Document:

Exhibit 10.5

 

***Text Omitted and Filed Separately

with the Securities and Exchange Commission.

Confidential Treatment Requested

Under 17 C.F.R. Sections 200.80(b)(4)

and 240.24b-2.

 

LICENSE AGREEMENT

 

This License Agreement (the
AGREEMENT) is made and entered into as of June 15, 2004 (the EFFECTIVE DATE) by
and between the University of Iowa Research Foundation (hereinafter UIRF)
having offices at 214 Technology Innovation Center, Iowa City, Iowa 52242-5000
and Neurogenetics, Inc., (hereinafter LICENSEE), having offices at 11085 North
Torrey Pines Road, Suite 300, La Jolla, CA 92037.

 

WHEREAS, under the patent
policy of The University of Iowa (UI), all inventions and technology arising
during the normal course of research and teaching at UI are assigned and
entrusted to UIRF to obtain patent or other appropriate intellectual property
protection and license said technology;

 

WHEREAS, UIRF is, therefore,
owner by assignment from Timothy J. Brennan of his entire right, title and
interest in United States Patent Application Serial No. 10/033,632 filed
December 26, 2001, titled “Drugs for Spinal Anesthesia”, (UIRF #02028) and in
the inventions described and claimed therein;

 

WHEREAS, LICENSEE wishes to
obtain a world-wide license in order to practice the above referenced invention
covered by patent rights in the United States and in certain foreign countries,
and to manufacture, use and sell in the commercial market the products made in
accordance therewith; and

 

WHEREAS, UIRF wishes to
grant such a license to LICENSEE in accordance with the terms of this
AGREEMENT.

 

NOW THEREFORE, in
consideration of the foregoing premises, the parties agree as follows:

 

ARTICLE 1 - DEFINITIONS

 

1.1                               PATENT RIGHTS shall mean the patents and
patent applications listed on Appendix A attached hereto, the inventions
described and claimed therein, and any divisions, substitutions, substitute
applications and inventors’ certificates, continuations, and
continuations-in-part to the extent the claims are directed to subject matter
specifically described in the patents and patent applications listed on
Appendix A, patents issuing thereon, extensions, term restorations, re-examinations
or reissues or renewals thereof; and any and all foreign patents and patent
applications corresponding thereto which will be automatically incorporated in
and added to this AGREEMENT and shall periodically be added to Appendix A
attached to this AGREEMENT and made part thereof.

 

1.2                               LICENSED PRODUCTS shall mean products and
methods the use of which would, but for a license granted under the PATENT
RIGHTS, infringe the PATENT RIGHTS, including, without limitation, the LICENSED
METHODS.

 

1.3                               LICENSED METHODS shall mean the methods and
uses claimed in the PATENT RIGHTS.

 

1.4                               NET SALES shall mean the gross amount invoiced
by LICENSEE and its AFFILIATES and its SUBLICENSEES on sales of LICENSED
PRODUCTS to independent purchasers less: (a) trade, quantity and cash
discounts allowed and taken; (b) refunds, rebates, chargebacks and
retroactive price adjustments actually paid; (c) actual LICENSED PRODUCT
returns and allowances; and (d) duties, sales taxes, excise taxes and
transportation charges to third parties 
actually paid by or on behalf of LICENSEE and its AFFILIATES and its
SUBLICENSEES separately set forth in the invoiced amount.

 

1.5                               AFFILIATES shall mean any person, company,
corporation, business or other entity directly or indirectly controlling,
controlled by, or under common control with LICENSEE.  For purposes of this definition, “control” shall
mean beneficial ownership of more than 50% (fifty percent) of the outstanding
voting shares or securities or the ability otherwise to elect a majority of the
board of directors or other managing authority.

 

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1.6                               APPLICABLE LAWS shall mean all applicable
laws, ordinances, rules and regulations of any kind whatsoever of any
governmental (including international, foreign, federal, state and local) or
regulatory authority, including, without limitation, all laws, ordinances, rules
and regulations promulgated by any governmental REGULATORY AGENCY.

 

1.7                               CONFIDENTIAL INFORMATION shall mean
information related to PATENT RIGHTS and LICENSED PRODUCTS and information that
a party to this Agreement (the RECEIVING PARTY) receives (whether disclosed in
writing, electronically, orally or by observation) from the other party (the
DISCLOSING PARTY) that the DISCLOSING PARTY reasonably considers proprietary
and marks confidential (or if received orally or by observation, is confirmed
in writing as confidential by the DISCLOSING PARTY within 30 (thirty) days
after such disclosure is made) unless in each case such information, as shown
by competent evidence: 

 

(a)                                  was known to the RECEIVING PARTY or to the
public prior to the DISCLOSING PARTY’s disclosure; or

 

(b)                                  became known to the public, after the
DISCLOSING PARTY’s disclosure hereunder, other than through a breach of the
confidentiality provisions of this AGREEMENT by the RECEIVING PARTY or any
person to whom such RECEIVING PARTY disclosed such information; or

 

(c)                                  was subsequently disclosed to the RECEIVING
PARTY by a third party having a legal right to disclose such information to the
extent not subject to an obligation of confidentiality to such third party; or

 

(d)                                  was developed by the RECEIVING PARTY
independent of the DISCLOSING PARTY’s CONFIDENTIAL INFORMATION.

 

For purposes of the
treatment of CONFIDENTIAL INFORMATION, the UI and UIRF shall be treated
together as one party.

 

1.8                               FDA means the U.S. Food and Drug
Administration or any successor agency. 

 

1.9                               FIRST COMMERCIAL SALE shall mean the first
sale for end use or consumption of the LICENSED PRODUCT after the FDA has
granted REGULATORY APPROVAL of such LICENSED PRODUCT.  

 

1.10                        REGULATORY AGENCY shall mean the FDA. 

 

1.11                        REGULATORY APPROVAL shall mean any approvals
(including, but not limited to, labeling approvals), product and/or
establishment licenses, registrations or authorizations of any federal, state
or local REGULATORY AGENCY, department, bureau or other governmental entity,
necessary and sufficient for the commercial manufacture, use, storage,
importation, export, transport or sale of a LICENSED PRODUCT in a particular
regulatory jurisdiction. 

 

1.12                        ROYALTY TERM shall have the meaning provided
in Section 3.1. 

 

1.13                        SUBLICENSEE shall mean any third party that
is not an AFFILIATE of LICENSEE to whom LICENSEE, or an AFFILIATE of LICENSEE,
grants a sublicense or an option to sublicense, or any other grant of rights
under the PATENT RIGHTS to practice, make and have made, to use and have used,
to import and have imported, to offer for sale and have offered for sale,
and/or to sell and have sold the LICENSED PRODUCTS granted under
Section 2.1 hereof.  

 

1.14                        SUBLICENSE REVENUES shall mean all revenues
received by LICENSEE or an AFFILIATE from a SUBLICENSEE pursuant to a
sublicense under the PATENT RIGHTS, an option for a sublicense under the PATENT
RIGHTS, or a similar agreement providing for a grant of rights under the PATENT
RIGHTS, in each case granted pursuant to Section 2.1 hereof.  SUBLICENSE REVENUES shall include (a) license
issue fees, (b) license maintenance fees, (c) sales and marketing fees, and (d)
non FDA/clinical trial milestones. 
SUBLICENSE FEES shall not include (a) FDA/clinical trial milestone fees,
(b) equity investments in Licensee at fair market value, (c) any funds received
at fair

 

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market value by Licensee for
the conduct of research and development, (d) payments received for
manufacturing, (e) royalties, (f) payment to LICENSEE or its AFFILIATES in
connection with the grant of rights to any other non-UI and non-UIRF
intellectual property (f) and any bona fide loan made to LICENSEE or any of its
AFFILIATES. 

