10-K

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-K

(Mark One)

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2003

or

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from              to             

Commission File Number 0-27718

NEOSE TECHNOLOGIES, INC.

(Exact name of registrant as specified in its charter)

Delaware	13-3549286
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
102 Witmer Road Horsham, Pennsylvania	19044
(Address of principal executive offices)	(Zip Code)

Registrant’s telephone number, including area code: (215) 315-9000

Securities registered pursuant to Section 12(b) of the Act:

None	None
(Title of each class)	(Name of each exchange on which registered)

Securities registered pursuant to Section 12(g) of the Act:

Preferred Share Purchase Rights

(Title of class)

Common Stock, par value $0.01 per share

(Title of class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in the definitive proxy statement incorporated by reference in Part III of this Annual Report on Form 10-K or any amendment to this Annual Report on Form 10-K.    ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act).    Yes  x    No  ¨

As of June 30, 2003, the aggregate market value of the Common Stock held by non-affiliates of the registrant was approximately $88,792,350 based on the last sale price of the Common Stock on such date as reported by The Nasdaq Stock Market. This calculation excludes 8,362,360 shares held on June 30, 2003 by directors, executive officers, and two holders of more than 10% of the registrant’s Common Stock.

As of February 15, 2004, there were 19,944,671 shares of the registrant’s Common Stock outstanding.

DOCUMENTS INCORPORATED BY REFERENCE

The registrant’s definitive proxy statement to be filed in connection with solicitation of proxies for its Annual Meeting of Stockholders to be held on May 6, 2004, is incorporated by reference into Part III of this Annual Report on Form 10-K.

TABLE OF CONTENTS

PART I		1
ITEM 1.	BUSINESS.	1
ITEM 2.	PROPERTIES.	10
ITEM 3.	LEGAL PROCEEDINGS.	11
ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.	11
PART II		12
ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS	12
ITEM 6.	SELECTED FINANCIAL DATA.	13
ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.	14
FACTORS AFFECTING THE COMPANY’S PROSPECTS.		27
ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.	36
ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.	36
ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.	37
ITEM 9A.	CONTROLS AND PROCEDURES.	37
PART III		39
ITEM 10.	DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.	39
ITEM 11.	EXECUTIVE COMPENSATION.	43
ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.	49
ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.	49
ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES.	49
PART IV		50
ITEM 15.	EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.	50

NEOSE, GlycoAdvance, GlycoPEGylation and GlycoConjugation are trademarks of Neose Technologies, Inc. This Annual Report on Form 10-K also includes trademarks and trade names of other companies

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This report includes “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include, but are not limited to, statements about our plans, objectives, representations and contentions and are not historical facts, which typically may be identified by use of terms such as “anticipate,” “believe,” “estimate,” “plan,” “may,” “expect,” “intend,” “could,” “potential,” and similar expressions, although some forward-looking statements are expressed differently. You should be aware that the forward-looking statements included in this report represent management’s current judgment and expectations, but our actual results, events and performance could differ materially from those in the forward-looking statements. The forward looking statements are subject to a number of risks and uncertainties which are discussed in the section of Part II entitled “Factors Affecting the Company’s Prospects.” We do not intend to update any of these factors or to publicly announce the results of any revisions to these forward-looking statements.

PART I

ITEM 1. BUSINESS.

Overview

We are a biopharmaceutical company focused on improving protein therapeutics using our proprietary technologies. Most protein therapeutics currently on the market or in development today are glycoproteins – that is, they consist of a protein backbone (comprised of amino acids) to which carbohydrate structures (chains of simple sugars) are attached. While the protein backbone determines what the protein will do, the attached carbohydrate structures – known as glycosylation - are often essential to ensure its proper functioning. Inadequate glycosylation is also frequently a significant limitation to the efficiency of the manufacturing process for existing glycoprotein therapeutics.

Our core technologies, GlycoAdvance^™ and GlycoPEGylation^™, enable us to manipulate, enzymatically, the carbohydrate structures of glycoproteins, and thereby pursue the objective of improving the therapeutic profiles of proteins that have already been marketed or substantially developed by other companies. We use GlycoAdvance, either to complete the carbohydrate structures on proteins that are inadequately glycosylated, or to initiate and extend the carbohydrate structures on proteins that are not glycosylated at all. As a technology, GlycoAdvance is sufficiently versatile that it enables us to work with many proteins secreted from a variety of expression systems (the basic platform for manufacturing proteins), and with proteins having various glycosylation patterns. We may also use GlycoPEGylation to attach a sugar molecule linked to polyethylene glycol (PEG) to selected carbohydrate structures. PEG is an inert polymer, which, when added to a protein, increases its size, and in most cases improves its pharmaceutical profile, such as enabling the protein to be administered less frequently.

In sum, our core business is to use our novel technologies to improve proteins for which there is already a substantial body of data demonstrating safety and efficacy. The development of “next-generation” products (i.e. products with improvements over the original product) has been a key strategy used by pharmaceutical and biopharmaceutical companies for decades. We intend to apply this strategy to products we are developing on our own and to products we co-develop and co-own with others, and we expect to make our technologies available, through strategic partnerships, to improve the products of other parties.

Opportunities in the Protein Market

Worldwide sales of protein drugs (which include monoclonal antibodies and fusion proteins) were over $39 billion in 2003, and by some estimates are expected to grow to over $70 billion by 2008. Many of the proteins now on the market will lose the protection of certain patent claims over the next 15 years. In addition, many marketed proteins are facing increased competition from next-generation versions or from other drugs approved for the same disease indications. Although not every protein drug is a candidate for the use of our technologies, we believe our GlycoAdvance and GlycoPEGylation technologies can be applied to many of these marketed drugs to create next-generation products with improved clinical profiles. We are pursuing opportunities in this field through our own proprietary drug development program, our partnering and licensing program, and our exploratory research program.

Neose Proprietary Drug Program. The initial targets of our own proprietary drug program are an improved erythropoietin (EPO) and an improved granulocyte colony stimulating factor (G-CSF). The EPO and G-CSF drug categories had combined worldwide sales of approximately $10.6 billion in 2002.

Partnering and Licensing Program. During 2003, we entered into two new agreements with Novo Nordisk A/S (Novo Nordisk) that allow us to partner the development and commercialization of next-generation versions of three marketed proteins, one of which is currently marketed by Novo Nordisk. These three marketed proteins had combined worldwide sales of approximately $2.0 billion in 2002.

Exploratory Research Program. Our exploratory research program is currently focused on the development of two undisclosed marketed proteins, one in collaboration with Rentschler Biotechnologie GmbH (Rentschler) and another with Sandoz GmbH (Sandoz). The marketed versions of these proteins had combined worldwide sales of approximately $5.5 billion in 2002.

Core Technology

Our GlycoAdvance and GlycoPEGylation technologies evolve from the same core – the use of enzymes to modify or initiate carbohydrate structures on glycoproteins. We have developed a special expertise and strong intellectual property position in this area. Our technologies may permit the development of therapeutic proteins with improved clinical profiles. In some cases, these improvements to therapeutic proteins may also give rise to new intellectual property. We continue to make significant investments in research and development and legal services to protect and expand our intellectual property position. We believe our core technology has broad application to protein drug development and can be extended to provide an opportunity for sustainable growth.

GlycoAdvance. We use GlycoAdvance, either to complete the carbohydrate structures on proteins that are inadequately glycosylated, or to initiate and extend the carbohydrate structures on proteins that are not glycosylated at all. Currently, recombinant glycoprotein drugs are most often produced in mammalian cell culture expression systems, primarily Chinese hamster ovary (CHO) cells. The carbohydrates are added to these proteins during the process of expression. CHO cells, and many other expression systems used for commercial manufacturing of proteins, tend to produce protein molecules with incomplete or inconsistent carbohydrate structures. In the human body, these incompletely glycosylated proteins may be cleared too rapidly, may break down too rapidly, and may stimulate unwanted antibody responses. Conventional approaches to improving the glycosylation of recombinant protein drugs, such as changing expression cell types, re-engineering the protein, and modifying cell culture conditions or media, are time consuming and frequently provide only partial solutions. When a protein is inconsistently glycosylated, additional purification may be required to remove the incompletely glycosylated drug molecules from the desired drug product, resulting in lower manufacturing yields and increased expense.

Some proteins (e.g., human growth hormone), in their natural state, lack attached carbohydrates. Others (e.g., G-CSF) may be expressed in bacteria, an expression system that fails to add sugars at natural glycosylation sites. Using our GlycoAdvance technology, we employ enzymes to initiate glycosylation at engineered or natural acceptor sites on such proteins and to further elaborate these carbohydrate structures with natural or modified sugar units. By attaching and modifying carbohydrate structures, we have been able to demonstrate with several drug candidates a prolonged drug effect in animals. We are using GlycoAdvance in our own proprietary drug program, in our partnering and licensing program, and in our exploratory research program. We are also exploring the use of GlycoAdvance to enable alternative protein production systems, such as plants and insect cells that naturally produce only partial versions of the carbohydrate structures found in human glycoproteins.

GlycoPEGylation. Common protein drug delivery problems include poor solubility and stability, proteolysis (rapid degradation by proteases), rapid clearance, and immunogenicity. For some proteins, one approach to these problems has been conventional chemical pegylation – the attachment of the large, water-soluble polymer, polyethylene glycol (PEG), directly to the amino acid backbone of the protein. Pegylation increases the effective size of the drug and in some cases improves its solubility, stability, half-life and immunogenicity profile.

For some protein drugs, it has been difficult to achieve the benefits of pegylation by the conventional approach of attaching PEG directly to the protein backbone. A possible explanation is that the sites for the attachment of PEG occur at positions where the bulky PEG molecules block access to the active site on the protein or alter the conformation of the protein. This may diminish or eliminate drug activity.

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Our GlycoPEGylation technology enables us to attach a sugar molecule linked to PEG to the ends of carbohydrate structures, rather than attaching PEG directly on the protein backbone. Using enzymes, we are able to do this efficiently and selectively. By specifically linking PEG to carbohydrate structures that are remote from the protein’s active site, GlycoPEGylation may preserve the bioactivity of the drug and extend its half-life. During the research stage, we attach PEGs of various molecular weights to create a family of different molecular sizes of the GlycoPEGylated protein, which we screen for optimal receptor binding and pharmacokinetic properties. We believe that significant clinical benefits may be achieved through the application of our GlycoPEGylation technology to proteins.

Business Strategy

Our primary business strategy is to develop next-generation protein drugs through three focused programs: our own proprietary drug program, our partnering and licensing program, and our exploratory research program.

Neose Proprietary Drug Program. During 2003, we focused our own proprietary drug program on the identification and development of two next-generation proprietary protein therapeutics: an improved EPO and an improved G-CSF. During 2004 and 2005, we intend to limit the number of proteins in our own proprietary drug program to two proteins, which we are prepared to develop independently into Phase II clinical studies before we require a corporate partner for further development. We may decide to substitute a different protein for our improved EPO or improved G-CSF, or both. Substitutions could occur for several reasons, including various problems that may arise in the drug development process and the timing of desirable opportunities for partnering the continuing development of these next-generation proteins. We will continue to evaluate the progress of our own proprietary drug program and appropriate partnering opportunities.

Improved EPO. In January 2003, we announced the selection of an improved EPO as the first target for our proprietary drug development program. EPO is prescribed to stimulate production of red blood cells, and is approved for sale in major markets around the world for the treatment of anemia associated with oncology chemotherapy, end-stage renal disease, and chronic renal insufficiency. EPO accounts for more sales worldwide than any other glycoprotein drug. Worldwide sales of the EPO category in 2002 were over $8 billion. Of this amount, approximately $5.7 billion in sales were in the U.S., approximately $1.9 billion in sales were in Europe and other countries outside Asia, and $0.8 billion in sales were in Japan and other Asian markets.

Based on preclinical studies conducted during 2002 and 2003, we believe it is feasible to develop a long-acting EPO through GlycoPEGylation. These studies suggest that the pharmacokinetic profile of EPO can be adjusted by manipulating the number of GlycoPEGylation sites and the molecular weight of the PEG that we attach to the compound. In these early studies, the biological activity of constructs of GlycoPEGylated EPO was comparable to the activity of unmodified EPO and Aranesp^®, Amgen’s longer acting EPO analog. Based on our preliminary market research, we believe that clinicians, particularly oncologists, would favor a long-acting EPO. This is supported by quantitative data for Aranesp, indicating that, six quarters after launch, annualized sales were greater than $1 billion.

We believe that the expiration of key patents covering EPO will provide commercial opportunities in a time frame consistent with our development timeline. We expect that regulatory approval for our improved EPO will be sought both in and outside the U.S. In Europe and Japan, the key patents will expire in the middle of this decade. In the U.S., the patent situation surrounding EPO is more complex, making the time frame less predictable. There are existing patent claims that may cover our improved EPO, and we continue to evaluate whether these patent claims will prevent our entry into the U.S. market prior to their expiration. Some of the issues relevant to our analysis are the subject of ongoing litigation between other parties. While our objective is to pursue early entry opportunities in the U.S., we expect that the first regulatory and marketing applications will be made in Europe, where the risk of patent conflict appears to be lower. We expect to complete various preclinical activities during the first half of 2004, and, if the results are successful, our goal is to initiate clinical trials by the end of 2004. We expect that data from these trials will be submitted to the appropriate government agencies for regulatory approval.

Improved G-CSF. In October 2003, we selected an improved G-CSF as our second proprietary drug development target. G-CSF is prescribed to stimulate production of neutrophils (a type of white blood

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cell), and is approved for sale in major markets around the world for treatment of neutropenia associated with oncology chemotherapy. Based on proof-of-concept data, we believe it is feasible to develop a long acting G-CSF through GlycoPEGylation. We are planning to continue various preclinical development activities during 2004, with the goal of initiating clinical trials in the second half of 2005. In Europe, the key patents covering G-CSF will expire in 2005. In the U.S., key patents will expire in late 2013. Nevertheless, we are evaluating early entry strategies for the U.S. market. Although it is too early to predict the likely success of these strategies, we expect that applications for regulatory and marketing approvals will be submitted first in Europe.

Partnering and Licensing Program. We also work in collaboration with partners to incorporate our technology in next-generation proteins. In our partnering and licensing program, we generally seek collaborations where:

• our partner supplies protein,

• we use our technologies to modify the protein and to develop manufacturing-scale reagents and protocols for production,

• our partner licenses our technologies for the development and commercialization of the modified protein,

• our partner pays for our research and development activities, and

• our partner pays development milestones and royalties on the resulting next-generation protein sales.

Novo Nordisk. In November 2003, we announced two new agreements with Novo Nordisk to use our technologies to develop and commercialize three next-generation versions of currently marketed proteins, one of which is marketed by Novo Nordisk. These agreements are the result of exploratory research we previously conducted with Novo Nordisk and the successful application of our GlycoPEGylation technology to three complex proteins. Under our new agreements, we received a $4.3 million upfront fee, and Novo Nordisk is funding our research and development activities for these three proteins. We may also receive up to $51.3 million in development milestones, as well as royalties on sales of the licensed products. Under these agreements, Novo Nordisk’s license with respect to each protein will continue until the expiration of the last Neose patent covering a licensed product, or until the earlier termination of the applicable agreement. Novo Nordisk has the right to terminate each of the agreements without cause, after giving us 90 days’ notice. We have the right to terminate the agreement with respect to two of the proteins if there are no commercial sales of licensed products within a specified period of years.

Exploratory Research Program. We conduct exploratory research, both independently and with collaborators, to identify proteins that are likely candidates for development using our technologies. Successful candidates may be advanced for development through our own proprietary drug program or through our partnering and licensing program. In 2003, we announced two collaborative exploratory research agreements, one with Rentschler and one with Sandoz.

• Under our collaboration agreement with Rentschler, we are working on the development of a next-generation protein, using an undisclosed protein supplied by Rentschler. If Neose decides to proceed with the commercialization of this next-generation protein, Rentschler may continue to collaborate with Neose as a co-developer or as a supplier of the protein.

• Under our collaboration with Sandoz, we are working on the development of a next-generation protein, using an undisclosed protein that is supplied by Sandoz. If Neose and Sandoz decide to proceed with the commercialization of this next-generation protein, we would have co-exclusive worldwide rights.

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Other Programs. Since we are now focused on developing next-generation proprietary protein therapeutics through our own drug development program, our partnering and licensing program, and our exploratory research program, we are evaluating the most effective means of continuing some of the other projects we have pursued in the past. We are considering whether to continue allocating some of our resources to two of these projects during 2004:

• the development of glycolipids for treating Parkinson’s disease and other neurological diseases, on which we previously collaborated with Neuronyx, Inc., and

• the development of our GlycoConjugation^™ technology, in which we would use an enzymatic approach, similar to GlycoPEGylation, to attach therapeutic or functional compounds (rather than PEG) to the carbohydrate structures on proteins.

We are looking for opportunities to out-license the technologies we have developed in two other projects:

• our joint venture with McNeil Nutritionals (a subsidiary of Johnson & Johnson) to explore inexpensive, enzymatic production of complex carbohydrates for use as bulking agents, and

• our work with Wyeth Nutrition to develop a manufacturing process for a bioactive carbohydrate to be used as an ingredient in infant and pediatric nutritional products.

Intellectual Property

Our success depends on our ability to protect and use our intellectual property rights in the continued development and application of our technologies, to operate without infringing the proprietary rights of others, and to prevent others from infringing on our proprietary rights. As we pursue our strategy of developing next-generation proteins, we have increased our focus on investigating the patent protection for currently marketed proteins. We also devote significant resources to obtaining and maintaining patents, and we expect to aggressively enforce our rights if necessary, although we recognize that the scope and validity of patents is never certain.

Our patent strategy has two main components, the pursuit of a patent portfolio protecting our technologies and their anticipated application, and the evaluation of patent protection for proteins we may target for development.

Patents and Proprietary Rights. We have continued to file patent applications covering new developments in our technologies, including compositions and methods for enzymatically adding and modifying sugar chains on a multitude of proteins to form stable linkages between a sugar attached to a polypeptide and a water soluble polymer, therapeutic compound, targeting agent, or other biologically active molecule.

In addition to developing our own intellectual property, we seek to obtain rights to complementary intellectual property from others. We have entered into license agreements with various institutions and individuals for certain patent rights, as well as sponsored research and option agreements for the creation and possible license to us of additional intellectual property rights. We are obligated to pay royalties at varying rates based upon, among other things, levels of revenues from the sale of licensed products under our existing license agreements, and we expect to pay royalties under new license agreements for intellectual property. Generally, these agreements continue for a specified number of years or as long as any licensed patents remain in force, unless the agreements are terminated earlier.

We own 29 issued U.S. patents, and have licensed 63 issued U.S. patents from 12 institutions. In addition, we own or have licensed over 90 patent applications pending in the U.S. There are also 418 foreign patent applications pending or granted related to our owned and licensed patents. In addition, we have assigned four issued U.S. patents and 34 granted or pending foreign counterparts to Magnolia Nutritionals, our joint venture with McNeil Nutritionals (a subsidiary of Johnson & Johnson).

Next-Generation Proteins. To pursue our strategy of developing next-generation proteins, we must ascertain the nature, scope and expiration of existing patent claims covering proteins we may target for development. The patent coverage on these proteins and methods of making them is complex. These patents must be analyzed on a claim-by-claim basis, and we must make decisions based on our analysis of these varied claims. The patents and their expiration dates often vary from the U.S. to Europe to Japan. It is possible that we are unaware of pending patent applications that are relevant to our product candidates, either because our search did not find them or because they are not yet publicly available.

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In order to market next-generation versions of currently marketed proteins, we will have to determine the expiration dates of existing patent claims that could cover our product candidate by analyzing numerous, complex patent claims and, in some cases, judicial opinions. The analysis of patents is subject to different interpretations. Our analysis of the patent coverage surrounding both EPO and G-CSF in the U.S. has encouraged us that there may be opportunities to enter the market sooner than our competitors whose products would have different characteristics or manufacturing processes. If we pursue a strategy of early entry, litigation could result, and would be costly regardless of whether we were successful. Litigation could also result in delays in the launch of a product, even if we ultimately prevailed in the litigation.

Nature of Protection. The nature of patent protection in the pharmaceutical and biotechnology industry is complex, uncertain and unpredictable. The patents we seek may not issue, or may issue with a narrower scope than originally sought, and may not be valid or effectively enforceable. Even if our patents are enforceable, enforcement of our patents could be time consuming and expensive. If the claims in our pending patent applications are narrowed prior to issuance, others will have greater opportunity to circumvent or design around our patent protection.

We also have proprietary trade secrets and know-how that are not patentable or which we have chosen to maintain as secret rather than filing for patent protection. We seek to protect our secret information by entering into confidentiality agreements with employees, consultants, licensees, and potential collaboration partners. These agreements generally provide that all confidential information developed, or made known, by Neose to the other party during the relationship shall be kept confidential and may not be disclosed to third parties, except in specific circumstances. Our agreements with employees also provide that inventions made by the employee during the period of employment will be solely owned by Neose if they are the result of tasks assigned by Neose or the use of property (including intellectual property) owned or used by Neose. Our agreements with consultants generally provide that inventions conceived by the consultant while rendering consulting services to Neose will be our exclusive property.

We are aware of numerous pending and issued U.S. and foreign patent rights and other proprietary rights owned by third parties in fields related to our technologies. We will continue to expend resources to protect our own technology and seek to avoid infringing the technology of others. Patent protection obtained by others may interfere with our ability to obtain patents, or our ability to effectively employ our technologies.

Government Regulation

Our research and development activities, the future manufacture of reagents and products incorporating our technologies, and the marketing of these products are subject to regulation for safety and efficacy by numerous governmental authorities in the U.S. and other countries.

Regulation of Pharmaceutical Product Candidates. The research and development, clinical testing, manufacture and marketing of products using our technologies are subject to regulation by the U.S. Food and Drug Administration (FDA) and by comparable regulatory agencies in other countries. These national agencies and other federal, state and local entities regulate, among other things, research and development activities, and the manufacturing and control, safety, effectiveness, labeling, storage, record keeping, approval, advertising and promotion of therapeutic products. Product development and approval within this regulatory framework take a number of years and involve the expenditure of substantial resources. We anticipate that the development of our next-generation proprietary proteins will involve a traditional development program, including clinical trials.

In the U.S., after laboratory analysis and preclinical testing in animals, an investigational new drug application (or IND) is required to be filed with the FDA before human testing may begin. Typically, a sequential three-phase human clinical testing program is then undertaken, but the phases may overlap or be combined. Certain phases may not be necessary for a particular product. Each clinical study is conducted according to an approved protocol after written approval is obtained from an independent Institutional Review Board, or IRB. In Phase I, small clinical trials are conducted to determine the safety of the product. In Phase II, clinical trials are conducted to assess safety, establish an acceptable dose, and gain preliminary evidence of the efficacy of the product. In Phase III, clinical trials are conducted to obtain sufficient data to establish statistically significant proof of safety and efficacy.

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The time and expense required to perform this clinical testing vary and can be substantial. The results of the preclinical and clinical testing of a biological pharmaceutical product are then submitted to the FDA in the form of a Biologics License Applications (or BLA), or for a chemical pharmaceutical product in the form of a New Drug Application (or NDA), for approval to commence commercial sales. If the application contains all pertinent information and data, the FDA will formally accept the file for review. In responding to a BLA or NDA, the FDA may grant marketing approval, request additional information, or deny the application.

No action may be taken to market any new drug or biologic product in the U.S. until an appropriate marketing application has been approved by the FDA. Even after initial FDA approval is obtained, further clinical trials may be required to provide additional data on safety and effectiveness, and will be required to gain clearance for the use of a product as a treatment for indications other than those initially approved. Side effects or adverse events that are reported during clinical trials may delay, impede, or prevent marketing approval. Similarly, adverse events that are reported after obtaining marketing approval may result in additional limitations being placed on the use of a product and, potentially, withdrawal of the product from the market.

The regulatory requirements and approval processes of countries in the European Union (EU) are similar to those in the U.S. In the EU, depending on the type of drug for which approval is sought, there are currently two potential tracks for marketing approval in member countries: mutual recognition and the centralized procedure. Typically, recombinant products are reviewed through the centralized procedure. The EU review mechanisms may ultimately lead to approval in all EU countries, but each method grants all participating countries some decision-making authority in product approval.

Sales of pharmaceutical and biopharmaceutical products in other areas of the world vary from country to country. Whether or not FDA licensure has been obtained, licensure of a product by comparable regulatory authorities in other countries must be obtained prior to marketing the product in those countries. The time required to obtain such licensure may be longer or shorter than that required for FDA approval, and regulatory authorities in other areas of the world, like the FDA, may approve or deny applications for licensure and marketing.

In addition to regulating and auditing human clinical trials, the FDA regulates and inspects equipment, facilities, and processes used in the manufacture and control of products prior to providing approval to market a product. Among other conditions for marketing approval in the U.S., the prospective manufacturer’s quality control and manufacturing procedures must conform on an ongoing basis with current Good Manufacturing Practices (cGMP). Before granting marketing approval, the FDA will perform a prelicensing inspection of the facility to determine its compliance with cGMP and other rules and regulations. In complying with cGMP, manufacturers must continue to expend time, money and effort in the area of production, training and quality control to ensure full compliance. After approval of a BLA or NDA, manufacturers are subject to periodic inspections by the FDA. If, as a result of FDA inspections relating to our products or reagents, the FDA determines that our equipment, facilities, or processes do not comply with applicable FDA regulations or conditions of product approval, the FDA may seek civil, criminal, or administrative sanctions and remedies against us, including the suspension of our manufacturing operations.

Products manufactured in the U.S. for distribution abroad are subject to FDA regulations regarding export, as well as to the requirements of the country to which they are shipped. Products distributed to countries within the EU are also subject to EU regulations. The requirements of the EU and foreign countries generally cover the conduct of clinical trials, the submission, review and approval of marketing applications, and all aspects of product manufacture and marketing. These requirements may vary significantly from country to country.

We expect to manufacture enzymes, sugar nucleotides and other reagents for use by our collaborators, as well as for our own manufacturing use in the development of next-generation proprietary protein therapeutics. Our partners may be responsible for clinical and regulatory approval procedures, but we would expect to participate in this process by submitting to the FDA a drug master file developed and maintained by us that contains data concerning the manufacturing and control processes for our reagents.

Other Regulations Affecting our Business. We are subject to various other laws and regulations, such as those relating to safe working conditions, employee relations, employee benefits, the environment (including the use and disposal of hazardous or potentially hazardous substances), antitrust and international trade, public securities and taxation. We endeavor to comply with applicable laws and regulations. However, we recognize that this is a complex and expensive process, and that we cannot predict when changes will occur or whether they would have a material adverse effect on our operations.

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We contract with third parties for supplies and services that are critical to our business. These third parties are also subject to government regulation. The failure of any of these third parties to comply with applicable laws and regulations could cause substantial delays to our drug development timelines and have a material adverse effect on our operations.

Third-Party Reimbursement. Our ability and each of our collaborator’s ability to successfully commercialize drug products may depend in part on the extent to which coverage and reimbursement for the cost of such products will be available from government health administration authorities, private health insurers, and other organizations. Uncertainty continues within the pharmaceutical and biotechnology industries as to the reimbursement status of new therapeutic products, and we cannot be sure that third-party reimbursement would be available for any therapeutic products that we or our collaborators might develop. Healthcare reform, especially as it relates to prescription drugs, is an area of increasing attention and a priority of many governmental officials.

Competition

The biotechnology and pharmaceutical industries are characterized by rapidly evolving technology and significant competition. Our competitors include pharmaceutical and biotechnology companies. In addition, many specialized biotechnology companies have formed collaborations with large, established companies to support research, development and commercialization of products that may be competitive with our current and future product candidates and technologies. Academic institutions, governmental agencies and other public and private research organizations are also conducting research activities and seeking patent protection and may commercialize competitive products or technologies on their own or through collaborations with pharmaceutical and biotechnology companies.

Next-Generation Protein Development. We are aware that other companies are working on the development of next-generation protein therapeutics in anticipation of the expiration of certain patent claims covering marketed proteins. Companies such as Maxygen and Applied Molecular Evolution are designing and manipulating protein structures to improve the properties of therapeutic proteins, including safety, efficacy and patient convenience. Nektar, Enzon and other companies utilize chemical pegylation technologies to increase the circulating half-life of certain proteins. Some of these companies are combining protein structure manipulation and pegylation. In addition, established large pharmaceutical and biotechnology companies are utilizing chemical pegylation technologies on their own proteins. Human Genome Sciences and BioRexis are applying in-vivo fusion technologies using albumin and other carrier proteins to increase circulating half-life and potentially improve other therapeutic properties on specific proteins. In addition, drug delivery companies such as Alkermes continue to exploit formulation technologies to improve administration and dosing of therapeutic proteins. Some of these companies have greater financial, technical, manufacturing, marketing and other resources than ours, and may be better equipped than we are to develop, market and manufacture next-generation proteins. Our product candidates will face competition from products already established in the marketplace and new therapies that may be developed by our competitors or may result from advances in biotechnology or other fields.

Competitive Next-Generation EPO and G-CSF Products. Other companies have programs focused on developing next-generation or improved versions of EPO and G-CSF, and some are already marketing improved versions of these products.

Amgen currently markets Aranesp^®, its improved version of EPO, which has a longer circulating half-life than EPO. Amgen launched Aranesp in the last quarter of 2001 and has reported that global sales of Aranesp were approximately $1.5 billion in 2003. Roche is developing an improved EPO known as CERA (Continuous Erythropoiesis Receptor Activator). In addition, non-originator companies are applying their technologies to develop improved EPO compounds, such as: Gryphon, with its precision length polymer and chemical ligation technology; Transkaryotic Therapeutics, utilizing its gene activation technology; Human Genome Sciences, with its albumin fusion technology; ARIAD, with its gene therapy and small molecule promoter technology; and Affymax, with its synthetic EPO-like peptides.

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Amgen currently markets Neulasta^®, which is a modified version of its original G-CSF product, Neupogen^®. Neulasta is a chemically pegylated compound, with a longer circulating half-life than Neupogen. Amgen launched Neulasta in the first quarter of 2002 and has reported that global sales of Neulasta were approximately $1.3 billion in 2003. Other companies, such as Human Genome Sciences and Affymax, are also applying their technologies to develop next-generation versions of G-CSF.

Follow-on Biologics (Biogenerics). Although a clear development and regulatory path does not currently exist for biologic products that are, or soon will be, off-patent in the U.S., Europe and Japan, we are aware that companies are pursuing the opportunity to develop and commercialize follow-on versions of currently marketed products, including EPO, G-CSF and others. Companies that are expected to work in this area include Sandoz, BioGeneriX, STADA, SICOR (now a wholly owned subsidiary of Teva Pharmaceutical Industries Ltd.) and others.

Research and Development Services. Although we are focused on the development of next-generation protein therapeutics, we also use our GlycoAdvance and GlycoPEGylation technologies to provide collaborative research services and product improvement opportunities to other pharmaceutical and biotechnology companies. These services compete with efforts within these companies to improve therapeutic protein profiles and expression, and services provided by other companies to improve proteins, such as chemical pegylation technology.

There are several companies that are engaged in glycobiology research. Their work includes efforts to develop better-glycosylating cell lines, optimize cell culture conditions to improve glycosylation, and generate carbohydrate therapeutics. Companies working in this area include Crucell, GLYCART, GlycoFi and Momenta. Crucell has developed human cell lines for glycoprotein production. GLYCART is pursuing the glycosylation of antibodies, and GlycoFi is focused on expressing glycoproteins in yeast systems. Momenta is utilizing sophisticated analysis and design for carbohydrate-based therapeutics.

Manufacturing

We have invested in the construction and validation of a manufacturing pilot plant in Horsham, PA to support our business objectives. Our goals in manufacturing are:

• to operate facilities that provide economies of scale to produce enzymes, sugar nucleotides and other reagents to support our GlycoAdvance and GlycoPEGylation technologies,

• to enable production of EPO, and our next-generation GlycoPEGylated EPO, from insect cells for preclinical and Phase I and Phase II clinical studies,

• to produce our next-generation GlycoPEGylated G-CSF for preclinical immunotoxicology studies, and

• to permit our collaborators to bring potentially improved therapeutic protein products to market faster.

Additional work may be necessary to optimize manufacturing processes for regulatory approval, including the modification of fermentation conditions, downstream protein purification, and enhancements of operational reliability.

In 2003, we completed the qualification and validation of our pilot manufacturing facility in Horsham for the production of enzymes, sugar nucleotides and other reagents in accordance with applicable U.S. Food and Drug Administration’s current Good Manufacturing Practices regulations (cGMP). The facility consists of approximately 24,000 square feet of processing area and utility space. Separate areas are dedicated to sugar nucleotide processing, enzymes expressed in bacterial organisms, and enzymes expressed in fungal organisms. A fourth area was remodeled to provide cell culture growth and protein isolation in support of our manufacture of EPO in insect cells. This space is segregated into two areas to provide separate space for growth of the insect cells and amplification of baculovirus genomic constructs. Additional work may be necessary to scale the processes to provide sufficient quantities of the EPO active pharmaceutical ingredient to meet our needs for preclinical immunotoxicology studies and other work in preparation for our IND filing. We plan to supply our improved, GlycoPEGylated EPO for Phase I and Phase II clinical studies and to transfer the manufacturing process to a third-party contract manufacturer or partner for Phase III and commercial supplies.

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We continue to discover and develop improved reagents and technologies, and we plan to use our pilot plant to manufacture these reagents. In addition, our facility is expected to support the manufacture of reagents to glycosylate proteins produced from bacterial origin to potentially improve their therapeutic profile. We also plan to develop processes to GlycoPEGylate G-CSF for research and development. We will be working to secure supplies of protein on acceptable terms and to develop fermentation and purification processes for the reagents necessary to produce GlycoPEGylated G-CSF.

Marketing, Distribution, and Sales of Proprietary Protein Products

We intend to capitalize on the significant experience and resources of our collaborative partners to commercialize proprietary products made using our technologies. These partners generally would be responsible for much of the development, regulatory approval, sales, marketing, and distribution activities for products incorporating our technologies. However, we intend to retain some commercial rights to some proteins in select territories. If we commercialize any products on our own, we will have to establish or contract for regulatory, sales, marketing, and distribution capabilities, and we may have to supplement our development capabilities. The marketing, advertising, and promotion of any product manufactured using our technology would be subject to regulation by the FDA or other governmental agencies.

Employees

As of December 31, 2003, we employed 142 individuals, consisting of 104 employees engaged in research, development and manufacturing activities, 7 employees devoted to business development and licensing activities, and 31 employees devoted to corporate and administrative activities. Our scientific staff includes carbohydrate biochemists as well as scientists with expertise in organic chemistry, analytic chemistry, molecular biology, microbiology, cell biology, scale-up manufacture, and regulatory affairs. During the last year, our most substantial investments in human resources have been made in the protein development and manufacturing groups, and we expect this to continue. A significant number of our employees have prior experience with pharmaceutical or biotechnology companies, and many have specialized training in carbohydrate technology. None of our employees is covered by collective bargaining agreements. We believe we have good relations with our employees.

Internet Address and Securities Exchange Act Filings

Our internet address is www.neose.com. We make available through our website our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended. We make these reports and amendments available on our website as soon as practicable after filing them electronically with, or furnishing them to, the Securities and Exchange Commission.

ITEM 2. PROPERTIES.

We own, subject to our mortgages, approximately 50,000 square feet of cGMP manufacturing, laboratory, and corporate office space in Horsham, Pennsylvania, and we lease approximately 5,000 square feet of additional office and warehouse space in a building nearby. We lease approximately 10,000 square feet of laboratory and office space in San Diego, California. The initial term of the San Diego lease ends in March 2006, at which time we have an option to extend the lease for an additional five years.

In 2001 and 2002, we made capital expenditures of $17.4 million to provide additional cGMP manufacturing capacity in our Horsham, Pennsylvania facility. We entered into a lease agreement in 2002 for a 40,000 square foot building, which we intended to convert into laboratory and office space. Later in 2002, we suspended plans to complete these renovations. In November 2003, we resumed renovation activities on approximately 25,000 square feet of the facility, leaving approximately 15,000 square feet available for future expansion. We estimate these activities will cost approximately $6.3 million, of which approximately $1.0 million had been expended as of December 31, 2003.

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ITEM 3. LEGAL PROCEEDINGS.

We are not a party to any material legal proceedings.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

We did not submit any matters to a vote of security holders during the fourth quarter of 2003.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS

Our common stock is listed on The NASDAQ Stock Market under the symbol NTEC. We commenced trading on The Nasdaq Stock Market on February 15, 1996. The following table sets forth the high and low sale prices of our common stock for the periods indicated.

	Common Stock Price
	High		Low
Year Ended December 31, 2002
First Quarter	$	37.30	$	29.80
Second Quarter		32.58		9.07
Third Quarter		11.06		6.41
Fourth Quarter		14.00		5.90
Year Ended December 31, 2003
First Quarter		9.31		6.03
Second Quarter		12.64		6.88
Third Quarter		11.06		8.50
Fourth Quarter		9.83		7.20
Year Ended December 31, 2004
First Quarter (through February 15, 2004)		13.80		9.14

As of February 15, 2004, there were approximately 200 record holders and 3,700 beneficial holders of our common stock. We have not paid any cash dividends on our common stock and we do not anticipate paying any in the foreseeable future.

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ITEM 6. SELECTED FINANCIAL DATA.

The following Statements of Operations and Balance Sheet Data for the years ended December 31, 1999, 2000, 2001, 2002, and 2003, and for the period from inception (January 17, 1989) through December 31, 2003, are derived from our audited financial statements. The financial data set forth below should be read in conjunction with the sections of this Annual Report on Form 10-K entitled “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” and the financial statements and notes included elsewhere in this Form 10-K.

	Year ended December 31,															Period from inception (January 17, 1989) to December 31, 2003
	1999			2000			2001			2002			2003
	(in thousands, except per share data)
Statements of Operations Data:
Revenue from collaborative agreements	$	422		$	4,600		$	1,266		$	4,813		$	1,435		$	18,881
Operating expenses:
Research and development		10,649			12,094			14,857			21,481			26,821			126,499
Marketing, general and administrative		4,520			5,648			9,374			12,510			11,148			60,220
Total operating expenses		15,169			17,742			24,231			33,991			37,969			186,719
Other income		—			—			6,120			1,653			—			7,773
Impairment of equity securities		—			—			—			—			(1,250	)		(1,250	)
Interest income, net		1,429			4,642			3,516			1,108			103			15,576
Net loss	$	(13,318	)	$	(8,500	)	$	(13,329	)	$	(26,417	)	$	(37,681	)	$	(145,739	)
Basic and diluted net loss per share	$	(1.25	)	$	(0.63	)	$	(0.95	)	$	(1.85	)	$	(2.14	)
Weighted-average shares outstanding used in computing basic and diluted loss per share		10,678			13,428			14,032			14,259			17,611

	As of December 31,
	1999			2000			2001			2002			2003
	(in thousands)
Balance Sheet Data:
Cash, cash equivalents and marketable securities	$	33,235		$	94,762		$	76,245		$	41,040		$	53,060
Total assets		52,239			114,768			105,786			83,092			94,845
Total debt and capital lease obligations		8,300			7,300			6,200			7,411			10,601
Deficit accumulated during the development stage		(59,812	)		(68,312	)		(81,641	)		(108,058	)		(145,739	)
Total stockholders’ equity		40,785			104,868			93,946			70,685			72,213

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

The following discussion should be read in conjunction with our financial statements and related notes included in this Form 10-K.

Overview

We are a biopharmaceutical company focused on improving protein therapeutics using our proprietary technologies. Our core technologies, GlycoAdvance^™ and GlycoPEGylation^™, enable us to manipulate, enzymatically, the carbohydrate structures of glycoproteins, and thereby pursue the objective of improving the therapeutic profiles of proteins that have already been marketed or substantially developed. Our business strategy is to use our technologies to improve proteins for which there exists a substantial body of data demonstrating safety and efficacy. We intend to apply this strategy to next-generation products that we are developing on our own or in collaboration with others. We also expect to use our technologies, through strategic partners, to improve products of other parties.

We have incurred operating losses each year since our inception. As of December 31, 2003, we had an accumulated deficit of approximately $145.7 million. We expect additional losses in 2004 and over the next several years as we expand product research and development efforts, increase manufacturing scale-up activities and, potentially, begin sales and marketing activities. We have financed our operations through private and public offerings of equity securities, proceeds from debt financings, and revenues from our collaborative agreements.

We believe that our existing cash, cash equivalents, and marketable securities, expected revenue from collaborations and license arrangements, expected proceeds under the credit agreement we entered into in January 2004, and interest income should be sufficient to meet our operating and capital requirements into 2005, although changes in our collaborative relationships or our business, whether or not initiated by us, may cause us to deplete our cash and marketable securities sooner than the above estimate. Under the terms of a credit agreement we entered into in January 2004 to borrow up to $9.0 million, all of which we expect to borrow during the first quarter of 2004, we have agreed to limit our total outstanding debt to $22.0 million. After using a portion of the proceeds to repay existing debt, our total debt outstanding will be approximately $15.7 million. At any time after the fourth year of the ten-year loan period, or if we fail to maintain a minimum required cash and short-term investments balance of at least $22.0 million, the bank has the option to require additional collateral from us in the form of a letter of credit, which may have the effect of requiring us to repay the outstanding loan balance to the bank, or a security interest in certain cash and short-term investments. See “Long-term Debt – Other Arrangements – Credit Agreement” in the Liquidity and Capital Resources section of this Form 10-K for a description of the material features of this borrowing.

Liquidity and Capital Resources

Overview

We had $53,060,000 in cash, cash equivalents and marketable securities as of December 31, 2003, compared to approximately $41,040,000 in cash and cash equivalents as of December 31, 2002. The increase for 2003 was primarily attributable to the proceeds of equity and debt financings, which were offset by the use of cash to fund our operating activities, capital expenditures, and debt repayments.

The development of next-generation proprietary protein therapeutics, which we are pursuing both independently and in collaboration with selected partners, will require substantial expenditures by us and our collaborators. To finance those expenditures, we plan to continue financing our operations through private and public offerings of equity securities, proceeds from debt financings, and revenues from existing and future collaborative agreements. Our 2004 revenues are difficult to project and will be largely dependent on entering into new collaborations and on the financial terms of any new collaborations. Other than revenues from our collaboration with Novo Nordisk, and any future collaborations with others, we expect to generate no significant revenues until such time as products incorporating our technologies are commercialized, which is not expected during the next

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several years. We expect an additional several years to elapse before we can expect to generate sufficient cash flow from operations to fund our operating and investing requirements. Accordingly, we will need to raise substantial additional funds to continue our business activities and fund our operations beyond 2004.

Significant 2003 Cash Flows and Proceeds from Sales of Equity

During 2003, our operating activities consumed $27,476,000, which included the receipt of a nonrefundable, upfront fee of $4,300,000 upon entering into our collaboration with Novo Nordisk. In addition, we invested $3,455,000 in capital expenditures, and made debt principal repayments of $2,584,000. To finance these and future expenditures, we received $38,893,000 from public and private offerings of our common stock and $4,987,000 in proceeds from debt financings. We also entered into capital lease obligations during 2003 for assets with aggregate book values of $787,000.

In September 2003, we sold 2,655,557 shares of common stock in a registered offering to a group of institutional and individual investors, generating net proceeds of $22,377,000. In February 2003, we sold 2,866,763 shares of common stock in a private placement to a group of institutional and individual investors, generating net proceeds of $16,320,000. In addition, employees purchased 25,836 shares of common stock during 2003 pursuant to our employee stock purchase plan, resulting in net proceeds of $196,000. During 2003, we received proceeds of $172,000 upon the exercise of options to purchase 62,780 shares of common stock.

Long-term Debt – Proceeds from 2003 Arrangements

In this section, we describe the material features of our new issuances of debt, and capital lease obligations entered into, during 2003. In the following section, “Long-term Debt – Other Arrangements”, we describe the material features of long-term debt arrangements that did not involve new borrowings during 2003, including a significant new agreement that we entered into in January 2004 to borrow up to $9,000,000, all of which we expect to borrow during the first quarter of 2004.

2003 Equipment Loans

In December 2003, we borrowed $1,201,000 to finance the purchase of equipment and facility improvements, which collateralize the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 8.66%. During 2004, we will be required to make principal and interest payments totaling $335,000 under this agreement.

In September 2003, we borrowed $831,000 to finance the purchase of equipment and facility improvements, which collateralize the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 8.35%. During 2004, we will be required to make principal and interest payments totaling $269,000 under this agreement.

In March 2003, we borrowed $2,954,000 to finance the purchase of equipment, which collateralize the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 42 months at an interest rate of 8.35%. During 2004, we will be required to make principal and interest payments totaling $976,000 under this agreement.

2003 Capital Lease Obligations

In September 2003, we entered into a capital lease for $354,000 of equipment. The terms of the lease required us to make an initial payment of $90,000 followed by monthly payments through September 2006. During 2004, we will be required to make lease payments totaling $99,000 under this agreement. We also entered into a capital lease obligation during September 2003 for $60,000 of software. The terms of the lease require us to make monthly payments through September 2008. During 2004, we will be required to make lease payments totaling $16,000 under this agreement.

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In June 2003, we entered into a capital lease for $119,000 of equipment. The terms of the lease required us to make an initial payment of $31,000 followed by monthly payments through June 2006. During 2004, we will be required to make lease payments totaling $37,000 under this agreement.

In April and May 2003, we entered into capital leases for $254,000 of equipment. The terms of the leases require us to make monthly payments through April 2006. During 2004, we will be required to make lease payments totaling $96,000 under these agreements.

Long-term Debt – Other Arrangements

In this section, we describe the material features of our debt arrangements that did not involve new borrowings during 2003, including a significant new agreement that we entered into in January 2004 to borrow up to $9,000,000, all of which we expect to borrow during the first quarter of 2004. In the previous section, “Long-term Debt – Proceeds from 2003 Arrangements,” we describe the material features of long-term debt arrangements entered into during 2003.

Credit Agreement

In January 2004, we borrowed $6,200,000 from a bank for the purpose of funding improvements to our leased facility in Horsham, PA. The credit agreement with our bank provides for us to borrow from the bank an additional $1,800,000 and to utilize $1,100,000 of our restricted cash for the purpose of paying in full the $2,900,000 outstanding of our taxable Industrial Development Authority bonds, which payment we expect to occur during the first quarter of 2004. During the first quarter of 2004, we expect to enter into another agreement with the bank for it to acquire and reissue the $1,000,000 outstanding of our tax-exempt Industrial Development Authority bonds. If the tax-exempt bond acquisition described above does not occur, the existing credit agreement provides for us to borrow an additional $1,000,000 for the purpose of paying in full the outstanding amount of the tax-exempt Industrial Development Authority bonds.

Initially, the interest rate on the bonds will vary quarterly, depending on LIBOR rates. We will have the option each quarter to bear interest on the outstanding principal at a LIBOR-based variable interest rate or a fixed rate offered by our bank.

If the tax-exempt bond acquisition described above occurs, we will make quarterly, interest-only payments on the related $1,000,000 debt for ten years followed by a single repayment of principal at the end of the ten-year loan period. For the debt outstanding under the existing credit agreement, we will make quarterly, interest-only payments through March 31, 2005. Commencing on March 31, 2005, we will make quarterly principal and interest payments over the remaining nine years of the ten-year loan period. The outstanding debt will be $8,000,000 if the tax-exempt bond acquisition described above occurs and $9,000,000 if the tax-exempt bond acquisition described above does not occur.

To provide credit support for the agreement, we granted a second mortgage to our bank on the land and building where our present headquarters are located, as well as on improvements, certain equipment, and other tangible personal property. The second mortgage will automatically convert to a first mortgage upon payment in full of our Industrial Development Authority Bonds, which payment we expect to occur during the first quarter of 2004. In the credit agreement, we agreed to limit our total outstanding debt to $22,000,000. After using a portion of the proceeds to repay existing debt, our total debt outstanding will be approximately $15,700,000. At any time after the fourth year of the loan period, or if we fail to maintain a minimum required cash and short-term investments balance of at least $22,000,000, the bank has the option to require additional collateral from us in the form of a letter of credit or a security interest in certain cash and short-term investments.

Montgomery County (Pennsylvania) IDA Bonds

In 1997, we issued, through the Montgomery County (Pennsylvania) Industrial Development Authority, $9,400,000 of taxable and tax-exempt bonds, of which $3,900,000 remains outstanding as of December 31, 2003. As mentioned above, we expect during the first quarter of 2004 to pay in full the outstanding loan balance of the taxable bonds and to have our bank acquire and reissue the tax-exempt bonds. The bonds were

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issued to finance the purchase of our headquarters building and the construction of a pilot-scale manufacturing facility within our building. The bonds are supported by an AA-rated letter of credit, and a reimbursement agreement between our bank and the letter of credit issuer. The interest rate on the bonds varies weekly, depending on market rates for AA-rated taxable and tax-exempt obligations, respectively. During 2003, the weighted-average, effective interest rate was 2.7% per year, including letter-of-credit and other fees. The terms of the bond issuance provide for monthly, interest-only payments and a single repayment of principal at the end of the twenty-year life of the bonds. However, under our agreement with our bank, we make monthly payments to an escrow account to provide for an annual prepayment of principal. As of December 31, 2003, we had restricted funds relating to the taxable bonds of $901,000, which consisted of our monthly payments to an escrow account plus interest revenue on the balance of the escrow account. During the first quarter of 2004, we expect to use the restricted funds and a portion of the proceeds under the credit agreement we entered into in January 2004 to pay in full the outstanding balance of the taxable bonds.

To provide credit support for this arrangement, we granted a first mortgage on the land, building, improvements, and certain machinery and equipment to our bank. We also agreed to maintain a minimum required cash and short-term investments balance of at least two times the outstanding loan balance. If we fail to comply with this requirement, we are required to deposit with the lender cash collateral up to, but not more than, the unpaid balance of the loan. At December 31, 2003, we were required to maintain $7,800,000 of cash and short-term investments.

2002 Arrangements

In December 2002, we borrowed approximately $2,261,000 to finance the purchase of equipment, which collateralize the amount borrowed. The terms of the financing require us to pay monthly principal and interest payments over 36 months at an interest rate of 8.0%. During 2004, we will be required to make principal and interest payments totaling $850,000 under this agreement.

In November 2002, we entered into a capital lease for $50,000 of equipment. The terms of the lease require us to make monthly payments over 36 months. During 2004, we will be required to make payments totaling $19,000 under this agreement.

Capital Expenditures

During 2001, 2002, and 2003, we purchased $9,371,000, $17,826,000, and $3,455,000, respectively, of property, equipment, and building improvements. In addition, during 2002 and 2003 we entered into capital lease obligations for assets with aggregate book values of $50,000 and $787,000, respectively. Our capital expenditures during 2001 and 2002 consisted largely of the two following facility improvement projects:

• We completed construction in 2002 of a pilot manufacturing facility at our headquarters location for the production of enzymes and sugar nucleotides at commercial-scale in accordance with applicable U.S. Food and Drug Administration’s current Good Manufacturing Practices regulations. The facility comprises approximately 20,000 square feet of processing areas and 3,500 square feet of utility space. It has bacterial and fungal fermentation capabilities and houses two 1,500 liter fermenters. We expended approximately $17,448,000 for this project, of which $8,197,000 and $9,251,000 were expended in 2001 and 2002, respectively.

• We entered into a lease agreement in 2002 for a 40,000 square foot building, which we intended to convert into laboratory and office space. Later in 2002, we suspended plans to complete these renovations. In November 2003, we reinitiated renovation activities at an expected additional cost of $6,300,000, which is incremental to $4,081,000 previously invested in these renovations, on approximately 25,000 square feet of the facility, leaving approximately 15,000 square feet available for future expansion. Our construction-in-progress at December 31, 2002 and 2003 includes $3,992,000 and $5,091,000, respectively, in renovations to this facility. In January 2004, we borrowed $6,200,000 from a bank for the purpose of funding these improvements. See “Long-term Debt – Other Arrangements – Credit Agreement” in the Liquidity and Capital Resources section of this Form 10-K for a description of the material features of this borrowing.

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In 2004, we expect our investment in capital expenditures to be approximately $10.0 million, which includes the impact of resuming the facility renovations described above. In addition to the credit agreement described above, we may finance some or all of these capital expenditures through capital leases or the issuance of new debt or equity. If we issue new debt, we may be required to maintain a minimum cash and investments balance, or to transfer cash into an escrow account to collateralize some portion of the debt, or both.

Summary of Contractual Obligations

See “Long-term Debt – Other Arrangements – Credit Agreement” in the Liquidity and Capital Resources section of this Form 10-K for a description of the material features, including our repayment obligations, of the credit agreement we entered into in January 2004. The following table summarizes our obligations to make future payments under current contracts as of December 31, 2003:

	Payments due by period
	Total		Less than 1 Year		1 - 3 Years		4 - 5 Years		After 5 Years
Long-term debt1	$	9,982,000	$	2,008,000	$	5,400,000	$	2,230,000	$	344,000
Capital lease obligations2		619,000		223,000		371,000		25,000		—
Operating leases3		10,125,000		792,000		1,287,000		899,000		7,147,000
Purchase obligations4		1,999,000		1,660,000		299,000		40,000		—
Other long-term liabilities reflected on our balance sheet under GAAP5		794,000		531,000		263,000		—		—
Total contractual obligations	$	23,519,000	$	5,214,000	$	7,620,000	$	3,194,000	$	7,491,000

1. See “Long-term debt” in this Liquidity and Capital Resources section for a description of the material features of our long-term debt. Because we expect to refinance our Industrial Development Authority bonds during the first quarter of 2004 under a credit agreement entered into in January 2004, we have adjusted the minimum principal repayments relating to the bonds to reflect the principal repayment schedule of the new debt. See Note 7 of the Notes to Financial Statements included in this Form 10-K.

2. See “Capital Lease Obligations” and Note 7 of the Notes to Financial Statements included in this Form 10-K in this Liquidity and Capital Resources section for a description of the material features of our capital lease obligations.

3. See Note 14 of the Notes to Financial Statements included in this Form 10-K for a description of our significant operating leases. The obligations presented in this table include $151,000 of deferred rent, which is included in the Other Liabilities section of our Balance Sheet.

4. Includes our commitments as of December 31, 2003 to purchase goods and services.

5. Represents the present value as of December 31, 2003 of the remaining payments under agreements with two former employees. These agreements are described in Note 12 of the Notes to Financial Statements included in this Form 10-K.

Off-Balance Sheet Arrangements

We are not involved in any off-balance sheet arrangements that have or are reasonably likely to have a material future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures, or capital resources.

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Critical Accounting Policies and Estimates

Our Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) focuses on our liquidity, capital resources, and financial statements. The financial statements have been prepared in accordance with accounting principles generally accepted in the U.S. The preparation of financial statements requires management to make estimates and assumptions that affect the carrying amounts of assets and liabilities, and the reported amounts of revenues and expenses during the reporting period. These estimates and assumptions are developed and adjusted periodically by management based on historical experience and on various other factors that are believed to be reasonable under the circumstances. Actual results may differ from these estimates.

Our summary of significant accounting policies is described in Note 2 to our financial statements included in Item 8 of this Form 10-K. Management considers the following policies and estimates to be the most critical in understanding the more complex judgments that are involved in preparing our financial statements and the uncertainties that could impact our results of operations, financial position, and cash flows. Management has discussed the development and selection of these critical accounting policies and estimates with the audit committee of our board of directors, and the audit committee has reviewed the company’s disclosure relating to it in this MD&A.

Valuation of Long-Lived Assets

We evaluate our long-lived assets for impairment whenever indicators of impairment exist. Our history of negative operating cash flows is an indicator of impairment. Accounting standards require that if the sum of the future cash flows expected to result from a company’s long-lived asset, undiscounted and without interest charges, is less than the reported value of the asset, an asset impairment must be recognized in the financial statements. The amount of the recognized impairment would be calculated by subtracting the fair value of the asset from the reported value of the asset.

Valuation of Acquired Intellectual Property

The carrying value of acquired intellectual property (“Acquired IP”) on our balance sheet as of December 31, 2003 was $1.9 million. We reviewed our acquired intellectual property (“Acquired IP”) for impairment as of December 31, 2003. Because the undiscounted sum of the estimated future cash flows from the Acquired IP exceeded the carrying value, we have not recognized an impairment.

We believe that the accounting estimate related to asset impairment of our Acquired IP is a “critical accounting estimate” because:

• the accounting estimate is highly susceptible to change from period to period because it requires company management to estimate future cash flows over the life of our Acquired IP by making assumptions about the timing and probability of our success in:

• entering into new collaborations; and

• developing and commercializing products that incorporate our technologies, either directly or with collaborators; and

• the recognition of an impairment would have a material impact on the assets reported on our balance sheet as well as our net loss.

Management’s assumptions underlying the estimate of cash flows require significant judgment because we have limited experience in entering into collaborations with others to develop products incorporating our technologies. In addition, we have limited experience in developing products incorporating our technologies and we have no experience in commercializing any products.

In estimating the impact of future collaborations, we have made assumptions about the timing of entering into collaborations for potential products, most of which we are not yet developing. We have used data from public and private sources to estimate the types of cash flows that would occur at various stages of development for each product.

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As of December 31, 2003, we estimate that our future cash flows, on an undiscounted basis, related to Acquired IP are greater than the current carrying value of the asset. Any decreases in estimated future cash flows could have an impact on the carrying value of the Acquired IP. If we had determined the Acquired IP to be fully impaired as of December 31, 2003, total assets would have been reduced by 2% and net loss would have been increased by 5%.

Valuation of Property and Equipment

Our property and equipment, which have a carrying value of $37.2 million as of December 31, 2003, have been recorded at cost and are being amortized on a straight-line basis over the estimated useful lives of those assets. Approximately $5.2 million of the carrying value represents the cost and, we believe, the fair value of construction-in-progress. We believe the remaining property and equipment carrying value of $32.0 million does not exceed its fair value.

Valuation of Investment in Convertible Preferred Stock

In 2000, we made an investment of $1,250,000 in convertible preferred stock of Neuronyx, Inc., and entered into a research and development collaboration with Neuronyx for the discovery and development of drugs for treating Parkinson’s disease and other neurological diseases. We recorded the equity investment at cost. In October 2003, Neuronyx informed us that they had completed an equity financing, under which other Neuronyx investors have an aggregate liquidation preference that is senior to our liquidation preference and exceeds the post-money valuation of Neuronyx. As a result, we reduced the carrying value of our equity investment to zero as of September 30, 2003 by recording a non-cash charge, which is reflected as an impairment of equity securities in our statements of operations.

Revenue Recognition

Our revenue from collaborative agreements consists of upfront fees, research and development funding, and milestone payments. We recognize revenues consistent with Staff Accounting Bulletin No. 104, “Revenue Recognition” (SAB 104). SAB 104 was issued by the Securities and Exchange Commission in December 2004, and updates the guidance from Staff Accounting Bulletin No. 101, “Revenue Recognition in Financial Statements.” Non-refundable upfront fees are deferred and amortized to revenue over the related performance period. We estimate our performance period based on the specific terms of each collaborative agreement, but the actual performance period may vary. We adjust the performance periods based on available facts and circumstances. Periodic payments for research and development activities are recognized over the period that we perform those activities under the terms of each agreement. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved. Milestones are based on the occurrence of a substantive element specified in the contract or as a measure of substantive progress towards completion under the contract.

In November 2003, we entered into two research, development and license agreements with Novo Nordisk A/S to use our GlycoPEGylation^™ technology to develop three next-generation proteins within Novo Nordisk’s therapeutic areas, one of which is currently marketed by them. Under the terms of the new agreements, we received a non-refundable, upfront fee of $4,300,000. As required under SAB 104, we deferred the upfront fee and will amortize this amount over an expected performance period of five years. Our estimate of the performance period is a “critical accounting estimate” because:

• the accounting estimate is highly susceptible to change from period to period (because the estimate depends on the preclinical and clinical progress of the three next-generation proteins); and

• a change in the expected performance period could have a material impact on the deferred revenue reported on our balance sheet as well as our net loss.

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Stock-based Employee Compensation

We apply APB Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations in accounting for all stock-based employee compensation. We record deferred compensation for option grants to employees for the amount, if any, by which the market price per share exceeds the exercise price per share. We amortize deferred compensation over the vesting periods of each option.

We have elected to adopt only the disclosure provisions of Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS 123), as amended by Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure.” The following table illustrates the effect on our net loss and basic and diluted net loss per share if we had recorded compensation expense for the estimated fair value of our stock-based employee compensation, consistent with SFAS 123 (in thousands, except per share data):

Year Ended December 31,	2001			2002			2003
Net loss – as reported	$	(13,329	)	$	(26,417	)	$	(37,681	)
Add: Stock-based employee compensation expense included in reported net loss		125			171			100
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards		(8,179	)		(15,588	)		(11,893	)
Net loss – pro forma	$	(21,383	)	$	(41,834	)	$	(49,474	)
Basic and diluted net loss per share – as reported	$	(0.95	)	$	(1.85	)	$	(2.14	)
Basic and diluted net loss per share – pro forma	$	(1.52	)	$	(2.94	)	$	(2.81	)

Results of Operations

Years Ended December 31, 2003 and 2002 and Outlook for 2004

Our net loss for the year ended December 31, 2003 was $37,681,000 compared to $26,417,000 for the corresponding period in 2002. The following section explains the trends within each component of net loss for 2003 compared to 2002 and provides our estimate of trends for 2004 for each component.

Revenue from Collaborative Agreements. Revenues from collaborative agreements decreased to $1,435,000 in 2003 from $4,813,000 in 2002. Our revenues from collaborative agreements have historically been derived from a few major collaborators. Our collaborative agreements provide for some or all of the following elements: upfront fees, research and development funding, milestone revenues, and royalties on product sales.

In November 2003, we entered into two research, development and license agreements with Novo Nordisk A/S. Under the terms of the new agreements, we received a non-refundable, upfront fee of $4,300,000. As required under SAB 104, we deferred the upfront fee and will amortize this amount over an average expected performance period of five years. During the year ended December 31, 2003, Novo Nordisk accounted for $694,000 of our revenues, of which $107,000 represented amortization of the upfront fee.

During 2002 and 2003, Wyeth accounted for revenues of $4,472,000 and $250,000, respectively. Our collaboration with Wyeth Pharmaceuticals was terminated in September 2002, and we expect to receive no further revenues under this agreement. During 2003, we completed activities related to our Wyeth Nutrition collaboration and recorded as revenue the last scheduled payment for research and development funding of $250,000, which we received in October 2002. Separately, we recognized revenue during 2003 of $400,000 under a license agreement.

Because our 2004 revenues could be substantially affected by entering into new collaborations and on the financial terms of any new collaborations, we cannot estimate our 2004 revenues.

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Research and Development Expense. In January 2003, we announced the selection of an improved erythropoietin (EPO) as the target for our first proprietary drug development project. EPO is prescribed to stimulate production of red blood cells, and is approved for sale in major markets around the world for the treatment of anemia associated with oncology chemotherapy, end stage renal disease, and chronic renal insufficiency. Based on proof-of-concept data, we believe it is feasible to develop a long acting EPO through GlycoPEGylation. We expect to complete various preclinical activities during the first half of 2004, and our goal is to initiate clinical trials by the end of 2004.

In October 2003, we announced the selection of an improved granulocyte colony stimulating factor (G-CSF) as the target for our second proprietary drug development project. G-CSF is prescribed to stimulate production of neutrophils (a type of white blood cell), and is approved for sale in major markets around the world for treatment of neutropenia associated with oncology chemotherapy. Based on proof-of-concept data, we believe it is feasible to develop a long acting G-CSF through GlycoPEGylation. We are planning to continue various preclinical development activities during 2004, with the goal of initiating clinical trials by the end of 2005.

We are working in collaboration with Novo Nordisk to incorporate our technology in three next-generation versions of marketed proteins, one of which is currently marketed by Novo Nordisk. We are also conducting exploratory research, both independently and with collaborators, to identify proteins that are likely candidates for development using our technologies, which may be advanced for development through our own proprietary drug program or through our partnering and licensing program. We are continuing some work on the development of our other programs, including new applications of our GlycoPEGylation and GlycoConjugation technologies.

Our current research and development projects are divided between two categories: (i) GlycoAdvance and GlycoPEGylation and (ii) Other Glycotechnology Programs, which includes projects investigating other applications of our intellectual property. We are exploring the most cost-effective means of continuing some of the projects classified as Other Glycotechnology Programs. The following chart sets forth our projects in each of these categories and the stage to which each has been developed:

	Development Stage	Status
GlycoAdvance and GlycoPEGylation
Improved erythropoietin Improved granulocyte colony stimulating factor Other protein projects	Preclinical Preclinical Research	Active Active Active
Other Glycotechnology Programs
Non-protein therapeutic applications	Research	Active
Nutritional applications	N/A	Evaluating outlicensing opportunities

For each of our research and development projects, we incur both direct and indirect expenses. Direct expenses include salaries and other costs of personnel, raw materials, and supplies for each project. We may also incur third-party costs related to these projects, such as contract research, consulting and preclinical development costs. Indirect expenses include depreciation expense and the costs of operating and maintaining our facilities, property, and equipment, to the extent used for our research and development projects, as well as the costs of general management of our research and development projects.

Our research and development expenses increased to $26,821,000 in 2003 from $21,481,000 in 2002. We expect our research and development expenses to be significantly greater in 2004 than they were in 2003, as a result of the development, preclinical and clinical activities we plan to conduct during the year. The following table illustrates research and development expenses incurred during 2002 and 2003 in each period for our significant groups of research and development projects (in thousands).

Year Ended December 31,	2002		2003
GlycoAdvance and GlycoPEGylation	$	7,082	$	10,012
Other Glycotechnology Programs		1,779		486
Indirect expenses		12,620		16,323
	$	21,481	$	26,821

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GlycoAdvance and GlycoPEGylation

Our GlycoAdvance and GlycoPEGylation research and development expenses increased during 2003, compared to 2002, primarily due to increased preclinical development costs associated with our improved EPO, purchases of laboratory services and research supplies, including proteins, and the reallocation of resources from our Other Glycotechnology Programs.

Other Glycotechnology Programs

Research and development expenses related to our Other Glycotechnology Programs decreased during 2003, compared to 2002, consistent with our decision during 2002 to focus our resources on our GlycoAdvance and GlycoPEGylation programs.

Indirect expenses

Our indirect research and development expenses increased during 2003, compared to 2002, primarily due to increases related to depreciation of pilot manufacturing facility improvements, which were placed in service in January 2003, additional personnel, and the purchase of more supplies and outside services than in 2002. Substantially offsetting these increases was a reduction in severance expense during 2003 of $2,294,000, of which $1,608,000 was a non-cash charge, related to an agreement entered into during the first quarter of 2002 with one of our former executive officers.

The process of bringing drugs from the preclinical research and development stage through Phase I, Phase II, and Phase III clinical trials and FDA approval is a time consuming and expensive process. Because our announced product candidates are currently in the preclinical stage and there are a variety of potential intermediate clinical outcomes that are inherent in drug development, we cannot reasonably estimate the timing and costs we will incur to complete these research and development projects. In addition, the timing and costs to complete our research and development projects will be affected by the timing and nature of any collaboration agreements we may enter into with a third party, neither of which we can currently estimate.

Material cash inflows from proprietary drug development projects are highly uncertain, and we cannot reasonably estimate the period in which we will begin to receive material net cash inflows from our major research and development projects. Cash inflows from development-stage products are dependent on several factors, including entering into collaborative agreements, the achievement of certain milestones, and regulatory approvals. We may not receive milestone payments from any existing or future collaborations if a development-stage product fails to meet technical or performance targets or fails to obtain the required regulatory approvals. Further, our revenues from collaborations will be affected by the level of efforts committed and made by our collaborative partners. Even if we achieve technical success in developing drug candidates, our collaborative partners may not devote the resources necessary to complete development and commence marketing of these products or they may not successfully market potential products.

Marketing, General and Administrative Expense. Marketing, general and administrative expenses for the year ended December 31, 2003 were $11,148,000, compared to $12,510,000 for the corresponding period in 2002. The 2002 period contained higher consulting expenses and costs associated with executive recruitment and relocation than the comparable 2003 period. The decreases in those expenses during 2003 were partly offset by increases in payroll. During 2004, we expect our marketing, general and administrative expenses to increase by less than 10% over 2003.

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Other Income and Expense. During the year ended December 31, 2003, we recorded a non-cash impairment charge of $1,250,000 relating to our investment in Series A convertible preferred stock of Neuronyx, Inc. We recorded the equity investment, which was made in 2000, at cost. In October 2003, Neuronyx informed us they were nearing completion of a Series C equity financing, under which Series C and Series B Neuronyx investors would have an aggregate liquidation preference that is senior to the Series A liquidation preference and exceeds the assumed post-money valuation of Neuronyx. As a result, we reduced the carrying value of our equity investment to zero as of September 30, 2003 by recording the non-cash impairment charge.

During the year ended December 31, 2002, we recognized $1,653,000 of other income upon receipt from Genzyme General of a contract payment, which was due as a result of the restructuring of our agreement with Novazyme Pharmaceuticals, Inc. in March 2001. In September 2001, Genzyme acquired Novazyme, and assumed Novazyme’s contractual obligation to us. We did not recognize any other income during 2003.

Interest income for the year ended December 31, 2003 was $564,000, compared to $1,108,000 for the corresponding period in 2002. The decrease was due to lower average cash and cash equivalents and marketable securities balances, as well as lower interest rates, during 2003. Our interest income during 2004 is difficult to project, and will depend largely on prevailing interest rates and whether we complete any collaborative agreements and any additional equity or debt financings during the year.

Interest expense for the year ended December 31, 2003 was $461,000, compared to zero for the corresponding period in 2002. In 2002, we capitalized $150,000 of interest expense on our two capital construction projects, as discussed in the Liquidity and Capital Resources section of this MD&A. In accordance with GAAP, we recognized capitalized interest for these projects only to the extent of our actual interest expense, resulting in no reported interest expense for 2002. We expect our interest expense during 2004 to increase due to our entering into an agreement in January 2004 to borrow up to $9,000,000, all of which we expect to borrow during the first quarter of 2004. See “Long-term Debt – Other Arrangements – Credit Agreement” in the Liquidity and Capital Resources section of this Form 10-K for a description of the material features of this debt financing.

Years Ended December 31, 2002 and 2001

Our net loss for the year ended December 31, 2002 was $26,417,000 compared to $13,329,000 for the corresponding period in 2001. The following section explains the trends within each component of net loss for 2002 compared to 2001.

Revenue from Collaborative Agreements. Revenues from collaborative agreements increased to $4,813,000 in 2002 from $1,266,000 in 2001. The increase in revenues during 2002 was primarily a result of our Wyeth Pharmaceuticals collaboration, which was terminated in the third quarter of 2002. Of the increase, $1,000,000 was non-cash, and represented the remaining amortization of the upfront fee that Wyeth paid in December 2001. As required under SAB 101, we deferred the upfront fee and began to amortize this amount as revenue over the expected performance period of the Wyeth agreement. Upon termination of the Wyeth agreement, the unamortized portion of the upfront fee was recognized as revenue.

Research and Development Expense. Research and development expenses for the year ended December 31, 2002 were $21,481,000, compared to $14,857,000 for the year ended December 31, 2001. The following table illustrates research and development expenses incurred during 2001 and 2002 in each period for our significant groups of research and development projects (in thousands).

Year Ended December 31,	2001		2002
GlycoAdvance and GlycoPEGylation	$	3,066	$	7,082
Other Glycotechnology Programs		2,690		1,779
Indirect expenses		9,101		12,620
	$	14,857	$	21,481

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GlycoAdvance and GlycoPEGylation

Our GlycoAdvance and GlycoPEGylation research and development expenses increased during 2002, compared to 2001, primarily due to increased purchases of proteins, hiring of employees, and the reallocation of resources from our Other Glycotechnology Programs.

Other Glycotechnology Programs

Research and development expenses related to our Other Glycotechnology Programs decreased during 2002, compared to 2001, consistent with our decision during 2002 to focus our resources on our GlycoAdvance and GlycoPEGylation programs.

Indirect expenses

Our indirect research and development expenses increased during 2002, compared to 2001, primarily due to increases related to severance expense and costs associated with employee recruitment and relocation. During 2002, we recorded severance expense related to research and development personnel of $2,294,000, of which $1,608,000 was a non-cash charge, related to an agreement entered into during the first quarter of 2002 with one of our former executive officers.

Marketing, General and Administrative Expense. Marketing, general and administrative expenses for the year ended December 31, 2002 were $12,510,000, compared to $9,374,000 for the corresponding period in 2001. The 2002 period contained higher personnel costs (including payroll, recruiting, and relocation), legal, and consulting expenses than the comparable 2001 period, which increases resulted primarily from recruiting of senior executives and focusing our business on the development of next-generation proprietary protein therapeutics.

Other Income and Expense. During the year ended December 31, 2002, we recognized $1,653,000 of other income upon receipt from Genzyme General of a contract payment, which was due as a result of the restructuring of our agreement with Novazyme Pharmaceuticals, Inc. in March 2001. In September 2001, Genzyme acquired Novazyme, and assumed Novazyme’s contractual obligation to us.

Interest income for the year ended December 31, 2002 was $1,108,000, compared to $3,704,000 for the corresponding period in 2001. The decrease was due to lower average cash and cash equivalents and marketable securities balances, as well as lower interest rates, during 2002.

Interest expense for the year ended December 31, 2002 was zero, compared to $188,000 for the corresponding period in 2001. The decrease was due to the fact that in 2002 we capitalized $150,000 of interest expense on our two capital construction projects, as discussed in the Liquidity and Capital Resources section of this MD&A. In accordance with GAAP, we recognized capitalized interest for these projects only to the extent of our actual interest expense, resulting in no reported interest expense for 2002.

