Document:

Exhibit 10.15

 

CONFIDENTIAL TREATMENT
REQUESTED. 
THIS DOCUMENT IS THE SUBJECT OF A CONFIDENTIAL TREATMENT REQUEST
PURSUANT TO RULE 24b-2 UNDER THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.  PORTIONS OF THIS DOCUMENT FOR WHICH
CONFIDENTIAL TREATMENT HAS BEEN REQUESTED HAVE BEEN REDACTED AND ARE MARKED
HEREIN BY “[***]”.  SUCH REDACTED
INFORMATION HAS BEEN FILED SEPARATELY WITH THE COMMISSION PURSUANT TO THE
CONFIDENTIAL TREATMENT REQUEST.

 

DISTRIBUTION AND SUPPLY AGREEMENT

 

Between

 

DR. REDDY’S LABORATORIES, INC.

 

And

 

CERAGENIX PHARMACEUTICALS, INC.

 

And

 

CERAGENIX CORPORATION

 

Dated

 

NOVEMBER 16, 2007

 

 

TABLE OF CONTENTS

 

	
   

  	
   

  	
  PAGE

  
	
   

  	
   

  	
   

  
	
  1.

  	
  DEFINITIONS

  	
  1

  
	
   

  	
   

  	
   

  
	
  2.

  	
  APPOINTMENT AND ACCEPTANCE; OTHER
  RIGHTS

  	
  6

  
	
   

  	
   

  	
   

  
	
  3.

  	
  PAYMENTS

  	
  9

  
	
   

  	
   

  	
   

  
	
  4.

  	
  PURCHASE OF PRODUCT

  	
  12

  
	
   

  	
   

  	
   

  
	
  5.

  	
  PRICE-PAYMENT TERMS

  	
  15

  
	
   

  	
   

  	
   

  
	
  6.

  	
  OBLIGATIONS OF COMPANY

  	
  16

  
	
   

  	
   

  	
   

  
	
  7.

  	
  OBLIGATIONS OF DISTRIBUTOR

  	
  20

  
	
   

  	
   

  	
   

  
	
  8.

  	
  TECHNICAL PROCEDURES

  	
  22

  
	
   

  	
   

  	
   

  
	
  9.

  	
  MEDICAL INFORMATION, COMPLAINTS
  ADVERSE EVENTS AND POST-MARKETING SURVEILLANCE

  	
  23

  
	
   

  	
   

  	
   

  
	
  10.

  	
  REPRESENTATIONS AND WARRANTIES

  	
  24

  
	
   

  	
   

  	
   

  
	
  11.

  	
  LIABILITY AND INSURANCE

  	
  28

  
	
   

  	
   

  	
   

  
	
  12.

  	
  INTELLECTUAL PROPERTY

  	
  28

  
	
   

  	
   

  	
   

  
	
  13.

  	
  TERM AND TERMINATION

  	
  29

  
	
   

  	
   

  	
   

  
	
  14.

  	
  INDEMNIFICATION

  	
  32

  
	
   

  	
   

  	
   

  
	
  15.

  	
  CONFIDENTIALITY AND NON-USE

  	
  34

  
	
   

  	
   

  	
   

  
	
  16.

  	
  FORCE MAJEURE

  	
  35

  
	
   

  	
   

  	
   

  
	
  17.

  	
  MISCELLANEOUS PROVISIONS

  	
  36

  

 

 

i

 

LIST OF SCHEDULES

 

	
  SCHEDULE 1.8

  	
   

  	
  Company’s Trade Marks

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 1.36

  	
   

  	
  List of Patents

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 1.37

  	
   

  	
  Product Information

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 1.45

  	
   

  	
  Specifications

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 3.2(a)

  	
   

  	
  Product Pricing Structure

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 4.3(a)

  	
   

  	
  Form of Purchase Order

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 4.3(b)

  	
   

  	
  Batch Size Requirements

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 6.12

  	
   

  	
  Quality System and Design Control Agreement

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 8.1

  	
   

  	
  Quality Agreement

  
	
   

  	
   

  	
   

  
	
  SCHEDULE 10.2

  	
   

  	
  Company Disclosure Schedule

  

 

ii

 

DISTRIBUTION AND SUPPLY AGREEMENT

 

THIS DISTRIBUTION
AND SUPPLY AGREEMENT (this “Agreement”),
dated as of November 16, 2007 (the “Effective Date”)
is entered into by and among Dr. Reddy’s
Laboratories, Inc., a corporation duly organised and existing
under the laws of the state of New Jersey, having its place of business at 200
Somerset Corporate Boulevard, 7th Floor, Bridgewater, NJ 08807 (hereinafter
referred to as “Distributor”) and Ceragenix Pharmaceuticals, Inc., a corporation duly
organised and existing under the laws of the State of Delaware, having its
place of business at 1444 Wazee Street, Suite 210, Denver, CO 80202, and Ceragenix Corporation 
also  having its place of business
at 1444 Wazee Street, Suite 210, Denver, CO 80202 (hereinafter Ceragenix
Pharmaceuticals, Inc. and Ceragenix Corporation  shall be collectively referred to as “Company”).

 

PRELIMINARY STATEMENTS

 

A.            Company has the exclusive rights to appoint
exclusive distributors for the Product.

 

B.            Distributor wishes to distribute such Product
in the Territory as defined below and is willing and able to provide a
competent distribution organization in such Territory.

 

C.            Company shall supply, either itself or
through a contract manufacturer, Product for Distributor’s requirements as set
forth below in the Territory.

 

Now, therefore,
the Parties hereto, in consideration of the premises and mutual covenants and
undertakings herein contained, agree as follows:

 

1.             DEFINITIONS

 

In this
Agreement, the following terms shall have the following meanings:

 

1.1.         “510(k)” shall have the meaning set
forth in Section 1.37.

 

1.2.         “Agreement” means the agreement between
the Parties constituted by this document.

 

1.3.         “Affiliates” means any corporation,
firm, limited liability company, partnership, or other entity that directly or
indirectly controls, or is controlled by, or is under common control with a
Party to this Agreement but only for so long as that control remains,
whereafter that entity shall cease to be an Affiliate.  For the purpose of this definition, control
means ownership, directly or through one or more Affiliates, of fifty percent
(50%) or more of the shares of stock entitled to vote for the election of
directors in the case of a corporation, or fifty percent (50%) or more of the
equity interests in the case of any other type of legal entity, or status as a
general partner in any partnership, or any other arrangement whereby a Party
controls or has the right to control the board of directors or equivalent
governing body of a corporation or other entity.

 

 

1.4.         “Applicable Laws” means, with
respect to the Product, all laws, statutes and regulations of any governmental
authority, including any Regulatory Authority, having jurisdiction over the
manufacture, use, storage, import, transport, marketing, promoting or sale of
the Product, as are in effect during the term of this Agreement.

 

1.5.         “Breaching Party” shall have the
meaning set forth in Section 13.2(a).

 

1.6.         “Claims” shall have the meaning set
forth In Section 14.1.

 

1.7.         “Company Target Audiences” means [***].

 

1.8.         “Company’s Trade Marks” means the trade
marks as set out in Schedule 1.8.

 

1.9.         “Competitive Product” means [***].

 

1.10.       “Confidential Information” shall mean, for
each Party, any and all information disclosed by one Party to the other Party, whether in oral, written, graphic, electronic form  or otherwise acquired by a Party through visual inspection of tangible
items or observation of the facilities of another Party, where such information
is marked “CONFIDENTIAL” or is disclosed orally and, during the course of such
oral disclosure, is indicated to contain confidential information and
thereafter is summarized in writing as confidential within thirty (30) days; except
any portion thereof which:

 

(a) is known to the Receiving Party at the time
of disclosure, as evidenced by its written records;

 

(b) is disclosed to the Receiving Party by a
Third Party having a legal right to make such disclosure, without restriction
of disclosure;

 

(c) becomes patented, published or otherwise
part of the public domain through no fault of the Receiving Party; or

 

(d) is independently developed by or for the
Receiving Party without recourse to the other Party’s Confidential Information
disclosed hereunder, as evidenced by the Receiving Party’s written records.

 

“Confidential Information” may include without
limitation: (i) technical and product
information; (ii) manufacturing information and processes; (iii) drawings,
diagrams, schematics and specifications; (iv) marketing, customer,
pricing, financial, and sales information; (v) regulatory information and
materials; (vi) strategic and business plans; (vii) each Party’s
intellectual property embodied in each Party’s products and materials; and (viii) sample
products that may be furnished to either Party. 
The information enumerated in clauses (i) through (viii) in
the prior sentence shall be deemed Confidential Information of a party when
disclosed to the other whether or not marked “CONFIDENTIAL” or, if disclosed
orally, indicated to contain confidential information and thereafter is
summarized in writing as confidential.

 

2

 

1.11.       “Contract Manufacturer” shall have the
meaning as set forth in Section 4.1.

 

1.12.       “Contract Year” shall mean a period of
twelve (12) consecutive months beginning on April 1 and concluding on March 31;
provided however, that the first Contract Year of this Agreement with respect
to the Product, shall commence on the Launch Date and shall end on the next March 31,
and any obligations for such first Contract Year with respect to the Product
shall be pro-rated based on the number of actual days in such partial year.

 

1.13.       “Cost(s)” means, in connection with the manufacture, labeling and packaging of the
Product: (i) if such activities are conducted by Company, the cost of
materials, labor, Third Party fees and expenses that are directly related to
the manufacture, assay, quality assurance release testing and shipping of
commercial Product, and variable overhead incurred in manufacturing plus the
fully absorbed allocation of fixed overhead, in each case with respect to the
facility at which such Product is manufactured and oversight, operation and
management thereof, determined in accordance with GAAP; as evidenced by
reasonably detailed supporting documentation and prepared consistently from
period to period; and (ii) if such activities are conducted by a Contract
Manufacturer on behalf of Company, the pass-through cost of the Products as paid by Company to such Contract Manufacturer and
Third Party fees and expenses directly related to the manufacture, assay,
quality assurance release testing and shipping of commercial Product.

 

1.14.       “Disclosing Party” shall have the
meaning set forth in Section 15.1.

 

1.15.       “Distributor Brands” means any
corporate marks, service marks, trademarks, housemarks, tradenames, trade
dress, owned or used by Distributor, whether or not registered.

 

1.16.       “Distributor Competitive Product” means [***].

 

1.17.       “Distributor Trade Marks” shall have the
meaning set forth in Section 12.3.

 

1.18.       “Defective Product” means Product
that does not conform to the Specifications, including any relevant packaging
and/or labelling specifications.

 

1.19.       “Effective Date” shall have the meaning as
set forth in the introductory paragraph.

 

1.20.        “FDA” means the United States
Food and Drug Administration.

 

1.21.       “Field” means: (i) with
respect to the Product, all current and new uses for the Product within all
target therapeutic audiences (subject to Company’s co-promotion rights set
forth in Section 2.6) and; (ii) with respect to any Line Extensions
implemented pursuant to Section 3.4, all uses of the Line Extensions
within all target therapeutic audiences.

 

1.22.       “GAAP”
means
United States generally accepted accounting principles, consistently applied.

 

3

 

1.23.       “Force Majeure” means, in relation to
either Party, any circumstances beyond the reasonable control of that Party
(including, without limitation, fire, floods, embargoes, shortages, epidemics,
quarantines, war, acts of God, acts, omissions or delays in acting by any
governmental authorities and any strike, lock-out or other form of industrial
action).

 

1.24.       “Insolvent Party” shall have the
meaning set forth in Section 13.2(b).

 

1.25.       “Launch Date” with respect to the Product
(or any Line Extension) means the first day on which Distributor’s first bona
fide sale of the Product (or such Line Extension) to a non-Affiliate customer
occurs in the Territory (which shall be deemed to be no later than the date of
Distributor’s first shipment to a wholesaler).

 

1.26.       “Line Extension Data Package” shall have the
meaning set forth in Section 3.4(b).

 

1.27.       “Line Extensions” means different
pack sizes, pack types, or dosage forms of the Product, including
reformulations of and enhancements to the Product (but, for the avoidance of
doubt, excluding the Option Product).  As
used in this Agreement, the term reformulation(s) shall also include
changes in the qualitative or quantitative Product formulation provided such
changed formulation(s) continues to be ceramide-dominant ratio of
ceramides, lipids and cholesterol, including but not limited to additions,
deletions, increases or reductions in Product components or ingredients.

 

1.28.       “Losses” shall have the meaning set
forth in Section 14.1.

 

1.29.       “Medical Device Report (MDR) Reportable Event”
means an event that Distributor or Company become aware
of that reasonably suggests that one of the Products may have caused or
contributed to a death or serious injury.

 

1.30.       “Net Sales” shall mean, with respect to
Product, gross sales of the Product by Distributor, its Affiliates, Sales
Agents and Sub-distributors for the period, less the following deductions: (1) promotional
allowances, rebates, quantity and cash discounts, and other usual and customary
discounts and allowances; (2) chargebacks, sales contract administrative
fees, wholesaler fee for service charges and other payments to customers in
connection with the sale; (3) discounts or rebates or other payments
actually made under Medicaid, Medicare or other governmental special medical
assistance programs; (4) amounts repaid, credited or lost by reason of
rejections, damages, expired inventory or return of goods, or because of
retroactive price adjustments; (5) amounts not collected after reasonable
collection efforts; and (6) an amount equal to [***] percent ([***]%)
of gross sales as an allowance for freight and insurance expenses in connection
with delivery of the Product to customers. 
All such deductions shall be determined on an accrual basis in
accordance with GAAP.

 

1.31.       “NeoCeram”  [***].

 

1.32.       “Option Product” shall mean [***].

 

4

 

1.33.       “Osmotics” means Osmotics Corporation.

 

1.34.       “Other Parties” shall have the meaning set
forth in Section 13.2.

 

1.35.       “Parties” means Company and
Distributor and “Party” means any of them
as the context indicates.

 

1.36.       “Patent(s)” means those patents and/or
patent applications owned or controlled by Company which have any claims
covering the Product, a list of which are set forth on Schedule
1.36.

 

1.37.       “Product” means the prescription
medical device that the Company has named “EpiCeram® Skin Barrier Emulsion Device”
as detailed in Schedule 1.37.  The Product is registered in the US as a
medical device under FDA 510(k) approval number K052643 (“510(k)”).  The
approved indication for the Product is set forth in Schedule
1.37.  For purposes of
clarity, the “Product” specifically excludes NeoCeram.

 

1.38.       “Quality Agreement” shall have the
meaning set forth in Section 8.1.

 

1.39.       “Receiving Party” shall have the
meaning set forth in Section 15.1.

 

1.40.       “Records” shall have the meaning set
forth in Section 7.2(e).

 

1.41.       “Registration” or “Regulatory
Approval” shall mean all necessary and appropriate regulatory
approvals, licenses, registrations and authorizations from the appropriate
Regulatory Authority, including pricing or reimbursement approval, to
manufacture, use, store, import, transport, market, promote, sell, and place on
the market the Product (or any Line Extension) in the Territory, as may be
applicable, at any time, during the Term.

 

1.42.       “Regulatory Authority” shall mean any
government or other authority or agency having jurisdiction within the
Territory charged with issuing approvals, licenses, registrations or
authorizations necessary for the manufacture, use, storage, import, transport,
marketing, promotion, selling, and placing on the market of the Product.

 

1.43.       “Sales Agents” shall have the meaning set
forth in Section 2.2.

 

1.44.       [***]

 

1.45.       “Specifications” shall mean the
specifications for the finished Product as set out in the Regulatory Approval
for the Product, including all packaging and labelling specifications.  The Specifications for the Product is
attached as Schedule 1.45, as may be
amended from time to time as provided in this Agreement.

 

1.46.       “Sub-distributors” shall have the
meaning set forth in Section 2.2.

 

5

 

1.47.       “Territory” means the United States of
America and its territories and possessions, including Puerto Rico
(collectively, the “United States”),
and any other countries added to the Territory pursuant to Section 2.7(a).

 

1.48.       “Term” shall have the meaning as
set forth in 13.1.

 

1.49.       “Third Party” shall mean a natural
person, corporation, proprietorship, partnership, trust, joint venture,
governmental authority or other legal entity or organization other than the
Parties and their Affiliates.

 

2.             APPOINTMENT AND
ACCEPTANCE; OTHER RIGHTS

 

2.1.         Appointment of Distributor.  Subject to the terms and conditions of this
Agreement, Company hereby appoints Distributor (including its Affiliates) as
the exclusive (even as to Company, subject to Company’s co-detailing option and
co-promotion rights set forth in Sections 2.5 and 2.6) distributor of the
Product in the Field in the Territory. 
Subject to the terms and conditions of this Agreement, Company hereby
grants Distributor (including its Affiliates) a non-transferable,
non-assignable right to reference and use the Registrations (including, with
respect to the Product, the 510(k)), in connection with its right to
distribute, use, import, promote, market, offer for sale, and/or sell the
Product in the Field in the Territory. 
Distributor hereby accepts such appointment.  Company covenants and agrees that it shall
not grant rights to any Third Party to distribute, use, import, promote,
market, offer for sale, and/or sell the Product or any Line Extensions (absent
compliance with the terms of Section 3.4) in the Field in the
Territory.  Subject to Distributor’s
compliance with the terms and conditions of this Agreement, Company shall have
no control or influence over the manner and mode of distribution, the marketing
materials or strategy, Product advertising, or the sales or price of the
Product in the Territory.  For purposes
of clarity, the appointment of Distributor hereunder includes the right for
Distributor to distribute, use, promote, market, offer for sale, and/or sell
the Product in the Field in the Territory as either a prescription and/or,
subject to Section 2.8, OTC product.

