Exhibit 10.35


 


EXECUTION
COPY


 


(FOR
DISCUSSION ONLY, SUBJECT TO SENIOR MANAGEMENT APPROVAL AND FINAL EXECUTION BY
BOTH PARTIES)


 


[*] Viral
Inhibitor


 


[*]


 


LICENSE


 


and


 


RESEARCH
COLLABORATION


 


AGREEMENT


 


between


 


MERCK
& CO., INC.


 


and


 


SUNESIS PHARMACEUTICALS, INC.


 


LICENSE AND RESEARCH
COLLABORATION AGREEMENT


 


 










Confidential treatment
has been requested for portions of this exhibit.  The copy filed herewith omits the information
subject to the confidentiality request. 
Omissions are designated as [*].  A
complete version of this exhibit has been filed separately with the Securities
and Exchange Commission.


 





















 


LICENSE
AND RESEARCH COLLABORATION AGREEMENT


 


This LICENSE AND RESEARCH
COLLABORATION AGREEMENT (the “Agreement”),
effective as of July 22, 2004 (the “Effective Date”),
is made by and between Sunesis Pharmaceuticals, Inc., a Delaware
corporation, having a principal place of business at 341 Oyster Point
Boulevard, South San Francisco, CA 94080 (“Sunesis”), and
Merck & Co., Inc., a New Jersey corporation, having a principal place of
business at One Merck Drive, Whitehouse Station, NJ 08889-0100 (“Merck”).  Sunesis and
Merck are sometimes referred to herein individually as a “Party”
and collectively as the “Parties”.


 


BACKGROUND


 


A.                                   Sunesis has developed Sunesis Core Technology
(as hereinafter defined) and Sunesis Inhibition Mode Know-How (as hereinafter
defined) and has rights to Sunesis Inhibition Mode Patents (as hereinafter
defined);


 


B.                                     Merck is a leader in the research and
development of pharmaceutical products;


 


C.                                     Merck and Sunesis desire to enter into a
license and research collaboration upon the terms and conditions set forth
herein;


 


D.                                    Merck desires to obtain a license under the
Sunesis Core Technology and to obtain rights to Sunesis Inhibition Mode
Technology upon the terms and conditions set forth herein and Sunesis desires
to grant such a license and to transfer such rights to Merck;


 


NOW, THEREFORE, for and
in consideration of the covenants, conditions and undertakings hereinafter set
forth, it is agreed by and between the Parties as follows:


 


ARTICLE 1—DEFINITIONS


 


As used herein, the
following terms will have the meanings set forth below:


 


1.1                                 “Affiliate”
means (i) any corporation or other business entity of which fifty percent (50%)
or more of the securities or other ownership interests representing the equity,
the voting stock or general partnership interest are owned, controlled or held,
directly or indirectly, by Merck or Sunesis; or (ii) any corporation or
business entity which, directly or indirectly, owns, controls or holds fifty
percent (50%) (or the maximum ownership interest permitted by law) or more of
the securities or other ownership interests representing the equity, the voting
stock or, if applicable, the general partnership interest, of Merck or Sunesis;
or (iii) any corporation or business entity of which fifty percent (50%) or
more of the securities or other ownership interests representing the equity,
the voting stock or general partnership interest are owned, controlled or held,
directly or indirectly, by a corporation or business entity described in (i) or
(ii), in each case, for so long as such corporation or business entity meets
the requirements in (i), (ii) or (iii) above. 
Notwithstanding the foregoing, it is understood and agreed that, for
purposes of Sections 1.37, 1.38 and 8.1.1 as they relate to Sunesis Inhibition
Mode Technology, an entity shall not be deemed to be an Affiliate of a Party
where such


 


2





















 


entity meets the
requirements in (ii) or (iii) above as a result of a Change of Control (as that
term is defined in Section 14.3 below) that takes place after the
Effective Date.


 


1.2                                 “[*]
Lead” means any Program Compound that is approved by Merck in its sole
discretion as an [*] Lead in accordance with Section 2.6.


 


1.3                                 “Calendar
Quarter” means the respective periods of three (3) consecutive calendar
months ending on March 31, June 30, September 30 and December 31.


 


1.4                                 “Calendar
Year” means each successive period of twelve (12) months commencing on January 1
and ending on December 31.


 


1.5                                 “Combination
Product” means a Product which includes one or more active ingredients
other than a Program Compound in addition to a Program Compound.  All references to Product in this Agreement
shall be deemed to include Combination Product.


 


1.6                                 “Control” or “Controlled”
means with respect to any item of or right under know-how or intellectual
property rights, the possession of (whether by ownership or license, other than
pursuant to this Agreement) the ability of Sunesis or its Affiliate to grant a
license, sublicense or assignment of such item or right as provided for herein
without (i) violating the terms of any agreement or other arrangement with, or
the enforceable rights of, any Third Party existing at the time Sunesis or its
Affiliate would be required hereunder to grant Merck such license, sublicense
or assignment, or (ii) incurring an obligation to pay any royalties or license
fees to any Third Party based solely upon (A) the grant of such license,
sublicense or assignment to Merck, or (B) the exercise of such rights by
Merck.  Sunesis represents that, as of
the Effective Date, there are no items of know-how or intellectual property rights
for which the licenses, sublicenses or assignments set forth in this Agreement
would result in Sunesis or its Affiliate incurring an obligation under (ii)
above.


 


1.7                                 “Criteria”
means the [*] Lead Criteria, Viral Inhibitor Lead Criteria, Lead Compound
Criteria and Pre-Clinical Candidate (“PCC”) Criteria
as defined below.


 


1.7.1                        “[*]
Lead Criteria” means (i) those criteria set forth in
Exhibit 1.7.1 hereto, and/or (ii) such other criteria that are agreed
in writing by the Parties, which are required to be demonstrated from the
testing of a compound in order for such compound to be deemed an [*] Lead.


 


1.7.2                        “Viral
Inhibitor Lead Criteria” means (i) those criteria set forth in
Exhibit 1.7.2 hereto, and/or (ii) such other criteria that are agreed
in writing by the Parties, which are required to be demonstrated from the
testing of a compound in order for such compound to be deemed a Viral Inhibitor
Lead.


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


3





















 


1.7.3                        “Lead
Compound Criteria” means (i) those criteria set forth in
Exhibit 1.7.3 hereto, and/or (ii) such other criteria that are agreed
in writing by the Parties, which are required to be demonstrated from the
testing of a compound in order for such compound to be deemed a Lead Compound.


 


1.7.4                        “PCC
Criteria” means those criteria set forth in Exhibit 1.7.4 hereto which
are required to be demonstrated from the testing of a compound in order for
such compound to be deemed a PCC.


 


1.8                                 “[*]”
means that certain [*] of the [*] that is required to [*] into [*] in the [*]
of a [*].


 


1.9                                 “IND-Enabling
GLP Toxicology Studies” means genotoxicity, acute toxicology, and
sub-chronic toxicology studies using “Good Laboratory Practices” for obtaining
approval from a Regulatory Agency to administer the Product to a human.


 


1.10                           “Joint Research Program Know-How” means all technology, information,
and material, including, but not limited to, inventions, discoveries, know-how,
processes, methods, protocols, formulas, data, and trade secrets, patentable or
otherwise, made or developed jointly by personnel of Sunesis and Merck, their
respective Affiliates or Third Parties acting on their behalf (i) in the course
of the Research Program during the Research Program Term, or (ii) within [*]  ([*]) years of the conclusion of the Research
Program Term in the course of activities directed to discovery, research or
development relating to the Target.


 


1.11                           “Joint
Research Program Patents” mean all patents, patent applications, invention disclosures, certificates of
invention and applications for certificates of invention, the subject of
which is an invention made jointly by personnel of Merck and Sunesis, their
respective Affiliates or Third Parties acting on their behalf (i) in the course
of the Research Program during the Research Program Term, or (ii) within [*] ([*])
years of the conclusion of the Research Program Term in the course of
activities directed to discovery, research or development relating to the
Target;  as well as any divisions,
continuations, continuations-in-part, reissues, reexaminations, extensions,
supplementary protection certificates, and other governmental actions which
extend any of the patent applications, patents, invention disclosures, certificates of invention or certificate of
invention applications relating to the above, and all foreign
counterparts to any of the foregoing.


 


1.12                           “Lead
Compound” means any Program Compound that is approved by Merck in its
sole discretion as a Lead Compound in accordance with Section 2.6.


 


1.13                           “Major
Territories” mean any of France, Germany, Italy, Japan or the United
Kingdom.


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


 


4





















 


1.14                           “Merck Research Program Know-How” means all technology, information,
and material, including, but not limited to, inventions, discoveries, know-how,
processes, methods, protocols, formulas, data, and trade secrets, patentable or
otherwise, made or developed solely by
personnel of Merck, its Affiliates or Third Parties acting on their behalf (i)
in the course of the Research Program during the Research Program Term, or
(ii) within [*] ([*]) years of the conclusion of the Research Program Term in
the course of activities directed to discovery, research or development
relating to the Target.


 


1.15                           “Merck Research Program Patents” mean all patents, patent
applications, invention disclosures,
certificates of invention and applications for certificates of invention,the subject of which is an invention
made solely by personnel of Merck, its Affiliates or Third Parties acting on
their behalf (i) in the course of the Research Program during the Research
Program Term, or (ii) within [*] ([*]) 
years of the conclusion of the Research Program Term in the course of
activities directed to discovery, research or development relating to the
Target;  as well as any divisions, continuations,
continuations-in-part, reissues, reexaminations, extensions, supplementary
protection certificates, and other governmental actions which extend any of the
patent applications, patents, invention
disclosures, certificates of invention or certificate of invention
applications relating to the above, and all foreign counterparts to any of the
foregoing.


 


1.16                           “NDA”
or “MAA” means a New Drug Application (or its equivalent), as defined in
the U.S. Food, Drug and Cosmetic Act and the regulations promulgated
thereunder, or any corresponding or similar application or submission for
Regulatory Approval of a Product filed with a Regulatory Authority to obtain
marketing approval in that country or in that group of countries.


 


1.17                           “Net
Sales” means the invoice price of Products sold by Merck, its Affiliates,
or Sublicensees to the first Third Party, after deducting, if not previously deducted,
from the amount invoiced or received:


 


(a)                                  a
fixed amount equal to five percent (5%) of the amount invoiced to cover bad
debt, sales or excise taxes, early payment discounts, transportation and
insurance, custom duties, and other governmental charges;


 


(b)                                 sales
commissions paid to Third Party distributors and/or selling agents (excluding
sales commissions paid for sales made in the United States, Australia, Japan,
and the countries of the European Union);


 


(c)                                  trade
and quantity discounts other than early pay cash discounts;


 


(d)                                 rejections,
returns, rebates, chargebacks and other allowances or credits; and


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


5





















 


(e)                                  retroactive
price reductions that are actually allowed or granted.


 


Sales among Merck, its
Affiliates and their respective Sublicensees for resale shall be excluded from
the computation of Net Sales, to the extent that (i) the subsequent resale is
included within Net Sales, or (ii) such sales relate to products that are
transferred or otherwise disposed of without charge as samples (promotion or
otherwise) or as donations (for example, to non-profit institutions or
government agencies for a non-commercial purposes).


 


With respect to sales of
Combination Products, Net Sales shall be calculated on the basis of the invoice
price of Product(s) containing the same strength of Program Compound sold
without other active ingredients.  In the
event that Product is sold only as a Combination Product, Net Sales shall be
calculated on the basis of the invoice price of the Combination Product
multiplied by a fraction, the numerator of which shall be the inventory cost of
Program Compound and the denominator of which shall be the inventory cost of
all of the active ingredients in the Combination Product.  Inventory cost shall be determined in
accordance with the Party’s regular accounting methods, consistently
applied.  The deductions set forth in
paragraphs (a) through (e) above will be applied in calculating Net Sales for a
Combination Product.  In the event that
Product is sold only as a Combination Product and either Party reasonably
believes that the calculation set forth in this Paragraph does not fairly
reflect the value of the Product relative to the other active ingredients in
the Combination Product, the Parties shall negotiate, in good faith, other means
of calculating Net Sales with respect to Combination Products.


 


1.18                           “[*]”
means a protein, small molecule or
other compound specifically directed at the Target which [*] the [*] or [*] of
the Target at a [*] equal to or greater than the [*] with which such protein,
small molecule or other compound directly [*] by the Target, in each case as
measured in both an [*] assay and an assay of [*] cells.  Within ninety (90) days of the Effective
Date, the Parties shall mutually agree on parameters and appropriate laboratory
procedures necessary to objectively determine the foregoing inhibition
characteristics to determine whether a particular protein, small molecule or
other compound is a [*] Inhibitor, including the relevant [*] and [*] assays,
and assay conditions and criteria related thereto.  All determinations of whether a particular
protein, small molecule or other compound is a [*] Inhibitor shall be made in
accordance with such parameters, and such parameters shall be amended only upon
written agreement of the Parties.