Recent Accounting Pronouncements

In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (SFAS No. 149). This Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 was effective for contracts entered into or modified after June 30, 2003, for hedging relationships designated after June 30, 2003, and to certain preexisting contracts. The adoption of SFAS No. 149 did not have a material impact on our financial statements.

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In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective July 1, 2003. The adoption of SFAS No. 150 did not have an impact on our financial statements as we do not have any instruments that are within the scope of this statement.

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” which was issued in January 2003. We will be required to apply FIN 46R to variable interests in variable interest entities created after December 31, 2003. We do not have any variable interests in variable interest entities.

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FACTORS AFFECTING THE COMPANY’S PROSPECTS

Risks Related to Development-Stage Company

If we fail to obtain necessary funds for our operations, we will be unable to maintain and improve our technology position and we will be unable to develop and commercialize our therapeutic proteins.

To date, we have funded our operations primarily through proceeds from the public and private placements of equity securities. We have also funded our operations to a lesser extent from proceeds from property and equipment financing, interest earned on investments, revenues from corporate collaborations and gains from the sale of investments. We believe that our existing cash and short-term investments, expected revenue from collaborations and license arrangements, anticipated financing of capital expenditures, and interest income should be sufficient to meet our operating and capital requirements into 2005. Our present and future capital requirements depend on many factors, including:

• the level of research and development investment required to develop our therapeutic proteins and improve our technology position;

• the progress of preclinical and clinical testing, which can be unpredictable in drug development;

• the cost of obtaining or manufacturing protein;

• the time and cost involved in obtaining regulatory approvals;

• our ability and willingness to enter into new agreements with collaborators and to extend our existing collaborations, and the terms of these agreements;

• our success rate or that of our collaborators in preclinical and clinical efforts associated with milestones and royalties;

• the timing, willingness, and ability of our collaborators to commercialize products incorporating our technologies;

• the costs of recruiting and retaining qualified personnel;

• the costs of filing, prosecuting, defending, and enforcing patent claims and other intellectual property rights;

• our need or decision to acquire or license complementary technologies or new drug targets; and

• changes in product candidate development plans that may be needed to address any difficulties in clinical studies or during commercialization.

We will require significant amounts of additional capital in the future, and we do not have any assurance that funding will be available when we need it on terms that we find favorable, if at all. We may seek to raise these funds through public or private equity offerings, debt financings, credit facilities, or through corporate collaborations and licensing arrangements.

If we raise additional capital by issuing equity securities, our existing stockholders’ percentage ownership will be reduced and they may experience substantial dilution. We may also issue equity securities that provide for rights, preferences, or privileges senior to those of our common stock. If we raise additional funds by issuing debt securities, these debt securities would have rights, preferences, and privileges senior to those of our common stock, and the terms of the debt securities issued could impose significant restrictions on our operations. If we enter into a credit facility, the agreement may require us to maintain compliance with financial covenants and restrict our ability to incur additional debt, pay dividends, make redemptions or repurchases of capital stock, make loans, investments

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or capital expenditures, or engage in other activities. If we raise additional funds through collaborations and licensing arrangements, we may be required to relinquish some rights to our technologies or drug candidates, or to grant licenses on terms that are not favorable to us. If adequate funds are not available or are not available on acceptable terms, our ability to fund our operations, take advantage of opportunities, develop products or technologies, or otherwise respond to competitive pressures could be significantly delayed or limited, and we may need to downsize or halt our operations.

We have a history of losses, and we may incur continued losses for some time.

We have incurred losses each year, including net losses of $13.3 million for the year ended December 31, 2001, $26.4 million for the year ended December 31, 2002, and $37.7 million for the year ended December 31, 2003. Given our planned level of operating expenses, we expect to continue incurring losses for some time. As of December 31, 2003, we had an accumulated deficit of $145.7 million. To date, we have derived substantially all of our revenue from corporate collaborations, license agreements, and investments. We expect that substantially all of our revenue for the foreseeable future will result from these sources and from the licensing of our technologies. We also expect to spend significant amounts to expand our research and development on our proprietary drug candidates and technologies, maintain and expand our intellectual property position, expand our manufacturing scale-up activities, and expand our business development and commercialization efforts. We may continue to incur substantial losses even if our revenues increase.

In 2004, we expect our investment in capital expenditures to be approximately $10.0 million. In addition to the credit agreement we entered into in January 2004, we may finance some or all of these capital expenditures through capital leases or the issuance of new debt or equity. Our level of operating expenditures will vary depending upon the stage of development of our proprietary proteins and the number and nature of collaboration agreements into which we enter.

We have not yet commercialized any products or technologies, and we may never become profitable.

We have not yet developed any products or commercialized any products or technologies, and we may never be able to do so. Since we began operations in 1990, we have not generated any revenues, except for interest income and revenues from collaborative agreements and investments. We do not know when or if we will complete any of our product development efforts, receive regulatory approval for any of our product candidates, or successfully commercialize any approved products. Even if we are successful in developing products that are approved for marketing, we will not be successful unless our products, and products incorporating our technologies, gain market acceptance. The degree of market acceptance of these products will depend on a number of factors, including:

• the receipt of regulatory approvals in the countries, and for the uses, we seek;

• the establishment and demonstration in the medical community of the safety and clinical efficacy of our products and their potential advantages over existing therapeutic products;

• the adequacy and success of distribution, sales and marketing efforts; and

• pricing and reimbursement policies of government and third-party payors, such as insurance companies, health maintenance organizations and other plan administrators.

Physicians, patients, payors or the medical community in general may be unwilling to accept, utilize or recommend any of our products or products incorporating our technologies. As a result, we are unable to predict the extent of future losses or the time required to achieve profitability, if at all. Even if we or our collaborators successfully develop one or more products that incorporate our technologies, we may not become profitable.

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Risks Related to Development of Products and Technologies

We have limited product development and manufacturing experience, and we may be unable to develop therapeutic proteins and commercialize our technologies.

Until recently, we have not focused on the development of our own proprietary products. We are now seeking to use our GlycoAdvance and GlycoPEGylation technologies to develop proprietary next-generation proteins, generally in collaboration with a partner. Our technologies may not result in the successful modification, optimization or development of proteins that are safe or efficacious. Because the development of new pharmaceutical products is highly uncertain, our technologies may not produce any commercially successful proteins. If we fail to successfully obtain protein supplies on reasonable terms or modify the proteins we select for development, we will not be able to commercialize our next-generation drug candidates, and our customers may not be able to develop drug candidates incorporating our technologies.

To date, we have manufactured only small quantities of our enzymes, sugar nucleotides and other reagents. We intend to manufacture these reagents for use in our proprietary product development programs and for use by our collaborators. Our success depends on our ability to manufacture these compounds on a commercial scale, at reasonable cost, and in accordance with current Good Manufacturing Practices, or cGMP, prescribed by the U.S. Food and Drug Administration, or FDA. We may not be able to manufacture sufficient quantities of the products we develop, even to meet our needs for pre-clinical or clinical development, and we may have problems complying, or maintaining compliance, with cGMP.

In addition to the normal scale-up risks associated with any manufacturing process, we may face unanticipated problems unique to the manufacture of enzymes, sugar nucleotides, other reagents, or proteins. If we are unable to develop commercial-scale manufacturing capacity, we would seek collaborators, licensees, or contract manufacturers to manufacture the compounds necessary to commercialize our technologies. We may not be able to find parties willing and able to manufacture these compounds at acceptable prices.

Any manufacturing facility must adhere to the FDA’s evolving regulations on cGMP, which are enforced by the FDA through its facilities inspection program. The manufacture of products at any facility will be subject to strict quality control, testing, and record keeping requirements, and continuing obligations regarding the submission of safety reports and other post-market information. Ultimately, we or our contract manufacturers may not meet these requirements.

If we encounter delays or difficulties in connection with manufacturing, commercialization of our products and technologies could be delayed, or we could breach our obligations under our collaborative agreements.

Our success depends on our ability, and the ability of our partners, to meet the challenges of protein drug development.

The development of protein drugs involves a range of special challenges at various stages of the process. In the preclinical phase of product development, we and our partners will face several potential problems, including obtaining supplies of the recombinant protein on commercially reasonable terms, successfully remodeling the native protein using our GlycoAdvance and GlycoPEGylation technologies, and achieving adequate yields of the next-generation protein. We also may have to address difficult issues, such as protein refolding problems and contamination, which could delay or stop our progress.

If we cannot obtain native proteins or do not succeed in developing and scaling up our processes to enable the production of sufficient supplies of protein for large clinical trials or commercialization, in each case, at a commercially reasonable cost and on schedule, our programs could be significantly delayed or discontinued. Product candidates that appear promising in the early phases of development may fail in clinical trials for several reasons, such as results indicating that the product candidate is less effective than desired (e.g., the trial failed to meet its primary objectives) or that it has harmful or problematic side effects. Even if clinical trials are successful, problems can arise later during commercialization. We are aware that one marketed EPO product was associated with pure red cell aplasia in post-marketing surveillance studies. This highlights the fact that even after a product is approved for marketing, problems may arise which can negatively affect sales and increase costs.

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Our failure to solve any of these problems could delay or prevent the commercialization of products incorporating our technologies and could negatively impact our business.

Our success depends on the success of our collaborative relationships and the success of our collaborators.

We will be relying to a large extent on collaborative partners to co-develop our products and to commercialize products made using our technologies. We do not anticipate continuing the development of our proprietary drug candidates beyond early Phase II studies unless we have a corporate partner. We anticipate that substantially all of our revenues during the next several years will continue to be generated from collaboration or license agreements. Our partnering strategy entails many risks, including:

• we may be unsuccessful in entering into collaborative agreements for the co-development of our products or the commercialization of products incorporating our technologies;

• we may not be successful in adapting our technologies to the needs of our collaborative partners;

• our collaborators may not be successful in, or may not remain committed to, co-developing our products or commercializing products incorporating our technologies;

• our collaborators may not commit sufficient resources to incorporating our technologies into their products;

• our collaborators may seek to develop other proprietary alternatives to our products or technologies;

• our collaborators are not obligated to market or commercialize our products or products incorporating our technologies, and they are not required to achieve any specific commercialization schedule;

• our collaborative agreements are generally terminable by our partners on short notice; and

• continued consolidation in our target markets may limit our ability to enter into collaboration agreements, or may result in terminations of existing collaborations.

Given these risks, there is a great deal of uncertainty regarding the success of our current and future collaborative efforts.

Any of our present or future collaborators may breach or terminate their agreements with us or otherwise fail to conduct their collaborative activities successfully and in a timely manner. In addition, we may dispute the application of payment provisions under any of our collaborative agreements. If any of these events occur or if we fail to enter into or maintain collaborative agreements, we may not be able to commercialize our products and technologies, and our prospects would be significantly harmed.

We may be exposed to product liability and related risks.

The use in humans of compounds developed by us or incorporating our technologies may result in product liability claims. Product liability claims can be expensive to defend, and may result in large settlements of claims or judgments against us. Even if a product liability claim is not successful, the adverse publicity, time, and expense involved in defending such a claim may interfere with our business. We may not be able to obtain insurance coverage at a reasonable cost or in sufficient amounts to protect us against losses.

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Risks Related to Intellectual Property

Infringing the patents of others could result in litigation and delay development of our proprietary products. The failure to obtain or maintain adequate patents, and other intellectual property protection, could impact our ability to compete effectively.

Our commercial success depends in part on avoiding infringing patents and proprietary rights of third parties. As we seek to develop next-generation proprietary products, we will have to investigate the patent protection for our target proteins. There have been significant litigation and interference proceedings regarding patent rights, and the patent situation regarding particular products is often complex and uncertain. For example, with respect to EPO, the target of our first development program, the status of issued patents is currently being litigated and may delay our ability to market an improved EPO in the U.S. As we choose other targets, we may face uncertainty and litigation could result, which could lead to liability for damages, prevent our development and commercialization efforts, and divert resources from our business strategy. It is possible that we will not be aware of pending patent applications that are relevant to our product candidates, either because our searches do not find them or because they are not yet publicly available.

The cost of any litigation challenging our right to pursue our target proteins or technologies could be substantial. Others seeking to develop next-generation versions of proteins, or the holders of patents on our target proteins, may have greater financial resources, making them better able to bear the cost of litigation. Uncertainties resulting from the initiation and continuation of patent litigation or other proceedings could have a material adverse effect on our ability to develop, manufacture, and market products, form strategic alliances, and compete in the marketplace.

The failure to obtain, maintain or protect patents and other intellectual property could impact our ability to compete effectively.

To compete effectively, we need to develop and maintain a proprietary position with regard to our own technologies, products and business. Legal standards relating to the validity and scope of claims in our technology field are still evolving. Therefore, the degree of future protection for our proprietary rights in our core technologies and products made using these technologies is also uncertain. The risks and uncertainties that we face with respect to our patents and other proprietary rights include the following:

• the pending patent applications we have filed or to which we have exclusive rights may not result in issued patents or may take longer than we expect to result in issued patents;

• we may be subject to interference proceedings;

• we may be subject to opposition proceedings in foreign countries;

• the claims of any patents that are issued may not provide meaningful protection;

• we may not be able to develop additional proprietary technologies that are patentable;

• the patents licensed or issued to us or our customers may not provide a competitive advantage;

• other companies may challenge patents licensed or issued to us or our customers;

• other companies may independently develop similar or alternative technologies, or duplicate our technologies;

• other companies may design around technologies we have licensed or developed; and

• enforcement of patents is complex, uncertain and expensive.

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We cannot be certain that patents will be issued as a result of any of our pending applications, and we cannot be certain that any of our issued patents will give us adequate protection from competing products. For example, issued patents may be circumvented or challenged, declared invalid or unenforceable, or narrowed in scope. In addition, since publication of discoveries in the scientific or patent literature often lags behind actual discoveries, we cannot be certain that we were the first to make our inventions or to file patent applications covering those inventions. In the event that another party has also filed a patent application relating to an invention claimed by us, we may be required to participate in an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and cost for us, even if the eventual outcome were favorable to us. It is also possible that others may obtain issued patents that could prevent us from commercializing our products or require us to obtain licenses requiring the payment of significant fees or royalties in order to enable us to conduct our business. As to those patents that we have licensed, our rights depend on maintaining our obligations to the licensor under the applicable license agreement, and we may be unable to do so.

The cost to us of any patent litigation or other proceeding relating to our patents or applications, even if resolved in our favor, could be substantial. Our ability to enforce our patent protection could be limited by our financial resources, and may be subject to lengthy delays. If we are unable to effectively enforce our proprietary rights, or if we are found to infringe the rights of others, we may be in breach of our license agreements with our partners.

Third parties from time to time may assert that we are infringing their patents, trade secrets or know-how. In addition, future patents may issue to third parties that our technology may infringe. We could incur substantial costs in defending ourselves and our partners against any such claims. Furthermore, parties making such claims may be able to obtain injunctive or other equitable relief, which could effectively block our ability or our partners’ ability to further develop or commercialize some or all of our products or technologies in the U.S. and abroad, and could result in the award of substantial damages. If we are found to infringe, we may be required to obtain one or more licenses from third parties. There can be no assurance that we will be able to obtain such licenses at a reasonable cost, if at all. Defense of any lawsuit or failure to obtain any such required license could have a material adverse effect on us.

In addition to patents and patent applications, we depend upon trade secrets and proprietary know-how to protect our proprietary technology. We require our employees, consultants, advisors, and collaborators to enter into confidentiality agreements that prohibit the disclosure of confidential information to any other parties. We require our employees and consultants to disclose and assign to us their ideas, developments, discoveries, and inventions. These agreements may not, however, provide adequate protection for our trade secrets, know-how, or other proprietary information in the event of any unauthorized use or disclosure.

International patent protection is uncertain.

Patent law outside the U.S. is uncertain, and is currently undergoing review and revision in many countries. In addition, the laws of some foreign countries may not protect our intellectual property rights to the same extent as U.S. laws. We may participate in opposition proceedings to determine the validity of foreign patents belonging to us or our competitors, which proceedings could result in substantial costs and diversion of our efforts. Finally, some of our patent protection in the U.S. is not available to us in foreign countries due to the differences in the patent laws of those countries.

We may have to develop or license alternative technologies if we are unable to maintain or obtain key technology from third parties.

We have licensed patents and patent applications from a number of institutions. Some of our proprietary rights have been licensed to us under agreements that have performance requirements or other contingencies. The failure to comply with these provisions could lead to termination or modifications of our rights to these licenses. Additionally, we may need to obtain additional licenses to patents or other proprietary rights from other parties to facilitate development of our proprietary technology base. If our existing licenses are terminated or if we are unable to obtain such additional licenses on acceptable terms, our ability to perform our own research and development and to comply with our obligations under our collaborative agreements may be delayed while we seek to develop or license alternative technologies.

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Risks Related to Competition

If our competitors succeed in developing more effective or less costly products, we will may not be able to commercialize any next-generation protein therapeutics.

Our business is characterized by extensive research efforts and rapid technological progress. New developments in molecular biology, medicinal chemistry, and other fields of biology and chemistry are expected to continue at a rapid pace in both industry and academia. Our potential competitors include both public and private pharmaceutical and biotechnology companies, as well as academic institutions, governmental agencies and other public and private research organizations which are also conducting research activities and seeking patent protection.

A number of these competitors are working on the development of next-generation protein therapeutics. Some of these competitors include Maxygen, Applied Molecular Evolution, Nektar, Enzon, Human Genome Sciences, BioRexis and Alkermes. Other companies have programs focused on developing next-generation or improved versions of EPO and G-CSF, and some are already marketing improved versions of these products. These companies include Amgen, Gryphon, Transkaryotic Therapeutics, Human Genome Sciences, ARIAD and Affymax. Other companies are active in this area, and we expect that competition will increase.

There are several companies that are engaged in glycobiology research. These companies include Crucell, GLYCART, GlycoFi and Momenta.

Compared to us, many of these companies have more:

• financial, scientific, and technical resources;

• product development, manufacturing and marketing capabilities;

• experience conducting preclinical studies and clinical trials of new products; and

• experience in obtaining regulatory approvals for products.

Competitors may succeed in developing products and technologies that are more effective and less costly than ours and that would render our products or technologies, or both, obsolete or noncompetitive. We know that other companies with substantial resources are working on the development of next-generation proteins, and they may achieve better results in remodeling our target proteins or the target proteins of our potential collaborators.

Competitors also may prove to be more successful in designing, manufacturing and marketing products. If we are successful in developing our own drug candidates or versions of drugs that are no longer patented, we will compete with other drug manufacturers for market share. If we are unable to compete successfully, our commercial opportunities will be diminished.

In addition, while there is no abbreviated regulatory pathway for follow-on biologics, this possibility is under discussion in the U.S. and other jurisdictions. If an abbreviated regulatory process is adopted for the approval of follow-on biologics in any major market, competition could increase in related segments of the therapeutic protein market.

We may be unable to retain key employees or recruit additional qualified personnel.

Because of the specialized scientific nature of our business, we are highly dependent upon qualified scientific, technical and managerial personnel, including our research and development team and our president and CEO, C. Boyd Clarke. The development of our business is dependent upon our management team’s ability to evaluate collaboration opportunities and on our CEO’s ability to focus the Company’s efforts. Our anticipated research and development efforts will require additional expertise and the addition of new qualified personnel. There is intense competition for qualified management and research and development personnel in the pharmaceutical field. Therefore, we may not be able to attract and retain the qualified personnel necessary for the development of our business. The loss of the services of existing personnel, as well as the failure to recruit additional key scientific,

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technical and managerial personnel in a timely manner, would harm our research and development programs, our ability to manage day-to-day operations, attract collaboration partners, attract and retain other employees, and generate revenues. We do not maintain “key man” life insurance on any of our employees.

Risks Related to Government Regulation

We are subject to extensive government regulation, and we or our collaborators may not obtain necessary regulatory approvals.

The research, development, manufacture and control, marketing, and sale of our reagents and product candidates manufactured using our technologies are subject to significant, but varying, degrees of regulation by a number of government authorities in the U.S. and other countries.

Pharmaceutical product candidates manufactured using our technologies must undergo an extensive regulatory approval process before commercialization. This process is regulated by the FDA and by comparable agencies in the EU and other countries. The U.S. and foreign regulatory agencies have substantial discretion to terminate clinical trials, require additional testing, delay or withhold registration and marketing approval, and mandate product withdrawals. The specific risks of protein drugs may result in the application of more stringent regulatory requirements prior to approval of our product candidates. Even if regulatory approvals were obtained, our manufacturing processes would be subject to continued review by the FDA and other regulatory authorities. Any later discovery of unknown problems with our products, products incorporating our technologies, or manufacturing processes could result in restrictions on such products or manufacturing processes, including potential withdrawal of the products from the market. In addition, if regulatory authorities determine that we have not complied with regulations in the research and development of a product candidate or the manufacture and control of our reagents, then we may not obtain necessary approvals to market and sell the product candidate or reagents.

Neither we nor our collaborators have submitted any product candidates incorporating our technologies for approval to the FDA or any other regulatory authority. If any product candidate manufactured using our technology is submitted for regulatory approval, it may not receive the approvals necessary for commercialization, the desired labeling claims, or adequate levels of reimbursement. Any delay in receiving, or failure to receive, these approvals would adversely affect our ability to generate product revenues or royalties. In addition, new governmental regulations may delay or alter regulatory approval of any product candidate manufactured using our technology, and could affect competition by making market entry easier for manufacturers of follow-on biologics. We cannot predict the impact of adverse governmental action that might arise from future legislative and administrative action.

Third-party reimbursement for our collaborators’ or our future product candidates may not be adequate.

Even if regulatory approval is obtained to sell any product candidates incorporating our technologies, our future revenues, profitability, and access to capital will be determined in part by the price at which we or our collaborators can sell such products. There are continuing efforts by governmental and private third-party payors to contain or reduce the costs of health care through various means. We expect a number of federal, state, and foreign proposals to control the cost of drugs through governmental regulation. We are unsure of the form that any health care reform legislation may take or what actions federal, state, foreign, and private payors may take in response to the proposed reforms. Therefore, we cannot predict the effect of any implemented reform on our business.

Our ability to commercialize our products successfully will depend, in part, on the extent to which reimbursement for the cost of such products and related treatments will be available from government health administration authorities, such as Medicare and Medicaid in the U.S., private health insurers, and other organizations. Significant uncertainty exists as to the reimbursement status of newly approved healthcare products, particularly for indications for which there is no current effective treatment or for which medical care typically is not sought. Adequate third-party coverage may not be available to enable us to maintain price levels sufficient to realize an appropriate return on investment in product research and development. Inadequate coverage and reimbursement levels provided by government and third-party payors for use of our or our collaborators’ products may cause these products to fail to achieve market acceptance and would cause us to lose anticipated revenues and delay achievement of profitability.

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Risks Related to Facilities, Business Interruption, and the Environment

The use of hazardous materials in our operations may subject us to environmental claims or liability.

Our research and development processes involve the controlled use of hazardous materials, chemicals, and radioactive compounds. We conduct experiments that are quite common in the biotechnology industry, in which we use small quantities of chemical hazards, including those that are corrosive, toxic and flammable, and trace amounts of radioactive materials. The risk of accidental injury or contamination from these materials cannot be entirely eliminated. We do not maintain a separate insurance policy for these types of risks. In the event of an accident or environmental discharge, we may be held liable for any resulting damages, and any liability could exceed our resources. We are subject to federal, state, and local laws and regulations governing the use, storage, handling, and disposal of these materials and specified waste products. The cost of compliance with these laws and regulations could be significant.

Destructive actions by activists or terrorists could damage our facilities, interfere with our research activities, and cause ecological harm.

Activists and terrorists have shown a willingness to injure people and damage physical facilities, equipment and biological materials to publicize or otherwise further their ideological causes. Our operations and research activities, and services conducted for us by third parties, could be adversely affected by such acts. Any such damage could delay our research projects and decrease our ability to conduct future research and development. Damage caused by activist or terrorist incidents could also cause the release of hazardous materials, including chemicals, radioactive and biological materials, which could be costly to remediate and damaging to our reputation.

Any significant interruption to our ability to conduct our business operations, research and development activities, or manufacturing operations could reduce our revenue and increase our expenses.

Risks Related to Stock Market

Our stock price may continue to experience fluctuations.

The market prices of securities of thinly traded biotechnology companies, such as ours, generally are highly volatile. For example, in the past 24 months, the price of our common stock reached a low of $5.90 per share in October, 2002, and a high of $35.35 per share in February, 2002. During the past 12 months the price of our common stock has traded as low as $6.03 per share in February, 2003, and as high as $13.80 per share in January, 2004.

In this market environment, the sale of a substantial number of shares of our common stock in the public market or the perception that such a sale might occur would likely have an adverse effect on the market price of our common stock, at least for the short term. We have a number of investors who hold relatively large positions in our securities. A decision by any of these investors to sell all or a block of their holdings of our common stock could cause our stock price to drop significantly.

The market also continues to experience significant price and volume fluctuations, some of which are unrelated to the operating performance of particular companies. In recent years, the price of our common stock has fluctuated significantly and may continue to do so in the future. Many factors could have a significant effect on the market price of our common stock, including:

• preclinical and clinical trial results,

• product development delays,

• an announcement or termination of a collaborative relationship by us or any of our partners or competitors,

• developments relating to our patent position or other proprietary rights,

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• announcements of technological innovations or new therapeutic products,

• government regulations,

• public concern as to the safety of products developed by us or others, and

• general market conditions.

Any litigation brought against us as a result of this volatility could result in substantial costs and a diversion of our management’s attention and resources, which could negatively impact our financial condition, revenues, results of operations, and the price of our common stock.

If we raise additional capital by issuing equity securities in a fluctuating market, many or all of our existing stockholders may experience substantial dilution, and if we need to raise capital by issuing equity securities at a time when our stock price is down, we may have difficulty raising sufficient capital to meet our requirements. If any of the risks described in these “Factors Affecting the Company’s Prospects” occurred, or if any unforeseen risk affected our performance, it could have a dramatic and adverse impact on the market price of our common stock.

Foreign Exchange Risks

Changes in foreign currency exchange rates could result in increased costs.

We have entered into agreements denominated in Euros, and, in the future, we may enter into agreements denominated in Euros or other foreign currencies. To date, we have not entered into any contracts to reduce the risk of fluctuations in currency exchange rates. In the future, depending upon the amounts payable under any such agreements, we may enter into forward foreign exchange contracts to reduce the risk of unpredictable changes in these costs. However, due to the variability of timing and amount of payments under any such agreements, foreign exchange contracts may not mitigate the potential adverse impact on our financial results.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

Our holdings of financial instruments are comprised primarily of government agency securities. All such instruments are classified as securities held to maturity. We seek reasonable assuredness of the safety of principal and market liquidity by investing in rated fixed income securities, while at the same time seeking to achieve a favorable rate of return. Our market risk exposure consists principally of exposure to changes in interest rates. Our holdings are also exposed to the risks of changes in the credit quality of issuers. We typically invest in the shorter-end of the maturity spectrum. As of December 31, 2003, the marketable securities that we held consisted of obligations of U.S government agencies. The approximate principal amount and weighted-average interest rate per year of our investment portfolio as of December 31, 2003 was approximately $53,060,000 and 1.3%, respectively.

The interest rates on our taxable and tax-exempt bonds, the value of which was $3,900,000 at December 31, 2003, vary weekly, depending on the market rates for AA-rated taxable and tax-exempt obligations. We are currently not engaged in hedging activities. As of December 31, 2003, the weighted-average, effective interest rate was approximately 2.7% per year.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

(a) Financial Statements.

The Financial Statements required by this item are attached to this Annual Report on Form 10-K beginning on page F-1.

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(b) Supplementary Data.

Quarterly financial data (unaudited)

(in thousands, except per share data)

2003 Quarter Ended	Dec. 31			Sept. 30			June 30			Mar. 31
Revenue from collaborative agreements	$	564		$	150		$	651		$	70
Net loss		(9,696	)		(10,338	)		(9,226	)		(8,421	)
Basic and diluted net loss per share(1)		(0.49	)		(0.59	)		(0.54	)		(0.53	)
2002 Quarter Ended	Dec. 31			Sept. 30			June 30			Mar. 31
Revenue from collaborative agreements	$	294		$	2,187		$	1,561		$	771
Net loss		(6,377	)		(5,955	)		(6,490	)		(7,595	)
Basic and diluted net loss per share		(0.45	)		(0.42	)		(0.45	)		(0.53	)

(1) The sum of quarterly loss per share may differ from the full-year amount due to changes in the number of shares outstanding during the year.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND

FINANCIAL DISCLOSURE.

As previously reported on a Current Report on Form 8-K dated April 29, 2002 (the “Form 8-K”), our Board of Directors, upon recommendation of the Audit Committee, informed the Company’s independent public accountants, Arthur Andersen LLP (“Arthur Andersen”), that they would be dismissed as the Company’s independent public accountants and engaged KPMG LLP (“KPMG”) to serve as the Company’s independent public accountants for the fiscal year 2002. The appointment of KPMG was effective immediately.

ITEM 9A. CONTROLS AND PROCEDURES.

We carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), for financial reporting as of December 31, 2003. Based on that evaluation, our principal executive officer and principal financial officer concluded that these controls and procedures are effective to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported as specified in Securities and Exchange Commission rules and forms. There were no changes in these controls or procedures identified in connection with the evaluation of such controls or procedures that occurred during our last fiscal quarter, or in other factors that have materially affected, or are reasonably likely to materially affect, these controls or procedures.

Our disclosure controls and procedures are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the rules and forms of the Securities and Exchange Commission. These disclosure controls and procedures include, among other things, controls and procedures designed to ensure that information required to be disclosed by us in the reports that we file under the Exchange Act is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure. Our internal controls and procedures for financial reporting are designed to provide reasonable assurance, and management believes that they provide such

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reasonable assurance, that our transactions are properly authorized, our assets are safeguarded against unauthorized or improper use, and our transactions are properly recorded and reported, in order to permit the preparation of our financial statements in conformity with generally accepted accounting principles.

Our management group, including our principal executive officer and principal financial officer, does not expect that our disclosure controls and internal controls and related procedures will prevent all error and all fraud. A control system, no matter how well designed and implemented, can provide only reasonable assurance that the objectives of the control system are met. In addition, the design and implementation of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered in relation to their costs. The design of any system of controls is based, in part, upon certain assumptions about the likelihood of future events, which may prove to be incorrect. Due to the limitations of all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within an organization have been detected or prevented.

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PART III

ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.

The following table shows the name, age and position of each of our directors as of February 15, 2004:

Name of Director	Age	Position
C. Boyd Clarke	55	Chairman
Brian H. Dovey	62	Director
L. Patrick Gage, Ph.D.	61	Director
William F. Hamilton, Ph.D.	64	Director
Douglas J. MacMaster, Jr.	73	Director
Mark H. Rachesky, M.D.	44	Director
Stephen A. Roth, Ph.D.	61	Director
Lowell E. Sears	52	Director
Elizabeth H.S.Wyatt	56	Director

Biographic Information Regarding Our Directors as of February 15, 2004

C. Boyd Clarke, 55, has served on our Board, and as President and Chief Executive Officer, since March 2002, and became Chairman of our Board in May 2003. From December 1999 through March 2002, Mr. Clarke was President and Chief Executive Officer of Aviron, a biotechnology company developing vaccines, which was acquired by MedImmune, and was also Chairman from January 2001 through March 2002. From 1998 through 1999, Mr. Clarke was Chief Executive Officer and President of U.S. Bioscience, Inc., a biotechnology company focused on products to treat cancer, which also was acquired by MedImmune. Mr. Clarke served as President and Chief Operating Officer of U.S. Bioscience, Inc. from 1996 to 1998. From 1977 to 1996, Mr. Clarke held a number of positions at Merck & Co., Inc., including being the first President of Pasteur-Merieux MSD, and most recently as Vice President of Merck Vaccines. Mr. Clarke serves as a director of QLT Inc., a global pharmaceutical company, and the Biotechnology Industry Organization. Mr. Clarke has a B.S. in biochemistry, and an M.A. in history from the University of Calgary. Mr. Clarke also serves on the Board of Trustees to the Textile Museum in Washington, D.C.

Brian H. Dovey, 62, has served on our Board since May 2003. He is a Managing Member of Domain Associates, L.L.C., a private venture capital management firm focused on life sciences, and has served in this capacity with the firm since 1988. He has served as Chairman of three companies and on the Board of Directors of some 20 additional companies, including Align Technology, Inc. and Cardiac Science, Inc. Prior to joining Domain, Mr. Dovey spent six years at Rorer Group, Inc. (now Aventis) and as President (1986 to 1988) was the primary architect of this Fortune 500 company’s strategic shift to pharmaceuticals resulting in a doubling of annual sales to approximately $1 billion. Previously, he was President of Survival Technology, Inc., a start-up medical products company whose sales growth placed it in the top ten of the Inc 100. He also held management positions with Howmedica, Inc., Howmet Corporation, and New York Telephone. Mr. Dovey has served as both President and Chairman of the National Venture Capital Association and is on the Board of Trustees of the Wistar Institute and the Burnham Institute. Mr. Dovey received his B.A. from Colgate University and an M.B.A. degree from the Harvard Business School.

L. Patrick Gage, Ph.D., 61, has served on our Board since October 2002. Dr. Gage is Chairman of Compound Therapeutics, a private biotechnology company, and Chairman of the Dublin (IE) Molecular Medicine Centre. Dr. Gage has been appointed Venture Partner at Flagship Ventures and is an advisor to Perkin Elmer, Inc. and Warburg Pincus LLC. Dr. Gage served as Senior Vice President, Science and Technology, at Wyeth, from 2001 to 2002, and as President of Wyeth Research from 1998 to 2002. Prior to Wyeth, Dr. Gage held positions of increasing responsibility at Genetics Institute, Inc. from 1989 to 1998, culminating with his service as President after the company was acquired by Wyeth. He also spent 18 years at Hoffmann-La Roche, Inc. in various scientific and management positions. Dr. Gage serves as a director of Protein Design Labs, Inc., a company focused on the discovery and development of humanized monoclonal antibodies for the treatment of disease. He is also a director of the Biotechnology Institute and the Philadelphia Orchestra Association. Dr. Gage has a B.S. in physics from Massachusetts Institute of Technology and a Ph.D. from The University of Chicago.

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William F. Hamilton, Ph.D., 64, has served on our Board since 1991. Dr. Hamilton has served on the University of Pennsylvania faculty since 1967, and is the Landau Professor of Management and Technology, and Director of the Jerome Fisher Program in Management and Technology at The Wharton School and the School of Engineering and Applied Science. He serves as a director of NovaDel Pharmaceuticals, Inc., a healthcare company engaged in the development of novel drug delivery technologies. Dr. Hamilton received his B.S. and M.S. in chemical engineering and his M.B.A. from the University of Pennsylvania, and his Ph.D. in applied economics from the London School of Economics.

Douglas J. MacMaster, Jr., 73, has served on our Board since 1993. Mr. MacMaster served as Senior Vice President of Merck & Co., Inc. from 1988 to 1992, where he was responsible for worldwide chemical and pharmaceutical manufacturing, the Agvet Division, and the Specialty Chemicals Group. From 1985 to 1988, Mr. MacMaster was President of the Merck Sharp Dohme Division of Merck. Mr. MacMaster serves as a director of the following publicly-held companies: Stratton Mutual Funds, and Martek Biosciences Corp., a biological products manufacturing company. He received his B.A. from St. Francis Xavier University, and his J.D. from Boston College Law School.

Mark H. Rachesky, M.D., 44, has served on our Board since 1999. Dr. Rachesky is the founder and President of MHR Fund Management LLC and affiliates, investment managers of various private investment funds that invest in inefficient market sectors, including special situation equities and distressed investments. From 1990 through June 1996, Dr. Rachesky was employed by Carl C. Icahn, initially as a senior investment officer and for the last three years as sole Managing Director of Icahn Holding Corporation, and acting chief investment advisor. Dr. Rachesky is currently on the Board of Directors of Samsonite Corporation and Keryx Biopharmaceuticals, Inc. Dr. Rachesky is a graduate of Stanford University School of Medicine, and Stanford University School of Business. Dr. Rachesky graduated from the University of Pennsylvania with a major in Molecular Aspects of Cancer.

Stephen A. Roth, Ph.D., 61, has served on our Board since 1989, and was Chairman from 1994 until May 2003. Dr. Roth is President and Chief Executive Officer of Immune Control Inc. He co-founded Neose, served as Chief Executive Officer from August 1994 until March 2002, and now serves as a consultant. From 1992 until August 1994, he served as Senior Vice President, Research and Development and Chief Scientific Officer of Neose. Dr. Roth was on the faculty of the University of Pennsylvania from 1980 to 1994, and was Chairman of Biology from 1982 to 1987. Dr. Roth serves as a director of Chiral Quest. Dr. Roth received his A.B. in biology from The Johns Hopkins University, and his Ph.D. in developmental biology from the Case Western Reserve University. He completed his post-doctorate training in carbohydrate chemistry at The Johns Hopkins University.

Lowell E. Sears, 52, has served on our Board since 1994. He has been a private investor involved in portfolio management and life sciences venture capital since April 1994. From 1988 until April 1994, Mr. Sears was Chief Financial Officer of Amgen Inc., a pharmaceutical company, and from 1992 until 1994, he also served as Senior Vice President responsible for the Asia-Pacific region. Mr. Sears is a director of Peninsula Pharmaceuticals. Mr. Sears received his B.A. in economics from Claremont McKenna College, and his M.B.A. from Stanford University.

Elizabeth H.S. Wyatt, 56, has served on our Board since May 2002. From 1980 through December 2000, Ms. Wyatt held a variety of positions at Merck & Co., Inc., most recently as Merck’s Vice President, Corporate Licensing, heading Merck’s worldwide product and technology acquisition activities. Prior to joining Merck in 1980, Ms. Wyatt was a consultant and an academic administrator, responsible for the Harvard Business School’s first formal marketing of its executive education programs. She currently serves on the Boards of Directors of MedImmune, Inc. and ARIAD Pharmaceuticals, and on the Board of Trustees of Randolph-Macon College. Ms. Wyatt received her B.A., magna cum laude, from Sweet Briar College, an M. Ed. in counseling psychology from Boston University, and an M.B.A. with honors from Harvard University.

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The following table shows the name, age and position of each of our executive officers as of February 15, 2004:

Name of Executive Officer	Age	Position
C. Boyd Clarke	55	President and Chief Executive Officer
George J. Vergis, Ph.D.	42	Executive Vice President, Commercial and Clinical Development
Joseph J. Villafranca, Ph.D.	59	Executive Vice President, Development Operations
David A. Zopf, M.D.	61	Executive Vice President and Chief Scientific Officer
Robert I. Kriebel	61	Senior Vice President and Chief Financial Officer
Debra J. Poul, Esq.	51	Senior Vice President and General Counsel
A. Brian Davis	37	Vice President, Finance
Marjorie A. Hurley, Pharm.D.	44	Vice President, Regulatory Affairs and Project Management

Biographic Information Regarding Our Executive Officers as of February 15, 2004 (other than Mr. Clarke whose biography appears above, with the directors’ biographies)

George J. Vergis, Ph.D., 42, was elected Executive Vice President, Commercial and Clinical Development on February 3, 2004, after serving as our Senior Vice President, Business and Commercial Development since December 2002. From July 2001 to December 2002, he served as our Vice President, Business and Commercial Development. From January 1996 to May 2001, Dr. Vergis served as Vice President, New Product Development and Commercialization at Knoll Pharmaceutical Company, a division of BASF Pharma, responsible for the commercial planning, product development, and marketing for the immunology franchise. Prior to this position, Dr. Vergis was responsible for managing the endocrine business for BASF Pharma’s Knoll Pharmaceutical Division. Dr. Vergis has held a variety of clinical and medical marketing positions at Wyeth Pharmaceuticals and Warner-Lambert Parke-Davis. Dr. Vergis received his BA in biology and history from Princeton University, his Ph.D. in physiology from The Pennsylvania State University, and his M.B.A. from Columbia University.

Joseph J. Villafranca, Ph.D., 59, was elected Executive Vice President, Development Operations on February 3, 2004, after serving as our Senior Vice President, Pharmaceutical Development and Operations since October 2002. From 1992 to 2002, he held various positions at Bristol-Myers Squibb, serving most recently as Vice President of Biologics Strategy and Biopharmaceuticals Operations. Prior to Bristol-Myers, Dr. Villafranca spent 20 years at The Pennsylvania State University, including eight years as the Evan Pugh Professor of Chemistry. Dr. Villafranca earned a B.S. in chemistry from the State University of New York and a Ph.D. in biochemistry/chemistry from Purdue University. He completed his post-doctoral training in biophysics at the Institute for Cancer Research in Philadelphia.

David A. Zopf, M.D., 61, has served as our Executive Vice President since January 2002 and became Executive Vice President and Chief Scientific Officer on February 3, 2004. He served as our Vice President, Drug Development from 1992 to January 2002. From 1991 to 1992, we engaged Dr. Zopf as a consultant on the biomedical applications of complex carbohydrates. From 1988 to 1991, Dr. Zopf served as Vice President and Chief Operating Officer of BioCarb, Inc., a biotechnology company and the U.S. subsidiary of BioCarb AB, where he managed the research and development programs of novel carbohydrate-based diagnostics and therapeutics. Dr. Zopf received his A.B. in zoology from Washington University, and his M.D. from Washington University School of Medicine.

Robert I. Kriebel, 61, has served as our Senior Vice President and Chief Financial Officer since August 2002. From 1991 through 1999, he held various positions at U.S. Bioscience, Inc., most recently as Executive Vice President, Chief Financial Officer and Director. Prior to U.S. Bioscience, Mr. Kriebel held various positions with Rhone-Poulenc Rorer Inc. (formerly Rorer Group Inc.) from 1974 until November 1990. From 1987 to November 1990 he was Vice President and Controller of Armour Pharmaceutical Company, a subsidiary of Rorer Group Inc. In 1986, Mr. Kriebel was Vice President-Investor Relations of Rorer Group Inc. and from 1979 to 1985, he was Treasurer of Rorer Group Inc. Mr. Kriebel has a B.S. in economics from Roanoke College.

Debra J. Poul, Esq., 51, has served as our Senior Vice President, General Counsel since December 2002. From May 2002 to December 2002, she served as our Vice President and General Counsel, and from January 2000

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until May 2002, she served as our General Counsel. From January 1995 to January 2000, Ms. Poul was Of Counsel at Morgan Lewis. From September 1978 to December 1994, Ms. Poul was at Dechert, serving as Counsel from 1989 to 1994. Ms. Poul received her B.A. from the University of Pennsylvania and her J.D. from Villanova University.

A. Brian Davis, 37, has served as our Vice President, Finance since August 2002. From 1994 until August 2002, Mr. Davis served in a variety of positions, most recently as Acting Chief Financial Officer and Senior Director, Finance. From 1991 to 1994, Mr. Davis was employed by MICRO HealthSystems, Inc., a provider of healthcare information systems, where he served most recently as Corporate Controller. Mr. Davis is licensed as a Certified Public Accountant, received his B.S. in accounting from Trenton State College and his M.B.A. from the Wharton School of the University of Pennsylvania.

Marjorie A. Hurley, Pharm.D., 44, has served as Vice President, Regulatory Affairs and Project Management, since May 2002. She served as our Senior Director of Regulatory Affairs from January 2001 to May 2002, and as our Director of Regulatory Affairs from 1993 to May 2000. From 1987 to 1993, Dr. Hurley served in various positions, including Assistant Director of Regulatory Affairs, at Cytogen Corporation, a biotechnology company. From 1984 to 1987, she held several positions, including Project Coordinator, at the Wyeth-Ayerst Laboratories division of American Home Products Corp. (now Wyeth). Dr. Hurley received her B.S. in pharmacy and her Pharm.D. from the University of Michigan.

Section 16(a) Beneficial Ownership Reporting Compliance

Based solely upon a review of reports of stock ownership (and changes in stock ownership) and written representations received by us, we believe that our directors and executive officers met all of their filing requirements under Section 16(a) of the Securities and Exchange Act of 1934 during the year ended December 31, 2003, except for the late filing of one Form 4, which was made by Mr. MacMaster on April 24, 2003 in respect of his exercise of a stock option for cash on April 17, 2003.

Audit Committee

The Audit Committee consists of three directors, Lowell E. Sears (Chairman), Brian H. Dovey and William F. Hamilton, Ph.D., all of whom are “independent” as defined in our Corporate Governance Principles and under the rules of the Securities and Exchange Commission and NASDAQ. The Board of Directors has determined that Mr. Sears is an “audit committee financial expert” as defined in Item 401(h) of Regulation S-K. The Audit Committee operates pursuant to a charter, which can be viewed on our website at www.neose.com (under “About Neose”).

Code of Conduct

We have a Code of Business Conduct and Ethics, which can be viewed on our website at www.neose.com (under “About Neose”). We require all employees to adhere to this Code in addressing the legal and ethical issues encountered in conducting their work. The Code of Business Conduct and Ethics requires that our employees avoid conflicts of interest, comply with all laws and other legal requirements, conduct business in an honest and ethical manner, and otherwise act with integrity and in the Company’s best interest. All of our employees were required to certify that they reviewed and understood this Code when they received it during 2003 or upon their later hire date, and again at the end of 2003. Our Code of Business Conduct and Ethics is intended to comply with Item 406 of the SEC’s Regulation S-K and the rules of the Nasdaq stock market.

The Code of Business Conduct and Ethics includes procedures for reporting violations of the Code, which are applicable to all employees. The Sarbanes-Oxley Act of 2002 requires companies to have procedures to receive, retain and treat complaints received regarding accounting, internal accounting controls or auditing matters and to allow for the confidential and anonymous submission by employees of concerns regarding questionable accounting or auditing matters. The Code of Business Conduct and Ethics also includes these required procedures.

Any waiver or amendment of the Code of Business Conduct and Ethics for designated senior officers, including our chief executive officer and chief financial officer, will be disclosed promptly on our Internet website.

Copies of the Code of Business Conduct and Ethics, which appears on our website, are also available upon request by any stockholder addressed to our Corporate Secretary, 102 Witmer Road, Horsham, PA 19044.

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ITEM 11. EXECUTIVE COMPENSATION.

Summary Compensation Table

The following table provides information about all compensation earned in 2003, 2002, and 2001, by the individual who served as Chief Executive Officer during 2003, and the four other most highly compensated executive officers during 2003.

						Long-term Compensation
	Year	Annual Compensation				Shares Underlying Options (#)	All Other Compensation
Name and Principal Position		Salary		Bonus
C. Boyd Clarke (1) Chairman, President and Chief Executive Officer	2003 2002	$	450,000 339,231	$	315,000 254,423	—   750,000	$	7,300 397,346	(2) (3)
Joseph J. Villafranca (4) Executive Vice President, Development Operations	2003 2002		280,000 70,000		140,000 74,500	—   190,000		7,300 56	(5) (5)
David A. Zopf Executive Vice President and Chief Scientific Officer	2003 2002 2001		246,167 240,413 200,136		113,477 96,065 45,021	35,000 30,000 25,000		6,734 5,836 5,646	(6) (6) (6)
Robert I. Kriebel (7) Senior Vice President and Chief Financial Officer	2003 2002		250,000 94,712		125,000 73,678	—   165,000		6,830 112	(8) (8)
Debra J. Poul (9) Senior Vice President and General Counsel	2003 2002 2001		230,625 213,333 144,933		118,125 67,500 20,925	35,000 85,000 7,500		6,367 5,180 4,460	(10) (10) (10)

(1) Mr. Clarke joined Neose in March 2002.

(2) Includes $7,000 of matching contributions in 2003 to Mr. Clarke’s account in our 401(k) Plan. Also includes $300 in 2003 in premiums paid by us for group term life insurance.

(3) Includes $397,094 during 2002 of reimbursement of relocation expenses to Mr. Clarke, and $252 in premiums paid by us for group term life insurance.

(4) Dr. Villafranca joined Neose in October 2002.

(5) Includes $7,000 matching contributions in 2003 to Dr. Villafranca’s account in our 401(k) plan. Also includes $300 and $56 in 2003 and 2002, respectively, in premiums paid by us for group term life insurance.

(6) Includes $6,434, $5,500, and $5,214 of matching contributions in 2003, 2002, and 2001, respectively, to Dr. Zopf’s account in our 401(k) Plan. Also includes $300, $336, and $432, in 2003, 2002, and 2001, respectively, in premiums paid by us for group term life insurance.

(7) Mr. Kriebel joined Neose in August 2002.

(8) Includes $6,530 of matching contributions in 2003 to Mr. Kriebel’s account in our 401(k) plan. Also includes $300 and $112 in 2003 and 2002, respectively, in premiums paid by us for group term life insurance.

(9) Ms. Poul joined Neose in January 2000 and served on a part-time basis until May 2002.

(10) Includes $6,067, $4,844, and $4,028 of matching contributions in 2003, 2002, and 2001, respectively, to Ms. Poul’s account in our 401(k) Plan. Also includes $300, $336, and $432 in 2003, 2002, and 2001, respectively in premiums paid by us for group term life insurance.

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Employment Agreements

In March 2002, we entered into an employment agreement with C. Boyd Clarke when he joined the Company as our President and Chief Executive Officer. Under this agreement, which includes non-competition and confidentiality covenants:

• The Company agreed that Mr. Clarke would receive a minimum base salary of $450,000 per year, and an annual performance incentive bonus, with a target amount of 75% of base salary, based upon the achievement of annual goals established by the Board of Directors and Mr. Clarke, which were established soon after his arrival at the Company with respect to 2002.

• The Board of Directors granted Mr. Clarke options to purchase 500,000 shares of common stock at an exercise price of $32.05 per share, the fair market value on the date of grant, as follows:

• an incentive stock option to purchase 12,480 shares, which option vests totally in four years from the date of grant, with 3,120 shares vested on March 29, 2003, 260 shares vesting on the last day of each of the 24 months in 2004 and 2005, and an additional 1,040 shares vesting on the last day of each of the first three months of 2006; and

• a non-qualified stock option to purchase 487,520 shares, which option vests totally in four years from the date of grant, with 121,880 shares vested on March 29, 2003, and shares vesting on a monthly basis thereafter such that an aggregate of 93,750 vested during the remainder of 2003 and an aggregate of 121,880, 121,880 and 28,130 options vest 2004, 2005, and the first three months of 2006, respectively.

• The Company agreed to reimburse Mr. Clarke for job-related expenses and reasonable costs related to the relocation of his residence to Pennsylvania, including travel expenses, temporary housing costs, realtor fees not to exceed $180,000, moving costs, closing costs in connection with the purchase of a new home, and $25,000 to defray additional miscellaneous expenses. Each of these payments is subject to partial repayment by Mr. Clarke in the event he resigns from Neose other than for good reason, as defined in the agreement.

• In the event that Mr. Clarke is involuntarily terminated without cause or resigns for good reason (each as defined in the agreement), provided that Mr. Clarke and Neose enter into a mutual release of claims, Mr. Clarke would receive on the date of such termination a cash payment equal to one year of base salary, target annual bonus for the year in which the termination occurs, and any unpaid bonus amounts from prior years. Additionally, all outstanding options that would have vested in the 12 months following termination would immediately vest and remain exercisable for 12 months following termination.

• In the event that Mr. Clarke is involuntarily terminated without cause or resigns for good reason (each as defined in the agreement) within 18 months following certain changes of control of Neose or a sale of all or substantially all of our assets in a complete liquidation or dissolution, provided that Mr. Clarke and Neose enter into a mutual release of claims, Mr. Clarke would receive on the date of such termination a cash payment equal to two years of base salary, two times the target annual bonus for the year in which termination occurs, and any unpaid bonus amounts from prior years. Additionally, all outstanding options would immediately vest and remain exercisable for 12 months following termination.

• In the event that payments to Mr. Clarke under the employment agreement would result in the imposition of a parachute excise tax under Internal Revenue Code Section 4999, Mr. Clarke would be entitled to receive an additional “gross-up” payment to insulate him from the effect of that tax.

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In August 2002, we entered into an employment agreement with Robert I. Kriebel when he joined the Company as our Senior Vice President and Chief Financial Officer. Under this agreement:

• The Company agreed that Mr. Kriebel would receive an annual salary of $250,000, a bonus of 25% of base compensation actually received for the period from August 15, 2002 through December 31, 2002, and, for succeeding years, a bonus as approved by the Compensation Committee, with a target amount of 50% of base compensation.

• The Company awarded Mr. Kriebel a sign-on bonus of $50,000, which was subject to repayment if he voluntarily terminated employment with the Company or if he were terminated for cause during the first year of employment.

• The Company granted Mr. Kriebel options to purchase 165,000 shares of common stock (of which 52,356 shares may be purchased through the exercise of an incentive stock option and 112,644 shares may be purchased through the exercise of a non-qualified stock option) at an exercise price of $7.64 per share, the fair market value on the date of grant.

• The Company agreed to certain severance arrangements with Mr. Kriebel, which have been superseded by his change of control agreement described below.

In September 2002, we entered into an employment agreement with Joseph J. Villafranca when he joined the Company as our Senior Vice President, Pharmaceutical Development and Operations. Under this agreement, which includes non-competition and confidentiality covenants:

• The Company agreed that Dr. Villafranca would receive an initial annual salary of $280,000, a bonus of $24,500 for the remainder of 2002, and, for succeeding years, a bonus with a target amount of 50% of base salary.

• The Company paid Dr. Villafranca $50,000 in recognition of his foregoing certain payments from his prior employer.

• The Company awarded Dr. Villafranca options to purchase 190,000 shares of common stock at an exercise price of $7.50 per share, the fair market value on the date of grant, as follows:

• an incentive stock option to purchase 53,332 shares, which option became vested and exercisable with respect to 25% of the shares on each of October 1, 2002 and October 1, 2003 and will become vested and exercisable with respect to 25% of the shares on each of October 1, 2004 and October 1, 2005;

• a non-qualified stock option to purchase 106,668 shares, which option became vested and exercisable with respect to 25% of the shares on each of October 1, 2002 and October 1, 2003 and will become vested and exercisable with respect to 25% of the shares on each of October 1, 2004 and October 1, 2005; and

• a non-qualified stock option to purchase 30,000 shares, which option will become vested and first exercisable on the earlier of (i) the first filing with the FDA of an IND for the Company’s own proprietary drug candidate that allows the Company to commence clinical trials and (ii) October 1, 2007.

• In the event that Dr. Villafranca is involuntarily terminated without cause (as defined in the agreement) or due to death or disability, Dr. Villafranca would receive a cash payment equal to six months of base salary. In addition, the Company would arrange for

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outplacement services for Dr. Villafranca and provide medical benefits to him (and his spouse and dependents, if they were covered immediately prior to such termination) for six months, at a monthly cost to him equal to the monthly cost of such coverage, if any, immediately prior to such termination. If the Company’s obligations result from Dr. Villafranca’s termination as a result of death or disability, the cash payment under the agreement would be offset by the amount of any payments paid under life insurance or disability benefits funded by the Company.

• In the event that Dr. Villafranca is involuntarily terminated without cause or resigns for good reason (each as defined in the agreement) within 12 months following certain changes of control of Neose or a sale of all or substantially all of our assets in a complete liquidation or dissolution, Dr. Villafranca would receive a cash payment equal to one year of base salary and his annual bonus for the calendar year in which the termination occurs. The Company would also arrange for outplacement services for Dr. Villafranca and provide medical benefits to him (and his spouse and dependents, if they were covered immediately prior to such termination) for 12 months, at a cost to him equal to the monthly cost of such coverage, if any immediately prior to such termination. Additionally, all outstanding options then held by Dr. Villafranca would immediately vest and remain exercisable for 12 months following termination.

• In the event that payments to Dr. Villafranca under the employment agreement would result in the imposition of a parachute excise tax under Internal Revenue Code Section 4999, Dr. Villafranca would be entitled to receive an additional “gross-up” payment to insulate him from the effect of that tax.

Change of Control Agreements

During the third quarter of 2002, we entered into change of control agreements with Dr. Zopf, Mr. Kriebel, and Ms. Poul. In the event any of these executive officers is involuntarily terminated without cause (as defined in the agreement), the executive would receive on the date of termination a cash payment equal to six months base salary. We also would arrange for outplacement services for the employee and provide medical benefits to the employee (and his or her spouse and dependents, if they were covered immediately prior to such termination) for six months, at a monthly cost to the employee equal to the monthly cost of such coverage, if any, to the employee immediately prior to such termination.

In the event that any of these executive officers is involuntarily terminated without cause or resigns for good reason within 12 months following a change of control (each as defined in the agreement), the executive would receive on the date of termination a cash payment equal to one year of base salary and the employee’s target annual bonus for the year in which the termination occurs. Additionally, all outstanding options that would have vested in the 12 months following termination would immediately vest and remain exercisable for 12 months following termination. We also would arrange for outplacement services for the employee and provide medical benefits to the employee (and his or her spouse and dependents, if they were covered immediately prior to such termination) for 12 months, at a monthly cost to the employee equal to the monthly cost of such coverage, if any, to the employee immediately prior to such termination. In the event payments to any executive under the change of control agreement would result in the imposition of a parachute excise tax under Section 280(G) of the Internal Revenue Code, the executive would be entitled to receive an additional “gross-up” payment to insulate the executive from the effect of that tax.

The change of control agreements require these executives to release us from certain claims and to comply with certain restrictive covenants. We have similar change of control agreements with our Vice Presidents.

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Separation and Consulting Agreement

In March 2002, we entered into a Separation and Consulting Agreement with Stephen A. Roth, Ph.D., our former Chief Executive Officer, who continues to serve on our Board of Directors. Under this agreement, Dr. Roth provided consulting services to the Chief Executive Officer and the Board of Directors for a period of 12 months, and we paid him $39,622 per month for 12 months. Dr. Roth also released us from any obligations we may have incurred in connection with his employment with us. In March 2003, Dr. Roth extended his non-competition and non-solicitation commitments for two additional years, and we will, therefore, pay him $39,622 per month for 24 additional months and his stock options will continue to vest and remain exercisable during this period. During the quarter ended March 31, 2003, we recorded a liability of $882,000, which represented the present value of the future payments, and a corresponding asset for the value of the non-competition commitment. The asset will be amortized to marketing, general and administrative expense in our statements of operations over the two-year term of the agreement.

Compensation of Directors

Directors who are also Neose employees receive no additional compensation for serving as a director or as a member of any Committee of the Board.

Under our standard arrangements, each non-employee director receives annually a retainer of $14,000, which may be applied, in whole or in part, toward the acquisition of an option to purchase shares of our common stock. Upon initial election or appointment to the Board of Directors, each non-employee director receives an option to purchase 30,000 shares of our common stock, and upon re-election to the Board, each non-employee director receives an option to purchase 10,000 shares of our common stock. Each automatic option grant has an exercise price equal to the fair market value on the date of grant. Each automatic grant is immediately exercisable, and has a term of ten years, subject to earlier termination, following the director’s cessation of service on the Board of Directors. Any shares purchased upon exercise of the option are subject to repurchase should the director’s service as a non-employee director cease prior to vesting of the shares. The initial automatic option grant of 30,000 shares vests in successive equal, annual installments over the director’s initial four-year period of Board service. Each annual automatic option grant vests upon the director’s completion of one year of service on the Board of Directors, as measured from the grant date. Each outstanding option vests immediately, however, upon certain changes in the ownership or control of Neose.

Non-employee directors, other than Dr. Roth, are also paid an annual retainer for service on Board Committees and are compensated for their services at each meeting of the Board or a Board Committee which they attend, at the following rates:

Committee/Position	Retainer		Meeting Fee
Audit Committee
Chair	$	8,000	$	3,000
Member	$	4,000	$	1,500
Corporate Governance, Compensation and Scientific Review Committees
Chair	$	4,000	$	2,000
Member	$	2,000	$	1,000

All Board members are reimbursed for their reasonable travel expenses incurred to attend meetings of the Board or Committees of the Board on which they serve.

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Option Grant Table

The following table provides information about grants of stock options made during 2003 to each of the executive officers named in our Summary Compensation Table.

	Individual Grants						Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Option Term (3)
Name	Number of Shares Underlying Options Granted (1)	Percentage of Total Options Granted to Employees (2)		Exercise Price		Expiration Date	5%		10%
C. Boyd Clarke	—	—	%	$	—	—	$	—	$	—
Joseph J. Villafranca	—	—			—	—		—		—
David A. Zopf	35,000	6.1			7.45	02/12/14		163,984		415,568
Robert I. Kriebel	—	—			—	—		—		—
Debra J. Poul	35,000	6.1			7.45	02/12/14		163,984		415,568

(1) Each option has a term of ten years from the date of grant and vests ratably over a four-year period, beginning on the first anniversary of the date of grant.

(2) Based on the total options granted during 2003 to employees to purchase common stock.

(3) The potential realizable value of each grant is calculated assuming that the market price per share of common stock appreciates at annualized rates of 5% and 10% over the ten-year option term. The results of these calculations are based on rates set forth by the Securities and Exchange Commission and are not intended to forecast possible future appreciation of the price of our common stock.

Aggregated Fiscal Year-End Option Values

The following table provides information about the exercise of stock options during 2003 and the value of stock options unexercised at the end of 2003 for the executive officers named in our Summary Compensation Table. The value of unexercised stock options is calculated by multiplying the number of option shares by the differences between the option exercise price and the year-end stock price.

	Number of Shares Acquired On Exercise	Value Realized		Number of Shares Underlying Unexercised Options		Values of Unexercised In-The-Money Options
Name				Exercisable	Unexercisable	Exercisable		Unexercisable
C. Boyd Clarke	—	$	—	281,250	468,750	$	28,125	$	84,375
Joseph J. Villafranca	—		—	80,000	110,000		136,000		187,000
David A. Zopf	—		—	102,916	76,250		1,333		61,250
Robert I. Kriebel	—		—	41,250	123,750		64,350		193,050
Debra J. Poul	—		—	32,500	105,000		—		61,250

Compensation Committee Interlocks and Insider Participation

The Compensation Committee consists of Douglas J. MacMaster, Jr. (chairman), L. Patrick Gage, Ph.D., and Elizabeth H.S. Wyatt, each of whom is a non-employee director. There are no compensation committee interlocks between our Company and any other entity involving our Company’s or such other entity’s executive officers or board members.

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ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.

The information required by this item is incorporated herein by reference to our definitive proxy statement to be filed in connection with solicitation of proxies for our Annual Meeting of Stockholders to be held on May 6, 2004.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.

In May 2001, we entered into a tuition reimbursement agreement with A. Brian Davis, who serves as our Vice President, Finance. Under the agreement, we agreed to lend Mr. Davis the amounts necessary to pay for tuition payments and related costs and fees for an MBA degree. Interest accrues on the loan at 4.71% per year, and is payable annually beginning in May 2002. We have agreed to forgive repayment of the principal amount outstanding in four equal, annual installments commencing in May 2004 if he remains employed by us on each forgiveness date. We will forgive the accrued interest on its annual due date and, if Mr. Davis is terminated without cause, we will forgive all outstanding principal and interest. As of December 31, 2003, the amount outstanding under the agreement, including accrued interest, was $118,000.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES.

Audit Fees. The aggregate fees billed by KPMG LLP for each of the last two fiscal years for professional services rendered for the audit of the Company’s annual financial statements and for the review of our interim financial statements, which are included in our Quarterly Reports on Form 10-Q, and services that are normally provided by KPMG LLP in connection with statutory and regulatory filings or engagements, are: $71,000 for 2003 and $67,000 for 2002.

Audit-Related Fees. The aggregate fees billed during 2003 for assurance and related services by KPMG LLP that are reasonably related to the performance of the audit or review of the Company’s financial statements and are not reported under Audit Fees above are approximately $53,000. These included fees relating to preparation of a comfort letter for our resale registration statement of Form S-3, as well as consents to use of KPMG’s audit opinion in other registration statement filings and fees associated with interpretation of accounting matters. We were not billed for any such services in 2002.

Tax Fees. The aggregate fees billed in each of the last two fiscal years for professional services rendered by KPMG LLP for tax compliance, tax advice, and tax planning are: $29,350 for 2003 and $17,000 for 2002.

All Other Fees. There were no fees billed in 2003 and 2002 for products and services provided by KPMG LLP, other than services reported under Audit Fees, Audit-Related Fees or Tax Fees above

Pre-approval Policies and Procedures. Our Audit Committee is required to pre-approve the engagement of accountants to render audit services for the Company, and any changes to the terms of the engagement are required to be pre-approved by the Audit Committee or its Chairman. Our pre-approval policies and procedures with respect to audit- and tax-related services were amended on November 4, 2003. Prior to that date, the Audit Committee was required to pre-approve all audit- and tax-related services proposed to be provided by the Company’s independent auditors, other than services for which the fees would not exceed $5,000 in any instance or 50% of the approved annual audit fees in the aggregate. The Audit Committee is now required, annually, to pre-approve the terms of the audit engagement and a description of, and budget for, the non-audit services management proposes to be provided by the Company’s independent auditors during the fiscal year. Any changes or additions to the approved list or budget for non-audit services must be pre-approved by the Audit Committee or its Chairman. The required pre-approval policies and procedures were complied with during 2003, with one exception. During first quarter of 2003, the Audit Committee Chairman pre-approved the provision by KPMG LLP of tax-related services relating to compensation matters for an estimated fee of $2,000, and the final bill for such services, in the amount of $13,000, was approved by the Audit Committee after the services were rendered.

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PART IV

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.

(a) 1.    Financial Statements.

The Financial Statements filed as part of this Annual Report on Form 10-K are listed on the Index to Financial Statements on page F-1.

2. Financial Statement Schedules.

All financial statement schedules have been omitted here because they are not applicable, not required, or the information is shown in the Financial Statements or Notes thereto.

3. Exhibits. (See (c) below)

(b) Reports on Form 8-K.

On October 21, 2003, the Company filed a report on Form 8-K, announcing under Item 5 that it is developing an improved, GlycoPEGylated version of granulocyte colony stimulating factor (G-CSF) as its second proprietary protein.

On November 5, 2003, the Company filed a report on Form 8-K, announcing under Item 7 its financial results for the quarter ended September 30, 2003.

On November 17, 2003, the Company filed a report on Form 8-K, announcing under Item 5 that it entered into license agreements for improved therapeutic proteins with Novo Nordisk A/S.

(c) Exhibits.

The following is a list of exhibits filed as part of this Annual Report on Form 10-K. We are incorporating by reference to our previous SEC filings each exhibit that contains a footnote. For exhibits incorporated by reference, the location of the exhibit in the previous filing is indicated in parentheses.

Exhibit Number	Description
3.1	Second Amended and Restated Certificate of Incorporation. (Exhibit 3.1)(1)
3.2	Second Amended and Restated By-Laws. (Exhibit 3.2)(11)
3.3	Certificate of Designation establishing and designating the Series A Junior Participating Preferred Stock. (Exhibit 3.2)(3)
4.1	See Exhibits 3.1, 3.2, and 3.3 for instruments defining rights of holders of common stock.
4.2	Representation pursuant to Item 601(b)(4)(iii)(A) of Regulation S-K. (Exhibit 4.1)(2)
4.3	Trust Indenture, dated as of March 1, 1997, between Montgomery County Industrial Development Authority and Dauphin Deposit Bank and Trust Company. (Exhibit 4.2)(2)
4.4	Form of Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bond (Neose Technologies, Inc. Project) Series B of 1997. (Exhibit 4.3)(2)
4.5	Amended and Restated Rights Agreement, dated as of December 3, 1998, between American Stock Transfer & Trust Company, as Rights Agent, and Neose Technologies, Inc. (Exhibit 4.1)(4)
4.6	Amendment No. 1, dated November 14, 2000, to the Amended and Restated Rights Agreement, dated as of December 3, 1998, between Neose Technologies, Inc. and American Stock Transfer & Trust Company, as Rights Agent. (Exhibit 4.1)(7)
4.7	Amendment No. 2, dated June 13, 2002, to the Amended and Restated Rights Agreement, dated as of December 3, 1998, between Neose Technologies, Inc. and American Stock Transfer & Trust Company, as Rights Agent. (Exhibit 4.1)(10)

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4.8	Amendment No. 3, dated October 30, 2002, to the Amended and Restated Rights Agreement, dated as of December 3, 1998, between Neose Technologies, Inc. and American Stock Transfer & Trust Company, as Rights Agent. (Exhibit 4.1)(12)
10.1	Amended and Restated License Agreement, dated as of February 27, 2003, between University of Pennsylvania and Neose Technologies, Inc. (Exhibit 10.1)(13)
10.2††	1995 Amended and Restated Stock Option/Stock Issuance Plan, as amended. (Appendix B)(15)
10.3††	Amended and Restated Employee Stock Purchase Plan. (Appendix C)(15)
10.4††	Employment Agreement, dated March 29, 2002, between C. Boyd Clarke and Neose Technologies, Inc. (Exhibit 10.1)(9)
10.5††	Non-Qualified Stock Option Agreement, dated March 29, 2002, between C. Boyd Clarke and Neose Technologies, Inc. (Exhibit 10.2)(9)
10.6††	Separation and Consulting Agreement, dated March 29, 2002, between Stephen A. Roth and Neose Technologies, Inc. (Exhibit 10.3)(9)
10.7††	Confidentiality, intellectual Property and Non-Competition Agreement, dated March 29, 2003, between Neose Technologies, Inc. and Stephen A. Roth. (Exhibit 10.4)(14)
10.8††	Employment Letter Agreement, dated August 15, 2002, between Robert I. Kriebel and Neose Technologies, Inc. (Exhibit 10.3)(11)
10.9††	Change of Control Agreement, dated October 7, 2002, between Robert I. Kriebel and Neose Technologies, Inc. (Exhibit 10.4)(11)
10.10††	Employment Agreement, dated September 12, 2002, between Joseph J. Villafranca and Neose Technologies, Inc. (Exhibit 10.5)(11)
10.11††	Form of Change of Control Agreement between Neose Technologies, Inc. and Certain Officers. (Exhibit 10.1)(11)
10.12††	Change of Control Agreement, dated October 7, 2002, between Debra J. Poul and Neose Technologies, Inc. (Exhibit 10.2)(11)
10.13	Loan Agreement, dated as of March 1, 1997, between Montgomery County Industrial Development Authority and Neose Technologies, Inc. (Exhibit 10.1)(2)
10.14	Participation and Reimbursement Agreement, dated as of March 1, 1997, between Jefferson Bank and CoreStates Bank, N.A. (Exhibit 10.2)(2)
10.15	Form of CoreStates Bank, N.A. Irrevocable Letter of Credit. (Exhibit 10.3)(2)
10.16	Pledge, Security and Indemnification Agreement, dated as of March 1, 1997, by and among CoreStates Bank, N.A., Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.4)(2)
10.1	Reimbursement Agreement, dated as of March 1, 1997, between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.5)(2)
10.18	Specimen of Note from Company to Jefferson Bank. (Exhibit 10.6)(2)
10.19	Mortgage, Assignment and Security Agreement, dated March 20, 1997, between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.7)(2)
10.20	Security Agreement, dated as of March 1, 1997, by and between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.8)(2)
10.21	Assignment of Contract, dated as of March 20, 1997, between Jefferson Bank and Neose Technologies, Inc. (Exhibit 10.9)(2)
10.22	Custodial and Collateral Security Agreement, dated as of March 20, 1997, by and among Offitbank, Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.10)(2)
10.23	Placement Agreement, dated March 20, 1997, among Montgomery County Industrial Development Authority, CoreStates Capital Markets, and Neose Technologies, Inc. (Exhibit 10.11)(2)
10.24	Remarketing Agreement, dated as of March 1, 1997, between CoreStates Capital Markets and Neose Technologies, Inc. (Exhibit 10.12)(2)

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10.25	Operating Agreement of Magnolia Nutritionals LLC, dated October 12, 1999, between Neose Technologies, Inc. and McNeil PPC, Inc. acting through its division McNeil Specialty Products Company. (Exhibit 99.2)(5)
10.26†	Collaboration and License Agreement, dated November 3, 1999, between Neose Technologies, Inc. and American Home Products Corporation. (Exhibit 99.3)(5)
10.27	Modification Agreement Relating To Reimbursement Agreements, dated as of May 1, 2000, between Hudson United Bank, Jefferson Bank Division, successor to Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.1)(6)
10.28	Modification Agreement Relating to Custodial Bank Agreement, dated as of May 1, 2000, by and among Offitbank, Hudson United Bank, Jefferson Bank Division, successor to Jefferson Bank, and Neose Technologies, Inc. (Exhibit 10.2)(6)
10.29	Agreement of Lease, dated as of February 15, 2002, between Liberty Property Leased Partnership and Neose Technologies, Inc. (Exhibit 10.40)(8)
10.30	Standard Industrial/Commercial Multi-Tenant Lease-Net, dated February 2, 2001, between Nancy Ridge Technology Center, LLC and Neose Technologies, Inc. (Exhibit 10.47)(8)
10.31	First Amendment to Lease, dated May 18, 2001, between Nancy Ridge Technology Center, LLC and Neose Technologies, Inc. (Exhibit 10.48)(8)
10.32	Agreement, dated as of August 24, 2001, between IPS and Neose Technologies, Inc. (Exhibit 10.49)(8)
10.33	Master Security Agreement between General Electric Capital Corporation and Neose Technologies, Inc., dated as of December 19, 2002. (Exhibit 10.33)(13)
10.34	Amendment to Master Security Agreement between General Electric Capital Corporation and Neose Technologies, Inc., dated as of December 19, 2002. (Exhibit 10.34)(13)
10.35	Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation, dated December 27, 2002. (Exhibit 10.35)(13)
10.36	Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation, dated March 28, 2003. (Exhibit 10.3)(14)
10.37	Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation, dated September 17, 2003. (Exhibit 10.1)(16)
10.38	Common Stock Purchase Agreement between Neose Technologies, Inc. and the Purchasers, dated as of February 13, 2003. (Exhibit 10.39)(13)
10.39*#	Research, Development and License Agreement between Neose Technologies, Inc. and Novo Nordisk A/S dated as of November 17, 2003.
10.40*#	Research, Development and License Agreement among Neose Technologies, Inc. and Novo Nordisk A/S and Novo Nordisk Health Care AG dated as of November 17, 2003.
10.41*#	Amendment to Research, Development and License Agreement between Neose Technologies, Inc. and Novo Nordisk A/S dated December 18, 2003.
10.42*#	Amendment to Research, Development and License Agreement among Neose Technologies, Inc. and Novo Nordisk A/S and Novo Nordisk Health Care AG dated December 18, 2003.
10.43*	Promissory Note of NeoseTechnologies, Inc. to General Electric Capital Corporation, dated December 18, 2003.
10.44*	Credit Agreement by and between Brown Brothers Harriman & Co. and Neose Technologies, Inc., dated as of January 30, 2004.
10.45*	General Security Agreement by Neose Technologies, Inc. to Brown Brothers Harriman & Co., dated as of January 30, 2004.
10.46*	Open-end Mortgage and Security Agreement by and between Neose Technologies, Inc. and Brown Brothers Harriman & Co., dated as of January 30, 2004.
10.47*	Term Loan Note of Neose Technologies, Inc. to Brown Brothers Harriman & Co., dated January 30, 2004.
23.1*	Consent of KPMG LLP.

