Exhibit 10.1

 

CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS,
HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE
COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED.

 

CO-DEVELOPMENT AND COMMERCIALIZATION AGREEMENT

 

This Co-Development and Commercialization Agreement is entered into as of
September 14, 2004 (the “Effective Date”), by and among PROTEIN DESIGN LABS,
INC., a Delaware corporation having offices at 34801 Campus Drive, Fremont,
California  94555 (“PDL”), and HOFFMANN-LA ROCHE INC., a New Jersey corporation
having offices at 340 Kingsland Street, Nutley, New Jersey 07110
(“Roche-Nutley”) and F. HOFFMANN-LA ROCHE LTD of Basel, Switzerland (“F. Roche”)
(Roche-Nutley and F. Roche are hereinafter individually and collectively
referred to as “Roche”).

 

RECITALS

 

Whereas, Roche currently markets a humanized antibody against the interleukin-2
(IL-2) receptor (Daclizumab), under the trademark Zenapax®, for the prevention
of acute organ rejection in patients receiving kidney transplants;

 

Whereas, pursuant to that certain Amended and Restated Worldwide Agreement
between PDL and Roche dated October 1, 2003 (the “Worldwide Daclizumab
Agreement”), certain rights previously granted to Roche reverted to PDL, and PDL
acquired, among other rights, the sole and exclusive worldwide rights to
develop, market and sell Daclizumab for autoimmune and other non-transplant
indications, including asthma, and PDL has the obligation to make certain
royalty payments to Roche; and

 

Whereas, PDL and Roche now wish to enter into a worldwide collaboration for the
joint development and commercialization of Daclizumab for the treatment of
asthma and other respiratory diseases.

 

Now therefore, the Parties agree as follows:

 

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ARTICLE 1

 

DEFINITIONS

 

1.1          “Affiliate” means any corporation or other business entity
controlled by, controlling, or under common control with another entity, with
“control” meaning direct or indirect beneficial ownership of more than fifty
percent (50%) of the voting stock of, or more than a fifty percent (50%)
interest in the income of, such corporation or other business entity. 
Notwithstanding anything to the contrary in this paragraph, Genentech, Inc., a
Delaware corporation, and Chugai Pharmaceutical Company, a Japanese company,
shall not be deemed an Affiliate of Roche unless Roche provides written notice
to PDL of its desire to include Genentech and/or Chugai as an Affiliate.

 

1.2          “Asthma Field” means the treatment and/or prevention of asthma or
other respiratory diseases.

 

1.3          “Autoimmune Indications” or “AI” means all indications that involve
pathogenic consequences, including tissue injury, produced by autoantibodies or
autoreactive T lymphocytes interacting with self epitopes, i.e., autoantigens. 
Autoimmune Indications shall include, without limitation, asthma, psoriasis,
rheumatoid arthritis, systemic lupus erythematosus, scleroderma, juvenile
rheumatoid arthritis, polymytosis, Type I diabetes, sarcoidosis, Sjogrens
syndrome, chronic active non-pathogenic hepatitis, non-infectious uveitis
(Behcets), aplastic anemia, regional non-pathogenic enteritis (including
ulcerative colitis, Crohn’s Disease and inflammatory bowel disease), Kawasaki’s
disease, post-infectious encephalitis, multiple sclerosis, and tropic spastic
paraparesis.

 

1.4          “Change of Control” shall mean a transaction in which a Party: (a)
sells, conveys or otherwise disposes of all or substantially all of its property
or business; or (b)(i) merges or consolidates with any other entity (other than
a wholly-owned subsidiary of such Party); or (ii) effects any other transaction
or series of transactions; in each case of clause (i) or (ii), such that the
stockholders of such Party immediately prior thereto, in

 

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the aggregate, no longer own, directly or indirectly, beneficially or legally,
at least fifty percent (50%) of the outstanding voting securities or capital
stock of the surviving entity following the closing of such merger,
consolidation, other transaction or series of transactions.

 

1.5          “Collaboration Inventions” means all inventions that (a) relate to
or are useful with [*] that [*] the [*] and (b) are made during the term of this
Agreement by employees of Roche or persons contractually required to assign or
license patent rights covering such inventions to Roche, in the course of
performing Roche’s obligations, or exercising Roche’s rights, under this
Agreement.

 

1.6          “Combination Product” means a Licensed Product that contains one or
more therapeutically active ingredients in addition to Daclizumab.

 

1.7          “Commercial Supply Agreement” shall have the meaning set forth in
Section 8.2.

 

1.8          “Commercialization Plan” shall have the meaning set forth in
Section 6.1.

 

1.9          “Controlled” means, with respect to any intellectual property
right, that the Party has a license to such intellectual property right and has
the ability to grant to the other Party a sublicense to such intellectual
property right as provided for herein without violating the terms of any
agreement or other arrangements with any Third Party existing at the time such
Party would be first required hereunder to grant the other Party such
sublicense.

 

1.10        “Co-Promotion Term” shall have the meaning set forth in Section 6.4.

 

1.11        “Cost of Goods Sold” or “COGS” means, with respect to a Licensed
Product (in bulk, vialed or finished product form, as the case may be), the sum
of the following, all of which shall be calculated in accordance with U.S.
generally accepted accounting principles consistently applied by PDL to all of
its products:

 

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(a)           [*]

 

provided, however, that Cost of Goods Sold shall not include any costs or
expenses included or includible in Distribution Expenses.

 

1.12        “Daclizumab” means that certain humanized murine monoclonal antibody
directed against the p55 component of IL-2R and given the generic name
“Daclizumab” by the United States Adopted Names Council.  Daclizumab does not
include fragments of such antibody or any antibodies having a different amino
acid sequence from such antibody.

 

1.13        “Data Services” shall have the meaning set forth in Section 7.6(b).

 

1.14        “Detail” or “Detailing” shall mean a [*] presentation by a Party’s
sales representative, to one or several medical professional(s) having
prescribing authority in the U.S. Territory in the Asthma Field, as well as to
other individuals or entities that have significant impact or influence on
prescribing decisions in the U.S. Territory in the Asthma Field, as identified
in the Commercialization Plan approved by the JDC (collectively, the “Target
Audience”), in which the principal objective of such presentation is to
emphasize the features and function of such Licensed Product in the Asthma
Field.  [*]

 

1.15        “Development” means all activities that relate to (a) obtaining,
maintaining or expanding Regulatory Approval of a Licensed Product in the Asthma
Field or (b) developing the ability to manufacture the same.  This includes,
without limitation, (i) preclinical testing, toxicology, formulation,
manufacturing-related technology development, and clinical studies of a Licensed
Product in the Asthma Field; (ii) preparation, submission, review, and
development of data or information for the purpose of submission to a
governmental authority to obtain and/or maintain Regulatory Approval of a
Licensed Product in the Asthma Field, and outside counsel regulatory legal
services related thereto; and (iii) manufacturing process development and
scale-up, bulk production and fill/finish work associated with the supply of
Licensed Products

 

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for preclinical and clinical studies, and related quality assurance technical
support activities.

 

1.16        “Development Expenses” shall have the meaning set forth in Exhibit
A.

 

1.17        “Development Plan” shall have the meaning set forth in Section 4.1.

 

1.18        “Diligent Efforts” means the carrying out of obligations or tasks in
a diligent, sustained manner using efforts equivalent to the efforts a Party
devotes to a product of similar market potential, profit potential and strategic
value resulting from its own research efforts, based on conditions then
prevailing.  Diligent Efforts requires that the Party:  (a) promptly assign
responsibility for such obligations to specific employee(s) who are held
accountable for progress and monitor such progress on an on-going basis, (b) set
and consistently seek to achieve specific and meaningful objectives for carrying
out such obligations, and (c) consistently make and implement decisions and
allocate resources designed to advance progress with respect to such
objectives.  The Parties acknowledge that Roche does not, as of the Effective
Date, develop, register, market, and sell its products in every country in the
Territory, and it is understood that the exercise by Roche of Diligent Efforts
shall be judged in light of this fact.

 

1.19        “Distribution Expenses” means the costs, excluding administration
costs, incurred by a Party or for its account, specifically attributable to the
distribution of a Licensed Product in the U.S. Territory, to be calculated in
the manner set forth in Exhibit A.

 

1.20        “Dollars” or “$” means the legal tender of the U.S.

 

1.21        “Drug Approval Application” means a Biologics License Application or
an equivalent application for Regulatory Approval required before commercial
sale or use of a Licensed Product in the Asthma Field in a regulatory
jurisdiction.

 

1.22        “European Union” means all countries that are officially recognized
as member states of the European Union.  There are twenty-five (25) such member
states

 

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as of the Effective Date, namely:  Austria, Belgium, Cyprus, Czech Republic,
Denmark, Estonia, Germany, Greece, Finland, France, Hungary, Ireland, Italy,
Latvia, Lithuania, Luxembourg, Malta, the Netherlands, Poland, Portugal,
Slovakia, Slovenia, Spain, Sweden, and United Kingdom.

 

1.23        “Exclusive Field” means, with respect to Roche, Roche’s Exclusive
Field and, with respect to PDL, PDL’s Exclusive Field.

 

1.24        “Executive Officers” means, for Roche, the Head of the Roche Pharma
Division (or such individual’s designee), and, for PDL, the Chief Executive
Officer of PDL (or such individual’s designee).  If either position is vacant or
either position does not exist, then the person having the most nearly
equivalent position (or such individual’s designee) shall be deemed to be the
Executive Officer of the relevant Party.

 

1.25        “Failure to Supply” shall have the meaning set forth in Section 8.2.

 

1.26        “FDA” means the U.S. Food and Drug Administration or any successor
agency thereto.

 

1.27        “First Commercial Sale” means, for each Licensed Product in each
country, the first sale to a Third Party of the Licensed Product in the Asthma
Field in the country by a Party, its Affiliate, or its sublicensee, after the
granting by the relevant governing authorities of all Regulatory Approvals
required for commercial sale of the Licensed Product in the Asthma Field in such
country.

 

1.28        “FTE” means the equivalent of one employee working full time in a
Development-related capacity, for or on behalf of a Party for one 12-month
period.

 

1.29        “Generic Product” means a Third Party product (a) that contains
Daclizumab or an antibody with a substantially identical amino acid sequence,
whether or not the glycosylation pattern of such antibody is identical to
Daclizumab; and (b) that has received Regulatory Approval for use in the Asthma
Field through an expedited regulatory approval process governing approval of
generic biologics.  Notwithstanding

 

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the foregoing, Generic Products do not include Licensed Products sold by either
Party’s sublicensees or distributors pursuant to this Agreement or the Worldwide
Daclizumab Agreement or otherwise sold for use outside of the Asthma Field.

 

1.30        “Global Net Sales” means PDL Net Sales plus Roche Net Sales.

 

1.31        “Gross Margin” means, with respect to a particular calendar quarter
during the Co-Promotion Term, PDL Adjusted Gross Sales for such quarter minus
COGS for Licensed Products sold in the U.S. Territory during such quarter.

 

1.32        “Incremental Development Expenses” means the expenses incurred by
Roche or for its account that are attributable to Development performed solely
in support of Regulatory Approval with respect to the ROW Territory and that
were not requested by the JDC to support Regulatory Approval with respect to the
U.S. Territory or the European Union.  Such expenses shall include the transfer
price paid by Roche, pursuant to Section 8.1(c), for Licensed Product supplied
by PDL for such Development.

 

1.33        “Information” means information, results and data of any type
whatsoever, in any tangible or intangible form whatsoever, including without
limitation, databases, inventions, practices, methods, techniques,
specifications, formulations, formulae, knowledge, know-how, skill, experience,
test data including pharmacological, physical, biological, chemical,
biochemical, toxicological, clinical and veterinary test data, analytical and
quality control data, stability data, studies and procedures, dosage regimens
and control assays, financial information, procurement requirements, purchasing
information, manufacturing information, customer lists, business and contractual
relationships, business forecasts, sales and merchandising information,
marketing plans, and patent and other legal information or descriptions.

 

1.34        “Joint Development Committee” or “JDC” shall have the meaning set
forth in Section 3.6.

 

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1.35        “Joint Finance Committee” or “JFC” means that subcommittee of the
JSC established pursuant to Section 3.3(g).

 

1.36        “Joint Inventions” means any inventions:

 

(a)           related to humanized or chimeric antibodies that bind to IL-2R,
whether patented or not, that are jointly made during the period beginning on
January 31, 1989 and continuing until the Effective Date by at least one (1) PDL
employee or person contractually required to assign or license patent rights
covering such inventions to PDL and at least one (1) Roche employee or person
contractually required to assign or license patent rights covering such
inventions to Roche; or

 

(b)           related to antibodies that bind to IL-2R, whether patented or not,
that are jointly made during the period beginning on the Effective Date and
continuing until the expiration or termination of this Agreement by at least one
(1) PDL employee or person contractually required to assign or license patent
rights covering such inventions to PDL and at least one (1) Roche employee or
person contractually required to assign or license patent rights covering such
inventions to Roche.

 

1.37        “Joint Patent Committee” or “JPC” means that subcommittee of the JSC
established pursuant to Section 3.3(f).

 

1.38        “Joint Roche-PDL Patents” means all patent applications and patents
claiming Joint Inventions.

 

1.39        “Joint Steering Committee” or “JSC” shall have the meaning set forth
in Section 3.1.

 

1.40        “Know-How” means all inventions, discoveries, trade secrets,
information, experience, data, formulas, procedures and results related to
antibodies that bind to IL-2R, and improvements thereon, including any
information regarding the physical, chemical, biological, toxicological,
pharmacological, clinical, and veterinary data, dosage regimens, control assays
and specifications of Licensed Products.

 

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1.41        “Licensed Product” shall mean any pharmaceutical product having as
an active ingredient Daclizumab.

 

1.42        “Major Pharmaceutical Company” shall mean any entity that, together
with its Affiliates, has annual worldwide pharmaceutical sales of [*] or more
for the last full fiscal year preceding the date of consummation of a Change of
Control.

 

1.43        “Major Regulatory Jurisdiction” means the U.S., the United Kingdom,
France, Italy, Germany, Spain and Japan.

 

1.44        “Non-Registrational Trial” means a clinical trial in the Asthma
Field for a Licensed Product that (a) is initiated or ongoing after completion
of the first Phase III Trial, and (b) is not conducted to obtain, maintain or
expand Regulatory Approval of the Licensed Product in the Asthma Field.  A
Non-Registrational Trial shall be deemed initiated upon the enrollment of the
first patient.

 

1.45        “Operating Expenses” shall have the meaning set forth in Exhibit A.

 

1.46        “Other Indications” means all indications other than Transplant
Indications and Autoimmune Indications.

 

1.47        “Party” means PDL or Roche individually, and “Parties” means PDL and
Roche collectively.

 

1.48        “PDL Adjusted Gross Sales” means the gross invoice price of Licensed
Products sold or otherwise disposed of for consideration in the U.S. Territory
by PDL, its Affiliates or sublicensees (other than Roche and its Affiliates
hereunder) to independent Third Parties (not Affiliates of the seller) for use
in the Asthma Field, reduced by the following amounts: (a) the amounts actually
allowed as volume or quantity discounts, rebates, price reductions, or returns
(including withdrawals and recalls); and (b) sales, excise and turnover taxes
imposed directly on and actually paid by PDL, its Affiliates or sublicensees.

 

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In the case of the sale by PDL, its Affiliates or sublicensees (other than Roche
and its Affiliates hereunder) in the Asthma Field in the U.S. Territory of
Combination Products for which a Licensed Product and each of the other
therapeutically active ingredients contained in the Combination Product have
established market prices when sold separately, PDL Adjusted Gross Sales shall
be determined by multiplying the PDL Adjusted Gross Sales for each such
Combination Product by a fraction, the numerator of which shall be the
established market price for the form and formulation of the Licensed Product
contained in the Combination Product, and the denominator of which shall be the
sum of the established market prices for such form and formulation of the
Licensed Product plus the other active ingredients contained in the Combination
Product.  When such separate market prices are not established, then the Parties
shall negotiate in good faith to determine the method of calculating PDL
Adjusted Gross Sales for such Combination Product.

 

If PDL or its Affiliates or sublicensees receive non-cash consideration for
Licensed Products sold or otherwise transferred to an independent Third Party
(not an Affiliate of the seller or transferor), the fair market value of such
non-cash consideration on the date of the transfer will be the gross invoice
price that PDL currently charges independent Third Parties and shall be deemed
the PDL Adjusted Gross Sales for such Licensed Products sold or otherwise
transferred.

 

1.49        “PDL House Marks” means the corporate name of PDL and associated
logos and designs.

 

1.50        “PDL Inventions” means all inventions made during the term of this
Agreement by employees of PDL or persons contractually required to assign or
license patent rights covering such inventions to PDL, either alone or together
with Third Parties, that (a) are not PDL Know-How or PDL Patents and (b) relate
to Licensed Products or antibodies that bind to IL-2R.

 

1.51        “PDL Know-How” means, except as otherwise set forth in this Section
1.51, all Know-How that is possessed, as of the Effective Date, by PDL or by any
entity

 

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that is a PDL Affiliate as of the Effective Date, or that is developed during
the term of this Agreement by PDL or by any entity while it is a PDL Affiliate,
and which Know-How is Controlled by PDL or its Affiliates and is reasonably
required or useful for seeking registration of, using or selling Licensed
Products in the Asthma Field; provided, however, that PDL Know-How excludes any
know-how of any kind concerning generic methods of manufacturing, designing,
developing or preparing antibodies including, but not limited to, methods of
humanizing antibodies, methods of reducing the immunogenicity of antibodies, and
methods of increasing the affinity of antibodies.

 

1.52        “PDL Net Sales” means the amount determined by deducting [*] from
PDL Adjusted Gross Sales to account for standard deductions from gross sales
such as shipping, insurance, taxes (to the extent not included in calculations
of PDL Adjusted Gross Sales).

 

1.53        “PDL Patents” means all patent applications owned or Controlled by
PDL or its Affiliates alone or with a Third Party (“Sole PDL Patents”) and all
Joint Roche-PDL Patents claiming Licensed Products or their manufacture or use
in the Asthma Field, which are filed prior to or during the term of this
Agreement in the U.S. or any foreign jurisdiction, including any addition,
continuation, continuation-in-part or division thereof or any substitute
application therefor; any patent issued with respect to such patent application,
any reissue, extension or patent term extension of any such patent, and any
confirmation patent or registration patent or patent of addition based on any
such patent; and any other U.S. or foreign patent or inventor’s certificate
covering Licensed Products in the Asthma Field.

 

1.54        “PDL Technology” means PDL Know-How and PDL Patents.

 

1.55        “PDL Trademarks” means all trademarks owned by PDL (except for any
PDL House Marks or trade names) and used by PDL or its sublicensee(s) in
connection with the marketing, promotion, and sale of Licensed Products in the
Asthma Field and all trademark registrations and applications therefor, and all
goodwill associated therewith.  Prior to any assignment of the Zenapax Trademark
to PDL pursuant to the

 

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Worldwide Daclizumab Agreement, the PDL Trademarks shall not include the Zenapax
Trademark.  If the Zenapax Trademark is assigned to PDL pursuant to the
Worldwide Daclizumab Agreement, then the term “PDL Trademarks” shall also
include the trademark “Zenapax®,” and all trademark registrations and
applications therefor, and all goodwill associated therewith.

 

1.56        “PDL’s Exclusive Field” means the Autoimmune Indications (excluding
the Asthma Field), Other Indications and, upon the first to occur of the
Reversion Effective Date or the Put Right Effective Date, the Transplant
Indications.

 

1.57        “Phase III Trial” means a human clinical trial in the Asthma Field
performed to gain evidence of the efficacy of a Licensed Product in a target
population, and to obtain expanded evidence of safety for such Licensed Product
that is needed to evaluate the overall benefit-risk relationship of such
Licensed Product and provide an adequate basis for physician labeling, as
described in 21 CFR 312.21(c).  For the purposes of Section 9.2, a Phase III
Trial shall be deemed initiated upon the dosing of the first patient.

 

1.58        “Phase IV Trial” means a clinical trial in the Asthma Field for a
Licensed Product that (a) is initiated or ongoing after completion of the first
Phase III Trial and (b) is not a Non-Registrational Trial.  A Phase IV Trial
shall be deemed initiated upon the enrollment of the first patient.

 

1.59        “Post-Launch Product R&D Expenses” shall have the meaning set forth
in Exhibit A.

 

1.60        “Promotion” or “Promote” shall mean the marketing and advertising of
a Licensed Product in the Asthma Field in the U.S. Territory in accordance with
the Commercialization Plan, including medical education, information and
communication, market development and medical liaison activities, but not
including Detailing.

 

1.61        “Put Right Effective Date” shall have the meaning set forth in
Section 5.3(a) of the Worldwide Daclizumab Agreement.

 

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1.62        “Queen Patents” means those PDL Patents claiming priority under 35
U.S.C. § 120 to U.S. Patent Application Serial No. 07/290,975, filed December
28, 1988.

 

1.63        “Region” shall mean each region set forth in Exhibit G, provided
that such Exhibit may be modified by Roche with PDL’s written consent, such
consent not to be unreasonably withheld, if Roche modifies the regions that it
uses to generally manage its pharmaceuticals business.

 

1.64        “Regulatory Approval” means all approvals (including pricing and
reimbursement approvals), product and/or establishment licenses, registrations
or authorizations of any regional, federal, state or local regulatory agency,
department, bureau or other governmental entity, necessary for the manufacture,
use, storage, import, export, transport or sale of Licensed Products in the
Asthma Field in a regulatory jurisdiction.

 

1.65        “Reversion Effective Date” shall have the meaning set forth in
Section 5.2(b) of the Worldwide Daclizumab Agreement.

 

1.66        “Roche Adjusted Gross Sales” means the gross invoice price of
Licensed Products sold or otherwise disposed of for consideration in the ROW
Territory by Roche, its Affiliates or sublicensees (other than PDL and its
Affiliates hereunder) to independent Third Parties (not Affiliates of the
seller) for use in the Asthma Field, reduced by the following amounts: (a) the
amounts actually allowed as volume or quantity discounts, rebates, price
reductions, returns (including withdrawals and recalls); and (b) sales, excise
and turnover taxes imposed directly on and actually paid by Roche, its
Affiliates or sublicensees.

 

When calculating the Roche Adjusted Gross Sales, the amount of such sales in
foreign currencies shall be converted into Dollars at the average rate of
exchange at the time for the applicable calendar quarter in accordance with
Roche’s then-current standard practices.  Roche shall provide reasonable
documentation of the calculation

 

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and reconciliation of the conversion figures on a country-by-country basis as
part of its report of Roche Adjusted Gross Sales for the period covered under
the report.

 

In the case of the sale by Roche, its Affiliates or sublicensees (other than PDL
and its Affiliates hereunder) in the Asthma Field in the ROW Territory of
Combination Products for which a Licensed Product and each of the other
therapeutically active ingredients contained in the Combination Product have
established market prices when sold separately, Roche Adjusted Gross Sales shall
be determined by multiplying the Roche Adjusted Gross Sales for each such
Combination Product by a fraction, the numerator of which shall be the
established market price for the form and formulation of the Licensed Product
contained in the Combination Product, and the denominator of which shall be the
sum of the established market prices for such form and formulation of the
Licensed Product plus the other active ingredients contained in the Combination
Product.  When such separate market prices are not established, then the Parties
shall negotiate in good faith to determine the method of calculating Roche
Adjusted Gross Sales for such Combination Product.

 

If Roche or its Affiliates or sublicensees receive non-cash consideration for
Licensed Products sold or otherwise transferred to an independent Third Party
(not an Affiliate of the seller or transferor), the fair market value of such
non-cash consideration on the date of the transfer will be the gross invoice
price that Roche currently charges independent Third Parties and shall be deemed
the Roche Adjusted Gross Sales for such Licensed Products sold or otherwise
transferred.

 

1.67        “Roche Fill/Finish Costs” shall have the meaning set forth in
Section 8.3(a).

 

1.68        “Roche Know-How” means, except as otherwise set forth in this
Section 1.68, all Know-How that is possessed, as of the Effective Date, by Roche
or by any entity that is a Roche Affiliate as of the Effective Date, or that is
developed during the term of this Agreement by Roche or by any entity while it
is a Roche Affiliate, and which Know-How is Controlled by Roche or its
Affiliates and is reasonably required or useful

 

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for seeking registration of, manufacturing, using or selling the Licensed
Products; provided, however, that Roche Know-How excludes any Know-How of any
kind concerning generic methods of manufacturing, designing, developing or
preparing antibodies including, but not limited to, methods of humanizing
antibodies, methods of reducing the immunogenicity of antibodies, and methods of
increasing the affinity of antibodies.

 

1.69        “Roche Net Sales” means the amount determined by deducting [*] from
Roche Adjusted Gross Sales to account for standard deductions from gross sales
such as shipping, insurance, taxes (to the extent not included in calculations
of Roche Adjusted Gross Sales).

 

1.70        “Roche Patents” means all patent applications owned or Controlled by
Roche or its Affiliates (“Sole Roche Patents”) alone or with a Third Party, and
all Joint Roche-PDL Patents claiming Licensed Products or their manufacture or
use in the Asthma Field, which are filed prior to or during the term of this
Agreement in the U.S. or any foreign jurisdiction, including any addition,
continuation, continuation-in-part or division thereof or any substitute
application therefor; any patent issued with respect to such patent application,
any reissue, extension or patent term extension of any such patent, and any
confirmation patent or registration patent or patent of addition based on any
such patent; and any other U.S. or foreign patent or inventor’s certificate
covering Licensed Products in the Asthma Field.

 

1.71        “Roche Technology” means Roche Know-How and Roche Patents.

 

1.72        “Roche’s Exclusive Field” means the Transplant Indications. 
Notwithstanding the foregoing, upon the first to occur of the Reversion
Effective Date or the Put Right Effective Date, the term “Roche’s Exclusive
Field” shall have no meaning.

 

1.73        “ROW Commercialization Activities” has the meaning set forth in
Section 7.1.

 

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1.74        “ROW Territory” means all parts of the Territory not included in the
U.S. Territory.

 

1.75        “[*] Daclizumab” means a [*] humanized murine monoclonal antibody
prepared against the p55 component of IL-2R [*] and covered by claims under [*]

 

1.76        “Sole PDL Patents” shall have the meaning set forth in Section 1.53.

 

1.77        “Sole Roche Patents” shall have the meaning set forth in Section
1.70.

