Exhibit 10.46

 

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.

 

EXECUTION COPY

 

SETTLEMENT AGREEMENT

 

This SETTLEMENT AGREEMENT (the “Settlement”) is made and entered into as of
September 19, 2003 (the “Settlement Date”) by and between Kosan Biosciences
Inc., a Delaware corporation having offices at 3832 Bay Center Place, Hayward,
CA 94545 (“Kosan”) and the Sloan-Kettering Institute for Cancer Research, a
non-profit entity organized under the laws of the state of New York, and having
its principal office at 1275 York Ave., New York, NY, 10021 (“Sloan-Kettering”).
Kosan and Sloan-Kettering are sometimes referred to below each individually as a
“Party” and collectively as the “Parties.”

 

RECITALS

 

WHEREAS, Kosan and Sloan-Kettering are parties to a Research and License
Agreement dated August 26, 2000 as amended by a Consent and Amendment effective
September 16, 2002 (the agreement as so amended, the “License Agreement”, and
such consent and amendment, the “Consent”);

 

WHEREAS, a dispute has arisen between the Parties in relation to their
respective rights and obligations under the License Agreement;

 

WHEREAS, Sloan-Kettering has taken the position that certain compounds and
patent filings are not licensed to Kosan under the License Agreement, but Kosan
takes the position that these compounds and patent applications are licensed to
Kosan under the License Agreement (part of the Dispute, as more particularly
defined below) and each Party has filed a complaint against the other Party in
relation to the Dispute; and

 

WHEREAS, the Parties desire finally to compromise, settle and discharge all
claims, controversies, demands, actions, or causes of action which any Party to
this Settlement may have or claim to have, now or in the future, against any
other Party relating in any way to the Dispute (including without limitation by
dismissing the complaints filed by the Parties in relation to the Dispute prior
to the Settlement Date).

 

NOW, THEREFORE, in consideration of the foregoing and the promises and mutual
covenants and agreements herein contained, the Parties covenant and agree as
follows:

 

AGREEMENT

 

ARTICLE 1

 

DEFINITIONS

 

All initially capitalized terms used but not defined in this Settlement have the
meanings set forth in the License Agreement. References to “Sections” are to the
sections of this Settlement. In addition, the following initially capitalized
terms shall have the following meanings:

 

1.1 “Consent” shall have the meaning given such term in the recitals.

 

1.

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1.2 “Covered Period” shall mean the period from August 25, 2000 through the
Settlement Date.

 

1.3 “[*] Program” shall mean all research and development work involving
Epothilones or methods of manufacture or use of Epothilones (a) in the
laboratory of [*] at Sloan-Kettering, (b) in the laboratory of [*] at
Sloan-Kettering and/or (c) by any persons working under their direction or in
collaboration with them, in the case of each of (a), (b) and (c), during the
Covered Period.

 

1.4 “Dispute” shall mean the Parties’ disagreement as to (a) which Epothilones
are Collaboration Compounds under the License Agreement; (b) whether the [*]
Patents constitute SKI Patent Rights under the License Agreement; (c) whether
all Epothilone-related research in the [*] laboratory or the [*] laboratory at
Sloan-Kettering or in collaboration with either such laboratory during the
Covered Period constituted part of the Research Program; (d) whether any
payments are due under Section 2.6 of the License Agreement in relation to the
research described in clause (c) of this definition; (e) whether Kosan has
breached the License Agreement by failure to make any such payments described in
clause (d); (f) whether Sloan-Kettering has the right to terminate the License
Agreement on the basis of any alleged default or breach thereof by Kosan
occurring prior to the Settlement Date; and (g) any other aspect of either
Party’s performance or non-performance under the License Agreement prior to the
Settlement Date.

 

1.5 “Epothilone D” shall mean the compound commonly referred to epothilone D,
which has the following chemical structure:

 

[GRAPHIC]

 

1.6 “FDA” shall mean the United States Food and Drug Administration.

