicated
in such financial statements or the notes thereto, or (ii) in the case of
unaudited interim statements, to the extent they may not include footnotes or
may be condensed or summary statements) and fairly present in all material
respects the financial position of the Company as of the dates thereof and the
results of its operations and cash flows for the periods then ended (subject,
in the case of unaudited statements, to normal year-end audit adjustments).  Except as set forth in the financial
statements included in the SEC Documents, the Company has no liabilities,
contingent or otherwise, other than liabilities incurred in the ordinary course
of business subsequent to June 30, 2005, and liabilities of the type not
required under generally accepted accounting principles to be reflected in such
financial statements.  Such

 

6

 

liabilities incurred subsequent to June 30, 2005, are
not, in the aggregate, material to the financial condition or operating results
of the Company.

 

3.7           Absence
of Certain Changes.  Except as
disclosed in the SEC Documents, since June 30, 2005, there has been no material
adverse change in the assets, liabilities, business, properties, operations,
financial condition, prospects or results of operations of the Company, and the
Company has not (i) varied its business plan or practices, in any material
respect, from past practices, (ii) entered into any material financing, joint
venture, license or similar arrangements or (iii) suffered or permitted to be
incurred any liability or obligation against any of its properties or assets
that would limit or restrict its ability to perform its obligations hereunder.

 

3.8           Absence
of Litigation.  Except as disclosed
in the SEC Documents, there is no action, suit, claim, proceeding, inquiry or
investigation before or by any court, public board, government agency,
self-regulatory organization or body, (i) to the knowledge of the Company,
threatened against or affecting the Company or any of its officers or directors
acting as such that could, individually or in the aggregate, have a Material
Adverse Effect, or (ii) pending against or affecting the Company or any of
its officers or directors acting as such.

 

3.9           Intellectual
Property Rights.  The Company owns or
possesses the licenses or rights to use all patents, patent applications,
patent rights, inventions, know-how, trade secrets, trademarks, trademark
applications, service marks, service names, trade names and copyrights necessary
to enable it to conduct its business as now operated or as currently proposed
to be operated (the “Intellectual Property”).  Except as set forth in the SEC Documents,
there are no material outstanding options, licenses or agreements relating to
the Intellectual Property, nor is the Company bound by or a party to any
material options, licenses or agreements relating to the patents, patent
applications, patent rights, inventions, know-how, trade secrets, trademarks,
trademark applications, service marks, service names, trade names or copyrights
of any other person or entity.  Except as
disclosed in the SEC Documents, there is no claim or action or proceeding
pending or, to the Company’s knowledge, threatened that challenges the right of
the Company with respect to any Intellectual Property.  Except as set forth in the SEC Documents, to
the knowledge of the Company, the Company’s Intellectual Property does not
infringe any intellectual property rights of any other person which, if the
subject of an unfavorable decision, ruling or finding would have a Material
Adverse Effect.

 

3.10         Tax
Status.  The Company has timely made
or filed all federal, state and foreign income and all other tax returns,
reports and declarations required by any jurisdiction to which it is subject
(unless and only to the extent that the Company has set aside on its books
provisions reasonably adequate for the payment of all unpaid and unreported
taxes) and has timely paid all taxes and other governmental assessments and
charges, shown or determined to be due on such returns, reports and
declarations, except those being contested in good faith, and has set aside on
its books provisions reasonably adequate for the payment of all taxes for
periods subsequent to the periods to which such returns, reports or
declarations apply.  To the knowledge of
the Company, there are no unpaid taxes claimed to be due by the taxing
authority of any jurisdiction, and the officers of the Company know of no basis
for any such claim.  The Company has not
executed a waiver with respect to the statute of limitations relating to the
assessment or collection of any foreign, federal, state or local tax.  None of the Company’s tax returns is
presently being audited by any taxing authority.

 

7

 

3.11         Environmental
Laws.  The Company (i) is in
compliance with all applicable foreign federal, state and local laws and
regulations relating to the protection of human health and safety, the
environment or hazardous or toxic substances or wastes, pollutants or
contaminants (“Environmental Laws”), (ii) has received all permits,
licenses or other approvals required of them under applicable Environmental
Laws to conduct its business and (iii) is in compliance with all terms and
conditions of any such permit, license or approval where, in each of the three
foregoing clauses, the failure to so comply would have, individually or in the
aggregate, a Material Adverse Effect.

 

3.12         No
Brokers.  The Company has taken no
action which would give rise to any claim by any person for brokerage
commissions, finder’s fees or similar payments relating to this Agreement or
the transactions contemplated hereby.

 

3.13         Insurance.  The Company is insured by insurers of
recognized financial responsibility against such losses and risks and in such
amounts as management of the Company believes to be prudent and customary in
the businesses in which the Company is engaged.

 

3.14         Employment
Matters.  The Company is in
compliance with all federal, state, local and foreign laws and regulations
respecting employment and employment practices, terms and conditions of
employment and wages and hours, except where failure to be in compliance would
not have a Material Adverse Effect. The Company is not bound by or subject to
(and none of its assets or properties is bound by or subject to) any written or
oral, express or implied, contract, commitment or arrangement with any labor
union, and no labor union has requested or, to the Company’s knowledge, has
sought to represent any of the employees, representatives or agents of the
Company.  There is no strike or other
labor dispute involving the Company pending, or to the Company’s knowledge,
threatened nor is the Company aware of any labor organization activity
involving its employees.  The Company is
not aware that any officer or key employee, or that any group of officers or
key employees, intends to terminate their employment with the Company, nor does
the Company have a present intention to terminate the employment of any of the
foregoing.

 

3.15         Employee
Benefit Plans.  Except as set forth
in the SEC Documents, the Company does not have any Employee Benefit Plans, as
such term is defined in the Employee Retirement Security Act of 1974.

