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EXCHANGE ACT OF 1934, AS AMENDED.

 

EXHIBIT 10.44

 

COLLABORATION

AGREEMENT

 

This Collaboration Agreement (“Agreement”) is entered into as of June 10,

2002 (the “Effective Date”), between Tularik Inc. (“Tularik”), a Delaware

corporation, with offices at Two Corporate Drive, South San Francisco, CA 94080

and Sankyo Company, Limited (“Sankyo”), a corporation organized under the

laws of Japan with offices at 1-2-58 Hiromachi, Shinagawa-ku, Tokyo 140-8710,

Japan  (individually, a “Party”

and, collectively, the “Parties”).

 

WHEREAS, Tularik

and Sankyo desire to participate in a collaborative program (as herein defined)

to research, discover, develop, manufacture and market products that agonize or

antagonize various Program Targets (as herein defined) for the treatment of

disease in humans; and

 

WHEREAS, the

Parties desire to execute a definitive agreement with respect to such

collaborative program;

 

NOW, THEREFORE, in

consideration of the foregoing and the premises and conditions set forth

herein, the Parties agree as follow:

 

Article I.                 DEFINITIONS

 

Section 1.01   “AAA” shall have the meaning set forth in

Section 15.02.

 

Section 1.02   “Affiliate” shall mean any corporation or

other business entity that during the Term controls, is controlled by or is

under common control with Sankyo or Tularik, but only for so long as such

entity controls, is controlled by or is under common control with Sankyo or

Tularik.  For this purpose, control

means the possession of the power to direct or cause the direction of the

management and the policies of an entity, whether through ownership (directly

or indirectly) of over fifty percent (50%) of the stock entitled to vote, or if

not meeting the preceding requirements, any company owned or controlled by or

owning or controlling Sankyo or Tularik at the maximum control or ownership right

permitted in a country where such company exists.

 

Section 1.03   “Change in Control” shall mean the

occurrence of any of the following events: (a) A Party is merged, consolidated,

or reorganized into or with another corporation or other legal person, and as a

result of such merger, consolidation or reorganization less than fifty percent

(50%) of the combined voting power of the then-outstanding voting stock of the

surviving and controlling corporation or person immediately after such

transaction are held in the aggregate by the holders of voting stock of such

Party immediately prior to such transaction; (b) A Party sells or otherwise

transfers all or substantially all of its assets to another corporation or

other legal person, and immediately after such sale or transfer less than fifty

percent (50%) of the combined voting power of the then-outstanding voting stock

of such corporation or person is held in the aggregate by the holders of voting

stock of such Party immediately prior to such transaction; (c) Any person

becomes the beneficial owner of securities representing fifty percent (50%) or

more of the combined voting power of the then-outstanding voting stock of a

Party; or (d) A Party files a report or proxy statement with the Securities and

Exchange Commission disclosing in response to Item 1 of Form 8-K or Schedule

14A (or any successor schedule, form or report or item therein) that a change

in control of a Party has occurred or will occur in the future pursuant to any

then-existing contract or transaction..

 

Section 1.04   “Chemistry Contribution Factor” shall mean [

* ] and [ * ] that takes

into account [ * ] by which a [ * ]. 

If Sankyo [ * ] the [ * ]

to the [ * ] the [

* ].  If Sankyo [ * ] the [

* ] the [ * ]. 

In the event that the Parties are [

* ].

 

Section 1.05   “Chemistry Royalty Rate” shall mean a

royalty rate equal to:  (i) the [

* ];

multiplied by (ii) the [ * ]. In no event shall the Chemistry Royalty

Rate be [

* ].

 

Section 1.06   “Claims” shall have the meaning set forth

in Section 9.01(a).

 

1

 

Section 1.07   “Collaboration Lead Compound” shall have

the meaning set forth in Section 4.02(b).

 

Section 1.08 “Collaboration Target” shall mean [ * ]

for the [ * ]. The Parties shall update

Appendix C from time to time to reflect all Collaboration Targets, including [ * ]

that the [ * ] in the [

* ].

 

Section 1.09   “Co-Commercialization Territory” shall

mean:  (i) all of the countries,

territories and possessions of North America, including without limitation the

United States, Canada, Mexico and the Commonwealth of Puerto Rico; and (ii) all

of the countries, territories and possessions of Europe, including without

limitation Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy,

Ireland, Luxembourg, Netherlands, Norway, Portugal, Spain, Switzerland, Sweden

and United Kingdom, and any additional countries that are or may subsequently

become members of the European Union prior to the execution of the

Co-Commercialization Agreement.  Both

parties agree to pursue co-promotion for a Collaboration Lead Compound in

co-promotion countries, unless co-marketing is legally required in co-marketing

countries as such countries are defined in Appendix E.

 

Section 1.10   “Competitive Product Infringement” shall have

the meaning set forth in Section 10.07.

 

Section 1.11   “Confidential Information” shall mean,

subject to the limitations set forth in Section 11.01 hereof, all information

disclosed by each Party to the other Party under this Agreement.

 

Section 1.12   “Current Program Target” shall mean [ * ]

pursuant to [ * ] and [

* ].  The Parties shall [ * ] at the [

* ] that the [ * ]

in the [ *  ]. 

The number of Current Program Targets at any given point in time shall

not exceed [ * ].

 

Section 1.13 “Details” shall mean in-person sales presentations

of the Product made by a Party’s sales representatives to physicians and to

other healthcare professionals legally entitled to prescribe the Product, all

of whom shall meet criteria as to type specified in the Marketing Plan.  Details shall be deemed to include only

presentations of first or second position in a sales presentation and shall not

be deemed to include tertiary or “reminder” details, in each case as such terms

are generally understood in the pharmaceutical industry.

 

Section 1.14   “Development” shall mean the development of

any Product occurring from and after the filing of an IND (or equivalent),

through and including approval of an NDA and any other governmental approvals

required for the commercialization of such Product in a country.  Development may include Pre-Clinical

Development activities to be performed after the filing of an IND.

 

Section 1.15   “Development Contribution Factor” shall

mean [ * ] and [ * ]

that takes into account [ * ].

If Sankyo [

* ] relating to such [ *  ].  If Sankyo [ * ] the [ * ] the [

* ].  In the event that the Parties are [ * ].

 

Section 1.16   “Development Royalty Rate” shall mean a

royalty rate equal to:  (i) the [

* ];

multiplied by (ii) the [ * ]. 

In no event shall the Development Royalty Rate be [ * ] the [

* ] the [ * ].

 

Section 1.17   “Discontinued Compound” shall have the

meaning set forth in Section 4.03.

 

Section 1.18   “Drug Approval Applications” shall mean

applications for regulatory approval required before commercial sale or use of

a Product as a drug.

 

Section 1.19   “EC” shall mean the executive committee

established pursuant to Section 2.02.

 

Section 1.20   “FDA” shall mean the United States Food and

Drug Administration, or any successor thereto.

 

Section 1.21   “Feasibility Study” shall mean the portion

of the Research Program described in Section 3.01(a) pursuant to which the

Parties will identify and characterize the Current Program Targets to enable

Sankyo to determine whether any Current Program Target is viable for designation

as a Collaboration Target pursuant to Section 3.03(b).

 

Section 1.22   “Field” shall mean the [ * ] for the treatment of

disease in humans.

 

2

 

Section 1.23   “Freedom to Operate” shall mean that [ * ]

is [ * ], as the case may be, [

* ]. A [ * ] and no [ * ].

By way of example, [ * ] and [

* ] or that a [ * ].

 

Section 1.24   “GAAP” shall mean [ * ].

 

Section 1.25   “IND” or “Investigational New Drug Application” shall

mean an application for required approvals or authorizations from the FDA to

commence human clinical testing of a drug, as defined by the FDA, or the

equivalent application in any other country.

 

Section 1.26   “Know-How” shall mean know-how, Substances,

information, inventions, discoveries, data, materials and technologies, whether

or not patentable, owned or controlled by a Party that either (i) exist as of

the Effective Date or (ii) are owned or controlled by such Party and arise

outside of the Program during the Term, in each case that are applicable to the

Program Targets, Substances, Lead Compounds, Research Compounds, Collaboration

Lead Compounds, Sankyo Lead Compounds, Products or Sankyo Products and the

Field.  Know-How shall exclude Program

Know-How, Patent Rights and Program Patents.

 

Section 1.27   “Lead Compound” shall mean a Substance

designated by the RMC as suitable for initial development against a Current

Program Target or a Collaboration Target within the Field based upon results of

screening performed pursuant to Section 3.04. 

Lead Compounds may be selected as Collaboration Lead Compounds pursuant

to Section 4.02.

 

Section 1.28   “Long-Term Collaboration” shall mean the

portion of the Research Program pursuant to which the Parties will conduct

research to identify and characterize Lead Compounds or Research Compounds, and

the Parties shall conduct research on Lead Compounds or Research Compounds to

identify Collaboration Lead Compounds, all as described in Section

3.01(b).  The Long-Term Collaboration

will be conducted [ * ] and [ * ].

 

Section 1.29   “NDA” or “New Drug Application” shall

mean a Drug Approval Application filed with the FDA to obtain approvals or

authorizations to commence marketing of a drug, as defined by the FDA, or the

equivalent application in any other country.

 

Section 1.30   “Net Sales” shall mean with respect to the

Product or Sankyo Product,, the gross amount invoiced by a Party its Affiliates

and sublicensees from sales to arms’-length Third Parties, less,  (i) [ * ] discounts allowed; (ii) [ * ]

any other allowances which effectively reduce the net selling price; (iii) [

* ]

returns and allowances; (iv) That portion of the sales value associated with [

* ];

(v) Any tax imposed on the production, sale, delivery or use of [

* ],

including without limitation, sales, use, excise or value added taxes; (vi)

Allowance for [ * ]; and (vii) Any other [ * ].

 

Section 1.31   “Non-Proposed Compound” shall have the

meaning set forth in Section 4.04.

 

Section 1.32   “Patent Rights” shall mean patents and

patent applications, both foreign and domestic, including without limitation

all substitutions, provisionals, continuations, continuations-in-part,

divisionals, extensions, reexaminations, reissues, renewals, supplementary

protection certificates and inventors’ certificates, that are owned or

controlled by a Party that either exist as of the Effective Date or claim

inventions owned or controlled by such Party and arise outside the Program

during the Term, in each case to the extent such patents and patent

applications are applicable to the Program Targets, Substances, Lead Compounds,

Research Compounds, Collaboration Lead Compounds, Sankyo Lead Compounds,

Products or Sankyo Products and the Field. 

Patent Rights do not include Program Patents.

 

Section 1.33   “Pre-Clinical Development” shall have the

meaning set forth in Section 4 of Appendix D.

 

Section 1.34   “Pre-Clinical Development Criteria” shall

mean the criteria for commencing pre-clinical development of a Lead Compound or

Research Compound set forth by the RMC for a particular Lead Compound or

Research Compound from time to time.

 

3

 

Section 1.35   “Product” shall have the meaning set forth

in Section 4.02(b).  Products do not

include Sankyo Products.

 

Section 1.36   “Program” shall mean the collaborative

program under which Tularik and Sankyo will conduct the Research Program and

discover, develop, manufacture and market Products with activity against the

Collaboration Targets or the Current Program Targets in the Field.

 

Section 1.37   “Program Inventions” shall mean both Joint

Program Inventions and Sole Program Inventions.

 

Section 1.38   “Program Know-How” shall mean know-how,

Substances, information, inventions, discoveries, data, materials and

technologies, whether or not patentable, that are owned or controlled by either

Party or both Parties and made, discovered or developed during the Term in the

course of the discovery, research, Pre-Clinical Development, Development and

commercialization of Substances, Lead Compounds, Research Compounds,

Collaboration Lead Compounds, Sankyo Lead Compounds, Products or Sankyo

Products pursuant to the Program. 

Program Know-How shall include Program Inventions and shall exclude

Program Patents and Research Compound Patents.

 

Section 1.39   “Program Patents” shall mean patents and

patent applications, both foreign and domestic, including without limitation

all substitutions, provisionals, continuations, continuations-in-part,

divisionals, extensions, reexaminations, reissues, renewals, supplementary

protection certificates and inventors’ certificates, that are owned or

controlled by either Party or both Parties and claim Program Inventions made

during the Term in the course of the discovery, research, Pre-Clinical

Development, Development and commercialization of Substances, Lead Compounds,

Research Compounds, Collaboration Lead Compounds, Sankyo Lead Compounds,

Products or Sankyo Products pursuant to the Program.  Program Patents shall exclude Research Compound Patents and

Program Know-How.

 

Section 1.40   “Program Target” shall mean [ * ] as a [ * ]

the [ * ].

 

Section 1.41   “Regulatory Approval” shall mean any

approvals, licenses, registrations or authorizations of any federal, state or

local regulatory agency, ministry, department, bureau or other governmental

entity necessary for the development, manufacture, use, marketing, sale or

distribution of any Product in any country in the Territory.

 

Section 1.42   “Research Compound” shall mean any compound

that is based upon a Lead Compound that agonizes or antagonizes a Current

Program Target or a Collaboration Target and that is made, created, discovered,

identified, invented, synthesized, optimized or acquired by or on behalf of

either Party pursuant to the Research Plan, or otherwise in the course of the

Program.  Research Compounds may be

selected as Collaboration Lead Compounds pursuant to Section 4.02.

 

Section 1.43   “Research Compound Inventions” shall have

the meaning set forth in Section 10.01.

 

Section 1.44   “Research Compound Patents” shall mean any

and all patents and patent applications, both foreign and domestic, including

without limitation all substitutions, provisionals, continuations,

continuations-in-part, divisionals, extensions, reissues, reexaminations,

renewals, supplementary protection certificates and inventors’ certificates,

which claim Research Compound Inventions made by or on behalf of either Party

alone or both Parties jointly pursuant to the Program during the Term.  Research Compound Patents shall not include

any Program Patents.

 

Section 1.45   “Research Plan” shall mean the research

plan approved by the Parties pursuant to a letter agreement between them of

even date herewith, as amended from time to time.

 

Section 1.46   “Research Program” shall mean the research

component of the Program, comprising the Feasibility Study and the Long-Term

Collaboration.

 

Section 1.47   “Research Program Term” shall have the

meaning set forth in Section 3.07(a).

 

4

 

Section 1.48   “RMC” shall mean the research management

committee established pursuant to Section 2.03.

 

Section 1.49   “Royalty Term” shall have the meaning set

forth in Section 6.02(c).

 

Section 1.50   “Sankyo Lead Compound” shall have the

meaning set forth in Section 4.06(a).

 

Section 1.51   “Sankyo Product” shall have the meaning set

forth in Section 4.06(a).  Sankyo

Products do not include Products.

 

Section 1.52   “Sankyo Technology” shall mean,

collectively, the Patent Rights and the Know-How owned or controlled by Sankyo.

 

Section 1.53   “Sankyo Territory” shall mean all of the

countries and territories of the world other than the countries, territories

and possessions [ * ].

 

Section 1.54   “Scientific FTE” shall mean a full-time

scientific/technical person (or, in the case of less than a full-time dedicated

person, the full-time equivalent scientific/technical person/year) dedicated to

the research, Pre-Clinical Development or Development of Substances, Lead

Compounds, Research Compounds, Collaboration Lead Compounds or Products for a

period of one (1) year, where a scientific/technical person is an employee of

either Party having skills in a [ * ].

 

Section 1.55   “Scientific FTE Rate” shall mean [

* ]

as of the Effective Date.

 

Section 1.56   “Sole Program Inventions” shall have the

meaning set forth in Section 10.02.

 

Section 1.57   “Substances” shall mean those natural

extracts, natural compounds, endogenous ligands and synthetic compounds that a

Party owns or to which a Party has a license (with the right to sublicense) as

of the Effective Date or from time to time during the Term, which such Party

actually provides to the Program.

 

Section 1.58   “Targets” shall mean G protein-coupled

receptors that [ * ] for use in the Field.

 

Section 1.59   “Term” shall mean the period from the

Effective Date until the expiration of all Program Patents, Research Compound

Patents and Patent Rights containing a Valid Claim covering the manufacture,

use or sale of Products or Sankyo Products; provided, however, that if this

Agreement is terminated prior to such date pursuant to Section 13.01, then the

Term shall end upon the effective date of such earlier termination.

 

Section 1.60   “Territory” shall mean the Sankyo Territory

and the Co-Commercialization Territory.

 

Section 1.61   “Third Party” shall mean any person or

entity other than Tularik, Sankyo or their Affiliates.

 

Section 1.62   “Tularik Technology” shall mean,

collectively, the Patent Rights and the Know-How owned or controlled by

Tularik.

 

Section 1.63   “Valid Claim” shall mean a claim of a

pending patent application or issued and unexpired patent that is included

within the Program Patents, Research Compound Patents or Patent Rights, in each

case that has not been held unenforceable, unpatentable, or invalid by a court

or other governmental agency of competent jurisdiction, and that has not been

admitted to be invalid or unenforceable through reissue, disclaimer or

otherwise.

 

Section 1.64 “Weighted Details” for a Party during any period

shall mean the [ * ] and [

* ].

 

Section 1.65 “Year Four” shall mean the one-year period commencing

on the expiration of Year Three.

 

Section 1.66 “Year One” shall mean the period commencing on the

designation of the first Collaboration Target pursuant to Section 3.03(b) and

concluding on the second anniversary of the Effective Date.

 

5

 

Section 1.67 “Year Three” shall mean the one-year period

commencing on the expiration of Year Two.

 

Section 1.68   “Year Two” shall mean the one-year period

commencing on the expiration of Year One.

 

Article

II.               MANAGEMENT

 

Section 2.01   Committees.  The Parties agree that an EC and an RMC shall manage the

relationship established by this Agreement.

 

Section 2.02 Executive Committee.

 

(a)               Composition.  The executive committee (“EC”)

shall be comprised of the Executive Vice President, Operations of Tularik and

the Director, Strategic Research Department of Sankyo.  A Party may replace its designee to the EC

by written notice to the other Party.

 

(b)              Responsibilities.  The EC shall oversee and manage

the relationship established by this Agreement and the other committees.  The EC shall resolve problems and settle

disagreements that have not been resolved by the RMC, except as otherwise

provided in this Agreement.

 

(c)               Meetings and

Voting.  The EC shall meet as

necessary to resolve problems and settle disagreements within its jurisdiction,

as provided in this Agreement.  Except

as otherwise provided herein, all decisions of the EC shall be unanimous.

 

Section 2.03 Research Management

Committee.

 

(a)               Composition.  Promptly after the Effective

Date, a research management committee (the “RMC”) shall be established

and shall be composed of three members from each of Tularik and Sankyo, the

chairperson of which shall be named by Sankyo. 

Tularik’s representatives to the RMC shall be [ * ].  Sankyo’s representatives to the RMC shall be [ * ].  A Party may replace any designee to the RMC by written notice to

the other Party.

 

(b)              Responsibilities.  The goals and progress of the

Research Program shall be determined and monitored by the RMC, which shall

receive all data and information obtained by either Party pursuant to the

Research Program.  In particular, the

RMC shall:

 

(i)                           select

up to [ * ] Current Program Targets [ * ] at

the first meeting of the RMC;

 

(ii)                        determine

whether to cease development of Current Program Targets, pursuant to Section

3.03(a);

 

(iii)                     periodically

review the Research Program and the Parties’ progress thereunder pursuant to

the Research Plan, including all screening results and new developments

regarding the Current Program Targets in the Field;

 

(iv)                    propose

changes to the Research Plan based upon the results of prior work and new

developments regarding the Current Program Targets in the Field;

 

(v)                       select Lead

Compounds, Research Compounds and Collaboration Lead Compounds;

 

(vi)                    delegate

initial responsibility for the filing and prosecution of Program Patents;

 

(vii)                 establish a

system for identification of Research Compounds as provided in Section 10.01;

 

6

 

(viii)              increase the number

of [ * ] the number of [ * ] beyond the number of [ * ]

and [ * ];

 

(ix)                      extend the

Feasibility Study [ * ]

for a [ * ]; and

 

(x)                         establish

Standard Operating Procedures (SOP) for the data management (including QC, and

QA) with respect to basic research and pre-clinical research, and

documentation.

