Document:

ex10-1.htm

    
      
         

      

      
         

        
          

        

      

      
         

      

    

    EXHIBIT
10.1

    

    CHANGE
IN CONTROL/SEVERANCE AGREEMENT

    

    

    

    THIS
AGREEMENT, dated July 25, 2008, is made by and between Adams Resources &
Energy, Inc., a Delaware corporation (the “Company”), and Richard B. Abshire
(the “Key Employee”).

     

    WHEREAS,
the Key Employee currently is employed by the Company or one of its
subsidiaries;

     

    WHEREAS,
the Board recognizes that, as is the case with many publicly-held corporations,
the possibility of a Change in Control exists and that such possibility, and the
uncertainty and questions which it may raise among management, may result in the
departure or distraction of management personnel to the detriment of the Company
and its stockholders; and

     

    WHEREAS,
the Board has determined that appropriate steps should be taken to ensure that
the Key Employee receive the protections afforded under this Agreement for the
one-year period beginning on the date of a Change in Control to reinforce and
encourage the continued attention and dedication of members of the Company’s
management, including the Key Employee, to their assigned duties without
distraction in the face of potentially disturbing circumstances;

     

    NOW,
THEREFORE, in consideration of the premises and the mutual covenants herein
contained, the Company and the Key Employee hereby agree as
follows:

    

    
      	
               
      

            	
              1.

            	
              Defined
      Terms.  The definitions of capitalized terms used in this
      Agreement are provided in the last Section
  hereof.

            

    

    

    
      	
               
      

            	
              2.    
      Term of Agreement.  The Term of this Agreement shall
      commence on July 25, 2008 (the “Effective Date”) and shall continue in
      effect through the first anniversary following a Change in
      Control.  In the event a Change in Control has not occurred on
      or before July 25, 2012, this Agreement shall immediately terminate and be
      of no further force and effect.

            

    

    

    
      	
               
      

            	
              3.    
      Company’s Covenants Summarized.  In order to induce the
      Key Employee to remain in the employ of the Company, the Company agrees,
      under the conditions described herein, to pay the Key Employee the
      Severance Payment described herein.  No Severance Payment shall
      be payable under this Agreement unless there shall have been a termination
      of the Key Employee’s employment by the Company without Cause or by the
      Key Employee with Good Reason following and within twelve (12) months
      after a Change in Control.  This Agreement shall not be
      construed as creating an express or implied contract of employment and,
      except as otherwise agreed in writing between the Key Employee and the
      Company, the Key Employee shall not have any right to be retained in the
      employ of the Company.

            

    

    
      
         

      

      
        1

        
          

        

      

      
         

      

    

    

    
      	
               
      

            	
              4.  Severance
      Payment.

            

    

    

    
      	
               
      

            	
              4.1   If
      the Key Employee’s employment is terminated following a Change in Control
      and within twelve (12) months after a Change in Control (provided that
      such termination of employment constitutes a “separation from service”
      within the meaning of Section 409A of the Code), in either event other
      than (A) by the Company for Cause, (B) by reason of death or Disability,
      or (C) by the Key Employee without Good Reason, then the Company shall pay
      the Key Employee the amount described in this Section 4.1 (“Severance
      Payment”).

            

    

    

    
      	
               
      

            	
                 In
      lieu of any further salary payments to the Key Employee for periods
      subsequent to the Date of Termination, the Company shall pay to the Key
      Employee a lump sum severance payment, in cash, equal to two (2) times the
      Key Employee’s highest Base Salary (i.e., a Key Employee’s
      annualized regular earnings excluding any bonus) as in effect during the
      three-year period ending the last day of the month immediately prior to
      the month in which the Date of Termination
  occurs.

            

    

     

    
      	
               
      

            	
              4.2   The
      payment provided in Section 4.1 hereof shall be made as soon as
      practicable (but in any event not later than the 30th day) following the
      Date of Termination; provided that, to the extent required to satisfy the
      provisions of Section 409A(a)(2)(B)(i) of the Code, such payments shall be
      made not earlier than but as soon as practicable on or in any event within
      thirty (30) days after (with interest at the six-month certificate of
      deposit rate published in The Wall Street Journal
      on the Date of Termination (or if not published on that date, on the next
      following date when published) the date that is six (6) months after the
      Date of Termination (the “409A Payment
Date”)).

            

    

    

    5.  Termination
Procedures and Compensation During Dispute.

    

    
      	
               
      

            	
              5.1    Notice
      of Termination.  After a Change in Control, any purported
      termination of the Key Employee’s employment shall be communicated by
      written Notice of Termination from one party hereto to the other party
      hereto in accordance with Section 7 hereof.  For purposes
      of this Agreement, a “Notice of Termination” shall mean a notice which
      shall indicate the specific termination provision in this Agreement relied
      upon and shall set forth in reasonable detail the facts and circumstances
      claimed to provide a basis for termination of the Key Employee’s
      employment under the provision so indicated.  For purposes of
      this Agreement, any purported termination of the Key Employee’s employment
      after a Change in Control shall be presumed to be other than for Cause
      unless the Notice of Termination includes a copy of a resolution duly
      adopted by the affirmative vote of not less a majority of the entire
      membership of the Board at a meeting of the Board which was called and
      held for the purpose of considering such termination (after reasonable
      notice to the Key Employee and an opportunity for the Key Employee,
      together with the Key Employee’s counsel, to be heard before the Board)
      finding that, in the good faith opinion of the Board, the Key Employee was
      guilty of conduct set forth in clause (i) or (ii) of the definition of
      Cause herein, and specifying the particulars thereof in
      detail.

            

    

    
      
         

      

      
        2

        
          

        

      

      
         

      

    

    

    
      	
               
      

            	
              5.2  Date of
      Termination.  “Date of Termination,” with respect to any
      purported termination of the Key Employee’s employment after a Change in
      Control, shall mean the date specified in the Notice of Termination
      (which, in the case of a termination by the Company, shall not be less
      than thirty (30) days (except in the case of a termination for Cause) and,
      in the case of a termination by the Key Employee, shall not be less than
      fifteen (15) days nor more than sixty (60) days, respectively, from the
      date such Notice of Termination is given, provided that, in the case of a
      termination by the Key Employee, the Company may require a Date of
      Termination earlier than that specified in the Notice of Termination upon
      payment to the Key Employee of the full amount of base salary that would
      have been paid to the Key Employee had the Key Employee continued
      employment between the actual Date of Termination and the Date of
      Termination specified in the Notice of
  Termination).

            

    

    

    
      	
               
      

            	
              5.3   Dispute
      Concerning Termination.  If within fifteen (15) days
      after any Notice of Termination is given, or, if later, prior to the Date
      of Termination (as determined without regard to this Section 5.3), the
      party receiving such Notice of Termination notifies the other party that a
      dispute exists concerning the termination, the Date of Termination shall
      be extended until the earlier of (i) the date on which the Term ends or
      (ii) the date on which the dispute is finally resolved, either by mutual
      written agreement of the parties or by a final judgment, order or decree
      of an arbitrator or a court of competent jurisdiction (which is not
      appealable or with respect to which the time for appeal therefrom has
      expired and no appeal has been perfected); provided, however, that the
      Date of Termination shall be extended by a notice of dispute given by the
      Key Employee only if such notice is given in good faith and the Key
      Employee pursues the resolution of such dispute with reasonable
      diligence.

            

    

    

    
      	
               
      

            	
              5.4  Compensation
      During Dispute.  If a purported termination occurs
      following a Change in Control and the Date of Termination is extended in
      accordance with Section 5.3 hereof, the Company shall continue to pay the
      Key Employee the full compensation in effect when the notice giving rise
      to the dispute was given (including, but not limited to, salary) and
      continue the Key Employee as a participant in all compensation, benefit
      and insurance plans in which the Key Employee was participating when the
      notice giving rise to the dispute was given, until the Date of
      Termination, as determined in accordance with Section 5.3
      hereof.  Amounts paid under this Section 5.4 are in addition to
      all other amounts due under this Agreement and shall not be offset against
      or reduce any other amounts due under this
  Agreement.

            

    

    

    6.   Successors;
Binding Agreement.

    

    
      	
               
      

            	
              6.1  The
      Company will require any successor (whether direct or indirect, by
      purchase, merger, consolidation or otherwise) to all or substantially all
      of the business and/or assets of the Company to be obligated to perform
      this Agreement (whether by reason of express assumption by the successor
      or by operation of law) in the same manner and to the same extent that the
      Company would be required to perform it if no such succession had taken
      place.

            

    

    

    

    
      	
               
      

            	
              6.2  This
      Agreement shall inure to the benefit of and be enforceable by the Key
      Employee’s personal or legal representatives, executors, administrators,
      successors, heirs, distributees, devisees and legatees.  If the
      Key Employee shall die while any amount would still be payable to the Key
      Employee hereunder if the Key Employee had continued to live, all such
      amounts, unless otherwise provided herein, shall be paid in accordance
      with the terms of this Agreement to the executors, personal
      representatives or administrators of the Key Employee s
      estate.

            

    

    

    
      	
               
      

            	
              7.  Notices.  For
      the purpose of this Agreement, notices and all other communications
      provided for in the Agreement shall be in writing and shall be deemed to
      have been duly given when delivered or mailed by United States registered
      mail, return receipt requested, postage prepaid, addressed, if to the Key
      Employee, to the address of the Key Employee as maintained from time to
      time on the payroll system of the Company and, if to the Company, to the
      address set forth below, or to such other address as either party may have
      furnished to the other in writing in accordance herewith, except that
      notice of change of address shall be effective only upon actual
      receipt:

            

    

    

    To
the Company:

    4400 Post
Oak Parkway, Suite 2700

    Houston,
TX 77027

    Attention:  General
Counsel

     

    
      	
               
      

            	
              8.  Miscellaneous.  No
      provision of this Agreement may be modified, waived or discharged unless
      such waiver, modification or discharge is agreed to in writing and signed
      by the Key Employee and such officer as may be specifically designated by
      the Board.  No waiver by either party hereto at any time of any
      breach by the other party hereto of, or of any lack of compliance with,
      any condition or provision of this Agreement to be performed by such other
      party shall be deemed a waiver of similar or dissimilar provisions or
      conditions at the same or at any prior or subsequent time.  This
      Agreement supersedes any other agreements or representations, oral or
      otherwise, express or implied, with respect to the subject matter hereof
      which have been made by the Key Employee or the Company.  The
      validity, interpretation, construction and performance of this Agreement
      shall be governed by the laws of the State of Texas without regard to its
      principles of conflicts of law.  All references to sections of
      the Code shall be deemed also to refer to any successor provisions to such
      sections.  Any payments provided for hereunder shall be paid net
      of any applicable withholding required under federal, state or local law
      and any additional withholding to which the Key Employee has
      agreed.

            

    

     

    

    
      	
               
      

            	
              9.  Validity.  The
      invalidity or unenforceability of any provision of this Agreement shall
      not affect the validity or enforceability of any other provision of this
      Agreement, which shall remain in full force and
  effect.