 

3.16         Investment
Company Status.  The Company is not
and upon consummation of the sale of the Securities will not be an “investment
company,” a company controlled by an “investment company” or an “affiliated
person” of, or “promoter” or “principal underwriter” for, an “investment
company” as such terms are defined in the Investment Company Act of 1940, as
amended.

 

3.17         No
Subsidiaries.  Except for Sonus
Pharma, Limited, a wholly owned subsidiary of the Company organized under the
laws of the United Kingdom, the Company does not presently own or control,
directly or indirectly, any interest in any other corporation, association,
joint venture, partnership or other business entity and the Company is not a
direct or indirect participant in any joint venture or partnership.

 

3.18         No
Conflict of Interest.  The Company is
not indebted, directly or indirectly, to any of its officers or directors or to
their respective spouses or children, in any amount whatsoever other than in
connection with expenses or advances of expenses incurred in the ordinary
course of business or relocation expenses of employees.  None of the Company’s officers, directors or
employees, or any members of their immediate families, are directly, or
indirectly, indebted to the Company or, to

 

8

 

the best of the Company’s knowledge, have any direct
or indirect ownership interest in any entity with which the Company is
affiliated or with which the Company has a business relationship, or any entity
which competes with the Company, except that officers, directors, employees
and/or stockholders of the Company may own stock in (but not exceeding five
percent (5%) of the outstanding capital stock of) any publicly traded company
that may compete with the Company.  To
the best of the Company’s knowledge, none of the Company’s officers, directors
or employees or any members of their immediate families are, directly or
indirectly, interested in any material contract with the Company.  The Company is not a guarantor or indemnitor
of any indebtedness of any other person or entity.

 

3.19         Nasdaq
Notification.  The Company has
notified Nasdaq of the issuance and listing of the Common Shares and Warrant
Shares on Nasdaq and the Common Shares and Warrant Shares have been approved
for quotation on Nasdaq, upon official notice of issuance.

 

3.20         Reporting
Status; Eligibility to Use Form S-3. 
The Company’s Common Stock is registered under Section 12g of the
Exchange Act.  The Company currently
meets the “registrant eligibility” requirements set forth in the general
instructions to Form S-3 to enable the registration of the Registrable
Securities, as defined in the Registration Rights Agreement.

 

3.21         No
Manipulation of Stock.  The Company
has not taken and will not, in violation of applicable law, take, any action designed
to or that might reasonably be expected to cause or result in stabilization or
manipulation of the price of the Common Stock to facilitate the sale or resale
of the Securities.

 

3.22         Collaboration
and License Agreement.  The
representations and warranties made by the Company in Article X of that certain
Collaboration and License Agreement dated as of the date hereof (the “License
Agreement”), are incorporated herein by this reference and made to Investor
as though fully set forth herein.

 

3.23         Representations
Complete.  The representations and
warranties made by the Company in this Agreement, the statements made in any
certificates furnished by the Company pursuant to this Agreement, and the
statements made by the Company in any documents mailed, delivered or furnished
to Investor in connection with this Agreement, taken as a whole, do not contain
and will not contain, as of their respective dates and as of the Closing Date,
any untrue statement of a material fact, nor do they omit or will they omit, as
of their respective dates or as of the Closing Date, to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which they were made, not misleading.

 

ARTICLE IV

COVENANTS

 

4.1           Best
Efforts.  Each party will use its
best efforts to satisfy in a timely fashion each of the conditions to be
satisfied by it under Articles VI and VII of this Agreement.  The Company shall use its best efforts to
comply with each of its covenants in this Agreement, the Registration Rights
Agreement and the Warrant, unless the use of best efforts conflicts with the
standard of conduct set forth in any such covenant, in which case such other
standard of conduct shall control.

 

9

 

4.2           Form
D; Blue Sky Laws.  The Company will
timely file a Notice of Sale of Securities on Form D with respect to the
Securities, as required under Regulation D. 
The Company will, on or before the Closing Date, take such action as it
reasonably determines to be necessary to qualify the Securities for sale to
Investor under this Agreement under applicable securities (or “blue sky”) laws
of the states of the United States (or to obtain an exemption from such
qualification).

 

4.3           Continued
Eligibility to Use Form S-3. 
Throughout the Registration Period (as defined in the Registration
Rights Agreement), the Company will timely file all reports, schedules, forms,
statements and other documents required to be filed by it with the SEC under
the reporting requirements of the Exchange Act, and the Company will not
terminate its status as an issuer required to file reports under the Exchange
Act even if the Exchange Act or the rules and regulations thereunder would
permit such termination.  The Company
will take all reasonably necessary action to continue to meet the “registrant
eligibility” requirements set forth in the general instructions to Form S-3 to
enable the registration of the Registrable Securities as defined in the
Registration Rights Agreement.

 

4.4           Expenses.  The Company and Investor are liable for, and
will pay, its own expenses incurred in connection with the negotiation,
preparation, execution and delivery of this Agreement and the other agreements
to be executed in connection herewith, including, without limitation,
attorneys’ and consultants’ fees and expenses.

 

4.5           Financial
Information.  As long as Investor
owns any of the Securities or Warrant Shares, the financial statements of the
Company will be prepared in accordance with United States generally accepted
accounting principles, consistently applied, and will fairly present in all
material respects the consolidated financial position of the Company and
results of its operations and cash flows as of, and for the periods covered by,
such financial statements (subject, in the case of unaudited statements, to
normal year-end audit adjustments).

 

4.6           Compliance
with Law.  As long as Investor owns
any of the Securities or Warrant Shares, the Company will conduct its business
in compliance with all applicable laws, rules and regulations of the
jurisdictions in which it is conducting business, including, without
limitation, all applicable local, state and federal environmental laws and
regulations, the failure to comply, individually or in the aggregate, with
which would have a Material Adverse Effect.

