Document:

EXHIBIT 10.01

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

MANUFACTURING AGREEMENT

 

THIS MANUFACTURING AGREEMENT (“Agreement”) is entered into as of May 30,
2005 (the “Effective Date”) by and
between Allos Therapeutics, Inc., a corporation duly organized and
existing under the laws of the State of Delaware, having an address at 11080
Circle Point Road, Suite 200 Westminster, CO 80020-2778 (“Allos”), and Hovione Inter Limited, a Swiss
Corporation, with its principal place of business in Luzern, Switzerland  (“Hovione”).
Allos and Hovione are sometimes hereinafter each referred to as a Party
(collectively “Parties”) to this
Agreement.

 

BACKGROUND

 

A.                                  Hovione
possesses the necessary facilities, equipment, manufacturing technology,
professional expertise, personnel, and capacity to manufacture API and to
furnish Allos with a continuing API supply, and desires to undertake API
manufacturing for Allos and Allos desires to have Hovione manufacture the API
for Allos.  

 

B.                                  The
Parties executed a term sheet on March 25, 1999 providing the principal
terms under which Hovione would manufacture and supply certain of Allos’s
requirements of API (the “Term Sheet”).  By a letter dated January 11, 2000 the
Parties confirmed their understanding set forth in the Term Sheet and agreed
that the Term Sheet would serve as an interim supply agreement.  The Term Sheet was entered into by the
Parties with the understanding that such principal terms would be subject to
the negotiation and preparation of a final agreement of the complete and definitive
terms.  

 

C.                                  The
Parties have now negotiated such definitive terms under which Hovione will
Manufacture API for Allos.  The terms and
conditions of this Agreement shall govern the supply of API from and after the
Effective Date.

 

NOW, THEREFORE, the Parties hereto, intending to be
legally bound, hereby agree as follows:

 

1.                                      DEFINITIONS

 

All
capitalized words and phrases used in this Agreement shall have the meaning
provided in this Article 1.

 

1.1                               “AAA” means the American Arbitration
Association.

 

1.2                               “Affiliate” means any person, organization,
or entity that is, directly or indirectly, controlling, controlled by, or under
common control with a Party. The term “control” (including, with correlative
meaning, the terms “controlled by” and “under common control with”), as used
with respect to any person or entity, means the possession, directly or
indirectly, of the power to direct, or cause the direction of, the management
and policies of such person, organization, or entity, whether through the
ownership or control of voting securities (or their voting power) or by
contract, or court order, or otherwise. The ownership of voting securities of a
person, organization, or entity shall not, in and of itself, constitute “control”
for purposes of this

 

 

definition, unless said
ownership is of a majority of the outstanding securities entitled to vote of
such person, organization, or entity.

 

1.3                               “Allos Indemnitees” has the meaning set
forth in Section 13.1.

 

1.4                               “API Improvements” means inventions,
discoveries or improvements related to the API (including API Related
Compounds) or API Manufacturing (including analytical methods, manufacturing
processes, API formulations and packaging) that Hovione invents, develops or
discovers, conceives, reduces to practice, in connection with or arising from
its activities under this Agreement (including during the period since the
effective date of the Term Sheet) or from its access to the Allos Confidential
Information, whether patentable or not and whether alone or jointly with
others.

 

1.5                               “API Related Compound(s)” means the API and
any other compound covered by patents owned or licensed to Allos, including
their salts, acids, esters, and non-covalent derivative (e.g., complex, chelate, or clathrate of
such compound).

 

1.6                               “API” means the proprietary compound known
as RSR-13 (efaproxiral), Chemical Name:  2-[-[[(3,5-Dimethylanilino)carbonyl]methyl]phenoxy]-2-methylpropionic
acid] and its sodium salt.

 

1.7                               “Applicable Laws and Regulations” means
collectively all laws, regulations, ordinances, decrees, judicial and administrative
orders, policies and other requirements of each of the Regulatory Authorities
applicable to the manufacture, sale, labeling, use, marketing, distribution,
import, export, price or reimbursement of the Services or API.  Applicable Laws and Regulations shall
include, but are not limited to, the U.S. Federal Food, Drug &
Cosmetic Act and regulations administered by the FDA (specifically including,
but not limited to 21 C.F.R. Parts 11, 210 and 211) and the following to the
extent not in conflict with any laws or regulations that are issued or enforced
by the FDA and other Regulatory Authorities as in effect during the provision
of and applicable to API Manufacturing and Services:  (a) USP/NF/EP and other applicable
compendia standards; (b) guidance documents (including Guidelines, Points
to Consider, Inspection Technical Guides, International Conference on
Harmonization “Step 4 and 5” documents), and (c) current good
manufacturing practices as accepted without object in the pharmaceutical
industry for the manufacture of a sterile API.

 

1.8                               “Benchmark Rate” means [ * ] Euro per 1.00 U.S. dollar.

 

1.9                               “Campaign Plan” has the meaning set forth in
Section 4.1.

 

1.10                        “CIF” means “Cost, Insurance and Freight” as provided for under
Incoterms 2000 promulgated by the International Chamber of Commerce.

 

1.11                        “CMC” means the Chemistry,
Manufacturing and Controls portion of an IND, NDA or Drug Master File.

 

1.12                        “Commercial Supply Phase” means all activities and API lots
manufactured after the Launch Phase.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

2

 

1.13                        “Confidential Information” has the meaning set forth in the Nondisclosure Agreement.

 

1.14                        “Corporate Partner” means any organization to whom Allos grants
the right, whether by license or otherwise, to manufacture and sell the
Product. 

 

1.15                        “Delivery Failure” has the meaning set forth in Section 6.1(e).

 

1.16                        “Delivery Forecast” has the meaning set forth in Section 4.2.

 

1.17                        “Drug Master File” means a confidential submission by one Party
describing the Specifications (including composition and methods of
manufacture) for a product or activity made or performed by one Party that is
made available for confidential review by a Regulatory Authority in connection
with its review or approval of a Regulatory Submission for the other Party
where disclosure of such information in the Regulatory Submission of that Party
is undesired.

 

1.18                        “Effective Date” has the meaning assigned to such term in the
preamble.

 

1.19                        “Equivalent Third Party” means a third party contract
manufacturer that:  (a) is
registered with the FDA as an Active Pharmaceutical Ingredient manufacturing
facility; (b) has had experience in the manufacture of injectable grade
Active Pharmaceutical Ingredients; and (c) has successfully completed a
pre-approval inspection with the FDA for an injectable grade Active
Pharmaceutical Ingredient.

 

1.20                        “Exchange Rate” means the three (3) month average exchange
rate of the Euro per U.S. dollar, as published in The Wall Street Journal on the last business day of each
calendar quarter.

 

1.21                        “Exclusivity Period” has the meaning set forth in Section 12.5.

 

1.22                        “Facility” means the specific premises identified in Attachment B
under “8. Facilities.”

 

1.23                        “FDA” means the United States Food and Drug Administration, or
any successor thereto.

 

1.24                        “FD&C Act” means the United States Food, Drug and Cosmetic
Act, as amended from time to time.

 

1.25                        “Force Majeure” has the meaning set forth in Section 16.4.

 

1.26                        “Forecast” means a written statement of Allos’s anticipated
purchase requirements prepared and delivered to Hovione as provided in Sections 3.1, 4.1 or 4.2(a).

 

1.27                        “Generic Methods” has the meaning set forth in Section 12.5.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

3

 

1.28                        “Hovione Indemnitees” has the meaning set forth in Section 13.2.

 

1.29                        “Hovione Quality System” means the procedures and controlled
documentation that HOVIONE has in place at its Facility during the Term that are
necessary to evidence compliance with FDA current good manufacturing Practices requirements and all ICH guidelines, as well as any other requirements necessary to Manufacture API.

 

1.30                        “Hovione References” has the meaning set forth in Section 9.5.

 

1.31                        “Hovione Regulatory Documents” has the meaning set forth in Section 9.5.

 

1.32                        “IND” means an investigational new drug application filed with
the FDA, in order to commence human clinical testing of a drug.  

 

1.33                        “In-Process API” means partially synthesized API, which
includes compounds in the intermediate manufacturing steps subsequent to the
first modification of the Raw Materials and before the final modification to
the API.

 

1.34                        “Intellectual Property Rights” means without limitation all
proprietary rights under any and all patent, patent applications, trade secret,
copyright, trademark trade dress, and other proprietary rights, in any
discoveries, inventions, ideas, improvements, works, compilations and all
interests and title in the materials, information, technology, methods,
processes, specifications, data, records, results, and documentation.

 

1.35                        “Launch Phase” means all activities and API lots manufactured
after the Effective Date and prior to the [ *
] of Allos’ receipt of Marketing Approval by the FDA or European
Medicines Agency.

 

1.36                        “Loss” and “Losses”
means any and all claims, liabilities, losses, costs, damages and expenses
(including, without limitation, reasonable attorneys’ fees and legal and court
costs) together with any related interest, fines and penalties.

 

1.37                        “Lot” means one (1) discrete quantity of API as that term
is defined under 21 CFR §210(b)(10).

 

1.38                        “Manufacturing” means any pharmaceutical procedures conducted
to produce the API, including processing, packing, labeling, holding, testing,
and quality control of the API, the Raw Materials and In-Process API, and
actions taken to comply with Applicable Laws and Regulations and this Agreement
(e.g., validation of process,
facilities, equipment, methods and operations).

 

1.39                        “Manufacturing Forecast” has the meaning set forth in Section 4.1.

 

1.40                        “Marketing  Approval”
means an approval by the FDA to commence commercial marketing and distribution
for the Product, and comparable foreign equivalents, including amendments and
supplements to such Marketing Approvals.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

4

 

1.41                        “Master Batch Record” means the then-current procedures to be
followed by Hovione with respect to the manufacture of API, and the handling
and storage of API, as separately set forth and agreed upon by the parties from
time to time during the term of this Agreement.

 

1.42                        “Material Safety Data Sheet” or “MSDS” means the written description of safety information on
the API for use by persons engaged in API Manufacturing.

 

1.43                        “Methods of Analysis” means the analytical methods to be used
in testing API for compliance with the API Specifications as set forth in the
Quality Agreement, as amended from time to time.

 

1.44                        “NDA” means a New Drug Application for Marketing Approval filed
in the United States.

 

1.45                        “Nondisclosure
Agreement” has the meaning set forth in Section 12.1.

 

1.46                        “Out of Specification” or “OOS”
means failure of the API to meet the Specifications.

 

1.47                        “Planning Forecast” has the meaning set forth in Section 4.1.

 

1.48                        “Product” means the human pharmaceutical product containing the
API.

 

1.49                        “Production  Fee”
means the fees charged by Hovione in connection with API Manufacturing and
Services, including, without limitation, the disposal of Wastes.

 

1.50                        “Production Materials” has the meaning set forth in Section 9.3.

 

1.51                        “Project Manager” means the individuals identified in Attachment A as
the Project Managers for Hovione and Allos.

 

1.52                        “Purchase Order” means a written order for Hovione to
manufacture and/or deliver and Allos to purchase a specific quantity of API. 

 

1.53                        “Quality Agreement” means the document mutually agreed upon by
the Parties, pursuant to Section 9.2,
as may be amended from time to time, containing the policies, procedures, and
standards by which the Parties will coordinate and implement the operational
and quality assurance activities needed to efficiently achieve regulatory
compliance objectives.  

 

1.54                        “Quality Control Release Date” has the meaning set forth in Section 7.3.

 

1.55                        “Raw Material” means the compounds, water, solvents, reagents
and other materials and supplies, including disposable manufacturing equipment
and labeling and packaging materials used in Manufacturing.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

5

 

1.56                        “Record” means all documents, reports, data, data listings,
charts, process control/monitoring commands and data summaries, logs, notes,
standard operating procedures, Master Batch Records, lot batch records,
analyses, correspondence, notes, memorandum, (including, without limitation, production
and quality assurance and quality control documentation) and other items
containing information or data related to API Manufacturing and Services,
whether in paper or electronic form, including originals and copies, including
without limitation all items that would be considered “records” under any
Applicable Laws and Regulations.

 

1.57                        “Regulatory Authority” means the multinational, federal,
regional, state and local government authorities (including public,
quasi-public and private bodies contracted, certified or authorized by such
governmental bodies) in a country or other jurisdiction with authority to
regulate, approve, license, inspect, review or otherwise control or supervise
the manufacture, sale, labeling, use, marketing, distribution, import, export,
price or reimbursement for the Services or API, including but not limited to
the FDA and its counterparts in the European Union and Japan.

 

1.58                        “Regulatory Submission” means any document, correspondence,
data, article, certifications, physical samples that are, or that are required
to be, delivered or made available for inspection or review by any Regulatory
Authority in connection with any Service or otherwise in connection with the
activities carried out by either Party relating to this Agreement, specifically
including but not limited to applications, dossiers or reports supporting the
manufacture or use of the Product for investigational or commercial use,
including any INDs, NDAs, Drug Master Files, field reports, annual reports,
adverse event and corrective action reports, and export approvals, change being
effected reports, information packages for meetings with the Regulatory
Authorities and any amendments, supplements, corrections, and updates.

 

1.59                        “Services” mean, collectively unless context indicates
otherwise, all formulation and process development, regulatory, manufacturing,
testing and other services provided, and to be provided by Hovione under this
Agreement.

 

1.60                        “Specifications” mean the characteristics and qualities
established by the Parties in writing and with which a API Lot or Service
(including reference standards, In-Process API, and Raw Materials) must conform
including but not limited to all conditions of and procedures to be used in its
Manufacture, (e.g., Master Batch
Records, production, sampling, testing, packaging, storage and shipment
standard operating procedures,
production environment standards, chemical names, formulas, and other
instructions, approved vendors/SKUs/grades, release criteria and associated
analytical methods).  Where no
Specification has been established by the Parties, the Specifications may be
those that that are reasonably established in compliance with Applicable Laws
and Regulations and the Quality Agreement.

 

1.61                        “Technology Transfer Fee” means the fees to be paid to Hovione
in connection with a technology transfer.

 

1.62                        “Term” means the period commencing on the Effective Date and
ending as provided in this Agreement (unless extended as otherwise provided in
this Agreement).

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

6

 

1.63                        “Term Sheet” has the meaning assigned to such term in the
preamble.

 

1.64                        “Waste” means all waste, as defined by Applicable Laws and
Regulations and all non-hazardous waste, to the extent arising out of API
Manufacturing and Services, including without limitation, rejected or unusable
Raw Materials, In-Process API or API, disposable manufacturing equipment and
materials (including chromatography matrix, solvents, excess buffers or rinses,
filters, gowns and other consumables).

 

2.                                      PROJECT
MANAGEMENT

 

2.1                               Project Managers.  Each Party shall designate a representative
with authority as to technical matters to serve as the primary contact for the
other Party about the API and the Parties’ relationship under this
Agreement.  Each Project Manager shall be
responsible for obtaining cooperation and input from other individuals within
such Project Manager’s organization whose expertise and ability may be required
from time to time to maximize the potential for successful collaboration under
this Agreement.  The Project Managers
shall develop procedures to optimize communication and collaboration between
the Parties.  The Project Managers will
communicate regularly during the Term at mutually agreeable times, and, when
necessary, hold meetings at mutually agreeable places, to review project
management and status. The Project Manager shall be a member of the Steering
Committee described in Section 2.2
below.

 

2.2                               Steering Committee.  A Steering Committee, consisting of the
Project Managers and at least one (1) senior management representative
from each Party, shall meet periodically during the Term, but on at least an
annual basis.  The Steering Committee
shall:  (a) oversee and provide
management direction for the achievement of the objectives of this Agreement; (b) review
the Services to be performed and API to be provided under this Agreement; (c) review
requests by Regulatory Authorities, or a Party, to changes in or additions to
the Services to be performed, to the extent not addressed by the Project
Managers; (d) provide guidance regarding planned or anticipated events in
each Party’s business or operations that might affect the work conducted under
the contract changes; (e) review of any materially adverse regulatory
matters affecting this Agreement, the Services or API; (f) review and
resolve all matters not satisfactorily addressed by the Project Managers; and (g) review
production reports periodically prepared by Hovione pursuant to Section 2.3, and recommend to the
Parties corrective actions as necessary. 
Hovione shall implement in accordance with this Agreement such changes
as may be recommended by the Steering Committee following its review of Hovione’s
periodic production reports.

 

2.3                               Monthly Progress &
Budget Reports.  Each month, Hovione
shall provide Allos with a written production status report describing the
following:

 

(a)                                  Activity
Progress.  Progress on completion of
outstanding obligations (e.g.,
production runs, process development, validation, stability data, Regulatory
Submissions, and pending corrective actions). 
The status report shall indicate Hovione’s progress toward task or
delivery milestones relative to planned completion schedules. 

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

7

 

(b)                                  Inventories.  Current inventory of API, In-Process API, Raw
Materials, safety stock and reference standards.  