            

    

    

    
      	
               
      

            	
              10.
      Counterparts.  This Agreement may be executed in several
      counterparts, each of which shall be deemed to be an original but all of
      which together will constitute one and the same
  instrument.

            

    

    
      
         

      

      
        3

        
          

        

      

      
         

      

    

    

    
      	
               
      

            	
              11. Settlement of
      Disputes.  All claims by the Key Employee for benefits
      under this Agreement shall be directed to and determined by the Board and
      shall be in writing.  Any denial by the Board of a claim for
      benefits under this Agreement shall be delivered to the Key Employee in
      writing and shall set forth the specific reasons for the denial and the
      specific provisions of this Agreement relied upon.  The Board
      shall afford a reasonable opportunity to the Key Employee for a review of
      the decision denying a claim and shall further allow the Key Employee to
      appeal to the Board a decision of the Board within sixty (60) days after
      notification by the Board that the Key Employee’s claim has been
      denied.  The Board shall render its final decision within
      fifteen (15) days from the date on which the Key Employee files an appeal
      with the Board.

            

    

    

    
      	
               
      

            	
              12.
      Definitions.  For purposes of this Agreement, the
      following terms shall have the meanings indicated
  below:

            

    

    

     
(A)  “Base Salary” shall have the meaning set forth in
Section 4.1 hereof.

    

     
(B)  “Board” shall mean the Board of Directors of the
Company.

    

    
      	
               
      

            	
              (C)  “Cause”
      for termination by the Company of the Key Employee’s employment shall mean
      (i) the willful and continued failure by the Key Employee to substantially
      perform the Key Employee’s duties with the Company (other than any such
      failure resulting from the Key Employee’s incapacity due to physical or
      mental illness or any such actual or anticipated failure after the
      issuance of a Notice of Termination for Good Reason by the Key Employee
      pursuant to Section 5.1 hereof) after a written demand for
      substantial performance is delivered to the Key Employee by the Board,
      which demand specifically identifies the manner in which the Board
      believes that the Key Employee has not substantially performed the Key
      Employee’s duties, or (ii) the willful engaging by the Key Employee in
      conduct which is demonstrably and materially injurious to the Company,
      monetarily or otherwise.  For purposes of clauses (i) and (ii)
      of this definition, (x) no act, or failure to act, on the Key Employee’s
      part shall be deemed “willful” unless done, or omitted to be done, by the
      Key Employee not in good faith and without reasonable belief that the Key
      Employee’s act, or failure to act, was in the best interest of the Company
      and (y) in the event of a dispute concerning the application of this
      provision, no claim by the Company that Cause exists shall be given effect
      unless the Company establishes to the Board by clear and convincing
      evidence that Cause exists.

            

    

    

    
      	
               
      

            	
              (D)  “Change
      in Control” shall be deemed to have occurred if the common stock, $.10 par
      value, of the Company owned by KSA Industries, Inc., K.S. Adams, Jr.,
      Nancy N. Adams, and their children and grandchildren is less in the
      aggregate than twenty percent (20%) of the then-total issued and
      outstanding common stock of the
Company.

            

    

    

    
      	
               
      

            	
              (E)  “Code”
      shall mean the Internal Revenue Code of 1986, as amended from time to
      time.

            

    

    

    
      	
               
      

            	
              (F)  “Company”
      shall mean Adams Resources & Energy, Inc. and shall include any
      successor to its business and/or assets which assumes and agrees to
      perform this Agreement by operation of law, or
  otherwise.

            

    

    

    
      	
               
      

            	
              (G)  “Date
      of Termination” shall have the meaning set forth in Section 5.2
      hereof.

            

    

    

     (H)  “Effective
Date” shall have the meaning set forth in Section 2 hereof.

    

    
      	
               
      

            	
              (I)  “Good
      Reason” for termination by the Key Employee of the Key Employee’s
      employment shall mean the occurrence (without the Key Employee’s express
      written consent), after any Change in Control, of any one of the following
      acts by the Company or subsidiary (if applicable), or failures by the
      Company or subsidiary (if applicable) to act, unless such act or failure
      to act is corrected prior to the Date of Termination specified in the
      Notice of Termination given in respect
thereof:

            

    

    

    
      	
               
      

            	
              I

            	
              a
      material reduction in the Key Employee’s authority, duties or
      responsibilities, which for purposes of this Agreement shall include only
      the assignment to the Key Employee of any duties substantially
      inconsistent with the Key Employee’s status as a senior Key Employee
      officer of the Company or subsidiary (if applicable) or a material adverse
      alteration in the nature or status of the Key Employee’s responsibilities
      from those in effect immediately prior to the Change in
      Control;

            

    

    

    
      	
               
      

            	
              II

            	
              a
      material diminution in base salary as in effect immediately prior to the
      Change in Control; or

            

    

    

    
      	
               
      

            	
              III

            	
              a
      material change in the geographic location at which the Key Employee must
      perform services, which for purposes of this Agreement shall include only
      the relocation of the Key Employee’s principal place of employment to a
      location more than fifty (50) miles distant from the Company’s
      headquarters immediately prior to the Change in Control or the Company’s
      requiring the Key Employee to be based anywhere other than such principal
      place of employment (or permitted relocation thereof) except for
      reasonably required travel on the Company’s business.  The Key
      Employee’s continued employment shall not constitute consent to, or a
      waiver of rights with respect to, any act or failure to act constituting
      Good Reason hereunder, provided that the Key Employee may not assert Good
      Reason in respect of any act or failure to act otherwise constituting Good
      Reason hereunder unless asserted in a Notice of Termination given in
      respect thereof within ninety (90) days following the date of the first
      occurrence of such act or failure to
act.

            

    

    

    
      	
               
      

            	
              (J)   “Key
      Employee” shall mean the individual named in the first paragraph of this
      Agreement.

            

    

    

      (K)  “Notice
of Termination” shall have the meaning set forth in Section 5.1
hereof.

    

     
(L)  “Separation” shall have the meaning set forth in the recitals
hereof.

    

     
(M) “Severance Payment” shall have the meaning set forth in Section 4.1
hereof.

    
      
         

      

      
        4

        
          

        

      

      
         

      

    

    

     

    IN
WITNESS WHEREOF, the parties have duly executed this Agreement to be effective
as of the Effective Date.

     

    ADAMS
RESOURCES & ENERGY, INC.

    

    

    By:           /s/F. T.
Webster

    Name:      F. T.
Webster

    Title:        President &
C.O.O.

    

    

    KEY
EMPLOYEE

    

    s/sRichard B.
Abshire

    RICHARD
B. ABSHIRE

    

    

    

    

    

    
      
         

      

      
        5ex10_1.htm

    
       

    

    RESEARCH
AND LICENSE AGREEMENT

     

    by and
between

     

    MERCK
& CO., INC.

     

    And

     

    ZNOMICS,
INC.

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

     

    
      	
              TABLE
      OF CONTENTS

            	 
      
	
              1.DEFINITIONS

            	
              1

            
	
              2.RESEARCH

            	
              5

            
	 
      2.1
      General	
              5

            
	 
      2.2
      Conduct of Research	
              5

            
	 
      2.3
      Use of Research Funding	
              6

            
	 
      2.4
      Records and Reports	
              6

            
	 
      2.5
      Research Information and Inventions	
              7

            
	 
      2.6
      Research Term	
              7

            
	
              3.
      EXCHANGE OF INFORMATION; LICENSE;

            	
              7

            
	 
      3.1
      Procedure for Novel Obesity-related Gene	
              7

            
	 
      3.2
      Exercise of Option	
              7

            
	 
      3.3
      Licenses	
              7

            
	 
      3.4
      Rights of MERCK to an Exclusive License	
              8

            
	 
      3.5
      No Implied Licenses	
              8

            
	 
      3.6
      Bankruptcy	
              8

            
	
              4.
      CONFIDENTIALITY AND PUBUCATION

            	
              9

            
	 
      4.1
      Nondisclosure Obligation	
              9

            
	 
      4.2
      ZNOMICS Know-How	
              9

            
	 
      4.3
      Publication	
              10

            
	 
      4.4
      Publicity/Use of Names	
              11

            
	
              5.
      PAYMENTS; ROYALTIES AND REPORTS

            	
              12

            
	 
      5.1
      Research Funding	
              12

            
	 
      5.2
      Payments for ZNOMICS Related Milestones	 
      
	 
      5.3
      License Fees	
              12

            
	 
      5.3
      Payments for MERCK Research Milestones	
              13

            
	
              6.
      REPRESENTATIONS AND WARRANTIES

            	
              14

            
	 
      6.1
      Representations and Warranties	
              14

            
	
              7.
      PATENT PROVISIONS

            	
              14

            

    

     

    
      
        
        

      

      
        
        

        
          

        

      

      
        
        

      

    

    
       

    

    
      
        	 
      7.1
      Filing, Prosecution and Maintenance of Patents	
                14

              
	 
      7.2
      Option of MERCK to Prosecute and Maintain Patents	
                15

              
	 
      7.3
      Interference, Opposition, Reexamination and Reissue	
                15

              
	 
      7.4
      Enforcement and Defense	
                16

              
	 
      7.5
      Patent Term Restoration	
                17

              
	
                8.
      TERM AND TERMINATION

              	
                18

              
	 
      8.1
      Term and Expiration	
                18

              
	 
      8.2
      Termination by MERCK	
                18

              
	 
      8.3
      Termination for Cause	
                18

              
	 
      8.4
      Effect of Expiration or Termination; Survival	
                19

              
	
                9.
      MISCELLANEOUS

              	
                19

              
	 
      9.1
      Force Majeure	
                19

              
	 
      9.2
      Assignment	
                19

              
	 
      9.3
      Severability	
                20

              
	 
      9.4
      Notices	
                20

              
	 
      9.5
      Applicable Law	
                21

              
	 
      9.6
      Dispute Resolution	
                21

              
	 
      9.7
      Entire Agreement; Amendments	
                22

              
	 
      9.8
      Headings	
                23

              
	 
      9.9
      Independent Contractors	
                23

              
	 
      9.10
      Waiver 23
	 
      9.11
      Cumulative Remedies	
                23

              
	 
      9.12Waiver
      of Rule of Construction	
                23

              
	 
      9.13Counterparts	
                23

              
	 
      
	SCHEDULE
      1.27 PATENT
      RIGHTS 	
                25

              
	
                SCHEDULE
      2.1   RESEARCH      

              	
                25

              

      

    

     

    
      
        
        

      

      
        ii

        
          

        

      

      
        
        

      

    

     

    RESEARCH
AND LICENSE AGREEMENT

     

    THIS
AGREEMENT, effective as of November 15, 2005 (the "Effective Date"), by and
between MERCK & CO., INC., a corporation organized and existing under the
laws of New Jersey ("MERCK") and ZNOMICS, INC., a corporation organized and
existing under the laws of Delaware ("ZNOMICS").

