Document:

Exhibit 10.3

Portions of this agreement, marked by
asterisks (***), have been omitted pursuant to a request for confidential
treatment.  The omitted information has
been filed separately with the Securities and Exchange Commission

 

COLLABORATIVE RESEARCH & LICENSE AGREEMENT

between

LIPID SCIENCES, INC.

and

ELANCO ANIMAL HEALTH

 

Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

 

This COLLABORATIVE RESEARCH & LICENSE
AGREEMENT (the “Agreement”) is effective from the Effective Date by
and between:

 

LIPID SCIENCES, INC. (“Lipid
Sciences”), a publicly-traded Delaware corporation, having a place
of business at 7068 Koll Center Parkway - Suite 401, Pleasanton, CA 94566;

and

ELI LILLY AND COMPANY, an Indiana corporation, operating through
its Elanco Animal Health division and having a principal place of business at
2001 W. Main Street, Greenfield, Indiana 46140 (“Elanco”).

INTRODUCTION

A.            WHEREAS,
Lipid Sciences and/or its Affiliate(s) have developed proprietary technology
for, and are the owners and/or exclusive licensees of patents claiming,
delipidation-based methods and systems for the production of treatments for
viral or bacterial infections, among other ailments (“Immunological Products”).

B.            WHEREAS,
Lipid Sciences and/or its Affiliate(s) have facilities and personnel that
enable it to design and develop various kinds of Immunological Products.

C.            WHEREAS,
Lipid Sciences and/or its Affiliate(s) possess know-how, expertise and
intellectual property rights pertaining to the design and development of these
Immunological Products.

D.            WHEREAS,
Elanco is engaged in the research, development, marketing, manufacturing and
distribution of animal health products for use in, on or near live animals.

E.             WHEREAS,
Elanco desires to design, develop and manufacture certain Immunological
Products for use in, on or near live animals.

F.             WHEREAS,
Lipid Sciences and/or its Affiliate(s) desire to collaborate with Elanco in the
development of one or more Immunological Products for animal health
applications, subject to the terms and conditions set forth herein.

NOW THEREFORE, in consideration of the
foregoing premises and the following mutual covenants and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree as follows:

ARTICLE I

1.1           Interpretation.  In this Agreement, unless the context
otherwise requires, a reference to:

(a)                                  a paragraph, section, exhibit or schedule is
a reference to a paragraph, section, exhibit or schedule to this Agreement;

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Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

 

(b)                                 any document includes a reference to that
document (and, where applicable, any of its provisions) as amended, novated,
supplemented or replaced from time to time;

(c)                                  a statute or other law includes regulations
and other instruments under it and consolidations, amendments, re-enactments or
replacements of any of them;

(d)                                 the singular includes the plural and vice
versa, except as it regards the definitions in Sections 1.27 and 1.28 of this
Agreement;

(e)                                  a Party, person or entity includes:

(i)                                     an individual, firm, company, corporation,
association, trust, estate, state or agency of a state, government or
government department or agency, municipal or local authority and any other
entity, whether or not incorporated and whether or not having a separate legal
personality; and

(ii)                                  an employee, agent, successor, permitted
assign, executor, administrator and other representative of such party, person
or entity;

(f)                                    one gender includes the other;

(g)                                 “written” and “in writing” include any means
of reproducing words, figures or symbols in a tangible and visible form;

(h)                                 a month or year is a reference to a calendar
month or calendar year, as the case may be; and

(i)                                     individuals or persons include companies and
other corporations and vice versa.

1.2           “Affiliate”
means any corporation or other entity that controls, is controlled
by, or is under common control with a Party to the Agreement.  A corporation or other entity will be
regarded as in control of another corporation or entity if the latter
corporation or entity owns or directly or indirectly controls more than fifty
percent (50%) of the voting stock or other ownership interest of the former
corporation or other entity, or if the latter corporation or entity possesses,
directly or indirectly, the power to direct or cause the direction of the
management and policies of the former corporation or other entity or the power
to elect or appoint fifty percent (50%) or more of the members of the governing
body of the former corporation or other entity. An Affiliate will be bound
under this Agreement in the same manner as if it were a party hereto.

1.3           “Agreement”
means this formal legal document if ultimately signed by both
Parties, effective as of the Effective Date.

1.4           “Confidential
Information” means all know-how, trade secrets, technical
information, specifications, data, formulae, intellectual property or software
of a Party relating to or arising out of this Agreement including, without
limitation:

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Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

 

(a)                                  all communications
between the Parties or information of whatever kind whether recorded or not
and, if recorded, in whatever medium, relating to or arising out of the Product
Development Plan, the Design & Development Program, the Improvements, the Lipid
Sciences Patent Rights, the Elanco Patent Rights, the Elanco Inventions, Lipid
Sciences Inventions, Lipid Sciences Technology, Elanco Technology or the
Agreement, whether disclosed prior to or after entering into the Agreement;

(b)                                 any information that
the Party indicates in writing is information of a confidential nature or which
is marked “confidential”; and

(c)                                  all copies of the
communications, information, notes, reports and documents in whatever form
referred to in paragraph (a) or (b) of this definition.

1.5           “Design & Development Program” means
the work performed by Lipid Sciences and Elanco and/or their respective
Affiliate(s) in accordance with the Product Development Plan as revised from
time to time as provided in the Agreement.

1.6           “ECI” or “Employment
Cost Index” means the “Private Industry, Compensation, 12-Month
Percent Change, Not Seasonally Adjusted - ECU10002A” with respect to Total
Compensation in Private Industry for All Workers (annual rate or average of the
relevant year’s four calendar quarters if not annual), Series Id ECU10002A;
using 2007 as the base year for purposes of indexing within the context of this
Agreement, as published by the U.S. Bureau of Labor Statistics and available at
the following URL: 
http://data.bls.gov/cgi-bin/surveymost?ec, or its successor site.

1.7           “Effective Date” means the last date of
signature on the Agreement.

1.8           “Elanco Compound” means one or more active
ingredients directly resulting from Lipid Sciences Technology that is selected
by Elanco for development and commercialization of Product(s) and/or New
Product(s).

1.9           “Elanco Invention” means any Invention by
Elanco and/or its Affiliates (other than a joint invention) that is discovered,
made, or conceived and reduced to practice during or as a result of the Design
& Development Program.  For clarity,
any invention by Elanco and/or its Affiliates outside the Design &
Development Program will be solely owned by Elanco and/or its Affiliates.

1.10         “Elanco Patent Rights” means any and all
Patent Rights owned and/or controlled by Elanco during the term of the
Agreement.

1.11         “Elanco
Technology” means Technology, including know-how and trade secrets,
owned and/or controlled by Elanco as of the Effective Date of the Agreement
and/or developed during the term
of the Agreement.

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Portions of this
agreement, marked by asterisks (***), have been omitted pursuant to a request
for confidential treatment.  The omitted
information has been filed separately with the Securities and Exchange
Commission

1.12         “Field” means all applications and uses of
the Lipid Sciences Technology and Lipid Sciences Patent Rights for
Products.  For clarity, “Field” does not
include any human applications or uses.

1.13         “First Commercial Sale” of any Product(s)
and/or New Product(s) means the first sale for use by an end-user customer of
such Product(s) and/or New Product(s) in a country.

1.14         “First Payment” means the first payment,
e.g., a technology access fee or a payment made due to a first Regulatory
Agency submission, made by Elanco to Lipid Sciences pursuant to the payment
terms of Article V for any Product(s) and/or New Product(s).

1.15         “GxP” means compliance with all relevant
Regulatory Agency requirements for Good Clinical Practices, Good Laboratory
Practices, and Good Manufacturing Practices.

1.16         “Immunological
Products” means: proprietary delipidation-based methods and systems
for the production of treatments for viral or bacterial infections, among other
ailments, of which Lipid Sciences and/or its Affiliate(s) are the owners and/or
exclusive licensees having the right to enforce and sublicense.

1.17         “Improvements”
means:  (a) any modification of Lipid
Sciences Technology, Elanco Technology or an Elanco Compound, provided such
modification, if unlicensed, would infringe one or more Valid Claims of Lipid
Sciences Patent Rights or Elanco Patent Rights; and (b) any beneficial
modification of a component or material useful in a Product(s) and/or New
Product(s); in each of (a) and/or (b) for use in the Field or New Field, which
is reduced to practice within the term of the Agreement.

1.18         “Invention” means patentable ideas and/or
discoveries conceived by one or more employee(s) or agent(s) of Lipid Sciences
or Elanco, which arise under and during the term of this Agreement.  “Sole Invention”
means an Invention discovered, made, or conceived and reduced to practice
solely by Lipid Sciences employee(s) or agent(s) or solely by Elanco
employee(s) or agent(s).  “Joint Invention” means an Invention
discovered, made, or conceived and reduced to practice jointly by Lipid
Sciences employee(s) or agent(s) and Elanco employee(s) or agent(s).

1.19         “Joint Patent Rights” means Patent Rights
to a Joint Invention.

1.20         “Lipid
Sciences Invention” means any Invention by Lipid Sciences and/or its
Affiliates (other than a joint invention) that is discovered, made, or
conceived and reduced to practice during or as a result of the Design &
Development Program.  For clarity, any
invention by Lipid Sciences and/or its Affiliates outside the Design &
Development Program will be solely owned by Lipid Sciences and/or its
Affiliates.

1.21         “Lipid Sciences Patent Rights” means any
and all Patent Rights owned and/or controlled by Lipid Sciences and/or its
Affiliates in the Field or New Field during the term of the Agreement.

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Portions of this
agreement, marked by asterisks (***), have been omitted pursuant to a request
for confidential treatment.  The omitted
information has been filed separately with the Securities and Exchange
Commission

1.22         “Lipid
Sciences Technology” means Technology, including know how and trade
secrets, owned and/or controlled by Lipid Sciences as of the Effective Date of
the Agreement and/or developed during the term of the Agreement, and includes,
without limitation, Immunological Products and delipidation-based immunological
technology for use in, on or for animals.

1.23         “Net Sales” means, with respect to a
Product(s) and/or New Product(s), the gross amount invoiced by Elanco
(including an Elanco Affiliate) or any sublicensee thereof to unrelated Third
Parties, excluding any sublicensee, for Product(s) and/or New Product(s) in the
Territory, less the following:

(a)                                  Customary trade, quantity and cash discounts
allowed;

(b)                                 Third Party Agent commissions, discounts,
refunds, rebates, chargebacks, retroactive price adjustments and similar
allowances, limited to reasonable adjustments and allowances which effectively
reduce the net selling price;

(c)                                  Actual Product(s) and/or New Product(s)
returns or allowances;

(d)                                 Any tax imposed on the sale, delivery or use
of the Product(s) and/or New Product(s), including, without limitation, sales,
use, excise or value added taxes, but excluding any tax on income; and

(e)                                  Any other similar and customary deductions.

Such amounts will be determined from the books and records of Elanco,
Elanco Affiliates and/or sublicensee(s) (as applicable), maintained in
accordance with U.S. Generally Accepted Accounting Principles (also known as “GAAP”) or, in the case of sublicenses,
such similar accounting principles, consistently applied.  Elanco further agrees in determining such
amounts, it will use Elanco’s then-current standard procedures and methodology,
including Elanco’s then current standard exchange rate methodology for the
translation of foreign currency sales into U.S. Dollars or, in the case of
sublicensees, such similar methodology, consistently applied.