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23.2*	Information Regarding Consent of Arthur Andersen LLP.
24*	Powers of Attorney (included as part of signature page hereof).
31.1*	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification by Chief Financial Officer pursuant to Rule 13-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

* Filed herewith.

† Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to an order of the SEC granting our application for confidential treatment filed pursuant to Rule 406 under the Securities Act.

†† Compensation plans and arrangements for executives and others.

# Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to a request for confidential treatment that has been filed with the SEC.

(1) Filed as an Exhibit to our Registration Statement on Form S-1 (Registration No. 33-80693) filed with the SEC on December 21, 1995, as amended.

(2) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 1997.

(3) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on October 1, 1997.

(4) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on January 8, 1999.

(5) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on February 2, 2000.

(6) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended June 30, 2000.

(7) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on November 15, 2000.

(8) Filed as an Exhibit to our Annual Report on Form 10-K filed with the SEC on March 29, 2002.

(9) Filed as an Exhibit to our Current Report on Form 8-K/A filed with the SEC on April 30, 2002.

(10) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on June 13, 2002.

(11) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2002.

(12) Filed as an Exhibit to our Current Report on Form 8-K filed with the SEC on October 31, 2002.

(13) Filed as an Exhibit to our Annual Report on Form 10-K for the year ended December 31, 2002.

(14) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended March 31, 2003.

(15) Filed as an Exhibit to our Proxy Statement filed with the SEC on April 1, 2003.

(16) Filed as an Exhibit to our Quarterly Report on Form 10-Q for the quarterly period ended September 30, 2003.

-53-

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, we have duly caused this report to be signed on our behalf by the undersigned, thereunto duly authorized.

	NEOSE TECHNOLOGIES, INC.
Date: February 17, 2004	By:	/s/ C. Boyd Clarke
		Chairman, President and Chief Executive Officer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of Neose and in the capacities and on the dates indicated.

Each person, in so signing also makes, constitutes, and appoints C. Boyd Clarke, Robert I. Kriebel and A. Brian Davis, and each of them acting alone, as his or her true and lawful attorneys-in-fact, with full power of substitution, in his name, place, and stead, to execute and cause to be filed with the Securities and Exchange Commission any or all amendments to this report.

Name	Capacity	Date
/s/ C. Boyd Clarke	Chairman, President and Chief Executive Officer (Principal Executive Officer)	February 17, 2004
/s/ Robert I. Kriebel Robert I. Kriebel	Senior Vice President and Chief Financial Officer (Principal Financial Officer)	February 17, 2004
/s/ Brian H. Dovey Brian H. Dovey	Director	February 17, 2004
/s/ L. Patrick Gage L. Patrick Gage	Director	February 17, 2004
/s/ William F. Hamilton William F. Hamilton	Director	February 17, 2004
/s/ Douglas J. MacMaster, Jr. Douglas J. MacMaster, Jr.	Director	February 17, 2004
/s/ Mark H. Rachesky Mark H. Rachesky	Director	February 17, 2004
/s/ Stephen A. Roth Stephen A. Roth	Director	February 17, 2004
/s/ Lowell E. Sears Lowell E. Sears	Director	February 17, 2004
/s/ Elizabeth H.S. Wyatt Elizabeth H.S. Wyatt	Director	February 17, 2004

-54-

Index to Financial Statements

Independent Auditors’ Report	F-2
Report of Independent Public Accountants	F-3
Balance Sheets	F-4
Statements of Operations	F-5
Statements of Stockholders’ Equity and Comprehensive Loss	F-6
Statements of Cash Flows	F-11
Notes to Financial Statements	F-12

F-1

INDEPENDENT AUDITORS’ REPORT

The Board of Directors and Stockholders

Neose Technologies, Inc.:

We have audited the accompanying balance sheets of Neose Technologies, Inc. (a development-stage company) as of December 31, 2003 and 2002, and the related statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the years in the two-year period ended December 31, 2003, and for the period from January 17, 1989 (inception) to December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits. The financial statements of Neose Technologies, Inc. for the year ended December 31, 2001 and for the period from January 17, 1989 (inception) to December 31, 2003, to the extent related to the period from January 17, 1989 (inception) to December 31, 2001, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated January 25, 2002. Our opinion on the statements of operations, stockholders’ equity and comprehensive loss, and cash flows, insofar as it relates to the amounts included for the period from January 17, 1989 (inception) to December 31, 2001, is based solely on the report of the other auditors.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, based on our audits and the report of other auditors, the financial statements referred to above present fairly, in all material respects, the financial position of Neose Technologies, Inc. (a development-stage company) as of December 31, 2003 and 2002, and the results of its operations and its cash flows for each of the years in the two-year period ended December 31, 2003, and for the period from January 17, 1989 (inception) to December 31, 2003, in conformity with accounting principles generally accepted in the United States of America.

/s/ KPMG LLP

Philadelphia, Pennsylvania

February 3, 2004

F-2

The following is a copy of a report issued by Arthur Andersen LLP and included in the 2001 Form 10-K/A report for the fiscal year ended December 31, 2001 filed on April 30, 2002. This report has not been reissued by Arthur Andersen LLP, and Arthur Andersen LLP has not consented to its use in this Annual Report on Form 10-K. For further discussion, see Exhibit 23.2 to this Form 10-K.

Report of Independent Public Accountants

To Neose Technologies, Inc.:

We have audited the accompanying consolidated balance sheets of Neose Technologies, Inc. (a Delaware corporation in the development stage) and subsidiaries as of December 31, 2000 and 2001, and the related consolidated statements of operations, stockholders’ equity and comprehensive loss, and cash flows for each of the three years in the period ended December 31, 2001, and for the period from inception (January 17, 1989) to December 31, 2001. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Neose Technologies, Inc. and subsidiaries as of December 31, 2000 and 2001, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 2001, and for the period from inception (January 17, 1989) to December 31, 2001, in conformity with accounting principles generally accepted in the United States.

ARTHUR ANDERSEN LLP

Philadelphia, Pennsylvania

January 25, 2002

F-3

Neose Technologies, Inc.

(a development-stage company)

Balance Sheets

(in thousands, except per share amounts)

	December 31, 2002			December 31, 2003
Assets
Current assets:
Cash and cash equivalents	$	31,088		$	48,101
Marketable securities		9,952			4,959
Restricted funds		977			901
Prepaid expenses and other current assets		558			917
Total current assets		42,575			54,878
Property and equipment, net		36,508			37,192
Acquired intellectual property, net		2,507			1,910
Other assets		1,502			865
Total assets	$	83,092		$	94,845
Liabilities and Stockholders’ Equity
Current liabilities:
Current portion of long-term debt and capital lease obligations	$	1,851		$	2,231
Accounts payable		1,127			2,342
Accrued compensation		1,339			2,510
Accrued expenses		1,880			2,433
Deferred revenue		320			4,333
Total current liabilities		6,517			13,849
Long-term debt and capital lease obligations		5,560			8,370
Other liabilities		330			413
Total liabilities		12,407			22,632
Commitments (Note 14)
Stockholders’ equity:
Preferred stock, $.01 par value, 5,000 shares authorized, none issued		—			—
Common stock, $.01 par value, 30,000 shares authorized; 14,330 and 19,935 shares issued; 14,324 and 19,935 shares outstanding		143			199
Additional paid-in capital		178,945			217,849
Treasury stock, 6 shares at cost		(175	)		—
Deferred compensation		(170	)		(96	)
Deficit accumulated during the development-stage		(108,058	)		(145,739	)
Total stockholders’ equity		70,685			72,213
Total liabilities and stockholders’ equity	$	83,092		$	94,845

The accompanying notes are an integral part of these financial statements.

F-4

Neose Technologies, Inc.

(a development-stage company)

Statements of Operations

(in thousands, except per share amounts)

	Year Ended December 31,									Period from inception (January 17, 1989) to December 31, 2003
	2001			2002			2003
Revenue from collaborative agreements	$	1,266		$	4,813		$	1,435		$	18,881
Operating expenses:
Research and development		14,857			21,481			26,821			126,499
Marketing, general and administrative		9,374			12,510			11,148			60,220
Total operating expenses		24,231			33,991			37,969			186,719
Operating loss		(22,965	)		(29,178	)		(36,534	)		(167,838	)
Other income		6,120			1,653			—			7,773
Impairment of equity securities		—			—			(1,250	)		(1,250	)
Interest income		3,704			1,108			564			19,342
Interest expense		(188	)		—			(461	)		(3,766	)
Net loss	$	(13,329	)	$	(26,417	)	$	(37,681	)	$	(145,739	)
Basic and diluted net loss per share	$	(0.95	)	$	(1.85	)	$	(2.14	)
Weighted-average shares outstanding used in computing basic and diluted net loss per share		14,032			14,259			17,611

The accompanying notes are an integral part of these financial statements.

F-5

Neose Technologies, Inc.

(a development-stage company)

Statements of Stockholders’ Equity and Comprehensive Loss

(in thousands)

	Convertible Preferred Stock			Common Stock			Additional paid-in capital			Treasury stock		Deferred compensation			Deficit accumulated during the development stage			Unrealized gains on marketable securities		Comprehensive loss accumulated during the development stage
	Shares	Amount		Shares	Amount
Balance, January 17, 1989 (inception)	—	$	—	—	$	—	$	—		$	—	$	—		$	—		$	—	$	—
Initial issuance of common stock	—		—	1,302		13		(3	)		—		—			—			—		—
Shares issued pursuant to consulting, licensing, and antidilutive agreements	—		—	329		3		(1	)		—		—			—			—		—
Sale of common stock	—		—	133		1		1			—		—			—			—		—
Net loss	—		—	—		—		—			—		—			(460	)		—		(460	)
Balance, December 31, 1990	—		—	1,764		17		(3	)		—		—			(460	)		—		(460	)
Sale of stock	1,517		15	420		4		4,499			—		(7	)		—			—		—
Shares issued pursuant to consulting and antidilutive agreements	—		—	145		1		—			—		—			—			—		—
Capital contributions	—		—	—		—		10			—		—			—			—		—
Dividends on preferred stock	—		—	—		—		(18	)		—		—			—			—		—
Net loss	—		—	—		—		—			—		—			(1,865	)		—		(1,865	)
Balance, December 31, 1991	1,517		15	2,329		22		4,488			—		(7	)		(2,325	)		—		(2,325	)
Sale of stock	260		2	17		—		2,344			—		—			—			—		—
Shares issued pursuant to redemption of notes payable	—		—	107		1		682			—		—			—			—		—
Exercise of stock options and warrants	—		—	21		—		51			—		—			—			—		—
Amortization of deferred compensation	—		—	—		—		—			—		5			—			—		—
Dividends on preferred stock	—		—	—		—		(36	)		—		—			—			—		—
Net loss	—		—	—		—		—			—		—			(3,355	)		—		(3,355	)
Balance, December 31, 1992	1,777		17	2,474		23		7,529			—		(2	)		(5,680	)		—		(5,680	)
Sale of preferred stock	250		3	—		—		1,997			—		—			—			—		—
Shares issued to licensor	—		—	3		—		—			—		—			—			—		—
Shares issued to preferred stockholder in lieu of cash dividends	—		—	1		—		18			—		—			—			—		—
Amortization of deferred compensation	—		—	—		—		—			—		2			—			—		—
Dividends on preferred stock	—		—	—		—		(36	)		—		—			—			—		—
Net loss	—		—	—		—		—			—		—			(2,423	)		—		(2,423	)
Balance, December 31, 1993	2,027		20	2,478		23		9,508			—		—			(8,103	)		—		(8,103	)
Sale of preferred stock	2,449		25	—		—		11,040			—		—			—			—		—
Exercise of stock options	—		—	35		1		14			—		—			—			—		—
Shares issued to preferred stockholder in lieu of cash dividends	—		—	10		1		53			—		—			—			—		—
Dividends on preferred stock	—		—	—		—		(18	)		—		—			—			—		—
Net loss	—		—	—		—		—			—		—			(6,212	)		—		(6,212	)
Balance, December 31, 1994	4,476	$	45	2,523	$	25	$	20,597		$	—	$	—		$	(14,315	)	$	—	$	(14,315	)

(continued)

The accompanying notes are an integral part of these financial statements.

F-6

Neose Technologies, Inc.

(a development-stage company)

Statements of Stockholders’ Equity and Comprehensive Loss

(continued)

(in thousands)

	Convertible Preferred Stock					Common Stock			Additional paid-in capital			Treasury stock		Deferred compensation			Deficit accumulated during the development stage			Unrealized gains on marketable securities		Comprehensive loss accumulated during the development stage
	Shares		Amount			Shares	Amount
Sale of preferred stock	2,721		$	27		—	$	—	$	10,065		$	—	$	—		$	—		$	—	$	—
Exercise of stock options and warrants	—			—		116		1		329			—		—			—			—		—
Shares issued to employees in lieu of cash compensation	—			—		8		—		44			—		—			—			—		—
Deferred compensation related to grant of stock options	—			—		—		—		360			—		(360	)		—			—		—
Shares issued to stockholder related to the initial public offering	—			—		23		—		—			—		—			—			—		—
Shares issued to preferred stockholder in lieu of cash dividends	—			—		3		—		18			—		—			—			—		—
Dividends on preferred stock	—			—		—		—		(36	)		—		—			—			—		—
Conversion of preferred stock into common stock	(1,417	)		(14	)	472		5		9			—		—			—			—		—
Net loss	—			—		—		—		—			—		—			(5,067	)		—		(5,067	)
Balance, December 31, 1995	5,780			58		3,145		31		31,386			—		(360	)		(19,382	)		—		(19,382	)
Dividends on preferred stock	—			—		—		—		(18	)		—		—			—			—		—
Sale of common stock in initial public offering	—			—		2,588		26		29,101			—		—			—			—		—
Conversion of preferred stock into common stock	(5,780	)		(58	)	2,411		24		34			—		—			—			—		—
Exercise of stock options and warrants	—			—		65		1		162			—		—			—			—		—
Shares issued pursuant to employee stock purchase plan	—			—		6		—		60			—		—			—			—		—
Stock-based compensation related to modification of options	—			—		—		—		106			—		—			—			—		—
Amortization of deferred compensation	—			—		—		—		—			—		90			—			—		—
Net loss	—			—		—		—		—			—		—			(6,141	)		—		(6,141	)
Balance, December 31, 1996	—			—		8,215		82		60,831			—		(270	)		(25,523	)		—		(25,523	)
Sale of common stock in public offering	—			—		1,250		13		20,326			—		—			—			—		—
Exercise of stock options and warrants	—			—		42		—		139			—		—			—			—		—
Shares issued pursuant to employee stock purchase plan	—			—		18		—		189			—		—			—			—		—
Deferred compensation related to grants of stock options	—			—		—		—		322			—		(322	)		—			—		—
Amortization of deferred compensation	—			—		—		—		—			—		231			—			—		—
Net loss	—			—		—		—		—			—		—			(9,064	)		—		(9,064	)
Balance, December 31, 1997	—		$	—		9,525	$	95	$	81,807		$	—	$	(361	)	$	(34,587	)	$	—	$	(34,587	)

(continued)

The accompanying notes are an integral part of these financial statements.

F-7

Neose Technologies, Inc.

(a development-stage company)

Statements of Stockholders’ Equity and Comprehensive Loss

(continued)

(in thousands)

	Convertible Preferred Stock			Common Stock			Additional paid-in capital		Treasury stock		Deferred compensation			Deficit accumulated during the development stage			Unrealized gains on marketable securities			Comprehensive loss accumulated during the development stage
	Shares	Amount		Shares	Amount
Exercise of stock options	—	$	—	49	$	1	$	261	$	—	$	—		$	—		$	—		$	—
Shares issued pursuant to employee stock purchase plan	—		—	15		—		171		—		—			—			—			—
Deferred compensation related to grants of stock options	—		—	—		—		161		—		(161	)		—			—			—
Amortization of deferred compensation	—		—	—		—		—		—		311			—			—			—
Unrealized gains on marketable securities	—		—	—		—		—		—		—			—			222			222
Net loss	—		—	—		—		—				—			(11,907	)		—			(11,907	)
Balance, December 31, 1998	—		—	9,589		96		82,400		—		(211	)		(46,494	)		222			(46,272	)
Sales of common stock in private placements	—		—	1,786		18		17,398		—		—			—			—			—
Exercise of stock options and warrants	—		—	43		—		263		—		—			—			—			—
Shares issued pursuant to employee stock purchase plan	—		—	16		—		156		—		—			—			—			—
Deferred compensation related to grants of stock options	—		—	—		—		796		—		(796	)		—			—			—
Amortization of deferred compensation	—		—	—		—		—		—		477			—			—			—
Unrealized losses on marketable securities	—		—	—		—		—		—		—			—			(222	)		(222	)
Net loss	—		—	—		—		—		—		—			(13,318	)		—			(13,318	)
Balance, December 31, 1999	—		—	11,434		114		101,013		—		(530	)		(59,812	)		—			(59,812	)
Sale of common stock in public offering	—		—	2,300		23		68,582		—		—			—			—			—
Exercise of stock options and warrants	—		—	247		3		2,735		—		—			—			—			—
Shares issued pursuant to employee stock purchase plan	—		—	11		—		157		—		—			—			—			—
Deferred compensation related to grants of employee stock options	—		—	—		—		70		—		(70	)		—			—			—
Deferred compensation related to non-employee stock options	—		—	—		—		1,200		—		(1,200	)		—			—			—
Amortization of deferred compensation related to:
Employee options	—		—	—		—		—		—		70			—			—			—
Non-employee options	—		—	—		—		—		—		1,013			—			—			—
Net loss	—		—	—		—		—		—		—			(8,500	)		—			(8,500	)
Balance, December 31, 2000	—	$	—	13,992	$	140	$	173,757	$	—	$	(717	)	$	(68,312	)	$	—		$	(68,312	)

(continued)

The accompanying notes are an integral part of these financial statements.

F-8

Neose Technologies, Inc.

(a development-stage company)

Statements of Stockholders’ Equity and Comprehensive Loss

(continued)

(in thousands)

	Convertible Preferred Stock			Common Stock				Additional paid-in Capital			Treasury stock			Deferred compensation			Deficit accumulated during the development stage			Unrealized gains on marketable securities		Comprehensive loss accumulated during the development stage
	Shares	Amount		Shares		Amount
Exercise of stock options and warrants	—	$	—	79		$	1	$	867		$	—		$	—		$	—		$	—	$	—
Shares issued pursuant to employee stock purchase plan	—		—	18			—		335			—			—			—			—		—
Acquisition of treasury stock, 6 shares at cost	—		—	(6	)		—		—			(175	)		—			—			—		—
Deferred compensation related to grants of employee stock options	—		—	—			—		299			—			(299	)		—			—		—
Deferred compensation related to non-employee stock options	—		—	—			—		75			—			(75	)		—			—		—
Stock-based compensation related to modifications of options	—		—	—			—		791			—			—			—			—		—
Amortization of deferred compensation related to:
Employee options	—		—	—			—		—			—			125			—			—		—
Non-employee options	—		—	—			—		—			—			463			—			—		—
Net loss	—		—	—			—		—			—			—			(13,329	)		—		(13,329	)
Balance, December 31, 2001	—		—	14,083			141		176,124			(175	)		(503	)		(81,641	)		—		(81,641	)
Exercise of stock options	—		—	209			2		1,575			—			—			—			—		—
Shares issued pursuant to employee stock purchase plan	—		—	32			—		384			—			—			—			—		—
Deferred compensation related to grants of employee stock options	—		—	—			—		118			—			(118	)		—			—		—
Deferred compensation related to non-employee stock options	—		—	—			—		(878	)		—			878			—			—		—
Stock-based compensation related to modification of options	—		—	—			—		1,622			—			—			—			—		—
Amortization of deferred compensation related to:
Employee options	—		—	—			—		—			—			171			—			—		—
Non-employee options	—		—	—			—		—			—			(598	)		—			—		—
Net loss	—		—	—			—		—			—			—			(26,417	)		—		(26,417	)
Balance, December 31, 2002	—	$	—	14,324		$	143	$	178,945		$	(175	)	$	(170	)	$	(108,058	)	$	—	$	(108,058	)

(continued)

The accompanying notes are an integral part of these financial statements.

F-9

Neose Technologies, Inc.

(a development-stage company)

Statements of Stockholders’ Equity and Comprehensive Loss

(continued)

(in thousands)

	Convertible Preferred Stock			Common Stock			Additional paid-in Capital		Treasury stock		Deferred compensation			Deficit accumulated during the development stage			Unrealized gains on marketable securities		Comprehensive loss accumulated during the development stage
	Shares	Amount		Shares	Amount
Sale of common stock in a registered offering	—	$	—	2,655	$	26	$	22,351	$	—	$	—		$	—		$	—	$	—
Sale of common stock in a private placement	—		—	2,867		29		16,291		—		—			—			—		—
Exercise of stock options	—		—	63		1		171		—		—			—			—		—
Shares issued pursuant to employee stock purchase plan	—		—	26		—		21		175		—			—			—		—
Deferred compensation related to grants of employee stock options	—		—	—		—		56		—		(56	)		—			—		—
Deferred compensation related to non-employee stock options	—		—	—		—		14		—		(14	)		—			—		—
Amortization of deferred compensation related to:
Employee options	—		—	—		—		—		—		100			—			—		—
Non-employee options	—		—	—		—		—		—		44			—			—		—
Net loss	—		—	—		—		—		—		—			(37,681	)		—		(37,681	)
Balance, December 31, 2003	—	$	—	19,935	$	199	$	217,849	$	—	$	(96	)	$	(145,739	)	$	—	$	(145,739	)

The accompanying notes are an integral part of these financial statements

F-10

Neose Technologies, Inc.

(a development-stage company)

Statements of Cash Flows

(in thousands)

	Year ended December 31,									Period from inception (January 17, 1989) to December 31, 2003
	2001			2002			2003
Cash flows from operating activities:
Net loss	$	(13,329	)	$	(26,417	)	$	(37,681	)	$	(145,739	)
Adjustments to reconcile net loss to cash used in operating activities:
Depreciation and amortization		2,422			2,376			4,818			17,927
Loss on disposition of property and equipment		—			—			264			264
Non-cash compensation		1,379			1,195			144			4,917
Common stock issued for non-cash and other charges		—			—			—			35
Changes in operating assets and liabilities:
Prepaid expenses and other current and non-current assets		(1,052	)		825			(421	)		(1,231	)
Accounts payable		636			408			1,215			2,342
Accrued compensation		254			484			708			2,091
Accrued expenses		(208	)		734			(200	)		1,578
Deferred revenue		833			(902	)		4,013			4,333
Other liabilities		—			330			(336	)		(6	)
Net cash used in operating activities		(9,065	)		(20,967	)		(27,476	)		(113,489	)
Cash flows from investing activities:
Purchases of property and equipment		(9,371	)		(17,826	)		(3,455	)		(50,563	)
Proceeds from sale-leaseback of equipment		—			—			—			1,382
Purchases of marketable securities		(103,465	)		(60,411	)		(38,569	)		(423,307	)
Proceeds from sales of marketable securities		—			—			18,219			29,686
Proceeds from maturities of and other changes in marketable securities		131,238			51,000			25,500			389,360
Purchase of acquired technology		—			—			—			(4,550	)
Investment in equity securities		—			—			—			(1,250	)
Impairment of equity securities		—			—			1,250			1,250
Net cash provided by (used in) investing activities		18,402			(27,237	)		2,945			(57,992	)
Cash flows from financing activities:
Proceeds from issuance of debt		—			2,261			4,987			19,203
Repayments of debt		(1,100	)		(1,100	)		(2,584	)		(10,736	)
Restricted cash related to debt		(9	)		(75	)		76			(830	)
Proceeds from issuance of preferred stock, net		—			—			—			29,497
Proceeds from issuance of common stock, net		335			384			38,893			176,117
Proceeds from exercise of stock options and warrants		868			1,577			172			6,578
Acquisition of treasury stock		(175	)		—			—			(175	)
Dividends paid		—			—			—			(72	)
Net cash provided by (used in) financing activities		(81	)		3,047			41,544			219,582
Net increase (decrease) in cash and cash equivalents		9,256			(45,157	)		17,013			48,101
Cash and cash equivalents, beginning of period		66,989			76,245			31,088			—
Cash and cash equivalents, end of period	$	76,245		$	31,088		$	48,101		$	48,101

The accompanying notes are an integral part of these financial statements

F-11

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

Note 1. Background

We are a biopharmaceutical company focused on improving protein therapeutics using our proprietary technologies. Our core technologies, GlycoAdvance^™ and GlycoPEGylation^™, enable us to manipulate, enzymatically, the carbohydrate structures of glycoproteins, and thereby pursue the objective of improving the therapeutic profiles of proteins that have already been marketed or substantially developed. Our business strategy is to use our technologies to improve proteins for which there exists a substantial body of data demonstrating safety and efficacy. We intend to apply this strategy to next-generation products that we are developing on our own or in collaboration with others. We also expect to use our technologies, through strategic partners, to improve products of other parties. Neose was initially incorporated in January 1989, and began operations in October 1990.

Note 2. Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions. Those estimates and assumptions affect the reported amounts of assets and liabilities as of the date of the financial statements, the disclosure of contingent assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

We consider all highly liquid investments with a maturity of three months or less on the date of purchase to be cash equivalents. As of December 31, 2002 and 2003, cash equivalents consisted of securities and obligations of either the U.S. Treasury or U.S. government agencies. Our cash balances have been kept on deposit primarily at one bank and in amounts greater than $100,000, which is the limit of insurance provided by the Federal Deposit Insurance Corporation.

Marketable Securities

Marketable securities consist of investments that have a maturity of more than three months on the date of purchase. To help maintain the safety and liquidity of our marketable securities, we have established guidelines for the concentration, maturities, and credit ratings of our investments. We determine the appropriate classification of our debt securities at the time of purchase and re-evaluate such designation as of each balance sheet date. Marketable securities that we have the positive intent and ability to hold to maturity are classified as held-to-maturity securities and recorded at amortized cost.

As of December 31, 2003, we held a marketable security that was an obligation of a U.S. government agency. The security, which is classified as held-to-maturity, had an original maturity of 11 months. As of December 31, 2003, the security’s amortized cost was $4,959,000, which included $15,000 of accrued interest, and the fair value was $4,961,000. During 2003, there was $342,000 of interest earned on securities that matured during the year.

Restricted Funds

Under the terms of our Montgomery County (Pennsylvania) Industrial Development Authority taxable bonds, we are required to make monthly payments to an escrow account to provide for an annual prepayment of principal. As of December 31, 2003, we had restricted funds of $901,000, which consisted of our monthly payments plus interest earned on the balance of the account. During the first quarter of 2004, we expect to use the restricted funds and a portion of the proceeds under the credit agreement we entered into in January 2004 to pay in full the outstanding balance of the taxable bonds. See Note 7 for a description of the credit agreement.

F-12

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

Property and Equipment

Property and equipment are stated at cost. Property and equipment capitalized under capital leases are recorded at the present value of the minimum lease payments due over the lease term. Depreciation and amortization are provided using the straight-line method over the estimated useful lives of the related assets or the lease term, whichever is shorter. We use depreciable lives of three to seven years for laboratory and office equipment, and three to twenty years for building and improvements. Expenditures for maintenance and repairs are charged to expense as incurred, and expenditures for major renewals and improvements are capitalized.

Impairment of Long-Lived Assets

We assess the recoverability of long-lived assets for which an indicator of impairment exists. Specifically, we calculate, and recognize, any impairment losses by comparing the carrying value of these assets to our estimate of the undiscounted future operating cash flows. Although our current and historical negative cash flows are indicators of impairment, we believe the future cash flows to be received from our long-lived assets will exceed the assets’ carrying value. Accordingly, we have not recognized any impairment losses through December 31, 2003.

Revenue Recognition

Revenue from collaborative agreements consists of upfront fees, research and development funding, and milestone payments. Non-refundable upfront fees are deferred and amortized to revenue over the related estimated performance period. Periodic payments for research and development activities are recognized over the period in which we perform those activities under the terms of each agreement. Revenue resulting from the achievement of milestone events stipulated in the agreements is recognized when the milestone is achieved.

Research and Development

Research and development costs are charged to expense as incurred.

Income Taxes

We account for income taxes under the asset and liability method. Deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date.

Net Loss Per Share

Basic loss per share is computed by dividing net loss by the weighted-average number of common shares outstanding for the period. Diluted loss per share reflects the potential dilution from the exercise or conversion of securities into common stock. For the years ended December 31, 2001, 2002, and 2003, the effects of the exercise of outstanding stock options were antidilutive; accordingly, they were excluded from the calculation of diluted earnings per share. See Note 10 for a summary of outstanding options.

F-13

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

Comprehensive Loss

Our comprehensive loss for the years ended December 31, 2001, 2002, and 2003 is comprised only of our net loss, and was $13,329,000, $26,417,000, and $37,681,000, respectively.

Fair Value of Financial Instruments

As of December 31, 2003, the carrying values of cash and cash equivalents, restricted funds, accounts receivable, accounts payable, accrued expenses, and accrued compensation approximate their respective fair values. In addition, we believe the carrying value of our debt instruments, which do not have readily ascertainable market values, approximates their fair values.

Stock-based Compensation

We apply the intrinsic value method of accounting for all stock-based employee compensation in accordance with APB Opinion No. 25, “Accounting for Stock Issued to Employees” (APB 25), and related interpretations. We record deferred compensation for option grants to employees for the amount, if any, by which the market price per share exceeds the exercise price per share. In addition, we apply fair value accounting for option grants to non-employees in accordance with Statement of Financial Accounting Standards No. 123, “Accounting for Stock-Based Compensation” (SFAS No. 123), and Emerging Issues Task Force Issue 96-18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services” (EITF 96-18).

We have elected to adopt only the disclosure provisions of Statement of Financial Accounting Standards No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure, an amendment of FASB Statement No. 123.” The following table illustrates the effect on our net loss and basic and diluted net loss per share if we had recorded compensation expense for the estimated fair value of our stock-based employee compensation, consistent with SFAS No. 123 (in thousands, except per share data):

Year Ended December 31,	2001			2002			2003
Net loss – as reported	$	(13,329	)	$	(26,417	)	$	(37,681	)
Add: Stock-based employee compensation expense included in reported net loss		125			171			100
Deduct: Total stock-based employee compensation expense determined under fair value-based method for all awards		(8,179	)		(15,588	)		(11,893	)
Net loss – pro forma	$	(21,383	)	$	(41,834	)	$	(49,474	)
Basic and diluted net loss per share – as reported	$	(0.95	)	$	(1.85	)	$	(2.14	)
Basic and diluted net loss per share – pro forma	$	(1.52	)	$	(2.94	)	$	(2.81	)

Recent Accounting Pronouncements

In April 2003, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 149, “Amendment of Statement 133 on Derivative Instruments and Hedging Activities” (SFAS No. 149). This Statement amends and clarifies accounting for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities under SFAS No. 133. SFAS No. 149 was effective for contracts entered into or modified after June 30, 2003, for hedging relationships designated after June 30, 2003, and to certain preexisting contracts. The adoption of SFAS No. 149 did not have an impact on our financial statements.

F-14

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity”. This Statement establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 was effective for financial instruments entered into or modified after May 31, 2003, and is otherwise effective July 1, 2003. The adoption of SFAS No. 150 did not have an impact on our financial statements as we do not have any instruments that are within the scope of this statement.

In December 2003, the FASB issued FASB Interpretation No. 46 (revised December 2003), “Consolidation of Variable Interest Entities” (FIN 46R), which addresses how a business enterprise should evaluate whether it has a controlling financial interest in an entity through means other than voting rights and accordingly should consolidate the entity. FIN 46R replaces FASB Interpretation No. 46, “Consolidation of Variable Interest Entities,” which was issued in January 2003. We will be required to apply FIN 46R to variable interests in variable interest entities created after December 31, 2003. We do not have any variable interests in variable interest entities.

Reclassification

Certain prior year amounts have been reclassified to conform to our current year presentation.

Note 3. Supplemental Disclosure of Cash Flow Information

The following table contains additional cash flow information for the periods reported.

			Year ended December 31,					Period from inception (January 17, 1989) to December 31, 2003
	2001		2002			2003
Supplemental disclosure of cash flow information:
Cash paid for interest	$	284	$	142		$	465	$	3,910
Non-compete agreement	$	—	$	—		$	882	$	882
Non-cash investing activities:
Increase (decrease) in accrued property and equipment	$	1,525	$	(1,698	)	$	753	$	855
Assets acquired under capital leases	$	—	$	50		$	787	$	837
Non-cash financing activities:
Issuance of common stock for dividends	$	—	$	—		$	—	$	90
Issuance of common stock to employees in lieu of cash compensation	$	—	$	—		$	—	$	44

F-15

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

Note 4. Property and Equipment

Property and equipment consisted of the following (in thousands):

December 31,	2002			2003
Building and improvements	$	14,872		$	27,989
Laboratory and office equipment		8,964			16,024
Land		700			700
Construction-in-progress		21,440			5,217
		45,976			49,930
Less accumulated depreciation		(9,468	)		(12,738	)
	$	36,508		$	37,192

The construction-in-progress as of December 31, 2002 represents amounts incurred related to improvements to our owned facility in Horsham, PA. and our leased facility in Horsham, PA. During 2001 and 2002, we incurred $17,448,000 for the construction and validation of our cGMP facility at our existing Horsham location. Our cGMP facility was placed in-service in January 2003. Of the total project cost, $12,488,000 is considered building improvements and will be depreciated over 20 years and $4,960,000 is laboratory equipment and will be depreciated over seven years. Separately, in 2002 we incurred $3,992,000 for the design and renovations of our leased facility in Horsham. Later in 2002, we suspended plans to complete these renovations. In November 2003, we reinitiated renovation activities at an expected additional cost of $6,300,000, which is incremental to the $4,081,000 previously invested in these renovations, on approximately 25,000 square feet of the facility, leaving approximately 15,000 square feet available for future expansion. Our construction-in-progress at December 31, 2002 and 2003 includes $3,992,000 and $5,091,000, respectively, in renovations to this facility.

During the years ended December 31, 2001, 2002, and 2003, we capitalized $70,000, $150,000, and $42,000, respectively, of interest expense in connection with our facility improvement projects. Depreciation expense was $1,825,000, $2,311,000, and $4,047,000 for the years ended December 31, 2001, 2002, and 2003, respectively. During the year ended December 31, 2003, we recorded a loss on disposition of property and equipment of $264,000.

Note 5. Acquired Intellectual Property

In 1999, we acquired the carbohydrate-manufacturing patents, licenses, and other intellectual property of Cytel Corporation for aggregate consideration of $4,750,000. The acquired intellectual property consists of core technology with alternative future uses. The acquired intellectual property balance is being amortized to research and development expense in our statements of operations over eight years, which is the estimated useful life of the technology. Amortization expense relating to the acquired intellectual property was $598,000, $598,000, and $597,000, respectively, for each of the years ended December 31, 2001, 2002, and 2003.

Note 6. Other Assets

Investment in Convertible Preferred Stock

In 2000, we made an investment of $1,250,000 in Series A convertible preferred stock of Neuronyx, Inc., and entered into a research and development collaboration with Neuronyx for the discovery and development of drugs for treating Parkinson’s disease and other neurological diseases. The collaboration agreement provides for each of Neose and Neuronyx to perform and fund specific tasks, and to share in any financial benefits of the collaboration. During the year ended December 31, 2003, we did not incur any research and development expense related to this

F-16

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

collaboration. We incurred research and development expense related to this collaboration of $1,045,000 and $297,000 during the years ended December 31, 2001 and 2002, respectively. We recorded the equity investment at cost. In October 2003, Neuronyx informed us that they were nearing completion of a Series C equity financing, under which Series C and Series B Neuronyx investors would have an aggregate liquidation preference that is senior to the Series A liquidation preference and exceeds the assumed post-money valuation of Neuronyx. As a result, we reduced the carrying value of our equity investment to zero as of September 30, 2003 by recording a non-cash charge, which is reflected as an impairment of equity securities in our statements of operations.

Receivable from Related Party

In 2001, we entered into a tuition reimbursement agreement with an employee who subsequently became an executive officer. Under the agreement, we agreed to lend the amounts necessary to pay for the employee’s tuition payments and related costs and fees. Interest accrues on the loan at 4.71% per year, and is payable annually beginning in May 2002. We have agreed to forgive repayment of the principal amount outstanding in four equal, annual installments commencing in May 2004 if the employee remains employed by us on each forgiveness date. We will forgive the accrued interest on its annual due date and, if the employee is terminated without cause, we will forgive all outstanding principal and interest. During 2003, we forgave accrued interest of $8,000. As of December 31, 2002 and 2003, the amounts outstanding under the agreement, including accrued interest, were $121,000 and $118,000, respectively.

Note 7. Long-Term Debt and Capital Lease Obligations

Long-term debt and capital lease obligations consisted of the following (in thousands):

December 31,	2002			2003
Industrial development authority bonds	$	5,100		$	3,900
Equipment loans		2,261			6,082
Capital lease obligations		50			619
		7,411			10,601
Less current portion		(1,851	)		(2,231	)
	$	5,560		$	8,370

Minimum principal repayments of long-term debt and capital lease obligations as of December 31, 2003 were as follows (in thousands): 2004—$2,231; 2005—$3,335; 2006—$2,436; 2007—$1,328; 2008—$927; and thereafter—$344. Because we expect to refinance our Industrial Development Authority bonds during the first quarter of 2004 under a credit agreement entered into in January 2004, we have adjusted the minimum principal repayments relating to the bonds to reflect principal repayment schedule of the new debt. Pursuant to Statement of Financial Accounting Standards No. 6, “Classification of Short-Term Obligations Expected to Be Refinanced (SFAS No. 6),” short-term obligations, such as the $1,200,000 principal payment due during 2004 under the terms of our taxable Industrial Development Authority bonds, should be excluded from current liabilities if a financing agreement for refinancing of the short-term agreement meets certain criteria. The existing credit agreement with our bank meets the criteria specified in SFAS No. 6. Therefore, we reclassified the $1,200,000 due in 2004 under the terms of the taxable bonds as a long-term liability.

Credit Agreement

In January 2004, we borrowed $6,200,000 from a bank for the purpose of funding improvements to our leased facility in Horsham, PA. The credit agreement with our bank provides for us to borrow from the bank an additional $1,800,000 and to utilize $1,100,000 of our restricted cash for the purpose of paying in full the

F-17

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

$2,900,000 outstanding of our taxable Industrial Development Authority bonds, which payment we expect to occur during the first quarter of 2004. During the first quarter of 2004, we expect to enter into another agreement with the bank for it to acquire and reissue the $1,000,000 outstanding of our tax-exempt Industrial Development Authority bonds. If the tax-exempt bond acquisition described above does not occur, the existing credit agreement provides for us to borrow an additional $1,000,000 for the purpose of paying in full the outstanding amount of the tax-exempt Industrial Development Authority bonds.

Initially, the interest rate on the bonds will vary quarterly, depending on LIBOR rates. We will have the option each quarter to incur interest on the outstanding principal at a LIBOR-based variable interest rate or a fixed rate offered by our bank.

If the tax-exempt bond acquisition described above occurs, we will make quarterly, interest-only payments on the related $1,000,000 debt for ten years followed by a single repayment of principal at the end of the ten-year loan period. For the debt outstanding under the existing credit agreement, we will make quarterly, interest-only payments through March 31, 2005. Commencing on March 31, 2005, we will make quarterly principal and interest payments over the remaining nine years of the ten-year loan period. The outstanding debt will be $8,000,000 if the tax-exempt bond acquisition described above occurs and $9,000,000 if the tax-exempt bond acquisition described above does not occur.

To provide credit support for the agreement, we granted a second mortgage to our bank on the land and building where our present headquarters are located, as well as on improvements, certain equipment, and other tangible personal property. The second mortgage will automatically convert to a first mortgage upon payment in full of our Industrial Development Authority Bonds, which payment we expect to occur during the first quarter of 2004. In the credit agreement, we agreed to limit our total outstanding debt to $22,000,000. After using a portion of the proceeds to repay existing debt, our total debt outstanding will be approximately $15,700,000. At any time after the fourth year of the loan period, or if we fail to maintain a minimum required cash and short-term investments balance of at least $22,000,000, our bank has the option to require additional collateral from us in the form of a letter of credit or a security interest in certain cash and short-term investments.

Industrial Development Authority Bonds

In 1997, we issued, through the Montgomery County (Pennsylvania) Industrial Development Authority, $9,400,000 of taxable and tax-exempt bonds, of which $3,900,000 was outstanding as of December 31, 2003. As mentioned above, we expect during the first quarter of 2004 to pay in full the outstanding loan balance of the taxable bonds and to have our bank acquire and reissue the tax-exempt bonds.

Pursuant to Statement of Financial Accounting Standards No. 6, “Classification of Short-Term Obligations Expected to Be Refinanced (SFAS No. 6),” short-term obligations, such as the $1,200,000 principal payment due during 2004 under the terms of our taxable Industrial Development Authority bonds, should be excluded from current liabilities if a financing agreement for refinancing of the short-term agreement meets certain criteria. The existing credit agreement with our bank meets the criteria specified in SFAS No. 6. Therefore, we reclassified the $1,200,000 due in 2004 under the terms of the taxable bonds as a long-term liability.

The bonds are supported by an AA-rated letter of credit, and a reimbursement agreement between our bank and the letter of credit issuer. The interest rate on the bonds varies weekly, depending on market rates for AA-rated taxable and tax-exempt obligations, respectively. During 2001, 2002, and 2003, the weighted-average, effective interest rate was 5.3%, 3.3%, and 2.7% per year, including letter-of-credit and other fees.

The terms of the bond issuance provide for monthly, interest-only payments and a single repayment of principal at the end of the twenty-year life of the bonds. However, under our agreement with our bank, we make monthly payments to an escrow account to provide for an annual prepayment of principal. As of December 31,

F-18

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

2003, we had restricted funds relating to the taxable bonds of $901,000, which consisted of our monthly payments to an escrow account plus interest earned on the balance of the escrow account. During the first quarter of 2004, we expect to use the restricted funds and a portion of the proceeds under the credit agreement we entered into in January 2004 to pay in full the outstanding loan balance of the taxable bonds.

To provide credit support for this arrangement, we granted a first mortgage on land, building, improvements, and certain equipment to our bank. The net book value of the pledged assets was $20,899,000 as of December 31, 2003. We also agreed to maintain a minimum required cash and short-term investments balance of at least two times the outstanding loan balance. If we fail to comply with this covenant, we are required to deposit with the lender cash collateral up to, but not more than, the unpaid balance of the loan. At December 31, 2003, we were required to maintain $7,800,000 of cash and short-term investments.

Equipment Loans

In December 2003, we borrowed $1,201,000 secured by laboratory equipment and facility improvements, which had a book value of $1,207,000 as of December 31, 2003. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 8.66%.

In September 2003, we borrowed $831,000 secured by laboratory equipment and facility improvements, which had a book value of $712,000 as of December 31, 2003. The terms of the financing require us to pay monthly principal and interest payments over 48 months at an interest rate of 8.35%.

In March 2003, we borrowed $2,954,000 secured by laboratory equipment, which had a book value of $2,703,000 as of December 31, 2003. The terms of the financing require us to pay monthly principal and interest payments over 42 months at an annual interest rate of 8.35%.

During 2002, we borrowed $2,261,000 secured by laboratory equipment, which had a book value of $1,868,000 as of December 31, 2003. We are required to make monthly principal and interest payments at an annual interest rate of 8.00% over a three-year period ending January 2006.

Capital Lease Obligations

In September 2003, we entered into a capital lease obligation for equipment with a book value of $354,000, which was calculated using an assumed incremental annual borrowing rate of 7.96%. The terms of the lease required us to make an initial payment of $90,000 followed by monthly payments through September 2006. This equipment had an aggregate net book value of $325,000 as of December 31, 2003. We also entered into a capital lease obligation during September 2003 for software with a fair value of $60,000. The terms of the lease require us to make monthly payments through September 2008. As of December 31, 2003, this software had a net book value of $57,000.

During the quarter ended June 30, 2003, we entered into various capital lease obligations for equipment and software with an aggregate book value of $373,000, which was calculated using an assumed incremental annual borrowing rate of 8.35%. We are required to make monthly payments on each lease. The leases have expiration dates ranging from April 2006 to June 2006. As of December 31, 2003, the aggregate net book value of the assets under these leases was $57,000.

In November 2002, we entered into a capital lease obligation for computer equipment that had a book value of $50,000. The lease has an imputed interest rate of 6.2%. We are required to make monthly payments over a three-year period ending November 2005. As of December 31, 2003, this computer equipment had an aggregate net book value of $33,000.

F-19

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

Note 8. Accrued Expenses

Accrued expenses consisted of the following (in thousands):

December 31,	2002		2003
Property and equipment	$	102	$	855
Professional fees		500		444
Employee relocation		315		349
Outside research expenses		573		142
Other expenses		390		643
	$	1,880	$	2,433

Note 9. Stockholders’ Equity

Common Stock

In September 2003, we sold 2,655,557 shares of common stock in a registered offering to a group of institutional and individual investors at a price of $9.00 per share, generating net proceeds of $22,377,000.

In February 2003, we sold 2,866,763 shares of common stock in a private placement to a group of institutional and individual investors at a price of $6.00 per share, generating net proceeds of $16,320,000.

In March 2000, we offered and sold 2,300,000 shares of our common stock at a public offering price of $32.00 per share. Our net proceeds from the offering after the payment of underwriting fees and offering expenses were $68,605,000.

In June 1999, we sold 1,500,000 shares of common stock in a private placement to a group of institutional and individual investors at a price of $9.50 per share, generating net proceeds of $13,416,000. In January 1999, we sold 286,097 shares of common stock to Johnson & Johnson Development Corporation at a price of $13.98 per share, generating net proceeds of $4,000,000.

In January 1997, we sold 1,250,000 shares of common stock in a public offering at a price of $17.50 per share. Our net proceeds from this offering after the payment of placement fees and offering expenses were $20,339,000.

Our initial public offering closed in February 1996. We sold 2,587,500 shares of common stock, which included the exercise of the underwriters’ over-allotment option in March 1996, at a price of $12.50 per share. Our net proceeds from this offering after the underwriting discount and payment of offering expenses were $29,127,000. In connection with this offering, all outstanding shares of Series A, C, D, E, and F Convertible Preferred Stock converted into 2,410,702 shares of common stock.

Shareholder Rights Plan

In September 1997, we adopted a Shareholder Rights Plan. Under this plan, which was amended in December 1998, holders of common stock are entitled to receive one right for each share of common stock held. Separate rights certificates would be issued and become exercisable if any acquiring party either accumulates or announces an offer to acquire at least 15% of our common stock. Each right will entitle any holder who owns less than 15% of our common stock to buy one one-hundredth share of the Series A Junior Participating Preferred Stock at an exercise price of $150. Each one one-hundredth share of the Series A Junior Participating Preferred Stock is

F-20

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

essentially equivalent to one share of our common stock. If an acquiring party accumulates at least 15% of our common stock, each right entitles any holder who owns less than 15% of our common stock to purchase for $150 either $300 worth of our common stock or $300 worth of the 15% acquirer’s common stock. In November 2000, the Plan was amended to increase the threshold from 15% to 20% for Kopp Investment Advisors, Inc. and related parties. In June 2002 and October 2002, the Plan was amended to increase the threshold to 20% and 25%, respectively, for Eastbourne Capital Management, LLC and related parties. The rights expire in September 2007 and may be redeemed by us at a price of $.01 per right at any time up to ten days after they become exercisable.

Note 10. Compensation Plans

Stock Option Plans

We have three stock option plans, the 1991, 1992, and 1995 Stock Option Plans, under which a total of 5,876,666 shares of common stock have been reserved. In addition, we granted nonqualified stock options outside of these plans in 1995 to two consultants to purchase an aggregate of 69,998 shares and in 2002 to our Chief Executive Officer and President to purchase 487,520 shares. The 1995 Stock Option Plan, which incorporates the two predecessor plans, provides for the granting of both incentive stock options and nonqualified stock options to our employees, officers, directors, and consultants. In addition, the plan allows us to issue shares of common stock directly either through the immediate purchase of shares or as a bonus tied to either an individual’s performance or our attainment of prescribed milestones. Incentive stock options may not be granted at an exercise price less than the fair market value on the date of grant. In addition, the plan includes stock appreciation rights to be granted at our discretion. The stock options are exercisable over a period, which may not exceed ten years from the date of grant, determined by our board of directors. A summary of the status of stock options as of December 31, 2001, 2002, 2003, and changes during each of the years then ended, is presented below:

	2001				2002				2003
	Number Outstanding		Weighted- Average Exercise Price Per Share		Number Outstanding		Weighted- Average Exercise Price Per Share		Number Outstanding		Weighted- Average Exercise Price Per Share
Balance as of January 1	2,506,901		$	16.61	3,112,256		$	20.39	4,326,869		$	19.66
Granted	789,035			32.48	1,588,721			16.92	668,320			8.44
Exercised	(79,055	)		11.28	(209,307	)		7.42	(62,780	)		2.74
Canceled	(104,625	)		27.98	(164,801	)		22.49	(593,810	)		19.51
Balance as of December 31	3,112,256		$	20.39	4,326,869		$	19.66	4,338,599		$	18.20
Options exercisable as of December 31	1,782,271		$	14.86	2,041,726		$	17.86	2,420,961		$	19.03

F-21

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

The following table summarizes information about stock options outstanding as of December 31, 2003:

Options Outstanding					Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted- Average Remaining Life (Years)	Weighted- Average Exercise Price		Number Exercisable	Weighted- Average Exercise Price
$  0.90—$7.32	99,389	4.4	$	4.38	83,189	$	3.82
$  7.45—$10.62	1,642,902	8.6	$	8.55	571,130	$	9.11
$11.15—$15.13	855,360	4.8	$	13.51	747,135	$	13.79
$15.25—$21.11	194,232	5.1	$	18.96	151,732	$	18.57
$23.00—$31.75	660,966	7.3	$	28.46	421,191	$	28.41
$32.05—$41.13	885,750	7.9	$	34.35	446,584	$	34.63
	4,338,599	7.2	$	18.20	2,420,961	$	19.03

Fair Value Disclosures

We have elected to adopt only the disclosure provisions of SFAS No. 123. Accordingly, we apply APB 25 and related interpretations in accounting for our stock-based employee compensation. We record deferred compensation for option grants to employees for the amount, if any, by which the market price per share exceeds the exercise price per share. We amortize deferred compensation over the vesting periods of each option. We recognized $125,000, $171,000, and $100,000 of compensation expense related to employee stock options for the years ended December 31, 2001, 2002, and 2003, respectively. In addition, we recorded $825,000 and $1,608,000 of expense related to the modification of certain stock options to former employees for the years ended December 31, 2001 and 2002. See Note 12 for a description of separation and retirement agreements.

The weighted-average fair value of options granted in 2001, 2002, and 2003 was $22.55, $12.81, and $5.76, respectively. The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model. We used the following weighted-average assumptions for 2001, 2002, and 2003 grants, respectively: risk-free interest rate of 4.9%, 4.2%, and 3.0%; expected life of 6.1, 6.7, and 5.5 years; volatility of 75%, 80%, and 80%; and a dividend yield of zero. The weighted-average fair value of employee purchase rights granted under our employee stock purchase plan (see below) in 2001, 2002, and 2003 was $11.60, $15.37, and $19.79, respectively. The fair value of the purchase rights was estimated using the Black-Scholes model with the following weighted-average assumptions for 2001, 2002, and 2003, respectively: risk-free interest rate of 4.6%, 2.9%, and 2.9%; expected life of 16, 17, and 22 months; volatility of 75%, 80%, and 80%; and a dividend yield of zero.

F-22

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

A summary of options granted at exercise prices equal to, greater than, and less than the market price on the date of grant is presented below:

Year Ended December 31,	2001		2002		2003
Exercise Price = Market Value
Options granted		610,400		1,578,800		659,732
Weighted-average exercise price	$	30.96	$	16.98	$	8.51
Weighted-average fair value	$	21.29	$	12.79	$	5.73
Exercise Price > Market Value
Options granted		—		—		—
Weighted-average exercise price	$	—	$	—	$	—
Weighted-average fair value	$	—	$	—	$	—
Exercise Price < Market Value
Options granted		178,635		9,921		8,588
Weighted-average exercise price	$	37.67	$	6.00	$	3.26
Weighted-average fair value	$	26.85	$	15.46	$	8.18

Non-employee Stock Options

During the years ended December 31, 2001 and 2003, we recognized $463,000 and $44,000, respectively, of compensation expense in connection with the vesting of stock options granted to non-employees. During the year ended December 31, 2002, we recognized a gain of $598,000 in connection with the vesting of stock options granted to non-employees. The compensation expense or gain was based on each option’s estimated fair value, which was calculated using the Black-Scholes option-pricing model. Because we re-value each option over the related vesting term in accordance with EITF 96-18, increases in our stock price result in increased expense while decreases in our stock price result in a gain. At December 31, 2002, our closing stock price was lower than at December 31, 2001 and, therefore, we recognized a gain during 2002.

Employee Stock Purchase Plan

We maintain an employee stock purchase plan, or ESPP, for which 183,000 shares are reserved for issuance. The ESPP allows any eligible employee the opportunity to purchase shares of our common stock through payroll deductions. The ESPP provides for successive, two-year offering periods, each of which contains four semiannual purchase periods. The purchase price at the end of each purchase period is 85% of the lower of the market price per share on the employee’s entry date into the offering period or the market price per share on the purchase date. Any employee who owns less than 5% of our common stock may purchase up to the lesser of:

• 10% of his or her eligible compensation;

• 1,000 shares per purchase; or

• the number of shares per year that does not exceed the quotient of $25,000 divided by the market price per share on the employee’s entry date into the offering period.

A total of 42,327 shares of common stock remained available for issuance under the ESPP as of December 31, 2003. The total purchases of common stock under the ESPP during the years ended December 31, 2001, 2002, and 2003, were 17,790 shares at a total purchase price of $335,000, 32,149 shares at a total purchase price of

F-23

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

$384,000, and 25,836 shares at a total purchase price of $196,000, respectively. We have not recorded any compensation expense for the ESPP. In connection with the employee stock purchases occurring in 2003, we reissued 6,000 shares of treasury stock, which were originally acquired in 2001 for $175,000.

401(k) Plan

We maintain a 401(k) Savings Plan (401(k) Plan) for our employees. Employee contributions are voluntary and are determined on an individual basis, with a maximum annual amount equal to the lesser of the maximum amount allowable under federal income tax regulations or 15% of the participant’s compensation. We match employee contributions up to specified limits. We contributed $149,000, $176,000, and $216,000 to the 401(k) Plan for the years ended December 31, 2001, 2002, and 2003, respectively.

Note 11. Revenues from Collaborative Agreements

Our revenues from collaborative agreements have historically been derived from a few major collaborators. Our collaborative agreements have had some or all of the following elements: upfront fees, research and development funding, milestone revenues, and royalties on product sales.

In November 2003, we entered into two research, development and license agreements with Novo Nordisk A/S to use our GlycoPEGylation technology to develop three next-generation proteins within Novo Nordisk’s therapeutic areas, one of which is currently marketed by them. Under the terms of the new agreements, we received a non-refundable, upfront fee of $4,300,000. We deferred the upfront fee, and will amortize this amount over an expected performance period of five years. We will also receive up to $51,300,000 in milestone payments based on the progress of the programs. Novo Nordisk is responsible for funding our research and development activities under the agreements, and we will receive royalties on sales of any products commercialized under the agreements. In addition, we could receive additional milestones and royalties on new indications for the two proteins not currently marketed by Novo Nordisk. During the year ended December 31, 2003, Novo Nordisk accounted for $694,000, or 48%, of our revenues, of which $107,000 represented amortization of the upfront fee. During the quarter ended June 30, 2003, we entered into a license agreement with a company, which accounted for $400,000, or 28%, of our revenues during the year ended December 31, 2003.

During the years ended December 31, 2001, 2002, and 2003, Wyeth accounted for $1,167,000, $4,472,000, and $250,000, respectively, of our collaborative revenues. These amounts represented 92%, 93%, and 17%, of our collaborative revenues during the years ended December 31, 2001, 2002, and 2003, respectively. During 2002, we recognized $3,750,000 related to one of our Wyeth collaborations, which was terminated in September 2002. Of this amount, $1,000,000 was non-cash, and represented the recognition of an upfront fee, which we received from Wyeth in 2001. We deferred the upfront fee, and amortized this amount as revenue over the expected performance period of the related Wyeth agreement. During 2003, we completed activities related to our other Wyeth collaboration, and recorded as revenue the last scheduled payment for research funding of $250,000, which we had received in 2002.

Note 12. Separation and Retirement Agreements

In 2002, we entered into a Separation and Consulting Agreement with our former Chief Executive Officer, Stephen A. Roth. Under this agreement, we agreed to provide medical benefits to Dr. Roth and to pay him $39,622 per month for 12 months. During 2002, we recorded severance expense related to this agreement of $309,000, which represented the present value of his future benefit payments.

Prior to March 29, 2003, Dr. Roth had the right to extend his non-competition and non-solicitation commitments for two additional years by entering into a separate non-competition agreement. Dr. Roth extended his commitments in March 2003 and, therefore, we will pay him $39,622 per month for 24 additional months and,

F-24

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

should he leave our board of directors during the additional two-year period, we will continue his stock option vesting and exercisability. During 2003, we recorded a liability of $882,000, which represented the present value of the future payments, and a corresponding asset for the value of the non-competition commitment. The asset will be amortized to marketing, general and administrative expense on our statements of operations over the two-year term of the agreement. As of December 31, 2003, the present value of remaining minimum payments under this agreement was approximately $528,000.

In 2002, we entered into a retirement agreement with our Vice President, Research. Under the agreement, he terminated his employment effective June 30, 2002. We have committed to pay a retirement benefit over a five-year period. We continued to provide health insurance benefits through December 31, 2003. During 2002, we recorded severance expense related to this agreement of $516,000, which represented the present value of his future retirement benefit and is included in research and development expense on our statements of operations. In addition, we extended the period during which he may exercise his stock options and recorded a non-cash severance charge associated with this option modification of $1,608,000, which is included in research and development expense on our statements of operations.

Note 13. Other Income

In 2000, we invested $562,500 in an 8% convertible subordinated debenture, which included a warrant to purchase shares of common stock, issued by Novazyme Pharmaceuticals, Inc. The investment was charged to research and development expense in our statement of operations for 2000 due to uncertainty regarding realizability. In March 2001, Novazyme committed to pay us $1,653,000 million in November 2002 in exchange for restructuring our agreement. In accordance with Statement of Financial Accounting Standards No. 115, “Accounting for Certain Investments in Debt and Equity Securities,” we did not record the $1,653,000 due to uncertainty regarding the fair value of the note, thereby reducing our cost basis to zero. In September 2001, Genzyme General acquired Novazyme. As a result, we exercised our warrant to purchase shares of Novazyme, converted our debenture into shares of Novazyme, and exchanged our shares of Novazyme for shares of Genzyme. In 2001, we realized a gain on the sale of Genzyme shares of $6,120,000, which was reflected as other income in our statement of operations. Genzyme also assumed Novazyme’s obligation to pay us $1,653,000. In 2002, Genzyme paid us $1,653,000, which resulted in the recognition of a gain that was reflected as other income in our statements of operations.

Note 14. Commitments

Leases

In April 2001, we entered into a lease agreement for approximately 10,000 square feet of laboratory and office space in California. The initial term of the lease ends in March 2006, at which time we have an option to extend the lease for an additional five years. In July 2001, we entered into a lease agreement for approximately 5,000 square feet of office and warehouse space in Pennsylvania. The lease term expires in December 2004. In February 2002, we entered into a lease agreement for approximately 40,000 square feet of laboratory and office space in Pennsylvania. The initial term of the lease ends in July 2022, at which time we have an option to extend the lease for an additional five years, followed by another option to extend the lease for an additional four and one-half years. Our rental expense for the years ended December 31, 2001, 2002, and 2003 was $248,000, $583,000, and $923,000, respectively. Minimum future annual payments under our operating lease agreements as of December 31, 2003 were as follows (in thousands): 2004—$792; 2005—$763; 2006—$524; 2007—$445; 2008—$454; and thereafter—$7,147.

F-25

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

License Agreements

We have entered into agreements with various entities under which we have been granted licenses to use patent rights and technology. Typically, these agreements will terminate upon the expiration of the applicable patent rights, and require us to reimburse the licensor for fees related to the acquisition and maintenance of the patents licensed to us. In addition, we usually are required to pay royalties to the licensor based either on sales of applicable products by us or specified license fees, milestone fees, and royalties received by us from sublicensees, or both.

Note 15. Income Taxes

As of December 31, 2003, we had net operating loss carryforwards for federal and state income tax purposes of approximately $44,638,000 and $8,810,000, respectively. In addition, we had federal research and development credit carryforwards of approximately $4,236,000. All of these carryforwards begin to expire in 2005. Approximately $9,428,000 of the federal net operating loss carryforwards result from tax deductions related to equity-based compensation, which is considered a capital contribution, and not a tax benefit, for financial reporting purposes. Due to the uncertainty surrounding the realization of the tax benefit associated with our federal and state carryforwards, we have provided a full valuation allowance against these tax benefits. In addition, pursuant to the Tax Reform Act of 1986, the annual utilization of our net operating loss carryforwards will be limited. We do not believe that these limitations will have a material adverse impact on the utilization of our net operating loss carryforwards. The approximate income tax effect of each type of carryforward and temporary difference is as follows (in thousands):

December 31,	2002			2003
Benefit of net operating loss carryforwards	$	1,388		$	12,230
Research and development credit carryforwards		3,217			4,236
Capitalized research and development		17,796			22,063
Start-up costs		15,827			13,617
Depreciation and amortization		5,410			5,789
Deferred compensation		1,978			—
Accrued expenses not currently deductible		534			864
Deferred revenue		102			1,702
		46,252			60,501
Valuation allowance		(46,252	)		(60,501	)
	$	—		$	—

Note 16. Related-Party Transaction

We have a joint venture with McNeil Nutritionals to develop bulking agents for use in the food industry. We account for our investment in the joint venture under the equity method, under which we recognize our share of the income and losses of the joint venture. In 1999, we reduced the carrying value of our initial investment in the joint venture of $345,000 to zero to reflect our share of the joint venture’s losses. We recorded this amount as research and development expense in our statement of operations. We will record our share of post-1999 losses of the joint venture only to the extent of our actual or committed investment in the joint venture.

The joint venture developed a process for making fructooligosaccharides and constructed a pilot facility in Athens, Georgia. In 2001, the joint venture closed the pilot facility and is exploring establishing a manufacturing arrangement with a third party to produce this or other bulking agents. As a result, we do not intend to commit the joint venture to make any further investments in facilities.

F-26

Neose Technologies, Inc.

(a development-stage company)

Notes to Financial Statements

For the year ended December 31, 2003, the joint venture had a net loss and a loss from continuing operations of $68,000. The joint venture had no revenues during 2003. As of December 31, 2003, the joint venture had no assets, $150,000 of current liabilities, and $8,580,000 of noncurrent liabilities, which consisted of amounts owed to McNeil Nutritionals.

During the years ended December 31, 2001, 2002, and 2003, we incurred expenses related to the joint venture of $779,000, $252,000, and $21,000, respectively, which were reimbursed to us by the joint venture. These amounts have been reflected as a reduction of research and development expense in our statements of operations. As of December 31, 2003, the joint venture owed us $10,000.

If the joint venture becomes profitable, we will recognize our share of the joint venture’s profits only after the amount of our capital contributions to the joint venture is equivalent to our share of the joint venture’s accumulated losses. As of December 31, 2003, the joint venture had an accumulated loss since inception of $10,225,000. Until the joint venture is profitable, McNeil Nutritionals is required to fund, as a non-recourse, no-interest loan to the joint venture, all of the joint venture’s aggregate capital expenditures in excess of an agreed-upon amount, and all of the joint venture’s operating losses. The loan balance would be repayable by the joint venture to McNeil Nutritionals over a seven-year period commencing on the earlier of September 30, 2006 or the date on which Neose attains a 50% ownership interest in the joint venture after having had a lesser ownership interest. In the event of any dissolution of the joint venture, the loan balance would be payable to McNeil Nutritionals by the joint venture before any distribution of assets to us. As of December 31, 2003, the joint venture owed McNeil Nutritionals $8,580,000.

F-27

Exhibit Index

Exhibit	Description
10.39*#	Research, Development and License Agreement between Neose Technologies, Inc. and Novo Nordisk A/S dated as of November 17, 2003.
10.40*#	Research, Development and License Agreement among Neose Technologies, Inc. and Novo Nordisk A/S and Novo Nordisk Health Care AG dated as of November 17, 2003.
10.41*#	Amendment to Research, Development and License Agreement between Neose Technologies, Inc. and Novo Nordisk A/S dated December 18, 2003.
10.42*#	Amendment to Research, Development and License Agreement among Neose Technologies, Inc. and Novo Nordisk A/S and Novo Nordisk Health Care AG dated December 18, 2003.
10.43*	Promissory Note of Neose Technologies, Inc. to General Electric Capital Corporation, dated December 18, 2003.
10.44*	Credit Agreement by and between Brown Brothers Harriman & Co. and Neose Technologies, Inc., dated as of January 30, 2004.
10.45*	General Security Agreement by Neose Technologies, Inc. to Brown Brothers Harriman & Co., dated as of January 30, 2004.
10.46*	Open-end Mortgage and Security Agreement by and between Neose Technologies, Inc. and Brown Brothers Harriman & Co., dated as of January 30, 2004.
10.47*	Term Loan Note of Neose Technologies, Inc. to Brown Brothers Harriman & Co., dated January 30, 2004.
23.1*	Consent of KPMG LLP.
23.2*	Information Regarding Consent of Arthur Andersen LLP.
24*	Powers of Attorney (included as part of signature page hereof).
31.1*	Certification by Chief Executive Officer pursuant to Rule 13a-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification by Chief Financial Officer pursuant to Rule 13-14(a) and 15d-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2*	Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
*	Filed herewith.
#	Portions of this Exhibit were omitted and filed separately with the Secretary of the SEC pursuant to a request for confidential treatment that has been filed with the SEC.

EX-10.39

EXHIBIT 10.39

Portions of this exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. Such portions are marked by a series of asterisks.

RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT

BETWEEN

NEOSE TECHNOLOGIES, INC.

AND

NOVO NORDISK A/S

DATED AS OF NOVEMBER 17, 2003

EXHIBIT 10.39

Table of Contents

		Page
1.	DEFINITIONS	1
2.	CONDUCT OF THE PROJECT AND COMMERCIALIZATION EFFORTS	7
3.	FEES AND DEVELOPMENT PAYMENTS	9
4.	PRODUCT PAYMENTS AND ROYALTIES	12
5.	INTELLECTUAL PROPERTY GRANTS AND RIGHT OF NEGOTIATION	16
6.	OWNERSHIP OF INTELLECTUAL PROPERTY	18
7.	BLOCKING PATENTS	21
8.	SUPPLY AGREEMENT	23
9.	CONFIDENTIALITY	23
10.	REPRESENTATIONS AND WARRANTIES	24
11.	INDEMNIFICATIONS AND LIMITED LIABILITY	25
12.	TERM AND TERMINATION	27
13.	DISPUTE RESOLUTION	29
14.	GOVERNMENT APPROVAL	29
15.	MISCELLANEOUS	30

EXHIBIT 10.39

RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT

This RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT (“Agreement”), is dated as of November 17, 2003, between Neose Technologies, Inc., a Delaware corporation (“Neose”), and Novo Nordisk A/S, a Danish corporation (“Novo”).

BACKGROUND

Neose has developed and continues to develop proprietary technologies and related know-how for the glycosylation, design and remodeling of proteins, peptides and antibodies. Such glycomodelling technologies are including but not limited to GlycoAdvance^TM, GlycoPEGylation^™ and GlycoConjugation^™ technologies. Neose and Novo are parties to an Option Agreement, dated December 10, 2002, whereby Novo has an exclusive option to negotiate a license to use Neose’s technologies to develop next generation ****** in collaboration with Neose. Novo now wishes to exercise such option under the terms and conditions of this Agreement, which includes, among other things, further research and development, scale-up and technology transfer activities by Neose, and the grant of rights to Novo under certain patents and know-how owned or controlled by Neose for use in connection with the development and commercialization of ******.

Contemporaneously with the execution and delivery of this Agreement, Neose and Novo are entering into another Research, Development and License agreement regarding ****** ******.

TERMS

NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained in this Agreement, and intending to be legally bound hereby, Novo and Neose agree as follows:

1. DEFINITIONS. Capitalized terms not otherwise defined shall have the meaning set forth in this Section 1.

1.1 “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. Without limiting the foregoing, a Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, more than fifty percent (50%) of the voting stock or other ownership interest of the other Person.

1.2 “Blocking Patent” means any Patent Rights claimed to be owned or Controlled by a Third Party with respect to which Patent Rights an assertion is being made by or on behalf of the Third Party that the use of the Neose Technology under this Agreement infringes such Person’s Patent Rights.

1.3 “Calendar Quarter” means any of the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31 during the Term.

1.4 “Calendar Year” shall mean the respective periods of twelve (12) consecutive calendar months ending on December 31 during the Term.

1.5 “Commercially Reasonable Efforts” shall mean efforts and resources normally used by a Party in similar undertakings, taking into account the proprietary position of the product or technology involved, the regulatory structure involved, the profitability of such undertaking, the competitiveness of the relevant marketplace, and other relevant factors.

1.6 “Commercial Sale” means any sale of a New Product by Novo, its Affiliates, or Sublicensees to a Person other than their respective Affiliates or Neose.

1.7 “Confidential Information” shall mean any of the Disclosing Party’s proprietary or confidential information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, the identity of the Novo Materials, information relating to the Novo Materials, service plans, services, customer lists and customers, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, marketing, distribution and sales methods and systems, sales and profit figures, finances and other business information disclosed to the Recipient by or on behalf of the Disclosing Party, either directly or indirectly, in writing, orally or by drawings or inspection of documents or other tangible property.

1.8 “Control” or “Controlled” means possession of the ability to grant a license or sublicense as provided for herein without violating the terms of an agreement or other arrangement with a Third Party existing before or after the Effective Date.

1.9 “Designated Representative” means, in the case of Neose, its Senior Vice President, Business and Commercial Development, or such other person designated by Neose in writing from time to time to Novo, and, in the case of Novo, its Executive Vice President and Chief Science Officer, or other such other person designated by Novo in writing from time to time to Neose.

1.10 “Disclosing Party” is used as defined in Section 9.1.

1.11 “Effective Date” shall mean the later of (i) the date of execution of this Agreement by both Parties or (ii) if notification is required to be made under the HSR Act, the expiration or earlier termination of any notice and waiting period under the HSR Act.

1.12 “****** Agreement” means the Research, Development and License Agreement between Neose and Novo with respect to ******, which is being entered into contemporaneously with the execution of this Agreement.

1.13 “FDA” means the United States Food and Drug Administration and any successor agency.

1.14 “Field of Use” means the development and commercial manufacture of New Products for ******.

1.15 “GMPs” shall mean current good manufacturing practices for the methods to be used in, and the facilities and controls to be used for, the manufacture, processing, packing and holding of biological products, all as set forth from time to time by the FDA, including all amendments and supplements thereto throughout the term of this Agreement.

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1.16 “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

1.17 “Improvements” means any and all developments, discoveries, inventions, additions, amendments, modifications, ideas, processes, methods, compositions, formulae, techniques, information and data, whether or not patentable, conceived, developed or reduced to practice, that improve or beneficially change, or enhance the economic and technical attributes of, any Know-How or Patent Rights or any process, device or composition.

1.18 “IND” means an application for an Investigational Exemption for a New Drug filed with the FDA, or any comparable filing made with a regulatory authority outside the United States.

1.19 “Joint Improvements” means any and all Improvements made, conceived or reduced to practice jointly by Neose and Novo in the conduct of the Work Plan under this Agreement, whether patentable or not, other than Neose Improvements and Novo Improvements.

1.20 “Know-How” means any and all formulae, procedures, processes, methods, designs, know-how, show-how, trade secrets, discoveries, inventions (whether or not patentable), patent applications, licenses, software and source code, programs, prototypes, designs, discoveries, techniques, methods, ideas, concepts, data, engineering and manufacturing information, electronic control circuits, specifications, diagrams, drawings, schematics, blueprints and parts lists and other proprietary information, rights and works of authorship, whether or not reduced to writing.

1.21 “M1 Profile for the New ****** Product” means the parameters for candidate selection required for ****** set forth on Exhibit 1.21, as amended from time to time in accordance with Section 2.2.