     

    RECITALS:

    
       

      WHEREAS,
ZNOMICS has developed a Library (as
hereinafter defined) for use to identify genes underlying human diseases,
ZNOMICS Know-How (as hereinafter defined) and has rights to Patent Rights (as
hereinafter defined);

       

      WHEREAS,
MERCK and ZNOMICS desire to enter into an
agreement to identify and characterize potential novel drug targets upon the
terms and conditions set forth herein;

       

    

    WHEREAS, MERCK desires to
obtain a license under the Patent Rights and ZNOMICS Know-How, upon the terms
and conditions set forth herein and ZNOMICS desires to grant such a
license;

     

    NOW, THEREFORE, in
consideration of the foregoing premises and the mutual covenants herein
contained, the Parties hereby 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           "Act" shall mean, as
applicable, the United States Federal Food, Drug and Cosmetic Act, 21 U.S.C. §§
301 et seq., and/or the Public Health Service Act, 42 U.S.C. §§ 262 et seq., as
such may be amended from time to time.

     

    1.2           "Affiliate" shall mean (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.

     

    1.3           "Calendar Year" shall mean
each successive period of twelve (12) months commencing on January 1 and ending
on December 31.

     

    1.4           "Control" 1 "Controls" or "Controlled
by" - shall mean with respect to any item of

     

    or right
under Patent Rights or ZNOMICS Know-How or MERCK Know-How, the possession of
(whether by ownership or license, other than pursuant to this
Agreement),

     

    
      
        
        

      

      
        1

        
          

        

      

      
        
        

      

    

    
or the
ability of a Party to grant access to, or a license or sublicense of, such item
or right as provided for herein without violating the terms of any agreement or
other arrangement with any Third Party existing at the time such Party would be
required hereunder to grant the other Party such access or license or
sublicense.

     

    1.5           "Directed" shall mean that a
compound or biological modulates the activity of the Target.

     

    1.6           "Druggable
Genes" shall mean a Gene encoding for a cell
surface receptor, nuclear receptor. ion channel or enzyme.

       

    

    1.7           "Effective Date" shall mean
the date of the last Party to sign this Agreement.

     

    1.8           "Escrow Agent" shall mean a
third party that is mutually agreed upon by the Parties and agrees, pursuant to
a written agreement, to (a) abide by the confidentiality and non-use provisions
of this Agreement; and (b) hold the list of Merck Pre-existing Programs, as
updated from time to time, in escrow on behalf of the Parties.

     

    1.9           "Final Report" shall mean the
report as more fully described in Section 2.4.3.

     

    1.10           "First Commercial Sale" shall
mean, with respect to any Product, the first sale for end use or consumption of
such Product in the Territory, excluding, however, any sale or other
distribution for use in a Clinical Trial.

     

    1.11           "Full Time Equivalent" or
"FTE" shall mean the equivalent of a full-time scientist's work time over
a twelve-month period (including normal vacations, sick days and holidays). The
portion of an FTE year devoted by a scientist to the Research shall be
determined by dividing the number of full days during any twelve-month period
devoted by such employee to the Research by the total number of working days
during such twelve­month period.

     

    1.12           "Funded Patent Rights" shall
have the meaning set forth in Section 7.1.1.

     

    1.13           "Gene" shall
mean a nucleotide sequence that ZNOMICS identifies using the Library. inclUding
but not limited to, all expressed variants of such nucleotide
sequences.

     

    1.14           "Improvement" means any
enhancement, whether or not patentable, made by ZNOMICS or others acting on
behalf of ZNOMICS in the identification,
use, manufacture or development of Novel Obesity--related Genes, Targets and/or
Products.

       

    

    1.15           "Information" shall mean any
and all information and data, including without limitation all MERCK Know-How,
ZNOMICS Know-How, and all other scientific, pre-clinical, clinical, regulatory,
manufacturing, marketing, financial and commercial information or data, whether
communicated in writing or orally or by any other method, which is provided by
one Party to the other Party in connection with this Agreement.

     

    1.16           "Initiates" shall mean, with
respect to a Clinical Trial, the administration of the first dose to a patient
in such Clinical Trial.

     

    1.17           "Invention" shall mean any
process, method, composition of matter, article of

     

    
      
        
        

      

      
        2

        
          

        

      

      
        
        

      

    

     

    manufacture,
discovery or finding that is conceived and/or reduced to practice as a result of
the Research.

     

    1.18           "Joint Information and
Inventions" shall mean all protocols, formulas, data, Inventions,
know-how and trade secrets, patentable or otherwise, resulting from the Research
developed or invented jointly by employees of MERCK and ZNOMICS or others acting
on behalf of MERCK and ZNOMICS.

     

    1.19           "Library" shall mean the
proprietary ZNOMICS collection of zebrafish in which Genes are mutated by at
least 350,000 viral insertions.

     

    1.20           "Major Market Countries" shall
mean the United States, Canada, Japan, and the following EP designated
countries: France, Germany, Italy, Spain and the United Kingdom. Each
individually, a "Major Market Country."

     

    1.21           "MERCK Information and
Inventions" shall mean all protocols, formulas, data, Inventions,
know-how and trade secrets, patentable or otherwise, provided by MERCK to
ZNOMICS or developed or invented solely by employees of MERCK or other persons
not employed by ZNOMICS acting on behalf of MERCK, including but not limited to,
all mammalian Druggable Genes identified in the Merck Pre-existing
Program.

     

    1.22           "MERCK Know-How" shall mean
any information and materials, including but not limited to discoveries,
improvements, processes, methods, protocols, formulas, data, inventions
(including without limitation MERCK's Information and Inventions and MERCK's
rights in Joint Information and Inventions), know-how and trade secrets,
patentable or otherwise, which during the term of this Agreement, (i) are in
MERCK's Control, (ii) are not generally known and (iii) are in MERCK's opinion
necessary to ZNOMICS in the performance of its obligations under the
Research.

     

    1.23           "MERCK
Pre-existing Program" shall mean a mammalian
Druggable Gene that MERCK has identified in writing to the Escrow Agent as being
the subject of an active MERCK program prior to receipt by MERCK of a Novel
Obesity-related Gene Package from ZNOMICS.

       

    

    1.24           "Novel
Obesity-related Genes" shall mean mammalian
Druggable Genes, for which teleostian homologs have been identified in the
Library during the Research Term, wherein the disruption of said teleostian
homologs in zebrafish results (based on statistical significance compared with
wild-type zebrafish controls) in either (a) altered fat mass; and/or (b) altered
agouti~related protein ("AGRP") expression; and which Druggable Genes' link to
obesity has not been reported in the literature and which Druggable Genes are
not a MERCK Pre-existing Program.

       

    

    1.25           "Novel
Obesity-related Gene Package" means the
package of information relating to and identifying Novel Obesity-related Genes
provided by ZNOMICS to MERCK as more fully described in Section
3.1.

     

    1.26           "Party" shall mean MERCK and
ZNOMICS, individually, and "Parties" shall mean MERCK and ZNOMICS,
collectively.

     

    1.27           "Patent Rights" shall mean any
and all patents and patent applications in the Territory

     

    
      
        
        

      

      
        3

        
          

        

      

      
        
        

      

    

     

    
      (which
for the purposes of this Agreement shall be deemed to include certificates of
invention and applications for certificates of invention) which are Controlled
by ZNOMICS, including, but not limited to, those listed on Schedule 1.27, which:
(i) claim or cover Novel
Obesity-related Genes, Targets, Products, ZNOMICS Information and Inventions, or
Joint Information and Inventions (or the use, development or manufacture of
Novel Obesity-related Genes, Targets, Products, ZNOMICS Information and
[nventions, or Joint Information and Inventions), and any Improvements related
to the foregoing; or (ii) are divisionals, continuations, continuations-in-part,
reissues, renewals, substitutions, registrations, re-examinations,
revalidations, supplementary protection certificates, pediatric exclusivity
periods, any other patent term extensions and exclusivity periods and the like
of any such patents and patent applications, and any and all foreign equivalents
of the foregoing.

       

    

    1.28           "Phase I Clinical Trial" shall
mean a human clinical trial in any country that would satisfy the requirements
of 21 CFR 312.21(a).

     

    1.29           "Positive
Identity Genes" shall mean Genes whose
insertional mutation leads to changed fat mass or altered AGRP
expression.

       

    

    1.30           "Product(s)"
shall mean any pharmaceutical or biological
preparation in final form which is Directed to a
Target.

     

    1.31           "Regulatory Authority" shall
mean any applicable government regulatory authority involved in granting
approvals for the manufacturing, marketing. reimbursement and/or pricing of a
Product in the Territory, inclUding. in the United States, the United States
Food and Drug Administration and any successor governmental authority having
substantially the same function.

     

    1.32           "Related Party" shall mean
each of MERCK, its Affiliates, and their respective sublicensees (which term
does not include distributors), as applicable.

     

    1.33           "Research" shall
mean the activities undertaken by ZNOMICS to identify and
characterize potential novel drug targets for obesity and type II diabetes using zebrafish
intellectual property for and on behalf of MERCK as set forth in Article 2 and
Schedule
2.1.

     

    1.34           "Research
Milestone" shall mean each of the milestones
achieved by either ZNOMICS or MERCK as more fully described in, as applicable,
Section 5.2 or 5.4, respectively.

       

    

    1.35           "Research Term" shall mean the
duration of the Research and "Extended Research Term" shall mean any period of
the Research as it may be extended by mutual agreement of the Parties, as
described more fully in Section 2.6.

     

    1.36           "Target"
shall mean the peptide and/or protein encoded
by a Novel Obesity-related Gene that is selected by MERCK for further evaluation
including all expressed variants thereof.

       

    

    1.37           "Territory" shall mean all of
the countries in the world, and their territories and possessions.

     

    
      
        
        

      

      
        4

        
          

        

      

      
        
        

      

    

     

    1.38           "Third Party" shall mean an
entity other than MERCK and its Related Parties, and ZNOMICS.

     

    1.39           "Valid Patent Claim" shall
mean a claim of an issued and unexpired patent included within the Patent Rights
which claims a Product as a composition of matter, which claim has not been
revoked or held unenforceable or invalid by a decision of a court or other
governmental agency of competent jurisdiction (which decision is not appealable
or has not been appealed within the time allowed for appeal), and which claim
has not been disclaimed, denied or admitted to be invalid or unenforceable
through reissue, re­examination or disclaimer or otherwise.

     

    1.40           "ZNOMICS Information and
Inventions" shall mean all protocols, formulas, data, Inventions,
know-how and trade secrets, patentable or otherwise, resulting from the Research
developed or invented solely by employees of ZNOMICS or other persons not
employed by MERCK acting on behalf of ZNOMICS.