 

1.78        “Successful GMP Audit” shall have the meaning set forth in Exhibit
B.

 

1.79        “Territory” means all countries of the world.

 

1.80        “Third Party” means any person or entity other than a Party or its
Affiliates.

 

1.81        “Third Party License” means (a) any of the license agreements set
forth on Exhibit C and (b) any license agreement entered into by a Party with a
Third Party after the Effective Date that the Parties agree in writing is
necessary for the use, manufacture, sale, offering for sale, or importation of
Licensed Product in the Asthma Field in the Territory under this Agreement.

 

1.82        “Transfer Price” means, with respect to a particular unit of
Licensed Product, the amount paid by Roche to PDL for supply of such unit of
Licensed Product pursuant to the Commercial Supply Agreement in either bulk or
finished form.

 

1.83        “Transplant Indications” means all indications that involve the
suppression of rejection of transplanted organs, bone marrow or other tissue,
including, without limitation, solid organ transplantation (including tolerance
induction and xenotransplantation), bone marrow transplantation, graft versus
host disease and cell transplantation.  In any event, if a given indication
satisfies the criteria for both an Autoimmune Indication and a Transplant
Indication, such indication shall be deemed a Transplant Indication and not an
Autoimmune Indication, provided that an Autoimmune

 

16

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Indication shall not be deemed a Transplant Indication merely because it may
cause the need for a transplant (e.g., Type I diabetes, even if it causes the
need for an organ transplant).

 

1.84        “U.S.” means the United States of America.

 

1.85        “U.S. Territory” means the U.S. and its territories and possessions.

 

1.86        “Valid Claim” means a claim in any unexpired and issued patent in
the PDL Patents or Roche Patents that has not been disclaimed, revoked, or held
invalid or unenforceable by a final unappealable decision of a court or
government agency of competent jurisdiction.

 

1.87        “Zenapax Trademark” means the trademark “Zenapax®,” and all
trademark registrations and applications therefor, and all goodwill associated
therewith.  If the Zenapax Trademark is assigned to PDL pursuant to the
Worldwide Daclizumab Agreement, then the license set forth in Section 2.2(c)
shall automatically terminate.

 

ARTICLE 2

 

LICENSES AND OPTION

 

2.1          Grants to Roche.

 

(a)           U.S. Territory

 

(i)            Technology License.  Subject to the terms and conditions of this
Agreement, PDL hereby grants to Roche a co-exclusive license (together with
PDL), under the PDL Technology, to develop Licensed Products in the Asthma Field
with respect to the U.S. Territory and the European Union, in accordance with
the Development Plan, and to import and use Licensed Products for such
purposes.  The foregoing licenses include the right to perform Development
outside the U.S. Territory

 

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and European Union in accordance with the Development Plan with respect to any
Licensed Product solely in order to obtain Regulatory Approval of such Licensed
Product in the Asthma Field in the U.S. Territory or the European Union.

 

(ii)           Promotion Right.  Subject to the terms and conditions of this
Agreement, PDL hereby grants to Roche a co-exclusive (together with PDL),
non-transferable (subject to Section 19.1) right to Promote and Detail Licensed
Products in the Asthma Field in the U.S. Territory during the Co-Promotion Term,
in accordance with applicable law and the Commercialization Plan.

 

(iii)         Sublicenses.  The rights granted to Roche in Sections 2.1(a)(i)
and 2.1(a)(ii) are sublicensable, without the prior written consent of PDL, only
to Roche’s Affiliates.

 

(b)           ROW Territory

 

(i)            Technology License.  Subject to the terms and conditions of this
Agreement, PDL hereby grants to Roche and Roche’s Affiliates the exclusive (even
as to PDL) license, under the PDL Technology, to (1) develop Licensed Products
in the Asthma Field in the ROW Territory (other than the European Union), (2) to
use and import Licensed Products in the Asthma Field in the ROW Territory (other
than the European Union) for such Development purposes, (3) offer for sale and
sell Licensed Products in the Asthma Field in the ROW Territory, (4) to use and
import Licensed Products in the Asthma Field in the ROW Territory for such
commercialization purposes; provided, however, that the license granted under
this Section 2.1(b)(i) with respect to the Queen Patents shall be nonexclusive. 
Notwithstanding the exclusivity of the foregoing license, PDL retains the right
to perform Development activities in the ROW Territory (other than the European
Union) with respect to the Licensed Product solely in order to obtain Regulatory
Approval of the Licensed Product in the Asthma Field in the U.S. Territory or
the European Union, in accordance with the Development Plan or as approved by
the JSC.

 

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(ii)           Trademark License.  Subject to the terms and conditions of this
Agreement, PDL hereby grants to Roche, the exclusive right and license to use
the PDL Trademarks solely in connection with the development, use, marketing,
promotion, detailing, offer for sale and sale of Licensed Products in the Asthma
Field in the ROW Territory; provided, however, that Roche’s license under this
Section 2.1(b)(ii) shall be co-exclusive (together with PDL) with respect to
Development in the European Union.  PDL agrees to execute any required
documents, to provide on request any required records, and otherwise to
cooperate fully with Roche as may be necessary to accomplish the recordation of
the license set forth in this Section 2.1(b)(ii) in any jurisdiction in the ROW
Territory that Roche seeks such recordation.  In such event, the documented
expenses for recordation (not including any PDL internal costs) will be borne by
Roche.

 

(iii)         Sublicenses.  The licenses granted to Roche in Sections 2.1(b)(i)
and 2.1(b)(ii) are sublicensable only with the prior written consent of PDL,
which shall not be unreasonably withheld.  It shall be deemed reasonable for PDL
to withhold consent with respect to sublicense by Roche of the license set forth
in Section 2.1(b)(i) to any other entity that is [*] (in at least one [*], [*]
in a [*] any [*] for [*] or any other [*] in the [*] for which the Parties are
selling, developing or planning to develop the Licensed Product, where the term
[*] means a [*] performed to gain [*], and to establish [*].  Roche and its
Affiliates may use Third Party distributors in the ROW Territory in accordance
with their customary practices.  The license granted to Roche in Section
2.1(b)(ii) is sublicensable only to a sublicensee of the licenses set forth in
Section 2.1(b)(i).

 

2.2          Grants to PDL.

 

(a)           Technology License.  Subject to the terms and conditions of this
Agreement, Roche hereby grants to PDL, under the Roche Technology, Collaboration
Inventions, and all patents claiming Collaboration Inventions, (i) a
co-exclusive license (together with Roche) to develop in accordance with the
Development Plan and use

 

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Licensed Products in the Asthma Field with respect to U.S. Territory and the
European Union, (ii) a co-exclusive license (together with Roche) to import
Licensed Products in the Asthma Field into the European Union for such
Development purposes, (iii) an exclusive license to import, offer for sale and
sell Licensed Products in the Asthma Field in the U.S. Territory, and (iv) an
exclusive license to make Licensed Products in the Asthma Field in the
Territory.  The foregoing licenses include the right to perform Development
outside the U.S. Territory and the European Union in accordance with the
Development Plan with respect to any Licensed Product solely in order to obtain
Regulatory Approval of such Licensed Product in the Asthma Field in the U.S.
Territory or the European Union.  The license granted to PDL in Section
2.2(a)(i) shall automatically convert from a co-exclusive license to an
exclusive license with respect to the U.S. Territory at the end of the
Co-Promotion Term.  Roche hereby covenants that it and its Affiliates will not
grant to any Third Party a license that overlaps with the scope of the licenses
granted to PDL under Sections 2.2(a)(i) and 2.2(a)(ii) and that it and its
Affiliates will not practice the Roche Technology and Collaboration Inventions
within the scope of the licenses granted to PDL under Sections 2.2(a)(i) and
2.2(a)(ii) on behalf of or for the benefit of any Third Party.

 

(b)           Additional Licenses to Collaboration Inventions.  Subject to the
terms and conditions of this Agreement, Roche hereby grants to PDL, under the
Collaboration Inventions and all patents claiming Collaboration Inventions (i) a
co-exclusive license to develop, make, use, import, offer for sale and sell
products (other than Licensed Products or Excluded Products) containing
antibodies that bind to IL-2R in the Asthma Field in the Territory; and (ii) a
co-exclusive license to develop, make, use, import, offer for sale, and sell
Licensed Products and other products containing antibodies that bind to IL-2R
(other than Excluded Products) in PDL’s Exclusive Field in the Territory.  For
the purpose of this Section 2.2(b), the term “Excluded Products” shall have the
meaning given to such term in Section 1.16 of the Worldwide Daclizumab
Agreement.  Roche hereby covenants that it and its Affiliates will not grant to
any Third Party a license that overlaps with the scope of the licenses granted
to PDL under Section 2.2(b)(i) and Section 2.2(b)(ii) and that it and its
Affiliates will not practice the

 

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Collaboration Inventions within the scope of the licenses granted to PDL under
Sections 2.2(b)(i) and 2.2(b)(ii) on behalf of or for the benefit of any Third
Party.

 

(c)           Trademark License.  Subject to the terms and conditions of this
Agreement, Roche hereby grants to PDL, (i) the co-exclusive right and license
(together with Roche) to use the Zenapax Trademark solely in connection with the
development, use, marketing, promotion, and detailing of Licensed Products in
the Asthma Field in the U.S. Territory, (ii) the co-exclusive right and license
(together with Roche) to use the Zenapax Trademark solely in connection with the
development of Licensed Products in the Asthma Field with respect to the
European Union, and (iii) the exclusive right and license to use the Zenapax
Trademark solely in connection with the offer for sale and sale of Licensed
Products in the Asthma Field in the U.S. Territory.  Roche agrees to execute any
required documents, to provide on request any required records, and otherwise to
cooperate fully with PDL as may be necessary to accomplish the recordation of
the license set forth in this Section 2.2(c) in any jurisdiction in the U.S.
Territory that PDL seeks such recordation.  In such event, the expenses for
recordation (not including any internal Roche expenses) will be borne by PDL. 
The license set forth in this Section 2.2(c) shall automatically terminate upon
assignment of the Zenapax Trademark to PDL pursuant to the Worldwide Daclizumab
Agreement. Subject to the preceding sentence, the license granted to PDL in
Section 2.2(c)(i) shall automatically convert from a co-exclusive license to an
exclusive license at the end of the Co-Promotion Term.  Roche hereby covenants
that it and its Affiliates will not grant to any Third Party a license that
overlaps with the scope of the licenses granted to PDL under Sections 2.2(c)(i)
and 2.2(c)(ii).

 

(d)           Sublicenses.  Prior to the end of the Co-Promotion Term, the
license granted to PDL in Section 2.2(a) is sublicensable:  (i) without the
prior written consent of Roche, only to PDL’s Affiliates; and (ii) with Roche’s
consent (such consent not to be unreasonably withheld) to subcontractors
performing, on behalf of PDL, PDL’s obligations under, and consistent with, the
Development Plan or the Commercialization Plan.  After the Co-Promotion Term,
PDL may grant sublicenses under the license

 

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granted to PDL in Section 2.2(a) without the consent of Roche.  PDL may grant
sublicenses under the license granted to PDL in Section 2.2(b) without the
consent of Roche.  The license granted to PDL in Section 2.2(c) is sublicensable
only to a sublicensee of the licenses set forth in Section 2.2(a).

 

2.3          Negative Covenants

 

(a)           Roche hereby covenants that it shall not, nor shall it cause any
Affiliate or sublicensee to knowingly use or practice, directly or indirectly,
any PDL Know-How, PDL Patents or PDL Trademarks for any other purposes other
than those expressly permitted by this Agreement or any other written agreements
between the Parties which are currently in existence (including, without
limitation, the Worldwide Daclizumab Agreement), or which may later be entered
into by the Parties; or

 

(b)           PDL hereby covenants that it shall not, nor shall it cause any
Affiliate or sublicensee to:  knowingly use or practice, directly or indirectly,
any Roche Know-How, Roche Patents, Collaboration Inventions or Zenapax Trademark
for any other purposes other than those expressly permitted by this Agreement or
any other written agreements between the Parties which are currently in
existence (including, without limitation, the Worldwide Daclizumab Agreement),
or which may later be entered into by the Parties.

 

2.4          [*] Daclizumab.  For the purpose of keeping Roche informed as to
the status and results of any [*] involving [*] Daclizumab, PDL’s presentation
of an update on such matters shall be specifically listed as an agenda item for
up to two (2) JDC meetings per year.  When PDL first obtains [*] in the Asthma
Field from a [*] for a product containing [*] Daclizumab, PDL shall notify Roche
in writing and provide a detailed summary of such data to Roche.  Upon Roche’s
request, Roche may [*] on [*] Daclizumab in the Asthma Field for up to [*], and
PDL shall reasonably cooperate with Roche with respect to such [*] activities. 
Upon Roche’s further request, PDL and Roche shall [*].  If the Parties do not
[*], then PDL is [*], provided that PDL does not [*] with respect to the [*] of
such [*].  If Roche has previously provided [*] to PDL to [*] and the

 

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Parties have not [*], then within [*] of [*], PDL shall [*].  Roche shall have
[*] following receipt to notify PDL [*] that [*]  For clarity, PDL shall not [*]
until the earlier of:  (i) expiration of the [*] period after Roche’s receipt of
PDL’s summary of [*], without Roche [*], and (ii) expiration of the [*] after
Roche’s receipt of such summary, without [*] in the [*].

 

ARTICLE 3

 

GOVERNANCE

 

3.1          Joint Steering Committee; Minutes.  Within thirty (30) days after
the Effective Date, PDL and Roche shall form a Joint Steering Committee (“JSC”)
consisting of [*] representatives from PDL and [*] representatives from Roche. 
Each Party may replace its JSC representatives at any time upon prior written
notice to the other Party.  Roche shall have the right to designate the first
chairperson of the JSC, whose term shall run until December 31, 2005, and such
right shall thereafter alternate between the Parties on a calendar year basis. 
The JSC chairperson shall be responsible for providing an agenda for each JSC
meeting at least ten (10) business days in advance of such meeting.  The Party
not chairing the JSC shall prepare written draft minutes of all JSC meetings in
reasonable detail and distribute such draft minutes to all members of the JSC
for comment and review within twenty (20) business days after the relevant
meeting.  The members of the JSC shall have ten (10) business days to provide
comments.  The Party preparing the minutes shall incorporate timely received
comments and distribute revised minutes to all members of the JSC for their
final review and approval within thirty-five (35) business days of the relevant
meeting.

 

3.2          Meetings of the JSC.  The JSC shall meet at least [*], on such
dates and at such times as agreed to by Roche and PDL, with all scheduled
in-person meetings to alternate between Fremont, California and a Roche site to
be designated by Roche prior to such meeting, or at such other locations as
determined by the Joint Steering

 

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Committee.  Meetings may be held by audio or video conference with the consent
of each Party, provided that at least [*] per calendar year shall be held in
person.  Each Party may permit such visitors to attend meetings of the Joint
Steering Committee.  Each Party shall be responsible for its own expenses for
participating in the JSC.  Meetings of the JSC shall be effective only if at
least one representative of each Party is present or participating.

 

3.3          Responsibilities of the JSC.  The JSC shall have the responsibility
and authority to:

 

(a)           define and oversee the implementation of the strategy for
developing and commercializing Licensed Products in the Asthma Field;

 

(b)           review the efforts of the JDC in the conduct of the development
and commercialization programs for Licensed Products in the Asthma Field;

 

(c)            review and revise, as required, the budget forecasts for the
Development Plan and the Commercialization Plan, including any [*] with respect
to [*], all in accordance with the schedule set forth in Exhibit A.

 

(d)           review and approve the Commercialization Plan and any proposed
amendments or updates to the Development Plan or Commercialization Plan;

 

(e)           review and approve the [*] and [*] of the [*] for Licensed
Products in the Asthma Field, and the commercialization of Licensed Products in
the Asthma Field in the U.S. Territory; and review the commercialization of
Licensed Products in the Asthma Field in the ROW Territory, including the [*] of
such [*] and such [*] and the [*] of the Licensed Products in the Asthma Field;

 

(f)            create and oversee a Joint Patent Committee which will address
intellectual property issues with respect to Licensed Products in the Asthma
Field;

 

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(g)           create and oversee a Joint Finance Committee which will address
[*] and related finance and accounting issues with respect to the Development
Plan and Commercialization Plan;

 

(h)           address disputes or disagreements arising in the JDC, JPC, or JFC;

 

(i)            relax any deadlines and timeframes specified in this Article 3;

 

(j)            select a Trademark in accordance with Section 13.1; and

 

(k)           perform such other functions as the Parties may agree in writing.

 

3.4          Areas Outside the JSC’s Authority.    The JSC shall have no
authority other than that expressly set forth in Section 3.3 and, specifically,
shall have no authority to amend this Agreement.  The JSC shall have no
authority to make any decisions that would commit a Party to incur an expense
that it had not previously agreed to incur or that would increase any expenses a
Party is otherwise responsible for, without obtaining the agreement of that
Party as evidenced by written notice of approval by the appropriate internal
decision-making bodies of that Party.  For clarity, each Party, by its entry
into this Agreement, has agreed to pay [*] of those expenses, to the extent
incurred, that are set forth in the budget associated with the Development Plan
attached hereto as Exhibit D as of the Effective Date.

 

3.5          JSC Decisions.

 

(a)           Consensus; Good Faith; Action Without Meeting.  The JSC shall
decide all matters by [*], with each Party having [*].  Consistent with Section
3.12, the members of the JSC shall act in good faith to cooperate with one
another and to reach agreement with respect to issues to be decided by the JSC. 
Action that may be taken at a meeting of the Joint Steering Committee also may
be taken without a meeting if a written consent setting forth the action so
taken is signed by all members of the Joint Steering Committee.

 

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(b)           Failure to Reach Consensus.  In the event that the members of the
JSC cannot come to consensus within thirty (30) days with respect to any matter
over which the JSC has authority and responsibility, the JSC shall submit the
respective positions of the Parties with respect to such matter for discussion
in good faith by the [*].  If such [*] are not able to mutually agree upon the
resolution to such matter within [*] of its submission to them, then PDL shall
have the right to decide such matter in good faith, giving due consideration to
the input of [*] and the economic interests of both Parties under this
Agreement, except that any decision that primarily pertains to (i) the sale and
marketing of Licensed Products in the Asthma Field in the ROW Territory, (ii)
the Development of Licensed Products in the Asthma Field [*] that are not [*],
or (iii) the determination of a revised anticipated commercial launch date for
the purpose of [*], shall be decided by [*] in good faith, giving due
consideration to the input of [*] and the economic interests of both Parties
under this Agreement.  Notwithstanding the foregoing, any decision to initiate a
development program for [*] for Licensed Products in the Asthma Field or [*]
shall be made solely by [*], and [*] shall have the right to make such decision
if the JSC and the Executive Officers fail to reach agreement.  Furthermore,
nothing in this Section 3.5(b) shall be interpreted to limit Roche’s rights
under Section 17.3 as a result of a delay in Development.

 

3.6          Joint Development Committee; Minutes.  Within thirty (30) days
after the Effective Date, PDL and Roche shall form a Joint Development Committee
(“JDC”) consisting of [*] representatives from PDL and [*] representatives from
Roche, or such number(s) of representatives as set from time to time by the
JSC.  Each Party may replace its JDC representatives at any time upon prior
written notice to the other Party.  [*] shall have the right to designate the
[*] the JDC, whose term shall run until [*], and such right shall thereafter
alternate between the Parties on a calendar year basis.  The JDC chairperson
shall be responsible for providing an agenda for each JDC meeting at least ten
(10) business days in advance of such meeting.  PDL shall prepare written draft
minutes of all JDC meetings in reasonable detail and distribute such draft
minutes to all members of the JDC for comment and review within twenty (20)
business days after the relevant meeting.  The members of the JDC shall have ten
(10) business days

 

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to provide comments.  PDL shall incorporate timely received comments and
distribute revised minutes to all members of the JDC for their final review and
approval within thirty-five (35) business days of the relevant meeting.

 

3.7          Subcommittees.  The JDC shall have the right to establish
subcommittees, which may include, but will not be limited, to the following:  a
[*] subcommittee, a [*] subcommittee, a [*] subcommittee, a [*] subcommittee,
and a [*] subcommittee.

 

3.8          Meetings of the JDC.  The JDC shall meet as frequently as members
of the Joint Development Committee determine is required (but in no event, less
frequently than [*] following the Effective Date and [*] thereafter), on such
dates and at such times as agreed to by Roche and PDL, with all scheduled
in-person meetings to alternate between Fremont, California and a Roche site to
be designated by Roche prior to such meeting, or at such other locations as
determined by the JDC.  Meetings may be held by audio or video conference with
the consent of each Party, provided that at least [*] shall be held in person at
locations to which both Parties have mutually consented.  Each Party may permit
such visitors to attend meetings of the Joint Development Committee as the Joint
Development Committee determines.  All out-of-pocket expenses incurred by a
Party as a result of its participation in the JDC, to the extent not captured in
the FTE rate set forth in Section 4.6(b) (which shall only apply to JDC
members), shall be borne solely by such Party.  Meetings of the JDC shall be
effective only if at least [*] of each Party are present or participating.

 

3.9          Responsibilities of the JDC.  The JDC shall have the responsibility
and authority to:

 

(a)           oversee all aspects of the execution of the JSC-approved
Development and commercialization of Licensed Products in the Asthma Field;

 

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(b)           review and comment upon, and where appropriate, recommend to the
JSC for approval, all updates or amendments to the Development Plan thereto, in
accordance with Sections 4.1 and 4.2;

 

(c)           review and comment upon, and where appropriate, recommend to the
JSC for approval, the Commercialization Plan and amendments and updates thereto,
in accordance with Section 6.1;

 

(d)           monitor the Development of Licensed Products in the Territory
against the applicable Development Plan;

 

(e)           review the overall strategy for and design of all clinical trials
and other studies conducted under the Development Plan;

 

(f)            discuss the requirements for Regulatory Approval in applicable
countries in the Territory and oversee and coordinate regulatory matters with
respect to Licensed Products in the Territory;

 

(g)           establish subcommittees pursuant to Section 3.7, oversee the
activities of all subcommittees so established, and address disputes or
disagreements arising in all such subcommittees;

 

(h)           oversee and approve a multi-year estimate of supply requirements
to be used for capacity planning purposes;

 

(i)            present disputes not resolvable by the JDC to the JSC for
resolution;

 

(j)            discuss Roche Development activities in the ROW Territory;

 

(k)           select CROs and other non-manufacturing vendors needed to carry
out the Development Plan, except for any CRO or other non-manufacturing vendor
whose agreement with the relevant Party has, or is anticipated to have, [*];

 

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(l)            propose and discuss possible manufacturing vendors to carry out
activities associated with clinical or commercial supply of the Licensed Product
(provided that [*] alone shall be responsible for ultimately selecting such
manufacturing vendors);

 

(m)          perform the functions set forth in Sections 1.14, 4.6(a), 4.6(c),
5.1(a), 5.6, 6.3(b), and 8.1(a) and Exhibits D and E; and

 

(n)           perform such other functions as the Parties may agree in writing.

 

3.10        Areas Outside the JDC’s Authority.    The JDC shall have no
authority other than that expressly set forth in Section 3.9.

 

3.11        JDC Decisions.

 

(a)           Consensus; Good Faith; Action Without Meeting.  The JDC shall
decide all matters by consensus, with each Party having one collective vote. 
Consistent with Section 3.12, the members of the JDC shall act in good faith to
cooperate with one another and to reach agreement with respect to issues to be
decided by the JDC.  Action that may be taken at a meeting of the JDC also may
be taken without a meeting if a written consent setting forth the action so
taken is signed by all of the JDC members.

 

(b)           Failure to Reach Consensus.  In the event that the members of the
JDC cannot come to consensus within [*] with respect to any matter over which
the JDC has authority and responsibility, the JDC shall submit the respective
positions of the Parties with respect to such matter to the JSC for decision.

 

3.12        Operating Principles.  The Parties hereby acknowledge and agree that
the deliberations and decision-making of the JSC, JDC, JPC, JFC and any
subcommittee established by the JDC shall be in accordance with the following
operating principles:

 

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(a)           Time is of the essence in addressing the market for Licensed
Products in the Asthma Field.

 

(b)           The Parties’ mutual objective is to maximize the clinical and
commercial success of the Licensed Products in the Asthma Field, consistent with
sound and ethical business and scientific practices.

 

ARTICLE 4

 

DEVELOPMENT

 

4.1          Development Plan.  Development with respect to the U.S. Territory
and the European Union shall be governed by an asthma development plan
(“Development Plan”), which shall set forth all anticipated Development
activities and timelines for obtaining, maintaining, or expanding (to the extent
mutually agreed) Regulatory Approval in such countries or jurisdictions,
allocate responsibility for carrying out such activities between PDL and Roche
(including the anticipated minimum and maximum number of FTEs to be expended by
each Party on Development with respect to the U.S. Territory and the European
Union on a quarterly basis), include an associated twelve (12) month development
budget, and specify the extent to which each Party is anticipated to use
internal or external (i.e. subcontractors) resources to fulfill its
obligations.  As of the Effective Date, the Parties have agreed to an initial
Development Plan, a copy of which is attached hereto as Exhibit D.  The Parties
anticipate that promptly following the Effective Date and the formation of the
JDC and JSC, the JDC shall review in detail the initial Development Plan and
propose appropriate revisions, if needed, for adoption by and approval of the
JSC.

 

4.2          Updating the Development Plan.  The JDC may decide from time to
time to propose for approval by the JSC updates to the Development Plan on a
rolling basis as necessary to reflect changes in the progress, strategy, or
costs of Development with

 

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respect to the U.S. Territory and the European Union.  In any event, so long as
the JSC intends to continue Development with respect to the U.S. Territory and
the European Union, the JDC shall confirm, or propose for JSC approval an update
to, the Development Plan in accordance with the schedule set forth in Exhibit
A.  Any proposed change shall, for the appropriate time period as determined by
the JSC, set forth all anticipated Development activities and timelines for
obtaining, maintaining, or expanding (to the extent mutually agreed) Regulatory
Approval in such countries or jurisdictions, allocate responsibility for
carrying out such activities between PDL and Roche (including a maximum number
of FTEs to be expended by each Party on Development with respect to the U.S.
Territory and the European Union on a quarterly basis), and include an
associated development budget.  All mutually agreed activities directed toward
the expansion of Regulatory Approval with respect to the U.S. Territory and/or
the European Union shall be included in the updated Development Plan.  The JSC
shall not approve an updated Development Plan that is inconsistent with or
contradicts the terms of this Agreement without the written consent of the
Parties, and in the event of any inconsistency between the Development Plan and
this Agreement, the terms of this Agreement shall prevail.

