Exhibit 10.5

 

DEVELOPMENT AGREEMENT

 

by and between

 

IRONWOOD PHARMACEUTICALS, INC.

 

and

 

CYCLERION THERAPEUTICS, INC.

 

Dated as of April 1, 2019

 

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DEVELOPMENT AGREEMENT

 

TABLE OF CONTENTS

 

 

 

Page

 

 

ARTICLE I DEFINITIONS AND INTERPRETATION

1

Section 1.1.

General

1

Section 1.2.

Interpretation

2

ARTICLE II SERVICES AND GOVERNANCE

3

Section 2.1.

Service Schedule

3

Section 2.2.

Joint Steering Committee

3

Section 2.3.

Provision of Services

4

Section 2.4.

Inspections

4

Section 2.5.

Location; On-Site Security Procedures

4

Section 2.6.

Data Submission and Verification

5

Section 2.7.

Standard Operating Procedures

5

Section 2.8.

Regulatory Inspections

5

Section 2.9.

Subcontracting

5

ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS BY CYCLERION

6

Section 3.1.

Due Authorization

6

Section 3.2.

No Impairment

6

Section 3.3.

No Conflict

6

Section 3.4.

Compliance

6

Section 3.5.

No Infringement

7

Section 3.6.

Absence of Debarment

7

ARTICLE IV COMPENSATION

7

Section 4.1.

Budget

7

Section 4.2.

FTE Rate Adjustment

8

Section 4.3.

Invoice; Payment Terms

8

Section 4.4.

Taxes

9

Section 4.5.

Fair Market Value

9

Section 4.6.

No Right to Set-Off

9

Section 4.7.

Financial Records; Audits

9

ARTICLE V PROPRIETARY RIGHTS

10

Section 5.1.

Materials

10

 

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Section 5.2.

Inventions

10

Section 5.3.

Limited License

11

Section 5.4.

Cooperation

11

Section 5.5.

Cyclerion Property

11

Section 5.6.

Work at Third Party Facilities

12

Section 5.7.

Records

12

ARTICLE VI CONFIDENTIALITY

12

Section 6.1.

Definition

12

Section 6.2.

Obligations

12

Section 6.3.

Exceptions

13

ARTICLE VII DISPUTE RESOLUTION

13

Section 7.1.

Negotiation

13

Section 7.2.

Arbitration

14

Section 7.3.

Continuity of Service and Performance

15

ARTICLE VIII INDEMNIFICATION; LIMITATION ON LIABILITY; INSURANCE

15

Section 8.1.

Indemnification by Cyclerion

15

Section 8.2.

Indemnification by Ironwood

15

Section 8.3.

Indemnification Procedures

15

Section 8.4.

Sole Remedy

16

Section 8.5.

Limitation on Liability

16

Section 8.6.

Insurance

17

ARTICLE IX TERM AND TERMINATION

17

Section 9.1.

Term

17

Section 9.2.

Termination by Ironwood

17

Section 9.3.

Effect of Termination or Expiration

17

ARTICLE X MISCELLANEOUS

18

Section 10.1.

Complete Agreement; Construction

18

Section 10.2.

Counterparts

18

Section 10.3.

Notices

18

Section 10.4.

Waivers

19

Section 10.5.

Force Majeure

19

Section 10.6.

Assignment

20

Section 10.7.

Successors and Assigns

20

Section 10.8.

Third Party Beneficiaries

20

 

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Section 10.9.

Titles and Headings

20

Section 10.10.

Appendices

20

Section 10.11.

Governing Law

20

Section 10.12.

Severability

21

Section 10.13.

Interpretation

21

Section 10.14.

No Duplication; No Double Recovery

21

Section 10.15.

Independent Contractor Status

21

 

Appendix A

Service Schedule

Appendix B

Ironwood’s Security Procedures

Appendix C

Quarterly Statement

Appendix D

Ironwood’s Travel and Expense Policy

Appendix E

Initial Budget

 

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DEVELOPMENT AGREEMENT

 

This DEVELOPMENT AGREEMENT (this “Agreement”), dated as of April 1, 2019 (the
“Effective Date”), is entered into by and between Ironwood Pharmaceuticals, Inc.
(“Ironwood”), a Delaware corporation, and Cyclerion Therapeutics, Inc.
(“Cyclerion”), a Massachusetts corporation.  “Party” or “Parties” means Ironwood
or Cyclerion, individually or collectively, as the case may be.

 

W I T N E S S E T H:

 

WHEREAS, Ironwood controls certain patents related to human pharmaceutical
products (“Products”), including the compound IW-3718, linaclotide, and related
intellectual property;

 

WHEREAS, Cyclerion engages in research and development of soluble guanylate
cyclase stimulator products in any field; and

 

WHEREAS, Ironwood wishes to commission Cyclerion to perform, and Cyclerion
wishes to provide, its unique research and development capabilities to develop
Products of Ironwood, including a delayed-release formulation linaclotide
product.

 

NOW, THEREFORE In consideration of the agreements and mutual covenants contained
in this Agreement and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, Ironwood and Cyclerion agree as
set forth herein:

 

ARTICLE I

 

DEFINITIONS AND INTERPRETATION

 

Section 1.1.                                 General.  Unless otherwise
specifically provided herein, the following capitalized terms will have the
following meanings.  Any capitalized term used herein but not defined in this
Section 1.1 will have the meaning ascribed to it in this Agreement.

 

(1)                                      “Affiliate” means, with respect to each
Party, any corporation, company, partnership, joint venture or firm which
controls, is controlled by or is under common control with that Party.  As used
in this Section 1.1(1) “control” means (i) in the case of corporate entities,
direct or indirect ownership of shares of capital stock having at least fifty
percent (50%) of the votes available in any election of directors (or such
lesser percentage that is the maximum allowed to be owned by a foreign
corporation in a particular jurisdiction), and (ii) in the case of non-corporate
entities, the direct or indirect power to manage, direct, or cause the direction
of, the management and policies of the non-corporate entity or the power to
elect at least fifty percent (50%) of the members of the governing body of such
non-corporate entity.

 

(2)                                      “Deliverables” means those deliverables
of the Services set forth in Appendix A hereto.

 

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(3)                                      “Executive Officers” means Thomas
McCourt, President of Ironwood (or a designee of such officer) and Mark Currie,
President of Research & Development of Cyclerion (or a designee of such
officer).

 

(4)                                      “FTE Rate” means the amount to be paid
per full-time equivalent of Cyclerion under this Agreement on an annual basis.
The FTE Rate as of the Effective Date will be three hundred and fifteen thousand
dollars ($315,000), as such rate may be amended from time to time by the mutual
written consent of the Parties or in accordance with this Agreement.  The FTE
Rate for a full-time equivalent for a calendar month shall equal one-twelfth
(1/12th) of the foregoing annual rate and the FTE Rate for a full-time
equivalent for a calendar quarter shall equal one-fourth (1/4th) of the
foregoing annual rate.

 

(5)                                 “Internal Costs” shall mean, for any
Services conducted during a given period of time during the Term, (a) the FTE
Rate plus fifteen percent (15%) of such FTE Rate multiplied by the number of
full-time equivalents of Cyclerion performing such Services in accordance with
this Agreement during such period of time plus (b) any other costs directly
related to the provision of such Services during such period of time under this
Agreement, as agreed upon between the Parties in writing.

 

(6)                                 “Inventions” means inventions, discoveries,
improvements, ideas, designs, processes, techniques, formulations, strategies,
products, substances, computer programs, works of authorship, databases, mask
works, trade secrets, know-how, information, data, documentation, reports,
research and other creations (whether or not patentable or subject to copyright
or trade secret protection).

 

(7)                                 “Ironwood Invention” means any Invention
(i) arising or derived from or made through the use of Ironwood’s Confidential
Information or (ii) arising or derived from or made in the performance of the
Services or the creation of the Deliverables that specifically relates to one or
more Products (including the formulation or manufacture thereof) (i.e. not an
Invention that is generally applicable to pharmaceutical products).

 

(8)                                 “Representatives” means, with respect to
each Party to this Agreement, its directors, officers, employees, agents,
contractors and consultants.

 

(9)                                 “Services” means all of the services to be
provided by or on behalf of Cyclerion under this Agreement and described in the
Service Schedule hereto, as such Service Schedule may be updated and
supplemented from time to time in accordance with the provisions of this
Agreement.  “Service” means each such service.