 

4.7           Sales
by Investor.  Investor will sell any
Securities sold by it in compliance with applicable prospectus delivery
requirements, if any, or otherwise in compliance with the requirements for an
exemption from registration under the Securities Act and the rules and
regulations promulgated thereunder and the restrictions on sales or transfers
set forth in the Registration Rights Agreement. 
Investor will not make any sale, transfer or other disposition of the
Securities in violation of federal or state securities laws.

 

ARTICLE V

TRANSFER AGENT INSTRUCTIONS; REMOVAL OF LEGENDS

 

5.1           Issuance
of Certificates.  The Company will,
or will instruct its transfer agent to, issue certificates, registered in the
name of Investor or its nominee, for the Securities and, promptly upon exercise
of any portion of the Warrant Shares. 
All such certificates will bear the restrictive legend described in
Section 2.7, except as otherwise specified in this Article V.  The Company will

 

10

 

not give to its transfer agent any instruction other
than as described in this Article V and stop transfer instructions to give
effect to Section 2.7 hereof (prior to registration of the Securities under the
Securities Act).  Nothing in this Section
will affect in any way Investor’s obligations to comply with all applicable
prospectus delivery requirements, if any, upon resale of the Common Shares
and/or Warrant Shares.

 

5.2           Unrestricted
Securities.  If, unless otherwise
required by applicable state securities laws, (a) the Securities or Warrant
Shares represented by a certificate have been registered under an effective
registration statement filed under the Securities Act, (b) a holder of
Securities or Warrant Shares provides the Company and its transfer agent with
an opinion of counsel, in form, substance and scope customary for opinions of
counsel in comparable transactions, to the effect that a public sale or
transfer of such Securities or Warrant Shares may be made without registration
under the Securities Act and such sale either has occurred or may occur without
restriction on the manner of such sale or transfer, (c) such holder provides
the Company and its transfer agent with reasonable assurances that such
Securities or Warrant Shares can be sold under Rule 144, or (d) the Common
Shares represented by a certificate can be sold without restriction as to the
number of securities sold under Rule 144(k), the Company will permit the
transfer of the Securities or Warrant Shares, and the Company’s transfer agent
will issue one or more certificates, free from any restrictive legend, in such
name and in such denominations as specified by such holder.  Notwithstanding anything herein to the
contrary, the Securities or Warrant Shares may be pledged as collateral in
connection with a bona fide margin account or other lending arrangement; provided,
that such pledge will not alter the provisions of this Article V with respect
to the removal of restrictive legends.

 

5.3           Enforcement
of Provision.  The Company
acknowledges that a breach by it of its obligations hereunder will cause
irreparable harm to Investor by vitiating the intent and purpose of the
transaction contemplated hereby.  Accordingly,
the Company acknowledges that the remedy at law for a breach of its obligations
under this Article V will be inadequate and agrees, in the event of a breach or
threatened breach by the Company of the provisions of this Section, that
Investor will be entitled, in addition to all other available remedies, to an
injunction restraining any breach and requiring immediate transfer of the
Securities and/or Warrant Shares, as applicable, without the necessity of
showing economic loss and without any bond or other security being required.

 

ARTICLE VI

CONDITIONS TO THE COMPANY’S OBLIGATION TO SELL

 

The obligation of the Company to issue and sell the
Securities to Investor at the Closing is subject to the satisfaction by such
Investor, on or before the Closing Date, of each of the following
conditions.  These conditions are for the
Company’s sole benefit and may be waived by the Company at any time in its sole
discretion:

 

6.1           Investor
will have executed this Agreement, the Registration Rights Agreement, the Warrant
and the License Agreement and will have delivered those agreements to the
Company.

 

6.2           Investor
will have delivered the purchase price for the Securities to the Company in
accordance with this Agreement.

 

6.3           The
representations and warranties of Investor must be true and correct in all
material respects as of the Closing Date as though made at that time (except
for representations and warranties

 

11

 

that speak as of a specific date, which representations
and warranties must be correct as of such date), and Investor will have
performed and complied in all material respects with the covenants and
conditions required by this Agreement to be performed or complied with by
Investor at or prior to the Closing.

 

6.4           No
statute, rule, regulation, executive order, decree, ruling or injunction will
have been enacted, entered, promulgated or endorsed by or in any court or
governmental authority of competent jurisdiction or any self-regulatory
organization having authority over the matters contemplated hereby which
prohibits the consummation of any of the transactions contemplated by this
Agreement, the Registration Rights Agreement or the Warrant.

 

ARTICLE VII

CONDITIONS TO THE INVESTOR’S OBLIGATION TO PURCHASE

 

The obligation of Investor hereunder to purchase the
Securities from the Company at the Closing is subject to the satisfaction, on
or before the Closing Date, of each of the following conditions.  These conditions are for Investor’s benefit
and may be waived by Investor at any time in its sole discretion:

 

7.1           The
Company will have executed this Agreement, the Registration Rights Agreement,
the Warrant and the License Agreement and will have delivered those Agreements
to Investor.

 

7.2           Investor
shall have received an opinion of counsel from Stradling Yocca Carlson &
Rauth, counsel to the Company, reasonably acceptable to Investor and its
counsel.

 

7.3           Each
of the representations and warranties of the Company qualified by materiality
must be true and correct in all respects as of the Closing as though made at
that time (except for representations and warranties that speak as of a
specific date, which representations and warranties must be true and correct as
of such date) and each of the representations and warranties of the Company not
qualified by materiality must be true and correct in all material respects as
of the Closing as though made at that time (except for representations and
warranties that speak as of a specific date, which representations and warranties
must be true and correct as of such date) and the Company must have performed
and complied in all material respects with the covenants and conditions
required by this Agreement to be performed or complied with by the Company at
or prior to the Closing.  Investor must
have received a certificate or certificates dated as of the Closing Date and
executed by the Chief Executive Officer or the Chief Financial Officer of the
Company certifying as to the matters in contained in this Section 7.3 and as to
such other matters as may be reasonably requested by such Investor, including,
but not limited to, the Company’s Certificate of Incorporation, Bylaws, Board
of Directors’ resolutions relating to the transactions contemplated hereby and
the incumbency and signatures of each of the officers of the Company who may
execute on behalf of the Company any document delivered at the Closing.

