Document:

ex10x12.htm

Exhibit 10.12

 

 

 

PARTICIPATION AGREEMENT

 

This Participation Agreement (hereinafter "Agreement") is made and entered into effective November 1, 2013, by and between PetroShare Corp., hereinafter referred to as "PetroShare", and LLOCO L.L.C. ("Participant").

 

RECITALS:

 

A. PetroShare has acquired certain oil and gas leases described on. Exhibit "A" and Exhibit "B", attached hereto ("Existing Leases").

 

B. Participant wishes to participate with PetroShare in the drilling and development of the Leases pursuant to the provisions of this Agreement.

 

Now therefore, the parties hereto, for the mutual promises contained herein and other good and valuable consideration, the sufficiency of which is hereby acknowledged, do hereby contract and agree as follows:

 

I.  DEFINITIONS

 

 

	
1. 

	
Effective Date:  The Effective Date is November 1, 2013.

	
2. 

	
Existing Leases: The oil and gas leases on Exhibit "A" and "B", attached hereto, which includes the acreage required for the drilling of the Obligation Well.

	
3. 

	
Obligation Wells: The wells will be drilled from a common well pad on Exhibit A leases, and will be the Kowach #3-25 well, located in NESW Section 25, T6N R90W, a vertical well bore and the Voloshin #3-25 well, located in NESW Section 25, T6N R90W; directional well bore to test the Niobrara formation at approximately, 7855 feet TVD. Upon reaching total depth in the first Obligation Well and upon the completion of mud logging and open hole logging operations, PetroShare will provide such data to all JOA working interest participants along with its well evaluation report. Participant(s) shall have forty eight (48) hours from the receipt of the data to make its election whether to proceed with the drilling of the second Obligation Well. In the event a simple majority of JOA participants elect not to proceed with the drilling of the second Obligation Well, PetroShare shall release the rig and waive the requirement to drill the second Obligation Well.

	
4. 

	
Operator:

 

	
a)

	
PetroShare Corp or its successor, as to Exhibit A leases only

	
b)

	
Quicksilver Resources, Inc. or its successor, as to Exhibit B leases only

 

	
5.

	
Operating Agreement(s):

 

	
a)

	
Sec 25 Operating Agreement: The joint operating agreement, covering lands listed in Exhibit A only and attached hereto as Exhibit "D"

 

 

1

 

 

	
b)

	
Quicksilver Operating Agreement: The joint operating agreement, covering lands listed in Exhibit B only and attached hereto as Exhibit "E".

	
7. 

	
Participant Interest:  A pro rata Working Interest in the Leases and Obligation Wells of 25.0000%, having a net revenue interest of not less than 19.575% in Exhibit A Leases and a 25.0000% Interest of PetroShare's Net Working Interest having a net revenue interest proportionately reduced to not less than 20.000% of 8/8ths in Exhibit B Leases, as calculated on a weighted average basis.

	
8. 

	
Working Interest:  The cost bearing interest created by oil and gas leases.  Working Interest may also refer to the share of ownership attributable to an unleased mineral interest.

	
9. 

	
Net Revenue Interest: The share of the gross production proceeds.

	
10. 

	
Project Area: Shall be any area(s) covering the Existing Leases in which there is ongoing operations including but not limited to; leasing, drilling and completion operations; seismic operations, active producing wells.

II. PROSPECT FEE

 

A.      PaymentofProspect Fee.Participant shall pay an aggregate prospect fee to PetroShare upon the execution of this Agreement equal to the sum of $187,500 ("Prospect Fee").

 

III.  DRILLING AND DEVELOPMENT.

 

A.  Obligation Wells. Participant agrees to pay for its Participant Interest share of the drilling, completion and equipping, or the plugging and abandonment, of the Obligation Wells. PetroShare shall use its commercially reasonable efforts to commence the drilling of the first Obligation Well by December  l, 2013.

 

B.  Interests Earned.  Upon Participant paying the Prospect Fee, together with its share of the costs for the drilling, completion and equipping, or the plugging and abandonment of an Obligation Well(s), Participant shall be assigned an undivided interest in and to the Existing Leases equal to Participant's Interest of PetroShare's interest in the Existing Leases as to the Leases listed on Exhibit A & B attached hereto and as to all depths. All assignments will be subject to all royalties, overriding royalties, production payments, net profits interests and similar burdens existing as of the date hereof.

 

C.  Subsequent Drilling and Development Operations. After drilling and completion of the Obligation Well(s), all subsequent wells ("Subsequent Wells") and subsequent operations shall be proposed in accordance with the applicable Operating Agreement and the provisions of this Agreement, with the Participant being responsible for its Participant Interest, shall be subject to any elections to not participate under such Operating Agreement.

 

 

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IV.  OPERATIONS WITHIN PROJECT AREA

 

A.     Operating Agreement. All operations within the Project Area shall be conducted pursuant to the applicable Operating Agreement governing the Existing Leases, as the case may be, ("Operating Agreement"), reference to which is hereby made for all purposes, except as expressly modified by the terms hereof. In the event of a conflict between this Agreement and the applicable Operating Agreement, this Agreement shall control.

 

B.     Cash Advances.   Notwithstanding anything  in the  Operating  Agreement(s)  to  the contrary, PetroShare shall have the right to require cash advances from Participant with respect to the proposed drilling and completion of one or more Obligation Wells. Such request shall be in the form of one or more Authorities for Expenditure {"AFEs") and payment shall be due within 20 days following receipt of the AFEs. Provided however that such AFE's shall not be issued by PetroShare more than 30 days in advance of the confirmed spud date (i.e. drilling commencement date) of the applicable Obligation Well(s).

 

V.  PROPORTIONATE REDUCTION

 

A.      Proportionate Reduction Clause:  Ifan oil and gas lease or other Mineral Interest covers less than the entire mineral fee estate, or if a party's interest in the applicable lease or Mineral Interest is less than a 100% ownership interest, any interest conveyed or reserved pursuant to this Agreement is intended to be proportionately reduced to accord to (i) the proportion of mineral interest covered by the relevant oil and gas lease or other Mineral Interest, and (ii) the proportion of ownership held by the conveying party, in the case of a conveyance, or the burdened party, in the case of a reservation of interest. However, such proportionate reduction shall not reduce Participant's Working Interest or Net Revenue Interest in the Existing Leases as a whole.

 

VI.  CONFIDENTIALITY

 

A.  Confidentiality. The parties acknowledge that the information that is the subject matter of this Agreement (including but not limited to all well information acquired by operations conducted under the Operating Agreement(s)) is sensitive and confidential proprietary information belonging to the parties.  Each party, for itself and its Affiliates, agrees not to release or disclose or otherwise make the information available to or to furnish any of said information to any third party without (i) obtaining the agreement of the third party to maintain such information confidential and to not use such information other than in connection with investing in or participating with or purchasing interests from the disclosing party, or (ii) first obtaining the express written consent of the other party. Any such release or disclosure if approved shall be conditioned upon the third party expressly agreeing to all terms herein and becoming a party to and subject to a Confidentiality Agreement. Nothing contained above shall restrict or impair any party's right to use or disclose any of the information which is: (1) at the time of disclosure available to the public through no act or omission of that party; (2) can be shown was lawfully in that party's possession prior to the time of this  Agreement; or (3) is independently made available to that party by a third party who is independently entitled to disclose such information and that party shows that the right of such third party to disclosure existed prior to the date of this Agreement. Also, nothing contained above shall restrict Participant from providing production results to its investors or lending institutions for the purposes of financing.

 

3

 

 

B.  Public Disclosure. Subject to the exceptions set forth below, and unless otherwise agreed upon by the parties, the parties intend to keep material information concerning the entering into of this Agreement and the location of the Project Area confidential to the extent any disclosure thereof could impair the ongoing activities of the parties. Notwithstanding such intent, either party may make any public disclosure to the extent that, upon advice of such party's counsel, such disclosure is advisable to comply with United States or state securities laws, rules or regulations. Any proposed press release or other disclosure, shall be provided to the other party in advance on a confidential basis for its information and comment.

 

VII.  TAX ELECTION

 

This Agreement is not intended to create, and shall not be construed to create, a relationship of partnership or an association for profit between or among the parties hereto except as provided herein. Each party hereby affected elects to be excluded from the application of all the provisions of Subchapter "K", Chapter 1, Subtitle "A", of the Internal Revenue Code of 1986 and all amendments thereto.

 

VIII. PAYMENT OF DELAY RENTALS AND LEASE EXTENSIONS

 

Operator shall be responsible for making any payment of delay rentals, shut in royalties and minimum royalty payments on the Leases. Participant shall bear and pay its share of such payments. Participant shall be billed and shall pay for said costs in the manner set forth for the billing and paying of direct costs in the COPAS accounting procedures attached to the applicable Operating Agreement. Operator shall not be liable to Participant for any loss resulting from a good faith effort to properly do so.

 

IX.  NO JOINT LIABILITY

 

The rights, duties, obligations and liabilities of the parties hereto shall be several and not joint or collective. Each party hereto shall be responsible only for its obligations as herein set out and shall be liable only for its share of the cost and expense as herein provided; it being the express purpose and intention of the parties that their interest in this Agreement and the rights and property acquired in connection herewith shall be held by them as tenants in common. Except for the tax election which the parties may have made, it is not the purpose or intention of this Agreement to create any mining partnership, commercial partnership or other partnership.

4

 

 

X.  ASSIGNMENTS OF LEASES

 

Any assignment of any interest pursuant to this Agreement by and between the parties hereto shall be made with a special warranty of title by through and under the assignor, but not otherwise and on the form attached hereto as Exhibit "C" which shall be for recording in the official records of the county in which the Lease lies. Where applicable, separate assignments of operating rights shall likewise be made on such State and Federal forms as required by rule or regulation. Any assignment hereafter executed shall specifically refer to, and be made subject to, the terms and conditions hereof, and shall convey a working interest equal to the Participant Interest.

 

XI.  FORCE MAJEURE

 

Should any party be prevented or hindered from complying with any obligation created hereunder, other than the obligation to pay money, by reason of fire, flood, storm, act of God, governmental authority, governmental action or inaction, failure or delay in obtaining any necessary permits, labor disputes, war, the inability to secure qualified labor, geoscience data, title abstracts, curative title work, lease brokers, entry onto the land, drilling equipment and drilling rig(s) at prevailing market rates, drilling tools, materials or transportation, or any other cause not enumerated herein but which is beyond the normal control of the party whose performance is affected, then the performance of any such obligation shall be suspended during the period of such prevention  or hindrance, provided  the affected party promptly notifies the other party of such force majeure circumstances and exercises all reasonable diligence to remove the cause of force majeure.

 

XII. EXHIBITS

 

The following exhibits are attached to this Agreement:

 

Exhibit "A" - Sec 25 Leases 

Exhibit "B" - Quicksilver Leases 

Exhibit "C" - Form of Assignment

Exhibit "D" - Sec 25 Operating Agreement 

Exhibit "E" - Quicksilver Operating Agreement

 

If the terms of any of these Exhibits conflict with the terms of this Agreement, this Agreement shall control.

 

XIII.  MISCELLANEOUS

 

A.  Assignment: Participant may assign its interest under this Agreement provided that Participant remains liable for or guarantees the performance of its assignee and provided Participant gives PetroShare appropriate documentation evidencing such assignment.

 

B.      Governing Law: This Agreement and other instruments executed in accordance with it, except for assignments of lands, or the execution hereof shall be governed by and interpreted according to the laws of the State of Colorado. Forum and venue shall be exclusively in Denver, Colorado. As to assignments of lands, they shall be governed by the laws of the State wherein they lie.

 

5

 

C.     Entire Agreement: This Agreement, the documents to be executed hereunder, and the Exhibits attached hereto constitute the entire agreement between the parties, supersedes all prior agreements, understandings, negotiations and discussions, whether oral or written, of the parties, and there are no warranties, representations or other agreements

D.     Waiver: No waiver of any of the provisions of the Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar), nor shall such waiver constitute a continuing waiver unless otherwise expressly provided.

E.     Captions; Definition of "Including": The captions in this Agreement are for convenience only and shall not be considered a part of or affect the construction or interpretation of any provision of this Agreement. The term "including  or "includes", as used herein, shall mean "including, without limitation," and "includes, without limitation".

F.     Binding: This Agreement shall be binding upon and inure to the benefit of the parties hereto and their respective permitted successors, assigns and legal representatives.

G.     Notices: Any notice hereunder shall be given in writing by mail, courier, personally, E­ mail or by facsimile and shall be effective when delivered to the party intended to be notified. The contact information for each party is as follows:

 

If to PetroSbare:

 

PetroShare Corp.

7200 So. Alton Way, Ste B220 

Centennial , CO 80112

Attn: Frederick J. Witsell

(303) 500-1168 Office 

(303) 770-6885 fax 

(303) 881-2157 cell

fwitsell@petrosharecoro.com

 

If to Participant:

 

LLOCO, L.L.C.

1001 Ochsner Blvd., Ste 200

Covington, LA  70433 

Attn: Judy Reimel

 

 

6

 

 

(965) 801-4348

JudyR@LLOG.com

 

 

Any party may change their foregoing contact information by notice to the other party.

H.     Expenses: Except as otherwise provided herein, each party shall be solely responsible for all expenses incurred by it in connection with this transaction (including fees and expenses of its own counsel and accountants).

I.     Execution: This Agreement may be executed in multiple original counterparts, all of which shall together constitute a single agreement and each of which, when executed, shall be binding for all purposes thereof on the executed party, its successors and assigns.

 

J.      Severability: If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by any rule of law, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any materially adverse manner to either party.

K.     Arbitration: Any dispute arising under this Agreement ("Arbitrable Dispute") shall be referred to and resolved by binding arbitration in Denver, Colorado, to be administered by and in accordance with the Commercial Arbitration Rules of the American Arbitration Association. Arbitration shall be initiated within the applicable time limits set forth in this Agreement and not thereafter or if no time limit is given, within the time period allowed by the applicable statute of limitations, by one party ("Claimant") giving written notice to the other party ("Respondent") and to the Denver Regional Office of the American Arbitration Association ("AAA"), that the Claimant elects to refer the Arbitrable Dispute to arbitration. All arbitrators must be neutral parties who have never been officers, directors or employees of the parties or any of their Affiliates, must have not less than ten (10) years' experience in the oil and gas industry, and must have a formal financial/accounting, engineering or legal education. The hearing shall be commenced within thirty (30) days after the selection of the arbitrator. The parties and the arbitrators shall proceed diligently and in good faith in order that the arbitral award shall be made as promptly as possible. The interpretation, construction and effect of this Agreement shall be governed by the Laws of Colorado, and to the maximum extent allowed by law, in all arbitration proceedings the Laws of Colorado shall be applied, without regard to any conflicts of laws principles. All statutes of limitation and of repose that would otherwise be applicable shall apply to any arbitration proceeding. The tribunal shall not have the authority to grant or award indirect or consequential damages, punitive damages or exemplary damages.

L.     Further Assurances: During the time in which this Agreement is in effect, the parties shall, at any time and from time to time, and without further consideration, execute and deliver or use reasonable efforts to cause to be executed and delivered such other instruments of conveyance and contract, and to take such other actions as either party may reasonably may request effect the intent of this Agreement.

 

 

7

 

 

 

M.     Not to be Construed Against Drafter: The parties acknowledge that they have had an adequate opportunity to review each and every provision contained in this Agreement, that they have participated equally in the drafting hereof and that they have had adequate time to submit same to legal counsel for review and comment. Based on said review and consultation, the parties agree with each and every term contained in this Agreement. Based on the foregoing, the parties agree that the rule of construction that a contract be construed against the drafter, if any, shall not be applied in the interpretation and construction of this Agreement.

 

N.      LawsandRegulations:Any reference to any federal, state, local, or foreign statute or law willbe deemed also to refer to all rules and regulations promulgated thereunder, unless the context otherwise requires.

 

O.      Third-Party Beneficiaries: This Agreement is not intended to confer any rights or remedies upon any Person other than the parties and their respective successors and permitted assigns.

 

P.       Investment Representations: Participant understands that the interests evidenced by this Agreement have not been registered under the Securities Act of 1933, the Colorado Securities Act or any other state securities laws (the "Securities Acts").

  

IN WITNESS WHEREOF, this Agreement is executed effective as of the date hereinabove provided.

 

Parties:

 

	
PETROSHARE CORP 

 

	 	LLOCO, L.L.C.	 
	By:	
/s/ Stephen J. Foley

	 	By:	
/s/ Kemberlia Ducote

	 
	Name:	
Stephen J. Foley

	 	Name:	
Kemberlia Ducote

	 
	Title:	
CEO

	 	Title:	
Secretary

	 

 

                                                                   

 

8

 

EXHIBIT A

Buck Peak Participation Agreement Leases dated November 1, 2013

 

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
BUCK PEAK LEASES AND EXPIRATION DATES

	 	 	 	 	 	 	 	 	 	NET ACRES	 	 	 	 	 	 
	
LESSOR NAME AND ADDRESS

	 	
DESCRIPTION

	 	
DATE AND TERM

	 	 	
GROSS ACRES

	 	 	
NET ACRES

	 	 CONVEYED	 	
NET REVENUE INTEREST

	 	 	
RECORDING

	 
	 	 	 	 	 	 	 	 	 	 	 	 	 10.00%	 	
to be delivered 8/8ths

	 	 	 	 
	
West Half of Section 25

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Jim F. Kowach

	 	
T6N-R90W, 6th P.M. Sec 25: W/2

	 	
10/31/2008 - 2014 6 years

	 	 	 	335.54	 	 	 	167.77	 	 16.78	 	 	78.5000	%	 	 	20104936	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Barbara Wilaby

	 	
T6N-R90W, 6th P.M. Sec 25: W/2

	 	
10/31/2011 - 2014 3 years

	 	 	 	335.54	 	 	 	167.77	 	 16.78	 	 	78.5000	%	 	 	20103288	 
	
Sub Total - Kowach / Wilaby

	 	
W/2 Section 25, T6N R90W

	 	 	100.00	%	 	 	335.54	 	 	 	335.54	 	 33.55	 	 	78.5000	%	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
East Half of Section 25

	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Mark A Voloshin, 

PO Box 981, 

Craig, CO 81626

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	52.83	 	 5.28	 	 	78.5000	%	 	 	20103153	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Betty Arnone, 

1713 South Vancouver Ct,

Lakewood, CO 80228

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1,2,7,8,9,10,15 & 16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	26.41	 	 2.64	 	 	78.5000	%	 	 	20102832	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Helen McKee, 

10436 Jacob Place, 

Littleton, CO 80125-8932

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9, 10, 15 & 16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	26.41	 	 2.64	 	 	78.5000	%	 	 	20102839	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Gary R Semro and Robert W. Semro,

6522 Trailhead Rd, 

Highlands Ranch, CO 80130

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9, 10, 15 & 16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	26.41	 	 2.64	 	 	78.5000	%	 	 	20102847	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Sharon Fitzgerald (Hebenstreit), 

337 Coronado Drive, 

Sedalia, CO 80135

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	26.41	 	 2.64	 	 	78.5000	%	 	 	20103140	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Brad Ocker (Eugena Grace Voloshin), 

9591 County Rd 33, 

Craig, CO 81625

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
5/12/2011- 2016 Five (5) Years

	 	 	 	335.61	 	 	 	8.55	 	 0.86	 	 	78.5000	%	 	 	20102856	 
	
Sub Total - Semro / Voloshin

	 	
E/2 Section 25, T6N R90W

	 	 	49.7661	%	 	 	335.61	 	 	 	167.02	 	 16.702	 	 	78.5000	%	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
BCK LLC

Charles S Keith

	 	
T6N-R90W, 6th P.M. A

ssessor's Tract # 74 Sec 25: 

Lots 1, 2, 7, 8, 9,10,15,16

	 	
2/22/2011 - 2014 3 years + 2 yr ext

	 	 	 	335.61	 	 	 	41.43	 	 4.14	 	 	77.5000	%	 	 	20111728	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Strontia springs Resources, LLC

James Keith

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
2/22/2011 - 2014 3 years + 2 yr ext

	 	 	 	335.61	 	 	 	41.43	 	 4.14	 	 	77.5000	%	 	 	20111730	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
JZTZ LLC 

Debra Ann Ziehm

	 	
T6N-R90W, 6th P.M. 

Assessor's Tract # 74 

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
2/22/2011 - 2014 3 years + 2 yr ext

	 	 	 	335.61	 	 	 	41.43	 	 4.14	 	 	77.5000	%	 	 	20111729	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
MKRESOURCES LLC

Margaret Keith

	 	
T6N-R90W, 6th P.M.

Assessor's Tract # 74

Sec 25: Lots 1, 2, 7, 8, 9,10,15,16

	 	
2/22/2011 - 2014 3 years + 2 yr ext

	 	 	 	335.61	 	 	 	26.41	 	 2.64	 	 	77.5000	%	 	 	20111731	 
	
Sub Total - Keith

	 	
E/2 Section 25, T6N R90W

	 	 	44.9075	%	 	 	335.61	 	 	 	150.71	 	 15.07	 	 	77.5000	%	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
Quicksilver Resources 

Joanie Voloshin

	 	
T6N-R90W, 6th P.M.

Assessor's Tract # 74

Sec 25: Lots 1,2,7,8,9,10,15,16

	 	 	
2/22/2011 - 2014 3 years + 2 yr ext 

	 	 	 	335.61	 	 	 	8.94	 	 0.89	 	 	82.500	% 	 	 	20111728	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	
SWEPI thru Quicksilver Resources

Joanie Voloshin

	 	
T6N-R90W, 6th P.M.

Assessor's Tract # 74

Sec 25: Lots 1,2,7,8,9,10,15,16

	 	 	
 

2/22/2011 - 2014 3 years + 2 yr ext  

	 	 	 	335.61	 	 	 	8.94	 	 0.89	 	 	81.000	% 	 	 	20111728	 
	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	
Ownership %

	 	 	
Gross Acres

	 	 	
Net Acres

	 	 	 	
NRI% Delivered

	 	 	 	 	 
	
West Half of Section 25

	 	 	 	 	100.000	%	 	 	335.54	 	 	 	335.54	 	 33.55	 	 	78.5000	%	 	 	 	 
	
East Half of Section 25

	 	 	 	 	100.000	%	 	 	335.61	 	 	 	335.61	 	 33.56	 	 	78.2247	%	 	 	 	 
	
SECTION 25 TOTAL

	 	 	 	 	100.000	%	 	 	671.15	 	 	 	671.15	 	 67.12	 	 	78.3623	%	 	 	 	 

 

 

 

 

 

EXHIBIT B -  Lease Schedule

 

LLOCO Participation Agreement effective November 1, 2013

 

	 	 	 	 	 	 	 	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 
	
LESSOR

	
LESSEE

	
DESCRIPTION

	
EFFECTIVE DATE

	
EXPIRATION DATE

	
GROSS ACRES

	
NET LEASE ACRES

	PETROSHARE NET ACRES	
NET ACRES CONVEYED

	
NET REVENUE INTEREST

	
RECORDING

	 	 	 	 	 	 	 	7.50%	
1.88%

	
to be delivered 8/8ths

	 
	
Richard J. Colby

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 21: Lots 11,14,15 & 16

Sec 22: Lots 12 & 13

Sec 27: Lots 3 & 4

Sec 28: Lot 1

	
11/20/2010

	
11/19/2015

5 yr lease, 

3 yr ext (2018)

	
369.39

	
15.40

	1.16 	
0.29

	
80.00%

	
20103284

	
David Colby

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 21: Lots 11,14,15 & 16 

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
11/20/2010

	
11/19/2015

5 yr lease, 

3 yr ext (2013)

	
369.39

	
15.40

	 1.16	
0.29

	
80.00%

	
20103286

	
Douglas Van Tassel, Diana Lynn Hamilton, Donna Lee Sweet, DeLaine Brown and Debbie Lou Van Tassel, 

PO Box 335, 

Craig, CO 81626-0335

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 35: Lots 4 & 5 

Sec 34: Lots 1,7,8,9,10,11,12,13,14,15,16

	
1/10/2011

	
1/09/2014

3 yr lease, 

3 yr ext (2017)

	
534.62

	
89.10

	 6.68	
1.67

	
80.00%

	
20103146

	
Florence Van Tassel

	
Laramie & Associates

	
T6N-R90W, 6th P.M.

Sec 35: Lots 4 & 5 

Sec 34: Lots 1,7,8,9,10,11,12,13,14,15,16

	
1/10/2011

	
1/09/2016

5 yr lease, 

3 yr ext (2019)

	
534.62

	
89.10

	 6.68	
1.67

	
80.00%

	
20103022

	 	
Buck Peak, LLC

(Lease not subjuect to 2010 

Quicksilver sale)

	
T6N-R90W, 6th P.M.

Sec 35: Lots 4 & 5 

Sec 34: Lots 1,7,8,9,10,11,12,13,14,15,16

	1/19/2012	
 1/19/2015

3 years plus 

2 year option

	 534.62	 89.10	 89.10	22.28	 80.00%	 20120379
	
Gregory J. Knez, Trustee of the Raymond M. & Hellen M. Knez Family Trust

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 19: Lots 5, 6, 11 & 12 

Sec 20: N2 less tract (see lease)

	
3/21/2011

	
3/20/2016

5 yr lease, 

3 yr ext (2019)

	
270.31

	
271.07

	 20.33	
5.08

	
80.00%

	
20103026

	
Gregory J. Knez, Trustee of the Raymond M. & Hellen M. Knez Family Trust

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 20: A tract in E 55 acres of E2NEN2 (see lease)

	
3/21/2011

	
3/20/2016

5 yr lease, 

3 yr ext (2019)

	
11.45

	
11.45

	 0.86	
0.21

	
80.00%

	
20103024

	
Marlene Henderson

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 21: Lots 11,14,15 & 16

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
3/30/2011

	
3/29/2016

5 yr lease, 

3 yr ext (2019)

	
369.39

	
15.40

	 1.15	
0.29

	
80.00%

	
20102819

	
Barbara Martin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 21: Lots 11,14,15 & 16 

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
3/30/2011

	
3/29/2016

5 yr lease, 

3 yr ext (2019)

	
369.39

	
15.40

	 1.16	
0.29

	
80.00%

	
20102820

	
Edward Rutherford

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 21: Lots 11,14,15 & 16 

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
3/30/2011

	
3/29/2016

5 yr lease, 

3 yr ext (2019)

	
369.39

	
15.40

	 1.16	
0.29

	
80.00%

	
20102821

 

 

 

 

	
Larry Rutherford

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 21: Lots 11,14,15 & 16 

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
3/30/2011

	
3/29/2016

5 yr lease, 

3 yr ext (2019)

	
369.39

	
15.40

	1.15 	
0.29

	
80.00%

	
20102822

	
Mark A Voloshin

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7, 8, 9, 10 less tract (see lease)

Sec 2: 15,16,17,18

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
333.57

	
15.41

	 1.16	
0.29

	
80.00%

	
20103150

	
Mark A Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
47.11

	 3.53	
0.88

	
80.00%

	
20103151

	
Mark A Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
24.43

	 1.83	
0.46

	
80.00%

	
20103152

	
Mark A Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessors Tract # 83 

Sec 27: Lots 5,6,10,11,12,14,15,16 

Sec 34: Lots 2,3 

less the acreage in Sec 35 and the additional lands in Sec 34

	
5/12/2011

	
5/11/2016

5 yr lease, 

2 yr ext (2018)

	
409.65

	
100.52

	 7.54	
1.88

	
80.00%

	
20103155

	
Mark A Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105

Sec 21: Lots 1,2,8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, 

2 yr ext (2018)

	
164.97

	
80.96

	 6.07	
1.52

	
80.00%

	
20103156

	
Mark A Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Assessors Tract #82 

Sec 26: Lots 4,5,6,11,12,13 & 14 

Sec 27:Lots 1,2,5,6,7,8,9,10,11,12,14,15,16

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
162.36

	 12.18	
3.04

	
80.00%

	
20103154

	
Betty Arnone

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 Less Tract (see lease) 

Sec 2: 15,16,17 & 18

	
5/12/2011

	
5/11/2016

5 yr lease, 

2 yr ext (2018)

	
333.57

	
11.56

	 0.87	
0.22

	
80.00%

	
20102829

	
Betty Arnone

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 69 

Sec 21: Lots 3, 6, 7, & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
17.59

	 1.32	
0.33

	
80.00%

	
20102830

	
Betty Arnone

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
9.16

	 0.69	
0.17

	
80.00%

	
20102831

 

 

	 	 	 	 	 	 	 	 	 	 	 
	
Betty Arnone

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, 14 

Sec 27: Lots 2, 7, 8, 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
26.04

	1.95 	
0.49

	
80.00%

	
20102833

	
Betty Arnone

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Assessor's Tract # 83 

Sec 27: Lots 5,6,10,11,12,14,15,16 

Sec 34: Lots 2,3 Less acreage (see lease)

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
409.65

	
16.12

	 1.21	
0.30

	
80.00%

	
20102834

	
Betty Arnone

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.97

	
12.98

	 0.97	
0.24

	
80.00%

	
20102835

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 less tract (see lease) 

Sec 2: 15,16,17,18

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
333.57

	
11.56

	 0.87	
0.22

	
80.00%

	
20102836

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 69 

Sec 21: Lots 3, 6, 7, & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
17.6

	 1.32	
0.33

	
80.00%

	
20102837

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
9.16

	 0.69	
0.17

	
80.00%

	
20102838

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
26.04

	 1.95	
0.49

	
80.00%

	
20102840

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
409.65

	
16.12

	 1.21	
0.30

	
80.00%

	
20102841

	
Betty Jo Lott & Michelle K. McKee

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.97

	
12.98

	 0.97	
0.24

	
80.00%

	
20102842

	
Gary R Semro and Robert W. Semro,

6522 Trailhead Rd, 

Highlands Ranch, CO 80130

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 69 

Sec 21: Lots 3, 6, 7, & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
17.59

	 1.32	
0.33

	
80.00%

	
20102845

	
Gary R Semro and Robert W. Semro

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
9.16

	 0.69	
0.17

	
80.00%

	
20102846

 

 

	 	 	 	 	 	 	 	 	 	 	 
	
Gary R Semro and Robert W. Semro

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
26.04

	 1.95	
0.49

	
80.00%

	
20102848

	
Gary R Semro and Robert W. Semro

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
409.65

	
16.12

	 1.21	
0.30

	
80.00%

	
20102849

	
Gary R Semro and Robert W. Semro

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.97

	
12.98

	 0.97	
0.24

	
80.00%

	
20102844

	
Gary R Semro and Robert W. Semro

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 Less Tract (see lease) 

Sec 2: 15,16,17 & 18

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
333.57

	
11.56

	 0.87	
0.22

	
80.00%

	
20102843

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7, 8, 9, 10 less tract (see lease) 

Sec 2: 15,16,17,18

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
333.57

	
11.56

	 0.87	
0.22

	
80.00%

	
20103144

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
17.59

	 1.32	
0.33

	
80.00%

	
20103138

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
9.16

	 0.69	
0.17

	
80.00%

	
20103139

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
26.04

	 1.95	
0.49

	
80.00%

	
20103141

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessors Tract # 83 

Sec 27: Lots 5,6,10,11,12,14,15,16 

Sec 34: Lots 2,3 less acreage 

Sec 35, (see lease)

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
409.65

	
16.12

	 1.21	
0.30

	
80.00%

	
20103142

	
Sharon A. Fitzgerald

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1,2,8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.97

	
12.98

	 0.97	
0.24

	
80.00%

	
20103143

 

 

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R103W, 6th P.M.

Sec 31: Lots 7,8,9, NESW, SE 

T6N-R90W, 6th P.M. 

Sec 14: Lots 3, 4, 6 

T6N-R91W, 6th P.M. 

Sec 9: Lots 8, 9, 16 

Sec 10: Lots 4, 5 

T6N-R92W, 6th P.M. 

Sec 13: SW 

T6N-R93W, 6th P.M. 

Sec 13: S2N2, N2S2 

T6N-R94W, 6th P.M. 

Sec 12: E2SE 

T6N-R99W, 6th P.M. 

Sec 27: SWSE, SESW 

Sec 34: NENW

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
1320.3

	
18.748

	 1.41	
0.35

	
80.00%

	
20102850

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T10N-R90W, 6th P.M. 

Sec 19: Lot 18 

Sec 30: Lots 6 & 8

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
117.16

	
1.663

	 0.12	
0.03

	
80.00%

	
20102851

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T3N-R91W, 6th P.M. 

Sec 8: Lots 9 & 16 

Sec 9: SW/4SW/4 

Sec 16: NW/4, NE/4SW/4

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
323.43

	
4.593

	 0.34	
0.09

	
80.00%

	
20102852

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T4N-R91W, 6th P.M. 

Sec 10: Tract in SESW (0.42 acres) 

T4N-R92W, 6th P.M. 

Sec 7: Lots 9 & 10 

Sec 8: Lots 5, 9, 10, 11, 12, 13, 14 

Sec 17: Lot 2 

T4N-R101W, 6th P.M. 

Sec 14: W2NE, NW, N2SW 

T4N-R102W, 6th P.M. 

Sec 27: SE Sec 34: NE

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
799.7

	
11.356

	0.85 	
0.21

	
80.00%

	
20102853

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T5N-R94W, 6th P.M. 

Sec 7: S2SE Sec 8: SW 

Sec 17: N2NW Sec 18: NENE 

T5N-R94W, 6th P.M. 

Sec 9: SWNE, NWSE, S2SE 

T5N-R97W, 6th P.M. 

Sec 3: N2SE, SWSE, E2SW 

Sec 10: N2NE, NENW

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
840

	
11.93

	 0.89	
0.22

	
80.00%

	
20102854

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7, 8, 9, 10 less tract (see lease) 

Sec 2: 15,16,17,18

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
333.57

	
71.30

	 5.35	
1.34

	
80.00%

	
20102855

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. A

ssesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.88

	
0.73

	 0.05	
0.01

	
80.00%

	
20102857

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1,2,8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
164.97

	
0.76

	 0.06	
0.01

	
80.00%

	
20102858

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
409.65

	
0.95

	 0.07	
0.02

	
80.00%

	
20102859

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
330.85

	
1.53

	 0.11	
0.03

	
80.00%

	
20102860

	
Eugena Grace Voloshin

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. Assessor's Tract # 70 Sec 21: Lots 4 & 5

	
5/12/2011

	
5/11/2016

5 yr lease, no ext

	
82.44

	
0.38

	 0.03	
0.01

	
80.00%

	
20102861

 

 

	
R. Kirk Lyons

	
Buck Peak, LLC

	
T5N-R89W, 6th P.M. 

Sec 6: Lots 3, 5 SE4NW4 

T6N-R89W, 6th P.M. 

Sec 29: Lot 13 

Sec 31: Lot 3,5,6,11 SW4NE4, NW4SE4, NE4SW4, SE4SW4 

Sec 32: Lot 4

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
425.23

	
47.24

	3.54 	
0.89

	
80.00%

	
701711

	
Ralph C. Lyons & Anna M. Lyons

	
Buck Peak, LLC

	
T5N-R89W, 6th P.M. 

Sec 6: Lots 3, 5 SE4NW4 

T6N-R89W, 6th P.M. 

Sec 29: Lot 13 

Sec 31: Lot 3,5,6,11 SW4NE4, NW4SE4, NE4SW4, SE4SW4 

Sec 32: Lot 4

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
425.23

	
141.74

	 10.63	
2.66

	
80.00%

	
701713

	
Leora L. Smith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 5,6,8,9,10,13,14,15 

Sec 24: Lots 1,2,7,8,9,10,14,15,16

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
673.54

	
154.304

	 11.57	
2.89

	
80.00%

	
20102588

	
R. Kirk Lyons

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 5,6,8,9,10,13,14,15 

Sec 24: Lots 1,2,7,8,9,10,14,15,16

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
673.54

	
51.43

	 3.86	
0.96

	
80.00%

	
20102589

	
Ralph C. Lyons & Anna M. Lyons

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 5,6,8,9,10,13,14,15 

Sec 24: Lots 1,2,7,8,9,10,14,15,16

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
673.54

	
154.30

	 11.57	
2.89

	
80.00%

	
20102587

	
Mark E. Lyons

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 5,6,8,9,10,13,14,15 

Sec 24: Lots 1,2,7,8,9,10,14,15,16

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
673.54

	
51.43

	 3.86	
0.96

	
80.00%

	
20102586

	
Terri Lee Smedra

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 5,6,8,9,10,13,14,15 

Sec 24: Lots 1,2,7,8,9,10,14,15,16

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
673.54

	
51.43

	 3.86	
0.96

	
80.00%

	
20102585

	
Leora L. Smith

	
Buck Peak, LLC

	
T5N-R89W, 6th P.M. 

Sec 6: Lots 3, 5 SE4NW4 

T6N-R89W, 6th P.M. 

Sec 29: Lot 3 

Sec 31: Lot 3,5,6,11 SW4NE4,NW4SE4, NE4SW4, SE4SW4 

Sec 32: Lot 4

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
425.23

	
141.72

	 10.63	
2.66

	
80.00%

	
701715

	
Terri Lee Smedra

	
Buck Peak, LLC

	
T5N-R89W, 6th P.M. 

Sec 6: Lots 3, 5 SE4NW4 

T6N-R89W, 6th P.M. 

Sec 29: Lot 3 

Sec 31: Lot 3,5,6,11 SW4NE4, NW4SE4, NE4SW4, SE4SW4 

Sec 32: Lot 4

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
425.23

	
47.24

	 3.54	
0.89

	
80.00%

	
701712

	
Mark E. Lyons

	
Buck Peak, LLC

	
T5N-R89W, 6th P.M. 

Sec 6: Lots 3, 5 SE4NW4 T6N-R89W, 6th P.M. 

Sec 29: Lot 13 

Sec 31: Lot 3,5,6,11 SW4NE4, NW4SE4, NE4SW4, SE4SW4 

Sec 32: Lot 4

	
6/1/2011

	
5/31/2014

3 yr lease, 

2 yr ext (2016)

	
425.23

	
51.43

	 3.86	
0.96

	
80.00%

	
701714

 

 

	
Thomas J. Knez

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 21: Lot 16 

Sec 22: Lots 12 & 13

	
7/10/2011

	
7/09/2016

5 yr lease, 

3 yr ext (2019)

	
122.97

	
20.50

	1.54 	
0.38

	
80.00%

	
20102823

	
Helen P. Knez

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M.

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
7/17/2011

	
7/16/2016

5 yr lease, 

3 yr ext (2019)

	
122.93

	
20.5

	 1.54	
0.38

	
80.00%

	
20103517

	
Gregory J. Knez, Trustee of the Raymond M. & Hellen M. Knez Family Trust

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 21: Lots 11, 14, 15 & 16 

Sec 22: Lots 12 & 13 

Sec 27: Lots 3 & 4 

Sec 28: Lot 1

	
3/21/2011

	
3/20/2016

5 yr lease, 

3 yr ext (2019)

	
369.39

	
61.58

	 4.62	
1.15

	
80.00%

	
20103025

	
Kathy Peters

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 35: Lots 9,10 11,12,13,14,15,16 (S/2)

	
7/31/2011

	
7/30/2014

3 yr lease, 

3 yr ext (2017)

	
331.00

	
110.56

	 8.29	
2.07

	
80.00%

	
20103518

	
Barbara L. Wilaby

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots1,2,3,5,6,7,8,9,10,12,13,14,15

	
10/31/2008 

3 years + 2 year ext option

	
10/30/2013

	
493.56

	
208.12

	 15.61	
3.90

	
80.00%

	
20090483

	
Barbara L. Wilaby

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 13: Lots 2,3,4, less tract

	
10/31/2008 

3 years + 2 year ext option

	
10/30/2013

	
130.10

	
30.23

	 2.27	
0.57

	
80.00%

	
20090484

	
Rex Ross Walker

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 34: Lots 1, 7,8,9,10,11,12,13,14,15,16

	
12/18/2008 

3 years + 2 year ext option

	
12/17/2013

	
351.36

	
26.24

	 1.97	
0.49

	
80.00%

	
20090151

	 	 	 	 	
EXTENDED

	 	 	 302.97	
75.74

	 	 
	
Margaret Keith

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 less tract (see lease) 

Sec 2: 15,16,17,18

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
333.57

	
11.560

	 0.87	
0.22

	
80.00%

	
20084242

	
Margaret Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8, and 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.97

	
12.98

	 0.97	
0.24

	
80.00%

	
20084243

	
Margaret Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
409.65

	
16.12

	 1.21	
0.30

	
80.00%

	
20084244

	
Margaret Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
330.85

	
26.04

	 1.95	
0.49

	
80.00%

	
20084245

 

 

 

	
Margaret Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
82.44

	
9.16

	 0.69	
0.17

	
80.00%

	
20084246

	
Margaret Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.88

	
17.59

	 1.32	
0.33

	
80.00%

	
20084247

	
James W. Keith

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 less tract (see lease) 

Sec 2: 15,16,17,18

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
333.57

	
3.86

	 0.29	
0.07

	
80.00%

	
20084241

	
James W. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8, and 9

	
9/30/2008 - 2013 

5 years + 3 year ext option

	
9/29/2013

	
164.97

	
4.33

	 0.32	
0.08

	
80.00%

	
20084240

	
James W. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
409.65

	
5.37

	 0.40	
0.10

	
80.00%

	
20084239

	
James W. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
330.85

	
8.68

	 0.65	
0.16

	
80.00%

	
20084238

	
James W. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
82.44

	
3.05

	 0.23	
0.06

	
80.00%

	
20084237

	
James W. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.88

	
5.86

	 0.44	
0.11

	
80.00%

	
20084236

	
Charles S. Keith

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 less tract (see lease) 

Sec 2: 15,16,17,18

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
333.57

	
3.86

	 0.29	
0.07

	
80.00%

	
20084235

	
Charles S. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8, and 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.97

	
4.33

	 0.32	
0.08

	
80.00%

	
20084234

	
Charles S. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
409.65

	
5.37

	 0.40	
0.10

	
80.00%

	
20084233

 

 

	
Charles S. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
330.85

	
8.68

	 0.65	
0.16

	
80.00%

	
20084232

	
Charles S. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
82.44

	
3.05

	 0.23	
0.06

	
80.00%

	
20084231

	
Charles S. Keith

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.88

	
5.86

	 0.44	
0.11

	
80.00%

	
20084230

	
Debra A Ziehm

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M. 

Sec 2: Lots 7,8,9,10 less tract (see lease) 

Sec 2: 15,16,17,18

	
9/30/2008 5 years + 3 year ext option

	
9/29/2013

	
333.57

	
3.86

	 0.29	
0.07

	
80.00%

	
20084253

	
Debra A Ziehm

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 105 

Sec 21: Lots 1, 2, 8, and 9

	
9/30/2008 - 2013 

5 years + 3 year ext option

	
9/29/2013

	
164.97

	
4.33

	 0.32	
0.08

	
80.00%

	
20084252

	
Debra A Ziehm

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 83 

Sec 27: Lots 5, 6, 10, 11, 12, 14, 15 & 16 

Sec 34: Lots 2, 3 Less acreage (see lease)

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
409.65

	
5.37

	 0.40	
0.10

	
80.00%

	
20084251

	
Debra A Ziehm

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 82 

Sec 26: Lots 11, 12, 13, & 14 

Sec 27: Lots 2, 7, 8 & 9

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
330.85

	
8.68

	 0.65	
0.16

	
80.00%

	
20084250

	
Debra A Ziehm

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assessor's Tract # 70 

Sec 21: Lots 4 & 5

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
82.44

	
3.05

	 0.23	
0.06

	
80.00%

	
20084249

	
Debra A Ziehm

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Assesor's Tract # 69 

Sec 21: Lots 3, 6, 7 & 10

	
9/30/2008 

5 years + 3 year ext option

	
9/29/2013

	
164.88

	
5.86

	 0.44	
0.11

	
80.00%

	
20084248

	
Jim F. Kowach

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 12: Lots 1,2,3,5,6,7,8,9,10,12,13,14,15 

Sec 13: Lots 2,3,4, less tract (see lease)

	
10/31/2008

	
10/30/2013

	
635.00

	
238.35

	 17.88	
4.47

	
80.00%

	
20084634

	
Robert Deakins

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 35: S/2

	
12/8/2008 

5 years + 3 year ext option

	
12/7/2013

	
331.70

	
6.91

	 0.52	
0.13

	
80.00%

	
20090152

	
Richard Deakins

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 35: S/2

	
12/8/2008 

5 years + 3 year ext option

	
12/7/2013

	
331.70

	
6.91

	 0.52	
0.13

	
80.00%

	
20090482

 

 

	
Kathleen Seely Brennise

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 28: Tract in Lots 11, 12, 14 

Sec 31: Lots 5,6,11-14, 19,20, W/2 

Sec 32 Lots 7,10-14 

Sec 33:Tract in E2W2 

Sec 34: Lots 1, 7-16

	
1/29/2009 

5 years + 3 year ext option

	
1/28/2014

	
1507.93

	
145.69

	 10.93	
2.73

	
80.00%

	
20091152

	
Bruce H. and Ann C. Seely

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 28: Tract in Lots 11, 12, 14 

Sec 31: Lots 5,6,11-14, 19,20, W/2 

Sec 32 Lots 7,10-14 

Sec 33:Tract in E2W2 

Sec 34: Lots 14, 15, 16

	
3/1/2009 

5 years + 3 year ext option

	
2/28/2014

	
1179.60

	
15.00

	 1.13	
0.28

	
80.00%

	
20091997

	
Bruce H. Seely

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 28: Tract in Lots 11, 12, 14 

Sec 31: Lots 5,6,11-14, 19,20, W/2 

Sec 32 Lots 7,10-14 

Sec 33:Tract in E2W2 

Sec 34: Lots 1, 7-16 

Sec 35: Lots 4, 5

	
3/1/2009 

5 years + 3 year ext option

	
2/28/2014

	
1590.92

	
146.56

	 10.99	
2.75

	
80.00%

	
20091998

	
David R. and Shirley M. Seely

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 6: Lot 7 

Sec 31: Lots 5,6,11-14, 19,20, W/2 

Sec 32 Lots 7,10-14 

Sec 33:Tract in E2W2 

Sec 34: Lots 1, 7-16 

Sec 35: Lots 4, 5

	
3/1/2009

5 years + 3 year ext option

	
2/28/2014

	
1465.72

	
292.60

	21.95 	
5.49

	
80.00%

	
20092472

	
Walter D. Spetter

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 35: Lots 9,10 11,12,13,14,15,16 (S/2)

	
3/5/2009 

5 years + 3 year ext option

	
3/4/2014

	
331.70

	
13.820

	 1.04	
0.26

	
80.00%

	
20092059

	
Donna McMullen

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 35: Lots 9,10 11,12,13,14,15,16 (S/2)

	
3/5/2009 

5 years + 3 year ext option

	
3/4/2014

	
331.70

	
13.82

	 1.04	
0.26

	
80.00%

	
20092058

	
DR Seely, LLC an Idaho Limited Liability Company

	
Buck Peak, LLC

	
T6N-R90W, 6th P.M. 

Sec 31: Lots 5,6,11-14, 19,20, W/2 

Sec 32 Lots 7,10-14 

Sec 34: Lots 1, 7-16 

Sec 35: Lots 4, 5

	
3/5/2009 

5 years + 3 year ext option

	
3/4/2014

	
1436.46

	
169.85

	 12.74	
3.18

	
80.00%

	
20092471

	
Kathleen Seely Brennise

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M.

Sec 3: Lots 6,7,8,9 

Sec 4: Lots 5 -13, 15, 16, 18-20 

Sec 6: Lots 12,13,14,17,18,19

	
7/9/2010

	
7/8/2015

	
1067.93

	
123.54

	 9.27	
2.32

	
80.00%

	
20102826

 

	
Bruce and Ann Seely

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M.

Sec 3: Lots 6,7,8,9 

Sec 4: Lots 5 -13, 15, 16, 18-20 

Sec 6: Lots 12,13,14,17,18,19

	
7/9/2010

	
7/8/2015

	
1067.93

	
12.99

	 0.97	
0.24

	
80.00%

	
20102591

	
Bruce Seely, Individually

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M.

Sec 3: Lots 6,7,8,9 

Sec 4: Lots 5 -13, 15, 16, 18-20 

Sec 6: Lots 12,13,14,17,18,19

	
7/9/2010

	
7/8/2015

	
1067.93

	
123.54

	 9.27	
2.32

	
80.00%

	
20102590

	
David and Shirley Seely

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M.

Sec 3: Lots 6,7,8,9 

Sec 4: Lots 5 -13, 15, 16, 18-20 

Sec 6: Lots 12,13,14,17,18,19

	
7/9/2010

	
7/8/2015

	
1067.93

	
260.18

	 19.51	
4.88

	
80.00%

	
20102827

	
D.R. Seely, LLC

	
Buck Peak, LLC

	
T5N-R90W, 6th P.M.

Sec 3: Lots 6,7,8,9 

Sec 4: Lots 5 -13, 15, 16, 18-20 

Sec 6: Lots 12,13,14,17,18,19

	
7/9/2010

	
7/8/2015

	
1067.93

	
52.04

	 3.90	
0.98

	
80.00%

	
20102825

	
Lease Serial No. COC-73459

	
Impact Energy Resources, LLC

	
T5N-R90W, 6th P.M. Section 1: Lot 5, 12, 13

	
3/1/2009

	
2/28/2019

	
125.15

	
125.15

	 9.39	
2.35

	
80.00%

	 
	 	 	 	 	 	 	
1,933.86

	 145.04	
52.21

	 	 
	 	 	 	 	 	 	Total Schedule	 448.01	112.00	 	 
	 	 	 	 	 	 	 2.1(a)	 	 	 	 
	 	 	 	 	 	 	 	 	 	 	 

 

 

 

 

 

 

 

EXHIBIT "C"

 

ASSIGNMENT

 

 

	STATE OF COLORADO 	)
	COUNTY OF 	)

KNOW ALL MEN BY THESE PRESENTS, that PetroShare Corp., with an office at ___________________hereinafter referred to as "Assignor", for and in consideration of the sum of TEN AND N0/100 DOLLARS ($10.00), the receipt and adequacy of which is hereby acknowledged and full acquittance granted therefor, has granted, sold, conveyed and delivered and does hereby grant, sell, convey and deliver unto LLOCO, L.L.C. with an office at 1001 Ochsner Blvd., Ste 200, Covington, LA 70433 hereinafter referred to as "Assignee", 25% of Assignor's right, title and interest in the following properties (real, personal or mixed) and rights (contractual or otherwise) unless expressly reserved or excluded herein, the following being referred to herein collectively as the Assets:

	
a)

	
the oil and gas leases described on Exhibit "A" and "B", attached hereto, in the amounts of the working interests specified thereon (the "Leases");

	
b)

	
The rights and interests in, to and under, or derived from, all of the presently existing and valid unitization and pooling agreements and units (including all units formed by voluntary agreement and those formed under the rules, regulations, orders or other official acts of any governmental entity having appropriate jurisdiction) to the extent they relate to any of the Leases;

	
c)

	
The rights and interests in, to and under, or derived from, all of the presently existing and valid joint operating agreements, oil sales contracts, casing head gas sales contracts, gas sales contracts, processing contracts, gathering contracts, transportation contracts, easements, rights-of-way, servitudes, surface leases and other contracts to the extent they are described on Exhibit "C", attached  hereto  (the "Contracts");

	
d)

	
The rights and interests in and to all personal property and improvements, including without limitation, tanks, buildings, fixtures,  machinery, equipment, pipelines, utility lines, power lines, telephone lines, roads and other appurtenances, to the extent the same are situated upon and/or used or held for use by Seller  in connection with the ownership, operation, maintenance and repair of the Leases; and

	
(f)

	
The rights and interests in all permits and licenses of any nature owned, held or operated in connection with operations for the exploration and production of oil, gas or other minerals to the extent the same are used or obtained in connection with any of the Leases or other property described in Exhibit "A" ("Permits");

 

 

9

 

TO HAVE AND TO HOLD the Assets, together with all and singular the rights and appurtenances thereunto in anywise belonging, unto Assignee, its successors and assigns, forever, subject to the following terms and conditions:

 

1.  Special Warrantv of Title. Assignor represents and warrants that the Assets are free and clear of all liens, encumbrances, security interests or other adverse claims arising by, through or under Assignor, but not otherwise. Assignor shall warrant and defend the title to the Assets conveyed to Assignee against every person whomsoever lawfully claims the Assets or any part thereof by, through, or under Assignor, but not otherwise.

 

2.  Successors and Assigns. The terms, covenants and conditions contained in this Assignment shall be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, and such terms, covenants and conditions shall be covenants running with the land and with each subsequent transfer or assignment of the Assets, or any part thereof.

 

3.  Participation Agreement. This Assignment is made in accordance with and is subject to the terms, covenants and conditions contained in that certain Participation Agreement dated  as  of _______, 2013, by  and  between  Assignor  and  Assignee  ("Participation Agreement"), all of which shall remain in full force and effect in .accordance with their terms as set forth therein and shall not be deemed to have been merged with this Assignment. Ifthere is a conflict between the provisions of the Participation Agreement and this Assignment, the provisions of the Participation Agreement shall control the rights and obligations of the parties.

 

4.  Further Assurances. Assignor and Assignee agree to take all such further actions and to execute, acknowledge and deliver all such further documents that are necessary or useful in carrying out the purpose of this Assignment.

 

5.  Counteparts. This Assignment is being executed in multiple counterparts each of which shall for all purposes be deemed to be an original and all of which shall constitute one instrument.

 

 

ASSIGNOR:

 

PetroShare Corp.

 

By:  ____________________

Name: 

Title:

 

 

ASSIGNEE:

 

By: ____________________

Name: __________________

Title:  __________________

 

 

10

 

 

	STATE OF COLORADO __________________	)	 
	 	)	ss. 
	COUNTY OF ____________________	)	 

The foregoing instrument was acknowledged before me this ___ day of ___________ , 2013, by ___________ , as ____________________ of PetroShare Corp.

 

Witness my hand and seal.

 

	My Commission Expires: ____________________ 	______________________________
	 	Notary Public

 

 

 

  

	STATE OF LOUISIANNA	)	 
	 	)	ss. 
	COUNTY OF __________	)	 

The foregoing instrument was acknowledged before me this ___ day of ___________ , 2013, by ___________ , as ____________________ of LLOCO, L.L.C.

 

Witness my hand and seal.

 

	My Commission Expires: ____________________ 	______________________________
	 	Notary Public

 

 

11

Exhibit D

to

Participation Agreement

Model Form of Operating Agreement

(See Exhibit 10.9)

 

 

 

EXHIBIT E

 

SCHEDULE 5.5

TO

LEASE EXTENSION AND DEVELOPMENT AGREEMENT

A.A.P.L. FORM 610 - 1989

MODEL FORM OPERATING AGREEMENT

OPERATING AGREEMENT 

DATED

	 	,	, 2010 ,	 
	 	 	year	 

	OPERATOR	QUICKSILVER RESROUCES INC.
	 	 
	CONTRACTAREA	 
	

	

	 
	

	 
	 	 

	COUNTY OR PARISH OF	MOFFAT	, STATE OF	COLORADO

	 	
COPYRIGHT 1989 – ALL RIGHTS RESERVED 

AMERICAN ASSOCIATION OF PETROLEUM 

LANDMEN, 4100 FOSSIL CREEK BLVD. FORT 

WORTH, TEXAS, 76137, APPROVED FORM.

A.A.P.L. NO. 610 – 1989

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

TABLE OF CONTENTS

	Article	 	 	Page
	I.	 	DEFINITIONS	1
	II.	 	EXHIBITS	1
	III.	 	INTERESTS OF PARTIES	2
	 	 	A. OIL AND GAS INTERESTS:	2
	 	 	B. INTERESTS OF PARTIES IN COSTS AND PRODUCTION 	2
	 	 	C. SUBSEQUENTLY CREATED INTERESTS: 	2
	IV.	 	TITLES	2
	 	 	A. TITLE EXAMINATION 	2
	 	 	B. LOSS OR FAILURE OF TITLE 	3
	 	 	1. Failure of Title 	3
	 	 	2. Loss by Non-Payment or Erroneous Payment of Amount Due	3
	 	 	3. Other Losses 	3
	 	 	4. Curing Title 	3
	V.	 	OPERATOR	4
	 	 	A. DESIGNATION AND RESPONSIBILITIES OF OPERATOR	4
	 	 	B. RESIGNATION OR REMOVAL OF OPERATOR AND SELECTION OF SUCCESSOR	4
	 	 	1. Resignation or Removal of Operator	4
	 	 	2. Selection of Successor Operator 	4
	 	 	3. Effect of Bankruptcy	4
	 	 	C. EMPLOYEES AND CONTRACTORS 	4
	 	 	D. RIGHTS AND DUTIES OF OPERATOR: 	4
	 	 	1. Competitive Rates and Use of Affiliates	4
	 	 	2. Discharge of Joint Account Obligations	4
	 	 	3. Protection from Liens 	4
	 	 	4. Custody of Funds 	5
	 	 	5. Access to Contract Area and Records 	5
	 	 	6. Filing and Furnishing Governmental Reports 	5
	 	 	7. Drilling and Testing Operations	5
	 	 	8. Cost Estimates 	5
	 	 	9. Insurance	5
	VI.	 	DRILLING AND DEVELOPMENT	5
	 	 	A. INITIAL WELL	5
	 	 	B. SUBSEQUENT OPERATIONS: 	5
	 	 	1. Proposed Operations 	5
	 	 	2. Operations by Less Than All Parties 	6
	 	 	3. Stand-By Costs	7
	 	 	4. Deepening 	8
	 	 	5. Sidetracking 	8
	 	 	6. Order of Preference of Operations	8
	 	 	7. Conformity to Spacing Pattern 	9
	 	 	8. Paying Wells 	9
	 	 	C. COMPLETION OF WELLS; REWORKING AND PLUGGING BACK 	9
	 	 	1. Completion 	9
	 	 	2. Rework, Recomplete or Plug Back	9
	 	 	D. OTHER OPERATIONS	9
	 	 	E. ABANDONMENT OF WELLS 	9
	 	 	1. Abandonment of Dry Holes	9
	 	 	2. Abandonment of Wells That Have Produced	10
	 	 	3. Abandonment of Non-Consent Operations	10
	 	 	F. TERMINATION OF OPERATIONS	10
	 	 	G. TAKING PRODUCTION IN KIND	10
	 	 	(Option 1) Gas Balancing Agreement 	10
	 	 	(Option 2) No Gas Balancing Agreement	11
	VII.	 	EXPENDITURES AND LIABILITY OF PARTIES	11
	 	 	A. LIABILITY OF PARTIES	11
	 	 	B. LIENS AND SECURITY INTERESTS 	12
	 	 	C. ADVANCES	12
	 	 	D. DEFAULTS AND REMEDIES 	12
	 	 	1. Suspension of Rights 	13
	 	 	2. Suit for Damages	13
	 	 	3. Deemed Non-Consent 	13
	 	 	4. Advance Payment 	13
	 	 	5. Costs and Attorneys’ Fees 	13
	 	 	E. RENTALS, SHUT-IN WELL PAYMENTS AND MINIMUM ROYALTIES 	13
	 	 	F. TAXES 	13
	VIII.	 	ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST	14
	 	 	A. SURRENDER OF LEASES	14
	 	 	B. RENEWAL OR EXTENSION OF LEASES	14
	 	 	C. ACREAGE OR CASH CONTRIBUTIONS 	14

i

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	 	 	 	 
	 	 	D. ASSIGNMENT; MAINTENANCE OF UNIFORM INTEREST: 	15
	 	 	E. WAIVER OF RIGHTS TO PARTITION 	15
	 	 	F. PREFERENTIAL RIGHT TO PURCHASE 	15
	IX.	 	INTERNAL REVENUE COEDE ELECTION	15
	X.	 	CLAIMS AND LAWSUITS	15
	XI.	 	FORCE MAJEURE	16
	XII.	 	NOTICES	16
	XIII.	 	TERM OF AGREEMENT	16
	XIV.	 	COMPLIANCE WITH LAWS AND REGULATIONS	16
	 	 	A. LAWS, REGULATIONS AND ORDERS	16
	 	 	B. GOVERNING LAW 	16
	 	 	C. REGULATORY AGENCIES: 	16
	XV.	 	MISCELLANEOUS	17
	 	 	A. EXECUTION 	17
	 	 	B. SUCCESSORS AND ASSIGNS 	17
	 	 	C. COUNTERPARTS	17
	 	 	D. SEVERABILITY 	17
	XVI.	 	OTHER PROVISIONS	17
	 	 	 	 
	 	 	 	 

ii

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
OPERATING AGREEMENT

	
2

	
THIS AGREEMENT, entered into by and between Quicksilver Resources Inc. ,

	
3

	
hereinafter designated and referred to as "Operator," and the signatory party or parties other than Operator, sometimes

	
4

	
hereinafter referred to individually as "Non-Operator," and collectively as "Non-Operators."

	
5

	
WITNESSETH:

	
6

	
WHEREAS, the parties to this agreement are owners of Oil and Gas Leases and/or Oil and Gas Interests in the land

	
7

	
identified in Exhibit "A," and the parties hereto have reached an agreement to explore and develop these Leases and/or Oil

	
8

	
and Gas Interests for the production of Oil and Gas to the extent and as hereinafter provided,

	
9

	
NOW, THEREFORE, it is agreed as follows:

	
10

	
ARTICLE I.

	
11

	
DEFINITIONS

	
12

	
As used in this agreement, the following words and terms shall have the meanings here ascribed to them:

	
13

	
A. The term "AFE" shall mean an Authority for Expenditure prepared by a party to this agreement for the purpose of

	
14

	
estimating the costs to be incurred in conducting an operation hereunder.

	
15

	
B. The term "Completion" or "Complete" shall mean a single operation intended to complete a well as a producer of Oil

	
16

	
and Gas in one or more Zones, including, but not limited to, the setting of production casing, perforating, well stimulation

	
17

	
and production testing conducted in such operation.

	
18

	
C. The term "Contract Area" shall mean all of the lands, Oil and Gas Leases and/or Oil and Gas Interests intended to be

	
19

	
developed and operated for Oil and Gas purposes under this agreement. Such lands, Oil and Gas Leases and Oil and Gas

	
20

	
Interests are described in Exhibit "A."

	
21

	
D. The term "Deepen" shall mean a single operation whereby a well is drilled to an objective Zone below the deepest

	
22

	
Zone in which the well was previously drilled, or below the Deepest Zone proposed in the associated AFE, whichever is the

	
23

	
lesser.

	
24

	
E. The terms "Drilling Party" and "Consenting Party" shall mean a party who agrees to join in and pay its share of the

	
25

	
cost of any operation conducted under the provisions of this agreement.

	
26

	
F. The term "Drilling Unit" shall mean the area fixed for the drilling of one well by order or rule of any state or federal

	
27

	
body having authority. If a Drilling Unit is not fixed by any such rule or order, a Drilling Unit shall be the drilling unit as

	
28

	
established by the pattern of drilling in the Contract Area unless fixed by express agreement of the Drilling Parties.

	
29

	
G. The term "Drillsite" shall mean the Oil and Gas Lease or Oil and Gas Interest on which a proposed well is to be

	
30

	
located.

	
31

	
H. The term "Initial Well" shall mean the well required to be drilled by the parties hereto as provided in Article VI.A.

	
32

	
I. The term "Non-Consent Well" shall mean a well in which less than all parties have conducted an operation as

	
33

	
provided in Article VI.B.2.

	
34

	
J. The terms "Non-Drilling Party" and "Non-Consenting Party" shall mean a party who elects not to participate in a

	
35

	
proposed operation.

	
36

	
K. The term "Oil and Gas" shall mean oil, gas, casinghead gas, gas condensate, and/or all other liquid or gaseous

	
37

	
hydrocarbons and other marketable substances produced therewith, unless an intent to limit the inclusiveness of this term is

	
38

	
specifically stated.

	
39

	
L. The term "Oil and Gas Interests" or "Interests" shall mean unleased fee and mineral interests in Oil and Gas in tracts

	
40

	
of land lying within the Contract Area which are owned by parties to this agreement.

	
41

	
M. The terms "Oil and Gas Lease," "Lease" and "Leasehold" shall mean the oil and gas leases or interests therein

	
42

	
covering tracts of land lying within the Contract Area which are owned by the parties to this agreement.

	
43

	
N. The term "Plug Back" shall mean a single operation whereby a deeper Zone is abandoned in order to attempt a

	
44

	
Completion in a shallower Zone.

	
45

	
O. The term "Recompletion" or "Recomplete" shall mean an operation whereby a Completion in one Zone is abandoned

	
46

	
in order to attempt a Completion in a different Zone within the existing wellbore.

	
47

	
P. The term "Rework" shall mean an operation conducted in the wellbore of a well after it is Completed to secure,

	
48

	
restore, or improve production in a Zone which is currently open to production in the wellbore. Such operations include, but

	
49

	
are not limited to, well stimulation operations but exclude any routine repair or maintenance work or drilling, Sidetracking,

	
50

	
Deepening, Completing, Recompleting, or Plugging Back of a well.

	
51

	
Q. The term "Sidetrack" shall mean the directional control and intentional deviation of a well from vertical so as to

	
52

	
change the bottom hole location unless done to straighten the hole or drill around junk in the hole to overcome other

	
53

	
mechanical difficulties.

	
54

	
R. The term "Zone" shall mean a stratum of earth containing or thought to contain a common accumulation of Oil and

	
55

	
Gas separately producible from any other common accumulation of Oil and Gas.

	
56

	
Unless the context otherwise clearly indicates, words used in the singular include the plural, the word "person" includes

	
57

	
natural and artificial persons, the plural includes the singular, and any gender includes the masculine, feminine, and neuter.

	
58

	
ARTICLE II.

	
59

	
EXHIBITS

	
60

	
The following exhibits, as indicated below and attached hereto, are incorporated in and made a part hereof:

	
61 

	
   X    A. Exhibit "A," shall include the following information:

	
62

	
(1) Description of lands subject to this agreement,

	
63

	
(2) Restrictions, if any, as to depths, formations, or substances,

	
64

	
(3) Parties to agreement with addresses and telephone numbers for notice purposes,

	
65

	
(4) Percentages or fractional interests of parties to this agreement,

	
66

	
(5) Oil and Gas Leases and/or Oil and Gas Interests subject to this agreement,

	
67

	
(6) Burdens on production.

	
68 

	
____B. Exhibit "B," Form of Lease.

	
69 

	
  X    C. Exhibit "C," Accounting Procedure.

	
70 

	
  X    D. Exhibit "D," Insurance.

	
71 

	
____ E. Exhibit "E," Gas Balancing Agreement.

	
72 

	
____ F. Exhibit "F," Non-Discrimination and Certification of Non-Segregated Facilities.

	
73 

	
____G. Exhibit "G," Tax Partnership.

	
74 

	
____H. Other: _____________________________

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A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
If any provision of any exhibit, except Exhibits "E," "F" and "G," is inconsistent with any provision contained in

	
2

	
the body of this agreement, the provisions in the body of this agreement shall prevail.

	
3

	
ARTICLE III.

	
4

	
INTERESTS OF PARTIES

	
5

	
A. Oil and Gas Interests:

	
6

	
If any party owns an Oil and Gas Interest in the Contract Area, that Interest shall be treated for all purposes of this

	
7

	
agreement and during the term hereof as if it were covered by the form of Oil and Gas Lease attached hereto as Exhibit "B,"

	
8

	
and the owner thereof shall be deemed to own both royalty interest in such lease and the interest of the lessee thereunder.

	
9

	
B. Interests of Parties in Costs and Production:

	
10

	
Unless changed by other provisions, all costs and liabilities incurred in operations under this agreement shall be borne

	
11

	
and paid, and all equipment and materials acquired in operations on the Contract Area shall be owned, by the parties as their

	
12

	
interests are set forth in Exhibit "A." In the same manner, the parties shall also own all production of Oil and Gas from the

	
13

	
Contract Area subject, however, to the payment of royalties and other burdens on production as described hereafter.

	
14

	
Operator shall pay or deliver, or

	
15

	
cause to be paid or delivered, all burdens on production from the Contract Area

	
16

	
 

	
17

	
 

	
18

	
Nothing contained in this Article III.B. shall be deemed an assignment or cross-assignment of interests covered hereby,

	
19

	
and in the event two or more parties contribute to this agreement jointly owned Leases, the parties' undivided interests in

	
20

	
said Leaseholds shall be deemed separate leasehold interests for the purposes of this agreement.

	
21

	
C. Subsequently Created Interests:

	
22

	
If any party has contributed hereto a Lease or Interest that is burdened with an assignment of production given as security

	
23

	
for the payment of money, or if, after the date of this agreement, any party creates an overriding royalty, production

	
24

	
payment, net profits interest, assignment of production or other burden payable out of production attributable to its working

	
25

	
interest hereunder, such burden shall be deemed a "Subsequently Created Interest."Further, if any party has contributed

	
26

	
hereto a Lease or Interest burdened with an overriding royalty, production payment, net profits interests, or other burden

	
27

	
payable out of production created prior to the date of this agreement, and such burden is not shown on Exhibit "A," such

	
28

	
burden also shall be deemed a Subsequently Created Interest to the extent such burden causes the burdens on such party's

	
29

	
Lease or Interest to exceed the amount stipulated in Article III.B. above.

	
30

	
The party whose interest is burdened with the Subsequently Created Interest (the "Burdened Party") shall assume and

	
31

	
alone bear, pay and discharge the Subsequently Created Interest and shall indemnify, defend and hold harmless the other

	
32

	
parties from and against any liability therefor. Further, if the Burdened Party fails to pay, when due, its share of expenses

	
33

	
chargeable hereunder, all provisions of Article VII.B. shall be enforceable against the Subsequently Created Interest in the

	
34

	
same manner as they are enforceable against the working interest of the Burdened Party. If the Burdened Party is required

	
35

	
under this agreement to assign or relinquish to any other party, or parties, all or a portion of its working interest and/or the

	
36

	
production attributable thereto, said other party, or parties, shall receive said assignment and/or production free and clear of

	
37

	
said Subsequently Created Interest, and the Burdened Party shall indemnify, defend and hold harmless said other party, or

	
38

	
parties, from any and all claims and demands for payment asserted by owners of the Subsequently Created Interest.

	
39

	
ARTICLE IV.

	
40

	
TITLES

	
41

	
A. Title Examination:

	
42

	
Title examination shall be made on the Drillsite of any proposed well prior to commencement of drilling operations and,

	
43

	
if a majority in interest of the Drilling Parties so request or Operator so elects, title examination shall be made on the entire

	
44

	
Drilling Unit, or maximum anticipated Drilling Unit, of the well. The opinion will include the ownership of the working

	
45

	
interest, minerals, royalty, overriding royalty and production payments under the applicable Leases.Each party contributing

	
46

	
Leases and/or Oil and Gas Interests to be included in the Drillsite or Drilling Unit, if appropriate, shall furnish to Operator

	
47

	
all abstracts (including federal lease status reports), title opinions, title papers and curative material in its possession free of

	
48

	
charge. All such information not in the possession of or made available to Operator by the parties, but necessary for the

	
49

	
examination of the title, shall be obtained by Operator. Operator shall cause title to be examined by attorneys on its staff or

	
50

	
by outside attorneys. Copies of all title opinions shall be furnished to each Drilling Party. Costs incurred by Operator in

	
51

	
procuring abstracts, fees paid outside attorneys or title examination (including preliminary, supplemental, shut-in royalty

	
52

	
opinions and division order title opinions), ( fees paid to outside landmen or brokers) / and other direct charges as provided in Exhibit "C" shall be borne by the Drilling

	
53

	
Parties in the proportion that the interest of each Drilling Party bears to the total interest of all Drilling Parties as such

	
54

	
interests appear in Exhibit "A." Operator shall make no charge for services rendered by its staff attorneys or other personnel

	
55

	
in the performance of the above functions.

	
56

	
Operatorshall be responsible for securing curative matter and pooling amendments or agreements required in

	
57

	
connection with any title opinion obtained as set forth above. Operator shall be responsible for the preparation

	
58

	
and recording of pooling designations or declarations and communitization agreements as well as the conduct of hearings

	
59

	
before governmental agencies for the securing of spacing or pooling orders or any other orders necessary or appropriate to

	
60

	
the conduct of operations hereunder. This shall not prevent any party from appearing on its own behalf at such hearings.

	
61

	
Costs incurred by Operator, including fees paid to outside attorneys, which are associated with hearings before governmental

	
62

	
agencies, and which costs are necessary and proper for the activities contemplated under this agreement, shall be direct

	
63

	
charges to the joint account and shall not be covered by the administrative overhead charges as provided in Exhibit "C."

	
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2

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1 

	
Operator shall make no charge for services rendered by its staff attorneys or other personnel in the performance of the above

	
2 

	
functions.

	
3

	
No well shall be drilled on the Contract Area until after (1) the title to the Drillsite or Drilling Unit, if appropriate, has

	
4 

	
been examined as above provided, and (2) the title has been approved by the examining attorney or title has been accepted by

	
5 

	
Operator.

	
6 

	
B. Loss or Failure of Title:

	
7

	

	
8

	
3. Losses: All losses of Leases or Interests committed to this agreement, shall be joint losses and shall be borne by all parties in 

	
9 

	
proportion to their interests shown on

	
10

	
Exhibit "A." This shall include but not be limited to the loss of any Lease or Interest through failure to develop or because

	
11

	
express or implied covenants have not been performed (other than performance which requires only the payment of money),

	
12

	
and the loss of any Lease by expiration at the end of its primary term if it is not renewed or extended. There shall be no

	
13

	
readjustment of interests in the remaining portion of the Contract Area on account of any joint loss.

	
14

	
4. CuringTitle: In the event of a Failure of Title as set forthabove, any

	
15

	
Lease or Interest acquired by any party hereto during the ninety

	
16

	
(90) day period / following discovery of such failureovering all or a portion of the interest that has failed

	
17

	
or was lost shall be offered at cost to the party whose interest has failed or was lost, and the provisions of Article VIII.B.

	
18

	
shall not apply to such acquisition.

	
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3

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
ARTICLE V.

	
2

	
OPERATOR

	
3

	
A. Designation and Responsibilities of Operator:

	
4

	
Quicksilver Resources Inc. shall be the Operator of the Contract Area, and shall conduct

	
5

	
and direct and have full control of all operations on the Contract Area as permitted and required by, and within the limits of

	
6

	
this agreement. In its performance of services hereunder for the Non-Operators, Operator shall be an independent contractor

	
7

	
not subject to the control or direction of the Non-Operators except as to the type of operation to be undertaken in accordance

	
8

	
with the election procedures contained in this agreement. Operator shall not be deemed, or hold itself out as, the agent of the

	
9

	
Non-Operators with authority to bind them to any obligation or liability assumed or incurred by Operator as to any third

	
10

	
party. Operator shall conduct its activities under this agreement as a reasonable prudent operator, in a good and workmanlike

	
11

	
manner, with due diligence and dispatch, in accordance with good oilfield practice, and in compliance with applicable law and

	
12

	
regulation, but in no event shall it have any liability as Operator to the other parties for losses sustained or liabilities incurred

	
13

	
except such as may result from gross negligence or willful misconduct.

	
14

	
B. Resignation or Removal of Operator and Selection of Successor:

	
15

	
1. Resignation or Removal of Operator: Operator may resign at any time by giving written notice thereof to Non-Operators.

	
16

	
If Operator terminates its legal existence, no longer owns an interest hereunder in the Contract Area, or is no longer capable of

	
17

	
serving as Operator, Operator shall be deemed to have resigned without any action by Non-Operators, except the selection of a

	
18

	
successor. Operator may be removed only for good cause by the affirmative vote of Non-Operators owning a majority interest

	
19

	
based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of Operator; such vote shall not be

	
20

	
deemed effective until a written notice has been delivered to the Operator by a Non-Operator detailing the alleged default and

	
21

	
Operator has failed to cure the default within thirty (30) days from its receipt of the notice or, if the default concerns an

	
22

	
operation then being conducted, within forty-eight (48) hours of its receipt of the notice. For purposes hereof, "good cause" shall

	
23

	
mean not only gross negligence or willful misconduct but also the material breach of or inability to meet the standards of

	
24

	
operation contained in Article V.A. or material failure or inability to perform its obligations under this agreement.

	
25

	
Subject to Article VII.D.1., such resignation or removal shall not become effective until 7:00 o'clock A.M. on the first

	
26

	
day of the calendar month following the expiration of ninety (90) days after the giving of notice of resignation by Operator

	
27

	
or action by the Non-Operators to remove Operator, unless a successor Operator has been selected and assumes the duties of

	
28

	
Operator at an earlier date. Operator, after effective date of resignation or removal, shall be bound by the terms hereof as a

	
29

	
Non-Operator. A change of a corporate name or structure of Operator or transfer of Operator's interest to any single

	
30

	
subsidiary, parent or successor corporation shall not be the basis for removal of Operator.

	
31

	
2. Selection of Successor Operator: Upon the resignation or removal of Operator under any provision of this agreement, a

	
32

	
successor Operator shall be selected by the parties. The successor Operator shall be selected from the parties owning an

	
33

	
interest in the Contract Area at the time such successor Operator is selected. The successor Operator shall be selected by the

	
34

	
affirmative vote of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A";

	
35

	
provided, however, if an Operator which has been removed or is deemed to have resigned fails to vote or votes only to

	
36

	
succeed itself, the successor Operator shall be selected by the affirmative vote of the party or parties owning a majority

	
37

	
interest based on ownership as shown on Exhibit "A" remaining after excluding the voting interest of the Operator that was

	
38

	
removed or resigned. The former Operator shall promptly deliver to the successor Operator all records and data relating to

	
39

	
the operations conducted by the former Operator to the extent such records and data are not already in the possession of the

	
40

	
successor operator. Any cost of obtaining or copying the former Operator's records and data shall be charged to the joint

	
41

	
account.

	
42

	
3. Effect of Bankruptcy: If Operator becomes insolvent, bankrupt or is placed in receivership, it shall be deemed to have

	
43

	
resigned without any action by Non-Operators, except the selection of a successor. If a petition for relief under the federal

	
44

	
bankruptcy laws is filed by or against Operator, and the removal of Operator is prevented by the federal bankruptcy court, all

	
45

	
Non-Operators and Operator shall comprise an interim operating committee to serve until Operator has elected to reject or

	
46

	
assume this agreement pursuant to the Bankruptcy Code, and an election to reject this agreement by Operator as a debtor in

	
47

	
possession, or by a trustee in bankruptcy, shall be deemed a resignation as Operator without any action by Non-Operators,

	
48

	
except the selection of a successor. During the period of time the operating committee controls operations, all actions shall

	
49

	
require the approval of two (2) or more parties owning a majority interest based on ownership as shown on Exhibit "A." In

	
50

	
the event there are only two (2) parties to this agreement, during the period of time the operating committee controls

	
51

	
operations, a third party acceptable to Operator, Non-Operator and the federal bankruptcy court shall be selected as a

	
52

	
member of the operating committee, and all actions shall require the approval of two (2) members of the operating

	
53

	
committee without regard for their interest in the Contract Area based on Exhibit "A."

	
54

	
C. Employees and Contractors:

	
55

	
The number of employees or contractors used by Operator in conducting operations hereunder, their selection, and the

	
56

	
hours of labor and the compensation for services performed shall be determined by Operator, and all such employees or

	
57

	
contractors shall be the employees or contractors of Operator.

	
58

	
D. Rights and Duties of Operator:

	
59

	
1. Competitive Rates and Use of Affiliates: All wells drilled on the Contract Area shall be drilled on a competitive

	
60

	
contract basis at the usual rates prevailing in the area. If it so desires, Operator may employ its own tools and equipment in

	
61

	
the drilling of wells, but its charges therefor shall not exceed the prevailing rates in the area and the rate of such charges

	
62

	
shall be agreed upon by the parties in writing before drilling operations are commenced, and such work shall be performed by

	
63

	
Operator under the same terms and conditions as are customary and usual in the area in contracts of independent contractors

	
64

	
who are doing work of a similar nature. All work performed or materials supplied by affiliates or related parties of Operator

	
65

	
shall be performed or supplied at competitive rates, pursuant to written agreement, and in accordance with customs and

	
66

	
standards prevailing in the industry.

	
67

	
2. Discharge of Joint Account Obligations: Except as herein otherwise specifically provided, Operator shall promptly pay

	
68

	
and discharge expenses incurred in the development and operation of the Contract Area pursuant to this agreement and shall

	
69

	
charge each of the parties hereto with their respective proportionate shares upon the expense basis provided in Exhibit "C."

	
70

	
Operator shall keep an accurate record of the joint account hereunder, showing expenses incurred and charges and credits

	
71

	
made and received.