 

(10)                          “Third Party” means any person or entity other
than Ironwood, Cyclerion or their Affiliates.

 

Section 1.2.                                 Interpretation.  Except where the
context otherwise requires, the singular will include the plural, the plural
will include the singular, the use of any gender will be applicable to all
genders, and the word “or” means “and/or.” References to a number of days,
unless otherwise specified, means calendar days.  The captions of this Agreement
are for convenience of reference only and do not define, describe, extend or
limit the scope or intent of any provision contained in this Agreement.  The
terms “including,” “include,” or “includes” are

 

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not intended to limit generality of any description preceding such term.  The
language of this Agreement will be deemed to be the language mutually chosen by
the Parties, and no rule of strict construction will be applied against either
Party.  Unless otherwise expressly specified, references to Ironwood include
Ironwood’s Affiliates, and references to Cyclerion include Cyclerion’s
Affiliates.

 

ARTICLE II

 

SERVICES AND GOVERNANCE

 

Section 2.1.                                 Service Schedule.  All Services or
Deliverables to be provided by Cyclerion under this Agreement are set forth in
Appendix A (as may be amended from time to time in accordance with this
Agreement, the “Service Schedule”).  At all times, the Service Schedule shall be
in writing and, at a minimum, identify and adequately describe the Services, the
Deliverables and a delivery or completion date.  The Service Schedule may only
be amended by the JSC (as defined in Section 2.2).  In the event either Party
would like to amend the Services to be provided under this Agreement, it may
submit a proposed amendment of the Service Schedule to the JSC and such
amendment shall only be made to the Service Schedule under this Agreement upon
approval of such amendment by the JSC and amendment of the Budget (as defined in
Section 4.1) by the JSC as necessary to contemplate such additional Services. 
Notwithstanding anything to the contrary in the Service Schedule, this Agreement
shall govern all Services and to the extent there is any conflict, discrepancy
or inconsistency between the Service Schedule and the terms of this Agreement,
the terms of this Agreement shall control, unless the Service Schedule
specifically references the conflict, discrepancy or inconsistency and provides
that it shall govern.

 

Section 2.2.                                 Joint Steering Committee.

 

(a)                                 Within thirty (30) days after the Effective
Date, the Parties shall establish, and have the first meeting of, a joint
steering committee (the “Joint Steering Committee” or “JSC”).  Unless otherwise
agreed by the Parties, the Joint Steering Committee shall be comprised of three
(3) representatives from each Party with one (1) representative with relevant
decision-making authority from each Party such that the JSC is able to
effectuate all of its decisions within the scope of its responsibilities as set
forth in this Agreement.  Either Party may replace or substitute its respective
representatives to the JSC at any time with prior notice to the other Party,
provided that such replacement or substitute is of comparable authority within
that Party.  Upon mutual agreement of the Parties, additional representatives or
consultants may be invited to attend a JSC meeting, subject to such
representatives’ and consultants’ written agreement to comply with the
requirements of Article VI.  Each Party shall bear its own expenses relating to
attendance at such meetings by its representatives and its invited
representatives or consultants (if any).  The JSC may create such subcommittees
or project teams as it deems necessary to carry out its responsibilities.

 

(b)                                 The JSC shall be responsible for the
oversight of the provision of the Services during the Term and performing those
duties and making those decisions expressly reserved for the JSC under this
Agreement, including the approval of the Service Schedule and Budget (and
amendments to each).  The JSC shall not have responsibility or any decision-

 

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making authority over the day-to-day provision of Services under this
Agreement.  Neither the JSC nor any subcommittee or project team shall have the
power to amend, modify or waive compliance under this Agreement. 
Notwithstanding anything to the contrary in this Agreement, no decision by
either Party, or the JSC, shall be effective if such decision requires the other
Party to breach any obligation under this Agreement or applicable law and all
determinations made by the JSC shall be subject to and shall comply with the
terms of this Agreement.

 

(c)                                  The JSC shall meet in accordance with a
schedule established by mutual written agreement of the Parties, at least once
per calendar quarter (and more frequently as the JSC determines is necessary to
fulfill its responsibilities), with the location for such meetings alternating
between each Party’s facilities (or such other locations as are determined by
the JSC).  Alternatively, if the Parties agree, the JSC may meet by means of
teleconference, videoconference or other similar communications equipment.  A
quorum of at least one JSC member appointed by each Party shall be present at or
shall otherwise participate in each Joint Steering Committee meeting.

 

(d)                                 The JSC shall act by unanimous agreement of
its members, with each Party having one vote.  If the JSC, after fifteen (15)
calendar days (or such other period as the Parties may otherwise mutually agree)
fails to reach such a unanimous decision, then the Executive Officers shall meet
promptly thereafter and shall negotiate in good faith to resolve the issue as
soon as is practicable.  Agreement by Executive Officers under this
Section 2.2(d) shall be deemed agreement and approval by the JSC for purposes of
this Agreement.

 

Section 2.3.                                 Provision of Services.  Cyclerion
shall perform the Services in a professional, diligent and timely manner
consistent with the industry standards prevailing for comparable services and in
accordance with this Agreement, including the Service Schedule.    To the extent
a more specific standard of care is specified in the Service Schedule with
respect to any Service, Cyclerion shall comply with such more specific
standard.  Notwithstanding any provision of this Agreement to the contrary,
Cyclerion shall not be required to (a) perform any Service in any manner that
violates or contravenes any restrictions imposed on Cyclerion by applicable law,
(b) perform any Service in any manner that breaches or contravenes any
contractual obligations owed by Cyclerion to any Third Party(ies) or (c) perform
any Service to the extent that the conduct of such would, in the good faith
belief of Cyclerion, infringe, violate or misappropriate intellectual property
rights of any Third Party.

 

Section 2.4.                                 Inspections.  Ironwood may, upon
reasonable prior notice to Cyclerion (such notice to be no less than ten
(10) days prior to the relevant inspection) and during normal business hours,
inspect the facilities used to render any Services, including books and records
pertaining to the Services, to review the performance of Services and confirm
that Services are being performed in accordance with the terms of this Agreement
(including the Service Schedule) and applicable laws. To the extent Ironwood
performs any such inspection, Ironwood shall comply with Cyclerion’s reasonable
security procedures.

 

Section 2.5.                                 Location; On-Site Security
Procedures.  Cyclerion shall perform the Services for Ironwood at the premises
of Cyclerion except for those Services, if any, that to be performed at a
different location that is identified in the Service Schedule.  Each Party
agrees that all of its and its Affiliates’ employees shall, and that it shall
use commercially reasonable

 

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efforts to cause its Representatives’ employees to, when on the property of the
other Party or any of its Affiliates, or when given access to any facilities,
information, systems, infrastructure or personnel of the other Party or any of
its Affiliates, conform to the policies and procedures of such other Party and
any of its Affiliates, as applicable, concerning health, safety, conduct and
security which are made known to the Party receiving such access from time to
time.  To the extent Cyclerion performs any of the Services on Ironwood
premises, Cyclerion shall comply with Ironwood’s Security Procedures, as set
forth and defined in Appendix B hereto.

 

Section 2.6.                                 Data Submission and Verification. 
Cyclerion will provide to Ironwood (a) a copy of all raw data generated in the
conduct of the Services in a format mutually agreed upon by Ironwood and
Cyclerion and (b) any databases and technical reports described in the Service
Schedule.  Cyclerion shall verify the accuracy of the data contained in all
databases or reports provided by it against the raw data and will attach a
signed statement attesting to such verification to each database or report
provided to Ironwood.  As per Ironwood’s requirements as provided to Cyclerion
in advance, Cyclerion will ensure that the database format is compatible with
relevant existing databases of Ironwood.

 

Section 2.7.                                 Standard Operating Procedures. 
Upon Ironwood’s request, Cyclerion will provide Ironwood with its standard
operating procedures and policies relevant to the performance of Services.