 

7.4           No
litigation, statute, rule, regulation, executive order, decree, ruling or
injunction will have been enacted, entered, promulgated or endorsed by or in
any court or governmental authority of competent jurisdiction or any
self-regulatory organization having authority over the matters contemplated
hereby which prohibits the consummation of any of the transactions

 

12

 

contemplated by this Agreement, the Registration
Rights Agreement or the Warrant and which could, individually or in the
aggregate, have a Material Adverse Effect.

 

7.5           Trading
and listing of the Common Stock on Nasdaq must not have been suspended by the
SEC or Nasdaq.

 

7.6           Investor
shall have received certificates representing the Common Shares and the
Warrant.

 

ARTICLE VIII

INDEMNIFICATION

 

In consideration of Investor’s execution and delivery
of this Agreement and its acquisition of the Securities hereunder, and in
addition to all of the Company’s other obligations under this Agreement, the
Registration Rights Agreement and the Warrant, the Company will defend,
protect, indemnify and hold harmless Investor and each other holder of the
Securities and all of their stockholders, officers, directors, employees and
direct or indirect investors and any of the foregoing person’s agents or other
representatives (including, without limitation, those retained in connection
with the transactions contemplated by this Agreement) (collectively, the “Indemnitees”)
from and against any and all actions, causes of action, suits, claims, losses,
costs, penalties, fees, liabilities and damages, and expenses in connection
therewith (regardless of whether any such Indemnitee is a party to the action
for which indemnification hereunder is sought), and including reasonable
attorneys’ fees and disbursements (the “Indemnified Liabilities”),
incurred by an Indemnitee as a result of, or arising out of, or relating to (a)
any breach of any representation or warranty made by the Company herein or in
any other certificate, instrument or document contemplated hereby or thereby,
(b) any breach of any covenant, agreement or obligation of the Company contained
herein or in any other certificate, instrument or document contemplated hereby
or thereby or (c) any cause of action, suit or claim brought or made against
such Indemnitee and arising out of or resulting from the execution, delivery,
performance, breach or enforcement of this Agreement, the Registration Rights
Agreement or the Warrant by the Company. 
To the extent that the foregoing undertaking by the Company is
unenforceable for any reason, the Company will make the maximum contribution to
the payment and satisfaction of each of the Indemnified Liabilities that is
permissible under applicable law.

 

The Indemnitees shall have the right to employ
separate counsel in any such proceeding and to participate in the defense
thereof, but the fees and expenses of such counsel shall be at the expense of
such Indemnitees unless: (i) the Company has agreed in writing to pay such fees
and expenses; (ii) the Company shall have failed to promptly assume the defense
of such proceeding and to employ counsel reasonably satisfactory to such
Indemnitees in any such proceeding; or (iii) the named parties to any such
proceeding (including any impleaded parties) include both such Indemnitees and
the Company, and such Indemnitees shall have been advised by counsel that a
conflict of interest is likely to exist if the same counsel were to represent
such Indemnitees and the Company (in which case, if such Indemnitees notify the
Company in writing that they elect to employ separate counsel at the expense of
the Company, the Company shall not have the right to assume the defense thereof
and such counsel shall be at the reasonable expense of the Company; provided,
however, that in no event shall the Company be responsible for the fees and
expenses of more than one separate counsel). 
The Company shall not be liable for any settlement of any such
proceeding effected without its written consent, which consent shall not be
unreasonably withheld.  The Company shall
not, without the prior written consent of a majority of the Indemnitees, effect
any settlement of any pending

 

13

 

proceeding in respect of which Indemnitees are a party, unless such
settlement includes an unconditional release of such Indemnitees from all
liabilities that are the subject matter of such proceeding.  Subject to the foregoing, all fees and
expenses (including reasonable fees and expenses to the extent incurred in
connection with investigating or preparing to defend any such proceeding in a
manner inconsistent with this Article VIII) of the Indemnitees shall be paid to
the Indemnitees as incurred, within ten (10) business days of written notice
thereof to the Company, which notice shall be delivered no more frequently than
on a monthly basis; provided, that the Indemnitees shall reimburse the Company
for any and all such fees and expenses to the extent it is finally judicially
determined that such Indemnitees are not entitled to indemnification hereunder.

 

ARTICLE IX

DEFINITIONS

 

9.1           “Closing”
means the closing of the purchase and sale of the Securities under this
Agreement.

 

9.2           “Closing
Date” has the meaning set forth in Section 1.3.

 

9.3           “Common
Shares” has the meaning set forth in the Recitals.

 

9.4           “Common
Stock” means the common stock, par value $.001 per share, of the Company.

 

9.5           “Company”
means Sonus Pharmaceuticals, Inc.

 

9.6           “Exchange
Act” means the Securities Exchange Act of 1934, as amended.

 

9.7           “Indemnified
Liabilities” has the meaning set forth in Article VIII.

 

9.8           “Indemnitees”
has the meaning set forth in Article VIII.

 

9.9           “Investor”
has the meaning set forth in the preamble of this Agreement.

 

9.10         “License
Agreement” has the meaning set forth in Section 3.22.

 

9.11         “Material
Adverse Effect” means a material adverse effect on (a) the business,
operations, prospects, assets or financial condition of the Company or (b) the
ability of the Company to perform its obligations pursuant to the transactions
contemplated by this Agreement or under the agreements or instruments to be
entered into or filed in connection herewith, including the Registration Rights
Agreement and the Warrant.

