Document:

Exhibit 10.4

Execution version  

 

 

 

NON-EXCLUSIVE PATENT LICENSE AGREEMENT

by and between

PACIFIC BEACH BIOSCIENCES, INC

and

MERCK SHARP & DOHME CORP.

 

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

NON-EXCLUSIVE PATENT LICENSE AGREEMENT

THIS AGREEMENT, effective as of November 4, 2009 (the “Effective Date”), by and between Pacific Beach Biosciences, Inc, a corporation organized and existing under the laws of Delaware with its principal offices at 8910 University Center Lane, Suite 620, San Diego, CA 92122 USA (“PBBio”) and Merck Sharp & Dohme Corp. (“Merck”).

 

BACKGROUND:

	
             
 	
            A.
 	
            PBBio has rights to Patent Rights (defined below). 
 

	
             
 	
            B.
 	
            Merck desires to obtain a license under the Patent Rights upon the terms and conditions set forth in this Agreement, and PBBio desires to grant such a license to Merck.
 

In consideration of the mutual promises and covenants contained in this Agreement, PBBio and Merck agree as follows:

	
            1.
 	
            DEFINITIONS
 

 

Unless specifically set forth to the contrary herein, the following terms, whether used in the singular or plural, shall have the respective meanings set forth below:

	
            1.1
 	
            “Field” means the use of the Technology during cultivation to inhibit O-glycosylation of recombinant proteins for the treatment of hematological disorders.  
 

	
            1.2
 	
            “Initiation” means with respect to a Phase II Clinical Trial or Phase III Clinical Trial, the administration of the first dose to a patient in such trial.
 

	
            1.3
 	
            “License” is defined in Section 2.1.
 

	
            1.4
 	
            “Marketing Authorization” means all approvals necessary from the Food and Drug Administration (“FDA”), European Medicines Agency (“EMEA”) or the Japanese Pharmaceuticals and Medical Device Agency (“PDMA”) to market or sell a Product in any country.  Marketing Authorization shall be deemed to occur upon receipt of notice from the FDA, EMEA or PDMA that a Product has been approved for commercial sale.  In countries where governmental approval is required for the Product to be reimbursed by governmental agencies or programs, “Marketing Authorization” shall not be deemed to occur until such pricing or reimbursement approval is obtained. 
 

	
            1.5 
 	
            “Merck Affiliate” means (i) any corporation or business entity of which fifty percent (50%) or more of the securities or other ownership interests representing the equity, the voting stock or general partnership interest are owned, controlled or held, directly or indirectly, by Merck; or (ii) any corporation or business entity which, directly or indirectly, owns, controls or holds fifty percent (50%) (or the maximum ownership interest permitted by law) or more of the securities or other ownership interests representing the equity, the voting stock or, if applicable, the general partnership interest, of Merck; or (iii) any corporation or business entity of which fifty percent (50%) or more of the securities or other ownership interests representing the equity, the voting

 

 

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

1

stock or general partnership interest are owned, controlled or held, directly or indirectly, by a corporation or business entity described in (i) or (ii).

	
            1.6
 	
            “Party” means Merck and PBBio, individually, and “Parties” means Merck and PBBio, collectively.
 

	
            1.7
 	
            “Patent Rights” means European Patent No. EP 1 313 471 B1, based on Application No. 01963157.1 and granted April 11, 2007, including European national validations and foreign equivalents of the foregoing, and any continuations, continuations in part, divisionals, reissues and reexaminations arising therefrom, and any  renewals, substitutions, registrations, revalidations, supplementary protection certificates and the like of any such patents and patent applications, but only to the extent the foregoing claim or disclose the Technology.
 

	
            1.8
 	
            “Phase II Clinical Trial” means the first human clinical trial for a Product that would satisfy the requirements of 21 CFR 312.21(b) and/or Section 3.1.3.2 of ICH Harmonized Tripartite Guideline E8 (General Considerations for Clinical Trials) (ICH E8), as adopted by EC document CPMP/ICH/291/95. 
 

	
            1.9
 	
            “Phase III Clinical Trial” means the first human clinical trial for a Product that would satisfy the requirements of 21 CFR 312.21(c) and/or Section 3.1.3.3 of ICH Harmonised Tripartite Guideline E8 (General Considerations for Clinical Trials) (ICH E8), as adopted by EC document CPMP/ICH/291/95.
 

	
            1.10
 	
            “Product” means any therapeutic preparation for administration to humans containing a protein produced or manufactured by or on behalf of Merck using the Technology pursuant to the License; provided that the Product shall not include PMTi-3 compound.
 

	
            1.11
 	
            “Related Party” means a Third Party performing services for, with or on behalf of Merck and/or Merck Affiliates in connection with the research and/or development of Products. 
 

	
            1.12
 	
            “Technology” means the PMTi-3 compound covered by the Patent Rights and represented by the structure shown in Schedule A, and all salts and isomers thereof (to the extent the same are covered by the Patent Rights). 
 

	
            1.13
 	
            “Third Party” means an entity other than PBBio, Merck and Merck Affiliates.  
 

	
            1.14
 	
            “UCB Celltech License Agreement” means the License Agreement dated as of June 12, 2007, between UCB Celltech and PBBio, as such agreement may be amended from time to time.  A copy of the UCB Celltech License Agreement is attached as Exhibit 4.2.
 

	
            2.
 	
            LICENSE
 

	
            2.1
 	
            Non-Exclusive License Grant.
 

PBBio hereby grants to Merck a non-exclusive worldwide license, sublicensable only to Merck Affiliates and Related Parties, to practice under the Patent Rights in the Field to make, have made, use and import the Technology to research, develop, make, have made, use, import, offer for sale and sell Product 

 

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

2

(the “License”).  Any Related Party to whom a sublicense is to be granted under the Patent Rights must agree in writing to be bound by terms and conditions consistent with those in this Agreement. 

	
            2.2
 	
            No Implied Licenses
 

Except as specifically set forth in this Agreement, neither Party shall acquire any license or other intellectual property interest, by implication or otherwise, in any information disclosed to it under this Agreement or under any patents or patent applications owned or controlled by the other Party (or in the case of Merck, any Merck Affiliates). 

	
            3.
 	
            PAYMENTS
 

	
            3.1
 	
            Consideration for License

In consideration for the License, and subject to the terms and conditions contained in this Agreement, Merck shall pay to PBBio Four Hundred Eighty Thousand Dollars ($480,000.00) no later than thirty (30) days after the Effective Date.

	
            3.2
 	
            Milestone Payments

Subject to the terms and conditions of this Agreement, Merck shall pay to PBBio the following amounts (each a “Milestone Payment”) with respect to each of the following events (each, a “Milestone”), if Merck achieves the Milestone related to a Milestone Payment.

 

	
            Milestone
 	
            Milestone Payment 
 
	
            Milestone 1: Initiation of the first Phase II Clinical Trial, or three (3) years from the Effective Date (whichever is the first to occur)  
 	
            Milestone Payment 1: One Hundred and Eighty Thousand dollars ($180,000.00)
 
	
            [*]
 	
            [*]
 
	
            [*]
 	
            [*]
 

            Each Milestone Payment is payable only once on the first occurrence on the specified Milestone. Merck shall notify PBBio in writing within [*] ([*]) days following the achievement of each Milestone, and make such Milestone Payment within [*] ([*]) days after such notice.  

All payments by Merck under this Agreement are deemed “Non-Royalty Sublicensing Revenue” pursuant Section 4.2 (c) of the UCB Celltech License Agreement, and not “Royalty Sublicensing Income” (as such terms are defined in the UCB Celltech License Agreement). 

	
            3.3
 	
            Income Tax Withholding
 

PBBio shall be liable for all income and similar taxes (including interest) (“Taxes”) imposed upon any payments made by Merck to PBBio under this Article 3 (“Agreement Payments”).  If applicable laws, 

 

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

3

rules or regulations require the withholding of Taxes, Merck shall make such withholding payments and shall subtract the amount thereof from the Agreement Payments.  Merck shall submit to PBBio appropriate proof of payment of the withheld Taxes as well as the official receipts within a reasonable period of time.  Merck shall provide PBBio reasonable assistance in order to allow PBBio to obtain the benefit of any present or future treaty against double taxation which may apply to the Agreement Payments. 

	
            4.
 	
            REPRESENTATIONS AND WARRANTIES
 

	
            4.1
 	
            Representations and Warranties
 

	
             
 	
            PBBio represents and warrants to Merck that as of the Effective Date:
 

 (a)        to the best of PBBio’s knowledge, the Patent Rights exist and are not invalid or unenforceable, in whole or in part;

(b)       to the best of PBBio’s knowledge, it has the full right, power and authority to enter into this Agreement and grant the License;

(c)        to the best of PBBio’s knowledge, it has not previously assigned, transferred, conveyed or otherwise encumbered its right, title and interest in Patent Rights in any manner that is inconsistent with the rights granted under this Agreement;

(d)       to the best of PBBio’s knowledge, it is the sole and exclusive owner and/or licensee of the Patent Rights; and 

	
            4.2
 	
            UCB Celltech License Agreement: 
 

	
             
 	
            a)
 	
            The UCB Celltech License Agreement and a confirmation letter from UCB Celltech to PBBio regarding the same are attached as  Exhibit 4.2(a).  During the term of this Agreement, PBBio shall: (i) maintain the UCB Celltech License Agreement in effect, and will maintain the rights sublicensed to Merck under this Agreement; (ii)  give immediate notice to Merck of any proposed termination of such agreement or such rights; and (iii)  not materially amend the UCB Celltech License Agreement in a manner that would materially affect the rights of Merck under this Agreement.  
 

	
             
 	
            b)
 	
            PBBio will use its best efforts to have UCB Celltech provide Merck with written assurance that the License will survive any termination of the UCB Celltech License Agreement.  At Merck’s request, PBBio shall use its good faith efforts to secure a direct sublicense agreement between UCB Celltech and Merck setting forth the agreement of UCB Celltech to allow the License to survive (under the same terms and conditions of this Agreement) any termination of the UCB Celltech License Agreement.  
 

	
             
 	
            c)
 	
            PBBio will provide Merck with immediate notice of any termination, or threatened termination, of the UCB Celltech License Agreement and will permit Merck enter into direct discussions with UCB Celltech regarding the survival of the License. 
 

 

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

4

	
             
 	
            d)
 	
            Merck warrants that Products commercialized under the License shall not incorporate compounds claimed in the Patent Rights, and expressly acknowledges that the License does not give Merck rights to develop or sell a product that incorporates any compound claimed in the Patent Rights.  PBBio warrants to Merck that exercise of the License by Merck shall not give rise to any payment obligations by Merck to either PBBio or UCB Celltech except as specified in Article 3 of this Agreement.  
 

	
            4.3
 	
            Limited Warranty  
 

EXCEPT AS EXPRESSLY PROVIDED IN SECTION 4.1 OR 4.2, PBBIO MAKES NO OTHER REPRESENTATIONS OR WARRANTIES, WHETHER EXPRESS OR IMPLIED, ORAL OR WRITTEN, RELATING TO THE PATENT RIGHTS, AND HEREBY DISCLAIMS ANY AND ALL OTHER WARRANTIES THAT MAY ARISE BY OPERATION OF LAW, INCLUDING, WITHOUT LIMITATION, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR ANY PARTICULAR PURPOSES.

	
            4.4
 	
            Maintenance of Patents  
 

PBBio shall give notice to Merck of the lapse, revocation, surrender, invalidation or abandonment of any Patent Rights licensed to Merck promptly after PBBio becomes aware of any such event or action.  

