AGREEMENT BETWEEN ABBOTT LABORATORIES AND SONUS PHARMACEUTICALS, INC. [Confidential Treatment Requested] TABLE OF CONTENTS ABBOTT LABORATORIES AND SONUS PHARMACEUTICALS, INC. 1. DEFINITIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2 2. RESEARCH AND DEVELOPMENT . . . . . . . . . . . . . . . . . . . . . . . 6 3. ALLOCATION OF PRODUCT RIGHTS AND RESPONSIBILITIES . . . . . . . . . . . 9 4. CANADA AND LATIN AMERICA. . . . . . . . . . . . . . . . . . . . . . . . 24 5. LICENSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 6. LAUNCH BUDGET; REIMBURSEMENT PAYMENTS . . . . . . . . . . . . . . . . . .27 7. REVENUE PAYMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . 29 8. WARRANT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31 9. BUYOUT OPTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 10. RIGHT OF FIRST REFUSAL FOR ADDITIONAL PRODUCTS . . . . . . . . . . . . 33 11. REPRESENTATIONS AND WARRANTIES . . . . . . . . . . . . . . . . . . . . 34 12. TERM AND TERMINATION . . . . . . . . . . . . . . . . . . . . . . . . . 35 13. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 14. LIMITATION OF LIABILITY . . . . . . . . . . . . . . . . . . . . . . . . 42 15. CONFIDENTIAL INFORMATION . . . . . . . . . . . . . . . . . . . . . . . 42 16. NON-COMPETE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 17. FORCE MAJEURE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 18. NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 19. ASSIGNMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 20. SUCCESSORS AND ASSIGNS . . . . . . . . . . . . . . . . . . . . . . . . 46 21. ALTERNATIVE DISPUTE RESOLUTION . . . . . . . . . . . . . . . . . . . . 46 22. PUBLICITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 23. RELATIONSHIP OF PARTIES . . . . . . . . . . . . . . . . . . . . . . . . 47 24. APPENDICES AND EXHIBITS . . . . . . . . . . . . . . . . . . . . . . . . 47 25. HEADINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 26. WAIVER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 27. SEVERABILITY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48 28. ENTIRE AGREEMENT; AMENDMENT . . . . . . . . . . . . . . . . . . . . . . 48 29. APPLICABLE LAW . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 30. COUNTERPARTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49 APPENDICES INDICATIONS Appendix 1.6 LICENSED PATENTS Appendix 1.13 RESEARCH AND DEVELOPMENT PLAN Appendix 2.2 R&D PAYMENT SCHEDULE Appendix 2.3 NET SALES FORECAST Appendix 3.2B SPECIFICATIONS Appendix 3.4 TRADEMARKS Appendix 3.9 ALTERNATIVE DISPUTE RESOLUTION Appendix 21 EXHIBITS WARRANT CERTIFICATE FORM Exhibit A [THE APPENDICES LISTED ABOVE, OTHER THAN APPENDIX 2.3, ARE NOT INCLUDED HEREWITH BUT WILL BE FURNISHED SUPPLEMENTALLY TO THE COMMISSION UPON REQUEST, SUBJECT TO ABBOTT LABORATORIES' RIGHT TO REQUEST CONFIDENTIAL TREATMENT FOR THESE APPENDICES PURSUANT TO THE RULES OF THE COMMISSION] AGREEMENT THIS AGREEMENT dated May 14, 1996 ("Effective Date"), by and between Abbott Laboratories, an Illinois corporation with principal offices at 100 Abbott Park Road, Abbott Park, Illinois 60064-3500 ("ABBOTT") and SONUS Pharmaceuticals, Inc., a Delaware corporation with principal offices at 22026 20th Avenue, S.E., Suite 102, Bothell, Washington 98021 ("SONUS"). RECITALS WHEREAS, SONUS has developed and holds patents and patent applications on an ultrasound contrast agent, trademarked "EchoGen;" and WHEREAS, SONUS and ABBOTT have previously entered into a Development and Supply Agreement, dated May 6, 1993 ("Supply Agreement"), whereby ABBOTT assisted in the manufacturing scale-up of and agreed to manufacture the ultrasound contrast agent for SONUS; and WHEREAS, SONUS is currently conducting clinical studies for use in obtaining Federal Food and Drug Administration approval of the ultrasound contrast agent; and WHEREAS, SONUS desires to grant, and ABBOTT desires to obtain, certain exclusive marketing rights, subject to limited SONUS co-promotion rights, to the ultrasound contrast agent in accordance with the terms and conditions of this Agreement; NOW, THEREFORE, in consideration of the premises and the mutual promises and covenants set forth below, ABBOTT and SONUS mutually agree as follows: 1 1. DEFINITIONS In addition to the terms defined in the provisions of the Agreement, the following terms shall have the meaning ascribed below: 1.1 "Affiliate" means any entity which controls, is controlled by or is under common control with another entity. An entity is deemed to be in control of another entity (controlled entity) if the former owns directly or indirectly at least the lesser of (a) fifty percent (50%), or (b) the maximum percentage allowed by law in the country of the controlled entity, of the outstanding voting equity of the controlled entity. 1.2 "Agreement" means this Agreement, as may be amended, including all Appendices and Exhibits attached hereto. 1.3 "Average Unit Selling Price" means Net Sales for a period divided by the number of Units of Product shipped by ABBOTT and its Affiliates in the Territory for the same period, less returned goods, inventory outdates, recalls and/or withdrawals of Product. 1.4 "Confidential Information" means information disclosed in writing by one party to the other pursuant to this Agreement and identified as "CONFIDENTIAL" as well as information disclosed orally to the extent such oral disclosure is reduced to writing and is identified as "CONFIDENTIAL" and which is provided to the other party within thirty (30) days after oral disclosure. "Confidential Information" does not include any of such information which: (A) is known to the receiving party before receipt thereof under this Agreement, or is independently developed by the receiving party without recourse to 2 the other party's Confidential Information, as evidenced by the receiving party's written records; (B) is disclosed to the receiving party without restriction after full execution of this Agreement by a Third Party having a legal right to make such disclosure; or (C) is or becomes part of the public domain through no breach of this Agreement. 1.5 "FDA" means the United States Food and Drug Administration or any successor entity thereto. 