 

1.7 “Filed Suits” shall mean (a) the complaint filed by Sloan-Kettering against
Kosan in the United States District Court for the Southern District of New York
on June 4, 2003, and (b) the complaint filed by Kosan against Sloan-Kettering
(or an affiliate thereof) in the United States District Court for the Northern
District of California on June 18, 2003.

 

2.

 

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.

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1.8 “Kosan” shall have the meaning given such term in the first paragraph of
this document.

 

1.9 “License Agreement” shall have the meaning given such term in the recitals.

 

1.10 “Party” and “Parties” shall have the meanings given such terms in the first
paragraph of this document.

 

1.11 “Patent” shall mean any patent application or patent, of whatever kind or
sort and however denominated or named, anywhere in the world, whether filed on
or before the Settlement Date or thereafter.

 

1.12 “Settlement” shall have the meaning given in the first paragraph of this
document.

 

1.13 “Sloan-Kettering” shall have the meaning given such term in the first
paragraph of this document.

 

1.14 “[*] Compound” shall mean a compound known as [*], which has the following
chemical structure:

 

[*]

 

1.15 “[*] Patents” shall mean (a) the patent applications listed in Exhibit A;
(b) all divisionals, continuations, continuations-in-part, and substitutions of
any of the foregoing; (c) any other patent application claiming priority to any
of the foregoing; (d) all patents issuing on any of the foregoing, and all
reissues, reexaminations, renewals and extensions thereof; and (e) all
counterparts to any of the foregoing anywhere in the world.

 

1.16 “[*] Family” shall mean all Epothilones that [*]

 

ARTICLE 2

 

SUBSTANTIVE AGREEMENT

 

2.1 Dismissal of Complaints. The making of this Settlement does not in any way
constitute an admission of liability or responsibility by any Party to this
Settlement. There is no prevailing party in either Filed Suit. Each Party shall
bear its own fees and costs in relation to the Filed Suits. The Parties shall
cause the Filed Suit in the Southern District of New York to be dismissed with
prejudice and without costs, and shall use best efforts to cause such dismissal
to occur within three (3) business days after the Settlement Date.

 

2.2 Breaches Prior to the Settlement Date. The Parties acknowledge and agree
that neither Party has or shall have the right to terminate the License
Agreement (in whole or in part) by reason of any alleged or actual breach
thereof or default thereunder on or before the

 

3.

 

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.

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Settlement Date. Accordingly, the Parties are agreeing to the releases set forth
in Sections 3.2 and 3.3.

 

2.3 Payments.

 

(a) Upfront. Kosan shall pay to Sloan-Kettering an upfront payment totaling [*]
(the “Upfront Payment”). This amount shall be payable in four (4) equal
quarterly installments. The first such quarterly installment shall be payable
within ten (10) business days after the Settlement Date. Every three (3) months
thereafter another such installment shall be due until Kosan has paid the total
Upfront Payment.

 

(b) Milestones. Kosan shall pay to Sloan-Kettering the following milestone
payments within thirty (30) days after first achievement of the corresponding
milestone event by or on behalf of Kosan or any Kosan sublicensee under the SKI
Patent Rights:

 

Milestone Event

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Milestone Payment Amount

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[*]

   [*]

 

Each such milestone payment shall be payable no more than once, regardless of
whether the corresponding event is achieved multiple times with one or more
compounds from the [*] Family. Each such milestone payment shall only be payable
if the corresponding milestone event is actually achieved.

 

(c) Relationship to Other Payments. The payments provided for in this Section
2.3 are in addition to, not in lieu of, any possible payments under Articles 6
or 7 of the License Agreement (for clarity, as amended by the Consent).

 

2.4 Past Research Costs. Other than any amounts required to be paid in
accordance with Section 2.3, Kosan shall not owe any payment to Sloan-Kettering
under the License Agreement, this Settlement or otherwise to support the [*]
Program or Sloan-Kettering’s performance of its obligations under the Research
Program during the Covered Period (although Kosan shall remain responsible for
possible future payments under Articles 6 or 7 of the License Agreement (for
clarity, as amended by the Consent) if such work results in Products progressing
through development and commercialization).

