EXHIBIT 10.3

LICENSE AGREEMENT
BETWEEN
VASCULAR GENETICS INC.
AND
VICAL INCORPORATION

FEBRUARY 24, 2000

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TABLE OF CONTENTS

 

 

 

 

Page

1.

 

BACKGROUND

1

 

 

 

 

2.

 

DEFINITIONS

2

 

 

 

 

3.

 

LICENSE GRANT

6

 

 

 

 

4.

 

PAYMENTS AND ROYALTIES

7

 

 

 

 

5.

 

TECHNOLOGY TRANSFER

8

 

 

 

 

6.

 

PRODUCT DEVELOPMENT

8

 

 

 

 

7.

 

CONFIDENTIALITY

9

 

 

 

 

8.

 

PATENT PROSECUTION AND LITIGATION

11

 

 

 

 

9.

 

STATEMENTS AND REMITTANCES

13

 

 

 

 

10.

 

TERM AND TERMINATION

14

 

 

 

 

11.

 

WARRANTIES AND REPRESENTATIONS

15

 

 

 

 

12.

 

INDEMNIFICATION

16

 

 

 

 

13.

 

VICAL COVENANT

18

 

 

 

 

14.

 

FORCE MAJEURE

18

 

 

 

 

15.

 

DISPUTE RESOLUTION

18

 

 

 

 

16.

 

ENTIRE AGREEMENT

19

 

 

 

 

17.

 

NOTICES

20

 

 

 

 

18.

 

ASSIGNMENT AND CHANGE OF CONTROL

21

 

 

 

 

19.

 

COUNTERPARTS

21

 

 

 

 

20.

 

WAIVER

21

 

 

 

 

21.

 

INDEPENDENT RELATIONSHIP

22

 

 

 

 

22.

 

FURTHER ACTIONS

22

-i-

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LICENSE AGREEMENT

This Agreement (“Agreement”) dated as of the 24th day of February 2000
(“Effective Date”) is entered into by Vascular Genetics Inc. (“VGI”), a Delaware
corporation, having a place of business at Suite 201, 4364 S. Alston Avenue,
Durham, North Carolina 27713, and Vical Incorporated, a Delaware corporation,
having a place of business at 9373 Towne Center Drive, San Diego, California
92121 (“VICAL”).

1.

BACKGROUND.

1.1

VGI has an exclusive license from Human Genome Sciences, Inc. (“HGS”) for the
use of the gene Vascular Endothelial Growth Factor-2 (“VEGF-2”) in the gene
therapy treatment of vascular diseases.

1.2

VICAL is in possession of certain gene therapy delivery methods, and is willing
to grant a license to VGI for the use of those methods in conjunction with
VEGF-2.

1.3

Therefore to facilitate this transaction, VGI, VICAL and HGS have agreed in an
Investment Agreement dated of same date herewith (the “Investment Agreement”) to
undertake a series of transactions in which (1) VGI will receive a license from
VICAL for the use of VICAL’s current and future gene therapy delivery methods in
conjunction with VEGF-2; (2) HGS will receive a license from VICAL for the use
of VICAL’s technology with certain genes; (3) VICAL will receive a license from
HGS for the use of certain genes as gene therapy products; (4) VICAL will
receive an equity interest in VGI, which VGI will have certain rights to redeem
as set forth in the Investment Agreement; and (5) HGS will receive additional
equity in VGI and will have returned to it by VGI rights to certain genes
licensed to VGI by HGS.

1.4

To effect this series of transactions pursuant to the terms and conditions of
the Investment Agreement, this Agreement is being simultaneously executed with
(1) a license agreement between VICAL and HGS; and (2) a second amendment to the
license agreement between HGS and VGI; and (3) certain other agreements, all as
set forth in the Investment Agreement.

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2.

DEFINITIONS.

2.1

“AFFILIATE” shall mean any individual or entity directly or indirectly
controlling, controlled by or under common control with, the specified
individual or entity. For purposes of this Agreement, the direct or indirect
ownership of fifty percent (50%) or more of the outstanding voting securities of
an entity, or the right to receive fifty (50%) or more of the profits or
earnings of an entity shall be deemed to constitute control. Such other
relationship as in fact gives such individual or entity the power or ability to
control the management, business and affairs of an entity shall also constitute
control.

2.2

“CONFIDENTIAL INFORMATION” shall mean, with respect to a party, all information
(and all tangible and intangible embodiments thereof), which is owned or
controlled by such party, is disclosed by such party to the other party pursuant
to this Agreement, and (if disclosed in writing or other tangible medium) is
marked or identified as confidential at the time of disclosure to the receiving
party or (if otherwise disclosed) is identified as confidential at the time of
disclosure to the receiving party and described as such in writing within thirty
(30) days after such disclosure. The Financial Details (as hereinafter defined)
shall be deemed to be marked as confidential without further action on the part
of either party. Notwithstanding the foregoing, CONFIDENTIAL INFORMATION of a
party shall not include information which, and only to the extent, the receiving
party can establish by written documentation (a) has been publicly known prior
to disclosure of such information by the disclosing party to the receiving
party, (b) has become publicly known, without fault on the part of the receiving
party, subsequent to disclosure of such information by the disclosing party to
the receiving party, (c) has been received by the receiving party at any time
from a source, other than the disclosing party, rightfully having possession of
and the right to disclose such information free of confidentiality obligations,
(d) has been otherwise known by the receiving party free of confidentiality
obligations prior to disclosure of such information by the disclosing party to
the receiving party, or (e) has been independently developed by employees or
others on behalf of the receiving party without access to or use of such
information disclosed by the disclosing party to the receiving party.