 

(c)                                  Computer
Access.  Notwithstanding Hovione’s
written reporting obligations set forth in subsections (a) and (b) above,
Hovione and Allos acknowledge the benefit of and will work towards Allos having
on-going, on-line access to a secure part of Hovione’s computer systems that
shall enable Allos to obtain the information described above under subsections (a) and/or
(b).  If computer access is made
available to Allos, Hovione will provide reasonable assistance and training to
Allos to ensure that:  (i) on-line
access is adequately established and maintained at Allos’s facilities; and (ii) the
appropriate Allos personnel are able to access such information.

 

2.4                               Adverse Issues &
Corrective Actions.  Hovione shall
inform Allos promptly of any events that might materially affect the ability of
Hovione to timely and fully perform and/or deliver any Services or API or
otherwise affect the established schedule or budgets, including any
unexpected adverse final or interim results or data from validation, stability
or other studies.  The status report also
shall fully describe all Out of Specification (“OOS”) and out of trend events, failure investigations, process
deviations, batch failures and similar matters, as well as the corrective or
other actions to be taken by Hovione. 
Hovione shall conduct periodic review of production records, on at least
an annual basis, including trend analysis of batch production records and other
process data, and prepare a report for submission to the Steering Committee
summarizing Hovione’s findings, conclusions and recommendations.  

 

3.                                      LAUNCH
PHASE

 

3.1                               Forecasts and
Orders.  During the Launch Phase,
Allos shall provide Hovione with Forecasts of its expected requirements of API,
on a regular basis, but in no event updated less frequently than once every [ * ] months.  Allos may submit Purchase Orders for such
quantities of API indicated in such Forecasts no less than [ * ] months prior to the requested
delivery date or as may be agreed upon by the Parties.  Within ten (10) days of receipt of a
Purchase Order from Allos, Hovione shall notify Allos in writing of Hovione’s
acceptance of such Purchase Order.  The
minimum campaign size requirement as set forth in Attachment B under “3. Minimum API Lot Sizes for Pricing,”
for the Launch Phase Purchase Orders shall apply. 

 

3.2                               Order Fulfillment.  Following payment by Allos of a
non-refundable pre-payment amount equal to [
* ] of the applicable Purchase Order value, Hovione shall be
obligated to deliver the required quantity of API indicated in such Purchase
Order within a [ * ] month period
thereafter; provided that the
amount ordered does not exceed [ * ].  If the amount of API ordered is greater than [ * ], then Hovione shall only be obligated
to deliver an initial [ * ] within
[ * ] months and not less than [ * ] thereafter until the total quantity
of the Purchase Order has been fulfilled. 
Allos shall be free to cancel all or part of any outstanding Purchase
Order prior to Allos’ payment of the [ * ]
pre-payment amount by providing written notice to Hovione of such
cancellation.  Hovione shall be free to
Manufacture and deliver the API from any Facility that has been approved by
Allos and validated.  If Allos requests
in writing that Hovione use its best efforts to deliver any ordered quantities
of API earlier than the agreed [ * ]
delivery delay

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

8

 

period, Hovione will be
entitled to receive an additional amount equal to [ * ] of the invoice value of such quantity for each [ * ] that early delivery occurs prior to
the original [ * ] lead time
delivery date.

 

3.3                               Order Cancellation.  Allos may cancel all or part of any outstanding
Purchase Order submitted under Section 3.1
by providing Hovione written notice; provided,
however, that if such cancellation occurs after Allos has paid the [ * ] pre-payment amount, Hovione shall be
entitled to retain the pre-payment amount. 

 

4.                                      COMMERCIAL
PHASE FORECASTS AND PURCHASE ORDERS

 

4.1                               Planning Forecasts.  On or before July 31 of each year
during the Commercial Supply Phase, Allos shall submit to Hovione (a) a
forecast of Allos’s estimated requirements for API for each of the next [ * ] (each, a “Planning Forecast”) and (b) [ * ] forecast projecting estimated quantities that will be
ordered by Allos during the following [ * ]
(each, a “Manufacturing Forecast”)
split over [  * ] calendar quarters.  All estimates set forth in Planning Forecasts
and Manufacturing Forecasts shall not constitute a contractual commitment by
Allos for such quantities; however,
such estimates shall constitute Allos’s anticipated maximum level of demand and
utilization of capacity for API production, subject to Section 4.3(c), and Hovione may use
such estimates for facilities, personnel, production and campaign scheduling
and budget planning purposes.  The
Parties agree that each annual Manufacturing campaign undertaken by Hovione
shall be no smaller than that stated in Attachment B under “3. Minimum API Lot Sizes for Pricing,”
and that Hovione may produce a campaign of any amount that is supported by
Allos’ Planning and Manufacturing Forecasts. 
No less than [ * ] prior to
the start of the annual campaign, Hovione shall inform Allos of its proposed
format, quantity and calendar (“Campaign Plan”).  Should Allos require that the campaign be any
different than proposed, it shall notify Hovione in writing no less than [ * ] prior to its planned conclusion and
Hovione will use good faith efforts to adjust the campaign in accordance with
Allos’ request.  If requested by Hovione,
Allos shall promptly issue Purchase Orders in amounts that justify the
requested changes to the Campaign Plan. 

 

4.2                               Delivery Forecast.  [ * ]
before each [ * ] during the
Commercial Supply Phase, Allos shall provide Hovione with an [ * ] written rolling Forecast of the
estimated total amount of API that Allos anticipates it will order from Hovione
(“Delivery Forecast”).

 

(a)                                  The first [ * ] of each Delivery Forecast shall be
firm commitments as to quantities and month for delivery.  The
[ * ] of a Delivery Forecast shall
be non-binding estimates for informational purposes only.  Allos may revise the estimated portions of
Delivery Forecast [ * ] as and
when it deems appropriate.  Pricing shall
be based on the first [ * ] of the
Delivery Forecast submitted for the beginning of each [ * ], with corrections made upon the
delivery of the Purchase Order for the [ * ],
unless annual pricing thresholds are exceeded by earlier Purchase Orders.

 

(b)                                  Allos shall
provide to Hovione the first Planning Forecast for the Commercial Supply Phase
within [ * ] after the date Allos
first submits a Regulatory Submission to apply for Marketing Approval in any
country.  

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

9

 

(c)                                  No later than [ * ] after receipt of either a
Manufacturing Forecast or Planning Forecast from Allos, Hovione shall inform
Allos in writing if it will be able to furnish the estimated quantities of API
in the manner and schedule set forth in said Forecasts, and if unable to
fulfill the Forecasts the reasons why the Forecasts cannot be fulfilled.

 

4.3                               Purchase Orders.

 

(a)                                  During the Term,
Allos shall purchase and Hovione shall supply at least the percentage of Allos’s
annual API requirements stated in Attachment B under “1. API Purchase/Supply Minimums.”

 

(b)                                  During the
Commercial Supply Phase, Allos shall provide Hovione with Purchase Orders on
Allos’s forms for [ * ] at least [ * ] before the start of such [ * ]. 
Each Purchase Order shall be formally accepted by Hovione within [ * ] of its transmission, and shall not be
rejected unless Allos has either not observed the [ * ] of each Delivery Forecast (subject to Section 4.3(c)) or materially breached
the Agreement and despite written notice from Hovione has failed to cure such
breach.  Any Purchase Order not rejected
by Hovione within [ * ] shall be
deemed accepted.  If there is a conflict
between the terms contained in this Agreement and the terms contained in any of
Allos’s standard form Purchase Orders, any delivery documents or in Hovione’s
acceptance documents, the terms of this Agreement shall govern.

 

(c)                                  Each Purchase
Order submitted to Hovione by Allos shall state the specific quantities of API
requested by Allos, which shall be based on API batch sizes, the expected
minimum size of which is provided in Attachment B under “3. Minimum API Lot Sizes for Pricing,”
and shall include the expected delivery date(s) for such quantity of API ordered.  Subject to Hovione’s written consent, which
shall not be unreasonably withheld, the aggregate Purchase Orders for a [ * ] shall not be less than [ * ] nor more than [ * ] of the amount estimated for that [ * ] in the most recent Delivery Forecast
for that quarter; provided, that
Hovione shall use its commercially reasonable efforts to timely supply Purchase
Orders in excess of [ * ] of the
applicable Delivery Forecast.  Deliveries
against Purchase Orders shall be made on the dates specified in the Purchase
Order.

 

(d)                                  During the
Commercial Supply Phase, Allos shall notify Hovione if Allos desires to cancel
or reduce the quantities of API ordered in a Purchase Order that has been
accepted by Hovione.  If such
notification is provided to Hovione less than [
* ] prior to the requested delivery date for API contained in such
Purchase Order, Allos shall be solely liable to Hovione for:  (i) losses actually incurred (as
evidenced by written documentation) because of the underutilization of the
operational portion of the Facility that would have ordinarily been used in API
Manufacturing but could not be rescheduled for other uses, and (ii) the
costs of Raw Materials purchased by Hovione to Manufacture that Purchase Order
(including Waste disposal costs) that could not be returned for credit or
refund by Hovione or that could not be used by Hovione for other purposes,
including subsequent API Manufacturing. 
Such losses for each cancelled kilogram of API shall not exceed the
amount set forth in Attachment B
for that quantity of API.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

10

 

(e)                                  If, in Allos’
sole discretion, at the time of placing a Purchase Order, Allos pays to Hovione
a non-refundable pre-payment equal to [ * ]
of the value of such Purchase Order, then Hovione will be deemed to have
expressly waived the Commercial Phase minimum campaign size requirement set
forth in Attachment B
under “3. Minimum API Lot Sizes for Pricing,”
in connection with such Purchase Order and Allos shall have the right to cancel
all or part of such Purchase Order; provided,
however, that in no event shall Hovione be required to produce any
campaign smaller than the minimum Launch Phase campaign size requirement set
forth in Attachment B
under “3. Minimum API Lot Sizes for Pricing,”
in connection with any other Purchase Order. 
If Allos cancels the quantities of API ordered in a Purchase Order,
Hovione will retain the pre-payment amount and the payment obligations
contained under Section 4.3(d) above
will not apply.  Notwithstanding the
foregoing, Hovione retains the right to cancel the terms of this Section 4.3(e) upon [ * ] prior written notice to Allos.

 

(f)                                    Hovione, on at
least a monthly basis, shall provide Allos with a written schedule of all
then-outstanding accepted Purchase Orders for API, including the expected
delivery date(s).  If the Parties
establish access to Hovione’s computer systems as provided in Section 2.3(c) above, Allos will
also be able to obtain on-line information on the then-outstanding accepted Purchase
Orders for API, including the expected delivery date(s).  If such computer access is made available to
Allos, Hovione will provide reasonable assistance and training to Allos to
ensure that:  (i) on-line access is
adequately established and maintained at Allos’s facilities; and (ii) the
appropriate Allos personnel are able to access such information.

 

5.                                      FEES,
INVOICING & PAYMENT

 

5.1                               Pre-Commercial Projects.  In satisfaction of Allos’s payment
obligations under the Term Sheet for Services and API provided by Hovione to
Allos prior to the Effective Date, Allos shall pay to Hovione a final amount
equal to [ * ].  Such payment shall be made by Allos within
fifteen (15) days of the successful response by the Parties to any and all
inquiries from the FDA regarding the CMC. 

 

5.2                               API Supply.  During the Launch Phase and Commercial Supply
Phase, Hovione shall be paid for the Services and API Manufacturing in
accordance with the price schedule provided in Attachment B under “2.
API Pricing.”  All amounts
specified in Attachment B are for supply of API by Hovione
delivered pursuant to Section 6.1(b) below.  

 

5.3                               Invoicing.                                           Hovione
may invoice Allos for all released API Lots upon shipment as per the delivery
dates indicated in the applicable Purchase Order.  Any API Lots Manufactured but not shipped
because such API Lots are to be maintained as safety stock pursuant to Section 7.3, shall be invoiced, at
Hovione’s option, either on (a) one hundred and eighty (180) days of the
Quality Control Release Date or (b) one hundred and eighty (180) days
after the delivery date(s) set out in the applicable Purchase Order. 

 

5.4                               Payment.  Subject to Section 5.1,
payment of all Purchase Order pre-payments and undisputed invoices shall be
delivered by wire transfer in U.S. dollars to the accounts provided in Attachment B  under “7.
Wire Instructions.”  Payment
of undisputed amounts shall be made within thirty (30) days of the invoice
date.  Payment shall be considered
received once

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

11

 

funds become available to
Hovione, or Hovione’s agent, at its bank account in a USA located bank.  Except for the fault of Allos, payment
delivery shall be deemed to occur no later than 24-hours after the transmission
of the Allos payment.  In the case one
invoice is in dispute, its payment shall not affect settlement of other
outstanding and due invoices.  Repeated
delay in settlement of invoices will entitle Hovione to only ship against
confirmed letter of credit terms.

 

5.5                               No Liens.  Hovione shall ensure that all API Lots are
delivered free of any liens.  Hovione has
the option to arrange invoicing by any company of the Hovione group or by its
agents if Allos first provides its written consent to such invoicing
arrangement, which consent shall not be unreasonably withheld.  Any person seeking payment from Allos shall
be subject to all defenses, claims and rights that Allos might have against
Hovione, and Hovione shall be responsible for the actions of such other
person.  Hovione shall have no set-off
rights or remedy against Allos in the event that Hovione’s agent fails to remit
payments received from Allos.

 

5.6                               Change In Circumstance.  The costs and fees provided in this Agreement
are based on current experience and do not take into account items that are
unforeseeable (such as unexpected issues in the API development, materials
changes in the regulations, FDA’s views, toxicity of the API or the process, or
legislation (e.g., health, safety
or environment).  The Parties shall
negotiate in good faith any changes to the pricing set out in Attachment B
should unforeseen dramatic changes occur that cause a substantial hardship to
either Party.

 

5.7                               Currency &
Taxes.  All shipments of API shall be
invoiced in United States dollars and all payments therefore shall be made in
United States dollars.  Hovione shall be
responsible for all Portuguese and Macau taxes (including, but not limited to,
VAT, sales, income, export duties, income, social security and withholding
taxes) and workers’ compensation and unemployment insurance with respect to the
Manufacturing of API and performance of Services in Portugal or in Macau under
this Agreement.  Allos shall be
responsible for all taxes applicable in the USA and in the other markets where
the API is exported to (including, but not limited to, VAT, sales, income,
import duties, income, social security and withholding taxes) with respect to
this Agreement.

 

5.8                               Exchange Rate Risk.  To share the exchange rate risk, Allos and
Hovione agree that the API prices set forth in Attachment B under “2.
API Pricing” shall be subject to adjustment as follows:

 

(a)                                  If the Exchange
Rate determined at the end of any calendar quarter and the Benchmark Rate
differ by more than [ * ], the API
prices set forth in Attachment
B under “2. API Pricing”
shall be increased or decreased, as appropriate, by an amount equal to [ * ] of the percentage increase or
decrease, as appropriate, in the Exchange Rate relative to the Benchmark Rate,
and such API prices, as adjusted, shall apply to all invoices issued by Hovione
pursuant to Section 5.3
during the immediately succeeding calendar quarter. 

 

(b)                                  If the Exchange
Rate determined at the end of any calendar and the Benchmark Rate differ by [ * ] or less, then no adjustment will be
made to the API prices set forth in Attachment B under “2. API Pricing”, and such API prices, as
set forth in Attachment
B

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

12

 

under “2. API Pricing”, shall apply to all
invoices issued by Hovione pursuant to Section 5.3
during the immediately succeeding calendar quarter. 

 

The following table sets
forth representative examples of the impact of various Exchange Rates:

 

	
  Exchange Rate

  	
   

  	
  % Change from Benchmark Rate

  	
   

  	
  API Price Adjustment

  	
   

  
	
  $1 =

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  
	
   

  	
  € [ * ]

  	
   

  	
  [ * ]

  	
   

  	
  [ * ]

  	
   

  

 

6.                                      DELIVERY
AND ACCEPTANCE

 

6.1                               Delivery Instructions.

 

(a)                                  Release
Confirmation Testing.  Hovione shall
be responsible for conducting all testing required as set forth in the Quality
Agreement prior to the release of any API for shipment as provided in this Section 6.1.  Allos has the right to review all release
testing data as provided in the Quality Agreement and to approve the release of
any API for shipment.  

 

(b)                                  Shipment.  Each API Lot shall be shipped by Hovione CIF
to Allos’s designated Product manufacturer; provided,
however, that (i) API Lots shall be shipped in the mode of
transport provided in the delivery instructions included in each Purchase
Order, which will be air for international and truck for inland shipment, and (ii) Hovione
shall be responsible for all risks and additional normal transport costs that
occur prior to arrival of any shipment at Allos’s designated Product
manufacturer.  API shall be shipped in
accordance with the shipping conditions and procedures established under the
Quality Agreement.  Each API Lot shall be
accompanied by certificates of analysis in a form specified in the Quality
Agreement.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

13

 

(c)                                  Acceptance.  Allos, or its Product manufacturer, shall
promptly initiate acceptance testing of API Lots upon physical receipt of API
Lots.  An API Lot shall be deemed
accepted upon successful completion of acceptance testing, subject to
revocation upon subsequent determination of any latent defects (e.g., subsequent testing, inspections or
audits, stability data, or failure investigations).  However, if the defect would have been
detected by reasonable physical inspection and acceptance testing, and notice
of the defect is not received within ninety (90) days of physical receipt (as
indicated by the airway bill), Hovione will be under no obligation to replace
the Lot.  Allos (and the Product
manufacturer) shall be entitled to rely on the accuracy and validity of Hovione
certificates of analysis and compliance provided with each delivered API
Lot.  Allos shall notify Hovione in
writing of any deficiencies of a received API Lot within five (5) business
days of Allos’s receipt of final test reports for all testing performed on such
Lot by either Allos or its Product manufacturer.