1.24         “New Field” means all applications and uses
of the Lipid Sciences Technology and Lipid Sciences Patent Rights for New
Products. For clarity, “New Field” does not include any human applications or
uses.

1.25         “New Product(s)” means any *** that
incorporates, uses or implements Lipid Sciences Technology and/or Lipid
Sciences Patent Rights and that is ultimately sold by or for Elanco inside the
New Field in the Territory, whether such embodiment was in existence prior to
the effective date of a collaborative research and commercialization agreement,
or is developed or improved under that agreement.  ***

1.26         “Notice” means the definition provided in
Section 11.7.

1.27         “Parties” means Lipid Sciences and Elanco.

1.28         “Party” means Lipid Sciences or Elanco.

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Portions of this
agreement, marked by asterisks (***), have been omitted pursuant to a request
for confidential treatment.  The omitted
information has been filed separately with the Securities and Exchange
Commission

1.29         “Patent Rights” means rights under all
patents,  provisional and
non-provisional, owned or controlled by the Parties (including all reissues,
extensions, substitutions, confirmations, re-registrations, re-examinations,
re-validations, patents of addition, supplementary protection certificates or
the equivalents thereof) and under all provisional and non-provisional patent
applications (including, without limitation, all continuations,
continuations-in-part and divisionals thereof), in each case, claiming an
Invention which is necessary or useful for the design, development, testing,
use, manufacture or sale of a Product(s) and/or New Product(s) that results
from the Agreement.

1.30         “POC Study” means the initial
proof-of-concept study that Elanco will conduct at its expense as consideration
for the rights granted under this Agreement. 
The criteria for establishing this POC Study are described in Exhibit A
of this Agreement.  As additional
consideration to Lipid Sciences for entering into this Agreement, Elanco will
also provide technical advice regarding the detailed design and scope of this
POC Study, at no charge to Lipid Sciences.

1.31         “Primary Contact Person” will be the
respective individuals designated by Lipid Sciences and Elanco, as noted in
Exhibit C, who will be responsible for the day-to-day interactions between the
Parties related to the Design & Development Program and the management of
the day-to-day operations of the Design & Development Program.  Each Party may change its Primary Contact
Person upon Notice to the other Party.

1.32         “Product” means any *** that incorporates,
uses or implements Lipid Sciences Technology and/or Lipid Sciences Patent
Rights, whether such embodiment was in existence prior to the Effective Date,
or is developed or improved under the Agreement.  ***

1.33         “Product Development Plan” means the
written development plan for Product(s) and/or New Product(s) (including a
corresponding budget), as amended from time to time by the Parties.

1.34         “Program Year” means each twelve (12)
calendar month period during the term of the Design & Development Program,
except in the first Program Year in which case the Program Year will not be
twelve (12) calendar months in length, but will be the period from the
Effective Date to 31-December-2007.

1.35         “Reasonable Commercial Efforts” means
effort, expertise and resources normally used by the Party in the development
and/or commercialization of a compound or product owned or controlled by such
Party which is of similar market potential at a similar stage in its
development or product life, taking into account issues of safety and efficacy,
product profile, the competitiveness of the marketplace, the proprietary
position of the compound or product, the regulatory structure involved, the
profitability of the applicable products, and other relevant factors.

1.36         “Regulatory Agency” means any one of the
U.S. Department of Agriculture (USDA); Environmental Protection Agency (EPA);
Food and Drug Administration (FDA); Food Safety and Inspection Service (FSIS);
or any counterparts thereof  in
jurisdictions outside of the USA.

1.37         “Steering Committee”
means the joint committee composed of representatives of Lipid Sciences and
Elanco, as described in the Agreement.

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Portions of this
agreement, marked by asterisks (***), have been omitted pursuant to a request
for confidential treatment.  The omitted
information has been filed separately with the Securities and Exchange
Commission

1.38         “Technology” means written specifications,
sketches, drawings, schematics, prototypes, methods, protocols, know-how, trade
secrets, all proprietary data, information, inventions, regulatory submissions
or other intellectual property of any kind, excluding Patent Rights, to the extent
necessary or useful for the research, development and commercialization of
Product(s) and/or New Product(s) in the Field or New Field, and any other
information or tangible material and any data related thereto that is useful in
the Field or New Field.

1.39         “Territory”
means worldwide.

1.40         “Third Party” means any entity, including
any natural person, other than Lipid Sciences or Elanco and their respective
Affiliates.

1.41         “Valid Claim” means either (a) a claim of
an issued and unexpired patent which has not been held permanently revoked,
unenforceable or invalid by a decision of a court or other governmental agency
of competent jurisdiction, unappealable or unappealed within the time allowed
for appeal, and which has not been admitted to be invalid or unenforceable
through re-examination, reissue or disclaimer or otherwise; or (b) a claim of a
pending patent application, which claim was filed in good faith and has not
been abandoned or finally disallowed without the possibility of appeal or
refiling of said application.

ARTICLE II

2.1           License Grant.  Subject to the terms of the Agreement, Lipid
Sciences and its Affiliates hereby grant to Elanco and its Affiliates the sole
and exclusive license under Lipid Sciences Technology, Lipid Sciences Patent
Rights, Lipid Sciences Inventions and Lipid Sciences Improvements in the Field
and Territory to research, develop, make, have made, use, sell, offer for sale,
import and sub-license, Product(s).

2.2           Rights Retained by Lipid
Sciences.  Lipid Sciences
retains the sole and exclusive right outside the Field in the Territory to use
for any purpose any Lipid Sciences Technology, Lipid Sciences Patent Rights,
Lipid Sciences Inventions and Lipid Sciences Improvements (including, without
limitation, to research, develop, make, have made, use, sell, offer for sale,
import and license products).  For
clarity, Elanco and its Affiliates cannot research, develop, make, have made,
use, sell, offer for sale, import or sublicense any Lipid Sciences Technology,
Lipid Sciences Inventions, Lipid Sciences Improvements or Lipid Sciences Patent
Rights outside the Field, unless Elanco and/or its Affiliates enter into a
separate agreement with Lipid Sciences and/or its Affiliates.  Furthermore:

(a)                                  no license or other rights are granted to Lipid
Sciences to Elanco Technology, Elanco Patent Rights or Elanco Inventions,
except solely for the benefit of Elanco and its Affiliates;

(b)                                 no license or other rights are granted to
Elanco to Lipid Sciences Technology, Lipid Sciences Patent Rights or Lipid
Sciences Inventions, except as provided in this Agreement;

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Portions of this
agreement, marked by asterisks (***), have been omitted pursuant to a request
for confidential treatment.  The omitted
information has been filed separately with the Securities and Exchange
Commission

(c)                                  Elanco and its Affiliates acknowledge that,
as of the Effective Date, no license or other rights are necessary to be
granted, or are granted, to Lipid Sciences by Elanco and its Affiliates for the
purposes of the Agreement, except to the extent disclosed in writing by Elanco
to Lipid Sciences prior to work commencing under the Product Development Plan
or under the Design & Development Program for the development of the
Product in the Field; and

(d)                                 Lipid Sciences and its Affiliates acknowledge
that, as of the Effective Date, no license or other rights are necessary to be
granted, or are granted, to Lipid Sciences by Third Parties for the purposes of
the Agreement, except to the extent disclosed in writing by Lipid Sciences to Elanco
prior to work commencing under the Product Development Plan or under the Design
& Development Program for the development of the Product in the Field.

2.3           Rights Reverting to Lipid Sciences.  If any Product(s) and/or New Product(s) or
indication reverts to Lipid Sciences pursuant to Section 5.1, then Lipid
Sciences will have the exclusive right inside the Field or New Field and within
the Territory to use any Lipid Sciences Technology, Lipid Sciences Patent
Rights, Lipid Sciences Improvements and Lipid Sciences Inventions to develop,
make, have made, use, sell, import or sub-license Product(s) and/or, as
applicable, New Product(s).

2.4           Sublicenses.  Subject to the other provisions of the
Agreement, Elanco shall have the sole right to sublicense any and all rights
licensed to Elanco under Section 2.1. 
Any such sublicense by Elanco shall be consistent with the terms of the
Agreement, and shall include an obligation for each such sublicensee to comply
with the applicable obligations of Elanco set forth in the Agreement.

2.5           Trademarks.  Elanco
will be free to use and to register in any trademark office any trademark for
use with a Product(s) and/or New Product(s) in its sole discretion, except for
trademarks proprietary to Lipid Sciences and its Affiliates.  Elanco will own all right, title and interest
in and to any such trademark in its own name during and after the term of the
Agreement, except for trademarks proprietary to Lipid Sciences and its
Affiliates.

ARTICLE
III

3.1           Formation
and Composition.  A joint
committee comprised of four (4) members, two (2) named representatives of each
of Elanco and Lipid Sciences (the “Steering
Committee”) is being appointed pursuant to this Agreement.  Each Party has provided the other Party in
writing with the name, title, e-mail address, telephone number and facsimile
number of their respective Steering Committee members and such information is
set forth in Exhibit C.  The Steering
Committee will meet as needed, but not less than once each quarter during the
term of the Design & Development Program. 
Such meetings will be at such times agreed to by Lipid Sciences and
Elanco, and will alternate between the offices of the Parties unless the
Parties otherwise agree, or will be in such other form (e.g., telephone or
video conference) as the members of the Steering Committee will agree.

3.2           Steering
Committee Functions and Powers. 
The Steering Committee will be responsible for the direction and overall
supervision and management of the Design & 

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Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

Development Program consistent with each Party’s internal policies and
procedures.  The principal functions of
the Steering Committee will be to:

(a)                                  create
Design & Development Program(s) and Product Development Plan(s);

(b)                                 monitor
the progress and results achieved under the Design & Development Program
and to revise, as necessary, the Product Development Plan;

(c)                                  foster
the collaborative relationship between the Parties;

(d)                                 facilitate
the transfer, development and commercialization of technology in accordance
with the Agreement;

(e)                                  determine
potential New Products, identify and approve the development of New Products;
and

(f)                                    such
other functions as agreed by the Parties.

A Party may change one or more of its representatives to the
Steering Committee at any time.  Members
of the Steering Committee may be represented at any meeting by another member
of the Steering Committee, or by a deputy. 
Either Party may permit additional employees and consultants to attend
and participate (on a non-voting basis) in the Steering Committee meetings,
subject to the confidentiality provisions of the Agreement.

3.3           Decisions of
the Steering Committee.  A
quorum of the Steering Committee will be present at any meeting of the Steering
Committee if at least two (2) representatives of each Party are present at such
meeting in person or by telephone or videoconference.  If a quorum exists at any meeting, a
unanimous vote of the members of the Steering Committee present at such meeting
is required to take any action on behalf of the Steering Committee, with the
exception of any actions taken pursuant to Section 3.4.

3.4           Elanco’s Right to Control Commercialization.  Notwithstanding the responsibilities and
duties of the Steering Committee, Elanco will have the right to choose
Product(s) and/or New Product(s) for development and commercialization,
including formulation, means of administration and other factors that appear
most promising for further development. 
Promptly upon making a selection, Elanco will notify the Steering
Committee in writing.

