EXHIBIT 10.61
January 4th, 2007
EXCLUSIVE LICENSE AGREEMENT
BETWEEN
ELI LILLY AND COMPANY
AND
PROSIDION LIMITED

 

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CONTENTS

              Article Number       Page Number  
 
           
 
            ARTICLE 1     1   DEFINITIONS     1  
1.1
  DEFINITIONS     1  
1.2
  FURTHER DEFINITIONS     12   ARTICLE 2     12   PURPOSE AND SCOPE OF THE
LICENSE     12  
2.1
  PURPOSE OF THE LICENSE     12  
2.2
  LICENSE GRANT     13  
2.3
  SUBLICENSES     13  
2.4
  PROSIDION KNOW-HOW     13  
2.5
  COVENANT NOT TO SUE     14   ARTICLE 3     14   ROLE AND RESPONSIBILITIES OF
LILLY     14  
3.1
  SCOPE OF LILLY’S RESPONSIBILITIES     14  
3.2
  REGULATORY ACTIVITIES     14  
3.3
  DILIGENCE OBLIGATIONS     15  
3.4
  THIRD PARTY OBLIGATIONS     16  
3.5
  NON-COMPETE     16   ARTICLE 4     17   ROLE AND RESPONSIBILITIES OF PROSIDION
    17  
4.1
  TECHNICAL INFORMATION PROVISION     17  
4.2
  REASONABLE TECHNICAL ASSISTANCE AND CO-OPERATION FOR TRANSITIONAL PURPOSES    
17  
4.3
  MATERIALS PROVISION     17  
4.4
  NO ONGOING RESPONSIBILITY BEYOND TRANSITIONAL PURPOSES     18   ARTICLE 5
INFORMATION REPORTING     18  
5.1
  INFORMATION REPORTING     18   ARTICLE 6 PAYMENTS AND FINANCIAL REPORTING    
19  
6.1
  UPFRONT PAYMENTS     19  
6.2
  MILESTONE PAYMENTS     19  
6.3
  ROYALTIES     20   ARTICLE 7 CONFIDENTIALITY AND PUBLICATION     23  
7.1
  OBLIGATIONS     23  
7.2
  AUTHORIZED DISCLOSURES OF CONFIDENTIAL INFORMATION     23  
7.3
  DISCLOSURES LEGALLY REQUIRED OR NECESSARY     23  
7.4
  DISCLOSURE OF THE TERMS OF THE AGREEMENT     24  
7.5
  PUBLICATIONS     25   ARTICLE 8 REPRESENTATIONS, WARRANTIES AND DISCLAIMERS  
  25  
8.1
  CORPORATE EXISTENCE AND AUTHORITY     25  
8.2
  AUTHORIZED EXECUTION; BINDING OBLIGATION     25  
8.3
  NO CONFLICTS     26  

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              Article Number       Page Number  
 
           
 
           
8.4
  ALL CONSENTS AND APPROVALS OBTAINED     26  
8.5
  EXISTING PATENTS IN THE TERRITORY     26  
8.6
  KNOW-HOW     27  
8.7
  DISCLAIMER OF IMPLIED WARRANTIES     27  
8.8
  LIMITATION OF LIABILITY     27  
8.9
  GUARANTEE OF PERFORMANCE OF AFFILIATES     27  
8.10
  NOT DEBARRED     28  
8.11
  LITIGATION     28   ARTICLE 9 MUTUAL INDEMNIFICATION     28  
9.1
  INDEMNIFICATION OBLIGATIONS     28  
9.2
  INDEMNIFICATION PROCEDURES     29  
9.3
  INDEMNIFICATION PAYMENT ADJUSTMENTS     30  
9.4
  INDEMNIFICATION PAYMENT     30  
9.5
  INSURANCE     30  
9.6
  SURVIVAL     32   ARTICLE 10 INTELLECTUAL PROPERTY     32  
10.1
  LILLY IMPROVEMENTS     32  
10.2
  PATENT EXPENSES     32  
10.3
  FILING, PROSECUTION AND MAINTENANCE OF PATENTS     32  
10.4
  INTERFERENCE, OPPOSITION, REEXAMINATION AND REISSUE     33  
10.5
  ENFORCEMENT     33  
10.6
  THIRD PARTY PATENTS     34  
10.7
  CERTIFICATION UNDER DRUG PRICE COMPETITION AND PATENT RESTORATION ACT     34  
10.8
  PATENT TERM RESTORATION     35  
10.9
  PATENT MARKING     35   ARTICLE 11 TERM AND TERMINATION     35  
11.1
  TERM     35  
11.2
  TERMINATION     35  
11.3
  TERMINATION FOR LILLY NON-COMPLIANCE WITH DILIGENCE OBLIGATIONS     36  
11.4
  TERMINATION AT WILL OF THE LILLY GKA PROGRAM BY LILLY     36  
11.5
  EFFECT OF TERMINATION; SURVIVING OBLIGATIONS     36  
11.6
  NON-EXCLUSIVE RIGHTS     38  
11.7
  RIGHTS IN BANKRUPTCY     38   ARTICLE 12 DISPUTE RESOLUTION     38  
12.1
  DISPUTES     38  
12.2
  DISPUTE RESOLUTION PROCEDURES     38   ARTICLE 13 MISCELLANEOUS     41  
13.1
  FORCE MAJEURE     41  
13.2
  ASSIGNMENT     41  
13.3
  CHANGE OF CONTROL     41  
13.4
  FURTHER ASSURANCES     41  
13.5
  SEVERABILITY     41  
13.6
  NOTICES     42  
13.7
  APPLICABLE LAW     42  

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              Article Number       Page Number  
 
           
 
           
13.8
  ENTIRE AGREEMENT     44  
13.9
  HEADINGS     44  
13.10
  INDEPENDENT CONTRACTORS     44  
13.11
  WAIVER     44  
13.12
  NO THIRD PARTY BENEFICIARIES     44  
13.13
  COUNTERPARTS     44  
13.14
  WAIVER OF RULE OF CONSTRUCTION     45   SCHEDULE 1.1.20     46   SCHEDULE
1.1.26     47   SCHEDULE 1.1.58     48   SCHEDULE 1.1.70     49   SCHEDULE 4.3  
  50   SCHEDULE 8.5     51   APPENDIX 1     52  

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EXCLUSIVE LICENSE AGREEMENT
     THIS EXCLUSIVE LICENSE AGREEMENT (the “Agreement”) is made and is effective
as of January 4th, 2007 (the “Effective Date”) by and between:
     (i) Eli Lilly and Company, a corporation organized and existing under the
laws of the State of Indiana, whose principal place of business is Lilly
Corporate Center, Indianapolis, Indiana, 46285, United States of America
(“Lilly”);
and
     (ii) Prosidion Limited, a company registered in England and Wales under
registered number 4600121 with its registered offices at Windrush Court,
Watlington Road, Oxford OX4 6LT, United Kingdom (together with its parent
company OSI Pharmaceuticals, Inc. (“OSI”) and its Affiliates, “Prosidion”).
     Prosidion and Lilly are sometimes referred to herein individually as a
“Party” and collectively as the “Parties”.
RECITALS
     A. Prosidion is engaged in the research and development of pharmaceutical
products and is currently engaged in the research and development of the
Prosidion GKA Program (as hereinafter defined).
     B. Lilly is engaged in the research, development, manufacture and marketing
of pharmaceutical products and is interested in further research and development
in the GKA (as hereinafter defined) area.
     C. Prosidion desires to grant to Lilly exclusive license rights in the
further research and development of the Prosidion GKA Program and clinical
development and marketing of Product(s) (as hereinafter defined), and Lilly
desires to receive such rights, subject to and in accordance with the terms in
this Agreement.
     NOW, THEREFORE, in consideration of the foregoing premises and the mutual
covenants herein contained, the Parties hereby agree as follows:
ARTICLE 1
DEFINITIONS
     1.1 DEFINITIONS
     When used and capitalized in this Agreement (other than the headings of the
Articles and Sections), including the foregoing recitals, the following terms
shall have the meanings assigned to them in this Article and include the plural
as well as the singular.

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     1.1.1 “Adverse Event” means any untoward medical occurrence in a patient or
clinical investigation subject administered a Product and which may or may not
have a causal relationship with administration of such Product.
     1.1.2 “Affiliate” means any Person that directly (or indirectly through one
or more intermediaries) controls, is controlled by, or is under common control
with, a Party. For purposes of this definition only, the terms “controls,”
“controlled,” and “control” mean: (i) the direct or indirect ability or power to
direct or cause the direction of the management and policies of an entity or
otherwise direct the affairs of such entity, whether through ownership of
equity, voting securities or beneficial interest, by contract, or otherwise; or
(ii) the ownership, directly or indirectly, of at least fifty percent (50%) of
the voting securities (or other comparable ownership interest for an entity
other than a corporation) of a Party.
     1.1.3 “API” or “Active Pharmaceutical Ingredient” means the active
pharmaceutical ingredient of PSN010 or GKA Back-ups in bulk form, which, if
appropriately formulated and finished, would constitute Product.
     1.1.4 “Applicable Laws” means all applicable statutes, ordinances,
regulations, rules or orders of any kind whatsoever of any Governmental
Authority, including, without limitation, the Regulatory Laws, Prescription Drug
Marketing Act, Generic Drug Enforcement Act of 1992 (21 U.S.C. Section 335a et
seq.), and Anti-Kickback Statute (42 U.S.C. Section 1320a-7b et seq.), all as
amended from time to time.
     1.1.5 “Calendar Quarter” means the respective periods of three
(3) consecutive calendar months ending on March 31, June 30, September 30 and
December 31.
     1.1.6 “Calendar Year” means each successive period of twelve (12) months
commencing on January 1 and ending on December 31.
     1.1.7 “cGCP” means the then current good clinical practices as defined in
U.S. Regulations 21 CFR Sections 50, 54, 56, 312 and 314, (or in the case of
foreign jurisdictions, comparable regulatory standards), and in any successor
regulation, including those procedures expressed or implied in the Regulatory
Materials with respect to any Product(s) provided to Regulatory Authorities.
     1.1.8 “cGLP” means the then current good laboratory practice standards
promulgated or endorsed by the FDA (or in the case of foreign jurisdictions,
comparable regulatory standards), including those procedures expressed or
implied in the Regulatory Materials with respect to any Product(s) provided to
Regulatory Authorities.
     1.1.9 “cGMP” or “GMP” means the then current good manufacturing practices
for pharmaceuticals as described in regulations promulgated by Regulatory
Authorities as applicable to the Manufacture of Product(s), as such regulations
are in effect at the time of Manufacturing Product(s).
     1.1.10 “Change Of Control” means, with respect to either Party, any of the
following events: (i) the acquisition by any entity of “beneficial ownership”
(as defined in Rule 13d-3 under the United States Securities and Exchange Act of
1934, as amended) directly or indirectly, of fifty percent (50%) or more of the
shares of such Party’s capital stock, the holders of which have general voting
power under ordinary circumstances to elect at least a majority of such Party’s
board of directors or equivalent body (the “Board of Directors”) (the “Voting
Stock”); (ii) the approval by the shareholders of such Party of a merger, share
exchange, reorganization, consolidation or similar transaction of such Party (a
“Transaction”), if any party to the Transaction is an entity, other than a
Transaction which would result in the beneficial owners of Voting Stock of such
Party immediately prior thereto continuing to