 

(d)                                  Dispute.  At the request of either Party, unresolved
disputes regarding the conformance of an API Lot with its applicable
Specifications will be referred to a mutually acceptable third party referee
laboratory.  The referee laboratory will
conduct testing in accordance with the methods established for testing as set
forth in the agreed Master Batch Record for the API as reflected in the
applicable NDA, CMC or Drug Master File filing, if any.  The costs of the referee testing will be
charged to the Party in error.  Hovione,
if at fault, shall be solely responsible for the prompt replacement of each non-conforming
API Lot, provided that a replacement lot which meets Allos specification
requirements is available for prompt shipment. In the event conforming API is
not then available, Allos may, at it election, require Hovione to refund the
amounts paid or incurred by Allos on account of such rejected API Lot(s).

 

(e)                                  Delivery Failure.  Following a failure by Hovione to deliver the
amounts of API specified in a Purchase Order, where such failure results in
Allos incurring additional costs to obtain the undelivered amounts of API from
an Equivalent Third Party to cover Allos’ requirements (“Delivery Failure”), then, in addition to
any of Allos’s other rights and remedies, Hovione shall reimburse Allos in an
amount equal to the increased cost incurred by Allos in purchasing such
non-delivered API from other vendors. 
The quantity not delivered, and the amount that Allos would have paid
Hovione if it had been delivered shall be included in determining the annual
quantity of API purchased by Allos for purposes of pricing, requirements
purchasing and other matters set forth in Attachment B.

 

6.2                               Title to In-Process and
Finished API.  Title to all
In-Process API shall at all times remain in Hovione, and title to all finished
API shall remain in Hovione until its delivery to Allos’s designated Product
manufacturer pursuant to Section 6.1(b),
subject to Section 7.3.  Hovione shall keep all In-Process API and
finished API stored in accordance with the applicable Specifications, the
Quality Agreement and Applicable Laws and Regulations.  Hovione shall bear the risk of loss,
contamination or damage to the API until it is delivered to Allos pursuant to Section 6.1(b).

 

7.                                      SUPPLY
ASSURANCE

 

7.1                               Production Site &
Commercial Capacity Assurance.  All
Manufacturing of API (including all testing, filing and packaging activities)
shall occur at the Facility, except as

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

14

 

approved by the Parties
in writing.  No work shall be
subcontracted except with Allos’s written approval, which shall not be
unreasonably withheld; provided, however,
that in the event Allos approves of any subcontracted Services, Hovione shall
be responsible for the work of the subcontractor as if it was performed by
Hovione directly.  Hovione shall maintain
the ability to deliver at least thirty thousand kilograms (30,000 kg) per year
during the Commercial Supply Phase, and shall provide assurances of secure
primary and contingent supplies of Raw Materials.

 

7.2                               Change Control.  Without Allos’s prior written consent,
Hovione shall make no change to:  (a) the
Specifications of the API (as the Specifications are defined in the applicable
Regulatory Submission made by Allos for the Product); (b) any validated
analytical methods used to test critical Raw Materials, In-Process API, and the
API; (c) the Manufacturing of the API; (d) any Regulatory Submission
made by Hovione for the API; or (e) Master Batch Record(s).  In the event a change is requested and
approved by Allos, Hovione will continue to Manufacture the Product in
accordance to Allos’s original Regulatory Submission pending the completion of
re-validation and receipt of approval from the FDA and other Regulatory
Authorities.  The implementation of
changes shall be subject to Allos authorization in light of potential
regulatory implications; however,
Allos (and Allos licensees or other users of the API) recognize that change may
be necessary to enable Hovione to remain efficient and cost-effective and thus
shall be fully supportive of the implementation of such changes where
justified.  The procedures for revising
Specifications are set forth below.

 

(a)                                  Notice.  A Party proposing a change to the
Specifications shall provide written notice to the other Party.  If the proposed change is required by a
Regulatory Authority, then such notice shall include complete and full
disclosure of the Regulatory Authority request and relevant correspondence, if
any, and the other Party shall have the opportunity to participate in the
dialogue with the Regulatory Authority regarding the proposed change.  If the change is proposed by Allos or is
required by a Regulatory Authority, then within thirty (30) days of such
notice, Hovione shall notify Allos in writing whether and the extent to which
Hovione’s Production Fees will increase or decrease if the proposed revision is
implemented.  Any proposed increase or
decrease in Hovione’s Production Fees shall be supported by documentation, in a
form and content satisfactory to, and subject to verification by, Allos.  If Allos rejects the proposed price increase,
the Parties agree to negotiate in good faith a mutually acceptable increase or
decrease to such Production Fees.  If
Allos adopts the proposed Specifications revision, the Production Fees for API
will be adjusted upon its implementation or as otherwise agreed.

 

(b)                                  Feasibility
Determination.  If Allos, in
consultation with Hovione, determines that Hovione cannot implement the
revision in a cost-effective manner, it may withdraw the proposed Specification
revision.  If the revision is required by
a Regulatory Authority, however, then upon reasonable written notice to
Hovione, Allos may terminate this Agreement in whole or in part or may treat
the circumstance as an “inadequate supply”
event and take other actions as provided in Section 7.5.

 

(c)                                  Implementation
Plan.  Before implementing the
change, the Project Managers shall develop and agree on a written
implementation plan, which includes the specific procedures to be used in
preparing for and implementing such change to the Specifications.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

15

 

These shall include, but
are not limited to the following:  (i) required
methods or process development and validation, including stability testing
requirements and validation pass/fail criteria; (ii) Regulatory
Submissions; (iii) Lots, Purchase Orders, or dates for change
implementation; (iv) further change approval steps; and (v) technology
transfer, if any.

 

(d)                                  Regulatory
Submissions.  Allos will be
responsible for any Regulatory Submission pertaining to the changes to the
Specifications with the FDA and other Regulatory Authorities, except that
Hovione will be responsible for updating its Drug Master Files, if any; provided that Hovione shall only make such
amendment in consultation with Allos. 
The Parties shall advise each other of the FDA’s, or other Regulatory
Authorities’, approval and the effective date of any such changes to such
Specifications.  Hovione’s responsibility
shall be limited to the documents it prepares in connection with Regulatory
Submissions. 

 

7.3                               Safety Stock.  During the Commercial Supply Phase, Hovione
shall, upon Allos’s request, maintain a [ * ]
safety stock inventory of all critical Raw Materials or, if requested by Allos
through the issue of Purchase Orders, finished API based upon the rolling
Forecasts (in both cases the safety stock shall be turned over as new Raw
Materials are received or new API Lots are released to as to maximize the shelf
life of the safety stock).  Hovione may
invoice Allos for unshipped, released and approved API Lots that Hovione is
required to maintain in its inventory for more than [ * ] beyond the date Hovione’s Quality Assurance group gives
its written approval for the release of the applicable API Lot (the “Quality Control Release Date”).  Allos shall assume title and risk of loss
relating to all API inventoried as set forth in this Section 7.3 upon its release by Hovione into
inventory.  Hovione shall keep all API
safety stock stored in accordance with the applicable Specifications, the
Quality Agreement and Applicable Laws and Regulations.  Hovione shall provide storage for quantities
of critical Raw Materials and finished API that is designated as safety stock
at no cost to Allos for as long as Hovione has warehousing storage space
available for such purpose.  If at any
time during the Term, Hovione no longer has warehouse storage space available
to store critical Raw Materials or API safety stock, Hovione shall so notify
Allos, the Parties shall discuss reasonable alternatives.

 

7.4                               Assured Supply.  During the Term, Hovione shall assure that
Allos has an uninterrupted API supply. 
In consideration of this obligation, Allos grants Hovione a “right of
first supply” to supply up to [ * ]
of Allos’s requirements in excess of [ * ].  Hovione may exercise this right in its
entirety or in part, but must do so at a competitive price that is within [ * ] of the written bids
obtained by Allos from Equivalent Third Parties.  In the event that Hovione does not exercise
its right of first supply option, Hovione is obligated to find an alternative
source of API, subject to the written approval of Allos.  Hovione must also ensure that up-to-date
technology is transferred to such approved alternative supplier(s) as
efficiently as possible, and in accordance with a mutually acceptable
technology transfer procedure, and in compliance with any necessary regulatory
requirements.  In the event that Hovione
cannot find an alternative API supplier that is acceptable to Allos, Hovione,
at its expense, shall invest in additional capacity to meet all Allos
requirements and shall remain the primary supplier of [ * ] of Allos’s API requirements for an
additional [ * ] period at prices
to be negotiated in good faith.

 

7.5                               Inadequate Supply.  In the event that Hovione fails to supply at
least [ * ] (by weight) of the API
specified in a Hovione-accepted Purchase Order for any reason, including

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

16

 

Force Majeure, or
conditions occur in which Hovione cannot give satisfactory assurances of supply
as provided in Section 7.1
above (e.g., insolvency, adverse
FDA actions, loss of supply), Allos shall (among other remedies such as
termination of this Agreement or reduction in its purchase obligation, or both)
have the right to require Hovione to initiate technology transfer for API Manufacturing
to Allos or any manufacturer designated by Allos in accordance with a
technology transfer procedure established by Allos.  Hovione shall fully assist with such
transfer, and no Technology Transfer Fees as provided under Section 12.6(a), or any royalties or
other obligations shall be due in connection with such transfer or API
Manufacturing by this contingent, secondary, or new supplier, as the case may
be.  

 

8.                                      REPRESENTATION &
WARRANTIES

 

8.1                               Legal Authority.  Each Party represents and warrants to the
other Party that: (a) it has the legal power, authority and right to enter
into this Agreement and to perform all of its respective obligations; (b) it
is in good standing under the law of the jurisdiction it is incorporated in or
in which it is engaged in business activities; (c) it has no knowledge of
any legal or other restriction, limitation, adverse financial or other
conditions affecting its ability to fully perform under this Agreement; (d) that
it shall not commit any act or fail to take any action that, in any significant
way, would be in conflict with its material obligations under this Agreement;
and (e) that it shall comply in all material respects with Applicable Laws
and Regulations, and in particular those related to API Manufacturing, and with
all requirements under this Agreement.

 

8.2                               Non-Infringement.  Each Party represents and warrants to the
other Party that to its knowledge the Manufacture of the API and performance of
the Services, shall not infringe upon or result from the misappropriation of
any pending or issued patent, trade secret, or other Intellectual Property
Right, or from the breach of any obligation to any third party.

 

8.3                               Ability &
Capacity.  Hovione represents and
warrants that:  (a) it has all
permits, approvals, personnel, professional experience, equipment, facilities,
funds, and capacity to fully perform it obligations under this Agreement; and (b) that
it will not use in any manner, employ, engage or utilize the services of any
person who has been or is threatened with debarment under the Generic Drug
Enforcement Act or subject to any other comparable administrative,
institutional or other sanction for misconduct.

 

8.4                               API Warranty.  Hovione represents and warrants that API,
when delivered to Allos hereunder, (i) will be manufactured, tested, and
packaged in accordance with Applicable Laws and Regulations; (ii) will
meet the Specifications; and (iii) will not be adulterated or misbranded
within the meaning of the FD&C Act or any similar laws or regulations of
applicable Regulatory Authorities.  Hovione’s sole obligation and Allos’
exclusive remedy for breach of the foregoing warranty will be limited to prompt
replacement of the API at no additional cost to Allos, subject to Hovione’s
recall obligations under Section 10.2
and indemnification obligation under Section 13.1.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

17

 

9.                                      PROCESS
QUALITY & REGULATORY MANAGEMENT

 

9.1                               Compliance with
Specifications and Other Requirements. 
Hovione shall Manufacture all API Lots, and carry out all other
Services, in compliance with the applicable Specifications, Applicable Laws and
Regulations, and the other requirements under this Agreement, in each case as
in effect with respect to that API Lot or Service.  For clarity, the parties agree that the API
is an injectable grade Active Pharmaceutical Ingredient that shall be
manufactured in accordance with 21 CFR Part 211.  In February 2003, Allos audited the
Facility located in Loures, Portugal, and as of that date found such Facility
to be adequate to comply with, and to evidence compliance with, such
requirements.

 

9.2                               Quality Agreement.  Within ninety (90) days following the
Effective Date, the Parties shall mutually agreed upon an initial Quality
Agreement, which may be amended by mutual agreement from time to time by the
Parties.  To the extent that the terms or
conditions of the Quality Agreement, or any procedure, specification or
requirement referenced by it, conflicts or is materially inconsistent with the
terms of this Agreement (excluding the Quality Agreement), the terms of this
Agreement shall prevail.

 

9.3                               Raw Materials and Other
Components.  Hovione shall purchase,
for its own account, all Raw Materials and other components and equipment
required for API Manufacturing (“Production
Materials”).  Hovione shall
procure all Production Materials, including acceptance testing of each lot or
batch of the Production Materials in accordance with the Specifications,
Applicable Laws and Regulations, and the Quality Agreement.

 

9.4                               Regulatory Submissions.  All Regulatory Submissions related to the API
shall be made, owned, and controlled by Allos in its sole discretion.  Hovione, in consultation with Allos, shall
prepare at its expense the description of the API Manufacturing operations and
related information (e.g.,
methods validation package, stability, representative data and batch records)
as required for inclusion in the Allos Regulatory Submissions to the FDA and
other Regulatory Authorities, which will contain all of the Manufacturing
information.  Hovione will assist Allos
in the preparation of annual updates and other required or requested Regulatory
Submissions, and in promptly responding to any questions from Regulatory
Authorities.  Hovione shall provide
qualified technical representatives to attend meetings and/or teleconferences
with the FDA and other Regulatory Authorities as needed.  

 

9.5                               Hovione Pre-Review of
Regulatory Submission.  Hovione
accepts responsibility for the accuracy, integrity and completeness of all documentation
prepared by Hovione that is filed with Regulatory Authorities (“Hovione Regulatory Documents”).  Allos will provide Hovione with a certified
true copy of the portions of each Allos Regulatory Submission that contains or
directly addresses the information in Hovione Regulatory Documents (other than
incidental abstracts or cross-references, or copies of previously submitted
information) (“Hovione References”).  The certified copy will be provided to
Hovione for its review at least [ * ]
before the filing by Allos of the relevant Regulatory Submission; provided, that if  [ * ]
pre-review by Hovione of the Hovione References is not reasonably feasible,
then the Allos shall provide the Hovione References as soon as possible,
Hovione shall immediately review and provide Allos with any objections and/or
comments to the Hovione References no

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

18

 

later than [ * ] of its receipt and the Allos Project
Manager and Hovione’s Regulatory Affairs Unit shall discuss and resolve any
differences prior to submitting the Regulatory Submission. 

 

9.6                               OOS and Other Events and
Rework.  Hovione shall immediately
inform Allos in writing of all OOS and out-of-trend events (provided such trend
constitutes a deviation), failure investigations, process deviations, batch
failures and similar matters (including any unexpected adverse final or interim
results or data from validation, stability or other studies) and provide Allos
with the applicable investigation report and corrective action plans prior to
release of the in-process or finished Lots that are subject to the OOS
event.  All OOS and other investigations,
and all corrective actions, shall be performed in accordance with a written
procedure acceptable to the Parties.  Except as specifically provided in the NDA or
other Marketing Approval and in the manner specifically described in the
approved Master Batch Record, Hovione shall not carry out any reworking,
in-process or batch blending (including recrystallization or recycling of
mother liquors or solvents) without prior written authorization from Allos.

 

9.7                               Pre-Approval Inspections
and Other Inspections.  Hovione shall
use its best efforts to successfully pass the FDA pre-approval inspection and
all other regulatory inspections by the Regulatory Authorities, and Allos
audits, without material objection. 
Should Hovione fail FDA or EU pre-approval inspection or review of
Regulatory Submissions results in materially adverse actions (e.g., delay of
Marketing Approval or requirement for corrective actions), in any event due to
Hovione’s negligence, inadequate planning or implementation or failure to
comply with Applicable Laws and Regulation or other requirements under this
Agreement, it shall refund [ * ]
of amount paid for validation batches and amounts charged to Allos in preparing
the Regulatory Submissions related to API Manufacturing and other Services of
Hovione.  Except as specifically provided
otherwise in this Agreement, Hovione shall bear the expense of establishing and
maintaining its compliance with Applicable Laws and Regulations and other
requirements in their Agreement, including implementation of any corrective or
other actions needed to bring about such compliance. 