	
72

	
3. Protection from Liens: Operator shall pay, or cause to be paid, as and when they become due and payable, all accounts

	
73

	
of contractors and suppliers and wages and salaries for services rendered or performed, and for materials supplied on, to or in

	
74

	
respect of the Contract Area or any operations for the joint account thereof, and shall keep the Contract Area free from

4

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
liens and encumbrances resulting therefrom except for those resulting from a bona fide dispute as to services rendered or

	
2

	
materials supplied.

	
3

	
4. Custody of Funds: Operator shall hold for the account of the Non-Operators any funds of the Non-Operators advanced

	
4

	
or paid to the Operator, either for the conduct of operations hereunder or as a result of the sale of production from the

	
5

	
Contract Area, and such funds shall remain the funds of the Non-Operators on whose account they are advanced or paid until

	
6

	
used for their intended purpose or otherwise delivered to the Non-Operators or applied toward the payment of debts as

	
7

	
provided in Article VII.B. Nothing in this paragraph shall be construed to establish a fiduciary relationship between Operator

	
8

	
and Non-Operators for any purpose other than to account for Non-Operator funds as herein specifically provided. Nothing in

	
9

	
this paragraph shall require the maintenance by Operator of separate accounts for the funds of Non-Operators unless the

	
10

	
parties otherwise specifically agree.

	
11

	
5. Access to Contract Area and Records: Operator shall, except as otherwise provided herein, permit each Non-Operator

	
12

	
or its duly authorized representative, at the Non-Operator's sole risk and cost, full and free access at all reasonable times to

	
13

	
all operations of every kind and character being conducted for the joint account on the Contract Area and to the records of

	
14

	
operations conducted thereon or production therefrom, including Operator's books and records relating thereto. Such access

	
15

	
rights shall not be exercised in a manner interfering with Operator's conduct of an operation hereunder and shall not obligate

	
16

	
Operator to furnish any geologic or geophysical data of an interpretive nature unless the cost of preparation of such

	
17

	
interpretive data was charged to the joint account. Operator will furnish to each Non-Operator upon request copies of any

	
18

	
and all reports and information obtained by Operator in connection with production and related items, including, without

	
19

	
limitation, meter and chart reports, production purchaser statements, run tickets and monthly gauge reports, but excluding

	
20

	
purchase contracts and pricing information to the extent not applicable to the production of the Non-Operator seeking the

	
21

	
information.Any audit of Operator's records relating to amounts expended and the appropriateness of such expenditures

	
22

	
shall be conducted in accordance with the audit protocol specified in Exhibit "C."

	
23

	
6. Filing and Furnishing Governmental Reports: Operator will file, and upon written request promptly furnish copies to

	
24

	
each requesting Non-Operator not in default of its payment obligations, all operational notices, reports or applications

	
25

	
required to be filed by local, State, Federal or Indian agencies or authorities having jurisdiction over operations hereunder.

	
26

	
Each Non-Operator shall provide to Operator on a timely basis all information necessary to Operator to make such filings.

	
27

	
7. Drilling and Testing Operations: The following provisions shall apply to each well drilled hereunder, including but not

	
28

	
limited to the Initial Well:

	
29

	
(a) Operator will promptly advise Non-Operators of the date on which the well is spudded, or the date on which

	
30

	
drilling operations are commenced.

	
31

	
(b) Operator will send to Non-Operators such reports, test results and notices regarding the progress of operations on the well

	
32

	
as the Non-Operators shall reasonably request, including, but not limited to, daily drilling reports, completion reports, and well logs.

	
33

	
(c) Operator shall adequately test all Zones encountered which may reasonably be expected to be capable of producing

	
34

	
Oil and Gas in paying quantities as a result of examination of the electric log or any other logs or cores or tests conducted

	
35

	
hereunder.

	
36

	
8. Cost Estimates: Upon request of any Consenting Party, Operator shall furnish estimates of current and cumulative costs

	
37

	
incurred for the joint account at reasonable intervals during the conduct of any operation pursuant to this agreement.

	
38

	
Operator shall not be held liable for errors in such estimates so long as the estimates are made in good faith.

	
39

	
9. Insurance: At all times while operations are conducted hereunder, Operator shall comply with the workers

	
40

	
compensation law of the state where the operations are being conducted; provided, however, that Operator may be a self-

	
41

	
insurer for liability under said compensation laws in which event the only charge that shall be made to the joint account shall

	
42

	
be as provided in Exhibit "C." Operator shall also carry or provide insurance for the benefit of the joint account of the parties

	
43

	
as outlined in Exhibit "D" attached hereto and made a part hereof. Operator shall require all contractors engaged in work on

	
44

	
or for the Contract Area to comply with the workers compensation law of the state where the operations are being conducted

	
45

	
and to maintain such other insurance as Operator may require.

	
46

	
In the event automobile liability insurance is specified in said Exhibit "D," or subsequently receives the approval of the

	
47

	
parties, no direct charge shall be made by Operator for premiums paid for such insurance for Operator's automotive

	
48

	
equipment.

	
49

	
ARTICLE VI.

	
50

	
DRILLING AND DEVELOPMENT

	
51

	
A. Initial Well:

	
52

	
On or before the______ day of ______________ , ____ , Operator shall commence the drilling of the Initial

	
53

	
Well at  a location on the Contract Area of Operator’s choosing

	
54

	
 

	
55

	

	
56

	

	
57

	

	
58

	

	
59

	

	
60 

	
and shall thereafter continue the drilling of the well with due diligence as a vertical well to a depth sufficient to test the Niobrara formation to or to a depth of 7,000 feet, whichever is the lesser depth.

	
61

	

	
62

	

	
63

	

	
64

	

	
65

	

	
66

	

	
67

	
The drilling of the Initial Well and the participation therein by all parties is obligatory, subject to Article VI.C.1. as to participation

	
68

	
in Completion operations and Article VI.F. as to termination of operations and Article XI as to occurrence of force majeure.

	
69

	
B. Subsequent Operations:

	
70

	
1. Proposed Operations: If any party hereto should desire to drill any well on the Contract Area other than the Initial Well, or

	
71 

	
if any party should desire to / complete the Initial Well as a horizontal well or to Rework, Sidetrack, Deepen, Recomplete or Plug Back a dry hole or a well no longer capable of

	
72

	
producing in paying quantities in which such party has not otherwise relinquished its interest in the proposed objective Zone under

	
73

	
this agreement, the party desiring to drill, Rework, Sidetrack, Deepen, Recomplete or Plug Back such a well shall give written

	
74

	
notice of the proposed operation to the parties who have not otherwise relinquished their interest in such objective Zone

5

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
under this agreement and to all other parties in the case of a proposal for Sidetracking or Deepening, specifying the work to be

	
2

	
performed, the location, proposed depth, objective Zone and the estimated cost of the operation. The parties to whom such a

	
3

	
notice is delivered shall have thirty (30) days after receipt of the notice within which to notify the party proposing to do the work

	
4

	
whether they elect to participate in the cost of the proposed operation. If a drilling rig is on location, notice of a proposal to

	
5

	
Rework, Sidetrack, Recomplete, Plug Back or Deepen may be given by telephone and the response period shall be limited to forty-

	
6

	
eight (48) hours, exclusive of Saturday, Sunday and legal holidays. Failure of a party to whom such notice is delivered to reply

	
7

	
within the period above fixed shall constitute an election by that party not to participate in the cost of the proposed operation.

	
8

	
Any proposal by a party to conduct an operation conflicting with the operation initially proposed shall be delivered to all parties

	
9

	
within the time and in the manner provided in Article VI.B.6.

	
10

	
If all parties to whom such notice is delivered elect to participate in such a proposed operation, the parties shall be

	
11

	
contractually committed to participate therein provided such operations are commenced within the time period hereafter set

	
12

	
forth, and Operator shall, no later than ninety (90) days after expiration of the notice period of thirty (30) days (or as

	
13

	
promptly as practicable after the expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case

	
14

	
may be), actually commence the proposed operation and thereafter complete it with due diligence at the risk and expense of

	
15

	
the parties participating therein; provided, however, said commencement date may be extended upon written notice of same

	
16

	
by Operator to the other parties, for a period of up to thirty (30) additional days if, in the sole opinion of Operator, such

	
17

	
additional time is reasonably necessary to obtain permits from governmental authorities, surface rights (including rights-of-

	
18

	
way) or appropriate drilling equipment, or to complete title examination or curative matter required for title approval or

	
19

	
acceptance. If the actual operation has not been commenced within the time provided (including any extension thereof as

	
20

	
specifically permitted herein or in the force majeure provisions of Article XI) and if any party hereto still desires to conduct

	
21

	
said operation, written notice proposing same must be resubmitted to the other parties in accordance herewith as if no prior

	
22

	
proposal had been made. Those parties that did not participate in the drilling of a well for which a proposal to Deepen or

	
23

	
Sidetrack is made hereunder shall, if such parties desire to participate in the proposed Deepening or Sidetracking operation,

	
24

	
reimburse the Drilling Parties in accordance with Article VI.B.4. in the event of a Deepening operation and in accordance

	
25

	
with Article VI.B.5. in the event of a Sidetracking operation.

	
26

	
2. Operations by Less Than All Parties:

	
27

	
(a) Determination of Participation. If any party to whom such notice is delivered as provided in Article VI.B.1. or

	
28

	
VI.C.1. (Option No. 2) elects not to participate in the proposed operation, then, in order to be entitled to the benefits of this

	
29

	
Article, the party or parties giving the notice and such other parties as shall elect to participate in the operation shall, no

	
30

	
later than ninety (90) days after the expiration of the notice period of thirty (30) days (or as promptly as practicable after the

	
31

	
expiration of the forty-eight (48) hour period when a drilling rig is on location, as the case may be) actually commence the

	
32

	
proposed operation and complete it with due diligence. Operator shall perform all work for the account of the Consenting

	
33

	
Parties; provided, however, if no drilling rig or other equipment is on location, and if Operator is a Non-Consenting Party,

	
34

	
the Consenting Parties shall either: (i) request Operator to perform the work required by such proposed operation for the

	
35

	
account of the Consenting Parties, or (ii) designate one of the Consenting Parties as Operator to perform such work. The

	
36

	
rights and duties granted to and imposed upon the Operator under this agreement are granted to and imposed upon the party

	
37

	
designated as Operator for an operation in which the original Operator is a Non-Consenting Party. Consenting Parties, when

	
38

	
conducting operations on the Contract Area pursuant to this Article VI.B.2., shall comply with all terms and conditions of this

	
39

	
agreement.

	
40

	
If less than all parties approve any proposed operation, the proposing party, immediately after the expiration of the

	
41

	
applicable notice period, shall advise all Parties of the total interest of the parties approving such operation and its

	
42

	
recommendation as to whether the Consenting Parties should proceed with the operation as proposed. Each Consenting Party,

	
43

	
within forty-eight (48) hours (exclusive of Saturday, Sunday, and legal holidays) after delivery of such notice, shall advise the

	
44

	
proposing party of its desire to (i) limit participation to such party's interest as shown on Exhibit "A" or (ii) carry only its

	
45

	
proportionate part (determined by dividing such party's interest in the Contract Area by the interests of all Consenting Parties in

	
46

	
the Contract Area) of Non-Consenting Parties' interests, or (iii) carry its proportionate part (determined as provided in (ii)) of

	
47

	
Non-Consenting Parties' interests together with all or a portion of its proportionate part of any Non-Consenting Parties'

	
48

	
interests that any Consenting Party did not elect to take. Any interest of Non-Consenting Parties that is not carried by a

	
49

	
Consenting Party shall be deemed to be carried by the party proposing the operation if such party does not withdraw its

	
50

	
proposal. Failure to advise the proposing party within the time required shall be deemed an election under (i). In the event a

	
51

	
drilling rig is on location, notice may be given by telephone, and the time permitted for such a response shall not exceed a

	
52

	
total of forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays). The proposing party, at its election, may

	
53

	
withdraw such proposal if there is less than 100% participation and shall notify all parties of such decision within ten (10)

	
54

	
days, or within twenty-four (24) hours if a drilling rig is on location, following expiration of the applicable response period.

	
55

	
If 100% subscription to the proposed operation is obtained, the proposing party shall promptly notify the Consenting Parties

	
56

	
of their proportionate interests in the operation and the party serving as Operator shall commence such operation within the

	
57

	
period provided in Article VI.B.1., subject to the same extension right as provided therein.

	
58

	
(b) Relinquishment of Interest for Non-Participation. The entire cost and risk of conducting such operations shall be

	
59

	
borne by the Consenting Parties in the proportions they have elected to bear same under the terms of the preceding

	
60

	
paragraph. Consenting Parties shall keep the leasehold estates involved in such operations free and clear of all liens and

	
61

	
encumbrances of every kind created by or arising from the operations of the Consenting Parties. If such an operation results

	
62

	
in a dry hole, then subject to Articles VI.B.6. and VI.E.3., the Consenting Parties shall plug and abandon the well and restore

	
63

	
the surface location at their sole cost, risk and expense; provided, however, that those Non-Consenting Parties that

	
64

	
participated in the drilling, Deepening or Sidetracking of the well shall remain liable for, and shall pay, their proportionate

	
65

	
shares of the cost of plugging and abandoning the well and restoring the surface location insofar only as those costs were not

	
66

	
increased by the subsequent operations of the Consenting Parties. If any well drilled, Reworked, Sidetracked, Deepened,

	
67

	
Recompleted or Plugged Back under the provisions of this Article results in a well capable of producing Oil and/or Gas in

	
68

	
paying quantities, the Consenting Parties shall Complete and equip the well to produce at their sole cost and risk, and the

	
69

	
well shall then be turned over to Operator (if the Operator did not conduct the operation) and shall be operated by it at the

	
70

	
expense and for the account of the Consenting Parties. Upon commencement of operations for the drilling, Reworking,

	
71

	
Sidetracking, Recompleting, Deepening or Plugging Back of any such well by Consenting Parties in accordance with the

	
72

	
provisions of this Article, each Non-Consenting Party shall be deemed to have relinquished to Consenting Parties, and the

	
73

	
Consenting Parties shall own and be entitled to receive, in proportion to their respective interests, all of such Non-

	
74

	
Consenting Party's interest in the well and share of production therefrom or, in the case of a Reworking, Sidetracking,

6

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
Deepening, Recompleting or Plugging Back, or a Completion pursuant to Article VI.C.1. Option No. 2, all of such Non-

	
2

	
Consenting Party's interest in the production obtained from the operation in which the Non-Consenting Party did not elect

	
3

	
to participate. Such relinquishment shall be effective until the proceeds of the sale of such share, calculated at the well, or

	
4

	
market value thereof if such share is not sold (after deducting applicable ad valorem, production, severance, and excise taxes,

	
5

	
royalty, overriding royalty and other interests not excepted by Article III.C. payable out of or measured by the production

	
6

	
from such well accruing with respect to such interest until it reverts), shall equal the total of the following:

	
7

	
(i) 100% of each such Non-Consenting Party's share of the cost of any newly acquired surface equipment

	
8

	
beyond the wellhead connections (including but not limited to stock tanks, separators, treaters, pumping equipment and

	
9

	
piping), plus 100% of each such Non-Consenting Party's share of the cost of operation of the well commencing with first

	
10

	
production and continuing until each such Non-Consenting Party's relinquished interest shall revert to it under other

	
11

	
provisions of this Article, it being agreed that each Non-Consenting Party's share of such costs and equipment will be that

	
12

	
interest which would have been chargeable to such Non-Consenting Party had it participated in the well from the beginning

	
13

	
of the operations; and

	
14

	
(ii) 400% of (a) that portion of the costs and expenses of drilling, Reworking, Sidetracking, Deepening,

	
15

	
Plugging Back, testing, Completing, and Recompleting, after deducting any cash contributions received under Article VIII.C.,

	
16

	
and of (b) that portion of the cost of newly acquired equipment in the well (to and including the wellhead connections),

	
17

	
which would have been chargeable to such Non-Consenting Party if it had participated therein.

	
18

	
Notwithstanding anything to the contrary in this Article VI.B., if the well does not reach the deepest objective Zone

	
19

	
described in the notice proposing the well for reasons other than the encountering of granite or practically impenetrable

	
20

	
substance or other condition in the hole rendering further operations impracticable, Operator shall give notice thereof to each

	
21

	
Non-Consenting Party who submitted or voted for an alternative proposal under Article VI.B.6. to drill the well to a

	
22

	
shallower Zone than the deepest objective Zone proposed in the notice under which the well was drilled, and each such Non-

	
23

	
Consenting Party shall have the option to participate in the initial proposed Completion of the well by paying its share of the

	
24

	
cost of drilling the well to its actual depth, calculated in the manner provided in Article VI.B.4. (a). If any such Non-

	
25

	
Consenting Party does not elect to participate in the first Completion proposed for such well, the relinquishment provisions

	
26

	
of this Article VI.B.2. (b) shall apply to such party's interest.

	
27

	
(c) Reworking, Recompleting or Plugging Back. An election not to participate in the drilling, Sidetracking or

	
28

	
Deepening of a well shall be deemed an election not to participate in any Reworking or Plugging Back operation proposed in

	
29

	
such a well, or portion thereof, to which the initial non-consent election applied that is conducted at any time prior to full

	
30

	
recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount. Similarly, an election not to

	
31

	
participate in the Completing or Recompleting of a well shall be deemed an election not to participate in any Reworking

	
32

	
operation proposed in such a well, or portion thereof, to which the initial non-consent election applied that is conducted at

	
33

	
any time prior to full recovery by the Consenting Parties of the Non-Consenting Party's recoupment amount. Any such

	
34

	
Reworking, Recompleting or Plugging Back operation conducted during the recoupment period shall be deemed part of the

	
35

	
cost of operation of said well and there shall be added to the sums to be recouped by the Consenting Parties400% of

	
36

	
that portion of the costs of the Reworking, Recompleting or Plugging Back operation which would have been chargeable to

	
37

	
such Non-Consenting Party had it participated therein. If such a Reworking, Recompleting or Plugging Back operation is

	
38

	
proposed during such recoupment period, the provisions of this Article VI.B. shall be applicable as between said Consenting

	
39

	
Parties in said well.

	
40

	
(d) Recoupment Matters. During the period of time Consenting Parties are entitled to receive Non-Consenting Party's

	
41

	
share of production, or the proceeds therefrom, Consenting Parties shall be responsible for the payment of all ad valorem,

	
42

	
production, severance, excise, gathering and other taxes, and all royalty, overriding royalty and other burdens applicable to

	
43

	
Non-Consenting Party's share of production not excepted by Article III.C.

	
44

	
In the case of any Reworking, Sidetracking, Plugging Back, Recompleting or Deepening operation, the Consenting

	
45

	
Parties shall be permitted to use, free of cost, all casing, tubing and other equipment in the well, but the ownership of all

	
46

	
such equipment shall remain unchanged; and upon abandonment of a well after such Reworking, Sidetracking, Plugging Back,

	
46

	
Recompleting or Deepening, the Consenting Parties shall account for all such equipment to the owners thereof, with each

	
48

	
party receiving its proportionate part in kind or in value, less cost of salvage.

	
49

	
Within ninety (90) days after the completion of any operation under this Article, the party conducting the operations

	
50

	
for the Consenting Parties shall furnish each Non-Consenting Party with an inventory of the equipment in and connected to

	
51

	
the well, and an itemized statement of the cost of drilling, Sidetracking, Deepening, Plugging Back, testing, Completing,

	
52

	
Recompleting, and equipping the well for production; or, at its option, the operating party, in lieu of an itemized statement

	
53

	
of such costs of operation, may submit a detailed statement of monthly billings. Each month thereafter, during the time the

	
54

	
Consenting Parties are being reimbursed as provided above, the party conducting the operations for the Consenting Parties

	
55

	
shall furnish the Non-Consenting Parties with an itemized statement of all costs and liabilities incurred in the operation of

	
56

	
the well, together with a statement of the quantity of Oil and Gas produced from it and the amount of proceeds realized from

	
57

	
the sale of the well's working interest production during the preceding month. In determining the quantity of Oil and Gas

	
58

	
produced during any month, Consenting Parties shall use industry accepted methods such as but not limited to metering or

	
59

	
periodic well tests. Any amount realized from the sale or other disposition of equipment newly acquired in connection with

	
60

	
any such operation which would have been owned by a Non-Consenting Party had it participated therein shall be credited

	
61

	
against the total unreturned costs of the work done and of the equipment purchased in determining when the interest of such

	
62

	
Non-Consenting Party shall revert to it as above provided; and if there is a credit balance, it shall be paid to such Non-

	
63

	
Consenting Party.

	
64

	
If and when the Consenting Parties recover from a Non-Consenting Party's relinquished interest the amounts provided

	
65

	
for above, the relinquished interests of such Non-Consenting Party shall automatically revert to it as of 7:00 a.m. on the day

	
66

	
following the day on which such recoupment occurs, and, from and after such reversion, such Non-Consenting Party shall

	
67

	
own the same interest in such well, the material and equipment in or pertaining thereto, and the production therefrom as

	
68

	
such Non-Consenting Party would have been entitled to had it participated in the drilling, Sidetracking, Reworking,

	
69

	
Deepening, Recompleting or Plugging Back of said well. Thereafter, such Non-Consenting Party shall be charged with and

	
70

	
shall pay its proportionate part of the further costs of the operation of said well in accordance with the terms of this

	
71

	
agreement and Exhibit "C" attached hereto.

	
72

	
3. Stand-By Costs: When a well which has been drilled or Deepened has reached its authorized depth and all tests have

	
73

	
been completed and the results thereof furnished to the parties, or when operations on the well have been otherwise

	
74

	
terminated pursuant to Article VI.F., stand-by costs incurred pending response to a party's notice proposing a Reworking,

7

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
Sidetracking, Deepening, Recompleting, Plugging Back or Completing operation in such a well (including the period required

	
2

	
under Article VI.B.6. to resolve competing proposals) shall be charged and borne as part of the drilling or Deepening

	
3

	
operation just completed. Stand-by costs subsequent to all parties responding, or expiration of the response time permitted,

	
4

	
whichever first occurs, and prior to agreement as to the participating interests of all Consenting Parties pursuant to the terms

	
5

	
of the second grammatical paragraph of Article VI.B.2. (a), shall be charged to and borne as part of the proposed operation,

	
6

	
but if the proposal is subsequently withdrawn because of insufficient participation, such stand-by costs shall be allocated

	
7

	
between the Consenting Parties in the proportion each Consenting Party's interest as shown on Exhibit "A" bears to the total

	
8

	
interest as shown on Exhibit "A" of all Consenting Parties.

	
9

	
In the event that notice for a Sidetracking operation is given while the drilling rig to be utilized is on location, any party

	
10

	
may request and receive up to five (5) additional days after expiration of the forty-eight hour response period specified in

	
11

	
Article VI.B.1. within which to respond by paying for all stand-by costs and other costs incurred during such extended

	
12

	
response period; Operator may require such party to pay the estimated stand-by time in advance as a condition to extending

	
13

	
the response period. If more than one party elects to take such additional time to respond to the notice, standby costs shall be

	
14

	
allocated between the parties taking additional time to respond on a day-to-day basis in the proportion each electing party's

	
15

	
interest as shown on Exhibit "A" bears to the total interest as shown on Exhibit "A" of all the electing parties.

	
16

	
4. Deepening: If less than all parties elect to participate in a drilling, Sidetracking, or Deepening operation proposed

	
17

	
pursuant to Article VI.B.1., the interest relinquished by the Non-Consenting Parties to the Consenting Parties under Article

	
18

	
VI.B.2. shall relate only and be limited to the lesser of (i) the total depth actually drilled or (ii) the objective depth or Zone

	
19

	
of which the parties were given notice under Article VI.B.1. ("Initial Objective"). Such well shall not be Deepened beyond the

	
20

	
Initial Objective without first complying with this Article to afford the Non-Consenting Parties the opportunity to participate

	
21

	
in the Deepening operation.

	
22

	
In the event any Consenting Party desires to drill or Deepen a Non-Consent Well to a depth below the Initial Objective,

	
23

	
such party shall give notice thereof, complying with the requirements of Article VI.B.1., to all parties (including Non-

	
24

	
Consenting Parties). Thereupon, Articles VI.B.1. and 2. shall apply and all parties receiving such notice shall have the right to

	
25

	
participate or not participate in the Deepening of such well pursuant to said Articles VI.B.1. and 2. If a Deepening operation

	
26

	
is approved pursuant to such provisions, and if any Non-Consenting Party elects to participate in the Deepening operation,

	
27

	
such Non-Consenting party shall pay or make reimbursement (as the case may be) of the following costs and expenses.

	
28

	
(a) If the proposal to Deepen is made prior to the Completion of such well as a well capable of producing in paying

	
29

	
quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) that share of costs

	
30

	
and expenses incurred in connection with the drilling of said well from the surface to the Initial Objective which Non-

	
31

	
Consenting Party would have paid had such Non-Consenting Party agreed to participate therein, plus the Non-Consenting

	
32

	
Party's share of the cost of Deepening and of participating in any further operations on the well in accordance with the other

	
33

	
provisions of this Agreement; provided, however, all costs for testing and Completion or attempted Completion of the well

	
34

	
incurred by Consenting Parties prior to the point of actual operations to Deepen beyond the Initial Objective shall be for the

	
35

	
sole account of Consenting Parties.

	
36

	
(b) If the proposal is made for a Non-Consent Well that has been previously Completed as a well capable of producing

	
37

	
in paying quantities, but is no longer capable of producing in paying quantities, such Non-Consenting Party shall pay (or

	
38

	
reimburse Consenting Parties for, as the case may be) its proportionate share of all costs of drilling, Completing, and

	
39

	
equipping said well from the surface to the Initial Objective, calculated in the manner provided in paragraph (a) above, less

	
40

	
those costs recouped by the Consenting Parties from the sale of production from the well. The Non-Consenting Party shall

	
41

	
also pay its proportionate share of all costs of re-entering said well. The Non-Consenting Parties' proportionate part (based

	
42

	
on the percentage of such well Non-Consenting Party would have owned had it previously participated in such Non-Consent

	
43

	
Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in

	
44

	
connection with such well shall be determined in accordance with Exhibit "C." If the Consenting Parties have recouped the

	
45

	
cost of drilling, Completing, and equipping the well at the time such Deepening operation is conducted, then a Non-

	
46

	
Consenting Party may participate in the Deepening of the well with no payment for costs incurred prior to re-entering the

	
47

	
well for Deepening

	
48

	
The foregoing shall not imply a right of any Consenting Party to propose any Deepening for a Non-Consent Well prior

	
49

	
to the drilling of such well to its Initial Objective without the consent of the other Consenting Parties as provided in Article

	
50

	
VI.F.

	
51

	
5. Sidetracking: Any party having the right to participate in a proposed Sidetracking operation that does not own an

	
52

	
interest in the affected wellbore at the time of the notice shall, upon electing to participate, tender to the wellbore owners its

	
53

	
proportionate share (equal to its interest in the Sidetracking operation) of the value of that portion of the existing wellbore

	
54

	
to be utilized as follows:

	
55

	
(a) If the proposal is for Sidetracking an existing dry hole, reimbursement shall be on the basis of the actual costs

	
56

	
incurred in the initial drilling of the well down to the depth at which the Sidetracking operation is initiated.

	
57

	
(b) If the proposal is for Sidetracking a well which has previously produced, reimbursement shall be on the basis of

	
58

	
such party's proportionate share of drilling and equipping costs incurred in the initial drilling of the well down to the depth

	
59

	
at which the Sidetracking operation is conducted, calculated in the manner described in Article VI.B.4(b) above. Such party's

	
60

	
proportionate share of the cost of the well's salvable materials and equipment down to the depth at which the Sidetracking

	
61

	
operation is initiated shall be determined in accordance with the provisions of Exhibit "C."

	
62

	
6. Order of Preference of Operations. Except as otherwise specifically provided in this agreement, if any party desires to

	
63

	
propose the conduct of an operation that conflicts with a proposal that has been made by a party under this Article VI, such

	
64

	
party shall have fifteen (15) days from delivery of the initial proposal, in the case of a proposal to drill a well or to perform

	
65

	
an operation on a well where no drilling rig is on location, or twenty-four (24) hours, exclusive of Saturday, Sunday and legal

	
66

	
holidays, from delivery of the initial proposal, if a drilling rig is on location for the well on which such operation is to be

	
67

	
conducted, to deliver to all parties entitled to participate in the proposed operation such party's alternative proposal, such

	
68

	
alternate proposal to contain the same information required to be included in the initial proposal. Each party receiving such

	
69

	
proposals shall elect by delivery of notice to Operator within five (5) days after expiration of the proposal period, or within

	
70

	
twenty-four (24) hours (exclusive of Saturday, Sunday and legal holidays) if a drilling rig is on location for the well that is the

	
71

	
subject of the proposals, to participate in one of the competing proposals. Any party not electing within the time required

	
72

	
shall be deemed not to have voted. The proposal receiving the vote of parties owning the largest aggregate percentage

	
73

	
interest of the parties voting shall have priority over all other competing proposals; in the case of a tie vote, the 

	
74

	 

8

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
initial proposal shall prevail. Operator shall deliver notice of such result to all parties entitled to participate in the operation

	
2

	
within five (5) days after expiration of the election period (or within twenty-four (24) hours, exclusive of Saturday, Sunday

	
3

	
and legal holidays, if a drilling rig is on location). Each party shall then have two (2) days (or twenty-four (24) hours if a rig

	
4

	
is on location) from receipt of such notice to elect by delivery of notice to Operator to participate in such operation or to

	
5

	
relinquish interest in the affected well pursuant to the provisions of Article VI.B.2.; failure by a party to deliver notice within

	
6

	
such period shall be deemed an election not to participate in the prevailing proposal.

	
7

	
7. Conformity to Spacing Pattern. Notwithstanding the provisions of this Article VI.B.2., it is agreed that no wells shall be

	
8

	
proposed to be drilled to or Completed in or produced from a Zone from which a well located elsewhere on the Contract

	
9

	
Area is producing, unless such well conforms to the then-existing well spacing pattern for such Zone.

	
10

	
8. Paying Wells. No party shall conduct any Reworking, Deepening, Plugging Back, Completion, Recompletion, or

	
11

	
Sidetracking operation under this agreement with respect to any well then capable of producing in paying quantities except

	
12

	
with the consent of all parties that have not relinquished interests in the well at the time of such operation.

	
13

	
C. Completion of Wells; Reworking and Plugging Back:

	
14

	
1. Completion: Without the consent of all parties, no well shall be drilled, Deepened or Sidetracked, except any well

	
15

	
drilled, Deepened or Sidetracked pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the drilling,

	
16

	
Deepening or Sidetracking shall include:

	
17

	
oOption No. 1: All necessary expenditures for the drilling, Deepening or Sidetracking, testing, Completing and

	
18

	
equipping of the well, including necessary tankage and/or surface facilities.

	
19

	
þOption No. 2: All necessary expenditures for the drilling, Deepening or Sidetracking and testing of the well. When

	
20

	
such well has reached its authorized depth, and all logs, cores and other tests have been completed, and the results

	
21

	
thereof furnished to the parties, Operator shall give immediate notice to the Non-Operators having the right to

	
22

	
participate in a Completion attempt whether or not Operator recommends attempting to Complete the well,

	
23

	
together with Operator's AFE for Completion costs if not previously provided. The parties receiving such notice

	
24

	
shall have forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) in which to elect by delivery of

	
25

	
notice to Operator to participate in a recommended Completion attempt or to make a Completion proposal with an

	
26

	
accompanying AFE. Operator shall deliver any such Completion proposal, or any Completion proposal conflicting

	
27

	
with Operator's proposal, to the other parties entitled to participate in such Completion in accordance with the

	
28

	
procedures specified in Article VI.B.6. Election to participate in a Completion attempt shall include consent to all

	
29

	
necessary expenditures for the Completing and equipping of such well, including necessary tankage and/or surface

	
30

	
facilities but excluding any stimulation operation not contained on the Completion AFE. Failure of any party

	
31

	
receiving such notice to reply within the period above fixed shall constitute an election by that party not to

	
32

	
participate in the cost of the Completion attempt; provided, that Article VI.B.6. shall control in the case of

	
33

	
conflicting Completion proposals. If one or more, but less than all of the parties, elect to attempt a Completion, the

	
34

	
provision of Article VI.B.2. hereof (the phrase "Reworking, Sidetracking, Deepening, Recompleting or Plugging

	
35

	
Back" as contained in Article VI.B.2. shall be deemed to include "Completing") shall apply to the operations

	
36

	
thereafter conducted by less than all parties; provided, however, that Article VI.B.2. shall apply separately to each

	
37

	
separate Completion or Recompletion attempt undertaken hereunder, and an election to become a Non-Consenting

	
38

	
Party as to one Completion or Recompletion attempt shall not prevent a party from becoming a Consenting Party

	
39

	
in subsequent Completion or Recompletion attempts regardless whether the Consenting Parties as to earlier

	
40

	
Completions or Recompletion have recouped their costs pursuant to Article VI.B.2.; provided further, that any

	
41

	
recoupment of costs by a Consenting Party shall be made solely from the production attributable to the Zone in

	
42

	
which the Completion attempt is made. Election by a previous Non-Consenting party to participate in a subsequent

	
43

	
Completion or Recompletion attempt shall require such party to pay its proportionate share of the cost of salvable

	
44

	
materials and equipment installed in the well pursuant to the previous Completion or Recompletion attempt,

	
45

	
insofar and only insofar as such materials and equipment benefit the Zone in which such party participates in a

	
46

	
Completion attempt.

	
47

	
2. Rework, Recomplete or Plug Back: No well shall be Reworked, Recompleted or Plugged Back except a well Reworked,

	
48

	
Recompleted, or Plugged Back pursuant to the provisions of Article VI.B.2. of this agreement. Consent to the Reworking,

	
49

	
Recompleting or Plugging Back of a well shall include all necessary expenditures in conducting such operations and

	
50

	
Completing and equipping of said well, including necessary tankage and/or surface facilities.

	
51

	
D. Other Operations:

	
52

	
Operator shall not undertake any single project reasonably estimated to require an expenditure in excess of

	
53

	
Fifty thousand   Dollars ($ 50,000.00) except in connection with the

	
54

	
drilling, Sidetracking, Reworking, Deepening, Completing, Recompleting or Plugging Back of a well that has been previously

	
55

	
authorized by or pursuant to this agreement; provided, however, that, in case of explosion, fire, flood or other sudden

	
56

	
emergency, whether of the same or different nature, Operator may take such steps and incur such expenses as in its opinion

	
57

	
are required to deal with the emergency to safeguard life and property but Operator, as promptly as possible, shall report the

	
58

	
emergency to the other parties. If Operator prepares an AFE for its own use, Operator shall furnish any Non-Operator so

	
59

	
requesting an information copy thereof for any single project costing in excess of Fifty thousand Dollars

	
60

	
($ 50,000.00 ). Any party who has not relinquished its interest in a well shall have the right to propose that

	
61

	
Operator perform repair work or undertake the installation of artificial lift equipment or ancillary production facilities such as

	
62

	
salt water disposal wells or to conduct additional work with respect to a well drilled hereunder or other similar project (but

	
63

	
not including the installation of gathering lines or other transportation or marketing facilities, the installation of which shall

	
64

	
be governed by separate agreement between the parties) reasonably estimated to require an expenditure in excess of the

	
65

	
amount first set forth above in this Article VI.D. (except in connection with an operation required to be proposed under

	
66

	
Articles VI.B.1. or VI.C.1. Option No. 2, which shall be governed exclusively be those Articles). Operator shall deliver such

	
67

	
proposal to all parties entitled to participate therein. If within thirty (30) days thereof Operator secures the written consent

	
68

	
of any party or parties owning at least 75% of the interests of the parties entitled to participate in such operation,

	
69

	
each party having the right to participate in such project shall be bound by the terms of such proposal and shall be obligated

	
70

	
to pay its proportionate share of the costs of the proposed project as if it had consented to such project pursuant to the terms

	
71

	
of the proposal.

	
72

	
E. Abandonment of Wells:

	
73

	
1. Abandonment of Dry Holes: Except for any well drilled or Deepened pursuant to Article VI.B.2., any well which has

	
74

	
been drilled or Deepened under the terms of this agreement and is proposed to be completed as a dry hole shall not be

9

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
plugged and abandoned without the consent of all parties. Should Operator, after diligent effort, be unable to contact any

	
2 

	
party, or should any party fail to reply within forty-eight (48) hours (exclusive of Saturday, Sunday and legal holidays) after

	
3

	
delivery of notice of the proposal to plug and abandon such well, such party shall be deemed to have consented to the

	
4

	
proposed abandonment. All such wells shall be plugged and abandoned in accordance with applicable regulations and at the

	
5

	
cost, risk and expense of the parties who participated in the cost of drilling or Deepening such well. Any party who objects to

	
6

	
plugging and abandoning such well by notice delivered to Operator within forty-eight (48) hours (exclusive of Saturday,

	
7

	
Sunday and legal holidays) after delivery of notice of the proposed plugging shall take over the well as of the end of such

	
8

	
forty-eight (48) hour notice period and conduct further operations in search of Oil and/or Gas subject to the provisions of

	
9

	
Article VI.B.; failure of such party to provide proof reasonably satisfactory to Operator of its financial capability to conduct

	
10

	
such operations or to take over the well within such period or thereafter to conduct operations on such well or plug and

	
11

	
abandon such well shall entitle Operator to retain or take possession of the well and plug and abandon the well. The party

	
12

	
taking over the well shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties against

	
13

	
liability for any further operations conducted on such well except for the costs of plugging and abandoning the well and

	
14

	
restoring the surface, for which the abandoning parties shall remain proportionately liable.

	
15

	
2. Abandonment of Wells That Have Produced: Except for any well in which a Non-Consent operation has been

	
16

	
conducted hereunder for which the Consenting Parties have not been fully reimbursed as herein provided, any well which has

	
17

	
been completed as a producer shall not be plugged and abandoned without the consent of all parties. If all parties consent to

	
18

	
such abandonment, the well shall be plugged and abandoned in accordance with applicable regulations and at the cost, risk

	
19

	
and expense of all the parties hereto. Failure of a party to reply within sixty (60) days of delivery of notice of proposed

	
20

	
abandonment shall be deemed an election to consent to the proposal. If, within sixty (60) days after delivery of notice of the

	
21

	
proposed abandonment of any well, all parties do not agree to the abandonment of such well, those wishing to continue its

	
22

	
operation from the Zone then open to production shall be obligated to take over the well as of the expiration of the

	
23

	
applicable notice period and shall indemnify Operator (if Operator is an abandoning party) and the other abandoning parties

	
24

	
against liability for any further operations on the well conducted by such parties. Failure of such party or parties to provide

	
25

	
proof reasonably satisfactory to Operator of their financial capability to conduct such operations or to take over the well

	
26

	
within the required period or thereafter to conduct operations on such well shall entitle operator to retain or take possession

	
27

	
of such well and plug and abandon the well.

	
28

	
Parties taking over a well as provided herein shall tender to each of the other parties its proportionate share of the value of

	
29

	
the well's salvable material and equipment, determined in accordance with the provisions of Exhibit "C," less the estimated cost

	
30

	
of salvaging and the estimated cost of plugging and abandoning and restoring the surface; provided, however, that in the event

	
31

	
the estimated plugging and abandoning and surface restoration costs and the estimated cost of salvaging are higher than the

	
32

	
value of the well's salvable material and equipment, each of the abandoning parties shall tender to the parties continuing

	
33

	
operations their proportionate shares of the estimated excess cost. Each abandoning party shall assign to the non-abandoning

	
34

	
parties, without warranty, express or implied, as to title or as to quantity, or fitness for use of the equipment and material, all

	
35

	
of its interest in the wellbore of the well and related equipment, together with its interest in the Leasehold insofar and only

	
36

	
insofar as such Leasehold covers the right to obtain production from that wellbore in the Zone then open to production. If the

	
37

	
interest of the abandoning party is or includes and Oil and Gas Interest, such party shall execute and deliver to the non-

	
38

	
abandoning party or parties an oil and gas lease, limited to the wellbore and the Zone then open to production, for a term of

	
39

	
one (1) year and so long thereafter as Oil and/or Gas is produced from the Zone covered thereby, such lease to be on the form

	
40

	
attached as Exhibit "B." The assignments or leases so limited shall encompass the Drilling Unit upon which the well is located.

	
41

	
The payments by, and the assignments or leases to, the assignees shall be in a ratio based upon the relationship of their

	
42

	
respective percentage of participation in the Contract Area to the aggregate of the percentages of participation in the Contract

	
43

	
Area of all assignees. There shall be no readjustment of interests in the remaining portions of the Contract Area.

	
44

	
Thereafter, abandoning parties shall have no further responsibility, liability, or interest in the operation of or production

	
45

	
from the well in the Zone then open other than the royalties retained in any lease made under the terms of this Article. Upon

	
46

	
request, Operator shall continue to operate the assigned well for the account of the non-abandoning parties at the rates and

	
47

	
charges contemplated by this agreement, plus any additional cost and charges which may arise as the result of the separate

	
48

	
ownership of the assigned well. Upon proposed abandonment of the producing Zone assigned or leased, the assignor or lessor

	
49

	
shall then have the option to repurchase its prior interest in the well (using the same valuation formula) and participate in

	
50

	
further operations therein subject to the provisions hereof.

	
51

	
3. Abandonment of Non-Consent Operations: The provisions of Article VI.E.1. or VI.E.2. above shall be applicable as

	
52

	
between Consenting Parties in the event of the proposed abandonment of any well excepted from said Articles; provided,

	
53

	
however, no well shall be permanently plugged and abandoned unless and until all parties having the right to conduct further

	
54

	
operations therein have been notified of the proposed abandonment and afforded the opportunity to elect to take over the well

	
55

	
in accordance with the provisions of this Article VI.E.; and provided further, that Non-Consenting Parties who own an interest

	
56

	
in a portion of the well shall pay their proportionate shares of abandonment and surface restoration cost for such well as

	
57

	
provided in Article VI.B.2.(b).

	
58

	
F. Termination of Operations:

	
59

	
Upon the commencement of an operation for the drilling, Reworking, Sidetracking, Plugging Back, Deepening, testing,

	
60

	
Completion or plugging of a well, including but not limited to the Initial Well, such operation shall not be terminated without

	
61

	
consent of parties bearing 75% of the costs of such operation; provided, however, that in the event granite or other

	
62

	
practically impenetrable substance or condition in the hole is encountered which renders further operations impractical,

	
63

	
Operator may discontinue operations and give notice of such condition in the manner provided in Article VI.B.1, and the

	
64

	
provisions of Article VI.B. or VI.E. shall thereafter apply to such operation, as appropriate.

	
65

	
G. Taking Production in Kind:

	
66

	
oOption No. 1: Gas Balancing Agreement Attached

	
67

	
Each party shall take in kind or separately dispose of its proportionate share of all Oil and Gas produced from the

	
68

	
Contract Area, exclusive of production which may be used in development and producing operations and in preparing and

	
69

	
treating Oil and Gas for marketing purposes and production unavoidably lost. Any extra expenditure incurred in the taking

	
70

	
in kind or separate disposition by any party of its proportionate share of the production shall be borne by such party. Any

	
71

	
party taking its share of production in kind shall be required to pay for only its proportionate share of such part of

	
72

	
Operator's surface facilities which it uses.

	
73 

	
Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in

	
74

	
production from the Contract Area, and, except as provided in Article VII.B., shall be entitled to receive payment

10

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
directly from the purchaser thereof for its share of all production.

	
2

	
If any party fails to make the arrangements necessary to take in kind or separately dispose of its proportionate

	
3

	
share of the Oil produced from the Contract Area, Operator shall have the right, subject to the revocation at will by

	
4

	
the party owning it, but not the obligation, to purchase such Oil or sell it to others at any time and from time to

	
5

	
time, for the account of the non-taking party. Any such purchase or sale by Operator may be terminated by

	
6

	
Operator upon at least ten (10) days written notice to the owner of said production and shall be subject always to

	
7

	
the right of the owner of the production upon at least ten (10) days written notice to Operator to exercise at any

	
8

	
time its right to take in kind, or separately dispose of, its share of all Oil not previously delivered to a purchaser.

	
9

	
Any purchase or sale by Operator of any other party's share of Oil shall be only for such reasonable periods of time

	
10

	
as are consistent with the minimum needs of the industry under the particular circumstances, but in no event for a

	
11

	
period in excess of one (1) year.

	
12

	
Any such sale by Operator shall be in a manner commercially reasonable under the circumstances but Operator

	
13

	
shall have no duty to share any existing market or to obtain a price equal to that received under any existing

	
14

	
market. The sale or delivery by Operator of a non-taking party's share of Oil under the terms of any existing

	
15

	
contract of Operator shall not give the non-taking party any interest in or make the non-taking party a party to said

	
16

	
contract. No purchase shall be made by Operator without first giving the non-taking party at least ten (10) days

	
17

	
written notice of such intended purchase and the price to be paid or the pricing basis to be used.

	
18

	
All parties shall give timely written notice to Operator of their Gas marketing arrangements for the following

	
19

	
month, excluding price, and shall notify Operator immediately in the event of a change in such arrangements.

	
20

	
Operator shall maintain records of all marketing arrangements, and of volumes actually sold or transported, which

	
21

	
records shall be made available to Non-Operators upon reasonable request.

	
22

	
In the event one or more parties' separate disposition of its share of the Gas causes split-stream deliveries to separate

	
23

	
pipelines and/or deliveries which on a day-to-day basis for any reason are not exactly equal to a party's respective proportion

	
24

	
ate share of total Gas sales to be allocated to it, the balancing or accounting between the parties shall be in accordance with

	
25

	
any Gas balancing agreement between the parties hereto, whether such an agreement is attached as Exhibit "E" or is a

	
26

	
separate agreement. Operator shall give notice to all parties of the first sales of Gas from any well under this agreement.

	
27

	
þ Option No. 2: No Gas Balancing Agreement:

	
28

	
Operator  shall be soley responsible for marketing all Oil and Gas produced from

	
29

	
the Contract Area, exclusive of production which may be used in development and producing operations and in

	
30

	
preparing and treating Oil and Gas for marketing purposes and production unavoidably lost.

	
31

	
Each party shall execute such division orders and contracts as may be necessary for the sale of its interest in

	
32

	
production from the Contract Area.

	
33

	
 

	
34

	
Any such sale by Operator shall be in a manner commercially reasonable under the circumstances.  The sale or delivery by

	
35

	
Operator of a non-taking party's share of production under the terms of any existing contract of Operator shall not

	
36

	
give the non-taking party any interest in or make the non-taking party a party to said contract. 

	
37

	
 

	
38

	
ARTICLE VII.

	
39

	
EXPENDITURES AND LIABILITY OF PARTIES

	
40

	
A. Liability of Parties:

	
41

	
The liability of the parties shall be several, not joint or collective. Each party shall be responsible only for its obligations,

	
42

	
and shall be liable only for its proportionate share of the costs of developing and operating the Contract Area. Accordingly, the

	
43

	
liens granted among the parties in Article VII.B. are given to secure only the debts of each severally, and no party shall have

	
44

	
any liability to third parties hereunder to satisfy the default of any other party in the payment of any expense or obligation

	
45

	
hereunder. It is not the intention of the parties to create, nor shall this agreement be construed as creating, a mining or other

	
46

	
partnership, joint venture, agency relationship or association, or to render the parties liable as partners, co-venturers, or

	
47

	
principals. In their relations with each other under this agreement, the parties shall not be considered fiduciaries or to have

	
48

	
established a confidential relationship but rather shall be free to act on an arm's-length basis in accordance with their own

	
49

	
respective self-interest, subject, however, to the obligation of the parties to act in good faith in their dealings with each other

	
50

	
with respect to activities hereunder.

	
51

	

	
52

	

	
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54

	

	
55

	

	
56

	

	
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11

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
B. Liens and Security Interests:

	
2

	
Each party grants to the other parties hereto a lien upon any interest it now owns or hereafter acquires in Oil and Gas

	
3

	
Leases and Oil and Gas Interests in the Contract Area, and a security interest and/or purchase money security interest in any

	
4

	
interest it now owns or hereafter acquires in the personal property and fixtures on or used or obtained for use in connection

	
5

	
therewith, to secure performance of all of its obligations under this agreement including but not limited to payment of expense,

	
6

	
interest and fees, the proper disbursement of all monies paid hereunder, the assignment or relinquishment of interest in Oil

	
7

	
and Gas Leases as required hereunder, and the proper performance of operations hereunder. Such lien and security interest

	
8

	
granted by each party hereto shall include such party's leasehold interests, working interests, operating rights, and royalty and

	
9

	
overriding royalty interests in the Contract Area now owned or hereafter acquired and in lands pooled or unitized therewith or

	
10

	
otherwise becoming subject to this agreement, the Oil and Gas when extracted therefrom and equipment situated thereon or

	
11

	
used or obtained for use in connection therewith (including, without limitation, all wells, tools, and tubular goods), and accounts

	
12

	
(including, without limitation, accounts arising from gas imbalances or from the sale of Oil and/or Gas at the wellhead),

	
13

	
contract rights, inventory and general intangibles relating thereto or arising therefrom, and all proceeds and products of the

	
14

	
foregoing.

	
15

	
To perfect the lien and security agreement provided herein, each party hereto shall execute and acknowledge the recording

	
16

	
supplement and/or any financing statement prepared and submitted by any party hereto in conjunction herewith or at any time

	
17

	
following execution hereof, and Operator is authorized to file this agreement or the recording supplement executed herewith as

	
18

	
a lien or mortgage in the applicable real estate records and as a financing statement with the proper officer under the Uniform

	
19

	
Commercial Code in the state in which the Contract Area is situated and such other states as Operator shall deem appropriate

	
20

	
to perfect the security interest granted hereunder. Any party may file this agreement, the recording supplement executed

	
21

	
herewith, or such other documents as it deems necessary as a lien or mortgage in the applicable real estate records and/or a

	
22

	
financing statement with the proper officer under the Uniform Commercial Code.

	
23

	
Each party represents and warrants to the other parties hereto that the lien and security interest granted by such party to

	
24

	
the other parties shall be a first and prior lien, and each party hereby agrees to maintain the priority of said lien and security

	
25

	
interest against all persons acquiring an interest in Oil and Gas Leases and Interests covered by this agreement by, through or

	
26

	
under such party. All parties acquiring an interest in Oil and Gas Leases and Oil and Gas Interests covered by this agreement,

	
27

	
whether by assignment, merger, mortgage, operation of law, or otherwise, shall be deemed to have taken subject

	
28

	
to the lien and security interest granted by this Article VII.B. as to all obligations attributable to such interest hereunder

	
29

	
whether or not such obligations arise before or after such interest is acquired.

	
30

	
To the extent that parties have a security interest under the Uniform Commercial Code of the state in which the

	
31

	
Contract Area is situated, they shall be entitled to exercise the rights and remedies of a secured party under the Code.

	
32

	
The bringing of a suit and the obtaining of judgment by a party for the secured indebtedness shall not be deemed an

	
33

	
election of remedies or otherwise affect the lien rights or security interest as security for the payment thereof.In

	
34

	
addition, upon default by any party in the payment of its share of expenses, interests or fees, or upon the improper use

	
35

	
of funds by the Operator, the other parties shall have the right, without prejudice to other rights or remedies, to collect

	
36

	
from the purchaser the proceeds from the sale of such defaulting party's share of Oil and Gas until the amount owed by

	
37

	
such party, plus interest as provided in "Exhibit C," has been received, and shall have the right to offset the amount

	
38

	
owed against the proceeds from the sale of such defaulting party's share of Oil and Gas. All purchasers of production

	
39

	
may rely on a notification of default from the non-defaulting party or parties stating the amount due as a result of the

	
40

	
default, and all parties waive any recourse available against purchasers for releasing production proceeds as provided in

	
41

	
this paragraph.

	
42

	
If any party fails to pay its share of cost within one hundred twenty (120) days after rendition of a statement therefor by

	
43

	
Operator, the non-defaulting parties, including Operator, shall upon request by Operator, pay the unpaid amount in the

	
44

	
proportion that the interest of each such party bears to the interest of all such parties. The amount paid by each party so

	
45

	
paying its share of the unpaid amount shall be secured by the liens and security rights described in Article VII.B., and each

	
46

	
paying party may independently pursue any remedy available hereunder or otherwise.

	
47

	
If any party does not perform all of its obligations hereunder, and the failure to perform subjects such party to foreclosure

	
48

	
or execution proceedings pursuant to the provisions of this agreement, to the extent allowed by governing law, the defaulting

	
49

	
party waives any available right of redemption from and after the date of judgment, any required valuation or appraisement

	
50

	
of the mortgaged or secured property prior to sale, any available right to stay execution or to require a marshaling of assets

	
51

	
and any required bond in the event a receiver is appointed. In addition, to the extent permitted by applicable law, each party

	
52

	
hereby grants to the other parties a power of sale as to any property that is subject to the lien and security rights granted

	
53

	
hereunder, such power to be exercised in the manner provided by applicable law or otherwise in a commercially reasonable

	
54

	
manner and upon reasonable notice.

	
55

	
Each party agrees that the other parties shall be entitled to utilize the provisions of Oil and Gas lien law or other lien

	
56

	
law of any state in which the Contract Area is situated to enforce the obligations of each party hereunder. Without limiting

	
57

	
the generality of the foregoing, to the extent permitted by applicable law, Non-Operators agree that Operator may invoke or

	
58

	
utilize the mechanics' or materialmen's lien law of the state in which the Contract Area is situated in order to secure the

	
59

	
payment to Operator of any sum due hereunder for services performed or materials supplied by Operator.

	
60

	
C. Advances:

	
61

	
Operator, at its election, shall have the right from time to time to demand and receive from one or more of the other

	
62

	
parties payment in advance of their respective shares of the estimated amount of the expense to be incurred in operations

	
63

	
hereunder during the next succeeding month, which right may be exercised only by submission to each such party of an

	
64

	
itemized statement of such estimated expense, together with an invoice for its share thereof. Each such statement and invoice

	
65

	
for the payment in advance of estimated expense shall be submitted on or before the 20th day of the next preceding month.

	
66

	
Each party shall pay to Operator its proportionate share of such estimate within fifteen (15) days after such estimate and

	
67

	
invoice is received. If any party fails to pay its share of said estimate within said time, the amount due shall bear interest as

	
68

	
provided in Exhibit "C" until paid. Proper adjustment shall be made monthly between advances and actual expense to the end

	
69

	
that each party shall bear and pay its proportionate share of actual expenses incurred, and no more.

	
70

	
D. Defaults and Remedies:

	
71

	
If any party fails to discharge any financial obligation under this agreement, including without limitation the failure to

	
72

	
make any advance under the preceding Article VII.C. or any other provision of this agreement, within the period required for

	
73

	
such payment hereunder, then in addition to the remedies provided in Article VII.B. or elsewhere in this agreement, the

	
74

	
remedies specified below shall be applicable. For purposes of this Article VII.D., all notices and elections shall be delivered

12

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
only by Operator, except that Operator shall deliver any such notice and election requested by a non-defaulting Non-Operator,

	
2

	
and when Operator is the party in default, the applicable notices and elections can be delivered by any Non-Operator.

	
3

	
Election of any one or more of the following remedies shall not preclude the subsequent use of any other remedy specified

	
4

	
below or otherwise available to a non-defaulting party.

	
5

	
1. Suspension of Rights: Any party may deliver to the party in default a Notice of Default, which shall specify the default,

	
6

	
specify the action to be taken to cure the default, and specify that failure to take such action will result in the exercise of one

	
7

	
or more of the remedies provided in this Article. If the default is not cured within thirty (30) days of the delivery of such

	
8

	
Notice of Default, all of the rights of the defaulting party granted by this agreement may upon notice be suspended until the

	
9

	
default is cured, without prejudice to the right of the non-defaulting party or parties to continue to enforce the obligations of

	
10

	
the defaulting party previously accrued or thereafter accruing under this agreement. If Operator is the party in default, the

	
11

	
Non-Operators shall have in addition the right, by vote of Non-Operators owning a majority in interest in the Contract Area

	
12

	
after excluding the voting interest of Operator, to appoint a new Operator effective immediately. The rights of a defaulting

	
13

	
party that may be suspended hereunder at the election of the non-defaulting parties shall include, without limitation, the right

	
14

	
to receive information as to any operation conducted hereunder during the period of such default, the right to elect to

	
15

	
participate in an operation proposed under Article VI.B. of this agreement, the right to participate in an operation being

	
16

	
conducted under this agreement even if the party has previously elected to participate in such operation, and the right to

	
17

	
receive proceeds of production from any well subject to this agreement.

	
18

	
2. Suit for Damages: Non-defaulting parties or Operator for the benefit of non-defaulting parties may sue (at joint

	
19

	
account expense) to collect the amounts in default, plus interest accruing on the amounts recovered from the date of default

	
20

	
until the date of collection at the rate specified in Exhibit "C" attached hereto. Nothing herein shall prevent any party from

	
21

	
suing any defaulting party to collect consequential damages accruing to such party as a result of the default.

	
22

	
3. Deemed Non-Consent: The non-defaulting party may deliver a written Notice of Non-Consent Election to the

	
23

	
defaulting party at any time after the expiration of the thirty-day cure period following delivery of the Notice of Default, in

	
24

	
which event if the billing is for the drilling a new well or the Plugging Back, Sidetracking, Reworking or Deepening of a

	
25

	
well which is to be or has been plugged as a dry hole, or for the Completion or Recompletion of any well, the defaulting

	
26

	
party will be conclusively deemed to have elected not to participate in the operation and to be a Non-Consenting Party with

	
27

	
respect thereto under Article VI.B. or VI.C., as the case may be, to the extent of the costs unpaid by such party,

	
28

	
notwithstanding any election to participate theretofore made. If election is made to proceed under this provision, then the

	
29

	
non-defaulting parties may not elect to sue for the unpaid amount pursuant to Article VII.D.2.

	
30

	
Until the delivery of such Notice of Non-Consent Election to the defaulting party, such party shall have the right to cure

	
31

	
its default by paying its unpaid share of costs plus interest at the rate set forth in Exhibit "C," provided, however, such

	
32

	
payment shall not prejudice the rights of the non-defaulting parties to pursue remedies for damages incurred by the non-

	
33

	
defaulting parties as a result of the default. Any interest relinquished pursuant to this Article VII.D.3. shall be offered to the

	
34

	
non-defaulting parties in proportion to their interests, and the non-defaulting parties electing to participate in the ownership

	
35

	
of such interest shall be required to contribute their shares of the defaulted amount upon their election to participate therein.

	
36

	
4. Advance Payment: If a default is not cured within thirty (30) days of the delivery of a Notice of Default, Operator, or

	
37

	
Non-Operators if Operator is the defaulting party, may thereafter require advance payment from the defaulting

	
38

	
party of such defaulting party's anticipated share of any item of expense for which Operator, or Non-Operators, as the case may

	
39

	
be, would be entitled to reimbursement under any provision of this agreement, whether or not such expense was the subject of

	
40

	
the previous default. Such right includes, but is not limited to, the right to require advance payment for the estimated costs of

	
41

	
drilling a well or Completion of a well as to which an election to participate in drilling or Completion has been made. If the

	
42

	
defaulting party fails to pay the required advance payment, the non-defaulting parties may pursue any of the remedies provided

	
43

	
in the Article VII.D. or any other default remedy provided elsewhere in this agreement. Any excess of funds advanced remaining

	
44

	
when the operation is completed and all costs have been paid shall be promptly returned to the advancing party.

	
45

	
5. Costs and Attorneys' Fees: In the event any party is required to bring legal proceedings to enforce any financial

	
46

	
obligation of a party hereunder, the prevailing party in such action shall be entitled to recover all court costs, costs of

	
47

	
collection, and a reasonable attorney's fee, which the lien provided for herein shall also secure.

	
48

	
E. Rentals, Shut-in Well Payments and Minimum Royalties:

	
49

	
Rentals, shut-in well payments and minimum royalties which may be required under the terms of any lease shall be paid

	
50

	
by the party or parties who subjected such lease to this agreement at its or their expense. In the event two or more parties

	
51

	
own and have contributed interests in the same lease to this agreement, such parties may designate one of such parties to

	
52

	
make said payments for and on behalf of all such parties. Any party may request, and shall be entitled to receive, proper

	
53

	
evidence of all such payments. In the event of failure to make proper payment of any rental, shut-in well payment or

	
54

	
minimum royalty through mistake or oversight where such payment is required to continue the lease in force, any loss which

	
55

	
results from such non-payment shall be borne in accordance with the provisions of Article IV.B.2.

	
56

	
Operator shall notify Non-Operators of the anticipated completion of a shut-in well, or the shutting in or return to

	
57

	
production of a producing well, at least five (5) days (excluding Saturday, Sunday, and legal holidays) prior to taking such

	
58

	
action, or at the earliest opportunity permitted by circumstances, but assumes no liability for failure to do so. In the event of

	
59

	
failure by Operator to so notify Non-Operators, the loss of any lease contributed hereto by Non-Operators for failure to make

	
60

	
timely payments of any shut-in well payment shall be borne jointly by the parties hereto under the provisions of Article 61

	
61 

	
IV.B.3.

	
62

	
F. Taxes:

	
63

	
Beginning with the first calendar year after the effective date hereof, Operator shall render for ad valorem taxation all

	
64

	
property subject to this agreement which by law should be rendered for such taxes, and it shall pay all such taxes assessed

	
65

	
thereon before they become delinquent. Prior to the rendition date, each Non-Operator shall furnish Operator information as

	
66

	
to burdens (to include, but not be limited to, royalties, overriding royalties and production payments) on Leases and Oil and

	
67

	
Gas Interests contributed by such Non-Operator. If the assessed valuation of any Lease is reduced by reason of its being

	
68

	
subject to outstanding excess royalties, overriding royalties or production payments, the reduction in ad valorem taxes

	
69

	
resulting therefrom shall inure to the benefit of the owner or owners of such Lease, and Operator shall adjust the charge to

	
70

	
such owner or owners so as to reflect the benefit of such reduction. If the ad valorem taxes are based in whole or in part

	
71

	
upon separate valuations of each party's working interest, then notwithstanding anything to the contrary herein, charges to

	
72

	
the joint account shall be made and paid by the parties hereto in accordance with the tax value generated by each party's

	
73

	
working interest. Operator shall bill the other parties for their proportionate shares of all tax payments in the manner

	
74

	
provided in Exhibit "C."

13

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
If Operator considers any tax assessment improper, Operator may, at its discretion, protest within the time and manner

	
2

	
prescribed by law, and prosecute the protest to a final determination, unless all parties agree to abandon the protest prior to final

	
3

	
determination. During the pendency of administrative or judicial proceedings, Operator may elect to pay, under protest, all such taxes

	
4

	
and any interest and penalty. When any such protested assessment shall have been finally determined, Operator shall pay the tax for

	
5

	
the joint account, together with any interest and penalty accrued, and the total cost shall then be assessed against the parties, and be

	
6

	
paid by them, as provided in Exhibit "C."

	
7

	
Each party shall pay or cause to be paid all production, severance, excise, gathering and other taxes imposed upon or with respect

	
8

	
to the production or handling of such party's share of Oil and Gas produced under the terms of this agreement.

	
9

	
ARTICLE VIII.

	
10

	
ACQUISITION, MAINTENANCE OR TRANSFER OF INTEREST

	
11

	
A. Surrender of Leases:

	
12

	
The Leases covered by this agreement, insofar as they embrace acreage in the Contract Area, shall not be surrendered in whole

	
13

	
or in part unless all parties consent thereto.

	
14

	
However, should any party desire to surrender its interest in any Lease or in any portion thereof, such party shall give written

	
15

	
notice of the proposed surrender to all parties, and the parties to whom such notice is delivered shall have thirty (30) days after

	
16

	
delivery of the notice within which to notify the party proposing the surrender whether they elect to consent thereto. Failure of a

	
17

	
party to whom such notice is delivered to reply within said 30-day period shall constitute a consent to the surrender of the Leases

	
18

	
described in the notice. If all parties do not agree or consent thereto, the party desiring to surrender shall assign, without express or

	
19

	
implied warranty of title, all of its interest in such Lease, or portion thereof, and any well, material and equipment which may be

	
20

	
located thereon and any rights in production thereafter secured, to the parties not consenting to such surrender. If the interest of the

	
21

	
assigning party is or includes an Oil and Gas Interest, the assigning party shall execute and deliver to the party or parties not

	
22

	
consenting to such surrender an oil and gas lease covering such Oil and Gas Interest for a term of one (1) year and so long

	
23

	
thereafter as Oil and/or Gas is produced from the land covered thereby, such lease to be on the form attached hereto as Exhibit "B."

	
24

	
Upon such assignment or lease, the assigning party shall be relieved from all obligations thereafter accruing, but not theretofore

	
25

	
accrued, with respect to the interest assigned or leased and the operation of any well attributable thereto, and the assigning party

	
26

	
shall have no further interest in the assigned or leased premises and its equipment and production other than the royalties retained

	
27

	
in any lease made under the terms of this Article. The party assignee or lessee shall pay to the party assignor or lessor the

	
28

	
reasonable salvage value of the latter's interest in any well's salvable materials and equipment attributable to the assigned or leased

	
29

	
acreage. The value of all salvable materials and equipment shall be determined in accordance with the provisions of Exhibit "C," less

	
30

	
the estimated cost of salvaging and the estimated cost of plugging and abandoning and restoring the surface. If such value is less

	
31

	
than such costs, then the party assignor or lessor shall pay to the party assignee or lessee the amount of such deficit. If the

	
32

	
assignment or lease is in favor of more than one party, the interest shall be shared by such parties in the proportions that the

	
33

	
interest of each bears to the total interest of all such parties. If the interest of the parties to whom the assignment is to be made

	
34

	
varies according to depth, then the interest assigned shall similarly reflect such variances.

	
35

	
Any assignment, lease or surrender made under this provision shall not reduce or change the assignor's, lessor's or surrendering

	
36

	
party's interest as it was immediately before the assignment, lease or surrender in the balance of the Contract Area; and the acreage

	
37

	
assigned, leased or surrendered, and subsequent operations thereon, shall not thereafter be subject to the terms and provisions of this

	
38

	
agreement but shall be deemed subject to an Operating Agreement in the form of this agreement.

	
39

	
B. Renewal or Extension of Leases:

	
40

	
If any party secures a renewal or replacement of an Oil and Gas Lease or Interest subject to this agreement, then all other parties

	
41

	
shall be notified promptly upon such acquisition or, in the case of a replacement Lease taken before expiration of an existing Lease,

	
42

	
promptly upon expiration of the existing Lease. The parties notified shall have the right for a period of thirty (30) days following

	
43

	
delivery of such notice in which to elect to participate in the ownership of the renewal or replacement Lease, insofar as such Lease

	
44

	
affects lands within the Contract Area, by paying to the party who acquired it their proportionate shares of the acquisition cost

	
45

	
allocated to that part of such Lease within the Contract Area, which shall be in proportion to the interest held at that time by the

	
46

	
parties in the Contract Area. Each party who participates in the purchase of a renewal or replacement Lease shall be given an

	
47

	
assignment of its proportionate interest therein by the acquiring party.

	
48

	
If some, but less than all, of the parties elect to participate in the purchase of a renewal or replacement Lease, it shall be owned

	
49

	
by the parties who elect to participate therein, in a ratio based upon the relationship of their respective percentage of participation in

	
50

	
the Contract Area to the aggregate of the percentages of participation in the Contract Area of all parties participating in the

	
51

	
purchase of such renewal or replacement Lease. The acquisition of a renewal or replacement Lease by any or all of the parties hereto

	
52

	
shall not cause a readjustment of the interests of the parties stated in Exhibit "A," but any renewal or replacement Lease in which

	
53

	
less than all parties elect to participate shall not be subject to this agreement but shall be deemed subject to a separate Operating

	
54

	
Agreement in the form of this agreement.

	
55

	
If the interests of the parties in the Contract Area vary according to depth, then their right to participate proportionately in

	
56

	
renewal or replacement Leases and their right to receive an assignment of interest shall also reflect such depth variances.

	
57

	
The provisions of this Article shall apply to renewal or replacement Leases whether they are for the entire interest covered by

	
58

	
the expiring Lease or cover only a portion of its area or an interest therein. Any renewal or replacement Lease taken before the

	
59

	
expiration of its predecessor Lease, or taken or contracted for or becoming effective within six (6) months after the expiration of the

	
60

	
existing Lease, shall be subject to this provision so long as this agreement is in effect at the time of such acquisition or at the time

	
61

	
the renewal or replacement Lease becomes effective; but any Lease taken or contracted for more than six (6) months after the

	
62

	
expiration of an existing Lease shall not be deemed a renewal or replacement Lease and shall not be subject to the provisions of this

	
63

	
agreement.

	
64

	
The provisions in this Article shall also be applicable to extensions of Oil and Gas Leases.

	
65

	
C. Acreage or Cash Contributions:

	
66

	
While this agreement is in force, if any party contracts for a contribution of cash towards the drilling of a well or any other

	
67

	
operation on the Contract Area, such contribution shall be paid to the party who conducted the drilling or other operation and shall

	
68

	
be applied by it against the cost of such drilling or other operation. If the contribution be in the form of acreage, the party to whom

	
69

	
the contribution is made shall promptly tender an assignment of the acreage, without warranty of title, to the Drilling Parties in the

	
70

	
proportions said Drilling Parties shared the cost of drilling the well. Such acreage shall become a separate Contract Area and, to the

	
71

	
extent possible, be governed by provisions identical to this agreement. Each party shall promptly notify all other parties of any

	
72

	
acreage or cash contributions it may obtain in support of any well or any other operation on the Contract Area. The above

	
73

	
provisions shall also be applicable to optional rights to earn acreage outside the Contract Area which are in support of well drilled

	
74

	
inside Contract Area.

14

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
If any party contracts for any consideration relating to disposition of such party's share of substances produced hereunder,

	
2

	
such consideration shall not be deemed a contribution as contemplated in this Article VIII.C.

	
3

	
D. Assignment; Maintenance of Uniform Interest:

	
4

	
For the purpose of maintaining uniformity of ownership in the Contract Area in the Oil and Gas Leases, Oil and Gas

	
5

	
Interests, wells, equipment and production covered by this agreement no party shall sell, encumber, transfer or make other

	
6

	
disposition of its interest in the Oil and Gas Leases and Oil and Gas Interests embraced within the Contract Area or in wells,

	
7

	
equipment and production unless such disposition covers either:

	
8

	
1. the entire interest of the party in all Oil and Gas Leases, Oil and Gas Interests, wells, equipment and production; or

	
9

	
2. an equal undivided percent of the party's present interest in all Oil and Gas Leases, Oil and Gas Interests, wells,

	
10

	
equipment and production in the Contract Area.

	
11

	
Every sale, encumbrance, transfer or other disposition made by any party shall be made expressly subject to this agreement

	
12

	
and shall be made without prejudice to the right of the other parties, and any transferee of an ownership interest in any Oil and

	
13

	
Gas Lease or Interest shall be deemed a party to this agreement as to the interest conveyed from and after the effective date of

	
14

	
the transfer of ownership; provided, however, that the other parties shall not be required to recognize any such sale,

	
15

	
encumbrance, transfer or other disposition for any purpose hereunder until thirty (30) days after they have received a copy of the

	
16

	
instrument of transfer or other satisfactory evidence thereof in writing from the transferor or transferee. No assignment or other

	
17

	
disposition of interest by a party shall relieve such party of obligations previously incurred by such party hereunder with respect

	
18

	
to the interest transferred, including without limitation the obligation of a party to pay all costs attributable to an operation

	
19

	
conducted hereunder in which such party has agreed to participate prior to making such assignment, and the lien and security

	
20

	
interest granted by Article VII.B. shall continue to burden the interest transferred to secure payment of any such obligations.

	
21

	
If, at any time the interest of any party is divided among and owned by four or more co-owners, Operator, at its discretion,

	
22

	
may require such co-owners to appoint a single trustee or agent with full authority to receive notices, approve expenditures,

	
23

	
receive billings for and approve and pay such party's share of the joint expenses, and to deal generally with, and with power to

	
24

	
bind, the co-owners of such party's interest within the scope of the operations embraced in this agreement; however, all such co-

	
25

	
owners shall have the right to enter into and execute all contracts or agreements for the disposition of their respective shares of

	
26

	
the Oil and Gas produced from the Contract Area and they shall have the right to receive, separately, payment of the sale

	
27

	
proceeds thereof.

	
28

	
E. Waiver of Rights to Partition:

	
29

	
If permitted by the laws of the state or states in which the property covered hereby is located, each party hereto owning an

	
30

	
undivided interest in the Contract Area waives any and all rights it may have to partition and have set aside to it in severalty its

	
31

	
undivided interest therein.

	
23

	
F. Preferential Right to Purchase:

	
33

	
o (Optional; Check if applicable.)

	
34

	
Should any party desire to sell all or any part of its interests under this agreement, or its rights and interests in the Contract

	
35

	
Area, it shall promptly give written notice to the other parties, with full information concerning its proposed disposition, which

	
36

	
shall include the name and address of the prospective transferee (who must be ready, willing and able to purchase), the purchase

	
37

	
price, a legal description sufficient to identify the property, and all other terms of the offer. The other parties shall then have an

	
38

	
optional prior right, for a period of ten (10) days after the notice is delivered, to purchase for the stated consideration on the

	
38

	
same terms and conditions the interest which the other party proposes to sell; and, if this optional right is exercised, the

	
40

	
purchasing parties shall share the purchased interest in the proportions that the interest of each bears to the total interest of all

	
41

	
purchasing parties. However, there shall be no preferential right to purchase in those cases where any party wishes to mortgage

	
42

	
its interests, or to transfer title to its interests to its mortgagee in lieu of or pursuant to foreclosure of a mortgage of its interests,

	
43

	
or to dispose of its interests by merger, reorganization, consolidation, or by sale of all or substantially all of its Oil and Gas assets

	
44

	
to any party, or by transfer of its interests to a subsidiary or parent company or to a subsidiary of a parent company, or to any

	
45

	
company in which such party owns a majority of the stock.

	
46

	
ARTICLE IX.

	
47

	
INTERNAL REVENUE CODE ELECTION

	
48

	
If, for federal income tax purposes, this agreement and the operations hereunder are regarded as a partnership, and if the

	
49

	
parties have not otherwise agreed to form a tax partnership pursuant to Exhibit "G" or other agreement between them, each

	
50

	
party thereby affected elects to be excluded from the application of all of the provisions of Subchapter "K," Chapter 1, Subtitle

	
51

	
"A," of the Internal Revenue Code of 1986, as amended ("Code"), as permitted and authorized by Section 761 of the Code and

	
52

	
the regulations promulgated thereunder. Operator is authorized and directed to execute on behalf of each party hereby affected

	
53

	
such evidence of this election as may be required by the Secretary of the Treasury of the United States or the Federal Internal

	
54

	
Revenue Service, including specifically, but not by way of limitation, all of the returns, statements, and the data required by

	
55

	
Treasury Regulation §1.761. Should there be any requirement that each party hereby affected give further evidence of this

	
56

	
election, each such party shall execute such documents and furnish such other evidence as may be required by the Federal Internal

	
57

	
Revenue Service or as may be necessary to evidence this election. No such party shall give any notices or take any other action

	
58

	
inconsistent with the election made hereby. If any present or future income tax laws of the state or states in which the Contract

	
59

	
Area is located or any future income tax laws of the United States contain provisions similar to those in Subchapter "K," Chapter

	
60

	
1, Subtitle "A," of the Code, under which an election similar to that provided by Section 761 of the Code is permitted, each party

	
61

	
hereby affected shall make such election as may be permitted or required by such laws. In making the foregoing election, each

	
62

	
such party states that the income derived by such party from operations hereunder can be adequately determined without the

	
63

	
computation of partnership taxable income.

	
64

	
ARTICLE X.

	
65

	
CLAIMS AND LAWSUITS

	
66

	
Operator may settle any single uninsured third party damage claim or suit arising from operations hereunder if the expenditure

	
67

	
does not exceed Fifty thousand Dollars ($ 50,000.00) and if the payment is in complete settlement

	
68

	
of such claim or suit. If the amount required for settlement exceeds the above amount, the parties hereto shall assume and take over

	
69

	
the further handling of the claim or suit, unless such authority is delegated to Operator. All costs and expenses of handling settling,

	
70

	
or otherwise discharging such claim or suit shall be a the joint expense of the parties participating in the operation from which the

	
71

	
claim or suit arises. If a claim is made against any party or if any party is sued on account of any matter arising from operations

	
72

	
hereunder over which such individual has no control because of the rights given Operator by this agreement, such party shall

	
73

	
immediately notify all other parties, and the claim or suit shall be treated as any other claim or suit involving operations hereunder. 74

	
74

	 

15

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
ARTICLE XI.

	
2

	
FORCE MAJEURE

	
3

	
If any party is rendered unable, wholly or in part, by force majeure to carry out its obligations under this agreement, other

	
4

	
than the obligation to indemnify or make money payments or furnish security, that party shall give to all other parties

	
5

	
prompt written notice of the force majeure with reasonably full particulars concerning it; thereupon, the obligations of the

	
6

	
party giving the notice, so far as they are affected by the force majeure, shall be suspended during, but no longer than, the

	
7

	
continuance of the force majeure. The term "force majeure," as here employed, shall mean an act of God, strike, lockout, or

	
8

	
other industrial disturbance, act of the public enemy, war, blockade, public riot, lightening, fire, storm, flood or other act of

	
9

	
nature, explosion, governmental action, governmental delay, restraint or inaction, unavailability of equipment, and any other

	
10

	
cause, whether of the kind specifically enumerated above or otherwise, which is not reasonably within the control of the party

	
11

	
claiming suspension.

	
12

	
The affected party shall use all reasonable diligence to remove the force majeure situation as quickly as practicable. The

	
13

	
requirement that any force majeure shall be remedied with all reasonable dispatch shall not require the settlement of strikes,

	
14

	
lockouts, or other labor difficulty by the party involved, contrary to its wishes; how all such difficulties shall be handled shall

	
15

	
be entirely within the discretion of the party concerned.

	
16

	
ARTICLE XII.

	
17

	
NOTICES

	
18

	
All notices authorized or required between the parties by any of the provisions of this agreement, unless otherwise

	
19

	
specifically provided, shall be in writing and delivered in person or by United States mail, courier service, telegram, telex,

	
20

	
telecopier or any other form of facsimile, postage or charges prepaid, and addressed to such parties at the addresses listed on

	
21

	
Exhibit "A." All telephone or oral notices permitted by this agreement shall be confirmed immediately thereafter by written

	
22

	
notice. The originating notice given under any provision hereof shall be deemed delivered only when received by the party to

	
23

	
whom such notice is directed, and the time for such party to deliver any notice in response thereto shall run from the date

	
24

	
the originating notice is received. "Receipt" for purposes of this agreement with respect to written notice delivered hereunder

	
25

	
shall be actual delivery of the notice to the address of the party to be notified specified in accordance with this agreement, or

	
26

	
to the telecopy, facsimile or telex machine of such party. The second or any responsive notice shall be deemed delivered when

	
27

	
deposited in the United States mail or at the office of the courier or telegraph service, or upon transmittal by telex, telecopy

	
28

	
or facsimile, or when personally delivered to the party to be notified, provided, that when response is required within 24 or

	
29 

	
48 hours, such response shall be given orally or by telephone, telex, telecopy or other facsimile within such period. Each party

	
30

	
shall have the right to change its address at any time, and from time to time, by giving written notice thereof to all other

	
31

	
parties. If a party is not available to receive notice orally or by telephone when a party attempts to deliver a notice required

	
32

	
to be delivered within 24 or 48 hours, the notice may be delivered in writing by any other method specified herein and shall

	
33

	
be deemed delivered in the same manner provided above for any responsive notice.

	
34

	
ARTICLE XIII.

	
35

	
TERM OF AGREEMENT

	
36

	
This agreement shall remain in full force and effect as to the Oil and Gas Leases and/or Oil and Gas Interests subject

	
37

	
hereto for the period of time selected below; provided, however, no party hereto shall ever be construed as having any right, title

	
38

	
or interest in or to any Lease or Oil and Gas Interest contributed by any other party beyond the term of this agreement.

	
39

	
o Option No. 1: So long as any of the Oil and Gas Leases subject to this agreement remain or are continued in

	
40

	
force as to any part of the Contract Area, whether by production, extension, renewal or otherwise.