 

Section 2.8.                                 Regulatory Inspections.  If any
governmental or regulatory authority of appropriate jurisdiction conducts, or
gives notice of intent to conduct, an inspection of the books and records of
Cyclerion relevant to the Services or any facility of Cyclerion where Services
are performed, Cyclerion shall as soon as practicable, and in no event less than
one (1) business day, provide Ironwood with written notice thereof.  To the
extent the inspection relates to or impacts Services performed for Ironwood,
Cyclerion shall furnish Ironwood with all material information, including copies
of all communications pertinent to such inspection and, further, Ironwood shall
have the right, if permitted under applicable law and by the relevant authority,
to be present at any such inspection and to review and comment on any
communication with such governmental or regulatory authority in each case only
in respect of that portion of such inspection or communication as pertains to
the Services.  Cyclerion shall cause its Permitted Subcontractors (as defined in
Section 2.9 below), Affiliates and Representatives involved in the performance
of the Services that are the subject of such governmental inspection or who are
performing the Services at the facility that is the subject of such government
inspection to cooperate with such inspection.  Cyclerion and its Affiliates
shall promptly take all steps necessary to correct any deficiencies related to
the Services noted by such inspecting authority during the inspection.  Unless
prohibited by applicable law or the relevant authority, Cyclerion shall not send
or submit, and shall cause its Affiliates, Representatives and any Permitted
Subcontractors to not send or submit, any communication to a regulatory
authority that is in response to a notice to inspect or other regulatory action
or proposed regulatory action, or any other non-routine regulatory matter, that
references Ironwood or any of its respective Affiliates or any Services, without
first allowing Ironwood to review and comment upon such communication.

 

Section 2.9.                                 Subcontracting.  Cyclerion may not,
in whole or in part, subcontract or delegate the performance of any Services
without Ironwood’s consent except to a Party

 

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designated as a Permitted Subcontractor in the Service Schedule; provided that
in the event Cyclerion provides Ironwood with evidence that certain
subcontracting or delegation is necessary or beneficial to Cyclerion’s
performance under this Agreement, Ironwood shall not unreasonably withhold,
delay or condition its consent to such subcontracting or delegation.  “Permitted
Subcontractor” means a Third Party to whom the performance of such Service has
been subcontracted or delegated with Ironwood’s prior written consent. 
Cyclerion shall remain liable for and indemnify Ironwood against any and all
liabilities arising in connection with, the performance of any Services
subcontracted or delegated to any Affiliate or Third Party.

 

ARTICLE III

 

REPRESENTATIONS, WARRANTIES AND COVENANTS BY CYCLERION

 

Section 3.1.                                 Due Authorization.  Cyclerion has
the full power and authority to enter into and perform this Agreement and this
Agreement is a valid and binding obligation of Cyclerion, enforceable in
accordance with its terms, subject to laws of general application relating to
bankruptcy, insolvency and the relief of debtors.

 

Section 3.2.                                 No Impairment.  Cyclerion shall not
enter into any agreement that would materially impair its ability to perform its
obligations hereunder.

 

Section 3.3.                                 No Conflict.  Cyclerion shall not
enter into any agreement, either written or oral, that would conflict with
Cyclerion’s obligations under this Agreement.

 

Section 3.4.                                 Compliance.  In performing the
Services and creating and delivering the Deliverables, Cyclerion shall comply
with all applicable federal, state and local laws, regulations, professional
standards, and industry codes, ordinances and orders, as amended from time to
time, including (i) the Foreign Corrupt Practices Act of 1977 and the UK Bribery
Act, (ii) the federal anti-kickback statute (42 U.S.C. §1320a-7b(b)), and state
anti-kickback and other laws restricting gifts to, relationships with and
information from prescribers, (iii) the federal Food and Drug Administration
laws, regulations and guidance, including the federal Food, Drug and Cosmetic
Act and the Prescription Drug Marketing Act, (iv) those governing the purchase
and sale of securities while in possession of material, non-public information
about a company, (v) state and federal privacy and data security laws, including
the federal Health Insurance Portability and Accountability Act of 1996
(“HIPAA”), the Health Information Technology for Economic and Clinical Health
Act (“HITECH”), and Chapter 93H of The Massachusetts General Laws and its
implementing regulations, 201 CMR 17.00, and (vi) Good Laboratory Practices
(“GLP”) and Good Clinical Practices (“GCP”).  During the Term, upon Ironwood’s
reasonable request, Cyclerion will provide Ironwood with a copy of its policies
and procedures concerning compliance with the foregoing, as applicable, and a
written certification (not more frequently than annually) that its performance
of the Services complies with this Section 3.4.  During the Term, Cyclerion
shall promptly notify Ironwood in writing of any known or expected violations of
this Section 3.4.  In addition, Cyclerion will comply with all reasonable and
applicable Ironwood policies and procedures as provided in writing to Cyclerion
to the extent such policies and procedures comply with applicable law and are
reasonably consistent with general industry standards.

 

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Section 3.5.                                 No Infringement.  To the best of
Cyclerion’s knowledge, the provision of Services under this Agreement will not
infringe or violate any patent, copyright, trade secret or other proprietary or
intellectual property right of any Third Party.  In addition, Cyclerion
represents and warrants that all Deliverables shall be delivered free of any
claim of infringement of any patent, trade secret, copyright, trademark or any
other proprietary or intellectual right of any person.  Within 180 days of
providing a Deliverable, if any Deliverable is determined to be infringing, or
in Ironwood’s reasonable opinion is likely to be the subject of a claim of
infringement, without limiting any other right or remedy of Ironwood under this
Agreement or applicable law, Cyclerion shall at its expense and option either
(i) procure the right for Ironwood to continue using it, (ii) replace it with a
non-infringing equivalent, (iii) modify it to make it non-infringing, or
(iv) direct the return of the Deliverable and refund to Ironwood the fees paid
for such Deliverable less a reasonable amount for Ironwood’s use of the
Deliverable up to the time of return.

 

Section 3.6.                                 Absence of Debarment.  Cyclerion
represents and warrants that it, its Affiliates, Representatives, any Permitted
Subcontractors and any other person used by Cyclerion to perform the Services
(a) has not been debarred, convicted, and is not subject to any pending
debarment or conviction, pursuant to section 306 of the United States Food Drug
and Cosmetic Act, 21 U.S.C. § 335a, (b) has not been listed by any government or
regulatory agencies as (i) ineligible to participate in any government
healthcare programs or government procurement or non-procurement programs (as
that term is defined in 42 U.S.C. 1320a-7b(f)) or excluded, debarred, suspended
or otherwise made ineligible to participate in any such programs, or
(ii) disqualified or restricted, from receiving investigational products
pursuant to the government or regulatory agency’s regulations, or (c) has not
been convicted of a criminal offense related to the provision of healthcare
items or services, and is not the subject of any such pending action, suit,
claim, investigation or proceeding.  Cyclerion will promptly inform Ironwood in
writing if Cyclerion or any person who is performing Services has been or
becomes subject to any of the foregoing, or if any action, suit, claim,
investigation, or proceeding relating to the foregoing is pending or threatened.

 

ARTICLE IV

 

COMPENSATION

 

Section 4.1.                                 Budget.

 

(a)                                 An initial budget setting forth, on a
Service-by-Service basis, (i) the Internal Costs to be expended in the
performance of the Services through the end of the first full calendar quarter
following the Effective Date and (ii) an allowance for reasonable and documented
out-of-pocket business expenses to be incurred by Cyclerion (the “OOP Service
Expenses”) in the performance of the Services through the end of the first full
calendar quarter following the Effective Date is attached as Appendix E (such
budget, as amended and updated from time to time in accordance with this
Agreement, the “Budget”).  Sixty (60) days prior to the end of each full
calendar quarter during the Term, the JSC shall meet to update the Budget for
the following calendar quarter, such update to be in the form of an amendment to
the Budget approved by the JSC and to reflect the Internal Costs and the OOP
Service Expenses to be expended in the performance of Services in such following
calendar quarter.

 

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(b)                                 In the event that the JSC cannot agree on an
updated Budget for an upcoming calendar quarter (including via the escalation
procedure described in Section 2.2(d)) in forty (40) calendar days (i.e. twenty
(20) calendar days prior to the end of the calendar quarter), the matter shall
be resolved by an expert with at least ten (10) years’ experience in services
similar to the Services under this Agreement (an “Expert”), such Expert to be
mutually agreed upon by the Parties in accordance with this Section 4.1;
provided that if the Parties cannot decide on such an Expert in five
(5) calendar days, each Party shall pick one (1) Expert and such Experts shall
select a third Expert to form a three-member Expert panel.  In all cases, no
later than ten (10) days prior to the end of any full calendar quarter, if a
Budget for the next calendar quarter has not been decided upon by the JSC, the
relevant Expert or Experts shall be chosen for resolution of the dispute and
each Party shall have submitted to such Expert and Experts the Budget it
believes, in good faith, to be an accurate representation of the Internal Costs
and the OOP Service Expenses to be reasonably incurred in the performance of
Services in the following calendar quarter, along with any supporting
documentation it believes would be helpful for the determination of the Expert
or Experts.  The Parties shall request that the Expert or Experts select, out of
the two (2) proposed Budgets submitted by the Parties, the Budget that most
closely reflects what the Expert or Experts believe, in good faith, to be an
accurate representation of the Budget for the following calendar quarter (based
on the description of the Budget in this Agreement), such determination to be
made prior to the beginning of the following calendar quarter.  Upon such
determination by the Expert or Experts, such determination shall be deemed
binding, final and non-appealable and the selected Budget shall be the “Budget”
for the following calendar quarter under this Agreement.