 

(c)               Meetings

and Voting. The RMC shall meet at least twice annually.  All decisions of the RMC shall be

unanimous.  Any disagreement regarding a

matter not covered by this Agreement that cannot be resolved by the unanimous

vote of the RMC that is within the RMC’s jurisdiction shall be referred to the

EC for resolution under Section 2.02(c). 

If a disagreement is still unresolved after a seven (7) day period

following submission to the EC, such disagreement shall be resolved by the

Chief Executive Officer of Tularik and the head of the research division of

Sankyo or their duly authorized designees; provided, however, that any such [ * ]. 

If a disagreement is still unresolved after a seven (7) day period

following submission to the Chief Executive Officer of Tularik and the head of

the research division of Sankyo or their duly authorized designees, [

* ] the [ * ] to the [ * ]

to be [ * ].  It is the intent of the Parties to resolve issues relating to

Section 2.03(b) through the RMC whenever possible and to refer issues to the EC

only when resolution through the RMC cannot be achieved.  The RMC may meet by telephone or in person

as proposed by the chairperson at such times as are agreeable to its members.

The location of each RMC meeting will be determined alternately by each Party,

with each Party bearing the expenses of its representatives attending RMC

meetings.  Tularik will determine the

location of the first meeting of the RMC. 

Members of the RMC may be represented at any meeting by another member

of the RMC, or by a deputy, either of whom may cast the absent member’s

vote.  The RMC shall issue agendas in

advance of each meeting.  The

chairperson shall appoint someone to keep accurate minutes of the meetings,

which shall be effective upon written approval of the other Party, such

approval not to be unreasonably withheld or delayed.

 

Article

III.              RESEARCH PROGRAM

 

Section 3.01   Research Program. 

During the Research Program Term both Parties shall cooperate

in good faith for the benefit of the Research Program. The RMC shall establish

a system to secure the exchange, and timely return, of research materials and

information that are necessary for the progress of the Research Program.

 

(a)               Feasibility

Study.  The Feasibility Study

shall be conducted by the Parties to identify and characterize the Current

Program Targets and to enable a determination by Sankyo as to whether any

Current Program Target is viable for designation as a Collaboration Target

pursuant to Section 3.03(b).  In

addition, during the Feasibility Study the Parties shall screen Substances

against Current Program Targets and modify them, if necessary, to identify Lead

Compounds or Research Compounds. The Feasibility Study will be conducted during

the period commencing on the Effective Date and ending on the first anniversary

of the Effective Date, unless [ * ]

the [ * ] on a [ * ] the [

* ];

provided, however, that the Feasibility Study shall end on such earlier date as

Sankyo has designated [ * ] Collaboration Target pursuant to

Section 3.03(b).  Within thirty (30)

days from the end of the Feasibility Study, Tularik shall send to Sankyo a

written report describing the results of the Feasibility Study, including

without limitation a reasonably detailed summary of the Scientific FTEs funded

by Sankyo.

 

(b)              Long-Term Collaboration.  The Long-Term Collaboration shall

immediately commence upon the designation of the first Collaboration Target

pursuant to Section 3.03(b).  The

Long-Term Collaboration shall be conducted by the Parties against such

Collaboration Targets to identify and characterize Lead Compounds or Research

Compounds and to select Collaboration Lead Compounds pursuant to the Research

Plan.  Within thirty (30) days from the

end of each quarter during the Long-Term Collaboration, Tularik shall send to

Sankyo a written report describing the results of the Long-Term Collaboration

during such quarter, such report to include without limitation a reasonably

detailed summary of the Scientific FTEs funded by Sankyo.

 

7

 

Section 3.02   Basic Research. 

The Parties shall undertake, under the direction of the RMC

and pursuant to the Research Plan, basic research towards the objectives of the

Research Program.  During the Research

Program Term, Sankyo shall provide to Tularik the research payments set forth

in Section 6.01 to support the number of Scientific FTEs set forth in Appendix

A [ * ] conducting the Research Plan, which Tularik Scientific FTEs

shall be distributed as set forth in Appendix A.  During the Research Program Term, Sankyo shall provide the number

of Scientific FTEs set forth in Appendix A to assist in the conduct of the

Research Plan, which Sankyo Scientific FTEs shall be distributed as set forth

in Appendix A.  The actual distribution

of such Scientific FTEs among the scientific disciplines represented on

Appendix A may vary from the projected distribution of Scientific FTEs set

forth on Appendix A as a function of the needs of the Research Program at any

particular time, as determined by the RMC.

 

Section 3.03   Targets.

 

(a)               Current

Program Targets. Tularik shall provide to Sankyo all the data and

information reasonably available to Tularik prior to the selection of such Current

Program Targets pursuant to Section 2.03(b)(i).  The number of Current Program Targets shall in no event be

greater than [ * ].  The RMC may elect to terminate research on a

Current Program Target, in which case such Program Target shall no longer be a

Current Program Target.  Current Program

Targets for which work under the Feasibility Study is terminated may be pursued

[

* ].  For any Current Program Targets for which

work is terminated all licenses granted by Tularik to Sankyo will terminate

(other than any [ * ] license provided in the last sentence of

Section 10.02) with respect to such Current Program Targets.

 

(b)              Collaboration Targets.  During the Feasibility Study, Sankyo may

designate [

* ] Current Program Target as a Collaboration Target for further

research as part of the Long-Term Collaboration.  In the event any Current Program Targets are not designated as a

Collaboration Target by Sankyo prior to the end of the Feasibility Study, such

rejected Current Program Targets may be pursued independently by Tularik

without any obligation to Sankyo whatsoever. 

In the event that work on any Collaboration Target under the Long-Term

Collaboration is terminated by Sankyo, such Program Target shall cease to be a

Collaboration Target and be removed from Appendix C, and such rejected

Collaboration Target may be pursued independently by Tularik without any

obligation to Sankyo whatsoever. For any Collaboration Target for which work is

terminated by Sankyo all licenses granted by Tularik to Sankyo will terminate

(other than any [ * ] license provided in the last sentence of

Section 10.02) with respect to such Collaboration Target.

 

(c)               Replacement

of Collaboration Target.  Anything

in Section 3.03(b) to the contrary notwithstanding, during the twelve month period

commencing on the conclusion of the Feasibility Study, Sankyo may elect

to:  (i) replace a Collaboration Target

with any [

* ];

or (ii) designate any [ * ]. 

Should Sankyo make either of the elections described above, Sankyo shall

reimburse Tularik for all costs and expenses incurred by Tularik relating to

each of the Current Program Targets during the period commencing on the

expiration of the Feasibility Study up to and including the date of such

election [

* ] in the event that [ * ]

with respect to the [ * ].  In the event that Sankyo determines to

designate an additional Collaboration Target pursuant to Section 3.03(c)(ii),

Sankyo shall thereafter pay Tularik an amount to be agreed in good faith by the

Parties for such additional Collaboration Target, along with Scientific FTE

support at levels to be negotiated.

 

Section 3.04   Screening. 

Pursuant to the Research Plan, Tularik shall develop, and Tularik and

Sankyo shall perform, [ * ] assays to determine (i) the effect of

Substances selected for screening by the RMC on Current Program Targets during

the Feasibility Study and Collaboration Targets during the Long-Term

Collaboration and (ii) the [ * ] of such Substances, for the purpose of

identifying Lead Compounds and determining whether to make and develop Research

Compounds based upon such Lead Compounds. 

The RMC shall designate Lead Compounds and determine whether to make and

develop such Research Compounds.  To the

extent permitted by agreements with Third Parties, Sankyo and Tularik will

provide their respective proprietary [ * ] libraries for such screening as directed

by the RMC; provided,

however, that a Party shall not be required to [ * ] that are [ * ] at the time

of [ * ].

 

Section 3.05 Research Chemists.

 

(a)               The Parties

recognize that the [ * ] of [

* ] to [ * ] will confer

[ * ].  Accordingly, the

Parties agree that the RMC, by unanimous decision, shall be responsible for

determining:  (i) the identity of Lead

Compounds or 

 

8

 

Research Compounds

to which medicinal chemistry resources will be dedicated; and (ii) the number

and level (i.e., Ph.D., research assistant, etc.) of chemistry Scientific FTE

to be assigned to perform medicinal chemistry on each Lead Compound or Research

Compound; [ * ] be [

* ] to the [ * ]

that [ *  ].

 

(b)              In the event that

the RMC, by unanimous decision, determines to [ * ] the [

* ] than the [ *  ],

Sankyo shall either:  (i) provide to the

Program [

* ] to the [ * ]

and [ * ]; or (ii) pay Tularik the [ * ]

for [ * ] of [ *  ].

 

Section 3.06   Exchange of Pre-Clinical Data.  Sankyo and Tularik will exchange

research and Pre-Clinical Development data generated during the Program [

* ].  In accordance with Section 5.02 and Section

5.03, the Parties may also make such data available to any permitted

sublicensees in a country or countries in the Territory; provided, however, such data

shall not be made available to such sublicensees until the sublicensee has

executed a standard confidentiality agreement covering disclosure and use of

such data, and ownership of such data and intellectual property rights,

consistent with the terms of this Agreement.

 

Section 3.07 Research Program Term.

 

(a)               The Research

Program shall be conducted during the Feasibility Study pursuant to Section 3.01(a)

and during Year One, Year Two, Year Three and Year Four of the Long-Term

Collaboration, or until such earlier time as the Research Program may be

terminated as provided in Section 3.07(b) (the “Research Program Term”).

 

(b)              The Research Program

shall terminate at the earlier of:  (i)

the expiration of the Feasibility Study in the event that no Collaboration

Target has been designated by Sankyo pursuant to Section 3.03(b) prior to the

end of the Feasibility Study; or (ii) termination of the Long-Term

Collaboration.  Following the

commencement of the Long-Term Collaboration, upon at least [ * ] days’ prior written

notice to Tularik, Sankyo may terminate the Research Program with respect to

any Collaboration Target effective at the end of either [ * ] if Sankyo determines, in

the good faith exercise of its reasonable scientific judgment, that (i) the

Research Program with respect to such Collaboration Target is [

* ];

(ii) the Research Program with respect to each such Collaboration Target is [

* ];

or (iii) that [ * ] would not

be [ * ].  The Long-Term Collaboration shall terminate following the earlier

of:  (i) the termination of all

Collaboration Targets pursuant to the immediately preceding sentence; or (ii)

the end of Year Four.

 

Section 3.08 Effect of Termination of Research Program.

 

(a)               In case of a

termination of the Research Program pursuant to Section 3.07(b) prior to the

end of Year Four, Sankyo shall be exempt from any payment(s) under Section 6.01

that would have become due and payable after the effective date of such early

termination.  The RMC shall meet at

least seven (7) days prior to the end of the Research Program Term to determine

which compounds screened or made during the Research Program that are not then

either a Collaboration Lead Compound or a Sankyo Lead Compound should be

designated as a Collaboration Lead Compound or a Sankyo Lead Compound.

 

(b)              If the Research

Program terminates pursuant to Section 3.07(b) prior to the end of Year Four

and this Agreement terminates simultaneously in accordance with Section

13.01(a) (i.e., no Lead Compound or Research Compound has been designated

previously as a Collaboration Lead Compound in accordance with Section 3.08(a)

or Section 4.02 and no Sankyo Lead Compound has been identified pursuant to

Section 3.08(a) or is being developed in accordance with Section 4.06), then:

(i) all licenses granted by Tularik to Sankyo under this Agreement will

terminate, other than any [ * ] license provided in the last sentence of

Section 10.02; and (ii) [ * ] Sankyo will also grant to Tularik a

nonexclusive, sublicensable, worldwide license under the Sankyo Technology to

the extent necessary to develop, make, use, sell, offer for sale or import

Substances, Lead Compounds or Research Compounds screened in or made pursuant

to the Research Program [ * ].

 

(c)               Section 4.11

provides for the Parties’ rights and obligations in the event that the Research

Program terminates early but the Term of this Agreement does not terminate

simultaneously.

 

9

 

Section 3.09   Exclusive Collaboration.  Except as otherwise provided in Articles IV and V with

respect to Third Party sublicensees and contractors, the Parties shall work

exclusively with each other to perform research to identify and characterize

the Current Program Target during the Feasibility Study and to research and

develop compounds [ * ] during the Research Program Term. During

the Term, neither Party shall research, develop or commercialize a product that

is primarily active against a Collaboration Target for use in the Field other

than pursuant to this Agreement.

 

(a)               If, following the

commencement of the Long-Term Collaboration, the Research Program is terminated

with respect to any Collaboration Target effective any time after the end of [

* ],

for a period of [ * ] years thereafter, Sankyo shall not research, develop or commercialize

any product that is [ * ]; provided, however, that Sankyo may

research, develop or commercialize Research Compounds that are [ * ].

 

(b)              If, following the

commencement of the Long-Term Collaboration, Sankyo should terminate the

Research Program with respect to any Collaboration Target effective at the end

of [ * ]

hereunder, Sankyo shall not research, develop or commercialize any product that

is [ * ] for the [ * ]

or [ * ] of the [ *  ]; provided, however, that Sankyo may

research, develop or commercialize Research Compounds that are [

* ].

 

Article IV.              DEVELOPMENT

PROGRAM

 

Section 4.01   General Principles. 

The Parties agree to use commercially reasonable efforts to

develop Collaboration Lead Compounds for use in the Field, making use of each

Party’s special expertise as directed by the RMC, with the intent of obtaining

all Regulatory Approvals and commercializing Products as soon as reasonably

practicable thereafter.

 

Section 4.02 Designation of Collaboration Lead Compound.

 

(a)               From time to time

either Party may propose to the RMC one or more Lead Compounds or Research

Compounds for Pre-Clinical Development. 

The RMC will promptly determine whether such Lead Compound or Research

Compound is suitable for Pre-Clinical Development by determining whether such

Lead Compound or Research Compound meets the Pre-Clinical Development Criteria

and, if so, propose a plan and budget for Pre-Clinical Development thereof

within a reasonable time following such determination.

 

(b)              If the RMC

determines that such Lead Compound or Research Compound meets the Pre-Clinical

Development Criteria, then, within [ * ] of such determination, each Party shall

provide to the RMC a written notice as to whether it elects to participate in,

and commit resources to conduct, Pre-Clinical Development of such Lead Compound

or Research Compound as a Collaboration Lead Compound.  If the RMC determines that more information

is necessary prior to making a determination of whether such Lead Compound or

Research Compound should be designated as a Collaboration Lead Compound, then

the proposal of such Lead Compound or Research Compound is rescinded and

reasonable efforts on such Lead Compound or Research Compound shall be

continued for a reasonable period of time. If the RMC determines that such Lead

Compound or Research Compound does not meet the Pre-Clinical Development

Criteria, then, within [ * ] of such determination, each Party shall

provide to the RMC a written notice as to whether it elects to designate such

Lead Compound or Research Compound as a Collaboration Lead Compound and

participate in, and commit resources to conduct, Pre-Clinical Development of

such Collaboration Lead Compound, notwithstanding that such Lead Compound or

Research Compound does not meet the Pre-Clinical Development Criteria.  If both Parties make an affirmative election

with respect to any Lead Compound or Research Compound pursuant to either the

first or second sentence of this Section 4.02(b), then such Lead Compound or

Research Compound shall be designated a “Collaboration Lead Compound” and any

products incorporating or based upon such Collaboration Lead Compound for which

an IND is submitted to a regulatory authority shall be designated as a “Product.”

If Tularik makes an affirmative election and Sankyo makes a negative election

with respect to whether any Lead Compound or Research Compound shall be

designated a Collaboration Lead Compound, then: (i) all licenses granted by

Tularik to Sankyo will terminate (other than any [ * ] license

provided in the last sentence of Section 10.02) with respect to such Lead

Compound or Research Compound; (ii) Sankyo will grant to Tularik an 

 

10

 

exclusive,

sublicensable, worldwide, royalty-bearing [ * ] license to develop, make, use, sell,

offer for sale or import such Lead Compound or Research Compound under Sankyo’s

interest in Program Patents, Program Know-How and Research Compound Patents;

and (iii) under terms and conditions to be separately agreed, Sankyo will also

grant to Tularik a nonexclusive, sublicensable, worldwide license under the

Sankyo Technology to the extent necessary to practice the license granted under

the Program Patents and Program Know-How in Section 4.02(b)(ii) (including

Sankyo Technology relating to a limited number of Sankyo’s Substances).

Thereafter, Tularik will have the right to proceed independently to develop

such compound without any obligation to Sankyo whatsoever.  If Sankyo makes an affirmative election and

Tularik makes a negative election with respect to whether any Lead Compound or

Research Compound shall be designated a Collaboration Lead Compound, Sankyo

will have the right to proceed independently to develop such compound as a

Sankyo Lead Compound or Sankyo Product under Section 4.06.

 

Section 4.03   Reversion of

Discontinued Compounds.  If

neither Party makes an affirmative election with respect to any Lead Compound

or Research Compound being designated a Collaboration Lead Compound pursuant to

Section 4.02(b), all rights in and to any such Lead Compound that is not

claimed in a Research Compound Patent shall revert to the Party that

synthesized such Lead Compound without any obligation whatsoever to the other

Party hereto and all rights in and to any Research Compound shall be as

provided in Section 10.01.  Development

of products based upon such non-elected Lead Compound or Research Compound (a “Discontinued

Compound”) may be subsequently independently initiated by Tularik

pursuant to Section 5.05.

 

Section 4.04  Reversion of Non-Proposed Compound.  If a Lead Compound or Research

Compound is not, during the Research Program Term, proposed to the RMC pursuant

to Section 4.02(a), such Lead Compound or Research Compound shall be neither a

Collaboration Lead Compound nor a compound that may be developed under Section

4.06, and all rights in and to such non-proposed Lead Compound that is not

claimed in a Research Compound Patent shall revert to the Party that

synthesized such Lead Compound without any obligation to the other Party

whatsoever and all rights in and to any Research Compound shall be as provided

in Section 10.01.  Development of

products based upon such non-proposed Compound (a “Non-Proposed Compound”) may

be subsequently independently initiated by Tularik pursuant to Section 5.05.

 

Section 4.05   Compliance.  The

Parties will comply with all applicable supranational, federal, state and/or

local laws pertaining to the Pre-Clinical Development and Development of

Products and Sankyo Products.  Sankyo

will be responsible for filing in its name and shall own all Drug Approval

Applications relating to Products in each country in the Sankyo Territory in

which Products will be commercialized.

 

Section 4.06  Independent Development by Sankyo following Opt-Out by Tularik.

 

(a)               Sankyo Lead

Compound/Sankyo Product.  In

the event (i) Tularik, pursuant to Section 4.02(b), elects not to, or does not,

participate in and commit resources to the Pre-Clinical Development of a

Research Compound or Lead Compound as a Collaboration Lead Compound in the

Co-Commercialization Territory or (ii) Tularik unilaterally terminates its

participation in the Pre-Clinical Development or Development of a Collaboration

Lead Compound or Product in the Co-Commercialization Territory, then Sankyo

shall have the right to practice the license granted in Section 5.04 and to

undertake pre-clinical development of a Lead Compound or Research Compound or

to continue Pre-Clinical Development and Development of such Collaboration Lead

Compound or Product independently in the Territory as a “Sankyo Lead Compound” or “Sankyo

Product,” [ * ]

and [ * ].