 

2.2.         Sales Agents and Sub-distributors.  Distributor
may, at any time and without the consent of Company, appoint any non-stocking
sales agents or sales representatives (collectively, “Sales
Agents”) or stocking sub-distributors (“Sub-distributors”)
to promote, distribute and sell the Product in the Territory.  If Distributor so appoints any
Sub-distributors, the Sub-distributors shall be required to agree in writing
for the benefit of Company to be bound by the applicable terms and conditions
of this Agreement.  No appointment of any
Sales Agents or Sub-distributors shall relieve Distributor of any obligation it
otherwise would have under this Agreement.

 

2.3.         Distributor Brands.  Distributor hereby grants Company a
non-transferable, non-assignable, non-exclusive license to use Distributor
Brands solely for the purpose of labelling the Product in connection with its
supply obligations under this Agreement. 
The foregoing license shall be sub-licensable only to a Contract
Manufacturer.

 

6

 

2.4.         Company’s Trade Marks.  Company hereby grants Distributor a
non-transferable, non-assignable, non-exclusive license to use Company’s Trade
Marks to distribute, use, import, promote, market, offer for sale, and/or sell
the Product in the Field in the Territory. 
The foregoing license shall be sub-licensable only to Distributor’s
Affiliates, Sales Agents and Sub-distributors.

 

2.5.         Co-Detailing Option.  Company will have the option, beginning [***] after
the Launch Date of the Product, to participate in the detailing of the Product
in the United States.  In the event that
Company exercises its option under this Section 2.5, the Parties agree to
enter into a separate co-detailing agreement which shall include, but not be
limited to, the following terms:

 

(a)             Company
shall have the right to share the detailing effort, beginning [***]
after the Launch Date, once Distributor has established a total baseline for
the number of details to be performed for the Product.  Company shall perform a minimum of [***]
percent ([***]%)
to a maximum of [***] percent ([***]%) of details,
based on and in addition to the total number of details established by
Distributor as described above, for the Product, solely for the pediatric
target audience.

 

(b)             Company
shall be entitled to mutually agreed-upon detailing fees consistent with
current market norms at the time of the option exercise; and

 

(c)             Distributor
shall provide Company with all promotional materials (including samples,
promotional materials, and other related materials) the costs of which shall be
borne by Distributor.

 

For
purposes of clarity, Distributor shall have the sole responsibility (which
shall be exercised reasonably in the context of implementing this Company
option) for developing, implementing and controlling the overall detailing plan
for the Product, other than for the Company Target Audiences, even if Company
exercised its option provided in this Section 2.5.

 

2.6.         Co-Promotion Right.

 

(a)             Generally:  Company shall have the exclusive right (even
as to Distributor, its Affiliates, Sales Agents and Sub-distributors), to
co-promote the Product to Company Target Audiences under reasonable terms and
conditions to be memorialized in a definitive co-promotion agreement.  The Parties contemplate that the Product will
be promoted in its current trade dress and labeling and pricing unless
otherwise agreed between the Parties.

 

(b)             Clinical Trial and Marketing Expenses:  Should Company elect to pursue the commercial
potential for the Product in any of the Company Target Audiences, Company shall
perform and fund any clinical studies that are required or desired for use in
such promotion of the EpiCeram® brand. 
Company will also be responsible for developing all new marketing and
sales force related selling materials, the cost for Product samples distributed,
and for all sales force related plans and expenses associated with its fielding
either directly or via a contract sales force to promote the Product to Company
Target Audiences.  The design and conduct
of any clinical trials, the copy for any new selling materials, and selling
plans will be subject to review and reasonable approval by Distributor in order
to not be inconsistent with 

 

7

 

other efforts in support of the Product and
detrimental to the Product’s overall acceptance.  If new selling related materials are
developed in connection with promotion to Company Target Audiences, and
Distributor desires to use such materials in promotion to the primary target
audiences, Distributor will have free access to use of these materials upon payment
for any incremental printing and distribution costs.  Similarly, Distributor shall make available
to Company Product training materials and promotional materials developed or
used by Distributor, provided Company pays the incremental printing and distribution
costs associated with such materials used by Company with the Company Target
Audiences.

 

(c)             Monitoring of Co-Promotion Target Audience Sales:  The cost for establishing an audit system
designed to measure sales attributable to Company Target Audiences will be
borne by Company.  This audit system will
be mutually agreed between the Parties, and a Third Party consultant will be
utilized to design such a monitoring system which shall be based on objectively
verifiable sales made by the Company for the Product in the Company Target
Audiences.  With respect to Product prescriptions written by Company Target Audiences,
the Parties agree to negotiate in good faith a mutually agreeable cost sharing
arrangement for Products sold by Company to the Company Target Audiences which
shall be included in the definitive co-promotion agreement described in Section 2.6(a).

 

2.7.         Rights of First Negotiation.

 

(a)             Company
hereby grants Distributor an exclusive right of first negotiation to expand the
Territory to include the right to distribute, market and sell the Product in
each of the countries of [***] for a period of [***] months from the Effective
Date.  During such [***] month period,
Distributor may exercise such right at any time by sending notice of its
interest in acquiring such rights in any of the foregoing countries to Company;
provided however, that the period for entering into a mutually agreeable
amendment to this Agreement to include such distribution rights shall expire at
the end of the [***] period.  Notwithstanding
the foregoing, the Parties may mutually agree to extend said period.  In the event that the Parties agree to add
any such countries to the Territory, the definition of “Territory” shall be
deemed to have been expanded to include such additional country(ies), subject
to any amendment to this Agreement to revise the terms of this Agreement to
reflect such expanded Territory.

 

(b)             In
the event that Company desires to sell, partner, license or grant distribution
rights to the Option Product, in the Territory as it is comprised at the time,
to any Third Party, Company hereby grants Distributor an exclusive right of
first negotiation to acquire such rights for a period of [***] days.  The [***] day first negotiation period shall
commence upon delivery to Distributor of Company’s written notification of its
intent to sell, partner, license or grant distribution rights to the Option
Product, together with its proposed terms for such right, and shall expire
[***] days thereafter.  Notwithstanding
the foregoing, the Parties may mutually agree to extend said period.

 

2.8.         OTC Switch for Product.  Terms and conditions of a prescription to
over the counter (OTC) switch strategy for Product in the Territory shall be
discussed from time to time by Company and Distributor and any such OTC switch
shall require mutual written consent of Company and Distributor.  Absent mutual written consent of Company and
Distributor, Company shall not market or sell the Product as an OTC Product
during the Term.

 

8

 

2.9.         Exercise of Certain Options; Other Covenants.  Company
agrees to exercise its purchase option under a certain agreement, dated August 15,
2006, with Osmotics for TriCeram (a non-prescription ceramide dominant skin
cream sold by Osmotics) within one year of the Effective Date.  Company further agrees [***].  Company agrees to use its best efforts to
[***] prior to the Launch Date of the Product.

 

3.                                      PAYMENTS

 

3.1.         Milestones.  In consideration of the distribution rights
granted to Distributor under Section 2 of this Agreement, Distributor
shall pay to Company:

 

(a)           Upfront
Milestone Payments

 

(i)            the
non-refundable sum of one million five hundred thousand US Dollars (US
$1,500,000), which shall be made within ten (10) business days of the
Effective Date; and

 

(ii)           Subject to Section 13.3,
the refundable sum of one million five hundred thousand US Dollars (US
$1,500,000), which shall be made within ten (10) business days after [***];
and

 

(b)           Launch
Milestone Payments

 

(i)            the
non-refundable sum of one million US Dollars (US $1,000,000), which shall be
made within ten (10) business days of [***]; and

 

(ii)           the non-refundable sum of one million US
Dollars (US $1,000,000), which shall be made within ten (10) business days
of [***]; and

 

(c)           Cumulative
Net Sales Milestone Payments for the Product will be paid as follows:

 

(i)            Six hundred and
twenty five thousand US Dollars (US $625,000), payable within [***] days after
the end of the month in which cumulative Net Sales of the Product, measured
from the Launch Date of the Product, reach [***] US Dollars (US $[***]);

 

(ii)           One million two
hundred fifty thousand US Dollars (US $1,250,000), payable within [***] days
after the end of the month in which cumulative Net Sales of the Product,
measured from the Launch Date of the Product, reach [***] US Dollars (US
$[***]);

 

(iii)         Two million five
hundred thousand US Dollars (US $2,500,000), payable within [***] days after
the end of the month in which cumulative Net Sales of the 

 

9

 

Product, measured from the
Launch Date of the Product, reach [***] US Dollars (US $[***]); and

 

(iv)          Six million two
hundred fifty thousand US Dollars (US $6,250,000), payable within [***] days
after the end of the month in which cumulative Net Sales of the Product,
measured from the Launch Date of the Product, reach [***] US Dollars (US
$[***]).

 

(d)           Additional
Cumulative Net Sale Milestone Payments for the Product.

 

The following
cumulative Net Sales milestones payments will be paid by Distributor to Company
for cumulative Net Sales after [***]. 
For purposes of clarity, Distributor shall not be responsible for paying
(and Company shall forfeit) any cumulative Net Sales milestones payable under
this Section 3.1(d) accruing prior to [***].  For example, if cumulative Net Sales of the
Product reach [***] US dollars ($[***]) in July 2009 and [***] in September 2009,
Distributor will pay the additional cumulative Net Sales milestone payment
described in Section 3.1(d)(iii), while the amounts described in Sections
3.1(d)(i) and 3.1(d)(ii) will be forfeited, and the milestone payment
described in Section 3.1(d)(iv) would be paid only if cumulative Net
Sales reach [***] US dollars ($[***]).

 

(i)            Six hundred and
twenty five thousand US Dollars (US $625,000), payable within [***] days after
the later to occur of (x) the end of the month in which cumulative Net
Sales of the Product, measured from the Launch Date of the Product, reach [***]
US Dollars (US $[***]) or (y) the date [***];

 

(ii)           One million two
hundred fifty thousand US Dollars (US $1,250,000), payable within [***] days
after the later of (x) the end of the month in which cumulative Net Sales
of the Product, measured from the Launch Date of the Product, reach [***] US
Dollars (US $[***]) or (y) the date [***];

 

(iii)         Two million five
hundred thousand US Dollars (US $2,500,000), payable within [***] days after
the later of (x) the end of the month in which cumulative Net Sales of the
Product, measured from the Launch Date of the Product, reach [***] US Dollars
(US $[***]) or (y) the date [***]; and

 

(iv)          Six million two hundred fifty thousand US
Dollars (US $6,250,000), payable within [***] days after the later to occur
of (x) the end of the month in which cumulative Net Sales of the Product,
measured from the Launch Date of the Product, reach [***] US Dollars (US $[***]) or (y) the date [***].

 

(e)           The
amounts described in Section 3.2.

 

10

 

3.2.         Pricing for the Product.

 

(a)           The
purchase prices payable by Distributor to Company for the Product shall be
calculated and paid to Company on a quarterly basis in accordance with the
pricing structure set forth in Schedule 3.2(a).

 

(b)           Cost
of the Product (including sample size) for the first Contract Year is set forth
in Schedule 3.2(a).

 

(c)           Prices
payable by Distributor to Company for the [***] sample tube of
Product, provided it is not sold, will be at [***].

 

3.3.         Increases in Purchase Price for the Product.  Company shall have the right, at the end of
each Contract Year, to make reasonable increases in the purchase price of the
Product based on the increase, if any, in the Costs of the Product.  If the purchase price of the Product is
increased by more than [***] percent ([***]%) in any Contract Year over the
prior Contract Year purchase price, the Parties agree to discuss the reason(s) for
the increase, and agree upon measures to be taken by Company to reduce the
Costs for the Product.

 

3.4.         First Option Rights for Line Extensions.  Distributor
shall have the first option to negotiate to acquire (subject to Section 3.4(d))
the distribution rights for any Line Extensions in the Field in the Territory,
as follows:

 

(a)           Company
and Distributor each acknowledge that each Party may develop concepts for
potential Line Extensions that Company and Distributor decide to pursue
together.  In the event that Distributor
develops a concept for a Line Extension that it wishes to develop with Company,
Distributor shall notify Company and the Parties will review such concept.  In the event that Company and Distributor
determine to work jointly to develop such potential Line Extension, the Parties
shall negotiate in good faith and agree to a feasibility study agreement that
will address the obligations of Company and Distributor with respect to such
development, the contributions to the costs associated therewith, and any
reimbursement of such costs under any relevant circumstances.  For purposes of clarity, in the event that
Company decides not to pursue any potential Line Extension developed or
conceived by Distributor, Distributor shall have the right to pursue such Line
Extension without any limitation and further obligation to Company; provided
however, that such Line Extension shall not fall within the claims of the Patents.

 

(b)           In
the event that Company, either pursuant to a feasibility study agreement
between Company and Distributor pursuant to Section 3.4(a), or otherwise
develops a Line Extension (including, for the avoidance of doubt, any Line
Extension proposed by Distributor and initially rejected by Company pursuant to
Section 3.4(a)), Company shall submit a data package to Distributor
containing (i) a description of the Line Extension product comparable to
that contained in Schedule 1.37
for the Product, (ii) three (3) months of accelerated aging stability
data for such Line Extension, and (iii) samples of a prototype formulation
for such Line Extension (collectively, a “Line Extension Data
Package”), Company shall provide notice to Distributor together
with such Line Extension Data Package.

 

(c)           At
any time from receipt of a Line Extension Data Package as described in Section 3.4(b) and
up to thirty (30) days thereafter, Distributor may exercise its right by 

 

11

 

sending notice to
Company of its interest in acquiring such rights to such Line Extension.  After receipt of such notice, Company and
Distributor shall negotiate exclusively and in good faith for a period of
ninety (90) days thereafter to mutually agree on the terms and conditions for
the distribution of such Line Extension. 
The terms for Line Extensions shall include but not be limited to the
following:

 

(i)            Upfront milestone
payments:  There will be no upfront
payments for Line Extensions;

 

(ii)           Launch milestone payments:  For Line Extensions, launch milestone
payments, if any, will be discussed and determined prior to signing of the
definitive agreement;

 

(iii)         Cumulative net
sales milestones payments:  For Line
Extensions, cumulative net sales milestones, if any, will be discussed and
determined prior to signing of the definitive agreement; and

 

(iv)          Line Extension
supply pricing:  Prices payable by
Distributor to Company for Line Extensions shall be further discussed and
mutually agreed upon by the Parties prior to the Launch Date for such Line
Extension.  Promptly following the filing
for Regulatory Approval for any Line Extension, the Company and Distributor
shall enter into good faith discussions to agree on the supply pricing for any
such Line Extension.

 

(d)           In
the event that the Parties are not able to reach agreement for the distribution
rights for any Line Extension pursuant to Section 3.4(c) within such
ninety (90) day period, Company may grant distribution rights to such Line
Extension to a Third Party; provided however, that prior to granting such
distribution rights to a Third Party, Distributor has been given a final option
to acquire such distribution rights on the same terms offered to the Third
Party.

 

(e)           For
the sake of clarity, Distributor’s option of first negotiation for any
definitive agreements for the aforementioned Line Extensions shall expire, on a
Line Extension-by-Line Extension basis, if such agreements are not executed
within one hundred twenty (120) days after receipt of Registration for such
Line Extension.

 

4.                                      PURCHASE
OF PRODUCT

 

4.1.         Manufacturing Obligations.  Company shall manufacture, or have
manufactured (by such Third Party manufacturer as may be mutually agreed upon
from time to time by the Parties; any such Third Party manufacturer, a “Contract Manufacturer”), and sell to Distributor,
and Distributor shall purchase from Company, those quantities of Product
ordered by Distributor pursuant to purchase orders submitted from time to time
in accordance with this Agreement.  If
Company uses a Contract Manufacturer to supply Product to Distributor under
this Agreement, such Contract Manufacturer shall be required to agree in
writing for the benefit of Distributor as a third party beneficiary to be bound
by the applicable terms and conditions of this Agreement relating to the
manufacture and supply of Product, including without limitation Sections 2.3,
4, 6 and 8.  No arrangement with any
Contract Manufacturer shall relieve Company 

 

12

 

of any obligation it otherwise would have under this
Agreement, including Company’s obligation to supply Product to Distributor, and
Company shall be responsible and liable to Distributor for any breach of any
such obligations by Company or any Contract Manufacturer.

 

4.2.         How Supplied.  Product supplied under this Agreement shall
be finished, packaged and labelled for commercial sale and sample supply in the
Territory.  Distributor will place
purchase orders for Product with Company at Company’s address above or at such
other address or subsidiary as Company may indicate in writing.

 

4.3.         Purchase Orders.

 

(a)           Orders for purchases of
Product shall be submitted to Company in writing on the form of purchase order
attached as Schedule 4.3(a), and shall not
bind Company unless and until confirmed by Company in writing, which shall be
deemed to be given by Company  [***]
business days after receipt, unless Company notifies Distributor otherwise.