3.5           New
Products.  Elanco has the first option right to
commercialize all applications and uses of the Lipid Sciences Technology and
Lipid Sciences Patent Rights for New Products (“Option Right”).  Therefore, if Elanco determines that,
pursuant to the results obtained by the Design & Development Program,
Product(s) and/or New Product(s) are commercially viable, upon the payment of
relevant payments described in Article V of this Agreement, Elanco and its Affiliates will have
the sole and exclusive license under Lipid Sciences Technology, Lipid Sciences
Patent Rights, Lipid Sciences Inventions and Lipid Sciences Improvements in the
New Field and Territory to research, develop, make, have made, use, sell, offer
for sale, import and sub-license the New Product(s) in accordance with the
following terms:

3.5.1. Exercise of Option Right by Elanco.  To
exercise the Option Right, Elanco shall propose to the Steering Committee, in
writing, the commercialization of any New Product(s); within three (3) months,
the Steering Committee shall complete a Product Development Plan for said New
Product(s).  Provided Elanco pays the
additional payments described in Article V of this

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Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

Agreement, the Option Right shall be deemed
to have been exercised by Elanco, the Option Right shall be deemed to have been
granted to Elanco by Lipid Sciences, and the New Product(s shall be deemed to
have been approved for development by the Steering Committee.

3.5.2. Termination of Option Right by Elanco.  The Option Right for any New Product
terminates sixty (60) days after Elanco receives Notice from Lipid Sciences
that any payment due under Article V has not been received, provided that,
during that sixty (60) day period, Elanco has not made such payment to Lipid
Sciences.  After the Option Right
terminates for any New Product, Lipid Sciences has full right and authority to
pursue, or have others pursue, the research and/or commercialization of the relevant
New Product.

3.5.3. Limitations on Option Right.  In order to effectively manage the
development pipeline, if, after exercising its Option Right(s), Elanco has not
made a First Payment for three (3) New Product(s), Elanco must first obtain the
written approval of the Steering Committee before exercising its Option Right
to commercialize any additional New Product(s).

Notwithstanding Sections 2.1 and 3.5, this
Agreement does not serve to grant to Elanco or its Affiliates a license under
Lipid Sciences Technology, Lipid Sciences Patent Rights, Lipid Sciences
Inventions and Lipid Sciences Improvements to generally use Lipid Sciences
Technology in a field outside the Field or New Field or to research, develop,
make, have made, sell, offer for sale, import and sub-license products other
than Product(s) or New Product(s).

3.6           Chair.  The Steering Committee will be chaired by one
Elanco representative appointed by Elanco for the first Program Year, then one
Lipid Sciences representative (or Elanco representative at Lipid Sciences’s
request) appointed by Lipid Sciences for the second Program Year and
alternating accordingly thereafter.  The
chair does not have a second or casting vote.

3.7           Minutes and
Reports.  The Steering
Committee will be responsible for keeping accurate minutes of its deliberations
that record all proposed decisions and all actions recommended or taken.  Within ten (10) business days of each
meeting, the chair will provide the Parties with draft minutes of such meeting
and a draft of a written accompanying report describing in reasonable detail
the status of the Design & Development Program, a summary of the work and
progress to date, any issues requiring resolution and any proposed decisions
and actions recommended or taken to all members of the Steering Committee.  Within thirty (30) days of each meeting, the
Steering Committee will approve final versions of the meeting minutes and the
accompanying report and such minutes and accompanying report will thereafter be
recognized as duly accepted by the Parties. 
All records of the Steering Committee will be available to both Parties.

3.8           Information
and Results.  Except as
otherwise provided, the Parties will make available and disclose to one another
all results of the work conducted pursuant to the Design & Development
Program prior to and in preparation for the Steering Committee meetings, by the
deadline and in the form and format to be designated by the Steering Committee.

3.9           Subcontracts.  Subject to the provisions of the Agreement,
the Parties may subcontract to Affiliates and Third Parties portions of the
Design & Development Program to be performed, provided the subcontracting
Party has obtained the prior consent of the Steering Committee; and provided,
however, that such Affiliates and Third Party subcontractors will be required
to enter into appropriate confidentiality agreements (said agreements of which
signed copies will be submitted to the Steering Committee) unless such
subcontracting would not require the transfer 

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Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

of Confidential Information to the Affiliate or Third Party
subcontractor, and further provided that the Parties’ rights under the
Agreement are not adversely affected.

ARTICLE
IV

4.1           Performance of Design &
Development Program.  The
Steering Committee will establish a program under which the Parties will use
Reasonable Commercial Efforts to collaboratively develop Product(s) and/or New
Product(s), with the initial goal of ***. 
The Parties will use Reasonable Commercial Efforts to perform the design
and development tasks as described in the initial Product Development Plan
subsequently attached as Exhibit A.  The
Design & Development Program will be conducted by the Parties in good
scientific manner, and where necessary, in compliance with all applicable GxP
and ISO9001 design requirements.

4.2           Product Development Plan.  The Design & Development Program
will be conducted in accordance with the Product Development Plan that
describes the work to be pursued by the Parties during each Program Year.  Except for the first Program Year, the
Product Development Plan will be updated and approved by the Steering Committee
no later than sixty (60) days prior to the start of each Program Year.  The Product Development Plan in effect at any
time may not be amended except as agreed in writing by the Steering Committee.  If at any time during the Program Year, either
Party determines that a change to the Product Development Plan would benefit
the Design & Development Program, such Party will prepare and submit to the
Steering Committee a written proposal detailing its proposed changes to the
Product Development Plan.  Any budget for
Lipid Sciences’ costs under a modified Product Development Plan that are to be
reimbursed by Elanco will be approved by the Steering Committee before Lipid
Sciences commences any work on such modified Product Development Plan.

4.3           Sharing
of Testing, Marketing, Manufacturing and Regulatory Data.  Parties will provide to each other, at no charge, access to testing,
pilot manufacturing and regulatory data relevant to Product(s) and/or New
Product(s) in the Field or New Field, or if required for regulatory purposes.

4.4           Results and Records.  The Parties will make available and disclose
to one another all results of the work conducted pursuant to the Design &
Development Program, and will keep such records as described herein; provided
that each Party will maintain such results and records of the other Party in
confidence in accordance with the confidentiality provisions in the Agreement,
and will not use such results or records except to the extent otherwise
permitted by the Agreement.  The Parties
will maintain records of the results in sufficient detail and in good
scientific manner appropriate for patent purposes, and in a manner that
properly reflects all work done and results achieved in the performance of the
Design & Development Program (including all data in the form required to be
maintained under any applicable governmental regulations).  Such records will include reports, research
notes, charts, graphs, computations, analyses, recordings, photographs, and
other graphic or written data specifically relevant to the Design &
Development Program.

4.5           Availability of Employees.  Each Party agrees to make its employees and
non-employee consultants reasonably available at their respective places of
employment to consult with the other Party on issues arising during the Design
& Development Program and in connection with any request related to a
Product(s) and/or New Product(s) or the Design & Development Program from
any Regulatory Agency, including regulatory, scientific, technical and clinical
testing issues.

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omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

4.6           Visit of Facilities.  Representatives of the Parties may, upon
reasonable advance notice and at times reasonably acceptable to the other
Party, visit the other Party’s facilities where the Design & Development
Program is being conducted, and consult informally, during such visits and by
telephone, facsimile and e-mail, with the other Party’s personnel performing
work on the Design & Development Program.

4.7           Product(s)
and/or New Product(s) Development by Elanco.  Elanco will conduct all related Product(s)
and/or New Product(s) development activities in the Field or New Field and
Territory at its expense from the Effective Date, including the preparation and
submission of the appropriate regulatory documents required for
commercialization within the Field or New Field and Territory.

4.8           Product(s)
and/or New Product(s) Development Conducted by Lipid Sciences.

(a)                                  Elanco will pay Lipid Sciences as described
in “(b)” and “(c)” of this Section, for any development activities associated
with the Product Development Plan or the Design & Development Program that
are approved in writing in advance by the Steering Committee.  If Steering Committee approval is not
granted, Lipid Sciences will not commence any work or incur such costs or expenses
on behalf of Elanco or the Steering Committee. 
With respect to the activities to be undertaken by Lipid Sciences under
the Agreement, Elanco will reimburse Lipid Sciences for these activities.  Elanco will reimburse Lipid Sciences for
reasonable costs incurred due to Lipid Sciences’ personnel, or approved third
party personnel, working directly on Product(s) and/or New Product(s)
development.  The total annual rate per
full-time equivalent employee (“FTE”)
of Lipid Sciences to be paid by Elanco will be *** for any FTE in the first
Program Year, said rate to include overhead costs of Lipid Sciences for said
FTE.  Beginning in 2008, this rate will
be adjusted annually to reflect changes, if any, in the ECI.  Elanco will also reimburse Lipid Sciences for
expenses incurred due to Lipid Sciences’ personnel, or approved third party
personnel, working directly on Product(s) and/or New Product(s) development,
such as transportation, travel, or lodging costs subject to pre-approval by the
Steering Committee.

(b)                                 Notwithstanding section (a), Elanco recognizes
that the Design & Development Program may require the services of Third
Parties, including consultants, laboratories, or scientific advisors.  Elanco further recognizes that the services
of Third Parties may exceed ***, and therefore agrees that the *** sum in
section (a) does not apply to services from Third Parties.  Lipid Sciences agrees to submit all such
Third Party expenses to the Steering Committee, for approval, prior to
commencing any work with any Third Party(ies).

(c)                                  For budgeted expenses in “(a)” of this
Section that are to be incurred by or on behalf of Lipid Sciences under the
Product Development Plan and/or the Design & Development Program, Elanco
will pay Lipid Sciences within sixty (60) days of Elanco’s receipt of invoice
from Lipid Sciences for any such expenses.

(d)                                 In addition to expenses covered in “(b)” of
this Section, should additional expenses be approved in writing in advance by
the Steering Committee that were not initially budgeted and paid for under “(b)”
of this Section, Elanco will reimburse Lipid 

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Sciences within sixty (60) days of Elanco’s receipt
of invoice from Lipid Sciences for any such expenses.

4.9           Regulatory / Quality Assurance / Quality Control /
Legal.  Parties will allow
Regulatory, Quality Assurance, Quality Control, Accounting and Legal personnel
from either Party or its attorneys, advisors, accountants and contractors, on a
“need to know” basis, timely and reasonable access to audit financial records,
trial protocols, pilot scale manufacturing documents, procedures manuals,
patent documents and other Product(s) and/or New Product(s)-related items
relating to the license granted pursuant to the Agreement or relating to the
Product Development Plan or the Design & Development Program.

4.10         Performance.  Elanco will use Reasonable Commercial Efforts
to identify, research, and develop and commercialize Product(s) and/or New
Product(s) in the Field or New Field in the Territory, but will be under no
obligation to commercialize and market a Product or New Product if it
determines, in its sole and reasonable business judgment, that such an effort
is not commercially viable for Elanco.

4.11         Quality.  Elanco
will determine, in its sole judgment, quality standards for Product(s) and/or
New Product(s) including, but not limited to: 
stability; process validation and pre-approval inspection preparation;
common specifications; assay methodology and storage conditions.  Elanco will also determine, in its sole
business judgment, manufacturing standards and requirements for Product(s)
and/or New Product(s).

4.12         Out-Of-Pocket Expense Reimbursements.  Elanco agrees to pay Lipid Sciences, within
sixty (60) days of Elanco’s receipt of invoice from Lipid Sciences, for all
out-of-pocket expenses approved in advance by Elanco, that are paid by Lipid
Sciences to Third Parties, or pay the Third Parties directly at Elanco’s sole
election.

4.13         Regulatory Approvals.  Elanco will assume all responsibility and
related expense for Regulatory Agency approvals of Product(s) and/or New
Product(s)  in the Field
or New Field and Territory.