 

ARTICLE 2 - GRANT

 

2.1                               UIRF hereby grants to LICENSEE and LICENSEE
accepts, subject to the terms and conditions hereof, an exclusive (subject only
to Section 2.3), worldwide license to use the LICENSED PRODUCTS under the
PATENT RIGHTS.  Such license shall include
the right to grant sublicenses (with the right to grant further sublicenses)
subject to UIRF’s approval which approval shall not be unreasonably withheld.  LICENSEE
agrees during the period of exclusivity of this license in the United States
that any LICENSED PRODUCT produced for sale in the United States will be
manufactured substantially in the United States.

 

2.2                               The term of this AGREEMENT and the exclusive
license set forth in Section 2.1 shall be from the EFFECTIVE DATE until the
expiration of the last to expire ROYALTY TERM.

 

2.3                               The granting and acceptance of this license
is subject to the following conditions:

 

(a)                                  The terms of the UI Patent Policy approved in
1983, Public Law 96-517, and Public Law 98-620 and UIRF’s obligations under
agreements with other sponsors of research. 
Any right granted in this AGREEMENT greater than that permitted under
Public Law 96-517 or Public Law 98-620 shall be subject to modification as may
be required to conform to the provision of that statute.

 

(b)                                  UIRF shall have the right to make and to use
and to grant non-exclusive licenses to make and to use, for research purposes
only and not for any commercial purpose, the subject matter described and
claimed in PATENT RIGHTS.

 

(c)                                  Eli Lilly and Company (LILLY) may have
non-exclusive rights to the LICENSED PRODUCTS as part of a Statement of
Investigation executed July 6, 1998.

 

(d)                                  LICENSEE shall pay all future costs connected
with the commercial development of the LICENSED 
PRODUCTS, including but not limited to the costs of complying with
applicable governmental testing, approvals and regulations.  

 

(e)                                  LICENSEE shall use reasonable efforts to
effect introduction of the LICENSED PRODUCTS into the commercial market as soon
as practicable, consistent with sound and reasonable business practices and
judgment; thereafter, until the termination or expiration of this AGREEMENT,
LICENSEE shall endeavor to keep LICENSED PRODUCTS reasonably available to the
public.

 

(f)                                    UIRF shall have the right to terminate the
license granted pursuant to Section 2.1 or render such license non-exclusive at
any time after [***] ([***]) years from
the EFFECTIVE DATE if, in UIRF’s reasonable judgment, LICENSEE:

 

(i)                                    fails to comply with Section 2.3(e), or

 

(ii)                                is not demonstrably engaged in a research,
development, manufacturing, marketing, or licensing program, as appropriate,
directed toward the commercial use of the LICENSED PRODUCT. 

 

In making this determination
UIRF shall take into account the normal course of programs for research,
development and commercialization conducted under sound and reasonable business
practices and judgment and shall take into account the reports provided
hereunder by LICENSEE.

 

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(g)                                 All sublicenses granted by LICENSEE hereunder
shall include a requirement that the SUBLICENSEE comply with LICENSEE’s
obligations to UIRF under this AGREEMENT, including, without limitation,
Section 2.3(e).  A copy of this
AGREEMENT shall be attached to each such sublicense agreement.  Royalties charged for sublicenses by LICENSEE
shall not be in excess of normal trade practice with respect to comparable
licenses or sublicenses.  A copy of each
such sublicense agreement shall be provided to UIRF within 45 (forty-five) days
after the effective date of such sublicense agreement.

 

2.4                               UIRF hereby grants to LICENSEE the right to
extend the licenses granted in Section 2.1 to an AFFILIATE subject to the terms
and conditions hereof.

 

2.5                               All rights reserved to the United States
Government and others under Public Law 96-517 and 98-620 shall remain and shall
in no way be affected by this AGREEMENT.

 

ARTICLE 3 - ROYALTIES, PAYMENTS

 

3.1                               LICENSEE shall pay to UIRF within [***]
([***]) days after the end of each calendar quarter, the applicable royalty set
forth below on NET SALES of LICENSED PRODUCTS sold by LICENSEE and its
AFFILIATES and SUBLICENSEES:

 

(a)                                  [***]% ([***] percent) of NET SALES of
LICENSED PRODUCTS sold by LICENSEE, its AFFILIATES or SUBLICENSEES if [***]; or

 

(b)                                  [***]% ([***]percent) of NET SALES of
LICENSED PRODUCTS sold by LICENSEE, its AFFILIATES or SUBLICENSEES if [***].

 

Royalties shall not apply to
sales among LICENSEE, its AFFILIATES and their respective SUBLICENSEES for
resale. On sales between LICENSEE and its AFFILIATES or SUBLICENSEES for
resale, the royalty shall be paid on the resale. 

 

The foregoing royalty shall
be payable on a LICENSED PRODUCT-by- LICENSED PRODUCT basis until the
expiration of the last to expire of the PATENT RIGHTS containing a valid claim
of an issued patent (the ROYALTY TERM).

 

3.2                               LICENSEE shall pay to UIRF a percentage of
any SUBLICENSE REVENUES received within [***] ([***]) days after the end of
each calendar quarter during the ROYALTY TERM as set forth below.

 

(a)                                  LICENSEE will pay to UIRF [***]% ([***]percent)
of SUBLICENSE REVENUES received under agreements executed with a SUBLICENSEE
within [***] ([***])[***]after the EFFECTIVE DATE.

 

(b)                                  LICENSEE will pay to UIRF the following
percentage of SUBLICENSE REVENUES received under agreements executed with a SUBLICENSEE
[***]: (i) [***]% ([***]percent) if [***]; and (ii) otherwise [***]%
([***]percent).

 

3.3                               LICENSEE shall pay to UIRF a one-time payment
of $[***] ([***] dollars) upon [***]. 
Such payment shall accrue upon receipt of such REGULATORY APPROVAL for
the LICENSED PRODUCT and shall be payable within [***] ([***]) days of
accrual.  If such milestone event has
occurred and associated payment has accrued prior to the EFFECTIVE DATE,
LICENSEE shall pay to UIRF $[***] ([***] dollars) within [***]days of the
EFFECTIVE DATE.  Such milestone payment
shall be creditable against future royalties.

 

3.4                               LICENSEE shall pay to UIRF $[***] ([***]
dollars) [***].

 

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3.5                               On [***], and upon each subsequent [***]
during the term of this AGREEMENT, LICENSEE shall pay to UIRF an annual license
maintenance fee of $[***] ([***] dollars). 
Each such annual license maintenance fee shall be reduced by the total
amount of any [***], and [***]on [***]accrued and paid to UIRF by LICENSEE
under this AGREEMENT during the calendar year prior to such payment date, but
shall not be reduced by (a) any [***]accruing in any other calendar year during
the term of this AGREEMENT or (b) any [***] payable to UI pursuant to the terms
of any sponsored research agreement between LICENSEE and UI.

 

ARTICLE 4 - REPORTING

 

4.1                               Prior to signing this AGREEMENT, LICENSEE has
provided to UIRF a written summary of its proposed research and development
plan for the LICENSED PRODUCT.