 

4.3          Goals of Joint Development.  The Parties hereby acknowledge and
agree that the goals for joint development of Licensed Products hereunder will
be to obtain and maintain Regulatory Approval for the treatment of asthma for
the Licensed Product in the U.S. Territory and the European Union.

 

4.4          Standards of Conduct.  Each Party shall perform, or shall ensure
that its Third Party contractors perform, the Development activities for which
it is responsible under the Development Plan or which it undertakes independent
of the Development Plan in good scientific manner and in compliance with
applicable laws, rules and regulations.  At each JDC meeting, each Party will
keep the JDC fully informed regarding the progress and results of such Party’s
Development activities with respect to Licensed Products in the Territory.

 

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4.5          Diligent Development.  Each of the Parties shall use Diligent
Efforts to achieve the goals set forth in Section 4.3 and to execute and carry
out the Development Plan within the associated budget.  Roche shall use Diligent
Efforts to obtain Regulatory Approval for the treatment of asthma for the
Licensed Product in each country in the ROW Territory (other than the European
Union).  Roche’s efforts in this regard shall be discussed with PDL through the
JDC.  Roche from time to time (but in any event no less frequently than yearly)
shall  provide PDL with written updates discussing in reasonable detail its
clinical trial activities and plans with respect to Development for all
countries of the ROW Territory outside the European Union for which Roche has
current or contemplated activities and plans.  Each of the Parties agrees to
cooperate with the other in carrying out the Development Plan.

 

4.6          Development Expenses.

 

(a)           All Development Expenses shall be shared [*] by the Parties as set
forth in greater detail in Section 4.6(c).  [*] shall be responsible for [*] of
all Incremental Development Expenses.  Any expenses incurred by a Party for
Development activities that do not fall within the definitions of Development
Expenses or Incremental Development Expenses shall be borne solely by such Party
unless the JDC determines otherwise.

 

(b)           The Development Expenses of each Party that are attributable to
Development activities performed by its employees pursuant to the Development
Plan shall be calculated on an FTE basis.  Each Party shall keep accurate
records of its FTEs expended with respect to such Development activities, and
shall report such FTE expenditures to the JDC on a quarterly basis as part of
the report filed pursuant to Section 4.6(c).  All FTE expenditures shall be
converted to Development Expenses at an initial rate of [*], subject to [*] of
[*] effective as of [*], beginning [*].  There shall be no [*] until after the
[*] of this Agreement.

 

(c)           Each Party shall keep detailed records of the Development Expenses
it incurs, including all supporting documentation for such expenses.  Each

 

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Party shall keep such records for at least [*] after the date that such expense
was incurred.  Within [*] after the end of each calendar quarter, each Party
shall provide a report to the JDC (with a copy to the other Party) specifying
and documenting, both in reasonable detail, such Party’s Development Expenses
during such quarter.  Each Party shall promptly provide all additional
information and documentation requested by the JDC to verify such Development
Expenses.  Within [*] after the end of each such calendar quarter, the JDC shall
provide each Party with an accounting in reasonable detail of the Parties’
Development Expenses for such quarter and the JDC shall send [*] during such
quarter an invoice for an amount equal to [*].  Such Party shall pay the amount
specified in such invoice to the other Party within [*] of its receipt of such
invoice.

 

(d)           To the extent a Party has previously paid a share of the cost of
any item included in Development Expenses (including the cost of manufacturing
clinical supply of Licensed Product), then that Party shall receive a credit for
the amounts paid in the event that such item is subsequently used for [*] or
[*].

 

ARTICLE 5

 

REGULATORY

 

5.1          Drug Approval Applications in U.S. Territory.

 

(a)           Consistent with the Development Plan but subject to the remainder
of this Section 5.1, PDL shall be responsible for preparing and filing Drug
Approval Applications and seeking Regulatory Approvals for Licensed Products in
the Asthma Field in the U.S. Territory.  All such Drug Approval Applications
shall be filed in the name of PDL, and PDL alone shall be responsible for all
communications and other dealings with the regulatory agencies relating to the
Licensed Products in the Asthma Field in the U.S. Territory.  The JDC shall
develop and implement procedures for drafting and review of such Drug Approval
Applications, which shall provide sufficient time for Roche to provide
substantive comments.  PDL shall be responsible for

 

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obtaining appropriate regulatory approvals in the U.S. Territory for the
manufacture of bulk Licensed Product by PDL or its Third Party manufacturer(s). 
Roche shall have the right of cross-reference to all such Drug Approval
Applications for the purposes set forth in Section 5.2.

 

(b)           After receipt of Regulatory Approval of the Drug Approval
Application for the Licensed Product in the Asthma Field in the U.S. Territory
hereunder, PDL shall retain primary responsibility for dealings with any
regulatory agency with respect thereto, including filing all supplements and
other documents with such agency with respect to such Drug Approval
Application.  Notwithstanding the foregoing, the reporting of all adverse drug
experiences and other safety issues relating to Licensed Products shall be
handled in accordance with Sections 5.3, 5.5 and 5.6.  In the event that any
regulatory agency threatens or initiates any action to remove a Licensed Product
from the market in the Asthma Field in the U.S. Territory during the
Co-Promotion Term, PDL shall notify Roche of such communication within one
business day of receipt by PDL.  PDL agrees to provide Roche with a copy (which
may be wholly or partly in electronic form) of all filings to regulatory
agencies with respect to Licensed Products in the Asthma Field in the U.S.
Territory that it makes hereunder.  PDL shall provide Roche with reasonable
advance notice of any scheduled meeting with a regulatory agency relating to
Development and/or a Drug Approval Application in the U.S. Territory, and Roche
shall have the right to observe and, if the Parties mutually agree in advance,
participate in any such meeting.  PDL shall promptly furnish Roche with copies
of all material correspondence or minutes of material meetings with any
regulatory agency in each case relating to Development and/or a Drug Approval
Application in the U.S. Territory.  As between the Parties, PDL shall be the
legal and beneficial owner of all Drug Approval Applications and related
approvals in the U.S. Territory.

 

5.2          Drug Approval Applications in ROW Territory.

 

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(a)           Roche shall be responsible for preparing and filing Drug Approval
Applications and seeking Regulatory Approvals for Licensed Products in the
Asthma Field in the ROW Territory.  The Parties intend that such Drug Approval
Applications will be comprised of the Drug Approval Application submitted to the
FDA, plus such additional data and reports not required to be submitted to the
FDA.  All such Drug Approval Applications shall be filed in the name of Roche,
and Roche alone shall be responsible for all communications and other dealings
with the regulatory agencies relating to the Licensed Products in the Asthma
Field in the ROW Territory. The JDC shall develop and implement procedures for
review of such Drug Approval Applications, which procedures shall be equivalent
to those procedures developed pursuant to Section 5.1(a) with respect to Roche’s
review of Drug Approval Applications for the U.S. Territory and shall provide
sufficient time for PDL to provide substantive comments.  Roche shall be
responsible for obtaining appropriate regulatory approvals in the ROW Territory
for the manufacture of bulk Licensed Product by PDL or its Third Party
manufacturer(s).  PDL shall have the right of cross reference to all such Drug
Approval Applications filed in the ROW Territory.

 

(b)           If required to support Regulatory Approvals in the ROW Territory,
PDL shall be responsible for providing to Roche, in the format required by the
FDA, the data and information required to be submitted to the FDA, and such
additional data and information relating to the Development activities for which
it was responsible, including all clinical trials performed by it and all
manufacturing and controls information.

 

(c)           In connection with all Drug Approval Applications being prosecuted
by Roche hereunder, Roche agrees to provide PDL with a copy (which may be wholly
or partly in electronic form) of all filings to regulatory agencies in each
Major Regulatory Jurisdiction that it makes hereunder.  Roche will provide PDL
with reasonable advance notice of any scheduled meeting with any regulatory
agency relating to Development and/or any Drug Approval Application in the ROW
Territory, and PDL shall have the right to observe and, if the Parties mutually
agree in advance, participate in any such meeting.  Roche also shall promptly
furnish PDL with copies of all material

 

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correspondence or minutes of material meetings with any regulatory agency in
each case relating to Development and/or a Drug Approval Application in the ROW
Territory.  Within thirty (30) days following the end of each calendar quarter,
Roche shall report to PDL regarding the status of each pending and proposed Drug
Approval Application in the ROW Territory.  In the event that any regulatory
agency threatens or initiates any action to remove such Licensed Product from
the market in any country in the Asthma Field in the ROW Territory, Roche shall
notify PDL of such communication within one business day of receipt by Roche. 
As between the Parties, Roche shall be the legal and beneficial owner of all
Drug Approval Applications and related approvals in the ROW Territory.

 

5.3          Adverse Event Reporting.  Each Party shall notify the other of all
information coming into its possession concerning any and all side effects,
injury, toxicity, pregnancy or sensitivity event associated with commercial or
clinical uses, studies, investigations or tests with Licensed Products,
throughout the world, whether or not determined to be attributable to Licensed
Products (“Adverse Event Reports”).  Pursuant to the Worldwide Daclizumab
Agreement, the Parties have already identified a person from each Party to
coordinate the exchange of Adverse Event Reports (“Report Coordinators”) so as
to enable timely reporting of such Adverse Event Reports to appropriate
governmental and regulatory authorities consistent with all laws, rules and
regulations. The Parties, through their Report Coordinators, have agreed in
writing on formal procedures for such exchange, which are embodied in the
PDL-Roche Procedure for the Exchange of Licensed Products Adverse Event Reports,
dated December 2000 (“Pharmacovigilance Agreement”).  Promptly after the
Effective Date, Roche and PDL agree to cause their respective Report
Coordinators to (a) review the Pharmacovigilance Agreement and (b) negotiate in
good faith an amendment to the Pharmacovigilance Agreement to reflect the terms
of this Agreement, if the Report Coordinators agree that such an amendment is
required.  Such Pharmacovigilance Agreement (as amended, if applicable) shall
survive the end of the Co-Promotion Term.

 

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5.4          Copies of Responses.  Within a reasonable time frame prior to
submission of responses to any regulatory authority on product safety issues
regarding Licensed Products, a copy of a near final draft response will be
provided to the other Party for review.  Final copies of responses submitted to
any regulatory authority will be provided to the other Party within [*] of
document finalization.

 

5.5          Regulatory Actions.  The Party responsible for interacting with
regulators on a specific safety issue regarding Licensed Products must
communicate any action requested by regulators to the other Party without
delay.  Such actions may include, for example, change in label, Dear Doctor
letter, trial on hold for clinical safety reasons and the like.

 

5.6          Other Safety Issues.  At the request of either Party, the JDC shall
establish a subcommittee to handle the discussion of specific safety issues,
advise each Party concerning the collection and evaluation of safety data, and
respond to any significant safety issues raised, or requests made, by regulatory
authorities.  If the Parties have established a Joint Safety Committee pursuant
to the Worldwide Daclizumab Agreement, they may agree to have such issues
handled by the Joint Safety Committee rather than establishing a separate
subcommittee of the JDC to do so.

 

ARTICLE 6

 

COMMERCIALIZATION IN U.S. TERRITORY

 

6.1          Commercialization Plan.  During the Co-Promotion Term, all
commercialization of Licensed Products in the Asthma Field in the U.S. Territory
shall be conducted pursuant to a commercialization plan (the “Commercialization
Plan”), which shall set forth the anticipated activities (including without
limitation market studies, launch plans, Detailing and Promotion) and timelines,
shall allocate responsibility for

 

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carrying out such activities between PDL and Roche, and shall include an
associated budget.  No later than [*] after [*] for a Licensed Product, and on
an annual basis thereafter until the end of the Co-Promotion Term, PDL (or, at
the JDC’s election, a subcommittee established by the JDC) shall submit to the
JDC an initial or updated Commercialization Plan, which the JDC and JSC shall
review and the JSC (after consulting with the JDC) shall approve or reject on a
timely basis.  It is understood that the initial Commercialization Plan may be
very preliminary but nevertheless shall be effective for the purposes of
commencing the Party’s sharing of Operating Expenses.  Each updated
Commercialization Plan shall include the plan for Detailing and Promotion
activities for the Licensed Product in the Asthma Field in the U.S. Territory
for the next [*] and timelines for performing such activities.  Once approved by
the JSC, such updated Commercialization Plan shall become effective and
supersede the previous Commercialization Plan as of the date of such approval or
at such other time decided by the JSC.  The JSC shall not approve an updated
Commercialization Plan that is inconsistent with or contradicts the terms of
this Agreement without the written consent of the Parties, and in the event of
any inconsistency between the Commercialization Plan and this Agreement, the
terms of this Agreement shall prevail.

 

6.2          Commercialization in the U.S. Territory; Co-Promotion.

 

(a)           PDL will be solely responsible for the booking of sales of
Licensed Products in the Asthma Field in the U.S. Territory and the supply and
distribution of Licensed Product in respect to such sales.  PDL shall determine
the U.S. Territory selling price (including volume discounts, rebates, and
similar matters), credit terms, and return policies for all formulations of
Licensed Products that are sold for use in the Asthma Field but not for use in
the Transplant Indications.

 

(b)           During the Co-Promotion Term, PDL and Roche will co-promote
Licensed Products in the Asthma Field in the U.S. Territory in accordance with
the Commercialization Plan.  As part of this co-promotion, PDL shall contribute
[*] of the Details required by the Commercialization Plan (measured as an
average across each

 

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calendar quarter), and Roche shall be responsible for the remaining [*] of such
Details.  Each Party’s sales force shall promote the Licensed Product in the
U.S. Territory in a manner that reflects such Party’s capacities and that is
consistent with such Party’s promotional efforts for its own products of similar
market potential.

 

(c)           During the Co-Promotion Term, Roche and PDL agree to deploy their
respective sales forces to Detail Licensed Product in the Asthma Field in the
U.S. Territory (i) at such level of effort as is required pursuant to Section
6.2(b) and (ii) in a manner consistent with the Commercialization Plan and
applicable law.  The Parties shall agree upon a sales calling plan, which plan
shall include mechanisms to address possible underperformance and failure to
perform Detailing at the agreed upon levels.

 

(d)           Each party agrees to permit its Detailing records to be examined
by the other Party for the purpose of verifying each Parties’ compliance with
the Detailing requirements set forth in this Section 6.2.  Such audit shall be
performed at the request of either Party, but in any event shall not be
performed more frequently than [*] per [*] nor more frequently than [*] with
respect to Detailing records covering any specific period of time.  The expense
of any such examination shall be borne by the auditing Party unless such
examination reveals a discrepancy of [*] or more in favor of the audited Party,
in which case such expense shall be borne by the audited Party.

 

(e)           Following the end of the Co-Promotion Term, PDL shall have sole
responsibility and decision-making authority for the Detailing, marketing,
Promotion, sale and distribution of Licensed Product in the Asthma Field in the
U.S. Territory.  Except as explicitly provided in Section 10.2, PDL shall owe
Roche no consideration in respect to sales of Licensed Product in the Asthma
Field in the U.S. Territory after the end of the Co-Promotion Term.  In
particular, PDL shall not have any obligation to make the payments specified in
Section 7.2(c) of the Worldwide Daclizumab Agreement on account of any sales of
Licensed Product for use in the Asthma Field in the U.S. Territory after the end
of the Co-Promotion Term.

 

6.3          Sharing of Operating Expenses

 

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(a)           During the Co-Promotion Term, all Operating Expenses shall be
shared [*].  [*] will be solely responsible for [*] Sales Force Expenses, unless
the sales calling plan specifies otherwise [*].

 

(b)           During the Co-Promotion Term, each Party shall keep detailed
records of the Operating Expenses it incurs, including all supporting
documentation for such expenses, in accordance with procedures to be agreed upon
between the Parties.  Each Party shall keep such records for at least [*] after
the date that such expense was incurred.  Within [*] after the end of each
calendar quarter during the Co-Promotion Term, each Party shall provide a report
to the JDC (with a copy to the other Party) specifying and documenting, in
reasonable detail, such Party’s Operating Expenses during such quarter.  Each
Party shall promptly provide all additional information and documentation
requested by the JDC to verify such Operating Expenses.  Within [*] after the
end of each such calendar quarter, the JDC shall provide each Party with an
accounting of the Parties’ Operating Expenses for such quarter and the JDC shall
send [*] during such quarter an invoice for an amount equal to [*].  Such Party
shall pay the amount specified in such invoice to the other Party within [*] of
its receipt of such invoice.

 

(c)           For each quarter during the Co-Promotion Term that falls (in whole
or in part) in the period commencing on [*] in the U.S. Territory and ending on
[*] in the U.S. Territory, if the budget for such quarter specifies that
Operating Expenses will be greater than [*] and if [*] for such quarter exceed
[*] for such quarter, then [*] an amount equal to [*] for such quarter and [*]
for such quarter, which payment shall be due within [*] after [*] receipt of a
written invoice from [*] specifying the amount of such payment.  Payments
advanced under this Section 6.3(c) shall be credited against any amounts owed by
[*] under Section 6.3(b) for the quarter with respect to which [*].  Within [*]
following the end of each calendar year to which this Section 6.3(c) applies,
[*] shall [*] any payments [*] under this Section 6.3(c) during such calendar
year [*].

 

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6.4          Co-Promotion Term.  The Parties’ co-promotion of the License
Products in the U.S. Territory shall commence on the date that the first
Operating Expense is incurred by a Party and shall initially continue until [*]
after the First Commercial Sale of Licensed Product in the Asthma Field in the
U.S. Territory, subject to any early termination in the U.S. Territory or the
Territory pursuant to Section 17.2, 17.3, 17.4, 17.5 or 17.6.  At the end of
this initial term and each extension thereof, [*] may, at its option, elect to
extend the co-promotion for an additional year, provided that [*] makes such
election in writing to [*] no later than [*] prior to the end of the initial
term or extension term (as the case may be) and provided further that [*] for
the [*] prior to such election [*].  The initial term of co-promotion and any
extensions thereof (in each case, taking into account any early termination in
the U.S. Territory or the Territory pursuant to Section 17.2, 17.3, 17.4, 17.5
or 17.6) shall be referred to herein as the “Co-Promotion Term.”

 

6.5          Sales Force Training.  During the Co-Promotion Term, each Party’s
relevant U.S. Territory operating entities shall be responsible for the
development and conduct of training programs specifically relating to the
co-promoted Licensed Products for the sales representatives of such Party.  The
Parties agree to utilize such training programs on an ongoing basis to assure a
consistent, focused promotional strategy.  The costs of transporting, housing
and maintaining personnel of a Party for such training shall be treated as Sales
Force Expenses of such Party and shall be borne [*] pursuant to Section 6.3(a). 
The Parties shall establish joint training programs as specified by the JSC and
shall share the direct incremental cost of such training [*].  Information
transmitted pursuant to this Section 6.5 shall be treated as Confidential
Information of both Parties.

 

6.6          Joint U.S. Marketing Subcommittee.  The joint U.S. marketing
subcommittee of the JDC shall specify in detail each Party’s obligations,
consistent with Sections 6.1 through 6.5, with respect to Licensed Product
Promotion and Detailing in the Asthma Field in the U.S. Territory during the
Co-Promotion Term.

 

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6.7          Negative Covenant.  Roche hereby covenants that it shall not, nor
shall it cause any Affiliate or sublicensee to [*] Licensed Products in the U.S.
Territory [*], except as expressly permitted by any other written agreement
between the Parties which is currently in existence (including, without
limitation, the Worldwide Daclizumab Agreement), or which may later be entered
into by the Parties.

 

ARTICLE 7

 

COMMERCIALIZATION IN ROW TERRITORY

 

7.1          Commercialization by Roche in ROW Territory.  Except as expressly
set forth in this Article 7, Roche shall have sole responsibility and
decision-making authority for the marketing, promotion, sale and distribution of
the Licensed Product in the Asthma Field in the ROW Territory (collectively, the
“ROW Commercialization Activities”), including post-registration clinical and
marketing studies that are not conducted in order to obtain, expand (as mutually
agreed with PDL) and/or maintain Regulatory Approval of a Licensed Product in
the Asthma Field in the U.S. Territory or European Union.  Roche shall be
responsible for all costs and expenses associated with the ROW Commercialization
Activities.  Roche’s sales force shall promote the Licensed Product in the ROW
Territory in a manner that reflects Roche’s capacities and that is consistent
with Roche’s promotional efforts for its own products of similar market
potential.

 

7.2          Roche Diligence in ROW Territory.

 

(a)           During the term of this Agreement, Roche will provide PDL with its
draft plan for Roche’s, its Affiliates’ and sublicensees’ commercialization of
the Licensed Products in the Asthma Field in the ROW Territory.  PDL shall have
the opportunity to comment on such draft plan, and Roche shall take such
comments into account when finalizing the plan.  Roche shall comply and ensure
the compliance of its Affiliates and

 

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sublicensees with such finalized plan.  Roche shall provide PDL, upon PDL’s
request, with reasonable documentation of such compliance.

 

(b)           Roche, directly or through its Affiliates and/or sublicensees,
shall use Diligent Efforts to commercialize the Licensed Products in the Asthma
Field in each country in the ROW Territory.  Roche shall provide PDL, upon PDL’s
request (such request not to be made more than once per calendar year), with a
written summary specifying in reasonable detail, on a country-by-country basis,
how it has used such Diligent Efforts.

 

7.3          Negative Covenant.  Roche hereby covenants that it shall not, nor
shall it cause any Affiliate or sublicensee to, [*] Licensed Products in the ROW
Territory [*], except as expressly permitted by any other written agreement
between the Parties which is currently in existence (including, without
limitation, the Worldwide Daclizumab Agreement), or which may later be entered
into by the Parties.

 

7.4          [*].  Roche and PDL shall cooperate fully under [*] to [*] and
other [*] for the U.S. Territory and the ROW Territory in order to optimize
global penetration of the Licensed Product in the Asthma Field.

 

7.5          [*]  In order to most effectively establish a [*] for the Licensed
Product with the benefit of Roche’s experience in the areas of [*] the Licensed
Product for Transplant Indications, the Parties may participate in discussions
regarding the [*] of the Licensed Product within and outside the Asthma Field to
the extent [*].

 

7.6          Tracking of Sales.  The Parties recognize that (i) pursuant to
other agreements between the Parties, each Party has the right, as of the
Effective Date, to market Licensed Products for certain mutually exclusive
indications outside the Asthma Field; and (ii) Roche currently markets Licensed
Products in the Territory under the trademark Zenapax® for the prevention of
acute organ rejection in patients receiving kidney transplants.  As a result,
Licensed Products marketed by PDL and/or Roche now or in the future for
indications outside the Asthma Field may nonetheless be sold in the

 

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Asthma Field or in the other Party’s Exclusive Field, and Licensed Products
marketed by PDL and/or Roche now or in the future for indications in the Asthma
Field may nonetheless be sold outside the Asthma Field (collectively,
“Cross-Field Sales”).  In order to detect and limit these Cross-Field Sales of
Licensed Products, the Parties agree as follows:

 

(a)           If at any time during the term of this Agreement, a Party, its
Affiliate, licensee or sublicensee (the “Marketing Party”) has filed in a Major
Regulatory Jurisdiction to obtain regulatory approval for or is marketing a
Licensed Product for an indication in its Exclusive Field (an “Exclusive Field
Product”) or in the Asthma Field (an “Asthma Field Product”) in a particular
territory, and the other Party (the “Non-Marketing Party”) believes that (i)
sales of an Exclusive Field Product or Asthma Field Product (as the case may be)
are occurring or will occur for use in the Exclusive Field of the Non-Marketing
Party; or (ii) solely with respect to territories in which the Non-Marketing
Party has the right to sell Licensed Product in the Asthma Field, sales of the
Exclusive Field Product are occurring or will occur for use in the Asthma Field,
then the Non-Marketing Party may provide notice to the Marketing Party of its
desire to track sales of the Exclusive Field Product or Asthma Field Product (as
the case may be) for the relevant indications in such territory.

 

(b)           Upon receipt of notice under Section 7.6(a), PDL and Roche shall
meet and agree upon a method of tracking sales of each such product for use in
its respective indications including (i) the acquisition of one or more [*]
(including, by way of example, [*]) or other [*] (including, for example, [*])
generally recognized in the pharmaceutical industry as having a [*] in the
tracking of sales of pharmaceutical products that have a similar nature as and
are prescribed by similar physicians as such Exclusive Field Product or Asthma
Field Product (as the case may be) in the U.S. Territory and, if applicable,
outside the U.S. Territory (the “Data Services”), and (ii) the methodology for
applying any such [*] to determine the extent to which sales of the Exclusive
Field Product or Asthma Field Product (as the case may be) are Cross-Field Sales
in the relevant territory.

 

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(c)           All costs associated with the acquisition and application of such
[*] shall be shared by the Parties [*].  In addition, the Parties shall also
meet and confer with respect to: (i) how to account for prescriptions to
patients with multiple afflictions (e.g. transplant patients with asthma), both
within and outside the indications for which the Exclusive Field Product or
Asthma Field Product (as the case may be) has received Regulatory Approval; (ii)
the right for each Party to audit, on a periodic basis, the application of the
[*]; and (iii) a mechanism for addressing prescriptions that are tracked back to
sole source purchasing agreements.

 

(d)           If in the course of applying the foregoing [*] to track sales of
the Exclusive Field Product or Asthma Field Product (as the case may be)
pursuant to this Section 7.6, or in the course of performing an audit of such
application by the other Party, a Party determines that Cross-Field Sales are
occurring at [*] of annual sales in [*], or [*] annually for sales in [*]), the
Parties shall confer regarding an appropriate method either to curtail such
Cross-Field Sales and/or to compensate any affected Party for the economic
effects thereof.

 

(e)           In the event of any unresolved issues, dispute or disagreement
under this Section 7.6, the Parties will submit such dispute, issue or
disagreement for resolution pursuant to Article 18.

 

7.7          Transplant Indications.

 

(a)           The Parties anticipate that under the Worldwide Daclizumab
Agreement, the right to market and sell Daclizumab, which is a Licensed Product,
in the Transplant Indications will revert to PDL in [*].  Accordingly, the
Parties intend to continue to maintain the competitive vitality and value of
Daclizumab in the Transplant Indications and to facilitate eventual transfer of
such marketing and selling activities to PDL.  To that end, the Parties have
agreed to further discussions and collaboration regarding the [*] Daclizumab (as
such term is defined in the Worldwide Daclizumab Agreement) in the Transplant
Indications in the U.S. Territory.  This collaboration will allow PDL to form a
nascent commercial organization before the reversion of

 

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Daclizumab with a view to providing customer and product support in a rapid and
effective manner at the time of transfer of ownership to PDL of Daclizumab as
provided under the Worldwide Daclizumab Agreement.