     

    1.41           "ZNOMICS Know-How" shall mean
all information and materials, including but not limited to discoveries,
improvements, processes, methods, protocols, formulas, data, inventions
(including without limitation ZNOMICS Information and Inventions and ZNOMICS
rights in Joint Information and Inventions), know-how and trade secrets,
patentable or otherwise. which during the term of this Agreement (i) are in the
Control of ZNOMICS, (ii) are not generally known and (iii) are necessary or
useful to MERCK in connection with the Research, and the research, development,
manufacture, use or sale of Products in the Territory; excluding, however, any
MERCK Know-How and the Final Report.

     

    2.           RESEARCH

     

    2.1           General

     

    ZNOMICS
and MERCK shall engage in the Research upon the terms and conditions set forth
in this Agreement. The activities to be undertaken in the course of the Research
are set forth in Schedule 2.1, which may be amended from time to time upon
mutual written agreement by authorized representatives of the
Parties.

     

    2.2           Conduct of
Research

     

    
      ZNOMICS
and MERCK shall engage in the Research upon the terms and conditions set forth
in this Agreement The activities to be undertaken in the course of the Research
are set forth in Schedule 2.1, which may be
amended from time to time upon mutual written agreement by authorized
representatives of the Parties.

       

    

    ZNOMICS
shall conduct the Research in compliance with all applicable laws, rules and
regulations. In addition, if animals are used in research hereunder, ZNOMICS
will comply with the Animal Welfare Act or any other applicable local, state,
national and international laws and regulations relating to the care and use of
laboratory animals. MERCK encourages ZNOMICS to use the highest standards, such
as those set forth in the Guide for the Care and Use of

     

    
      
        
        

      

      
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    Laboratory
Animals (NRC, 1996), for the humane handling, care and treatment of such
research animals. Any animals which are used in the course of the Research, or
products derived from those animals, such as eggs or milk, will not be used for
food purposes, nor will these animals be used for commercial breeding purposes;
provided, however, that these restrictions do not apply to any Library that is
not utilized for the Research. ZNOMICS shall notify MERCK in writing of any
deviations from applicable regulatory or legal requirements. ZNOMICS hereby
certifies that it has not employed or otherwise used in any capacity, and will
not employ or otherwise use in any capacity, the services of any person debarred
under United States law, including but not limited to Section 21 USC 335a, in
performing any portion of the Research. ZNOMICS shall not use human tissue in
the performance of the Research.

     

    ZNOMICS
shall be entitled to utilize the services of Third Parties to perform its
Research activities only upon MERCK's prior written consent or as specifically
set forth in Schedule 2.1" Notwithstanding any such consent, ZNOMICS shall
remain at all times fully liable for its respective responsibilities under the
Research.

     

    2.3           Use of Research
Funding

     

    ZNOMICS
shall apply the research funding it receives from MERCK under this Agreement
solely to carry out its Research activities in accordance with Schedule 2.1 and
the terms and conditions of this Agreement.

     

    2.4           Records and
Reports

     

    2.4.1           Records.
ZNOMICS shall maintain records, in sufficient detail and in good scientific
manner appropriate for patent and regulatory purposes, which shall fully and
properly reflect all work done and results achieved in the performance of the
Research by ZNOMICS.

     

    2.4.2           Copies
and Inspection of Records. MERCK shall have the right, during normal
business hours and upon reasonable notice, to inspect and copy all such records
of ZNOMICS referred to in Section 2.4.1. MERCK shall maintain such records and
the information disclosed therein in confidence in accordance with Section 4.1.
MERCK shall have the right to arrange for its employees and/or consultants
involved in the activities contemplated hereunder to visit the offices and
laboratories of ZNOMICS and any of its Third Party contractors as permitted
under Section 2.2 during normal business hours and upon reasonable notice, and
to discuss the Research work and its results in detail with the technical
personnel and consultants of ZNOMICS. Upon request, ZNOMICS shall provide copies
of the records described in Section 2.4.1 above.

     

    2.4.3           Final
Report. Within thirty (30) days following the
end of the Research Term, ZNOMICS shall proVide a written Final Report to MERCK.
MERCK and its Affiliates shall be permitted to use information contained in such
Final Report which use by MERCK shall be solely for the purpose of internal
research, discovery and development, unless MERCK exercises the Non-Exclusive
Option or Exclusive Option in accordance with Section 3.2. Such Final Report
shall include the (a) nile red fat mass screen (or comparable screen approved by
MERCK) validation data and assay description; (b) description of the AGRP in
situ hybridization screen and data; and (c) a list of all Positive Identity
Genes together with a list of all Novel Obesity-related
Genes.

     

    
      
        
        

      

      
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    2.5           Research Information and
Inventions

     

    The
entire right, title and interest in:

     

    (a)           ZNOMICS
Information and Inventions shall be owned solely by ZNOMICS;

     

    (b)           MERCK
Information and Inventions shall be owned solely by MERCK; and

     

    
      	
               
      

            	
              (c)

            	
              Joint
      Information and Inventions shall be owned jointly by ZNOMICS and MERCK.
      Inventorship will be determined in accordance with United States patent
      laws.

            

    

     

    ZNOMICS
shall promptly disclose to MERCK in writing the development, making, conception
or reduction to practice of ZNOMICS Information and Inventions and Joint
Information and Inventions.

     

    2.6           Research
Term

     

    
      Except as
otherwise provided herein, the term of the Research shall commence on the
Effective Date and continue for a period of one (1) year. The Parties may extend
the term of the Research Term by mutual written agreement of the authorized
representative of the Parties, and shall, in such case, amend Schedule 2.1 as
applicable.

       

    

    3.           EXCHANGE
OF INFORMATION; LICENSE

     

    3.1         Procedure for Novel
Obesity-Related Gene Package

     

    ZNOMICS
shall prOVide written notice to MERCK that ZNOMICS has identified Novel
Obesity-related Genes. Within thirty (30) days of receiving such notice, MERCK
shall submit to the Escrow Agent a true and complete list of Merck Pre-existing
Programs, and shall then notify ZNOMICS that ZNOMICS may send a list of Novel
Obesity-related Genes ("Novel Obesity­related Gene Package") to MERCK. The
first Novel Obesity-related Gene Package will list not more than twenty (20)
Novel Obesity-related Genes. ZNOMICS will promptly send the Novel
Obesity-related Gene Package to MERCK. At MERCK's sale discretion, MERCK may
request ZNOMICS to provide further Novel Obesity-related Gene Packages and MERCK
shall further advise ZNOMICS of the maximum number of Novel Obesity-related
Genes to be included in such package. ZNOMICS, to the extent it is able to,
shall promptly send such subsequent Novel Obesity-related Gene Packages to
MERCK. If at any time ZNOMICS believes that MERCK is working on a mammalian
Druggable Gene that MERCK learned from ZNOMICS then the Escrow Agent may confirm
if that mammalian Druggable Gene was on the MERCK Pre-existing Programs
list.

     

    3.2           Exercise of
Option.

     

    
      MERCK
shall have the exclusive right to obtain an exclusive or non-exclusive license
pursuant to Section 3.3 for any number of Novel Obesity-related Genes by
exercising an Exclusive Option or Non-Exclusive Option for such Novel
Obesity-related Genes pursuant to procedures set forth in this Section 3.2.
MERCK may, at any time following receipt of a Novel Obesity-related Gene Package
for a particular Novel Obesity-related Gene pursuant to Section 3.1, submit to
ZNOMICS a written notification of MERCK's intent to obtain an license
pursuant

       

    

    
      
        
        

      

      
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      to
Section 3.3.1 (an "Exclusive Option") or Section 3.3.2 (a "Non-Exclusive
Option"). The Exclusive Option and Non-Exclusive Option are exclusive to Merck
for the twenty (20) month period following receipt of a Novel Obesity-related
Gene Package for a particular Novel Obesity­related Gene. The determination
of whether MERCK shall exercise an Exclusive Option or Non­Exclusive Option
shall be at MERCK's sale discretion. In providing such written notice to
ZNOMICS, MERCK shall supply to ZNOMICS written information sufficient to
identify such Novel Obesity-related Gene. The Exclusive Option or Non-Exclusive
Option for a particular Novel Obesity-related Gene, as applicable, shall be
deemed to be exercised upon MERCK providing such written notice to
ZNOMICS.

    

     

    3.3           Licenses

     

    
      
        3.3.1
Exclusive
License Grant. Upon exercise by MERCK of an Exclusive Option
pursuant to Section 3.2 for a particular Novel Obesity-related Gene, and subject
to the terms and conditions set forth in this Section 3.3, ZNOMICS hereby grants
to MERCK, an exclusive (even as to ZNOMICS) sublicenseable for the duration of
the MERCK license, license to such Novel Obesity-related Gene in the Territory
under the Patent Rights and ZNOMICS Know-how for any and all uses, including but
not limited to, MERCK's activities in the research, discovery and development of
biological and pharmaceutical products to make, have made, use, offer to sell,
sell or import any Product Directed to the Target encoded by such Novel
Obesity-Related Gene.

         

        3.3.2
Non-Exclusive
License Grant. Upon
exercise by MERCK of a Non-Exclusive Option pursuant to Section 3.2 for a
particular Novel Obesity-related Gene, and subject to the terms and conditions
set forth in this Section 3.3, ZNOMICS hereby grants to MERCK, a
non­exclusive license, sublicenseable to Affiliates of MERCK for the
duration of the MERCK license, to such Novel Obesity-related Gene in the
Territory under the Patent Rights and ZNOMICS KnOW-how for any and aU uses, including but not
limited to MERCK's activities in the research, discovery and development of
biological and pharmaceutical products to make, have made, use, offer to sell.
sell or import any Product Directed to the Target encoded by such Novel
Obesity-Related Gene. Such non-exclusive license shall be further sublicenseable
by MERCK and its Affiliates to entities performing research for and on behalf of
MERCK or its Affiliates.

      

    

     

    3.4           Rights of MERCK to an
Exclusive License.

     

    
      ZNOMICS
hereby grants MERCK the right of first refusal for MERCK to obtain an exclusive
license for any Novel Obesity-related Genes, regardfess of whether MERCK has
exercised a Non-Exclusive Option for such Novel Obesity-related Gene. Such right
of first refusal shall be exercisable by MERCK for five (5) years following
MERCK's receipt of the Novel Obesity-related Gene Package from ZNOMICS for any
Novel Obesity-related Gene that is not already exclusively licensed to MERCK.
ZNOMICS shall provide written notice to MERCK prior to entering into discussions
with a Third Party with regard to granting any license or other rights to a
Third Party to any Novel Obesity-related Gene. Thereafter, MERCK shall have
sixty (60) days to provide written notice to ZNOMICS that it is exercising an
Exclusive Option to such Novel Obesity~related Gene. Such Exclusive Option shall
be exercised by MERCK pursuant to the procedures set forth in Section
3.2.

       

    

    3.5           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

     

    
      
        
        

      

      
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      it under
this Agreement or under any patents or patent applications owned or controlled
by the other Party or its Affiliates.