4.14         Manufacturing.  Elanco
will have the exclusive right and obligation to manufacture, or have
manufactured, Product(s) and/or New Product(s) for all development, Regulatory
Agency approval, and commercialization purposes.  Elanco will assume all responsibility and
related expense for manufacturing and supply of Product(s) and/or New
Product(s) to Elanco customers.

4.15
        Marketing
and Sales.  Elanco will assume
all responsibility and related expense for marketing and sales of Product(s)
and/or New Product(s) to Elanco customers.

4.16         Regulatory
Issues and Obligations, Ownership and Survival Rights.  Elanco will own the regulatory registrations
for Product(s) and/or New Product(s) developed and commercialized by Elanco, at
its sole expense, but will assign to Lipid Sciences, in perpetuity and free of
royalties to Elanco, manufacturing, use, and sale rights back to Lipid Sciences
if Elanco elects to terminate the License during the Term, or if Lipid Sciences
terminates the License for Elanco’s material breach.

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separately with the Securities and Exchange Commission

 

ARTICLE V

5.1           Consideration.  In each instance for the milestone
payments described below, if Elanco fails to pay or elects not to pay the
relevant owed milestone payment within sixty (60) days of Elanco’s receipt of
Notice from Lipid Sciences that the relevant milestone event has occurred, the
rights for that(those) relevant Product(s) and/or New Product(s) or indication
(as described below) will revert to Lipid Sciences:

5.2           License Fee(s). Elanco
agrees to pay Lipid Sciences development and commercialization license fees in
accordance with the schedule provided in Exhibit E.

5.3            ***.

5.4           Payments under Sub-License.  If Elanco sub-licenses the Lipid
Sciences Technology, the Lipid Sciences Patent Rights, the Lipid Sciences
Inventions or the Lipid Sciences Improvements in the Field or New Field, Elanco
will pay Lipid Sciences *** percent (***) of all payments (including signing
fees, milestones and supply margins if Elanco produces Product(s) and/or New
Product(s) under said sub-license) received from the Third Party to whom it has
granted the sub-license.

5.5           Audits. 
Upon the written request of Lipid Sciences, Elanco will permit an
independent certified public accountant selected by Lipid Sciences and
acceptable to Elanco, which acceptance will not be unreasonably withheld or delayed,
to have access during normal business hours to such of the records of Elanco as
may be reasonably necessary to verify the accuracy of the payment reports
hereunder in respect of any calendar year ending not more than thirty-six (36)
months prior to the date of such request. 
Except as described in the next paragraph, all such verifications will
be conducted at the expense of Lipid Sciences and not more than once in each
calendar year.

In the event such accountant concludes that
additional payments of any kind as required by this Agreement were owed during
such period, the additional amounts will be paid within 90 (ninety) days of the
date Lipid Sciences delivers to Elanco such accountant’s written report so
concluding.  The fees charged by such
accountant will be paid by Lipid Sciences, unless the audit discloses that the
amounts payable by Elanco for the audited period are more than one hundred and
ten percent (110%) of the amounts actually paid for such period, in which case
Elanco will pay the reasonable fees and expenses charged by the accountant.

Elanco will include in each sublicense
granted by it pursuant to the Agreement a provision requiring the sublicensee
to make reports to Elanco, to keep and maintain records of sales pursuant to
such sublicense and to grant access to such records by Lipid Sciences’s
independent accountant to the same extent required of Elanco under the
Agreement.

Upon the written request of Elanco, Lipid
Sciences will permit an independent certified public accountant selected by Elanco
and acceptable to Lipid Sciences, which acceptance will not be unreasonably
withheld or delayed, to have access during normal business hours to such of the
records of Lipid Sciences as may be reasonably necessary to verify the accuracy
of the financial records hereunder in respect of any calendar year ending not
more than thirty-six (36) months prior to the date of such request.  Except as described in the next paragraph,
all such verifications will be conducted at the expense of Elanco and not more
than once in each calendar year.

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separately with the Securities and Exchange Commission

In the event such accountant concludes that
amounts reimbursed to Lipid Sciences by Elanco during such period exceeded the
amounts approved in writing in advance by Elanco pursuant to Section 4.8 and
out-of-pocket expenses approved by Elanco pursuant to Section 4.12, the amount
of the excess expenses will be paid to Elanco within ninety (90) days of the
date Elanco delivers to Lipid Sciences such accountant’s written report so
concluding.  The fees charged by such
accountant will be paid by Elanco, unless the audit discloses that the amounts
paid by Elanco to Lipid Sciences for the audited period are more than one
hundred and ten percent (110%) of the amount of the expenses approved by Elanco
for such period, in which case Lipid Sciences will pay the reasonable fees and
expenses charged by such accountant.

The Parties agree that all information
subject to review under this Section or under any sublicense agreement is
confidential and that it will cause its accountant to retain all such
information in confidence.

5.6           Royalty Payment Terms.  Royalties shown to have accrued by each
royalty report provided for under the Agreement will be due and payable on the
date such royalty report is due.  Payment
of royalties in whole or in part may be made in advance of such due date.  Royalties determined to be owing, and any
overpayments to be credited with respect to any prior period, will be added
together with interest thereon accruing under the Agreement from the date of
the report for the period for which such amounts are owing, or credited, as the
case may be, to the next annual payment hereunder.

5.7           Royalty Reports. 
Royalty reports are due for each calendar quarter 90 (ninety)
days after the end of the quarter.  The
royalty report must set out the Net Sales for Product(s) and/or New Product(s)
for the period to which the report relates.

5.8           Withholding of Taxes.  Any withholding of taxes levied by tax
authorities outside the United States on the payments hereunder will be
deducted by Elanco from the sums otherwise payable by it hereunder for payment
to the proper tax authorities on behalf of Lipid Sciences and will be borne by
Lipid Sciences.  Elanco agrees to
cooperate with Lipid Sciences in the event Lipid Sciences claims exemption from
such withholding or seeks deductions under any double taxation or other 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 Elanco.

5.9           Exchange Controls.  Except as otherwise provided in the
Agreement, all payments to be made pursuant to the Agreement will be paid in
U.S. Dollars.  If at any time legal
restrictions prevent the prompt remittance of part or all royalties with
respect to any country where Product(s) and/or New Product(s) is(are) sold,
payment will be made through such lawful means or methods as Elanco may
determine.  When in any country the law
or regulations prohibit both the transmittal and deposit of royalties on sales
or any other payments due under this Agreement in such a country, royalty
payments due by Elanco to Lipid Sciences in respect of sales in such country
will be suspended for as long as such prohibition is in effect, and as soon as
such prohibition ceases to be in effect, all payments that Elanco would have
been obligated to transmit or deposit, but for the prohibition, will forthwith
be deposited or transmitted promptly to the extent allowable, as the case may
be.  If the royalty rate specified in the
Agreement should exceed the permissible rate established in any country, the
royalty rate for sales in such country will be adjusted to the highest legally
permissible or government-approved rate.

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omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

5.10         Interest on Late Payments.  If either Party fails to pay any payment due
under this Agreement on or before the date such payment is due, as provided in
this Agreement, such late payment shall bear interest, to the extent permitted
by applicable law, at the prime rate as of the date of U.S. Mail postmark of
the relevant payment if sent by U.S. Mail, or otherwise on the date of receipt
of payment, as published in The Wall Street Journal and found on the wsj.com
website at the following link or its successor site:

http://online.wsj.com/page/mdc/2_0500-rates-10.html?mod=2_0031

plus five percentage points (5.0 p.p.), as
calculated on the number of days the relevant payment is delinquent from and
including the date payment is due through and including the date upon which the
owed Party has collected immediately available funds in its own account.

ARTICLE
VI

6.1           Disclosure of Inventions.  During the term of the Design &
Development Program, each Party will promptly disclose to the other Party the
Inventions arising under the Design & Development Program made by its
employees or agents, provided that such Inventions are related to Product(s)
and/or New Product(s).

6.2           Lipid Sciences Inventions and Patent Rights.  All right, title and interest in
all Lipid Sciences Inventions, Lipid Sciences Improvements, Lipid Sciences
Technology and Lipid Sciences Patent Rights will be owned by Lipid Sciences.

6.3           Elanco Inventions and Patent Rights.  All right, title and interest in all Elanco
Inventions, Elanco Improvements, Elanco Technology and Elanco Patent Rights
will be owned by Elanco.

6.4           Joint Inventions and
Joint Patent Rights.   Subject
to Section 6.8, all right, title and interest in all Joint Inventions and Joint
Patent Rights will be owned jointly by Elanco and Lipid Sciences; provided
however, responsibility for patent filing with respect to Joint Inventions will
be as set forth in Section 6.8; and provided further that, except in connection
with a permitted assignment of the Agreement pursuant to Section 11.6, neither
Party may transfer its interest in any Joint Invention or Joint Patent Right
unless Notice of such transfer has been first given to the other Party and the
transferee agrees in writing to be bound by the terms of the Agreement with
respect to the interest so transferred, and the right of first refusal having
been extended to the other Party.  In the
event either Party decides to commercially exploit or license to any Third
Party any rights or interests in Joint Inventions or Joint Patent Rights inside
the Field or New Field in any jurisdiction in which the consent of joint owners
is required for such exploitation or grant of such license, the other Party
agrees that it will not unreasonably withhold its consent, nor require payment
in connection with granting such consent.

The Parties acknowledge Lipid Sciences may
develop, make, have made, use, sell, license or commercially exploit (either by
itself or to or with any Third Party) any rights in Joint Inventions or Joint
Patent Rights outside the Field or New Field in any jurisdiction.  Elanco will not develop, make, have made,
use, sell, license or commercially exploit (either by itself or with or to any
Third Party) any rights in Joint Inventions or Joint Patent Rights outside the
Field or New Field in any jurisdiction, nor prevent Lipid Sciences from so
doing.  To the extent that any law requires
the consent of Elanco for Lipid Sciences to develop, make, have made, use,
sell, offer for sale, import, license, practice or commercially exploit (either
by itself or to or with any Third Party) any rights in 

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separately with the Securities and Exchange Commission

Joint Inventions or Joint Patent Rights
outside the Field or New Field in any jurisdiction, the execution of the Agreement
is deemed to be the giving of such consent by Elanco.

The Parties acknowledge Elanco may (and only
Elanco may) develop, make, have made, use, sell, license or commercially
exploit (either by itself or to or with any Third Party) any rights in Joint Inventions
or Joint Patent Rights inside the Field or New Field in any jurisdiction.  Lipid Sciences will not develop, make, have
made, use, sell, offer for sale, import, license, practice or commercially
exploit (either by itself or with or to any Third Party) any Product(s) and/or
New Product(s) under Joint Inventions or Joint Patent Rights inside the Field
or New Field in any jurisdiction, nor prevent Elanco from so doing.  To the extent that any law requires the consent
of Lipid Sciences for Elanco to develop, make, have made, use, sell, license or
commercially exploit (either by itself or to or with any Third Party) any
rights in Joint Inventions or Joint Patent Rights inside the Field or New Field
in any jurisdiction, the execution of this Agreement is deemed to be the giving
of such consent by Lipid Sciences.

6.5           Cooperation of Employees.  Each Party represents and agrees that all its
employee(s) or agent(s) will be obligated under a binding written agreement to
assign to such Party, or as such Party will direct, all Inventions made or
conceived by such employee(s) or other agent(s) in connection with this
Agreement.