1.6 "Field" means diagnostic ultrasound pharmaceuticals for all current and future markets for the indications set forth in Appendix 1.6, as such indications are approved by the FDA. 1.7 "Finished Goods Inventory" means the Product inventory status whereby the Product has completed production and testing procedures and is ready for sale to Third Party customers. 1.8 "Finished Product" means Units of the Product tested and ready for sale, either supplied to ABBOTT by SONUS, or manufactured by ABBOTT for SONUS. 1.9 "First Shipment Date" means the date of the first shipment of Product by ABBOTT to a Third Party, as evidenced by an ABBOTT sales invoice generated and sent to a Third Party, but in no event more than ninety (90) days after FDA approval of the Product. 1.10 "GMP" means current good manufacturing practices as established by the FDA and as practiced by the industry in which the parties operate. 3 1.11 "Improvements" means any and all developments, inventions or discoveries in the Field relating to the Licensed Patents or Know-How and developed, or acquired with the right to sublicense, by SONUS during the term of this Agreement and shall include, but not be limited to, developments intended to enhance the safety and efficacy of the Product. 1.12 "Know-How" means that proprietary technology of SONUS relating to the Product including, but not limited to, manufacture or product techniques, formulations or production technology, methods of synthesis or other processes. 1.13 "Licensed Patents" means: (A) the patents and patent applications set forth in Appendix 1.13 and any patents or patent applications covering the Product now owned or hereafter acquired by SONUS or under which SONUS has the right to grant sublicenses during the term of this Agreement in the Territory including any covering Improvements; (B) all patents arising from such applications identified in (A) and any divisions, continuations, and continuations-in-part identified in (A); (C) any extension, renewal, re-examination or reissue of a patent identified in (A) or (B). 1.14 "NDA" means an application filed with the FDA for approval by the FDA of the sale of the Product in the United States of America, whether such application is characterized as a New Drug Application or otherwise. 1.15 "Net Sales" means the gross sales of the Product in all of its final packaged forms shipped by ABBOTT and its Affiliates in the Territory, less: (A) allowances and adjustments separately and actually credited or 4 payable, including credit for damaged, outdated and returned products; (B) trade discounts earned or granted; (C) cash discounts actually allowed; (D) transportation charges (including insurance costs), handling charges, sales taxes, excise taxes and duties, and other similar charges invoiced to customers; (E) wholesaler chargebacks; and (F) rebates and management fees earned or granted. Net Sales shall be calculated in accordance with ABBOTT's standard internal policies and procedures. Any discount, allowance, rebate, management fee or wholesaler chargeback for the Product which is given to a customer due to the purchase of a product other than the Product or due to the purchase of any service, shall not be taken into consideration for the calculation of Net Sales. 1.16 "Product" means a colloidal dispersion ultrasound contrast agent suitable for intravenous administration containing the active ingredient dodecafluoropentane which is covered by one or more claims of the Licensed Patents regardless of form, dose or package. Without limiting the generality of the foregoing, "Product" shall include: (i) a complete product with kit, including one or more vials of EchoGen-Registered Trademark- together with a kit including a syringe, tubing and other accessories as may be included in the final package; (ii) one or more vials of EchoGen-Registered Trademark- without any kit; and (iii) a kit only, consisting of a syringe, tubing and other accessories as are included in the final package, but not including any EchoGen- Registered Trademark-. 1.17 "Supply Agreement" means the Contrast Agent Development and Supply 5 Agreement between ABBOTT and SONUS dated May 6, 1993, as amended and as may be amended by the parties. 1.18 "Territory" means the continental United States, Alaska, Hawaii and Puerto Rico, but does not include its other territories, commonwealths or possessions. 1.19 "Third Party" means any individual, corporation, partnership, trust or other business organization or entity, and any other recognized organization other than the parties hereto and their Affiliates. 1.20 "Unit" means a single vial of the Product or a combination of a single vial with a kit which is in final salable form. 2. RESEARCH AND DEVELOPMENT 2.1 RESPONSIBILITIES. SONUS shall use reasonable commercial best efforts to carry out and perform the research and development to obtain prompt FDA approval of the Product for use in the Field. SONUS shall be solely responsible for all research and development, for clinical research, and for the securing of regulatory approval of the Product in the Territory. SONUS shall use its reasonable commercial best efforts to achieve each milestone of the Plan (as defined below) and complete each phase of the research and development in order to obtain FDA approval of the Product for marketing in the Territory. 2.2 RESEARCH AND DEVELOPMENT PLAN. SONUS shall be responsible for preparing a research and development plan to include all the necessary research, development, clinical research and regulatory filings to support an NDA and obtain FDA approval of the Product in the Territory. The research and development plan and milestone timetable shall be attached to this Agreement as Appendix 2.2 ("Plan"). 6 Such Plan shall be updated quarterly by SONUS and SONUS shall submit to ABBOTT a quarterly status report summarizing the completion or phase of completion of each key milestone in the Plan. During the period of time covered by the Plan, ABBOTT and SONUS shall meet at least quarterly at times and places mutually agreed upon to discuss the status of the Plan. 2.3 RESEARCH AND DEVELOPMENT PAYMENTS. ABBOTT shall provide to SONUS (A) thirty million dollars ($30,000,000) to support completion of the Plan, including any related general needs by SONUS, and (B) one million dollars ($1,000,000) as payment for the grant of the licenses under the Licensed Patents and Know-How in Article 5 and the trademark license in Section 3.9. These payments shall be nonrefundable, shall be paid by ABBOTT to SONUS in the amounts and at the times set forth on the schedule in Appendix 2.3. The quarterly milestone payments set forth in Appendix 2.3 shall be paid to SONUS within fifteen (15) days of receipt of the appropriate quarterly report described above in Section 2.2. 