 

9.8                               Records.  Hovione shall prepare and maintain all
Records relating to this Agreement. 
Records shall be prepared and maintained in compliance with Applicable
Laws and Regulations and other requirements under this Agreement.  All Records shall be complete, accurate,
legible, valid, verifiable and contemporaneous with the events or activities
described.  All Records shall be
available for Allos’s inspection upon advance notice during business hours, and
Allos shall have the right to make copies thereof, during the Term and for up
to four (4) years following the later of: (a) the expiration date of
the last batch of API or Product; or (b) the expiration or termination of
this Agreement.  Notwithstanding the
foregoing, Allos and its representative may at any time have access to the
Records during business hours, and the right to make copies thereof, in
connection with investigation of any complaint or injury related to the API or
the Product or any dispute between the Parties. 
Hovione shall not destroy, alter (except for corrections as and in the
manner permitted by Applicable Laws and Regulations), remove or dispose of any
Records without Allos’s prior written consent and in which case Allos may take
possession and custody of such Records.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

19

 

9.9                               Retention Samples, Analytical
Verification & Qualification.  Hovione
shall collect and retain samples as required by the Specifications and
Applicable Laws and Regulations.  In
addition, as directed by Allos, Hovione also shall retain sufficient quantities
of samples of API (including production samples taken during the Manufacturing
process) to twice replicate the quality control and release testing applicable
to the sample.  These additional samples
shall be maintained by Hovione for the longer of two (2) years from
expiration date or four (4) years after the Manufacture of each API Lot
and, upon request, furnished to Allos CIF its designated testing facility.  There shall be no charge for preparing these
additional samples, other than any costs incurred with special packing
requirements or courier services.

 

9.10                        Notice of Adverse Discovery.  During the Term and for a period of four (4) years
following the Manufacture of a API Lot, Hovione shall notify Allos immediately
in writing in the event Hovione discovers or has reason to believe that there
may be defects or deviations of any kind whatsoever in such API Lot, including
any non-conformance with Specifications or any requirements applicable to its
Manufacture. 

 

9.11                        Inspections of Hovione’s
Facility.

 

(a)                                  Observation &
Audits.  Upon reasonable notice,
Hovione shall permit Allos’s authorized representatives (who shall be either
full-time employees or appointed experts) to enter its Facility and other
premises during any or all parts of Manufacturing activities.  During the audits, the Allos representatives
may observe and audit all Manufacturing, including all equipment, facilities,
operations, procedures, materials and Records relating to the activities
performed under this Agreement.  Allos
representatives also may audit Hovione’s laboratory where quality control
testing of Raw Materials and API is conducted. 
During the Commercial Supply Phase, at no cost to Allos, Allos may
conduct [ * ] of each
manufacturing location per year during the performance of Manufacturing
operations upon [ * ] prior
notice, and additional audits (with no fewer than [ * ] notice) upon the occurrences of any product problems, or
changes in Manufacturing.  Allos will
provide a clear identification of the individuals it wishes to have present at
Hovione facilities.  For good cause,
Hovione may reasonably refuse entry to individuals, other than the Allos
Directors of Manufacturing, Operations or Quality Assurance, and to limit Allos
to two (2) representatives present at any single part of the Manufacturing
where more persons might reasonably disrupt such Manufacturing.  Allos shall be responsible for any expenses
it incurs in connection with the audits it is permitted to conduct pursuant to
this Section 9.11(a).  Upon Allos’s reasonable request and upon
reasonable notice, Hovione shall permit Allos licensees or partners to conduct
a quality assurance audit of the Facility for due diligence purposes.  In connection with any such audit conducted
by an Allos licensee or partner, Hovione shall be entitled to charge the fees
set forth in Attachment B under 9.
Fees for Due Diligence Audits.

 

(b)                                  Regulatory
Inspections.  Hovione, at its own
expense, shall allow representatives of the FDA and other Regulatory
Authorities to inspect its Facility. 
Hovione shall notify Allos immediately of an inspection by the FDA or
other Regulatory Authorities that may pertain to API Manufacturing or other
Services, and Allos may have its representatives present at such
inspections.  If representatives of Allos
are not present at an inspection or audit, Hovione shall notify Allos in
writing of the results of such inspection, immediately after such

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

20

 

inspection or audit has
occurred (but in no event later than two (2) days after such inspection or
audit has occurred).  Hovione shall
provide Allos with copies of any documents or other communications provided to
or received from the Regulatory Authorities in connection with the inspection
or resulting actions, including FDA Form 483 reports, EIRs, Warning
Letters, or equivalents.  In addition,
Hovione shall furnish Allos promptly any Warning Letter or FDA-483 from the FDA
(or similar documents from other Regulatory Authorities) that pertains to
products and activities unrelated to this Agreement; however, Hovione may redact the customer identity and other
confidential information disclosed in such correspondence.

 

(c)                                  Other
Conditions of Audits & Inspections.  There shall be no charge for any inspections
or audits as described in Section 9.11(a) above,
and Hovione shall cooperate with both, including providing of reasonable space
for review and copying of Records and assistance of key personnel.  Allos representatives, when on Hovione’s
premises, shall at all times comply with Hovione’s internal policies.  It is agreed that the audits and observation
by Allos representatives or access to the computer system as set forth in Section 2.3(c) shall not in any
way serve as a limitation on any of Hovione’s obligations or liabilities under
this Agreement; although Allos has a duty of care to annually audit the
Facility and will provide Hovione with the results of any quality audit
performed by Allos.  All other audits,
inspections or technical visits by Allos, which are not necessary for the
normal course of Hovione’s production of the API shall be charged at Hovione’s
standard unit rates in Attachment B under
9. Fees for Due Diligence Audits. 

 

9.12                        Hovione’s Right to Audit.  Upon thirty (30) days written notice, Hovione
shall have the right to audit, or to have audited by a mutually acceptable and
reputable auditor, the good manufacturing practices and materials management
related documentation of Allos in order to verify the quantities of API
purchased from third party suppliers. 
Any such audit will be performed during Allos’ normal business
hours.  The auditor shall be instructed
to provide to Hovione a report on the findings during the audited period, but
shall not disclose to Hovione any Confidential Information of Allos not
necessary therefore.  The costs of the
audit will be paid by Hovione and may be conducted no more than once in any
period of twelve (12) consecutive months.

 

10.                               RECALLS &
RECALL COSTS

 

10.1                        Recall Procedures.  If the API or Product are recalled (including
product in inventory that must be destroyed or reprocessed), for any reason
whether voluntarily or governmentally imposed, Allos shall be responsible for
effecting such recall.  Any voluntary
decision to recall the Product shall be made by Allos in its sole discretion, but in consultation with Hovione.  Notwithstanding the foregoing, Hovione shall
cooperate with Allos in carrying out any recall, including identifying the
locations to which API was shipped, providing access to applicable Records and
retention samples, conducting testing, and the like and, if applicable, in
identifying and correcting any deficiency in API Manufacturing.  All recalls shall be carried out in the
procedure set forth in the Quality Agreement, or as later agreed by the
Parties.  Hovione will provide assistance
in responding to API and Product complaints and similar events, including
Records review and retained sample testing.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

21

 

10.2                        Responsibility for Recall Costs.  In the event that it is ruled by arbitration
or in a court of Law, or as otherwise agreed by the Parties, that a recall
resulted from, arose out of, or is connected with any inaccuracy in, breach of,
or non-fulfillment of, any representation, warranty, covenant or other
obligation of Hovione, or any negligent, reckless or willful misconduct or
omissions of Hovione, its directors, officers, employees, vendors or agents,
Hovione shall reimburse Allos for:  (a) any
costs expended by Allos to effect the recall, including, but not limited to,
all notification letters, all direct shipping expenses, and the costs of
disposal and/or destruction of the recalled items; (b) any Production Fees
for API involved in such recall and for any other API that cannot be shipped
due to the recall; (c) shipping fees paid for the Product and/or API
involved in such recall.  Hovione’s
obligation to reimburse Allos shall be subject to the arbitration and other
dispute procedures set forth in Article 15.  Hovione’s total aggregate liability for
recalls costs associated with a recall shall not exceed a value equal to [ * ].

 

10.3                        Traceability.  If during any calendar year Allos
incorporates into Product API obtained from another third party manufacturer,
then Allos shall provide Hovione, within thirty (30) days of the end of such
calendar year, with written documents tracing Hovione batch numbers to the
Product batch numbers that have been released to the market. 

 

11.                               TERM
AND TERMINATION

 

11.1                        Term.  Unless sooner terminated as provided for
herein, this Agreement shall remain in full force and effect for an initial
Term commencing on the Effective Date and ending upon the seventh (7th)
anniversary of the date Allos obtains a Marketing Approval from the FDA for a
Product.  This Agreement shall be
automatically extended for successive two (2) year terms unless a Party
provides written notice of non-extension at least twenty-four (24) months
before the date when the new extension period is to begin.

 

11.2                        Termination.  

 

(a)                                  Mutual Consent.  The Parties may at any time terminate this
Agreement, in part or in its entirety, by mutual written agreement.

 

(b)                                  Material
Breaches. 

 

(i)                                    Either Party
shall have the right to terminate this Agreement on ninety (90) days written
notice in the event the other commits a material breach of its obligations
hereunder and fails to remedy it within ninety (90) days after notice of such
breach.  After the end of the applicable
cure period, if the breach has not been cured, the Party having the right to termination
may terminate in whole or in part immediately upon notifying the breaching
Party in writing.  Any termination of
this Agreement shall not release the breaching Party from its obligations or
otherwise affect or limit the Parties’ rights and remedies.

 

(ii)                                This Agreement may
be terminated immediately on account of a material breach upon written notice
if such breach cannot be reasonably remedied within a ninety (90) day period
following notice, or if continuing would subject the non-breaching Party to a
substantial risk of material Loss, civil or criminal liability (including the
imposition of a Warning

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

22

 

Letter, Import Detention
or other official sanction by a Regulatory Authority on the manufacture or
import of the API or operations of a Party).

 

(c)                                  Insolvency.  Each Party shall have the right to terminate
this Agreement effective upon written notice to the other Party in the event
that: (i) the other Party becomes insolvent; (ii) a receiver is
appointed for the other Party; or (iii) bankruptcy proceedings are
instituted by or against the other Party or on the other Party’s behalf.

 

(d)                                  Product
Failure.  This Agreement may be
terminated immediately by Allos on written notice if no Product will be
marketed or further developed, or if in Allos’s opinion the supply or use of
the API might result in liability for infringement of patents or other
Intellectual Property Right.  If
terminated by Allos for such causes, then unless agreed otherwise, all Purchase
Orders accepted by Hovione by the date the termination notice is provided and
not subject to cancellation shall be fulfilled; provided that Allos may “buy-out” the purchase of those Lots
by paying Hovione an amount determined by the manner provided under Section 11.3(a)(i) below, plus
the amount of gross profit Hovione would have realized on the those Lots of API
if they had been purchased by Allos.

 

(e)                                  Failure to
Meet Minimum.  Hovione may terminate
this Agreement on three (3) months written notice if Allos does not buy at
least the applicable amount of API set forth in Attachment B under “4.  Annual API
Purchase Base” in the applicable year, unless such failure is due to
Hovione’s fault.  Notwithstanding the
foregoing, Allos shall have the right to obtain three extensions to the dates
set forth in Attachment B; provided that Allos shall pay Hovione the
amount set forth in Attachment B
under “5. 
Extension Fees” for each extension on or before December 31st
of the year in which the minimum purchase obligation was not met.  Each extension moves the Annual API Purchase
Base by one year.  In each case
termination shall not occur if Allos has cured such fault within three (3) months
of Hovione’s notice.

 

11.3                        Effect of Termination.

 

(a)                                  Purchase of Inventories.  In the event of the Agreement’s termination,
Hovione shall ship in the manner provided for under the Quality Agreement, all
inventory of API purchased by Allos and held by Hovione as safety stock
pursuant to Section 7.3.  Allos may at its election purchase all
remaining API in Hovione’s inventory that it would not otherwise be obligated
to purchase under this Agreement at the lowest price indicated in Attachment B.  In addition, at Allos’s election, it may
either: (i) purchase, at Hovione’s documented purchase cost, its Raw
Materials or In-Process API (valued on a pro-rata basis to manufacturing
cycle-time) reasonably purchased or produced for API Manufacturing that cannot
be returned for credit or used for producing products for its other customers,
plus shipping costs; or (ii) pay for such Raw Materials or In-Process API
to be Manufactured into API in accordance with the Agreement.  In no event shall Allos be charged for Raw
Materials or In-Process API with an amount that exceeds the value of the
corresponding amounts of API specified by Allos’ relevant Purchase Orders in
effect at the termination date.

 

(b)                                  Return of
Materials.  Hovione shall immediately
return to Allos copies of all documentation and information and materials
relating to API Manufacturing (including

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

23

 

copies of development
reports and Master Batch Records), the Product, and the Specifications, and
Hovione shall make no further use of such documentation, information and materials
unless required by a Regulatory Authority. 
Any original documents provided by Allos to Hovione during the Term
shall be returned to Allos, along with any copies thereof, provided that
Hovione may keep one archival copy if required by a Regulatory Authority.  Documents and materials shall be packaged and
shipped in the manner reasonably requested by Allos as needed to preserve their
integrity and acceptability to Regulatory Authorities.  

 

(c)                                  Survival.  Termination of this Agreement shall not operate
to release any Party from any obligation or liability incurred under the terms
of this Agreement before or upon termination hereof, nor shall it relieve the
Parties of their obligations with respect to API supplied by Hovione hereunder.  In addition Sections 9.8,
9.9, 9.10, 10.2 (with
respect to claims relating to activities occurring during the Term) and 11.3 and
Articles 1,  12 (excluding
Section 12.6), 13 (with respect to claims relating to
activities occurring during the Term), 14
and 16 shall survive the
expiration or termination of this Agreement on account of any cause.

 

12.                               CONFIDENTIALITY &
INTELLECTUAL PROPERTY

 

12.1                        Non-Disclosure Agreement.  The Parties each agree that the obligations
of confidentiality, non-use and non-disclosure set forth in the Mutual
Non-disclosure Agreement executed by them concurrently with this Agreement (the
“Nondisclosure Agreement”) are
incorporated into this Agreement for purposes of determining the Parties rights
and obligations with respect to Confidential Information disclosed by each
Party under this Agreement.

 

12.2                        Disclosure of Agreement.  Neither Allos nor Hovione shall release any
information to any other person regarding the terms of this Agreement without
the prior written consent of the other, which consent shall not be withheld
unreasonably.  The foregoing consent
requirement includes, but is not limited to, press releases, educational and
scientific conferences, promotional materials and discussions with the media.  If a Party determines that it is required by
law to release information regarding this Agreement to any another person, it
shall notify the other Party of this fact before releasing the
information.  The notice to the other
Party shall include the text of the information proposed for release.  The other Party shall have the right to confer
with the notifying Party regarding the necessity for the disclosure and the
text of the information proposed for release. 
Hovione acknowledges that as a public company Allos is required to
disclose its material business relationships and principal terms, subject to
certain rights to redact Confidential Information.  Allos shall confer with Hovione before making
such disclosures; however, Allos
shall have sole discretion in the contents of the disclosure.  Hovione and Allos shall each have the right
to disclose the terms of this Agreement to persons engaged or proposing
engagement in fiduciary relationships, such as banks extending credit with the
Party and bona fide investors and legal counsel, if such persons are subject to
reasonable confidentiality and non-use obligations.  

 

12.3                        No Implied Licenses.  Only the licenses granted pursuant to the
express terms of this Agreement shall be of any legal force and effect.  No license or any other proprietary rights shall
be created by implication or estoppel, in the patents, know-how, trade-secrets,
copyrights,

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

24

 

trade and other marks, or
other Intellectual Property Rights, owned or licensed to the respective Parties

 

12.4                        Ownership of Improvement to the
API or API Manufacturing Process. 
Hovione shall disclose to Allos promptly and in writing all API
Improvements, and hereby assigns all API Improvements to Allos and shall
execute and provide, and to cause its employees, officers and agents to execute
and provide all documents, affidavits, evidence and testimony, and take such
other actions as are reasonably requested by Allos to perfect its ownership of
the API Improvements and to seek, defend and enforce patents and other
Intellectual Property Rights related to the API Improvements.  Allos shall have sole discretion over the
management of Intellectual Property Rights issues, but shall reimburse Hovione
for the reasonable costs incurred by its employees for their assistance in
connection with Allos’s efforts to seek, defend and enforce patents and other
Intellectual Property Rights related to the API Improvements.  Allos makes no claim to any of Hovione’s
proprietary technology existing before the Effective Date.

 

12.5                        Hovione License.  Allos shall grant Hovione a non-exclusive,
non-transferable license under Allos’s Intellectual Property Rights to use (but
not sublicense or disclose to or authorize others to use on Hovione’s behalf)
generically applicable process improvements and analytical methods within the
API Improvements (“Generic Methods”).  Such license shall fully exclude any right to
use, and Hovione hereby covenants that it shall not use, the Generic Methods to
manufacture or test the API or any API Related Compound for any third party
until the end of later of the following three periods (“Exclusivity Period”):

 

(a)                                  The expiration of
all United States and European patents covering the API Related Compounds or
Products containing any API Related Compounds (including any term extensions
and non-patent market exclusivity periods);

 

(b)                                  [ * ] from the
approval by the FDA of the NDA for the Product; and

 

(c)                                  [ * ] following
the last full calendar year during which Hovione supplied Allos with at least [ * ] of any of its API requirements.