 

(b)              Sole Discretion.  In the event Sankyo elects to

proceed independently with respect to a Sankyo Lead Compound or Sankyo Product,

Sankyo shall be entitled to develop such Sankyo Lead Compound and commercialize

such Sankyo Product at its sole discretion, alone or with a Third Party, in the

Territory.

 

Section 4.07   Termination.  If

Sankyo terminates its development or commercialization of a Sankyo Lead

Compound or a Sankyo Product, then (i) it shall promptly so notify Tularik,

(ii) such compound shall no longer be a Sankyo Lead Compound and such product

shall no longer be a Sankyo Product and (iii) the licenses granted to Sankyo

for such compound or product shall terminate upon Tularik’s receipt of such

notice.

 

 

11

 

Section 4.08   Co-Development Agreement.  For each Collaboration Lead Compound, the

Parties will negotiate in good faith and finalize an agreement for the

co-development of all associated Products (“Co-Development Agreement”), as soon

as practicable following the [ * ].  The basis for the Co-Development Agreement

shall be the terms and conditions contained in the Heads of Co-Development

Agreement set forth in Appendix D [ * ]. 

Anything in this Agreement to the contrary notwithstanding, if the

Parties do not execute a Co-Development Agreement for the relevant Product

within [

* ]:  (i) the [ * ]

shall continue [ * ] the Parties; and (ii) the Parties shall [

* ].

 

Section 4.09   Co-Commercialization Agreement.  For each Collaboration Lead

Compound, the Parties will negotiate in good faith and finalize an agreement

for the co-promotion or co-marketing, as the case may be, of all associated

Products (“Co-Commercialization Agreement”), within [ * ] after the [ * ]

for the [ * ]. 

The basis for the Co-Commercialization Agreement shall be the terms and

conditions contained in the Heads of Co-Commercialization Agreement set forth

in Appendix E [ * ]. 

Anything in this Agreement to the contrary notwithstanding, if the

Parties do not execute a Co-Commercialization Agreement for the relevant

Product within [ * ]: 

(i) the [ * ] shall

continue [ * ] the Parties; and (ii) the Parties shall [

* ].

 

Section 4.10   Dispute Resolution.  The Parties shall select three mutually

acceptable arbitrators (the “Arbitrators”) to determine all required provisions

of the Co-Development Agreement or Co-Commercialization Agreement, as the case

may be, that have not previously agreed by the Parties.  One (1) of the three (3) Arbitrators shall

be selected by Sankyo, one (1) of the Arbitrators shall be selected by Tularik

and the third Arbitrator, who shall act as chairperson, shall be selected by

the mutual agreement of the other two (2) Arbitrators within [

* ]

of their selection; provided, however, if within such time period the first two

(2) selected Arbitrators are unable to agree on a third member of the

arbitration panel, such third member shall be appointed by the President of the

American Arbitration Association as soon as practicable thereafter.  The three (3) Arbitrators shall have

relevant biotechnology and/or pharmaceutical industry experience.  Each Party shall submit to the other Party

and the Arbitrators, within [ * ] of the selection of the chairperson

of the Arbitrators, such Party’s written proposal containing all of the

required provisions of the Co-Development Agreement or Co-Commercialization

Agreement, as the case may be, that have not previously been agreed to by the

Parties, along with support for such proposal. Such proposals shall reflect

those terms as are reasonable and customary within the pharmaceutical

industry.  At the request of either

Party, the Arbitrators shall hold a hearing to determine the appropriate

provisions of the Co-Development Agreement or Co-Commercialization Agreement,

as the case may be.  The Arbitrators

shall rule on such provisions within [ * ] following the later to occur of receipt

of such proposals from the Parties or such hearing.  Such ruling shall [ * ]. 

The Arbitrators shall not issue any written opinion or otherwise explain

the basis of the ruling.  Any

arbitration herewith shall be conducted in the English language to the maximum

extent possible. [ * ].

 

Section 4.11   Reversion of Rights to Tularik on Early Termination of

Research Program.  If, after

the Research Program terminates pursuant to Section 3.07(b) [

* ] with the [ * ], Sankyo terminates Pre-Clinical

Development of Collaboration Lead Compounds and/or Development or

Co-Commercialization of any Products in any country in the Territory [ * ] or [ *  ],

then: (i) all licenses granted by Tularik to Sankyo will terminate [

* ]

with respect to such Collaboration Lead Compound, Sankyo Lead Compound, Product

or Sankyo Product; (ii) Sankyo will grant to Tularik an exclusive,

sublicensable, worldwide, [ * ] license to develop, make, use and

sell such Collaboration Lead Compound, Sankyo Lead Compound, Product or Sankyo

Products under Sankyo’s interest in Program Patents, Program Know-How and

Research Compound Patents; and (iii) [ * ] Sankyo will also grant to Tularik a

non-exclusive, sublicensable, worldwide license under the Sankyo Technology to

the extent necessary to practice the license granted under the Program Patents

and Program Know-How in Section 4.11(ii) [ * ].

 

Section 4.12   Sankyo Territory.

 

(a)               Development.  Sankyo shall [ * ] for each Product in the

Sankyo Territory and shall [ * ] throughout the Sankyo Territory.  Sankyo shall be responsible for diligently

conducting Development of Products in the Sankyo Territory and use commercially

reasonable efforts to develop and commercialize Products as soon as reasonably

practicable. Sankyo may elect, on a Collaboration Lead

Compound-by-Collaboration Lead Compound or Product-by-Product basis, to

terminate the Pre-Clinical Development of a given Collaboration Lead Compound

or Development of a given Product based upon or incorporating such

Collaboration Lead Compound in the Sankyo Territory by written notice to

Tularik at any time. After 

 

12

 

receipt of such

notice by Tularik in accordance with this Section 4.12:  (i) Sankyo shall no longer be [ * ];

and (ii) all rights in and to [ * ]

in the [ * ] the [

* ] at the [ * ]. 

In the event Sankyo gives notice under this Section 4.12, Sankyo

shall:  (i) make its personnel, relevant

data and other resources available to Tularik as necessary to effect an orderly

transition of development responsibilities; and (ii) transfer and assign to

Tularik all regulatory submissions, including all Drug Approval Applications

relating to such Collaboration Lead Compound and/or Products, together with all

materials and data related thereto in its possession.

 

(b)              Commercialization. Sankyo

shall oversee and implement all commercialization activities in the Sankyo

Territory during the Term, based on the principle of maximizing profits from

sales of Products. Sankyo shall have the exclusive responsibility for promoting

each Product in the Sankyo Territory during the Term.  All information and materials generated by Sankyo in the course

of its promotion effort for Products within any country in the Sankyo Territory

shall be provided to the MOC for use in the promotion effort within the

Co-Commercialization Territory. Sankyo shall [ * ] for providing such information and

materials to the MOC. Sankyo shall submit to the MOC a marketing plan and

budget for each Product it intends to commercialize in the Sankyo Territory for

informational purposes. The MOC shall review Sankyo’s plans for implementation

of commercialization activities within the Sankyo Territory and provide

suggestions for facilitating the promotion and commercialization of Products on

a global basis. Sankyo may elect, on a Collaboration Lead

Compound-by-Collaboration Lead Compound or Product-by-Product basis, to

terminate all commercialization activities relating to a given Product in the

Sankyo Territory by written notice to Tularik at any time. After receipt of

such notice by Tularik in accordance with this Section 4.12, all rights in and

to such Product in the Sankyo Territory shall revert to Tularik without any

obligation to Sankyo whatsoever [ * ]. 

In the event Sankyo gives notice under this Section 4.12, Sankyo

shall:  (i) [ * ] for the [

* ] the [ * ]

(ii) make [ * ]; and (iii) [ * ].

 

Article

V.               LICENSE GRANTS

 

Section 5.01   Research License. 

Each Party hereby grants to the other Party, solely for the

purpose of conducting the Program as described in the Research Plan, a

non-exclusive license to practice the Patent Rights and Know-How owned or

controlled by such Party during the Research Program Term.  Neither Party may grant sublicenses under

the foregoing research licenses without the prior written consent of the other

Party, not to be unreasonably withheld. 

The [ * ] is as set forth Section 6.02, Section 6.03 and Appendix

E.

 

Section 5.02   Grant by Tularik for Products.  Subject to the terms and

conditions of this Agreement, Tularik hereby grants and agrees to grant to

Sankyo:  (i) an exclusive (except as to

Tularik), [

* ] license (with the right to sublicense as provided in this

Section 5.02) under the Program Patents, Program Know-How and the Tularik

Technology to the extent necessary or useful to develop, have developed, make,

have made, use, import, offer for sale, sell and have sold any Product in the

Co-Commercialization Territory (subject to Section 12 of Appendix E); and (ii)

an exclusive (even as to Tularik), [ * ] license (with the right to sublicense

as provided in this Section 5.02) under the Program Patents, Program Know-How

and the Tularik Technology to develop, have developed, make, have made, use,

import, offer for sale, sell and have sold any Product in the Sankyo Territory.

 Except as provided in Section 5.06,

Sankyo may not sublicense any rights granted under this Section 5.02 in the

Territory to any Third Party without the prior written consent of Tularik, not

to be unreasonably withheld. Sankyo shall ensure that any such sublicense

negotiated by Sankyo as permitted under this Section 5.02 shall run from the

Parties to such sublicensee; and Sankyo shall ensure that any such sublicense

shall provide that [ * ]

shall be [ * ] and [ *  ].

 

Section 5.03   Grant by Sankyo for Products.  Subject to the terms and

conditions of this Agreement, Sankyo hereby grants and agrees to grant to

Tularik an exclusive (except as to Sankyo), [ * ] license (with the right

to sublicense as provided in this Section 5.03) under the Program Patents, Program

Know-How and the Sankyo Technology to the extent necessary or useful to

develop, have developed, make, have made, use, import, offer for sale, sell and

have sold any Product in the Co-Commercialization Territory (subject to Section

12 of Appendix E).  Except as provided

in Section 5.06, Tularik may not sublicense any rights granted under this

Section 5.03 to any Third Party in the Co-Commercialization Territory without

the prior written consent of Sankyo, not to be unreasonably withheld.  Tularik shall ensure that any sublicense

negotiated by Tularik as permitted under this Section 5.03 shall run from the

Parties to such sublicensee; and Tularik shall ensure that [ * ] shall be [

* ] and [ *  ].

 

13

 

Section 5.04     Grant by Tularik for Sankyo Products.  Tularik hereby grants to Sankyo,

to the extent Sankyo is developing a Sankyo Lead Compound or developing or

commercializing a Sankyo Product pursuant to Section 4.06: (i) an exclusive

(even as to Tularik), [ * ], worldwide (subject to Section 12 of

Appendix E) license (with the right to sublicense) under Tularik’s interest in

the Program Patents and Program Know-How; and (ii) a non-exclusive, [ * ],

worldwide (subject to Section 12 of Appendix E) license (with the right to

sublicense) under the Tularik Technology, in each case to develop or have

developed Sankyo Lead Compounds and to develop, have developed, make, have

made, use, import, offer for sale, sell and have sold Sankyo Products

incorporating a Sankyo Lead Compound.

 

Section 5.05   Grant by Sankyo for Discontinued Compounds and

Non-Proposed Compounds. Sankyo hereby grants to Tularik to the

extent Tularik is developing a Discontinued Compound or a Non-Proposed Compound:  (i) under terms and conditions to be

separately agreed, an exclusive, [ * ] worldwide license (with the right to

sublicense) under Sankyo’s interest in the Program Patents, Program Know-How

and Research Compound Patents; and (ii) under terms and conditions to be

separately agreed, a non-exclusive, [ * ] worldwide license (with the right to

sublicense) under the Sankyo Technology, in each case to develop or have

developed Discontinued Compounds and/or Non-Proposed Compounds and to develop,

have developed, make, have made, use, import, offer for sale, sell and have

sold products incorporating a Discontinued Compound and/or a Non-Proposed

Compound.

 

Section 5.06   Third Party Technology; Consents to Certain

Sublicenses.  During the

Term, if either Party becomes aware of (i) an opportunity to participate in

research with a Third Party that could advance the objectives of the Research

Program or the Development and/or Pre-Clinical Development of a Collaboration

Lead Compound and/or a Product; or (ii) an opportunity to obtain a license or

other right owned or controlled by a Third Party relating to the manufacture,

marketing, import, use or sale of a Product, it shall so notify the other Party

and the RMC, as applicable, will determine whether to pursue such opportunity

in connection with the Program.  In the

event that the Parties pursue such opportunity under subsection (i), they shall

grant appropriate licenses or sublicenses, as applicable, to such Third Party

solely to perform the tasks designated and approved by the RMC, as applicable,

for such Third Party and provide for confidentiality and non-use obligations,

and for ownership of or licenses under such Third Party’s inventions and

related intellectual property rights arising in the course of work performed by

such Third Party pursuant to this Agreement, consistent with those provided

herein.  If the Parties, in connection

with any opportunity described in subsection (i) or (ii), incur obligations to

make payments to a Third Party for:  (A)

[

* ] with respect to the [ * ],

such payments shall be made [ * ];

or (B) [

* ] with respect to the [ * ],

such payments shall be [ * ] as the case may be, of the [ *  ].

If Sankyo, in connection with any opportunity described in subsection (i) or

(ii), incurs obligations to make payments to a Third Party with respect to the

Sankyo Territory for: (X) [ * ]

with respect to the [ * ], such payments shall be made [ * ]; or (Y) [ * ] with respect to the [ * ],

such payments shall be [ * ].  Tularik shall provide reasonable assistance

to Sankyo to [ * ] with

respect to the [ * ] in the [

* ].  Neither Party shall [ * ] shall receive [ * ] the [ * ],

or [ * ].

 

Section 5.07   Grant by Parties for Personal Property Interest in

Research Compounds.  Tularik

hereby grants to Sankyo, [ * ] a non-exclusive, [ * ] worldwide license (with

the right to sublicense) under Tularik’s personal property interest in a

Research Compound synthesized by Tularik in the event that Sankyo desires to

develop, have developed, make, have made, use, import, offer for sale, sell and

have sold products incorporating such Research Compound. Sankyo hereby grants

to Tularik, [ * ] a non-exclusive, [ * ] worldwide license (with the right to

sublicense) under Sankyo’s personal property interest in a Research Compound

synthesized by Sankyo in the event that Tularik desires to develop, have

developed, make, have made, use, import, offer for sale, sell and have sold

products incorporating such Research Compound.

 

Article

VI.              PAYMENTS

 

Section 6.01 Payments.  In

consideration of Tularik Technology, but not in consideration of the licenses

granted pursuant to Article V hereof or as partial payment of any royalties to

be paid in consideration hereof, Sankyo shall pay Tularik [ * ].  This amount payable under this Section 6.01

shall represent the actual proceeds to be received by Tularik after any

applicable tax deductions have been made. In the event that [ * ]

or [ * ] with respect to [

* ].  In the year the payments are made and for

the following [ * ] shall [ * ]

whether [ * ] or [

* ] the [ * ].  Additionally,

to support the Research Program, Sankyo shall pay to Tularik an amount equal

to:  (i)(A) [ * ] or as

increased as required [ * ] for the [ * ] multiplied

by (B) [ * ]; provided, however, that in no event shall

the [ * ] unless the [ *

] to the [ * ]

as a [ * ], in which case the payment in this Section 6.01(i) shall

equal:  (X) the amount calculated by [ * ];

 

14

 

multiplied

by (Y) [ * ] equals the number of [ * ]

and the [ * ]; provided further in the event the Parties [ * ]

of the amount calculated pursuant to [

* ] shall be payable [ * ];

(ii)(A) the [ * ] or as increased as required [ * ];

multiplied by (B) [ * ]; multiplied by (C) [ * ],

where the [ * ] from the end [ * ] and the [ * ];

provided,

however, that in no event shall the [ * ]; and

(iii)(A) the [ * ] or as increased as required [ * ];

multiplied by (B) [ * ]; provided, however, that in no event shall [ * ].  The amount to be paid [ * ]

by the [ * ] and shall be [ * ] or as

increased as required [ * ], as the case may be, and the [ * ].

Unless the [ * ] as provided in [ * ] the

payments pursuant to this Section 6.01 shall [

*  ].

 

Section 6.02   Payments on Sankyo Products.

 

(a)               Royalties.  In the event Sankyo is commercializing a

Sankyo Product pursuant to Section 4.06, Sankyo will pay Tularik, with respect

to Sankyo Products sold in the Co-Commercialization Territory, a royalty equal

to:

 

(i)                           [ * ]

of Net Sales of such Sankyo Product by Sankyo, its Affiliates or sublicensees

in the Territory less than [ * ];

 

(ii)                        [ * ]

of Net Sales of such Sankyo Product by Sankyo, its Affiliates or sublicensees

in the Territory greater than or equal to [ * ]; or

 

(iii)                     [ * ]

of Net Sales of such Sankyo Product by Sankyo, its Affiliates or sublicensees

in the Territory greater than or equal to [ * ].

 

(b)              Milestone Payments.  In the event Sankyo is developing a Sankyo

Lead Compound or developing or commercializing a Sankyo Product pursuant to

Section 4.06, Sankyo will make the following payments to Tularik in US Dollars

upon the occurrence of the listed event in the Territory for such Sankyo Lead

Compound and related Sankyo Product:

 

	

  Event

  	

   

  	

  Payment

  
	

   

  	

   

  	

   

  
	

  [ * ]

  	

   

  	

  [ * ]

  

 

On the date any one

milestone with respect to a Sankyo Lead Compound or Sankyo Product is achieved,

all lower numbered unachieved milestones shall be deemed to have been achieved

with respect to that Sankyo Lead Compound or Sankyo Product and shall be paid.

 

(c)               Period of

Royalty Obligation.  The

royalty obligation under Section 6.02(a) shall be payable on a quarterly basis

in respect of each country in which sales of Sankyo Products occur within [

* ]

after the end of each calendar quarter commencing on the date of the first

commercial sale of a Sankyo Product in such country until the expiration of the

last to expire patent licensed to Sankyo under Section 5.02 above or the [ * ]

anniversary of the first commercial sale in such country in which there is no

patent (“Royalty

Term”) for such Sankyo Product. If Tularik terminates Development in

the Co-Promotion Territory, then Sankyo’s milestone obligations in the

Territory shall continue; provided, however, that Sankyo shall have no

obligation to pay milestones on Products for which Sankyo has already paid

milestones to Tularik in the Sankyo Territory. If Tularik terminates Co-Promotion

or Co-Marketing activities after the Parties have begun Co-Promoting or

Co-Marketing in the Territory, then Sankyo’s royalty obligations in the

Territory with respect to the Product shall continue, provided, however, that

Sankyo shall have no obligation to pay milestones to Tularik for the Product.

 

Section 6.03 Payments in the Sankyo Territory.

 

(a)               Royalties.  To the extent Sankyo is not otherwise

required to pay royalties pursuant to Section 6.02(a), Sankyo will pay Tularik

royalties on Net Sales of Products sold in the Sankyo Territory by Sankyo, its

Affiliates or sublicensees as follows:

 

15

 

(i)                           [ * ]

of Net Sales of Products by Sankyo, its Affiliates or sublicensees less than [ * ];

 

(ii)                        [ * ]

of Net Sales of Products by Sankyo, its Affiliates or sublicensees greater than

or equal to [ * ]; or

 

(iii)                  [

* ] of Net Sales of Products by Sankyo, its Affiliates or sublicensees

greater than or equal to [ * ].