 


1.19                           “PDRC”
means Merck’s Preclinical Development Review Committee or any successor
committee that performs the same functions.


 


1.20                           “Phase I”
means human clinical trials, the principal purpose of which is preliminary
evaluation of safety and/or pharmacokinetic effect of a Product in human
subjects or that would otherwise satisfy the requirements of 21 C.F.R.
§312.21(a).


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


6





















 


1.21                           “Phase
II” means human clinical trials conducted on a limited number of patients
for the purpose of preliminary evaluation of the effectiveness of a Product for
a particular indication or indications in human subjects with the disease or
indication under study or that would otherwise satisfy the requirements of 21
C.F.R. 312.21(b).


 


1.22                           “Phase III”
means pivotal human clinical trials the results of which could be used to
establish safety and efficacy of a Product as a basis for Regulatory Approval
or that would otherwise satisfy the requirements of 21 C.F.R. §312.21(c).


 


1.23                           “Pre-Clinical
Candidate” or “PCC” means any Program Compound that is approved
by Merck in its sole discretion as a PCC in accordance with Section 2.6.


 


1.24                           “Product”
means any preparation in final form for sale by prescription, over-the-counter
or any other method, for any and all
uses, which contains a Program Compound, including without limitation a
Combination Product.


 


1.25                           “Program
Compound” means any chemical entity
that: (i) is a protein, small molecule, or other compound, (ii) is made,
identified or discovered by or under authority of either Party or their
respective Affiliates (A) pursuant to work conducted under the Research Program
during the Research Program Term, or (B) during the period from the Effective
Date until the [*] ([*]) anniversary of
the end of the Research Program Term in the course of activities directed to
the discovery, research or development relating to the Target, and (iii)
inhibits the Target through the Sunesis Inhibition Mode.


 


1.26                           “Regulatory
Agency” means any applicable government regulatory authority involved in
granting approvals for the manufacturing, marketing, reimbursement and/or
pricing of a Product in the Territory, including the United States Food and
Drug Administration and any successor governmental authority having
substantially the same function.


 


1.27                           “Regulatory
Approval” means any approval (including without limitation all applicable
pricing and governmental reimbursement approvals) from the relevant Regulatory
Agency necessary for the marketing and sale of a Product in the applicable
country.


 


1.28                           “Research
Program” means the activities undertaken by or under authority of Merck, which may include input from Sunesis
and the Sunesis Principal Consultant, to discover and develop Program Compounds
as set forth in Article 2 below and in the Research Plan.


 


1.29                           “Research Program Know-How” means Merck Research Program Know-How,
Sunesis Research Program Know-How, and Joint Research Program Know-How.


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


7





















 


1.30                           “Research Program Patents” mean Merck Research Program Patents,
Sunesis Research Program Patents, and Joint Research Program Patents.


 


1.31                           “Research
Program Technology” means Research Program Know-How and Research Program
Patents.


 


1.32                           “Research
Program Term” means the period commencing on the Effective Date and ending
on the later of (i) the third anniversary of the Effective Date, or
(ii) if extended in accordance with Section 2.4 below, the end of
such extension period; provided that, the Research Program Term shall in all
events terminate upon an earlier termination of the Agreement in accordance with
Article 12 below.


 


1.33                           “Sublicensee”
means, with respect to a particular Product, a Third Party to whom Merck has
granted a right to make and sell or sell such Product, but shall not include
distributors (i.e., distributors that are not responsible for marketing
or promotion of such Product).


 


1.34                           “Sunesis
Background Technology” means all patents, patent applications, invention disclosures, certificates of
invention and applications for certificates of invention, Controlled by
Sunesis or its Affiliates as of the Effective Date and/or during the term of
the Agreement, that (i) are necessary or useful to Merck in the research,
development, or commercialization of compounds that inhibit the Target
(including but not limited to Program Compounds and Products), and (ii) are not
Sunesis Inhibition Mode Patents, Research Program Patents or within the Sunesis
Core Technology; as well as any
divisions, continuations, continuations-in-part, reissues, reexaminations,
extensions, supplementary protection certificates, and other governmental
actions which extend any of the patent applications, patents, invention disclosures, certificates of
invention or certificates of invention applications above, and all
foreign counterparts to any of the foregoing.


 


1.35                           “Sunesis
Core Technology” mean all patents, patent applications, invention disclosures, certificates of
invention and applications for certificates of invention, owned or
Controlled by Sunesis or its Affiliates as of the Agreement’s Effective Date
and/or during the term of the Agreement (as described in Exhibit 1.35 hereto), and all information, materials and other
subject matter, and improvements thereof, relating to (i) mutants or the use
thereof in screening, (ii) the use of novel protein engineering techniques and
their application in drug discovery, (iii) target-directed fragment discovery
and maturation to produce drug leads, including monophores, extenders and
fragments, and monophore, extender and fragment libraries for such purposes,
(iv) covalent tethering and techniques related thereto (e.g., NMR,
X-ray, mass spec. AUC, Biacore) and its use to discover fragments and test
binding hypotheses of fragments and leads, or (v) dynamic and other
combinatorial chemistries related to proteins, as well as any divisions,
continuations, continuations-in-part, reissues, reexaminations, extensions,
supplementary protection certificates, and other governmental actions which
extend any of the patent applications, patents, invention disclosures, certificates of invention or certificates of
invention applications above, and all foreign counterparts to any of the
foregoing.  Notwithstanding the
foregoing, Sunesis Core Technology shall exclude all Sunesis Inhibition Mode
Technology and Research Program Technology.


 


8





















 


1.36                           “Sunesis
Inhibition Mode” means inhibition of the Target with [*] Inhibitors which are derivatives of small
molecules or drug fragments disclosed to Merck in the Sunesis Core Technology
or the Sunesis Inhibition Mode Technology.


 


1.37                           “Sunesis
Inhibition Mode Know-How” means all technology, information, and material,
including, but not limited to, inventions, discoveries, know-how, processes,
methods, protocols, formulas, data, and trade secrets, patentable or otherwise,
which, as of the Agreement’s Effective Date and/or during the term of the
Agreement, is in the Control of Sunesis and/or its Affiliates, and which: (1)
specifically relate to small molecules
or drug fragments that utilize the Sunesis Inhibition Mode, or (2) (a) are
necessary or useful to Merck in connection with the Research Program and/or in
the research, development, or commercialization of Products and (b)
specifically relate to the Sunesis Inhibition Mode.


 


1.38                           “Sunesis
Inhibition Mode Patents” mean all patents, patent applications, invention disclosures, certificates of
invention and applications for certificates of invention, owned or
Controlled by Sunesis or its Affiliates as of the Agreement’s Effective Date
and/or during the term of the Agreement, which: (1) specifically relate to small molecules or drug fragments that
utilize the Sunesis Inhibition Mode, or (2) (a) are necessary or useful to
Merck in connection with the Research Program and/or for the research,
development, or commercialization of Products and (b) specifically relate to
the Sunesis Inhibition Mode; as well as any divisions, continuations,
continuations-in-part, reissues, reexaminations, extensions, supplementary
protection certificates, and other governmental actions which extend any of the
patent applications, patents, invention
disclosures, certificates of invention or certificates of invention
applications above, and all foreign counterparts to any of the foregoing.


 


1.39                           “Sunesis
Inhibition Mode Technology” means Sunesis
Inhibition Mode Patents and Sunesis Inhibition Mode Know-How.


 


1.40                           “Sunesis Research Program Know-How” means all technology, information,
and material, including, but not limited to, inventions, discoveries, know-how,
processes, methods, protocols, formulas, data, and trade secrets, patentable or
otherwise, made or developed solely by
personnel of Sunesis, its Affiliates or Third Parties acting on their behalf
(i) in the course of the Research Program during the Research Program Term, or
(ii) within [*] ([*]) years of the conclusion of the Research Program Term in
the course of activities directed to discovery, research or development
relating to the Target.


 


1.41                           “Sunesis Research Program Patents” means all patents, patent
applications, invention disclosures,
certificates of invention and applications for certificates of invention,the subject of which is an invention
made solely by personnel of Sunesis, its Affiliates or Third Parties acting on
their behalf (i) in the course of the Research Program during the Research
Program Term, or (ii)


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


9





















 


within [*] ([*]) years of
the conclusion of the Research Program Term in the course of activities
directed to discovery, research or development relating to the Target; as well as any divisions,
continuations, continuations-in-part, reissues, reexaminations, extensions,
supplementary protection certificates, and other governmental actions which
extend any of the patent applications, patents, invention disclosures, certificates of invention or certificates of
invention applications relating to the above, and all foreign
counterparts to any of the foregoing.


 


1.42                           “Target”
means [*].


 


1.43                           “Territory”
means all of the countries of the world.


 


1.44                           “Third
Party” means any person or entity other than Sunesis, Merck, and their Affiliates.


 


1.45                           “UC
Patents” means those patents, patent applications, invention disclosures, certificates of invention and applications for
certificates of invention within the Sunesis Core Technology set forth in Section 1
of Exhibit 1.35 hereto; as
well as any divisions, continuations, continuations-in-part, reissues,
reexaminations, extensions, supplementary protection certificates, and other
governmental actions which extend any of the patent applications, patents, invention disclosures, certificates of
invention or certificates of invention applications above, and all
foreign counterparts to any of the foregoing.


 


1.46                           “Valid
Patent Claim” means a claim of an issued and unexpired composition of
matter patent within the Sunesis Core Technology, Sunesis Inhibition Mode Patents or Research Program Patents,
which has not been revoked or held unenforceable, invalid or unpatentable by a
court or other government body having competent jurisdiction in a decision from
which no appeal can or has been taken, and which has not been rendered
unenforceable through disclaimer.


 


1.47                           “Viral
Inhibitor Lead” means any Program Compound that is approved by Merck in its
sole discretion as a Viral Inhibitor Lead in accordance with Section 2.6.


 


1.48                           Additional
Terms.  In addition to the foregoing,
the following terms shall have the meaning defined in the corresponding Section below:


 


	
   Term

   	
    

   	
   Section Defined

   
	
  “AAA”

  	
   

  	
   

  	
  13.1.1

  
	
  “Annual License
  Fee”

  	
   

  	
   

  	
  5.1.2

  
	
  “Change of
  Control”

  	
   

  	
   

  	
  14.3

  
	
  “Code”

  	
   

  	
   

  	
  12.3

  
	
  “Competitive
  Product”

  	
   

  	
   

  	
  5.5.3

  



 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


10





















 


	
  Term

  	
   

  	
  Section Defined

  
	
  “Confidential
  Information”

  	
   

  	
   

  	
  9.1

  
	
  “Controlling
  Party”

  	
   

  	
   

  	
  8.4.4

  
	
  “Discontinued
  Compound”

  	
   

  	
   

  	
  5.4.2

  
	
  “Excluded Claim”

  	
   

  	
   

  	
  13.1.6

  
	
  “Exclusivity
  Period”

  	
   

  	
   

  	
  2.5

  
	
  “First
  Commercial Sale”

  	
   

  	
   

  	
  5.6

  
	
  “Know-How Royalty”

  	
   

  	
   

  	
  5.5.2

  
	
  “Liabilities”

  	
   

  	
   

  	
  11.1

  
	
  “Merck Indemnities”

  	
   

  	
   

  	
  11.2

  
	
  “Patent Royalty”

  	
   

  	
   

  	
  5.5.1

  
	
  “Principal
  Consultant”

  	
   

  	
   

  	
  2.2

  
	
  “Research Plan”

  	
   

  	
   

  	
  2.3

  
	
  “Sunesis
  Indemnities”

  	
   

  	
   

  	
  11.1

  
	
  “Technology
  Access Fee”

  	
   

  	
   

  	
  5.1.1

  
	
  “Third Party
  Payments”

  	
   

  	
   

  	
  5.5.4

  



 


ARTICLE 2—RESEARCH
PROGRAM


 


2.1                                 General;
Conduct of Research.  Sunesis, the
Principal Consultant and Merck shall engage in the Research Program upon the
terms and conditions set forth herein. 
Sunesis agrees to dedicate to the Research Program a Principal
Consultant as provided in Section 2.2. 
During the Research Program Term, each Party shall keep the other Party
informed of its progress and material results in performing the Research
Program.