	
41

	
þ Option No. 2: In the event the well described in Article VI.A., or any subsequent well drilled under any provision

	
42

	
of this agreement, results in the Completion of a well as a well capable of production of Oil and/or Gas in paying

	
43

	
quantities, this agreement shall continue in force so long as any such well is capable of production, and for an

	
44

	
additional period of 90 days thereafter; provided, however, if, prior to the expiration of such

	
45

	
additional period, one or more of the parties hereto are engaged in drilling, Reworking, Deepening, Sidetracking,

	
46

	
Plugging Back, testing or attempting to Complete or Re-complete a well or wells hereunder, this agreement shall

	
47

	
continue in force until such operations have been completed and if production results therefrom, this agreement

	
48

	
shall continue in force as provided herein. In the event the well described in Article VI.A., or any subsequent well

	
49

	
drilled hereunder, results in a dry hole, and no other well is capable of producing Oil and/or Gas from the

	
50

	
Contract Area, this agreement shall terminate unless drilling, Deepening, Sidetracking, Completing, Re-

	
51

	
completing, Plugging Back or Reworking operations are commenced within _______days from the

	
52

	
date of abandonment of said well. "Abandonment" for such purposes shall mean either (i) a decision by all parties

	
53

	
not to conduct any further operations on the well or (ii) the elapse of 180 days from the conduct of any

	
54

	
operations on the well, whichever first occurs.

	
55

	
The termination of this agreement shall not relieve any party hereto from any expense, liability or other obligation or any

	
56

	
remedy therefor which has accrued or attached prior to the date of such termination.

	
57

	
Upon termination of this agreement and the satisfaction of all obligations hereunder, in the event a memorandum of this

	
58

	
Operating Agreement has been filed of record, Operator is authorized to file of record in all necessary recording offices a

	
59

	
notice of termination, and each party hereto agrees to execute such a notice of termination as to Operator's interest, upon

	
60

	
request of Operator, if Operator has satisfied all its financial obligations.

	
61

	
ARTICLE XIV.

	
62

	
COMPLIANCE WITH LAWS AND REGULATIONS

	
63

	
A. Laws, Regulations and Orders:

	
64

	
This agreement shall be subject to the applicable laws of the state in which the Contract Area is located, to the valid rules,

	
65

	
regulations, and orders of any duly constituted regulatory body of said state; and to all other applicable federal, state,

	
66

	
and local laws, ordinances, rules, regulations and orders.

	
67

	
B. Governing Law:

	
68

	
This agreement and all matters pertaining hereto, including but not limited to matters of performance, non-

	
69

	
performance, breach, remedies, procedures, rights, duties, and interpretation or construction, shall be governed and

	
70

	
determined by the law of the state in which the Contract Area is located. If the Contract Area is in two or more states,

	
71

	
the law of the state of Colorado shall govern.

	
72

	
C. Regulatory Agencies:

	
73

	
Nothing herein contained shall grant, or be construed to grant, Operator the right or authority to waive or release any

	
74

	
rights, privileges, or obligations which Non-Operators may have under federal or state laws or under rules, regulations or

16

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

 

 

	
1

	
orders promulgated under such laws in reference to oil, gas and mineral operations, including the location, operation, or

	
2

	
production of wells, on tracts offsetting or adjacent to the Contract Area.

	
3

	
With respect to the operations hereunder, Non-Operators agree to release Operator from any and all losses, damages,

	
4

	
injuries, claims and causes of action arising out of, incident to or resulting directly or indirectly from Operator's interpretation

	
5

	
or application of rules, rulings, regulations or orders of the Department of Energy or Federal Energy Regulatory Commission

	
6

	
or predecessor or successor agencies to the extent such interpretation or application was made in good faith and does not

	
7

	
constitute gross negligence. Each Non-Operator further agrees to reimburse Operator for such Non-Operator's share of

	
8

	
production or any refund, fine, levy or other governmental sanction that Operator may be required to pay as a result of such

	
9

	
an incorrect interpretation or application, together with interest and penalties thereon owing by Operator as a result of such

	
10 

	
incorrect interpretation or application.

	
11

	
ARTICLE XV.

	
12

	
MISCELLANEOUS

	
13

	
A. Execution:

	
14

	
This agreement shall be binding upon each Non-Operator when this agreement or a counterpart thereof has been

	
15

	
executed by such Non-Operator and Operator notwithstanding that this agreement is not then or thereafter executed by all of

	
16

	
the parties to which it is tendered or which are listed on Exhibit "A" as owning an interest in the Contract Area or which

	
17

	
own, in fact, an interest in the Contract Area. Operator may, however, by written notice to all Non-Operators who have

	
18

	
become bound by this agreement as aforesaid, given at any time prior to the actual spud date of the Initial Well but in no

	
19

	
event later than five days prior to the date specified in Article VI.A. for commencement of the Initial Well, terminate this

	
20

	
agreement if Operator in its sole discretion determines that there is insufficient participation to justify commencement of

	
21

	
drilling operations. In the event of such a termination by Operator, all further obligations of the parties hereunder shall cease

	
22

	
as of such termination. In the event any Non-Operator has advanced or prepaid any share of drilling or other costs

	
23

	
hereunder, all sums so advanced shall be returned to such Non-Operator without interest.In the event Operator proceeds

	
24

	
with drilling operations for the Initial Well without the execution hereof by all persons listed on Exhibit "A" as having a

	
25

	
current working interest in such well, Operator shall indemnify Non-Operators with respect to all costs incurred for the

	
26

	
Initial Well which would have been charged to such person under this agreement if such person had executed the same and

	
27

	
Operator shall receive all revenues which would have been received by such person under this agreement if such person had

	
28

	
executed the same.

	
29

	
B. Successors and Assigns:

	
30

	
This agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective heirs,

	
31

	
devisees, legal representatives, successors and assigns, and the terms hereof shall be deemed to run with the Leases or

	
32

	
Interests included within the Contract Area.

	
33

	
C. Counterparts:

	
34

	
This instrument may be executed in any number of counterparts, each of which shall be considered an original for all

	
35

	
purposes.

	
36

	
D. Severability:

	
37

	
For the purposes of assuming or rejecting this agreement as an executory contract pursuant to federal bankruptcy laws,

	
38

	
this agreement shall not be severable, but rather must be assumed or rejected in its entirety, and the failure of any party to

	
39

	
this agreement to comply with all of its financial obligations provided herein shall be a material default.

	
40

	
ARTICLE XVI.

	
41

	
OTHER PROVISIONS

42

	
43

	
 

43

44

45

46

47

48

49

50

51

52

53

54

55

56

57

58

59

60

61

62

63

64

65

66

67

68

69

70

71

72

73

74

 

17

 

ARTICLE XVI. OTHER PROVISIONS

 

Notwithstanding the foregoing provisions:

 

 

A. When a well which has been authorized under the terms of this Agreement as a vertical well shall have been drilled to the objectives authorized in the AFE ("authorized depth"), and all tests have been completed and the results thereof furnished to the participating parties, and after the Operator has attempted in good faith to reach a mutual agreement with Nion-Operator(s) regarding further operations, but such parties cannot agree upon the sequence and timing of further operations regarding said well, the following proposals shall control in the order enumerated hereafter: (1) a proposal to do additional logging, coring, or testing; (2) a proposal to attempt to complete the well at the authorized depth in the manner set forth in the AFE (i.e., in accordance with the casing, stimulation and other completion programs as set forth in the AFE);   (3) a proposal to attempt to complete the well at the authorized depth in a manner different than as set forth in the AFE; (4) a proposal to plug back and attempt to complete the well at a depth shallower than the authorized depth, with priority given to objectives in ascending order up the hole; (5) a proposal to drill the well to a depth below the authorized depth, with priority given to objectives in descending order; (6) a proposal to sidetrack the well to a new target objective for a vertical or deviated hole, with priority given first in ascending order to targets above the authorized depth, and then in descending order to targets below the authorized depth; and (7) a proposal to drill a horizontal well, with priority given first to a lateral drain hole at the authorized depth, and then to objectives in ascending order above the authorized depth, and then to objectives in descending order below the authorized depth.

 

When a well which has been authorized under the terms of this Agreement as a horizontal well shall have been drilled to the authorized depth, and all tests have been completed and the results thereof furnished to the participating parties, and such parties cannot agree upon the sequence and timing of further operations regarding said well, the following proposals shall control in the order enumerated hereafter: (1) a proposal to do additional logging, coring, or testing; (2) a proposal to attempt to complete the well at the authorized depth in the manner set forth in the AFE (i.e. , in accordance with casing, stimulation and other completion programs set forth in the AFE); (3) a proposal to attempt to complete the well at the authorized depth in a manner different than as set forth in the AFE; (4) a proposal to extend the length of the lateral drain hole for a specified number of feet in the direction it is drilling, with priority given to the shortest additional length proposed by any of the participating parties; (5) a proposal to drill a new lateral drain hole in a different direction at the authorized depth; (6) a proposal to drill a new lateral drain hole at a different depth, with priority given in ascending order to objectives above the authorized depth, and then in descending order to objectives below the authorized depth; (7) a proposal to plug back and attempt to complete the well at a depth shallower than the authorized depth, with priority given to objectives in ascending order up the hole; (8) a proposal to deepen the well below the authorized depth; and (9) a proposal to sidetrack the well to a new target objective, with priority given first in ascending order to objectives above the authorized depth, and then in descending order to objectives below the authorized depth.

 

In a horizontal well, the Operator shall have the right to cease drilling at any time, for any reason, after it has drilled a well to the objective formation and has drilled laterally for a distance which is at least equal to fifty percent (50%) of the length of the total horizontal displacement (displacement from true vertical) proposed for the operation; if in such event the well will be deemed to be at its "authorized depth11 as that term is used in this Agreement.

 

If at the time the parties are considering a proposed operation, the well is in such condition, in the Operator's judgement, that a reasonably prudent operator would not conduct such operation for fear of mechanical difficulties, placing the hole, equipment or personnel in danger of loss or injury, or fear of loss of the well for any reason without being able to attempt a completion at the authorized depth, then the proposal shall be given no priority to any proposed operation except for plugging and abandoning the well.

 

B.       In the event any Consenting Party desires to deepen a Non-Consent Well to a depth below the authorized depth, such party shall give notice thereof, complying with the requirements of Article Vl.B.I., to all parties (including Non-Consenting Parties). Thereupon Articles Vl.B.1. and 2. shall apply and all parties receiving such notice shall have the right to participate or not participate in the deepening of such well pursuant to said Articles Vl.B.1. and 2 . If a deepening operation is approved pursuant to such provisions, and if any Non-Consenting Party elects to participate in the deepening operation, such Non­ Consenting Party shall pay or make reimbursement (as the case may be) of the following costs and expenses:

 

 

	
(i) 

	
If the proposal to deepen is made prior to the completion of such well as a well capable of producing in paying quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) that share of costs and expenses incurred in connection with the drilling of said well from the surface to the authorized depth which Non-Consenting Party would have paid had such Non­ Consenting Party agreed to participate therein, plus the Non-Consenting Party's share of the cost of deepening and of participating in any further operations on the well in accordance with the other provisions of this Agreement; provided, however, all costs for testing and completion or attempted completion of the well incurred by Consenting Parties prior to the point of actual operations to deepen beyond the authorized depth shall be for the sole account of Consenting Parties. Notwithstanding the foregoing, if the Non-Consent well was drilled as a horizontal well, the Non-Consenting Party will be obligated to pay or reimburse the Consenting Parties only that share of the costs and expenses of drilling the vertical portion of the well from the surface to the point that the well is deviated from the vertical.

 

 

18

 

 

	
(ii)

	
If the proposal is made for a Non-Consent Well that has been previously completed as a well capable of producing in paying quantities, but is no longer capable of producing in paying Quantities, such Non-Consenting Party shall pay (or reimburse Consenting Parties for, as the case may be) its proportionate share of all costs of drilling, completing, and equipping said well from the surface to the authorized depth, calculated in the manner provided in paragraph (i) above, less those costs recouped by the Consenting Parties from the sale of production from the well. The Non-Consenting Party shall also pay its proportionate share of all costs of re­ entering said well. The Non-Consenting Parties' proportionate part (based on the percentage of such well Non-Consenting Party would have owned had it previously participated in such Non-Consent Well) of the costs of salvable materials and equipment remaining in the hole and salvable surface equipment used in connection with such well shall be determined in accordance with Exhibit "C". If the Consenting Parties have recouped the cost of drilling, completing, and equipping the well at the time such deepening operation is conducted, then a Non-Consenting Party may participate in the deepening of the well with no payment for costs incurred prior to re-entering the well for deepening. Notwithstanding the foregoing, if the Non-Consent well was drilled as a horizontal well, the Non-Consenting Party will be obligated to pay or reimburse the Consenting Parties only that share of the costs and expenses of drilling the vertical portion of the well from the surface to the point that the well is deviated from the vertical.

 

 

C.  Gas production attributable to any Non-Consenting Party's relinquished interest which was committed to a gas sales contract prior to the date of the relinquishment shall, upon such party's election, be sold to its purchaser, if the purchaser elects to take such production under the terms of its existing gas sales contract. Such Non-Consenting Party shall direct its purchaser to remit the proceeds received from such sale directly to the Consenting Parties until the amounts provided in Article Vl.B.2 are recovered from the Non-Consenting Party's relinquished interest. If such Non-Consenting Party has not contracted for sale of its gas at the time such gas is available for delivery, or does not elect to have its gas delivered to its purchaser as provided above, the Consenting Party shall be entitled to receive and sell such Non-Consenting Party's share of gas during the recoupment period.

 

D.      If operations (including a completion attempt) are necessary to maintain lease acreage which would otherwise expire under the terms of the lease or leases covering such acreage, or are required as a result of a demand for drilling by a lessor, or are necessary to earn leasehold interests or acreage under a farmout or other exploration agreement, the Non-Consent provision shall be changed from that set forth in Article VI to require a non-reversionary assignment of all rights, title, and interest by the party or parties not participating in such operations as to that portion of the acreage (but not any mineral interests owned by a party hereto except to the extent of the lessee's. interest under a lease effected under Article Ill.A hereof) and/or leasehold interest which would otherwise have been lost or not earned without such operations. The provisions of Article VI shall, however, continue to apply to any portion of the Contract Area which is not so jeopardized or not to be earned and which is within the same drilling, production or proration unit. The interests of the parties in said unit shall be adjusted on a surface acreage basis after recovery by the Consenting Parties of the costs to be recouped pursuant to Articles Vl.B (2) (a) and (b) and/or Vll.D (I}, as applicable, with respect to the Non-Consenting Party's interest in the unit subject thereto, and, for avoidance of doubt, the reversion as to such interests not in jeopardy or not to be earned shall occur at the same point in time as such reversion would have occurred absent the forfeiture and assignment. The leasehold interests and oil and gas interests so required to be forfeited and assigned (and the unit, should it contain both forfeiture and reversionary interests) to the Consenting Parties by the Non-Consenting Parties shall no longer be subject to this agreement but shall be subject to an operating agreement) identical to this agreement changed only to reflect the names and new interests of the parties. If operations are proposed on a lease, or on lands pooled therewith, within the last six (6) months of the primary term of a lease not otherwise maintained by other operations or production, such proposed operations will be considered as operations necessary to maintain the lease.

 

E.       If the parties hereto into an agreement between themselves and/or with any third party covering drilling and/or operations on the Contract Area or on other land and leases which are pooled or unitized therewith, then such operating agreement shall supersede this Agreement as to the rights and obligations of the parries with respect to such land and operations. During the term of such other operating agreement, this Agreement shall continue to govern the rights and obligations of the parties as to the balance of the land and depths covered by this Agreement. At such time, if ever, that such other operating agreement shall terminate, or any portion of the Contract Area is released therefrom, then this Agreement shall again become effective as to such land and depths, it being the intent of the parties that there shall never be a time during the term of this Agreement when a portion of the Contract Area is not subject to an operating agreement between the parties hereto.

 

 

19

 

 

	
1

	
IN WITNESS WHEREOF, this agreement shall be effective as of the ____________________day of__________ ,

	
2 

	
_____________________.

	
3

	
_____________________, who has prepared and circulated this form for execution, represents and warrants that the form was printed from and, with the exception(s) listed below, is identical to the AAPL Form 610-1989 Model Form

	
4

	
Operating Agreement, as published in computerized form by Forms On-A-Disk, Inc. No changes, alterations, or modifications, other than those made by strikethrough and/or insertion and that are clearly recognizable as changes

in Articles ___________________________, have been made to the form.

	
5

	
 

	6	ATTEST OR WITNESS: 	 	 	OPERATOR
	
7

	 	 	 	

PETROSHARE CORP.

	

8

	 	 	By:	/s/ Stephen J. Foley
	

9 

	 	 	 	 Stephen J. Foley
	

10

	 	 	 	Type or print name
	
11

	 	 	 	Title	 CFO
	
12

	 	 	 	Date	 11/14/13
	
13

	 	 	 	Tax ID or S.S. No.	 46-1454523
	

14

	 	 	 	 
	 	 	 	 	 

	15	NON-OPERATORS
	
16

	 	 	 	

	17	 	 	 	LLOLLC, L.L.C.
	

	 	 	By:	/s/ Kemberlia Ducote
	

18

	

	 	 	 Kemberlia Ducote
	

19

	 	 	 	Type or print name
	
20

	 	 	 	Title	 Manager
	
21

	 	 	 	Date	 11/14/13
	
22

	 	 	 	Tax ID or S.S. No.	 46-3375198
	

23

	 	 	 	 
	 	 	 	 	 

	24	 	 	 	 
	25	 	 	 	 
	

	 	 	By:	 
	

26

	

	 	 	 
	

27

	 	 	 	Type or print name
	
28

	 	 	 	Title	

 

	
29

	 	 	 	Date	 
	
30

	 	 	 	Tax ID or S.S. No.	 
	

31

	 	 	 	 
	 	 	 	 	 

	32	 	 	 	 
	 	 	 	 	 
	

	 	 	By:	 
	

33

	

	 	 	 
	

34

	 	 	 	Type or print name
	
35

	 	 	 	Title	

 

	
36

	 	 	 	Date	 
	
37

	 	 	 	Tax ID or S.S. No.	 
	 	 	 	 	 

20

A.A.P.I. FORM 610 - MODEL FORM OPERATING AREEMENT - 1989

	
1

	
ACKNOWLEDGMENTS

	
2

	
Note: The following forms of acknowledgment are the short forms approved by the Uniform Law on Notarial Acts.

	
3

	
The validity and effect of these forms in any state will depend upon the statutes of that state.

	
4

	

	
5

	
Individual acknowledgment:

	
6

	
State of _______________ )

	
7

	
State of _______________ ) ss.

	
8

	
County of _____________)

	
9

	
This instrument was acknowledged before me on

	
10 

	
_________________________ by _______________________________

	
11

	 

	
12

	
_________ (Seal, if any) ____________________________________ _______________________________________

	
13

	
_________ (Seal, if any)____________________________________Title (and Rank) ___________________________

	
14

	
_________ (Seal, if any)____________________________________My commission expires: ___________________________

	
15

	

	
16

	
Acknowledgment in representative capacity:

	
17

	
State of _______________ )

	
18

	
State of _______________ ) ss.

	
19

	
County of _____________)

	
20

	
This instrument was acknowledged before me on

	
21 

	
_________________________ by _______________________________ as

	
22

	
___________________ of ______________________________________

	
23

	
_________ (Seal, if any) ____________________________________ _______________________________________

	
24

	
_________ (Seal, if any)____________________________________Title (and Rank) ___________________________

	
25

	
_________ (Seal, if any)____________________________________My commission expires: ___________________________

	
26

	

27

28

29

30

31

32

33

34

35

36

37

 

21

 

EXHIBIT  "A"

 

Attached to that certain Operating Agreement dated effective_______, 2010, between Quicksilver Resources, Inc., as Operator, and Premier Energy Partners (I) LLC, Buck Peak LLC, and West Point Energy LLC, as Non-Operators.

 

	
I.  

	
Oil and Gas Leases Subject to Agreement:

 

The Oil and Gas Leases more particularly described on Exhibit "A-1" attached hereto.

 

	
II.  

	
Participants and Addresses:

 

	 	 	ExpenseInterest	 
	
Quicksilver Resources Inc.

777 West Rosedale, Suite 300 

Fort Worth, TX 76104

Attn: _________________

Telephone:  817-665-4959

Email: _________________

	 	 	92.50%	 
	 	 	 	 	 
	
Premier Energy Partners (I) LLC

	 	 	 	 
	
PO Box 2328

Littleton, CO 80161 

Attn: Frederick J. Witsell

Telephone: 303-881-2157

	 	 	 	 
	
Email: ____________

	 	 	 	 
	 	 	 	 	 
	
Buck Peak LLC 

621 17th Street, Ste.1345

Denver CO 80293

Attn:  David Laramie

Telephone: 303-573-8600

Email: ____________

	 	 	7.5%*	 
	 	 	 	 	 
	
West Point Energy LLC

	 	 	 	 
	
Attn:  Gary Semro

	 	 	 	 
	
Telephone : _____________

	 	 	 	 
	
Email:  __________________

	 	 	 	 
	 	 	 	 	 
	

	 	 	 	 

*Non-Operators hereby agree that any election to be made hereunder shall apply to the entire 7.5% interest of Non-Operators. In this connection, Buck Peak LLC and West Point Energy LLC hereby authorize Premier Energy Partners (I) LLC (i) to receive on behalf of Non-Operators all notices called for hereunder, and (ii) to give Operator notice of any election to be made hereunder on behalf of Non-Operators. Non-Operators agree that Operator may rely upon such communications from Premier Energy Partners (I) LLC as binding upon all Non-Operators.

A-1

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

Exhibit “C”

ACCOUNTING PRODECURE

	1	 	JOINT OPERATIONS
	2	Attached to and made part of that certain Operating Agreement dated , 2010, between Quicksilver Resources Inc.
	3	 as Operator, and Premier Energy Partners (I) LLC, Buck Peak LLC, and West Point Energy LLC, as Non-Operator(s).
	4	 	 
	5	 	 
	6	 	 
	7	 	 
	8	 	I. GENERAL PROVISIONS
	9	 	 
	10	IF THE PARTIES FAIL TO SELECT EITIIER ONE OF COMPETING "ALTERNATIVE'' PROVISIONS, OR SELECT ALL THE
	11	COMPETING "ALTERNATIVE" PROVISIONS, ALTERNATIVE 1IN EACH SUCH INSTANCE SHALL BE DEEMED TO HAVE
	12	BEEN ADOPTED BY THE PARTIES AS A RESULT OF ANY SUCH OMISSION OR DUPLICATE NOTATION.
	13	 	 
	14	IN THE EVENT THAT ANY "OPTIONAV' PROVISION OF TIIIS ACCOUNTING PROCEDURE IS NOT ADOPTED BY THE
	15	PARTIES TO THE AGREEMENT BY A TYPED, PRINTED OR HANDWRITTEN INDICATION, SUCH PROVISION SHALL NOT
	16	FORM A PART OF TIDS ACCOUNTING PROCEDURE, AND NO INFERENCE SHALL BE MADE CONCERNING THE INTENT
	17	OF THE PARTIES IN SUCH EVENT.
	18	 	 
	
19

	
1.

	
DEFINITIONS

	
20

	 	 
	
21

	 	
All terms used in this Accounting Procedure shall have the following meaning, unless otherwise expressly defined in the Agreement:

	
22

	 	 
	
23

	 	
"Affiliate'' means for a person, another person that controls, is controlled by, or is under common control with that person. In this

	
24

	 	
definition, (a) control means the ownership by one person, directly or indirectly, of more than fifty percent (50%) of the voting securities

	
25

	 	
of a corporation or, for other persons, the equivalent ownership interest (such as partnership interests), and (b) "person" means an

	
26

	 	
individual, corporation, partnership, trust, estate, unincorporated organization, association, or other legal entity.

	
27

	 	 
	
28

	 	
"Agreement" means the operating agreement, farmout agreement, or other contract between the Parties to which this Accounting

	
29

	 	
Procedure is attached.

	
30

	 	 
	
31

	 	
"Controllable Material" means Material that, at the time of acquisition or disposition by the Joint Account, as applicable, is so classified

	
32

	 	
in the Material Classification Manual most recently recommended by the Council of Petroleum Accountants Societies (COPAS).

	
33

	 	 
	
34

	 	
"Equalized Freight" means the procedure of charging transportation cost to the Joint Account based upon the distance from the nearest

	
35

	 	
Railway Receiving Point to the property.

	
36

	 	 
	
37

	 	
"Excluded Amount" means a specified excluded trucking amount most recently recommended by COPAS.

	
38

	 	 
	
39

	 	
"Field Office" means a structure, or portion of a structure, whether a temporary or permanent installation, the primary function of which is

	
40

	 	
to directly serve daily operation and maintenance activities of the Joint Property and which serves as a staging area for directly chargeable

	
41

	 	
field personnel.

	
42

	 	 
	
43

	 	
"First Level Supervision" means those employees whose primary function in Joint Operations is the direct oversight of the Operator's

	
44

	 	
field employees and/or contract labor directly employed On-site in a field operating capacity. First Level Supervision functions may

	
45

	 	
include, but are not limited to:

	
46

	 	 
	
47

	 	
▪ Responsibility for field employees and contract labor engaged in activities that can include field operations, maintenance,

	
48

	 	
construction, well remedial work, equipment movement and drilling

	
49

	 	
▪ Responsibility for day-to-day direct oversight of rig operations

	
50

	 	
▪ Responsibility for day-to-day direct oversight of construction operations

	
51

	 	
▪ Coordination of job priorities and approval of work procedures

	
52

	 	
▪ Responsibility for optimal resource utilization (equipment, Materials, personnel)

	
53

	 	
▪ Responsibility for meeting production and field operating expense targets

	
54

	 	
▪ Representation of the Parties in local matters involving community, vendors, regulatory agents and landowners, as an incidental

	
55

	 	
part of the supervisor’s operating responsibilities

	
56

	 	
▪ Responsibility for all emergency responses with field staff

	
57

	 	
▪ Responsibility for implementing safety and environmental practices

	
58

	 	
▪ Responsibility for field adherence to company policy

	
59

	 	
▪ Responsibility for employment decisions and performance appraisals for field personnel

	
60

	 	
▪ Oversight of sub-groups for field functions such as electrical, safety, environmental, telecommunications, which may have group

	
61

	 	
or team leaders.

	
62

	 	 
	
63

	 	
"Joint Account" means the account showing the charges paid and credits received in the conduct of the Joint Operations that are to be

	
64

	 	
shared by the Parties, but does not include proceeds attributable to hydrocarbons and by-products produced under the Agreement.

	
65

	 	 
	
66

	 	
"Joint Operations" means all operations necessary or proper for the exploration, appraisal, development, production, protection, maintenance, repair, abandonment, and restoration of the Joint Property.

1

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	"Joint Property" means the real and personal property subject to the Agreement.
	2	 	 
	3	 	"Laws" means any laws, rules, regulations, decrees, and orders of the United States of America or any state thereof and all other
	4	 	goverenental bodies, agencies, and other authorities having jurisdiction over or affecting the provisions contained in or the transactions
	5	 	
contemplated by the Agreement or the Parties and their operations, whether such laws now exist or are hereafter amended, enacted,

	6	 	
promulgated or issued.

	7	 	 
	8	 	
"Material" means personal property, equipment, supplies, or consumables acquired or held for use by the Joint Property.

	9	 	 
	
10

	 	
"Non-Operators" means the Parties to the Agreement other than the Operator.

	
11

	 	 
	
12

	 	
"Offshore Facilities" means platforms, surface and subsea development and production systems, and other support systems such as oil and

	
13

	 	
gas handling facilities, living quarters, offices, shops, cranes, electrical supply equipment and systems, fuel and water storage and piping,

	
14

	 	
heliport, marine docking installations, communication facilities, navigation aids, and other similar facilities necessary in the conduct of

	
15

	 	
offshore operations, all of which are located offshore.

	
16

	 	 
	
17

	 	
"Off-site" means any location that is not considered On-site as defined in this Accounting Procedure.

	
18

	 	 
	
19

	 	
"On-site" means on the Joint Property when in direct conduct of Joint Operations. The term "On-site" shall also include that portion of

	
20

	 	
Offshore Facilities, Shore Base Facilities, fabrication yards, and staging areas from which Joint Operations are conducted, or other

	
21

	 	
facilities that directly control equipment on the Joint Property, regardless of whether such facilities are owned by the Joint Account.

	
22

	 	 
	
23

	 	
"Operator" means the Party designated pursuant to the Agreement to conduct the Joint Operations.

	
24

	 	 
	
25

	 	
"Parties" means legal entities signatory to the Agreement or their successors and assigns. Parties shall be referred to individually as

	
26

	 	
"Party."

	
27

	 	 
	
28

	 	
"Participating Interest" means the percentage of the costs and risks of conducting an operation under the Agreement that a Party agrees,

	
29

	 	
or is otherwise obligated, to pay and bear.

	
30

	 	 
	
31

	 	
"Participating Party" means a Party that approves a proposed operation or otherwise agrees, or becomes liable, to pay and bear a share of

	
32

	 	
the costs and risks of conducting an operation under the Agreement.

	
33

	 	 
	
34

	 	
"Personal Expenses" means reimbursed costs for travel and temporary living expenses.

	
35

	 	 
	
36

	 	
"Railway Receiving Point" means the railhead nearest the Joint Property for which freight rates are published, even though an actual

	
37

	 	
railhead may not exist.

	
38

	 	 
	
39

	 	
"Shore Base Facilities" means onshore support facilities that during Joint Operations provide such services to the Joint Property as a

	
40

	 	
receiving and transshipment point for Materials; debarkation point for drilling and production personnel and services; communication,

	
41

	 	
scheduling and dispatching center; and other associated functions serving the Joint Property.

	
42

	 	 
	
43

	 	
"Supply Store" means a recognized source or common stock point for a given Material item.

	
44

	 	 
	
45

	 	
"Technical Services" means services providing specific engineering, geoscience, or other professional skills, such as those performed by

	
46

	 	
engineers, geologists, geophysicists, and technicians, required to handle specific operating conditions and problems for the benefit of Joint

	
47

	 	
Operations; provided, however, Technical Services shall not include those functions specifically identified as overhead under the second

	
48

	 	
paragraph of the introduction of Section III (Overhead). Technical Services may be provided by the Operator, Operator's Affiliate, Non-

	
49

	 	
Operator, Non-Operator Affiliates, and/or third parties.

	
50

	 	 
	
51

	
2.

	
STATEMENTS AND BILLINGS

	
52

	 	 
	
53

	 	
The Operator shall bill Non-Operators on or before the last day of the month for their proportionate share of the Joint Account for the

	
54

	 	
preceding month. Such bills shall be accompanied by statements that identify the AFE (authority for expenditure), lease or facility, and all

	
55

	 	
charges and credits summarized by appropriate categories of investment and expense. Controllable Material shall be separately identified

	
56

	 	
and fully described in detail, or at the Operator's option, Controllable Material may be summarized by major Material classifications.

	
57

	 	
Intangible drilling costs, audit adjustments, and unusual charges and credits shall be separately and clearly identified.

	
58

	 	 
	
59

	 	
The Operator may make available to Non-Operators any statements and bills required under Section I.2 and/or Section I.3.A (Advances

	
60

	 	
and Payments by the Parties) via email, electronic data interchange, internet websites or other equivalent electronic media in lieu of paper

	
61

	 	
copies. The Operator shall provide the Non-Operators instructions and any necessary information to access and receive the statements and

	
62

	 	
bills within the timeframes specified herein. A statement or billing shall be deemed as delivered twenty-four (24) hours (exclusive of

	
63

	 	
weekends and holidays) after the Operator notifies the Non-Operator that the statement or billing is available on the website and/or sent via

	
64

	 	
email or electronic data interchange transmission. Each Non-Operator individually shall elect to receive statements and billings

	
65

	 	
electronically, if available from the Operator, or request paper copies. Such election may be changed upon thirty (30) days prior written

	
66

	 	
notice to the Operator.

2

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	3.	ADVANCES AND PAYMENTS BY THE PARTIES
	2	 	 
	3	 	A. Unless otherwise provided for in the Agreement, the Operator may require the Non-Operators to advance their share of the estimated 
	4	 	cash outlay for the succeeding month's operations within fifteen (15) days after receipt of the advance request or by the first day of
	5	 	
the month for which the advance is required, whichever is later. The Operator shall adjust each monthly billing to reflect advances 

	6	 	
received from the Non-Operators for such month. If a refund is due, the Operator shall apply the amount to be refunded to the 

	7	 	subsequent month's billing or advance, unless the Non-Operator sends the Operator a written request for a cash refund. The Operator 
	8	 	
shall remit the refund to the Non-Operator within fifteen (15) days of receipt of such written request.

	9	 	 
	
10

	 	
B. Except as provided below, each Party shall pay its proportionate share of all bills in full within fifteen (15) days of receipt date. If

	
11

	 	
payment is not made within such time, the unpaid balance shall bear interest compounded monthly at the prime rate published by the

	
12

	 	
Wall Street Journal on the first day of each month the payment is delinquent plus three percent (3%), per annum, or the maximum

	
13

	 	
contract rate permitted by the applicable usury Laws governing the Joint Property, whichever is the lesser, plus attorney's fees, court

	
14

	 	
costs, and other costs in connection with the collection of unpaid amounts. If the Wall Street Journal ceases to be published or

	
15

	 	
discontinues publishing a prime rate, the unpaid balance shall bear interest compounded monthly at the prime rate published by the

	
16

	 	Federal Reserve plus three percent (3%), per annum. Interest shall begin accruing on the first day of the month in which the payment
	
17

	 	
was due. Payment shall not be reduced or delayed as a result of inquiries or anticipated credits unless the Operator has agreed.

	
18

	 	Notwithstanding the foregoing, the Non-Operator may reduce payment, provided it furnishes documentation and explanation to the
	
19

	 	
Operator at the time payment is made, to the extent such reduction is caused by:

	
20

	 	

	
21

	 	
(1) being billed at an incorrect working interest or Participating Interest that is higher than such Non-Operator's actual working

	
22

	 	interest or Participating Interest, as applicable; or
	
23

	 	
(2) being billed for a project or AFE requiring approval of the Parties under the Agreement that the Non-Operator has not approved

	
24

	 	
or is not otherwise obligated to pay under the Agreement; or

	
25

	 	
(3) being billed for a property in which the Non-Operator no longer owns a working interest, provided the Non-Operator has

	
26

	 	
furnished the Operator a copy of the recorded assignment or letter in-lieu. Notwithstanding the foregoing, the Non-Operator

	
27

	 	shall remain responsible for paying bills attributable to the interest it sold or transferred for any bills rendered during the thirty
	
28

	 	
(30) day period following the Operator's receipt of such written notice; or

	
29

	 	
(4) charges outside the adjustment period, as provided in Section I.4 (Adjustments).

	
30

	 	 
	
31

	4.	
ADJUSTMENTS

	
32

	 	

	
33

	 	A. Payment of any such bills shall not prejudice the right of any Party to protest or question the correctness thereof; however, all bills
	
34

	 	
and statements, including payout statements, rendered during any calendar year shall conclusively be presumed to be true and correct,

	
35

	 	
with respect only to expenditures, after twenty-four (24) months following the end of any such calendar year, unless within said

	
36

	 	
period a Party takes specific detailed written exception thereto making a claim for adjustment. The Operator shall provide a response

	
37

	 	
to all written exceptions, whether or not contained in an audit report, within the time periods prescribed in Section I.5 (Expenditure

	
38

	 	
Audits).

	
39

	 	

	
40

	 	
B. All adjustments initiated by the Operator, except those described in items (1) through (4) of this Section I.4.B, are limited to the

	
41

	 	
twenty-four (24) month period following the end of the calendar year in which the original charge appeared or should have appeared

	
42

	 	
on the Operator's Joint Account statement or payout statement. Adjustments that may be made beyond the twenty-four (24) month

	
43

	 	
period are limited to adjustments resulting from the following:

	
44

	 	 
	
45

	 	
(1) a physical inventory of Controllable Material as provided for in Section V (Inventories of Controllable Material), or

	
46

	 	
(2) an offsetting entry (whether in whole or in part) that is the direct result of a specific joint interest audit exception granted by the

	
47

	 	
Operator relating to another property, or

	
48

	 	
(3) a government/regulatory audit, or

	
49

	 	
(4) a working interest ownership or Participating Interest adjustment.

	
50

	 	 
	
51

	
5.

	
EXPENDITURE AUDITS

	
52

	 	 
	
53

	 	
A. A Non-Operator, upon written notice to the Operator and all other Non-Operators, shall have the right to audit the Operator's

	
54

	 	
accounts and records relating to the Joint Account within the twenty-four (24) month period following the end of such calendar year in

	
55

	 	
which such bill was rendered; however, conducting an audit shall not extend the time for the taking of written exception to and the

	
56

	 	
adjustment of accounts as provided for in Section I.4 (Adjustments). Any Party that is subject to payout accounting under the

	
57

	 	
Agreement shall have the right to audit the accounts and records of the Party responsible for preparing the payout statements, or of

	
58

	 	
the Party furnishing information to the Party responsible for preparing payout statements. Audits of payout accounts may include the

	
59

	 	
volumes of hydrocarbons produced and saved and proceeds received for such hydrocarbons as they pertain to payout accounting

	
60

	 	
required under the Agreement. Unless otherwise provided in the Agreement, audits of a payout account shall be conducted within the

	
61

	 	
twenty-four (24) month period following the end of the calendar year in which the payout statement was rendered.

	
62

	 	

	
63

	 	
Where there are two or more Non-Operators, the Non-Operators shall make every reasonable effort to conduct a joint audit in a

	
64

	 	
manner that will result in a minimum of inconvenience to the Operator. The Operator shall bear no portion of the Non-Operators'

	
65

	 	
audit cost incurred under this paragraph unless agreed to by the Operator. The audits shall not be conducted more than once each year

	
66

	 	
without prior approval of the Operator, except upon the resignation or removal of the Operator, and shall be made at the expense of

3

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	
those Non-Operators approving such audit.

	2	 	 
	3	 	
The Non-Operator leading the audit (hereinafter "lead audit company") shall issue the audit report within ninety (90) days after 

	4	 	
completion of the audit testing and analysis; however, the ninety (90) day time period shall not extend the twenty-four (24) month 

	5	 	
requirement for taking specific detailed written exception as required in Section I.4.A (Adjustments) above. All claims shall be 

	6	 	
supported with sufficient documentation.

	7	 	 
	8	 	
A timely filed written exception or audit report containing written exceptions (hereinafter "written exceptions") shall, with respect to

	9	 	
the claims made therein, preclude the Operator from asserting a statute of limitations defense against such claims, and the Operator

	
10

	 	
hereby waives its right to assert any statute of limitations defense against such claims for so long as any Non-Operator continues to

	
11

	 	
comply with the deadlines for resolving exceptions provided in this Accounting Procedure. If the Non-Operators fail to comply with

	
12

	 	
the additional deadlines in Section I.5.B or I.5.C, the Operator's waiver of its rights to assert a statute of limitations defense against

	
13

	 	
the claims brought by the Non-Operators shall lapse, and such claims shall then be subject to the applicable statute of limitations,

	
14

	 	
provided that such waiver shall not lapse in the event that the Operator has failed to comply with the deadlines in Section I.5.B or

	
15

	 	
I.5.C.

	
16

	 	 
	
17

	 	
B.   The Operator shall provide a written response to all exceptions in an audit report within one hundred eighty (180) days after Operator

	
18

	 	
receives such report. Denied exceptions should be accompanied by a substantive response. If the Operator fails to provide substantive

	
19

	 	
response to an exception within this one hundred eighty (180) day period, the Operator will owe interest on that exception or portion

	
20

	 	
thereof, if ultimately granted, from the date it received the audit report. Interest shall be calculated using the rate set forth in Section

	
21

	 	
I.3.B (Advances and Payments by the Parties).

	
22

	 	 
	
23

	 	
C.   The lead audit company shall reply to the Operator's response to an audit report within ninety (90) days of receipt, and the Operator

	
24

	 	
shall reply to the lead audit company's follow-up response within ninety (90) days of receipt; provided, however, each Non-Operator

	
25

	 	
shall have the right to represent itself if it disagrees with the lead audit company's position or believes the lead audit company is not

	
26

	 	
adequately fulfilling its duties. Unless otherwise provided for in Section I.5.E, if the Operator fails to provide substantive response

	
27

	 	
to an exception within this ninety (90) day period, the Operator will owe interest on that exception or portion thereof, if ultimately

	
28

	 	
granted, from the date it received the audit report. Interest shall be calculated using the rate set forth in Section I.3.B (Advances and

	
29

	 	
Payments by the Parties).

	
30

	 	 
	
31

	 	
D.   If any Party fails to meet the deadlines in Sections I.5.B or I.5.C or if any audit issues are outstanding fifteen (15) months after

	
32

	 	
Operator receives the audit report, the Operator or any Non-Operator participating in the audit has the right to call a resolution

	
33

	 	
meeting, as set forth in this Section I.5.D or it may invoke the dispute resolution procedures included in the Agreement, if applicable.

	34	 	
The meeting will require one month's written notice to the Operator and all Non-Operators participating in the audit. The meeting

	35	 	
shall be held at the Operator's office or mutually agreed location, and shall be attended by representatives of the Parties with

	36	 	
authority to resolve such outstanding issues. Any Party who fails to attend the resolution meeting shall be bound by any resolution

	
37

	 	
reached at the meeting. The lead audit company will make good faith efforts to coordinate the response and positions of the

	38	 	
Non-Operator participants throughout the resolution process; however, each Non-Operator shall have the right to represent itself.

	
39

	 	
Attendees will make good faith efforts to resolve outstanding issues, and each Party will be required to present substantive information

	
40

	 	
supporting its position. A resolution meeting may be held as often as agreed to by the Parties. Issues unresolved at one meeting may

	
41

	 	
be discussed at subsequent meetings until each such issue is resolved.

	
42

	 	

	
43

	 	
If the Agreement contains no dispute resolution procedures and the audit issues cannot be resolved by negotiation, the dispute shall

	
44

	 	
shall choose a mutually acceptable mediator and share the costs of mediation services equally. The Parties shall each have present

	
45

	 	
be submitted to mediation. In such event, promptly following one Party's written request for mediation, the Parties to the dispute

	
46

	 	
at the mediation at least one individual who has the authority to settle the dispute. The Parties shall make reasonable efforts to

	
47

	 	
ensure that the mediation commences within sixty (60) days of the date of the mediation request. Notwithstanding the above, any

	
48

	 	
Party may file a lawsuit or complaint (1) if the Parties are unable after reasonable efforts, to commence mediation within sixty (60)

	
49

	 	
days of the date of the mediation request, (2) for statute of limitations reasons, or (3) to seek a preliminary injunction or other

	
50

	 	
provisional judicial relief, if in its sole judgment an injunction or other provisional relief is necessary to avoid irreparable damage or

	
51

	

	
to preserve the status quo. Despite such action, the Parties shall continue to try to resolve the dispute by mediation.

	
52

	 	 
	
53

	 	
E. o (Optional Provision- Forfeiture Penalties)

	
54

	 	
If the Non-Operators fail to meet the deadline in Section I.5.C, any unresolved exceptions that were not addressed by the Non­

	
55

	 	
Operators within one (1) year following receipt of the last substantive response of the Operator shall be deemed to have been

	
56

	 	
withdrawn by the Non-Operators. If the Operator fails to meet the deadlines in Section I.5.B or I.5.C, any unresolved exceptions that

	
57

	 	
were not addressed by the Operator within one ( 1) year following receipt of the audit report or receipt of the last substantive response

	
58

	 	
of the Non-Operators, whichever is later, shall be deemed to have been granted by the Operator and adjustments shall be made,

	
59

	 	
without interest, to the Joint Account.

	
60

	 	

	
61

	6.	
APPROVAL BY PARTIES

	
62

	 	

	
63

	 	
A.   GENERAL MATTERS

	
64

	 	

	
65

	 	
Where an approval or other agreement of the Parties or Non-Operators is expressly required under other Sections of this Accounting

	
66

	 	
Procedure and if the Agreement to which this Accounting Procedure is attached contains no contrary provisions in regard thereto, the

4

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	Operator shall notify all Non-Operators of the Operator's proposal and the agreement or approval of a majority in interest of the 
	2	 	Non-Operators shall be controlling on all Non-Operators.
	3	 	 
	4	 	This Section I.6.A applies to specific situations of limited duration where a Party proposes to change the accounting for charges from
	5	 	
that prescribed in this Accounting Procedure. This provision does not apply to amendments to this Accounting Procedure, which are 

	6	 	
covered by Section I.6.B.

	7	 	 
	8	B.	
AMENDMENTS

	9	 	 
	
10

	 	
If the Agreement to which this Accounting Procedure is attached contains no contrary provisions in regard thereto, this Accounting

	
11

	 	Procedure can be amended by an affirmative vote of ___________(__)or more Parties, one of which is the Operator,
	
12

	 	
having a combined working interest of at least___________________percent (___%), which approval shall be binding on all Parties,

	
13

	 	
provided, however, approval of at least one (1) Non-Operator shall be required.

	
14

	 	

	
15

	C.	
AFFILIATES

	
16

	 	 
	
17

	 	
For the purposes of administering the voting procedures in Section I.6.A and I.6.B, if Parties to this Agreement are Affiliates of each

	
18

	 	other, then such Affiliates shall be combined and treated as a single Party having the combined working interest or Participating
	
19

	 	
Interest of such Affiliates.

	
20

	 	

	
21

	 	
For the purposes of administering the voting procedures in Section I.6.A, if a Non-Operator is an Affiliate of the Operator, votes

	
22

	 	under Section I.6.A shall require the majority in interest of the Non-Operator(s) after excluding the interest of the Operator's
	
23

	 	
Affiliate.

	
24

	 	 
	
25

	 	
II. DIRECT CHARGES

	
26

	 	

	
27

	 	
The Operator shall charge the Joint Account with the following items:

	
28

	 	

	
29

	1.	
RENTALS AND ROYALTIES

	
30

	 	 
	
31

	 	
Lease rentals and royalties paid by the Operator, on behalf of all Parties, for the Joint Operations.

	
32

	 	

	
33

	2.	LABOR
	
34

	 	

	
35

	 	A.   Salaries and wages, including incentive compensation programs as set forth in COPAS MFI-37 ("Chargeability of Incentive
	
36

	 	
Compensation Programs"), for

	
37

	 	

	
38

	 	(1)   Operator's field employees directly employed On-site in the conduct of Joint Operations,
	
39

	 	

	
40

	 	
(2)   Operator's employees directly employed on Shore Base Facilities, Offshore Facilities, or other facilities serving the Joint

	
41

	 	
Property if such costs are not charged under Section II.6 (Equipment and Facilities Furnished by Operator) or are not a

	
42

	 	function covered under Section III (Overhead),
	
43

	 	

	
44

	 	(3)   Operator's employees providing First Level Supervision,
	
45

	 	

	
46

	 	
(4)   Operator's employees providing On-site Technical Services for the Joint Property if such charges are excluded from the

	
47

	 	
overhead rates in Section III (Overhead),

	
48

	 	

	
49

	 	
(5)   Operator's employees providing Off-site Technical Services for the Joint Property if such charges are excluded from the

	
50

	 	overhead rates in Section III (Overhead).
	
51

	

	

	
52

	 	Charges for the Operator's employees identified in Section II.2.A may be made based on the employee's actual salaries and wages,
	
53

	 	
or in lieu thereof, a day rate representing the Operator's average salaries and wages of the employee's specific job category.

	
54

	 	

	
55

	 	
Charges for personnel chargeable under this Section II.2.A who are foreign nationals shall not exceed comparable compensation paid

	
56

	 	
to an equivalent U.S. employee pursuant to this Section II.2, unless otherwise approved by the Parties pursuant to Section

	
57

	 	
I.6.A (General Matters).

	
58

	 	 
	
59

	 	
B.  Operator's cost of holiday, vacation, sickness, and disability benefits, and other customary allowances paid to employees whose

	
60

	 	
salaries and wages are chargeable to the Joint Account under Section II.2.A, excluding severance payments or other termination

	
61

	 	
allowances. Such costs under this Section II.2.B may be charged on a "when and as-paid basis" or by "percentage assessment" on the

	
62

	 	
amount of salaries and wages chargeable to the Joint Account under Section II.2.A. If percentage assessment is used, the rate shall

	
63

	 	
be based on the Operator's cost experience.

	
64

	 	

	
65

	 	
C.   Expenditures or contributions made pursuant to assessments imposed by governmental authority that are applicable to costs

	
66

	 	
chargeable to the Joint Account under Sections II.2.A and B

5

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	D. Personal Expenses of personnel whose salaries and wages are chargeable to the Joint Account under Section II.2.A when the
	2	 	
expenses are incurred in connection with directly chargeable activities.

	3	 	 
	4	 	
E. Reasonable relocation costs incurred in transferring to the Joint Property personnel whose salaries and wages are chargeable to the

	5	 	Joint Account under Section 11.2.A. Notwithstanding the foregoing, relocation costs that result from reorganization or merger of a
	6	 	Party, or that are for the primary benefit of the Operator, shall not be chargeable to the Joint Account. Extraordinary relocation
	7	 	
costs, such as those incurred as a result of transfers from remote locations, such as Alaska or overseas, shall not be charged to the

	8	 	
Joint Account unless approved by the Parties pursuant to Section I.6.A (General Matters).

	9	 	 
	
10

	 	
F.   Training costs as specified in COPAS MFI-35 ("Charging of Training Costs to the Joint Account") for personnel whose salaries and

	
11

	 	
wages are chargeable under Section II.2.A. This training charge shall include the wages, salaries, training course cost, and Personal

	
12

	 	
Expenses incurred during the training session. The training cost shall be charged or allocated to the property or properties directly

	
13

	 	
benefiting from the training. The cost of the training course shall not exceed prevailing commercial rates, where such rates are

	
14

	 	
available.

	
15

	 	 
	
16

	 	
G.   Operator's current cost of established plans for employee benefits, as described in COPAS MFI-27 ("Employee Benefits Chargeable

	
17

	 	
to Joint Operations and Subject to Percentage Limitation"), applicable to the Operator's labor costs chargeable to the Joint Account

	
18

	 	
under Sections II.2.A and B based on the Operator's actual cost not to exceed the employee benefits limitation percentage most

	
19

	 	
recently recommended by COPAS.

	
20

	 	 
	
21

	 	
H.   Award payments to employees, in accordance with COPAS MFI-49 ("Awards to Employees and Contractors") for personnel whose

	
22

	 	
salaries and wages are chargeable under Section II.2.A.

	
23

	 	 
	
24

	
3.

	
MATERIAL

	
25

	 	 
	
26

	 	
Material purchased or furnished by the Operator for use on the Joint Property in the conduct of Joint Operations as provided under Section

	
27

	 	
IV (Material Purchases, Transfers, and Dispositions). Only such Material shall be purchased for or transferred to the Joint Property as

	
28

	 	
may be required for immediate use or is reasonably practical and consistent with efficient and economical operations. The accumulation

	
29

	 	
of surplus stocks shall be avoided.

	
30

	 	 
	
31

	
4.

	
TRANSPORTATION

	
32

	 	 
	
33

	 	
A. Transportation of the Operator's, Operator's Affiliate's, or contractor's personnel necessary for Joint Operations.

	
34

	 	 
	
35

	 	
B. Transportation of Material between the Joint Property and another property, or from the Operator's warehouse or other storage point

	
36

	 	
to the Joint Property, shall be charged to the receiving property using one of the methods listed below. Transportation of Material

	
37

	 	
from the Joint Property to the Operator's warehouse or other storage point shall be paid for by the Joint Property using one of the

	
38

	 	
methods listed below:

	
39

	 	 
	
40

	 	
(1) If the actual trucking charge is less than or equal to the Excluded Amount the Operator may charge actual trucking cost or a

	
41

	 	
theoretical charge from the Railway Receiving Point to the Joint Property. The basis for the theoretical charge is the per

	
42

	 	
hundred weight charge plus fuel surcharges from the Railway Receiving Point to the Joint Property. The Operator shall

	
43

	 	
consistently apply the selected alternative.

	
44

	 	 
	
45

	 	
(2) If the actual trucking charge is greater than the Excluded Amount the Operator shall charge Equalized Freight. Accessorial

	
46

	 	
charges such as loading and unloading costs, split pick-up costs, detention, call out charges, and permit fees shall be charged

	
47

	 	
directly to the Joint Property and shall not be included when calculating the Equalized Freight.

	
48

	 	 
	
49

	
5.

	
SERVICES

	
50

	 	 
	
51

	 	
The cost of contract services, equipment, and utilities used in the conduct of Joint Operations, except for contract services, equipment, and

	
52

	 	
utilities covered by Section III (Overhead), or Section II.7 (Affiliates), or excluded under Section II.9 (Legal Expense). Awards paid to

	
53

	 	
contractors shall be chargeable pursuant to COPAS MFl-49 ("Awards to Employees and Contractors").

	
54

	 	 
	
55

	 	
The costs of third party Technical Services are chargeable to the extent excluded from the overhead rates under Section III (Overhead).

	
56

	 	 
	
57

	
6.

	
EQUIPMENT AND FACILITIES FURNISHED BY OPERATOR

	
58

	 	 
	
59

	 	
In the absence of a separately negotiated agreement, equipment and facilities furnished by the Operator will be charged as follows:

	
60

	 	 
	
61

	 	
A. The Operator shall charge the Joint Account for use of Operator-owned equipment and facilities, including but not limited to

	
62

	 	
production facilities, Shore Base Facilities, Offshore Facilities, and Field Offices, at rates commensurate with the costs of ownership

	
63

	 	
and operation. The cost of Field Offices shall be chargeable to the extent the Field Offices provide direct service to personnel who

	
64

	 	
are chargeable pursuant to Section II.2.A (Labor). Such rates may include labor, maintenance, repairs, other operating expense,

	
65

	 	
insurance, taxes, depreciation using straight line depreciation method, and interest on gross investment less accumulated depreciation

	
66

	 	
not to exceed _______ percent ( __%) per annum; provided, however, depreciation shall not be charged when the

6

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	equipment and facilities investment have been fully depreciated. The rate may include an element of the estimated cost for 
	2	 	abandonment, reclamation, and dismantlement. Such rates shall not exceed the average commercial rates currently prevailing in the 
	3	 	
immediate area of the Joint Property.

	4	 	 
	5	 	
B. In lieu of charges in Section II.6.A above, the Operator may elect to use average commercial rates prevailing in the immediate area 

	6	 	
of the Joint Property, less twenty percent (20%). If equipment and facilities are charged under this Section II.6.B, the Operator shall 

	7	 	adequately document and support commercial rates and shall periodically review and update the rate and the supporting 
	8	 	
documentation. For automotive equipment, the Operator may elect to use rates published by the Petroleum Motor Transport 

	9	 	
Association (PMTA) or such other organization recognized by COPAS as the official source of rates.

	
10

	 	

	
11

	7.	AFFILIATES
	
12

	 	

	
13

	 	
A. Charges for an Affiliate's goods and/or services used in operations requiring an AFE or other authorization from the Non-Operators

	
14

	 	
may be made without the approval of the Parties provided (i) the Affiliate is identified and the Affiliate goods and services are

	
15

	 	
specifically detailed in the approved AFE or other authorization, and (ii) the total costs for such Affiliate's goods and services billed

	
16

	 	to such individual project do not exceed $ 500.000.00 If the total costs for an Affiliate's goods and services charged to such
	
17

	 	
individual project are not specifically detailed in the approved AFE or authorization or exceed such amount, charges for such

	
18

	 	Affiliate shall require approval of the Parties, pursuant to Section I.6.A (General Matters).
	
19

	 	

	
20

	 	
B. For an Affiliate's goods and/or services used in operations not requiring an AFE or other authorization from the Non-Operators,

	
21

	 	
charges for such Affiliate's goods and services shall require approval of the Parties, pursuant to Section I.6.A (General Matters), if the

	
22

	 	
charges exceed $ 500.000.00 in a given calendar year.

	
23

	 	

	
24

	 	C. The cost of the Affiliate's goods or services shall not exceed average commercial rates prevailing in the area of the Joint Property,
	
25

	 	
unless the Operator obtains the Non-Operators' approval of such rates. The Operator shall adequately document and support

	
26

	 	
commercial rates and shall periodically review and update the rate and the supporting documentation; provided, however,

	
27

	 	documentation of commercial rates shall not be required if the Operator obtains Non-Operator approval of its Affiliate's rates or
	
28

	 	
charges prior to billing Non-Operators for such Affiliate's goods and services. Notwithstanding the foregoing, direct charges for

	
29

	 	
Affiliate-owned communication facilities or systems shall be made pursuant to Section II.12 (Communications).

	
30

	 	 
	
31

	 	
If the Parties fail to designate an amount in Sections II.7.A or II.7.B, in each instance the amount deemed adopted by the Parties as a

	
32

	 	
result of such omission shall be the amount established as the Operator's expenditure limitation in the Agreement. If the Agreement

	
33

	 	does not contain an Operator's expenditure limitation, the amount deemed adopted by the Parties as a result of such omission shall be
	
34

	 	
zero dollars ($ 0.00).

	
35

	 	 
	
36

	8.	
DAMAGES AND LOSSES TO JOINT PROPERTY

	
37

	 	

	
38

	 	
All costs or expenses necessary for the repair or replacement of Joint Property resulting from damages or losses incurred, except to the

	
39

	 	
extent such damages or losses result from a Party's or Parties' gross negligence or willful misconduct, in which case such Party or Parties

	
40

	 	
shall be solely liable.

	
41

	 	

	
42

	 	
The Operator shall furnish the Non-Operator written notice of damages or losses incurred as soon as practicable after a report has been

	
43

	 	
received by the Operator.

	
44

	 	
 

	
45

	9.	
LEGAL EXPENSE

	
46

	 	

	
47

	 	
Recording fees and costs of handling, settling, or otherwise discharging litigation, claims, liens and title and regulatory work / incurred in or resulting from

	
48

	 	
operations under the Agreement, or necessary to protect or recover the Joint Property, to the extent permitted under the Agreement. Costs

	
49

	 	
of the Operator's or Affiliate's legal staff or outside attorneys, including fees and expenses, are not chargeable unless approved by the

	
50

	 	Parties pursuant to Section I.6.A (General Matters) or otherwise provided for in the Agreement.
	
51

	

	

	
52

	 	Notwithstanding the foregoing paragraph, costs for procuring abstracts, fees paid to outside attorneys for title examinations (including
	
53

	 	
preliminary, supplemental, shut-in royalty opinions, division order title opinions), and curative work shall be chargeable to the extent

	
54

	 	
permitted as a direct charge in the Agreement.

	
55

	 	

	
56

	 	

	
57

	10.	
TAXES AND PERMITS

	
58

	 	

	
59

	 	
All taxes and permitting fees of every kind and nature, assessed or levied upon or in connection with the Joint Property, or the production

	
60

	 	
therefrom, and which have been paid by the Operator for the benefit of the Parties, including penalties and interest, except to the extent the

	
61

	 	
penalties and interest result from the Operator's gross negligence or willful misconduct.

	
62

	 	

	
63

	 	
If ad valorem taxes paid by the Operator are based in whole or in part upon separate valuations of each Party's working interest, then

	
64

	 	
notwithstanding any contrary provisions, the charges to the Parties will be made in accordance with the tax value generated by each Party's

	
65

	 	
working interest.

	
66

	 	

7

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	
Costs of tax consultants or advisors, the Operator's employees, or Operator's Affiliate employees in matters regarding ad valorem or other

	2	 	
tax matters, are not permitted as direct charges unless approved by the Parties pursuant to Section I.6.A (General Matters).

	3	 	 
	4	 	Charges to the Joint Account resulting from sales/use tax audits, including extrapolated amounts and penalties and interest, are permitted, 
	5	 	
provided the Non-Operator shall be allowed to review the invoices and other underlying source documents which served as the basis for

	6	 	
tax charges and to determine that the correct amount of taxes were charged to the Joint Account. If the Non-Operator is not permitted to 

	7	 	review such documentation, the sales/use tax amount shall not be directly charged unless the Operator can conclusively document the 
	8	 	
amount owed by the Joint Account.

	9	 	 
	
10

	11.	
INSURANCE

	
11

	 	 
	
12

	 	
Net premiums paid for insurance required to be carried for Joint Operations for the protection of the Parties. If Joint Operations are

	
13

	 	
conducted at locations where the Operator acts as self-insurer in regard to its worker's compensation and employer's liability insurance

	
14

	 	
obligation, the Operator shall charge the Joint Account manual rates for the risk assumed in its self-insurance program as regulated by the

	
15

	 	
jurisdiction governing the Joint Property. In the case of offshore operations in federal waters, the manual rates of the adjacent state shall be

	
16

	 	used for personnel performing work On-site, and such rates shall be adjusted for offshore operations by the U.S. Longshoreman and
	
17

	 	
Harbor Workers (USL&H) or Jones Act surcharge, as appropriate.

	
18

	 	 
	
19

	12.	
COMMUNICATIONS

	
20

	 	

	
21

	 	
Costs of acquiring, leasing, installing. operating. repairing. and maintaining communication facilities or systems, including satellite, radio

	
22

	 	
and microwave facilities, between the Joint Property and the Operator's office(s) directly responsible for field operations in accordance

	
23

	 	
with the provisions of COPAS MFI-44 ("Field Computer and Communication Systems"). If the communications facilities or systems

	
24

	 	
serving the Joint Property are Operator-owned, charges to the Joint Account shall be made as provided in Section II.6 (Equipment and

	
25

	 	
Facilities Furnished by Operator). If the communication facilities or systems serving the Joint Property are owned by the Operator's

	
26

	 	
Affiliate, charges to the Joint Account shall not exceed average commercial rates prevailing in the area of the Joint Property. The Operator

	
27

	 	shall adequately document and support commercial rates and shall periodically review and update the rate and the supporting
	
28

	 	
documentation.

	
29

	 	

	
30

	13.	
ECOLOGICAL, ENVIRONMENTAL, AND SAFETY

	
31

	 	

	
32

	 	
Costs incurred for Technical Services and drafting to comply with ecological, environmental and safety Laws or standards recommended by

	
33

	 	
Occupational Safety and Health Administration (OSHA) or other regulatory authorities. All other labor and functions incurred for

	
34

	 	
ecological, environmental and safety matters, including management, administration, and permitting, shall be covered by Sections II.2

	
35

	 	(Labor), II.5 (Services), or Section III (Overhead), as applicable.
	
36

	 	

	
37

	 	
Costs to provide or have available pollution containment and removal equipment plus actual costs of control and cleanup and resulting

	
38

	 	responsibilities of oil and other spills as well as discharges from permitted outfalls as required by applicable Laws, or other pollution
	
39

	 	
containment and removal equipment deemed appropriate by the Operator for prudent operations, are directly chargeable.

	
40

	 	

	
41

	14.	
ABANDONMENT AND RECLAMATION

	
42

	 	 
	
43

	 	
Costs incurred for abandonment and reclamation of the Joint Property, including costs required by lease agreements or by Laws.

	
44

	 	 
	
45

	15.	
OTHER EXPENDITURES

	
46

	 	

	
47

	 	
Any other expenditure not covered or dealt with in the foregoing provisions of this Section II (Direct Charges), or in Section III

	
48

	 	
(Overhead) and which is of direct benefit to the Joint Property and is incurred by the Operator in the necessary and proper conduct of the

	
49

	 	
Joint Operations. Charges made under this Section II.1.5 shall require approval of the Parties, pursuant to Section I.6.A (General Matters).

	
50

	 	 
	
51

	

	 
	
52

	 	
III. OVERHEAD

	
53

	 	

	
54

	 	
As compensation for costs not specifically identified as chargeable to the Joint Account pursuant to Section II (Direct Charges), the Operator

	
55

	 	
shall charge the Joint Account in accordance with this Section III.

	
56

	 	

	
57

	 	
Functions included in the overhead rates regardless of whether performed by the Operator, Operator's Affiliates or third parties and regardless

	
58

	 	of location, shall include, but not be limited to, costs and expenses of:
	
59

	 	 
	
60

	 	
▪ warehousing, other than for warehouses that are jointly owned under this Agreement

	
61

	 	
▪ design and drafting (except when allowed as a direct charge under Sections II.13, III..I.A.(ii), and III.2, Option B)

	
62

	 	
▪ inventory costs not chargeable under Section V (Inventories of Controllable Material)

	
63

	 	
▪ procurement

	
64

	 	
▪ administration

	
65

	 	
▪ accounting and auditing

	
66

	 	
▪ gas dispatching and gas chart integration

8

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	▪ human resources
	2	 	▪ management
	3	 	
▪ supervision not directly charged under Section II.2 (Labor)

	4	 	▪ legal services not directly chargeable under Section II.9 (Legal Expense)
	5	 	
▪ taxation, other than those costs identified as directly chargeable under Section II.10 (Taxes and Permits)

	6	 	
▪ preparation and monitoring of permits and certifications; preparing regulatory reports; appearances before or meetings with 

	7	 	governmental agencies or other authorities having jurisdiction over the Joint Property, other than On-site inspections; reviewing, 
	8	 	
interpreting, or submitting contents on or lobbying with respect to Laws or proposed Laws.

	9	 	 
	
10

	 	
Overhead charges shall include the salaries or wages plus applicable payroll burdens, benefits, and Personal Expenses of personnel performing

	
11

	 	overhead functions, as well as office and other related expenses of overhead functions.
	
12

	 	

	
13

	1.	
OVERHEAD-DRILLING AND PRODUCING OPERATIONS

	
14

	 	

	
15

	 	
As compensation for costs incurred but not chargeable under Section II (Direct Charges) and not covered by other provisions of this

	
16

	 	Section III, the Operator shall charge on either:
	
17

	 	

	
18

	 	þ (Alternative 1) Fixed Rate Basis, Section III.1.B.
	
19

	 	
o (Alternative 2) Percentage Basis, Section III.1.C.

	
20

	 	

	
21

	A.	
TECHNICAL SERVICES

	
22

	 	 
	
23

	 	
(i) Except as otherwise provided in Section II.13 (Ecological Environmental and Safety) and Section III.2 (Overhead - Major

	
24

	 	Construction and Catastrophe), or by approval of the Parties pursuant to Section I.6.A (General Matters), the salaries, wages,
	
25

	 	
related payroll burdens and benefits, and Personal Expenses for On-site Technical Services, including third party Technical

	
26

	 	
Services:

	
27

	 	 
	
28

	 	
þ (Alternative 1- Direct) shall be charged direct to the Joint Account.

	
29

	 	

	
30

	 	
o (Alternative 2 - Overhead) shall be covered by the overhead rates.

	
31

	 	

	
32

	 	
(ii) Except as otherwise provided in Section II.13 (Ecological, Environmental, and Safety) and Section III.2 (Overhead - Major

	
33

	 	
Construction and Catastrophe), or by approval of the Parties pursuant to Section I.6.A (General Matters), the salaries, wages,

	
34

	 	
related payroll burdens and benefits, and Personal Expenses for Off-site Technical Services, including third party Technical

	
35

	 	Services:
	
36

	 	

	
37

	 	
o (Alternative 1 - All Overhead) shall be covered by the overhead rates.

	
38

	 	 
	
39

	 	
o (Alternative 2 - All Direct) shall be charged direct to the Joint Account.

	
40

	 	

	
41

	 	
þ (Alternative 3 - Drilling Direct) shall be charged direct to the Joint Account, only to the extent such Technical Services

	
42

	 	are directly attributable to drilling, redrilling, deepening, or sidetracking operations, through completion, temporary
	
43

	 	
abandonment, or abandonment if a dry hole. Off-site Technical Services for all other operations, including workover,

	
44

	 	recompletion, abandonment of producing wells, and the construction or expansion of fixed assets not covered by Section
	
45

	 	
III.2 (Overhead · Major Construction and Catastrophe) shall be covered by the overhead rates.

	
46

	 	

	
47

	 	
Notwithstanding anything to the contrary in this Section III, Technical Services provided by Operator's Affiliates are subject to limitations

	
48

	 	
set forth in Section II.7 (Affiliates). Charges for Technical personnel performing non-technical work shall not be governed by this Section

	
49

	 	
III.1 .A. but instead governed by other provisions of this Accounting Procedure relating to the type of work being performed.

	
50

	 	 
	
51

	
B.

	
OVERHEAD-FIXED RATE BASIS

	
52

	 	 
	
53

	 	
(1) The Operator shall charge the Joint Account at the following rates per well per month: 

	
54

	 	

	
55

	 	
Drilling Well Rate per month $8,200.00  (prorated for less than a full month) / for wells drilled to a TVD of 4,200 feet or more. 5,000.00 for well drilled to a TVD of less than 4,200 feet

	
56

	 	

	
57

	 	
Producing Well Rate per month $820.00    (prorated for less than a full month) / for wells drilled to a TVD of 4,200 feet or more. 500.00 for wells drilled to a TVD of less than 4,200 feet.

	
58

	 	 
	
59

	 	
(2) Application of Overhead-Drilling Well Rate shall be as follows:

	
60

	 	

	
61

	 	
(a) Charges for onshore drilling wells shall begin on the date location work begins / and terminate on the date the drilling and/or completion

	
62

	 	
equipment used on the well is released, whichever occurs later. Charges for offshore and inland waters drilling wells shall

	
63

	 	
begin on the date the drilling or completion equipment arrives on location and terminate on the date the drilling or completion

	
64

	 	
equipment moves off location, or is released, whichever occurs first. No charge shall be made during suspension of drilling

	
65

	 	
and/or completion operations for fifteen (15) or more consecutive calendar days.

	
66

	 	

  

9

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	 	(b) Charges for any well undergoing any type of workover, recompletion, and/or abandonment for a period of five (5) or more 
	2	 	consecutive work-days shall be made at the Drilling Well Rate. Such charges shall be applied for the period from date 
	3	 	operations, with rig or other units used in operations, commence through date of rig or other unit release, except that no charges 
	4	 	
shall be made during suspension of operations for fifteen (15) or more consecutive calendar days.

	5	 	 
	6	 	
(3) Application of Overhead-Producing Well Rate shall be as follows:

	7	 	 
	8	 	
(a) An active well that is produced, injected into for recovery or disposal, or used to obtain water supply to support operations for

	9	 	any portion of the month shall be considered as a one-well charge for the entire month.
	
10

	 	

	
11

	 	(b) Each active completion in a multi-completed well shall be considered as a one-well charge provided each completion is
	
12

	 	
considered a separate well by the governing regulatory authority.

	
13

	 	

	
14

	 	
(c) A one-well charge shall be made for the month in which plugging and abandonment operations are completed on any well,

	
15

	 	
unless the Drilling Well Rate applies, as provided in Sections III.1.B.(2)(a) or (b). This one-well charge shall be made whether

	
16

	 	or not the well has produced.
	
17

	 	

	
18

	 	
(d) An active gas well shut in because of overproduction or failure of a purchaser, processor, or transporter to take production shall

	
19

	 	
be considered as a one-well charge provided the gas well is directly connected to a permanent sales outlet.

	
20

	 	

	
21

	 	
(e) Any well not meeting the criteria set forth in Sections III.1.B.(3) (a), (b), (c), or (d) shall not qualify for a producing overhead

	
22

	 	
charge.

	
23

	 	

	
24

	 	(4) The well rates shall be adjusted on the first day of April each year following the effective date of the Agreement; provided,
	
25

	 	
however, if this Accounting Procedure is attached to or otherwise governing the payout accounting under a farmout agreement, the

	
26

	 	
rates shall be adjusted on the first day of April each year following the effective date of such farmout agreement. The adjustment

	
27

	 	shall be computed by applying the adjustment factor most recently published by COPAS. The adjusted rates shall be the initial or
	
28

	 	
amended rates agreed to by the Parties increased or decreased by the adjustment factor described herein, for each year from the

	
29

	 	
effective date of such rates, in accordance with COPAS MFI-47 ("Adjustment of Overhead Rates").

	
30

	 	 
	
31

	C.	
OVERHEAD-PERCENTAGE BASIS

	
32

	 	

	
33

	 	(1) Operator shall charge the Joint Account at the following rates: 
	
34

	 	

	
35

	 	
(a) Development Rate ______ percent (_____ ) % of the cost of development of the Joint Property, exclusive of costs

	
36

	 	
provided under Section II.9 (Legal Expense) and all Material salvage credits.

	
37

	 	

	
38

	 	(b) Operating Rate _________percent (_____%) of the cost of operating the Joint Property, exclusive of costs
	
39

	 	
provided under Sections II.1 (Rentals and Royalties) and II.9 (Legal Expense); all Material salvage credits; the value

	
40

	 	
of substances purchased for enhanced recovery; all property and ad valorem taxes, and any other taxes and assessments that

	
41

	 	
are levied, assessed, and paid upon the mineral interest in and to the Joint Property. 

	
42

	 	 
	
43

	 	
(2) Application of Overhead-Percentage Basis shall be as follows:

	
44

	 	 
	
45

	 	
(a) The Development Rate shall be applied to all costs in connection with:

	
46

	 	

	
47

	 	
[i] drilling, redrilling, sidetracking, or deepening of a well

	
48

	 	
[ii] a well undergoing plugback or workover operations for a period of five (5) or more consecutive work-days

	
49

	 	
[iii] preliminary expenditures necessary in preparation for drilling

	
50

	 	[iv] expenditures incurred in abandoning when the well is not completed as a producer
	
51

	

	
[v] construction or installation of fixed assets, the expansion of fixed assets and any other project clearly discernible as a

	
52

	 	fixed asset, other than Major Construction or Catastrophe as defined in Section lli.2 (Overhead-Major Construction
	
53

	 	
and Catastrophe).

	
54

	 	

	
55

	 	
(b) The Operating Rate shall be applied to all other costs in connection with Joint Operations, except those subject to Section III.2

	
56

	 	
(Overhead-Major Construction and Catastrophe).

	
57

	 	

	
58

	2.	OVERHEAD-MAJOR CONSTRUCTION AND CATASTROPHE
	
59

	 	 
	
60

	 	
To compensate the Operator for overhead costs incurred in connection with a Major Construction project or Catastrophe, the Operator

	
61

	 	
shall either negotiate a rate prior to the beginning of the project, or shall charge the Joint Account for overhead based on the following

	
62

	 	
rates for any Major Construction project in excess of the Operator's expenditure limit under the Agreement, or for any Catastrophe

	
63

	 	
regardless of the amount. If the Agreement to which this Accounting Procedure is attached does not contain an expenditure limit, Major

	
64

	 	
Construction Overhead shall be assessed for any single Major Construction project costing in excess of $100,000 gross.

	
65

	 	

	
66

	 	

10

 

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

 

	1	 	Major Construction shall mean the construction and installation of fixed assets, the expansion of fixed assets, and any other project clearly 
	2	 	discernible as a fixed asset required for the development and operation of the Joint Property, or in the dismantlement, abandonment, 
	3	 	
removal, and restoration of platforms, production equipment, and other operating facilities.

	4	 	 
	5	 	
Catastrophe is defined as a sudden calamitous event bringing damage, loss, or destruction to property or the environment, such as an oil 

	6	 	
spill, blowout, explosion, fire, storm, hurricane, or other disaster. The overhead rate shall be applied to those costs necessary to restore the 

	7	 	Joint Property to the equivalent condition that existed prior to the event.
	8	 	 
	9	 	
A. If the Operator absorbs the engineering, design and drafting costs related to the project:

	
10

	 	

	
11

	 	
(1) 5.0 % of total costs if such costs are less than $!00,000; plus

	
12

	 	

	
13

	 	
(2) 3.0 % of total costs in excess of $100,000 but less than $1,000,000; plus

	
14

	 	

	
15

	 	
(3) 2.0 % of total costs in excess of $1,000,000.

	
16

	 	 
	
17

	 	
B. If the Operator charges engineering, design and drafting costs related to the project directly to the Joint Account:

	
18

	 	 
	
19

	 	
(1) 5.0 % of total costs if such costs are less than $!00,000; plus

	
20

	 	

	
21

	 	
(2) 3.0 % of total costs in excess of $100,000 but less than $1,000,000; plus

	
22

	 	 
	
23

	 	
(3) 2.0 % of total costs in excess of $1,000,000.

	
24

	 	 
	
25

	 	
Total cost shall mean the gross cost of any one project. For the purpose of this paragraph, the component parts of a single Major

	
26

	 	
Construction project shall not be treated separately, and the cost of drilling and workover wells and purchasing and installing pumping

	
27

	 	
units and downhole artificial lift equipment shall be excluded. For Catastrophes, the rates shall be applied to all costs associated with each

	
28

	 	
single occurrence or event.

	
29

	 	

	
30

	 	
On each project, the Operator shall advise the Non-Operator(s) in advance which of the above options shall apply.

	
31

	 	

	
32

	 	
For the purposes of calculating Catastrophe Overhead, the cost of drilling relief wells, substitute wells, or conducting other well operations

	
33

	 	
directly resulting from the catastrophic event shall be included. Expenditures to which these rates apply shall not be reduced by salvage or

	
34

	 	
insurance recoveries. Expenditures that qualify for Major Construction or Catastrophe Overhead shall not qualify for overhead under any

	
35

	 	
other overhead provisions.

	
36

	 	

	
37

	 	
In the event of any conflict between the provisions of this Section III.2 and the provisions of Sections II.2 (Labor), II.5 (Services), or II.7

	
38

	 	
(Affiliates), the provisions of this Section III.2 shall govern.

	
39

	 	

	
40

	3.	
AMENDMENT OF OVERHEAD RATES

	
41

	 	

	
42

	 	
The overhead rates provided for in this Section III may be amended from time to time if, in practice, the rates are found to be insufficient

	
43

	 	
Or excessive, in accordance with the provisions of Section I.6.B (Amendments).

	
44

	 	 
	45	 	 
	
46

	 	
IV. MATERIAL PURCHASES, TRANSFERS, AND DISPOSITIONS

	
47

	 	

	
48

	 	
The Operator is responsible for Joint Account Material and shall make proper and timely charges and credits for direct purchases, transfers, and

	
49

	 	
dispositions. The Operator shall provide all Material for use in the conduct of Joint Operations; however, Material may be supplied by the Non-

	
50

	 	
Operators, at the Operator's option. Material furnished by any Party shall be furnished without any express or implied warranties as to quality,

	
51

	 	fitness for use, or any other matter.
	
52

	

	

	
53

	1.	DIRECT PURCHASES
	
54

	 	

	
55

	 	
Direct purchases shall be charged to the Joint Account at the price paid by the Operator after deduction of all discounts received. The

	
56

	 	
Operator shall make good faith efforts to take discounts offered by suppliers, but shall not be liable for failure to take discounts except to

	
57

	 	
the extent such failure was the result of the Operator's gross negligence or willful misconduct A direct purchase shall be deemed to occur

	
58

	 	
when an agreement is made between an Operator and a third party for the acquisition of Material for a specific well site or location.

	
59

	 	Material provided by the Operator under "vendor stocking programs," where the initial use is for a Joint Property and title of the Material
	
60

	 	
does not pass from the manufacturer, distributor, or agent until usage, is considered a direct purchase. If Material is found to be defective

	
61

	 	
or is returned to the manufacturer, distributor, or agent for any other reason, credit shall be passed to the Joint Account within sixty (60)

	
62

	 	
days after the Operator has received adjustment from the manufacturer, distributor, or agent.

	
63

	 	

	
64

	 	

	
65

	 	

	
66

	 	

	

	 	

11

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	2.	TRANSFERS
	2	 	 
	3	 	A transfer is determined to occur when the Operator (i) furnishes Material from a storage facility or from another operated property, (ii) has 
	4	 	assumed liability for the storage costs and changes in value, and (iii) has previously secured and held title to the transferred Material. 
	5	 	
Similarly, the removal of Material from the Joint Property to a storage facility or to another operated property is also considered a transfer; 

	6	 	
provided, however, Material that is moved from the Joint Property to a storage location for safe-keeping pending disposition may remain 

	7	 	charged to the Joint Account and is not considered a transfer. Material shall be disposed of in accordance with Section IV.3 (Disposition of 
	8	 	
Surplus) and the Agreement to which this Accounting Procedure is attached.

	9	 	 
	
10

	 	
A. PRICING

	
11

	 	 
	
12

	 	
The value of Material transferred to/from the Joint Property should generally reflect the market value on the date of physical transfer.

	
13

	 	
Regardless of the pricing method used, the Operator shall make available to the Non-Operators sufficient documentation to verify the

	
14

	 	
Material valuation. When higher than specification grade or size tubulars are used in the conduct of Joint Operations, the Operator

	
15

	 	
shall charge the Joint Account at the equivalent price for well design specification tubulars, unless such higher specification grade or

	
16

	 	sized tubulars are approved by the Parties pursuant to Section l.6.A (General Matters). Transfers of new Material will be priced
	
17

	 	
using one of the following pricing methods; provided, however, the Operator shall use consistent pricing methods, and not alternate

	
18

	 	
between methods for the purpose of choosing the method most favorable to the Operator for a specific transfer:

	
19

	 	

	
20

	 	
(1) Using published prices in effect on date of movement as adjusted by the appropriate COPAS Historical Price Multiplier (HPM)

	
21

	 	
or prices provided by the COPAS Computerized Equipment Pricing System (CEPS).