1.22 “M1 Profile for the New ****** Product” means the parameters for candidate selection required for ****** set forth on Exhibit 1.22, as amended from time to time in accordance with Section 2.2.

1.23 “Mutual Nondisclosure Agreement” means the Amended and Restated Mutual Nondisclosure Agreement between the Parties dated November 25, 2002.

1.24 “Neose Improvements” means any and all Improvements relating to the Neose Technology made, conceived, or reduced to practice by (i) either Neose or Novo or both in the conduct of the Work Plan under this Agreement or (ii) Neose or jointly by Neose and Novo under this Agreement, in each case, other than the Novo Materials, the Novo Materials modified using the Neose Technology and New Products.

1.25 “Neose Patents” means all Patent Rights relating to methods and processes for glycosylation design and remodeling of proteins, peptides and antibodies that are Controlled by Neose, including, but not limited to, (i) the Patent Rights listed in Exhibit 1.25, (ii) the Patent Rights developed by Neose in the conduct of the Work Plan during the Term of this Agreement, and (iii) any later acquired Patent Rights Controlled by Neose and used to develop any New Product.

1.26 “Neose Project-Related Costs” means Neose’s costs of conducting the Work Plan, which shall be determined in accordance with this Agreement and calculated as follows: (i) with respect to personnel, at the rate of ******; and (ii) with respect to materials, at the ******.

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1.27 “Neose Technology” means the Neose Patents and any Know-How Controlled by Neose relating to methods and processes for the ******, including, without limitation, its GlycoAdvance^™, GlycoPEGylation^™ and GlycoConjugation^™ technologies, and other ****** processes, and all Know-How resulting from work conducted by Neose during the Term.

1.28 “Net Sales” means proceeds from Commercial Sales of New Products by Novo, its Affiliates or Sublicensees to Third Parties, after deducting (to the extent actually incurred or reasonably estimated and accrued in accordance with Generally Accepted Accounting Principles in the United States and to the extent not already deducted in the amount invoiced): (i) reasonable trade, cash and quantity discounts or rebates (other than price discounts granted at the time of sale), reasonable service allowances and reasonable required agent’s commissions, if any, allowed or paid, (ii) credits or allowances actually given or made for rejection or return of previously sold products or for retroactive price reductions (including Medicare, Medicaid, and/or discounts and similar types or rebates and/or discounts), (iii) taxes, duties or other governmental charges levied on or measured by the billing amount (excluding income and franchise taxes), as adjusted for rebates and refunds, and (iv) charges actually incurred for freight and insurance directly related to the distribution of New Products (excluding amounts reimbursed by Third Party customers). A “Commercial Sale of a New Product” is deemed to occur when the invoice is issued, or if no invoice is issued, upon the earlier of shipment or transfer of title in the New Product to a Third Party. In the event that New Product is sold or distributed for use in combination with or as a component of another product or products (a “Combination Product”), the calculation of Net Sales from such Combination Product shall be determined as set forth below:

If all of the active ingredient components of a Combination Product are also sold separately and in identical strengths to those contained in the Combination Product, then the following shall apply: Net Sales shall be calculated as set forth above on the basis of the gross invoice price of a New Product containing the same weight of the licensed active ingredient constituent sold independently [A], divided by the sum of the gross invoice price of all of the active ingredient constituents sold independently [B + A], multiplied by the gross invoice price of the Combination Product, as shown by the following formula:

Net Sales =	[A]	x    [gross invoice price of the Combination Product]
	[B + A]

The distribution costs associated with any Combination Product will be allocated in the same proportion among the licensed active ingredient components and all other active ingredient components.

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If the active ingredient components of a Combination Product are not sole separately in identical strengths to those contained in the Combination Product, then the parties agree to negotiate in good faith the calculation of Net Sales with regard to such Combination Product.

1.29 “New ****** Product” shall mean any Novo Materials described in clause (i) of Section 1.33 modified by using the Neose Technology.

1.30 “New ****** Product” shall mean any Novo Materials described in clause (ii) of Section 1.33 modified by using the Neose Technology.

1.31 “New Products” shall mean any and all New ****** Products and New ****** Products, collectively.

1.32 “Novo Improvements” means any and all Improvements that are related to the Novo Materials and/or any of the New Products made, conceived or reduced to practice by Novo or Neose or both, other than Neose Improvements.

1.33 “Novo Materials” mean any and all forms of (i) ******, including, but not limited to, ******, such as ****** substances, or (ii) ******, including, but not limited to, ******, such as ****** substances.

1.34 “Novo Technology” means the Patent Rights and Know-How Controlled by Novo relating to the Novo Materials.

1.35 “Ownership Rights” means any and all right, title and interest under patent, copyright, trade secret and trademark law, or any other intellectual property or other law, in and to any Know-How, Patent Rights, or Improvements.

1.36 “Parties” means Neose and Novo, collectively.

1.37 “Party” means Neose or Novo, as the context requires, or each of Neose and Novo, individually.

1.38 “Patent Rights” shall mean individually and collectively any and all patents and/or patent applications and provisional applications, all inventions disclosed therein, and any and all continuations, continuations-in-part, continued prosecution applications, divisions, renewals, patents of addition, reissues, confirmations, registrations, revalidations, revisions and re-examinations thereof, utility models, petty patents, design registrations and any and all patents issuing therefrom and any and all foreign counterparts thereof and extensions of any of the foregoing including without limitation extensions under the U.S. Patent Term Restoration Act, extensions under the Japanese Patent Law, and Supplementary Protection Certificates (SPCs) according to Counsel Regulation (EEC) No. 1768/92 and similar extensions for other patents under any applicable law in any country of the world.

1.39 “Permit” means any governmental or regulatory filing, submission, approval, permit or license that is required by applicable law in any jurisdiction worldwide for clinical trials, Commercial Sales or other use of any of the New Products.

1.40 “Person” means an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, government, governmental agency, authority or instrumentality, or any other form of entity not specifically listed in this Agreement.

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1.41 “Product-Candidate” means any new ****** product-candidate Controlled by Neose during the Term.

1.42 “Project” means the project to be conducted hereunder by the Parties in accordance with the Work Plan.

1.43 “Project Manager” means the project managers described in Section 2.4.1.

1.44 “Reagents” means the enzymes and sugar nucleotides required to use the Neose Technology in the manufacture of New Products.

1.45 “Recipient” is used as defined in Section 9.1.

1.46 “Regulated Market” means any jurisdiction worldwide that requires a Permit for clinical trials, Commercial Sales or any other use of a New Product.

1.47 “Regulatory Approval” means any marketing authorization (including authorizations approving a Biologics License Application) required for a New Product, exclusive of any pricing or third-party reimbursement approval.

1.48 “Required Agreement” means any agreement with a Sublicensee required under Section 5.1.3.

1.49 “Steering Committee” means the steering committee established pursuant to Section 2.4.2, or any successor group appointed by the Parties.

1.50 “Sublicensee” means a sublicensee of Novo’s rights under Section 5.

1.51 “Supply Agreement” means the supply agreement to be entered into between Neose and Novo in accordance with Section 8.

1.52 “Territory” means the world.

1.53 “Term” means the term of this Agreement, which shall commence on the Effective Date and shall expire or terminate as described in Section 12.

1.54 “Third Party” means any Person other than Novo, Neose, or their respective Affiliates.

1.55 “Valid Patent Claim” means a claim of an issued and unexpired patent forming part of the Neose Patents that has not been held revoked, unenforceable or invalid by a decision of a court or other government agency of competent jurisdiction, or unappealable or unappealed within the time allowed for appeal, or which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise. For the purposes of determining royalties due and payment obligations under this Agreement, any claim being prosecuted in a pending patent application included in the Licensed Patents shall be deemed a Valid Patent Claim, provided that such claim is not pending for more than ****** in which the subject matter of the claim is disclosed, after which period it shall cease to be considered a Valid Patent Claim until the patent issues.

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1.56 “Work Plan” means the Work Plan attached hereto as Exhibit 2.2, and, unless otherwise specified, as amended from time to time in accordance with Section 2.2.

2. CONDUCT OF THE PROJECT AND COMMERCIALIZATION EFFORTS

2.1 Conduct. Commencing promptly after the Effective Date, Neose and Novo will use Commercially Reasonable Efforts to carry out their respective obligations under the Work Plan.

2.2 Creation and Modification of Work Plan. Attached hereto as Exhibit 2.2 is the Work Plan, setting forth a project summary and timetable for the research and development, scale-up and technology transfer activities to be conducted under this Agreement. Neose shall be responsible for the development of validated, GMP processes for the production of Reagents for use in the manufacture of New Products and protocols for the use of the Reagents in the manufacture of New Products by Novo, all as set forth in Exhibit 2.2. The Work Plan may be amended or modified from time to time, but only in a writing signed by each Party’s Designated Representative and specifying the Parties’ estimate of any additional Neose Project-Related Costs that will be paid by Novo as a result of such amendment.

2.3 Funding

2.3.1 Estimate. The Neose Project-Related Costs are estimated to be ****** for each New Product of ****** in the aggregate, plus the cost of materials. This estimate is based upon the Work Plan set forth in Exhibit 2.2. If the Parties amend the Work Plan in a manner that requires any new product or service to be provided by Neose (e.g., a new Reagent, expression system, scale up activity) which is not currently incorporated in the Work Plan, the Parties shall agree in writing on any increase in the Neose Project-Related Costs that are authorized in connection with such amendment.

2.3.2 Payment. Novo will pay for the Neose Project-Related Costs quarterly in advance. No earlier than thirty (30) days before the beginning of each Calendar Quarter following the Effective Date, Neose will invoice Novo for such amount based on a budgeted estimate of Neose Project-Related Costs for such Calendar Quarter. Within thirty (30) days after the end of each Calendar Quarter following the Effective Date, Neose shall submit to Novo a written report setting forth the actual Neose Project-Related Costs for such Calendar Quarter, and shall, as applicable, pay to Novo any amounts paid by Novo for such Calendar Quarter in excess of the actual Neose Project-Related Costs shown in such report, or invoice Novo for any additional amounts owed hereunder. Novo will pay all invoices delivered under this Section 2.3 within ****** days after receipt.

2.4 Management of Project

2.4.1 Project Managers. Within thirty (30) days after the Effective Date, each of the Parties shall appoint a Project Manager, who will be its primary contact regarding the Project. The Project Managers shall keep each other reasonably informed of the progress under the Work Plan and shall be responsible for maintaining appropriate records of the deliberations and decisions of the Project Managers and the Steering Committee. The Project

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Managers shall be responsible for overseeing and directing the day-to-day activities conducted at their respective sites in accordance with the Work Plan and suggesting changes for consideration by the Steering Committee. A Party may change its Project Manager at any time, and from time to time, effective upon notice to the other Party of such change.

2.4.2 Establishment and Responsibilities of Steering Committee. Promptly following the Effective Date, the Parties will establish a Steering Committee to monitor the progress of the Work Plan, to evaluate and recommend to the Parties any proposed amendments or modifications to the Work Plan and the costs thereof, to approve and monitor compliance with any publication policy provided to it by Novo, and to carry out all other obligations assigned to it under this Agreement or by the Parties. Each Party may designate a co-chairperson and secretary of the Steering Committee.

2.4.3 Action by Steering Committee and Dispute Resolution. The Steering Committee shall consist of such number of members and alternate members as the Parties may determine from time to time. Each Party shall appoint fifty percent (50%) of the permanent and alternate members of the Steering Committee. The members of the Steering Committee shall include members of senior management of each Party. The members of the Steering Committee representing a Party and present at a meeting shall have one vote, collectively. If the Steering Committee cannot reach agreement on any matter, ****** shall be entitled to ******; provided, however, that if the Steering Committee cannot reach agreement on any matter involving a change in the scope of work to be conducted by ****** under the Work Plan, the schedule of the work to be conducted by ****** under the Work Plan, or the ******, such dispute shall resolved in accordance with Section 13.

2.4.4 Changes to Steering Committee. Each Party may remove and replace its representatives on the Steering Committee at any time, without cause, upon written notice to the other Party. An alternate member designated by a Party shall be entitled to participate in the absence of a permanent member designated by such Party. All references to “members” in this Agreement refer to the then permanent members of the Steering Committee and any alternate member acting in the place of a permanent member.

2.4.5 Meetings. Regular meetings of the Steering Committee shall be scheduled by the Project Managers or the secretary of the Steering Committee designated by either Party. Special meetings of the Steering Committee may be called by the Project Managers or by any two or more members, at least one of whom represents each Party. Meetings may be in person or by teleconference or videoconference, and notice of meetings may be by email. Each Party will bear its own costs in connection with the management of the Project and the Steering Committee.

2.4.6 No Waiver. No action, nor any failure to act, by the Steering Committee shall alter, amend, waive or otherwise affect the obligations of the Parties under this Agreement. The Parties may amend this Agreement only in accordance with Section 15.6, and a Party may waive any of its right under this Agreement only in accordance with Section 15.9.

2.5 Cooperation. Throughout the Project, each Party shall cooperate with the other in the conduct of the Work Plan, and will provide such information in its possession or under its Control to the other Party as is reasonably necessary for the other Party to comply with and satisfy the requirements of any and all international, national, state, local or other laws, treaties, rules, procedures or regulations for purposes of this Agreement, or to carry out its obligations under this Agreement.

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2.6 Permits. Prior to the commencement of any clinical trials, Commercial Sales or other use of any New Product in a Regulated Market, Novo shall obtain at its expense all Permits required for such activity in the applicable jurisdictions. Novo shall submit all applications for Permits for the New Products in the name of Novo or its Affiliates. Novo shall hold all such Permits, if and when granted, in its name alone. Neose, at Novo’s expense, shall provide reasonable assistance and technical support to Novo in obtaining the Permits for the New Products. Novo shall pay all expenses with respect to obtaining the Permits for the New Products including, without limitation, the cost of clinical trials and preparation and prosecution of permit applications. Novo shall be solely responsible for renewing any Permits at its expense. Neose shall supply Novo, at Novo’s expense, with Reagents for producing New Products under the terms and conditions of the Supply Agreement.

2.7 Additional Development and Commercialization Activities. Except as set forth in the Work Plan or the Supply Agreement, Neose shall not have any obligation to perform any further research, development, technology transfer, technical support, improvements, modifications, or other activities. Novo shall use Commercially Reasonable Efforts to obtain Regulatory Approvals for, and Commercial Sales of, each New Product.

3. FEES AND DEVELOPMENT PAYMENTS

3.1 License Fee. In consideration of the licenses granted by Neose under this Agreement and the ****** Agreement, Novo shall pay Neose a one-time, nonrefundable upfront fee of ****** within ten (10) days after the Effective Date.

3.2 Milestone Payments Relating to Development of the New ****** Product. In consideration of the development efforts of Neose under the Work Plan, Novo shall pay Neose the amount of each milestone payment described in this Section 3.2 with respect to the development of the New ****** Product. With respect to the milestone payments described in Sections 3.2.1 through 3.2.7, the Parties agree that Neose shall have earned the right to receive each respective milestone payment, and Novo shall be obligated to pay the milestone payment and shall have met its diligence obligations with respect to the respective milestone, in each case, as a result of either (i) the achievement of the milestone event prior to the occurrence of the corresponding anniversary date or (ii) the occurrence, alone, of the corresponding anniversary date. With respect to the milestone payments described in Sections 3.2.8 and 3.2.9, Neose shall have earned the right to receive each respective milestone payment, and Novo shall be obligated to pay the milestone payment, as a result of the achievement of the milestone event.

3.2.1 ****** upon ****** to occur of: (i) the first date on which there shall be a candidate which has been shown to meet the ****** for the ****** Product, and Neose shall have delivered to Novo ****** for the production of such candidate; and (ii) the ****** anniversary of the Effective Date.

3.2.2 ****** upon the earlier to occur of ****** of the ****** with respect to the New ****** Product or the ****** anniversary of the achievement of the milestone described in Section 3.2.1 above.

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3.2.3 ****** upon the earlier of ****** of the ****** of the New ****** Product ****** or the ****** anniversary of the achievement of the milestone described in Section 3.2.2 above.

3.2.4 ****** upon earlier to occur of ****** of the ****** of the New ****** Product or the ****** anniversary of the achievement of the milestone described in Section 3.2.3 above.

3.2.5 ****** upon the first to occur of the first ****** of the New ****** Product or the ****** anniversary, as designated by Novo pursuant to Section 3.5, of the achievement of the milestone described in Section 3.2.4 above.

3.2.6 ****** upon the ****** of the New ****** Product in ******.

3.2.7 ****** upon the ****** of the New ****** Product in ******

3.2.8 ****** upon each ****** of the New ****** Product for any ****** which occurs after the ****** of the New ****** Product, which amount shall be ******, to an amount mutually agreed upon by the Parties, upon the reasonable request of Novo in the case of a New ****** Product for an ******.

3.2.9 ****** upon each ****** of the New ****** Product in ****** for any ****** which occurs after the ****** of the New ****** Product in ******, which amount shall be ******, to an amount mutually agreed upon by the Parties, upon the reasonable request of Novo in the case of a New ****** Product for an ******.

3.3 Milestone Payments Relating to Development of the New ****** Product. In consideration of the development efforts of Neose under the Work Plan, Novo shall pay Neose the amount of each milestone payment described in this Section 3.3 with respect to the development of the New ****** Product. With respect to the milestone payments described in Sections 3.3.1 through 3.3.7, the Parties agree that Neose shall have earned the right to receive each respective milestone payment, and Novo shall be obligated to pay the milestone payment and shall have met its diligence obligations with respect to the respective milestone, in each case, as a result of either (i) the achievement of the milestone event prior to the occurrence of the corresponding anniversary date or (ii) the occurrence, alone, of the corresponding anniversary date. With respect to the milestone payments described in Sections 3.3.8 and 3.3.9, Neose shall have earned the right to receive each respective milestone payment, and Novo shall be obligated to pay the milestone payment, as a result of the achievement of the milestone event.

3.3.1 ****** upon the ****** to occur of: (i) the first date on which there shall be a candidate which has been shown to meet the ****** for the New ****** Product, and Neose shall have delivered to Novo ****** for the production of such candidate; and (ii) the ****** anniversary of the Effective Date.

3.3.2 ****** upon the earlier to occur of ****** of the ****** with respect to the New ****** Product or the ****** anniversary of the achievement of the milestone described in Section 3.3.1 above.

3.3.3 ****** upon the earlier of ****** of the ****** of the New ****** Product ****** or the ****** anniversary of the achievement of the milestone described in Section 3.3.2 above.

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3.3.4 ****** upon the first to occur of the ****** of the ****** of the New ****** Product or the ****** anniversary of the achievement of the milestone described in Section 3.3.3 above.

3.3.5 ****** upon the first to occur of the ****** of the New ****** Product or the ****** anniversary, as designated by Novo pursuant to Section 3.5, of the achievement of the milestone described in Section 3.3.4 above.

3.3.6 ****** upon the ****** of the New ****** Product in ******.

3.3.7 ****** upon the ****** of the New ****** Product in ******.

3.3.8 ****** upon each ****** of the New ****** Product for any ****** which occurs after the ****** of the New ****** Product, which amount shall be ******, to an amount mutually agreed upon by the Parties, upon the reasonable request of Novo in the case of a New ****** Product for an ******.

3.3.9 ****** upon each ****** of the New ****** Product in ****** for any ****** which occurs after the ****** of the New ****** Product in ******, which amount shall be ******, to an amount mutually agreed upon by the Parties, upon the reasonable request of Novo in the case of a New ****** Product for an ******.

3.4 Restriction on Multiple Milestone Payments. The Parties acknowledge and agree that at anytime prior to the ****** for a New Product, the Steering Committee may decide to continue the development of the New Product solely with a back-up candidate if a candidate initially taken into development should fail for ****** reasons, including, but not limited to, ******, or the occurrence of ******. In the event that the Steering Committee makes such a decision, this Agreement shall be amended to reflect, among other things, the resulting changes to the Work Plan and the Neose Project-Related Costs mutually agreed upon by the Parties. In such event, Novo ****** be required to ****** each of the following milestone payments: (i) the milestone payments set forth in Sections ****** through ****** with respect to the New ****** Product, or (ii) the milestone payments set forth in Sections ****** through ****** with respect to the New ****** Product.

3.5 Coordination with ****** Agreement. The Parties agree that it may be appropriate to adjust one or more of the anniversary dates set forth in Sections ****** through ****** and Sections ****** through ****** as a result of ****** limitations (e.g., ******) that may be encountered by Novo if either or both of the New Products and the product being developed under the ****** Agreement are scheduled to pass through the same ****** at the same time. Novo may request such an adjustment at any time, and from time to time, by providing notice of the proposed adjustment to Neose. Promptly after receipt of such a notice, the Steering Committee shall meet to evaluate the request. Within thirty (30) days after Novo provides such notice, the Steering Committee shall provide a written recommendation to both Parties with respect to such request. Within fifteen (15) days after receipt of any such recommendation, the Steering Committee shall meet to discuss the recommendation and, if mutually agreeable, to negotiate and propose the terms of amendment(s) to the Work Plan and this Agreement which would permit Novo to continue developing the New Products and the ****** in a practical and efficient manner, with the goal of minimizing the aggregate time to market for the New Products and the ******.

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3.6 Timing of Milestone Payment. If Novo has not achieved either of the milestone events set forth in Section ****** or ****** before the first to occur of the ****** of the milestone event set forth in Section ****** or the ****** of the milestone event set forth in Section ****** (such date being referred to as the “Designation Date” for purposes of this Section), Novo shall designate, by written notice to Neose given on the Designation Date, whether the ****** or ****** shall be applicable for Section ******, in which case the ****** not designated shall be applicable to Section ******.

4. PRODUCT PAYMENTS AND ROYALTIES

4.1 Royalties on Net Sales. Novo will pay to Neose royalties as a percentage of annual Net Sales of each New Product during the Term, on a Product-by-Product basis, at the applicable rates set forth in this Section 4.1 and in accordance with this Section 4:

4.1.1 ****** of annual Net Sales of the New ****** Product up to ******.

4.1.2 ****** of annual Net Sales of the New ****** Product between ****** up to ******.

4.1.3 ****** of annual Net Sales of the New ****** Product over ******.

4.1.4 ****** of annual Net Sales of the New ****** Product up to ******.

4.1.5 ****** of annual Net Sales of the New ****** Product between ****** up to ******.

4.1.6 ****** of annual Net Sales of the New ****** Product over ******.

4.2 Minimum Royalties.

4.2.1 Mandatory Minimum Royalties. Commencing with the first ****** of the ****** full Calendar Year following the First Commercial Sale of each New Product, Novo will pay minimum royalties in respect of the New Products for such Calendar Year and ****** during the Term, in the amounts set forth in this Section 4.2.1 and in accordance with this Section 4:

4.2.1.1 For the ****** Calendar Year following the First Commercial Sale of the New ****** New Product: ******.

4.2.1.2 For the ****** Calendar Year following the First Commercial Sale of the New ****** Product: ******.

4.2.1.3 For the ****** Calendar Year following the First Commercial Sale of the New ****** Product, and ****** thereafter: ******.

4.2.1.4 For the ****** Calendar Year following the First Commercial Sale of the New ****** New Product: ******.

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4.2.1.5 For the ****** Calendar Year following the First Commercial Sale of the New ****** Product: ******.

4.2.1.6 For the ****** Calendar Year following the First Commercial Sale of the New ****** Product, and for ****** thereafter: ******.

All minimum royalty payments made in accordance with this Section 4.2.1 with respect to the New ****** Product shall be ****** against royalties payable under Section ****** in respect of the New ****** Product, and all minimum royalty payments made in accordance with this Section 4.2.1 with respect to the New ****** Product shall be ****** against royalties payable under Section ****** in respect of the New ****** Product, in each case, in the same or any subsequent Calendar Quarter during the same Calendar Year.

4.2.2 Optional Minimum Royalties. If the First Commercial Sale of the New ****** Product has not occurred on or before the ****** anniversary of the achievement of the milestone described in Section ****** (the “****** Milestone”), or if the First Commercial Sale of the New ****** Product has not occurred on or before the ****** anniversary of the achievement of the milestone described in Section ****** (the “****** Milestone”), or both, and Novo makes an election to extend this Agreement with respect to either or both of the New Products pursuant to Section 13.2.2, Novo will pay with respect to each New Product with respect to which it has extended this Agreement, minimum royalties as follows for each year of such extension:

4.2.2.1 On the ****** anniversary of the achievement of the ****** Milestone, ****** for a ****** extension for New ****** Product.

4.2.2.2 On the ****** anniversary of the achievement of the ****** Milestone, ****** for an additional ****** extension for New ****** Product.

4.2.2.3 On the ****** anniversary of the achievement of the ****** Milestone, ****** for an additional ****** extension for New ****** Product.

4.2.2.4 On the ****** anniversary of the achievement of the ****** Milestone, ****** for an additional ****** extension for New ****** Product.

4.2.2.5 On the ****** anniversary of the achievement of the ****** Milestone, ****** for an additional ****** extension for New ****** Product.

4.2.2.6 On the ****** anniversary of the achievement of the ****** Milestone, ****** for a ****** extension for New ****** Product.

4.2.2.7 On the ****** anniversary of the achievement of the ****** Milestone, ****** for an additional ****** extension for ****** Product.

4.2.2.8 On the ****** anniversary of the achievement of the ****** Milestone, ****** for an additional ****** extension for ****** Product.

4.2.2.9 On the ****** anniversary of the achievement of the ****** Milestone, ****** for an additional ****** extension for New ****** Product.

4.2.2.10 On the ****** anniversary of the achievement of the ****** Milestone, ****** for an additional ****** extension for New ****** Product.

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****** percent (******%) of the minimum royalty payments made in accordance with this Section ****** with respect to the New ****** Product shall be creditable against royalties payable under Section ****** and ****** in respect of the New ****** Product, and ****** percent (******%) of the minimum royalty payments made in accordance with this ****** with respect to the New ****** Product shall be creditable against royalties payable under Section ****** and Section ****** in respect of the New ****** Product, in each case, in the same or any subsequent Calendar Quarter; provided, however, that no royalty payment due to Neose under Section ****** or ****** shall be reduced, as a result of the application of the provisions included in this sentence, by more than ****** percent (******%) of the royalty payment that would have been payable by Novo under Section ****** or ******, as the case may be, without the application of this sentence.

4.3 Competitive Product(s). If a Competitive Product (as defined below in this Section 4.3) reaches a ****** equal to or greater than ****** percent (******%) of the ****** for the New ****** Product or the New ****** Product marketed by Novo, then the royalties otherwise payable in accordance with Section 4.1 with respect to such New Product, and the minimum royalties otherwise payable in accordance with Section 4.2, with respect to such New Product shall be reduced by the applicable percentage set forth below:

****** of Competitive Product	Reduction of Royalty Rate Otherwise Payable
More than ******
More than ******
More than ******
More than ******

For purposes of this Section 4.3, “Competitive Product” means any product marketed by a Third Party that is not a Sublicensee of Novo, which product is a ****** or a ******, as the case may be with a ****** substantially equivalent to or better than the ****** of the New Product marketed by Novo.

4.4 Royalty Payments. Novo shall make royalty payments to Neose on a quarterly basis, within forty-five (45) days after the end of each Calendar Quarter during the Term. Royalty payments due under Section 4.1 shall commence, with respect to each New Product in each country, on the date of first Commercial Sale in such country.

4.5 Currency Conversion. If any currency conversion from a foreign currency into United States Dollars shall be required in connection with the calculation of Net Sales, such conversion shall be made using the average exchange rate for the applicable Calendar Quarter, as reported by the Wall Street Journal.

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4.6 Payment Reports. Within forty-five (45) days after the close of each Calendar Quarter during the Term, Novo shall furnish to Neose a written report showing in reasonably specific detail, on a country-by-country basis for each New Product:

4.6.1 All Net Sales of the New Product during such quarter expressed in United States Dollars.

4.6.2 The exchange rates used in determining Net Sales of the New Product in United States Dollars in accordance with Section 4.5.

4.6.3 Royalties payable in United States Dollars based upon such Net Sales of the New Product during such quarter.

4.7 Payment Method. Novo shall make all payments under this Agreement in United States Dollars by bank wire transfer in immediately available funds to Hudson United Bank, ABA # ******, Acct Name: Neose Technologies, Inc., Acct # ******, or to such other account as Neose shall designate to Novo in writing before such payment is due.

4.8 Records; Audits. Novo shall, and shall cause its Affiliates and Sublicensees, if any, to keep complete, true, and accurate books of account and records in connection with the production and Commercial Sales of New Products in sufficient detail to permit accurate determination of all figures necessary for verification of payments required to be made by Novo under this Agreement. Novo shall, and shall cause its Affiliates and Sublicensees, if any, to, maintain such records for at least ****** years following the end of the quarter to which such books and records pertain. Neose shall have the right, at its expense, through a certified public accounting firm reasonably acceptable to Novo, to examine the records required to be maintained by Novo, its Affiliates and Sublicensees under this Section 4.8 upon reasonable notice and during regular business hours prior to the termination or expiration of this Agreement and for ****** years thereafter for the purpose of verifying the reports delivered pursuant to Section 4.6, provided that such examination shall not take place more often than once a year. Novo may require such certified public accounting firm to sign a confidential disclosure agreement prior to permitting such certified public accounting firm to have access to its books, records or facilities. Such accounting firm shall report to Neose only whether or not the reports submitted by Novo are accurate for the period covered and the details concerning any identified discrepancies. If any such audit uncovers an underpayment, Novo shall promptly pay to Neose the amount of such underpayment. If any such underpayment exceeds five percent (5%) of the amount due, Novo shall pay the entire expense of such audit within twenty (20) days after invoice.

4.9 Taxes. Novo may deduct the amount of any taxes imposed on Neose which are required to be withheld or collected by Novo or its Sublicensees under the laws of any country from amounts owing to Neose hereunder to the extent Novo, its Affiliates or Sublicensees pay such withholding taxes to the appropriate governmental authority on behalf of Neose and promptly deliver to Neose a receipt or other proof of payment of such taxes.

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5. INTELLECTUAL PROPERTY GRANTS AND RIGHT OF NEGOTIATION

5.1 Neose Technology. Subject to the terms and conditions of this Agreement, Neose hereby grants, and agrees to grant, to Novo, as of the Effective Date, the following rights and licenses:

5.1.1 Exclusive License. As of the Effective Date, Neose hereby grants, and agrees to grant, to Novo an exclusive (even as to Neose), royalty-bearing license under the Neose Technology in the Field of Use during the Term, (i) to conduct research, sample, develop (including clinical development), manufacture, make, use, market, promote, sell, offer for sale, have sold, distribute, import and export New Products in the Territory, and (ii) to use the Reagents in the Territory solely for the purpose of making New Products. Such license does not permit Novo (x) to practice or use the Neose Technology outside the Field of Use or (y) to sublicense any of its rights without the prior written approval of Neose, except as provided in Section 5.1.2.

5.1.2 Limited Sublicense Rights. Novo shall be entitled to grant full sublicenses to its Affiliates and limited sublicenses to its distribution, marketing and/or sales partners, in each case, in compliance with the provisions of this Section 5.1.2 and Section 5.1.3. In any sublicense granted under this Section 5.1.2 to a Third Party that is not an Affiliate of Novo, Novo may grant the Sublicensee only the following rights: to market, promote, sell, offer for sale, have sold, distribute, import and export New Products for Novo. Novo shall not be entitled to disclose any Confidential Information of Neose to a non-Affiliate Sublicensee under a sublicense permitted to be granted under this Section 5.1.2. Novo shall include in each sublicense granted under this Section 5.1.2 all of the terms and conditions necessary to ensure Novo’s compliance with this Agreement, and the provisions of Section 5.1.4 shall apply to each sublicense granted under this Section 5.1.2.

5.1.3 Required Agreement for Certain Proposed Sublicensees. Prior to entering into discussions with any proposed sublicensee, Novo shall identify the proposed sublicensee to Neose. If the proposed sublicensee is not an Affiliate of Novo, Novo shall obtain the approval of Neose prior to entering into such discussions and shall obtain the proposed sublicensee’s execution and delivery to Neose of a non-disclosure and non-use agreement substantially in the form attached hereto as Exhibit 5.1.3. If the proposed sublicensee is an Affiliate of Novo, Novo may enter into the proposed sublicense without obtaining the approval of Neose if: (i) the sublicense between Novo and the Sublicensee/Affiliate provides that Neose is a third-party beneficiary of the Sublicense, and (ii) Neose receives an original fully executed copy of the sublicense between Novo and the Sublicensee/Affiliate within five (5) business days after its execution.

5.1.4 Liability. Novo shall remain primarily liable to Neose for the performance by each Affiliate and Sublicensee in accordance with the terms and conditions of this Agreement, and each sublicense shall terminate upon the termination of this Agreement or any breach by the Sublicensee of the Required Agreement between Neose and the Sublicensee, if any.

5.1.5 Reservation of Rights. Neose hereby reserves to itself all right, title and interest in and to the Neose Technology not expressly granted in Section 5.1. Without

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limiting the foregoing, in no event shall this Agreement be construed to prohibit Neose from engaging in any of the following activities: (a) practicing the processes, methods and Know-How of the Neose Technology outside of the Field of Use including, without limitation, proteins that may be considered competitive with any of the New Products, subject, however, to Novo’s rights with respect to Product-Candidates under Section 5.3; (b) developing, making, using or selling proteins or Reagents, whether in conjunction with the Neose Technology or otherwise, outside of the Field of Use; or (c) entering into and performing agreements with Third Parties regarding any of the foregoing including, without limitation, research agreements, development agreements and licensing agreements.

5.2 Novo Technology. Subject to the terms and conditions of this Agreement, and solely to the extent necessary to enable Neose to carry out its obligations under the Work Plan, Novo hereby grants to Neose, for the term of the Work Plan, a non-exclusive, royalty-free, license under the Novo Technology to use such Novo Technology for the sole purpose of carrying out its obligations under the Work Plan. Novo shall retain at all times all of its rights, title and interest to the Novo Technology.

5.3 Option and Right of First Negotiation

5.3.1 Option. Neose hereby grants to Novo an option to negotiate a worldwide license under the Neose Technology to conduct research, sample, develop (including clinical development), manufacture, make, use, market, promote, sell, offer for sale, have sold, distribute, import and export each and every Product Candidate. The option granted under this Section 5.3.1 shall be exercisable by Novo, from time to time during the Term with respect to each Product-Candidate, within fifteen (15) days after Novo receives notice of the Product-Candidate from Neose.

5.3.2 Negotiations. If Novo duly exercises its option under Section 5.3.1 with respect to a Product-Candidate, the Parties shall enter into negotiations to consummate an agreement, which would grant to Novo the license described in Section 5.3.1 with respect to such Product-Candidate, upon commercially reasonable terms, to be negotiated promptly, diligently and in good faith by the Parties. If the Parties shall not have entered into such a license within forty-five (45) days after Novo’s exercise of its option with respect to such Product-Candidate, Neose shall be free to proceed with the development and/or commercialization of the Product-Candidate, whether alone or with a Third Party or Third Parties, without any further obligation to Novo with respect to such Product-Candidate, except as provided in Section 5.3.3.

5.3.3 Right of First Negotiation. During the Term, Neose shall not enter into an agreement with a Third Party relating to the use of the Neose Technology for the further development and commercialization of a Product-Candidate without first allowing Novo to enter into an agreement with respect to such Product-Candidate upon substantially the same terms. If Neose shall not have already offered (and Novo shall not have already refused) substantially the same terms to Novo under Section 5.3.2, Neose shall provide notice to Novo of the proposed terms and conditions of any such agreement, and Novo may exercise its right of first refusal under this Section 5.3.3 by notice to Neose within fifteen (15) days after receiving the proposed terms and conditions from Neose. If Novo does not exercise its right of first refusal with respect to the terms proposed by Neose, or exercises its right of first refusal but does not enter into an agreement with Neose upon substantially the proposed terms within thirty (30) days

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after receipt thereof, Neose shall be free to proceed with the further development and/or commercialization of such Product-Candidate with a Third Party or Third Parties, upon terms no more favorable to the Third Party or Third Parties than those offered to Novo, without any further obligation to Novo with respect to such Product-Candidate.

5.4 No Other Right or Licenses. Except for the rights and licenses expressly granted in this Agreement, nothing in this Agreement shall be deemed to grant to any Party any other rights or licenses, including, without limitation, any implied licenses.

6. OWNERSHIP OF INTELLECTUAL PROPERTY

6.1 No Transfer of Title. All Ownership Rights in and to the Neose Technology and the Reagents shall remain at all times with Neose. All Ownership Rights in the Novo Materials, any New Products, and the Novo Technology shall remain at all times with Novo, subject to Novo’s obligation to assign certain Ownership Rights to Neose under Section 6.3.

6.2 Improvements

6.2.1 Neose Improvements. Any and all Neose Improvements shall be owned by Neose and shall be deemed to be part of the Neose Technology for all purposes, including, without limitation, the license granted in Section 5.1. Except as provided in Section 6.4, any and all Improvements made, conceived, or reduced to practice solely by Neose shall be owned solely by Neose.

6.2.2 Novo Improvements. Except as otherwise provided in Section 6.3, any and all Novo Improvements shall be owned by Novo for all purposes. Except as set forth in Section 6.3, any and all Improvements made, conceived, or reduced to practice, solely by Novo shall be owned solely by Novo.

6.2.3 Joint Improvements. Each of Neose and Novo shall own a one-half undivided interest in any and all Joint Improvements. Neither Party shall be permitted to license or sublicense its one-half undivided interest in any Joint Improvement(s) to a Third Party that is not its Affiliate for use in connection with any ******, except with the prior written approval of the other Party.

6.2.4 Other Improvements. If any Improvements, other than Neose Improvements, Novo Improvements and Joint Improvements, are made, conceived or reduced to practice jointly by Neose and Novo under this Agreement, each Party shall own a one-half undivided interest in and to any and all such Improvements and the Parties shall not have any restriction with respect to the use thereof or any requirement to report or account to the other Party with respect to any such use, unless and except to the extent that the Parties may agree otherwise in writing.

6.3 Assignment by Novo.

6.3.1 Neose Improvements. To the extent that Novo may retain any Ownership Rights in any Neose Improvements during the Term, Novo hereby irrevocably assigns and transfers, and agrees to assign and transfer, to Neose any and all such Ownership Rights, in

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perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Neose shall be entitled to receive and hold in its own name all such Ownership Rights, subject to Neose’s obligations to assign certain rights to Novo under Section 6.4.

6.3.2 Novo Improvements, Joint Improvements and New Products. If and when Novo terminates the development of either the New ****** Product or the New ****** Product during the Term, or if this Agreement is terminated by Neose pursuant to Section 12.2.3 or by Novo pursuant to Section 12.2.3.3, Novo hereby irrevocably assigns and transfers, and agrees to assign and transfer to Neose, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Neose shall be entitled to receive and hold in its own name, all of Novo’s Ownership Rights in and to either the New ****** Product or the New ****** Product, or both, as the case may be, including, without limitation, Novo Improvements and Joint Improvements, provided that Neose shall be entitled to receive and hold Novo’s Ownership Rights in and to Novo Improvements and Joint Improvements only to the extent reasonably required and reasonably necessary to produce either the New ****** Product or the New ****** Product, or both, as the case may be, in an effective and efficient manner. With respect to any Ownership Rights and licenses that Novo is required to assign and transfer to Neose under this Section 6.3.2, at the request of Neose, and at Neose’s expense, either before or after termination of the Term, Novo shall assist Neose in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming Neose’s title in and to, any such respective Ownership Rights, and Novo shall provide Neose appropriate documentation evidencing the licenses to which Neose is entitled. Novo’s assistance shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights, providing executed license documents, cooperating in legal proceedings, and taking any other actions considered necessary or desirable by Neose. For the purpose of facilitating the above assignments, Novo agrees that any and all employees and contractors employed or engaged by Novo and providing any service in connection with the Project, prior to providing such service, shall have agreed in writing to covenants consistent with Novo’s covenants set forth in this Section 6.3. Novo shall receive a royalty from Neose on net sales of products generated from the use of the Novo Improvements, at commercially reasonable rates and upon commercially reasonable terms, to be negotiated in good faith by the Parties based upon then-current benchmark transactions in the industry.

6.4 Assignment by Neose. To the extent that Neose may retain any Ownership Rights in any Novo Improvements during the Term, Neose hereby irrevocably assigns and transfers, and agrees to assign and transfer, to Novo any and all such Ownership Rights, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Novo shall be entitled to receive and hold in its own name all such Ownership Rights, subject to Novo’s obligations to assign or license certain rights to Neose under Section 6.3. With respect to any Ownership Rights that Neose is required to assign and transfer to Novo under this Section 6.4, at the request of Novo, and at Novo’s expense, either before or after the Term, Neose shall assist Novo in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming Novo’s title in and to, any such respective Ownership Rights. Neose’s assistance shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights,

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cooperating in legal proceedings, and taking any other actions considered necessary or desirable by Novo. For the purpose of facilitating the above assignments, Neose agrees that any and all employees and contractors employed or engaged by Neose and providing any service in connection with the Project, prior to providing such service, shall have agreed in writing to covenants consistent with Neose’s covenants set forth in this Section 6.4.

6.5 Prosecution and Maintenance of Patent Rights

6.5.1 Solely Owned Patent Rights. Each Party shall, in its sole discretion, prepare, file, prosecute and maintain all patent applications and patents covering its Patent Rights and Improvements that the Party solely owns pursuant to Section 6. Neose shall use reasonable commercial efforts to provide to Novo for review and comment, at least ten (10) days prior to filing, all patent claims relating specifically to the New ****** Product or the New ****** Product, or both, to be filed by Neose, and Neose shall give due consideration to all comments thereon that are made by Novo within the period ending two days before the proposed filing date.

6.5.2 Patent Rights with Respect to Joint Improvements. With respect to Joint Improvements, the Parties shall meet to determine whether patent protection is appropriate and, if so, in which countries, if any, patent applications claiming such joint inventions and discoveries should be filed. Novo shall file, prosecute, and maintain, at its expense, such joint patent applications. Novo may at any time, in its sole discretion, discontinue the preparation, prosecution or maintenance of such joint patent applications, in which case Novo will give Neose sufficient notice to enable Neose to, and Neose may, file, prosecute and maintain such applications.

6.6 Enforcement of Ownership Rights

6.6.1 Reports of Infringement. Novo shall promptly report in writing to Neose during the Term any infringement or misappropriation or suspected infringement or misappropriation of any Neose Technology of which Novo becomes aware and shall provide Neose with its full cooperation in the protection and enforcement of the Neose Technology and all available evidence supporting said infringement, misappropriation, suspected infringement or unauthorized use or misappropriation. Neose shall reimburse Novo for its reasonable, documented costs of such cooperation, unless such infringement or misappropriation is by an Affiliate or Sublicensee of Novo.

6.6.2 Right to Institute Suit. Neose shall have the sole right to initiate an infringement or other appropriate suit against any Third Party who at any time has infringed or is suspected of infringing or misappropriating, the Neose Technology. Prior to initiating any such suit, the Designated Representatives shall consult with each other on an expedited basis, and Neose shall give due consideration to any reasonable requests Novo may make relating to the advisability of bringing the suit. Neose shall not enter into any settlement, consent judgment or other voluntary final disposition of such suit that would adversely affect Novo’s rights under this Agreement without Novo’s prior written consent, which consent shall not be unreasonably withheld. In the event that Neose recovers any sums in such suit by way of damages or in settlement thereof, Neose shall be entitled to retain the same.

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6.6.3 Continued Infringement. If Neose fails to either bring suit against or enter into negotiations for settlement with such Third Party within six (6) months after receipt of notice of such infringement and Novo is of the opinion that the alleged infringement or misappropriation of Neose Technology is occurring in the Field of Use then, upon Novo’s written request, the Parties shall seek the opinion of patent counsel acceptable to both Parties as to whether there has been or continues to be a misappropriation or infringement of the Neose Technology in the Field of Use by such Third Party. If such patent counsel concurs with Novo’s opinion, Novo shall have the right, but not the obligation, to bring suit against such Third Party under the Neose Technology and to join Neose as a party plaintiff. Neose will cooperate with Novo in any such suit brought against a Third Party and shall have the right to consult with Novo and to participate in and be represented by counsel in such suit at its own expense. In the event that Novo recovers any sums in such suit by way of damages or in settlement thereof, such sums shall be used first to reimburse each of Novo and Neose for their documented, out-of-pocket legal expenses, with Novo retaining any remaining amounts.

6.7 Novo Trademarks. Subject to its assignment obligations under Section 6.3.2, Novo shall select and own the trademarks for marketing the New Products in the Territory. All expenses for (i) registration of such trademarks, and (ii) bringing, maintaining and prosecuting any action to protect or defend such trademarks, shall be borne by Novo, and Novo shall retain all recoveries therefrom.

7. BLOCKING PATENTS

7.1 Mutual Information. Each Party shall immediately notify the other if a claim or other proceedings are brought against either Party alleging that the use of the Neose Technology in making, using or selling the New Product infringes upon the Patent Rights of a Third Party.

7.2 Defense of Third Party Action. If claims or proceedings are brought against Novo by a Third Party alleging that the use of the Neose Technology to produce a New Product infringes upon the Patent Rights of a Third Party, the Designated Representatives shall consult on an expedited basis, and Neose shall give due consideration to any reasonable request of Novo relating to the proposed defense or settlement of such claims or proceedings. Subject to Section 6.4, the final decision whether or not and, as the case may be, how to defend or settle such claims or proceedings shall be with Neose. Neose shall immediately notify Novo of such decision sufficiently in advance of any deadlines by which formal responses are due in any such proceedings to enable Novo to undertake its own defense and Novo shall have the right to join any such proceedings as a party thereto at its own expense by counsel of its own choice. Each Party shall provide the other with such assistance as is reasonably necessary and shall cooperate in the defense of any such action or proceeding. Neose shall not enter into any settlement, consent judgment, or other voluntary final disposition of such suit that would adversely affect Novo’s rights under this Agreement or which would result in Novo being liable for damages, without Novo’s prior written consent, which consent shall not be unreasonably withheld.

7.3 Declaratory Judgment Action. Neose shall have the right, but not the obligation, to file any declaratory judgment action in any court of competent jurisdiction as to questions of validity or infringement of any Third Party patent relating to the use of the Neose Technology.

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7.3.1 Cooperation. The Parties shall closely cooperate in any such declaratory judgment action. In conducting such action, the Parties shall render each other all reasonable assistance, free of charge. The final strategy in such action shall be determined by Neose and Neose’s legal counsel in coordination with Novo and any additional legal counsel of Novo.

7.3.2 Costs. Subject to Article 11 hereof, each Party shall bear its own costs and expenses incurred in connection with actions pursuant to Sections 7.2 and 7.3.

7.4 Third-Party Licenses

7.4.1 Novo Third-Party Licenses. In the event that Novo is of the opinion, at any time during the Term, that a license under any Blocking Patent is necessary or advisable for purposes of enabling Novo to exercise its license rights under Section 5.1.1, it shall notify Neose. The Parties shall then seek an opinion of patent counsel acceptable to both Parties. If such patent counsel concurs with Novo’s opinion, Novo and Neose shall co-operate to obtain such a license for the benefit of Novo and, as the case may be, also for Neose, in accordance with the following provisions:

7.4.1.1 Neose shall be primarily responsible for obtaining any such Third Party license at its own expense. The matter shall be deemed resolved if Neose is granted a license, ******, under the relevant Blocking Patent that would make the continued exercise of the rights granted to Novo by Neose hereunder non-infringing with respect to ******. ****** shall be solely responsible for ****** under such license.

7.4.1.2 However, in the event that Neose is unable to resolve the matter in accordance with Section 7.4.1.1 within one hundred twenty (120) days from receipt of notice from Novo upon terms that are commercially reasonable to Neose at Neose’s discretion, then Novo shall be entitled to negotiate a license in favor of Novo under such Blocking Patents; provided that to the extent that Novo must ****** under such license, Novo may ****** against any payments owed under Sections 4.1 or 4.2, provided that no payment owed under Section 4.1 or 4.2 shall be ****** more than ****** as a result of the operation of this Section 7.4.1.2.

7.4.1.3 In relation to the negotiation and contracting of any such Blocking Patent license, the provisions of this Section 7.4 shall prevail over the provisions of Sections 7.2 and 7.3.

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8. SUPPLY AGREEMENT

No later than ninety (90) days after Novo accepts the first batch of Reagents, the Parties will execute and deliver the Supply Agreement under which Neose will be a supplier to Novo of the Reagents needed to produce New Products in the Field of Use. Pricing for Reagents will be based on Neose’s ******. The Parties acknowledge and agree that Novo plans to have two production sites for the supply of Reagents and that the costs of technology transfer to Novo or any approved Sublicenses will be borne by Novo.

9. CONFIDENTIALITY

9.1 Confidential Information. With respect to any and all Confidential Information received by one Party under this Agreement and/or during the course of the Project, (the “Recipient”) from the other Party (the “Disclosing Party”) at any time and from time to time prior to the Effective Date or during the Term, the Recipient for a period of five (5) years from the expiration or earlier termination of this Agreement: (a) shall maintain the secrecy of, and hold in strict confidence, the Confidential Information received hereunder; (b) shall not use such Confidential Information for any other purpose other than in furtherance of this Agreement; and (c) shall not, without express written authorization from the Disclosing Party, use, disclose or grant the use of such Confidential Information to any other Persons except to those of the Recipient’s directors, officers, employees, and advisors to whom such disclosure is reasonably necessary in furtherance of this Agreement and each of whom is otherwise bound to Recipient by contract or legal or fiduciary obligation at the time of such disclosure to maintain the secrecy of, and hold in confidence, such Confidential Information. The Recipient shall notify the Disclosing Party promptly upon discovery of any unauthorized use or disclosure of the Disclosing Party’s Confidential Information.

9.2 Permitted Disclosures. The obligations set forth in Section 9.1 shall not apply to the extent that the Recipient: (a) is required to disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, provided that the Recipient shall provide written notice thereof and sufficient opportunity to the Disclosing Party to object to any such disclosure or to request confidential treatment thereof; or (b) can demonstrate that: (i) the information was public knowledge or generally known by publication in scientific or other journals or other public media at the time of such disclosure to the Recipient or thereafter became public knowledge or generally known other than as a result of acts directly or indirectly attributable to the Recipient in violation hereof; (ii) the information was rightfully known by the Recipient (as shown by its written records) prior to the date of disclosure to the Recipient by the Disclosing Party under this Agreement; (iii) the information was disclosed to the Recipient on an unrestricted basis by a Third Party not under a duty of confidentiality to the Disclosing Party, or (iv) the information was independently developed by Recipient (as shown by its written records) without any use of or access to information of the Disclosing Party. In addition, provided that Neose maintains the confidentiality of Novo’s name, with the prior approval of Novo, which approval will not be unreasonably withheld, Neose will have the right to use data about Novo Materials and New Products (i) to support a patent application by Neose, and (ii) for promotional purposes, subject to compliance with any publication plan for development of the New Products that shall have been approved by the Steering Committee.

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9.3 Enforcement. Both Parties agree that it would be impossible or inadequate to measure and calculate the other Party’s damages from any breach of the covenants set forth in this Agreement. Accordingly, the Disclosing Party agrees that if the Recipient breaches any of such covenants, the Disclosing Party will have available, in addition to any other right or remedy available, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of any such provision of this Agreement. Both Parties further agrees that no bond or other security shall be required in obtaining such equitable relief and each Party hereby consents to the issuance of such injunction and to the ordering of specific performance.

9.4 Publicity. Except as required by law, all publicity, press releases and other announcements relating to this Agreement or the transactions contemplated hereby, shall be reviewed in advance by, and shall be subject to the reasonable approval of, both Parties. Attached hereto as Exhibit 9.4 is an approved form of a press release to be issued by Neose upon the execution and delivery of this Agreement.

10. REPRESENTATIONS AND WARRANTIES

10.1 Mutual Representations and Warranties. Each Party hereby represents and warrants to the other that:

10.1.1 The execution, delivery and performance of this Agreement by it have been duly authorized by all requisite corporate action, and this Agreement has been duly executed and delivered by and on behalf of such Party.

10.1.2 The execution, delivery and performance by such Party of this Agreement does not (i) conflict with or violate any applicable statute, law, rule or regulation, (ii) conflict with or violate its charter, bylaws or other organizational document, or (iii) conflict with or constitute a default under any contract or agreement of such Party.

10.2 Representations and Warranties of Neose. Neose warrants to Novo, as of the Effective Date, that:

10.2.1 It is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with the power and authority to sign, deliver and perform all of its obligations under this Agreement.

10.2.2 It is the sole and exclusive owner of the Neose Patents, or otherwise Controls the Neose Patents, and has the full corporate power and authority to grant the licenses granted hereunder.

10.2.3 To Neose’s knowledge, the use of the Neose Technology pursuant to the terms of this Agreement does not infringe upon the rights of any Third Party.

10.2.4 To Neose’s knowledge, there is no Blocking Patent that, if asserted by Third Parties, would prevent Novo from using the Neose Technology to make New Products hereunder.

10.2.5 To Neose’s knowledge, no claims or proceedings have been brought by Third Parties alleging the invalidity in whole or in part of any of the Neose Patents.

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10.3 Representations and Warranties of Novo. Novo warrants to Neose, as of the Effective Date, that:

10.3.1 It is a corporation duly incorporated, validly existing and in good standing under the laws of the Kingdom of Denmark, with the power and authority to sign, deliver and perform all of its obligations under this Agreement.

10.3.2 It is the sole and exclusive owner of the Novo Technology, and has the full corporate power and authority to grant the licenses granted hereunder.

10.3.3 To Novo’s knowledge, the use of the Novo Technology pursuant to the terms of this Agreement does not infringe upon the rights of any Third Party.

10.3.4 To Novo’s knowledge, there is no Blocking Patent that, if asserted by Third Parties, would prevent Neose from using the Novo Technology to perform its activities under the Work Plan.

10.3.5 To Novo’s knowledge, no claims or proceedings have been brought by Third Parties alleging the invalidity in whole or in part of any of the Novo Technology.

10.4 Disclaimer of Warranties. EXCEPT FOR THE WARRANTIES SET FORTH IN SECTION 11.3, EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT.

10.5 Acknowledgment by Novo. Novo acknowledges and hereby agrees that Neose makes no representations or warranties as to the outcome of the Project, including without limitation whether the application of the Neose Technology will improve the Novo Materials.

11. INDEMNIFICATIONS AND LIMITED LIABILITY

11.1 Indemnification by Neose. Neose shall indemnify, defend and hold harmless Novo and its Affiliates, and each of their respective employees, officers, directors and agents (each, a “Novo Indemnified Party”) from and against any and all claims, suits, losses, obligations, damages, deficiencies, costs, penalties, liabilities (including strict liabilities), assessments, judgments, amounts paid in settlement, fines, and expenses (including court costs and reasonable fees of attorneys and other professionals) (individually and collectively, “Losses”) resulting from or arising in connection with (i) the breach by Neose of any of its representations or warranties contained in Section 10, (ii) any claim by a Third Party alleging that the use of the Neose Technology infringes upon the Patent Rights of such Third Party, and (iii) any activities of Neose under this Agreement. Notwithstanding the foregoing, Neose shall have no obligation to indemnify, defend or hold harmless a Novo Indemnified Party for any Losses to the extent that such Losses were caused by (x) the negligence or willful misconduct of any of the Novo Indemnified Parties, or (y) a breach by Novo of any of its representations and warranties set forth in Section 10.

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11.2 Indemnification by Novo. Novo shall indemnify, defend and hold harmless Neose and its Affiliates, and each of their respective employees, officers, directors and agents (each, a “Neose Indemnified Party”) from and against any and all Losses resulting from or arising in connection with (i) the breach by Novo of any of its representations and warranties set forth in Section 10, (ii) the failure of any Affiliate to comply with any obligation of Novo applicable to the Affiliate under this Agreement, (iii) the failure of any Sublicensee to comply with any obligation under a sublicense granted by Novo hereunder, (iv) the promotion, distribution, use, testing, marketing, sale, or other disposition of any New Product, (v) any claim by a Third Party alleging that the use of the Novo Technology or the manufacture, sale or use of New Products infringes upon the Patent Rights of such Third Party, except to the extent such claims arise solely as a result of the use of Neose Technology, and (vi) any activities of Novo under this Agreement. Notwithstanding the foregoing, Novo shall have no obligation to indemnify, defend or hold harmless a Neose Indemnified Party for any Losses to the extent that such Losses were caused by (x) the negligence or willful misconduct of Neose, its Affiliates, sublicensees, or any of their respective employees, officers, directors, or agents, or (y) a breach by Neose of any of its representations and warranties set forth in Section 10.

11.3 Indemnification Procedure. Each Party shall provide prompt written notice to the other of any actual or threatened Loss or claim therefor of which the other becomes aware; provided that the failure to provide prompt written notice shall only be a bar to recovering Losses to the extent that a Party was prejudiced by such failure. In the event of any such actual or threatened Loss or claim therefor, each Party shall provide the other information and assistance as the other shall reasonably request for purposes of defense and each Party shall receive from the other all necessary and reasonable cooperation in such defense including, but not limited to, the services of employees of the other Party who are familiar with the transactions or occurrences out of which any such Loss may have arisen. Each Party shall have the right to participate in and with respect to the defense of any Loss or Losses with counsel of its choosing whose fees shall be borne by the Party with liability for indemnification under Sections 11.1 or 11.2, as the case may be, and no Party shall have the right to settle any claim or agree to the entry of any judgment or other relief without the prior consent of the other Party, which consent shall not be withheld unreasonably.

11.4 Consequential Damages. NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR INCIDENTAL DAMAGES SUFFERED BY SUCH OTHER PARTY AND ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), INCLUDING, WITHOUT LIMITATION, LOST PROFITS, AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

11.5 Insurance. During the term of the Supply Agreement, Neose agrees to obtain and maintain commercial general liability insurance with reputable and financially secure insurance carriers to cover the use of the Neose Technology in New Products, with limits of not less than ****** per occurrence and ****** in the aggregate. Novo agrees to maintain during the Term commercial general liability insurance with limits of not less than ****** per occurrence and ****** in the aggregate to cover its indemnification obligations under Section 11.2. In addition, Novo agrees to maintain during the Term clinical trials insurance and product liability insurance with limits reasonable to cover its indemnification obligations under Section 11.2. All insurance shall be procured with reputable and financially secure insurance carriers.

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12. TERM AND TERMINATION

12.1 Term. The term of this Agreement (the “Term”) shall commence on the Effective Date and, unless sooner terminated as to both New Products in accordance with Section 12.2, shall terminate on the expiration of the expiration of the last to expire patent included in the Neose Technology incorporating a Valid Patent Claim that would be infringed by making, using, selling, offering to sell, importing or exporting any of the New Products, after which Novo shall have a perpetual, fully paid up, royalty free, exclusive license (even as to Neose) to commercialize New Products. The Parties acknowledge and agree that this Agreement may be terminated on a New Product-by-New Product basis, in accordance with Section 12.2.2, and that notwithstanding any such termination with respect to only one New Product, the Term shall continue with respect to the other New Product.

12.2 Termination

12.2.1 Termination of Project Plan. If the Project is terminated by mutual agreement, this Agreement will automatically terminate.

12.2.2 No Commercial Sale

12.2.2.1 New ****** Product. If there has not been a Commercial Sale of the New ****** Product before the ****** anniversary of the ****** Milestone (as defined in Section 4.2.2), Neose shall be entitled to terminate this Agreement with respect to the New ****** Product, effective upon thirty (30) days written notice to Novo, provided that Novo shall have the right to extend this Agreement with respect to the New ****** Product for consecutive ****** periods by timely payment of the optional minimum royalties set forth in Sections 4.2.2.1 through 4.2.2.5, up to a maximum extension of ****** years. Neose shall not have the right to terminate this Agreement under this Section 12.2.2.1 at any time when Novo has extended this Agreement in accordance with Section 4.2.2 with respect to the New ****** Product and is in full compliance with its obligations with respect thereto.

12.2.2.2 New ****** Product. If there has not been a Commercial Sale of the New ****** Product before the ****** anniversary of the ****** Milestone (as defined in Section 4.2.2), Neose shall be entitled to terminate this Agreement with respect to the New ****** Product, effective upon thirty (30) days written notice to Novo, provided that Novo shall have the right to extend this Agreement with respect to the New ****** Product for consecutive ****** periods by timely payment of the minimum royalty amounts set forth in Sections 4.2.2.6 through 4.2.2.10, up to a maximum extension of ****** years. Neose shall not have the right to terminate this Agreement under this Section 12.2.2.2 at any time when Novo has extended this Agreement in accordance with Section 4.2.2 with respect to the New ****** Product and is in full compliance with its obligations with respect thereto.

12.2.3 Termination for Cause.

12.2.3.1 Breach. A Party shall have the right to terminate this Agreement at any time for a material breach of this Agreement by the other Party upon

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written notice by the non-breaching Party to the other Party describing such breach in reasonable detail and stating the non-breaching Party’s intention to terminate this Agreement, provided that the other Party shall have a period of sixty (60) days from the date of such notice to cure the breach, or, if such breach is not susceptible of being cured within such sixty (60) day period, and the breaching Party utilizes diligent good faith efforts to cure such breach, then such period shall be extended to one hundred twenty (120) days. If such breach is cured within the applicable period, the termination notice shall become ineffective. Otherwise, the termination shall become effective upon the expiration without cure of the applicable period.

12.2.3.2 Bankruptcy. A Party shall have the right to terminate this Agreement at any time upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets of the benefit of creditors by the other Party, or in the event a receiver or custodian is appointed for such Party’s business, or if a substantial portion of such Party’s business is subject to attachment or similar process; provided, however, that in the case of any involuntary bankruptcy proceeding, such right to terminate shall only become effective if the proceeding is not dismissed within sixty (60) days after the filing thereof.

12.2.3.3 Termination by Novo. Novo may terminate this Agreement at any time without cause upon ninety (90) days prior written notice to Neose of such termination, provided that Novo shall pay to Neose one hundred percent (100%) of all documented Neose Project-Related Costs and any other costs incurred or accrued by Neose prior to the effective date of such termination for the conduct of the Work Plan through the date of termination.

12.3 Effect of Termination or Expiration

12.3.1 Prior Obligations. Termination or expiration of this Agreement shall not relieve the Parties of any obligation arising prior to the effective date of such termination or expiration and shall not constitute a waiver of any right of the Parties under this Agreement as a result of breach or default.

12.3.2 Confidential Information. Upon the termination or expiration of this Agreement, each Recipient shall, as the Disclosing Party may direct, destroy or return to the Disclosing Party promptly all tangible materials provided to Recipient by the Disclosing Party that embody the Disclosing Party’s Confidential Information and shall erase or delete all of the Disclosing Party’s Confidential Information embodied in any magnetic, optical or intangible medium or stored or maintained on any information storage and/or retrieval device, and deliver to the Disclosing Party a certification of such destruction, return, erasure or deletion signed by an officer of the Disclosing Party.

12.3.3 Survival. No termination under this Agreement shall constitute a waiver of any rights or causes of action that either Party may have for any acts or omissions or breach under this Agreement by the other Party prior to the termination date. The following Sections of this Agreement shall survive the expiration or any termination of this Agreement in accordance with their respective meanings: Sections 4.8, 5.1.2, 6, 9, 11, 12, 13, 15.2, 15.4, 15.5, 15.7, 15.8, 15.9, 15.10, 15.13 and any other provision required to interpret this Agreement.

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12.3.4 Effect on Sublicensees. Any sublicenses granted by Novo hereunder shall automatically terminate or expire at the same time this Agreement terminates or expires.

13. DISPUTE RESOLUTION

13.1 By Senior Officers. Except as otherwise provided in Section 9.3, all disputes arising under this Agreement will first be submitted in writing for dispute resolution to the Designated Representative of each Party. If the dispute is not resolved within forty-five (45) days, the dispute shall be referred to arbitration in accordance with Section 13.2.

13.2 Arbitration

13.2.1 Rules and Location. Except with respect to disputes arising under Section 9.3, all disputes arising between the Parties under this Agreement that have not been resolved in accordance with Section 13.1 shall be settled by arbitration conducted in accordance with the procedures of the International Chamber of Commerce (“ICC”). The version of the arbitration rules which are in force when the dispute occurs shall be decisive. The arbitration tribunal shall have one arbitrator, who shall be selected from the panels of the ICC by agreement of the Parties, provided, however that if the parties cannot agree on the arbitrator, the arbitration tribunal shall consist of three arbitrators, one selected by Neose, one selected by Novo, and the third selected by the other two arbitrators. The arbitration tribunal may also decide on the validity of the arbitration agreement. The place of the arbitration tribunal shall be Philadelphia, Pennsylvania. The arbitration proceedings, orders and writs shall be in the English language.

13.2.2 Judgments. Any award rendered by the arbitrators shall be binding upon the Parties hereto and shall be final. Judgment upon the award may be entered in any court of record of competent jurisdiction.

13.2.3 Expenses. Each Party shall pay its own expenses of arbitration and the expenses of the arbitrators shall be equally shared unless otherwise ordered by the arbitrators.

14. GOVERNMENT APPROVAL

14.1 HSR Filing. Novo, in consultation with Neose, shall make the determination as to whether filing under the HSR Act is required. If any HSR filing is required, to the extent necessary, each Party shall file, as soon as practicable after the date this Agreement is executed, with the Federal Trade Commission (the “FTC”) and the Antitrust Division of the United States Department of Justice (the “Antitrust Division”) the notification and report form (the “Report”) required under the HSR Act with respect to the transactions as contemplated hereby and shall reasonably cooperate with the other Party to the extent necessary to assist the other Party in the preparation of its Report and to proceed to obtain necessary approvals under the HSR Act, including but not limited to the expiration or earlier termination of any and all applicable waiting periods required by the HSR Act. Each Party shall bear its own expenses, including, without limitation, legal fees, incurred in connection with preparing such filings.

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14.2 Obligations. Each Party shall use its good faith efforts to eliminate any concern on the part of any court or government authority regarding the legality of the proposed transaction, including, if required by federal or state antitrust authorities, promptly taking all steps to secure government antitrust clearance, including, without limitation, cooperating in good faith with any government investigation including the prompt production of documents and information demanded by a second request for documents and of witnesses if requested.

14.3 Additional Approvals. Each Party will cooperate and use respectively all reasonable efforts to make all other registrations, filings and applications, to give all notices and to obtain as soon as practicable all governmental or other consents, transfers, approvals, orders, qualifications authorizations, permits and waivers, if any, and to do all other things necessary or desirable for the consummation of the transactions as contemplated hereby. Neither Party shall be required, however, to divest or out-license products or assets or materially change its business if doing so is a condition of obtaining approval under the HSR Act or other governmental approvals of the transactions contemplated by this Agreement.

14.4 Termination. If a Report is required to be filed under the HSR Act, either Party hereto may terminate this Agreement by written notice to the other Party, if, within one hundred twenty (120) days after this Agreement is signed by the Parties, approval of the transactions contemplated by this Agreement under the HSR Act has not been obtained or the notice and waiting period, as may be extended by the FTC, under the HSR Act has not expired without adverse action regarding this Agreement or the transactions contemplated hereby. If this Agreement is terminated pursuant to this Section 14.4, then, notwithstanding any provision in this Agreement to the contrary, neither Party hereto shall have any further obligation to the other Party with respect to the subject matter of this Agreement.

15. MISCELLANEOUS

15.1 Force Majeure. Any delays in or failures of performance by either Party under this Agreement (other than failure to pay amounts due) shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the Party affected, including but not limited to: acts of God, earthquake, new regulations or laws of any government, strikes or other concerted acts of workers; fire, floods, explosions; riots; wars; rebellion; and, sabotage, and any time for performances under this Agreement shall be extended by the time of delay reasonably occasioned by such occurrence. Each Party agrees to notify the other promptly of any factor, occurrence or event coming to its attention that may affect its ability to meet its obligations under this Agreement.

15.2 Notices. Any notice, consent or report (each, a “Notice”) required or permitted to be given by either Party under this Agreement shall be in writing and shall be either personally delivered or sent by facsimile (confirmed by internationally-recognized express courier), or by internationally-recognized express courier (such as Federal Express or DHL), to the other Party at its address set forth below, or such new address as may from time to time be supplied under this Agreement by a Party. Except as otherwise set forth in this Agreement, any Notice shall be effective upon receipt by the addressee. Provided that all postage or delivery charges are prepaid in full by the sender and the Notice has been addressed as set forth in this Agreement:

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15.2.2 if such Notice is sent by facsimile (confirmed by internationally recognized express courier which includes a copy of the report showing the date and time of transmission), then the Notice shall be deemed to be received upon transmission (if received on a business day) or the next business day following transmission; and

15.2.3 if such Notice is sent by internationally-recognized express courier, then the Notice shall be deemed to be received two (2) business days after deposit with the courier service.

If to Neose:

Neose Technologies, Inc.

102 Witmer Road

Horsham, PA 19044

Attention: General Counsel

Fax: 215-315-9100

If to Novo:

Novo Nordisk A/S

Novo Allé

2880 Bagsvaerd

Denmark

Attention: Vice President, Business Development

Fax: 011-45-4442-1830

With a copy to the same address:

Attention: General Counsel

Fax: 011-45-4498-0670

15.3 Governing Law. This Agreement and any controversy, claim or dispute arising under this Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania, United States of America, without regard to the conflicts of law principles of any jurisdiction.

15.4 U.S. Export Laws and Regulations. The Parties hereby acknowledge that their rights and obligations under this Agreement may be subject to the laws and regulations of the United States of America relating to the export of products and technical information. Without limitation, each Party shall comply, and assist the other Party in complying, with all such laws and regulations.

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15.5 Assignment

15.5.1 Consent of Other Party. Neither Party may assign any of its rights or obligations under the Agreement, in whole or in part, by operation of law or otherwise, without the prior written consent of the other Party, which consent shall not be unreasonably withheld, provided that either Party may assign (i) any of its rights or obligations under this Agreement in any country to any of its Affiliates, for so long as they remain Affiliates, and (ii) all of its rights or obligations under this Agreement in connection with the merger or similar reorganization or sale of all or substantially all of its assets or a sale of that part of its business relating to the subject matter of the Agreement. A Party shall notify the other Party in writing upon making such assignment.

15.5.2 Certain Assignments by Neose. In the event that Neose assigns all of its rights or obligations under this Agreement in connection with the merger or similar reorganization or sale of all or substantially all of its assets or a sale of that part of its business relating to the subject matter of this Agreement, Novo may, within the thirty (30)-day period following receipt of notice from Neose of such assignment, elect to proceed under this Section 15.5.2 with respect to the provision of any reports required under this Agreement and/or other disclosure of Confidential Information by Novo hereunder. Novo shall make such election by notice in writing addressed to Neose and its successor at the address of Neose set forth in Section 15.2.3 (as amended). From and after an election by Novo under this Section 15.5.2, Novo shall be entitled to provide reports required under this Agreement, and/or to provide any other Confidential Information hereunder, to an independent certified public auditing firm selected by Neose’s successor and reasonably acceptable to Novo, in lieu of providing such reports and/or Confidential Information to Neose’s successor. Such auditing firm shall report to Neose’s successor only (i) whether or not the reports submitted by Novo are accurate and conform to any related payments made to Neose’s successor and (ii) whether or not, in respect of other matters relating to such reports and/or Confidential Information, Novo has complied with its obligations under this Agreement. Novo shall be responsible for and promptly shall pay all fees and expenses of the auditing firm in connection with its services rendered in accordance with this Section 15.5.2.

15.5.3 Binding Effect. Any purported assignment in violation of this Section 15.5 shall be null and void. This Agreement shall bind and inure to the benefit of each Party and its respective permitted successors and assigns.

15.6 Amendments. No change, modification, extension, termination or waiver of the Agreement, or any of the provisions in this Agreement contained, shall be valid unless made in writing and signed by duly authorized representatives of the Parties to this Agreement.

15.7 Independent Contractors. The Parties to this Agreement are acting as independent contractors and shall not be considered partners, joint venturers or agents of the other. Neither Party shall have the right to act on behalf of, or to bind, the other.

15.8 Severability. The provisions of this Agreement are intended to be severable. If any one or more of the provisions of this Agreement is or becomes invalid, is ruled illegal by a court of competent jurisdiction or is deemed unenforceable under the current applicable law from time to time in effect during the Term, it is the intention of the Parties that the remainder of the Agreement shall not be affected thereby and shall continue to be construed

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to the maximum extent permitted by law at such time. It is further the intention of the Parties that in lieu of each such provision which is invalid, illegal, or unenforceable, there shall be substituted or added as part of this Agreement by such court of competent jurisdiction or any arbitrator(s) appointed pursuant to Section 13.2, a provision which shall be as similar as possible, in economic and business objectives as intended by the Parties to such invalid, illegal or unenforceable provision, but shall be valid, legal and enforceable.

15.9 Waiver. The waiver by either Party to this Agreement of any right under this Agreement or the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right under this Agreement or of any other breach or failure by said other Party whether of a similar nature or otherwise.

15.10 No Third Party Beneficiaries. Each of Neose and Novo intend that only Neose and Novo will benefit from, and are entitled to enforce the provisions of, this Agreement and that no Third Party beneficiary is intended under this Agreement.

15.11 Descriptive Headings; Section and Exhibit References. The headings of the several sections of this Agreement are intended for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. All references in this Agreement to a Section or Exhibit shall be interpreted as references to the respective Section or Exhibit of this Agreement unless the context requires otherwise.

15.12 Counterparts. The Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

15.13 Entire Agreement. This Agreement, including all exhibits to this Agreement (the “Attachments”), embodies the entire understanding between the Parties and supersedes any prior understanding and agreements between and among them respecting the subject matter of this Agreement. There are no representations, agreements, arrangements or understandings, oral or written, between the Parties to this Agreement relating to the subject matter of this Agreement, which are not fully expressed in this Agreement. If any provisions of any such Attachment conflict with any provisions set forth in this Agreement, the provisions of this Agreement shall take precedence. The Parties acknowledge and agree that the Mutual Nondisclosure Agreement remains in full force and effect with respect to any and all subject matter other than the subject matter of this Agreement or the ****** Agreement.

