Execution Copy


 




	
  Isis Pharmaceuticals, Inc.

  	
   

  
	
  requests that the marked portions of the exhibit be
  granted confidential 

  treatment pursuant to Rule 24b-2 of the Securities Exchange Act of 1934.

  	
  Exhibit 10.3

  






 


 


 


LIMITED LIABILITY COMPANY AGREEMENT


OF


REGULUS THERAPEUTICS LLC


 


 


 






 


A DELAWARE LIMITED
LIABILITY COMPANY


 






 


DATED AS OF SEPTEMBER 6, 2007


 

















 


 


TABLE OF CONTENTS


 


	
   

  	
   

  	
   

  	
  Page

  
	
  ARTICLE
  1 Definitions; Representations and Warranties

  	
   

  	
  1

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  2 Organization and Description

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.1

  	
  Name

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.2

  	
  Term

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.3

  	
  Registered Office and Statutory Agent

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.4

  	
  Principal Executive Office

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.5

  	
  Business

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.6

  	
  Qualification in Other Jurisdictions

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.7

  	
  Filings, Reports and Formalities

  	
   

  	
  2

  
	
   

  	
   

  	
   

  	
   

  
	
  2.8

  	
  Limited Liability

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  3 Members; Voting Rights; Meetings; Withdrawal

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  3.1

  	
  Members

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  3.2

  	
  Powers of Members

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  3.3

  	
  Member Voting Rights

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  3.4

  	
  Meetings of Members

  	
   

  	
  3

  
	
   

  	
   

  	
   

  	
   

  
	
  3.5

  	
  Action by Members Without a Meeting

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
  3.6

  	
  Corporate Opportunities

  	
   

  	
  5

  
	
   

  	
   

  	
   

  	
   

  
	
  3.7

  	
  No Priority, Etc.

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  3.8

  	
  No Withdrawal

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  3.9

  	
  Additional Members

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  4 Management

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  4.1

  	
  Managing Board of Directors

  	
   

  	
  6

  
	
   

  	
   

  	
   

  	
   

  
	
  4.2

  	
  Power and Authority of the Managing Board

  	
   

  	
  7

  
	
   

  	
   

  	
   

  	
   

  
	
  4.3

  	
  Major Decisions

  	
   

  	
  8

  
	
   

  	
   

  	
   

  	
   

  
	
  4.4

  	
  Meetings of the Managing Board

  	
   

  	
  9

  
	
   

  	
   

  	
   

  	
   

  
	
  4.5

  	
  Compensation

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  4.6

  	
  Initial Designation

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  4.7

  	
  Directors Bound

  	
   

  	
  11

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  5 Employees; Operating Plan and Budget; Scientific
  Advisory Board

  	
   

  	
  12

  
	
   

  	
   

  	
   

  	
   

  
	
  5.1

  	
  Employees

  	
   

  	
  12

  



 


- i -

















 


	
  5.2

  	
  Operating Plan

  	
   

  	
  14

  
	
   

  	
   

  	
   

  	
   

  
	
  5.3

  	
  Scientific Advisory Board

  	
   

  	
  15

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  6 Capital Contributions and Percentage Interests

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  6.1

  	
  Capital Contributions

  	
   

  	
  16

  
	
   

  	
   

  	
   

  	
   

  
	
  6.2

  	
  Withdrawal or Reduction of Capital Contributions

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  6.3

  	
  No Interest on Capital Contributions

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  6.4

  	
  Capital Accounts

  	
   

  	
  17

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  7 Allocation of Profits and Losses; Distributions;
  Tax and Accounting Matters

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  7.1

  	
  Allocations

  	
   

  	
  19

  
	
   

  	
   

  	
   

  	
   

  
	
  7.2

  	
  Distributions

  	
   

  	
  21

  
	
   

  	
   

  	
   

  	
   

  
	
  7.3

  	
  Accounting Matters

  	
   

  	
  22

  
	
   

  	
   

  	
   

  	
   

  
	
  7.4

  	
  Tax Status and Returns

  	
   

  	
  23

  
	
   

  	
   

  	
   

  	
   

  
	
  7.5

  	
  754 Election

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  7.6

  	
  Tax Information

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  7.7

  	
  Tax Matters Partner

  	
   

  	
  24

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  8 Restrictions on Transfer

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  8.1

  	
  Transfer of Interests

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  8.2

  	
  Exempt Transfers

  	
   

  	
  25

  
	
   

  	
   

  	
   

  	
   

  
	
  8.3

  	
  Substitution of Members

  	
   

  	
  26

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  9 Buy-Out

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  9.1

  	
  Right to Initiate Buy-Out

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  9.2

  	
  Negotiated Resolution

  	
   

  	
  27

  
	
   

  	
   

  	
   

  	
   

  
	
  9.3

  	
  Non-Negotiated Resolution

  	
   

  	
  28

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  10 Dissolution

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  10.1

  	
  Dissolution

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  10.2

  	
  Liquidation

  	
   

  	
  34

  
	
   

  	
   

  	
   

  	
   

  
	
  10.3

  	
  Liabilities

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  10.4

  	
  Settling of Accounts

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  10.5

  	
  Distribution of Proceeds

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  10.6

  	
  Certificate of Cancellation

  	
   

  	
  35

  
	
   

  	
   

  	
   

  	
   

  
	
  10.7

  	
  Payment of Royalties

  	
   

  	
  36

  
	
   

  	
   

  	
   

  	
   

  
	
  10.8

  	
  Treatment of Certain Assets

  	
   

  	
  36

  



 


- ii
-

















 


	
  ARTICLE
  11 Exculpation and Indemnification

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
  11.1

  	
  Duties of Directors

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
  11.2

  	
  Exculpation

  	
   

  	
  38

  
	
   

  	
   

  	
   

  	
   

  
	
  11.3

  	
  Indemnification by the Company

  	
   

  	
  39

  
	
   

  	
   

  	
   

  	
   

  
	
  11.4

  	
  Insurance

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  11.5

  	
  Notice of Indemnification and Advancement

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  11.6

  	
  Repeal or Modification

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  11.7

  	
  Indemnification by Members

  	
   

  	
  41

  
	
   

  	
   

  	
   

  	
   

  
	
  11.8

  	
  Limitation on Damages

  	
   

  	
  42

  
	
   

  	
   

  	
   

  	
   

  
	
  11.9

  	
  Contractual Limitation Period

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  12 Inspection of Records; Annual and Other Reports;
  Confidentiality

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  12.1

  	
  Records to be Kept

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  12.2

  	
  Inspection of Company Records

  	
   

  	
  43

  
	
   

  	
   

  	
   

  	
   

  
	
  12.3

  	
  Reports

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  12.4

  	
  Confidentiality

  	
   

  	
  44

  
	
   

  	
   

  	
   

  	
   

  
	
  ARTICLE
  13 Miscellaneous

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  13.1

  	
  Governing Law

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  13.2

  	
  Amendments

  	
   

  	
  46

  
	
   

  	
   

  	
   

  	
   

  
	
  13.3

  	
  Nature of Membership Interest; Agreement Is
  Binding upon Successors

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  13.4

  	
  Seal

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  13.5

  	
  Entire Agreement

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  13.6

  	
  Further Actions

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  13.7

  	
  Power of Attorney

  	
   

  	
  47

  
	
   

  	
   

  	
   

  	
   

  
	
  13.8

  	
  No Third Party Beneficiary

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
  13.9

  	
  Notice

  	
   

  	
  48

  
	
   

  	
   

  	
   

  	
   

  
	
  13.10

  	
  Limited Liability Company

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
  13.11

  	
  Fees and Expenses

  	
   

  	
  49

  
	
   

  	
   

  	
   

  	
   

  
	
  13.12

  	
  Counterparts

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  13.13

  	
  Precedence

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  13.14

  	
  Titles and Subtitles; Form of Pronouns;
  Construction and Definitions

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  13.15

  	
  Severability

  	
   

  	
  50

  
	
   

  	
   

  	
   

  	
   

  
	
  13.16

  	
  Survival of Certain Provisions

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  13.17

  	
  Survival of Warranties

  	
   

  	
  51

  



 


- iii
-

















 


	
  13.18

  	
  Waiver of Partition

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  13.19

  	
  Delaware Limited Liability Company Act
  Prevails

  	
   

  	
  51

  
	
   

  	
   

  	
   

  	
   

  
	
  13.20

  	
  Specific Performance

  	
   

  	
  51

  



 


 


Schedules and Exhibits


 


	
  Schedule 1

  	
  -

  	
  Definitions

  
	
  Schedule 2

  	
  -

  	
  Representations
  and Warranties

  
	
  Schedule 3.1

  	
  -

  	
  Names
  and Addresses, Initial Percentage Interests and Capital Account Balances

  
	
  Schedule 4.5

  	
  -

  	
  Form
  of Consulting Agreement 

  
	
  Schedule 4.6

  	
  -

  	
  Initial
  Directors of the Managing Board

  
	
  Schedule 5.3

  	
  -

  	
  Initial
  SAB Members and Chairperson

  
	
  Schedule 12.4

  	
  -

  	
  Press
  Release

  
	
  Exhibit A

  	
  -

  	
  Initial
  Approved Operating Plan

  



 


- iv -

















 


LIMITED LIABILITY COMPANY AGREEMENT

OF


 


REGULUS THERAPEUTICS LLC


 


This
LIMITED LIABILITY COMPANY AGREEMENT (this “Agreement”) of
Regulus Therapeutics LLC, a Delaware limited liability company (the “Company”), is entered into as of September
6, 2007 (the “Effective Date”) by and among the
Company, Alnylam Pharmaceuticals, Inc., a Delaware corporation (“Alnylam”), and Isis Pharmaceuticals, Inc.,
a Delaware corporation (“Isis,” and
together with Alnylam, the “Members”).


 


W I T N E S S E T H:


 


WHEREAS,
the Members desire to form a joint venture to discover, develop manufacture and
commercialize miRNA Therapeutics (the “Joint Venture”);


 


WHEREAS, in connection therewith and on the
Effective Date, the Members and the Company are entering into the following
agreements, in each case as more particularly and more fully set forth
therein:  (a) the License Agreement; and
(b) the Services Agreement;


 


WHEREAS,
a Certificate of Formation for the Company, a limited liability company
organized under the laws of the State of Delaware, was filed with the Delaware
Secretary of State on September 5, 2007 (the “Certificate”);
and


 


WHEREAS,
the Members desire to enter into this Agreement to provide for their respective
rights, powers, duties and obligations as Members, as well as for the
management, operations and activities of the Company going forward;


 


NOW,
THEREFORE, the Members by this Agreement set forth the
limited liability company agreement for the Company under the Delaware Limited
Liability Company Act (6 Del. C. § 18-101 et seq. – as amended from
time to time, the “Act”), upon the
following terms and conditions:


 


ARTICLE 1


 


Definitions; Representations and Warranties


 


Except
as otherwise defined throughout this Agreement, as used herein the capitalized
terms appearing in Schedule 1 will
have the meanings set forth therein. Each Member represents and warrants to the
other Member and the Company that the statements set forth in Schedule 2 with respect to such Member are true and correct
as of the Effective Date.


 


- 1 -

















 


ARTICLE 2


 


Organization and
Description


 


2.1           Name.


 


The name of the Company will be “Regulus Therapeutics
LLC.”  The Company may from time to time
do business under any other name under which it is qualified to do business. The
business of the Company will be conducted in compliance with all applicable
laws.


 


2.2           Term.


 


The term of the Company commenced on the date of the
filing of the Certificate in the office of the Secretary of State of the State
of Delaware and will continue until dissolved in accordance with
Article 10.


 


2.3           Registered Office
and Statutory Agent.  


 


The registered office and statutory agent in Delaware
required by the Act will be as set forth in the Certificate until such time as
the registered office or statutory agent is changed in accordance with the Act.


 


2.4           Principal
Executive Office.  


 


The principal executive office for the transaction of
the Company’s business initially will be 1896 Rutherford Road, Carlsbad,
California 92008. At any time, the Managing Board may change its location
within the United States of America, whether within or without the State of
Delaware.


 


2.5           Business.


 


The Company’s business (the “Business”)
will be to (a) discover, develop, manufacture and commercialize miRNA
Therapeutics and undertake all activities necessary or incidental thereto, and
(b) subject to approval of the Managing Board, to conduct and carry on any
other lawful business, purpose or activity which is permitted to be carried on
by a limited liability company under the Act.


 


2.6           Qualification in
Other Jurisdictions.


 


The Company will execute, deliver and file any
certificates (and any amendments or restatements thereof) necessary for the
Company to qualify to do business in any jurisdiction in which the Company
conducts business and in which such qualification or registration is required
by law or deemed advisable by the Managing Board.


 


2.7           Filings, Reports
and Formalities.


 


The Company will make all filings and submit all
reports required to be filed or submitted under the Act with respect to the
Company. Throughout the term of the Company, the 


 


- 2 -

















 


Company will comply with all requirements necessary to maintain the
limited liability status of the Company and the limited liability status of the
Members under the laws of the State of Delaware and of each other jurisdiction
in which the Company does business.


 


2.8           Limited Liability.



 


Except as otherwise required by the Act, the debts,
obligations and liabilities of the Company, whether arising in contract, tort
or otherwise, will be solely the debts, obligations and liabilities of the
Company, and no Member, Director or Officer of the Company will be obligated
personally for any such debt, obligation or liability of the Company solely by
reason of being a member, director, manager or officer of the Company.


 


ARTICLE 3


 


Members; Voting Rights;
Meetings; Withdrawal


 


3.1           Members.  


 


Each Person who is or becomes a Member will be and
remain a member of the Company until such Person ceases to be a member in
accordance with the provisions of the Act, the Certificate or this Agreement. The
names and addresses of the Members, and their respective Percentage Interests
and Capital Accounts as of the Effective Date, are set forth on Schedule 3.1 hereto, as the same may be amended (or,
with respect to the addresses of Members, noticed under Section 13.9) or
adjusted from time to time pursuant to this Agreement.


 


3.2           Powers of Members.



 


Except as otherwise provided herein and in the Ancillary
Agreements, no Member will have any power to transact any business in the
Company’s name nor have the power to sign documents, act for or on behalf of or
otherwise bind the Company. Subject to the provisions of this Agreement and
unless otherwise required by the Act or the Certificate, the Members hereby
delegate any and all such powers to the Managing Board to carry out the
business affairs of the Company on the Members’ behalf.


 


3.3           Member Voting
Rights.


 


The Members will have no voting rights except as to
those matters which, pursuant to this Agreement, the Certificate or
non-waivable provisions of the Act, require the authorization or approval of
the Members. Any authorization or approval required pursuant to this Agreement,
the Certificate or non-waivable provisions of the Act will be effected by the
unanimous affirmative vote of the Members. Such vote may be by voice vote or by
ballot.


 


3.4           Meetings of
Members.


 


(a)           Annual
Meeting. The Members will convene at least one meeting every year during
the fourth quarter of the Fiscal Year of the Company at the same location (or
by the same remote communication) as the meeting of the Managing Board held
during the fourth quarter of 


 


- 3 -

















 


the same Fiscal Year pursuant to Section 4.2(b) and on the same
day of such Managing Board meeting, or the immediately preceding or immediately
following day.


 


(b)           Special
Meetings. A special meeting of the Members may be called at any time by any
Director or the President by written request to the Chairperson, who will
consult with the Members to set a date approved by the Members (which approval
will not be unreasonably withheld or delayed).


 


(c)           Notice
and Minutes.


 


(i)            Written
notice of all meetings of the Members will be given to each Member not less
than five (5) nor more than thirty (30) days before the meeting. Such
notices will state (A) the place, date and hour of the meeting and
(B) those matters which, at the time of the mailing of the notice, are
intended to be presented for action. Only Persons whose names are listed as
Members on the records of the Company at the close of business on the Business
Day immediately preceding the day on which notice of the meeting is given or,
if such notice is waived, at the close of business on the Business Day
immediately preceding the day on which the meeting of Members is held will be
entitled to receive notice of and to vote at such meeting, and such day will be
the record date for such meeting (except that the record date for Members
entitled to give consent to action without a meeting will be determined in
accordance with Section 3.5 hereof).


 


(ii)           The
Members will appoint a representative to act as secretary for the meeting who
will keep minutes of all proceedings of the meeting, which minutes will be
distributed to each of the attending Members. The attending Members will
consider the minutes for approval at or prior to the next meeting of the
Members. The acting secretary will sign the final minutes of Member meetings
and cause all such minutes and unanimous written consents of the Members
executed pursuant to Section 3.5 hereof to be entered into a minute book
maintained for such purpose.


 


(d)           Place
of Meetings. Annual meetings of the Members will be held at a place
determined in accordance with Section 3.4(a) hereof, and special meetings of
the Members will be held at such place as may be designated by the Chairperson
or, if not so designated, at the principal executive office of the Company.


 


(e)           Quorum.
The presence at any meeting in person or by proxy of an authorized
representative of both Alnylam and Isis will constitute a quorum for the
transaction of business (without prejudice to the vote required for the
approval of any particular action).


 


(f)            Waiver
of Notice.


 


(i)            The
actions of any meeting of Members, however called and noticed and wherever
held, will be as valid as if taken at a meeting duly held after regular call
and notice, if a quorum be present either in person or by proxy and, if notice
has not been given in compliance with Section 3.4(c), each Member entitled to
vote has waived notice pursuant to Section 3.4(f)(ii) or, either before or
after the meeting, has signed a written waiver of notice or a written consent
to a holding of the meeting, or a written approval of the minutes thereof. The
waiver of notice, consent or approval need not specify either the business to
be transacted or the purpose of any 


 


- 4 -

















 


meeting. All such
waivers, consents or approvals will be filed with the Company records and made
a part of the minutes of the meeting.


 


(ii)           Attendance
of a Member at a meeting, in person or by proxy, without protesting the lack of
notice of such meeting at the beginning of such meeting, will constitute a waiver
of notice by such Member, provided  that such Member has been
given an adequate opportunity at the meeting to protest such lack of notice.


 


(g)           Attendance
by Telephone Conference, Etc. The Members may participate in a meeting of
the Members by means of telephone conference or similar communications
equipment by means of which all Persons participating in the meeting can hear
each other, and such participation will constitute presence in person at such
meeting, subject to a Member’s right to protest lack of notice pursuant to
Section 3.4(f)(ii) above.


 


3.5           Action
by Members Without a Meeting.


 


(a)           Any action that under
any provision of the Act, the Certificate or this Agreement may be taken at a
meeting of the Members may be taken without a meeting and without prior notice,
if a consent in writing, setting forth the action so taken, is delivered to and
signed by the Members necessary to authorize or take such action at a meeting
at which all Members entitled to vote thereon were present and voted.


 


(b)           A telecopy, electronic mail, or other
electronic transmission (each, an “electronic transmission”)
consenting to an action to be taken and transmitted by a Member or the Member’s
proxyholder will be deemed to be written, signed and dated for purposes of this
Section 3.5, provided  that any such electronic transmission
sets forth or is delivered with information from which the Company can
determine (A) that the electronic transmission was transmitted by such
Member or proxyholder, and (B) the date on which such Member or
proxyholder transmitted such electronic transmission. The date on which such
electronic transmission was transmitted will be deemed to be the date on which
such consent was signed. No consent in the form of an electronic transmission
will be deemed to have been delivered until its receipt by the Company at its
principal executive office.


 


(c)           Unless a record date
has been fixed for the determination of Members entitled to notice of and to
give such written consent, the record date for such determination will be the
day on which the first written consent is given. Any Member giving a written
consent, or the Member’s proxyholder, may revoke the consent by a writing
(including electronic transmission) received by the Company prior to the time
that written consents of the Members required to authorize the proposed action
have been filed with the Company, but may not do so thereafter. Such revocation
is effective upon its receipt by the Company.


 


3.6           Corporate
Opportunities.


 


(a)           Except
as otherwise set forth in any Ancillary Agreement, no Director or Member or its
Affiliates will be prohibited from engaging in, or carrying on, any business or
activity that is similar to or in competition with another Member or the
Company or any of their respective Affiliates. Except as otherwise set forth in
any Ancillary Agreement, (i) neither the Company nor any other Member will have
any right in or to any such businesses or activities or the income 


 


- 5 -

















 


or profits derived therefrom as a result of entering into this
Agreement, and (ii) no Director, Officer or Member or its Affiliates will have
any obligation to present, or disclose the existence of, any such activities or
businesses or the opportunity to participate in any of them to the Company, any
of its subsidiaries or to any other Member or any other Member’s Affiliates,
except as such information may be required to satisfy reporting obligations
under law, including without limitation, the rules and regulations of the SEC. Notwithstanding the foregoing, the Parties acknowledge that
the disclosure of such information may be required in connection with obtaining
and maintaining appropriate directors’ and officers’ insurance.


 


(b)           Except
as otherwise set forth in any Ancillary Agreement, in the event that a Member
or Director acquires knowledge of a potential transaction or matter that may be
a corporate opportunity for a Member and the Company, such Member or Director
will have no duty to communicate or present such corporate opportunity to the
Company, and the Company hereby renounces any interest or expectancy it may
have in such corporate opportunity, with the result that such Member or
Director will not be liable to the Company or the other Members for breach of
any fiduciary duty, including for breach of any fiduciary duty as a Member or
Director of the Company by reason of the fact that such Member or Director
pursues or acquires such corporate opportunity for itself, directs such
corporate opportunity to another Person, or does not present such corporate
opportunity to the Company.


 


3.7           No Priority, Etc.



 


Except as otherwise provided herein, no Member will
have priority over any other Member either as to the return of the amount of
its Capital Contribution to the Company, as to any distribution by the Company,
or as to any other economic or other right comprising part of Membership
Interests.


 


3.8           No Withdrawal.



 


No Member may withdraw or resign from the Company.


 


3.9           Additional
Members.  


 


No additional Persons may be admitted as Members,
unless admitted pursuant to and in accordance with Article 8 or Section 4.3, as
applicable.


 


ARTICLE 4


 


Management


 


4.1           Managing Board of
Directors.


 


The Members will establish a Managing Board of
Directors of the Company (“Managing Board”)
as of the Effective Date.


 


(a)           Directors.
The Managing Board will consist of up to [***] directors (each, a “Director”). Alnylam will have the right to designate [***]
Directors who need not be Independent Directors (the “Alnylam
Directors”) and [***] Director who must be an 


 


- 6 -

















 


Independent Director. Isis will have the right to designate [***]
Directors who need not be Independent Directors (the “Isis
Directors”) and [***] Director who must be an Independent Director. The
President of the Company will, at all times while in office, be a Director. Other
than the President, each Director will serve at the pleasure of the designating
Member until such Director’s removal by the designating Member or such Director’s
resignation. If there is a vacancy on the Managing Board, the vacancy will be
filled by the Member, if any, who initially designated the Director. Any Member
may remove, at any time and for any reason, any or all of the Directors designated
by such Member and, subject to the Independent Director requirements, designate
in lieu thereof any individual(s) to serve the remainder of the relevant term.


 


(b)           Chairperson.
The Chairperson of the Managing Board (“Chairperson”)
will be the President, unless otherwise designated from among the Directors by
the Directors.


 


(c)           Observers.
The right to attend all or particular meetings of the Managing Board (“Observer Rights”) may be granted to any Person designated by
a Member upon the approval of the other Member (such approval not to be
unreasonably withheld or delayed); provided, however, that any
Person granted Observer Rights, and/or any representative of such Person
attending meetings of the Managing Board, will agree in writing to be subject
to appropriate confidentiality obligations if requested by a Director; provided,
further, that such holder of Observer Rights may be excluded from any
meeting or any portion of a meeting for which any Director believes
(i) such meeting or portion will involve a discussion of information that
the Company or the Member designating such Director considers to be a trade
secret or of a confidential or proprietary nature, (ii) exclusion of such
holder of Observer Rights is desirable in order to preserve the attorney
client-privilege or (iii) exclusion is otherwise merited.


 


(d)           Other
Attendees. Any Director may invite a subject matter expert to attend any
meeting of the Managing Board; provided, however, that any Person
granted attendance rights will agree in writing to be subject to appropriate
confidentiality obligations if requested by a Director and provided further
that no other Director objects to such expert’s presence. Upon such objection,
the expert will be excluded from any meeting or any portion of a meeting.


 


4.2           Power and
Authority of the Managing Board.


 


(a)           The
business and affairs of the Company will be managed by or under the direction
of the Managing Board, except as may otherwise be provided in this Agreement. The
Managing Board is hereby designated as a “manager” within the meaning of the
Act and will have the power on behalf and in the name of the Company to carry
out any and all objectives and purposes of the Company contemplated by this
Agreement, the Act or the Certificate and to perform all acts which it may deem
necessary, advisable or appropriate in connection therewith. Notwithstanding any other provision of this Agreement, the Act or the
Certificate, the Managing Board will not have the power or authority
to do or perform, or cause the Company or any Member to do or perform, any act
with respect to a Major Decision unless such Major Decision has been approved
in accordance with Section 4.3.


 


(b)           Except
as otherwise provided in this Agreement, the Members agree that all
determinations, decisions and actions made or taken by the Managing Board will
be conclusive and absolutely binding upon the Company, the Members (but only in
their capacity as such) and 


 


- 7 -

















 


their respective successors, assigns and personal representatives; provided,
however, that the foregoing will not affect the rights of the Company or
any Member with respect to any matter involving a breach by a Director of
Section 10.1 of this Agreement.


 


(c)           The
Managing Board may establish operating committees of the Managing Board to
which the Managing Board delegates various aspects of its authority. Each such
operating committee will consist of an equal number of Directors designated by
each Member, and vacancies in the membership of an operating committee will be
filled by the Member that designated the Director whose seat is vacated. No
delegation of authority to an operating committee will be to the exclusion of
the authority of the Managing Board to act with respect to the matters for
which authority is so delegated. All requirements with respect to meetings of
the Managing Board will apply, mutatis mutandis,
to meetings of operating committees thereof.


 


4.3           Major Decisions.


 


(a)           Notwithstanding any other provision of this Agreement, the Act or the
Certificate to the contrary and in addition to any other requirement
under this Agreement, the Act or the Certificate, the Company may not do or
perform any of the actions set forth below (each a “Major
Decision”) without first obtaining the approval of an authorized
representative of both Alnylam and Isis:


 


(i)            appoint
or remove any Officer;


 


(ii)           determine
the compensation of the President and Chief Scientific Officer;


 


(iii)          appoint
or remove any member of the Scientific Advisory Board or remove or appoint the
Chairperson of the Scientific Advisory Board


 


(iv)          amend
any existing Operating Plan or approve any Proposed Operating Plan;


 


(v)           create,
incur, guarantee or assume any indebtedness, except for trade payable, on
behalf of the Company (including obligations in respect of capital leases), in
excess of $[***].