	
22

	 	 
	
23

	 	
(a) For oil country tubulars and line pipe, the published price shall be based upon eastern mill carload base prices (Houston,

	
24

	 	
Texas, for special end) adjusted as of date of movement, plus transportation cost as defined in Section IV.2.B (Freight).

	
25

	 	

	
26

	 	
(b) For other Material, the published price shall be the published list price in effect at date of movement, as listed by a Supply

	
27

	 	Store nearest the Joint Property where like Material is normally available, or point of manufacture plus transportation
	
28

	 	
costs as defined in Section IV.2.B (Freight).

	
29

	 	

	
30

	 	(2) Based on a price quotation from a vendor that reflects a current realistic acquisition cost.
	
31

	 	

	
32

	 	
(3) Based on the amount paid by the Operator for like Material in the vicinity of the Joint Property within the previous twelve (12)

	
33

	 	months from the date of physical transfer.
	
34

	 	

	
35

	 	
(4) As agreed to by the Participating Parties for Material being transferred to the Joint Property, and by the Parties owning the

	
36

	 	
Material for Material being transferred from the Joint Property.

	
37

	 	

	
38

	 	B. FREIGHT
	
39

	 	

	
40

	 	
Transportation costs shall be added to the Material transfer price using the method prescribed by the COPAS Computerized

	
41

	 	
Equipment Pricing System (CEPS). If not using CEPS, transportation costs shall be calculated as follows: 

	
42

	 	 
	
43

	 	
(1) Transportation costs for oil country tubulars and line pipe shall be calculated using the distance from eastern mill to the

	
44

	 	Railway Receiving Point based on the carload weight basis as recommended by the COPAS MFI-38 ("Material Pricing
	
45

	 	
Manual") and other COPAS MFIs in effect at the time of the transfer.

	
46

	 	

	
47

	 	
(2) Transportation costs for special mill items shall be calculated from that mill's shipping point to the Railway Receiving Point.

	
48

	 	
For transportation costs from other than eastern mills, the 30,000-pound interstate truck rate shall be used. Transportation costs

	
49

	 	
for macaroni tubing shall be calculated based on the interstate truck rate per weight of tubing transferred to the Railway

	
50

	 	
Receiving Point.

	
51

	

	

	
52

	 	(3) Transportation costs for special end tubular goods shall be calculated using the interstate truck rate from Houston, Texas, to the
	
53

	 	
Railway Receiving Point.

	
54

	 	

	
55

	 	
(4) Transportation costs for Material other than that described in Sections IV.2.B.(l) through (3), shall be calculated from the

	
56

	 	
Supply Store or point of manufacture, whichever is appropriate, to the Railway Receiving Point

	
57

	 	

	
58

	 	
Regardless of whether using CEPS or manually calculating transportation costs, transportation costs from the Railway Receiving Point

	
59

	 	
to the Joint Property are in addition to the foregoing, and may be charged to the Joint Account based on actual costs incurred. All

	
60

	 	
transportation costs are subject to Equalized Freight as provided in Section II.4 (Transportation) of this Accounting Procedure.

	
61

	 	

	
62

	 	
C. TAXES

	
63

	 	

	
64

	 	
Sales and use taxes shall be added to the Material transfer price using either the method contained in the COPAS Computerized

	
65

	 	
Equipment Pricing System (CEPS) or the applicable tax rate in effect for the Joint Property at the time and place of transfer. In either

	
66

	 	
case, the Joint Account shall be charged or credited at the rate that would have governed had the Material been a direct purchase.

12

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	D.	CONDITTON
	2	 	 
	3	 	(1) Condition "A" - New and unused Material in sound and serviceable condition shall be charged at one hundred percent (100%) 
	4	 	of the price as determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes). Material transferred from the 
	5	 	
Joint Property that was not placed in service shall be credited as charged without gain or loss; provided, however, any unused 

	6	 	
Material that was charged to the Joint Account through a direct purchase will be credited to the Joint Account at the original 

	7	 	cost paid less restocking fees charged by the vendor. New and unused Material transferred from the Joint Property may be 
	8	 	
credited at a price other than the price originally charged to the Joint Account provided such price is approved by the Parties 

	9	 	
owning such Material, pursuant to Section I.6.A (General Matters). All refurbishing costs required or necessary to return the

	
10

	 	
Material to original condition or to correct handling, transportation, or other damages will be borne by the divesting property.

	
11

	 	The Joint Account is responsible for Material preparation, handling, and transportation costs for new and unused Material
	
12

	 	
charged to the Joint Property either through a direct purchase or transfer. Any preparation costs incurred, including any internal

	
13

	 	
or external coating and wrapping, will be credited on new Material provided these services were not repeated for such Material

	
14

	 	
for the receiving property.

	
15

	 	

	
16

	 	
(2) Condition "B" - Used Material in sound and serviceable condition and suitable for reuse without reconditioning shall be priced

	
17

	 	
by multiplying the price determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) by seventy-five percent

	
18

	 	(75%).
	
19

	 	

	
20

	 	
Except as provided in Section IV.2.0(3), all reconditioning costs required to return the Material to Condition "B" or to correct

	
21

	 	
handling, transportation or other damages will be borne by the divesting property.

	
22

	 	 
	
23

	 	
If the Material was originally charged to the Joint Account as used Material and placed in service for the Joint Property, the

	
24

	 	
Material will be credited at the price determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C (Taxes) multiplied

	
25

	 	
by sixty-five percent (65%).

	
26

	 	

	
27

	 	
Unless otherwise agreed to by the Parties that paid for such Material, used Material transferred from the Joint Property that was

	
28

	 	
not placed in service on the property shall be credited as charged without gain or loss.

	
29

	 	

	
30

	 	
(3) Condition "C" - Material that is not in sound and serviceable condition and not suitable for its original function until after

	
31

	 	
reconditioning shall be priced by multiplying the price determined in Sections IV.2.A (Pricing), IV.2.B (Freight), and IV.2.C

	
32

	 	
(Taxes) by fifty percent (50%).

	
33

	 	 
	
34

	 	
The cost of reconditioning may be charged to the receiving property to the extent Condition "C" value, plus cost of

	
35

	 	reconditioning, does not exceed Condition "B" value.
	
36

	 	

	
37

	 	
(4) Condition ''D" - Material that (i) is no longer suitable for its original purpose but useable for some other purpose, (ii) is

	
38

	 	obsolete, or (iii) does not meet original specifications but still has value and can be used in other applications as a substitute for
	
39

	 	
items with different specifications, is considered Condition "D" Material. Casing, tubing, or drill pipe used as line pipe shall be

	
40

	 	
priced as Grade A and B seamless line pipe of comparable size and weight. Used casing, tubing, or drill pipe utilized as line

	
41

	 	
pipe shall be priced at used line pipe prices. Casing, tubing, or drill pipe used as higher pressure service lines than standard line

	
42

	 	pipe, e.g., power oil lines, shall be priced under normal pricing procedures for casing, tubing, or drill pipe. Upset tubular goods
	
43

	 	
shall be priced on a non-upset basis. For other items, the price used should result in the Joint Account being charged or credited

	
44

	 	with the value of the service rendered or use of the Material, or as agreed to by the Parties pursuant to Section 1.6.A (General
	
45

	 	
Matters).

	
46

	 	

	
47

	 	
(5) Condition "E" -Junk shall be priced at prevailing scrap value prices.

	
48

	 	

	
49

	E.	
OTHER PRICING PROVISIONS

	
50

	 	 
	
51

	

	
(1) Preparation Costs

	
52

	 	 
	
53

	 	
Subject to Section II (Direct Charges) and Section III (Overhead) of this Accounting Procedure, costs incurred by the Operator

	
54

	 	
in making Material serviceable including inspection, third party surveillance services, and other similar services will be charged

	
55

	 	
to the Joint Account at prices which reflect the Operator's actual costs of the services. Documentation must be provided to the

	
56

	 	
Non-Operators upon request to support the cost of service. New coating and/or wrapping shall be considered a component of

	
57

	 	
the Materials and priced in accordance with Sections IV.l (Direct Purchases) or IV.2.A (Pricing), as applicable. No charges or

	
58

	 	
credits shall be made for used coating or wrapping. Charges and credits for inspections shall be made in accordance with

	
59

	 	
COPAS MFl-38 ("Material Pricing Manual").

	
60

	 	 
	
61

	 	
(2) Loading and Unloading Costs

	
62

	 	

	
63

	 	
Loading and unloading costs related to the movement of the Material to the Joint Property shall be charged in accordance with

	
64

	 	
the methods specified in COPAS MFI-38 ("Material Pricing Manual").

	
65

	 	

	
66

	 	

13

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	3.	DISPOSITION OF SURPLUS
	2	 	 
	3	 	
Surplus Material is that Material, whether new or used, that is no longer required for Joint Operations. The Operator may purchase, but

	4	 	
shall be under no obligation to purchase, the interest of the Non-Operators in surplus Material.

	5	 	 
	6	 	
Dispositions for the purpose of this procedure are considered to be the relinquishment of title of the Material from the Joint Property to

	7	 	either a third party, a Non-Operator, or to the Operator. To avoid the accumulation of surplus Material, the Operator should make good
	8	 	
faith efforts to dispose of surplus within twelve (12) months through buy/sale agreements, trade, sale to a third party, division in kind, or

	9	 	other dispositions as agreed to by the Parties.
	
10

	 	 
	
11

	 	
Disposal of surplus Materials shall be made in accordance with the terms of the Agreement to which this Accounting Procedure is

	
12

	 	
attached. If the Agreement contains no provisions governing disposal of surplus Material, the following terms shall apply:

	
13

	 	 
	
14

	 	
▪ The Operator may, through a sale to an unrelated third party or entity, dispose of surplus Material having a gross sale value that

	
15

	 	
is less than or equal to the Operator's expenditure limit as set forth in the Agreement to which this Accounting Procedure is

	
16

	 	
attached without the prior approval of the Parties owning such Material.

	
17

	 	 
	
18

	 	
▪ If the gross sale value exceeds the Agreement expenditure limit, the disposal must be agreed to by the Parties owning such

	
19

	 	
Material.

	
20

	 	 
	
21

	 	
▪ Operator may purchase surplus Condition "A" or "B" Material without approval of the Parties owning such Material, based on

	
22

	 	
the pricing methods set forth in Section IV.2 (Transfers).

	
23

	 	 
	
24

	 	
▪ Operator may purchase Condition "C' Material without prior approval of the Parties owning such Material if the value of the

	
25

	 	
Materials, based on the pricing methods set forth in Section IV.2 (Transfers), is less than or equal to the Operator's expenditure

	
26

	 	
limitation set forth in the Agreement. The Operator shall provide documentation supporting the classification of the Material as

	
27

	 	
Condition C.

	
28

	 	 
	
29

	 	
▪ Operator may dispose of Condition "D" or "E" Material under procedures normally utilized by Operator without prior approval

	
30

	 	
of the Parties owning such Material.

	
31

	 	 
	
32

	
4.

	
SPECIAL PRICING PROVISIONS

	
33

	 	 
	
34

	 	
A. PREMIUM PRICING

	
35

	 	 
	
36

	 	
Whenever Material is available only at inflated prices due to national emergencies, strikes, government imposed foreign trade

	
37

	 	
restrictions, or other unusual causes over which the Operator has no control, for direct purchase the Operator may charge the Joint

	
38

	 	
Account for the required Material at the Operator's actual cost incurred in providing such Material, making it suitable for use, and

	
39

	 	
moving it to the Joint Property. Material transferred or disposed of during premium pricing situations shall be valued in accordance

	
40

	 	
with Section IV.2 (Transfers) or Section IV.3 (Disposition of Surplus), as applicable.

	
41

	 	 
	
42

	 	
B. SHOP-MADE ITEMS

	
43

	 	 
	
44

	 	
Items fabricated by the Operator's employees, or by contract laborers under the direction of the Operator, shall be priced using the

	
45

	 	
value of the Material used to construct the item plus the cost of labor to fabricate the item. If the Material is from the Operator's

	
46

	 	
scrap or junk account, the Material shall be priced at either twenty-five percent (25%) of the current price as determined in Section

	
47

	 	
IV.2.A (Pricing) or scrap value, whichever is higher. In no event shall the amount charged exceed the value of the item

	
48

	 	
commensurate with its use.

	
49

	 	 
	
50

	 	
C. MILL REJECTS

	
51

	 	 
	
52

	 	
Mill rejects purchased as "limited service" casing or tubing shall be priced at eighty percent (80%) of K-55/J-55 price as determined in

	
53

	 	
Section IV.2 (Transfers). Line pipe converted to casing or tubing with casing or tubing couplings attached shall be priced as K-55/J-

	
54

	 	
55 casing or tubing at the nearest size and weight.

	
55

	 	 
	
56

	 	 
	
57

	 	
V. INVENTORIES OF CONTROLLABLE MATERIAL

	58	 	 
	59	 	 
	60	 	The Operator shall maintain records of Controllable Material charged to the Joint Account, with sufficient detail to perform physical inventories.
	61	 	 
	62	 	Adjustments to the Joint Account by the Operator resulting from a physical inventory of Controllable Material shall be made within twelve (12)
	63	 	months following the taking of the inventory or receipt of Non-Operator inventory report. Charges and credits for overages or shortages will be
	64	 	valued for the Joint Account in accordance with Section IV.2 (Transfers) and shall be based on the Condition "B" prices in effect on the date of
	65	 	physical inventory unless the inventorying Parties can provide sufficient evidence another Material condition applies.
	66	 	 

14

		
COPAS 2005 Accounting Procedure

Recommended by COPAS

	1	1.	DIRECTED INVENTORIES
	2	 	 
	3	 	Physical inventories shall be performed by the Operator upon written request of a majority in working interests of the Non-Operators 
	4	 	(hereinafter, "directed inventory"); provided, however, the Operator shall not be required to perform directed inventories more frequently 
	5	 	
than once every five (5) years. Directed inventories shall be commenced within one hundred eighty (180) days after the Operator receives 

	6	 	
written notice that a majority in interest of the Non-Operators has requested the inventory. All Parties shall be governed by the results of 

	7	 	any directed inventory.
	8	 	 
	9	 	
Expenses of directed inventories will be borne by the Joint Account; provided, however, costs associated with any post-report follow-up

	
10

	 	
work in settling the inventory will be absorbed by the Party incurring such costs. The Operator is expected to exercise judgment in keeping

	
11

	 	
expenses within reasonable limits. Any anticipated disproportionate or extraordinary costs should be discussed and agreed upon prior to

	
12

	 	
commencement of the inventory. Expenses of directed inventories may include the following:

	
13

	 	

	
14

	 	
A. A per diem rate for each inventory person, representative of actual salaries, wages, and payroll burdens and benefits of the personnel

	
15

	 	
performing the inventory or a rate agreed to by the Parties pursuant to Section I.6.A (General Matters). The per diem rate shall also

	
16

	 	be applied to a reasonable number of days for pre-inventory work and report preparation.
	
17

	 	

	
18

	 	B. Actual transportation costs and Personal Expenses for the inventory team
	
19

	 	

	
20

	 	
C. Reasonable charges for report preparation and distribution to the Non-Operators.

	
21

	 	

	
22

	2.	NON-DIRECTED INVENTORIES
	
23

	 	

	
24

	 	A. OPERATOR INVENTORIES
	
25

	 	

	
26

	 	
Physical inventories that are not requested by the Non-Operators may be performed by the Operator, at the Operator's discretion. The

	
27

	 	expenses of conducting such Operator-initiated inventories shall not be charged to the Joint Account.
	
28

	 	

	
29

	 	
B. NON-OPERATOR INVENTORIES 

	
30

	 	 
	
31

	 	
Subject to the terms of the Agreement to which this Accounting Procedure is attached, the Non-Operators may conduct a physical

	
32

	 	
inventory at reasonable times at their sole cost and risk after giving the Operator at least ninety (90) days prior written notice. The

	
33

	 	Non-Operator inventory report shall be furnished to the Operator in writing within ninety (90) days of completing the inventory
	
34

	 	
fieldwork.

	
35

	 	 
	
36

	 	
C. SPECIAL INVENTORIES

	
37

	 	

	
38

	 	The expense of conducting inventories other than those described in Sections V.1 (Directed Inventories), V.2.A (Operator
	
39

	 	
Inventories), or V.2.B (Non-Operator Inventories), shall be charged to the Party requesting such inventory; provided, however,

	
40

	 	
inventories required due to a change of Operator shall be charged to the Joint Account in the same manner as described in Section

	
41

	 	
V.1 (Directed Inventories).

	
42

	 	 
	
43

	 	

	
44

	 	 
	
45

	 	

	
46

	 	

	
47

	 	

	
48

	 	

	
49

	 	

	
50

	 	 
	
51

	

	

	
52

	 	 
	
53

	 	

	
54

	 	

	
55

	 	

	
56

	 	

	
57

	 	

	
58

	 	 
	
59

	 	 
	
60

	 	 
	
61

	 	

	
62

	 	

	
63

	 	

	
64

	 	

	
65

	 	

	
66

	 	

15

 

EXHIBIT "D"

 

Attached  to and  made a part  of that  certain Operating Agreement  dated  effective ____________   , 2010, by and between Quicksilver Resources, Inc., as Operator, and Premier Energy Partners (I) LLC, Buck Peak LLC, and West Point Energy LLC, as Non-Operators.

 

INSURANCE

 

As to all operations hereunder, Operator shall carry for the benefit and protection of the parties hereto the following insurance coverage:

 

(i)        Worker's Compensation or Employer's Liability Insurance as required by the laws of the states in which the operations are conducted.

 

(ii)       Comprehensive General  Liability Insurance, including contractual liability, with a combined single limit per occurrence of not less than $1,000,000 for bodily injury and property damage.

 

(iii)      Comprehensive Automobile Insurance, including hired and non-owned vehicles, with a combined single limit per occurrence of not less than $1,000,000 for bodily injury and property damage.

 

(iv)      Liability Umbrella Insurance (excess of underlying insurance coverage mentioned above) with a combined limit per occurrence coverage of not less than $10,000,000.

 

The cost of the foregoing insurance coverage shall be charged to the parties pursuant to the Accounting Procedure (Exhibit "C") as follows: item (i) will be included in labor rates, items (ii) and (iv) will be charged to the joint account, and item (iii) is included in mileage rates.

 

If a Non-Operator wishes to obtain its own insurance coverage for any of the above categories, such party  shall provide Operator with a certificate evidencing such coverage. In such event, Operator shall not invoice such party for its share of the cost of that particular coverage. Additionally, all such insurance coverages and all of the insurance coverages described above shall contain a waiver of subrogation in favor of all other parties hereto.

 

Each party shall be responsible for obtaining its own well control or OEE insurance for its proportionate share of such obligation.

 

To the extent not covered by the aforementioned insurance, the liability of the parties hereto for damages or claims arising out of illness or personal injury to or death of any person or damage to or destruction or loss of property of any person or entity resulting from operations conducted hereunder shall be borne by the parties hereto in the proportions in which they bear the costs of such operations. Additionally, Operator shall not be liable to Non-Operator for damage to or for loss or destruction ofjointly owned property from operations hereunder, EVEN TO THE EXTENT THAT SUCH DAMAGE, LOSS OR DESTRUCTION  IS ALLEGED TO HAVE BEEN CAUSED BY OPERATOR'S NEGLIGENCE, unless such damage, loss, or destruction arises solely out of the gross negligence or willful misconduct of Operator.Exhibit 10.6

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
 
    

 

 

RESEARCH COLLABORATION AND LICENSE AGREEMENT

 

BETWEEN

 

VITAE PHARMACEUTICALS, INC.

 

AND

 

BOEHRINGER INGELHEIM INTERNATIONAL GMBH

 

 

Dated as of October 2, 2007 (the “Effective Date”)

 

Boehringer Ingelheim Contract Number: 43015879

 

	
 
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
 
    	
Page
    
	
1.
    	
DEFINITIONS
    	
1
    
	
 
    	
 
    	
 
    
	
2.
    	
LICENSE GRANTS, OWNERSHIP AND EXCLUSIVITY
    	
13
    
	
 
    	
 
    	
 
    
	
 
    	
2.1
    	
License Grants
    	
13
    
	
 
    	
2.2
    	
Sublicensing and Subcontracting
    	
14
    
	
 
    	
2.3
    	
Trademarks
    	
15
    
	
 
    	
2.4
    	
Exclusivity
    	
15
    
	
 
    	
2.5
    	
Non-Core 11β HSD-1   Inhibitors
    	
15
    
	
 
    	
 
    	
 
    	
 
    
	
3.
    	
GOVERNANCE
    	
15
    
	
 
    	
 
    	
 
    
	
 
    	
3.1
    	
General
    	
15
    
	
 
    	
3.2
    	
Committees
    	
16
    
	
 
    	
3.3
    	
Joint Steering Committee
    	
16
    
	
 
    	
3.4
    	
Joint Research Committee
    	
18
    
	
 
    	
3.5
    	
Joint Development Committee
    	
20
    
	
 
    	
3.6
    	
Minutes of Committee Meetings
    	
21
    
	
 
    	
3.7
    	
Expenses
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
4.
    	
RESEARCH COLLABORATION
    	
21
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
4.1
    	
General
    	
21
    
	
 
    	
4.2
    	
Research Plan
    	
22
    
	
 
    	
4.3
    	
Research Term
    	
22
    
	
 
    	
4.4
    	
Records
    	
22
    
	
 
    	
4.5
    	
Vitae’s Responsibilities
    	
22
    
	
 
    	
4.6
    	
BI’s Responsibilities
    	
23
    
	
 
    	
 
    	
 
    	
 
    
	
5.
    	
DEVELOPMENT OF PRODUCTS
    	
25
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
5.1
    	
General
    	
25
    
	
 
    	
5.2
    	
Minimum Diligence
    	
25
    
	
 
    	
5.3
    	
Development Decisions/Progress
    	
26
    
	
 
    	
5.4
    	
Co-Development Option
    	
26
    
	
 
    	
 
    	
 
    	
 
    
	
6.
    	
COMMERCIALIZATION
    	
27
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
6.1
    	
General
    	
27
    
	
 
    	
6.2
    	
BI Responsibilities
    	
27
    
	
 
    	
6.3
    	
Promotional Materials, Samples and Labeling
    	
27
    
	
 
    	
6.4
    	
Biannual Reports
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
7.
    	
MANUFACTURING AND INVENTORIES
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
7.1
    	
Manufacturing
    	
28
    
	
 
    	
7.2
    	
Inventory
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
8.
    	
REGULATORY MATTERS
    	
28
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
8.1
    	
General
    	
28
    

 

i

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
 
    	
8.2
    	
Regulatory Submissions
    	
28
    
	
 
    	
8.3
    	
Drug Safety Information
    	
28
    
	
 
    	
8.4
    	
Recalls or Corrective Action
    	
29
    
	
 
    	
8.5
    	
Events Affecting Integrity or Reputation
    	
29
    
	
 
    	
 
    	
 
    	
 
    
	
9.
    	
FINANCIAL PROVISIONS
    	
29
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
9.1
    	
Execution Payment
    	
30
    
	
 
    	
9.2
    	
Research Funding
    	
30
    
	
 
    	
9.3
    	
Development and Regulatory Milestone Payments
    	
30
    
	
 
    	
9.4
    	
Commercialization Milestone Payments
    	
31
    
	
 
    	
9.5
    	
Requirements for Invoices
    	
32
    
	
 
    	
9.6
    	
Royalties
    	
32
    
	
 
    	
9.7
    	
Net Sales Report
    	
34
    
	
 
    	
9.8
    	
Third Party Royalties
    	
34
    
	
 
    	
9.9
    	
Multiple Royalties
    	
34
    
	
 
    	
9.10
    	
Equity Investment
    	
35
    
	
 
    	
9.11
    	
Payment Terms
    	
35
    
	
 
    	
9.12
    	
Currency
    	
35
    
	
 
    	
9.13
    	
Financial Standards
    	
35
    
	
 
    	
9.14
    	
Late Payments
    	
35
    
	
 
    	
9.15
    	
Tax Withholding, Financial Records and Audits
    	
35
    
	
 
    	
 
    	
 
    	
 
    
	
10.
    	
CONFIDENTIAL INFORMATION
    	
36
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
10.1
    	
Definition
    	
36
    
	
 
    	
10.2
    	
Confidentiality
    	
36
    
	
 
    	
10.3
    	
Permitted Disclosure and Use
    	
37
    
	
 
    	
10.4
    	
Return
    	
37
    
	
 
    	
10.5
    	
Remedies
    	
37
    
	
 
    	
10.6
    	
Survival
    	
37
    
	
 
    	
10.7
    	
Internet Mail Encryption
    	
37
    
	
 
    	
 
    	
 
    	
 
    
	
11.
    	
REPRESENTATIONS AND WARRANTIES
    	
38
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
11.1
    	
Mutual Representations and Warranties
    	
38
    
	
 
    	
11.2
    	
BI Representations and Warranties
    	
38
    
	
 
    	
11.3
    	
Vitae Representations and Warranties
    	
39
    
	
 
    	
11.4
    	
Disclaimer of Warranty
    	
41
    
	
 
    	
 
    	
 
    	
 
    
	
12.
    	
INDEMNIFICATION
    	
41
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
12.1
    	
Indemnification by BI
    	
41
    
	
 
    	
12.2
    	
Indemnification by Vitae
    	
41
    
	
 
    	
12.3
    	
Procedure for Indemnification
    	
41
    
	
 
    	
12.4
    	
Insurance
    	
42
    
	
 
    	
 
    	
 
    	
 
    
	
13.
    	
PATENTS
    	
42
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
13.1
    	
Ownership of Inventions
    	
42
    
	
 
    	
13.2
    	
Prosecution and Maintenance of Patents
    	
43
    
	
 
    	
13.3
    	
Patent Infringement
    	
47
    

 

ii

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
 
    	
13.4
    	
Infringement of Patents
    	
47
    
	
 
    	
13.5
    	
Notice of Certification
    	
48
    
	
 
    	
13.6
    	
Validity Challenge
    	
48
    
	
 
    	
13.7
    	
Assistance
    	
48
    
	
 
    	
13.8
    	
Settlement
    	
49
    
	
 
    	
13.9
    	
Licensed Patents
    	
49
    
	
 
    	
 
    	
 
    	
 
    
	
14.
    	
TERM AND TERMINATION
    	
49
    
	
 
    	
 
    	
 
    
	
 
    	
14.1
    	
Term
    	
49
    
	
 
    	
14.2
    	
Termination for Material Breach
    	
49
    
	
 
    	
14.3
    	
Other Termination Rights
    	
50
    
	
 
    	
14.4
    	
Effects of Termination; Terminated Products
    	
51
    
	
 
    	
14.5
    	
Change of Control
    	
54
    
	
 
    	
14.6
    	
Accrued Rights; Surviving Obligations
    	
54
    
	
 
    	
14.7
    	
Bankruptcy under U.S. or German Law
    	
55
    
	
 
    	
 
    	
 
    	
 
    
	
15.
    	
MISCELLANEOUS
    	
55
    
	
 
    	
 
    	
 
    
	
 
    	
15.1
    	
Publications
    	
55
    
	
 
    	
15.2
    	
Public Announcements
    	
56
    
	
 
    	
15.3
    	
No Debarred Personnel
    	
56
    
	
 
    	
15.4
    	
Relationship of the Parties
    	
56
    
	
 
    	
15.5
    	
Registration of This Agreement
    	
57
    
	
 
    	
15.6
    	
Force Majeure
    	
57
    
	
 
    	
15.7
    	
Dispute Resolution
    	
57
    
	
 
    	
15.8
    	
Governing Law
    	
58
    
	
 
    	
15.9
    	
Attorneys’ Fees and Related Costs
    	
58
    
	
 
    	
15.10
    	
Assignment
    	
58
    
	
 
    	
15.11
    	
Assignment and Performance within the BI Group
    	
58
    
	
 
    	
15.12
    	
Notices
    	
58
    
	
 
    	
15.13
    	
Severability
    	
59
    
	
 
    	
15.14
    	
Headings
    	
59
    
	
 
    	
15.15
    	
Waiver
    	
59
    
	
 
    	
15.16
    	
Entire Agreement
    	
59
    
	
 
    	
15.17
    	
Modification
    	
59
    
	
 
    	
15.18
    	
No License
    	
59
    
	
 
    	
15.19
    	
No Third Party Beneficiaries
    	
59
    
	
 
    	
15.20
    	
Ambiguities
    	
60
    
	
 
    	
15.21
    	
CREATE Act
    	
60
    
	
 
    	
15.22
    	
Counterparts
    	
60
    
	
 
    	
 
    	
 
    	
 
    
	
Exhibit 1
    	
Vitae Patents
    	
 
    
	
Exhibit 2
    	
Preliminary Research Plan
    	
 
    
	
Exhibit 3
    	
Initial Development Plan
    	
 
    
	
Exhibit 4
    	
Collaboration Compounds
    	
 
    
	
Exhibit 5
    	
BI Compounds
    	
 
    
	
Exhibit 6
    	
Share Purchase Agreement
    	
 
    
	
Exhibit 7
    	
Requirements for Invoices
    	
 
    

 

iii

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
Exhibit 8
    	
Potential Third Party Rights for BI Compounds
    	
 
    

 

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RESEARCH COLLABORATION AND LICENSE AGREEMENT

 

This RESEARCH COLLABORATION AND LICENSE AGREEMENT (“Agreement”) effective as of October 2, 2007 (“Effective Date”) is entered into by and between Vitae Pharmaceuticals, Inc (“Vitae”), with offices at 502 West Office Center Drive, Ft. Washington, PA 19034, USA. (taxpayer ID number 04-3567753), and Boehringer Ingelheim International GmbH (“BI”), with offices at Binger Strasse 173, 55216 Ingelheim am Rhein, Germany (VAT ID number DE 811138149).  Vitae and BI may each be referred to as a “Party” or together as the “Parties.”

 

RECITALS

 

WHEREAS, Vitae is a company which possesses certain patent applications, proprietary know-how, scientific and technical information including new molecular entities that inhibit 11-beta hydroxysteroid dehydrogenase type 1 (“11β HSD-1”) for use in research, discovery and development of pharmaceutical products;

 

WHEREAS, BI is a company which possesses expertise and resources relating to the research, development, manufacture, marketing and sale of new molecular entities, including proprietary know-how and technical information about its own 11β HSD-1 Inhibitors (defined below), as pharmaceutical products for the treatment of metabolic diseases and other disorders in human beings and animals;

 

WHEREAS, BI wishes to obtain, and Vitae is willing to grant, an exclusive license to such applications (and any resulting patents), proprietary know-how, scientific and technical information in respect of 11β HSD-1 Inhibitors (defined below) for the development, use, manufacture and commercialization of therapeutic products for human beings and animals worldwide;

 

WHEREAS, Vitae and BI desire to enter into a collaboration for the research, development and commercialization of 11β HSD-1 Inhibitors as provided by this Agreement.

 

NOW, THEREFORE, in consideration of the foregoing premises and the representations, covenants and agreements contained herein, Vitae and BI, intending to be legally bound, hereby agree as follows:

 

AGREEMENT

 

1.                                      DEFINITIONS.  For purposes of this Agreement, the following capitalized terms, whether used in the singular or plural, shall have the following meanings:

 

1.1                               “11β HSD-1” shall have the meaning assigned thereto in the Recitals of this Agreement.

 

1.2                               “11β HSD-1 Inhibitor” means a compound that (i) inhibits human microsomal 11β HSD-1 enzyme activity by ****

 

****CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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****.

 

1.3                               “AAA” shall have the meaning assigned thereto in Section 15.7.

 

1.4                               “Acquiring Entity” shall have the meaning assigned thereto in Section 14.5(a).

 

1.5                               “Affiliate” means any Person that, directly or indirectly, controls, is controlled by or is under common control with a Party for so long as such control exists, where “control” means the decision-making authority as to such Person and, further, where such control shall be presumed to exist where a Person owns more than fifty percent (50%) of the equity (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) entitled to vote regarding composition of the board of directors or other body entitled to direct the affairs of the entity.

 

1.6                               “Annual Net Sales” shall have the meaning assigned thereto in Section 9.6.

 

1.7                               “Assignment Date” shall have the meaning assigned thereto in Section 13.1.2.

 

1.8                               “Bankruptcy Code” shall have the meaning assigned thereto in Section 14.7.

 

1.9                               “BI” means Boehringer Ingelheim International GmbH.

 

1.10                        “BI Compound” means a compound that (i) is an 11β HSD-1 Inhibitor, and (ii) (a) was discovered by the BI Group on or before the Effective Date, or (b) is within the scope of the BI Group’s plans of structural variation for lead optimization as of the Effective Date, or (c) is in-licensed by the BI Group during the Research Term.  BI Compounds discovered by the BI Group on or before the Effective Date are set forth in Exhibit 5.  BI shall promptly update Exhibit 5 for any 11β HSD-1 Inhibitors in-licensed or otherwise acquired by the BI Group during the Research Term.

 

1.11                        “BI Group” means, collectively, BI and its Affiliates.

 

1.12                        “BI Intellectual Property” means collectively BI Know-How and BI Patents.

 

1.13                        “BI Know-How” means all information regarding Products or 11β HSD-1 Inhibitors, but excluding BI Life-Cycle Know-How, necessary for or relevant to, or useful for, Vitae’s performance of its obligations or exercise of its rights under this Agreement, including, but not limited to, all data and records relating to Products and/or 11β HSD-1 Inhibitors, and which are or become in BI’s or any of its Affiliates’ possession or control or are or become owned by, or otherwise may be licensed to, BI or any of its Affiliates.

 

****CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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1.14                        “BI Life-Cycle Intellectual Property” means collectively BI Life-Cycle Know-How and BI Life-Cycle Patents.

 

1.15                        “BI Life-Cycle Know-How” means the Inventions, discoveries, technologies, methods, techniques, procedures, protocols, and other proprietary know-how developed by BI that result from activities carried out with respect to Development Candidates or Products following start of GLP toxicology studies other than in the course of Research; for the sake of clarity, the subject matter of such Patents may include (but is not limited to) salt forms, polymorphs, metabolites, intermediates, technical process for manufacture of drug substance, catalysts, formulations, methods of production, uses (including methods of treatment), combinations (including combinations with other pharmaceutical compounds, devices etc.), dosages, application regimens, routes of administration, packaging, purification methods and analytical methods associated therewith.

 

1.16                        “BI Life-Cycle Patents” means, in respect to any Development Candidate, all Patents that are invented by BI and result from activities carried out with respect to Development Candidates or Products following start of GLP toxicology studies other than in the course of Research; for the sake of clarity, the subject matter of such Patents may include (but not be limited to) salt forms, polymorphs, metabolites, intermediates, technical process for manufacture of drug substance, catalysts, formulations, methods of production, uses (including methods of treatment), combinations (including combinations with other pharmaceutical compounds, devices etc.), dosages, application regimens, routes of administration, packaging, purification methods and analytical methods associated therewith.

 

1.17                        “BI Patents” means all Patents (excluding BI Life-Cycle Patents) that are owned as of the Effective Date, or become owned or in-licensed (with the right to grant sublicense rights granted to Vitae under this Agreement), by BI or BI’s Affiliates during the Term, that, but for a license granted thereunder to Vitae pursuant to Section 2.1.2 would be infringed by Vitae’s performance of its rights and obligations, which Patent rights Cover the making, having made, use, offer for sale, sale or importation of an 11β-HSD-1 Inhibitor or Product.

 

1.18                        “Claim” means any charge, complaint, action, suit, proceeding, hearing, investigation, claim or demand.

 

1.19                        “Co-Development Option” shall have the meaning assigned thereto in Section 5.4.

 

1.20                        “Collaboration Compound” means a compound that (i) is an 11β HSD-1 Inhibitor, and (ii) (a) is discovered by either or both Parties or their Affiliates (except an Acquiring Entity) during the Research Term, (b) is acquired by either or both Parties or their Affiliates (except an Acquiring Entity) during the Research Term, or (c) was discovered by Vitae prior to the Research Term.  Collaboration Compounds discovered prior to the Effective Date by Vitae are listed in Exhibit 4.

 

1.21                        “Combination Product” shall have the meaning assigned thereto in Section 9.6.4.

 

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1.22                        “Commercial Conflict” means a situation where (i) the Parties disagree with BI’s decision regarding the priority of Development or Commercialization of a Product: (a) such that the Product will be no longer primarily be sold for use in respect of a Core Indication, and (b) such that the decision will likely result in a materially reduced financial return to Vitae from such Product, and (c) such decision is not based on the technical or medical profile of the Product (including, but not limited to, Technical Failure) but primarily on commercial factors; (ii) the Parties disagree as to whether BI failed to meet its Diligent Efforts obligations to Develop Products as set forth in Sections 5.1 and 5.2 below, taking into consideration the Milestone Timing (including any extensions) set forth therein; (iii) the Parties disagree as to whether BI failed to use Diligent Efforts in general, as described elsewhere in the Agreement; (iv) a Party disputes whether the other Party has followed the Potential Development Candidate Selection process set forth in Section 4.6.1; (v) Vitae disputes whether BI has failed to advance one (1) Collaboration Compound or BI Compound into Development even though Collaboration Compound(s) or BI Compound(s) fulfill the criteria for Development Candidate Selection pursuant to Section 1.31 and Exhibit 2; or (vi) the applicable Committee fails to reach consensus on a Research decision and such issue is not resolved by the Officers pursuant to Section 3.3.4(b) below.

 

1.23                        “Commercialization” or “Commercialize” means engaging in any and all activities directed to manufacturing, marketing, promoting, distributing, offering for sale, selling, importing, exploiting a product, and conducting post Marketing Authorization Approval studies.

 

1.24                        “Commercialization Plan” shall have the meaning assigned thereto in Section 6.

 

1.25                        “Committee” means the Joint Steering Committee, JRC, JDC, and/or any subcommittee established by the Joint Steering Committee, as applicable.

 

1.26                        “Confidential Information” shall have the meaning assigned thereto in Section 10.1.

 

1.27                        “Core Indication” means prevention and or treatment of any of the following indications: type 2 diabetes, obesity, metabolic syndrome, dyslipidemia, hypertension, and reduction of cardiovascular events.

 

1.28                        “Cover” or “Covering” means, (i) with respect to a Patent, that at least one Valid Claim of such Patent would be infringed by the product, method or device, as applicable, and (ii) with respect to any other intellectual property right that the product, method or device would infringe or misappropriate such rights unless a license were granted.

 

1.29                        “Development” or “Develop” means engaging in preclinical and clinical drug development activities, including, but not limited to, discovery, test method development, stability testing, toxicology, formulation, process development, manufacturing scale-up, development-stage manufacturing, analytical method validation, manufacturing process validation, cleaning validation, post-approval changes, quality assurance/quality control, statistical analysis, report writing, preclinical and clinical studies, regulatory filing submission and approval and regulatory affairs.

 

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1.30                        “Development Candidate” means a Collaboration Compound or BI Compound meeting the characteristics and/or properties described in Exhibit 2 and selected as further described in Sections 4.1 and 4.6.2.

 

1.31                        “Development Candidate Selection” means the earlier to occur of (i) the identification by the Joint Steering Committee of a Collaboration Compound or BI Compound for Development and the decision by BI to start GLP toxicity studies with respect to a Collaboration Compound or a BI Compound, provided that BI’s internal decision-making process with respect to such Collaboration Compound or BI Compound is consistent with BI’s normal decision-making processes used for internally developed compounds, or (ii) the start of GLP toxicity studies with respect to a Collaboration Compound or a BI Compound by BI.

 

1.32                        “Development Plan” means the outline plan for each Product designed to achieve the Development for such Product, including, but not limited to, the nature, number and schedule of Development activities necessary to implement such activities as may be amended in accordance with the terms of this Agreement.  An initial Development Plan is attached hereto as Exhibit 3.

 

1.33                        “Diligent Efforts” means the carrying out of obligations in a sustained manner consistent with the efforts a party would be expected to devote (and which in no event shall be less than the level of effort and resources standard in the pharmaceutical industry for a company similar in size and scope to such party) to a lead product of similar market potential, profit potential or strategic value resulting from its own research efforts, based on conditions then prevailing, in respect of a Core Indication.  Without limiting the foregoing, Diligent Efforts in all cases requires at least that (i) each Party promptly assigns responsibility for such obligations to specific employee(s) who are held accountable for progress and monitor such progress on an ongoing basis; (ii) each Party sets and consistently seeks to achieve specific and meaningful objectives for carrying out such obligations; and (iii) each Party consistently makes and implements decisions and allocates resources designed to advance progress with respect to such objectives.

 

1.34                        “Disclosing Party” shall have the meaning assigned thereto in Section 10.1.

 

1.35                        “Effective Date” shall have the meaning assigned thereto in the first paragraph of this Agreement.

 

1.36                        “EMEA” means the European Medicines Agency and any successor agency thereto.

 

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

 

1.38                        “Field” means the diagnosis, treatment, palliation or prevention of all human and animal diseases including, but not limited to, Core Indications.

 

1.39                        “First Commercial Sale” means the first invoice for commercial quantities of any Product sold to a Third Party by a member of the BI Group and/or sublicensees in any

 

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country after receipt of Marketing Authorization Approval for such Product in such country.  Sales for test marketing, sampling and promotional uses, clinical trial purposes or compassionate or similar uses shall not be considered to constitute a First Commercial Sale.

 

1.40                        “Force Majeure Event” shall have the meaning assigned thereto in Section 15.6.

 

1.41                        “FTE” means a full-time equivalent person-year based upon a total of one thousand, seven hundred and fifty-five (1,755) working hours per year, undertaken in connection with the conduct of Research in accordance with the Research Collaboration.

 

1.42                        “Generic Competition” shall have the meaning assigned thereto in Section 9.6.5(a).

 

1.43                        “Generic Product” means, with respect to a particular Product and a particular country, any pharmaceutical product (other than such Product) that contains the same active ingredient(s) as such Product, has substantially the same formulation, mode of administration and duration of release as such Product, and is approved for the same indications as such Product in such country.

 

1.44                        “Good Laboratory Practices” or “GLP” means, with respect to the United States, the then-current requirements for non-clinical (animal or laboratory) studies that will be submitted to a Government Authority to support a marketing application, specified in 21 C.F.R. Part 58, as may be amended, and, with respect to any other country or jurisdiction, the equivalent regulations in such other country or jurisdiction.

 

1.45                        “Good Manufacturing Practices” or “GMP” means, with respect to the United States, the minimum then-current good manufacturing practices for methods, facilities, and controls to be used for the manufacture, processing, packing, or holding of a drug to assure that it meets the requirements of the Federal Food, Drug, and Cosmetic Act for safety and has the identity and strength and meets the quality and purity characteristics, specified in 21 C.F.R. Parts 210 and 211, as may be amended, and, with respect to any other country or jurisdiction, the equivalent regulations in such other country or jurisdiction.

 

1.46                        “Governmental Authority” means any court, tribunal, arbitrator, agency, legislative body, commission, official or other instrumentality of (i) any government of any country, (ii) a federal, state, province, county, city or other political subdivision thereof or (iii) any supranational body, including, but not limited to, the FDA and EMEA.

 

1.47                        “Handelsgesetzbuch” or “HGB” shall have the meaning assigned thereto in Section 1.72.

 

1.48                        “Indemnified Party” shall have the meaning assigned thereto in Section 12.3.1.

 

1.49                        “Indemnifying Party” shall have the meaning assigned thereto in Section 12.3.1.

 

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1.50                        “Initial Funded Research Period” shall have the meaning assigned thereto in Section 9.2.1.

 

1.51                        “Initiation” means, with respect to a clinical study, the date of the dosing of the first subject.

 

1.52                        “Invention” means any discovery (whether patentable or not) invented during the Term as a result of Research and Development activities in respect of a Product or 11β HSD-1 Inhibitor.

 

1.53                        “Joint Development Committee” or “JDC” shall have the meaning assigned thereto in Section 3.2.

 

1.54                        “Joint Intellectual Property” means collectively Joint Inventions, Joint Know-How and Joint Patents.

 

1.55                        “Joint Invention” means an Invention with respect to which employees and/or agents of both Vitae and BI are joint inventors in the course of the Research activities hereunder, all of which specifically relate to 11β HSD-1 Inhibitors, regardless of whether any Third Parties are also joint inventors.  Inventorship for Joint Inventions shall be determined in accordance with the patent laws of the United States (Title 35, United States Code).

 

1.56                        “Joint Know-How” means all present and future information, know-how, data and results in whatsoever form including, but not limited to, all biological, toxicological, chemical information, biochemical information, metabolic, pre-clinical data, and assays generated jointly by employees and/or agents of both Vitae and BI in the course of the Research activities hereunder all of which specifically relate to 11β HSD-1 Inhibitors.

 

1.57                        “Joint Patent” means any Patent Covering a Joint Invention.

 

1.58                        “Joint Research Committee” or “JRC” shall have the meaning assigned thereto in Section 3.2.

 

1.59                        “Joint Steering Committee” or “JSC” shall have the meaning assigned thereto in Section 3.2.

 

1.60                        “Laws” means all laws, statutes, rules, regulations (including, but not limited to, current Good Manufacturing Practice regulations as specified in 21 C.F.R. Parts 210 and 211; Investigational New Drug Application regulations at 21 C.F.R. Part 312; NDA regulations at 21 C.F.R. Part 314; relevant provisions of the Federal Food, Drug and Cosmetic Act, and other laws and regulations enforced by the FDA), ordinances and other pronouncements having the binding effect of law of any Governmental Authority.

 

1.61                        “Lighthouse” shall have the meaning assigned thereto in Section 13.1.2.

 

1.62                        “Losses” means any and all damages (including, but not limited to, all loss of profits, diminution in value, and incidental, indirect, consequential, special, reliance, exemplary, punitive, statutory and treble damages), awards, deficiencies, settlement amounts,

 

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defaults, assessments, fines, dues, penalties, costs, fees, liabilities, obligations, taxes, liens, losses and expenses (including, but not limited to, court costs, interest and reasonable fees of attorneys, accountants and other experts) incurred by or awarded to Third Parties and required to be paid to Third Parties with respect to a Claim by reason of any judgment, order, decree, stipulation or injunction, or any settlement entered into in accordance with the provisions of this Agreement, together with all documented out-of-pocket costs and expenses incurred in contesting any Third Party Claim or complying with any judgments, orders, decrees, stipulations and injunctions that arise from or relate to a Third Party Claim.

 

1.63                        “Major EU Country” means one or more of the following countries within the European Union:  France, Germany, Italy, Spain and the United Kingdom.

 

1.64                        “Major Market” means the following countries:  France, Germany, Italy, Japan, Spain, the United Kingdom and the United States.

 

1.65                        “Marketing Authorization Approval” shall mean approval by a Governmental Authority for sale of a Product, including any applicable pricing, final labeling or reimbursement approvals.

 

1.66                        “Marketing Plan” means for each relevant Product, a summary of the plan prepared by BI, identifying the core strategic, commercial and promotional claims and objectives for the specific Product as reviewed under Section 3.3.2.

 

1.67                        “Milestone Timing” shall have the meaning assigned thereto in Section 5.2.

 

1.68                        “NDA” means a new drug application, abbreviated new drug application or supplemental new drug application or any amendments thereto submitted to the FDA or an equivalent thereof submitted to a Governmental Authority in a foreign country.

 

1.69                        “NDA Acceptance” means the written notification by the FDA or equivalent Governmental Authority in a foreign country that the NDA has met all the criteria for filing acceptance.

 

1.70                        “NDA Approval” means approval by the FDA for marketing and sale of a Product in the United States, including any applicable pricing, final labeling or reimbursement approvals, as applicable.

 

1.71                        “NDA Filing” means the submission of an NDA to the FDA or equivalent Governmental Authority in a foreign country.

 

1.72                        “Net Sales” means the actual gross amount invoiced by a member of BI Group and/or its sublicensees for sales or other commercial disposition of a Product to a Third Party, less the following deductions (consistent with customary and reasonable business practices with respect to such sales and not recovered or reimbursed to BI Group and/or its sublicensees:

 

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(a)                     sales returns and allowances actually paid, granted or accrued, including trade, quantity and cash discounts and any other adjustments, including those granted on account of price adjustments or billing errors;

 

(b)                     rejected goods, damaged or defective goods, recalls, and returns;

 

(c)                      rebates, chargeback rebates, compulsory rebates, reimbursements or similar payments granted or given to wholesalers or other distributors, buying groups, health care insurance carriers or other institutions;

 

(d)                     adjustments arising from consumer discount programs or other similar programs;

 

(e)                      customs or excise duties, sales tax, consumption tax, value added tax, and other taxes (except income taxes); and

 

(f)                       charges for packing, freight, shipping and insurance (to the extent that BI, its Affiliates and sublicensees actually bear such costs for a Product).

 

Notwithstanding the foregoing, the above-listed deductions shall be allowed only if incurred in the ordinary course of business, of the type and in an amount consistent with normal industry practice, and determined in accordance with normally accepted accounting principles, or more specifically, the principles of the German commercial code (“Handelsgesetzbuch” or “HGB”) on a basis consistent with BI’s audited consolidated financial statements .  All such discounts, allowances, credits, rebates and other deductions shall be fairly and equitably allocated to the Product and other products of BI and its Affiliates and sublicensees such that the Product does not bear a disproportionate portion of such deductions.  For avoidance of doubt, there shall be no deduction from Net Sales for bad debt allowances or bad debt expenses notwithstanding any requirement or principle in the HGB.  For sake of clarity and avoidance of doubt, sales of a Product by a member of BI Group and/or sublicensees to a Third Party distributor of such Product in a given country shall be considered a sale to a Third Party customer.  Any Products used for promotional or advertising purposes or used for clinical or other research purposes shall not be included in Net Sales.  Donations of Product for charity reasons shall also not be deemed Net Sales.  A “sale” will include any transfer or other disposition for consideration, and Net Sales will include the fair market value of all consideration received by the BI Group and/or sublicensees in respect of any sale of a Product, whether such consideration is in cash payment, in kind or in any other form.

 

1.73                        “Net Sales Report” shall have the meaning assigned thereto in Section 9.7.

 

1.74                        “Non-Core Indication” means an indication within the Field other than a Core Indication.

 

1.75                        “Non-Core 11β HSD-1 Inhibitor” means an 11β HSD-1 Inhibitor that (i) is Covered by Vitae Patents or Joint Patents, (ii) is not a Potential Development Candidate or has not been selected as a Development Candidate, and (iii) is to be Researched, Developed and/or Commercialized by Vitae for Non-Core Indications pursuant to the process specified in Sections 4.6.1 and 3.3.2(k) below.

 

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1.76                        “Officers” shall have the meaning assigned thereto in Section 3.3.4(b).

 

1.77                        “Other Product” shall have the meaning assigned thereto in Section 9.6.4.

 

1.78                        “OUS Filings” shall have the meaning assigned thereto in Section 13.2.2(b).

 

1.79                        “Party” or “Parties” shall have the meaning assigned thereto in the first paragraph of this Agreement.

 

1.80                        “Patent” means any patent or patent application, including any United States provisional application and any continuation, continuation-in-part, divisional, registration, confirmation, revalidation, reissue, PCT application, patent term extension, SPC, and utility model, as well as all related extensions or restorations of terms thereof.

 

1.81                        “Patent Challenge” shall have the meaning assigned thereto in Section 13.6.1.

 

1.82                        “Patent Counsel” shall have the meaning assigned thereto in Section 13.2.1.

 

1.83                        “Patent Infringement Claim” shall have the meaning assigned thereto in Section 13.3.

 

1.84                        “PCT” shall have the meaning assigned thereto in Section 13.2.2(b).

 

1.85                        “Person” means any natural person, corporation, general partnership, limited partnership, limited liability company, joint venture, proprietorship or other de jure entity organized under the Laws of any jurisdiction.

 

1.86                        “Phase I Studies” means the first clinical studies conducted in human volunteers or patients (e.g. patients with hypertension or diabetes) to obtain preliminary information on a Product’s safety, tolerability, pharmacodynamic activity, pharmacokinetics, drug metabolism and mechanism of action, as well as early evidence of effectiveness if possible, with respect to (i) the United States, as more fully defined in 21 C.F.R. § 312.21(a), as may be amended; or (ii) the equivalent of such a clinical study for submission to the EMEA; or (iii) equivalent submission in such other country or jurisdiction.

 

1.87                        “Phase II Studies” means clinical studies in human patients, the primary intention of which is to collect data on dosages and demonstrate clinical safety and efficacy in a target population for a specific disease or condition under study (i.e., statistically significant differences between groups for clinical endpoints, which may include generally accepted surrogate pharmacodynamic endpoints), with respect to (i) the United States, as more fully defined in 21 C.F.R. § 312.21(b), as may be amended; or (ii) the equivalent of such a clinical study for submission to the EMEA; or (iii) equivalent submission in such other country or jurisdiction.

 

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1.88                        “Phase III Studies” means large, adequate and well-controlled clinical studies that are conducted in human patients, after successful completion of the first Phase II Study, designed to evaluate safety and therapeutic efficacy of the Product and that are needed to obtain regulatory approval(s) and product labeling, with respect to (i) the United States, as more fully defined in 21 C.F.R. § 312.21(c), as may be amended; or (ii) the equivalent of such a clinical study for submission to the EMEA; or (iii) equivalent submission in such other country or jurisdiction.

 

1.89                        “Product” means a pharmaceutical product containing at least one Collaboration Compound or BI Compound, whether or not such Product is used as a single agent and/or in combination with other therapeutically active components.  If a Product contains a Collaboration Compound or BI Compound, all provisions of this Agreement relevant to Products (including, but not limited to, milestone and royalty payments to Vitae) will apply thereto, regardless of whether the active ingredient (i.e., the 11β HSD-1 Inhibitor) in such Product was identified by Vitae or by the BI Group, except as otherwise provided for in this Agreement.

 

1.90                        “Potential Development Candidate” means any Collaboration Compound that has not failed to meet the characteristics and/or properties described in Exhibit 2 pursuant to Section 4.6.1.

 

1.91                        “Promotional Materials” means advertising, promotional, educational and communication materials (other than labeling) for Commercialization of Products.

 

1.92                        “Receiving Party” shall have the meaning assigned thereto in Section 10.1.

 

1.93                        “Records” shall have the meaning assigned thereto in Section 4.4.

 

1.94                        “Research” means those activities undertaken for the identification, synthesis, characterization and optimization of compounds and selection of compounds for Development defined in the Research Plan as amended from time to time.

 

1.95                        “Research Collaboration” shall have the meaning assigned thereto in Section 4.1.

 

1.96                        “Research Plan” means the outline plan prepared in accordance with Section 4.2 below for the Research of 11β HSD-1 Inhibitors designed to achieve the selection of a Development Candidate as a Product.  A preliminary Research Plan is attached as Exhibit 2.

 

1.97                        “Research Term” shall have the meaning assigned thereto in Section 4.3.

 

1.98                        “Royalty Term” means, on country-by-country and Product-by-Product basis, a period starting on the Effective Date and expiring upon the later of (i) the expiry of the last-to-expire Vitae Patent, Joint Patent, or BI Patent which has at least one Valid Claim Covering such Product in such country (including the term of any applicable SPC), or (ii) ten (10) years from the date of First Commercial Sale of such Product in such country.

 

1.99                        “Serious Material Breach” means any willful material breach by Vitae of one or more of the following provisions (wherein such breach results in the actual loss of

 

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exclusivity granted to BI under this Agreement relating to any Patents covering significant composition of matter for a Product sold by BI in a Major Market):  (i) Vitae’s grant of rights to BI under Section 2.1.1; (ii) Vitae’s confidentiality obligations under Article 10 with respect to significant data obtained during the Research Collaboration, the significant results of BI’s Development and any material information contained in any registration dossier or submission for any Marketing Authorization for any Products; or (iii) Vitae’s obligations under Section 13.2 to properly file, maintain and prosecute any Patents Covering the composition of matter for any Products currently being sold by BI for a Core Indication in a Major Market.  For the avoidance of doubt, a Serious Material Breach, if determined by an arbitrator to have occurred pursuant to Section 15.7, will also qualify as a material breach of a material obligation for purposes of Section 14.2.

 

1.100                 “SPC” means a right based upon a Patent to exclude others from making, having made, using, offering to sell, selling, importing or exporting a Product, such as a Supplementary Protection Certificate.

 

1.101                 “Special Damages” shall have the meaning assigned thereto in Section 14.2.3.

 

1.102                 “Studies” means Phase I Studies, Phase II Studies, Phase III Studies and post-Marketing Authorization Approval studies, as applicable.

 

1.103                 “Technical Failure” means the discontinuation of Development or Commercialization of a Product for technical, scientific, medical or regulatory reasons, including, but, not limited to, unacceptable preclinical toxicity, demonstration of a side effect profile significantly worse than currently marketed products, or inability to manufacture in an acceptable purity or for an acceptable price.

 

1.104                 “Term” shall have the meaning assigned thereto in Section 14.1.

 

1.105                 “Terminated Product” shall have the meaning assigned thereto in Section 14.3.

 

1.106                 “Territory” means all the countries and territories of the world.

 

1.107                 “Third Party” means a Person who is not a Party or an Affiliate of a Party, or in the case of BI, not a member of the BI Group.

 

1.108                 “Third Party Claim” shall have the meaning assigned thereto in Section 12.3.1.

 

1.109                 “Trademark” shall have the meaning assigned thereto in Section 2.3.

 

1.110                 “Transaction” shall have the meaning assigned thereto in Section 14.5.

 

1.111                 “United States” means the United States of America and its territories and possessions.

 

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1.112                 “Valid Claim” means on a country-by-country and Product-by-Product basis, any claim pending in a patent application or any granted claim in an unexpired patent which has (i) not been held unenforceable, unpatentable or invalid by a decision of a court or other Governmental Authority of competent jurisdiction, unappealable or unappealed within the time allowed for appeal, and which has not been admitted to be invalid or unenforceable through reissue or disclaimer; and (ii) would, if issued, but for the licenses granted hereunder, be infringed by the Research, Development and/or Commercialization of said Product in said country.  Notwithstanding the foregoing, in case of pending patent applications, it is understood and agreed that if the corresponding claim in the corresponding US or EP patent applications:  (1) have been limited or cancelled because of patentability requirements such that the corresponding claim does not Cover said Product; (2) has lapsed; (3) has been finally rejected (and the rejection has been affirmed on appeal or the time for appeal or petition has lapsed); or (4) has been finally revoked (and the revocation has been affirmed on appeal or the time for appeal or petition has lapsed), then such corresponding claim in such corresponding patent application pending in any country will not be deemed to be a Valid Claim.

 

1.113                 “Vitae Intellectual Property” shall mean collectively Vitae Know-How and Vitae Patents.

 

1.114                 “Vitae Know-How” means all present and future information regarding Products or 11β HSD-1 Inhibitors that (i) are necessary for, or relevant to, or useful for BI to perform its obligations or exercise its rights under this Agreement, and (ii) during the Term, are in Vitae’s or any of its Affiliates’ (except an Acquiring Entity’s) possession or control and are or become owned by, or otherwise may be licensed by Vitae or any of its controlled Affiliates.

 

1.115                 “Vitae Patents” means all Patents that are owned or become owned by Vitae or Vitae’s Affiliates (except an Acquiring Entity), or as to which Vitae or Vitae’s Affiliates (except an Acquiring Entity) are or become in-licensed (other than BI Patents) now or in the future, with the right to grant the sublicense rights granted to BI under this Agreement without payment of additional consideration to the licensor (unless BI agrees to pay such additional consideration), which patent rights Cover the Development and Commercialization, including the making, having made, use, offer for sale, sale or importation of a Product or 11β HSD-1 Inhibitor.  Vitae Patents as of the Effective Date are listed in Exhibit 1.

 

2.                                      LICENSE GRANTS, OWNERSHIP AND EXCLUSIVITY.

 

2.1                               License Grants.

 

2.1.1                     License to BI.  Subject to the terms and conditions of this Agreement, Vitae grants to BI, and BI accepts, an exclusive, royalty-bearing, non-transferable (except as expressly set forth in Sections 15.10 and 15.11) license in the Field under the Vitae Patents, Vitae Know-How and Vitae’s rights in the Joint Patents, Joint Inventions and Joint Know-How to make, have made, use, register, sell, offer to sell, import, export, Research, Develop and Commercialize BI Compounds, Collaboration Compounds, Potential Development Candidates, Development Candidates and Products in the Territory.

 

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2.1.2                     Licenses to Vitae.

 

(a)                                 Subject to the terms and conditions of this Agreement, BI grants to Vitae, and Vitae accepts, a royalty-free, non-transferable (except as expressly set forth in Section 15.10) license in the Field under the BI Patents, the BI Know-How and BI’s rights in the Joint Patents, Joint Inventions and Joint Know-how for the sole purpose of Vitae’s exercise of its rights and performance of its obligations as described in this Agreement relating to (i) the Research of 11β HSD-1 Inhibitors as a non-exclusive license, and (ii), solely to make, have made, use, register, sell, offer to sell, import, export, exploit, Develop and Commercialize Collaboration Compounds (other than Development Candidates and/or Potential Development Candidates) and Products containing Collaboration Compounds (other than Development Candidates and/or Potential Development Candidates) for Non-Core Indications in the Territory as an exclusive license.

 

(b)                                 Subject to the terms and conditions of this Agreement, BI grants to Vitae, and Vitae accepts, a royalty-free, non-transferable (except as expressly set forth in Section 15.10) sublicense in the Field under the Vitae Patents and the Vitae Know-How for the sole purpose of Vitae’s performance of its rights and obligations as described in this Agreement relating to (i) the Research of 11β HSD-1 Inhibitors as a non-exclusive sublicense, and (ii) solely to make, have made, use, register, sell, offer to sell, import, export, exploit, Develop and Commercialize Collaboration Compounds (other than Development Candidates and/or Potential Development Candidates) and Products containing Collaboration Compounds (other than Development Candidates and/or Potential Development Candidates) for Non-Core Indications in the Territory as an exclusive sublicense.

 

2.2                               Sublicensing and Subcontracting.

 

2.2.1                     BI’s Right to Sublicense and Subcontract.  BI may sublicense or subcontract its rights to Research, Develop or Commercialize Products in whole or in part to any of its Affiliates, subject to BI’s prior written notification to Vitae, and/or in whole or in part to Third Parties with respect to the Major Markets, subject to Vitae’s prior written consent, such consent not to be unreasonably withheld, conditioned or delayed.  However, BI may sublicense or subcontract its rights to Commercialize Products in part to any Third Parties with respect to countries outside of the Major Markets upon prior written notification to Vitae.  BI shall secure all appropriate covenants, obligations and rights from any such sublicensee or subcontractor, including, but not limited to, licenses, intellectual property rights and confidentiality obligations, to ensure that such sublicensee or subcontractor is subject to, and BI can comply with, all of BI’s covenants and obligations to Vitae under this Agreement.  BI’s rights to sublicense or subcontract are limited as expressly set forth in this Section 2.2.1.  BI shall (i) use Diligent Efforts to enforce any such sublicense or subcontract, and (ii) be responsible for any failure of its sublicensees and subcontractors to comply with this Agreement.

 

2.2.2                     Vitae’s Right to Sublicense and Subcontract.  Vitae may subcontract its Research obligations as set forth in Section 4 below to any of its Affiliates and/or to Third Parties, subject to BI’s prior written consent only with respect to Third Parties, which consent shall not be unreasonably withheld, conditioned or delayed.  Vitae may sublicense its rights to Develop or Commercialize Products for Non-Core Indications in whole or in part to any

 

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of its Affiliates and/or Third Parties, provided that Vitae gives BI the opportunity to negotiate in good faith the granting of a sub-license to BI prior to granting a sublicense to a Third Party.  If Vitae decides to sublicense its rights to Develop or Commercialize Products for Non-Core Indications in whole or in part to a Third Party, Vitae shall give written notice of such intent to BI, whereupon BI shall advise Vitae in writing if BI is interested in negotiating a sublicense agreement.  If BI indicates that BI is not interested in obtaining a sublicense or if the Parties are unable to conclude a sublicense agreement within sixty (60) days after the date of Vitae’s written notice to BI of Vitae’s intent to grant a sublicense to a Third Party, then Vitae shall be free to grant such sublicense to a Third Party without further obligation of negotiation with BI.  Vitae shall secure all appropriate covenants, obligations and rights from any such subcontractor or sublicensee, including, but not limited to, licenses, intellectual property rights and confidentiality obligations, to ensure that such subcontractor is subject to, and Vitae can comply with, all of Vitae’s applicable covenants and obligations to BI under this Agreement.  Vitae’s rights to sublicense and subcontract are limited as expressly set forth in this Section 2.2.2.  Vitae shall (i) use Diligent Efforts to enforce any such subcontract, and (ii) be responsible for any failure of its subcontractors to comply with this Agreement.

 

2.3                               Trademarks.  Products shall be Commercialized under trademarks and trade dress selected by BI (collectively, “Trademarks”).  BI shall exclusively own all Trademarks for Products, and shall be responsible for the procurement, filing and maintenance of trademark registrations for such Trademarks and all related costs and expenses.

 

2.4                               Exclusivity.  During the Research Term (including any extensions of the initial Research Term), the BI Group, Vitae and Vitae’s Affiliates (except an Acquiring Entity) shall not, directly or with any Third Party, conduct Research, Development or Commercialization activities involving any 11β HSD-1 Inhibitor in the Field outside of this Research Collaboration, except as permitted pursuant to Sections 2.2, 2.5 and 3.3.2(k) (Vitae’s right to Research, Develop and Commercialize Non-Core 11β HSD-1 Inhibitors).

 

2.5                               Non-Core 11β HSD-1 Inhibitors.  Subject to Sections 2.2.2, 3.3.2(k) and 4.6.1, Vitae shall have complete decision-making authority with respect to any issues relating to Research, Development and Commercialization of Non-Core 11β HSD-1 Inhibitors; and such issues shall not be subject to the governance provisions of Article 3.  Notwithstanding the foregoing, Vitae shall provide the JSC at least twice yearly with a summary of the Development and Commercialization activities pertaining to any Non-Core 11β HSD-1 Inhibitor.  Any information provided by Vitae to BI concerning its activities relating to Non-Core 11β HSD-1 Inhibitors shall be deemed Vitae Confidential Information, and BI shall not disclose or use such information for its internal research programs.  Further, BI shall not use such information if such use will provide a competitive advantage to a Product, Collaboration Compound or BI Compound vis-à-vis one of Vitae’s Non-Core 11β HSD-1 Inhibitors.

 

3.                                      GOVERNANCE.

 

3.1                               General.  In connection with this Agreement, the Parties shall:  (i) strive to balance the legitimate interests and concerns of the Parties and to realize the economic potential of Products; (ii) act in a commercially reasonable manner and in good faith in all decisions or determinations to be made hereunder, including, but not limited to, all decisions specified to be

 

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in a Party’s discretion; (iii) use Diligent Efforts to conduct Research according to the Research Plan and to perform all responsibilities assigned to the Parties under the Research Plan; and (iv) use Diligent Efforts to carry out the terms and intent of this Agreement and collaboration, including, but not limited to, a Party’s responsibilities in respect of Developing and Commercializing 11β HSD-1 Inhibitors.  In addition, the Parties agree that they shall follow the Potential Development Candidate Selection process set forth in Section 4.6.1.

 

3.2                               Committees.  The Parties shall form a “Joint Steering Committee”, which shall be established, hold meetings and make decisions in accordance with the procedures specified in Section 3.3 below.  The Joint Steering Committee (i) shall establish a Joint Research Committee, as described in Section 3.4 below (“JRC”) and (ii) shall establish a Joint Development Committee, as described in Section 3.5 below (“JDC”), provided that Vitae elects to exercise its option to co-fund Development of any Product pursuant to Section 5.4.  In the event that the Joint Steering Committee elects not to establish an applicable Committee as specified above, the Joint Steering Committee shall be responsible for performing the responsibilities of such Committee specified below.  The Parties intend that their respective organizations will work together and will use Diligent Efforts to assure success of the collaboration.  By consensus, any Committee may cancel meetings and/or establish a different meeting schedule.

 

3.3                               Joint Steering Committee.

 

3.3.1                     Members.  Within thirty (30) days after the Effective Date, the Parties shall establish the Joint Steering Committee, which shall consist of six (6) members, with each Party designating three (3) of its or its Affiliates’ employees as members.  Each of BI and Vitae may replace any or all of its representatives on the Joint Steering Committee at any time upon written notice to the other Party.  A Party may designate a substitute employee to temporarily attend and perform the functions of such Party’s designee at any meeting of the Joint Steering Committee.  BI and Vitae each may, on advance written notice to the other Party, invite non-member employees of such Party to attend meetings of the Joint Steering Committee.  The Joint Steering Committee shall be co-chaired by a Joint Steering Committee representative of each of Vitae and BI.  A secretary of the Joint Steering Committee will be appointed on an annual rotating basis by either Vitae or BI, who shall be a representative of such Party, as applicable, with Vitae providing the first secretary.

 

3.3.2                     Responsibilities.  Except as specified otherwise in this Agreement, the Joint Steering Committee shall perform the following functions:

 

(a)                                 Discuss the overall strategy for the Research Collaboration;

 

(b)                                 Coordinate the Parties’ activities hereunder;

 

(c)                                  Monitor Development and Commercialization of Products in Major Markets pursuant to the terms of this Agreement;

 

(d)                                 Serve as a forum for discussion and communication regarding the Development and Commercialization of Products pursuant to this Agreement;

 

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(e)                                  Review and approve Research Plans and any material amendments to Research Plans;

 

(f)                                   Review Research Collaboration activities and results for the previous period and make any strategic recommendations as appropriate;

 

(g)                                  Discuss Development Plans and Marketing Plans (in Major Markets) for Products and any material amendments to such Development Plans and Marketing Plans;

 

(h)                                 Discuss Development activities for the previous period;

 

(i)                                     Establish the JRC and, if applicable, the JDC;

 

(j)                                    Discuss “go/no-go” decisions and other matters referred to the Joint Steering Committee, including, but not limited to, the continued Development of a particular Product;

 

(k)                                 Review and approve requests by Vitae regarding Research, Development and Commercialization of Non-Core 11β HSD-1 Inhibitors by Vitae pursuant to Section 4.6.1;

 

(l)                                     Review a summary of life-cycle management of, and intellectual property protection for, Products;

 

(m)                             Review and coordinate the progress of all Committees other than the Joint Steering Committee;

 

(n)                                 Use Diligent Efforts to resolve Commercial Conflicts;

 

(o)                                 Resolve disputes, disagreements and deadlocks unresolved by any other Committee;

 

(p)                                 Review cost plans relating to any Research; and

 

(q)                                 Perform such other responsibilities as may be assigned to the Joint Steering Committee pursuant to this Agreement or as may be mutually agreed upon by the Parties from time to time.

 

3.3.3                     Meetings.  The Joint Steering Committee shall meet in person at least twice each calendar year, and more frequently (i) as mutually agreed by the Parties, (ii) as required to resolve Commercial Conflicts, or (iii) as required to resolve disputes, disagreements or deadlocks in the JRC, JDC or other Committees established by the Joint Steering Committee, on such dates, and at such places and times, as the Parties shall agree; provided that the Parties shall endeavor to have the first meeting of the Joint Steering Committee within thirty (30) days after the establishment of the Joint Steering Committee.  The Joint Steering Committee shall arrange to meet in person or convene otherwise to assess (and to the extent specified above, approve) any Research Plans, Development Plans or Marketing Plans submitted to the Joint

 

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Steering Committee in each calendar year so that such plans will be assessed within thirty (30) days following submission to the Joint Steering Committee.  To the extent the applicable Committee differs in its assessment (or approval, if applicable) of any such Research Plans, and recommends them to be reformulated, such plans shall be assessed (and approved, if applicable) by the Joint Steering Committee as soon as reasonably practicable after resubmission of same.  Meetings of the Joint Steering Committee that are held in person shall alternate between offices of BI and Vitae (with the first meeting to be held at Vitae’s offices), or such other place as the Parties may agree.  In addition to the semi-annual face-to-face meetings, the Parties may also agree to hold meetings of the Joint Steering Committee by means of telecommunications or video conferences.

 

3.3.4                     Decision-Making.

 

(a)                                 The Joint Steering Committee may make decisions with respect to any subject matter that is subject to the Joint Steering Committee’s responsibility and functions as set forth in Section 3.3.2.  Except as specified in Section 3.4.2(b), all decisions of the Joint Steering Committee shall be made by consensus, with the representatives from each Party having one collective vote.  The Joint Steering Committee shall use Diligent Efforts to resolve the matters within its roles and functions or otherwise referred to it.

 

(b)                                 With respect to any issue, if the Joint Steering Committee cannot reach consensus within ten (10) business days after the matter has been brought to the Joint Steering Committee’s attention, then such issue shall be referred to the Chief Executive Officer of Vitae and the Board Member for Research, Development and Medicine of BI (collectively, the “Officers”) for resolution.  If the Officers are unable to reach consensus within sixty (60) days after the matter has been referred to them, then BI shall have final decision-making authority with respect to all issues relating to Development and Commercialization of any Development Candidate, Potential Development Candidate or BI Compound selected for Development pursuant to Section 4.6.1.  However, if the disputed issue involves a Commercial Conflict or any other dispute not within one Party’s sole final decision-making authority (as expressly set forth in this Agreement), then the Parties shall resolve the issue using the dispute resolution procedures set forth in Section 15.7 below.  Notwithstanding the above, neither the Joint Steering Committee nor BI may make decisions that would otherwise require agreement, approval or consent of a Party as set forth in this Agreement.

 

3.4                               Joint Research Committee.

 

3.4.1                     Members.  Within thirty (30) days after the establishment of the Joint Steering Committee, the Joint Steering Committee shall establish the JRC, and BI and Vitae shall each designate an equal number of employees from their respective organizations, up to a maximum total of six (6) members on the JRC, with a maximum of three (3) representatives from each Party.  Each of BI and Vitae may replace any or all of its representatives on the JRC at any time upon written notice to the other Party.  Such representatives shall include individuals who have the relevant experience and expertise for activities included in the Research Plan for the next twelve (12) calendar months.  A Party may designate a substitute employee to temporarily attend and perform the functions of such Party’s designee at any meeting of the JRC.  BI and Vitae each may, on advance written notice to the other Party, invite non-member

 

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employees of such Party to attend meetings of the JRC.  The JRC shall be chaired on an annual rotating basis by a JRC representative of either Vitae or BI, as applicable, with Vitae providing the first such chairperson.  The other Party shall appoint a secretary of the JRC, who shall be a representative of such Party and who shall serve for the same annual term as such chairperson.

 

3.4.2                     Responsibilities.  The JRC shall perform the following functions:

 

(a)                                 Prepare, review and approve the Research Plan on at least an annual basis (the initial Research Plan has been agreed in writing by the Parties prior to the Effective Date and is attached as Exhibit 2 to this Agreement);

 

(b)                                 On a quarterly rolling basis beginning within three (3) months after the Effective Date, update and amend any Research Plan and review the Research Plan for each Product for the following calendar year so that it can immediately thereafter submit such proposed Research Plan to the Joint Steering Committee for review and approval;

 

(c)                                  Review and recommend to the Joint Steering Committee any material amendments or modifications to Research Plans;

 

(d)                                 Review the progress of the Research Collaboration during the previous period, and any reports submitted by the Parties to the JRC;

 

(e)                                  Review and recommend to the Joint Steering Committee “go/no-go” decisions for the Development of Products and 11β HSD-1 Inhibitors by BI; and

 

(f)                                   Perform such other responsibilities as may be assigned to the JRC pursuant to this Agreement or as may be mutually agreed upon by the Parties through the Joint Steering Committee from time to time.

 

3.4.3                     Meetings.  The JRC shall meet at least once during every calendar quarter, and more frequently as BI and Vitae mutually agree, on such dates, and at such places and times, as such Parties shall agree; provided that the Parties shall endeavor to have the first meeting of the JRC as a face-to-face meeting within thirty (30) days after the establishment of the JRC.  Meetings of the JRC that are held in person shall alternate between the offices of BI and Vitae (with the first such meeting to be held at Vitae’s offices), or such other place as the Parties may agree and such face-to-face meetings shall occur no less than twice per calendar year.  The Parties may agree to hold the remaining meetings by means of telecommunications or video conferences.

 

3.4.4                     Decision-Making.  The JRC may make decisions with respect to any subject matter that is subject to the JRC’s responsibility and functions as set forth in Section 3.4.2.  Except as set forth below, all decisions of the JRC shall be made by consensus, with the representatives from each Party having one collective vote.  If the JRC cannot reach consensus within ten (10) business days after it has first met and attempted to reach such consensus, the matter shall be referred to the Joint Steering Committee for resolution.

 

3.4.5                     Start of Development.  Notwithstanding the foregoing, BI may decide at its sole discretion to commence Development with any Potential Development

 

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Candidate even in the event that such Potential Development Candidate does not fulfill all criteria set forth in the relevant Research Plan.  If BI decides to commence Development of a Potential Development Candidate even if such Potential Development Candidate does not fulfill all criteria set forth in the Research Plan, then such Potential Development Candidate shall be deemed a Development Candidate after BI’s decision, and such decision shall trigger the obligation to pay the Development Candidate Selection milestone payment pursuant to Section 9.3.1 or 9.3.3.

 

3.5                               Joint Development Committee.

 

3.5.1                     Members.  In the event that the Joint Steering Committee establishes the JDC, BI and Vitae shall each designate an equal number of employees in their respective organizations, up to a maximum total of four (4) members on the JDC, with a maximum of two (2) employees from each Party.  Each of BI and Vitae may replace any or all of its employees on the JDC at any time upon written notice to the other Party.  Such employees shall include individuals who have the relevant experience and expertise for activities included in the Development Plan for the next twelve (12) calendar months.  A Party may designate a substitute employee to temporarily attend and perform the functions of such Party’s designee at any meeting of the JDC.  BI and Vitae each may, on advance written notice to the other Party, invite non-member employees of such Party to attend meetings of the JDC.  The JDC shall be chaired on an annual rotating basis by a JDC representative of either Vitae or BI, as applicable, with BI providing the first such chairperson.  The other Party shall appoint a secretary of the JDC, who shall be a representative of such Party and who shall serve for the same annual term as such chairperson.

 

3.5.2                     Responsibilities.  If formed, the JDC shall perform the following functions (otherwise, the Joint Steering Committee shall perform such functions) for both Core and None-Core Indications:

 

(a)                                 On a twice per year basis beginning within six (6) months of the commencement of Development activities, discuss any updates and amendments of any Development Plan and monitor the Development Plan for each Product;

 

(b)                                 Monitor the Development strategy for Products in the Territory;

 

(c)                                  Monitor regulatory strategy and activities for Products in accordance with Article 8 of the Agreement;

 

(d)                                 Discuss “go/no-go” decisions for the Development of Products;

 

(e)                                  Discuss the status and results of all Studies in respect of Products and other major Development milestones in respect of Products based on the management summary provided by BI;

 

(f)                                   Discuss labeling goals and strategy; and

 

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(g)                                  Have such other responsibilities as may be assigned to the JDC pursuant to this Agreement or as may be mutually agreed upon by the Parties through the Joint Steering Committee from time to time.

 

3.5.3                     Meetings.  If established, the JDC shall meet at least twice during every year, and more frequently as BI and Vitae mutually agree, on such dates, and at such places and times, as such Parties shall agree; provided that the Parties shall endeavor to have the first meeting of the JDC as a face-to-face meeting within thirty (30) days after the establishment of the JDC.  Meetings of the JDC that are held in person shall alternate between the offices of BI and Vitae (with the first such meeting to be held at BI’s offices), or such other place as the Parties may agree.  The Parties may agree to hold other meetings by means of telecommunications or video conferences.

 

3.5.4                     Decision-Making.  If established, the JDC may make decisions with respect to any subject matter that is subject to the JDC’s responsibility and functions as set forth in Section 3.5.2.  Except as set forth below, all decisions of the JDC shall be made by consensus, with the representatives from each Party having one collective vote.  If the JDC cannot reach consensus within ten (10) business days after it has first met and attempted to reach such consensus, the matter shall be referred to the Joint Steering Committee for resolution.