	
            5.
 	
            TERM AND TERMINATION
 

	
            5.1
 	
            Term and Expiration
 

This Agreement is effective as of the Effective Date and unless terminated earlier pursuant to Sections 5.2 or 5.3, this Agreement shall continue in effect on a country-by-country until upon expiration of the last to expire Patent Rights in such country.  Expiration or termination of this Agreement shall not relieve the Parties of any obligation, and is without prejudice to the rights of either Party against the other, accrued or accruing under this Agreement prior to expiration or termination, including any such Milestone Payment obligations that have accrued prior to the expiration or termination date. 

	
            5.2
 	
            Termination by Merck
 

Merck has the right to terminate this Agreement at any time in its sole discretion by giving thirty (30) days’ advance written notice to PBBio.  If Merck terminates this Agreement before the achievement of the Milestone 1 and payment of the Milestone Payment 1 specified in Section 3.2, then Merck shall make Milestone Payment 1 to PBBio within 30 days of the effective date of such termination.  Merck shall not be obligated to make such payment if Merck terminates this Agreement as a result of the uncured breach of this Agreement by PBBio.  

 

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

5

	
            5.3
 	
            Termination by PBBio  
 

PBBio has the right to terminate this Agreement at any time upon written notice if Merck is in material breach of this Agreement and has not cured such material breach within ninety (90) days after written notice from PBBio requesting cure of the breach.

	
            5.4
 	
            Effect of Expiration or Termination; Survival  
 

Expiration or termination of this Agreement shall not relieve the Parties of any obligation, and is without prejudice to the rights of either Party against the other, accrued or accruing under this Agreement prior to expiration or termination.  The provisions of Articles 1, 3.2, 4 and 6, and any and all rights and obligations of the Parties thereunder, as well as any other provision hereunder which by its nature is intended to survive, survive any expiration or termination of this Agreement. 

	
            6.
 	
            MISCELLANEOUS
 

	
            6.1
 	
            Force Majeure
 

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

	
            6.2
 	
            Assignment 
 

Except as provided in this Section 6.2, this Agreement may not be assigned or otherwise transferred, nor may any right or obligation hereunder be assigned or transferred, by Merck without the consent of PBBio; provided, however, that Merck may, without such consent, assign this Agreement and its rights and obligations hereunder to a Merck Affiliate, or in connection with the transfer or sale of all or substantially all of its assets related to the subject matter of this Agreement, or in the event of its merger or consolidation or change in control or similar transaction. Any attempted assignment not in accordance with this Section 6.2 shall be void.  Any permitted assignee shall assume all assigned obligations under this Agreement.  

	
            6.3
 	
            Severability
 

If any one or more of the provisions contained in this Agreement is held invalid, illegal or unenforceable in any respect, the validity, legality and enforceability of the remaining provisions contained herein shall not in any way be affected or impaired thereby, unless the absence of the invalidated provision(s) adversely affects the substantive rights of the Parties.  The Parties shall in such an instance use their best efforts to replace the invalid, illegal or unenforceable provision(s) with valid, legal and enforceable provision(s) which, insofar as practical, implement the purposes of this Agreement.

 

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

6

	
            6.4
 	
            Notices
 

All notices which are required or permitted hereunder shall be in writing and sufficient if delivered personally, sent by facsimile (and promptly confirmed by personal delivery, registered or certified mail or express courier), sent by internationally-recognized express courier or sent by registered or certified mail, postage prepaid, return receipt requested, addressed as follows:

 

	
            If to PBBio, to:
 	
            Attention: Jim Rock, 

Pacific Beach BioSciences, Inc.

PO Box 222

La Jolla, CA 92038

United States of America

Facsimile No.: 858 459 8170 
 
	
             
 
	
             
 
	
             
 
	
             
 
	
             
 	
             
 
	
            And
 	
            Jay Lobell

c/o Paramount BioSciences

787 Seventh Avenue

NYC, NY  10019

Facsimile No.: (212)-554 4373
 
	
             
 	
             
 
	
            If to Merck, to:
 	
            Merck Sharp & Dohme Corp.

One Merck Drive

P.O. Box 100, WS3A-65

Whitehouse Station, NJ 08889-0100

Attention: Office of the Secretary

Facsimile No.: + (908) 735-1246
 
	
             
 	
             
 
	
            And
 	
            Merck Sharp & Dohme Corp.

One Merck Drive

P.O. Box 100, WS3A-65

Whitehouse Station, NJ 08889-0100

Attention: Chief Licensing Officer

Facsimile No.: + (908) 423 1214
 

or to such other address(es) as the Party to whom notice is to be given may have furnished to the other Party in writing in accordance herewith.

	
            6.5
 	
            Applicable Law
 

The Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to principals of conflicts of law thereof, without reference to any rules of conflict of laws or renvoi.

 

	
            6.6
 	
            Entire Agreement; Amendments
 

This Agreement, together with the Exhibit 4.2 letter from UCB Celltech, contains the entire understanding of the Parties with respect to the License.  Any other express or implied agreements and understandings, either oral or written, with regard to the License are superseded by the terms of this 

 

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

7

Agreement.  This Agreement may be amended, or any term hereof modified, only by a written instrument duly executed by authorized representatives of both Parties.

	
            6.7
 	
            Publicity/Use of Names   
 

No disclosure of the existence, or the terms, of this Agreement may be made by either Party, and neither Party shall use the name, trademark, trade name or logo of the other Party, its Affiliates or their respective employees in any publicity, promotion, news release or disclosure relating to this Agreement or its subject matter, without the prior express written permission of the other Party, except as may be required by law.

	
            6.8
 	
            Headings
 

The captions to the several Articles and Sections are not a part of this Agreement, but are merely for convenience to assist in locating and reading the several Articles and Sections.

	
            6.9
 	
            Independent Contractors
 

It is expressly agreed that PBBio and Merck shall be independent contractors and that the relationship between the Parties shall not constitute a partnership, joint venture or agency.  Neither PBBio nor Merck shall have the authority to make any statements, representations or commitments of any kind, or to take any action, which shall be binding on the other Party, without the prior written consent of the other Party.

	
            6.10
 	
            Waiver
 

The waiver by either Party hereto of any right hereunder, or of any failure of the other Party to perform, or of any breach by the other Party, shall not be deemed a waiver of any other right hereunder or of any other breach by or failure of such other Party, whether of a similar nature or otherwise.

	
            6.12
 	
            Cumulative Remedies
 

No remedy referred to in this Agreement is intended to be exclusive, but each shall be cumulative and in addition to any other remedy referred to in this Agreement or otherwise available under law.

	
            6.13
 	
            Waiver of Rule of Construction
 

Each Party has had the opportunity to consult with counsel in connection with the review, drafting and negotiation of this Agreement.  Accordingly, the rule of construction that any ambiguity in this Agreement shall be construed against the drafting Party shall not apply.

	
            6.14
 	
            Counterparts
 

This Agreement may be executed in two or more counterparts (facsimile and electronic transmission included), each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. After facsimile or electronic transmission, the Parties agree to execute and exchange documents with original signatures.

 

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

8

IN WITNESS WHEREOF, the Parties have executed this Agreement as of the Effective Date.

 

	
            MERCK SHARP & DOHME CORP.
 	
            PACIFIC BEACH BIOSCIENCES, INC.
 
	
             
 	
             
 
	
            BY:
 	
            
/s/ Richard N. Kender
 
 	
            BY:
 	
            
/s/ James A. Rock
 
 
	
             
 	
            Richard N. Kender
 	
             
 	
            James A. Rock
 
	
            TITLE: SVP, Business Development & Corporate Licensing
 	
            TITLE:  
 
	
            DATE: 11/9/09                
 	
            DATE: 11/4/09                
 

 

 

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

9

Schedule A :

PMTi-3 

[*]

_________

UCB Letter  Exhibit 4.2

 

 

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

10Exhibit 10.5

 

EXCLUSIVE SUBLICENSE AGREEMENT

 

 

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

 

TABLE OF CONTENTS

 

	
             
 	
            
 	
            
 	
            Page 
 

	
            ARTICLE 1
 	
            DEFINITIONS
 	
            1
 

	
             
 	
            1.1
 	
            “Affiliate”
 	
            1
 

	
             
 	
            1.2
 	
            “Competent Authority(ies)”
 	
            1
 

	
             
 	
            1.3
 	
            “EMEA”
 	
            2
 

	
             
 	
            1.4
 	
            “FDA”
 	
            2
 

	
             
 	
            1.5
 	
            “Field of Use”
 	
            2
 

	
             
 	
            1.6
 	
            “Governmental Approval(s)”
 	
            2
 

	
             
 	
            1.7
 	
            “IND(s)”
 	
            2
 

	
             
 	
            1.8
 	
            “Indication”
 	
            2
 

	
             
 	
            1.9
 	
            “Improvements”
 	
            2
 

	
             
 	
            1.10
 	
            “Know How”
 	
            3
 

	
             
 	
            1.11
 	
            “Licensed Product(s)”
 	
            3
 

	
             
 	
            1.12
 	
            “Marketing Authorization”
 	
            3
 

	
             
 	
            1.13
 	
            “Milestone Payment”
 	
            3
 

	
             
 	
            1.14
 	
            “NDA”
 	
            3
 

	
             
 	
            1.15
 	
            “Net Sales”
 	
            3
 

	
             
 	
            1.16
 	
            “Patent Rights”
 	
            4
 

	
             
 	
            1.17
 	
            “Royalty Term”
 	
            5
 

	
             
 	
            1.18
 	
            “Sublicensee”
 	
            5
 

	
             
 	
            1.19
 	
            “Technology”
 	
            5
 

	
             
 	
            1.20
 	
            “Term”
 	
            5
 

	
             
 	
            1.21
 	
            “Territory”
 	
            5
 

	
             
 	
            1.22
 	
            “Valid Claim”
 	
            5
 

	
            ARTICLE 2
 	
            GRANT
 	
            5
 

	
             
 	
            2.1
 	
            Grant of License
 	
            5
 

	
             
 	
            2.2
 	
            Sublicenses
 	
            6
 

	
             
 	
            2.3
 	
            Formulation and Right to Additional Technologies
 	
            6
 

	
             
 	
            2.4
 	
            RDJ/Santee License Agreement
 	
            8
 

	
            ARTICLE 3
 	
            TECHNOLOGY TRANSFER
 	
            8
 

	
             
 	
            3.1
 	
            Technology Transfer
 	
            8
 

 

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

 

i

 

TABLE OF CONTENTS
(continued)

	
             
 	
            
 	
            
 	
            Page 
 

	
             
 	
            3.2
 	
            Costs of Transfer
 	
            8
 

	
             
 	
            3.3
 	
            Transfer of API Inventory
 	
            9
 

	
            ARTICLE 4
 	
            REGULATORY COMPLIANCE
 	
            9
 

	
             
 	
            4.1
 	
            Ownership and Maintenance of Governmental Approvals and Marketing Authorizations
 	
            9
 

	
             
 	
            4.2
 	
            Rights of Reference
 	
            9
 

	
             
 	
            4.3
 	
            Access to Manufacturers
 	
            9
 

	
             
 	
            4.4
 	
            Transfer of Governmental Approvals and Marketing Authorizations
 	
            10
 

	
            ARTICLE 5
 	
            DEVELOPMENT AND COMMERCIALIZATION
 	
            10
 

	
             
 	
            5.1
 	
            Development
 	
            10
 

	
            ARTICLE 6
 	
            ROYALTIES AND OTHER CONSIDERATION
 	
            10
 

	
             