 

Section 4.2.                                 FTE Rate Adjustment.  Following the
end of the first partial calendar year of the Term, the FTE Rate used to
calculate Internal Costs for each subsequent calendar year during the Term shall
be adjusted annually during the first calendar quarter of such subsequent
calendar year based on the change in the rate of the Employment Cost Index for
total compensation for the “management, professional and related” occupational
group, as published by the United States Department of Labor, Bureau of Labor
Statistics from the beginning to end of the previous calendar year (or any
similar index agreed upon by the Parties if such index ceases to be compiled and
published).

 

Section 4.3.                                 Invoice; Payment Terms.

 

(a)                                 Cyclerion will provide Ironwood with a
preliminary quarterly statement six (6) business days after the close of each
calendar quarter and a final quarterly statement ten (10) business days after
the close of each calendar quarter, both in the form attached as Appendix C
(each, a “Quarterly Statement”), which Quarterly Statement shall reflect, on a
Service-by-Service basis, Cyclerion’s good faith estimate of the Internal Costs
and OOP Services Expense payable for the Services for the preceding calendar
quarter and incurred in accordance with this Agreement.

 

(b)                                 Not later than twenty-five (25) days after
the last day of each calendar quarter (or, if the Term ends during a calendar
quarter, the last day of the Term), Cyclerion shall invoice Ironwood for
Internal Costs and OOP Service Expenses incurred during such calendar quarter in
accordance with this Agreement (including the Budget) and as full consideration
for the Services rendered under this Agreement, subject to the terms of this
Agreement (including

 

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Section 4.3(c)), Ironwood shall pay Cyclerion the Internal Costs and OOP
Services Expense for such Services.  To be valid, invoices must be in writing,
contain such detail as Ironwood may reasonably require, be submitted and payable
in U.S. Dollars and be accompanied (or preceded) by Cyclerion’s completed and
signed U.S. Internal Revenue Service Form W-9, Request for Tax Payer
Identification Number and Certification, or other applicable tax withholding
form.  Invoices and the completed Form W-9 must be emailed to
ap@ironwoodpharma.com or sent to Accounts Payable, Ironwood
Pharmaceuticals, Inc., 301 Binney Street, Cambridge, MA 02142.  Ironwood will
pay all undisputed amounts invoiced within thirty (30) days of its receipt of a
valid invoice.

 

(c)                                  Notwithstanding anything in the Agreement
to the contrary, in no event shall Ironwood be responsible for (i) any OOP
Service Expenses (A) incurred by Cyclerion in a calendar quarter in excess of
fifty thousand dollars ($50,000) over the amount of OOP Service Expenses in the
Budget for such calendar quarter without the JSC’s prior written approval,
(B) that are not in accordance with Ironwood’s Travel and Expense Policy, as
attached as Appendix D, as may be updated from time to time and provided to
Cyclerion or (C) that are not incurred in such calendar quarter, unless
otherwise agreed to by the JSC or (ii) any Internal Costs incurred by Cyclerion
in a calendar quarter in the performance of a Service in excess of one hundred
and ten percent (110%) of the approved amount for Internal Costs for such
Service in the Budget for such calendar quarter, unless otherwise agreed to by
the JSC.

 

Section 4.4.                                 Taxes.  Ironwood shall make all
payments to Cyclerion without deduction or withholding for taxes including
income tax withholding, Value Added Tax (“VAT”), duties, sales tax or a similar
tax except to the extent any such deduction or withholding is required by the
tax laws of any federal, state, provincial or foreign government.  In the event
a deduction or withholding for taxes is applicable, Ironwood shall submit such
deduction or withholding for taxes to the appropriate governmental authority and
shall provide a tax certificate to Cyclerion.  In the event VAT or sales tax
applies to the Services, Cyclerion shall invoice such tax to Ironwood, as a
reimbursable expense, and Cyclerion shall remit such tax to the relevant
government authority.  Cyclerion and Ironwood shall mutually cooperate to
minimize any amount of tax assessed in respect of the performance of Services
hereunder or as a deduction or withholding of taxes, including through the
prompt completion and filing of any relevant tax forms with the relevant tax
authorities.

 

Section 4.5.                                 Fair Market Value.  The Parties
agree that the amount of compensation payable under this Agreement reflects (or
will reflect) the fair market value of the Services and is consistent with arm’s
length transactions for services of the kind as the Services.

 

Section 4.6.                                 No Right to Set-Off.  Each Party
hereto acknowledges and agrees that it shall not be permitted to set-off any
amount owed by such Party pursuant to this Agreement against any amount or
obligation owed to such Party or an Affiliate hereunder or pursuant to any other
agreement between, on the one hand, a Party or its Affiliate and on the other
hand, the other Party or its Affiliate (such agreement, a “Party Agreement”).

 

Section 4.7.                                 Financial Records; Audits. 
Cyclerion shall keep true, complete and accurate records, receipts and other
supporting data as Ironwood may reasonably require to verify the amounts
invoiced to, and paid by, Ironwood under this Agreement.  Cyclerion shall

 

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make such records available for audit by Ironwood or an independent accounting
firm appointed by Ironwood for a period of three (3) years after the date on
which the applicable Services have been completed.  Such audits will be made no
more than once each calendar year during ordinary business hours and upon
reasonable prior notice; provided, however, that an audit “For Cause” may be
conducted more frequently.  For the purpose of this Section 4.7, an audit shall
be deemed “For Cause” in the event that either (a) the last audit conducted by
Ironwood or an independent accounting firm appointed by Ironwood has found
material overpayments made by Ironwood or (b) Ironwood reasonably believes in
good faith that Cyclerion is requesting reimbursement of amounts improperly
under this Agreement.  To the extent that such audit reveals any overpayments or
underpayments by Ironwood, Ironwood shall make up the amount of shortfall or, if
applicable, Cyclerion shall refund the amount of overpayment made by Ironwood,
within thirty (30) days from the receipt of the audit results.  Cyclerion shall
provide reasonable assistance, including making available members of its staff,
to facilitate such audits.

 

ARTICLE V

 

PROPRIETARY RIGHTS

 

Section 5.1.                                 Materials.  All documentation,
information, data, and biological, chemical and other materials controlled by
Ironwood and furnished to Cyclerion by or on behalf of Ironwood (the
“Materials”) and all associated intellectual property rights will remain the
exclusive property and Confidential Information of Ironwood.  Cyclerion shall
use Materials provided by Ironwood only as necessary to perform the Services and
shall treat the Materials in accordance with the requirements of this
Section 5.1.  Cyclerion shall not use or evaluate such Materials or any portions
thereof for any other purpose except as directed or permitted in writing by
Ironwood.  Without Ironwood’s prior written consent, Cyclerion shall not analyze
or reverse-engineer such Materials, or transfer or make the Materials available
to Third Parties.

 

Section 5.2.                                 Inventions.

 

(a)                                 Cyclerion assigns and agrees to assign to
Ironwood all rights in the United States and throughout the world to the
Ironwood Inventions.  Ironwood shall exclusively own all Ironwood Inventions and
all right, title and interest therein shall be exclusively vested in Ironwood. 
Ironwood Inventions will constitute Confidential Information of Ironwood, and
Cyclerion shall protect such Confidential Information in accordance with
Article VI below.  For purposes of the copyright laws of the United
States, Ironwood Inventions will constitute “works made for hire” as defined
under the United States Copyright Act, 17 U.S.C. 101, except to the extent such
Inventions cannot by law be “works made for hire,” in which case, Cyclerion
irrevocably assigns all copyrights in the Ironwood Inventions, including the
right to prepare derivative works, to Ironwood.  Cyclerion represents and
warrants to Ironwood that all Cyclerion Representatives involved in providing
Services or creating Deliverables have entered into, or will enter into prior to
commencing the Services, a written agreement which assigns to Cyclerion all
Inventions created by such Cyclerion Representatives during the course of his or
her employment by, or other provision of services to, Cyclerion.