 

3.6                               Minutes of Committee Meetings.  The secretary of each Committee will finalize definitive minutes of such Committee’s meetings no later than thirty (30) days after the meeting to which the minutes pertain as follows:

 

3.6.1                     Distribution of Minutes.  Within ten (10) days after a meeting, the applicable secretary shall prepare and distribute to all members of such Committee draft minutes of the meeting.  Such minutes shall provide a list of any issues yet to be resolved, either within such Committee or through the relevant resolution process.

 

3.6.2                     Review of Minutes.  Members of each Committee shall have ten (10) days after receiving such draft minutes to provide comments to the secretary of such Committee.

 

3.6.3                     Discussion of Comments.  Upon the expiration of such second ten (10) day period, the Parties shall have an additional ten (10) days to discuss each other’s comments and finalize the minutes.  The chairperson and secretary of such Committee shall approve the minutes by signing and dating the minutes or by other means determined by the Committee.

 

3.7                               Expenses.  Each Party shall be responsible for all travel and related costs and expenses for its members and other representatives to attend meetings of, and otherwise participate in, a Committee.

 

4.                                      RESEARCH COLLABORATION.

 

4.1                               General.  Under the direction of the JRC, the Parties shall use Diligent Efforts to Research 11β HSD-1 Inhibitors (the “Research Collaboration”) and to recommend that certain Collaboration Compounds, Potential Development Candidates or BI Compounds meeting

 

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certain criteria (agreed upon by the JRC and Joint Steering Committee) be selected for further pre-clinical studies (each a “Development Candidate”) pursuant to Section 4.6.2.

 

4.2                               Research Plan.  The Parties will use Diligent Efforts to conduct the Research Collaboration in accordance with a Research Plan.  The Research Plan will set forth (i) the scope of the Research Collaboration and the resources that will be dedicated to the activities contemplated within the scope of the Research Collaboration, (ii) specific objectives for the term of the Research Plan which objectives will be updated or amended, as appropriate, by the JRC and reviewed and approved by the Joint Steering Committee and (iii) cost plan for such activities.  The Parties have agreed upon the initial Research Plan, which is attached as Exhibit 2 to this Agreement.

 

4.3                               Research Term.  The Research Collaboration shall commence on the Effective Date and continue for a period of forty-eight (48) months (the initial “Research Term”).  The Parties may agree to extend the Research Term by extending the Initial Research Funding Period as explained in further detail in Section 9.2.2 below.

 

4.4                               Records.  Each Party agrees to maintain proper records (the “Records”) in respect of its performance of the Research, including the procedures, techniques and methodologies used, the progress made, and any Inventions conceived and/or reduced to practice or otherwise made as part of the Research.  During the Research Term, each Party shall upon written request by the other Party, which shall not be unreasonably made, (a) make the Records available for inspection and review by the other Party during normal business hours; and (b) provide copies of the Records or any part(s) thereof to the other Party, as requested by said other Party.  As part of keeping the Records, each Party shall ensure that all of its personnel and all of its agents that are involved in the Research will keep accurate laboratory notebooks, which laboratory notebooks: (i) shall be duly signed, dated and witnessed; and (ii) shall be created and maintained in accordance with its standard operating procedures that would be sufficient to allow for said laboratory notebooks to be used in any proceedings before the United States Patent and Trademark Office, in order to establish the date of invention for any Inventions in accordance with United States patent Laws.

 

4.5                               Vitae’s Responsibilities.

 

4.5.1                     FTE’s.

 

(a)                                 Subject to BI’s payment of its research funding obligations set forth in Section 9.2, Vitae shall dedicate a minimum of ten (10) FTE’s up to a maximum of twenty (20) FTE’s.  BI acknowledges that any FTE’s that Vitae will use to satisfy its FTE obligations under this Agreement may be WuXi Pharmatech (288 FuTe ZhongLu, Waigaoqiao Free Trade Zone, Shanghai, China 200131) employees based in China provided that no more than an average of three (3) WuXi Pharmatech employees are used to fulfill the minimum FTE requirements during any calendar quarter.  For avoidance of doubt, Vitae shall determine, in its sole discretion (notwithstanding any other provision in this Agreement), the number of additional FTE’s (above ten (10)) that Vitae shall dedicate to the Research Collaboration during the initial twenty-four (24) month portion of the Research Term; and neither BI nor the Joint Steering Committee have authority to require Vitae to commit more than the minimum FTE requirement

 

****CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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specified above.  Vitae shall secure all appropriate covenants, obligations and rights from WuXi Pharmatech, including, but not limited to, confidentiality obligations, to ensure that WuXi Pharmatech is subject to, and WuXi Pharmatech can comply with, all of Vitae’s applicable covenants and obligations to BI under this Agreement.

 

(b)                                 The Parties may extend the Research Term by extending the Initial Research Funding Period as set forth in Section 9.2.2.

 

(c)                                  Vitae shall have no obligation to provide any FTE’s or perform any Research during any unfunded period of the Research Term (including unfunded portions of the extended Research Term), although Vitae may, at its sole discretion, agree to provide FTE resources during such time period in order to advance the Research Collaboration.  For avoidance of doubt, during any unfunded period of the Research Term, notwithstanding any other provision of this Agreement, Vitae shall have the sole discretion to determine whether it will commit any FTE’s and, if it commits such FTE’s, how many FTE’s it will commit during such time period; and neither BI nor the Joint Steering Committee have authority to require Vitae to commit any FTE resources during such time period.

 

4.5.2                     Reports.  Vitae shall work with BI to provide a report to the JRC at the end of each calendar quarter detailing the progress made on the Research Collaboration by the Parties.

 

4.5.3                     Vitae’s Activities.  Vitae shall use Diligent Efforts to perform all of its Research activities in accordance with the Research Plan and as determined by the JRC.

 

4.6                               BI’s Responsibilities.

 

4.6.1                     Potential Development Candidates.

 

(a)                                 All Collaboration Compounds shall be deemed initially to be Potential Development Candidates until such time that BI decides that any Potential Development Candidate has failed to meet the characteristics and/or properties described in Exhibit 2.  After such determination or decision regarding such compound, such compound shall no longer be deemed a Potential Development Candidate but rather shall be available to Vitae to select for Development and Commercialization for Non-Core Indications pursuant to the procedure outlined below.  The determination of whether a Potential Development Candidate has failed to meet the characteristics and/or properties described in Exhibit 2, as well as BI’s decision on Development Candidate Selection shall not be unreasonably delayed or withheld by BI.  For the avoidance of doubt, Vitae may not select any Potential Development Candidates for Development and Commercialization for Non-Core Indications but shall be free to Develop and Commercialize any Collaboration Compound that is not a Potential Development Candidate for Non-Core Indications as set forth in this Agreement.

 

(b)                                 Notwithstanding the above, Vitae may submit a request for selection of Potential Development Candidates for Non-Core Indications through the Joint Research Committee, subject to the following conditions:  (i) Vitae shall notify BI promptly of its request to select such Collaboration Compounds or Potential Development Candidates through the Joint Steering Committee as set forth in Section 3.3.2(k); (ii) such Potential

 

****Certain information has been omitted and filed separately with the Commission.  Confidential treatment has been requested with respect to the omitted portion

 

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Development Candidate is not actively being tested and progressed toward Development Candidate Selection according to the Preliminary Research Plan as described in Exhibit 2; and (iii) after Vitae’s notification, BI shall have a period of six (6) weeks to test such Collaboration Compound or Potential Development Candidate for eligibility as Development Candidate.  Should BI determine that such Collaboration Compound or Potential Development Candidate is eligible as Development Candidate, it shall continue to be treated as Potential Development Candidate.  However, should BI fail to select such compound as Development Candidate or backup Development Candidate within six (6) months after said determination, such compound shall be thereafter no longer be considered a Potential Development Candidate, and BI shall not have any further right to classify such Collaboration Compound as Potential Development Candidate, and Vitae shall be free to Develop and Commercialize such compound for Non-Core Indications.

 

(c)                                  The Parties understand and agree that BI shall have the final decision-making authority to Develop such Potential Development Candidate, Collaboration Compounds or BI Compounds which BI deems most promising.

 

(d)                                 Any Potential Development Candidate or Collaboration Compound selected by Vitae for Development and Commercialization in Non-Core Indications shall no longer be deemed a Potential Development Candidate and shall no longer be available to BI for selection as a Development Candidate.

 

4.6.2                     Development Candidate Selection.  BI and Vitae shall use Diligent Efforts to select Potential Development Candidates or BI Compounds that meet the Development Candidate and backup Development Candidate selection criteria agreed upon by the Parties.  If (i) Vitae recommends that BI selects a particular Potential Development Candidates, which in Vitae’s reasonable judgment satisfies the Development Candidate selection criteria agreed upon by the Parties, as a Development Candidate, and (ii) BI (a) declines to select such compound as a Development Candidate and (b) fails to select any Potential Development Candidate as a Development Candidate within twelve (12) months after Vitae’s first Development Candidate recommendation, or has not already selected any Potential Development Candidate as a Development Candidate, then any such Potential Development Candidate(s) rejected by BI as Development Candidates shall each remain a Collaboration Compound and shall no longer be considered a Potential Development Candidate, and Vitae shall have the right (but not the obligation) to pursue Development of such Collaboration Compound(s) at Vitae’s sole expense for Non-Core Indications pursuant to the procedure outlined in Section 4.6.1.

 

4.6.3                     BI Activities.  BI shall use Diligent Efforts to perform all in vivo and preclinical activities in accordance with the Research Plan and as determined by the JRC.

 

4.6.4                     Funding.  BI shall bear the costs and expenses in connection with fulfilling its obligations for the Research Collaboration in accordance with Sections 4.6 and 9.2.

 

4.6.5                     Reports.  BI will work with Vitae to provide a report to the JRC at the end of each calendar quarter detailing the progress made on the Research Collaboration by the Parties.  If key clinical or other data are obtained by BI between JRC, JDC or JSC meetings,

 

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BI shall promptly report such data to Vitae; and such reports should be substantially contemporaneous with the disclosure of the same data to BI’s senior management.

 

5.                                      DEVELOPMENT OF PRODUCTS.

 

5.1                               General.  BI shall use Diligent Efforts to Develop Products, and will have sole responsibility for the performance of all Development activities.  It is the intention of this Research Collaboration to move a minimum of one (1) Collaboration Compound or BI Compound into Development at the earliest opportunity.  Without limiting the foregoing, BI shall use Diligent Efforts to (i) advance at least one (1) primary and one (1) back-up Collaboration Compound or BI Compound for type 2 diabetes or another Core Indication ready for Phase I Studies; (ii) advance one (1) Product through Development in accordance with the stage gates identified in the then current Development Plan for such Product; (iii) efficiently Develop the Products; and (iv) obtain Marketing Authorization Approvals to market the Products in Major Markets (as contemplated in Section 8.2).  BI shall use Diligent Efforts to secure the necessary resources and will keep the applicable Committee informed with a summary of the progress of individual Studies and activities relating to Products as part of any changes to Development Plans and timelines.  Except as otherwise provided for in this Agreement (i.e., if Vitae exercises its Co-Development Option pursuant to Section 5.4), BI shall bear all costs and expenses associated with Development of Products.  The Development Plan (attached as Exhibit3) may be amended as necessary by BI following consultation with Vitae, provided that any amendments shall be consistent with BI’s Diligent Efforts obligation, including the minimum diligence obligations set forth in Section 5.2.

 

5.2                               Minimum Diligence.  Without limiting the foregoing, BI shall use Diligent Efforts to meet the diligence milestones set forth below (“Milestone Timing”) and to achieve the time periods set forth below for the lead Product/compound (i.e. the compound or Product that is the furthest advanced).  For avoidance of doubt, the Milestone Timings shall not apply to the second or any subsequent Products, or the second or any subsequent indications.  The Parties anticipate as of the Effective Date that the milestones set forth in Section 5.2.1 could be achieved on time if BI meets its Diligent Efforts obligations.

 

5.2.1                     Diligence Milestones.

 

	
Milestone
    	
 
    	
Milestone Timing
    
	
Initiation   of first Phase I Study for a Core Indication
    	
 
    	
****
    
	
Initiation   of first Phase IIb Study for a Core Indication
    	
 
    	
****
    
	
Initiation   of first Phase III Study for a Core Indication
    	
 
    	
****
    

 

5.2.2                     Unforeseen Delays.  If BI uses Diligent Efforts to Develop a particular Product, but (i) BI’s results do not support further advancement of the applicable Product; or (ii) BI discontinues Development of a particular Product for a particular Core

 

****CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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Indication due to Technical Failure and promptly commences advancement of a back-up Product for the same Core Indication, then the relevant Milestone Timing set forth in Section 5.2.1 shall be extended by a reasonable period of time necessary to perform or re-perform the Development with such Product or back-up Product.  For example, if a Phase I Study for a Product were to take one (1) year, generate ambiguous results and have to be repeated, then a reasonable period, up to one (1) year, would be added to the Milestone Timing specified above for the first Phase II Study for such back-up Product.

 

5.2.3                     Obligation to Notify Promptly of Delays.  In the event that BI determines that it will likely fail to achieve an applicable milestone with respect to any Product (other than First Commercial Sale) within the applicable Milestone Timing established above, BI shall inform Vitae and use Diligent Efforts to resolve the situation taking into due consideration any recommendation and suggestion of Vitae.

 

5.3                               Development Decisions/Progress.  In conducting Development activities, BI shall consult with the applicable Committee (i.e., JDC or Joint Steering Committee) and shall promptly and comprehensively share a summary of relevant information relating to Development activities with Vitae.  In addition, BI shall provide its proposals and suggestions for amending or otherwise modifying the Development Plan (including Development timelines) to Vitae through the applicable Committee.  Without limiting the foregoing, BI shall provide to such Committee updates of Development progress and efforts at least twice per year.

 

5.4                               Co-Development Option.  Vitae shall have the right, but not the obligation, to co-fund the global Development of one (1) Product by sharing between ten percent (10%) to twenty percent (20%) of all costs of the Phase III Studies for such Product in return for an increased royalty in accordance with Section 9.6.5(b) (the “Co-Development Option”).

 

5.4.1                     Procedure for Exercise of Option.  At least six (6) months prior to Initiation of Phase III Studies for each Product, BI shall provide Vitae with a budget for the estimated Development costs for such Phase III Studies.  To exercise its Co-Development Option, Vitae shall notify BI in writing at least thirty (30) days prior to the Initiation of Phase III Studies that it is exercising its Co-Development Option; such written notice shall also specify the percentage of expenses that Vitae will be co-funding.

 

5.4.2                     Reimbursement of Development Costs.  If Vitae exercises its Co-Development Option, it shall reimburse BI for Vitae’s specified share of any reasonable Development costs actually incurred by BI in performing such Phase III Studies from the Initiation of such Phase III Studies until the submission of an NDA with the FDA or the EMEA.  Vitae shall make its reimbursement payments in arrears on a quarterly basis within thirty (30) days after receipt of an invoice from BI.  For avoidance of doubt, reimbursable Development costs shall also include BI’s internal expenses (such as employees’ salaries or overhead expenses), as determined and calculated in accordance with BI’s normal operating protocols for internal development projects.  If actual Development costs for the Phase III Studies exceed BI’s initial budget forecast (provided to Vitae pursuant to Section 5.4.1) by more than ten percent (10%), then Vitae shall have the right to continue to share Development costs in accordance with the original budget (with a corresponding pro rata reduction in the royalty increase Vitae would

 

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be entitled to, as set forth in more detail in Section 9.6.5(b)), but shall not prevent or require Vitae to reduce its reimbursement percentage.

 

5.4.3                     Responsibility for Development.  BI shall remain solely responsible for Development and continue to have sole responsibility for all Development activities even if Vitae exercises its Co-Development Option.

 

6.                                      COMMERCIALIZATION.

 

6.1                               General.  BI shall use Diligent Efforts to Commercialize Products in the Major Markets.  No later than six (6) months before the First Commercial Sale of a Product, BI shall prepare and oversee the implementation of an overall commercialization plan (“Commercialization Plan”).  BI will present a summary of said Commercialization Plan to the Joint Steering Committee (or the appropriate subcommittee created by the Joint Steering Committee) for such Product.

 

6.2                               BI Responsibilities.  BI shall have the sole right and responsibility for Commercialization of Products for distribution and sale.  BI shall bear all costs and expenses associated with the Commercialization of Products.  Without limiting the foregoing, BI shall have the sole right and responsibility to perform the following responsibilities:

 

(a)                                 Receive, accept and fill orders for Products;

 

(b)                                 Distribute, sell, record sales and collect payments for Products;

 

(c)                                  Establish and modify the terms and conditions with respect to the sale of Products, including, but not limited to, the price or prices at which Products will be sold, any discount, rebates or other deductions applicable to payments or receivables, and similar matters; and

 

(d)                                 Record Product sales in its books of account.

 

6.3                               Promotional Materials, Samples and Labeling.

 

6.3.1                     Markings.  To the extent permitted or required by applicable Law, the package insert for all Products will indicate that the Product has been jointly discovered and developed by BI together with Vitae.  Labeling of Products shall include all required notices needed to comply with all statutory patent marking requirements and other legal notice requirements or best practices.

 

6.3.2                     Statements Consistent with Labeling.  BI shall ensure that sales representatives detail Products in a fair and balanced manner and consistent with the requirements of all applicable Laws.

 

6.3.3                     Samples.  BI shall ensure that all samples are labeled and distributed in accordance with applicable Law.

 

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6.4                               Biannual Reports.   BI shall provide the Joint Steering Committee twice a year with a management summary of the Commercialization activities for Products in reasonable detail sufficient for Vitae to determine (i) whether the Commercialization of Products proceeds in accordance with the relevant Commercialization Plan; and (ii) whether BI has met its Diligent Efforts obligations.

 

7.                                      MANUFACTURING AND INVENTORIES.

 

7.1                               Manufacturing.  BI shall use Diligent Efforts to manufacture or otherwise obtain supply of the requirements of formulated, packaged and labeled Products for Development and Commercialization, in accordance with all applicable Laws, current Good Manufacturing Practices and this Agreement.  BI shall be solely responsible for manufacturing, packaging and labeling of Product.

 

7.2                               Inventory.  BI shall maintain an inventory of Products in accordance with BI’s normal practices with the goal of ensuring fulfillment of global demand for Products.

 

8.                                      REGULATORY MATTERS.

 

8.1                               General(a).  BI shall be solely responsible for, and shall use Diligent Efforts in the Major Markets in connection with, the submission of information, communicating with, and seeking Marketing Authorization Approvals from, Governmental Authorities in respect of Products and will keep Vitae informed, through the Joint Steering Committee or applicable subcommittee, of all significant issues arising therefrom.

 

8.2                               Regulatory Submissions(a).   BI shall also be solely responsible for submission of drug approval applications for Products and will use Diligent Efforts in seeking Marketing Authorization Approval for Products in accordance with this Agreement in the Major Markets and such other countries as BI reasonably determines, following consultation with the applicable Committee.  Upon request of BI, Vitae shall provide such reasonable assistance as may be required by BI where liaison between the Parties is, or may be, necessary to enable BI to fulfill its responsibilities hereunder.  BI shall be responsible for maintaining the Marketing Authorization Approvals obtained under this Section 8.2, and BI shall solely own all such approvals in the Territory.  BI shall be fully responsible for bearing all costs and expenses associated with undertaking and completing said registration activities in the Territory, including, but not limited to, the costs of preparing and prosecuting applications for such Marketing Authorization Approvals and fees payable to regulatory agencies in obtaining and maintaining same.

 

8.3                               Drug Safety Information.  Both Parties shall comply fully with all applicable adverse event reporting recommendations and requirements in all countries where the Parties intend to carry out clinical trials and/or to market the Products and agree to exchange such information as may be necessary to achieve that end and to ensure that both Parties are completely informed regarding adverse events with Products.  This includes single case reports, together with an appropriate medical evaluation, as well as aggregate data, such as PSURs required by authorities.  Vitae shall provide BI with all information on the safety of 11β HSD-1 Inhibitors which is in Vitae’s possession as of the execution of this Agreement or thereafter.

 

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This includes all adverse event reports received in the past, published literature and previous actions taken by Vitae or by authorities due to safety issues.  The Parties agree that the most effective and efficient method for exchanging safety information is electronically.  If electronic transmission capability between the Parties is not possible or is interrupted, other methods for the exchange of safety information such as telefax or courier service will be used. Interruptions to electronic data transfer will be kept to a minimum.  The transfer of safety information between the Parties will be made in an electronic format that complies with the ICH Guidance on Data Elements for Transmission of Individual Case Safety Reports. Transmission procedures specified by the ICH Electronic Standards for the Transfer of Regulatory Information (ICH M2) will be used at such time as these come into force as defined either in the Step 5 Consensus Guideline, or by the date on which these standards are required by European authorities or the FDA to be implemented, whichever is the earlier.  Both Parties will execute and implement a detailed pharmacovigilance agreement pertaining to Products no later than six (6) months before the earlier of the following events:  (i) BI or Vitae is physically and/or legally able to distribute Products in the market, in a clinical trial or for whatever purpose, or (ii) BI or Vitae has a Marketing Authorisation Approval, a clinical trial authorisation, or has regulatory reporting obligations for any other reason.

 

8.4                               Recalls or Corrective Action(a).  BI shall have sole responsibility for and shall make all decisions with respect to any recall, market withdrawal or other corrective action related to Products that BI has Commercialized, provided, however, that BI shall to the extent practicable consult Vitae prior to making any such decision and take into account Vitae’s views and interests in making its decision, provided such consultation does not delay or endanger the recall process.  BI shall be solely responsible for all costs and expenses associated with such recall, market withdrawal or corrective action, including, but not limited to, all fines, fees and refunds to distributors and other customers unless it can be demonstrated that the recall was caused by any act, omission or breach of this Agreement by Vitae.  If BI recalls or withdraws a Product, and BI does not use Diligent Efforts to reintroduce such Product, after the initial recall or withdrawal, then upon written notice to BI, Vitae shall have the right, but not the obligation, to terminate this Agreement with respect to such Product in any market in which such Product was recalled or withdrawn; and such Product shall be deemed a Terminated Product.

 

8.5                               Events Affecting Integrity or Reputation(a).  During the Term, the Parties shall notify each other immediately of any circumstances of which they are aware and which could impair the integrity and reputation of Products or if a Party is threatened by or becomes aware of unlawful activity in relation to Products, including, but not limited to, deliberate tampering with or contamination of Products.  In any such circumstances, the Parties shall use Diligent Efforts to limit any damage to the Parties and/or to Products.  The Parties shall bring the matter to the attention of the other Party at the next Joint Steering Committee meeting to discuss and resolve such circumstances.

 

9.                          FINANCIAL PROVISIONS.

 

In consideration of the contributions and activities of Vitae under this Agreement and the rights granted by Vitae to BI hereunder, particularly the licenses set forth in Article 2 above, BI agrees to make the following payments as set forth in this Article 9:

 

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9.1                               Execution Payment(a).  Within ten (10) business days of (i) receipt of a written invoice, which shall be provided as soon as practicable after the Effective Date, and (ii) after BI’s receipt of a duly signed original of the Agreement, BI shall pay to Vitae a non-creditable, non-refundable amount of fifteen million dollars (US$15,000,000).

 

9.2                               Research Funding.

 

9.2.1                     Initial Research Collaboration.  During the initial twenty-four (24) months of the Research Term (the “Initial Funded Research Period”), BI shall pay Vitae eight hundred and twelve thousand, five hundred dollars (US$812,500) per quarter.  This research funding payment is based on an FTE rate of **** per FTE multiplied by **** FTE’s per year.  The installments shall be paid at the beginning of each calendar quarter provided that Vitae has provided a written invoice at least thirty (30) days prior to that date.  Vitae shall also provide a quarterly report setting forth the number of FTEs assigned to work on the Research Collaboration over the previous quarter.

 

9.2.2                     Research Collaboration Extension.  The Parties may agree to extend the Research Collaboration by extending the Initial Funded Research Period.  BI shall notify Vitae in writing at least ninety (90) days prior to the end of the Initial Funded Research Period (including any extensions) as to whether BI desires to continue funding Vitae FTE’s, as well as the number of FTE’s that BI intends to fund during the extended Initial Funded Research Period.  Vitae shall notify BI whether Vitae agrees to BI’s proposed extension within sixty (60) days after receipt of BI’s written notification.  The applicable FTE rate shall be equal to the original FTE rate of **** adjusted for inflation based on the increase in the Biomedical Research and Development Price Index (as determined by the Bureau of Economic Analysis (BEA), United States Department of Commerce), or successor index, over the applicable time period.  If the Initial Funded Research Period is extended, the Research Term shall be extended by the same time period.  For example, if the Parties agree to extend the Initial Funded Research Period by eighteen (18) months, then the Research Term shall likewise be extended for eighteen (18) months for all purposes under this Agreement.

 

9.2.3                     Other Expenses.  BI shall reimburse Vitae for all out-of-pocket expenses reasonably incurred by Vitae for external studies and other out-of-pocket non-FTE costs and expenses reasonably incurred as directed by the applicable Committee or specified in the applicable Research Plan (such as, for example, external in vivo studies), provided that such studies have been agreed beforehand with BI.

 

9.3                               Development and Regulatory Milestone Payments.  In the event BI achieves a Development or regulatory milestone specified below with respect to a Collaboration Compound or BI Compound, BI shall promptly, but in no event more than ten (10) days after the achievement of each such milestone, notify Vitae in writing of the achievement of such milestone.  BI shall pay to Vitae the non-refundable, non-creditable milestone payments as specified below within thirty (30) days of receipt of a written invoice to be provide by Vitae as soon as practicable following achievement of the particular milestone.  Notwithstanding the foregoing, if one or more Development milestones with respect to a particular Product does not occur, but a later Development milestone for the same Product is achieved, then all previous

 

****CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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Development milestones for which the applicable milestone payments have not been made shall be paid at the time of achievement of such subsequent Development milestone.  The full milestone payments shall be payable only once for the first Product to reach the applicable milestone.  All milestone payments will apply whether Products are Developed and Commercialized as single or combination products.

 

9.3.1                     Development Milestones.

 

	
 
    	
Development Milestones
    	
 
    	
Amount
    	
 
    
	
 
    	
Development   Candidate Selection
    	
 
    	
US$ 8,000,000
    	
 
    
	
 
    	
Initiation   of Phase I Studies
    	
 
    	
US$14,000,000
    	
 
    
	
 
    	
Initiation   of Phase II Studies
    	
 
    	
****
    	
 
    
	
 
    	
Initiation   of Phase III Studies
    	
 
    	
****
    	
 
    

 

9.3.2                     Regulatory Milestones.

 

	
 
    	
Regulatory Milestones
    	
 
    	
Amount
    	
 
    
	
 
    	
NDA   Filing in the US
    	
 
    	
****
    	
 
    
	
 
    	
NDA   Filing in a Major EU Country
    	
 
    	
****
    	
 
    
	
 
    	
NDA   Filing in Japan
    	
 
    	
****
    	
 
    
	
 
    	
NDA   Approval in the US
    	
 
    	
****
    	
 
    
	
 
    	
Marketing   Authorization Approval in a Major EU Country
    	
 
    	
****
    	
 
    
	
 
    	
Marketing   Authorization Approval in Japan
    	
 
    	
****
    	
 
    

 

9.3.3                     Second and Subsequent Products.  The milestone payments set forth in Sections 9.3.1 and 9.3.2 shall be payable only once upon the first occurrence of a Product to reach each such milestone.  Milestone payments for the second and for each subsequent Product to reach each milestone shall be equal to fifty percent (50%) of the corresponding milestone payments set forth in Sections 9.3.1 and 9.3.2.

 

9.3.4                     Second and Subsequent Core Indications.  In addition to the milestone payments specified above upon achievement of the milestone for the first Core Indication for each Product, BI shall pay milestone payments equal to fifty (50%) of the regulatory milestone payments set forth in Section 9.3.2 for the second separate Core Indication (e.g., hypertension) for each Product, but not for label extensions to a primary diabetes indication.

 

9.4                               Commercialization Milestone Payments.  In the event that BI achieves a Commercialization milestone, BI shall promptly, but in no event more than sixty (60) days after the end of the calendar quarter in which the achievement of each such milestone occurred notify Vitae of the achievement such event.  The following non-refundable, non-creditable milestone payments will be payable one time only for the first Product to reach such milestone and will apply to such Product across all indications.  “Annual Net Sales” shall mean the cumulative, total worldwide Net Sales of a given Product in a given calendar year.

 

****CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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9.4.1                     Commercialization Milestones.

 

	
 
    	
Commercialization Milestones
    	
 
    	
Amount
    	
 
    
	
 
    	
Upon   reaching US$1 billion in Annual Net Sales
    	
 
    	
****
    	
 
    
	
 
    	
Upon   reaching US$2 billion in Annual Net Sales
    	
 
    	
****
    	
 
    
	
 
    	
Upon   reaching US$3 billion in Annual Net Sales
    	
 
    	
****
    	
 
    

 

9.4.2                     Second and Subsequent Products.  The milestone payments set forth in Section 9.4.1 shall be payable only once upon the first occurrence of a Product to reach each such milestone.  Milestone payments for the second and each subsequent Product to reach each applicable milestone shall be equal to fifty percent (50%) of the corresponding milestone payments set forth in Section 9.4.1.

 

9.5                               Requirements for Invoices.  All invoices provided by Vitae shall fulfill the requirements set forth in Exhibit 9.

 

9.6                               Royalties.

 

9.6.1                     Net Sales Royalties.  BI will make royalty payments based on Net Sales, on a Product-by-Product and country-by-country basis, from the date of the First Commercial Sale of each Product in each country until the expiration of the Royalty Term.  Such royalty payments shall be calculated based on year-to-date annual, aggregate, worldwide, Annual Net Sales of each Product (on a Product-by-Product basis), applying the tiered royalty rate shown below:

 

	
 
    	
Annual Net Sales
    	
 
    	
Royalty
    	
 
    
	
 
    	
Annual   Net Sales up to and including US$500,000,000
    	
 
    	
****
    	
 
    
	
 
    	
Annual   Net Sales between US$500,000,001 and US$1,000,000,000
    	
 
    	
****
    	
 
    
	
 
    	
Annual   Net Sales between US$1,000,000,001 and US$2,000,000,000
    	
 
    	
****
    	
 
    
	
 
    	
Annual   Net Sales over US$2,000,000,000
    	
 
    	
****
    	
 
    

 

For avoidance of doubt, the following example shall illustrate the royalty payment calculation:  Royalties on aggregate Net Sales of any Product in the Territory in a Calendar Year shall be paid at the rate applicable to the portion of Net Sales within each of the Net Sales levels during such Calendar Year.  For example, if, during a Calendar Year, Net Sales of a particular Product were equal to USD 750,000,000, then the royalties payable would be calculated by adding (i) the royalties with respect to the first USD 500,000,000 at the first-level percentage of ****; and (ii) the royalties with respect to the next USD 250,000,000 at the second-level percentage of ****, for a total royalty of ****.

 

9.6.2                     Timing of Royalty Payments.  BI shall make all royalty payments within sixty (60) days following the end of each calendar quarter for Net Sales from the previous calendar quarter.

 

****CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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9.6.3                     Bundling.  In the event that a Product is included as a “bundle” of products and/or services, BI may discount the bona fide list price of a Product by no more than the average percentage discount of all products in a particular “bundle,” calculated as [1-(A/B)] x 100, where “A” equals the total discounted price of a particular “bundle” of products, and “B” equals the sum of the undiscounted bona fide list prices of each unit of every product in such “bundle.”

 

9.6.4                     Royalties on Combination Products.  In the event that a Product is sold bundled with other products or in combination with other active, therapeutic components (“Other Product”) for a single price (“Combination Product”), then the royalty payments due on the Net Sales of the Combination Product will be adjusted as follows:

 

(a)                                 If the Product and the Other Product are sold separately, the royalty payments due on the Net Sales of the Combination Product shall be equal to the applicable percentage (royalty rate) multiplied by the Net Sales of the Combination Product multiplied by the fraction, A/(A+B) where “A” is the mean gross selling price of the Product and “B” is the mean gross selling price of the Other Product.

 

(b)                                 If the Product and the Other Product are sold separately, but the mean gross selling price of the Other Product cannot be determined, the royalty payments due on the Net Sales of the Combination Product shall be equal to the applicable percentage (royalty rate) multiplied by the Net Sales of the Combination Product multiplied by the fraction A/C wherein “A” is the mean gross selling price of the Product and “C” is the mean gross selling price of the Combination Product.

 

(c)                                  If the Product and the Other Product are sold separately, but the mean gross selling price of the Product cannot be determined, the royalty payments due on the Net Sales of the Combination Product shall be equal to the applicable percentage (royalty rate) multiplied by the Net Sales of the Combination Product multiplied by the following formula:  one (1) minus B/C wherein “B” is the mean gross selling price of the Other Product and “C” is the mean gross selling price of the Combination Product.

 

(d)                                 If the Product and the Other Product are sold separately, but the mean gross selling price of neither the Product nor the Other Product can be determined, Net Sales of the Product shall be equal to Net Sales of the Product multiplied by a mutually agreed percentage.  If the Parties are unable to agree upon such a percentage, the dispute shall be resolved by arbitration pursuant to Section 15.7.

 

(e)                                  The mean gross selling price for a Product or Other Product shall be calculated for each country, once each calendar year, by dividing the sales amount by the units of the Product (based on BI’s audited records) and/or Other Product (based on data published by IMS or some other mutually agreed upon independent source).  In the initial calendar year, a forecasted mean gross selling price shall be used for the Product or Other Product, if no relevant sales occurred in the previous calendar year.  Any over or under payment due to a difference between forecasted and actual mean gross selling prices will be paid or credited in the first royalty payment of the following calendar year.

 

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9.6.5                     Royalty Adjustments.

 

(a)                                 Generic Competition.  The royalty payment due to Vitae (as set forth in Section 9.6.1) for sales of a particular Product in a particular country shall be reduced by fifty percent (50%) during any calendar quarter in which such Product faces Generic Competition.  “Generic Competition” means and shall be deemed to exist in a particular country in the Territory during a given calendar quarter with respect to a particular Product if during such calendar quarter, one or more Generic Products (other than a Generic Product sold by BI or its Affiliates or by a sublicensee under a license granted by BI or its Affiliate) were sold commercially in such country, and the Generic Products in the aggregate have a market share of twenty-five (25%) or more in that country (as measured by units sold based on data provided by IMS International, or if such data is not available, such other reliable data source as reasonably agreed upon by Vitae and BI).  If no data is commercially available, then the Parties shall agree upon a methodology for estimating the percentage unit-based market share of Generic Products in such country.

 

(b)                                 Co-Development Option.  If Vitae exercises its Co-Development Option with respect to a Product pursuant to Section 5.4, Vitae shall be entitled to an increased royalty rate for such Product as follows.  The applicable royalty rate from the table in Section 9.6.1 shall be increased by **** per 1% of Phase III Study Development costs shared by Vitae.  For example, if Vitae shares in ten percent (10%) of the Development costs for the Phase III Study for such Product, then the applicable royalty rate for each tier shall increase by **** (i.e., a **** royalty rate shall become ****).  If Vitae co-funds less than ten percent (10%) of the Development costs for the Phase III Study because actual expenses exceeded BI’s budget forecast by more than ten percent (10%), then Vitae shall still be entitled to an upward adjustment in the applicable royalty rate based on its percentage share of actual Development costs for the Phase III Study (in accordance with the formula set forth in this Section 9.6.5(b)).  For example, if Vitae ultimately shares in five percent (5%) of the actual Phase III Study Development costs, then the applicable royalty rate for each tier shall increase by **** (i.e., a **** royalty rate shall become ****).

 

9.7                               Net Sales Report.  Within sixty (60) days following the end of each calendar quarter, BI shall submit to Vitae a written report setting forth Net Sales in the Territory on a country-by-country and Product-by-Product basis during such calendar quarter and year-to-date, total royalty payments due Vitae in respect of Products and Combination Products, and information supporting the calculation of Net Sales of Products (“Net Sales Report”).

 

9.8                               Third Party Royalties.  BI shall be solely responsible for all royalties, milestone payments, fees or other amounts due to any Third Parties with respect to any intellectual property Covering a Product or otherwise necessary or useful for the Development and/or Commercialization of a Product or for conducting the Research Collaboration.

 

9.9                               Multiple Royalties.  No multiple royalties shall be payable because a Product, its manufacture, use or sale is or shall be Covered by more than one Valid Claim of a Vitae Patent, BI Patent or Joint Patent.

 

****CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

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9.10                        Equity Investment.  Contemporaneous with the execution of this Agreement, BI shall make an equity investment in Vitae of fifteen million dollars (US$15,000,000) pursuant to a share purchase agreement substantially in the form of the agreement attached as Exhibit 6.

 

9.11                        Payment Terms.

 

9.11.1              All sums due to Vitae shall be payable in United States dollars by bank wire transfer in immediately available funds to such bank account(s) as Vitae shall designate.

 

9.11.2              Except as otherwise set forth herein, all other payments due hereunder shall be paid within thirty (30) days following receipt of Vitae’s invoice.

 

9.12                        Currency.  When Products are sold for monies other than United States dollars, the earned royalties will first be determined in the foreign currency of the country in which such Products were sold and then converted into equivalent United States funds.  The exchange rate will be the rate published by the European Central Bank, Frankfurt am Main, Germany, on the last business day of each calendar quarter in which such royalties accrued.

 

9.13                        Financial Standards.  All financial terms and standards (including any calculation of Net Sales, Development costs and financial payments due under this Agreement) shall be governed by and determined in accordance with normally accepted accounting principles (more specifically, the German Handelsgesetzbuch or HGB) and shall be consistent with BI’s audited consolidated financial statements.  Notwithstanding the above and notwithstanding the requirements or principles of the HGB, Net Sales shall be calculated in accordance with the formula specified in Section 1.72, and no deductions shall be allowed other than the deductions specifically enumerated in Section 1.72.  For avoidance of doubt, there shall be no deduction from Net Sales for bad debt allowances or bad debt expenses.

 

9.14                        Late Payments.  Any payment that is not paid within two (2) business days of the date such payment is due under this Agreement shall bear interest, to the extent permitted by applicable Law, at an annual rate equal to the one (1) month LIBOR plus two percent (2%) for the first date on which payment was delinquent and calculated on the number of days such payment is overdue.

 

9.15                        Tax Withholding, Financial Records and Audits.

 

9.15.1              Tax Withholding.  If laws or regulations require BI to withhold any taxes from royalty or advance payments made to Vitae under this Agreement, then such taxes shall be deducted by BI as required by law from such remittable royalty, milestone, FTE or similar payments and shall be paid by BI to the proper tax authorities.  Official receipts of payment of any withholding tax shall be secured and sent to Vitae as evidence of such payment.  The Parties shall exercise their best efforts to ensure that any withholding taxes imposed are reduced as far as possible under the provisions of any relevant tax treaty.

 

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due to Vitae under this Agreement, including, but not limited to, all such records for the BI Group.  BI shall retain records relating to Net Sales and/or any payments made to Vitae during the three (3) preceding calendar years.  At Vitae’s request such records shall be made available for inspection, review and audit, during normal business hours and with reasonable advance notice to BI, by an independent certified public accountant, or the local equivalent, appointed by Vitae and reasonably acceptable to BI for the purpose of verifying the accuracy of the BI Group’s accounting reports and payments pursuant to this Agreement and report to Vitae the findings (but not the underlying data) of said examination of records as are necessary to evidence that BI has complied with its payment and other financial obligations under Section 9 of this Agreement.  A copy of any report provided to Vitae by the accountant shall be given concurrently to BI.  Vitae may perform such an audit no more than once per calendar year.  Vitae shall be responsible for all costs and expenses incurred in performing any such audit unless the audit discloses at least a five percent (5%) shortfall, in which case BI shall bear the full cost of the audit.  Vitae shall be entitled to recover any shortfall in payments as determined by such audit, plus interest thereon, calculated in accordance with Section 9.14.  If said examination of records reveals any overpayment(s) of royalties, then Vitae shall credit the amount overpaid against BI’s future royalty payment(s).

 

10.                               CONFIDENTIAL INFORMATION.

 

10.1                        Definition.  “Confidential Information” means confidential or proprietary information, data or know-how, whether provided in written, oral, visual or other form, provided by one Party (the “Disclosing Party”) to the other Party (the “Receiving Party”) in connection with this Agreement, including, but not limited to, the terms of this Agreement and information relating to the Disclosing Party’s existing or proposed research, development efforts, patent applications, business or products, including, but not limited to BI Know-How, Vitae Know-How and Joint Know-how, as applicable. Confidential Information shall not include any such information that:  (i) is already known to the Receiving Party or its Affiliates (other than under an obligation of confidentiality) at the time of disclosure (as evidenced by written records of the Receiving Party); (ii) is or becomes generally available to the public other than through any act or omission of the Receiving Party or its Affiliates; (iii) is disclosed to the Receiving Party or its Affiliates by a Third Party who had no separate nondisclosure obligation in respect of such information; or (iv) is independently discovered or developed by or on behalf of the Receiving Party or its Affiliates without the use of the Confidential Information of the Disclosing Party (as evidenced by written records of the Receiving Party).  The terms of this Agreement shall be deemed Confidential Information of each Party.  The Parties agree that with respect to the Vitae Intellectual Property Vitae shall be deemed the Disclosing Party, and with respect to BI Intellectual Property BI shall be deemed the Disclosing Party.  With respect to Joint Intellectual Property, both Parties are deemed the Receiving Party.

 

10.2                        Confidentiality.  The Receiving Party shall keep in confidence all Confidential Information of the Disclosing Party with the same degree of care it employs to maintain the confidentiality of its own Confidential Information, but no less than a reasonable degree of care.  The Receiving Party shall not use such Confidential Information for any purpose other than in performance of this Agreement or disclose the same to any other Person other than to such of its own and its Affiliates’ employees, agents, sublicensees and subcontractors who have a need to know such Confidential Information to implement the terms of this Agreement.

 

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A Receiving Party shall advise any employee, agent, sublicensees and subcontractors who receives Confidential Information of such obligations, and the Receiving Party shall ensure (through enforcement of written agreements or otherwise) that all such employees, agents, sublicensees and subcontractors comply with such obligations as if they had been a Party hereto.  The Receiving Party will be liable for breach of this Article 10 by any of its employees, agents, sublicensees and subcontractors.

 

10.3                        Permitted Disclosure and Use.  The Receiving Party shall have the right to disclose Confidential Information if, (i) in the reasonable opinion of the Receiving Party’s legal counsel, such disclosure is required by any applicable Laws (including the rules of any stock exchange), provided that the Receiving Party gives adequate prior notice of such disclosure to the Disclosing Party and the Receiving Party seeks confidential treatment of such Confidential Information to the maximum extent permitted by the relevant Governmental Authority; or (ii) a court, tribunal, administrative agency or other Governmental Authority orders such disclosure, provided that the Receiving Party gives adequate prior notice of such disclosure to the Disclosing Party to permit the Disclosing Party to intervene and to request protective orders or other confidential treatment.  The Receiving Party will cooperate reasonably with any such efforts by the Disclosing Party.  Furthermore, notwithstanding any other provision of this Agreement, Vitae may disclose Confidential Information as necessary in connection with any financing, merger or similar transaction, subject to confidentiality, or as necessary to obtain legal or financial advice from its attorneys, accountants and legal or financial advisors, provided, however, that Vitae shall limit such disclosure to the extent possible including the provision of redacted documents.  The Parties shall also be permitted to make disclosures consistent with, and pursuant to, Sections 15.1 (Publications) and 15.2 (Public Announcements).

 

10.4                        Return.  Upon termination of this Agreement, the Receiving Party shall return or destroy all documents or other media containing Confidential Information of the Disclosing Party with the exception of one (1) copy for the sole purpose of monitoring and documenting the confidentiality obligations hereunder.

 

10.5                        Remedies.  Money damages will not be an adequate remedy if this Article 10 is breached and, therefore, either Party may, in addition to any other legal or equitable remedies, seek an injunction or other equitable relief against such breach or threatened breach without the necessity of posting any bond or surety.

 

10.6                        Survival.  This Article 10 shall survive the expiration or termination of this Agreement for a period of ten (10) years.

 

10.7                        Internet Mail Encryption.  The Parties undertake to protect Confidential Information (including but not limited to patent-related, scientific or technical information) against unauthorized access by Third Parties.  If Confidential Information is communicated via internet mail, use of internet mail encryption technology is compulsory (for direct communication between the parties, BI provides for a suitable technology at http://guides.boehringer-ingelheim.com/ime.htm free of charge).

 

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11.                               REPRESENTATIONS AND WARRANTIES.

 

11.1                        Mutual Representations and Warranties.  Vitae and BI each represents and warrants to the other as of the Effective Date:

 

11.1.1              Such Party (i) is a company duly organized, validly existing and in good standing under the Laws of the jurisdiction of its organization; (ii) has the requisite corporate power and authority and the legal right to conduct its business as now conducted and hereafter contemplated to be conducted; and (iii) has or will obtain all necessary licenses, permits, consents, or approvals from or by, and has made or will make all necessary notices to, all Governmental Authorities having jurisdiction over such Party, required for performance of this Agreement;

 

11.1.2              The execution, delivery and performance of this Agreement by such Party (i) are within the corporate power of such Party; (ii) have been duly authorized by all necessary or proper corporate action; (iii) do not conflict with any provision of the organizational documents of such Party; (iv) will not, to the best of such Party’s knowledge, violate any Laws or any order or decree of any court or Governmental Authority; and (v) will not violate or conflict with any terms of any indenture, mortgage, deed of trust, lease, agreement or other instrument to which such Party is a party, or by which such Party is bound;

 

11.1.3              This Agreement has been duly executed and delivered by such Party and constitutes a legal, valid and binding obligation of such Party, enforceable against such Party in accordance with its terms;

 

11.1.4              No governmental authorization, consent, approval except Marketing Authorization Approvals, license, registration, filing or exemption therefrom with any court or other Governmental Authority is or will be necessary for, or in connection with, the transaction contemplated by this Agreement or any other agreement or instrument executed in connection therewith; and

 

11.1.5              Neither such Party nor, to the best of either Party’s knowledge, any of its employees has been debarred by the FDA (or similar action by the EMEA), or subject to an FDA debarment investigation or proceeding (or similar proceeding of EMEA) for any reason.

 

11.2                        BI Representations and Warranties.  BI represents, warrants and covenants to Vitae as of the Effective Date:

 

11.2.1              BI has utilized its own scientific, marketing and distribution expertise and experience to analyze and evaluate both the scientific and commercial value of this collaboration, and BI has entered into this Agreement based on its own independent due diligence investigation and evaluation;

 

11.2.2              Neither BI nor any of its Affiliates is a party to or otherwise bound by any oral or written contract or agreement that will result in any Third Party obtaining any interest in, or that would give to any Third Party any right to assert any claim in or with respect to, any of BI’s rights granted under this Agreement;

 

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11.2.3              Exhibit 5 is a complete and accurate list of the BI Compounds as of the Effective Date, and Exhibit 5 completely and accurately describes BI’s plans for structural variation for lead optimization of BI Compounds as of the Effective Date;

 

11.2.4              BI is the sole and exclusive owner of or has obtained exclusive licenses to the BI Patents and BI Know-How;

 

11.2.5              BI (i) has not previously assigned, transferred, conveyed or otherwise encumbered its right, title and interest in BI Patents, or any component of the BI Know-How, and (ii) there is no Patent owned or controlled by BI, other than the BI Patent rights, in case of either (i) or (ii), that would prevent Vitae and/or the BI Group and subcontractors from Researching, Developing and/or Commercializing Products as set forth herein, and from exploiting its rights granted under Section 2.1;

 

11.2.6              BI has no knowledge of the existence of any Patent or intellectual property right (other than any patent application) controlled by a Third Party that would materially conflict with the grant of the license set forth in Section 2.1.2 of this Agreement or potentially claim the composition of matter or use of 11β HSD-1 Inhibitors with the exception of those BI Compounds which might be Covered by Third Party intellectual property rights as set forth in Exhibit 8;

 

11.2.7              To BI’s knowledge, there are no claims, judgments or settlements against, pending with respect to BI Patents or any component of BI Know-How, and BI has not received written notice that any such claims, judgments or settlements are threatened; and

 

11.2.8              BI is not currently a party to, and during the Term of this Agreement will not enter into, any agreements, oral or written, that are inconsistent with its obligations under this Agreement.

 

11.3                        Vitae Representations and Warranties.  Vitae represents and warrants to BI as of the Effective Date:

 

11.3.1              Vitae has utilized its own scientific, marketing and distribution expertise and experience to analyze and evaluate both the scientific and commercial value of this collaboration, and Vitae has entered into this Agreement based on its own independent assessment and evaluation;

 

11.3.2              Vitae has furnished BI with all material information that is in Vitae’s possession and was requested by BI concerning Vitae’s 11β HSD-1 Inhibitor program, and, to Vitae’s knowledge, such information is accurate and complete in all material respects.

 

11.3.3              Neither Vitae nor any of its Affiliates is a party to or otherwise bound by any oral or written contract or agreement that will result in any Person obtaining any interest in, or that would give to any Person any right to assert any claim in or with respect to, any of Vitae’s rights granted under this Agreement;

 

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11.3.4              Vitae is not currently a party to, and during the Term of this Agreement will not enter into, any agreements, oral or written, that are inconsistent with its obligations under this Agreement;

 

11.3.5              All of the Vitae Patents listed on Exhibit 1 are pending and have not been abandoned as of the Effective Date;

 

11.3.6              Vitae is the sole and exclusive owner of, or has obtained exclusive licenses to, the Vitae Patents and Vitae Know-How;

 

11.3.7              Vitae  (i) has not previously assigned, transferred, conveyed or otherwise encumbered its right, title and interest in the Vitae Intellectual Property that would prevent Vitae and/or the BI Group and subcontractors from Researching, Developing and/or Commercializing Products as set forth herein, and from exploiting its rights granted under Section 2.1; and (ii) there is no intellectual property right, in particular no Patent, owned or controlled by Vitae or its Affiliates (except an Acquiring Entity), other than the Vitae Intellectual Property, that would prevent Vitae and/or the BI Group and subcontractors from Researching, Developing and/or Commercializing Products as set forth herein, and from exploiting its rights granted under Section 2.1.  Should there, nevertheless, exist any such intellectual property rights owned or controlled by Vitae or Vitae’s Affiliates (except an Acquiring Entity) on or after the Effective Date, Vitae shall, and ensure that its Affiliates (except an Acquiring Entity) shall, then grant to BI free of additional charge and in accordance with the terms of this Agreement a non-exclusive license under such intellectual property rights in such a manner that BI, its Affiliates and sublicensees and subcontractors (as set forth in Section 2.2.1) may continue to exercise its rights granted hereunder, in particular, its right to Research, Develop and Commercialize the Potential Development Candidates, Development Candidates and Products without any interruption or restraint from Vitae or its Affiliates (except an Acquiring Entity); provided, however, that with respect to Patents licensed to Vitae and/or its Affiliates (except an Acquiring Entity), such license requirement will apply only to such extent that Vitae and/or its Affiliates (except an Acquiring Entity), as applicable, has the right to sublicense their respective rights in and to such Patents to BI, its Affiliates and sublicensees and subcontractors, without payment of additional consideration to their respective licensors (unless BI agrees to pay such additional consideration).

 

11.3.8              Vitae has no knowledge of any Patents or other intellectual property right (other than any patent applications) owned or controlled by a Third Party that would materially conflict with the grant of rights by Vitae to BI under this Agreement; and

 

11.3.9              There are no claims, judgments or settlements against, pending with respect to the Vitae Patents or any component of Vitae Know-How; and Vitae has not received written notice that any such claims, judgments or settlements are threatened, and, to Vitae’s knowledge, there are no such claims, judgments or settlements are threatened.

 

11.3.10                   Vitae is not currently a party to, and during the Term of this Agreement will not enter into, any agreements, oral or written, that are inconsistent with its obligations under this Agreement.

 

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11.4                        Disclaimer of Warranty.  Except for Sections 11.1, 11.2 and 11.3, nothing in this Agreement shall be construed as a representation or warranty by either Party (i) that any Product made, used, sold or otherwise disposed of under this Agreement is or will be free from infringement of patents, copyrights, trademarks or other intellectual property rights of any Third Party; (ii) regarding the effectiveness, value, safety, non-toxicity or patentability of any technology, Products or any results provided by either Party pursuant to this Agreement; or (iii) that any Product will obtain Marketing Authorization Approval.  EXCEPT AS OTHERWISE EXPRESSLY SET FORTH IN THIS AGREEMENT, NEITHER PARTY MAKES AND EACH PARTY EXPRESSLY DISCLAIMS, WAIVES, RELEASES AND RENOUNCES ANY OTHER WARRANTY, EXPRESS OR IMPLIED, INCLUDING, BUT NOT LIMITED TO, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, AND ALL WARRANTIES ARISING FROM ANY COURSE OF DEALING OR PERFORMANCE OR USAGE OF TRADE.

 

12.                               INDEMNIFICATION.

 

12.1                        Indemnification by BI.  Subject to Section 12.3, BI shall defend, indemnify and hold harmless Vitae and its Affiliates and each of their officers, directors, shareholders, employees, successors and assigns from and against all Claims of Third Parties, and all associated Losses, to the extent arising out of (i) BI’s negligence or willful misconduct in performing any of its obligations under this Agreement, (ii) breach by BI of any of its representations, warranties, covenants or agreements under this Agreement, or (iii) the Development, Commercialization, manufacture, use, handling, storage, marketing, sale, distribution or other disposition of Products by BI, its Affiliates, agents, subcontractors or sublicensees, except to the extent as set forth in Section 12.2.

 

12.2                        Indemnification by Vitae.  Subject to Section 12.3, Vitae shall defend, indemnify and hold harmless BI and its Affiliates and each of their officers, directors, shareholders, employees, successors and assigns from and against all Claims of Third Parties, and all associated Losses, to the extent arising out of (i) Vitae’s negligence or willful misconduct in performing any of its obligations under this Agreement, (ii) breach by Vitae of any of its representations, warranties, covenants or agreements under this Agreement, or (iii) the Development, Commercialization, manufacture, use, handling, storage, marketing, sale, distribution or other disposition of Non-Core 11β HSD-1 Inhibitors or Products by Vitae, its Affiliates, agents, subcontractors or sublicensees, except to the extent as set forth in Section 12.1.

 

12.3                        Procedure for Indemnification.

 

12.3.1              Notice.  Each Party (“Indemnified Party”) will notify promptly the other Party (“Indemnifying Party”) in writing if it becomes aware of a Claim (actual or potential) by any Third Party or any proceeding (including any investigation by a Governmental Authority) (“Third Party Claim”) for which indemnification may be sought and will give such related information as the Indemnifying Party shall reasonably request.

 

12.3.2              Defense of Claim.  The Indemnifying Party shall defend or control the defense of Third Party Claims.  The Indemnifying Party shall be responsible for satisfying and discharging any award made to or settlement reached with the Third Party

 

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pursuant to the terms of this Agreement.  The Indemnifying Party shall retain counsel reasonably acceptable to the Indemnified Party (such acceptance not to be unreasonably withheld, refused, conditioned or delayed) to represent the Indemnified Party and shall pay the reasonable fees and expenses of such counsel related to such proceeding.  In any such proceeding, the Indemnified Party, at its sole expense, shall have the right to retain its own counsel.  Neither Party shall settle any Third Party Claim without the prior written consent of the other Party, which consent shall not be unreasonably withheld, refused, conditioned or delayed.  The Indemnified Party shall cooperate in all reasonable respects in the defense of such Third Party Claim, as requested by the Indemnifying Party.  The Indemnifying Party shall not, without the written consent of the Indemnified Party (which consent shall not be unreasonably withheld, refused, conditioned or delayed), effect any settlement of any such Third Party Claim, unless such settlement includes an unconditional release of the Indemnified Party from all liability on such Claims.

 

12.4                        Insurance.  During the Term of this Agreement, the Parties shall obtain and maintain at their sole cost and expense, an adequate liability insurance or self-insurance program (including product liability insurance) to protect against potential liabilities and risk arising out of the Development and Commercialization of any Product and upon such terms (including coverages, deductible limits and self-insured retentions) as are customary in the pharmaceutical industry and appropriate to cover each Party’s indemnification obligations hereunder.

 

13.                               PATENTS.

 

13.1                        Ownership of Inventions.

 

13.1.1              Each Party shall promptly disclose to the other Party all Inventions made under the Agreement during the Term.  Each Party shall own all right, title and interest in and to any Inventions invented solely by such Party.  Each Party shall own a fifty percent (50%) undivided interest in all Joint Inventions.  Except as expressly provided in this Agreement and subject to any restrictions therein, each joint owner may make, use, sell, keep, license, assign, or mortgage such Joint Inventions, and otherwise undertake all activities a sole owner might undertake with respect to such inventions, discoveries and know-how, without the consent of and without accounting to the other joint owner, provided that any such assignment, license or other disposition or use (i) shall at all times be and remain subject to the grants of rights and accompanying conditions and obligations with respect thereto under this Agreement, and (ii) allow the Parties to exercise their rights and perform their obligations under this Agreement, in particular to Research, Develop and Commercialize Products in at least the same scope as prior to such assignment, license or other disposition.  Inventorship for Inventions, including Joint Inventions, shall be determined in accordance with the patent laws of the United States (Title 35, United States Code).

 

13.1.2              Upon initiation of the first Phase I Study for a Development Candidate pursuant to Section 1.86, such Vitae Patent(s) which specifically Cover(s) the composition of matter for such Development Candidate shall be jointly owned by the Parties.  In addition, Vitae shall provide BI with copies of all related Patent documentation (i.e., all search reports, correspondence with the competent patent offices and other documents relating to the prosecution or maintenance of such Vitae Patents).  Vitae shall assign, transfer and convey, also

 

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on behalf of its Affiliates (other than any Acquiring Entity), on the condition precedent of initiation of the first Phase I Study (“Assignment Date”) to BI co-ownership rights in such Vitae Patent(s) in all countries, in particular the right to be named and entered into national and regional patent registers as co-owner of said Vitae Patent(s).  Vitae shall perform all acts necessary to vest joint ownership in BI in said Vitae Patents, including execution and delivery of all declarations, certificates and other documents, and entry into additional agreements with BI, if necessary.  If it is necessary to obtain the consent of Lighthouse Capital Partners V, L.P. (“Lighthouse”) to effect a valid assignment to BI pursuant to this Section 13.1.2 and Vitae determines that it will not be able to obtain such consent from Lighthouse as of the Assignment Date, then Vitae will do all acts necessary to effect the aforementioned assignment, including paying to Lighthouse the full amount of any outstanding loans made to Vitae, thereby terminating its agreement with Lighthouse, prior to the Assignment Date.  In the event that (i) it is necessary to obtain such consent for the aforementioned purpose and Vitae has not obtained such consent upon Assignment Date, or (ii) Vitae has not performed all necessary acts for giving the effect of the assignment upon Assignment Date at the latest, then BI shall be entitled to make any outstanding payments hereunder directly to Lighthouse and deduct such amounts from any royalties or regulatory milestone payments due hereunder in order to satisfy any outstanding loans of Vitae vis-à-vis Lighthouse.

 

(a)                                 Vitae shall inform BI in writing after co-ownership in said Vitae Patents has been established in a valid manner.  Upon assignment of said co-ownership rights, such Vitae Patent(s) shall be deemed and treated as Joint Patent(s).

 

(b)                                 Any costs, expenses or other fees incurred pursuant to this Section 13.1.2, in particular any governmental, notarization, legalization or official fees, for or in connection with the transfer and assignment of the co-ownership rights in said Vitae Patent(s) and the transfer of any related Patent documentation shall be reimbursed by BI within thirty (30) days after receipt of an invoice (detailing value added tax separately) and proper documentation for such fees.

 

(c)                                  For avoidance of doubt, Vitae shall be required to assign co-ownership rights to only one Vitae Patent per Development Candidate per jurisdiction or country.  Vitae shall not be required to assign Vitae Patents not Covering the composition of matter for a Development Candidate or any Vitae Patents with broad generic claims, even if such Development Candidate may be within the scope of such generic claims.  In each jurisdiction or country, Vitae shall assign co-ownership rights to the single Vitae Patent containing the narrowest claims that still Cover the Development Candidate.  In addition, if there is already a Joint Patent that specifically Covers the composition of matter for such Development Candidate in a country/jurisdiction, Vitae shall not be required to assign co-ownership rights to any other Vitae Patents.

 

13.2                        Prosecution and Maintenance of Patents.  During the Term of this Agreement, except as otherwise set forth in this Section 13, Vitae and BI shall closely cooperate in filing, prosecuting and maintaining the Vitae Patents and the Joint Patents using mutually agreed upon Patent Counsel.  BI shall have the right and obligation to file, prosecute and maintain the BI Patents and the BI Life-Cycle Patents.  Each Party shall keep the other Party

 

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informed as to the status of any Patents Covering the Collaboration Compounds or the BI Compounds, and shall consult the other Party with respect to major strategic decisions.

 

13.2.1              Selection of Patent Counsel.  Within three (3) months following the Effective Date, the Parties shall agree on a qualified US outside patent counsel (“Patent Counsel”) who shall be engaged by both Parties for filing, prosecuting and maintenance of the Vitae Patents and Joint Patents.  The Parties shall also agree in parallel on a substitute Patent Counsel to be engaged only for those cases where, for any reason, the first Patent Counsel is unable to handle a particular patent matter on behalf of Vitae or BI.  After the Patent Counsel is selected, Vitae shall within three (3) months instruct its Patent attorneys or agents to promptly transfer all files, including all outstanding office actions and any other significant patent documents relating to existing Vitae Patents to the Patent Counsel.  The Patent Counsel shall within two (2) months after having received all files and documents relating to the Vitae Patents arrange for BI to be registered as the exclusive licensee at all patent authorities where such registration is required or legally possible.  The Parties shall thereafter ensure that any arising Vitae Patents and any Joint Invention Patents are filed, prosecuted and maintained by Patent Counsel.  Vitae and BI shall confer and jointly instruct the Patent Counsel to supervise foreign (i.e., outside of the United States) patent filing, prosecution and maintenance, and shall select (in consultation with Vitae and BI) qualified foreign patent agents in each jurisdiction to file, prosecute and maintain Vitae Patents and Joint Patents in each such jurisdiction.  The Patent Counsel shall regularly advise Vitae and BI of the status of all pending Vitae Patent applications and pending Joint Patent applications, including the status of any related hearings or other proceedings, and provide Vitae and BI copies of all documentation concerning such applications and all correspondence to and from any Governmental Authority.  BI shall, at its discretion, either use qualified in-house patent counsel or retain qualified outside patent counsel to file, prosecute and maintain BI Patents and BI Life-Cycle Patents.  If BI chooses to retain outside patent counsel, it shall have sole discretion to select such patent counsel, except that it may not select a law firm or attorney that has an existing conflict with respect to Vitae.  BI shall regularly advise Vitae of the status of all pending BI Patent applications and pending BI Life Cycle Patent applications, including the status of any related hearings or other proceedings, and provide Vitae, upon Vitae’s request, copies of all documentation concerning such applications and all correspondence to and from any Governmental Authority with respect to BI Patents.

 

13.2.2              Decision-Making.

 

(a)                                 Each Party shall solicit the other Party’s advice and review of BI Patent applications,  Vitae Patent applications and Joint Patent applications and important prosecution matters related thereto in reasonably sufficient time prior to filing thereof, and shall take into account the other Party’s reasonable comments; provided that, subject to Sections 13.2.4 and 13.2.5 below and BI’s primary responsibility in the following sentence, Vitae shall have the final decision-making authority with respect to any action relating to any Vitae Patent and any Joint Patent, and BI shall have the final decision-making authority with respect to any action relating to any BI Patent and any BI Life Cycle Patent.  However, upon initiation of the first Phase I Study pursuant to Section 1.86, BI shall have primary responsibility for maintaining, prosecuting and defending such Vitae Patent(s) assigned pursuant to Section 13.1.2 and any other Joint Patents that Cover the composition of matter for the respective Development Candidate provided that such activities do not limit the scope or enforceability of said Patents

 

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that would be detrimental to the interests of Vitae.  If any activities of or on behalf of BI limit the scope or enforceability of said Patents, then Vitae is entitled to veto or require the performance of such activities/decisions, as applicable such that any limit on the scope or enforceability of said Patent does not detrimentally affect the interests of Vitae.  Otherwise, BI shall have the final decision-making authority with respect to all activities/decisions not vetoed or otherwise required by Vitae.

 

(b)                                 Within the first ten (10) months of the priority period, Vitae and BI shall confer about the countries outside the United States in which corresponding applications should be filed (“OUS Filings”).  It shall be presumed that a corresponding Patent Cooperation Treaty (“PCT”) application will be filed unless otherwise agreed by the Parties within the first ten (10) months of the priority period.  In case a PCT application is filed, the Parties shall consult regarding the countries for which the application should enter into the national phase no later than twenty-six (26) months after the earliest priority date.  If the Parties fail to reach agreement about OUS Filings or the country scope for entering the national phase of countries designated in a PCT application, then BI will have final decision-making authority with respect to any BI Patent or any BI Life Cycle Patent, and Vitae shall have final decision-making authority with respect to any Vitae Patent or Joint Patent, however subject to BI’s primary responsibility under Section 13.2.2(a).  If the Party with final decision-making authority declines to file a particular Patent application in a particular country or jurisdiction, then the other Party may exercise its step-in rights (pursuant to Sections 13.2.4 and 13.2.5) by filing such Patent application in such country or jurisdiction at its own expense.

 

13.2.3              Patent Prosecution and Maintenance Expenses.  BI shall be solely responsible for all costs incurred in connection with the filing, prosecution or maintenance of Vitae Patents, Joint Patents, BI Patents and BI Life-Cycle Patents, including, but not limited to, (i) filing fees, (ii) attorneys’ fees and other expenses associated with application preparation, prosecution, and maintenance, (iii) all costs associated with reexamination, oppositions and interference proceedings in the United States Patent and Trademark Office and/or the United States Courts, (iv) translation fees, (v) maintenance fees and annuities, including any service fees paid to an annuity payment service provider and (vi) attorneys’ fees and filing fees associated with protest or appeal proceedings.  Notwithstanding the foregoing, Vitae shall be responsible for all costs associated with re-examination, oppositions, appeals and interference proceedings of Vitae Patents and/or Joint Patents, which are unnecessarily caused by Vitae’s actions.

 

13.2.4              BI’s Step-In Rights.  BI shall have the right, but not the obligation, to assume responsibility for any Vitae Patent or Joint Patent which Vitae intends to abandon or otherwise cause or allow to be forfeited.  Vitae shall give BI notice of its intent to abandon a Vitae Patent or Joint Patent in a particular country or jurisdiction within a reasonable period prior to a possible loss of rights, and BI shall thereafter have the right through Patent Counsel, at BI’s sole expense, to prepare, file, prosecute and maintain such Vitae Patents or Joint Patents in such country or jurisdiction.

 

13.2.5              Vitae’s Step-In Rights.  Vitae shall have the right, but not the obligation, to assume responsibility for any BI Patents that BI intends to abandon or otherwise cause or allow to be forfeited.  BI shall give Vitae notice of its intent to abandon any Patents assigned to BI pursuant to Section 13.1.2 in a particular country or jurisdiction within a

 

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reasonable period prior to a possible loss of rights, and Vitae shall thereafter have the right through Patent Counsel, at Vitae’s sole expense, to prepare, file, prosecute and maintain such BI Patents and/or Patents assigned to BI pursuant to Section 13.1.2 in such country or jurisdiction.  Notwithstanding the above, in the event that BI elects not to file, prosecute or maintain a BI Patent or Joint Patent or claims in a BI Patent or Joint Patent that would affect the royalty owed Vitae under this Agreement, BI will reimburse Vitae for all out-of-pocket expenses incurred by Vitae in connection with Vitae’s continued prosecution and maintenance of such Patent.

 

13.2.6              Execution of Documents by Agents.  Each of the Parties shall execute, or have executed by its appropriate agents, such documents as may be necessary to obtain, perfect or maintain any Patent rights filed or to be filed pursuant to this Agreement, and shall cooperate with the other Party so far as reasonably necessary with respect to furnishing all information and data in its possession reasonably necessary to obtain or maintain such Patent rights.

 

13.2.7              Patent Term Extensions.  BI shall have the right but not the obligation to seek extensions of the terms of any Vitae Patents, Joint Patents, BI Patents, BI Life-Cycle Patents and Patents assigned to BI pursuant to Section 13.1.2 Covering a Product.  At BI’s request, Vitae either shall authorize BI to act as Vitae’s agent for the purpose of making any application for any extensions of the term of such Patents or shall diligently seek to obtain and maintain such extensions, in either event, at BI’s sole expense.  BI shall consult with Vitae prior to its decision to seek a Patent term extension with respect to Vitae Patents, Joint Patents, BI Patents and Patents assigned to BI pursuant to Section13.1.2, provided, however, that when the Parties hereto cannot reach an agreement for these Patents, BI shall have the right to determine which Vitae Patents, BI Patents, Joint Patents, or BI Life-Cycle Patents to apply for Patent term extension in the Territory.  In countries where more than one Patent term extension per Patent owner and per registered Product can be applied for, each Party shall have the right to request Patent term extension.  For countries where only one registered Product per Patent can be extended, BI shall have final decision-making authority as to which Product the extension is applied.  BI shall be responsible for listing to the “Approved Drug Products with Therapeutic Equivalence Evaluation” (known as the “Orange Book”) in case of United States, and any and all similar procedures in the other countries, provided, however, that BI shall consult with Vitae in advance.

 

13.2.8              Supplementary Protection Certificates.  At BI’s request and sole expense, Vitae shall seek to obtain, and maintain until expiry, any SPC’s based on Vitae Patents or Joint Patents, excluding those Patents assigned to BI pursuant to Section 13.1.2, for which BI shall seek to obtain, and maintain such SPCs.  Alternatively, at BI’s request and sole expense, Vitae shall authorize BI to obtain SPC’s based on such Vitae Patent or Joint Patent on Vitae’s behalf and provide reasonable assistance and information therefor as well as for the Patents assigned to BI pursuant to Section 13.1.2.  Where BI holds the relevant Marketing Authorization, BI shall at its sole discretion provide to Vitae a copy of said Marketing Authorization and any information necessary for the purpose of obtaining an SPC based on such Vitae Patent or Joint Patent.  For clarity, BI shall reimburse Vitae for any expenses incurred by Vitae in obtaining an SPC that has been requested by BI.  BI shall be responsible, at its sole expense, for obtaining SPC’s based on BI Patents, or BI Life-Cycle Patents and those Patents assigned to BI pursuant to Section 13.1.2.

 

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13.3                        Patent Infringement.  With respect to any and all Claims instituted by Third Parties against Vitae or BI or any of their respective Affiliates for patent infringement involving the manufacture, use, license, marketing or sale of a Product during the Term (each, a “Patent Infringement Claim”) as applicable, Vitae and BI will assist one another and cooperate in the defense and settlement of such Patent Infringement Claims at the other Party’s request.  The Parties agree to respond to or defend against any Patent Infringement Claims as follows:

 

13.3.1              Without limiting any of its obligations under Section 13.1, BI shall have the primary right to manage the defense of the Parties against a Patent Infringement Claim, at BI’s sole expense.  If BI elects to exercise such right as to a Patent Infringement Claim, Vitae shall cooperate with BI at BI’s request and expense, and shall have the right to be represented by counsel selected and paid for by Vitae.  If BI elects not to exercise such right as to the Patent Infringement Claim, Vitae may defend such Patent Infringement Claim, at Vitae’s expense, and BI shall cooperate with Vitae at Vitae’s request and shall have the right to be represented by counsel selected and paid for by BI.

 

13.3.2              The Party managing the defense against a Patent Infringement Claim shall also have the right to settle such Patent Infringement Claim, on terms deemed appropriate by such Party, provided, however that any such settlement must include a full and unconditional release from all liability of the other Party and may not adversely affect the rights of the other Party without such other Party’s prior written consent (such consent not to be unreasonably withheld or delayed).  Moreover, any settlement that (i) results in cross-licensing, (ii) results in sublicenses to Third Parties, (iii) otherwise affects the Vitae Patents or Joint Patents, (iv) would have the effect of reducing royalties payable to Vitae under this Agreement or (v) includes any liability or admission on behalf of Vitae, shall be subject to Vitae’s prior written consent, which shall not be unreasonably withheld or delayed.

 

13.4                        Infringement of Patents.  In the event that Vitae or BI becomes aware of actual or threatened infringement of any Vitae Patents, BI Patents, and/or Joint Patents within the Field during the Term, that Party will promptly notify the other Party in writing.  BI will have the primary right, but not the obligation, to bring an infringement action under any Vitae Patents, BI Patents, and/or Joint Patents against any Third Party including the defense against counter-claims of invalidity and unenforceability.  If BI elects to pursue such infringement action, BI shall be solely responsible and have the full control of the proceedings and any recoveries (including settlements) will be applied as follows:  (i) first to reimburse BI for any expenses incurred in respect of such action; (ii) second to reimburse Vitae for any expenses incurred in respect of such action; and (iii) ) if the infringement action is brought under any Vitae Patents, BI Patents or Joint Patents, any remaining amounts will be divided equally between the Parties.  If BI elects to pursue such infringement action, Vitae may be represented in such action by attorneys of its own choice and at its own expense, with BI having the lead in such action, subject to recovery of such expenses as set forth above.  Vitae shall cooperate with and support BI at BI’s request in such infringement procedure.  During the Term, in the event that BI does not use Diligent Efforts to pursue such an infringement action, Vitae will be permitted to do so, at Vitae’s sole expense, and, if legally required, in BI’s or the relevant BI Affiliate’s name and on BI’s or the relevant BI Affiliate’s behalf.  If BI has consented to an infringement action but Vitae is not recognized by the applicable court or other relevant body as having the requisite standing to pursue such action, then Vitae may join BI as a party-plaintiff.  If Vitae elects to pursue such infringement action, BI

 

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may be represented in such action by attorneys of its own choice and at its own expense, with Vitae taking the lead in such action.  In the event that Vitae brings any such action after BI has elected not to pursue such action, it will retain all recoveries, provided that BI shall be reimbursed its reasonable expenses from such recoveries.

 

13.5                        Notice of Certification.  BI and Vitae each shall immediately give notice to the other of any certification filed under the “U.S. Drug Price Competition and Patent Term Restoration Act of 1984” (or its foreign equivalent) claiming that a Vitae Patent, BI Patent or Joint Patent is invalid or that infringement will not arise from the manufacture, use or sale of a product by a Third Party (e.g., a paragraph IV certification pursuant to 21 U.S.C. § 355(j)(2)(A)(vii)(IV)).  BI shall have the first option in such proceedings (and similar proceedings in other countries) to take action.  Vitae shall cooperate with and support BI, at BI’s request, in such litigation.  If BI decides not to bring infringement proceedings against the entity making such a certification, BI will give notice to Vitae of its decision not to bring suit within such time period as to provide Vitae with a reasonable opportunity to retain litigation counsel and file suit within the statutory deadlines, but in no event less than twenty (20) days after receipt of notice of such certification.  If BI decides not to bring such infringement proceeding, then Vitae has the right, but not the obligation, to bring suit against the entity that filed the certification.  Any suit by Vitae or BI will either be in the name of Vitae or in the name of BI (or any Affiliate) or jointly in the name of Vitae and BI (or any Affiliate), as required by Law.

 

13.6                        Validity Challenge.

 

13.6.1              In the event that a Third Party commences any re-examination, interference, opposition or nullity proceeding or challenges the validity or enforceability of, or opposes any extension of or the grant of a patent term extension request or a SPC with respect to, any Vitae Patent, BI Patent or Joint Patent (each such action a “Patent Challenge”) during the Term in any country of the Territory, then the Parties shall jointly take such legal action as is required to defend the validity of such particular Vitae Patents, BI Patents, or Joint Patents through patent litigation counsel jointly selected by the Parties.  Each Party shall give all reasonable assistance (excluding financial assistance) to the other Party.  Each Party may also be represented by counsel of its own selection at its own expense in any such legal action.  Any settlement shall be subject to the Parties’ mutual agreement, which shall not be unreasonably withheld or delayed.  BI shall be solely responsible for all costs in connection with such Patent Challenge.

 

13.6.2              For the avoidance of doubt, this Section 13.6 shall not apply to the defense of any Patent Challenge that is raised as a counter-claim or defense by a Third Party that is the subject of an infringement action pursuant to Section 13.3 above, in which case the defense of such Patent Challenge will be governed by such Section 13.3.

 

13.7                        Assistance.  For purposes of this Article 13, the Party not bringing suit shall execute such legal papers necessary for the prosecution of such suit as may be reasonably requested by the Party bringing suit.  The out-of-pocket costs and expenses of the Party bringing suit shall be reimbursed first out of any damages, settlements or other monetary awards recovered.  The documented out-of-pocket costs and expenses of the other Party shall then be reimbursed out of any remaining damages, settlements or other monetary awards.  The Party

 

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initiating and prosecuting the action will retain any remaining damages, settlements or other monetary awards, except as otherwise specified in this Section 13.

 

13.8                        Settlement.  Except as expressly otherwise set forth herein, no settlement, consent judgment or other voluntary final disposition of a suit under this Section 13 may be entered into without the joint written consent of both Parties (each Party’s consent shall not be unreasonably withheld, conditioned or delayed).  BI shall not be required to obtain such consent with respect settlement of any disputes involving only BI Life Cycle Patents.

 

13.9                        Licensed Patents.   The provisions regarding BI Patents under this Section 13 affect those BI Patents which are licensed to BI only to such extent that BI has the right to act under this Section in accordance with the agreement with BI’s licensor.  The provisions regarding Vitae Patents under this Section 13 affect those Vitae Patents which are licensed to Vitae only to such extent that Vitae has the right to act under this Section in accordance with the agreement with Vitae’s licensor.

 

14.                               TERM AND TERMINATION.

 

14.1                        Term.  This Agreement shall commence on the Effective Date and shall end (i) upon the termination of this Agreement pursuant to Sections 14.2 and 14.3; or (ii) upon expiry of the Royalty Term for all Products in all countries (the “Term”).  Upon expiry of this Agreement under Section 14.1(ii), BI and its Affiliates shall retain, fully paid-up and perpetually, all licenses granted to BI under this Agreement on a non-exclusive basis.

 

14.2                        Termination for Material Breach.

 

14.2.1              Either Party may, without prejudice to any other remedies available to it at law or in equity, terminate this Agreement in the event that the arbitrator pursuant to Section 15.7 determines that the other Party has materially breached in the performance of its material obligations under this Agreement; provided that the breaching Party shall, (i) if such breach can be cured, have sixty (60) days (ten (10) business days for breach of any payment obligations) after receipt of written notice thereof from the non-breaching Party, such notice containing full details of said breach, to remedy such breach (or, if such breach cannot be cured within such period, the breaching Party must commence and use Diligent Efforts to cure such breach during such period), (ii) if such breach is not capable of being cured, use and continue to use Diligent Efforts to mitigate the impact of such breach, as demonstrated by written evidence, except that the non-breaching Party may nevertheless terminate if such breach is due to willful misconduct or gross negligence.  Vitae shall not have the right to terminate the Agreement following the First Commercial Sale of any Product by BI in a Major Market, provided that BI pays Vitae the amount of such damages that have been awarded by the arbitrator pursuant to Section 15.7.  Notwithstanding the foregoing or any other provision in this Agreement to the contrary, Vitae shall be entitled to terminate this Agreement for material breach by BI under this Section 14.2.1 (whether such breach occurred before or after First Commercial Sale of a Product) in the event that the arbitrator pursuant to Section 15.7 has determined that BI has willfully breached its obligation to pay the royalties as set forth in Sections 9.6 and 9.8 or any milestone payments as set forth in Sections 9.3 and 9.4.  BI shall not have the right to terminate the Agreement hereunder following the First Commercial Sale of any

 

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Product in Major Market by Vitae provided that Vitae pays BI the amount of such damages that have been awarded by the arbitrator pursuant to Section 15.7.

 

14.2.2              Any such termination shall become effective at the end of such sixty (60) day period unless the breaching Party has cured any such breach prior to the expiration of such sixty (60) day period (or, if such breach is capable of being cured but cannot be cured within such sixty (60) day period, the breaching Party has commenced and used Diligent Efforts to cure such breach, provided that, in such instance, such cure must have occurred within one hundred twenty (120) days after receipt of written notice thereof from the non-breaching Party).