 

2.5 Specific Understandings as to Scope of Licensed Rights and Past Research
Program. Sloan-Kettering and Kosan agree that the License Agreement means and
shall be interpreted as follows:

 

(a) [*] Family Compounds. All compounds within the [*] Family are and shall be
Collaboration Compounds under the License Agreement. Without limiting the
general

 

4.

 

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.

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consequences of such status under the License Agreement, all compounds within
the [*] Family are and shall be licensed to Kosan under Article 4 of the License
Agreement.

 

(b) [*] Patents. All [*] Patents are and shall be SKI Patent Rights under the
License Agreement. Without limiting the general consequences of such status
under the License Agreement, all [*] Patents are and shall be licensed to Kosan
under Article 4 of the License Agreement, and all Epothilones claimed in them
shall be Collaboration Compounds under the License Agreement licensed to Kosan
under such Article of the License Agreement.

 

(c) Epothilone Research. The entire [*] Program was and shall be part of the
Research Program under the License Agreement. Consequently, all inventions
conceived and/or reduced to practice pursuant to the [*] Program (including
without limitation compositions of matter and methods of use and manufacture)
that relate to any Epothilone or method of making or using any Epothilone
constitute inventions made by Sloan-Kettering in the performance of the Research
Program, and all Patents claiming such inventions constitute SKI Patent Rights.
Without limiting the general consequences of the foregoing statuses, such
Epothilones and Patents are and shall be licensed to Kosan pursuant to Article 4
of the License Agreement.

 

(d) Dominated Rights. All Patents owned or controlled by Sloan-Kettering now or
in the future that claim an invention [*] SKI Patent Rights (as SKI Patent
Rights exist without regard to the remainder of this sentence) (such first group
of Patents—[*] and [*]—the “Dominated Patents”), shall be deemed included in the
SKI Patent Rights and licensed to Kosan pursuant to Article 4 of the License
Agreement. The Dominated Patents may include currently existing and future
Patents, and may include Patents claiming inventions made outside of the [*]
Program.

 

(e) Non-limitation. The foregoing subsections (a) through (d) are intended to
address specific aspects of the Dispute and specific categories of Epothilones
and Patents that are included within the license to Kosan under Section 4.3 of
the License Agreement, but such subsections are not intended to limit the scope
of the Collaboration Compounds and SKI Patent Rights. Other Epothilones and
Patents may also be included in such categories, respectively (for example and
without limitation, Epothilones claimed in any of the Patents originally listed
in Exhibit A to the License Agreement are also Collaboration Compounds).

 

2.6 Current Patent Filings. The Patents listed at Exhibit B (together with all
other Patents related to them in the same way as Patents in Section 1.35(i) of
the License Agreement relate to the Patents listed in Exhibit B of the License
Agreement when it was originally executed) are included (without limitation) in
the SKI Patent Rights under the License Agreement. Exhibit B is intended to
contain a complete list of all Patents filed by or on behalf of Sloan-Kettering
on or before the Settlement Date that relate to Epothilones and any methods of
making or using them naming any inventor referred to in Section 1.3 (whether by
name or descriptively), or otherwise included in the SKI Patent Rights as of the
Settlement Date. [*] that it has not assigned or otherwise conveyed to another
entity Sloan-Kettering’s ownership interest in, nor granted any license under,
any [*] Patent. If after the Settlement Date it is determined

 

5.

 

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.

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that any Patents described in the second sentence of this Section 2.4 were
omitted from Exhibit B, such additional Patents shall be automatically included
within SKI Patent Rights, and Exhibit B shall be updated to include the omitted
Patents.