 	
            6.1
 	
            Obligation to Pay
 	
            10
 

	
             
 	
            6.2
 	
            Royalties on Net Sales
 	
            10
 

	
             
 	
            6.3
 	
            Royalties respecting Sublicenses
 	
            10
 

	
             
 	
            6.4
 	
            No Multiple Royalties
 	
            10
 

	
             
 	
            6.5
 	
            Combination Products
 	
            11
 

	
             
 	
            6.6
 	
            Development Based Milestone Payments
 	
            11
 

	
             
 	
            6.7
 	
            Place of Payment, Taxes and Conversions
 	
            12
 

 

	
             
 	
            6.8
 	
            Time for Payment
 	
            12
 

	
             
 	
            6.9
 	
            Interest
 	
            12
 

	
             
 	
            6.10
 	
            Royalty Reduction for Infringement
 	
            12
 

	
            ARTICLE 7
 	
            REPORTS AND RECORDS
 	
            13
 

	
             
 	
            7.1
 	
            Records and Audits
 	
            13
 

	
             
 	
            7.2
 	
            Royalty Statements
 	
            13
 

	
             
 	
            7.3
 	
            Confidential Treatment of Reports
 	
            13
 

	
            ARTICLE 8
 	
            PATENT PROSECUTION AND MAINTENANCE
 	
            14
 

	
             
 	
            8.1
 	
            Prosecution and Maintenance
 	
            14
 

	
             
 	
            8.2
 	
            Abandonment
 	
            14
 

	
            ARTICLE 9
 	
            DISPUTE RESOLUTION
 	
            14
 

	
             
 	
            9.1
 	
            Disputes
 	
            14
 

 

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

 

ii

 

TABLE OF CONTENTS
(continued)

	
             
 	
            
 	
            
 	
            Page 
 

	
             
 	
            9.2
 	
            Performance to Continue
 	
            15
 

	
             
 	
            9.3
 	
            Determination of Patents and Other Intellectual Property
 	
            15
 

	
            ARTICLE 10
 	
            TERM AND TERMINATION
 	
            16
 

	
             
 	
            10.1
 	
            Term
 	
            16
 

	
             
 	
            10.2
 	
            Termination for Insolvency
 	
            16
 

	
             
 	
            10.3
 	
            Termination for Failure to make Payments
 	
            16
 

	
             
 	
            10.4
 	
            Termination for Breach
 	
            16
 

	
             
 	
            10.5
 	
            Expiry of Royalty Term on a Country by Country Basis
 	
            16
 

	
             
 	
            10.6
 	
            Termination for Convenience
 	
            17
 

	
             
 	
            10.7
 	
            Consequences of Termination
 	
            17
 

	
             
 	
            10.8
 	
            Survival
 	
            17
 

	
            ARTICLE 11
 	
            INFRINGEMENT AND OTHER ACTIONS
 	
            17
 

	
             
 	
            11.1
 	
            Notice of Infringement of Patent Rights
 	
            17
 

	
             
 	
            11.2
 	
            Option to Prosecute or Defend Patent Rights
 	
            17
 

	
             
 	
            11.3
 	
            Infringement by Licensed Product
 	
            18
 

	
             
 	
            11.4
 	
            Allocation of Damages Recovered
 	
            18
 

	
             
 	
            11.5
 	
            Credit of Litigation Costs
 	
            18
 

	
             
 	
            11.6
 	
            Cooperation
 	
            18
 

	
            ARTICLE 12
 	
            REPRESENTATIONS AND WARRANTIES
 	
            18
 

	
             
 	
            12.1
 	
            Santee Warranties
 	
            18
 

	
            ARTICLE 13
 	
            LIMITATION OF LIABILITY
 	
            21
 

	
             
 	
            13.1
 	
            NO IMPLIED WARRANTIES
 	
            21
 

	
            ARTICLE 14
 	
            NO AGENCY AND PUBLICATION
 	
            21
 

	
             
 	
            14.1
 	
            No Agency
 	
            21
 

	
             
 	
            14.2
 	
            Publication
 	
            22
 

	
            ARTICLE 15
 	
            CONFIDENTIALITY
 	
            22
 

	
             
 	
            15.1
 	
            Confidentiality and Non-Use
 	
            22
 

	
             
 	
            15.2
 	
            Limited Disclosure by Santee
 	
            23
 

	
             
 	
            15.3
 	
            Material Non-Public Information
 	
            23
 

	
            ARTICLE 16
 	
            MISCELLANEOUS PROVISIONS
 	
            23
 

 

 

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

 

iii

 

TABLE OF CONTENTS
(continued)

 

	
             
 	
            
 	
            
 	
            Page 
 

	
             
 	
            16.1
 	
            Assignment
 	
            23
 

	
             
 	
            16.2
 	
            Binding Nature and Inurnment
 	
            23
 

	
             
 	
            16.3
 	
            Counterparts; Facsimile
 	
            23
 

	
             
 	
            16.4
 	
            Entire Agreement; Amendment
 	
            24
 

	
             
 	
            16.5
 	
            Force Majeure
 	
            24
 

	
             
 	
            16.6
 	
            Further Assurances
 	
            24
 

	
             
 	
            16.7
 	
            Headings
 	
            24
 

	
             
 	
            16.8
 	
            Law
 	
            24
 

	
             
 	
            16.9
 	
            No Consequential Damages
 	
            24
 

	
             
 	
            16.10
 	
            Payments, Notices and Other Communications
 	
            24
 

	
             
 	
            16.11
 	
            Payment of Own Fees and Expenses
 	
            25
 

	
             
 	
            16.12
 	
            Severability
 	
            25
 

	
             
 	
            16.13
 	
            Waiver
 	
            25
 

	
             
 	
            16.14
 	
            Adverse Event Reporting
 	
            25
 

	
             
 	
            16.15
 	
            Witness
 	
            26
 

 

 

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

 

iv

 

EXCLUSIVE SUBLICENSE AGREEMENT

This Exclusive Sublicense Agreement (hereinafter referred to as this “Agreement”), effective as July 10th, 2007 (the “Effective Date”), is entered into by and between SANTEE BIOSCIENCES, INC., a Delaware corporation (“Santee”), having a place of business at 4365 Executive Drive, Suite 1500, San Diego, California 92121, and PACIFIC BEACH BIOSCIENCES, INC., a Delaware corporation (“Pacific Beach”), having a place of business at 4365 Executive Drive, Suite 1500, San Diego, California 92121.

WHEREAS, Rongdajia Pharmaceutical Company Ltd., a company incorporated in China (“RDJ”), and Santee entered into the License Agreement effective as August 3, 2006 (as amended from time to time, the “RDJ/Santee License Agreement”), pursuant to which RDJ granted to Santee certain licenses and other rights in the Technology (as defined below) as claimed in the in the Patent Rights (as defined below) and as Know How (as defined below);

WHEREAS, Pacific Beach is interested in obtaining exclusive sublicense rights for the use, production, distribution, and marketing of certain products derived from the Technology; and

WHEREAS, Santee wishes to grant to Pacific Beach an exclusive sublicense under the Patent Rights and Know How, in the Field of Use (as defined below) to make, have made, use, have used, lease, import and export, offer to sell, sell have sold, produce, manufacture, distribute and market Licensed Products (as defined below); 

NOW, THEREFORE, in consideration of the foregoing recitals, the premises and the mutual covenants contained herein, the parties hereto, intending to be legally bound, agree as follows:

Article 1 Definitions

For the purposes of this Agreement, the following words and phrases shall have the following meanings:

	
            1.1
 	
            “Affiliate”
 

shall mean, with respect to any Entity (as hereinafter defined), any Entity that directly or indirectly controls, is controlled by, or is under common Control with such Entity.

	
             
  	
            1.1.1
 	
            “Control” shall mean, for this purpose, direct or indirect control of more than fifty percent (50%) of the voting securities of an Entity or, if such Entity does not have outstanding voting securities, more than 50% of the directorships or similar positions with respect to such Entity.
 

	
             
  	
            1.1.2
 	
            “Entity” shall mean any corporation, association, joint venture, partnership, trust, university, business, individual, government or political subdivision thereof, including an agency, or any other organization that can exercise independent legal standing.
 

	
            1.2
 	
            “Competent Authority(ies)”
 

means collectively the entities in each country in the Territory responsible for:

 

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

 

2

	
             
  	
            (a)
 	
            the regulation of medicinal products intended for human use, including but not limited to the FDA and EMEA, or
 

	
             
  	
            (b)
 	
            the establishment, maintenance and/or protection of rights related to the Patent Rights,
 

and any other comparable, applicable administrative agency in any other country in the Territory and any successor entities thereto.

	
            1.3
 	
            “EMEA”
 

means the European Agency for Evaluation of Medicinal Products and any successor entity thereto.

	
            1.4
 	
            “FDA”
 

means the United States Food and Drug Administration in the United States and any successor entity thereto.

	
            1.5
 	
            “Field of Use”
 

shall mean all uses.

	
            1.6
 	
            “Governmental Approval(s)”
 

means any and all permits, licenses and authorizations required by any Competent Authority as a prerequisite to the development, manufacturing, packaging, marketing and selling of the Licensed Product in the Field of Use in the Territory; excluding however import permits.

	
            1.7
 	
            “IND(s)”
 

means an investigational new drug application as defined in 21 C.F.R.  Section 312 et seq for the FDA in the United States or equivalent application to the Competent Authorities of other countries in the Territory, to commence clinical testing of a drug in humans, as defined by the FDA in the United States, or other applicable Competent Authority, as the same may be amended, supplemented or replaced from time to time.

	
            1.8
 	
            “Indication”
 

shall mean a recognized disease or condition.

	
            1.9
 	
            “Improvements”
 

shall mean any modification of the Licensed Product or any inventions (whether patentable or not), information and data, for use in the Field of Use, any time during the Term, which would be useful or necessary in the manufacture use or sale of a Licensed Product, or the practice of which would infringe an issued or pending claim within the Patent Rights.

 

 

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

 

3

 

	
            1.10
 	
            “Know How”
 

shall mean all tangible or intangible information (other than those contained in the Patent Rights) whether patentable or not (but which has not been patented) related to the Technology or to the Licensed Product or to an Improvement, including but not limited to: formulations, in vitro, preclinical or clinical design, information or results, other proprietary materials, processes, including but not limited to manufacturing processes, data, drawings and sketches, designs, testing and test results, regulatory information of a like nature, owned or controlled by Santee which Santee has the right to disclose and license to Pacific Beach.

	
            1.11
 	
            “Licensed Product(s)”
 

shall mean any product that (a) comprises any azole antifungal agent or a derivative thereof (without regard to the formulation thereof), and (b) cannot be manufactured, used or sold, in whole or part, without infringing one or more Valid Claims included within the Patent Rights in the country in which the product is made, used, leased, imported, exported, offered for sale or sold, provided however, that such Valid Claim has not been pending more than five (5) years.

	
            1.12
 	
            “Marketing Authorization”
 

means all necessary and appropriate regulatory approvals, including NDAs, where applicable, to allow a Licensed Product to be marketed and sold in the Field of Use in a particular country in the Territory.

	
            1.13
 	
            “Milestone Payment”
 

means the payments set out in Section 6.6.

	
            1.14
 	
            “NDA”
 

means a New Drug Application, and all amendments and supplements thereto, for regulatory approval by the FDA as defined in 21 CFR § 314.50 et seq., as such act or regulations may be amended, supplemented or replaced from time to time, to commence commercial sale of the Licensed Product in the United States and any other comparable term and act as applicable with regard to a new drug application and all amendments, supplements or replacements to such act or regulations in any other country in the Territory.