 

4.2                               LICENSEE shall provide written annual reports
with respect to the LICENSED PRODUCT within 60 (sixty) days after June 30 of
each calendar year during the term of this AGREEMENT.  Each such report shall include but not be
limited to:  reports of progress on
research and development, REGULATORY APPROVALS, manufacturing, sublicensing,
marketing and sales of the LICENSED PRODUCT during the preceding 12 (twelve)
months as well as plans for the coming year. 
If progress differs from that anticipated in the plan provided under
Section 4.1, LICENSEE shall explain the reasons for the difference and
provide a modified plan to UIRF. 
LICENSEE shall also provide any reasonable additional data UIRF requires
to evaluate LICENSEE’s performance.  

 

4.3                               LICENSEE shall report to UIRF the date of
FIRST COMMERCIAL SALE of the LICENSED PRODUCT within 30 (thirty) days of
occurrence.  

 

4.4                               

 

(a)                                  LICENSEE agrees to submit to UIRF within
[***] ([***]) days after the calendar quarters ending March 31, June 30, September
30, and December 31, reports setting forth for the preceding 3 (three) month
period at least the following information: 

 

(i)                                    the number of LICENSED PRODUCTS sold by
LICENSEE, its AFFILIATES and SUBLICENSEES;

 

(ii)                                total billings for such LICENSED PRODUCTS;

 

(iii)                            the amount of royalty that is due and payable
to UIRF under Section 3.1;

 

(iv)                               total SUBLICENSE REVENUES received and the
amount of the payment that is due and payable to UIRF under Section 3.2;
and 

 

(v)                                   the basis for calculating such payments.

 

Such report shall be
certified as correct by an officer of LICENSEE and shall include a detailed
listing of all deductions from NET SALES and royalties as specified
herein.  If no royalties or payments on SUBLICENSE
REVENUES are due to UIRF for any
reporting period, the written report shall so state.

 

(b)                                  All payments due hereunder shall be payable
in United States dollars.  Whenever
conversion of foreign currency to U.S. dollars shall be required, such
conversion shall be made using LICENSEE’s then current standard exchange rate
methodology for the translation of foreign currency sales into U.S. Dollars or,
in the case of other sales by AFFILIATES and SUBLICENSEES, such similar
methodology, consistently applied.  Any
withholding of taxes levied by tax authorities on payments hereunder shall be
borne by UIRF and deducted by LICENSEE from the sums otherwise payable by it
hereunder for payment to the proper tax authorities on behalf of UIRF.  LICENSEE agrees to cooperate with UIRF in the
event that UIRF claims

 

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exemption from such
withholding or seeks credits or deductions under any double taxation or similar
treaty or agreement from time to time in force, such cooperation to consist of
providing receipts of payment of such withheld tax or other documents reasonably
available to LICENSEE.

 

(c)                                  All such reports shall be maintained in
confidence by UIRF, except as required by law, including Public Law 96-517 and
98-620.

 

(d)                                  Late payments shall be subject to an interest
charge of [***]% ([***] percent) per month.

 

ARTICLE 5 - RECORD KEEPING

 

5.1                               LICENSEE shall keep, and shall require its
AFFILIATES and SUBLICENSEES to keep, accurate and correct records of LICENSED
PRODUCTS made, used or sold under this AGREEMENT, appropriate to determine the
amount of royalties and payments on SUBLICENSE REVENUES due hereunder to
UIRF.  Such records shall be retained for
at least [***] ([***]) years following a given reporting period.  UIRF will have the right, during regular
business hours and upon reasonable advance notice, to have such books and
records of LICENSEE described above audited no more than [***] ([***]) time per
calendar year so as to verify the accuracy of the information previously
reported to UIRF.  UIRF will, for
purposes of such audit, utilize the services of UIRF’s Internal Audit
Department or a certified public accountant selected by UIRF and approved by
LICENSEE, such approval not to be unreasonably withheld.  Such audit may cover the [***] ([***])
[***]years preceding the date of the request for such audit and may not cover
any other calendar years. 
Notwithstanding the foregoing, no audit of LICENSEE pursuant to this
Section 5.1 will cover any period of time preceding the EFFECTIVE
DATE.  Such audit right shall continue
for [***] ([***]) [***]years following termination of this AGREEMENT.

 

5.2                               Such accountants and/or UIRF’s Internal Audit
Department and UIRF will keep confidential any information obtained during such
audit and will verify only reports and payments due, hereunder.  The cost of such audit will be borne by UIRF;
however, if such audit shows that
the amount of any royalties or any other payments owed to UIRF is greater than
or equal to [***]% ([***]percent) or more than the amount of royalties or any
other payments paid for the calendar year(s) that are the subject of the audit,
the cost of the audit will be borne by LICENSEE. Within [***] ([***]) days
after both parties have received a copy of an audit report, LICENSEE or UIRF,
as appropriate, will compensate the other party for payment errors or omissions
revealed by the audit.

 

ARTICLE 6 - FILING, PROSECUTION AND MAINTENANCE
OF PATENTS

 

6.1                               LICENSEE shall reimburse UIRF for all
reasonable expenses UIRF has incurred through [***], for the preparation,
filing, prosecution and maintenance of the patent applications and patents
included in the PATENT RIGHTS, in the amount of $[***] and shall reimburse UIRF
for all reasonable out-of-pocket expenses incurred by UIRF after [***] for the
preparation, filing, prosecution and maintenance of the patent applications and
patents included in the PATENT RIGHTS within [***] ([***]) days after receipt
of an invoice from UIRF for such amounts. 
Late payment of these invoices shall be subject to interest charges of
[***]% ([***] percent) per month.  UIRF
shall take responsibility for the preparation, filing, prosecution and
maintenance of any and all patent applications and patents included in the
PATENT RIGHTS.  UIRF shall promptly
inform LICENSEE regarding all matters directly pertaining to prosecution of the
patent applications and patents included in the PATENT RIGHTS, and shall seek
LICENSEE’s counsel concerning all proposed courses of action affecting the
patent applications and patents included in the PATENT RIGHTS, including but
not limited to the geographic scope of patent protection that LICENSEE wishes
to obtain, and all proposed courses of action in any interference
proceedings.  If UIRF decides to allow
any patent included in the PATENT RIGHTS to lapse or if UIRF wishes to abandon
any patent application or patent included in the PATENT RIGHTS, UIRF shall
notify LICENSEE in writing not less than 60 (sixty) days prior to taking such
action.  If UIRF allows to lapse, or
abandons, any patent or patent application included under the PATENT RIGHTS for
any reason except for UIRF’s legitimate belief that no valid, allowable claim
may legally issue or continue, then LICENSEE shall have the right to assume the
responsibility for such patent or patent application.  If such is the case, UIRF may not be able to
compel UI inventors to further

 

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contribute to the
prosecution of such patent or patent application.  If LICENSEE assumes the responsibility for
any such patent, or patent application, the patent or patent application shall
still be considered part of the PATENT RIGHTS, and shall still be treated under
the prevailing terms of the License.

 

6.2                               UIRF and LICENSEE shall cooperate fully in
the preparation, filing, prosecution and maintenance of the patent applications
and patents included in the PATENT RIGHTS, executing all papers and instruments
or requiring members of UIRF to execute such papers and instruments as to
enable UIRF to apply for, to prosecute and to maintain the patent applications
and patents included in the PATENT RIGHTS in UIRF’s name.  Each party shall provide to the other prompt
notice as to all matters which come to its attention and which may affect the
preparation, filing, prosecution or maintenance of any such patent applications
or patents included in the PATENT RIGHTS. 

 

6.3                               If LICENSEE elects to no longer pay the
expenses of a patent application or patent included in the PATENT RIGHTS,
LICENSEE shall notify UIRF not less than 60 (sixty) days prior to such action
and shall thereby surrender its rights under such patent or patent application.