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2.3

“CYTOFECTIN DELIVERY TECHNOLOGY” shall mean all patentable or unpatentable
inventions, discoveries, technology and information of any type whatsoever,
including without limitation compositions, methods, processes, confidential
information, technical information, knowledge, experience and know-how,
regarding the use of cytofectins in the delivery of genes into a patient for the
treatment or prevention of one or more diseases or conditions; in each case
which is owned by or licensed to VICAL on the Effective Date or during the term
of this Agreement, all to the extent and only to the extent that VICAL now has
or hereafter will have the right to grant licenses, immunities or other rights
thereunder.

2.4

“DIRECT INJECTION TECHNOLOGY” shall mean all patentable or unpatentable
inventions, discoveries, technology and information of any type whatsoever,
including without limitation compositions, methods, processes, confidential
information, technical information, knowledge, experience and know-how,
regarding the direct injection of genes (including plasmid DNA-based delivery
technology) into a patient to cause the In Vivo expression of a desired protein,
thereby effecting delivery of such protein to a patient for the treatment or
prevention of one or more diseases or conditions; in each case which is owned by
or licensed to VICAL on the Effective Date or during the term of this Agreement,
all to the extent and only to the extent that VICAL now has or will have during
the term of this Agreement the right to grant licenses, immunities or other
rights thereunder.

2.5

“DNA PROCESS TECHNOLOGY” shall mean all patentable or unpatentable inventions,
discoveries, technology and information of any type whatsoever, including
without limitation compositions, methods, processes, confidential information,
technical information, knowledge, experience and know-how regarding technologies
related to the manufacture and processing of plasmid DNA for human use; in each
case, which is owned by or licensed to VICAL on the Effective Date or during the
term of this Agreement, all to the extent and only to the extent that VICAL now
has or will have during the term of this Agreement the right to grant licenses,
immunities or other rights thereunder.

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2.6

“FIELD” shall mean the intervention, treatment and/or prevention of a disease or
disorder in humans by GENE THERAPY.

2.7

“GENE THERAPY” shall mean the treatment or prevention of a disease, or remedying
a gene deficiency of humans by genetic modification of somatic cells (in vivo or
ex vivo) with DNA whereby an active transcription process results in the
expression of a protein or oligo(poly)nucleotide encoded by said DNA in a human.

2.8

“IND” shall mean an Investigational New Drug application filed with the Food and
Drug Administration in the United States, or any similar filing with any foreign
regulatory authority, to commence human clinical testing of a PRODUCT in any
country.

2.9

“LICENSED INTELLECTUAL PROPERTY” shall mean VICAL’s rights in the VICAL PATENTS
and VICAL KNOW-HOW.

2.10

“LICENSED PRODUCT(S)” means a PRODUCT for use in the FIELD, one of whose active
components is the gene, a portion of the gene, or a derivative of the gene,
Vascular Endothelial Growth Factor-2 (“VEGF-2”), as described and disclosed in
U.S. Patent Nos. 5,935,820 and 5,932,540.

2.11

“NET SALES” shall mean, with respect to a LICENSED PRODUCT, the gross sales
price invoiced by the seller (calculated on a LICENSED PRODUCT by LICENSED
PRODUCT basis) to THIRD PARTIES that are not (sub)licensees (except as set forth
below), less normal and customary deductions actually paid or accrued by the
seller for (i) normal and customary trade, cash and quality credits, discounts,
refunds or government rebates; (ii) credits for claims, allowances or returns;
retroactive price reductions; chargebacks or the like; and (iii) sales taxes,
duties and other governmental charges (including value added tax), but excluding
what is commonly known as income taxes. NET SALES shall not include sales among
the seller, its (sub)licensees and their respective AFFILIATES for resale,
provided that NET SALES shall include the amounts invoiced by the seller and its
AFFILIATES to THIRD PARTIES on the resale of such LICENSED PRODUCT. Sales
between or among a party, its (sub)licensees and their

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respective AFFILIATES shall be included within NET SALES only if such purchaser
is an end-user of such LICENSED PRODUCT.

2.12

“PRODUCT” shall mean any product or part thereof, the manufacture, use or sale
of which is covered in whole or in part by a VALID CLAIM.

2.13

“SPC” shall mean a right based upon an underlying patent such as a Supplementary
Protection Certificate.

2.14

“THIRD PARTY” shall mean any party other than VICAL or VGI or an AFFILIATE of
VICAL or VGI.

2.15

“VALID CLAIM” shall mean either (a) a claim of an issued and unexpired patent
included within the VICAL PATENTS, which has not been held unenforceable,
unpatentable or invalid by a court or other governmental agency of competent
jurisdiction, and which has not been admitted to be invalid or unenforceable
through reissue, disclaimer or otherwise, or (b) a claim in a hypothetical
issued patent corresponding to a pending claim in a patent application within
the VICAL PATENTS, provided that if such pending claim has not issued as a claim
of an issued patent within the VICAL PATENTS, within six (6) years after the
filing date from which such patent application takes priority, such pending
claim shall not be a VALID CLAIM for purposes of this Agreement. In the event
that a claim of an issued patent within the VICAL PATENTS is held by a court or
other governmental agency of competent jurisdiction to be unenforceable,
unpatentable or invalid, and such holding is reversed on appeal by a higher
court or agency of competition jurisdiction, such claim shall be reinstated as a
VALID CLAIM hereunder.