 

In order to protect the
confidentiality and other Intellectual Property Rights of Allos, except as
directed by Allos, neither Hovione nor any of its Affiliates shall manufacture
the API or any API Related Compound during the Term and the Exclusivity Period.

 

12.6                        Hovione Compensation.  In order to provide Hovione with an incentive
to explore API Improvements; and in order to assure that Hovione acts in the
best interests of Allos and its other manufacturers, Hovione shall be entitled
to the good consideration set forth below for as long as it is not in breach of
the Agreement:

 

(a)                                  Technology
Transfer Fee.  For every new API
manufacturer that practices any API Improvement, Allos shall pay Hovione a
Technology Transfer Fee for the successful, complete and prompt transfer of the
API Manufacturing process and API Improvements to that API manufacturer, in the
amount set forth in Attachment B
under “6. Technology Transfer Fee–

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

25

 

Transfer
Fee,” fifty percent (50%) of which shall be paid when Allos
directs Hovione to initiate technology transfer, and the balance upon
completion of technology transfer as demonstrated by successful manufacture of
three (3) API “Process Validation Batches” meeting all Specifications.

 

(b)                                  Production Fee.  For every new API manufacturer that practices
any API Improvement, Allos shall pay Hovione a Technology Transfer Fee for its
successful, complete and prompt transfer of the API Manufacturing process and
API Improvements, in the amount set forth in Attachment B under “6. Technology Transfer Fee–Production Fee”
on [ * ] manufactured by each such
new API manufacturer.

 

(c)                                  Divided
Manufacturing.  For purposes of this Section 12.6, “Manufacturing” by a new
API producer shall only include the API synthesis and purification and not the
performance of incidental services such as testing and processing, and in the
case that synthesis and or purification are divided between manufacturers, then
multiple Technology Transfer Fees shall not be due, but they shall be treated
as a single new manufacturer.

 

12.7                        Trade Names and Trademarks.  Allos hereby acknowledges that except as
otherwise set forth in this Agreement, it does not have, and shall not acquire
by virtue of this Agreement, any rights to or under any goodwill, trademark or
trade name of Hovione, nor in any of Hovione’s trademark or trade names
appearing on the label or packaging materials of API.  Hovione hereby acknowledges that it does not
have, and shall not acquire by virtue of this Agreement, any rights to or under
any goodwill, trademark or trade name of Allos, nor in any of Allos’s
trademarks or trade names appearing on the label or packaging materials of API
or Product.  Neither Party shall use the
trademarks or trade names owned by the other under which API is manufactured on
any other goods or products, except as provided hereunder.  Each Party further agrees not to contest,
deny or dispute the validity of any trademarks or trade names owned by the
other Party appearing on the labels or packaging materials of API or the title
of such other Party, and not to assist others in doing so, and not to take any
action of any kind inconsistent with the holding of all such rights by such
other Party.

 

13.                               INDEMNIFICATION

 

13.1                        Hovione’s Obligation to
Indemnify.  Hovione shall indemnify,
defend and hold Allos and its directors, officers, employees and agents (“Allos Indemnitees”) harmless against any
and all Losses incurred by any of them as a result of any third party claim,
demand, suit, action or proceeding resulting from, arising out of, or connected
with:  (a) liability claims arising
directly and exclusively from the manufacture of the API to the extent caused
by Hovione’s breach of any obligation under the Agreement; (b) infringement
claims arising from a breach of any of Hovione’s warranties or a breach of its
other obligations; and (c) the clean-up, remediation and restoration
arising out of or related to Hovione’s storage, handling, transportation, incineration
or disposal of any Waste that may be generated by API Manufacturing.  Hovione’s obligations set forth in this Section 13.1 shall not include Losses
on such claims to the extent that they are caused by the (y) breach by any
Allos Indemnitee of its obligations under the Agreement, or (z) any
negligent or otherwise wrongful act or omission of any Allos Indemnitee or
Affiliate.  

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

26

 

13.2                        Allos’s Obligation to
Indemnify.  Allos shall indemnify, defend
and hold harmless Hovione and its directors, officers, employees and agents (“Hovione Indemnitees”) against any and all
Losses incurred by any of them as a result of any third party claim, demand,
suit, action or proceeding resulting from, arising out of, or connected
with:  (a) product liability claims
arising from the testing, sale or use of the API or the Product, including the
effects of the intrinsic properties of the API and (b) infringement claims
arising from a breach of any of Allos’s warranties or a breach of its other
obligations.  Allos obligations set forth
in this Section 13.2 shall
not include Losses on such claims to the extent that they arise from the
(y) breach by any Hovione Indemnitee of its obligations under the
Agreement, or (z) any negligent or otherwise wrongful act or omission by
any Hovione Indemnitee or Affiliate.

 

13.3                        Obligations of the Party
Seeking to be Indemnified.  Each
Party’s indemnification obligations shall be conditioned on compliance with the
procedure outlined below by that person and other persons associated with the
same Party.  The Party providing the
indemnification is the “Indemnifying Party,”
and the Party or other person seeking or receiving such indemnification is the “Indemnified Party.”

 

(a)                                  Notice.  Upon receipt or occurrence of any written
claim, demand or other event that the Indemnified Party believes might give
rise to the indemnification obligations, the Indemnified Party shall, as soon
as reasonably practicable after forming such belief, give written notice to the
Indemnifying Party; provided,
that the failure to give timely notice to the Indemnifying Party shall not
relieve the Indemnifying Party from any liability to the Indemnified Party
unless the Indemnifying Party demonstrates that the investigation, defense,
settlement or mitigation of such claim is prejudiced by such failure.

 

(b)                                  Control.  The Indemnifying Party shall have the right,
by prompt notice to the Indemnified Party, to assume, at its cost, the
investigation, defense and settlement of such claim.  If the Indemnifying Party does not so assume
the defense of such claim or, having done so, does not diligently pursue such
defense, the Indemnified Party may, but will not be obligated to, assume such
defense, with counsel of its choice, but at the cost of the Indemnifying
Party.  If the Indemnifying Party assumes
such defense, it shall have absolute control of the conduct of the litigation,
including settlement and investigation, unless the Indemnified Party has
relieved the Indemnifying Party from indemnification liability with respect to
the particular claim; the Indemnified Party may, nevertheless, participate
therein through counsel of its choice and at its cost.

 

(c)                                  Assistance.  The Party not assuming the defense of any
claim shall cooperate and render all reasonable assistance to the Party
assuming the defense, and all out-of-pocket costs of such assistance shall paid
by the Indemnifying Party.  No such claim
shall be settled other than by the Party defending such claim, and then only
with the prior written consent of the other Party, which shall not be
unreasonably withheld.

 

13.4                        Limitation on Liability.  Hovione’s total aggregate liability (whether
for breach of contract, negligence, breach of statutory duty and/or other tort,
or otherwise) in connection with or as a result of the work carried out or
materials provided under this Agreement shall not

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

27

 

exceed a value equal to [ * ]. 
Notwithstanding the foregoing, the limitation on liability shall not
apply in respect of Hovione’s indemnification obligation under Section 13.1.

 

14.                               INSURANCE

 

14.1                        Coverage.  During the Term of the Agreement and for [ * ] years thereafter, if issued on a
claims made basis, Hovione shall maintain Commercial General Liability
insurance providing not less than [ * ]
per occurrence, excluding product liability insurance on a worldwide basis and
contractual liability coverage.  All
coverage shall be underwritten by reputable underwriters.  Promptly after the Effective Date, Hovione
shall add Allos as an additional insured under Hovione’s policy.  Hovione shall provide Allos with a
certificate of insurance upon request. 
Hovione shall provide Allos with at least thirty (30) days prior written
notice of any material change, cancellation or expiration of the above-required
insurance.

 

14.2                        Review.  On an annual basis, Hovione shall provide
Allos with a current certificate of coverage demonstrating that the coverage
specified in Section 14.1 is
in force and shall immediately notify Allos of any actual or threatened
reduction, termination, non-renewal or materially adverse change in terms of
coverage.  Hovione shall provide Allos
with thirty (30) days’ written notice of any cancellation or material change in
the coverage specified in Section 14.1.  Hovione represents and warrants that it has
obtained and shall maintain all coverage, including its preparation of any
applications and endorsements in compliance with its obligations under the
terms of coverage of such polices and shall otherwise comply with all
requirements under such policies. 
Failure to maintain the insurance coverage as set forth in this Article 14 shall be deemed a material
breach of the Agreement.  

 

15.                               DISPUTE
RESOLUTION

 

15.1                        Internal Mediation of Dispute.  In the event of any controversy or claim
arising out of or relating to any provision of this Agreement or otherwise
between the Parties or their Affiliates, the Parties shall try to settle the
differences amicably through the Project Managers, and if necessary the
Steering Committee.  If the Steering
Committee is unable to resolve the matter, the issue shall be addressed by the
Chief Executive Officers of each Party or their respective designees.  The designees shall be individuals who possess
the authority to settle the dispute but who do not have direct responsibility
for administration of this Agreement.  ANY DISPUTES NOT RESOLVED BY THE DESIGNEES SHALL BE
FINALLY AND EXCLUSIVELY RESOLVED BY CONFIDENTIAL BINDING ARBITRATION AS
PROVIDED IN SECTION 15.2.

 

15.2                        Arbitration.  Whenever a Party shall decide to institute
arbitration proceedings, it shall give written notice to that effect to the
other Party. The Party giving such notice shall refrain from instituting the
arbitration proceedings for a period of sixty (60) days following such
notice.  The arbitration shall be held in
New York, New York according to the rules of the American Arbitration
Association (“AAA”).  A single arbitrator mutually chosen by the
Parties shall conduct the arbitration. 
If the Parties cannot agree upon a single arbitrator within fifteen (15)
days after the institution of the arbitration proceeding, then the arbitration
shall be conducted by a panel of three (3) arbitrators appointed in
accordance with AAA rules; provided,
however, that each Party shall, within thirty (30) days after the institution
of the arbitration

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

28

 

proceedings, appoint one
arbitrator with the third arbitrator being chosen by the other two
arbitrators.  If only one Party appoints
an arbitrator, then such arbitrator shall be entitled to act as the sole
arbitrator to resolve the controversy. 
All arbitrators eligible to conduct the arbitration must agree to render
their opinion(s) within thirty (30) days of the final arbitration hearing. The
arbitrator(s) shall have the authority to grant injunctive relief and specific
performance and to allocate between the Parties the costs of arbitration in
such equitable manner as he determines; provided,
however, that each Party shall bear its own costs and attorneys’ and
witness’ fees.  The arbitrator(s) shall,
upon the request of either Party, issue a written opinion of the findings of
fact and conclusions of law and shall deliver a copy to each of the
Parties.  Decisions of the arbitrator(s)
shall be final and binding on all of the Parties. Judgment on the award so
rendered may be entered in any court having jurisdiction thereof.

 

15.3                        Injunctions.  Notwithstanding anything to the contrary, a
Party also shall have the right to obtain provisional remedies, including
preliminary and temporary injunctive relief or/and specific performance, from a
court having jurisdiction, as well as such equitable remedies as needed to
enforce an arbitration decision.  A Party
seeking and/or obtaining injunctions shall not be required to prove the amount,
irreparability, immediacy or likelihood of damages, nor shall it be required to
post any bond (the posting of which is irrevocably waived).

 

15.4                        Choice of Law & Venue. This Agreement shall be construed and
the rights of the Parties shall be determined in accordance with the laws of
the State of New York, USA, without regard to its conflict of law provisions; provided, however, that patents and other
intellectual property rights shall be construed and determined in accordance
with the laws of the country under which such rights are granted.  In no event shall the provisions of this
Agreement be governed by the United Nations Convention on Contracts for the
International Sale of Goods.  THE PARTIES ALSO HEREBY AGREE AND FOREVER WAIVE ANY
OBJECTION TO THE PERSONAL JURISDICTION AND VENUE OF THE ARBITRAL AND JUDICIAL
BODIES PROVIDED IN THIS ARTICLE 15, AND TO SERVICE OF PROCESS BY NOTICE AS
PROVIDED BY SECTION 16.5 BELOW.

 

16.                               GENERAL
PROVISIONS

 

16.1                        Integration &
Severability.  This Agreement,
together with its Attachments, the Quality Agreement and the Nondisclosure
Agreement, is the full and final negotiated contract between the Parties and
all prior and contemporaneous written and oral understandings, contracts,
purchase orders, and agreements (including the Term Sheet) are merged into, and
shall be deemed as if performed under this Agreement.  This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of which
together shall constitute a single agreement. 
In the event that any provision of this Agreement is judicially
determined to be unenforceable, in part or in whole, the remaining provisions
or portions of this Agreement shall be valid and binding to the fullest extent
possible, and the Parties shall endeavor to negotiate modified or additional
terms, as feasible, in a timely manner so as to fully effectuate the original
intent of the Parties to the extent possible, and in the event they are unable
to reach an agreement then the arbitrator or court may establish such modified
provision.

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

29

 

16.2                        Waivers & Amendment.  Any failure by a Party to enforce any right
which it may have hereunder in any instance shall not be deemed to waive any
right which it or the other Party may have with respect to any provision of
this Agreement, including the provision which such Party has failed to enforce.  A waiver of a breach shall not act as a
waiver or release of any other breach, regardless if prior, contemporaneous or
subsequent, known or unknown or of the same or different nature, cause, effect
or provision of this Agreement.  No
provision of this Agreement shall be waived, amended, supplemented or otherwise
modified except in a in writing signed by a duly authorized officer of each
Party.

 

16.3                        Legal Relationship.  The Parties acknowledge, agree, and declare
that the relationship hereby established between them is solely that of
provider and recipient of manufacturing services and that each Party hereto is
an independent contractor with respect to the other, and not as a joint
venturer, partner, distributor or any other type of relationship, and shall not
be construed as an authorization of either Party to act as an agent of the
other.  Nothing in this Agreement shall
be construed as to create an exclusive relationship between the Parties
hereto.  Each may enter into similar or
dissimilar arrangements with others and engage in activities for its own
account, subject to their compliance with confidentiality and other provisions
of this Agreement. The Parties agree that they have and shall at all times
perform this Agreement in good faith.

 

16.4                        Force Majeure.  

 

(a)                                  Occurrences.  Neither
Party shall be responsible to the other Party for any failure, delay or
interruption in the performance of any of its obligations under this Agreement
if such failure, delay or interruption is caused, directly or indirectly, by
accident, casualty, fire, flood, weather, typhoon, act of God, earthquake,
epidemic, riot, terrorist act, insurrection, war, failure or delay of normal
sources of supply of materials, failure or delay of public utilities or
carriers, act, exercise, assertion or requirement of a governmental authority,
or other cause beyond the reasonable control of the Party affected (“Force Majeure”) if the Party affected has
used its best efforts to avoid such occurrence and such occurrence is not due
to any fault or neglect of such Party.  If either Party believes that the performance
of any of its obligations under this Agreement will be delayed or interrupted
as a result of any of the reasons stated in this Section 16.4(a) and provided it is able to do so,
then it shall promptly notify the other Party of the delay or interruption and
the cause, and also provide the other Party with a good faith estimate of when
performance of its obligations will resume.

 

(b)                                  Production
Assurance.  When the Party affected
is able to recommence the performance of obligations delayed or interrupted as
a result of any of the reasons stated in Section 16.4(a),
it shall notify the other Party and, except as otherwise provided in this
Agreement, it shall promptly resume performing its obligations.  Hovione shall not be entitled to invoke the
provisions of this Section 16.4
as an excuse for default or delay in performance based upon its need to do work
for others or on its own behalf resulting in constraints upon the availability
of its manufacturing and packaging capacity, unless such constraints resulted
from an event of Force Majeure as defined herein.  In such an event, Hovione shall equitably
allocate its resources among its various customers, including Allos.  Additionally, in the event Hovione cannot
provide Allos with API for more than [ * ],
Hovione will notify Allos and Allos may, at

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

30

 

its option, terminate or
suspend this Agreement in whole or in part upon written notice to Hovione.  Should this Agreement be suspended or
terminated pursuant to this Section 16.4(b),
Hovione agrees to give Allos, or a third party designated by Allos, such
technical assistance as Allos or its designee may reasonably require to enable
Allos or its designee to Manufacture API, including, without limitation, the
transfer of know-how, technical data, documentation and the provision of
material support and training at the manufacturing site or sites designated by
Allos.  No Technology Transfer Fees as
set forth under Section 12.6
above shall be due in connection with the technology transfer to and API
manufacture by such third parties, and Allos’s purchase obligations shall be
suspended.