6.6           Lipid Sciences Patent Rights.  Lipid Sciences will have sole responsibility
for and control over the filing, prosecution, maintenance and enforcement of
the Lipid Sciences Patent Rights, at Lipid Sciences’ expense.  Lipid Sciences will keep Elanco informed
regarding the status and prosecution of all patent applications and patents
included in such Lipid Sciences Patent Rights licensed to Elanco pursuant to
Section 2.1.  No later than March 1st of
each year during the term of the Agreement, Lipid Sciences will provide Elanco
with a report describing the status of the Lipid Sciences Patent Rights licensed
to Elanco pursuant to Section 2.1.  Such
report will include, at a minimum, the patent application and patent number,
country(ies), filing date, issue date, expiration date and any other relevant
information.

If Lipid Sciences determines it will not seek
patent rights with respect to any potentially patentable Lipid Sciences
Invention or Lipid Sciences files Lipid Sciences Patent Rights in one or more
countries but subsequently determines, on a country-by-country basis, that it
will not file, prosecute or maintain any patent or patent application within
the Lipid Sciences Patent Rights licensed to Elanco pursuant to Section 2.1
(except for abandonment of a patent application in favor of a patent
application subsequently filed for purposes of continuing the prosecution of
Lipid Sciences Patent Rights claiming the inventions included in the abandoned
patent application), then Lipid Sciences will give Elanco the timely
opportunity to direct Lipid Sciences to continue to prosecute or maintain the
patent application or patent in Lipid Sciences’ name and at Elanco’s expense.

6.7           Elanco Patent Rights. 
Elanco will have sole responsibility for and control over the
filing, prosecution, maintenance and enforcement of the Elanco Patent Rights,
at Elanco’s expense.

6.8           Joint Patent Rights. 
Elanco will have the first right to assume responsibility for
the preparation, filing, prosecution and maintenance of any Joint Patent Rights
in each country or region of the
Territory where the Parties mutually determine that it is commercially
reasonable to do so, using outside patent counsel reasonably acceptable to
Lipid Sciences.  Elanco will share
equally with Lipid Sciences the reasonable out-of-pocket expenses incurred in
connection with 

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separately with the Securities and Exchange Commission

such preparation, filing, prosecution and
maintenance of Joint Patent Rights. 
Lipid Sciences will reimburse Elanco for Lipid Sciences’ share of such
expenses within ninety (90) days after receipt of invoice from Elanco
(including supporting documentation, upon written request of Lipid Sciences);
if Lipid Sciences fails or declines to pay its one-half share of expenses
within the ninety (90) day period, Elanco may deduct from amounts due and owing
to Lipid Sciences such share of unpaid expense. 
Elanco will keep Lipid Sciences reasonably informed of, and consult with
Lipid Sciences with respect to, all significant actions relating thereto.  If Elanco elects not to assume such
responsibility, Lipid Sciences will have the right but not the obligation to do
so, and will keep Elanco reasonably informed of, and consult with Elanco with
respect to, all significant actions relating thereto; and in such event, Elanco
will bear one-half the reasonable out-of-pocket expenses of preparation,
filing, prosecution and maintenance thereof. 
If Lipid Sciences assumes such responsibility but Elanco fails or
declines to pay its one-half share of expenses within the ninety (90) day
period, Lipid Sciences may add to amounts due and owing to Lipid Sciences such
share of unpaid expense.

6.9           Patent Term Extension.  Lipid Sciences will cooperate with Elanco in
obtaining patent term extension or supplemental protection certificates and the
like with respect to the Lipid Sciences Patent Rights and Joint Patent Rights
in the Field or New Field as to which Elanco is licensed under the Agreement,
in each country and region where it is possible to do so.  Elanco will make the election and Lipid
Sciences agrees to abide by such election. 
Lipid Sciences may elect to be reimbursed by Elanco for its fully
burdened FTE and legal costs for accomplishing such patent term extension or
supplemental protection certificates requested by Elanco.

6.10         Data and Intellectual Property.  Technology and patents owned by either Party
at the beginning of the Agreement for Product(s) and/or New Product(s) and
Technology, and that developed and owned during the Term will remain the sole
property of the owning Party to exploit in any manner it chooses at its sole
discretion, except to the extent otherwise provided in this Agreement.  New Invention(s) made by Lipid Sciences
and/or Elanco in connection with Product(s) and/or New Product(s) and/or
Technology during the term of the Agreement, and any patents, copyrights or
other intellectual property based on such Invention(s), will be owned by the
Party(ies) of which the inventor(s) is an employee or agent.

ARTICLE
VII

7.1           Infringement
Claims.  If the manufacture,
sale or use of Product(s) and/or New Product(s) pursuant to the Agreement
results in, or may result in, any claim, suit or proceeding by a Third Party
alleging patent infringement by Lipid Sciences or Elanco (or its licensees or
sublicensees), or by an Affiliate of Lipid Sciences or Elanco, such Party will
promptly notify the other Party hereto in writing.  The Party subject to such Third-Party claim
will have the exclusive right to defend and control the defense of any such
claim, suit or proceeding, at its own expense, using counsel of its own choice;
provided, however, that Elanco will not enter into any settlement which admits
or concedes that any aspect of the Lipid Sciences Patent Rights is invalid or
unenforceable without the prior written consent of Lipid Sciences, and Lipid
Sciences will not enter into any settlement which admits or concedes that any
aspect of the Elanco Patent Rights is invalid or unenforceable without the
prior written consent of Elanco.  The
Party subject to the Third-Party claim will keep the other Party hereto
reasonably informed of all material developments in connection with any such
claim, suit or proceeding.  Should Elanco
decide not to actively defend or fail to defend any such claim, suit, or
proceedings by a Third Party relating to 

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have been omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

Lipid Sciences Patent
Rights, then Lipid Sciences will be entitled to take over, at its option, the
right to defend such infringement proceedings and the control of any such
defence, at its cost.

7.2           Enforcement of Joint Patent Rights.  Lipid Sciences and Elanco will each promptly
notify the other in writing of any alleged or threatened infringement of the
Joint Patent Rights of which they become aware. 
Lipid Sciences and Elanco will then confer and may agree jointly to
prosecute any such infringement.  If the
Parties do not agree on whether or how to proceed with enforcement activity (a)
within ninety (90) days following the notice of alleged infringement or (b) ten
(10) business days before the time limit, if any, set forth in the appropriate
laws and regulations for the filing of such actions, whichever comes first,
then Elanco may commence litigation with respect to the alleged or threatened
infringement at its own expense.  In the
event that Elanco does not commence litigation within five (5) business days of
the above-specified date, Lipid Sciences may do so, at Lipid Sciences’
expense.  In the event a Party brings an
infringement action against a Third Party, the other Party will cooperate
fully, provided that there is a mutual agreement as to the purpose and goal of
the enforcement action.

Except as otherwise agreed to by the Parties
as part of a cost-sharing arrangement, any recovery realized as a result of
such litigation (whether by way of settlement or otherwise) will be first
allocated to reimbursement of unreimbursed legal fees and expenses incurred by
the Party initiating the proceeding, then toward reimbursement of any
unreimbursed legal fees and expenses of the other Party, and then the remainder
will be divided between the Parties as follows: 
(y) if the award is based on lost profits, Elanco will receive an amount
equal to the damages the court determines Elanco has suffered as a result of
the infringement less the amount of any royalties that would have been due to
Lipid Sciences on sales of Product(s) and/or New Product(s) lost by Elanco or
any Affiliate or sublicensee of Elanco as a result of the infringement had
Elanco or any Affiliate or sublicensee of Elanco made such sales, and Lipid
Sciences will receive an amount equal to the royalties and other payments it
would have received under Article VI if such sales had been made by Elanco or
any Affiliate or sublicensee of Elanco; and (z) as to awards other than those
based on lost profits, sixty percent (60%) to the Party initiating such
proceedings and forty percent (40%) to the other Party.

7.3           Enforcement Action in
the Field  or New Field. 
Lipid Sciences shall have the sole right, but not the obligation, to
commence and control any legal action or proceeding, or the filing of any counterclaim,
related to any alleged infringement of the Lipid Sciences Patent Rights (“Action”)
in the Field or New Field in the Territory. 
In the event that Lipid Sciences elects, in its sole discretion, to
undertake such an Action, Elanco agrees to reasonably cooperate with Lipid
Sciences, including providing access to all necessary documents, executing all
papers and performing such other acts as may be reasonably required for such
Action, including, but not limited to, consenting to be joined as a Party
plaintiff in such Action.  Lipid Sciences
shall control such Action, and Lipid Sciences may enter into settlements,
stipulated judgments or other arrangements respecting such infringement;
provided, however, Lipid Sciences shall not settle or make any agreement that
would have an adverse effect on Elanco’s rights under this Agreement, without
the prior written consent of Elanco. 
Lipid Sciences shall keep Elanco reasonably apprised of the progress of
any such Action.  Elanco may, at its
option and sole expense, be represented by counsel of its choice, but all other
costs associated with any such Action shall be at the sole expense of Lipid
Sciences.  In any Action, any damages or
other recovery, including compensatory and other non-compensatory damages or recovery
actually received from a Third Party, shall first be used to reimburse Lipid
Sciences for its respective costs and expenses incurred in connection with such
Action and Elanco for its respective costs and expenses incurred in connection
with such

 20

 

Portions of this
agreement, marked by asterisks (***), have been omitted pursuant to a request
for confidential treatment.  The omitted
information has been filed separately with the Securities and Exchange
Commission

Action, provided that Lipid Sciences requested Elanco support Lipid
Sciences or otherwise participate in such Action and Elanco provided such
requested support and participation. To the extent that such damages were
calculated based upon the loss suffered by Elanco as a result of such Third Party
infringement, said remaining damages or other recovery shall be treated as Net
Sales and Elanco shall pay Lipid Sciences the applicable Royalty on such Net
Sales and retain the balance.

ARTICLE VIII

8.1           Confidentiality Agreement. The Parties are
bound by a Mutual Confidentiality Agreement effective as of January 20, 2006,
with the ability to exchange information under the Confidentiality Agreement
through January 20, 2007, and with obligations to maintain such information for
*** years after the expiration or termination of the Agreement. The Parties’
rights and obligations under the Mutual Confidentiality Agreement are
incorporated herein by reference and now extended for the term of this
Agreement; should there be any conflict, the provisions of this Agreement shall
prevail.

8.2           Nondisclosure; Exceptions. Neither Lipid
Sciences nor Elanco shall publish or disclose to any Third Party, including its
independent contractors, any or all Confidential Information of the other Party
without the advance execution of a binding confidentiality agreement between
the Third Party and the disclosing Party and advance approval of the Steering
Committee. Neither Lipid Sciences nor Elanco shall disclose to any Third Party
or use for any purpose besides this Agreement Confidential Information of the
other Party, unless such Party can demonstrate that such information:

(a)                                  Was known to the receiving Party or to the
public prior to disclosure by the disclosing Party under this Agreement, as
shown by written records;

(b)                                 Becomes known to the public from a source
other than the receiving Party;

(c)                                  Is disclosed to the receiving Party on a
non-confidential basis by a Third Party having a legal right to make such
disclosure;

(d)                                 Is required to be disclosed by law or
judicial order; provided, however, the receiving Party shall promptly notify
the disclosing Party and shall not disclose any information without the
disclosing Party’s prior written consent or until the disclosing Party has
exhausted any legal actions it may take to prevent or limit the requested
disclosure; or

(e)                                  Is independently developed by an employee of
the receiving Party not having access to the disclosing Party’s information.