 

14.2.3              After the First Commercial Sale of any Product by the BI Group or its sublicensees in a Major Market, except as provided for in Section 14.2.1, Vitae shall not have the right to terminate this Agreement in the event that the arbitrator determines that BI failed to use Diligent Efforts in connection with its performance of this Agreement, provided that BI pays Vitae the amount of Special Damages.  “Special Damages” means the amount of damages incurred or suffered by Vitae which shall include an amount equal to the milestone payments and royalties payable on Net Sales that the arbitrator determines BI could have achieved if it had used Diligent Efforts.

 

14.2.4              For the avoidance of doubt, Vitae may only terminate this Agreement for BI’s (alleged) failure to use Diligent Efforts under Section 14.2.3 or 14.3.3 under the terms set forth therein and not under Section 14.2.1.

 

14.3                        Other Termination Rights.

 

14.3.1              BI shall have the right to terminate this Agreement on the first anniversary of the Effective Date by providing written notice ninety (90) days’ prior to such first anniversary date, provided that BI shall pay Vitae the entire amount of the committed research funding payments for the Initial Funded Research Period as set forth in Section 9.2.1,  For avoidance of doubt, the total amount of the committed research funding payments is six million five hundred thousand dollars (US$6,500,000).  In addition, BI shall be responsible for all previously authorized out-of-pocket expenses incurred or committed on or before the effective termination date.

 

14.3.2              At any time after the Research Term, BI shall have the right to terminate the entire Agreement or to terminate Development or Commercialization on a Product-by-Product basis upon one ninety (90) days’ written notice to Vitae.  Any such Product (containing a Collaboration Compound and/or a BI Compound that has been selected as a Development Candidate) that is thereby terminated shall be referred to as a “Terminated Product.”  If BI terminates the entire Agreement for any reason, then all Potential Development Candidates, Development Candidates and Collaboration Compounds shall be deemed Terminated Products.

 

14.3.3              Vitae may terminate this Agreement before the First Commercial Sale of a Product in a Major Market on a Product-by-Product or compound-by-compound basis or in its entirety if a Commercial Conflict pursuant to Section 1.22(i) is resolved pursuant to Section 15.7 in favor of Vitae, and BI has not cured such Commercial Conflict within one

 

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hundred and twenty (120) days upon such arbitrator’s final decision.  Any such Product or compound shall be deemed to be a Terminated Product, but the Agreement will otherwise continue in effect.

 

14.4                        Effects of Termination; Terminated Products.

 

14.4.1              Effect of Termination.

 

(a)                                 Termination for Material Breach by Vitae.  In the event that this Agreement is terminated by BI pursuant to Section 14.2 for material breach by Vitae:

 

(i)                                     Vitae shall retain its rights granted by BI under Section 2.1.2(a)(ii) and 2.1.2(b)(ii) with the respective sublicense rights under 2.2.2.

 

(ii)                                  All licenses granted by Vitae to BI or its Affiliates under this Agreement will survive, subject to BI’s and its Affiliates’ ongoing obligations to pay milestone payments and royalty payments to Vitae hereunder; however, in case of an uncured Serious Material Breach resulting in BI’s loss of exclusivity in either the US market or in all five (5) of the Major EU Countries (as evidenced by BI Product(s) facing Generic Competition in those markets), BI shall be released from making any further royalty or milestone payments to Vitae for the Product(s) with respect to which the Serious Material Breach relate.  In any other case of an uncured Serious Material Breach, the arbitrator, pursuant to Section 15.7, shall determine the deduction from any milestone and royalty payments by BI (for the Product(s) with respect to which the Serious Material Breach relate) based on the relative proportion of market(s) lost or diminished.

 

(iii)                               In case of Serious Material Breach resulting in BI’s loss of exclusivity in either the US market or in all five (5) of the Major EU Countries (as evidenced by BI Product(s) facing Generic Competition in those markets), Vitae shall, no later than thirty (30) days from the date of such termination, assign, transfer and convey to BI, free of charge, all of Vitae’s co-ownership interest in the Joint Intellectual Property, following which action such Joint Intellectual Property shall be owned exclusively by BI.  Furthermore, Vitae shall assign, also on behalf of its Affiliates (other than an Acquiring Entity), to BI co-ownership rights in such Vitae Patent(s) which Cover(s) the Research, Development and Commercialization of the Collaboration Compound(s) or Product(s), as applicable, to which the Serious Material Breach relates and which Collaboration Compound(s) or Product(s) is or are Researched, Developed or Commercialized, as applicable, as of the effective date of such termination.  For purposes of the definition of “BI Patents” and notwithstanding any statement to the contrary contained in this Agreement, all Vitae assignments effected pursuant to this Section 14.4.1(a)(iii) will be deemed to have occurred during the Term and any Vitae Patent with respect to which co-ownership is assigned to BI pursuant to this Section 14.4.1(a)(iii) will be deemed a Joint Patent.

 

(iv)                              If the Agreement was terminated by BI pursuant to Section 14.2, BI shall retain all of its rights to bring an action (through arbitration under Section 15.7) against Vitae for damages and any other available remedies in law or equity.

 

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(b)                                 Terminations Other Than Material Breach by Vitae.  In the event that this Agreement is terminated by BI or Vitae for reasons other than material breach by Vitae:

 

(i)                                     All licenses granted by Vitae to BI under this Agreement shall terminate;

 

(ii)                                  All Products containing (1) a BI Compound that was previously selected as a Development Candidate or (2) a Collaboration Compound shall be deemed to be Terminated Products;

 

(iii)                               If the Agreement was terminated by Vitae pursuant to Section 14.2, Vitae shall retain all of its rights to bring an action (through arbitration under Section 15.7) against BI for damages and any other available remedies in law or equity;

 

(iv)                              Vitae shall retain its rights granted by BI under Section 2.1.2(a)(ii) and 2.1.2(b)(ii) with the respective sublicense rights under 2.2.2; and

 

(v)                                 BI shall, no later than thirty (30) days from the date of such termination, assign, transfer and convey to Vitae, free of charge, all of BI’s co-ownership interest in the Vitae Patents assigned to it pursuant to Section 13.1.2, following which action such Patents shall be owned exclusively by Vitae and all prior licenses, dispositions or assignments made by BI with respect thereto shall automatically become void and cease to be of any further effect.

 

14.4.2              Terminated Products.  Notwithstanding anything else, with respect to each Terminated Product:

 

(a)                                 BI shall, at its sole expense, promptly transfer to Vitae, or shall cause its designee(s) to transfer to Vitae, ownership of all regulatory filings, Marketing Authorization Approvals, material correspondence, made or filed for the Terminated Product (to the extent that any are held in BI’s or such designee(s)’s name), such transfer to be as permitted by any Third Party licenses or other such prior rights and applicable Laws and regulations, and BI shall otherwise cooperate to permit Vitae to fully exercise its rights hereunder;

 

(b)                                 BI grants to Vitae an exclusive (even as to the BI Group), royalty-free, worldwide, fully paid-up, perpetual, irrevocable, transferable, sublicensable license (or sublicense, as applicable) in the Field under the BI Intellectual Property (excluding in-licensed BI Patents), and BI’s rights in the Joint Intellectual Property and with respect to in-licensed BI Patents as far as legally possible and equal to the scope of the license granted to BI a sub-license only to the extent necessary to make, have made, use, register, sell, offer to sell, import, export, exploit, Research, Develop and Commercialize any Terminated Products.

 

(c)                                  The Parties will negotiate in good faith the granting of a non-exclusive, license to BI Life-Cycle Intellectual Property on reasonable and customary commercial terms to be mutually agreed between the Parties only to the extent necessary to make, have made, use, register, sell, offer to sell, import, export, exploit, Research, Develop and Commercialize any Terminated Products.  For the avoidance of doubt, such license does not

 

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include any other implied license(s) to other intellectual property in the control of BI Group for any other BI products currently being researched, developed or marketed either alone or in combination with any Product;  Should the Parties are not able to agree, despite their good faith negotiations, on a license agreement within a period of six (6) months after termination, unless the Parties have agreed to extend the negotiation period, the terms and conditions of such license agreement shall be decided by the arbitrator pursuant to Section 15.7 follows:  Within three (3) weeks upon selection of the arbitrator each Party shall submit one written proposal for the afore mentioned license agreement.  The arbitrator shall select one of the two proposals for such a license agreement.  His decision shall be based solely on the criteria which of the proposals best reflects the terms on which the Parties have agreed so far, and standard provisions customary to such kind of agreements in the pharmaceutical industry.  The arbitrator shall come to a decision within fourteen (14) days.  The scope of authority of the arbitrator shall be limited to the aforementioned selection, and the license agreement so selected shall be binding upon the Parties.  The decision of the arbitrator shall be binding on the Parties.  The Party whose proposal has not been followed by the arbitrator shall bear the costs of this arbitration procedure.

 

(d)                                 In the event of material breach by BI pursuant to Section 14.2, then BI shall assign to Vitae any and all Trademarks (and associated goodwill) for relating to any Terminated Products which have already received Marketing Authorization Approval in at least one country; in the event of that BI terminates pursuant to Section 14.2.1, then such assignment of Trademarks shall be subject to the payment of a reasonable license fee or lump sum to be negotiated in good faith by the Parties.  In addition, for six (6) months following the transfer of existing Product inventory pursuant to Section 14.4.2(g), BI shall grant a non-exclusive, royalty-free, fully paid-up, sublicensable, irrevocable license to any applicable BI house marks (i.e., trade names, trademarks and trade dress) for the sole purpose of allowing Vitae to market and sell any existing inventory of Terminated Products.  All goodwill associated with Vitae’s use of such BI house marks shall inure to the benefit of BI.

 

(e)                                  BI shall also provide Vitae with such regulatory information, reports, records and data which are in the possession or control of the BI Group in respect of such Terminated Product to enable Vitae to Develop and obtain the appropriate Marketing Authorization Approvals to Commercialize with such provision to be as permitted by any Third Party licenses or agreements or other prior rights and applicable Laws and regulations;

 

(f)                                   Upon request, BI shall assign any Third Party agreements in respect of Terminated Products to Vitae if such assignment is permitted by such Third Party agreement and if such assignment is necessary for Vitae to Develop and Commercialize such Terminated Product(s);

 

(g)                                  Vitae shall inform BI within three (3) months of the effective termination date whether BI should transfer its remaining inventory of drug product and drug substance to Vitae, subject to Vitae’s reimbursement of the inventory at a price equal to the lesser of (i) BI’s documented internal transfer price, or (ii) eleven hundred (1100) Euros per kilogram of active pharmaceutical ingredient for both drug product and drug substance;

 

(h)                                 BI shall appoint Vitae as BI’s exclusive agent for all regulatory purposes with respect to such Terminated Product and as BI’s exclusive distributor of

 

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any such Commercialized Terminated Products until all required Marketing Authorization Approvals are transferred; and

 

(i)                                     All licenses granted to BI by Vitae hereunder with respect to such Terminated Product shall be deemed terminated.

 

14.5                        Change of Control(a).  Vitae shall promptly notify BI in writing of Transaction.  “Transaction” means any sale, merger, consolidation, transfer or other structural reorganization of Vitae in which (i) substantially all of the assets of the business of Vitae to which this Agreement relates are transferred to an entity in which the holders of Vitae’s capital stock immediately prior to the sale, merger, consolidation, transfer or other structural reorganization of Vitae directly or indirectly hold, subsequent to the sale, merger, consolidation, transfer or other structural reorganization of Vitae, less than a controlling majority of the capital stock; or (ii) the holders of Vitae’s capital stock immediately prior to the sale, merger, consolidation, transfer or other structural reorganization of Vitae hold less than a controlling majority of the capital stock of the surviving entity subsequent to the sale, merger, consolidation, transfer or other structural reorganization of Vitae (with the exception of any sale, merger, consolidation, transfer or other structural reorganization of Vitae that constitutes or involves a public offering of any Vitae stock).  Notwithstanding the foregoing, in the event that a controlling majority of the voting stock of Vitae is acquired by an entity during or after an initial public offering, then this shall be defined as a Transaction.

 

(a)                                 In the event of a Transaction wherein the entity acquiring the assets or capital stock of Vitae (hereinafter, such entity and all of its current and future Affiliates (excluding Vitae and its controlled Affiliates) shall be collectively referred to as an “Acquiring Entity”) is a pharmaceutical company marketing a diabetes product or having an active diabetes research program, (i) the Parties shall in any event retain all rights granted in this Agreement, in particular under Article 2; and (ii) BI shall be released from its obligations under Articles 3, 4, 5, 6, 7 and Sections 8.1, 8.2, 8.4 of this Agreement, provided, however, that BI shall continue to be obligated to use Diligent Efforts to Develop and Commercialize Products following any Transaction; and (iii) all other provisions of the Agreement shall continue in full force and effect.  Notwithstanding the foregoing, in the event that Vitae has exercised its Co-Development Option pursuant to Section 5.4 prior to the consummation of the Transaction or issuance of a press release about the Transaction, whatever occurs earlier, then Vitae shall be entitled to the increased royalty rate as set forth in Section 9.6.5(b).

 

(b)                                 Furthermore, in the event of a Transaction, the Parties understand and agree that any intellectual property, in particular, any Patents, know-how and compounds of such Acquiring Entity need not be introduced into this collaboration by Vitae and shall not be considered Vitae Intellectual Property or Joint Intellectual Property. Therefore, this collaboration will not extend to such intellectual property, in particular any Patents, know-how and compounds; and BI shall not, by virtues of said Transaction, obtain a license to the intellectual property of such Acquiring Entity.

 

14.6                        Accrued Rights; Surviving Obligations  Except as provided elsewhere, termination or expiration of this Agreement for any reason shall be without prejudice to any rights that shall have accrued to the benefit of any Party prior to such termination or expiration.

 

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Such termination or expiration shall not relieve any Party from obligations which are expressly or by implication intended to survive termination or expiration of this Agreement, including, but not limited to, Articles 1, 9, 10, and 12, and Sections 2.3, 4.4, 8.3, 11.4, 13.1.1, 13.2.6, 14.1, 14.4, 14.6, 15.1, 15.2, 15.4, 15.5, 15.7, 15.8, 15.9, 15.10, 15.12, 15.13, 15.14, 15.15, 15.16, 15.17, 15.18, 15.19, 15.20, and 15.22, and shall not affect or prejudice any provision of this Agreement which is expressly or by implication provided to come into effect on, or continue in effect after, such termination or expiration.

 

14.7                        Bankruptcy under U.S. or German Law  If this Agreement is rejected by or on behalf of Vitae under Section 365 of the United States Bankruptcy Code (the “Bankruptcy Code”), all licenses and rights to licenses granted under or pursuant to this Agreement by Vitae to BI are, and shall otherwise be deemed to be, for purposes of Section 365(n) of the Bankruptcy Code, licenses of rights to “intellectual property” as defined under Section 101(35A) of the Bankruptcy Code.  For the avoidance of doubt, the Parties intend that the licenses granted by Vitae to BI under this Agreement, in particular pursuant to Section 2.1 of this Agreement, are licenses of rights to “intellectual property” as defined under Section 101(35A) of the Bankruptcy Code.  The Parties agree that BI, as a licensee of such rights under this Agreement, shall retain and may fully exercise all of its rights and elections under the Bankruptcy Code, and that upon rejection of this Agreement by Vitae in a case under the Bankruptcy Code, if BI elects to retain its rights, as provided in Section 365(n)(1)(B) of the Bankruptcy Code, Vitae, as debtor in possession, or any trustee appointed in a case filed by or against Vitae under the Bankruptcy Code, shall provide to BI all intellectual property licensed to BI under this Agreement (including any embodiments) and held by Vitae or any trustee of Vitae, as provided in Section 365(n)(3)(A) of the Bankruptcy Code.  If this Agreement is rejected by or on behalf of BI in the event that (a) BI becomes a debtor in a bankruptcy proceeding or other proceeding for the general settlement of its debts, (b) a receiver or other official is appointed for all or substantially all of BI’s assets, or (c) BI makes a general assignment for the benefit of creditors, then Vitae will be entitled, to the extent legally possible under German Law, to receive the benefit of any protections afforded to licensees of intellectual property under German bankruptcy law, including protections equivalent to those provided under Section 365(n) of the Bankruptcy Code, whether such protections are in existence as of the Effective Date or are enacted in the future.

 

15.                               MISCELLANEOUS.

 

15.1                        Publications.  Prior to the commencement of the first Phase I Study in respect of any Development Candidate, neither Party shall make any publication in respect of the results arising out of Research and Development without prior written consent of the other Party.  Any publication made after commencement of the first Phase I Study in respect of a Development Candidate or related Product shall be made in accordance with a publication strategy and the following provisions of this Section 15.1.  BI shall be responsible for the development of a publication strategy regarding the Development Candidate and/or Product.  The publication strategy shall be presented to the JSC no later than the start of the Phase I Study for said Developmental Candidate and/or related Product.  The JSC shall be notified of any planned abstracts, oral presentations and manuscripts relating to the publication of clinical data and other scientific data generated in the course of Development of the relevant Product by the submitting Party.  The JSC shall discuss whether a planned submission might contain information which compromises the patentability or confidentiality of Vitae Intellectual

 

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Property, BI Intellectual Property, BI Life-Cycle Intellectual Property, or Joint Intellectual Property.  In the event that said patentability or confidentiality would be compromised, the Party wishing to publish shall within fourteen (14) days of objection by the other Party, request in writing a review of the abstract, oral presentation or manuscript for protection of patentable or proprietary information.  If requested in writing by the other Party, the submitting Party shall provide a draft of the planned submission and withhold the material for publication or presentation for forty-five (45) days to allow for the filing of patent applications or the taking of such measures as may be appropriate to preserve proprietary rights in and the confidentiality of the information in the material being submitted for publication or presentation (including withholding such publication).  The review period may be extended for an additional sixty (60) days if a representative of the JSC can demonstrate a reasonable need for such extension, including, but not limited to, the preparation and filing of Patent applications.  By mutual agreement of the Parties, this period may be further extended.  The Parties will each comply with standard academic practice regarding authorship of scientific publications and recognition of contribution of other parties in any such publications or presentations.

 

15.2        Public Announcements.  Except as may be expressly permitted under this Section 15.2 or mandated by applicable Laws or the rules of any stock exchange, neither Party will make any public announcement of any information regarding this Agreement without the prior written consent of the other Party.  Once any statement is approved for disclosure by the Parties, either Party may make a subsequent public disclosure containing the same information disclosed in such prior public announcement without further approval of the other Party.  Upon execution of this Agreement, the Parties shall agree to issue a press release and mutually agree the content thereof, concerning this Agreement and the relationship established hereby.  Notwithstanding the above, Vitae shall have the right to issue a press release and/or make a public announcement concerning the status of the Research Collaboration and/or the Development or Commercialization status of any Product after achievement of any key milestones, including, but not limited to, the milestones set forth in Sections 9.3 and 9.4, provided that prior written consent has been obtained, which consent shall not be unreasonably withheld or delayed.  The Parties recognize that the progress of the Research Collaboration has significant impact on Vitae’s valuation as a company and is therefore of interest to Vitae’s investors and potential investors. Thus the Parties shall work together in good faith to agree upon what details and summary top-line results of any clinical trials may be disclosed by Vitae.

 

15.3        No Debarred Personnel.  BI agrees that BI and its Affiliates shall not use, during the Term of this Agreement, the services of any employee, consultant, contractor or clinical investigator that has been debarred by the FDA or any other Governmental Authority or that is the subject of debarment proceedings by the FDA or any other Governmental Authority.

 

15.4        Relationship of the Parties.  Each Party shall bear its own costs incurred in the performance of its obligations hereunder without charge or expense to the other except as expressly provided in this Agreement.  Neither Party shall have any responsibility for the hiring, termination or compensation of the other Party’s employees or for any employee benefits of such employee.  No employee or representative of a Party shall have any authority to bind or obligate the other Party to this Agreement in any manner whatsoever, or to create or impose any contractual or other liability on the other Party without said Party’s approval.  For all purposes, the Parties’ legal relationship under this Agreement to each other shall be that of independent

 

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contractor.  This Agreement is not a partnership agreement and nothing in this Agreement shall be construed to establish a relationship of partners or joint venturers between the Parties.

 

15.5        Registration of This Agreement.  To the extent, if any, that either Party concludes in good faith that it or the other Party is required to file or register this Agreement or a notification thereof with any Governmental Authority, such Party shall inform the other Party thereof.  If both Parties jointly agree that either Party is required to submit or obtain any such filing, registration or notification, they shall cooperate (at BI’s sole expense) in such filing, registration or notification and shall execute all documents reasonably required in connection therewith.  In such filing, registration or notification, the Parties shall request confidential treatment of sensitive provisions of this Agreement, to the extent permitted by Law.  The Parties shall promptly inform each other as to the activities or inquiries of any such Governmental Authority relating to this Agreement, and shall reasonably cooperate to respond to any request for further information therefrom on a timely basis.  BI shall be responsible for all costs and expenses associated with any such filings or requirements.

 

15.6        Force Majeure.  The occurrence of an event which materially interferes with the ability of a Party to perform its obligations or duties hereunder which is not within the reasonable control of the Party affected or any of its Affiliates, and which could not with the exercise of Diligent Efforts have been avoided (“Force Majeure Event”), including, but not limited to, war, rebellion, earthquake, fire, accident, strike, riot, civil commotion, act of God, inability to obtain raw materials, delay or errors by shipping companies or change in Law, shall not excuse such Party from the performance of its obligations or duties under this Agreement, but shall merely suspend such performance during the Force Majeure Event.  The Party subject to a Force Majeure Event shall promptly notify the other Party of the occurrence and particulars of such Force Majeure Event and shall provide the other Party, from time to time, with its best estimate of the duration of such Force Majeure Event and with notice of the termination thereof.  The Party so affected shall use Diligent Efforts to avoid or remove such causes of non-performance as soon as is reasonably practicable.  Upon termination of the Force Majeure Event, the performance of any suspended obligation or duty shall without delay recommence.  The Party subject to the Force Majeure Event shall not be liable to the other Party for any damages arising out of or relating to the suspension or termination of any of its obligations or duties under this Agreement by reason of the occurrence of a Force Majeure Event, provided such Party complies in all material respects with its obligations under this Section 15.6.

 

15.7        Dispute Resolution.  In the event of any dispute, controversy or claim hereunder arising out of or relating to this Agreement, including, but not limited to, a Commercial Conflict that cannot be resolved by the Joint Steering Committee or the Officers as set forth in Section 3.3.4, and is not subject to BI’s final decision-making authority or Vitae’s final decision-making authority, either Party may, on ten (10) days written notice to the other Party, initiate binding arbitration in accordance with the then-current Commercial Arbitration Rules of the American Arbitration Association (the “AAA”).  The Parties shall select a mutually acceptable arbitrator within twenty (20) days of the request of the Party invoking this dispute resolution procedure.  If the Parties are unable to agree upon an arbitrator, the AAA shall select a qualified, independent arbitrator.  Such arbitration will be held in New York, New York.  The decision of the arbitrator will be final and binding on the Parties.  The prevailing Party may enforce any arbitration decision or award exclusively in the federal and state courts in the State

 

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of New York, New York, USA.  Notwithstanding the foregoing, either Party may seek injunctive, equitable or similar relief (without the requirement of arbitration) exclusively in any federal and state courts in the State of New York, New York, USA.

 

15.8        Governing Law.  This Agreement shall be construed, and the respective rights of the Parties determined, according to the substantive law of New York without regard to the provisions governing conflict of laws, except matters of intellectual property law, which shall be determined in accordance with the intellectual property laws relevant to the intellectual property in question.  The United Nations Convention on the International Sale of Goods shall not apply to this Agreement.

 

15.9        Attorneys’ Fees and Related Costs.  In the event that any legal proceeding is brought to enforce or interpret any of the provisions of this Agreement, the prevailing Party shall be entitled to recover its reasonable attorneys’ fees, court costs and expenses of litigation whether or not the action or proceeding results in a final judgment.

 

15.10      Assignment.  This Agreement may not be assigned or transferred by either Party, in whole or in part, whether voluntarily or by operation of law, without the prior written consent of the other Party; provided that either Party may assign this Agreement, in whole or in part, to any of its Affiliates if such Party guarantees the performance of this Agreement by such Affiliate; and provided further that either Party may assign this Agreement to a successor to all or substantially all of the assets or business of such Party to which this Agreement relates, whether by merger, sale of stock, sale of assets or other similar transaction.  Any assignment in violation of this provision is void and without effect.  This Agreement shall be binding upon and inure to the benefit of the Parties hereto, their permitted successors, legal representatives and assigns.  In the event that Vitae assigns or transfers any of the Vitae Intellectual Property or Vitae’s interest in the Joint Intellectual Property to a Third Party, Vitae shall impose on such assignee or transferee such obligations as are necessary so that BI retains and obtains all of the rights to which it is entitled with respect to such Vitae Intellectual Property and Joint Intellectual Property under this Agreement, in particular the grant of rights under Section 2.1.1.

 

15.11      Assignment and Performance within the BI Group.  It is understood by the Parties that any right or obligation of BI under this Agreement may be exercised or performed by any of its Affiliates, provided that BI shall remain ultimately responsible for performing its obligations under this Agreement.  In the event that parts of this Agreement, in particular parts of the scope of work, are performed by Vitae in close collaboration with an Affiliate of BI , BI may notify Vitae thereof and Vitae shall invoice such Affiliate according to the information provided by BI (name of Affiliate, address and bank details) and such invoice shall refer to the respective attributable scope of work.  BI remains responsible and liable for the correct payment and any other performance of obligations by such Affiliate in accordance with this Agreement.  Any such payment of the Affiliate shall be made in and deemed as fulfillment of BI’s obligations under this Agreement.

 

15.12      Notices.  All demands, notices, consents, approvals, reports, requests and other communications hereunder must be in writing, in English, and will be deemed to have been duly given only if delivered personally, by mail (first class, postage prepaid), or by overnight delivery using a globally-recognized carrier, to the Parties at the following addresses:

 

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Vitae:
    	
BI:
    
	
Vitae   Pharmaceuticals, Inc.
    	
Boehringer Ingelheim GmbH,  
    Corporate Division Licensing
    
	
502   West Office Center Drive
    	
Binger   Strasse 173
    
	
Fort   Washington, PA 19034
    	
55216   Ingelheim am Rhein
    
	
USA
    	
Germany
    
	
Attn:  Legal Department
    	
Attn:   Head of CD Licensing
    

 

or to such other address as the addressee shall have last furnished in writing in accord with this provision.  All notices shall be deemed effective upon receipt by the addressee.

 

15.13      Severability.  If any provision of this Agreement is held to be invalid, illegal or unenforceable in any respect, that provision shall be limited or eliminated to the minimum extent necessary so that this Agreement shall otherwise remain in full force and effect and enforceable.

 

15.14      Headings.  The headings used in this Agreement have been inserted for convenience of reference only and do not define or limit the provisions hereof.

 

15.15      Waiver.  No waiver of any term or condition of this Agreement shall be effective unless set forth in a written instrument duly executed by or on behalf of the waiving Party.  No waiver by any Party of any term or condition of this Agreement, in any one or more instances, shall be deemed to be or construed as a waiver of the same or any other term or condition of this Agreement on any prior, concurrent or future occasion.  Except as expressly set forth in this Agreement, all rights and remedies available to a Party, whether under this Agreement or afforded by Law or otherwise, will be cumulative and not in the alternative to any other rights or remedies that may be available to such Party.

 

15.16      Entire Agreement.  This Agreement (including the exhibits and schedules hereto) constitutes the entire agreement between the Parties hereto with respect to the subject matter hereof and supersedes all previous agreements and understandings between the Parties, whether written or oral, including, but not limited, to all proposals, negotiations, conversations, letters of intent, memoranda of understanding or discussions, between Parties relating to the subject matter of this Agreement and all past dealing or industry custom.

 

15.17      Modification.  This Agreement may be altered, amended or changed only by a writing making specific reference to this Agreement and the clause to be modified, which amendment is signed by duly authorized representatives of Vitae and BI.

 

15.18      No License.  Nothing in this Agreement shall be deemed to constitute the grant of any license or other right in either Party, to or in respect of any Product, patent, trademark, Confidential Information, trade secret or other data or any other intellectual property of the other Party, except as expressly set forth herein.

 

15.19      No Third Party Beneficiaries.  None of the provisions of this Agreement shall be for the benefit of or enforceable by any Third Party, including, but not limited to, any creditor of either Party hereto.

 

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15.20      Ambiguities.  This Agreement shall be deemed to have been drafted jointly by both Parties; and ambiguities, if any, shall not be construed against either Party, irrespective of which Party may have actually drafted the ambiguous provision.

 

15.21      CREATE Act.  This Agreement includes a joint research agreement as defined in 35 U.S.C. § 103(c)(3).

 

15.22      Counterparts.  This Agreement may be executed in counterparts, each of which, when executed, shall be deemed to be an original and all of which together shall constitute one and the same document.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, Vitae and BI, by their duly authorized officers, have executed this Agreement as of the Effective Date.

 

	
VITAE PHARMACEUTICALS, INC.
    	
BOEHRINGER   INGELHEIM
    
	
 
    	
INTERNATIONAL   GMBH
    
	
 
    	
 
    
	
 
    	
 
    	
 
    
	
By:
    	
/s/   Jeff Hatfield
    	
 
    	
By:
    	
/s/   K. Wilgenbus 
    	
 
    	
/s/   C. Hauke
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    
	
Name: Jeff Hatfield
    	
 
    	
Name:   K. Wilgenbus
    	
Hauke
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
Title: CEO
    	
Title:   Authorized Signatories
    
							

 

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EXHIBIT 1

 

VITAE PATENTS

 

	
Application No.
    	
 
    	
Filing Date
    	
 
    	
Title
    	
 
    
	
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EXHIBIT 2

 

PRELIMINARY RESEARCH PLAN

 

11β HSD1 Work plan

 

The project team is responsible for data review and prioritization of program activities on a weekly basis. The high level work plan is shown in the figure below. The intent of the defined labor allocation is to tailor current lead optimization strategies to the present status of the respective compound series.  Vitae will continue the optimization of their current lead series, performing their in vitro primary screening assays and in vivo profiling of tissue distribution and rat pharmacokinetic (PK) studies on key compounds or those deemed of scientific interest. Compounds having passed these filters will be sent to BI for additional studies before performing the monkey PK analysis.  These studies at BI include confirmation of activity in human adipocytes and initial absorption, distribution, metabolism and excretion (ADME) characterization. A key ADME assay is to determine the stability of a compound in the presence of human liver microsomes.  This step will eliminate from consideration compounds that have no chance of progressing because of high human in vitro clearance. The monkey PK study is a prelude to selection for primate pharmacodynamic (PD) studies. The selection of a PD compound will initiate further characterization (PanLabs, human ether-a-go-go related gene (hERG)) as warranted by experience within the compound series. The current PD strategy is to assess single dose whole body and tissue specific inhibition of cortisol production as a measure of efficacy and to discriminate between key advanced compounds in vivo.

 

A Program Kick-off Plan will be determined by the Parties after signing of the Contract.

 

Proposed Work Flow

 

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Compound characteristics and properties

 

Compound criteria outlined in the tables below describe a list of properties for acceptance of a compound into preclinical development.  The nominal criteria are broken into two categories represented under the green and yellow headers. The green categories represent ideal metrics for the respective criteria.  The yellow categories represent acceptable, but non-ideal metrics for each category.  While Compounds that meet green values with respect to all listed criteria will be deemed suitable for Development Candidate selection, both parties recognize that few, if any, compounds meet all ideal metrics upon nomination as development candidate.  Any assessment will take into account the overall profile of the candidate compound that meets the criteria for q.d dosing at an acceptable projected human dose.

 

Molecular / Cellular Potency, Pharmacology

 

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Absorption and Kinetics

 

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Metabolism

 

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General Pharmacology

 

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Toxicology (identification of potential safety liabilities)

 

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Evaluation of CMC Data for Pharmaceutical Developability Assessment 
 (Early pharmaceutical developability assessment)

 

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Conventional oral dosage form

 

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EXHIBIT 3

 

INITIAL DEVELOPMENT PLAN

 

The initial development plan listed below has been constructed using BI’s standard assumptions of time required for non-clinical R&D and CMC development activities after Start of Development of a Development Candidate that meets the Criteria listed in Exhibit 2. Under these assumptions the clinical timelines will determine the overall timelines.

 

Clinical Development Outline for 11ß HSD-1 Inhibitor
  in the Indication Type 2 Diabetes

 

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****

 

Abbreviations:

	
CRO
    	
-   Contract Research Organization
    
	
FPI
    	
-   First Patient In
    
	
JDC
    	
-   Joint Development Committee
    
	
LPO
    	
-   Last Patient Out
    
	
MRD
    	
-   Multiple Rising Dose
    
	
OLE
    	
-   Open label extension
    
	
SRD
    	
-   Single Rising Dose
    
	
THE
    	
- Cortisol:   tetrahydrocortisone
    
	
THF
    	
- tetrahydrocortisol
    

 

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EXHIBIT 4

 

COLLABORATION COMPOUNDS

 

The following list of Collaboration Compounds discovered by Vitae prior to the Effective Date constitutes “specially restricted Vitae proprietary information.”

 

	
VTP-000027141
    	
 
    	
VTP-000027475
    	
 
    	
VTP-000027649
    	
 
    	
VTP-000027843
    	
 
    	
VTP-000027991
    
	
VTP-000027142
    	
 
    	
VTP-000027477
    	
 
    	
VTP-000027650
    	
 
    	
VTP-000027844
    	
 
    	
VTP-000027992
    
	
VTP-000027178
    	
 
    	
VTP-000027478
    	
 
    	
VTP-000027651
    	
 
    	
VTP-000027845
    	
 
    	
VTP-000027993
    
	
VTP-000027179
    	
 
    	
VTP-000027479
    	
 
    	
VTP-000027652
    	
 
    	
VTP-000027847
    	
 
    	
VTP-000027996
    
	
VTP-000027180
    	
 
    	
VTP-000027482
    	
 
    	
VTP-000027653
    	
 
    	
VTP-000027848
    	
 
    	
VTP-000027997
    
	
VTP-000027181
    	
 
    	
VTP-000027483
    	
 
    	
VTP-000027654
    	
 
    	
VTP-000027858
    	
 
    	
VTP-000028007
    
	
VTP-000027187
    	
 
    	
VTP-000027484
    	
 
    	
VTP-000027655
    	
 
    	
VTP-000027859
    	
 
    	
VTP-000028008
    
	
VTP-000027188
    	
 
    	
VTP-000027485
    	
 
    	
VTP-000027661
    	
 
    	
VTP-000027861
    	
 
    	
VTP-000028009
    
	
VTP-000027191
    	
 
    	
VTP-000027486
    	
 
    	
VTP-000027663
    	
 
    	
VTP-000027862
    	
 
    	
VTP-000028021
    
	
VTP-000027192
    	
 
    	
VTP-000027487
    	
 
    	
VTP-000027664
    	
 
    	
VTP-000027863
    	
 
    	
VTP-000028022
    
	
VTP-000027219
    	
 
    	
VTP-000027488
    	
 
    	
VTP-000027665
    	
 
    	
VTP-000027864
    	
 
    	
VTP-000028024
    
	
VTP-000027220
    	
 
    	
VTP-000027503
    	
 
    	
VTP-000027666
    	
 
    	
VTP-000027874
    	
 
    	
VTP-000028030
    
	
VTP-000027222
    	
 
    	
VTP-000027504
    	
 
    	
VTP-000027707
    	
 
    	
VTP-000027875
    	
 
    	
VTP-000028050
    
	
VTP-000027223
    	
 
    	
VTP-000027505
    	
 
    	
VTP-000027708
    	
 
    	
VTP-000027876
    	
 
    	
VTP-000028052
    
	
VTP-000027224
    	
 
    	
VTP-000027506
    	
 
    	
VTP-000027709
    	
 
    	
VTP-000027880
    	
 
    	
VTP-000028055
    
	
VTP-000027229
    	
 
    	
VTP-000027507
    	
 
    	
VTP-000027710
    	
 
    	
VTP-000027881
    	
 
    	
VTP-000028056
    
	
VTP-000027230
    	
 
    	
VTP-000027508
    	
 
    	
VTP-000027715
    	
 
    	
VTP-000027882
    	
 
    	
VTP-000028057
    
	
VTP-000027231
    	
 
    	
VTP-000027509
    	
 
    	
VTP-000027718
    	
 
    	
VTP-000027883
    	
 
    	
VTP-000028058
    
	
VTP-000027232
    	
 
    	
VTP-000027510
    	
 
    	
VTP-000027720
    	
 
    	
VTP-000027888
    	
 
    	
VTP-000028068
    
	
VTP-000027233
    	
 
    	
VTP-000027511
    	
 
    	
VTP-000027721
    	
 
    	
VTP-000027889
    	
 
    	
VTP-000028069
    
	
VTP-000027244
    	
 
    	
VTP-000027512
    	
 
    	
VTP-000027722
    	
 
    	
VTP-000027890
    	
 
    	
VTP-000028070
    
	
VTP-000027245
    	
 
    	
VTP-000027516
    	
 
    	
VTP-000027723
    	
 
    	
VTP-000027892
    	
 
    	
VTP-000028071
    
	
VTP-000027247
    	
 
    	
VTP-000027517
    	
 
    	
VTP-000027730
    	
 
    	
VTP-000027893
    	
 
    	
VTP-000028072
    
	
VTP-000027248
    	
 
    	
VTP-000027519
    	
 
    	
VTP-000027731
    	
 
    	
VTP-000027900
    	
 
    	
VTP-000028073
    
	
VTP-000027249
    	
 
    	
VTP-000027520
    	
 
    	
VTP-000027762
    	
 
    	
VTP-000027902
    	
 
    	
VTP-000028074
    
	
VTP-000027250
    	
 
    	
VTP-000027521
    	
 
    	
VTP-000027763
    	
 
    	
VTP-000027903
    	
 
    	
VTP-000028079
    
	
VTP-000027251
    	
 
    	
VTP-000027522
    	
 
    	
VTP-000027764
    	
 
    	
VTP-000027904
    	
 
    	
VTP-000028080
    
	
VTP-000027269
    	
 
    	
VTP-000027523
    	
 
    	
VTP-000027765
    	
 
    	
VTP-000027905
    	
 
    	
VTP-000028081
    
	
VTP-000027270
    	
 
    	
VTP-000027524
    	
 
    	
VTP-000027766
    	
 
    	
VTP-000027916
    	
 
    	
VTP-000028083
    
	
VTP-000027277
    	
 
    	
VTP-000027532
    	
 
    	
VTP-000027767
    	
 
    	
VTP-000027917
    	
 
    	
VTP-000028084
    
	
VTP-000027278
    	
 
    	
VTP-000027533
    	
 
    	
VTP-000027772
    	
 
    	
VTP-000027923
    	
 
    	
VTP-000028103
    
	
VTP-000027279
    	
 
    	
VTP-000027534
    	
 
    	
VTP-000027773
    	
 
    	
VTP-000027934
    	
 
    	
VTP-000028104
    
	
VTP-000027332
    	
 
    	
VTP-000027571
    	
 
    	
VTP-000027774
    	
 
    	
VTP-000027935
    	
 
    	
VTP-000028105
    
	
VTP-000027342
    	
 
    	
VTP-000027572
    	
 
    	
VTP-000027785
    	
 
    	
VTP-000027936
    	
 
    	
VTP-000028106
    
	
VTP-000027347
    	
 
    	
VTP-000027574
    	
 
    	
VTP-000027786
    	
 
    	
VTP-000027937
    	
 
    	
VTP-000028107
    
	
VTP-000027348
    	
 
    	
VTP-000027575
    	
 
    	
VTP-000027792
    	
 
    	
VTP-000027938
    	
 
    	
VTP-000028110
    
	
VTP-000027349
    	
 
    	
VTP-000027576
    	
 
    	
VTP-000027796
    	
 
    	
VTP-000027939
    	
 
    	
VTP-000028111
    
	
VTP-000027350
    	
 
    	
VTP-000027577
    	
 
    	
VTP-000027800
    	
 
    	
VTP-000027956
    	
 
    	
VTP-000028113
    
	
VTP-000027423
    	
 
    	
VTP-000027585
    	
 
    	
VTP-000027807
    	
 
    	
VTP-000027957
    	
 
    	
VTP-000028114
    
	
VTP-000027424
    	
 
    	
VTP-000027586
    	
 
    	
VTP-000027808
    	
 
    	
VTP-000027961
    	
 
    	
VTP-000028115
    
	
VTP-000027425
    	
 
    	
VTP-000027591
    	
 
    	
VTP-000027809
    	
 
    	
VTP-000027962
    	
 
    	
VTP-000028116
    
	
VTP-000027426
    	
 
    	
VTP-000027593
    	
 
    	
VTP-000027810
    	
 
    	
VTP-000027963
    	
 
    	
VTP-000028117
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
VTP-000027434
    	
 
    	
VTP-000027594
    	
 
    	
VTP-000027811
    	
 
    	
VTP-000027964
    	
 
    	
VTP-000028118
    
	
VTP-000027435
    	
 
    	
VTP-000027595
    	
 
    	
VTP-000027818
    	
 
    	
VTP-000027972
    	
 
    	
VTP-000028143
    
	
VTP-000027436
    	
 
    	
VTP-000027596
    	
 
    	
VTP-000027831
    	
 
    	
VTP-000027973
    	
 
    	
VTP-000028144
    
	
VTP-000027437
    	
 
    	
VTP-000027602
    	
 
    	
VTP-000027832
    	
 
    	
VTP-000027974
    	
 
    	
VTP-000028146
    
	
VTP-000027438
    	
 
    	
VTP-000027603
    	
 
    	
VTP-000027834
    	
 
    	
VTP-000027981
    	
 
    	
VTP-000028148
    
	
VTP-000027439
    	
 
    	
VTP-000027607
    	
 
    	
VTP-000027835
    	
 
    	
VTP-000027984
    	
 
    	
VTP-000028149
    
	
VTP-000027462
    	
 
    	
VTP-000027608
    	
 
    	
VTP-000027836
    	
 
    	
VTP-000027988
    	
 
    	
VTP-000028150
    
	
VTP-000027463
    	
 
    	
VTP-000027612
    	
 
    	
VTP-000027837
    	
 
    	
VTP-000027990
    	
 
    	
VTP-000028151
    

 

	
VTP-000028152
    	
 
    	
VTP-000028243
    	
 
    	
VTP-000028408
    	
 
    	
VTP-000029063
    	
 
    	
VTP-000029272
    
	
VTP-000028153
    	
 
    	
VTP-000028244
    	
 
    	
VTP-000028410
    	
 
    	
VTP-000029086
    	
 
    	
VTP-000029273
    
	
VTP-000028162
    	
 
    	
VTP-000028246
    	
 
    	
VTP-000028411
    	
 
    	
VTP-000029087
    	
 
    	
VTP-000029274
    
	
VTP-000028165
    	
 
    	
VTP-000028247
    	
 
    	
VTP-000028416
    	
 
    	
VTP-000029088
    	
 
    	
VTP-000029275
    
	
VTP-000028166
    	
 
    	
VTP-000028248
    	
 
    	
VTP-000028417
    	
 
    	
VTP-000029089
    	
 
    	
VTP-000029276
    
	
VTP-000028168
    	
 
    	
VTP-000028249
    	
 
    	
VTP-000028421
    	
 
    	
VTP-000029090
    	
 
    	
VTP-000029278
    
	
VTP-000028170
    	
 
    	
VTP-000028271
    	
 
    	
VTP-000028422
    	
 
    	
VTP-000029091
    	
 
    	
VTP-000029289
    
	
VTP-000028171
    	
 
    	
VTP-000028272
    	
 
    	
VTP-000028423
    	
 
    	
VTP-000029092
    	
 
    	
VTP-000029290
    
	
VTP-000028172
    	
 
    	
VTP-000028273
    	
 
    	
VTP-000028424
    	
 
    	
VTP-000029093
    	
 
    	
VTP-000029291
    
	
VTP-000028173
    	
 
    	
VTP-000028274
    	
 
    	
VTP-000028425
    	
 
    	
VTP-000029094
    	
 
    	
VTP-000029292
    
	
VTP-000028174
    	
 
    	
VTP-000028278
    	
 
    	
VTP-000028426
    	
 
    	
VTP-000029095
    	
 
    	
VTP-000029293
    
	
VTP-000028175
    	
 
    	
VTP-000028279
    	
 
    	
VTP-000028440
    	
 
    	
VTP-000029096
    	
 
    	
VTP-000029294
    
	
VTP-000028178
    	
 
    	
VTP-000028280
    	
 
    	
VTP-000028461
    	
 
    	
VTP-000029097
    	
 
    	
VTP-000029296
    
	
VTP-000028182
    	
 
    	
VTP-000028281
    	
 
    	
VTP-000028462
    	
 
    	
VTP-000029098
    	
 
    	
VTP-000029297
    
	
VTP-000028183
    	
 
    	
VTP-000028285
    	
 
    	
VTP-000028463
    	
 
    	
VTP-000029102
    	
 
    	
VTP-000029323
    
	
VTP-000028184
    	
 
    	
VTP-000028286
    	
 
    	
VTP-000028465
    	
 
    	
VTP-000029103
    	
 
    	
VTP-000029324
    
	
VTP-000028185
    	
 
    	
VTP-000028287
    	
 
    	
VTP-000028467
    	
 
    	
VTP-000029104
    	
 
    	
VTP-000029325
    
	
VTP-000028186
    	
 
    	
VTP-000028288
    	
 
    	
VTP-000028470
    	
 
    	
VTP-000029105
    	
 
    	
VTP-000029326
    
	
VTP-000028187
    	
 
    	
VTP-000028293
    	
 
    	
VTP-000028473
    	
 
    	
VTP-000029116
    	
 
    	
VTP-000029327
    
	
VTP-000028188
    	
 
    	
VTP-000028310
    	
 
    	
VTP-000028474
    	
 
    	
VTP-000029147
    	
 
    	
VTP-000029328
    
	
VTP-000028191
    	
 
    	
VTP-000028311
    	
 
    	
VTP-000028475
    	
 
    	
VTP-000029172
    	
 
    	
VTP-000029329
    
	
VTP-000028195
    	
 
    	
VTP-000028312
    	
 
    	
VTP-000028476
    	
 
    	
VTP-000029173
    	
 
    	
VTP-000029330
    
	
VTP-000028196
    	
 
    	
VTP-000028313
    	
 
    	
VTP-000028481
    	
 
    	
VTP-000029198
    	
 
    	
VTP-000029372
    
	
VTP-000028197
    	
 
    	
VTP-000028314
    	
 
    	
VTP-000028531
    	
 
    	
VTP-000029199
    	
 
    	
VTP-000029373
    
	
VTP-000028200
    	
 
    	
VTP-000028315
    	
 
    	
VTP-000028532
    	
 
    	
VTP-000029200
    	
 
    	
VTP-000029424
    
	
VTP-000028201
    	
 
    	
VTP-000028316
    	
 
    	
VTP-000028533
    	
 
    	
VTP-000029201
    	
 
    	
VTP-000029425
    
	
VTP-000028203
    	
 
    	
VTP-000028334
    	
 
    	
VTP-000028534
    	
 
    	
VTP-000029202
    	
 
    	
VTP-000029428
    
	
VTP-000028205
    	
 
    	
VTP-000028335
    	
 
    	
VTP-000028535
    	
 
    	
VTP-000029203
    	
 
    	
VTP-000029429
    
	
VTP-000028206
    	
 
    	
VTP-000028336
    	
 
    	
VTP-000028536
    	
 
    	
VTP-000029204
    	
 
    	
VTP-000029430
    
	
VTP-000028207
    	
 
    	
VTP-000028340
    	
 
    	
VTP-000028537
    	
 
    	
VTP-000029205
    	
 
    	
VTP-000029431
    
	
VTP-000028208
    	
 
    	
VTP-000028341
    	
 
    	
VTP-000028538
    	
 
    	
VTP-000029206
    	
 
    	
VTP-000029432
    
	
VTP-000028209
    	
 
    	
VTP-000028342
    	
 
    	
VTP-000028539
    	
 
    	
VTP-000029207
    	
 
    	
VTP-000029434
    
	
VTP-000028210
    	
 
    	
VTP-000028343
    	
 
    	
VTP-000028540
    	
 
    	
VTP-000029208
    	
 
    	
VTP-000029435
    
	
VTP-000028211
    	
 
    	
VTP-000028354
    	
 
    	
VTP-000028541
    	
 
    	
VTP-000029209
    	
 
    	
VTP-000029436
    
	
VTP-000028212
    	
 
    	
VTP-000028355
    	
 
    	
VTP-000028542
    	
 
    	
VTP-000029210
    	
 
    	
VTP-000029439
    
	
VTP-000028214
    	
 
    	
VTP-000028356
    	
 
    	
VTP-000028543
    	
 
    	
VTP-000029211
    	
 
    	
VTP-000029442
    
	
VTP-000028215
    	
 
    	
VTP-000028357
    	
 
    	
VTP-000028544
    	
 
    	
VTP-000029213
    	
 
    	
VTP-000029443
    
	
VTP-000028220
    	
 
    	
VTP-000028358
    	
 
    	
VTP-000028556
    	
 
    	
VTP-000029214
    	
 
    	
VTP-000029444
    
	
VTP-000028221
    	
 
    	
VTP-000028361
    	
 
    	
VTP-000028557
    	
 
    	
VTP-000029215
    	
 
    	
VTP-000029445
    
	
VTP-000028222
    	
 
    	
VTP-000028362
    	
 
    	
VTP-000028558
    	
 
    	
VTP-000029216
    	
 
    	
VTP-000029446
    
	
VTP-000028224
    	
 
    	
VTP-000028363
    	
 
    	
VTP-000028559
    	
 
    	
VTP-000029234
    	
 
    	
VTP-000029453
    
	
VTP-000028225
    	
 
    	
VTP-000028364
    	
 
    	
VTP-000028560
    	
 
    	
VTP-000029242
    	
 
    	
VTP-000029454
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
VTP-000028227
    	
 
    	
VTP-000028381
    	
 
    	
VTP-000028561
    	
 
    	
VTP-000029243
    	
 
    	
VTP-000029455
    
	
VTP-000028229
    	
 
    	
VTP-000028382
    	
 
    	
VTP-000028562
    	
 
    	
VTP-000029265
    	
 
    	
VTP-000029457
    
	
VTP-000028230
    	
 
    	
VTP-000028388
    	
 
    	
VTP-000028563
    	
 
    	
VTP-000029266
    	
 
    	
VTP-000029459
    
	
VTP-000028232
    	
 
    	
VTP-000028403
    	
 
    	
VTP-000029057
    	
 
    	
VTP-000029267
    	
 
    	
VTP-000029460
    
	
VTP-000028233
    	
 
    	
VTP-000028404
    	
 
    	
VTP-000029058
    	
 
    	
VTP-000029268
    	
 
    	
VTP-000029497
    
	
VTP-000028236
    	
 
    	
VTP-000028405
    	
 
    	
VTP-000029059
    	
 
    	
VTP-000029269
    	
 
    	
VTP-000029498
    
	
VTP-000028240
    	
 
    	
VTP-000028406
    	
 
    	
VTP-000029061
    	
 
    	
VTP-000029270
    	
 
    	
VTP-000029499
    
	
VTP-000028241
    	
 
    	
VTP-000028407
    	
 
    	
VTP-000029062
    	
 
    	
VTP-000029271
    	
 
    	
VTP-000029500
    

 

	
VTP-000029501
    	
 
    	
VTP-000029642
    	
 
    	
VTP-000029787
    	
 
    	
VTP-000029924
    	
 
    	
VTP-000029998
    
	
VTP-000029502
    	
 
    	
VTP-000029643
    	
 
    	
VTP-000029788
    	
 
    	
VTP-000029925
    	
 
    	
VTP-000029999
    
	
VTP-000029505
    	
 
    	
VTP-000029646
    	
 
    	
VTP-000029789
    	
 
    	
VTP-000029926
    	
 
    	
VTP-000030000
    
	
VTP-000029506
    	
 
    	
VTP-000029684
    	
 
    	
VTP-000029807
    	
 
    	
VTP-000029928
    	
 
    	
VTP-000030001
    
	
VTP-000029507
    	
 
    	
VTP-000029685
    	
 
    	
VTP-000029808
    	
 
    	
VTP-000029929
    	
 
    	
VTP-000030002
    
	
VTP-000029529
    	
 
    	
VTP-000029686
    	
 
    	
VTP-000029821
    	
 
    	
VTP-000029930
    	
 
    	
VTP-000030003
    
	
VTP-000029530
    	
 
    	
VTP-000029687
    	
 
    	
VTP-000029822
    	
 
    	
VTP-000029941
    	
 
    	
VTP-000030004
    
	
VTP-000029533
    	
 
    	
VTP-000029688
    	
 
    	
VTP-000029823
    	
 
    	
VTP-000029942
    	
 
    	
VTP-000030005
    
	
VTP-000029534
    	
 
    	
VTP-000029689
    	
 
    	
VTP-000029824
    	
 
    	
VTP-000029943
    	
 
    	
VTP-000030007
    
	
VTP-000029535
    	
 
    	
VTP-000029691
    	
 
    	
VTP-000029826
    	
 
    	
VTP-000029944
    	
 
    	
VTP-000030008
    
	
VTP-000029538
    	
 
    	
VTP-000029692
    	
 
    	
VTP-000029827
    	
 
    	
VTP-000029945
    	
 
    	
VTP-000030009
    
	
VTP-000029539
    	
 
    	
VTP-000029693
    	
 
    	
VTP-000029828
    	
 
    	
VTP-000029946
    	
 
    	
VTP-000030011
    
	
VTP-000029541
    	
 
    	
VTP-000029694
    	
 
    	
VTP-000029830
    	
 
    	
VTP-000029947
    	
 
    	
VTP-000030012
    
	
VTP-000029542
    	
 
    	
VTP-000029696
    	
 
    	
VTP-000029831
    	
 
    	
VTP-000029948
    	
 
    	
VTP-000030013
    
	
VTP-000029543
    	
 
    	
VTP-000029697
    	
 
    	
VTP-000029832
    	
 
    	
VTP-000029949
    	
 
    	
VTP-000030014
    
	
VTP-000029547
    	
 
    	
VTP-000029698
    	
 
    	
VTP-000029833
    	
 
    	
VTP-000029950
    	
 
    	
VTP-000030015
    
	
VTP-000029548
    	
 
    	
VTP-000029699
    	
 
    	
VTP-000029834
    	
 
    	
VTP-000029954
    	
 
    	
VTP-000030016
    
	
VTP-000029550
    	
 
    	
VTP-000029700
    	
 
    	
VTP-000029835
    	
 
    	
VTP-000029955
    	
 
    	
VTP-000030017
    
	
VTP-000029551
    	
 
    	
VTP-000029702
    	
 
    	
VTP-000029836
    	
 
    	
VTP-000029957
    	
 
    	
VTP-000030019
    
	
VTP-000029552
    	
 
    	
VTP-000029703
    	
 
    	
VTP-000029837
    	
 
    	
VTP-000029958
    	
 
    	
VTP-000030020
    
	
VTP-000029553
    	
 
    	
VTP-000029706
    	
 
    	
VTP-000029838
    	
 
    	
VTP-000029960
    	
 
    	
VTP-000030021
    
	
VTP-000029558
    	
 
    	
VTP-000029711
    	
 
    	
VTP-000029842
    	
 
    	
VTP-000029961
    	
 
    	
VTP-000030022
    
	
VTP-000029559
    	
 
    	
VTP-000029712
    	
 
    	
VTP-000029843
    	
 
    	
VTP-000029962
    	
 
    	
VTP-000030023
    
	
VTP-000029560
    	
 
    	
VTP-000029713
    	
 
    	
VTP-000029844
    	
 
    	
VTP-000029963
    	
 
    	
VTP-000030024
    
	
VTP-000029561
    	
 
    	
VTP-000029714
    	
 
    	
VTP-000029846
    	
 
    	
VTP-000029964
    	
 
    	
VTP-000030025
    
	
VTP-000029562
    	
 
    	
VTP-000029715
    	
 
    	
VTP-000029859
    	
 
    	
VTP-000029965
    	
 
    	
VTP-000030027
    
	
VTP-000029564
    	
 
    	
VTP-000029716
    	
 
    	
VTP-000029861
    	
 
    	
VTP-000029966
    	
 
    	
VTP-000030028
    
	
VTP-000029565
    	
 
    	
VTP-000029717
    	
 
    	
VTP-000029862
    	
 
    	
VTP-000029967
    	
 
    	
VTP-000030029
    
	
VTP-000029566
    	
 
    	
VTP-000029718
    	
 
    	
VTP-000029863
    	
 
    	
VTP-000029968
    	
 
    	
VTP-000030030
    
	
VTP-000029567
    	
 
    	
VTP-000029719
    	
 
    	
VTP-000029864
    	
 
    	
VTP-000029969
    	
 
    	
VTP-000030031
    
	
VTP-000029568
    	
 
    	
VTP-000029720
    	
 
    	
VTP-000029865
    	
 
    	
VTP-000029970
    	
 
    	
VTP-000030032
    
	
VTP-000029569
    	
 
    	
VTP-000029721
    	
 
    	
VTP-000029866
    	
 
    	
VTP-000029971
    	
 
    	
VTP-000030033
    
	
VTP-000029570
    	
 
    	
VTP-000029722
    	
 
    	
VTP-000029867
    	
 
    	
VTP-000029972
    	
 
    	
VTP-000030034
    
	
VTP-000029571
    	
 
    	
VTP-000029723
    	
 
    	
VTP-000029890
    	
 
    	
VTP-000029973
    	
 
    	
VTP-000030049
    
	
VTP-000029572
    	
 
    	
VTP-000029724
    	
 
    	
VTP-000029891
    	
 
    	
VTP-000029974
    	
 
    	
VTP-000030050
    
	
VTP-000029573
    	
 
    	
VTP-000029726
    	
 
    	
VTP-000029892
    	
 
    	
VTP-000029975
    	
 
    	
VTP-000030059
    
	
VTP-000029574
    	
 
    	
VTP-000029727
    	
 
    	
VTP-000029893
    	
 
    	
VTP-000029976
    	
 
    	
VTP-000030060
    
	
VTP-000029576
    	
 
    	
VTP-000029728
    	
 
    	
VTP-000029894
    	
 
    	
VTP-000029977
    	
 
    	
VTP-000030061
    
	
VTP-000029583
    	
 
    	
VTP-000029729
    	
 
    	
VTP-000029901
    	
 
    	
VTP-000029978
    	
 
    	
VTP-000030062
    
	
VTP-000029585
    	
 
    	
VTP-000029730
    	
 
    	
VTP-000029902
    	
 
    	
VTP-000029979
    	
 
    	
VTP-000030063
    
	
VTP-000029603
    	
 
    	
VTP-000029731
    	
 
    	
VTP-000029904
    	
 
    	
VTP-000029980
    	
 
    	
VTP-000030064
    
	
VTP-000029604
    	
 
    	
VTP-000029732
    	
 
    	
VTP-000029905
    	
 
    	
VTP-000029982
    	
 
    	
VTP-000030068
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
VTP-000029616
    	
 
    	
VTP-000029735
    	
 
    	
VTP-000029906
    	
 
    	
VTP-000029983
    	
 
    	
VTP-000030069
    
	
VTP-000029617
    	
 
    	
VTP-000029737
    	
 
    	
VTP-000029907
    	
 
    	
VTP-000029984
    	
 
    	
VTP-000030070
    
	
VTP-000029619
    	
 
    	
VTP-000029738
    	
 
    	
VTP-000029908
    	
 
    	
VTP-000029985
    	
 
    	
VTP-000030071
    
	
VTP-000029620
    	
 
    	
VTP-000029739
    	
 
    	
VTP-000029909
    	
 
    	
VTP-000029986
    	
 
    	
VTP-000030072
    
	
VTP-000029621
    	
 
    	
VTP-000029740
    	
 
    	
VTP-000029910
    	
 
    	
VTP-000029987
    	
 
    	
VTP-000030075
    
	
VTP-000029623
    	
 
    	
VTP-000029741
    	
 
    	
VTP-000029911
    	
 
    	
VTP-000029988
    	
 
    	
VTP-000030083
    
	
VTP-000029638
    	
 
    	
VTP-000029781
    	
 
    	
VTP-000029913
    	
 
    	
VTP-000029996
    	
 
    	
VTP-000030087
    
	
VTP-000029641
    	
 
    	
VTP-000029786
    	
 
    	
VTP-000029918
    	
 
    	
VTP-000029997
    	
 
    	
VTP-000030089
    

 

	
VTP-000030093
    	
 
    	
VTP-000030168
    	
 
    	
VTP-000030329
    	
 
    	
VTP-000030392
    	
 
    	
VTP-000030467
    
	
VTP-000030094
    	
 
    	
VTP-000030169
    	
 
    	
VTP-000030331
    	
 
    	
VTP-000030393
    	
 
    	
VTP-000030468
    
	
VTP-000030095
    	
 
    	
VTP-000030170
    	
 
    	
VTP-000030334
    	
 
    	
VTP-000030394
    	
 
    	
VTP-000030469
    
	
VTP-000030096
    	
 
    	
VTP-000030172
    	
 
    	
VTP-000030335
    	
 
    	
VTP-000030395
    	
 
    	
VTP-000030470
    
	
VTP-000030097
    	
 
    	
VTP-000030173
    	
 
    	
VTP-000030336
    	
 
    	
VTP-000030399
    	
 
    	
VTP-000030475
    
	
VTP-000030098
    	
 
    	
VTP-000030174
    	
 
    	
VTP-000030337
    	
 
    	
VTP-000030400
    	
 
    	
VTP-000030476
    
	
VTP-000030099
    	
 
    	
VTP-000030176
    	
 
    	
VTP-000030338
    	
 
    	
VTP-000030401
    	
 
    	
VTP-000030477
    
	
VTP-000030100
    	
 
    	
VTP-000030177
    	
 
    	
VTP-000030339
    	
 
    	
VTP-000030402
    	
 
    	
VTP-000030478
    
	
VTP-000030101
    	
 
    	
VTP-000030179
    	
 
    	
VTP-000030340
    	
 
    	
VTP-000030403
    	
 
    	
VTP-000030480
    
	
VTP-000030102
    	
 
    	
VTP-000030181
    	
 
    	
VTP-000030342
    	
 
    	
VTP-000030404
    	
 
    	
VTP-000030481
    
	
VTP-000030103
    	
 
    	
VTP-000030182
    	
 
    	
VTP-000030343
    	
 
    	
VTP-000030405
    	
 
    	
VTP-000030482
    
	
VTP-000030104
    	
 
    	
VTP-000030183
    	
 
    	
VTP-000030344
    	
 
    	
VTP-000030406
    	
 
    	
VTP-000030483
    
	
VTP-000030105
    	
 
    	
VTP-000030184
    	
 
    	
VTP-000030345
    	
 
    	
VTP-000030407
    	
 
    	
VTP-000030484
    
	
VTP-000030107
    	
 
    	
VTP-000030185
    	
 
    	
VTP-000030347
    	
 
    	
VTP-000030410
    	
 
    	
VTP-000030485
    
	
VTP-000030120
    	
 
    	
VTP-000030186
    	
 
    	
VTP-000030348
    	
 
    	
VTP-000030411
    	
 
    	
VTP-000030486
    
	
VTP-000030121
    	
 
    	
VTP-000030187
    	
 
    	
VTP-000030350
    	
 
    	
VTP-000030412
    	
 
    	
VTP-000030487
    
	
VTP-000030122
    	
 
    	
VTP-000030222
    	
 
    	
VTP-000030351
    	
 
    	
VTP-000030413
    	
 
    	
VTP-000030488
    
	
VTP-000030123
    	
 
    	
VTP-000030223
    	
 
    	
VTP-000030352
    	
 
    	
VTP-000030414
    	
 
    	
VTP-000030489
    
	
VTP-000030124
    	
 
    	
VTP-000030224
    	
 
    	
VTP-000030353
    	
 
    	
VTP-000030415
    	
 
    	
VTP-000030490
    
	
VTP-000030125
    	
 
    	
VTP-000030225
    	
 
    	
VTP-000030354
    	
 
    	
VTP-000030416
    	
 
    	
VTP-000030492
    
	
VTP-000030126
    	
 
    	
VTP-000030226
    	
 
    	
VTP-000030355
    	
 
    	
VTP-000030417
    	
 
    	
VTP-000030493
    
	
VTP-000030127
    	
 
    	
VTP-000030227
    	
 
    	
VTP-000030356
    	
 
    	
VTP-000030418
    	
 
    	
VTP-000030494
    
	
VTP-000030128
    	
 
    	
VTP-000030228
    	
 
    	
VTP-000030358
    	
 
    	
VTP-000030419
    	
 
    	
VTP-000030495
    
	
VTP-000030129
    	
 
    	
VTP-000030229
    	
 
    	
VTP-000030360
    	
 
    	
VTP-000030420
    	
 
    	
VTP-000030496
    
	
VTP-000030130
    	
 
    	
VTP-000030230
    	
 
    	
VTP-000030361
    	
 
    	
VTP-000030427
    	
 
    	
VTP-000030497
    
	
VTP-000030132
    	
 
    	
VTP-000030231
    	
 
    	
VTP-000030362
    	
 
    	
VTP-000030428
    	
 
    	
VTP-000030498
    
	
VTP-000030136
    	
 
    	
VTP-000030232
    	
 
    	
VTP-000030363
    	
 
    	
VTP-000030429
    	
 
    	
VTP-000030499
    
	
VTP-000030137
    	
 
    	
VTP-000030233
    	
 
    	
VTP-000030364
    	
 
    	
VTP-000030437
    	
 
    	
VTP-000030501
    
	
VTP-000030138
    	
 
    	
VTP-000030234
    	
 
    	
VTP-000030365
    	
 
    	
VTP-000030438
    	
 
    	
VTP-000030502
    
	
VTP-000030139
    	
 
    	
VTP-000030235
    	
 
    	
VTP-000030366
    	
 
    	
VTP-000030440
    	
 
    	
VTP-000030503
    
	
VTP-000030140
    	
 
    	
VTP-000030236
    	
 
    	
VTP-000030367
    	
 
    	
VTP-000030441
    	
 
    	
VTP-000030518
    
	
VTP-000030141
    	
 
    	
VTP-000030237
    	
 
    	
VTP-000030368
    	
 
    	
VTP-000030443
    	
 
    	
VTP-000030519
    
	
VTP-000030144
    	
 
    	
VTP-000030238
    	
 
    	
VTP-000030369
    	
 
    	
VTP-000030444
    	
 
    	
VTP-000030520
    
	
VTP-000030145
    	
 
    	
VTP-000030239
    	
 
    	
VTP-000030370
    	
 
    	
VTP-000030446
    	
 
    	
VTP-000030521
    
	
VTP-000030146
    	
 
    	
VTP-000030240
    	
 
    	
VTP-000030371
    	
 
    	
VTP-000030447
    	
 
    	
VTP-000030522
    
	
VTP-000030148
    	
 
    	
VTP-000030241
    	
 
    	
VTP-000030372
    	
 
    	
VTP-000030448
    	
 
    	
VTP-000030523
    
	
VTP-000030149
    	
 
    	
VTP-000030242
    	
 
    	
VTP-000030373
    	
 
    	
VTP-000030450
    	
 
    	
VTP-000030524
    
	
VTP-000030150
    	
 
    	
VTP-000030243
    	
 
    	
VTP-000030376
    	
 
    	
VTP-000030451
    	
 
    	
VTP-000030526
    
	
VTP-000030152
    	
 
    	
VTP-000030253
    	
 
    	
VTP-000030378
    	
 
    	
VTP-000030452
    	
 
    	
VTP-000030527
    
	
VTP-000030153
    	
 
    	
VTP-000030254
    	
 
    	
VTP-000030379
    	
 
    	
VTP-000030453
    	
 
    	
VTP-000030529
    
	
VTP-000030154
    	
 
    	
VTP-000030255
    	
 
    	
VTP-000030380
    	
 
    	
VTP-000030454
    	
 
    	
VTP-000030532
    
	
VTP-000030155
    	
 
    	
VTP-000030256
    	
 
    	
VTP-000030381
    	
 
    	
VTP-000030455
    	
 
    	
VTP-000030535
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
VTP-000030156
    	
 
    	
VTP-000030257
    	
 
    	
VTP-000030382
    	
 
    	
VTP-000030457
    	
 
    	
VTP-000030536
    
	
VTP-000030157
    	
 
    	
VTP-000030258
    	
 
    	
VTP-000030383
    	
 
    	
VTP-000030458
    	
 
    	
VTP-000030538
    
	
VTP-000030158
    	
 
    	
VTP-000030259
    	
 
    	
VTP-000030386
    	
 
    	
VTP-000030459
    	
 
    	
VTP-000030539
    
	
VTP-000030159
    	
 
    	
VTP-000030261
    	
 
    	
VTP-000030387
    	
 
    	
VTP-000030462
    	
 
    	
VTP-000030540
    
	
VTP-000030160
    	
 
    	
VTP-000030262
    	
 
    	
VTP-000030388
    	
 
    	
VTP-000030463
    	
 
    	
VTP-000030541
    
	
VTP-000030164
    	
 
    	
VTP-000030263
    	
 
    	
VTP-000030389
    	
 
    	
VTP-000030464
    	
 
    	
VTP-000030543
    
	
VTP-000030166
    	
 
    	
VTP-000030264
    	
 
    	
VTP-000030390
    	
 
    	
VTP-000030465
    	
 
    	
VTP-000030544
    
	
VTP-000030167
    	
 
    	
VTP-000030265
    	
 
    	
VTP-000030391
    	
 
    	
VTP-000030466
    	
 
    	
VTP-000030545
    

 

	
VTP-000030547
    	
 
    	
VTP-000030632
    	
 
    	
VTP-000030754
    	
 
    	
VTP-000030828
    	
 
    	
VTP-000030935
    
	
VTP-000030556
    	
 
    	
VTP-000030633
    	
 
    	
VTP-000030755
    	
 
    	
VTP-000030829
    	
 
    	
VTP-000030945
    
	
VTP-000030558
    	
 
    	
VTP-000030634
    	
 
    	
VTP-000030756
    	
 
    	
VTP-000030833
    	
 
    	
VTP-000030947
    
	
VTP-000030559
    	
 
    	
VTP-000030648
    	
 
    	
VTP-000030757
    	
 
    	
VTP-000030834
    	
 
    	
VTP-000030948
    
	
VTP-000030560
    	
 
    	
VTP-000030649
    	
 
    	
VTP-000030758
    	
 
    	
VTP-000030835
    	
 
    	
VTP-000030949
    
	
VTP-000030561
    	
 
    	
VTP-000030650
    	
 
    	
VTP-000030759
    	
 
    	
VTP-000030836
    	
 
    	
VTP-000030951
    
	
VTP-000030562
    	
 
    	
VTP-000030651
    	
 
    	
VTP-000030760
    	
 
    	
VTP-000030837
    	
 
    	
VTP-000030952
    
	
VTP-000030563
    	
 
    	
VTP-000030652
    	
 
    	
VTP-000030761
    	
 
    	
VTP-000030846
    	
 
    	
VTP-000030953
    
	
VTP-000030565
    	
 
    	
VTP-000030654
    	
 
    	
VTP-000030762
    	
 
    	
VTP-000030856
    	
 
    	
VTP-000030954
    
	
VTP-000030566
    	
 
    	
VTP-000030656
    	
 
    	
VTP-000030763
    	
 
    	
VTP-000030857
    	
 
    	
VTP-000030955
    
	
VTP-000030567
    	
 
    	
VTP-000030657
    	
 
    	
VTP-000030765
    	
 
    	
VTP-000030858
    	
 
    	
VTP-000030956
    
	
VTP-000030568
    	
 
    	
VTP-000030659
    	
 
    	
VTP-000030768
    	
 
    	
VTP-000030859
    	
 
    	
VTP-000030957
    
	
VTP-000030569
    	
 
    	
VTP-000030660
    	
 
    	
VTP-000030770
    	
 
    	
VTP-000030860
    	
 
    	
VTP-000030958
    
	
VTP-000030570
    	
 
    	
VTP-000030661
    	
 
    	
VTP-000030771
    	
 
    	
VTP-000030861
    	
 
    	
VTP-000030964
    
	
VTP-000030571
    	
 
    	
VTP-000030664
    	
 
    	
VTP-000030779
    	
 
    	
VTP-000030862
    	
 
    	
VTP-000030965
    
	
VTP-000030572
    	
 
    	
VTP-000030665
    	
 
    	
VTP-000030782
    	
 
    	
VTP-000030863
    	
 
    	
VTP-000030966
    
	
VTP-000030573
    	
 
    	
VTP-000030666
    	
 
    	
VTP-000030783
    	
 
    	
VTP-000030865
    	
 
    	
VTP-000030967
    
	
VTP-000030574
    	
 
    	
VTP-000030667
    	
 
    	
VTP-000030784
    	
 
    	
VTP-000030870
    	
 
    	
VTP-000030969
    
	
VTP-000030575
    	
 
    	
VTP-000030671
    	
 
    	
VTP-000030785
    	
 
    	
VTP-000030872
    	
 
    	
VTP-000030970
    
	
VTP-000030576
    	
 
    	
VTP-000030673
    	
 
    	
VTP-000030786
    	
 
    	
VTP-000030878
    	
 
    	
VTP-000030972
    
	
VTP-000030580
    	
 
    	
VTP-000030674
    	
 
    	
VTP-000030788
    	
 
    	
VTP-000030889
    	
 
    	
VTP-000030973
    
	
VTP-000030582
    	
 
    	
VTP-000030676
    	
 
    	
VTP-000030789
    	
 
    	
VTP-000030890
    	
 
    	
VTP-000030974
    
	
VTP-000030583
    	
 
    	
VTP-000030678
    	
 
    	
VTP-000030790
    	
 
    	
VTP-000030891
    	
 
    	
VTP-000030975
    
	
VTP-000030584
    	
 
    	
VTP-000030687
    	
 
    	
VTP-000030791
    	
 
    	
VTP-000030896
    	
 
    	
VTP-000030976
    
	
VTP-000030585
    	
 
    	
VTP-000030688
    	
 
    	
VTP-000030792
    	
 
    	
VTP-000030897
    	
 
    	
VTP-000030977
    
	
VTP-000030586
    	
 
    	
VTP-000030689
    	
 
    	
VTP-000030793
    	
 
    	
VTP-000030898
    	
 
    	
VTP-000030978
    
	
VTP-000030587
    	
 
    	
VTP-000030690
    	
 
    	
VTP-000030794
    	
 
    	
VTP-000030899
    	
 
    	
VTP-000030979
    
	
VTP-000030589
    	
 
    	
VTP-000030696
    	
 
    	
VTP-000030795
    	
 
    	
VTP-000030900
    	
 
    	
VTP-000030980
    
	
VTP-000030590
    	
 
    	
VTP-000030699
    	
 
    	
VTP-000030796
    	
 
    	
VTP-000030901
    	
 
    	
VTP-000030981
    
	
VTP-000030605
    	
 
    	
VTP-000030700
    	
 
    	
VTP-000030797
    	
 
    	
VTP-000030902
    	
 
    	
VTP-000030983
    
	
VTP-000030606
    	
 
    	
VTP-000030701
    	
 
    	
VTP-000030798
    	
 
    	
VTP-000030903
    	
 
    	
VTP-000030984
    
	
VTP-000030607
    	
 
    	
VTP-000030702
    	
 
    	
VTP-000030799
    	
 
    	
VTP-000030904
    	
 
    	
VTP-000030985
    
	
VTP-000030608
    	
 
    	
VTP-000030703
    	
 
    	
VTP-000030800
    	
 
    	
VTP-000030905
    	
 
    	
VTP-000030986
    
	
VTP-000030609
    	
 
    	
VTP-000030704
    	
 
    	
VTP-000030801
    	
 
    	
VTP-000030908
    	
 
    	
VTP-000030987
    
	
VTP-000030610
    	
 
    	
VTP-000030705
    	
 
    	
VTP-000030802
    	
 
    	
VTP-000030910
    	
 
    	
VTP-000030988
    
	
VTP-000030612
    	
 
    	
VTP-000030706
    	
 
    	
VTP-000030803
    	
 
    	
VTP-000030911
    	
 
    	
VTP-000030989
    
	
VTP-000030613
    	
 
    	
VTP-000030707
    	
 
    	
VTP-000030804
    	
 
    	
VTP-000030912
    	
 
    	
VTP-000030990
    
	
VTP-000030614
    	
 
    	
VTP-000030708
    	
 
    	
VTP-000030805
    	
 
    	
VTP-000030917
    	
 
    	
VTP-000030991
    
	
VTP-000030615
    	
 
    	
VTP-000030709
    	
 
    	
VTP-000030806
    	
 
    	
VTP-000030918
    	
 
    	
VTP-000030992
    
	
VTP-000030616
    	
 
    	
VTP-000030715
    	
 
    	
VTP-000030808
    	
 
    	
VTP-000030919
    	
 
    	
VTP-000030993
    
	
VTP-000030618
    	
 
    	
VTP-000030716
    	
 
    	
VTP-000030809
    	
 
    	
VTP-000030920
    	
 
    	
VTP-000030994
    
	
VTP-000030620
    	
 
    	
VTP-000030717
    	
 
    	
VTP-000030810
    	
 
    	
VTP-000030921
    	
 
    	
VTP-000030995
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
VTP-000030621
    	
 
    	
VTP-000030730
    	
 
    	
VTP-000030811
    	
 
    	
VTP-000030924
    	
 
    	
VTP-000031001
    
	
VTP-000030622
    	
 
    	
VTP-000030738
    	
 
    	
VTP-000030812
    	
 
    	
VTP-000030925
    	
 
    	
VTP-000031002
    
	
VTP-000030623
    	
 
    	
VTP-000030739
    	
 
    	
VTP-000030813
    	
 
    	
VTP-000030926
    	
 
    	
VTP-000031003
    
	
VTP-000030627
    	
 
    	
VTP-000030740
    	
 
    	
VTP-000030814
    	
 
    	
VTP-000030929
    	
 
    	
VTP-000031010
    
	
VTP-000030628
    	
 
    	
VTP-000030741
    	
 
    	
VTP-000030815
    	
 
    	
VTP-000030930
    	
 
    	
VTP-000031011
    
	
VTP-000030629
    	
 
    	
VTP-000030751
    	
 
    	
VTP-000030816
    	
 
    	
VTP-000030931
    	
 
    	
VTP-000031012
    
	
VTP-000030630
    	
 
    	
VTP-000030752
    	
 
    	
VTP-000030823
    	
 
    	
VTP-000030932
    	
 
    	
VTP-000031013
    
	
VTP-000030631
    	
 
    	
VTP-000030753
    	
 
    	
VTP-000030827
    	
 
    	
VTP-000030933
    	
 
    	
VTP-000031014
    

 

	
VTP-000031015
    	
 
    	
VTP-000031086
    	
 
    	
VTP-000031164
    	
 
    	
VTP-000031240
    	
 
    	
VTP-000031306
    
	
VTP-000031016
    	
 
    	
VTP-000031087
    	
 
    	
VTP-000031177
    	
 
    	
VTP-000031241
    	
 
    	
VTP-000031307
    
	
VTP-000031017
    	
 
    	
VTP-000031088
    	
 
    	
VTP-000031178
    	
 
    	
VTP-000031242
    	
 
    	
VTP-000031308
    
	
VTP-000031018
    	
 
    	
VTP-000031094
    	
 
    	
VTP-000031179
    	
 
    	
VTP-000031243
    	
 
    	
VTP-000031309
    
	
VTP-000031019
    	
 
    	
VTP-000031095
    	
 
    	
VTP-000031180
    	
 
    	
VTP-000031244
    	
 
    	
VTP-000031310
    
	
VTP-000031020
    	
 
    	
VTP-000031101
    	
 
    	
VTP-000031181
    	
 
    	
VTP-000031245
    	
 
    	
VTP-000031311
    
	
VTP-000031021
    	
 
    	
VTP-000031102
    	
 
    	
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VTP-000031022
    	
 
    	
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VTP-000031023
    	
 
    	
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VTP-000031024
    	
 
    	
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VTP-000031025
    	
 
    	
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VTP-000031026
    	
 
    	
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VTP-000031027
    	
 
    	
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VTP-000031028
    	
 
    	
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VTP-000031029
    	
 
    	
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VTP-000031034
    	
 
    	
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VTP-000031036
    	
 
    	
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VTP-000031045
    	
 
    	
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VTP-000031046
    	
 
    	
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VTP-000031047
    	
 
    	
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VTP-000031266
    	
 
    	
 
    
	
VTP-000031048
    	
 
    	
VTP-000031124
    	
 
    	
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VTP-000031049
    	
 
    	
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VTP-000031050
    	
 
    	
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VTP-000031054
    	
 
    	
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VTP-000031055
    	
 
    	
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VTP-000031056
    	
 
    	
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VTP-000031066
    	
 
    	
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VTP-000031068
    	
 
    	
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VTP-000031279
    	
 
    	
 
    
	
VTP-000031069
    	
 
    	
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VTP-000031070
    	
 
    	
VTP-000031147
    	
 
    	
VTP-000031221
    	
 
    	
VTP-000031288
    	
 
    	
 
    
	
VTP-000031071
    	
 
    	
VTP-000031148
    	
 
    	
VTP-000031225
    	
 
    	
VTP-000031291
    	
 
    	
 
    
	
VTP-000031072
    	
 
    	
VTP-000031149
    	
 
    	
VTP-000031226
    	
 
    	
VTP-000031292
    	
 
    	
 
    
	
VTP-000031073
    	
 
    	
VTP-000031150
    	
 
    	
VTP-000031227
    	
 
    	
VTP-000031293
    	
 
    	
 
    
	
VTP-000031074
    	
 
    	
VTP-000031151
    	
 
    	
VTP-000031228
    	
 
    	
VTP-000031294
    	
 
    	
 
    
	
VTP-000031075
    	
 
    	
VTP-000031152
    	
 
    	
VTP-000031229
    	
 
    	
VTP-000031295
    	
 
    	
 
    
	
VTP-000031076
    	
 
    	
VTP-000031153
    	
 
    	
VTP-000031230
    	
 
    	
VTP-000031296
    	
 
    	
 
    
	
VTP-000031077
    	
 
    	
VTP-000031154
    	
 
    	
VTP-000031231
    	
 
    	
VTP-000031297
    	
 
    	
 
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
VTP-000031078
    	
 
    	
VTP-000031155
    	
 
    	
VTP-000031232
    	
 
    	
VTP-000031298
    	
 
    	
 
    
	
VTP-000031079
    	
 
    	
VTP-000031157
    	
 
    	
VTP-000031233
    	
 
    	
VTP-000031299
    	
 
    	
 
    
	
VTP-000031080
    	
 
    	
VTP-000031158
    	
 
    	
VTP-000031234
    	
 
    	
VTP-000031300
    	
 
    	
 
    
	
VTP-000031081
    	
 
    	
VTP-000031159
    	
 
    	
VTP-000031235
    	
 
    	
VTP-000031301
    	
 
    	
 
    
	
VTP-000031082
    	
 
    	
VTP-000031160
    	
 
    	
VTP-000031236
    	
 
    	
VTP-000031302
    	
 
    	
 
    
	
VTP-000031083
    	
 
    	
VTP-000031161
    	
 
    	
VTP-000031237
    	
 
    	
VTP-000031303
    	
 
    	
 
    
	
VTP-000031084
    	
 
    	
VTP-000031162
    	
 
    	
VTP-000031238
    	
 
    	
VTP-000031304
    	
 
    	
 
    
	
VTP-000031085
    	
 
    	
VTP-000031163
    	
 
    	
VTP-000031239
    	
 
    	
VTP-000031305
    	
 
    	
 
    

 

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

EXHIBIT 5

 

BI COMPOUNDS

 

11ß HSD1-inhibitors (from the BI screening campaign) with ****

 

ACA 0006XX, AGDD1282ZW, AGDD1356ZW, AGDD1415SE, AZDF0175ZW, AZSX0087CL2, AZSX0091CL, BI00005153 ,BI00005156, BI00017940, BI00054752, BI00054766, BI00054767, BI00054773, BI00054774, BI00054780, BI00054781, BI00054782, BI00054783, BI00054785, BI00054790, BI00054791, BI00054795, BI00054798, BI00054822, BI00054823, BI00054827, BI00054850, BI00054870, BI00055137, BI00055143, BI00060859, BI00063226, BI00099770, BI00099778, BI00099780, BI00099781, BI00099789, BI00099790, BI00099895, BI00113622, BI00113629, BI00113630, BI00113631, BI00113632, BI00113633, BI00113639, BI00113645, BI00113647, BI00113649, BI00113651, BI00113659, BI00113662, BI00113666, BI00113667, BI00113670, BI00113671, BI00113672, BI00113673, BI00113674, BI00113676, BI00113679, BI00113680, BI00113681, BI00113682, BI00113683, BI00113685, BI00113686, BI00113687, BI00114988, BI00114989, BI00114990, BI00114991, BI00114992, BI00114993, BI00114995, BI00114998, BI00114999, BI00115073, BI00115146, BI00115157, BI00115164, BI00115166, BI00115168, BI00115169, BI00117409, BI00117412, BI00117414, BI00117417, BI00117418, BI00117419, BI00117420, BI00117421, BI00117422, BI00117423, BI00117424, BI00117429, BI00117433, BI00117434, BI00117435, BI00117437, BI00117438, BI00117440, BI00117442, BI00117443, BI00117446, BI00117452, BI00117453, BI00117458, BI00117459, BI00117460, BI00117461, BI00117477, BI00117478, BI00117480, BI00117481, BI00117482, BI00117483, BI00117484, BI00117485, BI00117486, BI00117487, BI00117488, BI00117489, BI00117490, BI00117491, BI00117492, BI00117493, BI00127354, BI00127355, BI00127356, BI00127357, BI00127359, BI00127361, BI00127362, BI00127363, BI00127364, BI00127369, BI00127373, BI00127374, BI00127376, BI00127377, BI00127379, BI00127382, BI00127383, BI00127384, BI00127385, BI00127388, BI00127389, BI00127390, BI00127393, BI00127395, BI00127396, BI00128093, BI00128096, BI00128104, BI00128105, BI00130025, BI00130028, BI00130033, BI00130035, BI00130036, BI00130039, BI00130040, BI00130048, BI00130049, BI00130053, BI00130054, BI00130056, BI00130057, BI00130058, BI00130136, BI00130139, BI00130144, BI00130149, BI00130155, BI00130156, BI00130162, BI00130165, BI00130167, BI00130168, BI00130169, BI00130170, BI00130174, BI00130182, BI00130183, BI00130228, BI00130229, BI00130230, BI00130232, BI00130233, BI00130234, BI00130238, BI00130239, BI00130240, BI00130242, BI00130243, BI00130244, BI00130245, BI00130246, BI00130251, BI00130252, BI00130260, BI00130262, BI00130263, BI00130408, BI00130409, BI00130435, BI00130436, BI00130437, BI00130438, BI00130444, BI00130456, BI00130458, BI00130461, BI00130462, BI00130464, BI00130467, BI00130468, BI00130470, BI00130473, BI00130476, BI00130477, BI00130478, BI00130480, BI00130482, BI00130483, BI00130484, BI00130485, BI00130487, BI00130488, BI00130490, BI00130492, BI00130494, BI00130495, BI00130497, BI00131026, BI00131032, BI00131033, BI00131034, BI00131035, BI00131037, BI00131041, BI00131042, BI00131043, BI00131044, BI00131045, BI00131046, BI00131091, BI00131207, BI00131211, BI00131213, BI00131218, BI00131219, BI00131222, BI00131223, BI00131224, BI00131228, BI00131229, BI00131230, BI00131231, BI00131235, BI00131237, BI00131238, BI00131240, BI00611643, BI00611777, BI00803199, BIBP5024BS, 

 

****CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

BXDF0583ZW, BXDF0614ZW, BXDF0853ZW, C O 0991SE, CC00071345, CC00108619, CC00122632, CC03605281, CC03605289, CC03605420, CC03605446, CC03616443, CC03616445, CC03616469, CC03616471, CC03616472, CC03616480, CC03616653, CC03616655, CC03616657, CC03616662, CC03616668, CC03616669, CC03616673, CC03616674, CC03616830, CC03616831, CC03616856, CC03616857, CC03616864, CC03616934, CC03616948, CCBX00116523, CCBX00116532, CCBX00118372, CCBX00118610, CCBX00118698, CCBX00126757, CCBX00127714, CCBX00127726, CCBX00133655, DI01131583, DI01131600, DI01131624, DI01131784, DI01131793, DI01143945, DI01143960, DI01144006, DIRA00027146, DIRA00027457, E C 0316, E E 0176SE, HXBI0033CL2, HXIN0173BS, KZ 0593, L R 0026XX, PI 1025, SCH0411, SCH0690, SCH0841CL2, WE 0071, BI00127399

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

EXHIBIT 6

 

SHARE PURCHASE AGREEMENT

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

VITAE PHARMACEUTICALS, INC.