 

2.7 Development Within the [*] Family.

 

(a) General. Kosan and its sublicensee under the SKI Patent Rights Roche are
interested in evaluating compounds from the [*] Family as candidates to be fast
followers within the Kosan-Roche Epothilone development program (which
development program currently is advancing Epothilone D into phase II clinical
trials to treat cancer), with the goal, to the extent that any such compounds
are suitable, of promptly initiating scale-up work to produce sufficient
quantities of one or more such compounds for Roche and/or Kosan to conduct
IND-enabling studies thereof. Kosan shall devote reasonable efforts (itself or
through a sublicensee under the SKI Patent Rights) to the activities described
in the foregoing sentence to attempt to identify a Phase I-Eligible Compound (as
defined in subsection (b)). Whether or not Kosan and its sublicensee Roche
succeed in identifying an Epothilone within the [*] Family that is suitable for
such further scale-up or qualifies as a Phase I-Eligible Compound (as defined in
subsection (b)), Kosan (itself or through a sublicensee under the SKI Patent
Rights) shall not be obligated to expend more than [*] following the Settlement
Date on efforts to do so (including without limitation any amounts either of
them provides to Sloan-Kettering to support research at Sloan-Kettering and
without regard to whether Kosan receives government or other funding to cover
any of the work by Kosan or otherwise).

 

(b) Obligation. If an Epothilone within the [*] Family tested by Kosan (or any
Epothilone sublicensee of Kosan):

 

[*]

 

(an Epothilone described by (i)-(v), a “[*]”), then, subject to [*] Kosan shall
[*]. Such [*] shall be of a scope and [*] in [*] of [*], such as any one of the
[*] that Kosan has [*]. Kosan may satisfy its obligation under this Section
2.7(b) by the efforts of itself, Roche, any other Kosan sublicensee, any Kosan
contractor, or any combination of the foregoing entities.

 

(c) Clarification. To avoid any doubt, Section 2.7(b) requires [*], and shall
not be interpreted to [*] or a [*]. Also to avoid any doubt, if no compound
within the [*] Family is determined to be a [*] then the [*] Family and the [*]
Patents shall remain licensed to Kosan pursuant to the License Agreement
regardless of whether Kosan [*].

 

(d) Timing. Prior to the [*] anniversary of the Settlement Date, provided that
Kosan seeks to in good faith to identify a [*] (including without limitation
through the efforts of its sublicensee under the SKI Patent Rights), Kosan shall
be in compliance with its obligations under this Section 2.7. The obligations of
Kosan under this Section 2.7 shall expire if no compound within the [*] Family
has been identified that is [*] by the [*] anniversary of the Settlement Date.

 

6.

 

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.

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(e) Remedy.

 

(i) If by the [*] anniversary of the Settlement Date Kosan determines that it
will not [*] any Epothilone within the [*] Family by such time, then Kosan shall
notify Sloan-Kettering in writing. Kosan will state in its notice whether it has
identified a [*].

 

(ii) If Kosan identified an Epothilone within the [*] Family that Kosan
considers to be a [*], but notifies Sloan-Kettering that Kosan will not [*] any
Epothilone within the [*] Family, then (1) the Epothilones within the [*] Family
shall thereafter cease to be Collaboration Compounds licensed to Kosan pursuant
to the License Agreement, (2) if [*] any [*] any [*] under any [*] with respect
to [*] then, [*] the [*] by Sloan-Kettering (or an affiliate thereof) [*] of [*]
Kosan shall [*] all [*] to [*] pursuant to [*] pursuant to [*] (3) the remainder
of the Epothilones licensed to Kosan pursuant to the License Agreement shall
continue to be Collaboration Compounds Licensed to Kosan thereunder, and (4) the
License Agreement shall otherwise continue in full force and effect.

 

(iii) If the Parties disagree as to whether [*] then the matter shall be
resolved by conducting an arbitration in accordance with Section 2.9, in which
the sole issue before the arbitrator shall be whether [*] by [*] that [*] within
the [*] Family (by definition, an Epothilone of such family that is described by
all of 2.7(b)(i)-(v)) (such issue, the “Arbitration Issue”). If the arbitrator
determines that [*], then each Party shall bear its own costs and Kosan shall
retain its rights with respect to the [*] Patents and the Epothilones of the [*]
Family as described in Section 2.5 and shall be deemed to have fulfilled its
diligence obligations hereunder. If the arbitrator determines that the [*] then
either (1) Kosan shall within thirty (30) days thereafter [*] and promptly
thereafter initiate [*], or (2) if Kosan does not respond within thirty (30)
days or declines to [*] then Section 2.7(e)(ii) shall apply, in its entirety.