2.4 ADDITIONAL CLINICAL RESEARCH. ABBOTT shall have no obligation to provide financial support for research and development, including clinical research, to be conducted by SONUS except for the amounts payable by ABBOTT as set forth in Section 2.3 and Article 7. SONUS shall promptly notify ABBOTT in writing if SONUS desires that ABBOTT fund expenditures for clinical research in addition to that set forth in the Plan to support research and development for ultrasound diagnostic applications for the following indications for the Product:: [CONFIDENTIAL PORTION]. Such notice from SONUS shall include a budget for clinical research and a preliminary 7 clinical plan. ABBOTT shall communicate its decision whether or not to financially participate in such clinical research within ninety (90) days of receipt of the budget and clinical plan from SONUS. ABBOTT shall be under no obligation to financially support such additional clinical research. If ABBOTT desires to participate in such additional clinical research, ABBOTT shall reimburse SONUS for its documented incremental costs and expenses incurred associated with the additional clinical research which are costs and expenses in excess of SONUS' budget for clinical research as described in Sections 2.2 and 3.6 and which are mutually agreed by the parties. In addition, the definition of the "Field" set forth in Section 1.6 shall be expanded to include the indication(s) funded by ABBOTT. SONUS shall reimburse ABBOTT fifty percent (50%) of such costs and expenses funded by ABBOTT by either, at the option of SONUS (i) reimbursing ABBOTT such costs and expenses with interest at the prime rate of interest within five (5) years of the date such costs and expenses are paid by ABBOTT, or (ii) reducing the percentage amounts payable by ABBOTT to SONUS as provided in Article 7 at such dates and in such amounts as is mutually agreed by the parties. If ABBOTT determines not to provide additional financial support for such additional clinical research and SONUS proceeds with the additional research and development, then the parties shall negotiate in good faith to modify the percentage allocations of Revenue Payments allocable to such additional indications under Section 7.1 below to reflect the amount of the expenditures to be made by SONUS for such additional clinical research related to such additional indications, together with such other factors as are appropriate. If the parties agree to a reasonable modification of the percentage allocation of Revenue Payments as set forth above, the definition of 8 "Field" set forth in Section 1.6 shall be expanded to include such additional indications. The provisions of this Section 2.4 shall apply only with respect to the new indications for the Product specified above and shall not apply to any new product which is subject to Section 10 below. 2.5 FDA APPROVAL. If SONUS does not receive FDA approval to market the Product within four (4) years of the date of the NDA filing, then ABBOTT may, but does not have any obligation to, pursue such FDA approval of the Product. If ABBOTT determines to pursue FDA approval, then SONUS shall promptly, upon written request from ABBOTT, deliver to ABBOTT all NDA documentation, clinical study data and supplies. ABBOTT may conduct any necessary research or clinical studies to obtain such FDA approval of the Product. All reasonable costs incurred by ABBOTT in pursuing such FDA approval shall be deducted from any payments due SONUS under this Agreement. 3. ALLOCATION OF PRODUCT RIGHTS AND RESPONSIBILITIES 3.1 PREMISE . Under this Article 3, ABBOTT and SONUS agree to a division of responsibilities regarding the Product and, under Article 7, accordingly agree to a division of revenue generated by sales of the Product. If there is a material change in the division of such responsibilities, whether by the agreement of the parties or by operation of this Agreement, then the parties shall negotiate in good faith toward a corresponding change in the division of revenue under Article 7. 3.2 MARKETING AND SALES. (A) ABBOTT shall have the exclusive right and the associated responsibilities for the marketing and sales of the Product in the Territory, which shall 9 include responsibility for distribution, order entry, invoicing and collection regarding sales of the Product. ABBOTT shall use its reasonable commercial best efforts to optimize sales, profitability, and market share in the Territory. The efforts of ABBOTT shall be evidenced by carrying out those specific tasks as mutually agreed to by the parties. ABBOTT shall prepare pre- and post-launch marketing plans which shall be reviewed and approved by SONUS prior to implementation, such approval not to be unreasonably withheld. (B) SONUS shall have the right to co-promote (as defined herein) the Product at its own expense in the Territory only under the following circumstances: (i) at any time after the first anniversary of the First Shipment Date, if ABBOTT's Net Sales to Third Parties are below fifty percent (50%) of the mutually agreed Net Sales forecast attached as Appendix 3.2B for any two consecutive quarters. SONUS shall notify ABBOTT in writing within thirty (30) days of receipt of the applicable second quarterly Net Sales report, as set forth in Section 7.1, of its intention to co-promote the Product. SONUS' right to co-promote would be effective thirty (30) days after the date of ABBOTT's receipt of notice from SONUS. If SONUS does not so inform ABBOTT, then SONUS shall have waived its right to co-promote the Product with regard to that specific failure of ABBOTT to meet its Net Sales forecast for such two (2) consecutive quarters. The Net Sales forecast shall be adjusted as mutually agreed by the parties to reflect the actual time that FDA approval is obtained and the actual indications approved. (ii) at any time after the third anniversary of the First Shipment Date, SONUS may, at its expense, co-promote and sell the Product in the Territory in 10 order to increase sales, profitability and market share above the existing Net Sales forecast, for new indications, market segment customers, or customer locations in a