 

(b)           The minimum batch size
requirements for the Product are as set out in Schedule
4.3(b). Distributor shall not place more than one order in any
one calendar month, except with the consent of Company.

 

4.4.         Packaging of Product.  All shipments of Product to Distributor will
be packaged in accordance with Company’s standard packaging procedures and any
other arrangements agreed between Distributor and Company and shipped on
standard United States shipping pallets. 
Distributor will be charged for any special printing, packaging and/or
shipping requirements, provided that Company shall advise Distributor in
advance of incurring such costs of the amount of such charges.

 

4.5.         Title and Risk of Loss.  The title, risk of loss or damage to any
consignment of Product shall pass to Distributor at the time the Product is
delivered to Distributor’s warehouse in the Territory.

 

4.6.         Certificate of Analysis/Certificate of Compliance.

 

(a)           Company shall provide
Distributor with a certificate of analysis for each shipment of Product
delivered to Distributor (a copy of which is to be faxed three (3) days in
advance of such shipment to which it relates) confirming that the Product
complies with the Specifications together with such explanatory material and
user instructions as are required by any Applicable Law or good industry practice.

 

(b)           Company shall provide
Distributor with a certificate of compliance for each shipment of Product
delivered to Distributor (a copy of which is to be faxed three (3) days in
advance of such shipment to which it relates) stating from a responsible representative
of Company that the Product complies with Applicable Laws and good industry
practice.

 

4.7.         Inspection of Product.  Distributor shall inspect each lot of Product
delivered to it by Company at Distributor’s facility and may reject any Product
which is Defective Product.  Distributor
shall accept or reject each lot of Product within [***] business days of
receipt at 

 

13

 

Distributor’s facility.  In the event of rejection, Distributor shall
inform Company of its reasons in writing of the specific basis which the
Defective Product fails to meet the acceptance criteria, and, if requested by
Company, Distributor will discuss in good faith how to best resolve any
difference of opinion between them as to whether or not such Product is in fact
Defective Product.  In the event that
there is no difference of opinion, Company will replace such Defective Product
free of costs and delivery charges as promptly as possible.  As Company may direct, Distributor will return
the Defective Product to Company (or such designee as Company may instruct)
with the freight costs to be at Company’s expense or hold or otherwise dispose
of such Defective Product in accordance with Company’s instructions at Company’s
expense.  Any disagreement regarding
whether Product is deemed Defective Product shall be resolved in accordance
with Section 6.7.

 

4.8.         Company’s Inability to Supply Product.  Company
shall notify Distributor:  (i) as
promptly as possible, but in no event more than [***] business days
after Company’s receipt of an order from Distributor, or (ii) promptly
upon becoming aware of an event of Force Majeure or any other event that would
render Company (either itself or through a Contract Manufacturer) unable to
supply the quantity of Product to Distributor that Company is required to
supply hereunder.  In such latter event,
Company shall implement all reasonable measures to promptly remedy such
shortage.

 

(a)           In
the event: (i) Company fails to ship the quantities of Product ordered by
Distributor under this Agreement; (ii) Product shipped does not meet the
relevant Specifications; or (iii) of any other inability to supply;
Company and Distributor shall meet within [***] days of the
first such occurrence so that the Parties may establish a reasonable recovery
plan designed to resolve the situation as quickly as reasonably possible.

 

(b)           In
the event of any inability to supply, Distributor may, in addition to any other
remedies it may have at law or in equity, cancel, without charge or penalty,
all or any portion of any order(s) relating to the Product during the
period in which such inability to supply occurs and continues to occur and
obtain its requirements for the Product from a qualified back-up
manufacturer.  Company shall allow
Distributor access to the Product Registration for the purpose of  qualifying a back-up manufacturer.

 

4.9.         Invoices.  Company will invoice Distributor for the Cost
upon delivery of Product to Distributor or upon cancellation of a purchase
order.

 

4.10.       Shipment Dates.  A purchase order from Distributor shall be
necessary to initiate any shipment. 
Distributor will specify desired Product shipment dates in the purchase
order.  These shipment dates may not be
scheduled prior to [***] days after the date the
purchase order is received and acknowledged in writing by Company, unless by
mutual consent of the Parties.  In the
case of the first order or if there is any change in the art-work, shipment
dates may not be scheduled prior to one hundred and [***] days after the
complete, officially signed and approved relevant art-work is received and
accepted in writing by Company (and, if applicable, provided to Contract
Manufacturer).  Purchase orders from
Distributor will be non-cancellable, except with the consent of Company, which
the Company will not unreasonably withhold, or except as provided in Sections
4.8 or 4.11.

 

14

 

4.11.       Cancellation of Purchase Orders.  Distributor
may cancel any purchase order (in whole or in part) at any time prior to [***]
days before the scheduled delivery date for any quantity of Product that has
begun the manufacturing pursuant to such purchase order, provided Distributor
pays all Costs incurred in connection with the Product subject to such
cancelled purchase order.  Should
Distributor wish to cancel a purchase order as described in the preceding
sentence, Company agrees to present Distributor with all Costs associated with
such purchase order before Distributor decides whether or not to cancel the
purchase order.  If the manufacturing of
a Product pursuant to a purchase order has not commenced, Distributor may
cancel the purchase order provided that Distributor shall reimburse Company for
the Cost of all material purchased by Company to fill a cancelled purchase
order (or part thereof) and which cannot (in Company’s reasonable opinion)
within a reasonable period of time otherwise be used in Company’s operations,
together with any expenses (including contractual obligations to Third Parties)
to which Company has specifically committed for the manufacture of the Product
and which cannot be reasonably transferred to any of Company’s other
manufacturing operations, including but not limited to, storage and/or disposal
of materials, for the purpose of fulfilling the order.

 

4.12.       Forecasts.  Distributor will issue to Company [***]
days in advance of the Launch Date with respect to the Product, and thereafter
on a quarterly basis by the first day of each quarter, a [***]
rolling forecast of its monthly requirements of the Product which it expects to
order, so that Company may incorporate said forecasts into its planning system
but the document which initiates production activities is the purchase
order.  Company will guarantee delivery
dates for Product quantities that vary by up to [***] percent ([***]%)
above or below the last quarter’s rolling forecast for that month issued prior
to the purchase order placed by Distributor. 
Variation above or below [***] percent ([***]%)
shall be discussed between Company and Distributor and Company will use all
reasonable efforts to maintain the delivery dates requested by
Distributor.  Distributor shall keep
throughout the term of this Agreement a stock of Product adequate to meet
market demand and to cover possible shortages in the supplies of Product, such
stock to correspond to approximately [***] months’ average
sales.

 

4.13.       Shipping Terms.  Product supplied under this Agreement is sold
[***]
Distributor’s warehouse, United States, as defined in the International Chamber
of Commerce’s Incoterms 2000.  Company
shall be responsible for all shipping, freight and insurance costs associated
with shipping the Product from the Company (or any Contract Manufacturer) to
the Distributor’s designated warehouse, which costs shall be included with
Costs.

 

5.                                      PRICE-PAYMENT
TERMS

 

5.1.         Prices, Taxes and Duties.  Sales by Company to Distributor shall be made
at the purchase prices shown in Schedule 3.2(a),
subject to Section 3.3.  Company
shall be solely responsible for all customs clearance of, and import/export
regulations for the Product and it shall bear and pay all taxes, duties, levies
and other charges imposed by reason of the purchase, import and resale of
Product, and all costs and expenses of Company in connection with the foregoing
shall be included within Costs.

 

15

 

5.2.         Payment for Product.

 

(a)           Distributor shall pay Company
for invoices submitted pursuant to Section 4.9 within [***] days of the date of invoice,
and payment shall be made by means of electronic transfer to such account as
Company may direct.

 

(b)           Beginning with the calendar
quarter in which the Launch Date for the Product occurs, and for each calendar
quarter thereafter, Distributor shall pay Company the supply price for the
Product, as determined pursuant to Schedule 3.2(a),
less the amount previously paid during such calendar quarter pursuant to Section 5.2(a),
within [***] days following the end of each such calendar
quarter.  Each such payment shall be
accompanied by a report, summarizing the total gross sales of the Product, on a
Product-by-Product and country-by-country basis, Net Sales for each (including
an itemization of the deductions applied to such gross sales to derive such Net
Sales) during the relevant calendar quarter, the calculation of the total
supply price due thereon and all credits applied to such amounts, including the
Cost of the Product being applied as a credit against royalties.

 

5.3.         Late Payments.  If Distributor fails to pay on the due date
any amount which is payable to Company under this Agreement then, without
prejudice to Section 10 of this Agreement:

 

(a)           that
amount shall bear interest from the due date until payment is made in full at
the prime rate, as published in The Wall Street Journal, Eastern Edition,
plus [***] percent ([***]%), on the due date of such payment, or, if less, at
the maximum interest rate permitted by law; and

 

(b)           if
payment is more than thirty (30) days past due, Company shall be entitled to
suspend deliveries of Product to Distributor until the outstanding amount has
been received by Company.

 

6.                                      OBLIGATIONS
OF COMPANY

 

6.1.         Distributor’s Audit Rights.  Company agrees to permit up to three (3) of
Distributor’s representatives, upon reasonable notice, to inspect those areas
of the Company’s facilities where the Product is manufactured and tested, for
the purpose of verifying compliance with Applicable Laws as well as with this
Agreement.

 

6.2.         Raw Materials.  Company shall source for itself all materials
necessary in connection with the manufacturing of the Product.  Company shall be solely responsible for
ensuring that all such materials are of sufficient quality and meet other
relevant standards in order for it to be utilized by Company in the manufacture
of the Product.  The cost of all such
analyses and evaluations shall be borne by Company and shall be included within
Costs.  Company agrees to maintain and,
if necessary, make available records of all such analyses and evaluations.

 

6.3.         Processing and Testing.  Company shall be responsible for all process,
analytical method, equipment and cleaning validation and shall take all steps
necessary to pass any 

 

16

 

applicable government inspection by the FDA.  All manufacturing, packaging, cleaning and
analytical methods and processes must be validated by Company.  Validation protocol and reports are to be
provided to the Distributor upon request. 
Following validation of a process and or process change, Company shall
promptly notify Distributor of such validation and, upon request, deliver a
copy of the validation report to the Distributor and the associated stability
data, if applicable.

 

6.4.         Compliance with Product Specifications.  Company
shall be responsible for assuring that all Product manufactured, shipped and
delivered by Company to Distributor under this Agreement conforms to the
relevant Specifications for the Product, shall be packaged and labelled in
accordance with this Agreement and the then-current packaging and labelling
specifications and is in compliance in all material respects with all
requirements of Applicable Laws, rules and regulations, all other
requirements of any applicable cGMP or the Product Registration.  Distributor shall supply Company with
Distributor’s labelling standards for the Product (including the NDC number(s) and
bar codes) bearing Distributor’s corporate name and trade dress.  Company shall print labels, tubes and other
printed material to be included as part of the Product and the cost of doing so
shall be reflected in the price charged by Company for the Product pursuant to Section 3.2.  Product packaging shall include, to the
extent permitted by Applicable Laws, a small grapic/text mark for “Ceragenix
Pharmaceuticals” which shall be reasonably acceptable to Company.

 

6.5.         Manufacturing Facility GMP Compliance.  Company
shall (and shall cause any Contract Manufacturer to) maintain all equipment and
manufacturing facilities used to manufacture Product in good working condition
and in compliance with cGMP.

 

6.6.         Product Release Testing.  Company shall obtain representative samples
from each batch of Product produced and shall assay and analyze such samples in
strict accordance with the relevant Specifications and standard operating
procedures for the Product.   Company
shall not ship any Product hereunder which, as indicated by a sample assay or
analysis, as set forth above, does not conform to the relevant Specifications for
the Product.  Any Product or the manufacture
thereof that does not conform to the relevant Specifications for the Product
shall be disposed of by Company, at Company’s cost, in accordance with
Applicable Laws.

 

6.7.         Stability Testing.  Company shall, at its own cost, provide all
ongoing stability support relating to the Product in accordance with FDA
requirements, including, without limitation, preparation and keeping of
documentation, records and reports relating thereto.

 

(a)           If
Company and Distributor disagree as to whether any sample of Product meets the
relevant Specifications for the Product, the matter will be submitted to an
independent testing laboratory, acceptable to both Parties, for analysis, which
analysis shall be performed in compliance with Applicable Laws and the
Specifications and methodologies set forth in or identified by the Registration
for the Product, to determine whether the Product conformed or did not conform
to the Specifications and the test results obtained from such laboratory shall
be final and binding upon both Parties. 
The fees and expenses of such testing shall be borne by the Party
ultimately determined to have incorrectly judged whether the Product met the
relevant Specifications.

 

17

 

(b)           Distributor
may return any Product to Company for full credit in accordance with Section 4.7
if such Product is not manufactured in accordance with cGMP or fails to meet
the relevant Specifications for the Product due to the fault of Company or its
Contract Manufacturer and Company shall pay all delivery and shipping and
insurance costs in such circumstances. 
Credit shall be limited to price paid by Distributor pursuant to
Sections 3.2 and delivery and shipping and insurance costs; in each case, with
respect to the units of the Product in question.  Such credit shall be applied by the Parties
at the earliest possible opportunity to set off against any amount that
otherwise is due or would have been due from Distributor to Company.  In the event the full amount of such credit
is not applied and set off in such manner within three (3) months of the
discovery of the Product failure giving rise to such credit, Company shall
remit the remaining amount of such credit to Distributor in immediately payable
funds.

 

6.8.         Inspection by Regulatory Authorities.  In the event
Company receives any notification of any inspection of any manufacturing
facility where the Product is manufactured, tested or stored by any
governmental authority (including, without limitation, in connection with any
FDA Form 483 Observations, warning letters or similar correspondences to
and received from the FDA or any governmental authority having jurisdiction
over the Product or any manufacturing facility), Company shall:

 

(a)           give Distributor prompt notice of such inspections;

 

(b)           promptly provide Distributor with copies of all such notices and all
related documents and correspondence;

 

(c)           promptly furnish Distributor with copies of all Product related
responses relating to such inspections.

 

(d)           Company shall advise
Distributor within three (3) days if an authorized agent of the FDA or
other governmental agency visits manufacturing facility utilized for the
manufacture of the Product and requests or requires information or changes
which directly pertain to the Product. 
Distributor shall have the right to have a representative present only
during the time of any such inspection of the Product and shall be provided
with copies of all correspondence with the FDA or other governmental agency
relating specifically to the Product.

 

6.9.         Product Complaints.  Company shall be responsible for performing
all Product complaint investigations and shall prepare and maintain a database
containing investigational findings of inquiries from consumers, physicians and
customers related to the Product. 
Company shall be responsible for testing and investigation of complaints
on the Product per the Distributor’s request within [***] days.  For purposes of clarity, Company shall be
responsible for investigating any complaint of physical damage to the Product
arising prior to Distributor’s acceptance of the Product, including those
recognized only upon sale to a Third Party. 
Company shall not be responsible for performing Product complaint
investigations for complaints associated with physical damage to the Product
which is clearly attributable to Distributor’s shipping and handling of the
Product.

 

18

 

6.10.      Product Changes.

 

(a)             The Company shall notify Distributor of any proposed
changes in manufacturing, packaging, testing, storage or shipping of the
Product and shall not implement any such changes without Distributor’s prior
written approval, which approval may be withheld in Distributor’s sole and
absolute discretion if any such change would result in a material change to the
Registration or Product performance and/or characteristics, as defined in the
Specifications for the Product. The Company shall also inform the Distributor
in advance of any planned changes in processes, facilities or equipment that
may impact the Product and shall not implement formulation changes without
Distributor’s prior written approval (which approval may be withheld in Distributor’s  reasonable discretion).

 

(b)             The Distributor shall from time to time have the right
to propose changes to the Products.  If
Distributor at any time requests a change to the Product and Company agrees
such change is feasible with regard to the Product’s manufacturing process,
such change shall be incorporated within the master batch record and/or
Specifications for the Product in the form of a written request reviewed and
agreed upon by both Company  and
Distributor.

 

(c)             In the event a change to the Product is required by a
Regulatory Authority with jurisdiction of the Product, the Distributor and
Company agree that any changes required by such Regulatory Authority, shall be
incorporated into the Product Specifications as evidenced by the written
approval of Distributor prior to such incorporation.  At the time of such incorporation, such
changes shall become part of the Specifications.

 

6.11.      Registrations. 
Company shall, at its sole cost and expense (which shall not be included
in the Cost):

 

(a)             be responsible for maintaining the 510(k) technical
dossier for the Product and for filing, registration and maintenance of all
other Regulatory Authorizations in the Territory in respect of its activities
relating to the Product;

 

(b)             be responsible for
determining whether or not to initiate Registration variation procedures and
for maintaining adequate control over the quality commitments for the marketing
authorization made to the regulatory authorities for Product; and

 

(c)             be responsible
for the text and regulatory compliance of all immediate and secondary Product
labeling (including package inserts) and shall provide Distributor copies of
all regulatory approvals related to the Product.  For purposes of clarity, immediate and
secondary Product labeling shall not include any promotional labeling for the
Product developed by Distributor.

