Document:

Exhibit
4.1

SUPPLEMENTAL
INDENTURE

SUPPLEMENTAL INDENTURE
dated as of June 12, 2006 (this “Supplemental Indenture”) among National
Mentor, Inc., a Delaware corporation (the “Company”), the entities set
forth on Schedule A hereto, as guarantors under the Indenture
referred to below (the “Guarantors”), and U.S. Bank National
Association, as trustee under the Indenture referred to below (the “Trustee”).

W I T N E S S E T H
:

WHEREAS, the Company, the
Guarantors and the Trustee heretofore executed and delivered an Indenture,
dated as of November 4, 2004 (as amended, supplemented, waived, or otherwise
modified, the “Indenture”), providing for the issuance of the 9-5/8%
Senior Subordinated Notes due 2012 (the “Notes”) (capitalized terms used
herein but not otherwise defined have the meanings ascribed thereto in the
Indenture);

WHEREAS, Section 9.02 of
the Indenture provides that the Company and the Trustee, with the consent of
the Holders of at least a majority in principal amount of the Notes then
outstanding, may amend or waive certain terms and covenants in the Indenture as
described below;

WHEREAS, the Holders of a
majority in principal amount of the Notes outstanding have consented to the
waiver and amendments effected by this Supplemental Indenture; 

WHEREAS, the Company and
each of the Guarantors are undertaking to execute and deliver this Supplemental
Indenture to amend certain terms and covenants in the Indenture in connection
with the Offer to Purchase and Consent Solicitation Statement of the Company,
dated as of May 25, 2006, and any amendments, modifications or supplements
thereto (the “Tender Offer and Solicitation”); and

WHEREAS, this
Supplemental Indenture has been duly authorized by all necessary corporate
action on the part of the Company and each of the Guarantors.

NOW, THEREFORE, in
consideration of the foregoing and for other good and valuable consideration,
the receipt of which is hereby acknowledged, the Company, each of the
Guarantors and the Trustee mutually covenant and agree for the equal and
ratable benefit of the Holders of the Notes as follows:

ARTICLE I

Amendments
and Waivers

Section
1.1             Applicability of Certain Indenture
Provisions to the Tender Offer and Solicitation. 
The application of the provisions of Article 4 of the Indenture are hereby
waived to the extent that such provisions might otherwise interfere with the
ability to enter into agreements contemplated by, and to consummate, the Tender
Offer and Solicitation.

 1
 

 

Section
1.2             Amendments to the
Indenture.  Effective at the time of
payment or deposit with DTC (the “Payment Date”) of an amount of money
sufficient to pay for all Notes validly tendered and accepted pursuant to the
Tender Offer and Solicitation and to make all consent payments required under
the Tender Offer and Solicitation:

(i)                                     The
Indenture is hereby amended to delete Section 4.03 (Reports), Section 4.05
(Taxes), Section 4.06 (Stay, Extension and Usury Laws), Section 4.07
(Restricted Payments), Section 4.08 (Dividend and Other Payment Restrictions
Affecting Restricted Subsidiaries), Section 4.09 (Incurrence of Indebtedness
and Issuance of Preferred Stock), Section 4.10 (Asset Sales), Section 4.11
(Transactions with Affiliates), Section 4.12 (Liens), Section 4.13 (Corporate
Existence), Section 4.14 (Offer to Repurchase Upon Change of Control), Section
4.15 (Limitation on Senior Subordinated Debt), Section 4.16 (Limitation on
Issuances of Guarantees of Indebtedness), Section 4.17 (Additional Note
Guarantees), Section 4.18 (Business Activities) and Section 4.19 (Designation
of Restricted and Unrestricted Subsidiaries) in their entirety and all
references thereto contained elsewhere in the Indenture in their entirety;

(ii)                                  The
Indenture is hereby amended to delete clauses (3) and (4) of Section 5.01 in
their entirety and all references thereto contained in Section 5.01 and
elsewhere in the Indenture in their entirety;

(iii)                               The
failure to comply with the terms of any of the Sections of the Indenture set
forth in clauses (i) and (ii) above shall no longer constitute a Default or an
Event of Default under the Indenture and shall no longer have any other
consequence under the Indenture;