 

16.5                        Notice.  Any notice required or permitted to be given
under this Agreement shall be in writing and shall be given in person,
delivered by recognized overnight delivery service, sent by mail (certified or
registered or air mail for addresses outside of the continental United States),
or by telefax (or other similar means of electronic communication), the receipt
of which is confirmed by confirming telefax, and addressed as indicated in Attachment A (Notices,
Project Managers and Other Key Personnel), or such other person and/or address
as may have been furnished in writing to the notifying Party of the change to
such Attachment.  Except as otherwise
provided herein, any notice shall be deemed delivered upon the earlier of: (a) actual
receipt; (b) three (3) business days after delivery to such
recognized overnight delivery service; (c) five (5) business days
after deposit in the mail (ten (10) days for international mail); or (d) the
date of receipt of the confirming telefax.

 

16.6                        Assignment.  This Agreement shall not be assigned by
either Party, except to an Affiliate, without the prior written consent of the
other Party, and any such assignment without such prior written consent shall
be void.  If this Agreement is assigned
to an Affiliate of a Party, the assigning Party shall remain responsible for all
of its obligations specified in this Agreement. 
Notwithstanding the preceding, in the event of: (a) a sale or
transfer of all or substantially all of a Party’s assets related to API
Manufacturing or developing and/or marketing Products; or (b) the merger
or consolidation of a Party with another company, this Agreement shall be
assignable to the transferee or successor company of the assigning Party,
without the need of the prior written consent of the other Party.  This Agreement shall be binding upon all
permitted successors in interest, assigns, trustees and other legal
representatives of the Parties.

 

16.7                        Further Assurances Regarding
Corporate Partnerships.  During the
Term, Allos shall not enter into any agreement with a Corporate Partner that
would conflict with Allos’ obligations under this Agreement or result in a
material adverse change in Hovione’s economic rights under this Agreement.  Allos will provide a copy of this Agreement
to any Corporate Partner to whom Allos may supply API manufactured by Hovione
pursuant to this Agreement.  At Hovione’s
request, Allos shall obtain from such Corporate Partner a letter signed by an
officer of the Corporate Partner acknowledging receipt of a copy of this
Agreement.  Allos further assures that
Hovione’s interests will be taken into consideration and defended when Allos
negotiates the Corporate Partnership.

 

16.8                        Interpretation.  All references to Articles shall refer to the
Articles contained in this Agreement. 
All references to Attachments shall, except as otherwise explicitly
provided, refer to the Attachments appended to this Agreement, all of which are
incorporated herein by

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

31

 

reference.  The captions of the Articles of this
Agreement are for general information and reference only and shall not affect
the interpretation of this Agreement. 
Where applicable in this Agreement, the singular includes the plural and
vice versa.  English shall be the
official language of this Agreement and all communications between the Parties
hereto shall be conducted in that language. 
Both Parties acknowledge that they were represented by competent legal
counsel and advisors, and fully negotiated the contract and each of its terms,
and that ambiguities, if any, in this Agreement shall not be construed against
any Party, irrespective of which Party may be deemed to have authored the
ambiguous provision.

 

«Signatures on Next Page»

 

CONFIDENTIAL

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

32

 

IN WITNESS WHEREOF, the Parties hereto have
caused this Agreement to be executed as of the Effective Date.

 

	
  Hovione
  Inter Limited

  	
  Allos
  Therapeutics, Inc.

  	 

	 
	
   

  	
   

  
	 
	
   

  	
   

  
	
  By:

  	
  /s/Guy Villax

  	
   

  	
  By:

  	
  /s/Michael E.
  Hart

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  Name:

  	
  Guy Villax

  	
   

  	
  Name:

  	
  Michael E. Hart

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  Title:

  	
  Chief Executive

  	
   

  	
  Title:

  	
  President and
  CEO

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  Date:

  	
   

  	
   

  	
  Date:

  	
  June 16,
  2005

  	
   

  	 

									

 

CONFIDENTIAL

 

MANUFACTURING AGREEMENT

SIGNATURE PAGE

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

 

ATTACHMENT A

 

Notices, Project Managers and Other
Key Personnel

 

	
  To
  Allos.:

  	
   

  	
  To
  Hovione

  	 

	 
	
  Vice
  President of Manufacturing

  Attn: Douglas Johnson

  Allos Therapeutics, Inc.

  11080 Circle Point Road, Suite 200

  Westminster, CO 80020

  (phone) 303-426-6262

  (fax) 303-412-9160

  (email) djohnson@allos.com

  	
   

  	
  Attn:
  Peter Villax

  Hovione Inter Limited

  C/O Hovione FarmaCiencia SA

  Seta Casas 2674-506 Loures, Portugal

  (phone) 011-351-21-982-9361

  (fax) 011-351-21-982-9363

  (email) pvillax@hovione..com

  
	 
	
   

  	
   

  	
   

  
	 
	
  And copied to:

  	
   

  	
  And copied to:

  
	 
	
   

  	
   

  	
   

  
	 
	
  Attn:
  General Counsel

  Allos Therapeutics, Inc.

  11080 Circle Point Road, Suite 200

  Westminster, CO 80020

  (phone) 303-426-6262

  (fax) 303-412-9160

  	
   

  	
  Managing
  Director

  Sofia Lee

  11 Aubin House

  171 Gloucester Road

  Hong Kong

  (phone) +852 8911836

  (fax) +852 8910943

  (email) slee@hovione.com

  
	 
	
   

  	
   

  	
   

  
	 
	
  Project
  Managers:

  	
   

  	
   

  
	 
	
   

  	
   

  	
   

  
	 
	
  For
  Allos: 

  	
   

  	
  For
  Hovione:

  
	 
	
  Vice
  President of Manufacturing

  Attn:  Douglas Johnson

  Allos Therapeutics, Inc.

  11080 Circle Point Road, Suite 200

  Westminster, CO  80020

  (phone) 303-426-6262

  (fax)  303-412-9160                            

  (email)  djohnson@allos.com

  	
   

  	
  Industrial
  Director 

  Attention: Eddy Leong 

  Hovione PharmaScience Limited 

  Estrada Coronel Mesquita

  Ilha da Taipa 

  Macau 

  (phone) +853 82 75 44

  (fax) +853 82 77 14

  (email)  eleong@hovione.com

  
	 
	
   

  	
   

  	
   

  
	 
	
  For
  Hovione Inter Limited:

  	
   

  	
  For
  Hovione FarmaCiencia S.A.:

  
	 
	
  Dave
  Hoffman

  President, US Operations

  Hovione LLC, as agent

  40 Lake Drive

  East Windsor, NJ 08520

  (phone) 609-918-2420

  (fax)  609-918-2615

  (e-mail) dhoffman@hovione.com

  	
   

  	
  Antonio
  Gomes

  Production Engineer - B15

  Sete Casas

  2674-506 Loures 

  (phone) +351 21 9829349

  (fax)+351 21 9829244

  (email)      agomes@hovione.com

  
							

 

CONFIDENTIAL

 

Attachment A-1

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

 

	
  Other
  Key Personnel:

  	
   

  	
   

  
	
   

  	
   

  	
  For Hovione:

  Hovione
  FarmaCiencia S.A.

  Graça Mata

  Head of Regulatory Affairs Department

  Sete Casas

  2674-506 Loures

  (phone) +351 21 9829243

  (fax)+351 21 9829388

  (email)  gmata@hovione.com

  

 

CONFIDENTIAL

 

Attachment A-2

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

 

ATTACHMENT B

 

Pricing and Other Terms for
Commercial Supply

 

	
  1.
  API Purchase/Supply Minimums

  	
   

  	
  Allos
  Annual

  	
   

  	
  Purchase/Supply

  	
   

  	 

	
   

  	
   

  	
  Volume
  Requirements

  	
   

  	
  Obligations

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  [ * ] Metric Tons

  	
   

  	
  [ * ] of
  Requirements

  	
   

  	 

	
   

  	
   

  	
  [ * ] Metric Tons

  	
   

  	
  [ * ] of
  Requirements

  	
   

  	 

	
   

  	
   

  	
  [ * ] Metric Tons

  	
   

  	
  [ * ] of
  Requirements

  	
   

  	 

	
   

  	
   

  	
  [ * ] Metric Tons

  	
   

  	
  [ * ] of
  Requirements*

  	
   

  	 

	
   

  	
   

  	
   

  	 

	 
	
   

  	
   

  	
  (*provided that
  Hovione exercises its right of first refusal set forth in Section 7.4 of
  the Agreement)

  
	 
	
   

  	
   

  	
   

  
	
  Note: Requirements/supply obligations are subject to
  exceptions as provided in the Agreement

  	 

	
   

  	
   

  	
   

  	 

	
  2.
  API Pricing

  	
   

  	
  Annual
  Purchase

  	
   

  	
  API Price

  	
   

  	
   

  	 

	
   

  	
   

  	
  [
  * ]

  	
   

  	
  $

  	
  [ * ]

  	
   

  	
   

  	 

	
   

  	
   

  	
  [
  * ]

  	
   

  	
  $

  	
  [ * ]

  	
   

  	
   

  	 

	
   

  	
   

  	
  [
  * ]

  	
   

  	
  $

  	
  [ * ]

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	 
	
   

  	
   

  	
  All prices are
  CIF Allos’s designated Product manufacturer location.

  
	 
	
   

  	
   

  	
   

  
	 
	
   

  	
   

  	
  Note:
  Although CIF is used, API shall be shipped in the mode of transport provided
  in the delivery instructions, which will be air for international and truck
  for inland shipment.

  
	 
	
   

  	
   

  	
   

  
	 
	
  3.
  Minimum API Lot Sizes,

  	
   

  	
   

  
	
  Campaign
  Size and Frequency for Pricing:

  	
   

  	
  [
  * ]/Lot

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	 
	
   

  	
   

  	
  Launch
  Phase: Hovione is not required to run more than [ * ]
  production campaign of the API per every [ * ] and to produce less than [ * ] of API per
  campaign.

  
	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
   

  	
   

  	
  Commercial
  Phase: Hovione is not required to produce less than [ * ]
  metric tons of API per campaign.

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  4.
  Annual API Purchase Base:

  	
   

  	
  2006

  	
   

  	
  $

  	
  2,000,000

  	
   

  	
   

  	 

	
   

  	
   

  	
  2007

  	
   

  	
  $

  	
  3,500,000

  	
   

  	
   

  	 

	
   

  	
   

  	
  To End of Term

  	
   

  	
  $

  	
  5,000,000

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  5. Extension Fees:

  	
   

  	
  First

  	
   

  	
  $

  	
  100,00

  	
   

  	
   

  	 

	
   

  	
   

  	
  Second

  	
   

  	
  $

  	
  150,000

  	
   

  	
   

  	 

	
   

  	
   

  	
  Third

  	
   

  	
  $

  	
  200,000

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	 

	
  6.
  Technology Transfer Fees:

  	
   

  	
  Transfer Fee

  	
   

  	
  $

  	
  [ * ]

  	
   

  	
   

  	 

	
   

  	
   

  	
  Production Fee

  	
   

  	
  $

  	
  [ * ]

  	
   

  	
   

  	 

	
   

  	
   

  	
   

  	 

	
  7. Wire Instructions

  	
   

  	
  [
  * ].

  	
   

  	
   

  	 

																						

 

CONFIDENTIAL

 

Attachment B-1

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.

 

 

	
  8. Facilities

  	
   

  	
  Hovione’s campus
  at Loures, Portugal and/or Taipa, Macau.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  9.
  Fees for Due Diligence Audits

  	
   

  	
  Audits conducted
  by Allos licensees or partners for due diligence purposes shall be charged at
  a rate of [ * ] per
  day for each member of the licensee or partner team participating in such
  audit.

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  10.
  Reimbursement for Sundry Costs

  	
   

  	
  During the Term
  of this Agreement it may become necessary for Hovione to carry out tasks,
  technical, scientific or otherwise, that may give rise to the incurring by
  Hovione of the use of its resources and for out-of-pocket expenses. Allos
  will accept debit notes for pre-approved, documented, reasonable in-house and
  out-of-pocket expenses and will reimburse Hovione promptly for these.

  

 

CONFIDENTIAL

 

Attachment B-2

 

[
* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY
BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND
EXCHANGE COMMISSION PURSUANT TO RULE 24B-2 OF THE SECURITIES EXCHANGE ACT OF
1934, AS AMENDED.EXHIBIT 10.31

 

Dependable Temporary Labor.

 

EXECUTIVE EMPLOYMENT AGREEMENT

 

This Agreement is between James E, Defebaugh (“Executive”) and Labor
Ready, Inc.  or the Labor Ready, Inc.
subsidiary employing Executive (“Labor Ready” or the “Company”), and is
effective as of September 12, 2005.

 

I.                                      COMPENSATION AND POSITION.

 

A.                                    Employment.  In
consideration of the mutual covenants and promises contained herein and other
good and valuable consideration, the Company hereby agrees to employ Executive
and Executive hereby agrees to be employed by the Company, upon the terms and
conditions hereinafter set forth.

 

B.                                    Effective
Date. The terms and conditions of this Agreement shall become effective as
of the date written above.

 

C.                                    Position.  Executive’s position is that of Vice
President, General Counsel and Secretary for Labor Ready.

 

D.                                    Compensation.
Executive’s compensation, subject to the terms and conditions set forth in
this Agreement, is as follows:

 

1.                                      Annual Base Salary. Executive will receive a salary in the gross
amount of $275,000 per year.

 

2.                                      Bonus.  Except as noted below regarding fiscal year 2005, Executive will be eligible
for a bonus, under and subject to the bonus plan in effect for executives for
the relevant year (“Bonus Plan”). 
Executive shall have the annual target bonus opportunity of 25% up to a maximum
of 37.50% of Executive’s annual base salary and a minimum of 0% (if the Company
achieves less than 50% of its target) depending on the increase in net income
after tax over the prior year and CEO discretion, in accordance with the Bonus
Plan.  Seventy-five percent of the bonus
will be paid in cash and 25% in unrestricted stock.  The bonus is paid after earnings release for
the fiscal year just ended.  Executive
must be employed by Labor Ready on date of payment and have met all of the
requirements of the Bonus Plan to receive the bonus.  The Bonus Plan and all aspects of bonus
compensation may be changed at the discretion of the Board of Directors.

 

For the year 2005, Executive will not receive a bonus in accordance
with the Bonus Plan in accordance with the foregoing calculation, but instead
will receive a guaranteed payment in the gross amount of $68,750, paid after
earnings release, 75% of which will be paid in cash and 25% in unrestricted stock,
subject to deductions for taxes.

 

 

Labor Ready Corporate
Offices: PO Box 2910 • Tacoma, WA 98401 • (253)
383-9101 •
(800) 610-8920

 

 

3.                                      Equity Grants.  – Executive
will be eligible for an annual equity grant valued at one times the Executive’s
annual base salary, under and subject to the 2005 Long-Term Equity Incentive
Plan. One-half of the value is granted in restricted shares and one-half in
stock options at Black Scholes value. The grant is made on January 1 of each
year of employment, and vesting is ratable over 3 years. The 2005 Plan and
terms and conditions of equity grants may be changed at the discretion of the
Board of Directors.

 

4.                                      Sign
On Stock Grant.  Executive will
receive on his first day of Employment under this Agreement a grant of 6,000
restricted shares that vest
ratably over four years, under and subject to the 2005 Plan.

 

E.                                      Benefits.

 

1.                                      General.  Executive shall be entitled to all
benefits offered generally to employees of the Company.

 

2.                                      Health & Welfare
Benefits.  Executive and Executive’s
family may participate in benefits starting the first month after Executive’s
first 90 days of employment under this Agreement, subject to plan terms and
conditions, including eligibility requirements.   Executive will be reimbursed for the cost of
continuing COBRA benefits until Executive is eligible to participate in the
Company plan.

 

3.                                      Vacation.  Executive shall be entitled each year
during the term of this Agreement to a vacation of twenty-five (25) business
days, no two of which need be consecutive, during which time his compensation
shall be paid in full.

 

4.                                      ESPP Plan.  Executive will be eligible to enroll in
the ESPP Plan at the beginning of the first month after Executive’s first six
months of employment under the Agreement, subject to the terms and conditions
of that plan.

 

5.                                      Indemnification.  To the fullest extent permitted by law,
Company shall indemnify and hold harmless Executive for any and all losses,
cost, damage and expense including attorneys’ fees and court costs incurred or
sustained by Executive, in accordance with the present provisions Article 5G of
the Company’s Articles of Incorporation.

 

II.                                     TERMS AND CONDITIONS.

 

A.                                    Employment At Will.

 

1. The Company and Executive agree that
Executive’s employment is not for any specific or minimum term, and that
subject to Section II(A)(2) of this Agreement, the continuation of Executive’s
employment is subject to the mutual consent of the Company and Executive, and
that it is terminable at will, meaning that either the Company or Executive may
terminate the employment at any time, for any reason or no reason, with or
without cause, notice, pre-termination warning or discipline, or other pre- or
post-termination procedures of any kind.

