PUBLIC HEALTH SERVICE PATENT LICENSE AGREEMENT-

1)

The National Institutes of Health (“NIH”), the Centers for Disease Control and Prevention (“CDC”), or the Food and Drug Administration (“ FDA ”), hereinafter singly or collectively referred to as “ PHS ”, agencies of the United States Public Health Service within the Department of Health and Human Services (“ DHHS ”); and

2)

Procept, Inc. , having offices at the address indicated on the Signature Page, hereinafter referred to as “ Licensee ”.

l.

BACKGROUND

1.01

In the course of fundamental research programs at the PHS , Robert C. Moschel ( PHS ), Anthony Pegg (Milton S. Hershey Medical Center of Pennsylvania State University, ( PSU )), and Eileen Dolan (Milton S. Hershey Medical of Pennsylvania State University Center and the University of Chicago ( UC ), whereas UC , under an agreement with its affiliated corporation, ARCH Development Corporation has the right to license Licensed Patents and other intellectual property owned by ARCH ), made or reduced to practice certain inventions which are included within the Licensed Patent Rights , as defined in Paragraph 2.06 below.

1.02

PHS , by executing interinstitutional agreements with PSU (L-067-02/0), and UC (L-086-02/0), has obtained the exclusive license, including the right to sublicense, the Licensed Patent Rights listed in Appendix A.  Once executed, the terms and conditions of this Agreement shall supersede, and thereby terminate the terms and conditions of the previous license agreement between Pacific Pharmaceuticals, Inc. (now Procept, Inc. ) and PSU , made effective on February 6, 1998, provided that, the sublicense agreement, including its associated amendment, by and between AOI Pharmaceuticals, Inc. (“ Sublicensee ”) and Licensee made effective on October 13, 2000, and attached as Appendices G and H (such sublicense agreement and its associated amendment, the “ Sublicensee Agreement ”), shall continue to remain in full force and effect.

1.03

By assignment of rights from PHS employees and other inventors, DHHS , on behalf of the United States Government , owns intellectual property rights claimed in any United States and/or foreign patent applications or patents corresponding to the assigned inventions.  DHHS also owns any tangible embodiments of these inventions actually reduced to practice by PHS .

1.04

 The Secretary of DHHS has delegated to PHS the authority to enter into this Agreement for the licensing of rights to these inventions.

1.05

  PHS desires to transfer these inventions to the private sector through commercialization licenses to facilitate the commercial development of products and processes for public use and benefit.

1.06

  Licensee desires to acquire commercialization rights to certain of these inventions in order to develop processes, methods, and/or marketable products for public use and benefit.

2.

  DEFINITIONS

2.01

“ Affiliate ” means, with respect to any organization that can exercise independent legal standing, including a corporation, association, joint venture, partnership, trust, university, business, individual, government or political subdivision thereof (any such organization, an “ Entity ”), any Entity that directly or indirectly controls, is controlled by, or is under common control with such Entity .  “Control” for this purpose shall mean control of more than fifty percent (50%) of the voting securities of an Entity .

2.02

“ Benchmarks ” mean the performance milestones that are set forth in Appendix E.

2.03

“ Commercial Development Plan ” means the written commercialization plan attached as Appendix F.

2.04

“ First Commercial Sale ” means the initial transfer by or on behalf of Licensee or its sublicensees of Licensed Products or the initial practice of a Licensed Process by or on behalf of Licensee or its sublicensees in exchange for cash or some equivalent to which value can be assigned for the purpose of determining Net Sales .

2.05

“ Government ” means the Government of the United States of America.

2.06

“ Licensed Fields of Use ” means the fields of use identified in Appendix B.

2.07

“ Licensed Patent Rights ” shall mean:

a.         Patent applications (including provisional patent applications and PCT patent applications) and/or patents listed in Appendix A, all divisions and continuations of these applications, all patents issuing from such applications, divisions, and continuations, and any reissues, reexaminations, and extensions of all such patents;

b.        to the extent that the following contain one or more claims directed to the invention or inventions disclosed in a) above:  i) continuations-in-part of a) above; ii) all divisions and continuations of these continuations-in-part; iii) all patents issuing from such continuations-in-part, divisions, and continuations; iv) priority patent applications) of a) above; and v) any reissues, reexaminations, and extensions of alt such patents;

c.         to the extent that the following contain one or more claims directed to the invention or inventions disclosed in a) above:  all counterpart foreign and U.S. patent applications and patents to a) and b) above, including those listed in Appendix A.

Licensed Patent Rights shall not include b) or c) above to the extent that they contain one or more claims directed to new matter which is not the subject matter disclosed in a) above.

 2.08

“ Licensed Process(es) ” means processes which, in the course of being practiced would be within the scope of one or more claims of the Licensed Patent Rights that have not been held unpatentable, invalid or unenforceable by an unappealed or unappealable judgment of a court of competent jurisdiction.