(iv)                              The
Indenture is hereby amended to delete clauses (d), (e), (f) and (g) of Section
6.01 in their entirety and all references thereto contained in Section 6.01 and
elsewhere in the Indenture in their entirety, and the occurrence of the events
described in clauses (d), (e), (f) and (g) of Section 6.01 shall no longer
constitute Events of Default;

(v)                                 Clause
(c) of Section 6.01 is hereby deleted and replaced in its entirety by the
following:

                                                                “(c)         failure by the Company or any of its Restricted Subsidiaries
to comply with the provisions of Sections 5.01(1) and (2) hereof;”

(vi)                              All
definitions set forth in Section 1.01 of the Indenture that relate to defined
terms used solely in sections deleted by this Supplemental Indenture are hereby
deleted in their entirety; and

(vii)                           All
references to Sections 6.01 and 5.01 of the Indenture shall mean Sections 6.01
and 5.01 as amended by this Supplemental Indenture.

 2
 

 

 

ARTICLE II

Miscellaneous

Section
2.1             Effect of Supplemental
Indenture.  Upon the execution and
delivery of this Supplemental Indenture by the Company, each of the Guarantors and the Trustee, the
Indenture shall be supplemented in accordance herewith, and this Supplemental
Indenture shall form a part of the Indenture for all purposes, and every Holder
of Notes heretofore or hereafter authenticated and delivered under the
Indenture shall be bound hereby; provided,
that the amendments to the Indenture set forth in Section 1.2 of this
Supplemental Indenture shall become operative as specified in Section 1.2
hereof.  Prior to the Payment Date, the
Company may terminate this Supplemental Indenture upon written notice to the
Trustee.

Section
2.2             Indenture Remains in
Full Force and Effect.  Except as
supplemented hereby, all provisions in the Indenture shall remain in full force
and effect. 

Section
2.3             Indenture and
Supplemental Indenture Construed Together. 
This Supplemental Indenture is an indenture supplemental to and in
implementation of the Indenture, and the Indenture and this Supplemental
Indenture shall henceforth be read and construed together.

Section
2.4             Confirmation and
Preservation of Indenture.  The
Indenture as supplemented by this Supplemental Indenture is in all respects
confirmed and preserved.

Section
2.5             Conflict with the Trust
Indenture Act.  If any provision of
this Supplemental Indenture limits, qualifies or conflicts with any provision
of the TIA that is required under the TIA to be a part of and govern any
provision of this Supplemental Indenture, the provision of the TIA shall
control.  If any provision of this
Supplemental Indenture modifies or excludes any provision of the TIA that may
be so modified or excluded, the provision of the TIA shall be deemed to apply
to the Indenture as so modified or to be excluded by this Supplemental
Indenture, as the case may be.

Section
2.6             Severability.  In case any provision in this Supplemental
Indenture 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
2.7             Benefits of
Supplemental Indenture.  Nothing in
this Supplemental Indenture or the Notes, express or implied, shall give to any
Person, other than the parties hereto and thereto and their successors
hereunder and thereunder and the Holders of the Notes, any benefit of any legal
or equitable right, remedy or claim under the Indenture, this Supplemental
Indenture or the Notes.

Section
2.8             Successors.  All agreements of the Company and each of the Guarantors in this Supplemental
Indenture shall bind their respective successors.  All agreements of the Trustee in this
Supplemental Indenture shall bind its successors. 

 3
 

 

Section
2.9             Acceptance by Trustee.  The Trustee accepts the amendments to the
Indenture effected by this Supplemental Indenture and agrees to execute the
trusts created by the Indenture as hereby amended, but only upon the terms and
conditions set forth in the Indenture.

Section
2.10   Certain Duties and
Responsibilities of the Trustee.  In
entering into this Supplemental Indenture, the Trustee shall be entitled to the
benefit of every provision of the Indenture and the Notes relating to the
conduct or affecting the liability or affording protection to the Trustee,
whether or not elsewhere herein so provided.

Section
2.11   Governing Law.  This Supplemental Indenture shall be governed
by, and construed in accordance with, the laws of the State of New York but
without giving effect to applicable principles of conflicts of law to the
extent that the application of the laws of another jurisdiction would be
required thereby.

Section
2.12   Counterparts.  This Supplemental Indenture may be executed
in any number of counterparts, each of which so executed shall be deemed to be
an original, but all such counterparts shall together constitute but one and
the same instrument. 