 

SERIES D PREFERRED

 

STOCK PURCHASE AGREEMENT

 

OCTOBER 2, 2007

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
1.
    	
Purchase and Sale of Stock
    	
1
    
	
 
    	
 
    	
 
    
	
 
    	
1.1
    	
Sale and Issuance of Series D Preferred Stock
    	
1
    
	
 
    	
1.2
    	
Closing
    	
1
    
	
 
    	
 
    	
 
    
	
2.
    	
Representations and Warranties of the Company
    	
2
    
	
 
    	
 
    	
 
    
	
 
    	
2.1
    	
Organization, Good Standing and Qualification
    	
2
    
	
 
    	
2.2
    	
Capitalization and Voting Rights
    	
2
    
	
 
    	
2.3
    	
Subsidiaries
    	
3
    
	
 
    	
2.4
    	
Authorization
    	
3
    
	
 
    	
2.5
    	
Valid Issuance of Preferred and Common Stock
    	
3
    
	
 
    	
2.6
    	
Governmental Consents
    	
4
    
	
 
    	
2.7
    	
Offering
    	
4
    
	
 
    	
2.8
    	
Litigation
    	
4
    
	
 
    	
2.9
    	
Proprietary Information and Inventions Agreements
    	
4
    
	
 
    	
2.10
    	
Intellectual Property
    	
4
    
	
 
    	
2.11
    	
Compliance with Other Instruments
    	
5
    
	
 
    	
2.12
    	
Agreements; Action
    	
5
    
	
 
    	
2.13
    	
Related-Party Transactions
    	
6
    
	
 
    	
2.14
    	
Permits
    	
6
    
	
 
    	
2.15
    	
Disclosure
    	
6
    
	
 
    	
2.16
    	
Corporate Documents
    	
7
    
	
 
    	
2.17
    	
Title to Property and Assets
    	
7
    
	
 
    	
2.18
    	
Insurance
    	
7
    
	
 
    	
2.19
    	
Minute Books
    	
7
    
	
 
    	
2.20
    	
Environmental Law
    	
7
    
	
 
    	
2.21
    	
Tax Returns, Payments and Elections
    	
7
    
	
 
    	
2.22
    	
Financial Statements
    	
8
    
	
 
    	
2.23
    	
Changes
    	
8
    
	
 
    	
2.24
    	
Manufacturing and Marketing Rights
    	
9
    
	
 
    	
2.25
    	
Registration Rights
    	
9
    
	
 
    	
2.26
    	
Employee Benefit Plans
    	
9
    
	
 
    	
2.27
    	
Labor Agreements and Actions; Employee Compensation
    	
9
    
	
 
    	
2.28
    	
Real Property Holding Company
    	
10
    
	
 
    	
 
    	
 
    
	
3.
    	
Representations and Warranties of the Investors
    	
10
    
	
 
    	
 
    	
 
    
	
 
    	
3.1
    	
Authorization
    	
10
    
	
 
    	
3.2
    	
Acquire Entirely for Own Account
    	
10
    
	
 
    	
3.3
    	
Disclosure of Information
    	
10
    
	
 
    	
3.4
    	
Investment Experience
    	
11
    
	
 
    	
3.5
    	
Accredited Investor
    	
11
    
	
 
    	
3.6
    	
Restricted Securities
    	
11
    
	
 
    	
3.7
    	
Further Limitations on Disposition
    	
11
    
	
 
    	
3.8
    	
Exculpation Among Investors
    	
12
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

	
 
    	
3.9
    	
Legend
    	
12
    
	
 
    	
 
    	
 
    
	
4.
    	
Conditions of Investors’ Obligations at Closing
    	
12
    
	
 
    	
 
    	
 
    
	
 
    	
4.1
    	
Representations and Warranties
    	
12
    
	
 
    	
4.2
    	
Performance
    	
12
    
	
 
    	
4.3
    	
Compliance Certificate
    	
12
    
	
 
    	
4.4
    	
Qualifications
    	
12
    
	
 
    	
4.5
    	
Proceedings and Documents
    	
12
    
	
 
    	
4.6
    	
Proprietary Information and Inventions Agreements
    	
13
    
	
 
    	
4.7
    	
Board of Directors
    	
13
    
	
 
    	
4.8
    	
Opinion of Company Counsel
    	
13
    
	
 
    	
4.9
    	
Rights Agreement
    	
13
    
	
 
    	
4.10
    	
Collaboration Agreement
    	
13
    
	
 
    	
 
    	
 
    
	
5.
    	
Conditions of the Company’s Obligations at Closing
    	
13
    
	
 
    	
 
    	
 
    
	
 
    	
5.1
    	
Representations and Warranties
    	
13
    
	
 
    	
5.2
    	
Payment of Purchase Price
    	
13
    
	
 
    	
5.3
    	
Qualifications
    	
13
    
	
 
    	
5.4
    	
Rights Agreement
    	
13
    
	
 
    	
5.5
    	
Collaboration Agreement
    	
13
    
	
 
    	
 
    	
 
    
	
6.
    	
Miscellaneous
    	
13
    
	
 
    	
 
    	
 
    
	
 
    	
6.1
    	
Survival of Warranties
    	
13
    
	
 
    	
6.2
    	
Successors and Assigns
    	
14
    
	
 
    	
6.3
    	
Governing Law
    	
14
    
	
 
    	
6.4
    	
Counterparts
    	
14
    
	
 
    	
6.5
    	
Titles and Subtitles
    	
14
    
	
 
    	
6.6
    	
Notices
    	
14
    
	
 
    	
6.7
    	
Finder’s Fee
    	
14
    
	
 
    	
6.8
    	
Expenses
    	
14
    
	
 
    	
6.9
    	
Amendments and Waivers
    	
15
    
	
 
    	
6.10
    	
Severability
    	
15
    
	
 
    	
6.11
    	
Aggregation of Stock
    	
15
    
	
 
    	
6.12
    	
Entire Agreement
    	
15
    
	
 
    	
6.13
    	
Waiver of Conflicts
    	
15
    

 

	
SCHEDULE   1.1(c)
    	
Schedule   of Investors
    
	
SCHEDULE   2
    	
Schedule   of Exceptions
    
	
 
    	
 
    
	
EXHIBIT A
    	
Restated   Certificate of Incorporation
    
	
EXHIBIT B
    	
Amended   and Restated Investors’ Rights Agreement
    
	
EXHIBIT C
    	
Opinion   of Counsel
    
	
EXHIBIT D
    	
Research   Collaboration and License Agreement
    

 

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

VITAE PHARMACEUTICALS, INC.

 

SERIES D PREFERRED STOCK PURCHASE AGREEMENT

 

THIS SERIES D PREFERRED STOCK PURCHASE AGREEMENT (the “Agreement”) is made as of the 2 day of October, 2007, by and among Vitae Pharmaceuticals, Inc., a Delaware corporation (the “Company”), and the investors listed on Schedule 1.1(c) hereto, each of which is herein referred to as an “Investor.”

 

THE PARTIES HEREBY AGREE AS FOLLOWS:

 

1.             Purchase and Sale of Stock.

 

1.1          Sale and Issuance of Series D Preferred Stock.

 

1.1.1       The Company shall adopt and file with the Secretary of State of the State of Delaware on or before the Closing (as defined below) the Amended and Restated Certificate of Incorporation in the form attached hereto as Exhibit A (the “Restated Certificate”).

 

1.1.2       On or prior to the Closing, the Company shall have authorized (i) the sale and issuance to the Investors of up to twelve million five hundred thousand (12,500,000) shares of the Series D Preferred Stock of the Company, $0.0001 par value per share (the “Series D Preferred Stock”), and (ii) the issuance of the shares of the Common Stock of the Company, $0.0001 par value per share (the “Common Stock”), to be issued upon conversion of the Series D Preferred Stock (the “Conversion Shares”).  The Series D Preferred Stock and the Conversion Shares shall have the rights, preferences, privileges and restrictions set forth in the Restated Certificate.

 

1.1.3       Subject to the terms and conditions of this Agreement, each Investor shall purchase, at the Closing, that number of shares of Series D Preferred Stock set forth opposite such Investor’s name under the heading “Number of Shares Purchased at Closing” on Schedule 1.11.1.3 hereto for the purchase price of $1.20 per share for total consideration of $15,000,000.00.

 

1.2          Closing.  The purchase and sale of the Series D Preferred Stock shall take place at the offices of Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP, 610 Lincoln Street, Waltham, Massachusetts (“Gunderson Dettmer”) at 10:00 A.M. (ET), on the second business day following the satisfaction or waiver of each of the conditions set forth in Sections 4 and 5 hereof or, subject to Sections 4 and 5 hereof, at such other time and place as the Company and Investors acquiring in the aggregate more than two-thirds of the shares of Series D Preferred Stock sold pursuant hereto mutually agree upon in writing (which time and place are designated as the “Closing”).  At the Closing, the Company shall deliver to each Investor a certificate representing the Series D Preferred Stock that such Investor is purchasing at the Closing against payment of the purchase price therefor by check, wire transfer, or any combination thereof.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

2.             Representations and Warranties of the Company.  The Company hereby represents and warrants to each Investor that, except as set forth on a Schedule of Exceptions attached hereto as Schedule 2 (the “Schedule of Exceptions”) and furnished to each Investor, which exceptions shall be deemed to be representations and warranties as if made hereunder:

 

2.1          Organization, Good Standing and Qualification.  The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware and has all requisite corporate power and authority to carry on its business as now conducted.  The Company is duly qualified to transact business and is in good standing in each jurisdiction in which the failure to so qualify would have a material adverse effect on its business or properties.

 

2.2          Capitalization and Voting Rights.  The authorized capital of the Company will consist, immediately prior to the Closing, of:

 

2.2.1       Preferred Stock.  198,262,787 shares of Preferred Stock, par value $0.0001 (the “Preferred Stock”), of which (i) 675,000 shares have been designated Series A-1 Preferred Stock, 675,000 shares of which are issued and outstanding; (ii) 16,575,000 shares have been designated Series A-2 Preferred Stock (the “Series A-2 Preferred Stock”), 16,500,000 shares of which are issued and outstanding; (iii) 151,812,780 shares have been designated Series B Preferred Stock, 150,989,250 shares of which are issued and outstanding; (iv) 16,700,007 shares have been designated Series C Preferred Stock, 16,666,673 of which are issued and outstanding; and (v) 12,500,000 shares have been designated Series D Preferred Stock, none of which are issued and outstanding and all of which may be issued and sold pursuant to this Agreement.  As of the Closing, each share of the Series A-2 Preferred Stock is convertible into 1.5063812 shares of Common Stock.  With the exception of shares of the Series A-2 Preferred Stock, as of the Closing each share of the Preferred Stock is convertible into one share of Common Stock.  The rights, privileges and preferences of the Preferred Stock will be as stated in the Company’s Restated Certificate.

 

2.2.2       Common Stock.  300,000,000 shares of Common Stock, par value $0.0001, 11,106,793 shares of which are issued and outstanding.

 

2.2.3       Except for (A) the conversion privileges of the Preferred Stock, (B) the rights provided in Section 2.4 of the Amended and Restated Investors’ Rights Agreement of even date herewith by and among the Company and the Investors (as such term is defined in that agreement), the form of which is attached hereto as Exhibit B (the “Rights Agreement”), (C) the rights of first refusal and rights of repurchase in favor of the Company or its designee set forth in Common Stock purchase agreements between the Company and certain of its security-holders, (D) currently outstanding warrants to purchase 29,581 shares of Common Stock, (E) currently outstanding warrants to purchase 75,000 shares of Series A-2 Preferred Stock, (F) currently outstanding warrants to purchase 823,528 shares of Series B Preferred Stock, (G) currently outstanding warrants to purchase 33,334 shares of Series C Preferred Stock and (H) currently outstanding options to purchase 29,895,522 shares of Common Stock granted to employees and other service providers pursuant to the Company’s 2001 Stock Plan (the “2001 Plan”) and options to purchase 101,220 shares of Common Stock granted to employees and other service providers pursuant to the Company’s 2004 Stock Plan (the “2004 Plan”), there are not 

 

 

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outstanding any options, warrants, rights (including conversion or preemptive rights) or agreements for the purchase or acquisition from the Company, or to the Company’s knowledge, from any of its stockholders, of any shares of capital stock of the Company.  In addition to the aforementioned options, the Company has reserved an additional 8,652,076 shares of its Common Stock for purchase upon exercise of options to be granted in the future under the 2001 Plan and no additional shares of its Common Stock for purchase upon exercise of options to be granted in the future under the 2004 Plan.  Except for the provisions of the Restated Certificate and Section 2.4 of the Rights Agreement, the Company is not a party or subject to any agreement or understanding, and, to the best of the Company’s knowledge, there is no agreement or understanding between any persons and/or entities, which affects or relates to the voting or giving of proxies or written consents with respect to any security or by a director of the Company.

 

2.2.4       All of the issued and outstanding shares of capital stock and other securities of the Company have been offered and issued by the Company in compliance with applicable federal and state securities laws or pursuant to valid exemptions therefrom.  The outstanding shares of capital stock of the Company are all duly and validly authorized and issued, fully paid and nonassessable shares.

 

2.3          Subsidiaries.  The Company does not presently own or control, directly or indirectly, any interest in any other corporation, association, or other business entity.  The Company is not a participant in any joint venture, partnership, or similar arrangement.

 

2.4          Authorization.  All corporate action on the part of the Company, its officers, directors and stockholders necessary for the authorization, execution and delivery of this Agreement, the performance of all obligations of the Company hereunder and under the Rights Agreement, and the authorization, issuance (or reservation for issuance) and delivery of the Series D Preferred Stock being issued hereunder and the Conversion Shares has been taken or will be taken prior to the Closing, and this Agreement and the Rights Agreement constitute valid and legally binding obligations of the Company, enforceable in accordance with their respective terms, except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Rights Agreement may be limited by applicable federal or state securities laws.

 

2.5          Valid Issuance of Preferred and Common Stock.  The Series D Preferred Stock that is being purchased by the Investors hereunder, when issued and delivered in accordance with the terms of this Agreement for the consideration expressed herein, will be duly and validly issued, fully paid, and nonassessable, and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Rights Agreement and under applicable state and federal securities laws.  The Conversion Shares have been duly and validly reserved for issuance and, upon issuance in accordance with the terms of the Restated Certificate, will be duly and validly issued, fully paid, and nonassessable and will be free of restrictions on transfer other than restrictions on transfer under this Agreement and the Rights Agreement and under applicable state and federal securities laws.

 

 

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2.6          Governmental Consents.  No consent, approval, order or authorization of, or registration, qualification, designation, declaration or filing with, any federal, state or local governmental authority on the part of the Company is required in connection with the consummation of the transactions contemplated by this Agreement, except the filing of the Restated Certificate with the Secretary of State of the State of Delaware and any filings as may be required under state and federal securities laws.

 

2.7          Offering.  Subject in part to the truth and accuracy of each Investor’s representations set forth in Section 3 of this Agreement, the offer, issuance and sale of the Series D Preferred Stock as contemplated by this Agreement are exempt from the registration requirements of any applicable state and federal securities laws, and neither the Company nor any authorized agent acting on its behalf will take any action hereafter that would cause the loss of such exemption.

 

2.8          Litigation.  There is no action, suit, proceeding or investigation pending or, to the Company’s knowledge, currently threatened against the Company that questions the validity of this Agreement or the Rights Agreement, or the right of the Company to enter into such agreements or to consummate the transactions contemplated hereby or thereby, or that might have, either individually or in the aggregate, a material adverse effect on the assets, condition, prospects or affairs of the Company, financially or otherwise (a “Material Adverse Effect”), or result in any change in the current equity ownership of the Company.  The Company is not a party to or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality.  There is no action, suit, proceeding or investigation by the Company currently pending or that the Company intends to initiate.

 

2.9          Proprietary Information and Inventions Agreements.  Each employee, officer and consultant of the Company has executed a Proprietary Information and Inventions Agreement or Consulting Agreement, as applicable, in forms made available to the Investors.  The Company is not aware that any of its employees, officers or consultants is in violation thereof.

 

2.10        Intellectual Property.  To its knowledge (but without having conducted any special investigation or patent or trademark search), the Company has sufficient title and ownership of or exclusive licenses to all patents, patent rights, trademarks, trademark rights, service marks, service mark rights, trade names, copyrights, trade secrets, information, proprietary rights and processes (collectively, the “Intellectual Property”) necessary for its business as now conducted without any conflict with or infringement of the rights of others.  There are no outstanding options, licenses, or agreements of any kind relating to the foregoing, nor is the Company bound by or a party to any options, licenses or agreements of any kind with respect to the Intellectual Property of any other person or entity, except, in either case, for end-user internal-use software license and support/maintenance agreements.  The Company has not received any communications alleging that the Company has violated any of the Intellectual Property of any other person or entity.  The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company or that would conflict with the Company’s business as presently conducted.  Neither 

 

 

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the execution nor delivery of this Agreement, nor the carrying on of the Company’s business by the employees of the Company, will, to the best of the Company’s knowledge, conflict with or result in a breach of the terms, conditions or provisions of, or constitute a default under, any contract, covenant or instrument under which any of such employees is now obligated.  The Company does not believe it is or will be necessary to utilize any inventions of any of its employees (or people it currently intends to hire) made prior to their employment by the Company.

 

2.11        Compliance with Other Instruments.  The Company is not in violation or default of any provision of its Restated Certificate or Bylaws.  The Company is not in violation of any instrument, judgment, order, writ, decree or contract to which it is a party or by which it is bound, or of any provision of any federal or state statute, rule or regulation applicable to the Company, except where such violation would not have a Material Adverse Effect.  The execution, delivery and performance of this Agreement and the Rights Agreement, and the consummation of the transactions contemplated hereby and thereby will not result in any such violation or be in conflict with or constitute, with or without the passage of time and giving of notice, either a default under any such provision, instrument, judgment, order, writ, decree or contract or an event that results in the creation of any lien, charge or encumbrance upon any assets of the Company or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization, or approval applicable to the Company, its business or operations or any of its respective assets or properties.

 

2.12        Agreements; Action.

 

2.12.1     Except for agreements explicitly contemplated hereby and by the Rights Agreement, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, affiliates, or any affiliate thereof.

 

2.12.2     There are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or by which it is bound that may involve (i) obligations (contingent or otherwise) of, or payments to the Company individually in excess of, five hundred thousand dollars ($500,000), (ii) the license of any patent, copyright, trade secret or other proprietary right to or from the Company (other than the license of the Company’s software and products in the ordinary course of business), or (iii) provisions restricting or affecting the development, manufacture or distribution of the Company’s products or services, or (iv) indemnification by the Company with respect to infringements of proprietary rights.

 

2.12.3     The Company has not (i) declared or paid any dividends or authorized or made any distribution upon or with respect to any class or series of its capital stock, (ii) incurred any indebtedness for money borrowed or any other liabilities individually in excess of five hundred thousand dollars ($500,000), (iii) made any loans or advances to any person, other than ordinary advances for travel expenses, or (iv) sold, exchanged or otherwise disposed of any of its assets or rights, other than the sale of its inventory in the ordinary course of business.

 

 

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2.12.4     For the purposes of subsections (b) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company has reason to believe are affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.

 

2.12.5     The Company is not a party to and is not bound by any contract, agreement or instrument, or subject to any restriction under its Restated Certificate or Bylaws that adversely affects its business as now conducted or its properties.

 

2.12.6     The Company has not engaged in the past three (3) months in any discussion (i) with any representative of any corporation or corporations regarding the consolidation or merger of the Company with or into any such corporation or corporations, (ii) with any corporation, partnership, association or other business entity or any individual regarding the sale, conveyance or disposition of all or substantially all of the assets of the Company or a transaction or series of related transactions in which more than fifty percent (50%) of the voting power of the Company is disposed of, or (iii) regarding any other form of acquisition, liquidation, dissolution or winding up of the Company.

 

2.13        Related-Party Transactions.  No employee, officer, or director of the Company or member of his or her immediate family is indebted to the Company, nor is the Company indebted (or committed to make loans or extend or guarantee credit) to any of them.  To the Company’s knowledge, none of such persons has any direct or indirect ownership interest in any firm or corporation with which the Company is affiliated or with which the Company has a business relationship, or any firm or corporation that competes with the Company, except that employees, officers, or directors of the Company and members of their immediate families may own stock in publicly traded companies that may compete with the Company.  No member of the immediate family of any officer or director of the Company is directly or indirectly interested in any material contract with the Company.

 

2.14        Permits.  The Company has all franchises, permits, licenses, and any similar authority necessary for the conduct of its business as now being conducted by it, the lack of which could have a Material Adverse Effect, and the Company believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as planned to be conducted.  The Company is not in default in any material respect under any of such franchises, permits, licenses, or other similar authority.

 

2.15        Disclosure.  The Company has fully provided each Investor with all the information that such Investor has requested for deciding whether to acquire the Series D Preferred Stock and all information that the Company believes is reasonably necessary to enable such Investor to make such decision.  To the Company’s knowledge, neither this Agreement, the Rights Agreement, nor any other written statements or certificates made or delivered in connection herewith or therewith contains any untrue statement of a material fact or omits to state a material fact necessary to make the statements herein or therein not misleading in light of the circumstances under which they were made.

 

 

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2.16        Corporate Documents.  Except for amendments necessary to satisfy representations and warranties or conditions contained herein (the form of which amendments has been approved by the Investors), the Restated Certificate and Bylaws of the Company are in the form previously provided to the Investors.

 

2.17        Title to Property and Assets.  For purposes of this Section 2.17, the term “property” and “assets” shall not include Intellectual Property, the sole representations and warranties of which are set forth in Section 2.10.  The Company owns its property and assets free and clear of all mortgages, liens, loans and encumbrances, except such encumbrances and liens that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such property or assets.  With respect to the property and assets it leases, the Company is in compliance with such leases and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances.

 

2.18        Insurance.  The Company has in full force and effect fire and casualty insurance policies, with extended coverage, in amounts comparable to similarly situated companies.

 

2.19        Minute Books.  The minute books of the Company contain a complete summary of all meetings of directors and stockholders and written consents in lieu thereof since the time of incorporation and reflect all transactions referred to in such minutes accurately in all material respects.

 

2.20        Environmental Law.  The Company is not in violation of and has no liability or potential liability under any applicable statute, law or regulation relating to the environment, and no material expenditures are or will be required in order to comply with any such existing statute, law or regulation.

 

2.21        Tax Returns, Payments and Elections.  The Company has filed all tax returns and reports (including information returns and reports) as required by law.  These reports and returns are true and correct in all material respects.  The Company has paid all taxes and assessments due, except those contested in good faith, if any.  The Company has not elected pursuant to the Code, to be treated as a Subchapter S corporation or a collapsible corporation pursuant to Section 1362(a) or Section 341(f) of the Code, nor has it made any other elections pursuant to the Code (other than elections that relate solely to methods of accounting, depreciation or amortization) that would have a material effect on the Company, its financial condition, its business as presently conducted or proposed to be conducted or any of its properties or material assets.  The Company has never had any material tax deficiency proposed or assessed against it and has not executed any waiver of any statute of limitations on the assessment or collection of any tax or governmental charge.  None of the Company’s federal income tax returns and none of its state income or franchise tax or sales or use tax returns have ever been audited by governmental authorities.  The Company has withheld or collected from each payment made to each of its employees, the amount of all taxes (including, but not limited to, federal income taxes, Federal Insurance Contribution Act taxes and Federal Unemployment Tax Act taxes) required to be withheld or collected therefrom, and has paid the same to the proper tax receiving officers or authorized depositories.

 

 

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2.22        Financial Statements.  The Company has made available to each Investor (i) its audited financial statements as of, and for the fiscal year ending, December 31, 2006, and (ii) its unaudited financial statements as of, and for the eight-month period ending, August 31, 2007 (the “Financial Statements”).  The Financial Statements have been prepared in accordance with generally accepted accounting principles applied on a consistent basis throughout the periods indicated and with each other, except that the unaudited Financial Statements may not contain all footnotes required by generally accepted accounting principles.  The Financial Statements fairly present the financial condition and operating results of the Company as of the dates, and for the periods, indicated therein, subject to normal year-end audit adjustments.  Except as set forth in the Financial Statements, the Company has no material liabilities, contingent or otherwise, other than (i) liabilities incurred in the ordinary course of business subsequent to August 31, 2007 (the “Financial Statement Date”) and (ii) obligations under contracts and commitments incurred in the ordinary course of business and not required under generally accepted accounting principles to be reflected in the Financial Statements, which, in both cases, individually or in the aggregate, are not material to the financial condition or operating results of the Company.  Except as disclosed in the Financial Statements, the Company is not a guarantor or indemnitor of any indebtedness of any other person, firm or corporation.  The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with generally accepted accounting principles.

 

2.23        Changes.  Since the Financial Statement Date there has not been:

 

2.23.1     any change in the assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not been, in the aggregate, materially adverse;

 

2.23.2     any damage, destruction or loss, whether or not covered by insurance, materially and adversely affecting the assets, properties, financial condition, operating results, prospects or business of the Company (as such business is presently conducted and as it is proposed to be conducted);

 

2.23.3     any waiver by the Company of a valuable right or of a material debt owed to it;

 

2.23.4     any satisfaction or discharge of any lien, claim or encumbrance or payment of any obligation by the Company, except in the ordinary course of business and that is not material to the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted and as it is proposed to be conducted);

 

2.23.5     any material change or amendment to a material contract or arrangement by which the Company or any of its assets or properties is bound or subject;

 

2.23.6     any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;

 

2.23.7     any sale, assignment or transfer of any patents, patent rights, trademarks, trademark applications, service marks, copyrights, copyrights registrations, trade secrets or other intangible assets;

 

 

2.23.8     any resignation or termination of employment of any officer or key employee of the Company; and the Company, to its knowledge, does not know of the impending resignation or termination of employment of any such officer or key employee;

 

2.23.9     receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company;

 

2.23.10  any mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its material properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such property or assets;

 

2.23.11  any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, or any other person or entity, other than travel advances and other advances made in the ordinary course of its business;

 

2.23.12  any declaration, setting aside or payment or other distribution in respect of any of the Company’s capital stock, or any direct or indirect redemption, purchase or other acquisition of any of such stock by the Company;

 

2.23.13  to the Company’s knowledge, any other event or condition of any character that might materially and adversely affect the assets, properties, financial condition, operating results or business of the Company (as such business is presently conducted); or

 

2.23.14  any agreement or commitment by the Company to do any of the things described in this Section 2.23.

 

2.24        Manufacturing and Marketing Rights.  The Company has not granted any rights to manufacture, produce, assemble, license, market, or sell its products to any other person and is not bound by any agreement that affects the Company’s exclusive right to develop, manufacture, assemble, distribute, market or sell its products.

 

2.25        Registration Rights.  Except as provided in the Rights Agreement, the Company has not granted or agreed to grant any registration rights, including piggyback rights, to any person or entity.

 

2.26        Employee Benefit Plans.  The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974.

 

2.27        Labor Agreements and Actions; Employee Compensation.  The Company is not bound by or subject to (and none of its assets or properties is bound by or subject to) any written or oral, express or implied, contract, commitment or arrangement with any labor union, and no labor union has requested or, to the Company’s knowledge, has sought to represent any of the employees, representatives or agents of the Company.  There is no strike or other labor dispute involving the Company pending, or to the Company’s knowledge, threatened, that could have a Material Adverse Effect, nor is the Company aware of any labor organization activity 

 

 

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involving its employees.  The Company is not aware that any officer or key employee, or that any group of key employees, intends to terminate their employment with the Company, nor does the Company have a present intention to terminate the employment of any of the foregoing.  The employment of each officer and employee of the Company is terminable at the will of the Company.  To the Company’s knowledge, the Company has complied in all material respects with all applicable state and federal equal employment opportunity and other laws related to employment.  The Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement.

 

2.28        Real Property Holding Company.  The Company is not currently, and has not been during the prior five years, a United States real property holding corporation within the meaning of Section 897 of the Code and the Company has filed with the Internal Revenue Service all statements, if any, with its United States income tax returns which are required under Section 1.897-2(h) of the Treasury Regulations.

 

3.             Representations and Warranties of the Investors.  Each Investor hereby represents and warrants severally that:

 

3.1          Authorization.  Such Investor has full power and authority to enter into this Agreement and the Rights Agreement, and each such agreement constitutes its valid and legally binding obligation, enforceable in accordance with its terms except (i) as limited by applicable bankruptcy, insolvency, reorganization, moratorium, and other laws of general application affecting enforcement of creditors’ rights generally, (ii) as limited by laws relating to the availability of specific performance, injunctive relief, or other equitable remedies, and (iii) to the extent the indemnification provisions contained in the Rights Agreement may be limited by applicable federal or state securities laws.

 

3.2          Acquire Entirely for Own Account.  This Agreement is made with such Investor in reliance upon such Investor’s representation to the Company, which by such Investor’s execution of this Agreement such Investor hereby confirms, that the Series D Preferred Stock to be received by such Investor and the Conversion Shares issuable with respect thereto (collectively, the “Securities”) will be acquired for investment for such Investor’s own account, not as a nominee or agent, and not with a view to the resale or distribution of any part thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same.  By executing this Agreement, such Investor further represents that such Investor does not have any contract, undertaking, agreement or arrangement with any person to sell, transfer or grant participations to such person or to any third person, with respect to any of the Securities.

 

3.3          Disclosure of Information.  Such Investor represents that it has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of the Series D Preferred Stock and the business, properties, prospects and financial condition of the Company.  The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 2 of this Agreement or the right of the Investors to rely thereon.

 

 

 

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3.4          Investment Experience.  Such Investor has invested in securities of companies in the development stage and acknowledges that it is able to fend for itself, can bear the economic risk of its investment, and has such knowledge and experience in financial or business matters that it is capable of evaluating the merits and risks of the investment in the Series D Preferred Stock.  If other than an individual, such Investor also represents it has not been organized for the purpose of acquiring the Series D Preferred Stock.

 

3.5          Accredited Investor.  Such Investor is an “accredited investor” within the meaning of Securities and Exchange Commission (“SEC”) Rule 501 of Regulation D, as presently in effect.

 

3.6          Restricted Securities.  Such Investor understands that the Securities it is purchasing are characterized as “restricted securities” under the federal securities laws inasmuch as they are being acquired from the Company in a transaction not involving a public offering and that under such laws and applicable regulations such securities may be resold without registration under the Act, only in certain limited circumstances.  In this connection, such Investor represents that it is familiar with SEC Rule 144, as presently in effect, and understands the resale limitations imposed thereby and by the Act.

 

3.7          Further Limitations on Disposition.  Without in any way limiting the representations set forth above, such Investor further agrees not to make any disposition of all or any portion of the Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 3 and the Rights Agreement, provided and to the extent this Section and such agreement are then applicable, and as follows:

 

3.7.1       There is then in effect a registration statement under the Act covering such proposed disposition and such disposition is made in accordance with such registration statement.

 

3.7.2       Such Investor shall have notified the Company of the proposed disposition and shall have furnished to the Company a detailed statement of the circumstances surrounding the proposed disposition and, if reasonably requested by the Company, such Investor shall have furnished the Company with an opinion of counsel, that such disposition will not require registration of such shares under the Act.  It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances.

 

3.7.3       Notwithstanding the provisions of paragraphs (a) and (b) above, no such registration statement or opinion of counsel shall be necessary for a transfer by any Investor to an affiliate of such Investor or an Investor that is a partnership or limited liability company to a partner or member of such partnership or limited liability company or a retired partner or member of such partnership or limited liability company who retires after the date hereof, or to the estate of any such partner or member or retired partner or member or the transfer by gift, will or intestate succession of any partner or member to his or her spouse or to the siblings, lineal descendants or ancestors of such partner or member or his or her spouse, if the transferee agrees in writing to be subject to the terms hereof to the same extent as if he or she were an original Investor hereunder.

 

 

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3.8          Exculpation Among Investors.  Each Investor acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company.  Each Investor agrees that no Investor nor the respective controlling persons, officers, directors, partners, agents, or employees of any Investor shall be liable to any other Investor for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the acquisition of the Securities.

 

3.9          Legend.  It is understood that the certificates evidencing the Securities may bear the following legend:

 

“These securities have not been registered under the Securities Act of 1933, as amended.  They may not be sold, offered for sale, pledged or hypothecated in the absence of a registration statement in effect with respect to the securities under such Act or an opinion of counsel satisfactory to the Company that such registration is not required or unless sold pursuant to Rule 144 of such Act.”

 

4.             Conditions of Investors’ Obligations at Closing.  The obligations of each Investor under this Agreement are subject to the fulfillment on or before the Closing of each of the following conditions, the waiver of which shall not be effective against any Investor who does not consent thereto:

 

4.1          Representations and Warranties.  The representations and warranties of the Company contained in Section 2 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the date of the Closing.

 

4.2          Performance.  The Company shall have performed and complied with all agreements, obligations and conditions contained in this Agreement that are required to be performed or complied with by it on or before the Closing.

 

4.3          Compliance Certificate.  The Chief Executive Officer of the Company shall deliver to each Investor at the Closing a certificate stating that the conditions specified in Sections 4.1 and 4.2 have been fulfilled and stating that there shall have been no adverse change in the business, affairs, operations, properties, assets or condition of the Company from that described in the Agreement.

 

4.4          Qualifications.  All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required to be made prior to the Closing in connection with the lawful issuance of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing.

 

4.5          Proceedings and Documents.  All corporate and other proceedings in connection with the transactions contemplated at the Closing and all documents incident thereto shall be reasonably satisfactory in form and substance to the Investors, and they shall have received all such counterpart original and certified or other copies of such documents as they may reasonably request.  This may include, without limitation, good standing certificates and certification by the Company’s Secretary regarding the Company’s Certificate of Incorporation and Bylaws and Board of Directors and stockholder resolutions relating to this transaction.

 

 

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4.6          Proprietary Information and Inventions Agreements.  Each employee of and consultant to the Company shall have entered into a Proprietary Information and Inventions Agreement or Consulting Agreement, as applicable, in the forms made available to the Investors.

 

4.7          Board of Directors.  The Board of Directors of the Company shall be comprised of Dr. Peter Barrett, Robert  Gunderson, Jr., Jeffrey Hatfield, Donald J. Hayden, Jr., Chuck Newhall, Dr. Bryan Roberts and Dr. James Tananbaum.

 

4.8          Opinion of Company Counsel.  Each Investor shall have received from Gunderson Dettmer, counsel for the Company, an opinion, dated as of the Closing, in the form attached hereto as Exhibit C.

 

4.9          Rights Agreement.  The Company, each Investor and each Common Holder (as both of those terms are defined in the Rights Agreement) shall have entered into the Rights Agreement.

 

4.10        Collaboration Agreement.  The Company and Boehringer Ingelheim International GmbH (“BI”) shall have entered into the Research Collaboration and License Agreement in substantially the form attached hereto as Exhibit D (the “Collaboration Agreement”).

 

5.             Conditions of the Company’s Obligations at Closing.  The obligations of the Company to each Investor under this Agreement are subject to the fulfillment on or before the Closing, of each of the following conditions by each Investor:

 

5.1          Representations and Warranties.  The representations and warranties of the Investors contained in Section 3 shall be true on and as of the Closing with the same effect as though such representations and warranties had been made on and as of the Closing.

 

5.2          Payment of Purchase Price.  The Investors collectively shall have tendered the purchase price specified in Section 1.1.

 

5.3          Qualifications.  All authorizations, approvals, or permits, if any, of any governmental authority or regulatory body of the United States or of any state that are required to be made prior to the Closing in connection with the lawful issuance and sale of the Securities pursuant to this Agreement shall be duly obtained and effective as of the Closing.

 

5.4          Rights Agreement.  The Company and each Investor shall have entered into the Rights Agreement.

 

5.5          Collaboration Agreement.  The Company and BI shall have entered into the Collaboration Agreement.

 

6.             Miscellaneous.

 

6.1          Survival of Warranties.  The warranties, representations and covenants of the Company and Investors contained in or made pursuant to this Agreement shall survive for 

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

eighteen months following the Closing and shall in no way be affected by any investigation of the subject matter thereof made by or on behalf of the Investors or the Company.

 

6.2          Successors and Assigns.  Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

6.3          Governing Law.  This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware.

 

6.4          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.

 

6.5          Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

6.6          Notices.  Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given upon personal delivery to the party to be notified, upon deposit with the United States Post Office by registered or certified mail, postage prepaid or upon deposit with a reputable overnight courier service and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days advance written notice to the other parties or, if sent via facsimile, upon receipt of confirmed facsimile transmission.

 

6.7          Finder’s Fee.  Each party represents that it neither is nor will be obligated for any finders’ fee or commission in connection with this transaction.  Each Investor agrees to indemnify and to hold harmless the Company from any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for which such Investor or any of its officers, partners, employees, or representatives is responsible.  The Company agrees to indemnify and hold harmless each Investor from any liability for any commission or compensation in the nature of a finders’ fee (and the costs and expenses of defending against such liability or asserted liability) for which the Company or any of its officers, employees or representatives is responsible.

 

6.8          Expenses.  Irrespective of whether the Closing is effected, the Company shall pay all costs and expenses that it incurs with respect to the negotiation, execution, delivery and performance of this Agreement.  If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the Rights Agreement or the Restated Certificate, the prevailing party shall be entitled to reasonable attorney’s fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

6.9          Amendments and Waivers.  Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of at least 70% of the Conversion Shares issuable or issued upon conversion of the Series D Preferred Stock purchased hereunder.  Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any securities purchased under this Agreement at the time outstanding (including securities into which such securities are convertible), each future holder of all such securities, and the Company.

 

6.10        Severability.  If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

 

6.11        Aggregation of Stock.  All shares of Series D Preferred Stock held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

 

6.12        Entire Agreement.  This Agreement and the documents referred to herein constitute the entire agreement among the parties (except the Rights Agreement and the Collaboration Agreement) and no party shall be liable or bound to any other party in any manner by any warranties, representations, or covenants except as specifically set forth herein or therein.

 

6.13        Waiver of Conflicts.  Each party to this Agreement acknowledges that Gunderson Dettmer, counsel for the Company, has in the past performed and may continue to perform legal services for certain of the Investors, including persons related to and affiliated with Prospect Venture Partners, New Enterprise Associates and Venrock Associates, in matters unrelated to the transactions described in this Agreement, including the representation of such Investors in venture capital financings and other matters.  Accordingly, each party to this Agreement hereby (1) acknowledges that they have had an opportunity to ask for information relevant to this disclosure; (2) acknowledges that Gunderson Dettmer represented the Company in the transaction contemplated by this Agreement and has not represented any individual Investor or any individual stockholder or employee of the Company in connection with such transaction; and (3) gives its informed consent to Gunderson Dettmer’s representation of certain of the Investors in such unrelated matters and to Gunderson Dettmer’s representation of the Company in connection with this Agreement and the transactions contemplated hereby.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

	
 
    	
 
    	
COMPANY:
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
VITAE   PHARMACEUTICALS, INC.
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
Name:
    	
Jeffrey   Hatfield
    
	
 
    	
 
    	
 
    	
Title:
    	
Chief   Executive Officer
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Address:
    	
502   West Office Center Drive
    
	
 
    	
 
    	
Fort   Washington, PA 19034
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

	
 
    	
 
    	
INVESTOR
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
BOEHRINGER INGELHEIM
    
	
 
    	
INTERNATIONAL GMBH
    
	
 
    	
ppa.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
Dr. Klaus Wilgenbus
    	
 
    	
Name:
    	
Dr. Christian Hauke
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
Head Corporate Division Licensing
    	
 
    	
Title:
    	
Head Corporate Department Law
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Address:
    	
Binger Straße 173
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
55216 Ingelheim am Rhein
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Germany
    	
 
    	
 
    	
 
    

 

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

Schedule 1.1(c)

 

Schedule of Investors

 

	
Investor
    	
 
    	
Number of
   Shares Purchased
   at Closing
    	
 
    	
Total Purchase
   Price of Shares
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
Boehringer Ingelheim International GmbH
    	
 
    	
12,500,000
    	
 
    	
15,000,000 USD
    	
 
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
TOTAL:
    	
 
    	
12,500,000
    	
 
    	
15,000,000 USD
    	
 
    

 

 

Schedule 2

 

Schedule of Exceptions

 

VITAE PHARMACEUTICALS, INC.

Schedule of Exceptions to the

Series D Preferred Stock Purchase Agreement

dated October 2, 2007

 

The following are exceptions to the representations and warranties made by Vitae Pharmaceuticals, Inc. (the “Company”) in Section 2 of the Series D Preferred Stock Purchase Agreement (the “Agreement”), which exceptions shall be deemed to be representations and warranties as if made under the Agreement.  The Company represents and warrants that none of the exceptions will limit the ability of the Company to fulfill all its obligations and to implement all regulations under the Collaboration Agreement, it being understood that the Company may need to obtain the waiver of certain rights held by Lighthouse Capital Partners prior to the assignment of certain intellectual property by the Company to Boehringer Ingelheim International GmbH pursuant to Section 13.1.2 of the Collaboration Agreement.  In case a waiver of rights by Lighthouse Capital Partners would indeed be necessary, obtaining of such waiver and further actions in case such waiver is not obtained in the given time shall be handled as explicitly ruled in Section 13.1.2. of the Collaboration Agreement.  Furthermore, the Parties expressly acknowledge that Vitae’s representations and warranties under the Collaboration Agreement, in particular its Section 11.3 shall by no means be limited, restricted or amended by the Agreement or any document relating thereto. The representations and warranties of Vitae under the Collaboration Agreement, in particular its Section 11.3 shall override any other conflicting provision contained in the Agreement or any documents, exhibits and schedules relating thereto.  Where the terms of a lease, contract, instrument or other disclosure item have been summarized or described in this Schedule of Exceptions, such summary or description does not purport to be a complete statement of the material terms of such lease, contract, instrument or other item.  Terms defined in the Agreement shall have the same meanings when used herein unless otherwise defined.

 

2.2                               Capitalization and Voting Rights

 

Warrants for the purchase of 75,000 shares of Series A-2 Preferred Stock to Silicon Valley Bank provide for the shares subject to the warrant to be treated as outstanding for purposes of taking advantage of any antidilution adjustments to which holders of such stock may be entitled.

 

2.10                        Intellectual Property

 

WUXI Pharmaceuticals Co Ltd — Effective July 1, 2002, the Company entered into an annually renewable chemistry contract research services agreement with WUXI Pharmaceuticals Co Ltd of China (“WUXI”), whereby WUXI will provide chemistry contract research services to the Company on a full time equivalent basis.

 

Lighthouse Capital Partners — On March 30, 2005, the Company entered into a Loan and Security Agreement (the “Lighthouse Agreement”) with Lighthouse Capital Partners V, L.P.

 

 

(“Lighthouse”) in the amount of $7,000,000.  Pursuant to the terms of the Lighthouse Agreement, the Company executed a negative pledge agreement with respect to its intellectual property that restricts the transfer of the Company’s intellectual property outside the ordinary course of business or in a manner that would have a material adverse affect on the Company.

 

Allergan, Inc. — The Company has entered into that certain Master Technology Ownership and License Agreement of May 10, 2004 with Allergan, Inc. and Allergan Sales, LLC.

 

Consejo Superior de Investigaciones Cientificas — On January 21, 2005, the Company offered terms, which were subsequently accepted, to allow the Consejo Superior de Investigaciones Cientificas to conduct additional non-commercial research on specific compounds whose patents and related intellectual property are controlled by the Company.

 

Quest Diagnostics Incorporated — The Company entered into a Research Testing Agreement with Quest Diagnostics Incorporated effective on May 15, 2006 whereby Quest Diagnostics Incorporated provides research testing for the Company.

 

Quest Group International, Inc. — Effective May 11, 2007 the Company entered into a sublicense agreement with Quest Group International, Inc. for certain retinoid and rexinoid patents and know-how previously sublicensed from Allergan Inc.

 

SmithKline Beecham Corporation — The Company entered into a Collaboration and License Agreement with SmithKline Beecham Corporation dated as of June 15, 2005 whereby the parties have agreed to undertake research and the coordination of activites with respect to renin inhibitors.

 

Pharmaceutics International, Inc. — Effective January 15, 2005, the Company entered into a Clinical Manufacturing Agreement with Pharmaceutics International, Inc., whereby Pharmaceutics International, Inc. will perform formulation development work, feasibility studies, analytical services and clinical manufacturing for the Company’s Oncology program.

 

Research Corporation Technologies, Inc. — Effective June 30, 2002, the Company entered into a License Agreement with Research Corporation Technologies, Inc., whereby the Company licenses certain patents from Research Corporation Technologies, Inc. for research purposes.

 

AdVec, Inc. — Effective August 1, 2002, the Company entered into a License Agreement with AdVec, Inc., whereby the Company licenses certain human embryo kidney cells transformed by Adenovirus 5 DNA from AdVed, Inc. and may use such cells for commercial purposes.

 

Lonza Walkersville, Inc. — Effective June 13, 2007, the Company entered into an Evaluation & Research License Agreement with Lonza Walkersville, Inc., whereby the Company licenses a certain cell line from Lonza Walkersville, Inc. currently for evaluation purposes.

 

 

Crimson Canary — Effective March 2, 2007, the Company entered into a Services Agreement with Crimson Canary, whereby Crimson Canary will provide competitive intelligence research services to the Company.

 

The Company has entered into various Material Transfer Agreements, wherein the Company has granted licenses to the recipient of the transferred materials in order for the recipient to perform the testing or other activities allowed under such MTA.

 

2.12                        Agreements; Action

 

(a)

 

WUXI Pharmaceuticals Co Ltd — Effective July 1, 2002, the Company entered into an annually renewable chemistry contract research services agreement with WUXI, whereby WUXI will provide chemistry contract research services to the Company on a full time equivalent basis.  Dr. John J. Baldwin, the Company’s President and Chief Science Officer, is affiliated with an irrevocable trust that holds an equity interest in WUXI.

 

Donald J. Hayden, Chairman — Consulting services agreement providing for compensation of $3,334 per month.  The agreement can be terminated at any time with 15 days notice.

 

The Company has entered into offer letters with each of its officers.  The offer letters are substantially similar to the standard offer letter template attached hereto, except that certain offer letters provide for severance, deferred signing-bonuses and/or accelerated vesting of options under certain conditions.

 

The Company has executed an Indemnification Agreement with each current director of the Company, in the form made available to the Investors.

 

(b)

 

502 WOC Properties, LP - Effective July 11, 2002, the Company entered into a ten year six month agreement of lease with 502 WOC Properties, L.P.  The Company leases the entire 47,000 square foot laboratory and office building which is located at 502 West Office Center Drive in Fort Washington, PA.  The minimum annual rent is $13.50 per square foot with annual price increases of $0.50 per square foot.

 

Lighthouse Capital Partners - The Lighthouse Agreement is payable over 60 months at an interest rate of 2% plus the prime rate with the last payment to include an additional interest payment of $630,000.  Pursuant to the Lighthouse Agreement, the Company issued warrants to Lighthouse to purchase 823,528 shares of Series B preferred stock at $0.425 per share.  In connection with the Lighthouse Agreement, the Company granted to Lighthouse a continuing security interest in all presently existing and later acquired Collateral (as defined in the Agreement) to secure all Obligations (as defined in the Agreement) and performance of each of the Company’s duties under the Loan Documents (as defined in the Agreement).  Except for Permitted Liens (as defined in the Lighthouse Agreement), any security interest will be a first priority security interest in the Collateral.  Upon the occurrence of any Event of Default (as

 

 

defined in the Lighthouse Agreement), Lighthouse may among other remedies place a hold on any deposit or investment account of the Company.  Furthermore, pursuant to the terms of the Lighthouse Agreement, the Company executed a negative pledge agreement with respect to its intellectual property that restricts the transfer of the Company’s intellectual property outside the ordinary course of business or in a manner that would have a material adverse affect on the Company.

 

Quest Group International, Inc. - Effective May 11, 2007 the Company entered into a sublicense agreement with Quest Group International, Inc. for certain retinoid and rexinoid patents and know-how previously sublicensed from Allergan Inc.  Under the terms of the agreement Quest has contingent payments payable to the Company upon achievement of certain development milestones and royalties on sales.

 

Silicon Valley Bank — On July 11, 2002, the Company signed a Standby Letter of Credit (“LoC”) in the amount of $850,000 as a deposit for the agreement of lease with 502 WOC Properties, LP.  As of September 30, 2007, $700,000 was restricted by this LoC.

 

Silicon Valley Bank — On July 13, 2006, the Company entered into a Loan and Security Agreement with Silicon Valley Bank whereby the Company may borrow up to $1,500,000 for equipment purchased prior to April 30, 2006.  As of September 30, 2007 the balance of the loan was approximately $475,000.  In addition a balloon interest payment of $17,200 is due with the final principal payment.

 

Covance Laboratories, Inc. — Effective October 26, 2004, the Company entered into a Laboratory Services Agreement with Covance Laboratories, Inc. whereby Covance Laboratories, Inc. will perform various pre-clinical studies for the Company’s Dermatology and Oncology programs.  The Company will indemnify Covance Laboratories, Inc. in case of infringements of certain rights by the Company.

 

Dow Pharmaceutical Sciences — Effective February 16, 2005, the Company entered into a Master Services Agreement with Dow Pharmaceutical Sciences whereby Dow Pharmaceutical Sciences will perform formulation optimization, GMP manufacturing, labeling and stability studies for the Company’s Dermatology program.  The Company will indemnify Dow Pharmaceutical Sciences in case of infringements of certain rights by the Company.

 

Allergan, Inc. — The Company has entered into that certain Master Technology Ownership and License Agreement of May 10, 2004 with Allergan, Inc. and Allergan Sales, LLC.

 

Quest Diagnostics Incorporated — The Company entered into a Research Testing Agreement with Quest Diagnostics Incorporated effective on May 15, 2006 whereby Quest Diagnostics Incorporated provides research testing for the Company.

 

SmithKline Beecham Corporation — The Company entered into a Collaboration and License Agreement with SmithKline Beecham Corporation dated as of June 15, 2005 whereby the parties have agreed to undertake research and the coordination of activities with respect to renin inhibitors.

 

 

Charles River Laboratories, Inc. — The Company entered into a Laboratory Services and Confidentiality Agreement with Charles River Laboratories, Inc. dated as of April 30, 2007, whereby Charles River Laboratories, Inc. will provide research services.  The Company will indemnify Charles River Laboratories, Inc. in case of infringements of certain rights by the Company.

 

Rigaku Americas Corp, dba Active Sight (“ActiveSight”) — The Company entered into a Services Agreement with ActiveSight dated March 12, 2007, whereby Active Sight will provide crystallization and macromolecular research services.  The Company will indemnify ActiveSight in case of infringements of certain rights by the Company.

 

Pre-Clinical Research Services, Inc. — The Company entered into a Research-Related Services Agreement with Pre-Clinical Research Services, Inc. dated July 30, 2007, whereby Pre-Clinical Research Services, Inc. will provide research services.  The Company will indemnify Pre-Clinical Research Services, Inc. in case of infringements of certain rights by the Company.

 

AdVec, Inc. — The Company entered into a License Agreement with AdVec, Inc. dated August 1, 2002, whereby the Company will indemnify AdVec, Inc. in case of infringements of certain rights by the Company.

 

Lonza Walkersville, Inc. — The Company entered into an Evaluation & Research License Agreement with Lonza Walkersville, Inc. dated June 13, 2007, whereby the Company will indemnify Lonza Walkersville, Inc. in case of infringements of certain rights by the Company.

 

See Section 2.10 regarding the license of any patent, copyright, trade secret or other proprietary right to or from the Company.

 

(c)

 

See Section 2.12(a)

 

See Section 2.12(b)

 

See Section 2.13

 

2.13                        Related Party Transactions

 

WUXI Pharmaceuticals Co Ltd — Dr. John J. Baldwin, the Company’s President and Chief Scientific Officer, is affiliated with an irrevocable trust that holds is an equity interest in WUXI Pharmaceuticals Co Ltd of China.

 

 

Donald J. Hayden, Chairman — Consulting services agreement providing for compensation of $3,334 per month.  The agreement can be terminated at any time with 15 days notice.

 

Chief Executive Officer — Pursuant to his offer letter dated February 25, 2004, the Company has agreed to reimburse the Chief Executive Officer for cost incurred in connection with his relocation to the greater Philadelphia area not to exceed $100,000.  Furthermore, the Company has agreed to provide him with a mortgage assistance program whereby the Company will make certain payment to him to assist with the payment of his mortgage under certain circumstances.  Prior to the acquisition of a home in the greater Philadelphia area, the Company has agreed to pay for the cost of a short term rental property in the area not to exceed $2,500 per month.

 

Robert Gunderson, Jr. — Gunderson, a director of the Company, is a partner at the law firm Gunderson Dettmer Stough Villeneuve Franklin & Hachigian, LLP (“GDSVF&H”).  GDSVF&H serves as the Company’s corporate legal counsel.

 

2.17                        Title to Property and Assets

 

Lighthouse Capital Partners — In connection with the Lighthouse Agreement, the Company granted to Lighthouse a security interest in all presently existing and later acquired Collateral to secure all Obligations and performance of each of the Company’s duties under the Lighthouse Agreement.  Except for Permitted Liens (as defined in the Lighthouse Agreement), any security interest will be a first priority security interest in the Collateral.  Upon the occurrence of any Event of Default (as defined in the Lighthouse Agreement), Lighthouse may among other remedies place a hold on any deposit or investment account of the Company.  Furthermore, pursuant to the terms of the Lighthouse Agreement, the Company executed a negative pledge agreement with respect to its intellectual property that restricts the transfer of the Company’s intellectual property outside the ordinary course of business or in a manner that would have a material adverse affect on the Company.

 

Silicon Valley Bank — On July 13, 2006, the Company entered into a Loan and Security Agreement with Silicon Valley Bank whereby the Company granted to the Silicon Valley Bank a continuing security interest in Collateral (as defined in the Loan and Security Agreement).

 

2.21                        Tax Returns, Payments and Elections

 

The Internal Revenue Service conducted an audit of the Company’s 2004 and 2005 federal income tax returns.

 

The state of Pennsylvania conducted a sales and use tax audit of the Company’s 2004, 2005 and 2006 state income tax returns.  In connection with all before-mentioned audits, the Company paid approximately $3,034 in sales and use tax deficiency.

 

 

2.24                        Manufacturing and Marketing Rights

 

See Section 2.10.

 

2.26                        Employee Benefit Plans

 

401(k) Plan - Effective April 1, 2003, the Company implemented the Concurrent Pharmaceuticals, Inc. 401(k) Plan through The Principle Financial Group.

 

Flexible Spending Account - Effective April 1, 2003, the Company implemented the Concurrent Pharmaceuticals, Inc. Cafeteria Plan through FlexAmerica, Inc.

 

Other Benefit Plans - The Company offers all of its employee’s medical, vision and prescription benefits through an Independence Blue Cross; dental benefits through MetLife and group life insurance and disability benefits are offered through Reliance Standard Life Insurance Company.

 

2.27                        Labor Agreements and Actions; Employee Compensation

 

See Section 2.12(a) regarding the offer letter of the Chief Executive Officer.

 

See Section 2.26.

 

The Company has entered into offer letters with each of its employees.  The offer letters are substantially similar to the standard offer letter template attached hereto, except that certain offer letters provide for severance, deferred signing-bonuses and/or accelerated vesting of options under certain conditions.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

Exhibit A

 

Restated Certificate of Incorporation

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
 OF
 VITAE PHARMACEUTICALS, INC.

 

 

Pursuant to Sections 242 and 245 of the

General Corporation Law of the State of Delaware

 

 

Vitae Pharmaceuticals, Inc. (the “Corporation”), a corporation organized and existing under the General Corporation Law of the State of Delaware, does hereby certify as follows:

 

FIRST:      The name of the Corporation is Vitae Pharmaceuticals, Inc.  The original certificate of incorporation of the Corporation was filed with the office of the Secretary of State of the State of Delaware on May 21, 2001 under the name Concurrent Pharmaceuticals, Inc.

 

SECOND:                                       That, in lieu of a meeting of the Board of Directors of the Corporation (the “Board”), consents in writing have been signed by the members of the Board recommending this Amended and Restated Certificate of Incorporation as being advisable and in the best interests of the Corporation.

 

THIRD:                                                  That, in lieu of a meeting and vote of stockholders, consents in writing have been signed by the holders of outstanding stock having not less than the minimum number of votes that is necessary to consent to this amendment and restatement, and, if required, prompt notice of such action shall be given in accordance with the provisions of Section 228 of the General Corporation Law of the State of Delaware.

 

FOURTH:                                     This Amended and Restated Certificate of Incorporation restates and integrates and further amends the certificate of incorporation of the Corporation, as heretofore amended or supplemented.

 

The text of the Corporation’s Certificate of Incorporation is restated in its entirety as follows:

 

ARTICLE I

 

The name of this Corporation is Vitae Pharmaceuticals, Inc.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE II

 

The address of the registered office of this Corporation in the State of Delaware is 1209 Orange Street, in the City of Wilmington, New Castle County, Delaware, 19801.  The name of its registered agent at such address is The Corporation Trust Company.

 

ARTICLE III

 

The nature of the business or purposes to be conducted or promoted is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of Delaware.

 

ARTICLE IV

 

A.                                    Classes of Stock.  This Corporation is authorized to issue two classes of stock to be designated, respectively, “Common Stock” and “Preferred Stock.”  The total number of shares that this Corporation is authorized to issue is Four Hundred Ninety-Eight Million Two Hundred Sixty-Two Thousand Seven Hundred Eighty-Seven (498,262,787) shares.  Three Hundred Million (300,000,000) shares shall be Common Stock and One Hundred Ninety-Eight Million Two Hundred Sixty-Two Thousand Seven Hundred Eighty-Seven (198,262,787) shares shall be Preferred Stock, each with a par value of $0.0001 per share.

 

B.                                    Rights, Preferences and Restrictions of Preferred Stock.  The Preferred Stock authorized by this Certificate of Incorporation may be issued from time to time in one or more series.  The rights, preferences, privileges, and restrictions granted to and imposed on the Series A-1 Preferred Stock, which series shall consist of Six Hundred Seventy-Five Thousand (675,000) shares (the “Series A-1 Preferred Stock”), on the Series A-2 Preferred Stock, which series shall consist of Sixteen Million Five Hundred Seventy-Five Thousand (16,575,000) shares (the “Series A-2 Preferred Stock”), on the Series B Preferred Stock, which series shall consist of One Hundred Fifty-One Million Eight Hundred Twelve Thousand Seven Hundred Eighty (151,812,780) shares (the “Series B Preferred Stock”), on the Series C Preferred Stock, which series shall consist of Sixteen Million Seven Hundred Thousand Seven (16,700,007) shares (the “Series C Preferred Stock”) and on the Series D Preferred Stock, which series shall consist of Twelve Million Five Hundred Thousand (12,500,000) shares (the “Series D Preferred Stock”) are as set forth below in this Article IV(B).

 

1.                                      Dividend Provisions.

 

(a)                                 The holders of shares of Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, on a pari passu basis with each other and prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this Corporation) on the Series A-1 Preferred Stock or the Common Stock of this Corporation, at the rate of $0.06 per share per annum for the Series A-2 Preferred Stock (as such may be adjusted for any stock splits, stock dividends, combinations, recapitalizations and the like with respect to the Series A-2 Preferred Stock), at a rate of $0.026 per share per annum for the Series B Preferred Stock (as

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

such may be adjusted for any stock splits, stock dividends, combinations, recapitalizations and the like with respect to the Series B Preferred Stock), at a rate of $0.054 per share per annum for the Series C Preferred Stock (as such may be adjusted for any stock splits, stock dividends, combinations, recapitalizations and the like with respect to the Series C Preferred Stock) and at a rate of $0.072 per share per annum for the Series D Preferred Stock (as such may be adjusted for any stock splits, stock dividends, combinations, recapitalizations and the like with respect to the Series D Preferred Stock), payable when, as, and if declared by the Board of Directors.  Such dividends shall not be cumulative.  The holders of the outstanding Series A-2 Preferred Stock can waive any dividend preference that such holders shall be entitled to receive under this Section 1(a) upon the affirmative vote or written consent of the holders of two thirds of the Series A-2 Preferred Stock then outstanding.  The holders of the outstanding Series B Preferred Stock can waive any dividend preference that such holders shall be entitled to receive under this Section 1(a) upon the affirmative vote or written consent of the holders of two thirds of the Series B Preferred Stock then outstanding.  The holders of the outstanding Series C Preferred Stock can waive any dividend preference that such holders shall be entitled to receive under this Section 1(a) upon the affirmative vote or written consent of the holders of at least seventy percent (70%) of the Series C Preferred Stock then outstanding.  The holders of the outstanding Series D Preferred Stock can waive any dividend preference that such holders shall be entitled to receive under this Section 1(a) upon the affirmative vote or written consent of the holders of at least seventy percent (70%) of the Series D Preferred Stock then outstanding.

 

(b)                                 The holders of shares of Series A-1 Preferred Stock shall be entitled to receive dividends, out of any assets legally available therefor, on a pari passu basis with each other and prior and in preference to any declaration or payment of any dividend (payable other than in Common Stock or other securities and rights convertible into or entitling the holder thereof to receive, directly or indirectly, additional shares of Common Stock of this Corporation) on the Common Stock of this Corporation, at the rate of $0.054 per share per annum for the Series A-1 Preferred Stock (as such may be adjusted for any stock splits, stock dividends, combinations, recapitalizations and the like with respect to the Series A-1 Preferred Stock), payable when, as, and if declared by the Board of Directors.  Such dividends shall not be cumulative.  The holders of the outstanding Series A-1 Preferred Stock can waive any dividend preference that such holders shall be entitled to receive under this Section 1(b) upon the affirmative vote or written consent of the holders of more than a majority of the Series A-1 Preferred Stock then outstanding.

 

(c)                                  The Corporation shall not declare or pay any dividends on shares of Common Stock (except for dividends payable solely in the form of Common Stock) until (i) the holders of the Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock and the holders of the Series A-1 Preferred Stock have first received the dividend preferences set forth in subparagraph 1(a) and 1(b), respectively; and (ii) in addition, the holders of Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock receive a distribution on each outstanding share of Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock in an amount at least equal to the product of (A) the per share amount, if any, of the dividends to be declared, paid or set aside for the Common Stock, multiplied by (B) the number of whole shares of Common Stock into which such shares of Series A-2 Preferred Stock,

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock, as applicable, are then convertible.

 

(a)                                 In the event of any liquidation, dissolution or winding up of this Corporation, either voluntary or involuntary, the holders of Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be entitled to receive, on a pari passu basis with each other and prior and in preference to any distribution of any of the assets of this Corporation to the holders of Series A-1 Preferred Stock or the holders of Common Stock by reason of their ownership thereof, an amount per share equal to $1.00 for each outstanding share of Series A-2 Preferred Stock (the “Original Series A-2 Issue Price”), plus declared but unpaid dividends on such share (subject to adjustment of such fixed dollar amounts for any stock splits, stock dividends, combinations, recapitalizations or the like with respect to the Series A-2 Preferred Stock), an amount per share equal to $0.425 for each outstanding share of Series B Preferred Stock (the “Original Series B Issue Price”) plus declared but unpaid dividends on such share (subject to adjustment of such fixed dollar amounts for any stock splits, stock dividends, combinations, recapitalizations or the like with respect to the Series B Preferred Stock), an amount per share equal to $0.90 for each outstanding share of Series C Preferred Stock (the “Original Series C Issue Price”) plus declared but unpaid dividends on such share (subject to adjustment of such fixed dollar amounts for any stock splits, stock dividends, combinations, recapitalizations or the like with respect to the Series C Preferred Stock) and an amount per share equal to $1.20 for each outstanding share of Series D Preferred Stock (the “Original Series D Issue Price”) plus declared but unpaid dividends on such share (subject to adjustment of such fixed dollar amounts for any stock splits, stock dividends, combinations, recapitalizations or the like with respect to the Series D Preferred Stock).  If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of this Corporation legally available for distribution shall be distributed ratably among the holders of the Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock and the Series D Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive under this subsection (a).

 

(b)                                 Upon completion of the distribution required by subsection (a) of this Section 2, the holders of Series A-1 Preferred Stock shall be entitled to receive, prior and in preference to any distribution of any of the assets of this Corporation to the holders of Common Stock, by reason of their ownership thereof, an amount per share equal to $0.90 for each outstanding share of Series A-1 Preferred Stock (the “Original Series A-1 Issue Price”), plus declared but unpaid dividends on such share (subject to adjustment of such fixed dollar amounts for any stock splits, stock dividends, combinations, recapitalizations or the like with respect to the Series A-1 Preferred Stock).  If upon the occurrence of such event, the assets and funds thus distributed among the holders of the Series A-1 Preferred Stock shall be insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then the entire assets and funds of this Corporation legally available for distribution, after completion of the distribution required by subsection (a) of this Section 2, shall be distributed ratably among the holders of the Series A-1 Preferred Stock in proportion to the full preferential amount each such holder is otherwise entitled to receive under this subsection (b).

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

(c)                                  Upon completion of the distribution required by subsection (a) and (b) of this Section 2, all of the remaining assets of this Corporation available for distribution to stockholders shall be distributed among the holders of Common Stock pro rata based on the number of shares of Common Stock held by each.

 

(d)

 

(i)                                     For purposes of this Section 2, a liquidation, dissolution or winding up of this Corporation shall be deemed to be occasioned by, or to include (unless the holders of more than a majority of the Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock then outstanding (voting together as a single class on an as-converted basis) shall determine otherwise), (A) the acquisition of this Corporation by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of this Corporation; or (B) a sale of all or substantially all of the assets of this Corporation (each of clause (A) and clause (B), a “Deemed Liquidation”).  Notwithstanding the prior sentence, the sale of shares of Series D Preferred Stock pursuant to that certain Series D Preferred Stock Purchase Agreement dated on or about October 2, 2007, as may be amended from time to time (the “Series D Agreement”) shall not be deemed a liquidation, dissolution or winding up of this Corporation.

 

(ii)                                  In any of such events, if the consideration received by this Corporation is other than cash, its value will be deemed its fair market value determined in good faith by the Corporation’s Board of Directors.

 

(iii)                               This Corporation shall not, without the appropriate vote of the stockholders under the General Corporation Law or Section 6 of this Article IV(B), effect any agreement and plan of merger or consolidation consummating a liquidation, dissolution or winding up of this Corporation unless such agreement provides that the consideration resulting from such liquidation, dissolution or winding up legally available for distribution to the stockholders of this Corporation by reason of such holders’ ownership of shares of the capital stock of this Corporation shall be allocated among such holders in accordance with the requirements of this Section 2.

 

(iv)                              In the event of a Deemed Liquidation, if this Corporation does not either (A) effect or enter into a definitive agreement to effect a dissolution of the Corporation under the General Corporation Law of the State of Delaware or (B) distribute pursuant to this Section 2 the proceeds of such Deemed Liquidation legally available for distribution to the stockholders of this Corporation by reason of such holders’ ownership of shares of the capital stock of this Corporation, in either clause (A) or (B) within 90 days after the closing of such Deemed Liquidation, then (X) this Corporation shall deliver a written notice (the “Deemed Liquidation Notice”) to each holder of then outstanding shares of Preferred Stock no later than the 90th day after the closing of such Deemed Liquidation advising such holders of their right (and the requirements to be met to secure such right) pursuant to the terms of the following clause (Y) to require the redemption of such shares of Preferred Stock, and (Y) if the holders of at least a majority in voting power of the then outstanding shares of Preferred Stock (voting together as a single class on an as-converted basis) so request in a written instrument delivered to

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

this Corporation not later than 20 days after the mailing date of the Deemed Liquidation Notice, this Corporation shall use the proceeds received by this Corporation for such Deemed Liquidation (net of any retained liabilities associated with the assets sold or disposed or other bona fide liabilities of this Corporation) as determined in good faith by the Board of Directors of this Corporation (the “Net Proceeds”) to redeem, to the extent legally available therefor, on the 30th day after the mailing date of the Deemed Liquidation Notice (the “Liquidation Redemption Date”), all then outstanding shares of Preferred Stock in accordance with the provisions of this Section 2.  In the event of a redemption pursuant to the preceding sentence, if the Net Proceeds are not sufficient to redeem all then outstanding shares of Preferred Stock, or if this Corporation does not have sufficient lawfully available funds to effect such redemption, this Corporation shall redeem a pro rata portion of each such holder’s shares of Preferred Stock to the fullest extent of such Net Proceeds or such lawfully available funds, as the case may be, and, where such redemption is limited by the amount of lawfully available funds, this Corporation shall redeem the remaining shares to have been redeemed as soon as practicable after this Corporation has funds legally available therefore.

 

 

3.                                      Redemption.  Except as provided in subsection B(2)(d)(iv), the Preferred Stock shall have no redemption rights.

 

4.                                      Conversion.  The holders of the Preferred Stock shall have conversion rights as follows (the “Conversion Rights”):

 

(a)                                 Right to Convert.  Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share, at the office of this Corporation or any transfer agent for such stock, into such number of fully paid and nonassessable shares of Common Stock as is determined by dividing the Original Issue Price for such series, by the Conversion Price applicable to such share, determined as hereafter provided, in effect on the date the certificate is surrendered for conversion.  The initial Conversion Price per share for shares of Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock shall be the Original Series A-1 Issue Price, the Original Series B Issue Price, the Original Series C Issue Price and the Original Series D Issue Price, respectively; and the initial Conversion Price per share for shares of Series A-2 Preferred Stock shall be $0.6638426 provided, however, that the Conversion Price for each series of Preferred Stock shall be subject to adjustment as set forth in subsections 4(d).

 

(b)                                 Automatic Conversion.  Each share of Preferred Stock shall automatically be converted into shares of Common Stock at the Conversion Price at the time in effect for such series of Preferred Stock immediately upon the earlier of (i)  this Corporation’s sale of its Common Stock in a firm commitment underwritten public offering pursuant to a registration statement on Form S-1 or Form SB-2 under the Securities Act of 1933, as amended, yielding aggregate proceeds (net of underwriting commissions and offering expenses) to the Company of at least $35,000,000 (a “Qualified IPO”) or (ii) the date specified by written consent or agreement of the holders of a majority of the then outstanding shares of Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (voting as a single class on an as-converted basis).

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

(c)                                  Mechanics of Conversion.  Before any holder of Preferred Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of this Corporation or of any transfer agent for such series, and shall give written notice to this Corporation at its principal corporate office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued.  This Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder of Preferred Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid.  Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date.  If the conversion is in connection with an underwritten offering of securities registered pursuant to the Securities Act of 1933, as amended, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing with the underwriters of the sale of securities pursuant to such offering, in which event the persons entitled to receive the Common Stock upon conversion of the Preferred Stock shall not be deemed to have converted such Preferred Stock until immediately prior to the closing of such sale of securities.

 

(d)                                 Conversion Price Adjustments, Stock Splits and Combinations.

 

(i)                                     The Conversion Price for each series of Preferred Stock shall be adjusted from time to time as follows:

 

(A)                               In the event this Corporation should at any time or from time to time after the date upon which any shares of Series D Preferred Stock were first issued (the “Purchase Date”) fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or other securities or rights convertible into, or entitling the holder thereof to receive directly or indirectly, additional shares of Common Stock (hereinafter referred to as “Common Stock Equivalents”) without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock Equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of each series of Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable on conversion of each share of such series shall be increased in proportion to such increase of the aggregate of shares of Common Stock outstanding and those issuable with respect to such Common Stock Equivalents.

 

(B)                               If the number of shares of Common Stock outstanding at any time after the Purchase Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price of each series of Preferred Stock shall be appropriately increased so that the number of shares of

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

Common Stock issuable on conversion of each share of such series shall be decreased in proportion to such decrease in outstanding shares.

 

(ii)                                  Other Distributions.  In the event this Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by this Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in subsection 4(d)(i)(A), then, in each such case for the purpose of this subsection 4(d), the holders of each series of Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of this Corporation into which their shares of Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of this Corporation entitled to receive such distribution.

 

(iii)                               Recapitalizations.  If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 4 or Section 2) provision shall be made so that the holders of each series of Preferred Stock shall thereafter be entitled to receive upon conversion of any of their shares of Preferred Stock, the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization.  In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 4 with respect to the rights of the holders of Preferred Stock after the recapitalization to the end that the provisions of this Section 4 (including adjustment of the Conversion Price for each series of Preferred Stock then in effect and the number of shares purchasable upon conversion of such series of Preferred Stock ) shall be applicable after that event as nearly equivalent as may be practicable.