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beneficially own (either by such Voting Stock remaining outstanding or being
converted into voting securities of the surviving entity) more than fifty
percent (50%) of the Voting Stock of such Party or such surviving entity
immediately after such Transaction; or (iii) approval by the shareholders of
such Party of a complete liquidation of such Party or a sale or disposition of
all or substantially all of the assets of such Party.
     1.1.11 “Combination Product” means a product that includes PSN010 or a GKA
Back-up in addition to at least one additional therapeutically effective active
ingredient (whether coformulated or copackaged) which did not arise from the
Lilly GKA Program.
     1.1.12 “Commercialisation” means all activities undertaken by Lilly before
and after Marketing Approval for the Lilly GKA Program or otherwise relating
specifically to the marketing, sale and distribution of relevant Product(s)
including, without limitation: (i) sales force detailing, advertising,
education, planning, marketing, sales force training and distribution;
(ii) scientific and medical affairs, including drug safety and regulatory
affairs activities necessary per Lilly’s reasonable determination to maintain
Marketing Approvals; (iii) Phase IIIB Trials and Post-Approval Trials; and
(iv) the Manufacture of Product(s) intended for commercial sale, including,
without limitation, formulation, bulk API and/or drug product production,
fill/finish, distribution, manufacturing process improvement and quality
assurance technical support.
     1.1.13 “Commercially Reasonable Efforts” means that level of effort and
application of expertise and resource, typical in the pharmaceutical industry in
the research, development and commercialisation of a product or compound owned
by a Third Party or resulting from its own research efforts, that is of similar
market potential and at a similar stage in its development or product life,
taking into account issues of safety and efficacy, product profile, difficulty
in developing the product, competitiveness of the marketplace for resulting
products, the patent position of the compound or product, the regulatory
structure involved, the potential total profitability of the applicable products
marketed or to be marketed, and other relevant factors affecting the cost, risk
and timing of development and the total potential reward to be obtained if a
product is commercialised. In determining whether Commercially Reasonable
Efforts have been satisfied by Lilly, the fact that Lilly is required to comply
with certain financial obligations hereunder to Prosidion shall not be a factor
weighed (i.e., Lilly may not apply lesser resources or effort to Product(s)
because it has a financial obligation hereunder to Prosidion with respect to
sales of Product(s), than it would to a product of its own).
     1.1.14 “Competing Product (s)” means any product other than PSN010 or a GKA
Back-up: **
     1.1.15 “Confidential Information” means the Prosidion Confidential
Information or the Lilly Confidential Information, as applicable.
     1.1.16 “Control” or “Controlled” means with respect to any intellectual
property right, that the Party owns or has a license to such intellectual
property right and has the ability to grant access, a license, or a sublicense
to such intellectual property right to the other Party as provided for in this
Agreement without violating an agreement with a Third Party as of the time such
Party would be first required under this Agreement to grant the other Party such
access, license or sublicense; provided, however, that for rights acquired from
Third Parties after the Effective Date, such access can be granted without
additional cost.
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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     1.1.17 “Development” means the conduct of all activities that are
reasonably required to obtain Marketing Approval of a Product, including,
without limitation: (i) non-clinical studies (including, without limitation,
pharmacology, toxicology and pharmacokinetics); (ii) regulatory affairs, project
management, clinical operations, medical writing, bio-statistics, data
management and drug safety, and clinical trials, in accordance with the cGLPs,
cGCPs and cGMPs or other designated quality standards and Applicable Laws;
(iii) all activities relating to developing the ability to Manufacture such
Product, including, without limitation, formulation, stability/analytical,
packaging, delivery technologies and devices, bulk API and/or drug product
production, Manufacturing fill/finish, Manufacturing process development, and
quality assurance technical support, clinical supplies distribution and quality
control testing and release, until such time as Manufacturing of such Product
intended for commercial sale commences; and (iv) any required post-Marketing
Approval commitments.
     1.1.18 “EMEA” means the European Medicines Evaluation Agency for the
European Union, or a successor agency, which has jurisdiction over Marketing
Approval of a pharmaceutical product or device in the European Union.
     1.1.19 **
     1.1.20 “Existing Suppliers” means, in relation to Section 3.1 (e), any
existing suppliers of goods and/or services to Prosidion at the Effective Date,
as set forth in Schedule 1.1.20.
     1.1.21 **
     1.1.22 “FD&C Act” means the U.S. Food, Drug and Cosmetic Act, as amended
from time to time (21 U.S.C. Section 301 et seq.), together with any rules and
regulations promulgated thereunder.
     1.1.23 “FDA” means the U.S. Food and Drug Administration, or any successor
federal agency in the U.S. having responsibility over U.S. Marketing Approvals.
     1.1.24 “Field” means all indications for the treatment, prevention or
diagnosis of conditions in humans or animals.
     1.1.25 **
     1.1.26 “GKA Back-up(s)” means those back-up compounds to PSN010, within the
Prosidion GKA Program that are set forth in Schedule 1.1.26 and/or are covered
by a Valid Claim of a Prosidion Patent.
     1.1.27 “Governmental Authority” means any court, tribunal, arbitrator,
agency, commission, official or other instrumentality of any federal, state, or
other political subdivision, or supranational body, domestic or foreign.
     1.1.28 “IND” means an Investigational New Drug Application (together with
all additions, deletions, and supplements thereto) filed with the FDA or other
equivalent filing with any applicable Regulatory Authority outside the U.S.,
necessary to commence and conduct human clinical trials in a jurisdiction.
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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     1.1.29 “Information” means any information Controlled by Prosidion as of
the Effective Date or by Lilly during the Term that is necessary for the
Research and Development of the Lilly GKA Program and/or the Manufacture and
Commercialisation of Product(s). Information may include, but is not limited to:
(a) any and all inventions, know-how, developments, Lilly Improvements,
materials, data, analyses, and the like, regardless of whether the information
is stored or transmitted in oral, documentary, or electronic form; and
(b) information relating to research and development plans, experiments,
results, compounds, therapeutic leads, candidates and products, clinical and
preclinical data, trade secrets and Manufacturing, marketing, financial,
regulatory, and other business information and plans, and all scientific,
clinical, regulatory, marketing, financial and commercial information or data;
in each case, to the extent necessary for the Research and Development of the
Lilly GKA Program and/or the Manufacture and Commercialisation of Product(s).
     1.1.30 “License” shall have the meaning provided in Section 2.2.
     1.1.31 “Lilly Confidential Information” means all information (scientific,
clinical, regulatory, marketing, financial, commercial, or otherwise, including
Lilly Know-How ) disclosed or provided by, or on behalf of, Lilly to Prosidion
or Prosidion’s designees in connection with this Agreement whether disclosed or
provided prior to, or after, the Effective Date and whether provided orally,
visually, electronically, or in writing, except such information that Prosidion
can show:
               (a) was, prior to the date of Lilly’s disclosure, known to it, as
shown by competent written evidence, or already in the public domain;
               (b) became part of the public domain, after Lilly’s disclosure
hereunder, through no breach of this Agreement by Prosidion or by any person or
entity to whom Prosidion disclosed such information;
               (c) was subsequently disclosed to Prosidion, without any
restrictions, by a person or entity having lawful possession of, and a legal
right to disclose, such information; or
               (d) was developed by Prosidion without use, and independent, of
Lilly Confidential Information, as shown by competent written evidence.
     1.1.32 “Lilly GKA Program” means the Research, Development, Manufacture and
Commercialisation conducted by Lilly during the Term regarding development
candidate PSN010 and/or GKA Back-ups. The Lilly GKA Program does not include
within its meaning Lilly’s research, development, manufacturing or
commercialization efforts with respect to compounds other than PSN010 or GKA
Back-ups.
     1.1.33 “Lilly Improvement” means any findings, developments, discoveries,
inventions, additions, modifications, enhancements, formulations, or changes to
the composition of matter, or method of use of, a Product, or its Manufacture
made by, or coming under Control of Lilly or any of its Affiliates or
Sublicensees during the Term and developed in the course of the Lilly GKA
Program and which are necessary in the Research and Development of the Lilly GKA
Program and/or the Manufacture and Commercialisation of Product(s), including
without limitation, new or improved methods of synthesis, manufacture,
ingredients, preparation, presentation, means of delivery, dosage, formulation,
or analysis, whether or not patentable.
     1.1.34 “Lilly Know-How” means all Information that Lilly Controls as of the
Effective Date or during the Term that arises from the Lilly GKA Program,
including without limitation, any Lilly

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Improvements. Lilly Know-How does not include Lilly Patents or the information
contained in a published Lilly Patent.
     1.1.35 “Lilly Patents” means all Patents Controlled by Lilly as of the
Effective Date or during the Term that arise from or are useful to the Lilly GKA
Program, including without limitation, any such Patents claiming the composition
of matter or the use of Product(s) or any Lilly Improvements.
     1.1.36 “Lilly Rights” means Lilly Patents, Lilly Know-How and any Lilly
Improvements.
     1.1.37 “Major Market” means any of the following jurisdictions: **
     1.1.38 “Major Pharmaceutical Company” means any Third Party (which, for the
avoidance of doubt, shall exclude OSI) which, during the immediately preceding
fiscal year, ** Beginning with January 1, 2008, the market capitalization value
described above shall be increased by five percent (5%) annually.
     1.1.39 “Manufacture” or “Manufacturing” or “Manufactured” means all
operations involved in the manufacturing, quality control testing (including
in-process, release and stability testing, if applicable), releasing, packaging
and shipping of Product(s).
     1.1.40 “Marketing Approval” means the act of a Regulatory Authority
necessary for the Manufacture, use, marketing and sale of a Product in the Field
for one or more indications in a country or regulatory jurisdiction in the
Territory, including, without limitation, the approval of an NDA by the FDA and
EU Approval and satisfaction of all applicable regulatory and notification
requirements.
     1.1.41 “NDA” or “New Drug Application” means an application or set of
applications (and any other required registrations, notifications, forms,
amendments or supplements) for Marketing Approval for Product(s) and/or
pre-market approval to make and sell commercially Product(s), filed with the FDA
or with a Regulatory Authority anywhere in the Territory, including, without
limitation, all documents, data and other information concerning a
pharmaceutical product which are necessary for gaining Marketing Approval.
     1.1.42 “Net Sales” means, with respect to Product(s), the gross amount
invoiced by Lilly (including a Lilly Affiliate) or any Sublicensee to unrelated
Third Parties, excluding any Sublicensee, for Product(s) in the Territory, less:
               (a) Trade, quantity and cash discounts allowed;
               (b) Commissions, discounts, refunds, rebates (including, but not
limited to, wholesaler inventory management fees), chargebacks, retroactive
price adjustments, and any other allowances which effectively reduce the net
selling price;
               (c) Actual Product returns and allowances;
               (d) That portion of the sales value associated with drug delivery
systems;
               (e) Any tax imposed on the production, sale, delivery or use of
the Product, including, without limitation, sales, use, value added taxes or
excise taxes; and
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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               (f) Any other similar and customary deductions.
               Such amounts shall be determined from the books and records of
Lilly, its Affiliates or Sublicensees, maintained in accordance with U.S.
Generally Accepted Accounting Principles (“U.S. GAAP”) or, in the case of
Sublicensees, such similar accounting principles, consistently applied. Lilly
further agrees in determining such amounts, it and its Affiliates will use
Lilly’s then current standard procedures and methodology, including Lilly’s then
current standard exchange rate methodology for the translation of foreign
currency sales into US dollars and, in the case of Sublicensees, such similar
methodology, consistently applied.
               In the event that Product is sold as part of a Combination
Product, the Net Sales of the Product, for the purposes of determining royalty
payments, shall be determined by multiplying the Net Sales of the Combination
Product by the fraction, A / (A+B) where A is the weighted average sale price of
the Product when sold separately in finished form, and B is the weighted average
sale price of the other product(s) sold separately in finished form.
               In the event that the weighted average sale price of the Product
can be determined but the weighted average sale price of the other product(s)
cannot be determined, Net Sales for purposes of determining royalty payments
shall be calculated by multiplying the Net Sales of the Combination Product by
the fraction A / C where A is the weighted average sale price of the Product
when sold separately in finished form and C is the weighted average sale price
of the Combination Product.
               In the event that the weighted average sale price of the other
product(s) can be determined but the weighted average sale price of the Product
cannot be determined, Net Sales for purposes of determining royalty payments
shall be calculated by multiplying the Net Sales of the Combination Product by
the following formula: one (1) minus B / C where B is the weighted average sale
price of the other product(s) when sold separately in finished form and C is the
weighted average sale price of the Combination Product.
               In the event that the weighted average sale price of both the
Product and the other product(s) in the Combination Product cannot be
determined, the Net Sales of the Product shall be deemed to be equal to ** of
the Net Sales of the Combination Product.
               The weighted average sale price for a Product, other product(s),
or Combination Product shall be calculated once each Calendar Year and such
price shall be used during all applicable royalty reporting periods for the
entire following Calendar Year. When determining the weighted average sale price
of a Product, other product(s), or Combination Product, the weighted average
sale price shall be calculated by dividing the sales dollars (translated into
U.S. dollars) by the units of active ingredient sold during the twelve
(12) months (or the number of months sold in a partial calendar year) of the
preceding Calendar Year for the respective Product, other product(s), or
Combination Product. In the initial Calendar Year, a forecasted weighted average
sale price will be used for the Product, other product(s), or Combination
Product. Any over or under payment due to a difference between forecasted and
actual weighted average sale prices will be paid or credited in the first
royalty payment of the following Calendar Year. For the avoidance of doubt,
excipients shall not be considered products for the purpose of this definition
of Net Sales.
               Notwithstanding the above, the Parties agree that for the
purposes of determining royalty payments, in no event shall the value of Net
Sales of the Product, where the Product is sold as part of a
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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Combination Product, be less than **.
     1.1.43 “Patent” or “Patents” means: (a) patent applications (including
provisional applications and applications for certificates of invention);
(b) any patents issuing from such patent applications (including certificates of
invention); (c) all patents and patent applications based on, corresponding to,
or claiming the priority date(s) of any of the foregoing; (d) any reissues,
substitutions, confirmations, registrations, validations, re-examinations,
additions, continuations, continued prosecution applications,
continuations-in-part, or divisions of or to any of the foregoing; and (e) term
extensions, supplementary protection certificates and other governmental action
beyond the original patent expiration date.
     1.1.44 “Patent Expenses” means all costs and expenses incurred by a Party
after the Effective Date for the preparation, filing, prosecution and
maintenance of a Prosidion Patent including, without limitation, costs and
expenses related to Patent defense (e.g., the conduct of any interference or
opposition).
     1.1.45 “Person” means a natural person, a corporation, a partnership, a
trust, a joint venture, a limited liability company, any governmental authority
or any other entity or organization.
     1.1.46 “Phase I Trials” means human clinical trials conducted in healthy
volunteers or patients anywhere in the world in accordance with cGCP intended to
establish an initial safety profile and the pharmacokinetics and/or
pharmacodynamics of Product(s).
     1.1.47 **
     1.1.48 “Phase II Trials” means human clinical trials conducted in patients
anywhere in the world with Product(s) in accordance with cGCP and intended to
demonstrate efficacy and a level of safety in the particular indication tested,
as well as to obtain a preliminary indication of the unit and/or daily dosage
regimen required.
     1.1.49 “Phase III Trials” means large scale human clinical trials conducted
in patients anywhere in the world in accordance with cGCP and intended to
demonstrate efficacy and a level of safety in the particular indication tested
sufficient to obtain Marketing Approval of Product(s). Phase III Trials include
“bridging studies” which allow submission in a target country of clinical data
generated from Phase III studies completed in other countries to be submitted in
lieu of repeating Phase III studies in the target country.
     1.1.50 “Phase IIIB Trials” means Phase III Trials commenced before receipt
of Marketing Approval in the jurisdiction where such trials are being conducted,
but which are not required for receipt of Marketing Approval and are conducted
primarily for the purpose of Product support (i.e., providing additional drug
profile data).
     1.1.51 “Post-Approval Trials” means all clinical trials which are conducted
after Marketing Approval for Product(s) has been obtained from an appropriate
Regulatory Authority comprising of trials conducted voluntarily by Lilly for
enhancing marketing or scientific knowledge of an approved indication and trials
conducted due to request or requirement of a Regulatory Authority.
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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     1.1.52 “Plans” means the written plans for the Research and Development of
the Lilly GKA Program and/or the Manufacture and Commercialisation of
Product(s), prepared and implemented by Lilly and provided to Prosidion for
information on an ongoing basis.
     1.1.53 “Product” means any product which includes as an active
pharmaceutical ingredient PSN010 or a GKA Back-up for use either alone or in
combination with one or more other therapeutically active substances, including
all formulations, line extensions and modes of administration thereof. For the
avoidance of doubt, Product(s) shall include Combination Product(s). Product(s)
shall not include Competing Product(s).
     1.1.54 “Product Launch” means the date on which a Product is first shipped
by Lilly, its Affiliates or Sublicensees for commercial sale to a Third Party in
the Territory following Marketing Approval of Product, including, if applicable,
any necessary pricing approval.
     1.1.55 “Prosidion Confidential Information” means all information
(scientific, clinical, regulatory, marketing, financial, commercial, or
otherwise, including Prosidion Know-How) disclosed or provided by, or on behalf
of, Prosidion to Lilly or Lilly’s designees in connection with this Agreement
(including its Affiliates and Sublicensees), whether disclosed or provided prior
to, or after, the Effective Date and whether provided orally, visually,
electronically, or in writing, except such information that Lilly can show:
               (a) was, prior to the date of Prosidion’s disclosure, known to
it, as shown by competent written evidence, or already in the public domain;
               (b) became part of the public domain, after Prosidion’s
disclosure hereunder, through no breach of this Agreement by Lilly or by any
person or entity to whom Lilly disclosed such information;
               (c) was subsequently disclosed to Lilly, without any
restrictions, by a person or entity having lawful possession of, and a legal
right to disclose, such information; or
               (d) was developed by Lilly without use, and independent, of
Prosidion Confidential Information, as shown by competent written evidence.
     1.1.56 “Prosidion GKA Program” means Prosidion’s GlucoKinase Activator
(“GKA”) program including all structure activity related chemistry, including
development candidate PSN010 and all GKA Back-ups identified as at the Effective
Date. Prosidion GKA Program does not include within its meaning the Lilly GKA
Program.
     1.1.57 “Prosidion Know-How” means all: (i) Information that Prosidion
Controls as of the Effective Date relating to the Prosidion GKA Program; and
(ii) Prosidion Materials. Prosidion Know-How does not include Prosidion Patents
or the information contained in a published Prosidion Patent.
     1.1.58 “Prosidion Patents” means all Patents Controlled by Prosidion as of
the Effective Date relating to the Prosidion GKA Program, including without
limitation any such Patents claiming the composition of matter or the use of
Product(s), as set forth in Schedule 1.1.58 and any Patents filed by Prosidion
or Lilly after the Effective Date with respect to inventions Controlled by
Prosidion, which were conceived or reduced to practice under the Prosidion GKA
Program, existing as of the Effective Date. Prosidion Patents shall also include
any Patents in the Tanabe Territory that revert to Prosidion from Tanabe
pursuant to the Tanabe Agreement during the Term.