 

ARTICLE 7 - MARKING

 

7.1                               If a patent within the PATENT RIGHTS has been
or is subsequently issued to UIRF covering any feature or features of the
LICENSED PRODUCT, LICENSEE agrees to mark each and every package or container
in which the LICENSED PRODUCT is used or sold by or for LICENSEE with marking
complying with the provisions of Title 35, U.S. Code, Section 287, if required,
or any future equivalent provisions of the United States relating to the
marking of patented devices, or with marking complying with the law of the
country where the LICENSED PRODUCT is shipped, used or sold.

 

ARTICLE 8 - INFRINGEMENT

 

8.1                               With respect to any PATENT RIGHTS under which
LICENSEE is exclusively licensed pursuant to this AGREEMENT, LICENSEE, its
AFFILIATES or its SUBLICENSEES shall have the right (but not the obligation) to
prosecute in its own name and at its own expense any infringement of such
patent, so long as such license is exclusive at the time of the commencement of
such action.  UIRF agrees to notify
LICENSEE promptly of each infringement of such patents of which UIRF is or
becomes aware.  Before LICENSEE, its
AFFILIATES or its SUBLICENSEES commences an action with respect to any
infringement of such patents LICENSEE shall give careful consideration to the
views of UIRF and to potential effects on the public interest in making its
decision whether or not to sue and in the case of a LICENSEE sublicense, shall
report such views to the SUBLICENSEE.

 

8.2                               If LICENSEE or its AFFILIATES elects to sue
for patent infringement, UIRF agrees to be named as nominal third party
plaintiff if necessary to the commencement of any such action, and further
agrees to provide any information available to UIRF and needed by LICENSEE in
prosecuting such action.  LICENSEE shall
reimburse UIRF for any costs it incurs as part of an action brought by LICENSEE
its AFFILIATES, or its SUBLICENSEE, irrespective of whether UIRF shall become a
co-plaintiff.

 

8.3                               If LICENSEE, or its AFFILIATE or SUBLICENSEE,
if applicable pursuant to the applicable sublicense, elects to sue for patent
infringement as described above, LICENSEE may reduce, by up to [***]%
([***]percent), the royalty due to UIRF earned under the patent subject to suit
by [***]% ([***]percent) of the amount of the expenses and costs of pursuing
such action, including attorney fees. In the event that such [***]%
([***]percent) of such expenses and costs exceed the amount of royalties
withheld by LICENSEE for any calendar year, LICENSEE may to that extent reduce
the royalties due to UIRF from LICENSEE in succeeding calendar years, but never
by more than [***]% ([***]percent) of the royalty due in any one year.

 

8.4                               No settlement, consent judgment or other
voluntary final disposition of the suit may be entered into without the consent
of UIRF, which consent shall not be unreasonably withheld.

 

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8.5                               Recoveries or reimbursements from the pursuit
of such action shall first be applied to reimburse LICENSEE and UIRF for
expenses and costs of pursuing such action (including reimbursement of the
amount by which UIRF royalties were reduced pursuant to Section 8.3).  Any remaining amount will be distributed to
the party that brought the action, provided that
any such amount received by LICENSEE, or its AFFILIATES or SUBLICENSEES that represents
lost sales of LICENSED PRODUCT shall be deemed NET SALES of LICENSED PRODUCT
hereunder.

 

8.6                               In the event that LICENSEE, or its AFFILIATES
or SUBLICENSEES, if applicable, elect not to exercise their right to prosecute
an infringement of the PATENT RIGHTS pursuant to Sections 8.1 through 8.5, UIRF
may do so at its own expense, controlling such action and retaining all
recoveries there from.

 

8.7                               Except with respect to PATENT RIGHTS with
respect to which an infringement action has been brought by LICENSEE, its
AFFILIATES or SUBLICENSEES pursuant to Section 8.1, if a declaratory
judgment action alleging invalidity of any of the PATENT RIGHTS shall be
brought against LICENSEE, or its AFFILIATES or SUBLICENSEES, or UIRF, then
UIRF, at its sole option, shall have the right (but not the obligation) to
intervene and take over the sole defense of the action at its own expense.

 

8.8                               If a third party institutes a patent, trade
secret or other infringement suit against LICENSEE or its AFFILIATES or
SUBLICENSEES during the term of this AGREEMENT, alleging that the manufacture,
marketing, sale, use or importation of the LICENSED PRODUCT infringes one or
more patents or other intellectual property rights held by such third party,
then LICENSEE, or if applicable, its AFFILIATE or SUBLICENSEE will have the
sole right (but not the obligation), at its sole expense, to assume direction
and control of the defense of such claims. 
LICENSEE will not have the right to settle or otherwise dispose of any
such claim in a manner that would diminish the rights or interests of UIRF
without the consent of UIRF, which consent will not be unreasonably withheld. 

 

8.9                               In the event LICENSEE is sued by a third
party, and as a result of the settlement of such suit is required to pay a royalty
to a third party on a LICENSED PRODUCT, the amount of royalty paid will be
deducted from the royalty payment due to the UIRF for that LICENSED
PRODUCT.  In the event the settlement
prevents the LICENSEE from continuing sales of a LICENSED PRODUCT, no additional
royalties will apply for that LICENSED PRODUCT.

 

ARTICLE 9 - CONFIDENTIALITY

 

9.1                               The parties agree that, unless the RECEIVING
PARTY obtains the prior written consent of the DISCLOSING PARTY, at all times
during the term of this AGREEMENT and for a [***] year period following its
expiration or earlier termination of this AGREEMENT, the RECEIVING PARTY will
keep completely confidential, will not publish or otherwise disclose and will
not use directly or indirectly for any purpose other than as contemplated by
this AGREEMENT any CONFIDENTIAL INFORMATION of the DISCLOSING PARTY.

 

9.2                               During the Royalty Term, UIRF shall not
disclose unpublished PATENT RIGHTS without LICENSEE’S express written consent,
such consent not be unreasonably withheld.

 

9.3                               Each party may disclose CONFIDENTIAL
INFORMATION to the extent that such disclosure is:

 

(a)                                  made in response to a valid order or subpoena
of a court of competent jurisdiction or other governmental body of a country or
any political subdivision thereof of competent jurisdiction; provided, however, that the RECEIVING
PARTY will first have given reasonable notice to the DISCLOSING PARTY (if
practicable) and given the DISCLOSING PARTY a reasonable opportunity to quash
such order or subpoena and to obtain a protective order covering the
CONFIDENTIAL INFORMATION; provided further,
that if a disclosure order or subpoena is not quashed or a protective order is
not obtained, the CONFIDENTIAL INFORMATION disclosed in response to such court
or governmental order or subpoena will be limited to that information that is
legally required to be disclosed in such response to such court or governmental
order or subpoena;

 

***   Confidential
Treatment Requested

 

8

 

(b)                                  otherwise required by law, in the opinion of
legal counsel to the RECEIVING PARTY; provided,
however, that the RECEIVING PARTY will first have given reasonable
notice to the DISCLOSING PARTY (if practicable) and given the DISCLOSING PARTY
a reasonable opportunity to obtain a protective order or confidential treatment
with respect to the CONFIDENTIAL INFORMATION; provided
further, that if a protective order is not obtained, the
CONFIDENTIAL INFORMATION so disclosed will be limited to that information that
is legally required to be disclosed as required by applicable law;

 