 


(vi)          make
or obligate the Company to make any single or aggregate capital expenditure
outside of the Approved Operating Budget in excess of $[***];


 


(vii)         license,
sublicense or otherwise transfer, grant a security interest in or otherwise
encumber, any of the Intellectual Property owned by or licensed to the Company,
other than as provided in the Ancillary Agreements;


 


(viii)        license,
sublicense or otherwise obtain rights to Intellectual Property owned by a Third
Party or a Member or Member’s Affiliate, except as contemplated by Sections 2.2
and 2.4 of the License Agreement;


 


- 8 -

















 


(ix)           declare,
set aside or pay any dividend or other distribution (whether in cash, stock or
property or any combination thereof), other than tax distributions pursuant to
Section 7.2(a) or as provided in the Ancillary Agreements;


 


(x)            enter
into any partnering activities and/or collaborations;


 


(xi)           repurchase
any Membership Interests of the Company;


 


(xii)          admit
a new Member to the Company, except as permitted by Article 8;


 


(xiii)         Transfer
any Membership Interests of the Company, except in accordance with the
provisions of Article 8;


 


(xiv)        reclassify
or reorganize the Membership Interests;


 


(xv)         cause
or approve any (i) merger or consolidation of the Company,
(ii) acquisition of any other entity or assets of any other entity, if the
value of the acquisition exceeds $[***] or (iii) sale of the Company’s assets
if the value of such assets exceeds $[***];


 


(xvi)        amend,
modify, waive or avoid any provision of this Agreement or the Certificate,
except as expressly authorized herein or therein;


 


(xvii)       expect
as provided in Article 10, liquidate, dissolve, wind up or declare the Company
bankrupt;


 


(xviii)      amend
any Ancillary Agreement;


 


(xix)         cause
or approve the bringing of an action, suit or proceeding against a
Member, an Affiliate of a Member or a Third Party; or


 


(xx)          amend
this Section 4.3.


 


4.4           Meetings of the
Managing Board.


 


(a)           Agendas.
The Chairperson will prepare or direct the preparation of the agenda for, and
preside over, meetings of the Managing Board. The Chairperson will deliver such
agenda to each Director as soon as practicable in advance, and any Director may
add items to an agenda at any time.


 


(b)           Timing;
Place; Notice.


 


(i)            Regular
Meetings. The Managing Board will convene at least one meeting during each
quarter of each Fiscal Year of the Company, with the place of the meeting, if
any, alternating between the principal offices of Alnylam and the principal
offices of Isis, unless otherwise agreed to by a majority of the Directors,
including at least one Alnylam Director and one Isis Director.


 


(ii)           Special
Meetings. Special meetings of the Managing Board may be called by the
Chairperson or at the written request of at least one (1) Director. Within
three (3) days 


 


- 9 -

















 


after determining to call
or receiving a proposal for a special meeting by at least one (1)
Director, the Chairperson will consult with the other Directors to determine a
mutually convenient time within the following thirty (30) day period to
convene such meeting; provided, however, that the decision as to
time and place will be made by the Chairperson. Any special meeting of the
Managing Board will not be held more than thirty (30) days from the date
of the receipt of the request.


 


(iii)          Notice.
Written notice of the time and place of each meeting of the Managing Board will
be given by or at the direction of the Chairperson to each Director, at least
five (5) Business Days before such meeting.


 


(iv)          Waiver
of Notice. The required notice to any Director may be waived by such
Director in writing. Attendance by a Director at a meeting will constitute a
waiver of any required notice of such meeting by such Director, except when
such Director attends such meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the meeting
is not properly called or convened.


 


(c)           Attendance
by Telephone Conference, Etc. Directors may participate in a meeting of the
Managing Board by means of telephone conference or similar communications
equipment by means of which all Persons participating in the meeting can hear
each other, and such participation will constitute presence in person at such
meeting, subject to such Director’s right to protest lack of notice pursuant to
Section 4.4(b)(iv).


 


(d)           Quorum.
A quorum of any meeting of the Managing Board will require the presence of a
majority of the Directors, including at least one Alnylam Director and at least
one Isis Director.


 


(e)           Action
at a Meeting. At any meeting of the Managing Board at which a quorum is
present, the vote of a majority of those present will be sufficient to take any
action, unless a different vote is required by this Agreement, the Certificate
or the Act. Notwithstanding the foregoing, or any other
provision in this Agreement, neither the Company, the Managing Board
nor any Director or Officer will have any power or authority to do or perform
any act with respect to any Major Decision unless such matter has been approved
in accordance with the provisions of Section 4.3.


 


(f)            Minutes.
In order to facilitate each meeting, a Director or another appropriately
qualified Person, in either case designated by the Chairperson, will act as the
secretary of the meeting. The responsibilities of the secretary are to keep
minutes of the meeting and to record and collect documents related to the
meeting. The secretary will also distribute the above documents to each
Director and will cause the minutes and other documents related to the meetings
to be kept on file by the Company. The Directors who attended the meeting will
consider the minutes for approval at or prior to the next meeting.


 


(g)           Action
by Written Consent. Any action required or permitted to be taken at a
meeting of the Managing Board may be taken without a meeting if all Directors
consent to the action in writing or by electronic transmission, and the written
consents and hard copies of the electronic transmissions are filed with the
minutes of the proceedings of the Managing Board.


 


- 10 -

















 


4.5           Compensation.


 


(a)           The
Alnylam Directors and Isis Directors will serve without compensation from the
Company and each Member will reimburse its own Directors’ out-of-pocket
expenses incurred in connection with such Directors’ service on the Managing
Board. The foregoing sentence will have no effect with regard to the Director’s
right to indemnification pursuant to Article 11.


 


(b)           The
Independent Directors will be compensated, as determined by the Managing Board,
in cash by the Company for service on the Managing Board and attendance at meetings
of the Managing Board or its committees. The Company will reimburse the
President and the Independent Directors for their out-of-pocket expenses
incurred in connection with their service on the Managing Board.


 


(c)           Each
Independent Director will also enter into a consulting agreement (a “Director Consulting Agreement”) with the Company, Alnylam
and Isis, pursuant to which such Independent Director will provide advisory,
educational and other services to the Company, and pursuant to which such
Independent Director will provide advisory and educational services to each
Member. Each such Director Consulting Agreement will be in substantially the
form attached hereto as Schedule 4.5
and will provide for, among other things, the provision of stock options to
purchase common stock of the Members. Pursuant to the Director Consulting
Agreement, the Managing Board will recommend to each Member’s Board of
Directors the stock options to be granted by such Member to the Independent
Directors pursuant to and consistent with such Member’s equity incentive plan. To
the extent either Member’s Board of Directors does not approve, or a Member
does not make, such stock option grant recommended by the Managing Board, such
Member will be required to compensate the Independent Director to whom the
grant is not approved or made with cash, such that the Option Value of the
stock options granted, if any, and cash paid to the Independent Director by the
Member is equal to the Option Value of the stock options recommended to be issued
by that Member to such Independent Director by the Managing Board.


 


4.6           Initial
Designation.  


 


The Directors designated as of the Effective Date are
set forth on Schedule 4.6 hereto.


 


4.7           Directors Bound.


 


(a)           Each
person elected to serve as a Director of the Company shall sign this Agreement,
or a counterpart hereof or amendment hereto, or other writing pursuant to which
such person (i) acknowledges receipt of a copy of this Agreement as amended and
in effect as of the date of such writing, (ii) agrees that such person is a
party to and bound by this Agreement, including the power of attorney set forth
below, (iii) agrees to perform the duties of a Director hereunder, and (iv)
agrees to execute and deliver such additional agreements, instruments, certificates
and documents as may be necessary, appropriate or convenient to reflect the
foregoing matters and the election of such person as a Director of the Company.


 


(b)           Upon
the death, resignation, removal or expiration of the term of any Director (a “Terminated Director”), (i) such Terminated Director shall
have no further authority under this 


 


- 11 -

















 


Agreement, (ii) such Terminated Director shall have no further
obligations or rights under this Agreement (except for liabilities and rights
accruing prior to the date of death, resignation, removal or expiration of such
Terminated Director’s term, including rights to exculpation and indemnification
under Article 11 hereof which relate to actions or omissions occurring during
such person’s service as a Director), and (iii) no writing or instrument shall
be required to be executed by the Company or the Terminated Director to reflect
such cessation of service, except that the Terminated Director (or his legal
representative or attorney-in-fact, as provided in the following paragraph)
shall execute and deliver any agreement, instrument, certificate or document
which may be reasonably required to reflect that the Terminated Director is no
longer a Director of the Company.


 


(c)           Each
person now or hereafter serving as a Director of the Company, by execution of
this Agreement, an amendment hereto, or other writing acknowledging that such
person is bound hereby, hereby constitutes and appoints each other person who
may from time to time be serving as an Officer, and each of them acting singly,
such Director’s agent and attorney-in-fact for the purpose of executing and
delivering any and all agreements, instruments and other documents as are
necessary or appropriate to reflect that such person is no longer a Director of
the Company following the death, resignation, removal or expiration of the term
of such Director, which power of attorney is hereby agreed and acknowledged to
be and irrevocable and shall survive the death, resignation, removal,
expiration of the term, bankruptcy or incapacity of any Director until such
time as the cessation of such Director’s service in such capacity has been
reflected by all necessary or appropriate agreements, instruments and other
documents.


 


ARTICLE 5


 


Employees; Operating Plan
and Budget; Scientific Advisory Board


 


5.1           Employees.


 


(a)           Number;
Duties and Power. There will be such number of employees of the Company
(including for such purpose employees of a Member who are seconded thereby to
the Company), including a President, Chief Scientific Officer and such other
senior management, as may be determined from time to time by the Managing Board.
The Managing Board will have the right to confer upon any employee such titles
and delegate thereto such specifically defined duties as the Managing Board
deems appropriate. Notwithstanding the
foregoing or any other provision of this Agreement, the Act or the Certificate
to the contrary, no employee of the Company will have the power or
authority to do or perform any act with respect to a Major Decision unless such
Major Decision has been approved in accordance with Section 4.3.


 


(b)           Secondment
and Reimbursement.


 


(i)            Until
such time as the Members mutually agree that the Company may directly employ employees,
all employees of the Company will be employed by either Alnylam or Isis.
Alnylam and Isis will each determine which of its own employees will perform
such Member’s research, development and other obligations required by the
Approved Operating Plan and/or Services Agreement, each Member will second such
employees to the Company. The 


 


- 12 -

















 


Company will reimburse
each Member for the cost of such employees as set forth in the Approved
Operating Plan and/or Services Agreement.


 


(ii)           After
such time as the Members mutually agree that the Company may directly employ
employees, at the discretion of the employing Member and the approval of the
President of the Company, employees seconded to the Company may become
full-time employees of the Company.


 


(c)           Appointment
and Removal. Subject to Section 4.3, the Managing Board will have the right
to appoint and the right to remove (with or without cause), any Officer or
employee and the President will have the right to appoint and remove (with or
without cause) any employee who is directly employed by the Company and is not
an Officer. Each Officer will hold office until a successor has been designated
by the Managing Board and qualified or until his or her earlier death,
resignation or removal.


 


(d)           Officers.


 


(i)            The
Managing Board, with the approval of the Members pursuant to Section 4.3, will
appoint a President and Chief Scientific Officer. Until such time as the
Members mutually agree otherwise, each such Officer will be employed by either
Alnylam or Isis (and to the extent not an employee of Alnylam or Isis, as the
case may be, then such Officer will enter into a consulting arrangement with
such Member), but will be seconded to the Company by such Member and dedicated
full time to activities relating to the Company. The Company will reimburse the
Member employing the President and/or Chief Scientific Officer as set forth in
the Approved Operating Plan, or as otherwise determined by the Managing Board
and Members in accordance with Section 4.3.


 


(ii)           The
President and Chief Scientific Officer, as well as any other employee
designated by the Managing Board as an officer of the Company (each, an “Officer”), if required to do so by the Managing Board, will
enter into employment and/or consulting agreements with the Company and/or the
Members that include customary assignment of inventions, non-disclosure and “non-compete”
provisions (to the extent enforceable under the laws of the jurisdiction in
which the Officer performs services for the Company) and other customary
provisions approved by the Managing Board.


 


(e)           Compensation.


 


(i)            Any
material compensation program or material benefit plans of the Company, as they
may be amended from time to time, are subject to approval by the Managing Board
and, in the case of Officers, by the Members in accordance with Section 4.3.


 


(ii)           Subject
to the approval requirements of this Agreement, the Officers will receive such
compensation as the Managing Board may determine, including equity compensation
in the form of stock options grants from both Members. To the extent either
Member’s Board of Directors does not approve, or the Member does not make, such
stock option grant in the full amount recommended, or at all, such Member will
be required to compensate the Officer to whom the grant is not approved or made
with cash such that the Option Value of the 


 


- 13 -

















 


stock options granted and
cash paid to the Officer from such Member is equal to the Option Value of the
stock options recommended by the Managing Board.


 


(iii)          Subject
to approval of the relevant Member’s Board of Directors, employees other than
Officers will receive equity compensation in the form of stock option grants
from the Member seconding such employee to the Company. The terms and
conditions of such stock option grants will be consistent with the stock option
grants made by such Member to similarly situated employees dedicated full time
to activities of the Member.


 


(f)            Services.
For the Initial Commitment Period, each Member will provide services to the
Company, the cost of which is included in the FTE rate and set forth in the
Services Agreement, with no resulting change to the Members’ Capital Accounts.
The individuals providing such services need not be dedicated full time to
activities of the Company.


 


(i)            Isis
will provide general and administrative support services, other than business
development services, on an as needed basis.


 


(ii)           Alnylam
will provide business development services to the Company, on an as needed
basis.


 


(iii)          Each
of Alnylam and Isis will provide Intellectual Property prosecution and
enforcement services to the Company on an as needed basis and as determined by
the Collaboration Working Group.


 


5.2           Operating Plan.


 


(a)           The
initial Operating Plan, dated as of the Effective Date attached hereto as Exhibit A (the “Initial Operating Plan”),
will be deemed the “Approved Operating Plan” for the period beginning on the
Effective Date and ending on [***] (such period, the “Initial
Commitment Period”). No later than [***], the Parties will review
and consider, together with the Collaboration Working Group, whether to revise
the Initial Operating Plan.


 


(b)           No
later than September 30, [***], and no later than September 30 in each Fiscal
Year thereafter, the Collaboration Working Group will submit to the Managing
Board a proposal for revising the Approved Operating Plan then in effect (“Proposed Operating Plan”), which will include a proposed
Development Plan (“Proposed Development Plan”),
proposed Operating Budget (“Proposed Operating
Budget”) and proposed Capital Contribution Schedule (“Proposed Capital Contribution Schedule”).


 


(c)           Each
Proposed Operating Plan will be considered at the first meeting of the Managing
Board following its submission and will be subject to the approval of the
Managing Board and the Members in accordance with Section 4.3. The Chairperson
will call a special meeting of the Managing Board for this purpose at the
request of any Director if the next scheduled regular meeting is later than
December 31 of the year in which submission is made. Any such Proposed
Operating Plan (or any amendment thereto) that is approved by the Managing
Board will be considered the “Approved Operating Plan”
for all purposes of this Agreement until amended or replaced.


 


- 14 -

















 


(d)           In
the event that, during the Initial Commitment Period, funding in addition to
that set forth in the Initial Capital Contribution Schedule is required to
continue to carry out the Development Plan, the Members agree to use their best
efforts to negotiate and approve a Proposed Operating Plan for the remainder of
the Initial Commitment Period.


 


(e)           If,
after the Initial Commitment Period, the Managing Board and the Members in
accordance with Section 4.3 are unable to [***] (a “Stalemate”),
either Member may initiate a Buy-Out; provided, however, that in
the event sufficient funding is available to the Company to continue to carry out
the Development Plan after the Initial Commitment Period, a Stalemate will not
be deemed to have occurred, and neither Member may initiate a Buy-Out, until a
date [***] days prior to the date on which all of the Company’s funds are
expected to be depleted as determined based on the Approved Operating Plan then
in effect.


 


5.3           Scientific
Advisory Board.


 


(a)           The
Company will establish a Scientific Advisory Board (“SAB”)
consisting of at least three (3) members. The initial members and chairperson
of the SAB will be as set forth on Schedule 5.3. Any
changes to the composition of the Scientific Advisory Board, including the
removal or appointment of the chairperson, will be made in accordance with
Section 4.3.


 


(b)           Each
member of the SAB will also enter into a consulting agreement with the Company
(a “SAB Consulting Agreement”) pursuant to
which such member of the SAB will provide advisory, educational and other
services to the Company, and pursuant to which such SAB member will provide
advisory and educational services to each Member. Each such SAB Consulting
Agreement will be in substantially the form attached hereto as Schedule 4.5 and will provide for, among other things, the
provision of stock options to purchase common stock of the Members. Pursuant to
the SAB Consulting Agreement, the Managing Board will recommend to each Member’s
Board of Directors the stock options to be granted by such Member to the
members of the SAB pursuant to and consistent with such Member’s equity
incentive plan. To the extent either Member’s Board of Directors does not
approve, or the Member does not make, such stock option grant as recommended by
the Managing Board, such Member will be required to compensate each SAB member
to whom the grant is not approved or made with cash, such that the Option Value
of the stock options granted, if any, and cash paid to the SAB member by the
Member is equal to the Option Value of the stock options recommended to be
issued by such Member to the SAB member by the Managing Board.


 


(c)           The
SAB will meet at least quarterly until December 31, 2009 and will initially be
responsible for:


 


(i)            advising
the Company as to research goals and plans;


 


(ii)           reviewing
research data and advising the Company with respect to interpretation of such
research data, as requested by the Managing Board, President or Chief
Scientific Officer; and


 


(iii)          advising
the Company with respect to research and development decisions, as requested by
the Managing Board, President or Chief Scientific Officer.


 


- 15 -

















 


ARTICLE 6


 


Capital Contributions and
Percentage Interests


 


6.1           Capital
Contributions.


 


(a)           In
consideration for Alnylam’s initial Membership Interest in the Company, Alnylam
is contributing to the Company the Intellectual Property as set forth in
Sections 2.1 and 2.2 of the License Agreement (the “Alnylam
Initial IP Contribution”). In addition, Alnylam agrees to contribute
in cash an aggregate of $10,000,000 to the Company within five (5) days
following the Effective Date. Such cash contribution by Alnylam is intended by
the Parties to be used by the Company to fund the Approved Operating Plan. The
Parties agree that the aggregate fair market value of the rights, assets and
cash contributed by Alnylam as described in this Section 6.1(a) will be equal
to $[***] as of the date of their contribution.


 


(b)           In
consideration for Isis’ initial Membership Interest, Isis is contributing to
the Company the Intellectual Property as set forth in Sections 2.1 and 2.2 of
the License Agreement (the “Isis Initial IP
Contribution”). The Parties agree that the aggregate fair market
value of the rights and assets contributed by Isis as described in this Section
6.1(b) will be equal to $[***] as of the date of their contribution.


 


(c)           Operating
Plan Contributions. Each of the Members agrees to make the additional
Capital Contributions set forth in the Initial Capital Contribution Schedule,
which is contained in the Initial Operating Plan (“Initial
Operating Plan Contributions”). Each Member also agrees to make any
additional Capital Contributions as set forth in any Capital Contribution
Schedule contained in an Approved Operating Plan (“Future
Operating Plan Contributions” and together with Initial Operating
Plan Contributions, “Operating Plan Contributions”).


 


(d)           Pro
Rata Contributions. The Members will be responsible, pro rata in accordance
with their Percentage Interests, for any Capital Contributions required to be
made pursuant to Section 6.1(c); provided, however, that in the
event a Member fails to make any Operating Plan Contribution in accordance with
Section 6.1(c), then until such time as the defaulted amount of capital has been paid by such Member (the “Defaulting Party”), interest will accrue thereon (at
the rate of [***] percent ([***]%) per annum or, if lower, the highest interest
rate permitted by applicable law),
and will be due to the Company; provided  further that, in the
event the Defaulting Party has not paid such defaulted amount of capital, plus
accrued interest thereon, within thirty (30) days of the Managing Board’s
request for such Capital Contribution, the other Member (the “Non-Defaulting Party”) will have the right to elect to
initiate a Buy-Out.


 


(e)           Additional
Capital. Any funds contributed by the Members to the Company pursuant to
this Agreement (other than the Members’ Initial Capital Contributions), will be
referred to as an “Additional Capital
Contribution” and will constitute additional Capital Contributions
to the Company.


 


(f)            Percentage
Interests. The Members hereby agree that the Percentage Interests of each
Member as of the Effective Date are as set forth on Schedule 3.1.


 


- 16 -

















 


(g)           Adjustments
to Capital Contributions. Except as provided in Section 6.1(c), in no event
and at no time will a Member be required or permitted to make a Capital
Contribution other than in accordance with Section 6.1(a) and (b).


 


(h)           Capital
Account. Each Member’s Capital Account will be determined in the manner
described in Section 6.4 of this Agreement.


 


(i)            Transfer
Taxes. Each Member will pay all sales, use, transfer, real property
transfer, recording, gains, stock transfer and other similar taxes and fees (“Transfer Taxes”) incurred in connection with its Capital
Contributions to the Company and will be responsible for filing all necessary
documentation and tax returns with respect to such Transfer Taxes. Each Member
will be responsible for any and all Taxes imposed upon such Member or its
Affiliates in connection with their respective Capital Contributions to the
Company or in connection with any distribution of property from the Company.


 


6.2           Withdrawal or
Reduction of Capital Contributions.


 


Except as expressly provided in this
Agreement, no Member will have the right to withdraw from the Company or be
repaid all or any part of such Member’s Capital Contribution or any other
payment in respect of its Membership Interests (including any payment
contemplated by Section 18-604 of the Act), and this Section 6.2 will expressly
constitute a “provision otherwise” for purposes of Section 18-604.


 


6.3           No Interest on
Capital Contributions. 


 


No interest will be payable by the Company on or with
respect to the Capital Contributions or Capital Accounts.


 


6.4           Capital Accounts.


 


(a)           A
single Capital Account will be maintained for each Member (regardless of the
time or manner in which such interest was acquired) in accordance with the
capital accounting rules of section 704(b) of the Code, and the regulations
thereunder (including Treasury Regulations section 1.704-1(b)(2)(iv)) (a “Capital Account”). In general, under such rules, a Member’s
Capital Account will be:


 


(i)            increased
by (A) the amount of money contributed by the Member to the Company
(including the amount of any Company liabilities that are assumed by such
Member other than in connection with a distribution of Company property),
(B) the Fair Market Value of property contributed by the Member to the
Company (net of liabilities secured by such contributed property that under
section 752 of the Code the Company is considered to assume or take
subject to), and (C) allocations to the Member of Company income and gain
(or any item thereof), including income and gain exempt from tax; and


 


(ii)           decreased
by (A) the amount of money distributed to the Member by the Company
(including the amount of such Member’s individual liabilities that are assumed
by the Company other than in connection with a contribution of property to the
Company), (B) the Fair Market Value of property distributed to the Member
by the Company (net of liabilities secured 


 


- 17 -

















 


by such distributed
property that under section 752 of the Code such Member is considered to
assume or take subject to), (C) allocations to the Member of expenditures
of the Company not deductible in computing its taxable income and not properly
chargeable to capital account, and (D) allocations to the Member of
Company loss and deduction (or any item thereof).


 


Except as otherwise required by the Treasury
Regulations, the transferee of any Membership Interest in the Company will
succeed to the Capital Account of the transferor to the extent it relates to
the transferred Membership Interest.


 


(b)           Where
section 704(c) of the Code applies to Company property or where Company
property is revalued pursuant to paragraph (b)(2)(iv)(f) of Treasury
Regulations section 1.704-1, each Member’s Capital Account will be
adjusted in accordance with Treasury Regulations sections 1.704-1(b)(2)(iv)(g)
and 1.704-3(d)(2) as to allocations to the Members of depreciation,
depletion, amortization and gain or loss, as computed for book purposes with
respect to such property.


 


(c)           When
Company property is revalued pursuant to Treasury Regulations section
1.704-1(b)(2)(iv)(f), or where Company property is distributed in kind (whether
in connection with liquidation and dissolution or otherwise), the Capital
Accounts of the Members will first be adjusted to reflect the manner in which
the unrealized income, gain, loss and deduction inherent in such property (that
has not been reflected in the Capital Account previously) would be allocated
among the Members if there were a taxable disposition of such property for the
Fair Market Value of such property (taking into account section 7701(g) of the
Code) on the date of distribution.


 


(d)           It
is intended that the Capital Accounts of the Members will be determined and
maintained throughout the term of the Company in accordance with, and will be
adjusted as may be required under, section 704 of the Code and the
Treasury Regulations promulgated thereunder. The foregoing provisions of this
Section 6.4 and certain other provisions of this Agreement are intended to
comply with the Treasury Regulations promulgated under section 704 of the
Code and will be interpreted and applied in a manner consistent with said
Treasury Regulations. The Tax Matters Partner will make or cause to be made all
necessary adjustments in each Member’s Capital Account, or the manner in which
the Capital Accounts, or any debits or credits thereto, are computed, as
required by the capital accounting rules of section 704 of the Code and
the regulations thereunder.


 


(e)           No
Member will be required to pay the Company or to any other Member the amount of
any negative balance which may exist from time to time in such Member’s Capital
Account.


 


- 18 -

















 


ARTICLE 7


 


Allocation of Profits and
Losses; Distributions; Tax and Accounting Matters


 


7.1           Allocations.


 


Each Member’s distributive share of the Company’s
total income, gain, loss, deduction or credit (or items thereof), which total
will be as shown on the annual federal income tax return prepared by or at the
direction of the Tax Matters Partner or as finally determined by the United
States Internal Revenue Service or the courts, and as modified by the capital
accounting rules of section 704(b) of the Code and the Treasury
Regulations thereunder, as implemented by Section 6.4 hereof, as
applicable, will be determined as follows:


 


(a)           General Allocation.
Except as otherwise provided in this Article 7, all of the Company’s items
of income, gain, loss, deduction or credit (or items thereof) will be allocated
to the Members pro rata in accordance with their Percentage Interests.