IN WITNESS WHEREOF, the undersigned Parties, acting through their duly authorized representatives, have executed this Agreement in multiple counterparts.

NEOSE TECHNOLOGIES, INC.
By:	/s/ C. Boyd Clarke
Name:	C. Boyd Clarke
Title:	CEO

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NOVO NORDISK A/S
By:	/s/ Mads Krogsgaard Thomsen
Name:	EVP, CSO
Title:

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Exhibits Index

Exhibit 1.21	M1 Profile – Parameters for Candidate Selection for New ****** Product
Exhibit 1.22	M1 Profile – Parameters for Candidate Selection for New ****** Product
Exhibit 1.25	Neose Patents as of the date of this Agreement
Exhibit 2.2	Work Plan
Exhibit 5.1.3	Required Agreement for Certain Proposed Sublicensees
Exhibit 9.4	Press Release

- 35 -

EXHIBIT 1.21

M1 Profile – parameters for candidate selection for New

****** Product aiming at providing ****** by administration

******

****** Process

• ******

• ******

• ******

• ******

• ******

• ******

• ******

• ******

• ******

• ******

• ******

****** data; functional profile

• ******

• ******

• ******

******

Safety assessment (pre M1 mainly in ******

• ******

• ******

• ******

EXHIBIT 1.22

M1 Profile – parameters for candidate selection for New

******* Product aiming at providing ******* by administration

*******

******* Process

• *******

• *******

• *******

• *******

• *******

• *******

• *******

• *******

• *******

• *******

• *******

******* data; functional profile

• *******

• *******

• *******

*******

Safety assessment (pre M1 mainly in *******

• *******

• *******

• *******

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.25

NEOSE PATENTS AS OF THE DATE OF THIS AGREEMENT

******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	PCT	Granted	******	******	******	******	******
******	DIV	Pending	******	******
******	PCT	Pending	******	******
******	PCT	Published	******	******
******	PCT	Pending	******	******
******	PCT	Published	******	******
******	PCT	Pending	******	******
******	PCT	Granted	******	******	******	******	******
******	ORD	Pending	******	******	******
******	CON	Pending	******	******
******	CON	Published	******	******
******	DIV	Published	******	******
******	CON	Pending	******	******
******	PRO	Expired	******	******
******	RCE	Granted	******	******	******	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	ORD	Published	******	******	******
******	PRO	Expired	******	******			******
******	PRO	Expired	******	******			******
******	PRO	Expired	******	******			******
******	PRO	Expired	******	******			******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CIP	Pending	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CON	Pending	******	******

******
Country		Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******		CIP	Pending	******	******
******
Country		Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******		CIP	Pending	******	******
******
Country		Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******		CIP	Pending	******	******
******
Country	Sub Case	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******		PCT	Published	******	******
******		PCT	Published		******
******		PCT	Published	******	******
******		PCT	Published		******
******		PCT	Published		******
******		ORD	Published	******	******	******
******		CIP	Allowed	******	******
******	D1	DIV	Published	******	******
******	D2	DIV	Published	******	******
******	D3	DIV	Published	******	******
******	D4	DIV	Published	******	******
******	D5	DIV	Published	******	******

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.25

******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	ORD	Published	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	ORD	Granted	******	******	******	******	******
******	CON	Granted	******	******	******	******	******
******	DIV	Granted	******	******	******	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	PCT	Granted	******	******	******	******	******
******	PCT	Published	******	******
******	ORD	Published	******	******	******
******	CIP	Granted	******	******	******	******	******

Exhibit 2.2 Work Plan

********

EXHIBIT 5.1.3

NEOSE TECHNOLOGIES, INC.

FORM OF REQUIRED AGREEMENT FOR PROPOSED SUBLICENSEES

This CONFIDENTIALITY AGREEMENT (this “Agreement”) is made as of this      day of             , 200_, by and between Neose Technologies, Inc., a Delaware corporation (“Neose”), and                              , a                      corporation (“Recipient”).

BACKGROUND

Neose has developed and continues to develop proprietary technologies and related know-how for the glycosylation, design and remodeling of proteins, peptides and antibodies, including, but not limited to its GlycoAdvance^™, GlycoPEGylation^™ and GlycoConjugation^™ technologies (collectively, the “Technology”). Pursuant to a Research, Development and License Agreement dated                          , 2003 (the “License Agreement”), Neose has granted Novo Nordisk A/S, a Danish corporation (“Novo”), certain exclusive worldwide rights under the Technology throughout the world, including certain rights to sublicense. Novo desires to sublicense to Recipient certain rights granted to Novo under the License Agreement. Novo, therefore, desires to disclose to Recipient confidential and proprietary information, which is a part of the Technology and is considered valuable by Neose. As a condition to Novo disclosing such confidential and valuable proprietary information to Recipient, Recipient is entering into this Agreement for Neose’s benefit.

NOW, THEREFORE, in consideration of the foregoing premises and in consideration of Novo disclosing Neose’s confidential and proprietary information to Recipient, and intending to be legally bound hereby, Recipient agrees as follows:

1. Definitions

1.1 “Confidential Information” means any and all proprietary or confidential information of Neose disclosed to Recipient, including, without limitation, all technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, service plans, services, customer lists and customers, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, marketing, distribution and sales methods and systems, sales and profit figures, finances and other business information disclosed to Recipient related to Neose, either directly or indirectly, in writing, orally or by drawings or inspection of documents or other tangible property. The fact that a given piece of information is marked or identified as confidential or proprietary shall conclusively indicate that such information is considered Confidential Information, but the failure to so mark information shall not conclusively determine that such information was or was not considered Confidential Information.

1.2 “Neose Know-How” means any and all formulae, procedures, processes, methods, designs, know-how, show-how, trade secrets, discoveries, inventions (whether or not patentable), patent applications, licenses, software and source code, programs, prototypes, designs, discoveries, techniques, methods, ideas, concepts, data, engineering and manufacturing information, electronic control circuits, specifications, diagrams, drawings, schematics, blueprints and parts lists and other proprietary information, rights and works of authorship, whether or not reduced to writing, controlled by Neose and relating to the Technology

1.3 “Neose Patents” means all patents and patent applications (including all corresponding foreign patents and patent applications, all divisions, continuations, continuations-in-part, reissues, renewals, extensions and additions to any such patents or patent applications) relating to the Technology licensed by Neose to Novo under the License Agreement.

1.4 “Neose Technology” means the Neose Know-How and Neose Patents.

1.5 “Person” means an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, syndicate, sole proprietorship, unincorporated organization, government, governmental agency, authority or instrumentality, or any other form of entity not specifically listed in this Agreement.

1.6 “Product” means any of the “Novo Materials” (as defined in the License Agreement modified by using the Neose Technology.

1.7 “Sublicense Agreement” means the agreement under which Novo sublicenses to Recipient certain rights granted by Neose to Novo under the License Agreement.

1.8 “Third Party” means any Person other than Recipient, Neose or Novo.

2. Non-Disclosure; Non-Use; Reasonable Care

2.1 Non-Disclosure. Without the prior written consent of an authorized officer of Neose, Recipient shall not, directly or indirectly, disclose to any Third Party any Confidential Information or Neose Know-How.

2.2 Non-Use. Without the prior written consent of an authorized officer of Neose, Recipient shall not, directly or indirectly, use any of the Confidential Information or Neose Technology for its own benefit or for the benefit of any Third Party.

2.3 Reasonable Care. Recipient shall take all reasonable measures to protect the secrecy of, and avoid the unauthorized disclosure or use of, the Confidential Information and Neose Technology, including, without limitation, the following: (i) Recipient shall exercise the highest degree of care that Recipient uses to protect

Recipient’s own confidential and proprietary information of a similar nature; (ii) Recipient shall disclose Confidential Information and/or Neose Know-How only to its employees and contractors who have a need to know; and (iii) Recipient shall require anyone who has access to any of the Confidential Information and/or Neose Know-How to sign or be a party to an effective agreement with Recipient, applicable to the Confidential Information and Neose Know-How, containing provisions that are substantially similar to the terms of this Agreement. Recipient shall notify Neose in writing of any disclosure, misuse or misappropriation of any Confidential Information or Neose Technology that may come to Recipient’s attention.

3. Acknowledgements. Recipient acknowledges and agrees that: (i) this Agreement is necessary for the protection of the legitimate business interests of Neose; (ii) the execution of this Agreement by an authorized representative of Recipient and delivery of this Agreement to Neose is a mandatory condition precedent to Novo disclosing any Confidential Information and any information concerning the Neose Technology to Recipient, without which Neose would not permit Novo to disclose such information; (iii) neither Neose nor Novo has granted to Recipient any rights under the Neose Technology in any manner; and (iv) because of the unique nature of the Confidential Information and Neose Technology and its broad applicability to the manufacture and remodeling of glycoproteins, Neose will not have an adequate remedy at law if Recipient breaches any term of this Agreement.

4. Return of Materials. Upon the earlier of termination of Novo’s license to the Neose Technology under the License Agreement or termination of the Sublicense Agreement, Recipient shall: (i) discontinue all use of the Confidential Information and Neose Technology; (ii) destroy any and all items in its possession containing any Confidential Information or Neose Technology; and (iii) certify in writing to Neose, within ten (10) days after Neose’s request therefor, that Recipient has taken all actions described in this Section 4.

5. Intellectual Property

5.1 Ownership Rights. All right, title and interest under patent, copyright, trade secret and trademark law and any other intellectual property or other law (collectively, “Ownership Rights”), in and to the Confidential Information and Neose Technology shall remain at all times with Neose. Any and all Ownership Rights to developments, discoveries, inventions, additions, amendments, modifications, ideas, processes, methods, compositions, formulae, techniques, information and data, whether or not patentable, relating to the Neose Technology, which is made, conceived or reduced to practice by Neose, Novo or Recipient or any combination of them (“Neose Improvements”) shall be owned by Neose and shall be deemed to part of the Neose Technology for all purposes.

5.2 Assignment. To the extent that Recipient may retain any Ownership Rights in any Neose Improvements, Recipient hereby irrevocably assigns and transfers to Neose any and all such Ownership Rights, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Neose

shall be entitled to receive and hold in its own name all such Ownership Rights. With respect to any Ownership Rights that Recipient may assign and transfer to Neose under this Section 5.2, at the request of Neose, and at Neose’s expense, either before or after termination of this Agreement, Recipient shall assist Neose in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming Neose’s title in and to, any such Ownership Rights. Recipient’s assistance shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights, cooperating in legal proceedings, and taking any other actions considered necessary or desirable by Neose. For the purpose of facilitating the above assignment, Recipient agrees that any and all employees and contractors employed or engaged by Recipient and providing any service in connection with the use of the Neose Technology, prior to providing such service, shall have agreed in writing to covenants consistent with Recipient’s covenants set forth in this Section 5.2

6. Exceptions. The non-disclosure obligations with respect to Confidential Information and Neose Know-How set forth in Section 2.1 shall not apply to any information that: (i) at the time of disclosure by or on behalf of Novo or Neose to Recipient is in, or after disclosure by or on behalf of Novo or Neose becomes part of, the public domain through no improper act on the part of Recipient or on the part of any of Recipient’s employees, independent contractors, advisors or consultants; (ii) is disclosed, published or disseminated by Neose without any confidentiality constraints; (iii) was in Recipient’s possession free of any obligation of non-disclosure or non-use at the time of disclosure to Recipient, as shown by written evidence; (iv) Recipient receives from a Third Party free of any obligation of non-disclosure or non-use, but only if such Third Party had no direct or indirect obligation to Neose not to disclose such information; (v) was developed by Recipient independent of information received hereunder, as shown by its written records; or (vi) subject to Section 7, is required to be disclosed by law or pursuant to legal, judicial or administrative process.

7. Notice of Required Disclosure. If Recipient is required by judicial or administrative process to disclose any Confidential Information or Neose Know-How, then Recipient shall promptly notify Neose and, before disclosing such Confidential Information or Neose Know-How, allow Neose a reasonable time to oppose such process.

8. Successors; Assignment. This Agreement shall be binding upon Recipient and Recipient’s successors and assigns and inure to the benefit of Neose and its successors and assigns. Recipient may not assign its rights or delegate its obligations under this Agreement, in whole or in part, except with the prior written consent of Neose, which consent shall not be unreasonably withheld. Neose may assign this Agreement without seeking or obtaining Recipient’s consent.

9. Governing Law. This Agreement and any controversy, claim or dispute arising under this Agreement shall be governed by, and construed in accordance with the laws of the Commonwealth of Pennsylvania, United States of America, without regard to the conflicts of law principles of any jurisdiction.

10. Remedies. In addition to any other remedies that may be available, at law, in equity or otherwise, Neose shall be entitled to obtain injunctive relief to enforce the provisions of this Agreement without necessity of posting bond.

11. Entire Agreement. This Agreement contains the entire agreement and understanding relating to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings. This Agreement may not be changed or modified, except in a writing signed by both Neose and Recipient. The failure or delay of Neose to exercise any right under this Agreement shall not be deemed a waiver of any rights under this Agreement.

IN WITNESS WHEREOF, each party has caused its authorized representative to execute this Agreement as of the date first written above.

NEOSE TECHNOLOGIES, INC.	[INSERT NAME OF RECIPIENT]
By:	By:
Name:	Name:
Title:	Title:

[GRAPHIC APPEARS HERE]

NEOSE TECHNOLOGIES, INC.

102 Witmer Road, Horsham, PA 19044 215.315.9000

fax:215.315.9100

email: info@neose.com    www.neose.com

Neose Technologies and Novo Nordisk Sign License Agreements for

Improved Therapeutic Proteins

Up to $55.6 Million in Upfront and Milestone Payments

HORSHAM, PA, November 17, 2003. Neose Technologies, Inc. (NasdaqNM: NTEC) announced today that it has entered into two research, development and license agreements with Novo Nordisk A/S (NYSE: NVO) to use Neose’s GlycoPEGylation^™ technology to develop three next-generation proteins within Novo Nordisk’s therapeutic areas, one of which is currently marketed by them.

The license agreements are the result of the research and development collaboration agreements Neose and Novo Nordisk executed in 2002 and the successful application of Neose’s GlycoPEGylation technology to three complex proteins.

Under the terms of the new agreements, Neose will receive a $4.3 million upfront fee and up to $51.3 million in milestone payments based on the progress of the programs. Novo Nordisk is responsible for funding Neose’s research and development activities under the agreements, and Neose will receive royalties on sales of any products commercialized under the agreements. In addition, Neose could receive additional milestones and royalties on new indications for the two proteins not currently marketed by Novo Nordisk.

“We are pleased that the success of our original collaboration with Novo Nordisk has led to a broader collaboration on multiple proteins for various indications. Our work with Novo Nordisk highlights the potential of our GlycoPEGylation technology to make clinically significant improvements to therapeutic proteins,” said C. Boyd Clarke, Neose president, chief executive officer and chairman. “We look forward to moving into the next phase of developing these proteins with a leader in the field.”

About GlycoPEGylation

Neose’s GlycoPEGylation technology can extend and customize protein half-life by uniquely linking various size polyethylene glycol (PEG) polymers to glycans that are remote from the protein’s active site, thereby preserving activity. Proteins that have not benefited from traditional chemical pegylation may benefit from GlycoPEGylation.

About Novo Nordisk

Novo Nordisk is a focused healthcare company. With the broadest diabetes product portfolio in the industry, including the most advanced products within the area of insulin delivery systems, Novo Nordisk is a world leader in diabetes care. In addition, Novo Nordisk has a leading position within haemostasis management, growth hormone therapy and hormone replacement therapy. Novo Nordisk manufactures and markets pharmaceutical products and services that make a significant difference to patients, the medical profession and society. With headquarters in Denmark, Novo Nordisk employs approximately 18,700 people in 68 countries and markets its products in 179 countries. Novo Nordisk’s B shares are listed on the stock exchanges in Copenhagen and London. Its ADRs are listed on the New York Stock Exchange under the symbol ‘NVO’. For further company information visit www.novonordisk.com

About Neose

Neose is a biopharmaceutical company focused on the improvement of protein therapeutics through the application of its proprietary technologies. By applying its GlycoAdvance^TM and GlycoPEGylation^TM technologies, Neose is developing proprietary protein drugs that are improved versions of currently marketed therapeutics with proven efficacy. These second generation proteins are expected to offer significant advantages, including less frequent dosing and improved safety and efficacy. In addition to developing its own products and co-developing products with others, Neose is entering into strategic partnerships for the inclusion of its technologies into products being developed by other biotechnology and pharmaceutical companies.

CONTACTS:

Neose Technologies, Inc.

Robert I. Kriebel

Sr. Vice President and Chief Financial Officer

Barbara Krauter

Manager, Investor Relations

(215) 315-9000

For more information, please visit www.neose.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding our business that are not historical facts are

“forward-looking statements” that involve risks and uncertainties. For a discussion of these risks and uncertainties, any of which could cause our actual results to differ from those contained in the forward-looking statement, see the section entitled “Risk Factors” of our Registration Statement on Form S-3 dated June 20, 2003, and discussions of potential risks and uncertainties in our subsequent filings with the SEC.

EX-10.40

EXHIBIT 10.40

Portions of this exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. Such portions are marked by a series of asterisks.

RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT

AMONG

NEOSE TECHNOLOGIES, INC.

AND

NOVO NORDISK A/S

AND

NOVO NORDISK HEALTH CARE AG

DATED AS OF NOVEMBER 17, 2003

Table of Contents

		Page
1.	DEFINITIONS	1
2.	CONDUCT OF THE PROJECT AND COMMERCIALIZATION EFFORTS	7
3.	FEES AND DEVELOPMENT PAYMENTS	9
4.	PRODUCT PAYMENTS AND ROYALTIES	11
5.	INTELLECTUAL PROPERTY GRANTS AND RIGHT OF NEGOTIATION	13
6.	OWNERSHIP OF INTELLECTUAL PROPERTY	15
7.	BLOCKING PATENTS	18
8.	SUPPLY AGREEMENT	19
9.	CONFIDENTIALITY	19
10.	REPRESENTATIONS AND WARRANTIES	21
11.	INDEMNIFICATIONS AND LIMITED LIABILITY	22
12.	TERM AND TERMINATION	24
13.	DISPUTE RESOLUTION	25
14.	GOVERNMENT APPROVAL	26
15.	MISCELLANEOUS	27

RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT

This RESEARCH, DEVELOPMENT AND LICENSE AGREEMENT (“Agreement”), is dated as of November 17, 2003, among Neose Technologies, Inc., a Delaware corporation (“Neose”), and Novo Nordisk A/S, a Danish corporation, and Novo Nordisk Health Care AG, a Swiss Corporation (collectively, “Novo”).

BACKGROUND

Neose has developed and continues to develop proprietary technologies and related know-how for the glycosylation, design and remodeling of proteins, peptides and antibodies. Such glycomodelling technologies are including but not limited to GlycoAdvance^TM, GlycoPEGylation^™ and GlycoConjugation^™ technologies. Neose and Novo are parties to two Research and Development Collaboration Agreements, dated September 30, 2002 and October 28, 2002, respectively, relating to the use of Neose’s technologies on Novo’s *****. Novo now wishes to continue the development of ***** under the terms and conditions of this Agreement, which includes, among other things, further research and development, scale-up and technology transfer activities by Neose, and the grant of rights to Novo under certain patents and know-how owned or controlled by Neose for use in connection with the development and commercialization of *****.

Contemporaneously with the execution and delivery of this Agreement, Neose and Novo are entering into another Research, Development and License agreement regarding *****

TERMS

NOW, THEREFORE, in consideration of the premises and of the mutual agreements and covenants contained in this Agreement, and intending to be legally bound hereby, Novo and Neose agree as follows:

1. DEFINITIONS. Capitalized terms not otherwise defined shall have the meaning set forth in this Section 1.

1.1 “Affiliate” means, with respect to any Person, any other Person that directly or indirectly controls, is controlled by, or is under common control with, such Person. Without limiting the foregoing, a Person shall be regarded as in control of another Person if it owns, or directly or indirectly controls, more than fifty percent (50%) of the voting stock or other ownership interest of the other Person.

1.2 “Blocking Patent” means any Patent Rights claimed to be owned or Controlled by a Third Party with respect to which Patent Rights an assertion is being made by or on behalf of the Third Party that the use of the Neose Technology under this Agreement infringes such Person’s Patent Rights.

1.3 “Calendar Quarter” means any of the respective periods of three (3) consecutive calendar months ending on March 31, June 30, September 30 or December 31 during the Term.

1.4 “Calendar Year” shall mean the respective periods of twelve (12) consecutive calendar months ending on December 31 during the Term.

1.5 “Commercially Reasonable Efforts” shall mean efforts and resources normally used by a Party in similar undertakings, taking into account the proprietary position of the product or technology involved, the regulatory structure involved, the profitability of such undertaking, the competitiveness of the relevant marketplace, and other relevant factors.

1.6 “Commercial Sale” means any sale of a New Product by Novo, its Affiliates, or Sublicensees to a Person other than their respective Affiliates or Neose.

1.7 “Confidential Information” shall mean any of the Disclosing Party’s proprietary or confidential information, technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, the identity of the Novo Materials, information relating to the Novo Materials, service plans, services, customer lists and customers, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, marketing, distribution and sales methods and systems, sales and profit figures, finances and other business information disclosed to the Recipient by or on behalf of the Disclosing Party, either directly or indirectly, in writing, orally or by drawings or inspection of documents or other tangible property.

1.8 “Control” or “Controlled” means possession of the ability to grant a license or sublicense as provided for herein without violating the terms of an agreement or other arrangement with a Third Party existing before or after the Effective Date.

1.9 “Designated Representative” means, in the case of Neose, its Senior Vice President, Business and Commercial Development, or such other person designated by Neose in writing from time to time to Novo, and, in the case of Novo, its Executive Vice President and Chief Science Officer, or other such other person designated by Novo in writing from time to time to Neose.

1.10 “Disclosing Party” is used as defined in Section 9.1.

1.11 “Effective Date” shall mean the later of (i) the date of execution of this Agreement by both Parties or (ii) if notification is required to be made under the HSR Act, the expiration or earlier termination of any notice and waiting period under the HSR Act.

1.12 “***** Agreement” means the Research, Development and License Agreement between Neose and Novo with respect to *****, which is being entered into contemporaneously with the execution of this Agreement.

1.13 “FDA” means the United States Food and Drug Administration and any successor agency.

1.14 “Field of Use” means the development and commercial manufacture of New Product for *****.

1.15 “GMPs” shall mean current good manufacturing practices for the methods to be used in, and the facilities and controls to be used for, the manufacture, processing, packing and holding of biological products, all as set forth from time to time by the FDA, including all amendments and supplements thereto throughout the term of this Agreement.

- 2 -

1.16 “HSR Act” shall mean the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder.

1.17 “Improvements” means any and all developments, discoveries, inventions, additions, amendments, modifications, ideas, processes, methods, compositions, formulae, techniques, information and data, whether or not patentable, conceived, developed or reduced to practice, that improve or beneficially change, or enhance the economic and technical attributes of, any Know-How or Patent Rights or any process, device or composition.

1.18 “IND” means an application for an Investigational Exemption for a New Drug filed with the FDA, or any comparable filing made with a regulatory authority outside the United States.

1.19 “Joint Improvements” means any and all Improvements made, conceived or reduced to practice jointly by Neose and Novo in the conduct of the Work Plan under this Agreement, whether patentable or not, other than Neose Improvements and Novo Improvements.

1.20 “Know-How” means any and all formulae, procedures, processes, methods, designs, know-how, show-how, trade secrets, discoveries, inventions (whether or not patentable), patent applications, licenses, software and source code, programs, prototypes, designs, discoveries, techniques, methods, ideas, concepts, data, engineering and manufacturing information, electronic control circuits, specifications, diagrams, drawings, schematics, blueprints and parts lists and other proprietary information, rights and works of authorship, whether or not reduced to writing.

1.21 “M1 Profile for the New Product” means the parameters for candidate selection required for ***** set forth on Exhibit 1.21, as amended from time to time in accordance with Section 2.2.

1.22 “Mutual Nondisclosure Agreement” means the Amended and Restated Mutual Nondisclosure Agreement between the Parties dated November 25, 2002.

1.23 “Neose Improvements” means any and all Improvements relating to the Neose Technology made, conceived, or reduced to practice by (i) either Neose or Novo or both in the conduct of the Work Plan under this Agreement or (ii) either Neose or jointly by Neose and Novo under this Agreement, in each case, other than the Novo Materials, the Novo Materials modified using the Neose Technology and New Product.

1.24 “Neose Patents” means all Patent Rights relating to methods and processes for glycosylation design and remodeling of proteins, peptides and antibodies that are Controlled by Neose, including, but not limited to: (i) the Patent Rights listed in Exhibit 1.24, (ii) the Patent Rights developed by Neose in the conduct of the Work Plan during the Term of this Agreement, and (iii) any later acquired Patent Rights Controlled by Neose and used to develop any New Product.

1.25 “Neose Project-Related Costs” means Neose’s costs of conducting the Work Plan, which shall be determined in accordance with this Agreement and calculated as follows: (i) with respect to personnel, at the rate of *****; and (ii) with respect to materials, at the *****.

- 3 -

1.26 “Neose Technology” means the Neose Patents and any Know-How Controlled by Neose relating to methods and processes for the *****, including, without limitation, its GlycoAdvance^™, GlycoPEGylation^™ and GlycoConjugation^™ technologies, and other ***** processes, and all Know-How resulting from work conducted by Neose during the Term.

1.27 “Net Sales” means proceeds from Commercial Sales of New Products by Novo, its Affiliates or Sublicensees to Third Parties, after deducting (to the extent actually incurred or reasonably estimated and accrued in accordance with Generally Accepted Accounting Principles in the United States and to the extent not already deducted in the amount invoiced): (i) reasonable trade, cash and quantity discounts or rebates (other than price discounts granted at the time of sale), reasonable service allowances and reasonable required agent’s commissions, if any, allowed or paid, (ii) credits or allowances actually given or made for rejection or return of previously sold products or for retroactive price reductions (including Medicare, Medicaid, and/or discounts and similar types or rebates and/or discounts), (iii) taxes, duties or other governmental charges levied on or measured by the billing amount (excluding income and franchise taxes), as adjusted for rebates and refunds, and (iv) charges actually incurred for freight and insurance directly related to the distribution of New Products (excluding amounts reimbursed by Third Party customers). A “Commercial Sale of a New Product” is deemed to occur when the invoice is issued, or if no invoice is issued, upon the earlier of shipment or transfer of title in the New Product to a Third Party. In the event that New Product is sold or distributed for use in combination with or as a component of another product or products (a “Combination Product”), the calculation of Net Sales from such Combination Product shall be determined as set forth below:

If all of the active ingredient components of a Combination Product are also sold separately and in identical strengths to those contained in the Combination Product, then the following shall apply: Net Sales shall be calculated as set forth above on the basis of the gross invoice price of a New Product containing the same weight of the licensed active ingredient constituent sold independently [A], divided by the sum of the gross invoice price of all of the active ingredient constituents sold independently [B + A], multiplied by the gross invoice price of the Combination Product, as shown by the following formula:

Net Sales =	[A]	x   [gross invoice price of the Combination Product]
	[B + A]

The distribution costs associated with any Combination Product will be allocated in the same proportion among the licensed active ingredient components and all other active ingredient components.

If the active ingredient components of a Combination Product are not sole separately in identical strengths to those contained in the Combination Product, then the parties agree to negotiate in good faith the calculation of Net Sales with regard to such Combination Product.

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1.28 “New Product” shall mean the following: any of the Novo Materials modified by using the Neose Technology.

1.29 “Novo Improvements” means any and all Improvements that are related to the Novo Materials and/or any of the New Products made, conceived or reduced to practice by Novo or Neose or both, other than Neose Improvements.

1.30 “Novo Materials” means any and all forms of ******, including, but not limited to, ***** substances.

1.31 “Novo Technology” means the Patent Rights and Know-How Controlled by Novo relating to the Novo Materials.

1.32 “Ownership Rights” means any and all right, title and interest under patent, copyright, trade secret and trademark law, or any other intellectual property or other law, in and to any Know-How, Patent Rights, or Improvements.

1.33 “Parties” means Neose and Novo, collectively.

1.34 “Party” means Neose or Novo, as the context requires, or each of Neose and Novo, individually.

1.35 “Patent Rights” shall mean individually and collectively any and all patents and/or patent applications and provisional applications, all inventions disclosed therein, and any and all continuations, continuations-in-part, continued prosecution applications, divisions, renewals, patents of addition, reissues, confirmations, registrations, revalidations, revisions and re-examinations thereof, utility models, petty patents, design registrations and any and all patents issuing therefrom and any and all foreign counterparts thereof and extensions of any of the foregoing including without limitation extensions under the U.S. Patent Term Restoration Act, extensions under the Japanese Patent Law, and Supplementary Protection Certificates (SPCs) according to Counsel Regulation (EEC) No. 1768/92 and similar extensions for other patents under any applicable law in any country of the world.

1.36 “Permit” means any governmental or regulatory filing, submission, approval, permit or license that is required by applicable law in any jurisdiction worldwide for clinical trials, Commercial Sales or other use of any of the New Products.

1.37 “Person” means an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, pool, syndicate, sole proprietorship, unincorporated organization, government, governmental agency, authority or instrumentality, or any other form of entity not specifically listed in this Agreement.

1.38 “Product-Candidate” means any new ***** product-candidate Controlled by Neose during the Term.

1.39 “Project” means the project to be conducted hereunder by the Parties in accordance with the Work Plan.

1.40 “Project Manager” means the project managers described in Section 2.4.1.

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1.41 “Reagents” means the enzymes and sugar nucleotides required to use the Neose Technology in the manufacture of New Products.

1.42 “Recipient” is used as defined in Section 9.1.

1.43 “Regulated Market” means any jurisdiction worldwide that requires a Permit for clinical trials, Commercial Sales or any other use of a New Product.

1.44 “Regulatory Approval” means any marketing authorization (including authorizations approving a Biologics License Application) required for a New Product, exclusive of any pricing or third-party reimbursement approval.

1.45 “Required Agreement” means any agreement with a Sublicensee required under Section 5.1.3.

1.46 “Steering Committee” means the steering committee established pursuant to Section 2.4.2, or any successor group appointed by the Parties.

1.47 “Sublicensee” means a sublicensee of Novo’s rights under Section 5.

1.48 “Supply Agreement” means the supply agreement to be entered into between Neose and Novo in accordance with Section 8.

1.49 “Territory” means the world.

1.50 “Term” means the term of this Agreement, which shall commence on the Effective Date and shall expire or terminate as described in Section 12.

1.51 “Third Party” means any Person other than Novo, Neose, or their respective Affiliates.

1.52 “Valid Patent Claim” means a claim of an issued and unexpired patent forming part of the Neose Patents that has not been held revoked, unenforceable or invalid by a decision of a court or other government agency of competent jurisdiction, or unappealable or unappealed within the time allowed for appeal, or which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise. For the purposes of determining royalties due and payment obligations under this Agreement, any claim being prosecuted in a pending patent application included in the Licensed Patents shall be deemed a Valid Patent Claim, provided that such claim is not pending for more than ***** in which the subject matter of the claim is disclosed, after which period it shall cease to be considered a Valid Patent Claim until the patent issues.

1.53 “Work Plan” means the Work Plan attached hereto as Exhibit 2.2, and, unless otherwise specified, as amended from time to time in accordance with Section 2.2.

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2. CONDUCT OF THE PROJECT AND COMMERCIALIZATION EFFORTS

2.1 Conduct. Commencing promptly after the Effective Date, Neose and Novo will use Commercially Reasonable Efforts to carry out their respective obligations under the Work Plan.

2.2 Creation and Modification of Work Plan. Attached hereto as Exhibit 2.2 is the Work Plan, setting forth a project summary and timetable for the research and development, scale-up and technology transfer activities to be conducted under this Agreement. Neose shall be responsible for the development of validated, GMP processes for the production of Reagents for use in the manufacture of New Products and protocols for the use of the Reagents in the manufacture of New Products by Novo, all as set forth in Exhibit 2.2. The Work Plan may be amended or modified from time to time, but only in a writing signed by each Party’s Designated Representative and specifying the Parties’ estimate of any additional Neose Project-Related Costs that will be paid by Novo as a result of such amendment.

2.3 Funding

2.3.1 Estimate. The Neose Project-Related Costs are estimated to be *****, plus the cost of materials. This estimate is based upon the Work Plan set forth in Exhibit 2.2. If the Parties amend the Work Plan in a manner that requires any new product or service to be provided by Neose (e.g., a new Reagent, expression system, scale up activity) which is not currently incorporated in the Work Plan, the Parties shall agree in writing on any increase in the Neose Project-Related Costs that are authorized in connection with such amendment.

2.3.2 Payment. Novo will pay for the Neose Project-Related Costs quarterly in advance. No earlier than thirty (30) days before the beginning of each Calendar Quarter following the Effective Date, Neose will invoice Novo for such amount based on a budgeted estimate of Neose Project-Related Costs for such Calendar Quarter. Within thirty (30) days after the end of each Calendar Quarter following the Effective Date, Neose shall submit to Novo a written report setting forth the actual Neose Project-Related Costs for such Calendar Quarter, and shall, as applicable, pay to Novo any amounts paid by Novo for such Calendar Quarter in excess of the actual Neose Project-Related Costs shown in such report, or invoice Novo for any additional amounts owed hereunder. Novo will pay all invoices delivered under this Section 2.3 within ***** days after receipt.

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2.4 Management of Project

2.4.1 Project Managers. Within thirty (30) days after the Effective Date, each of the Parties shall appoint a Project Manager, who will be its primary contact regarding the Project. The Project Managers shall keep each other reasonably informed of the progress under the Work Plan and shall be responsible for maintaining appropriate records of the deliberations and decisions of the Project Managers and the Steering Committee. The Project Managers shall be responsible for overseeing and directing the day-to-day activities conducted at their respective sites in accordance with the Work Plan and suggesting changes for consideration by the Steering Committee. A Party may change its Project Manager at any time, and from time to time, effective upon notice to the other Party of such change.

2.4.2 Establishment and Responsibilities of Steering Committee. Promptly following the Effective Date, the Parties will establish a Steering Committee to monitor the progress of the Work Plan, to evaluate and recommend to the Parties any proposed amendments or modifications to the Work Plan and the costs thereof, to approve and monitor compliance with any publication policy provided to it by Novo, and to carry out all other obligations assigned to it under this Agreement or by the Parties. Each Party may designate a co-chairperson and secretary of the Steering Committee.

2.4.3 Action by Steering Committee and Dispute Resolution. The Steering Committee shall consist of such number of members and alternate members as the Parties may determine from time to time. Each Party shall appoint fifty percent (50%) of the permanent and alternate members of the Steering Committee. The members of the Steering Committee shall include members of senior management of each Party. The members of the Steering Committee representing a Party and present at a meeting shall have one vote, collectively. If the Steering Committee cannot reach agreement on any matter, ***** shall be entitled to *****; provided, however, that if the Steering Committee cannot reach agreement on any matter involving a change in the scope of work to be conducted by ***** under the Work Plan, the schedule of the work to be conducted by ***** under the Work Plan, or the *****, such dispute shall resolved in accordance with Section 13.

2.4.4 Changes to Steering Committee. Each Party may remove and replace its representatives on the Steering Committee at any time, without cause, upon written notice to the other Party. An alternate member designated by a Party shall be entitled to participate in the absence of a permanent member designated by such Party. All references to “members” in this Agreement refer to the then permanent members of the Steering Committee and any alternate member acting in the place of a permanent member.

2.4.5 Meetings. Regular meetings of the Steering Committee shall be scheduled by the Project Managers or the secretary of the Steering Committee designated by either Party. Special meetings of the Steering Committee may be called by the Project Managers or by any two or more members, at least one of whom represents each Party. Meetings may be in person or by teleconference or videoconference, and notice of meetings may be by email. Each Party will bear its own costs in connection with the management of the Project and the Steering Committee.

2.4.6 No Waiver. No action, nor any failure to act, by the Steering Committee shall alter, amend, waive or otherwise affect the obligations of the Parties under this Agreement. The Parties may amend this Agreement only in accordance with Section 15.6, and a Party may waive any of its rights under this Agreement only in accordance with Section 15.9.

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2.5 Cooperation. Throughout the Project, each Party shall cooperate with the other in the conduct of the Work Plan, and will provide such information in its possession or under its Control to the other Party as is reasonably necessary for the other Party to comply with and satisfy the requirements of any and all international, national, state, local or other laws, treaties, rules, procedures or regulations for purposes of this Agreement, or to carry out its obligations under this Agreement.

2.6 Permits. Prior to the commencement of any clinical trials, Commercial Sales or other use of any New Product in a Regulated Market, Novo shall obtain at its expense all Permits required for such activity in the applicable jurisdictions. Novo shall submit all applications for Permits for the New Products in the name of Novo or its Affiliates. Novo shall hold all such Permits, if and when granted, in its name alone. Neose, at Novo’s expense, shall provide reasonable assistance and technical support to Novo in obtaining the Permits for the New Products. Novo shall pay all expenses with respect to obtaining the Permits for the New Products including, without limitation, the cost of clinical trials and preparation and prosecution of permit applications. Novo shall be solely responsible for renewing any Permits at its expense. Neose shall supply Novo, at Novo’s expense, with Reagents for producing New Products under the terms and conditions of the Supply Agreement.

2.7 Additional Development and Commercialization Activities. Except as set forth in the Work Plan or the Supply Agreement, Neose shall not have any obligation to perform any further research, development, technology transfer, technical support, improvements, modifications, or other activities. Novo shall use Commercially Reasonable Efforts to obtain Regulatory Approvals for, and Commercial Sales of, each New Product.

3. FEES AND DEVELOPMENT PAYMENTS

3.1 License Fee. In consideration of the licenses granted by Neose under this Agreement and the ***** Agreement, Novo shall pay Neose a one-time, nonrefundable upfront fee of ***** within ten (10) days after the Effective Date.

3.2 Milestone Payments Relating to Development of the New Product. In consideration of the development efforts of Neose under the Work Plan, Novo shall pay Neose the amount of each milestone payment set forth in this Section 3.2 upon the occurrence of the earlier to occur of the respective milestone event with respect to the development of the New Product or the corresponding anniversary date specified below. The Parties agree that Neose shall have earned the right to receive a milestone payment, and Novo shall be obligated to pay the milestone payment and shall have met its diligence obligations with respect to the milestone, in each case, as a result of either (i) the achievement of the milestone event prior to the occurrence of the corresponding anniversary date or (ii) the occurrence, alone, of the corresponding anniversary date.

3.2.1 ***** upon the ***** to occur of: (i) the first date on which there shall be a candidate which has been shown to meet the *****, and Neose shall have delivered to Novo ***** for the production of such candidate; and (ii) the ***** anniversary of the Effective Date.

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3.2.2 ***** upon the earlier to occur of ***** of ***** with respect to the New Product or the ***** anniversary of the achievement of the milestone described in Section 3.2.1 above.

3.2.3 ***** upon the earlier of ***** of the ***** of the New Product ***** or the ***** anniversary of the achievement of the milestone described in Section 3.2.2 above.

3.2.4 ***** upon the earlier to occur of ***** of the ***** of the New Product or the ***** anniversary of the achievement of the milestone described in Section 3.2.3 above.

3.2.5 ***** upon the earlier to occur of the first ***** for the New Product or the ***** anniversary of the achievement of the milestone described in Section 3.2.4 above.

3.2.6 ***** upon the ***** of the New Product in *****.

3.2.7 ***** upon the ***** of the New Product in *****.

3.3 Restriction on Multiple Milestone Payments. The Parties acknowledge and agree that at anytime prior to the ***** for the New Product, the Steering Committee may decide to continue the development of the New Product solely with a back-up candidate if a candidate initially taken into development should fail for ***** reasons, including, but not limited to, *****, or the occurrence of *****. In the event that the Steering Committee makes such a decision, this Agreement shall be amended to reflect, among other things, the resulting changes to the Work Plan and the Neose Project-Related Costs mutually agreed upon by the Parties. In such event, Novo ***** be required to pay ***** each of the milestone payments set forth in Sections ***** through *****.

3.4 Coordination with ***** Agreement. The Parties agree that it may be appropriate to adjust one or more of the anniversary dates set forth in Sections ***** through ***** as a result of ***** limitations (e.g., *****) that may be encountered by Novo if the New Product and either or both of the products being developed under the ***** Agreement are scheduled to pass through the same ***** at the same time. Novo may request such an adjustment at any time, and from time to time, by providing notice of the proposed adjustment to Neose. Promptly after receipt of such a notice, the Steering Committee shall meet to evaluate the request. Within thirty (30) days after Novo provides such notice, the Steering Committee shall provide a written recommendation to both Parties with respect to such request. Within fifteen (15) days after receipt of any such recommendation, the Steering Committee shall meet to discuss the recommendation and, if mutually agreeable, to negotiate and propose to the Parties the terms of amendment(s) to the Work Plan and this Agreement which would permit Novo to continue developing the New Product and the ***** in a practical and efficient manner, with the goal of minimizing the aggregate time to market for the New Product and the *****.

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4. PRODUCT PAYMENTS AND ROYALTIES

4.1 Royalties on Net Sales. Novo will pay to Neose royalties as a percentage of annual Net Sales of each New Product during the Term at the applicable rates set forth in this Section 4.1 and in accordance with this Section 4:

4.1.1 ***** of annual Net Sales of the New Product up to *****.

4.1.2 ***** of annual Net Sales of the New Product over *****.

4.2 Minimum Royalties. Commencing with the first ***** of the ***** full Calendar Year following the First Commercial Sale of New Product, Novo will pay minimum royalties in respect of the New Product for such Calendar Year and ***** during the Term, in the amounts set forth in this Section 4.2 and in accordance with this Section 4:

4.2.1 For the ***** Calendar Year following the First Commercial Sale of the New Product: *****.

4.2.2 For the ***** Calendar Year following the First Commercial Sale of the New Product: *****.

4.2.3 For the ***** Calendar Year following the First Commercial Sale of the New Product and ***** thereafter: *****.

All minimum royalty payments made in accordance with this Section 4.2 shall be ***** against royalties payable under Section ***** in respect of the New Product in the same or any subsequent Calendar Quarter during the same Calendar Year.

4.3 Competitive Product(s). If a Competitive Product (as defined below in this Section 4.3) reaches a ***** equal to or greater than ***** of the ***** for a New Product marketed by Novo, then the royalties otherwise payable in accordance with Section 4.1, and the minimum royalties otherwise payable in accordance with Section 4.2, with respect to the New Product shall be reduced by the applicable percentage set forth below:

***** of Competitive Product	Reduction of Royalty Rate Otherwise Payable
More than *****
More than *****
More than *****
More than *****

For purposes of this Section 4.3, “Competitive Product” means any product marketed by a Third Party that is not a Sublicensee of Novo, which product is a ***** with a ***** substantially equivalent to or better than the ***** of the New Product marketed by Novo.

4.4 Royalty Payments. Novo shall make royalty payments to Neose on a quarterly basis, within forty-five (45) days after the end of each Calendar Quarter. Royalty payments due under Section 4.1 shall commence, with respect to each New Product in each country, on the date of first Commercial Sale in such country.

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4.5 Currency Conversion. If any currency conversion from a foreign currency into United States Dollars shall be required in connection with the calculation of Net Sales, such conversion shall be made using the average exchange rate for the applicable Calendar Quarter, as reported by the Wall Street Journal.

4.6 Payment Reports. Within forty-five (45) days after the close of each Calendar Quarter, Novo shall furnish to Neose a written report showing in reasonably specific detail, on a country-by-country basis for each New Product:

4.6.1 All Net Sales of the New Product during such quarter expressed in United States Dollars.

4.6.2 The exchange rates used in determining Net Sales of the New Product in United States Dollars in accordance with Section 4.5.

4.6.3 Royalties payable in United States Dollars based upon such Net Sales of the New Product during such quarter.

4.7 Payment Method. Novo shall make all payments under this Agreement in United States Dollars by bank wire transfer in immediately available funds to Hudson United Bank, ABA # *****, Acct Name: Neose Technologies, Inc., Acct # *****, or to such other account as Neose shall designate to Novo in writing before such payment is due.

4.8 Records; Audits. Novo shall, and shall cause its Affiliates and Sublicensees, if any, to keep complete, true, and accurate books of account and records in connection with the production and Commercial Sales of New Products in sufficient detail to permit accurate determination of all figures necessary for verification of payments required to be made by Novo under this Agreement. Novo shall, and shall cause its Affiliates and Sublicensees, if any, to, maintain such records for at least ***** years following the end of the quarter to which such books and records pertain. Neose shall have the right, at its expense, through a certified public accounting firm reasonably acceptable to Novo, to examine the records required to be maintained by Novo, its Affiliates and Sublicensees under this Section 4.8 upon reasonable notice and during regular business hours prior to the termination or expiration of this Agreement and for ***** years thereafter for the purpose of verifying the reports delivered pursuant to Section 4.6 provided that such examination shall not take place more often than once a year. Novo may require such certified public accounting firm to sign a confidential disclosure agreement prior to permitting such certified public accounting firm to have access to its books, records or facilities. Such accounting firm shall report to Neose only whether or not the reports submitted by Novo are accurate for the period covered and the details concerning any identified discrepancies. If any such audit uncovers an underpayment, Novo shall promptly pay to Neose the amount of such underpayment. If any such underpayment exceeds five percent (5%) of the amount due, Novo shall pay the entire expense of such audit within twenty (20) days after invoice.

4.9 Taxes. Novo may deduct the amount of any taxes imposed on Neose which are required to be withheld or collected by Novo or its Sublicensees under the laws of any country from amounts owing to Neose hereunder to the extent Novo, its Affiliates or Sublicensees pay such withholding taxes to the appropriate governmental authority on behalf of Neose and promptly deliver to Neose a receipt or other proof of payment of such taxes.

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5. INTELLECTUAL PROPERTY GRANTS AND RIGHT OF NEGOTIATION

5.1 Neose Technology. Subject to the terms and conditions of this Agreement, Neose hereby grants, and agrees to grant, to Novo, as of the Effective Date, the following rights and licenses:

5.1.1 Exclusive License. As of the Effective Date, Neose hereby grants, and agrees to grant, to Novo an exclusive (even as to Neose), royalty-bearing license under the Neose Technology in the Field of Use during the Term, (i) to conduct research, sample, develop (including clinical development), manufacture, make, use, market, promote, sell, offer for sale, have sold, distribute, import and export New Products in the Territory, and (ii) to use the Reagents in the Territory solely for the purpose of making New Products. Such license does not permit Novo (x) to practice or use the Neose Technology outside the Field of Use or (y) to sublicense any of its rights without the prior written approval of Neose, except as provided in Section 5.1.2.

5.1.2 Limited Sublicense Rights. Novo shall be entitled to grant full sublicenses to its Affiliates and limited sublicenses to its distribution, marketing and/or sales partners, in each case, in compliance with the provisions of this Section 5.1.2 and Section 5.1.3. In any sublicense granted under this Section 5.1.2 to a Third Party that is not an Affiliate of Novo, Novo may grant the Sublicensee only the following rights: to market, promote, sell, offer for sale, have sold, distribute, import and export New Products for Novo. Novo shall not be entitled to disclose any Confidential Information of Neose to a non-Affiliate Sublicensee under a sublicense permitted to be granted under this Section 5.1.2. Novo shall include in each sublicense granted under this Section 5.1.2 all of the terms and conditions necessary to ensure Novo’s compliance with this Agreement, and the provisions of Section 5.1.4 shall apply to each sublicense granted under this Section 5.1.2.

5.1.3 Required Agreement for Certain Proposed Sublicensees. Prior to entering into discussions with any proposed sublicensee, Novo shall identify the proposed sublicensee to Neose. If the proposed sublicensee is not an Affiliate of Novo, Novo shall obtain the approval of Neose prior to entering into such discussions and shall obtain the proposed sublicensee’s execution and delivery to Neose of a non-disclosure and non-use agreement substantially in the form attached hereto as Exhibit 5.1.3. If the proposed sublicensee is an Affiliate of Novo, Novo may enter into the proposed sublicense without obtaining the approval of Neose if: (i) the sublicense between Novo and the Sublicensee/Affiliate provides that Neose is a third-party beneficiary of the Sublicense, and (ii) Neose receives an original fully executed copy of the sublicense between Novo and the Sublicensee/Affiliate within five (5) business days after its execution.

5.1.4 Liability. Novo shall remain primarily liable to Neose for the performance by each Affiliate and Sublicensee in accordance with the terms and conditions of this Agreement, and each sublicense shall terminate upon the termination of this Agreement or any breach by the Sublicensee of the Required Agreement between Neose and the Sublicensee, if any.

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5.1.5 Reservation of Rights. Neose hereby reserves to itself all right, title and interest in and to the Neose Technology not expressly granted in Section 5.1. Without limiting the foregoing, in no event shall this Agreement be construed to prohibit Neose from engaging in any of the following activities: (a) practicing the processes, methods and Know-How of the Neose Technology outside of the Field of Use, including, without limitation, with proteins that may be considered competitive with any of the New Products, subject, however, to Novo’s rights with respect to Product-Candidates under Section 5.3; (b) developing, making, using or selling proteins or Reagents, whether in conjunction with the Neose Technology or otherwise, outside of the Field of Use; or (c) entering into and performing agreements with Third Parties regarding any of the foregoing including, without limitation, research agreements, development agreements and licensing agreements.

5.2 Novo Technology. Subject to the terms and conditions of this Agreement, and solely to the extent necessary to enable Neose to carry out its obligations under the Work Plan, Novo hereby grants to Neose, for the term of the Work Plan, a non-exclusive, royalty-free, license under the Novo Technology to use such Novo Technology for the sole purpose of carrying out its obligations under the Work Plan. Novo shall retain at all times all of its rights, title and interest to the Novo Technology.

5.3 Option and Right of First Negotiation

5.3.1 Option. Neose hereby grants to Novo an option to negotiate a worldwide license under the Neose Technology to conduct research, sample, develop (including clinical development), manufacture, make, use, market, promote, sell, offer for sale, have sold, distribute, import and export each and every Product-Candidate. The option granted under this Section 5.3.1 shall be exercisable by Novo, from time to time during the Term with respect to each Product-Candidate, within fifteen (15) days after Novo receives notice of the Product-Candidate from Neose.

5.3.2 Negotiations. If Novo duly exercises its option under Section 5.3.1 with respect to a Product-Candidate, the Parties shall enter into negotiations to consummate an agreement, which would grant to Novo the license described in Section 5.3.1 with respect to such Product-Candidate, upon commercially reasonable terms, to be negotiated promptly, diligently and in good faith by the Parties. If the Parties shall not have entered into such a license within forty-five (45) days after Novo’s exercise of its option with respect to such Product-Candidate, Neose shall be free to proceed with the development and/or commercialization of the Product-Candidate, whether alone or with a Third Party or Third Parties, without any further obligation to Novo with respect to such Product-Candidate, except as provided in Section 5.3.3.

5.3.3 Right of First Negotiation. During the Term, Neose shall not enter into an agreement with a Third Party relating to the use of the Neose Technology for the further development and commercialization of a Product-Candidate without first allowing Novo to enter into an agreement with respect to such Product-Candidate upon substantially the same terms. If Neose shall not have already offered (and Novo shall not have already refused) substantially the same terms to Novo under Section 5.3.2, Neose shall provide notice to Novo of the proposed terms and conditions of any such agreement, and Novo may exercise its right of first refusal under this Section 5.3.3 by notice to Neose within fifteen (15) days after receiving the proposed terms and conditions from Neose. If Novo does not exercise its right of first refusal

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with respect to the terms proposed by Neose, or exercises its right of first refusal but does not enter into an agreement with Neose upon substantially the proposed terms within thirty (30) days after receipt thereof, Neose shall be free to proceed with the further development and/or commercialization of such Product-Candidate with a Third Party or Third Parties, upon terms no more favorable to the Third Party or Third Parties than those offered to Novo, without any further obligation to Novo with respect to such Product-Candidate.

5.4 No Other Right or Licenses. Except for the rights and licenses expressly granted in this Agreement, nothing in this Agreement shall be deemed to grant to any Party any other rights or licenses, including, without limitation, any implied licenses.

6. OWNERSHIP OF INTELLECTUAL PROPERTY

6.1 No Transfer of Title. All Ownership Rights in and to the Neose Technology and the Reagents shall remain at all times with Neose. All Ownership Rights in the Novo Materials, any New Product, and the Novo Technology shall remain at all times with Novo, subject to Novo’s obligation to assign certain Ownership Rights to Neose under Section 6.3.

6.2 Improvements

6.2.1 Neose Improvements. Any and all Neose Improvements shall be owned by Neose and shall be deemed to be part of the Neose Technology for all purposes, including, without limitation, the license granted in Section 5.1. Except as provided in Section 6.4, any and all Improvements made, conceived, or reduced to practice solely by Neose shall be owned solely by Neose.

6.2.2 Novo Improvements. Except as otherwise provided in Section 6.3, any and all Novo Improvements shall be owned by Novo for all purposes. Except as set forth in Section 6.3, any and all Improvements made, conceived, or reduced to practice, solely by Novo shall be owned solely by Novo.

6.2.3 Joint Improvements. Each of Neose and Novo shall own a one-half undivided interest in any and all Joint Improvements. Neither Party shall be permitted to license or sublicense its one-half undivided interest in any Joint Improvement(s) to a Third Party that is not an Affiliate of Novo for use in connection with any blood *****, except with the prior written approval of the other Party.

6.2.4 Other Improvements. If any Improvements, other than Neose Improvements, Novo Improvements and Joint Improvements, are made, conceived or reduced to practice jointly by Neose and Novo under this Agreement, each Party shall own a one-half undivided interest in and to any and all such Improvements and the Parties shall not have any restriction with respect to the use thereof or any requirement to report or account to the other Party with respect to any such use, unless and except to the extent that the Parties may agree otherwise in writing.

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6.3 Assignment by Novo.

6.3.1 Neose Improvements. To the extent that Novo may retain any Ownership Rights in any Neose Improvements during the Term, Novo hereby irrevocably assigns and transfers, and agrees to assign and transfer, to Neose any and all such Ownership Rights, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Neose shall be entitled to receive and hold in its own name all such Ownership Rights, subject to Neose’s obligations to assign certain rights to Novo under Section 6.4.

6.3.2 Joint Improvements. If and when Novo terminates the development of New Product during the Term, Novo hereby irrevocably assigns and transfers, and agrees to assign and transfer to Neose, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Neose shall be entitled to receive and hold in its own name all Ownership Rights in and to the Joint Improvements. With respect to any Ownership Rights and licenses that Novo is required to assign and transfer to Neose under this Section 6.3.2, at the request of Neose, and at Neose’s expense, either before or after termination of the Term, Novo shall assist Neose in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming Neose’s title in and to, any such respective Ownership Rights, and Novo shall provide Neose appropriate documentation evidencing the licenses to which Neose is entitled. Novo’s assistance shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights, providing executed license documents, cooperating in legal proceedings, and taking any other actions considered necessary or desirable by Neose. For the purpose of facilitating the above assignments, Novo agrees that any and all employees and contractors employed or engaged by Novo and providing any service in connection with the Project, prior to providing such service, shall have agreed in writing to covenants consistent with Novo’s covenants set forth in this Section 6.3.

6.4 Assignment by Neose. To the extent that Neose may retain any Ownership Rights in any Novo Improvements during the Term, Neose hereby irrevocably assigns and transfers, and agrees to assign and transfer, to Novo any and all such Ownership Rights, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Novo shall be entitled to receive and hold in its own name all such Ownership Rights, subject to Novo’s obligations to assign or license certain rights to Neose under Section 6.3. With respect to any Ownership Rights that Neose is required to assign and transfer to Novo under this Section 6.4, at the request of Novo, and at Novo’s expense, either before or after the Term, Neose shall assist Novo in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming Novo’s title in and to, any such respective Ownership Rights. Neose’s assistance shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights, cooperating in legal proceedings, and taking any other actions considered necessary or desirable by Novo. For the purpose of facilitating the above assignments, Neose agrees that any and all employees and contractors employed or engaged by Neose and providing any service in connection with the Project, prior to providing such service, shall have agreed in writing to covenants consistent with Neose’s covenants set forth in this Section 6.4.

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6.5 Prosecution and Maintenance of Patent Rights

6.5.1 Solely Owned Patent Rights. Each Party shall, in its sole discretion, prepare, file, prosecute and maintain all patent applications and patents covering its Patent Rights and Improvements that the Party owns pursuant to Section 6. Neose shall use reasonable commercial efforts to provide to Novo for review and comment, at least ten (10) days prior to filing, all patent claims relating specifically to the New Product to be filed by Neose, and Neose shall give due consideration to all comments thereon that are made by Novo within the period ending two days before the proposed filing date.

6.5.2 Patent Rights with Respect to Joint Improvements. With respect to Joint Improvements, the Parties shall meet to determine whether patent protection is appropriate and, if so, in which countries, if any, patent applications claiming such joint inventions and discoveries should be filed. Novo shall file, prosecute, and maintain, at its expense, such joint patent applications. Novo may at any time, in its sole discretion, discontinue the preparation, prosecution or maintenance of such joint patent applications, in which case Novo will give Neose sufficient notice to enable Neose to, and Neose may, file, prosecute and maintain such applications.

6.6 Enforcement of Ownership Rights

6.6.1 Reports of Infringement. Novo shall promptly report in writing to Neose during the Term any infringement or misappropriation or suspected infringement or misappropriation of any Neose Technology of which Novo becomes aware and shall provide Neose with its full cooperation in the protection and enforcement of the Neose Technology and all available evidence supporting said infringement, misappropriation, suspected infringement or unauthorized use or misappropriation. Neose shall reimburse Novo for its reasonable, documented costs of such cooperation, unless such infringement or misappropriation is by an Affiliate or Sublicensee of Novo.

6.6.2 Right to Institute Suit. Neose shall have the sole right to initiate an infringement or other appropriate suit against any Third Party who at any time has infringed or is suspected of infringing or misappropriating, the Neose Technology. Prior to initiating any such suit, the Designated Representatives shall consult with each other on an expedited basis, and Neose shall give due consideration to any reasonable requests Novo may make relating to the advisability of bringing the suit. Neose shall not enter into any settlement, consent judgment or other voluntary final disposition of such suit that would adversely affect Novo’s rights under this Agreement without Novo’s prior written consent, which consent shall not be unreasonably withheld. In the event that Neose recovers any sums in such suit by way of damages or in settlement thereof, Neose shall be entitled to retain the same.

6.6.3 Continued Infringement. If Neose fails to either bring suit against or enter into negotiations for settlement with such Third Party within six (6) months after receipt of notice of such infringement and Novo is of the opinion that the alleged infringement or misappropriation of Neose Technology is occurring in the Field of Use then, upon Novo’s written request, the Parties shall seek the opinion of patent counsel acceptable to both Parties as to whether there has been or continues to be a misappropriation or infringement of the Neose Technology in the Field of Use by such Third Party. If such patent counsel concurs with Novo’s opinion, Novo shall have the right, but not the obligation, to bring suit against such Third Party under the Neose Technology and to join Neose as a party plaintiff. Neose will cooperate with

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Novo in any such suit brought against a Third Party and shall have the right to consult with Novo and to participate in and be represented by counsel in such suit at its own expense. In the event that Novo recovers any sums in such suit by way of damages or in settlement thereof, such sums shall be used first to reimburse each of Novo and Neose for their documented, out-of-pocket legal expenses, with Novo retaining any remaining amounts.

6.7 Novo Trademarks. Subject to its assignment obligations under Section 6.3.2, Novo shall select and own the trademarks for marketing the New Products in the Territory. All expenses for (i) registration of such trademarks, and (ii) bringing, maintaining and prosecuting any action to protect or defend such trademarks, shall be borne by Novo, and Novo shall retain all recoveries therefrom.

7. BLOCKING PATENTS

7.1 Mutual Information. Each Party shall immediately notify the other if a claim or other proceedings are brought against either Party alleging that the use of the Neose Technology in making, using or selling the New Product infringes upon the Patent Rights of a Third Party.

7.2 Defense of Third Party Action. If claims or proceedings are brought against Novo by a Third Party alleging that the use of the Neose Technology to produce a New Product infringes upon the Patent Rights of a Third Party, the Designated Representatives shall consult on an expedited basis, and Neose shall give due consideration to any reasonable request of Novo relating to the proposed defense or settlement of such claims or proceedings. Subject to Section 7.4, the final decision whether or not and, as the case may be, how to defend or settle such claims or proceedings shall be with Neose. Neose shall immediately notify Novo of such decision sufficiently in advance of any deadlines by which formal responses are due in any such proceedings to enable Novo to undertake its own defense and Novo shall have the right to join any such proceedings as a party thereto at its own expense by counsel of its own choice. Each Party shall provide the other with such assistance as is reasonably necessary and shall cooperate in the defense of any such action or proceeding. Neose shall not enter into any settlement, consent judgment, or other voluntary final disposition of such suit that would adversely affect Novo’s rights under this Agreement or which would result in Novo being liable for damages, without Novo’s prior written consent, which consent shall not be unreasonably withheld.

7.3 Declaratory Judgment Action. Neose shall have the right, but not the obligation, to file any declaratory judgment action in any court of competent jurisdiction as to questions of validity or infringement of any Third Party patent relating to the use of the Neose Technology.

7.3.1 Cooperation. The Parties shall closely cooperate in any such declaratory judgment action. In conducting such action, the Parties shall render each other all reasonable assistance, free of charge. The final strategy in such action shall be determined by Neose and Neose’s legal counsel in coordination with Novo and any additional legal counsel of Novo.

7.3.2 Costs. Subject to Article 11 hereof, each Party shall bear its own costs and expenses incurred in connection with actions pursuant to Sections 7.2 and 7.3.

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7.4 Third-Party Licenses

7.4.1 Novo Third-Party Licenses. In the event that Novo is of the opinion, at any time during the Term, that a license under any Blocking Patent is necessary or advisable for purposes of enabling Novo to exercise its license rights under Section 5.1.1, it shall notify Neose. The Parties shall then seek an opinion of patent counsel acceptable to both Parties. If such patent counsel concurs with Novo’s opinion, Novo and Neose shall co-operate to obtain such a license for the benefit of Novo and, as the case may be, also for Neose, in accordance with the following provisions:

7.4.1.1 Neose shall be primarily responsible for obtaining any such Third Party license at its own expense. The matter shall be deemed resolved if Neose is granted a license, *****, under the relevant Blocking Patent that would make the continued exercise of the rights granted to Novo by Neose hereunder non-infringing with respect to *****. ***** shall be solely responsible for *****.

7.4.1.2 However, in the event that Neose is unable to resolve the matter in accordance with Section 7.4.1.1 within one hundred twenty (120) days from receipt of notice from Novo upon terms that are commercially reasonable to Neose at Neose’s discretion, then Novo shall be entitled to negotiate a license in favor of Novo under such Blocking Patents; provided that to the extent that Novo must ***** under such license, Novo may ***** against any payments owed under Sections 4.1 or 4.2, provided that no payment owed under Section 4.1 or 4.2 shall be ***** more than ***** as a result of the operation of this Section 7.4.1.2.

7.4.1.3 In relation to the negotiation and contracting of any such Blocking Patent license, the provisions of this Section 7.4 shall prevail over the provisions of Sections 7.2 and 7.3.

8. SUPPLY AGREEMENT

No later than ninety (90) days after Novo accepts the first batch of Reagents, the Parties will execute and deliver the Supply Agreement under which Neose will be a supplier to Novo of the Reagents needed to produce New Products in the Field of Use. Pricing for Reagents will be based on Neose’s *****. The Parties acknowledge and agree that Novo plans to have two production sites for the supply of Reagents and that the costs of technology transfer to Novo or any approved Sublicensee will be borne by Novo.

9. CONFIDENTIALITY

9.1 Confidential Information. With respect to any and all Confidential Information received by one Party under this Agreement and/or during the course of the Project, (the “Recipient”) from the other Party (the “Disclosing Party”) at any time and from time to time prior to the Effective Date or during the Term, the Recipient for a period of five (5) years from the expiration or earlier termination of this Agreement: (a) shall maintain the secrecy of, and hold in strict confidence, the Confidential Information received hereunder; (b) shall not use such Confidential Information for any other purpose other than in furtherance of this Agreement; and (c) shall not, without express written authorization from the Disclosing Party, use, disclose

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or grant the use of such Confidential Information to any other Persons except to those of the Recipient’s directors, officers, employees, and advisors to whom such disclosure is reasonably necessary in furtherance of this Agreement and each of whom is otherwise bound to Recipient by contract or legal or fiduciary obligation at the time of such disclosure to maintain the secrecy of, and hold in confidence, such Confidential Information. The Recipient shall notify the Disclosing Party promptly upon discovery of any unauthorized use or disclosure of the Disclosing Party’s Confidential Information.

9.2 Permitted Disclosures. The obligations set forth in Section 9.1 shall not apply to the extent that the Recipient: (a) is required to disclose information by law, order or regulation of a governmental agency or a court of competent jurisdiction, provided that the Recipient shall provide written notice thereof and sufficient opportunity to the Disclosing Party to object to any such disclosure or to request confidential treatment thereof; or (b) can demonstrate that: (i) the information was public knowledge or generally known by publication in scientific or other journals or other public media at the time of such disclosure to the Recipient or thereafter became public knowledge or generally known other than as a result of acts directly or indirectly attributable to the Recipient in violation hereof; (ii) the information was rightfully known by the Recipient (as shown by its written records) prior to the date of disclosure to the Recipient by the Disclosing Party under this Agreement; (iii) the information was disclosed to the Recipient on an unrestricted basis by a Third Party not under a duty of confidentiality to the Disclosing Party, or (iv) the information was independently developed by Recipient (as shown by its written records) without any use of or access to information of the Disclosing Party. In addition, provided that Neose maintains the confidentiality of Novo’s name, with the prior approval of Novo, which approval will not be unreasonably withheld, Neose will have the right to use data about Novo Materials and New Product (i) to support a patent application by Neose, and (ii) for promotional purposes, subject to compliance with any publication plan for the development of the New Product that shall have been approved by the Steering Committee.

9.3 Enforcement. Both Parties agree that it would be impossible or inadequate to measure and calculate the other Party’s damages from any breach of the covenants set forth in this Agreement. Accordingly, the Disclosing Party agrees that if the Recipient breaches any of such covenants, the Disclosing Party will have available, in addition to any other right or remedy available, the right to obtain an injunction from a court of competent jurisdiction restraining such breach or threatened breach and to specific performance of any such provision of this Agreement. Both Parties further agrees that no bond or other security shall be required in obtaining such equitable relief and each Party hereby consents to the issuance of such injunction and to the ordering of specific performance.

9.4 Publicity. Except as required by law, all publicity, press releases and other announcements relating to this Agreement or the transactions contemplated hereby, shall be reviewed in advance by, and shall be subject to the reasonable approval of, both Parties. Attached hereto as Exhibit 9.4 is an approved form of a press release to be issued by Neose upon the execution and delivery of this Agreement.

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10. REPRESENTATIONS AND WARRANTIES

10.1 Mutual Representations and Warranties. Each Party hereby represents and warrants to the other that:

10.1.1 The execution, delivery and performance of this Agreement by it have been duly authorized by all requisite corporate action, and this Agreement has been duly executed and delivered by and on behalf of such Party.

10.1.2 The execution, delivery and performance by such Party of this Agreement does not (i) conflict with or violate any applicable statute, law, rule or regulation, (ii) conflict with or violate its charter, bylaws or other organizational document, or (iii) conflict with or constitute a default under any contract or agreement of such Party.

10.2 Representations and Warranties of Neose. Neose warrants to Novo, as of the Effective Date, that:

10.2.1 It is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, with the power and authority to sign, deliver and perform all of its obligations under this Agreement.

10.2.2 It is the sole and exclusive owner of the Neose Patents, or otherwise Controls the Neose Patents, and has the full corporate power and authority to grant the licenses granted hereunder.

10.2.3 To Neose’s knowledge, the use of the Neose Technology pursuant to the terms of this Agreement does not infringe upon the rights of any Third Party.

10.2.4 To Neose’s knowledge, there is no Blocking Patent that, if asserted by Third Parties, would prevent Novo from using the Neose Technology to make New Products hereunder.

10.2.5 To Neose’s knowledge, no claims or proceedings have been brought by Third Parties alleging the invalidity in whole or in part of any of the Neose Patents.

10.3 Representations and Warranties of Novo. Novo warrants to Neose, as of the Effective Date, that:

10.3.1 Novo Nordisk A/S is a corporation duly incorporated, validly existing and in good standing under the laws of the Kingdom of Denmark, with the power and authority to sign, deliver and perform all of its obligations under this Agreement.

10.3.2 Novo Nordisk Health Care AG is a corporation duly incorporated, validly existing and in good standing under the laws of Switzerland, with the power and authority to sign, deliver and perform all of its obligations under this Agreement.

10.3.3 It is the sole and exclusive owner of the Novo Technology, and has the full corporate power and authority to grant the licenses granted hereunder.

10.3.4 To Novo’s knowledge, the use of the Novo Technology pursuant to the terms of this Agreement does not infringe upon the rights of any Third Party.

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10.3.5 To Novo’s knowledge, there is no Blocking Patent that, if asserted by Third Parties, would prevent Neose from using the Novo Technology to perform its activities under the Work Plan.

10.3.6 To Novo’s knowledge, no claims or proceedings have been brought by Third Parties alleging the invalidity in whole or in part of any of the Novo Technology.

10.4 Disclaimer of Warranties. EXCEPT FOR THE WARRANTIES SET FORTH IN SECTION 11.3, EACH PARTY HEREBY DISCLAIMS ANY AND ALL OTHER REPRESENTATIONS AND WARRANTIES, EXPRESS OR IMPLIED, INCLUDING WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE OR NON-INFRINGEMENT.

10.5 Acknowledgment by Novo. Novo acknowledges and hereby agrees that Neose makes no representations or warranties as to the outcome of the Project, including without limitation whether the application of the Neose Technology will improve any of the Novo Materials.

11. INDEMNIFICATIONS AND LIMITED LIABILITY

11.1 Indemnification by Neose. Neose shall indemnify, defend and hold harmless Novo and its Affiliates, and each of their respective employees, officers, directors and agents (each, a “Novo Indemnified Party”) from and against any and all claims, suits, losses, obligations, damages, deficiencies, costs, penalties, liabilities (including strict liabilities), assessments, judgments, amounts paid in settlement, fines, and expenses (including court costs and reasonable fees of attorneys and other professionals) (individually and collectively, “Losses”) resulting from or arising in connection with (i) the breach by Neose of any of its representations or warranties contained in Section 10, (ii) any claim by a Third Party alleging that the use of the Neose Technology infringes upon the Patent Rights of such Third Party, and (iii) any activities of Neose under this Agreement. Notwithstanding the foregoing, Neose shall have no obligation to indemnify, defend or hold harmless a Novo Indemnified Party for any Losses to the extent that such Losses were caused by (x) the negligence or willful misconduct of any of the Novo Indemnified Parties, or (y) a breach by Novo of any of its representations and warranties set forth in Section 10.

11.2 Indemnification by Novo. Novo shall indemnify, defend and hold harmless Neose and its Affiliates, and each of their respective employees, officers, directors and agents (each, a “Neose Indemnified Party”) from and against any and all Losses resulting from or arising in connection with (i) the breach by Novo of any of its representations and warranties set forth in Section 10, (ii) the failure of any Affiliate to comply with any obligation of Novo applicable to the Affiliate under this Agreement, (iii) the failure of any Sublicensee to comply with any obligation under a sublicense granted by Novo hereunder, (iv) the promotion, distribution, use, testing, marketing, sale, or other disposition of any New Product, (v) any claim by a Third Party alleging that the use of the Novo Technology or the manufacture, sale or use of New Products infringes upon the Patent Rights of such Third Party, except to the extent such claims arise solely as a result of the use of Neose Technology, and (vi) any activities of Novo

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under this Agreement. Notwithstanding the foregoing, Novo shall have no obligation to indemnify, defend or hold harmless a Neose Indemnified Party for any Losses to the extent that such Losses were caused by (x) the negligence or willful misconduct of Neose, its Affiliates, sublicensees, or any of their respective employees, officers, directors, or agents, or (y) a breach by Neose of any of its representations and warranties set forth in Section 10.

11.3 Indemnification Procedure. Each Party shall provide prompt written notice to the other of any actual or threatened Loss or claim therefor of which the other becomes aware; provided that the failure to provide prompt written notice shall only be a bar to recovering Losses to the extent that a Party was prejudiced by such failure. In the event of any such actual or threatened Loss or claim therefor, each Party shall provide the other information and assistance as the other shall reasonably request for purposes of defense and each Party shall receive from the other all necessary and reasonable cooperation in such defense including, but not limited to, the services of employees of the other Party who are familiar with the transactions or occurrences out of which any such Loss may have arisen. Each Party shall have the right to participate in and with respect to the defense of any Loss or Losses with counsel of its choosing whose fees shall be borne by the Party with liability for indemnification under Sections 11.1 or 11.2, as the case may be, and no Party shall have the right to settle any claim or agree to the entry of any judgment or other relief without the prior consent of the other Party, which consent shall not be withheld unreasonably.

11.4 Consequential Damages. NEITHER PARTY SHALL HAVE ANY LIABILITY TO THE OTHER PARTY FOR ANY SPECIAL, INDIRECT, CONSEQUENTIAL, EXEMPLARY, PUNITIVE OR INCIDENTAL DAMAGES SUFFERED BY SUCH OTHER PARTY AND ARISING OUT OF OR RELATED TO THIS AGREEMENT, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE), INCLUDING, WITHOUT LIMITATION, LOST PROFITS, AND WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES.