 2.09

“ Licensed Product(s) ” means tangible materials which, in the course of manufacture, use, sale, or importation would be within the scope of one or more claims of the Licensed Patent Rights that have not been held unpatentable, invalid or unenforceable by an unappealed or unappealable judgment of a court of competent jurisdiction.

 2.10

“ Licensed Territory ” means the geographical area identified in Appendix B.

 2.11

“ Net Sales ” means the total gross receipts actually received for sales of Licensed Products or practice of Licensed Processes by Licensee , any of its Affiliates , its Sublicensee or any other sublicensee(s), and from leasing, renting, or otherwise making Licensed Products available to others without sale or other dispositions, whether invoiced or not, less returns and allowances, packing costs, insurance costs, freight out, taxes or excise duties imposed on the transaction (if separately invoiced), and wholesaler and cash discounts in amounts customary in the trade to the extent actually granted.  No deductions shall be made for commissions paid to individuals, whether they be with independent sales agencies or regularly employed by Licensee , Sublicensee or sublicensee(s), and on its payroll, or for the cost of collections.

 2.12

“ Practical Application ” means to manufacture in the case of a composition or product, to practice in the case of a process or method, or to operate in the case of a machine or system; and in each case, under such conditions as to establish that the invention is being utilized and that its benefits are to the extent permitted by law or Government regulations available to the public on reasonable terms.

2.13

“ Research License ” means a nontransferable, nonexclusive license to make and to use the Licensed Products or Licensed Processes as defined by the Licensed Patent Rights for purposes of research and not for purposes of commercial manufacture or distribution or in lieu of purchase.

3.

GRANT OF RIGHTS

3.01

PHS hereby grants and Licensee accepts, subject to the terms and conditions of this Agreement , an exclusive license under the Licensed Patent Rights in the Licensed Territory to make and have made, to use and have used, to sell and have sold, to offer to sell, and to import any Licensed Products in the Licensed Fields of Use and to practice and have practiced any Licensed Processes in the Licensed Fields of Use .

3.02

This Agreement confers no license or rights by implication, estoppel, or otherwise under any patent applications or patents of PHS other than Licensed Patent Rights regardless of whether such patents are dominant or subordinate to Licensed Patent Rights .

4.

SUBLICENSING

4.01

Upon written approval by PHS , Licensee and Sublicensee may enter into sublicensing agreements under the Licensed Patent Rights .  Notwithstanding anything else stated herein, PHS acknowledges that this Agreement does not terminate, alter or supersede the Sublicensee Agreement that existed and continues to exist between Licensee and Sublicensee , and listed in Appendices G and H respectively, pursuant to Section 1.02 of this Agreement .  PHS hereby approves the Sublicensee Agreement in the event of termination of this Agreement under Article 13.

4.02

Licensee agrees that any sublicenses granted by it shall provide that the obligations to PHS of Paragraphs 5.0l-5.04, 8.01, 9.02, 10.01, 10.02, 12.05, and 13.07-13.09 of this Agreement shall be binding upon the sublicensee(s) as if it were a party to this Agreement .  Licensee further agrees to attach copies of these Paragraphs to all sublicense agreements.

4.03

Any sublicenses granted by Licensee shall provide for the termination of the sublicense or the conversion to a license directly between such sublicensee(s) and PHS , at the option of the Sublicensee , upon termination of this Agreement under Article 13, and shall be under substantially similar terms of this Agreement , wherein all considerations are in cash.  Such conversion is subject to PHS approval and contingent upon acceptance by the Sublicensee of the remaining provisions of this Agreement .

4.04

Licensee agrees to forward to PHS a copy of each fully executed sublicense agreement postmarked within thirty (30) days of the execution of such agreement.  To the extent permitted by law, PHS agrees to maintain each such sublicense agreement in confidence.

5.

STATUTORY AND PHS REQUIREMENTS AND RESERVED GOVERNMENT RIGHTS

5.01

(a)

PHS reserves on behalf of the Government an irrevocable, nonexclusive, nontransferable, royalty-free license for the practice of all inventions licensed under the Licensed Patent Rights throughout the world by or on behalf of the Government and on behalf of any foreign government or international organization pursuant to any existing or future treaty or agreement to which the Government is a signatory.  Prior to the First Commercial Sale , Licensee agrees to provide PHS reasonable quantities of Licensed Products or materials made through the Licensed Processes for PHS research use.

(b)

In the event that Licensed Patent Rights are Subject Inventions made under a Cooperative Research and Development Agreement (CRADA), Licensee grants to the Government , pursuant to 15 U.S.C. 3710a(b)(1)(A), a nonexclusive, nontransferable, irrevocable, paid-up license to practice Licensed Patent Rights or have Licensed Patent Rights practiced throughout the world by or on behalf of the Government .  In the exercise of such license, the Government shall not publicly disclose trade secrets or commercial or financial information that is privileged or confidential within the meaning of 5 U.S.C. 552(b)(4) or which would be considered as such if it had been obtained from a non-Federal party.  Prior to the First Commercial Sale , Licensee agrees to provide PHS reasonable quantities of Licensed Products or materials made through the Licensed Processes for PHS research use.