manner designed as complementary to ABBOTT's sales and marketing efforts. All SONUS deployment and promotional plans and budgets must be reviewed and approved by ABBOTT prior to implementation, such approval not to be unreasonably withheld. SONUS shall notify ABBOTT in writing ninety (90) days prior to commencing such co-promotion of the Product. (iii) at any time for new indications or new market segments for which ABBOTT has declined to support research, development or clinical research after timely notice by SONUS as set forth in Section 2.4. (C) SONUS' rights to co-promote the Product as set forth in subsections 3.2(B) (i), (ii), and (iii) do not include the right of SONUS to sublicense, transfer, or grant, directly or indirectly, such rights to a Third Party except as set forth in Article 19. For purposes of this Agreement, "co- promotion" means the detailing of the Product to a Third Party customer including providing promotional materials and technical assistance but does not include accepting sales orders. SONUS shall inform all such customers to place all sales resulting from SONUS' co-promotion of the Product directly with ABBOTT and provide the necessary sales processing information to the customer. 3.3 RAW MATERIALS, QUALITY CONTROL. SONUS shall be responsible for procurement of all raw materials necessary for the manufacture of the Product as well as quality control of the raw materials. SONUS shall handle raw materials in accordance with the applicable provisions of the Supply Agreement. 11 3.4 PRODUCT MANUFACTURE. (A) ABBOTT and SONUS have previously entered into the Supply Agreement under which ABBOTT has agreed to manufacture the Product for SONUS. SONUS may purchase Product under the Supply Agreement to fulfill ABBOTT's purchase orders under Section 3.5. All manufacturing of the Product by ABBOTT for sale in the Territory by ABBOTT shall be in accordance with the terms of the Supply Agreement and the specifications for the Product in effect under the Supply Agreement ("Specifications") attached hereto as Appendix 3.4. The parties agree to negotiate in good faith an amendment to the Supply Agreement to include within the terms of the Supply Agreement the purchase and sale of the kits consisting of syringes, tubing and other accessories as are included in the final package of the complete Product, including the pricing and other terms and conditions of sale which are consistent with the Supply Agreement and the general custom and practice within the industry regarding such materials. (B) The Supply Agreement shall govern ABBOTT's manufacture of all Product provided to SONUS for sale by SONUS outside the Territory and SONUS' right to manufacture or have manufactured the Product by a Third Party. SONUS shall give ABBOTT reasonable prior notice in writing if SONUS decides to manufacture or have manufactured by a Third Party the Product for purchase by ABBOTT under this Agreement. Upon such notice, ABBOTT and SONUS shall enter into good faith negotiations to reach agreement on the terms and conditions for a Third Party manufacturer for the Product to be purchased by ABBOTT. (C) All Product manufactured by SONUS or by a Third Party shall conform with 12 the Specifications. Any Third Party manufacturer appointed by SONUS to manufacture the Product must be approved by the FDA and have a reasonable history and record of conforming with current GMP. (D) If any of the provisions of the Supply Agreement and this Agreement are inconsistent, then the provisions of this Agreement shall control for purposes of the manufacture and supply of Product subject to this Agreement. 3.5 PRODUCT FORECASTS, ORDERS AND REJECTED PRODUCT. (A) Not later than one hundred twenty (120) days prior to the First Shipment Date, and thereafter, at least thirty (30) days prior to the first day of each calendar quarter, ABBOTT shall furnish to SONUS a rolling forecast of the quantities of the Product ABBOTT intends to order for sale in the Territory during the twelve (12) month period commencing with that calendar quarter. The first three (3) months of such forecast shall constitute a firm order and a binding commitment of ABBOTT to purchase such quantities as evidenced by purchase orders received from ABBOTT in accordance with Section 3.5(B). The balance of each such forecast shall merely represent reasonable estimates, not purchase commitments for the Product. (B) ABBOTT shall place each purchase order with SONUS for Product to be delivered hereunder thirty (30) days prior to the delivery date specified in each respective purchase order. SONUS may reject any purchase order which exceeds one hundred fifty percent (150%) of the most current forecast underlying such purchase order. No rejection shall be effective unless in writing and delivered to ABBOTT within ten (10) days of SONUS' receipt of ABBOTT's purchase order. ABBOTT shall be obligated to purchase all Product ordered and delivered by the 13 specified delivery date provided that, if Product is manufactured by a Third Party manufacturer and not by ABBOTT, such Product meets the Specifications. (C) If the Product is manufactured solely by SONUS or a Third Party and if SONUS is unable to meet its supply obligations under any purchase order, then SONUS shall give prompt written notice to ABBOTT. In such event, if SONUS fails, or notifies ABBOTT that it will fail, to supply any amount of Product for a ninety (90) day period, then ABBOTT may (i) set up a manufacturing source, at the reasonable expense of SONUS, and manufacture or have the Product manufactured by a Third Party at the reasonable expense of SONUS for the time period of such failure or one hundred eighty (180) days, whichever is longer, or (ii) terminate this Agreement in accordance with Section 12.2(D). The rights of ABBOTT to terminate the Agreement pursuant to this Section 3.5(C) will not apply if ABBOTT is in default of the Supply Agreement, unless ABBOTT's default or inability to supply is directly or indirectly due to SONUS, including, but not limited to, SONUS' failure to supply raw materials to ABBOTT as required under the Supply Agreement and this Agreement. (D) If the Product is manufactured solely by ABBOTT and if ABBOTT is unable to meet its supply obligations under any purchase order, then ABBOTT shall give prompt written notice to SONUS. In such event, if ABBOTT fails, or notifies SONUS that it will