2.16

“VICAL IMPROVEMENTS” shall mean all patentable or unpatentable inventions,
discoveries or other technology regarding VICAL TECHNOLOGY, but expressly
excluding a formulation or combination of the VEGF-2 gene and the delivery
vehicle therefor, made or conceived by VGI solely or jointly with others during
the term of this Agreement, and which resulted from the use of VICAL TECHNOLOGY.

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2.17

“VICAL KNOW-HOW” shall mean collectively, all inventions, discoveries, data,
information, methods, techniques, technology and other results regarding VICAL
TECHNOLOGY, whether or not patentable, which during the term of this Agreement
are owned by VICAL or to which VICAL otherwise has the right to grant licenses,
and which are not generally known. All VICAL KNOW-HOW shall be CONFIDENTIAL
INFORMATION of VICAL.

2.18

“VICAL LICENSED INTELLECTUAL PROPERTY” shall mean VICAL’s rights in the VICAL
PATENTS and VICAL KNOW-HOW.

2.19

“VICAL PATENT(S)” shall mean, collectively, (a) all patent applications filed in
any country before or after the Effective Date; (b) all patents that have issued
or in the future issue from any of the foregoing patent applications, including
without limitation, utility and design patents and certificates of invention,
further including but not limited to those patents listed in Appendix A; and (c)
all continuations, continuations-in-part, divisional, additions, reissues,
renewals, re-examinations or extensions, or SPCs to any such patents and patent
applications; in each case which during the term of this Agreement are or become
owned by VICAL or to which VICAL otherwise has, now or in the future, the right
to grant licenses and which claim in whole or in part VICAL TECHNOLOGY or the
use thereof in the FIELD.

2.20

“VICAL TECHNOLOGY” shall mean CYTOFECTIN DELIVERY TECHNOLOGY, DIRECT INJECTION
TECHNOLOGY and DNA PROCESS TECHNOLOGY.

3.

LICENSE GRANT.

3.1

Subject to the terms and conditions of this Agreement, VICAL grants to VGI an
exclusive worldwide license (with the right to grant sublicenses) under VICAL
LICENSED INTELLECTUAL PROPERTY to research, develop, make, have made, use,
import, export, offer to sell and sell LICENSED PRODUCTS in the FIELD.

3.2

Notwithstanding anything to the contrary herein, VICAL shall own all right,
title and interest in and to the VICAL IMPROVEMENTS and all intellectual
property rights therein and thereto. VGI hereby irrevocably assigns, transfers
and conveys to VICAL all

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right, title and interest in and to the VICAL IMPROVEMENTS and all intellectual
property rights therein and thereto. VGI shall take, and shall cause its
AFFILIATES to take any and all actions and execute and deliver (or cause to be
executed or delivered) any and all documents reasonably requested by VICAL, at
VICAL’s expense, in order to effect the foregoing assignment.

3.3

VICAL hereby grants VGI a non-exclusive, royalty-free, perpetual, worldwide,
sublicensable license to VICAL IMPROVEMENTS and the claims of any VICAL PATENT
covering such VICAL IMPROVEMENTS, but only to the extent that such claims cover
VICAL IMPROVEMENTS.

3.4

No rights, other than those expressly set forth in this Agreement, are granted
to VGI hereunder, and no additional rights shall be granted to VGI by
implication, estoppel or otherwise.

4.

PAYMENTS AND ROYALTIES.

4.1

On the Effective Date, VGI will issue to VICAL shares of VGI’s Series B
Preferred Stock in such amount, and subject to the terms, as described in the
Investment Agreement.

4.2

Subject to Section 4.3, for each LICENSED PRODUCT, VGI shall pay to VICAL a
royalty of **1 of NET SALES of the LICENSED PRODUCT sold by VGI, its
(sub)licensees and their respective AFFILIATES.

4.3

VGI acknowledges that the LICENSED INTELLECTUAL PROPERTY hereunder is a mix of
various types of intellectual property, including patent rights and know-how.
Accordingly, even in the event one or more VICAL PATENTS or other LICENSED
INTELLECTUAL PROPERTY is declared void or not enforceable, or otherwise expires
VGI shall continue to have royalty obligations under the terms of this
Agreement; provided, however, in such case, and except as otherwise set forth
below in this Section 4.3, such royalty obligations will cease in the event all
information transferred

______________

1 “**” indicates redacted confidential information pursuant to a confidential
treatment request filed with the SEC.

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hereunder is finally determined by a court of competent jurisdiction after
exhaustion of all appeals to be dedicated to the public domain. Notwithstanding
the foregoing provisions, however, all royalty obligations under Section 4.2,
with respect to a LICENSED PRODUCT, shall terminate on a country-by-country
basis and on a LICENSED PRODUCT by LICENSED PRODUCT basis on the later of (i)
seven (7) years after first country-wide launch of such LICENSED PRODUCT in such
country or (ii) expiration of the last to expire VICAL PATENT licensed to VGI
under this Agreement which covers the making, having made, importing, exporting,
offering to sell or using or selling of such LICENSED PRODUCT in such country.