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     1.1.59 “Prosidion Rights” means Prosidion Patents and Prosidion Know-How.
     1.1.60 “PSN010” means the lead development candidate, ** or a salt or other
derivative thereof, also known as PSN010, selected as of the Effective Date for
clinical development and currently in Phase I Trials.
     1.1.61 **
     1.1.62 **
     1.1.63 “Regulatory Authority” means, in a particular country or
jurisdiction, any applicable government regulatory authority involved in
granting Marketing Approval and/or, to the extent required in such country or
jurisdiction, pricing approval of a Product in such country or jurisdiction,
including without limitation: (a) in the U.S., the FDA, and any other applicable
governmental or regulatory authority in the U.S. having jurisdiction over such
Product, and any successor government authority having substantially the same
function; and (b) any foreign equivalent thereof in another jurisdiction.
     1.1.64 “Regulatory Law” means the FD&C Act, together with any rules and
regulations promulgated thereunder. “Regulatory Law” shall also mean any
applicable statutes, ordinances, regulations, rules or orders of any kind
whatsoever of any Governmental Authority governing the import, export,
manufacture or distribution of Product(s) (including, without limitation,
Marketing Approval) or reporting obligations with respect to product complaints
or Adverse Events related to Product(s), together with any rules and regulations
promulgated thereunder.
     1.1.65 “Regulatory Materials” means any regulatory submissions,
notifications, registrations, approvals and/or other filings made to or with a
Regulatory Authority that may be necessary or reasonably desirable to research,
develop, make, have made, use, sell, have sold, offer for sale and import/export
Product(s) in the Field in the Territory and shall include without limitation,
NDAs and INDs or their equivalents in other jurisdictions.
     1.1.66 “Regulatory Submission” means the submission by Lilly of Regulatory
Materials to a Regulatory Authority for the purpose of seeking Marketing
Approval.
     1.1.67 “Research” means all activities undertaken with respect to the
research and non-clinical evaluation of PSN010 and/or GKA Back-ups under the
Lilly GKA Program including, without limitation: (i) in vivo pharmacology
studies; (ii) chemistry; and (iii) in vitro biology.
     1.1.68 “Sublicensee” means any Third Party (including, without limitation,
a distributor) to which Lilly or any of its Affiliates grants any right to make,
have made, use, sell, have sold, offer for sale and import/export Product(s) in
accordance with Section 2.3. A Third Party who is granted only the right to
distribute or promote a Product (such as a contract sales organization) will not
be considered a Sublicensee.
     1.1.69 “Tanabe” means Tanabe Seiyaku Co., Ltd., which is party to a
Termination Agreement with Prosidion dated as of March 31, 2004 as appended
hereto at Appendix 1 (the “Tanabe Agreement”) regarding certain GK Products (as
defined within the Tanabe Agreement).
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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     1.1.70 “Tanabe Territory” means the ** Territories set forth in
Schedule 1.1.70 and as detailed in Exhibit B to the Tanabe Agreement, in
relation to which Tanabe has certain rights to develop and commercialise certain
GK Products (as defined within the Tanabe Agreement).
     1.1.71 “Term” has the meaning provided in Section 11.1.
     1.1.72 “Territory” means all countries of the world excluding the Tanabe
Territory, for so long as the rights of Tanabe to develop and commercialise GK
Products (as defined within the Tanabe Agreement) continue, and including the
Tanabe Territory, when such rights of Tanabe no longer subsist.
     1.1.73 “Third Party” means any Person other than Prosidion or Lilly and
their respective Affiliates.
     1.1.74 “U.S.” means the United States of America, including its territories
and possessions and the commonwealth of Puerto Rico.
     1.1.75 “Valid Claim” means a claim of a Prosidion Patent in a country
which: (i) but for this Agreement, would be infringed by the Manufacture,
importation, use or sale of Product (but only, in the case of Prosidion Patents
relating to the making or use of a Product, if unit sales of generic versions of
Product, if any, in total do not exceed ** of Product in the relevant country in
the relevant time period); (ii) has not expired or been revoked or held
unenforceable or invalid by a decision of a court or other governmental agency
of competent jurisdiction, unappealable or unappealed within the time allowed
for appeal, and (iii) has not been abandoned, disclaimed or admitted to be
invalid or unenforceable through reissue, disclaimer or otherwise.
     1.1.76 “VDC” means Vanderbilt Diabetes Centre which is party to a
Termination Agreement with Prosidion dated as of July 31, 2005 (the “VDC
Agreement”) regarding certain rights relating to certain Products (as defined
within the VDC Agreement).
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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     1.2 FURTHER DEFINITIONS
In addition to the foregoing terms, the following terms are defined in the
Sections cross-referenced below:

      Defined Term   Section
Arbitrators Timeline
  3.3 (c)
Prosidion Materials
  4.3
Primary Contact
  5.1 (a)
Liabilities
  8.9
Prosidion Indemnitees
  9.1 (a)
Damages
  9.1 (a)
Prosidion Third Party Claim
  9.1 (a)(ii)
Lilly Indemnitees
  9.1 (b)
Lilly Third Party Claim
  9.1 (b)(ii)
Indemnitee
  9.2 (a)
Action
  9.2 (a)
Indemnifying Party
  9.2 (a)
Term
  11.1
Early Termination Notice
  11.5 (b)(i)
Intellectual Property
  11.7
Claim
  12.2 (a)
Arbitration Commencement
  12.2 (b)(i)

     1.3 The singular includes the plural and vice versa, words denoting any
gender include all genders.
     1.4 Where the context so admits or requires, references to Lilly or
Prosidion shall include their respective employees, officers, directors or
agents.
     1.5 Headings to Articles or Sections within this Agreement are for
convenience only and shall not affect the construction or interpretation of this
Agreement.
ARTICLE 2
PURPOSE AND SCOPE OF THE LICENSE
     2.1 PURPOSE OF THE LICENSE.
     Lilly shall use Commercially Reasonable Efforts to undertake all Research
and Development of the Lilly GKA Program and Manufacture and Commercialisation
of Product(s), in the Field in the Territory, in accordance with the terms
hereof, with the objective of obtaining Marketing Approval of Product(s) in each
country and regulatory jurisdiction throughout the Territory where Lilly
determines, in its reasonable opinion, that it is commercially appropriate to do
so, as soon as practicable to do so, and to Commercialise Product(s) in the
Territory.

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     2.2 LICENSE GRANT.
     Subject to the terms and conditions hereof, Prosidion hereby grants to
Lilly an exclusive (even as to Prosidion) royalty-bearing license under the
Prosidion Rights to research, develop, make, have made, use, sell, have sold,
offer for sale and import/export Product(s) in the Field in the Territory,
subject to the rights of Prosidion detailed hereinafter (the “License”),
together with the right to grant sublicenses thereunder in accordance with
Section 2.3.
     Notwithstanding the foregoing, Prosidion shall retain the right to
practice, and to grant licenses (in relation to research collaborations or to
external service providers) under, the Prosidion Rights, other than to develop,
make, have made, use, sell, offer for sale, have sold and import/export
Product(s) in the Field in the Territory, for the use of ** for research
purposes as a control.
     2.3 SUBLICENSES.
               (a) Lilly shall be entitled to grant sublicenses to its
Affiliates and Third Parties for the purposes of Commercialisation provided that
any sublicenses shall be on the terms set forth herein, and, in relation to
sublicenses to non-Affiliates in the Major Markets, shall be entered into only
with the prior written approval of Prosidion.
               (b) Lilly shall notify Prosidion of the identity of any
Sublicensee prior to execution of a sublicense and shall provide to Prosidion a
true and complete copy of each sublicense agreement and each amendment thereto
promptly after the sublicense or amendment has been executed and delivered.
               (c) No sublicense shall relieve Lilly of any of its obligations
hereunder, and Lilly shall be responsible for the acts and/or omissions of its
Sublicensees and for compliance by them with obligations related hereto. Lilly
shall take all steps necessary to enforce such compliance to the extent required
to allow Lilly to fully comply with all of its obligations under this Agreement.
               (d) Any such sublicense shall be non-sublicensable, shall be
granted in respect of the License, for any part of the Field within the
Territory, or any part thereof, and shall incorporate terms and conditions at
least equivalent to those contained herein.
               (e) Any sublicense purported to be granted by Lilly and not
complying with the terms of this Section 2.3 shall be deemed invalid and of no
effect until such time as the discrepancies are remedied.
     2.4 PROSIDION KNOW-HOW.
     Prosidion hereby grants a license to Lilly, and shall provide to Lilly
access, to all Prosidion Know-How Controlled by Prosidion at the Effective Date,
as necessary for the purposes of enabling Lilly to conduct Research and
Development of the Lilly GKA Program and Manufacture and Commercialisation of
Product(s) in the Field in the Territory, as contemplated herein. Prosidion
acknowledges that Lilly has conducted, and in its sole discretion may continue
to conduct, research and development in the GlucoKinase area outside the course
of the Lilly GKA Program. In addition to the License and the Prosidion Know-How
license granted in this Section 2.4, Prosidion agrees that Prosidion Know-How
may be used by Lilly outside the course of the Lilly GKA Program for internal
research and
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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development purposes, including by sharing with, under contract, bona fide
collaborators as part of research collaboration and contractors for services
related to such research and development. The right to use the Prosidion
Know-How as set forth in this Section 2.4 shall survive the expiration or
termination of this Agreement.
     2.5 COVENANT NOT TO SUE.
     Prosidion hereby grants to Lilly for the duration of the Term, and Lilly
hereby accepts, an irrevocable unconditional covenant not to assert any claim or
file any law suit against Lilly under any Patents filed by Prosidion after the
Effective Date that would be infringed by the research, development, making,
having made, using, selling, having sold, offering for sale or
importing/exporting of PSN010 or a GKA Back-up in the Territory in the Field.
ARTICLE 3
ROLE AND RESPONSIBILITIES OF LILLY.
     3.1 SCOPE OF LILLY’S RESPONSIBILITIES.
               (a) SCOPE. Lilly shall control and be solely responsible for the
Research and Development of the Lilly GKA Program and Manufacture and
Commercialisation of Product(s), in accordance with the Plans and as detailed
herein.
               (b) COSTS. Lilly shall be solely responsible for all costs and
expenses arising from its activities hereunder and/or relating to the Research
and Development of the Lilly GKA Program and Manufacture and Commercialisation
of Product(s) from the Effective Date.
               (c) COMPLIANCE WITH LAWS. Lilly will use Commercially Reasonable
Efforts to conduct Research and Development of the Lilly GKA Program and
Manufacture and Commercialisation of Product(s) efficiently and expeditiously
and in a good scientific manner and in compliance in all material respects with
all requirements of Applicable Laws, including cGCPs, cGLPs and cGMPs, to
achieve the objectives of the License efficiently and expeditiously.
               (d) PLANS AND WRITTEN RECORDS. The activities to be undertaken by
Lilly in the course of Research and Development of the Lilly GKA Program and
Manufacture and Commercialisation of Product(s) shall be set forth in the Plans,
which shall be provided to Prosidion on an on-going basis for information. In
conformity with standard pharmaceutical and biotechnology industry practices,
Lilly will prepare and maintain, or will cause to be prepared and maintained,
complete and accurate written records, accounts, notes, reports and data with
respect to its activities hereunder.
               (e) EXISTING SUPPLIERS. Lilly shall reimburse Prosidion for any
costs incurred by it after the Effective Date relating to goods and/or services
commissioned in writing by Lilly with Existing Suppliers.
     3.2 REGULATORY ACTIVITIES.
               Lilly shall control and be solely responsible for filing of
Regulatory Materials in relation to the Research and Development of the Lilly
GKA Program and for, and obtaining, all necessary