 

(f) Further Development. The decision whether to proceed with any further or
other [*] of any Epothilones within the [*] Family beyond that required in
subsection (b) shall, as between Kosan and Sloan-Kettering, be within Kosan’s
sole discretion. Provided that Kosan has satisfied the requirements of
subsection (b), regardless of whether Kosan (or a sublicensee) proceeds with [*]
of any Epothilone within the [*] Family beyond any that is required in
subsection (b), all such Epothilones and the Patents claiming them shall remain
licensed to Kosan under the License Agreement (again, without limiting the scope
of other Epothilones and Patents licensed to Kosan under the License Agreement).
The obligation set forth in Section 2.7(b) is in lieu of any other diligence
obligation with respect to the [*] Family express or implied, at law or in
equity.

 

2.8 Future Research Program and Sloan-Kettering Role.

 

(a) Goal. The Parties recognize the important contribution that [*] and his
research colleagues may be able to make in the development of the [*] Family, in
particular in the area of making new Epothilones within the [*] Family that may
improve upon the properties of currently known such Epothilones. The Parties
intend to resume a close collaboration

 

7.

 

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.

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promptly after the Settlement Date, in which there will be an open intellectual
exchange and unified effort, and in which each Party will be able to focus its
efforts in its area of expertise. This may involve Kosan providing synthetic
intermediates to [*] laboratory and conducting animal and other testing of new
Epothilones invented in the [*] laboratory, in order to permit the [*] group to
focus on making novel Epothilones and making Epothilone synthesis process
improvements, rather than synthesis of intermediates or toxicology and other
IND-enabling work. The Parties recognize that a close collaboration as described
in the foregoing sentences is only possible under circumstances in which Kosan
has rights to the fruits of the collaboration, and therefore wish to agree and
make clear in this Settlement that such circumstances exist.

 

(b) Research Term. The Research Term under the License Agreement shall continue
(if later than it would otherwise expire) through at least [*] after the
Settlement Date, or, if longer, for so long as [*] is collaborating with Kosan
and/or Roche regarding Epothilone(s).

 

(c) Funding. The Parties recognize the value of the opportunity for
Sloan-Kettering researchers to continue their work in collaboration with Kosan
and its sublicensee under the SKI Patent Rights, as well as the value of the
synthetic intermediates and information that Kosan will be providing for use in
research at Sloan-Kettering. Kosan shall not owe any payment pursuant to the
License Agreement, this Settlement or otherwise, to support research under the
Research Program, Sloan-Kettering’s performance of its obligations under the
Research Program or the License Agreement, or any other Epothilone research
conducted at Sloan-Kettering before or after the Research Term ends, except (i)
to the extent that such research or performance is part of the Research Program
under the License Agreement and is budgeted in advance under a budget mutually
agreed in writing by the Parties, or (ii) to the extent the Parties otherwise
mutually agree in writing. Conversely, unless the Parties otherwise agree in
writing, Sloan-Kettering shall have no obligation to Kosan (or any Kosan
sublicensee under the SKI/Patent Rights) to perform any Epothilone or other
research that is not funded by Kosan (or its sublicensee).

 

(d) Other New Epothilones. If any Epothilone research at Sloan-Kettering during
the Research Term results in any Epothilone-related invention [*], then Kosan
shall have the following rights with respect to Patents claiming such first
invention (“Other Epothilone Patents”; all Other Epothilone Patents claiming a
common priority date shall be deemed to be a single Other Epothilone Patent and
all divisionals, continuations, continuations-in-part, substitutions, reissues,
extensions, supplementary protection certificates and other applications based
on a given patent filing that is an Other Epothilone Patent shall be deemed
together to constitute a single Other Epothilone Patent):

 

(i) At any time prior to [*] the [*] or [*] the [*] included in [*] is [*] Kosan
shall have the right, exercisable by written notice to Sloan-Kettering and
payment of a fee equal to [*] to include such Other Epothilone Patents among the
SKI Patent Rights exclusively licensed to Kosan under the License Agreement and
all Epothilones claimed (whether themselves or via a method of manufacture or
use thereof) by such Other Epothilone Patent (“Other Epothilones”) among the
Collaboration Compounds exclusively licensed to Kosan under

 

8.