 

(b)              Milestone Payments.  Unless Sankyo shall be otherwise required to

make the payments pursuant to Section 6.02(b), Sankyo will make the following

payments to Tularik in US Dollars upon the occurrence of the listed event in

the Sankyo Territory for each Collaboration Lead Compound and related Product:

 

	

  Event

  	

   

  	

  Payment

  
	

   

  	

   

  	

   

  
	

  [ * ]

  	

   

  	

  [ * ]

  

 

On the date any one

milestone with respect to a Collaboration Lead Compound or Product is achieved,

all lower numbered unachieved milestones shall be deemed to have been achieved

with respect to that Collaboration Lead Compound or Product and shall be paid.

 

(c)               Period of

Royalty Obligation.  The

royalty obligation under Section 6.03(a) shall be payable on a quarterly basis

in respect of each country in the Sankyo Territory in which sales of Products

occur within [ * ] after the end of each calendar quarter

commencing on the date of first commercial sale of a Product in a country in

the Sankyo Territory until the expiration of the last to expire patent licensed

to Sankyo under Section 5.02 above or the [ * ] anniversary of the first commercial

sale in such country in which there is no patent for such Product.

 

Section 6.04   Taxes.  Payment

of all withholding or similar taxes that may be imposed by any governmental

authority on royalty and milestone payments provided in Section 6.02 or Section

6.03 of this Agreement shall be paid by Tularik.

 

Article

VII.             RECORD

 

Section 7.01   Records.  Sankyo

and Tularik and, if applicable, their respective Affiliates and sublicensees,

each shall keep accurate books and accounts of record (prepared in accordance

with GAAP) in connection with the manufacture, use and/or sale by or for such

Party of all Collaboration Lead Compounds, Products and Sankyo Products in the

Territory in sufficient detail to permit accurate determination of all figures

necessary for verification of royalties and other compensation required to be

paid or expenses required to be shared hereunder or pursuant Section 4 of

Appendix E.  Sankyo and Tularik shall

maintain such records for a period of [ * ] after the end of the year in which such

records were generated.  Either Party,

through a certified public accountant reasonably acceptable to the other Party,

shall have the right to access the books and records of the other Party, its

Affiliates and sublicensees for the sole purpose of verifying amounts due to or

credited to (as applicable) such Party pursuant to this Agreement, at the

expense of the auditing Party, unless such audit reveals an underpayment (or

failure to credit, as applicable) to such Party greater than [ * ] of amounts due to or

credited to (as applicable) such Party, in which case the audited Party shall

bear all costs of such audit, and the excess or deficit shall be adjusted

between the Parties within [ * ]

of receipt of invoice for adjustment. 

Such access shall be permitted only upon reasonable prior written notice

to the other Party during ordinary business hours, and not more frequently than

once during each calendar year. [ * ]

to [ * ] a [ * ] that [

* ] for purposes of:  (i) [

* ], which is [ * ];

or (ii) [ * ]

 

Article

VIII.           DISCLAIMER OF WARRANTIES

 

Section 8.01   Tularik Disclaimer. 

THE TULARIK TECHNOLOGY PROVIDED HEREUNDER IS PROVIDED “AS IS”

AND TULARIK EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR

IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN,

MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF THE

INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR WARRANTIES ARISING FROM A

COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT

THERETO.  

 

16

 

Without limiting the

generality of the foregoing, Tularik expressly does not warrant (i) the success

of any study or test commenced pursuant to the Program or (ii) the safety or

usefulness for any purpose of the Tularik Technology, Program Patents or the

Program Know-How.

 

Section 8.02   Sankyo Disclaimer. 

THE SANKYO TECHNOLOGY PROVIDED HEREUNDER IS PROVIDED “AS IS”

AND SANKYO EXPRESSLY DISCLAIMS ANY AND ALL WARRANTIES OF ANY KIND, EXPRESS OR

IMPLIED, INCLUDING WITHOUT LIMITATION THE WARRANTIES OF DESIGN,

MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE OR NONINFRINGEMENT OF THE

INTELLECTUAL PROPERTY RIGHTS OF THIRD PARTIES OR WARRANTIES ARISING FROM A

COURSE OF DEALING, USAGE OR TRADE PRACTICES, IN ALL CASES WITH RESPECT

THERETO.  Without limiting the

generality of the foregoing, Sankyo expressly does not warrant (i) the success

of any study or test commenced pursuant to the Program or (ii) the safety or

usefulness for any purpose of the Sankyo Technology, Program Patents or the

Program Know-How.

 

Article IX.              INDEMNIFICATION

 

Section 9.01   Indemnification for Sankyo Products.  With respect to Sankyo Products:

 

(a)               Sankyo hereby

agrees to save, defend and hold Tularik and its agents and employees harmless

from and against any and all suits, claims, actions, demands, liabilities,

expenses and/or loss, including reasonable legal expenses and attorneys’ fees

(collectively, “Claims”), resulting directly or indirectly from the

development, manufacture, use, handling, storage, sale or other disposition of

Sankyo Products by Sankyo, its agents or sublicensees, except to the extent

such Claims result from the negligence or willful misconduct of Tularik.

 

(b)              In the event that Tularik

is seeking indemnification under this Section 9.01, it shall inform Sankyo of a

Claim as soon as reasonably practicable after it receives notice of the Claim,

shall permit Sankyo to assume direction and control of the defense of the Claim

(including the right to settle the Claim solely for monetary consideration),

and shall cooperate as requested in the defense of the Claim.

 

Section 9.02   Indemnification for Products in the

Co-Commercialization Territory.  With

respect to any Product in Development and any Product Co-Promoted by the

Parties in the Co-Commercialization Territory:

 

(a)               Each Party hereby

agrees to save, defend and hold the other Party and its agents and employees

harmless from and against any and all Claims resulting directly or indirectly

from the development, manufacture, use, handling, storage, sale or other

disposition of Products by the indemnifying Party, its agents or sublicensees,

but only to the extent such Claims result from the negligence or willful

misconduct of the indemnifying Party or its employees and agents and do not

also result from the negligence or willful misconduct of the Party seeking

indemnification.  Any other Claims

resulting directly or indirectly from the development, manufacture, use,

handling, storage, sale or other disposition of Products shall be included as

an expense of either Party at the time such Claim is finally determined,

whether by judgment, award, decree or settlement and therefore shall be borne

by the Parties in accordance with the Parties’ share of profits.

 

(b)              In the event that a

Party is seeking indemnification under this Section 9.02, it shall inform the

other Party of a Claim as soon as reasonably practicable after it receives

notice of the Claim, shall permit the indemnifying Party to assume direction

and control of the defense of the Claim (including the right to settle the

Claim solely for monetary consideration), and shall cooperate as requested in

the defense of the Claim.

 

Section 9.03   Indemnification for Products in the Sankyo Territory. With

respect to any Products sold by Sankyo in the Sankyo Territory:

 

(a)               Sankyo hereby

agrees to save, defend and hold Tularik and its agents and employees harmless

from and against any and all Claims resulting directly or indirectly from the

manufacture, use, handling, storage, sale or other disposition of Products by

Sankyo, its agents or sublicensees, except to the extent such Claims result

from the negligence or willful misconduct of Tularik.

 

17

 

(b)              In the event that

Tularik is seeking indemnification under this Section 9.03, it shall inform

Sankyo of a Claim as soon as reasonably practicable after it receives notice of

the Claim, shall permit Sankyo to assume direction and control of the defense

of the Claim (including the right to settle the Claim solely for monetary

consideration), and shall cooperate as requested in the defense of the Claim.

 

Section 9.04   Indemnification for Discontinued Compounds or

Non-Proposed Compounds Sold by Tularik. With respect to any

Discontinued Compounds or Non-Proposed Compounds sold by Tularik:

 

(a)               Tularik hereby

agrees to save, defend and hold Sankyo and its agents and employees harmless

from and against any and all Claims resulting directly or indirectly from the

manufacture, use, handling, storage, sale or other disposition of Discontinued

Compounds or Non-Proposed Compounds by Tularik, its agents or sublicensees,

except to the extent such Claims result from the negligence or willful

misconduct of Sankyo.

 

(b)              In the event that

Sankyo is seeking indemnification under this Section 9.04, it shall inform

Tularik of a Claim as soon as reasonably practicable after it receives notice

of the Claim, shall permit Tularik to assume direction and control of the

defense of the Claim (including the right to settle the Claim solely for

monetary consideration), and shall cooperate as requested in the defense of the

Claim.

 

Article X.               PATENT

AND TRADE SECRET RIGHTS

 

Section 10.01 Ownership of Research Compounds. All

inventions relating to the composition or use of Research Compounds (“Research

Compound Inventions”), [ * ],

shall be [ *  ] Inventorship of such inventions shall be

determined in accordance with U.S. patent laws.  Each Party agrees to execute, or have its employees, agents or

consultants execute, all paperwork necessary to effectuate any such assignment

necessary to achieve such [ * ] ownership of Research Compounds and

Research Compound Inventions.  Research

Compound Patents shall be [ * ] and shall be prosecuted in accordance

with Section 10.03 hereof. The Party that synthesized a Research Compound shall

own the personal property rights relating to such Research Compound.  The RMC shall establish a common numbering

system for identification of the Research Compounds to allow the Parties to

coordinate their activities with respect to such Research Compounds.

 

Section 10.02 Ownership of Inventions other than Research Compound

Inventions.  Each Party shall

remain the sole owner or licensee, as applicable, of all technology, Substances,

discoveries, patent applications, patents, know-how and inventions owned or

controlled by such Party on the Effective Date and shall have no rights in or

to technology, Substances, discoveries and inventions owned by the other Party

except as specifically granted herein. 

All inventions or discoveries made, and materials and information

created, jointly by Affiliates sublicensed hereunder by, or employees, agents

or consultants of, each Party, in the course of conducting activities pursuant

to this Agreement other than Research Compound Inventions (“Joint

Program Inventions”) shall be jointly owned. Except as provided in

Section 10.01, all inventions or discoveries made, and materials and

information created solely by Affiliates sublicensed hereunder by, or

employees, agents or consultants of, one Party in the course of conducting

activities pursuant to this Agreement other than Research Compound Inventions

(“Sole

Program Inventions”) shall be [ * ]. 

Inventorship shall be determined in accordance with the U.S. patent

laws.  Each Party shall disclose to the

other Party promptly any inventions made by such Party’s Affiliate, employees,

agents and consultants in the course of performing such Party’s obligations under

the Program. If [ * ] license [

*  ]

 

Section 10.03 Prosecution and Maintenance of Research Compound

Patents and Program Patent Rights.

 

(a)               The RMC shall

determine which Party shall be responsible for filing, prosecuting and

maintaining patent applications for Research Compound Patents and Joint Program

Inventions, provided that each Party shall be responsible for bearing [ * ]

of the cost of filing for and prosecution and maintenance of such patent

application and/or patent.  The Party

chosen to file, prosecute and maintain a patent application shall select patent

counsel, approved by the other Party, such approval not to be unreasonably

withheld, to oversee such activities; [ * ]. 

In the event that the Party selected to file, prosecute and maintain a

patent application decides not to proceed with such filing, prosecution or

maintenance of any patent application filed under this Section 10.03(a), such

Party shall give the other Party [ * ] notice before any relevant deadline, and 

 

18

 

the other Party

shall have the right, but not the obligation, to pursue, at its own expense,

prosecution of such patent application or maintenance of such patent.

 

(b)              Each Party shall be

responsible for filing, prosecuting and maintaining those Sole Program Inventions

owned by it throughout the world and shall cooperate with the other Party as to

the prosecution of such Program Patents. 

Each Party shall be responsible for bearing the cost of filing,

prosecution and maintenance of Sole Program Inventions owned by it.  In the event that any Party decides not to

proceed with prosecuting an application for such Sole Program Invention, or to

pay any annuity for such a Sole Program Invention as it becomes due, such Party

shall give the other [ * ] notice before any relevant deadline, and

the other Party shall have the right to pursue, at its own expense, prosecution

of such patent application or maintenance of such patent.

 

(c)               The Parties desire

to implement a patent prosecution and maintenance strategy that provides strong,

broad patent protection on inventions made during the course of the Parties’

performance under this Agreement. Accordingly, they shall use commercially

reasonable efforts to work together to file, prosecute and maintain Research

Compound Patents and Program Patents under this Article X that include claims

relating to [ * ]. 

To this end, the Party filing, prosecuting and maintaining a Research

Compound Patent or a Program Patent shall provide to the other Party a copy of

each patent application or other patent filing it intends to make at least [

* ]

prior to the earlier of the relevant filing deadline or intended filing date

for review and comment.  The Party

making any such filing shall use all reasonable efforts to incorporate the

non-filing Party’s comments on such filing before submitting such filing to the

relevant patent authority. 

Additionally, the Party filing, prosecuting or maintaining a Research

Compound Patent or Program Patent (i) shall promptly provide the other Party a

copy of all material notices received from a patent authority with respect to a

Research Compound Patent or Program Patents, and (ii) shall not abandon or

cease to prosecute or maintain a Research Compound Patent or Program Patent

unless it has first notified the other Party not later than [

* ]

prior to any relevant deadline for making a filing with a patent authority or

maintenance payment with respect thereto and the other Party has not, within [

* ]

after receiving such notice, by written notice to such Party elected to assume

responsibility for filing, prosecuting or maintaining such Research Compound

Patent or Program Patent.  If a dispute

arises regarding the strategy for filing and prosecuting a patent application

hereunder, such matter shall be submitted to the EC for final resolution.

 

Section 10.04 Prosecution and Maintenance of Sankyo and Tularik

Patent Rights. Sankyo and Tularik shall prosecute and maintain all

Patent Rights and Know-How owned or controlled by Sankyo or Tularik,

respectively, at such Party’s sole expense and in its sole discretion.

 

Section 10.05 Disclaimer.  Each

Party specifically disclaims any representation or warranty, express or

implied, that it will successfully obtain any Program Patent or that any

invention made by Affiliates, employees, agents and independent contractors of

such Party will be patentable.

 

Section 10.06 Perfection of Interest.  Each Party agrees to cooperate with the other and take

all reasonable additional actions and execute such agreements, instruments and

documents as may be reasonably required to perfect the other’s ownership

interest in accordance with the intent of this Agreement including, without

limitation, the execution of necessary and appropriate instruments of

assignment.

 

Section 10.07       Infringement by Third Parties.

 

(a)            With respect to

infringement of any [ * ] Program Patents or Research Compound

Patents by a Third Party through the manufacture, import, use, sale or offer

for sale of a product competitive with a Product in any country (“Competitive

Product Infringement”), the Operations Committee (as defined in

Section 3 of Appendix D ) shall determine which Party shall have the right to

institute, prosecute and control any action or proceeding with respect to such

infringement (with the other Party having the right to participate in such

action and be represented, if it so desires, by counsel of its own selection

therein), it being the Parties’ general intent that any Competitive Product

Infringement of a [ * ] Program Patent or Research Compound

Patent in the Sankyo Territory shall be instituted, prosecuted and controlled

by Sankyo.  If necessary, in 

 

 

19

 

any action brought

hereunder, the Party not controlling such action agrees to be joined as a party

plaintiff and to give reasonable assistance and any needed authority to

control, file and to prosecute such action. The Parties shall consult with each

other regarding the institution, prosecution and control of any action or

proceeding with respect to infringement of any of the [ * ] Program Patents or Research

Compound Patents other than Competitive Product Infringement. Each Party’s

costs related to patent enforcement (including internal costs and expenses

specifically attributable to said patent enforcement) with respect to

Competitive Product Infringement shall be [

* ],

and any related recoveries shall be [ * ].

 

(b)              With respect to

infringement by a Third Party of any Research Compound Patents, Program Patents

or Patent Rights through the manufacture, import, use, sale or offer for sale

of a product competitive with a Sankyo Product (“Competitive Sankyo Product Infringement”),

Sankyo shall have the first right, but not the obligation, to institute,

prosecute and control any action or proceeding with respect to such

infringement (with Tularik having the right to participate in such action and

be represented if it so desires by counsel of its own selection).  If Sankyo fails to institute and prosecute

an action or proceeding to abate the infringement within a period of [

* ]

after receiving written notice or otherwise having knowledge of the

infringement as provided above, then Tularik, if it owns or controls the Patent

Right or Program Patent being infringed, shall have the right, but not the

obligation, to bring and prosecute any such action; provided, however, that in

such event Sankyo shall have the right to participate in such action and to be

represented in any such action by counsel of its choice.  If necessary, in any action brought pursuant

to this Section 10.07(b), the Party not controlling such action agrees to be

joined as a party plaintiff and to give reasonable assistance and any needed

authority to control, file and to prosecute such action.  Each Party’s costs related to patent

enforcement (including internal costs and expenses specifically attributable to

said patent enforcement) with respect to Competitive Sankyo Product

Infringement shall be [ * ], and any related recoveries shall be [

* ].

 

(c)               No

settlement or consent judgment or other voluntary final disposition of suit

under this Section 10.07(c) may be entered into without the consent of both

Parties, which consents shall not be withheld unreasonably.

 

(d)               If

an infringement of Program Patents or Patent Rights by a Third Party could be

characterized as both a Competitive Product Infringement and a Competitive

Sankyo Product Infringement, the EC shall determine which Party shall have the

right to proceed against such Third Party.

 

Section 10.08       Defense and Settlement of Third-Party Claims.

 

(a)               If a Third Party

asserts that a patent or other right owned by it is infringed by the

manufacture, import, use, sale or offer for sale of any Product, the Party

first obtaining knowledge of such a claim shall immediately provide the other

Party with notice of such claim and the related facts in reasonable

detail.  In such event, the EC shall

determine how best to control the defense of any such claim.  In the event the EC cannot determine the

proper manner of defending any such claim, such defense shall be controlled by

Sankyo if the claim is brought in the Sankyo Territory; provided, however, that the

other Party shall have the right to participate in such defense and to be

represented in any such action by counsel of its selection at its sole

discretion.  The entity that controls

the defense of a given claim with respect to a Product in the Sankyo Territory

shall also have the right to control settlement of such claim; provided,

however, that no settlement shall be entered into without the

written consent of the other Party, which consent shall not be withheld

unreasonably.

 

(b)              If a Third Party

asserts that a patent or other right owned by it is infringed by the

manufacture, import, use, sale or offer for sale of any Sankyo Product, the

Party first obtaining knowledge of such a claim shall immediately provide the

other Party with notice of such claim and the related facts in reasonable

detail.  In such event, Sankyo shall

control the defense of any such claim, and shall also have the right to control

settlement of such claim; provided, however, that no settlement

shall be entered into with respect to any Program Patent or Patent Right owned,

in whole or in part, or controlled by Tularik without the written consent of

Tularik, which consent shall not be withheld unreasonably.

 

20

 

Section 10.09 Allocation of Expenses. Any expenses of

patent defense, settlement and judgments incurred pursuant to Section 10.07

with respect to Sankyo Products shall be [ * ].

 

Section 10.10 Settlement of Third-Party Claims for Infringement;

Payment of Third-Party Royalties. If a Third Party asserts that a

patent or other right owned by it is infringed by the development, manufacture,

use, sale, offer for sale or import of any Sankyo Product, and as a result of

settlement procedures or litigation under this Article X Sankyo is required to

pay the Third Party a royalty or make any payment of any kind for the right to

sell a Sankyo Product in a particular country, such expense shall be [

* ] and subject also to the

proviso that, if [ * ] with respect to [ * ]

and [ * ]. Tularik shall provide

reasonable assistance to Sankyo to facilitate [ * ] as provided in [ * ].