The provisions of this Section do not prevent
Lipid Sciences from disclosing or using Confidential Information about Lipid
Sciences Technology, Lipid Sciences Patent Rights, Improvements, and Lipid
Sciences Inventions outside the Field or New Field and Territory. The
provisions of this Section do not prevent Lipid Sciences from disclosing or
using Confidential Information about Joint inventions or Joint Patent Rights
outside the Field or New Field and Territory, subject to the recipient having
first entered into a binding confidentiality agreement with Lipid Sciences.

 21
 

 

Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

8.3           Such
obligations of confidentiality and non-use shall survive expiration or
termination of this Agreement for a period of *** years from the effective date
of such termination or expiration.

8.4           The
Parties expressly agree that Elanco may submit Confidential Information of
Lipid Sciences to any Regulatory Agency for the purpose of obtaining marketing
approvals in the Field or New Field.

ARTICLE
IX

9.1           Liabilities; Indemnification by Elanco.
Except for liability caused by the gross negligence or willful misconduct of
Lipid Sciences, Elanco will bear all liabilities arising from the development,
regulatory approval, manufacture, marketing and sales of Product(s) and/or New
Product(s) to Elanco customers in the Field or New Field. Elanco will at all
times during and after the term of the Agreement be responsible for, and will
defend, indemnify and hold Lipid Sciences and its directors, officers,
employees and contractors harmless from and against any and all losses, claims,
suits, proceedings, expenses, recoveries and damages, including reasonable
legal expenses and costs including attorneys’ fees, arising out of any claim by
any Third Party relating to Product(s) and/or New Product(s) or Elanco
Technology or Elanco Patent Rights or any aspect of Elanco’s performance in
connection with the Agreement, to the extent such liability results or arises
from (a) Elanco’s uncured breach of its obligations under the Agreement; (b)
the gross negligence or willful misconduct of Elanco or its Affiliates,
directors, officers, employees or contractors in their performance hereunder;
(c) attributes of the Product(s) and/or New Product(s); or (d) any breach by
Elanco of any of its covenants, representations or warranties set forth in the
Agreement. Lipid Sciences will give Elanco prompt Notice of any such claim or lawsuit and, without limiting
the foregoing indemnity, Elanco will have the right to compromise, settle or
defend such claim or lawsuit; provided that no offer of settlement, settlement
or compromise by Elanco shall be binding on Lipid Sciences without its prior
written consent (which consent shall not be unreasonably withheld or delayed),
unless such settlement fully releases Lipid Sciences without any liability,
loss, cost or obligation incurred by Lipid Sciences.

9.2           Indemnification
by Lipid Sciences. Except to the extent caused by the gross
negligence or willful misconduct of Elanco, Lipid Sciences agrees to indemnify,
defend and hold Elanco and its directors, officers, employees and contractors
harmless from and against any and all losses, claims, suits, proceedings, expenses,
recoveries and damages, including attorneys’ fees, arising out of any claim by
any Third Party in connection with the Agreement relating to Lipid Sciences
Technology or Lipid Sciences Patent Rights, to the extent arising out of (a)
Lipid Sciences’s uncured breach of its obligations under the Agreement; (b) the
gross negligence or willful misconduct of Lipid Sciences or its Affiliates,
directors, officers, employees or contractors in their performance hereunder;
or (c) any breach by Lipid Sciences of any of its covenants, representations or
warranties set forth in the Agreement. Elanco will give Lipid Sciences prompt
Notice of any such claim or
lawsuit and, without limiting the foregoing indemnity, Lipid Sciences will have
the right to compromise, settle or defend such claim or lawsuit; provided that
no offer of settlement, settlement or compromise by Lipid Sciences shall be
binding on Elanco without its prior written consent (which consent shall not be
unreasonably withheld or delayed), unless such settlement fully releases Elanco
without any liability, loss, cost or obligation incurred by Elanco.

9.3           Lipid
Sciences Representations & Warranties to Elanco. As of the
Effective Date, 

 22
 

 

Portions of this agreement, marked by asterisks (***),
have been omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

Lipid Sciences represents
and warrants that it owns all right and title to, or owns the exclusive rights
to, the Lipid Sciences Patent Rights listed in Exhibit D and the Lipid Sciences
Technology licensed by Elanco hereunder; that it has the right to enter into
the Agreement; and that to the best of its knowledge, its patents are valid and
its Technology has merit.

9.4           Representations &
Warranties of the Parties to Each Other. Lipid Sciences and Elanco
each represent and warrant that execution, delivery and performance of the
Agreement have been duly authorized by all necessary action on the part of such
Party, its officers and directors and does not conflict with, violate, or
breach any agreement to which either Elanco or Lipid Sciences is a party, or
either Party’s articles of incorporation or bylaws.

ARTICLE X

10.1         Term. Except as otherwise
provided in the Agreement, the term of the Agreement will commence on the
Effective Date and end on the later of: (a) the *** year anniversary of the
expiration, lapse, or invalidation of the last remaining Valid Claim of Lipid
Sciences Patent Rights used in Product(s) and/or New Product(s), or (b), in the
absence of any Valid Claims of Lipid Sciences Patent Rights used in Product(s)
and/or New Product(s), the *** year anniversary of first Product launch, unless
extended by mutual agreement of the Parties.

10.2         Expiration of License. The license for the
Territory and Field or New Field granted by Lipid Sciences to Elanco pursuant
to Section 2.1 and all other rights granted to Elanco (other than those
expressly stated to continue after expiration or termination of the Agreement),
will cease upon the earlier of:

(a)          expiry of the term of this Agreement
pursuant to Section 10.1; or

(b)         termination of the Agreement pursuant to
Section 10.7; or

(c)          termination of the Agreement by Lipid
Sciences pursuant to Section 10.9.

Subject
to the foregoing, expiration of any particular Lipid Sciences Patent Rights
will not preclude Elanco from continuing to market and sell Product(s) and/or
New Product(s) or to use Product(s) and/or New Product(s) after the term of the
Agreement.

10.3         Lipid
Sciences Termination For Cause and Consideration. If Lipid Sciences
terminates the Agreement pursuant to Section 10.7 or 10.10, Lipid Sciences will
retain all sums earned and paid by Elanco and Elanco will promptly pay all sums
accrued which are then due and payable to Lipid Sciences.

10.4         Elanco
Termination For Cause and Consideration. If Elanco terminates the
Agreement pursuant
to Section 10.9, Lipid Sciences will return all sums earned and paid by Elanco
under Section 3.10 that have not been expensed or committed against the budget
in the Product Development Plan.

10.5         Surviving
Obligations. Upon expiration or termination of the Agreement, the
obligations which by their nature are intended to survive expiration or
termination of the Agreement, will survive.

 23
 

 

Portions
of this agreement, marked by asterisks (***), have been omitted pursuant to a
request for confidential treatment.  The
omitted information has been filed separately with the Securities and Exchange
Commission

10.6         Existing
Obligations. Expiration pursuant to Sections 10.1 or 10.2 above, or
termination pursuant to Section 10.3, 10.4 or 10.7 of the Agreement for any
reason, will not relieve the Parties of any obligation that accrued prior to
such expiration or termination.

10.7         Mutual Termination Privilege. Subject
to the provisions of the Agreement, either Party may terminate the Agreement
upon thirty (30) days’ Notice to the other Party.

10.8         Accrued Obligations. The
expiration or termination of the Agreement or the Design & Development
Program will not relieve the Parties of any obligation that accrued prior to
such expiration or termination.

10.9         Events
of Default.  An event of
default (“Event of Default”) will
have occurred and the Agreement may be terminated by the Party first named in
each paragraph below in the following circumstances:

(a)           Material
Breach.  By the non-breaching
Party, if the breaching Party fails to remedy a material breach of the
Agreement within sixty (60) days after Notice thereof detailing the breach has
been given to the breaching Party by the non-breaching Party.

(b)           Failure
of Elanco to Pay.  By Lipid
Sciences, if Elanco fails to make any payment as required under the Agreement
within the period(s) identified in this Agreement after such payment becomes
payable, and such failure is not remedied within thirty (30) business days
after subsequent Notice thereof from Lipid Sciences.

(c)           Bankruptcy.  By
either Party, upon bankruptcy, insolvency, dissolution or winding up of the
other.

10.10       Default Remedies.

(a)           Default
Remedies Available to Elanco. 
In the event that an Event of Default occurs that is caused by Lipid
Sciences, and Lipid Sciences fails to cure such default within the applicable
cure period under this Section 10.9, Elanco may elect to either (i) terminate
the Agreement and/or (ii) without limiting any other legal or equitable
remedies that Elanco may have, continue the Agreement in full force and effect,
in accordance with its terms.

(b)           Default Remedies Available to Lipid Sciences.  In the event that an Event of Default occurs
that is caused by Elanco, and Elanco fails to cure such default within the
applicable cure period under this Section 10.9, Lipid Sciences may elect to
either (i) terminate the Agreement and/or (ii) without limiting any other legal
or equitable remedies that Lipid Sciences may have, continue the Agreement in
full force and effect, in accordance with its terms.

ARTICLE XI

11.1         Non-Compete.  Except on written consent of Elanco, during
the term of the Agreement and for a period of *** thereafter, if Lipid Sciences
terminates this Agreement pursuant to Section 10.7, Lipid Sciences and its
Affiliates will not develop or sell Product(s) and/or New Product(s) in 

 24
 

 

Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

the Field or New Field and Territory that
were licensed to Elanco by means of the Agreement. For clarity, the provisions
of this Section do not apply if the Agreement is terminated by Lipid Sciences
pursuant to Section 10.9 nor to Product(s) and/or New Product(s) that has(have)
reverted to Lipid Sciences pursuant to Section 2.3, nor if Elanco terminates
the Agreement under Section 10.7.

11.2         Separate Entities / Disclaimer of Agency.  Lipid Sciences and Elanco are and
will remain separate independent entities. This Agreement will not constitute,
create or otherwise imply a joint venture, partnership or formal business
organization of any kind. Each Party to the Agreement will act as an
independent contractor and not as an agent or legal representative of the
other. Neither Party will have the right or authority to assume, create or
incur any Third Party liability or obligation of any kind, express or implied,
against or in the name of or on behalf of the other Party except as expressly
set forth in the Agreement.

11.3         Press Releases &
Disclosures. Neither Party will submit for written or oral
publication any document, data, or other information generated and provided by
the other Party during the Term without first obtaining the prior written
consent of the other Party, which consent will not be unreasonably withheld,
especially as it relates to releases required for local fiscal reporting laws,
filing regulations or stock rules relating to the Party or any Affiliate of the
Party. The contributions of each Party will be noted in all publications,
presentations, and press releases. Notwithstanding the above, Elanco recognizes
that, for Lipid Sciences, the Agreement may constitute a material agreement, as
defined by Securities Exchange Commission regulations, and, if so, will be
subject to public disclosure. Lipid Sciences agrees to work with Elanco to
place any public disclosure of the Agreement in a mutually agreeable form by
redacting, if legally permissible, certain content of the Agreement.

11.4         Publicity.  Neither Party will disclose to the
public, any information about the Agreement, including its existence, without
the prior written consent of the other Party, which decision regarding consent
will be communicated no later than twenty (20) days from the date of receipt of
the request, except where required for local fiscal reporting laws, filing
regulations or stock exchange rules relating to the Party or any Affiliate of
the Party. Furthermore, neither Party shall use in advertising, publicity or
otherwise the name or any trademark of the other Party without prior written
consent.