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Marketing Approvals in the Territory in respect of Product(s) and for all
ongoing communications with the Regulatory Authorities from the Effective Date,
including, without limitation: (i) filing, maintaining and updating any INDs and
NDAs for Product(s); (ii) reporting all Adverse Events and serious Adverse
Events to the FDA or other Regulatory Authority; (iii) submitting Regulatory
Materials to the FDA or other Regulatory Authority for Marketing Approval;
(iv) handling medical and technical complaints and disputes with the FDA or
other Regulatory Authority, patients and physicians; and (v) dealing with
product recalls. All Regulatory Materials (including Marketing Approvals) for
Products in the Territory shall be held in Lilly’s name and shall be owned
solely by Lilly, including any data package exclusivity resulting from Marketing
Approvals. Within ninety (90) days of the Effective Date, Lilly shall determine
what reasonable further actions shall be reasonably required to be conducted by
Prosidion in relation to safety data exchange with regard to clinical trials
conducted by Prosidion prior to the Effective Date and notify Prosidion thereof.
Prosidion shall thereafter have six (6) months to conduct such actions.
     3.3 DILIGENCE OBLIGATIONS.
               (a) COMMERCIALLY REASONABLE EFFORTS. Lilly shall use Commercially
Reasonable Efforts to conduct Research and Development of the Lilly GKA Program
and in the Manufacture of Product(s) relating to Development, and in the
Commercialisation of Product(s), so as to obtain Marketing Approval of
Product(s) in each country and regulatory jurisdiction throughout the Territory
where it is determined by Lilly, in its reasonable opinion, to be commercially
appropriate to do so, as soon as practicable to do so, and to Commercialise
Product(s): (i) in the U.S.; (ii) in each Major Market outside the U.S.; and
(iii) in each country in the Territory outside of the Major Markets that is
determined by Lilly, in its reasonable opinion, to be feasible and commercially
attractive for marketing of the Product(s).
               (b) RESEARCH AND DEVELOPMENT EFFORTS AND DEVELOPMENT-RELATED
MANUFACTURING EFFORTS. If during the Term, Prosidion believes that Lilly is not
using Commercially Reasonable Efforts to conduct Research and Development of the
GKA Program or in the Manufacturing of Product(s) related to Development,
Prosidion shall so inform Lilly in writing. If the Parties disagree as to
whether Lilly is using such Commercially Reasonable Efforts then upon written
request by either Party, such disagreement shall be resolved in accordance with
Section 12.2(a) and thereafter in accordance with Section 12.2 (b).
               (c) FAILURE IN RESEARCH OR DEVELOPMENT EFFORTS OR IN
DEVELOPMENT-RELATED MANUFACTURING EFFORTS. In the event that any arbitration
conducted pursuant to Sections 3.3 (b) and 12.2 (b) determines that Lilly was
not using Commercially Reasonable Efforts to conduct Research and Development of
the GKA Program or in the Manufacturing of Product(s) related to Development,
Lilly shall pay Prosidion the sum of ** within thirty (30) days of such
determination. In addition, the arbitration will establish a reasonable timeline
to achieve the next critical development milestone (the “Arbitrators Timeline”).
               (d) FAILURE TO MEET ARBITRATORS TIMELINE. In the event that Lilly
fails to meet the Arbitrators Timeline, Prosidion shall serve written notice
upon Lilly and Lilly shall have ninety (90) days in which to rectify the breach
or to provide evidence, to Prosidion’s satisfaction, that any such delay or
failure to meet the Arbitrators Timeline is the result of factors beyond Lilly’s
reasonable control. If, after such ninety (90) day period, Lilly has still
failed to meet the Arbitrators Timeline, the matter shall be referred to
arbitration for determination in accordance with Section 12.2 (b). In the event
that such arbitration determines that Lilly was not using Commercially
Reasonable Efforts: (i) to conduct
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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Research and Development of the GKA Program; or (ii) in the Manufacturing of
Product(s) related to Development; and/or (iii) to meet such Arbitrators
Timeline, Lilly shall pay Prosidion the sum of ** within thirty (30) days of
such determination. Thereafter, for as long as Lilly remains in breach of the
Arbitrators Timeline, Lilly shall pay Prosidion the sum of ** per Calendar
Quarter for each Calendar Quarter (or part thereof) that Lilly fails to meet the
Arbitrators Timeline, payable within thirty (30) days of the commencement of
each such Calendar Quarter.
               (e) SUBSEQUENT BREACHES. The aforementioned procedure in
Sections 3.3 (b), (c) and (d) shall apply to each and every occasion in which
Prosidion believes that Lilly is not using Commercially Reasonable Efforts to
conduct Research and Development of the GKA Program or in the Manufacturing of
Product(s) related to Development.
               (f) COMMERCIALISATION EFFORTS. If, during the Term, Prosidion
believes that Lilly is not using Commercially Reasonable Efforts to conduct the
Commercialisation of Product(s) in the Major Markets (including, for the
avoidance of doubt, Manufacture related to Commercialisation), Prosidion shall
so inform Lilly in writing. If the Parties disagree as to whether Lilly is using
such Commercially Reasonable Efforts then upon written request by either Party,
such disagreement shall be resolved in accordance with Section 12.2 (a) and
thereafter in accordance with Section 12.2 (b).
               (g) FAILURE IN COMMERCIALISATION EFFORTS. In the event that any
arbitration conducted pursuant to Sections 3.3 (f) and 12.2 (b) determines that
Lilly was not using Commercially Reasonable Efforts to conduct the
Commercialisation of Product(s) in the Major Markets (including, for the
avoidance of doubt, Manufacture related to Commercialisation), any damages
awarded by the arbitrators for the economic damage suffered by Prosidion by such
breach shall be limited to **, to be payable within thirty (30) days of such
determination, together with an award for specific performance by Lilly to
rectify such breach from the date of the determination.
               (h) SUBSEQUENT BREACHES. The aforementioned procedure in
Sections 3.3 (f) and (g) shall apply to each and every occasion in which
Prosidion believes that Lilly is not using Commercially Reasonable Efforts to
conduct Commercialisation of Product(s) (including, for the avoidance of doubt,
Manufacture related to Commercialisation).
               (i) For the avoidance of doubt, Lilly shall have the right to
terminate this Agreement pursuant to Section 11.4 at any time during the process
set forth in Sections 3.3 (b) to (h) (inclusive) and in such event, those
payment obligations arising under such Sections shall apply only up to the date
of receipt of notice of termination by Prosidion.
     3.4 THIRD PARTY OBLIGATIONS.
               (a) TANABE AGREEMENT.
                    (i) **
               (b) VDC AGREEMENT. For the avoidance of doubt, Lilly shall have
no liability or responsibility to VDC under the VDC Agreement.
     3.5 NON-COMPETE.
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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     For a period of ** Lilly will not market, sell, detail or promote any
Competing Product **
ARTICLE 4
ROLE AND RESPONSIBILITIES OF PROSIDION.
     4.1 TECHNICAL INFORMATION PROVISION.
     Prosidion shall, within thirty (30) days of the Effective Date: (a) provide
Lilly with access to, and copies of, any technical information relating to the
Prosidion GKA Program Controlled by Prosidion and in its possession at the
Effective Date (including Prosidion Know-How) which in Lilly’s reasonable
opinion is necessary to enable Lilly to undertake its responsibilities
hereunder; and (b) transfer and assign to Lilly all of its right, title and
interest in and to all Regulatory Materials with respect to the Prosidion GKA
Program (including all drug dossiers and master files with respect to any
Product(s)); and (c) take such other actions and execute such other instruments,
assignments and documents as may be necessary to effect the transfer of rights
hereunder to Lilly. Prosidion shall not provide, disclose or otherwise transfer
any Prosidion Know-How to any Third Party without the written consent of Lilly.
     4.2 REASONABLE TECHNICAL ASSISTANCE AND CO-OPERATION FOR TRANSITIONAL
PURPOSES.
     Prosidion shall, for a period of nine (9) months after the Effective Date
and for transitional purposes only, provide Lilly with all reasonable technical
assistance and co-operation in relation to transfer to Lilly of: (i) technical
information; and (ii) Regulatory Materials, each relating to the Prosidion GKA
Program Controlled by Prosidion and in its possession at the Effective Date,
that is reasonably useful or necessary to enable Lilly to conduct its
responsibilities hereunder.
     4.3 MATERIALS PROVISION.
               (a) Prosidion shall, as soon as reasonably practicable but in any
event no later than forty five (45) days after the Effective Date, sell and
deliver to Lilly certain biological materials and/or chemical compounds related
to the Prosidion GKA Program Controlled by Prosidion and in its possession at
the Effective Date (the “Prosidion Materials”) as set forth in Schedule 4.3, for
use by Lilly as provided by this Agreement and without further charge to Lilly.
Except as expressly set forth herein, such Prosidion Materials are provided “as
is” and without any warranty, express, implied or statutory, including without
limitation warranties of merchantability, title, non-infringement, exclusivity,
or fitness for a particular purpose. Prosidion shall not provide or transfer any
Prosidion Materials, including PSN010 and GKA Back-ups, to any Third Party
during the Term, without the written consent of Lilly, other than ** pursuant to
Section 2.2.
               (b) Notwithstanding the foregoing disclaimer of warranty in
Section 4.3(a), for formulated PSN010 drug product and PSN010 API provided by
Prosidion to Lilly under this Agreement, Prosidion represents and warrants that,
at the time of shipment to Lilly: (a) the formulated PSN010 drug product and
PSN010 API shall not be adulterated nor misbranded within the meaning of 21
U.S.C. Sections 351 and 352 or any similar law or regulation in other countries:
(b) such formulated PSN010 drug product and PSN010 API has been manufactured in
accordance with cGMPs, to the extent cGMP
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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standards promulgated by the ICH are applicable; (c) such formulated PSN010 drug
product and PSN010 API complied with Prosidion’s internal specifications;
(d) such PSN010 API is quality control released for drug product manufacture as
of the shipment date, by Prosidion’s or its Third Party contractor’s quality
control unit using Prosidion’s standard quality control procedures for such
materials; and (e) such formulated PSN010 drug product is certified as of the
shipment date, as to manufacture in accordance with cGMPs and conformity with
Prosidion’s internal specifications, by Prosidion’s or its Third Party
contractor’s quality control unit using Prosidion’s standard quality control
procedures for such materials.
     4.4 NO ONGOING RESPONSIBILITY BEYOND TRANSITIONAL PURPOSES.
     For the avoidance of doubt, it is agreed between the Parties that Prosidion
shall have no ongoing responsibility to Lilly hereunder to provide any technical
assistance, advice or co-operation to Lilly other than as detailed in Article 4
in relation to transfer of activities from Prosidion to Lilly with regard to the
Prosidion GKA Program, after the Effective Date.
ARTICLE 5
INFORMATION REPORTING
     5.1 INFORMATION REPORTING.
               (a) PRIMARY CONTACTS. Each Party will designate a member of
management who will be the primary contact for that Party (the “Primary
Contact”).
               (b) RESPONSIBILITIES. Lilly shall be responsible for the
dissemination of information to Prosidion regarding Lilly’s activities hereunder
and for the following:
                    (i) Information dissemination and provision of the Plans and
detailed progress updates on the Research and Development of the Lilly GKA
Program and Manufacture and Commercialisation of Product(s);
                    (ii) Monitoring of Lilly’s diligence in carrying out its
responsibilities hereunder;
                    (iii) Periodic discussion of the overall goals and strategy
of the Lilly GKA Program;
                    (iv) Development of procedures for disclosure of
Confidential Information and review and approval of publications; and
                    (v) Carrying out any other duties assigned to Lilly with
regard to information reporting during the Term, as mutually agreed by the
Parties.
               (c) MEETINGS. The Parties shall meet at least once every **
throughout the Term for the purpose of information reporting hereunder. Such
meetings may be in-person, via videoconference or via teleconference. In-person
meetings will be held at Lilly’s premises at Indianapolis, Indiana, unless the
Parties otherwise agree. Each Party will bear the expenses of its
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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participation in meetings. At least five (5) business days prior to each
meeting, Lilly shall provide written notice to Prosidion of agenda items for the
meeting, together with appropriate information related thereto. It is noted that
Prosidion shall not be obligated to attend such meetings however, in the event
that a meeting is not held in any ** period, which event shall only occur at the
request of Prosidion, a detailed written report of the status of the Lilly GKA
Program will be provided to Prosidion.
     (d) MINUTES. Material information provided or discussed at a meeting will
be documented and signed by both Parties before the meeting ends. Reasonably
detailed written minutes will be kept of all meetings and will reflect, without
limitation, material information provided at such meetings. Responsibility for
keeping minutes will be held by Lilly. Meeting minutes will be sent to Prosidion
for review and approval within ten (10) business days after a meeting. Minutes
will be deemed approved unless Prosidion objects to the accuracy of such minutes
within twenty (20) business days of receipt.
ARTICLE 6
PAYMENTS AND FINANCIAL REPORTING
     6.1 UPFRONT PAYMENTS.
     In partial consideration of the granting of the License and rights
hereunder, Lilly will pay to Prosidion a non-refundable, non-creditable upfront
payment of twenty five million U.S. Dollars ($25,000,000) within ten
(10) business days following the Effective Date. Such payment will be made in
immediately available funds via a Federal Reserve electronic wire transfer to a
bank account designated by Prosidion.
     6.2 MILESTONE PAYMENTS.
               (a) MILESTONES. The development milestones listed below shall
become due and owing upon first occurrence of the applicable milestone event.
Lilly will notify Prosidion within ** of the achievement of any such milestone
by Lilly, its Affiliate or Sublicensee, and shall at such time or shortly
thereafter provide Prosidion with substantiation of the achievement of the
milestone. Lilly shall have ** following such notification of the achievement of
a milestone listed below, in which to pay the corresponding amount to Prosidion
in immediately available funds via a Federal Reserve electronic wire transfer to
an account designated by Prosidion:

              Cash Payment   Milestones on PSN010   (U.S. dollars)  
 
       
**
       

 

**   This portion has been redacted pursuant to a confidential treatment
request.

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              Cash Payment   Milestones on GKA Back-ups   (U.S. dollars)  
 
       
**
       

     All milestones shall be paid on the first occurrence of such milestone
being achieved. **
     (b) NET SALES PERFORMANCE MILESTONES. The following performance milestones
shall become due and owing upon the achievement of the relevant milestone and as
set forth below:

              Cash Payment   Milestone on Net Sales   (U.S. dollars)  
 
       
**
       

Performance Milestones shall be calculated on cumulative Net Sales of all
Product(s) during a Calendar Year and shall become due once at the first
occurrence of meeting or exceeding such sales level. Lilly will notify Prosidion
within ** following the close of the Calendar Quarter in which achievement of
such Net Sales milestone occurs. Lilly shall have ** following such notification
of the achievement of the milestone, in which to pay the corresponding amount to
Prosidion in immediately available funds via a Federal Reserve electronic wire
transfer to an account designated by Prosidion.
     6.3 ROYALTIES
               (a) ROYALTY RATE. Royalties on sales of Product(s) shall be
payable by Lilly to Prosidion on Net Sales on a Product-by-Product and a
country-by-country basis in the Territory as detailed below. For the avoidance
of doubt, in the event that Lilly acquires any rights to Commercialise
Product(s) in relation to the Tanabe Territory, or if Tanabe fails to exercise
or diligently pursue its rights in the Tanabe Territory under the Tanabe
Agreement, and Lilly thereafter generates Net Sales in the Tanabe Territory,
royalties shall be payable by Lilly on a Product-by-Product and a
country-by-country basis on Net Sales in the Tanabe Territory as set forth
below:

                      PSN010     GKA Back-up   For Annual Net Sales Between:  
Royalty Rate (%)     Royalty Rate (%)  
 
               
**
               

 