 

Article XI.              CONFIDENTIALITY

AND PUBLICITY

 

Section 11.01 Confidential Information; Exceptions. Except

to the extent expressly authorized by this Agreement or otherwise agreed in

writing by the Parties, each Party agrees that, for the Term and for [

* ]

thereafter, it shall keep confidential and shall not publish or otherwise disclose

and shall not use for any purpose other than as provided for in this Agreement

any Confidential Information furnished to it by the other Party pursuant to

this Agreement, except to the extent that the receiving Party can demonstrate

by competent proof that such Confidential Information:

 

(a)               was already known

to the receiving Party, other than under an obligation of confidentiality, at

the time of disclosure by the other Party;

 

(b)              was generally

available to the public or otherwise part of the public domain at the time of

its disclosure to the receiving Party;

 

(c)               became generally

available to the public or otherwise part of the public domain after its

disclosure and other than through any act or omission of the receiving Party in

breach of this Agreement;

 

(d)              was disclosed to the

receiving Party, other than under an obligation of confidentiality to a Third

Party, by a Third Party who had no obligation to the disclosing Party not to

disclose such information to others; or

 

(e)               was independently

discovered or developed by the receiving Party without the use of Confidential

Information belonging to the disclosing Party.

 

Section 11.02 Financial Terms; Permitted Disclosure. The

Parties agree that the material financial terms of the Agreement will be considered

Confidential Information of both Parties. 

Notwithstanding the foregoing, either Party may disclose such terms to

bona fide potential sublicensees, if necessary, and may disclose such terms and

other Confidential Information of the other Party as required by law,

regulation or court order.  Tularik

shall have the further right to disclose the material financial terms of the

Agreement to any bona fide potential investor, investment banker, acquiror,

merger partner or other potential financial partner under confidentiality

obligations to Tularik no less restrictive than those herein.  In connection with any permitted disclosure

of Confidential Information pursuant to this Section 11.02, each Party agrees

to use all reasonable efforts to secure confidential treatment of, or a

protective order for, any such information.

 

Section 11.03 Publication. Each Party to this Agreement

recognizes that the publication of papers, including oral presentations and

abstracts, regarding the Program Know-How and the Program Patents, subject to

reasonable controls to protect Confidential Information, can be beneficial to

both Parties.  Accordingly, each Party

shall have the right to review and approve any paper proposed for publication

by the other Party, including oral presentations and abstracts, which includes

Confidential Information of the other Party. 

Before any such paper, presentation or abstract is presented or

submitted for publication, the Party proposing publication shall deliver a

complete copy to the other Party at least thirty (30) days prior to such

presentation or submission.  The

receiving Party shall review any such paper and give its comments to the

publishing Party within thirty (30) days of the delivery of such paper to the

receiving Party.  With respect to oral

presentation materials and abstracts, the Parties shall make reasonable efforts

to expedite review of such materials and abstracts, and shall return such items

as soon as practicable to the publishing Party with appropriate comments, if

any, but in no event later than thirty (30) days from the delivery date 

 

21

 

thereof to the

receiving Party.  The publishing Party

shall comply with the other Party’s request to delete references to such other

Party’s Confidential Information in any such paper, presentation or abstract

and agrees to withhold publication of same for an additional thirty (30) days

upon request by the non-publishing Party in order to permit the Parties to

obtain patent protection, if either of the Parties deem it necessary, in

accordance with the terms of this Agreement. [ * ] with respect to [ * ],

as the case may be.

 

Section 11.04 Publicity. Except as otherwise provided

herein or required by law, neither Party shall issue any publication, news

release or other public announcement, written or oral, whether in the public

press, or stockholders’ reports (if applicable), or otherwise, relating to the

existence of or the performance under this Agreement, without the prior written

approval of the other Party, which approval shall not be unreasonably withheld;

provided that if a Party does not consent to such publication, release or

announcement by the other Party as proposed, then the Parties shall negotiate

in good faith an appropriate modification thereto that will make such

publication, release or announcement acceptable to the reviewing Party within [ * ]

after submission thereof by the publishing Party to the non-publishing Party.

 

Article XII.            GOVERNMENT

CONTROLS

 

Section 12.01 This Agreement is made subject to any

restrictions concerning the export of Products or technical information from

the United States that may be imposed upon or related to Tularik or Sankyo from

time to time by the government of the United States and other applicable

jurisdictions.  Furthermore, each Party

hereto agrees that it will not export, directly or indirectly, any technical

information acquired from the other under this Agreement or any Products using

such technical information to any country for which the United States

government or any agency thereof, or other applicable jurisdiction requires at

the time of export, an export license or other governmental approval, without

first obtaining the written consent to do so from the Department of Commerce or

other agency of the United States government or other applicable jurisdiction

when required by an applicable statute or regulation.

 

Article XIII.           TERM

AND TERMINATION

 

Section 13.01 Term.  Subject

to earlier termination in accordance with subsections (a) and (b), this

Agreement shall expire upon the end the Term.

 

(a)               Early

Termination.  This Agreement

shall terminate on such earlier date as: 

(i) the Research Program Term shall have expired or been terminated

pursuant to Section 3.07 without any Collaboration Lead Compound having been

designated in accordance with Section 3.08(a) or Section 4.02 or any Sankyo

Lead Compound being developed in accordance with Section 4.06; or (ii) the

Feasibility Study shall have expired without Sankyo having designated a Current

Program Target as a Collaboration Target pursuant to Section 3.03(b).

 

(b)              Termination for Material Breach. If

either Party materially breaches this Agreement and the breaching Party has not

(i) cured the breach or (ii) initiated good faith efforts to cure such breach

to the reasonable satisfaction of the non-breaching Party, within [

* ]

of written notice of breach from the non-breaching Party, the non-breaching

Party may terminate this Agreement upon expiration of such [ * ] period.  If this Agreement is terminated pursuant to

this Section 13.01(b), (A) all licenses granted to the non-breaching Party

shall survive such termination and shall be expanded to apply on a worldwide

basis and (B) all licenses and rights to obtain licenses granted to the

breaching Party shall terminate.

 

Section 13.02 Surviving Rights. 

Subject to Section 13.01(b), the rights and obligations set

forth in this Agreement shall extend beyond the Term or termination of the

Agreement only to the extent expressly provided for herein, or to the extent

that the survival of such rights or obligations are necessary to permit their

complete fulfillment or discharge. 

Without limiting the foregoing, the Parties have identified various

rights and obligations that are understood to survive, for the period of time

as follows: Sections [ * ] and Articles [ *  ].

 

Section 13.03 Accrued Rights; Surviving Obligations. Termination,

relinquishment or expiration of the Agreement for any reason shall be without

prejudice to any rights that shall have accrued to the benefit of either Party

prior to such termination, relinquishment or expiration, including damages

arising from any breach hereunder.  

 

22

 

Such termination,

relinquishment or expiration shall not relieve either Party from obligations

that are expressly indicated to survive termination or expiration of the

Agreement.

 

Article XIV.           REPRESENTATIONS

AND WARRANTIES; COVENANTS

 

Section 14.01       Representations and Warranties.

 

(a)               Power and

Authority.  Each Party hereby

represents and warrants that such Party has full corporate power and authority

under the laws of the state or country of its incorporation to enter into this

Agreement and carry out the provisions hereunder and that the person executing

this Agreement on each Party’s behalf has been duly authorized to do so by all

requisite corporate action.

 

(b)              Conflicts.  Each Party represents and warrants that, as of the

date of this Agreement, it is not a Party to any agreement, arrangement or

understanding with any Third Party that in any material fashion prevents such

Party from fulfilling any of its material obligations under the terms of this

Agreement.

 

(c)               Intellectual

Property.  Each Party

represents and warrants to such Party’s best knowledge as of the Effective

Date: (i) that such Party has full power and authority to undertake the

scientific activities required of it; (ii) that the performance of the

scientific activities required of such Party under the Research Plan will not

infringe the intellectual property rights of any Third Parties; and (iii) that

the practice of such Party’s Patent Rights or Know-How described in Section 5.1

hereof pursuant to the Program does not require any Third Party licenses not

already obtained.  Tularik and Sankyo

agree to cooperate to identify existing Third Party licenses and the

technologies to which they pertain. 

Except as expressly provided in this Agreement, neither Tularik nor

Sankyo shall have any obligation to make any payments whatsoever with respect

to any royalties that the other Party owes to any Third Party licensor of

technology that the Parties may practice while performing under this Agreement.

 

(d)              Infringement.  Each Party represents and warrants that as of the date

of this Agreement, to the best of its knowledge, it is not aware of any claims

by Third Parties that the practice of technology, methodology or materials to

be utilized in the Program would infringe patents owned or controlled by such

Third Party.

 

Section 14.02       Covenants.

 

(a)               Licenses.  Each Party hereby covenants to

the other that it will not practice the license granted to it pursuant to

Section 5.01, Section 5.02, Section 5.03, Section 5.04 or Section 5.05 under

the other Party’s interest in Patent Rights, Know-How, Program Patents or Program

Know-How, except as explicitly permitted in this Agreement.

 

(b)              Diligence.  Subject to Section 4.06 and Appendix D, Sankyo and/or

Tularik shall use commercially reasonable efforts to develop the Lead

Compounds, Research Compounds and Collaboration Lead Compounds consistent with

the efforts such Party expends on compounds involved in its other research and

development programs that have comparable market potential.  Sankyo and/or Tularik shall use commercially

reasonable efforts to develop and market Products, consistent with the efforts

it expends on its other products that have comparable market potential.  If a Party disagrees on whether the other

Party’s efforts are commercially reasonable, such disagreement shall be

resolved in accordance with Section 15.01.

 

(c)               Conflicts.  Each Party covenants that it will

not commit any acts or fail to take any action that would be in material

conflict with its obligations or licenses under this Agreement.

 

Article XV.            DISPUTE

RESOLUTION

 

Section 15.01 Dispute Resolution. 

Any disputes or disagreements arising in the RMC will be

referred to the EC if the RMC is unable to resolve such dispute or disagreement

within seven (7) days after submission of an issue to such committee.  In addition, any other disputes or

disagreements between the Parties arising hereunder will first be referred to

the EC.  If such dispute is not resolved

within the seven (7) day period following submission of such 

 

23

 

dispute to the EC,

such dispute shall be referred to the Chief Executive Officer of Tularik and

the head of the research division of Sankyo. 

Except as otherwise provided herein, if such dispute is not resolved

within the seven (7) day period following submission of such dispute to the

Chief Executive Officer of Tularik and the head of the research division of

Sankyo or their duly authorized designees [ * ], and such dispute relates to an alleged

breach of this Agreement, then either Party may propose to refer such dispute

to arbitration, and thereafter such dispute shall be resolved pursuant to

Section 15.02 below. Except as otherwise provided herein, in the event such

dispute is not resolved within the seven (7) day period following submission of

such dispute to the Chief Executive Officer of Tularik and the head of the research

division of Sankyo, and such dispute does not relate to an alleged breach of

this Agreement, such dispute shall be referred to a Third Party mediator with

significant experience in the pharmaceutical industry acceptable to both

Parties for resolution.  The costs and

expenses of such Third Party mediator shall be shared equally by the

Parties.  In the event such dispute is

not resolved within the ninety (90) day period following submission of such

dispute to the Third Party mediator, then either Party may propose to refer

such dispute to arbitration, and thereafter such dispute shall be resolved

pursuant to Section 15.02 below.

 

Section 15.02 Arbitration.  In

the event of any controversy or claim arising out of, relating to, or in

connection with or in any way connected with any provision of this Agreement,

the Parties shall try to settle their differences amicably between themselves

by referring the disputed matter to the dispute resolution procedures set forth

in Section 15.01.  Any unresolved

disputes arising between the Parties arising out of, relating to, in connection

with or in any way connected with this Agreement or any term or condition

hereof, or performance by either Party of its obligations hereunder, whether

before or after termination or expiration of this Agreement, shall be finally

resolved by binding arbitration, except as otherwise provided in this Agreement

and except that any disputes regarding the validity, scope or enforceability of

patents or trademarks shall be submitted to a court of competent

jurisdiction.  The arbitration shall be

held in San Francisco, California according to the rules of the American

Arbitration Association (“AAA”) if Sankyo is the Party seeking

arbitration.  The arbitration shall be

held in Tokyo, Japan according to the rules of the Commercial Arbitration Rules

of the Japan Commercial Arbitration Association (“JCAA”) if Tularik is the

Party seeking arbitration.  The

arbitration will be conducted by a panel of three (3) arbitrators with

significant experience in the pharmaceutical industry appointed in accordance

with applicable AAA or JCAA rules as appropriate.  Any arbitration herewith shall be conducted in the English language

to the maximum extent possible. [ * ] 

Judgment on the award so rendered shall be final and may be entered in

any court having jurisdiction thereof.

 

Article XVI.           MISCELLANEOUS

 

Section 16.01 Rights under [ * ].

 

Section 16.02 Severability.  If

any part of this Agreement is declared invalid by any legal authority having

jurisdiction over either Party, then such declaration shall not affect the

remainder of the Agreement, which shall continue in full force and effect.  The Parties shall revise the invalidated

part in a manner that will render such provision valid and closely approximate

the Parties’ original intent.

 

Section 16.03 Waiver.  Except

as specifically provided for herein, the waiver from time to time by either of

the Parties of any of their rights or their failure to exercise any remedy

shall not operate or be construed as a continuing waiver of same or of any

other of such Party’s rights or remedies provided in this Agreement.

 

Section 16.04 Consents Not Unreasonably Withheld.  Whenever provision is made in

this Agreement for either Party to secure the consent or approval of the other,

that consent or approval shall not unreasonably be withheld, and whenever in

this Agreement provision is made for one Party to object to or disapprove a

matter, such objection or disapproval shall not unreasonably be exercised.

 

Section 16.05 Ambiguities.  Ambiguities,

if any, in this Agreement shall not be construed against any Party,

irrespective of which Party may be deemed to have authored the ambiguous

provision.

 

24

 

Section 16.06 Further Action. Each Party agrees to

execute, acknowledge and deliver such further instruments, and to do all such

other acts, as may be necessary or appropriate in order to carry out the

purposes and intent of this Agreement.

 

Section 16.07 Notices. All notices hereunder shall be in

writing and shall be deemed given if delivered personally or by facsimile

transmission (receipt verified),

telexed, mailed by registered or certified mail (return receipt requested),

postage prepaid, or sent by express courier service, to the Parties at the

following addresses (or at such other address for a Party as shall be specified

by like notice; provided, that notices of a change of address shall be

effective only upon receipt thereof).

 

(a)               If to Sankyo

Company, Limited, addressed to:

 

Sankyo Company, Limited

1-2-58 Hiromachi, Shinagawa-ku, Tokyo 140-8710, Japan

Attention:   Director, Strategic

Research Department

Telephone: 3-3492-3131

Facsimile:

 

(b)              If to Tularik Inc.,

addressed to:

 

Tularik Inc.

Two Corporate Drive

South San Francisco, CA 94080

Attn: Secretary

Telephone: (650) 825-7300

Facsimile: (650) 825-7392

 

Section 16.08 Assignment.  This

Agreement shall be binding upon and inure to the benefit of the Parties hereto

and their permitted successors and assigns; provided, however, that, without the prior

written consent of the other party (to be given or withheld in its sole

discretion), neither Party shall assign any of its rights and obligations

hereunder except (i) as incident to the merger, consolidation, reorganization

or acquisition of stock or assets affecting all or substantially all of the

assets or actual voting control of the assigning Party or (ii) to an Affiliate;

provided,

however, that in no event shall either Party’s obligations under the

Research Program be assigned to an Affiliate without the prior written consent

of the other Party.

 

Section 16.09 Force Majeure. Any delays in performance by

either Party under this Agreement shall not be considered a breach of this

Agreement if and to the extent caused by occurrences beyond the reasonable

control of the Party affected, including but not limited to acts of God,

embargoes, governmental restrictions, strikes or other concerted acts of

workers, fire, earthquake, flood, explosion, riots, wars, civil disorder,

rebellion or sabotage.  The Party

suffering such occurrence shall notify the other Party as soon as practicable

and any time for performance hereunder shall be extended by the actual time of

delay caused by the occurrence, provided that the Party affected by such event

uses reasonable efforts to overcome such delay.

 

Section 16.10 Headings. The section and paragraph

headings contained herein are for the purposes of convenience only and are not

intended to define or limit the contents of said sections or paragraphs.

 

Section 16.11 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.

 

Section 16.12 Governing Law and Language.  This Agreement shall be governed by New York law,

notwithstanding its conflicts of laws principles.  The official text of this Agreement and any Appendices hereto, or

any notice given or statements required by this Agreement shall be in

English.  In the event of any dispute

concerning the construction or meaning of this Agreement, reference shall be

made only to this Agreement as written in English and not to any other

translation into any other language. Any dispute shall be resolved in San 

 

25

 

Francisco,

California if Sankyo is the Party initiating such dispute.  Any dispute shall be resolved in Tokyo,

Japan if Tularik is the Party initiating such dispute.

 

Section 16.13 Limitation of Liability.   IN NO EVENT SHALL EITHER PARTY OR ITS AFFILIATES AND

SUBLICENSEES BE LIABLE FOR SPECIAL, INDIRECT, INCIDENTAL OR CONSEQUENTIAL

DAMAGES, WHETHER IN CONTRACT, WARRANTY, TORT, STRICT LIABILITY OR OTHERWISE,

including but not limited to loss of profits or revenues, except to the extent

such Party may be required to indemnify the other Party from such damages

claimed by Third Parties pursuant to this Agreement.

 

Section 16.14 Entire Agreement; Amendment.  This Agreement sets forth the principal terms of the

arrangement between the Parties hereto and, except as otherwise set forth

herein, supersedes and terminates all prior agreements and understandings

between the Parties.  No subsequent

alteration, amendment, change or addition to this Agreement shall be binding

upon the Parties unless reduced to writing and signed by an authorized officer

of each Party.

 

IN WITNESS WHEREOF, the

Parties have signed this Agreement effective as of the Effective Date.

 

	

  Tularik

  Inc.

  
	

   

  	

   

  
	

   

  	

   

  
	

   /s/ David Goeddel

  	

   

  
	

  By:

  	

  David V. Goeddel

  
	

  Title:

  	

  Chief Executive Officer

  
	

   

  	

   

  
	

   

  	

   

  
	

  Sankyo

  Company, Limited

  
	

   

  
	

   

  	

   

  
	

   /s/ Yukio Sugimura

  	

   

  
	

  By:

  	

  Yukio Sugimura, Ph.D.

  
	

  Title

  	

  General Manager, Research Institute

  
			

 

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS

DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED.

 

26

 

APPENDIX

A

 

Description

of Scientific FTE Assigned to the Program

 

[

* ]

 

The

Scientific FTEs set forth on this Appendix A [

* ] only.  In the event [ * ] on this

Appendix A; [ * ] in the wake of the [ *  ]

 

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS

DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES

EXCHANGE ACT OF 1934, AS AMENDED.

 

27

 

APPENDIX

B

 

Current

Program Targets

 

28

 

APPENDIX

C

 

Collaboration

Targets

 

29

 

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS

DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE

SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

APPENDIX

D

 

Heads

of Co-Development Agreement

 

This Heads of Co-Development Agreement sets forth the

basic understanding of the Parties relating to development of Products

associated with a given Collaboration Lead Compound.  This Heads of Co-Development Agreement shall be [

* ], and the [ * ]

that [ * ] to which this [ * ] and [ * ]

in the [ * ] of the Collaboration Agreement [ * ]. 

The terms of any such Co-Development Agreement shall be consistent with

the terms as described below.

 

1.                                       Designation

of Collaboration Lead Compound. The Parties shall designate the

Collaboration Lead Compound for clinical development in accordance with Section

4.02 of the Collaboration Agreement to which this Heads of Co-Development

Agreement is attached.