    

     

    3.6           Bankruptcy

     

    All
licenses and rights to licenses granted under or pursuant to this Agreement by
ZNOMICS to MERCK are, and shall otherwise be deemed to be, for purposes of
Section 365(n) of the' United States Bankruptcy Code, licenses of rights to
"intellectual property" as defined under Section 101 (35A) of the Code. The
Parties agree that MERCK. as a licensee of such rights under this Agreement,
shall retain and may fully exercise all of its rights and elections under the
Code, and that upon commencement of a bankruptcy proceeding by or against
ZNOMICS under the Code, MERCK shall be entitled to a complete duplicate of, or
complete access to (as MERCK deems appropriate), any such intellectual property
and all embodiments of such intellectual property_ Such intellectual property
and all embodiments thereof shall be promptly delivered to MERCK (i) upon any
such commencement of a bankruptcy proceeding upon written request therefor by
MERCK, unless ZNOMICS elects to continue to perform all of its obligations under
this Agreement or (ii) if not delivered under (i) above, upon the rejection of
this Agreement by or on behalf of ZNOMICS upon written request therefor by
MERCK.

     

    The
foregoing provisions of this Section 3.6 are without prejudice to any rights
MERCK may have arising under the Code or other applicable law.

     

    4.           CONFIDENTIALITY
AND PUBLICATION

     

    4.1           Nondisclosure
Obligation

     

    All
Information disclosed by one Party to the other Party hereunder shall be
maintained in confidence by the receiving Party and shall not be disclosed to
any Third Party or used for any purpose except as set forth herein without the
prior written consent of the disclosing Party, except to the extent that such
Information:

     

    
      	
               
      

            	
              (a)

            	
              is
      known by the receiving Party at the time of its receipt. and not through a
      prior disclosure by the disclosing Party, as documented by the receiving
      Party's business records;

            

    

     

    
      	
               
      

            	
              (b)

            	
              is
      in the public domain by use and/or publication before its receipt from the
      disclosing Party, or thereafter enters the public domain through no fault
      of the receiving Party;

            

    

     

    
      	
               
      

            	
              (c)

            	
              is
      subsequently disclosed to the receiving Party by a Third Party who may
      lawfully do so and is not under an obligation of confidentiality to the
      disclosing Party;

            

    

     

    
      	
               
      

            	
              (d)

            	
              is
      developed by the receiving Party independently of Information received
      from the disclosing Party, as documented by the receiving Party's business
      records;

            

    

     

    
      	
               
      

            	
              (e)

            	
              is
      disclosed to governmental or other regulatory agencies in order to obtain
      patents or to gain or maintain approval to conduct clinical trials or to
      market Product, but such disclosure may be only to the extent reasonably
      necessary to obtain patents or
authorizations;

            

    

    

    
      
        
        

      

      
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              (f)

            	
              is
      deemed necessary by MERCK to be disclosed to Related Parties, agents,
      consultants, and/or other Third Parties for any and all purposes MERCK and
      its Affiliates deem necessary or advisable in the ordinary course of
      business for the research and development, manufacturing and/or marketing
      of the Product in accordance with this Agreement on the condition that
      such Third Parties agree to be bound by the confidentiality and non-use
      obligations contained in this Agreement; provided, however, that
      the term of confidentiality for such Third Parties shall be no less than
      ten (10) years; or

            

    

     

    
      	
               
      

            	
              (g)

            	
              is
      deemed necessary by counsel to the receiving Party to be disclosed to such
      Party's attorneys, independent accountants or financial advisors for the
      sole purpose of enabling such attorneys, independent accountants or
      financial advisors to provide advice to the receiving Party, on the
      condition that such attorneys, independent accountants and financial
      advisors agree to be bound by the confidentiality and non-use obligations
      contained in this Agreement; provided, however, that
      the term of confidentiality for such attorneys, independent accountants
      and financial advisors shall be no less than ten (1 O)
    years.

            

    

     

    Any
combination of features or disclosures shall not be deemed to fall within the
foregoing exclusions merely because individual features are published or
available to the general public or in the rightful possession of the receiving
Party unless the combination itself and principle of operation are published or
available to the general pUblic or in the rightful possession of the receiving
Party.

     

    If a
Party is required by judicial or administrative process to disclose Information
that is subject to the non-disclosure provisions of this Section 4.1 or
Section4.2, such Party shall promptly inform the other Party of the disclosure
that is being sought in order to provide the other Party an opportunity to
challenge or limit the disclosure obligations. Information that is disclosed by
judicial or administrative process shall remain otherwise subject to the
confidentiality and non-use provisions of this Section 4.1 and Section4.2, and
the Party disclosing Information pursuant to law or court order shall take all
steps reasonably necessary, including without limitation obtaining an order of
confidentiality, to ensure the continued confidential treatment of such
Information.

     

    4.2           ZNOMICS
Know-How

     

    To the
extent that ZNOMICS grants to MERCK an exclusive license to ZNOMICS Know-How,
ZNOMICS agrees to keep all ZNOMICS Know-How confidential subject to exception
(b) in Section 4.1 above.

     

    4.3           Publication

     

    (a) For
twenty (20) months following MERCK's receipt of the Novel Obesity-related
Gene
Package from ZNOMICS, the Research results shall not be published unless
published with the consent of both of the Parties. Authorship in publication(s)
will be based on contributions of the Parties to the Research in accordance with
academic standards and custom.

     

    (b) The
Parties agree to abide by the policies of journals in which publications will
appear with respect to such matters as the public release or availability of
data relating to the

     

    
      
        
        

      

      
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    publication.
Proper acknowledgment will be made for the contributions of each Party to the
Research being published.

     

    (c) Notwithstanding
Section 4.3(a), after twenty (20) months following MERCK's receipt of the Novel
Obesity-related Gene Package from ZNOMICS and subject to Section 4.3(d), ZNOMICS
reserves the right to publish ZNOMICS Information and Inventions that are not
Funded Patent Rights as defined in Section 7.1, and MERCK reserves the right to
publish MERCK information and Inventions.

       

    

    (d) Following
twenty (20) months after MERCK's receipt of the Novel Obesity-related Gene
Package from ZNOMICS, if ZNOMICS wishes to publish ZNOMICS Information and
Invention that is not a Funded Patent Right, ZNOMICS shall notify MERCK and
MERCK may, at MERCK's sale discretion, direct ZNOMICS to file for patent
protection in accordance with Section 7.1. In such event, any publication
relating to such Novel Obesity-related Gene shall be subject to joint
publication in accordance with this Section 43(a).

       

    

    (e) The
Party wishing to make the publication shall provide a copy of the manuscript or
abstract to the other Party at least sixty (60) days prior to submission of the
manuscript or abstract for publication and the Party wishing to make an oral
presentation shall provide a copy of the oral presentation to the other Party at
least thirty (30) days prior to submission of the oral presentation. Within such
specified periods, the non-disclosing Party shall advise the disclosing Party
of, and the disclosing Party shall take, appropriate action to protect, as
applicable, either ZNOMICS Information and Inventions or MERCK Information and
Inventions, including delay, not to exceed an additional 30 days, of the
pUblication or presentation to permit patent filings or modification of the
publication or presentation to delete, as applicable, either ZNOMICS Information
and Inventions or MERCK Information and Inventions. Until this publication
process is completed or, if applicable, confidentiality is specifically waived
under Section 4, the ZNOMICS Information and Inventions and MERCK Information
and Inventions shall be kept confidential.

     

    4.4           Publicity/Use of
Names

     

    4.4.1
Except as set forth in 4.4.2, 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.

     

    4.4.2
Notwithstanding the provisions of Section 4.4.1, ZNOMICS may issue a press
release upon the full execution of this Agreement, the final form of which will
be subject to the prior written approval of MERCK prior to its release to the
public, such approval not to be unreasonably withheld, conditioned, or delayed.
The press release shall not disclose any financial terms of this Agreement. The
press release shall be issued not later than four (4) weeks after the Effective
Date of this Agreement. For other public disclosures relating to this Agreement
or the Parties' relationship under this Agreement ("Proposed Disclosures"),
including without limitation maintenance and disclosure of a list of licensees
or presentations at a professional conference, ZNOMICS may publicly disclose
only such information as was previously disclosed in the press release approved
by MERCK or a prior Proposed Disclosure. Notwithstanding the above, either Party
may disclose the terms of this Agreement to accredited

     

    
      
        
        

      

      
        11

        
          

        

      

      
        
        

      

    

     

    investors,
investment bankers, or potential acquirers or merger candidate in the context of
the due diligence investigations of such Party, provided that the party to which
such information is disclosed is subject to a nondisclosure obligation no less
stringent that that specified in Section 4.1.

     

    5.           RESEARCH
MILESTONE AND LICENSE PAYMENTS

     

    5.1           Research
Funding

     

    
      5.1.1 In
consideration for ZNOMICS's performance of its obligations under the Research,
upon the terms and conditions contained herein, MERCK shall pay ZNOMICS an
amount equal to four hundred ten thousand dollars ($410,000), payable in four
(4) installments as follows:

       

      
        	
                 
      

              	
                (a)

              	
                One
      hundred thousand dollars ($100,000) within thirty (30) days of the
      Effective Date and MERCK's receipt of an invoice from
    ZNOMICS;

              

      

       

      
        	
                 
      

              	
                (b)

              	
                One
      hundred thousand dollars ($100,000) within thirty (30) days of the three
      month anniversary of the Effective Date and MERCK's receipt of an invoice
      from ZNOMICS;

              

      

       

      
        	
                 
      

              	
                (c)

              	
                One
      hundred thousand dollars ($100,000) within thirty (30) days of the six
      month anniversary of the Effective Date and MERCK's receipt of an invoice
      from ZNOMICS;

              

      

       

      
        	
                 
      

              	
                (d)

              	
                One
      hundred ten thousand dollars ($110,000) within thirty (30) days of MERCK's
      receipt of the Final Report delivered pursuant to Section 2.4.3 and an
      invoice from ZNOMICS.

              

      

    

     

    5.1.2 Any
and all invoices required pursuant to this Section 5.1.1 shall be addressed to
MERCK as set forth in Section 9.4.

     

    5.2           Payments for ZNOMICS
Research Milestones.

     

    5.2.1
Subject to the terms and conditions in this Agreement, MERCK shall pay to
ZNOMICS
certain Research Milestone payments as outlined as
follows:

    
       

      (a)
Research
Milestone 1. Twenty-five thousand dollars ($25,000) upon (a) successful
identification and validation of the nile red fat mass assay (or comparable
screen approved by MERCK) and the quantitation of a fat mass phenotype in
zebrafish due to (i) an insertional mutation in a zebrafish gene; or (ii)
fasting: (b) documentation of significantly altered fat mass (or comparable
phenotype screen approved by MERCK); and (c) the ability to screen the Library.
Research Milestone 1 shall by payable by MERCK only once.