 


(b)           Regulatory
Allocations. The following provisions are intended to comply with certain
regulatory requirements for allocations set forth in section 704(b) of the
Code. It is the intent and understanding of the parties that the allocations
required by this Section 7.1(b) will be offset by future, offsetting
allocations pursuant to this Section 7.1(b).


 


(i)            Limitation.
Notwithstanding anything in this Section 7.1
to the contrary, items of loss and deduction allocated to any Member
pursuant to this Section 7.1 with respect to any taxable year will not
exceed the maximum amount of such items that can be so allocated to such Member
without causing such Member to have a deficit balance in its Capital Account in
excess of the amount of such Member’s obligation, if any, to restore such
deficit Capital Account, computed in accordance with the rules of Treasury
Regulations section 1.704-1(b)(2)(ii)(d). Any such items of loss or deduction
in excess of the limitation set forth in the preceding sentence will be
allocated as follows and in the following order of priority:


 


(A)          first, to those Members who would not
be subject to such limitation, proportionately in accordance with their
Percentage Interests; and


 


(B)           second, any remaining amount to the
Members in the manner required by the Code and Treasury Regulations.


 


(ii)           Minimum
Gain Chargeback. Notwithstanding anything
to the contrary in this Section 7.1, if there is a net decrease
in “minimum gain” or “partner nonrecourse debt minimum gain” (as such terms are
defined in Treasury Regulations sections 1.704-2(b) and 1.704-2(i)(2))
during a taxable period of the Company, then each Member will be allocated
items of income and gain for such year (and, if necessary, for subsequent
years) in the manner provided in Treasury Regulations section 1.704-2. This
provision is intended to be a “minimum gain chargeback” and “partner
nonrecourse debt minimum gain chargeback” within the meaning of Treasury
Regulations sections 1.704-2(f) and 1.704-2(i)(4) and will be interpreted and
implemented as therein provided.


 


- 19 -

















 


(iii)          Qualified
Income Offset. Subject to the provisions
of Section 7.1(b)(ii), but otherwise notwithstanding anything to the
contrary in this Section 7.1, if any Member’s Capital Account
has a deficit balance in excess of such Member’s obligation to restore its
Capital Account balance, computed in accordance with the rules of paragraph
(b)(2)(ii)(d) of Treasury Regulations section 1.704-1, then sufficient
amounts of income and gain (consisting of a pro rata portion of each item of
Company income, including gross income, and gain for such year) will be
allocated to such Member in an amount and manner sufficient to eliminate such
deficit as quickly as possible. This provision is intended to be a “qualified
income offset” within the meaning of Treasury Regulations section 1.704-1(b)(2)(ii)(d)
and will be interpreted and implemented as therein provided.


 


(iv)          Effect
of Special Allocations on Subsequent Allocations. Any special allocation
pursuant to Sections 7.1(b)(i), 7.1(b)(iii) and 7.1(b)(vi) hereof will be taken
into account in computing subsequent allocations of income and gain pursuant to
this Section 7.1 so that the net amount of all such allocations to each
Member will, to the extent possible, be equal to the net amount that would have
been allocated to each such Member pursuant to the provisions of this
Section 7.1 if such special allocations had not occurred. It is
anticipated that all allocations pursuant to Section 7.1(b)(v) will be offset
by allocations pursuant to Section 7.1(b)(ii) hereof. To the extent the
Tax Matters Partner determines that any amount allocated pursuant to
Section 7.1(b)(v) hereof is unlikely to be offset by a countervailing
allocation of income from Section 7.1(b)(ii) hereof, then so much of such
allocation as the Tax Matters Partner has determined is unlikely to be offset
will also be taken into account in computing subsequent allocations of income
and gain pursuant to this Section 7.1 so that the net amount of all such
allocations will, to the extent possible, equal the net amount that would be
allocated to such Member in the absence of such special allocation.


 


(v)           Nonrecourse
Debt. Items of deduction and loss attributable to “partner nonrecourse debt”
within the meaning of Treasury Regulations Section 1.704-2(b)(4) will be
allocated to the Members bearing the economic risk of loss with respect to such
debt in accordance with Treasury Regulations section 1.704-2(i)(1). Items of
deduction and loss attributable to “nonrecourse liabilities” of the Company
within the meaning of Treasury Regulations section 1.752-1 will be
allocated to the Members in proportion to their respective Percentage
Interests.


 


(vi)          Recourse
Debt. Items of deduction and loss attributable to “recourse debt” within
the meaning of Treasury Regulations section 1.752-1 (but excluding “partner
nonrecourse debt” as defined in Section 7.1(b)(v) hereof), will be
allocated to the Members bearing the economic risk of loss with respect to such
debt.


 


(c)           Allocations
With Respect to Certain Property and Income.


 


(i)            In
determining each Member’s allocable share of the taxable income or loss of the
Company, depreciation, depletion, amortization and gain or loss with respect to
any contributed property, or with respect to property which has been revalued
as provided in Treasury Regulations section 1.704-1(b)(2)(iv)(f), will be
allocated among the Members in accordance with the principles of section 704(c)
of the Code, as set forth in the Treasury Regulations thereunder and under
section 704(b) of the Code. Such allocation will be made in 


 


- 20 -

















 


accordance with the
remedial method described by Treasury Regulations section 1.704-3(d) unless
another method or combination of methods as permitted under Treasury
Regulations section 1.704-3 is selected by the Tax Matters Partner.


 


(ii)           Solely
for tax purposes, a Member’s share of the Company’s depreciation recapture
recognized for tax purposes upon the disposition of Company property will be
computed in the manner provided for in Treasury Regulations sections 1.704-3(a)(11),
1.1245-1(e) and 1.1250-1(f). The allocations provided for in this
Section 7.1(c)(ii) are required to be made solely for tax purposes and
will not affect any Member’s Capital Account.


 


(iii)          Subject
to Sections 7.1(b) and 7.1(c)(i) hereof, if and to the extent any transaction
between the Company and a Member results in any adjustment being made to the
income of the Company under section 482 or 7872 of the Code, or any similar
provision now or hereafter in effect, any corresponding resulting item of
Company income, gain, loss or deduction will be allocated in its entirety to
the affected Member.


 


(d)           Change
in Percentage Interests. Except as otherwise required by law, if the
Percentage Interests of the Members of the Company are changed during any
taxable year, all items to be allocated to the Members for such entire taxable
year will be prorated on the basis of the portion of such taxable year which precedes
each such change and the portion of such taxable year on and after each such
change by closing the books of the Company effective as of the close of
business on the date of such change, and the items so allocated for each such
portion will be allocated to the Members in the manner in which such items are
allocated as provided in Section 7.1(a) hereof during each such portion of
the taxable year in question.


 


(e)           State
and Local Items. Items of income, gain, loss, deduction, credit and tax
preference for state and local income tax purposes will be allocated to and
among the Members in a manner consistent with the allocation of such items for
federal income tax purposes in accordance with the foregoing provisions of this
Section 7.1.


 


7.2           Distributions.


 


(a)           Tax
Distributions.


 


(i)            With
respect to each fiscal quarter, subject to the limitations provided in
subsection (ii) below and in Section 7.4(b), and after making payment or
provision for current obligations and operating expenses of the Company, but otherwise notwithstanding anything to the contrary provided for in this
Section 7.2, the Company, to the extent of its available cash,
will make distributions of cash to the Members pro rata in accordance with
their respective Percentage Interests during such fiscal quarter, as promptly
as practicable and in any event by the Tax Distribution Date for such fiscal
quarter, so that each Member will receive an amount (a “Tax
Distribution”) equal to its federal, state and local income taxes
(including obligations for estimated tax) on the taxable income that it derives
as a Member of the Company for such fiscal quarter (based upon an assumed
combined marginal rate of federal, state and local taxation of forty-two
percent (42%),  or as the Managing Board will
otherwise reasonably determine). In determining the taxable income of a Member
with respect to any fiscal quarter, to the extent that actual taxable income
for the relevant period is not available as of the Tax Distribution Date, the 


 


- 21 -

















 


determination will be
made by the Company based upon a good faith estimate of actual taxable income
for such period and may be based upon the methodology permitted by the Code
which results in the lowest estimated tax liability for such Members. In
determining the Tax Distribution for any fiscal quarter, the cumulative amount
of taxable income or loss for prior fiscal quarters in the same Fiscal Year and
the Tax Distributions with respect to such prior fiscal quarters can be taken
into account. To the extent the amount based upon estimates is more or less
than the actual taxable income for such period as subsequently determined, the
Managing Board may appropriately decrease or increase, respectively, subsequent
distributions to take into account such variance. In the event that the
Percentage Interest of any Member changes during the fiscal quarter, the
appropriate Percentage Interests to be used in determining the amount of any
Tax Distribution with respect to such fiscal quarter will be determined in a
manner consistent with Section 7.1(d). To the extent cash is not available
to make any Tax Distribution in full, the undistributed amount thereof will be
carried forward on a cumulative basis and distributed from available cash as
soon as reasonably practicable thereafter.


 


(ii)           The
aggregate amount of Tax Distributions may be reduced with respect to any fiscal
quarter (x) to reflect a reduction in the applicable U.S. federal income
tax rate; or (y) if and to the extent that the Managing Board determines
that the Company’s cash reserves are inadequate for such purpose in view of
identifiable Company expenses and projected investment activities.


 


(iii)          “Tax Distribution Date” will mean a date in each fiscal
quarter by which timely quarterly estimated tax payments can be filed.


 


(b)           Tax
Withholding on Distributions. The Company will at all times be entitled to
make payments required to discharge any obligation of the Company to withhold
or make payments to any governmental authority with respect to any United
States federal, state or local tax liability or any other tax liability of any
Member liable for such Taxes arising out of such Members’ interest in the
Company. For purposes of this Agreement, any such payments or withholdings will
be treated as a distribution to the Member on behalf of whom the withholding or
payment was made.


 


(c)           Distributions
on Liquidation. Distributions pursuant to liquidation of the Company will
be made in accordance with Section 10.3 hereof.


 


(d)           Ordinary
Course Distributions. Subject to the other provisions of this Agreement,
including Section 4.3 and Section 9, and Section 5 of the License Agreement,
prior to the dissolution of the Company, the Company shall distribute cash or
assets to the Members in such amounts, at such times and as of such record
dates as the Managing Board determines, as long as such distributions are in
accordance with the Members’ respective Percentage Interests.


 


7.3           Accounting
Matters. 


 


(a)           The
Company will cause to be maintained complete books and records accurately
reflecting the accounts, business and transactions of the Company on a
calendar-year basis and with sufficient detail and completeness customary and
usual for businesses of the type engaged in by the Company. The Company’s books
and records and financial statements will be kept 


 


- 22 -

















 


using the accrual method of accounting and in accordance with U.S.
generally accepted accounting principles. The books and records with respect to
the Company’s capital accounts and allocations of income, gain, loss, deduction
or credit (or items thereof) will be kept under United States federal income
tax accounting principles as applied to entities taxable as partnerships. The
Company’s financial statements will be audited annually by an independent
nationally recognized public accounting firm. At a minimum, the Company will
keep such books and records as may be required by the Act and such other books
and records as are required by Article 12.


 


(b)           The
shares of Alnylam and Isis are publicly traded in the United States. Consequently,
the Company may be subject to financial reporting and legal requirements
imposed upon publicly traded companies. Among these legal requirements are
those imposed by Section 404 of the Sarbanes Oxley Act of 2002, as the same may
be amended from time to time. Notwithstanding any differences in the internal
control procedures of the Members, the Company will abide by the internal
control procedures required by the Member consolidating the Company’s financial
books and records  into such Member’s books and
records (“Consolidating Member”).


 


7.4           Tax Status and
Returns.


 


(a)           Any
provision hereof to the contrary notwithstanding, solely for United States
federal income tax purposes, each of the Members hereby recognizes that the
Company will be subject to all provisions of Subchapter K of
Chapter 1 of Subtitle A of the Code.


 


(b)           The
Tax Matters Partner will prepare or cause to be prepared, at the Company’s
expense, all tax returns and statements, if any, that must be filed on behalf
of the Company with any taxing authority, and will make timely filing thereof,
including filings pursuant to extensions permitted under applicable federal and
state tax regulations. To the extent allowed by applicable law, the
Tax Matters Partner will take no position on any tax return which adversely
affects one Member disproportionately, and will attempt to maximize, to the
extent possible, the interests of all Members. On or before June 30 of
each calendar year, the Tax Matters Partner will prepare or cause to be
prepared and delivered to each Member a draft Internal Revenue Service
Form 1065 and Schedule K-1 and a report setting forth in reasonable
detail the information with respect to the Company during such calendar year
reasonably required to enable each Member to prepare its federal, state and
local income tax returns in accordance with applicable law then prevailing,
including information required by such Member to allocate and apportion the
Company’s income for state income tax purposes. Each Member will have the right
to object to any amount or information reported on the draft Form 1065 or
Schedule K-1 on or before July 31 of such calendar year. If the Members
cannot agree to the appropriate amounts or information to be included on Form
1065 or Schedule K-1, the President of the Company will resolve the
dispute in a manner consistent with the guidance set forth in Financial
Accounting Standards Board Interpretation No. 48, Accounting
for Uncertainty in Income Taxes, specifically the concept that a tax
position is more likely than not to be sustained on audit by the taxing
authority based solely on the technical merits of the associated tax position.


 


- 23 -

















 


7.5           754 Election.


 


In the event of a distribution of property to a Member
or a transfer of any interest in the Company permitted under the Act or this
Agreement, the Company will not file an election under section 754 of the
Code and the Treasury Regulations thereunder to adjust the basis of the Company’s
assets under section 734(b) or 743(b) of the Code or corresponding
election under the applicable provisions of state and local law, unless the
Managing Board will have consented thereto. In the event the Company makes such
an election, the Person making such request will pay all costs incurred by the
Company in connection therewith, including reasonable attorneys’ and
accountants’ fees.


 


7.6           Tax Information.


 


Each Member may request from the Company any
information reasonably necessary for the Member to complete any of its tax
returns or compute estimated tax payments and the Company will, within a
reasonable period of time following the request, provide such information to
the requesting Member.


 


7.7           Tax Matters
Partner.


 


(a)           Isis
will be (and is hereby designated as) the Company’s “Tax Matters Partner” in
accordance with section 6231(a)(7) of the Code and will have all powers
conferred on a “Tax Matters Partner” thereunder and all other powers necessary
to perform thereunder, including the right to manage administrative tax
proceedings conducted at the Company level by the Internal Revenue Service with
respect to Company matters and the right to file for extensions for the Company’s
tax returns and statements pursuant to applicable federal and state tax
regulations. The Tax Matters Partner will provide such information to the
Members as is required by the Code and Treasury Regulations, which information
will include informing each Member of administrative and judicial proceedings
for the adjustment of Company items required to be taken into account by a
Member for income tax purposes.


 


(b)           Notwithstanding anything in this Section 7.7 to the contrary,
the Tax Matters Partner will not enter into an agreement with the Internal
Revenue Service or any other taxing authority to extend the period for
assessment of any federal, state or local income, franchise or unincorporated
business tax of any Member. The Tax Matters Partner will not settle with the
Internal Revenue Service or any other taxing authority to disallow items of the
Company’s deductions or increase the Company’s income unless the Managing Board
will have agreed thereto. Each Member reserves all rights under applicable law,
including the right to retain independent counsel of its choice at its expense
(which counsel will receive the full cooperation of the Tax Matters Partner and
will be entitled to prior review of all submissions by the Company in respect
of any dispute with the relevant taxing authority).


 


(c)           Reasonable
expenses incurred by the Tax Matters Partner in connection with the performance
of its duties as Tax Matters Partner, including third-party expenses of any
such administrative proceeding described in this Section 7.7 and
undertaken by the Tax Matters Partner will be paid out of (or reimbursed from)
assets of the Company. The cost of participation 


 


- 24 -

















 


in any such proceeding by a Member and the cost of any audit or
adjustment to a Member’s tax return will be borne by the affected Member.


 


ARTICLE 8


 


Restrictions on Transfer


 


8.1           Transfer of
Interests.


 


(a)           No
Member may directly or indirectly sell, assign, transfer, pledge, hypothecate,
or otherwise deal with or encumber or dispose of in any way (each a “Transfer”) such Member’s Membership
Interest, whether in whole or in part, voluntarily or involuntarily, by
operation of law or otherwise, except in accordance with the terms and
conditions set forth in this Article 8. Any attempt to Transfer in
violation of this Article 8 will be deemed null and void and, for
avoidance of doubt, any Person to whom Membership Interests are attempted to be
transferred in violation of this Article 8 will not be entitled to vote on
matters coming before the Members, act as an agent of the Company, designate
Directors, receive distributions from the Company, or have any other rights in
or with respect to such Membership Interests.


 


(b)           Except
as provided in this Article 8, each Member agrees that it may not and will
not Transfer its Membership Interest without the prior written consent of the
other Member. Any Member purporting to Transfer its Membership Interest, or any
part thereof, in violation of this Article 8 will be liable to the Company
and the other Member for all liabilities, obligations, damages, losses, costs
and expenses (including reasonable attorneys’ fees and court costs) arising as
a direct or consequential result of such non-complying transfer, attempted
transfer or purported transfer, including any additional costs or taxes created
thereby and any events of the types described in Section 8.2(a).


 


8.2           Exempt Transfers.


 


(a)           Affiliates. The
Transfer restrictions set forth in Section 8.1 will not apply to Transfers
by a Member (the “Transferring Member”) to an Affiliate of such Member; provided,
however, that the Affiliate of the Transferring Member must have the
resources, assets, experience, qualifications, permits and other rights
necessary to perform under this Agreement and each of the Ancillary Agreements.


 


(b)           Change in
Control. The Transfer restrictions set forth in Section 8.1 will not apply to
Transfers pursuant to a Change
in Control of a Member. In the event of a Change in Control of a Member, the
other Member may initiate a Buy-Out pursuant to Section 9.1.


 


(c)           In the event of a Transfer pursuant
to Section 8.2(a) or 8.2(b) the Transferring Member will indemnify and hold the
Company, and, if applicable, any Member other than the Transferring Member,
harmless for, and will pay to the Company and, if applicable, any such Member,
the amount of all Losses arising from or related to such Transfer, including
the following:


 


(i)            expenses incurred by the Company in
connection with the Transfer;


 


- 25 -

















 


(ii)           the violation of any securities laws
or any other applicable Federal or state laws or the order of any court having
jurisdiction over the Company or any of its assets;


 


(iii)          the Transfer resulting in or creating
a “prohibited transaction” as defined in section 4975(c) of the Code or
resulting in or causing the Company or any Member, other than the Transferring
Member, to be liable for excise tax under Chapter 42 of the Code or result
in or cause the Company or the Company’s assets to become the assets of an
employee benefit plan (as defined in section 3(3) of ERISA);


 


(iv)          the violation of or an event of
default under, or result in acceleration of any indebtedness under, any note,
mortgage, loan, or similar instrument or document to which the Company is a
party;


 


(v)           the imposition of a material
obligation or liability under a material contract;


 


(vi)          an adverse tax consequence to the
Company or any of the Members, other than the Transferring Member, including
any adverse tax consequence resulting, directly or indirectly, from the
termination of the Company under section 708 of the Code; and


 


(vii)         the Transfer causing the Company to be
classified as an entity other than a partnership for purposes of the Code.


 


In
addition to the foregoing, a Member may not Transfer less than all of its
Membership Interest pursuant to Section 8.2(a) or 8.2(b) (a “Partial Transfer”) unless such Partial Transfer is approved
by the Managing Board, which approval will not be unreasonably withheld provided
that (A) the Transferring Member agrees to any amendments to this
Agreement and the Ancillary Agreements reasonably necessary to preserve the
relative rights and obligations of the Transferring Member and its transferee,
on the one hand, and those of the other Members, on the other, and (B) the
Partial Transfer will not result in a material adverse effect on the Company.


 


(d)           Obligations
of Transferring Members. The Transfer of a Membership Interest will not
release the Transferring Member from any liability or obligation that such
Transferring Member or its transferee may have to the Company. For the
avoidance of doubt, the Transferring Member will remain subject to the
obligations of a Member under Section 6.1 and Section 12.4. In
addition, unless otherwise agreed by the Managing Board, the Transferring
Member will be directly liable for any non-performance or breach by the
transferee under this Agreement.


 


(e)           Transfer
of Shares of Public Companies. The provisions of this Article 8 will not
apply to any Transfer of interests in the Members that do not result in a
Change of Control of such Member.


 


8.3           Substitution of
Members. 


 


Upon the Transfer of all or any part of a Membership
Interest to a transferee in accordance with this Article 8, such transferee
will have the right to become a Member only if (i) such Person becomes a
party to this Agreement, and, if requested by the other Member, any 


 


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other Ancillary Agreement to which the transferor was a party
immediately prior to the Transfer, by executing one or more instruments
reasonably satisfactory in form and substance to the other Member and
(ii) such Person pays any reasonable expenses in connection with such
Person’s admission as a new Member.


 


ARTICLE 9


 


Buy-Out


 


9.1           Right to Initiate
Buy-Out.


 


(a)           Within
(a) the [***] day period immediately following the end of the Initial
Commitment Period, (b) solely in the event of a Stalemate occurring after the
end of the Initial Commitment Period, the [***] day period following such
Stalemate, (c) at any time, whether before or after the end of the Initial
Commitment Period, during the [***] day period following notice from a Member
that it has entered into a binding agreement providing for a Change of Control
of such Member (such [***] or [***] day period, a “Buy-Out
Notice Period”), (d) as provided for in the Ancillary Agreements or
(e) during the [***] day period following the Managing Board’s request for a
Capital Contribution as provided in Section 6.1(d), either Member (in the case
of (a) or (b)), the Member receiving the notice of a Change in Control (in the
case of (c)), the Member or Members as specified in the Ancillary Agreements
(in the case of (d)) or the Non-Defaulting Member (in the case of (e)) (in each
case, the “Initiating Member”) has the right,
exercisable upon written notice to the Company and the other Member (the “Buy-Out Notice”), to initiate the sale of the Company or
the allocation of the Company’s assets, including the Company Intellectual
Property and Company’s rights in Licensed IP (the “Buy-Out”).


 


(b)           In
the event a Buy-Out is initiated by a Member hereunder, the terms set forth in
this Article 9 will apply (unless otherwise mutually agreed by the Parties).


 


9.2           Negotiated Resolution.


 


Following the Company’s receipt of the Buy-Out Notice,
the Members will mutually determine whether to attempt to sell the Company to a
Third Party or a Member (whether through merger, acquisition of 100% of the
Membership Interests or purchase of all or substantially all of the assets of
the Company) (a “Sale”). In the event the Members
determine to attempt such a Sale, the Company will retain a reputable
investment bank chosen by mutual agreement of the Members to assist with the
valuation and possible Sale of the Company; provided, however,
that, notwithstanding anything in this Section 9.2 to the
contrary, neither Member will be required to agree to enter into, or
to approve the Company’s entering into, such a Sale. Any such Sale will be
subject to all other terms agreed upon by the Members and the Company, which
will be documented in a separate written agreement among the parties (a “Sale Agreement”).


 


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9.3           Non-Negotiated
Resolution.


 


(a)           If
the Members do not determine pursuant to Section 9.2 to attempt a Sale of the
Company, or have not within [***] days after the Company’s receipt of the
Buy-Out Notice, or such longer period as mutually agreed to by the Members
(such period, the “Buy-Out Negotiation
Period”), executed a Sale Agreement, the Company will, except as
otherwise set forth in this Section 9.3, distribute and assign to the Members,
or their designated Affiliate, jointly, in accordance with Percentage
Interests, all of the Company’s rights, interests and assets, other than any
contracts and/or arrangements between the Company and Third Parties that the
Managing Board determines cannot or should not be assigned (“Third Party Contracts”) (provided  that the
Parties agree to use Commercially Reasonable Efforts to provide for the
assignment of all Third Party Contracts), and the provisions of this Section
9.3 will apply.


 


(b)           Distribution
of Intellectual Property.


 


(i)            Upon
the distribution of the Company’s assets pursuant to this Section 9.3, each
Member or its designated Affiliate will receive, subject to Third Party Rights
and Third Party Contracts, (1) a co-exclusive license under Company
Intellectual Property Controlled by the Company at the end of the Buy-Out
Negotiation Period, for any and all purposes, and (2) a co-exclusive license
under Licensed IP licensed to the Company at the end of the Buy-Out Negotiation
Period, for any and all purposes within the scope of the license granted to the
Company (collectively, the “Distributed IP”);
provided, however, that (y) to the extent that one Member has
obtained a license in connection with an Opt-In Election or obtains a license
pursuant to Section 9.3(d) or 9.3(e), the licenses to the Distributed IP under
this Section 9.3(b) will not include the right to Develop, Manufacture or
Commercialize the Program/Project Compounds or Program/Project Therapeutics
subject to such Opt-In election or license pursuant to Section 9.3(d) or
9.3(e); and (z) to the extent that a Member has obtained a license in
connection with Section 2.3 of the License Agreement, the licenses to the
Distributed IP under this Section 9.3(b) will be subject to such license
granted to such Member. For purposes of this Section 9.3(b)(i), “co-exclusive”
means that such license is exercisable by each Member or its designated
Affiliate, and that the Company retains no rights to exercise any such licensed
Intellectual Property.


 


(ii)           The
rights granted to each Member in this Section 9.3(b) will be (1)
royalty-bearing, as set forth in Section 9.3(b)(iii) below, and (2)
sublicenseable solely (A) to such Member’s Affiliates or (B) by such Member or
its Affiliates to a Third Party pursuant to a Bona Fide Collaboration; provided
that, (x) each such sublicense will be subject and subordinate to, and
consistent with, the terms and conditions of the License Agreement and this
Agreement, and will provide that any such sublicensee will not further
sublicense except on terms consistent with this clause; (y) such Member will
remain responsible for the performance of its sublicensees, and will ensure
that all such sublicensees comply with the relevant provisions of the License
Agreement and this Agreement and (z) in the event of a material default by any
of its sublicensees under a sublicense agreement, such Member will inform the
Company and the other Member and will take such action, after consultation with
such other Parties, which, in such Member’s reasonable business judgment, will
address such default.