 

6.12.      Quality
System and Design Control Requirements.  The
Parties agree to enter into a Quality System and Design Control Agreement at
least sixty days (60) before the Launch Date of the Product which sets forth (a) the
roles and responsibilities of Company and Distributor with respect to quality
system regulations for the Product as required under Applicable Laws, and (b) how
the Parties’ shall interact with each other in connection with same (“Quality System and Design Control Agreement”).  The Parties have agreed to basic terms 

 

19

 

for the Quality System and Design Control Agreement which shall
include, but not be limited to, the outline provided in Schedule 6.12.  In the event a conflict arises between any
term in this Agreement and a term in the Quality System and Design Control
Agreement, the term contained in this Agreement shall prevail.

 

6.13.       Non-Compete.  During the Term, Company shall not develop,
license, manufacture, register, sell, promote or distribute in the Territory,
or cause or permit to be developed, licensed, manufactured, registered, sold,
promoted or distributed in the Territory, whether directly or indirectly, any
Competitive Product; provided however, that, subject to Distributor’s rights
with respect to the Option Product set forth in Section 2.7(b), Company
shall have the right to manufacture, register, sell, promote and distribute the
Option Product in the Territory during the Term.

 

6.14.       Proof of Concept Study.  Company agrees to diligently continue
conducting its ongoing proof of concept study that compares the Product to
Elidel® until completion, at Company’s sole cost and expense and shall provide
Distributor with the results of such study within a reasonable time after the
study’s completion, but no later than sixty (60) days after the last patient’s
visit, with a final study report to be provided within one hundred and twenty
(120) days of the last patient’s visit.

 

6.15.       Additional Studies.  As may be agreed upon by the Parties from
time to time, the Company shall conduct additional studies designed to support
the Product with funding for such additional studies to be agreed upon by the
Parties.

 

6.16.       Other Obligations of Company.

 

(a)             Within [***] days of the Effective Date, Company agrees to
develop validated analytical method(s) to characterize the product, for
its chemical composition, at room and accelerated temperature conditions

 

(b)             Only at Distributor’s specific request, and in that
case within [***] days or such other time frame agreed upon by the Parties,
Company agrees to conduct appropriate studies comparing the safety and efficacy
of the current Product formulation against the Product formulation used in the
clinical study comparing the Product to [***].

 

7.                                      OBLIGATIONS
OF DISTRIBUTOR

 

7.1.         Commercialization of the Product.  Distributor shall use commercially reasonable
efforts, comparable to those a similarly situated company would use for a
product of comparable commercial opportunity (without reference to any
competitive products of Distributor), to (1) cause the Launch Date of the
Product to occur within [***] of the Effective Date;
provided that the Company can deliver launch quantities of commercially viable
Product to Distributor within such time period pursuant to orders placed by
Distributor; and (2) sell and distribute the Product in the
Territory.  Distributor agrees to [***]
commencing on the Launch Date for the Product and shall use commercially
reasonable efforts to [***] during the first Contract
Year.

 

20

 

7.2.         Other Obligations of the Distributor.

 

Distributor agrees:

 

(a)              to ensure that
the Territory is covered by adequate and reasonable sales activities,
comparable to those Distributor would use for a product of comparable
commercial opportunity, including sampling, advertising, distribution of
technical and sales matter, product performance demonstrations and other
measures for promoting the sale of Product, and to use its commercially
reasonable efforts, comparable to those Distributor would use for a product of
comparable commercial opportunity;

 

(b)              to ensure that
any Product is sold with the name of the Company on the Product’s packaging as
the entity for which the Product is manufactured, as required by law;

 

(c)              to make clear, in
all dealings with trade customers and prospective trade customers that it is
acting as distributor of the Product in the Territory and not as agent of
Company;

 

(d)              that its storage,
distribution, promotion, marketing and sale of Product in the Territory shall
fully comply with all Applicable Laws at any time being in force and be fully
consistent with the conditions and requirements of the relevant Registration
for such Product and Distributor shall hold Company harmless from any violation
thereof;

 

(e)              to keep Company
fully and timely informed of the price and price structure of Product in the
Territory and shall promptly notify Company of any change thereof (provided
always that Distributor shall be entitled to sell Products at such prices as it
sees fit) and shall keep true accounts and records as described in Section 5.2(b) (“Records”) which enable verification of the amount of
the payments due to Company under Sections 3.1(c) and 3.2.  Upon reasonable, written notice, Distributor
will allow Company’s independent Third Party auditing firm, under appropriate
terms of confidentiality, one time each Contract Year, to have access to its
Records during normal business hours, to conduct an audit to verify the
accuracy of payments made under Sections 3.1(c) and 3.2.  If the audit indicates an underpayment to
Company of more than [***] percent ([***]%) in such Contract Year, the costs of
the audit shall be reimbursed to Company by Distributor.  The Company and Distributor shall promptly
make such balancing payments as are revealed to be appropriate by the audit
together (in the event of underpayment by Distributor) with interest calculated
pursuant to Section 5.3(a);

 

(f)               at its own cost
and at its sole discretion, to create and select the art-work, proposed text
and advertising and promotional materials to be used in connection with the
Product.  All such art-work, text and
advertising and promotional materials shall be sole property of Distributor.

 

7.3.        Non-Compete.  During the Term, Distributor shall not
manufacture, register, sell, promote or distribute in the Territory, or cause
or permit to be manufactured, registered, sold, 

 

21

 

promoted or distributed in the Territory, whether directly or
indirectly, any Distributor Competitive Product.

 

8.                                      TECHNICAL
PROCEDURES

 

8.1.         Quality Agreement.  The Parties agree to enter into a Quality
Agreement at least sixty days (60) before the Launch Date of the Product which
sets forth (a) the roles and responsibilities of Company and Distributor
with respect to the quality, technical, operational and certain regulatory
functions for the Products, and (b) how the Parties shall interact with
each other in connection with same (“Quality Agreement”).  The Parties have agreed to basic terms for
the Quality Agreement  which shall
include, but not be limited to, the outline provided in Schedule
8.1.  In the event a
conflict arises between any term in this Agreement and a term in the Quality
Agreement, the term contained in this Agreement shall prevail.

 

8.2.         Batch Release.

 

(a)             Batch review and
release of Product shall be the responsibility of the Company.

 

(b)             For each batch of
Product released for sale by the Distributor, the Company shall deliver to the
Distributor: (1) a certificate of analysis as described in Section 4.6(a);
(2) a certificate of compliance as described in Section 4.6(b); and (3) a
packing list for each batch of Product.

 

(c)             The Company shall
notify the Distributor within three (3) business days of becoming aware of
the same in the event of any material deviation during manufacture or when any
test reveals contamination or degradation in any batch of Product.

 

8.3.         Batch Documentation; Retention
Samples.

 

(a)             Originals of all
batch documentation shall be retained by the Company for a period of at least
twelve (12) months past the expiry date of the Product, or such longer period
as may be required by Applicable Laws.

 

(b)             At the request of
the Distributor, the Company shall provide a copy of any of the executed batch
documents relating to Product to the Distributor by facsimile or courier within
three (3) business days of Distributor’s request.

 

(c)             Retention samples
shall only be destroyed after the required regulatory holding period.

 

8.4.         Stability.

 

(a)             Company shall
ensure that stability testing for the Product as required by regulatory
authorities in the Territory is performed in compliance the Registration and
Applicable Laws.  Company shall perform
standard stability testing as defined in Company’s standard operating
procedures or as separately agreed to in accordance with a Design History 

 

22

 

File (DHF) for the
Product.  Distributor shall receive a
copy of Company’s Annual Report for the Product as long as Company is
continuing to produce the Product for Distributor.

 

(b)             If a confirmed
result indicates that a Product has failed to remain within stability
specifications, the Company shall notify the Distributor within two (2) business
days after such result becomes available.

 

(c)             The Company shall
provide stability data relating to the Product to the Distributor on an ongoing
basis as requested.

 

(d)             In the event this
Agreement is terminated, the Company shall, as requested, continue to provide
the Distributor with stability data supporting the acceptability of the Product
until such Product distributed by the Distributor has reached the end of its
shelf life.

 

9.                                      MEDICAL
INFORMATION, COMPLAINTS ADVERSE EVENTS AND POST-MARKETING SURVEILLANCE

 

9.1.         Medical Information.  Distributor will provide a medical
information service concerning the Product to the health professionals and
patients in the Territory.

 

9.2.         Customer Complaints;
Technical/Quality Related Issues.  Each Party will report to the other all customer
complaints, technical or quality-related incidents and/or issues, of which it
becomes aware.  Distributor shall be responsible for communicating with the customer to
support the complaint handling process. 
Company shall provide all necessary support to Distributor investigating
and addressing all such customer complaints, technical or
quality-related incidents.  The Parties
agree to report all product quality customer
complaints, technical or quality related incidents and/or issues to each other
within [***] working days of receipt.

 

9.3.         Medical Device Reporting.  The Parties agree to comply with and be responsible
for reporting all MDR Reportable Events to each other within [***] business
days of becoming aware of same and agree to comply with all procedures
established by Distributor, in accordance with all Applicable Laws in
connection with the tracking and reporting of MDR Reportable Events.  Distributor alone is responsible for
investigating and reporting to the FDA all MDR Reportable Events.

 

9.4.         Recalls.

 

(a)             Company will
maintain such records and procedures to ensure that any batch of Product can be
effectively and completely recalled by Distributor from the market in the event
that such action is required.  Both
Distributor and Company shall inform each other without delay, if any measures
are necessary to remove or to minimise any risk with respect to a specific
production lot or preparation of Product.

 

(b)             Distributor shall
be responsible for deciding whether to initiate any Product recall, customer
notice, restriction, corrective action or market action or any Product
change.  Company shall bear the costs and
expenses of such recall or corrective action and shall reimburse Distributor
for the reasonable, out-of-pocket costs incurred by Distributor as a result 

 

23

 

of such recall or corrective
action, including the replacement cost of any Product affected thereby, unless
the cause or basis of such recall or corrective action is attributable to a
condition, fact or action that constitutes a breach by Distributor of any of
its obligations under this Agreement, or is otherwise attributable to an act or
omission of Distributor in which case, Distributor shall bear the costs and
expenses of such recall or corrective action, and shall reimburse Company for
the reasonable out-of-pocket costs incurred by Company as a result of such
action, including the replacement cost of any Product affected thereby.  The Parties shall cooperate fully with each
other in effecting any recall of the Product pursuant to this Section 9.4,
including communications with any customers or to the public.

 

(c)             Distributor’s
procedures for a possible recall of Product will be included as part of the
Quality Agreement pursuant to Section 8.1.

 

9.5.         Notification by Regulatory
Authorities.  The Parties shall notify each other
immediately of any information or notification it receives regarding any
threatened or pending action by any competent authority which may affect the
safety or efficacy claims of any Product or the continued marketing of
same.  Upon receipt of any such information
received pursuant to this Section 9.5, the Party receiving such
notification shall consult with the other Party to arrive at a mutually
acceptable procedure for taking appropriate action; provided, however, that
nothing contained herein shall be construed as restricting Distributor’s right
to make a timely report of such matter to any competent authority or to take
any further action that Distributor deems appropriate, in its sole discretion,
or is required by applicable law.

 

10.                               REPRESENTATIONS
AND WARRANTIES

 

10.1.       By Each Party.  Each Party represents, warrants and covenants
to the other Party that:

 

(a)             it shall maintain
in full force and effect all necessary licenses, permits and other
authorizations required by Applicable Law to carry out its duties and
obligations under this Agreement;

 

(b)             it shall comply
with all Applicable Laws applicable to its activities under this Agreement,
including without limitation, any requirements of any product license
applicable to the Product in the Territory;

 

(c)             it shall
reasonably cooperate with the other Party with the goal of ensuring full
compliance with Applicable Laws;

 

(d)             it shall
reasonably cooperate with the other Party to provide such letters,
documentation and other information on a timely basis as the other Party may
reasonably require to fulfil its reporting and other obligations under
Applicable Laws to applicable Regulatory Authorities;

 

(e)             it is a
corporation duly organized, validly existing and in good standing under the
laws of its state of incorporation, and has the requisite corporate power and
authority to enter into this Agreement;

 

24

 

(f)                                          this
Agreement has been validly executed and delivered, and, assuming that such
documents have been duly authorized, executed and delivered by such Party,
constitutes a valid and binding obligation of such Party, enforceable against
such Party in accordance with its terms;

 

(g)                                       performance
of any of the terms and conditions of this Agreement on its part to be
performed will not constitute any breach or violation of any other agreement or
understanding, written or oral, government or court decree or order to which it
is a party or by which it is bound; and

 

(h)                                       it
is not insolvent or otherwise subject to a voluntary or involuntary bankruptcy
petition and no administrator, administrative receiver or receiver has been
appointed with respect of the whole or any part of its assets or business or if
the Insolvent Party makes any composition with its creditors or takes or
suffers any similar or analogous action in consequence of debt.

 

10.2.       By Company.  Company also represents, warrants and
covenants to Distributor that:

 

(a)             Company has not
granted distribution or marketing rights of any kind, for the Product in the
Field in the Territory to any Third Party, and to the best of its knowledge,
there are no Third Parties with any distribution or marketing rights of any
kind for the Product in the Field, and Company has not granted distribution or
marketing rights of any kind to any Line Extensions in the Field in the
Territory to any Third Party;

 

(b)             Company has
obtained all approvals required by the applicable governmental authorities for
the Territory for manufacture of the Product at the agreed upon manufacturing
facility where such Product will be manufactured;

 

(c)             Company has not
received any written notice of any claimed infringement (including without
limitation patent infringement), or any claim that the Patents, or any claim
contained in the Patents, are invalid or unenforceable, with respect to the manufacture
of the Product in the country in which the Product is manufactured or with
respect to the use or sale of the Product in the Territory;

 

(d)             except as
disclosed to Distributor in Schedule 10.2,
Company has all right, title and interest to the Patents, and has not assigned
or conveyed any right, title or interest in and to the Patents insofar as the
Patents relate to the use or sale of the Product in the Territory;

 

(e)             to the best of
Company’s knowledge, storage, distribution, promotion, marketing and sale of
the Product in the Territory does not infringe any patent, copyright, trademark
or other proprietary right of any Third Parties;

 

25

 

(f)              it has not
received any written notification that there are any suits, claims, or
proceedings pending, or to Company’s best knowledge and belief, threatened
against Company or any of its Affiliates in any court or by or before any
governmental body or agency with respect to the Product which would affect
either the Company or the Distributors’ ability to perform its obligations
under this Agreement;

 

(g)             except as
disclosed to Distributor in Schedule 10.2,
Company has the right to grant the exclusive rights for the Product in the
Field in the Territory to Distributor, and it has not entered into any
agreement with any Third Party that contravenes or diminishes such rights;

 

(h)            Company has not,
and during the term of this Agreement, will not, either itself or through any
Third Party, promote and/or sell in the Territory any Competitive Products or
any other products of the Company in violation of Section 6.13;

 

(i)              upon the exercise
of the purchase option with Osmotics as provided in Section 2.9, pursuant
to and in accordance with the agreement not to compete and the exercise of the
purchase option, Osmotics will be prohibited from marketing any product using
any ceramide dominant barrier repair technology, including any Competitive
Product using any ceramide dominant barrier repair technology;

 

(j)              in accordance with
Section 2.9, Company shall use its best efforts to [***];

 

(k)             to the best of
Company’s knowledge, there is no other material information, other than the
information and disclosures Company has made to Distributor in Schedule 10.2 and information
relating to economic conditions and the market for the Product  generally, which could have a material
adverse effect on the Product in the Field in the Territory or Distributor’s
ability to market and sell the Product in the Field in the Territory;

 

(l)              each Product sold
and delivered by Company to Distributor hereunder shall meet applicable
Specifications and shall not be adulterated or misbranded within the meaning of
the U.S. Federal Food Drug and Cosmetic Act and is free and clear of all liens
and encumbrances;

 

(m)            each Product
shall be manufactured, packaged, labelled, stored and loaded for shipment to
Distributor in accordance with the Specifications, cGMP, all Applicable Laws,
including, without limitation, those relating to environmental law and safety and
shall be  properly validated and shelf
stable both before and after the Launch Date; and

 

(n)             Company (or, in
the event a Contract Manufacturer is used, the Contract Manufacturer) has never
been and is not currently (i) an individual who has been debarred by the
FDA pursuant to 21 U.S.C. 33a(a) or (b) from providing services in
any capacity to a person that has an approved or pending drug product
application, or an employer, employee or partner of such a debarred individual;
or (ii) a corporation, partnership or association that has been debarred
by FDA pursuant to 21 U.S.C. 335a(a) or (b) from submitting or
assisting in the 

 

26

 

submission of a drug
application, or a partner , shareholder, member, subsidiary, or Affiliate of a
debarred entity.  Company has no
knowledge of any circumstances which may affect the accuracy of the foregoing
representation, including without limitation any FDA investigations of, or
debarment proceedings against, the Company or any person or entity performing
services or rendering assistance, which is in any way related to activities
undertaken pursuant to this Agreement. 
Company shall immediately notify Distributor in writing if it (or, in the
event a Contract Manufacturer is used, the Contract Manufacturer), at any time
during the Term of this Agreement, becomes aware of any such circumstances.