       

      (b)
Research
Milestone 2. Five thousand dollars ($5,000) per Positive Identity Gene
identified to MERCK by ZNOMICS. not to exceed a total of seventy-five thousand
dollars ($75,000), upon completion of all of the following: (a) screening the
Library; (b) isolating and cloning of all Positive Identity Genes in the
Library; (c) breeding of stable zebrafish that contain the Positive Identity
Genes,
and (d) a Final Report as described in Section 2.4.3.

       

    

    
      
        
        

      

      
        12

        
          

        

      

      
        
        

      

    

    
       

    

    5.2.2 ZNOMICS shall notify
MERCK in writing within thirty (30) days following achievement of each of
Research Milestones 1 and 2. MERCK shall make each of the appropriate Research
Milestone payments within thirty (30) days after notification of such Research
Milestone.

     

    5.3           License
Fees

       

      Upon
exercise of the Option for a particular Novel Obesity-related Gene and upon the
terms and conditions contained herein, MERCK shall pay to ZNOMICS the following
amounts:

       

      
        (a) 
Fifteen
thousand dollars ($15,000) per Novel Obesity-related Gene per year for a
non-exclusive license pursuant to Section 3.3.2.

      

       

      
        (b) 
One
hundred thousand dollars ($100,000) per Novel Obesity-related Gene per year for
an exclusive license pursuant to Section 3.3.1.

      

       

      
        (c) 
The
license fees set forth in Sections 5.3(a) and (b) shall be payable within thirty
(30) days after the exercise by MERCK of the Exclusive Option or Non-Exclusive
Option pursuant to Section 3.2 for any such Novel Obesity-related Gene, and
thereafter within thirty (30) days after the commencement of the Calendar Year
following the exercise of such Exclusive Option or Non-Exclusive Option. MERCK's
obligation to pay such license fee shall expire upon the later of (i) expiration
of the last to expire Valid Patent Claim covering a Product Directed to the
Target encoded by such Novel Obesity-related Gene; or (ii) five (5) years after
the First Commercial Sale of a Product Directed to the Target encoded by such
Novel Obesity-related Gene.

      

    

     

    5.4           Payments for MERCK Research
Milestones

     

    Subject
to the terms and conditions of this Agreement, MERCK shall pay to ZNOMICS the
following Research
Milestone payments:

     

    
      	
               
      

            	
              (a)

            	
              
                Ten
      thousand dollars ($10,000) per Target upon the earlier of (a) validation
      by MERCK in a mouse model that the Target confirms the role of the
      licensed Novel Obesity-related Gene; or (b) at the end of two years if
      MERCK is pursuing validation in a mouse model that the Target confirms the
      role of the selected Novel Obesity-related Genes. Research Milestone 3
      shall be payable by MERCK only once per Novel Obesity-related
      Gene.

              

            

    

     

    
      	
               
      

            	
              (b)

            	
              
                One
      hundred thousand dollars ($100,000) per Target entering HTS by or on
      behalf of MERCK.

              

            

    

     

    
      	
               
      

            	
              (c)

            	
              
                Two
      hundred fifty thousand dollars ($250,000) per Target
      for a Product Initiated into a Phase I Clinical
    Trial.

              

            

    

     

    MERCK
shall notify ZNOMICS in writing within thirty (30) days following the
achievement of each of Research
Milestones 3, 4, and 5. MERCK shall make the appropriate Research Milestone
payments within thirty (30) days after the achievement of such Research
Milestones.

     

    
      
        
        

      

      
        13

        
          

        

      

      
        
        

      

    

     

    
      The
Research Milestone payments pursuant to this Section 5.4 shaH be payable only
upon the initial achievement of such Research Milestone for each Target and no
amounts shall be due hereunder for subsequent or repeated achievement of such
Research Milestone for that Target.

       

    

    6.           REPRESENTATIONS
AND WARRANTIES

     

    6.1           Representations and
Warranties

     

    ZNOMICS
represents and warrants to MERCK that as of the date of this
Agreement:

     

    (a)           to
the best of ZNOMICS's knowledge, the Patent Rights and ZNOMICS Know- How exist
and are not invalid or unenforceable, in whole or in part;

     

    (b)           it
has the full right, power and authority to enter into this Agreement, to perform
the Research and to grant the licenses granted under Article 3
hereof;

     

    (c)           it
has not previously assigned, transferred, conveyed or otherwise encumbered its
right, title and interest in Patent Rights or ZNOMICS Know-How;

     

    (d)           to
the best of ZNOMICS's knowledge, it is the sale and exclusive owner of the
Patent Rights and ZNOMICS Know-How, all of which are (and shall be, in the case
of ZNOMICS Information and Inventions) free and clear of any liens, charges and
encumbrances, and no other person, corporate or other private entity, or
governmental entity or subdivision thereof, has or shall have any claim of
ownership whatsoever with respect to the Patent Rights and ZNOMICS
Know-How;

     

    (e)           to the
best of ZNOMICS's knowledge, the exercise of the license granted to MERCK to the
Novel Obesity-related Genes under the Patent Rights and ZNOMICS Know-How,
including without limitation the development, manufacture, use, sale and import
of Compound and Products do not interfere with or infringe any intellectual
property rights owned or possessed by any Third Party; and

       

    

    (f)           there
are no claims, judgments or settlements against or owed by ZNOMICS and no
pending or threatened claims or litigation relating to the Patent Rights and
ZNOMICS Know-How.

     

    7.           PATENT
PROVISIONS

     

    7.1           Filing, Prosecution and
Maintenance of Patents

     

    7.1.1  For Novel
Obesity-related Genes for which (a) MERCK has obtained an exclusive
license; or (b) MERCK directs ZNOMICS in writing to file a patent application,
ZNOMICS agrees to file, prosecute and maintain in Major Market Countries, or
other countries upon the mutual written agreement of the Parties, at MERCK's
reasonable cost and expense and upon appropriate consultation with MERCK, the
Patent Rights under this Agreement ("Funded Patent Rights"); provided, however, that with
respect to Joint Information and Inventions, MERCK shall have the first right to
file patent applications. With respect to ZNOMICS Information and Inventions
that are not Funded Patent Rights, ZNOMICS may elect not to file and if
so,

     

    
      
        
        

      

      
        14

        
          

        

      

      
        
        

      

    

     

    ZNOMICS
shall notify MERCK and MERCK shall have the right to file such patent
applications. In such event, ZNOMICS shall execute such documents and perform
such acts at ZNOMICS's expense as may be reasonably necessary to effect an
assignment of such Patent Rights to MERCK in a timely manner to allow MERCK to
continue such prosecution or maintenance. In each case, the filing Party shall
give the non-filing Party an opportunity to review the text of the application
before filing, shall consult with the non-filing Party with respect thereto, and
shall supply the non-filing Party with a copy of the application as filed,
together with notice of its filing date and serial number. ZNOMICS shall keep
MERCK advised of the status of the actual and prospective patent filings and,
upon MERCK's request, shall provide advance copies of any papers related to the
filing, prosecution and maintenance of such patent filings. ZNOMICS shall
promptly give notice to MERCK of the grant, lapse, revocation, surrender,
invalidation or abandonment of any Funded Patent Rights for which ZNOMICS is
responsible for the filing, prosecution and maintenance.

     

    7.1.2 For any
Novel Obesity-related Gene that MERCK has licensed on a non-exclusive
basis, MERCK shall not be required to reimburse ZNOMICS for the preparation,
filing, prosecution and maintenance of such Patent Rights unless MERCK elects to
exercise its Exclusive Option for such
Novel Obesity-related Gene or unless MERCK direct ZNOMICS in writing to
file a patent application, in which case the provisions of Section 7.1.1 shall
apply.

     

    7.1.3 MERCK
shall cease payment for the preparation, filing, prosecution and maintenance of
Funded Patent Rights upon expiration or termination of
(a) the corresponding exclusive license for any Novel Obesity-related Gene; or
(b) the corresponding non-exclusive license regarding which MERCK has directed
ZNOMICS to file patent protection.

       

    

    7.1.4 Upon the granting of a
non-exclusive license for Funded Patent Rights by ZNOMICS to a Third Party,
ZNOMICS shall reimburse MERCK the pm-rata share of the preparation, filing,
prosecution and maintenance of such Funded Patent Rights.

     

    7.1.5 MERCK, at its sale
discretion, may, upon reasonable advance notice to ZNOMICS, cease payment for
the preparation, filing, prosecution and maintenance of Funded Patent Rights for
any
Novel Obesity-related Genethat MERCK has not licensed on an exclusive
basis. In such event, ZNOMICS shall have the right to continue the preparation,
filing, prosecution and maintenance of Funded Patent Rights at its own cost and
expense, or to discontinue such activities.

     

    7.2           Option of MERCK to Prosecute
and Maintain Patents

     

    ZNOMICS
shall give notice to MERCK of any desire to cease prosecution and/or maintenance
of Funded Patent Rights on a country by country basis in the Territory and, in
such case, shall permit MERCK, in its sole discretion, to continue prosecution
or maintenance of such Patent Rights at its own expense. If MERCK elects to
continue prosecution or maintenance or to file based on ZNOMICS's election not
to file pursuant to Section 7.1 above, ZNOMICS shall execute such documents and
perform such acts at ZNOMICS's expense as may be reasonably necessary to effect
an assignment of such Funded Patent Rights to MERCK in a timely manner to allow
MERCK to continue such prosecution or maintenance.

     

    7.3           Interference,
Opposition, Reexamination and Reissue

     

    For
Funded Patent Rights,

     

    
      
        
        

      

      
        15

        
          

        

      

      
        
        

      

    

     

    (a)           ZNOMICS
shall, within ten (10) days of learning of such event, inform MERCK of any
request for, or filing or declaration of, any interference, opposition, reissue
or reexamination relating to Funded Patent Rights. MERCK and ZNOMICS shall
thereafter consult and cooperate fully to determine a course of action with
respect to any such proceeding. MERCK shall have the right to review and approve
any submission to be made in connection with such proceeding.

     

    (b)           ZNOMICS
shall not initiate any reexamination, interference or reissue proceeding
relating to Funded Patent Rights without the prior written consent of MERCK,
which consent shall not be unreasonably withheld.

     

    (c) In
connection with any interference, opposition, reissue, or reexamination
proceeding relating to Funded Patent Rights, MERCK and ZNOMICS will cooperate
fully and will provide each other with any information or assistance that either
may reasonably request. ZNOMICS shall keep MERCK informed of developments in any
such action or proceeding, including, to the extent permissible by law,
consultation on and approval of any settlement, the status of any settlement
negotiations and the terms of any offer related thereto.

     

    (d)           ZNOMICS
shall bear the expense, if ZNOMICS elects to engage in such proceedings, of any
interference, opposition, reexamination, or reissue proceeding relating to
Funded Patent Rights. ZNOMICS shall inform MERCK of its decisions on such
proceedings promptly after the decisions are made. MERCK may elect to bear the
expense of engaging in any interference, opposition, reexamination or reissue
proceeding relating to Funded Patent Rights if ZNOMMICS elects not to engage in
such proceedings.