(c)                                  made by the RECEIVING PARTY to a governmental
or regulatory authority, including FDA, as required to conduct clinical trials
or obtain or maintain marketing approval for the LICENSED PRODUCT, provided that reasonable effort will be
taken to ensure confidential treatment of such information;

 

(d)                                  made by the RECEIVING PARTY to a third party
as may be necessary or useful in connection with the manufacture, development
and commercialization of the LICENSED PRODUCT, provided
that the RECEIVING PARTY will in each case obtain from the proposed
third party recipient a written confidentiality agreement containing
confidentiality and non-use obligations no less protective than those set forth
in this AGREEMENT;

 

(e)                                  made by the RECEIVING PARTY to a State,
United States or foreign tax authority;

 

(f)                                    made by a RECEIVING PARTY or any
representative of the RECEIVING PARTY in the filing or publication of patents
or patent applications relating to the PATENT RIGHTS, to the extent such
disclosure in the filing or publication of the patent or patent application is
reasonably necessary for support of the patent or patent application;

 

(g)                                 made by a RECEIVING PARTY in order to comply
with applicable securities law disclosure requirement or any disclosure
requirements of any applicable stock market or securities exchange; or

 

(h)                                 made by the RECEIVING PARTY to its
representatives or to third parties in connection with financing activities of
the RECEIVING PARTY; provided, however,
that: (i) each such representative or third party has a need to know such
CONFIDENTIAL INFORMATION and has an obligation to maintain the confidentiality
of such information, (ii) the RECEIVING PARTY informs each representative
or third party receiving CONFIDENTIAL INFORMATION of its confidential nature,
and (iii) the RECEIVING PARTY will be responsible for any breach of this
Article 9 by any of its representatives or such third parties to the same
extent as if the breach were by the RECEIVING PARTY.

 

ARTICLE 10 - TERMINATION OF AGREEMENT

 

10.1                        Upon any termination of this AGREEMENT, and
except as provided herein to the contrary, all rights and obligations of the
parties hereunder shall cease, except as follows:

 

(a)                                  UIRF’s right to receive or recover and
LICENSEE’s obligation to pay royalties, milestones and payments on SUBLICENSE
REVENUES accrued or accruable for payment at the time of any termination
pursuant to Articles 3 and 4;

 

(b)                                  LICENSEE’s obligation to maintain records and
UIRF’s right to conduct a final audit as provided in Article 5 of this
AGREEMENT;

 

(c)                                  The parties rights and obligations under
Sections 4, 7, 9, 10, 11, 12.3, 13, 14 and 15; and

 

(d)                                  Any cause of action or claim of UIRF, accrued
or to accrue because of any breach or default by LICENSEE. 

 

9

 

10.2                        In the event LICENSEE fails to make payments
due hereunder, UIRF shall have the right to terminate this AGREEMENT upon 45
(forty-five) days written notice, unless LICENSEE makes such payments plus
interest within the 45 (forty-five) day notice period.  If payments are not so made, UIRF may immediately
terminate this AGREEMENT.

 

10.3                        In the event that LICENSEE shall be in
default in the performance of any obligations under this AGREEMENT (other than
as provided in Section 10.2, which shall take precedence over any other
default), and if the default has not been remedied within 90 (ninety) days
after the date of notice in writing of such default, UIRF may terminate this
AGREEMENT immediately by written notice.

 

10.4                        This Agreement will automatically terminate
if Licensee becomes insolvent, makes an assignment for the benefit of
creditors, files or has filed against it a petition in bankruptcy or seeking
reorganization, has a receiver appointed, or institutes any proceedings for
liquidation or winding-up.  Upon any
termination as defined herein, Licensee shall cease all use of the PATENT
RIGHTS and PATENT RIGHTS shall be automatically returned to UIRF.

 

10.5                        In the event that UIRF shall be in default in
the performance of any obligations under this AGREEMENT, and if the default has
not been remedied within 60 (sixty) days after the date of notice in writing of
such default, LICENSEE may terminate this AGREEMENT immediately by written
notice.

 

10.6                        LICENSEE shall have the right to terminate
this AGREEMENT by giving 90 (ninety) days advance written notice to UIRF to
that effect.  Upon termination, a final
report shall be submitted and any payments due pursuant to Articles 3 or 6 to UIRF
become immediately payable.

 

10.7                        In the event that this AGREEMENT terminates
for any reason, any sublicenses granted by LICENSEE hereunder shall be
automatically assigned to UIRF, provided
that such SUBLICENSEES continue to fulfill all obligations to UIRF under this
AGREEMENT.

 

10.8                        LICENSEE, its AFFILIATES and SUBLICENSEES
shall have the right during a period of 6 (six) months following the EFFECTIVE
DATE of such termination to sell or otherwise dispose of the current inventory
of LICENSED PRODUCT existing at the time of such termination, and shall make a
final report and payment of all royalties and payments on SUBLICENSE REVENUES
related thereto within 60 (sixty) days following the end of such period or the
date of the final disposition of such inventory, whichever first occurs.

 

ARTICLE 11 – ASSIGNMENT

 

11.1                        The rights and licenses granted to LICENSEE
by UIRF in this AGREEMENT are specific and may not be assigned or otherwise
transferred to any party, without the prior written approval of UIRF, except as
provided in Section 11.2.  Any
attempted assignment or transfer without such approval shall be void and shall
automatically terminate all rights of LICENSEE under this AGREEMENT.  This AGREEMENT shall be binding on and inure
to the benefit of the parties hereto and their respective permitted successors
and assigns.

 

11.2                        LICENSEE may assign its rights and
obligations under this AGREEMENT, without the prior written approval of UIRF,
to any entity with which it may merge or consolidate or to any entity to whom
it may transfer substantially all of its assets to which this AGREEMENT relates
or to any entity which may acquire LICENSEE (including, in each case, any
company created as a new vehicle upon any such merger, transfer or
acquisition).  If LICENSEE assigns it rights
and obligations as part of a merger, consolidation or asset transfer, LICENSEE
must notify UIRF of such transfer within [***] of such transfer, and the new
assignee must acknowledge and agree to assumption of the rights and
responsibilities of the License within the same period of time, or the UIRF may
immediately terminate the License.

 

ARTICLE 12 - REPRESENTATIONS AND WARRANTIES:  LIMITATIONS

 

12.1                        Nothing in this AGREEMENT shall be construed
as:

 

***   Confidential
Treatment Requested

 

10

 

(a)                                  A warranty or representation by UIRF as to
the validity or scope of any patent or patent application included in the
PATENT RIGHTS; or

 

(b)                                  A warranty or representation that anything
made, used or sold under the license granted in this agreement is or will be
free from infringement of patents owned by third parties; or

 

(c)                                  Conferring a right to use in advertising,
publicity or otherwise the name of UI or UIRF, or the inventors, unless UIRF
has specifically approved the same in writing.

 

12.2                        EACH PARTY EXPRESSLY DISCLAIMS ANY AND ALL
IMPLIED OR EXPRESS WARRANTIES AND MAKES NO EXPRESS OR IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSE OF THE PATENT RIGHTS,
LICENSED METHOD OR LICENSED PRODUCT. 
UIRF assumes no responsibilities whatever with respect to design,
development, manufacture, use, sale or other disposition by LICENSEE or
AFFILIATES or SUBLICENSEES of LICENSED PRODUCT. 
The entire risk as to the design, development, manufacture, offering for
sale, sale, or other disposition and performance of LICENSED PRODUCT is assumed
by LICENSEE, its AFFILIATES and SUBLICENSEES.