 


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(iii)          Each
Member will, to the extent it, its Affiliates and/or Sublicensees develop a
Royalty-Bearing Product under Intellectual Property distributed from the
Company to the Member pursuant to this Section 9.3(b) that does not become
subject to Section 9.3(d) or 9.3(e): (x) pay to the other Member (or its
designated Affiliate) a royalty of [***]% on Net Sales of such Royalty-Bearing
Products sold by the selling Member, its Affiliates and/or Sublicensees, on a
Royalty-Bearing Product-by-Royalty-Bearing Product and a country-by-country
basis, during the Royalty Term (provided, however, that, for the
remainder of the relevant Royalty Term following the end of both the relevant
Exclusivity Period, the royalty rate will be [***]%), and (y) be responsible
for all milestones, royalties and other payments payable to Third Parties in
respect of the exercise of such license by such selling Member, its Affiliates
and/or Sublicensees, including without limitation any amounts payable by either
Member or the Company to its Third Party licensors with respect to the license
and sublicense granted to such Member pursuant to this Section 9.3(b). The
royalty-paying Member will use Commercially Reasonable Efforts to benefit from
offsets to the amounts payable to such Member’s Third Party licensors.


 


(c)           Retained
Assets and Rights. Following the distribution of the Company’s assets
pursuant to this Section 9.3, the Company will not maintain any interest in or
right to any assets of the Company, including Intellectual Property, except to
the extent the Managing Board determines is necessary to maintain Third Party
Contracts or its obligations to Opt-In Parties or Members pursuant to the
Buy-Out. Notwithstanding the foregoing, the
Parties will use their Commercially Reasonable Efforts to remove any
restrictions on, and facilitate the distribution of, the Company’s assets
pursuant to this Section 9.3.


 


(d)           Research
Program Selection and Transfer.


 


(i)            Within
[***] Business Days following the distribution of the Company’s assets in accordance
with Section 9.3(a) and (b), the non-Initiating Member will submit a bid,
consisting solely of a single up-front cash payment (“First
Selection Right Bid”), to the Initiating Member to obtain the first
right to select a Research Program from the most recent Program/Project List
with respect to which such Member desires to acquire exclusive rights; provided,
however, that in the event the non-Initiating Member does not submit
such a bid with [***] Business Days, the Initiating Member may assume the rights
of the non-Initiating Member set forth in this Section 9.3(d) with respect to
the First Selection Right Bid. The Initiating Member will have [***] Business
Days to notify the non-Initiating Member of its acceptance or rejection of such
First Selection Right Bid.


 


(ii)           If
the Initiating Member accepts such First Selection Right Bid,


 


(1)                                  The
non-Initiating Member will have the right, upon payment to the Initiating
Member of the amount set forth in the First Selection Right Bid (which amount
will be due and payable within [***] Business Days after acceptance of such
bid), to select one Research Program (“Selected Program”).
Upon such selection, the non-Initiating Member will obtain the license set
forth in clause (vi) below under Intellectual Property directed to such
Selected Program; and


 


- 29 -

















 


(2)                                  Each
of the Members, starting with the Initiating Member, will then take turns
selecting (by written notice within [***] Business Days following the last
selection by the other Member) a Research Program (other than the Selected
Program), until all Research Programs on the Program/Project List have been
selected by the Members (and each such selected Research Program is a “Selected
Program” hereunder), and each Member will obtain the rights set forth in clause
(vi) below under Intellectual Property directed to the Research Program
selected by such Member.


 


(iii)          If
the Initiating Member rejects such First Selection Right Bid, such Member will
submit to the non-Initiating Member, concurrently with such notice of
rejection, a counterbid which is higher than such First Selection Right Bid by
at least [***]% or $[***] (whichever is higher). The non-Initiating Member will
have [***] Business Days to accept or reject such counterbid.


 


(iv)          If
the non-Initiating Member accepts such counterbid, the Initiating Member will
have the right, upon payment to the non-Initiating Member of the amount set
forth in such counterbid (which amount will be due and payable within [***]
Business Days after acceptance of such counterbid), to select a Research
Program (other than a Selected Program) and each such selected Research Program
is a “Selected Program” hereunder. Upon completion of the Buy-Out, the
Initiating Member will obtain from the non-Initiating Member the rights set
forth in clause (vi) below with respect to the Research Program selected by
such Member.


 


(v)           If
the non-Initiating Member rejects such counterbid, then such non-Initiating
Member will submit, concurrently with such notice of rejection, its counterbid
to the Initiating Member’s counterbid, which counterbid must be higher than the
Initiating Member’s counterbid by at least [***]%, and the process will repeat
itself until a bid is accepted or no counterbid exceeds the prior bid or
counterbid by at least [***]%.


 


(vi)          Each
Member will grant to the other Member which purchased a Selected Program
hereunder (the “Buy-Out Party”), subject to Third
Party Rights, an exclusive (to the fullest extent possible) license under
Distributed IP (which, with respect to Licensed IP therein, is within the scope
of the license granted to the Member by the Company), to Develop, Manufacture
and/or Commercialize the miRNA Compound(s) and miRNA Therapeutics included in
such Selected Program in the Field.


 


(vii)         Such
licenses to Distributed IP will be (1) royalty-bearing as set forth in Section
9.3(d)(viii) below, and (2) sublicenseable; provided  that, (x)
each such sublicense will be subject and subordinate to, and consistent with,
the terms and conditions of this Agreement, and will provide that any such
Sublicensee will not further sublicense except on terms consistent with this
clause; (y) such Member will remain responsible for the performance of its
Sublicensees, and will ensure that all such Sublicensees comply with the
relevant provisions of the License Agreement and this Agreement and (z) in the
event of a material default by any of its Sublicensees under a sublicense
agreement, such Member will inform the Company and the other Member and will
take such action, after consultation with such other Parties, which, in such
Member’s reasonable business judgment, will address such default.


 


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(viii)        Each
Member selecting a Selected Program will (1) pay to the other Member (or its
designated Affiliate) a royalty of [***]% on Net Sales of any Royalty-Bearing
Product with respect to such Selected Program, on a Royalty-Bearing
Product-by-Royalty-Bearing Product and a country-by-country basis, during the
Royalty Term (provided, however, that, for the remainder of the
relevant Exclusivity Period, the royalty rate will be [***]%, and (2) be
responsible for milestones, royalties and other payments payable to Third
Parties in respect of the exercise of such license by such selling Member, its
Affiliates and/or Sublicensees, including without limitation any amounts
payable by either Member or the Company to its Third Party licensors with
respect to the licenses granted to such Member pursuant to Section 9.3(a). The
royalty-paying Member will use Commercially Reasonable Efforts to benefit from
offsets to the amounts payable to such Member’s Third Party licensors.


 


(ix)           Each
Member will assign or exclusively license to the other Member, to the fullest
extent possible, all of its rights and obligations in assets, other than
Intellectual Property, distributed by the Company to the Members pursuant to
Section 9.3(a), to the extent such assets are solely related to any of the
other Member’s Selected Programs. In the event any such assets are related to
Selected Programs of both Members, each Member will assign to or exclusively
license the other, to the fullest extent possible, the rights to such assets as
they relate to the other Member’s Selected Programs.


 


(e)           Development
Project Selection and Transfer.


 


(i)            Within
[***] Business Days following the completion of the distribution of the Company’s
assets pursuant to Section 9.3(a), the non-Initiating Party (the “Bidding Party”) will have the right to submit to the other
Member a bid, which need not be limited to a single up-front cash payment (“Project Bid”), with respect to one or more Development
Projects included in the most recent Program/Project List; provided  that,
a separate Project Bid must be submitted for each and every Development Project
for which the Party is bidding. Notwithstanding the
foregoing, in the event the non-Initiating Party does not submit
such a bid within [***] Business Days, the Initiating Party may assume the
rights of the non-Initiating Party set forth in this Section 9.3(e) with
respect to a Project Bid. The non-Bidding Party will have [***] Business Days
to notify the Bidding Party of its acceptance or rejection of a Project Bid
made by the Bidding Party, on a Project Bid-by-Project Bid basis.


 


(ii)           If
the non-Bidding Party accepts a Project Bid or does not reject a Project Bid
and provide a counterbid in accordance with clause (iii) below (in which case
the Project Bid is deemed accepted) within such [***] Business Day period, the
Bidding Party, subject to compliance with its payment obligations under the
terms of such Project Bid (including, without limitation, payment of any
upfront fees to the non-Bidding Party), will obtain the rights set forth in
clause (vi) below with respect to the Development Project covered by such
accepted Project Bid.


 


(iii)          If
the non-Bidding Party rejects a Project Bid, the non-Bidding Party (“Counterbidding Party”) will submit to the Bidding Party,
concurrently with its notice of rejection, a counterbid with terms which are
more favorable, when taken as a whole, to the Bidding Party than the terms set
forth in the Project Bid, by at least the greater of (1) [***]% (as 


 


- 31 -

















 


measured by industry standards)
or (2) $[***] (if the Project Bid is less than or equal to $[***]). The Bidding
Party will have [***] Business Days to accept or reject such counterbid.


 


(iv)          If
the Bidding Party accepts such counterbid or does not reject such counterbid
and provide a counterbid in accordance with clause (v) below (in which case the
Counterbidding Party’s counterbid is deemed accepted) within such [***]
Business Day period, the Counterbidding Party, subject to compliance with its
payment obligations under the terms of such counterbid (including, without
limitation, payment of any upfront fees to the Bidding Party), will obtain the
rights set forth in clause (vi) below with respect to the Development Project
covered by such accepted counterbid.


 


(v)           If
the Bidding Party rejects such counterbid, such Bidding Party will submit,
concurrently with its notice of rejection, its counterbid to the Counterbidding
Party’s counterbid, which counterbid must be higher than the Counterbidding
Party’s counterbid by at least [***]% (as measured by industry standards), and
the process will repeat itself until a bid for a Development Project is
accepted; provided, however, that, if a Member to which a
counterbid is submitted determines in good faith that the terms of such
counterbid are not more favorable to such Member, taken as a whole, than the
terms offered in such Member’s most-recent prior bid, by at least [***]% (as
measured by industry standards), then at any time within the [***] day period
during which such Member may accept or reject such counterbid, such Member (the
“Contesting Party”) may notify the
other Parties thereof and will have the right to submit such matter to a
reputable investment bank (“Qualified Third Party”)
chosen by mutual agreement of the Members. If the Members are unable to agree
upon a Qualified Third Party within [***] Business Days after receipt of the
Contesting Party’s notice, the Company (through a vote of its Managing Board)
will select a Qualified Third Party within [***] Business Days after the end of
such initial [***] Business Day period and will promptly notify the Members of
the Qualified Third Party selected. The Members will then submit the dispute to
such Qualified Third Party and will instruct such Qualified Third Party to
determine whether the counterbid most-recently proposed by the non-Contesting
Party is more favorable, taken as a whole, than the terms proposed by the
Contesting Party, by at least [***]% (as measured by industry standards) and to
deliver a written report to both Members within [***] Business Days following
submission of such dispute to such Qualified Third Party. Such Qualified Third
Party’s determination will be binding on the Members. If such Qualified Third
Party determines that the counterbid proposed by the non-Contesting Party
constitutes a sufficient counterbid, such counterbid will be deemed accepted by
the Contesting Party. If such Qualified Third Party determines that the
counterbid proposed by the non-Contesting Party does not constitute a
sufficient counterbid, then the immediately preceding bid or counterbid terms
proposed by the Contesting Party will be deemed accepted by the non-Contesting
Party. The Member against whom the Qualified Third Party finds will bear the
costs of such Qualified Third Party.


 


(vi)          Each
Member will grant to the other Member that purchased a Development Project
hereunder (the Buy-Out Party), subject to Third Party Rights, an exclusive (to
the fullest extent possible) sublicense under Distributed IP (which, with
respect to Licensed IP therein, is within the scope of the license granted to
the Member by the Company), to Develop, Manufacture and/or Commercialize miRNA
Compounds and miRNA Therapeutics included in the Development Project in the
Field.


 


- 32 -

















 


(vii)         Such
license to such Development Project will be (1) royalty-bearing in accordance
with the terms of the accepted bid covering such Development Project, and (2)
sublicenseable; provided that, (1) each such sublicense will be subject and
subordinate to, and consistent with, the terms and conditions of this
Agreement, and will provide that any such Sublicensee will not further
sublicense except on terms consistent with this clause; (2) such Member will
remain responsible for the performance of its Sublicensees, and will ensure
that all such Sublicensees comply with the relevant provisions of the License
Agreement and this Agreement and (3) in the event of a material default by any
of its Sublicensees under a sublicense agreement, such Member will inform the
Company and the other Member and will take such action, after consultation with
such other Parties, which, in such Member’s reasonable business judgment, will
address such default.


 


(viii)        Each
Member will assign or exclusively license to the other Member, to the fullest
extent possible, all of its rights and obligations in assets, other than
Intellectual Property, distributed by the Company to the Members pursuant to
Section 9.3(a) to the extent such assets are solely related to any of the other
Member’s Selected Development Projects. In the event any such assets are
related to Development Programs of both Members, each Member will assign to the
other, to the fullest extent possible, the rights to such assets as they relate
to the other Member’s Development Programs.


 


(ix)           The
Parties will promptly negotiate in good faith and execute a written agreement
substantially in accordance with the terms of the accepted bid covering each
such Development Project.


 


(f)            Company
Following Buy-Out. In the event of a Buy-Out pursuant to this Section 9.3,
the Company will not be dissolved if, in the discretion of the Managing Board,
it should continue to exist for the purpose of maintaining Third Party
Contracts and/or receiving payments from Third Parties that may become due to
the Company following the completion of the Buy-Out, making tax and other
distributions, filing tax and other required reports and conducting any
activity necessary for the purpose of dissolving the Company pursuant to
Section 10 (the “Post Buy-Out Activities”). In the
event the Company is not dissolved following the completion of a Buy-Out
pursuant to this Section 9.3, the Company will be prohibited from engaging in
any activities other than the Post Buy-Out Activities, and any assets acquired
by the Company after the completion of the Buy-Out will be distributed as
determined by the Managing Board, unless otherwise distributable under
then-existing agreements.


 


(g)           Diligence.
Each Member will use Commercially Reasonable Efforts to Develop and
Commercialize the miRNA Compounds and miRNA Therapeutics covered by the
Research Program or Development Project purchased by such Member under this
Section 9.3, at such Member’s own expense, in the Field, either by itself or
with or through its Affiliates or Sublicensees.


 


(h)           Non-Compete.
With respect to any Research Program or Development Project, the non-Opt-In
Party or non-Buy-Out Party will not, itself or through its Affiliates or with
Third Parties, Discover, Develop, Manufacture or Commercialize the relevant
Opt-In Products or Buy-Out Products during the period (i) prior to first
commercial sale of an Opt-In Product or Buy-Out Product with respect to such
Research Program or Development Project anywhere in the world, 


 


- 33 -

















 


as long as the relevant Opt-In Party or Buy-Out Party reasonably
believes that the Opt-In Product or Buy-Out Product would be a Royalty-Bearing
Product upon first commercial sale, and (ii) after first commercial sale of a
Royalty-Bearing Product with respect to such Research Program or Development
Project anywhere in the world, until the expiration of all Royalty Terms for
all Royalty-Bearing Products for such Research Program or Development Project; provided,
however, that each Party will be entitled to grant Permitted Licenses.


 


ARTICLE 10


 


Dissolution


 


10.1         Dissolution.


 


The Company will be dissolved and its affairs wound up
upon the first to occur of the following:


 


(a)           the
written consent of the Members;


 


(b)           the
Bankruptcy or dissolution of a Member, unless the other Member votes to
continue the business of the Company within ninety (90) days of receiving
notice of such Bankruptcy; or


 


(c)           Upon
the occurrence of an event specified under non-waivable provisions of the Act
or other applicable law as one effecting dissolution, except that where, under
the terms of this Agreement or the Act, the Company is not to terminate, the
Company will immediately be reconstituted and reformed on all the applicable
terms, conditions, and provisions of this Agreement.


 


The
Company will not be dissolved upon the death, insanity, retirement,
resignation, expulsion, bankruptcy, dissolution or occurrence of any other
event which terminates the membership of a Member.


 


10.2         Liquidation.


 


(a)           Upon
the occurrence of an event of dissolution as defined in Section 10.1
hereof, the Company will cease to engage in any further business, except to the
extent necessary to perform existing obligations, and will wind up its affairs
and liquidate its assets unless otherwise agreed by the Members. The Members
will jointly appoint a liquidator (who may but need not be an Officer or
Member) who will have sole authority and control (subject to this Agreement)
over the winding up and liquidation of the Company’s business and affairs. The
liquidator will diligently pursue the winding up and liquidation of the
Company.


 


(b)           During
the course of liquidation, the Members will continue to share profits and
losses as provided in Section 7.1 of this Agreement, but there will be no
cash distributions to the Members until the Distribution Date.


 


- 34 -

















 


10.3         Liabilities. 


 


Liquidation will continue until the Company’s affairs
are in such condition that there can be a final accounting, showing that all
fixed or liquidated obligations and liabilities of the Company are satisfied or
can be adequately provided for under this Agreement. The assumption or
guarantee in good faith by one or more financially responsible Persons will be
deemed to be an adequate means of providing for such obligations and
liabilities. When the liquidator has determined that there can be a final
accounting, the liquidator will establish a date (not to be later than the end
of the taxable year of the liquidation, i.e., the time at which the Company
ceases to be a going concern as provided in Treasury Regulations section 1.704-1(b)(2)(ii)(g),
or, if later, ninety (90) days after the date of such liquidation) for the
distribution of the proceeds of liquidation of the Company (the “Distribution Date”). The net proceeds of liquidation of the
Company will be distributed to the Members as provided in Section 10.5
hereof not later than the Distribution Date.


 


10.4         Settling of
Accounts.


 


Except as otherwise required by Section 18-804 of
the Act, upon the dissolution and liquidation of the Company, the proceeds of
liquidation will be applied in the following order:  (i) to pay all expenses of the Company’s
liquidation and wind up costs, including the costs and expenses of the
liquidator and any fees payable to the liquidator as agreed by the Members;
(ii) to pay all debts, obligations and liabilities of the Company, in the
order of priority as provided by law, other than debts owing to the Members or
on account of Members’ Capital Contributions; (iii) to pay all debts of
the Company owing to a Member; and (iv) to establish reasonable reserves
for any remaining contingent or unforeseen liabilities of the Company not
otherwise provided for, which reserves will be maintained by the liquidator on
behalf of the Company in a regular interest-bearing trust account for a
reasonable period of time as determined by the liquidator. If any excess funds
remain in such reserves at the end of such reasonable time, then such remaining
funds will be distributed by the Company to the Members pursuant to
Section 10.5 hereof.


 


10.5         Distribution of
Proceeds.


 


Except as otherwise required by Section 18-804 of
the Act, upon final liquidation of the Company but not later than the
Distribution Date, the net proceeds of liquidation remaining following the
settling of accounts in accordance with Section 10.4 hereof will be
distributed to the Members in proportion to their respective positive Capital
Accounts as those accounts are determined after all adjustments to such
accounts for the taxable year of the Company during which the liquidation
occurs as are required by this Agreement and Treasury Regulations
Section 1.704-1(b), such adjustments to be made within the time specified
in such Treasury Regulations.


 


10.6         Certificate of
Cancellation.


 


Upon dissolution and liquidation of the Company, the
liquidator will cause to be executed and filed with the Secretary of State of
the State of Delaware, a certificate of cancellation in accordance with Section 18-203
of the Act.


 


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10.7         Payment of
Royalties.


 


Following the dissolution of the Company, any
royalties, milestones and/or sublicense fees due to the Company by a Member in
connection with an Opt-In Election under the License Agreement, will be reduced
by [***] percent ([***]%) and this amount will instead be payable by the Member
required to pay such fee directly to the other Member (the “Receiving
Member”); provided, however, if the Receiving Member
has pass-through obligations with respect to a royalty payment, milestone or
sublicense fee, the payment to the Receiving Member will not be reduced to an
amount less than the amount of the pass-through obligation.


 


10.8         Treatment of
Certain Assets.


 


(a)           Goodwill.
The Company’s
name and goodwill will, as among the Members, be deemed to have no value and
will belong to the Company, and no Member will have any right or claim
individually to the use thereof. Upon liquidation of the Company, undivided
interests on a pro rata basis in the proportion required by Section 10.5 in the
right to use the name of the Company and any goodwill associated with the
Company’s name or business will be assigned to all Members that are Members who
are not then in default of any of their material obligations hereunder.


 


(b)           Distribution of
In-Kind Assets. To the
extent reasonably possible, the assets of the Company will be distributed in
kind to the Members. Such assets distributed in kind will be distributed at
their Fair Market Value as determined by the liquidator appointed pursuant to
Section 10.2(a). Those of such assets that are indivisible (such as
Intellectual Property, Intellectual Property rights and various contracts) will
be distributed and licensed to the Members in accordance with Sections 10.8(c).


 


(c)           Distribution of Indivisible Assets. Any assets of the Company that are
indivisible (such as Intellectual Property and rights therein and various
contracts) will be distributed in accordance with the following:


 


(i)            Subject
to the rights granted to and obligations assumed by either Member or a Third
Party in connection with an Opt-In Election or Buy-Out and subject to any Third
Party Rights, all of the Company’s right, title and interest in Intellectual
Property and other indivisible assets owned by the Company (including, without
limitation, all Company Intellectual Property and other items of Intellectual
Property owned in their entirety or in which the Company has a partial
ownership interest or a transferable right or license) will be distributed and
assigned to all those Members that are not then in default of any of their
material obligations hereunder (each a “Distributee Member”),
with each Distributee Member receiving an undivided ownership interest therein
on a pro rata basis in the proportion required by Section 10.5, subject to
Section 10.8(e), as follows:


 


(A)          Co-exclusive in all respects, and “co-exclusive”
means that such license is exercisable by each Member or its designated
Affiliate, and that the Company retains no rights to exercise any such licensed
Intellectual Property);


 


(B)           Free of any obligation to make
accounting or pay royalties or license fees or other amounts; and


 


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(C)           Perpetual and irrevocable.


 


(d)           Maintenance and Enforcement of
Intellectual Property. With respect to any issued patents, registered
trademarks or registered copyrights and any applications to obtain or register
the same that are distributed in accordance with Section 10.8(c)(i) (the “Registered Intellectual Property”), responsibility for the
prosecution, registration, maintenance and protection thereof will be allocated
to the Members with an ownership interest therein, subject to Third Party
rights, as follows:


 


(i)            in
the case of Registered Intellectual Property licensed to a Member in connection
with an Opt-In Election, in accordance with Section 9 of the License Agreement;
and


 


(ii)           in
the case of Registered Intellectual Property licensed to a Member in connection
with a Buy-Out, as determined by the Parties at the time of the Buy-Out, it
being agreed that the Parties intend such allocation to be substantially
similar to the provisions of Section 9 of the License Agreement as they apply
to an Opt-In Product.


 


(e)           Non-Transferable Licenses. As to any items of Intellectual
Property and other indivisible assets that would have been distributed under
Section 10.8(c)(i) but for the lack of a transferable right or license in the
Company, the liquidator will use commercially reasonable efforts such that each
Distributee Member thereunder has, from and after the time of dissolution,
rights or licenses to use such Intellectual Property and other indivisible
assets in the same manner and to the same extent as the Company.


 


(f)            Binding on Transferees. In the event a Member transfers its
interest in any Intellectual Property distributed or licensed to it under this
Section 10.8, it will cause the transferee to agree in writing to be bound by
the applicable obligations of this Section 10.8.


 


(g)           Termination of Ancillary Agreements;
Further Assurances.


 


(i)            Upon consummation of a termination of
this Agreement and the distribution or liquidation of the assets of the Company
pursuant to this Article 10, the parties hereto will cause the termination of
the Ancillary Agreements
subject to the provisions of this Section 10.8 or unless otherwise agreed by
the Members. At or any time after such distribution or liquidation, the
Parties will execute and deliver such written agreements and instruments as may
be requested by any Member or its Affiliate to confirm or document the
licenses, rights and obligations of each Member, as described herein and in the
License Agreement; provided, however:


 


(ii)           The
intent of the Parties is that all of such licenses, rights and obligations be
self executing automatically, and without further act by any Person, upon the
occurrence of the event that triggers the same;


 


(iii)          Execution
and delivery of any such written agreement or instrument is neither a condition
precedent to nor a requirement or pre-requisite for the effectiveness of any of
such licenses, rights and obligations; and


 


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(iv)          Neither
a failure to make such request nor a failure to mutually agree on the text of
and/or to execute or deliver any such written agreement or instrument will
limit or constrain any of such licenses, rights and obligations.


 


(h)           Survival
of Provisions. The provisions of, and the licenses, rights and obligations
set forth in, this Section 10.8 will survive any termination of this Agreement,
any dissolution of the Company and any distribution of the assets of the
Company pursuant to this Article 10 and will continue until fully performed.


 


ARTICLE 11


 


Exculpation and Indemnification


 


11.1         Duties of
Directors.


 


Subject to the last sentence of this
Section 11.1, each Director will owe such duty of loyalty and due care to
the Company as is required of a director of a for profit corporation organized
and existing under the Delaware General Corporation Law (the “DGCL”) to which the provisions of Subchapter XIV of the DGCL
are not applicable, will discharge his or her duties in good faith with the
care an ordinary prudent Person in like position would exercise under similar
circumstances and in a manner such Director reasonably believes to be in the
best interests of the Company, and in so acting will enjoy each and every
protection afforded to the directors of a Delaware corporation under applicable
Delaware law, including those afforded by the business judgment rule and the
presumptions afforded thereby and the limitation on personal liability to the
maximum extent permitted by Section 102(b) of the Delaware General
Corporation Law as if the provisions thereof were set forth in this Agreement; provided,
however, that any act of a Director relating to or affecting an
acquisition or a potential acquisition of the Company will not be subject to a
higher level of duty or greater scrutiny than is applied to any other act of a
Director; provided, further, that the provisions of Section 3.6
hereof will, to the maximum extent necessary to give effect thereto, be
construed as a “renunciation” of interest or expectancy in, or as being offered
an opportunity to participate in, business opportunities presented to the
Company or its Members, Directors or Officers as contemplated by Section
122(17) of the DGCL. Notwithstanding the
foregoing, the Members understand that actions or refusals to act by
a Director taken with respect to a matter requiring approval of Directors at
the direction of the Member who designated such Director, if any, will not be a
breach of such Director’s fiduciary duty to the Company or the other Members.