Section
2.13   Headings.  The Article and Section headings herein are
inserted for convenience of reference only, are not intended to be considered a
part hereof and shall not modify or restrict any of the terms or provisions
hereof. 

Section
2.14   The Trustee.  The Trustee shall not be responsible in any
manner for or in respect of the validity or sufficiency of this Supplemental
Indenture or for or in respect of the recitals contained herein, all of which
are made by the Company and each of
the Guarantors.

*              *              *              *              *

 

 4

 

 

IN WITNESS WHEREOF, the parties hereto have caused
this Supplemental Indenture to be duly executed as of the date first written
above.

	
  

  	
  NATIONAL MENTOR, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ John W. Gillespie

  
	
   

  	
  Name:John W. Gillespie

  
	
   

  	
  Title:

  	
  Executive Vice President, Chief Financial

  
	
   

  	
   

  	
  Officer and Treasurer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  GUARANTORS:

  
	
   

  	
   

  
	
   

  	
  NATIONAL MENTOR HOLDINGS, INC.

  
	
   

  	
  NATIONAL MENTOR, LLC

  
	
   

  	
  NATIONAL MENTOR SERVICES, LLC

  
	
   

  	
  FAMILY ADVOCACY SERVICES, LLC

  
	
   

  	
  NATIONAL MENTOR SERVICES, INC.

  
	
   

  	
  MENTOR MANAGEMENT, INC.

  
	
   

  	
  NATIONAL MENTOR HEALTHCARE, LLC

  
	
   

  	
  CAROLINA BEHAVIORAL SERVICES, LLC

  
	
   

  	
  CENTER FOR COMPREHENSIVE SERVICES, INC.

  
	
   

  	
  ILLINOIS MENTOR, INC.

  
	
   

  	
  REHABILITATION ACHIEVEMENT CENTER, INC.

  
	
   

  	
  MASSACHUSETTS MENTOR, INC.

  
	
   

  	
  LOYD’S LIBERTY HOMES, INC.

  
	
   

  	
  UNLIMITED QUEST, INC.

  
	
   

  	
  FIRST STEP INDEPENDENT LIVING PROGRAM, INC.

  
	
   

  	
  HORRIGAN COLE ENTERPRISES, INC.

  
	
   

  	
  OHIO MENTOR, INC.

  
	
   

  	
  SOUTH CAROLINA MENTOR, INC.

  
	
   

  	
  MENTOR MARYLAND, INC.

  
	
   

  	
  CORNERSTONE LIVING SKILLS, INC.

  
	
   

  	
  HOMEWORK CENTER, INC.

  
	
   

  	
  REM, INC.

  

 

 

 

	
  

  	
  REM ARIZONA, INC.

  
	
   

  	
  REM ARIZONA REHABILITATION, INC.

  
	
   

  	
  REM ARROWHEAD, INC.

  
	
   

  	
  REM ATLANTIC, INC.

  
	
   

  	
  REM CENTRAL LAKES, INC.

  
	
   

  	
  REM COLORADO, INC.

  
	
   

  	
  REM COMMUNITY PAYROLL SERVICES, LLC

  
	
   

  	
  REM COMMUNITY OPTIONS, INC.

  
	
   

  	
  REM CONNECTICUT COMMUNITY SERVICES, INC.

  
	
   

  	
  REM CONSULTING & SERVICES, INC.

  
	
   

  	
  REM CONSULTING OF OHIO, INC.

  
	
   

  	
  REM COUNCIL BLUFFS, INC.

  
	
   

  	
  REM DEVELOPMENTAL SERVICES, INC.

  
	
   

  	
  REM HEALTH, INC.

  
	
   

  	
  REM HEALTH OF IOWA, INC.

  
	
   

  	
  REM HEALTH OF NEBRASKA, LCC

  
	
   

  	
  REM HEALTH OF WISCONSIN, INC.

  
	
   

  	
  REM HEALTH OF WISCONSIN II, INC.

  
	
   

  	
  REM HEARTLAND, INC.

  
	
   

  	
  REM HENNEPIN, INC.

  
	
   

  	
  REM HOME HEALTH, INC.

  
	
   

  	
  REM INDIANA, INC.

  
	
   

  	
  REM INDIANA COMMUNITY SERVICES, INC.