 

(b)           The Parties desire to contribute their respective product and
marketing expertise to best position Daclizumab competitively.  To that end, the
Parties agree to establish a process for discussion of the positioning of
Daclizumab (as such term is defined in the Worldwide Daclizumab Agreement) in
accordance with this Section 7.7.  In order to facilitate these discussions, if
at any time prior to the earliest of (i) [*] or [*] and (ii) [*], Roche desires
to [*] for Daclizumab for the [*] in the U.S. Territory, then Roche shall notify
PDL immediately in writing and the Parties shall meet in person within a
reasonable time period following notification to discuss the [*].  Roche shall
give due consideration to any recommendations or opinions offered by PDL
regarding the impact of the [*].  The Parties shall have a period of up to [*]
to further confer, but Roche shall have the right to effect such [*] unless PDL
notifies Roche in writing, supported by a [*], of its request for further
consideration pursuant to subparagraph (c) below.

 

(c)           If PDL notifies Roche in writing that it wishes further
consideration of its views, then the Parties shall refer the matter for
discussion by a specially constituted subcommittee of the JDC consisting of [*]
members from each of PDL and Roche with experience in sales and marketing in the
Transplant Indications (the “JDC Special Committee”).  The JDC Special Committee
shall prepare an analysis of the impact of the [*] for Daclizumab on the
Licensed Product. The JDC Special Committee shall have access to information and
personnel from both Parties reasonably required to prepare its analysis and
assessment for review by the full JDC.  The analysis shall be prepared as soon
as practically feasible, in no event later than [*] of the date of notification
from Roche hereunder.  The full JDC shall consider such analysis and assessment
and agree upon a recommendation to the JSC within a reasonable period of time
after receipt of such analysis and assessment.  Thereafter, the JSC shall review
and consider the recommendation of the JDC.  If the JSC is unable to agree on 
the [*],

 

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then the matter shall be submitted for discussion and resolution by [*] and [*]
(the “Officers”).  The JSC shall within [*] days prepare an executive summary
for submission to the Officers.  The Officers shall then, within a reasonable
period of time, meet to resolve the matter.  If the Officers are unable to agree
on appropriate resolution within [*] thereafter, then [*] shall have the sole
right to effect the [*] for Daclizumab.

 

(d)           The term “[*]” in Section 7.7(b) shall mean proposals to: [*] in
the U.S. Territory; proceed with development of [*];  change by more than [*]
for the U.S. Territory to the [*], other than in response to [*] by a [*] or in
response to [*]; use a [*] for Daclizumab other than [*]; change [*] other than
in accordance with [*] applicable to similar products; or change in [*].

 

(e)           As of the Effective Date, Roche shall have no further diligence
obligations in the U.S. Territory under Section 4.6 of the Worldwide Daclizumab
Agreement.  In addition, the Parties agree to discuss in good faith the
possibility of amending the Worldwide Daclizumab Agreement to provide for a
Reversion Exercise Fee (as such term is defined in the Worldwide Daclizumab
Agreement) that is independent of AAGS (as such term is defined in the Worldwide
Daclizumab Agreement).

 

(f)            The Worldwide Daclizumab Agreement shall be deemed to be amended
as necessary to give effect to the provisions of this Section 7.7.

 

ARTICLE 8

 

MANUFACTURE AND SUPPLY

 

8.1          Clinical Supply.

 

(a)           With respect to Licensed Product, PDL shall supply the Active
Pharmaceutical Ingredient (“API”), Investigational Medicinal Product (“IMP”),
and

 

47

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placebo for Development purposes in accordance with the Development Plan, which
shall set forth appropriate milestones to ensure conformance with the
Development Plan.  These milestones, in general, will be based on [*] to conduct
the planned clinical trials in accordance with the projected schedule at each
stage in the Development Plan.  A milestone based on [*] should include the
quantities of and specifications for [*] for Development purposes and an
approximate delivery schedule therefor.  PDL shall review current and proposed
manufacturing subcontractors for clinical supply with the JDC.  The JDC shall
consider using Roche as a subcontractor for various clinical manufacturing
steps, including formulation, filling, finishing, and distribution.  This
consideration of Roche as the formulation, filling, finishing and/or
distribution subcontractor for the clinical supply shall be based on capacity,
quality, compliance, cost, capability, distribution, and the strategic needs of
the Parties, and subject to the normal supplier qualification process at PDL. 
If Roche is selected as a subcontractor, the Parties shall negotiate in good
faith to enter into an appropriate toll manufacturing agreement.

 

(b)           The COGS associated with supplying all API, IMP, and placebo
pursuant to this Section 8.1 for the purposes of obtaining Regulatory Approval
in the U.S. Territory and the European Union shall be [*], consisting of [*] for
such clinical supplies for the phase I and phase II clinical program (the “Phase
I/II [*] Price”) and [*] for such clinical supplies for the phase III clinical
program (the “Phase III [*] Price”).  The Phase I/II [*] Price shall be included
as a Development Expense in [*] in the [*] beginning with [*].   The Phase III
[*] Price shall be included as a Development Expense in [*] in the [*] after
Roche decides to proceed with phase III development (i.e., such decision is
currently identified as the Roche “Full Development Decision Point [FDDP]”
determination as approved by the “Life Cycle Committee [LCC]”).  Roche shall
promptly inform PDL of its decision whether or not to proceed with phase III
development.  If the non-manufacturing aspects of the initial Development Plan
are modified in any manner that results in an increase in the quantity of API,
IMP, or placebo to be manufactured for purposes of obtaining Regulatory Approval
in the U.S. Territory and the European Union, then the Parties shall [*] in the
Phase I/II [*] Price and/or Phase III [*] Price, as

 

48

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appropriate, or agree upon an alternative method of [*] the costs resulting from
such change.

 

(c)           With respect to API, IMP, or placebo supplied by PDL to Roche
pursuant to this Section 8.1 for use in any Development activities not required
to obtain Regulatory Approval in the U.S. Territory or the European Union, Roche
shall pay PDL, within the later of [*] of acceptance of the shipment or [*] of
receipt of the applicable invoice, a transfer price equal to (i) [*], as the
case may be, minus (ii) [*] for the production of such material.  Such amount
shall be deemed an Incremental Development Expense.

 

8.2          Commercial Supply.  Within [*] after the Effective Date, Roche and
PDL shall negotiate in good faith a definitive commercial supply agreement (the
“Commercial Supply Agreement”) that will govern the exact terms and conditions
of the commercial supply of API or other finished form of Licensed Product by
PDL to Roche for sale in the ROW Territory for use in the Asthma Field.  The
Parties acknowledge and agree that the Commercial Supply Agreement will address
Roche’s remedies in the event that PDL is unable to supply or have supplied API
or other finished form of Licensed Product in quantities desired by Roche (a
“Failure to Supply”).  All such remedies set forth in the Commercial Supply
Agreement shall be Roche’s sole remedies with respect to a Failure to Supply.

 

8.3          Transfer Price for Commercial Supply of API.

 

(a)           If Roche desires to perform the fill/finish step of the
manufacturing process of Licensed Product for sale in the Asthma Field in the
ROW Territory, it shall notify PDL of its desire and commitment based on
capacity, quality, compliance, cost, capability and the strategic needs of the
Parties. The Parties shall discuss and agree upon the amounts which Roche would
[*] for the fill/finish step under different reasonably contemplated supply
requirements if Roche were to perform such fill/finish (the “Roche Fill/Finish
Cost”).  If [*] provides a corresponding fill/finish cost that is [*], based on
the same assumptions with respect to the calculations of such cost, then [*]

 

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shall perform such fill/finish step and the Parties shall agree upon the
appropriate commitment for continued fill/finish by [*] (including the frequency
and lead times with which [*]) with a view to ensuring uninterrupted supply of
Licensed Product in the ROW Territory.

 

(b)           Roche will pay PDL a Transfer Price based on [*] calculated as
follows:  Transfer Price = [*]), where the Target Price is determined based on
the [*] as shown below.  The total [*] is determined by combining [*] with [*]. 
For [*] intermediate to those shown below, [*] will be used to determine the
Target Price.  If total [*] are [*] or [*], the Target Price will be [*].

Target Price

 

[*]

 

 

 

[*]

 

[*]

 

 

 

[*]

 

[*]

 

 

 

[*]

 

[*]

 

 

 

[*]

 

[*]

 

 

 

[*]

 

[*]

 

 

 

[*]

 

[*]

 

 

 

[*]

 

[*]

 

The Transfer Price for API will be fixed [*] as described in the Commercial
Supply Agreement to be negotiated between the Parties.

 

8.4          Transfer Price for Commercial Supply of Finished Product.  If PDL
or its subcontractor performs the fill/finish step, then Roche will pay PDL a
Transfer Price based on the [*] Licensed Product [*] calculated as follows: 
Transfer Price = [*], where

 

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the Target Price is determined based on the [*] as shown below.  The total [*]
is determined by combining [*] with [*].  For [*] intermediate to those shown
below, [*] will be used to determine the Target Price.  If total annual order
quantities are [*] or [*], the Parties will [*].  For the purpose of all
calculations under this Section 8.4, finished Licensed Product [*] shall be
handled separately from finished Licensed Product [*].

 

 

[*]

 

Target Price
for [*]

 

Target Price

for [*]

 

 

 

 

 

[*]

 

[*]

 

[*]

 

 

 

 

 

[*]

 

[*]

 

[*]

 

 

 

 

 

[*]

 

[*]

 

[*]

 

 

 

 

 

[*]

 

[*]

 

[*]

 

 

 

 

 

[*]

 

[*]

 

[*]

 

 

 

 

 

[*]

 

[*]

 

[*]

 

 

 

 

 

[*]

 

[*]

 

[*]

 

For the purpose of this Section 8.4:

 

(a)           the term [*] indicates a [*] that contains  [*], which would be
labeled and bulk packaged for shipment only;

 

(b)           the term [*] indicates a [*] that contains [*] (exact package to
be determined), which would be labeled and bulk packaged for shipment only.

 

(c)           In the event that the [*] configurations differ from those
specified above, the Parties shall negotiate in good faith a new Target Price
table.

 

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(d)           The Transfer Price for finished Licensed Product will be fixed [*]
in accordance with the procedure described in the Commercial Supply Agreement to
be negotiated between the Parties.

 

8.5          Transfer Price Following Expiration of Royalty Obligations. 
  Following expiration of Roche’s royalty obligations in a given country in the
ROW Territory pursuant to Section 10.3(b), PDL will continue to supply Licensed
Product to Roche under the terms of the Commercial Supply Agreement, except that
the Transfer Price shall be [*]

 

8.6          Delivery Terms.  The Parties acknowledge and agree that the Target
Prices set forth in Sections 8.3 and 8.4, and the Transfer Price set forth in
Section 8.5, (a) are based on PDL delivering API or other finished form Ex Works
(Incoterms 2000) PDL’s or its Third Party manufacturer’s facilities and (b) do
not include the cost of any shipping fees, freight charges, insurance, import
and export compliance fees, consumption taxes, withholding taxes, customs,
duties and other taxes imposed by any government taxing authority in connection
with API or other finished form supplied by PDL for the ROW Territory.

 

8.7          Transition Services After Expiration.  If Roche or its Affiliate
or  sublicensee is still selling the Licensed Product in the ROW Territory in
the Asthma Field at the time of expiration of this Agreement and Roche wishes to
assume the responsibility for supplying the Licensed Product for such sales,
then Roche shall notify PDL in writing at least [*] prior to the expiration of
this Agreement and PDL for a reasonable transition period thereafter shall
supply Licensed Product to Roche and provide Roche with certain transition
services related to the transfer of manufacturing from PDL to Roche or its
designee, all under the terms of (and subject to the execution of) a separate
written agreement to be negotiated by the Parties in good faith.

 

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ARTICLE 9

 

R&D REIMBURSEMENT PAYMENT AND DEVELOPMENT PAYMENTS

 

9.1          [*].  Roche shall pay to PDL a non-refundable, non-creditable
payment of Seventeen Million Five Hundred Thousand Dollars ($17,500,000) [*]
within [*] after the Effective Date.

 

9.2          Development Payments.  Roche shall pay to PDL the following
non-refundable and non-creditable amounts no later than [*] after the later of
(i) first occurrence of the indicated event with respect to a Licensed Product
in the Asthma Field or (ii) receipt by Roche of an invoice for such amount:

 

Event

 

Payment

 

 

 

(a)

[*] (as defined and specified in Exhibit E)

 

[*]

 

 

 

 

 

 

(b)

[*] (as defined and specified in Exhibit E)

 

[*]

 

 

 

 

 

 

(c)

[*] (as described in Exhibit B) prior to [*]

 

[*] 

 

 

 

 

 

 

(d)

[*]

 

[*] 

 

 

 

 

 

 

(e)

[*]

 

[*] 

 

 

 

 

 

 

(f)

[*]

 

[*] 

 

 

 

 

 

 

(g)

[*]

 

[*]

 

 

If Roche is responsible for achieving an event listed in this Section 9.2, then
Roche shall provide PDL with written notice of the first occurrence of such
event within [*] of such occurrence.  If Roche fails to provide such notice
within such [*] period, then Roche’s associated payment shall be due no later
than [*] after such event.  If any of the payments specified in [*] have not
been made at the time the payment specified in

 

53

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[*] becomes due and payable, then Roche shall make all such unpaid payments no
later than the due date for the payment specified in Section [*], regardless of
whether the events specified in [*] have occurred.

 

ARTICLE 10

PAYMENTS BASED ON SALES OF PRODUCTS

 

10.1        Profit Share in the U.S. Territory.  PDL shall pay Roche, within [*]
after the end of each calendar quarter during the Co-Promotion Term, an amount
equal to [*] of the [*] for such calendar quarter.    The Parties acknowledge
and agree that the payments set forth in this Section 10.1 are in lieu of,
rather than in addition to, any payments that would otherwise have been due to
Roche pursuant to Section 7.2(c) of the Worldwide Daclizumab Agreement on
account of the [*].

 

10.2        [*] in the U.S. Territory.

 

(a)           For each of the [*] following the [*], PDL shall pay to Roche [*]
on a quarterly basis on PDL Net Sales of the Licensed Product [*], at the
following rates:

 

Year

 

Royalty Rate

For the [*] following the [*]

 

[*]

 

 

 

For the [*] following the [*]

 

[*]

 

 

 

For the [*] following the [*]

 

[*]

 

If in the U.S. Territory, sales of units of Generic Products in the aggregate
total at least [*] of the aggregate sales of units of all Generic Products and
Licensed Products as measured [*], then PDL shall have the right to [*] due
under [*] by [*] in the [*], [*] in the [*], and [*] in the [*] (in each case
rounded to the nearest [*]).  For clarity, if such [*] are

 

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applicable, then the actual [*] paid by PDL shall be [*] in the [*], [*] in the
[*], and [*] in the [*].

 

(b)           For clarity, the [*] specified in Section 10.2(a) are [*]), the
first of which commences on [*].  The Parties acknowledge and agree that the
payments set forth in Section 10.2(a) are in lieu of, rather than in addition
to, any payments that would otherwise have been due to Roche pursuant to Section
7.2(c) of the Worldwide Daclizumab Agreement on account of [*].

 

10.3        Royalties in the ROW Territory.

 

(a)           For each calendar year or portion thereof during the term
specified below, Roche shall pay to PDL incremental royalties on Roche Net
Sales, at a royalty rate determined by annual Roche Net Sales of all Licensed
Products as follows:

 

Annual Roche Net Sales (US$)

 

Royalty Rate

 

 

 

Up to and including [*]

 

[*]

 

 

 

Above [*] but not exceeding [*]

 

[*]

 

 

 

Above [*]

 

[*]

 

Roche shall have the right to deduct from any royalties payable under this
Section 10.3(a) the following:  (i) [*] for Licensed Products sold in the ROW
Territory (on a first-in, first-out basis) during the royalty reporting period
for which such royalties are due; and (ii) any [*] for Licensed Product sold in
the ROW Territory (on a first-in, first-out basis) during the royalty reporting
period for which such royalties are due.

 

(b)           Roche’s obligation to pay a royalty under Section 10.3(a) for a
particular Licensed Product shall expire, on a country-by-country basis, on the
later of (i) [*] following the First Commercial Sale of such Licensed Product in
such country and (ii)

 

55

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the last date on which the making, using, selling, or importing of Licensed
Product, but for the licenses granted herein, would infringe a Valid Claim.  If
required by law, the First Commercial Sale in the European Union will be
considered the First Commercial Sale in each country of the European Union.

 

(c)           The Parties acknowledge and agree that no payments will be owed to
Roche pursuant to Section 7.2(c) of the Worldwide Daclizumab Agreement on
account of those sales of Licensed Products included in Roche Net Sales
hereunder.

 

10.4        Adjustments Related to Third Party Competition.  If in a country of
the ROW Territory sales of units of Generic Products in aggregate total at least
[*] of the aggregate sales of units of all Generic Products and Licensed
Products as measured [*], then Roche shall have the right to [*] any royalties
due under Section 10.3 (after the applicable [*], if applicable) by: (a) [*] in
the [*] in which such Generic Product sales achieve such sales levels; (b) [*]
in the [*], and (c) [*] in the [*] and all subsequent such years during the
royalty term (in each case rounded to the nearest [*]).

 

10.5        Adjustments for Third Party Licenses.  Roche and PDL shall share all
costs associated with Third Party Licenses in the ROW Territory as set forth in
this Section 10.5.  Roche shall be responsible for [*] of all payments under
Third Party Licenses that are not included in the Transfer Price and are
allocable to the use, development, sale, manufacture, or import of Licensed
Products in the ROW Territory, including without limitation all payments under
Third Party Licenses (a) calculated based on sales of Licensed Products in the
ROW Territory; (b) made on account of the achievement of particular events
relating to development or commercialization of Licensed Products in the ROW
Territory; and (c) as consideration for a grant of a license or other rights in
the ROW Territory (collectively, “ROW License Payments”).  PDL shall be
responsible for the remaining [*] of ROW License Payments.  The Parties shall,
within [*] after the end of each [*], reimburse each other to effect the sharing
of ROW License Payments set forth in this Section 10.5.  For each license
agreement that is included in Third Party Licenses pursuant to Section 1.81(b)
and that is also

 

56

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necessary for the use, manufacture, sale, offering for sale, or importation of
products outside the Asthma Field, the Parties will [*] of payments under such
license agreement to determine the portion of such payments [*], which portion
alone shall be includable in ROW License Payments.  This Section 10.5 shall
supersede Section 7.4 of the Worldwide Daclizumab Agreement to the extent
Section 7.4 of the Worldwide Daclizumab Agreement is applicable to any ROW
License Payments.

 

10.6        [*] Payments.  Roche shall pay to PDL the following one-time,
non-refundable and non-creditable amounts within [*] after the later of (i) the
first achievement of the indicated events with respect to [*] of all Licensed
Products in the Territory, and (ii) receipt by Roche of an invoice for such
amount:

 

Event

 

Payment

 

[*]

 

[*]

 

[*]

 

[*]

 

[*]

 

[*]

 

 

For clarity, if more than one of the indicated [*] events occurs in the same
calendar year, then Roche shall pay PDL the sum of all payments corresponding to
such [*] events.  Roche shall provide PDL with written notice of the first
achievement of each event listed in this Section 10.6 within [*] of such
achievement.  If Roche fails to provide such notice within such [*] period, then
Roche’s associated payment shall be due no later than [*] after such event.

 

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ARTICLE 11

PAYMENT; REPORTS; AUDITS

 

11.1        Roche Quarterly Royalty Payments and Reports.

 

(a)           Until the expiration of Roche’s royalty obligations under Section
10.3, Roche agrees to make payments and written reports to PDL within [*] after
the end of each calendar quarter covering all sales of the Licensed Products in
the Asthma Field in the ROW Territory by Roche, its Affiliates or sublicensees
(except PDL, its Affiliates and sublicensees) for which invoices were sent
during such calendar quarter, each such written report stating for the period in
question:

 

(i)            for Licensed Products disposed of by sale, the description of
Licensed Products and the calculation of Roche Net Sales,

 

(ii)           for Licensed Products disposed of other than by sale, the
description and nature of the disposition, and

 

(iii)         the calculation of the amount due to PDL for such quarter pursuant
to Sections 10.3, 10.4, 10.5 and 10.6.

 

(b)           The information contained in each report under Section 11.1(a)
shall be considered Confidential Information of Roche.  Concurrent with the
delivery of each quarterly report, Roche shall make the payment due PDL
hereunder for the calendar quarter covered by such report.

 

(c)           It is understood that only one royalty payment under Article 10
shall be payable on a given unit of Licensed Product disposed of under this
Agreement.  In the case of transfers or sales of any Licensed Product between
Roche and an Affiliate sublicensee of Roche, such royalty shall be payable with
respect to, the sale of such Licensed Product to (i) an independent Third Party
not an Affiliate of the seller or (ii) if the end user is an Affiliate of the
seller, then such end user.

 

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11.2        PDL Quarterly Royalty Payments and Reports.

 

(a)           During the [*] period of PDL’s royalty obligations under Section
10.2, PDL agrees to make payments and written reports to Roche within [*] after
the end of each calendar quarter covering all sales of the relevant Licensed
Product in the Asthma Field in the U.S. Territory by PDL for which invoices were
sent during such calendar quarter, or, in the case of royalties from the PDL Net
Sales of PDL’s Affiliates or sublicensees (except Roche, its Affiliates and
sublicensees), within [*] following the end of the quarter in which PDL receives
the royalty report from the Affiliate sublicensee.  Each report shall state for
the period in question:

 

(i)            for such Licensed Products disposed of by sale, the description
of Licensed Products and the calculation of PDL Net Sales therefor,

 

(ii)           for such Licensed Products disposed of other than by sale, the
description and nature of the disposition, and

 

(iii)         the calculation of the amount due to Roche for such quarter
pursuant to Section 10.2.

 

(b)           The information contained in each report under Section 11.2(a)
shall be considered Confidential Information of PDL.  Concurrent with the
delivery of each quarterly report, PDL shall make the payment due Roche
hereunder for the calendar quarter covered by such report.

 

(c)           It is understood that only one royalty payment under Section 10.2
shall be payable on a given unit of Licensed Product disposed of under this
Agreement.  In the case of transfers or sales of any Licensed Product between
PDL and an Affiliate sublicensee of PDL which is subject to royalties under
Section 10.2, such royalty shall be payable with respect to the sale of such
Licensed Product to (i) an independent Third Party not an Affiliate of the
seller or (ii) if the end user is an Affiliate of the seller, then such end
user.

 

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11.3        Gross Margin Reports.  Along with the payment specified in Section
10.1, PDL shall provide Roche with a written report (the “Gross Margin Report”)
containing the PDL Adjusted Gross Sales, COGS and the calculation of the amount
due to Roche.  The information contained in each report under this Section 11.3
shall be considered Confidential Information of the Parties.

 

11.4        Other Reports.  The Parties’ reporting obligations with respect to
Development Expenses and Operating Expenses are set forth in Sections 4.6(c) and
6.3(b).  The information contained in such reports shall be considered
Confidential Information of both Parties.

 

11.5        Accounting.

 

(a)           Product Sales Records.  Each Party (the “Royalty Paying Party”)
agrees to keep full, clear and accurate records for a period of at least [*]
after the relevant payment is owed pursuant to this Agreement, setting forth the
manufacturing, sales and other disposition of Licensed Products sold or
otherwise disposed of in sufficient detail to enable royalties and compensation
payable to the other Party (the “Royalty Receiving Party”) hereunder to be
determined.  Each Royalty Paying Party further agrees to permit its books and
records to be examined by an independent accounting firm selected by the Royalty
Receiving Party to verify reports provided for in Sections 11.1, 11.2, or 11.3. 
Unless the Royalty Receiving Party obtains the prior written consent of the
Royalty Paying Party, such accounting firms must be selected from among the four
largest global accounting firms.  Such audit shall not be performed more
frequently that [*] per calendar year nor more frequently than [*] with respect
to records covering any specific period of time.  Such examination is to be made
at the expense of the Royalty Receiving Party, except in the event that the
results of the audit reveal a discrepancy in favor of the Royalty Paying Party
of [*] or more over the period being audited, in which case reasonable audit
fees for such examination shall be paid by the Royalty Paying Party.

 

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(b)           Expense Records.  Each Party (the “Expense Incurring Party”)
agrees to keep full, clear and accurate records for a period of at least [*]
after the relevant report is made pursuant to Section 4.6(c) or 6.3(b) setting
forth its Development Expenses or Operating Expenses, as applicable, incurred in
sufficient detail to enable royalties and compensation payable to the other
Party (the “Expense Reimbursing Party”) hereunder to be determined.  Each
Expense Incurring Party further agrees to permit its books and records to be
examined by an independent accounting firm selected by the Expense Reimbursing
Party to verify reports made pursuant to Section 4.6(c) or 6.3(b), as
applicable.  Unless the Expense Reimbursing Party obtains the prior written
consent of the Expense Incurring Party, such accounting firms must be selected
from among the four largest global accounting firms.  Such audit shall not be
performed more frequently that [*] per calendar year nor more frequently than
[*] with respect to records covering any specific period of time.  Such
examination is to be made at the expense of the Expense Reimbursing Party,
except in the event that the results of the audit reveal a discrepancy in favor
of the Expense Incurring Party of [*] or more over the period being audited, in
which case reasonable audit fees for such examination shall be paid by the
Expense Incurring Party.

 

11.6        Methods of Payments.  All payments due to either PDL or Roche under
this Agreement shall be paid in Dollars by wire transfer to a bank in the U.S.
designated in writing by the Party to which the payment is due.

 

11.7        Taxes.  If provision is made in law or regulation of any country of
the Territory for withholding of taxes of any type, levies or other charges with
respect to the any amounts payable hereunder to a Party or its Affiliates, the
other Party or its Affiliates (“Withholding Party”) shall promptly pay such tax,
levy or charge for and on behalf of the Party to the proper governmental
authority, and shall promptly furnish the Party with receipt of such payment. 
The Withholding Party shall have the right to deduct any such tax, levy or
charge actually paid from payment due the Party or be promptly reimbursed by the
Party if no further payments are due the Party.  Each Withholding Party agrees
to assist the other Party in claiming exemption from such

 

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deductions or withholdings under double taxation or similar agreement or treaty
from time to time in force and in minimizing the amount required to be so
withheld or deducted.