5.02

Licensee agrees that products used or sold in the United States embodying Licensed Products or produced through use of Licensed Processes shall be manufactured substantially in the United States, unless a written waiver is obtained in advance from PHS .

5.03

Licensee acknowledges that PHS may enter into future Cooperative Research and Development Agreements (CRADAs) under the Federal Technology Transfer Act of 1986 that relate to the subject matter of this Agreement .  Licensee agrees not to unreasonably deny requests for a Research License from such future collaborators with PHS when acquiring such rights is necessary in order to make a Cooperative Research and Development Agreement (CRADA) project feasible.  Licensee may request an opportunity to join as a party to the proposed Cooperative Research and Development Agreement (CRADA).

5.04

(a)

 In addition to the reserved license of Paragraph 5.01 above, PHS reserves the right to grant nonexclusive Research Licenses directly or to require Licensee to grant nonexclusive Research Licenses on reasonable terms.  The purpose of this Research License is to encourage basic research, whether conducted at an academic or corporate facility.  In order to safeguard the Licensed Patent Rights , however, PHS shall consult with Licensee before granting to commercial entities a Research License or providing to them research samples of materials made through the Licensed Processes .

(b)

In exceptional circumstances, and in the event that Licensed Patent Rights are Subject Inventions made under a Cooperative Research and Development Agreement (CRADA), the Government , pursuant to 15 U.S.C. 3710a(b)(1)(B), retains the right to require the Licensee to grant to a responsible applicant a nonexclusive, partially exclusive, or exclusive sublicense to use Licensed Patent Rights in Licensee ’s field of use on terms that are reasonable under the circumstances; or if Licensee fails to grant such a license, the Government retains the right to grant the license itself.  The exercise of such rights by the Government shall only be in exceptional circumstances and only if the Government determines (i) the action is necessary to meet health or safety needs that are not reasonably satisfied by Licensee ; (ii) the action is necessary to meet requirements for public use specified by Federal regulations, and such requirements are not reasonably satisfied by the Licensee ; or (iii) the Licensee has failed to comply with an agreement containing provisions described in 15 U.S.C. 3710a(c)(4)(B).  The determination made by the Government under this Article is subject to administrative appeal and judicial review under 35 U.S.C. 203(2).

6.

ROYALTIES AND REIMBURSEMENT

6.01

Licensee agrees to pay to PHS a noncreditable, nonrefundable license issue royalty as set forth in Appendix C within thirty (30) days from the date that this Agreement becomes effective.

6.02

Licensee agrees to pay to PHS a nonrefundable minimum annual royalty as set forth in Appendix C.  The minimum annual royalty is due and payable on January 1 of each calendar year and may be credited against any earned royalties due for sales made in that year.  The minimum annual royalty due for the first calendar year of this Agreement may be prorated according to the fraction of the calendar year remaining between the effective date of this Agreement and the next subsequent January 1.

6.03.

Licensee agrees to pay PHS earned royalties as set forth in Appendix C.

6.04

Licensee agrees to pay PHS benchmark royalties as set forth in Appendix C.

6.05

Licensee agrees to pay PHS sublicensing royalties as set forth in Appendix C.

6.06

A patent or patent application licensed under this Agreement shall cease to fall within the Licensed Patent Rights for the purpose of computing earned royalty payments in any given country on the earliest of the dates that a) the application has been abandoned and not continued, b) the patent expires or irrevocably lapses, or c) the claim has been held to be invalid or unenforceable by an unappealed or unappealable decision of a court of competent jurisdiction or administrative agency.

6.07

No multiple royalties shall be payable because any Licensed Products or Licensed Processes are covered by more than one of the Licensed Patent Rights .

6.08

On sales of Licensed Products by Licensee or on sales made in other than an arm’s-length transaction, the value of the Net Sales attributed under this Article 6 to such a transaction shall be that which would have been received in an arm’s-length transaction, based on sales of like quantity and quality products on or about the time of such transaction.

6.09

With regard to expenses associated with the preparation, filing, prosecution, and maintenance of all patent applications and patents included within the Licensed Patent Rights incurred by PHS prior to the effective date of this Agreement , Licensee shall pay to PHS , as an additional royalty, within sixty (60) days of PHS ’s submission of a statement and request for payment to Licensee , an amount equivalent to such patent expenses previously incurred by PHS unless such expenses are disputed in good faith by Licensee , in which case the parties will attempt to resolve amicably the dispute pursuant to paragraph 14.12.

6.10

With regard to expenses associated with the preparation, filing, prosecution, and maintenance of all patent applications a