 

(b)                                 Ownership of Inventions that are not
Ironwood Inventions shall follow inventorship.  Inventorship will be determined
in accordance with United States patent laws

 

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(regardless of where the applicable activities occurred).  Cyclerion hereby
grants, a non-exclusive, worldwide, royalty-free, fully paid up, sublicensable
license to Ironwood under Cyclerion’s right, title and interest in any
Inventions not assigned to Ironwood pursuant to Section 5.2(a) and arising or
derived from or made in the performance of the Services or the creation of the
Deliverables to research, develop, make, have made, use, sell, offer for sale,
have sold, import, perform and practice products in all fields, including any
Products.  Cyclerion will provide to Ironwood a copy of tangible embodiments of
Inventions promptly following any request by Ironwood and, in any event, within
ten (10) days after the end of the Term.

 

Section 5.3.                                 Limited License.  Subject to the
terms and conditions of this Agreement, Ironwood hereby grants to Cyclerion a
non-exclusive, royalty-free and fully paid-up license (sublicensable only to
Permitted Subcontractors) under Ironwood’s right, title and interest to
(a) intellectual property rights Controlled by Ironwood as of the Effective Date
and (b) Ironwood Inventions, in each case of clauses (a) and (b) that are
necessary for Cyclerion to perform the Services in accordance with and under
this Agreement, solely for use in the performance of Services under and pursuant
to this Agreement.  For the purposes of this Section 5.3, “Control” means, with
respect to any intellectual property right, the legal authority or right
(without taking into account any rights granted by Cyclerion to Ironwood under
this Agreement) of Ironwood to grant a license or sublicense of or under such
intellectual property rights to Cyclerion under this Section 5.3, without first
breaching the terms of any agreement with a Third Party in existence as of the
time Ironwood would first be required hereunder to grant Cyclerion such license
or sublicense.

 

Section 5.4.                                 Cooperation.  During and after the
Term of this Agreement, Cyclerion shall, and shall cause its Affiliates,
Representatives and any Permitted Subcontractors to, cooperate fully in
obtaining patent and other proprietary protection for any patentable Ironwood
Inventions, all in the name of Ironwood and at Ironwood’s cost and expense. 
Such cooperation will include, without limitation, executing and delivering all
requested applications, assignments and other documents, and taking such other
measures as Ironwood may reasonably request to perfect and enforce Ironwood’s
rights in the Ironwood Inventions.  Cyclerion irrevocably designates and
appoints Ironwood its agent and attorney-in-fact to execute, file and deliver
any such documents and do all other lawfully permitted acts on behalf of
Cyclerion, its Affiliates and Representatives if Cyclerion, its Affiliates or
Representatives fail to do so to Ironwood’s reasonable satisfaction.

 

Section 5.5.                                 Cyclerion Property. 
Notwithstanding the foregoing, Cyclerion will retain full ownership rights in
and to all inventions, processes, know-how, trade secrets, improvements and
other materials developed or obtained or licensed from third parties by
Cyclerion and its Affiliates (collectively, the “Cyclerion Property”) prior to
or independent of the performance of its obligations under this Agreement and
without access to, or use of, Ironwood’s Confidential Information, regardless of
whether such Cyclerion Property is used in connection with Cyclerion’s
performance of the Services or creation of the Deliverables.  Cyclerion hereby
grants to Ironwood a perpetual, non-exclusive, fully paid-up, royalty-free,
irrevocable worldwide license, with the right to grant sublicenses, to use
Cyclerion Property solely to the extent required for Ironwood’s use of the
Deliverables, including the use of Deliverables in a product.

 

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Section 5.6.                                 Work at Third Party Facilities. 
Except as permitted under the applicable Service Schedule, Cyclerion shall not
transfer Materials to any Third Party or use any Third Party facilities or
intellectual property in performing the Services without Ironwood’s prior
written consent.

 

Section 5.7.                                 Records.  Cyclerion shall maintain
all materials and all other data and documentation obtained or generated by
Cyclerion in the course of preparing for and providing Services hereunder,
including all computerized records and files (the “Records”) in a secure area
reasonably protected from fire, theft and destruction.  These Records will be
“Works Made for Hire” and will remain the exclusive property of Ironwood. 
Records will be retained by Cyclerion for a period of seven (7) years, or longer
if required under applicable law or regulation, unless Ironwood requests that
such Records be delivered to Ironwood or to its designee in such form as is then
currently in the possession of Cyclerion, in which case Cyclerion shall so
deliver such Records to the extent they are not otherwise required to be stored
or maintained by Cyclerion as a matter of law or regulation.  In no event will
Cyclerion dispose of any such Records without first giving Ironwood sixty (60)
days’ prior written notice of its intent to do so.  Cyclerion may, however,
retain copies of any Records as are reasonably necessary for regulatory or
insurance purposes, subject to Cyclerion’s obligation of confidentiality.

 

ARTICLE VI

 

CONFIDENTIALITY

 

Section 6.1.                                 Definition.  “Confidential
Information” with respect to Ironwood means any and all non-public scientific,
medical, regulatory, technical, financial, strategic, commercial or business
information or data in written, oral, visual, electronic or other form owned,
possessed or used by Ironwood, and learned of by Cyclerion or developed by
Cyclerion in connection with the Services, whether or not labeled
“Confidential”, including but not limited to (a) Deliverables, Materials,
scientific data and sequence information, (b) development and marketing plans,
regulatory and business strategies, financial information, forecasts, personnel
information and customer lists of Ironwood, and (c) all information of Third
Parties that Ironwood has an obligation to keep confidential.  “Confidential
Information” with respect to Cyclerion means any and all non-public, scientific,
medical, regulatory, technical, financial, strategic, commercial or business
information, or data in written, oral, visual, electronic or other form owned,
possessed or used by Cyclerion and learned of by Ironwood in connection with the
Services, whether or not labeled as “Confidential,” including development and
marketing plans and business strategies and Third Party information, provided,
however that the Deliverables shall not qualify as Confidential Information of
Cyclerion.

 

Section 6.2.                                 Obligations.  The Party receiving
information (the “Recipient”) will use any Confidential Information of the other
Party (the “Disclosing Party”) solely to perform the Services or exercise its
rights or perform its obligations under this Agreement and will treat the
Disclosing Party’s Confidential Information with the same degree of care it uses
to protect its own confidential information, but in no event with less than a
reasonable degree of care.  The Recipient will not directly or indirectly
publish, disseminate or otherwise disclose, use for its own benefit or for the
benefit of a third party, deliver or make available to any third party, any of

 

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the Disclosing Party’s Confidential Information, without the prior written
consent of the Disclosing Party, other than to the Disclosing Party’s
Affiliates, Representatives and any Permitted Subcontractors who have a need to
know such Confidential Information in the course of the performance of their
duties under this Agreement and who are bound to protect the confidentiality of
the Confidential Information consistent with the terms of this Agreement.  The
Recipient shall enforce the confidentiality obligations of its Affiliates,
Representatives and any Permitted Subcontractors and shall be responsible for
any breach of such obligations by such persons.  The Recipient shall notify the
Disclosing Party of any breach by Recipient or Recipient’s Affiliates,
Representatives and any Permitted Subcontractors of the obligations under this
Section 6.2 as soon as practicable upon becoming aware of such breach.  The
provisions of this Article VI shall remain in effect for a period of seven
(7) years after the expiration or termination of this Agreement.

 

Section 6.3.                                 Exceptions.  Confidential
Information shall not include any information that the Recipient can demonstrate
by competent written record:

 

(a)                                 is or later becomes generally available to
the public by use, publication or the like, through no wrongful act or omission
or negligence on the part of the Recipient, its Affiliates or its
Representatives;

 

(b)                                 is disclosed without restriction to the
Recipient by a third party who is in legal possession of such information and
whose disclosure to the Recipient does not violate any contractual, legal or
fiduciary obligation to the Disclosing Party or any third party;

 

(c)                                  is lawfully in the Recipient’s possession
(by means other than prior disclosure from the Disclosing Party) without any
obligation to maintain confidentiality at the time of its receipt hereunder; or

 

(d)                                 is independently developed by the Recipient
without aid, use or benefit of Confidential Information.