 

(f)                                   No Impairment.  This Corporation will not, without the appropriate vote of the stockholders under the General Corporation Law or Section 6 of this Article IV(B), by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by this Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 4 and in the taking of all such action as may be necessary or appropriate in order to protect the respective Conversion Rights of the holders of the Preferred Stock against impairment.

 

(g)                                  No Fractional Shares and Certificate as to Adjustments.

 

(i)                                     No fractional shares shall be issued upon the conversion of any share or shares of Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share.  Whether or not fractional shares are issuable upon such conversion shall be determined on the basis of the total number of shares of Preferred Stock the holder is at the time converting into Common Stock and the number of shares of Common Stock issuable upon such aggregate conversion.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

(ii)                                  Upon the occurrence of each adjustment or readjustment of the Conversion Price of any affected series of Preferred Stock pursuant to this Section 4, this Corporation, at its expense, shall promptly compute such adjustment or readjustment in accordance with the terms hereof and prepare and furnish to each holder of any affected series of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based.  This Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (A) such adjustment and readjustment, (B) the Conversion Price for such series of Preferred Stock at the time in effect, and (C) the number of shares of Common Stock and the amount, if any, of other property that at the time would be received upon the conversion of a share of Preferred Stock.

 

(h)                                 Reservation of Stock Issuable Upon Conversion.  This Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of Preferred Stock, in addition to such other remedies as shall be available to the holder of such Preferred Stock, this Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite shareholder approval of any necessary amendment to this Certificate of Incorporation.

 

(i)                                     Notices.  Any notice required by the provisions of this Section 4 to be given to the holders of shares of Preferred Stock shall be deemed given if delivered personally, sent via reputable overnight courier service, via facsimile or deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the books of this Corporation.

 

(j)                                    Waiver of Adjustment to Conversion Price.  Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price of any series of Preferred Stock may be waived, either prospectively or retroactively and either generally or in a particular instance, by the consent or vote of the holders of a majority of the outstanding shares of such series of Preferred Stock.  Any such waiver shall bind all future holders of shares of such series of Preferred Stock.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

5.             Voting Rights.

 

(a)           General Voting Rights.  The holder of each share of Preferred Stock shall have the right to one vote for each share of Common Stock into which such share of Preferred Stock could then be converted, and with respect to such vote, such holder shall have full voting rights and powers equal to the voting rights and powers of the holders of Common Stock, and shall be entitled, notwithstanding any provision hereof, to notice of any stockholders’ meeting in accordance with the bylaws of this Corporation, and shall be entitled to vote, together with holders of Common Stock, with respect to any question upon which holders of Common Stock have the right to vote.  Fractional votes shall not, however, be permitted and any fractional voting rights available on an as-converted basis (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted) shall be rounded to the nearest whole number (with one-half being rounded upward).

 

(b)           Voting for the Election of Directors.  As long as at least 1,000,000 shares of Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and/or Series D Preferred Stock remain outstanding (as adjusted for any stock splits, stock dividends, combinations, recapitalizations and the like), the holders of such shares of Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (voting as a single class on an as-converted basis) shall be entitled to elect six (6) directors of this Corporation at each annual election of directors.  The holders of the Common Stock (voting as a separate class) shall be entitled to elect one (1) director of this Corporation at each annual election of directors.  The remaining members of the Company’s Board of Directors shall be elected by a majority of the holders of the outstanding Common Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (voting together as a single class on an as-converted basis).

 

In the case of any vacancy (other than a vacancy caused by removal) in the office of a director occurring among the directors elected by the holders of a class or series of stock pursuant to this Section 5(b), the remaining directors so elected by that class or series may by affirmative vote (or consent in lieu thereof) of a majority thereof (or the remaining director so elected if there be but one, or if there are no such directors remaining, by the affirmative vote, or consent in lieu thereof, of the holders of a majority of the shares of that class or series), elect a successor or successors to hold office for the unexpired term of the director or directors whose place or places shall be vacant.  Any director who shall have been elected by the holders of a class or series of stock or by any directors so elected, as provided in the immediately preceding sentence hereof, may be removed during the aforesaid term of office, either with or without cause, by, and only by, the affirmative vote (or consent in lieu thereof) of the holders of a majority of the shares of the class or series of stock entitled to elect such director or directors, given either at a special meeting of such stockholders duly called for that purpose or pursuant to a written consent of stockholders, and any vacancy thereby created may be filled by the holders of that class or series of stock represented at the meeting or pursuant to consent in lieu thereof.

 

6.             Protective Provisions.  This Corporation shall not (by amendment, merger, consolidation or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of a majority of the then outstanding shares of Series A-1

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

Preferred Stock, Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock (voting together as a single class on an as-converted basis):

 

(a)           sell, convey or otherwise dispose of all or substantially all of the assets of this Corporation or merge into or consolidate with any other corporation (other than a wholly-owned subsidiary corporation or in a transaction in which the Corporation is the acquiring party) or effect any transaction or series of related transactions in which more than fifty percent (50%) of the voting power of this Corporation is transferred, or effect any liquidation, dissolution, recapitalization, reorganization or bankruptcy;

 

(b)           effect any amendment, alteration or repeal of any provision of this Corporation’s Certificate of Incorporation or bylaws to alter or change the rights, preferences or privileges of the shares of the Series A-1 Preferred Stock, the Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock; provided, however, that any such amendment, alteration or repeal that would alter or change the powers, preferences, or special rights of a particular series of preferred stock so as to affect them adversely, but shall not so affect the entire class of Preferred Stock, shall also require the approval (by vote or written consent, as provided by law) of the holders of a majority of the then outstanding shares of such particular series;

 

(c)           declare or pay any dividends upon the Common Stock or the Series A-1 Preferred Stock;

 

(d)           authorize or issue, or obligate itself to issue, any equity security, or any other security convertible into or exercisable for any equity security, having a preference over the Series A-2 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock or the Series D Preferred Stock with respect to dividends, liquidation, redemption or voting;

 

(e)           change the authorized number of directors of the Corporation;

 

(f)            redeem, purchase or otherwise acquire (or pay into or set aside for a sinking fund for such purpose) any share or shares of Common Stock; provided, however, that this restriction shall not apply to the repurchase of shares of Common Stock from employees, officers, directors, consultants or other persons performing services for this Corporation or any subsidiary pursuant to agreements under which this Corporation has the option to repurchase such shares at cost upon the occurrence of certain events, such as the termination of employment, or through the exercise of any right of first refusal; or

 

(g)           issue, or obligate itself to issue, any shares of Series B Preferred Stock, Series C Preferred Stock or Series D Preferred Stock except for the issuance of Series D Preferred Stock pursuant to the Series D Agreement.

 

7.             Status of Converted Stock.  In the event any shares of Preferred Stock shall be converted pursuant to Section 4 hereof, the shares so converted shall be cancelled and shall not be issuable by this Corporation.  The Certificate of Incorporation of this Corporation shall be appropriately amended to effect the corresponding reduction in this Corporation’s authorized capital stock.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

C.            Common Stock.  The rights, preferences, privileges and restrictions granted to and imposed on the Common Stock are as set forth below in this Article IV(C).

 

1.             Dividend Rights.  Subject to the prior rights of holders of all classes of stock at the time outstanding having prior rights as to dividends, the holders of the Common Stock shall be entitled to receive, when and as declared by the Board of Directors, out of any assets of this Corporation legally available therefor, such dividends as may be declared from time to time by the Board of Directors.

 

2.             Liquidation Rights.  Upon the liquidation, dissolution or winding up of this Corporation, the assets of this Corporation shall be distributed as provided in Section 2 of Division B of Article IV hereof.

 

3.             Redemption.  The Common Stock shall not be redeemable at the election of the holder.

 

4.             Voting Rights.  The holder of each share of Common Stock shall have the right to one vote for each such share, and shall be entitled to notice of any stockholders’ meeting in accordance with the bylaws of this Corporation, and shall be entitled to vote upon such matters and in such manner as may be provided by law.  Notwithstanding the provisions of Section 242(b)(2) of the General Corporation Law of the State of Delaware, the holders of Common Stock shall vote together with the holders of Preferred Stock as a single class with respect to any proposed amendment hereto that would increase or decrease (but not below the number of shares then outstanding) the number of authorized shares of Common Stock or Preferred Stock with each such share being entitled to the number of votes per share as is provided in this Article IV, and the holders of the Common Stock shall not be entitled to a separate class vote with respect thereto.  There shall be no cumulative voting.

 

ARTICLE V

 

Except as otherwise provided in this Certificate of Incorporation, in furtherance and not in limitation of the powers conferred by statute, the Board of Directors is expressly authorized to make, repeal, alter, amend and rescind any or all of the Bylaws of this Corporation.

 

ARTICLE VI

 

Except as otherwise provided in this Certificate of Incorporation, the number of directors of the Corporation shall be fixed from time to time by a bylaw or amendment thereof duly adopted by the Board of Directors or by the stockholders.

 

ARTICLE VII

 

Elections of directors need not be by written ballot unless the Bylaws of this Corporation shall so provide.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE VIII

 

Meetings of stockholders may be held within or without the State of Delaware, as the Bylaws may provide.  The books of this Corporation may be kept (subject to any provision contained in the statutes) outside the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of this Corporation.

 

ARTICLE IX

 

A director of this Corporation, to the fullest extent permitted by the Delaware General Corporation Law as it now exists or as it may hereafter be amended, shall not be personally liable to this Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except for liability (i) for any breach of the director’s duty of loyalty to this Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived any improper personal benefit.  If the Delaware General Corporation Law is amended to authorize Corporation action further eliminating or limiting the personal liability of directors, then, the liability of a director of this Corporation shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

 

Any amendment, repeal or modification of this Article IX, or the adoption of any provision of this Certificate of Incorporation inconsistent with this Article IX, by the stockholders of this Corporation shall not apply to adversely affect any right or protection of a director of this Corporation existing at the time of such amendment, repeal, modification or adoption.

 

ARTICLE X

 

Except as otherwise provided in this Certificate of Incorporation, this Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation in the manner now or hereafter prescribed by statute.

 

ARTICLE XI

 

To the fullest extent permitted by applicable law, this Corporation is authorized to provide indemnification of (and advancement of expenses to) agents of this Corporation (and any other persons to which Delaware General Corporation Law permits this Corporation to provide indemnification) through bylaw provisions, agreements with such agents or other persons, vote of stockholders or disinterested directors or otherwise, in excess of the indemnification and advancement otherwise permitted by Section 145 of the Delaware General Corporation Law, subject only to limits created by applicable Delaware General Corporation Law (statutory or non-statutory), with respect to actions for breach of duty to this Corporation, its stockholders, and others.

 

Any amendment, repeal or modification of the foregoing provisions of this Article XI shall not adversely affect any right or protection of a director, officer, agent or other person existing at the time of, or increase the liability of any director of this Corporation with respect to any acts or omissions of such director, officer or agent occurring prior to, such amendment, repeal or modification.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

ARTICLE XII

 

To the maximum extent permitted from time to time under the General Corporation Law of the State of Delaware, this Corporation renounces any interest or expectancy of this Corporation in, or in being offered an opportunity to participate in, business opportunities that are presented to its officers, directors or stockholders other than those officers, directors or stockholders who are employees of this Corporation.  No amendment or repeal of this Article XII shall apply to or have any effect on the liability or alleged liability of any officer, director or stockholder of this Corporation for or with respect to any acts or omissions of such officer, director or stockholder occurring prior to such amendment or repeal.

 

*     *     *

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation has been executed by the Chief Executive Officer of this Corporation on this 2nd day of October, 2007.

 

 

	
 
    	
/s/ Jeffrey Hatfield
    
	
 
    	
Jeffrey Hatfield
    
	
 
    	
Chief Executive Officer
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT B

Amended and Restated Investors’ Rights Agreement

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

VITAE PHARMACEUTICALS, INC.

 

AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

OCTOBER 2, 2007

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

TABLE OF CONTENTS

 

	
 
    	
 
    	
 
    	
Page
    
	
 
    	
 
    	
 
    
	
1.
    	
Registration Rights
    	
1
    
	
 
    	
1.1
    	
Definitions
    	
2
    
	
 
    	
1.2
    	
Request for Registration
    	
3
    
	
 
    	
1.3
    	
Company Registration
    	
4
    
	
 
    	
1.4
    	
Form S-3 Registration
    	
5
    
	
 
    	
1.5
    	
Obligations of the Company
    	
6
    
	
 
    	
1.6
    	
Information from Holder
    	
7
    
	
 
    	
1.7
    	
Expenses of Registration
    	
7
    
	
 
    	
1.8
    	
Delay of Registration
    	
8
    
	
 
    	
1.9
    	
Indemnification
    	
8
    
	
 
    	
1.10
    	
Reports Under Securities   Exchange Act of 1934
    	
10
    
	
 
    	
1.11
    	
Assignment of Registration   Rights
    	
10
    
	
 
    	
1.12
    	
“Market Stand-Off”   Agreement
    	
11
    
	
 
    	
1.13
    	
Limitations on Subsequent   Registration Rights
    	
11
    
	
 
    	
1.14
    	
Termination of Registration   Rights
    	
12
    
	
 
    	
 
    	
 
    
	
2.
    	
Covenants of the Company
    	
12
    
	
 
    	
2.1
    	
Delivery of Financial   Statements
    	
12
    
	
 
    	
2.2
    	
Inspection
    	
13
    
	
 
    	
2.3
    	
Termination of Information   and Inspection Covenants
    	
13
    
	
 
    	
2.4
    	
Right of First Offer
    	
13
    
	
 
    	
2.5
    	
Board of Directors
    	
16
    
	
 
    	
2.6
    	
Required Notices
    	
18
    
	
 
    	
2.7
    	
Key Person Insurance
    	
19
    
	
 
    	
2.8
    	
Approval of Certain   Issuances
    	
19
    
	
 
    	
2.9
    	
Real Property Holding   Company
    	
19
    
	
 
    	
2.10
    	
Tax Disclosure
    	
20
    
	
 
    	
2.11
    	
Confidentiality
    	
20
    
	
 
    	
2.12
    	
Termination of Certain   Covenants
    	
20
    
	
 
    	
 
    	
 
    
	
3.
    	
Miscellaneous
    	
21
    
	
 
    	
3.1
    	
Successors and Assigns
    	
21
    
	
 
    	
3.2
    	
Governing Law
    	
21
    
	
 
    	
3.3
    	
Counterparts
    	
21
    
	
 
    	
3.4
    	
Titles and Subtitles
    	
21
    
	
 
    	
3.5
    	
Notices
    	
21
    
	
 
    	
3.6
    	
Expenses
    	
21
    
	
 
    	
3.7
    	
Entire Agreement;   Amendments and Waivers
    	
22
    
	
 
    	
3.8
    	
Severability
    	
22
    
	
 
    	
3.9
    	
Aggregation of Stock
    	
22
    
	
 
    	
3.10
    	
Additional Investors
    	
22
    
	
 
    	
3.11
    	
Termination of Prior   Agreement
    	
22
    

 

i

 

CONFIDENTIAL TREATMENT REQUESTED

 

SCHEDULE A                                        Investors

SCHEDULE B                                        Common Holders

 

ii

 

CONFIDENTIAL TREATMENT REQUESTED

 

VITAE PHARMACEUTICALS, INC.

AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

THIS AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (the “Agreement”) is made as of the 2 day of October, 2007, by and among Vitae Pharmaceuticals, Inc., a Delaware corporation (the “Company”), the investors listed on Schedule A hereto, each of which is herein referred to as an “Investor” and the holders of Common Stock listed on Schedule B hereto, each of which is herein referred to as a “Common Holder.”

 

RECITALS

 

WHEREAS, certain of the Investors (the “Existing Investors”) hold shares of the Company’s Series A-2 Preferred Stock and/or shares of Common Stock issued upon conversion thereof (the “Series A-2 Preferred Stock”) and/or shares of the Company’s Series B Preferred Stock and/or shares of Common Stock issued upon conversion thereof (the “Series B Preferred Stock”) and/or shares of the Company’s Series C Preferred Stock and/or shares of Common Stock issued upon conversion thereof (the “Series C Preferred Stock”) and possess registration rights, information rights, rights of first offer and other rights pursuant to that certain Amended and Restated Investors’ Rights Agreement dated as of June 15, 2005 by and among the Company, certain holders of Common Stock and certain of such Existing Investors, as amended (the “Prior Agreement”);

 

WHEREAS, the Prior Agreement may be amended, and any provision therein waived, with the consent of the Company and the holders of more than two-thirds of the Registrable Securities (as such term is defined in the Prior Agreement);

 

WHEREAS, the Existing Investors and the Common Holders, as holders of more than two-thirds of the Registrable Securities (as such term is defined in the Prior Agreement) of the Company, desire to amend and restate the Prior Agreement and to accept the rights created pursuant hereto in lieu of the rights granted to them under the Prior Agreement; and

 

WHEREAS, certain of the Investors are parties to that certain Series D Preferred Stock Purchase Agreement of even date herewith by and among the Company and such Investors (as may be amended from time to time, the “Series D Agreement”), which provides that as a condition to the closing of the issuance of shares of Series D Preferred Stock of the Company (the “Series D Preferred Stock”) thereunder, this Agreement must be executed and delivered by such Investors, Existing Investors and Common Holders holding more than two-thirds of the Registrable Securities (as such term is defined in the Prior Agreement) of the Company, and the Company.

 

NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Existing Investors and Common Holders hereby agree that the Prior Agreement shall be superseded and replaced in its entirety by this Agreement, and the parties hereto further agree as follows:

 

1.                                      Registration Rights.  The Company covenants and agrees as follows:

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

1.1                               Definitions.  For purposes of this Section 1:

 

(a)                                 The term “Act” means the Securities Act of 1933, as amended.

 

(b)                                 The term “Form S-3” means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

 

(c)                                  The term “Holder” means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.11 hereof.

 

(d)                                 The term “Initial Offering” means the Company’s first firm commitment underwritten public offering of its Common Stock under the Act.

 

(e)                                  The term “1934 Act” means the Securities Exchange Act of 1934, as amended.

 

(f)                                   The terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document.

 

(g)                                  The term “Preferred Stock” means the Company’s Series A-2 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock and Series D Preferred Stock.

 

(h)                                 The term “Registrable Securities” means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock of the Company, (ii) the shares of Common Stock held by the Common Holders (provided, however, that such shares of Common Stock shall not be deemed Registrable Securities for the purposes of Sections 1.13 and 3.7), (iii) the shares of Common Stock issuable or issued upon conversion of the Warrant Shares (provided, however, that such shares of Common Stock shall not be deemed Registrable Securities for the purpose of Section 1.2), (iv) the shares of Common Stock issuable or issued upon conversion of the Preferred Stock issuable pursuant to that certain warrant issued to Lighthouse Capital Partners V, L.P. on or about March 30, 2005 (the “Lighthouse Warrant”), and (v) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (i), (ii), (iii) and (iv) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not specifically assigned in writing.  The number of shares of “Registrable Securities” outstanding shall be determined by the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities.

 

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(i)                                     The term “SEC” means the Securities and Exchange Commission.

 

(j)                                    The term “Warrant Shares” means the shares of the Company’s Preferred Stock actually issued upon exercise of the warrant issued to Silicon Valley Bank on or about November 20, 2002 or the shares of the Company’s Preferred Stock actually issued upon exercise of the warrant issued to Silicon Valley Bank on or about July 10, 2006.

 

1.2                               Request for Registration.

 

(a)                                 Subject to the conditions of this Section 1.2, if the Company shall receive at any time six (6) months after the effective date of the Initial Offering, a written request from the Holders of at least two-thirds of the Registrable Securities then outstanding (the “Initiating Holders”) that the Company file a registration statement under the Act covering the registration of Registrable Securities, then the Company shall, within twenty (20) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 1.2, use all reasonable efforts to effect, as soon as practicable, the registration under the Act of all Registrable Securities that the Holders request to be registered in a written request received by the Company within twenty (20) days of the mailing of the Company’s notice pursuant to this Section 1.2(a).

 

(b)                                 If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwritten public offering, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in Section 1.2(a).  In such event the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwritten public offering and the inclusion of such Holder’s Registrable Securities in the underwritten public offering (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein.  All Holders proposing to distribute their securities through such underwritten offering shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by the Company (which underwriter or underwriters shall be reasonably acceptable to a majority in interest of the Initiating Holders).  Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Company that marketing factors require a limitation of the number of securities underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwritten public offering shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders).  Any Registrable Securities excluded or withdrawn from such underwritten public offering shall be withdrawn from the registration.

 

(c)                                  The Company shall not be required to effect a registration pursuant to this Section 1.2:

 

(i)                                     in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such

 

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registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Act; or

 

(ii)                                  after the Company has effected one (1) registration pursuant to this Section 1.2, and such registration has been declared or ordered effective; or

 

(iii)                               during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of the filing of, and ending on a date one hundred eighty (180) days following the effective date of, a Company-initiated registration subject to Section 1.3 below, provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or

 

(iv)                              if the Initiating Holders propose to dispose of Registrable Securities that may be registered on Form S-3 pursuant to Section 1.4 hereof; or

 

(v)                                 if the Company furnishes to Holders requesting a registration statement pursuant to this Section 1.2 a certificate signed by the Company’s Chief Executive Officer or Chairman of the Board stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders, provided that such right to delay a request shall be exercised by the Company not more than once in any twelve (12)-month period.

 

1.3                               Company Registration.

 

(a)                                 If the Company, at its discretion, proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities (other than a registration relating solely to the sale of securities to participants in a Company stock plan, a registration relating to a corporate reorganization or other transaction listed in Rule 145(a) of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration.  Upon the written request of each Holder given within twenty (20) days after delivery of such notice by the Company in accordance with Section 3.5, the Company shall, subject to the provisions of Section 1.3(c), use all reasonable efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder has requested to be registered.

 

(b)                                 Right to Terminate Registration.  The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities

 

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in such registration.  The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 1.7 hereof.

 

(c)                                  Underwriting Requirements.  In connection with any underwritten public offering of shares of the Company’s capital stock, the Company shall not be required under this Section 1.3 to include any of a Holder’s securities in such offering unless such Holder accepts the terms of the underwriting as agreed upon between the Company and the underwriters selected by it (or by other persons entitled to select the underwriters) and enter into an underwriting agreement in customary form with an underwriter or underwriters selected by the Company, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company.  If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, that the underwriters determine in their sole discretion will not jeopardize the success of the offering (the securities so included to be apportioned pro rata among the selling Holders and any other stockholders according to the total amount of securities entitled to be included therein owned by each selling Holder or other stockholder or in such other proportions as shall mutually be agreed to by such selling Holders). For purposes of the preceding parenthetical concerning apportionment, for any selling stockholder that is a Holder of Registrable Securities and that is a partnership, limited liability company or corporation, the partners, members, retired partners, retired members and stockholders of such Holder, or the estates and family members of any such partners, members and retired partners, retired members and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate amount of Registrable Securities owned by all such related entities and individuals.

 

1.4                               Form S-3 Registration.  In case the Company shall receive from the Holders of at least twenty-five percent (25%) of the Registrable Securities a written request or requests that the Company effect a registration on Form S-3, and any related qualification or compliance, with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall:

 

(a)                                 promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

 

(b)                                 use all reasonable efforts to effect, as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4:

 

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(i)                                     if Form S-3 is not available for such offering by the Holders;

 

(ii)                                  if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or commissions) of less than $1,000,000;

 

(iii)                               if the Company furnishes to the Holders a certificate signed by the Chief Executive Officer or Chairman of the Board of the Company stating that, in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than one hundred twenty (120) days after receipt of the request of the Holder or Holders under this Section 1.4; provided, however, that the Company shall not utilize this right more than once in any twelve month period;

 

(iv)                              if the Company has, within the twelve (12) month period preceding the date of such request, already effected one registration on Form S-3 for the Holders pursuant to this Section 1.4; or

 

(v)                                 in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance.

 

(c)                                  Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders.  Registrations effected pursuant to this Section 1.4 shall not be counted as requests for registration effected pursuant to Section 1.2.

 

1.5                               Obligations of the Company.  Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

 

(a)                                 prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all reasonable efforts to cause such registration statement to become effective, and keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the Registration Statement has been completed;

 

(b)                                 prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement;

 

(c)                                  furnish to the Holders such numbers of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act,

 

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and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;

 

(d)                                 use all reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

 

(e)                                  in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering;

 

(f)                                   notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing;

 

(g)                                  cause all such Registrable Securities registered pursuant hereunder to be listed on each securities exchange on which similar securities issued by the Company are then listed; and

 

(h)                                 provide a transfer agent and registrar for all Registrable Securities registered pursuant hereunder and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

 

1.6                               Information from Holder.  It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be required to effect the registration of such Holder’s Registrable Securities.

 

1.7                               Expenses of Registration.  All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4, including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders not to exceed $35,000 shall be borne by the Company.  Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or Section 1.4 if the registration request is subsequently withdrawn at the request of the Holders holding at least a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were requested to be included in the withdrawn registration by each such Holder), unless, in the case of a registration requested under Section 1.2, the Holders

 

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holding at least a majority of the Registrable Securities agree to forfeit their right to one demand registration pursuant to Section 1.2; provided, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business, or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2 or 1.4.

 

1.8                               Delay of Registration.  No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

 

1.9                               Indemnification.  In the event any Registrable Securities are included in a registration statement under this Section 1:

 

(a)                                 To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members or officers, directors and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act (a “Holder Indemnitee”), against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws; and the Company will reimburse each such Holder Indemnitee for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection l.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case to a Holder Indemnitee for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder Indemnitee; provided further, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Holder Indemnitee, from whom the person asserting any such losses, claims, damages or liabilities purchased shares in the offering, if a copy of the prospectus (as then amended or supplemented if the Company shall have furnished any amendments or supplements thereto) was not sent or given by or on behalf of such Holder Indemnitee, if required by law so to have been delivered, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so

 

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amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability.

 

(b)                                 To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any person intended to be indemnified pursuant to this subsection l.9(b), for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability or action; provided, however, that the indemnity agreement contained in this subsection l.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld), provided that in no event shall any indemnity under this subsection l.9(b) exceed the net proceeds from the offering received by such Holder.

 

(c)                                  Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 1.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9.

 

(d)                                 If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in

 

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such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided, however, that such contribution shall not exceed the net proceeds from the offering received by such Holder.  The relative fault of the indemnifying party and of the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission.

 

(e)                                  Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

(f)                                   The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1, and otherwise.

 

1.10                        Reports Under Securities Exchange Act of 1934.  With a view to making available to the Holders the benefits of Rule 144 promulgated under the Act and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

 

(a)                                 make and keep public information available, as those terms are understood and defined in SEC Rule 144, at all times after ninety (90) days after the effective date of the Initial Offering;

 

(b)                                 file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and

 

(c)                                  furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of SEC Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company with the SEC as the Holder may reasonably request, and (iii) such other information as may be reasonably requested in availing any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form.

 

1.11                        Assignment of Registration Rights.  The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only

 

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CONFIDENTIAL TREATMENT REQUESTED

 

with all related obligations) by a Holder to a transferee or assignee of such securities that (i) is a subsidiary, parent, affiliate, partner, member, retired partner, retired member or stockholder of a Holder, (ii) is a Holder’s family member or trust for the benefit of an individual Holder, or (iii) after such assignment or transfer, holds at least 250,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations, recapitalizations and the like); provided: (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including without limitation the provisions of Section 1.12 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act.

 

1.12                        “Market Stand-Off” Agreement.  Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s Initial Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (l80) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are then owned by the Holder or are thereafter acquired), or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or such other securities, in cash or otherwise. The foregoing provisions of this Section 1.12 shall apply only to the Company’s Initial Offering, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the Holders if all officers and directors and greater than five percent (5%) stockholders of the Company enter into similar agreements. The underwriters in connection with the Company’s Initial Offering are intended third party beneficiaries of this Section 1.12 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.

 

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.

 

1.13                        Limitations on Subsequent Registration Rights.  From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders holding more than two-thirds of the Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include such securities in any registration filed under Section 1.3 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included or (b) to demand registration of their securities.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

1.14                        Termination of Registration Rights.  No Holder shall be entitled to exercise any right provided for in this Section 1 (i) after five (5) years following the consummation of the Initial Offering or (ii) as to any Holder, such earlier time at which such Holder (A) is able to sell all Registrable Securities held by it pursuant to Rule 144(k) promulgated under the Act or (B) together with any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144, holds less than 1% of the outstanding voting stock of the Company and is otherwise able to sell all Registrable Securities held by it pursuant to Rule 144 promulgated under the Act.

 

2.                                      Covenants of the Company.

 

2.1                               Delivery of Financial Statements.  The Company shall deliver the materials set forth in subsections (a) through (f) of this Section 2.1 to each Major Investor.  For purposes hereof, “Major Investor” shall mean an Investor that holds at least 1,000,000 shares of Preferred Stock (and/or Common Stock issued upon conversion thereof) (subject to appropriate adjustment for stock splits, stock dividends, combinations, recapitalizations and the like); provided, however, that each of SmithKline Beecham Corporation and its assigns and transferees (collectively, “SKB”) and Boehringer Ingelheim International GmbH and its assigns and transferees (collectively, “BI” and together with SKB, each an “Industry Investor”) shall be a “Major Investor” solely for purposes of Sections 2.1(a), 2.1(b), 2.1(c), 2.1(e), 2.3 and 2.4.

 

(a)                                 as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholder’s equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (“GAAP”), and audited and certified by independent public accountants of nationally recognized standing selected by the Company;

 

(b)                                 as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement and statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter;

 

(c)                                  within thirty (30) days of the end of each month, an unaudited income statement and statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail;

 

(d)                                 as soon as practicable, but in any event at least thirty (30) days prior to the end of each fiscal year, a budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets, income statements and statements of cash flows for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company;

 

(e)                                  with respect to the financial statements called for in subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief Financial Officer or President of the Company certifying that such financials were prepared in accordance with

 

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CONFIDENTIAL TREATMENT REQUESTED

 

GAAP consistently applied with prior practice for earlier periods (with the exception of footnotes that may be required by GAAP) and fairly present the financial condition of the Company and its results of operation for the period specified, subject to year-end audit adjustment; and

 

(f)                                   such other information relating to the financial condition, business, prospects or corporate affairs of the Company as the Major Investor or any assignee thereof may from time to time request, provided, however, that the Company shall not be obligated under this subsection (f) or any other subsection of Section 2.1 to provide information that it deems in good faith to be a trade secret or similar confidential information.

 

2.2                               Inspection.  The Company shall permit each Major Investor, at such Major Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information that it reasonably considers to be a trade secret or similar confidential information.

 

2.3                               Termination of Information and Inspection Covenants.  The covenants set forth in Sections 2.1 and 2.2 shall terminate as to Major Investors and be of no further force or effect when the sale of securities pursuant to the Company’s Initial Offering is consummated or when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur.

 

2.4                               Right of First Offer.  Subject to the terms and conditions specified in this Section 2.4, the Company hereby grants to each Major Investor, a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined).  For purposes of this Section 2.4, a Major Investor shall mean any Major Investor or transferee thereof that is also a Major Investor immediately following such transfer. For purposes of this Section 2.4, “Major Investor” includes any partners, members and affiliates of a Major Investor.  A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners, members and affiliates in such proportions, as it deems appropriate.

 

Each time the Company proposes to offer any shares of, or securities convertible into or exchangeable or exercisable for any shares of, any class of its capital stock (“Shares”), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions.

 

(a)                                 The Company shall deliver a notice in accordance with Section 3.5 (“Notice”) to the Major Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered, and (iii) the price and terms upon which it proposes to offer such Shares.

 

(b)                                 By written notification received by the Company, within ten (10) calendar days after receipt of the Notice, the Major Investors may elect to purchase or obtain, at the price and on the terms specified in the Notice, up to that portion of such Shares that

 

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CONFIDENTIAL TREATMENT REQUESTED

 

equals the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Preferred Stock then held by such Major Investor bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of all convertible or exercisable securities).  The Company shall promptly, in writing, inform each Major Investor that elects to purchase all the shares available to it (a “Fully-Exercising Holder”) of any other Major Investor’s failure to do likewise.  During the ten (10) day period commencing after such information is given, each Fully-Exercising Holder may elect to purchase that portion of the Shares for which Major Investors were entitled to subscribe but which were not subscribed for by the Major Investors that is equal to the proportion that the number of shares of Common Stock issued and held, or issuable upon conversion of the Preferred Stock then held, by such Fully-Exercising Holder bears to the total number of shares of Common Stock issued and held, or issuable upon conversion of the Preferred Stock then held, by all Fully-Exercising Holders who wish to purchase some of the unsubscribed shares.

 

(c)                                  If all Shares that Major Investors are entitled to obtain pursuant to subsection 2.4(b) are not elected to be obtained as provided in subsection 2.4(b) hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than, and upon terms no more favorable to the offeree than those specified in the Notice.  If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within ninety (90) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith.

 

(d)                                 The right of first offer in this Section 2.4 shall not be applicable to (i) the issuance of shares of Series D Preferred Stock pursuant to the Series D Agreement, (ii) the issuance or sale of shares of Common Stock (or options therefor) to employees, directors and consultants for the primary purpose of soliciting or retaining their services; (iii) the issuance of securities pursuant to a bona fide, firmly underwritten public offering of shares of Common Stock, registered under the Act, (iv) the issuance of securities as a stock dividend or upon any subdivision of shares of Common Stock, provided that the securities issued pursuant to such stock dividend or subdivision are limited to additional shares of Common Stock, (v) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (vi) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise or (vii) the issuance of stock, warrants or other securities or rights to persons or entities with which the Company has business relationships provided such issuances are for other than primarily equity financing purposes and provided that any such issuance is approved by the Company’s Board of Directors, including at least one of the VC Preferred Directors (as defined below).

 

(e)                                  Major Investors may assign all or any part of their rights under this Section 2.4 to persons or entities approved by the Board.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(f)                                   (i)  Each Industry Investor hereby agrees that unless specifically invited in writing by the Company to do so, none of the Industry Investors or any of their Affiliates will, or will cause or knowingly permit any of its or their directors, officers, employees, investment bankers, attorneys, accountants or other advisors or representatives to, in any manner, directly or indirectly: (A) effect or seek, initiate, offer or propose (whether publicly or otherwise) to effect, or cause or participate in or in any way advise, assist or encourage any other person to effect or seek, initiate, offer or propose (whether publicly or otherwise) to effect or cause or participate in: (1) any acquisition of any securities (or beneficial ownership thereof) or assets of the Company; (2) any tender or exchange offer, merger, consolidation or other business combination involving the Company; (3) any recapitalization, restructuring, liquidation, dissolution, sale of assets or other extraordinary transaction with respect to the Company; or (4) any “solicitation” of “proxies” (as such terms are used in the proxy rules of the United States Securities and Exchange Commission) or consents to vote any voting securities of the Company; (B) form, join or in any way participate in a “group” (as defined under the Securities Exchange Act of 1934, as amended) with respect to any securities of the Company; (C) otherwise act, alone or in concert with others, to seek to control or influence the management, Board of Directors or policies of the Company; (D) take any action which might reasonably force the Company to make a public announcement regarding any of the types of matters set forth in (A) above; or (E) enter into any agreements, discussions or arrangements with any third party with respect to any of the foregoing.  Each Industry Investor also agrees not to request that the Company (or its directors, officers, employees or agents), directly or indirectly, amend or waive any provision of this subsection 2.4(f) (including without limitation this sentence) or the proviso in the last clause of Section 2.12.  SKB represents and warrants that, except for shares of Series C Preferred Stock of the Company purchased by SKB pursuant to that certain Series C Preferred Stock Purchase Agreement dated June 15, 2005 by and among the Company and certain stockholders of the Company, neither SKB nor any of its Affiliates owns, of record or beneficially, any voting securities of the Company, or any securities convertible into or exercisable for any such voting securities.  BI represents and warrants that, except for shares of Series D Preferred Stock of the Company purchased by BI pursuant to the Series D Agreement, neither BI nor any of its Affiliates owns, of record or beneficially, any voting securities of the Company, or any securities convertible into or exercisable for any such voting securities.

 

(ii)                                  Nothing in this subsection 2.4(f) shall prohibit (A) an Industry Investor or its Affiliates from purchasing additional equity securities of the Company if after such purchase such Industry Investor and its Affiliates would own no greater percent of the total voting power of all voting securities of the Company then outstanding than such Industry Investor and its Affiliates own on the date hereof; (B) an Industry Investor or its Affiliates from acquiring securities of the Company issued in connection with stock splits or recapitalizations or on exercise of pre-emptive rights or rights of first offer afforded to Company stockholders generally or under this Agreement or the Amended and Restated Certificate of Incorporation of the Company; (C) an Industry Investor or its Affiliates or any of its or their respective directors, officers and employees from purchasing securities of the Company pursuant to (I) a pension plan established for the benefit of such employees, (II) any employee benefit plan of such Industry Investor or its Affiliates, (III) any stock portfolios not controlled by such Industry Investor or any of its Affiliates that invest in the Company among other companies; (D) personal investment by any director or officer of such Industry Investor or its Affiliates in securities of the Company unless such director or officer is with such Industry Investor or its

 

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CONFIDENTIAL TREATMENT REQUESTED

 

Affiliates part of a “group” (as defined under the Securities Exchange Act of 1934, as amended) for purposes of subsection 2.4(f)(i); (E) an Industry Investor or its Affiliates from acquiring securities of another company that beneficially owns any securities of the Company; provided, however, that the fair market value of the securities of the Company (as determined in good faith by the Board of Directors of the Company within five (5) business days prior to the closing of any such acquisition) beneficially owned by such company and its Affiliates shall not exceed, in the aggregate, five percent (5%) of the combined fair market value of the assets of such company and Affliates set forth on the financial statements thereof; (F) an Industry Investor or its Affiliates from acquiring equity securities of the Company without any limitation following initiation by a third party of an unsolicited offer to purchase twenty percent (20%) or more of any class or series of the Company’s publicly traded voting securities (a “Hostile Tender Offer”); provided that the exception provided by this subsection 2.4(f)(ii)(F) shall be limited to the classes or series of the Company’s securities that are the subject of the Hostile Tender Offer or (G) an Industry Investor or its Affiliates from tendering or selling any securities of the Company, or voting any securities of the Company, in its sole discretion, in connection with any tender or exchange offer, merger, consolidation or other business combination, or solicitation of proxies, following initiation by a third party of any such action without involvement by the Industry Investor which would violate the provisions of subsection 2.4(f)(i).

 

(iii)                               For purposes of this subsection 2.4(f), “Affiliate” shall mean any natural person or corporation, general partnership, limited partnership, limited liability company, joint venture, proprietorship or other entity that directly or indirectly, controls, is controlled by or is under common control with an Industry Investor.  For purposes of the foregoing sentence, the term “control” means having decision making authority as to such natural person or entity, through ownership of equity, membership interests or contract.  Such control will be presumed to exist where any such natural person or entity owns more than fifty percent (50%) of the voting power (or such lesser percentage which is the maximum allowed to be owned by a foreign corporation in a particular jurisdiction) with respect to determination of composition of the board of directors or other body entitled to direct the affairs of affiliated entity; provided, however, the absence of any or all of the aforementioned circumstances shall not necessarily be deemed an absence of control.

 

2.5                               Board of Directors.

 

(a)                                 All Holders who hold Preferred Stock agree to take, at any time and from time to time, all action necessary (including, without limitation, voting the shares of Preferred Stock held by them (or as to which they have voting power)) (either at a meeting of the shareholders of the Company or by executing a consent in lieu thereof) such that five (5) of the directors elected solely by the holders of Preferred Stock (the “VC Preferred Directors”) shall include at all times (i) for so long as Prospect Venture Partners or any of its affiliates holds shares of Preferred Stock, two (2) members designated by Prospect Venture Partners and its affiliates, (ii) for so long as Venrock Associates or any of its affiliates holds shares of Preferred Stock, one (1) member designated by Venrock Associates and its affiliates, (iii) for so long as New Enterprise Associates or any of its affiliates holds shares of Preferred Stock, one (1) member designated by New Enterprise Associates and its affiliates and (iv) for so long as Atlas Venture Fund VI, L.P. or any of its affiliates holds shares of Preferred Stock, one (1) member designated by Atlas Venture Fund VI, L.P. and its affiliates.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(b)                                 Until Allergan Inc., a Delaware corporation (“Allergan”), together with its affiliates, holds less than four and one-half percent (4.5%) of the total number of outstanding shares of Common Stock of the Company (calculated on an as converted basis), Allergan, through its designee (the “Allergan Board Observer”) shall, in its sole discretion, have the right to attend all meetings, including, without limitation, telephonic meetings, of the Company’s Board of Directors in a nonvoting capacity and, in such respect, the Company shall provide to the Allergan Board Observer copies of all notices, minutes, consents (in cases where the Company’s Board of Directors proposes to act without a meeting) and other materials in any form whatsoever that the Company provides to the Company’s Board of Directors; provided, however, that the Allergan Board Observer shall hold in confidence all information so provided.  Notwithstanding the foregoing, the Company may withhold information provided to the Company’s Board of Directors from the Allergan Board Observer and may exclude the Allergan Board Observer from any meeting of the Company’s Board of Directors (or any portion thereof) if access to such information or attendance at such meeting would: (i) in the opinion of counsel to the Company, adversely affect the attorney-client privilege, but only to the extent of such adverse effect, or (ii) in exceptional circumstances, upon a majority vote by the directors present where the Company’s Board of Directors elects to meet in closed session and all other observers are also excluded (other than counsel to the Company), result in the disclosure of certain highly confidential information that is of a nature not regularly discussed in meetings of the Company’s Board of Directors, but only to the extent such information is disclosed.

 

(c)                                  During such time as any Investor shall be entitled to designate a director pursuant to Section 2.5(a) above, all Holders who hold Preferred Stock agree to take, at any time and from time to time, all action necessary (including, without limitation, voting the shares of Preferred Stock held by them (or as to which they have voting power)), either at a meeting of the shareholders of the Company or by executing a consent in lieu thereof, to ensure that the authorized number of directors of the Company to be elected by the holders of Preferred Stock is sufficient to enable the election of the directors in compliance with Section 2.5(a) above.

 

(d)                                 All Holders who hold Common Stock agree to take, at any time and from time to time, all action necessary (including, without limitation, voting the shares of Common Stock held by them (or as to which they have voting power)) (either at a meeting of the shareholders of the Company or by executing a consent in lieu thereof) such that the director elected solely by the holders of Common Stock (the “Common Director” and together with the VC Preferred Directors, the “Nominated Directors”) shall include at all times the person then serving as Chief Executive Officer of the Company or, if there is no Chief Executive Officer, the person then serving as President of the Company.

 

(e)                                  All Holders agree to take, at any time and from time to time, all action necessary (including, without limitation, voting the shares of Common Stock and/or Preferred Stock held by them (or as to which they have voting power) either at a meeting of the stockholders of the Company or by executing a consent in lieu thereof) such that the directors elected by the holders of Common Stock and Preferred Stock (voting together as a single class and series, and on an as-converted basis) shall include at the request of the Board of Directors, any additional members designated by the consent of at least two-thirds of the Nominated Directors.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

(f)                                   Should the provisions of this Section 2.5 be construed to constitute the granting of proxies, such proxies shall be deemed coupled with an interest and are irrevocable for the term of this Agreement.  It is agreed and understood that monetary damages would not adequately compensate an injured party for the breach of this Section 2.5 by any party, that this Section 2.5 shall be specifically enforceable and that any breach or threatened breach of this Section 2.5 shall be the proper subject of a temporary or permanent injunction or restraining order.  Further, each party hereto waives any claim or defense that there is an adequate remedy at law for such breach or threatened breach.

 

(g)                                  The Company shall promptly reimburse in full each director of the Company who is not an employee of the Company for all of his or her reasonable out-of-pocket expenses incurred in attending each meeting of the Board of Directors of the Company.

 

(h)                                 Upon election or appointment, each member of the Board of Directors of the Company shall execute an Indemnification Agreement in form and substance reasonably satisfactory to such director and the Company.

 

2.6                               Required Notices.

 

(a)                                 In the event of any liquidation, dissolution or winding up of the Company, either voluntary or involuntary (which shall be deemed to be occasioned by, or to include (unless the holders of more than a majority of the Company’s Preferred Stock then outstanding (voting together as a single class on an as-converted basis, and not as separate series) shall determine otherwise), (A) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any reorganization, merger or consolidation) that results in the transfer of fifty percent (50%) or more of the outstanding voting power of the Company; or (B) a sale of all or substantially all of the assets of the Company), the Company shall give each holder of record of Preferred Stock written notice of such impending transaction not later than twenty (20) days prior to the stockholders’ meeting called to approve such transaction, or twenty (20) days prior to the closing of such transaction, whichever is earlier, and shall also notify such holders in writing of the final approval of such transaction.  The first of such notices shall describe the material terms and conditions of the impending transaction and the provisions of Article IV(B)2 of the Company’s Amended and Restated Certificate of Incorporation, and the Company shall thereafter give such holders prompt notice of any material changes.  The transaction shall in no event take place sooner than twenty (20) days after the Company has given the first notice provided for herein or sooner than ten (10) days after the Company has given notice of any material changes provided for herein; provided, however, that such periods may be shortened upon the written consent of the holders of Preferred Stock that are entitled to such notice rights or similar notice rights and that represent more than a majority of the voting power of all then outstanding shares of such Preferred Stock.

 

(b)                                 In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other

 

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CONFIDENTIAL TREATMENT REQUESTED

 

securities or property, or to receive any other right, this Corporation shall mail to each holder of Preferred Stock, at least twenty (20) days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right.

 

2.7                               Key Person Insurance.  Upon request of the VC Preferred Directors, the Company shall obtain and maintain in effect “key person” life insurance policies, payable to the Company on the lives of such persons and in such amounts as such director(s) shall request.  As of the date hereof, the Company has no knowledge of any employee of the Company that is ineligible for such “key person” life insurance.

 

2.8                               Approval of Certain Issuances.  Without the consent of the VC Preferred Directors, the Company will not:

 

(a)                                 Issue any shares of Series D Preferred Stock or any securities convertible into or exchangeable for Series D Preferred Stock other than pursuant to the Series D Agreement;

 

(b)                                 Issue any shares of Series C Preferred Stock or any securities convertible into or exchangeable for Series C Preferred Stock other than pursuant to the exercise of securities outstanding as of the date hereof that are convertible into or exchangeable for Series C Preferred Stock;

 

(c)                                  Issue any shares of Series B Preferred Stock or any securities convertible into or exchangeable for Series B Preferred Stock other than pursuant to the exercise of securities outstanding as of the date hereof that are convertible into or exchangeable for Series B Preferred Stock; or

 

(d)                                 Adopt a stock option plan or restricted stock plan or increase the authorized number of shares to be issued under a stock option plan or restricted stock plan.

 

2.9                               Real Property Holding Company.  The Company shall provide prompt notice to New Enterprise Associates 10, Limited Partnership (“NEA 10”) following any “determination date” (as defined in Treasury Regulation Section 1.897-2(c)(1)) on which the Company becomes a United States real property holding corporation.  In addition, upon a written request by NEA 10, the Company shall provide NEA 10 with a written statement informing NEA 10 whether NEA 10’s interest in the Company constitutes a United States real property interest.  The Company’s determination shall comply with the requirements of Treasury Regulation Section 1.897-2(h)(1) or any successor regulation, and the Company shall provide timely notice to the Internal Revenue Service, in accordance with and to the extent required by Treasury Regulation Section 1.897-2(h)(2) or any successor regulation, that such statement has been made.  The Company’s written statement to NEA 10 shall be delivered to NEA 10 within 10 days of NEA 10’s written request therefor.  The Company’s obligation to furnish such written statement shall continue notwithstanding the fact that a class of the Company’s stock may be regularly traded on an established securities market or the fact that there is no preferred stock then outstanding.

 

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CONFIDENTIAL TREATMENT REQUESTED

 

2.10                        Tax Disclosure.  Notwithstanding anything to the contrary set forth herein or in any other agreement to which the parties hereto are parties or by which they are bound, any obligations of confidentiality contained herein and therein, as they relate to the transactions contemplated by this and any other such agreements (“Transaction”), shall not apply to the federal tax treatment or federal tax structure of the Transaction, and each party hereto (and any employee, representative, or agent of any party hereto) may disclose to any and all persons, without limitation of any kind, the federal tax treatment and federal tax structure of the Transaction and all materials of any kind (including opinions or other tax analysis) that are provided to any party hereto relating to such tax treatment and tax structure.  The preceding sentence is intended to cause the Transaction not to be treated as having been offered under conditions of confidentiality for purposes of Sections 1.6011-4(b)(3) and 301.6111-2(a)(2)(ii) (or any successor provisions) of the Treasury Regulations issued under the Internal Revenue Code of 1986, as amended, and shall be construed in a manner consistent with such purpose.

 

2.11                        Confidentiality.  Each Investor agrees to use, and to use commercially reasonable efforts to ensure that its authorized representatives use, the same degree of care as such Investor uses to protect its own confidential information to keep confidential any information furnished to it which the Company identifies as being proprietary or confidential except such information that (i) was in the public domain prior to the time it was furnished to such Investor, (ii) is or becomes (through no willful improper action or inaction by such Investor) generally available to the public, (iii) was in its possession or known by such Investor without restriction prior to receipt from the Company, (iv) was rightfully disclosed to such Investor by a third party without restriction or (v) was independently developed without any use of the Company’s confidential information.  Notwithstanding the foregoing, nothing contained herein shall prevent any Investor from (y) entering into any business, entering into any agreement with a third party, or investing in or engaging in investment discussions with any other company (whether or not competitive with the Company), provided that such Investor does not disclose any proprietary or confidential information of the Company in connection with such activities, or (z) making any disclosures required by law, rule, regulation or court or other governmental order.  In the event of any conflict or inconsistency between the provisions of this Section 2.11 and any provision of the BI Collaboration Agreement (as defined below) with respect to the use or disclosure of any proprietary or other information of the Company by BI, the provisions of such BI Collaboration Agreement shall prevail.

 

2.12                        Termination of Certain Covenants.  The covenants set forth in Sections 2.4, 2.5, 2.6, 2.7, 2.8, 2.9 and 2.10 shall terminate and be of no further force or effect upon the consummation of an Initial Offering; provided, however, that the provisions of Section 2.4(f) regarding rights and obligations of SKB shall survive until the latest of (i) the second anniversary of the effective date of the Initial Offering, (ii) the second anniversary of the date of termination of the Research Collaboration and License Agreement, dated June 15, 2005 between SKB and the Company (the “SKB Collaboration Agreement”), and (iii) expiration of the research term of the SKB Collaboration Agreement, including the period of any extension of such term; provided further, that the provisions of Section 2.4(f) regarding rights and obligations of BI shall survive until the latest of (i) the second anniversary of the effective date of the Initial Offering, (ii) the second anniversary of the date of termination of the Research Collaboration and License Agreement, dated October 2, 2007 between BI and the Company (the “BI Collaboration

 

20

 

CONFIDENTIAL TREATMENT REQUESTED

 

Agreement”), and (iii) expiration of the Research Term (as defined in the BI Collaboration Agreement), including the period of any extension of such term.

 

3.                                      Miscellaneous.

 

3.1                               Successors and Assigns.  Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities).  Notwithstanding the foregoing, rights granted to Investors pursuant to Section 1 hereof may not be assigned unless specifically assigned in writing to transferees of such Investors in connection with a transfer of Registrable Securities.  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations, or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

3.2                               Governing Law.  This Agreement shall be governed by and construed under the laws of the State of Delaware as applied to agreements among Delaware residents entered into and to be performed entirely within Delaware.

 

3.3                               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.

 

3.4                               Titles and Subtitles.  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

3.5                               Notices.  Any notice required or permitted by any provision of this Agreement shall be given in writing and shall be delivered personally, by courier, by facsimile or by registered or certified mail, postage prepaid, addressed (i) in the case of a Common Holder to the Common Holder’s address as set forth in the signature pages hereto or such other address as a Common Holder may designate in writing from time to time; (ii) in the case of the Company, to its principal office; (iii) in the case of any Investor which is an original party to this Agreement at the address of such Investor as set forth in the records of the Company or such other address for such Investor as shall be designated in writing from time to time to such Investor; and, (iv) in the case of any permitted transferee of a party to this Agreement or its transferee, to such transferee at its address as designated in writing by such transferee to the Company from time to time. Notices that are mailed shall be deemed received five (5) days after deposit in the United States mail.  Notices sent by courier or overnight delivery shall be deemed received two (2) days after they have been so sent.  Notices sent by facsimile shall be deemed received on the day of written confirmation of receipt of such facsimile.

 

3.6                               Expenses.  If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

 

21

 

CONFIDENTIAL TREATMENT REQUESTED

 

3.7                               Entire Agreement; Amendments and Waivers.  This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof.  Any term of this Agreement may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the holders of more than two-thirds of the Registrable Securities then outstanding; provided, however, that (a) in the event that such amendment or waiver adversely affects the obligations and/or rights of the Common Holders in a different manner than the other Holders, such amendment or waiver shall also require the written consent of the holders of a majority of the Common Stock of the Company held by the Common Holders, (b) in the event that such amendment or waiver adversely affects the obligations and/or rights of an Investor in a manner materially different than the other Investors, such amendment or waiver shall not be binding on such differently affected Investor without its written consent; and (c) the provisions of Section 2.5 may not be amended or waived so as to deprive Prospect Venture Partners, Venrock Associates, New Enterprise Associates, or Atlas Venture Fund VI, L.P. of any rights to designate directors thereunder without the consent of such affected party.  Any amendment or waiver effected in accordance with this paragraph (including any waiver of the Right of First Offer by the requisite percentage set forth in this Section 3.7) shall be binding upon each holder of any Registrable Securities, each future holder of all such Registrable Securities, each Common Holder, and the Company.

 

3.8                               Severability.  If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision were so excluded and shall be enforceable in accordance with its terms.

 

3.9                               Aggregation of Stock.  All shares of Registrable Securities held or acquired by affiliated entities or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

 

3.10                        Additional Investors.  Notwithstanding Section 3.7, no consent shall be necessary to add additional Investors as signatories to this Agreement, provided that such Investors have purchased Series D Preferred Stock pursuant to the Series D Agreement.

 

3.11                        Termination of Prior Agreement.  Upon the effectiveness of this Agreement, the Prior Agreement shall be amended and restated and be of no further force and effect, and shall be superseded and replaced in its entirety by this Agreement.

 

[Remainder of page intentionally left blank.]

 

22

 

CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

 

	
 
    	
COMPANY:
    
	
 
    	
 
    
	
 
    	
VITAE PHARMACEUTICALS, INC.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name:
    	
Jeffrey Hatfield
    
	
 
    	
 
    	
Title:
    	
Chief Executive Officer
    

 

SIGNATURE PAGE TO VITAE PHARMACEUTICALS, INC. 
 AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

 

	
 
    	
INVESTORS:
    
	
 
    	
 
    
	
 
    	
BOEHRINGER INGELHEIM
    
	
 
    	
INTERNATIONAL GMBH
    
	
 
    	
ppa.
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
Dr. Klaus   Wilgenbus
    	
 
    	
Name:
    	
Dr. Christian   Hauke
    
	
 
    	
 
    	
 
    	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
Head   Corporate
    	
 
    	
Title:
    	
Head   Corporate
    
	
 
    	
 
    	
Division   Licensing
    	
 
    	
 
    	
Department   Law
    
	
 
    	
 
    
	
 
    	
 
    
	
Address:
    	
Binger Straße   173
    
	
 
    	
55216 Ingelheim   am Rhein
    
	
 
    	
Germany
    
								

 

SIGNATURE PAGE TO VITAE PHARMACEUTICALS, INC. 
 AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

 

	
 
    	
INVESTORS:
    
	
 
    	
 
    
	
 
    	
PROSPECT VENTURE PARTNERS, L.P.
    
	
 
    	
By:
    	
Prospect Management Co., LLC,
    
	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name: David Schnell
    
	
 
    	
 
    	
Title: Managing Member
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PROSPECT VENTURE PARTNERS II, L.P.
    
	
 
    	
By:
    	
Prospect Management Co. II, LLC,
    
	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name: James Tananbaum
    
	
 
    	
 
    	
Title: Managing Member
    
	
 
    	
 
    
	
 
    	
 
    
	
Address:
    	
435 Tasso Street, Suite 200
    
	
 
    	
Palo Alto, CA 94301
    

 

SIGNATURE PAGE TO VITAE PHARMACEUTICALS, INC. 
 AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

 

	
 
    	
INVESTORS:
    
	
 
    	
 
    
	
 
    	
VENROCK ASSOCIATES,
    
	
 
    	
by a General Partner
    
	
 
    	
VENROCK ASSOCIATES III, L.P.,
    
	
 
    	
by its General Partner, Venrock Management   III LLC
    
	
 
    	
VENROCK ENTREPRENEURS FUND III, L.P.,
    
	
 
    	
by its General Partner, VEF Management III   LLC
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
As a General Partner or Member
    
	
 
    	
 
    
	
 
    	
 
    
	
Address:
    	
2494 Sand Hill Road, Suite 200
    
	
 
    	
Menlo Park, CA 94025
    

 

SIGNATURE PAGE TO VITAE PHARMACEUTICALS, INC. 
 AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

	
 
    	
INVESTORS:
    
	
 
    	
 
    
	
 
    	
NEW ENTERPRISE ASSOCIATES 10,
    
	
 
    	
LIMITED PARTNERSHIP
    
	
 
    	
By:
    	
NEA Partners 10, Limited Partnership
    
	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By: General Partner
    
	
 
    	
Print Name:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
NEA VENTURES 2001, LIMITED PARTNERSHIP
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By: General Partner
    
	
 
    	
Print Name:
    
	
 
    	
 
    
	
 
    	
 
    
	
Address:
    	
1119 St. Paul Street
    
	
 
    	
Baltimore, MD 21202
    

 

SIGNATURE PAGE TO VITAE PHARMACEUTICALS, INC. 
 AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

	
 
    	
INVESTORS:
    
	
 
    	
 
    
	
 
    	
ATLAS VENTURE FUND VI, L.P.
    
	
 
    	
ATLAS VENTURE ENTREPRENEURS’ FUND VI, L.P.
    
	
 
    	
 
    
	
 
    	
By:
    	
Atlas Venture Associates VI, L.P.
    
	
 
    	
 
    	
their general partner
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
Atlas Venture Associates VI, Inc.
    
	
 
    	
 
    	
its general partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Vice President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
ATLAS VENTURE FUND VI   GMBH & CO. KG
    
	
 
    	
 
    
	
 
    	
By:
    	
Atlas Venture Associates VI, L.P.
    
	
 
    	
 
    	
its managing limited partner
    
	
 
    	
 
    	
 
    
	
 
    	
By:
    	
Atlas Venture Associates   VI, Inc.
    
	
 
    	
 
    	
its general partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Vice President
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
Atlas Venture
    
	
 
    	
890 Winter Street, Suite 320
    
	
 
    	
Waltham, MA 02451
    

 

SIGNATURE PAGE TO VITAE PHARMACEUTICALS, INC. 
 AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.

 

	
 
    	
COMMON HOLDERS:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PROSPECT VENTURE PARTNERS, L.P., As Nominee
    
	
 
    	
By:
    	
Prospect Management Co., LLC,
    
	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name: David Schnell
    
	
 
    	
 
    	
Title: Managing Member
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
PROSPECT VENTURE PARTNERS II, L.P., As Nominee
    
	
 
    	
By:
    	
Prospect Management Co. II, LLC,
    
	
 
    	
 
    	
its General Partner
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
Name: James Tananbaum
    
	
 
    	
 
    	
Title: Managing Member
    
	
 
    	
 
    
	
 
    	
 
    
	
Address:
    	
435 Tasso Street, Suite 200
    
	
 
    	
Palo Alto, CA 94301
    

 

SIGNATURE PAGE TO VITAE PHARMACEUTICALS, INC. 
 AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

SCHEDULE A

 

INVESTORS

 

Allergan, Inc.

Atlas Venture Fund VI, L.P.

Atlas Venture Entrepreneurs’ Fund VI, L.P.

Atlas Venture Fund VI GMBH & Co. KG

Boehringer Ingelheim International GmbH

Dr. John Baldwin

Richard Baxter

Dr. David Claremon

Dr. Eugene Cordes

G&H Partners

Stuart Gordon

A. Grant Heidrich and Jeanette Y.J. Heidrich, Trustees Community Property Trust UDT 8/84

Intel Capital Corporation

Gregory Lumpkin

Lighthouse Capital Partners V, L.P. (solely for purposes of Sections 1, 2.1, 2.3, 2.5, 2.12, 2.13 and 3)

New Enterprise Associates 10, Limited Partnership

NEA Ventures 2001, Limited Partnership

Prospect Venture Partners, L.P.

Prospect Venture Partners II, L.P.

Silicon Valley Bank

SmithKline Beecham Corporation

P. Roy Vagelos

Venrock Associates

Venrock Associates III, L.P.

Venrock Entrepreneurs Fund III, L.P.

The Wellcome Trust Limited, as Trustee of The Wellcome Trust

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

SCHEDULE B

 

COMMON HOLDERS

 

Prospect Venture Partners, L.P., as nominee

Prospect Venture Partners II, L.P., as nominee

 

S-2

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

Exhibit C

 

Opinion of Counsel

 

 

October 15, 2007

 

To the Purchasers of Series D Preferred Stock

of Vitae Pharmaceuticals, Inc. Listed

on Schedule 1.1(c) to the Series D Preferred Stock Purchase Agreement

 

Ladies and Gentlemen:

 

We have acted as counsel for Vitae Pharmaceuticals, Inc., a Delaware corporation (the “Company”), in connection with the sale by the Company to you of 12,500,000  shares of the Company’s Series D Preferred Stock (the “Shares”) pursuant to the Series D Preferred Stock Purchase Agreement (the “Stock Purchase Agreement”) dated as of October 2, 2007 among the Company and the persons listed on Schedule 1.1(c) attached thereto (the “Purchasers”) and the execution and delivery by the Company of the Amended and Restated Investors’ Rights Agreement (the “Investors’ Rights Agreement”) dated October 2, 2007.  This opinion is given to you pursuant to Section 4.8 of the Stock Purchase Agreement in connection with the Closing of the sale of the Shares.  The Stock Purchase Agreement and the Investors’ Rights Agreement are referred to herein collectively as the “Transaction Documents.”  Unless defined herein, capitalized terms have the meaning given them in the Transaction Documents.

 

In rendering this opinion, we have examined such matters of law as we considered necessary for the purpose of rendering this opinion.  As to matters of fact material to the opinions expressed herein, we have relied upon the representations and warranties as to factual matters contained in and made by the Company pursuant to the Stock Purchase Agreement and the Opinion Certificate (defined below) and upon certificates and statements of government officials and of officers of the Company.  In addition, we have examined originals or copies of documents, corporate records and other writings that we consider relevant for the purposes of this opinion.  In such examination, we have assumed that the signatures on documents and instruments examined by us are authentic, that each is what it purports to be, and that all documents and instruments submitted to us as copies or facsimiles conform with the originals, which facts we have not independently verified.

 

In making our examination of documents, we have further assumed that (i) each party to such documents (other than the Company in connection with the Transaction Documents) had the power, legal competence and capacity to enter into and perform all of such party’s obligations thereunder, (ii) each party to such documents (other than the Company in connection with the Transaction Documents) has duly authorized, executed and delivered such documents, (iii) each of such documents is enforceable against and binding upon the parties thereto (other than the Transaction Documents against the Company), and (iv) there is no fact or circumstance relating to you or your business that might prevent you from enforcing any of the rights provided for in the Transaction Documents.  We have also assumed that there are no extrinsic agreements or understandings among the parties to the Transaction Documents (including, without limitation, the exhibits thereto) or Contractual Obligations (as defined below) that would modify or interpret the terms of the Transaction Documents (including, without limitation, the exhibits thereto) or Contractual Obligations (as defined below) or the respective rights or obligations of the parties thereunder.

 

 

As used in this opinion, the expression “to our knowledge” or “known to us” with reference to matters of fact refers to the current actual knowledge of attorneys within the firm principally responsible for handling current matters for the Company.  Except to the extent expressly set forth herein we have not undertaken any independent investigation to determine the existence or absence of any other facts, and no inference as to our knowledge of the existence or absence of any such facts should be drawn from our representation of the Company or the rendering of the opinions set forth below.

 

Where statements in this opinion are qualified by the term “material” or “materially,” those statements involve judgments and opinions as to the materiality or lack of materiality of any matter to the Company’s business, assets, results of operations or financial condition that are entirely those of the Company and its officers, after having been advised by us as to the legal effect and consequences of such matters.  Such opinions and judgments are not known to us to be incorrect.

 

We express no opinion as to matters governed by any laws other than the laws of the Commonwealth of Massachusetts, the corporate law of the State of Delaware and the federal law of the United States of America.  We express no opinion as to whether the laws of any particular jurisdiction apply, and no opinion to the extent that the laws of any jurisdiction other than those identified above are applicable to the Transaction Documents (including, without limitation, the exhibits thereto) or the transactions contemplated thereby.

 

In rendering the opinion set forth in paragraph (a) below as to the good standing of the Company and as to its qualification to do business in Pennsylvania, we have relied exclusively on (i) certificates of public officials and (ii) good standing bring-down letters from CT Corporation, although we have not obtained tax good standing certificates and no opinion is provided with respect to tax good standing.

 

In rendering the opinion set forth in paragraph (d) below relating to the fully paid status of all of the issued shares of capital stock of the Company, we have relied without independent verification on the certificate of the Chief Executive Officer of the Company (the “Opinion Certificate”), to the effect that the Company has received the consideration approved by its Board of Directors for all of the issued shares of capital stock of the Company.

 

In rendering the opinion set forth in paragraph (d) relating to the status of the capitalization of the Company, we have relied without further investigation on (i) the Company’s Amended and Restated Certificate of Incorporation (the “Restated Certificate”), (ii) minute books relating to meetings and written actions of the Board of Directors and stockholders of the Company and stock records in our possession, and (iii) statements in the Opinion Certificate relating to the capitalization of the Company.  The Company has represented to us that these records completely and accurately describe all of the Company’s issuances of shares of its capital stock, options, warrants, conversion privileges or other rights to purchase shares of its capital stock.  Although we have no knowledge that the information as to outstanding stock, options, warrants, conversion privileges and other rights provided by the Company and reflected in paragraph (d) is incorrect, based on the examination referred to above, we are not in a position to verify its accuracy or completeness, other than to say that our records are not inconsistent with such information.

 

 

We note that the parties to the Transaction Documents have designated the laws of the State of Delaware as the laws governing the Transaction Documents.  Our opinion in paragraph (e) below as to the validity, binding effect and enforceability of the Transaction Documents is premised upon the result that would be obtained if a Massachusetts court were to apply the internal laws of the Commonwealth of Massachusetts to the interpretation and enforcement of the Transaction Documents (notwithstanding the designation therein of the laws of the State of Delaware).  We express no opinion as to whether the laws of any particular jurisdiction apply, and no opinion to the extent that the laws of any jurisdiction other than those identified above are applicable to the subject matter hereof.

 

In rendering the opinion in paragraph (g) below, the term “Contractual Obligations” shall mean only those contracts to which the Company is a party and which are expressly identified on Exhibit A hereto.  We have further assumed that the governing law (exclusive of Massachusetts laws relating to conflicts of laws) of each such Contractual Obligation is Massachusetts.  We have not, however, reviewed the covenants in the Contractual Obligations that contain financial ratios and other similar financial restrictions, and no opinion is provided with respect thereto.  We also do not express any opinion on parol evidence bearing on interpretation or construction of such Contractual Obligations, or on any oral modifications to such Contractual Obligations made by the parties thereto.

 

In rendering the opinion in paragraph (g) relating to violations of United States federal, Massachusetts or Delaware corporate laws, rules or regulations applicable to the Company, such opinion is limited to such laws, rules or regulations that in our experience are typically applicable to a transaction of the nature contemplated by the Transaction Documents.

 

In rendering the opinion expressed in paragraphs (g), (h) and (i) below, we have assumed the accuracy of, and have relied upon, the Company’s representations to us that the Company has made no offer to sell the Shares by means of any general solicitation or publication of any advertisement therefor.

 

In connection with the general enforceability opinion set forth in paragraph (e), this opinion is qualified by, and we render no opinion with respect to, the following:

 

4.                                      We express no opinion as to the effect of bankruptcy, insolvency, reorganization, moratorium and other similar laws relating to or affecting the relief of debtors or the rights and remedies of creditors generally, including, without limitation, the effect of statutory or other law regarding fraudulent conveyances, preferential transfers and equitable subordination;

 

5.                                      Our opinions are qualified by the limitations imposed by general principles of equity upon the availability of equitable remedies for the enforcement of provisions of the Transaction Documents (including, without limitation, the exhibits thereto), and by the effect of judicial decisions which have held that certain provisions are unenforceable when their enforcement would violate the implied covenant of good faith and fair dealing, or would be commercially unreasonable, or where their breach is not material;

 

 

6.                                      We express no opinion as to the effect of Massachusetts law, United States federal or Delaware law or equitable principle which provides that a court may refuse to enforce, or may limit the application of, a contract or any clause thereof which the court finds to have been unconscionable at the time it was made or contrary to public policy;

 

7.                                      We express no opinion as to the enforceability of provisions of the Transaction Documents (including, without limitation, the exhibits thereto) expressly or by implication waiving broadly or vaguely stated rights or unknown future rights, or waiving rights granted by law where such waivers are against public policy;

 

8.                                      We express no opinion as to the enforceability of any provision of any Transaction Document (including, without limitation, the exhibits thereto) purporting to (a) waive rights to trial by jury, service of process or objections to the laying of venue or to forum in connection with any litigation arising out of or pertaining to the Transaction Documents (including, without limitation, the exhibits thereto), (b) exclude conflict of law principles under Massachusetts law, (c) establish particular courts as the forum for the adjudication of any controversy relating to the Transaction Documents (including, without limitation, the exhibits thereto), (d) establish the laws of any particular state or jurisdiction for the adjudication of any controversy relating to the Transaction Documents (including, without limitation, the exhibits thereto), (e) establish evidentiary standards or make determinations conclusive or (f) provide for arbitration of disputes;

 

9.                                      We express no opinion as to the effect of judicial decisions, that may permit the introduction of extrinsic evidence to modify the terms or the interpretation of the Transaction Documents (including, without limitation, the exhibits thereto);

 

10.                               We express no opinion as to the enforceability of any provisions of the Transaction Documents (including, without limitation, the exhibits thereto) providing that (a) rights or remedies are not exclusive, (b) rights or remedies may be exercised without notice, (c) every right or remedy is cumulative and may be exercised in addition to or with any other right or remedy, (d) the election of a particular remedy or remedies does not preclude recourse to one or more other remedies, (e) liquidated damages are to be paid upon the breach of any Transaction Document (including, without limitation, the exhibits thereto) or (f) the failure to exercise, or any delay in exercising, rights or remedies available under the Transaction Documents (including, without limitation, the exhibits thereto) will not operate as a waiver of any such right or remedy;

 

11.                               We express no opinion as to the enforceability of the indemnification and contribution provisions in the Investors’ Rights Agreement;

 

12.                               We note that a requirement that provisions of the Transaction Documents (including, without limitation, the exhibits thereto) may only be waived in writing may not be binding or enforceable if an oral agreement has been created modifying any such provision or an implied agreement by trade practice or course of conduct has given rise to a waiver; and

 

13.                               We express no opinion as to the enforceability of any provisions in the Transaction Documents (including, without limitation, the exhibits thereto) concerning the

 

 

obligation of the Company (or its underwriters or agents) to sell shares of stock to certain Purchasers in connection with a public offering.

 

In addition to the foregoing, the opinions expressed below are specifically subject to the following qualifications and assumptions:

 

13.1                        We express no opinion as to compliance with any federal or state antitrust statutes, rules or regulations, including without limitation the Hart-Scott-Rodino Antitrust Improvements Act of 1976;

 

13.2                        We have assumed and express no opinion with respect to (a) the accuracy and completeness of representations and warranties of the Purchasers set forth in the Transaction Documents, and (b) the validity of any wire transfers, drafts or checks tendered by the Purchasers;

 

13.3                        We express no opinion as to compliance with applicable antifraud statutes, rules or regulations of applicable state and federal laws concerning the issuance or sale of securities, including, without limitation, (a) the accuracy and completeness of the information provided by the Company to the Purchasers in connection with the offer and sale of the Shares, and (b) the accuracy or fairness of the past, present or future fair market value of any securities;

 

13.4                        We express no opinion as to whether the members of the Company’s Board of Directors have complied with their fiduciary duties in connection with the authorization and performance of the Transaction Documents (including, without limitation, the exhibits thereto); and

 

13.5                        We have assumed that the Transaction Documents (including, without limitation, the exhibits thereto), and the transactions contemplated thereby, were fair and reasonable to the Company at the time of their authorization by the Company’s Board of Directors and stockholders within the meaning of Section 144 of the Delaware General Corporation Law.

 

Based upon and subject to the foregoing and except as set forth in the Stock Purchase Agreement or the Schedule of Exceptions thereto, we are of the opinion that:

 

(a)                                 The Company is a corporation duly incorporated, validly existing and in good standing under the laws of the State of Delaware, and has all corporate power and authority necessary to own its properties and to conduct its business as, to our knowledge, it is presently conducted.  The Company is qualified to do business as a foreign corporation in the Commonwealth of Pennsylvania.

 

(b)                                 The Company has the requisite corporate power and authority to execute, deliver and perform its obligations under the Transaction Documents.

 

(c)                                  All corporate action on the part of the Company, its directors and stockholders necessary for the authorization, execution, delivery and performance of the obligations under the Transaction Documents by the Company has been taken.

 

 

(d)                                 The authorized capital stock of the Company consists of 300,000,000 shares of Common Stock, par value $0.0001 per share, 11,106,793 of which are issued and outstanding prior to the Closing, and 198,262,787 shares of Preferred Stock, par value $0.0001 per share, 675,000 shares of which have been designated Series A-1 Preferred Stock, all of which are issued and outstanding prior to the Closing, 16,575,000 shares of which have been designated Series A-2 Preferred Stock (“Series A-2 Preferred”), 16,500,000 of which are issued and outstanding prior to the Closing, 151,812,780 shares of which have been designated Series B Preferred Stock (“Series B Preferred”), 150,989,250 of which are issued and outstanding prior to the Closing, 16,700,007 shares of which shares have been designated Series C Preferred Stock (“Series C Preferred”), 16,666,673 shares of which are issued and outstanding prior to the Closing and 12,500,000 shares of which have been designated Series D Preferred Stock (“Series D Preferred”), none of which are issued and outstanding prior to the Closing and all of which may be issued and sold pursuant to the Stock Purchase Agreement.  All of such issued and outstanding shares are duly authorized and validly issued, and to our knowledge, fully paid and nonassessable.  The Company has reserved 29,581 shares of Common Stock, 75,000 shares of Series A-2 Preferred, 823,528 shares of Series B Preferred and 33,334 shares of Series C Preferred for issuance upon the exercise of outstanding warrants, 12,500,000 shares of Series D Preferred for issuance at the Closing, and 42,842,632 shares of Common Stock for issuance under the Company’s 2001 Stock Plan.  To our knowledge, except as described above, there are no other presently outstanding preemptive rights, options, warrants, conversion privileges or rights to purchase from the Company any of the authorized but unissued stock of the Company other than (i) the conversion privileges of the Company’s Preferred Stock, (ii) any options that may have been granted under the 2001 Stock Plan and (iii) the rights of first offer set forth in Section 2.4 of the Investors’ Rights Agreement.

 

(e)                                  The Transaction Documents constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms; provided, however, that we express no opinion as to the enforceability of any provisions in the Transaction Documents concerning the voting of the Company’s capital stock.  Each of the Transaction Documents has been duly executed and delivered by the Company.

 

(f)                                   The Shares to be issued on the date hereof, when issued in compliance with the provisions of the Stock Purchase Agreement and the Restated Certificate, will be duly authorized, validly issued, fully paid and nonassessable.  The Common Stock issuable upon conversion of such Shares has been duly and validly reserved for issuance and, assuming the Shares are converted in accordance with the Restated Certificate as of the date hereof, will be validly issued, fully paid and nonassessable.  Neither the Shares, nor the shares of Common Stock issuable upon conversion of such Shares, are subject to any preemptive rights or rights of first refusal created by the Company pursuant to the Restated Certificate, Investors’ Rights Agreement or Bylaws.

 

(g)                                  The execution, delivery and performance of the Transaction Documents have not resulted and will not, as of the Closing, result in (i) a violation of the Company’s Restated Certificate or Bylaws, (ii) a material violation of any statute, rule or regulation of United States federal, Delaware corporate or Massachusetts law applicable to the Company, (iii) a violation of any judgment or order specifically identified on the Schedule of Exceptions, if any, or (iv) a default by the Company under any Contractual Obligation.

 

 

(h)                                 No consent, approval or authorization of or designation, declaration or filing with, any United States federal, Delaware corporate or Massachusetts governmental authority on the part of the Company is required in connection with the valid execution, delivery and performance of the Transaction Documents, or the offer, sale or issuance of the Shares (and the Common Stock issuable upon conversion thereof), except the filing of a Form D pursuant to Regulation D of the Securities Act and those filings required by applicable state “Blue Sky” securities laws, rules and regulations.

 

(i)                                     Based in part upon the representations made by you in the Stock Purchase Agreement, the offer, sale and issuance of the Shares to be issued in conformity with the terms of the Stock Purchase Agreement and the issuance of the Common Stock, if any, to be issued upon conversion thereof, constitute transactions exempt from the registration requirements of Section 5 of the Securities Act.

 

In addition to the foregoing, we supplementally inform you that, to our knowledge and except as set forth on the Schedule of Exceptions, there is no action, suit, proceeding or investigation pending or threatened against the Company that (i) questions the validity of the Transaction Documents or the right of the Company to enter into the Transaction Documents or (ii) if determined adversely, would be likely to result in a material adverse change in the financial condition or business of the Company. Please note that we have not conducted a docket search in any jurisdiction with respect to litigation that may be pending against the Company or any of its officers or directors, nor have we undertaken any further inquiry whatsoever other than to request the Opinion Certificate from the Company.

 

This opinion is rendered as of the date first written above solely for your benefit in connection with the Stock Purchase Agreement and may not be relied on by, nor may copies be delivered to, any other person without our prior written consent.  Our opinion is expressly limited to the matters set forth above and we render no opinion, whether by implication or otherwise, as to any other matters relating to the Company.  We assume no obligation to inform you of any facts, circumstances, events or changes in the law that may hereafter be brought to our attention that may alter, affect or modify the opinions expressed herein.

 

 

	
 
    	
GUNDERSON   DETTMER STOUGH
    
	
 
    	
VILLENEUVE   FRANKLIN & HACHIGIAN, LLP
    

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXHIBIT A

 

Contractual Obligations

 

Lease dated July 11, 2002 by and between the Company and 502 WOC Properties, L.P. regarding the property located at located at 502 West Office Center Drive in Fort Washington, PA.

 

Loan and Security Agreement dated July 13, 2006 by and between the Company and Silicon Valley Bank.

 

Loan and Security Agreement dated March 30, 2005 by and between the Company and Lighthouse Capital Partners V, L.P.

 

Standby Letter of Credit dated July 11, 2003 issued by Silicon Valley Bank in the amount of $850,000 as a deposit for the Company’s agreement of lease with 502 WOC Properties, LP.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

Exhibit D

 

Research Collaboration and License Agreement

 

PLEASE REFER TO THIS EXHIBIT 10.6 TO AMENDMENT NO. 4 TO REGISTRANT’S S-1 REGISTRATION STATEMENT FILED SEPTEMBER 10, 2014.

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

EXHIBIT 7

 

REQUIREMENTS FOR INVOICES

 

·                  Name and address of Vitae

·                  Name and address of Boehringer Ingelheim International GmbH

·                  Vitae’s taxpayer identification number

·                  Description of services provided or milestone event

·                  Date of invoice

·                  Boehringer Ingelheim Contract No. 43015879

·                  Amount due and currency

·                  Amount of VAT (if applicable)

 

 

CONFIDENTIAL TREATMENT REQUESTED

 

EXECUTION COPY

 

EXHIBIT 8

 

POTENTIAL THIRD PARTY RIGHTS TO BI COMPOUNDS

 

· WO 2004/****

· WO 2006/****

· WO 2007/****

 

****CERTAIN INFORMATION HAS BEEN OMITTED AND FILED SEPARATELY WITH THE COMMISSION.  CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO THE OMITTED PORTION.

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