  
	
   

  	
  REM INDIANA COMMUNITY SERVICES II, INC.

  
	
   

  	
  REM IOWA COMMUNITY SERVICES, INC.

  
	
   

  	
  REM IOWA, INC.

  
	
   

  	
  REM LEADWAY, INC.

  
	
   

  	
  REM MANAGEMENT, INC.

  
	
   

  	
  REM MARYLAND, INC.

  
	
   

  	
  REM MINNESOTA COMMUNITY SERVICES, INC.

  
	
   

  	
  REM MINNESOTA, INC.

  
	
   

  	
  REM NEVADA, INC.

  
	
   

  	
  REM NEW JERSEY, INC.

  
	
   

  	
  REM NORTH DAKOTA, INC.

  

 

 

 

	
  

  	
  REM NORTH STAR, INC.

  
	
   

  	
  REM OHIO, INC.

  
	
   

  	
  REM OHIO WAIVERED SERVICES, INC.

  
	
   

  	
  REM OKLAHOMA COMMUNITY SERVICES, INC.

  
	
   

  	
  REM PENNSYLVANIA COMMUNITY SERVICES, INC.

  
	
   

  	
  REM RAMSEY, INC.

  
	
   

  	
  REM RIVER BLUFFS, INC.

  
	
   

  	
  REM SILS OF IOWA, INC.

  
	
   

  	
  REM SOUTH CENTRAL SERVICES, INC.

  
	
   

  	
  REM SOUTHWEST SERVICES, INC.

  
	
   

  	
  REM UTAH, INC.

  
	
   

  	
  REM WEST VIRGINIA, INC.

  
	
   

  	
  REM WISCONSIN, INC.

  
	
   

  	
  REM WISCONSIN II, INC.

  
	
   

  	
  REM WISCONSIN III, INC.

  
	
   

  	
  REM WOODVALE, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ John W. Gillespie

  
	
   

  	
  Name:John W. Gillespie

  
	
   

  	
  Title:

  	
  Executive Vice President, Chief Financial

  
	
   

  	
   

  	
  Officer and Treasurer

  

 

 

 

	
  

  	
  U.S. BANK NATIONAL ASSOCIATION

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Richard Prokosch

  
	
   

  	
  Name: Richard Prokosch

  
	
   

  	
  Title: Vice President

  

 

 

 

SCHEDULE
A

SCHEDULE
OF GUARANTORS

	
  National Mentor
  Holdings, Inc. (Delaware)

  
	
   

  
	
  National Mentor,
  LLC (Delaware)

  
	
   

  
	
  National Mentor
  Services, LLC (Delaware)

  
	
   

  
	
  Family Advocacy
  Services, LLC (Delaware)

  
	
   

  
	
  National Mentor
  Services, Inc. (Delaware)

  
	
   

  
	
  Mentor
  Management, Inc. (Delaware)

  
	
   

  
	
  National Mentor
  Healthcare, LLC (Delaware)

  
	
   

  
	
  Carolina
  Behavioral Services, LLC (Delaware)

  
	
   

  
	
  Center for
  Comprehensive Services, Inc. (Illinois)

  
	
   

  
	
  Illinois
  Mentor, Inc. (Illinois)

  
	
   

  
	
  Rehabilitation
  Achievement Center, Inc. (Illinois)

  
	
   

  
	
  Massachusetts
  Mentor, Inc. (Massachusetts)

  
	
   

  
	
  Loyd’s Liberty
  Homes, Inc. (California)

  
	
   

  
	
  Unlimited
  Quest, Inc. (California)

  
	
   

  
	
  First Step
  Independent Living Program, Inc. (California)

  
	
   

  
	
  Horrigan Cole
  Enterprises, Inc. (California)

  
	
   

  
	
  Ohio
  Mentor, Inc. (Ohio)

  
	
   

  
	
  South Carolina
  Mentor, Inc. (South Carolina)

  
	
   

  
	
  Mentor Maryland, Inc.
  (Maryland)

  
	
   

  
	
  Cornerstone
  Living Skills, Inc. (California)

  
	
   

  
	
  Homework
  Center, Inc. (Minnesota)

  
	
   

  
	
  REM, Inc.
  (Minnesota)

  
	
   

  
	
  REM
  Arizona, Inc. (Arizona)