fail, to supply any amount of Product for a ninety (90) day period, then SONUS may (i) set up a manufacturing source, at the reasonable expense of ABBOTT, and manufacture or have the Product manufactured, by a Third Party at the reasonable expense of ABBOTT for the time period of such failure or one hundred eighty (180) days, whichever is longer, or (ii) terminate this Agreement in accordance 14 with Section 12.2(D). Notwithstanding the foregoing, SONUS shall not have the right to terminate this Agreement if the cause of ABBOTT's inability to supply is directly or indirectly due to SONUS, including, but not limited to, SONUS' failure to supply raw materials to ABBOTT as required under the Supply Agreement and this Agreement. (E) If SONUS and ABBOTT are both manufacturing or otherwise supplying Finished Product to ABBOTT for sale in the Territory and either ABBOTT or SONUS ("Non-Performing Party") notifies the other party ("Other Party") that the Non- Performing Party is unable to supply Product to the Other Party or either fails to supply Product pursuant to this Section 3.5, and is unable to correct such failure within ninety (90) days of written notice thereof from the Other Party, then the right of Non-Performing Party to manufacture or otherwise supply Product to the Other Party under the Supply Agreement shall cease until such time as the Non-Performing Party notifies the other that it is again able to supply Product. (F) For Product provided by SONUS to ABBOTT which SONUS has sourced from a party other than ABBOTT, ABBOTT shall notify SONUS in writing of any claim relating to damaged, defective or nonconforming Product or any shortage in quantity of any shipment of Product within thirty (30) days of receipt of such Product by ABBOTT. In the event of such rejection or shortage, SONUS shall replace the rejected Product or make up the shortage within thirty (30) days of receiving such notice, at no additional cost to ABBOTT, and shall make arrangements with ABBOTT for the return of any rejected Product at the expense of SONUS. For Products provided by SONUS to ABBOTT which SONUS has sourced from ABBOTT, ABBOTT shall accept such Products as conforming upon delivery to ABBOTT. 15 (G) In the event that SONUS is unable to provide raw material under the Supply Agreement for a period of ninety (90) days or longer, then ABBOTT shall have the right to purchase the raw materials from a Third Party at SONUS' expense or manufacture the raw materials or have a Third Party manufacture the raw materials at SONUS' expense. 3.6 CLINICAL RESEARCH, REGULATORY AFFAIRS, TECHNICAL MARKETING/MEDICAL SUPPORT. (A) SONUS shall be responsible for all ongoing product development, clinical research and regulatory filings and affairs beyond the responsibilities set forth in Section 2.3 in support of expanded label indications in the Field. SONUS shall also be responsible for all FDA communications, including review of promotional materials, and all FDA requirements regarding the Product (except those communications and requirements specifically associated with GMP applicable to the manufacture of the Product by ABBOTT as addressed in the Supply Agreement). ABBOTT will forward all adverse drug events to SONUS for handling by SONUS, including any required reporting to the FDA. Each party shall promptly notify the other party of all communications from and to the FDA regarding the Product. (B) SONUS shall be responsible for all medical and technical support in the Field in the Territory, including those specific tasks mutually agreed to by the parties. This support shall be designed to fit with the Product positioning and ABBOTT's promotional plan. 3.7 PRODUCT RECALLS. In the event (A) any government authority issues a request, directive or order that the Product be recalled, or (B) a court of competent jurisdiction orders such a recall, or (C) ABBOTT and SONUS, after consultation with 16 each other, determine that the Product should be recalled, the parties shall take all appropriate corrective actions, and shall cooperate in the investigations surrounding the recall. ABBOTT shall handle notification of customers and return of Product from customers. SONUS shall handle all FDA communications and requests regarding any recalls. If such recall results from any cause or event arising from a sole responsibility of SONUS as set forth in this Agreement or in the Supply Agreement or is solely attributable to SONUS, SONUS shall be responsible for all expenses of the recall and ABBOTT may deduct any such expenses borne by ABBOTT from any payment due to SONUS under this Agreement. If such recall results from a sole responsibility of ABBOTT as set forth in this Agreement or in the Supply Agreement or is solely attributable to ABBOTT, ABBOTT shall be responsible for the expenses of recall and shall reimburse SONUS for expenses incurred by SONUS for such recall. In the event that the recall results from any cause(s) or event(s) arising from a joint responsibility of the parties or partially from a responsibility of SONUS and partially from a responsibility of ABBOTT, SONUS and ABBOTT shall be jointly responsible for expenses of the recall in proportion to each such party's proximate fault with respect to the recall. For the purpose of this Agreement, the expenses of recall shall include, without limitation, the expenses of notification and destruction or return of the recalled Product, cost for the Product recalled, legal expenses, inventory write-offs and penalties resulting from third party contracts. 