 

11.8        Currency.  All payments under this Agreement shall be in Dollars.

 

11.9        Late Payments.  Any amount owed by one Party to the other Party
under this Agreement that is not paid within the applicable time period set
forth herein shall accrue interest at the [*] as reported by Bloomberg (or a
successor or similar organization).

 

ARTICLE 12

PATENTS AND KNOW-HOW

 

12.1        PDL Technology.  Ownership of the PDL Inventions, PDL Know-How and
PDL Patents shall remain vested at all times in PDL.

 

12.2        Joint Inventions and Joint Roche-PDL Patents.  Subject to Section
12.6(e), ownership of Joint Inventions and Joint Roche-PDL Patents shall be
vested jointly in PDL and Roche.  Except where such activities would conflict
with an exclusive license granted to a Party in this Agreement or in the
Worldwide Daclizumab Agreement, both Parties shall at all times have the
co-exclusive right within the Territory to practice, or to make, have made, use,
import, offer for sale or sell any Joint Invention under any Joint Roche-PDL
Patent, and neither Party shall be obligated to account to the other.   As used
herein, a right to practice any Joint Roche-PDL Patent for a particular purpose
without any obligation to account shall include the right to grant licenses for
such purpose without the consent of the other Party.  To the extent either Party
needs the consent of the other Party to exploit its co-exclusive or exclusive
rights with respect to Joint Roche-PDL Patents, including the right to
sublicense or enforce

 

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such Joint Roche-PDL Patents, the other Party shall cooperate with the Party
making such a request and promptly supply all needed consents, signatures and
the like.

 

12.3        Roche Technology.  Except as expressly provided in this Agreement or
the Worldwide Daclizumab Agreement, ownership of the Roche Know-How, Roche
Patents and Collaboration Inventions shall remain vested at all times in Roche.

 

12.4        Disclosure of New Inventions.  At a regular interval to be agreed by
the Parties (but no less than quarterly), the Parties shall disclose to each
other any Joint Inventions, Collaboration Inventions, or other inventions that
constitute or will constitute new PDL Know-How, Roche Know-How, PDL Patents (if
a patent application is filed), or Roche Patents (if a patent application is
filed), to extent that any of the foregoing were conceived or reduced to
practice since the previous new invention disclosure.

 

12.5        Prosecution of Sole PDL Patents and Sole Roche Patents.

 

(a)           PDL agrees to prosecute and reasonably maintain all of the patents
and applications included within the Sole PDL Patents (except for [*]), to the
extent it has the rights to do so, consistent with the patent strategy developed
by the JPC, and Roche agrees to prosecute and reasonably maintain the Sole Roche
Patents, to the extent it has the rights to do so from any co-owner of such Sole
Roche Patents, consistent with the patent strategy developed by the JPC.   The
costs and expenses for such prosecution and maintenance shall be allocated
between the Parties as set forth in Section 12.7.

 

(b)           The Party responsible for such patent (“Responsible Party”) shall
provide the other Party with a reasonable opportunity to comment on all draft
filings prior to their submission to the relevant patent authority.  On the
reasonable request of the Responsible Party, the other Party shall cooperate, in
all reasonable ways, in connection with the prosecution of all patent
applications included within the Sole PDL Patents or Roche Sole Patents, as the
case may be.  Should the Responsible Party decide that it is no longer
interested in maintaining or prosecuting a Sole PDL Patent

 

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(except for those [*]) or Sole Roche Patent, as the case may be, it shall
promptly advise the other Party thereof and, at the request of such other Party,
PDL and Roche shall negotiate in good faith to determine an appropriate course
of action in the interests of both Parties.  If any Sole PDL Patents are
assigned to Roche, Roche will thereafter prosecute and reasonably maintain such
Sole PDL Patents at Roche’s own cost to the extent that Roche desires to do so,
provided that to the extent such Sole PDL Patent contains claims outside the
Asthma Field, PDL and its Affiliates shall have a worldwide immunity from suit
thereunder.  If Roche’s interest in any Sole Roche Patent is assigned to PDL,
PDL will thereafter prosecute and reasonably maintain such Sole Roche Patent at
PDL’s own cost to the extent that PDL desires to do so, provided that to the
extent such Sole Roche Patent contains claims outside the Asthma Field, Roche
and its Affiliates shall have a worldwide immunity from suit thereunder.   In
the event Roche’s interest in the Sole Roche Patents is assigned to PDL pursuant
to Section 5.4(e) of the Worldwide Daclizumab Agreement, Roche shall have no
further rights with respect thereto.

 

12.6        Prosecution of Joint Inventions.

 

(a)           PDL will have the first right of election to file priority patent
applications for Joint Inventions in any country in the Territory.  If PDL
declines to file such applications then Roche may do so.   Such filings and all
subsequent prosecution and maintenance shall be consistent with the patent
strategy developed by the JPC.

 

(b)           The Party not performing the priority patent filings for Joint
Inventions pursuant to this Section 12.6 undertakes without cost to the filing
Party to obtain all necessary assignment documents for the filing Party, to
render all signatures that shall be necessary for such patent filings and to
assist the filing Party in all other reasonable ways that are necessary for the
issuance of the patents involved as well as for the maintenance and prosecution
of such patents.  The Party not performing the patent filings shall on request
be authorized by the other Party to have access to the files concerning such
patents in any patent offices in the world.

 

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(c)           The Party performing the priority patent filings for Joint
Inventions pursuant to this Section 12.6 undertakes to perform the corresponding
convention filings from case to case, after having discussed the countries for
foreign filings with the other Party.

 

(d)           The costs and expenses for prosecution and maintenance of Joint
Roche-PDL Patents shall be allocated between the Parties as set forth in Section
12.7.

 

(e)           Should the Responsible Party decide that it is no longer
interested in maintaining or prosecuting a Joint Roche-PDL Patent, it shall
promptly advise the other Party thereof and the Parties shall discuss whether
the Responsible Party shall assign such Joint Roche-PDL Patent to the other
Party at no cost to the assignee.  If any such patents or patent applications
are assigned to Roche, they shall then be deemed to be a Sole Roche Patent and,
to the extent such Joint Roche-PDL Patent contains claims outside the Asthma
Field, PDL and its Affiliates shall have a worldwide immunity from suit
thereunder.  If any such patents or patent applications are assigned to PDL,
they shall then be deemed to be a Sole PDL Patent and, to the extent such Joint
Roche-PDL Patents contain claims outside the Field, Roche and its Affiliates
shall have a worldwide immunity from suit thereunder.

 

12.7        Allocation of Patent Prosecution Expenses.  The costs incurred by
the Parties with respect to the prosecution and maintenance of PDL Patents and
Roche Patents in the U.S. Territory and the European Union, or in connection
with the international phase of PCT applications that designate the U.S. and/or
European Union countries, shall be included in [*] and shall be shared [*] by
the Parties until the end of the Co-Promotion Term.  Thereafter, [*] shall be
solely responsible for such costs in the [*] or in connection with the
international phase of PCT applications that designate the [*], and [*] shall be
solely responsible for such costs in the [*] or in connection with the
international phase of PCT applications that designate one or more [*] countries
but not [*].  PDL shall bear [*] of the costs incurred by the Parties with
respect to the post-issuance maintenance of PDL Patents in the ROW Territory
(except for the European

 

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Union).  Except as set forth in the preceding sentence, Roche shall bear [*] of
the costs incurred by the Parties with respect to the prosecution and
maintenance of PDL Patents and Roche Patents in the ROW Territory (except for
the European Union) until the termination of Roche’s royalty obligations under
Section 10.3.  Thereafter, PDL will be solely responsible for such costs with
respect to the PDL Patents and Roche shall be solely responsible for such costs
with respect to Sole Roche Patents.  Notwithstanding anything to the contrary
set forth above, PDL will be solely responsible for all costs with respect to
the prosecution and maintenance of the [*].

 

12.8        Enforcement and Defense of Sole Patents.

 

(a)           In the event of any action against a Third Party for infringement
of any claim in any issued patent within the Sole PDL Patents or Sole Roche
Patents, as the case may be, or the institution by a Third Party of any
proceedings for the revocation of any such claim, each Party will notify the
other promptly and, following such notification, the Parties shall confer.  In
the [*] Territory, [*] shall have the right, but not the obligation, to
prosecute such actions or to defend such proceedings involving the [*] in the
Asthma Field, in its own name and entirely under its own direction and control. 
The Parties shall share [*] all expenses associated with such action or
proceeding, provided it is commenced prior to [*].  [*] shall bear all costs
associated with any such action or proceeding commenced after [*].  In the [*]
Territory, [*] shall have the right, but not the obligation, to prosecute such
actions or to defend such proceedings involving the [*] (other than the [*]) in
the Asthma Field at [*], in its own name and entirely under its own direction
and control.  [*] shall have the right, but not the obligation, to prosecute
such actions or to defend such proceedings involving the [*] at [*], in its own
name and entirely under its own direction and control.

 

(b)           If a Party with the first right hereunder elects not to prosecute
any action for infringement or to defend any proceeding for revocation of any
claims in any issued patent within the [*] (other than the [*] and those [*] for
which [*]) in the Asthma Field or [*] (other than those [*]), as the case may
be, within [*] of being requested by

 

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the other Party to do so, the other Party may prosecute such action or defend
such proceeding at its own expense, in its own name and entirely under its own
direction and control, provided however, that the Parties shall [*] all expenses
associated with actions or proceeding brought in the U.S. Territory prior to [*]
with respect to [*] in the Asthma Field.  After [*], [*] shall not have any
right to bring any action or defend any proceeding in the U.S. Territory with
respect to a [*].

 

(c)           In any event, the Party bringing an action (“Acting Party”)
pursuant to this Section 12.8 shall solicit, and seriously consider in good
faith the non-acting Party’s input with respect to all material aspects of such
action, including without limitation, the development of the litigation strategy
and the execution thereof.  In furtherance and not in limitation of the
foregoing, the Acting Party shall keep the other Party promptly and fully
informed of the status of any such action, and the non-acting Party shall have
the right to review and comment on the Acting Party’s activities related
thereto.

 

(d)           Each Party will reasonably assist the Acting Party in any such
action or proceeding being prosecuted or defended by the Acting Party, if so
requested by the Acting Party or required by law.  Without limiting the
generality of the foregoing, the non-acting Party agrees to join such action or
proceeding if required by law to maintain such action or proceeding.  The Acting
Party will pay or reimburse the assisting Party for all costs, expenses and
liabilities that the assisting Party may incur or suffer in affording assistance
to such actions or proceedings.  No settlement of any such action or defense
that restricts the scope or affects the enforceability of PDL Know-How or Sole
PDL Patents may be entered into by either PDL (if it would affect Roche’s rights
under this Agreement) or Roche without the prior consent of the other Party
hereto, [*].  No settlement of any such action or defense that restricts the
scope or affects the enforceability of Roche Know-How or Sole Roche Patents may
be entered into by either PDL or Roche without the prior consent of the other
Party hereto (if it would affect the other Party’s rights under this Agreement),
[*].

 

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(e)           If either Party elects to prosecute an action for infringement or
to defend any proceedings for revocation of any claims pursuant to this
Section 12.8 and subsequently ceases to continue or withdraws from such action
or defense, it shall forthwith so notify the other Party in writing and the
other Party may substitute itself for the withdrawing Party and the Parties’
respective rights and obligations under this Section 12.8 shall be reversed.

 

(f)            Notwithstanding the foregoing, at PDL’s request [*], Roche shall
assist PDL with respect to enforcement or revocation actions outside the Asthma
Field with respect to a Sole PDL Patent claiming the composition of matter of a
Licensed Product.

 

12.9        Enforcement and Defense of Joint Roche-PDL Patents.  In the event of
any action against a Third Party for infringement of any claim in any issued
patent within the Joint Roche-PDL Patents, or the institution by a Third Party
of any proceedings for the revocation of any such claim, each Party will notify
the other promptly and, following such notification, the Parties shall confer to
determine whether either or both Parties shall control the prosecution or
defense of such action or proceeding and who shall bear the costs thereof.  If
both Parties wish to control the prosecution or defense of such action or
proceeding and the Parties are unable to reach agreement within [*] of the
notification referred to above, then [*] shall have the exclusive right to bring
such action or defend such proceeding, in its own name and entirely under its
own direction, and at [*] request, [*] shall participate in such action or
proceeding at [*].  No settlement of any action or defense that restricts the
scope or affects the enforceability of Joint Roche-PDL Patents may be entered
into by either PDL or Roche without the prior consent of the other Party hereto,
which consent shall not be unreasonably withheld.  In any event, the Acting
Party pursuant to this Section 12.9 shall solicit, and seriously consider in
good faith the other Party’s input with respect to all material aspects of such
action, including without limitation, the development of the litigation strategy
and the execution thereof.  In furtherance and not in limitation of the
foregoing, the Acting Party shall keep the other Party promptly and fully
informed of the status of any such action, and the

 

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other Party shall have the right to review and comment on the Acting Party’s
activities related thereto.

 

12.10      Distribution of Proceeds.  In the event either Party exercises the
rights conferred in Section 12.8 or 12.9 hereof, and recovers any damages or
other sums in such action, suit or proceeding or in settlement thereof, such
damages or other sums recovered shall first be applied to reimburse the Parties
for all costs and expenses incurred in connection therewith, including
reasonable attorneys’ fees necessarily involved in the prosecution and/or
defense of any suit or proceeding and, if after such reimbursement any funds
shall remain from such damages or other sums recovered, said remaining recovery
shall be allocated as follows:

 

(a)           With respect to actions or proceedings commenced hereunder in the
U.S. Territory prior to the end of the Co-Promotion Term regarding one or more
Sole PDL Patents or Sole Roche Patents, the Parties shall [*] share such
remaining recovery;

 

(b)           With respect to actions or proceedings commenced hereunder in the
U.S. Territory after the end of the Co-Promotion Term regarding one or more Sole
PDL Patents or Sole Roche Patents, [*] shall retain such remaining recovery in
its entirety;

 

(c)           With respect to actions or proceedings commenced hereunder in the
ROW Territory regarding one or more Sole PDL Patents or Sole Roche Patents, [*]
shall retain such remaining recovery in its entirety, provided that if [*] is
the acting Party, then such remaining recovery shall be deemed [*] and [*] shall
pay [*] a royalty based thereon in accordance with the terms set forth in
Section [*];

 

(d)           With respect to actions or proceedings commenced by PDL hereunder
with respect to a Joint Roche-PDL Patent, such remaining recovery shall be
divided between the Parties [*]; and

 

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(e)           With respect to actions or proceedings commenced by Roche
hereunder with respect to a Joint Roche-PDL Patent, such remaining recovery
shall be divided [*] between the Parties.

 

12.11      Defense of Infringement Actions.

 

(a)           If Roche and/or PDL are named as defendant(s) in a patent
infringement suit filed by a Third Party concerning the development,
manufacture, production, use, importation, offer for sale, or sale of Licensed
Products in the Asthma Field in the ROW Territory, then Roche shall defend such
suit at its own cost and shall indemnify and hold PDL harmless against any such
patent or other infringement suits, and any claims, losses, damages,
liabilities, expenses, including reasonable attorneys’ fees and cost, that may
be incurred by PDL therein or in settlement thereof.  Any and all settlements
that restrict the scope or enforceability of PDL Know-How or PDL Patents must be
approved by PDL, in its sole and absolute discretion, before execution by
Roche.  Any and all settlements that restrict the scope or enforceability of
Joint Roche-PDL Patents or Sole Roche Patents (other than those Sole Roche
Patents co-owned by a Third Party) must be approved by PDL before execution by
Roche, such approval not to be unreasonably withheld.  PDL shall not be required
to approve any settlement that does not include as a condition thereof the
granting to PDL of a full and unconditional release of claims.

 

(b)           If Roche and/or PDL are named as defendant(s) in a patent
infringement suit filed by a Third Party concerning the methods or products used
by or on behalf of PDL during the manufacture of Licensed Products for sale in
the Asthma Field in the U.S. Territory, and PDL had not previously disclosed to
Roche that it was using such methods or products during such manufacture, then
PDL shall defend such suit at its own cost and hold Roche harmless against any
such patent or other infringement suits, and any claims, losses, damages,
liabilities, expenses, including reasonable attorneys’ fees and costs, that may
be incurred by either Party therein or in settlement thereof.  Any and all
settlements must be approved by both Parties, such

 

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approval not to be unreasonably withheld.  Roche shall not be required to
approve any settlement that does not include as a condition thereof the granting
to Roche of a full and unconditional release of claims.

 

(c)           If Roche and/or PDL are named as defendant(s) in a patent
infringement suit not covered by Section 12.11(b) that is filed by a Third Party
concerning the development, manufacture, production, use, importation, offer for
sale, or sale of Licensed Products in the Asthma Field in the U.S. Territory
prior to the end of the Co-Promotion Term, then the Parties shall share [*] all
costs associated with such suit including all claims, losses, damages,
liabilities, expenses, including reasonable attorneys’ fees and costs, that may
be incurred by either Party therein or in settlement thereof.  Any and all
settlements must be approved by both Parties, such approval not to be
unreasonably withheld.  Neither Party shall not be required to approve any
settlement that does not include as a condition thereof the granting to such
Party of a full and unconditional release of claims.

 

(d)           During the term of this Agreement, each Party shall bring to the
attention of the other Party all information regarding potential infringement of
Third Party intellectual property rights via the development, manufacture,
production, use, importation, offer for sale, or sale of Licensed Products in
the Asthma Field in the ROW Territory or the U.S. Territory.  The Parties shall
discuss such information and decide how to handle such matter.

 

(e)           This Section 12.11 shall not be interpreted as placing on either
Party a duty of inquiry regarding Third Party intellectual property rights.

 

12.12      Right to Counsel.  Each Party to this Agreement shall always have the
right to be represented by counsel of its own selection and its own expense in
any suit or other action instituted by the other for infringement, under the
terms of this Agreement.

 

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12.13      Conflicts.  If the terms set forth in this Article 12 conflict with
or are inconsistent with any terms set forth in the Worldwide Daclizumab
Agreement, then the terms set forth in this Article 12 shall prevail to the
extent necessary to overcome such conflict or inconsistency.

 

ARTICLE 13

TRADEMARKS

 

13.1        Selection and Procurement of Trademarks.  The JSC shall select a
single trademark to be used to market the Licensed Product in the Asthma Field
throughout the Territory.  If the JSC selects the Zenapax Trademark as the
single trademark to be used to market the Licensed Product in the Asthma Field
and the Zenapax Trademark has not been previously assigned to PDL pursuant to
the Worldwide Daclizumab Agreement, Roche shall be responsible for maintenance
of trademark registrations for the Zenapax Trademark in the ROW Territory. 
Those expenses incurred by Roche with respect to Zenapax Trademark in the U.S.
Territory shall be included in Operating Expenses.  If the JSC selects a
trademark other than the Zenapax Trademark as the single trademark to be used to
market the Licensed Product in the Asthma Field or the Zenapax Trademark has
been previously assigned to PDL pursuant to the Worldwide Daclizumab Agreement,
then the selected trademark shall be deemed a PDL Trademark and shall be owned
by PDL.  PDL shall be responsible for procurement and maintenance of trademark
registrations for the PDL Trademarks in the Territory, except that PDL may cease
trademark registration procurement activities for any PDL Trademark in any
country in the ROW Territory provided it first offers Roche the opportunity to
assume such activities at its own expense.  Those expenses incurred by PDL with
respect to PDL Trademarks in the U.S. Territory shall be included in Operating
Expenses.

 

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13.2        Use of the Trademarks.  Roche and its Affiliates and sublicensees
shall use the PDL Trademarks only in connection with the development, use,
marketing, promotion, detailing, sale, and offer for sale of Licensed Product in
the Territory in accordance with the licenses granted in Sections 2.1(a)(iii)
and 2.1(b)(ii).  It is understood and agreed by PDL that, in the ROW Territory,
Roche shall have the right to use the corporate names of Roche and its
Affiliates, and associated logos and designs, in conjunction with the PDL
Trademarks, and shall identify PDL on all packaging and labeling as the
manufacture and co-developer of the Licensed Product.  It is also understood and
agreed that, during the Co-Promotion Term in the U.S. Territory, the Parties
shall have the right to use the corporate names of the Parties and their
Affiliates, and all associated logos and designs, in conjunction with the PDL
Trademarks.

 

13.3        PDL House Marks.  Roche acknowledges the goodwill and reputation
associated with the PDL House Marks and shall use the PDL House Marks in a
manner that maintains and promotes such goodwill and reputation.  Roche shall
take all reasonable precautions and actions to protect the goodwill and
reputation that has inured to the PDL House Marks, shall refrain from doing any
act that is reasonably likely to impair the reputation of the PDL House Marks,
and shall cooperate fully to protect the PDL House Marks.

 

13.4        Quality Control.  Roche’s use of the PDL Trademarks and the PDL
House Marks must comply with PDL’s style and branding guidelines, and Roche
shall provide all materials (including without limitation advertising or
promotional materials) that incorporate the PDL Trademarks or PDL House Marks to
the JDC for prior review and approval.

 

13.5        Acknowledgement of Ownership Rights.  Roche undertakes to conduct
its activities in such a way so as not to jeopardize or compromise in any way
the PDL Trademarks or rights therein.  Roche shall not use the PDL Trademarks or
PDL House Marks, as the case may be, as all or part of any corporate name, trade
name, trademark, service mark, certification mark, collective membership mark,
domain name,

 

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or any other designation confusingly similar to the PDL Trademarks or PDL House
Marks in any way that damages the PDL Trademarks or PDL House Marks.  If Roche
or its Affiliates challenge or, directly or indirectly, assert any right, title
or interest in or to the PDL Trademarks, PDL House Marks, or any registrations
or applications for registration thereof, or seek to register the PDL Trademarks
or PDL House Marks in any country for any goods and services, then PDL shall
have the right to give written notice to Roche of such conduct and Roche shall
immediately cease such conduct.

 

13.6        Use of Trademark Designations.  The ™ designation may be used in
conjunction with each PDL Trademark within the Territory.  Once registrations
issue, the ® designation may be used in connection with the PDL Trademarks.  An
appropriate statutory notice of trademark ownership shall be affixed to or
imprinted on any material wherever the PDL House Marks or PDL Trademarks are
used.  PDL’s ownership of such marks shall be identified on all materials on
which they appear.  The exact language for identification of ownership shall be
in accordance with branding and implementation guidelines to be agreed on by the
Parties.

 

13.7        Infringement of Trademarks.

 

(a)           Procedure.  In the event that either Party becomes aware of (i)
actual infringement of a PDL Trademark in the ROW Territory; (ii) a mark or name
confusingly similar to a PDL Trademark in the ROW Territory; or (iii) any unfair
trade practices, trade dress imitation, passing off, or like offenses, in the
ROW Territory that relate to the [*] Trademarks, such Party shall promptly so
notify the other Party in writing.  PDL shall have the right, but not the
obligation, at its sole cost and expense, to initiate, prosecute, and control an
infringement action or file any other appropriate action or claim related to
such infringement of the PDL Trademark against any Third Party.  If [*] fails to
bring any such infringement action within a period of ninety (90) days after
delivery of the notice set forth above, then [*] shall have the right, but not
the obligation, at its sole [*], to initiate, prosecute, and control an
infringement action or file any other appropriate action or claim related to
such infringement of the PDL Trademark against

 

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any Third Party.  In either event, the Party not bringing any such action (i)
shall have the right (at its own expense) to participate in such action and to
be represented by counsel of its own choice, and (ii) agrees, at the request [*]
of the Party bringing such action, to be joined as a Party to the suit and to
provide reasonable assistance in any such action.  The Party controlling such
action shall take all reasonable and appropriate steps to protect, defend, and
maintain the PDL Trademarks for use by the Parties and shall have the right to
control settlement of such action; provided, however, that no settlement shall
be entered into without the written consent of the other Party, not to be
unreasonably withheld.

 

(b)           Costs.  Any damages or monetary award recovered shall be applied
first to reimburse the reasonable costs and expenses of the Party bringing such
action in connection with such litigation, with the balance being allocated to
the Parties [*].

 

13.8        Third Party Trademark Claims.

 

(a)           Claims Based on Use of the PDL Trademarks.  If a claim is brought
by a Third Party that the Parties’ use of the PDL Trademarks or Zenapax
Trademark infringes such Third Party’s trademarks, the Party against which (or
against whose Affiliate, as the case may be) the action is brought will give
prompt written notice to the other Party of such claim.  If the JSC or Executive
Officers selected such trademark for the Licensed Product by consensus, then (i)
[*] shall defend any such claim and any resulting suit brought in the ROW
Territory [*] and shall indemnify [*] and its Affiliates against any resulting
final judgments and settlements, provided that [*] shall not settle any claim or
suit in a manner that would adversely affect [*] without obtaining [*] prior
written consent, which shall not be unreasonably withheld, and (ii) [*] shall
defend any such claim and any resulting suit brought in the U.S. Territory with
respect to use of the trademark during the Co-Promotion Term, provided that the
costs associated with such defense shall be [*] and [*] shall not settle any
claim or suit in a manner that would adversely affect [*] without obtaining [*]
prior written consent, which

 

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shall not be unreasonably withheld.  If the JSC and Executive Officers did not
reach consensus regarding the selection of a trademark for use on the License
Product and [*] selected such trademark pursuant to Section 3.5(b), then [*]
shall defend such claim and any resulting suit [*] and shall indemnify [*] and
its Affiliates against any resulting final judgments and settlements, provided
that [*] shall not settle any claim or suit in a manner that would adversely
affect [*] without obtaining [*] prior written consent, which shall not be
unreasonably withheld.

 

(b)           Claims Based on Use of the PDL House Marks.    If a claim is
brought by a Third Party that the use of the PDL House Marks by Roche or its
Affiliates in the ROW Territory infringes such Third Party’s trademarks, Roche
shall give prompt written notice to PDL of such claim.  [*] shall defend such
claim and any resulting suit [*] and shall indemnify [*] and its Affiliates
against any resulting final judgments and settlements, provided that [*] shall
not settle any claim or suit in a manner that would adversely affect [*] without
obtaining [*] prior written consent, which shall not be unreasonably withheld.