  
	
   

  
	
  REM Arizona
  Rehabilitation, Inc. (Arizona)

  
	
   

  
	
  REM
  Arrowhead, Inc. (Minnesota)

  
	
   

  
	
  REM
  Atlantic, Inc. (Iowa)

  
	
   

  
	
  REM Central
  Lakes, Inc. (Minnesota)

  
	
   

  
	
  REM
  Colorado, Inc. (Colorado)

  
	
   

  
	
  REM Community
  Payroll Services, LLC (Minnesota)

  
	
   

  
	
  REM Community
  Options, Inc. (West Virginia)

  
	
   

  

 

 

 

	
  REM Connecticut Community
  Services, Inc. (Connecticut)

  
	
   

  
	
  REM
  Consulting & Services, Inc. (Minnesota)

  
	
   

  
	
  REM Consulting
  of Ohio, Inc. (Ohio)

  
	
   

  
	
  REM Council
  Bluffs, Inc. (Minnesota)

  
	
   

  
	
  REM
  Developmental Services, Inc. (Iowa)

  
	
   

  
	
  REM
  Health, Inc. (Minnesota)

  
	
   

  
	
  REM Health of
  Iowa, Inc. (Iowa)

  
	
   

  
	
  REM Health of
  Nebraska, LLC (Delaware)

  
	
   

  
	
  REM Health of
  Wisconsin, Inc. (Wisconsin)

  
	
   

  
	
  REM Health of
  Wisconsin II, Inc. (Wisconsin)

  
	
   

  
	
  REM
  Heartland, Inc. (Minnesota)

  
	
   

  
	
  REM
  Hennepin, Inc. (Minnesota)

  
	
   

  
	
  REM Home
  Health, Inc. (Minnesota)

  
	
   

  
	
  REM
  Indiana, Inc. (Indiana)

  
	
   

  
	
  REM Indiana
  Community Services, Inc. (Indiana)

  
	
   

  
	
  REM Indiana
  Community Services II, Inc. (Indiana)

  
	
   

  
	
  REM Iowa
  Community Services, Inc. (Iowa)

  
	
   

  
	
  REM
  Iowa, Inc. (Iowa)

  
	
   

  
	
  REM
  Leadway, Inc. (Minnesota)

  
	
   

  
	
  REM
  Management, Inc. (Minnesota)

  
	
   

  
	
  REM Maryland, Inc.
  (Maryland)

  
	
   

  
	
  REM Minnesota
  Community Services, Inc. (Minnesota)

  
	
   

  
	
  REM
  Minnesota, Inc. (Minnesota)

  
	
   

  
	
  REM
  Nevada, Inc. (Nevada)

  
	
   

  
	
  REM New
  Jersey, Inc. (New Jersey)

  
	
   

  
	
  REM North
  Dakota, Inc. (North Dakota)

  
	
   

  
	
  REM North
  Star, Inc. (Minnesota)

  
	
   

  
	
  REM
  Ohio, Inc. (Ohio)

  
	
   

  
	
  REM Ohio
  Waivered Services, Inc. (Ohio)

  
	
   

  
	
  REM Oklahoma
  Community Services, Inc. (Oklahoma)

  
	
   

  
	
  REM Pennsylvania
  Community Services, Inc. (Pennsylvania)

  
	
   

  
	
  REM
  Ramsey, Inc. (Minnesota)

  

 

 

 

	
  

  
	
  REM River Bluffs, Inc.
  (Minnesota)

  
	
   

  
	
  REM SILS of
  Iowa, Inc. (Iowa)

  
	
   

  
	
  REM South
  Central Services, Inc. (Minnesota)

  
	
   

  
	
  REM Southwest
  Services, Inc. (Minnesota)

  
	
   

  
	
  REM
  Utah, Inc. (Utah)

  
	
   

  
	
  REM West
  Virginia, Inc. (West Virginia)

  
	
   

  
	
  REM
  Wisconsin, Inc. (Wisconsin)

  
	
   

  
	
  REM Wisconsin
  II, Inc. (Wisconsin)

  
	
   

  
	
  REM Wisconsin
  III, Inc. (Wisconsin)

  
	
   

  
	
  REM
  Woodvale, Inc. (Minnesota)Exhibit 10.1

SEPARATION
AGREEMENT AND FULL RELEASE OF ALL CLAIMS

THIS SEPARATION
AGREEMENT AND FULL RELEASE OF ALL CLAIMS (hereinafter the “Agreement”) is
entered into as of this 13th day of June 2006 by and between
NEOPHARM, INC. (the “Company”) and LAWRENCE A. KENYON (“Executive”) and shall
be effective as of August 31, 2006 (the “Effective Date”).