 


2.2                                 Principal
Consultant.  For the duration of the
Research Program Term, Sunesis shall make the services of a principal
consultant available to Merck to assist with the Research Program (the “Principal Consultant”)
and such individual shall be available to devote no fewer than [*] ([*]) hours
per calendar month to the Research Program as reasonably requested by Merck, provided
that the Principal Consultant shall not be obligated to devote more than [*] ([*])
hours in any calendar month.  It is
understood and agreed that the Principal Consultant shall travel to
Merck facilities to perform such services as reasonably requested by Merck,
provided that the Principal Consultant shall not be required to travel to Merck
facilities more than once per Calendar Quarter. 
The Principal


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


11





















 


Consultant to be provided
by Sunesis shall be [*].  If [*] is not
able to serve as the Principal Consultant or if he leaves Sunesis’ employ, then
Sunesis shall notify Merck immediately and a replacement shall be selected
subject to Merck’s approval.  Sunesis
agrees that any Principal Consultant which it proposes to Merck shall have
sufficient skills and experience as are required to fulfill its obligations
under the Research Program in accordance with the terms of this Agreement,
including any exhibits hereto.


 


2.3                                 Research
Plan.  The Parties will conduct the
Research Program in accordance with a written plan approved by Merck with input
of Sunesis (the “Research Plan”).  The Research Plan shall establish: (i) the
scope of the research activities which will be performed; (ii) the research
objectives, work plan activities and schedules with respect to the Research
Program; and (iii) the respective obligations of the Parties with respect
to the Research Program.  The Research
Plan shall be reviewed on an ongoing basis and may be amended in writing by
Merck from time-to-time as it deems necessary or appropriate, provided that
Merck shall not have the authority to make any amendment to the Research Plan
that increases the ongoing obligations of the Principal Consultant or Sunesis
except as mutually agreed in writing. 
The initial Research Plan shall be completed within thirty (30) days of
the Effective Date and shall be attached hereto as Exhibit 2.3.


 


2.4                                 Term
of Research Program.  The Research
Program shall continue for an initial period of three (3) years after the
Effective Date.  Merck may extend the
Research Program Term for one additional one (1) year period with Sunesis’
approval; provided that Merck gives Sunesis written notice of its desire to
extend the term at least ninety (90) days before the end of the initial
three-year Research Program Term.  In
addition, Merck shall have the right to terminate the Research Program and/or
this Agreement, effective on the eighteen (18) month anniversary of the
Effective Date, by providing Sunesis
with ninety (90) days’ written notice as specified in Section 12.4.


 


2.5                                 Exclusivity.  Unless otherwise agreed by the Parties in
writing, during the period from the Effective Date until the time that Merck or
its Affiliates cease researching, developing and/or commercializing compounds
which inhibit the Target which utilize the Sunesis Inhibition Binding Mode
(including but not limited to Program Compounds and/or Products) (the “Exclusivity Period”), Sunesis and its Affiliates shall not
knowingly collaborate or otherwise cooperate with a Third Party or perform
screening or other research for its own account outside the Research Program
for the purpose of identifying compounds which inhibit the Target.  For the avoidance of doubt, the Parties agree
that, during the Exclusivity Period, Sunesis and its Affiliates shall not grant
any rights to Third Parties to perform research activities directed at
identifying compounds which inhibit the Target. 
The Parties agree that nothing in this Agreement and particularly in
this Section 2.5 shall in any way limit Merck from acquiring, from a party
other than Sunesis, a compound which inhibits the Target and that no milestones
nor royalties shall be owed to Sunesis with regard to such compound unless the
compound inhibits the Target through the Sunesis Inhibition Mode and otherwise
satisfies the definition of Program Compound set forth in Section 1.25
above and the conditions required for payment under Article 5.


 


12





















 


2.6                                 Designation
of [*] Leads, Viral Inhibitor Leads, Lead Compounds and PCCs.  The Parties have established Criteria, set
forth in Exhibits 1.7.1, 1.7.2, 1.7.3, and 1.7.4, for the nomination of Program
Compounds as [*] Leads, Viral Inhibitor Leads, Lead Compounds or PCCs,
respectively.  Based upon the Criteria,
Merck shall consider Program Compounds as [*] Leads, Viral Inhibitor Leads,
Lead Compounds or PCCs and, upon approval by Merck in writing to Sunesis, such
Program Compound shall be deemed an [*] Lead, Viral Inhibitor Lead, Lead
Compound or PCC, as the case may be. 
During the Research Program Term, Merck may approve, or withhold its
approval of, the designation of any Program Compound as a Lead Compound or as a
PCC in Merck’s sole discretion, whether or not such Program Compound meets the
Criteria, and a Program Compound shall not be deemed a Lead Compound or PCC
unless so approved by Merck except as set forth in this Section 2.6.  In addition to the foregoing, following the
end of the Research Program Term and continuing until the expiration or
termination of the Agreement, Merck may approve, in its sole discretion, the
designation of any Program Compound as a PCC, provided such Program Compound
meets the PCC Criteria.  Notwithstanding
anything else in this Section 2.6, it is understood and agreed that, if
Merck undertakes IND–Enabling GLP Toxicity Studies with respect to a particular
Program Compound, such Program Compound shall be deemed designated and approved
by Merck as an [*] Lead, a Viral Inhibitor Lead, a Lead Compound and a PCC for
the purposes of Section 5.2 below, in each case to the extent such Program
Compound has not already been so designated and approved by Merck.


 


2.7                                 Research
Records.  Sunesis and Merck shall
maintain records of the Research Program (or cause such records to be
maintained) in sufficient detail and in good scientific manner, in accordance
with the standards used in the pharmaceutical industry for drug discovery and
development, and appropriate for patent and regulatory purposes as will
properly reflect all work done and results achieved in the performance of the
Research Program.  During the Research
Program Term, and for three (3) years thereafter, Sunesis shall provide Merck
with access to such records, upon request, during ordinary business hours.


 


ARTICLE 3—MANAGEMENT


 


3.1                                 Oversight
and Meetings.  Merck shall oversee,
review and recommend direction of the Research Program.  During the Research Program Term, the
Principal Consultant and personnel at Merck responsible for the Research
Program shall meet at least quarterly or at a frequency as agreed by the Parities,
to discuss the status of the Research Program, at such locations as the Parties
agree or by means of teleconference, videoconference or other similar
communications equipment, and will otherwise communicate by telephone,
electronic mail, facsimile and/or videoconference.  With the prior written consent of the
Parties, other representatives of Sunesis or Merck may attend the meetings as
nonvoting observers.  Each Party shall be
responsible for all of its own expenses associated with attendance of such
meetings.


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


13





















 


3.2                                 Decision-Making.  Merck shall have final decision-making
authority with regard to all issues relating to the Research Program, except as
set forth in Sections 1.17 and 2.3 above.


 


ARTICLE 4—LICENSES


 


4.1                                 License
Grant.


 


4.1.1                        License
under the Research Program Technology and Sunesis Inhibition Mode Technology.  Subject to the terms and conditions of this
Agreement, Merck hereby grants to Sunesis a worldwide, non-exclusive license
under the Research Program Technology and Sunesis Inhibition Mode Technology
solely to perform its obligations under the Research Program as specifically
provided in the Research Plan.


 


4.1.2                        License
under Sunesis Core Technology. 
Subject to the terms and conditions of this Agreement, Sunesis hereby
grants to Merck and its Affiliates a worldwide, non-exclusive license under the
Sunesis Core Technology (and any improvements thereto) to research, develop,
make, have made, use, import, offer for sale, sell, have sold or otherwise
exploit compounds that inhibit the Target (including but not limited to Program
Compounds) and/or Products in the Territory.


 


4.1.3                        License
under Sunesis Background Technology. 
Subject to the terms and conditions of this Agreement, Sunesis hereby
grants to Merck and its Affiliates a worldwide, non-exclusive license under the
Sunesis Background Technology to research, develop, make, have made, use,
import, offer for sale, sell, have sold or otherwise exploit compounds that
inhibit the Target (including but not limited to Program Compounds) and/or
Products in the Territory.


 


4.2                                 Sublicenses.  Subject to the terms and conditions of this
Agreement, Merck and its Affiliates shall have the right to sublicense the
rights granted in Sections 4.1.2 and 4.1.3 (i) to a Third Party contract
research organization (“CRO”) where
Merck retains all commercialization rights to compounds produced by the CRO,
(ii) to Third Parties for the purposes of a bona fide research or development
collaboration with such Third Party, where Merck remains substantially involved
in the performance of the research or development with such Third Party
collaborator, and (iii) to Third
Parties for the purpose of commercializing a Product developed in substantial
part by Merck, in each case provided such Third Party agrees in writing
carrying out aspects of Merck’s or its Affiliates’ efforts on Merck’s or its
Affiliates’ behalf and who agree to be bound by the terms and conditions of
this Agreement.  Within sixty (60)
days following Merck’s grant of a sublicense to a Sublicensee to make and sell
or to sell a Product, Merck shall provide Sunesis with the identity of the
Sublicensee and the rights granted with respect thereto for each Product and
territory, sufficient to allow Sunesis to verify the amounts due under Article 5.  Each sublicense granted by Merck under this Section 4.2
shall be consistent with all of the terms and conditions of this Agreement, and
subordinate thereto, and Merck shall remain responsible to Sunesis for the
compliance of each Sublicensee with the financial and other obligations due
under this Agreement.


 


14





















 


4.3                                 No
Implied Licenses.  Only the licenses
granted or retained pursuant to the express terms of this Agreement shall be of
any legal force or effect.  No other
license rights shall be created by implication, estoppel or otherwise.


 


ARTICLE 5—PAYMENTS


 


5.1                                 Technology
Access Fee and License Fees.


 


5.1.1                        Technology
Access Fee.  Upon execution of this
Agreement by both Parties, an upfront technology access fee of [*] U.S. Dollars
(US$[*]) shall be due to Sunesis, payable by Merck within thirty (30) days
after the Effective Date (“Technology Access Fee”).  The Parties agree that the Technology Access
Fee shall cover all costs and expenses
relating to the Principal Consultant and his/her participation in the Research
Program.  Such fee shall be
non-refundable and non-creditable against other amounts due Sunesis hereunder.


 


5.1.2                        Annual
License Fee.  In consideration for
the licenses granted herein, Merck shall pay Sunesis an annual license fee (“Annual License Fee”) within thirty (30) days of the
following dates:


 


	
  Payment
  Date

  	
   

  	
  Annual License

  Fee (U.S. Dollars)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Effective Date:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  The first anniversary
  of the Effective Date:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  The second anniversary
  of the Effective Date:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  The third anniversary
  of the Effective Date:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  The fourth anniversary
  of the Effective Date, and each anniversary of the Effective Date thereafter:

  	
   

  	
  $

  	
  [*]

  	
   

  



 


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


15





















 


5.2                                 Research
Milestones.  Subject to the terms and
conditions of this Agreement, Merck shall pay to Sunesis the amounts set forth
below within thirty (30) days following the achievement of the research
milestones with respect to the Target:


 


	
  Research Milestones

  	
   

  	
  Payment
  Amount (U.S.

  Dollars)

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  First achievement
  of the [*] Lead Criteria as determined by Merck, in accordance with Section 2.6,
  of the first [*] Lead for the Target:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  First
  achievement of the [*] Lead Criteria as determined by Merck, in accordance
  with Section 2.6, of the first [*] Lead for the Target:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Approval by
  Merck, in accordance with Section 2.6, of the first Lead Compound for
  the Target:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Approval by
  Merck, in accordance with Section 2.6, of the first PCC for the Target:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Approval by Merck, in
  accordance with Section 2.6, of the next four (4) PCCs for the Target:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Successful
  completion of IND-Enabling GLP Toxicology Studies on a PCC-by-PCC basis, for
  each of the first four (4) PCCs to reach such completion:

  	
   

  	
  $

  	
  [*]

  	
   

  



 


For milestones 1 through
4, the milestone payment shall be payable only upon the initial achievement of
such milestone for the Target and no amounts shall be due hereunder for
subsequent or repeated achievement of such milestone.  All milestone payments under this Section 5.2
shall be non-refundable and non-creditable against other amounts due Sunesis
hereunder.


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission.  Confidential
treatment has been requested with respect to the omitted portions.


 


16





















 


5.3                                 Development
Milestones.  On a Program
Compound-by-Program Compound basis, Merck shall pay to Sunesis the following
amounts within thirty (30) days following the first achievement by Merck,
its Affiliates or Sublicensees, as the case may be, of each of the following
milestones with respect to a Program Compound:


 


	
  Development Milestones

  	
   

  	
  Payment
  Amount (U.S.

  Dollars)

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  1.