	
            1.15
 	
            “Net Sales”
 

shall have the meaning set out below:

	
             
  	
            1.15.1
 	
            “Net Sales” shall mean the total gross receipts for sales of Licensed Products by or on behalf of Pacific Beach or any of its Affiliates or Sublicensees (as applicable), whether invoiced or not, less only the sum of the following:
 

	
             
  	
            (a)
 	
            usual trade discounts to customers;
 

	
             
  	
            (b)
 	
            sales, tariff duties and/or use taxes directly imposed and with reference to particular sales;
 

	
             
  	
            (c)
 	
            amounts allowed or credited on returns;
 

 

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

 

4

 

	
             
  	
            (d)
 	
            bad debt deductions actually written off during the accounting period;
 

	
             
  	
            (e)
 	
            outbound transportation prepaid or allowed and transportation insurance
 

	
             
  	
            (f)
 	
            sales commissions; and
 

	
             
  	
            (g)
 	
            packaging and freight charges.
 

	
             
  	
            1.15.2
 	
            Components of Net Sales shall be determined in the ordinary course of business using the accrual method of accounting in accordance with GAAP.
 

	
             
  	
            1.15.3
 	
            Notwithstanding anything herein to the contrary, the transfer of a Licensed Product to a third party without consideration to Pacific Beach in connection with the research, development or testing of a Licensed Product shall not be considered a sale of a Licensed Product under this Agreement.  Nor shall the transfer of Licensed Product solely for indigent or similar public support or compassionate use programs be considered a sale of Licensed Product under this Agreement.
 

	
             
  	
            1.15.4
 	
            Notwithstanding anything herein to the contrary, the transfer of Licensed Product between Pacific Beach, its Affiliate and/or its Sublicensee shall not be considered a sale of Licensed Product under this Agreement unless such Affiliate or Sublicensee are the end user of such Licensed Product.
 

	
            1.16
 	
            “Patent Rights”
 

means

	
             
  	
            1.16.1
 	
            all U.S.  and foreign patents and patent applications set forth in Exhibit A;
 

	
             
  	
            1.16.2
 	
            any and all US or foreign patents, patent applications, or other rights issuing from, or filed subsequent to the date of this Agreement, based on or claiming priority to or from the applications and rights listed on Exhibit A, including continuations, continuations in part, divisionals, reexaminations, extensions, and reissues from such applications and rights, and any patents resulting from any application or right included in Sections 1.16.1 or 1.16.2; 
 

	
             
  	
            1.16.3
 	
            any other intellectual property rights owned or controlled by Santee or that Santee has the ability to license to Pacific Beach relating to the Technology as of the date of this Agreement any and all US or foreign patents, patent applications, or other rights, including continuations, continuations in part, divisionals, reexaminations, extensions, and reissues from such rights;
 

	
             
  	
            1.16.4
 	
            any other intellectual property rights owned or controlled by Santee at any time during the Term of this Agreement relating to an Improvement or that Santee has the ability to license or gains the ability to license to Pacific Beach relating to an Improvement or that Santee has the ability to license or gains the ability to license to Pacific Beach relating to an Improvement; and any and all US or foreign patents, patent applications,
 

 

 

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

 

5

 

	
             
  	
              
 	
             or other rights, including continuations, continuations in part, divisionals, reexaminations, extensions, and reissues from such rights; and
 

	
             
  	
            1.16.5
 	
            any foreign counterpart to any of Sections 1.16.1-1.16.4.
 

Exhibit A shall be amended in writing from time to time to reflect the foregoing.

	
            1.17
 	
            “Royalty Term”
 

means, in respect of each country in the Territory, the period commencing on the Effective Date and ending on the date of the last to expire valid claim contained in the Patent Rights covering a Licensed Product, at which time Pacific Beach will have an irrevocable, paid up, royalty-free license under the Patent Rights and Know How to make, have made, use, have used, import, offer to sell, sell and have sold Licensed Products in each such country.

	
            1.18
 	
            “Sublicensee”
 

means a third party that has entered into a license agreement with Pacific Beach sublicensing any of the rights granted under Section 2.1.1, or a party that has entered into a license agreement with a Sublicensee sublicensing any of the rights granted under Section 2.1.1 (as applicable).

	
            1.19
 	
            “Technology”
 

means a cyclodextrin-based complex.

	
            1.20
 	
            “Term”
 

has the meaning set out in Section 10.1.

	
            1.21
 	
            “Territory”
 

means North America and Europe.

	
            1.22
 	
            “Valid Claim”
 

means any pending or issued claim included within the Patent Rights that has not been permanently revoked, nor unenforceable or invalid by a decision of a court or other governmental agency of competent jurisdiction that is unappealable or unappealed in the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer or otherwise.

 

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

 

6

 

Article 2 Grant

	
            2.1
 	
            Grant of License
 

Santee hereby grants to Pacific Beach and Pacific Beach accepts, subject to the terms and conditions of this Agreement, an exclusive license in the Field of Use to practice under the Patent Rights and to utilize the Know How in the Territory to:

	
             
  	
            2.1.1
 	
            make, have made, use, have used, import, have imported, export, have exported, offer for sale, have sold, sell, produce, manufacture, distribute and market the Licensed Products to the full end of the Royalty Term, unless sooner terminated as hereinafter provided; and
 

	
             
  	
            2.1.2
 	
            sublicense to third parties, in accordance with Section 2.2 below, the rights granted under Section 2.1.1 of this Section 2.1 in accordance with Section 2.2.
 

 

Such license grant additionally shall include the right to conduct pre-clinical and clinical development activities outside of the Territory.

 

	
            2.2
 	
            Sublicenses
 

	
             
  	
            2.2.1
 	
            Pacific Beach shall have the right to sublicense rights granted in Section 2.1.1 to its Affiliates in its sole discretion.  Each sublicense shall contain covenants by the sublicense for such sublicense to obtain and perform materially the same terms and conditions as these set out for Pacific Beach in the Agreement.  Affiliates shall have the right to grant further sublicenses in their sole discretion.  All sublicenses granted under this Section 2.2.1 shall survive termination, provided however, Santee shall not be obligated to incur any obligation or duties to any former Sublicensee of Pacific Beach or Affiliate not already incurred or delegated to Pacific Beach by Santee in this Agreement.   
 

	
             
  	
            2.2.2
 	
            Pacific Beach shall also have the right to sublicense rights granted in Section 2.1.1 to third parties in multiple tiers in its sole discretion, subject to the following: Pacific Beach shall give Santee prompt notice of the execution of any sublicense.  Said third parties shall have the right to grant further sublicenses provided that said third parties provide Pacific Beach with prompt notice of the execution of any sublicense.  Pacific
Beach shall promptly notify Santee of same.  Within thirty (30) calendar days after execution of a sublicense agreement, Pacific Beach shall provide Santee with a copy thereof.  Each sublicense shall contain covenants by the Sublicensee for such Sublicensee to observe and perform materially the same terms and conditions as those set out for Pacific Beach in this Agreement.  In the event Pacific Beach grants sublicenses to others to sell Licensed Product, such sublicenses shall include an obligation for the Sublicensee to account for and report its Net Sales on the same basis as if such sales were Net Sales by Pacific Beach.  All sublicenses granted under this Section 2.2.2 shall survive termination, provided however, Santee shall not be obligated to incur any
obligation or duties to any former Sublicensee of Pacific Beach
 

 

 

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

 

7

 

 or Sublicensee not already incurred or delegated to Pacific Beach by Santee in this Agreement.    

	
             
  	
            2.2.3
 	
            The terms of this Section 2.2 shall apply to each subsequent Sublicensee (including or sub-sublicensees), as if same were Pacific Beach’s original Sublicensee.
 

	
             
  	
            2.2.4
 	
            Notwithstanding the foregoing, if Pacific Beach believes that Santee has terminated this Agreement for the primary purpose of doing business directly with the Sublicensee, the termination may be disputed under the provisions of Article 9.
 

	
            2.3
 	
            RDJ/Santee License Agreement
 

Santee shall timely pay in full all amounts required to be paid by Santee, and timely perform in full all obligations required to be performed by Santee, under the RDJ/Santee License Agreement.  Santee promptly shall provide Pacific Beach with copies of all notices and other deliveries received under the RDJ/Santee License Agreement.  Without the prior express written consent of Pacific Beach, Santee shall not (and shall take no action or make no omission to) modify or waive any provision of the RDJ/Santee License Agreement that could impair the value of the licenses to Pacific Beach herein, or to terminate or have terminated the RDJ/Santee License Agreement.

Article 3 Technology Transfer

	
            3.1
 	
            Technology Transfer
 

Unless otherwise prohibited by law, Santee shall provide Pacific Beach with and give Pacific Beach access to the following information; to the extent Santee has such access to such information:

	
             
  	
            3.1.1
 	
            copies of all regulatory submissions relating to the Licensed Product;
 

	
             
  	
            3.1.2
 	
            any communications with the Competent Authorities and the minutes of any meetings with the Competent Authorities relating to the Licensed Product;
 

	
             
  	
            3.1.3
 	
            trial master files relating to the Licensed Product, including copies of all case report forms;
 

	
             
  	
            3.1.4
 	
            copies of all listings and tables of results from the clinical trials relating to the Licensed Product;
 

	
             
  	
            3.1.5
 	
            copies of all treatment-related serious adverse event reports from the clinical trials relating to the Licensed Product;
 

	
             
  	
            3.1.6
 	
            storage of and access permission to any retained samples of materials used in clinical trials relating to the Licensed Product;
 

	
             
  	
            3.1.7
 	
            access to CROs involved in the clinical trials clinical trials relating to the Licensed Product;
 

	
             
  	
            3.1.8
 	
            the data and results of any CMC related activities regarding the Licensed Product, and
 

 

 

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

 

8

 

	
             
  	
            3.1.9
 	
            all other information that Pacific Beach may reasonably request regarding clinical trials respecting the Licensed Product.
 

	
            3.2
 	
            Costs of Transfer
 

	
             
  	
            3.2.1
 	
            Pacific Beach shall pay to Santee Santee’s documented out-of-pocket costs of providing such information and services.
 

	
             
  	
            3.2.2
 	
            Pacific Beach shall reimburse Santee for its reasonable time spent in providing such information and services, in accordance with the following fee schedule:
 

	
             
  	
            (a)
 	
            Two Hundred Dollars ($200) per hour for the time of the Chief Scientific Officer;
 

	
             
  	
            (b)
 	
            One Hundred Fifty Dollars ($150) per hour for the time of a Senior Scientist; and
 

	
             
  	
            (c)
 	
            Fifty Dollars ($50) per hour for the time of a Junior Scientist.  
 

	
             
  	
            3.2.3
 	
            Pacific Beach shall pay all reasonable, documented, actual travel and associated accommodation expenses of Santee personnel who, at request of Pacific Beach, travel to provide transition support under this Section.
 

	
             
  	
            3.2.4
 	
            Notwithstanding anything to the contrary herein, any amounts paid to Santee by Pacific Beach pursuant to this Section 3.2 shall be credible against one or more milestones due and owing to Santee under Section 6.6. 
 

	
            3.3
 	
            Transfer of API Inventory
 

Santee shall make available to Pacific Beach at Santee’s documented out-of-pocket cost, all or any part of Santee’s inventory of GMP and non-GMP active pharmaceutical ingredient (API) of the Technology conforming to specifications mutually agreed upon by the parties.