 

10.3.       By Distributor.  Distributor also represents, warrants and
covenants to Company that:

 

(a)                                        Distributor
shall be responsible for all price reporting for the Product to any and all
governmental agencies, as well as any Third Party pricing publications;

 

(b)                                        Distributor
shall be responsible for all rebates for the Product whether required by
contract or state or federal law;

 

(c)                                        Distributor
shall take all reasonable actions to ensure that all discounts and price
reductions offered to its customers for the Product fall within the discount
safe-harbor to the federal anti-kickback statute, as described in 42 U.S.C.
1320a-7b(b)(3)(A) and 42 C.F.R. 1001.952(h);

 

(d)             Distributor’s
Trade Marks will not, to Distributor’s knowledge, violate any copyright,
trademark or other proprietary right of any Third Parties; and

 

(e)                                        subject
to Company’s obligations hereunder, each Product sold and delivered by
Distributor shall meet applicable Specifications and shall not be adulterated
or misbranded within the meaning of the U.S. Federal Food Drug and Cosmetic Act
and is free and clear of all liens and encumbrances;

 

(f)                                          each
Product shall be packaged, labelled, stored and loaded for shipment from
Distributor in accordance with the Specifications, cGMP, all Applicable Laws,
including, without limitation, those relating to environmental law and safety;
and

 

(g)                                       none
of Distributor, its Affiliates, Sales Agents and Sub-distributors has ever been
nor is currently (i) an individual who has been debarred by the FDA
pursuant to 21 U.S.C. 33a(a) or (b) from providing services in any
capacity to a person that has an approved or pending drug product application,
or an employer, employee or partner of such a debarred individual; or (ii) a
corporation, partnership or association that has been debarred by FDA pursuant
to 21 U.S.C. 335a(a) or (b) from submitting or assisting in the
submission of a drug application, or a partner , shareholder, member,
subsidiary, or Affiliate of a debarred entity. 
Distributor has no knowledge of any circumstances which may affect the
accuracy of the foregoing representation, including without limitation any FDA
investigations of, or debarment proceedings against, Distributor or any person
or entity performing services or rendering assistance, which is in any way
related to activities undertaken pursuant to this Agreement.  

 

27

 

Distributor shall
immediately notify Company in writing if it, its Affiliates, Sales Agents or
Sub-distributors, at any time during the Term of this Agreement, becomes aware
of any such circumstances.

 

11.                               LIABILITY AND
INSURANCE

 

11.1.       Limitation of Warranties.  Except as may be expressly stated by Company
on any Product or on Company’s packaging, or in Company’s information
accompanying any Product, Company makes no representations or warranties of any
kind with respect to such Product or that information, express or implied,
including any implied warranty of merchantability or fitness for a particular
purpose.  Company neither assumes nor
authorises anyone, including its employees or representatives, to assume for it
any obligation or liability in connection with Product.

 

11.2.       Product Claims.  Distributor agrees not to make any claims for
any Product which are not included in the indications or are outside the scope
of those permitted for medical devices or would prejudice the medical device
classification of the Product and Distributor shall not make any representation
or warranty with respect to the Product that is more extensive than, or
inconsistent with any Registration or publications of Company or Third Parties
relating to the Product.

 

11.3.       Insurance.  The Parties shall (and shall cause their
respective Affiliates to), during the Term, and for a period of not less [***]
years following termination or expiration of this Agreement, maintain product
and general liability insurance (including blanket contractual liability) in a
minimum amount of [***] US Dollars (US $[***]) for each claim, and [***] US
Dollars (US $[***]) in the aggregate, to cover claims relating to the Product.
All Parties at the request of another shall provide evidence to such requesting
Party of compliance with its insurance obligation (and those of its Affiliates)
under this Section 11.3 and evidence of renewals of any such policy from
time to time.  The Parties agree that the
insurance coverage provisions of this Section 11.3 shall be in effect no
later than sixty (60) days before the Launch Date of the Product.

 

12.                               INTELLECTUAL
PROPERTY

 

12.1.       Patents.  The Patents are owned by The Regents of the
University of California (“UCSF”), and licensed to Company.  Company shall have the sole obligation to
UCSF for any an all amounts due in connection with such license of the Patents
and other intellectual property rights of any Third Party associated with,
covering or claiming the Product, or the manufacture, use or sale of the
Product, in the Territory.  The Parties
recognize that UCSF has certain audit, patent prosecution, defense of
infringement, notice and other rights in connection with Company’s license of
the Patents from UCSF.  Distributor shall
use diligent efforts to provide, under appropriate terms of confidentiality,
information it may possess which Company reasonably requests in order to comply
with Company’s obligations to UCSF under such license agreement.

 

28

 

12.2.       Company Trade Marks.  Company’s Trade Marks are the exclusive
property of Company and Distributor shall not seek to register or have
registered Company’s Trade Marks.

 

12.3.       Distributor Trade Marks and Copyrights.  Distributor shall own Distributor Trade Marks
and any new copyright created by Distributor for the Product.  For purposes of this Agreement, Distributor
Trade Marks shall mean those new trademarks developed by the Distributor for
use with the Product (“Distributor Trade
Marks”).

 

12.4.       Use of Distributor Brands.  Except for adding Distributor Trade Marks,
Distributor shall sell Product in the same condition as it is received by it
and shall not deface or alter any Product or its packaging, remove or modify
any labels, instructions or identifying insignia applied to or furnished in
connection with any Product or affix to any Product or its packaging any labels
or signs not previously approved in writing by Company.  Nothing in this Section is intended to
modify or diminish any of Distributor’s rights under Sections 6.11(c) and
12.6.

 

12.5.       Notification of Infringement.  Distributor shall inform Company of any
infringement of Company’s rights in the Territory of which it becomes
aware.  Company will decide on the best
steps to be taken after having discussed the case with Distributor who shall
give its full co-operation therefore.

 

12.6.       Effect of Termination.  Upon any termination of this Agreement by
Company pursuant to Section 13.2(a) for Distributor’s breach,
Distributor shall at Distributor’s sole discretion either (i) transfer
ownership of the Distributor’s Trade Marks used solely with respect to such
Product, and directly associated goodwill, to Company or (ii) provide an
exclusive, perpetual, royalty-free license (with the right freely to
sublicense) to the Distributor’s Trade Marks used solely with respect to such
Product to Company, in each case at no cost to Company, and in each case solely
for Company’s use in the promotion and sales of such Product in the
Territory.  For the avoidance of doubt,
Distributor’s Trade Marks shall include only the specific trade marks that
Distributor creates to brand such Product and shall not include any other trade
marks of Distributor or any of its Affiliates. 
Where Distributor licenses the Distributor’s Trade Marks pursuant to
clause (ii) of this Section 12.6, it shall not allow any such
Distributor’s Trade Marks to lapse without offering to allow Company to
maintain the same and to assign the same (before any such lapse takes effect)
to Company for nil consideration and at no cost to Company.  During the term of any such license pursuant
to clause (ii) of this Section 12.6, Distributor shall allow Company
to enforce any such Distributor’s Trade Mark against infringement and defend
any such Distributor’s Trade Mark against any attack (and shall lend such
reasonable assistance to Company for such purposes as Company may request, at
Company’s expense).  All costs associated
with Company’s enforcement of such Distributor’s Trade Marks pursuant to clause
(ii) of this Section 12.6, shall be the Company’s sole
responsibility.

 

13.                               TERM
AND TERMINATION

 

29

 

13.1.       Term.  This Agreement shall become effective upon
the Effective Date, and, subject to the provisions of this Section 13,
shall remain in effect with respect to the Product in each country in the
Territory, until the expiration of the last valid claim covering the Product
contained in a Patent in such country, or twenty (20) years after the first
commercial sale of the Product in such country, whichever is longer (“Term”).

 

13.2.       Breach or Insolvency.  Without prejudice to any other rights or
remedy it may have, each Party may terminate this Agreement by prior notice in
writing to the other Party (“Other Parties”):

 

(a)           Either Party (the “Non-breaching
Party”) may, without prejudice to any other remedies available
to it at law or in equity, terminate this Agreement in its entirety, in the
event the other Party (the “Breaching Party”)
shall have materially breached or defaulted in the performance of any of its
material obligations hereunder or any representation or warranty provided
herein, and such default shall have continued for [***] days after written
notice thereof was provided to the Breaching Party by the Non-breaching Party
(or, if such default cannot be cured within such [***]-day period, if the
Breaching Party does not commence and diligently continue actions to cure such
default during such [***]-day period). 
Any such termination shall become effective at the end of such [***]-day
period unless the Breaching Party has cured any such breach or default prior to
the expiration of such [***]-day period (or, if such default cannot be cured
within such [***]-day period, if the Breaching Party has commenced and
diligently continued actions to cure such default; provided however, that in no
event shall the cure period exceed [***] days beyond the initial [***]-day
period).  The right of either Party to
terminate this Agreement as provided in this Section shall not be affected
in any way by its waiver or failure to take action with respect to any previous
default; or

 

(b)           if one of the
Parties becomes insolvent (defined as such Party being subject to a voluntary
or involuntary bankruptcy petition which is not dismissed within [***]
days after filing) (the “Insolvent Party”),
or if an order is made or a resolution is passed for the winding up of the
Insolvent Party (other than voluntarily for the purpose of solvent amalgamation
or reconstruction) or if an administrator, administrative receiver or receiver
is appointed in respect of the whole or any part of the Insolvent Party’s
assets or business or if the Insolvent Party makes any composition with its
creditors or takes or suffers any similar or analogous action in consequence of
debt.

 

13.3.       Company’s Inability to Deliver Shelf
Stable Product.  In the event
that Company is unable to deliver to Distributor launch quantities of Product
which is properly validated and shelf stable pursuant to valid purchase orders
accepted by Company under Section 4.3 prior to the Launch Date,
Distributor shall have the right to terminate this Agreement and collect from
Company all milestone payments made to Company pursuant to Section 3.1(a)(ii) of
this Agreement.

 

13.4.       Effect of Certain Terminations by
Company.  If
this Agreement is terminated by Company pursuant Sections 13.2(a) or
13.2(b), in addition to any other remedies available at law or in equity, and
subject to Distributor’s right to sell inventory as provided in Section 13.6,
and Company’s rights to Distributor’s Trade Marks pursuant to Section 12.6,
as applicable:

 

30

 

(a)           all rights and
licenses granted to Distributor shall terminate immediately; and

 

(b)           Distributor shall,
at its sole cost and expense, promptly return to Company all applicable data
and materials transferred by Company to Distributor under this Agreement,
including, without limitation all records and materials in Distributor’s
possession or control containing Confidential Information of Company (provided
that Distributor may keep one (1) copy of such Confidential Information
for archival purposes only).

 

13.5.       Effect of Certain Terminations by
Distributor.  If this Agreement is terminated by
Distributor pursuant to any of Sections 13.2(a) or 13.2(b), or by
Distributor pursuant to Section 13.3, in addition to any other remedies
available at law or in equity, and subject to
Distributor’s right to sell inventory as provided in Section 13.6:

 

(a)           any licenses granted
by Distributor to Company with respect to Distributor Brands shall immediately
terminate;

 

(b)           Company shall, at
its sole cost and expense: (i) promptly return to Distributor all
applicable data and materials transferred by Distributor to Company under this
Agreement, including, without limitation, all records and materials in Company’s
possession or control containing Confidential Information of Distributor
(provided that Company may keep one (1) copy of such Confidential
Information for archival purposes only); and (ii) provide Distributor with
all information necessary or desirable to cross-reference the 510(k) and
any other regulatory filings in Company’s name with respect to the Product; and

 

(c)           all of
Distributor’s obligations under this Agreement shall terminate except as
specifically provided in this Section 13.5 or in Section 13.7 and
13.9; the rights and appointments granted under Section 2.1 shall continue
in full force and effect and Distributor shall also have a non-exclusive,
royalty-free, perpetual, irrevocable and sublicensable right and license to
have the Product manufactured at the Contract Manufacturer or another qualified
back up manufacturer, except that, after the effective date of such
termination, all of Distributor’s payment obligations to Company with respect
to such Product(s) shall be [***] percent ([***]%)
of the amount that would otherwise be due and owing under this Agreement and
all terms relating to payments shall continue to apply to the foregoing
payments.

 

13.6.       Sale of Inventory.  Upon termination of this Agreement for any
reason, in addition to the provisions of Sections 13.4 and 13.5, Distributor
shall have the right, for a period of [***] days, or such
other period as the Parties may mutually agree, to continue to sell any
inventory of Product in Distributor’s possession or under Distributor control
in the Territory consistent with the terms of this Agreement, existing
commercial practices, and subject always to continued compliance with its
payment obligations to Company pursuant to Sections 3.1 and 3.2 in respect of
such sales.

 

13.7.       Expiration.  Following the expiration of this Agreement in
any country in the Territory pursuant to Section 13.1, Distributor shall
have a non-exclusive, royalty-free, perpetual, 

 

31

 

irrevocable and
sublicensable right and license to manufacture, have manufactured, market,
sell, have sold, distribute and otherwise exploit the Product in such country.

 

13.8.       Accrued Rights.  Termination or expiration of this Agreement
with respect to a country or in its entirety for any reason shall be without
prejudice to Company’s right to receive all payments accrued and unpaid on the
effective date of termination and shall not release any Party hereto from any
liability which at such time has already accrued or which thereafter accrues
from a breach or default prior to such expiration or termination.  Except as expressly provided herein, all of
the Parties’ rights and remedies hereunder are cumulative and non-exclusive.

 

13.9.       Surviving Obligations.  No termination or expiration of this
Agreement with respect to a country or in its entirety shall affect or
discharge any obligations, rights, disclaimers, conditions or limitations of
any Party which arose prior to the effective date of such termination.  In addition, Sections 1, 4.7, 6.9, 8.3, 8.4,
9, 11.3, 13.4, 13.5, 13.6, 13.7, 13.8, 13.9, 14, 15 and 17 shall survive any
termination or expiration of this Agreement with respect to a Product or in its
entirety.

 

14.                               INDEMNIFICATION

 

14.1.       Company General Indemnification.  Except to the extent that any suits, claims,
liabilities, costs, damages, judgments or other expenses (“Claims”)
arise out of or result from the negligence or wilful misconduct of Distributor,
Distributor’s breach of this Agreement, acts or omissions of Sales Agents or
Sub-distributors, or as otherwise provided in this Agreement with respect to
infringement claims, Company shall defend, indemnify and hold Distributor and
any of its respective Affiliates and Sub-distributors, and all of their
respective officers, directors, employees, agents and representatives harmless
from and against all liabilities, damages, losses, costs and expenses
(including the reasonable fees of attorneys and other professionals) (“Losses”) incurred in connection with any Claim made by a
Third Party against Distributor, and any of their respective Affiliates,
Sub-distributors, and all of their officers, directors, employees, agents or
representatives, arising out of or attributable to:

 

(a)           the safety or
efficacy of any Product, including, but not limited to, any claim for product
liability, property damage, personal injury, or death, or relating to the
negligence, recklessness or wilful misconduct of Company or its Affiliates
arising directly from manufacture or labelling of the Product;

 

(b)           breach by Company
of any of its representations, warranties or covenants contained in Section 10.1
or 10.2; and

 

(c)           strict liability
for regulatory activities conducted by Company relating to the Product and/or
the Registrations prior to the Effective Date.

 

14.2.       Company Indemnification against
Infringement.   Company shall, at its expense,
defend any Claim brought against Distributor, its Affiliates, Sales Agents and
Sub-distributors, and all of their respective officers, directors, employees,
agents and representatives, 

 

32

 

and pay the
amount of any adverse final judgment, to the extent that it is based upon a
claim that any Product infringe any patent, copyright, trademark, trade secret
or other proprietary right of a Third Party. 
Distributor shall provide Company prompt notice in writing of any such
action and permit Company to answer and defend such claim or action with counsel
of Company’s choosing.  Distributor shall
provide Company with such information and assistance and cooperation as Company
reasonably requests, at Company’s expense, to help Company defend such
action.  Company shall have the right to
enter into a bona fide settlement or compromise of any action, provided that it
is reasonable to assume that a settlement or compromise of the action would not
adversely affect Distributor.  Company
shall not settle or compromise the action without the written consent of Distributor,
which consent shall not be withheld unreasonably; and in the event an action is
brought pursuant to this Section 14.2, Company may, at its expense,
either: (i) procure for Distributor the right to continue to offer to sell
and sell the allegedly infringing Product; or (ii) replace or modify the
Product with a product that is not subject to a claim of alleged infringement,
but which product is equivalent to the Product.

 

14.3.       Distributor General Indemnification.  Except to the extent that any Claims arise
out of or result from the negligence or wilful misconduct of Company or any
Contract Manufacturer, their Affiliates and all of their respective officers,
directors, employees, agents and representatives, or the material breach of
Company’s obligations hereunder, Distributor shall defend, indemnify and hold
Company, and their respective Affiliates and all of their respective officers,
directors, employees, agents and representatives, harmless from and against all
Losses incurred in connection with any Claim made by a Third Party against
Company, and any of their respective Affiliates, Sub-distributors, and all of
their officers, directors, employees, agents or representatives, arising out of
or attributable to:

 

(a)           product
liability, property damage, personal injury, or death relating to the
negligence, recklessness or wilful misconduct of Distributor or its Affiliates
or any Third Parties used or engaged by Distributor;

 

(b)           any breach by
Distributor of any of its representations, warranties or covenants contained in
Sections 10.1 and 10.3;

 

(c)           infringement by
Distributor’s Trade Marks; and

 

(d)           strict liability
relating to regulatory activities conducted by Distributor relating to the
Product and/or the Registrations after the Effective Date.