  	
  Initiation of
  Phase I for such Program Compound in any country:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  2.

  	
  Initiation of the first
  Phase II trial for such Program Compound in any country:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  3.

  	
  Initiation of the first
  Phase III trial for such Program Compound in any country:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  4.

  	
  Acceptance of a NDA in
  the U.S. for such Program Compound:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5.

  	
  Acceptance of an MAA in
  a Major Territory for such Program Compound:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  6.

  	
  Regulatory Approval in
  the U.S. of such Program Compound:

  	
   

  	
  $

  	
  [*]

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  7.

  	
  Regulatory Approval in
  a Major Territory of such Program Compound:

  	
   

  	
  $

  	
  [*]

  	
   

  



 


Such milestone payments
shall be non-refundable and non-creditable against other amounts due Sunesis
hereunder.  The milestone payment shall
be payable only upon the initial achievement of such milestone and no amounts
shall be due hereunder for subsequent or repeated achievement of such
milestone.  In addition, in all
circumstances, milestone payments applicable to each Program Compound shall be
payable only once per Program Compound.


 


5.4                                 Research
and Development Milestones – Additional Terms.


 


5.4.1                        Multiple
Program Compounds.  It is understood
that the milestone payments set forth in Section 5.3 above shall be
payable only upon the initial achievement of such milestone with respect to a
particular Program Compound, and no amounts shall be due hereunder for
subsequent or repeated achievement of such milestone with respect to the same
Program Compound.  It is further
understood that the payments under Section 5.3 shall be due separately for
each Program


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


17





















 


Compound to meet such
milestones; accordingly, if a second or subsequent Program Compound is
developed, a further full set of milestone payments will become due and payable
at the time(s) set forth in Section 5.3 for such second or subsequent
Program Compound, subject to the provisions of this Agreement, including Section 5.4.2
below.


 


5.4.2                        Credit
for Discontinued Compounds.  If Merck
ceases all clinical development of a particular Program Compound (a “Discontinued Compound”) after having made payment under Section 5.3
above on the achievement of a particular milestone by such Program Compound,
there shall be no payment due upon the accomplishment of that same milestone
with respect to the next Program Compound to achieve such milestone.


 


5.4.3                        Acceptance.  For purposes of this Article 5, “acceptance”
of an NDA or MAA shall mean (i) in the United States, that the FDA has
accepted such NDA for substantive review; and (ii) in the European Union,
that the Regulatory Agency of a country of the European Union, or the European
Medicines Evaluation Agency (or a comparable agency of the EU), has validated
or otherwise accepted such MAA for substantive review; and (iii) in Japan, that
the Regulatory Agency of Japan has validated or otherwise accepted such NDA for
substantive review.


 


5.4.4                        Accrued
Milestones.  If a research milestone
for a PCC under Section 5.2 above, or a development milestone for a
Program Compound under Section 5.3 above, is achieved with respect to such
PCC or Program Compound (respectively) in a territory before a prior research
milestone under Section 5.2 or a prior development milestone under Section 5.3
for such PCC or Program Compound in such territory, then the earlier milestone
payments under Section 5.2 and 5.3 in such territory shall then be due
with respect to such PCC or Program Compound, as the case may be.  For such purposes, “subsequent” and “prior”
shall refer to the numerical order of such milestone, as indicated next to such
milestone in Sections 5.2 and 5.3 above; provided,
that for the purposes of this Section 5.4.3, (i) milestone 5 under Section 5.2
above shall not be so deemed “prior” to milestone 6 thereunder, and (ii)
milestones 4 and 6 under Section 5.3 above shall not be so deemed “prior”
to milestones 5 and 7 thereunder, and vice versa.


 


5.4.5                        Reports;
Payments.  Within ten (10) business
days of the occurrence of any event which would trigger a milestone payment
according to Section 5.2 or 5.3, Merck shall inform Sunesis of such
occurrence.  The corresponding payment
shall be due thirty (30) days after the occurrence of such event.


 


5.5                                 Royalties
on annual Net Sales of Products by Merck, its Affiliates and Sublicensees.


 


5.5.1                        Patent
Royalty.  Subject to Section 5.5.2 below and the other terms and conditions of this Agreement, Merck
shall pay to Sunesis a royalty on annual Net Sales by Merck, its Affiliates and
their Sublicensees of Products, on a Product-by-Product basis, equal to the
percentage of such Net Sales set forth below, provided the sale of the Product would, but for the license hereunder,
infringe a Valid Patent Claim in the country of sale (“Patent
Royalty”):


 


18





















 


	
  Annual
  Net Sales (U.S. Dollars)

  	
   

  	
  Patent Royalty on

  Net Sales

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Portion of
  annual Net Sales of such Product up to $[*]:

  	
   

  	
  [*]%

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Portion of annual Net
  Sales of such Product between $[*] and $[*]:

  	
   

  	
  [*]%

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  Portion of annual Net
  Sales of such Product over $[*]:

  	
   

  	
  [*]%

  	
   

  



 


For purposes of the
foregoing, “annual Net Sales” shall mean, for a particular Product, the
worldwide Net Sales of such Product for the particular Calendar Year.  In addition, it is understood that all
formulations and dosage forms of the same active ingredient(s) shall be deemed
the same “Product,” but Products with different active ingredients shall be
deemed different Products.  No royalties
shall be due upon the sale or other transfer among Merck, its Affiliates or
Sublicensees, but in such cases the royalty shall be due and calculated upon
Merck’s or its Affiliate’s or its Sublicensee’s Net Sales to the first Third
Party.


 


5.5.2                        Know-How
Royalty.  Subject to Section 5.5.5
below, in those countries where the sale of the Product would not infringe a
Valid Patent Claim, the royalty rate shall be [*] percent ([*]%) of the Patent
Royalty rates set forth above (the “Know-How Royalty”).


 


5.5.3                        Competitive
Products.


 


(a)          If, in any Calendar
Year, a Third Party that is not acting under authority of Merck or its
Affiliates or Sublicensees sells a product in a country which is a Competitive
Product (as defined below) of a Product, then the royalty rate to be paid on
Net Sales of such Product in that country under Section 5.5.1 shall be
reduced by fifty percent (50%) in such country during such Calendar Year, subject
to Section 5.5.5 below.


 


(b)         For purposes of this Section 5.5.3
“Competitive Product” shall mean a
product:


 


(i)                                     that
is being sold in the same country in which Merck or its Affiliate or their
Sublicensees is selling a Product, which product incorporates an active moiety
that is the same as the Program Compound contained within such Product being
sold in such country;


 


(ii)                                  the
sale of which is not covered by a Valid Patent Claim in such country or a Valid
Patent Claim exists in such country but is unenforceable; and


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


19





















 


(iii)                               of
which sales in such country attains over such Calendar Year basis a market
share of [*] percent ([*]%) or more in such country of sale as measured by
prescriptions or other similar information in the country of sale as determined
by an independent sales auditing firm selected by Merck (such as IMS) and
reasonably acceptable to Sunesis.  Once
the Competitive Product has achieved such percentage market share in a country,
its shall be deemed to satisfy this clause (iii) for each subsequent Calendar
Year in such country until such time as commercial sales of such Competitive
Product are effectively discontinued in such country.


 


If Merck is
entitled to a royalty reduction based on Competitive Product sales pursuant to
this Section 5.5.3 for any royalty reporting period, Merck shall submit
the sales report of such independent firm, as applicable, for the relevant
royalty reporting period to Sunesis, together with the sales report for the
relevant royalty reporting period submitted pursuant to Section 6.1.


 


5.5.4                        Royalty
Offset.  In the event that Merck, its
Affiliates or their Sublicensees are required to pay royalties or to make any
other payments to Third Parties in any country order to research, develop,
make, have made, use, offer to sell, sell or import Program Compound(s) or
Product(s) (hereinafter “Third Party Payments”),
then [*] percent ([*]%) of the consideration actually paid for such Third Party
Payments by Merck, its Affiliates or their Sublicensees for such Program
Compound or Product for a Calendar Quarter shall be creditable against the
royalty payments due Sunesis by Merck with respect to such Program Compounds or
Products in any country; provided, however,
that in no event shall the royalties owed by Merck to Sunesis for such Calendar
Quarter be reduced by more than [*] percent ([*]%).


 


5.5.5                        Coordination
of Sections 5.5.2, 5.5.3 and 5.5.4. 
Royalty tiers pursuant to this Section 5.5 shall be calculated
based on worldwide Net Sales of each Product, provided that the determination
of whether the royalty rate shall be reduced under Section 5.5.2 and/or Section 5.5.3
or whether credits shall be allowable under Section 5.5.4 for each Product
shall be determined on a country-by-country basis.  Accordingly, Net Sales in countries to which
the provisions of Sections 5.5.2, 5.5.3 and/or 5.5.4 apply in a particular
Calendar Quarter shall be included in the total worldwide Net Sales for
purposes of determining the royalty tiers applicable to Net Sales under Section 5.5.1
in such Calendar Quarter, and if more than one royalty rate applies under Section 5.5.1
in such Calendar Quarter, then the Net Sales in countries to which the
provisions of Sections 5.5.2, 5.5.3 and/or 5.5.4 apply shall be included
proportionally in each such royalty tier in that Calendar Quarter.  Notwithstanding any provisions of this Section 5.5,
under no circumstances shall the aggregate royalty rate for worldwide Net Sales
of any Product be less than fifty percent (50%) of the Patent Royalty rates set
forth in Section 5.5.1.  Examples of
the operation of this Section 5.5.5 are set forth in Exhibit 5.5.5
attached hereto.


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


20





















 


5.6                                 Royalty
Term.  The royalties due pursuant to Section 5.5
shall be payable on a country-by-country and Product-by-Product basis
commencing on the First Commercial Sale in a country and continuing until:
(i) in the case of sales for which a Patent Royalty is due, the expiration
of the last Valid Patent Claim claiming the Program Compound or Product as a
composition of matter in such country (such expiration to occur only after
expiration of extensions of any nature to such patents which may be obtained
under applicable statutes or regulations in the respective countries, such as
the Drug Price Competition and Patent Term Restoration Act of 1984 in the
U.S.A. and similar patent extension laws in other countries); provided, however, that, in those countries in the Territory where such Valid Patent Claims exist
but expire before the twelfth anniversary date of the date of the Product’s
First Commercial Sale, Merck will continue to pay royalties at the Know-How
Royalty rate during the remainder of the 12-year period and Section 5.6(ii)
shall not apply to such sales, or (ii)  in the case of sales for
which a Know-How Royalty is due, twelve (12) years following the First
Commercial Sale of such Product in such country.  “First
Commercial Sale” means, with respect to any Product, the first sale
for end use or consumption of such Product in a country after all required
approvals (other than pricing and reimbursement approvals) have been granted by
the Regulatory Agency of such country.


 


ARTICLE 6—PAYMENTS,
BOOKS AND RECORDS


 


6.1                                 Royalty
Reports and Payments.  After the
First Commercial Sale of a Product on which royalties are payable hereunder,
Merck shall make quarterly written reports to Sunesis within sixty (60) days
after the end of each Calendar Quarter. 
Each report shall state the aggregate Net Sales and royalties payable,
by country, of each such Product sold during the Calendar Quarter upon which a
royalty is payable under Section 5.5 above, and Merck shall, concurrently
with provision of the report, pay to Sunesis royalties due at the rates
specified in Section 5.5.


 


6.2                                 Payment
Method.  All payments due under this
Agreement shall be made by check made to the order of Sunesis or by bank wire
transfer in immediately available funds to such bank account designated in
writing by Sunesis from time-to-time. 
All payments hereunder shall be made in U.S. Dollars.  In the event that the due date of any payment
subject to Article 5 hereof is a Saturday, Sunday or national holiday,
such payment may be paid on the following business day.  Any payments that are not paid on the date
such payments are due under this Agreement shall bear interest to the extent
permitted by applicable law at the prime rate as reported by the Chase
Manhattan Bank, New York, New York, on the date such payment is due.


 


6.3                                 Currency
Conversion.  In the case of sales
invoiced in a foreign currency, exchange conversion of such sales into U.S.
Dollars shall be made on a monthly basis and shall be translated at the rate of
exchange utilized by Merck in its worldwide accounting system.  As of the Effective Date of this Agreement,
Merck accesses such monthly rates of exchange as quoted by Reuters Ltd.