3.8 PATENTS (A) SONUS shall be responsible for and shall diligently carry out and shall bear all costs (including attorney fees) for the preparation, filing, prosecution, 17 maintenance, and extensions, if any, of all patents or patent applications under the Licensed Patents. In addition, SONUS shall promptly advise ABBOTT of all material correspondence, filings and notices of action between SONUS and the United States Patent and Trademark Office ("PTO") concerning the Licensed Patents. If SONUS elects not to prepare and file a patent application covering an Improvement referenced under Section 3.8(B) or discontinues the prosecution of any patent application or maintenance of any patent under the Licensed Patents, then SONUS shall promptly notify ABBOTT and supply ABBOTT with copies of all written communications with the PTO. In the event that ABBOTT reasonably determines that the failure of SONUS to pursue the filing and prosecution of the patent application would adversely affect the rights of ABBOTT under this Agreement, ABBOTT may, but does not have the obligation to, file or continue prosecution of such application or maintain such patent at its own expense. If ABBOTT so elects, then SONUS shall be responsible for the reasonable costs incurred by ABBOTT in connection with such filing or prosecution and shall promptly reimburse ABBOTT for such costs upon notice by ABBOTT. (B) SONUS shall promptly notify ABBOTT of any Improvements and of any efforts by SONUS to patent Improvements in the Territory including, but not limited to designation of the countries in which any patent application in respect thereof is to be filed. Any patent application in respect of such Improvement and any patent issued therefrom shall become part of the Licensed Patents and Appendix 1.13 shall be modified to reflect the addition to Licensed Patents. If any Improvement is not patented, it shall become part of the Know- How. (C) If either ABBOTT or SONUS has knowledge of any infringement or 18 likely infringement of a Licensed Patent or unauthorized use of Know-How in the Territory, then the party having such knowledge shall promptly inform the other party in writing, and the parties shall promptly consult with one another regarding the action to be taken. Unless the parties otherwise mutually agree, SONUS shall prosecute such suit, and each party shall cooperate with the other party in the prosecution thereof and SONUS shall have the right to determine the strategy of the prosecution of such suit. Notwithstanding the foregoing, if ABBOTT is participating in the prosecution, ABBOTT shall be entitled to have input in the strategy of prosecution. SONUS shall have the right to determine the counsel to be retained by the parties in connection with such action or claim, which counsel shall be reasonably satisfactory to ABBOTT. SONUS may seek the assistance and participation of ABBOTT in the action or claim. If SONUS requests ABBOTT's participation, (i) ABBOTT shall participate in the prosecution if the action or claim involves an infringement by a Third Party's product, or potential product, which substantially falls within the definition of Product in Section 1.16, and (ii) ABBOTT may participate if ABBOTT determines that it would be in ABBOTT's interests to participate if the action or claim does not directly involve an infringement by a Third Party's product, or potential product, which substantially falls within the definition of Product in Section 1.16. Notwithstanding the foregoing, in the event that the action or claim involves an infringement by a Third Party's product, or potential product, which substantially falls within the definition of Product in Section 1.16, ABBOTT shall have the right to participate, on an equal basis with SONUS, in the prosecution of such action or claim. If SONUS prosecutes such claim without the participation of ABBOTT, the costs and expenses incurred in connection with such 19 action or claim shall be borne by SONUS. However, if Abbott participates in the action or claim, the costs and expenses incurred in connection with such action or claim shall be shared equally by SONUS and ABBOTT. If ABBOTT does not participate in the prosecution of the action or claim, or unless otherwise provided in this Section 3.8(C), any offer of settlement and any settlement shall be in SONUS' discretion, provided that any offer of settlement or settlement does not conflict with licenses granted under Article 5. If ABBOTT participates in the prosecution of the action or claim and/or if the action or claim involves an infringement by a Third Party's product, or potential product, which substantially falls within the definition of Product in Section 1.16, any offer of settlement and any settlement shall be subject to the prior approval of both ABBOTT and SONUS. Each party agrees not to unreasonably withhold its approval of any such settlement. If ABBOTT does not participate in the prosecution of the action or claim, any recovery of damages or other payments received in connection with such action or claim shall be realized by SONUS. However, any recovery of damages or other payments received in connection with such action for which ABBOTT participates in the prosecution shall be allocated between and disbursed to ABBOTT and SONUS as follows: (i) first, to reimburse ABBOTT and SONUS for their respective costs and expenses incurred in connection with such action, and (ii) the balance of recovery or other payments to be divided equally between ABBOTT and SONUS. In the event that the recovery of damages is not sufficient to cover costs and expenses incurred by the parties in connection with such action, each party shall be reimbursed on a pro rata basis according to each party's percentage of the total costs and expenses incurred by the parties together. ABBOTT may, but does not have the obligation to, participate in 20 the prosecution of any infringement action outside the Territory. However, if ABBOTT does participate in any action and prosecution outside the Territory, ABBOTT shall be entitled to share in the proceeds or recovery of damages or other payments received in connection with such action outside the Territory. Such amounts shall be allocated between and disbursed to ABBOTT and SONUS as follows: (i) first, to reimburse ABBOTT for ABBOTT's costs and expenses incurred in connection with such action, (ii) second, to reimburse SONUS for SONUS' costs and expenses incurred in connection with such action, and (iii) the balance of recovery or other payments to be divided equally between ABBOTT and SONUS. (D) If a claim or suit is brought against ABBOTT alleging: (i) infringement of any patent or unauthorized use of any Know-How owned by a Third Party by reason of ABBOTT's exercise of its licenses hereunder; or (ii) an interest in any patent under the Licensed Patents, ABBOTT shall promptly give written notice to SONUS. SONUS, within a reasonable time after such notice, but not longer than sixty (60) days, shall advise ABBOTT of SONUS' decision on the intended disposition of such claim or suit. If SONUS elects not to dispose of the claim or defend the suit, ABBOTT may do so. The parties will furnish each other with reasonable assistance regarding such claim or suit as may be requested by the other party. Any offer of settlement or settlement of the claim or suit by one party shall have the prior written approval of the other party, such approval not to be unreasonably withheld. ABBOTT shall have the right to settle such claim or suit by payment in any form. If any amounts are paid or payable to a Third Party by ABBOTT or any damages and/or costs are awarded against ABBOTT in such suit, then at the time of payment, such amounts, 21 damages and costs may be offset against any Revenue Payment due in such year or, if necessary, in succeeding years to SONUS. 