 


11.2         Exculpation. 


 


No Member or Affiliate, director or officer thereof, Director,
Officer, or employee or agent of the Company (each an “Indemnified
Party”) will be liable,
responsible or accountable for damages or otherwise to any other Member, their
Affiliates or the Company for (i) any act performed or omission
within the scope of the authority conferred on the Indemnified Party by this
Agreement or otherwise by the Managing Board except for the gross negligence,
fraud or willful misconduct (including any willful violation of the terms of
this Agreement) of such Indemnified Party, (ii) the Indemnified Party’s
performance of, or failure to perform, any act on the reasonable reliance on
advice of legal counsel to the Company or its accountants or other 


 


- 38 -

















 


experts
retained by the Company, or (iii) the negligence, dishonesty or bad faith
of any agent, consultant or broker of the Company selected, engaged or retained
in good faith and with reasonable prudence. Each Member may (on its own
behalf or on behalf of any Director designated by such Member, any Affiliates
of such Member or their respective partners, shareholders, directors, officers,
employees or agents) consult with counsel, accountants and other experts in
respect of the Company’s affairs and such Member will be fully protected and
justified in any action or inaction which is taken in accordance with the
advice or opinion of such counsel, accountants or other experts; provided,
however, that such counsel, accountant or other experts will have been
selected with reasonable care. Notwithstanding any of the
foregoing to the contrary, the provisions of this Section 11.2
will not be construed so as to relieve (or attempt to relieve) an Indemnified
Party of any liability, to the extent (but only to the extent) that such liability
may not be waived, modified or limited under applicable law, but will be
construed so as to effectuate the exculpation of the Member Indemnified Party
to the fullest extent permitted by law.


 


11.3         Indemnification by
the Company.


 


(a)           In
any threatened, pending or completed action, suit or proceeding, each
Indemnified Party who is an Officer, Director or Member or Affiliate or
director or officer thereof (the “Member Indemnitees”)
will, to the fullest extent permitted by law, be fully protected and indemnified
and held harmless by the Company against all Losses incurred by virtue of his
or her status as a Member Indemnitee or with respect to any action or omission
taken or suffered in good faith, other than liabilities and losses resulting
from the fraud, breach of fiduciary duty or willful misconduct (including any
willful violation of the terms of this Agreement) of such Member Indemnitee. Any
Indemnified Party who is not an Officer, Director or Member may, upon approval
of the Managing Board, to the fullest extent permitted by law, be fully
protected and indemnified and held harmless by the Company against all Losses
incurred by virtue of his or her status as an Indemnified Party or with respect
to any action or omission taken or suffered in good faith, other than
liabilities and losses resulting from the fraud, breach of fiduciary duty or
willful misconduct (including any willful violation of the terms of this
Agreement) of such Indemnified Party. The indemnification provided by this
Section 11.3 will be recoverable only out of the assets of the Company,
and no Member will have any personal liability on account thereof.


 


(b)           To
the extent that, at law or in equity, an Indemnified Party has duties
(including fiduciary duties) and liabilities relating thereto to the Company,
any Member or to any other Indemnified Party, an Indemnified Party acting under
this Agreement will not be liable to the Company or to any Member or to any
other Indemnified Party for its good faith reliance on the provisions of this Agreement.
The provisions of this Agreement, to the extent that they restrict the duties
and liabilities of an Indemnified Party otherwise existing at law or in equity,
are agreed by the parties hereto to replace such other duties and liabilities
of such Indemnified Party.


 


(c)           As
a condition precedent to the Member Indemnitee’s right to be indemnified, the
Member Indemnitee must notify the Company in writing as soon as practicable of
any action, suit, proceeding or investigation involving him or her for which
indemnity hereunder will or could be sought. With respect to any action, suit,
proceeding or investigation of which the Company is so notified, the Company
will be entitled to participate therein at its own expense 


 


- 39 -

















 


and/or to assume the defense thereof at its own expense, with legal
counsel reasonably acceptable to the Member Indemnitee.


 


(d)           In
the event that the Company does not assume the defense of any action, suit,
proceeding or investigation of which the Company receives notice under this
Section 11.3, the Company will pay in advance of the final disposition of such
matter any expenses (including attorneys’ fees) incurred by a Member Indemnitee
in defending a civil or criminal action, suit, proceeding or investigation or
any appeal therefrom; provided, however, that the payment of such
expenses incurred by a Member Indemnitee in advance of the final disposition of
such matter will be made only upon receipt of an undertaking by or on behalf of
the Member Indemnitee to repay all amounts so advanced in the event that it
will ultimately be determined that the Member Indemnitee is not entitled to be
indemnified by the Company as authorized in this Section 11.3, which
undertaking will be accepted without reference to the financial ability of the
Member Indemnitee to make such repayment; and further provided  that
the Member Indemnitee will repay the Company any such advancement of expenses
in respect of a matter for which it is ultimately determined by a court of
competent jurisdiction that (i) the Member Indemnitee did not act (A) in good
faith and in a manner the Member Indemnitee reasonably believed to be in, or
not opposed to, the best interests of the Company, or (B) in the good faith
reliance on the provisions of this Agreement, or (ii) with respect to any
criminal action or proceeding, the Member Indemnitee had reasonable cause to
believe his conduct was unlawful.


 


(e)           The
Company will not indemnify a Member Indemnitee seeking indemnification in connection
with a proceeding (or part thereof) initiated by such Member Indemnitee unless
the initiation thereof was approved by both Members. In addition, the Company
will not indemnify a Member Indemnitee to the extent such Member Indemnitee is
reimbursed from the proceeds of insurance, and in the event the Company makes
any indemnification payments to a Member Indemnitee and such Member Indemnitee
is subsequently reimbursed from the proceeds of insurance, such Member
Indemnitee will promptly refund such indemnification payments to the Company to
the extent of such insurance reimbursement.


 


(f)            All
determinations hereunder as to the entitlement of a Member Indemnitee to
indemnification or advancement of expenses will be made in each instance by (i)
the Managing Board, (ii) independent legal counsel (who may, to the extent
permitted by law, be regular legal counsel to the Company), or (iii) a court of
competent jurisdiction.


 


(g)           The
indemnification rights provided in this Section 11.3 (i) will not be deemed exclusive
of any other rights to which a Member Indemnitee may be entitled under any law,
agreement or otherwise, and (ii) will inure to the benefit of the heirs,
executors and administrators of the Member Indemnitees. The Company may, to the
extent authorized from time to time by the Managing Board, grant
indemnification rights to other employees or agents of the Company or other
Persons serving the Company and such rights may be equivalent to, or greater or
less than, those set forth in this Section 11.3. Any indemnification to be
provided hereunder may be provided although the Person to be indemnified is no
longer a Member, Director or Officer or an Affiliate, or a director or officer
of a Member. Notwithstanding the foregoing,
the indemnification rights provided in this Section 11.3 do not replace, amend
or supersede the indemnity provisions set forth in the License Agreement.


 


- 40 -

















 


11.4         Insurance.


 


The Company may purchase and maintain insurance on
behalf of any Person who is or was a Member, Director, Officer, employee or
agent of the Company, or is or was serving at the request of the Company as a
manager, member, director, officer, employee or agent of another limited
liability company, corporation, partnership, joint venture, trust or other
enterprise, for any liability asserted against such Person and liability and
expenses incurred by such Person in such Person’s capacity as Member, Director,
Officer, employee or agent, or arising out of such Person’s status as such,
whether or not the Company has the authority to indemnify such Person against
such liability and expenses. Notwithstanding the
foregoing, the Company will purchase or obtain directors’ and
officers’ insurance at a level of coverage that is customary for an entity
conducting a business of similar size, with a minimum level of coverage in the
amount of $3.0 million.


 


11.5         Notice of
Indemnification and Advancement. 


 


Any indemnification of, or advancement of expenses to
an Indemnified Party in accordance with this Article 11, if arising out of
a proceeding by or on behalf of the Company, will be reported in writing to the
Members.


 


11.6         Repeal or
Modification.


 


Any repeal or modification of this Article 11
will not adversely affect any right of any indemnitee existing hereunder at the
time of such repeal or modification.


 


11.7         Indemnification by
Members.


 


(a)           Subject
to the terms and conditions of this Article 11, each Member hereby agrees
to indemnify and hold harmless the Company and each other
Member and such other Member’s respective directors, officers, employees,
members, managers, representatives or agents and stockholders (the “Company Indemnitees”) from any liability for, or to the
extent arising directly out of or based on (i) any Tax of such Member or
any subsidiary of such Member (other than the Company and its subsidiaries for
any period or portion thereof beginning after the Effective Date);  and (ii) any Third Party claim arising out of
(A) any actual or alleged death, personal bodily injury or damage to real or
tangible personal property claimed to result, directly or indirectly, from the
possession, use or consumption of, or treatment with, any miRNA Compound or
miRNA Therapeutic Developed, Manufactured and/or Commercialized by such Member,
its Affiliates or Sublicensees pursuant to a Buy-Out, regardless of the form in
which any such claim is made, (B) any actual or alleged infringement or
unauthorized use or misappropriation of any Patent Right or other intellectual
property right of a Third Party with respect to the activities of such Member,
its Affiliates or Sublicensees hereunder, (C) any breach by such Member of its
warranties or covenants under this Agreement given to the other Party seeking
indemnification hereunder, or (D) any grossly negligent act or omission, fraud
or willful misconduct of such Member or its Affiliates, or any of their
employees, contractors or agents, in performing its obligations or exercising
its rights under this Agreement; provided, however, that the foregoing
indemnity will not apply with respect to a Party and its directors, officers,
employees, members, managers, representatives or agents to the extent that any
such Losses are 


 


- 41 -

















 


(i) attributable to the gross negligence or willful misconduct of such
Party or its officers or directors or (ii) otherwise subject to an obligation
by such Party to indemnify the Member Indemnitees under Section 11.3(a).


 


(b)           A
Company Indemnitee will notify the indemnifying Member of any action, claim or
proceeding (“Claim”) for Losses in writing, and
in reasonable detail, as promptly as reasonably possible after receipt by such
Company Indemnitee of notice of such Claim; provided, however,
that failure to give such notification on a timely basis will not affect the
indemnification provided hereunder except to the extent that such indemnifying
Member will have been actually prejudiced as a result of such failure. The
indemnifying Member will assume the defense of such Claim, including the
employment of counsel reasonably satisfactory to the Company Indemnitee and the
payment of such counsel’s fees and expenses. Thereafter, the Company Indemnitee
will promptly deliver to the indemnifying Member copies of all notices and documents
received by the Indemnitee relating to such Claim.


 


(c)           The
indemnifying Member will keep the Indemnitee advised as to all material
developments in connection with any Claim, including promptly furnishing to the
Indemnitee copies of all material documents filed or served in connection
therewith. The indemnifying Member may not settle or compromise any Claim or
consent to the entry of any judgment without the Company Indemnitee’s consent
(which consent may not unreasonably be withheld), unless such settlement,
compromise or judgment involves only the payment of money damages by the
indemnifying Member (which payment is made or adequately provided for at the
time of such settlement, compromise or judgment) or provides for the
unconditional release by the claimant or plaintiff of the Company Indemnitee
and its Affiliates from all liability in respect of such Claim and does not
impose injunctive relief against any of them. The Company Indemnitee will
provide reasonable assistance to the indemnifying Member in the defense of the
Claim.


 


(d)           In the event
that the indemnifying Member, within twenty (20) Business Days after
receiving written notice of any such Claim, fails to assume the defense
thereof, the Company Indemnitee will have the right to undertake the defense,
compromise or settlement of such Claim at the expense of the indemnifying
Member.


 


(e)           If
a Company Indemnitee receives a refund or credit of Taxes or insurance benefits
for which it has been indemnified pursuant to this Section 11.7, such Company
Indemnitee agrees to pay the indemnifying Member the amount of such refund,
credit or benefits (including any interest received thereon) up to the amount
paid by the indemnifying Member to indemnify the Company Indemnitee pursuant to
this Section 11.7.


 


11.8         Limitation on
Damages.


 


(a)           Neither
any Member nor the Company will be liable to the other for any indirect,
special, incidental or consequential loss or damage or for loss of profits or
loss of use suffered by a Member or the Company arising from or relating to a
Member’s performance, non-performance, breach of or default under a covenant,
warranty, representation, term or condition hereof; and each Member and the
Company, other than with respect to a claim arising from such other Member’s
willful misconduct or fraudulent actions, waives and relinquishes claims for
indirect, special, incidental or consequential damages.


 


- 42 -

















 


(b)           The
limitations on liability and damages set out in Section 11.8(a) apply to
all causes of action that may be asserted under this Agreement, other than a
cause of action resulting from another Member’s willful misconduct or
fraudulent actions, whether sounding in breach of contract, breach of warranty,
tort, product liability, negligence or otherwise.


 


11.9         Contractual
Limitation Period. 


 


To be subject to indemnification hereunder, any
Dispute arising from this Agreement and involving the Members or the Company
must be commenced prior to the earlier of (i) the applicable statute of
limitation and (ii) the third (3rd) anniversary of the occurrence of the cause
of action giving rise to the Dispute; provided, however, that the
foregoing shall not be applicable to any Dispute under Section 11.7(a)(ii)(A).


 


ARTICLE 12


 


Inspection of Records; Annual and Other Reports; Confidentiality


 


12.1         Records to be Kept.



 


The Company will keep at its registered office:


 


(a)           A
current list of the full name and last known business, residence or mailing
address of each Member and each Director separately identifying the Members and
Directors in alphabetical order;


 


(b)           A
copy of the filed Certificate and all amendments thereto, together with
executed copies of any powers of attorney pursuant to which any document has
been executed;


 


(c)           Copies
of this Agreement, and all amendments hereto, and copies of each Ancillary
Agreement, and all amendments thereto;


 


(d)           Copies
of the Company’s federal and state income tax returns and reports;


 


(e)           Copies
of any financial statements of the Company for the [***] most recent years; and


 


(f)            The
minutes of all meetings of the Managing Board and all meetings of the Members.


 


12.2         Inspection of
Company Records.  


 


The accounting books and records, the record of
Members, and minutes of proceedings of the Members of the Company set forth in
Section 12.1 and any other information a Member is entitled to inspect
pursuant to Section 18-305 of the Act, will be open to inspection upon the
reasonable request of any Member at any reasonable time during usual business
hours, for a purpose reasonably related to such Member’s interest as a Member. Such
inspection by a Member may be made in person or by its agent or attorney, and
the right of inspection includes the right to copy and make extracts at the
inspecting Member’s expense.


 


- 43 -

















 


12.3         Reports.


 


(a)           Commencing
with respect to the period beginning on the Effective Date and ending December
31, 2007, and for each Fiscal Year during the term hereof after such interim
period, the Company will deliver or mail to each Member the audited annual
financial statements of the Company at least three (3) weeks prior to the
earliest date by which either Member is required to file its annual report on
Form 10-K for such Fiscal Year (or such earlier time as may be required by
either Member to satisfy its reporting obligations under law, including without
limitation, the rules and regulations of the SEC), which financial statements
will have been prepared in accordance with U.S. generally accepted accounting
principles and audited by the accounting firm approved by the Managing Board,
which shall be the same accounting firm appointed by the Consolidating Member.


 


(b)           Commencing
with respect to the period beginning on the Effective Date and ending on
September 30, 2007, for each fiscal quarter during the term hereof after such
interim period (other than the fourth quarter), the Company will deliver or
mail to each Member an unaudited balance sheet of the Company as at the end of
such quarter and unaudited statements of income and cash flows of the Company
for such quarter and for the current fiscal year to the end of such fiscal
quarter within fourteen (14) days after the end of each fiscal quarter of the
Company (or such earlier time as may be required by the Member to satisfy its
reporting obligations under law, including without limitation, the rules and
regulations of the SEC).


 


(c)           Commencing
with respect to the period beginning on the Effective Date and ending on
September 30, 2007, the Company will deliver to each Member an unaudited
balance sheet of the Company as at the end of such month and unaudited
statements of income and of cash flows of the Company for such month and for
the current fiscal year to the end of such month promptly following the Company’s
completion of the review of its financial statements for such month (other than
the last month of any fiscal quarter) (or such earlier time as may be required
by the Member to satisfy its reporting obligations under law, including without
limitation, the rules and regulations of the SEC).


 


(d)           The
income statements and balance sheets referred to in this Section 12.3 will
be accompanied by the report thereon, if any, of any independent accountants
engaged by the Company or by the certificate of the President that such
financial statements were prepared without audit from the books and records of
the Company.


 


12.4         Confidentiality.


 


(a)           Each
Member and the Company will, and will cause each of its Affiliates, and its and
their respective members, shareholders, directors, officers, employees,
advisors and agents (collectively, “Representatives”),
to keep secret and retain in strictest confidence, except as provided in
subsection (c) hereof, any and all Confidential Information received by it
(“Recipient”) from another Member or the
Company or their respective Affiliates or Representatives (“Disclosing Party”) and will not distribute, disseminate or
disclose a Disclosing Party’s Confidential Information, and such Recipient will
cause its Representatives not to distribute, disseminate or disclose such
Confidential Information, except to (i) the Company, (ii) any lender
to the Company, (iii) any Member or any of their respective Affiliates 


 


- 44 -

















 


or Representatives on a “need to know” basis in connection with the
transactions leading up to and contemplated by this Agreement and the operation
of the Business and the Company, which shall include disclosure to a Member’s
independent public accountants and tax and financial advisors, and who are
bound by an obligation to maintain in confidence the Confidential Information
of the Disclosing Party to the same extent as if they were parties hereto,
(iv) any other Person that agrees in writing to keep in confidence such
Confidential Information in accordance with the terms of this
Section 12.4, or (v) as permitted under the Ancillary Agreements; provided,
however, that the disclosure of financial statements of, or other
information relating to, the Company will not be deemed to be the disclosure of
Confidential Information (i) to the extent that any Member is required by
law, including without limitation, the rules and regulations promulgated by the
SEC, or GAAP to disclose such financial statements or other information;
(ii) to the extent that in order to sustain a position taken for tax
purposes, any Member deems it necessary and appropriate to disclose such
financial statements or other information or (iii) if the disclosure of
such information to a Member’s Representatives is in the ordinary course of
such Member’s business. In addition, each Party may make Permitted Disclosures
of another Party’s Confidential Information. All Confidential Information
disclosed in connection with the Company or pursuant to this Agreement will
remain the property of the Person whose property it was prior to such
disclosure.


 


(b)           In
the event that a Recipient or anyone to whom a Recipient transmits any
Confidential Information becomes legally compelled (by oral questions, interrogatories,
requests for information or documents, subpoena, investigative demand or
similar process or by rules or regulations of any securities exchange or
NASDAQ) to disclose any of the Confidential Information, such Recipient will
use its Commercially Reasonable Efforts to provide the Disclosing Party with
prompt written notice prior to disclosure (not less than 24 hours) so that the
Disclosing Party may seek a protective order or other appropriate remedy or
waive compliance with the provisions of this Agreement. In the event that such
protective order or other remedy is not obtained, or that the Disclosing Party
waives compliance with the provisions of this Section 12.4, the Recipient
who is compelled to disclose such Confidential Information will furnish only
that portion of the Confidential Information which (based on the advice of
counsel) it is legally required to disclose and will exercise its Commercially
Reasonable Efforts (but without incurring significant expense) to obtain
reliable assurance that protective treatment will be accorded the Confidential
Information.


 


(c)           No
Party will have the right to make any public announcements with respect to this
Agreement or the Ancillary Agreements, nor publicly disclose the terms of this
Agreement or the Ancillary Agreements, without the prior written consent of the
other Parties, except as follows:


 


(i)            The
Parties will issue a mutually agreed upon press release in the form attached as
Schedule 12.4.


 


(ii)           Each
Party may make subsequent disclosures of information to the same extent that
such information has been previously disclosed in accordance with this
Agreement.


 


(iii)          Each
Member may publicly file this Agreement and/or the Ancillary Agreements with
the SEC in a redacted form as mutually agreed in good faith and consistent 


 


- 45 -

















 


with custom in the
industry (provided, however, that, if such agreement is not
reached within a reasonable period of time after the Effective Date in order
for such Member to comply with law, such Member may file this Agreement and/or
the Ancillary Agreements in a redacted form reasonably determined by such
Member), and will request, and use Commercially Reasonable Efforts to obtain,
confidential treatment of all terms redacted from such redacted form of this
Agreement and the Ancillary Agreements; provided  that the
redaction of such terms is permitted by the applicable rules and regulations of
the SEC.


 


(iv)          Each
Party may disclose this Agreement and the Ancillary Agreements in whole or in
part to (i) its then-current and potential Affiliate and Third Party licensors,
collaborators and sublicensees, and (ii) its then-current and potential
investors, lenders and acquirers (and their respective legal counsel); provided
that such Persons are bound to maintain the confidentiality of this
Agreement and the Ancillary Agreements to the same extent as if they were
parties hereto.


 


(d)           Each
Member who ceases to be a Member will, and will cause its Affiliates and
Representatives to, maintain the confidentiality required by this
Section 12.4. Notwithstanding the
foregoing, if a license is granted by the Company to the Member in
connection with such Member’s ceasing to be a Member, such Member’s obligations
under this Section 12.4(d) will be deemed modified to the extent necessary
to give full effect to such license.


 


(e)           To
the fullest extent permitted by law, if a Recipient breaches, or threatens to
commit a breach of, this Section 12.4, the other Members and, in the case
of such breach, or threat to commit a breach, of this Section 12.4 by a
Member or its Affiliate or Representative, the Company will have the right and
remedy to have this Section 12.4 specifically enforced, it being
acknowledged and agreed that money damages will not provide an adequate remedy
to such other Members or the Company. Nothing in this Section 12.4 will be
construed to limit the right of any Member or the Company to collect money
damages in the event of breach of this Section 12.4.


 


ARTICLE 13


 


Miscellaneous


 


13.1         Governing Law.


 


This Agreement will in all respects be governed by and
construed in accordance with the substantive laws of the State of Delaware, without regard to its choice
of law rules.


 


13.2         Amendments.



 


Any amendment of the Certificate and this Agreement
will be in writing and be duly executed by each Member (or by the Chairperson
of the Managing Board solely with respect to conforming amendments to
Schedule 3.1) and, in the case of an amendment to the Certificate, will be
executed and filed in accordance with Section 18-202 of the Act.


 


- 46 -

















 


13.3         Nature of
Membership Interest; Agreement Is Binding upon Successors.  


 


The successors, assigns and legal representatives of
each Member will be bound by the provisions of this Agreement, including
Article 8, Article 11 and Section 12.4.


 


13.4         Seal.  


 


The President may adopt a seal of the Company in such
form as the President will decide.


 


13.5         Entire Agreement.



 


This Agreement, together with the Ancillary Agreements,
including the exhibits and schedules hereto and thereto, constitutes the entire
agreement among the Members and the Company with respect to the specific
subject matter hereof, and supersedes all prior and contemporaneous agreements,
representations, and understandings of the parties with respect to such
specific subject matter. No party hereto will be liable or bound to the other
in any manner by any warranties, representations or covenants with respect to
the subject matter hereof except as specifically set forth herein. Notwithstanding the foregoing and except as provided herein
or in any Ancillary Agreement, neither the dissolution of the Company nor the
termination of any Ancillary Agreement will have any affect on any other
agreement or contract between the Members, and the termination or cancellation
of any such other agreement or contract will have no effect on this Agreement
or any Ancillary Agreement.


 


13.6         Further Actions.



 


Each Member will execute and deliver such other
certificates, agreements and documents, and take such other actions, as may
reasonably be requested by the Company in connection with the formation of the
Company and the achievement of its purposes, including (a) any documents
that the Company deems necessary or appropriate to form, qualify or continue
the Company as a limited liability company in all jurisdictions in which the
Company conducts or plans to conduct the Business and (b) all such
agreements, certificates, tax statements and other documents as may be required
to be filed in respect of the Company.


 


13.7         Power of Attorney.



 


Each Member hereby constitutes and appoints the
President with full power of substitution, the true and lawful attorney-in-fact
and agent of such Member, to execute, acknowledge, verify, swear to, deliver,
record and file, in its or its assignee’s name, place and stead, all in
accordance with the terms of this Agreement, all instruments, documents and
certificates which may from time to time be required by the laws of the United
States of America, the State of Delaware, any other jurisdiction in which the
Company conducts or plans to conduct its affairs, or any political subdivision
or agency thereof to effectuate, implement and continue the valid existence and
affairs of the Company, including the power and authority to verify, swear to,
acknowledge, deliver, record and file:


 


(a)           all
certificates and other instruments, including any amendments to this Agreement
or to the Certificate, which the Managing Board deems appropriate to form,
qualify 


 


- 47 -

















 


or continue the Company as a limited liability company in the State of
Delaware and all other jurisdictions in which the Company conducts or plans to
conduct its affairs; and


 


(b)           certificates
of assumed name and such other certificates and instruments as may be necessary
under the fictitious or assumed name statutes from time to time in effect in
the State of Delaware and all other jurisdictions in which the Company conducts
or plans to conduct its affairs.


 


Such attorneys-in-fact and agents will not, however,
have the right, power or authority to amend or modify this Agreement when
acting in such capacities, except to the extent authorized herein. The power of
attorney granted herein will be deemed to be coupled with an interest, will
survive and not be affected by the dissolution, bankruptcy or legal disability
of the Member and will extend to its successors and assigns; and may be
exercisable by such attorney-in-fact and agent for all Members (or any of them)
by listing all (or any) of such Members required to execute any such
instrument, and executing such instrument acting as attorney-in-fact. Any
Person dealing with the Company may conclusively presume and rely upon the fact
that any instrument referred to above, executed by such attorney-in-fact and
agent, is authorized, regular and binding, without further inquiry. If
required, each Member will execute and deliver to the Company within
five (5) days after the receipt of a request therefor, such further
designations, powers of attorney or other instruments as the Company will
reasonably deem necessary for the purposes described in this Section 13.7.


 


13.8         No Third Party
Beneficiary.  


 


Nothing in this Agreement, express or implied, is
intended to confer upon any Person, other than the parties hereto, and their
respective successors and permitted assigns, the Indemnified Parties, the
Member Indemnitees and Company Indemnitees any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.