 


6.4                                 Records;
Inspection.  Merck shall keep
complete and accurate records for the purpose of determining the royalties
payable under this Agreement.  Merck
shall maintain such records for at least two (2) years following the end of the
Calendar Quarter to which they pertain. 
Such records will be open for inspection by an independent certified
public accounting firm of nationally-recognized standing to whom Merck has no
reasonable objection, solely for the purpose of


 


21





















 


determining the payments
to Sunesis hereunder.  Such inspections
may be made no more than once each Calendar Year, at reasonable times and on
reasonable notice.  Inspections conducted
under this Section 6.4 shall be at Sunesis’ expense, unless a variation or
error producing an increase exceeding [*] percent ([*]%) and at least [*]
Dollars (US$[*]) of the amount stated for the period covered by the inspection
is established in the course of any such inspection, whereupon all reasonable
costs relating to the inspection for such period shall be paid promptly by
Merck.  The interest available to Sunesis
pursuant to this Section 6.4 shall in no way limit any other remedies
available to it.


 


6.5                                 Withholding
Taxes.  If laws, rules or regulations
require withholding of income taxes or other taxes imposed upon payments set
forth in Article 5, Merck shall timely make such withholding payments as
required and subtract such withholding payments from the payments set forth in Article 5.  Merck shall submit appropriate proof of
payment of the withholding taxes to Sunesis within a reasonable period of time.


 


ARTICLE 7—DILIGENCE


 


7.1                                 Diligence.  Merck shall use commercially reasonable
efforts, consistent with the usual practice followed by Merck in pursuing the
commercialization and marketing of its other pharmaceutical products of a
similar commercial value, to develop and commercialize a Product on a
commercially reasonable basis in such countries in the Territory where, in
Merck’s opinion, it is commercially viable to do so.  In addition to the provisions of Article 10
hereof, the obligation of Merck with respect to any Product under this Section 7.1
is expressly conditioned upon the continuing absence of any adverse condition
or event relating to the safety or efficacy of the Product, and the obligation
of Merck to develop or market any such Product shall be delayed or suspended so
long as, in Merck’s opinion, any such condition or event exists.


 


7.2                                 Reports.  Throughout the term of this Agreement, Merck
agrees to keep Sunesis informed at least one (1) time per Calendar Quarter with
respect to the basic research, pre-clinical and clinical development of all
Products, to the extent it has the right to do so.


 


ARTICLE 8—INTELLECTUAL
PROPERTY


 


8.1                                 Ownership;
Disclosure.


 


8.1.1                        Research
Program Technology and Sunesis Inhibition Mode Technology.  Subject to Section 8.1.2, all right,
title and interest in and to the Research Program Technology (including all
improvements thereto) and Sunesis Inhibition Mode Technology (including all
improvements thereto) shall, as between the Parties, be solely owned by
Merck.  Sunesis hereby assigns and
transfers to Merck, and Merck hereby acquires from Sunesis, Sunesis’ and its
Affiliates’


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


22





















 


right, title and interest
in and to the Research Program Technology and Sunesis Inhibition Mode
Technology.  Sunesis and its Affiliates
shall execute such documents and perform such acts at their expense as may be
reasonably necessary to effect an assignment of such Research Program Patents
and Sunesis Inhibition Mode Patents to Merck in a timely manner.  It is understood that, except as expressly
set forth in this Agreement, Sunesis shall have no right to research, develop,
commercialize and/or otherwise exploit Research Program Technology or Sunesis
Inhibition Mode Technology without the express written consent of Merck.


 


8.1.2                        Sunesis
Core Technology and Sunesis Background Technology.  All right, title and interest in and to the
Sunesis Background Technology and the Sunesis Core Technology and in any
improvements made to Sunesis Core Technology by or under authority of either
Party or its Affiliates during the term of this Agreement shall, as between the
Parties, be owned solely by Sunesis. 
Merck hereby assigns to Sunesis all of its rights in and to such
improvements to Sunesis Core Technology (including all patent and other
intellectual property rights therein).


 


8.1.3                        Disclosure.  Sunesis shall promptly disclose to Merck any
inventions made in connection with this Agreement within: (i) the Sunesis Core
Technology during the Research Program Term, (ii) the Sunesis Inhibition Mode
Technology during the term of this Agreement, and (iii) the Research Program
Technology during the Research Program Term and for a period of two (2) years
thereafter.  Merck shall promptly
disclose to Sunesis any inventions made in connection with this Agreement
within: (i) the Sunesis Core Technology during the term of this Agreement, and
(ii) the Research Program Technology during the Research Program Term.


 


8.2                                 Filing,
Prosecution and Maintenance of Patents.


 


8.2.1                        Sunesis
Core Technology and Sunesis Background Technology.  Sunesis shall have the right to control the
preparation, filing, prosecution and maintenance of patent applications and
patents within the Sunesis Core Technology and the Sunesis Background
Technology using patent counsel of Sunesis’ choice.  All costs associated with filing,
prosecuting, issuing and maintaining patent applications and patents, including
interference, opposition, reexamination and reissue actions, within the Sunesis
Core Technology or the Sunesis Background Technology shall be borne by Sunesis.


 


8.2.2                        Research
Program Technology and Sunesis Inhibition Mode Technology.  Merck shall have the right to control the
preparation, filing, prosecution and maintenance of patent applications and
patents within the Research Program Technology and the Sunesis Inhibition Mode
Technology using patent counsel of Merck’s choice.  All costs associated with filing,
prosecuting, issuing and maintaining patent applications and patents, including
interference, opposition, reexamination and reissue actions, within the
Research Program Technology or the Sunesis Inhibition Mode Technology shall be
borne by Merck.  Merck shall keep Sunesis
reasonably informed as to the status of such patent matters, including without
limitation by providing Sunesis with annual reports on all ongoing prosecution
matters, including a list of all issued Research Program Patents and Sunesis
Inhibition Mode Patents and summaries of pending patent applications within the
Research Program Patents and Sunesis Inhibition Mode Patents.


 


23





















 


8.2.3                        Cooperation.  Each Party will promptly provide to the other
Party information reasonably requested by other Party that is necessary for the
prosecution activities pursuant to this Section 8.2.


 


8.3                                 Interference,
Opposition, Reexamination and Reissue of Research Program Patents and Sunesis
Inhibition Mode Patents.  Sunesis
shall, within ten (10) days of learning of such event, inform Merck of any
request for, or filing or declaration of, any interference, opposition, or
reexamination relating to the Research Program Patents and the Sunesis
Inhibition Mode Patents and the Parties shall cooperate and provide each other
with any information or assistance that either reasonably requests relating
thereto.


 


8.4                                 Enforcement
and Defense of Research Program Technology and Sunesis Inhibition Mode
Technology.


 


8.4.1                        Sunesis
shall promptly give Merck notice of any infringement of Research Program
Patents or Sunesis Inhibition Mode Patents and any misappropriation or misuse
of Research Program Know-How or Sunesis Inhibition Mode Know-How of which it
becomes aware.  Merck and Sunesis
thereafter shall promptly consult and cooperate fully to determine a course of
action including, without limitation, the commencement of legal action by
Merck, to terminate any infringement of such Research Program Patents or the
Sunesis Inhibition Mode Patents or any misappropriation or misuse of Research
Program Know-How or Sunesis Inhibition Mode Know-How.  Merck shall have the right to initiate and
prosecute such legal action at its own expense and in the name of Merck and, if
necessary, Sunesis, or to control the defense of any declaratory judgment
action relating to Research Program Patents or Sunesis Inhibition Mode Patents.


 


8.4.2                        If,
within six (6) months following the notice by Sunesis to Merck set forth in Section 8.4.1,
Merck fails to take such action, or if Merck informs Sunesis that it elects not
to exercise such right, Sunesis (or its designee) thereafter shall have the
right either to initiate and prosecute such action or to control the defense of
such declaratory judgment in the name of Sunesis.  If Sunesis elects to initiate and prosecute
such action or to control the defense of such declaratory judgment, the costs
incurred by Sunesis in such course of action, including the costs of any legal
action commenced or the defense of any declaratory judgment, shall be borne
solely by Sunesis.


 


8.4.3                        For
any action to terminate any infringement of Research Program Patents or Sunesis
Inhibition Mode Patents and/or any misappropriation or misuse of Research
Program Know-How or Sunesis Inhibition Mode Know-How, if either party is unable
to initiate or prosecute such action solely in its own name, the other Party
shall join such action voluntarily and shall execute all documents necessary to
initiate litigation to prosecute and maintain such action.  In connection with any such action, Merck and
Sunesis shall cooperate fully and will provide each other with any information
or assistance that either reasonably requests. 
Each Party shall keep the other informed of developments in any such
action or proceeding, including, to the extent permissible by law, the
consultation and approval of any offer related thereto.


 


8.4.4                        Any
recovery obtained by Merck or Sunesis in connection with or as a result of any
action contemplated by Section 8.4.1 or Section 8.4.2, respectively,
whether by settlement or


 


24





















 


otherwise, shall first be
applied to reimburse the out-of-pocket expenses of the Party controlling such
action (the “Controlling Party”) directly
attributed to such action, then the other Party’s out-of-pocket expenses
directly attributed to such action, and the remainder shall be shared as
follows:  [*] percent ([*]%) to the
Controlling Party and [*] percent ([*]%) to the other Party.


 


8.4.5                        Each
Party shall inform the other Party of any certification regarding any Research
Program Patents or Sunesis Inhibition Mode Patents it has received pursuant to
either 21 U.S.C. §§ 355(b)(2)(A)(iv) or (j)(2)(A)(vii)(IV) or its
successor provisions, or Canada’s Patented Medicines (Notice of Compliance)
Regulations Article 5, or any similar provisions in a country other than
the United States and Canada, and shall provide the other Party with a copy of
such certification within five (5) days of receipt by such Party.  Sunesis’ and Merck’s rights with respect to
the initiation and prosecution of any legal action as a result of such
certification or any recovery obtained as a result of such legal action shall
be as defined in Subsections 8.4.1 through 8.4.4.


 


8.5                                 Notice
of Infringement.  Merck shall
promptly report to Sunesis any notice which Merck receives from a Third Party
that acts performed by Merck and/or Sunesis under this Agreement which utilize
or utilized Sunesis Core Technology constitute infringement of a Third Party
patent or a misappropriation or misuse of Third Party know-how.  Sunesis shall promptly report to Merck any
notice from a Third Party that acts performed by Merck and/or Sunesis under
this Agreement which utilize or utilized Sunesis Core Technology constitute
infringement of a Third Party patent or a misappropriation or misuse of Third
Party know-how.  Merck and Sunesis
thereafter shall promptly consult and cooperate fully to determine a course of
action including, without limitation, settlement with the Third Party, defense
against such legal action by either or both of Sunesis and Merck, or the filing
of a declaratory judgment action against the Third Party patent.  Sunesis shall have the first right to defend
against such legal action at its own expense and in the name of Sunesis and, if
necessary, Merck, or to control the filing of any declaratory judgment action
relating to such Third Party patents and know-how.  If, within six (6) months following
notification by Sunesis to Merck of such a notice of infringement, Sunesis
fails to take a declaratory judgment action or if Sunesis informs Merck that it
elects not to defend against such a claim of infringement, Merck (or its
designee) thereafter shall have the right either to defend against such action
or to initiate and prosecute such a declaratory judgment in the name of Merck.


 


8.6                                 Patent
Term Restoration.  The Parties shall
cooperate in obtaining patent term restoration or supplemental protection
certificates or their equivalents in any country in the Territory where
applicable to Research Program Patents and Sunesis Inhibition Mode
Patents.  If elections with respect to
obtaining such patent term restoration are to be made, Merck shall have the
right to make the election to seek patent term restoration or supplemental
protection and Sunesis shall abide by such election.


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


25





















 


ARTICLE 9—CONFIDENTIALITY


 


9.1                                 Confidential
Information.  Except as otherwise
expressly provided herein, the Parties agree that the receiving Party shall
not, except as expressly provided in this Article 9 or with the prior
written consent of the disclosing Party, disclose to any Third Party or use for
any purpose any confidential information furnished to it by the disclosing
Party hereto pursuant to this Agreement (“Confidential Information”),
except to the extent that it can be established by the receiving Party by
competent proof that such information:


 


(a)                                  was
already known to the receiving Party, other than under an obligation of
confidentiality, at the time of disclosure; or


 


(b)                                 was
generally available to the public or otherwise part of the public domain at the
time of its disclosure to the receiving Party; or


 


(c)                                  became
generally available to the public or otherwise part of the public domain after
its disclosure and other than through any act or omission of the receiving Party
in breach of this Agreement; or


 


(d)                                 was
disclosed to the receiving Party, other than under an obligation of
confidentiality, by a Third Party who had no obligation to the disclosing Party
not to disclose such information to others; or


 


(e)                                  was
developed by the receiving Party independently of, and without knowledge of,
Confidential Information received from the disclosing Party, as documented by
the Receiving Party’s business records.