 

In the event that the Recipient is required by law or court order to disclose
any Confidential Information, the Recipient will give the Disclosing Party
prompt notice thereof so that the Disclosing Party may seek an appropriate
protective order to obtain confidential treatment for such disclosed
information.  In addition, the Recipient will (i) take all reasonable actions to
obtain confidential treatment for any disclosed Confidential Information;
(ii) reasonably cooperate with the Disclosing Party in its efforts to seek such
a protective order; and (iii) limit such disclosure of the Disclosing Party’s
Confidential Information to the fullest extent permitted under applicable law.

 

ARTICLE VII

 

DISPUTE RESOLUTION

 

Section 7.1.                                 Negotiation.  A Party seeking
resolution of a controversy, dispute or action arising out of, in connection
with, or in relation to the interpretation, performance, nonperformance,
validity or breach of this Agreement or otherwise arising out of, or in any way
related to, this Agreement or the transactions contemplated hereby or thereby,
including any

 

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action based on contract, tort, statute or constitution (excluding any matters
that are subject to resolution as provided in Section 4.1(b), the disputes
referenced above in this Section 7.1 are, collectively, “Disputes”) shall
provide written notice of such Dispute to the other Party, specifying the terms
of such Dispute in reasonable detail (“Dispute Notice”).  The appropriate
executives of the Parties who have authority to settle the Dispute (or such
other individuals designated by the respective executives) shall attempt to
resolve the Dispute through good faith negotiation for a reasonable period of
time; provided that such reasonable period shall not, unless otherwise agreed by
the Parties in writing, exceed fifteen (15) days from the time of receipt by a
Party of the Dispute Notice.  If the Dispute has not been resolved within
fifteen (15) days after receipt of the Dispute Notice, the respective Chief
Executive Officers or their respective designees (with full settlement
authority) of Ironwood and Cyclerion shall meet in person (or where necessary,
by phone) at a mutually acceptable time and, if applicable, place, and
thereafter as often as they reasonably deem necessary, to attempt in good faith
to resolve the Dispute.  Any contractual time period or deadline under this
Agreement to which such Dispute relates occurring after the Dispute Notice is
received shall not be deemed to have passed until such Dispute has been resolved
pursuant to this Article VII.

 

Section 7.2.                                 Arbitration.

 

(a)                                 Claims.  Any Dispute that is not resolved
pursuant to Section 7.1 within thirty (30) days after receipt of a Dispute
Notice shall be resolved by final and binding arbitration before a panel of
three (3) experts with relevant industry experience (the “Arbitrators”).  One
(1) Arbitrator shall be chosen by Ironwood and one (1) Arbitrator shall be
chosen by Cyclerion within forty-five (45) of receipt of a Dispute Notice.  The
third (3rd) Arbitrator shall be chosen by mutual agreement of the Arbitrator
chosen by Ironwood and the Arbitrator chosen by Cyclerion within fifteen (15)
days of the date that the last of such Arbitrators was appointed.  The
Arbitrators shall be administered by the International Chamber of Commerce (the
“Administrator”) in accordance with its then existing arbitrator rules or
procedures regarding commercial or business disputes.  The arbitration shall be
held in Boston, Massachusetts.  The Arbitrators shall be instructed by the
Parties to complete the arbitration within ninety (90) days after selection of
the third (3rd) Arbitrator.

 

(b)                                 Arbitrators’ Award.  The Arbitrators shall,
within fifteen (15) days after the conclusion of the arbitration hearing, issue
a written award and statement of decision describing the essential findings and
conclusions on which the award is based, including the calculation of any
damages awarded.  The decision or award rendered by the Arbitrators shall be
final and non-appealable, and judgment may be entered upon it in accordance with
the laws of the Commonwealth of Massachusetts or any other court of competent
jurisdiction.  The Arbitrators shall be authorized to award compensatory
damages, but shall not be authorized (i) to award non-economic damages, such as
for emotional distress, pain and suffering or loss of consortium, (ii) to award
punitive damages, or (iii) to reform, modify or materially change this
Agreement; provided, however, that the limitations described in the foregoing
clauses (i) and (ii) shall not apply if such damages are statutorily imposed.

 

(c)                                  Costs.  Each Party shall bear its own
attorney’s fees, costs and disbursements arising out of the arbitration and the
costs of the Arbitrator selected by it, and shall pay an equal share of the fees
and costs of the third (3rd) Arbitrator; provided, however, that

 

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the Arbitrators shall be authorized to determine whether a Party is the
prevailing Party, and if so, to award to that prevailing Party reimbursement for
its reasonable attorneys’ fees, costs and disbursements (including, for example,
expert witness fees and expenses, photocopy charges, travel expenses, etc.),
and/or the fees and costs of the Administrator and the Arbitrators.

 

(d)                                 Injunctive or Other Equity Relief.  Nothing
contained in this Agreement shall deny any Party the right to seek injunctive or
other equitable relief from a court of competent jurisdiction in the context of
a bona fide emergency or prospective irreparable harm, and such an action may be
filed and maintained notwithstanding any ongoing arbitration proceeding.

 

Section 7.3.                                 Continuity of Service and
Performance.  Unless otherwise agreed in writing, the Parties shall continue to
provide service and honor all other commitments under this Agreement during the
course of a Dispute with respect to all matters not subject to such Dispute.

 

ARTICLE VIII

 

INDEMNIFICATION; LIMITATION ON LIABILITY; INSURANCE

 

Section 8.1.                                 Indemnification by Cyclerion. 
Subject to Section 8.5, Cyclerion shall defend, indemnify and hold harmless
Ironwood, its Affiliates and each of their respective directors, officers,
employees, agents, licensors, successors and assigns (collectively, the
“Ironwood Indemnitees”) from any loss, liability or expense incurred in
connection with a claim, demand, action, suit or proceeding (a “Claim”), arising
from or related to (a) Cyclerion’s breach of any of its obligations,
representations or warranties under this Agreement or (b) the gross negligence,
willful misconduct or fraud by Cyclerion, its Affiliates, its Representatives or
any Permitted Subcontractors; provided, however, that Cyclerion shall have no
such obligation with respect to any Claim to the extent that such Claim arises
from the gross negligence, willful misconduct or fraud by the Ironwood
Indemnitees, or the material breach by Ironwood of any of its obligations under
this Agreement.

 

Section 8.2.                                 Indemnification by Ironwood. 
Subject to Section 8.5, Ironwood shall defend, indemnify and hold harmless
Cyclerion, its Affiliates and each of their respective directors, officers,
employees, agents, licensors, successors and assigns (collectively, the
“Cyclerion Indemnitees”) from any loss, liability or expense incurred in
connection with a Claim, arising from or related to (a) Ironwood’s breach of any
of its obligations, representations or warranties under this Agreement or
(b) the gross negligence, willful misconduct or fraud by Ironwood, its
Affiliates or its Representatives; provided, however that Ironwood shall have no
such obligation with respect to any Claim to the extent that such Claim arises
from the gross negligence, willful misconduct or fraud by the Cyclerion
Indemnitees, or the material breach by Cyclerion of any of its obligations under
this Agreement.

 

Section 8.3.                                 Indemnification Procedures.  The
Party seeking to be indemnified (the “Indemnified Party”) shall provide prompt
written notice of a Claim or events likely to give rise to a Claim to the Party
with the obligation to indemnify (the “Indemnifying Party”) (in any event within
sufficient time so as not to prejudice the defense of such Claim).  The
Indemnifying Party shall be given the opportunity at all times to control the
defense of the Claim, with the

 

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cooperation and assistance of the Indemnified Party; provided, however, that the
Indemnifying Party shall not settle any Claim with an admission of liability or
wrongdoing by the Indemnified Party without such Party’s prior written consent.

 

Section 8.4.                                 Sole Remedy.  Subject to
Section 3.5, indemnification pursuant to this Article VIII represents the
Parties’ sole and exclusive remedy under this Agreement, provided that, if
Cyclerion commits an error with respect to, incorrectly performs or fails to
perform any Service, at Ironwood’s request, without prejudice to any other
rights or remedies Ironwood may have, Cyclerion shall use commercially
reasonable efforts to correct such error, re-perform such Service or perform
such Service, as applicable, at no additional cost to Ironwood.  To the extent
the Cyclerion is unable to provide in its entirety a Service because of a delay
which excuses performance pursuant to Section 10.5, Cyclerion shall allocate
such resources or products as are then currently available to it and necessary
for the performance of such Service ratably between Cyclerion for its own
account and Ironwood for the performance of such Services hereunder.