4.4

The manner in which statements and remittances of royalty and other payments are
handled is as set forth in Article 9 hereof.

4.5

All payments to be made hereunder shall be by wire transfer of immediately
available funds to an account designated by VICAL.

5.

TECHNOLOGY TRANSFER.

5.1

To assist VGI in the utilization of VICAL TECHNOLOGY, VICAL scientists will meet
with VGI scientists to discuss the application of VICAL TECHNOLOGY to VEGF-2 and
will provide to VGI any know-how or proprietary materials necessary for VGI to
use the VICAL TECHNOLOGY with respect to VEGF-2 in accordance with the license
granted under Section 3.1.

6.

PRODUCT DEVELOPMENT.

6.1

VGI shall use its commercially reasonable efforts to actively research, develop,
obtain regulatory approvals and commercialize in at least one major market
(U.S., Japan or the European Community) at least one LICENSED PRODUCT for at
least one indication.

6.2

If the diligence requirements set forth in Paragraph 6.1 are not met, VICAL
shall have the right to terminate this Agreement pursuant to Paragraph 10.2.
Notwithstanding the foregoing if VGI is pursuing development and
commercialization of a product (a “NON-VICAL PRODUCT”) for use in the FIELD, one
of whose active components is VEGF-2,

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a portion of VEGF-2, or a derivative of VEGF-2 and which was not derived from
VICAL TECHNOLOGY, VGI shall have the option, exercisable by written notice to
VICAL within thirty (30) days after the date of such termination by VICAL, at
its sole discretion to retain the relevant VICAL licenses under this Agreement
for any or all indications where the NON-VICAL PRODUCT is applied, provided that
VGI pays to VICAL the royalties set forth in Paragraph 4.2 on the NET SALES of
such NON-VICAL PRODUCT for the indication or indications intended to be retained
by VGI and delivers all reports described in this Agreement, regarding such
NON-VICAL PRODUCT in the desired indication to the same extent it would if such
NON-VICAL PRODUCT were a LICENSED PRODUCT.

6.3

During the term of this Agreement and for a period of five (5) years thereafter,
VGI shall keep complete and accurate records of its activities conducted under
this Agreement regarding the development and commercialization of LICENSED
PRODUCTS and the results thereof. Within twenty (20) days after the end of each
May and September during the term of this Agreement, VGI shall prepare and
provide VICAL with a reasonably detailed written report of such activities and
results, through such date.

7.

CONFIDENTIALITY.

7.1

During the term of this Agreement and for a period of three (3) years following
the expiration or earlier termination hereof, each party shall maintain in
confidence the CONFIDENTIAL INFORMATION of the other party, and shall not
disclose, use or grant the use of the CONFIDENTIAL INFORMATION of the other
party except on a need-to-know basis to such party’s AFFILIATES, directors,
officers, employees, agents, independent contractors and such party’s THIRD
PARTY licensors of intellectual property rights (sub)licensed hereunder, and
such party’s consultants, to the extent such disclosure is reasonably necessary
in connection with such party’s activities as expressly authorized by this
Agreement or the Investment Agreement. To the extent that disclosure to any
person is authorized by this Agreement, prior to disclosure, a party shall
obtain written agreement of such person to hold in confidence and not disclose,
use or grant the use of the CONFIDENTIAL INFORMATION of the other party except
as expressly

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permitted under this Agreement. Each party shall notify the other party promptly
upon discovery of any unauthorized use or disclosure of the other party’s
CONFIDENTIAL INFORMATION. Upon the expiration or earlier termination of this
Agreement, each party shall return to the other party all tangible items
regarding the CONFIDENTIAL INFORMATION of the other party and all copies
thereof; provided, however, that each party shall have the right to retain one
(1) copy for its legal files for the sole purpose of determining its obligations
hereunder.

7.2

No public announcement or public disclosure concerning (i) the existence or
terms of this Agreement or the Investment Agreement, including without
limitation, the number of shares of Series B Preferred Shares or Common Stock
which is issuable upon conversion thereof, the number of Additional Common
Shares or the percentage any of such represent of the outstanding equity of VGI
or the terms of the royalties set forth in this Agreement collectively, the
“Financial Details”) or (ii) exercise by one party of rights and options granted
under this Agreement or the Investment Agreement, shall be made, either directly
or indirectly, by any party to this Agreement without prior written notice and,
except as may be legally required, or as may be legally required for a public
offering of securities, or as may be required for recording purposes, without
first obtaining the approval of the other party and agreement upon the nature
and text of such announcement, such agreement and/or approval not to be
unreasonably withheld. In complying with any legal requirement for public
announcement or public disclosure, the party having the obligation to so
announce or disclose shall use reasonable efforts to summarize or redact
information containing the Financial Details as reasonably requested by the
other party. Except as otherwise required by law, the party desiring to make any
such public announcement or public disclosure shall inform the other party of
the proposed announcement or disclosure at least five (5) business days prior to
public release, and shall provide the other party with a written copy thereof,
in order to allow such other party to comment upon such announcement or
disclosure. This Section 7.2 shall not apply to any information in a public
announcement or public disclosure that is information essentially identical to
that contained in a previous public announcement or public disclosure agreed to
pursuant to this Section 7.2.