 

2.                                       Pre-Clinical

Development.  The Parties, under

the direction of the RMC and pursuant to the Research Plan, shall diligently

conduct Pre-Clinical Development with respect to any designated Collaboration

Lead Compound. Each Party shall supply [ * ]

of the [ * ] in the [

* ].

Under no circumstances shall either Party [ * ] except as permitted by the RMC, the

Research Plan and the plan for Pre-Clinical Development established by the RMC.

 

3.                                       Steering

Committee and Operations Committee for Development. Each Party would

appoint an equal number of senior-management representatives to a steering

committee (the “Steering Committee”) within thirty (30) days after the date

upon which the RMC designates the first Collaboration Lead Compound.  Each Party would be permitted to change any

of its appointments to the Steering Committee at any time upon giving written

notice to the other.  The Steering Committee

Chairperson shall [ * ].

 

The

Steering Committee would appoint an operations team consisting of equal numbers

of managers (the “Operations Committee”). 

The Operations Committee would be responsible to develop annual plans,

run the daily business of the collaboration and communicate performance.  The Operation Committee Chairperson shall [ * ].

 

The

Steering Committee would meet within thirty (30) days after the date upon which

the RMC designates the first Collaboration Lead Compound to prepare such procedures

and mechanisms as may be necessary for the operation of the Steering Committee,

the Operations Committee and any other committee established by the Steering

Committee to assure the most efficient conduct of each Party’s obligations

under the Agreements.  The Marketing

Committee (MC) would formulate and propose to the Steering Committee a Business

Plan before submission of the NDA to the FDA or any corresponding approval

granting authority.

 

The personnel, facilities, expertise and other

resources of Tularik and Sankyo to be used in performance of each Party’s

obligations under the Agreements would be established by the Steering Committee

or the Operations Committee.  The

Steering Committee would be responsible for reviewing, modifying and approving the

Development Plan developed by the Operations Committee, the Business Plan

developed by the Marketing Committee and any material amendments thereto.

 

The

Steering Committee would have the authority to resolve disputes among the

members of the Operations Committee and other committees that report to the

Steering Committee.

 

If

for any reason the Steering Committee would be unable to reach agreement on any

appropriate matter, [ * ].

 

30

 

4.                                       General

Responsibilities.  The Operations

Committee shall oversee and manage the relationship established by the

Co-Development Agreement.  The

Operations Committee shall be responsible for coordinating all aspects of all

activities (including, but not limited to: 

[

* ])

that will be undertaken with respect to a Collaboration Lead Compound that are

necessary or desirable to enable the filing of an IND for a Product or Products

based upon or incorporating such Collaboration Lead Compound, including the

preparation and filing of an IND (collectively, “Pre-Clinical Development”).  The Operations Committee will be responsible

for coordinating all aspects of the Development of each Product as provided in

the Co-Development Agreement through the filing of an NDA or equivalent.

 

5.                                      Development

Plan and Development Budget. Promptly following the designation of a

Collaboration Lead Compound pursuant to Section 4.02(b), the Operations

Committee shall initiate preparation of the development plan for the

Development of such Collaboration Lead Compound in the Co-Commercialization

Territory (the “Development Plan”) and a budget (the “Development Budget”) for

proposed Development Costs therefor. The initial Development Plan for a

Collaboration Lead Compound shall [ * ]

and [ * ] for the [ * ] and identify [ * ]. 

The budget for each Development program shall include a [ * ]

covering [ * ] of the [

* ] of the [ * ]. 

Each Development Plan and Development Budget shall be approved by the Steering

Committee.  Both Parties recognize that

the Development Plan and the Development Budget represent projections only and

will be subject to frequent changes during the Development process.  Each such Development Plan and Development

Budget shall be updated as deemed appropriate by the Steering Committee, but in

no event [

* ], and approved by [ * ]

and [ * ].

 

6.                                       Development

of Products.  The Parties will each diligently collaborate in the

Development of Products in the Co-Commercialization Territory and use

commercially reasonable efforts to develop and commercialize Products as soon

as reasonably practicable.  The role of

each Party in the Development process in the Co-Commercialization Territory

will be determined by the Operations Committee, with the Parties intending that

each Party will provide advisory and supporting services with respect to any

phase of the process in which such Party is not actively or primarily

involved.  Each Party shall supply [ * ] of the [

* ] Development effort for each

Product in the Co-Commercialization Territory in the aggregate, [

* ].

The Operations Committee will determine appropriate written standards for

measuring each Party’s required Development efforts and accounting procedures

to confirm and document each Party’s performance of its required Development

effort for any Product before the Parties commence Development thereof.  No clinical trials involving any Product

shall be commenced by or on behalf of either Party in the Co-Commercialization

Territory without the prior approval of the Operations Committee.  Nothing contained in this Section shall be [ * ].  Any decision by a Party not to [

* ] or to [ * ] shall not be deemed a breach of this

Agreement.

 

7.                                       Duration

of Co-Development. The Parties will continue to co-develop Products until [

* ]

of the Collaboration Agreement to which this Heads of Co-Development Agreement

is attached.

 

8.                                       Termination

of Participation in Development.  Either Party may elect, on a Collaboration

Lead Compound-by-Collaboration Lead Compound or Product-by-Product basis, to

terminate its participation in, or to not participate in, the Pre-Clinical

Development of a given Collaboration Lead Compound or Development of a given

Product based upon or incorporating such Collaboration Lead Compound in the

Co-Commercialization Territory by written notice to the other Party [ * ].  In the event Tularik is the Party delivering

the notice under this Section 8, Sankyo will have the right to proceed

independently to develop such Collaboration Lead Compound or Product as a

Sankyo Lead Compound or Sankyo Product in the Co-Commercialization Territory as

set forth in Section 4.06 of the Collaboration Agreement to which this Heads of

Co-Development Agreement is attached. 

In the event Sankyo is the Party delivering 

 

31

 

the notice under

this Section 8, Tularik will have the right to proceed independently to develop

such Collaboration Lead Compound or Product in the Co-Commercialization

Territory without any obligation to Sankyo whatsoever other than the payment of

royalties at the Development Royalty Rate. 

In the event a Party gives such notice under this Section 8, such Party

(i) will remain responsible for its share of Development Costs for such

Collaboration Lead Compound or Product in the Co-Commercialization Territory

until [

* ],

and (ii) will make its personnel, relevant data and other resources available

to the other Party as necessary to effect an orderly transition of development

responsibilities, with the costs of such personnel, relevant data and resources

to be [ * ] notice under this Section

8.  In the event of a Party’s

termination of participation in Pre-Clinical Development of a Collaboration

Lead Compound or Development of a Product in accordance with this Section 8,

such Party shall [ * ] to the other Party all regulatory

submissions, including all Drug Approval Applications, relating to such

Collaboration Lead Compound and/or Product, together with all materials and

data related thereto in its possession.

 

9.                                       Calculation

of Development Costs. “Development Costs” shall mean all costs

and expenses reasonably charged directly to the Pre-Clinical Development of any

Lead Compound, Research Compound or Collaboration Lead Compound or Development

of any Product, as well as overhead costs of the functions that directly

support such Pre-Clinical Development or Development (as calculated in

accordance with GAAP and using the same allocation methods that the Party

incurring such costs uses throughout its operations, but in all events [

* ]),

all as specified in the Development Plan and the Development Budget for the

Co-Commercialization Territory. 

Development Costs shall include, without limitation: (i) [

* ] for the [ * ]

or [ * ] for [ * ], to the extent [ * ]; (ii) [ * ]

or [ * ]; (iii) [ * ] for [

* ]; (iv) [ * ]

provided for in this Section 9, subsection (vi)) and [ * ]; (v) [ * ]

and [ * ] for the [ * ] of the [

* ] and [ * ]; and (vi)

the [ * ].

 

10.                                 Share

of Development Costs. Within thirty (30) days after each calendar quarter,

each Party shall provide the Operations Committee with detailed information

concerning the Development Costs incurred by such Party during such quarter for

the Co-Commercialization Territory pursuant to the Development Plan and the

Development Budget.  Promptly after

receipt thereof, the Operations Committee will determine the amount, if any,

that either Party has paid in excess of the amount to be borne by such Party

for such quarter pursuant to this Section 10, and shall so notify the

Parties.  Tularik shall be responsible

for [ * ] of the Development Costs and Sankyo

shall be responsible for the [ * ]

of Development Costs for each Collaboration Lead Compound and Product

throughout the Co-Commercialization Territory. 

In the event of [ * ]

for the [ * ] in a [

* ] after the [ * ]. In the event the Development Costs

incurred by a Party during any calendar quarter exceed [ * ] for activities to be

conducted by such Party during such quarter (the “Overage Threshold”), then the

other Party shall not be [ *

],

or is subsequently ratified, unanimously, by the Operations Committee (in which

case each of the Parties shall be [ * ]. 

In the event such overage has not been approved or ratified unanimously

by the Operations Committee, the Party incurring Development Costs in a

calendar quarter exceeding the Overage Threshold in such quarter shall be [ * ].

 

11.                                 Regulatory.

Sankyo will be responsible for filing, and shall own, regulatory filings such

as the IND or NDA/MAA. Sankyo (or its Affiliates) will file applications for

regulatory approval required before commercial sale or use of a Product as a

drug (“Drug

Approval Applications”) in countries within the Co-Commercialization

Territory and attempt to obtain Regulatory Approvals in each country in the

Co-Commercialization Territory in which Products will be commercialized. Tularik

shall have the right to cross-reference to all such filings made by Sankyo for

such Product in any country.  The

Parties will cooperate in the preparation of all such regulatory filings and in

obtaining Regulatory Approvals under this Section 11, including without

limitation providing access to each other data and information obtained under

the Program to the extent necessary for obtaining Regulatory Approvals of

Products.

 

32

 

12.                                 Sublicense.  Either Party may sublicense its rights under

the Co-Development Agreement to Third Parties who agree to be bound to the

terms and conditions of the Collaboration Agreement, Appendix D and Appendix E,

upon receipt of the written consent of the other Party, such consent not to be

unreasonably withheld.

 

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS

DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE

SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

33

 

[ * ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS

DOCUMENT, MARKED BY BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE

SECURITIES AND EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE

SECURITIES EXCHANGE ACT OF 1934, AS AMENDED.

 

APPENDIX

E

 

Heads

of Co-Commercialization Agreement

 

This Heads of Co-Commercialization Agreement sets

forth the basic understanding of the Parties relating to the

Co-Commercialization of Products associated with a given Collaboration Lead

Compound  and

for further good faith discussions of the terms and conditions to be contained

in definitive written Agreement(s) pertaining to co-commercialization for a pharmaceutical

preparation for human use containing the “Product”.  This Heads of Co-Commercialization Agreement shall be [

* ], and the [ * ]

that [ * ] to which this [ * ] of the

Collaboration Agreement [ * ].  The terms of any such Co-Commercialization Agreement

shall be consistent with the terms as described below.

 

1.               Duration of

Co-Commercialization. The Parties will [ * ];

or such [ * ] to which this [ * ]. 

After termination of the Co-Commercialization relationship under this

Section 1, the Parties shall [ * ].

 

2.               Designation.

 

Co-Promotion Countries:  Tularik would [

* ].   Sankyo would remit to Tularik or Tularik’s

designated Affiliate [ * ]. 

DM would be calculated by [ * ]. 

Sankyo would [ * ]. 

Neither Party would [ * ].

 

Co-Marketing Countries:  Tularik would [ * ].  Neither Party would [ *

].  In Co-Marketing Countries, Tularik and

Sankyo shall [ * ].  The Parties shall negotiate and agree in

good faith on which countries in the Co-Commercialization Territory they will

Co-Market Products.

 

3.     Detailing and Promotional Efforts in Co-promotion countries.

 

(i)            Sales Forces.

 

The Parties would [ * ]. The Parties would use

reasonable commercial efforts consistent with accepted pharmaceutical industry

business practices when conducting such promotion and detailing.

 

(ii)           Right to Enter Market.

 

In each co-marketing or

co-promotion country, a Party that [ * ] consisting of [ * ].  Within  thirty (30) days

prior to the submission of the NDA in each country in the Co-Promotion

Territory, the Parties will [ * ]. If both Parties [ * ]

 

(iii)

         Diligence.

 

Each

Party would work diligently to fulfill all responsibilities assigned to it

under the definitive written Agreement(s) in compliance with all applicable

laws in the countries in the Co-Commercialization Territory.  The Parties would, in co-promotion

countries, unless otherwise mutually agreed to, devote [ * ] to the marketing, promotion

and detailing of the Products.

 

34

 

4.     Expense Sharing in Co-promotion Countries

 

(i)            Sales Force Expenses.

 

Each

Party’s sales force would [ * ]. Each Party would [ * ].

 

(ii)           Product Expenses.

 

During

the Term, the Parties would [ * ].  “Product Expenses” means [

* ].

 

(iii)          Other Expenses as Mutually Agreed.

 

The

Parties would [ * ].

 

5.     Adjustments for Detail Deficiency.  In the event that:

 

[ * ].

 

6.               Steering

Marketing Committee. The SMC shall be composed of an equal number of senior

representatives of Tularik and Sankyo. 

A Party may replace its designee to the SMC by written notice to the

other Party. The SMC shall be chaired by [ * ]. The SMC shall oversee and manage the

relationship established by the Co-Commercialization Agreement and the

Marketing Operations Committee (“MOC”). 

The SMC shall resolve problems and settle disagreements that have not

been resolved by the MOC, except as otherwise provided in the

Co-Commercialization Agreement.  If

the SMC can not resolve the issue, [ * ].

 

7.               Marketing

Operations Committee.  The Parties

shall establish an MOC, composed of an equal number of representatives from

Sankyo and Tularik that will oversee and discuss launch, promotional, pricing,

marketing and sales activities for Products in the Co-Commercialization

Territory.  The MOC shall be chaired by [

* ].  Decisions of the MOC shall be made by

consensus, with each Party having one (1) vote.  If the MOC is unable to reach consensus on any issue relating to

the launch, promotional, marketing and sales activities for Products in the

Co-Commercialization Territory that is not addressed in the relevant Business

Plan (for clarity, once each has been agreed by the MOC) or any other

commercial issue (each, a “Business Issue”) the Business Issue shall be

submitted for consideration to the SMC. 

If a Business Issue cannot be resolved by the SMC within a period of

thirty (30) days after it is referred to the SMC, then [ * ]. Anything in this Section 7

to the contrary notwithstanding, the Parties must unanimously agree on the

Business Plan for a Product for a given calendar year in the Co-Commercialization

Territory.

 

8.               General

Responsibilities. The MOC will establish mechanisms for achieving an

effective collaboration between Sankyo and Tularik on marketing programs and

optimization of Product sales opportunities in the Co-Commercialization

Territory, to include professional educational activities, public relations and

communications with government and community support groups.  The MOC shall discuss and adopt annual

business plans, including the marketing budget (“Business Plan”), for each

Product in the Co-Commercialization Territory. 

The content of the Business Plans for each Product shall [

* ].

 

9.               Medical

Inquiries.

 

9.01         Co-Promotion Territory

 

[ * ] will be responsible for all inquiries for

medical information regarding Products. [ * ] will be responsible for processing all serious

adverse events and complaints regarding Products

 

9.02         Co-Marketing Territory

 

[ * ] will finally be responsible for all

inquiries for medical information regarding Products.  Each Party holding market authorization will finally be

responsible for processing all serious adverse events and complaints regarding

Products.

 

35

 

9.03  

Reporting Methodology

 

The Parties will agree

upon more detailed reporting methodology in the Co-Commercialization Agreement.

 

10.         Regulatory.  Sankyo will be responsible for filing, and

shall own, regulatory filings such as the IND or NDA/MAA. Sankyo (or its

Affiliates) will file applications for regulatory approval required before

commercial sale or use of a Product as a drug (“Drug Approval Applications”)

in countries within the Co-Commercialization Territory and attempt to obtain

Regulatory Approvals in each country in the Co-Commercialization Territory in

which Products will be commercialized. Tularik shall have the right to

cross-reference to all such filings made by Sankyo for such Product in any

country.  The Parties will cooperate in

the preparation of all such regulatory filings and in obtaining Regulatory

Approvals under this Section 10, including without limitation providing access

to each other data and information obtained under the Program to the extent

necessary for obtaining Regulatory Approvals of Products.

 

11.         Trade and Sales

Activity. In Co-Promotion Countries, [ * ]. 

In Co-Marketing Countries, [ * ]. 

The MOC shall coordinate and develop procedures for providing

information from [ * ].

 

12.         Termination of

Participation in Co-Commercialization.  Either Party may elect, on a

Product-by-Product basis, to terminate its participation in the

Co-Commercialization of a given Product in the Co-Commercialization Territory

by written notice to the other Party [ * ]. 

In the event Tularik is the Party delivering the notice under this

Section 12, Sankyo will have the right to proceed independently to promote such

Product as a Sankyo Product in the Co-Commercialization Territory as set forth

in Section 4.06 of the Collaboration Agreement to which this Heads of

Co-Commercialization is attached.  In

the event Sankyo is the Party delivering the notice under this Section 12,

Tularik will have the right to proceed independently to promote such Product in

the Co-Commercialization Territory without any obligation to Sankyo whatsoever

other than the payment of royalties at the Development Royalty Rate.  In the event a Party gives notice under this

Section 12, such Party (i) will remain responsible for its share of expenses

for such Product in the Co-Commercialization Territory until [ * ]

from the date the other Party receives such notice, and (ii) will make its

personnel, relevant data and other resources available to the other Party as

necessary to effect an orderly transition of promotional responsibilities, with

the costs of such personnel, relevant data and resources to be [ * ].  In the event of a Party’s termination of

participation in Co-Commercialization of a Product in accordance with this

Section 12, such Party shall [ * ].

 

13.         Pricing.  [ *

]

 

14.         Trademark.  [ *

]  To the extent commercially reasonable and

appropriate, a single trademark shall be used for each Product in all countries

in the Co-Commercialization Territory. 

Each trademark shall be used only in connection with the applicable

Product and shall not be used by either Party on, or in connection with, any

other product.  [ * ]

 

15.         Manufacture. [ * ]

 

16.         Sublicense.  Either Party may sublicense its rights under

the Co-Commercialization Agreement to Third Parties who agree to be bound to

the terms and conditions of the Co-Commercialization Agreement upon receipt of

the written consent of the other Party, such consent not to be unreasonably

withheld.

 

17.         Cross-Border Sales.

The Parties shall, to the extent permitted under law, use reasonable efforts to

deter the re-importation of Products into any country in the Co-Commercialization

Territory by their Affiliates and sublicensees.  Sankyo and Tularik recognize that in certain territories, and in

particular in free trade regions, customers or other third parties may import

Products purchased in one country 

 

36

 

for use in

another.  If such activity materially

distorts the aggregate relative profitability to the Parties of the sale of

Products in one or more countries relative to that intended as provided in the

Co-Commercialization Agreement, Tularik and Sankyo shall agree upon an

equitable mechanism to adjust the compensation of the Parties hereunder to

offset the economic effect of such cross-border transfers, to the extent it is

practical and permitted under law to do so.

 

18.         Infringement. If

either Party believes in good faith that any Patent Rights owned or controlled

by a Party are infringed by a Third Party through Competitive Product

Infringement, the Party first having knowledge of such infringement shall

promptly notify the other Party in writing thereof, which notice shall set

forth the facts of such infringement in reasonable detail.  The Party owning or controlling such Patent

Right shall have the first right, but not the obligation, to bring an action or

proceeding to abate such infringement in the Co-Commercialization

Territory.  If the Party having the

first right hereunder with respect to a Patent Right fails to institute and

prosecute an action or proceeding to abate the infringement within a period of

one hundred twenty (120) days after receiving written notice or otherwise

having knowledge of the infringement as provided above, then the other Party

shall have the right, but not the obligation, to bring and prosecute any such

action if such other Party then has an exclusive or co-exclusive license under

the relevant Patent Right pursuant to Article V.  In such event, the Party which failed to bring such action agrees

to be joined as a party plaintiff and to give the Party bringing such action

reasonable assistance and all authority to control, file and prosecute the suit

as may be necessary; provided, however, that the Party failing

to bring such action shall have the right to participate in such action and to

be represented in any such action by counsel of its choice, at its expense.