3.9 TRADEMARKS (A) GRANT OF LICENSE. SONUS hereby grants to ABBOTT a non-exclusive license (the "Trademark License") in the Territory to use the SONUS trademark(s) set forth in Appendix 3.9 on all labels, advertisements, promotional materials and literature for the Product. (B) RESERVATION OF RIGHTS. SONUS expressly reserves the right to use and license Third Parties to use the SONUS trademark(s) in a manner not inconsistent with this Agreement. (C) ACKNOWLEDGEMENT. ABBOTT acknowledges that the SONUS trademark(s) are owned exclusively by SONUS and that ABBOTT has no right, title or interest in and to the SONUS trademark(s), except the rights conferred by this Agreement and that all goodwill associated with the SONUS trademark(s) inures to the benefit of SONUS. (D) REGISTRATION. SONUS agrees to maintain the SONUS trademark(s) in the United States at its own expense including the preparation and recordation of registered user agreements and/or licenses necessary or reasonably deemed necessary by ABBOTT in order to comply with local laws. (E) USE OF TRADEMARK(S). The Products shall bear the trademark EchoGen-Registered Trademark- or such other trademarks as mutually agreed to by the parties. ABBOTT shall at all times properly use the SONUS trademark(s) to indicate brand names by using the SONUS trademark(s) in conjunction with the common name for the Product, 22 e.g. "ECHOGEN-Registered Trademark- emulsion." However, in written copy or package inserts ABBOTT may display, where appropriate, the symbol and common name at the first or most prominent reference to the trademark. The trademark registration symbol "-Registered Trademark-" or "-TM-" shall be used to indicate registration status. Wherever the SONUS trademark(s) are used, attribution shall be given to SONUS Pharmaceuticals, Inc. as the owner of the SONUS trademark(s) at least once per publication as used in the public domain. (F) INFRINGEMENTS. ABBOTT shall promptly call to the attention of SONUS the use by any Third Party of the SONUS trademark(s) or any trademark similar to the mark covered by this Agreement, of which it may become aware and which it may consider to be an infringement or passing off of the SONUS trademark(s) or unfair competition. SONUS shall have the right to decide whether or not to bring proceedings against Third Parties. Such proceedings shall be at the expense of SONUS. ABBOTT shall cooperate fully with SONUS to whatever extent is deemed reasonably necessary by SONUS to prosecute such action. In the event that SONUS recovers damages from prosecution of such action, SONUS shall retain amounts received for such damages except that ABBOTT shall be entitled to reimbursement of its costs, expenses, and attorneys' fees attributable to such action. SONUS shall not settle or compromise any suit for infringement without the express approval of ABBOTT, such approval not to be unreasonably withheld. In the event SONUS decides not to prosecute, and ABBOTT reasonably determines that the failure to prosecute would adversely affect the rights of ABBOTT under this Agreement, ABBOTT shall have the right, but not the obligation, to prosecute such action at its own expense. SONUS shall cooperate fully with ABBOTT to whatever extent is deemed reasonably 23 necessary by ABBOTT to prosecute such action. In the event that ABBOTT recovers damages from prosecution of such action, ABBOTT shall retain amounts received for such damages except that SONUS shall be entitled to reimbursement of its costs, expenses, and attorneys' fees attributable to such action. ABBOTT shall not settle or compromise any suit for infringement without the express approval of SONUS. (G) TERM. The initial term of this Trademark License shall be the Term specified in Article 12 of this Agreement. Upon expiration of such Term, ABBOTT shall have a right to renew the Trademark License at a mutually agreeable reasonable royalty rate. (H) TERMINATION. Upon termination of this Agreement, ABBOTT shall discontinue all use of the SONUS trademark(s) and shall not thereafter adopt a mark which is confusingly similar. (I) COPIES. Within ten (10) days after the Effective Date, SONUS shall provide ABBOTT photocopies of its applicable trademarks applications/registrations in the Territory. 4. CANADA AND LATIN AMERICA AND OTHER TERRITORIES. 4.1 CANADA AND LATIN AMERICA. If SONUS receives a bona fide offer from a Third Party for the right to market and sell the Product in Canada and/or Latin America prior to December 31, 1996, then within a reasonable time, not to exceed sixty (60) days, SONUS shall give written notice to ABBOTT of the details of the offer and ABBOTT shall have the opportunity to meet, or offer terms more favorable than, such Third Party offer within sixty (60) days of such notice. If either (A) ABBOTT meets or offers terms more favorable than such Third Party offer and SONUS fails to enter into an 24 agreement with ABBOTT with respect to such marketing rights, or (B) whether or not there is a Third Party offer, the parties do not enter into a binding commitment for ABBOTT to acquire marketing rights in Canada and/or Latin America prior to December 31, 1996, then the payment in Appendix 2.3 due to SONUS upon First Shipment Date shall be decreased by [CONFIDENTIAL PORTION]. SONUS may, at its option, substitute for the decreased payment warrants to purchase 125,000 shares of common stock of SONUS, subject to adjustment as set forth in the Warrant evidenced by a warrant certificate substantially in the form of Exhibit A ("Warrant") for shares of SONUS common stock, such Warrant based on the warrant exercise price equal to the volume weighted average price for the ten (10) trading days prior to the date SONUS executes a definitive agreement with a Third Party for marketing rights as set forth in this provision or December 31, 1996, whichever is earlier. SONUS shall notify ABBOTT of which option it chooses no later than December 31, 1996. The warrant shall be issued as of the date of the determination of the warrant price as set forth above. Anything in the foregoing to the contrary notwithstanding, in the event that prior to December 31, 1996, SONUS should receive a bona fide offer from a Third Party for marketing rights in Canada and/or Latin America and ABBOTT shall have failed to meet or offer more favorable terms as provided above, then SONUS shall not be subject to a reduced fee upon First Shipment or have an obligation to issue any warrants as provided herein. For purposes of this Agreement, Latin America shall include South America, Central America, Mexico, and the Caribbean (including possessions or territories of the United States, France, the United Kingdom and the Netherlands). 