 


Except as
otherwise expressly provided in this Agreement, Research Program Technology and
Sunesis Inhibition Mode Technology shall be deemed Confidential Information of
Merck and Sunesis Core Technology shall be deemed Confidential Information of
Sunesis.


 


9.2                                 Permitted
Use and Disclosures.  Each Party
hereto may use or disclose Confidential Information of the other Party to the
extent such use or disclosure is reasonably necessary (a) in the exercise
of the rights granted or reserved to it hereunder (including permitted
licensees or sublicenses) on the condition that any Affiliate or Third Party to
whom it is disclosed agrees to be bound by confidentiality and non-use
obligations substantially similar to those contained in this Agreement; or
(b) in prosecuting patents or to gain approval to conduct clinical trials
or to market Product, but such disclosure may be only to the extent reasonably
necessary to obtain patents or authorizations from governmental or other
regulatory agencies; or (c) in prosecuting or defending litigation, complying
with applicable governmental laws, regulations or court order or otherwise
submitting information to tax or other governmental authorities; provided that
if a Party is required by law to make any such disclosure, other than pursuant
to a confidentiality agreement, it will promptly notify the other Party of such
disclosure in order to provide the other Party an opportunity to challenge or
limit the disclosure obligations and, save to the extent inappropriate in the
case of patent applications or the like, will use its reasonable efforts to secure
confidential treatment of such


 


26










 










 


information in
consultation with the other Party prior to its disclosure (whether through
protective orders or otherwise) and disclose only the minimum necessary to
comply with such requirements.


 


9.3                                 Nondisclosure
of Terms/Use of Names.  Each of the
Parties hereto agrees not to disclose the existence of, or the terms of, this
Agreement to any Third Party and neither Party shall use the name, trademark,
trade name or logo of the other Party or its employees in any publicity, news
release or disclosure relating to this Agreement or its subject matter, without
the prior written consent of the other Party hereto; provided,
however, that each Party may disclose the terms and conditions of
this Agreement (a) as required by any court or other governmental body or as
otherwise required by law (including securities laws); (b) in confidence, to
attorneys, accountants, financing sources, subcontractors and sublicensees, on
the condition that such party to whom it is disclosed agrees to be bound by
confidentiality and non-use obligations substantially similar to those
contained in this Agreement; and (c) in confidence, in connection with a merger
or acquisition, or a proposed merger or acquisition, on the condition that such
party to whom it is disclosed agrees to be bound by confidentiality and non-use
obligations substantially similar to those contained in this Agreement.  Notwithstanding the foregoing, the Parties
shall agree upon a press release (attached hereto as Exhibit 9.3) and timing to
announce the execution of this Agreement; thereafter, Sunesis and Merck may
each disclose to Third Parties the information contained in such press release
without the need for further approval by the other.


 


9.4                                 Publication.
Any manuscript or oral disclosure by Sunesis or Merck describing scientific
results pertaining to any activity under the Research Program to be published
or publicly disclosed, shall be subject to the prior review of the other Party
at least sixty (60) days prior to submission for publication or presentation.  Further, to avoid loss of patent rights as a
result of premature public disclosure of patentable information, the receiving
Party shall notify the disclosing Party in writing within thirty (30) days
after receipt of any disclosure whether the receiving Party desires to file a
patent application on any invention disclosed in such scientific results.  In the event that the receiving Party desires
to file such a patent application, the disclosing Party shall withhold publication
or disclosure of such scientific results until the earlier of (i) a patent
application is filed thereon, (ii) the Parties determine after
consultation that no patentable invention exists, or (iii) ninety (90)
days after receipt by the disclosing Party of the receiving Party’s written notice
of the receiving Party’s desire to file such patent application, or such other
period as is reasonable for seeking patent protection.  Further, if such scientific results contain
the information of the other Party that is subject to use and nondisclosure
restrictions under this Article 9, the publishing Party agrees to remove
such information from the proposed publication or disclosure.  Following the filing of any patent
application within the Research Program Technology, in the eighteen (18) month
period prior to the publication of such a patent application, neither Party
shall make any written public disclosure regarding any invention claimed in
such patent application without the prior written consent of the other Party.


 


ARTICLE 10—REPRESENTATIONS
AND WARRANTIES


 


10.1                           Representations
and Warranties.  Each Party
represents and warrants on its own behalf that: 
(i) it has the legal power and authority to enter into this Agreement
and to perform all of its obligations hereunder; (ii) this Agreement is a legal
and valid obligation binding upon it and


 


27





















 


enforceable in accordance
with its terms; and (iii) it has not previously granted, and during the term of
this Agreement will not knowingly make any commitment or grant, any rights
which are in conflict in any material way with the rights and licenses granted
herein.


 


10.2                           Additional
Representations and Warranties of Sunesis. 
In addition, Sunesis represents and warrants that, to the best of its
knowledge as of the Effective Date, the practice of the Sunesis Core Technology
and/or the Sunesis Inhibition Mode Technology are not in an interference with,
and does not infringe, the patent rights of any Third Party.  Sunesis also represents and warrants that, to
the best of its knowledge as of the Effective Date, Sunesis does not own or
control any patents and/or patent applications directed to inhibitors of the
Target.  In addition, Sunesis represents
and warrants that, to the best of its knowledge as of the Effective Date, with
regard to the Sunesis Core Technology, Sunesis Background Technology and
Sunesis Inhibition Mode Technology: (a) such exist and with respect to the
issued patents contained therein, such patents are not invalid or
unenforceable, in whole or in part; (b) Sunesis has not previously assigned,
transferred, conveyed or otherwise encumbered its right, title and interest
therein in a manner that is in conflict with the rights and licenses granted
herein; (c) Sunesis is the sole and exclusive owner thereof (other than the UC
Patents) and all are free and clear of any liens, charges and encumbrances
(other than with respect to certain non-exclusive licenses granted by Sunesis
to its collaboration partners under the Sunesis Core Technology), and no other
person, corporate or other private entity, or governmental entity or
subdivision thereof, has or shall have any claim of ownership therein (other
than with respect to the UC Patents); (d) the exercise of the licenses granted
herein do not infringe any intellectual property rights owned or possessed by
any Third Party; (e) there are no claims, judgments or settlements against or
owed by Sunesis or pending or threatened claims or litigation relating thereto;
and (f) Sunesis has disclosed to Merck all reasonably relevant information
relating thereto of which Sunesis is aware of and is in Sunesis’ Control; and
(g) the patents listed on Exhibit 1.35 are all of the Sunesis Core Technology
patents necessary for Merck to exercise its rights under Section 4.1.2.  In addition, Sunesis represents and warrants
that it is the exclusive licensee under the UC Patents.  It is understood that Sunesis makes no
representation or warranty with respect to any patent rights of Third Parties
relating to the Target.


 


10.3                           Disclaimer.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN
THIS AGREEMENT, SUNESIS AND MERCK MAKE NO REPRESENTATIONS AND EXTEND NO
WARRANTIES OR CONDITIONS OF ANY KIND, EITHER EXPRESS OR IMPLIED, WITH RESPECT
TO THE RESEARCH PROGRAM TECHNOLOGY, SUNESIS CORE TECHNOLOGY, SUNESIS BACKGROUND
TECHNOLOGY, SUNESIS INHIBITION MODE TECHNOLOGY, PROGRAM COMPOUNDS, PRODUCTS OR
CONFIDENTIAL INFORMATION DISCLOSED HEREUNDER, INCLUDING, BUT NOT LIMITED TO,
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, VALIDITY OF
ANY INTELLECTUAL PROPERTY, PATENTED OR UNPATENTED, OR NONINFRINGEMENT OF THE
INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES.


 


ARTICLE 11—INDEMNIFICATION


 


11.1                           Merck.  Merck agrees to indemnify, defend and hold
Sunesis and its Affiliates and their respective directors, officers, employees,
agents and their respective successors, heirs and


 


28





















 


assigns (the “Sunesis Indemnitees”) harmless from and against any losses,
costs, claims, damages, liabilities or expense (including reasonable attorneys’
and professional fees and other expenses of litigation) (collectively, “Liabilities”) arising, directly or indirectly out of or in
connection with Third Party claims, suits, actions, demands or judgments
(including, without limitation, product liability and patent infringement
claims) relating to (i) any Products or Program Compounds manufactured or sold
by or under authority of Merck, its Affiliates or Sublicensees, or (ii) any
material breach by Merck of its representations and warranties made in this
Agreement; except, in each case, to the extent such Liabilities result from a
material breach of this Agreement by Sunesis, gross negligence or intentional
misconduct of Sunesis.


 


11.2                           Sunesis.  Sunesis agrees to indemnify, defend and hold
Merck and its Affiliates and their respective directors, officers, employees,
agents and their respective successors, heirs and assigns (the “Merck Indemnitees”) harmless from and against any
Liabilities arising, directly or indirectly out of or in connection with Third
Party claims, suits, actions, demands or judgments (including, without
limitation, patent infringement claims) relating to any material breach by
Sunesis of its representations and warranties made in this Agreement; except,
in each case, to the extent such Liabilities result from a material breach of
this Agreement by Merck, gross negligence or intentional misconduct of Merck.


 


11.3                           Procedure.  In the event that any Indemnitee (either a
Merck Indemnitee or a Sunesis Indemnitee) intends to claim indemnification
under this Article 11 it shall promptly notify the other Party in writing
of such alleged Liability.  The
indemnifying Party shall have the right to control the defense thereof with
counsel of its choice as long as such counsel is reasonably acceptable to
Indemnitee; provided, however, that any Indemnitee
shall have the right to retain its own counsel at its own expense, for any
reason, including if representation of any Indemnitee by the counsel retained
by the indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnitee and any other Party represented by
such counsel in such proceeding.  The
affected Indemnitee shall cooperate with the indemnifying Party and its legal
representatives in the investigation of any action, claim or liability covered
by this Article 11.  The Indemnitee
shall not, except at its own cost, voluntarily make any payment or incur any
expense with respect to any claim or suit without the prior written consent of
the indemnifying Party, which such Party shall not be required to give.


 


ARTICLE 12—TERM
AND TERMINATION


 


12.1                           Term.  The term of this Agreement shall commence on
the Effective Date and, unless terminated earlier as provided in this Article 12,
shall continue in full force and effect on a country-by-country and
Product-by-Product basis until there are no remaining payment obligations in
such country with respect to such Products. 
Effective upon the expiration (but not earlier termination) of this
Agreement, Merck’s licenses pursuant to Sections 4.1.2 and 4.1.3 shall become
fully-paid up, perpetual licenses and no further Annual License Fees shall be
due.


 


12.2                           Termination
for Breach.  Either Party to this
Agreement may terminate this Agreement in the event the other Party hereto
shall have materially breached or defaulted in the performance of any of its
material obligations hereunder, and such default shall have continued for


 


29





















 


sixty (60) days
after written notice thereof was provided to the breaching Party by the
non-breaching Party, and such termination shall become effective at the end of
such sixty (60) day period unless the breaching Party has cured any such
breach or default prior to the expiration of the sixty (60) day period; provided, however, in the event of a good faith dispute with
respect to the existence of a material breach, the sixty (60) day cure period
shall be tolled (effective as of the date the allegedly breaching Party provides
notice of such dispute) until such time as the dispute is resolved pursuant to Section 13.1.


 


12.3                           Termination
For Bankruptcy.  Either Party hereto
shall have the right to terminate this Agreement forthwith by written notice to
the other Party (i) if the other Party is declared insolvent or bankrupt by a
court of competent jurisdiction, (ii) if a voluntary or involuntary petition in
bankruptcy is filed in any court of competent jurisdiction against the other
Party and such petition is not dismissed within ninety (90) days after filing,
(iii) if the other Party shall make or execute an assignment of substantially
all of its assets for the benefit of creditors, or (iv) substantially all of
the assets of such other Party are seized or attached and not released within
ninety (90) days thereafter.


 


If this Agreement is
terminated by Merck pursuant to this Section 12.3 due to the rejection of
this Agreement by or on behalf of Sunesis under Section 365 of the United
States Bankruptcy Code (the “Code”), all licenses
and rights to licenses granted under or pursuant to this Agreement by Sunesis
to Merck are, and shall otherwise be deemed to be, for purposes of Section 365(n)
of the Code, licenses of rights to “intellectual property” as defined under Section 101(35A)
of the Code.  The Parties agree that
Merck, as a licensee of such rights under this Agreement, shall retain and may
fully exercise all of its rights and elections under the Code, and that upon
commencement of a bankruptcy proceeding by or against Sunesis under the Code,
Merck shall be entitled to a complete duplicate of or complete access to (as
Merck deems appropriate), any such intellectual property and all embodiments of
such intellectual property.  Such intellectual
property and all embodiments thereof shall be promptly delivered to Merck (i)
upon any such commencement of a bankruptcy proceeding upon written request
therefore by Merck, unless Sunesis elects to continue to perform all of its
obligations under this Agreement or (ii) if not delivered under (i) above, upon
the rejection of this Agreement by or on behalf of Sunesis upon written request
therefore by Merck.  The foregoing
provisions are without prejudice to any rights Merck may have arising under the
Code or other applicable law.