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7.3

The confidentiality obligations under Section 7.1 shall not apply to the extent
that a party is required to disclose information by applicable law, regulation
or order of a governmental agency or a court of competent jurisdiction;
provided, however, that (a) to the extent commercially practicable, such party
shall provide written notice thereof to the other party and consult with the
other party prior to such disclosure with respect thereto, (b) shall provide the
other party sufficient opportunity to object to any such disclosure or to
request confidential treatment thereof, and provide reasonable assistance as
requested in connection therewith and (c) in the event that the disclosure is a
public disclosure or public announcement, the disclosing party shall also comply
with Section 7.2.

7.4

Each party hereto acknowledges that the remedy at law for breach by any party of
its obligations under this Section 7 is inadequate and that each party shall be
entitled to equitable remedies, including injunctive relief, in the event of a
breach by the other party.

7.5

The provisions of this Section 7 are in addition to and do not supercede and are
not superceded by similar provisions in any other agreements.

8.

PATENT PROSECUTION AND LITIGATION.

8.1

All right, title and interest to the VICAL TECHNOLOGY and all patent rights and
other intellectual property rights therein shall belong solely to VICAL. VICAL
shall have the sole right and responsibility for the filing, prosecution and
maintenance of patents and patent applications directed thereto.

8.2

In the event that VGI or VICAL becomes aware of actual or threatened
infringement of a VICAL PATENT that claims a LICENSED PRODUCT or the use
thereof, that party shall promptly notify the other party in writing. VICAL
shall have the first right but not the obligation to bring, at its own expense,
an infringement action against any THIRD PARTY and to use VGI’s name in
connection therewith. If VICAL does not commence a particular infringement
action within ninety (90) days, VGI, after notifying VICAL in writing, shall be
entitled to bring such infringement action, in its own name and/or in the name
of VICAL, at its own expense to the extent that such party is licensed
thereunder. The foregoing notwithstanding, in the event that an alleged
infringer certifies pursuant to

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21 U.S.C. § 355(b)(2)(A)(iv) against an issued VICAL PATENT covering a LICENSED
PRODUCT, as between VICAL AND VGI, the party receiving notice of such
certification shall immediately notify the other party of such certification,
and if fourteen (14) days prior to expiration of the forty five (45) day period
set forth in 21 U.S.C. § 355(c)(3)(C), VICAL fails to commence an infringement
action, the party receiving notice, in its sole discretion, at its own expense
and to the extent that it is licensed under the patent, shall be entitled to
bring such infringement action in its own name and/or in the name of the patent
owner. The party conducting an action under this Section 8.2 shall have full
control over its conduct, including settlement thereof provided such settlement
shall not be made without the prior written consent of the other party if it
would adversely affect the patent rights of such party licensed hereunder. VICAL
and VGI shall reasonably assist one another and cooperate in any such litigation
at the other’s request. The party conducting the litigation shall reimburse the
other party for its reasonable and actual out-of-pocket expenses incurred at the
request of the party conducting the litigation for assisting in the litigation,
which reimbursement shall be made within thirty (30) days of receipt by the
party conducting the litigation of itemized invoices from the assisting party
documenting such expenses.

8.3

Any recovery made by a party as the result of an action for patent infringement
it has conducted under Section 8.2 shall be distributed as follows:

(a)

The party conducting the action shall recover its actual out-of-pocket expenses,
and then shall reimburse the other party for any unreimbursed actual and
out-of-pocket expenses.

(b)

To the extent that the recovery exceeds the total of item (a), the excess shall
be kept by the party conducting the action, provided, however, that to the
extent that the recovery is based on an award of lost sales/profits, VICAL shall
receive a proportion of the excess recovery corresponding to the royalty
percentage it would have otherwise been due on those lost sales/profits and
VICAL shall receive the proportion of the excess recovery corresponding to the
lost sales/profits.

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8.4

The parties shall periodically keep one another reasonably informed of the
status of their respective activities regarding any such litigation or
settlement thereof.

9.

STATEMENTS AND REMITTANCES.

9.1

VGI shall keep and require its AFFILIATES and (sub)licensees to keep complete
and accurate records of all sales and calculations for NET SALES of LICENSED
PRODUCTS. Each party shall have the right, at its expense, through an
independent certified public accounting firm of nationally recognized standing
reasonably acceptable to the other party, to examine pertinent financial records
during regular business hours upon advance written notice during the life of
this Agreement and for twelve (12) months after its termination for the purpose
of verifying and reporting to VICAL as to the computation of the payments made
hereunder during the preceding twenty-four (24) months prior to the date of such
examination; provided, however, that such examination shall not take place more
often than once a year; provided further that such accountant shall report only
as to the accuracy of the royalty statements and payments, including the
magnitude and source of any discrepancy. VGI, its AFFILIATES and (sub)licensees
shall be required to maintain such sales and royalty calculation records for two
(2) years. The accountant shall execute customary confidentiality agreements
prior to any examination, reasonably satisfactory in form and substance to both
parties, to maintain in confidence all information obtained during the course of
any such examination, except for disclosure to the parties, as necessary for the
above purpose.