11.5 Insurance. During the term of the Supply Agreement, Neose agrees to obtain and maintain commercial general liability insurance with reputable and financially secure insurance carriers to cover the use of the Neose Technology in New Products, with limits of not less than ***** per occurrence and ***** in the aggregate. Novo agrees to maintain during the Term commercial general liability insurance with limits of not less than ***** per occurrence and ***** in the aggregate to cover its indemnification obligations under Section 11.2. In addition, Novo agrees to maintain during the Term clinical trials insurance and product liability insurance with limits reasonable to cover its indemnification obligations under Section 11.2. All insurance shall be procured with reputable and financially secure insurance carriers.

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12. TERM AND TERMINATION

12.1 Term. The term of this Agreement (the “Term”) shall commence on the Effective Date and, unless sooner terminated in accordance with Section 12.2, shall terminate on the expiration of the last to expire patent included in the Neose Technology incorporating a Valid Patent Claim that would be infringed by making, using, selling, offering to sell, importing or exporting New Product, after which Novo shall have a perpetual, fully paid up, royalty free, exclusive (even as to Neose) license to commercialize New Product.

12.2 Termination

12.2.1 Termination of Project Plan. If the Project is terminated by mutual agreement, this Agreement will automatically terminate.

12.2.2 No Commercial Sale. If after achievement of the milestone described in Section 3.2.1, Novo ceases to exert Commercially Reasonable Efforts toward the development or commercialization of New Product or wishes to terminate the development of New Product before Regulatory Approval of New Product for reasons other than ***** relating, in each case, to New Product, Novo shall provide notice thereof to Neose, specifying the reasons therefor, together with a ***** of *****, and this Agreement will terminate upon receipt by Neose of such notice and payment from Novo.

12.2.3 Termination for Cause.

12.2.3.1 Breach. A Party shall have the right to terminate this Agreement at any time for a material breach of this Agreement by the other Party upon written notice by the non-breaching Party to the other Party describing such breach in reasonable detail and stating the non-breaching Party’s intention to terminate this Agreement, provided that the other Party shall have a period of sixty (60) days from the date of such notice to cure the breach, or, if such breach is not susceptible of being cured within such sixty (60) day period, and the breaching Party utilizes diligent good faith efforts to cure such breach, then such period shall be extended to one hundred twenty (120) days. If such breach is cured within the applicable period, the termination notice shall become ineffective. Otherwise, the termination shall become effective upon the expiration without cure of the applicable period.

12.2.3.2 Bankruptcy. A Party shall have the right to terminate this Agreement at any time upon the filing or institution of bankruptcy, reorganization, liquidation or receivership proceedings, or upon an assignment of a substantial portion of the assets of the benefit of creditors by the other Party, or in the event a receiver or custodian is appointed for such Party’s business, or if a substantial portion of such Party’s business is subject to attachment or similar process; provided, however, that in the case of any involuntary bankruptcy proceeding, such right to terminate shall only become effective if the proceeding is not dismissed within sixty (60) days after the filing thereof.

12.2.3.3 Termination by Novo. Novo may terminate this Agreement at any time without cause upon ninety (90) days prior written notice to Neose of such termination, provided that Novo shall pay to Neose one hundred percent (100%) of all documented Neose Project-Related Costs and any other costs incurred or accrued by Neose prior to the effective date of such termination for the conduct of the Work Plan through the date of termination.

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12.3 Effect of Termination or Expiration

12.3.1 Prior Obligations. Termination or expiration of this Agreement shall not relieve the Parties of any obligation arising prior to the effective date of such termination or expiration and shall not constitute a waiver of any right of the Parties under this Agreement as a result of breach or default.

12.3.2 Confidential Information. Upon the termination or expiration of this Agreement, each Recipient shall, as the Disclosing Party may direct, destroy or return to the Disclosing Party promptly all tangible materials provided to Recipient by the Disclosing Party that embody the Disclosing Party’s Confidential Information and shall erase or delete all of the Disclosing Party’s Confidential Information embodied in any magnetic, optical or intangible medium or stored or maintained on any information storage and/or retrieval device, and deliver to the Disclosing Party a certification of such destruction, return, erasure or deletion signed by an officer of the Disclosing Party.

12.3.3 Survival. No termination under this Agreement shall constitute a waiver of any rights or causes of action that either Party may have for any acts or omissions or breach under this Agreement by the other Party prior to the termination date. The following Sections of this Agreement shall survive the expiration or any termination of this Agreement in accordance with their respective meanings: Sections 4.8, 5.1.2, 6, 9, 11, 12, 13, 15.2, 15.4, 15.5, 15.7, 15.8, 15.9, 15.10, 15.13 and any other provision required to interpret this Agreement.

12.3.4 Effect on Sublicensees. Any sublicenses granted by Novo hereunder shall automatically terminate or expire at the same time this Agreement terminates or expires.

13. DISPUTE RESOLUTION

13.1 By Senior Officers. Except as otherwise provided in Section 9.3, all disputes arising under this Agreement will first be submitted in writing for dispute resolution to the Designated Representative of each Party. If the dispute is not resolved within forty-five (45) days, the dispute shall be referred to arbitration in accordance with Section 13.2.

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13.2 Arbitration

13.2.1 Rules and Location. Except with respect to disputes arising under Section 9.3, all disputes arising between the Parties under this Agreement that have not been resolved in accordance with Section 13.1 shall be settled by arbitration conducted in accordance with the procedures of the International Chamber of Commerce (“ICC”). The version of the arbitration rules which are in force when the dispute occurs shall be decisive. The arbitration tribunal shall have one arbitrator, who shall be selected from the panels of the ICC by agreement of the Parties, provided, however that if the parties cannot agree on the arbitrator, the arbitration tribunal shall consist of three arbitrators, one selected by Neose, one selected by Novo, and the third selected by the other two arbitrators. The arbitration tribunal may also decide on the validity of the arbitration agreement. The place of the arbitration tribunal shall be Philadelphia, Pennsylvania. The arbitration proceedings, orders and writs shall be in the English language.

13.2.2 Judgments. Any award rendered by the arbitrators shall be binding upon the Parties hereto and shall be final. Judgment upon the award may be entered in any court of record of competent jurisdiction.

13.2.3 Expenses. Each Party shall pay its own expenses of arbitration and the expenses of the arbitrators shall be equally shared unless otherwise ordered by the arbitrators.

14. GOVERNMENT APPROVAL

14.1 HSR Filing. Novo, in consultation with Neose, shall make the determination as to whether filing under the HSR Act is required. If any HSR filing is required, to the extent necessary, each Party shall file, as soon as practicable after the date this Agreement is executed, with the Federal Trade Commission (the “FTC”) and the Antitrust Division of the United States Department of Justice (the “Antitrust Division”) the notification and report form (the “Report”) required under the HSR Act with respect to the transactions as contemplated hereby and shall reasonably cooperate with the other Party to the extent necessary to assist the other Party in the preparation of its Report and to proceed to obtain necessary approvals under the HSR Act, including but not limited to the expiration or earlier termination of any and all applicable waiting periods required by the HSR Act. Each Party shall bear its own expenses, including, without limitation, legal fees, incurred in connection with preparing such filings.

14.2 Obligations. Each Party shall use its good faith efforts to eliminate any concern on the part of any court or government authority regarding the legality of the proposed transaction, including, if required by federal or state antitrust authorities, promptly taking all steps to secure government antitrust clearance, including, without limitation, cooperating in good faith with any government investigation including the prompt production of documents and information demanded by a second request for documents and of witnesses if requested.

14.3 Additional Approvals. Each Party will cooperate and use respectively all reasonable efforts to make all other registrations, filings and applications, to give all notices and to obtain as soon as practicable all governmental or other consents, transfers, approvals, orders, qualifications authorizations, permits and waivers, if any, and to do all other things necessary or desirable for the consummation of the transactions as contemplated hereby. Neither Party shall

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be required, however, to divest or out-license products or assets or materially change its business if doing so is a condition of obtaining approval under the HSR Act or other governmental approvals of the transactions contemplated by this Agreement.

14.4 Termination. If a Report is required to be filed under the HSR Act, either Party hereto may terminate this Agreement by written notice to the other Party, if, within one hundred twenty (120) days after this Agreement is signed by the Parties, approval of the transactions contemplated by this Agreement under the HSR Act has not been obtained or the notice and waiting period, as may be extended by the FTC, under the HSR Act has not expired without adverse action regarding this Agreement or the transactions contemplated hereby. If this Agreement is terminated pursuant to this Section 14.4, then, notwithstanding any provision in this Agreement to the contrary, neither Party hereto shall have any further obligation to the other Party with respect to the subject matter of this Agreement.

15. MISCELLANEOUS

15.1 Force Majeure. Any delays in or failures of performance by either Party under this Agreement (other than failure to pay amounts due) shall not be considered a breach of this Agreement if and to the extent caused by occurrences beyond the reasonable control of the Party affected, including but not limited to: acts of God, earthquake, new regulations or laws of any government, strikes or other concerted acts of workers; fire, floods, explosions; riots; wars; rebellion; and, sabotage, and any time for performances under this Agreement shall be extended by the time of delay reasonably occasioned by such occurrence. Each Party agrees to notify the other promptly of any factor, occurrence or event coming to its attention that may affect its ability to meet its obligations under this Agreement.

15.2 Notices. Any notice, consent or report (each, a “Notice”) required or permitted to be given by either Party under this Agreement shall be in writing and shall be either personally delivered or sent by facsimile (confirmed by internationally-recognized express courier), or by internationally-recognized express courier (such as Federal Express or DHL), to the other Party at its address set forth below, or such new address as may from time to time be supplied under this Agreement by a Party. Except as otherwise set forth in this Agreement, any Notice shall be effective upon receipt by the addressee. Provided that all postage or delivery charges are prepaid in full by the sender and the Notice has been addressed as set forth in this Agreement

15.2.2 if such Notice is sent by facsimile (confirmed by internationally recognized express courier which includes a copy of the report showing the date and time of transmission), then the Notice shall be deemed to be received upon transmission (if received on a business day) or the next business day following transmission; and

15.2.3 if such Notice is sent by internationally-recognized express courier, then the Notice shall be deemed to be received two (2) business days after deposit with the courier service.

- 27 -

If to Neose:

Neose Technologies, Inc.

102 Witmer Road

Horsham, PA 19044

Attention: General Counsel

Fax: 215-315-9100

If to Novo Nordisk A/S:

Novo Nordisk A/S

Novo Allé

2880 Bagsvaerd

Denmark

Attention: Vice President, Business Development

Fax: 011-45-4442-1830

With a copy to the same address:

Attention: General Counsel

Fax: 011-45-4498-0670

If to Novo Nordisk Health Care AG:

Novo Nordisk Health Care AG

Andreasstrasse 15

CH - 8050 Zurich Oerlikon

Switzerland

Attention: Head of Hematology Business Unit

Fax: 011-41-43-222-4404

15.3 Governing Law. This Agreement and any controversy, claim or dispute arising under this Agreement shall be governed by, and construed in accordance with, the laws of the Commonwealth of Pennsylvania, United States of America, without regard to the conflicts of law principles of any jurisdiction.

15.4 U.S. Export Laws and Regulations. The Parties hereby acknowledge that their rights and obligations under this Agreement may be subject to the laws and regulations of the United States of America relating to the export of products and technical information. Without limitation, each Party shall comply, and assist the other Party in complying, with all such laws and regulations.

15.5 Assignment

15.5.1 Consent of Other Party. Neither Party may assign any of its rights or obligations under the Agreement, in whole or in part, by operation of law or otherwise, without the prior written consent of the other Party, which consent shall not be unreasonably withheld, provided that either Party may assign (i) any of its rights or obligations under this

- 28 -

Agreement in any country to any of its Affiliates, for so long as they remain Affiliates, and (ii) all of its rights or obligations under this Agreement in connection with the merger or similar reorganization or sale of all or substantially all of its assets or a sale of that part of its business relating to the subject matter of the Agreement. A Party shall notify the other Party in writing upon making such assignment.

15.5.2 Certain Assignments by Neose. In the event that Neose assigns all of its rights or obligations under this Agreement in connection with the merger or similar reorganization or sale of all or substantially all of its assets or a sale of that part of its business relating to the subject matter of this Agreement, Novo may, within the thirty (30)-day period following receipt of notice from Neose of such assignment, elect to proceed under this Section 15.5.2 with respect to the provision of any reports required under this Agreement and/or other disclosure of Confidential Information by Novo hereunder. Novo shall make such election by notice in writing addressed to Neose and its successor at the address of Neose set forth in Section 15.2.3 (as amended). From and after an election by Novo under this Section 15.5.2, Novo shall be entitled to provide reports required under this Agreement, and/or to provide any other Confidential Information hereunder, to an independent certified public auditing firm selected by Neose’s successor and reasonably acceptable to Novo, in lieu of providing such reports and/or Confidential Information to Neose’s successor. Such auditing firm shall report to Neose’s successor only (i) whether or not the reports submitted by Novo are accurate and conform to any related payments made to Neose’s successor and (ii) whether or not, in respect of other matters relating to such reports and/or Confidential Information, Novo has complied with its obligations under this Agreement. Novo shall be responsible for and promptly shall pay all fees and expenses of the auditing firm in connection with its services rendered in accordance with this Section 15.5.2.

15.5.3 Binding Effect. Any purported assignment in violation of this Section 15.5 shall be null and void. This Agreement shall bind and inure to the benefit of each Party and its respective permitted successors and assigns.

15.6 Amendments. No change, modification, extension, termination or waiver of the Agreement, or any of the provisions in this Agreement contained, shall be valid unless made in writing and signed by duly authorized representatives of the Parties to this Agreement.

15.7 Independent Contractors. The Parties to this Agreement are acting as independent contractors and shall not be considered partners, joint venturers or agents of the other. Neither Party shall have the right to act on behalf of, or to bind, the other.

15.8 Severability. The provisions of this Agreement are intended to be severable. If any one or more of the provisions of this Agreement is or becomes invalid, is ruled illegal by a court of competent jurisdiction or is deemed unenforceable under the current applicable law from time to time in effect during the Term, it is the intention of the Parties that the remainder of the Agreement shall not be affected thereby and shall continue to be construed to the maximum extent permitted by law at such time. It is further the intention of the Parties that in lieu of each such provision which is invalid, illegal, or unenforceable, there shall be substituted or added as part of this Agreement by such court of competent jurisdiction or any arbitrator(s) appointed pursuant to Section 13.2, a provision which shall be as similar as possible, in economic and business objectives as intended by the Parties to such invalid, illegal or unenforceable provision, but shall be valid, legal and enforceable.

- 29 -

15.9 Waiver. The waiver by either Party to this Agreement of any right under this Agreement or the failure to perform or of a breach by the other Party shall not be deemed a waiver of any other right under this Agreement or of any other breach or failure by said other Party whether of a similar nature or otherwise.

15.10 No Third Party Beneficiaries. Each of Neose and Novo intend that only Neose and Novo will benefit from, and are entitled to enforce the provisions of, this Agreement and that no Third Party beneficiary is intended under this Agreement.

15.11 Descriptive Headings; Section and Exhibit References. The headings of the several sections of this Agreement are intended for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement. All references in this Agreement to a Section or Exhibit shall be interpreted as references to the respective Section or Exhibit of this Agreement unless the context requires otherwise.

15.12 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

15.13 Entire Agreement. This Agreement, including all exhibits to this Agreement (the “Attachments”), and the Research and Development Collaboration Agreement between the Parties dated October 28, 2002 embody the entire understanding between the Parties and supersede any prior understanding and/or other agreements between and among them respecting the development of the New Product. Both this Agreement and the Research and Development Collaboration Agreement between the Parties dated October 28, 2002 shall remain in effect in accordance with their respective terms from and after the date on which this Agreement is executed and delivered by the Parties. There are no representations, agreements, arrangements or understandings, oral or written, between the Parties to this Agreement relating to the subject matter of this Agreement, which are not fully expressed in this Agreement. If any provisions of any such Attachment conflict with any provisions set forth in this Agreement, the provisions of this Agreement shall take precedence. The Parties acknowledge and agree that the Mutual Nondisclosure Agreement remains in full force and effect with respect to any and all subject matter other than the subject matter of this Agreement or the ***** Agreement.

IN WITNESS WHEREOF, the undersigned Parties, acting through their duly authorized representatives, have executed this Agreement in multiple counterparts.

NEOSE TECHNOLOGIES, INC.
By:	/s/ C. Boyd Clarke
Name:	C. Boyd Clarke
Title:	CEO

- 30 -

NOVO NORDISK A/S
By:	/s/ Mads Krogsgaard Thomsen
Name:	Mads Krogsgaard Thomse
Title:	EVP, CSO

NOVO NORDISK HEALTH CARE AG
By:	/s/ Klaus Ehrlich
Name:	Klaus Ehrlich
Title:	SVP Europe

- 31 -

Exhibits Index

Exhibit 1.21	M1 Profile – Parameters for Candidate Selection for New Product
Exhibit 1.24	Neose Patents as of the date of this Agreement
Exhibit 2.2	Work Plan
Exhibit 5.1.3	Required Agreement for Certain Proposed Sublicensees
Exhibit 9.4	Press Release

- 32 -

EXHIBIT 1.21

M1 Profile – parameters for candidate selection for New

****** Product aiming at providing ****** by administration ******

****** Process

• ******

• ******

• ******

• ******

• ******

• ******

• ******

• ******

• ******

• ******

• ******

****** data; functional profile

• ******

• ******

• ******

******

Safety assessment (pre M1 mainly in ******

• ******

• ******

• ******

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.24

NEOSE PATENTS AS OF THE DATE OF THIS AGREEMENT

*****
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
*****	PCT	Granted	*****	*****	*****	*****	*****
*****	DIV	Pending	*****	*****
*****	PCT	Pending	*****	*****
*****	PCT	Published	*****	*****
*****	PCT	Pending	*****	*****
*****	PCT	Published	*****	*****
*****	PCT	Pending	*****	*****
*****	PCT	Granted	*****	*****	*****	*****	*****
*****	ORD	Pending	*****	*****	*****
*****	CON	Pending	*****	*****
*****	CON	Published	*****	*****
*****	DIV	Published	*****	*****
*****	CON	Pending	*****	*****
*****	PRO	Expired	*****	*****
*****	RCE	Granted	*****	*****	******	*****	*****
*****
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
*****	ORD	Published	*****	*****	*****
*****	PRO	Expired	*****	*****			*****
*****	PRO	Expired	*****	*****			*****
*****	PRO	Expired	*****	*****			*****
*****	PRO	Expired	*****	*****			*****
*****
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
*****	CIP	Pending	*****	*****
*****
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
*****	CON	Pending	*****	*****

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.24

*****
Country		Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
*****		CIP	Pending	*****	*****
*****
Country		Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
*****		CIP	Pending	*****	*****
*****
Country		Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
*****		CIP	Pending	*****	*****
*****
Country	Sub Case	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
*****		PCT	Published	*****	*****
*****		PCT	Published		*****
*****		PCT	Published	*****	*****
*****		PCT	Published		*****
*****		PCT	Published		*****
*****		ORD	Published	*****	*****	******
*****		CIP	Allowed	*****	*****
*****	D1	DIV	Published	*****	*****
*****	D2	DIV	Published	*****	*****
*****	D3	DIV	Published	*****	*****
*****	D4	DIV	Published	*****	*****
*****	D5	DIV	Published	*****	*****

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.24

*****
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
*****	PCT	Granted	*****	*****	*****	*****	*****
*****	EPC	Granted	*****	*****	*****	*****	*****
*****	EPC	Granted	*****	*****	*****	*****	*****
*****	PCT	Granted	*****	*****	*****	*****	*****
*****	EPC	Granted	*****	*****	*****	*****	*****
*****	PCT	Granted	*****	*****	*****	*****	*****
*****	EPC	Granted	*****	*****	*****	*****	*****
*****	PCT	Granted	*****	*****	*****	*****	*****
*****	EPC	Granted	*****	*****	*****	*****	*****
*****	PCT	Granted	*****	*****	*****	*****	*****
*****	EPC	Granted	*****	*****	*****	*****	*****
*****	ORD	Published	*****	*****	*****
*****	EPC	Granted	*****	*****	*****	*****	*****
*****	EPC	Granted	*****	*****	*****	*****	*****
*****	EPC	Granted	*****	*****	*****	*****	*****
*****	EPC	Granted	*****	*****	*****	*****	*****
*****	ORD	Granted	*****	*****	*****	*****	*****
*****	CON	Granted	*****	*****	*****	*****	*****
*****	DIV	Granted	*****	*****	*****	*****	*****

*****
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
*****	PCT	Granted	*****	*****	*****	*****	*****
*****	PCT	Published	*****	*****
*****	ORD	Published	*****	*****	*****
*****	CIP	Granted	*****	*****	*****	*****	*****

Exhibit 2.2 Work Plan

********

EXHIBIT 5.1.3

NEOSE TECHNOLOGIES, INC.

FORM OF REQUIRED AGREEMENT FOR PROPOSED SUBLICENSEES

This CONFIDENTIALITY AGREEMENT (this “Agreement”) is made as of this      day of                     , 200_, by and between Neose Technologies, Inc., a Delaware corporation (“Neose”), and                              , a                      corporation (“Recipient”).

BACKGROUND

Neose has developed and continues to develop proprietary technologies and related know-how for the glycosylation, design and remodeling of proteins, peptides and antibodies, including, but not limited to its GlycoAdvance^™, GlycoPEGylation^™ and GlycoConjugation^™ technologies (collectively, the “Technology”). Pursuant to a Research, Development and License Agreement dated                          , 2003 (the “License Agreement”), Neose has granted Novo Nordisk A/S, a Danish corporation (“Novo”), certain exclusive worldwide rights under the Technology throughout the world, including certain rights to sublicense. Novo desires to sublicense to Recipient certain rights granted to Novo under the License Agreement. Novo, therefore, desires to disclose to Recipient confidential and proprietary information, which is a part of the Technology and is considered valuable by Neose. As a condition to Novo disclosing such confidential and valuable proprietary information to Recipient, Recipient is entering into this Agreement for Neose’s benefit.

NOW, THEREFORE, in consideration of the foregoing premises and in consideration of Novo disclosing Neose’s confidential and proprietary information to Recipient, and intending to be legally bound hereby, Recipient agrees as follows:

1. Definitions

1.1 “Confidential Information” means any and all proprietary or confidential information of Neose disclosed to Recipient, including, without limitation, all technical data, trade secrets or know-how, including, but not limited to, research, product plans, products, service plans, services, customer lists and customers, markets, software, developments, inventions, processes, formulas, technology, designs, drawings, engineering, marketing, distribution and sales methods and systems, sales and profit figures, finances and other business information disclosed to Recipient related to Neose, either directly or indirectly, in writing, orally or by drawings or inspection of documents or other tangible property. The fact that a given piece of information is marked or identified as confidential or proprietary shall conclusively indicate that such information is considered Confidential Information, but the failure to so mark information shall not conclusively determine that such information was or was not considered Confidential Information.

1.2 “Neose Know-How” means any and all formulae, procedures, processes, methods, designs, know-how, show-how, trade secrets, discoveries, inventions (whether or not patentable), patent applications, licenses, software and source code, programs, prototypes, designs, discoveries, techniques, methods, ideas, concepts, data, engineering and manufacturing information, electronic control circuits, specifications, diagrams, drawings, schematics, blueprints and parts lists and other proprietary information, rights and works of authorship, whether or not reduced to writing, controlled by Neose and relating to the Technology.

1.3 “Neose Patents” means all patents and patent applications (including all corresponding foreign patents and patent applications, all divisions, continuations, continuations-in-part, reissues, renewals, extensions and additions to any such patents or patent applications) relating to the Technology licensed by Neose to Novo under the License Agreement.

1.4 “Neose Technology” means the Neose Know-How and Neose Patents.

1.5 “Person” means an individual, corporation, partnership, trust, business trust, association, joint stock company, joint venture, syndicate, sole proprietorship, unincorporated organization, government, governmental agency, authority or instrumentality, or any other form of entity not specifically listed in this Agreement.

1.6 “Product” means any of the “Novo Materials” (as defined in the License Agreement modified by using the Neose Technology.

1.7 “Sublicense Agreement” means the agreement under which Novo sublicenses to Recipient certain rights granted by Neose to Novo under the License Agreement.

1.8 “Third Party” means any Person other than Recipient, Neose or Novo.

2. Non-Disclosure; Non-Use; Reasonable Care

2.1 Non-Disclosure. Without the prior written consent of an authorized officer of Neose, Recipient shall not, directly or indirectly, disclose to any Third Party any Confidential Information or Neose Know-How.

2.2 Non-Use. Without the prior written consent of an authorized officer of Neose, Recipient shall not, directly or indirectly, use any of the Confidential Information or Neose Technology for its own benefit or for the benefit of any Third Party.

2.3 Reasonable Care. Recipient shall take all reasonable measures to protect the secrecy of, and avoid the unauthorized disclosure or use of, the Confidential Information and Neose Technology, including, without limitation, the following: (i) Recipient shall exercise the highest degree of care that Recipient uses to protect

Recipient’s own confidential and proprietary information of a similar nature; (ii) Recipient shall disclose Confidential Information and/or Neose Know-How only to its employees and contractors who have a need to know; and (iii) Recipient shall require anyone who has access to any of the Confidential Information and/or Neose Know-How to sign or be a party to an effective agreement with Recipient, applicable to the Confidential Information and Neose Know-How, containing provisions that are substantially similar to the terms of this Agreement. Recipient shall notify Neose in writing of any disclosure, misuse or misappropriation of any Confidential Information or Neose Technology that may come to Recipient’s attention.

3. Acknowledgements. Recipient acknowledges and agrees that: (i) this Agreement is necessary for the protection of the legitimate business interests of Neose; (ii) the execution of this Agreement by an authorized representative of Recipient and delivery of this Agreement to Neose is a mandatory condition precedent to Novo disclosing any Confidential Information and any information concerning the Neose Technology to Recipient, without which Neose would not permit Novo to disclose such information; (iii) neither Neose nor Novo has granted to Recipient any rights under the Neose Technology in any manner; and (iv) because of the unique nature of the Confidential Information and Neose Technology and its broad applicability to the manufacture and remodeling of glycoproteins, Neose will not have an adequate remedy at law if Recipient breaches any term of this Agreement.

4. Return of Materials. Upon the earlier of termination of Novo’s license to the Neose Technology under the License Agreement or termination of the Sublicense Agreement, Recipient shall: (i) discontinue all use of the Confidential Information and Neose Technology; (ii) destroy any and all items in its possession containing any Confidential Information or Neose Technology; and (iii) certify in writing to Neose, within ten (10) days after Neose’s request therefor, that Recipient has taken all actions described in this Section 4.

5. Intellectual Property

5.1 Ownership Rights. All right, title and interest under patent, copyright, trade secret and trademark law and any other intellectual property or other law (collectively, “Ownership Rights”), in and to the Confidential Information and Neose Technology shall remain at all times with Neose. Any and all Ownership Rights to developments, discoveries, inventions, additions, amendments, modifications, ideas, processes, methods, compositions, formulae, techniques, information and data, whether or not patentable, relating to the Neose Technology, which is made, conceived or reduced to practice by Neose, Novo or Recipient or any combination of them (“Neose Improvements”) shall be owned by Neose and shall be deemed to part of the Neose Technology for all purposes.

5.2 Assignment. To the extent that Recipient may retain any Ownership Rights in any Neose Improvements, Recipient hereby irrevocably assigns and transfers to Neose any and all such Ownership Rights, in perpetuity or for the longest period otherwise permitted by law, without the necessity of further consideration, and Neose

shall be entitled to receive and hold in its own name all such Ownership Rights. With respect to any Ownership Rights that Recipient may assign and transfer to Neose under this Section 5.2, at the request of Neose, and at Neose’s expense, either before or after termination of this Agreement, Recipient shall assist Neose in acquiring and maintaining patent, copyright, trade secret and trademark protection upon, and confirming Neose’s title in and to, any such Ownership Rights. Recipient’s assistance shall include, but shall not be limited to, signing all applications, and any other documents and instruments for patent, copyright and any other proprietary rights, cooperating in legal proceedings, and taking any other actions considered necessary or desirable by Neose. For the purpose of facilitating the above assignment, Recipient agrees that any and all employees and contractors employed or engaged by Recipient and providing any service in connection with the use of the Neose Technology, prior to providing such service, shall have agreed in writing to covenants consistent with Recipient’s covenants set forth in this Section 5.2

6. Exceptions. The non-disclosure obligations with respect to Confidential Information and Neose Know-How set forth in Section 2.1 shall not apply to any information that: (i) at the time of disclosure by or on behalf of Novo or Neose to Recipient is in, or after disclosure by or on behalf of Novo or Neose becomes part of, the public domain through no improper act on the part of Recipient or on the part of any of Recipient’s employees, independent contractors, advisors or consultants; (ii) is disclosed, published or disseminated by Neose without any confidentiality constraints; (iii) was in Recipient’s possession free of any obligation of non-disclosure or non-use at the time of disclosure to Recipient, as shown by written evidence; (iv) Recipient receives from a Third Party free of any obligation of non-disclosure or non-use, but only if such Third Party had no direct or indirect obligation to Neose not to disclose such information; (v) was developed by Recipient independent of information received hereunder, as shown by its written records; or (vi) subject to Section 7, is required to be disclosed by law or pursuant to legal, judicial or administrative process.

7. Notice of Required Disclosure. If Recipient is required by judicial or administrative process to disclose any Confidential Information or Neose Know-How, then Recipient shall promptly notify Neose and, before disclosing such Confidential Information or Neose Know-How, allow Neose a reasonable time to oppose such process.

8. Successors; Assignment. This Agreement shall be binding upon Recipient and Recipient’s successors and assigns and inure to the benefit of Neose and its successors and assigns. Recipient may not assign its rights or delegate its obligations under this Agreement, in whole or in part, except with the prior written consent of Neose, which consent shall not be unreasonably withheld. Neose may assign this Agreement without seeking or obtaining Recipient’s consent.

9. Governing Law. This Agreement and any controversy, claim or dispute arising under this Agreement shall be governed by, and construed in accordance with the laws of the Commonwealth of Pennsylvania, United States of America, without regard to the conflicts of law principles of any jurisdiction.

10. Remedies. In addition to any other remedies that may be available, at law, in equity or otherwise, Neose shall be entitled to obtain injunctive relief to enforce the provisions of this Agreement without necessity of posting bond.

11. Entire Agreement. This Agreement contains the entire agreement and understanding relating to the subject matter hereof and merges and supersedes all prior discussions, agreements and understandings. This Agreement may not be changed or modified, except in a writing signed by both Neose and Recipient. The failure or delay of Neose to exercise any right under this Agreement shall not be deemed a waiver of any rights under this Agreement.

IN WITNESS WHEREOF, each party has caused its authorized representative to execute this Agreement as of the date first written above.

NEOSE TECHNOLOGIES, INC.	[INSERT NAME OF RECIPIENT]
By:	By:
Name:	Name:
Title:	Title:

[GRAPHIC APPEARS HERE]

NEOSE TECHNOLOGIES, INC.

102 Witmer Road, Horsham, PA 19044 215.315.9000

fax:215.315.9100

email: info@neose.com    www.neose.com

Neose Technologies and Novo Nordisk Sign License Agreements for

Improved Therapeutic Proteins

Up to $55.6 Million in Upfront and Milestone Payments

HORSHAM, PA, November 17, 2003. Neose Technologies, Inc. (NasdaqNM: NTEC) announced today that it has entered into two research, development and license agreements with Novo Nordisk A/S (NYSE: NVO) to use Neose’s GlycoPEGylation^™ technology to develop three next-generation proteins within Novo Nordisk’s therapeutic areas, one of which is currently marketed by them.

The license agreements are the result of the research and development collaboration agreements Neose and Novo Nordisk executed in 2002 and the successful application of Neose’s GlycoPEGylation technology to three complex proteins.

Under the terms of the new agreements, Neose will receive a $4.3 million upfront fee and up to $51.3 million in milestone payments based on the progress of the programs. Novo Nordisk is responsible for funding Neose’s research and development activities under the agreements, and Neose will receive royalties on sales of any products commercialized under the agreements. In addition, Neose could receive additional milestones and royalties on new indications for the two proteins not currently marketed by Novo Nordisk.

“We are pleased that the success of our original collaboration with Novo Nordisk has led to a broader collaboration on multiple proteins for various indications. Our work with Novo Nordisk highlights the potential of our GlycoPEGylation technology to make clinically significant improvements to therapeutic proteins,” said C. Boyd Clarke, Neose president, chief executive officer and chairman. “We look forward to moving into the next phase of developing these proteins with a leader in the field.”

About GlycoPEGylation

Neose’s GlycoPEGylation technology can extend and customize protein half-life by uniquely linking various size polyethylene glycol (PEG) polymers to glycans that are remote from the protein’s active site, thereby preserving activity. Proteins that have not benefited from traditional chemical pegylation may benefit from GlycoPEGylation.

About Novo Nordisk

Novo Nordisk is a focused healthcare company. With the broadest diabetes product portfolio in the industry, including the most advanced products within the area of insulin delivery systems, Novo Nordisk is a world leader in diabetes care. In addition, Novo Nordisk has a leading position within haemostasis management, growth hormone therapy and hormone replacement therapy. Novo Nordisk manufactures and markets pharmaceutical products and services that make a significant difference to patients, the medical profession and society. With headquarters in Denmark, Novo Nordisk employs approximately 18,700 people in 68 countries and markets its products in 179 countries. Novo Nordisk’s B shares are listed on the stock exchanges in Copenhagen and London. Its ADRs are listed on the New York Stock Exchange under the symbol ‘NVO’. For further company information visit www.novonordisk.com

About Neose

Neose is a biopharmaceutical company focused on the improvement of protein therapeutics through the application of its proprietary technologies. By applying its GlycoAdvance^TM and GlycoPEGylation^TM technologies, Neose is developing proprietary protein drugs that are improved versions of currently marketed therapeutics with proven efficacy. These second generation proteins are expected to offer significant advantages, including less frequent dosing and improved safety and efficacy. In addition to developing its own products and co-developing products with others, Neose is entering into strategic partnerships for the inclusion of its technologies into products being developed by other biotechnology and pharmaceutical companies.

CONTACTS:

Neose Technologies, Inc.

Robert I. Kriebel

Sr. Vice President and Chief Financial Officer

Barbara Krauter

Manager, Investor Relations

(215) 315-9000

For more information, please visit www.neose.com.

“Safe Harbor” Statement under the Private Securities Litigation Reform Act of 1995: Statements in this press release regarding our business that are not historical facts are “forward-looking statements” that involve risks and uncertainties. For a discussion of these risks and uncertainties, any of which could cause our actual results to differ from those contained in the forward-looking statement, see the section entitled “Risk Factors” of our Registration Statement on Form S-3 dated June 20, 2003, and discussions of potential risks and uncertainties in our subsequent filings with the SEC.

EX-10.41

EXHIBIT 10.41

Portions of this exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. Such portions are marked by a series of asterisks.

December 18, 2003

BY FAX and FEDERAL EXPRESS

Novo Nordisk A/S

Novo Allé

2880 Bagsvaerd

Denmark

    Attention: Vice President, Business Development

    Fax: 011-45-4442-1830

Re: Research, Development and License Agreement

Between Neose Technologies, Inc. and Novo Nordisk A/S

dated as of November 17, 2003 (the “Agreement”)

(relating to ******)

Ladies and Gentlemen:

The purpose of this letter is to amend the Agreement in certain respects to reflect our recent discussions. Capitalized terms used and not otherwise defined in this letter are used as defined in the Agreement.

1. Section 3.2.1 of the Agreement is hereby amended and restated in its entirety as follows:

****** upon the ****** to occur of: (i) the first date on which there shall be a candidate which has been shown to meet the ****** Product, and Neose shall have delivered to Novo ****** for the production of such candidate; and (ii) the ****** anniversary of the Effective Date.

2. Section 3.3.1 of the Agreement is hereby amended and restated in its entirety as follows:

Novo Nordisk A/S

Novo Nordisk Health Care AS

December 18, 2003

Page 2

****** upon the ****** to occur of: (i) the first date on which there shall be a candidate which has been shown to meet the ****** Product, and Neose shall have delivered to Novo ****** for the production of such candidate; and (ii) the ****** anniversary of the Effective Date.

2. Section 5.1.1 of the Agreement is hereby amended and restated in its entirety as follows:

Exclusive License. As of the Effective Date, Neose hereby grants, and agrees to grant, to Novo an exclusive (even as to Neose), royalty-bearing license in the Field of Use under the Neose Technology used or required to be used in the Field of Use during the Term, (i) to conduct research, sample, develop (including clinical development), manufacture, make, use, market, promote, sell, offer for sale, have sold, distribute, import and export New Products in the Territory, and (ii) to use the Reagents in the Territory solely for the purpose of making New Products. Such license does not permit Novo (x) to practice or use the Neose Technology outside the Field of Use or (y) to sublicense any of its rights without the prior written approval of Neose, except as provided in Section 5.1.2.

3. Exhibit 1.24 to the Agreement is hereby amended and restated as set forth in Attachment A to this letter agreement.

This letter amends the Agreement only as herein set forth and in all other respects the Agreement is ratified and confirmed. Three originals of this letter amendment are enclosed in our Federal Express package, each of which has been executed on behalf of Neose. Please indicate the agreement of Novo with the terms of this letter by having each company executed this letter in the space provided below, and return one fully executed copy to Neose by fax (215-315-9100) and Federal Express or DHL courier (each to the attention of our General Counsel).

Sincerely yours,

NEOSE TECHNOLOGIES, INC.

By:	/s/ George J. Vergis
Name:	George J. Vergis, Ph.D.
Title:	Senior Vice President, Business and Commercial Development

Novo Nordisk A/S

Novo Nordisk Health Care AS

December 18, 2003

Page 3

Accepted and agreed:

NOVO NORDISK A/S

By:	/s/ Pierre Honore
Name:	Pierre Honore
Title:	VP Scientific Licensing
Cc:	Novo Nordisk A/S
	Attention: General Counsel
	Fax: 011-45-4498-0670

ATTACHMENT A TO LETTER AMENDMENT DATED DECEMBER 18, 2003

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.25

NEOSE PATENTS AS OF THE DATE OF THIS AGREEMENT

******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	PCT	Granted	******	******	******	******	******
******	DIV	Pending	******	******
******	PCT	Pending	******	******
******	PCT	Published	******	******
******	PCT	Pending	******	******
******	PCT	Published	******	******
******	PCT	Pending	******	******
******	PCT	Granted	******	******	******	******	******
******	ORD	Pending	******	******	******
******	CON	Pending	******	******
******	CON	Published	******	******
******	DIV	Published	******	******
******	CON	Pending	******	******
******	PRO	Expired	******	******
******	RCE	Granted	******	******	******	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	ORD	Published	******	******	******
******	PRO	Expired	******	******			******
******	PRO	Expired	******	******			******
******	PRO	Expired	******	******			******
******	PRO	Expired	******	******			******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CIP	Pending	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CON	Pending	******	******

ATTACHMENT A TO LETTER AMENDMENT DATED DECEMBER 18, 2003

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.25

******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CIP	Pending	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CIP	Pending	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CIP	Pending	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	PCT	Granted	******	******	******	******	******
******	PCT	Published	******	******
******	ORD	Published	******	******	******
******	CIP	Granted	******	******	******	******	******

ATTACHMENT A TO LETTER AMENDMENT DATED DECEMBER 18, 2003

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.25

******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	ORD	Published	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	ORD	Granted	******	******	******	******	******
******	CON	Granted	******	******	******	******	******
******	DIV	Granted	******	******	******	******	******

ATTACHMENT A TO LETTER AMENDMENT DATED DECEMBER 18, 2003

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.25

PROVISIONAL: The Parties acknowledge that the following may be included by amendment.

******
Country	Sub Case	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******		PCT	Published	******	******
******		PCT	Published		******
******		PCT	Published	******	******
******		PCT	Published		******
******		PCT	Published		******
******		ORD	Published	******	******	******
******		CIP	Allowed	******	******
******	D1	DIV	Published	******	******
******	D2	DIV	Published	******	******
******	D3	DIV	Published	******	******
******	D4	DIV	Published	******	******
******	D5	DIV	Published	******	******

EX-10.42

EXHIBIT 10.42

Portions of this exhibit were omitted and filed separately with the Secretary of the Commission pursuant to an application for confidential treatment filed with the Commission pursuant to Rule 24b-2 under the Securities Exchange Act of 1934. Such portions are marked by a series of asterisks.

December 18, 2003

BY FAX and FEDERAL EXPRESS

Novo Nordisk A/S

Novo Allé

2880 Bagsvaerd

Denmark

    Attention: Vice President, Business Development

    Fax: 011-45-4442-1830

Novo Nordisk Health Care AG

Andreasstrasse 15

CH – 8050 Zurich Oerlikon

Switzerland

Attention: Head of Hematology Business Unit

Fax: 011-41-43-222-4404

Re: Research, Development and License Agreement Among Neose

Technologies, Inc. and Novo Nordisk A/S and Novo Nordisk

Health Care AG dated as of November 17, 2003 (the “Agreement”)

(relating to *****)                                                                              

Ladies and Gentlemen:

The purpose of this letter is to amend the Agreement in certain respects to reflect our recent discussions. Capitalized terms used and not otherwise defined in this letter are used as defined in the Agreement.

1. Section 3.2.1 of the Agreement is hereby amended and restated in its entirety as follows:

***** upon the ***** to occur of: (i) the first date on which there shall be a candidate which has been shown to meet the *****, and Neose shall have delivered to Novo ***** for the production of such candidate; and (ii) the ***** anniversary of the Effective Date.

Novo Nordisk A/S

Novo Nordisk Health Care AS

December 18, 2003

Page 2

2. Section 5.1.1 of the Agreement is hereby amended and restated in its entirety as follows:

Exclusive License. As of the Effective Date, Neose hereby grants, and agrees to grant, to Novo an exclusive (even as to Neose), royalty-bearing license in the Field of Use under the Neose Technology used or required to be used in the Field of Use during the Term, (i) to conduct research, sample, develop (including clinical development), manufacture, make, use, market, promote, sell, offer for sale, have sold, distribute, import and export New Products in the Territory, and (ii) to use the Reagents in the Territory solely for the purpose of making New Products. Such license does not permit Novo (x) to practice or use the Neose Technology outside the Field of Use or (y) to sublicense any of its rights without the prior written approval of Neose, except as provided in Section 5.1.2.

3. Exhibit 1.24 to the Agreement is hereby amended and restated as set forth in Attachment A to this letter agreement.

This letter amends the Agreement only as herein set forth and in all other respects the Agreement is ratified and confirmed. Three originals of this letter amendment are enclosed in our Federal Express package, each of which has been executed on behalf of Neose. Please indicate the agreement of Novo Nordisk A/S and Novo Nordisk Health Care AG with the terms of this letter by having this letter executed on behalf of each company in the space provided below, and return one fully executed copy to Neose by fax (215-315-9100) and Federal Express or DHL courier (each to the attention of our General Counsel).

Sincerely yours,

NEOSE TECHNOLOGIES, INC.

By:	/s/ George J. Vergis
Name:	George J. Vergis, Ph.D.
Title:	Senior Vice President, Business and Commercial Development

Novo Nordisk A/S

Novo Nordisk Health Care AS

December 18, 2003

Page 3

Accepted and agreed:

NOVO NORDISK A/S			NOVO NORDISK HEALTH CARE AG
By:	/s/ Pierre Honore	By:	/s/ Klaus Ehrlich
Name:	Pierre Honore	Name:	Klaus Ehrlich
Title:	VP Scientific Licensing	Title:	SVP Europe
cc:	Novo Nordisk A/S
	Attention: General Counsel
	Fax: 011-45-4498-0670

ATTACHMENT A TO LETTER AMENDMENT DATED DECEMBER 18, 2003

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.24

NEOSE PATENTS AS OF THE DATE OF THIS AGREEMENT

******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	PCT	Granted	******	******	******	******	******
******	DIV	Pending	******	******
******	PCT	Pending	******	******
******	PCT	Published	******	******
******	PCT	Pending	******	******
******	PCT	Published	******	******
******	PCT	Pending	******	******
******	PCT	Granted	******	******	******	******	******
******	ORD	Pending	******	******	******
******	CON	Pending	******	******
******	CON	Published	******	******
******	DIV	Published	******	******
******	CON	Pending	******	******
******	PRO	Expired	******	******
******	RCE	Granted	******	******	******	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	ORD	Published	******	******	******
******	PRO	Expired	******	******			******
******	PRO	Expired	******	******			******
******	PRO	Expired	******	******			******
******	PRO	Expired	******	******			******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CIP	Pending	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CON	Pending	******	******

ATTACHMENT A TO LETTER AMENDMENT DATED DECEMBER 18, 2003

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.24

******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CIP	Pending	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CIP	Pending	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	CIP	Pending	******	******
******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	PCT	Granted	******	******	******	******	******
******	PCT	Published	******	******
******	ORD	Published	******	******	******
******	CIP	Granted	******	******	******	******	******

ATTACHMENT A TO LETTER AMENDMENT DATED DECEMBER 18, 2003

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.24

******
Country	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	PCT	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	ORD	Published	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	EPC	Granted	******	******	******	******	******
******	ORD	Granted	******	******	******	******	******
******	CON	Granted	******	******	******	******	******
******	DIV	Granted	******	******	******	******	******

ATTACHMENT A TO LETTER AMENDMENT DATED DECEMBER 18, 2003

Confidential Information – Neose Technologies, Inc. EXHIBIT 1.24

PROVISIONAL: The Parties acknowledge that the following may be included by amendment.

******
Country	Sub Case	Case Type	Status	Application Number	Filing Date	Patent Number	Issue Date	Expiration Date
******		PCT	Published	******	******
******		PCT	Published		******
******		PCT	Published	******	******
******		PCT	Published		******
******		PCT	Published		******
******		ORD	Published	******	******	******
******		CIP	Allowed	******	******
******	D1	DIV	Published	******	******
******	D2	DIV	Published	******	******
******	D3	DIV	Published	******	******
******	D4	DIV	Published	******	******
******	D5	DIV	Published	******	******

EX-10.43

EXHIBIT 10.43

PROMISSORY NOTE

12-18-03

(Date)

FOR VALUE RECEIVED, Neose Technologies, Inc. a corporation located at the address stated below (“Maker”) promises, jointly and severally if more than one, to pay to the order of General Electric Capital Corporation or any subsequent holder hereof (each, a “Payee”) at its office located at 401 Merritt 7 Suite 23, Norwalk, CT 06851-1177 or at such other place as Payee or the holder hereof may designate, the principal sum of One Million Two Hundred One Thousand Two Hundred Ten and 41/100 Dollars ($1,201,210.41), with interest on the unpaid principal balance, from the date hereof through and including the dates of payment, at a fixed interest rate of Eight and Sixty-Six percent (8.66%) per annum, to be paid in lawful money of the United States, in Forty -Eight (48) consecutive monthly installments of principal and interest as follows:

Periodic Installment	Amount
Thirty-Six (36)	$	30,471.47
Eleven (11)	$	26,940.77

each (“Periodic Installment”) and a final installment which shall be in the amount of the total outstanding principal and interest. The first Periodic Installment shall be due and payable on                      and the following Periodic Installments and the final installment shall be due and payable on the same day of each succeeding month (each, a “Payment Date”). Such installments have been calculated on the basis of a 360 day year of twelve 30-day months. Each payment may, at the option of the Payee, be calculated and applied on an assumption that such payment would be made on its due date.

The acceptance by Payee of any payment which is less than payment in full of all amounts due and owing at such time shall not constitute a waiver of Payee’s right to receive payment in full at such time or at any prior or subsequent time.

The Maker hereby expressly authorizes the Payee to insert the date value is actually given in the blank space on the face hereof and on all related documents pertaining hereto.

This Note may be secured by a security agreement, chattel mortgage, pledge agreement or like instrument (each of which is hereinafter called a “Security Agreement”).

Time is of the essence hereof. If any installment or any other sum due under this Note or any Security Agreement is not received within ten (10) days after its due date, the Maker agrees to pay, in addition to the amount of each such installment or other sum, a late payment charge of five percent (5%) of the amount of said installment or other sum, but not exceeding any lawful maximum. If (i) Maker fails to make payment of any amount due hereunder within ten (10) days after the same becomes due and payable; or (ii) Maker is in default under, or fails to perform under any term or condition contained in any Security Agreement, then the entire principal sum remaining unpaid, together with all accrued interest thereon and any other sum payable under this Note or any Security Agreement, at the election of Payee, shall immediately become due and payable, with interest thereon at the lesser of eighteen percent (18%) per annum or the highest rate not prohibited by applicable law from the date of such accelerated maturity until paid (both before and after any judgment).

Notwithstanding anything to the contrary contained herein or in the Security Agreement, Maker may not prepay in full or in part any indebtedness hereunder without the express written consent of Payee in its sole discretion.

It is the intention of the parties hereto to comply with the applicable usury laws; accordingly, it is agreed that, notwithstanding any provision to the contrary in this Note or any Security Agreement, in no event shall this Note or any Security Agreement require the payment or permit the collection of interest in excess of the maximum amount permitted by applicable law. If any such excess interest is contracted for, charged or received under this Note or any Security Agreement, or if all of the principal balance shall be prepaid, so that under any of such circumstances the amount of interest contracted for, charged or received under this Note or any Security Agreement on the principal balance shall exceed the maximum amount of interest permitted by applicable law, then in such event (a) the provisions of this paragraph shall govern and control, (b) neither Maker nor any other person or entity now or hereafter liable for the payment hereof shall be obligated to pay the amount of such interest to the extent that it is in excess of the maximum amount of interest permitted by applicable law, (c) any such excess

which may have been collected shall be either applied as a credit against the then unpaid principal balance or refunded to Maker, at the option of the Payee, and (d) the effective rate of interest shall be automatically reduced to the maximum lawful contract rate allowed under applicable law as now or hereafter construed by the courts having jurisdiction thereof. It is further agreed that without limitation of the foregoing, all calculations of the rate of interest contracted for, charged or received under this Note or any Security Agreement which are made for the purpose of determining whether such rate exceeds the maximum lawful contract rate, shall be made, to the extent permitted by applicable law, by amortizing, prorating, allocating and spreading in equal parts during the period of the full stated term of the indebtedness evidenced hereby, all interest at any time contracted for, charged or received from Maker or otherwise by Payee in connection with such indebtedness; provided, however, that if any applicable state law is amended or the law of the United States of America preempts any applicable state law, so that it becomes lawful for the Payee to receive a greater interest per annum rate than is presently allowed, the Maker agrees that, on the effective date of such amendment or preemption, as the case may be, the lawful maximum hereunder shall be increased to the maximum interest per annum rate allowed by the amended state law or the law of the United States of America.

The Maker and all sureties, endorsers, guarantors or any others (each such person, other than the Maker, an “Obligor”) who may at any time become liable for the payment hereof jointly and severally consent hereby to any and all extensions of time, renewals, waivers or modifications of, and all substitutions or releases of, security or of any party primarily or secondarily liable on this Note or any Security Agreement or any term and provision of either, which may be made, granted or consented to by Payee, and agree that suit may be brought and maintained against any one or more of them, at the election of Payee without joinder of any other as a party thereto, and that Payee shall not be required first to foreclose, proceed against, or exhaust any security hereof in order to enforce payment of this Note. The Maker and each Obligor hereby waives presentment, demand for payment, notice of nonpayment, protest, notice of protest, notice of dishonor, and all other notices in connection herewith, as well as filing of suit (if permitted by law) and diligence in collecting this Note or enforcing any of the security hereof, and agrees to pay (if permitted by law) all expenses incurred in collection, including Payee’s actual attorneys’ fees. Maker and each Obligor agrees that fees not in excess of twenty percent (20%) of the amount then due shall be deemed reasonable.

Maker hereby irrevocably authorizes and empowers the Prothonotary or Clerk, or any attorney for any Court of record to appear for Maker in such Courts, at any time, and confess a judgement against Maker, without process, in favor of any holder hereof, without the filing of a declaration of default, with release of errors, without stay of execution, for such amount as may appear from the face hereof to be due hereunder (or, if such attorney so elects, for the amount which may be due hereon as evidenced by an affidavit signed by a representative of holder setting forth the amount then due) together with charges, attorney’s fees and costs as herein provided, and Maker hereby waives and releases all benefits and relief from any and all appraisement, stay or exemption laws of any state, now in force or hereafter to be passed. If a copy hereof, verified by an affidavit, shall have been filed in said proceeding, it shall not be necessary to file the original as a warrant of attorney. No single exercise of the foregoing warrant and power to confess judgement shall be deemed to exhaust the power, whether or not such exercise shall be held by any Court to be invalid, voidable, or void, but the power shall continue undiminished and may be exercised from time to time as often as the holder hereof shall elect, until all sums payable or that may become payable hereunder by Maker have been paid in full.

THE MAKER HEREBY UNCONDITIONALLY WAIVES ITS RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF, DIRECTLY OR INDIRECTLY, THIS NOTE, ANY OF THE RELATED DOCUMENTS, ANY DEALINGS BETWEEN MAKER AND PAYEE RELATING TO THE SUBJECT MATTER OF THIS TRANSACTION OR ANY RELATED TRANSACTIONS, AND/OR THE RELATIONSHIP THAT IS BEING ESTABLISHED BETWEEN MAKER AND PAYEE. THE SCOPE OF THIS WAIVER IS INTENDED TO BE ALL ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT (INCLUDING, WITHOUT LIMITATION, CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.) THIS WAIVER IS IRREVOCABLE MEANING THAT IT MAY NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THE WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS NOTE, ANY RELATED DOCUMENTS, OR TO ANY OTHER DOCUMENTS OR AGREEMENTS RELATING TO THIS TRANSACTION OR ANY RELATED TRANSACTION. IN THE EVENT OF LITIGATION, THIS NOTE MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE COURT.

This Note and any Security Agreement constitute the entire agreement of the Maker and Payee with respect to the subject matter hereof and supercedes all prior understandings, agreements and representations, express or implied.

No variation or modification of this Note, or any waiver of any of its provisions or conditions, shall be valid unless in writing and signed by an authorized representative of Maker and Payee. Any such waiver, consent, modification or change shall be effective only in the specific instance and for the specific purpose given.

Any provision in this Note or any Security Agreement which is in conflict with any statute, law or applicable rule shall be deemed omitted, modified or altered to conform thereto.

	Neose Technologies, Inc.
	By:	/s/ A. Brian Davis
(Witness)
	Name:	A. Brian Davis
(Print name)
	Title:	Vice President, Finance
(Address)
	Federal Tax ID #: 13-3549286
	Address: 102 Witmer Rd, Horsham, Montgomery County, PA 19044

EX-10.44

EXHIBIT 10.44

CREDIT AGREEMENT

By and Between

BROWN BROTHERS HARRIMAN & CO.

and

NEOSE TECHNOLOGIES, INC.

Dated as of January 30, 2004

THIS CREDIT AGREEMENT, dated as of January 30, 2004, is between BROWN BROTHERS HARRIMAN & CO., a private bank organized as a partnership (“Bank”), and NEOSE TECHNOLOGIES, INC., a Delaware corporation (“Borrower”).

W I T N E S S E T H:

Bank and Borrower, in consideration of the mutual agreements herein contained, and for other good and valuable consideration, hereby agree as follows:

ARTICLE 1.

DEFINITIONS AND ACCOUNTING TERMS

Section 1.1 Certain Defined Terms.

As used in this Agreement, the following terms shall have the following meanings (such meanings to be equally applicable to both the singular and plural forms of the terms defined):

“Affiliate” of any Person means any other Person (i) which directly or indirectly controls, is controlled by or is under common control with such Person, (ii) which directly or indirectly beneficially owns or holds ten percent (10%) or more of any class of voting stock of such Person, or (iii) ten percent (10%) or more of any class of voting stock of which is directly or indirectly beneficially owned or held by such Person.

“As-Offered Fixed Rate” means a fixed rate of interest quoted by Bank for fixed periods which Bank may offer from time to time.

“As-Offered Fixed Rate Term” means each period of approximately ninety (90) days commencing on the first day of each Fiscal Quarter, or such other period of time as Bank may offer in its sole discretion.

“Base Rate” means a fluctuating rate per annum equal to the rate of interest established by Bank in Philadelphia, Pennsylvania from time to time as its “base rate” charged by Bank to commercial borrowers in the United States. The Base Rate is determined from time to time by the Bank as a means of pricing some loans to its borrowers. The Base Rate is not tied to any external rate of interest or index, and does not necessarily reflect the lowest rate of interest actually charged by the Bank to any particular class or category of customers. If and when the Base Rate changes, the rate of interest with respect to any advance to which the Base Rate applies will change automatically without notice to Borrower, effective on the date of any such change. There are no required minimum interest periods for advances bearing interest at the Base Rate.

“Bond Acquisition” means the early redemption of the Series A Bonds and the reissuance thereof by the MCIDA to the Bank, or any transaction of similar effect.

“Bond Transaction” has the meaning set forth in Section 2.1 hereof.

“Business Day” means a day other than a Saturday, Sunday or other day on which banks are authorized or required to close under the laws of the Commonwealth of Pennsylvania.

“Capital Lease” means (a) any lease for property (real, personal or mixed) under which Borrower is the lessee and which, in accordance with GAAP, is or should be capitalized on the books of Borrower; and (b) any loan or other financing the proceeds of which are used or are to be used for the acquisition of equipment to be used in Borrower’s business.

“Change of Control” is deemed to occur if a Person is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the Securities Exchange Act of 1934, except that a person shall be deemed to be the “beneficial owner” of all securities that such person has the right to acquire, whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of more than thirty-five percent (35%) of the total voting power of all outstanding shares of capital stock having ordinary power to vote in the election of directors of Borrower.

“Closing” means the time of the initial execution and delivery of this Agreement and the making of the Loan.

“Collateral” has the meaning set forth in Section 3.1(e) hereof.

“Computer Software” means all computer applications software, owned or licensed by Borrower, whether for general business usage or specific, unique-to-the-business usage, and all computer operating, security or programming software, owned or licensed by Borrower.

“Copyrights” means registered copyrights, copyright applications and registered copyrights.

“Credit Obligation” has the meaning set forth in Section 6.1(g) hereof.

“Disclosure Schedule” means the disclosure schedule prepared and signed by Borrower and attached hereto as Exhibit D setting forth certain information with respect to Borrower.

“Environmental Laws” means all provisions of laws, statutes, ordinances, rules, regulations, permits, licenses, judgments, writs, injunctions, decrees, orders, awards and standards (having the force and effect of law) promulgated by any governmental authority concerning health, safety and protection of, or regulation of the discharge of substances into, the environment.

“Event of Default” has the meaning set forth in Section 6.1 hereof.

“ERISA” means the Employee Retirement Income Security Act of 1974, as amended, and any regulations issued thereunder by the PBGC or the U.S. Department of Labor.

- 2 -

“ERISA Affiliate” means any trade or business, whether or not incorporated, which together with Borrowers would be treated as a single employer under Section 4001 of ERISA.

“Financial Assets” means all cash, cash equivalents, savings deposits, bank accounts, investment accounts, certificates of deposit, time deposits, money market accounts and marketable securities belonging to Borrower.

“Fiscal Quarter” means any of the quarterly accounting periods of Borrower.

“Fiscal Year” of Borrower means each twelve-month period ending December 31.

“GAAP” means generally accepted accounting principles and practices applied on a consistent basis.

“GE Equipment” means any and all equipment, whether now owned or hereafter acquired by Borrower and constituting Permitted Indebtedness hereunder, financed by General Electric Capital Corporation (“GE”) and upon which GE maintains a lien. The GE Equipment owned by Borrower as of the date of Closing is listed on the Disclosure Schedule.

“Initial Advance” means the portion of the Term Loan to be advanced to Borrower at Closing, as more fully described in Section 2.2.(b) herein.

“Intangibles” means, at a particular date, all assets of Borrower that would be classified as intangible assets in accordance with GAAP.

“Intellectual Property” means, collectively: (a) all inventions (whether patentable or unpatentable and whether or not reduced to practice), all improvements thereto, and all Patents; (b) all Trademarks, trade dress, logos, trade name, fictitious names, brand names, brand marks, domain names and corporate names, together with all transactions, adaptations, derivations, and combinations thereof and including all goodwill associated therewith, and all applications, registrations, and renewals in connection therewith; (c) all copyrightable works, all Copyrights, and all applications, registrations, and renewals in connection therewith; (d) all mask works and all applications, registrations, and renewals in connection therewith; (e) all trade secrets (including ideas, research and development, know-how, formulas, compositions, manufacturing and production processes and techniques, technical data, designs drawings and specifications); (f) all Computer Software (including, but not limited to data, source codes, object codes, specifications and related documentation); (g) all other proprietary rights; and (h) all copies and tangible embodiments thereof (in whatever form or medium); in each case, which property is owned or controlled by Borrower and is used in and is necessary for the operation of Borrower’s business.

“Interest Payment Date” means March 31, June 30, September 30 and December 31 of each year, commencing March 31, 2004.

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“LIBOR” means the London inter-bank offered rate for the applicable LIBOR Term, determined by Bank by reference to market reporting services available to Bank and other banks and financial institutions.

“LIBOR Term” means each period of approximately ninety (90) days commencing on the first day of each Fiscal Quarter.

“Liquidity” means all Financial Assets in the control, custody and/or possession of Bank.

“Loan Account” has the meaning set forth in Section 2.3(f) hereof.

“Loan” has the meaning set forth in Section 2.1 hereof.

“Loan Documents” means this Agreement, the Note, the Mortgage, the Security Agreement, and all other documents, agreements, instruments, certificates and notices at any time delivered by any Person (other than Bank) in connection with any of the foregoing, as same may be amended, modified or supplemented from time to time.

“MCIDA” means the Montgomery County (Pennsylvania) Industrial Development Authority, a body corporate and politic and a public instrumentality of the Commonwealth of Pennsylvania.

“MCIDA Bonds” means those certain (i)Montgomery County Industrial Development Authority Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series A of 1997 in the amount of $1,000,000 (the “Series A Bonds”), and (ii) Montgomery County Industrial Development Authority Federally Taxable Variable Rate Demand Revenue Bonds (Neose Technologies, Inc. Project) Series B of 1997 in the amount of $8,400,000 (the “Series B Bonds”).

“Mortgage” means the Open-End Mortgage and Security agreement dated of even date herewith from Borrower, as mortgagor, to Bank, as mortgagee, with respect to the real property located at 102 Witmer Road, Horsham, Pennsylvania.

“Mortgaged Property” means the real property of Borrower which is subject to the lien of the Mortgage.

“Multiemployer Plan” means a Plan described in Section 4001(a)(3) of ERISA which covers employees of Borrower or of an ERISA Affiliate.

“Note” means the Term Loan Note.

“Patents” means all letters patent and pending applications for patents of the United States and all countries foreign thereto, including regional patents, certificates of invention and utility models, rights of license or otherwise to or under letters patent, certificates of intention and utility models which have been opened for public inspection and all reissues, divisions, continuations and extensions thereof.

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“PBGC” means the Pension Benefit Guaranty Corporation, or any governmental agency or instrumentality succeeding to the functions thereof.

“Permitted Indebtedness” means all types of borrowings permitted pursuant to Section 5.11(c).

“Permitted Liens” means:

(1) liens and security interests granted in favor of Bank;

(2) the lien in favor of the Series A Bonds and, subject to Section 3.2 (a) herein, the Series B Bonds;

(3) utility, access or other easements and rights of way, restrictions and exceptions which do not materially impair the operation or value thereof;

(4) deposits under workers’ compensation, unemployment and social security or similar laws, or to secure performance of bids, tenders, contracts (other than for the repayment of borrowed money) or leases to secure indemnity, performance or similar bonds in the ordinary course of business;

(5) liens imposed by law (whether or not inchoate), such as carriers’, warehousemen’s, materialmen’s or mechanics’ liens, incurred in good faith in the ordinary course of business, and which are not delinquent, and liens arising out of a judgment or award with respect to which an appeal is being prosecuted, a stay of execution pending such appeal having been secured or applied for and not denied or rendered ineffective;

(6) liens for taxes, assessments or governmental charges or levies on property if the same shall not at the time be delinquent, or are being contested in good faith and by appropriate proceedings;

(7) the existing security interests in, and Capital Leases with respect to, equipment listed on the Disclosure Schedule with reference to the definition of “Permitted Liens”;

(8) those encumbrances or interests listed on Schedule B to the title insurance policy delivered to Bank in accordance with Section 3.1(h) hereof;

(9) future security interests in, and Capital Leases with respect to, equipment securing indebtedness permitted pursuant to Section 5.11(c) hereof; and

(10) future liens and security interests granted in favor of Borrower’s landlords, which liens secure leasehold improvements financed by such landlords, but only to the extent such liens are limited to the improvements and fixtures financed by such landlords.

“Person” means an individual, corporation, limited liability company, association, partnership, business, joint venture, trust estate, unincorporated organization, government or any agency or political subdivision thereof, or any other entity.

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“Plan” means any plan maintained by Borrower or by an ERISA Affiliate.

“Prohibited Transaction” means any non-exempt transaction set forth in Section 406 of ERISA or Section 4975 of the Internal Revenue Code.

“Reportable Event” means any of the events set forth in Section 4043 of ERISA.

“Second Advance” means the portion of the Term Loan to be advanced to Borrower subsequent to Closing pursuant to the terms and conditions of this Agreement, as more fully described in Section 2.2(b) herein.

“Securities Laws” means the Securities Act of 1933, as amended, and the Securities Exchange Act of 1934, as amended, and all of the rules and regulations promulgated under both such acts.

“Security Agreement” means the General Security Agreement dated of even date herewith, from Borrower to Bank.

“Term Loan” has the meaning set forth in Section 2.1 hereof.

“Term Loan Note” means the Note described in Section 2.2(b) hereof.

“Third Advance” means an additional advance to Borrower of $1,000,000, which advance shall be made only if the Bond Acquisition is not completed on or before March 31, 2004 (as more fully described in Section 3.3 herein), and the consequential increase of the Term Loan hereunder to $9,000,000 in the aggregate.

“Total Debt” means, as applied to Borrower, the sum of all indebtedness for borrowed money (including, without limitation, Capital Lease obligations, subordinated debt and unreimbursed drawings under letters of credit), or any other monetary obligation evidenced by a note, bond, debenture or other similar agreement or instrument of Borrower.

“Trademarks” means registered trademarks, registered service marks, trademark and service mark applications, and unregistered trademarks and service marks.

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Section 1.2 Accounting Terms.

All accounting terms not specifically defined herein shall be construed, and all financial data submitted pursuant to this Agreement shall be prepared, in accordance with GAAP applied in a manner consistent with the application of GAAP in the preparation of the financial statements mentioned in Section 4.4.

ARTICLE 2.

THE TERM LOAN

Section 2.1 The Loan.

Subject to the terms and conditions hereinafter provided, Bank agrees to extend credit to Borrower in the form of a term loan (the “Term Loan”) in the amount of up to $9,000,000, but no less than $8,000,000, which shall be advanced to Borrower for the purpose of repaying certain outstanding indebtedness of Borrower, to fund new leasehold improvements, and for other general corporate purposes; provided however, that, if the Third Advance is not made pursuant to the terms hereof, the Term Loan shall be in the amount of $8,000,000. The Term Loan is sometimes referred to herein as the “Loan.” For the avoidance of doubt, the parties acknowledge and agree that this Agreement, the Note and Security Agreement, and the extension of the Term Loan pursuant thereto, constitute the first part of a two-part (or three-part, as applicable) transaction between Bank and Borrower, the second part of which (the “Bond Transaction”) shall be completed following the Closing Date, as more fully described in Section 3.2 herein.

Section 2.2 Term Loan.

(a) Term Loan. Bank shall lend to Borrower pursuant to the Term Loan the aggregate sum of (i) $9,000,000, if the Third Advance is made or (ii) $8,000,000, if the Third Advance is not made.

(b) Advances. At Closing, subject to satisfaction of the terms and conditions set forth in this Agreement, Bank shall make an Initial Advance of $6,200,000 to Borrower under the Term Loan. Bank shall make a Second Advance of $1,800,000 to Borrower under the Term Loan subsequent to Closing upon satisfaction of the conditions set forth in this Agreement. It is expressly understood and covenanted by Borrower that the Second Advance will be consummated, and all conditions precedent with respect thereto be satisfied, on or before March 1, 2004. As more fully described in Section 3.3 herein, if the Bond Transaction has not been completed on or before March 31, 2004, Bank shall make the Third Advance of $1,000,000 to Borrower under the Term Loan upon satisfaction of the conditions set forth in Section 3.3 of this Agreement.

(c) Term Loan Note. The indebtedness of Borrower in respect of the Term Loan shall be evidenced by the Term Loan Note executed by Borrower in favor of Bank in the form attached hereto as Exhibit A.

(d) Interest. The outstanding principal amount of the Term Loan Note shall bear interest at Borrower’s option, at: (1) the As-Offered Fixed Rate; or (2) LIBOR plus 3.00%

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(provided, however, that if Borrower fails to maintain Liquidity of at least $18,000,000, based on Bank’s determination (in its sole discretion), then option (2) shall be LIBOR plus 3.50%). Borrower shall provide Bank with telephonic notice prior to the initial advance of the Term Loan and, if applicable, not less than 2 Business Days prior to the last day of each LIBOR Term or As-Offered Fixed Rate Term, as the case may be, of Borrower’s selection of a rate option and term, which telephonic notice shall be promptly confirmed in writing. In the absence of such notice, the interest rate on the Term Loan Note shall continue at the LIBOR rate as provided herein, or, in the event a LIBOR rate is not available, the Base Rate plus 0.50% (or, if Borrower’s Liquidity is less than $18,000,000, the Base Rate plus 1.00%). Interest shall be due and payable to Bank quarterly on each Interest Payment Date.

(e) Maturity. The principal of the Term Loan Note shall be paid in 36 equal quarterly installments of (a) $250,000 if the Third Advance is made, or (b) $222,222.22 if the Third Advance is not made, on March 31, June 30, September 30 and December 31 of each year, commencing on March 31, 2005, subject to the prepayment provision contained herein.

(f) Optional Prepayments. The principal of the Term Loan Note, with respect to an As-Offered Fixed Rate Loan, may be prepaid in whole or in part (but if in part only in amounts of $100,000 or integral multiples of $25,000 in excess thereof) at any time, by Borrower upon three Business Days’ written notice to Bank, which prepayment shall be subject to a prepayment premium in an amount to be determined by Bank. The principal of the Term Loan Note, with respect to a LIBOR-based interest rate Loan or a Base Rate-based interest rate Loan, as the case may be, may be prepaid in whole or in part (but if in part only in amounts of $100,000 or integral multiples of $25,000 in excess thereof) at the end of the applicable LIBOR Term or term of a Base Rate-based interest rate Loan, by Borrower upon three Business Days’ written notice to Bank. In the event of the prepayment of any portion of the Term Loan Note during any period in which the Term Loan Note shall bear interest at a LIBOR-based interest rate prior to the end of the applicable LIBOR Term, Borrower shall pay to Bank, concurrently therewith, a “breakage fee” equal to the excess, if any, of (i) the amount of interest which otherwise would have accrued on the principal amount so repaid for the period from the date of such repayment to the last day of the LIBOR Term for such amount at the applicable rate of interest for such amount provided for herein, over (ii) the interest component of the amount Bank would have bid in the London interbank market for Dollar deposits of leading lenders and amounts comparable to such principal amount and with maturities comparable to such period (it being conclusively presumed for such purpose that Bank shall have purchased funds at the applicable LIBOR corresponding to such principal for the applicable LIBOR Term). No partial prepayment shall reduce Borrower’s obligation to make principal payments next becoming due under the Term Loan Note, but shall reduce such principal payment obligations in reverse order of due date.

Section 2.3 Other Provisions.

(a) Interest on the Note shall be calculated based upon a 360-day year for the actual number of days elapsed.

(b) Whenever any payment to be made hereunder or under the Note shall be stated to be due on a day that is not a Business Day, such payment may be made on the next

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succeeding Business Day, and such extension of time shall in such case be included in the computation of payment of interest hereunder or under the Note, as the case may be.

(c) In connection with the Loan provided hereunder, Borrower shall (1) pay to Bank at the Closing a closing fee equal to one-quarter of one percent of the Loan (the “Closing Fee”); (2) pay or reimburse Bank at the Closing (upon presentation by Bank to Borrower of reasonably detailed supporting documentation) for the reasonable costs and expenses of Bank in connection with the preparation, execution, issuance and delivery of this Agreement and the other instruments and documents to be delivered hereunder including, but not limited to, (i) reasonable fees and out-of-pocket expenses and disbursements of Bank and Bank’s counsel; (3) pay or reimburse Bank for all title insurance premiums and other filing fees incurred by it in connection with obtaining or securing the Bank’s interest in the Collateral; (4) pay or reimburse Bank for all real estate evaluation and appraisal fees in connection with this Agreement; and (5) pay or reimburse Bank on demand for the reasonable costs and expenses, if any, of Bank in connection with any amendments to this Agreement and the Note and the enforcement of this Agreement and the Note (including the reasonable fees and out-of-pocket expenses of Bank’s counsel with respect thereto). All of the foregoing fees and expenses will be due and payable to Bank regardless of whether this Agreement and the transactions contemplated thereby are consummated.

(d) Payment by Borrower of all amounts due hereunder shall be made by debit of a deposit account of Borrower maintained with Bank, as Bank may from time to time request.

(e) Notwithstanding any provision herein to the contrary, during any period in which an Event of Default shall have occurred and is continuing hereunder, interest shall accrue on the outstanding principal of the Note at a rate per annum equal to the then interest rate applicable to the Loan pursuant to Section 2.2(c) hereof plus 2% (the “Default Rate”).