WITNESSETH

A.            Executive has tendered his
resignation as an officer of the Company and from all related offices and
positions with affiliates of the Company, effective as of the Effective Date,
as set forth in the letter of resignation attached hereto as Exhibit A.

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

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

1.             Capacity
to Execute.

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

2.             Specific
Consideration Provided to Executive.

In exchange for
the covenants of Executive hereunder, the future services to be provided by
Executive, and other good and valuable consideration the receipt of which is
hereby acknowledged, and notwithstanding any provisions to the contrary
contained in the letter dated August 18, 2000, offering Executive
employment with the Company, which provisions shall be considered to be null
and void, Executive shall receive the following consideration from the Company:

(a)           The Company shall: (i) provide
Executive with salary continuance, subject to Sections 2(c) and 4 below,
for nine (9) months from the Effective Date, based upon his current base
salary (the “Salary Continuance”), plus (ii) subject to Sections 2(b), 2(c) and
4 below, for nine (9) months from the Effective Date, either continue to
provide Executive with coverage under the Company’s current medical and dental
insurance plans (collectively, “Medical Insurance”) or, in the event Executive
shall not be eligible for such coverage, pay the cost of COBRA coverage for
Executive, which shall be substantially equivalent to the Medical Insurance,
plus (iii) in accordance with Section 3(b), Executive’s previously
issued, but currently unvested options granted pursuant to the Company’s stock
option plans shall continue to vest in accordance with their terms during the
period set forth in Section 3(b), plus (iv) reimbursement for
reasonable attorney’s fee incurred by Executive in the negotiation of this
Agreement.

(b)           The benefits set
forth in Section 2(a)(ii) above, which provide for nine (9) months
of Medical Insurance or, alternatively, COBRA coverage for Executive shall, in
addition, include such benefits for those of Executive’s dependents who are
currently included in Executive’s Medical Insurance coverage and which would be
subject to COBRA to the extent such benefits otherwise are in effect for
Executive as of the Effective Date, understanding, however, that Executive is
responsible for complying with all terms and conditions of any such insurance
plan.

(c)           The Salary
Continuance provided in Section 2(a)(i) and Medical Insurance or
COBRA payments provided in Section 2(a)(ii) shall continue only until
such time as Executive shall perform any

 

 

services for a “Competing Business” as hereinafter defined in Section 4(a)(i),
without having received the prior written consent of the President of the
Company, which consent will not be unreasonably withheld. The rendering of
consulting or other services to any Competing Business, without first having
obtained prior written consent for such activity from the President of the
Company, shall entitle the Company to terminate all remaining Salary
Continuance, Medical Insurance or COBRA benefit payments and to seek
restitution for any such payments made to Executive subsequent to such job
acceptance or performance of services for a Competing Business. In the event of
Executive’s death, any remaining Salary Continuance payments shall be made to
his estate and the Medical Insurance or COBRA payments provided in Section 2(a)(ii) shall
continue for his dependents.

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

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

3.             Advisory
Services

(a)           Effective with
Executive’s termination of employment as of the Effective Date, and continuing
until the earlier of Executive taking a position with a Competing Business
(without the written consent of the President of NeoPharm, which consent will
not be unreasonably withheld), termination of this Agreement, or the date that
is nine (9) months from the Effective Date hereof (the “Consulting Term”),
Executive’s status shall change to that of a consultant to, and not an employee
of, the Company. During the Consulting Term, Executive will be reasonably
available to NeoPharm personnel during normal business hours for advice on
matters relating to the Company’s business operations and strategies,
including, but not limited to, the Company’s financial reporting and accounting
matters which were overseen by Executive as Chief Financial Officer of the
Company; provided, however, that such consultation shall not exceed twenty (20)
hours per week.