 

ARTICLE 13 – INDEMNIFICATION

 

13.1                        

 

(a)                                  LICENSEE shall indemnify, defend and hold
harmless UIRF and UI and their current or former directors, governing board
members, trustees, officers, faculty, medical and professional staff,
employees, students, and agents and their respective successors, heirs and
assigns (the UIRF INDEMNITEES), against any liability, damage, loss or expenses
(including reasonable attorneys’ fees and expenses of litigation) incurred by
or imposed upon the UIRF INDEMNITEES or any one of them in connection with any
claims, suits, actions, demands or judgments by or of any third party arising
out of any theory of product liability (including, but not limited to, actions
in the form of tort, warranty or strict liability) concerning any product,
process or service made, used or sold pursuant to any right or license granted
under this Agreement.

 

(b)                                  LICENSEE agrees, at its own expense, to
provide attorneys reasonably acceptable to UIRF to defend against any actions
brought or filed against any party indemnified hereunder with respect to the
subject of indemnity contained herein, whether or not such actions are
rightfully brought.

 

ARTICLE 14 – INSURANCE

 

14.1                        Beginning at the time of the FIRST COMMERCIAL
SALE of the LICENSED PRODUCT by LICENSEE, its AFFILIATE, or SUBLICENSEE,
LICENSEE shall, at its sole cost and expense procure and maintain comprehensive
general liability insurance in amounts not less than $[***] per incident and
$[***] annual aggregate and naming the UIRF INDEMNITEES as additional
insureds.  During clinical trials of the
LICENSED PRODUCT, LICENSEE shall, and shall ensure that its AFFILIATES and
SUBLICENSEES, at their sole cost and expense, procure and maintain
comprehensive general liability insurance in such equal or lesser amounts as
UIRF shall require, naming the UIRF INDEMNITEES as additional insureds.  Such comprehensive general liability
insurance shall provide (i) product liability coverage and (ii) broad form
contractual liability coverage for LICENSEE’s, its AFFILIATES’ or
SUBLICENSEES’, as applicable, indemnification under this AGREEMENT.  If LICENSEE or its AFFILIATES or SUBLICENSEES
elects to self-insure all or part of the limits described above (including
deductibles or retentions which are in excess of $[***] annual aggregate) such
self-insurance program must be acceptable to UIRF.  The minimum amounts of insurance coverage
required shall not be construed to create a limit of LICENSEE’s liability with
respect to its indemnification under this AGREEMENT.

 

***   Confidential
Treatment Requested

 

11

 

14.2                        LICENSEE shall provide UIRF with written
evidence of such insurance upon request of UIRF.  LICENSEE shall provide UIRF with written
notice at least fifteen (15) days prior to the cancellation, non-renewal or
material change in such insurance; if LICENSEE does not obtain replacement insurance
providing comparable coverage within such 15 (fifteen) day period, UIRF shall
have the right to terminate this Agreement effective at the end of such 15
(fifteen) day period without notice or any additional waiting periods.

 

14.3                        LICENSEE shall maintain such comprehensive
general liability insurance (i) beyond the expiration or termination of
this AGREEMENT during the period that the LICENSED PRODUCT is being
commercially distributed or sold by LICENSEE, its AFFILIATES or SUBLICENSEES
and (ii) a reasonable period thereafter.

 

ARTICLE 15 – MISCELLANEOUS

 

15.1                        In the event of any controversy or claim
arising out of or relating to any provision of this AGREEMENT or the breach
thereof, the parties shall try to settle such conflicts amicably between themselves.  Subject to the limitation stated in the final
sentence of this section, any such conflict which the parties are unable to
resolve may be settled through arbitration conducted in accordance with the
rules of the American Arbitration Association. 
In the event a dispute is arbitrated, the demand for arbitration shall
be filed within a reasonable time after the controversy or claim has arisen,
and in no event after the date upon which institution of legal proceedings
based on such controversy or claim would be barred by the applicable statutes
of limitation.  Such arbitration shall be
held in Des Moines, Iowa.  The
arbitration shall be conducted by 3 (three) arbitrators who are knowledgeable
in the subject matter which is at issue in the dispute.  One arbitrator will be selected by UIRF, 1
(one) arbitrator will be selected by LICENSEE, and the 3rd (third)
arbitrator will be selected by mutual agreement of the 2 (two) arbitrators
selected by the parties.  The arbitrators
shall be authorized to grant any temporary, preliminary or permanent equitable
remedy or relief they deem just and equitable and within the scope of this
AGREEMENT, including, without limitation, an injunction or order for specific
performance.  Notwithstanding anything in
this AGREEMENT to the contrary, either party may immediately pursue an action
at law or equity in a court of competent jurisdiction related to any breach or
alleged breach of Article 10 or for patent validity or infringement
claims.  The award through arbitration
shall be final and binding. Either party may enter any such award in a court
having jurisdiction or may make application to such court for judicial
acceptance of the award and an order of enforcement, as the case may be.
Notwithstanding the foregoing, either party may, without recourse to
arbitration, assert against the other party a third-party claim or cross-claim
in any action brought by a third party, to which the subject matter of this
AGREEMENT may be relevant.

 

15.2                        Should a court of competent jurisdiction later
consider any provision of this AGREEMENT to be invalid, illegal, or
unenforceable, it shall be considered severed from this AGREEMENT.  All other provisions, rights and obligations
shall continue without regard to the severed provision, provided that the remaining provisions of
this AGREEMENT are in accordance with the intention of the parties.

 

15.3                        No waiver by a party of any breach of this
AGREEMENT, no matter how long continuing or how often repeated, shall be deemed
a waiver of any subsequent breach thereof, nor shall any delay or omission on
the part of a party to exercise any right, power or privilege hereunder be
deemed a waiver of such right, power or privilege.

 

15.4                        The relationship between the parties is that
of independent contractors. LICENSEE shall not be deemed to be an agent of UIRF
in connection with the exercise of any rights hereunder, and shall not have any
right or authority to assume or create any obligation or responsibility on
behalf of UIRF.

 

15.5                        No party hereto shall be deemed to be in
default of any provision of this AGREEMENT, or for any failure in performance,
resulting from acts or events beyond the reasonable control of such party, such
acts of God, acts of civil or military authority, civil disturbance, war,
strikes, fires, power failures, natural catastrophes, or any other event
similar to those enumerated above.  Such
excuse from liability shall be effective only to the extent and duration of the
event(s) causing the failure or delay in performance and provided that the
party has not caused such event(s) to occur. 
Notice of a party’s failure or delay in performance due to force majeure
must be given to the other party within five (5) calendar days

 

12

 

after its occurrence.  All delivery dates under this AGREEMENT that
have been affected by force majeure shall be tolled for the duration of such
force majeure.  In no event shall any
party be required to prevent or settle any labor disturbance or dispute.

 

15.6                        This AGREEMENT may be executed in multiple
counterparts, each of which shall be deemed an original and all of which
together shall constitute one and the same instrument. 

 

ARTICLE 16 - NOTICES; APPLICABLE LAW

 

16.1                        Any notice, report or payment provided for in
this AGREEMENT shall be deemed sufficiently given if in writing and when sent
by express courier, certified or registered mail addressed to the party for
whom intended at the address set forth below, or to such address as either
party may hereafter designate in writing to the other: 

 

	
   

  	
  (a)

  	
  For UIRF:

  	
  University of Iowa
  Research Foundation

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  Attn: Executive Director

  
	
   

  	
   

  	
   

  	
  214 Technology Innovation
  Center

  
	
   

  	
   

  	
   

  	
  Iowa City, Iowa 52242-5000

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  (b)

  	
  For the LICENSEE:

  	
  Neurogenetics, Inc.