 

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.

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the License Agreement. Sloan-Kettering shall not negotiate with or entertain any
offer from a Third Party regarding the terms upon which Sloan-Kettering would
grant the Third Party a license that would conflict with the license Kosan has
the right to obtain under this paragraph prior to the expiration of Kosan’s
right to obtain such license.

 

(ii) If Kosan does not exercise its right to obtain such license prior to the
expiration of Kosan’s right to obtain it with respect to any Other Epothilone
Patent, and Sloan-Kettering wishes to grant a license under such Other
Epothilone Patent with respect to any of such Other Epothilones, then
Sloan-Kettering shall notify Kosan in writing. If within [*] after
Sloan-Kettering’s notice, Kosan notifies Sloan-Kettering in writing that Kosan
wishes to negotiate the terms upon which Sloan-Kettering would grant Kosan such
a license, then Sloan-Kettering shall negotiate such terms exclusively with
Kosan for a period of not less than [*] (the Parties’ negotiations of such
terms, the “Negotiations”).

 

(iii) If the Parties do not reach written agreement as to such terms within such
time period, then Sloan-Kettering shall be free to discuss with any Third Party
the terms upon which Sloan-Kettering would grant the Third Party a license under
such Other Epothilone Patent for such Other Epothilones.

 

(iv) Prior to [*] Sloan-Kettering shall disclose to Kosan in writing the [*] the
[*] If requested in writing by Kosan within [*] after Sloan-Kettering provides
Kosan with such written notice, Sloan-Kettering shall [*] [*] of [*]. If [*]
then Sloan-Kettering shall be free [*] to execute an agreement granting to the
Third Party a license under such Other Epothilone Patents with respect to such
Other Epothilones [*] of which [*] pursuant to this paragraph.

 

(v) [*] with respect to each Other Epothilone Patent, [*] Kosan’s rights under
[*] with respect to such Other Epothilone Patent.

 

(e) Clarification Regarding Clinical Trials. The foregoing in this Section 2.8
shall not be interpreted so as to negate any written funding agreements (apart
from the License Agreement) regarding clinical trials of Collaboration Compounds
at Sloan-Kettering that Kosan and Sloan-Kettering may have entered into on or
before the Settlement Date, or that they may enter into thereafter.

 

2.9 Binding Arbitration of Future Controversies. The Parties shall resolve any
future disputes among them regarding the Arbitration Issue (defined in Section
2.7(e)(iii)) (such dispute, the “Controversy”) as follows: First, upon request
of either Party, the JRC and/or JDAC for a period of thirty (30) days, and then
an executive officer of Kosan and an executive officer of Sloan-Kettering for a
period of thirty (30) days (including face-to-face meetings of such executives
if requested by either Party), shall discuss and seek to resolve the
Controversy. If they fail to resolve the Controversy or either such executive
refuses to meet with the other, then either Party may refer the Controversy to
binding arbitration by the filing of an arbitration demand setting forth a
general description of the nature of the dispute and the nature and amount of
damages and/or other relief sought.

 

9.

 

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.