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

4.             Restrictive Covenants for
Executive.

(a)           Executive hereby
covenants and agrees with the Company that, in consideration for the payments
and other valuable consideration to be provided to Executive under this
Agreement, for a period (the “Restricted Period”) of nine (9) months from
the Effective Date, Executive shall not, without the prior written consent of
the President of the Company, which consent will not be unreasonably withheld,
either directly or indirectly, on his own account or as an executive,
consultant, agent, partner, joint venturer, owner, officer, director or
shareholder of any other person, firm, corporation, partnership, limited
liability company or other entity:

(i)            Perform services
for any Competing Business, as hereinafter defined, that are substantially
similar in whole or in part to those that he performed for the Company in his
role as Executive Vice President and CFO, including specifically, but not
limited to, participating in the financing or development of drug or non-drug
products or the management of individuals involved in the research, financing,
development, sale or marketing of drug or non-drug products. For purposes of

 2
 

 

 

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

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

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

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

(c)           Executive recognizes
and understands that Executive’s duties at the Company while in its employ or
during the Restricted Period, may have included, or may include, the
preparation of materials, including written or graphic materials and other
Developments, and that any such materials conceived or written by Executive are
deemed to be “work made for hire” as defined and used in the Federal Copyright
Act, 17 U.S.C. § 101. In the event of publication of such materials, Executive
understands that since such work is “work made for hire,” the Company shall
solely retain and own all rights in such materials, including any right of
copyright.

 3
 

 

 

5.             Mutual
Release of Claims.

(a)           The Executive, and
anyone claiming through the Executive or on the Executive’s behalf, agree to
release the Company and the other Released Parties (defined below) with respect
to any and all claims, whether currently known or unknown, that the Executive
now has, has ever had, or may ever have against the Company and any of the
other Released Parties arising from or related to any agreement, act, omission,
or thing occurring or existing at any time prior to or on the date on which the
Executive signs this Agreement. Without limiting the foregoing, the claims
released by the Executive hereunder include, but are not limited to:

(i)            all claims for or
related in any way to the Executive’s employment, compensation, other terms and
conditions of employment, or termination from employment with the Company,
including without limitation all claims for salary, bonus, severance pay, any
vesting of options under the Company’s 1998 Equity Incentive Plan or any other
compensation or benefit;

(ii)           all claims that were or could have
been asserted by the Executive or on the Executive’s behalf:  (a) in any federal, state, or local
court, commission, or agency; (b) under any common law theory; or (c) under
any employment, contract, tort, federal, state, or local law, regulation,
ordinance, constitutional provision, or executive order; and

(iii)          all
claims that were or could have been asserted by the Executive or on the
Executive’s behalf arising under any of the following laws, as amended from
time to time:  the Age Discrimination in
Employment Act, Title VII of the Civil Rights Act of 1964, the Americans with
Disabilities Act, the Employee Retirement Income Security Act, the Family and
Medical Leave Act, and the Worker Adjustment and Retraining Notification Act.

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

(c)           The term “Released Parties” as used in this
Agreement includes:  (i) the Company
and its past, present, and future parents, divisions, subsidiaries,
partnerships, affiliates, and other related entities (whether or not they are
wholly owned); and (ii) the past, present, and future owners, trustees,
fiduciaries, administrators, shareholders, directors, officers, partners,
agents, representatives, members, associates, employees, and attorneys of each
entity listed in subpart (i) above; and (iii) the predecessors,
successors, and assigns of each entity listed in subparts (i) and (ii) above.

6.             Mutual
Covenant Not-to-Sue.

(a)           Executive covenants
and agrees not to file or initiate a lawsuit against any of the Released Parties
in regard to any claims, demands, causes of action, suits, damages, losses and
expenses, arising from acts or omissions of the Company occurring on or before
the date of execution of this Agreement, including, but not limited to, those
set forth in Section 5(a), and Executive will ask no other person or
entity to initiate such a lawsuit on his behalf. If Executive breaches this
covenant and agreement, Executive must immediately repay and refund to the
Company all payments he received pursuant to paragraph 2 above, and Executive
shall also indemnify and hold harmless the Company, any of the Released
Parties, and any of their officers, owners, shareholders, directors, executives
and agents from any and all costs incurred by any and all of them, including their
reasonable attorneys’ fees, in defending against any such lawsuit.