**   This portion has been redacted pursuant to a confidential treatment
request.

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               (b) ROYALTY CONDITIONS. Royalties shall be subject to the
following conditions:
                    (i) royalties shall be payable with respect to all Net Sales
of Product(s);
                    (ii) only one royalty shall be due with respect to the same
sales unit of Product(s);
                    (iii) no royalties shall be due upon the sale or other
transfer of Product(s) among Lilly, its Affiliates and/or Sublicensees, but in
such cases the royalty shall be due and calculated upon Lilly’s, its Affiliates
and/or Sublicensees’ Net Sales to the first independent Third Party;
                    (iv) no royalties shall accrue on the disposition of
Product(s) in reasonable quantities by Lilly, its Affiliates or its Sublicensees
as samples (promotion or otherwise) or as donations (for example, to non-profit
institutions or government agencies for a non-commercial purpose); and
                    (v) that in the event Lilly generates Net Sales in the
Tanabe Territory, the royalties payable by Lilly on such Net Sales in the Tanabe
Territory shall be decreased by the amount of any royalties that may become
payable by Lilly to Tanabe on Lilly’s Net Sales of such Product(s) in the Tanabe
Territory, evidence of which shall be provided to Prosidion.
               (c) ROYALTY TERM. Lilly’s obligation to pay royalties on Net
Sales of each Product in any country in the Territory will continue until the
later of: (i) ** following Product Launch of such Product in such country; or
(ii) the expiration of the last to expire of any Prosidion Patent having a Valid
Claim.
               (d) REPORTS; PAYMENT OF ROYALTY. Following Product Launch, Lilly
shall furnish to Prosidion a written report for the Calendar Quarter accounting
for the Net Sales of all Product(s) subject to royalty obligations sold by
Lilly, its Affiliates and/or its Sublicensees in the Territory on a
country-by-country basis during the reporting period, and detailing the
royalties payable under this Agreement. Reports shall be due on the ** following
the close of each Calendar Quarter and on the ** day following the end of the
duration of Lilly’s royalty obligations hereunder. Each such report shall be
certified by an authorised representative of the Finance Department of Lilly as
being true, accurate and complete. In addition, an unofficial monthly sales
report of estimated royalties payable, detailed on a country-by-country basis,
shall be delivered to Prosidion within ** days following the close of each
calendar month and on the ** day following the end of the duration of Lilly’s
royalty obligations hereunder. Lilly shall also provide to Prosidion on the **
day following the close of each Calendar Quarter, an unofficial quarterly sales
report of estimated royalties payable to Prosidion hereunder, detailed on a
country-by-country basis, in the event that royalty estimates at such date
differ from the amounts previously reported to Prosidion for such Calendar
Quarter. Royalties shown to have accrued by each unofficial quarterly report and
all other payments due under this Section 6.3 for such period or portion thereof
shall be due and payable within ** days of the close of each Calendar Quarter.
In the event that royalties payable as detailed in the aforementioned certified
report provided by Lilly within ** days of the close of each Calendar Quarter
differ from the royalty payments received by Prosidion, any differences will be
added to or subtracted from the subsequent Calendar Quarter royalty payment, as
applicable.
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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               (e) MAINTENANCE OF RECORDS. Lilly shall keep and maintain (and
cause to be kept and maintained) complete and accurate records of the Net Sales
by Lilly, its Affiliates and/or Sublicensees, in sufficient detail to enable the
royalties payable hereunder to be determined, and in accordance with U.S. GAAP.
Lilly shall retain such records for at least ** after the close of any Calendar
Quarter.
               (f) ROYALTY AUDITS. Upon the written request of Prosidion,
including one Calendar Year following the end of the duration of Lilly’s royalty
obligations hereunder, Prosidion has the right to annually audit, using Lilly’s
independent certified public accounting firm, or if such firm is also the
independent certified public accounting firm of Prosidion or any of its
Affiliates or is not acceptable to Prosidion, through an independent certified
public accountant selected by Prosidion and acceptable to Lilly (which
acceptance will not be unreasonably refused), at Prosidion’s expense, and to
have access during normal business hours on reasonable notice to, such of the
records of Lilly, its Affiliates and Sublicensees as may be reasonably necessary
to verify the accuracy of the royalty reports hereunder in relation to Net Sales
and any royalties or other payments due thereon. The accounting firm shall be
under a duty to keep confidential any other information obtained from such
reports. The fees charged by such accounting firm shall be paid by Prosidion;
provided, however, that if such accounting firm determines that Lilly underpaid
royalties by more than ** of the amount that was due, then the fees charged by
such accounting firm shall be paid by Lilly.
               (g) If such accounting firm concludes that additional royalties
were owed during such period, Lilly shall pay the additional royalties within
thirty (30) days of the date Prosidion delivers to Lilly such accounting firm’s
written report so correctly concluding.
               (h) Lilly shall include in each sublicense granted by it pursuant
to this Agreement a provision requiring the Sublicensee to make reports to
Lilly, to keep and maintain records of sales made pursuant to such sublicense
and to grant access and audit rights to such records by Prosidion’s independent
accountant to the same extent required of Lilly under this Agreement.
               (i) Prosidion shall treat all financial information subject to
review under this Section 6.3 or under any sublicense agreement, in accordance
with the confidentiality provisions of this Agreement, and shall cause its
accounting firm to enter into a reasonably acceptable confidentiality agreement
with Lilly obligating it to retain all such financial information in confidence
pursuant to such confidentiality agreement.
               (j) PAYMENT EXCHANGE RATE. All payments to be made by Lilly to
Prosidion under this Agreement shall be made in Euros and shall be paid by bank
wire transfer in immediately available funds to such bank account designated in
writing by Prosidion from time to time. All payments due hereunder shall be
deemed received when funds are credited to Prosidion’s account at a bank
designated by Prosidion for the purpose and shall be paid by wire transfer in
Euros. All payments will be determined in U.S. dollars pursuant to the terms of
this Agreement and will be converted into Euros at the rate of exchange using
the spot rate in effect for the purchase of Euros on the date of payment.
               (k) INCOME TAX WITHHOLDING. Where any sum due to be paid to
Prosidion hereunder shall be subject to any withholding tax, the Parties shall
use all reasonable efforts to do all such acts and things and to sign all such
documents as will enable them to take advantage of any applicable taxation
treaty or agreement. In the event there is no applicable taxation treaty or
agreement, or if an applicable taxation treaty or agreement reduces but does not
eliminate such withholding or similar tax,
 

**   This portion has been redacted pursuant to a confidential treatment
request.

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Licensee shall pay such withholding or similar tax to the appropriate government
authority, deduct the amount paid from the amount due to Prosidion and secure
and send to Prosidion the best available evidence of such payment sufficient to
enable Prosidion to obtain a deduction for such withheld taxes or obtain a
refund thereof including, without limitation, when received a copy of the
official tax receipt evidencing payment of such tax to the appropriate taxing
authority.
ARTICLE 7
CONFIDENTIALITY AND PUBLICATION
     7.1 OBLIGATIONS.
     Except upon obtaining the other Party’s prior written consent to the
contrary, each Party agrees that it will:
               (a) maintain in confidence, and not disclose to any person or
entity (except as provided in Section 7.2), the other Party’s Confidential
Information for the Term of this Agreement and five (5) years thereafter; and
               (b) not use such Confidential Information for any purpose except
as contemplated in this Agreement.
     7.2 AUTHORIZED DISCLOSURES OF CONFIDENTIAL INFORMATION.
               (a) PERMITTED PERSONS. Each Party may disclose Confidential
Information of the other Party, without such other Party’s prior written
consent, to its and its Affiliates’ (or the other Party’s and its Affiliates’)
directors, employees, agents, consultants, permitted Sublicensees, suppliers,
and other person or entities who:
                    (i) need to know such Confidential Information to assist the
Party in fulfilling its obligations or exploiting its rights hereunder (or to
determine their interest in providing such assistance); and
                    (ii) are bound by written confidentiality and non-use
obligations no less stringent than those contained herein.
     7.3 DISCLOSURES LEGALLY REQUIRED OR NECESSARY.
               (a) Each Party may also disclose the Confidential Information of
the other Party, without such other Party’s prior written consent, to any
person, entity, or government or regulatory authority to the extent that the law
or governmental regulation requires such disclosure. In addition, Lilly may
disclose Prosidion’s Confidential Information, without Prosidion’s prior written
consent, to any Person, entity, or government or Regulatory Authority to the
extent that such disclosure is: (i) necessary for obtaining, maintaining, or
amending any Regulatory Materials regarding Product(s) or satisfying any other
regulatory obligation regarding such Product; or (ii) reasonably useful or
necessary for the preparation, prosecution and defense of Prosidion Patents or
Lilly Patents.
               (b) Except as provided in Section 7.3 (a), prior to disclosing
the other Party’s Confidential Information under this Section 7.3, the
disclosing Party, to the extent practicable, will give the other Party a copy of
the Confidential Information to be disclosed and provide such Party a reasonable

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opportunity to comment on the necessity and the text of the proposed disclosure.
The disclosing Party agrees to consider such comments in good faith and to
reasonably avail itself of available means under the Applicable Law to minimize
the disclosure of such Confidential Information.
               (c) COURT ORDERS. Each Party may also disclose the Confidential
Information of the other Party, without such other Party’s prior written
consent, pursuant to, and limited to the extent required by, an order of a
Regulatory Authority or court of competent jurisdiction, provided that it
promptly notifies the other Party of the required disclosure in order to provide
such Party an opportunity to take legal action to prevent or limit such
disclosure and, if asked, reasonably assists the other Party in pursuing such
action.
               (d) LEGAL ACTIONS. Each Party may also disclose the Confidential
Information of the other Party, without such other Party’s prior written
consent, as is necessary to pursue or defend against a legal or regulatory
action by one Party against the other with respect to this Agreement. A Party
disclosing the other Party’s Confidential Information, pursuant to this
Subsection, will use reasonable efforts to minimize the disclosure of the other
Party’s Confidential Information, including, without limitation, by seeking to
file pleadings under seal.
     7.4 DISCLOSURE OF THE TERMS OF THE AGREEMENT.
               (a) TAX DISCLOSURES. Each Party agrees that it will maintain in
confidence, and not disclose, the terms of this Agreement without the prior
written consent of the other Party, except as expressly authorized herein. If a
Party receives a request from an authorized representative of a U.S. or foreign
tax authority for a copy of the Agreement, that Party may provide a copy of the
Agreement to such tax authority representative without advance notice to, or the
consent or cooperation of, the other Party, but the disclosing Party must notify
the other Party of the disclosure as soon as practicable.
               (b) DISCLOSURE TO AUTHORIZED PERSONS. Either Party may disclose
information regarding the terms of this Agreement to: (i) its advisers, agents,
consultants, permitted Sublicensees and suppliers who need to know such
information to perform their contractual obligations to such Party; and (ii) to
a Third Party in relation to a due diligence exercise being conducted by such
Third Party, who needs to know such information to perform such due diligence,
and in relation to (i) and (ii), provided such Third Parties agree to be bound
by terms of confidentiality and non-use at least as strict as those set forth in
this Agreement.
               (c) DISCLOSURE ON ADVICE OF COUNSEL. If any Party, based on the
advice of counsel, determines that a release of information regarding the
existence or terms of this Agreement is required by law or regulation, then
prior to any release of such information, that Party will notify the other Party
as soon as practicable and provide as much detail as possible in relation to the
proposed disclosure and will endeavor in good faith to provide the other Party
with a minimum of five (5) business days to review and provide comments on the
proposed release. The disclosing Party will use its best efforts to incorporate
comments of the other Party to the extent consistent with fulfilling its legal
obligations.
               (d) PUBLICITY. It is understood that the Parties intend to issue
a mutually acceptable joint press release announcing the execution of this
Agreement and agree that each Party may desire or be required to issue
subsequent press releases relating to the Agreement or activities hereunder. The
Parties agree to consult with each other reasonably and in good faith with
respect to the text and timing of such press releases prior to the issuance
thereof, provided that a Party may not unreasonably withhold consent to such
releases, and that either Party may issue such press releases as it determines,
based on advice of counsel, are reasonably necessary to comply with laws or
regulations or for

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appropriate market disclosure. In addition, following the initial joint press
release announcing this Agreement, each Party shall be free to disclose, without
the other Party’s prior written consent, the existence of this Agreement, the
identity of the other Party and those terms of the Agreement and other
information which have already been publicly disclosed in such press release or
subsequent press releases in accordance herewith. Prosidion shall also be
entitled to disclose the current clinical status of the Lilly GKA Program (for
example, information regarding phase of development completed or in process and
regulatory status) and may also disclose information regarding data and results
from the Lilly GKA Program but only to the extent that such information has been
publicly disclosed or published by Lilly.
               (e) PUBLICITY REFERRAL. Unless otherwise directed in writing by
Lilly, all matters that require Lilly’s review or consent under this Section
must be referred to Lilly’s Corporate Communications (Public Relations)
department for review and approval at the address set forth in Section 13.6.
Unless otherwise directed in writing by Prosidion, all matters that require
Prosidion’s review or consent under this Section must be referred to OSI’s Head
of Investor and Public Relations, at the address set forth in Section 13.6.
     7.5 PUBLICATIONS.
     Lilly shall inform Prosidion of any publications related to the Lilly GKA
Program and/or Product(s). Upon prior written approval of Lilly, which approval
shall not be unreasonably withheld, Prosidion may after the Effective Date,
submit manuscripts for publication or presentation at conferences or symposia,
relating to its activities on the Prosidion GKA Program conducted prior to the
Effective Date and to publish or otherwise disclose such.
ARTICLE 8
REPRESENTATIONS, WARRANTIES AND DISCLAIMERS
     8.1 CORPORATE EXISTENCE AND AUTHORITY.
     Each Party hereby represents and warrants to the other Party that, as of
the Effective Date, it:
               (a) is a corporation duly organized, validly existing and in good
standing under the laws of the state or country in which it is incorporated;
               (b) has full corporate power and authority and the legal right to
own and operate its property and assets and to carry on its business as it is
now being conducted and is contemplated in this Agreement (without making any
representation as to the intellectual property rights except as provided in
Section 8.5); and
               (c) has the corporate power and full authority and the legal
right to enter into this Agreement and perform the obligations and duties
contemplated under this Agreement.
     8.2 AUTHORIZED EXECUTION; BINDING OBLIGATION.
     Each Party represents and warrants to the other Party that, as of the
Effective Date: (i) the execution, delivery, and performance of the Agreement
and the consummation of the transactions contemplated thereby have been duly
authorized and approved by all necessary corporate action on its part; and
(ii) this Agreement has been duly executed and delivered by it and constitutes a
legal, valid and binding obligation enforceable against it in accordance with
this Agreement’s terms, except as the same

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may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other laws relating to or affecting creditors’ rights generally and by
general equity principles, including judicial principles affecting the
availability of injunction and specific performance.
     8.3 NO CONFLICTS.
     Each Party represents and warrants to the other Party that its execution,
delivery, and performance of this Agreement:
               (a) does not, except as otherwise described in this Agreement,
require the approval or consent of any person or entity, which has not already
been obtained;
               (b) does not, to the best of its knowledge, contravene any
Applicable Laws; and
               (c) does not contravene the provisions of, nor constitute a
default under, its articles of incorporation or bylaws or any indenture,
mortgage, contract or other agreement or instrument to which it is a signatory,
or any permit, or governmental authorization or grant.
     8.4 ALL CONSENTS AND APPROVALS OBTAINED.
     Except as otherwise described in this Agreement, each Party represents and
warrants to the other that: (i) all necessary consents, approvals and
authorizations of; and (ii) all notices to, and filings by such Party with, all
governmental authorities and other persons or entities required to be obtained
or provided by such Party in connection with the execution, delivery and
performance of this Agreement have been obtained and provided, except for those
government approvals, if any, not required at the time of execution of this
Agreement.
     8.5 EXISTING PATENTS IN THE TERRITORY.
     Prosidion represents and warrants that, as of the Effective Date:
               (a) Schedule 1.1.58 lists all Prosidion Patents;
               (b) To Prosidion’s knowledge, and other than as disclosed in
Schedule 8.5: (i) there is no litigation or arbitration, either pending or
threatened in writing, alleging that any Prosidion Patent is invalid or
unenforceable anywhere in the Territory; and (ii) Prosidion is the sole owner of
the Prosidion Patents and has the right to grant to Lilly the licenses granted
hereunder;
               (c) Prosidion has not previously granted (other than Tanabe
pursuant to the Tanabe Agreement or VDC under the VDC Agreement or service
providers under service agreements with Prosidion), and is not currently
obligated (whether or not contingent on any future event or state of affairs) to
negotiate with any Third Party with respect to granting, any license or other
right in the Field in the Territory under the Prosidion Rights licensed to Lilly
by this Agreement;
               (d) Prosidion has not encumbered, with liens, mortgages, security
interests or otherwise, the Prosidion Rights;
               (e) To Prosidion’s knowledge, none of the claims contained in any
issued Prosidion Patent are invalid or unenforceable and Prosidion has not
received notice from any governmental authority or court that the claims set
forth in any issued Prosidion Patents are invalid;

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               (f) Prosidion is in compliance in all material respects with, and
has not received any notice of breach pursuant to, any agreement relating to the
Prosidion Rights, including without limitation the Tanabe Agreement and the VDC
Agreement;
               (g) There are no pending or, to Prosidion’s knowledge threatened,
claims against Prosidion asserting that any of the activities of Prosidion
relating to the Prosidion GKA Program or the conduct of the activities
contemplated herein by Lilly under the Lilly GKA Program (if carried out by
Prosidion) would infringe or violate the rights of Third Parties;
               (h) To Prosidion’s knowledge or belief, there are no Patents
(other than the Prosidion Patents) that would be infringed by the use of PSN010
API in its current form for the treatment of type 2 diabetes in the Territory;
and
               (i) Prosidion has not given any notice to any Third Party
asserting infringement by such Third Party upon any of the Prosidion Rights.
     8.6 KNOW-HOW.
     Prosidion represents that know-how generated by Existing Suppliers with
respect to PSN010 is owned or Controlled by Prosidion and it undertakes that it
will, promptly after the Effective Date, provide to Lilly all Prosidion Know-How
Controlled by Prosidion and in its possession at the Effective Date and to
promptly procure the delivery to Lilly of all Prosidion Know-How held by
Existing Suppliers.
     8.7 DISCLAIMER OF IMPLIED WARRANTIES.
     EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT, NEITHER PARTY MAKES ANY
OTHER REPRESENTATION OR WARRANTY, EXPRESS OR IMPLIED, EITHER IN FACT OR BY
OPERATION OF LAW, STATUTE, OR OTHERWISE, AND EACH PARTY SPECIFICALLY DISCLAIMS
ANY AND ALL IMPLIED OR STATUTORY WARRANTIES INCLUDING WARRANTIES OF
MERCHANTABILITY, OF FITNESS FOR A PARTICULAR PURPOSE AND OF NON-INFRINGEMENT.
     8.8 LIMITATION OF LIABILITY.
     NEITHER PARTY WILL BE LIABLE TO THE OTHER PARTY FOR INDIRECT, INCIDENTAL,
CONSEQUENTIAL, OR SPECIAL DAMAGES INCLUDING, BUT NOT LIMITED TO, LOST PROFITS
ARISING FROM OR RELATING TO ANY BREACH OF THIS AGREEMENT, REGARDLESS OF ANY
NOTICE OF THE POSSIBILITY OF SUCH DAMAGES. HOWEVER, NOTHING IN THIS SECTION IS
INTENDED TO LIMIT OR RESTRICT THE INDEMNIFICATION RIGHTS OR OBLIGATIONS OF
EITHER PARTY UNDER ARTICLE 9.
     8.9 GUARANTEE OF PERFORMANCE OF AFFILIATES.
     Each Party absolutely, unconditionally and irrevocably guarantees to the
other Party, prompt performance when due and at all times thereafter of the
liabilities (including, without limitation, indemnity obligations and
liabilities), obligations, covenants, warranties, representations and
undertakings (collectively, the “Liabilities”) of its Affiliates pursuant to
this Agreement, and any and all modifications and amendments thereof.