Article 4 Regulatory Compliance

	
            4.1
 	
            Ownership and Maintenance of Governmental Approvals and Marketing Authorizations 
 

Pacific Beach will own all Governmental Approvals and Marketing Authorizations for each country in the Territory for Licensed Products.  Without limiting the generality of the foregoing, Pacific Beach shall prepare and submit in its own name and at its expense NDAs with the FDA in the U.S.  and any other equivalent application with the Competent Authorities in other countries in the Territory.

	
            4.2
 	
            Rights of Reference
 

Santee shall grant and hereby grants to Pacific Beach a free-of-charge right to reference and use and have full access to all Governmental Approvals, Marketing Authorizations and other regulatory documents
relating to the Technology, including any IND, any NDA and any DMF (whether as an independent document or as part of any NDA, and all chemistry, manufacturing and controls information), and any supplements, amendments or updates to the foregoing, where such regulatory documents are owned or

 

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

 

9

 

controlled by Santee or its Sublicensees for Licensed Products in the Field of Use (for the purposes of this Section, the “Right of Reference”).  Pacific Beach may license the Right of Reference to Affiliates and to Sublicensees.

	
            4.3
 	
            Access to Manufacturers
 

Santee grants to Pacific Beach a free of charge right to access any suppliers of the API form of the Licensed Product and related intellectual property, owned or controlled, now or in the future by Santee for Licensed Products, including the right to sublicense the right of reference to Sublicensees of Pacific Beach and/or its Affiliates.

	
            4.4
 	
            Transfer of Governmental Approvals and Marketing Authorizations 
 

	
             
  	
            4.4.1
 	
            The parties acknowledge that Santee, as of the Effective Date, owns and holds certain Governmental Approvals and Marketing Authorizations in connection with the research and development of the Licensed Product.  Upon Pacific Beach’s request, such request to be made as soon as reasonably possible, Santee shall transfer to Pacific Beach, without any additional consideration, such Governmental Approvals and Marketing Authorizations.
 

	
             
  	
            4.4.2
 	
            During the time that Santee is the holder of such Governmental Approvals and Marketing Authorizations, Pacific Beach shall be entitled to attend any and all meetings and participate in telephone calls with the Competent Authorities, including without limitation any meeting preparation, meeting co-ordination, preparation of minutes and pre-meetings with the Competent Authorities.
 

Article 5 Development and Commercialization

	
            5.1
 	
            Development
 

Pacific Beach shall use commercially reasonable efforts and shall cause its Affiliates or Sublicensees to use commercially reasonable efforts to secure the Marketing Authorizations for Licensed Products.

Article 6 Royalties and other Consideration

	
            6.1
 	
            Obligation to Pay
 

Pacific Beach agrees to pay to Santee the royalties set forth below, and in accordance with the provisions hereof to the end of the Royalty Term or until this Agreement shall be terminated as hereinafter provided.

	
            6.2
 	
            Royalties on Net Sales
 

During the Royalty Term, Pacific Beach shall pay Santee royalties equal to:

	
             
  	
            6.2.1
 	
            Six percent (6%) of Net Sales of less than One Hundred Million Dollars ($100,000,000) in any calendar year; and
 

	
             
  	
            6.2.2
 	
            Four percent (4%) of Net Sales equal to or in excess of One Hundred Million Dollars ($100,000,000) in any calendar year.
 

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

 

10

	
            6.3
 	
            Royalties respecting Sublicenses
 

During the Royalty Term, Pacific Beach shall pay Santee royalties for Licensed Products sold by any Sublicensee equal to twenty percent (20%) of all royalties received by Pacific Beach or its Affiliates from such Sublicensee relating to a sublicense agreement respecting the Licensed Product.

	
            6.4
 	
            No Multiple Royalties
 

No multiple royalties shall be payable because the use, lease or sale of any Licensed Product is, or shall be, covered by more than one valid and unexpired claim contained in the Patent Rights.  Additionally, royalties shall be paid to Santee for the sale of a Licensed Product based upon only one of Sections 6.2 or 6.3 above, but in no case both (that is, royalties due to Santee on direct sales of a Licensed Product by Pacific Beach or its Affiliates to a third party shall be based only on Section 6.2, while royalties on sales of a Licensed Product by Pacific Beach’s Sublicensees to a third party shall be based only on Section 6.3, so as to avoid double counting).

	
            6.5
 	
            Combination Products
 

In the event that a Licensed Product is sold in the form of a combination product containing one or more products or technologies which are themselves
not a Licensed Product, the Net Sales for such combination product shall be calculated by multiplying the sales price of such combination product by
the fraction A/(A+B) where A is the invoice price of the Licensed Product or the fair market value of the Licensed Product if sold to an Affiliate and
B is the total invoice price of the other products or technologies or the fair market value of the other products or technologies if purchased from an
Affiliate.

	
            6.6
 	
            Development Based Milestone Payments
 

As further consideration for the license granted hereunder, Pacific Beach will make the following one time Milestone Payments to Santee.

	
             
  	
            6.6.1
 	
            Fifty Thousand Dollars ($50,000) within ninety (90) days of the Effective Date of this Agreement;
 

	
             
  	
            6.6.2
 	
            One Hundred Twenty Five Thousand Dollars ($125,000) within ninety (90) days of the first acceptance for review by the FDA of the first Pacific Beach
(or Affiliate or Sublicensee) -sponsored IND for each Licensed Product;
 

	
             
  	
            6.6.3
 	
            Five Hundred Thousand Dollars ($500,000) within ninety (90) days of the first dosing of patient with a Licensed Product in the first phase III
clinical trial under a Pacific Beach (or Affiliate or Sublicensee) -sponsored IND for each Licensed Product;
 

	
             
  	
            6.6.4
 	
            Two Million Two Hundred Fifty Thousand Dollars ($2,250,000) within ninety (90) days of the first acceptance for review by the FDA of the first
Pacific Beach (or Affiliate or Sublicensee) -sponsored NDA for each Licensed Product;
 

	
             
  	
            6.6.5
 	
            Four Million Dollars ($4,000,000) within ninety (90) days of the first final approval by the FDA of the first Pacific Beach (or Affiliate or
Sublicensee) -sponsored NDA for each Licensed Product;
 

	
             
  	
            6.6.6
 	
            One Million One Hundred Twenty Five Thousand Dollars ($1,125,000) within ninety (90) days of the first acceptance for review by the EMEA
of the first Pacific Beach (or Affiliate or Sublicensee) -sponsored application for commercial sale of each Licensed Product; and 
 

	
             
  	
            6.6.7
 	
            Two Million Dollars ($2,000,000) within ninety (90) days of the first final approval by the EMEA of the first Pacific Beach (or Affiliate or
Sublicensee) -sponsored application for commercial sale of each Licensed Product.
 

Notwithstanding anything to the contrary herein, in no event shall Pacific Beach pay to Santee any amount pursuant to this Section 6.6 (other than pursuant to Section 6.6.1) that Santee is not required to remit to RDJ pursuant to the RDJ/Santee License Agreement.

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

 

11

	
            6.7
 	
            Place of Payment, Taxes and Conversions
 

Royalty payments shall be paid in United States dollars at such place as Santee may reasonably designate consistent with applicable laws and regulations.  Any taxes which Pacific Beach, its Affiliate or any Sublicensee shall be required by law to withhold on remittance of the royalty payments shall be deducted from such royalty payment to Santee.  Pacific Beach shall furnish Santee with the original copies of all official receipts for such taxes.  If any currency conversion shall be required in connection with the payment of royalties hereunder, such conversion shall be made by using the exchange rate prevailing at Citibank, N.A.  in New York, New York on the last business day of the calendar quarterly reporting period to which such royalty payments relate.

	
            6.8
 	
            Time for Payment
 

	
             
  	
            6.8.1
 	
            Pacific Beach shall pay to Santee the royalties due and payable under this Agreement on a quarterly basis for unpaid royalties which accrued within or prior to Pacific Beach’s most recently completed calendar quarter, and shall provide the Royalty Statement referred to in Section 7.2 along with such payment.
 

	
             
  	
            6.8.2
 	
            Milestones payable to Santee shall become due and payable within [*] ([*]) days after achievement of the indicated milestone.
 

	
             
  	
            6.8.3
 	
            If no royalties or other payments that may be due to Santee under this Agreement shall be due, Pacific Beach shall not be required to make a report pursuant to Section 7.2.
 

	
            6.9
 	
            Interest
 

Amounts which are not paid when due shall accrue interest from the due date until paid, at a rate equal to the then prevailing prime rate of Citibank, N.A., plus two percent (2%).

	
            6.10
 	
            Royalty Reduction for Infringement
 

	
             
  	
            6.10.1
 	
            To the extent that:
 

	
             
  	
            (a)
 	
            Pacific Beach or any Affiliate of Pacific Beach is required by order or judgment of any court in any jurisdiction; or
 

	
             
  	
            (b)
 	
            Pacific Beach or any Affiliate of Pacific Beach, in their sole discretion after appropriate legal analysis, believes it necessary to obtain a license from a third party in any jurisdiction;
 

in order to sell a Licensed Product in such jurisdiction, then up to [*] percent ([*]%) of the reasonable royalties payable under such license in such jurisdiction may be deducted from royalties otherwise payable to Santee hereunder in respect of such sales, provided that:

	
             
  	
            (c)
 	
            in no event shall the aggregate royalties payable to Santee in any period in such jurisdiction be reduced by more than [*] percent ([*]%) as a result of any such deduction; and
 

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

 

12

	
             
  	
            (d)
 	
            any excess deduction remaining as a result of such limitation may be carried forward to subsequent periods.
 

Article 7 Reports and Records

	
            7.1
 	
            Records and Audits
 

Pacific Beach shall keep full, true and accurate books of account containing all particulars that may be necessary for the purpose of showing the amounts payable to Santee under this Agreement.  Said books of account shall be kept at Pacific Beach’s principal place of business and the supporting data shall be opened up to Santee once per year upon reasonable notice to Pacific Beach for inspection by Santee’s internal audit division or by another designated auditor selected by Santee, except one to whom Pacific Beach has reasonable objection, for the purpose of verifying Pacific Beach’s Royalty Statement or compliance in other respects with this Agreement.  If an inspection shows an under reporting or underpayment in excess of the greater of five percent (5%) of royalties payable, then Pacific Beach shall reimburse Santee for the cost of the inspection at the time Pacific Beach pays the
unreported royalties, including any late charges as required by Section 6.9 of this Agreement.  Said books of account and the supporting data shall be made available to Santee for one (1) year following expiry of the Term.  All  payments required under this Section 7.1 shall be due within [*] ([*]) days of the date Santee provides Pacific Beach notice of the payment due.

	
            7.2
 	
            Royalty Statements
 

Within [*] ([*]) days from the end of each calendar quarter of each calendar year, Pacific Beach shall deliver to Santee complete and accurate reports, giving such particulars of the business conducted by Pacific Beach during the preceding quarter under this Agreement as shall be pertinent to an accounting of royalties and other payments that may be due to Santee under this Agreement (the “Royalty Statement”).  The Royalty Statement shall include at least the following:

	
             
  	
            7.2.1
 	
            Net Sales for each Licensed Product by each of Pacific Beach, each Affiliate and each Sublicensee;
 

	
             
  	
            7.2.2
 	
            a breakdown of deductions applicable in computed Net Sales and taxes withheld, if any;
 

	
             
  	
            7.2.3
 	
            a breakdown of royalties due based on Net Sales by or for Pacific Beach or its Affiliates; and
 

	
             
  	
            7.2.4
 	
            a breakdown of royalties due from any Sublicensee.
 