 


13.9         Notice.  


 


Except where otherwise specifically provided in this
Agreement, all notices, requests, consents, approvals and statements will be in
writing and will be deemed to have been properly given by (i) personal
delivery, (ii)  electronic facsimile transmission, (iii) electronic
mail, or by (iv) nationally recognized overnight courier service,
addressed in each case, to the intended recipient as set forth below:


 


	
  To the Company:

  	
   

  	
  Regulus
  Therapeutics LLC

  1896 Rutherford Road

  Carlsbad, California 92008

  Attention: President

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Alnylam and/or
  Isis at the addresses below

  



 


- 48 -

















 


	
  To Alnylam:

  	
   

  	
  Alnylam
  Pharmaceuticals, Inc.

  300 Third Street, 3rd Floor

  Cambridge, MA 02142

  Attention: Vice President, Legal

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  WilmerHale

  60 State Street

  Boston, MA 02109

  Attention: Steven D. Singer, Esq.

  
	
   

  	
   

  	
   

  
	
  To Isis:

  	
   

  	
  Isis
  Pharmaceuticals, Inc.

  1896 Rutherford Road

  Carlsbad, California 92008

  Attention: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Isis
  Pharmaceuticals, Inc.

  1896 Rutherford Road

  Carlsbad, California 92008

  Attn: General Counsel(fax) 760-268-4922

  



 


Such notice, request, demand, claim or other communication will be
deemed to have been duly given on (a) the date of personal delivery, (b) the
date actually received if by facsimile or electronic mail; or (c) on the third
Business Day after delivery to a nationally recognized overnight courier
service, as the case may be. Any Party may change the address to which notices,
requests, demands, claims, and other communications hereunder are to be
delivered by giving the other Parties notice in the manner herein set forth.


 


13.10       Limited Liability
Company. 


 


The Members agree to form a limited liability company
and do not intend to form a partnership or other relationship in which a Member
has or has had any interest in the business or affairs or assets of the other
Members or their Affiliates under the laws of the State of Delaware or any
other laws; provided, however, that, to the extent permitted by
law, the Company will be treated as a partnership for federal, state and local
income tax purposes. No Member is the agent of the other and no Member is
authorized to take any action on behalf of the other, except as set forth
herein or in an Ancillary Agreement.


 


13.11       Fees and Expenses.



 


Each party will pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement and each Ancillary Agreement. If any action at law or in equity
is necessary to enforce or interpret the terms of any of this Agreement or any
of the Ancillary Agreements, the prevailing party will be entitled to
reasonable attorneys’ 


 


- 49 -

















 


fees, costs and necessary disbursements in addition to any other relief
to which such party may be entitled. For purposes of this Section 13.11, “prevailing
party” means the net winner of a Dispute, taking into account the claims
pursued, the claims on which the pursuing party was successful, the amount of
money sought, the amount of money awarded, and offsets or counterclaims pursued
(successfully or unsuccessfully) by the other Party. If a written settlement
offer is rejected and the judgment or award finally obtained is equal to or
more favorable to the offeror than an offer made in writing to settle, the
offeror is deemed to be the prevailing party from the date of the offer
forward.


 


13.12       Counterparts.



 


This Agreement may be executed in two or more
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument, and will become effective
when there exist copies hereof which, when taken together, bear the authorized
signatures of each of the parties hereto. Only one such counterpart signed by
the party against whom enforceability is sought needs to be produced to
evidence the existence of this Agreement.


 


13.13       Precedence.  


 


The provisions of this Agreement will prevail over any
inconsistencies or conflicting provisions of any of the Ancillary Agreements.


 


13.14       Titles and
Subtitles; Form of Pronouns; Construction and Definitions.  


 


The titles of the Sections and paragraphs of this
Agreement are for convenience only and are not to be considered in construing
this Agreement. All pronouns used in this Agreement will be deemed to include
masculine, feminine and neuter forms, the singular number includes the plural
and the plural number includes the singular and will not be interpreted to
preclude the application of any provision of this Agreement to any individual
or entity. Unless the context otherwise requires, (i) each reference in
this Agreement to a designated “Section,” “Schedule,” “Exhibit,” or “Appendix”
is to the corresponding Section, Schedule, Exhibit, or Appendix of or to this
Agreement; (ii) the word “or” will not be applied in its exclusive sense;
(iii) ”including” will mean “including, without limitation”;
(iv) references to “$” or “dollars” will mean the lawful currency of the
United States; and (v) ”herein,” “hereof,” “hereunder” and other words of
similar import refer to this Agreement as a whole and not to any particular
Section or other subdivision. References in this Agreement to particular
sections of the Code, the Act or to any other provisions of Delaware law will
be deemed to refer to such sections or provisions as they may be amended or
succeeded after the date of this Agreement.


 


13.15       Severability.



 


If one or more provisions of this Agreement are held
by a proper court or arbitral tribunal to be unenforceable under applicable
law, the unenforceable portions of such provisions, or such provisions in their
entirety, to the extent necessary and permitted by law, will be severed
herefrom, and the balance of this Agreement will be enforceable in accordance
with its terms.


 


- 50 -

















 


13.16       Survival of Certain
Provisions.  


 


The obligations of each Member pursuant to Section 11
will survive until 30 days after the expiration of all statutes of limitation
applicable to the matters referred to therein and the obligations of the
Members pursuant to Section 12.4 will survive for a period of [***] years
following the termination of this Agreement and the winding-up, liquidation and
dissolution of the Company.


 


13.17       Survival of
Warranties.  


 


The warranties, representations and covenants of the
Company contained in or made pursuant to this Agreement will survive the
execution and delivery of this Agreement and will in no way be affected by any
investigation of the subject matter thereof made by or on behalf of a Member or
the Company.


 


13.18       Waiver of Partition.



 


Except as may otherwise be required by law in
connection with the winding-up, liquidation and dissolution of the Company in
accordance with Article 10 or the Act, each Member hereby irrevocably
waives any and all rights that it may have to maintain an action for partition
of any of the Company’s property.


 


13.19       Delaware Limited
Liability Company Act Prevails. 


 


Unless the context otherwise requires, the general
provisions, rules of construction and definitions contained in the Act and the
DGCL will govern the construction of this Agreement; provided, however,
that in the event of any inconsistency between such laws, the provisions of the
Act will prevail.


 


13.20       Specific Performance.  


 


The failure of any
party to this Agreement to perform its agreements and covenants hereunder may
cause irreparable injury to the other parties to this Agreement for which
monetary damages, even if available, will not be an adequate remedy. Accordingly,
each of the parties hereto hereby consents to the granting of equitable relief
(including specific performance and injunctive relief) by any court of
competent jurisdiction to enforce any Member’s obligations hereunder. The
parties further agree to waive any requirement for the securing or posting of
any bond in connection with the obtaining of any such equitable relief and that
this Section 13.20 is without prejudice to any other rights that the
Members and the Company hereto may have for any failure to perform this
Agreement.


 


[Remainder of page intentionally left blank]


 


- 51 -

















 


IN WITNESS WHEREOF, the Company and its Members hereby
execute this Limited Liability Company Agreement as of the date first written
above.


 


	
   

  	
  REGULUS
  THERAPEUTICS LLC,

  
	
   

  	
  a Delaware limited
  liability company

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Philip T. Chase

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Philip T. Chase

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Authorized Person

  	
   

  
						



 


 


	
   

  	
  ALNYLAM
  PHARMACEUTICALS, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Barry Greene

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Barry Greene

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  Chief Operating Officer

  	
   

  
						



 


 


	
   

  	
  ISIS
  PHARMACEUTICALS, INC.,

  
	
   

  	
  a Delaware corporation

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ B. Lynne Parshall

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  B. Lynne Parshall

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
  EVP & CFO

  	
   

  
						



 

















 


SCHEDULE 1


 


DEFINITIONS


 


“Act” has the meaning provided in the recitals of this
Agreement.


 


“Additional
Capital Contribution” has the meaning provided in Section
6.1(c).


 


“Additional
Requested Capital Contribution” has the meaning provided in
Section 6.1(d).


 


“Affected Member” has the meaning provided in the definition
of “Change in Control.”


 


“Affiliate” means, with respect to any Person, another Person
that directly or indirectly, through one or more intermediaries, controls, is
controlled by, or is under common control with such first Person. For purpose
of this definition only, “control” (and, with correlative meanings, the terms “controlled
by” and “under common control with”) means the possession, directly or indirectly,
of the power to direct the management or policies of a Person, whether through
the ownership of voting securities or by contract relating to voting rights or
corporate governance. For purposes of this Agreement, including the other
definitions set forth in this Schedule 1, (i)
the Company will not be deemed to be an Affiliate of any Member and (ii) a
Member and its Affiliates will not be considered an Affiliate of the Company.


 


“Agreement” means this Limited Liability Company Agreement,
as amended from time to time.


 


“Alnylam”
has the meaning provided in the preamble of this Agreement.


 


“Alnylam
Director” has the meaning provided in Section 4.1.


 


“Alnylam
Initial IP Contribution” has the meaning provided in Section
6.1(a).


 


“Ancillary Agreements” means the License Agreement, the
Services Agreement, the Director Consulting Agreements and the SAB Consulting
Agreements, each as amended from time to time.


 


“Approved Operating Plan” has the meaning provided in Section
5.2(c).


 


“Bankruptcy”
will mean, with respect to a Person,


 


(a)           an adjudication that it is bankrupt
or insolvent, or the entry of an order for relief under applicable bankruptcy
or any similar law;


 


(b)           the making by it of a general
assignment for the benefit of creditors;


 


(c)           the commencement by it of a voluntary
case or other proceeding seeking liquidation, reorganization or other relief
with respect to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect (other than a liquidation for tax 


 


Schedule 1


 

















 


restructuring
purposes that results in a Member’s Membership Interest being distributed to a
permitted assignee under this Agreement), or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official over it or
any substantial part of its property, or consent to any such relief or to the
appointment of or taking of possession by any such official in an involuntary
case or other proceeding commenced against it; or


 


(d)           the commencement against it of an
involuntary case or other proceeding seeking liquidation, reorganization or
other relief with respect to it or its debts under any bankruptcy, insolvency
or other similar law now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator, custodian or other similar official over it or
any substantial part of its property, such involuntary case or other proceeding
remaining undismissed or unstayed for a period of sixty (60) days.


 


“Bidding
Party” has the meaning provided in Section 9.3(e)(i).


 


“Bona
Fide Collaboration” means a collaboration (pursuant to a
written agreement) between the relevant Member or one of its Affiliates, on the
one hand, and a Third Party, on the other hand, involving the Development of
miRNA Compounds or miRNA Therapeutics in which such Member or such Affiliate
plays an integral, though not necessarily dominant or co-equal, role in the
decision-making, relating to the Development of miRNA Compounds or miRNA
Therapeutics, and which may, thereafter, involve the Commercialization of any
such miRNA Compounds and miRNA Therapeutics.


 


“Book Value” means the value of the Company’s assets less the
Company’s liabilities, all as determined in accordance with United States
Generally Accepted Accounting Principles.


 


“Business” has the meaning provided in Section 2.5.


 


“Business Day” means any day that is not a Saturday, Sunday
or other day on which commercial banks are required or authorized by law to be
closed in San Diego, California.


 


“Buy-Out” has the meaning provided in Section 9.1(a).


 


“Buy-Out
Negotiation Period” has the meaning provided in Section
9.3(a).


 


“Buy-Out Notice” has the meaning provided in Section 9.1(a).


 


“Buy-Out
Notice Period” has the meaning provided in Section 9.1(a).


 


“Buy-Out
Party” has the meaning provided in Sections 9.3(d)(vi) and
9.3(e)(vi).


 


“Buy-Out Product” means any miRNA Therapeutic that is
Developed, Manufactured or Commercialized pursuant a Research Program or
Development Project obtained by a Member pursuant to Section 9.3(d) or 9.3(e).


 


“Capital Account” has the meaning provided in
Section 6.4(a).


 


Schedule 1-2

















 


“Capital Contribution” means a contribution made to the
Company by a Member pursuant to Section 6.1 hereof and, in the case of all
of the Members, the aggregate of all of such Capital Contributions.


 


“Capital Contribution Schedule” has the meaning provided in
the definition of “Operating Plan.”


 


“Certificate”
has the meaning provided in the recitals of this Agreement.


 


“Chairperson” has the meaning provided in
Section 4.1(b).


 


“Change
of Control” means, with respect to a Member (the “Affected Member”), the earlier of (x) the public
announcement of and (y) the closing of: (a) a merger, reorganization or
consolidation involving the Affected Member in which its shareholders
immediately prior to such transaction would hold less than 50% of the
securities or other ownership or voting interests representing the equity of
the surviving entity immediately after such merger, reorganization or consolidation,
or (b) a sale to a Third Party of all or substantially all of the Affected
Member’s assets or business relating to this Agreement. Any Member will notify
each other Member within two (2) Business Days of entering into an agreement
which, if consummated, would result in a Change of Control.


 


“Claim” has the
meaning provided in Section 11.7(b).


 


“Code” means the United States Internal Revenue Code of 1986,
as amended, or any corresponding provision or provisions of any succeeding law.


 


“Collaboration
Working Group” has the meaning provided in the License
Agreement.


 


“Commercialization”
or “Commercialize” means
any and all activities directed to marketing, promoting, detailing,
distributing, importing, having imported, exporting, having exported, selling
or offering to sell a miRNA Therapeutic following receipt of Regulatory
Approval for such miRNA Therapeutic.


 


“Commercializing
Party” means the Party Manufacturing, Developing or
Commercializing a miRNA Therapeutic pursuant to a license granted under this
Agreement or under Sections 2.2 or 5.6 of the License Agreement.


 


“Commercially
Reasonable Efforts” means, reasonable, diligent, good faith
efforts to accomplish an objective as such Party would normally use to
accomplish a similar objective, under similar circumstances exercising
reasonable business judgment. With respect to the Development, Manufacturing or
Commercialization of a miRNA Therapeutic, such efforts will be substantially
equivalent to the efforts used by such Party for other products at similar
stages in their development or product life and of similar market potential,
taking into account the profile of the miRNA Therapeutic, the competitive
landscape and other relevant factors commonly considered in similar
circumstances. For all Parties the level of effort will be at least that of a
typical medium sized biopharmaceutical company.


 


“Company” has the meaning provided in the preamble of this
Agreement.


 


Schedule 1-3

















 


“Company
Indemnitees” has the meaning provided
in Section 11.7(a).


 


“Company
Intellectual Property” means all Company Know-How and Company
Patent Rights.


 


“Company
Know-How” means all Know-How conceived and/or developed by or
on behalf of the Company (including by employees of a Member or its Affiliates
in performance of the Services Agreement), or over which the Company otherwise
acquires Control, including but not limited to any Know-How assigned to the
Company by a Member, but specifically excluding Licensed IP.


 


“Company
Patent Rights” means any Patent Right claiming an invention
conceived and/or developed by or on behalf of the Company (including by
employees of a Member or its Affiliates in performance of the Services
Agreement), or over which the Company otherwise acquires Control, including but
not limited to any Patent Right assigned to Company by a Member, but
specifically excluding Licensed IP.


 


“Company Work Product” means all (i) Work Product conceived
or developed solely by the Company (or by the employees, consultants or representatives)
and (ii) any Intellectual Property conceived, authored or developed under or
pursuant to an Ancillary Agreement and owned or made the property of Company by
such Ancillary Agreement, in each case to the extent of Company’s interest
therein.


 


“Confidential Information” means, with respect to a Party,
information which is (i) of a confidential and proprietary nature; and (ii) not
readily available to that Party’s competitors and which, if known by a
competitor of that Party, might lessen any competitive advantage of that Party
or give such competitor a competitive advantage. Once a Member obtains an
exclusive license, pursuant to Company Know-How, such Company Know-How will be
considered Confidential Information (to the extent such Know-How otherwise is
considered confidential herein) of such Member, rather than of the Company. The
terms of this Agreement and each Ancillary Agreement will be Confidential
Information of each Party.


 


Notwithstanding the foregoing, information
of a Party will not be deemed Confidential Information to the extent that the
receiving Party can show by competent proof that such information:


 


(a)           was already known to the receiving
Party, prior to the time of disclosure to such receiving Party pursuant to this
Agreement;


 


(b)           is generally available in the public
domain through no fault of the receiving Party or its Affiliates, or is known
to Persons reasonably skilled in the field to which such information pertains;


 


(c)           was disclosed to such receiving Party
by a Third Party lawfully in possession thereof; or


 


Schedule 1-4

















 


(d)           was independently discovered or
developed by employees or (sub)contractors of the receiving Party or any
of its Affiliates, without the aid, application or use of Confidential
Information of the disclosing Party.


 


“Consolidating Member” has the meaning provided in Section 7.3(b).


 


“Contesting Party” has the meaning provided in Section 9.3(e)(i).


 


“Control”
means, with respect to any Intellectual Property right, the possession of the
right (whether by ownership, license or otherwise) to assign, or grant a
license, sublicense or other right to or under, such Intellectual Property
right as provided for herein without violating the terms of any agreement or other
arrangement with any Third Party; provided, however, that neither
Member will be deemed to Control Company Intellectual Property and no Party
other than the relevant Member shall be deemed to Control such Member’s
Licensed IP.


 


“Counterbidding
Party” has the meaning provided in Section 9.3(e)(ii).


 


“Covered”
means, (a) with respect to a patent, that, in the absence of a license granted
to a Person under a Valid Claim included in such patent, the practice by such
Person of an invention claimed in such patent would infringe such Valid Claim,
or (b) with respect to a patent application, that, in the absence of a license
granted to a Person under a Valid Claim included in such patent application,
the practice by such Person of an invention claimed in such patent application
would infringe such Valid Claim if it were to issue as a patent.


 


“Defaulting Party” has the meaning provided in
Section 6.1(e).


 


“Develop”
or “Development”
means, with respect to a miRNA Compound or miRNA Therapeutic, any discovery,
characterization, preclinical or clinical activity with respect to such miRNA
Compound or miRNA Therapeutic, including human clinical trials conducted after
Regulatory Approval of such miRNA Therapeutic to seek Regulatory Approval for
additional Indications for such miRNA Therapeutic.


 


“Development Plan” has the meaning provided in the definition
of “Operating Plan.”


 


“Development
Project” means a Research Program for which the Company’s
Officers and Managing Board agree there exists a sufficient portfolio of data
to support the initiation of [***] on a miRNA Compound drug candidate targeting
such miRNA.


 


“DGCL”
means the Delaware General Corporation Law, 8 Del. Code Sec. 101 et seq.


 


“Director” has the meaning provided in Section 4.1(a).


 


“Director
Consulting Agreement” has the meaning provided in Section
4.5(c).


 


“Disclosing Party” has the meaning provided in
Section 12.4(a).


 


“Dispute” means any dispute,
controversy or claim concerning the validity, interpretation, scope,
performance or enforceability of one or more provisions of this Agreement 


 


Schedule 1-5

















 


or any
Ancillary Agreement; provided, however, that a difference of
opinion concerning a choice among one or more business alternatives, including
a matter subject to a vote by the Members or the Managing Board (but not
concerning the legal consequences under this Agreement or any Ancillary
Agreement of such choice or vote once made), in the operation or management of
any aspect of the Company or its business that does not involve the
interpretation of any provision of this Agreement or any Ancillary Agreement
but involves only a disagreement between optimal and suboptimal decisions will
not be a “Dispute.”


 


“Distributee
Member” has the meaning provided in Section 10.8(c)(i).


 


“Distributed
IP” has the meaning provided in Section 9.3(b).


 


“Distribution Date” has the meaning provided in
Section 10.3.


 


“Effective Date” means the date set forth in the preamble of
this Agreement.


 


“Exclusivity
Period” means, with respect to a Royalty-Bearing Product in a
country, that period of time beginning with the first commercial sale of such
Royalty-Bearing Product in such country and ending on the later to expire of
(1) the time during which the applicable Regulatory Authority in such country
is not permitted to grant Regulatory Approval for a generic equivalent of such
Royalty-Bearing Product and (2) the last Valid Claim of the Patent Rights under
the Licensed IP and/or Regulus IP licensed to the relevant Commercializing Party
pursuant to the License Agreement or this Agreement Covering (i) the
Manufacture of such Royalty-Bearing Product in such country, or (ii) the use,
sale or other Commercialization of such Royalty-Bearing Product in such
country.


 


“Fair Market Value” means, with respect to any property, as
of the date of determination, the cash price at which a willing buyer would buy
and a willing seller would sell, each being apprised of all relevant facts and
neither acting under compulsion, such property in an arm’s length, negotiated
transaction with an unaffiliated third party without time constraints,
determined according to the procedure set forth below. The Members will
mutually select an independent expert who will provide a written determination
of the requested valuation and such valuation will be binding upon the parties.
If the Members fail to agree on an independent expert within [***] days of the
delivery of the request for valuation, each of the Members will select an
independent expert by written notice to the other Members. The independent
experts so selected will meet and confer and attempt to agree on a valuation. If
they reach such agreement, their written determination will be binding on the
Members. If the independent experts are unable to agree upon a valuation within
[***] days of their appointment, and the highest valuation is less than [***]
percent ([***]%) of the lowest valuation, the valuation will be deemed to be
the average of the valuations and such valuation will be binding on the Members.
If the independent experts are unable to agree within [***] days of their
appointment, and the highest valuation is greater than [***] percent ([***]%)
of the lowest valuation, the independent experts will, within [***] days
following expiration of such [***]-day period, select an additional independent
expert. If the first independent experts cannot agree on an additional
independent expert within such [***] day period, the additional independent
expert will be designated by the independent certified public accountants of
the Company. The additional independent expert will meet and confer with the
first independent experts, but the decision of the independent expert whose 


 


Schedule 1-6

















 


valuation
was the median amount will be binding on the Members. Such decision will be
delivered in writing and state the reasons supporting it.


 


“FDA”
means the United States Food and Drug Administration or any successor agency
thereto.


 


“Field”
means treatment and/or prophylaxis of any or all Indications.


 


“Fiscal Year” means the annual accounting period of the
Company, which is the twelve (12) months ended on December 31.


 


“First
Selection Right Bid” has the meaning provided in Section
9.3(d).


 


“Future
Operating Plan Contributions” has the meaning provided in
Section 6.1(c).


 


“GLP” means
the then-current good laboratory practice standards promulgated or endorsed by
the FDA as defined in 21 C.F.R., Part 58, and comparable foreign regulatory
standards.


 


“[***]” means
a [***].


 


“Indemnified Party” has the meaning provided in
Section 11.2.


 


“Independent
Director” means a Director who is not an (i) Affiliate,
director or officer of, or an immediate family member of, any director or
officer of the Member designating such Director, or (ii) an Officer or employee
of, or immediate family member of any Officer or employee of, the Company.


 


“Indication”
means any disease or condition, or sign or symptom of a disease or condition,
or symptom associated with a disease or syndrome.


 


“Initial
Approved Operating Plan” means the operating plan attached
hereto as Exhibit A.


 


“Initial
Capital Contributions Schedule” means the schedule of capital
contributions included in the Initial Approved Operating Plan, attached as
Exhibit A.


 


“Initial
Commitment Period” has the meaning provided in Section 5.2.


 


“Initial
Operating Plan” has the meaning provided in Section 5.2.


 


“Initial
Operating Plan Contributions” has the meaning provided in
Section 6.1(c).


 


“Initiating
Member” has the meaning provided in Section 9.1(a).


 


“Intellectual Property” means all patents and patent rights,
copyrights and copyright rights (including moral rights and rights in music,
audio, visual and audiovisual works), trademarks and trademark rights (and
related intellectual property such as service marks and trade dress and rights
therein), trade secrets and trade secret rights, mask works and other designs 


 


Schedule 1-7

















 


and
design rights, proprietary rights, confidentiality rights and any and all other
intellectual property and intellectual property rights recognized by the law of
the applicable jurisdiction.


 


“Isis” has
the meaning provided in the preamble of this Agreement.


 


“Isis
Director” has the meaning provided in Section 4.1.


 


“Isis
Initial IP Contribution” has the meaning provided in Section
6.1(b).


 


“Joint
Venture” has the meaning provided in the recitals of this
Agreement.


 


“Know-How”
means any information, inventions, trade secrets or technology (excluding
Patent Rights), whether or not proprietary or patentable and whether stored or
transmitted in oral, documentary, electronic or other form. Know-How includes
ideas, concepts, formulas, methods, procedures, designs, compositions, plans,
documents, data, discoveries, developments, techniques, protocols,
specifications, works of authorship, biological materials, and any information
relating to research and development plans, experiments, results, compounds,
therapeutic leads, candidates and products, clinical and preclinical data, clinical
trial results, and Manufacturing information and plans.


 


“License
Agreement” means that certain License and Collaboration
Agreement by and among the Company, Alnylam and Isis dated the Effective Date,
as amended from time to time.


 


“Licensed
IP” means, with respect to a Licensor, such Licensor’s
Licensed Know-How and Licensed Patent Rights.


 


“Licensed
Know-How” means, with respect to a Member, all Know-How
Controlled by such Member on the Effective Date or during the term of the
License Agreement (except as otherwise expressly provided therein) that relates
to (a) miRNA Compounds or miRNA Therapeutics in general, (b) specific miRNA
Compounds or miRNA Therapeutics, (c) chemistry or delivery of miRNA Compounds
or miRNA Therapeutics, (d) mechanism(s) of action by which a miRNA Antagonist
directly prevents the production of a specific miRNA or (e) methods of treating
an Indication by modulating one or more miRNAs; provided, however
that in each case, (i)  for any such
Know-How that include financial or other obligations to a Third Party, the
provisions of Section 2.4 of the License Agreement will govern whether such
Know-How will be included as Licensed Know-How and (ii) Licensed Know-How does
not include manufacturing technology (including but not limited to analytical
methods).


 


“Licensed
Patent Rights” means, with respect to a Member, (A) all
Patent Rights Controlled by such Member on the Effective Date and listed on Schedule 2.2(A) to the License Agreement and (B) all Patent
Rights Controlled by such Member during the term of the License Agreement
(except as otherwise expressly provided therein) that claim (a) miRNA Compounds
or miRNA Therapeutics in general, (b) specific miRNA Compounds or miRNA
Therapeutics, (c) chemistry or delivery of miRNA Compounds or miRNA
Therapeutics, (d) mechanism(s) of action by which a miRNA Antagonist  directly prevents the production of the specific miRNA, or
(e) methods of treating an Indication by modulating one or more miRNAs; provided,
however, that in each case, (i) for any such Patent Rights that include
financial or other obligations to a Third Party, the provisions of Section 2.4
of the License Agreement will govern whether such 


 


Schedule 1-8

















 


Patent
Right will be included as a Licensed Patent Right and (ii) Licensed Patent
Rights do not include manufacturing technology (including but not limited to
analytical methods).