9.2

Within sixty (60) days after the close of each calendar quarter, VGI shall
deliver to VICAL a true accounting of amounts owing hereunder sold by it and its
licensees and distributors during such calendar quarter and shall at the same
time pay all amounts due.

9.3

All royalties and other payments due under this Agreement shall be payable in
U.S. dollars.

9.4

Royalties payable on sales in countries other than the United States shall be
calculated by multiplying the appropriate royalty rate times the sales in each
currency in which they are made and converting the resulting amount into United
States dollars, at the rates of

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exchange as reported in The Wall Street Journal as published under the caption
“Currency Trading”), on the last business day in New York, New York of each
royalty period. If The Wall Street Journal ceases to be published, then the rate
of exchange to be used shall be that reported in such other business publication
of national circulation in the United States as all parties reasonably agree.
Such payments shall be without deduction of exchange, collection, or other
charges. If, due to restrictions or prohibitions imposed by a national or
international authority, payments cannot be made as aforesaid, the parties shall
consult with a view to finding a prompt and acceptable solution, and the parties
will deal with such monies as the other party may lawfully direct at no
additional out-of-pocket expense to the party owed the royalty. Notwithstanding
the foregoing, if royalties cannot be remitted for any reason within six (6)
months after the end of the calendar quarter during which they are earned, then
the party owing the royalty shall be obligated to deposit the royalties in a
bank account in the country of sale in the name of the other party. Each party
shall deduct any taxes which the party is obligated to pay and/or withhold in a
country based on royalties due to the other based on sales in such country from
royalty payments due for such country under this Agreement and pay them to the
proper authorities as required by applicable laws. Each party shall maintain
official receipts of payment of any such taxes and forward these receipts to the
other within sixty (60) days.

10.

TERM AND TERMINATION.

10.1

This Agreement shall come into effect as of the Effective Date, and unless
earlier terminated as provided in this Article 10, shall remain in full force
and effect in a country-by-country basis until the expiration of VGI’s royalty
obligations for such LICENSED PRODUCT in such country.

10.2

A party shall have the right to terminate this Agreement in its entirety (a)
upon the breach by the other party of such other party’s obligations to pay any
amounts owing hereunder, if such breach is not cured within thirty (30) days
after receipt of written notice from such party thereof, or (b) upon the breach
by the other party of such other party’s obligations

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(other than to pay any amounts owing) hereunder, if such breach is not cured
within sixty (60) days after receipt of written notice from such party thereof.

10.3

Notwithstanding termination of this Agreement, the rights and obligations of the
parties under Sections 3.2 and 3.3 and Articles 7, 9, 10, 11, 12 and 15 shall
survive such termination, as well as any provision not specified in this
paragraph which is clearly meant to survive termination of this Agreement.

10.4

Termination of the Agreement in accordance with the provisions hereof shall not
limit remedies that may be otherwise available in law or equity.

11.

WARRANTIES AND REPRESENTATIONS.

11.1

Each of VGI and VICAL hereby represents, warrants and covenants to the other, as
of the date of this Agreement, as follows:

(a)

it is a corporation duly organized and validity existing under the laws of the
state of its incorporation;

(b)

the execution, delivery and performance of this Agreement by such party has been
duly authorized by all requisite corporate action;

(c)

it has the power and authority to execute and deliver this Agreement and to
perform its obligations hereunder, including, without limitation, in the case of
VICAL, the right, power and authority to grant the licenses under Article 3;

(d)

the execution, delivery and performance by such party of this Agreement and its
compliance with the terms and provisions hereof to such party’s best knowledge
does not conflict with or result in a breach of any of the terms and provisions
of or constitute a default under (i) a loan agreement, guaranty, financing
agreement, agreement affecting a product or other agreement or instrument
binding or affecting it or its property; (ii) the provisions of its charter
documents or bylaws; or (iii) any order, writ, injunction or decree of any court
or governmental authority entered against it or by which any of its property is
bound; and

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(e)

this Agreement constitutes such party’s legal, valid and binding obligation
enforceable against it in accordance with its terms subject, as to enforcement,
to bankruptcy, insolvency, reorganization and other laws of general
applicability relating to or affecting creditors’ rights and to the availability
of particular remedies under general equity principles.

11.2

NOTHING IN THIS AGREEMENT SHALL BE CONSTRUED AS A WARRANTY THAT VICAL PATENTS
ARE VALID OR ENFORCEABLE OR THAT THEIR EXERCISE OR THE EXERCISE OF VICAL
TECHNOLOGY DOES NOT INFRINGE ANY PATENT RIGHTS OF THIRD PARTIES. A HOLDING OF
INVALIDITY OR UNENFORCEABILITY OF ANY SUCH PATENT, FROM WHICH NO FURTHER APPEAL
IS OR CAN BE TAKEN, SHALL NOT AFFECT ANY OBLIGATION HEREUNDER, BUT SHALL ONLY
ELIMINATE ROYALTIES OTHERWISE DUE UNDER SUCH PATENT FROM THE DATE SUCH HOLDING
BECOMES FINAL.

11.3

EXCEPT AS OTHERWISE EXPRESSLY SET FORTH HEREIN VGI AND VICAL MAKE NO
REPRESENTATIONS OR EXTEND ANY WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED,
INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE OR NONINFRINGEMENT.