	
            7.3
 	
            Confidential Treatment of Reports
 

Santee agrees to hold in confidence each Royalty Statement delivered by Pacific Beach pursuant to this Article 7 until the termination of this Agreement.  Notwithstanding the foregoing, Santee may disclose any such information required to be disclosed in its financial statements or as required by any stock exchange or similar regulatory authority, or pursuant to any applicable laws, provided that Santee take reasonable steps to provide Pacific Beach with the opportunity, where appropriate, to contest such subpoena, requirement or order.

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

 

13

Article 8 Patent Prosecution and Maintenance

	
            8.1
 	
            Prosecution and Maintenance
 

Following the Effective Date, Santee shall diligently prosecute and maintain the Patent Rights as set forth in Exhibit A hereto (as the same may be amended or supplemented in writing from time to time after the date hereof), including, but not limited to, the filing of patent applications, extensions, continuations, continuations in part, divisionals, re-examinations, or re-issue applications that Santee determines may be required to advance the purposes of this Agreement or otherwise to protect the rights and licenses granted hereunder.  Santee agrees to keep Pacific Beach reasonably well informed with respect to the status and progress of any such applications, prosecutions and maintenance activities and to consult in good faith with Pacific Beach and take into account Pacific Beach’s comments and requests with respect thereto.  Both parties agree to provide reasonable cooperation to each other to
facilitate the application and prosecution of patents pursuant to this Agreement.  

	
            8.2
 	
            Abandonment
 

Santee may, in its discretion, elect to abandon any patent applications or issued patent in the Patent Rights.  Following such abandonment, Pacific Beach shall have the right, but not the obligation, to commence or continue such prosecution and to maintain any such Patent Rights under its own control and at its own expense and Santee shall (i) no longer have a right under this Agreement to use, manufacture, or sell Licensed Products covered by such abandoned Patent Rights and (ii) have no further royalty obligation to Pacific Beach in respect of any Licensed Products the manufacture, use or sale of which is covered by an issued claim of such abandoned Patent Rights, provided with regard to both (i) and (ii), such manufacture, use or sale of such Licensed Products is not covered by other valid Patent Rights licensed to Santee under this Agreement.  Prior to any such abandonment, Santee shall give Pacific
Beach at least sixty (60) days notice and a reasonable opportunity to take over prosecution of such Patent Rights.  Santee agrees to cooperate in such activities including execution of any documents necessary to enable Pacific Beach to retain ownership and control of such Patent Rights.

Article 9 Dispute Resolution

	
            9.1
 	
            Disputes
 

	
             
  	
            9.1.1
 	
            The parties recognize that disputes as to certain matters may from time to time arise during the Term which relate to either party’s rights and/or obligations hereunder or to the interpretation, performance, breach, or termination of this Agreement, (a “Dispute”).  It is the objective of the parties to establish procedures to facilitate the resolution of a Dispute in an expedient manner by mutual cooperation and without resort to litigation.  To accomplish this objective, the parties agree to follow the procedures set forth in this Article 9 if and when a Dispute arises under this Agreement.
 

	
             
  	
            9.1.2
 	
            A Dispute among the parties will be resolved as recited in this Article 9.  Any Disputes relating to this Agreement shall be promptly presented to the Chief Executive Officers of Santee and Pacific Beach, or their respective designees (who must be members of a party’s senior management) for resolution.  From the date of 
 

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

 

14

referral of a Dispute to the Chief Executive Officers or their designees of the parties and until such time as any matter has been resolved
by the parties or has been finally settled by arbitration hereunder, the running of the cure periods (if any) as to which a party must cure a breach that is part of the subject matter of any Dispute shall be suspended.  In the event that
the Chief Executive Officers of Santee and Pacific Beach, or their respective designees, cannot after good faith negotiations resolve
the Dispute within thirty (20) days (or such other period of time as mutually agreed to by the parties in writing) of being requested by a party to resolve a Dispute, the parties
agree that such Dispute shall be resolved by binding arbitration in accordance with this Section 9.1. 

If a party intends to begin arbitration to resolve such Dispute, such party shall
provide written notice (the “Arbitration Notice”) to the other party informing such other party of such intention and the issues to be resolved.  Any arbitration hereunder shall be
conducted pursuant to the Commercial Arbitration Rules of the American Arbitration Association (“AAA”), including the Supplementary Procedures for Large Complex Disputes (the “AAA Rule”) except as modified herein.
The arbitration shall be conducted by a panel of three (3) arbitrators (the “Panel”) to be mutually agreed upon by the parties and appointed by the AAA.  The arbitrators shall be industry experts experienced in the issues comprising the
Dispute and shall have no past, present or anticipated future affiliation with either party.  If the parties are unable to agree upon all or any number of the three (3) mutually acceptable arbitrators within thirty (30) days after the
filing of the Arbitration Notice, the AAA shall promptly appoint the arbitrator(s) to complete the Panel in accordance with the criteria set forth in this Section 10.1.  The arbitration shall take place in San Diego, California.
The Panel shall apply the laws of
the State of New York, without regard to its conflicts of laws provisions.  The Panel shall issue appropriate protective orders to protect each party’s Confidential Information.
If a party can demonstrate to the Panel that the complexity of the issue or other reasons warrant the extension of one or more timetables in the AAA Rules, the Panel may extend such timetables
but in no event shall the proceeding extend more than twelve (12) months from the date of filing of the Arbitration Notice with the AAA.  The Panel’s decision shall be in writing.  The Panel
shall have the authority to award any remedy allowed by law or in equity, including compensatory damages, pre-judgment interest and to grant final, complete, interim, or interlocutory relief,
including specific performance, injunctions and other equitable relief, but not punitive or other damages and each party shall be deemed to have waived any right to such excluded damages.  Each party shall bear its own costs, fees and
expenses in the arbitration and shall share equally the Panel’s fees, unless the Panel determines that its fees are to be paid by the non-prevailing party.

	
            9.2
 	
            Performance to Continue
 

Each party shall continue to perform its obligations under this Agreement pending final resolution of any Dispute arising out of or related to this Agreement; provided, however, that a party may suspend performance of its obligations during any period in which the other party fails or refuses to perform its obligations.

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

 

15

	
            9.3
 	
            Determination of Patents and Other Intellectual Property
 

Notwithstanding the foregoing, any dispute relating to the determination of validity of claims, infringement or claim interpretation relating to Santee’s Patent Rights shall be submitted exclusively to the courts.

Article 10 Term and Termination

	
            10.1
 	
            Term
 

This Agreement shall become effective on the Effective Date and shall expire on the date of the expiration of the last to expire Royalty Term in any country in the Territory (the “Term”), unless earlier terminated as provided in Sections 10.2, 10.3, 10.4, or 10.6.

	
            10.2
 	
            Termination for Insolvency
 

If Pacific Beach shall become bankrupt, or shall file a petition in bankruptcy, or if the business of Pacific Beach shall be placed in the hands of a receiver, assignee or trustee for the benefit of creditors, whether by the voluntary act of Pacific Beach or otherwise, this Agreement shall automatically terminate.

	
            10.3
 	
            Termination for Failure to make Payments
 

Should Pacific Beach fail to make payment to Santee of royalties or other payments due in accordance with the terms of this Agreement which are not the subject of a bona fide dispute between Santee and Pacific Beach, Santee shall have the right to terminate this License Agreement within ninety (90) days after giving written notice of termination unless Pacific Beach shall pay to Santee, within the ninety (90) day period, all such royalties and other payments due and payable.  In the event of a bona fide dispute over royalties or other payments, the parties shall resolve such dispute in accordance with Article 9.  Subject to Article 9 and the immediately preceding sentence of this Section 10.3, upon the expiration of the ninety (90) day period, if Pacific Beach shall not have paid all such royalties and other payments due and payable, the rights, privileges and license granted hereunder shall, at the
option of Santee, terminate upon written notice of Santee.  If a dispute regarding termination is addressed according to Article 9, this license shall remain in full force and effect until such dispute is settled or determined in accordance with Article 9.

	
            10.4
 	
            Termination for Breach
 

Upon any material breach or default of this Agreement by Pacific Beach, other than as set forth in Section 10.2 and 10.3 above, Santee shall have the right to terminate this Agreement and the rights, privileges and license granted hereunder by giving ninety (90) days prior written notice to Pacific Beach.  Subject to Article 9 and the immediately preceding sentence, upon the expiration of the ninety (90) day period, if Pacific Beach shall not cured such breach or default, this Agreement shall, at the option of Santee, terminate upon written notice of Santee.   Notwithstanding anything herein to the contrary, if the nature of the breach is such that additional time is reasonably needed to cure such breach, and Pacific Beach has commenced with good faith efforts to cure such breach, then Santee shall provide Pacific Beach with additional time in which to cure such breach.  If a dispute regarding
termination is addressed

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

 

16

according to Article 9, this license shall remain in full force and effect until such dispute is settled or determined in accordance with Article 9.

	
            10.5
 	
            Expiry of Royalty Term on a Country by Country Basis
 

Upon expiry of the Royalty Term in each country in the Territory, Pacific Beach will have an irrevocable, paid up, royalty-free license under the Patent Rights and Know How to make, have made, use, import, offer for sale and sell the Licensed Products in such country.

	
            10.6
 	
            Termination for Convenience
 

Pacific Beach shall have the right at any time to terminate this Agreement in its entirety, for any reason or no reason, by giving thirty (30) days notice thereof in writing to Santee.

	
            10.7
 	
            Consequences of Termination
 

Upon the early termination of this Agreement by either party, the following shall occur:

	
             
  	
            10.7.1
 	
            Pacific Beach and any Sublicensee thereof may, after the effective date of such termination and continuing for a period not to exceed twelve (12) months thereafter, sell all completed Licensed Products, and any Licensed Products in the process of manufacture at the time of such termination, and sell the same, provided that Pacific Beach:
 

	
             
  	
            (a)
 	
            pays or cause to be paid to Santee the royalties and other payments thereon as required by Article 6 of this Agreement; and
 

	
             
  	
            (b)
 	
            submits the reports required by Article 7 hereof.
 

	
            10.8
 	
            Survival
 

Upon termination of this Agreement for any reason, nothing herein shall be construed to release either party from any obligation that matured prior to the effective date of such termination or obligations under Article 6, Article 7, Article 8 and Article 11.  The following shall survive termination for any reason, Article 9, Section 10.8, Article 13, Article 14, Article 15 and Article 16.  

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

 

17

Article 11 Infringement and Other Actions

	
            11.1
 	
            Notice of Infringement of Patent Rights
 

Pacific Beach and Santee shall promptly provide written notice, to the other party, of any alleged infringement or any challenge or threatened challenge to the validity, enforceability or priority of any of the Patent Rights, and provide each other with any available evidence of such infringement, challenge or threatened challenge by a third party of the Patent Rights and provide such other party with any available evidence of such infringement.

	
            11.2
 	
            Option to Prosecute or Defend Patent Rights
 

During the term of this Agreement, Pacific Beach shall have the right, but not the obligation, to prosecute and/or defend, at its own expense and utilizing counsel of its choice, any infringement of the Patent Rights with respect to any Licensed Product in the Territory for use in the Field of Use.  In furtherance of such right, Santee hereby agrees that Santee may join Pacific Beach as a party in any such suit (and will join at Pacific Beach’s request), provided that Pacific Beach pay all of Santee’s reasonable out-of-pocket expenses.  Pacific Beach shall indemnify and hold Santee harmless against any costs, expenses or liability that may be found or assessed against Santee in any such suit other than resulting from Santee’s negligence or willful misconduct.  Any recovery of damages pursuant to this Section 11.2 shall be allocated pursuant to Section 11.4 below.