 

2

 

Executive
acknowledges and agrees that any prior representations to the contrary are void
and superseded by this Agreement. Executive may not rely on any future
representations to the contrary, whether written or verbal, express or implied,
by any statement, conduct, policy, handbook, guideline or practice of Labor
Ready or its employees or agents.  Nothing
in this Agreement should be construed as creating any right, contract or
guarantee of employment.

 

2.                                       (a)                                  In the event of termination of Executive’s
employment for any reason, Executive shall be paid unpaid wages and unused
vacation earned through the termination date.

 

(b)                                 If Labor Ready terminates Executive’s
employment without Cause or Executive terminates employment with Good Reason as
defined in this Agreement, in addition to the amounts described in Section
II(A)(2)(a) Executive shall be provided with the following as the sole remedy
for such termination, subject to withholding:

 

(i)                                     separation
payments for twelve (12) months from the termination date at the base monthly
salary in effect for Executive on the termination date, with the actual period
of receipt of such payments being referred to as the “Severance Period”; and

 

(ii)                                  continued vesting for a period of twelve (12)
months past the Executive’s employment termination date of any previously
awarded stock options,
restricted stock and other equity awards in compliance with the terms of the
relevant plan or plans, and any applicable sub-plan or option agreement,
provided that all vested awards shall be exercised prior to the end of such
twelve-month period.

 

(c)                                  To be entitled to the benefits set forth in
Section II(A)(2)(b), Executive must (i) sign and deliver and not revoke a
release in the form of Exhibit A to this-Agreement in accordance with its
terms; and (ii) be in full compliance with all provisions of Section III and IV
of this Agreement.

 

3.                                       (a)                                  For the purpose of this Agreement, “Cause,”
as used herein, means any of the following: (i) any material breach of this
Agreement by Executive which, if curable, has not been cured within twenty (20)
days after Executive has been given written notice of the need to cure such
breach, or which breach, if previously cured, recurs; (ii) unauthorized use or
disclosure of Confidential Information, as defined in this Agreement; (iii)
Executive’s persistent failure to perform Executive’s essential
responsibilities, provided that Executive has been given at least 30 days’
written notice of the need to cure the failure and cure has not been effected
within that time period, or which failure, if previously cured, recurs; (iv)
material failure of Executive to comply with rules, policies or procedures of
the Company as they may be amended from time to time, provided that Executive
has been given at least 30 days’ written notice of the need to cure the failure,
if such failure is curable, and cure has not been effected within that time
period, or which failure, if previously cured, recurs; (v) dishonesty, fraud or
gross negligence related to the business; (vi) personal conduct that is
materially detrimental to the business; (vii) failure of Executive to relocate
his residence to the Puget Sound area by no later than January 1, 2006; or (viii)
conviction of or plea of nolo contendere to a felony.

 

(b)                                 “Good Reason,” as used herein, means (i) any
material breach of this Agreement by the Company which, if curable, has not
been cured within 20 days after the

 

3

 

Company has been given written notice of the need to cure the breach,
or which breach, if previously cured, recurs; (ii) a substantial reduction of
responsibilities assigned to Executive of the type that are typically within
the responsibility of a General Counsel or any reduction in title; or (iii) a
reduction in Executive’s base salary or annual bonus opportunity, as described
in this Agreement, other than for Cause and other than as part of an
across-the-board salary or bonus reduction generally imposed on executives of
the Company.

 

B.                                    Arbitration.  The Company and Executive agree that any
claim arising out of or relating to this Agreement, or the breach of this
Agreement, or Executive’s application, employment, or termination of
employment, shall be submitted to and resolved by binding arbitration under the
Federal Arbitration Act.  The Company and
Executive agree that all claims shall be submitted to arbitration including,
but not limited to, claims based on. any alleged violation of Title VII or any other
federal or state laws; claims of discrimination, harassment, retaliation,
wrongful termination, compensation due or violation of civil rights; or any
claim based in tort, contract, or equity. 
Any arbitration between the Company and Executive will be administered
by the American Arbitration Association under its Employment Arbitration Rules
then in effect.  The award entered by the
arbitrator will be based solely upon the law governing the claims and defenses
pleaded, and will be final and binding in all respects.  Judgment on the award may be entered in any court
having jurisdiction. In any such arbitration, neither Executive nor Company shall
be entitled to join or consolidate claims in arbitration or arbitrate any claim
as a representative or member of a class. 
The Company agrees to pay for the arbiter’s fees where required by
law.  In any claim or jurisdiction where
this agreement to arbitrate is not enforced, the Company and Executive waive
any right either may have to bring or join a class action or representative
action, and further waive any right either may have under statute or common law
to a jury trial.

 

C.                                    Duty
of Loyalty.  Executive agrees during
working hours to devote his full and undivided time, energy, knowledge, skill
and ability to the Company’s business, to the exclusions of all other business
and sideline interests. Executive also agrees not to be employed elsewhere
unless first authorized by the Company in writing.  In no event will Executive allow other
activities to interfere with Executive’s duties to the Company.  Executive agrees to faithfully and diligently
perform all duties to the best of Executive’s ability.  Executive recognizes that the services to be
rendered under this Agreement require certain training, skills and experience,
and that this Agreement is entered into for the purpose of obtaining such
service for the Company. Upon request, Executive agrees to provide the Company
with any information which Executive possesses and which will be of benefit to
the Company.  Executive agrees to perform
his duties in a careful, safe, loyal and prudent manner.  Executive agrees to conduct him/herself in a
way which will be a credit to Labor Ready’s reputation and interests.

 

D.                                    Reimbursement.  If Executive ever possesses any Labor
Ready funds (including without limitation cash and travel advances,
overpayments made to Executive by Labor Ready, amounts received by Executive
due to Labor Ready’s error, unpaid credit or phone charges, excess sick or vacation
pay, or any debt owed Labor Ready for any reason, including misuse or misappropriation
of company assets), Executive will remit them to Labor Ready corporate headquarters
in Tacoma, Washington daily unless directed otherwise in writing.  If Executive’s employment ends, Executive
will fully and accurately account to Labor Ready for any Labor

 

4

 

Ready funds and other property in Executive’s possession. If Executive
fails to do so, Executive hereby authorizes the Company (subject to any
limitations under applicable law) to make appropriate deductions from any
payment otherwise due Executive (including without limitation, Executive’s
paycheck, salary, bonus, commissions, expense reimbursements and benefits), in
addition to all other remedies available to the Company.

 

E.                                      Background
Investigation.  Executive agrees that
at any time during employment the Company may, subject to any applicable legal
requirements, investigate Executive’s background for any relevant information
on any subject which might have a bearing on job performance including, but not
limited to, employment history, education, financial integrity and credit
worthiness, and confirm that Executive has no criminal record during the last
ten years. Executive shall sign any and all documents necessary for the Company
to conduct such investigation. For this purpose, Executive specifically
authorizes the Company to obtain any credit reports, background checks and
other information which may be useful. Executive acknowledges and, except as
may be limited by applicable law, agrees to abide at all times by the terms of
Labor Ready’s drug and alcohol policy.  Executive understands that failure to comply
with Labor Ready’s policies, including its drug and alcohol policies may result
in termination of employment.

 

III.                                 NON-COMPETITION
AND NON-SOLICITATION.

 

A.                                    Non-Disclosure
of Confidential Information.

 

1.                                       In connection with Executive’s duties,
Executive may have access to some or all of Labor Ready’s “Confidential
Information,” which includes the following, whether recorded or mentally
memorized: (i) the ideas, methods, techniques, formats, specifications,
procedures, designs, strategies, systems, processes, data and software products
which are unique to Labor Ready; (ii) all of Labor Ready’s customers,
marketing, pricing and financial information, including the names, addresses
and any other information concerning any customer; (iii) the content of all of
Labor Ready’s operations, sales and training manuals; (iv) all other
information now in existence or later developed which is similar to the foregoing;
and (v) all information which is marked as confidential or explained to be
confidential or which, by its nature, is confidential.

 

2.                                       Executive recognizes the importance of
protecting the confidentiality and secrecy of Confidential Information. Executive
agrees to use his best efforts to protect Confidential Information from
unauthorized disclosure to others. 
Executive understands that protecting Confidential Information from
unauthorized disclosure is critically important to Labor Ready’s success and
competitive advantage, and that the unauthorized disclosure of Confidential Information
would greatly damage Labor Ready, Executive recognizes and agrees that taking and
using a trade secret or Confidential Information by memory is no different from
taking it on paper or in some other tangible form.  Executive agrees that Executive will request
clarification from Labor Ready’s legal department if Executive is at all
uncertain as to whether any information or materials are “Confidential
Information.”

 

5

 

3.                                       Executive agrees not to use any Confidential
Information for Executive’s own benefit or, except as necessary or appropriate
for Executive to perform his job responsibilities, disclose any Confidential
Information to others or make copies of any Confidential Information without
the Company’s written consent, whether during or after Executive’s employment
with the Company.  Executive also agrees
to return all Confidential Information in his possession to the Company at
Labor Ready’s headquarters in Tacoma, Washington, immediately upon the Company’s
request.  If Executive ever believes that
any person has received or disclosed or intends to receive or disclose
Confidential Information without the Company’s consent, Executive agrees to
immediately notify the Company.

 

4.                                       If Executive’s employment with the Company is
terminated, Executive agrees to immediately return to Labor Ready, at
headquarters in Tacoma Washington, all manuals, mailing lists, customer lists,
supplies, equipment, checks, petty cash, and all other material and records of any
kind concerning Labor Ready’s business, that Executive may possess.

 

B.                              Non-Competition.

 

1.                                       During the term of this Agreement and for a
period of two (2) years immediately following the termination of employment
with or without Cause or Good Reason, so long as Labor Ready continues to carry
on substantially the same business, Executive will not, for any reason
whatsoever, directly or indirectly, for Executive or on behalf of, or in
conjunction with, any other person(s), company, partnership, corporation or
business entity, engage in any of the following activities within the “Restricted
Area” (as hereinafter defined): own, manage, operate, control, be employed by,
participate in, invest in, engage in or be connected in any manner with the
ownership, management, operation or control of the same, similar, or related
line of business as that carried on at the time of termination by Labor Ready,
including, without limitation, the solicitation of business or customers
located within the Restricted Area. For this purpose, the term “Restricted Area”
means a twenty-five (25) mile radius around each Labor Ready branch at the time
of termination and any location where Labor Ready has placed workers during
Executive’s employment. This non-competition agreement is enforceable whether
Executive’s employment is terminated by the Company or Executive.

 

2.                                       Executive agrees that this covenant is
necessary to protect the intellectual property and trade secrets of the Company
in view of Executive’s key role with each branch of the Company and its
affiliates and the extent of confidential and proprietary information about the
entire Company and its affiliates to which Executive has information.  The Company and Executive agree that the
provisions of this Section III(B) do not impose an undue hardship on Executive
and are not injurious to the public; that this provision is necessary to
protect the business of the Company and its affiliates; that the nature of
Executive’s responsibilities with the Company under this Agreement and
Executive’s former responsibilities with the Company provide and/or have
provided Executive with access to Confidential Information that is valuable and
confidential to the Company; that the Company would not continue to employ
Executive if Executive did not agree to the provisions of this Section III(B);
that this Section III(B) is reasonable in terms of length of time and
geographic scope; and that consideration supports this Section III(B),
including new provisions of a cash payment of $200, which was not otherwise owed.  In the event that a court or arbitrator
determines that any provision of this Section III(B)

 

6

 

is unreasonably broad or extensive, including length of time or
geographic scope, Executive agrees that such court or arbitrator should narrow
such provision to the extent necessary to make it reasonable and enforce the
provision as narrowed.

 

C.                                    No
Employee Solicitation.  During the
term of this Agreement and for a period of two (2) years immediately following
the termination of employment, with or without Cause or Good Reason, so long as
Labor Ready continues to carry on substantially the same business, Executive will
not, for any reason whatsoever, directly or indirectly, for Executive or on
behalf of, or in conjunction with, any other person(s), company, partnership,
corporation or business entity, solicit, induce or otherwise influence, or
attempt to solicit, induce or otherwise influence, in any manner any of Labor
Ready’s employees to leave their employment with Labor Ready for any reason,
including for the purpose of becoming employed by Executive’s new employer.

 

D.                                    No
Customer Solicitation.  Executive
understands and agrees that the methods employed in Labor Ready’s business will
place Executive in a close business and personal relationship with Labor Ready
customers.  Thus, during the term of this
Agreement and for a period of two (2) years immediately following the
termination of employment with or without Cause or Good Reason, so long as
Labor Ready continues to carry on substantially the same business, Executive
will not, for any reason whatsoever, directly or indirectly, for Executive or on
behalf of, or in conjunction with, any other person(s), company, partnership,
corporation or business entity, contact, call upon, solicit, service, influence
or attempt, to contact, call upon, solicit, service or influence any customers
or potential customers (prospects) of any branch where Executive was stationed
within one (1) year before termination of employment with the Company, or with
whom Executive had direct or indirect contact or for whom Executive had responsibility
during Executive’s tenure with the Company or otherwise assisted Labor Ready in
providing services to.

 

E.                                     General Provisions.

 

1.                                       If Executive violates any of the covenants in
this Section III, the time period covered by the covenants will automatically
be extended by a length of time equal to the time period during which such
violation occurred.

 

2.                                       The covenants set forth above are independent
of any other provision of this Agreement. 
Executive agrees that they will be enforceable whether or not Executive
has any claim against the Company.

 

3.                                       Executive acknowledges that if Executive
violates any of the foregoing covenants, the damage to the Company will be such
that the Company is not likely to be made whole with a monetary award.  Therefore, Executive agrees that if Executive
violates any such covenant, the Company will be entitled to a temporary
restraining order, a preliminary injunction and/or a permanent injunction, in
addition to any and all other legal or equitable remedies available under law
and equity.

 

7

 

4.                                       Executive represents and warrants that
Executive has been in full compliance with the provisions protecting Labor
Ready’s Confidential Information as set forth in the Previous Employment
Agreement.

 

5.                                       For the purposes of this Section III, all
references to Confidential Information or Confidential Information of Labor
Ready also apply to Confidential Information belonging to any affiliate of
Labor Ready.  Executive’s covenants in
subsections (B), (C) and (D) of this Section III shall protect affiliates of
Labor Ready to the same extent that they protect Labor Ready.

 

F.                                      Other
Employers and Obligations.

 

1.                                       Executive represents to the Company that
Executive is not subject to any restriction or duties under any agreement with
any third party or otherwise which will be breached by employment with the
Company, or which will conflict with the Company’s best interests or Executive
obligations under this Agreement.  Executive agrees to notify Executive’s supervisor
promptly in the event Executive is solicited for employment by any competitor
of Labor Ready.

 

2.                                       Executive warrants that his employment with
the Company will not violate any contractual obligations with other
parties.  Executive will not use during
his employment with the Company nor disclose to the Company any confidential or
proprietary information or trade secrets from any former or current employers,
principals, partners, co-venturers, customers or suppliers, and will not bring
onto the Company’s premises any unpublished document or any property belonging
to any such person or entities without their consent.  Executive will honor any non-disclosure,
proprietary rights, or other contractual agreements with any other person or entity
and has disclosed to the Company any such agreements that may bear on
employment with the Company.  If
employment with the Company is terminated, Executive agrees to tell his new employer
about this Agreement and its terms at the time of re-employment.

 

IV.                                ASSIGNMENT OF INVENTIONS

 

A.                                    Assignment.
 Executive will make prompt and full
disclosure to the Company, will hold in trust for the sole benefit of the
Company, and will assign exclusively to the Company all right, title and
interest in and to any and all inventions, discoveries, designs, developments, improvements,
copyrightable material and trade secrets (collectively herein “Inventions”)
that Executive solely or jointly may conceive, develop, author, reduce to
practice or otherwise produce during his employment with the Company.

 

B.                                    Outside
Inventions.  Executive’s obligation
to assign shall not apply to any Invention about which Executive can prove all
the following: (a) it was developed entirely on Executive’s own time; (b) no
equipment, supplies, facility, services or trade secret information of Labor Ready
was used in its development; (c) it does not relate (i) directly to the
business of Labor Ready or (ii) to the actual or demonstrably anticipated
business, research or development of Labor Ready; and (d) it does not result
from any work performed by Executive for Labor Ready.

 

8

 

Executive shall attach a list of all existing Inventions meeting these
requirements to this Agreement.

 

V.                                    COMPLIANCE
WITH LAWS AND CODE OF CONDUCT

 

A.                                    Commitment
to Compliance.   The Company is
committed to providing equal employment opportunity for all persons regardless
of race, color, gender, creed, religion, age, marital or family status,
national origin, citizenship, mental or physical disabilities, veteran status,
ancestry, citizenship, HIV or AIDS, sexual orientation, on-the-job-injuries, or
the assertion of any other legally enforceable rights. Equal opportunity
extends to all aspects of the employment relationship, including hiring,
transfers, promotions, training, termination, working conditions, compensation,
benefits, and other terms and conditions of employment. The Company is likewise
committed to ensuring that employees are accurately paid for all hours worked.