 


“Losses” means all liabilities, obligations, losses, damages, penalties,
actions, judgments, taxes, suits, proceedings, charges, costs, expenses and
disbursements of any kind or nature whatsoever (including reasonable attorneys’
fees, costs of investigation, fines, judgments, awards and amounts paid in
settlement, actually incurred in connection with such an action, suit or
proceeding).


 


“Major Decisions” has the meaning provided in Section
4.3.


 


“Managing Board”
has the meaning provided in Section 4.1.


 


“Manufacture”
or “Manufacturing” means any activity
involved in or relating to the manufacturing, quality control testing
(including in-process, release and stability testing), releasing or packaging,
for pre-clinical, clinical or commercial purposes, of a miRNA Compound or a
miRNA Therapeutic.


 


“Member” will mean, as of the Effective Date, each of Alnylam
or Isis, and will include thereafter their respective successors and permitted
assigns, and any other members admitted in accordance with Section 8.3.


 


“Member
Indemnitee” has the meaning provided in Section 11.3(a).


 


“Membership Interest” means the ownership interest of a
Member in the Company, including a Member’s right to share in Company items of
income, gain, loss, deduction, credits and similar items, and the right to
receive distributions from the Company, as well as a Member’s right to vote and
otherwise participate in the operation or affairs of the Company, all as
provided herein and under the Act and the Certificate.


 


“miRNA”
means a structurally defined functional RNA molecule usually between 21 and 25
nucleotides in length, which is derived from genetically-encoded non-coding RNA
which is predicted to be processed into a hairpin RNA structure that is a
substrate for the double-stranded RNA-specific ribonuclease Drosha and
subsequently is predicted to serve as a substrate for the enzyme Dicer, a member
of the RNase III enzyme family; including, without limitation, those miRNAs
exemplified in miRBase (http://microrna.sanger.ac.uk/). To the extent that
[***] for purposes of this Agreement; provided, however, that
nothing contained herein shall require any Party hereto to [***].


 


“miRNA
Antagonist” means a single-stranded oligonucleotide (or
single-stranded analogs thereof) that is designed to interfere with or inhibit
a particular miRNA. For purposes of clarity, the definition of “miRNA
Antagonist” is not intended to include oligonucleotides that function
predominantly through the RNAi mechanism of action or the RNase H mechanism of
action.


 


“miRNA
Compound” means a compound consisting of (a) a miRNA
Antagonist, (b) to the extent listed in Schedule 1.58 of the License Agreement
or otherwise agreed upon by the Company and the relevant Member(s) pursuant to
Section 2.2(b) of the License Agreement, a 


 


Schedule 1-9

















 


miRNA
Precursor Antagonist (an “Approved Precursor
Antagonist”), or (c) to the extent agreed upon by Regulus and the
relevant Licensor(s) pursuant to Section 2.2(b) of the License Agreement, a
miRNA Mimic (an “Approved Mimic”).


 


“miRNA
Mimic” means a double-stranded or single-stranded oligonucleotide
or analog thereof with a substantially similar base composition  as a particular miRNA and which is designed to mimic the
activity of such miRNA.


 


“miRNA
Precursor” means a transcript that originates from a genomic
DNA and that contains, but not necessarily exclusively, a non-coding,
structured RNA comprising one or more mature miRNA sequences, including,
without limitation, (a) polycistronic transcripts comprising more than one
miRNA sequence, (b) miRNA clusters comprising more than one miRNA sequence, (c)
pri-miRNAs, and/or (d) pre-miRNAs.


 


“miRNA
Precursor Antagonist” means a single-stranded oligonucleotide
(or single-stranded analogs thereof) that is designed to bind to a miRNA
Precursor to prevent the production of one or more miRNAs. For purposes of
clarity, the definition of “miRNA Precursor Antagonist” is not intended to
include oligonucleotides that function predominantly through the RNAi mechanism
of action or the RNase H mechanism of action.


 


 “miRNA Therapeutic” means a
therapeutic product having one or more miRNA Compounds as an active
ingredient(s).


 


“NDA” means
a New Drug Application or similar application or submission for approval to
market and sell a new pharmaceutical product filed with or submitted to a
Regulatory Authority.


 


“Net
Sales” means, with respect to a Royalty-Bearing Product, the
gross invoice price of all units of such Royalty-Bearing Products sold by the
relevant Commercializing Party, its Affiliates and/or their direct Sublicensees
to any Third Party, less the following items: 
(a) trade discounts, credits or allowances, (b) credits or allowances
additionally granted upon returns, rejections or recalls, (c) freight, shipping
and insurance charges, (d) taxes, duties or other governmental tariffs (other
than income taxes), (e) government-mandated rebates, and (f) a reasonable
reserve for bad debts. “Net Sales” under the following circumstances will mean
the fair market value of such Royalty-Bearing Product:  (i) Royalty-Bearing Products which are used
by such Commercializing Party, its Affiliates or direct Sublicensees for any
commercial purpose without charge or provision of invoice, (ii) Royalty-Bearing
Products which are sold or disposed of in whole or in part for non cash
consideration, or (iii) Royalty-Bearing Products which are provided to a Third
Party by such Commercializing Party, its Affiliates or direct Sublicensees
without charge or provision of invoice and used by such Third Party except in
the cases of Royalty-Bearing Products used to conduct clinical trials, reasonable
amounts of Royalty-Bearing Products used as marketing samples and
Royalty-Bearing Product provided without charge for compassionate or similar
uses.


 


Net Sales will not include any transfer between or
among a Party and any of its Affiliates or direct Sublicensees for resale.


 


Schedule 1-10
















 


In the event a Royalty-Bearing Product is sold as part
of a Combination Product (as defined below), the Net Sales from the Combination
Product, for the purposes of determining royalty payments, will be determined
by multiplying the Net Sales (as determined without reference to this
paragraph) of the Combination Product, by the fraction, A/A+B, where A is the
average sale price of the Royalty-Bearing Product when sold separately in
finished form and B is the average sale price of the other therapeutically active
pharmaceutical compound(s) included in the Combination Product when sold
separately in finished form, each during the applicable royalty period or, if
sales of all compounds did not occur in such period, then in the most recent
royalty reporting period in which sales of all occurred. In the event that such
average sale price cannot be determined for both the Royalty-Bearing Product
and all other therapeutically active pharmaceutical compounds included in the
Combination Product, Net Sales for the purposes of determining royalty payments
will be calculated as above, but the average sales price in the above equation
will be replaced by a good faith estimate of the fair market value of the
compound(s) for which no such price exists. As used above, the term “Combination Product” means any pharmaceutical product which
consists of a Royalty-Bearing Product and other therapeutically active
pharmaceutical compound(s).


 


“Non-Defaulting Party” has the meaning provided in
Section 6.1(h).


 


“Observer Rights” has the meaning provided in
Section 4.1(c).


 


“Officer” has the meaning provided in
Section 5.1(b).


 


“Operating Budget” has the meaning provided in the definition
of “Operating Plan.”


 


“Operating Plan” means the comprehensive “Joint Venture
Business Plan” developed in support of the creation of the Company. The
Operating Plan will include a Development Plan, an Operating Budget and a
Capital Contribution Schedule, all as described below:


 


(a)           The Development Plan (the “Development Plan”) will reflect the research and development
activities to be carried out by the Company for the applicable period set forth
in the Operating Plan.


 


(b)           The Operating Budget (the “Operating Budget”) will include monthly income statements,
balance sheets and capital budgets and cash flow statements which will show in
reasonable detail the receipts (including the anticipated distributions and
disbursements to the Members) projected for the Company for such period and the
amount of any corresponding cash deficiency or surplus, if any. The Operating
Budget will be the basis for the creation and subsequent revisions of the
Capital Contribution Schedule.


 


(c)           The Capital Contribution Schedule
(the “Capital Contribution Schedule”) will
forecast the cash surplus or deficit of the Company as determined by the
Operating Budget, and forecast the cash requirements of the Company, all on a
monthly basis for a one year period (except with respect to the initial Capital
Contribution Schedule, as to which the period will be from the Effective Date
through [***]).


 


“Operating
Plan Contributions” has the meaning provided in Section
6.1(c).


 


Schedule 1-11

















 


“Opt-In
Election” means the election by at least one Member, pursuant
to the License Agreement, to continue to pursue the Development and
Commercialization of a Development Project that the Company has determined not
to pursue.


 


“Opt-In
Party” means the single Member which, pursuant to an Opt-In
Election, is granted the right, pursuant to the License Agreement to continue
to pursue the Development and Commercialization of a Development Project that
the Company has determined not to pursue.


 


“Opt-In
Product” means any miRNA Therapeutic that is Developed,
Manufactured or  Commercialized pursuant
to a Development Project for which one and only one Member has exercised an
Opt-In Election and which the relevant Opt-In Party subsequently licensed.


 


“Option
Value” means the value of the relevant stock options, as
determined based on the method and assumptions then used by the relevant Member
to value stock options for financial reporting purposes.


 


“Partial Transfer” has the meaning provided in
Section 8.2(c).


 


“Parties”
means Alnylam, Isis and the Company, or any combination thereof.


 


“Party”
means Alnylam, Isis or the Company.


 


“Patent
Rights” means (a) patent applications (including provisional
applications and for certificates of invention); (b) any patents issuing from
such patent applications (including certificates of invention); (c) all patents
and patent applications based on, corresponding to, or claiming the priority
date(s) of any of the foregoing; and (d) any substitutions, extensions
(including supplemental protection certificates), registrations, confirmations,
reissues, divisionals, continuations, continuations-in-part, re-examinations,
renewals and foreign counterparts thereof.


 


“Percentage Interest” means the respective Percentage
Interests of the Members as indicated on Schedule 3.1
hereto.


 


“Permitted
Disclosures”. The following are Permitted Disclosures:


 


(a)           To
the extent that a Recipient has been granted the right to sublicense under the
terms of this Agreement, such Party will have the right to provide a Disclosing
Party’s Confidential Information to the employees, consultants and advisors of
such Recipient’s Affiliate and Third Party sublicensees and potential
sublicensees who have a need to know the Confidential Information for purposes
of exercising such sublicense and are bound by an obligation to maintain in
confidence the Confidential Information of the Disclosing Party; provided,
that such Persons are bound to maintain the confidentiality of such information
to the same extent as if they were parties hereto.


 


(b)           Each
Recipient will have the right to provide a Disclosing Party’s Confidential
Information:


 


Schedule 1-12

















 


(i)            to
governmental or other regulatory agencies in order to seek or obtain patents,
to seek or obtain approval to conduct clinical trials, or to gain Regulatory
Approval, as contemplated by this Agreement; provided  that such
disclosure may be made only to the extent reasonably necessary to seek or
obtain such patents or approvals; and


 


(ii)           as
necessary, if embodied in products, to develop and commercialize such products
as contemplated by this Agreement.


 


“Permitted
License” means a license granted by a Licensor to a Third
Party to enable such Third Party to broadly manufacture or formulate
oligonucleotides, where such Third Party is primarily engaged in [***] and is
not engaged in [***]; provided, however, that any such license
will not grant rights to research, manufacture or formulate miRNA Compounds or
miRNA Therapeutics for which the other Licensor has obtained or later obtains a
license pursuant to Section 5 of the License Agreement or pursuant to a
Buy-Out.


 


“Person” means a natural person, company, corporation,
partnership, trust or other organization or legal entity of any type, whether
or not formally organized.


 


“Post
Buy-Out Activities” has the meaning provided in Section
9.3(f).


 


“Prevailing Party” has the meaning provided in Section 12.11.


 


“Program/Project
Compound” means, with respect to a Research Program or
Development Project, any miRNA Compound directed to the miRNA(s) which is the
focus of such Research Program or Development Project.


 


“Program/Project
List” means the list, which the Company is required to
maintain pursuant to the License Agreement, specifying the Company’s Research
Programs and Development Projects.


 


“Project
Bid” has the meaning provided in Section 9.3(e)(i).


 


“Proposed Capital Contribution Schedule” has the meaning
provided in Section 5.2(b).


 


“Proposed Development Plan” has the meaning provided in
Section 5.2(b).


 


“Proposed Operating Budget” has the meaning provided in
Section 5.2(b).


 


“Proposed Business Plan” has the meaning provided in Section
5.2(b).


 


“Qualified
Third Party” has the meaning provided in Section 9.3(e)(v).


 


“Receiving
Member” has the meaning provided in Section 10.7.


 


“Recipient” has the meaning provided in Section 12.4(a).


 


“Registered
Intellectual Property” has the meaning provided in Section
10.8(d).


 


Schedule 1-13

















 


“Regulatory
Approval” means the act of a Regulatory Authority necessary
for the marketing and sale (including, if required for marketing and sales,
pricing) of such product in a country or regulatory jurisdiction, including,
without limitation, the approval of an NDA by the FDA.


 


“Regulatory
Authority” means any applicable government regulatory
authority involved in granting approvals for the marketing and/or pricing of a
product in a country or regulatory jurisdiction including, without limitation,
the FDA.


 


“Representatives”
has the meaning provided in Section 12.4(a).


 


“Required
Additional Capital Contribution” has the meaning provided in
Section 6.1(e).


 


“Research
Program” means a program for which discovery or
characterization activities focused on one or more specific miRNA(s) have
commenced after preliminary validation of the biological function of such miRNA(s)
have been identified (i.e., compound discovery, not target validation) and will
include all activities with respect to the Development, Manufacturing and
Commercialization of miRNA Compounds and miRNA Therapeutics directed to such
miRNA(s).


 


“Reserves” means the reserves established and maintained from
time to time by the Managing Board to pay taxes, fees, insurance or other costs
and expenses incident to the Company’s business.


 


“Royalty-Bearing
Product” means (a) an Opt-In Product or (b) a Buy-Out Product
that, on a country-by-country basis, is, or the relevant Buy-Out Party
reasonably believes will be, at the time of first commercial sale of such
Buy-Out Product, Covered in such country by a Valid Claim of a Patent Right or
covered by Know-How, which Patent Right or Know-How is licensed to the
applicable Buy-Out hereunder.


 


“Royalty
Term” means, with respect to each Royalty-Bearing Product in
a country, the period commencing upon first commercial sale of such
Royalty-Bearing Product in such country and ending upon the later of (a) the
expiration of the Exclusivity Period, or (b) 10 years following first
commercial sale of such Royalty-Bearing Product.


 


“SAB”
has the meaning provided in Section 5.3.


 


“SAB
Consulting Agreement” has the meaning provided in Section
5.3(b).


 


“Sale”
has the meaning provided in Section 9.2.


 


“Sale
Agreement” has the meaning provided in Section 9.2.


 


“SEC”
means the United States Securities and Exchange Commission.


 


“Selected
Program” has the meaning provided in Section 9.3(d)(ii).


 


Schedule 1-14

















 


“Services
Agreement” means that certain Services Agreement by and
between the Company, Alnylam and Isis dated the Effective Date, as amended from
time to time.


 


“Stalemate”
has the meaning provided in Section 5.2.


 


“Sublicensee”
means a Third Party to whom a Party or its Affiliates or Sublicensees, has
granted a sublicense in accordance with the terms of the License Agreement or
this Agreement.


 


“Tax” and “Taxes” means
any and all national, local and foreign taxes, assessment and other
governmental charges, duties, impositions and liabilities including taxes based
upon or measured by gross receipts, income, profits, sales, use or occupation,
and value added, ad valorem, transfer, franchise, withholding, payroll,
recapture, employment, excise and property taxes, together with all interest,
penalties and additions imposed with respect to such amounts.


 


“Tax Distribution” has the meaning provided in
Section 7.2(a)(i).


 


“Tax Distribution Date” has the meaning provided in
Section 7.2(a)(iii).


 


“Tax
Matters Partner” has the meaning provided in Section 7.7.


 


“Terminated Director” has the meaning provided in Section
4.7(b).


 


“Third
Party” means any Person other than the Members or any of
their Affiliates.


 


“Third
Party Contracts” has the meaning provided in Section 9.3(a).


 


“Third
Party Rights” has the meaning ascribed to it in the License
Agreement.


 


“Transfer” has the meaning provided in Section 8.1(a).


 


“Transfer Taxes” has the meaning provided in Section 6.1(i).


 


“Transferring Member” has the meaning provided in
Section 8.2(a).


 


“Valid
Claim” means a claim (a) of any issued, unexpired patent that
has not been revoked or held unenforceable or invalid by a decision of a court
or governmental agency of competent jurisdiction from which no appeal can be
taken, or with respect to which an appeal is not taken within the time allowed
for appeal, and that has not been disclaimed or admitted to be invalid or
unenforceable through reissue, disclaimer or otherwise; or (b) of any patent
application that has not been cancelled, withdrawn or abandoned, or been
pending for more than [***] years.


 


Schedule 1-15

















 


SCHEDULE
2


 


REPRESENTATIONS
AND WARRANTIES OF


EACH
MEMBER TO THE OTHER MEMBER AND THE COMPANY


 


1.             Such Member is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation, and has all corporate powers and all
material licenses, authorizations, consents and approvals required to enter
into and perform this Agreement, each of the Ancillary Agreements to which it
is a party, and the transactions contemplated hereby and thereby.


 


2.             The execution, delivery and
performance by such Member of this Agreement and each of the Ancillary
Agreements to which it is a party, and the consummation by such Member of the
transactions contemplated hereby and thereby, are within such Member’s
corporate powers and have been duly authorized by all necessary corporate action
on the part of such Member. This Agreement and each of the Ancillary Agreements
to which it is a party have been duly executed and delivered by, and constitute
the legal, valid and binding agreement of such Member, enforceable against such
Member in accordance with their respective terms, subject to bankruptcy,
insolvency, reorganization, moratorium or similar laws affecting the rights of
creditors generally and to equitable principles.


 


3.             The execution, delivery and
performance by such Member of this Agreement and the Ancillary Agreements to
which it is a party do not require any notice to, action or consent by, or in
respect of, or filing with, any governmental authority.


 


4.             The execution, delivery and
performance by such Member of this Agreement and each of the Ancillary
Agreements to which it is a party do not (i) contravene or conflict with the
organizational or constitutional documents of such Member; (ii) contravene or
conflict with or constitute a violation of any provision of any law, rule or regulation
binding upon or applicable to such Member; (iii) contravene or conflict with or
constitute a violation of any judgment, injunction, order or decree binding
upon or applicable to such Member; (iv) constitute a default under or give rise
to any right of termination, cancellation or acceleration of any right or
obligation of such Member; or (v) require the consent or permission of any
Person.


 


5.             There is no action, suit,
investigation or proceeding pending or, to the knowledge of such Member, threatened
before any governmental authority to which such Member is a party that would
materially and adversely affect such Member’s ability to perform its
obligations under this Agreement and each of the Ancillary Agreements to which
it is a party.


 


Schedule 2

















 


SCHEDULE 3.1


 


SCHEDULE OF MEMBERS


 


Names and Addresses, Initial Percentage Interests
and Capital Account Balances


 


	
  Name and Address
  of Member

  	
   

  	
  Percentage Interest

  	
   

  	
  Capital Account Balance

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Alnylam
  Pharmaceuticals, Inc. 

  300 Third Street, 3rd Floor 

  Cambridge, MA 02142

  	
   

  	
  [***]%

  	
   

  	
  $[***]

  
	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Isis
  Pharmaceuticals, Inc. 

  1896 Rutherford Road 

  Carlsbad, California 92008

  	
   

  	
  [***]%

  	
   

  	
  $[***]

  



 


Schedule 3.1

















 


SCHEDULE 4.5


 


FORM OF CONSULTING AGREEMENT


 


This
Consulting Agreement (together with its attachments, this “Agreement”) made as
of  [DATE] (the “Effective Date”) is
between Alnylam Pharmaceuticals, Inc. (“Alnylam”), Isis Pharmaceuticals Inc. (“Isis”),
Regulus Therapeutics, LLC (“Regulus”) and [NAME] (“Consultant”). Alnylam, Isis,
Regulus, and Consultant may each be referred to herein as a “Party” and
collectively as the “Parties”.


 


WHEREAS,
Alnylam and Isis have combined to form Regulus, and are the sole stockholders
of Regulus; and


 


WHERAS,
Consultant has agreed to serve on the Scientific Advisory Board of Regulus; and


 


WHEREAS,
Alnylam, Isis and Regulus each desire that Consultant advise them independently
with respect to microRNA technology and the business and strategy of developing
microRNA products, and Consultant desires to so advise Alnylam, Isis and
Regulus; and


 


NOW,
THEREFORE, in furtherance of the foregoing and in exchange for good and
valuable consideration, the sufficiency of which is hereby acknowledged, the
Parties hereby agree as follows:


 


1.                                      Advisory Services. Alnylam, Isis and Regulus (collectively, the “Engaging
Parties”) each independently
hereby retains Consultant and Consultant agrees to provide consulting and
advisory services to each Engaging Party (the “Advisory Services”) as it may
from time to time reasonably request; provided, however, that Consultant shall
provide only advisory and educational services for Alnylam and Isis, and that
any work performed by Consultant that could reasonably be expected to lead to
the creation of intellectual property pursuant hereto shall only be performed
by Consultant on behalf of Regulus and not on behalf of Alnylam or Isis. Any
changes to the Advisory Services (and any related compensation adjustments)
must be agreed upon in writing between Consultant and the Engaging Parties
prior to commencement of the changes.


 


1.1                               Performance.
Consultant agrees to render the Advisory Services to each Engaging Party, (a)
at such reasonably convenient times
and places as such Engaging Party may direct, (b) under the general supervision
of such Engaging Party, and (c) on a best efforts basis; provided, however,
that in the event of logistical conflict between the Engaging Parties, the
Engaging Parties shall be responsible for coordinating among themselves without
liability to Consultant. Consultant will comply with all rules, procedures and
standards promulgated from time to time by an Engaging Party with regard to
Consultant’s access to and use of such Engaging Party’s property, information,
equipment and facilities. Consultant agrees to furnish each Engaging Party with
written reports with respect to the Advisory Services if and when requested by
such Engaging Party.


 


Schedule 4.5

















 


1.2                               Third Party Confidential
Information. Consultant
agrees not to use any trade secrets or other confidential information of any
other person, firm, corporation, institution or other entity in connection with
any of the Advisory Services.


 


1.3                               No Conflicts. Consultant is under no contractual or other
obligation or restriction which is inconsistent with Consultant’s execution of
this Agreement or the performance of the Advisory Services. Consultant will not
enter into any agreement, either written or oral, in conflict with Consultant’s
obligations under this Agreement. Consultant will arrange to provide the
Advisory Services in such manner and at such times that the Advisory Services
will not conflict with Consultant’s responsibilities under any other agreement,
arrangement or understanding or pursuant to any employment relationship
Consultant has at any time with any third party.


 


1.4                               Compliance with Policies. If Consultant is a faculty member at or
employee of a university or hospital (“Institution”) or of another company,
Consultant represents and warrants that (i) Consultant has a good faith belief
that such Institution will not oppose this arrangements set forth in this
Agreement and (ii) Consultant shall comply with such Institution’s policies and
procedures. If Institution’s approval of this Agreement is required by
Institution policies, Consultant will obtain and deliver to each Engaging
Party, Institution’s consent on the form attached to this Agreement.


 


1.5                               Absence of Debarment. Consultant represents that Consultant has not
been debarred, and to the best of Consultant’s knowledge, is not under
consideration to be debarred, by the U.S. Food and Drug Administration from
working in or providing Advisory Services to any pharmaceutical or
biotechnology company under the Generic Drug Enforcement Act of 1992.


 


2.                                      Compensation. In consideration for the Advisory Services
rendered by Consultant to each Engaging Party, each Engaging Party agrees to
compensate Consultant as set forth in the Business Terms Exhibit
attached hereto. Unless otherwise specified in the Business
Terms Exhibit, undisputed payments will be made by each Engaging
Party within thirty (30) days from such Engaging Party’s receipt of Consultant’s
invoice. Invoices will contain such detail as each Engaging Party may
reasonably require and will be payable in U.S. Dollars. Each Engaging Party
will reimburse Consultant for reasonable business expenses incurred by
Consultant in the performance of the Advisory Services as specified in the Business Terms Exhibit.


 


3.                                      Inventions.


 


3.1                               Definition. Consultant will promptly disclose in
confidence to each Engaging Party all inventions, discoveries, improvements,
ideas, designs, processes, products, computer programs, works of authorship,
databases, mask works, trade secrets, know-how, research and creations (whether
or not patentable or subject to copyright or trade secret protection) that
Consultant makes, conceives or reduces to practice, either alone or jointly
with others, and that (a) result from the performance of the Advisory Services
with any Engaging Party pursuant hereto, 


 


Schedule
4.5-2

















 


and/or (b) result from use
of facilities, equipment, supplies, or Confidential Information (defined below)
of any Engaging Party (“Inventions”).


 


3.2                               Ownership. All Inventions arising solely under
Advisory Services will be the property of Regulus. For purposes of the
copyright laws of the United States, all Inventions will constitute “works made
for hire”, except to the extent such Inventions cannot by law be “works made
for hire”. To the extent Inventions have not been previously assigned to
Regulus, Consultant hereby assigns and, to the extent any such assignment
cannot be made at present, hereby agrees to assign to Regulus, without further
compensation, all right, title and interest in and to all Inventions and any
and all related patents, patent applications, copyrights, copyright
applications, trademarks, trade names, trade secrets and other proprietary
rights in the United States and throughout the world. For purposes of clarity,
it is the intention of the Parties that any invention made by Consultant
pursuant hereto shall be owned exclusively by Regulus.


 


3.3                               Records. Consultant shall make and maintain adequate
and current written records of all Inventions, which records shall be available
to and remain the property of each Engaging Party at all times.