25 4.2 OTHER TERRITORIES. If SONUS receives a bona fide offer from a Third Party for the right to market and sell the Product in areas or countries other than the Territory, Canada, Latin America or areas or countries which are covered by the Agreement dated March 31, 1995 between SONUS and Daiichi Pharmaceuticals, Ltd. or the Agreement dated October 27, 1994 between SONUS and Guerbet S.A. (collectively, the "Prior Agreements"), then within a reasonable time, not to exceed sixty (60) days, SONUS shall give written notice to ABBOTT of the details of the offer and ABBOTT shall have the opportunity to meet, or offer terms more favorable than, such Third Party offer within sixty (60) days of such notice. If ABBOTT meets or offers terms more favorable to SONUS, ABBOTT and SONUS shall negotiate and enter into an agreement on such terms together with such other terms as are substantially the same terms of this Agreement for such areas or countries. Furthermore, in the event that any areas or countries covered under a Prior Agreement are no longer covered under a Prior Agreement, SONUS shall within sixty (60) days notify ABBOTT and facilitate discussions with ABBOTT regarding ABBOTT acquiring marketing rights for the Products in such areas or countries. 4.3 CO-PROMOTION. ABBOTT and SONUS agree to consider and discuss, and if requested by ABBOTT, SONUS shall introduce the concept with the parties contracting with SONUS under the Prior Agreements to consider and discuss, opportunities for ABBOTT to co-promote the Product in areas or countries covered by the Prior Agreements. 5. LICENSES (A) SONUS hereby grants to ABBOTT a royalty-free exclusive license, 26 exclusive even as to SONUS, with the right to sublicense, under the Licensed Patents and Know-How to use, offer to sell and sell the Product in the Field in the Territory subject to SONUS' co-promotion rights pursuant to Section 3.2(B). The right to sublicense to a Third Party shall be subject to the approval of SONUS, such approval not to be unreasonably withheld. (B) SONUS hereby grants to ABBOTT a royalty-free nonexclusive license, with the right to sublicense, under the Licensed Patents and Know-How to make, have made, and import the Product for the Field in the Territory, subject to the limitations set forth in Section 3.5(B). The right to sublicense to a Third Party shall be subject to the approval of SONUS, such approval not to be unreasonably withheld. (C) ABBOTT's licenses hereunder shall become paid-up upon ABBOTT tendering to SONUS all payments due pursuant to Appendix 2.3. 6. LAUNCH BUDGETS; REIMBURSEMENT PAYMENTS 6.1 LAUNCH BUDGETS. ABBOTT and SONUS shall each prepare separate pro forma launch budgets to cover their respective expenses associated with and incurred after the launch of the Product which shall be mutually approved by the parties. Within thirty (30) days of FDA Advisory Panel approval, ABBOTT and SONUS will meet to review and, if appropriate and mutually agreeable, update such launch budgets for the period for which Launch Budget Reimbursement Payments may be required as set forth in Section 6.2. The parties will thereafter meet quarterly during this period to review and, if appropriate and mutually agreeable, update such budgets. Each party's launch budget shall include the expense line items and allocation of the expense items between ABBOTT and SONUS. 27 6.2 LAUNCH BUDGET REIMBURSEMENT PAYMENTS. Each quarter following the First Shipment Date and until either the second anniversary of the First Shipment Date or the achievement of Net Sales of Product in the Territory of at least twenty-five million dollars ($25,000,000) in each of two consecutive quarters, whichever comes first, one party shall pay to the other party an amount equal to fifty percent (50%) of the excess of budget launch expenses of one party over the budget launch expenses of the other party for the same period (e.g. if ABBOTT has budget launch expenses of [Confidential Portion] and SONUS has budget launch expenses of [Confidential Portion] in the first twelve (12) months of Product sales, the amount to be paid by SONUS is [Confidential Portion]. The payment will be made within sixty (60) days of the end of each calendar quarter for the period the launch expenses are incurred. In the case of payment to be made by SONUS, the amounts payable shall be offset against payments to be made by ABBOTT to SONUS as set forth in Article 7. In the case of payments to be made by ABBOTT, the payments will be made by wire transfer. Each party shall supply to the other party all wire transfer account information. 6.3 LOSS CARRY FORWARD. If a Launch Budget Reimbursement Payment as calculated in Section 6.2 is to be made by SONUS to ABBOTT and such Launch Budget Reimbursement Payment has not been fully paid by SONUS to ABBOTT by the expiration of twenty-four (24) months following the First Shipment Date, or the achievement of Net Sales of Product in the Territory of at least twenty-five million dollars ($25,000,000) in each of two (2) consecutive quarters, whichever should first occur, then the unpaid amount shall be carried forward and offset against Revenue Payments for subsequent quarters until such time as the entire Launch Budget 28 Reimbursement Payment has been paid or credited to ABBOTT. 7. REVENUE PAYMENTS 7.1 CALCULATION OF REVENUE PAYMENTS. Following the First Shipment Date, ABBOTT shall pay SONUS an amount as calculated in the following formula ("Revenue Payment").