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     8.10 NOT DEBARRED.
     Prosidion represents and warrants that Prosidion is not debarred and has
not used in any capacity the services of any Person debarred under subsections
306 (a) or (b) of the Generic Drug Enforcement Act of 1992.
     8.11 LITIGATION.
     Prosidion represents and warrants that there are no pending or, to
Prosidion’s knowledge, threatened judicial, administrative or arbitral actions,
claims, suits or proceedings pending as of the Effective Date against Prosidion
or its Affiliates which, either individually or together with any other, will
have a material adverse effect on the ability of Prosidion to perform its
obligations under this Agreement or any agreement or instrument contemplated
hereby.
ARTICLE 9
MUTUAL INDEMNIFICATION
     9.1 INDEMNIFICATION OBLIGATIONS.
          (a) LILLY’S OBLIGATION. Lilly will defend, indemnify, and hold
harmless Prosidion, Prosidion’s Affiliates, and the respective directors,
officers, shareholders, employees, and agents of Prosidion and Prosidion’s
Affiliates (“Prosidion Indemnitees”), from and against any and all liabilities,
damages, losses, penalties, fines, costs, interest, and expenses, including,
without limitation, reasonable attorneys’ fees, (“Damages”) arising from or
occurring as a result of a Third Party’s claim, action, suit, judgment, or
settlement against a Prosidion Indemnitee that is due to or based upon:
               (i) any breach by Lilly of an obligation, agreement, condition,
covenant, representation, or warranty of Lilly under this Agreement; or
               (ii) any negligent or more culpable act or omission of Lilly or a
Lilly Affiliate, Sublicensee, or contractor or their respective directors,
officers, shareholders, employees, and agents related to this Agreement; or
               (iii) any product liability or other Third Party claim in
connection with any claims, suits, or liabilities, arising out of the
Manufacture, promotion, import/export, sale of Product(s) for or on behalf of
Lilly or use by any person of such Product(s) ((i), (ii) and (iii) each, a
“Prosidion Third Party Claim”),
          provided, however, that Lilly will not be obligated to indemnify or
hold harmless Prosidion Indemnitees from Damages from a Prosidion Third Party
Claim to the extent that such Damages are finally determined to have resulted
directly from the negligent (or more culpable) act or omission of a Prosidion
Indemnitee or any breach by Prosidion of an obligation, agreement, condition,
covenant, representation, or warranty of Prosidion under this Agreement. Lilly
shall not be obligated to indemnify or hold harmless any Prosidion Indemnitee
for any Damages due to or based upon any product liability or other Third Party
claim in connection with any claims, suits, or liabilities, arising out of the
Manufacture, promotion, import/export, sale or use of Products or GK Products
(as defined within the Tanabe Agreement) by or on behalf of Tanabe, other than
in the event that Lilly acquires such rights with regard to the Tanabe Territory
from Tanabe during the Term or in the event of a collaboration

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          between Lilly and Tanabe relating to research, development and/or
commercialization of Product(s) and/or GK Product(s) in which events Lilly shall
remain liable.
          (b) PROSIDION’S OBLIGATION. Prosidion will defend, indemnify, and hold
harmless Lilly, Lilly’s Affiliates and Sublicensees, and the respective
directors, officers, shareholders, employees, and agents of Lilly and Lilly’s
Affiliates (“Lilly Indemnitees”), from and against any and all Damages arising
from or occurring as a result of a Third Party’s claim, action, suit, judgment,
or settlement against a Lilly Indemnitee that is due to or based upon:
               (i) any breach by Prosidion of an obligation, agreement,
condition, covenant, representation, or warranty of Prosidion under this
Agreement, the Tanabe Agreement (save where Lilly has assumed such obligations
pursuant to this Agreement or a subsequent agreement between Prosidion, Lilly
and/or Tanabe relating to rights and obligations under the Tanabe Agreement or
where Prosidion’s performance of its obligations under the Tanabe Agreement has
been frustrated by actions or omissions of Lilly), or the VDC Agreement; or
               (ii) any negligent or more culpable act or omission of Prosidion
or a Prosidion Affiliate or their respective directors, officers, shareholders,
employees, and agents related to this Agreement; or
               (iii) any product liability or other Third Party claim in
connection with any claims, suits, or liabilities, arising out of the
Manufacture, promotion, import/export, sale of Product(s) for or on behalf of
Prosidion or use by any person of such Product(s) in the event that such rights
revert to Prosidion under Section 11.5 (a) ((i) (ii) and (iii) each, a “Lilly
Third Party Claim”) except to the extent caused prior to such reversion of
rights for which Lilly shall remain liable,
     provided, however, that Prosidion will not be obligated to indemnify or
hold harmless Lilly Indemnitees from Damages from a Lilly Third Party Claim to
the extent that such Damages are finally determined to have resulted directly
from the negligent (or more culpable) act or omission of a Lilly Indemnitee or
any breach by Lilly of an obligation, agreement, condition, covenant,
representation, or warranty of Lilly under this Agreement.
     9.2 INDEMNIFICATION PROCEDURES.
          (a) NOTICE. Promptly after a Prosidion Indemnitee or a Lilly
Indemnitee (each, an “Indemnitee”) receives notice of a pending or threatened
Prosidion Third Party Claim or Lilly Third Party Claim, as the case may be (an
“Action”), such Indemnitee shall give written notice of the Action to the Party
to whom the Indemnitee is entitled to look for indemnification pursuant to this
Article 9 (the “Indemnifying Party”). However, an Indemnitee’s delay in
providing or failure to provide such notice will not relieve the Indemnifying
Party of its indemnification obligations, except to the extent it can
demonstrate prejudice due to the delay or lack of notice.
          (b) DEFENSE. Upon receipt of notice under Section 9.2 (a) from the
Indemnitee, the Indemnifying Party will have the duty to either compromise or
defend, at its own expense and by counsel (reasonably satisfactory to
Indemnitee), such Action. The Indemnifying Party will defend or settle the
claim, at its own expense and by its own counsel, any such matter involving the
asserted liability of the Indemnitee. If, in the reasonable opinion of the
Indemnitee, the claim could result in the Indemnitee becoming subject to
injunctive relief or relief other than the payment of money damages that could
materially adversely affect the ongoing business of the Indemnitee in any
manner, the Indemnitee will have the right, at its option, to pay, compromise or
defend such asserted liability by its own counsel and its reasonable costs,
expenses, and any payment made therewith will be included as part of the

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indemnification obligation of the Indemnifying Party hereunder, subject to the
determination of whether the Indemnifying Party is obligated to indemnify the
Indemnitee pursuant to this Article 9. In any event, the Indemnitee and the
Indemnifying Party may participate, at their own expense, in the defense of such
asserted liability, provided, however, that such defense expense of the
Indemnitee will not be an indemnified claim if the Indemnifying Party is
defending such claim.
          (c) COOPERATION. The Indemnitee will cooperate fully with the
Indemnifying Party and its legal representatives in the investigation and
defense of an Action. The Indemnifying Party will keep the Indemnitee informed
on a reasonable and timely basis as to the status of such Action (to the extent
the Indemnitee is not participating in the defense of such Action) and conduct
the defense of such Action in a prudent manner. All reasonable costs and
expenses incurred in connection with such cooperation will be borne by the
Indemnifying Party.
          (d) SETTLEMENT. If an Indemnifying Party assumes the defense of an
Action, no compromise or settlement of such Action may be effected by the
Indemnifying Party without the Indemnitee’s written consent (which consent will
not be unreasonably withheld or delayed), unless: (i) there is no finding or
admission of any violation of law or any violation of the rights of any person
and no effect on any other claims that may be made against the Indemnitee;
(ii) the sole relief provided is monetary damages that are paid in full by the
Indemnifying Party; and (iii) the Indemnitee’s rights under this Agreement are
not adversely affected.
     9.3 INDEMNIFICATION PAYMENT ADJUSTMENTS.
          (a) INSURANCE PROCEEDS OR OTHER RECOVERY. The amount of any Damages
for which indemnification is provided under this Article 9 will be reduced by
the insurance proceeds received and any other amount recovered, if any, by the
Indemnitee with respect to any Damages. However, an Indemnitee does not have an
obligation to pursue an insurance claim relating to any Damages for which
indemnification is sought hereunder.
          (b) REFUND. If an Indemnitee receives a payment pursuant to this
Article 9 and subsequently receives insurance proceeds or other amounts with
respect to the same Damages, the Indemnitee will pay to the Indemnifying Party
an amount equal to the difference (if any) between: (i) the sum of the insurance
proceeds received, other amounts received, and the indemnification amount
received from the Indemnifying Party pursuant to this Article 9; and (ii) the
amount necessary to fully and completely indemnify and hold harmless the
Indemnitee from and against such Damages. However, in no event will such refund
ever exceed the Indemnifying Party’s payment to the Indemnitee under this
Article 9.
     9.4 INDEMNIFICATION PAYMENT.
     Any amount owed by an Indemnitee to a Third Party, for which the
Indemnifying Party has an obligation under this Article 9 to indemnify, will be
due from the Indemnifying Party when such amount is owed by the Indemnitee to
the Third Party, whether upon entry of judgment, upon settlement, or otherwise.
     9.5 INSURANCE.
     Lilly, at its own expense or through self-insurance, shall maintain product
liability insurance during the Term consistent with Lilly’s product portfolio
product liability insurance at that time and sufficient to cover its obligations
hereunder. Lilly will provide certificates of insurance (or evidence of
self-insurance) evidencing such coverage to Prosidion. Lilly, at its own expense
or through self-

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insurance, shall during the Term, also maintain commercial general liability
insurance on a claims made basis consistent with Lilly’s commercial general
insurance at that time and sufficient to cover its obligations hereunder.

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     9.6 SURVIVAL.
     The provisions of this Article 9 will survive any termination or expiration
of this Agreement. Each Indemnitee’s rights under this Article 9 will not be
deemed to have been waived or otherwise affected by such Indemnitee’s waiver of
the breach of any obligation, agreement, condition, covenant, representation, or
warranty contained in, or made pursuant to, this Agreement, unless such waiver
expressly (and in writing) also waives any or all of the Indemnitee’s rights
under this Article 9.
ARTICLE 10
INTELLECTUAL PROPERTY
     10.1 LILLY IMPROVEMENTS.
     All Lilly Improvements that arise from the conduct by Lilly of the Lilly
GKA Program shall be owned by Lilly.
     10.2 PATENT EXPENSES.
     Lilly shall be responsible for all Patent Expenses relating to the
Prosidion Patents from the Effective Date (save for any Patent Expenses incurred
solely by Prosidion where Prosidion alone brings an action pursuant to
Section 10.6 or 10.7, for which Prosidion shall be responsible) and Lilly shall
be responsible for Patent Expenses in relation to Lilly Improvements.
     10.3 FILING, PROSECUTION AND MAINTENANCE OF PATENTS.
          (a) From the Effective Date, Lilly shall be responsible for, and shall
use commercially reasonable efforts in, the preparation, filing, prosecution and
maintenance of all Prosidion Patents and all Lilly Patents (including all Patent
Expenses relating thereto). Prosidion agrees to cooperate fully with Lilly, its
attorneys, and agents, at Lilly’s expense, in the preparation, filing,
prosecution and maintenance related to the Prosidion Patents and, upon request,
to provide Lilly with complete copies of any and all documents or other
materials that Lilly deems necessary to undertake such responsibilities. Lilly
shall consider in good faith the requests and suggestions of Prosidion with
respect to strategies for filing and prosecuting Prosidion Patents for which it
has responsibility hereunder. Lilly shall keep Prosidion informed of progress
with regard to the preparation, filing, prosecution and maintenance of the
Prosidion Patents. Before taking any material step in the filing, prosecution or
maintenance of such Patents, Lilly shall allow Prosidion to comment on the
action proposed to be taken, at Prosidion’s expense, and Lilly shall take into
account any comments and suggestions of Prosidion, provided that any such advice
by Prosidion is given without any warranty or guarantee as to the results. Lilly
shall provide Prosidion with copies of all relevant documents and correspondence
with any patent office, including but not limited to, relevant applications,
official letters, final responses to official letters, notice of all
interferences, reissues, re-examinations, oppositions or requests for patent
term extensions and any other documents which may be of importance for any
action(s) to be taken, prior to filing and sufficiently in time prior to the
deadline for, or the intended date for, the action to be taken, whichever is the
earlier, but no later than (60) days prior to such date, provided that such
period is available to Lilly. Prosidion shall communicate its comments on the
same to Lilly within thirty (30) days from the date on which Lilly provided such
information to Prosidion or such shorter period as is required to enable Lilly
to comply with any relevant deadline.