11.4

Each party shall use any materials provided by the other party under this
Agreement in compliance with all applicable laws and regulations.

12.

INDEMNIFICATION

12.1

VGI shall defend, indemnify and hold harmless VICAL, its AFFILIATES licensors of
VICAL and each of their respective directors, officers, shareholders, agents and
employees, from and against any and all liability, loss, damages and expenses
(including reasonable attorneys’ fees) as the result of claims, demands, actions
or proceedings by any THIRD PARTY which are made or instituted against any of
them arising out of the development, manufacture, possession, distribution, use,
testing, sale or other disposition of LICENSED PRODUCT by or through VGI, its
AFFILIATES or any THIRD PARTY

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granted rights by VGI under this Agreement. VGI’s obligation to defend,
indemnify and hold harmless shall include claims, demands, actions or
proceedings, whether for money damages or equitable relief by reason of alleged
personal injury (including death) to any person or alleged property damage,
provided, however, the indemnity shall not extend to any claims against an
indemnified party which result from the gross negligence or willful misconduct
of an indemnified party. VGI shall have the exclusive right to control the
defense of any action which is to be indemnified in whole by VGI hereunder,
including the right to select counsel reasonably acceptable to VICAL to defend
VICAL and the indemnified parties hereunder and to settle any claim, demand,
action or proceeding, provided that, without the prior written consent of VICAL
(which shall not be unreasonably withheld or delayed), VGI shall not agree to
settle any claim, demand, action or proceeding against VICAL to the extent such
claim has a material adverse effect on VICAL. The provisions of this paragraph
shall survive and remain in full force and effect after any termination,
expiration or cancellation of this Agreement and VGI’s obligation hereunder
shall apply whether or not such claims are rightfully brought. VGI shall require
each (sub)licensee hereunder to agree to indemnify VICAL in a manner consistent
with this Section 12.1.

12.2

If VICAL intends to claim indemnification under this Article 12, VICAL shall
promptly notify VGI of any claim, demand, action or proceeding for which VICAL
intends to claim such indemnification, and VGI, after it determines that
indemnification is required of it, shall assume the defense thereof with counsel
selected by VGI and reasonably acceptable to the other party; provided, however,
that VICAL shall have the right to retain its own counsel, with the fees and
expenses to be paid by VGI if VGI does not assume the defense; or, if
representation of VICAL by the counsel retained by VGI would be inappropriate
due to actual or potential conflicts of interest between VICAL and any other
party represented by such counsel in such proceedings. The indemnity agreement
in this Article 12 shall not apply to amounts paid in settlement of any claim,
demand, action or proceeding if such settlement is effected without the consent
of VGI, which consent shall not be unreasonably withheld or delayed. The failure
to deliver notice to VGI within a reasonable time after the commencement of any
such action, if prejudicial to its ability to defend such action, shall relieve
VGI of any liability to VICAL

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under this Article 12, but failure to deliver notice to VGI will not relieve it
of any liability that it may have to VICAL otherwise than under this Article 12.
VICAL under this Article 12, its employees and agents, shall reasonably
cooperate with VGI and its legal representatives in the investigations of any
claim, demand, action or proceeding covered by this indemnification. In the
event that each party claims indemnity from the other and one party is finally
held liable to indemnify the other, VGI shall additionally be liable to pay the
reasonable legal costs and attorneys’ fees incurred by VICAL in establishing its
claim for indemnity.

13.

VICAL COVENANT.

13.1

**1

14.

FORCE MAJEURE.

14.1

If the performance by a party of any obligation under this Agreement (other than
an obligation for a payment of money), is prevented, restricted, interfered with
or delayed by reason of any reasonable unforeseeable cause beyond the reasonable
control of the party liable to perform, the party so affected shall, upon giving
written notice to the other party, be excused from such performance to the
extent of such prevention, restriction, interference or delay, provided that the
affected party shall use its commercially reasonable efforts to avoid or remove
such causes of non-performance and shall continue performance with the utmost
dispatch whenever such causes are removed. When such circumstances arise, the
parties shall discuss what, if any, modification of the terms of this Agreement
may be required in order to arrive at an equitable solution.

15.

DISPUTE RESOLUTION.

15.1

This Agreement shall be construed and enforced in accordance with the laws of
the State of Delaware (without reference to the conflicts of law principles
thereof).

______________

1 “**” indicates redacted confidential information pursuant to a confidential
treatment request filed with the SEC.

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15.2

In the event of any controversy, dispute or claim arising out of or relating to
any provision of this Agreement or the breach thereof, the parties shall use
good faith efforts to settle such controversy, dispute or claim amicably between
themselves.

15.3

Should the parties fail to reach mutually acceptable settlement of any
controversy, dispute or claim which may arise out of or in connection with this
Agreement, or the breach, termination or validity thereof (other than with
respect to patent validity) shall be settled by final and binding arbitration
pursuant to the Commercial Arbitration Rules of the American Arbitration
Association (“AAA”) as herein provided.

(a)

The Arbitration Tribunal shall consist of three arbitrators. Each party shall
nominate in the request for arbitration and the answer thereto one arbitrator
and the two arbitrators so named will then jointly appoint the third arbitrator
as chairman of the Arbitration Tribunal. If one party fails to nominate its
arbitrator or, if the parties’ arbitrators cannot agree on the person to be
named as chairman within sixty (60) days, the necessary appointments shall be
made under the rules of the AAA.