     

    7.4           Enforcement and
Defense

     

    (a)           For
Funded Patent Rights, ZNOMICS shall give MERCK notice of either (i) any
infringement of Funded Patent Rights, or (ii) any misappropriation or misuse of
ZNOMICS Know-How, that may come to ZNOMICS's attention. MERCK and ZNOMICS shall
thereafter consult and cooperate fUlly to determine a course of action,
including but not limited to the commencement of legal action by either or both
MERCK and ZNOMICS. to terminate any infringement of Funded Patent Rights or any
misappropriation or misuse of ZNOMICS Know-How. However, ZNOMICS. upon notice to
MERCK, shall have the first right to initiate and prosecute such legal action at
its own expense and in the name of ZNOMICS and MERCK, or to control the defense
of any declaratory judgment action relating to Funded Patent Rights or ZNOMICS
Know-How. ZNOMICS shall promptly inform MERCK if it elects not to exercise such
first right and MERCK shall thereafter have the right to either initiate and
prosecute such action or to control the defense of such declaratory judgment
action in the name of MERCK and, if necessary, ZNOMICS. Each Party shall have
the right to be represented by counsel of its own choice.

     

    (b)           
In the event that ZNOMICS elects not to initiate and prosecute an action as
provided in paragraph (a), and MERCK elects to do so, the costs of any
agreed-upon course of action to terminate infringement of Funded Patent Rights
or misappropriation or misuse of ZNOMICS Know-How, including without limitation
the costs of any legal

    

    
      
        
        

      

      
        16

        
          

        

      

      
        
        

      

    

     

    action
commenced or the defense of any declaratory judgment, shall be shared equally by
ZNOMICS and MERCK.

     

    (c)           For
any action to terminate any infringement of Funded Patent Rights or any
misappropriation or misuse of ZNOMICS Know-How, in the event that MERCK is
unable to initiate or prosecute such action solely in its own name, ZNOMICS will
join such action voluntarily and will execute and cause its Affiliates to
execute all documents necessary for MERCK to initiate litigation to prosecute
and maintain such action. In connection with any action, MERCK and ZNOMICS will
cooperate fully and will provide each other with any information or assistance
that either may reasonably request. Each Party shall keep the other informed of
developments in any action or proceeding, including, to the extent permissible
by law, consultation on and approval of any settlement, the status of any
settlement negotiations and the terms of any offer related thereto.

     

    (d)           Any
recovery obtained by either or both MERCK and ZNOMICS in connection with or as a
result of any action contemplated by this Section, whether by settlement or
otherwise, shall be shared in order as follows:

     

    (i) the
Party which initiated and prosecuted the action shall recoup all of its costs
and expenses incurred in connection with the action;

     

    (ii) the
other Party shall then, to the extent possible, recover its costs and expenses
incurred in connection with the action; and

     

    (iii) the
amount of any recovery remaining shall then be allocated between the Parties on
a pro rata
basis taking into consideration the relative economic losses suffered by each
Party.

     

    (e)           ZNOMICS
shall inform MERCK of any certification regarding any Patent Rights it has
received pursuant to either 21 U.S.C. §§355(b)(2)(A}(iv) or U)(2)(A)(vii)(IV) or
its successor provisions, or any similar provisions in a country in the
Territory other than the United States, and shall provide MERCK with a copy of
such certification within five (5) days of receipt. ZNOMICS's and MERCK's rights
with respect to the initiation and prosecution of any legal action as a result
of such certification or any recovery obtained as a result of such legal action
shall be as defined in paragraphs 7.4 (a)-(d) hereof; provided, however, that
ZNOMICS shall exercise its first right to initiate and prosecute any action and
shall inform MERCK of such decision within ten (10) days of receipt of the
certification, after which time MERCK shall have the right to initiate and
prosecute such action. Regardless of which Party has the right to initiate and
prosecute such action, both Partjes shall, as soon as practicable after
receiving notice of such certification, convene and consult with each other
regarding the appropriate course of conduct for such action. The non-initiating
Party shall have the right to be kept fully informed and participate in
decisions regarding the appropriate course of conduct for such action, and the
right to join and participate in such action.

     

    7.5           Patent Term
Restoration

     

    The
Parties hereto shall cooperate with each other, including without limitation to
provide necessary information and assistance as the other Party may reasonably
request, in obtaining patent term restoration or supplemental protection
certificates or their equivalents in any country in the Territory where
applicable to Funded Patent Rights. In the event that elections
with

     

    
      
        
        

      

      
        17

        
          

        

      

      
        
        

      

    

     

    8.           TERM
AND TERMINATION

     

    8.1           Term and
Expiration

     

    
      This
Agreement shall be effective as of the Effective Date and unless terminated
earlier pursuant to Sections 8.2 or 8.3.1 below, this Agreement shall continue
in effect until the later of (i) the last to
expire of the Patent Rights; or (ii) on a Novel Obesity-related Gene by Novel
Obesity-related Gene basis for five (5) years after exercise by MERCK of a
Non-Exclusive Option or Exclusive Option for such Novel Obesity·retated Gene
pursuant to Section 3.2. Upon expiration of this Agreement, MERCK's licenses
pursuant to Section 3
and 3.3.2
shall become fully paid··up, perpetual licenses.

    

     

    8.2           Termination by
MERCK

     

    Notwithstanding
anything contained herein to the contrary, MERCK shall have the right to
terminate this Agreement in its entirety or on a
Novel Obesity-Related Gene by Novel Obesity-related Gene basis at any
time following twelve (12) months after the Effective Date in its sale
discretion by giving ninety (90) days' advance written notice to ZNOMICS. No
later than thirty (30) days after the effective date of such termination, each
Party shall return or cause to be returned to the other Party all Information in
tangible form received from the other Party and all copies thereof; provided,
however, that MERCK may retain any Information reasonably necessary for MERCK's
continued practice under any Iicense(s) which do not terminate pursuant to this
Section, and each Party may keep one copy of Information received from the other
Party in its confidential files for record purposes. In the event of termination
under this Section 8.2: (i) MERCK shall pay all amounts then due and owing as of
the termination date and MERCK shall not be obligated to pay any license fees
that would be payable after such termination; and (ii) except for the surviving
provisions set forth in Section 8.4 hereof, the rights and obligations of the
parties hereunder shall terminate as of the date of such termination; provided,
however, that MERCK shall have a fUlly paid-up non-exclusive license to use
ZNOMICS Information and Inventions and ZNOMICS' interest in Joint Information
and Inventions for research purposes only.

     

    8.3           Termination for
Cause

     

    8.3.1 Cause for
Termination. This Agreement may be terminated at any time during the term
of this Agreement upon written notice by either Party if the other Party is in
breach of its material obligations hereunder by causes and reasons within its
control and has not cured such breach within ninety (90) days after notice
requesting cure of the breach; provided, however, that in the
event of a good faith dispute with respect to the existence of a material
breach, the ninety (90) day cure period shall be tolled until such time as the
dispute is resolved pursuant to Section 9.6 hereof.

     

    
      
        
        

      

      
        18

        
          

        

      

      
        
        

      

    

     

    licenses
pursuant to Sections 3 and 3.3.2 shall become fully paid-up, perpetual licenses
and ZNOMICS shall, within thirty (30) days after the effective date of such
termination, return or cause to be returned to MERCK all Information in tangible
form. If ZNOMICS terminates this Agreement under Section 8.3.1, MERCK's licenses
pursuant to Sections 3 and 3.3.2 shall terminate as of such termination date and
MERCK shall, within thirty (30) days after the effective date of such
termination, return or cause to be returned to ZNOMICS all Information in
tangible form and substances or compositions delivered or provided by ZNOMICS,
as well as any other material provided by ZNOMICS in any medium.

     

    8.4           Effect of Expiration or
Termination; Survival

     

    Expiration
or termination of this Agreement shall not relieve the Parties of any obligation
accruing prior to such expiration or termination. Any expiration or termination
of this Agreement shall be 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 Article 4 shall survive the expiration or
termination of this Agreement and shall continue in effect for ten (10) years
after the date of a particular disclosure of Information. In addition, the
provisions of Section 5.4 and Articles 1, 4, 6, 7, 8, and 9 (except for Section
9.2) shall survive any expiration or termination of this Agreement.

     

    9.           MISCELLANEOUS

     

    9.1           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), 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.

     

    9.2           Assignment

     

    Except as
provided in this Section 9.2, this Agreement may not be assigned or otherwise
transferred, nor may any right or obligation hereunder be assigned or
transferred, by either Party without the consent of the other Party; provided, however, that MERCK
may, without such consent, assign this Agreement and its rights and obligations
hereunder to an Affiliate or in connection with the transfer or sale of all or
substantially all of its assets related to the subject

     

    
      
        
        

      

      
        19

        
          

        

      

      
        
        

      

    

     

    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 9.2 shall be void. Any permitted assignee shall assume all assigned
obligations of its assignor under this Agreement.

     

    9.3           Severability

     

    If anyone
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.

     

    9.4           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 overnight courier), sent by
nationally-recognized overnight courier or sent by registered or certified mail,
postage prepaid, return receipt requested, addressed as follows:

     

    

     

    
      	
              If
      to Znomics, to:

            	
              Znomics,
      Inc.

            
	 
      	
              2611
      SW 3rd
      Avenue

            
	 
      	
              Suite
      200

            
	 
      	
              Portland,
      OR 97201

            
	 
      	
              Attention:
      Richard Sessions, CEO

            
	 
      	
              Facsimile
      No.:503/228-3290

            
	 
      	 
      
	
              and:

            	
              Attention:
      Steve Lieberman

            
	 
      	
              Rothwell,
      Figg, Ernst & Manbeck

            
	 
      	
              1425
      K Street, N.W.,

            
	 
      	
              Suite
      800

            
	 
      	
              Washington,
      DC 20005

            
	 
      	
              Facsimile
      No.: 202/783-6031

            

    

    

     

    

    
      
        
        

      

      
        20

        
          

        

      

      
        
        

      

    

     

    
      	
              If
      to MERCK, to:

            	
              Merck
      & Co., Inc.

            
	 
      	
              156
      E. Lincoln Highway

            
	 
      	
              Rahway,
      New Jersey 07086

            
	 
      	
              Attention:
      Tung Ming Fong, Ph.D.

            
	 
      	
              Director
      Metabolic Disorders

            
	 
      	
              Metabolic
      Disorders – Diabetes

            
	 
      	
              Facsimile
      No.: (732) 594-3337

            
	 
      	 
      
	
              And

            	
              Merck
      & Co., Inc.