 

Section 8.5.                                 Limitation on Liability.

 

(a)                                 The aggregate liabilities of Cyclerion under
this Agreement for any act or failure to act in connection herewith (including
the performance or breach of this Agreement), or from the sale, delivery,
provision or use of any Services provided under or contemplated by this
Agreement, whether in contract, tort (including negligence and strict liability)
or otherwise, at law or equity, shall not exceed the aggregate amount of
Internal Costs and OOP Service Expenses paid (and not previously paid back as a
liability under this Section 8.5(a)) to Cyclerion (or its Affiliates) under this
Agreement prior to the date on which Cyclerion’s (or its applicable Affiliate’s
or Representative’s) action or inaction giving rise to the applicable liability
arises or occurs; provided that if such action or inaction occurs during the
first year of the Term, the aggregate liabilities of Cyclerion and its
Affiliates related to such action or inaction will not exceed the aggregate
amount of Internal Costs and OOP Service Expenses actually paid and payable (and
not previously paid back as a liability hereunder) in the first twelve (12)
months of the Term.

 

(b)                                 Notwithstanding anything to the contrary
contained in this Agreement, Cyclerion will not be liable to Ironwood or any of
its Affiliates, whether in contract, tort (including negligence and strict
liability) or otherwise, at law or equity, for any special, indirect,
incidental, punitive or consequential damages whatsoever (including lost profits
or damages calculated on multiples of earnings approaches), which in any way
arise out of, relate to or are a consequence of, the performance or
nonperformance by Cyclerion (including any Affiliates and Permitted
Subcontractors, in each case, providing the applicable Services) under this
Agreement or the provision of, or failure to provide, any Services under this
Agreement, including with respect to loss of profits, business interruptions or
claims of customers.

 

(c)                                  The limitations in Section 8.5 shall not
apply with respect to any liability arising out of, relating to or in connection
with (i) any Third Party claim to the extent paid to a Party pursuant to an
indemnification obligation to the other Party for such liability under
Section 8.1 or Section 8.2, (ii) any breach of Article VI or (iii) the gross
negligence, willful misconduct, or fraud of or by the Party to be charged.

 

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Section 8.6.                                 Insurance.  Each Party hereto
shall, throughout the term of this Agreement, carry appropriate insurance with a
reputable insurance company covering property damage, business interruptions,
automobile and general liability insurance (including contractual liability) to
protect its own business and property interests; provided that each Party shall
be permitted to reasonably self-insure against the liabilities specified in
Article VII.

 

ARTICLE IX

 

TERM AND TERMINATION

 

Section 9.1.                                 Term.  This Agreement will commence
on the Effective Date and continue for, subject to this Article IX, two
(2) years (the “Initial Term”).  This Agreement will automatically renew for
subsequent periods of one (1) year each (each a “Renewal Term,” and together
with the Initial Term, the “Term”) unless either Party notifies the other at
least six (6) months’ prior to the expiration of the then current Initial Term
or Renewal Term, as applicable, of its intent not to renew.  Any Service shall
commence on its respective effective date and shall terminate upon the
completion of such Service and delivery of the Deliverable(s) to be provided for
such Service, unless otherwise set forth on the Service Schedule or earlier
terminated in accordance with this Article IX.  Notwithstanding the foregoing,
if any Service has begun prior to this Agreement’s expiration and remains
ongoing at what would otherwise be this Agreement’s expiration, then this
Agreement shall not expire and shall continue in full force and effect until
Cyclerion’s completion of any unperformed obligations under any such Service
only.

 

Section 9.2.                                 Termination by Ironwood.  Ironwood
may terminate this Agreement or any Service at any time and for any reason upon
six (6) months’ prior written notice to Cyclerion.

 

Section 9.3.                                 Effect of Termination or
Expiration.  Upon expiration of this Agreement, neither Cyclerion nor Ironwood
shall have any further obligations under this Agreement, except that:

 

(a)                                 Cyclerion shall deliver to Ironwood or, at
Ironwood’s option, dispose of, any Materials in its possession or control and
all Deliverables developed through termination or expiration;

 

(b)                                 No later than thirty (30) days after the
date of the completed performance of any wind-down instructions from Ironwood,
Cyclerion shall provide Ironwood with a final reconciliation containing an
itemized accounting of Services performed, expenses incurred and payments
received to determine any and all amounts owed to or by each Party.  Ironwood
will pay Cyclerion all undisputed fees for Services performed and all permitted
reimbursable expenses through the expiration date in accordance with the
provisions of this Agreement.  In addition, Ironwood will reimburse Cyclerion
for all reasonable, non-cancellable obligations to Third Parties incurred by
Cyclerion in the course of its performance of Services and any reasonable costs
incurred in connection with performing Ironwood’s wind-down instructions, in
each case in accordance with the provisions of this Agreement.  Cyclerion will
promptly refund any monies paid in advance by Ironwood for Services not rendered
and in excess of any

 

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applicable payments owed by Ironwood under this Agreement.  Any net amount owed
by either Party will be paid within thirty (30) days following receipt of the
itemized accounting;

 

(c)                                  A Party that has received the other Party’s
Confidential Information will promptly return to the Disclosing Party or destroy
all Confidential Information and all tangible items relating to such
Confidential Information, and all copies thereof in the possession or control of
the receiving Party, such Party’s Affiliates, Representatives or any Permitted
Subcontractors, provided to the recipient under this Agreement which has been
terminated or has expired; provided, however, that the receiving Party of the
other Party’s Confidential Information may retain one (1) copy in the separate
files of such receiving Party’s legal counsel solely for legal compliance
purposes and with respect to electronic copies, the Receiving Party shall (i) be
obligated to use only commercially reasonable efforts to remove all active
copies and (ii) not be obligated to delete archival copies retained in
accordance with its normal procedures, or to remove any hidden or partial
copies; provided further, however, that notwithstanding anything to contrary
herein, all retained Confidential Information shall continue to be subject to
the confidentiality and non-use obligations set forth herein.  Upon the
Disclosing Party’s request, an authorized Representative of the receiving Party
of the other Party’s Confidential Information shall certify to such receiving
Party’s compliance with this Section 9.3(c).

 

(d)                                 The terms, conditions and obligations under
Article III (Representations, Warranties and Covenants by Cyclerion), Article IV
(Compensation), Article V (Proprietary Rights), Article VI (Confidentiality),
Article VIII (Indemnification; Limitation on Liability; Insurance), Section 9.3
(Effect of Termination or Expiration) and Section 10.11 (Governing Law) will
survive any such termination or expiration.

 

ARTICLE X

 

MISCELLANEOUS

 

Section 10.1.                          Complete Agreement; Construction.  This
Agreement, including the Appendices, shall constitute the entire agreement
between the Parties with respect to the subject matter hereof and shall
supersede all previous negotiations, commitments, course of dealings and
writings with respect to such subject matter.  In the event of any inconsistency
between this Agreement and any Schedule hereto, the Schedule shall prevail.

 

Section 10.2.                          Counterparts.  This Agreement may be
executed in one or more counterparts, all of which shall be considered one and
the same agreement, and shall become effective when one or more such
counterparts have been signed by each of the Parties and delivered to each of
the Parties.

 

Section 10.3.                          Notices.  All notices, requests, claims,
demands and other communications under this Agreement shall be in English, shall
be in writing and shall be given or made (and shall be deemed to have been duly
given or made upon receipt) by delivery in person, by overnight courier service,
by facsimile with receipt confirmed (followed by delivery of an original via
overnight courier service) or by registered or certified mail (postage prepaid,
return receipt requested) to the respective Parties at the following addresses
(or at such other address for a Party as will be specified in a notice given in
accordance with this Section 10.3):

 

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To Ironwood:

 

Ironwood Pharmaceuticals, Inc.
301 Binney Street
Cambridge, MA 02142
United States
Attn:  General Counsel
Phone:  617-621-7722
Fax:  617-588-0623

 

To Cyclerion:

 

Cyclerion Therapeutics, Inc.
301 Binney Street

Cambridge, MA 02142

United States
Attn: Chief Financial Officer

Phone: 857-327-8778
Fax: 617-890-6595

 

Section 10.4.                          Waivers.  The delay or failure by either
Party to exercise or enforce any of its rights under this Agreement will not
constitute, or be deemed to be, a waiver of those rights, nor will any single or
partial exercise of any such rights preclude any other or further exercise
thereof or the exercise of any other right.  No waiver of any provision of this
Agreement will be effective unless it is in writing and signed by the Party
against which it is being enforced.