 

9.12         “Nasdaq”
means the Nasdaq National Market System.

 

9.13         “Registration
Rights Agreement” means the Registration Rights Agreement, dated as of the
date of this Agreement and among the parties to this Agreement, in the form
attached hereto as Exhibit C.

 

9.14         “Regulation
D” means Regulation D as promulgated under by the SEC under the Securities
Act.

 

14

 

9.15         “Rule
144” and “Rule 144(k)” mean Rule 144 and Rule 144(k), respectively,
promulgated under the Securities Act, or any successor rule.

 

9.16         “SEC”
means the United States Securities and Exchange Commission.

 

9.17         “SEC
Documents” has the meaning set forth in Section 3.6.

 

9.18         “Securities”
has the meaning set forth in the Recitals.

 

9.19         “Securities
Act” means the Securities Act of 1933, as amended, and the rules and
regulations thereunder, or any similar successor statute.

 

9.20         “Warrant”
and “Warrant Shares” have the meanings set forth in the Recitals.

 

ARTICLE X

GOVERNING LAW; MISCELLANEOUS

 

10.1         Governing
Law; Jurisdiction; Jury Trial Waiver. 
This Agreement will be governed by and interpreted in accordance with
the laws of the State of New York without regard to the principles of conflict
of laws.  The parties hereto hereby
submit to the exclusive jurisdiction of the United States federal and state
courts located in the State of New York with respect to any dispute arising
under this Agreement, the agreements entered into in connection herewith or the
transactions contemplated hereby or thereby. EACH PARTY HEREBY IRREVOCABLY
WAIVES ANY RIGHT THAT IT MAY HAVE TO, AND AGREES NOT TO REQUEST, A JURY TRIAL
FOR THE ADJUDICATION OF ANY DISPUTE HEREUNDER OR IN CONNECTION HEREWITH OR WITH
ANY TRANSACTION CONTEMPLATED HEREBY.

 

10.2         Counterparts;
Signatures by Facsimile.  This
Agreement may be executed in two or more counterparts, all of which are
considered one and the same agreement and will become effective when
counterparts have been signed by each party and delivered to the other
parties.  This Agreement, once executed
by a party, may be delivered to the other parties hereto by facsimile
transmission of a copy of this Agreement bearing the signature of the party so
delivering this Agreement.

 

10.3         Headings.  The headings of this Agreement are for
convenience of reference only, are not part of this Agreement and do not affect
its interpretation.

 

10.4         Severability.  If any provision of this Agreement is invalid
or unenforceable under any applicable statute or rule of law, then such
provision will be deemed modified in order to conform with such statute or rule
of law.  Any provision hereof that may
prove invalid or unenforceable under any law will not affect the validity or
enforceability of any other provision hereof.

 

10.5         Entire
Agreement; Amendments.  This
Agreement, the Registration Rights Agreement and the Warrant (including all
schedules and exhibits thereto) and the Warrant constitute the entire agreement
among the parties hereto with respect to the subject matter hereof and
thereof.  There are no restrictions,
promises, warranties or undertakings, other than those set forth or referred to
herein or therein.  This Agreement
supersedes all prior agreements and understandings among the parties hereto
with respect to the subject matter hereof. 
No provision of this Agreement may be

 

15

 

waived or amended other than by an instrument in
writing signed by the party to be charged with enforcement.

 

10.6         Notices.  Any notices required or permitted to be given
under the terms of this Agreement must be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and will be effective
three business days after being placed in the mail, if mailed by regular U.S.
mail, or upon receipt, if delivered personally, by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party.  The addresses for such
communications are:

 

	
  If to the Company:

  	
  Chief Financial Officer

  
	
   

  	
  Sonus Pharmaceuticals, Inc.

  
	
   

  	
  22026 20th Avenue S.E.

  
	
   

  	
  Bothell, Washington 98021

  
	
   

  	
  Fax: (425) 489-0626

  
	
   

  	
   

  
	
  With copies to:

  	
  K.C. Schaaf, Esq.

  
	
   

  	
  Stradling Yocca Carlson & Rauth

  
	
   

  	
  660 Newport Center Drive, Suite 1600

  
	
   

  	
  Newport Beach, California 92660

  
	
   

  	
  Fax: (949) 725-4100

  

 

If to Investor: 
To the address set forth immediately below Investor’s name on the
signature pages hereto.

 

	
  With copies to:

  	
  Schering AG

  
	
   

  	
  Legal Department

  
	
   

  	
  170-178 Muellerstrasse

  
	
   

  	
  D-13342 Berlin, Germany

  
	
   

  	
  Fax: +49-(0)30-468-14086

  

 

Each party will provide written notice to the other
parties of any change in its address in accordance with the notice provisions
hereof.

 

10.7         Successors
and Assigns.  This Agreement is
binding upon and inures to the benefit of the parties and their successors and
assigns.  The Company will not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of Investor, and Investor may not assign this Agreement or any rights
or obligations hereunder without the prior written consent of the Company.  Notwithstanding the foregoing, Investor may
assign all or part of its rights and obligations hereunder to any of its “affiliates,”
as that term is defined under the Securities Act, without the consent of the
Company so long as the affiliate is an accredited investor (within the meaning
of Regulation D under the Securities Act) and agrees in writing to be bound by
this Agreement.  This provision does not
limit Investor’s right to transfer the Securities pursuant to the terms of this
Agreement or to assign Investor’s rights hereunder to any such transferee
pursuant to the terms of this Agreement.

 

16

 

10.8         Third
Party Beneficiaries.  This Agreement
is intended for the benefit of the parties hereto and their respective
permitted successors and assigns, and, except as contemplated in Section 2.10,
is not for the benefit of, nor may any provision hereof be enforced by, any
other person.