 

14.4.       Procedure.  The indemnified Party shall provide the
indemnifying Party prompt notice in writing of any such action and permit the
indemnifying Party to answer and defend such claim or action with counsel of
the indemnifying Party’s choosing.  The
indemnified Party shall provide the indemnifying Party with such information
and assistance and cooperation as the indemnifying Party reasonably requests,
at the indemnifying Party’s expense, to help the indemnifying Party defend such
action.  The indemnifying Party shall
have the right to enter into a bona fide settlement or compromise of any action
provided, that if it is reasonable to assume that a settlement or compromise of
the action would adversely affect the indemnified Party, the indemnifying Party
shall not settle or compromise the action without the written consent of the 

 

33

 

indemnified
Party, which consent shall not be unreasonably withheld.  Notwithstanding any provision to the
contrary, the indemnified Party shall have the right to participate in any such
action with the indemnifying Party with counsel of the indemnified Party’s
choosing, at the indemnified Party’s own cost. 
Notwithstanding the foregoing, Distributor shall not enter into any
settlement or consent to the making of any order which would be prejudicial to
the validity or enforceability of any Patent or any other intellectual property
right of Company without obtaining the prior, written consent of Company.

 

14.5.       Covenant
to Co-operate.  In the event that either Company
or Distributor becomes aware of any Third Party marketing and/or selling any
Product in the Field in the Territory and such activity is infringes on any
patents or violates any agreement between the Company and such Third Party, the
Party with such information shall notify the other Party, and Company agrees to
consult with Distributor to develop a joint strategy for Company to take all
legal actions, at Company’s expense, necessary to enforce Distributor’s
exclusive rights with respect to the Product in the Field in the
Territory.  Distributor shall
provide Company with such information, assistance and cooperation, as Company
reasonably requests to help Company enforce Distributor’s rights
hereunder.  Company shall not settle or
compromise the action without the written consent of Distributor, which consent
shall not be unreasonably withheld.

 

14.6.       Limitation on Liability.  EXCEPT FOR DAMAGE PROVISIONS OF SECTION 4.8,
AND THE PARTIES’ INDEMNIFICATION OBLIGATIONS IN THIS AGREEMENT, NO PARTY SHALL
BE LIABLE TO THE OTHER FOR ANY AMOUNTS REPRESENTING LOSS OF DATA, REPROCUREMENT
COSTS, LOST REVENUES OR PROFITS, PUNITIVE DAMAGES, OR FOR ANY OTHER INDIRECT,
SPECIAL, INCIDENTAL, OR CONSEQUENTIAL DAMAGES.

 

15.                               CONFIDENTIALITY
AND NON-USE

 

15.1.       Obligation.  During the term of this Agreement, a Party (“Disclosing Party”) may disclose to the other Party,
its affiliate’s directors, officers, employees and agents (“Receiving
Party”) certain Confidential Information.  The Receiving Party shall keep Confidential
Information confidential and such Confidential Information shall not, without
the Disclosing Party’s prior written consent, be disclosed by the Receiving
Party to any person or entity not a party to this Agreement in any manner whatsoever
in whole or in part, and shall not be used by a Receiving Party other than in
connection with the purposes contemplated by this Agreement.  Confidential Information shall be disclosed
only to the affiliates directors, officers, employees and agents of the
Receiving Party who need to know such Confidential Information for the purposes
of this Agreement.  The Receiving Party
hereto agrees that, unless required by applicable law or legal process, it will
not disclose to any Third Party Confidential Information, nor use such
Confidential Information it receives from the Disclosing Party, for any purpose
other than that contemplated under this Agreement.

 

15.2.       Survival.  The obligations set forth in this Article shall
survive expiration or termination of this Agreement for a period of five (5) years.

 

15.3.       Permitted Disclosures.

 

34

 

(a)           Notwithstanding the above, nothing contained in this
Agreement shall preclude a Party from utilizing or disclosing to others its
Confidential Information or utilizing Confidential Information received from
another Party as may be required:  (a) for
regulatory purposes, including submission of regulatory filings required to
obtain governmental approvals subject to requesting confidential treatment; (b) for
audit, tax or customs purposes subject to requesting confidential treatment; (c) by
law, administrative or judicial order of any body having jurisdiction over the
Party so required to make such disclosure (and whether or not such requirement
has the force of law), with the consent of the other Party, which consent shall
not be withheld unreasonably, in each case subject to Section 15.5.

 

(b)           Notwithstanding
the above, either Party may disclose the other Party’s Confidential Information
to the receiving Party’s Affiliates and its and their officers and employees,
and actual and potential Sales Agents and Sub-distributors, actual and
potential investors, legal and financial advisors, consultants, and the like;
provided, however, that the Party disclosing the Confidential Information of
the other Party shall impose upon such disclosees obligations of
confidentiality and non-use at least equivalent in scope (and duration) to
those set forth in Sections 15.1 and 15.2.

 

15.4.       Public Announcements.  No Party shall make any public announcements
concerning this Agreement, except:  (a) as
may be required legally by law, administrative or judicial order of any body
having jurisdiction over the Party so required to make such announcement (and
whether not such requirement has the force of law); or (b) no Party may
include in a subsequent public statement or document, information regarding the
Agreement which has not already been approved for public disclosure or publicly
disclosed by the other Party.

 

15.5.       Confidential Treatment.  If any Party is required to make any
disclosure permitted to be made under Section 15.4 or any other government
filing relating to this Agreement, such Party shall, where practicable, seek
confidential treatment for the terms and conditions of this Agreement to the
fullest extent permitted by any governmental agency or self-regulatory
organization to which such Party provides a copy of this Agreement.  Prior to seeking confidential treatment from
any governmental agency or self-regulatory organization for any such document,
such Party shall provide the other Party and the other Party’s counsel with a
copy of the document redacted as the filing Party wishes to file such document,
shall consult with the other Party and the other Party’s counsel and shall
provide them with a reasonable opportunity to request the inclusion of
specified provisions in any request by such Party for confidential treatment
and the placement of a restrictive legend on each disclosure made.  Nothing in this Section 15.5 shall
require any Party to breach any Applicable Law.

 

16.                               FORCE MAJEURE

 

16.1.       Notification of Force Majeure Event.  If any Party is affected by Force Majeure it
shall forthwith notify the other Party of its nature and extent.

 

16.2.       Effect of Force Majeure Event.  No Party shall be deemed to be in breach of
this Agreement, or otherwise be liable to the other, by reason of any delay in
performance or the non-

 

35

 

performance of
any of its obligations hereunder, to the extent that such delay or
non-performance is due to any Force Majeure of which it has notified the other
Party, and the time for performance of that obligation shall be extended
accordingly.

 

16.3.       Continuing Force Majeure Event.  If the Force Majeure in question prevails for
a continuous period in excess of three (3) months, the Parties shall enter
into bona fide discussions with a view to alleviating its effects, or to
agreeing upon such alternative arrangements as may be fair and reasonable.

 

17.                               MISCELLANEOUS
PROVISIONS

 

17.1.       Relationship of the Parties.  The relationship between Company and
Distributor hereunder is solely that of manufacturer and distributor, and
between Company and Distributor hereunder is solely that of licensor and
licensee, and Distributor is not an agent of Company for any purpose.  Distributor shall have no power or authority
to bind Company in any manner and shall not hold itself out as the agent of
Company for any purpose.

 

17.2.       Assignment; Binding Effect.  This Agreement shall be binding upon the
successors and assigns of the Parties permitted hereunder, but are otherwise
personal as between the Parties.  No
Party may assign any interest under this Agreement without the prior written
consent of the other, which consent shall not be unreasonably withheld, except
that no such consent shall be required to assign this Agreement to (i) an
Affiliate; or (ii) a Third Party successor by merger or acquisition or by
divestiture or spin-off of all or substantially all of the business or assets
to which this Agreement relates.  Any
purported assignment without a required consent shall be void.  No assignment shall relieve any Party of
responsibility for the performance of any obligation which accrued prior to the
effective date of such assignment.

 

17.3.       Expenses.  Each Party shall bear its own expenses with
respect to the negotiations, preparation and execution of this Agreement.

 

17.4.       No Third Party Beneficiaries.  This Agreement is solely for the benefit of
the Parties and their respective Affiliates and no provision of this Agreement
shall be deemed to confer upon any Third Parties any remedy, claim, liability,
reimbursement, claim of action or other right in excess of those existing
without reference to this Agreement.

 

17.5.       Notices.  All notices, requests, claims,
demands and other communications under this Agreement shall be in writing and
shall be deemed to have been duly given (a) when received, if delivered
personally, (b) when transmitted, if telecopied (which is confirmed), (c) upon
receipt, if sent by registered or certified mail (postage prepaid, return
receipt requested) and (d) the business day after it is sent, if sent for
next-day delivery to a domestic address by overnight mail or courier, to the
Parties at the following addresses:

 

If to Distributor, to:

 

Dr. Reddy’s Laboratories

 

36

 

200
Somerset Corporate Boulevard, 7th Floor

Bridgewater,
NJ 08807

Attn: Head, Specialties Business

Facsimile: 908-203-4970

 

with copies sent concurrently to:

 

Dr. Reddy’s Laboratories

200
Somerset Corporate Boulevard, 7th Floor

Bridgewater,
NJ 08807

Attn: Vice President, Legal
Affairs

Facsimile: 908-203-6509

 

If to Company, to:

 

Ceragenix Pharmaceuticals, Inc.

1444 Wazee Street, Suite 210

Denver, CO 80202

Attn:  Chief Executive Officer

Facsimile: 303-534-1860

 

with copies sent concurrently to:

 

Ceragenix Pharmaceuticals, Inc.

1444 Wazee Street, Suite 210

Denver, CO 80202

Attn:  Chief Financial Officer

Facsimile: 303-534-1860

 

provided however, that if any Party shall have
designated a different address by notice to the others, then to the last
address so designated.

 

17.6.       Governing Law.  This Agreement shall be governed by the laws
of the State of New York without regard to any conflicts of law principals.

 

17.7.       Dispute Resolution.

 

(a)           The Parties shall negotiate in good faith and use
reasonable efforts to settle any dispute, controversy or claim arising from or
related to this Agreement or the breach of this Agreement by providing written
notice of a dispute to the other Party, and have any such dispute controversy
or claim referred to the Executive Officers of the Parties, or their respective
designees, for attempted resolution within twenty (20) days thereafter.  If the Parties do not fully settle, and a
Party wishes to pursue the matter, each such dispute, controversy or claim
shall be finally resolved by binding arbitration in accordance with the
provisions set forth in this Section 17.7.

 

37

 

(b)          All disputes between the Parties arising from or
relating to this Agreement or the breach of this Agreement that cannot
otherwise be resolved informally, shall be finally resolved by arbitration in
accordance with the then existing Rules of the American Arbitration
Association (the “AAA”), as supplemented by the
further requirements of this Section 17.7. 
Such arbitration shall be conducted by three (3) arbitrators, one
appointed by each of Company and Distributor and the third selected by the
first two appointed arbitrators.

 

(c)          Within twenty (20) days after filing its request for
arbitration with the AAA, the Party requesting arbitration of a dispute (the “claimant”) shall provide the other Party (the “respondent”) with a statement explaining the basis
of its request for arbitration, including a listing all of the specific facts
the claimant contends support its claims, all acts or omissions by the
respondent that the claimant believes constitute a breach of this Agreement, all
of the terms and provisions of this Agreement that the claimant believes have
been breached, the names and addresses of each person the claimant believes has
knowledge supporting its claim, and a concise statement of damages, including
the means by which the claimed damages were calculated and the facts upon which
the calculation(s) were based.  The
claimant also shall provide the other Party with such statement a copy of all
documents in its possession or control that it contends support its claim.

 

(d)          Within sixty (60) days of receipt of the above
statement, the respondent shall provide a written reply statement to the
claimant, setting forth a brief description of each of the defenses known to it
at that time and the facts upon which the defenses are based, and the names and
last known addresses of each witness supporting any such defenses.  The respondent also shall provide with such
reply statement a copy of all documents in its possession or control that it contends
support its defenses.

 

(e)          The requirements of Sections 17.7(c) and 17.7(d) are
intended to supplement, and therefore are in addition to, the Rules and
procedural requirements of the AAA.  In
particular, the exchanges of documents and information required by such
paragraphs shall be in addition to any discovery that is permitted under the Rules of
the AAA or that the arbitrators may otherwise authorize in the arbitration.

 

(f)           The arbitrators shall be required to render a reasoned
written opinion in support of their final decision, setting forth findings of
fact, legal analysis and award.  The
decision rendered by the arbitrators shall be final and binding upon the
Parties.  Judgment upon the decision and
any award made by the arbitrators may be entered in any court of competent
jurisdiction.  Each Party shall pay its
own expenses of arbitration and shall share equally in the fees and expenses of
the arbitrators, unless the arbitrators assess against one Party the expenses
of the other Party (including the other Party’s reasonable attorneys’ fees and
expenses) in their award.

 

(g)          To the extent permitted by law, the arbitration
proceeding shall be confidential and the arbitration panel shall issue
appropriate protective orders to safeguard such confidentiality.  The Parties agree to keep confidential any
documents exchanged between them pursuant to the arbitration and, the content
of any testimony or written documents submitted pursuant to the
arbitration.  No Party shall make (or
instruct the arbitration panel to make) any public announcement with respect to
the proceedings or decision of the arbitration panel without

 

38

 

prior written consent of each other Party.  The existence of any dispute submitted to
arbitration, and the award, shall be kept in confidence by the Parties and the
arbitration panel, except as required in connection with the enforcement of
such award or as otherwise required by applicable law.

 

(h)          The arbitration proceedings shall take place in New
York City, New York.

 

17.8.       Amendments; Entire Agreement.  This Agreement contains the entire agreement
between Distributor and Company with respect to its subject matter, supersedes
all previous agreements or understandings with respect thereto and may not be
modified except by an instrument in writing signed by the duly authorised
representatives of the Parties.

 

17.9.       Waiver.  The failure of any Party to enforce any
condition or part of this Agreement at any time shall not be construed as a
waiver of that condition or part, nor shall it forfeit any rights to future
enforcement thereof.

 

17.10.     Severability.  If any provision of this Agreement is held by
any court or other competent authority to be invalid or unenforceable in whole
or in part, the other provisions of this Agreement and the remainder of the
affected provision shall continue to be valid.

 

17.11.     Construction.  The language in all parts of this Agreement
shall be construed, in all cases, according to its fair meaning.  The Parties acknowledge that each Party and
its counsel have reviewed and revised this Agreement and that any rule of
construction to the effect that any ambiguities are to be resolved against the
drafting Party shall not be employed in the interpretation of this
Agreement.  The language of any dispute
resolution proceeding in connection with this Agreement shall be English.

 

17.12.     Headings.  The headings of this Agreement have been provided
for convenience only and shall have no legal effect in connection with any
interpretation of any of the provisions of this Agreement.

 

17.13.     Counterparts.  This Agreement may be executed manually or by
facsimile by the Parties, in any number of counterparts, each of which shall be
considered one and the same agreement and shall become effective when a
counterpart of this Agreement shall have been signed by each of the Parties and
delivered to the other Party.

 

*  * 
*  *  * 
*  *  * 
*  *  *

 

39

 

IN WITNESS WHEREOF, the Parties have executed this
Distribution and Supply Agreement in duplicate as of the Effective Date.

 

 

	
  Ceragenix Pharmaceuticals , Inc.

  	
   

  	
  Dr. Reddy’s Laboratories, Inc.

  
	
  Signed by:

  	
   

  	
  Signed by:

  
	
   

  	
   

  	
   

  
	
  Signature:

  	
  /s/ Steven Porter

  	
   

  	
  Signature:

  	
  /s/ Jeffrey
  Wasserstein

  
	
   

  	
   

  	
   

  
	
  Position:

  	
  Chief Executive Officer

  	
   

  	
  Position:

  	
  EVP North
  America

  

 

 

Ceragenix Corporation

Signed by:

 

	
  Signature:

  	
  /s/ Steven Porter

  	
   

  
	
   

  
	
  Position:

  	
  Chief Executive Officer

  	
   

  

 

40

 

SCHEDULE 1.8

 

Company’s Trade Marks

 

EpiCeram®                             Registration No. 3,240,549

CeragenixTM                       Notice of allowance Serial No. 78/619974;
awaiting documentation of commercial use.

 

41

 

SCHEDULE 1.36

 

List of Patents

 

UCSF barrier repair
patent

 

US Patent No. 5,643,899

 

42

 

SCHEDULE 1.37

 

Product Information

 

[***]:

 

	
  Ingredient

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Capric Acid

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Cholesterol

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Dimethicone

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Disodium EDTA

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Glycerin

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Glyceryl Stearate

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Hydroxypropyl Bispalmitamide MEA

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Linoleic Acid

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Palmitic Acid

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  PEG-100 Stearate

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Petrolatum

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Phenoxyethanol

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Phosphoric Acid

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Potassium Hydroxide

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Squalane

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Water

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  Corn Syrup Solids

  	
   

  	
  [***]

  	
   

  	
  [***]

  
	
  E. Cerifera (Candelilla) Wax

  	
   

  	
  [***]

  	
   

  	
  [***]

  

 

[***]

 

Indications:

 

The indications for Use Statement from the FDA is as follows:

 

FOR TOPICAL DERMATOLOGICAL USE ONLY

 

43

 

EPICERAM® is a skin barrier emulsion to be used to treat dry skin
conditions and to manage and relieve the burning and itching associated with
various types of dermatoses, including atopic dermatitis, irritant contact
dermatitis, radiation dermatitis. 
EPICERAM® helps to relieve dry waxy skin by maintaining a moist wound &
skin environment, which is beneficial to the healing process.