Each Party’s costs related to patent enforcement (including internal costs and

expenses specifically attributable to said patent enforcement) with respect to

Competitive Product Infringement of jointly owned Program Patents in the Co-Commercialization

Territory shall be agreed to by the Parties in the Co-Commercialization

Agreement. If a Third Party asserts that a patent or other right owned by it is

infringed by the manufacture, import, use, sale or offer for sale of any

Product, the Party first obtaining knowledge of such a claim shall immediately

provide the other Party with notice of such claim and the related facts in

reasonable detail.  In such event, the

MOC shall determine how best to control the defense of any such claim.  In the event the MOC cannot determine the

proper manner of defending any such claim, such defense shall be controlled by

a Party selected by the MOC if the claim is brought in a country in the

Co-Commercialization Territory; provided, however, that the other Party

shall have the right to participate in such defense and to be represented in

any such action by counsel of its selection at its sole discretion.  The Party selected by the MOC shall control

settlement of any such claim brought in the Co-Commercialization Territory; provided,

however, that no settlement shall be entered into without the

written consent of the other Party, which consent shall not be withheld

unreasonably.

 

If a Third Party asserts

that a patent or other right owned by it is infringed by the development,

manufacture, use, sale, offer for sale or import of any Product, and as a

result of settlement procedures or litigation under this Section 18 a Party is

required to pay the Third Party a royalty or make any payment of any kind for

the right to sell a Product in a particular country, such expense shall be [

* ].

 

The expenses of patent

defense, settlement and judgments incurred pursuant to this Section 18 with

respect to Products in the Co-Commercialization Territory shall be [

* ].

 

19.         Exclusivity.  During the Co-Commercialization

Period, [

* ].

 

[

* ] = CERTAIN CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY

BRACKETS, HAS BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND

EXCHANGE COMMISSION PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF

1934, AS AMENDED.  

 

37

 

INITIAL RESEARCH PLAN

(TO BE APPROVED IN A SIDE LETTER)

 

[ * ] = CERTAIN

CONFIDENTIAL INFORMATION CONTAINED IN THIS DOCUMENT, MARKED BY BRACKETS, HAS

BEEN OMITTED AND FILED SEPARATELY WITH THE SECURITIES AND EXCHANGE COMMISSION

PURSUANT TO RULE 24b-2 OF THE SECURITIES EXCHANGE ACT OF 1934, AS

AMENDED.

 

38Exhibit 10.19

 

CREDIT

AGREEMENT

 

             THIS AGREEMENT is entered into as of June 30, 2002, by

and between DATALINK CORPORATION, a Minnesota corporation (“Borrower”), and

WELLS FARGO BANK, NATIONAL ASSOCIATION (“Bank”).

 

 

RECITALS

 

             Borrower has requested that Bank extend or continue

credit to Borrower as described below, and Bank has agreed to provide such

credit to Borrower on the terms and conditions contained herein.

 

             NOW, THEREFORE, for valuable consideration, the receipt

and sufficiency of which are hereby acknowledged, Bank and Borrower hereby

agree as follows:

 

 

ARTICLE I

CREDIT TERMS

 

             SECTION 1.1.           LINE

OF CREDIT.

 

             (a)               Line

of Credit.  Subject to the terms and

conditions of this Agreement, Bank hereby agrees to make advances to Borrower

from time to time up to and including June 30, 2003, not to exceed at any time

the aggregate principal amount of Eight Million Dollars ($8,000,000.00) (“Line

of Credit”), the proceeds of which shall be used to finance Borrower’s working

capital requirements.  Borrower’s obligation

to repay advances under the Line of Credit shall be evidenced by a promissory

note substantially in the form of Exhibit ”A” attached hereto (“Line of

Credit Note”), all terms of which are incorporated herein by this reference.

 

             (b)              Letter

of Credit Subfeature.  As a

subfeature under the Line of Credit, Bank agrees from time to time during the

term thereof to issue or cause an affiliate to issue standby letters of credit

for the account of Borrower (each, a “Letter of Credit” and collectively, “Letters

of Credit”); provided however, that the aggregate undrawn amount of all

outstanding Letters of Credit shall not at any time exceed Eight Million

Dollars ($8,000,000.00).  The form and

substance of each Letter of Credit shall be subject to approval by Bank, in its

sole discretion. No Letter of Credit shall have an expiration date subsequent

to the maturity date of the Line of Credit. 

The undrawn amount of all Letters of Credit shall be reserved under the

Line of Credit and shall not be available for borrowings thereunder.  Each Letter of Credit shall be subject to

the additional terms and conditions of the Letter of Credit agreements,

applications and any related documents required by Bank in connection with the

issuance thereof.  Each draft paid under

a Letter of Credit shall be deemed an advance under the Line of Credit and

shall be repaid by Borrower in accordance with the terms and conditions of this

Agreement applicable to such advances; provided however, that if advances under

the Line of Credit are not available, for any reason, at the time any draft is

paid, then Borrower shall immediately pay to Bank the full amount of such

draft, together with interest thereon from the date such draft is paid to the

date such draft is fully repaid by Borrower, at the rate of interest applicable

to advances under the Line of Credit. 

In such event Borrower agrees that Bank, in its sole discretion, may

debit any account maintained by Borrower with Bank for the amount of any such

draft.

 

             (c)               Borrowing

and Repayment.  Borrower may from

time to time during the term of the Line of Credit borrow, partially or wholly

repay its outstanding borrowings, and reborrow, subject to all of the

limitations, terms and conditions contained herein or in the Line of Credit

Note; provided however, that the total outstanding borrowings under the Line of

Credit shall not at any time exceed the maximum principal amount available

thereunder, as set forth above. 

Notwithstanding the foregoing, Borrower shall maintain a 

 

 

zero balance on advances under the Line of

Credit for a period of at least thirty (30) consecutive days during each fiscal

year.

 

             SECTION 1.2.           INTEREST/FEES.

 

             (a)               Interest. The outstanding principal balance of each

credit subject hereto shall bear interest, and the amount of each draft paid

under the Standby Letter of Credit shall bear interest from the date such draft

is paid to the date such amount is fully repaid by Borrower, at the rate of

interest set forth in each promissory note or other instrument executed in

connection therewith.

 

             (b)              Computation

and Payment.  Interest shall be

computed on the basis of a 360-day year, actual days elapsed.  Interest shall be payable at the times and

place set forth in each promissory note or other instrument required hereby.

 

             (c)               Unused

Commitment Fee.  Borrower shall pay

to Bank a fee equal to one quarter percent (.25%) per annum (computed on the

basis of a 360-day year, actual days elapsed) on the average daily unused

amount of the commitment balance, which fee shall be calculated on a quarterly

basis by Bank and shall be due and payable by Borrower in arrears within ten

(10) days after each billing is sent by Bank.

 

             (d)              Letter

of Credit Fees.  Borrower shall pay

to Bank (i) fees upon the issuance of each Letter of Credit equal to one

and one half percent (1.50%) per annum (computed on the basis of a 360-day

year, actual days elapsed) of the face amount thereof, and (ii) fees upon

the payment or negotiation of each draft under any Letter of Credit and fees

upon the occurrence of any other activity with respect to any Letter of Credit

(including without limitation, the transfer, amendment or cancellation of any

Letter of Credit) determined in accordance with Bank’s standard fees and

charges then in effect for such activity.

 

             SECTION 1.3.           COLLATERAL.

 

             As security for all indebtedness of Borrower to Bank

subject hereto, Borrower hereby grants to Bank security interests of first

priority in all Borrower’s Account Receivables and Inventory.

 

All of the foregoing shall

be evidenced by and subject to the terms of such security agreements, financing

statements, deeds of trust and other documents as Bank shall reasonably

require, all in form and substance satisfactory to Bank.  Borrower shall reimburse Bank immediately

upon demand for all costs and expenses incurred by Bank in connection with any

of the foregoing security, including without limitation, filing and recording

fees and costs of appraisals, audits and title insurance.

 

 

ARTICLE II

REPRESENTATIONS AND

WARRANTIES

 

             Borrower makes the following representations and

warranties to Bank, which representations and warranties shall survive the

execution of this Agreement and shall continue in full force and effect until

the full and final payment, and satisfaction and discharge, of all obligations

of Borrower to Bank subject to this Agreement.

 

             SECTION 2.1.           LEGAL

STATUS.  Borrower is a corporation, duly

organized and existing and in good standing under the laws of the State of

Minnesota, and is qualified or licensed to do business (and is in good standing

as a foreign corporation, if applicable) in all jurisdictions in which such

qualification or licensing is required or in which the failure to so qualify or

to be so licensed could have a material adverse effect on Borrower.

 

             SECTION 2.2.           AUTHORIZATION

AND VALIDITY.  This Agreement and each

promissory note, contract, instrument and other document required hereby or at

any time hereafter delivered to Bank in connection herewith (collectively, the

“Loan Documents”) have been duly authorized, and upon their execution and

delivery in accordance with the provisions hereof will constitute legal, valid

and binding 

2

agreements and obligations of Borrower or the

party which executes the same, enforceable in accordance with their respective

terms.

 

             SECTION 2.3.           NO

VIOLATION.  The execution, delivery and

performance by Borrower of each of the Loan Documents do not violate any

provision of any law or regulation, or contravene any provision of the Articles

of Incorporation or By-Laws of Borrower, or result in any breach of or default

under any contract, obligation, indenture or other instrument to which Borrower

is a party or by which Borrower may be bound.

 

             SECTION 2.4.           LITIGATION.  There are no pending, or to the best of

Borrower’s knowledge threatened, actions, claims, investigations, suits or

proceedings by or before any governmental authority, arbitrator, court or

administrative agency which could have a material adverse effect on the financial

condition or operation of Borrower other than those disclosed by Borrower to

Bank in writing prior to the date hereof.

 

             SECTION 2.5.           CORRECTNESS

OF FINANCIAL STATEMENT.  The financial

statement of Borrower dated March 31, 2002, a true copy of which has been

delivered by Borrower to Bank prior to the date hereof, (a) is complete

and correct and presents fairly the financial condition of Borrower,

(b) discloses all liabilities of Borrower that are required to be

reflected or reserved against under generally accepted accounting principles,

whether liquidated or unliquidated, fixed or contingent, and (c) has been

prepared in accordance with generally accepted accounting principles

consistently applied.  Since the date of

such financial statement there has been no material adverse change in the

financial condition of Borrower, nor has Borrower mortgaged, pledged, granted a

security interest in or otherwise encumbered any of its assets or properties

except in favor of Bank or as otherwise permitted by Bank in writing.

 

             SECTION 2.6.           INCOME

TAX RETURNS.  Borrower has no knowledge

of any pending assessments or adjustments of its income tax payable with

respect to any year.

 

             SECTION 2.7.           NO

SUBORDINATION.  There is no agreement,

indenture, contract or instrument to which Borrower is a party or by which

Borrower may be bound that requires the subordination in right of payment of

any of Borrower’s obligations subject to this Agreement to any other obligation

of Borrower.

 

             SECTION 2.8.           PERMITS,

FRANCHISES.  Borrower possesses, and

will hereafter possess, all permits, consents, approvals, franchises and

licenses required and rights to all trademarks, trade names, patents, and

fictitious names, if any, necessary to enable it to conduct the business in

which it is now engaged in compliance with applicable law.

 

             SECTION 2.9.           ERISA.  Borrower is in compliance in all material

respects with all applicable provisions of the Employee Retirement Income

Security Act of 1974, as amended or recodified from time to time (“ERISA”);

Borrower has not violated any provision of any defined employee pension benefit

plan (as defined in ERISA) maintained or contributed to by Borrower (each, a

“Plan”); no Reportable Event as defined in ERISA has occurred and is continuing

with respect to any Plan initiated by Borrower; Borrower has met its minimum

funding requirements under ERISA with respect to each Plan; and each Plan will

be able to fulfill its benefit obligations as they come due in accordance with

the Plan documents and under generally accepted accounting principles.

 

             SECTION 2.10.         OTHER

OBLIGATIONS.  Borrower is not in default

on any obligation for borrowed money, any purchase money obligation or any

other material lease, commitment, contract, instrument or obligation.

 

             SECTION 2.11.         ENVIRONMENTAL

MATTERS.  Except as disclosed by

Borrower to Bank in writing prior to the date hereof, Borrower is in compliance

in all material respects with all applicable federal or state environmental,

hazardous waste, health and safety statutes, and any rules or regulations

adopted pursuant thereto, which govern or affect any of Borrower’s operations

and/or properties, including without limitation, the Comprehensive

Environmental Response, Compensation and Liability Act of 1980, 

 

3

the Superfund Amendments and Reauthorization

Act of 1986, the Federal Resource Conservation and Recovery Act of 1976, and

the Federal Toxic Substances Control Act, as any of the same may be amended,

modified or supplemented from time to time. 

None of the operations of Borrower is the subject of any federal or

state investigation evaluating whether any remedial action involving a material

expenditure is needed to respond to a release of any toxic or hazardous waste

or substance into the environment. 

Borrower has no material contingent liability in connection with any

release of any toxic or hazardous waste or substance into the environment.

 

 

ARTICLE III

CONDITIONS

 

             SECTION 3.1.           CONDITIONS

OF INITIAL EXTENSION OF CREDIT.  The obligation

of Bank to extend any credit contemplated by this Agreement is subject to the

fulfillment to Bank’s satisfaction of all of the following conditions:

 

             (a)               Approval

of Bank Counsel.  All legal matters

incidental to the extension of credit by Bank shall be satisfactory to Bank’s

counsel.

 

             (b)              Documentation.  Bank shall have received, in form and

substance satisfactory to Bank, each of the following, duly executed:

 

                                                       (i)          This Agreement and each promissory

note or other instrument required hereby.

                                                    (ii)          Corporate Resolution: Borrowing.

                                                 (iii)          Certificate of Incumbency.

                                                (iv)          Continuing Security Agreement: Rights

to Payment and Inventory.

                                                   (v)          Such other documents as Bank may

require under any other Section of this Agreement.

 

             (c)               Financial

Condition.  There shall have been no

material adverse change, as determined by Bank, in the financial condition or

business of Borrower, nor any material decline, as determined by Bank, in the

market value of any collateral required hereunder or a substantial or material

portion of the assets of Borrower.

 

             (d)              Collateral

Audit.   Bank will have scheduled an audit of Borrower’s account receivable and

inventory, and all books and records relating thereto, to be completed prior to

September 30, 2002.  The results of such

audit shall be satisfactory to Bank in its discretion, with all costs thereof

paid by Bank.

 

             SECTION 3.2.           CONDITIONS

OF EACH EXTENSION OF CREDIT.  The

obligation of Bank to make each extension of credit requested by Borrower

hereunder shall be subject to the fulfillment to Bank’s satisfaction of each of

the following conditions:

 

             (a)               Compliance.  The representations and warranties contained

herein and in each of the other Loan Documents shall be true on and as of the

date of the signing of this Agreement and on the date of each extension of

credit by Bank pursuant hereto, with the same effect as though such

representations and warranties had been made on and as of each such date, and

on each such date, no Event of Default as defined herein, and no condition,

event or act which with the giving of notice or the passage of time or both

would constitute such an Event of Default, shall have occurred and be

continuing or shall exist.

 

             (b)              Documentation.  Bank shall have received all additional

documents which may be required in connection with such extension of credit.

 

4

ARTICLE

IV

AFFIRMATIVE COVENANTS

 

             Borrower covenants that so long as Bank remains

committed to extend credit to Borrower pursuant hereto, or any liabilities

(whether direct or contingent, liquidated or unliquidated) of Borrower to Bank

under any of the Loan Documents remain outstanding, and until payment in full

of all obligations of Borrower subject hereto, Borrower shall, unless Bank

otherwise consents in writing:

 

             SECTION 4.1.           PUNCTUAL

PAYMENTS.  Punctually pay all principal,

interest, fees or other liabilities due under any of the Loan Documents at the

times and place and in the manner specified therein.

 

             SECTION 4.2.           ACCOUNTING

RECORDS.  Maintain adequate books and

records in accordance with generally accepted accounting principles

consistently applied, and permit any representative of Bank, at any reasonable

time, to inspect, audit and examine such books and records, to make copies of

the same, and to inspect the properties of Borrower.

 

             SECTION 4.3.           FINANCIAL

STATEMENTS.  Provide to Bank all of the

following, in form and detail satisfactory to Bank:

 

             (a)               not

later than 120 days after and as of the end of each fiscal year, an audited

financial statement of Borrower prepared by a Certified Public Accountant, to

include all supporting schedules;

 

             (b)              not

later than 45 days after and as of the end of each quarter, a financial

statement of Borrower, prepared by Borrower, to include all supporting

schedules;

 

             (c)               contemporaneously

with each annual and quarterly financial statement of Borrower required hereby,

a certificate of the president or chief financial officer of Borrower that said

financial statements are accurate and that there exists no Event of Default nor

any condition, act or event which with the giving of notice or the passage of

time or both would constitute an Event of Default;

 

             (d)              not later than 30 days after the end of each

fiscal year, an annual projection of Budget of Borrower, to include an income

statement, balance sheet, and statement of cashflows for said period;

 

             (e)               from

time to time such other information as Bank may reasonably request.

 

             SECTION 4.4.           COMPLIANCE.  Preserve and maintain all licenses, permits,

governmental approvals, rights, privileges and franchises necessary for the

conduct of its business; and comply with the provisions of all documents

pursuant to which Borrower is organized and/or which govern Borrower’s

continued existence and with the requirements of all laws, rules, regulations

and orders of any governmental authority applicable to Borrower and/or its

business.

 

             SECTION 4.5.           INSURANCE.  Maintain and keep in force insurance of the

types and in amounts customarily carried in lines of business similar to that

of Borrower, including but not limited to fire, extended coverage, public

liability, flood, property damage and workers’ compensation, with all such

insurance carried with companies and in amounts satisfactory to Bank, and

deliver to Bank from time to time at Bank’s request schedules setting forth all

insurance then in effect.

 

             SECTION 4.6.           FACILITIES.  Keep all properties useful or necessary to

Borrower’s business in good repair and condition, and from time to time make

necessary repairs, renewals and replacements thereto so that such properties

shall be fully and efficiently preserved and maintained.

 

             SECTION 4.7.           TAXES

AND OTHER LIABILITIES.  Pay and

discharge when due any and all indebtedness, obligations, assessments and

taxes, both real or personal, including without limitation federal and state

income taxes and state and local property taxes and assessments, except such

(a) as Borrower may in good faith contest or as to which a bona fide dispute

may arise, and (b) for which Borrower has made 

 

5

provision, to Bank’s satisfaction, for

eventual payment thereof in the event Borrower is obligated to make such

payment.

 

             SECTION 4.8.           LITIGATION.  Promptly give notice in writing to Bank of

any litigation pending or threatened against Borrower.

 

             SECTION 4.9.           FINANCIAL

CONDITION.  Maintain Borrower’s

financial condition as follows using generally accepted accounting principles

consistently applied and used consistently with prior practices (except to the

extent modified by the definitions herein), with compliance determined

commencing with Borrower’s financial statements for the period ending March 31,

2002:

 

             (a)               Working

Capital as of the end of each fiscal quarter not less than $10,000,000.00, with

“Working Capital” defined as total current assets minus total current

liabilities.