(f) Bank shall open and maintain on its books a loan account (the “Loan Account”) with respect to repayments, prepayments, the computation and payment of interest and fees and the computation and final payment of all other amounts due and sums paid to Bank under this Agreement and the Note. Unless Borrower objects in writing to the information contained in a statement delivered to Borrower by Bank regarding the Loan Account within thirty (30) days of receipt of such statement, the information contained in such statement and in the Loan Account will, absent manifest error, be conclusive and binding on Borrower as to the amount at any time due to Bank from Borrower under this Agreement and the Note.

ARTICLE 3.

CONDITIONS OF LOAN

Section 3.1 Conditions Precedent to Loan and Initial Advance.

The obligation of Bank to make the Loan and the Initial Advance is subject to the conditions precedent that Bank shall have received at or before the Closing, all of the following, in form and substance satisfactory to Bank:

(a) A copy, certified in writing by the Secretary or an Assistant Secretary of Borrower, of (1) resolutions of the Board of Directors of Borrower evidencing approval of this

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Agreement, the Note, the Mortgage, the Security Agreement, and other matters contemplated hereby and, (2) each document evidencing any other necessary corporate action and any required approvals from governmental authorities with respect to this Agreement, the Note, the Mortgage, the Security Agreement, and other matters contemplated hereby.

(b) An opinion or opinions of counsel for Borrower in form and substance satisfactory to Bank.

(c) A written certificate by the Secretary or an Assistant Secretary of Borrower, confirming the names and signatures of the officers of Borrower authorized to sign this Agreement, the Note, the Mortgage, the Security Agreement, and the other documents or certificates of Borrower to be executed and delivered pursuant hereto. Bank may conclusively rely on, and be protected in acting upon, such certificate until it shall receive a further certificate by the Secretary or an Assistant Secretary of Borrower amending the prior certificate.

(d) The Note, duly executed on behalf of Borrower.

(e) The Security Agreement granting to Bank a security interest in substantially all of the real and personal property owned by Borrower, including accounts, goods (including inventory, equipment other than (x) the GE Equipment, and (y) equipment financed pursuant to Section 5.11(c) hereof, and fixtures), general intangibles (excluding Intellectual Property), chattel paper, documents and instruments, books and records, letters of credit and letter of credit rights, tort claims, insurance claims, and all other rights to payment not included in the foregoing, whether now owned or hereafter acquired, and all proceeds thereof, all as more particularly described in the Security Agreement (collectively, the “Collateral”).

(f) Results of UCC, tax lien, judgment and litigation searches on Borrower and, if applicable, releases and/or termination statements terminating, or other evidence satisfactory to Bank of the termination of, all liens and security interests relating to the Collateral.

(g) Authorization to file UCC-1 financing statements with respect to the Collateral.

(h) The Mortgage, together with a lender’s policy of title insurance with respect to the Mortgaged Property, in form satisfactory to Bank, insuring the lien thereof, in an amount not less than $8,000,000, subject only to liens of the Prior Mortgages (as defined in the Mortgage).

(i) ACORD 25 and ACORD 27 certificates of insurance or other evidence of Borrower’s insurance coverage as required by Section 5.3 hereof and by the provisions of the Mortgage and the Security Agreement.

(j) Payment to Bank of the Closing Fee and all other fees and expenses payable to Bank pursuant to and in connection with this Agreement. For the avoidance of doubt, fees and expenses payable to Bank with respect to the Bond Transaction shall not be required to be paid on the Closing Date.

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(k) An appraisal with respect to the Mortgaged Property, performed by an appraiser and in form and substance satisfactory to Bank.

(l) Borrower’s business and financial projections for Fiscal Year 2004 in form and substance reasonably satisfactory to Bank in its sole discretion.

(m) Certified copies of the Certificate of Incorporation and bylaws (and all amendments thereto) of Borrower, and certificates of good standing of Borrower, evidencing its good standing as a corporation under the laws of its jurisdiction of incorporation and jurisdictions where Borrower is duly qualified to conduct business.

(n) Such other certificates, instruments, agreements, approvals and opinions as Bank may reasonably require.

Section 3.2 Conditions Precedent to Second Advance.

The obligation of Bank to make the Second Advance (and the Third Advance, if the conditions precedent set forth in Section 3.3 are satisfied) under the Loan is subject to the further conditions precedent that:

(a) The representations and warranties contained in Article IV hereof shall be accurate on and as of the date of disbursement of the Second Advance (or the Third Advance, if applicable) as though made on and as of such date;

(b) No Event of Default shall have occurred and be continuing or will result from the making of the Second Advance (or the Third Advance, if applicable), and no event shall have occurred and be continuing that with notice or lapse of time or both would, if unremedied, be an Event of Default; and

(c) No material adverse change, as determined by Bank in its reasonable discretion, shall have occurred since the date of this Agreement in the financial condition, results of operation or business prospects of Borrower.

(d) Concurrent with the Second Advance the early redemption of the Series B Bonds in full by the Borrower shall be consummated in accordance with the applicable MCIDA Bond documents, which shall have occurred on or before March 1, 2004. Borrower shall deliver to the Bank evidence of consummation of such redemption, along with a policy of title insurance insuring the Mortgage as a second mortgage lien subject only to the prior mortgage lien of Jefferson Bank with respect to the Series A Bonds in the original principal amount of $1,000,000, which title insurance policy shall be acceptable to the Bank in all respects in the sole discretion of the Bank, and any other documentation as the Bank may reasonably request.

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(e) The Bank shall have received such additional documents or instruments, and such additional approvals and opinions as the Bank may request, under the terms of this Agreement, the other Loan Documents or otherwise.

The request for, and acceptance of, the Second Advance (or the Third Advance, if applicable) by Borrower shall be deemed a representation and warranty by Borrower that each of the conditions specified in this subsection has been satisfied.

Section 3.3 Condition Subsequent to Loan.

Borrower agrees, as a condition subsequent hereunder, that it shall use its best efforts to consummate the Bond Acquisition on or before February 29, 2004. In the event the Bond Acquisition does not occur on or before February 29, 2004, Bank will extend the date for performance by Borrower until March 31, 2004; provided, Borrower is using, and is continuing to use, its best efforts with respect thereto. If the Bond Transaction does not occur on or before such extended date of March 31, 2004, the Borrower shall borrow and the Bank shall make to Borrower, the Third Advance, subject to the satisfaction of each of the conditions precedent set forth in Section 3.2 (a), (b), (c), and (e) herein (which conditions precedent shall be deemed applicable to the Third Advance and shall be satisfied prior to the Bank’s funding thereof).

ARTICLE 4.

REPRESENTATIONS AND WARRANTIES

Borrower represents and warrants to Bank as follows:

Section 4.1 Existence; Authority.

Borrower is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware. Borrower has all requisite corporate power and authority, corporate and otherwise, to conduct its business and to own its properties and is duly qualified as a foreign corporation in good standing in all jurisdictions in which its failure so to qualify could have a material adverse effect on its financial condition, operations or business prospects. Borrower does not have any subsidiaries or affiliates, or in the past five years has not used any trade or other fictitious names.

Section 4.2 Authorization.

The execution, delivery and performance by Borrower of this Agreement, the Note, the Mortgage and the Security Agreement have been duly authorized by all necessary corporate action, and do not and will not violate any current provision of any government regulation or statute material to the on-going operation of Borrower’s business or of the charter or by-laws of Borrower or result in a breach of, or constitute a default under any indenture, instrument or other material agreement to which Borrower is a party or by which it or its properties may be bound or affected, or result in the creation or imposition of any lien, charge or other security interest or encumbrance of any nature whatsoever upon any of the property or assets of Borrower, other than as contemplated by the Mortgage and the Security Agreement.

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Section 4.3 Validity of Agreement, Note and Security Agreement.

This Agreement constitutes, and the Note, the Mortgage, the Security Agreement and the other Loan Documents to which Borrower is a party, when duly executed and delivered will constitute, valid and legally binding obligations of Borrower, enforceable in accordance with their terms, except as such enforceability may be limited by bankruptcy, insolvency or similar laws affecting the enforcement of creditors’ rights generally.

Section 4.4 Financial Information.

The financial statements of Borrower furnished to Bank were prepared in accordance with GAAP, consistently applied, and fairly and accurately present the financial condition of Borrower as of the dates and for the periods therein indicated. Except as set forth on the Disclosure Schedule, there has been no material adverse change in the financial condition and results of operations or business prospects of Borrower from those shown in the most recent of such financial statements.

Section 4.5 Litigation.

There are no actions, suits or proceedings pending or, to the knowledge of Borrower, threatened against Borrower or any of its properties before any court or governmental department, commission, board, bureau, agency or instrumentality (domestic or foreign) that, if determined adversely to Borrower, would have a material adverse effect on the financial condition, operations or business prospects of Borrower.

Section 4.6 Contingent Liabilities.

Except as set forth on the Disclosure Schedule, there are no suretyship agreements, guarantees or, to the best knowledge of Borrower, other contingent liabilities of Borrower that are not disclosed on the financial statements mentioned in Section 4.4.

Section 4.7 Investment Company Act.

Borrower is not an “investment company,” or a company “controlled” by an “investment company,” within the meaning of the Investment Company Act of 1940, as amended.

Section 4.8 Federal Reserve Regulations.

No indebtedness that is required to be, or will be, reduced or retired from the proceeds of the Loans was incurred for the purpose of purchasing or carrying any “margin stock” within the meaning of Regulation U of the Board of Governors of the Federal Reserve System (12 C.F.R. 221, as amended), and Borrower does not own or have any present intention to acquire any such margin stock. Borrower is not engaged in, nor does it have as one of its substantial activities, the business of extending or obtaining credit for the purpose of purchasing or carrying margin stock, and no proceeds of the Loan have been or will be used for such purpose or for the purpose of purchasing or carrying any such margin stock.

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Section 4.9 Taxes.

Borrower has filed or has caused to be filed all tax returns and reports required by law to be filed, and all taxes, assessments and other governmental charges (other than those presently payable without penalty or interest and those for which the sanctions, penalties and interest resulting from a failure to timely make payment would not have, individually or in the aggregate, a material adverse effect on the financial condition, operations or business prospects of Borrower) upon it or any of its assets or income which are due and payable, have been paid, except as set forth on the Disclosure Schedule. Any charges, accruals and reserves on Borrower’s books with respect to federal income taxes for all fiscal periods to date are considered adequate. There is no unpaid assessment against Borrower for additional federal income tax for any fiscal period (or any basis for a material unpaid assessment) known to Borrower.

Section 4.10 Title; Encumbrances.

Borrower has good and indefeasible title to all of its properties and assets that it purports to own. Neither the Collateral nor the Mortgaged Property is, nor upon the making of the Loan will be, subject to any lien, encumbrance or security interest (other than the Permitted Liens) except in favor of Bank under the Mortgage and the Security Agreement. Borrower has not agreed with any entity (other than Bank) not to pledge, encumber or otherwise grant a lien or security interest upon its properties or assets except for such assets as comprise collateral for or are otherwise subject to a Capital Lease, or except as may otherwise be prohibited by the documents entered into among the parties relating to the MCIDA Bonds.

Section 4.11 Consents.

No authorization, consent, approval, license, exemption by or filing or registration with any court or governmental department, commission, board (including the Board of Governors of the Federal Reserve System), bureau, agency or instrumentality is or will be necessary for the valid execution, delivery or performance by Borrower of this Agreement, the Note, or the Security Agreement.

Section 4.12 Compliance with Laws.

Except to the extent that the failure to so comply would not have a material adverse effect, individually or in the aggregate, on the financial condition, operations or business prospects of Borrower: (a) Borrower is in compliance with all laws, regulations and other requirements pertaining to its business; and (b) Borrower has not, within the past three (3) years, received any notice or formal or, to Borrower’s knowledge, any informal complaint or claim alleging that Borrower has failed to comply with any law, regulation or other requirement pertaining to its business, except (with respect to this clause (b)) as set forth on the Disclosure Schedule.

Section 4.13 Environmental Laws.

Borrower is in compliance, in all material respects, with all Environmental Laws (as defined below), including, without limitation, all Environmental Laws in jurisdictions in which

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Borrower owns or operates, or has owned or operated, a facility or site, stores Collateral, arranges or has arranged for disposal or treatment of hazardous substances, solid waste or other waste, accepts or has accepted for transport any hazardous substances, solid waste or other wastes or holds or has held any interest in real property or otherwise. Except as set forth on the Disclosure Schedule: (a) no litigation, action or overt investigation arising under, relating to or in connection with any Environmental Law is pending or, to the best knowledge of Borrower, threatened; and (b) to the best knowledge of Borrower, no proceeding, inquiry, request for information or administrative action is either pending or threatened; against Borrower, any real property in which Borrower holds or has held an interest or any past or present operation of Borrower. No release, threatened release or disposal of hazardous waste or substances, solid waste or other wastes is occurring, or to the best knowledge of Borrower, has occurred, on, under or to any real property in which Borrower holds any interest or performs any of its operations, in violation of any Environmental Law.

Section 4.14 ERISA.

Except as would not have a material adverse effect, individually or in the aggregate, on the financial condition, operations or business prospects of Borrower, Borrower is in compliance with all applicable provisions of ERISA, and no Prohibited Transaction has occurred and is continuing with respect to any Plan. Neither the Borrower nor any ERISA Affiliate maintains or has ever maintained a Plan subject to Title IV of ERISA or Section 412 of the Code, or is or has been a contributing employer with respect to any Multiemployer Plan.

Section 4.15 Indebtedness.

Borrower is not liable to any Person for indebtedness for money borrowed other than as disclosed to Bank in the Disclosure Schedule.

Section 4.16 Information; No Untrue Statement.

All information heretofore furnished by Borrower to Bank in writing for purposes of or in connection with this Agreement or the Note or the borrowing contemplated hereby or thereby is true and accurate in all material respects or, in the case of projections, based upon reasonable estimates, on the date as of which such information is stated or certified. No representation or warranty contained herein or in any certificate or other document furnished by Borrower pursuant to this Agreement contains any untrue statement of material fact or omits to state a material fact necessary to make such representation or warranty not misleading in light of the circumstances under which it was made.

Section 4.17 Agreements and Orders.

Borrower is not in default in the performance of any agreement or instrument to which it is a party or by which its properties are bound, or with respect to any order, writ, injunction, or decree of any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, except to the extent that such default would not have a material adverse effect on the financial condition, results of operations or business prospects of Borrower.

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Section 4.18 Operation of Business.

Borrower possesses (i) all material licenses, permits and other governmental authorizations, and (ii) all material franchises and Intellectual Property rights, or rights in any of the foregoing, adequate for the conduct of its business as now conducted and presently proposed to be conducted, without conflict with the material rights or claimed rights of others, except to the extent same is permitted under applicable law.

Section 4.19 Perfection of Liens.

The Bank, upon filing of the UCC-1 financing statement with the Secretary of State of the State of Delaware, and recording of the Mortgage with the Office of the Montgomery County, Pennsylvania Recorder of Deeds, each prepared in connection with this Agreement, will have filed of record financing statements and other documents or lien instruments in all places as are necessary to perfect the security interests, liens, and other encumbrances granted by this Agreement, the Mortgage or the Security Agreement, and no further action (including the filing or recording of any documents or instrument, other than the periodic filing of UCC-3 continuation statements) is or will be necessary in order to establish, perfect or maintain the security interests, liens, and other encumbrances granted or confirmed by this Agreement, the Mortgage or the Security Agreement.

Section 4.20 Securities Laws.

All registration statements, reports, definitive proxy statements and other filings of Borrower did comply, as of their respective filing dates, in all material respects with the requirements of all applicable Securities Laws, and did not contain any untrue statement of a material fact, or fail to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, as of their respective filing dates.

Section 4.21 Other Agreements.

Borrower is not a party to any indenture, loan or credit agreement, or to any lease or other agreement or instrument, or subject to any charter or corporate restriction, which could have a material adverse effect on its business, properties, assets, or condition, financial or otherwise, or adversely effect its ability to materially perform its obligations under this Agreement, or the other Loan Documents to which it is a party.

Section 4.22 Labor Disputes and Casualties.

Borrower is not affected by any fire, explosion, accident, strike, lockout, or other labor dispute, drought, storm, hail, earthquake, embargo, act of public enemy, or other casualty (whether or not covered by insurance) which materially and adversely affects its business, properties, assets, or condition, financial or otherwise, or its ability to perform its obligations under this Agreement, or the other Loan Documents to which it is a party.

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Section 4.23 Intellectual Property.

(a) The Borrower has ownership or license or legal right to use all Intellectual Property other than Intellectual Property generally available on commercial terms from other sources. All material licenses or other material agreements under which (i) the Borrower is granted rights in Intellectual Property, other than Intellectual Property generally available on commercial terms from other sources, and (ii) the Borrower has granted rights to others in Intellectual Property owned or licensed by the Borrower, are, to the knowledge of the Borrower, in full force and effect and, to the knowledge of the Borrower, there is no material default by the Borrower thereunder. The Borrower believes it has taken all steps required in accordance with sound business practice and business judgment to establish and preserve its ownership of or rights to all material Intellectual Property. To the knowledge of the Borrower, the present business, activities and products of the Borrower do not infringe any intellectual property of any other person, except where such infringement would not have a material averse effect on the financial condition, results of operations or business prospects of Borrower. To the knowledge of the Borrower, the Borrower is not making unauthorized use of any confidential information or trade secrets of any Person. Neither the Borrower nor, to the knowledge of the Borrower, any of its employees has any agreements or arrangements with any Persons other than the Borrower related to confidential information or trade secrets of such persons other than such agreements that would not materially restrict the Borrower from conducting its business as currently conducted.

(b) None of the Intellectual Property has been pledged as security or collateral for any indebtedness of Borrower.

(c) None of Borrower’s agreements covering its Intellectual Property licensed to third parties, or covering its Intellectual Property being co-developed with or used by third parties, provides any such third party, upon a default by Borrower under such agreement, with (A) the right to acquire, use or foreclose upon such Intellectual Property without payment to Borrower of fair value with respect thereto (except to the extent that the existence of such right would not have a material adverse effect on the financial conditions, operations or business prospects of Borrower), or (B) any right or remedy other than a limited ability to use such Intellectual Property within the limited field of use which is the subject of such agreement.

Section 4.24 Further Assurances.

At any time and from time to time, upon the written request of Bank and at the sole expense of Borrower, Borrower shall promptly and duly execute and deliver any and all such further instruments and documents and take such further action as Bank may reasonably deem desirable (a) to obtain the full benefits of this Agreement and the other Loan Documents, (b) to protect, preserve and maintain Bank’s rights in any Collateral or Additional Collateral, or (c) to enable Bank to exercise all or any of the rights and powers herein granted.

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ARTICLE 5.

COVENANTS OF BORROWER

So long as any amount due Bank hereunder remains unpaid, unless Bank shall otherwise consent in writing:

Section 5.1 Books and Records; Financial Statements and Other Information.

Borrower covenants that it shall keep proper books of record and account in which full, true and correct entries will be made of all dealings or transactions of or in relation to the business and financial affairs of Borrower, in accordance with GAAP. Borrower shall furnish to Bank the following:

(a) promptly upon the filing, distribution or receipt thereof, copies of (i) all reports (including, without limitation, Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q), registration statements and definitive proxy statements filed by Borrower with the Securities and Exchange Commission (the “SEC”) (or any successor thereto) or any securities exchange, (ii) copies of all reports, proxy statements, financial statements, and management letters distributed by Borrower to its shareholders or the financial community in general, and (iii) copies of any reports submitted to Borrower by independent accountants in connection with any annual, interim or special audit;

(b) within ninety (90) days after the last day of each Fiscal Year of Borrower, (i) a copy of Borrower’s annual financial statements prepared in accordance with GAAP, which shall be accompanied by an unqualified audit report of Borrower’s certified public accountants, and (ii) a letter of an authorized officer of Borrower to the effect that to the best of his or her knowledge, no event has occurred which constitutes or would, with the passage of time or the giving of notice or both, constitute an Event of Default hereunder, or otherwise describing any such event known to such officer;

(c) within forty-five (45) days after the last day of each of the first three Fiscal Quarter, (i) a copy of Borrower’s unaudited financial statements for such Fiscal Quarter and for the Fiscal Year to date (including a comparison to the corresponding period from the prior Fiscal Year), including a balance sheet, income statement and statement of cash flows, and (ii) a letter of an authorized officer of Borrower to the effect that, in the opinion of such officer (A) such unaudited financial statements have been prepared in accordance with GAAP and reflect a fair presentation of Borrower’s financial position and results of operation of Borrower, for such Fiscal Quarter and the Fiscal Year to date, and (B) no event has occurred which constitutes or would, with the passage of time or the giving of notice or both, constitute an Event of Default hereunder, or otherwise describing any such event known to such officer;

(d) within forty (40) days after the last day of each month (other than any month in which the end of a Fiscal Quarter or Fiscal Year falls), (i) a copy of Borrower’s unaudited financial statements for such month and for the Fiscal Year to date (including a comparison to the corresponding period from the prior Fiscal Year), including a balance sheet and income statement, and (ii) a letter of an authorized officer of Borrower to the effect that, in the opinion of such officer (A) such unaudited financial statements reflect in all material respects Borrower’s financial position and results of operation of Borrower, for such month and the Fiscal Year to date, and (B) no event has occurred which constitutes or would, with the passage of time or the giving of notice or both, constitute an Event of Default hereunder, or otherwise describing any such event known to such officer;

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(e) as soon as practicable, but in any event within five (5) days after Borrower becomes aware of the occurrence of any event that would cause a material adverse change in the business, business prospects, properties or financial condition of Borrower, a written statement by an executive officer, setting forth the details of such material adverse change, and the action which is proposed to be taken with respect thereto;

(f) as soon as practicable, but in any event within five (5) days of the time Borrower becomes aware thereof (or should have become so aware with the exercise of reasonable diligence), notice of the institution of, or of any material adverse development with respect to, any suit or proceeding, against Borrower in which the amount of damages which is sought, or which in Borrower’s reasonable opinion may be at controversy, shall exceed $100,000;

(g) as soon as possible, but in any event within five (5) days after Borrower becomes aware thereof (or should have become so aware with the exercise of reasonable diligence), notice of the occurrence of any Event of Default or of any act, omission, thing or condition which upon the giving of notice or lapse of time, or both, would or might constitute an Event of Default, which notice shall describe the Event of Default or other act, omission, thing or condition in question and shall set forth in detail what action Borrower proposes to take with respect thereto;

(h) as soon as possible, but in any event within five (5) days after Borrower becomes aware thereof (or should have become so aware with the exercise of reasonable diligence), notice of the occurrence of any Reportable Event or Prohibited Transaction with respect to any Plan if such Reportable Event or Prohibited Transaction could reasonably be expected to have a material adverse effect on the financial condition, operations or business prospects of Borrower; and

(i) upon request, or within a reasonable time thereafter, such other information concerning Borrower and its operations and financial condition and results as Bank may reasonably request.

All such reports, registration statements, definitive proxy statements and other filings of Borrower with the SEC will comply, as of their respective filing dates, in all material respects with the requirements of all applicable Securities Laws, and will not contain any untrue statement of a material fact, or fail to state a material fact required to be stated therein or necessary in order to make the statements made therein, in light of the circumstances under which they were made, not misleading, as of their respective filing dates.

Section 5.2 Payment of Taxes and Claims.

Borrower will pay all taxes, assessments and other governmental charges imposed upon it or any of its properties or assets or in respect of any of its franchises, business, income or profits before any penalty or interest accrues thereon, and all claims (including, without limitation, claims for labor, services, materials and supplies) for sums which have become due and payable

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and which by law have or might become a lien upon any of its properties or assets, provided that no such charge or claim need be paid if being contested in good faith by appropriate proceedings promptly initiated and diligently conducted and if such reserve or other appropriate provision, if any, as shall be required by GAAP shall have been made therefor and, if the filing of a bond or other indemnity is necessary to avoid the creation of a lien against any of the assets of Borrower, such bond shall have been filed or indemnity provided.

Section 5.3 Insurance.

(a) Borrower shall (i) keep its property and business insured against fire and other hazards (so-called “all risk” coverage) in amounts and with companies reasonably satisfactory to Bank, or the amount necessary to avoid any co-insurance penalty, which policy shall name Bank as loss payee as its interest may appear, (ii) maintain public liability coverage against claims for personal injuries, death or property damage in an amount deemed reasonable by Bank, which policy shall name Bank as an additional insured as its interest may appear, and (iii) maintain all worker’s compensation, employment or similar insurance as may be required by applicable law. All such property insurance shall contain an endorsement identifying Bank as lienholder, lender loss payee and mortgagee, and providing for a minimum of thirty (30) days’ written cancellation notice to Bank. In any event, Borrower’s obligation to carry such insurance may only be brought within the coverage of a so-called blanket or umbrella policy or policies of insurance carried and maintained by Borrower if and only if the coverage afforded Bank will not be limited, reduced or diminished by reason of the use of a blanket or umbrella policy of insurance.

(b) Borrower agrees to deliver copies of all of the aforesaid insurance policies to Bank.

(c) In the event of any material loss or damage to the Collateral, Borrower shall give prompt (and, in any event, within five (5) days of such occurrence) written notice to Bank and to its insurers of such loss or damage and shall properly file its proofs of loss with said insurers.

(d) In the event the whole or materially all of the Collateral (including the Mortgaged Property) shall be destroyed or damaged, Bank shall have the right to collect the proceeds of any insurance and to retain and apply such proceeds, at its election, to the reduction of the Loan, in inverse order of maturity, and any other amounts due and owing under the Loan Documents, or to restoration, repair, replacement, rebuilding or alteration (herein sometimes collectively called the “Restoration”) of the Collateral (including the Mortgaged Property). In the event the whole or materially all of the Mortgaged Property shall be taken in condemnation proceedings or by agreement between Borrower and Bank and the condemning authority, Bank shall apply such award or proceeds thereof first to payment of the Loan, in inverse order of maturity, and any other amounts due and owing under the Loan Documents, and any balance then remaining shall be paid to Borrower. For the purposes of this Section 5.3, “materially all of the Mortgaged Property” shall be deemed to have been damaged, destroyed or taken if the portion of the Mortgaged Property not so damaged, destroyed or taken cannot be repaired or reconstructed so as to constitute a complete structure and facility usable in substantially the manner as prior to the damage, destruction or taking.

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(e) So long as no Event of Default has occurred, in the event of partial destruction of the Collateral (including the Mortgaged Property) or partial condemnation of the Mortgaged Property, all of the proceeds or awards shall be collected and held by Bank, and shall be applied by Bank, in its sole discretion, to the repayment of the Loan, in the inverse order of maturity, and any other amounts due and owing under the Loan Documents, with any proceeds then remaining being paid to Borrower, or to the payment of the Restoration. Upon the written request of Borrower, Bank shall apply such proceeds or awards to the payment of the Restoration as the Restoration progresses, so long as:

(i) Such proceeds are, in Bank’s reasonable judgment, sufficient to cover the cost of such Restoration or, if insufficient, Borrower deposits with Bank the amount of any such deficiency,

(ii) Borrower shall deliver to Bank contracts, plans and specifications for the Restoration which are satisfactory to Bank,

(iii) the work for which payment is requested has been done in a good and workmanlike manner and Borrower presents evidence satisfactory to Bank of amounts owed or paid by Borrower for completed Restoration work,

(iv) The Collateral (including the Mortgaged Property), after such Restoration is or will be, in the reasonable judgment of Bank, of an economic value not less than that of such Collateral prior to the casualty or condemnation (Bank has the right, but not the obligation, to perform an appraisal on the Collateral in order to determine its economic value), and

(v) Borrower shall comply with such further conditions in connection with the use of such proceeds or award as Bank may reasonably request.

Any balance remaining in the hands of Bank after payment of such Restoration shall be retained by Bank and applied to the payment of the Loan, in the inverse order of maturity, and any other amounts due and owing under the Loan Documents.

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(f) Notwithstanding the foregoing provisions of this Section 5.3 regarding insurance or condemnation proceeds, if no Event of Default has occurred, and if such proceeds do not exceed $1,000,000.00, and if the undamaged or uncondemned portion of the Collateral (including the Mortgaged Property) can be continuously used during the Restoration period as a complete structure and operating facility in substantially the same manner as prior to the damage, Borrower shall have the right to collect the insurance or condemnation proceeds and apply them to the Restoration.

(g) No damage, destruction or condemnation of the Collateral (including the Mortgaged Property) nor any application of insurance or condemnation proceeds to the payment of the Loan, and any other amounts due and owing under the Loan Documents, shall postpone or reduce the amount of any of the current installments of principal or interest becoming due under the Loan, and any other amounts due and owing under the Loan Documents, which shall continue to be made in accordance with the terms of the Loan until the Loan, all interest due thereunder and any other amounts due and owing under the Loan Documents are paid in full.

(h) Borrower, as of the date hereof has, and shall maintain, in full force and effect business interruption insurance in the coverage amount of at least $5,000,000.

(i) The provisions of this Section shall be in addition to any similar requirements set forth in the Security Agreement and the Mortgage.

Section 5.4 Maintenance of Properties.

Borrower will maintain or cause to be maintained its properties in good repair, working order and condition and make or cause to be made all appropriate and proper repairs, renewals, replacements, additions and improvements thereto. Borrower shall install and maintain its equipment and systems in compliance in all material respects with any requirement imposed under any governmental regulations, permits, or licenses or under agreements affecting Borrower. Borrower shall maintain, preserve and protect, and, when necessary, renew, all Intellectual Property, except where the failure to do any of the foregoing would not have a material adverse effect, individually or in the aggregate, upon the financial condition, results of operation or business prospects of Borrower.

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Section 5.5 Inspection.

(a) Upon reasonable notice Borrower will allow any representative of Bank to visit and inspect any of its properties, to examine the books of account and other records and files of Borrower (including, without limitation, the financial statements (audited and unaudited, to the extent prepared) and information with respect to Borrower), to make copies thereof; provided, prior to an Event of Default such visits, inspections and examinations shall be limited to four (4) times in any calendar year.

(b) Borrower will allow Bank to discuss the affairs, business, finances and accounts of Borrower with its management, personnel and accountants, all at such reasonable times (and to the extent feasible, during ordinary business hours) and as often as Bank may reasonably request.

Section 5.6 Change in Organizational Documents; Maintenance of Existence.

Borrower will not amend, or consent to, any amendment or supplement to, its certificate of incorporation or other organization document which amendment or supplement would reasonably be expected to adversely affect the rights or interests of the Bank hereunder. Borrower shall preserve and maintain its corporate existence and good standing in its jurisdiction of incorporation, and qualify and remain qualified as a foreign corporation in each jurisdiction in which such failure to so qualify would reasonably be expected to have a materially adverse effect on the Borrower’s business operations or the Collateral.

Section 5.7 Subsidiaries.

Borrower will not form or acquire any subsidiary without the written consent of Bank, which consent shall not be unreasonably withheld.

Section 5.8 Compliance with Laws.

Borrower shall comply with all applicable laws, regulations and other requirements pertaining to its business, including, without limitation, all Environmental Laws and Securities Laws, except to the extent that the failure to so comply would not have a material adverse effect, individually or in the aggregate, on the financial condition, operations or business prospects of Borrower.

Section 5.9 Federal Reserve Regulations.

No proceeds of the Loans shall be used by Borrower, directly or indirectly to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. Borrower will not, directly or indirectly, otherwise take or permit to be taken any action which would result in the Loans or the carrying out of any of the other transactions contemplated by this Agreement, being violative of Regulation T (12 C.F.R. 220, as amended), Regulation U (12 C.F.R. 221, as amended), Regulation X (12 C.F.R. 224, as amended), or any other regulation of the Board of Governors of the Federal Reserve System.

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Section 5.10 ERISA.

Except as would not have a material adverse effect, individually or in the aggregate, on the financial condition, operations or business prospects of Borrower, Borrower shall comply in all material respects with all applicable provisions of ERISA with respect to each Plan as to which Borrower has any liability, including minimum funding requirements, and shall not (i) allow any Prohibited Transaction to occur with respect to any such Plan, (ii) allow any Reportable Event to occur with respect to any such Plan subject to Title IV of ERISA which would cause the PBGC to institute proceedings under Section 4042 of ERISA, (iii) withdraw from any such Plan subject to Title IV of ERISA or initiate steps to do so, or (iv) take any steps to terminate any such Plan subject to Title IV of ERISA.

Section 5.11 Additional Negative Covenants.

So long as any part of the Loan remains unpaid, Borrower shall not, without the written consent of Bank:

(a) Corporate Transactions. (1) Merge or consolidate with any other corporation, partnership, trust or other entity, (2) sell, lease, license, transfer or otherwise dispose of any of its assets other than (A) in the ordinary course of business, or (B) if outside the ordinary course of business, where the cost of such assets exceeds $100,000, or (3) directly or through any entity consolidated with Borrower for financial reporting purposes, purchase (A) any assets other than in the ordinary course of business; or (B) where the purchase price of such assets exceeds $100,000.

(b) Nature of Business. Make any material change in the nature of its business as conducted at the time of the Closing.

(c) Borrowings. Create, incur, assume, guarantee, endorse, or otherwise become liable for, or permit to exist any direct or contingent obligation for borrowed money (including obligations under Capital Leases), except:

(1) obligations with respect to the Note, this Agreement and the other Loan Documents;

(2) any other indebtedness to Bank;

(3) the indebtedness described in the Disclosure Schedule;

(4) Capital Lease obligations or purchase money equipment financings; provided, however, that, where such obligation or financing to any one entity is in an amount greater than $250,000.00, the lender asserting any security interest therein executes and delivers to Bank an intercreditor agreement substantially in the form attached hereto as Exhibit C, satisfactory to Bank in its reasonable discretion; and

(5) other existing and future indebtedness, to Borrower’s vendors providing extended terms for payment, not to exceed $500,000 in the aggregate; which obligations, when taken in the aggregate, shall not exceed $22,000,000.

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(d) Guarantees. Assume, guarantee, endorse, or otherwise become directly or contingently liable for the indebtedness of any other Person.

(e) Encumbrances. Either (i) enter into an agreement with any entity (other than Bank) not to pledge, encumber or otherwise grant a lien or security interest upon any of its property or assets, or (ii) create, incur, assume or suffer to exist any mortgage, lien, security interest, restriction or encumbrance with respect to any of its property or assets, including, but not limited to, the Collateral, the Mortgaged Property, the Intellectual Property and the Liquidity, other than Permitted Liens:

(f) Loans and Investments. Acquire or retain, except as set forth in the Disclosure Schedule, any debt or equity interest in, or make any loan or advance to or other investment in, any Person other than (1) the investment of Borrower’s cash for temporary periods in the ordinary course of business and in accordance with prudent cash management policies, and (2) normal advances in the ordinary course of business to officers and employees in connection with their duties.

(g) Restricted Payments. Directly or indirectly, declare, order, pay, make or set apart any sum or property for any dividend or other distribution with respect to its capital stock.

(h) Leasebacks. Directly or indirectly sell or otherwise transfer, in one or more related transactions, any property (whether real, personal or mixed) and thereafter rent or lease such transferred property or substantially identical property.

(i) Transactions with Affiliates. Directly or indirectly, engage in any transaction, other than issuances with respect to equity interests in the Borrower, with an Affiliate of Borrower on terms that are less favorable to Borrower than those which might be obtained at the time from Persons which are not an Affiliate of Borrower.

(j) Fiscal Year. Change its Fiscal Year.

Section 5.12 Liquidity; Additional Collateral; Grant of Security Interest.

Within 14 days after the Second Advance, Borrower shall have deposited all of its Financial Assets, other than $100,000, in account(s) maintained by the Bank and/or its affiliates. Thereafter, Borrower shall keep and maintain all of its Financial Assets, other than $100,000, in an account or accounts with the Bank and/or its affiliates except as may be necessary to fund the Borrower’s business, or as otherwise consented to in writing by Bank. At any time on or after the fourth anniversary date of Closing, or if Borrower fails to maintain Liquidity of at least $22,000,000 (based on Bank’s determination in its sole discretion), Bank may require, in its sole discretion, that Borrower obtain and deliver to Bank a standby letter of credit within ten (10) days of Bank’s request thereof, issued by a bank reasonably acceptable to Bank in its sole discretion, substantially in the form attached hereto as Exhibit B, in the outstanding principal amount of the Loan as additional collateral (“Additional Collateral”). Bank shall be permitted

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to make partial draws upon the Additional Collateral for payments of principal and interest. Borrower hereby creates and grants to Bank and its affiliates a security interest in and lien upon the Liquidity, provided that such security interest and lien shall attach and become perfected (a) upon the earlier of (i) Bank’s receipt of notice from a Person that has provided Capital Lease financing to Borrower, which notice evidences such Person’s commencement of, or intention to commence, foreclosure or other action against the Borrower or such equipment, or (ii) commencement by a Person that has provided Capital Lease financing to Borrower of foreclosure or other action against the Borrower or the financed equipment; or (b) if, for any reason, Borrower does not obtain and deliver to Bank the Additional Collateral as provided herein, and further provided that such security interest and lien shall be limited to an amount equal to the outstanding balance of the Loan at the time of such attachment and perfection, and all other amounts due and payable under this Agreement. Borrower hereby authorizes Bank to file and record, and agrees and covenants that it will execute and deliver to Bank, any and all such UCC financing statements, agreements, documents, instruments and/or certificates necessary for the perfection of such security interest and lien.

Section 5.13 Updates to Disclosure Schedule.

Following the Closing and prior to the Second and (if applicable) Third Advances, Borrower shall be permitted to amend and update the Disclosure Schedule to reflect any events occurring after the Closing and permitted under the terms of the Loan Documents that, if not reflected, would cause the Disclosure Schedule to be materially incorrect; provided that no such change constitutes a default or Event of Default thereunder, Borrower shall make any such amendment (and notify Bank of same) promptly after becoming aware of the need therefore, and such amended Disclosure Schedule shall be incorporated as part of this Agreement and shall replace the Disclosure Schedule then existing.

Section 5.14 Copies of Documents Evidencing Permitted Indebtedness.

Borrower agrees to deliver to Bank copies of all documents evidencing any Permitted Indebtedness incurred by Borrower subsequent to the date of Closing within ten (10) days after consummation of the transaction giving rise to such Permitted Indebtedness.

ARTICLE 6.

DEFAULT

Section 6.1 Events of Default.

Each of the following shall be an event of default (“Event of Default”):

(a) Failure to pay when due any installment of the principal of or interest on the Note; or

(b) Failure to pay any other fee, expense or other payment due hereunder within five (5) business days after demand is made; or

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(c) Failure to observe or perform any other term, covenant, condition or agreement set forth in this Agreement (excluding Section 5.12 hereof), where Borrower does not cure such failure within ten (10) business days after notice from Bank; or

(d) The occurrence of any default under the Mortgage, Security Agreement, or any other Loan Document after the expiration of any applicable grace or cure period; or

(e) Borrower shall commence a voluntary case or other proceeding seeking liquidation, reorganization or other relief with respect to itself or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, or shall consent to any such relief or to the appointment of or taking position by any such official in an involuntary case or other proceeding commenced against it, or shall make a general assignment for the benefit of creditors, or shall fail generally to pay its debts as they become due, or shall take any corporate action to authorize any of the foregoing; or

(f) An involuntary case or other proceeding shall be commenced against Borrower seeking liquidation, reorganization or other relief with respect to it or its debts under any bankruptcy, insolvency or other similar law now or hereafter in effect or seeking the appointment of a trustee, receiver, liquidator, custodian or other similar official of it or any substantial part of its property, and such involuntary case or other proceeding shall remain undismissed and unstayed for a period of sixty (60) days; or an order for relief shall be entered against Borrower or any subsidiary of Borrower under the Federal bankruptcy laws as now or hereafter in effect; or

(g) If any Change of Control shall occur; or

(h) If Borrower shall fail to pay any obligation for the payment of borrowed money or the installment purchase price of property or on account of a lease of property (a “Credit Obligation”) owing by it, or any interest or premium thereon, when due, whether such Credit Obligation shall become due by scheduled maturity, by required prepayment, by acceleration, by demand or otherwise, or Borrower shall fail to perform any term, covenant or agreement on its part to be performed under any agreement or instrument evidencing or securing or relating to any such Credit Obligation when required to be performed, if the effect of such failure is to accelerate, or to permit the holder or holders of such Credit Obligation in excess of $250,000 to accelerate, the maturity of such Credit Obligation, whether or not such failure to perform shall be waived by the holder or holders of such Credit Obligation, unless such waiver has the effect of terminating the right of such holder or holders to accelerate the maturity of such Credit Obligation as a result of such failure; or

(i) If any representation or warranty by or on behalf of Borrower made herein or in any report, certificate, financial statement or other instrument delivered to Bank shall prove to be false or misleading in any material respect when made; or

(j) If any default shall occur with respect to any other indebtedness of Borrower to Bank in excess of $25,000, subject to Borrower’s right to notice and opportunity to cure, if any, under the instruments which evidence or secure such indebtedness; or

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(k) The occurrence of any material adverse change in the business, financial condition, results of operations or business prospects of Borrower, as determined by Bank in its sole discretion; or

(l) Failure of Borrower to maintain its Financial Assets (other than $100,000) at all times in an account(s) with the Bank and/or its affiliates; or

(m) A judgment or lien (with respect to which full adequate insurance is not maintained) in excess of $250,000 (individually or in the aggregate) is entered against Borrower, or the property of Borrower becomes subject to any attachment, garnishment, levy or lien; or

(n) Borrower dissolves, liquidates or ceases to conduct operations, or prepares or attempts to do any of the foregoing; or

(o) Borrower ceases to operate its business at its pilot plant located in its 102 Witmer Road, Horsham, Pennsylvania facility due to the failure of Borrower to be in compliance with applicable laws, regulations and specifications of the United States Food and Drug Administration or any other relevant governmental regulatory agency or authority.

ARTICLE 7.

REMEDIES; ACCELERATION

If any Event of Default shall occur and be continuing, Bank may, by written notice to Borrower, (a) declare the entire unpaid principal amount of the Loan, all interest accrued and unpaid thereon and all other amounts payable hereunder to be forthwith due and payable, whereupon the Note, all such accrued interest and all such amounts shall become and be forthwith due and payable, without presentment, demand, protest or further notice of any kind, all of which are hereby expressly waived by Borrower; (b) exercise its rights under the Mortgage and the Security Agreement; and (c) exercise all of the rights and remedies of a secured party under the Uniform Commercial Code or any other applicable law or agreement with respect to all Collateral and Additional Collateral then held for the Loan. Notwithstanding the foregoing, the entire unpaid principal amount of the Loan, together with all interest accrued and unpaid thereon and all other amounts payable hereunder shall be immediately due and payable hereunder, without notice, upon the occurrence of an Event of Default described in Sections 6.1(e) and (f) above.

Bank shall have no obligation to marshal any Collateral or Additional Collateral or to seek recourse against or satisfaction of any of the liabilities hereunder from one source before seeking recourse against or satisfaction from another source. The net cash proceeds resulting from Bank’s exercise of any of its rights and remedies hereunder, including any and all collections (after deducting all of Bank’s expenses related thereto), shall be applied by Bank on account of Borrower’s liabilities hereunder in such order as Bank shall elect in its sole discretion, whether due or to become due. Borrower shall remain liable to Bank for any deficiencies. All of Bank’s remedies hereunder and under the other Loan Documents shall be cumulative, may be exercised simultaneously against any Collateral and any Additional Collateral and in such order as Bank may deem desirable, and are not intended to be exhaustive.

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ARTICLE 8.

MISCELLANEOUS

Section 8.1 No Waiver; Cumulative Remedies.

No failure or delay on the part of Bank or Borrower in exercising any right, power or remedy hereunder shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy hereunder. No waiver of any provision hereof shall be effective unless the same shall be in writing and signed by Bank and Borrower.

Section 8.2 Set-Off.

Upon the occurrence and during the continuance of an Event of Default, Bank shall have the right, in addition to all other rights and remedies available to Bank, without prior notice to Borrower, to apply toward and set-off against and apply to the then unpaid balance of the Loan and any other amounts due and owing under the Loan Documents any items or funds held by Bank, any and all deposits (whether general or special, time or demand, matured or unmatured, fixed or contingent, liquidated or unliquidated) and Financial Assets now or hereafter maintained by Borrower for its own account with Bank, and any other indebtedness at any time held or owing by Bank to or for the credit or the account of Borrower. Bank is hereby authorized to charge any such account or indebtedness for any amounts then due to Bank. Such right of set-off shall exist whether or not Bank shall have made any demand under this Agreement, the Note or any other Loan Document. Borrower hereby confirms the Bank’s right of set-off, and nothing in this Agreement shall be deemed any waiver or prohibition of such right of set-off.

Section 8.3 Indemnification.

Borrower covenants and agrees, at its expense, to pay and to indemnify and save Bank, its partners, employees and agents, and their successors and/or assigns (collectively, the “Indemnified Parties”) harmless of, from and against, any and all claims, damages, demands, expenses, liabilities, and losses of every kind, character and nature asserted by or on behalf of any Person (including Bank) arising out of, resulting from or in any way connected with the Loan, or the negotiation, execution, delivery and performance of this Agreement or any of the other Loan Documents, except for any claim, damage, demand, expense, liability or loss arising out of the Indemnified Parties’ own gross negligence or willful misconduct.

In case any action shall be brought against the Indemnified Parties based upon any of the above and in respect to which indemnity may be sought against Borrower, the party involved may request in writing that Borrower assume the defense thereof, including the employment of counsel satisfactory to such party, the payment of all reasonable costs and expenses and the right to negotiate and consent to settlement. Any one or more of the Indemnified Parties shall have the right to employ separate counsel in any such action, to participate in defense thereof and Borrower shall assume the payment of all reasonable costs and expenses with respect thereto. Borrower shall not be authorized to settle any such action on behalf of Bank without the prior written consent of Bank, which consent shall not be unreasonably withheld. Borrower shall not be liable for any settlement of any such action effected without its consent, but if settled with the

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consent of Borrower or if there be a final judgment for the plaintiff in any such action, Borrower agrees to indemnify and hold harmless the Indemnified Parties from and against any loss or liability by reason of such settlement or judgment.

Any provision herein or elsewhere to the contrary notwithstanding, this Section 8.3 shall survive the termination of this Agreement.

Section 8.4 Notices.

Unless this Agreement specifically provides otherwise, all notices and other communications that this Agreement requires or permits either party to give to the other shall be in writing and shall be given to such party at its address or telecopy number specified on the signature pages of this Agreement or at such other address or telecopy number as shall be designated by such party in a notice to the other party complying with the terms of this Section 8.4. Unless this Agreement specifically provides otherwise, all notices and other communications will be effective (a) if given by mail, when received, (b) if given by telecopy, when such telecopy is transmitted to the appropriate telecopy number and the sender receives confirmation of transmission during normal business hours, or (c) if given by any other means, when delivered at the appropriate address, except that notices from Borrower to Bank pursuant to any of the provisions of Article II hereof shall not be effective until received by Bank.

Section 8.5 Governing Law.

This Agreement, the Note and the obligations arising under the Loan Documents shall be in all respects governed by, and construed and enforced in accordance with, the laws of the Commonwealth of Pennsylvania applicable to contracts made and performed in that Commonwealth, without regard to the principles of conflicts of laws.

Section 8.6 Savings.

Notwithstanding anything else herein to the contrary, it is the intent of Borrower and Bank to at all times comply with the usury and all other laws relating to the Loan now or hereafter in effect. It is agreed that the aggregate of all interest and other charges constituting interest or adjudicated to constitute interest and contracted for, chargeable, or receivable in connection with the Loan shall under no circumstances exceed the maximum amount allowable by law. If the applicable laws are ever revised or judicially interpreted so as to render usurious any amount called for hereunder, or contracted for, charged, chargeable, received or receivable with respect to the Loan, or if holder’s exercise of the option therein contained to accelerate the maturity of the Loan or any part thereof results in Borrower’s having paid any interest in excess of that permitted by applicable law, then all excess amounts collected by holder will be credited on the principal balance of the Loan (or, if the Loan has been paid in full, refunded to Borrower), and those provisions will immediately be deemed reformed and the amounts thereafter collectible will be reduced, without the necessity of the execution of any new documents, so as to comply with the then applicable law, but so as to permit the recovery of the fullest amount of interest otherwise called for in respect of the Loan. If the maturity of the Loan is accelerated, then earned interest may never include more than the maximum amount of interest permitted by applicable law from the date of each advance hereunder until paid. Specifically, but without in

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any way limiting the generality of the foregoing, if from any circumstances whatsoever fulfillment of any provision hereof of or any document, instrument or other agreement contemplated hereby, at the time performance of such provision is due, would cause the interest contracted for, charged, chargeable, received or receivable with respect to the Loan to exceed the amount permitted by applicable law, then notwithstanding anything to the contrary contained herein or therein, Borrower will only be required to pay to the holder, as interest, an amount equal to the lesser of the amounts payable hereunder or under any such document, instrument or other agreement and the highest amount permitted by applicable law. In determining whether the amount of interest contracted for, charged, chargeable, received or receivable with respect to the Loan, or any other agreements between Borrower and Bank would ever exceed the amount permitted by applicable law, all sums paid or agreed to be paid to the holder for the use, forbearance, or retention of the indebtedness of Borrower to Bank will, to the extent possible under applicable law, be amortized, prorated, allocated, and spread throughout the full term thereof until payment in full. The provisions of this paragraph control all agreements between Borrower and Bank with respect to the transactions contemplated hereby.

Section 8.7 Judicial Proceedings.

(a) Borrower consents and agrees that any judicial proceedings relating in any way to this Agreement may be brought in any court of competent jurisdiction in the Commonwealth of Pennsylvania or in the United States District Court for the Eastern District of Pennsylvania. Borrower hereby accepts, for itself and its properties, the non-exclusive jurisdiction of such courts, agrees to be bound by any judgments rendered by them in connection with this Agreement, and will not move to transfer any such proceeding to any different court. Borrower waives the defense of forum non conveniens in any such action or proceeding.

(b) Service of process in any proceeding arising out of or relating to this Agreement may be made by any means permitted by the applicable rules of court as then in force, or may be made by any form of mail requiring a signed receipt.

(c) Nothing herein shall limit the right of Bank to bring proceedings against Borrower in the courts of any other jurisdiction or be deemed to constitute a consent to jurisdiction by any party hereto as to Persons not parties to this Agreement or as to matters not relating to this Agreement.

(d) WAIVER OF JURY TRIAL. EACH OF BORROWER AND BANK HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION OR PROCEEDING. BORROWER FURTHER ACKNOWLEDGES AND AGREES THAT WAIVER OF JURY TRIAL IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT BANK WOULD NOT HAVE AGREED TO MAKE ANY LOAN (INCLUDING ANY ADVANCE) OR ACCEPT THIS AGREEMENT OR ANY NOTE WITHOUT SUCH AGREEMENT.

(e) CONFESSION OF JUDGMENT. BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS BANK, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON

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THE OCCURRENCE AND DURING THE CONTINUATION OF AN EVENT OF DEFAULT, TO APPEAR FOR BORROWER AND CONFESS AND ENTER JUDGMENT AGAINST BORROWER IN FAVOR OF BANK IN ANY JURISDICTION WHERE BORROWER OR ANY OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS AND OTHER SUMS DUE OR TO BECOME DUE BY BORROWER TO BANK UNDER THIS AGREEMENT, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITH OR WITHOUT DECLARATION, WITHOUT STAY OF EXECUTION AND WITH RELEASE OF ALL ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS AGREEMENT OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT. BORROWER HEREBY WAIVES ALL RELIEF FROM ANY APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS BANK, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY TIME THEREAFTER, TO APPEAR FOR BORROWER, AS WELL AS FOR ANY PERSONS CLAIMING UNDER, BY OR THROUGH BORROWER, IN AN ACTION OR ACTIONS FOR REPLEVIN OR OTHER APPROPRIATE ACTION AGAINST BORROWER TO CONFESS AND ENTER JUDGMENT AGAINST BORROWER, FOR RECOVERY OF POSSESSION OF ANY OR ALL OF THE MORTGAGED PROPERTY AND/OR THE PROCEEDS THEREOF, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITHOUT THE NECESSITY OF FILING ANY BOND AND WITHOUT STAY OF EXECUTION OR APPEAL AND WITH RELEASE OF ALL ERRORS AND FOR DOING SO THIS AGREEMENT OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT, WHEREUPON A JUDGMENT AND/OR WRIT OF POSSESSION AND/OR REPLEVIN OR OTHER APPROPRIATE PROCESS TO OBTAIN POSSESSION OF SUCH MORTGAGED PROPERTY MAY BE ISSUED FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized, as of the date first above written.

NEOSE TECHNOLOGIES, INC.		Address:	102 Witmer Road
			Horsham, PA 19044
By:	/s/ C. Boyd Clarke	Attention: Facsimile:	General Counsel (215) 315-9100
Name:	C. Boyd Clarke
Title:	President and CEO
BROWN BROTHERS HARRIMAN & CO.		Address:	1531 Walnut Street
			Philadelphia, PA 19102
By:	/s/ J. Clark O’Donoghue	Attention: Facsimile:	J. Clark O’Donoghue (215) 864-3989
Name:	J. Clark O’Donoghue
Title:	Managing Director

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EXHIBIT A

Form of Term Loan Note

$8,000,000	January      , 2004
	Philadelphia, Pennsylvania

NEOSE TECHNOLOGIES, INC., a Delaware corporation (the “Borrower”), for value received, hereby promises to pay to the order of BROWN BROTHERS HARRIMAN & CO. (the “Bank”) the principal amount of EIGHT MILLION DOLLARS ($8,000,000) on the dates and in the principal amounts provided in the Credit Agreement referred to below. The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding at the rate and on such dates as provided in the Credit Agreement. All such principal and interest shall be payable in lawful money of the United States of America in same day funds at the office of the Bank.

This Note is the Term Loan Note referred to in the Credit Agreement dated of even date herewith (the “Credit Agreement”) between the Borrower and the Bank, and is entitled to the benefits thereof. Capitalized terms used but not defined herein have the meanings specified in the Credit Agreement.

The Bank is hereby authorized by the Borrower to endorse on the schedule (or a continuation thereof) attached hereto, the date and amount of each payment or prepayment of principal of the Term Loan received by the Bank, provided that any failure by the Bank to make any such endorsement or any error therein shall not affect the obligations of the Borrower under the Credit Agreement or this Note in respect of the Term Loan evidenced hereby. This Note is subject to prepayment and its maturity is subject to acceleration upon the terms provided in the Credit Agreement.

The Borrower hereby waives presentment, demand, protect or notice of any kind in connection with this Note.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.

THE BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE BANK, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE AND DURING THE CONTINUATION OF AN EVENT OF DEFAULT, TO APPEAR FOR THE BORROWER AND CONFESS AND ENTER JUDGMENT AGAINST THE BORROWER IN FAVOR OF THE LENDER IN ANY JURISDICTION WHERE THE BORROWER OR ANY OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS AND OTHER SUMS DUE OR TO BECOME DUE BY THE BORROWER TO THE BANK UNDER THIS NOTE, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITH OR WITHOUT DECLARATION, WITHOUT STAY OF EXECUTION AND WITH RELEASE OF ALL ERRORS AND THE

RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS NOTE OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT. THE BORROWER HEREBY WAIVES ALL RELIEF FROM ANY APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

THE BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE BANK, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY TIME THEREAFTER, TO APPEAR FOR THE BORROWER, AS WELL AS FOR ANY PERSONS CLAIMING UNDER, BY OR THROUGH THE BORROWER, IN AN ACTION OR ACTIONS FOR REPLEVIN OR OTHER APPROPRIATE ACTION AGAINST THE BORROWER TO CONFESS AND ENTER JUDGMENT AGAINST THE BORROWER, FOR RECOVERY OF POSSESSION OF ANY OR ALL OF THE MORTAGED PROPERTY AND/OR THE PROCEEDS THEREOF, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITHOUT THE NECESSITY OF FILING ANY BOND AND WITHOUT STAY OF EXECUTION OR APPEAL AND WITH RELEASE OF ALL ERRORS AND FOR DOING SO THIS NOTE OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT, WHEREUPON A JUDGMENT AND/OR WRIT OF POSSESSION AND/OR REPLEVIN OR OTHER APPROPRIATE PROCESS TO OBTAIN POSSESSION OF SUCH MORTGAGED PROPERTY MAY BE ISSUED FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

THE BORROWER ACKNOWLEDGES THAT THE BORROWER HAS WAIVED THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ON THIS NOTE.

NEOSE TECHNOLOGIES, INC.

By:

Name:

Title:

Schedule to Term Loan Note

Payment Schedule

EXHIBIT B

Form of Standby Letter of Credit

EXHIBIT C

Form of Intercreditor Agreement

EXHIBIT D

Disclosure Schedule

1.	Definitions	GE Equipment
2.	Section 4.6	Contingent Liabilities
3.	Section 4.9	Taxes
4.	Section 4.12	Compliance with Laws
5.	Section 4.13	Environmental Laws
6.	Section 4.15	Indebtedness
7.	Section 4.23	Intellectual Property

EX-10.45

EXHIBIT 10.45

GENERAL SECURITY AGREEMENT

THIS GENERAL SECURITY AGREEMENT, dated as of January 30, 2004, is made by NEOSE TECHNOLOGIES, INC., a Delaware corporation (“Obligor”), to BROWN BROTHERS HARRIMAN & CO., a private bank organized as a partnership (the “Secured Party”).

SECTION 1. Grant of Security Interest.

Obligor hereby grants to Secured Party a security interest in all of Obligor’s right, title and interest in and to the following property of Obligor, whether now owned or hereafter arising or acquired (collectively, the “Collateral”):

(a) accounts, general intangibles, chattel paper, and instruments (collectively, the “Receivables”);

(b) inventory;

(c) documents;

(d) equipment (whether or not constituting fixtures);

(e) letter of credit rights;

(f) supporting obligations; and

(g) to the extent not otherwise included in the original collateral described above, all proceeds and products of any of the foregoing.

Notwithstanding the foregoing, the Collateral shall not include: (a) Obligor’s Intellectual Property or Liquidity, as such terms are defined in that certain Credit Agreement (the “Credit Agreement”), dated as of the date hereof, by and between Obligor and Secured Party, except as otherwise provided in the Credit Agreement; and (b) any equipment financed by any third party which constitutes Permitted Indebtedness under the Credit Agreement, to the extent such financing arrangements preclude liens in favor of any other person or entity.

Obligor represents and warrants that it is the sole owner of the Collateral and has the legal right to grant to Secured Party a security interest therein, and that the Collateral is free and clear of all other liens, security interests and encumbrances, other than the Permitted Liens (as such term is defined in the Credit Agreement).

SECTION 2. Security for Liabilities.

This Agreement secures the payment and performance of all indebtedness, obligations, and liabilities of every kind and nature (whether primary or secondary, direct or indirect, absolute or contingent, sole, joint, or several, secured or unsecured, similar or dissimilar, or related or unrelated), heretofore, now, or hereafter contracted or acquired, of Obligor to Secured Party (collectively, the “Liabilities”).

SECTION 3. Obligor Remains Liable.

Anything herein to the contrary notwithstanding, (a) Obligor shall remain liable under its contracts and agreements included in the Collateral to the extent set forth therein to perform all of Obligor’s duties and obligations thereunder to the same extent as if this Agreement had not been executed, (b) the exercise by Secured Party of any of the rights hereunder shall not release Obligor from any of its duties or obligations under its contracts and agreements included in the Collateral, and (c) Secured Party shall not have any obligation or liability under the contracts and agreements included in the Collateral by reason of this Agreement, nor shall Secured Party be obligated to perform any of the obligations or duties of Obligor thereunder or to take any action to collect or enforce any claim for payment assigned hereunder.

SECTION 4. Further Assurances.

(a) Obligor agrees that from time to time, at its expense, it will promptly execute and deliver all further instruments and documents, and take all further action, that may be necessary or desirable, or that Secured Party may reasonably request, in order to perfect and protect any security interest granted or purported to be granted hereby or to enable Secured Party to exercise and enforce its rights and remedies hereunder with respect to any Collateral. Without limiting the generality of the foregoing, Obligor will: (i) upon request by Secured Party, mark conspicuously each item of chattel paper included in its Receivables and each of its records pertaining to any of the Collateral, with a legend, in form and substance satisfactory to Secured Party, indicating that such chattel paper or Collateral is subject to the security interest granted hereby; (ii) if any of its Receivables shall be evidenced by a promissory note or other instrument, deliver and pledge to Secured Party hereunder such note or instrument duly indorsed and accompanied by duly executed instruments of transfer or assignment, all in form and substance satisfactory to Secured Party; (iii) authorize Secured Party to file such financing or continuation statements, or amendments thereto, and such other instruments or notices, as may be necessary or desirable, or as Secured Party may request, in order to perfect and preserve the security interests granted hereby; (iv) to the extent that any Collateral consists of letter-of-credit rights, cause the issuer of each underlying letter of credit to consent to the assignment to Secured Party; (v) to the extent that any Collateral is in the possession of a third party, join with Secured Party in notifying the third party of Secured Party’s security interest and in obtaining an acknowledgement from the third party that it is holding such Collateral for the benefit of Secured Party; and (vi) at any time that Secured Party so reasonably requests, work with Secured Party to set up such lock boxes and segregated accounts as Secured Party may request in order to better perfect the security interest created hereunder in proceeds.

(b) Obligor hereby authorizes Secured Party to file one or more financing or continuation statements, and amendments thereto, relative to all or any part of the Collateral without the signature of Obligor where permitted by law. A carbon, photographic, or other reproduction of this Agreement or any part thereof shall be sufficient as a financing statement where permitted by law.

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(c) Obligor will furnish to Secured Party from time to time statements and schedules further identifying and describing the Collateral and such other reports in connection with the Collateral as Secured Party may request, all in reasonable detail.

(d) Obligor shall not reincorporate or reorganize itself under the laws of any jurisdiction other than the jurisdiction in which it is incorporated or organized as of the date hereof, and shall not change its organizational structure under such jurisdiction if such action would, in the judgment of Secured Party, require filing under the Uniform Commercial Code, as adopted, in a different jurisdiction in order to maintain perfection of the security interest granted hereby, without the prior written consent of Secured Party.

(e) Obligor shall not change its corporate name without providing Secured Party at least thirty (30) days’ prior written notice.

SECTION 5. Insurance.

Obligor shall, at its own expense, (i) keep its property and business insured against fire and other hazards (so-called “all risk” coverage) in amounts and with companies reasonably satisfactory to Secured Party, or the amount necessary to avoid any co-insurance penalty, which policy shall name Secured Party as loss payee as its interest may appear, (ii) maintain public liability coverage against claims for personal injuries, death or property damage in an amount deemed reasonable by Secured Party, which policy shall name Secured Party as an additional insured as its interest may appear, and (iii) maintain all worker’s compensation, employment or similar insurance as may be required by applicable law. All such property insurance shall contain an endorsement identifying Secured Party as lienholder, lender loss payee and mortgagee, and providing for a minimum of thirty (30) days’ written cancellation notice to Secured Party. In any event, Obligor’s obligation to carry such insurance may only be brought within the coverage of a so-called blanket or umbrella policy or policies of insurance carried and maintained by Obligor if and only if the coverage afforded Secured Party will not be limited, reduced or diminished by reason of the use of a blanket or umbrella policy of insurance. Obligor shall deliver to Secured Party original or duplicate policies of insurance maintained pursuant hereto and, as often as Secured Party may reasonably request, a report of a reputable insurance broker with respect to such insurance.

SECTION 6. Representations and Warranties.

Obligor represents and warrants to Secured Party that:

(a) Obligor has all requisite rights, powers and authority to execute and deliver this Agreement and to carry out the transactions contemplated hereby, including, but not limited to, rights in and the power to transfer the Collateral free and clear of all claims, liens, security interests and other encumbrances or restrictions, other than the Permitted Liens. The execution, delivery and performance of this Agreement by Obligor has been duly authorized by all requisite corporate action, and this Agreement has been duly executed and delivered by Obligor and constitutes its valid and binding obligation, enforceable against Obligor in accordance with its terms, except as such enforcement may be limited by bankruptcy, insolvency, moratorium, reorganization and other similar laws relating to or affecting the enforcement of creditors’ rights

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generally, and except that the availability of specific performance, injunctive relief or other equitable remedies is subject to the discretion of the court before which any such proceeding may be brought.

(b) The execution, delivery and performance of this Agreement by Obligor will not violate any provision of law, any rule or regulation of any governmental authority, or any judgment, decree or order of any court binding on Obligor, and will not conflict with or result in any breach of any of the terms, conditions or provisions of, or constitute a default under, or, except as expressly provided herein, result in the creation of any lien, security interest, charge or encumbrance upon any of its properties, assets or outstanding stock under its Certificate of Incorporation or By-Laws or any indenture, mortgage, lease, agreement or other instrument to which Obligor is a party or by which it or any of its properties is bound.

(c) Obligor’s chief executive office is located at the place indicated on Schedule 1 hereto and Obligor’s books and records are and will be maintained at such location. Schedule 1 hereto lists each other location where Obligor maintains a place of business. All of the Collateral constituting goods is located at the places indicated on Schedule 1 hereto. Obligor is the record owner or lessee (as indicated on Schedule 1) of the real property where such Collateral is located, with the exception of the storage and warehouse facility of Pierce Leahy Archives located at 2500 Henderson Drive, Sharon Hill, PA. Obligor’s exact legal name and place of incorporation or legal formation is as indicated in the heading to this Agreement. Obligor has no trade names and has not used any name other than its actual corporate name for the preceding five years. No entity has merged into Obligor or been acquired by Obligor within the past five years. The federal tax identification number and state organizational identification number, if any, of Obligor is as set forth on Schedule 1 hereto.

SECTION 7. Certain Covenants as to Inventory and Equipment.

Obligor shall:

(a) Cause its equipment to be maintained and preserved in the same condition, repair, and working order as when new, ordinary wear and tear excepted, and, in the case of any material loss or damage to any of its equipment, as quickly as practicable after the occurrence thereof, make or cause to be made all repairs, replacements, and other improvements in connection therewith which are necessary or desirable to such end, in the reasonable business judgment of Obligor.

(b) Pay promptly when due all property and other taxes, assessments, and governmental charges or levies imposed upon it or any of its inventory or equipment, and all claims (including claims for labor, services, materials and supplies) for sums which by law have or might become a lien upon any of its inventory and equipment.

(c) After the occurrence and during the continuance of an Event of Default (as hereinafter defined), receive in trust for the benefit of Secured Party all amounts and proceeds received or collected by such Obligor in respect of its inventory and equipment, segregate such amounts and proceeds from other funds of such Obligor, and forthwith pay such amounts and proceeds over to Secured Party in the same form as so received (with any necessary endorsement) to be held as cash collateral and applied as provided in Section 15(b).

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(d) Notify Secured Party in the event of material loss or damage to the Collateral or of any material adverse change in Obligor’s business, financial condition or the Collateral, or of any other occurrences which could materially and adversely affect the security of Secured Party.

SECTION 8. Certain Covenants as to Receivables.

(a) Upon the occurrence and during the continuance of an Event of Default, from time to time upon request, Obligor shall provide Secured Party with (i) schedules describing all accounts, (ii) additional schedules describing other Receivables, and (iii) specific written assignments to Secured Party of any of its Receivables. Any failure to execute or deliver any schedule or assignment shall not, however, affect or limit any security interest or other right of Secured Party in and to any Receivable. Upon the occurrence and during the continuance of an Event of Default, at Secured Party’s request, Obligor shall also furnish to Secured Party copies of invoices to customers and shipping and delivery receipts or warehouse receipts relating thereto, as well as such other documents and instruments as Secured Party may reasonably request in connection with any Receivable.

(b) Upon the occurrence and during the continuance of an Event of Default, Obligor shall promptly notify Secured Party of all returns, repossessions and recoveries of goods covered by the Receivables and of all claims asserted with respect thereto. Each such notification shall be accompanied by a statement describing the relevant goods and the location thereof. Upon the occurrence and during the continuance of an Event of Default, Obligor shall not settle or adjust any dispute or claim, grant any discount, credit or allowance, or accept any return of merchandise except in the ordinary course of business. Upon the occurrence and during the continuance of an Event of Default, when Obligor receives collateral of any kind by reason of transactions between itself and its customers or account debtors, it will hold the same on Secured Party’s behalf, subject to Secured Party’s instructions, as property forming part of the Receivables.

(c) Upon the occurrence and during the continuance of an Event of Default, Secured Party shall have the right from time to time to communicate directly with account debtors and obligors on the Receivables and to do test verifications of the Receivables.

(d) Obligor shall promptly notify Secured Party if any of its accounts arise out of contracts with the United States or any agency or instrumentality thereof, and execute any instruments and take any steps required by Secured Party in order that all moneys due and to become due under such contracts shall be assigned to Secured Party in accordance with the requirements of, and notice given to the Government under the Federal Assignment of Claims Act.

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SECTION 9. Transfers and Other Liens.

Obligor shall not:

(a) Sell, assign (by operation of law or otherwise), or otherwise dispose of any of the Collateral except (1) in the ordinary course of business or (2) if outside the ordinary course of business, where the cost of such Collateral does not exceed $100,000.

(b) Create, permit or suffer to exist any lien, security interest, or other charge or encumbrance upon or with respect to any of the Collateral, other than Permitted Liens as provided for in the Credit Agreement.

SECTION 10. Secured Party Appointed Attorney-in-Fact.

Obligor hereby irrevocably appoints Secured Party as its attorney-in-fact, with full authority in the place and stead of Obligor and in the name of Obligor, Secured Party, or otherwise, from time to time in Secured Party’s discretion to take any action and to execute any instrument which Secured Party may deem necessary or advisable to accomplish the purposes of this Agreement, including, without limitation:

(a) to authorize the filing of and/or sign in the name and on behalf of Obligor any financing statements or other papers required under Section 4;

(b) subject to the terms of the Credit Agreement and that certain open-end mortgage and security agreement (the “Mortgage”), dated as of the date hereof, by and between Obligor and Secured Party, to obtain and adjust insurance required to be paid to Secured Party pursuant to Section 5;

(c) following the occurrence and during the continuance of an Event of Default;

1. to ask, demand, collect, sue for, recover, compound, receive, and give acquittance and receipts for moneys due and to become due under or in respect of any of the Collateral;

2. to receive, indorse, and collect any drafts or other instruments, documents, and chattel paper in connection with subsection (b) or (c) above; and

3. to file any claims or take any action or institute any proceedings which Secured Party may deem necessary or desirable for the collection of any of the Collateral or otherwise to enforce the rights of Secured Party with respect to any of the Collateral.

Obligor hereby ratifies and approves all acts of Secured Party as such attorney-in-fact taken in compliance with this Section 10. Secured Party shall not, in its capacity as such attorney-in-fact, be liable for any acts or omissions, nor for any error in judgment or mistake of fact or law, but only for gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, nonappealable judgment. This power, being coupled with an interest, is irrevocable until all Liabilities have been fully satisfied and until Secured Party is no longer committed to allow additional Liabilities to be incurred. Any amounts received or collected by Secured Party in its capacity as such attorney-in-fact and in compliance with this Section 10 shall be held as cash collateral and applied as provided in Section 15(b).

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SECTION 11. Secured Party May Perform.

If Obligor fails to perform any agreement contained herein, Secured Party may itself perform, or cause performance of, such agreement, and the expenses of Secured Party incurred in connection therewith shall be payable by Obligor under Section 16(b).

SECTION 12. Secured Party’s Duties.

The powers conferred on Secured Party hereunder are solely to protect its interest in the Collateral and shall not impose any duty to exercise any such powers. Except for the safe custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, Secured Party shall not have any duty as to any Collateral or as to the taking of any necessary steps to preserve rights against any parties or any other rights pertaining to any Collateral. Without limiting the generality of the foregoing, Secured Party has no obligation to clean-up or otherwise prepare the Collateral for sale.

SECTION 13. Inspection Rights.

Secured Party at all times shall have access to inspect, audit, and make extracts from all of Obligor’s records, files, and books of account relating to the Collateral and to examine and inspect inventory and other Collateral owned by Obligor; provided, prior to an Event of Default, such access, examination and inspection shall be limited to four (4) times in any calendar year, shall be during regular business hours, and shall be upon five (5) days’ prior notice to Obligor. Obligor shall, at Secured Party’s request, take all steps necessary to facilitate such inspection. Obligor shall deliver any document or instrument necessary for Secured Party to obtain records from any service bureau maintaining records for Obligor.

SECTION 14. Default.

“Event of Default” means subject to any applicable period of grace or cure, (i) nonpayment of any of the Liabilities when due (whether at stated maturity or upon demand, acceleration of maturity or otherwise), (ii) any other default with respect to the Liabilities, (iii) any other failure by Obligor to perform any of its obligations under this Agreement, the Credit Agreement or any other Loan Document evidencing or securing any of the Liabilities, or (iv) any breach of any representation or warranty made by Obligor in connection with the transactions contemplated by this Agreement, the Credit Agreement or any other Loan Document evidencing or securing any of the Liabilities.

SECTION 15. Remedies.

If any Event of Default shall have occurred and be continuing:

(a) Secured Party may exercise in respect of the Collateral, in addition to other rights and remedies provided for herein or otherwise available to it, all the rights and remedies of a secured party on default under the Uniform Commercial Code (the “Code”) and other applicable laws and agreements, as they may be amended from time to time, and also may (i) require Obligor to, and Obligor hereby agrees that it will at its expense and upon request of Secured Party forthwith, assemble the tangible Collateral as directed by Secured Party and make it

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available to Secured Party at a place or places to be designated by Secured Party which are reasonably convenient to Secured Party and Obligor and (ii) without notice except as specified below, sell the Collateral or any part thereof in one or more parcels at public or private sale, at any of Secured Party’s offices or elsewhere, for cash, on credit, or for future delivery, and upon such other terms as Secured Party may deem commercially reasonable. Obligor agrees that, to the extent notice of sale shall be required by law, at least five (5) Business Days’ notice to Obligor of the time and place of any public sale or the time after which any private sale is to be made shall constitute reasonable notification. Secured Party shall not be obligated to make any sale of the Collateral regardless of notice of sale having been given. Secured Party may adjourn any public or private sale from time to time by announcement at the time and place fixed therefor, and such sale may, without further notice, be made at the time and place to which it was so adjourned.