 

Apply EPICERAM® in a thin layer to the affected skin areas 2 times per
day (or as needed) and massage gently into the skin.   If the skin is broken, cover EPICERAM® with
a dressing of choice.

 

44

 

SCHEDULE 1.45

 

Specifications

 

 

45

 

 

 

46

 

	
  For Topical Dermatological Use Only

  	
  Rx only

  

 

PRODUCT DESCRIPTION

 

EPICERAM® is a
skin barrier emulsion.

 

INDICATIONS FOR USE

 

EPICERAM® is
used to treat dry skin conditions and to manage and relieve the burning and
itching associated with various types of dermatoses, including atopic
dermatitis, irritant contact dermatitis, radiation dermatitis and helps to
relieve dry waxy skin by maintaining a moist wound & skin environment,
which is beneficial to the healing process.

 

CONTRAINDICATIONS

 

When an
allergy to one of the ingredients is known.

 

WARNINGS

 

EPICERAM® does
not contain a sunscreen and should always be used in conjunction with a
sunscreen in sun exposed areas. In radiation dermatitis and/or in conjunction
with ongoing radiation therapy apply following radiation therapy.  Do not apply within 4 hours prior to radiation
therapy.  Apply twice daily or as
indicated by the radiation therapist. After application, a temporary tingling
sensation may occur (10 to 15 minutes). 
Keep this and similar products out of the reach of children.  Follow directions for use.  If condition does not improve within 10 to 14
days, consult a physician.

 

PRECAUTIONS AND
OBSERVATIONS

 

For the treatment
of any dermal wound, consult a physician.

· Use EPICERAM® Skin Barrier Emulsion only as directed.

· EPICERAM® Skin Barrier Emulsion is non-toxic, however it is for
external use only and should not be ingested or taken internally.

· If clinical signs of infection are present, appropriate treatment
should be initiated.  If clinically indicated,
use of EPICERAM® Skin Barrier Emulsion may be continued during the
anti-infective therapy.

· If condition does not improve within 10 to 14 days, consult a
physician.

· EPICERAM® Skin Barrier Emulsion does not contain a sunscreen and
should always be used in conjunction with a sunscreen in sun exposed areas.

· In radiation dermatitis and/or in conjunction with ongoing
radiation therapy, apply following radiation therapy.

· Do not apply within 4 hours prior to radiation therapy.

· Apply twice daily or as indicated by the radiation therapist.

· Following the application of EPICERAM® Skin Barrier Emulsion a
temporary tingling sensation may occur (10 to 15 minutes). 

· Keep this and other similar products out of the reach of children.

 

INSTRUCTIONS FOR USE

 

Wash affected
area with a suitable cleanser.  Apply
EPICERAM® in a thin layer to the affected skin areas 2 times per day (or as
needed) and massage gently into the skin. 
If the skin is broken, cover EPICERAM® with a dressing of choice.  If a gauze dressing is used, the gauze should
be moist. In the case of radiation dermatitis, apply following radiation
therapy (do not apply within 4 hours prior to therapy) and at least twice daily
or as indicated by the radiation therapist.

 

INGREDIENTS

 

Capric Acid,
Ceramide, Cetyl Alcohol, Cholesterol, Conjugated Linoleic Acid, Euphorbia
Cerifera Wax, Decanoic Acid, Disodium EDTA, Food Starch Modified Corn Syrup
Solids, Fragrance, Glycerin, Glyceril Stearate, Hydroxypropyl Bispalmitamide
MEA, Palmitic Acid, PEG-100 Stearate, Petrolatum, Phenoxyethanol, Phosphoric
Acid, Potassium Hydroxide, Squalane, Water.

 

HOW SUPPLIED

 

EPICERAM® Skin
Barrier Emulsion is available in a 50 g tube. NDC XXXX-XXXX-XX

 

Store at 15°C to 30°C (59°F
to 86°F),
Do not freeze.

 

Distributed
by: Ceragenix Corp., Denver, CO.
80202     Manufactured by: Topiderm inc., Amityville,
NY.11701

 

Rx ONLY - Prescription
Medical Device; Federal law restricts this device to sale by or on the order of
a physician.

 

Note:  all packaging specifications provided under
this Schedule 1.45 are intended to serve only as a guideline for the final
Product packaging.

 

47

 

EpiCeram®
Finished Product Release Tests & Specifications

 

	
  Test

  	
   

  	
  Specifications

  
	
  Description
  (visual assessment)

  	
   

  	
  [***]

  
	
  Color

  	
   

  	
  [***]

  
	
  Odor

  	
   

  	
  [***]

  
	
  pH

  	
   

  	
  [***]

  
	
  Total Aerobic Microbial
  Count  USP
  <61>

  	
   

  	
  [***]

  

 

Note:  the finished product release tests and
specifications presented in the table above are preliminary finished product
release tests and specifications.  Final
finished product release tests and specifications will be included in the
Quality Agreement.

 

48

 

SCHEDULE 3.2(a)

 

Product Pricing Structure

 

	
  Annual Net Sales Levels

  	
   

  	
  Purchase Price as Percent of Net Sales

  
	
  Up to [***] ($[***])

  	
   

  	
  [***]

  
	
  Above [***] ($[***]) and below [***] ($[***])

  	
   

  	
  [***]

  
	
  Above [***] ($[***]) and below [***] ($[***])

  	
   

  	
  [***]

  
	
  Above [***] ($[***]) and below [***] ($[***])

  	
   

  	
  [***]

  
	
  Above [***] ($[***]) and below [***] ($[***])

  	
   

  	
  [***]

  
	
  Above [***] ($[***])

  	
   

  	
  [***]

  

 

Purchase Price percentages will be applied in increments based on
Annual Net Sales Levels.  For example, on
annual Net Sales of $[***], [***] percent will be paid on Net Sales up to
$[***], [***] percent will be paid on Net Sales above $[***] and below $[***],
and, [***] percent will be paid on Net Sales above $[***] and below
$[***].  Therefore, that aggregate
payment of due on such annual Net Sales is Cost + ($[***]) + ($[***]) +
($[***]), or Cost + $[***].

 

Costs shall be projected annually for each Contract
Year and a “true-up” payment shall be made by one Party to the other within
ninety (90) days after the end of a Contract Year to reflect actual Costs
incurred for that Contract Year.

 

For purposes of clarity, Distributor shall deduct from amounts due to
Company under this Schedule 3.2(a) all
amounts Distributor paid to Company to purchase the Products during the course
of a Contract Year.

 

The Product Pricing Structure contained in this Schedule 3.2(a) shall
apply during the life of any patent covering the Product in any country in the
Territory.  Thereafter, for the remainder
of the Term of this Agreement and for any period thereafter where Company
continues to supply Distributor with Product, the Supply Price shall be
negotiated and mutually agreed to by the Parties.

 

For purposes of clarity, Distributor shall not be responsible, in whole
or in part, for any costs associated whatsoever with Company’s efforts to
develop a commercially viable Product prior to the Launch Date.

 

49

 

Costs for first
Contract Year is as follows:

 

	
  Tube Size (g)

  	
   

  	
  Fully allocated cost

  per tube

  
	
  [***]

  	
   

  	
  $

  	
  [***]

  
	
  [***]

  	
   

  	
  $

  	
  [***]

  

 

*Fully burdened
cost/tube that is based on [***] bulk batch production, final device
filling/packaging at [***] and [***] batches per year.

 

50

 

SCHEDULE 4.3(a)

 

Form of
Purchase Order

 

	
  PURCHASE
  ORDER

  	
   

  	
  PO #

  
	
   

  	
   

  	
   

  
	
  Date:      

  	
   

  
	
   

  	
   

  
	
  From:

  	
  To:

  
	
   

  	
   

  
	
  Dr.Reddy’s Laboratories, Inc.

  	
  Ceragenix Pharmaceuticals, Inc.

  
	
  1444 Wazee Street, Ste 210

  	
  1444 Wazee Street, Ste 210

  
	
  200 Somerset Corporate Blvd, 7th Floor

  	
  Denver, CO 80202

  
	
  Bridgewater, NJ 08807

  	
  Tel: [720] 848-8440

  
	
  Tel:

  	
  Fax: [303] 634-1880

  
	
  Fax:

  	
  Attn: CFO

  
				

 

	
  Description

  	
   

  	
  Tube Size

  	
   

  	
  Date Required

  	
   

  	
  Quantity

  	
   

  	
  USD

  Amount

  	
   

  
	
  Epiceram

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  FOB:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Terms:

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
  $

  	
  —

  	
   

  
											

 

	
  Ship to:

  	
   

  	
  Bill To:

  

 

 

	
   

  	
   

  
	
   

  
	
  Authorized Signature

  

 

51

 

SCHEDULE
4.3(b)

 

Batch
Size Requirements

 

	
  Product

  	
   

  	
  Batch Size

  
	
  Bulk
  EpiCeram Product

  	
   

  	
  [***]

  
	
   

  	
   

  	
   

  
	
  Finished Device

  	
   

  	
  Minimum # of Tubes per 

  [***] batch*

  
	
  [***]

  	
   

  	
  [***]

  
	
  [***]

  	
   

  	
  [***]

  

 

*This number indicates that minimum number of each tube type that can
be filled to complete a [***] bulk order.

 

52

 

SCHEDULE
6.12

 

Outline
of Quality System and Design Control Agreement

 

[***]

 

53

 

SCHEDULE
8.1

 

Outline
for Quality Agreement

 

[***]

 

54

 

SCHEDULE
10.2

 

Company
Disclosure Schedule

 

The Company’s rights to the
Patents are derived from its exclusive license from The Regents of the
University of California (UCSF).  Certain
other parties possess limited rights to the technology embodied in the Patent
which rights are summarized below and are addressed through terms of this
Agreement above.

 

UCSF Exclusive License

 

The Company holds its rights
to the Patents pursuant to an Exclusive License Agreement with The Regents of
the University of California, dated June 28, 2000.  Pursuant to such exclusive license, The
Regents granted to Osmotics (predecessor to the Company) an exclusive worldwide
license, with a right to sublicense, under the 5,643,899 patent to make, have
made, use, sell, offer to sell and import Licensed Product and to practice
Licensed Method in the Field of Use. 
Licensed Product is defined as any material that is either covered by
the 5,643,899 patent, or the use of which would constitute an infringement of
the 5,643,899 patent.  Licensed Method is
defined as any method that is covered by the 5,643,899 patent, or the use of
which would constitute an infringement of the 5,643,899 patent.  The Field of Use is defined as therapeutic
and cosmetic applications in mammals, including humans.

 

Pursuant to such exclusive
license, The Regents reserves the right to use the patent and associated
technology for clinical, educational and research purposes including
publication of research results and sharing such results with other non-profit
institutions for their similar scope.

 

The Regents retains the
right to maintain the patent at its own expense in any country where the
Company has not elected to file, prosecute or maintain patent applications, and
those patent applications will not be subject to the exclusive license
agreement.

 

The Regents retains certain
rights concerning infringement of the patent as set forth in the exclusive
license agreement, and The Regents has the right to share in any damages
received relating to infringement.

 

[***]

Osmotics Sublicense

 

Pursuant to a Patent Sublicense Agreement between
the Company and Osmotics dated as of August 15, 2006, the Company granted
Osmotics a worldwide sublicense under the Licensed Patents to make, have made,
use, import, offer to sell, sell, and have sold Licensed Products and the right
to the Licensed Methods in the Licensed Field. 
[***].  The Company may purchase
from Osmotics the rights under the agreement for the non-prescription
formulation of the Barrier Repair Technology. 
Licensed Field means cosmetic, non-prescription used of the Barrier
Repair Technology, and defines any product not for sale in pharmacies, doctor’s
offices, hospitals. 

 

55

 

Licensed Method is defined as any method in
the Licensed Field which is covered by any claim of an issued, unexpired
Licensed Patent or is covered by any claim being prosecuted in a Licensed
Patent that is in the form of a pending patent application.  License Patent is the 5,643,899 patent.  Licensed Products is defined as any product
application, treatment or part thereof in the Licensed Field, the manufacture,
use or sale of which is covered by any claim of an issued, unexpired Licensed
Patent or is covered by any claim being prosecuted in a Licensed Patent that is
in the form of a pending patent application.

 

56Exhibit 10.33

 

OPTION TO ACQUIRE
SHARES

OF COMMON STOCK OF
NATIONAL HEALTH PARTNERS, INC.

 

WHEREAS, National Health Partners, Inc., an Indiana corporation
(the “Company”) wishes to grant this option to David M. Daniels (“Holder”) the
Holder.

 

NOW, THEREFORE, in consideration of the foregoing, the agreement set
forth below and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, and intending to be legally bound
hereby, the parties hereby agree as follows:

 

1.             Grant
of Option.  The Company hereby grants
to the Holder on this 25th day of March, 2008 (the “Grant Date”) an
option (this “Option”) to purchase 400,000 shares (“Shares”) of the Company’s
common stock, $.001 par value per share (“Common Stock”), on the terms and
subject to the conditions set forth herein.

 

2.             Term of Option.  This option shall have a maximum term of ten (10) years
measured from the Grant Date (the “Expiration Date”) and shall accordingly
expire at 5:00 p.m. eastern standard time on the Expiration Date.

 

3.             Right to Exercise.  This Option may be exercised in whole or in
part in accordance with the following schedule:

 

(i)            100,000
shares on the first anniversary of the date hereof;

 

(ii)           100,000
shares on the second anniversary of the date hereof;

 

(iii)          100,000
shares on the third anniversary of the date hereof; and

 

(iv)          100,000 shares on the fourth anniversary of the date hereof.

 

4.             Exercise Price.  The
exercise price per Share (“Exercise Price”) at which this Option may be
exercised shall be [                        ]
($[        ]) per Share.

 

5.             Method of Exercise.

 

(a)           This
Option shall be exercised by execution and delivery of the Notice of Exercise
attached hereto as Appendix A (“Notice of Exercise”) or any other
written notice approved for such purpose by the Company that shall state the
election of the Holder to exercise this Option, the number of Shares in respect
of which this Option is being exercised, and such other representations and
agreements as to the holder’s investment intent with respect to such Shares as
may be required by the Company.  The
Notice of Exercise shall be accompanied by payment of the Exercise Price.  This Option shall be deemed to be exercised
upon receipt by the Company of the Notice of Exercise accompanied by payment of
the Exercise Price.

 

 

(b)           No Shares
shall be issued pursuant to the exercise of this Option unless such issuance
and such exercise shall comply with all relevant provisions of applicable law,
including the requirements of any stock exchange upon which the Shares may then
be listed.  Assuming such compliance, for
income tax purposes the Shares shall be considered transferred to the Holder on
the date on which this Option is exercised with respect to such Shares.

 

(c)           This
Option may not be exercised for a fractional Share or scrip representing a
fractional Share.  In lieu of any
fractional Share to which the Holder would otherwise be entitled, the Company
shall make a cash payment equal to the Exercise Price multiplied by such
fraction.

 

(d)           In no
event may this Option be exercised after the Expiration Date.

 

6.             Methods of
Payment.  Shares of Common Stock
purchased upon the exercise of this Option may be paid for as follows:

 

(a)           in cash or by check, payable to the order of the Company;

 

(b)           if the shares of Common Stock underlying the Option are registered
under the Securities Act of 1933, as amended (the “Securities Act”), by: (i) delivery
by the Holder to the Company of an irrevocable and unconditional undertaking by
a creditworthy broker to deliver promptly to the Company sufficient funds to
pay the exercise price and any required tax withholding, or (ii) delivery
by the Holder to the Company of a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver promptly to the Company the
exercise price and any required tax withholding;

 

(c)           if the shares of Common Stock underlying the Option are registered
under the Securities Act, by delivery of such shares of Common Stock owned by
the Holder valued at their Fair Market Value (as defined below), provided: (i) such
method of payment is then permitted under applicable law, (ii) such shares
of Common Stock have been owned by the Holder at least six months prior to the
date of such delivery, and (iii) such shares of Common Stock are not
subject to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements or restrictions;

 

(d)           by reducing the number of shares of Common Stock otherwise issuable
under this Option to the Holder upon the exercise of this Option by a number of
shares of Common Stock having a Fair Market Value equal to such aggregated
exercise price; provided, however, that such method of payment is then
permitted under applicable law;

 

(e)           to the extent permitted by applicable law and by the board of directors
of the Company (the “Board”), in its sole discretion, by: (i) delivery of
a promissory note of the Holder to the Company on terms determined by the
Board, or (ii) payment of such other lawful consideration as the Board may
determine; or

 

(f)            by any combination of the above permitted forms of
payment.