 

Section 10.5.                          Force Majeure.

 

(a)                                 Neither Party hereto will be liable for
delay in performance (other than the payment of money) of its obligations to the
extent caused by events which could not have been foreseen and are beyond the
reasonable control of the Party affected (an event of “Force Majeure”),
including (i) acts of God, the elements, epidemics, explosions, accidents,
landslides, lightning, earthquakes, fires, storms (including tornadoes and
hurricanes or tornado and hurricane warnings), sinkholes, floods, or washouts;
(ii) labor shortage or trouble including strikes or injunctions (whether or not
within the reasonable control of such Party and provided that the settlement of
strikes and other labor disputes shall be entirely within the discretion of the
Party experiencing the difficulty); (iii) inability to obtain material,
equipment or transportation; (iv) national defense requirements, war, blockades,
insurrections, sabotage, terrorism, riots, arrests and restraints of the
government, either federal or state, civil or military (including any
governmental taking by eminent domain or otherwise); or (v) any changes in
applicable law, regulation or rule or the enforcement thereof by any
governmental or regulatory agency having jurisdiction, that limits or prevents a
Party from performing its obligations hereunder or any notice from any such
agency of its intention to fine or penalize such Party or otherwise impede or
limit such Party’s ability to perform its obligations hereunder.

 

(b)                                 Cyclerion shall endeavor to provide to
Ironwood uninterrupted Services through the Term.  In the event, however, that
(i) Cyclerion is wholly or partially prevented from

 

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providing a Service or Services either temporarily or permanently by reason of
any Force Majeure event, or (ii) the Cyclerion, in the exercise of its
reasonable good faith judgment, deems it necessary to suspend delivery of a
Service hereunder for purposes of inspection, maintenance, repair, replacement
of equipment parts or structures, or similar activities consistent with past
practices, Cyclerion shall not be obligated to deliver the affected part of such
Service during such periods, and, in the case of the immediately preceding
clause (ii), Cyclerion shall cooperate with Ironwood with respect to the timing
of such interruption.

 

Section 10.6.                          Assignment.  Except as provided herein,
neither Party may assign any rights or delegate any obligations arising under
this Agreement, in whole or in part, directly or indirectly, without the prior
written consent of the other Party (such consent not to be unreasonably
withheld, conditioned or delayed), and any attempt to so assign any rights or
delegate any obligations arising under this Agreement without such consent will
be void.  Notwithstanding the foregoing, no such consent shall be required for
any such assignment or delegation (a) with respect to Ironwood, (i) to an
Affiliate of Ironwood (so long as such Affiliate remains an Affiliate of
Ironwood) or (ii) to a bona fide Third Party in connection with a merger,
reorganization, consolidation or the sale of all or substantially all the assets
of Ironwood or (b) with respect to Cyclerion, to an Affiliate controlled (as
defined in Section 1.1(1)) by Cyclerion (so long as such Affiliate remains
controlled by Cyclerion), in each case so long as the resulting, surviving or
transferee entity assumes all the obligations of the assigning Party by
operation of law or pursuant to the agreement governing such transaction; and
further provided, however, that any incremental taxes that result from the
assignment or are imposed on the non-assigning Party shall be borne by the
assigning Party or its assignee.

 

Section 10.7.                          Successors and Assigns.  The provisions
of this Agreement and the obligations and rights hereunder shall be binding
upon, inure to the benefit of and be enforceable by (and against) the Parties
and their respective successors (whether by merger, acquisition of assets or
otherwise) and permitted assigns.

 

Section 10.8.                          Third Party Beneficiaries.  Except as
provided in Article VIII with respect to persons entitled to claim
indemnification hereunder, this Agreement is solely for the benefit of the
Parties and will not be deemed to confer upon person other than the Parties any
remedy, claim, liability, reimbursement, cause of action or other right beyond
any that exist without reference to this Agreement.

 

Section 10.9.                          Titles and Headings.  Titles and headings
to sections herein are inserted for the convenience of reference only and are
not intended to be a part of or to affect the meaning or interpretation of this
Agreement.

 

Section 10.10.                   Appendices.  The Appendices shall be construed
with and as an integral part of this Agreement to the same extent as if the same
had been set forth verbatim herein.

 

Section 10.11.                   Governing Law.  This Agreement will be governed
by, construed and interpreted in accordance with the laws of the Commonwealth of
Massachusetts, U.S.A., without reference to principles of conflicts of laws.

 

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Section 10.12.                   Severability.  In the event any one or more of
the provisions contained in this Agreement should be held invalid, illegal or
unenforceable in any respect, the validity, legality and enforceability of the
remaining provisions contained herein and therein shall not in any way be
affected or impaired thereby.  The Parties shall endeavor in good-faith
negotiations to replace the invalid, illegal or unenforceable provisions with
valid provisions, the economic effect of which comes as close as possible to
that of the invalid, illegal or unenforceable provisions.

 

Section 10.13.                   Interpretation.  Interpretation of this
Agreement shall be governed by the following rules of construction: (a) words in
the singular shall be held to include the plural and vice versa, and words of
one gender shall be held to include the other gender as the context requires;
(b) references to the terms “Section,” “paragraph,” “clause,” “Exhibit” and
“Schedule” are references to the Sections, paragraphs, clauses, Exhibits and
Schedules of this Agreement unless otherwise specified; (c) the terms “hereof,”
“herein,” “hereby,” “hereto,” and derivative or similar words refer to this
entire Agreement, including the Schedules and Exhibits hereto; (d) references to
“$” shall mean U.S. dollars; (e) the word “including” and words of similar
import when used in this Agreement shall mean “including without limitation,”
unless otherwise specified; (f) the word “or” shall not be exclusive;
(g) references to “written” or “in writing” include in electronic form;
(h) unless the context requires otherwise, references to “Party” shall mean
Ironwood or Cyclerion, as appropriate, and references to “Parties” shall mean
Ironwood and Cyclerion; (i) provisions shall apply, when appropriate, to
successive events and transactions; (j) the table of contents and headings
contained in this Agreement are for reference purposes only and shall not affect
in any way the meaning or interpretation of this Agreement; (k) Ironwood and
Cyclerion have each participated in the negotiation and drafting of this
Agreement and if an ambiguity or question of interpretation should arise, this
Agreement shall be construed as if drafted jointly by the Parties and no
presumption or burden of proof shall arise favoring or burdening either Party by
virtue of the authorship of any of the provisions in this Agreement or any
interim drafts of this Agreement; and (l) a reference to any person includes
such person’s successors and permitted assigns.

 

Section 10.14.                   No Duplication; No Double Recovery.  Nothing in
this Agreement is intended to confer to or impose upon any Party a duplicative
right, entitlement, obligation or recovery with respect to any matter arising
out of the same facts and circumstances.

 

Section 10.15.                   Independent Contractor Status.  Cyclerion will
be deemed to be an independent contractor to Ironwood.  Nothing contained in
this Agreement will create or be deemed to create the relationship of employer
and employee between Cyclerion and Ironwood.  The relationship created between
Cyclerion and Ironwood pursuant to or by this Agreement is not and will not be
one of partnership or joint venture.  No Party to this Agreement will, by reason
hereof, be deemed to be a partner or a joint venture of the other Party hereto
in the conduct of their respective businesses or the conduct of the activities
contemplated by this Agreement.  Except as specifically and explicitly provided
in this Agreement, and subject to and in accordance with the provisions hereof,
no Party to this Agreement is now, will become, or will be deemed to be a an
agent or representative of the other Party.  Except as herein explicitly and
specifically provided, neither Party shall have any authority or authorization,
of any nature whatsoever, to speak for or bind the other Party to this
Agreement.

 

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[Signature Page Follows]

 

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IN WITNESS WHEREOF, the Parties have caused this Agreement to be duly executed
as of the day and year first above written.

 

 

IRONWOOD PHARMACEUTICALS, INC.

 

 

 

By:

/s/ Halley Gilbert

 

Name: Halley Gilbert

 

Title: Senior Vice President

 

 

 

CYCLERION THERAPEUTICS, INC.

 

 

 

By:

/s/ William Huyett

 

Name: William Huyett

 

Title: President

 

[Signature Page to Development Agreement]

 

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