(b)           The Company
covenants and agrees not to file or initiate a lawsuit against Executive in
regard to any claims, demands, causes of action, suits, damages, losses and
expenses, arising from acts or omissions (except for any criminal act or
fraudulent acts or omissions) of Executive occurring on or before the date of

 4
 

 

 

execution of this Agreement, including, but not limited to, those set
forth in Section 5(b), and the Company will ask no other person or entity
to initiate such a lawsuit on its behalf.

7.             No
Proceedings Initiated.

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

8.             Covenants
of the Parties.

(a)           Executive ratifies
and confirms the confidentiality provisions of the Confidentiality Agreement
dated September 30, 2002, between him and the Company and acknowledges
that such covenants and agreements survive the termination of employment of
Executive with the Company and remain in full force and effect in accordance
with their terms.

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

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

(d)           The Company hereby
agrees to indemnify and hold harmless, in accordance with Delaware law and the
Articles of Incorporation and By-Laws of the Company, the Executive from and
against any and all actions, suits, proceedings, claims, demands, judgments,
expenses (including reasonable attorney fees), losses and damages arising or
resulting from Executive’s good faith performance of his duties as Executive
Vice President and CFO of the Company.

9.             No
Voluntary Assistance.

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

 5
 

 

 

10.           No
Admission of Liability.

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

11.           Confidentiality.

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

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

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

12.           OWBPA
Rights.

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

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

(c)           Executive
acknowledges that he may take a period of twenty-one (21) days from the date of
receipt of this Agreement (June 7, 2006) within which to consider and sign
this Agreement.

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

 6
 

 

 

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

NeoPharm, Inc.

c/o Mr. Guillermo
Herrera

1850 Lakeside
Drive

Waukegan, IL 60085

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

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

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

13.           Jurisdiction/Choice
of Forum.

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

14.           Advice
of Attorneys.

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

15.           Counterparts.

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

16.           Cooperation
of the Parties.

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

17.           Modification
in Writing Only.

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

18.           Construction
of this Agreement.

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

 7
 

 

 

19.           No
False Statements or Misrepresentation.

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

20.           Headings
and Captions.

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

21.           Remedies.

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

22.           Notices.

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

(a)           personally
delivered, or

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

(c)           For notices sent to
the Company:

NeoPharm, Inc.

1850 Lakeside Drive

Waukegan, IL 60085

 

Telephone No.:     (847)
887-0800

Facsimile No.:       (847)
735-0097

(d)           For notices sent to
Executive:

To the address on
file with the Company

 

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

23.           Binding
Agreement.

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

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

This Agreement,
and the benefits hereunder are not assignable or transferable by Executive, and
the rights and obligations of the Company under this Agreement will
automatically be deemed to be assigned by the Company to any corporation or entity
acquiring all or substantially all of the assets or stock of the Company or of
any corporation or entity with or into which the Company may be merged or
consolidated; provided, however, that in the event of

 8
 

 

 

Executive’s death, the
Company shall make such payments as may then be due and owing to the Executive,
if any, to the Executive’s estate.

25.           Entire
Agreement.

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

[SIGNATURE
PAGE TO FOLLOW]

 9
 

 

 

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

	
   

  	
  EXECUTIVE:

  
	
   

  	
  

  /s/ Lawrence A. Kenyon

  
	
   

  	
  Lawrence A. Kenyon

  
	
   

  	
   

  
	
   

  	
  Date:       June 13, 2006

  
	
   

  	
   

  
	
   

  	
  NEOPHARM, INC:

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
  /s/ Guillermo A. Herrera

  
	
   

  	
                  Guillermo A.
  Herrera

  
	
   

  	
  Title:       President and CEO

  
	
   

  	
   

  
	
   

  	
  Date:       June 13, 2006

  

 

 

 10

 

Exhibit A

Letter of
Resignation

June 7, 2006

Mr. Guillermo Herrera

President and CEO

NeoPharm, Inc.

1850 Lakeside Drive

Waukegan, IL  60085

Dear Guillermo:

I have decided to leave
NeoPharm to pursue other opportunities. 
My resignation from all of my positions at NeoPharm and its subsidiaries
will be effective August 31, 2006 to allow the Company time to secure the
services of a qualified replacement and to minimize disruption to the
organization.

Sincerely,

/s/ Lawrence A. Kenyon

Lawrence A. Kenyon

 11

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