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
  11085 North Torrey Pines
  Road

  
	
   

  	
   

  	
   

  	
  Suite 300

  
	
   

  	
   

  	
   

  	
  La Jolla, CA 92037

  

 

16.2                        This AGREEMENT shall be construed,
interpreted, and applied in accordance with the laws of the State of Iowa. 

 

16.3                        LICENSEE agrees to comply with all APPLICABLE
LAWS and governmental regulations.  In particular,
it is understood and acknowledged that the transfer of certain commodities and
technical data is subject to United States laws and regulations controlling the
export of such commodities and technical data, including all Export
Administration Regulations of the United States Department of Commerce.  These laws and regulations among other
things, prohibit or require a license for the export of certain types of
technical data to certain specified countries. 
LICENSEE hereby agrees and gives written assurance that it will comply
with all United States laws and regulations controlling the export of
commodities and technical data, that it will be solely responsible for any
violation of such by LICENSEE or its AFFILIATES or SUBLICENSEES, and that it will
defend and hold UIRF harmless in the event of any legal action of any nature
occasioned by such violation. 

 

ARTICLE 17 – INTEGRATION

 

17.1                        This AGREEMENT constitutes the final and
entire agreement between the parties, and supersedes all prior written agreements
and any prior or contemporaneous oral understanding regarding the subject
matter hereof.  Any representation,
promise or condition in connection with such subject matter which is not
incorporated in this AGREEMENT shall not be binding on either party.  No modification, renewal, extension or
termination of this AGREEMENT or any of its provisions shall be binding upon
the party against whom enforcement of such modification, renewal, extension or
termination is sought, unless made in writing and signed on behalf of such
party by a duly authorized officer.

 

 

13

 

IN WITNESS WHEREOF, each of
the parties have caused this AGREEMENT to be executed by its duly authorized
representative.

 

 

	
  UIRF

  	
   

  	
  LICENSEE

  
	
  The University of Iowa
  Research Foundation

  	
   

  	
  Neurogenetics, Inc.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  By

  	
  /s/ W. Bruce Wheaton

  	
   

  	
   

  	
  By:

  	
  /s/Neil Kurtz

  
	
  Name:

  	
  W. Bruce Wheaton

  	
   

  	
   

  	
  Name:

  	
  Neil M Kurtz M.D.

  
	
  Title:

  	
  Executive Director

  	
   

  	
   

  	
  Title:

  	
  Chief Executive Officer

  	
   

  
												

 

14

 

Appendix
A

 

 

The following comprise
PATENT RIGHTS:

United States Patent
Application Serial No. 10/033,632; filed December 26, 2001; titled “Drugs for
Spinal Anesthesia”; Timothy J. Brennan, inventor.

 

15Exhibit 10.6

 

***Text Omitted and Filed Separately

with the Securities and Exchange Commission.

Confidential Treatment Requested

Under 17 C.F.R. Sections 200.80(b)(4)

and 240.24b-2.

 

August 26, 2004

 

 

Neurogenetics, Inc.

11085 N. Torrey Pines Road

La Jolla, California 92037

Attention: 
Chief Executive Officer

 

Ladies and Gentlemen:

 

As you are aware, we have been engaged in discussions, and as of the
date of this letter we are entering into an equity investment in Neurogenetics, Inc.,
a Delaware corporation (the “Company” or “you”), by Johnson & Johnson
Development Corporation, a New Jersey corporation (“JJDC” or “we” or “us”),
pursuant to that certain Series C Participating Preferred Stock Purchase
Agreement of even date herewith by and among JJDC, the Company and the certain
other investors set forth therein. The purpose of this
letter is to provide JJDC with certain rights with respect to the consummation
of any proposed sale, transfer, license or distribution arrangement, whether by
operation of law or by merger or consolidation, regarding any of the Rights (as
defined below (any of such transactions referred to above being hereinafter
referred to as a “Proposed Transaction”). The term “Rights” shall include all
inventions, developments, patents, patent applications, know-how, technology,
other proprietary rights or products owned, developed or acquired (whether
through license or otherwise) by the Company related to its research and
development work into the use of M1 agonists in
the treatment of CNS disorders (the “M1 Agonist Program”). JJDC’s affiliate
company Johnson & Johnson Pharmaceutical Research &
Development, L.L.C. (“J&J PRD”) has [***]
and [***], which are part of
the M1 Agonist Program, and based thereon, JJDC has elected to enter into this
letter agreement with the Company. In consideration of the
representations, warranties, agreements and covenants contained in this letter,
and for other good and valuable consideration, including the agreement of Scott
Reines, Vice President at J&J PRD, or such other person as may be designated
by JJDC, and reasonably acceptable to the Company, to serve without
compensation (other than reimbursement of reasonable expenses) as a scientific
advisory board or clinical advisory board member to the Company through December 31,
2005 pursuant to a mutually acceptable scientific advisory board or clinical
advisory board consulting agreement, the receipt and sufficiency of which are
hereby acknowledged, JJDC and the Company hereby agree as
follows:

 

1.                                      The parties
hereby agree that, following the completion (if any) of the Company’s first [***] with respect to [***], or such
other M1 agonist as may be selected in good faith by the Company to be
used in the Company’s [***], the Company shall
deliver in writing, via certified mail (return receipt requested) or by Federal
Express, to JJDC notice of such completion, together with the final statistical
report for the [***] (the “Report”) and all other material data from the M1
Agonist Program, including a letter from an officer of the Company confirming
delivery to JJDC of all such material data in the Company’s possession or
control as of the date of the Report. For a period of [***] [***] (the “Period
of Exclusive Negotiation”) commencing upon JJDC’s receipt of such items, such
date (the “Delivery Date”) to be evidenced by the return receipt or Federal
Express signature receipt record, the Company shall negotiate in good faith and
exclusively with JJDC with respect to the consummation of a Proposed
Transaction (it being understood that the final pricing, terms,
conditions and other material 

 

***   Confidential
Treatment Requested

 

 

provisions of any such
Proposed Transaction shall be subject to approval by the Company’s board of
directors (the “Board”), and the Board may elect to not approve any such
Proposed Transaction in its sole discretion). Notwithstanding the foregoing,
the Company and JJDC may mutually agree by written amendment to this
letter agreement to commence the Period of Exclusive Negotiation prior to the
completion of the [***] study as
described above.