11.5         Force Majeure.  If
either Party is affected by any extraordinary, unexpected and unavoidable event
such as acts of God, floods, fires, riots, terrorism, war, accidents, labor
disturbances, breakdown of plant or equipment, lack or failure of
transportation facilities, unavailability of equipment, sources of supply or
labor, raw materials, power or supplies, infectious diseases of animals, or by
the reason of any law, order, proclamation, regulation, ordinance, demand or
requirement of the relevant government or any sub-division, authority or
representative thereof (provided that in all such cases the Party claiming
relief on account of such event can demonstrate that such event was
extraordinary, unexpected and unavoidable by the exercise of reasonable care) (“Force Majeure”), it will as soon as
reasonably practicable notify the other Party of the nature and extent thereof
and take all reasonable steps to overcome the Force Majeure and to minimize the
loss occasioned to that other Party. Neither Party will be deemed to be in
breach of this Agreement or otherwise be liable to the other Party by reason of
any delay in performance or nonperformance of any of its obligations hereunder
to the extent that such delay and nonperformance is due to any Force Majeure of
which it has notified the other Party and the time for performance of that
obligation will be extended accordingly. Notwithstanding the foregoing
sentence, should the Force Majeure continue for more than three 

 25
 

 

Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

(3) months, then the other Party shall have
the right to terminate this Agreement immediately upon Notice of termination
delivered to the affected Party.

11.6         Assignment.  The Agreement may not be assigned or
otherwise transferred by either Party without the prior written consent of the
other Party, which consent will not be unreasonably withheld or delayed;
provided, however, that each of the Parties may, without such consent, assign
the Agreement and its rights and obligations hereunder to its Affiliates or in
connection with the transfer or sale of all or substantially all of the portion
of its business to which the Agreement relates, or in the event of its merger
or consolidation or change in control or similar transaction or, in the case of
Lipid Sciences, the creation of a special purpose corporation or design and
development limited partnership. Any permitted assignee will assume all obligations
of its assignor under the Agreement in writing prior to the assignment. Any
purported assignment in violation of the preceding sentences will be void.

11.7         Notices.  Any consent, notice or report
required or permitted to be given or made under the Agreement by one of the
Parties hereto to the other (a “Notice”) will be delivered in writing by one of
the following means: delivered personally; sent via e-mail with confirmation
from the addressee of its receipt; by facsimile (and promptly confirmed by
personal delivery or courier); by courier; or by U.S. mail postage prepaid
(where applicable), and addressed to such other Party at its address indicated
below, or to such other address as the addressee will have last furnished in
writing to the addressor and will be effective upon receipt by the addressee.
Such notices will be effective within three (3) business days of the postmark
or transmittal date or when delivered to the addressee, whichever is earlier.

	
  

  	
  If to Lipid
  Sciences:

  	
   

  
	
   

  	
   

  	
  Lipid Sciences,
  Inc.

  	
   

  
	
   

  	
   

  	
  7068 Koll Center
  Parkway - Suite 401

  	
   

  
	
   

  	
   

  	
  Pleasanton, CA
  94566

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  	
  S. Lewis Meyer, Ph.D.

  
	
   

  	
   

  	
   

  	
  President and CEO

  
	
   

  	
   

  	
  Fax:

  	
  925-249-4040

  
	
   

  	
   

  	
  E-mail:

  	
  ***

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  If to Elanco:

  
	
   

  	
   

  	
  Elanco Animal
  Health

  	
   

  
	
   

  	
   

  	
  Greenfield Laboratories

  	
   

  
	
   

  	
   

  	
  2001 West Main
  Street / P.O. Box 708

  	
   

  
	
   

  	
   

  	
  Greenfield, IN 46140

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Attention:

  	
  Legal Department

  
	
   

  	
   

  	
  Fax:

  	
  ***

  
	
   

  	
   

  	
  E-mail:

  	
  ***

  
					

 

11.8         Execution
of Agreement.  This Agreement
may be executed by original or facsimile signature in several counterparts, all
of which shall be deemed to be originals, and all of which shall constitute one
and the same Agreement. Notwithstanding the foregoing, the Parties shall
deliver original execution copies of this Agreement to one another as soon as
practicable following execution thereof.

 26
 

 

Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

EXECUTED

	
  Signed on behalf of

  	
  )

  	
   

  
	
  Eli
  Lilly and Company, operating through

  its Elanco Animal Health division

  	
  )

  )

  	
   

  
	
  by an authorized
  officer in the presence of:

  	
  )

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ***

  	
   

  	
  ***

  
	
  Signature of
  Witness

  	
   

  	
  Signature of Authorized Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ***

  	
   

  	
  ***

  
	
  Name of Witness
  (please print)

  	
   

  	
  Name of Authorized Officer (please print)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  11/07/2006

  	
   

  	
   

  
	
  Date Signed

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Signed
  on behalf of

  	
  )

  	
   

  
	
  Lipid
  Sciences, Inc.

  	
  )

  	
   

  
	
  by an authorized
  officer in the presence of:

  	
  )

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ***

  	
   

  	
  /s/ S. Lewis Meyer

  
	
  Signature of
  Witness

  	
   

  	
  Signature of Authorized Officer

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ***

  	
   

  	
  S. Lewis Meyer

  
	
  Name of Witness
  (please print)

  	
   

  	
  Name of Authorized Officer (please print)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  10/26/2006

  	
   

  	
   

  
	
  Date Signed

  	
   

  	
   

  

 

 27
 

 

Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

EXHIBIT A

PRODUCT DEVELOPMENT PLAN

(First draft to be provided by the Project Team to the
Steering Committee within 60 days of the completion of Elanco due diligence,
with final approval by Steering Committee within 90 days after receipt of the
first draft)

[Elanco to provide first draft after completion of due
diligence]

 28
 

 

Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

EXHIBIT B

CRITERIA TO ESTABLISH A POC STUDY

 29
 

 

Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

EXHIBIT C

STEERING COMMITTEE MEMBERS AND PRIMARY CONTACT PERSONS

	
  For Elanco:

  	
   

  
	
   

  	
  Name:

  	
  ***

  
	
   

  	
  Title:

  	
  Manager - Innovation & Development

  
	
   

  	
  E-mail:

  	
  ***

  
	
   

  	
  Phone:

  	
  ***

  
	
   

  	
  Fax:

  	
  ***

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  ***

  
	
   

  	
  Title:

  	
  Associate Consultant

  
	
   

  	
  E-mail:

  	
  ***

  
	
   

  	
  Phone: 

  	
  ***

  
	
   

  	
  Fax:

  	
  ***

  
	
   

  	
   

  	
   

  
	
  For Lipid Sciences:

  
	
   

  	
  Name:

  	
  ***

  
	
   

  	
  Title:

  	
  ***

  
	
   

  	
  E-mail:

  	
  ***

  
	
   

  	
  Phone:

  	
  925-249-4000

  
	
   

  	
  Fax:

  	
  925-249-4040

  
	
   

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Dale Richardson

  
	
   

  	
  Title:

  	
  Vice President - Business Development

  
	
   

  	
  E-mail:

  	
  ***

  
	
   

  	
  Phone:

  	
  ***

  
	
   

  	
  Fax:

  	
  925-249-4040

  

 

 30
 

 

Portions of this agreement, marked by asterisks (***), have been
omitted pursuant to a request for confidential treatment.  The omitted information has been filed
separately with the Securities and Exchange Commission

EXHIBIT D

LIPID SCIENCES PATENT RIGHTS

[Include filing/issuance dates, patent/application
numbers, etc.]

NOTE:  Other
Lipid Sciences patents may be added to this exhibit in the future if it is
determined that a non-exclusive license needs to be granted to Elanco to fully
practice and exploit the rights granted to it hereunder.

 31

 

EXHIBIT E:

Payment Schedule

1. Elanco agrees to pay the following fees in
order to pursue the commercialization of each Product(s) or New Product(s) in
the Field or New Field throughout the Territory where the Product(s) or New
Product(s) ***, subjected to Lipid Sciences Technology, Lipid Sciences Patent
Rights, Lipid Sciences Inventions or Lipid Sciences Improvements:

***  This Exhibit has been omitted pursuant to a
request for confidential treatment.  The
omitted information has been filed separately with the Securities and Exchange
Commission.Exhibit 10.1

September 19, 2006

 

Mr. Dale A.
Spencer

503 N. Ferndale
Road

Wayzata, MN 
55391

Dear Dale:

The Board considers the operation of the Company to be
of critical importance to the Parent Company and therefore the establishment
and maintenance of a sound and vital management team of the Company is
essential to protecting and enhancing the best interests of the Parent Company
and its stockholders.  In this
connection, the Board recognizes that the possibility of a Change in Control of
the Parent Company may arise and that such possibility and the uncertainty and
questions which such transaction may raise among key management personnel of
the Company and its subsidiaries could result in the departure or distraction
of such management personnel to the detriment of the Parent Company and its
stockholders.

Accordingly, the Board has determined that appropriate
actions should be taken to minimize the risk that Company management will
depart prior to a Change in Control of the Parent Company, thereby leaving the
Company without adequate management personnel during such a critical period,
and to reinforce and encourage the continued attention and dedication of key
members of Company’s management to their assigned duties without distraction in
circumstances arising from the possibility of a Change in Control of the Parent
Company.  In particular, the Board
believes it important, should the Parent Company or its stockholders receive a
proposal for transfer of control of the Parent Company that you be able to continue
your management responsibilities without being influenced by the uncertainties
of your own personal situation.

The Board recognizes that continuance of your position
as a key consultant to the Subsidiary and a member of the Board involves a
substantial commitment in terms of your personal life and professional career
and the possibility of foregoing present and future career opportunities, for
which the Subsidiary and the Company receives substantial benefits.  Therefore, to induce you to remain as a key
consultant of the Subsidiary, this Agreement, which has been approved by the
Board, sets forth the benefits which the Company agrees will be provided to you
in the event of a Change in Control of the Parent Company under the
circumstances described below.

1.             Definitions.  The following terms will have the meaning set
forth below unless the context clearly requires otherwise.  Terms defined elsewhere in this Agreement
will have the same meaning throughout this Agreement.

 

(a)           “Affiliate”
means with respect to any Person (within the meaning of Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) shall mean any other
Person that, directly or indirectly through one or more intermediaries,
controls, is controlled by or is under common control with such Person.

(b)           “Agreement”
means this letter agreement as amended, extended or renewed from time to time
in accordance with its terms.

(c)           “Benefit Plan”
means any

(i)            employee benefit plan
as defined in Section 3(3) of the Employee Retirement Income Security Act of
1974, as amended;

(ii)           cafeteria plan
described in Code Section 125;

(iii)          plan, policy or practice
providing for paid vacation, other paid time off or short- or long-term profit
sharing, bonus or incentive payments; or

(iv)          stock option, stock
purchase, restricted stock, phantom stock, stock appreciation right or other
equity-based compensation plan that is sponsored, maintained or contributed to
by the Company for the benefit of employees (and/or their families and
dependents) generally or you (and/or your family and dependents) in particular,
including, without limitation, any of the Stock Incentive Plans.

(d)           “Board” means
the board of directors of the Parent Company. 
On and after the date of a Change in Control, any duty of the Board in
connection with this Agreement is nondelegable and any attempt by the Board to
delegate any such duty is ineffective.