 

ARTICLE 14

REPRESENTATIONS, WARRANTIES, AND COVENANTS

 

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

 

(a)           Such Party is a corporation or entity duly organized and validly
existing under the laws of the state or other jurisdiction of its incorporation
or formation;

 

(b)           The execution, delivery and performance of this Agreement by such
Party has been duly authorized by all requisite corporate action;

 

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(c)           Such Party has the power and authority to execute and deliver this
Agreement and to perform its obligations hereunder, and such performance does
not conflict with or constitute a breach of any agreement of such Party with a
Third Party; and

 

(d)           To the best of its knowledge, such Party has the right to grant
the rights and licenses described in this Agreement.

 

14.2        Intellectual Property Representations and Warranties.

 

(a)           Roche hereby represents and warrants to PDL that

 

(i)            Roche has received no [*] arising out of, and [*], the
development, manufacture, use, sale, offer for sale or import of Daclizumab by
Roche (collectively, [*]”), except for (1) claims of infringement that [*] or
(2) [*] disclosed in Schedule 14.2(a); and

 

(ii)           Except as set forth in Schedule 14.2(a), to Roche’s knowledge,
neither Roche nor any of its Affiliates has any [*] to [*] covering the
manufacture, use, importation, offer for sale, or sale of Daclizumab.

 

(b)           PDL hereby represents and warrants to Roche that (i) Schedule
14.2(b) sets forth all [*] prior to the Effective Date concerning any [*]
arising out of, and all [*] prior to the Effective Date to take a license to any
Third Party intellectual property relating to the development, manufacture, use,
sale, offer for sale or import of Licensed Products; and (ii) it has previously
disclosed to Roche all [*] that the [*] are aware of as of the Effective Date as
[*] contemplated to be performed by or on behalf of either Party pursuant to
this Agreement.

 

14.3        Disclaimer.  EXCEPT AS EXPRESSLY SET FORTH IN SECTIONS 14.1 AND
14.2, THE TECHNOLOGY AND INTELLECTUAL PROPERTY RIGHTS PROVIDED BY EACH PARTY ARE
PROVIDED “AS IS” AND EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF
ANY KIND, EXPRESS

 

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OR IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES, ARISING FROM A COURSE OR DEALING,
USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT THERETO.

 

14.4        Limitation of Liability.  NEITHER PARTY SHALL BE ENTITLED TO RECOVER
FROM THE OTHER PARTY ANY SPECIAL, INCIDENTAL, CONSEQUENTIAL OR PUNITIVE DAMAGES
IN CONNECTION WITH THIS AGREEMENT, EACH PARTY’S PERFORMANCE OR LACK OF
PERFORMANCE HEREUNDER, OR ANY LICENSE GRANTED HEREUNDER, EXCEPT FOR DAMAGES
ARISING FROM A BREACH OF SECTION 2.3 OR 15.1.  THE FOREGOING SHALL NOT LIMIT
EITHER PARTY’S INDEMNIFICATION OBLIGATIONS HEREUNDER.

 

ARTICLE 15

 

CONFIDENTIALITY

 

15.1        Nondisclosure of Confidential Information.  All Information
disclosed by one Party to the other Party under this Agreement shall be subject
to the nondisclosure and nonuse provisions set forth in Article XIV of the
Worldwide Daclizumab Agreement (as amended by this Agreement).  The Parties
hereby amend Section 14.1(a) of the Worldwide Daclizumab Agreement to permit, in
addition to any rights already granted under the Worldwide Daclizumab Agreement,
(a) the use by a Party of any trade secrets or proprietary information disclosed
to such Party by the other Party (“Confidential Information”) for those purposes
permitted by this Agreement; and (b) the further disclosure by such Party of
such trade secrets or proprietary information disclosed to such Party by the
other Party to those of its Affiliates, sublicensees, prospective sublicensees,
employees, consultants, agents or

 

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subcontractors as necessary in connection with such Party’s performance under
this Agreement.

 

The Parties acknowledge that the terms of this Agreement shall be treated as
Confidential Information of both Parties.  Such terms may be disclosed by a
Party to investment bankers, investors, and potential investors, each of whom
prior to disclosure must be bound by similar obligations of confidentiality and
non-use at least equivalent in scope to those set forth in this Article 15.  In
addition, a copy of this Agreement may be filed by PDL with the Securities and
Exchange Commission.  In connection with any such filing, PDL shall endeavor to
obtain confidential treatment of economic and trade secret information.

 

In any event, the Parties agree to take all reasonable action to avoid
disclosure of Confidential Information except as permitted hereunder.

 

15.2        Publicity.  The Parties agree that the public announcement of the
execution of this Agreement shall be substantially in the form of the press
release attached as Exhibit F.  Any other publication, news release or other
public announcement relating to this Agreement or to the performance hereunder,
shall first be reviewed and approved by both Parties; provided, however, that
any disclosure which is required by law as advised by the disclosing Party’s
counsel may be made without the prior consent of the other Party, although the
other Party shall be given prompt notice of any such legally required disclosure
and to the extent practicable shall provide the other Party an opportunity to
comment on the proposed disclosure.

 

15.3        Publications.  The Parties shall comply with the terms set forth in
Section 14.3 of the Worldwide Daclizumab Agreement with respect to publications
of results generated pursuant to this Agreement.

 

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ARTICLE 16

 

INDEMNIFICATION

 

16.1        Indemnification by PDL.  Unless otherwise provided herein, PDL
agrees to indemnify, hold harmless and defend Roche and its directors, officers,
employees and agents (the “Roche Indemnitees”) from and against any and all
Third Party suits, claims, actions, demands, liabilities, expenses and/or losses
(including without limitation attorneys’ fees, court costs, witness fees,
damages, judgments, fines and amounts paid in settlement) (“Losses”) to the
extent that such Losses arise out of (a) a breach of a representation or
warranty or covenant by PDL under Article 14 or (b) the use, testing, promotion,
marketing or sale of a Licensed Product by or on behalf of PDL, its Affiliates
or sublicensees (except for Roche), but only to the extent the Losses described
in “(b)” result from (i) any violation of applicable law by PDL with respect to
co-promotion activity in the Asthma Field in the U.S. Territory under Article 6,
or (ii) the negligence or misconduct or failure to act of PDL, its agents or
sublicensees in connection with PDL’s obligations under this Agreement. 
Notwithstanding the foregoing, PDL shall not have any obligation to indemnify
the Roche Indemnitees with respect to any Losses arising out of the negligence
or misconduct or failure to act of Roche, its Affiliates, or sublicensees
(except for PDL).

 

16.2        Indemnification by Roche.  Unless otherwise provided herein, Roche
shall indemnify, hold harmless and defend PDL and its directors, officers,
employees and agents (the “PDL Indemnitees”) from and against any and all
Losses, to the extent that such Losses arise out of (a) a breach of a
representation or warranty by Roche under Article 14 or (b) the distribution,
use, testing, promotion, marketing, or sale of a Licensed Product by or on
behalf of Roche, its Affiliates or sublicensees (except for PDL), but only to
the extent that the Losses described in “(b)” result from (i) any violation of
applicable law by Roche with respect to co-promotion activity in the Asthma
Field in the U.S. Territory under Article 6, (ii) any ROW Commercialization
Activities, or (iii) the negligence or misconduct or failure to act of Roche,
its agents or sublicensees in

 

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connection with Roche’s obligations under this Agreement.  Notwithstanding the
foregoing, Roche shall not have any obligation to indemnify the PDL Indemnitees
with respect to any Losses arising out of the negligence or misconduct or
failure to act of PDL, its Affiliates, or sublicensees (except for Roche).

 

16.3        Procedure.  In the event of a claim by a Third Party against a Party
entitled to indemnification under this Agreement (“Indemnified Party”), the
Indemnified Party shall promptly notify the other Party (“Indemnifying Party”)
in writing of the claim and the Indemnifying Party shall undertake and solely
manage and control, at its sole expense, the defense of the claim and its
settlement.  The Indemnified Party shall cooperate with the Indemnifying Party,
including, as requested by the Indemnifying Party entering into a joint defense
agreement.   The Indemnified Party may, at its option and expense, be
represented in any such action or proceeding by counsel of its choice.  The
Indemnifying Party shall not be liable for any litigation costs or expenses
incurred by the Indemnified Party without the Indemnifying Party’s written
consent.  The Indemnifying Party shall not settle any such claim unless such
settlement fully and unconditionally releases the Indemnified Party from all
liability relating thereto, unless the Indemnified Party otherwise agrees in
writing.

 

16.4        Certain Losses.  Any Losses resulting from Third Party suits,
claims, or actions in the U.S. with respect to which neither Party owes an
indemnification obligation under this Article 16 shall be [*].  In addition,
notwithstanding anything to the contrary, all Losses arising from latent defects
in the Licensed Products shall [*] and [*] shall have any indemnification
obligations with respect thereto.

 

16.5        Insurance.

 

(a)           PDL, at its own expense, shall maintain product liability
insurance in an amount consistent with industry standards for a company of
similar standing during the term of this Agreement.  PDL shall provide [*] prior
written notice to any cancellation of its insurance program.  PDL shall
designate Roche as an additional insured under its applicable insurance
policies.

 

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(b)           The Parties acknowledge that Roche, as of the Effective Date,
self-insures.  If during the term of this Agreement Roche [*], Roche shall [*]
under its [*] and shall provide PDL with [*] prior written notice of any [*].

 

16.6        Relationship to Worldwide Daclizumab Agreement.  Solely to the
extent that either Party has a Loss recoverable under this Article 16, the
Parties’ rights and obligations under this Article 16 shall supersede any rights
or obligations of the Parties granted under Section 17.6 of the Worldwide
Daclizumab Agreement.

 

ARTICLE 17

 

TERM AND TERMINATION

 

17.1        Term.  The term of this Agreement shall begin on the Effective Date
and, unless earlier terminated in accordance with the terms of this Article 17,
will expire on the date on which neither Party has nor will have any additional
payment obligations to the other Party under this Agreement.  Upon expiration of
the Agreement, provided that there has been [*] in at least [*], Roche shall
have a fully paid-up license with respect to the licenses granted under Section
2.1(b).

 

17.2        Termination for Breach.

 

(a)           A Party (“non-breaching Party”) shall have the right, in addition
to any other rights and remedies, to terminate this Agreement in the event the
other Party (“breaching Party”) is in breach of any of its material obligations
under this Agreement, provided that any such termination shall only be effective
with respect to the particular Region(s) to which such breach amounted to a
material breach, except that a breach of a material obligation related to the
Development Plan shall be deemed a breach of the Agreement in its entirety and
shall be subject to the terms of Section 17.2(e).  The non-breaching Party shall
provide written notice to the breaching Party, which notice shall identify the
breach and the Region(s) with respect to which the non-

 

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breaching Party intends to have this Agreement terminate.  With respect to
breaches of any payment provision hereunder, the breaching Party shall have a
period of [*] after such written notice is provided to cure such breach;
provided, however, if there is a dispute as to whether a development event or
commercialization event referenced in Sections 9.2 or 10.6, respectively, has
occurred (thereby triggering a payment obligation under such sections), Roche
shall not be obliged to make such payment until such dispute is resolved in
accordance with Article 18.  With respect to all other breaches, the breaching
Party shall have a period of [*] after such written notice is provided to cure
such breach.  If such breach is not cured within the applicable period set forth
above, this Agreement shall terminate immediately with respect to the applicable
Region, upon written notice provided by the non-breaching Party of such
termination.  The waiver by either Party of any breach of any term or condition
of this Agreement shall not be deemed a waiver as to any subsequent or similar
breach.  Termination for a breach occurring in one or more Regions in the ROW
Territory shall not affect any rights or obligation hereunder relating to the
U.S. Territory, and vice versa, except as otherwise provided above.

 

(b)           For clarity and without limiting the generality of the foregoing,
any breach of a material obligation relating to co-promotion of Licensed Product
under this Agreement shall be treated as a breach with respect to the U.S.
Territory and may therefore give rise to a right, pursuant to Section 17.2(a),
to terminate this Agreement solely as to the U.S. Territory.

 

(c)           Consequences of Termination for Roche’s Breach.

 

(i)            If Roche breaches the Agreement with respect to a Region in the
ROW Territory and PDL terminates the Agreement, pursuant to the procedure
outlined in Section 17.2(a), with respect to such Region, then the following
shall apply:

 

(1)           Roche shall, at PDL’s written request, promptly (and in any event
within [*] after Roche’s receipt of such request) assign and transfer to PDL,
all of Roche’s right, title, and interest in and to all regulatory filings (such
as INDs and

 

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drug master files), Regulatory Approvals, clinical trial agreements (to the
extent assignable and not cancelled), and data, including clinical data,
materials, and information, in each case to the extent in Roche’s control and to
the extent related the Licensed Products in the affected Region.  The costs of
such transfers shall be borne [*];

 

(2)           Roche shall grant to PDL an exclusive, perpetual, irrevocable,
fully paid license, under the Roche Technology, Collaboration Inventions and
patents claiming Collaboration Inventions, to make, have made, use, offer for
sale, sell and import Licensed Products in the Asthma Field in the affected
Region;

 

(3)           All licenses granted to Roche under Section 2.1(b) shall terminate
with respect to the affected Region; and

 

(4)           The Parties’ respective co-development and co-promotion rights and
obligations in the U.S. Territory, and the Parties’ rights and obligations in
any other Region in the ROW Territory shall not be affected by any termination
of this Agreement with respect to a Region in the ROW Territory.

 

(ii)           If Roche breaches the Agreement with respect to the U.S.
Territory and PDL terminates the Agreement, pursuant to the procedure outlined
in Section 17.2(a), with respect to the U.S. Territory, then the following shall
apply:

 

(1)           The Co-Promotion Term, if started, shall end and, if not yet
started, shall not commence;

 

(2)           All licenses granted to PDL in Sections 2.2(a), 2.2(b) and 2.2(c)
shall become exclusive, perpetual, irrevocable, and fully paid;

 

(3)           All licenses granted to Roche under Section 2.1(a) shall
terminate, and Roche shall cease to have any right or obligation to Develop or
co-promote Licensed Products in the Asthma Field in the U.S. Territory or to
participate in any other commercialization- or development-related activities
(including sharing of

 

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Operating Expenses) with respect to Licensed Products in the Asthma Field in the
U.S. Territory; and

 

(4)           The Parties’ respective rights and obligations with respect to the
ROW Territory (and all Regions therein) shall not be affected by any termination
of this Agreement with respect to the U.S. Territory.

 

(iii)         Notwithstanding the foregoing Sections 17.2(c)(i) and (ii), in the
event that Roche breaches the Agreement with respect to the [*] then PDL shall
have the right to terminate this Agreement in its entirety and such termination
shall have the consequences set forth in Section 17.2(e)(ii).

 

(d)           Consequences of PDL’s Breach.

 

(i)            If PDL breaches the Agreement with respect to a Region in the ROW
Territory and Roche terminates the Agreement, pursuant to the procedure outlined
in Section 17.2(a), with respect to such Region, then the following shall apply:

 

(1)           Roche shall, at PDL’s written request, promptly (and in any event
within [*] after Roche’s receipt of such request) assign and transfer to PDL,
all of Roche’s right, title, and interest in and to all regulatory filings (such
as INDs and drug master files), Regulatory Approvals, clinical trial agreements
(to the extent assignable and not cancelled), and data, including clinical data,
materials, and information, in each case to the extent in Roche’s control and to
the extent related the Licensed Products in the affected Region.  The costs of
such transfers shall be borne [*];

 

(2)           Roche shall grant to PDL an exclusive, perpetual, irrevocable,
fully paid license, under the Roche Technology, Collaboration Inventions and
patents claiming Collaboration Inventions, to make, have made, use, offer for
sale, sell and import Licensed Products in the Asthma Field in the affected
Region;

 

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(3)           All licenses granted to Roche under Section 2.1(b) shall terminate
with respect to such affected Region; and

 

(4)           The Parties’ respective co-development and co-promotion rights and
obligations in the U.S. Territory, and the Parties’ rights and obligations in
any other Region in the ROW Territory shall not be affected by any termination
of this Agreement with respect to a Region in the ROW Territory.

 

(ii)           If PDL breaches the Agreement with respect to a Region in the ROW
Territory and Roche has the right to terminate the Agreement in such Region as a
result, Roche may elect the following as an alternative remedy to termination:

 

(1)           The Parties’ respective rights and obligations with respect to the
ROW Territory shall remain unchanged, except that Roche shall be relieved of any
diligence obligations with respect to the affected Region for so long as PDL’s
breach in such affected Region prevents Roche from satisfying such diligence
obligations; and

 

(2)           The Parties’ respective co-development and co-promotion rights and
obligations in the U.S. Territory, and the Parties’ rights and obligations in
all other Regions in the ROW Territory shall not be affected.

 

(iii)         If PDL breaches the Agreement with respect to the U.S. Territory
and Roche terminates the Agreement, pursuant to the procedure outlined in
Section 17.2(a), with respect to the U.S. Territory, then the following shall
apply:

 

(1)           The Co-Promotion Term shall end;

 

(2)           All licenses granted PDL in Sections 2.2(a) and 2.2(c) shall be
suspended until [*];

 

(3)           PDL shall grant to Roche, under the PDL Technology, an exclusive
license to use, import, offer for sale and sell Licensed Products in the Asthma
Field in the U.S. Territory until [*], provided that if PDL or its Third Party

 

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licensee has filed for regulatory approval in an indication outside of the
Asthma Field in the U.S. Territory for Licensed Product having the same
formulation and mode of administration as Licensed Product being developed or
commercialized for the Asthma Field, then the Parties shall discuss in good
faith the feasibility of two parties simultaneously booking sales of Licensed
Product;

 

(4)           PDL shall cease to have any right or obligation to Develop or
co-promote Licensed Products in the Asthma Field in the U.S. Territory or to
actively participate in any other commercialization- or development-related
activities with respect to Licensed Products in the Asthma Field in the U.S.
Territory until [*], provided that PDL shall retain the right of access to
information, meetings and planning reasonably required to ensure effective
transition, manufacturing support and return to PDL following [*];

 

(5)           the Parties shall share [*] Operating Expenses, Roche’s Sales
Force Expenses and Gross Margin until [*], provided that any payments [*] may be
offset by the amount of [*], as set forth in a final non-appealable judgment or
award granted in accordance with the dispute resolution procedures of Article
18;

 

(6)           On [*], the licenses to Roche set forth in Sections 2.1(a), 2.1(b)
and 17.2(d)(iii)(3) shall terminate, the licenses set forth in Sections 2.2(a)
and 2.2(c) shall come back into force and become exclusive, and PDL shall have
sole responsibility and decision-making authority for the Detailing, marketing,
Promotion, sale and distribution of Licensed Product in the Asthma Field in the
U.S. Territory.  Except as explicitly provided in Section 10.2, PDL shall owe
Roche no consideration in respect to sales of Licensed Product in the Asthma
Field in the U.S. Territory after [*], except for the [*] provided for
hereinabove.  In particular, PDL shall not have any obligation to make the
payments specified in Section 7.2(c) of the Worldwide Daclizumab Agreement on
account of any sales of Licensed Product for use in the Asthma Field in the U.S.
Territory after such anniversary; and

 

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(7)           The Parties’ respective rights and obligations with respect to the
ROW Territory (including all Regions therein) shall not be affected by any
termination of this Agreement with respect to the U.S. Territory.

 

(e)           Consequences of Material Breach of Development Plan.   
Notwithstanding the applicability of Sections 17.2(c) or 17.2(d), if a Party
breaches a material obligation related to the Development Plan, the
non-breaching Party shall have the following alternatives;

 

(i)            Continue the Agreement in effect and pursue any and all remedies
available in law or at equity, including the right to seek specific performance
of the Parties’ respective performance and payment obligations under the
Development Plan as well as the right to seek appropriate damages; or

 

(ii)           Terminate the Agreement in its entirety, pursuant to the
procedure outlined in Section 17.2(a), in which case the following shall apply:

 

(1)           Roche shall, at PDL’s written request, promptly (and in any event
within [*] after Roche’s receipt of such request) assign and transfer to PDL,
all of Roche’s right, title, and interest in and to all regulatory filings (such
as INDs and drug master files), Regulatory Approvals, clinical trial agreements
(to the extent assignable and not cancelled), and data, including clinical data,
materials, and information, in each case to the extent in Roche’s control and to
the extent related the Licensed Products in the Territory.  The costs of such
transfers shall be borne [*];

 

(2)           Roche shall grant to PDL an exclusive, perpetual, irrevocable,
fully paid license, under Roche Technology, Collaboration Inventions and patents
claiming Collaboration Inventions, to make, have made, use, offer for sale, sell
and import Licensed Products in the Asthma Field in the Territory; and

 

(3)           All licenses granted to Roche under Sections 2.1(a) and 2.1(b)
shall terminate and Roche shall cease to have any rights with respect to the
Licensed Products in the Asthma Field in the Territory.

 

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17.3        Termination for Material Delay.  If the JSC adopts a revised
Development Plan that sets forth an anticipated commercial launch date for the
Licensed Product in the Asthma Field in the U.S. Territory that is [*] the
anticipated commercial launch date set forth in the Development Plan attached to
this Agreement on the Effective Date as Exhibit D, then [*] shall have the right
to terminate this Agreement with respect to both the ROW Territory and the U.S.
Territory by providing written notice of such intent to PDL [*].  Such
termination would become effective [*] after PDL’s receipt of such notice, and
would have the following effect:

 

(a)           Roche shall, at PDL’s written request, promptly (and in any event
within [*] after Roche’s receipt of such request) assign and transfer to PDL,
all of Roche’s right, title, and interest in and to all regulatory filings (such
as INDs and drug master files), Regulatory Approvals, clinical trial agreements
(to the extent assignable and not cancelled), and data, including clinical data,
materials, and information, in each case to the extent in Roche’s control and to
the extent related the Licensed Products in the Territory.  The costs of such
transfers shall be borne [*];

 

(b)           Roche shall grant to PDL an exclusive, perpetual, irrevocable,
fully paid license, under Roche Technology, Collaboration Inventions and patents
claiming Collaboration Inventions, to make, have made, use, offer for sale, sell
and import Licensed Products in the Asthma Field in the Territory;

 

(c)           All licenses granted to Roche under Sections 2.1(a) and 2.1(b)
shall terminate and Roche shall cease to have any rights with respect to the
Licensed Products in the Asthma Field in the Territory; and

 

(d)           During an additional [*] period following the effective date of
such termination, Roche shall continue to pay its share any non-cancelable
Development Expenses and any other non-cancelable costs that are required to be
shared under this Agreement, in each case solely with respect to the ROW
Territory and subject to PDL’s obligation to use reasonable efforts to mitigate
such non-cancelable expenses and costs.  In addition, Roche shall provide, [*]
transition services to ensure effective

 

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transition to PDL or a Third Party designated by PDL for a period not to exceed
[*] following the effective date of such termination, all on terms to be agreed
upon by the Parties.

 

17.4        Termination at Will.  Commencing on [*], Roche shall have the right
to terminate this Agreement without cause as follows:

 

(a)           During Development.  Prior to the receipt of Regulatory Approval
in the U.S. Territory or the European Union, such termination shall pertain to
both the ROW Territory and the U.S. Territory and such termination shall become
effective [*] after PDL’s receipt of Roche’s written termination notice.  During
the period between Roche’s termination notice and the effective date of such
termination (the “Termination Notice Period”), the Parties shall continue to
perform all of their obligations under this Agreement, including sharing
Development Expenses and other costs required to be shared under this Agreement;
provided, however, that no payments shall become due or payable for any
development or commercialization events first achieved during the Termination
Notice Period.  Termination of this Agreement pursuant to this Section 17.4(a)
shall have the following effects:

 

(i)            Roche shall, at PDL’s written request, promptly (and in any event
within [*] after Roche’s receipt of such request) assign and transfer to PDL,
all of Roche’s right, title, and interest in and to all regulatory filings (such
as INDs and drug master files), Regulatory Approvals, clinical trial agreements
(to the extent assignable and not cancelled), and data, including clinical data,
materials, and information, in each case to the extent in Roche’s control and to
the extent related the Licensed Products in the Territory.  The costs of such
transfers shall be borne [*];

 

(ii)           Roche shall grant to PDL an exclusive, perpetual, irrevocable,
fully paid license, under Roche Technology, Collaboration Inventions and patents
claiming Collaboration Inventions, to make, have made, use, offer for sale, sell
and import Licensed Products in the Asthma Field in the Territory;

 

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(iii)         All licenses granted to Roche under Sections 2.1(a) and 2.1(b)
shall terminate and Roche shall cease to have any rights with respect to the
Licensed Products in the Asthma Field in the Territory; and

 

(iv)          During an additional [*] period following the effective date of
such termination, Roche shall continue to pay its share any non-cancelable
Development Expenses and any other non-cancelable costs that are required to be
shared under this Agreement, in each case solely with respect to the ROW
Territory and subject to PDL’s obligation to use reasonable efforts to mitigate
such non-cancelable expenses and costs.  In addition, Roche shall provide[*]
transition services to ensure effective transition to PDL or a Third Party
designated by PDL for a period not to exceed [*] following the effective date of
such termination, all on terms to be agreed upon by the Parties.

 

(b)           After Regulatory Approval.  After the receipt of Regulatory
Approval in the U.S. Territory or the European Union, such termination shall be
on a Region-by-Region basis in the ROW Territory and shall become effective [*]
after PDL’s receipt of Roche’s written termination notice.  During the period
between Roche’s termination notice and the effective date of such termination
(the “Termination Notice Period”), the Parties shall continue to perform all of
their obligations under this Agreement, including sharing costs required to be
shared under this Agreement; provided, however, that no payments shall become
due or payable for any development or commercialization events first achieved
during the Termination Notice Period that apply solely to terminated Regions. 
Termination of this Agreement pursuant to this Section 17.4(b) shall have the
following effects:

 

(i)            Roche shall, at PDL’s written request, promptly (and in any event
within [*] after Roche’s receipt of such request) assign and transfer to PDL,
all of Roche’s right, title, and interest in and to all regulatory filings (such
as INDs and drug master files), Regulatory Approvals, clinical trial agreements
(to the extent assignable and not cancelled), and data, including clinical data,
materials, and information, in each

 

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case to the extent in Roche’s control and to the extent related the Licensed
Products in the terminated countries.  The costs of such transfers shall be
borne [*];

 

(ii)           Roche shall grant to PDL an exclusive, perpetual, irrevocable,
fully paid license, under Roche Technology, Collaboration Inventions and patents
claiming Collaboration Inventions, to make, have made, use, offer for sale, sell
and import Licensed Products in the Asthma Field in the terminated countries;

 

(iii)         All licenses granted to Roche under Section 2.1(b) (and Section
2.1(a) if the U.S. Territory is terminated) shall terminate with respect to the
terminated Region; and

 

(iv)          The Parties’ respective co-promotion rights and obligations in the
U.S. Territory shall not be affected by any termination of this Agreement
pursuant to this Section 17.4(b) with respect to only to Regions that are part
of the ROW Territory.