 


12.4                           Permissive
Termination by Merck.  Merck has the
right to terminate the Research Program and/or this Agreement, effective on the
eighteen (18) month anniversary of the Effective Date, by providing Sunesis with ninety (90) days’ written notice.


 


12.5                           Effect
of Breach or Permissive Termination.


 


12.5.1                  Termination
by Merck for Breach by Sunesis.  In
the event of termination of this Agreement by Merck pursuant to Section 12.2
due to Sunesis’ material breach:


 


(a)                                  Merck
shall elect between: (1) Merck shall offset a pro rata portion of the most
recently-paid Annual License Fee (based upon the amount of time remaining
between the date of termination and the subsequent anniversary of the Effective
Date) against any monies owed to


 


30





















 


Sunesis up to the date of
termination, and (2) Sunesis shall refund to Merck such pro rata portion of the
most recent Annual License Fee within thirty (30) days of Merck’s written
request; and


 


(b) in addition to
those provisions surviving under Section 12.6, the rights and obligations
of the Parties under Sections 2.5, 4.1.2, 4.1.3, 4.2 shall survive, except that
(i) with respect to the milestone and royalty amounts accrued and payable by
Merck to Sunesis pursuant to Article 5 after the effective date of
termination, such amounts shall be reduced by fifty percent (50%) of the
amounts that would otherwise be due to Sunesis; and (ii) Merck’s licenses
pursuant to Sections 4.1.2 and 4.1.3 shall become fully-paid up, perpetual
licenses and no further Annual License Fees shall be due.  In addition to the foregoing, upon such
termination Merck’s rights and Sunesis’ obligations under Section 2.7
shall survive.


 


12.5.2                  Termination
by Sunesis for Breach by Merck, or Permissive Termination by Merck.  In the event of termination of this Agreement
by Sunesis pursuant to Section 12.2 due to Merck’s breach or termination
of this Agreement by Merck pursuant to Section 12.4, in addition to those
provisions surviving under Section 12.6, Merck’s licenses pursuant to
Sections 4.1.2 and Section 4.1.3 shall, at Merck’s election, terminate as
of such termination date, and Section 7.2 shall survive.  In addition to the foregoing, upon such
termination, Sunesis’ rights and Merck’s obligations under Section 2.7
shall survive.


 


12.5.3                  Transition of Confidential
Information and Materials.  Not later
than thirty (30) days after the date of termination, each Party shall return or
cause to be returned to the other Party all Confidential Information in
tangible form received from the other Party and all copies thereof and all
substances, materials or compositions delivered or provided to the other Party,
except that each Party may retain all Confidential Information, substances,
compositions and materials relevant to licenses and rights it retains hereunder
and may retain one copy of Confidential Information in its confidential files
for record purposes.


 


12.6                           Accrued
Rights and Obligations; Survival Sections. 
Termination of this Agreement for any reason shall not release either Party
hereto from any liability which, at the time of such termination, has already
accrued to the other Party or which is attributable to a period prior to such
termination nor preclude either Party from pursuing any rights and remedies it
may have hereunder or at law or in equity with respect to any breach of this
Agreement.  Sections 2.6, 4.2, 4.3,
8.1, 8.2 (other than Merck’s reporting requirement), 8.6, 9.1, 9.2, 9.3 and
Articles 1, 5 (as modified by Section 12.5.1 in the event of Sunesis
breach) 6, 10, 11, 12, 13 and 14 of this Agreement shall survive the expiration
or termination of this Agreement for any reason.


 


ARTICLE 13—DISPUTE
RESOLUTION


 


13.1                           Dispute
Resolution.


 


13.1.1                  The
Parties shall negotiate in good faith and use reasonable efforts to settle any
dispute, controversy or claim arising from or related to this Agreement or the
breach thereof, including submission of such to the Executive Vice President of
Worldwide Basic Research of Merck and the Chief Executive Officer of Sunesis.  If the Parties do not fully settle, and a
Party


 


31





















 


wishes to pursue the
matter, each such dispute, controversy or claim that is not an “Excluded Claim”
shall be finally resolved by binding arbitration in accordance with the
Commercial Arbitration Rules and Supplementary Procedures for Large Complex
Disputes of the American Arbitration Association (“AAA”),
and judgment on the arbitration award may be entered in any court having
jurisdiction thereof.


 


13.1.2                  The
arbitration shall be conducted by a panel of three (3) persons experienced in
the pharmaceutical business:  within
thirty (30) days after initiation of arbitration, each Party shall select one
person to act as arbitrator and the two Party-selected arbitrators shall select
a third arbitrator within thirty (30) days of their appointment.  If the arbitrators selected by the Parties
are unable or fail to agree upon the third arbitrator, the third arbitrator
shall be appointed by the AAA.  The place
of arbitration shall be New York, New York, and all proceedings and
communications shall be in English.


 


13.1.3                  Either
Party may apply to the arbitrators for interim injunctive relief until the
arbitration award is rendered or the controversy is otherwise resolved.  Either Party also may, without waiving any
remedy under this Agreement, seek from any court having jurisdiction any
injunctive or provisional relief necessary to protect the rights or property of
that Party pending the arbitration award. 
The arbitrators shall have no authority to award punitive or any other
type of damages not measured by a Party’s compensatory damages.  Each Party shall bear its own costs and
expenses and attorneys’ fees and an equal share of the arbitrators’ and any
administrative fees of arbitration.


 


13.1.4                  Except
to the extent necessary to confirm an award or as may be required by law,
neither a Party nor an arbitrator may disclose the existence, content, or
results of an arbitration without the prior written consent of both Parties.  In no event shall an arbitration be initiated
after the date when commencement of a legal or equitable proceeding based on
the dispute, controversy or claim would be barred by the applicable Delaware
statute of limitations.


 


13.1.5                  The
Parties agree that, in the event of a dispute over the nature or quality of
performance under this Agreement, neither Party may terminate the Agreement
until final resolution of the dispute through arbitration or other judicial
determination.  The Parties further agree
that any payments made pursuant to this Agreement pending resolution of the
dispute shall be refunded if an arbitrator or court determines that such
payments are not due.


 


13.1.6                  As
used in this Section, the term “Excluded Claim”
shall mean a dispute, controversy or claim that concerns (a) the validity or
infringement of a patent, trademark or copyright; or (b) any antitrust,
anti-monopoly or competition law or regulation, whether or not statutory.  The Parties hereby consent to the
jurisdiction and venue of New York federal courts for Excluded Claims.


 


32





















 


ARTICLE 14—MISCELLANEOUS


 


14.1                           Governing
Law.  This Agreement and any dispute
arising from the construction, performance or breach hereof shall be governed
by and construed, and enforced in accordance with, the laws of the state of New
York, without reference to conflicts of laws principles.


 


14.2                           Waiver.  It is agreed that no waiver by either Party
hereto of any breach or default of any of the covenants or agreements herein
set forth shall be deemed a waiver as to any subsequent and/or similar breach
or default.


 


14.3                           Assignment. 
Except as provided in this Section 14.3, this Agreement may not be
assigned or otherwise transferred, nor may any right or obligation hereunder be
assigned or transferred, by either Party without the written consent of
the other Party.  Merck may, without Sunesis’ consent, assign this
Agreement and its rights and obligations hereunder in whole or in part
to an Affiliate or in connection with a Change of Control (as defined
below).  Sunesis may, without Merck’s consent, assign this
Agreement and its rights and obligations hereunder, except as specified
below, in connection with a Change of Control; provided,
however, that Sunesis must notify Merck at least
thirty (30) days, where feasible, prior to the closing of any such Change of
Control, and Merck shall have the right, at any time after receipt of
such notice, to notify Sunesis of the termination of the Research
Program and thereafter Merck shall have no obligation to
provide any reports except for a royalty report on a worldwide
basis.  Any permitted assignee shall assume all obligations of
its assignor under this Agreement.  Any attempted assignment not in accordance
with this Section 14.3 shall be void.  For purposes of this Section 14.3,
a “Change of Control” of a Party shall be
deemed to occur if such Party is involved in a merger, reorganization or
consolidation, or if a person or group (acting together) other than the current
controlling person or group shall effectively acquire control of the management
and policies of such Party or if there is a sale of all or substantially all of
such Party’s assets or business relating to this Agreement, in each case where
the shareholders of such Party prior to such transaction do not control such
Party immediately after such transaction.


 


14.4                           Independent
Contractors.  The relationship of the
Parties hereto is that of independent contractors.  The Parties hereto are not deemed to be
agents, partners or joint venturers of the others Party for any purpose as a
result of this Agreement or the transactions contemplated thereby.  Neither Sunesis nor Merck shall have the
authority to make any statements, representations or commitments of any kind,
or to take any action, which shall be binding on the other Party, without the
prior written consent of the other Party.


 


14.5                           Compliance
with Law.  In exercising their rights
and obligations under this Agreement, the Parties shall fully comply in all
material respects with the requirements of any and all applicable laws,
regulations, rules and orders of any governmental body having jurisdiction over
the exercise of rights and obligations under this Agreement.


 


14.6                           Patent-Marking.  Merck agrees to request that Sublicensees
mark all Products sold pursuant to this Agreement in accordance with the
applicable statute or regulations relating to patent-marking in the country or
countries of manufacture and sale thereof.


 


33





















 


14.7                           Notices.  All notices, requests and other
communications hereunder shall be in writing and shall be personally delivered
or by registered or certified mail, return receipt requested, postage prepaid,
or by facsimile (and promptly confirmed by personal delivery, registered or
certified mail or overnight courier), or by nationally-recognized overnight
courier, in each case to the respective address specified below, or such other
address as may be specified in writing to the other Parties hereto and shall be
deemed to have been given upon receipt:


 


Sunesis:                                                                                                   Sunesis
Pharmaceuticals, Inc.


341 Oyster Point
Boulevard


South San Francisco,
California 94080


Attn: General Counsel


Fax: (650) 266-3505


 


With a
copy to:                                                             Wilson
Sonsini Goodrich & Rosati


Professional Corporation


650 Page Mill Road


Palo Alto, California
94304-1050


Attn: Kenneth A. Clark,
Esq.


Fax: (650) 493-6811


 


Merck:                                                                                                           Merck
& Co., Inc.


One Merck Drive


P.O. Box 100


Whitehouse Station, NJ
08889-0100


Attn: Chief Licensing
Officer


Tele: (908) 423-1000


Fax: (908) 735-1202


 


With a
copy to:                                                             Merck
& Co., Inc.


One Merck Drive


P.O. Box 100


Whitehouse Station, NJ
08889-0100


Attn: Corporate Secretary


Tele: (908) 423-1000


Fax: (908) 735-1224


 


14.8                           Severability.  In the event that any provision(s) of this
Agreement becomes or is declared by a court of competent jurisdiction or an
arbitrator(s) as provided in Article 13 to be illegal, unenforceable or
invalid, this Agreement shall continue in full force and effect to the fullest
extent permitted by law without said provision, and the Parties shall use their
best efforts to amend the Agreement to the extent feasible to lawfully include
the substance of the excluded term to as fully as possible realize the intent
of the Parties and their commercial bargain.


 


34





















 


14.9                           Advice
of Counsel.  Sunesis and Merck have
each consulted counsel of their choice regarding this Agreement, and each
acknowledges and agrees that this Agreement shall not be deemed to have been
drafted by one Party or another and will be construed accordingly.


 


14.10                     Force
Majeure.  Neither Party shall be held
liable to the other Party nor be deemed to have defaulted under or breached the
Agreement for failure or delay in performing any obligation under the Agreement
when such failure or delay is caused by or results from causes beyond the
reasonable control of the affected Party including, but not limited to,
embargoes, war, acts of war (whether war be declared or not), acts of
terrorism, insurrections, riots, civil commotions, strikes, lockouts or other
labor disturbances, fire, floods, or other acts of God, or acts, omissions or
delays in acting by any governmental authority or the other Party.  The affected Party shall notify the other
Party of such force majeure circumstances as soon as reasonably practical, and
shall promptly undertake all reasonable efforts necessary to cure such force
majeure circumstances.