 


3.4                               Agreement with Institution. This Agreement is made subject to the
understanding that Consultant, if affiliated with an Institution, may be
required to fulfill certain obligations, including teaching, directing
laboratory operations, conducting research, and publishing work. It is further
understood that Consultant may have signed an agreement concerning inventions
with Institution, under which Consultant may be obligated to assign to
Institution certain inventions which arise out of or otherwise relate to
Consultant’s work at or for Institution or from Consultant’s use of certain of
its facilities or intellectual property. In performing the Advisory Services,
Consultant agrees not to utilize Institution facilities or intellectual
property if the result of such use is that any Inventions will not be
assignable solely to the Engaging Parties. Consultant agrees to confirm with
Institution that use of Institution’s telephone, fax machines or computers for
communication purposes, does  not
constitute use of Institution’s facilities under this Agreement.


 


3.5                               Work at Third Party Facilities. Consultant agrees not to make any use of any
funds, space, personnel, facilities, equipment or other resources of a third
party in performing the Advisory Services nor take any other action that would
result in a third party owning or having a right in any Inventions, unless
agreed upon in writing in advance by each Engaging Party.


 


4.                                      Confidential Information.


 


4.1                               Definition. “Confidential Information” means all trade
secrets and confidential or proprietary information owned, possessed or used by
an Engaging Party, learned of by Consultant or developed by Consultant in
connection with the Advisory Services, whether or not labeled “Confidential”,
including but not 


 


Schedule
4.5-3

















 


limited to (a) Inventions,
scientific data and sequence information, (b) marketing plans, business
strategies, financial information, forecasts, personnel information and
customer lists of an Engaging Party,  (c)
all information of third parties that an Engaging Party has an obligation to
keep confidential, and (d) the terms and conditions of this Agreement
(including the compensation paid to Consultant pursuant to Section 2). Confidential
Information does not include information which (i) is in the public domain or
which becomes part of the public domain through no wrongful act on Consultant’s
part but only after it becomes so publicly known, (ii) is already in Consultant’s
possession at the time of disclosure by an Engaging Party, other than by
previous disclosure by an Engaging Party, as evidenced by written or electronic
records, or (iii) that becomes known to Consultant through disclosure by a
third party having the right to disclose the information, as evidenced by
written or electronic records.


 


4.2                               Obligations of Confidentiality. During the Term and for a period of five (5)
years thereafter, Consultant will not directly or indirectly publish,
disseminate or otherwise disclose, use for Consultant’s own benefit or for the
benefit of a third party, deliver or make available to any third party, any
Confidential Information, other than in furtherance of the purposes of this
Agreement, and only then with the prior written consent of each Engaging Party.
If required, Consultant may disclose the Confidential Information to a
governmental authority or by order of a court of competent jurisdiction,
provided that such disclosure is subject to all applicable governmental or
judicial protection available for like material and reasonable advance notice
is given to each Engaging Party. Consultant will exercise all reasonable
precautions to physically protect the integrity and confidentiality of the
Confidential Information and will not remove any Confidential Information or
copies thereof from an Engaging Party’s premises except to the extent necessary
to fulfill the Advisory Services, and then only with each Engaging Party’s
prior consent. Each Engaging Party will be entitled to seek injunctive relief
as a remedy for any breach of the terms of this Section 4.


 


5.                                      Non-Competition. During the Term, Consultant shall not provide
(whether for or without compensation) Advisory Services to any business or
entity developing a product which is a microRNA therapeutic other than an
Engaging Party. It shall not be considered a competitive activity within the
meaning of this Section for Consultant to be a member of the faculty or staff
of a university, college or other educational or non-profit research
institution.


 


6.                                      Publication. Consultant agrees to submit to each Engaging
Party a copy of any proposed manuscript or other materials to be published or
otherwise publicly disclosed which may contain Confidential Information in
sufficient time to enable each Engaging Party to determine if patentable
Inventions or any Confidential Information of an Engaging Party would be disclosed.
Consultant will cooperate with each Engaging Party in this respect and will
delete from the manuscript or other disclosure any Confidential Information if
requested by an Engaging Party, and if Inventions arose solely through Advisory
Services, then Consultant will assist the Engaging Parties in filing for patent
protection for any patentable Inventions prior to publication or other
disclosure.


 


Schedule 4.5-4

















 


7.                                      Term and Termination.


 


7.1                               Term. This Agreement will commence on the Effective
Date and continue until terminated by the Consultant, on the one hand, or the
Engaging Parties acting collectively, on the other hand, on not less than
thirty (30) days notice (the “Term”); provided, however, that Alnylam or Isis,
respectively, may terminate this Agreement with respect to such company’s
involvement in this Agreement in which case the Agreement shall remain in place
for the remaining Parties.


 


7.2                               Effect of Expiration/Termination.
Upon expiration or termination,
neither any Engaging Party nor Consultant will have any further obligations
under this Agreement, except (a) the liabilities accrued through the date of
termination, and (b) the obligations under, sections 3, 4, 5, 6, 7 and 8 will
survive. Upon expiration or termination, and in any case upon an Engaging Party’s
request, Consultant will return immediately to each Engaging Party all tangible
Confidential Information, including all copies and reproductions thereof,
except for one (1) copy which may be retained solely for archival purposes.


 


8. Miscellaneous.


 


8.1                               Independent Contractor. All Advisory Services will be rendered by
Consultant as an independent contractor and this Agreement does not create an
employer-employee relationship between any Engaging Party and Consultant. Consultant
will have no rights to receive any employee benefits, such as health and
accident insurance, sick leave or vacation which are accorded to regular
employees of any Engaging Party. Consultant will not in any way represent
himself to be an employee, partner, joint venturer, or agent of any Engaging
Party.


 


8.2                               Taxes. Consultant will pay all required taxes on
Consultant’s income from any Engaging Party under this Agreement. Consultant
will provide each Engaging Party with Consultant’s taxpayer identification
number or social security number, as applicable.


 


8.3                               Use of Name. Consultant consents to the use by each
Engaging Party of Consultant’s name and likeness in written materials and oral
presentations to current or prospective customers, partners, investors or
others, provided that such materials or presentations accurately describe the
nature of Consultant’s relationship with or contribution to such Engaging
Party.


 


8.4                               Assignability and Binding Effect.
The Advisory Services to be
rendered by Consultant are personal in nature. Consultant may not assign or
transfer this Agreement or any of Consultant’s rights or obligations hereunder
except to a corporation of which Consultant is the sole stockholder. In no
event will Consultant assign or delegate responsibility for actual performance
of the Advisory Services to any other natural person. This Agreement will be
binding upon and inure to the benefit of the parties and their respective legal
representatives, heirs, successors and permitted assigns.


 


Schedule 4.5-5

















 


8.5                               Headings. The section headings are included solely for
convenience of reference and will not control or affect the meaning or
interpretation of any of the provisions of this Agreement.


 


8.6                               Notices. Any notices or other communications from one
party to the other will be in writing and will be given by addressing the same
to each other Party at the address or facsimile number set forth below:


 


If to Alnylam: Alnylam
Pharmaceuticals, Inc.


300 Third Street


Cambridge, MA 02142


Attn: Philip Chase, VP,
Legal


pchase@alnylam.com


617-551-8200


 


If
to Isis:                                   Isis Pharmaceuticals, Inc


1896 Rutherford Ave.


Carlsbad CA 92008-7208


760-931-9200


 


Notice will be deemed to
have been duly given when (a) deposited in the United States mail with proper
postage for first class Registered or Certified Mail prepaid, return receipt
requested, (b) sent by any reputable commercial courier, delivery confirmation
requested, (c) delivered personally, or (d) if promptly confirmed by mail or
commercial courier as provided above, when dispatched by facsimile.


 


8.7                               No Modification. This Agreement may be changed only by a
writing signed by authorized representatives of each Party; provided, however
that Alnylam or Isis may terminate its participation in this Agreement pursuant
to Section 7.1 without a further agreement in writing between the Parties.


 


8.8                               Severability. In the event that any one or more of the
provisions contained in this Agreement will, for any reason, be held to be
invalid, illegal or unenforceable in any respect, such invalidity, illegality
or unenforceability will not affect any other provisions of this Agreement, and
all other provisions will remain in full force and effect. If any provision of
this Agreement is held to be excessively broad, it will be reformed and
construed by limiting and reducing it so as to be enforceable to the maximum
extent permitted by law.


 


8.9                               Entire Agreement. This Agreement constitutes the entire
agreement of the parties with regard to its subject matter, and supersedes all
previous written or oral representations, agreements and understandings between
the parties.


 


8.10                        Governing Law. This Agreement will be governed by, and
construed and enforced in accordance with, the laws of the Commonwealth of
Massachusetts 


 


Schedule
4.5-6

















 


applicable to contracts made
and to be performed therein, without giving effect to the principles thereof
relating to the conflict of laws.


 


8.11                        Counterparts. This Agreement may be executed in any number
of counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.


 


Schedule 4.5-7

















 


IN WITNESS WHEREOF, the parties hereto have duly
executed this Agreement under seal as of the Effective Date.


 


 


	
   

  	
  ALNYLAM
  PHARMACEUTICALS, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
  duly authorized

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ISIS
  PHARMACEUTICALS INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
  duly authorized

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CONSULTANT:

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Title:

  	
   

  	
   

  
	
   

  	
   

  	
  duly authorized

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Telephone:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  Facsimile:

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  SS or Tax ID No.:

  	
   

  
	
   

  	
   

  	
   (required for
  payment)

  
								



 


Schedule
4.5-8

















 


INSTITUTION ACKNOWLEDGEMENT


AND CONSENT FORM


 


Alnylam Pharmaceuticals, Inc. (“Alnylam”), Isis
Pharmaceuticals Inc. (“Isis”), Regulus Therapeutics, LLC (“Regulus”) are
prepared to enter into the foregoing Agreement with the consultant named on the
preceding signature page (“Consultant”). Alnylam, Isis, and Regulus recognize
that as a member of the institution named below (“Institution”), Consultant is
responsible for ensuring that any consulting agreement Consultant enters into
with a for-profit entity is not in conflict with the patent, consulting or
other policies of Institution. The proposed Agreement requires Consultant, if
required by Institution policies, to disclose the proposed Agreement to
Institution and/or to obtain Institution’s consent to enter into the proposed
Agreement.


 


Institution hereby acknowledges and consents to
Consultant entering into the foregoing Agreement.


 


	
  INSTITUTION:

  	
   

  
	
   

  	
   

  
	
  By:

  	
   

  	
   

  
	
   

  
	
  Print
  Name

  	
   

  	
   

  
	
   

  
	
  Title:

  	
   

  	
   

  
	
   

  	
  duly authorized

  	
   

  
	
   

  	
   

  
	
  Date

  	
   

  	
   

  
						



 


Schedule 4.5-9

















 


BUSINESS TERMS EXHIBIT


 


1.                                      Compensation:


 


a.                                      Compensation
for SAB membership. Regulus will pay Consultant quarterly cash compensation
of $[         ] at the end of each
calendar quarter as compensation for serving on the Scientific Advisory Board. Such
quarterly retainer will be prorated with respect to the first calendar quarter
of service hereunder.


 


b.                                      Expenses.
Each Engaging Party will reimburse Consultant for all reasonable travel and
other business expenses incurred by Consultant in rendering the Advisory
Services for such Engaging Party, provided that such expenses are agreed upon
in writing in advance, and are confirmed by appropriate written expense
statements and other supporting documentation.


 


On the last day of each calendar month, Consultant
will invoice each Engaging Party for expenses incurred during the preceding
month. Invoices should reference this Agreement and should be submitted to the
following address:


 


If to Alnylam:


Alnylam Pharmaceuticals, Inc.


Attn:  Accounts
Payable Dept.


300 Third Street, 3rd Floor


Cambridge, MA 02142


 


If to Isis:


Isis Pharmaceuticals, Inc


Attn: Accounts Payable


1896 Rutherford Ave.


Carlsbad CA 92008-7208


760-931-9200


 


c.                                       Initial
Option Grant. As additional compensation for the Advisory Services,
Consultant will receive options to purchase [      ] shares of Alnylam’s common stock (the “Alnylam
Options”)  and [        ] shares of Isis’ common stock (the “Isis
Options”, and together with the Alnylam Options, the “Options”), each at a
purchase price equal to the fair market value of the shares at the close of the
market in the United States for such shares on the day of issuance. The vesting
of the Options and other terms will be detailed in the standard form of Stock
Option Agreement of Alnylam and Isis, respectively, which Consultant must
execute as a condition of receiving the Options. To the extent not previously
approved by the Board of Directors of Alnylam or Isis, as the case may be, the  grant herein of Alnylam Options or Isis
Options, as the case may be, remains subject to such approval.


 


Schedule 4.5-10

















 


d.                                       Annual
Option Grant. Consultant will receive an annual grant of [        ] options to purchase Alnylam stock and
[        ] options to purchase Isis
stock, subject in both cases to the terms of the respective stock plans and
policies of Alnylam and Isis, as applicable, as compensation for Consultant’s
continued advisory role.


 


Schedule 4.5-11

















 


SCHEDULE 4.6


 


INITIAL MANAGING BOARD MEMBERS


 


	
  Name

  	
   

  	
  Title

  
	
   

  	
   

  	
   

  
	
  TBD

  	
   

  	
  President, Regulus
  Therapeutics LLC

  
	
   

  	
   

  	
   

  
	
  David Baltimore, Ph.D.

  	
   

  	
  Independent Director
  nominated by Alnylam

  
	
   

  	
   

  	
   

  
	
  TBD

  	
   

  	
  Independent Director
  nominated by Isis

  
	
   

  	
   

  	
   

  
	
  John M. Maraganore,
  Ph.D.

  	
   

  	
  Alnylam Director

  
	
   

  	
   

  	
   

  
	
  Barry E. Greene

  	
   

  	
  Alnylam Director

  
	
   

  	
   

  	
   

  
	
  Stanley T. Crooke, M.D., Ph.D.

  	
   

  	
  Isis Director

  
	
   

  	
   

  	
   

  
	
  B. Lynne Parshall, J.D.

  	
   

  	
  Isis Director

  



 


Schedule 4.6

















 


SCHEDULE 5.3


 


INITIAL SAB MEMBERS AND CHAIRPERSON


 


	
  Name

  	
   

  	
  Title

  
	
   

  	
   

  	
   

  
	
  David Baltimore, Ph.D.

  	
   

  	
  Member and Chairperson 

  
	
   

  	
   

  	
   

  
	
  Scott Hammond, Ph.D.

  	
   

  	
  Member 

  
	
   

  	
   

  	
   

  
	
  Markus Stoffel, M.D., Ph.D.

  	
   

  	
  Member 

  
	
   

  	
   

  	
   

  
	
  Thomas Tuschl, Ph.D.

  	
   

  	
  Member 

  
	
   

  	
   

  	
   

  
	
  Philip Zamore, Ph.D.

  	
   

  	
  Member 

  



 


Schedule 5.3

















 


SCHEDULE 12.4


 


PRESS RELEASE


 


Isis and Alnylam Launch
Regulus Therapeutics, a Joint Venture to Discover, Develop, and Commercialize
microRNA Therapeutics


 


- By Targeting Gene
Pathways, microRNA Therapeutics Represent a New Approach for the Treatment of a
Broad Range of Human Disease - - David Baltimore to Join Regulus Board of
Directors and Chair Scientific Advisory Board Comprised of Key Pioneers in
microRNA Research - - Companies to Host Conference Call Webcast to Discuss
Regulus Therapeutics at 8:30 a.m. ET Friday -


 


CAMBRIDGE, Mass. &
CARLSBAD, Calif., Sep 07, 2007 (BUSINESS WIRE) —


 


Alnylam Pharmaceuticals,
Inc. (Nasdaq: ALNY) and Isis Pharmaceuticals, Inc. (Nasdaq: ISIS) announced
today the launch of Regulus Therapeutics LLC, a joint venture focused on the
discovery, development, and commercialization of microRNA (miRNA) therapeutics.
Because miRNAs regulate whole networks of genes that can be involved in
discrete disease processes, miRNA therapeutics represent a new approach to
target the pathways of human disease. Regulus will combine the strengths and
assets of Isis’ and Alnylam’s technologies, know-how, and intellectual property
(IP) with strong leadership from a focused management team and Scientific
Advisory Board to be chaired by Nobel laureate David Baltimore and include key
pioneers in the miRNA field.


 


Both Isis and Alnylam will
grant Regulus exclusive licenses to their IP for miRNA therapeutic
applications, as well as certain early fundamental patents in the miRNA field
including the “Tuschl III” patent. Alnylam will make an initial investment of
$10 million to balance venture ownership; thereafter Isis and Alnylam will
share funding of Regulus. Regulus will be operated as an independent company
with an independent Board of Directors and management team. Alnylam and Isis
will retain rights to develop and commercialize on pre-negotiated terms miRNA
therapeutic products that Regulus decides not to develop either itself or with
a partner.


 


“The emerging
biology of microRNAs points to a completely new understanding of cellular
mechanisms for regulation of gene expression,” said David Baltimore, Ph.D., of
California Institute of Technology. “I believe that microRNAs represent
previously unexplored disease targets where pharmacological approaches could
lead to the emergence of novel therapies for many human disorders. Accordingly,
I’m very excited to join in the formation of Regulus and to help build the
leading microRNA therapeutics company.”


 


“The opportunity
to antagonize microRNAs could create a new frontier for pharmaceutical research
where an entire disease pathway is targeted for intervention, not just a single
disease target. Indeed, due to their mechanism of action, we believe 


 


Schedule 12.4

















 


microRNA therapeutics could
have profound implications for the treatment of a broad range of diseases
including cancer, viral infection, and metabolic disorders,” said John
Maraganore, Ph.D., President and Chief Executive Officer of Alnylam. “Isis’ and
Alnylam’s intellectual property and technologies open the door to these new
opportunities and, when combined to form Regulus, create an unmatched effort to
establish the leading microRNA therapeutics company.”


 


“We are excited to embark on
this venture, which represents an opportunity to invest in a focused expansion
of our ongoing microRNA research efforts through Regulus’ application of our
antisense technology platform to create microRNA therapeutics. Indeed, it is
timely to extend our know-how and clinical advances with antisense drugs to the
field of microRNAs, an area that stands at the forefront of modern biology,”
said Stanley Crooke, M.D., Ph.D., Chairman and Chief Executive Officer of Isis.
“Regulus will be fully enabled with intellectual property, technology, and
funding from Isis and Alnylam to create a bold and successful new venture.”


 


Regulus’ newly formed
Scientific Advisory Board will be chaired by David Baltimore, Ph.D., who will
also serve as the first Regulus independent Director, and, subject to relevant
institutional approvals, initially will comprise the following members:


 


— David Baltimore, Ph.D.,
Professor of Biology at California Institute of Technology and the recipient of
the 1975 Nobel Prize in Physiology or Medicine;


 


— David Bartel, Ph.D.,
Professor of Biology at MIT and a member of the Whitehead Institute for
Biomedical Research;


 


— Scott Hammond, Ph.D.,
Assistant Professor of Cell and Developmental Biology at the University of
North Carolina School of Medicine;


 


— Markus Stoffel, M.D.,
Ph.D., Professor for Metabolic Diseases at the Institute of Molecular Systems
Biology, Swiss Federal Institute of Technology (ETH);


 


— Thomas Tuschl, Ph.D.,
Associate Professor at the Rockefeller University; and


 


— Phillip D. Zamore, Ph.D.,
Gretchen Stone Cook Professor of Biomedical Sciences at the University of
Massachusetts Medical School.


 


Conference Call Information


 


Alnylam and Isis will host a
conference call on September 7, 2007 at 8:30 a.m. ET to discuss the formation
and launch of Regulus Therapeutics. The call may be accessed by dialing
800-901-5231 (domestic) or 617-786-2961 (international) five minutes prior to
the start time, and providing the passcode 44818346. A replay of the call will
be available from 10:30 a.m. ET September 7, 2007 until September 13, 2007. To
access the replay, please dial 888-286-8010 (domestic) or 617-801-6888
(international), and provide the passcode 11989900. A live audio webcast of the
call will be available on Isis’ website at www.isispharm.com and on the “Investors”
section of the Alnylam’s website, www.alnylam.com, and on Regulus’ website at
www.regulusrx.com. An archive of the


 


Exhibit A-2

















 


webcast will be available on
the both companies’ websites approximately two hours after the event.


 


About microRNA


 


microRNAs (miRNAs) are a
recently discovered class of genetically encoded small RNAs, approximately 20
nucleotides in length, and are believed to regulate the expression of a large
number of human genes. miRNA therapeutics represent a new approach for the
treatment of a broad range of human disease When inappropriately encoded,
miRNAs represent potential disease targets whose selective antagonism can
result in the correction of an entire disease pathway in a manner unachievable
by today’s medicines. In fact, the inappropriate absence or presence of
specific miRNA molecules in various cells has been shown to be associated with
specific human diseases including cancer, viral infection, and metabolic
disorders.


 


About Regulus


 


Regulus Therapeutics LLC is
a biopharmaceutical company formed to discover, develop and commercialize miRNA
therapeutics. The company was created as a joint venture between Alnylam
Pharmaceuticals, a leader in RNAi therapeutics, and Isis Pharmaceuticals, a
leader in antisense technologies and therapeutics. Isis and Alnylam scientists
and collaborators were the first to discover miRNA antagonist strategies that
work in vivo in animal studies (Krutzfeldt et al. (2005) Nature 438, 685-689;
Esau et al. (2006) Cell Metab., 3, 87-98). Isis and Alnylam have also created
and consolidated key IP believed by the companies to be required for
development and commercialization of miRNA therapeutics. The company, founded
in 2007, maintains facilities in Carlsbad, California. For more information,
visit www.regulusrx.com.


 


About Alnylam
Pharmaceuticals


 


Alnylam is a
biopharmaceutical company developing novel therapeutics based on RNA
interference, or RNAi. The company is applying its therapeutic expertise in
RNAi to address significant medical needs, many of which cannot effectively be
addressed with small molecules or antibodies, the current major classes of
drugs. Alnylam is leading the translation of RNAi as a new class of innovative
medicines with peer-reviewed research efforts published in the world’s top
scientific journals including Nature, Nature Medicine, and Cell. The company is
leveraging these capabilities to build a broad pipeline of RNAi therapeutics;
its most advanced program is in Phase II human clinical trials for the
treatment of respiratory syncytial virus (RSV) infection. In addition, the
company is developing RNAi therapeutics for the treatment of influenza,
hypercholesterolemia, and liver cancers, amongst other diseases. The company’s
leadership position in fundamental patents, technology, and know-how relating
to RNAi has enabled it to form major alliances with leading companies including
Merck, Medtronic, Novartis, Biogen Idec, and Roche. The company, founded in
2002, maintains headquarters in Cambridge, Massachusetts. For more information,
visit www.alnylam.com.


 


Exhibit A-3

















 


About Isis Pharmaceuticals


 


Isis is exploiting its
expertise in RNA to discover and develop novel drugs for its product pipeline
and for its partners. The Company has successfully commercialized the world’s
first antisense drug and has 17 drugs in development. Isis’ drug development programs
are focused on treating cardiovascular and metabolic diseases. Isis’ partners
are developing drugs for cancer, and inflammatory and other diseases. Ibis
Biosciences, Inc., Isis’ wholly owned subsidiary, is developing and
commercializing the Ibis T5000(TM) Biosensor System, a revolutionary system to
identify infectious organisms. As an innovator in RNA-based drug discovery and
development, Isis is the owner or exclusive licensee of over 1,500 issued
patents worldwide. Additional information about Isis is available at
www.isispharm.com.


 


Alnylam Forward-Looking
Statements


 


Various statements in this
release concerning Alnylam’s future expectations, plans and prospects,
including statements concerning the potential of miRNA therapeutics and the
importance of Alnylam’s IP, know-how, and other technology in the discovery,
development and commercialization of miRNA therapeutics, constitute
forward-looking statements for the purposes of the safe harbor provisions under
The Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those indicated by these forward-looking statements as a result
of various important factors, including risks related to: Alnylam’s approach to
discover and develop novel drugs, which is unproven and may never lead to
marketable products; Alnylam’s ability to attract and retain highly qualified
employees; obtaining, maintaining and protecting intellectual property utilized
by Alnylam’s products; Alnylam’s ability to enforce its patents against
infringers and to defend its patent portfolio against challenges from third
parties; Alnylam’s ability to obtain additional funding to support its business
activities; Alnylam’s dependence on third parties for development, manufacture,
marketing, sales and distribution of products; the successful development of
Alnylam’s product candidates, all of which are in early stages of development;
obtaining regulatory approval for products; competition from others using
technology similar to Alnylam’s and others developing products for similar
uses; Alnylam’s dependence on collaborators; and Alnylam’s short operating
history; as well as those risks more fully discussed in the “Risk Factors”
section of its most recent quarterly report on Form 10-Q on file with the
Securities and Exchange Commission. In addition, any forward-looking statements
represent Alnylam’s views only as of today and should not be relied upon as
representing its views as of any subsequent date. Alnylam does not assume any
obligation to update any forward-looking statements.


 


Isis Forward Looking
Statements


 


This press release includes
forward-looking statements regarding the future therapeutic and commercial
potential of Isis’ technologies and intellectual property related to microRNA
therapeutics being discovered and developed by Regulus. Any statement
describing Isis’ goals, expectations, financial or other projections,
intentions or beliefs is a forward-looking statement and should be considered
an at-risk statement, including those statements that are described as Isis’
goals. Such statements are subject to certain risks 


 


Exhibit A-4

















 


and uncertainties,
particularly those inherent in the process of discovering, developing and
commercializing drugs that are safe and effective for use as human
therapeutics, and in the endeavor of building a business around such products.
Isis’ forward-looking statements also involve assumptions that, if they never
materialize or prove correct, could cause its results to differ materially from
those expressed or implied by such forward-looking statements. Although Isis’
forward-looking statements reflect the good faith judgment of its management,
these statements are based only on facts and factors currently known by Isis.
As a result, you are cautioned not to rely on these forward-looking statements.
These and other risks concerning Isis’ programs are described in additional
detail in Isis’ annual report on Form 10-K for the year ended December 31,
2006, and its quarterly report on Form 10-Q for the quarter ended June 30,
2007, which are on file with the SEC. Copies of this and other documents are
available from the Company.


 


Isis Pharmaceuticals, Ibis
Biosciences and Ibis T5000 are registered trademarks or trademarks of Isis Pharmaceuticals,
Inc.


 


Exhibit A-5

















 


EXHIBIT A


 


INITIAL
APPROVED OPERATING PLAN


[***]


 


Exhibit A-1