 

17.5        Termination of Co-Promotion Term by Roche.  In the event that, any
anytime after [*] but before [*], [*] falls below [*], Roche shall have the
right, within [*] after the end of such [*], to provide written notice to PDL of
Roche’s intent to terminate the Co-Promotion Term, which termination shall be
effective at the end of such [*] period.  In the event that Roche terminates the
Co-Promotion Term pursuant to this Section 17.5, then the following shall apply:

 

(a)           All licenses granted to Roche under Section 2.1(a) shall
terminate, and Roche shall cease to have any right or obligation to co-promote
Licensed Products in the Asthma Field in the U.S. Territory or to participate in
any other commercialization- or development-related activities (including
sharing of Operating Expenses) with respect to Licensed Products in the Asthma
Field in the U.S. Territory;

 

(b)           Until [*], PDL shall pay royalties to Roche at the rate of [*] of
PDL Net Sales.  PDL will not have any obligation to pay royalties to Roche
pursuant to Section 10.2.  The Parties acknowledge and agree that the royalty
payment set forth in

 

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this Section 17.5(b) is in lieu of, rather than in addition to, any payments
that would otherwise have been due to Roche pursuant to Section 7.2(c) of the
Worldwide Daclizumab Agreement on account of the PDL Net Sales described in this
Section 17.5(b); and

 

(c)           The Parties’ respective rights and obligations with respect to the
ROW Territory shall not be affected by any termination of the Co-Promotion Term
pursuant to this Section 17.5.

 

17.6        Change of Control Termination.  In the event of a Change of Control
of a Party (the “Acquired Party”) in which the Acquired Party is acquired by or
becomes an Affiliate of a Major Pharmaceutical Company (the “Acquiror”), the
other Party (the “Non-Acquired Party”) shall have the following rights:

 

(a)           if the Acquiror does not have a product that has received
regulatory approval for [*] in the U.S. or the European Union, or the Acquired
Party and the Acquiror have agreed to divest any such product, then the
Non-Acquired Party shall have the right to request in writing to and thereafter
discuss face-to-face with the Executive Officer of the Acquired Party the future
plans of the Acquired Party for the development and commercialization of
Licensed Product in the Asthma Field (“Status Request”).  Such right shall
commence on the date of a public announcement (the “Announcement Date”) by the
Acquired Party of its intention to undergo such a Change of Control
(“Transaction”) and expire [*] after the close of the Transaction.

 

If, following a Status Request, the Non-Acquired Party believes in good faith
the Acquired Party is either (i) failing to progress the development and/or
commercialization of the Licensed Product in the Asthma Field in either the U.S.
or European Union because of the Transaction or (ii) not expeditiously
proceeding with the divestiture, then the Non-Acquired Party may give the
Acquired Party written notice of such alleged failure, identifying the issues
and specific reasons for such allegation.  The Acquired Party shall have [*] to
provide the Non-Acquired Party a written response specifying details of (1) why
the Transaction has not negatively impacted the development and/or

 

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commercialization of the Licensed Product in the Asthma Field or (2) how it is
expeditiously proceeding with the divestiture.

 

If the Acquired Party fails to timely provide such written response, or has
failed within the [*] period to remedy such allegations, then the Non-Acquired
Party shall have the right to terminate this Agreement in its entirety in
accordance with Section 17.6(c).

 

(b)           If the Acquiror has a product that has received regulatory
approval for [*] in the U.S. or the European Union that will not be divested,
the Non-Acquired Party may, upon prior written notice delivered within [*]
following the Announcement Date, either (i) elect to proceed with the Agreement
under the terms of Section 17.6(a), or (ii) terminate this Agreement effective
[*] after the consummation of the closing of the Transaction.  If no election is
made under this Section 17.6(b), then the Non-Acquired Party shall be deemed to
have elected to proceed with the Agreement under the terms of Section 17.6(a).

 

(c)           In the event of any termination of this Agreement pursuant to this
Section 17.6, then the following shall apply:

 

(i)            Roche shall, at PDL’s written request, promptly (and in any event
within [*] after Roche’s receipt of such request) assign and transfer to PDL,
all of Roche’s right, title, and interest in and to all regulatory filings (such
as INDs and drug master files), Regulatory Approvals, clinical trial agreements
(to the extent assignable and not cancelled), and data, including clinical data,
materials, and information, in each case to the extent in Roche’s control and to
the extent related the Licensed Products in the Territory.  The costs of such
transfers shall be borne [*]

 

(ii)           Roche shall grant to PDL an exclusive, perpetual, irrevocable,
fully paid license, under Roche Technology, Collaboration Inventions and patents
claiming Collaboration Inventions, to make, have made, use, offer for sale, sell
and import Licensed Products in the Asthma Field in the Territory; and

 

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(iii)         All licenses granted to Roche under Sections 2.1(a) and 2.1(b)
shall terminate and Roche shall cease to have any rights with respect to the
Licensed Products in the Asthma Field in the Territory.

 

17.7        Survival; Accrued Rights.  The rights and obligations of the Parties
under the following provisions of this Agreement shall survive expiration or any
termination of this Agreement:  Sections 2.2, 7.7, 8.7, 11.5, 11.9, 12.1, 12.2,
12.3, 12.6, 12.9, 12.10 (solely with respect to Joint Roche-PDL Patents), 12.13,
14.4, 15.1, 15.3, 16.1, 16.2, 16.3, 16.6, 17.1, 17.2(c), 17.2(d)(i),
17.2(d)(iii), 17.2(e)(ii), 17.3, 17.4, 17.6(c), 17.7, and 19.4 and Article 18. 
In any event, expiration or termination of this Agreement shall not relieve the
Parties of any liability which accrued hereunder prior to the effective date of
such expiration or termination nor preclude either Party from pursuing all
rights and remedies it may have hereunder or at law or in equity with respect to
any breach of this Agreement, nor prejudice either Party’s right to obtain
performance of any obligation.

 

ARTICLE 18

 

DISPUTE RESOLUTIONS; GOVERNING LAW

 

18.1        Disputes.  Unless otherwise set forth in this Agreement, in the
event of any dispute arising under this Agreement between the Parties (including
without limitation any dispute under Article 17), the Parties shall refer such
dispute to the respective Executive Officers, and such Executive Officers shall
attempt in good faith to resolve such dispute.

 

18.2        Arbitration.  If the Parties are unable resolve a given dispute
pursuant to Section 18.1 within sixty (60) days of referring such dispute to the
Executive Officers, either Party may have the given dispute settled by binding
arbitration in the manner described below:

 

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(a)           Arbitration Request.  If a Party intends to begin an arbitration
to resolve a dispute arising under this Agreement, such Party shall provide
written notice (the “Arbitration Request”) to the other Party of such intention
and the issues for resolution.  From the date of the Arbitration Request and
until such time as the dispute has become finally settled, the running of the
time periods as to which Party must cure a breach of this Agreement becomes
suspended as to the subject matter of the dispute.

 

(b)           Additional Issues.  Within ten (10) business days after the
receipt of the Arbitration Request, the other Party may, by written notice, add
additional issues for resolution.

 

(c)           No Arbitration of Patent Issues.  Unless otherwise agreed by the
Parties, disputes relating to patents shall not be subject to arbitration, and
shall be submitted to a court of competent jurisdiction.

 

(d)           Arbitration Procedure.  Except as expressly provided herein, the
sole mechanism for resolution of any claim, dispute or controversy arising out
of or in connection with or relating to this Agreement or the breach or alleged
breach thereof shall be arbitration by the American Arbitration Association
(“AAA”) in [*], under the commercial rules then in effect for the AAA except as
provided herein.  All proceedings shall be held in English and a transcribed
record prepared in English.  The Parties shall choose, by mutual agreement, one
arbitrator within thirty (30) days of receipt of notice of the intent to
arbitrate.  If no arbitrator is appointed within the times herein provided or
any extension of time that is mutually agreed on, the AAA shall make such
appointment within thirty (30) days of such failure.  The award rendered by the
arbitrator shall include costs of arbitration, reasonable attorneys’ fees and
reasonable costs for expert and other witnesses, and judgment on such award may
be entered in any court having jurisdiction thereof.  The Parties shall be
entitled to discovery as provided in Sections 1283.05 and 1283.1 of the Code of
Civil Procedure of the State of California, whether or not the California
Arbitration Act is deemed to apply to said arbitration.  Nothing in this
Agreement shall be deemed as preventing either Party from seeking injunctive
relief (or

 

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any other provisional remedy) from any court having jurisdiction over the
Parties and the subject matter of the dispute as necessary to protect either
Party’s name, proprietary information, trade secrets, know-how or any other
proprietary right.  If the issues in dispute involve scientific or technical
matters, any arbitrator chosen hereunder shall have educational training and/or
experience sufficient to demonstrate a reasonable level of knowledge in the
field of biotechnology.  Judgment on the award rendered by the arbitrator may be
entered in any court having jurisdiction thereof.

 

18.3        Choice of Law.  The validity, performance, construction, and effect
of this Agreement shall be governed by the laws of the [*], without regard to
conflicts of law principles that would provide for application of the law of a
jurisdiction outside [*] and excluding the United Nations Convention on
Contracts for the International Sales of Goods.

 

ARTICLE 19

 

MISCELLANEOUS

 

19.1        Assignment.  Either Party may assign this Agreement and the licenses
herein granted (a) to any Affiliate of such Party without the prior written
consent of the other Party, provided that such Party remains fully liable for
the performance of such Party’s obligations hereunder by such Affiliate, or (b)
without the prior written consent of the other Party, to any Third Party
purchaser of all or substantially all of the business unit to which this
Agreement relates, which in the case of PDL, shall mean PDL’s therapeutic
antibody business, and in the case of Roche, shall mean Roche’s therapeutic
antibody business.  Any other assignment of this Agreement by a Party requires
the prior written consent of the other Party.   Any assignment in violation of
this Section 19.1 shall be null and void.  This Agreement shall be binding on
and shall inure to the benefit of the permitted successors and assigns of the
Parties hereto.

 

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19.2        Force Majeure.  If either Party shall be delayed, interrupted in or
prevented from the performance of any obligation hereunder by reason of force
majeure including an act of God, fire, flood, earthquake, war (declared or
undeclared), public disaster, act of terrorism, strike or labor differences,
governmental enactment, rule or regulation, or any other cause beyond such
Party’s control, such Party shall not be liable to the other therefor; and the
time for performance of such obligation shall be extended for a period equal to
the duration of the force majeure which occasioned the delay, interruption or
prevention.  The Party invoking such force majeure rights of this Section 19.2
must notify the other Party by courier or overnight dispatch (e.g., Federal
Express) within a period of fifteen (15) days of both the first and last day of
the force majeure unless the force majeure renders such notification impossible
in which case notification will be made as soon as possible.  If the delay
resulting from the force majeure exceeds six (6) months, both Parties shall
consult together to find an appropriate solution.

 

19.3        Entire Agreement.  This Agreement constitutes the entire agreement
between the Parties hereto with respect to the subject matter herein and,
effective as of the Effective Date, supersedes all previous agreements, whether
written or oral.  Notwithstanding the foregoing, the terms of the Worldwide
Daclizumab Agreement shall remain in force and effect (including but not limited
to Section 19.3 thereof), except to the extent this Agreement indicates
otherwise by specific reference in Sections 6.2(e), 7.7, 10.1, 10.2(b), 10.3(c),
10.5, 15.1, 16.6, 17.2(d)(iii)(6), and 17.5(b) and Article 12 herein.  This
Agreement shall not be changed or modified orally, but only by an instrument in
writing signed by both Parties.

 

19.4        Severability.  If a Party receives notification of any
investigation, inquiry or proceeding regarding the legality, validity or
enforceability of any provision under this Agreement, the Parties shall promptly
meet to discuss the provision in question and discuss in good faith the
appropriate actions, if any, to be taken in response to such notification. If
any provision of this Agreement is declared illegal, invalid or unenforceable by
an arbitrator pursuant to Article 18 or by a court of last resort or by

 

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any court or other governmental body from the decision of which an appeal is not
taken within the time provided by law, then and in such event, this Agreement
will be deemed to have been terminated only as to the portion thereof that
relates to the provision invalidated by that decision and only in the relevant
jurisdiction, but this Agreement, in all other respects and all other
jurisdictions, will remain in force; provided, however, that the Parties shall
negotiate in good faith to amend the terms hereof as nearly as practical to
carry out the original intent of the Parties, and, failing such amendment,
either Party may submit the matter to arbitration for resolution pursuant to
Article 18.

 

19.5        Notices.  Any notice or report required or permitted to be given
under this Agreement shall be in writing and shall be mailed by certified or
registered mail, or telexed or telecopied and confirmed by mailing, as follows
and shall be effective five (5) days after such mailing:

 

 

If to PDL:

 

Protein Design Labs, Inc.

 

 

 

34801 Campus Drive

 

 

 

Fremont, California 94555

 

 

 

U.S.A.

 

 

 

Attention: Chief Executive Officer

 

 

 

 

 

and

 

Protein Design Labs, Inc.

 

 

 

34801 Campus Drive

 

 

 

Fremont, California 94555

 

 

 

U.S.A.

 

 

 

Attention: General Counsel

 

 

 

 

 

If to Roche:

 

Hoffmann-La Roche Inc.

 

 

 

340 Kingsland Street

 

 

 

Nutley, New Jersey 07110

 

 

 

Attention: Corporate Secretary

 

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and

 

F. Hoffmann-La Roche Ltd

 

 

 

Grenzacherstrasse 124

 

 

 

CH-4002 Basel, Switzerland

 

 

 

Attention: Law Department

 

19.6        Further Assurances.  The Parties agree to reasonably cooperate with
each other in connection with any actions required to be taken as part of their
respective obligations under this Agreement, and shall (a) furnish to each other
such further information; (b) execute and deliver to each other such other
documents; and (c) do such other acts and things (including working
collaboratively to correct any clerical, typographical, or other similar errors
in this Agreement), all as the other Party may reasonably request for the
purpose of carrying out the intent of this Agreement.

 

19.7        Agency.  Neither Party is, nor will be deemed to be, an employee,
agent or representative of the other Party for any purpose.  Each Party is an
independent contractor, not an employee or partner of the other Party.  Neither
Party shall have the authority to speak for, represent or obligate the other
Party in any way without prior written authority from the other Party.

 

19.8        Bankruptcy.  All rights and licenses granted under or pursuant to
this Agreement by Roche or PDL are, and will otherwise be deemed to be, for
purposes of Section 365(n) of the U.S. Bankruptcy Code, licenses of right 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 either
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, and same, if not already in their possession, will be
promptly delivered to them (a) upon any such commencement of a bankruptcy
proceeding upon their written

 

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request therefor, unless the Party subject to such proceeding elects to continue
to perform all of its obligations under this Agreement, or (b) if not delivered
under (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.

 

19.9        No Waiver.  Any omission or delay by either Party at any time to
enforce any right or remedy reserved to it, or to require performance of any of
the terms, covenants or provisions hereof, by the other Party, shall not
constitute a waiver of such Party’s rights to the future enforcement of its
rights under this Agreement.  Any waiver by a Party of a particular breach or
default by the other Party shall not operate or be construed as a waiver of any
subsequent breach or default by the other Party.

 

19.10      No Strict Construction.  This Agreement has been prepared jointly by
the Parties and shall not be strictly construed against either Party.

 

19.11      Headings.  The captions used herein are inserted for convenience of
reference only and shall not be construed to create obligations, benefits, or
limitations.

 

19.12      Counterparts.  This Agreement may be executed in counterparts, all of
which taken together shall be regarded as one and the same instrument.

 

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IN WITNESS WHEREOF, the Parties have executed this Co-Development and
Commercialization Agreement through their duly authorized representatives to be
effective as of the Effective Date.

 

PROTEIN DESIGN LABS, INC.

 

HOFFMANN-LA ROCHE INC.

 

 

 

By:

 

 

 

By:

 

 

 

 

 

Title:

Chief Executive Officer

 

 

Title:

 

 

 

 

 

 

 

Date:

 

 

 

Date:

 

 

 

 

 

 

 

F. HOFFMANN-LA ROCHE LTD

 

 

 

 

 

By:

 

 

 

 

 

 

 

Title:

 

 

 

 

 

 

 

 

Date:

 

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

Title:

 

 

 

 

 

 

 

Date:

 

 

 

 

 

 

SIGNATURE PAGE

 

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EXHIBIT A

 

FINANCIAL APPENDIX

 

This Financial Appendix is a supplement to the definitions and procedures
provided in Articles 1 and 11 and Sections 4.6 and 6.3 of this Agreement. 
References to Articles and Sections are references to the articles and sections
of the Agreement.  This Appendix sets forth the principles for capturing,
reporting and consolidating Operating Expenses, Development Expenses, royalties
and gross margin profit sharing.  Further, it describes the accounting (i.e. the
frequency of reporting, currency, taxes, methods of determining payments between
the Parties, auditing of accounts, etc.) and the definitions of Sales Force
Expenses, Development Expenses and Operating Expenses.

 

REPORTING AND CONSOLIDATION

 

During the applicable period in which such revised budgets are required under
the Agreement, preparation of revised annual budgets associated with the
Development Plan or the Commercialization Plan (as the case may be) will be
initiated in each [*] during such period and a preliminary budget should be
presented for review by the JSC before end of each [*] during such period.  The
completed annual budget should be endorsed by the JSC between the Parties by the
end of each [*] during such period.  Reporting by each Party will be performed
as follows (with copies provided to the JSC and to the other Party):

 

Reporting Event (calendar basis)

 

Frequency

 

Submission
Deadline

 

 

[*] actuals

 

end of quarter

 

[*] after end of quarter

[*]

 

end of quarter

 

[*] after end of quarter

Accruals

 

end of quarter

 

[*] of last month of the quarter

Preliminary annual budget

 

annually

 

[*]

Final annual budget

 

annually

 

[*]

Forecasts (rolling [*]), except [*]

 

quarterly

 

end of [*] of the quarter

 

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Responsibility for approving the annual budgets associated with the Development
Plan and the Commercialization Plan will rest with the JSC.

 

The JFC shall be responsible for the preparation of consolidated reporting
(actuals, budgets and forecasts) for the Operating Expenses and Development
Expenses as well as determination of the cash settlement.  The JFC shall provide
the JSC (and the Party not preparing the consolidated reporting on behalf of the
JFC) within forty-five working days after the submission date shown above, a
statement showing the consolidated results, forecasts and cash settlements
required in a format agreed to by the Parties.

 

The JFC will be responsible for monitoring and agreeing upon appropriate
controls to ensure reasonable and consistent calculation and allocation of Sales
Force Expenses, Operating Expenses and Development Expenses under the
Agreement.  More specifically, the JFC shall review the projected versus actual
FTE’s per quarter and the process by which third parties are retained to provide
services in the performance by the Parties under the Agreement.  In any event,
the JFC shall review use of FTE resources on a quarterly basis.  The Parties
shall also use commercially reasonable efforts to provide access to available
discounts and discount programs available from existing vendors for the benefit
of the Parties under the Agreement.

 

Reports of actual results compared to budget will be made by the JFC.  The
Parties will work together to keep actual spending within the approved budget.
The Parties shall discuss in good faith the adoption of additional control
measures to address deviations from the approved budget on an aggregate annual
basis above [*] In any event, if a Party contemplates that an expenditure will
increase the annual budget in excess of [*], the Parties shall review the
expenditure with the JFC prior to commitment to that expenditure.  The JFC will
meet as appropriate to review and approve the reporting events (actuals,
accruals, budgets and forecasts).

 

A-2

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Each Party will use its applicable project cost system with the goal of tracking
and reporting costs on a project/product indication/work package basis
consistent with its other projects/products in development.

 

ACCOUNTING

 

1.             Audits. Each Party (the “Audited Party”) agrees to keep full,
clear and accurate records for a period of at least three (3) years after the
relevant report is made pursuant to Section 4.6(c), 6.3(b) or 11 setting forth
its Development Expenses, Operating Expenses, Sales Force Expenses or Net Sales,
as applicable, incurred in sufficient detail to enable royalties and
compensation payable to the other Party (the “Auditing Party”) hereunder to be
determined.  Each Audited Party further agrees to permit its books and records
to be examined by an independent accounting firm selected by the Auditing Party
to verify reports made pursuant to Section 4.6(c) or 6.3(b), as applicable. 
Unless the Auditing Party obtains the prior written consent of the Audited
Party, such accounting firms must be selected from among the four largest global
accounting firms.  Such audit shall not be performed more frequently that [*]
per calendar year nor more frequently than [*] with respect to records covering
any specific period of time.  Such examination is to be made at the expense of
the Auditing Party, except in the event that the results of the audit reveal a
discrepancy in favor of the Audited Party of [*] or more over the period being
audited, in which case reasonable audit fees for such examination shall be paid
by the Audited Party.

 

2.             Methods of Payments.  All payments due to either PDL or Roche
under this Agreement shall be paid in Dollars by wire transfer to a bank in the
U.S. designated in writing by the Party to which the payment is due.

 

3.             Taxes.  If provision is made in law or regulation of any country
of the Territory for withholding of taxes of any type, levies or other charges
with respect to any amounts payable hereunder to a Party, the other Party
(“Withholding Party”) shall promptly pay such tax, levy or charge for and on
behalf of the Party to the proper governmental authority, and shall promptly
furnish the Party with receipt of such payment.  The

 

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Withholding Party shall have the right to deduct any such tax, levy or charge
actually paid from payment due the Party or be promptly reimbursed by the Party
if no further payments are due the Party.  Each Withholding Party agrees to
assist the other Party in claiming exemption from such deductions or
withholdings under double taxation or similar agreement or treaty from time to
time in force and in minimizing the amount required to be so withheld or
deducted.

 

4.             Currency.  All payments under this Agreement shall be in Dollars.
Whenever payments require conversion from a foreign currency, then this shall be
converted using the average daily exchange rate for the period to be reported
based on Roche Swiss Franc Sales Statistics, which shall be based on exchange
rate information obtained from the Reuters system.

 

5.             Late Payments.  Any amount owed by one Party to the other Party
under this Agreement that is not paid within the applicable time period set
forth herein shall accrue interest at the [*] as reported by Datastream (or a
successor or similar organization).

 

6.             General.  As a general matter, the Parties do not intend that
expenses paid for or credited under this Agreement will be charged or credited
more than once.

 

DEFINITIONS

 

A.            SALES FORCE EXPENSES

 

SALES FORCE EXPENSES SHALL MEAN COSTS DIRECTLY ASSOCIATED WITH THE EFFORTS OF
FIELD SALES REPRESENTATIVES WITH RESPECT TO LICENSED PRODUCTS, INCLUDING COSTS
ASSOCIATED WITH FIELD SALES FORCES, FIELD SALES OFFICES, AND HOME OFFICES STAFFS
DIRECTLY INVOLVED IN THE MANAGEMENT OF AND THE PERFORMANCE OF THE SELLING
FUNCTIONS.

 

B.            DEVELOPMENT EXPENSES

 

Development Expenses shall mean the expenses incurred by a Party or for its

 

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account that are consistent with the Development Plan and specifically are
attributable to the Development of a Licensed Product.  Development Expenses
shall include amounts paid by a Party to Third Parties involved in the
Development of Licensed Products, and all internal costs incurred by a Party in
connection with the Development of Licensed Products.  Notwithstanding anything
to the contrary herein, Development Expenses shall not include any Incremental
Development Expenses.  Development Expenses for manufacturing of clinical
supplies shall be as set forth in Article 8.

 

DEVELOPMENT EXPENSES SHALL INCLUDE BUT ARE NOT LIMITED TO THE COST OF THE
DEVELOPMENT OF RESEARCH PLANS AND PROGRAMS, SCREENING, LEAD OPTIMIZATION, IN
VITRO AND IN VIVO TESTING, STUDIES ON THE TOXICOLOGICAL, PHARMACOKINETIC,
METABOLIC OR CLINICAL ASPECTS OF SUCH PRODUCT CONDUCTED INTERNALLY OR BY
INDIVIDUAL INVESTIGATORS, OR CONSULTANTS NECESSARY FOR THE PURPOSE OF OBTAINING
AND/OR MAINTAINING APPROVAL OF SUCH PRODUCT BY A GOVERNMENT ORGANIZATION IN A
COUNTRY, AND COSTS FOR PREPARING, SUBMITTING, REVIEWING OR DEVELOPING DATA OR
INFORMATION FOR THE PURPOSE OF A SUBMISSION TO A GOVERNMENTAL AUTHORITY TO
OBTAIN AND/OR MAINTAIN APPROVAL OF PRODUCT IN A COUNTRY AS WELL AS COSTS OF
PROCESS DEVELOPMENT AND SCALE-UP COSTS AND RECOVERY (INCLUDING PLANT COSTS).
DEVELOPMENT EXPENSES SHALL FURTHER INCLUDE COSTS OF PHASE IV TRIALS AND
POST-LAUNCH PRODUCT R&D EXPENSES. DEVELOPMENT EXPENSES SHALL NOT INCLUDE PATENT
COSTS, PRE-REGISTRATION MARKETING COSTS (E.G. TRADEMARK COSTS, ADVERTISING
AGENCY SELECTION COSTS, PRE-MARKETING STUDIES), POST-REGISTRATION CLINICAL
STUDIES WHICH ARE NOT ENABLING FOR REGISTRATION OF THE PRODUCT AND
POST-REGISTRATION MARKETING STUDIES.

 

DEVELOPMENT EXPENSES CONSTITUTE OF TWO MAIN ACCOUNTING ELEMENTS, VARIABLE COSTS
AND FIXED COSTS.

 

VARIABLE COSTS ARE EXTERNAL COSTS INVOICED FROM THIRD PARTIES.