 

10.9         Survival.  The representations and warranties of the
Company and the agreements and covenants set forth herein will survive the
Closing hereunder for a period of twelve (12) months.  The Company makes no representations or
warranties in any oral or written information provided to Investor,
other than the representations and warranties included herein.

 

10.10       Further
Assurances.  Each party will do and
perform, or cause to be done and performed, all such further acts and things,
and will execute and deliver all other agreements, certificates, instruments
and documents, as another party may reasonably request in order to carry out
the intent and accomplish the purposes of this Agreement and the consummation
of the transactions contemplated hereby.

 

10.11       No
Strict Construction.  The language
used in this Agreement is deemed to be the language chosen by the parties to
express their mutual intent, and no rules of strict construction will be
applied against any party.

 

10.12       Equitable
Relief.  The Company recognizes that,
if it fails to perform or discharge any of its obligations under this
Agreement, any remedy at law may prove to be inadequate relief to
Investor.  The Company therefore agrees
that Investor is entitled to seek temporary and permanent injunctive relief in
any such case.

 

17

 

IN WITNESS WHEREOF, the undersigned Investor and the
Company have caused this Securities Purchase Agreement to be duly executed as
of the date first above written.

 

	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  SONUS PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael A.
  Martino

  	
   

  
	
   

  	
  Name:

  	
  Michael A.
  Martino

  	
   

  
	
   

  	
  Title:

  	
  President and
  CEO

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  INVESTOR:

  
	
   

  	
   

  
	
   

  	
  SCHERING AG

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Hubertus
  Erlen

  	
   

  
	
   

  	
  Name:

  	
   Hubertus
  Erlen

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Ulrich
  Koestlin

  	
   

  
	
   

  	
  Name:

  	
   Ulrich
  Koestlin

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  170-178 Muellerstrasse

  	
   

  
	
   

  	
   

  	
  D-13342 Berlin, Germany

  	
   

  
	
   

  	
   

  	
  Fax:

  	
  +49-(0)30-468-11411

  
	
   

  	
   

  	
  Attn:

  	
  Head of Finance

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  SCHERING BERLIN VENTURE

  CORPORATION

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Lutz
  Lingnau

  	
   

  
	
   

  	
  Name:

  	
   Lutz Lingnau

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  340 Changebridge Road

  	
   

  
	
   

  	
   

  	
  Montville, NJ 07045

  	
   

  
															

 

18

 

Exhibit
A

 

Warrant

 

THE
SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE  NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933  OR ANY STATE SECURITIES LAWS AND MAY NOT BE SOLD, EXCHANGED,
HYPOTHECATED OR TRANSFERRED IN ANY MANNER EXCEPT PURSUANT TO A REGISTRATION OR
AN EXEMPTION FROM SUCH REGISTRATION.

 

PURCHASE WARRANT

 

Issued to:

 

Schering AG

 

Exercisable to Purchase

 

975,000 Shares of Common Stock

 

of

 

SONUS PHARMACEUTICALS, INC.

 

Void after October 17, 2010

 

 

This is to certify that, for the value described
herein and subject to the terms and conditions set forth below, the
Warrantholder is entitled to purchase, and the Company promises and agrees to
sell and issue to the Warrantholder, at any time on or after October 17,
2005 (the “Effective Date”), pursuant to Section 3 hereof, up to
975,000 shares of the Company’s Common Stock at the Exercise Price.

 

This Warrant certificate is issued subject to the following terms and
conditions:

 

1.             Definitions of
Certain Terms.  Except as may be
otherwise clearly required by the context, the following terms have the following
meanings:

 

(a)           “Common
Stock” means the common stock, $0.001 par value, of the Company.

 

(b)           “Company”
means Sonus Pharmaceuticals, Inc., a Delaware corporation.

 

(c)           “Effective
Date” has the meaning set forth in the preamble to this Agreement.

 

(d)           “Exercise
Period” means the period of time commencing on the Effective Date and
ending at 5 p.m. Pacific Standard Time on the fifth anniversary of the
Effective Date.

 

(e)           “Exercise
Price” means the price at which the Warrantholder may purchase one Share
upon exercise of Warrants as determined from time to time pursuant to the
provisions hereof.  The initial Exercise
Price is $4.42 per Share, which is equal to 110% of the purchase price per
share of Common Stock paid by Warrantholder under the Securities Purchase
Agreement.

 

(f)            “Registration
Rights Agreement” means the Registration Rights Agreement dated as of
October 17, 2005 between the Company and the Investor referenced therein.

 

(g)           “Securities
Act” means the Securities Act of 1933, as amended.

 

(h)           “Securities
Purchase Agreement” means the Securities Purchase Agreement dated as of
October 17, 2005 between the Company and the Investor referenced therein.

 

(i)            “Share”
or “Shares” refers to one or more shares of Common Stock issuable on
exercise of the Warrant.

 

(j)            “Warrant”
means the warrant evidenced by this certificate or any certificate obtained
upon transfer or partial exercise of the Warrant evidenced by any such
certificate.

 

(k)           “Warrantholder”
means a record holder of the Warrant or Shares. 
The initial Warrantholder is Schering AG.

 

2

 

2.             Purchase of
Warrant.  Concurrently with the
issuance hereof, the Warrantholder shall pay to the Company as consideration
for the Warrant the sum of $0.125 per Share issuable upon exercise of the
Warrant, or $121,875 in the aggregate.