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The binding arbitration shall be before either (a) an arbitrator selected by
mutual agreement of the Parties, or (b) if the Parties are unable to agree as to
a single arbitrator, then each Party shall designate an arbitrator unaffiliated
with either of them, and the Parties’ designated arbitrators shall select a
third arbitrator who is unaffiliated with either Party and is a retired judge or
an attorney with at least fifteen (15) years experience in biotechnology or
pharmaceutical licensing. The arbitrator of (a) or arbitrators of (b) is and are
referred to hereafter as the “Arbitrator”. The binding arbitration shall be
conducted by specific rules and procedures (there being no preference for the
rules established by JAMS, CPR, AAA or any other organized body and the
Arbitrator instead being free to choose among established rules and/or establish
others) and on schedules selected by the Arbitrator after considering timely
proposals that each Party shall submit by a deadline of no later than five (5)
business days after either Party refers the Controversy to the Arbitrator (by
written notice to the non-referring party and the arbitrator), and consistent
with the remainder of this Section 2.9. The Arbitrator’s guiding principle shall
be to conduct an expeditious proceeding that provides for appropriate discovery
and an appropriate hearing. The standard for discovery shall be that the Parties
be allowed such discovery as the Arbitrator determines is necessary or useful
for the arbitration to constitute a fair and equitable hearing. When in doubt,
the Arbitrator shall favor the need for a fair proceeding over the need for an
expedited proceeding.

 

The Arbitrator shall be authorized solely to determine the Arbitration Issue
(defined in Section 2.7(e)(iii)), but shall NOT be authorized: (i) to award
compensatory damages, (ii) to award non-economic damages, such as for emotional
distress, pain and suffering, or loss of consortium; (iii) to award punitive
damages; or (iv) to reform, modify or materially change the License Agreement or
this Settlement or any other agreements contemplated hereunder. The Arbitrator
also shall be authorized to grant any temporary, preliminary or permanent
equitable remedy or relief he or she deems just and equitable and within the
scope of this Agreement, including, without limitation, an injunction or order
for specific performance. The Arbitrator’s award shall be subject to challenge
or appeal only in accordance with New York law regarding binding arbitration.
The Arbitrator’s award may be entered as a judgment in any court of competent
jurisdiction.

 

Each party shall bear its own attorneys’ fees, costs, and disbursements arising
out of the arbitration, and shall pay an equal share of the fees and costs of
the Administrator and the Arbitrator.

 

10.

 

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.

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EXECUTION COPY

 

ARTICLE 3

 

RELEASES; PROCEDURAL; MISCELLANEOUS

 

3.1 Publicity. The existence of the Dispute, the terms of this Settlement and
any information contained herein will remain confidential between the Parties
hereto and their representatives and neither party shall disclose same to any
person or entity (other than the officers, directors, attorneys, accountants,
auditors, insurers, and/or reinsurers of such Party under confidentiality)
without the written consent of the other Party, except as follows: (i) in
response to a judicial order compelling disclosure or as may otherwise be
required by law or Securities and Exchange Commission practice or requirement or
be necessary to defend or assert claims by or against any Party hereto in a
judicial proceeding; (ii) under confidentiality to a subsidiary, affiliate,
associated, or parent company of such Party and their counsel; (iii) under
confidentiality to auditors of or counsel of such Party; and (iv) under
confidentiality by Kosan to any sublicensee or prospective sublicensee it may
have under SKI Patent Rights, or to parties conducting due diligence with
respect to a potential investment in or acquisition of Kosan.

 

3.2 Release. Except for the obligations of the Parties expressly set forth in
this Settlement and any patent prosecution costs for prosecution of SKI Patent
Rights (including without limitation of [*] Patents) prior to the Settlement
Date, each of the Parties and their respective successors and assigns, and all
of their respective servants, agents, directors, officers, members, managers,
employees and attorneys, release each other of and from any and all Claims
arising from the Dispute, or from the Parties’ performance under,
non-performance or default under, or breach of, the License Agreement in each
case on or before the Settlement Date (collectively, the “Released Claims”).
Each of the foregoing entities (other than the Parties) is a third-party
beneficiary of this Settlement.

 

3.3 General Release. The Parties understand and agree that this is a full,
complete and final general release of any and all Released Claims, and each
Party agrees that it shall apply to all unknown, unanticipated, unsuspected and
undisclosed Released Claims, as well as those which are now known, anticipated,
suspected or disclosed. Each Party has been fully advised by its respective
attorney of the contents of section 1542 of the Civil Code of the State of
California, and that section and the benefits thereof are hereby expressly
waived, along with those under any similar or equivalent laws in other
jurisdictions. Such Section 1542 reads as follows:

 

“Section 1542. (General Release-Claims Extinguished.) A general release does not
extend to claims which the creditor does not know or suspect to exist in his
favor at the time of executing the release, which if known by him must have
materially affected his settlement with the debtor.”