(e)           “Change in Control”  means any of the following:  (i) the sale, lease, exchange or other
transfer, directly or indirectly, of all or substantially all of the assets of
the Parent Company, in one transaction or in a series of related transactions,
to any Third Party; (ii) any Third Party, other than a “bona fide underwriter,”
is or becomes the “beneficial owner” (as defined in Rule 13d-3 under the
Exchange Act), directly or indirectly, of securities (x) representing 50% or
more of the combined voting power of the Parent Company’s outstanding
securities ordinarily having the right to vote at elections of directors, or
(y) resulting in such Third Party becoming an Affiliate of the Parent Company,
including pursuant to a transaction described in clause (iii) below; (iii) the
consummation of any transaction or series of transactions under which the
Parent Company is merged or consolidated with any other company, other than a
merger or consolidation which would result in the stockholders of the Parent
Company immediately prior thereto continuing to own (either by remaining
outstanding or by being converted into voting securities of the surviving
entity) more than 50% of the combined voting power of the voting securities of
the surviving entity outstanding immediately after such merger or
consolidation; or (iv) the Continuity Directors cease for any reason to
constitute at least a majority the Board. 
For purposes of this Section 1(e), a “Continuity Director” means an
individual who, as of date of this Agreement, is a member of the board of
directors of the Parent Company, and any other individual who becomes a
director subsequent to the as of date of this Agreement whose election, or
nomination for election by the Parent Company’s stockholders, was approved by a
vote of at least a majority of the directors then comprising the Continuity
Directors, but excluding for this purpose any individual whose initial
assumption of office occurs as a result of an actual or threatened election
contest with respect to the election or removal of directors or other actual or
threatened solicitation of proxies or consents by or on behalf of a person or
entity other than the board of

 2
 

 

directors of
the Parent Company.  For purposes of this
Section 1(e), a “bona fide underwriter” means a Third Party engaged in business
as an underwriter of securities that acquires securities of the Parent Company
through such Third Party’s participation in good faith in a firm commitment
underwriting until the expiration of 40 days after the date of such
acquisition.  For the avoidance of doubt,
Change in Control does not include any of the foregoing events occurring with
respect to the Subsidiary and this Agreement is not intended to be interpreted
to provide any benefits to you upon a Change in Control of the Subsidiary.

(f)            “Code” means
the Internal Revenue Code of 1986, as amended from time to time.

(g)           “Company” means
the Parent Company, any Successor and any Affiliate.

(h)            “Exchange Act”
means the Securities Exchange Act of 1934, as amended from time to time.

(i)            “Parent Company”
means ev3 Inc., a Delaware corporation.

(j)            “Subsidiary”
means ev3 Endovascular, Inc.

(k)           “Stock Incentive
Plan” means (i) the ev3 LLC 2003 Incentive Plan, as amended, (ii) the
ev3 Inc. Amended and Restated 2005 Incentive Stock Plan, or (iii) any successor
or additional stock option, stock award, or other incentive plans of the Parent
Company or Subsidiary.

(l)            “Stock Option
Agreements” means in any of the non-statutory stock option agreements,
incentive stock options agreements, restricted stock awards or other similar
agreements you may have entered into with the Company pursuant to the Stock
Incentive Plans.

(m)          “Successor” means
any Third Party that succeeds to, or has the ability to control (either
immediately or with the passage of time), the Parent Company’s or Subsidiary’s,
as applicable, business directly, by merger, consolidation or other form of
business combination, or indirectly, by purchase of the Parent Company’s
outstanding securities entitling the holder thereof to be allocated a portion
of the Parent Company’s net income, net loss or distributions or purchases of
the Subsidiary’s outstanding securities ordinarily having the right to vote at
the election of directors or all or substantially all of its assets or
otherwise.

(n)           “Third Party”
means any Person, other than the Parent Company, any Affiliate of the Parent
Company, or any Benefit Plan(s) sponsored by the Parent Company or an
Affiliate.

2.             Term of Agreement.  This Agreement is effective immediately and
will continue in effect only so long as you remain as either a consultant to
the Subsidiary or board member of the Parent Company or Subsidiary or, if
later, until the date on which the Parent Company’s or Subsidiary’s obligations
to you arising under this Agreement have been satisfied in full.

3.             Stock Option
Acceleration.  In the event of a
Change in Control, your then unvested, non-statutory stock options or other
stock awards granted to you by the Parent Company or Subsidiary under the
applicable Stock Option Agreements as of the Change in Control shall become
fully vested and immediately exercisable upon the closing of the Change in
Control.

4.             Indemnification.  Following a Change in Control, the Parent
Company and the Subsidiary shall be jointly and severally responsible for
indemnifying and advancing expenses to you to the full extent permitted by law
for damages, costs and expenses (including, without limitation, judgments,
fines,

 3
 

 

penalties, settlements
and reasonable fees and expenses of your counsel) incurred by you as a result
of your service to or status as an officer and employee with the Parent Company
or the Subsidiary or any other corporation, employee benefit plan or other
entity with whom you served at the request of the Parent Company or the
Subsidiary prior to the Change in Control, provided that such damages, costs
and expenses did not arise as a result of your gross negligence or willful
misconduct.  The indemnification under
this Agreement shall be in addition to any similar obligation of the Parent
Company or the Subsidiary under any other separate agreement, or under the Parent
Company’s or Subsidiary’s Certificate of Incorporation or Bylaws, or as they be
amended from time to time, provided however, you may only be reimbursed or
recover once for any such damages, costs and expenses, from whatever source.

5.             Binding Agreement.  This Agreement inures to the benefit of, and
is enforceable by, you, your personal and legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If you
die after a Change in Control while any amount would still be payable to you
under this Agreement, all such amounts, unless otherwise provided in this
Agreement, will be paid in accordance with the terms of this Agreement to your
devisee, legatee or other designee or, if there be no such designee, to your
estate.

6.             Notices.  For the purposes of this Agreement, notices
and other communications provided for in this Agreement must be in writing and
will be deemed to have been duly given when personally delivered or when mailed
by United States registered or certified mail, return receipt requested,
postage prepaid and addressed to each party’s respective address set forth on
the first page of this Agreement, or to such other address as either party may
have furnished to the other in writing in accordance with these provisions,
except that notice of change of address will be effective only upon receipt.

7.             Disputes.  If you so elect, any dispute, controversy or
claim arising under or in connection with this Agreement will be heard and
settled exclusively by binding arbitration administered by the American
Arbitration Association in Minneapolis, Minnesota before a single arbitrator in
accordance with the Commercial Arbitration Rules of the American Arbitration
Association then in effect.  Judgment may
be entered on the arbitrator’s award in any court having jurisdiction;
provided, that you may seek specific performance in a court of competent
jurisdiction of your right to receive benefits until the Date of Termination
during the pendency of any dispute or controversy arising under or in
connection with this Agreement.  If any
dispute, controversy or claim for damages arising under or in connection with
this Agreement is settled by arbitration, the Company and the Subsidiary will
be jointly and severally responsible for paying, or if elected by you, reimbursing,
all fees, costs and expenses incurred by you related to such arbitration.  If you do not elect arbitration, you may
pursue all available legal remedies.  The
Company and the Subsidiary will be jointly and severally responsible for
paying, or if elected by you, reimbursing you for, all fees, costs and expenses
incurred by you in connection with any actual, threatened or contemplated
litigation relating to this Agreement to which you are or reasonably expect to
become a party, whether or not initiated by you, if but only if you are
successful in recovering any benefit under this Agreement as a result of such
legal action.  The parties agree that any
litigation arising under or in connection with this Agreement must be brought
in a court of competent jurisdiction in the State of Minnesota, and both
parties hereby consent to the exclusive jurisdiction of said courts for this
purpose and agree not to assert that such courts are an inconvenient
forum.  Neither the Parent Company nor
the Subsidiary will assert in any dispute or controversy with you arising under
or in connection with this Agreement your failure to exhaust administrative
remedies.

8.             Related Agreements.  To the extent that any provision of any other
Benefit Plan or agreement between the Parent Company and you or the Subsidiary
and you limits, qualifies or is inconsistent with any provision of this
Agreement, the provision of this Agreement will control. Nothing in this
Agreement prevents or limits your continuing or future participation in, and rights
under, any Benefit Plan provided by the Parent Company or the Subsidiary and
for which you may qualify.  Amounts which
are vested

 4
 

 

benefits or to which you
are otherwise entitled under any Benefit Plan or other agreement with the
Parent Company or the Subsidiary at or subsequent to the Date of Termination
will be payable in accordance with the terms thereof.  Furthermore, nothing in this Agreement will
prevent the Parent Company, the Subsidiary or the Successor to the Parent
Company or the Subsidiary from seeking enforcement of and damages arising under
any confidentiality, invention assignment or non-competition provision or
breach thereof contained in any other agreement with the Parent Company or the
Subsidiary or any Successor to the Parent Company or the Subsidiary.

9.             No Employment or
Service Contract.  Nothing in this
Agreement is intended to provide you with any right to continue to provide
services to the Subsidiary in any capacity for any period of specific duration
or interfere with or otherwise restrict in any way your rights or the rights of
the Subsidiary, which rights are hereby expressly reserved by each, to
terminate your services at any time for any reason or no reason whatsoever,
with or without cause.

10.           Survival.  The respective obligations of, and benefits
afforded to, the Parent Company, the Subsidiary and you which by their express
terms or clear intent survive termination of your employment with the
Subsidiary or termination of this Agreement, as the case may be, will survive termination
of your employment with the Subsidiary or termination of this Agreement, as the
case may be, and will remain in full force and effect according to their terms.

11.           Miscellaneous.  No provision of this Agreement may be
modified, waived or discharged other than in a writing signed by you, the
Parent Company and the Subsidiary.  No
waiver by any party to this Agreement at any time of any breach by another
party of any provision of this Agreement will be deemed a waiver of any other
provisions at the same or at any other time. 
This Agreement reflects the final and complete agreement of the parties
and supersedes all prior and simultaneous agreements with respect to the
subject matter hereof, including without limitation any change in control or
similar agreement between any past, current or future Affiliate of the Parent
Company or the Subsidiary and you.  This
Agreement will be governed by and construed in accordance with the laws of the
State of Delaware (without regard to the conflict of laws principles of any
jurisdiction).  The invalidity or
unenforceability of all or any part of any provision of this Agreement will not
affect the validity or enforceability of the remainder of such provision or of
any other provision of this Agreement. 
This Agreement may be executed in several counterparts, each of which
will be deemed an original, but all of which together will constitute one and
the same instrument.

 5
 

 

If this letter correctly sets forth our agreement on
the subject matter discussed above, kindly sign and return to the Company the
enclosed copy of this letter which will then constitute our agreement on this
subject.

Sincerely,

	
  ev3 Inc.

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ James M.
  Corbett

  	
   

  	
   

  
	
   

  	
  Name: James M.
  Corbett

  	
   

  
	
   

  	
  Title: President
  and CEO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  ev3
  Endovascular, Inc.

  	
   

  
	
   

  	
   

  	
   

  
	
  By:

  	
  /s/ Patrick D.
  Spangler

  	
   

  	
   

  
	
   

  	
  Name: Patrick D.
  Spangler

  	
   

  
	
   

  	
  Title: Vice
  President and CFO

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  Agreed to and
  Accepted as of this 22nd day of September,

  
	
  2006.

  	
   

  
	
   

  	
   

  
	
  /s/ Dale A.
  Spencer

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  Dale A. Spencer

  	
   

  
							

 

 6

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