 

3.             Exercise of
Warrants.

 

(a)           All or any part of the
Warrant may be exercised during the Exercise Period by surrendering the
Warrant, together with appropriate instructions, duly executed by the
Warrantholder or by its duly authorized attorney, and delivery of payment in
full by the Warrantholder, in lawful money of the United States, of the
Exercise Price payable with respect to the Shares being purchased at the office
of the Company, 22026 20th Avenue S.E., Bothell, Washington, 98021,
Attention: President, or at such other office or agency as the Company may
designate.  The date on which such
instructions and the Exercise Price are received by the Company shall be the
date of exercise.  Upon receipt of notice
of exercise and the Exercise Price, the Company shall immediately instruct its
transfer agent to prepare certificates for the Shares to be received by the
Warrantholder and shall use commercially reasonable efforts to cause such certificates
to be prepared and delivered to the Warrantholder in accordance with the
Warrantholder’s instructions within three business days after the date of
exercise.  If the Warrantholder shall
provide the Company with an opinion of counsel to the effect that the legend
set forth on the face of this Warrant is not required, such certificates shall
not bear a legend with respect to the Securities Act.

 

(b)           If
fewer than all the Shares purchasable under the Warrant are purchased, the
Company will, upon such partial exercise, execute and deliver to the
Warrantholder a new Warrant certificate (dated the date hereof), in form and
tenor similar to this Warrant certificate, evidencing that portion of the
Warrant not exercised.  The Shares to be
obtained on exercise of the Warrant will be deemed to have been issued, and any
person exercising the Warrant will be deemed to have become a holder of record
of those Shares, as of the date of the payment of the Exercise Price.

 

4.             Adjustments in
Certain Events.  The number, class,
and price of the Shares for which this Warrant is exercisable are subject to
adjustment from time to time upon the happening of certain events as follows:

 

(a)           If the
outstanding shares of the Company’s Common Stock are divided into a greater number
of shares or a dividend in stock is paid on the Common Stock, the number of
Shares for which the Warrant is then exercisable will be proportionately
increased and the Exercise Price will be proportionately reduced; and,
conversely, if the outstanding shares of Common Stock are combined into a
smaller number of shares of Common Stock, the number of Shares for which the
Warrant is then exercisable will be proportionately reduced and the Exercise
Price will be proportionately increased. 
The increases and reductions provided for in this
subsection 4(a) will be made with the intent and, as nearly as
practicable, the effect that neither the percentage of the total equity of the
Company obtainable on exercise of the Warrants nor the price payable for such
percentage upon such exercise will be affected by any event described in this
subsection 4(a).

 

3

 

(b)           In
case of any change in the Common Stock through merger, consolidation,
reclassification, reorganization, partial or complete liquidation, purchase of
substantially all the assets of the Company, or other change in the capital
structure of the Company, then, as a condition of such change, lawful and
adequate provision will be made so that the holder of this Warrant will have
the right thereafter to receive upon the exercise of the Warrant the kind and
amount of shares of stock or other securities or property to which he would
have been entitled if, immediately prior to such event, he had held the number
of Shares obtainable upon the exercise of the Warrant.  In any such case, appropriate adjustment will
be made in the application of the provisions set forth herein with respect to
the rights and interest thereafter of the Warrantholder, to the end that the
provisions set forth herein will thereafter be applicable, as nearly as
reasonably may be, in relation to any shares of stock or other property
thereafter deliverable upon the exercise of the Warrant.  The Company will not permit any change in its
capital structure to occur unless the issuer of the shares of stock or other
securities to be received by the holder of this Warrant, if not the Company,
agrees to be bound by and comply with the provisions of this Warrant.

 

(c)           When
any adjustment is required to be made in the number of Shares or other
securities or property purchasable upon exercise of the Warrant, the Company
will promptly determine the new number of such Shares or other securities or
property purchasable upon exercise of the Warrant and (i) prepare and
retain on file a statement describing in reasonable detail the method used in
arriving at the new number of such Shares or other securities or property
purchasable upon exercise of the Warrant and (ii) cause a copy of such
statement to be mailed to the Warrantholder within thirty (30) days after the
date of the event giving rise to the adjustment.

 

(d)           No
fractional shares of Common Stock or other securities will be issued in
connection with the exercise of the Warrant, but the Company will pay, in lieu
of fractional shares, a cash payment therefor on the basis of the mean between
the bid and asked prices of the Common Stock in the over-the-counter market or
the closing price on a national securities exchange on the day immediately
prior to exercise.

 

(e)           If
securities of the Company or securities of any subsidiary of the Company are
distributed pro rata to holders of Common Stock, such number of such securities
will be distributed to the Warrantholder or his assignee upon exercise of this
Warrant as the Warrantholder or assignee would have been entitled to if the
portion of the Warrant evidenced by this Warrant certificate had been exercised
prior to the record date for such distribution. 
The provisions with respect to adjustment of the Common Stock provided
in this Section 4 will also apply to the securities to which the
Warrantholder or his assignee is entitled under this subsection 4(e).

 

(f)            In
the event (i) the Company establishes a record date to determine the
holders of any class of securities who are entitled to receive any dividend or
other distribution or (ii) there occurs any change in the Common Stock
through merger, consolidation, reclassification, reorganization, partial or
complete liquidation, purchase of substantially all of the assets of the
Company or other change in the capital structure of the Company, the Company
shall give to the holder hereof a notice specifying (a) the date of such
record date for the purpose of such dividend or distribution and a description
of such dividend or distribution, (b) the date on which any such merger,
consolidation,

 

4

 

reclassification, reorganization, sale, liquidation or other change in
the capital structure of the Company is expected to become effective, and
(c) the time, if any, that is to be fixed, as to when the holders of
record of Common Stock (or other securities) shall be entitled to exchange
their shares of Common Stock (or other securities) for securities or other
property deliverable upon such merger, consolidation, reclassification,
reorganization, sale, liquidation or other change in the capital structure of
the Company.  Such written notice shall
be given to the holder of this Warrant at least twenty (20) days prior to the
date specified in such notice on which any such action is to be taken.