 

B.                                    Duty
to Comply with the Law.  Executive
agrees to comply with all federal, state and local laws and regulations,
including equal employment opportunity laws and wage and hour laws.  Executive agrees to immediately notify the
Company if Executive becomes aware of a violation of the law, or suspects a
violation of the law has or will occur. 
Executive acknowledges that Executive may be held personally liable for
intentional violations.

 

C.                                    Duty
to Comply with Labor Ready’s Code of Conduct.  Executive acknowledges and agrees that it
is his duty to be familiar with Labor Ready’s Code of Conduct, and to comply
with all of its provisions.

 

VI.                                MISCELLANEOUS

 

A.                                    Integration.
 Except with respect to the letter
from the Company to Executive dated July 20, 2005 offering the Executive
employment (i) no promises or other communications made by either the Company
or Executive are intended to be binding unless they are set forth in this Agreement
and (ii) this Agreement contains the entire agreement between the parties and replaces
and supersedes any prior agreements. This Agreement may not be modified except
by an instrument signed by an officer of the Company.   This Agreement will be binding upon Executive’s
heirs, executors, administrators and other legal representatives.

 

B.                                    Choice
of Law.  The Company and Executive
agree that this Agreement and all interpretations of the provisions of this
Agreement will be governed by the laws of the State of Washington, without
regard to choice of law principles

 

C.                                    No
Waiver.  If the Company waives any
condition or term of this Agreement, the Company is not waiving any other
condition or term, nor is the Company waiving any rights with respect to any
future violation of the same condition or term. If the Company chooses to
refrain from enforcing any condition or term, the Company does not intend to
waive the right to do so. Sections II(B), II(E), III and IV of this Agreement
are to remain in effect after termination of the remainder of this Agreement.

 

9

 

D.                                    Severability.  The provisions of this Agreement are
intended to be severable from each other. No provision will be invalid because
another provision is ruled invalid or unenforceable. If any provision in this
Agreement is held to be unenforceable in any respect, such unenforceability shall
not affect any other provision of this Agreement and shall be re-written to provide
the maximum effect consistent with the intent of the provision.

 

E.                                      Assignment.  The Company reserves the right to assign
this Agreement to an affiliated company or to any successor in interest to the
Company’s business without notifying Executive.  All terms and conditions of this Agreement
will remain in effect following any such assignment.

 

F.                                      Venue.  Where the parties have mutually waived
their right to arbitration in writing or have not yet sought to enforce their
right to compel arbitration, venue for any legal action in connection with this
Agreement will be limited exclusively to the Washington State Superior Court
for Pierce County, or the United States District Court for the Western District
of Washington at Tacoma.  Executive
agrees to submit to the personal jurisdiction of the courts identified herein,
and agrees to waive any objection to personal jurisdiction in these courts.

 

 

	
  LABOR READY, INC.

  	
  EXECUTIVE

  
	
   

  	
   

  
	
  By:

  	
  /s/ Joseph P. Sambataro. Jr.

  	
   

  	
  /s/James E. Defebaugh

  	
   

  
	
   

  	
  James E. Defebaugh

  
	
   

  	
   

  
	
  Name:

  	
  Joseph P. Sambataro. Jr.

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  EXECUTED this 3rd day of August, 2005.

  
	
  Title:

  	
  President and CEO

  	
   

  	
   

  
						

 

10

 

EXHIBIT A

 

RELEASE OF CLAIMS

 

This Release of Claims (“Release”) is hereby executed by James E.
Defebaugh (“Executive”) in accordance with the Employment Agreement between
Executive and Labor Ready, Inc. (“Employer”), dated September 12, 2005 (“Employment
Agreement”).

 

RECITALS

 

A.                                   Employer
and Executive are parties to the Employment Agreement.

 

B.                                     The
Employment Agreement provides for certain payments and benefits to Executive upon
termination of Executive’s employment under certain circumstances, provided
that Executive signs and delivers to Employer upon such termination a Release
in substantially the form of this Release.

 

C.                                     Executive
desires for Employer to make payments in accordance with the Employment Agreement
and therefore executes this Release.

 

TERMS

 

1.                                       Waiver,
Release and Covenant.  On behalf of
Executive and Executive’s marital community, heirs, executors, administrators
and assigns, Executive expressly waives, releases, discharges and acquits any
and all claims against Employer and its present, former and future affiliates,
related entities, predecessors, successors and assigns, and all of their
present, former and future officers, directors, stockholders, employees,
agents, partners, and members, in their individual and representative
capacities (collectively “Released Parties”) that arise from or relate to
Executive’s employment with Employer and/or the termination of such employment
(“Released Claims”). This waiver and release includes any and all Released
Claims (including claims to attorneys’ fees), damages, causes of action or
disputes, whether known or unknown, based upon acts or omissions occurring or
that could be alleged to have occurred before the execution of this Release.
Released Claims include, without limitation, claims for wages, employee benefits,
and damages of any kind whatsoever arising out of any: contract, express or
implied; tort; discrimination; wrongful termination; any federal, state, local
or other governmental statute or ordinance, including, without limitation,
Title VII of the Civil Rights Act of 1964, as amended; the Age Discrimination
in Employment Act, as amended (“ADEA”); the Employee Retirement Income Security
Act of 1974; and any other legal limitation on the employment
relationship.  Executive also covenants
and promises never to file, press or join in any complaint or lawsuit for
personal relief or any amounts of any nature based on any Released Claim and
agrees that any such claim, if filed by Executive, shall be dismissed, except
that this covenant and promise does not apply to any claim of Executive
challenging the validity of this Release in connection with claims arising
under the ADEA and/or the Older Workers’ Benefit Protection Act of 1990 (“OWBPA”).
Executive represents and warrants that he is the sole owner of all Released
Claims and has not assigned, transferred, or otherwise disposed of Executive’s

 

 

right or interest in those matters. Notwithstanding the foregoing, this
waiver and release does not apply to claims that arise after the date that the
release is executed, claims to vested benefits under ERISA, workers’
compensation claims or any other claims that may not be released under this
Release in accordance with applicable law.

 

2.                                       Acknowledgment
of Sufficiency of Consideration. 
Executive acknowledges and agrees that in the absence of Executive’s
execution of this Release, Employer is not obligated to provide Executive with
the payment and benefits described in Section II(A)(2)(b) of the Employment Agreement,
and that the payment and benefits set forth in Section II(A)(2)(b) of the
Employment Agreement are adequate consideration for the covenants and release
herein.

 

3.                                       Covenants
and Obligations under Employment Agreement. 
Nothing in this Release supersedes or restricts any obligations that
Executive owes to Employer, including, without limitation, the obligation to
protect Employer’s interests in confidential information and trade secrets and
inventions under the Employment Agreement and/or under applicable law.

 

4.                                       Review
and Revocation Period.  Executive has
a period of seven (7) calendar days after delivering the executed Release to
Employer to revoke the Release. To revoke, Executive must deliver a notice
revoking his agreement to this Release to the CEO of Employer.  This Release shall become effective on the
eighth day after delivery of this executed Release by Executive to Employer (“Effective
Date”), provided that Executive has not revoked the Release.  Employer shall have no obligation to provide
Executive with any payment or benefits as described in Section 6 of the
Employment Agreement if Executive revokes this Release.

 

5.                                       Governing
Law. This Release shall be interpreted in accordance with the law of the
State of Washington, without regard to the conflicts of law provisions of such
laws.

 

6.                                       Severability.  If any provision of this Release constitutes
a violation of any law or is or becomes unenforceable or void, then such
provision, to the extent only that it is in violation of law, unenforceable or
void, shall be deemed modified to the extent necessary so that it is no longer
in violation of law, unenforceable or void, and such provision will be enforced
to the fullest extent permitted by law. If such modification is not possible,
such provision, to the extent that it is in violation of law, unenforceable or
void, shall be deemed severable from the remaining provisions of this Release,
which shall remain binding.

 

7.                                       Knowing
and Voluntary Agreement  Executive
hereby warrants and represents that (a) Executive has carefully read this
Release and finds that it is written in a manner that he understands; (b)
Executive knows the contents hereof; (c) Executive has been advised to consult with
his personal attorney regarding the Release and its effects and has done so;
(d) Executive understands that he is giving up all Released Claims and all
damages and disputes that have arisen before the date of this Release, except
as provided herein; (e) Executive has had ample time to review and analyze this
entire Release; (f) Executive did not rely upon any representation or statement
concerning the subject matter of this Release, except as expressly stated in
the Release; (g) Executive has been given at least twenty-one (21) days to
consider this Release and seven (7) days to revoke this Release; (h) Executive
understands the Release’s final and binding effect; (i) Executive has signed
this Release as his free and voluntary act.

 

12

 

8.                                       Arbitration
and Venue. Employer and Executive agree that any claim arising out of or
relating to this Agreement, or the breach of this Agreement shall be submitted
to and resolved by binding arbitration under the Federal Arbitration Act.
Employer and Executive agree that all claims shall be submitted to arbitration
including, but not limited to, claims based on any alleged violation of Title
VII or any other federal or state laws; claims of discrimination, harassment,
retaliation, wrongful termination, compensation due or violation of civil
rights; or any claim based in tort, contract, or equity. Any arbitration
between Employer and Executive will be administered by the American Arbitration
Association under its Employment Arbitration Rules then in effect. The award
entered by the arbitrator will be based solely upon the law governing the claims
and defenses pleaded, and will be final and binding in all respects. Judgment
on the award may be entered in any court having jurisdiction, In any such
arbitration, neither nor Employer shall be entitled to join or consolidate
claims in arbitration or arbitrate any claim as a representative or member of a
class. Employer agrees to pay for the arbiter’s fees where required by law. In
any claim or jurisdiction where this agreement to arbitrate is not enforced,
Employer and Executive waive any right either may have to bring or join a class
action or representative action, and further waive any right either may have
under statute or common law to a jury trial. Where the parties have mutually
waived their right to arbitration in writing or have not yet sought to enforce
their right to compel arbitration, venue for any legal action in connection
with this Agreement will be limited exclusively to the Washington State
Superior Court for Pierce County, or the United States District Court for the
Western District of Washington at Tacoma. Executive agrees to submit to the
personal jurisdiction of the courts identified herein, and agrees to waive any
objection to personal jurisdiction in these courts.

 

EXECUTED this           day
of                     ,
2005.

 

 

	
   

  	
   

  
	
  James E. Defebaugh

  

 

13

 

Dependable Temporary Labor.

 

July 28, 2005

 

Mr. James E. Defebaugh

3837 Shellmarr Ln

Bloomfield Twp., MI 48302

 

Dear Jim:

 

Labor Ready is very pleased to offer you full-time employment under the
terms and conditions stated in this letter. Labor Ready is offering you the
position of Vice President, General Counsel and Secretary with a total
potential annual compensation package of up to $653,125 (excluding the
sign on stock grant valued at approximately $144,000 using a stock price of
$24).  The specific points of your offer
are as follows:

 

Annual Base Salary - $275,000.

 

Cash Bonos(1) – You will be eligible for an annual target
bonus of 25% up to a maximum of 37.50% of your annual base salary and a minimum
of 0% (if we achieve less than 50% of our target) depending on the increase in
net income after lax over the prior year and CEO discretion, 75% of the bonus
to be paid in cash and 25% in unrestricted stock. This year’s target is a 35%
increase in net earnings over the prior year. The bonus is paid after earnings
release for the fiscal year just ended. You must be employed by Labor Ready on
date of payment to receive the cash bonus.

 

For
the year 2005, you will not be in the bonus calculation, but instead will
receive a guaranteed payment of $68,750, paid after earnings release, 75% of
the bonus to be paid in cash and 25% in unrestricted stock.

 

Equity Grants(1)
– You will be eligible for an annual equity grant valued at one times your
annual base salary. One half of the value is granted in restricted shares and
one half in stock options at Black Scholes value. The grant is made on January 1 of each year, and
vesting is ratable over 3 years. You are required to retain 75% of the net shares
(after taxes and option price) for 4 years after vesting.

 

Sign On Stock Grant – You will receive on your First day of employment 6,000 restricted
shares that vest ratably over 4 years, an approximate value of $144,000 using a
stock price of $24.

 

Health & Welfare Benefits – You and your family will be eligible for
benefits starting the first month after 90 days of employment You will be
reimbursed for the cost of continuing your Cobra benefits until you are
eligible to participate in the company plan.

 

(1)  Cash bonus and equity grants
may be changed at the discretion of the Board of Directors at the beginning of
each year.

 

Labor Ready Corporate Offices: PO Box 2910 • Tacoma, WA 98401 • (253)383-9101 • (800) 610-8920

 

 

 

401K
Program - You will be eligible to enroll at the beginning of
the quarter after six months of employment.

 

ESPP Plan -
You will be eligible to enroll at the beginning of the first month after six
months of employment.

 

Vacation -
You will be eligible for five weeks of vacation each
year.

 

Start Bate - September
12, 2005.

 

In addition, Labor Ready will agree to reimburse you for certain
reasonable and actual moving expenses as outlined in attachment A.

 

Your employment with Labor Ready is “at will” and, should you accept
this offer, your employment will not be for a specified term and may be
terminated with or without cause and with or without notice by you or by the
Company at any time, for any reason, subject to the terms and conditions set
forth in the Employment Agreement between you and Labor Ready. As a condition
of employment, you will be expected to sign the non-compete agreement contained
in attachment B.

 

Jim, we are all excited about the prospect of you joining our team and
are confident you will be a tremendous asset to the company. Please let me know
if you have any questions, 253-680-8211.

 

 

Sincerely yours,

 

 

	
  /s/ Joseph P. Sambataro

  	
   

  
	
  Joseph P. Sambataro

  
	
  President and Chief
  Executive Officer

  
	
  Labor Ready, Inc.

  

 

Acceptance

1 have read, understand, and accept the foregoing terms and conditions
of employment.

 

As further consideration for the offer of employment with Labor Ready
that is contained in this offer letter and accepted by me, I agree to be bound
by the following agreements, policies and procedure contained in attachments A
and B.

 

Accepted:

 

	
  /s/James E. Defebaugh 

  	
   

  

 

2

 

Dependable Temporary Labor.

 

July
28, 2005

 

Mr.James
E. Defebaugh

3837
Shel1marr Ln

Bloomfield
Twp., MI 48302

 

RE: Moving Agreement

 

Dear  Jim:

 

I’m pleased that you are considering our offer to assume the position
of Vice President, Secretary and General Counsel for Labor Ready, Inc. In order
to facilitate your relocation to Taconm, Washington, Labor Ready will pay for
the following actual and reasonable relocation expenses listed below:

 

•                   Professional movers, including packing,
loading, unloading and unpacking, not to exceed $30,000 (using a preferred
Labor Ready vendor);

•                  Transporting up to 3 cars, not to exceed
$6,000 (using a preferred Labor Ready vendor);

•                  Airplane, hotel, and related expenses for
your family, not to exceed $3,000;

•                  Up to $15,000 reimbursement for miscellaneous
expenses related to setting up your new household in the Washington area and
closing your household in Michigan;

•                  Reasonable and customary closing costs on
your Michigan home not to exceed $30,000;

•                  Reasonable and customary closing costs on the
Washington home (including up to 2 points on the Washington home’s mortgage),
not to exceed $24,000 in total;

•                  Labor Ready agrees to reimburse the cost of
the mortgage on the Michigan home for up to 6 months from the closing date of
the purchase of your Washington home or until the Michigan home sale closes,
whichever occurs first.

 

In addition, you agree to promptly retain a qualified real estate agent
and actively market the home. If the home nonetheless does not sell within six
(6) months of the date hereof, Labor Ready, at its discretion, will accept the
best offer or extend the monthly payments. Should you suffer a loss, based upon
your $525,000 purchase price in May 2005 (to be substantiated with a closing
statement), Labor Ready will reimburse you for said loss.

 

The move should be completed as soon as possible and in no event later
than January 1,2006. Please contact Lorie Rowley, Labor Ready’s Purchasing
Manager (800-610-8920 x 8571) to obtain the preferred Labor Ready vendors and
to start the moving process.

 

If without “Good Reason” (as that term is defined in your Employment
Agreement with the Company) you voluntarily leave your employment with Labor
Ready within one year of the date hereof, you agree to immediately reimburse
the company a pro rata amount (computed from the date

 

 

Labor Ready Corporate Offices: PO Box 2910 • Tacoma, WA 98401 • (253)383-9101 • (800) 610-8920

 

 

of agreement) of the foregoing expenses. Of course, nothing in this
offer modifies your employment at-will status, and Labor Ready reserves the
right to modify your compensation, title or continued employment, subject to
the terms and conditions set forth in your Employment Agreement.

 

We’re thrilled to have you and your Kristina in Tacoma. Please don’t
hesitate to contact me if you have any questions or concerns.

 

	
  Very truly yours,

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  /s/ Joseph P. Sambataro

  	
   

  	
   

  
	
  Joseph P. Sambataro

  	
  President and CEO

  
	
  Labor Ready, Inc.

  	
   

  
			

 

 

Acknowledgement,

 

	
  /s/ James E. Defebaugh

  	
   

  
	
  James E. Defebaugh

  

 

2

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