 

FIXED COSTS INCLUDE THE AMOUNTS EXPENDED FOR PERSONNEL, RELOCATION, TRAVEL,
ENTERTAINMENT AND TRAINING INCURRED BY THE FUNCTIONS DIRECTLY OPERATING THE
PROGRAM. THE WORK SCOPE OF THESE FUNCTIONS INCLUDE ACTIVITIES WITHIN THE AREAS
OF DEVELOPMENT OPERATIONS, CLINICAL QUALITY INSURANCE, MEDICAL SCIENCE, GENETICS
INTEGRATED MEDICINE,

 

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drug regulatory and technical development. To these primary fixed costs should
be added the secondary fixed costs which are attributable to a Party’s costs for
IT software and hardware, IT external costs, depreciation, occupancy costs,
corporate bonus (to the extent not charged directly), and its payroll,
information systems, human relations or purchasing functions. These secondary
fixed costs are allocated to company departments based on space occupied or
headcount or other activity-based method.  The secondary fixed costs further
includes costs attributable to general corporate activities for executive
management, investor relations, business development, legal affairs and finance.
In determining all these fixed costs, the Parties have agreed on an FTE-rate
that will be charged for the resources allocated to the programs from the
functions directly operating the programs on a fractional FTE-basis. The Parties
have agreed on a FTE rate which will be used for calculating FTE’s in the
performance of Development activities under the Agreement.  The Parties
contemplate that this rate captures total actual personnel and fixed costs
attributable to the performance of the Joint Development Plan under this
Agreement.

 

All FTE expenditures shall be included in Development Expenses based on a rate
of [*] per FTE.  Each [*] beginning [*], the FTE rate will be [*] compared to
previous calendar year.

 

TIME-RECORDING WILL BE USED BY ALL PEOPLE WITHIN THESE FUNCTIONS TO RECORD
ACTUAL TIME SPENT ON THE ACTIVITIES UNDER THE PROGRAMS. FOR CLARITY, FTE TIME
RECORDING SHOULD BE MADE ON A FRACTIONAL BASIS. EACH PARTY WILL ALSO USE ITS
APPLICABLE PROJECT COST SYSTEM WITH THE PURPOSE OF TRACKING AND REPORTING COSTS
ON A PROJECT/PRODUCT INDICATION/WORK PACKAGE LEVEL.

 

C.            POST-LAUNCH PRODUCT R&D EXPENSES

 

Post-Launch Product R&D Expenses shall include certain research and development
costs incurred by a Party in relation to a Licensed Product after the first
commercial launch and shall exclude administrative expenses and costs that are

 

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included within Costs of Goods Sold.  Such post-launch research and development
costs shall include, to the extent relating to a Licensed Product:

 

•                    PHASE IV TRIALS.

 

•                    ONGOING MEDICAL AFFAIRS (PDL) AND THE COUNTERPART FOR
ROCHE.

 

•                    PRECLINICAL RESEARCH.

 

•                    CONTRACT R&D COSTS PERFORMED BY OTHERS FOR A PARTICULAR
PROJECT THAT HAVE NO ALTERNATIVE FUTURE USES IN OTHER R&D PROJECTS OR OTHERWISE.

 

•                    FEES AND EXPENSES OF OUTSIDE COUNSEL IN RESPECT OF
REGULATORY AFFAIRS UNRELATED TO OBTAINING REGULATORY APPROVAL.

 

D.            OPERATING EXPENSES

 

OPERATING EXPENSES MEANS THOSE EXPENSES INCURRED BY A PARTY WHICH ARE GENERALLY
CONSISTENT WITH THE COMMERCIALIZATION PLAN (AND ASSOCIATED BUDGET) AND ARE
SPECIFICALLY ATTRIBUTABLE TO LICENSED PRODUCTS IN THE U.S. TERRITORY, AND SHALL
CONSIST OF (I) MARKETING EXPENSES, (II) DISTRIBUTION EXPENSES, (III) THIRD PARTY
LICENSE EXPENSES, (IV) ALLOCATED ADMINISTRATION EXPENSES, AND (V) PATENT AND
LEGAL EXPENSES.  OPERATING EXPENSES SHALL EXCLUDE DEVELOPMENT EXPENSES AND SALES
FORCE EXPENSES.  NOTWITHSTANDING THE FOREGOING, PATENT AND LEGAL EXPENSES NEED
NOT BE CONSISTENT WITH THE COMMERCIALIZATION PLAN (AND ASSOCIATED BUDGET) AS
LONG AS THEY HAVE BEEN APPROVED BY THE JSC.

 

1.             MARKETING EXPENSES

 

Marketing Expenses means the costs incurred by a Party, excluding Allocated
Administration Expenses and Sales Force Expenses, which are generally consistent
with the Commercialization Plan (and associated budget) and are specifically
attributable to the sale, promotion, and/or marketing of a Licensed Product in
the U.S. Territory.  Marketing Expenses shall be the sum of Marketing
Management, Market and

 

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Consumer Research, Advertising, Trade Promotion, Consumer Promotion, and
Education Expenses (each of which is specified below), and the cost of
performing Non-Registrational Trials (as defined in Section 1.44).

 

1.1          “MARKETING MANAGEMENT” SHALL INCLUDE PRODUCT MANAGEMENT AND SALES
PROMOTION MANAGEMENT COMPENSATION AND DEPARTMENTAL EXPENSES.  THIS SHALL INCLUDE
COSTS ASSOCIATED WITH DEVELOPING OVERALL SALES AND MARKETING STRATEGIES AND
PLANNING FOR LICENSED PRODUCTS.  IN ADDITION, PAYMENTS TO THIRD PARTIES IN
CONNECTION WITH TRADEMARK SELECTION, FILING, PROSECUTION AND ENFORCEMENT SHALL
BE INCLUDED IN THIS CATEGORY.

 

1.2          “MARKET AND CONSUMER RESEARCH” SHALL INCLUDE COMPENSATION AND
DEPARTMENTAL EXPENSES FOR MARKET AND CONSUMER RESEARCH PERSONNEL AND PAYMENTS TO
THIRD PARTIES RELATED TO CONDUCTING AND MONITORING PROFESSIONAL AND CONSUMER
APPRAISALS OF EXISTING, NEW OR PROPOSED LICENSED PRODUCTS SUCH AS MARKET SHARE
SERVICES (E.G., IMS DATA), SPECIAL RESEARCH TESTING, AND FOCUS GROUPS.  COSTS
INCURRED PURSUANT TO SECTION 7.6 SHALL NOT BE INCLUDED IN MARKET AND CONSUMER
RESEARCH, BUT SHALL BE SHARED IN ACCORDANCE WITH THE TERMS SET FORTH IN SECTION
7.6.

 

1.3          “ADVERTISING” SHALL INCLUDE ALL MEDIA COSTS ASSOCIATED WITH
LICENSED PRODUCT ADVERTISING AS FOLLOWS:  PRODUCTION EXPENSE/ARTWORK INCLUDING
SET UP; DESIGN AND ART WORK FOR AN ADVERTISEMENT; THE COST OF SECURING PRINT
SPACE, AIR TIME, ETC. IN NEWSPAPERS, MAGAZINES, TRADE JOURNALS, TELEVISION,
RADIO, BILLBOARDS, ETC.

 

1.4          “TRADE PROMOTION” SHALL INCLUDE THE ALLOWANCES GIVEN TO RETAILERS,
BROKERS, DISTRIBUTORS, HOSPITAL BUYING GROUPS, ETC. FOR PURCHASING, PROMOTING,
AND DISTRIBUTION OF LICENSED PRODUCTS.  THIS SHALL INCLUDE PURCHASING,
ADVERTISING, NEW DISTRIBUTION, AND DISPLAY ALLOWANCES AS WELL AS FREE GOODS,
WHOLESALE ALLOWANCES AND REASONABLE FIELD SALES SAMPLES.  TO THE EXTENT MULTIPLE
PRODUCTS ARE INVOLVED AND SOME OF SUCH PRODUCTS ARE NOT LICENSED PRODUCTS, THEN
SUCH ALLOWANCES SHALL BE ALLOCATED ON A PRO RATA BASIS BASED UPON NET SALES OF
EACH RESPECTIVE PRODUCT BY SUCH OPERATING UNIT DURING THE MOST RECENT QUARTER.

 

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1.5          “CONSUMER PROMOTION” SHALL INCLUDE THE EXPENSES ASSOCIATED WITH
PROGRAMS TO PROMOTE LICENSED PRODUCTS DIRECTLY TO THE END USER.  THIS CATEGORY
SHALL INCLUDE EXPENSES ASSOCIATED WITH PROMOTING PRODUCTS DIRECTLY TO THE
PROFESSIONAL COMMUNITY SUCH AS PROFESSIONAL SAMPLES, PROFESSIONAL LITERATURE,
PROMOTIONAL MATERIAL COSTS, PATIENT AIDS AND DETAILING AIDS.  TO THE EXTENT
MULTIPLE PRODUCTS ARE INVOLVED AND SOME OF SUCH PRODUCTS ARE NOT LICENSED
PRODUCTS, THEN SUCH ALLOWANCES SHALL BE ALLOCATED ON A PRO RATA BASIS BASED UPON
NET SALES OF EACH RESPECTIVE PRODUCT BY SUCH OPERATING UNIT DURING THE MOST
RECENT QUARTER.

 

1.6          “EDUCATION” SHALL INCLUDE EXPENSES ASSOCIATED WITH PROFESSIONAL
EDUCATION WITH RESPECT TO LICENSED PRODUCTS THROUGH ANY MEANS NOT COVERED ABOVE,
INCLUDING ARTICLES APPEARING IN JOURNALS, NEWSPAPERS, MAGAZINES OR OTHER MEDIA;
SEMINARS, SCIENTIFIC EXHIBITS, AND CONVENTIONS; AND SYMPOSIA, ADVISORY BOARDS
AND OPINION LEADER DEVELOPMENT ACTIVITIES.

 

2.             DISTRIBUTION EXPENSES

 

Distribution Expenses shall be the sum of Stock and Shipping expenses and
Transportation expenses, each as specified below.

 

2.1          “STOCK AND SHIPPING” SHALL INCLUDE THE PORTION OF DISTRIBUTION
COSTS FOR THE WAREHOUSING OF LICENSED PRODUCT FINISHED GOODS FROM THE POINT OF
COMPLETION OF PRODUCTION TO THE TIME THE GOODS ARE TURNED OVER TO A CARRIER FOR
DELIVERY AS FOLLOWS:  ORDER FILLING/ASSEMBLY FUNCTIONS; REASONABLE ORDER BILLING
AND CUSTOMER SERVICE FUNCTIONS; REASONABLE PORTION OF COMPANY OWNED/LEASED
FACILITIES RELATING TO WAREHOUSING OF FINISHED PRODUCTS; STORAGE OF PRODUCTS AT
PUBLIC WAREHOUSES.

 

2.2          “TRANSPORTATION” SHALL INCLUDE THE PORTION OF DISTRIBUTION COSTS
RELATING TO MOVING LICENSED PRODUCT GOODS FROM A WAREHOUSE TO THE CUSTOMER AS
FOLLOWS: OUTBOUND TRANSPORTATION COSTS; COSTS OF MOVING GOODS FROM A
MANUFACTURING POINT TO A WAREHOUSE AT ANOTHER LOCATION FROM WHICH IT IS
ULTIMATELY TO BE DISTRIBUTED TO A CUSTOMER;

 

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THE COSTS OF THE TRAFFIC DEPARTMENT WHERE THERE IS A SEPARATE DEPARTMENT THAT
HAS RESPONSIBILITY FOR ADMINISTRATION OF FREIGHT COSTS.

 

3.             THIRD PARTY LICENSE EXPENSES

 

Third Party License Expenses means all payments by a Party under Third Party
Licenses that are allocable to the use, development, sale, manufacture, or
import of Licensed Product in the U.S. Territory, including without limitation
all payments by a Party under Third Party Licenses (a) calculated based on sales
of Licensed Product in the U.S. Territory; (b) made on account of achievement of
particular events relating to development or commercialization of Licensed
Product in the U.S. Territory; and (c) as consideration for a grant of a license
or other rights in the U.S. Territory.

 

4.             ALLOCATED ADMINISTRATION EXPENSES

 

Allocated Administration Expenses means the administration expenses incurred by
a Party or any of its operating units that are actually directly engaged in the
commercialization of Licensed Products in the U.S. Territory pursuant to the
Commercialization Plan, to be calculated in the manner set forth below.  In view
of the manner in which Allocated Administration Expenses are calculated,
administration expenses shall be excluded from the definition of each of the
other elements which make up Operating Expenses.

 

The costs recoverable as Allocated Administration Expenses are the costs of
finance, management information services, human resources, legal, and employees
engaged in general management functions for the operating units in question. 
Cost categories included within Allocated Administration Expenses shall not be
included in any other cost recoverable under this Agreement.

 

Recoverable administration expenses shall include the direct costs of employees
performing such functions, the costs of supporting such individuals in the
performance of their job (e.g., occupancy costs, travel, computers, and
telephones), and outside services (e.g., consulting and audit services).  Such
costs shall be calculated in

 

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accordance with the customary accounting methodology of the Party incurring such
expenses, consistently applied throughout such organization. Such costs shall be
allocated based on a percentage determined by sales of Licensed Product
supported by such operating unit(s) divided by the total product sales supported
by such operating unit(s) during the relevant quarter.  Total Allocated
Administrative Expenses of a Party shall not exceed [*] of the Operating
Expenses incurred by such Party (less Allocated Administrative Expense), on an
annualized basis.

 

5.             PATENT AND LEGAL EXPENSES

 

Patent and Legal Expenses means (a) the fees and expenses of outside counsel and
payments to Third Parties incurred after the Effective Date in connection with
the preparation, filing, prosecution and maintenance of PDL Trademarks and those
patent fees and expense set forth in Section 12.7, (b) all expenses associated
with Third Party claims in the U.S. Territory for which neither Party has an
indemnification obligation pursuant to Article 16, and (c) all expenses
associated with latent defects in the Licensed Product in the U.S. Territory for
which neither Party has an indemnification obligation pursuant to Article 16. 
For clarity, no internal legal costs shall be included in Patent and Legal
Expenses.

 

A-11

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EXHIBIT B

 

GMP AUDIT

 

Following the Effective Date, the Parties shall form an advisory group,
consisting of qualification experts from both PDL and Roche.  This group will
advise PDL on the qualification and validation activities (including a
discussion of the PDL process evaluation and process validation plan for
Daclizumab) required to license PDL’s manufacturing facility.  They will also
coordinate an initial, informal audit by Roche of the PDL manufacturing facility
project.  This audit should be performed following mechanical completion [*],
and include a review of the Impact Assessment, the System Boundary Drawings, the
Commissioning Documents, and sample IQ, OQ, and PQ Documents; which is
consistent with the ISPE Baseline Guide for Commissioning and Qualification
Activities (the qualification approach currently being applied by PDL).  This
initial audit is advisory only, and as such, will not trigger any development
event payment.

 

Roche will perform a formal GMP Audit after the completion of PQ by PDL.  This
audit will include a review of PDL’s PQ Plans and Reports, and their overall
Quality Management System, using the standards set forth in ICH Q7A and the US
and EMEA Regulations.  For clarity, PQ, Process Qualification, is the documented
verification that premises and equipment perform effectively, reliably, and
meeting predetermined acceptance criteria.  The PQ of process support and
utility systems involves the operation, sampling, and monitoring of the system
under specified conditions over a relevant period of time.  Therefore, PQ is
mandatory for the critical process support and utility systems, as determined in
the PDL Impact Assessment.

 

PDL should keep Roche directly informed as to their progress toward completion
of the PQ, informing Roche of any significant issues that arise.  When nearing
the completion of PQ, PDL should supply Roche with advance copies of their PQ
procedures, plans, and other related documents, and determine, with Roche, an
appropriate timeline for the GMP Audit, which allows both parties to prepare
properly.

 

B-1

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The GMP Audit will be successful if (a) the PQ Plans, PQ Reports, and Quality
Management System are in compliance with cGMP guidelines and (b) there are no
observations which (i) will lead to a significant delay of Phase III clinical
development or the anticipated launch of the product, (ii) present a significant
risk of non-acceptance of the site by regulatory authorities for clinical and/or
commercial supplies, or (iii) may place clinical material or commercial supplies
“at risk”.

 

Following the completion of a [*], but prior to [*], the payment described in
9.2(c) will be due.

 

B-2

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EXHIBIT C

 

THIRD PARTY LICENSES

 

7.             [*]

 

To the extent that one or more additional agreements entered into by a Party
prior to the Effective Date are necessary for the use, manufacture, sale,
offering for sale, or importation of Licensed Products in the Asthma Field in
the Territory (or to the extent that one or more of the agreements listed on
this Exhibit C as of the Effective Date are not necessary therefor), the Parties
agree to discuss in good faith the amendment of this Exhibit C to include (or to
remove, as appropriate) any such agreements that a Party may reasonably suggest
to the other Party in writing during the thirty (30) days immediately following
the Effective Date.

 

C-1

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EXHIBIT D

 

DEVELOPMENT PLAN

 

The attached Development Plan currently identifies the timeline and budget
agreed upon by the Parties effective as of [*].  The budget does not include
[*], which the Parties have agreed will be reviewed by the JDC for inclusion or
exclusion as part of the Development Plan.  The Development Plan consists of the
following documents:

 

1.               Development Plan Summary

 

2.               Development Plan Gantt Chart

 

3.               Clinical Model Roche Rate

 

4.               Daclizumab IPP

 

5.               Detailed Activity breakdown

 

6.               Development Timeline Allocation of Responsibilities

 

7.               Clinical Development Information

 

The Parties acknowledge that the Phase III clinical studies in the Development
Plan will not be initiated without available clinical supply manufactured in the
facility expected to produce the commercial supply.

 

The Parties currently agree that the available safety database at BLA filing
shall contain [*] (currently contemplated to be approximately [*].  If the
Parties identify that, due to factors such as drop-out rate, changes in the
Development Plan, or other factors, the number of treated patients in the safety
database at filing will be less than [*], then the JDC will propose amendments
to the Development Plan to ensure that the safety database contains [*].

 

[*]

 

D-1

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EXHIBIT E

 

[*] TESTING PLAN

 

Roche and PDL recognize that the ideal assessment of Daclizumab [*] would
accurately determine clinically relevant [*] responses to Daclizumab for the
proposed asthma indication within this particular patient population. 
Clinically relevant responses reflect issues related to [*].

 

The [*] plan should be discussed on a regular basis with regulatory authorities
especially at the end of phase II meeting.

 

I. Assay outline:

 

Samples from clinical study subjects in the asthma development program will be
tested for [*] The primary [*] assessment methods will comprise:

 

[*]

 

II. [*] definition:

 

For the purposes of identifying [*] response, a [*] is defined as one of the
following:

 

[*]

 

III. [*] and Patient testing:

 

Throughout the development of the compound, [*] will be done.

 

[*]

 

E-1

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IV. Deliverables:

 

End of Phase 1:

 

[*]

 

Interim analysis of [*]

 

[*]

 

The JDC will assess the possibility and desirability of developing [*] for
testing [*].

 

[*]

 

V. Development Events:

 

For the purposes of this Agreement, the rate of [*] as determined by step 3 [*]
will be used for certain development payments and project decisions.

 

Phase 1 Development Event:

 

(1) Not more than [*] and (2) an acceptable [*]

 

Phase 2 Development Event:

 

Not more than [*]

 

E-2

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EXHIBIT F

 

PRESS RELEASE

 

[g125591kk05image002.jpg]

 

[g125591kk05image004.gif]

Media Release

 

 

 

 

Basel, Switzerland and Fremont, CA 16 September, 2004

 

 

 

 

Roche and Protein Design Labs to jointly develop Zenapax for Asthma

 

 

 

 

Roche and Protein Design Labs (PDL) (NASDAQ: PDLI) today announced a worldwide
agreement to co-develop and commercialize Zenapax® (Daclizumab) for asthma and
related respiratory diseases, based on recent positive phase II data in patients
with moderate to severe asthma. 

 

Mark McDade, Chief Executive Officer, PDL, said, “The continued development of
daclizumab in asthma is among PDL’s highest clinical development priorities. 
With Roche as our ongoing partner in this indication, we believe daclizumab will
obtain the resources needed to develop the full potential of this humanized
antibody in asthma.” 

 

“This new agreement will strengthen our pipeline in asthma, where we are
currently in phase II development of a novel oral treatment,” said William
Burns, Head of Roche’s Pharmaceuticals Division. “We believe that daclizumab
will offer patients a significant improvement over today’s current therapy.  Our
long-standing relationship with PDL continues to grow as we develop daclizumab
further.”

 

Under terms of the agreement, PDL will receive a $17.5 million upfront payment
as well as up to $187.5 million in development and commercialization milestones
for successful further development of

 

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daclizumab.  Roche and PDL will globally co-develop daclizumab in asthma, share
development expenses and co-promote the product in the US.  Outside the US, PDL
will receive royalties on net sales of the product in asthma. 

 

About the Roche - PDL partnership

In 1989, Roche acquired the worldwide rights to daclizumab, a product that has
since gained an important position within Roche’s transplantation portfolio. In
October 2003, Roche resold to PDL all rights to daclizumab, except in
transplantation, until 2007 when PDL will have the option to re-acquire the
transplantation rights as well.  In 2004, PDL approached Roche with compelling
phase II data for daclizumab in asthma, leading to today’s announcement for the
continued co-development of daclizumab in respiratory disorders by Roche and
PDL.

 

About Asthma

Asthma is among the most common chronic medical conditions in the United States
and worldwide, affecting more than 20 million people in the United States,
according to the American Lung Association (ALA) and the American Academy of
Allergy, Asthma & Immunology (AAAAI).  According to a recent report on the
global burden of asthma published by the NIH, WHO and the Global Initiative for
Asthma, asthma is one of the most common chronic diseases in the world and it is
estimated that around 300 million people in the world currently have asthma. The
rate of asthma continues to increase and it is estimated that there may be an
additional 100 million persons suffering from asthma by 2025. Asthma accounts
for 1 in every 250 deaths worldwide.

 

About Protein Design Labs

In October 2003, PDL acquired all rights to Zenapax®, excluding transplantation
indications but with the option to gain such indication rights by 2007.  PDL
retains this right in accordance with the terms of the October 2003 agreement.

Protein Design Labs is a leader in the development of humanized antibodies to
prevent or treat various disease conditions.  PDL currently has antibodies under
development for autoimmune and inflammatory

 

F-2

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conditions, asthma and cancer.  PDL holds fundamental patents for its antibody
humanization technology.  Further information on PDL is available at
www.pdl.com.

 

About Roche

Headquartered in Basel, Switzerland, Roche is one of the world’s leading
innovation-driven healthcare groups. Its core businesses are pharmaceuticals and
diagnostics. As a supplier of products and services for the prevention,
diagnosis and treatment of disease, the Group contributes on a broad range of
fronts to improving people’s health and quality of life. Roche is number one in
the global diagnostics market, a leading supplier of pharmaceuticals for cancer
and transplantation and a market leader in virology. In 2003 prescription drug
sales by the Pharmaceuticals Division totalled 19.8 billion Swiss francs, while
the Diagnostics Division posted sales of 7.4 billion Swiss francs. Roche employs
roughly 65,000 people in 150 countries and has alliances and R&D agreements with
numerous partners, including majority ownership interests in Genentech and
Chugai.

 

Webcast scheduled for 8:30 a.m. Eastern time on September XXX. 

PDL will host a webcast beginning at 8:30 a.m. Eastern time on September XX,
2004, to discuss the joint development and commercialization agreement.

 

The live webcast will be available through the PDL website: www.pdl.com. Please
connect to this website at least 15 minutes prior to the live webcast to allow
time for any software download that may be needed to hear the webcast. A replay
will be available at www.pdl.com starting approximately one hour after
completion of the webcast.

 

An audio replay will also be available by telephone from approximately
10:30 a.m. Eastern time on September XX, 2004 through 10:30 a.m. Eastern time on
September XX, 2004. To access the replay, dial 800-633-8284 from inside the
United States and 402-977-9140 from outside the United States; enter conference
ID number 21207310.

 

Conditions

 

The foregoing contains forward-looking statements involving risks and
uncertainties and PDL’s actual results may differ materially from those in the
forward-looking statements.  Factors that may cause such differences are
discussed in PDL’s Annual Report on Form 10-K for the year ended December 31,
2003, in its Quarterly Report on Form 10-Q for the three months ended June 30,
2004, and in other filings made with the Securities and Exchange Commission.  In
particular, results obtained in the Phase II study may not be predictive of
results to be obtained in the additional evaluations that would be necessary to
demonstrate the antibody to be safe and effective in the treatment of asthma,
nor can there be assurance that PDL will initiate subsequent clinical trials in
asthma.

 

Protein Design Labs and Humanizing Science are registered U.S. trademarks and
the PDL logo is considered a trademark of Protein Design Labs, Inc.  Zenapax is
a registered trademark of Roche

 

F-3

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Contacts: 

Roche- Europe

Sabrina Oei

Pharma Partnering Communications

Tel: +41 61 688 9358

3300

sabrina.oei@roche.com 

 

Maria Payne
DeFacto

Tel: +44 (0) 207 496

 

PDL

James R. Goff

Senior Director, Corporate Communications

Tel: (510) 574-1421

jgoff@pdl.com 

 

 

ENDS

 

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EXHIBIT G

 

REGIONS

 

1)  United States of America

 

2)  Canada

 

3)  Japan

 

4)  Western Europe

The 15 pre May 1, 2004 EU member states

Switzerland

Turkey

Norway

Iceland

 

5)  Central and Eastern Europe

Albania

Belarus

Bosnia-Herzegovina

Bulgaria

Croatia

Czech Republic

Estonia

Hungary

Latvia

Lithuania

Macedonia

Moldavia

Poland

Romania

Russia

Serbia & Montenegro

Slovakia

Slovenia

Ukraine

 

6)  Latin America

34 countries from Mexico to Argentina including:

Argentina

Brazil

Chile

 

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Colombia

Costa Rica

Ecuador

Mexico

Peru

Uruguay

Venezuela

 

7)  Asia/Pacific

Bangladesh

Cambodia

China (including Hong Kong)

India

Indonesia

Korea

Malaysia

Pakistan

Philippines

Singapore

Sri Lanka

Taiwan

Thailand

Vietnam

Australia

New Zealand

 

8)  Pharma International

All countries not listed above

 

G-2

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SCHEDULE 14.2(A)

 

[*]

 

1

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SCHEDULE 14.2(B)

 

[*]

 

1

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