 

5.             Reservation of
Shares.  The Company agrees that the
number of shares of Common Stock or other securities sufficient to provide for
the exercise of the Warrant upon the basis set forth above will at all times
during the term of the Warrant be reserved for exercise.  If at any time the Company does not have a
sufficient number of shares of Common Stock or other securities authorized to
provide for the exercise of the Warrant, the Company shall take such actions as
may be reasonably necessary to increase the number of authorized shares of
Common Stock or other securities to provide for exercise of the Warrant.

 

6.             Validity of Shares.  All Shares or other securities delivered upon
the exercise of the Warrant will be duly and validly issued in accordance with
their terms, and, in the case of capital stock, will, when issued and delivered
in accordance with their terms against payment therefor as provided in the
Warrant, be fully paid and nonassessable, and the Company will pay all
documentary and transfer taxes, if any, in respect of the original issuance
thereof upon exercise of the Warrant.

 

7.             Restrictions on
Transfer. This Warrant and the Shares may not be sold, transferred,
assigned or hypothecated except as permitted pursuant to Section 2.6 of
the Securities Purchase Agreement and subject to the restrictions on transfer
in the Registration Rights Agreement. 
The Warrant may be divided or combined, upon request to the Company by
the Warrantholder, into a certificate or certificates evidencing the same
aggregate number of Warrants.

 

8.             No Rights as a
Stockholder.  Except as otherwise
provided herein, the Warrantholder will not, by virtue of ownership of the
Warrant, be entitled to any rights of a stockholder of the Company but will,
upon written request to the Company, be entitled to receive such quarterly or
annual reports as the Company distributes to its stockholders.

 

9.             Notice.  Any notices required or permitted to be given
under the terms of this Warrant must be sent by certified or registered mail
(return receipt requested) or delivered personally or by courier (including a
recognized overnight delivery service) or by facsimile and will be effective
five (5) days after being placed in the mail, if mailed by regular U.S.
mail, or upon receipt, if delivered personally, by courier (including a
recognized overnight delivery service) or by facsimile, in each case addressed
to a party.  The addresses for such
communications are:

 

5

 

If to the Company:

 

Chief Financial Officer

Sonus Pharmaceuticals, Inc.

22026 20th Avenue S.E.

Bothell, Washington 98021

fax:          (425) 489-0626

 

If to a Warrantholder:  to the
address set forth immediately below the Warrantholder’s name on the signature
pages hereto.

 

With copies to:

 

Schering AG

Legal Department

170-178 Muellerstrasse

D-13342 Berlin, Germany

Fax:         +49-(0)30-468-14086

 

Each party will provide written notice to the other
parties of any change in its address.

 

10.           Applicable Law.  This Warrant will be governed by and
construed in accordance with the laws of the State of New York, without
reference to conflict of laws principles thereunder.

 

11.           Entire Agreement.  This Warrant, the exhibits and schedules
hereto, and the documents referred to herein, constitute the entire agreement
and understanding of the parties hereto with respect to the subject matter
hereof, and supersede all prior and contemporaneous agreements and
understandings, whether oral or written, between the parties hereto with
respect to the subject matter hereof.

 

12.           Waiver; Consent.  This Warrant may not be changed, amended,
terminated, augmented, rescinded or discharged (other than by performance), in
whole or in part, except by a writing executed by the parties hereto, and no
waiver of any of the provisions or conditions of this Warrant or any of the
rights of a party hereto shall be effective or binding unless such waiver shall
be in writing and signed by the party claimed to have given or consented
thereto.

 

13.           No Impairment.  The Company will not, by amendment of its
Charter or by any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, but will at all times in
good faith assist in the carrying out of all such terms and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights of the Warrantholder of this Warrant against impairment.

 

14.           Remedies.  The Company stipulates that the remedies at
law of the Warrantholder of this Warrant in the event of any default or
threatened default by the Company in the performance of or compliance with any
of the terms of this Warrant are not adequate and may be enforced by a decree
for the specific performance of any agreement

 

6

 

contained herein or by an injunction against a violation of any of the
terms hereof or otherwise.

 

15.           Severability.  If one or more provisions of this Warrant are
held to be unenforceable under applicable law, such provision shall be excluded
from this Warrant and the balance of the Warrant shall be interpreted as if
such provision were so excluded and the balance shall be enforceable in
accordance with its terms.

 

7

 

IN WITNESS WHEREOF, the parties hereto have executed this Warrant
effective as of the date set forth below.

 

	
  Dated as of October 17, 2005

  	
   

  
	
   

  	
   

  
	
  SONUS PHARMACEUTICALS, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Agreed and Accepted as of October 17, 2005

  	
   

  
	
   

  	
   

  
	
  SCHERING AG

  	
   

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  

 

 

NOTICE OF EXERCISE

 

To:          SONUS PHARMACEUTICALS, INC.

 

The undersigned hereby elects to purchase
           shares of Common
Stock (the “Shares”) of Sonus Pharmaceuticals, Inc., a Delaware
corporation (the “Company”) pursuant to the terms of the attached
Warrant, and tenders herewith payment of the purchase price pursuant to the
terms of the Warrant.

 

Please issue certificates representing the Common Stock purchased
hereunder in the names and in the denominations indicated below.

 

Please issue a new Warrant for the unexercised portion of the attached
Warrant, if any, in the name of the undersigned.

 

	
  Dated:

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  No. Warrant Shares:

  	
   

  	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Print Name of

  	
   

  	
   

  	
   

  	
   

  
	
  Stockholder:

  	
   

  	
   

  	
  Title:

  	
   

  	
   

  
										

 

 

Exhibit
B

 

Wire
Transfer Instructions

 

 

Exhibit
C

 

Registration
Rights Agreement

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00099-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00099-of-00352.parquet"}]]