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          (b) In the event that Lilly desires to abandon any Prosidion Patent
(whether by any action or inaction), Lilly shall provide reasonable prior
written notice to Prosidion of such intention to abandon (which notice shall, in
any event, be given no later than thirty (30) days prior to the next deadline
for any action that may be taken with respect to such Prosidion Patent with the
applicable patent office) and Prosidion shall have the right, but not the
obligation, to assume responsibility for the prosecution and maintenance thereof
at Prosidion’s expense. If Prosidion does elect to assume such responsibility,
Lilly shall execute and deliver any relevant documents necessary to aid or
permit Prosidion to take such responsibility.
          (c) Prosidion hereby grants Lilly’s in-house patent counsel a limited
conflict waiver, to the limited extent of any conflict of interest arising from
the fact that: (i) Lilly has the right to control the preparation, filing,
prosecution and maintenance of the Prosidion Patent; and (ii) Prosidion is the
owner of the Prosidion Patents.
     10.4 INTERFERENCE, OPPOSITION, REEXAMINATION AND REISSUE.
          (a) INFORMATION. Each Party will, within ten (10) days of learning of
such event, inform the other Party of any request for, or filing or declaration
of, any interference, opposition, or reexamination relating to Prosidion
Patents. Lilly and Prosidion will thereafter consult and cooperate fully to
determine a course of action with respect to any such proceeding subject to the
provisions of this Section set forth below.
          (b) EXPENSE AND COOPERATION. Lilly shall be responsible for all of the
expenses of any interference, opposition, reissue, or reexamination proceedings
relating to the Prosidion Patents as provided in Section 10.2. Prosidion will,
at Lilly’s expense, cooperate fully with Lilly and will provide Lilly with any
information or assistance that Lilly may reasonably request with regard to any
such action. Lilly will keep Prosidion informed of developments in any such
action or proceeding. Decisions on whether to initiate such a proceeding and the
course of action in such proceeding, including settlement negotiations and
terms, will be made by Lilly with the consultation of Prosidion, provided,
however, that Lilly shall not have the right to settle any proceeding under this
Section 10.4 with regard to a Prosidion Patent without the prior written consent
of Prosidion, which shall not be unreasonably withheld or delayed. Should Lilly
decide not to take any action in relation to any interference, opposition,
reissue or reexamination proceedings relating to the Prosidion Patents then
Lilly shall give Prosidion reasonable prior written notice (which notice shall
in any event be given no later than thirty (30) days prior to the next deadline
for any relevant action) and Prosidion shall then have the right, but not the
obligation, to assume responsibility for the relevant proceedings.
     10.5 ENFORCEMENT.
          (a) INFRINGEMENT BY THIRD PARTY. Each Party will, within ten (10) days
of learning of such event, inform the other Party of any infringement of any
Prosidion Patent relevant to the Field and Territory. Lilly and Prosidion will
thereafter consult and cooperate fully to determine a course of action
including, without limitation, the commencement of legal action by either or
both Lilly and Prosidion, to terminate any infringement, subject to the
provisions of this Section 10.5 set forth below.
          (b) PROSIDION PATENTS. Lilly shall have the first right to bring and
control any action or proceeding with respect to infringement of any Prosidion
Patent in the Field and in the Territory by counsel of its own choice, and
Prosidion shall have the right, at its own expense, to be represented in any
such action by counsel of its own choice. If Lilly fails to bring any such
action or proceeding with respect to infringement of any such Patent within:
(i) sixty (60) days following the notice of alleged

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          infringement; or (ii) ten (10) days before the time limit, if any, set
forth in the appropriate laws and regulations for the filing of such actions,
whatever comes first, Prosidion shall have the right, but not the obligation, to
bring and control any such action at its own expense and by counsel of its own
choice, and Lilly shall have the right, at its own expense, to be represented in
any such action by counsel of its own choice.
          (c) JOINDER. For any action by a Party pursuant to subsection
(b) above, in the event that such Party is unable to initiate or prosecute such
action solely in its own name, the other Party will join such action voluntarily
and will execute and cause its Affiliates to execute all documents necessary for
such Party to initiate, prosecute and maintain such action. In connection with
any action, Lilly and Prosidion will cooperate fully and will provide each other
with any information or assistance that either may reasonably request. Each
Party will keep the other informed of developments in any action or proceeding,
including, to the extent permissible by law, the status of any settlement
negotiations and the terms of any offer related thereto. Neither Party shall
have the right to settle any patent infringement litigation under this
Section 10.5 without the prior written consent of the other Party, which shall
not be unreasonably withheld or delayed.
          (d) SHARING OF EXPENSES AND RECOVERY. The Party bringing any action
shall bear the costs and expenses of any action brought by it as provided above
(except for the expenses of the non-controlling Party’s counsel, if any) and
shall retain any recovery realized as a result of any litigation.
          (e) SELECTION OF COUNSEL. In any case where a Party has the right to
select counsel of its choice, it shall first consult with the other Party
regarding the selection of counsel and consider in good faith the
recommendations of the other Party.
     10.6 THIRD PARTY PATENTS.
     If a Party becomes aware of a potential infringement of a Third Party’s
Patent or other rights, or a Third Party asserts infringement of its Patent or
other rights, based on the research, development, making, having made, use,
sale, having sold, offering for sale and import/export any Product hereunder,
the Party first obtaining knowledge of such a potential infringement or claim
shall immediately provide the other Party notice of such potential infringement
or claim and the related facts in reasonable detail. In such event, the Parties
shall agree how best to mitigate or control the defense of any such potential
infringement or claim that may include opposing the grant of any Patent upon
which a later claim of infringement may be based. In the event the Parties
cannot agree on the mitigation or defense of any such potential infringement or
claim, such mitigation or defense shall be controlled by Lilly; provided that
Prosidion shall have the right to participate in such defense and to be
represented in any such action by counsel of its selection at its sole
discretion. Lilly shall also have the right to control settlement of such claim;
provided, however, that no settlement shall be entered into without the written
consent of Prosidion, which consent shall not be unreasonably withheld or
delayed. Lilly shall pay any expenses (except for the expenses of Prosidion’s
counsel, if any) and shall retain any recovery realized as a result of any
litigation pursuant to this Section 10.6.
     10.7 CERTIFICATION UNDER DRUG PRICE COMPETITION AND PATENT RESTORATION ACT.
     Prosidion and Lilly each will immediately give notice to the other of any
certification of which they become aware filed under the U.S. “Drug Price
Competition and Patent Term Restoration Act of 1984” claiming that Prosidion
Patents covering a Product are invalid or that infringement will not arise from
the research, development, making, having made, use, sale, having sold, offering
for sale and

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import/export of a Product by a Third Party. If Lilly decides not to bring
infringement proceedings against the entity making such a certification, Lilly
will give notice to Prosidion of its decision not to bring suit within twenty
(20) days after receipt of notice of such certification. Prosidion may then, but
is not required to, bring suit against the entity that filed the certification.
Any suit filed by Lilly or Prosidion will be in the name of Prosidion if it
involves a Prosidion Patent, or in the names of both Parties if it involves
collectively, a Prosidion Patent and a Lilly Patent. For this purpose, the Party
not bringing suit will execute such legal papers necessary for the prosecution
of such suit as may be reasonably requested by the Party bringing suit. In the
event that Lilly brings suit under this Section 10.7, Lilly shall pay any
expenses (except for the expenses of Prosidion’s counsel, if any) and shall
retain any recovery realized as a result of any litigation pursuant to this
Section 10.7.
     10.8 PATENT TERM RESTORATION.
     The Parties hereto will cooperate with each other in obtaining patent term
restoration or supplemental protection certificates or their equivalents in any
country worldwide where applicable to the Prosidion Patents. In the event that
elections (e.g. which Patent will be extended if there are choices to be made)
with respect to such patent term restoration are to be made in the Territory,
Lilly shall have the right to make the election and Prosidion shall abide by
such election. In making such election, the fact that Lilly is required to
comply with certain financial obligations hereunder to Prosidion shall not be a
factor weighed (ie Lilly may not make such election because it has a financial
obligation to Prosidion for the royalty term detailed in Section 6.3 (c)).
     10.9 PATENT MARKING.
     Lilly shall mark all Products made, used or sold under the terms of this
Agreement, or their containers, in accordance with all applicable patent-marking
laws.
ARTICLE 11
TERM AND TERMINATION
     11.1 TERM.
     This Agreement will remain in effect until Lilly ceases to have any
financial obligations to Prosidion under Article 6 hereof (the “Term”). Upon
fulfillment of Lilly’s obligation to pay royalties under this Agreement on Net
Sales of each Product in any country in the Territory, Lilly will have a fully
paid-up non-exclusive license under the Prosidion Rights relating to such
Product for use in the Field in the relevant country in the Territory.
     11.2 TERMINATION.
     Each Party shall have the right to terminate this Agreement upon ninety
(90) days’ written notice to the other Party upon the occurrence of any of the
following:
          (a) INSOLVENCY. In the event that the other Party makes a general
assignment for the benefit of creditors, files an insolvency petition in
bankruptcy, petitions for or acquiesces in the appointment of any receiver,
trustee or similar officer to liquidate or conserve its business or any
substantial part of its assets, commences under the laws of any jurisdiction any
proceeding involving its insolvency, bankruptcy, reorganization, adjustment of
debt, dissolution, liquidation or any other similar proceeding for the release
of financially distressed debtors or becomes a party to any proceeding or action

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          of the type described above and such proceeding or action remains
undismissed or unstayed for a period of more than sixty (60) days; or
          (b) BREACH. Upon or after the breach of any material provision of this
Agreement by the other Party (other than in relation to a breach of Section 3.3
for which the provisions of Section 3.3 (b) — (i) and Section 11.3 shall apply)
and if the breaching Party has not cured such breach within the ninety (90) day
period following written notice of termination by the non-breaching Party.
Notwithstanding the foregoing, in the event of a non-monetary default, if the
default is not reasonably capable of being cured within the ninety (90) day cure
period by the defaulting Party and such defaulting Party is making a good faith
effort to cure such default, the notifying Party may not terminate this
Agreement; provided, however, that the notifying Party may terminate this
Agreement if such default is not cured within ninety (90) days of such original
notice of default. The right of either Party to terminate this Agreement as
hereinabove provided shall not be affected in any way by its waiver of, or
failure to take action with respect to, any previous default.
     11.3 TERMINATION FOR LILLY NON-COMPLIANCE WITH DILIGENCE OBLIGATIONS.
     In the event that Lilly fails to comply with any financial obligations
arising under Sections 3.3 (c), (d), (g) or (h), Prosidion shall be entitled to
terminate this Agreement on sixty (60) days written notice to Lilly provided
Lilly has failed to cure such breach within such sixty (60) day notice period.
     11.4 TERMINATION AT WILL OF THE LILLY GKA PROGRAM BY LILLY.
     Lilly shall also have the right to discontinue and/or terminate the Lilly
GKA Program on ** prior written notice to Prosidion. If Lilly exercises its
right to terminate pursuant to this Section 11.4, it shall continue to perform
its responsibilities hereunder up until the date of termination, except as
otherwise agreed in writing by Prosidion and shall be solely responsible for any
non-cancellable expenses in relation to Research, Development, Manufacture
and/or Commercialisation of the GKA Program that cannot be reasonably avoided
and that Prosidion, in its sole discretion, does not elect to continue with.
     11.5 EFFECT OF TERMINATION; SURVIVING OBLIGATIONS.
          (a) REVERSION OF RIGHTS TO PROSIDION. Upon termination of this
Agreement by Prosidion pursuant to Section 11.2 or 11.3 or by Lilly pursuant to
Section 11.4:
               (i) the licenses granted by Prosidion to Lilly under Section 2.2
shall automatically terminate and revert to Prosidion;
               (ii) any permitted sublicenses granted under Section 2.3 by Lilly
shall remain in effect, but shall be assigned to Prosidion;
               (iii) Lilly shall, and it hereby does, grant to Prosidion an
exclusive (even as to Lilly), irrevocable, perpetual license, with the right to
sublicense, under the Lilly Rights to research, develop, make, have made, use,
sell, have sold, offer for sale and import/export Product(s) in the Field in the
Territory;
               (iv) Lilly shall: (A) make available to Prosidion, within three
(3) months of such termination, Information relating to the Lilly GKA Program
and any Product(s) (other than in
 

    ** This portion has been redacted pursuant to a confidential treatment
request.

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relation to brand rights of Lilly (including trademarks) which Lilly shall be
permitted to retain) as may be reasonably necessary to enable Prosidion to
practice the license granted under Section 11.5 (a)(iii); (B) forthwith upon
such termination, transfer and assign to Prosidion all of its right, title and
interest in and to all Regulatory Materials with respect to any Product(s), (to
the extent Controlled by Lilly), including all drug dossiers and master files
with respect to any Product(s); and (C) within nine (9) months of such
termination take such other actions and execute such other instruments,
assignments and documents as may be necessary to effect the transfer of rights
hereunder to Prosidion; (D) within nine (9) months of such termination and for
transitional purposes only, provide Prosidion with all reasonable technical
assistance and co-operation in relation to transfer to Prosidion of:
(x) technical information; and (y) Regulatory Materials, each relating to the
Lilly GKA Program Controlled by Lilly and in its possession at such date of
termination, that is reasonably useful or necessary to enable Prosidion to
continue with research and development of the Lilly GKA Program and Manufacture
and commercialisation of Product(s); and (E) if, following such termination,
Lilly elects to abandon any Lilly Patents licensed to Prosidion pursuant to
Section 11.5 (a), Prosidion shall have the right to maintain such Lilly Patents
at Prosidion’s expense and in Prosidion’s name; and
               (v) To the extent Lilly is engaged in the Manufacture of
Product(s) for sale as of the date notice of termination is given, Lilly shall
Manufacture and supply Product(s) to Prosidion from the effective date of such
termination until such time as Prosidion is able to secure an equivalent
alternative commercial Manufacturing source and such site is qualified by the
FDA, as requested by Prosidion or until ** from the effective date of
termination, whichever is earlier. To this end, as of the effective date of such
termination, at Prosidion’s option, all Third Party Manufacturing contracts to
which Lilly or any of its Affiliates is a party shall be assigned to Prosidion,
and in the event that assignment is not or cannot be undertaken, Lilly shall
ensure that the rights and benefits under such Third Party Manufacturing
contracts shall be transferred to Prosidion. Further, upon Prosidion’s request,
Lilly shall provide such technical assistance as Prosidion may reasonably
request to facilitate the transfer of Product(s)’ Manufacturing responsibility
to Prosidion or its designee. **
          (b) LILLY EXPLOITATION OF COMPETING PRODUCT.
          (i) Subject to Section 11.5 (b)(ii), upon termination of this
Agreement by Lilly pursuant to Section 11.4 or in the event of termination by
Prosidion pursuant to Section 11.3, the applicable provisions in Section 11.5
(a)(i) through (v) above shall apply, and, in addition, where the applicable
notice of termination is given prior to Regulatory Submission in the Territory
or any part thereof (an “Early Termination Notice”) and in the event that Lilly
subsequently commercialises a Competing Product ** the following royalty
payments shall be payable by Lilly to Prosidion on net sales of such Competing
Product in the Field in the Territory, for a period of ** on a
country-by-country basis:

            No. of years after Early Termination Notice that    
             Competing Product is launched:   Royalty Rate (%)      
**
                 
**
   

 