 

For the purpose of
this Agreement, “Fair Market Value” shall mean:

 

2

 

(i)          If
the Common Stock is admitted to quotation on the National Association of
Securities Dealers Automated Quotation System (“NASDAQ”), the Fair Market Value
on any given date shall be the average of the highest bid and lowest ask prices
of the Common Stock as reported for such date or, if no bid and ask prices were
reported for such date, for the last day preceding such date for which such
prices were reported;

 

(ii)         If
the Common Stock is admitted to trading on a United States national securities
exchange or the NASDAQ National Market System, the Fair Market Value on any given
date shall be the closing price
reported for the Common Stock on such exchange or system for such date or, if
no sales were reported for such date, for the last day preceding such date for
which a sale was reported;

 

(iii)        If the Common Stock is traded in the over-the-counter market and not on
NASDAQ, the NASDAQ National Market System or any United States national
securities exchange, the Fair Market Value on any given date shall be the
average of the mean between the last bid and ask prices per share as reported
by the National Quotation Bureau, Inc. or an equivalent generally accepted
reporting service for such date or, or if not so reported, the average of the
closing bid and ask prices of the Common Stock for such date as furnished to
the Company by any member of the National Association of Securities Dealers, Inc.
selected by the Company for that purpose; or

 

(iv)        If the Fair Market Value of the Common Stock cannot be determined on
the basis previously set forth in this definition on the date that the Fair
Market Value is to be determined, the Board shall in good faith determine the
Fair Market Value of the Common Stock on such date.

 

The delivery of certificates
representing the shares of Common Stock to be purchased pursuant to the
exercise of this Option will be contingent upon receipt from the Holder (or a
purchaser acting in his stead in accordance with the provisions of this Option)
by the Company of the full purchase price for the Shares and the fulfillment of
any other requirements contained in this Option or imposed by applicable law.

 

7.             Rights of
Stockholder.  The Holder shall not
have any stockholder rights with respect to any Shares until such Holder shall
have exercised this Option, paid the Exercise Price and become a holder of
record of the purchased Shares.

 

8.             Adjustment of
Exercise Price and Number of Shares. 
The number and kind of securities purchasable upon exercise of this
Option and the Exercise Price shall be subject to adjustment from time to time
as follows:

 

(a)           Subdivisions, Combinations and Other
Issuances.  If the Company shall at any time prior to the
expiration of this Option subdivide its Common Stock, by split-up or otherwise,
or combine its Common Stock, or issue additional shares of its Common Stock or
any preferred stock as a dividend with respect to any shares of its Common
Stock, then the number of Shares issuable on the exercise of this Option shall
forthwith be proportionately increased in the case of a subdivision or stock
dividend, or proportionately decreased in the case of a combination.  Appropriate adjustments shall also be made to
the Exercise Price, but the 

 

3

 

aggregate
purchase price payable for the total number of Shares purchasable under this
Option (as adjusted) shall remain the same. 
Any adjustment under this Section 8(a) shall become effective
at the close of business on the date the subdivision or combination becomes
effective, or as of the record date of such dividend, or in the event that no
record date is fixed, upon the making of such dividend.

 

(b)           Reclassification,
Reorganization and Consolidation.  In the case of any
reclassification, capital reorganization or change in the Common Stock of the
Company (other than as a result of a subdivision, combination or stock dividend
provided for in Section 8(a) above or as a result of any “Fundamental
Transaction” described in Section 8(c) below), then, as a condition
of such reclassification, reorganization or change, lawful provision shall be
made, and duly executed documents evidencing the same from the Company or its
successor shall be delivered to the Holder, so that the Holder shall have the
right at any time prior to the expiration of this Option to purchase, at a
total price equal to that payable upon the exercise of this Option, the kind
and amount of shares of stock and other securities and property receivable in
connection with such reclassification, reorganization or change by a holder of
the same number of shares of Common Stock as were purchasable by the Holder
immediately prior to such reclassification, reorganization or change.  In any such case, appropriate provisions
shall be made with respect to the rights and interest of the Holder so that the
provisions hereof shall thereafter be applicable with respect to any shares of
stock or other securities and property deliverable upon exercise hereof, and
appropriate adjustments shall be made to the Exercise Price payable hereunder,
provided the aggregate purchase price shall remain the same.

 

(c)           Corporate
Reorganizations, Consolidations or Mergers.  In the event of: (i) any reorganization,
consolidation or merger of the Company with or into another entity (other than
a merger in which the Company is the successor entity that does not result in
any capital reclassification,
reorganization or consolidation, or other change, in the Common Stock of the
Company, or a consolidation or merger between the Company and a wholly-owned
subsidiary of the Company), (ii) any
sale, lease, transfer or conveyance to another entity of all or substantially
all of the stock, property and assets of the Company (other than a transfer to
a wholly-owned subsidiary of the Company), or (iii) a liquidation or
dissolution of the Company (the events in subsections (i), (ii) and (iii) collectively,
a “Fundamental Transaction”), then,
as a condition of such Fundamental Transaction, lawful provision shall be made
by the Company and the successor entity in connection with such Fundamental Transaction for the assumption of
this Option by the successor entity or for the substitution of new like-kind options
by the successor entity as a result of such Fundamental Transaction, with
appropriate adjustment as to the number and kind of shares issuable upon
exercise of the Option, and, if appropriate, the per share exercise price, so
as to enable the Holder after such Fundamental Transaction to purchase the kind
and amount of shares of stock and other securities and property (including
cash) receivable upon such consolidation, merger, sale or conveyance by a
holder of the number of shares of Common Stock that would have been received
upon the exercise or exchange of this Option immediately prior to such
Fundamental Transaction.

 

(d)           Notice
of Adjustment.  When any adjustment is required to be made in
the number or kind of shares purchasable upon exercise of this Option or in the
Exercise Price, the Company shall promptly notify the Holder of such event and
of the number of shares of Common Stock or other securities or property
thereafter purchasable upon exercise of this Option.

 

4

 

(e)           No
Impairment.  The Company and the Holder will not, by any
voluntary action, avoid or seek to avoid the observance or performance of any
of the terms to be observed or performed hereunder by the Company or the
Holder, respectively, but will at all times in good faith assist in the
carrying out of all the provisions of this Section 8 and in the taking of
all such action as may be necessary or appropriate in order to protect the
rights or the Company and the Holder against impairment.

 

9.             Termination of Option.

 

(a)           Termination by Death.  If Holder’s
employment by, or other relationship with, the Company terminates by reason of
death, this Option may thereafter be exercised, in whole or in part to the
extent exercisable on the date of such termination of employment, by the legal
representative or legatee of the Holder until the earlier of the date that is one
year after the date of such termination of employment or the Expiration Date.

 

(b)           Termination by Reason of Disability or Retirement.

 

(i)            Disability.              If Holder’s employment by, or other relationship
with, the Company terminates by reason of disability as set forth in Section 22(e)(3) of
the Internal Revenue Code (“Disability”), this Option may thereafter be
exercised, in whole or in part to the extent exercisable on the date of such termination
of employment, until the earlier of the date that is one year after the date of
such termination of employment or the Expiration Date.

 

(ii)           Retirement.            If Holder retires in good standing from active
employment or service with the Company in accordance with the retirement
policies of the Company then in effect (“Retirement”), this Option may
thereafter be exercised, in whole or in part to the extent exercisable on the
date of such termination of employment, until the earlier of the date that is
90 days after the date of such termination of employment or the Expiration Date

 

(iii)          Disability and Retirement Determination.  The Board
shall have sole authority and discretion to determine whether the Holder’s
employment or services has been terminated by reason of Disability or
Retirement.

 

(c)           Termination for Cause.  If Holder’s
employment by, or other relationship with, the Company terminates for “Cause,”
this Option shall immediately terminate and be of no further force and effect;
provided, however, that the Board may, in its sole discretion, provide that
this Option may be exercised until the earlier of the date that is 90 days after
the date of such termination of employment or the Expiration Date.  Termination for “Cause” shall have the
meaning ascribed to such term in the employment agreement dated May 13,
2005 by and between the Company and Holder (the “Employment Agreement”).

 

(d)           Termination Without Cause or Termination for Good
Reason.  If Holder’s employment by, or other
relationship with, the Company terminates for any reason other than death,
Disability, Retirement or for Cause, or if Holder’s employment by, or other
relationship with, the Company is terminated by Holder for “Good Reason,” this
Option shall vest in full immediately. 
Termination for “Good Reason” shall have the meaning ascribed to such
term in the Employment Agreement.

 

5

 

(e)           Transfer
and Leave of Absence.  For purposes
of this Option, the following events shall not be deemed a termination of
employment: (i) a transfer of employment between any of the Company, a
parent, a subsidiary or any other affiliate of the Company, and (ii) an
approved leave of absence for military service or sickness, or for any other
purpose approved by the Board, if the Holder’s right to re-employment is
guaranteed by a statute, by contract or under the policy pursuant to which the
leave of absence was granted, or if the Board otherwise so provides in writing.

 

10.           Investment Intent.

 

(a)           The
Holder of this Option, by acceptance hereof, acknowledges that this Option and
the Shares to be issued upon exercise hereof (collectively, the “Securities”)
are being acquired for the Holder’s own account for investment purposes only
and not with a view to, or with any present intention of, distributing or
reselling any of such Securities.  The
Holder acknowledges and agrees that the Securities have not been registered
under the Securities Act or under any state securities laws, and that the
Securities may not be, directly or indirectly, sold, transferred, offered for
sale, pledged, hypothecated or otherwise disposed of without registration under
the Securities Act and registration or qualification under applicable state
securities laws, except pursuant to an available exemption from such
registration.  The Holder also
acknowledges and agrees that neither the Securities Exchange Commission (“SEC”)
nor any securities commission or other governmental authority has: (i) approved
the transfer of the Securities or passed upon or endorsed the merits of the
transfer of the Securities; or (ii) confirmed the accuracy of, determined
the adequacy of, or reviewed this Option. 
The Holder has such knowledge, sophistication and experience in
financial, tax and business matters in general, and investments in securities
in particular, that it is capable of evaluating the merits and risks of this
investment in the Securities, and the Holder has made such investigations in
connection herewith as it deemed necessary or desirable so as to make an
informed investment decision without relying upon the Company for legal or tax
advice related to this investment.

 

(b)           The certificates
evidencing any Shares issued upon the exercise of this Option shall have
endorsed thereon (except to the extent that the restrictions described in any
such legend are no longer applicable) the following legend, appropriate
notations thereof will be made in the Company’s stock transfer books, and stop transfer instructions reflecting these
restrictions on transfer will be placed with the transfer agent of the Shares.

 

THE
SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), OR APPLICABLE STATE SECURITIES
LAWS.  THESE SECURITIES MAY NOT BE
SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO REGISTRATION
UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE
STATE SECURITIES LAWS, OR PURSUANT TO AN AVAILABLE EXEMPTION THEREFROM.  NO TRANSFER OF THE SECURITIES REPRESENTED
HEREBY MAY BE MADE IN THE ABSENCE OF SUCH REGISTRATION OR QUALIFICATION
UNLESS THERE SHALL HAVE BEEN DELIVERED TO THE ISSUER A WRITTEN OPINION OF
UNITED STATES 

 

6

 

COUNSEL
OF RECOGNIZED STANDING, IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER,
TO THE EFFECT THAT SUCH TRANSFER MAY BE MADE WITHOUT REGISTRATION OF SUCH
SECURITIES UNDER THE SECURITIES ACT AND REGISTRATION OR QUALIFICATION UNDER
APPLICABLE STATE SECURITIES LAWS.

 

11.           Covenants
of the Company.  The Company
covenants and agrees that the Shares have been duly authorized and, when issued
and paid for in accordance with the terms of this Agreement, will be validly
issued, fully paid and non-assessable shares of Common Stock with no personal
liability resulting solely from the ownership of such shares and will be free
and clear of all liens, charges, restrictions, claims and encumbrances imposed
by or through the Company.

 

12.           Replacement
of Option.  On receipt of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Option and, in the case of loss, theft or destruction, on
delivery of an indemnity agreement reasonably satisfactory in form and
substance to the Company or, in the case of mutilation, on surrender and
cancellation of this Option, the Company at its expense shall execute and
deliver, in lieu of this Option, a new Option of like tenor and amount.

 

13.           Notices.  All notices hereunder shall be sufficiently
given for all purposes hereunder if in writing and delivered personally, sent
by documented overnight delivery service or, to the extent receipt is
confirmed, telecopy, telefax or other electronic transmission service to the
appropriate address or number as set forth below:

 

If to the Company:

 

National
Health Partners, Inc.

120
Gibraltar Road

Suite 107

Horsham,
PA 19044

Attention:  Chief Financial Officer

 

If to the Holder:

 

To the address specified for Holder in the
Company’s records.

 

14.           Amendment and Waiver.  This Option may not be amended, modified or
supplemented except by an instrument or instruments in writing signed by the
party against whom enforcement of any such amendment, modification or
supplement is sought.  The parties hereto
entitled to the benefits of a term or provision may waive compliance with any
obligation, covenant, agreement or condition contained herein.  Any agreement on the part of a party to any
such waiver shall be valid only if set forth in an instrument or instruments in
writing signed by the party against whom enforcement of any such waiver is
sought.   No failure or delay on the part
of any party hereto in the exercise of any right hereunder shall impair such
right or be construed to be a waiver of, or acquiescence in, any breach of any
representation, warranty, covenant or
agreement contained herein.

 

7

 

15.           Headings;
Definitions.  The section headings contained
in this Option are inserted for convenience of reference only and will not
affect the meaning or interpretation of this Option.  All references to sections contained herein
mean sections of this Option unless otherwise stated.  All capitalized terms defined herein are
equally applicable to both the singular and plural forms of such terms.

 

16.           Successors and
Assigns.  This Option shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and assigns, provided, however, that no party hereto may
assign its rights or delegate its obligations under this Option without the
express prior written consent of the other party hereto.  Nothing in this Option is intended to confer
upon any person not a party hereto (and their successors and assigns) any
rights, remedies, obligations or liabilities under or by reason of this Option.

 

17.           Severability.  If any provision of this Option or the
application thereof to any person or circumstance is held to be invalid or
unenforceable to any extent, the remainder of this Option shall remain in full
force and effect and shall be reformed to render this Option valid and
enforceable while reflecting to the greatest extent permissible the intent of
the parties.

 

18.           Governing Law.  This Agreement shall be governed by and
construed in accordance with the laws of the Commonwealth of Pennsylvania,
without regard to the laws that might otherwise govern under applicable
principles of conflicts of laws thereof.

 

19.           Counterparts.  This Agreement may be executed and delivered
by facsimile in two or more counterparts, each of which shall be deemed to be
an original, but all of which together shall constitute one and the same
agreement.

 

[Remainder of page intentionally
left blank]

 

8

 

IN WITNESS
WHEREOF, the Company and Holder have caused this Option to be executed as of
the date set forth above in Section 1 of this Option.

 

 

	
   

  	
  NATIONAL HEALTH
  PARTNERS, INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
   /s/ Alex Soufflas

  
	
   

  	
   

  	
  Alex Soufflas

  
	
   

  	
   

  	
  Chief Financial Officer

  
	
   

  	
   

  
	
  AGREED AND ACCEPTED:

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
   /s/ David M. Daniels

  	
   

  	
   

  
	
   

  	
  David
  M. Daniels

  	
   

  
					

 

9

 

APPENDIX A

 

NOTICE OF EXERCISE

 

	
  To:

  	
   

  	
  National
  Health Partners, Inc.

  
	
   

  	
   

  	
  120
  Gibraltar Road

  
	
   

  	
   

  	
  Suite 107

  
	
   

  	
   

  	
  Horsham,
  PA 19044

  
	
   

  	
   

  	
  Attention: Chief Financial Officer

  

 

(1)           The undersigned hereby
elects to purchase                           
shares of Common Stock of the Company pursuant to the terms of the attached
Option, and tenders herewith payment of the purchase price for such shares in
full in accordance with the terms of the Option in the following manner (please
check one or more of the following choices):

 

o            in cash or by check;

 

o            an irrevocable and unconditional
undertaking by a creditworthy broker to deliver sufficient funds to pay the
exercise price and any required tax withholding;

 

o            a copy of irrevocable and unconditional
instructions to a creditworthy broker to deliver the exercise price and any
required tax withholding;

 

o            a promissory note;

 

o            a reduction of the number of shares of
Common Stock otherwise issuable under the Option by a number of shares of
Common Stock having a Fair Market Value equal to such aggregated exercise
price; or

 

o            the following consideration:                                                                         .

 

(2)           In exercising the
Option, the undersigned hereby confirms and acknowledges that the shares of
Common Stock to be issued upon conversion thereof are being acquired solely for
the account of the undersigned for investment purposes only (unless such shares
are subject to resale pursuant to an effective registration statement or an
exemption from registration under applicable federal and state securities laws),
and that the undersigned will not offer, sell or otherwise dispose of any such
shares of Common Stock except under circumstances that will not result in a
violation of the Securities Act or any state securities laws.

 

(3)           Terms not otherwise
defined in this Notice of Exercise shall have the meanings ascribed to such
terms in the attached Option.

 

(4)           Please issue a
certificate or certificates representing said shares of Common Stock in the
name of the undersigned.

 

	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  (Date)

  	
   

  	
  (Signature)

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