            
	 
      	
              One
      Merck Drive

            
	 
      	
              P.O.
      Box 100

            
	
              With
      copy to:

            	
              Whitehouse
      Station, NJ 08889-0100

            
	 
      	
              Attention:
      Office of Secretary

            
	 
      	
              Facsimile
      No.: (908) 735-1246

            
	 
      	 
      
	
              Invoices:

            	
              Tung
      Ming Fong, Ph.D.

            
	 
      	
              Director
      Metabolic Disorders

            
	 
      	
              Metabolic
      Disorders – Diabetes

            
	 
      	
              Merck
      & Co., Inc.

            
	 
      	
              156
      E. Lincoln Highway

            
	 
      	
              Rahway,
      New Jersey 07086

            
	 
      	
              Facsimile
      No.: (732) 594-3337

            

    

    

     

    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. Any such notice
shall be deemed to have been given: (a) when delivered, if personally delivered
or sent by facsimile on a business day (or if delivered or sent on a
non-business day, then on the next business day); (b) on the business day after
dispatch, if sent by nationally-recognized overnight courier; or (c) on the
fifth (5th)
business day following the date of mailing, if sent by mail.

     

    9.5           Applicable
Law

     

    This
Agreement shall be governed by and construed in accordance with the laws of the
State of New Jersey and the patent laws of the United States, without reference
to any rules of conflict of laws or renvoi.

     

    9.6           Dispute
Resolution

     

    
      	
              9.6.1

            	
              The
      Parties shall negotiate in good faith and use reasonable efforts to settle
      any dispute, controversy or claim arising from or related to this
      Agreement or the breach thereof. If the Parties do not fully settle, and a
      Party wishes to pursue the matter, each such dispute, controversy or claim
      that is not an "Excluded Claim" shall be finally resolved by binding
      arbitration in accordance with the Commercial Arbitration Rules
      and

            

    

     

    
      
        
        

      

      
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    Supplementary
Procedures for Large Complex Disputes of the American Arbitration Association
("AAA"), and judgment on the arbitration award may be entered in any court
having jurisdiction thereof.

     

    
      	
              9.6.2

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

            

    

     

    
      	
              9.6.3

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

            

    

     

    
      	
              9.6.4

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

            

    

     

    
      	
              9.6.5

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

            

    

     

    
      	
              9.6.6

            	
              As
      used in this Section, the term "Excluded Claim" shall
      mean a dispute, controversy or claim that concerns (a) the validity or
      infringement of a patent, trademark or copyright; or (b) any antitrust,
      anti-monopoly or competition law or regulation, whether or not
      statutory.

            

    

     

    9.7           Entire Agreement;
Amendments

     

    This
Agreement contains the entire understanding of the Parties with respect to the
Research and the licenses granted hereunder. Any other express or implied
agreements and understandings, either oral or written, with regard to the
Research or the licenses granted hereunder are superseded by the terms of this
Agreement. The Parties expressly agree that the Fee for Service Agreement dated
December 20, 2004 for the characterization of zebrafish by ZNOMICS on behalf of
MERCK shall remain in full force and effect and is not superceded by this
Agreement. This Agreement may be amended, or any term hereof modified, only by a
written instrument duly executed by authorized representatives of both Parties
hereto.

    

    
      
        
        

      

      
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    9.8           Headings

     

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

     

    9.9           Independent
Contractors

     

    It is
expressly agreed that ZNOMICS and MERCK shall be independent contractors and
that the relationship between the Parties shall not constitute a partnership,
joint venture or agency. Neither ZNOMICS 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.

     

    9.10
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.

     

    9.11
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.

     

    9.12 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.

     

    9.13
Counterparts

     

    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.

     

    IN WITNESS WHEREOF, the
Parties have executed this Agreement as of the date first set forth
above.

    

    
      
        
        

      

      
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              MERCK
      & CO., INC.

            	
              ZNOMICS,
      INC.

            
	 
      	 
      
	
              BY:
      _________________________

            	
              BY:
      /s/ Richard
  Sessions

            
	 
      	 
      
	
              TITLE:

            	
              TITLE:
      Chief Executive Officer

            
	 
      	 
      
	
              DATE:
      27-OCT-2005

            	
              DATE:
      October 4,
  2005

            

    

    

     

    

     

    
      
        
        

      

      
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    SCHEDULES

     

    

     

    SCHEDULE
1.27    PATENT
RIGHTS

    (This
schedule is blank at the date and time of execution of this
agreement.)

    

     

    SCHEDULE
2.1   RESEARCH

     

    Znomics
Work Plan

     

    Scientific
Rationale

     

    
      Obesity
is a major disease area with few good therapeutics available. Likewise, type II
diabetes is a chronic debilitating disease that has increased dramatically in
incidence, and that is in need of better therapeutics. Obesity and diabetes are
complex metabolic dosiorders that cannot be modeled well in cell culture. Thus,
identification of novel drug targets for this class of disorders might be
facilitated by the use of in
vivo model systems. The zebrafish is an ideal organism because 1) Znomics and
others have recently demonstrated that several of the central components of the
adipostat appear to be conserved and functionally involved in energy regulation
in the zebrafish (see Song et aI., below) and 2) genetic methods developed
specifically for the zebrafish allow scientists to perform whole genome forward
mutagenesis, thus enabling the identification of genes involved in defined
physiological processes. The AGRP gene is the gene most potently upregulated by
fasting and decreasing leptin levels. Thus, regulation of this gene is an
outstanding marker for factors that impact upon the adipostat and the ability of
the adipostat to sense metabolic state. Znomics is capable of implementing
efficient refroviral­mediated mutagenesis and rapid gene recovery in the
zebrafish.

    

     

    Objective

     

    
      Research
Collaboration Agreement between Merck and Znomics under which Znomics will
identify and characte11ze potential novel drug targets for obesity and type II
diabetes using zebrafish intellectual property for and on behalf of
Merck.

    

     

    
      
        
        

      

      
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      Scientific Plan and
Research Strategy

    

    
      
        

        I.
Cloning and Characterization of the Zebrafish AGRP Gene(completed)

         

        Znomics
has aleady cloned the zebrafish AGRP gene, and demonstrated that this gene is l)
expressed specifically in the tuberal nucleus of the fish brain (arcuate
nucleus), and 2) is regulated by metabolic state. Thus, an assay based upon
eithcr the basal or fasting-induced upregulation of hypothalamic AGRP mRNA would
identify genes involved in several aspects of this critical circuit requircd for
energy homeostasis.

         

        2.
Development of a recessive screen for genes supporting AGRP expressionlj'unction
by Znomics

         

        Haploid
zebrafish can be created by fertilization of eggs with irradiated sperm, and
develop normally for several days. Znomics has already demonstrated that normal
AGRP mRNA expression is seen in the tuberal nucleus of 2-3 day-old haploid fish
(fish become free-living and free-feeding at day 3-5 post-feltilization).
Additionally, Znomics is currently testing diploid matemal homozygote fish
(created by application of early pressure after fertilizaiton) for
fasting­induced upregulation of AGRP.

         

        3. Screening

         

        Znomics'
Library is a viral insertional library of zebrafish in which every gene is
mutated by viral inseltion. If a gene is involved in the POMC-AGRP pathway,
disruption of that gene by the viral insertion is expected to alter the AGRP
expression level. An AGRP whole mount in situ hybridization will be used to
screen the ZeneMark library to identify genes that are involved in the ACRP
pathway.

         

        Once female fish from the ZeneMark library have matured (8-10 weeks),
their eggs will harvested, fertilized with inadiated sperm to create haploid
fish, or fertilized and subjected to early pressure treatment, creating diploid
embryos homozygous for the retroviral insertions,. Screening will be done by several technicians
using whole mount in situ hybridization with digoxygenin-labelled AGRP
anti-sense probe and standard fluorescence microscopy to identify mutants with
perturbations in basal or fasting-induced AGRP expression. Identifying disrupted
genes that affect AGRP can then be done by performing a Southern blot on the
clutch of embryos. When probed with labeled viral DNA, those embryos with the
mutant phenotype will have one band in common that the non--phenotypic embryos
do not have (i.e., the phenotype is linked to the band). <?xml:namespace prefix = o ns
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        26

        
          

        

      

      
        
        

      

    

    
       

    

    
      
        1)  Cloning
of the linked retroviral insert then takes 1-2 weeks on
average.

      

       

      2) Outbreeding
the injected founder female to a wild type zebrafish can make stable lines of
those retroviral insertions that disrupt AGRP expression. These lines will then
be further characterized to discern the biological/physiological role of the
disrupted genes.

       

      In
parallel with the AGRP in situ hybridization screen, a second phenotypic screen
of the ZeneMark Library is being developed which is based on Nile Ted staining
of fat tissues of each founder fish. Validation on the quantitative aspect of
the fat staining is on-going. Upon reaching the Research Milestone 1 (see
agreement), the Nile red staining will be incorporated in the ZeneMark Library
screening. It
is expected that such a phenotypic screen will ensure the identification
of obesity-related genes that may not modulate AGRP expression.

       

      4.
Analysis of screening data and follow-up studies

       

      Upon (a)
completion of screening the ZeneMark Library; (b) isolating and cloning of all
positive identity genes in the library and (c) breeding of stable zebrafish that
containing the disrupted positive identity gene, Znomics will carry out genetic
pathway analysis, and confirmation of genes identified. These studies will
answer whether the zebrafish genes have mammalian homo logs, whether the genes
are blown obesity genes, and whether the genes have known
functions.

       

      Znomics
will send a research report containing a summary of the screening data, a list
of Positive Identity Genes, the follow up analysis of Positive Identity Genes,
and a list of Novel Obesity ­related Genes (documentation for Research
Milestone 2).

       

      4.
Research at A1erck

       

      Upon
evaluation of the list of Novel Obesity-related Genes, Merck may decide to
further validate the gene, studying knock out mice of the Novel Obesity-related
Gene to document whether the disl1lption of the gene in a KO mouse model will
lead to an obese or lean phenotype in homozygous mice that is significantly
different from wild type litter mates (Research Milestone 3).

    

     

    
      
        
        

      

      
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    Bibliography

     

    
      Golling
et aI., Insertional mutagenesis in zebrafish rapidly identifies genes essential
for vertebrate development. Nature Genetics 31,135-140,2002.

       

      In
this manuscript, Greg Golling, now a senior scientist at Znomics, first
demonstrated on a large scale the power of the retroviral insertional
mutagenesis system by identifying close to 500 genes involved in development,
and rapidly cloning 75 of those genes. Znomics can now apply this procedure to
identification of disease genes and drug targets. Dr. Galling would be a likely project leader for such a
collaboration.

       

      Song
et aI., Agouti-Related Protein (AGRP) Is Conserved and Regulated by
Metabolic State in the Zebrafish, Dllnio
rerio

       

      This
manuscript demonstrates that AGRP is conserved in the zebrafish and is
upregulated by fasting. Furthermore, this manuscript serves as the basis for the
forward genetic analysis of AGRP signaling, since it demonstrates that whole
mount
in situ hybridization can be readily used to characterize AGRP expression
with a low false negative rate.

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