 

2.                                      (a)                                  Following the
expiration of the Period of Exclusive Negotiation, the Company may enter
into an agreement with respect to a Proposed Transaction on terms that are more
favorable to you in the aggregate (taking into consideration all of the
material pricing, terms and provisions) than the terms last offered by us
during the Period of Exclusive Negotiation. For a period of [***] days following the expiration of
the Period of Exclusive Negotiation (the “Rights Period”), you shall not
consummate or agree to consummate a Proposed Transaction with any other party
(a “Third Party”) on terms that are not more favorable to you in the aggregate
(taking into consideration all of the material pricing, terms and provisions of
the JJDC Proposed Transaction and the Third Party’s Proposed Transaction) than
the terms last offered by us during the Period of Exclusive Negotiation without
first promptly giving notice thereof to us in writing with respect to each such
Proposed Transaction (in each case, the “Notice”) specifying the pricing,
terms, conditions and other material provisions of such Proposed Transaction by
providing a redacted (with respect to the Third Party’s name only) copy of the
Third Party proposal. In the event that we elect to consummate a transaction
upon the same pricing, terms, conditions and other material provisions as
specified in the Notice, we shall have [***]
business days to so notify you and you shall use all reasonable commercial
efforts to facilitate the consummation of such a Proposed Transaction with us
within [***] days following
receipt of the Notice, unless extended by mutual agreement of the parties (the “Negotiation
Period”) (it being understood that the pricing, terms, conditions and other
material provisions of such Proposed Transaction (and JJDC’s consummation
thereof in lieu of the Third Party) shall have been approved by the Board prior
to delivery of the applicable Notice). In the event that we fail to elect to
exercise this right within the above mentioned [***] business day period or fail to enter into definitive
documentation or other binding agreement with you with respect to the
applicable Proposed Transaction within the applicable Negotiation Period, you may enter
into an agreement with the specified Third Party with respect to the applicable
Proposed Transaction on terms that are, in the aggregate, not less favorable to
you than the terms specified by you in the applicable Notice. In the event that
the pricing, terms, conditions and other material provisions of any applicable
Proposed Transaction are modified to be less favorable to you than were
specified in the applicable Notice, then the Company shall be required pursuant
to this Section 2(a) to give anew the requisite Notice to us and
comply with the right of first refusal and other provisions set forth herein.

 

(b)                                  Subject to the
last sentence of Section 2(a), the parties hereby agree that JJDC’s rights
of first negotiation and refusal set forth above in Section 1
and 2(a) and all other rights and obligations of the parties set forth in
this letter shall terminate at the termination of the Rights Period (i.e. up to
[***], unless extended by mutual
agreement, after the Delivery Date) or, in the event that one or more Notices
is given during the Rights Period, the termination of the Negotiation Period
for the last Notice given (the “End Date”).

 

(c)                                  Until
the End Date, you shall not sell, license or otherwise transfer any right,
title and interest (including, but not limited to, those with respect to
patents, patent applications, 

 

***   Confidential
Treatment Requested

 

 

trademarks, tradenames, inventions,
processes, formulae and copyrights) in or to any M1 Agonist Program asset,
except in accordance with Sections 1 and 2(a). The parties hereby acknowledge
and agree that we shall have no obligation to enter into a definitive agreement
concerning the Proposed Transaction if we so elect in our sole determination.
You hereby represent and warrant to us that (i) you have all right, title
and interest (including, but not limited to, those with respect to patents,
patent applications, trademarks, tradenames, inventions, processes, formulae
and copyrights) or valid licenses with respect to, all M1 Agonist Program
assets, and (ii) the granting of rights provided herein will not conflict
with or infringe upon the rights of any other person or entity.

 

(d)                                  The
parties hereto agree and acknowledge that, at JJDC’s discretion, JJDC may cause
one of its affiliates instead of it to enter into a written binding letter of
intent or definitive, written agreement regarding a Proposed Transaction, as
contemplated herein.

 

3.                                      You
shall not originate any publicity, news release or other public announcement,
written or oral, whether relating to the performance under this letter
agreement or the existence of any arrangement between the parties, without our
prior written consent, except that the Company may disclose this letter
agreement (i) to potential investors in a bona fide financing, (ii) in
connection with the Company’s initial public offering, and (iii) upon
prior written notice to us, to Third Parties in connection with any Proposed
Transaction.

 

4.                                      Consummation
of a Proposed Transaction involving the parties hereto shall be subject to the
execution of a definitive agreement, containing representations and warranties,
indemnities and other terms and conditions that are customary for a transaction
of this kind (the “Definitive Agreement”) and the satisfaction of any and all
applicable governmental requirements and receipt of all required corporate
approvals. In addition, this letter does not identify all matters upon which
agreement must be reached in order for a Proposed Transaction to be consummated.
Except with respect to the specific obligations set forth in Sections 1, 2, 3,
and 4 and hereof (which, as applicable, both parties hereby represent to the
other they are authorized to undertake), a binding commitment will result only
from execution of the Definitive Agreement.

 

5.                                      Notwithstanding
anything to the contrary herein, the provisions of this letter will not apply
to, and will in no way restrict the Company with respect to, any sale, transfer
or other disposition of all or substantially all of the business or assets of
the Company, which includes the M1 Agonist Program, whether effected by merger,
consolidation, sale of stock or assets or otherwise; provided that the
acquiring party in such transaction shall be subject to the provisions of this
letter with respect to the M1 Agonist Program as successor to the Company.

 

6.                                      Prior
to commencement of arbitration, the parties must attempt to mediate any dispute
using a professional mediator from the American Arbitration Association (“AAA”),
the CPR Institute for Dispute Resolution, or like organization selected by
agreement or, absent agreement, through selection procedures administered by
the AAA. Within a period of 45 days after the request for mediation, the
parties agree to convene with the mediator, with business representatives
present, for at least one session to attempt to resolve the matter. In no event
will mediation delay commencement of the arbitration for more than 45 days
absent agreement of the parties or interfere with the availability of emergency
relief. Any controversy or claim arising out of or relating to this Agreement
not resolved by mediation shall be resolved by arbitration 

 

 

before three arbitrators in accordance with
the Commercial Arbitration Rules of the AAA then pertaining (available at
www.adr.org), except where those rules conflict with this provision, in
which case this provision controls. Any court with jurisdiction shall enforce
this clause and enter judgment on any award. The arbitrators shall be selected
within twenty business days from commencement of the arbitration from the panel
of arbitrators trained in Large Complex Commercial Disputes pursuant to
agreement or through selection procedures administered by the AAA. Within 45
days of initiation of arbitration, the parties shall reach agreement upon and
thereafter follow procedures, including limits on discovery, assuring that the
arbitration will be concluded and the award rendered within no more than eight
months from selection of the arbitrators or, failing agreement, procedures
meeting such time limits will be designed by the AAA and adhered to by the
parties. The arbitration shall be held in New Brunswick, New Jersey and the
interpretation and enforcement of this arbitration provision shall be governed
by the Federal Arbitration Act. Prior to commencement of arbitration, emergency
relief is available from any court to avoid irreparable harm. THE ARBITRATORS
SHALL NOT AWARD EITHER PARTY PUNITIVE, EXEMPLARY, MULTIPLIED OR CONSEQUENTIAL
DAMAGES, OR ATTORNEYS FEES OR COSTS.

 

7.                                      This
letter agreement may be executed in counterparts, all of which together
shall constitute one and the same instrument. This letter agreement shall be
deemed a contract made under the laws of the State of New Jersey and, together
with the rights or obligations of the parties hereunder, shall be construed
under and governed by the laws of such State, without giving effect to the
conflict of laws principles thereof.

 

Please acknowledge your acquiescence with the
terms and provisions of this letter by countersigning where indicated below
and, upon such countersigning the provisions of this letter shall become
effective and in full force and effect.

 

Very truly yours,

 

JOHNSON & JOHNSON DEVELOPMENT

CORPORATION

 

	
  By:

  	
  /s/ Roy Cosan

  	
   

  
	
   

  	
  Name: Roy Cosan

  
	
   

  	
  Title: Vice President

  

 

 

For notice purposes:

 

 

Johnson & Johnson Development
Corporation

One Johnson & Johnson Plaza

New Brunswick, New Jersey 08933

Attention: Eric Jung, Associate General
Counsel

 

AGREED TO AND ACCEPTED:

 

NEUROGENETICS, INC.

 

 

	
  By:

  	
  /s/ Neil Kurtz

  	
   

  
	
   

  	
  Name: Neil M. Kurtz, M.D.

  
	
   

  	
  Title: President and CEO

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