 


14.11                     Complete
Agreement.  This Agreement with its
Exhibits, constitutes the entire agreement, both written and oral, between the
Parties with respect to the subject matter hereof, and all prior agreements
respecting the subject matter hereof, either written or oral, express or
implied, shall be abrogated, canceled, and are null and void and of no effect.  No amendment or change hereof or addition
hereto shall be effective or binding on either of the Parties hereto unless
reduced to writing and executed by the respective duly authorized
representatives of Sunesis and Merck.


 


14.12                     Headings.  The captions to the several Sections and
Articles hereof are not a part of this Agreement, but are included merely for
convenience of reference and shall not affect its meaning or interpretation.


 


14.13                     Counterparts.  This Agreement may be executed in
counterparts, each of which shall be deemed to be an original and all of which
together shall be deemed to be one and the same agreement.


 


 


IN WITNESS WHEREOF, the Parties hereto have caused this Agreement to be
duly-executed by their authorized representatives and delivered in duplicate
originals as of the Effective Date.


 


	
  MERCK & CO.,
  INC.

  	
   

  	
   

  	
  SUNESIS
  PHARMACEUTICALS, INC.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
  By:

  	
   

  	
   

  	
  By:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Name:

  	
   

  	
   

  	
  Name:

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Title:

  	
   

  	
   

  	
  Title:

  	
   

  
											



 


35





















 


EXHIBIT 1.7.1


 


[*]
Lead Criteria


 


An [*] Lead is a Program
Compound having all of the following properties:


 


	
  •

  	
  IC50 [*]
  versus [*] reaction.

  
	
  •

  	
  Potency in [*] reaction
  [*] reaction.

  
	
  •

  	
  Supporting [*] from [*]
  compounds in the series.

  
	
  •

  	
  Solubility [*].

  
	
  •

  	
  MW [*].

  
	
  •

  	
  [*].

  
	
  •

  	
  Clear pathway for advancement.

  



 


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


36





















 


EXHIBIT 1.7.2


 


Viral
Inhibitor Lead Criteria


 


A Viral Inhibitor Lead is
a Program Compound which satisfies the [*] Lead Criteria and also has all of
the following properties:


 


	
  •

  	
  IC50 [*]
  versus [*] reaction.

  
	
  •

  	
  Potency in [*] reaction
  [*] reaction.

  
	
  •

  	
  IC50 [*]
  versus viral [*] in cell culture.

  
	
  •

  	
  Supporting [*] from [*]
  compounds in the series.

  
	
  •

  	
  Evidence for clean MOA
  (e.g., [*]).

  
	
  •

  	
  MW [*].

  
	
  •

  	
  [*].

  
	
  •

  	
  Clear pathway for
  advancement.

  



 


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


37





















 


EXHIBIT 1.7.3


 


Lead
Compound Criteria 


 


A Lead Compound is a
Program Compound which satisfies the [*] Lead Criteria and the Viral Inhibitor
Lead Criteria and also has all of the following properties:


 


	
  •

  	
  IC50 [*]
  versus viral [*] in cell culture with added 50% normal human serum.

  
	
  •

  	
  Supporting [*] from [*]
  compounds in the series.

  
	
  •

  	
  MW [*].

  
	
  •

  	
  Pharmacokinetics [*] in [*] species (one of which is [*] and the other of which is [*]) when administered in a [*] and
  suitable for [*].

  
	
  •

  	
  A selectivity profile
  which is [*] when
  tested against targets in Panlabs screen.

  
	
  •

  	
  [*].

  
	
  •

  	
  Physical and chemical
  properties consistent with [*] in man.

  
	
  •

  	
  [*] donors [*].

  
	
  •

  	
  [*] acceptors [*].

  
	
  •

  	
  [*] in Merck version of HERG binding assay.

  
	
  •

  	
  Low measured [*] consistent with [*] standards (i.e., [*]).

  



 


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


38





















 


EXHIBIT 1.7.4


 


PCC
Criteria


 


A PCC is a Program
Compound which satisfies the [*] Lead Criteria, the Viral Inhibitor Lead
Criteria, the Lead Compound Criteria and which has been accepted for further
pre-clinical or clinical development by the PDRC pursuant to the PDRC’s
standards for designating PCCs (or any successor designation thereof).


 


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


39





















 


EXHIBIT 1.35


 


Sunesis
Core Technology


 


Section 1.                                          UC
Patents within the Sunesis Core Technology.


 


	
  Sunesis No.

  	
   

  	
  Serial No.

  	
   

  	
  Title

  	
   

  	
  Status

  
	
  UC-100

  	
   

  	
  US 09/049,754

  	
   

  	
  Pharmacophore
  Recombination For the Identification of Small Molecule Drug Lead Compounds

  	
   

  	
  Issued as U.S. Patent
  No. 6,344,330

  
	
  UC-100 AU

  	
   

  	
  32113/99

  	
   

  	
  Pharmacophore
  Recombination For the Identification of Small Molecule Drug Lead Compounds

  	
   

  	
  Issued as AU Patent No.
  759327

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  



 


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


40





















 


Section 2.                                          Other
patents within the Sunesis Core Technology.


 


	
  Sunesis No.

  	
   

  	
  Serial No.

  	
   

  	
  Title

  	
   

  	
  Status

  
	
  SU-100

  	
   

  	
  US 09/105,372

  	
   

  	
  Methods for Rapidly
  Identifying Small Organic Molecule Ligands for Binding to Biological Target
  Molecules

  	
   

  	
  Issued as U.S. Patent
  No. 6,335,155

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  allowed

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  



 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


41





















 


	
  Sunesis No.

  	
   

  	
  Serial No.

  	
   

  	
  Title

  	
   

  	
  Status

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  SU-630 PCT

  	
   

  	
  US03/06217

  	
   

  	
  Methods for Identifying
  Compounds that Modulate Enzymatic Activity

  	
   

  	
  Published as WO
  03/087054

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  SU-1400 PCT

  	
   

  	
  US03/08725

  	
   

  	
  Identification of
  Kinase Inhibitors

  	
   

  	
  Published as WO
  03/081210

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
   

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  
	
  SU-1800 PCT

  	
   

  	
  US03/10831

  	
   

  	
  Methods for Identifying
  Exosites

  	
   

  	
  Published as WO
  03/087051

  
	
  [*]

  	
   

  	
  [*]

  	
   

  	
  [*]

  	
   

  	
  pending

  



 


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


42





















 


	
  Sunesis
  No.

  	
   

  	
  Serial No.

  	
   

  	
  Title

  	
   

  	
  Status

  
	
  SU-2200 PCT

  	
   

  	
  US03/10209

  	
   

  	
  Methods and Materials
  to Find and Characterize Molecular Interaction Sites on Proteins

  	
   

  	
  Published as WO
  03/087299

  



 


43





















 


EXHIBIT 2.3


 


Research
Plan


 


[Research
Plan not in existence as of Effective Date]


 


44





















 


EXHIBIT 5.5.5


 


Royalty
Calculations


 


The following examples
are calculated assuming that in the first Calendar Quarter of a particular
Calendar Year the worldwide Net Sales of a particular Product equals [*] U.S.
Dollars (US$[*]).


 


1.  If all of such Net Sales are subject to the
Patent Royalty pursuant to Section 5.5.1, and none of the reductions or
credits described in Sections 5.5.3 or 5.5.4 apply to any of such Net Sales,
then the royalty payable for such Product for such Calendar Quarter would be calculated
as [*]% of the first $[*] of such Net Sales and [*]% of the next $[*], for a
total of $[*].


 


2.  If (i) $[*] of such Net Sales are subject to
the Know-How Royalty pursuant to Section 5.5.2, (ii) $[*] are subject to
the Patent Royalty pursuant to Section 5.5.1, and (iii) none of the
reductions or credits described in Sections 5.5.3 or 5.5.4 apply to any of such
Net Sales, then the royalty payable for such Product would be calculated as
follows.  Because more than one royalty
rate applies under Section 5.5.1 in that royalty period, the $[*] to which
the Know-How Royalty applies shall be included proportionally in each
applicable royalty tier.  In this case, [*]
(the fraction of total Net Sales subject to that particular reduction) of the
first $[*] of such Net Sales is reduced from [*]% to [*]%, and [*] of the next
$[*] is reduced from [*]% to [*]%.  This
would result in a royalty payable for such Product equal to $[*].


 










[*]                                 Certain
information on this page has been redacted and filed separately with the
Securities and Exchange Commission. 
Confidential treatment has been requested with respect to the omitted
portions.


 


45





















 


EXHIBIT 9.3


 


Press
Release


 


	
  

  	
   

  	
   

  	
   

  	
  

  	
   

  



 


For Immediate Release


 


Merck and Sunesis Agree to Collaborate on


 


Discovery of New Drugs for Treatment of Viral Infections


 


Anti-viral collaboration follows
partnership on Alzheimer’s disease drugs 


 


SOUTH
SAN FRANCISCO, CA and WHITEHOUSE STATION, N.J., July XX, 2004—Sunesis Pharmaceuticals, Inc. and Merck &
Co., Inc. (NYSE: MRK) today announced that they have entered into a multi-year
research collaboration to discover novel oral drugs for the treatment of viral
infections.


 


Sunesis
will provide Merck with a series of small molecule compounds targeting viral
infections. These compounds were derived from TetheringSM, Sunesis’
proprietary fragment-based drug discovery platform.  Merck will be responsible for advancing these compounds into lead
optimization, preclinical development, and clinical studies.  Merck will pay annual license fees for
ongoing access to Sunesis’ core technology as a means of identifying additional
compounds for the treatment of viral infections.


 


46





















 


Under
the terms of the agreement, Sunesis will receive an upfront payment, annual
license fees and payments based on the achievement of development milestones.
In addition, Sunesis will receive royalty payments based on net sales for
products resulting from the collaboration. 
Merck receives an exclusive worldwide license to any products resulting
from the collaboration.


 


This
is the second collaboration between the two companies.  A previous collaboration to discover new
small molecule medicines for Alzheimer’s disease was signed in February 2003.


 


“Sunesis
is a valued partner to Merck, and we are pleased to be collaborating with them
on a second program,” said Merv Turner, Ph.D., senior vice president of
Worldwide Licensing and External Research at Merck.  “Viral infections are an important area of
research for Merck, and we believe that Sunesis’ fragment-based drug discovery
approach has the potential to play a key role in the discovery of potent and
targeted anti-viral medicines.”


 


“Merck
is dedicated to quality and innovation in medicine, and we are proud to be
collaborating with them on another important therapeutic program,” said Daniel
Swisher, CEO of Sunesis Pharmaceuticals. 
“The continued satisfaction of our partners further validates the
capacity of Sunesis’s drug discovery engine to consistently produce highly
targeted small molecule medicines.”


 


Sunesis will apply the
company’s proprietary Tetheringsm approach to identify fragments that bind with high affinity to antiviral
targets.  Sunesis will leverage these
fragments as the foundation for potential new drugs with the ability to address
viral infections.


 


47





















 


About
Sunesis Pharmaceuticals


 


Sunesis is a
biopharmaceutical company focused on discovering and developing superior small
molecule medicines for oncology and inflammatory disease.  The company has established a rich pipeline
using its proprietary fragment-based drug discovery engine, known as Tetheringsm, in-licensing a promising
compound within its therapeutic areas of focus and forming partnerships for the
development of certain Sunesis-discovered leads.  To date, Sunesis has established partnerships
with Johnson & Johnson PRD, Merck & Co., Inc., Biogen Idec and
Dainippon Pharmaceuticals. For further information, visit www.sunesis.com.


 


About
Merck


 


Merck & Co., Inc. is
a global research-driven pharmaceutical products company. Merck discovers,
develops, manufactures and markets a broad range of innovative products to
improve human and animal health, directly and through its joint ventures.


 


Merck Forward-Looking
Statement


 


This press release contains “forward-looking statements” as that term is
defined in the Private Securities Litigation Reform Act of 1995.  These statements involve risks and
uncertainties, which may cause results to differ materially from those set
forth in the statements.  The
forward-looking statements include statements regarding product development and
product potential.  No forward-looking
statement can be guaranteed, and actual results may differ materially from
those projected.  We undertake no
obligation to publicly update any forward-looking statement, whether as a
result of new information, future events, or otherwise.  Forward-looking statements in this press
release should be evaluated together with the many uncertainties that affect
Merck’s business, particularly those mentioned in the cautionary statements in
Item 1 of our Form 10-K for the year


 


48





















 


 


ended Dec. 31, 2003, and in our periodic reports on Form 10-Q and Form 8-K
(if any), which Merck incorporates by
reference.


 


# # #


 


	
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