	
            11.3
 	
            Infringement by Licensed Product
 

In the event that a claim or suit is asserted or brought against Pacific Beach alleging that the manufacture or sale of any Licensed Product by Pacific Beach, an Affiliate of Pacific Beach, or any Sublicensee, or the use of such Licensed Product by any customer of any of the foregoing, infringes proprietary rights of a third party, Pacific Beach shall give written notice thereof to Santee.  Pacific Beach may, in its sole discretion, modify such Licensed Product to avoid such infringement and/or may settle on terms that it deems advisable in its sole discretion, subject to Section 11.2, provided that any final disposition of the litigation that will restrict the claims in or admit any invalidity of any Patent Rights(s) shall not be made without full consultation with and approval by Santee, not to be unreasonably withheld.  Otherwise, Pacific Beach shall have the right, but not the obligation, to
defend any such claim or suit.  In the event Pacific Beach elects not to defend such suit, Santee shall have the right, but not the obligation to do so at its sole expense.

	
            11.4
 	
            Allocation of Damages Recovered
 

Any recovery of damages by Pacific Beach, in any such suit under Section 11.2 or 11.3, shall be applied first in satisfaction of any unreimbursed expenses and legal fees of Pacific Beach relating to the suit.  The balance remaining from any such recovery shall be allocated as follows:  (i) amounts attributable to lost profits (as applicable) shall be treated as Net Sales by Pacific Beach and Pacific Beach shall pay to Santee royalties in accordance Article 6; and (ii) the balance of such recovery shall be retained by Pacific Beach.  

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

 

18

	
            11.5
 	
            Credit of Litigation Costs
 

Pacific Beach’s sole method of recovering its costs of litigation from Santee under this Article 11 shall be that Pacific Beach may credit up to [*] percent ([*]%) of the reasonable costs of any litigation incurred by Pacific Beach in respect of a Licensed Product in any country pursuant to Section 11.3, against royalties or other fees thereafter payable to Santee for such Licensed Product in such country.  If the costs of such litigation in such country exceeds such royalties payable to Santee in any year in which such costs are incurred, then the amount of such costs, expenses and amounts paid in judgment or settlement, in excess of the royalties payable shall be carried over and credited against royalty payments in future years for such Licensed Product in such country.  

	
            11.6
 	
            Cooperation
 

In any suit to enforce and/or defend the Patent Rights pursuant to this Agreement, the party not in control of such suit shall, at the request and expense of the controlling party, cooperate in all respects and, to the extent possible, have its employees testify when requested and make available relevant records, papers, information, samples, specimens, and the like.

Article 12 Representations and Warranties

	
            12.1
 	
            Santee Warranties
 

Santee represents and warrants that:

	
             
  	
            12.1.1
 	
            Santee has the requisite power and authority to execute and deliver this Agreement and the other agreements contemplated hereby to which it is a party and to consummate the transactions contemplated hereby and thereby.  The execution and delivery of this Agreement and the other agreements contemplated hereby to which Santee is a party and the performance and consummation of the transactions contemplated hereby and thereby by Santee have been duly authorized by all necessary action on the part of Santee.  This Agreement and the other agreements contemplated hereby to which Santee is a party have been duly executed and delivered by Santee and, subject to the due authorization, execution and delivery of such agreements by the other parties thereto, this Agreement and such other agreements contemplated hereby constitute valid and
binding obligations of Santee, enforceable against Santee in accordance with their respective terms, except as such enforcement may be affected by bankruptcy, reorganization, insolvency, moratorium or similar laws affecting creditor’s rights generally and except for general principles of equity.
 

	
             
  	
            12.1.2
 	
            The execution and delivery of this Agreement and the other agreements contemplated hereby do not, and the consummation of the transactions contemplated hereby and thereby will not, (i) conflict with, or result in any violation or breach of any provision of the organizational documents of Santee, (ii) conflict with or violate any applicable foreign, Federal, state and local statutes, judgments, decrees, laws, ordinances, rules, regulations, injunctions and orders  (“Laws”) of any U.S.  federal, state, foreign or local government or any court, tribunal, administrative agency or commission or other
 

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

 

19

	
             
  	
              
 	
            governmental or regulatory authority, body or agency, including any self-regulatory organization (“Governmental Authorities”) applicable to Santee or any of its assets or operations or any permit applicable
to Santee or (iii) result in (x) any violation or breach of, constitute (with or without notice or lapse of time or both) a default under or conflict with (or give rise to a right of termination, amendment, cancellation or acceleration of any material obligation or loss of any benefit under) the provisions of any lease, contract or other agreement to which Santee is a party or by which it or any of its properties or assets is otherwise bound or (y) the imposition of any lien, pledge, hypothecation, mortgage, security interest, claim, lease, charge, option, right of first refusal or first offer, easement, servitude, transfer restriction, voting requirement or any other encumbrance, restriction or limitation on any of the properties or assets of Santee.  
 

	
             
  	
            12.1.3
 	
            To the best of Santee’s knowledge, no written communication has been received by Santee, and no investigation, regulatory enforcement action (including seizure, injunction, civil penalty or criminal action) or any related Governmental Authority review is or, in respect of any Licensed Product, to the knowledge of Santee, was at any time pending or is threatened by any Governmental Authority with respect to (i) any alleged or actual violation by Santee of any permit, Law or other requirement of any Governmental Authority relating to the operations conducted by Santee with respect to any Licensed Product or (ii) any alleged or actual failure to have or maintain in effect all permits required in connection with the operations conducted by Santee with respect to any Licensed Product.  Santee has not received from any
Competent Authority or Governmental Authority any written notice regarding the approvability or approval of any of the Licensed Products, except as expressly set forth herein.  No Licensed Product has been withdrawn, suspended or discontinued by Santee as a result of any action by a Competent Authority or Governmental Authority, either within or outside the U.S.  (whether voluntarily or otherwise).  With respect to any Licensed Products only, no officer, employee or, to the knowledge of Santee, agent of Santee has made any untrue statement of a material fact or a fraudulent statement to a Competent Authority or a Governmental Authority, failed to disclose any material fact required to be disclosed to a Competent Authority or a Governmental Authority, or committed an act, made a statement or failed to make a statement to a Competent Authority or Governmental Authority.
 

	
             
  	
            12.1.4
 	
            To the best of Santee’s Knowledge, there are no suits or actions, administrative, arbitration or other proceedings, or governmental investigations pending or, to the knowledge of Santee, threatened against or affecting Santee with respect to the Licensed Products.  No entity has notified Santee in writing of any material claim against Santee alleging any personal property or economic injury, loss or damage incurred as a result of or relating to the use of the Licensed Products.  There is no judgment, order, injunction, decree, writ or award against Santee that is not satisfied and remains outstanding with respect to any Licensed Product.
 

	
             
  	
            12.1.5
 	
            Santee has provided to Pacific Beach a copy of each material license, contract or other agreement (together with certain other agreements) to which Santee is a party or by or to which any property of Santee is otherwise bound or subject that relates to the Licensed Products or the Patent Rights (collectively, the “Material Agreements”),
 

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

 

20

	
             
  	
              
 	
            including, without limitation, the RDJ/Santee License Agreement.  The Material Agreements are in full force and effect in accordance with their terms.  After giving effect to this Agreement, there exist no breaches, defaults or events which would (with the giving of notice, the passage of time or both) give rise to a breach, default or other right to terminate or modify the Material Agreements.  Santee has not transferred or granted, and Santee shall not transfer or grant, to any third
party any license or other interest in the Material Agreements regarding Licensed Products in the Territory for use in the Field of Use.
 

	
             
  	
            12.1.6
 	
            To the best of Santee’s knowledge, Santee has all right, title, and interest in and to the Licensed Products, Patent Rights and Know How (including the exclusive, absolute, irrevocable right, title and interest thereto), free and clear of all liens, charges, encumbrances or other restrictions or limitations of any kind whatsoever material to the uses of the Licensed Products, Patent Rights and Know How.  
 

	
             
  	
            12.1.7
 	
            To the best of Santee’s knowledge, there are no licenses, options, restrictions, liens, rights of third parties, disputes, royalty obligations, proceedings or claims relating to, affecting, or limiting Santee’s rights or the rights of Pacific Beach under this Agreement, or which may lead to a claim of infringement by or invalidity regarding, any part or all of the Patent Rights or Know How or their use.
 

	
             
  	
            12.1.8
 	
            To the best of Santee’s knowledge, there is no claim, pending or threatened, of infringement, interference or invalidity regarding any part or all of the Patent Rights
or Know-How or their use.  None of the Licensed Products, Patent Rights or Know How infringes or conflicts in any material respect with, and Santee has not received any notice of infringement of, or conflict with, any license, patent, copyright, trademark, service mark or other intellectual property right of any other entity and, to the knowledge of Santee, there is no infringement or unauthorized use by any person of any of the Licensed Products, Patent Rights or Know How.  The validity or enforceability of any of the Licensed Products, Patent Rights and Know How and or the title of Santee thereto has not been questioned in any litigation, governmental inquiry or proceeding to which Santee is a party and, to the knowledge of Santee,  no such litigation, governmental inquiry or proceeding is threatened.  
 

	
             
  	
            12.1.9
 	
            To the best of Santee’s knowledge, Santee has taken all reasonable actions necessary or appropriate to preserve the confidentiality of all trade secrets, proprietary and other confidential information material to the Licensed Products, Patent Rights and Know How.  
 

	
             
  	
            12.1.10
 	
            To the best of Santee’s knowledge, the US and foreign patent applications and patents itemized on Exhibit A set forth all of the patents and patent applications necessary or useful for practicing the Technology in the Field of Use owned by or licensed to Santee on the Effective Date.
 

	
             
  	
            12.1.11
 	
            To the best of Santee’s knowledge, there are no inventors of Patent Rights other than those listed as inventors on applications filed for such Patent Rights.
 

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

 

21

	
             
  	
            12.1.12
 	
            To the best of Santee’s knowledge, the Patent Rights and Know How were not supported in whole or party by funding or grants by any federal or state agency.  Santee has provided Pacific Beach with copies of all documents reflecting support or funding for all or part of the research leading to Patent Rights and Know How.  
 

Article 13 Limitation of Liability

	
            13.1
 	
            NO IMPLIED WARRANTIES
 

EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT:

	
             
  	
            13.1.1
 	
            SUBJECT TO ARTICLE 12, SANTEE DOES NOT MAKE AND EXPRESSLY DISCLAIMS ALL REPRESENTATIONS AND WARRANTIES OF ANY KIND, EITHER EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTY OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND VALIDITY OF PATENTED RIGHTS CLAIMS, ISSUED OR PENDING.
 

	
             
  	
            13.1.2
 	
            SUBJECT TO ARTICLE 12, NOTHING HEREIN SHALL BE CONSTRUED AS A REPRESENTATION OR WARRANTY BY SANTEE TO PACIFIC BEACH THAT THE PATENT RIGHTS AND KNOW-HOW ARE NOT INFRINGED BY ANY THIRD PARTY, OR THAT THE PRACTICE OF SUCH RIGHTS DOES NOT INFRINGE ANY INTELLECTUAL PROPERTY RIGHTS OF ANY THIRD PARTY.
 