 

             (b)              Tangible

Net Worth as of the end of each fiscal quarter, not less than $17,500,000.00,

with “Tangible Net Worth” defined as the aggregate of total stockholders’

equity plus subordinated debt less any intangible assets.

 

             (c)               Total

Liabilities divided by Tangible Net Worth as of the end of each fiscal quarter,

not greater than 2.25 to 1.0, with “Total Liabilities” defined as the aggregate

of current liabilities and non-current liabilities less subordinated debt, and

with “Tangible Net Worth” as defined above.

 

             (d)              Maximum level of Funded Debt to EBITDA of 1.65

measured quarterly.  Funded Debt shall

meaning all interest-bearing liabilities, and EBITDA meaning net income plus

interest expense, tax expense, depreciation expense, and amortization expense,

calculated on a three-quarter annualized basis.  Calculation of EBITDA on a three-quarter annualized basis is as

follows:  (Current quarterly EBITDA plus

previous two quarters of EBITDA, the sum of which is to be multiplied by one

and one-third, and the result rounded to the nearest hundredth).

 

             SECTION 4.10.         NOTICE

TO BANK.  Promptly (but in no event more

than five (5) days after the occurrence of each such event or matter) give

written notice to Bank in reasonable detail of:  (a) the occurrence of any Event of Default, or any

condition, event or act which with the giving of notice or the passage of time

or both would constitute an Event of Default; (b) any change in the name

or the organizational structure of Borrower; (c) the occurrence and nature

of any Reportable Event or Prohibited Transaction, each as defined in ERISA, or

any funding deficiency with respect to any Plan; or (d) any termination or

cancellation of any insurance policy which Borrower is required to maintain, or

any uninsured or partially uninsured loss through liability or property damage,

or through fire, theft or any other cause affecting Borrower’s property.

 

 

ARTICLE V

NEGATIVE COVENANTS

 

             Borrower further covenants that so long as Bank remains

committed to extend credit to Borrower pursuant hereto, or any liabilities

(whether direct or contingent, liquidated or unliquidated) of Borrower to Bank

under any of the Loan Documents remain outstanding, and until payment in full

of all obligations of Borrower subject hereto, Borrower will not without Bank’s

prior written consent:

 

             SECTION 5.1.           USE

OF FUNDS.  Use any of the proceeds of

any credit extended hereunder except for the purposes stated in Article I hereof.

 

             SECTION 5.2.           CAPITAL

EXPENDITURES.  Make any additional

investment in fixed assets in any fiscal year in excess of an aggregate of

$5,000,000.00.

 

             SECTION 5.3.           OTHER

INDEBTEDNESS.  Create, incur, assume or

permit to exist any indebtedness or liabilities resulting from borrowings,

loans or advances, whether secured or unsecured, 

 

6

matured or unmatured, liquidated or

unliquidated, joint or several, except (a) the liabilities of Borrower to Bank,

and (b) any other liabilities of Borrower existing as of, and disclosed to

Bank prior to, the date hereof, and (c) purchase money indebtedness.

 

             SECTION 5.4.           MERGER,

CONSOLIDATION, TRANSFER OF ASSETS. 

Merge into or consolidate with any other entity; make any substantial

change in the nature of Borrower’s business as conducted as of the date hereof;

acquire all or substantially all of the assets of any other entity; nor sell,

lease, transfer or otherwise dispose of all or a substantial or material

portion of Borrower’s assets except in the ordinary course of its business.

 

             SECTION

5.5.           GUARANTIES.  Guarantee or become liable in any way as

surety, endorser (other than as endorser of negotiable instruments for deposit

or collection in the ordinary course of business), accommodation endorser or

otherwise for, nor pledge or hypothecate any assets of Borrower as security

for, any liabilities or obligations of any other person or entity, except any

of the foregoing in favor of Bank.

 

             SECTION 5.6.           LOANS,

ADVANCES, INVESTMENTS.  Make any loans

or advances to or investments in any person or entity, except any of the

foregoing existing as of, and disclosed to Bank prior to, the date hereof.

 

             SECTION 5.7.           DIVIDENDS,

DISTRIBUTIONS.  Declare or pay any

dividend or distribution either in cash, stock or any other property on

Borrower’s stock now or hereafter outstanding, nor redeem, retire, repurchase

or otherwise acquire any shares of any class of Borrower’s stock now or

hereafter outstanding.

 

             SECTION 5.8.           PLEDGE

OF ASSETS.  Mortgage, pledge, grant or

permit to exist a security interest in, or lien upon, all or any portion of

Borrower’s assets now owned or hereafter acquired, except any of the foregoing

in favor of Bank or which is existing as of, and disclosed to Bank in writing

prior to, the date hereof.

 

 

ARTICLE VI

EVENTS OF DEFAULT

 

             SECTION 6.1.           The

occurrence of any of the following shall constitute an “Event of Default” under

this Agreement:

 

             (a)               Borrower

shall fail to pay when due any principal, interest, fees or other amounts

payable under any of the Loan Documents.

 

             (b)              Any

financial statement or certificate furnished to Bank in connection with, or any

representation or warranty made by Borrower or any other party under this

Agreement or any other Loan Document shall prove to be incorrect, false or

misleading in any material respect when furnished or made.

 

             (c)               Any

default in the performance of or compliance with any obligation, agreement or

other provision contained herein or in any other Loan Document (other than those

referred to in subsections (a) and (b) above), and with respect to any such

default which by its nature can be cured, such default shall continue for a

period of twenty (20) days from its occurrence.

 

             (d)              Any

default in the payment or performance of any obligation, or any defined event

of default, under the terms of any contract or instrument (other than any of

the Loan Documents) pursuant to which Borrower has incurred any debt or other

liability to any person or entity, including Bank.

 

             (e)               The

filing of a notice of judgment lien against Borrower; or the recording of any

abstract of judgment against Borrower in any county in which Borrower has an

interest in real property; or the 

 

7

service of a notice of levy and/or of a writ

of attachment or execution, or other like process, against the assets of

Borrower; or the entry of a judgment against Borrower.

 

             (f)               Borrower

shall become insolvent, or shall suffer or consent to or apply for the

appointment of a receiver, trustee, custodian or liquidator of itself or any of

its property, or shall generally fail to pay its debts as they become due, or

shall make a general assignment for the benefit of creditors; Borrower shall

file a voluntary petition in bankruptcy, or seeking reorganization, in order to

effect a plan or other arrangement with creditors or any other relief under the

Bankruptcy Reform Act, Title 11 of the United States Code, as amended or

recodified from time to time (“Bankruptcy Code”), or under any state or federal

law granting relief to debtors, whether now or hereafter in effect; or any

involuntary petition or proceeding pursuant to the Bankruptcy Code or any other

applicable state or federal law relating to bankruptcy, reorganization or other

relief for debtors is filed or commenced against Borrower, or Borrower  shall file an answer admitting the

jurisdiction of the court and the material allegations of any involuntary

petition; or Borrower shall be adjudicated a bankrupt, or an order for relief

shall be entered against Borrower by any court of competent jurisdiction under

the Bankruptcy Code or any other applicable state or federal law relating to

bankruptcy, reorganization or other relief for debtors.

 

             (g)              There

shall exist or occur any event or condition which Bank in good faith believes

impairs, or is substantially likely to impair, the prospect of payment or

performance by Borrower of its obligations under any of the Loan Documents.

 

             (h)              The

dissolution or liquidation of Borrower; or Borrower, or any of its directors,

stockholders or members, shall take action seeking to effect the dissolution or

liquidation of Borrower.

 

             (i)                Any

change in ownership during the term of this Agreement of an aggregate of

twenty-five percent (25%) or more of the common stock of Borrower.

 

             SECTION 6.2.           REMEDIES.  Upon the occurrence of any Event of

Default:  (a) all indebtedness of

Borrower under each of the Loan Documents, any term thereof to the contrary

notwithstanding, shall at Bank’s option and without notice become immediately

due and payable without presentment, demand, protest or notice of dishonor, all

of which are hereby expressly waived by each Borrower; (b) the obligation,

if any, of Bank to extend any further credit under any of the Loan Documents

shall immediately cease and terminate; and (c) Bank shall have all rights,

powers and remedies available under each of the Loan Documents, or accorded by

law, including without limitation the right to resort to any or all security

for any credit subject hereto and to exercise any or all of the rights of a

beneficiary or secured party pursuant to applicable law.  All rights, powers and remedies of Bank may

be exercised at any time by Bank and from time to time after the occurrence of

an Event of Default, are cumulative and not exclusive, and shall be in addition

to any other rights, powers or remedies provided by law or equity.

 

 

ARTICLE VII

MISCELLANEOUS

 

             SECTION 7.1.           NO

WAIVER.  No delay, failure or

discontinuance of Bank in exercising any right, power or remedy under any of

the Loan Documents shall affect or operate as a waiver of such right, power or

remedy; nor shall any single or partial exercise of any such right, power or

remedy preclude, waive or otherwise affect any other or further exercise thereof

or the exercise of any other right, power or remedy.  Any waiver, permit, consent or approval of any kind by Bank of

any breach of or default under any of the Loan Documents must be in writing and

shall be effective only to the extent set forth in such writing.

 

8

             SECTION 7.2.           NOTICES.  All notices, requests and demands which any

party is required or may desire to give to any other party under any provision

of this Agreement must be in writing delivered to each party at the following

address:

 

	

  BORROWER:

  	

   

  	

  DATALINK CORPORATION

  
	

   

  	

   

  	

  8170

  Upland Circle

  
	

   

  	

   

  	

  Chanhassen, MN 55317

  
	

   

  	

   

  	

   

  
	

  BANK:

  	

   

  	

  WELLS

  FARGO BANK, NATIONAL ASSOCIATION

  
	

   

  	

   

  	

  MAC #

  N9305-114

  
	

   

  	

   

  	

  Sixth and Marquette

  
	

   

  	

   

  	

  Minneapolis, MN 55479

  

 

 

or to such other address as

any party may designate by written notice to all other parties.  Each such notice, request and demand shall

be deemed given or made as follows: 

(a) if sent by hand delivery, upon delivery; (b) if sent by

mail, upon the earlier of the date of receipt or three (3) days after deposit

in the U.S. mail, first class and postage prepaid; and (c) if sent by

telecopy, upon receipt.

 

             SECTION 7.3.           COSTS,

EXPENSES AND ATTORNEYS’ FEES.  Borrower

shall pay to Bank immediately upon demand the full amount of all payments,

advances, charges, costs and expenses, including reasonable attorneys’ fees (to

include outside counsel fees and all allocated costs of Bank’s in-house

counsel), expended or incurred by Bank in connection with (a) the

negotiation and preparation of this Agreement and the other Loan Documents,

Bank’s continued administration hereof and thereof, and the preparation of any

amendments and waivers hereto and thereto, (b) the enforcement of Bank’s

rights and/or the collection of any amounts which become due to Bank under any

of the Loan Documents, and (c) the prosecution or defense of any action in

any way related to any of the Loan Documents, including without limitation, any

action for declaratory relief, whether incurred at the trial or appellate level,

in an arbitration proceeding or otherwise, and including any of the foregoing

incurred in connection with any bankruptcy proceeding (including without

limitation, any adversary proceeding, contested matter or motion brought by

Bank or any other person) relating to any Borrower or any other person or

entity.

 

             SECTION 7.4.           SUCCESSORS,

ASSIGNMENT.  This Agreement shall be

binding upon and inure to the benefit of the heirs, executors, administrators,

legal representatives, successors and assigns of the parties; provided however,

that Borrower may not assign or transfer its interest hereunder without Bank’s

prior written consent.  Bank reserves

the right to sell, assign, transfer, negotiate or grant participations in all

or any part of, or any interest in, Bank’s rights and benefits under each of

the Loan Documents.  In connection

therewith, Bank may disclose all documents and information which Bank now has

or may hereafter acquire relating to any credit subject hereto, Borrower or its

business, or any collateral required hereunder.

 

             SECTION 7.5.           ENTIRE

AGREEMENT; AMENDMENT.  This Agreement

and the other Loan Documents constitute the entire agreement between Borrower

and Bank with respect to each credit subject hereto and supersede all prior

negotiations, communications, discussions and correspondence concerning the

subject matter hereof.  This Agreement

may be amended or modified only in writing signed by each party hereto.

 

             SECTION 7.6.           NO

THIRD PARTY BENEFICIARIES.  This

Agreement is made and entered into for the sole protection and benefit of the

parties hereto and their respective permitted successors and assigns, and no

other person or entity shall be a third party beneficiary of, or have any

direct or indirect cause of action­ or claim in connection with, this Agreement

or any other of the Loan Documents to which it is not a party.

 

             SECTION 7.7.           TIME.  Time is of the essence of each and every

provision of this Agreement and each other of the Loan Documents.

 

             SECTION 7.8.           SEVERABILITY

OF PROVISIONS.  If any provision of this

Agreement shall be prohibited by or invalid under applicable law, such

provision shall be ineffective only to the extent of such prohibition or

invalidity without invalidating the remainder of such provision or any

remaining provisions of this Agreement.

 

9

                SECTION 7.9.        COUNTERPARTS.  This Agreement may be executed in any number

of counterparts, each of which when executed and delivered shall be deemed to

be an original, and all of which when taken together shall constitute one and

the same Agreement.

 

             SECTION 7.10.         GOVERNING

LAW.  This Agreement shall be governed

by and construed in accordance with the laws of the State of Minnesota.

 

             SECTION 7.11.         ARBITRATION.

 

                (a)           Arbitration.  The parties hereto agree, upon demand by any

party, to submit to binding arbitration all claims, disputes and controversies

between or among them (and their respective employees, officers, directors,

attorneys, and other agents), whether in tort, contract or otherwise arising

out of or relating to in any way (i) the loan and related Loan Documents which

are the subject of this Agreement and its negotiation, execution,

collateralization, administration, repayment, modification, extension,

substitution, formation, inducement, enforcement, default or termination; or

(ii) requests for additional credit.

 

                (b)           Governing Rules.  Any arbitration proceeding will (i) proceed

in a location in Minnesota selected by the American Arbitration Association

(“AAA”); (ii) be governed by the Federal Arbitration Act (Title 9 of the United

States Code), notwithstanding any conflicting choice of law provision in any of

the documents between the parties; and (iii) be conducted by the AAA, or such

other administrator as the parties shall mutually agree upon, in accordance

with the AAA’s commercial dispute resolution procedures, unless the claim or

counterclaim is at least $1,000,000.00 exclusive of claimed interest,

arbitration fees and costs in which case the arbitration shall be conducted in

accordance with the AAA’s optional procedures for large, complex commercial

disputes (the commercial dispute resolution procedures or the optional

procedures for large, complex commercial disputes to be referred to, as

applicable, as the “Rules”).  If there

is any inconsistency between the terms hereof and the Rules, the terms and

procedures set forth herein shall control. 

Any party who fails or refuses to submit to arbitration following a

demand by any other party shall bear all costs and expenses incurred by such

other party in compelling arbitration of any dispute.  Nothing contained herein shall be deemed to be a waiver by any

party that is a bank of the protections afforded to it under 12 U.S.C. §91 or

any similar applicable state law.

 

                (c)           No Waiver of Provisional Remedies,

Self-Help and Foreclosure.  The

arbitration requirement does not limit the right of any party to (i) foreclose

against real or personal property collateral; (ii) exercise self-help remedies

relating to collateral or proceeds of collateral such as setoff or

repossession; or (iii) obtain provisional or ancillary remedies such as

replevin, injunctive relief, attachment or the appointment of a receiver,

before during or after the pendency of any arbitration proceeding.  This exclusion does not constitute a waiver

of the right or obligation of any party to submit any dispute to arbitration or

reference hereunder, including those arising from the exercise of the actions

detailed in sections (i), (ii) and (iii) of this paragraph.

 

                (d)           Arbitrator Qualifications and

Powers.  Any arbitration proceeding

in which the amount in controversy is $5,000,000.00 or less will be decided by

a single arbitrator selected according to the Rules, and who shall not render

an award of greater than $5,000,000.00. 

Any dispute in which the amount in controversy exceeds $5,000,000.00

shall be decided by majority vote of a panel of three arbitrators; provided

however, that all three arbitrators must actively participate in all hearings

and deliberations.  The arbitrator will

be a neutral attorney licensed in the State of Minnesota or a neutral retired

judge of the state or federal judiciary of Minnesota, in either case with a

minimum of ten years experience in the substantive law applicable to the subject

matter of the dispute to be arbitrated. 

The arbitrator will determine whether or not an issue is arbitratable

and will give effect to the statutes of limitation in determining any claim.  In any arbitration proceeding the arbitrator

will decide (by documents only or with a hearing at the arbitrator’s

discretion) any pre-hearing motions which are similar to motions to dismiss for

failure to state a claim or motions for summary adjudication.  The arbitrator shall resolve all disputes in

accordance with the substantive law of Minnesota and may grant any remedy or

relief that a court of such state could order or grant within the scope hereof

and such ancillary relief as is necessary to make effective any award.  The arbitrator shall also have the power to

award recovery of all costs and fees, to impose sanctions and to take 

 

10

such other action as the arbitrator deems

necessary to the same extent a judge could pursuant to the Federal Rules of

Civil Procedure, the Minnesota Rules of Civil Procedure or other applicable

law.  Judgment upon the award rendered

by the arbitrator may be entered in any court having jurisdiction.  The institution and maintenance of an action

for judicial relief or pursuit of a provisional or ancillary remedy shall not

constitute a waiver of the right of any party, including the plaintiff, to

submit the controversy or claim to arbitration if any other party contests such

action for judicial relief.

 

                (e)           Discovery.  In any arbitration proceeding discovery will

be permitted in accordance with the Rules. 

All discovery shall be expressly limited to matters directly relevant to

the dispute being arbitrated and must be completed no later than 20 days before

the hearing date and within 180 days of the filing of the dispute with the

AAA.  Any requests for an extension of

the discovery periods, or any discovery disputes, will be subject to final

determination by the arbitrator upon a showing that the request for discovery

is essential for the party’s presentation and that no alternative means for

obtaining information is available.

 

                (f)            Class Proceedings and

Consolidations.  The resolution of

any dispute arising pursuant to the terms of this Agreement shall be determined

by a separate arbitration proceeding and such dispute shall not be consolidated

with other disputes or included in any class proceeding.

 

                (g)           Payment Of Arbitration Costs And

Fees.  The arbitrator shall award

all costs and expenses of the arbitration proceeding.

 

                (h)           Miscellaneous.  To the maximum extent practicable, the AAA,

the arbitrators and the parties shall take all action required to conclude any

arbitration proceeding within 180 days of the filing of the dispute with the

AAA.  No arbitrator or other party to an

arbitration proceeding may disclose the existence, content or results thereof,

except for disclosures of information by a party required in the ordinary

course of its business or by applicable law or regulation.  If more than one agreement for arbitration

by or between the parties potentially applies to a dispute, the arbitration

provision most directly related to the Loan Documents or the subject matter of

the dispute shall control.  This

arbitration provision shall survive termination, amendment or expiration of any

of the Loan Documents or any relationship between the parties.

 

             IN WITNESS WHEREOF, the parties hereto have caused this

Agreement to be executed as of the day and year first written above.

 

	

   

  	

   

  	

  WELLS

  FARGO BANK,

  
	

  DATALINK

  CORPORATION

  	

   

  	

    NATIONAL

  ASSOCIATION

  
	 
	 
	 

	

  By:  /s/

  Daniel J. Kinsella

  	

   

  	

  By:  /s/

  Richard J. Hancock

  
	

  Daniel J. Kinsella, Chief

  Financial Officer

  	

   

  	

  Richard J. Hancock, Vice

  President

  

 

 

11

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