(b) All cash proceeds received by Secured Party in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of Secured Party, be held by Secured Party (without interest) as collateral for, and/or then or at any time thereafter applied (after payment of any amounts payable to Secured Party pursuant to Section 16) in whole or in part by Secured Party against, all or any part of the Liabilities in such order as Secured Party shall elect. Any surplus of such cash or cash proceeds held by Secured Party and remaining after payment in full of all the Liabilities shall be paid over to Obligor or to whosoever may be lawfully entitled to receive such surplus. Obligor shall be liable to Secured Party for any deficiency amount.

(c) Secured Party may comply with any applicable law in connection with a disposition of Collateral and compliance will not be considered adversely to affect the commercial reasonableness of any sale of the Collateral. Secured Party may sell the Collateral without giving any warranties and may specifically disclaim such warranties. If Secured Party sells any of the Collateral on credit, Obligor will only be credited with payments actually made by the purchaser.

SECTION 16. Indemnity and Expenses.

(a) Obligor agrees to indemnify Secured Party (including any partner, officer, employee, director or agent of Secured Party) from and against any and all claims, losses, and liabilities arising out of or resulting from this Agreement (including, without limitation, enforcement of this Agreement), except claims, losses, or liabilities resulting from Secured Party’s gross negligence or willful misconduct as determined by a court of competent jurisdiction in a final, nonappealable judgment.

(b) Obligor will upon demand pay to Secured Party the amount of any and all reasonable expenses, including the reasonable fees and disbursements of its counsel and of any experts and agents, which Secured Party may incur in connection with (i) the preparation, administration and amendment of this Agreement, (ii) the custody, preservation, use, or operation of, or the sale of, collection from, or other realization upon, any of the Collateral, (iii) the exercise or enforcement of any of the rights of Secured Party hereunder, or (iv) the failure by Obligor to perform or observe any of the provisions hereof.

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SECTION 17. Amendments, Indulgences, Etc.

No amendment or waiver of any provision of this Agreement nor consent to any departure by Obligor here from shall in any event be effective unless the same shall be in writing and signed by Secured Party and Obligor, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No failure or delay on the part of Secured Party in the exercise of any right, power, or remedy under this Agreement shall constitute a waiver thereof, or prevent the exercise thereof in that or any other instance. No remedy or right herein conferred upon, or reserved to Secured Party is intended to be to the exclusion of any other remedy or right, but each and every such remedy or right shall be cumulative and shall be in addition to every other remedy or right given hereunder or under any other contract or under law.

SECTION 18. Notices.

All notices, requests and demands to or upon the respective parties hereto shall be deemed to have been given or made, (a) if delivered by hand against receipt, on the date of such delivery, or (b) if deposited in the mails, postage prepaid, registered or certified mail, return receipt requested, on the third day following the date of postmark, addressed as follows or to such other address as may be hereafter designated in writing by the respective parties hereto:

If to Obligor:

Neose Technologies, Inc.

102 Witmer Road

Horsham, PA 19044

Attention: General Counsel

Facsimile: (215) 315-9100

With a copy to:

Pepper Hamilton LLP

3000 Two Logan Square

18^th & Arch Streets

Philadelphia, PA 19103

Attention: Barry M. Abelson, Esquire

Facsimile: (215) 981-4750

If to Secured Party:

Brown Brothers Harriman & Co.

1531 Walnut Street

Philadelphia, PA 19102

Attention: J. Clark O’Donoghue

Facsimile: (215) 864-3989

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With a copy to:

Stradley, Ronon, Stevens & Young, LLP

2600 One Commerce Square

Philadelphia, PA 19103

Attention: Dean M. Schwartz, Esquire

Facsimile: (215) 564-8120

SECTION 19. Continuing Security Interest; etc.

This Agreement shall create a continuing security interest in the Collateral and shall (a) be binding upon Obligor and its successors and assigns and (b) inure to the benefit of Secured Party and its successors and assigns. The execution and delivery of this Agreement shall in no manner impair or affect any other security (by endorsement or otherwise) for the payment or performance of the Liabilities and no security taken hereafter as security for payment or performance of the Liabilities shall impair in any manner or affect this Agreement or the security interest granted hereby, all such present and future additional security to be considered as one general, continuing security. Any of the Collateral may be released from this Agreement without altering, varying, or diminishing in any way this Agreement or the security interest granted hereby as to the Collateral not expressly released, and this Agreement and such security interest shall continue in full force and effect as to all of the Collateral not expressly released.

SECTION 20. Governing Law; Consent to Jurisdiction; etc.

This Agreement shall be governed by and construed in accordance with the laws of the Commonwealth of Pennsylvania without reference to its conflicts of laws principles. Obligor consents to the jurisdiction of the courts of Pennsylvania and of the courts of the United States sitting in Pennsylvania in any litigation concerning this Agreement, and Obligor waives any objection based on venue or inconvenient forum. Each of Obligor and Secured Party waives any right to trial by jury in any litigation involving this Agreement. Unless otherwise defined herein, terms defined in the Code as in effect in Pennsylvania on the date hereof (including the terms “accounts,” “general intangibles,” “chattel paper,” “instruments,” “inventory,” “documents,” “equipment,” “fixtures,” “investment property,” “deposit accounts,” “letter of credit rights,” “supporting obligations,” “proceeds,” and “products”) are used herein as therein defined as of such date. This Agreement may be executed in any number of counterparts, all of which taken together shall constitute one and the same instrument, and any of the parties hereto may execute this Agreement by signing any such counterpart.

SECTION 21. Severability.

The provisions of this Agreement are independent of and separable from each other, and no such provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other such provision may be invalid or unenforceable in whole or in part.

SECTION 22. Waiver of Jury Trial; Confession of Judgment.

WAIVER OF JURY TRIAL. EACH OBLIGOR AND SECURED PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY SUCH SUIT, ACTION

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OR PROCEEDING. OBLIGOR FURTHER ACKNOWLEDGES AND AGREES THAT WAIVER OF JURY TRIAL IS A SPECIFIC AND MATERIAL ASPECT OF THIS AGREEMENT AND THAT SECURED PARTY WOULD NOT HAVE AGREED TO MAKE ANY LOAN OR ACCEPT THIS AGREEMENT OR ANY NOTE WITHOUT SUCH AGREEMENT.

CONFESSION OF JUDGMENT. OBLIGOR HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS SECURED PARTY, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE AND DURING THE CONTINUANCE OF AN EVENT OF DEFAULT, TO APPEAR FOR OBLIGOR AND CONFESS AND ENTER JUDGMENT AGAINST OBLIGOR IN FAVOR OF SECURED PARTY IN ANY JURISDICTION WHERE OBLIGOR OR ANY OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS AND OTHER SUMS DUE OR TO BECOME DUE BY OBLIGOR TO SECURED PARTY UNDER THIS AGREEMENT, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITH OR WITHOUT DECLARATION, WITHOUT STAY OF EXECUTION AND WITH RELEASE OF ALL ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS AGREEMENT OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT. OBLIGOR HEREBY WAIVES ALL RELIEF FROM ANY APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

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OBLIGOR HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS SECURED PARTY, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY TIME THEREAFTER, TO APPEAR FOR OBLIGOR, AS WELL AS FOR ANY PERSONS CLAIMING UNDER, BY OR THROUGH OBLIGOR, IN AN ACTION OR ACTIONS FOR REPLEVIN OR OTHER APPROPRIATE ACTION AGAINST OBLIGOR TO CONFESS AND ENTER JUDGMENT AGAINST OBLIGOR, FOR RECOVERY OF POSSESSION OF ANY OR ALL OF THE MORTGAGED PROPERTY AND/OR THE PROCEEDS THEREOF, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITHOUT THE NECESSITY OF FILING ANY BOND AND WITHOUT STAY OF EXECUTION OR APPEAL AND WITH RELEASE OF ALL ERRORS AND FOR DOING SO THIS AGREEMENT OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT, WHEREUPON A JUDGMENT AND/OR WRIT OF POSSESSION AND/OR REPLEVIN OR OTHER APPROPRIATE PROCESS TO OBTAIN POSSESSION OF SUCH MORTGAGED PROPERTY MAY BE ISSUED FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

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IN WITNESS WHEREOF, Obligor, intending to be legally bound, has executed or caused the execution of this Agreement, under seal, as of the date first above written.

NEOSE TECHNOLOGIES, INC.
By:	/s/ C. Boyd Clarke
	Name:	C. Boyd Clarke
	Title:	President and CEO
BROWN BROTHERS HARRIMAN & CO.
By:	/s/ J. Clarke O’Donoghue
	Name:	J. Clark O’Donoghue
	Title:	Managing Director

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Schedule 1

to

General Security Agreement

Legal Name of Obligor:	Neose Technologies, Inc.
Jurisdiction of Formation:	Delaware
Pennsylvania Corporate Tax Identification No.:	6529-840
FEIN:	13-3549286
Chief Executive Office:	102 Witmer Road Horsham, PA 19044 (owned location)
Other Collateral Locations:	201 Witmer Road Horsham, PA 19044 (leased location)
	102 Rock Road
	Horsham, PA 19044 (leased location)

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EX-10.46

EXHIBIT 10.46

OPEN-END MORTGAGE AND SECURITY AGREEMENT

This Mortgage Secures Future Advances

THIS MORTGAGE is dated as of the 30th day of January, 2004 (the “Mortgage”) by and between NEOSE TECHNOLOGIES, INC., a Delaware corporation, with an address of 102 Witmer Road, Horsham, Pennsylvania 19044 (the “Mortgagor”) and BROWN BROTHERS HARRIMAN & CO., a private bank organized as a partnership, with its place of business at 1531 Walnut Street, Philadelphia, Pennsylvania 19102 (the “Mortgagee”).

W I T N E S S E T H:

WHEREAS, Mortgagee has agreed to extend to Mortgagor a certain term loan in the amount of Eight Million and 00/100 Dollars ($8,000,000.00) (the “Loan”), lawful money of the United States of America, with interest thereon at the rates and times, in the manner and according to the terms and conditions specified in that certain Term Loan Note dated as of even date herewith in the principal amount of the Loan (the “Note”) from Mortgagor to Mortgagee and that certain Credit Agreement by and between Mortgagor and Mortgagee dated as of even date herewith (the “Credit Agreement”), all of which are incorporated herein by reference (the Note, the Credit Agreement, this Mortgage, and all other documents evidencing or securing the Loan, as the same may be amended, modified, or supplemented from time to time, are sometimes collectively referred to below as the “Loan Documents”); and

WHEREAS, the maximum principal amount of indebtedness intended to be secured hereby is Eight Million and 00/100 Dollars ($8,000,000.00).

Capitalized terms used herein and not otherwise defined shall have the meanings given to them in the Credit Agreement.

NOW, THEREFORE, in order to secure the obligations of Mortgagor as set forth in the Note and the Credit Agreement (the “Obligations”), and in consideration of the premises and the further sum of Ten Dollars ($10.00) to Mortgagor in hand well and truly paid by Mortgagee at or before the ensealing and delivery hereof, the receipt whereof is hereby acknowledged, Mortgagor has granted, bargained and sold, aliened, enfeoffed, released, remised, conveyed, confirmed and mortgaged, and by these presents does grant, bargain and sell, alien, enfeoff, release, remise, convey, confirm, and mortgage unto Mortgagee and its successors and assigns, that certain premises located at 102 Witmer Road, Horsham Township, Montgomery County, Pennsylvania, as more particularly described in Exhibit “A” attached hereto and made a part hereof (the “Real Estate”);

TOGETHER with the appurtenances and all the estates and rights of Mortgagor in and to the Real Estate, including without limitation the fixtures, equipment, reversions, remainders, easements, issues and profits arising or issuing from the Real Estate and the improvements thereon including, but not limited to the rents, issues and profits arising or issuing

from the Real Estate and the improvements thereon, including but not limited to the rents, fixtures, equipment, issues and profits arising or issuing from all insurance policies, sale agreements, licenses, options, leases and subleases now or hereafter entered into covering any part of said Real Estate or the buildings, structures and improvements thereon, all of which insurance policies, sale agreements, licenses, options, leases, subleases, rents, issues and profits are hereby assigned and shall be caused to be assigned to Mortgagee by Mortgagor. Mortgagor will execute and deliver to Mortgagee on demand such assignments as Mortgagee may require to implement this assignment;

TOGETHER with all the right, title and interest of Mortgagor in and to all streets, roads and public places, opened or proposed, adjoining the Real Estate, and all easements and rights of way, public or private, now or hereafter created or used in connection therewith;

TOGETHER with all the right, title and interest of Mortgagor, now owned or hereafter acquired, in and to any and all sidewalks and alleys adjacent to the Real Estate;

TOGETHER with all buildings and improvements of every kind and description now or hereafter erected or placed on the Real Estate;

TOGETHER with all of Mortgagor’s right, title and interest now owned or hereafter acquired in and to all heating, plumbing, sprinkler, water, gas, electric power, lighting and air conditioning equipment, elevators, machinery, fixtures, equipment, furniture, building materials of any kind or nature, together with all replacements thereof and additions thereto, now, or at any time hereafter, affixed or attached to said Real Estate, buildings, structures and improvements (hereinafter collectively called “Personal Property”), all of which Mortgagor represents and warrants are and will be owned by Mortgagor free from any prior conditional sales, chattel mortgages, security interests, liens, pledges, hypothecations, charges or encumbrances other than the Prior Mortgages (as hereinafter defined) and those liens, encumbrances and other matters affecting title to the Mortgaged Property (as hereinafter defined) set forth in Exhibit “B” attached hereto and incorporated herein by this reference (the “Permitted Encumbrances”), and is intended to be subject to the lien of this Mortgage as if part of the realty. This provision shall be self-operative and this Mortgage, to the extent that any such Personal Property or other property subject to this Mortgage shall not be deemed to be part of the realty, shall constitute a security agreement under the Pennsylvania Uniform Commercial Code, and Mortgagor shall execute and deliver to Mortgagee on demand, and hereby irrevocably appoints Mortgagee, or any person designated by Mortgagee, the attorney-in-fact of Mortgagor to execute, deliver and file such financing statements and other instruments as Mortgagee may reasonably require in order to perfect and maintain such security interest under the Pennsylvania Uniform Commercial Code;

TOGETHER with all accounts, contract rights, accounts receivable, agreements of sale, and claims of any sort relating to or arising out of the Real Estate whether now owned or hereafter acquired;

TOGETHER with all awards, damages, payments and other compensation, and claims thereof and rights thereto, which may result from a taking or injury by virtue of the

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exercise of the power of eminent domain of or to, or from any damage, injury or destruction by casualty or otherwise caused to, the Real Estate and said improvements and personalty, or any part thereof, including insurance proceeds, or from any change of grade or vacation of any street abutting thereon, all of which are hereby assigned to Mortgagee to the fullest extent permitted by law, Mortgagee being hereby irrevocably appointed attorney-in-fact for Mortgagor to collect and receive any such awards, damages, payments and compensation from the authorities or insurers making the same, and to give receipts and acquittances therefor, and to institute, appear in and prosecute any proceeding therefor, it being agreed that all sums collected by or paid to Mortgagee pursuant to this assignment, net of any cost incurred by Mortgagee in collecting the same (including attorneys’ fees), shall be applied to the payment of the Obligations whether or not then due and payable, or to the restoration of the Mortgaged Property (hereinafter defined) as Mortgagee shall elect, unless otherwise set forth herein;

TOGETHER with any and all proceeds (including insurance and condemnation proceeds and proceeds of other proceeds) of any of the foregoing;

All of the property and rights hereinabove described or mentioned being hereinafter collectively called the “Mortgaged Property”.

TO HAVE AND TO HOLD the Mortgaged Property unto Mortgagee, its successors and assigns, forever;

AND, at all times until the Obligations is paid in full with interest and faithfully and strictly performed, Mortgagor does hereby covenant, promise and agree with Mortgagee as follows:

ARTICLE I

Covenants As To Taxes and Assessments

1.1 Mortgagor will pay and discharge (i) all the taxes, general and special, levies and assessments heretofore or hereafter charged, assessed or levied against the Mortgaged Property or any part thereof by any lawful authority, or which otherwise may become a lien thereon (collectively, the “Taxes”); and (ii) all water and sewer rents which may be assessed or become liens on the Mortgaged Property before the date on which any interest or penalties shall commence to accrue thereon, and produce to Mortgagee evidence of such payment not less than ten days thereafter. In default of any of the above-described payments, Mortgagee may, but shall not be obligated to, pay the same, and such payment by Mortgagee shall be repaid by Mortgagor to Mortgagee on demand, shall be secured hereby, and shall bear interest at the Default Rate as defined in the Credit Agreement (the “Default Rate”) from the date Mortgagee makes such payment until such sums are repaid in full. Mortgagor shall promptly cause to be paid and discharged, any lien or charge whatsoever which by any present or future law may be or become superior, either in lien or in right of distribution out of the proceeds of any judicial sale of the Mortgaged Property, to the liens created hereby. Mortgagor will cause to be paid, when due, all charges for utilities whether public or private.

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1.2 Upon the request of Mortgagee, Mortgagor will pay on a monthly basis to Mortgagee, a sum equal to one-twelfth (1/12th) of the real estate taxes, water rents, sewer rents, payments in lieu thereof, special assessments and any other tax, assessment, lien, claim or encumbrance which may at any time be or become a lien on the Mortgaged Property prior to, or on a parity with, the lien of this Mortgage so as to enable Mortgagee to pay the same at least thirty (30) days before they become due. If special assessments against the Mortgaged Property may be paid in installments and Mortgagor elects to do so, the monthly payments to Mortgagee for such special assessments shall be one-twelfth (1/12th) of the then current annual installment.

No amounts so paid shall be deemed to be trust funds but may be co-mingled with general funds of Mortgagee, and no interest shall be payable thereon. If, pursuant to any provision of this Mortgage, the whole amount of said principal debt remaining or any installment of interest, principal or principal and interest becomes due and payable, Mortgagee shall have the right, at its election, to apply any amounts so held against all or any of the Obligations, any interest thereon or in payment of the premiums or payments for which the amounts were deposited. Mortgagor will furnish to Mortgagee tax bills in sufficient time to enable Mortgagee to pay such taxes, assessments, levies, charges and fees, before interest and penalties accrue thereon.

1.3 Mortgagor covenants and agrees to pay to Mortgagee the principal and interest hereby secured pursuant to and in accordance with the terms of the Credit Agreement without deduction or credit for any amount for Taxes assessed or to be assessed against the Mortgaged Property.

ARTICLE II

General Representations and Covenants of Mortgagor

2.1 Mortgagor will observe and perform all of the terms, covenants and conditions on the part of Mortgagor to be observed and performed under this Mortgage and shall pay and faithfully and strictly perform all of the Obligations.

2.2 Mortgagor warrants and covenants that it has good and marketable fee simple title to the Mortgaged Property, subject to no liens, claims, security interests, pledges, hypothecations or other encumbrances or charges, other than the Prior Mortgages (as hereinafter defined) and Permitted Encumbrances. Mortgagor warrants that it has full power and lawful authority to execute and deliver this Mortgage and to mortgage to Mortgagee all of the property and rights purported to be mortgaged by it hereunder. Mortgagor will forever warrant and defend the title to the Mortgaged Property unto Mortgagee against the claims and demands of all persons whomsoever.

2.3 Mortgagor will not, without the prior written consent of Mortgagee, cause or permit any building or improvement comprising part of the Mortgaged Property to be removed, demolished or structurally altered, in whole or in part, or any material fixture therein to be removed or destroyed. Mortgagor will not abandon the Mortgaged Property or cause or permit any waste thereto and will at all times maintain the Mortgaged Property in substantially its current condition, normal wear and tear excepted.

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2.4 Throughout the term of this Mortgage, Mortgagor, at its sole cost and expense, will take good care of the Mortgaged Property and will keep the same in good order and condition, and make all necessary repairs thereto, interior and exterior (including parking areas), structural and non-structural, ordinary and extraordinary, and unforeseen and foreseen. All repairs made by Mortgagor shall be equal in quality and class to the original work. The necessity for and adequacy of repairs to the buildings and improvements pursuant to this Mortgage shall be measured by the standard which is appropriate for structures of similar construction and class, provided that Mortgagor shall in any event make all repairs necessary to avoid any structural damage or injury to the buildings and improvements to keep the buildings and improvements in a proper condition.

2.5 Mortgagor will permit Mortgagee and Mortgagee’s representatives to enter the Mortgaged Property at reasonable times, upon five (5) days’ prior notice and during regular business hours to inspect the same. In the absence of an Event of Default, such inspections shall be limited to four (4) times in any calendar year. In case of any Event of Default, as defined hereinafter, Mortgagee may, at its option, enter the Mortgaged Property to protect, restore or repair any part thereof, but Mortgagee shall be under no obligation to do so. Mortgagor will repay to Mortgagee on demand any sums paid by Mortgagee to protect, restore or repair any part of the Mortgaged Property, with interest thereon at the Default Rate, and, until so paid, the same shall be secured by this Mortgage.

2.6 Throughout the term of this Mortgage, Mortgagor, at its sole cost and expense, shall promptly comply with all present and future laws, ordinances, orders, rules, regulations and requirements of all federal, state and municipal governments, courts, departments, commissions, boards and officers, any national or local Board of Fire Underwriters, or any other body exercising functions similar to those of any of the foregoing, which may be applicable to the Mortgaged Property, the maintenance and use thereof and the sidewalks and curbs adjoining the Mortgaged Property whether or not such law, ordinance, order, rule, regulation or requirement shall necessitate structural changes or improvements, or the removal of any encroachments or projections, ornamental, structural or otherwise, onto or over property contiguous or adjacent thereto, any such structural changes or improvements or removal of encroachments to be performed with the consent of Mortgagee, which consent will not be unreasonably withheld. Mortgagor will comply with all orders and notices of violation thereof issued by any governmental authority. Mortgagor will pay all license fees and similar municipal charges for the use of the Mortgaged Property and the other areas now or hereafter comprising part thereof or used in connection therewith and will not, unless so required by any governmental agency having jurisdiction, discontinue use of the Mortgaged Property without prior written consent of Mortgagee. If Mortgagor shall fail to perform any covenant herein, Mortgagee may (but shall be under no obligation to) perform such covenant for the account of Mortgagor and any sums paid by Mortgagee in such event shall be repaid by Mortgagor to Mortgagee with interest thereon at the Default Rate and, until so paid, the same shall be secured by this Mortgage.

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2.7 Mortgagor shall not, without the prior written consent of Mortgagee, by deed, mortgage, pledge, lease, easement or other instrument grant, mortgage, pledge, convey, assign, devise or otherwise transfer all or any part of the Mortgaged Property or any interest therein, directly or indirectly, nor shall Mortgagor suffer or permit such conveyance, assignment or transfer by execution sale or operation of law or otherwise.

2.8 Mortgagor shall promptly pay upon demand, and presentation of invoices or bills, with interest thereon at the Default Rate, all expenses and costs incurred by Mortgagee, including reasonable attorney’s fees in connection with any action, proceeding, litigation or claim instituted or asserted by or against Mortgagee or in which Mortgagee becomes engaged, wherein it becomes necessary in the reasonable opinion of Mortgagee to defend or uphold the lien of this Mortgage, or the validity or effectiveness of any assignment of any claim, award, payment, property damage, insurance policy or any other right or property conveyed, encumbered or assigned by Mortgagor to Mortgagee hereunder, or the priority of any of the same, and all such expenses and costs, and interest thereon, may be added to and become part of the principal indebtedness of Mortgagor hereunder, bear interest at the Default Rate and be secured by this Mortgage.

2.9 To further secure payment of the Obligations, Mortgagor hereby pledges, assigns and grants to Mortgagee a continuing security interest in and lien on all of Mortgagor’s Personal Property (excluding Mortgagor’s Intellectual Property and Liquidity, except as otherwise provided in the Credit Agreement), accounts, contract rights, accounts receivable now owned or existing or hereafter acquired and all proceeds thereof, whether now owned or hereafter acquired and all proceeds of all of the foregoing. The parties hereto agree that the security interest created hereunder is valid under the Pennsylvania Uniform Commercial Code and is a presently existing security interest and attaches to Mortgagor’s above-mentioned Personal Property as of the date hereof.

2.10 With the exception of Permitted Liens, Mortgagor will not, without the prior written consent of Mortgagee, create or suffer to be created any security interest under the Pennsylvania Uniform Commercial Code, or other encumbrance in favor of any party other than Mortgagee, or create or suffer any reservation of title by any such other party, with respect to any Personal Property nor shall any such Personal Property be the subject matter of any lease or other transaction whereby the ownership or any beneficial interest in any of such Personal Property is held by any person or entity other than Mortgagor (or Mortgagee as provided herein). All such Personal Property shall be purchased for cash or in such manner that no lien shall be created thereon except the lien of this Mortgage and Permitted Liens as otherwise provided in the Credit Agreement, unless Mortgagee shall agree in writing to the contrary before a contract to purchase any such Personal Property is executed. Mortgagor will deliver to Mortgagee on demand, any contracts, bills of sale, statements, receipted vouchers or agreements, under which Mortgagor claims title to any Personal Property incorporated in the improvements or subject to the lien of this Mortgage.

2.11 Mortgagor shall at its expense, promptly upon request of Mortgagee (i) do all acts and things, including but not limited to the execution of any further assurances, deemed necessary by Mortgagee, to establish, confirm, maintain and continue the lien created and

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intended to be created hereby, all assignments made or intended to be made pursuant hereto, and all other rights and benefits conferred or intended to be conferred on Mortgagee hereby, and Mortgagor shall pay all costs incurred by Mortgagee in connection therewith, including all filing and recording costs, cost of searches, and reasonable counsel fees incurred by Mortgagee; and (ii) furnish Mortgagee with a written certification signed by Mortgagor, or an officer of Mortgagor on Mortgagor’s behalf, as to all then existing leases for space covering any part of the Mortgaged Property, the names of the tenants, the rents payable thereunder and the dates to which such rents are paid, together with executed copies of all such leases.

2.12 Mortgagor will promptly perform and observe, or cause to be performed or observed, all of the terms, covenants and conditions of all instruments of record affecting the Mortgaged Property, noncompliance with which may affect the security of this Mortgage or which may impose any duty or obligation upon Mortgagor or any lessee or other occupant of the Mortgaged Property or any part thereof, and Mortgagor shall do or cause to be done all things necessary to preserve intact and unimpaired any and all easements, appurtenances and other interests and rights in favor of or constituting any portion of the Mortgaged Property.

2.13 To further secure payment of the Obligations, Mortgagor hereby assigns and sets over unto Mortgagee the interest of such Mortgagor as lessor in and to all leases, written or oral, of the Mortgaged Property or any part thereof now or hereafter made, executed or delivered. Mortgagor hereby authorizes and empowers Mortgagee to collect the rents under the aforesaid leases as they become due, and hereby directs each and all of the tenants of the Mortgaged Property, upon demand made by Mortgagee, to pay such rents as they become due to Mortgagee; provided, however, no such demand shall be made unless and until there has occurred an Event of Default under the terms of this Mortgage, and until such demand is made, Mortgagor is authorized to collect the aforesaid rents; but such privilege of Mortgagor to collect rents as aforesaid shall not operate to permit the collection by Mortgagor of any installment of rent for more than one month in advance.

2.14 Mortgagor will not, without the prior written consent of Mortgagee, assign the rents of the Mortgaged Property or any part thereof, nor consent (other than in the ordinary course of business) to the cancellation, modification or surrender of any lease now or hereafter covering the Mortgaged Property, or any part thereof; nor accept any prepayment of rents under any such lease more than one month in advance; and any such purported assignment, cancellation, modification, surrender or prepayment made without consent of Mortgagee shall be void as against Mortgagee.

2.15 Mortgagor shall, upon the request of Mortgagee, given 15 days in advance, furnish a duly acknowledged written statement to Mortgagee, or any proposed assignee of this Mortgage, setting forth the amount of the Obligations and stating either that no off-sets or defenses exist against the Obligations, or, if such off-sets or defenses are alleged to exist, the nature and amount thereof.

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2.16 Mortgagor agrees not to do or suffer any act or thing which would impair the security of the Obligations or of the lien of this Mortgage upon the Mortgaged Property, or the rents, issues or profits thereof.

ARTICLE III

Compliance with Environmental Laws

3.1 Mortgagor shall comply with all Applicable Environmental Laws. As set forth herein, the term “Applicable Environmental Laws” shall mean any and all existing or future federal, state and local statutes, ordinances, regulations, rules, executive orders, standards and requirements, including the requirements imposed by common law, concerning or relating to industrial hygiene and the protection of health and the environment including, without limitation: (i) the Comprehensive Environmental Response, Compensation and Liability act of 1980, as amended, 42 U.S.C. §9601 et seq. (“CERCLA”); (ii) the Resource Conservation and Recovery Act of 1976, as amended, 42 U.S.C. §6901 et. seq. (“RCRA”); (iii) the Clean Air Act, as amended, 42 U.S.C. §7901 et seq.; (iv) the Clean Water Act, as amended, 33 U.S.C. §1251 et seq.; (v) the Hazardous Materials Transportation Act, as amended, 49 U.S.C. §1801 et seq.; (vi) the Toxic Substances Control Act, 15 U.S.C. §2601 et seq., as amended (“TSCA”), and the Pennsylvania Hazardous Sites Cleanup Act, 35 P.S. §6020.101 et seq. (“HSCA”). Any terms mentioned herein which are defined in any Applicable Environmental Laws shall have the meanings ascribed to such terms in such laws; provided, however, that if any of such laws are amended so as to broaden any term defined therein, such broader meaning shall apply subsequent to the effective date of such amendment.

3.2 Mortgagor represents and warrants that Mortgagor has not and will not engage in operations upon the Mortgaged Property, which involve the generation, manufacture, refining, transportation, treatment, use, storage, handling or disposal of any Hazardous Materials (as herein defined) other than in compliance with all Applicable Environmental Laws. For the purposes of this Mortgage, the term “Hazardous Materials” shall include, but shall not be limited to, petroleum fuel products, any petroleum or petroleum byproducts, PCBs, asbestos, friable asbestos or asbestos-containing material, transformers or other equipment which contain dielectric fluid containing levels of polychlorinated biphenyls in excess of 50 parts per million, any flammable explosives, radioactive materials, any “Hazardous Substance”, as such term is defined in 42 U.S.C. Section 9601(14) or 35 P.S. Section 6020.103 (herein, “Hazardous Substance”), any “Hazardous Waste”, as such term is defined in 42 U.S.C. Section 6903 (5) or 35 P.S. Section 6020.103 (herein, “Hazardous Waste”), or any other material, substance, pollutant or contaminant that is considered hazardous, radioactive or toxic under any applicable federal, state or local statues, ordinances, rules or regulations now or at any time hereafter in effect.

3.3 Mortgagor has not caused or permitted to exist and shall not cause or permit to exist, as a result of any intentional or unintentional action or omission on its part, or any tenant’s part, any releasing, spilling, leaking, pumping, pouring, emitting, emptying, or dumping from, on or about the Mortgaged Property of any Hazardous Materials other than in compliance with all Applicable Environmental Laws. Mortgagor will promptly cause the removal and remediation

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of any Hazardous Materials which may hereafter be found on the Mortgaged Property other than Hazardous Material that are being maintained in compliance with all Applicable Environmental Laws. The Mortgaged Property does not contain any underground storage tanks, except as may have been previously disclosed in writing to Mortgagee.

3.4 To the best of Mortgagor’s knowledge (and not imputed knowledge), and without a duty to investigate on the part of Mortgagor, Mortgagor represents and warrants that no adjacent property has been used in such a manner that Hazardous Materials may be in the subsurface water supply.

3.5 Mortgagor will permit Mortgagee and Mortgagee’s representatives to enter the Mortgaged Property at reasonable times to inspect the same, for purposes of making site and building investigations and performing soil, groundwater, structural and other tests, upon three days prior notice to Mortgagor. In the absence of an Event of Default, such inspections and investigations shall be limited to four (4) times in any calendar year. Mortgagor shall provide Mortgagee, its agents, employees, and representatives from time to time upon request with access to and copies of any and all data and documents relating to or dealing with any potentially Hazardous Materials used, generated, manufactured, found, stored or disposed of, on, under, or about the Mortgaged Property or transported to or from the Mortgaged Property within thirty (30) days of a request therefore. Mortgagor shall bear the cost of such copies and reimburse Mortgagee for all reasonable attorneys’ fees, copy costs, and other related costs incurred to procure such information as Mortgagee, in its sole discretion deems necessary.

3.6 Mortgagor shall furnish to Mortgagee, immediately upon receipt or dispatch, a copy of any notice, summons, citation, directive, letter or other written communication from or to any federal, state or local environmental agency or department, which may evidence or result in a liability under any Environmental Law such that the costs of correcting, or of paying penalties assessed in connection with, such liability would have a material adverse effect upon the business of Mortgagor as now conducted or upon Mortgagor’s business, operations, properties or condition, financial or otherwise. In such event, Mortgagor shall use diligent efforts to complete all remediation which may be required by such communication from any federal, state, county, municipal or other administrative, investigative, prosecutorial or enforcement agency or environmental or occupational safety regulatory agency (“Environmental Regulator”) and to obtain from all such Environmental Regulators having jurisdiction thereof, and deliver to Mortgagee as received, such approvals and certifications as can be obtained from such agencies from time to time to confirm Mortgagor’s completion of all remediation and Mortgagor’s compliance with all governmental requirements applicable thereto.

3.7 In the event of failure of Mortgagor to comply with any provision of this Mortgage or any other Loan Document relating to Hazardous Substances, Environmental Laws or Environmental Regulators, or if Mortgagee shall have reason to believe that any Hazardous Substance has been or is likely to be released on, in or under the Mortgaged Property (except in compliance with all Environmental Laws), Mortgagee may do any or all of the following: (i) Mortgagee shall have the right to investigate, or to demand that Mortgagor investigate and report to Mortgagee on (in which case Mortgagor shall investigate and report to Mortgagee on) the result of the investigation of such location, and if Mortgagee requests, provide this investigation

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through an independent reputable environmental consulting or engineering firm acceptable to Mortgagee; (ii) without obligation to do so, to cure such default or to comply or cause compliance, or to demand that Mortgagor cure such default or comply or cause compliance, with any or all Environmental Laws. All of the foregoing shall be at the expense of Mortgagor, and any expense incurred by Mortgagee in connection with any of the foregoing (including without limitation its expenses relating to attorneys fees and any environmental consultants or engineers) shall be additional obligation of Mortgagor hereunder which shall be payable to Mortgagee upon demand, with interest computed at the Default Rate from the date(s) upon which said costs and expenses were incurred by Mortgagee.

ARTICLE IV

Insurance, Damage or Destruction

4.1 Mortgagor will insure itself and the Mortgaged Property against such perils and to such limits as Mortgagee shall reasonably require for the full replacement value of the Mortgaged Property. All such insurance shall be in such forms and with such companies, and written in such amounts and with such deductibles and endorsements, as may be reasonably satisfactory to Mortgagee from time to time, and losses thereunder shall be payable to Mortgagee under standard forms of lender loss payable and mortgagee endorsements and shall require that the insurer provide Mortgagee with thirty (30) days notice in the event of cancellation. In any case, Mortgagor’s obligation to carry such insurance may only be brought within the coverage of a so-called blanket or umbrella policy or policies of insurance carried and maintained by Mortgagor if and only if the coverage afforded Mortgagee will not be limited, reduced or diminished by reason of the use of a blanket or umbrella policy of insurance.

4.2 In the event of any material loss or damage to the Mortgaged Property, Mortgagor will promptly (and, in any event, within five (5) days of such occurrence) notify Mortgagee in writing of any loss thereunder, and Mortgagee may, after notice of its intention to do so to Mortgagor, make proof of loss thereof if not made within a reasonable time by Mortgagor. After default Mortgagee may, after notice of its intention to do so to Mortgagor, on behalf of Mortgagor, adjust and compromise any claims under such insurance and collect and receive the proceeds thereof and endorse drafts and Mortgagee is hereby irrevocably appointed attorney-in-fact of Mortgagor for such purposes. Mortgagee may deduct from such proceeds any expenses properly incurred by Mortgagee in collecting same, including reasonable counsel fees. Mortgagee shall hold such proceeds for the purposes set forth in Article VI of this Mortgage.

4.3 Mortgagor will not maintain any other insurance on the Mortgaged Property competing or contributing, in right of payment or otherwise, with any of the insurance required to be afforded to Mortgagee hereunder unless Mortgagee is made the loss payee under such other insurance.

4.4 If Mortgagor shall fail to procure, pay for and deliver to Mortgagee any policy or policies of insurance or renewals thereof, Mortgagee may at its option, but shall be under no obligation to do so, effect such insurance and pay the premiums thereof, and Mortgagor will repay to Mortgagee on demand any premiums so paid, with interest, at the Default Rate, and until so paid, the same shall be secured by this Mortgage.

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4.5 Intentionally omitted.

4.6 Mortgagor, at its sole cost and expense, shall obtain a mortgagee’s title insurance policy, insuring the Mortgaged Property, in form and content and issued by a title insurance company satisfactory to Mortgagee, which will insure Mortgagee as the holder of a valid first mortgage lien for the full amount of the Mortgage on the Mortgaged Property, subject only to the Prior Mortgages (as hereinafter defined), the Permitted Encumbrances, and such exceptions as Mortgagee may approve including, but not limited to, the satisfaction or release of all mortgages encumbering the Mortgaged Property other than the first mortgage held by Mortgagee.

ARTICLE V

Condemnation

5.1 Mortgagor immediately upon obtaining knowledge of the institution of any proceedings for the condemnation of the Mortgaged Property or any part thereof shall notify Mortgagee of the pendency of such proceedings. Unless and until Mortgagee shall notify Mortgagor of Mortgagee’s intent to appear and prosecute such proceedings, pursuant to the appointment and assignment given herein by Mortgagor to Mortgagee, Mortgagor may appear in and prosecute such proceedings in any lawful manner; provided, however, that Mortgagor shall have no right or authority to execute any instrument of conveyance or confirmation in favor of the condemnor except subject hereto, nor to accept any payment or settle or compromise any claim of Mortgagor arising out of such condemnation proceedings without the consent of Mortgagee. Mortgagee’s election not to appear in or prosecute such proceedings shall not diminish any right Mortgagee may have to receive any amount paid in connection with such condemnation and to apply such funds as herein provided.

ARTICLE VI

Distribution Upon Damage, Destruction or Condemnation

6.1 In the event the whole or materially all of the Mortgaged Property shall be destroyed or damaged, Mortgagee shall have the right to collect the proceeds of any insurance and to retain and apply such proceeds, at its election, to the reduction of the Obligations or to restoration, repair, replacement, rebuilding or alteration (herein sometimes collectively called the “Restoration”) of the Mortgaged Property. In the event the whole or materially all of the Mortgaged Property shall be taken in condemnation proceedings or by agreement between Mortgagor and Mortgagee and the condemning authority, Mortgagee shall apply such award or proceeds thereof first to payment of the Obligations, and any balance then remaining shall be paid to Mortgagor. For the purposes of this Article VI, “materially all of the Mortgaged Property” shall be deemed to have been damaged, destroyed or taken if the portion of the Mortgaged Property not so damaged, destroyed or taken cannot be repaired or reconstructed so as to constitute a complete structure and facility usable in substantially the manner as prior to the damage, destruction or taking.

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6.2 So long as no Event of Default has occurred, in the event of partial destruction or partial condemnation, all of the proceeds or awards shall be collected and held by Mortgagee, and shall be applied by Mortgagee, in its sole discretion, to the repayment of the Obligations in the inverse order of maturity and any other amounts due and owing under the Loan Documents, with any proceeds then remaining being paid to Mortgagor, or to the payment of the Restoration. Upon the written request of Mortgagor, Mortgagee shall apply such proceeds or awards to the payment of the Restoration as the Restoration progresses, so long as:

(a) Such proceeds are, in Mortgagee’s reasonable judgment, sufficient to cover the cost of such Restoration or, if insufficient, Mortgagor deposits with Mortgagee the amount of any such deficiency,

(b) Mortgagor shall deliver to Mortgagee contracts, plans and specifications for the Restoration which are satisfactory to Mortgagee,

(c) the work for which payment is requested has been done in a good and workmanlike manner and Mortgagor presents evidence satisfactory to Mortgagee of amounts owed or paid by Mortgagor for completed Restoration work,

(d) The Mortgaged Property, after such Restoration is or will be, in the reasonable judgment of Mortgagee, of an economic utility not less than that of the Mortgaged Property prior to the casualty or condemnation, and

(e) Mortgagor shall comply with such further conditions in connection with the use of such proceeds or award as Mortgagee may reasonably request.

Any balance remaining in the hands of Mortgagee after payment of such Restoration shall be retained by Mortgagee and applied to the payment of the Obligations.

6.3 Notwithstanding the foregoing provisions of this Article VI regarding insurance or condemnation proceeds, if no Event of Default has occurred, and if such proceeds do not exceed $1,000,000.00, and if the undamaged or uncondemned portion of the Mortgaged Property can be continuously used during the Restoration period as a complete structure and operating facility in substantially the same manner as prior to the damage, Mortgagor shall have the right to collect the insurance or condemnation proceeds and apply them to the Restoration.

6.4 No damage, destruction or condemnation of the Mortgaged Property nor any application of insurance or condemnation proceeds to the payment of the Obligations shall postpone or reduce the amount of any of the current installments of principal or interest becoming due under the Obligations which shall continue to be made in accordance with the terms of the Obligations until the Obligations and all interest due thereunder are paid in full.

ARTICLE VII

Events of Default and Remedies

7.1 Each of the following shall constitute an “Event of Default” under this Mortgage:

(a) Failure of Mortgagor to make any payment of principal of or interest on the Note;

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(b) Failure of Mortgagor to pay any other fee, expense or other payment due under the Credit Agreement or other Loan Documents within five (5) business days after demand is made; or

(c) Failure of Mortgagor to deliver the Additional Collateral (as defined in the Credit Agreement) in accordance with Section 5.12 of the Credit Agreement; or

(d) Failure of Mortgagor to observe or perform any other covenant, agreement, undertaking, performance or obligation of any provision hereof where such failure continues for ten (10) business days after receipt by Mortgagor of written notice from Mortgagee specifying such failure;

(e) Failure of Mortgagor to observe or perform any covenant, agreement, undertaking, performance or obligation under any of the other Loan Documents, subject to any applicable notice and cure periods therein; or

(f) Failure of Mortgagor to provide the insurance required in Article IV hereof;

(g) If any representation or warranty made by Mortgagor herein, in the Loan Documents or in any other instrument which pertains to this Mortgage proves to be incorrect, now or hereafter, in any material respect, when made; or

(h) Any default by Mortgagor under (i) that certain Mortgage, Assignment of Leases and Security Agreement dated March 20, 1997, from Mortgagor to Jefferson Bank in the amount of One Million and 00/100 Dollars ($1,000,000.00), recorded in the Office of the Recorder of Deeds in and for Montgomery County, Pennsylvania, on March 25, 1997, at MB 7911, Pages 416, et seq., and (ii) that certain Mortgage, Assignment of Leases and Security Agreement dated March 20, 1997, from Mortgagor to Jefferson Bank in the amount of Eight Million Four Hundred Thousand and 00/100 Dollars ($8,400,000.00), recorded in the Office of the Recorder of Deeds in and for Montgomery County, Pennsylvania, on March 25, 1997, at MB 7911, Pages 388, et seq., (the “Prior Mortgages”).

7.2 Upon the occurrence of an Event of Default which shall be continuing, Mortgagee shall have the right and is hereby authorized, but without any obligation to do so, to perform the defaulted obligation and to discharge Mortgagor’s obligations on behalf of Mortgagor, and to pay any sums necessary for that purpose, and the sums so expended by Mortgagee shall be an obligation of Mortgagor, shall bear interest at the Default Rate, be payable on demand, and be added to the Obligations. Mortgagee shall be subrogated to all the rights, equities and liens discharged by any such expenditure. Such performance by Mortgagee on behalf of Mortgagor shall not constitute a waiver by Mortgagee of such default and shall not limit Mortgagee’s rights, remedies and recourses hereunder, or the Obligations, or as otherwise provided at law or in equity. Notwithstanding that the Obligations shall not have been declared due and payable upon any such default, the Obligations shall bear interest at the Default Rate from the date of notice and demand therefor by Mortgagee until such default shall have been completely cured and removed to the satisfaction of Mortgagee.

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7.3 Upon the occurrence of an Event of Default, the entire unpaid balance of the principal, accrued interest and all other sums secured by this Mortgage, shall, at the option of Mortgagee, become immediately due and payable without notice or demand and Mortgagee shall have and may exercise all the rights and remedies permitted by law, including without limitation the right to foreclose this Mortgage, and proceed thereon to final judgment and execution thereon for the entire unpaid balance of said Obligations, with interest, at the default rate and pursuant to the methods of calculation specified in the Mortgage Note, together with all other sums secured by this Mortgage, all costs of suits, interest at the Default Rate on any judgment obtained by Mortgagee from and after the date of any Sheriff’s Sale of the Mortgaged Property until actual payment is made by the Sheriff of the full amount due Mortgagee, and reasonable attorney’s fees, without further stay, any law, usage, or custom to the contrary notwithstanding. In any such foreclosure proceedings, the Mortgaged Property shall be sold, at the sole option of Mortgagee, either (a) in one lot or unit and, as an entirety; or (b) in such lots or units and in such order and manner as may be required by law; or (c) in the absence of any such requirement, in such lots or units and in such order and manner as Mortgagee may determine in its sole discretion.

7.4 Upon the occurrence of an Event of Default which shall be continuing, Mortgagee shall have the right, without further notice or demand and without the appointment of a receiver, to enter immediately upon and take possession of the Mortgaged Property, without further consent or assignment of Mortgagor or any subsequent owner of the Mortgaged Property, with the right to let the Mortgaged Property, or any part thereof, and to collect and receive all of the rents, issues, profits and other amounts due or to become due to Mortgagor or any such subsequent owner and to apply the same in such order of priority as Mortgagee shall determine at its sole option, after payment of all necessary charges and expenses in connection with the operation of the Mortgaged Property (including any managing agent’s commission), on account of interest, principal, taxes, water charges and assessments, insurance premiums and any advances for improvements, alterations or repairs or otherwise pursuant to the terms hereof for the account of Mortgagor, or on account of the Obligations. Mortgagee may institute legal proceedings against any tenant of the Mortgaged Property who fails to comply with the provisions of his lease. If Mortgagor or any such subsequent owner is occupying the Mortgaged Property or any part thereof, such Mortgagor or subsequent owner will either immediately vacate and surrender possession thereof to Mortgagee or pay to Mortgagee a reasonable rental for the use thereof, monthly in advance, and, in default of so doing, such Mortgagor or subsequent owner may be dispossessed by legal proceedings or otherwise.

7.5 AFTER AN EVENT OF DEFAULT WHENEVER AND AS OFTEN AS MORTGAGEE HAS THE RIGHT TO TAKE POSSESSION OF THE MORTGAGED PROPERTY, MORTGAGOR IRREVOCABLY AUTHORIZES AND EMPOWERS THE CLERK OF COURT OR ANY ATTORNEY OF ANY COURT OF COMMON PLEAS OR ANY OTHER COURT OF COMPETENT JURISDICTION, AS ATTORNEY FOR MORTGAGOR AND MORTGAGOR’S SUCCESSORS AND ASSIGNS OR ANY OTHER PERSONS CLAIMING ANY INTEREST UNDER OR THROUGH MORTGAGOR, AS WELL

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AS FOR ALL PERSONS CLAIMING UNDER, BY OR THROUGH MORTGAGOR, TO APPEAR FOR MORTGAGOR IN AN ACTION OR ACTIONS IN EJECTMENT OR OTHER APPROPRIATE ACTION FOR POSSESSION OF THE MORTGAGED PROPERTY FILED BY MORTGAGEE OR ANY HOLDER OF THIS MORTGAGE (WITHOUT THE NECESSITY OF FILING ANY BOND AND WITHOUT ANY STAY OF EXECUTION OR APPEAL) AND IN SUCH ACTION OR ACTIONS TO ADMIT MORTGAGEE’S SUPERIOR TITLE AND/OR CONFESS JUDGMENT FOR THE RECOVERY BY MORTGAGEE OF POSSESSION OF THE MORTGAGED PROPERTY, FOR WHICH THIS INSTRUMENT (OR A COPY HEREOF VERIFIED BY AFFIDAVIT OF MORTGAGEE OR ANYONE AUTHORIZED TO MAKE SUCH AFFIDAVIT ON BEHALF OF MORTGAGEE) SHALL BE A SUFFICIENT WARRANT; WHEREUPON A WRIT OF POSSESSION OR OTHER APPROPRIATE PROCESS TO OBTAIN POSSESSION OF THE MORTGAGED PROPERTY MAY BE ISSUED FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER, MORTGAGOR HEREBY RELEASING AND AGREEING TO RELEASE MORTGAGEE AND SAID ATTORNEYS FROM ALL ERRORS AND DEFECTS WHATSOEVER OF A PROCEDURAL NATURE IN ENTERING ANY SUCH ACTION OR JUDGMENT OR IN CAUSING ANY SUCH WRIT OR PROCESS TO BE ISSUED OR IN ANY PROCEEDING THEREON OR CONCERNING THE SAME, PROVIDED THAT MORTGAGEE SHALL HAVE FILED IN SUCH ACTION AN AFFIDAVIT MADE BY A PERSON ON MORTGAGEE’S BEHALF SETTING FORTH THE FACTS NECESSARY TO AUTHORIZE THE ENTRY OF SUCH JUDGMENT ACCORDING TO THE TERMS OF THIS INSTRUMENT, OF WHICH FACTS SUCH AFFIDAVIT SHALL BE A PRIMA FACIE EVIDENCE; AND IT IS HEREBY EXPRESSLY AGREED THAT IF FOR ANY REASON AFTER ANY SUCH ACTION HAS BEEN COMMENCED THE SAME SHALL BE DISCONTINUED, MARKED SATISFIED OF RECORD OR TERMINATED, OR POSSESSION OF THE MORTGAGED PROPERTY SHALL REMAIN IN OR BE RESTORED TO EITHER MORTGAGOR OR ANYONE CLAIMING UNDER, BY OR THROUGH MORTGAGOR, MORTGAGEE MAY, WHENEVER AND AS OFTEN AS MORTGAGEE SHALL HAVE THE RIGHT TO TAKE POSSESSION AGAIN OF THE MORTGAGED PROPERTY, BRING ONE OR MORE FURTHER ACTIONS IN THE MANNER HEREINABOVE SET FORTH TO RECOVER POSSESSION OF THE MORTGAGED PROPERTY AND TO CONFESS JUDGMENT THEREIN AS HEREINABOVE PROVIDED, AND THE AUTHORITY AND POWER GIVEN ABOVE TO ANY SUCH ATTORNEY SHALL EXTEND TO ALL SUCH FURTHER ACTIONS. MORTGAGEE SHALL HAVE THE RIGHT TO BRING SUCH AN ACTION IN EJECTMENT AND TO CONFESS JUDGMENT THEREIN AS HEREINABOVE PROVIDED BEFORE OR AFTER COMMENCING AN ACTION OF MORTGAGE FORECLOSURE AND BEFORE OR AFTER JUDGMENT THEREON OR THEREIN HAS BEEN RECOVERED OR A JUDICIAL SALE OF ALL OR ANY PART OF THE MORTGAGED PROPERTY HAS TAKEN PLACE.

Notwithstanding anything in this Paragraph 7.5 to the contrary, this Paragraph 7.5 and the authority granted by Mortgagor therein is not and shall not be construed to constitute a “power of attorney” and is not governed by the provisions of 20 Pa.C.S. Chapter 56. Furthermore, an attorney or other person or entity acting under this Paragraph 7.5 shall not have any fiduciary obligations to Mortgagor and, without limiting

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the foregoing shall have NO duty to: (1) Exercise the powers for the benefit of Mortgagor, (2) Keep separate any assets of Mortgagor from those of such attorney, other person or entity or Mortgagee, (3) Exercise reasonable caution and prudence on behalf of Mortgagor, or (4) Keep a full and accurate record of all actions, receipts and disbursements on behalf of Mortgagor.

MORTGAGOR AND MORTGAGEE HEREBY CONSENT TO THE JURISDICTION OF THE COURT OF COMMON PLEAS OF MONTGOMERY COUNTY OR THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA FOR ANY PROCEEDING IN CONNECTION HEREWITH, AND HEREBY WAIVE OBJECTIONS AS TO VENUE AND CONVENIENCE OF FORUM IF VENUE IS IN MONTGOMERY COUNTY, PENNSYLVANIA OR IN THE FEDERAL DISTRICT COURT FOR THE EASTERN DISTRICT OF PENNSYLVANIA. IN ANY ACTION OR SUIT UNDER THIS MORTGAGE, SERVICE OF PROCESS MAY BE MADE UPON MORTGAGEE OR MORTGAGOR BY MAILING A COPY OF THE PROCESS BY FIRST CLASS MAIL TO THE RECIPIENT. MORTGAGEE AND MORTGAGOR HEREBY WAIVE ANY AND ALL OBJECTIONS TO SUFFICIENCY OF SERVICE OF PROCESS IF DULY SERVED IN THIS MANNER. MORTGAGOR AND MORTGAGEE, AS AN INDEPENDENT COVENANT, HEREBY MUTUALLY WAIVE AND AGREE TO WAIVE THE RIGHT, IF ANY, TO A JURY TRIAL IN CONNECTION WITH ANY ACTION, SUIT OR OTHER PROCEEDING WITH RESPECT HERETO OR WITH RESPECT TO ANY TRANSACTION RELATED HERETO.

7.6 All monies received by Mortgagee by virtue of the assignments made herein to Mortgagee, after payment therefrom of the costs and expenses incident to the enforcement or collection of the assigned rights or claims, shall be applied to the payment of the Obligations.

7.7 Upon the occurrence of an Event of Default, Mortgagee may proceed to protect and enforce its rights under this Mortgage by suit for specific performance of any covenant herein contained, or in aid of the execution of any power herein granted, or for the foreclosure of this Mortgage and the sale of the Mortgaged Property under the judgment or decree of a court of competent jurisdiction, or for the enforcement of any other right as Mortgagee shall deem most effectual for such purpose. The foregoing rights shall be in addition to, and not in lieu of, the rights of Mortgagee as a secured creditor under the Uniform Commercial Code of Pennsylvania with respect to any portion of the Mortgaged Property which is subject to such Code. Mortgagee may also proceed in any other manner permitted by law to enforce its rights hereunder and under the Mortgage Note of even date herewith.

7.8 No failure or delay on the part of Mortgagee in exercising any right, power or privilege under this Mortgage, and no course of dealings between Mortgagor and Mortgagee, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, power or privilege. No notice to or demand on Mortgagor shall entitle Mortgagor to any other or further notice or demand in similar or other circumstances or constitute a waiver of the right of Mortgagee to any other or further action in the same or other circumstances without notice or demand.

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7.9 In any action to foreclose this Mortgage, Mortgagee, to the fullest extent permitted by law, shall be entitled as a matter of right to the appointment of a receiver of the Mortgaged Property and of the rents, revenues, issues, income and profits thereof, without notice or demand, and without regard to the adequacy of the security for the Obligations or the solvency of Mortgagor.

7.10 Upon the occurrence of any Event of Default, Mortgagor shall pay monthly in advance to Mortgagee, or to any receiver appointed at the request of Mortgagee to collect the rents, revenues, issues and profits of the Mortgaged Property, the fair and reasonable rental value for the use and occupancy of the Mortgaged Property or of such part thereof as may be possessed by Mortgagor. Upon default in payment thereof, Mortgagor shall vacate and surrender possession of the Mortgaged Property to Mortgagee or such receiver, and upon a failure so to do may be evicted by summary proceedings, in the manner hereinabove provided or otherwise.

7.11 The rights and remedies of Mortgagee expressed or contained in this Mortgage are cumulative and no one of them shall be deemed to be exclusive of the others or of any right or remedy Mortgagee may now or hereafter have at law or in equity. The covenants of this Mortgage shall run with the land and bind Mortgagor and, unless the context clearly indicates a contrary intent or unless otherwise specifically provided herein, its successors and assigns and all subsequent owners, encumbrancers, tenants and subtenants of the Mortgaged Property and shall inure to the benefit of Mortgagee and its successors and assigns and all subsequent holders of this Mortgage and the Obligations.

7.12 Mortgagee may in its discretion from time to time grant to Mortgagor indulgences, forbearances and extensions of the Obligations, may release, with or without consideration, any portion of the Mortgaged Property from the lien hereof, and may accept other and further collateral security for the payment of and strict and faithful performance of the Obligations, all without otherwise affecting the lien or priority of this Mortgage, and the release of any portion of the Mortgaged Property from the lien hereof shall not affect the lien of this Mortgage with respect to the remainder of the Mortgaged Property.

7.13 Mortgagor hereby waives and relinquishes the benefits of all present and future laws (i) exempting the Mortgaged Property or any other property or any part of the proceeds of sale thereof from attachment, levy or sale on execution, and (ii) staying execution or other process.

7.14 Mortgagor acknowledges and agrees that the occurrence of an Event of Default under the terms of this Mortgage shall constitute a default under each of the other Loan Documents, and a default under the other Loan Documents shall constitute an Event of Default under this Mortgage. The security interests, liens and other rights and interests in and relative to any of the collateral now or hereafter granted to Mortgagee by Mortgagor by or in any instrument or agreement, including but not limited to this Mortgage and the other Loan Documents, shall serve as security for any and all liabilities of Mortgagor to Mortgagee, including but not limited to the liabilities described in this Mortgage and the other Loan Documents, and, for the repayment thereof, Mortgagee may resort to any security held by it in such order and manner as it may elect.

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ARTICLE VIII

Indemnity

8.1 To the maximum extent permitted by applicable law, Mortgagor, for itself and its successors (herein, “Indemnifying Parties”), shall jointly and severally indemnify, hold harmless, and upon request defend Mortgagee and its partners, employees and agents, officers, directors and attorneys, and their respective successors and assigns (collectively, the “Indemnified Parties”) from and against any and all claims and liabilities which any Indemnified Party may suffer, incur or be exposed to by reason of or in connection with or arising out of the transport, release, treatment, processing, manufacture, deposit, storage, disposal, burial, dumping, injecting, spilling, leaking or placement at any time heretofore or hereafter, by any person or entity, of any Hazardous Material, including but not limited to (1) costs of or liability for investigation, monitoring, boring, testing and evaluation; (2) costs or liabilities for abatement, correction, response, cleanup, removal or remediation; (3) fines, damages, penalties and other liabilities; and (4) liability for personal injury or property damage.

ARTICLE IX

Miscellaneous Provisions

9.1 All notices, demands, requests and consents required under this Mortgage shall be in writing. All such notices, demands, requests and consents shall be deemed to have been properly given if sent by United States registered or certified mail, return receipt requested, postage prepaid, if addressed to Mortgagee at 1531 Walnut Street, Philadelphia, Pennsylvania 19102, Attention: J. Clark O’Donoghue, with a copy in all instances to Dean M. Schwartz, Esquire, Stradley, Ronon, Stevens & Young, LLP, 2600 One Commerce Square, Philadelphia, Pennsylvania 19103; and if addressed to Mortgagor at 102 Witmer Road, Horsham, Pennsylvania, 19044, Attention: General Counsel, with a copy in all instances to Barry M. Abelson, Esquire, Pepper Hamilton LLP, 3000 Two Logan Square, 18^th & Arch Streets, Philadelphia, Pennsylvania 19103 or at such other address or addresses as either party may hereafter designate in writing to the other. Notices, demands and requests which shall be served by registered or certified mail, return receipt requested, upon Mortgagor or Mortgagee, in the manner aforesaid, shall be deemed sufficiently served or given for all purposes hereunder two (2) days after the time such notice, demand or request shall be mailed by United States registered or certified mail, return receipt requested, postage prepaid, in any Post Office or Branch Post Office regularly maintained by the United States Government.

9.2 If Mortgagor complies with the provisions of this Mortgage and pays to Mortgagee all sums secured hereby in accordance with the terms of and at the times provided in the Mortgage Note of even date herewith and this Mortgage, without deduction, fraud or delay, then this Mortgage and the estate and security interest hereby granted and created shall then cease, terminate and become void, and Mortgagee shall execute and deliver such mortgage satisfactions and other documents as Mortgagor may reasonably request to evidence the same.

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9.3 Mortgagor shall promptly cause this Mortgage to be duly recorded in the Office for the Recording of Deeds and Mortgages in and for Montgomery County, Pennsylvania and shall pay all recording fees and other costs incurred in connection therewith.

9.4 All amendments and modifications of this Mortgage must be in writing.

9.5 If any term or provision of this Mortgage or the application thereof to any person or circumstances shall, to any extent, be invalid or unenforceable, the remainder of this Mortgage, or the application of such term or provision to persons or circumstances other than those as to which it is held invalid or unenforceable, shall not be affected thereby, and each term and provision of this Mortgage shall be valid and be enforced to the fullest extent permitted by law.

9.6 This Mortgage is intended to be eligible for all of the benefits of the provisions of Act 126 of 1990, 42 Pa. C.S. Sections 8143 and 8144, but to the extent that any rule or law would grant greater protection to Mortgagee or greater priority for the lien of this Mortgage as it secures any advance, such rule or law shall prevail.

9.7 This Mortgage is not a residential mortgage as that term is defined in 41 P.S. §101 et seq. or Act 91 of 1983.

9.8 This Mortgage and all terms, covenants and conditions hereof shall inure to the benefit of and bind the parties hereto, their successors and assigns, to the extent assignments are permitted herein.

9.9 The interest rate on the Note secured by this Mortgage and Security Agreement is an adjustable rate based on the London Interbank Offering Rate or rates otherwise established by Mortgagee from time to time, each as more particularly set forth in the Credit Agreement.

9.10 MORTGAGOR CERTIFIES THAT IT HAS RECEIVED A FULLY EXECUTED COPY OF THIS MORTGAGE WITHOUT CHARGE.

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IN WITNESS WHEREOF, Mortgagor has executed and delivered this Mortgage on the day and year above written.

	NEOSE TECHNOLOGIES, INC., a
	Delaware corporation
Attest:	By:	/s/ C. Boyd Clarke
		Name: C. Boyd Clarke
		Title:   President and CEO

THIS MORTGAGE CONTAINS A CONFESSION OF JUDGMENT IN EJECTMENT. A JUDGMENT FOR POSSESSION COULD BE ENTERED AGAINST YOU WITHOUT A PRIOR HEARING OR NOTICE. MORTGAGOR HEREBY CERTIFIES THAT THEY HAVE CONSULTED AN ATTORNEY REGARDING THE IMPLICATIONS OF A CONFESSION OF JUDGMENT AND KNOWINGLY, VOLUNTARILY AND INTELLIGENTLY WAIVE ANY RIGHTS TO PRIOR NOTICE AND OPPORTUNITY TO BE HEARD IN CONNECTION THEREWITH.

	NEOSE TECHNOLOGIES, INC., a
	Delaware corporation
Attest:	By:	/s/ C. Boyd Clarke
		Name: C. Boyd Clarke
		Title:   President and CEO

The address of Mortgagee is:

1531 Walnut Street

Philadelphia, PA 19102

On behalf of Mortgagee

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STATE OF PENNSYLVANIA	:
	:	SS
COUNTY OF PHILADELPHIA	:

On this      day of January, 2004, before me, a Notary Public, personally appeared C. Boyd Clarke who acknowledged that he is President and CEO of NEOSE TECHNOLOGIES, INC., a Delaware corporation, and that he being authorized to do so as such officer, executed the foregoing instrument for the purposes therein contained.

IN WITNESS WHEREOF, I have hereunto set my hand and official seal.

Notary Public

My Commission Expires:

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EXHIBIT “A”

Description of Real Estate

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EXHIBIT “B”

Permitted Encumbrances

23

EX-10.47

EXHIBIT 10.47

TERM LOAN NOTE

$9,000,000 January 30, 2004

Philadelphia, Pennsylvania

NEOSE TECHNOLOGIES, INC., a Delaware corporation (the “Borrower”), for value received, hereby promises to pay to the order of BROWN BROTHERS HARRIMAN & CO. (the “Bank”) the principal amount of NINE MILLION DOLLARS ($9,000,000) on the dates and in the principal amounts provided in the Credit Agreement referred to below. The Borrower also promises to pay interest on the unpaid principal amount hereof from time to time outstanding at the rate and on such dates as provided in the Credit Agreement. All such principal and interest shall be payable in lawful money of the United States of America in same day funds at the office of the Bank.

This Note is the Term Loan Note referred to in the Credit Agreement dated of even date herewith (the “Credit Agreement”) between the Borrower and the Bank, and is entitled to the benefits thereof. Capitalized terms used but not defined herein have the meanings specified in the Credit Agreement.

The Bank is hereby authorized by the Borrower to endorse on the schedule (or a continuation thereof) attached hereto, the date and amount of each payment or prepayment of principal of the Term Loan received by the Bank, provided that any failure by the Bank to make any such endorsement or any error therein shall not affect the obligations of the Borrower under the Credit Agreement or this Note in respect of the Term Loan evidenced hereby. This Note is subject to prepayment and its maturity is subject to acceleration upon the terms provided in the Credit Agreement.

The Borrower hereby waives presentment, demand, protect or notice of any kind in connection with this Note.

THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE COMMONWEALTH OF PENNSYLVANIA.

THE BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE BANK, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE AND DURING THE CONTINUATION OF AN EVENT OF DEFAULT, TO APPEAR FOR THE BORROWER AND CONFESS AND ENTER JUDGMENT AGAINST THE BORROWER IN FAVOR OF THE BANK IN ANY JURISDICTION WHERE THE BORROWER OR ANY OF ITS PROPERTY IS LOCATED FOR THE AMOUNT OF ALL OBLIGATIONS AND OTHER SUMS DUE OR TO BECOME DUE BY THE BORROWER TO THE BANK UNDER THIS NOTE, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS

(INCLUDING ATTORNEYS’ FEES), WITH OR WITHOUT DECLARATION, WITHOUT STAY OF EXECUTION AND WITH RELEASE OF ALL ERRORS AND THE RIGHT TO ISSUE EXECUTION FORTHWITH, AND FOR DOING SO THIS NOTE OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT. THE BORROWER HEREBY WAIVES ALL RELIEF FROM ANY APPRAISEMENT, STAY OR EXEMPTION LAWS OF ANY STATE NOW IN FORCE OR HEREAFTER ENACTED. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

THE BORROWER HEREBY IRREVOCABLY AUTHORIZES AND EMPOWERS THE BANK, BY ITS ATTORNEY OR BY THE PROTHONOTARY OR CLERK OF ANY COURT OF RECORD IN THE COMMONWEALTH OF PENNSYLVANIA OR IN ANY JURISDICTION WHERE PERMITTED BY LAW, UPON THE OCCURRENCE OF AN EVENT OF DEFAULT, OR AT ANY TIME THEREAFTER, TO APPEAR FOR THE BORROWER, AS WELL AS FOR ANY PERSONS CLAIMING UNDER, BY OR THROUGH THE BORROWER, IN AN ACTION OR ACTIONS FOR REPLEVIN OR OTHER APPROPRIATE ACTION AGAINST THE BORROWER TO CONFESS AND ENTER JUDGMENT AGAINST THE BORROWER, FOR RECOVERY OF POSSESSION OF ANY OR ALL OF THE MORTGAGED PROPERTY AND/OR THE PROCEEDS THEREOF, TOGETHER WITH COSTS OF SUIT AND WITH ACTUAL COLLECTION COSTS (INCLUDING ATTORNEYS’ FEES), WITHOUT THE NECESSITY OF FILING ANY BOND AND WITHOUT STAY OF EXECUTION OR APPEAL AND WITH RELEASE OF ALL ERRORS AND FOR DOING SO THIS NOTE OR A COPY HEREOF VERIFIED BY AFFIDAVIT SHALL BE SUFFICIENT WARRANT, WHEREUPON A JUDGMENT AND/OR WRIT OF POSSESSION AND/OR REPLEVIN OR OTHER APPROPRIATE PROCESS TO OBTAIN POSSESSION OF SUCH MORTGAGED PROPERTY MAY BE ISSUED FORTHWITH, WITHOUT ANY PRIOR WRIT OR PROCEEDING WHATSOEVER. THIS AUTHORITY AND POWER SHALL NOT BE EXHAUSTED BY ANY EXERCISE THEREOF, AND JUDGMENT MAY BE CONFESSED AS AFORESAID FROM TIME TO TIME AS OFTEN AS THERE IS OCCASION THEREFOR UNTIL ALL SUMS DUE AND OWING HEREUNDER ARE FULLY PAID, PERFORMED, DISCHARGED AND SATISFIED.

THE BORROWER ACKNOWLEDGES THAT THE BORROWER HAS WAIVED THE RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING ON THIS NOTE.

NEOSE TECHNOLOGIES, INC.
By:	/s/ C. Boyd Clarke
Name:	C. Boyd Clarke
Title:	President and CEO

EX-23.1

Exhibit 23.1

INDEPENDENT AUDITORS’ CONSENT

The Board of Directors

Neose Technologies, Inc.:

We consent to the incorporation by reference in the Registration Statements on Form S-8 (No. 333-107888, No. 333-97593, No. 333-73340, No. 333-47718, No. 333-88913, No. 333-35283 and No. 333-01410) on the Registration Statements on Form S-3 (No. 333-106327, No. 333-103883 and No. 333-83925) of Neose Technologies, Inc. of our report dated February 3, 2004, with respect to the balance sheets of Neose Technologies, Inc. as of December 31, 2003 and 2002, and the related statements of operations, stockholders’ equity and comprehensive loss and cash flows for each of the years in the two-year period ended December 31, 2003 and for the period from January 17, 1989 (inception) to December 31, 2003, which report appears in the December 31, 2003, annual report on Form 10-K of Neose Technologies, Inc.

The financial statements of Neose Technologies, Inc. for the year ended December 31, 2001 and for the period from January 17, 1989 (inception) to December 31, 2003, to the extent related to the period from January 17, 1989 (inception) to December 31, 2001, were audited by other auditors who have ceased operations. Those auditors expressed an unqualified opinion on those financial statements in their report dated January 25, 2002. Our opinion on the statements of operations, stockholders’ equity and comprehensive loss, and cash flows, insofar as it relates to the amounts included for the period from January 17, 1989 (inception) to December 31, 2001, is based solely on the report of the other auditors.

/s/ KPMG LLP

Philadelphia, Pennsylvania

February 17, 2004

EX-23.2

Exhibit 23.2

Information Regarding Consent of Arthur Andersen LLP

Section 11(a) of the Securities Act of 1933, as amended (the “Securities Act”), provides that if part of a registration statement at the time it becomes effective contains an untrue statement of a material fact, or omits a material fact required to be stated therein or necessary to make the statements therein not misleading, any person acquiring a security pursuant to such registration statement (unless it is proved that at the time of such acquisition such person knew of such untruth or omission) may assert a claim against, among others, an accountant who has consented to be named as having certified any part of the registration statement or as having prepared any report for use in connection with the registration statement.

Neose Technologies, Inc. dismissed Arthur Andersen LLP (“Andersen”) as its independent auditors, effective April 29, 2002. For additional information, see Neose’s Report on Form 8-K dated April 29, 2002. After reasonable efforts, Neose has been unable to obtain Andersen’s written consent to the incorporation by reference into Neose’s registration statements (Nos. 333-97593, 333-73340, 333-47718, 333-88913, 333-35283 and 333-01410 on Form S-8) (collectively the “Registration Statements”) of Andersen’s audit report with respect to Neose’s consolidated financial statements as of December 31, 2001 and for the two years in the period then ended. Under these circumstances, Rule 437a under the Securities Act permits Neose to file this Annual Report on Form 10-K, which is incorporated by reference into the Registration Statements, without a written consent from Andersen. As a result, with respect to transactions in Neose securities pursuant to the Registration Statements that occur subsequent to the date this Annual Report on Form 10-K is filed with the Securities and Exchange Commission, Andersen will not have any liability under Section 11(a) of the Securities Act for any untrue statements of a material fact contained in the financial statements audited by Andersen or any omissions of a material fact required to be stated therein. Accordingly, you would be unable to assert a claim against Andersen under Section 11(a) of the Securities Act.

EX-31.1

Exhibit 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER

I, C. Boyd Clarke, certify that:

1. I have reviewed this annual report on Form 10-K of Neose Technologies, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 17, 2004	/s/ C. Boyd Clarke
Date	C. Boyd Clarke
	President and Chief Executive Officer

EX-31.2

Exhibit 31.2

CERTIFICATION OF CHIEF FINANCIAL OFFICER

I, Robert I. Kriebel, certify that:

1. I have reviewed this annual report on Form 10-K of Neose Technologies, Inc.

2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant is made known to us by others within those entities, particularly during the period in which this report is being prepared;

b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

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b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

February 17, 2004	/s/ Robert I. Kriebel
Date	Robert I. Kriebel
	Senior Vice President and Chief Financial Officer

2

EX-32.1

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Neose Technologies, Inc. (the “Company”) on Form 10-K for the fiscal year ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, C. Boyd Clarke, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ C. Boyd Clarke

C. Boyd Clarke

President and Chief Executive Officer

February 17, 2004

EX-32.2

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Annual Report of Neose Technologies, Inc. (the “Company”) on Form 10-K for the fiscal year ending December 31, 2003 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert I. Kriebel, Principal Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/ Robert I. Kriebel

Robert I. Kriebel

Principal Financial Officer

February 17, 2004