Article 14 No Agency and Publication

	
            14.1
 	
            No Agency
 

Nothing herein shall be deemed to establish a relationship of principal and agent between Santee and Pacific Beach, nor any of their agents or employees for any purpose whatsoever.  This Agreement shall not be construed as creating a partnership between Santee and Pacific Beach, or as creating any other form of legal association or arrangement, which would impose liability upon one party for the act or failure to act of the other party.

	
            14.2
 	
            Publication
 

In the event that Santee desires to publish or disclose, by written, oral or other presentation, Patent Rights, Know How, or any material information related thereto then Santee shall notify Pacific Beach and in writing by facsimile where confirmed by the receiving party, and/or by certified or registered mail (return receipt requested) of their intention at least sixty (60) days prior to any speech, lecture or other oral presentation and at least ninety (90) days before any written or other publication or disclosure.  Santee shall include with such notice a description of any proposed oral presentation or, in any proposed written or other disclosure, a current draft of such proposed disclosure or abstract.  Pacific Beach may request that Santee, no later than thirty (30) days following the receipt of such notice, delay such presentation, publication or disclosure for up to an additional sixty (60) days in
order to enable Pacific Beach to file, or have filed on their behalf, a patent application, copyright or other appropriate form of intellectual

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

 

22

property protection related to the information to be disclosed or request that Santee do so.  Upon receipt of such request to delay such presentation,
publication or disclosure, Santee shall arrange for a delay of such presentation, publication or disclosure until such time as Pacific Beach or Santee have filed, or had filed on its behalf, such patent application, copyright or other appropriate form of intellectual property protection in form and in substance reasonably satisfactory to Pacific Beach and Santee.  If Santee does not receive any request from Pacific Beach to delay such presentation, publication or disclosure, Santee may submit such material for presentation, publication or other form of disclosure.

 

Article 15 Confidentiality

	
            15.1
 	
            Confidentiality and Non-Use
 

Any proprietary or confidential information relating to the Patent Rights, Know How (including but not limited to patent prosecution documents relating to Patent Rights) and Reports and Records under Article 7 collectively constitute the “Confidential Information.” Neither party will use the Confidential Information for any purpose unrelated to this Agreement, and will hold it in confidence during the Term and for a period of five (5) years after the termination or expiration date of this Agreement.  Each party shall exercise with respect to such the Confidential Information the same degree of care as the party exercises with respect to its own confidential or proprietary information of a similar nature, but in any event no less than reasonable care, and shall not disclose it or permit its disclosure to any third party (except to those of its employees, consultants, or agents who are bound by the
same obligation of confidentiality of this Agreement).  However, such undertaking of confidentiality shall not apply to any information or data which:

	
             
  	
            15.1.1
 	
            The receiving party receives at any time from a third-party lawfully in possession of same and having the right to disclose same;
 

	
             
  	
            15.1.2
 	
            is, as of the date of this Agreement, in the public domain, or subsequently enters the public domain through no fault of the receiving party;
 

	
             
  	
            15.1.3
 	
            is independently developed by the receiving party as demonstrated by written evidence without reference to information disclosed to the receiving party by the disclosing party;
 

	
             
  	
            15.1.4
 	
            is disclosed pursuant to the prior written approval of the disclosing party; or
 

	
             
  	
            15.1.5
 	
            is required to be disclosed pursuant to Applicable Law or legal process (including, without limitation, to a governmental authority) provided, in the case of disclosure pursuant to legal process, reasonable notice of the impending disclosure is provided to the disclosing party.
 

	
            15.2
 	
            Limited Disclosure by Santee
 

Santee acknowledges and agrees that the Know How licensed to Pacific Beach has value to Pacific Beach in being maintained as confidential.  Therefore, Santee shall disclose the Know How only under an obligation of confidence.

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

 

23

	
            15.3
 	
            Material Non-Public Information
 

Santee understands that it is the intent of Pacific Beach to register its capital stock on a national securities exchange, on the National Association of Securities Dealers, Inc.  Automated Quotation System (collectively “NASDAQ”), or the Over The Counter Bulletin Board and accordingly, Santee understands that Confidential Information provided to it by Pacific Beach pursuant to the terms of this Agreement may constitute “material non-public information” concerning Pacific Beach.

 

Article 16 Miscellaneous Provisions

	
            16.1
 	
            Assignment
 

This Agreement and the rights and duties appertaining hereto may not be assigned by either party without first obtaining the written consent of the other which consent shall not be unreasonably withheld.  Any such purported assignment, without the written consent of the other party, shall be null and of no effect.  Notwithstanding the foregoing, Pacific Beach may assign this Agreement without the consent of Santee to (i) a purchaser, merging or consolidating corporation, or acquirer of substantially all of the other party’s assets or business and/or pursuant to any reorganization qualifying under section 368 of the
Internal Revenue Code of 1986 as amended, or any corresponding law in the jurisdiction of either party, as may be in effect at such time; or (ii) to an Affiliate of Pacific Beach.

	
            16.2
 	
            Binding Nature and Inurnment
 

This Agreement will not be binding upon the parties until it has been signed below on behalf of each party, in which event, it shall be effective as of the Effective Date.  As of the Effective Date, this Agreement is binding upon and inures to the benefit of the parties and their respective permitted successors and assigns.

	
            16.3
 	
            Counterparts; Facsimile
 

This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.  This Agreement may be signed and delivered to the other party by facsimile signature; such transmission will be deemed a valid signature.

	
            16.4
 	
            Entire Agreement; Amendment
 

The parties hereto acknowledge that this Agreement, including the Appendices and documents incorporated by reference, sets forth the entire agreement and understanding of the parties hereto as to the subject matter hereof, and shall not be subject to any change of modification except by the execution of a written instrument subscribed to by the parties hereto and shall supersede all previous communications, representations or understandings, either oral or written, between the parties relating to the subject matter hereof.  No subsequent alteration, amendment, change or addition to this Agreement shall be binding upon the parties hereto unless reduced to writing and signed by the respective authorized officers of the parties.

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

 

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            16.5
 	
            Force Majeure
 

Neither party is responsible for delays resulting from causes beyond its reasonable control, including without limitation fire, explosion, flood, war, strike, or riot, provided that the nonperforming party uses Commercially Reasonable Efforts to avoid or remove those causes of nonperformance and continues performance under this Agreement with reasonable dispatch whenever the causes are removed.

	
            16.6
 	
            Further Assurances
 

From time to time during the Term, at the request of either party, the other party shall execute and deliver such documents and take such other action as the requesting party may reasonably request to consummate more effectively the transactions contemplated hereby.

	
            16.7
 	
            Headings
 

The headings of the several articles are inserted for convenience of reference only and are not intended to be a part of or to affect the meaning or interpretation of this Agreement.

	
            16.8
 	
            Law
 

This Agreement shall be construed, governed, interpreted and applied in accordance with the laws of the State of New York, without regard to principles of conflicts of laws.

	
            16.9
 	
            No Consequential Damages
 

EXCEPT WITH REGARD TO DAMAGES ARISING FOR INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS OR BREACH OF ARTICLE 15 AND ANY DUTY TO INDEMNIFY FOR INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES RECOVERED BY A THIRD PARTY, IN NO EVENT SHALL EITHER PARTY BE LIABLE TO THE OTHER FOR ANY INDIRECT, INCIDENTAL, SPECIAL, CONSEQUENTIAL OR PUNITIVE DAMAGES INCURRED BY EITHER PARTY UNDER THIS AGREEMENT OR OTHERWISE.

	
            16.10
 	
            Payments, Notices and Other Communications
 

Any payment, notice or other communication required or permitted to be given pursuant to this Agreement shall be in writing and sent by certified first class mail, postage prepaid, by hand delivery or by facsimile if confirmed in writing, in each case effective upon receipt, at the addresses below or as otherwise designated by written notice given to the other party:

 

In the case of Santee:

Santee Biosciences, Inc.

4365 Executive Drive, Suite 1500

San Diego, California 92121

 

In the case of Pacific Beach:

Pacific Beach Biosciences, Inc.

4365 Executive Drive, Suite 1500

 

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

 

25

San Diego, California 92121

	
            16.11
 	
            Payment of Own Fees and Expenses
 

Each of Pacific Beach and Santee shall be responsible for their own expenses relating to the preparation and consummation of this Agreement and the agreements and transactions contemplated hereby.

	
            16.12
 	
            Severability
 

The provisions of this Agreement are severable, and in the event that any provision of this Agreement shall be determined to be invalid or unenforceable under any controlling body of law, such invalidity or unenforceability shall not in any way affect the validity or enforceability of the remaining provisions hereof.

	
            16.13
 	
            Waiver
 

The failure of either party to assert a right hereunder or to insist upon compliance with any term or condition of this Agreement shall not constitute a waiver of that right or excuse a similar subsequent
failure to perform any such term or condition by the other party.  Any waiver of any rights or failure to act in a specific instance relates only to that instance and is not an agreement to waive any rights or fail to act in any other instance.

	
            16.14
 	
            Adverse Event Reporting
 

Each party shall promptly notify the other party immediately of any information that comes to such party’s attention concerning any serious or unexpected side effect, injury, toxicity or sensitivity reaction, or any unexpected incidence, and the severity thereof, associated with the clinical uses, studies, investigations, tests and marketing of a product that cannot be manufactured, used or sold, in whole or part, without infringing one or more Valid Claims included within the Patent Rights in the country in which the product is made, used, leased, imported, exported, offered for sale or sold.  For purposes of this Section 16.14, “serious” shall mean an experience which (a) results in the death, permanent or substantial disability, in-patient hospitalization or prolongation of hospitalization, or (b) is a congenital anomaly, cancer, the result of an overdose or life
threatening (only if unrelated to primary disease); and “unexpected” shall mean (x) for a nonmarketed product, an experience that is not identified in nature, severity or frequency in the current clinical investigator’s confidential information brochure, and (y) for a marketed product, an event which is not listed in the current labeling for such product, and includes an event that may be symptomatically and pathophysiologically related to an experience listed in the labeling but differs from the event because of increased frequency or greater severity or specificity.  Each party further shall immediately notify the other party of any information received regarding any threatened or pending action by an agency that may affect the safety and efficacy claims of a product.  Upon receipt of any such information, the parties shall consult with each other in an effort to arrive at a mutually acceptable procedure for taking appropriate action; provided, however, that
nothing contained herein shall restrict either party’s right to make a timely report of such matter to any government agency or take other action that it deems to be appropriate or required by applicable law, regulation or court order.

 

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

 

26

	
            16.15
 	
            Witness
 

IN WITNESS WHEREOF, the parties hereto have executed this Agreement, by proper persons thereunto duly authorized.

 

	
            SANTEE BIOSCIENCES, INC.
 	
             
 	
            PACIFIC BEACH BIOSCIENCES, INC.
 
	
             
 	
             
 	
             
 
	
            By:
 	
            
/s/ Bertrand C. Liang, MD MBA
 
 	
             
 	
            By:
 	
            
/s/ Matthew A. Wikler, MD MBA FIDSA
 
 
	
            Name:
 	
            Bertrand C. Liang, MD MBA
 	
             
 	
            Name:
 	
            Matthew A. Wikler, MD MBA FIDSA
 
	
            Date:
 	
            
 
 
 	
             
 	
            Date:
 	
            
 
 
 
							

            

 

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

 

27

 

Exhibit A:  Patent Rights

 

US Patent Application Publication Number 20050215520-A

US Application Publication Number 20050255164A1

Canadian Patent Application Number CA2495899

Canadian Patent Application Number CA2484835

EP Application Publication Number EP1514877

EP Application Publication Number EP1543841

PCT Application Number PCT/CN2003/000663

WO Application Number WO2004/022100A1

 

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

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