(b)

The place of arbitration shall be in Chicago, Illinois and the arbitration
proceedings shall be held in English. The procedural law of the State of
Illinois shall apply where the AAA Rules are silent.

(c)

The award of the Arbitration Tribunal shall be final and judgment upon such an
award may be entered in any competent court or application may be made to any
competent court for judicial acceptance of such an award and order of
enforcement. Notwithstanding the foregoing, nothing contained herein shall
prevent either party from seeking interim relief from a court of competent
jurisdiction pending the establishment of or a decision by a panel of
arbitrators.

16.

ENTIRE AGREEMENT.

16.1

This Agreement, and the Appendices hereto, entered into as of the date written
above together with the Investment Agreement and each of the documents
referenced in such Investment Agreement, constitute the entire agreement between
the parties relating to the

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subject matter hereof and supersedes all previous writings and understandings.
No terms or provisions of this Agreement shall be varied or modified by any
prior or subsequent statement, conduct or act of either of the parties, except
that the parties may amend this Agreement by written instruments specifically
referring to and executed in the same manner as this Agreement.

17.

NOTICES.

17.1

Any notice required or permitted under this Agreement shall be hand-delivered or
sent by express delivery service or certified or registered mail, postage
prepaid, or by fax with written confirmation by mail, to the following addresses
of the parties:

VASCULAR GENETICS INC.
Suite 201
4364 S. Alston Avenue
Durham, North Carolina 27713
Attn: John W. Cumming
Fax: (843) 342-3701

copy to:

Long Aldridge & Norman LLP
One Peachtree Center, Suite 5300
303 Peachtree Street, N.W.
Atlanta, GA 30308
Attn: Mark S. Lange, Esq.
Fax: (404) 527-3808

VICAL INCORPORATED
9373 Towne Center Drive
San Diego, California 92121
Attn: President
Fax: (858) 646-1150

copy to:

Pillsbury Madison & Sutro LLP
50 Fremont Street
San Francisco, California 94105
Attn: Thomas E. Sparks, Jr., Esq.
Fax: (415) 983-1200

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17.2

Any notice required or permitted to be given concerning this Agreement shall be
effective upon receipt by the party to whom it is addressed.

18.

ASSIGNMENT AND CHANGE OF CONTROL.

18.1

This Agreement and the licenses herein granted shall be binding upon and inure
to the benefit of the parties and their respective permitted assignees and
successors in interest. Neither this Agreement nor any interest hereunder shall
be assignable by a party without the prior written consent of the other party
and any attempted assignment contrary to this Section 18.1 shall be void and
without force and effect. Notwithstanding the foregoing; a party may assign this
Agreement and all of its rights and obligations hereunder to any AFFILIATE or to
any THIRD PARTY in connection with the transfer or sale of all or substantially
all of its business or all or substantially all of its assets to which this
Agreement relates, or in the event of its merger, consolidation, change in
control or similar transaction, without obtaining the consent of the other
party, provided that the assigning party remains liable under this Agreement and
that the THIRD PARTY assignee or surviving entity assumes in writing all of its
obligations under this Agreement.

19.

COUNTERPARTS.

19.1

This Agreement may be executed in any number of counterparts, and each such
counterpart shall be deemed an original instrument, but all such counterparts
together shall constitute but one agreement.

20.

WAIVER.

20.1

Any delay or failure in enforcing a party’s rights under this Agreement or any
waiver as to a particular default or other matter shall not constitute a waiver
of such party’s rights to the future enforcement of its rights under this
Agreement, nor operate to bar the exercise or enforcement thereof at any time or
times thereafter, excepting only as to an express written and signed waiver as
to a particular matter for a particular period of time.

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20.2

Notwithstanding the foregoing, in the event VGI challenges whether any payments
contemplated hereunder (including, without limitation royalties or milestones)
are due, it shall have the right, but not the obligation, to make such payments
under protest (reserving all rights hereunder) pending resolution of such
dispute.

21.

INDEPENDENT RELATIONSHIP.

21.1

Nothing herein contained shall be deemed to create an employment, agency, joint
venture or partnership relationship between the parties hereto or any of their
agents or employees, or any other legal arrangement that would impose liability
upon one party for the act or failure to act of the other party. No party shall
have any power to enter into any contracts or commitments or to incur any
liabilities in the name of, or on behalf of, the other party, or to bind the
other party in any respect whatsoever.

22.

FURTHER ACTIONS.

22.1

Each party agrees to execute, acknowledge and deliver such further instruments
and to do all such other acts, as may be necessary or appropriate in order to
carry out the purposes and intent of this Agreement.

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IN WITNESS WHEREOF, the parties, through their authorized officers, have
executed this Agreement as of the Effective Date.

 

VICAL INCORPORATED

 

 

By: 

/s/ ALAIN B. SCHREIBER, M.D.

 

 

 

 

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Alain B. Schreiber, M.D.
President and Chief Executive Officer

 

 

 

 

 

VASCULAR GENETICS INC.

 

 

By: 

/s/ JOHN W. CUMMING

 

 

 

 

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John W. Cumming
Chief Executive Officer

 

 

 

 

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