    ** This portion has been redacted pursuant to a confidential treatment
request.

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          (ii) **
          (c) SURVIVING OBLIGATIONS. Expiration or termination of this Agreement
shall not relieve the Parties of any obligation accruing prior to such
expiration or termination. Except as set forth below or elsewhere in this
Agreement, the obligations and rights of the Parties under the following
provisions of this Agreement shall survive expiration or termination of this
Agreement: Articles 1, 8 and 9 and Sections 2.4, 7.1, 7.2, 7.3, 7.4, 11.1, 11.5,
11.6, 11.7, 13.6,and 13.7.
          (d) RETURN OF CONFIDENTIAL INFORMATION. Within sixty (60) days
following the termination of this Agreement, each Party shall deliver to the
other Party any and all Confidential Information of the other Party in its
possession of which it is not entitled to retain hereunder.
     11.6 NON-EXCLUSIVE RIGHTS.
     The foregoing rights and remedies of the Parties set forth in
Sections 11.2, 11.3, 11.4 and 11.5 are non-exclusive and without prejudice to
any rights that either Party may have arising under Applicable Law or equity.
     11.7 RIGHTS IN BANKRUPTCY.
     All rights and licenses granted under or pursuant to this Agreement by
Prosidion and Lilly are, and will otherwise be deemed to be, for purposes of
Section 365(n) of the U.S. Bankruptcy Code, licenses of rights to “Intellectual
Property” as defined under Section 101 of the U.S. Bankruptcy Code. The Parties
agree that the Parties, as licensees of such rights under this Agreement, will
retain and may fully exercise all of their rights and elections under the U.S.
Bankruptcy Code. The Parties further agree that, in the event of the
commencement of a bankruptcy proceeding by or against a Party under the U.S.
Bankruptcy Code, the Party hereto that is not a Party to such proceeding will be
entitled to a complete duplicate of (or complete access to, as appropriate) any
such intellectual property and all embodiments of such intellectual property,
which, if not already in the non-subject Party’s possession, will be promptly
delivered to it: (a) upon any such commencement of a bankruptcy proceeding upon
the non-subject Party’s written request therefor, unless the Party subject to
such proceeding continues to perform all of its obligations under this
Agreement; or (b) if not delivered under subsection (a) above, following the
rejection of this Agreement by or on behalf of the Party subject to such
proceeding upon written request therefor by the non-subject Party.
ARTICLE 12
DISPUTE RESOLUTION
     12.1 DISPUTES.
     The Parties acknowledge that disputes as to certain matters may from time
to time arise which relate to either Party’s rights and obligations hereunder.
It is the objective of the Parties to establish procedures to facilitate the
resolution of such disputes in an expedient manner by mutual cooperation. To
accomplish this objective, the Parties agree to follow the procedures set forth
in Section 12.2 if and when a dispute arises between the Parties.
     12.2 DISPUTE RESOLUTION PROCEDURES.
 

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          (a) DISCUSSIONS BETWEEN THE PARTIES. If any claim, dispute, or
controversy of any nature arising out of or relating to either Party’s rights
and obligations under this Agreement, including, without limitation, any action
or claim based on tort, contract or statute, or concerning the interpretation,
effect, termination, validity, performance and/or breach of this Agreement
(each, a “Claim”), arises between the Parties and the Parties cannot resolve the
Claim within thirty (30) days of a written request by either Party to the other
Party, the Parties agree to refer the Claim to a member of the Lilly Policy
Committee and the Chief Executive Officer of Prosidion for resolution. If, after
an additional sixty (60) days, such officers have not succeeded in negotiating a
resolution of the Claim, then, upon the written request of either Party, where
the Claim relates to: (i) a breach of Lilly’s obligations in Section 3.3, such
Claim shall be submitted to binding expedited arbitration as set forth in
Section 12.2 (b); and (ii) any Claim arising under this Agreement other than
that arising in connection with Lilly’s obligations under Section 3.3, such
Claim shall be adjudicated by a court of competent jurisdiction.
          (b) EXPEDITED ARBITRATION. The Parties agree that any Claim relating
to a breach of Lilly’s obligations in Section 3.3 that cannot be resolved
pursuant to Section 12.2 (a) above, shall be resolved by binding expedited
arbitration in accordance with the Commercial Arbitration Rules of the American
Arbitration Association as then in effect, except as modified herein:
               (i) Each such expedited arbitration shall be conducted by a panel
of three (3) arbitrators with relevant pharmaceutical and/or biotechnology
industry experience appointed as follows. One arbitrator shall be chosen by
Prosidion and one arbitrator shall be chosen by Lilly within fifteen (15) days
from the notice of initiation of expedited arbitration. The third arbitrator
shall be chosen by mutual agreement of the arbitrator chosen by Prosidion and
the arbitrator chosen by Lilly within fifteen (15) days of the date that the
last of such arbitrators were appointed and shall be chosen taking into account
the need to better understand the legal, business and scientific issues to be
addressed in the arbitration proceedings (“Arbitration Commencement”).
               (ii) Within ** days of Arbitration Commencement, Prosidion shall
serve a brief on Lilly and the arbitrators, setting forth the factual and legal
arguments with regard to the Claim and providing all documents it proposes to
use at the hearing in support of its position. Within ** days of receipt of
Prosidion’s brief, Lilly shall serve a brief on Prosidion and the arbitrator
setting forth the factual and legal arguments with regard to the Claim and
providing all documents it proposes to use at the hearing in support of its
position. Within ** days of receipt of Lilly’s brief, the Parties shall request
any discovery that it believes is critical to a fair resolution of the issues in
dispute.
               (iii) Within ** days of Arbitration Commencement, the arbitrators
shall: (A) grant such discovery as deemed appropriate and require that such be
completed within no more than ** days; and (B) identify the issues that will be
subject to a hearing; and (C) set a date for a hearing as to the pending Claim
no more than ** days after the issues are identified in the event no discovery
is allowed. In no event shall the hearing begin any later than two (2) months
after Arbitration Commencement.
               (iv) The arbitrator shall provide a hearing of sufficient length
for each Party to present its case but in no event longer than ** days in
duration, at the completion of which, the arbitrator may allow post-hearing
briefs to be filed within no more than ** days of the hearing.
               (v) Within ** days of completion of the hearing or within ** days
after the submission of post-hearing briefs, if allowed, the arbitrator shall
render a reasoned arbitration decision on the Claim describing, in writing, the
essential findings and conclusions on which the decision is based,
 

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including the calculation of any damages awarded. In no event shall the decision
be rendered later than ** months after Arbitration Commencement. The decision
shall be binding and not be appealable to any court in any jurisdiction. The
arbitrators shall be authorized to award damages solely as provided in
Section 3.3. For avoidance of doubt, the arbitrators shall NOT be authorized:
(A) to award non-economic damages, such as for emotional distress, pain and
suffering or loss of consortium; or (B) to award indirect, incidental,
consequential, special or punitive damages, or (C) to reform, modify or
materially change this Agreement or any other agreements contemplated hereunder;
provided, however, that the damage limitations described in parts (A) and (B) of
this sentence will not apply if such damages are statutorily imposed. The
arbitrators shall also have the authority to grant specific performance. The
prevailing Party may enter such decision in any court having competent
jurisdiction.
               (vi) Unless otherwise mutually agreed upon by the Parties, the
arbitration proceedings shall be conducted at the location of the Party not
originally requesting the resolution of the dispute, unless mutually agreed
between the Parties or requested by the arbitrators to be held at an alternative
location. The Party not prevailing in the arbitration shall bear its own
attorneys’ fees and associated costs and expenses and those of the prevailing
Party. Unless the Parties otherwise agree in writing, during the period of time
that any arbitration proceeding is pending and/or in process under this
Agreement, the Parties shall continue to comply with all those terms and
provisions of this Agreement that are not the subject of the arbitration
proceeding.
          (c) DETERMINATION OF PATENTS AND OTHER INTELLECTUAL PROPERTY. For the
avoidance of doubt, any Claim relating to the determination of validity of
claims, infringement or claim interpretation relating to a Party’s Patents shall
be submitted exclusively to a court or other body of competent jurisdiction.
          (d) INJUNCTIVE RELIEF. Nothing in this Section 12.2 shall prohibit any
Party from seeking immediate injunctive or other relief if such Party reasonably
believes that it will suffer irreparable harm from the actions of the other.
 

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ARTICLE 13
MISCELLANEOUS
     13.1 FORCE MAJEURE.
     Neither Party will be held liable or responsible to the other Party nor be
deemed to have defaulted under or breached the Agreement for failure or delay in
fulfilling or performing any term of the Agreement when such failure or delay is
caused by or results from causes beyond the reasonable control of the affected
Party including, without limitation, embargoes, acts of war (whether war be
declared or not), insurrections, riots, civil commotions, or acts of God. Such
excuse from liability and responsibility shall be effective only to the extent
and duration of the event(s) causing the failure or delay in performance and
provided that the affected Party has not caused such event(s) to occur. The
affected Party will notify the other Party of such force majeure circumstances
as soon as reasonably practicable and will make every reasonable effort to
mitigate the effects of such force majeure circumstances.
     13.2 ASSIGNMENT.
     This Agreement will inure to the benefit and be binding upon each Party,
its successors and assigns. The Agreement may not be assigned or otherwise
transferred, nor, except as expressly provided hereunder, may any right or
obligation hereunder be assigned or transferred by Lilly without the prior
written consent of Prosidion; provided, however, that either Party may, without
such consent, assign the Agreement and its rights and obligations hereunder to
an Affiliate or in the event of a Change in Control. The rights and obligations
of the Parties under this Agreement shall be binding upon and inure to the
benefit of the successors and permitted assigns of the Parties. Any attempted
assignment not in accordance with this Section 13.2 will be void.
     13.3 CHANGE OF CONTROL.
     Prosidion shall give prompt notice to Lilly of Change in Control of
Prosidion. If the acquiring or successor entity is a Major Pharmaceutical
Company, Lilly’s obligations and/or Prosidion’s rights under Sections 3.1(d),
5.1 and 7.5 shall terminate upon such Change of Control of Prosidion. In such
event, Lilly shall be required to provide, on a ** basis, to Prosidion or such
successor of Prosidion, as the case may be, a summary progress report on the
Lilly GKA Program and/or Product(s) sufficient to enable Prosidion or such
successor, as the case may be, to determine compliance by Lilly with its
obligations under Section 3.3 and enforce its rights thereunder.
     13.4 FURTHER ASSURANCES.
     The Parties intend that this Agreement contain all consents, licenses and
authorizations from one Party to the other necessary to enable each Party to
perform its obligations hereunder. In the event any further such consents,
licenses or authorizations are necessary, each Party agrees to take such further
actions and execute such further agreements as may be reasonably necessary to
carry out the intent and purposes of this Agreement.
     13.5 SEVERABILITY.
 

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     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 will
not in any way be affected or impaired thereby, unless the absence of the
invalidated provision(s) adversely affect the substantive rights of the Parties.
The Parties will in such an instance use their best efforts to replace the
invalid, illegal or unenforceable provision(s) with valid, legal and enforceable
provision(s) which, insofar as practicable, maintains the balance of the rights
and obligations of the Parties under this Agreement.
     13.6 NOTICES.
     All notices which are required or permitted hereunder will be in writing
and sufficient if delivered personally, sent by facsimile or e-mail to a current
fax number or e-mail address for the recipient (and promptly confirmed by
personal delivery, registered or certified mail or overnight courier), sent by
nationally-recognized overnight courier or sent by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:

     
if to Prosidion, to:
  Prosidion Limited
 
  Windrush Court
 
  Watlington Road
 
  Oxford OX4 6LT
 
  United Kingdom
 
  Attention: President and the General Counsel
 
   
 
  Fax No.: **
with a copy to:
  General Counsel
 
  OSI Pharmaceuticals, Inc.
 
  41 Pinelawn Road
 
  Melville
 
  New York 11747
 
  United States
 
  Fax No.: **
if to Lilly, to:
  Eli Lilly and Company
 
   
 
  Lilly Corporate Center
 
  Indianapolis
 
  IN 46285
 
  United States
 
  Attention: General Counsel
 
  Fax No.: **

or to such other address as the Party to whom notice is to be given may have
furnished to the other Party in writing in accordance herewith. Any such notice
will be deemed to have been given when delivered if personally delivered or sent
by facsimile or e-mail on a business day, on the business day after dispatch if
sent by nationally-recognized overnight courier and on the third business day
following the date of mailing if sent by mail.
     13.7 APPLICABLE LAW.
 

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     The Agreement will be governed by and construed in accordance with the laws
of the State of New York, without reference to any rules of conflict of laws.

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     13.8 ENTIRE AGREEMENT.
     This Agreement contains the entire understanding of the Parties with
respect to the License and the Research and Development of the Lilly GKA Program
and the Manufacture and Commercialisation of Product(s). All express or implied
agreements and understandings, either oral or written, heretofore made by the
Parties on the same subject matter are expressly superseded by this Agreement.
The Agreement may be amended, or any term hereof modified, only by a written
instrument duly executed by both Parties hereto.
     13.9 HEADINGS.
     The captions to the several Articles and Sections hereof are not a part of
the Agreement nor affect the interpretation of any of its provisions, but are
merely a convenience to assist in locating and reading the several Articles and
Sections hereof.
     13.10 INDEPENDENT CONTRACTORS.
     It is expressly agreed that Prosidion and Lilly will be independent
contractors and that the relationship between the two Parties will not
constitute a partnership, joint venture or agency. Neither Prosidion nor Lilly
will have the authority to make any statements, representations or commitments
of any kind, or to take any action, which will be binding on the other, without
the prior consent of the other Party.
     13.11 WAIVER.
     The waiver by either Party hereto of any right hereunder, or the failure to
perform, or a breach by the other Party will not be deemed a waiver of any other
right hereunder or of any other breach or failure by said other Party whether of
a similar nature or otherwise.
     13.12 NO THIRD PARTY BENEFICIARIES.
     This Agreement is neither expressly nor impliedly made for the benefit of
any Person other than the Parties.
     13.13 COUNTERPARTS.
     The Agreement may be executed in two or more counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.

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     13.14 WAIVER OF RULE OF CONSTRUCTION.
     Each Party has had the opportunity to consult with counsel in connection
with the review, drafting and negotiation of this Agreement. Accordingly, the
rule of construction that any ambiguity in this Agreement will be construed
against the drafting Party will not apply.
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective
Date.

              ELI LILLY AND COMPANY   PROSIDION LIMITED
 
           
By:
  /s/ Dr. Steven Paul   By:   /s/ Dr. Anker Lundmose
 
           
Name:
  Dr. Steven Paul   Name:   Dr. Anker Lundmose
 
           
Title:
  Executive Vice President   Title:   President
 
  Science/Technology        
 
           
Date:
  4th January 2007   Date:   4th January 2007

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SCHEDULE 1.1.20
EXISTING SUPPLIERS
**
 

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SCHEDULE 1.1.26
IDENTIFIED GKA BACK-UPS
**
 

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request.

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SCHEDULE 1.1.58
PROSIDION PATENTS
Prosidion Patents are the following Patents pending or issued as of the
Effective Date:
**
 

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SCHEDULE 1.1.70
TANABE TERRITORY
**
 

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SCHEDULE 4.3
TECHNICAL INFORMATION AND PROSIDION MATERIALS TO BE PROVIDED AFTER
THE EFFECTIVE DATE
**
 

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SCHEDULE 8.5
PROSIDION PATENTS DISCLOSURES
**
 

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APPENDIX 1
TANABE AGREEMENT
**
 

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request.

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