 

3.4 No Other Representations. The terms of this Settlement are contractual and
not a mere recital. This Settlement is executed without reliance upon any
promise, warranty or representation by any Party other than those expressly
contained herein. This Settlement may not be modified except by an agreement in
writing signed by both Parties. This Settlement sets

 

11.

 

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.

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EXECUTION COPY

 

forth the Parties’ entire agreement with respect to the Dispute, and there are
no other representations, warranties, agreements or understanding between the
Parties with respect to the Dispute that are not set forth in this Agreement.

 

3.5 Assignment. This Settlement shall bind the heirs, personal representatives,
successors and permitted assigns of each Party and inure to the benefit of each
Party and each of their respective successors and permitted assigns. Neither
Party may assign this Settlement in whole or in part except that either Party
may assign this Agreement along with the License Agreement in making a permitted
assignment under the License Agreement.

 

3.6 Expenses. Each Party to this Settlement will bear its own costs, expenses,
and attorney’s fees, whether taxable or otherwise, incurred in or arising out of
or in any way related to the matters released herein, except as is otherwise
specifically provided herein.

 

3.7 No Draftsmanship Implication. This Settlement has been negotiated among the
Parties and their respective legal counsel, and any legal or equitable
principles that might require the construction of this Settlement or any
provision of this Settlement against the Party drafting this Settlement will not
apply in any construction or interpretation of this Settlement.

 

3.8 Miscellany. Sections 21.3 – 21.8, 21.14 and 21.15 of the License Agreement
shall apply to this Settlement as if set forth herein in their entireties.

 

12.

 

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.

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EXECUTION COPY

 

IN WITNESS WHEREOF, the Parties have duly authorized and caused this Settlement
to be executed on the dates indicated below.

 

KOSAN BIOSCIENCES INC.       THE SLOAN-KETTERING INSTITUTE FOR CANCER RESEARCH
By:  

/s/ Robert G. Johnson, Jr.

      By:  

/s/ James S. Quirk

 

--------------------------------------------------------------------------------

       

--------------------------------------------------------------------------------

Name: 

 

Robert G. Johnson, Jr.

     

Name: 

 

James S. Quirk

 

--------------------------------------------------------------------------------

       

--------------------------------------------------------------------------------

Title:

  Sr. V.P. Medical Affairs &
Corp. Dev.      

Title:

 

Senior Vice President

Research Resources Management

 

--------------------------------------------------------------------------------

       

--------------------------------------------------------------------------------

Date:

 

September 18, 2003

     

Date:

 

9/24/03

 

--------------------------------------------------------------------------------

       

--------------------------------------------------------------------------------

 

13.

 

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.

--------------------------------------------------------------------------------

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.

 

EXECUTION COPY

 

EXHIBIT A

[*] PATENTS

 

Filing Date

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Serial No.

--------------------------------------------------------------------------------

  

Kosan Docket #

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Country

--------------------------------------------------------------------------------

  

Sloan -Kettering Ref. #

--------------------------------------------------------------------------------

[*]

   [*]    [*]                 [*][*]    [*]    [*]

 

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.

 

EXECUTION COPY

 

EXHIBIT B

COMPLETE (AS REPRESENTED BY SKI) LISTING OF SKI PATENT RIGHTS AS OF SETTLEMENT
DATE

 

Filing Date

--------------------------------------------------------------------------------

  

Serial No.

--------------------------------------------------------------------------------

  

Kosan Docket #

--------------------------------------------------------------------------------

  

Country

--------------------------------------------------------------------------------

  

Sloan -Kettering Ref. #

--------------------------------------------------------------------------------

[*]

   [*]    [*]                 [*][*]    [*]    [*]

 

1.